A management presentation for the first 20 or so minutes, followed by Q&A. We will have a total of 30 minutes. For those in the audience who would like to ask a question, please type your question in the Q&A box at the bottom of your Zoom screen, and I'll read the questions out loud, and with no further delay, Tim, the floor is yours.
Thanks. Welcome, everyone. Happy holidays. We're delighted to have you join us today. My name is Tim McGrath, President and CEO.
I'm Tom Baker, CFO.
So we'll jump right in and cover the story, and again, look forward to any questions you might have. Naturally, we'll start with our Safe Harbor statement. Cover that. And to begin with, Connection is in its 43rd year. We're certainly proud of that heritage. Today, we have about 2,500 employees. We're on the NASDAQ. Our stock symbol is CNXN. Today, we have about 25 million shares outstanding. We went public on NASDAQ in 1998. And the company was formed 43 years ago under the principle we could offer some of the best service, the best service in the technology industry. And we're proud of that. We try to live up to that every day. When we think about our mission, our mission points to where we go. Values really talk to how we get there, but we are a mission-driven company.
Our mission is to be a leading global solution provider, connecting our customers with technology that enhances their growth, elevates their productivity, and empowers their innovation. When we think about Connection, the blue mark, and our brand purpose, we believe our purpose is to calm the confusion of IT, really guiding that connection between people and technology. As you know, technology is probably more complex, a little more disruptive, and probably more relevant than ever before. And our brand purpose really tends to resonate with the fact that our customers need and want more help in that area. We have a quick look at our go-to-market strategy. We have three separate selling subsidiaries. Each specializes in their own area. We believe that specialization really matters.
We have a large enterprise group focused on 3,000 seats and above, a business solutions team, 3,000 seats and below, and a public sector team, state, local, K through 12, and higher ed. We have some unique go-to-market tools here for enterprise. We have a system that we call MarkITplace. And that system is an IT procurement tool that allows our customers, when they link into our system, connect into our system, to look at all the inventory stores from our suppliers, our manufacturers, our distributors, and what we have. It allows them to choose from their custom catalog with their special pricing, with process flow, to look at all of their serial numbers, their registrations, all of their IT assets, and where they are. It's a very sticky tool and one that our customers value. And we're pleased to offer that to our enterprise customers.
For business solutions, our go-to-market methodology is kind of split between internal sales center methodology and then external in the face-to-face customer geographies, as is the public sector business. Again, in each of those, we have specialists in that space because we think that specialization really matters. We have four vertical markets that we're focused on: healthcare, manufacturing, retail, and financial. And we back up our entire go-to-market motion with all the internal project solutions and departments working together under one roof, under the holding company, to really drive value out for our subsidiaries. Naturally, in this business, we have to have the full end of professional services from cybersecurity all the way through data center and AI. Today, in our partner ecosystem, we have virtually all of the top partners in technology. It's over 1,600 manufacturers. It's over 460,000 SKUs.
We like to say we're a single-source provider of IT products and solutions that range from design through deployment with the top name brands in our industry, so a big part of our value proposition is, as you heard me say, we calm the confusion in IT. Again, we like to be thought of as that one source of truth, that single throat to choke, and we manage the end-to-end multi-brands for our customers through design, through deployment. Our secret sauce is we make everything work together. We manage the life cycle. We manage the rollout, the install, the deinstall, the configurations, etc., and again, we do that across the suite of our customer base. We're proud of our customer loyalty ratings. We won some great awards this year around Best Places to Work
One of the ones that we're most proud of is not only the U.S., but the world's most trustworthy companies. Oops. Pardon me. A little technical difficulty there. We recently, in fact, it was last week, completed a new Net Promoter Score survey. Net Promoter Score measures how likely a customer is to recommend Connection, and we polled about 7,000 customers and have a Net Promoter Score of 82. We're proud of that because we do believe that that is a standard for customer loyalty. The average Net Promoter Score in the technology space is in the high 50s and low 60s. Sorry, guys. Had a little trouble with the mouse and we saw technology, so to give you kind of a snapshot of our team, we have about 2,500 employees. About 755 of them are in the sales arena.
