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PC Connection, Inc. Reports First Quarter Results

Company Announces Record Revenue and Continued Growth in Earnings

FIRST QUARTER HIGHLIGHTS:

-- Record Q1 net sales: $423.7 million, up 6.4% year over year

-- Operating margin: 1.7%, up from 1.4% last year

-- Net income: $4.8 million, up 41% year over year

-- Diluted earnings per share: $.18, up from $.13 last year

MERRIMACK, N.H., May 01, 2008 (BUSINESS WIRE) -- PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter ended March 31, 2008. Net sales for the three months ended March 31, 2008 increased by $25.5 million, or 6.4%, to $423.7 million from $398.2 million for the three months ended March 31, 2007. Net income for the quarter increased by $1.4 million to $4.8 million, or $.18 per share, compared to $3.4 million, or $.13 per share, for the corresponding prior year quarter.

"We are pleased with the Company's overall performance during the first quarter of 2008, especially in light of this challenging market," said Patricia Gallup, Chairman and Chief Executive Officer. "The PC Connection team delivered another quarter of record sales, and achieved significant increases in both operating income and earnings per share, largely due to our sales growth and our success in managing overall operating costs."

Quarterly Sales Growth By Business Segment:

-- Net sales for the small- and medium-sized business (SMB) segment increased by 2.7% to $240.1 million compared to the first quarter of 2007. Corporate outbound sales within the segment grew 8.7% year over year. Sales to consumers continued to decline, reflecting our focus on business customers.

-- Net sales for MoreDirect, Inc., our Large Account segment, increased by 6.2% to $117.2 million compared to the first quarter of 2007. Revenue growth resulted primarily from the acquisition of several new enterprise customers and a greater share of existing customers' business.

-- Net sales to government and education customers (Public Sector segment) increased by $12.4 million, or 23.1%, to $66.4 million compared to the first quarter of 2007. Strong federal contract sales drove this double-digit increase.

Quarterly Sales Growth by Product Mix:

-- Video, Imaging and Sound sales increased 30% year over year, accounting for 15% of net sales in the first quarter of 2008 compared to 12% for the corresponding prior year quarter. Strong video product sales drove the majority of this revenue growth.

-- Software sales increased 16% year over year, accounting for 13% of net sales in the first quarter of 2008 compared to 12% of net sales for the first quarter of 2007.

-- Storage Devices sales increased 22% year over year, accounting for 10% of net sales in the first quarter of 2008 compared to 9% of net sales for the corresponding period a year ago.

-- Net/Com Products sales increased 20% year over year, accounting for 8% of net sales in the first quarter of 2008 compared to 7% of net sales for the corresponding period a year ago.

-- Sales of Computer Systems, consisting of Notebooks, PDAs, Desktops, and Servers, decreased 7% year over year, accounting for 29% of net sales in the first quarter of 2008 compared to 33% of net sales for the corresponding period a year ago.

Gross profit dollars increased by $2.8 million, or 5.7%, in the first quarter of 2008 from the corresponding period a year ago primarily due to larger revenues in 2008. Gross profit margin, as a percentage of net sales, was down 10 basis-points to 12.4% in the first quarter of 2008 compared to the first quarter of 2007, primarily due to lower agency fee revenues in 2008 which are recorded on a net basis.

Overall annualized sales productivity increased 5% in the first quarter of 2008 compared to the first quarter of 2007. Sales productivity in our Large Account segment increased 16% in the first quarter of 2008 compared to the first quarter of 2007. Sales productivity in our Public Sector segment increased 17% year over year primarily due to increased Federal contract sales in 2008. For our SMB segment, productivity was level year over year. On a consolidated basis, the total number of sales representatives was 698 at March 31, 2008, compared to 675 at March 31, 2007 and 692 at December 31, 2007.

Total selling, general and administrative expenses ("SG&A") for the quarter increased year over year by $1.2 million, or 2.7%, but decreased as a percentage of net sales to 10.7% for the first quarter of 2008 from 11.1% for the first quarter of 2007. The year-over-year dollar increase was primarily attributable to the incremental variable compensation associated with higher revenues and gross profits. Improved leverage of our cost structure decreased our SG&A expenses as a percentage of net sales in Q1 2008 compared to Q1 2007.

Ms. Gallup concluded, "The investments we are making to increase sales and improve efficiencies are producing positive results. Our first quarter performance reflects a solid team effort to run our business more effectively while continuing to offer the best customer service in our marketplace. We believe we have the right strategies, resources, and talent in place to continue to improve our operating performance and enhance long-term shareholder value."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has three 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. Investors and media can find more information about PC Connection, Inc. at http://ir.pcconnection.com.

PC Connection Sales Corporation (1-800-800-5555), the original business of PC Connection, Inc. serving the small- and medium-sized business sector (SMB), is a rapid-response provider of information technology (IT) products and services. It offers more than 150,000 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. 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.

