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PC Connection, Inc. Reports Third Quarter Results; Company Experiences Year-Over-Year and Sequential Sales Growth; Public Sector Sales Increase Year Over Year 12%
MERRIMACK, N.H.--(BUSINESS WIRE)--Oct. 27, 2005--PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology products and solutions, today announced results for the quarter ended September 30, 2005. Net sales for the three months ended September 30, 2005 increased by $19.8 million, or 5.6%, to $371.1 million from $351.3 million for the three months ended September 30, 2004. Net income for the quarter ended September 30, 2005 was $1.9 million, or $.08 per share, compared to $2.8 million, or $.11 per share for the three months ended September 30, 2004.
The three-month periods ended September 30, 2005 and 2004 included charges related to management restructuring and other special charges that reduced earnings and earnings per share. Had these charges not been recorded, pro forma net income for the quarter ended September 30, 2005 would have been $2.5 million, or $.10 per share, compared to $3.9 million, or $.16 per share, for the quarter ended September 30, 2004. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table immediately following the Consolidated Income Statements.
Net sales for the nine months ended September 30, 2005 increased by $31.5 million, or 3.1%, to $1,045.7 million from $1,014.2 million for the nine months ended September 30, 2004. Net income for the nine months ended September 30, 2005 was $4.4 million, or $.18 per share, compared to $6.2 million, or $.25 per share for the nine months ended September 30, 2004. The nine-month periods ended September 30, 2005 and 2004 included charges related to management restructuring and other special charges that reduced earnings and earnings per share. Had these charges not been recorded, pro forma net income for the nine months ended September 30, 2005 would have been $5.0 million, or $.20 per share, compared to $8.5 million, or $.33 per share, for the comparable period a year ago.
Net sales for the small- and medium-sized business (SMB) segment increased by 3.9% from the third quarter of 2004 to $203.5 million, but decreased sequentially by 1.8% over the immediately preceding quarter. Sales to large account customers increased by 3.8% over the third quarter of 2004 to $80.4 million and increased by 2.5% over the second quarter of 2005. Sales to government and education customers (the Company's public sector segment) increased by 12.1% for the quarter to $87.2 million compared to the third quarter of 2004.
Patricia Gallup, Chairman and Chief Executive Officer of PC Connection, Inc., said, "We are encouraged by the Company's Q3 results, having experienced increased sales in all of our segments. The growth we experienced in our public sector sales is particularly gratifying. We believe the significant sales increase of more than 23 percent to the federal government represents a good beginning to our recovery in this market. We are positioned to expand our current GSA schedule and add new contracts in order to secure new business and increase market share."
Notebooks and PDAs continued to be the Company's largest product category, but decreased to 19.4% of net sales in the third quarter of 2005 compared to 21.6% for the corresponding period a year ago. Desktop computers and servers accounted for 13.9% of net sales in the third quarters of both 2005 and 2004. However, the Company experienced double-digit year-over-year growth in several product categories. Sales of storage devices, net/com products, and accessories/other increased 16.2%, 12.9%, and 17.2%, respectively, in the third quarter of 2005.
Gross profit margin, as a percentage of net sales, was 11.3% in the third quarter of 2005 compared to 11.2% in the third quarter of 2004, and compared to 11.6% in the second quarter of 2005. As previously stated, the Company expects that its gross profit margin as a percentage of net sales may vary by quarter based upon vendor support programs, product and customer mix, pricing strategies, market conditions, and other factors.
Consolidated annualized productivity increased sequentially by 5.9% in the third quarter of 2005 compared to the second quarter of 2005, but was unchanged compared to the third quarter of 2004. The total number of sales representatives as of September 30, 2005 decreased to 585 from 602 as of June 30, 2005, but increased from 561 as of September 30, 2004.
Total selling, general, and administrative expenses, as a percentage of sales, increased to 10.1% in the third quarter of 2005 compared to 9.3% in the corresponding period a year ago, primarily as the result of our increased investment in systems improvements and our services business, as well as higher advertising costs. The Company expects that its SG&A, as a percentage of net sales, may vary by quarter depending on changes in sales volume, as well as the levels of continuing investments in key growth initiatives.
