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PC Connection, Inc. Reports Second Quarter Results

07/31/08

MERRIMACK, N.H., Jul 31, 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 June 30, 2008. Net sales for the three months ended June 30, 2008 increased by $8.3 million, or 1.9%, to $449.4 million from $441.1 million for the three months ended June 30, 2007. Net income for the quarter was $5.1 million, or $.19 per share, compared to $5.8 million, or $.21 per share, for the corresponding prior year quarter. Management believes the current economic environment affected the level of demand for IT solutions during the quarter.

Net sales for the six months ended June 30, 2008 increased by $33.8 million, or 4.0%, to $873.1 million from $839.3 million for the six months ended June 30, 2007. Net income for the six months ended June 30, 2008 was $9.9 million, or $.37 per share, compared to $9.1 million, or $.34 per share, for the six months ended June 30, 2007.

Quarterly Sales Growth by Business Segment:

-- Net sales for the small- and medium-sized business (SMB) segment increased by 1.9% to $236.4 million compared to the second quarter of 2007. Corporate sales within the segment grew year over year, as sales to consumers continued to decline, reflecting our focus on business customers.

-- Net sales for MoreDirect, Inc., the Company's Large Account segment, decreased by 4.7% to $127.4 million compared to the second quarter of 2007. MoreDirect experienced decreased revenues from its larger enterprise customers, but partly offset these during the quarter with the addition of new accounts.

-- Net sales to GovConnection, Inc., the Company's Public Sector segment, increased by $10.1 million, or 13.3%, to $85.7 million compared to the second quarter of 2007. Strong federal government contract sales and larger education sales contributed to this double-digit increase.

Quarterly Sales Growth by Product Mix:

-- Net/Com Products sales increased 43% year over year, accounting for 11% of net sales in the second quarter of 2008 compared to 8% of net sales for the corresponding period a year ago. We experienced double digit year-over-year growth in all three segments, and with several vendors.

-- Video, Imaging and Sound sales increased 9% year over year, accounting for 14% of net sales in the second quarter of 2008 compared to 13% for the corresponding prior year quarter. Strong video product sales continued to drive the majority of this revenue growth.

-- Sales of Notebooks and PDAs decreased 3% year over year, accounting for 16% of net sales in both second quarters of 2008 and 2007.

Gross profit dollars increased by $2.8 million, or 5.2%, in the second quarter of 2008 from the corresponding period a year ago due to improved rate and volume in 2008. Gross profit margin, as a percentage of net sales, increased 40 basis-points to 12.6% in the second quarter of 2008 compared to the second quarter of 2007, primarily due to increased vendor allowances in 2008.

Overall annualized sales productivity was unchanged in the second quarter of 2008 compared to the second quarter of 2007. Sales productivity in our Large Account segment increased 5% in the second quarter of 2008 compared to the second quarter of 2007. Sales productivity in our Public Sector segment increased 9% year over year primarily due to increased Federal contract and education sales in 2008. For our SMB segment, productivity decreased 3% year over year due to the addition of new sales representatives. On a consolidated basis, the total number of sales representatives was 667 at June 30, 2008, compared to 652 at June 30, 2007.

Total selling, general and administrative expenses for the quarter increased year over year by $3.2 million, or 7.0%, and increased as a percentage of net sales to 10.7% for the second quarter of 2008 from 10.3% for the second quarter of 2007. The year-over-year dollar and rate increase was primarily attributable to the incremental variable compensation associated with higher gross profits, additional investment in sales and promotion costs in 2008, as well as the weaker demand environment.

The Company believes revenue for the third quarter of 2008 will be in the same range as the third quarter of 2007, reflecting the current economic environment. "We are continuing to move our business forward and are taking a number of actions to bring costs in line with expected sales levels," said Patricia Gallup, Chairman and Chief Executive Officer. "We believe that our talented and experienced team will be successful in executing our plans, and that we will continue to build 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 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended March 31, 2008. 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.

PC Connection, Inc. -- Second Quarter Earnings -- 07/31/08
----------------------------------------------------------------------

CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------
At or for the Three
 Months Ended June 30,        2008               2007
------------------------------------------ ------------------ --------
(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             $  449,399         $  441,122              2%
  Diluted earnings per
   share                $      .19         $      .21            (10%)

  Gross profit margin         12.6%              12.3%
  Operating margin             1.9                2.0
  Return on equity (1)         8.8               11.2

  Catalogs distributed   3,060,000          3,404,000            (10%)
  Orders entered (2)       361,500            365,200             (1%)
  Average order size
   (2)                  $    1,462         $    1,396              5%

  Inventory turns (1)           24                 22
  Days sales
   outstanding                  45                 42


