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PC Connection, Inc. Reports Second Quarter 2015 Results

SECOND QUARTER SUMMARY:

  • Net income up 2% year over year to $11.6 million
  • YTD net income up 9% year over year to $20.2 million
  • Net sales: $627.6 million, down 1% year over year
  • Diluted earnings per share: $0.44 versus $0.43 last year
  • Cash balance $72.5 million

MERRIMACK, N.H.--(BUSINESS WIRE)-- 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 June 30, 2015. Net sales for the second quarter of 2015 decreased by 1% to $627.6 million, compared to $633.2 million for the prior year quarter. Note that the Company was comparing against a very strong prior year quarter, which had revenue growth of almost 14% and net income growth of 25%. Net income for the quarter ended June 30, 2015 increased by 2% to $11.6 million, or $0.44 per diluted share, compared to net income of $11.4 million, or $0.43 per diluted share for the prior year quarter.

Net sales for the six months ended June 30, 2015 were $1,208.9 million, an increase of $15.9 million or 1.3%, compared to $1,193.0 million for the six months ended June 30, 2014. Net income for the six months ended June 30, 2015 increased by 8.9% to $20.2 million, or $0.76 per diluted share, compared to net income of $18.6 million, or $0.70 per diluted share, for the six months ended June 30, 2014. Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense ("Adjusted EBITDA") totaled $83.8 million for the twelve months ended June 30, 2015, compared to $73.6 million for the twelve months ended June 30, 2014.

Quarterly Sales by Segment:

  • Net sales for the SMB segment decreased by 3.3% to $259.3 million in the second quarter of 2015, compared to the prior year quarter. The decrease was due to a double-digit percentage decrease in desktops, which is consistent with current market conditions in this category. Sales of notebooks, the largest SMB category, increased by 6.3% compared to the prior year quarter, as mobility continues to be a focus area for businesses.
  • Net sales for the Large Account segment increased by 4.3% to $231.8 million in the second quarter of 2015, compared to the prior year quarter. Servers, networking, and software sales had strong growth during this quarter at 27.5%, 20.5% and 12.5%, respectively.
  • Net sales to the Public Sector segment decreased by 4.5% to $136.5 million in the second quarter of 2015, compared to the prior year quarter. Sales to state and local government and educational institutions decreased by 5.8%, compared to the prior year quarter, while sales to the federal government increased by 0.6%. Notebook/tablet sales were strong in this segment with an increase of 23.7%.

Quarterly Sales by Product Mix:

  • Notebook/tablet sales, the Company's largest product category, increased by 9% year over year and accounted for 24% of net sales in the second quarter of 2015 compared to 22% of net sales in the prior year quarter. Public Sector experienced strong year-over-year growth in notebook/tablet sales.
  • Software sales increased by 7% year over year and accounted for 18% of net sales in the second quarter of 2015 compared to 16% of net sales in the prior year quarter. We experienced strong growth in cloud-based offerings.
  • Server product sales increased by 14% year over year and accounted for 4% of net sales in the second quarter of 2015 and 2014. We experienced significant sales growth in our Large Account segment in this product category.

Overall gross profit dollars decreased by $0.8 million, or 1%, in the second quarter of 2015, compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, remained unchanged at 13.2%.

Selling, general and administrative dollars decreased in the second quarter of 2015 to $63.1 million from $64.6 million in the prior year quarter and improved as a percentage of net sales to 10.1% due to strict cost controls. We also incurred $0.3 million of start-up costs during the quarter related to our new distribution center, which is scheduled to be operational near the end of the third quarter. 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 six months ended June 30, 2015. Total cash was $72.5 million at June 30, 2015, compared to $60.9 million at December 31, 2014.

