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PC Connection, Inc. Reports Second Quarter Results

08/04/11

MERRIMACK, N.H.--(BUSINESS WIRE)-- PC Connection, Inc.(NASDAQ: PCCC):

SECOND QUARTER SUMMARY:

  • Q2 net sales: $512.6 million, up 7% year over year
  • Record gross margin: 13.0% of net sales
  • Operating income: $12.4 million, or 2.4% of net sales
  • Diluted earnings per share: $0.28 per share, 56% increase

PC Connection, Inc.(NASDAQ: PCCC), which provides a full range of information technology (IT) solutions from design through deployment in business, government, and education markets, today announced results for the quarter ended June 30, 2011. Net sales for the three months ended June 30, 2011 were $512.6 million, a year-over-year increase of $35.0 million or 7.3%. Net income for the quarter was $7.5 million, or $0.28 per share, compared to net income of $5.0 million, or $0.18 per share for the corresponding prior year quarter.

Net sales for the six months ended June 30, 2011 were $974.5 million, an increase of $88.7 million or 10.0%, compared to $885.8 million for the six months ended June 30, 2010. Net income for the six months ended June 30, 2011 was $12.0 million, or $0.44 per share, compared to net income of $7.5 million, or $0.27 per share, for the six months ended June 30, 2010.

Quarterly Sales by Segment:

  • Net sales for the SMB business segment increased by 14.4% to $218.0 compared to net sales in the second quarter of 2010. The increase in revenues was due to improved SMB customer profits and the related fulfillment of delayed IT replacement needs.
  • Net sales for the Large Account segment increased by 7.6% to $160.7 million compared to sales in the second quarter of 2010. As announced last quarter, we acquired ValCom Technology ("ValCom"), a provider of infrastructure management and onsite managed services to medium-to-large corporations. We have included the operating results for ValCom from March 17,2011, the closing date of the acquisition, in this segment. Excluding ValCom's sales for the quarter, Large Account sales would have increased year over year by 2.3%.
  • Net sales to government and education customers (Public Sector segment) were $119.7 million in the quarter, compared to $120.6 million in the second quarter of 2010. A decrease in federal government sales was largely offset by an increase in higher education sales.
  • Net sales to consumers and SOHO customers by PC Connection Express were $14.1 million, compared to $16.8 million in the second quarter of 2010. Profitability and gross margin improvements continue to be the primary focus for this segment in 2011.

Quarterly Sales by Product Mix:

  • Notebook and PDA sales, the Company's largest product category, increased by 10% year over year and accounted for 18% of net sales in the second quarter of 2011 and 2010. Higher unit sales for the quarter, associated with the PC refresh, drove the quarterly revenue growth as average selling prices, or ASPs, decreased year over year.
  • Desktop/server sales increased by 12% year over year, accounting for 16% of net sales in the second quarter of 2011 and 2010. Desktop sales grew primarily as a result of increased unit sales associated with the PC refresh, as ASPs increased slightly year over year. Server sales decreased year over year by 4% as a result of a delay in enterprise product rollouts.
  • Software sales increased by 22%, accounting for 15% of net sales in the second quarter of 2011 compared to 13% in the prior year quarter. The three primary business segments contributed to the year-over-year growth in this product category.
  • Accessory/Other sales by grew 15% year over year and accounted for 13% of net sales in the second quarter of 2011, compared to 12% in the prior year quarter. The increase was due largely to ValCom service revenues and increased sales of point-of-sale equipment.

Overall gross profit dollars for the quarter increased by 19%, or $10.9 million, compared to the second quarter of 2010. Consolidated gross margin, as a percentage of net sales, increased by 130 basis points from 11.7% in the second quarter of 2010 to 13.0% in 2011. Improved invoice selling margins, higher agency revenues, and additional vendor consideration contributed to the significant increase. All four business segments increased their gross margin compared to the prior year quarter as a result of their focus on margin improvement.