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(TM) 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. (1-800-800-0019) is a 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.

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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, 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 hire and retain essential personnel, and other risks that could cause actual results to differ materially from these 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, 2007. More specifically, the statements in this release concerning the Company's outlook for 2008 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 and the ability of the Company to improve sales productivity) 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. 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 HIGHLIGHTS
----------------------------------------------------------------------
At or for the Three
 Months Ended March 31,         2008                2007
-------------------------------------------  ------------------
(Dollars and shares in
 thousands, except
 operating data,
 price/earnings ratio,
 and per share data)
                                     % of                % of
                                      Net                 Net     %
                                      Sales               Sales Change
-------------------------------------------  ------------------ ------

Operating Data:
    Net sales            $  423,724          $  398,180            6%
    Diluted earnings per
     share               $      .18          $      .13           38%

    Gross profit margin        12.4%               12.5%
    Operating margin            1.7                 1.4
    Return on equity (1)        8.5                 6.8

    Catalogs distributed  3,059,000           3,638,000          (16%)
    Orders entered (2)      377,500             384,000           (2%)
    Average order size
     (2)                 $    1,267          $    1,190            6%

    Inventory turns (1)          21                  21
    Days sales
     outstanding                 44                  42


Product Mix:
    Notebooks & PDAs     $   64,101     15%  $   73,643     19%  (13%)
    Desktops/Servers         58,409     14       57,528     14     2
    Storage Devices          42,562     10       34,808      9    22
    Software                 56,146     13       48,286     12    16
    Net/Com Products         35,794      8       29,819      7    20
    Printers & Printer
     Supplies                40,839     10       41,653     11    (2)
    Video, Imaging &
     Sound                   62,291     15       48,101     12    30
    Memory & System
     Enhancements            15,094      4       19,949      5   (24)
    Accessories/Other        48,488     11       44,393     11     9
                         ----------- ------  ----------- ------
                         $  423,724    100%  $  398,180    100%    6%
                         =========== ======  =========== ======


Net Sales of Enterprise Server and Networking Products (included in
 the above Product Mix):

                         $  143,344     34%  $  122,832     31%   17%
                         ===========         ===========


Stock Performance
 Indicators:
    Actual shares
     outstanding             26,803              26,802
    Total book value per
     share               $     8.52          $     7.59
    Tangible book value
     per share           $     6.29          $     5.31
    Closing price        $     7.92          $    14.30
    Market
     capitalization      $  212,280          $  383,269
    Trailing
     price/earnings
     ratio (3)                    9                  24

(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 March 31,                   2008                  2007
------------------------------------------------  --------------------
                              Net       Gross       Net       Gross
(Dollars in thousands)       Sales    Margin (%)   Sales    Margin (%)
------------------------------------------------  --------------------

  PC Connection Sales
   Corporation (SMB)        $240,149       13.9%  $233,933       13.5%
  MoreDirect (Large
   Account)                  117,208       10.8    110,315       10.8
  GovConnection (Public
   Sector)                    66,367       10.2     53,932       11.8
                            --------  ----------  --------  ----------
      Total                 $423,724       12.4%  $398,180       12.5%
                            ========  ==========  ========  ==========

CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended
 March 31,                     2008                     2007
----------------------------------------------------------------------
(Amounts in
 thousands, except
 per share data)      Amount   % of Net Sales  Amount   % of Net Sales
--------------------------------------------- ------------------------

  Net sales          $423,724          100.0% $398,180          100.0%
  Cost of sales       370,980           87.6   348,265           87.5
                     --------- -------------- --------- --------------
      Gross Profit     52,744           12.4    49,915           12.5

  Selling, general
   and
   administrative
   expenses            45,393           10.7    44,193           11.1
                     --------- -------------- --------- --------------
      Income From
       Operations       7,351            1.7     5,722            1.4

  Interest expense       (162)             -      (208)          (0.1)
  Other, net              159              -       201            0.1
  Income tax
   provision           (2,574)          (0.6)   (2,330)          (0.5)
                     --------- -------------- --------- --------------
      Net Income     $  4,774            1.1% $  3,385            0.9%
                     ========= ============== ========= ==============


  Weighted average
   common shares
   outstanding:
      Basic            26,860                   26,680
                     =========                =========
      Diluted          26,974                   27,005
                     =========                =========
  Earnings per
   common share:
      Basic          $   0.18                 $   0.13
                     =========                =========
      Diluted        $   0.18                 $   0.13
                     =========                =========

CONSOLIDATED BALANCE SHEETS                   March 31,   December 31,
(Amounts in thousands)                          2008           2007
----------------------------------------------------------------------

