FIRST QUARTER SUMMARY:
Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and rebranding, acquisition and restructuring costs (“Adjusted EBITDA”) totaled
Quarterly Performance by Segment:
Quarterly Sales by Product Mix:
Overall gross profit increased by
Selling, general and administrative dollars increased in the first quarter of 2017 to
The Company generated significant cash flow during the quarter ended
“We are encouraged with the acceleration of our top line during the quarter. We saw strong growth in software, networking communications, workforce productivity, and services,” said
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. Non-GAAP measures are not a substitute for GAAP measures and should be considered together with the GAAP financial measures. Our non-GAAP financial measures may not be comparable to other similarly titled measures of other companies.
About Connection
Connection (www.connection.com; NASDAQ: CNXN), is the combined corporate brand name for
Connection – Business Solutions (800-800-5555), (the original business of
Connection – Public Sector Solutions (800-800-0019), our
Connection – Enterprise Solutions (561-237-3300), www.connection.com/enterprise, our
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"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are based on currently available information, operating plans, and projections about future events and trends. Terms such as "believe," "expect," "intend," "plan," "estimate," "anticipate," "may," "should," "will," or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements include such terms. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties, include, but are 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, market acceptance of the Company's new branding, fluctuations in operating results, the ability of the Company to manage personnel levels in response to fluctuations in revenue, and other risks detailed in the Company's filings with the Securities and Exchange Commission, including 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, 2016. 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 integrate its two acquisitions in an effective manner, 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 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, except as required by law.
CONSOLIDATED SELECTED FINANCIAL INFORMATION | ||||||||||||||
At or for the Three Months Ended March 31, | 2017 | 2016 | ||||||||||||
% 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 | $ | 670,594 | $ | 572,394 | 17 | % | ||||||||
Diluted earnings per share | $ | 0.28 | $ | 0.34 | (18 | %) | ||||||||
Gross margin | 12.9 | % | 14.4 | % | ||||||||||
Operating margin | 1.7 | % | 2.7 | % | ||||||||||
Return on equity (1) | 11.0 | % | 12.3 | % | ||||||||||
Inventory turns | 25 | 19 | ||||||||||||
Days sales outstanding | 48 | 41 | ||||||||||||
% of | % of | |||||||||||||
Product Mix: | Net Sales | Net Sales | ||||||||||||
Notebooks/Mobility | 22 | % | 24 | % | ||||||||||
Software | 19 | 17 | ||||||||||||
Servers/Storage | 9 | 11 | ||||||||||||
Net/Com Products | 9 | 8 | ||||||||||||
Other Hardware/Services | 41 | 40 | ||||||||||||
Total Net Sales | 100 | % | 100 | % | ||||||||||
Stock Performance Indicators: | ||||||||||||||
Actual shares outstanding | 26,761 | 26,501 | ||||||||||||
Total book value per share | $ | 16.54 | $ | 15.16 | ||||||||||
Tangible book value per share | $ | 13.34 | $ | 13.17 | ||||||||||
Closing price | $ | 29.79 | $ | 25.81 | ||||||||||
Market capitalization | $ | 797,210 | $ | 683,991 | ||||||||||
Trailing price/earnings ratio | 17.0 | 14.5 | ||||||||||||
LTM Adjusted EBITDA (2) | $ | 92,136 | $ | 90,795 | ||||||||||
Adjusted market capitalization/LTM Adjusted EBITDA (3) | 7.9 | 6.6 | ||||||||||||
(1) Based on last twelve months' net income. | ||||||||||||||
(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for acquisition, rebranding, and | ||||||||||||||
