PC Connection Inc. sees ‘economic headwinds,’ announces cost-cutting effort

Connection’s corporate headquarters in Merrimack, NH.

PC Connection Inc., faced with income and earnings drops and “continued economic headwinds,” has launched an initiative to cut costs by as much as $10 million starting this month, company officials said in an earnings call at the end of trading on Thursday.

The officials did not disclose what would be cut or if any layoffs would be involved.

But the Merrimack-based information technology company, now known as Connection, has hired “world-class leaders in sales, technical sales and service” to “help customers continue to shift their priorities towards hybrid data center, cybersecurity and cloud transformation,” said CEO Tim McGrath, in the company’s Thursday earnings call.

It also is returning money to shareholders via dividends and a stock buyback program, as the company tries to put an optimistic spin on a sour earnings report.

Connection — among New Hampshire’s largest employers, with a staff of over 2,500 in 2022, according to NH Business Review’s Book of Lists — ended a great year with somewhat disappointing sales numbers. They were up 8 percent for the year, to $3.1 billion, but were down 8.5 percent, to $732.5 million, in the last quarter compared to the previous year.

Similarly, annual net income was up 27.6 percent, to $89.2 million (or $3.37 per diluted share), but quarterly net income was down 15.9 percent, to $18.8 million (or 71 cents a diluted share).

The culprit has been a slowdown in sales of equipment like desktop computers, notebooks, mobile devices – the legacy products of what was once known as PC Connection, a computer direct mail company, as it transitions over the decades to be more of a large-scale technology consultant to business and government.

The demand for both equipment and technology increased during the pandemic, as companies had to cope with the new hybrid work environment, but “we did see a slowing of that,” said McGrath. It started late in Q3 and certainly continued into Q4. And we now expect that slowness in devices will be around at least for the first half of 2023. McGrath, though, said he expected things will pick up in the second half of the year.

Sue to those “headwinds,” said chief financial officer Tom Baker, “in the first quarter of 2023, we launched an initiative intended to reduce our current cost structure by $8 million to $10 million annually. Implementations cost reduction initiatives started this month and will be fully implemented by Q4.”

“As we navigate through 2023, we will remain very focused on improving our operational efficiency, managing our costs and scaling our expenses appropriately,” McGrath said. “Great companies can take market share in any economic environment, and we expect to end the year with growth that is 2 percent above the IT industry growth rate.”