Ms. Gallup concluded, "We are making strategic investments to strengthen our company, expand our customer relationships, and enhance our ability to provide service to customers. We believe that we have the right product and market strategies in place, our brand recognition is strong, and our sharp focus on service forms a solid growth platform. Our balance sheet is very healthy, and we are focused on maintaining a strong financial position even as we invest for the future."
About PC Connection, Inc.
PC Connection, Inc., a Fortune 1000 company, operates three sales subsidiaries, PC Connection Sales Corporation of Merrimack, NH, GovConnection, Inc. of Rockville, MD, and MoreDirect, Inc. of Boca Raton, FL. All three subsidiaries can deliver custom-configured computer systems overnight.
PC Connection Sales Corporation (1-800-800-5555) is a rapid-response provider of information technology (IT) products and solutions offering more than 100,000 brand-name products to businesses through its staff of technically-trained sales account managers and catalog telesales representatives, catalogs and publications, and its web site at www.pcconnection.com. The subsidiary serves the Apple/Macintosh community through its MacConnection division (1-800-800-2222), which also publishes specialized catalogs and is online at www.macconnection.com.
GovConnection, Inc. (1-800-800-0019) is a rapid-response provider of IT products and solutions to federal, state, and local government agencies and educational institutions through specialized account managers, catalogs and publications, and online at www.govconnection.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.
A live webcast of PC Connection management's discussion of the third quarter will be available on the Company's Web site at www.pcconnection.com and on www.streetevents.com. The webcast will begin today at 11:00 a.m. Eastern Time.
"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, 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, the Company's success at integrating the acquired assets of Amherst Technologies into its businesses, the impact of the costs of acquisition and integration, the ability of the Company to hire and retain Amherst Technologies sales representatives and other essential personnel, and other risks detailed under the caption "Factors That May Affect Future Results and Financial Condition" in the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 2005. More specifically, the statements in this release concerning the Company's outlook for 2005 and the statements concerning the Company's gross margin percentage, productivity, and selling and administrative costs and other statements of a non-historical basis (including statements regarding implementing strategies for future growth, the ability of the Company to improve sales productivity and increase its active customers) 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 and the ability of the Company to hire and retain qualified sales representatives and other essential personnel.
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------
At or for the Three
Months Ended
September 30, 2005 2004
----------------------------------------------------------------------
(Dollars and shares in
thousands, except
operating data, % of % of
price/earnings ratio Net Net
and per share data) Sales Sales % Change
----------------------------------------------------------------------
Operating Data:
Net sales $ 371,124 $ 351,265 5.6%
Diluted earnings per
share $ .08 $ .11 (27.3)
Gross profit margin 11.3% 11.2%
Operating margin 1.0 1.4
Return on equity(1) 3.9 7.0
Catalogs distributed 5,525,000 6,887,000 (19.8)%
Orders entered(2) 350,600 310,200 13.0
Average order
size(2) $ 1,261 $ 1,341 (6.0)
Inventory turns(1) 20 16
Days sales
outstanding 46 41
Product Mix:
Notebooks & PDAs $ 71,958 19.4% $ 75,894 21.6% (5.2)%
Desktops/Servers 51,730 13.9 48,858 13.9 5.9
Storage Devices 32,119 8.7 27,635 7.9 16.2
