Connection’s second quarter results drew a negative reaction from the market as the company missed Wall Street’s revenue expectations, despite delivering year-over-year sales growth and non-GAAP profit above analyst estimates. Management pointed to continued momentum in mobility and desktop categories, driven by Windows 11 refresh cycles and demand for AI-enabled PCs, but acknowledged that changes in partner subscription licensing programs weighed on gross margins. CEO Timothy McGrath noted, “We continue to see momentum with the mobility and desktop categories as our sales increased 6% year-over-year and 5% on a sequential basis, driven by Windows 11 refresh and demand for AI PCs.”

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While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Connection’s Q2 Earnings Call

• Adam Tindle (Raymond James) asked about the strength of the sales pipeline and cadence into July. CEO Timothy McGrath explained that activity had picked up and backlog reached a two-year high, but he remained cautious given a slower-than-expected start to the year.
• Adam Tindle (Raymond James) inquired about inventory build and risk management. CFO Thomas Baker clarified that most inventory was customer-specific for upcoming rollouts, minimizing risk, and expected inventory levels to normalize over the next two quarters.
• Adam Tindle (Raymond James) sought clarification on cash flow expectations for the year. Baker stated he anticipates a reversal to positive operating cash flow for the full year as inventory balances normalize and customer rollouts proceed.
• Anthony Lebiedzinski (Sidoti) questioned future gross margin trends. Baker projected gross margins would hold steady, with only minor fluctuations, as the impact from licensing fee program changes subsides.
• Anthony Lebiedzinski (Sidoti) asked about vertical market outlook. McGrath expressed particular optimism for retail and manufacturing sectors in the coming quarters, driven by solution-focused demand and technology adoption.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will monitor (1) the pace of recovery in public sector sales, particularly in K-12 and higher education, (2) execution of large customer rollouts tied to staged inventory and price sensitivity from tariff shifts, and (3) the impact of new investments in AI and sales productivity tools on sales effectiveness and gross margin stability. The evolution of customer demand for AI-enabled solutions and supply chain adjustments will also be important signposts for business momentum.

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