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PC Connection, Inc. Reports Fourth Quarter and Record Full Year 2014 Results

01/29/15

MERRIMACK, N.H.--(BUSINESS WIRE)--

PC Connection, Inc. (NASDAQ: PCCC):

FOURTH QUARTER SUMMARY:

       

FULL YEAR SUMMARY:

 
  • Net income up 21% y/y
  • Net income up 20% y/y
  • Net sales: $630.8 million, up 9.0% y/y
  • Net sales: $2.46 billion, up 10.9% y/y
  • Diluted EPS: $0.45, up 22% y/y
  • Diluted EPS: $1.61, up 19% y/y
 

PC Connection, Inc.(NASDAQ: PCCC), a national provider of a full range of information technology (IT) solutions to business, government, healthcare, and education markets, today announced results for the quarter ended December 31, 2014. Net sales for the fourth quarter of 2014 increased by 9.0% to $630.8 million, compared to $578.6 million for the prior year quarter. Net income for the quarter ended December 31, 2014 increased by 21.4% to $11.9 million, or $0.45 per diluted share, compared to net income of $9.8 million, or $0.37 per diluted share for the prior year quarter.

Net sales for the year ended December 31, 2014 were $2.46 billion, an increase of $241.7 million or 10.9%, compared to $2.22 billion for the year ended December 31, 2013. Net income for the year ended December 31, 2014 increased by 19.6% to $42.7 million, or $1.61 per diluted share, compared to net income of $35.7 million, or $1.35 per diluted share, for the year ended December 31, 2013. Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense ("Adjusted EBITDA") totaled $80.5 million for the year ended December 31, 2014, compared to $67.4 million for the year ended December 31, 2013. Net sales, net income, and diluted per share amounts for the year ended December 31, 2014 represent full year records for the Company.

Quarterly Sales by Segment:

  • Net sales for the SMB segment increased by 9.2% to $261.7 million in the fourth quarter of 2014, compared to the prior year quarter. Sales of notebooks, the largest SMB category, increased by 23.4% compared to the prior year quarter.
  • Net sales for the Large Account segment increased by 3.5% to $225.6 million in the fourth quarter of 2014, compared to the prior year quarter. Storage and software sales were strong in this segment with an increase of 31.9% and 21.9%, respectively. Commercial sales, which consists of SMB and Large Account sales, increased by 6.5% from the prior year quarter.
  • Net sales to the Public Sector segment increased by 18.7% to $143.5 million in the fourth quarter of 2014, compared to the prior year quarter. Sales to state and local government and educational institutions increased by 18.4%, compared to the prior year quarter, while sales to the federal government increased by 19.1%. Net/Com product sales for the Public Sector were strong with 55% growth from the prior year quarter.

Quarterly Sales by Product Mix:

  • Notebook/tablet sales, the Company's largest product category, increased by 15% year over year and accounted for 20% of net sales in the fourth quarter of 2014 compared to 19% of net sales in the prior year quarter. Continued corporate refresh activity and increased demand for Chromebooks resulted in strong year-over-year growth in this category in both SMB and Public Sector segments.
  • Software sales increased by 13% year over year and accounted for 18% of net sales in the fourth quarter of 2014 compared to 17% of net sales in the prior year quarter. We experienced strong growth in security, office productivity, and operating system software, including cloud-based offerings.
  • Net/Com product sales increased by 19% year over year and accounted for 10% of net sales in the fourth quarter of 2014 and 2013. We experienced significant sales growth in Public Sector segment in this product category.
  • Storage sales increased by 11% year over year and accounted for 7% of net sales in the fourth quarter of 2014 and 2013. We experienced significant sales growth in our Large Account segment in this product category.

Overall gross profit dollars increased by $7.4 million, or 9.8%, in the fourth quarter of 2014, compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, slightly increased to 13.2% in the fourth quarter of 2014, compared to 13.1% in the prior year quarter as a result of increased demand in advanced technologies that generate relatively higher margins.