Software 44,875 12.1 41,958 11.9 7.0
Net/Com Products 29,023 7.8 25,703 7.3 12.9
Printers & Printer
Supplies 40,033 10.8 37,065 10.6 8.0
Video, Imaging &
Sound 43,753 11.8 41,407 11.8 5.7
Memory & System
Enhancements 18,152 4.9 19,068 5.4 (4.8)
Accessories/Other 39,481 10.6 33,677 9.6 17.2
----------- ------ ----------- ------
$ 371,124 100.0% $ 351,265 100.0% 5.6%
=========== ====== =========== ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 102,502 27.6% $ 94,935 27.0% 8.0%
=========== ===========
Stock Performance
Indicators:
Actual shares
outstanding 25,224 25,050
Total book value per
share $ 6.79 $ 6.54
Tangible book value
per share $ 4.63 $ 4.63
Closing price $ 5.44 $ 6.87
Market
capitalization $ 137,219 $ 172,094
Trailing
price/earnings
ratio (3) 20 25
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
SELECTED SEGMENT INFORMATION
----------------------------------------------------------------------
For the Three Months Ended
September 30, 2005 2004
----------------------------------------------------------------------
Gross Gross
Net Margin Net Margin
(Dollars in thousands) Sales (%) Sales (%)
----------------------------------------------------------------------
PC Connection Sales Corporation
(SMB) $203,493 12.9% $195,943 12.2%
GovConnection (Public Sector) 87,249 9.2 77,864 9.8
MoreDirect (Large Account) 80,382 9.8 77,458 10.2
-------- ----- -------- -----
Total $371,124 11.3% $351,265 11.2%
======== ===== ======== =====
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended September 30, 2005 2004
----------------------------------------------------------------------
% of % of
(Amounts in thousands, except per Net Net
share data) Amount Sales Amount Sales
----------------------------------------------------------------------
Net sales $371,124 100.00% $351,265 100.00%
Cost of sales 329,044 88.66 311,859 88.78
-------- ------- -------- -------
Gross Profit 42,080 11.34 39,406 11.22
Selling, general, and
administrative expenses 37,531 10.11 32,765 9.33
Special charges 853 .23 1,800 .51
-------- ------- -------- -------
Income From Operations 3,696 1.00 4,841 1.38
Interest expense (289) (.08) (334) (.10)
Other, net 25 .01 35 .01
Income tax provision (1,508) (.41) (1,725) (.49)
-------- ------- -------- -------
Net Income $ 1,924 .52% $ 2,817 .80%
======== ======= ======== =======
Weighted average common shares
outstanding:
Basic 25,224 25,047
======== ========
Diluted 25,271 25,215
======== ========
Earnings per common share:
Basic $ .08 $ .11
======== ========
Diluted $ .08 $ .11
======== ========
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Nine Months Ended
September 30, 2005 2004
----------------------------------------------------------------------
% of % of
(Amounts in thousands, except Net Net
per share data) Amount Sales Amount Sales
----------------------------------------------------------------------
Net sales $1,045,685 100.00% $1,014,235 100.00%
Cost of sales 925,907 88.55 904,742 89.20
----------- ------- ----------- -------
Gross Profit 119,778 11.45 109,493 10.80
Selling, general, and
administrative expenses 110,326 10.55 94,938 9.36
Special charges 853 .08 3,583 .36
----------- ------- ----------- -------
Income From Operations 8,599 .82 10,972 1.08
Interest expense (846) (.08) (1,059) (.10)
Other, net 50 - 136 .01
Income tax provision (3,367) (.32) (3,818) (.38)
----------- ------- ----------- -------
Net Income $ 4,436 .42% $ 6,231 .61%
=========== ======= =========== =======
Weighted average common shares
outstanding:
Basic 25,170 25,018
=========== ===========
Diluted 25,275 25,271
=========== ===========
Earnings per common share:
Basic $ .18 $ .25
=========== ===========
Diluted $ .18 $ .25
=========== ===========
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME
----------------------------------------------------------------------
This information is being provided so as to allow for a comparison of
our operating results without special charges.