Overall annualized sales productivity was largely unchanged in the second quarter of 2011 compared to the second quarter of 2010. Sales productivity in the SMB segment increased by 5%, but was offset by decreases in the Large Account and Public Sector segments of 5% and 1%, respectively. On a consolidated basis, the total number of sales representatives was 630 at June 30, 2011, compared to 588 at June 30, 2010, and 634 at March 31, 2011.

Total selling, general and administrative expenses for the quarter increased year over year by 15%, or $7 million, and increased as a percentage of net sales from 9.9% for the second quarter of 2010 to 10.6% for the second quarter of 2011. The year-over-year increase was attributable to investments in solutions sales capabilities, increased variable compensation associated with improved gross profit, increased marketing expenditures, and the inclusion of ValCom's operating costs for the quarter.

"We are pleased by the continued improvement in our profitability and overall performance," said Patricia Gallup, Chairman and Chief Executive Officer. "During the quarter, PC Connection achieved the highest gross margin in its history, while also achieving record second quarter sales. We believe we are driving the right balance of growth, profitability, and strategic capital investments to position us well for future success."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, operates through five sales subsidiaries: PC Connection Sales Corporation, MoreDirect, Inc., GovConnection, Inc., PC Connection Express, Inc., and Professional Computer Center, Inc. d/b/a ValCom Technology, headquartered in Merrimack, NH, Boca Raton, FL, Rockville, MD, Portsmouth, NH, and Itasca, IL, respectively. All five companies can deliver custom-configured computer systems overnight from PC Connection Services' ISO 9001:2008 certified technical configuration lab at its 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 the small- and medium-sized business sector, is a rapid-response provider of IT products and services. It offers more than 180,000 brand-name products through its staff of technically trained sales account managers and catalog telesales representatives, catalogs, and publications, and its website at www.pcconnection.com.

MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides corporate technology buyers with a comprehensive web-based e-procurement solution and in-depth IT supply-chain expertise, serving as a one-stop source by aggregating more than 300,000 products from the inventories of leading IT wholesale distributors and manufacturers. MoreDirect's TRAXX™ system is a seamless end-to-end interface that empowers clients to electronically source, evaluate, compare prices, and track related technology product purchases in real-time.

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, and publications, and online at www.govconnection.com.

PC Connection Express, Inc. (888-800-0323) is a rapid-response provider of computer products and consumer electronics to home, home office, and small office users. Customers can purchase the best-known brands in the industry online at www.pcconnectionexpress.com or order by calling a trained sales specialist. The subsidiary includes the MacConnection brand (800-800-2222), one of Apple's largest authorized online resellers at www.macconnection.com.

Professional Computer Center, Inc. d/b/a ValCom Technology (630-285-0500), www.valcomtechnology.com, provides technology services to medium-to-large corporate organizations utilizing its proprietary cloud-based IT service management software, WebSPOC™. Through its experienced technical service personnel ValCom Technology provides network, server, storage, mission-critical onsite support, installation, and host of lifecycle services.

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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 personnel levels in response to fluctuations in revenue, and other risks that could cause actual results to differ materially from 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, 2010. More specifically, the statements in this release concerning the Company's outlook for 2011 and other statements of a non-historical basis (including statements regarding the Company's ability to grow revenues and increase market share) 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 integrate the operations of ValCom Technology, and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. The Company assumes no 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 June 30,   2011   2010    

(Dollars and shares in thousands, except operating data, P/E ratio, and per
share data)

% of
Net Sales
% of
Net Sales
%
Change
 
     
 
Operating Data:
Net sales $ 512,561 $ 477,546 7 %
Diluted earnings per share $ 0.28 $ 0.18 56 %
 
Gross margin

13.0

% 11.7 %
Operating margin 2.4 % 1.8 %
Return on equity (1) 11.3 % 8.4 %
 
Catalogs distributed 1,453,000 2,247,000 (35 %)
Orders entered (2) 340,600 331,700 3 %
Average order size (2) $ 1,883 $ 1,777 6 %
 