Product Mix:
  Notebooks & PDAs      $   69,939     16% $   72,374     16%     (3%)
  Video, Imaging &
   Sound                    64,521     14      59,146     13       9
  Desktops/Servers          62,035     14      62,479     14      (1)
  Software                  57,010     13      56,205     13       1
  Net/Com Products          51,046     11      35,630      8      43
  Printers & Printer
   Supplies                 40,305      9      41,743     10      (3)
  Storage Devices           36,583      8      39,649      9      (8)
  Memory & System
   Enhancements             17,887      4      24,032      6     (26)
  Accessories/Other         50,073     11      49,864     11       -
                        ----------- ------ ----------- ------
  Total                 $  449,399    100% $  441,122    100%      2%
                        =========== ====== =========== ======


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

                        $  163,228     36% $  144,552     33%     13%
                        ===========        ===========


  Stock Performance
   Indicators:
  Actual shares
   outstanding (4)          27,057             26,824
  Total book value per
   share                $     8.72         $     7.80
  Tangible book value
   per share            $     6.50         $     5.54
  Closing price         $     9.31         $    13.24
  Market capitalization $  251,901         $  355,150
  Trailing
   price/earnings ratio
   (3)                          11                 19

(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
(4) Includes outstanding nonvested stock awards


SELECTED SEGMENT INFORMATION
----------------------------------------------------------------------
For the Three Months Ended June 30,         2008            2007
------------------------------------------------------ ---------------
(Dollars in thousands)                          Gross           Gross
                                          Net   Margin   Net    Margin
                                         Sales    (%)   Sales     (%)
------------------------------------------------------ ---------------

PC Connection Sales Corporation (SMB)  $236,375  14.0% $231,935  13.3%
MoreDirect (Large Account)              127,368  11.8   133,602  11.3
GovConnection (Public Sector)            85,656  10.0    75,585  10.8
                                       --------        --------
Total                                  $449,399  12.6% $441,122  12.3%
                                       ========        ========

CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended June 30,          2008                 2007
----------------------------------------------------------------------
(amounts in thousands, except             % of Net            % of Net
 per share data)                Amount     Sales     Amount    Sales
-------------------------------------------------- -------------------

Net sales                     $  449,399    100.0%  $441,122    100.0%
Cost of sales                    392,559     87.4    387,082     87.7
                              ----------- -------- ---------- --------
    Gross Profit                  56,840     12.6     54,040     12.3

Selling, general and
 administrative expenses          48,173     10.7     45,005     10.3
                              ----------- -------- ---------- --------
    Income From Operations         8,667      1.9      9,035      2.0

Interest expense                    (199)       -       (242)    (0.1)
Other, net                           205        -        260      0.1
Income tax provision              (3,586)    (0.8)    (3,300)    (0.7)
                              ----------- -------- ---------- --------
    Net Income                $    5,087      1.1%  $  5,753      1.3%
                              =========== ======== ========== ========


Weighted average common
 shares outstanding:
    Basic                         26,807              26,798
                              ===========          ==========
    Diluted                       26,930              26,995
                              ===========          ==========
Earnings per common share:
    Basic                     $     0.19            $   0.21
                              ===========          ==========
    Diluted                   $     0.19            $   0.21
                              ===========          ==========


CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Six Months Ended June 30,            2008                 2007
--------------------------------------------------  ------------------
(amounts in thousands,                    % of Net            % of Net
 except per share data)        Amount      Sales     Amount    Sales
--------------------------------------------------  ------------------

Net sales                    $  873,123     100.0%  $839,302    100.0%
Cost of sales                   763,539      87.5    735,347     87.6
                             -----------  --------  --------- --------
  Gross Profit                  109,584      12.5    103,955     12.4

Selling, general and
 administrative expenses         93,566      10.7     89,198     10.6
                             -----------  --------  --------- --------
  Income From Operations         16,018       1.8     14,757      1.8

Interest expense                   (361)        -       (450)    (0.1)
Other, net                          364         -        461      0.1
Income tax provision             (6,160)     (0.7)    (5,630)    (0.7)
                             -----------  --------  --------- --------
  Net Income                 $    9,861       1.1%  $  9,138      1.1%
                             ===========  ========  ========= ========


Weighted average common shares outstanding:
  Basic                          26,834               26,740
                             ===========            =========
  Diluted                        26,952               27,002
                             ===========            =========
Earnings per common share:
  Basic                      $     0.37             $   0.34
                             ===========            =========
  Diluted                    $     0.37             $   0.34
                             ===========            =========

CONSOLIDATED BALANCE SHEETS                     June 30,  December 31,
----------------------------------------------------------------------
(amounts in thousands)                            2008         2007
----------------------------------------------------------------------