"The Company had solid performance this quarter in a challenging IT environment. We were able to increase earnings despite having to compare against the industry leading growth rates that we experienced in the prior year," said Timothy McGrath, President and Chief Executive Officer. "We continue to focus on building our advanced technology solution capabilities to help solve our customer's most complex business issues. We believe our team and the strategies we have in place position us well 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. In addition, the company has over 2,500 technical certifications to ensure that we can solve the most complex issues of our customers. 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. 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, 2014. 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 and the Company's continuing investments in technical solution sales capabilities) 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 June 30,     2015   2014  
% 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 $ 627,622 $ 633,244 (1 %)
Diluted earnings per share $ 0.44 $ 0.43 2 %
 
Gross margin 13.2 % 13.2 %
Operating margin 3.1 % 3.0 %
Return on equity (1) 12.4 % 12.1 %
 
Inventory turns 24 28
Days sales outstanding 43 40
 
 
Product Mix:
Notebooks/Tablets $ 148,481 24 % $ 136,126 22 % 9 %
Software 111,454 18 104,157 16 7 %
Desktops 68,662 11 76,733 12 (11 %)
Video, Imaging & Sound 55,862 9 56,775 9 (2 %)
Net/Com Products 49,833 8 57,908 9 (14 %)
Printer & Printer Supplies 35,332 6 37,175 6 (5 %)
Storage 34,272 5 39,452 6 (13 %)
Servers 28,025 4 24,671 4 14 %
Memory & System Enhancements 19,181 3 21,349 3 (10 %)
Accessories/Services/Other   76,520   12     78,898   13   (3 %)
Total Net Sales $ 627,622   100 % $ 633,244   100 % (1 %)
 
 
Stock Performance Indicators:
Actual shares outstanding 26,396 26,224
Total book value per share $ 14.23 $ 12.94
Tangible book value per share $ 12.23 $ 10.89
Closing price $ 24.74 $ 20.68
Market capitalization $ 653,037 $ 542,312
Trailing price/earnings ratio 14.8 14.1
LTM Adjusted EBITDA (2) $ 83,813 $ 73,595
Adjusted market capitalization/LTM Adjusted EBITDA (3) 6.9 6.5
 
(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 June 30,     2015   2014
Net Gross Net Gross
(amounts in thousands) Sales   Margin Sales   Margin
 
SMB $ 259,346 15.4 % $ 268,056 15.3 %
Large Account 231,803 12.4 222,276 12.3
Public Sector   136,473   10.5   142,912   10.8
Total $ 627,622   13.2 % $ 633,244   13.2 %
 

         
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,         2015     2014
(amounts in thousands, except per share data) Amount % of Net Sales Amount % of Net Sales
 
Net sales $ 627,622 100.0 % $ 633,244 100.0 %
Cost of sales   544,635   86.8     549,478   86.8  
Gross profit 82,987 13.2 83,766 13.2
 
Start-up costs - new distribution center 271 - - -
Selling, general and administrative expenses, other   63,093   10.1     64,564   10.2  
Income from operations 19,623 3.1 19,202 3.0
 
Interest/other expense, net (39 ) - (26 ) -
Income tax provision   (7,955 ) (1.2 )   (7,747 ) (1.2 )
Net income $ 11,629   1.9 % $ 11,429   1.8 %
 
Earnings per common share:
Basic $ 0.44   $ 0.44  
Diluted $ 0.44   $ 0.43  
 
Shares used in the computation of earnings per common share:
Basic   26,363     26,206  
Diluted   26,616     26,487  
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30,         2015     2014
(amounts in thousands, except per share data) Amount % of Net Sales Amount % of Net Sales
 
Net sales $ 1,208,881 100.0 % $ 1,193,004 100.0 %
Cost of sales   1,048,281   86.7     1,036,391   86.9  
Gross profit 160,600 13.3 156,613 13.1
 
Start-up costs - new distribution center 271 - - -
Selling, general and administrative expenses, other   126,527   10.5     125,665   10.5  
Income from operations 33,802 2.8 30,948 2.6
 
Interest/other expense, net (38 ) - (36 ) -
Income tax provision   (13,551 ) (1.1 )   (12,352 ) (1.0 )
Net income $ 20,213   1.7 % $ 18,560   1.6 %
 