Inventory turns (1) 25 27
Days sales outstanding 46 49
 
 
Product Mix:
Notebook & PDA $ 94,350 18 % $ 86,145 18 % 10 %
Desktop/Server 81,494 16 73,021 16 12
Software 76,254 15 62,335 13 22
Video, Imaging & Sound 52,326 10 53,044 11 (1 )
Net/Com Product 50,089 10 49,001 10 2
Printer & Printer Supplies 37,557 7 38,867 8 (3 )
Storage Device 35,720 7 38,960 8 (8 )
Memory & System Enhancement 18,713 4 18,483 4 1
Accessory/Other   66,058 13     57,690 12   15
Total Net Sales $ 512,561 100 % $ 477,546 100 % 7 %
 
 
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
 
$ 184,279   36 % $ 178,129   37 % 3 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,541 26,721
Total book value per share $ 10.13 $ 9.06
Tangible book value per share $ 7.99 $ 7.19
Closing price $ 8.28 $ 6.06
Market capitalization $ 219,759 $ 161,929
Trailing price/earnings ratio 8 12
 
(1) Annualized
(2) Does not reflect cancellations or returns
 
 
 
 
             
REVENUE AND MARGIN INFORMATION
For the Three Months Ended June 30,   2011   2010  

Net
Sales

Gross
Margin
Net
Sales

Gross
Margin

(Dollars in thousands)
 
SMB $ 218,022 15.2 % $ 190,661 14.4 %
Large Account 160,717 12.0 149,411 10.5
Public Sector 119,727 11.1 120,639 9.5
Consumer/SOHO   14,095   9.6   16,835   8.7
Total $ 512,561   13.0 % $ 477,546   11.7 %
 

       
                 
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,   2011     2010  

(amounts in thousands, except per share data)

Amount   % of Net Sales Amount  

% of Net Sales

 
Net sales $ 512,561 100.0 % $ 477,546 100.0 %
Cost of sales   445,667  

87.0

  421,564  

88.3

Gross profit 66,894 13.0 55,982 11.7
 
Selling, general and administrative expenses   54,477  

10.6

  47,501  

9.9

Income from operations 12,417 2.4 8,481 1.8
 
Interest expense (87 ) - (95 ) -
Other, net 32 - 35 -
Income tax provision   (4,882 )

(0.9

)

  (3,398 )

(0.7

)

Net income $ 7,480  

1.5

% $ 5,023   1.1 %
 
 
Earnings per common share:
Basic $ 0.28   $ 0.19  
Diluted $ 0.28   $ 0.18  
 
Weighted average common shares outstanding:
Basic   26,852     27,116  
Diluted   26,923     27,156  
 
 
 
 
                 
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30,   2011     2010  
(amounts in thousands, except per share data) Amount   % of Net Sales Amount   % of Net Sales
 
Net sales $ 974,487 100.0 % $ 885,808 100.0 %
Cost of sales   848,774  

87.1

  781,175  

88.2

Gross profit 125,713 12.9 104,633 11.8
 
Selling, general and administrative expenses   105,767  

10.9

  91,975   10.4
Income from operations 19,946 2.0 12,658 1.4
 
Interest expense (128 ) - (194 ) -
Other, net 97 - 110 -
Income tax provision   (7,941 )

(0.8

)

  (5,117 )

(0.6

)

Net income $ 11,974   1.2 % $ 7,457   0.8 %
 
 
Earnings per common share:
Basic $ 0.45  

 

$ 0.27  
Diluted $ 0.44   $ 0.27  
 
Weighted average common shares outstanding:
Basic   26,877     27,136  
Diluted   26,959     27,175  
 