Total selling, general and administrative dollars increased in the fourth quarter of 2014 to $63.0 million from $59.3 million in the prior year quarter, but decreased as a percentage of net sales from 10.3% to 10.0% due to leveraging our fixed costs over higher net sales. Variable SG&A increased year over year due to the higher levels of sales and gross profit achieved in 2014. We continue to invest in technical solution sales capabilities and expect SG&A expenses to rise accordingly. However, we are highly focused on improving efficiencies and streamlining wherever possible.

The Company generated significant cash flow during the year ended December 31, 2014. Total cash was $60.9 million at December 31, 2014, compared to $42.5 million at December 31, 2013. Our December 31, 2014 cash balance is lower than our September 30, 2014 balance due to the $10.5 million special dividend we paid in the fourth quarter of 2014 and seasonal working capital fluctuations. Days sales outstanding were 40 days at December 31, 2014, and inventory turns were 26 turns in the fourth quarter of 2014.

"We are encouraged with PC Connection's strong performance this quarter and for the year ended December 31, 2014. We had solid execution across all three of our sales segments, reinforcing the strength and diversity of our business model," said Timothy McGrath, President and Chief Executive Officer. "As a National Solutions Provider, our goal is to consistently invest in more complex solutions capabilities while delivering solid financial performance; we were able to accomplish that goal in 2014 with an 11% sales increase and a 20% increase in net income. In a rapidly changing industry, we believe our team and the strategies we have in place well position PC Connection to gain market share and increase long-term shareholder value."

Non-GAAP Financial Information

Adjusted EBITDA is a non-GAAP financial measure. This information is included to provide information with respect to the Company's operating performance and earnings.

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has three wholly owned sales subsidiaries: PC Connection Sales Corporation, MoreDirect, Inc., and GovConnection, Inc., headquartered in Merrimack, NH; Boca Raton, FL; and Rockville, MD; respectively. All three companies can deliver custom-configured computer systems overnight from our ISO 9001:2008 certified technical configuration lab at our distribution center in Wilmington, OH. Investors and media can find more information about PC Connection, Inc. at http://ir.pcconnection.com.

PC Connection Sales Corporation (800-800-5555), the original business of PC Connection, Inc. serving primarily the small- and medium-sized business sector, is a rapid-response provider of IT products and services. It offers more than 300,000 brand-name products through its staff of technically trained sales account managers, catalogs, publications, and its website at www.pcconnection.com. This company also serves consumer and small office users and is, under its MacConnection brand (800-800-2222), one of Apple's largest authorized online resellers at www.macconnection.com.

MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides corporate technology buyers with best-in-class IT solutions, in-depth IT supply-chain expertise, and access to over 300,000 products and 1,600 vendors through TRAXX™, our proprietary cloud-based eProcurement system. Backed by over 500 technical certifications, MoreDirect's team of engineers, software licensing specialists, and project managers help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

GovConnection, Inc. (800-800-0019) is a rapid-response provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, catalogs, publications, and online at www.govconnection.com.

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"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, the impact of changes in market demand and the overall level of economic activity and environment, or in the level of business investment in information technology products, competitive products and pricing, product availability and market acceptance, new products, fluctuations in operating results, and the ability of the Company to manage costs in response to fluctuations in revenue, and other risks that could cause actual results to differ materially from expectations, including those detailed under the caption "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2013. More specifically, the statements in this release concerning the Company's outlook for selling, general, and administrative expenses, the Company's efforts in improving efficiencies and streamlining its business and other statements of a non-historical basis (including statements regarding the Company's ability to increase market share and enhance long-term shareholder value) are forward-looking statements that involve certain risks and uncertainties. Such risks and uncertainties include the ability to realize market demand for and competitive pricing pressures on the products and services marketed by the Company, the continued acceptance of the Company's distribution channel by vendors and customers, continuation of key vendor and customer relationships and support programs, the ability of the Company to gain or maintain market share, and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. The Company disclaims any obligation to update the information in this press release or revise any forward-looking statements, whether as a result of any new information, future events, or otherwise.

