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PC Connection, Inc. Reports Third Quarter 2015 Results

10/29/15

THIRD QUARTER SUMMARY:

  • Highest quarterly net sales and net income in Company history
  • Net sales: $680.8 million, up 6.4% year over year
  • Diluted earnings per share: $0.49 versus $0.46 last year
  • Cash balance $76.9 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 record results for the quarter ended September 30, 2015. Net sales for the third quarter of 2015 increased by 6.4% to $680.8 million, compared to $639.6 million for the prior year quarter. Net income for the quarter ended September 30, 2015 increased to $13.0 million, or $0.49 per diluted share, compared to net income of $12.2 million, or $0.46 per diluted share for the prior year quarter. The Company's results are compared to a very strong prior year quarter, which had revenue growth of 10% and net income growth of 15%.

Net sales for the nine months ended September 30, 2015 were $1,889.7 million, an increase of $57.1 million or 3.1%, compared to $1,832.6 million for the nine months ended September 30, 2014. Net income for the nine months ended September 30, 2015 increased by 8.1% to $33.2 million, or $1.25 per diluted share, compared to net income of $30.7 million, or $1.16 per diluted share, for the nine months ended September 30, 2014. Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense ("Adjusted EBITDA") totaled $85.4 million for the twelve months ended September 30, 2015, compared to $76.7 million for the twelve months ended September 30, 2014.

Quarterly Sales by Segment:

  • Net sales for the SMB segment increased by 5.6% to $268.7 million in the third quarter of 2015, compared to the prior year quarter. The increase was due to solid growth in Mobility, Networking, and Services.
  • Net sales for the Large Account segment increased by 20.2% to $242.8 million in the third quarter of 2015, compared to the prior year quarter. The increase was due to strong demand for solution-based projects from enterprise customers across a number of industries and vertical markets, including significant growth in Healthcare.
  • Net sales to the Public Sector segment decreased by 7.6% to $169.3 million in the third quarter of 2015, compared to the prior year quarter. This segment's results compared to very strong 2014 numbers, as Public Sector grew 21% in Q3 of 2014.

Quarterly Sales by Product Mix:

  • Notebook/mobility sales, the Company's largest product category, increased by 16% year over year and accounted for 24% of net sales in the third quarter of 2015 compared to 22% of net sales in the prior year quarter. Mobility continues to be a strategic focus area for customers in each of our three segments.
  • Software sales increased by 4% year over year and accounted for 15% of net sales in the third quarter of 2015 compared to 16% of net sales in the prior year quarter. We experienced growth in cloud-based offerings, security, and virtualization.
  • We experienced sales growth in advanced solutions including Networking and Storage as we continue to focus on solving our customer's most complex business issues with technology.

Overall gross profit increased by $4.9 million, or 5.9%, in the third quarter of 2015, compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, slightly decreased to 13.0% in the third quarter of 2015, compared to 13.1% for the prior year quarter.

Selling, general and administrative dollars increased in the third quarter of 2015 to $66.7 million from $63.2 million in the prior year quarter and improved as a percentage of net sales to 9.8% due to strict cost controls. Included in these totals were $0.5 million of start-up and transition costs related to our new advanced configuration and distribution center, which was operational at 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 nine months ended September 30, 2015. Total cash was $76.9 million at September 30, 2015, compared to $60.9 million at December 31, 2014.

"The Company had record performance in both net sales and net income this quarter. We were able to increase sales and earnings, while making solid progress towards our Company goals as a leading National Solutions Provider connecting customers with technology solutions," said Timothy McGrath, President and Chief Executive Officer. "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 September 30,       2015   2014    
%
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)                             Change
 
Operating Data:
Net sales $ 680,769 $ 639,570 6 %
Diluted earnings per share $ 0.49 $ 0.46 7 %
 
Gross margin 13.0 % 13.1 %
Operating margin 3.2 % 3.2 %
Return on equity (1) 12.3 % 12.2 %
 
Inventory turns 23 24
Days sales outstanding 40 36
 
% of % of
Product Mix: Net Sales Net Sales
Notebooks/Mobility 24 % 22 %
Software 15 16
Servers/Storage 11 12
Net/Com Products 9 9
Other Hardware/Services   41     41  
Total Net Sales   100 %   100 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,444 26,298
Total book value per share $ 14.70 $ 13.38
Tangible book value per share $ 12.71 $ 11.34
Closing price $ 20.73 $ 21.47
Market capitalization $ 548,184 $ 564,618
Trailing price/earnings ratio 12.2 14.0
LTM Adjusted EBITDA (2) $ 85,392 $ 76,723
Adjusted market capitalization/LTM Adjusted EBITDA (3) 5.5 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 September 30,       2015   2014  
Net Gross Net Gross
(amounts in thousands) Sales       Margin Sales       Margin
 
SMB $ 268,720 15.1 % $ 254,432 14.9 %
Large Account 242,771 11.9 201,979 13.1
Public Sector   169,278   11.2   183,159   10.4
Total $ 680,769   13.0 % $ 639,570   13.1 %

   
CONDENSED CONSOLIDATED STATEMENTS OF INCOME                        
Three Months Ended September 30,       2015     2014  
(amounts in thousands, except per share data) Amount % of Net Sales   Amount % of Net Sales
 