We have another 700 or so in the technical solution architect, managed, and professional services arena. And we have about eight years of tenure. We're proud of that tenure because, again, we think that expertise matters. To drive that, we deliver an awful lot of training. We hold over 5,000 certifications. And at our distribution and integration center, we perform over 725,000 configurations a year. As I mentioned earlier, when you think about our business, we have to have the full suite of managed and professional services and working in concert together. So in our managed and professional services group, we have about 400 people focused on solution architects and pre-engineering, pre-sale support, all the way through the delivery and the managed service. That's from data and AI to cloud, cybersecurity, of course, managed professional services both, and naturally, data center along with supply chain optimization.
One of the new and more transformative groups in the company is Helix. That is our center for applied AI and robotics. Very simply stated, for a couple of years now, we've been very focused on preparing our customer base and our company for AI. Toward that end, we have 120 or so folks who are specialists in AI. We have 75 sales reps who went through a rigorous curriculum to become AI experts. We think we're making great progress there because those AI experts, we call them Helix professionals, are growing their books of business faster than the mainstream sales reps here at the company. Our success with AI has gotten us a lot of notoriety, and our very top customers like NVIDIA have invited us to be part of their inaugural advisory board along with Dell, Intel, and all the vendors you see listed here.
We're proud of some of our early success. In fact, Intel gave us their AI and Device AI Partner of the Year. When I think about our growth drivers for 2026, there really are three. We have modern infrastructure and multi-cloud. Think of that as our secure and hybrid data center part of the business. We call that advanced technology. And the whole company is very focused on driving growth in this area, largely because customers want and need more data center growth and because AI is driving the need for more bandwidth, more compute, more storage, and AI devices at the edge. Our digital workspace really handles the device side of that and helps our customers be productive in a workspace from wherever they are. And finally, our supply chain and life cycle business is kind of the foundation of the company.
We help many customers manage their end-to-end supply chain and life cycle. We manage their inventory, their installs, their deinstalls, their custom configs, and everything in between, and in the center of our Venn diagram, of course, is AI, cyber, and professional services. I'll turn it over to Tom to talk a little about, and I'm going to let you drive. I'm struggling with the mouse here. Thank you.
So what we've done here is laid out what our revenues have been for the past few quarters, for the Q3 for the past five years. And I got to move this. And as you can see, in the blue is our 606 revenue. So that's GAAP revenue on how we report it. And the gray is the 605 revenue. And that is what our revenue would have been prior to 2018. And the difference is for those transactions, we're required to be an agent of the transaction, not the principal, i.e., we don't take ownership of the product and then resell it, which is the way most software agreements work now. We report revenue in the amount of our gross profit.
For instance, 15 years ago, if you sold software, most software you sold here on a desk, you'd have $100 of revenue and $90 or $85 of cost of goods and $15 of gross profit. It would have shown up that way in the income statement. Now, that same software that is off-prem, we record $15 of revenue and $15 of gross profit. As you can see, over time, our revenue has continued to grow on a gross basis despite what it looks a little more challenged on the net basis just because of the accounting. Economically, we shipped $973 million of software product last quarter. If we take a look at the gross profit, which is what we tell people in general, gross profit is really the more meaningful metric because it strips out all of the accounting.
As you can see, last quarter, we reported $138.6 million of gross profit, which was a record in the company's history. The market is starting to come back after a couple of years of being a little bit down. We anticipate that it'll continue at a modest pace going forward. Here's the same snapshot we talked about on a quarterly basis, on an annual basis. As you can see, in 2024, we did $3.6 billion, almost $3.7 billion of revenue on a gross basis. That was a record for the company, even though it netted down to $2.8 billion. The compound annual growth rate from 2020 to 2028 on a net basis is around 5%. That's kind of the run rate we expect to see in the next year. Okay.
Then if we look at our gross profit on an annual basis, 2024, we did $520 million. It's about 18.5% gross profit, which is among the highest in the channel. We did grow our gross profit by 60 basis points last year. I'd say 40 basis points of that was the gross to net accounting. Then 20 basis points was actually better pricing, more efficiency, more value selling. We are on a real basis growing our gross profit and our gross margin on an annual basis. When we look at the earnings per share over the time, excuse me, over the past two years, we did $3.29 last year, up from $3.15 the year before. Again, proved execution, a little bit of interesting coming there, and just better execution across the board for us on a little bit higher revenue.