 
 
 
CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months Ended December 31,       2014         2013          
          % of     % of %
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)             Net Sales      

Net Sales

Change
 
Operating Data:
Net sales $ 630,765 $ 578,572 9 %
Diluted earnings per share $ 0.45 $ 0.37 22 %
 
Gross margin 13.2 % 13.1 %
Operating margin 3.2 % 2.8 %
Return on equity (1) 12.5 % 11.6 %
 
Inventory turns 26 24
Days sales outstanding 40 42
 
 
Product Mix:
Notebook/Tablet $ 123,485 20 % $ 107,051 19 % 15 %
Software 113,129 18 100,543 17 13 %
Desktop/Server 91,815 14 90,551 16 1 %
Net/Com Product 66,571 10 56,034 10 19 %
Video, Imaging & Sound 54,539 9 51,582 9 6 %
Storage 42,850 7 38,730 7 11 %
Printer & Printer Supplies 35,344 6 35,339 6 -
Memory & System Enhancement 19,240 3 20,613 3 (7 %)
Accessory/Services/Other   83,792   13     78,129   13   7 %
Total Net Sales $ 630,765   100 % $ 578,572   100 % 9 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,343 26,200
Total book value per share $ 13.44 $ 12.21
Tangible book value per share $ 11.42 $ 10.14
Closing price $ 24.55 $ 24.85
Market capitalization $ 646,721 $ 651,070
Trailing price/earnings ratio 15.3 18.4
LTM Adjusted EBITDA (2) $ 80,475 $ 67,443
Adjusted market capitalization/LTM Adjusted EBITDA (3) 7.3 9.0
 
(1) Based on last twelve months' net income.

 

(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation.
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance.
 
 
REVENUE AND MARGIN INFORMATION
For the Three Months Ended December 31,       2014 2013
Net Gross Net Gross
(amounts in thousands) Sales   Margin Sales   Margin
 
SMB $ 261,661 15.2 % $ 239,628 15.3 %
Large Account 225,609 11.6 218,015 11.4
Public Sector   143,495   11.9   120,929   11.7
Total $ 630,765   13.2 % $ 578,572   13.1 %
 
 

 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31,       2014         2013  
(amounts in thousands, except per share data)       Amount     % of Net Sales       Amount     % of Net Sales
 
Net sales $ 630,765 100.0 % $ 578,572 100.0 %
Cost of sales   547,641   86.8     502,879   86.9  
Gross profit 83,124 13.2 75,693 13.1
 
Selling, general and administrative expenses   63,035   10.0     59,315   10.3  
Income from operations 20,089 3.2 16,378 2.8
 
Interest/other expense, net (14 ) - (14 ) -
Income tax provision   (8,131 ) (1.3 )   (6,523 ) (1.1 )
Net income $ 11,944   1.9 % $ 9,841   1.7 %
 
Earnings per common share:
Basic $ 0.45   $ 0.38  
Diluted $ 0.45   $ 0.37  
 
Shares used in the computation of earnings per common share:
Basic   26,311     26,181  
Diluted   26,554     26,453  
 
 
                             
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,       2014       2013
(amounts in thousands, except per share data) Amount % of Net Sales   Amount % of Net Sales
 
Net sales $ 2,463,339 100.0 % $ 2,221,638 100.0 %
Cost of sales   2,139,950   86.9     1,928,638   86.8  

Gross profit

323,389 13.1 293,000 13.2
 
Selling, general and administrative expenses   251,935   10.2     233,604   10.5  
Income from operations 71,454 2.9 59,396 2.7
 
Interest/other expense, net (86 ) - (149 ) -
Income tax provision   (28,687 ) (1.2 )   (23,565 ) (1.1 )
Net income $ 42,681   1.7 % $ 35,682   1.6 %
 
Earnings per common share:
Basic $ 1.63   $ 1.37  
Diluted $ 1.61   $ 1.35  
 
Shares used in the computation of earnings per common share:
Basic   26,246     26,120  
Diluted   26,512     26,387  
 
 

 
EBITDA AND ADJUSTED EBITDA
                           
A reconciliation of EBITDA and Adjusted EBITDA is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation. Both EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either includes or excludes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide helpful information with respect to our operating performance including our ability to fund our future capital expenditures and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our credit agreements.
 