  ASSETS

  Current Assets:
  Cash and cash equivalents                   $ 20,488       $ 13,741
  Accounts receivable, net                     178,473        202,216
  Inventories-merchandise                       65,670         76,090
  Deferred income taxes                          2,880          2,858
  Income taxes receivable                        2,010            345
  Prepaid expenses and other current assets      3,735          4,322
                                              ---------   ------------
          Total current assets                 273,256        299,572
  Property and equipment, net                   22,807         20,831
  Goodwill                                      56,867         56,867
  Other intangibles, net                         3,024          3,291
  Other assets                                     308            318
                                              ---------   ------------
          Total Assets                        $356,262       $380,879
                                              =========   ============

  LIABILITIES AND STOCKHOLDERS' EQUITY

  Current Liabilities:
  Current maturities of capital lease
   obligation to affiliate                    $    571       $    527
  Accounts payable                              86,413        111,140
  Accrued expenses and other liabilities        19,428         20,557
  Accrued payroll                                6,959         10,816
                                              ---------   ------------
          Total current liabilities            113,371        143,040
  Capital lease obligation to affiliate, less
   current maturities                            4,141          4,309
  Deferred income taxes                          6,883          5,436
  Other liabilities                              3,486          3,784
                                              ---------   ------------
          Total Liabilities                    127,881        156,569
                                              ---------   ------------
  Stockholders' Equity:
      Common stock                                 273            273
      Additional paid-in capital                94,368         94,132
      Retained earnings                        136,744        131,970
      Treasury stock at cost                    (3,004)        (2,065)
                                              ---------   ------------
          Total Stockholders' Equity           228,381        224,310
                                              ---------   ------------
          Total Liabilities and Stockholders'
           Equity                             $356,262       $380,879
                                              =========   ============

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Three months ended March 31, 2008 (Amounts in thousands)
----------------------------------------------------------------------

                                     Common Stock  Additional
                                     -------------  Paid-In   Retained
                                     Shares Amount  Capital   Earnings
----------------------------------------------------------------------

Balance - December 31, 2007          27,252   $273    $94,132 $131,970

Stock compensation expense                -      -        207        -

Exercise of stock options, including
 income tax benefits                      3      -         29        -

Repurchase of common stock for
 Treasury                                 -      -          -        -

Net income                                -      -          -    4,774
                                     ------ ------ ---------- --------

Balance - March 31, 2008             27,255   $273    $94,368 $136,744
                                     ====== ====== ========== ========

                                              Treasury Shares
                                              ---------------
                                              Shares  Amount   Total
----------------------------------------------------------------------

Balance - December 31, 2007                    (327) ($2,065) $224,310

Stock compensation expense                         -        -      207

Exercise of stock options, including
 income tax benefits                               -        -       29

Repurchase of common stock for Treasury         (92)    (939)    (939)

Net income                                         -        -    4,774
                                              ------ -------- --------

Balance - March 31, 2008                       (419) ($3,004) $228,381
                                              ====== ======== ========

CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Three Months Ended March 31, (Amounts in
 thousands)                                        2008        2007
----------------------------------------------------------------------

  Cash Flows from Operating Activities:

  Net income                                     $  4,774    $  3,385
  Adjustments to reconcile net income to net
   cash provided by operating activities:
      Depreciation and amortization                 1,670       1,888
      Provision for doubtful accounts                 399         337
      Deferred income taxes                         1,425        (168)
      Stock compensation expense                      207         (68)
      Income tax benefits from exercise of stock
       options                                          4         887
      Excess tax benefit from exercise of stock
       options                                         (1)       (343)
      Loss on disposal of fixed assets                  -           6

  Changes in assets and liabilities:
      Accounts receivable                          23,344      23,551
      Inventories                                  10,420       2,000
      Prepaid expenses and other current assets    (1,078)     (1,454)
      Other non-current assets                         10           8
      Accounts payable                            (25,180)    (21,910)
      Accrued expenses and other liabilities       (5,284)     (2,179)
                                                 ---------   ---------
  Net cash provided by operating activities        10,710       5,940
                                                 ---------   ---------


  Cash Flows from Investing Activities:

  Purchases of property and equipment              (2,926)     (1,474)
                                                 ---------   ---------
  Net cash used for investing activities           (2,926)     (1,474)
                                                 ---------   ---------


  Cash Flows from Financing Activities:

  Proceeds from short-term borrowings              28,815           -
  Repayment of short-term borrowings              (28,815)          -
  Repayment of capital lease obligations             (124)       (217)
  Purchase of treasury shares                        (939)          -
  Exercise of stock options                            25       2,494
  Excess tax benefit from exercise of stock
   options                                              1         343
                                                 ---------   ---------
  Net cash (used for) provided by financing
   activities                                      (1,037)      2,620
                                                 ---------   ---------
  Increase in cash and cash equivalents             6,747       7,086
  Cash and cash equivalents, beginning of period   13,741      17,582
                                                 ---------   ---------
  Cash and cash equivalents, end of period       $ 20,488    $ 24,668
                                                 =========   =========

SOURCE: PC Connection, Inc.

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

Copyright Business Wire 2008

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