ASSETS
Current Assets:
Cash and cash equivalents                       $ 40,916     $ 13,741
Accounts receivable, net                         193,599      202,216
Inventories-merchandise                           64,968       76,090
Deferred income taxes                              2,732        2,858
Income taxes receivable                              917          345
Prepaid expenses and other current assets          4,000        4,322
                                                --------- ------------
   Total current assets                          307,132      299,572
Property and equipment, net                       23,199       20,831
Goodwill                                          56,867       56,867
Other intangibles, net                             2,756        3,291
Other assets                                         306          318
                                                --------- ------------
   Total Assets                                 $390,260     $380,879
                                                ========= ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current maturities of capital lease obligation
 to affiliate                                   $    615     $    527
Accounts payable                                 110,924      111,140
Accrued expenses and other liabilities            20,349       20,557
Accrued payroll                                    9,622       10,816
                                                --------- ------------
   Total current liabilities                     141,510      143,040
Capital lease obligation to affiliate, less
 current maturities                                3,969        4,309
Deferred income taxes                              7,061        5,436
Other liabilities                                  3,742        3,784
                                                --------- ------------
   Total Liabilities                             156,282      156,569
                                                --------- ------------
Stockholders' Equity:
Common stock                                         273          273
Additional paid-in capital                        93,452       94,132
Retained earnings                                141,831      131,970
Treasury stock at cost                            (1,578)      (2,065)
                                                --------- ------------
   Total Stockholders' Equity                    233,978      224,310
                                                --------- ------------
   Total Liabilities and Stockholders' Equity   $390,260     $380,879
                                                ========= ============


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Six months ended June 30, 2008 (amounts in thousands)
----------------------------------------------------------------------
           Common Stock  Additional          Treasury Shares
           -------------  Paid-In   Retained ---------------
           Shares Amount   Capital  Earnings Shares  Amount    Total
----------------------------------------------------------------------

Balance -
 January 1,
 2008      27,252 $  273 $94,132    $131,970 (327)  ($2,065) $224,310

Stock
 compen-
sation
 expense        -      -     531           -    -         -       531

Issuance of
 common
 stock
 under
 stock
 incentive
 plans,
  including
  income
  tax
  benefits     11      -      86           -    -         -        86

Issuance of
 common
 stock
 under
 Employee
 Stock
  Purchase
  Plan         14      -     129           -    -         -       129

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

Issuance of
 nonvested
 stock          -      -  (1,426)          -  199     1,426         -

Net income      -      -       -       9,861    -         -     9,861
           ------ ------ ---------- -------- ------ -------- ---------

Balance -
 June 30,
 2008      27,277 $  273 $93,452    $141,831 (220)  ($1,578) $233,978
           ====== ====== ========== ======== ====== ======== =========

CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Six Months Ended June 30, (amounts in thousands)     2008      2007
----------------------------------------------------------------------

Cash Flows from Operating Activities:

Net income                                         $  9,861  $  9,138
Adjustments to reconcile net income to net cash
 provided by operating activities:
   Depreciation and amortization                      3,505     3,472
   Provision for doubtful accounts                      696       894
   Deferred income taxes                              1,751        79
   Stock compensation expense                           531       (23)
   Excess tax benefit from exercise of stock
    options                                              (3)     (358)
   Income tax benefit related to employee equity
    awards                                               10       918
   Loss on disposal of fixed assets                       -         8

Changes in assets and liabilities:
   Accounts receivable                                7,921        25
   Inventories                                       11,122    (5,835)
   Prepaid expenses and other current assets           (250)       70
   Other non-current assets                              12       (35)
   Accounts payable                                     (89)  (10,168)
   Accrued expenses and other liabilities            (1,444)    2,252
                                                   --------- ---------
Net cash provided by operating activities            33,623       437
                                                   --------- ---------


Cash Flows from Investing Activities:

Purchases of property and equipment                  (5,465)   (3,151)
                                                   --------- ---------
Net cash used for investing activities               (5,465)   (3,151)
                                                   --------- ---------


Cash Flows from Financing Activities:

Proceeds from short-term borrowings                  35,345     1,461
Repayment of short-term borrowings                  (35,345)   (1,461)
Repayment of capital lease obligation                  (252)     (438)
Purchase of treasury shares                            (939)        -
Exercise of stock options                                76     2,544
Issuance of stock under Employee Stock Purchase
 Plan                                                   129       134
Excess tax benefit from exercise of stock options         3       358
                                                   --------- ---------
Net cash (used for) provided by financing
 activities                                            (983)    2,598
                                                   --------- ---------
Increase (decrease) in cash and cash equivalents     27,175      (116)
Cash and cash equivalents, beginning of period       13,741    17,582
                                                   --------- ---------
Cash and cash equivalents, end of period           $ 40,916  $ 17,466
                                                   ========= =========

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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