When we look at our operating metrics from a cash flow and working capital perspective, one of the nice things about this business is we are a consistent grower. We do generate a lot of cash for the business, and the business is not capital intensive. When you look at our working capital, we turn our inventory 18 times a year. Our DSO is pretty consistent at about 74 days, and that's on a net basis. If we were to use our gross revenue in that calculation, it'd be closer to 53 days, and that's really about where we can manage the company. At the end of the quarter, we had $15.66 in cash, and our Adjusted EBITDA for the year was 122.7, and as the profitability goes back up, we'll continue to work that number up.
In terms of returning cash for the shareholders, here's just kind of a schematic of what we've done since 2020 in terms of buybacks and dividends. In 2023, we started with a regular quarterly dividend. Prior to that, we had done some annual dividends. And we started out with dividend at eight cents a share. In 2024, we moved it to 10 cents a share. And then this year, we did a 50% increase to 15 cents a share. And as you can see, we're consistently returning the cash to shareholders in the form of dividend. When we think about the share buyback program, we have about $40 million left in that program. And we've been a little bit opportunistic in terms of how we buy back stock. When the stock's trading in the mid-20s on a PE basis, we're not as aggressive.
This year, the stock has been down a little bit, so we've been more aggressive on the buyback, and I think for the first three quarters, we bought back about $65 million worth of stock. So just another way of returning cash for our shareholders. We intend to stay somewhat opportunistic with respect to the stock buyback as we go forward. Then, obviously, the top priority for us is really to find some acquisitions that fit with the company in terms of strategy and culture and execution and more of a tuck-in type acquisition, not something that's going to really require us to lever up the balance sheet, and then this is just a schematic of the gross profit and sales by our subsidiary. Generally, the enterprise business, which is in the gray, is about 40% of our revenue.
The SMB business, which is in the dark blue, is about 40% of our business. And then public sector tends to be about 20% of our business. When we look at the gross profit, our SMB business, our business solutions group, has very high margins. I think they were over 25% last quarter. They benefit from a fair amount of software sales in that business and a very good Microsoft program. So BSG will tend to be almost 50% of the gross profit as we go through the year. And then enterprise, those customers are a little more challenging in terms of pricing. So they'll be 35-ish% of our gross profit. So that's kind of how we think about the business in terms of the revenue and profitability.
So thanks, Tom.
When we think about our company, we're very much a values-based organization, and we spend a lot of time on those values. We also this year published our inaugural sustainability report and have been very focused on sustainability, charitable contributions, and giving back, and then finally, I'll just wrap up here again by thanking you for your time. When it comes to why invest in the company, why Connection? We have over 40 years in the industry. I believe we have amongst the highest customer loyalty and Net Promoter Score in the industry. We have recurring long-term revenue streams. As Tom covered, we're financially stable, have a very healthy balance sheet. We are looking at M&A for tuck-in acquisitions. And we also have the global capability through a portal to deliver on behalf of our U.S.-based customers in 174 countries.
And as I mentioned, committed to corporate and social responsibility. So with that, I want to say thank you for your time. And Anthony, I'll turn it back to you.
Thank you very much, Tim and Tom, for sharing the Connection story. As a quick reminder to those in the audience, if you do have a question, you can type it into the Q&A box, and I'll go through the questions as much as time permits. So we already have a few questions here in the queue, so we'll start with those. So when you look at your three segments, enterprise, business solutions, and public sector, maybe you just kind of walk us through the core value proposition for each of those, your go-to-market strategy in terms of how you guys go about that.
Well, thanks. So again, we have three separate selling subsidiaries because we want to view customers with the appropriate lens. And we believe by having separate areas, we have expertise, and that expertise really matters. In fact, we like to say, change happens, expertise matters. So for large account enterprise, we sell out in the geography where the customers are located. And with that, among the highest customer loyalty scores based on not only our marketplace engine, MarkITplace, but also on the longevity of our salesforce and the expertise they bring to customers. So when we think enterprise, think infield, think special marketplace tools, and think expertise where the customer is needed. At the end of the day, our success in enterprise is always about the relationship our sales professionals have with our customers. In the mid-market commercial and SMB space, that go-to-market is a little different.