Earnings per common share:
Basic $ 0.77   $ 0.71  
Diluted $ 0.76   $ 0.70  
 
Shares used in the computation of earnings per common share:
Basic   26,354     26,204  
Diluted   26,605     26,485  
 

     
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 June 30, LTM Ended June 30, (1)
  2015   2014 % Change   2015     2014   % Change  
Net income $ 11,629 $ 11,429 $ 44,334 $ 38,990
Depreciation and amortization 2,179 1,786 8,599 7,616
Income tax expense 7,955 7,747 29,886 25,757
Interest/other expense, net   39   26   88     89  
EBITDA 21,802 20,988 82,907 72,452
Stock-based compensation   225   327     906     1,143    
Adjusted EBITDA $ 22,027 $ 21,315 3 % $ 83,813   $ 73,595   14 %
 
(1) LTM: Last twelve months
 
 
 
June 30, December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS   2015     2014  
(amounts in thousands)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 72,497 $ 60,909
Accounts receivable, net 332,899 293,027
Inventories 98,575 90,917
Deferred income taxes 7,749 7,749
Prepaid expenses and other current assets 5,168 5,332
Income taxes receivable   2,118     212  
Total current assets 519,006 458,146
Property and equipment, net 29,878 27,861
Goodwill 51,276 51,276
Other intangibles, net 1,568 1,953
Other assets   818     724  
Total Assets $ 602,546   $ 539,960  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 162,374 $ 124,893
Accrued expenses and other liabilities 29,234 22,011
Accrued payroll   14,290     17,793  
Total current liabilities 205,898 164,697
Deferred income taxes 18,864 18,803
Other liabilities   2,229     2,452  
Total Liabilities   226,991     185,952  
Stockholders' Equity:
Common stock 283 282
Additional paid-in capital 108,289 106,956
Retained earnings 282,845 262,632
Treasury stock at cost   (15,862 )   (15,862 )
Total Stockholders' Equity   375,555     354,008  
Total Liabilities and Stockholders' Equity $ 602,546   $ 539,960  
 

     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,           2015     2014  
(amounts in thousands)
 
Cash Flows from Operating Activities:
Net income $ 20,213 $ 18,560
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,370 3,863
Provision for doubtful accounts 718 365
Stock-based compensation expense 463 486
Deferred income taxes 61 57
Excess tax benefit from exercise of equity awards (95 ) (34 )
 
Changes in assets and liabilities:
Accounts receivable (40,590 ) (12,641 )
Inventories (7,658 ) (18,046 )
Prepaid expenses and other current assets (1,742 ) 2,057
Other non-current assets (94 ) 22
Accounts payable 37,231 28,392
Accrued expenses and other liabilities   3,597     (2,232 )
Net cash provided by operating activities   16,474     20,849  
 
Cash Flows from Investing Activities:
Purchases of equipment (5,752 ) (3,493 )
Proceeds from sale of equipment   -     10  
Net cash used for investing activities   (5,752 )   (3,483 )
 
Cash Flows from Financing Activities:
Issuance of stock under Employee Stock Purchase Plan 435 360
Exercise of stock options 379 16
Excess tax benefit from exercise of equity awards 95 34
Payment of payroll taxes on stock-based compensation through shares withheld   (43 )   (34 )
Net cash provided by financing activities   866     376  
Increase in cash and cash equivalents 11,588 17,742
Cash and cash equivalents, beginning of period   60,909     42,547  
Cash and cash equivalents, end of period $ 72,497   $ 60,289  
 
Non-cash Investing Activities:
Accrued capital expenditures $ 455 $ 343
 
Supplemental Cash Flow Information:
Income taxes paid $ 16,500 $ 10,933

pccc-g

PC Connection, Inc.
Joseph Driscoll, Senior Vice President, Treasurer and Chief Financial Officer
603-683-2505

Source: PC Connection, Inc.

News Provided by Acquire Media




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CNXN (NASDAQ)
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3/28/17 4:00 PM ET

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