Net sales $ 680,769 100.0 % $ 639,570 100.0 %
Cost of sales   592,201   87.0     555,918   86.9  
Gross profit 88,568 13.0 83,652 13.1
 
Start-up costs - new distribution center 459 0.1 - -
Selling, general and administrative expenses, other   66,248   9.7     63,235   9.9  
Income from operations 21,861 3.2 20,417 3.2
 
Interest/other expense, net (29 ) - (36 ) -
Income tax provision   (8,831 ) (1.3 )   (8,204 ) (1.3 )
Net income $ 13,001   1.9 % $ 12,177   1.9 %
 
Earnings per common share:
Basic $ 0.49   $ 0.46  
Diluted $ 0.49   $ 0.46  
 
Shares used in the computation of earnings per common share:
Basic   26,423     26,266  
Diluted   26,622     26,524  
 
 
                                 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30,       2015     2014  
(amounts in thousands, except per share data) Amount % of Net Sales   Amount % of Net Sales
 
Net sales $ 1,889,650 100.0 % $ 1,832,574 100.0 %
Cost of sales   1,640,482   86.8     1,592,309   86.9  
Gross profit 249,168 13.2 240,265 13.1
 
Start-up costs - new distribution center 730 - - -
Selling, general and administrative expenses, other   192,775   10.2     188,900   10.3  
Income from operations 55,663 3.0 51,365 2.8
 
Interest/other expense, net (67 ) - (72 ) -
Income tax provision   (22,382 ) (1.2 )   (20,556 ) (1.1 )
Net income $ 33,214   1.8 % $ 30,737   1.7 %
 
Earnings per common share:
Basic $ 1.26   $ 1.17  
Diluted $ 1.25   $ 1.16  
 
Shares used in the computation of earnings per common share:
Basic   26,281     26,225  
Diluted   26,514     26,498  

                                                 
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 September 30, LTM Ended September 30, (1)
  2015   2014 % Change     2015     2014   % Change  
Net income $ 13,001 $ 12,177 $ 45,158 $ 40,578
Depreciation and amortization 2,226 2,133 8,692 8,074
Income tax expense 8,831 8,204 30,513 27,079
Interest/other expense, net   29   36   81     86  
EBITDA 24,087 22,550 84,444 75,817
Stock-based compensation   257   215     948     906    
Adjusted EBITDA $ 24,344 $ 22,765 7 % $ 85,392   $ 76,723   11 %
 
(1) LTM: Last twelve months
                                         
September 30, December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS                           2015     2014  
(amounts in thousands)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 76,867 $ 60,909
Accounts receivable, net 331,186 293,027
Inventories 102,573 90,917
Deferred income taxes 7,749 7,749
Prepaid expenses and other current assets 4,632 5,332
Income taxes receivable   833     212  
Total current assets 523,840 458,146
Property and equipment, net 32,400 27,861
Goodwill 51,276 51,276
Other intangibles, net 1,393 1,953
Other assets   1,173     724  
Total Assets $ 610,082   $ 539,960  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 161,054 $ 124,893
Accrued expenses and other liabilities 22,871 22,011
Accrued payroll   15,909     17,793  
Total current liabilities 199,834 164,697
Deferred income taxes 18,859 18,803
Other liabilities   2,723     2,452  
Total Liabilities   221,416     185,952  
Stockholders' Equity:
Common stock 283 282
Additional paid-in capital 108,399 106,956
Retained earnings 295,846 262,632
Treasury stock at cost   (15,862 )   (15,862 )
Total Stockholders' Equity   388,666     354,008  
Total Liabilities and Stockholders' Equity $ 610,082   $ 539,960  

               
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,           2015     2014  
(amounts in thousands)
Cash Flows from Operating Activities:
Net income $ 33,214 $ 30,737
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,597 5,998
Provision for doubtful accounts 1,103 826
Stock-based compensation expense 720 702
Deferred income taxes 56 50
Excess tax benefit from exercise of equity awards (472 ) (503 )
 
Changes in assets and liabilities:
Accounts receivable (39,262 ) 8,287
Inventories (11,656 ) (3,400 )
Prepaid expenses and other current assets 79 (2,102 )
Other non-current assets (449 ) (31 )
Accounts payable 35,654 (15,430 )
Accrued expenses and other liabilities   (279 )   3,749  
Net cash provided by operating activities   25,305     28,883  
 
Cash Flows from Investing Activities:
Purchases of equipment (10,069 ) (5,522 )
Proceeds from sale of equipment   -     10  
Net cash used for investing activities   (10,069 )   (5,512 )
 
Cash Flows from Financing Activities:
Excess tax benefit from exercise of equity awards 472 503
Issuance of stock under Employee Stock Purchase Plan 435 360
Exercise of stock options 379 186
Payment of payroll taxes on stock-based compensation through shares withheld   (564 )   (533 )
Net cash provided by financing activities   722     516  
Increase in cash and cash equivalents 15,958 23,887
Cash and cash equivalents, beginning of period   60,909     42,547  
Cash and cash equivalents, end of period $ 76,867   $ 66,434  
 
Non-cash Investing Activities:
Accrued capital expenditures $ 711 $ 290
 
Supplemental Cash Flow Information:
Income taxes paid $ 23,360 $ 22,092
 

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

Source: PC Connection, Inc.

News Provided by Acquire Media

 




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