                           
CONSOLIDATED BALANCE SHEETS         June 30,    

December 31,

(amounts in thousands)               2011           2010  
 
ASSETS
Current Assets:
Cash and cash equivalents $ 55,292 $ 35,374
Accounts receivable, net 241,039 238,011
Inventories 75,432 74,293
Deferred income taxes 4,351 3,813
Prepaid expenses and other current assets 4,102 4,210
Income taxes receivable   2,545     1,489  
Total current assets 382,761 357,190
Property and equipment, net 20,560 13,500
Goodwill 51,276 48,060
Other intangibles, net 5,573 1,786
Other assets   598     405  
Total Assets $ 460,768   $ 420,941  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate $ 919 $ 870
Accounts payable 135,352 114,632
Accrued expenses and other liabilities 30,268 23,963
Accrued payroll   11,892     12,652  
Total current liabilities 178,431 152,117
Deferred income taxes 7,437 5,822
Capital lease obligation to affiliate, less current maturities 1,488 1,960
Other liabilities   4,584     3,403  
Total Liabilities   191,940     163,302  
Stockholders' Equity:
Common stock 275 275
Additional paid-in capital 99,437 98,871
Retained earnings 176,049 164,075
Treasury stock at cost   (6,933 )   (5,582 )
Total Stockholders' Equity   268,828     257,639  
Total Liabilities and Stockholders' Equity $ 460,768   $ 420,941  
 
 
 
 
 
                                 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2011 (amounts in thousands)
 
Common Stock Additional Retained Treasury Stock
Shares   Amount  

Paid-In Capital

  Earnings   Shares   Amount   Total
 

Balance—January 1, 2011

27,507 $ 275 $ 98,871 $ 164,075 (854 ) $ (5,582 ) $ 257,639
 
Stock-based compensation expense - - 441 - - - 441
 
Issuance of common stock under Employee Stock Purchase Plan 23 - 183 - - - 183
 
Nonvested stock awards - - (183 ) - 28 183 -
 
Repurchase of common stock for treasury - - - - (183 ) (1,534 ) (1,534 )
 
Issuance of common stock under stock incentive plans 20 - 131 - - - 131
 
Tax shortfall from stock-based compensation - - (6 ) - - - (6 )
 
Net income and comprehensive income -   -   -     11,974   -     -     11,974  
 

Balance—June 30, 2011

27,550 $ 275 $ 99,437   $ 176,049   (1,009 ) $ (6,933 ) $ 268,828  
 

         
CONSOLIDATED STATEMENTS OF CASH FLOWS    
Six Months Ended June 30, (amounts in thousands)     2011     2010  
 
Cash Flows from Operating Activities:
Net income $ 11,974 $ 7,457

Adjustments to reconcile net income to net cash provided by
operating activities:

 
Depreciation and amortization 2,889 2,891
Provision for doubtful accounts 1,119 1,177
Stock-based compensation expense 441 743
Deferred income taxes 1,077 352

Fair value adjustment to contingent consideration

(20 ) -
Loss on disposal of fixed assets 13 3
Income tax deficiency from stock-based compensation (6 ) (78 )
 
Changes in assets and liabilities:
Accounts receivable (884 ) (12,252 )
Inventories (845 ) 148
Prepaid expenses and other current assets (680 ) (831 )
Other non-current assets (165 ) 124
Accounts payable 18,925 2,653
Accrued expenses and other liabilities   (982 )   4,959  
Net cash provided by operating activities   32,856     7,346  
 
Cash Flows from Investing Activities:
Purchases of property and equipment (6,120 ) (1,380 )
Acquisition of ValCom Technology, net of cash acquired (4,725 ) -
Purchase of intangible asset   (450 )   (800 )
Net cash used for investing activities   (11,295 )   (2,180 )
 
Cash Flows from Financing Activities:
Purchase of treasury shares (1,534 ) (1,399 )
Repayment of capital lease obligation to affiliate (423 ) (379 )
Issuance of stock under Employee Stock Purchase Plan 183 135
Exercise of stock options   131     -  
Net cash used for financing activities   (1,643 )   (1,643 )
Increase in cash and cash equivalents 19,918 3,523
Cash and cash equivalents, beginning of period   35,374     46,297  
Cash and cash equivalents, end of period $ 55,292   $ 49,820  
 
 
Non-cash Investing and Financing Activities:
Contingent consideration included in accrued expenses and other liabilities $ 1,900 $ -
Accrued capital expenditures 454 126
Issuance of nonvested stock from treasury 183 368

 

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PC Connection, Inc.
Stephen Baldridge, 603-683-2322
Sr. Vice President of Finance & Corporate Controller

Source: PC Connection, Inc.

News Provided by Acquire Media

 




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