(amounts in thousands) Three Months Ended December 31, Years Ended December 31,
2014 2013 % Change 2014 2013 % Change
Net income $ 11,944 $ 9,841 $ 42,681 $ 35,682
Depreciation and amortization 2,095 2,078 8,092 7,089
Income tax expense 8,131 6,523 28,687 23,565
Interest/other expense, net   14   14   86   149
EBITDA 22,184 18,456 79,546 66,485

Stock-based compensation

  228   205     929   958  
Adjusted EBITDA $ 22,412 $ 18,661 20 % $ 80,475 $ 67,443 19 %
 
 
 
     

December 31,

   

December 31,

CONDENSED CONSOLIDATED BALANCE SHEETS 2014 2013
(amounts in thousands)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 60,909 $ 42,547
Accounts receivable, net 293,027 283,051
Inventories 90,917 79,141
Deferred income taxes 7,749 6,382
Prepaid expenses and other current assets 5,332 5,117
Income taxes receivable   212     2,256  
Total current assets 458,146 418,494
Property and equipment, net 27,861 27,600
Goodwill 51,276 51,276
Other intangibles, net 1,953 2,854
Other assets   724     720  
Total Assets $ 539,960   $ 500,944  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 124,893 $ 124,821
Accrued expenses and other liabilities 22,011 22,362
Accrued payroll   17,793     14,935  
Total current liabilities 164,697 162,118
Deferred income taxes 18,803 16,224
Other liabilities   2,452     2,773  
Total Liabilities   185,952     181,115  
Stockholders' Equity:
Common stock 282 281
Additional paid-in capital 106,956 104,932
Retained earnings 262,632 230,478
Treasury stock at cost   (15,862 )   (15,862 )
Total Stockholders' Equity   354,008     319,829  
Total Liabilities and Stockholders' Equity $ 539,960   $ 500,944  
 
 

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,       2014       2013
(amounts in thousands)      
Cash Flows from Operating Activities:
Net income $ 42,681 $ 35,682
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,092 7,089
Provision for doubtful accounts 1,383 1,078
Deferred income taxes 1,212 4,578
Stock-based compensation expense 929 958
Loss on disposal of fixed assets 14 5
Excess tax benefit from exercise of equity awards (556 ) (260 )
 
Changes in assets and liabilities:
Accounts receivable (11,359 ) (16,819 )
Inventories (11,776 ) (9,504 )
Prepaid expenses and other current assets 1,829 (3,005 )
Other non-current assets (4 ) (6 )
Accounts payable 202 (1,371 )
Accrued expenses and other liabilities   2,751     1,231  
Net cash provided by operating activities   35,398     19,656  
 
Cash Flows from Investing Activities:
Purchases of equipment (7,609 ) (7,607 )
Proceeds from sale of equipment   13     2  
Net cash used for investing activities   (7,596 )   (7,605 )
 
Cash Flows from Financing Activities:
Dividend payment (10,527 ) (10,475 )
Issuance of stock under Employee Stock Purchase Plan 753 591
Excess tax benefit from exercise of equity awards 556 260
Exercise of stock options 356 1,779
Payment of payroll taxes on stock-based compensation through shares withheld (578 ) (577 )
Repayment of capital lease obligation to affiliate   -     (989 )
Net cash used for financing activities   (9,440 )   (9,411 )
Increase in cash and cash equivalents 18,362 2,640
Cash and cash equivalents, beginning of period   42,547     39,907  
Cash and cash equivalents, end of period $ 60,909   $ 42,547  
 
Non-cash Investing Activities:
Accrued capital expenditures $ 205 $ 335
Issuance of nonvested stock from treasury - $ 403
 
Supplemental Cash Flow Information:
Income taxes paid $ 24,219 $ 20,891
 

 

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PC Connection, Inc.
Joseph Driscoll, 603-683-2322
Senior Vice President, Treasurer and Chief Financial Officer

Source: PC Connection, Inc.

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