----------------------------------------------------------------------
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------------------------------------------------------------
(Amounts in thousands) 2005 2004 2005 2004
----------------------------------------------------------------------
GAAP net income $1,924 $2,817 $4,436 $6,231
Special charges (after tax):
Management restructuring 554 5 554 361
GSA review and other - 1,111 - 1,861
------ ------ ------ ------
554 1,116 554 2,222
------ ------ ------ ------
Pro forma net income $2,478 $3,933 $4,990 $8,453
====== ====== ====== ======
CONSOLIDATED BALANCE SHEETS September December
30, 31,
----------------------------------------------------------------------
(Amounts in thousands) 2005 2004
----------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,121 $ 6,829
Accounts receivable, net 148,641 120,752
Inventories - merchandise 66,944 78,390
Deferred income taxes 3,100 3,039
Income taxes receivable 1,369 1,325
Prepaid expenses and other current assets 3,550 3,644
-------- --------
Total current assets 231,725 213,979
Property and equipment, net 17,577 17,647
Goodwill, net 51,687 51,687
Other intangibles, net 2,776 3,040
Other assets 376 189
-------- --------
Total assets $304,141 $286,542
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 404 $ 373
To third party 407 391
Note payable - bank 7,566 4,810
Accounts payable 96,188 79,709
Accrued expenses and other liabilities 18,890 18,138
Acquisition earn-out obligation - 6,921
-------- --------
Total current liabilities 123,455 110,342
Capital lease obligations, less current
maturities:
To affiliate 5,408 5,715
To third party 501 841
Deferred income taxes 3,587 3,486
-------- --------
Total liabilities 132,951 120,384
--------
Stockholders' Equity:
Common stock 256 255
Additional paid-in capital 77,686 77,091
Retained earnings 95,534 91,098
Treasury stock at cost (2,286) (2,286)
-------- --------
Total stockholders' equity 171,190 166,158
-------- --------
Total liabilities and stockholders'
equity $304,141 $286,542
======== ========
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Nine months ended September 30, 2005 (Amounts in thousands)
----------------------------------------------------------------------
Common Stock Additional Retained Treasury Shares
------------- Paid-In Earnings ---------------
Shares Amount Capital Shares Amount Total
----------------------------------------------------------------------
Balance -
December
31, 2004 25,462 $ 255 $ 77,091 $91,098 (362) $(2,286) $166,158
Exercise
of stock
options,
including
income
tax
benefits 92 1 427 - - - 428
Issuance
of stock
under
employee
stock
purchase
plan 32 - 168 - - - 168
Net income - - - 4,436 - - 4,436
------ ----- --------- ------- ----- -------- --------
Balance -
September
30, 2005 25,586 $ 256 $ 77,686 $95,534 (362) $(2,286) $171,190
====== ===== ========= ======= ===== ======== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Nine Months Ended September 30,
(Amounts in thousands) 2005 2004
----------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 4,436 $ 6,231
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,340 5,340
Deferred income taxes 40 163
Provision for doubtful accounts 2,790 3,083
Loss on disposal of fixed assets 41 9
Changes in assets and liabilities:
Accounts receivable (30,679) 17,751
Inventories 11,446 2,726
Prepaid expenses and other current assets 50 1,163
Other non-current assets (187) (18)
Accounts payable 16,479 (21,981)
Income tax benefits from exercise of stock
options 80 90
Accrued expenses and other liabilities 752 3,954
--------- ---------
Net cash provided by operating activities 10,588 18,511
--------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (5,060) (2,449)
Proceeds from sale of property and equipment 13 3
Payment of acquisition earn-out obligation (6,921) (11,095)
Cash escrow distributed for acquisition - 5,000
--------- ---------
Net cash used for investing activities (11,968) (8,541)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 180,800 270,686
Repayment of short-term borrowings (178,044) (276,300)
Repayment of capital lease obligations (600) (247)
Exercise of stock options 348 76
Issuance of stock under employee stock
purchase plan 168 205
--------- ---------
Net cash provided by (used for) financing
activities 2,672 (5,580)
Increase in cash and cash equivalents 1,292 4,390
Cash and cash equivalents, beginning of period 6,829 2,977
--------- ---------
Cash and cash equivalents, end of period $ 8,121 $ 7,367
========= =========
CONTACT: PC Connection, Inc.
Stephen Baldridge, 603-683-2052
VP of Finance & Corporate Controller
SOURCE: PC Connection, Inc.
| PCCC | (NASDAQ) |
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| 11/20/09 4:11 PM ET | |
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