Connection’s third quarter saw results below Wall Street’s expectations, with revenue declining due to weaker public sector sales. Management attributed the shortfall primarily to delayed federal projects and funding uncertainty at various government levels. CEO Timothy McGrath emphasized the company’s ability to grow gross profit and expand margins by focusing on higher-value segments such as cloud software, cybersecurity, and services. While the public sector posed challenges, Connection’s Business Solutions and Enterprise Solutions segments reported resilient demand, especially in cloud and advanced technologies.

Is now the time to buy CNXN? Find out in our full research report (it’s free for active Edge members).

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 Q3 Earnings Call

• Adam Tindle (Raymond James) asked about Q4 and budget flush expectations. CEO Timothy McGrath referenced solid enterprise momentum, but said public sector timing remains unpredictable, leaving some uncertainty for a top-line recovery.
• Adam Tindle (Raymond James) inquired about the elevated backlog. McGrath clarified that customer-driven project delays are the main reason, and CFO Thomas Baker added that a greater mix of cloud and software, which are recognized net, affects the revenue line but boosts margins.
• Adam Tindle (Raymond James) asked about the PC refresh cycle and 2026 prospects. McGrath stated that while Windows 11 adoption has lagged, he expects continued, but slower, PC refresh demand and ongoing growth in data center and cloud.
• Anthony Lebiedzinski (Sidoti) questioned sales cadence through the quarter. Baker explained that September was the strongest month, following typical seasonal trends, despite some noise from revenue netting.
• Anthony Lebiedzinski (Sidoti) asked about public sector impact from federal shutdowns. McGrath acknowledged it has delayed order fulfillment and remains a risk if the situation persists.

Catalysts in Upcoming Quarters

In the coming quarters, our team will monitor (1) the pace at which enterprise and business clients adopt AI, cloud, and data center solutions; (2) signs of recovery in public sector spending as government funding cycles normalize; and (3) the ability to maintain or improve gross margins amid evolving revenue mix and ongoing investment in technical services. The trajectory of the PC refresh cycle and continued backlog conversion will also be important indicators.

Connection currently trades at $58.54, down from $60.77 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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