The majority of it is based internally in the sales center. What that means for our customers is they can get instantly the phone always answered on the second or third ring, in touch with someone who knows their business, knows what they like and they don't like, and can get any question answered on the spot. If they need a solution architect or a technical person, they can pull them right onto the call. If they want to view a quote or look at a specific type of expertise, we can bring that in as well. And so it makes it easy for that team to sell across the solution stack. It makes it further convenient for customers in that SMB space to get immediate help. And that is where the company has its roots, and we've been doing that for 43 years.
And finally, the public sector space is more of a hybrid motion. The e-commerce initiatives for both the commercial space and the public sector space are based around the fact that we deliver custom catalogs for each customer to have their own digital catalog, and we back that up with expertise. Now, for the public sector space, we separate SLED, state and local education, and fed, the federal business, and our go-to-market motions are hybrid. Some of that is in-office in a sales center approach, and some of that is in geography, especially when it comes to the higher education space or the federal government space. So that's kind of our go-to-market motion. And again, we're pleased that that delivers a high value for customers and a high loyalty score.
Gotcha. All right. Thanks for that. So we have another question here about gross margin. So obviously, you had a record of 19.6% in the third quarter. Maybe just talk to us about the drivers of that gross margin expansion. I know the mix of business certainly can affect quarterly comparisons, but maybe first just quickly touch on what drove the gross margin improvement in the third quarter, and how do you guys think about gross margins on a go-forward basis?
Yeah. So first, I'll talk about just the general drivers of the gross margin. In general, there are a couple of primary things that really affect us. One, if we do a very large deal with devices, sometimes those are really competitive, and we'll have a lower margin business. That's particularly true with some of the fed deals. So last year, we had a couple of very large fed contracts that came through with lower margins than typical. So that's one driver. When the business starts to migrate more towards the data center and technology, that tends to also be a little richer margin profile. But probably the thing that's affecting it most is I spent some time talking about the gross to net accounting.
And when you start doing SaaS deals, security deals, software deals that are off-prem, all of that comes through at about 100% gross margin. So to the extent your share of that business is increasing, that naturally puts upward pressure on the margins. So when I go back and I look at last quarter specifically, and I think about the margin increase, I kind of look at how much of this is the accounting and how much of it is just we're doing a better job running the business. And last quarter, it was about 60% impact of the accounting, and 40% of it was a better margin mix, more efficient running our business, or better pricing. So that's kind of how the whole thing works.
Gotcha. And also, how should investors think about demand trends across your end markets as more of your customers continue to modernize their data centers and digital workplaces?
Yeah. Well, thanks, so I'd say that looking into 2026, AI is a big driver of demand. Customers might not be implementing LLM projects, or they might not be implementing agentic AI right away, but they're preparing for the future, and AI will need a lot more need for edge compute. You'll need AI PCs as those workloads will be distributed, and you'll need that processing power at the PC level. You'll likely also need more network bandwidth, so more data storage, and also more access to off-prem and to public and private clouds or hybrid cloud, so when you put all that together, the industry is really lining up for a very big year in demand for 2026 and beyond.
Okay. All right. So it definitely sounds like a lot of opportunities that you have ahead of you here as you look to that. And then just quickly touching on AI, how has AI changed the way you operate your own business internally?
We're doing a number of things internally. We are running Copilot for our employees to help them be more efficient, and we are seeing some productivity gains there. We have an internal AI system that gives our employees the capability to get information they need pushed to them rather than pulled. Whether that's product information or human resource information or finance information, the product is based on LLM, but they can pull that quickly together rather than having to go search for that. Finally, we have a third application that's in the finance arena that helps our folks match purchase orders with the shipments to make sure that the order aligns with the shipment. That used to be done with humans. Now it's being done with AI. That's sort of AI-like. We are not running an LLM, but we're very pleased with what we are doing.
Thank you very much. We're already out of time. Thanks, Tim and Tom, for sharing the Connection story. Thank you also for everyone participating. We'll wrap it up here and hope everyone has a productive day at the conference. Thanks again.
Thank you, Anthony.
All right. Take care.