restructuring costs, and 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 March 31, | 2017 | 2016 | |||||||||||
Net | Gross | Net | Gross | ||||||||||
(amounts in thousands) | Sales | Margin | Sales | Margin | |||||||||
SMB | $ | 273,633 | 15.3 | % | $ | 261,246 | 15.9 | % | |||||
Large Account | 252,918 | 12.5 | 200,109 | 13.1 | |||||||||
Public Sector | 144,043 | 9.2 | 111,039 | 12.8 | |||||||||
Total |
$ | 670,594 | 12.9 | % | $ | 572,394 | 14.4 | % | |||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
Three Months Ended March 31, | 2017 | 2016 | ||||||||||||||
(amounts in thousands, except per share data) | Amount | % of Net Sales | Amount | % of Net Sales | ||||||||||||
Net sales | $ | 670,594 | 100.0 | % | $ | 572,394 | 100.0 | % | ||||||||
Cost of sales | 583,861 | 87.1 | 490,201 | 85.6 | ||||||||||||
Gross profit | 86,733 | 12.9 | 82,193 | 14.4 | ||||||||||||
Selling, general and administrative expenses, other | 75,281 | 11.2 | 67,029 | 11.7 | ||||||||||||
Income from operations | 11,452 | 1.7 | 15,164 | 2.7 | ||||||||||||
Interest/other expense, net | 19 | – | (14 | ) | – | |||||||||||
Income tax provision | (4,039 | ) | (0.6 | ) | (6,087 | ) | (1.1 | ) | ||||||||
Net income | $ | 7,432 | 1.1 | % | $ | 9,063 | 1.6 | % | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.28 | $ | 0.34 | ||||||||||||
Diluted | $ | 0.28 | $ | 0.34 | ||||||||||||
Shares used in the computation of earnings per common share: | ||||||||||||||||
Basic | 26,697 | 26,499 | ||||||||||||||
Diluted | 26,866 | 26,671 | ||||||||||||||
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 March 31, | LTM Ended March 31, (1) | ||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||
Net income | $ | 7,432 | $ | 9,063 | $ | 46,480 | $ | 47,306 | ||||||||||
Depreciation and amortization | 2,855 | 2,416 | 10,892 | 9,185 | ||||||||||||||
Income tax expense | 4,039 | 6,087 | 30,294 | 32,131 | ||||||||||||||
Interest expense | 28 | 14 | 121 | 102 | ||||||||||||||
EBITDA | 14,354 | 17,580 | 87,787 | 88,724 | ||||||||||||||
Acquisition, rebranding and restructuring costs (2) | - | - | 3,406 | 1,026 | ||||||||||||||
Stock-based compensation | 183 | 289 | 943 | 1,045 | ||||||||||||||
Adjusted EBITDA | $ | 14,537 | $ | 17,869 | -19 | % | $ | 92,136 | $ | 90,795 | 1 | % | ||||||
(1) LTM: Last twelve months | ||||||||||||||||||
(2) Acquisition, rebranding, and restructuring costs relate to our 2016 acquisitions, the re-branding of the Company to "Connection," severance related to internal restructuring, duplicate costs incurred with the move of our Chicago-area facility, and in 2015, duplicate costs incurred with the transition to our new distribution center. |
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March 31, | December 31, | |||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | 2017 | 2016 | ||||||||
(amounts in thousands) | ||||||||||
ASSETS | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 65,755 | $ | 49,180 | ||||||
Accounts receivable, net | 378,453 | 411,883 | ||||||||
Inventories | 99,973 | 90,535 | ||||||||
Prepaid expenses and other current assets | 5,604 | 5,453 | ||||||||
Income taxes receivable | 953 | 2,120 | ||||||||
Total current assets | 550,738 | 559,171 | ||||||||
Property and equipment, net | 38,650 | 39,402 | ||||||||
Goodwill | 73,602 | 73,602 | ||||||||
Other intangibles, net | 12,151 | 12,586 | ||||||||
Other assets | 1,351 | 1,373 | ||||||||
Total Assets | $ | 676,492 | $ | 686,134 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current Liabilities: | ||||||||||
Accounts payable | $ | 171,866 | $ | 177,862 | ||||||
Accrued expenses and other liabilities | 24,079 | 31,047 | ||||||||
Accrued payroll | 15,572 | 21,345 | ||||||||
Total current liabilities | 211,517 | 230,254 | ||||||||
Deferred income taxes | 19,640 | 19,602 | ||||||||
Other liabilities | 2,600 | 2,836 | ||||||||
Total Liabilities | 233,757 | 252,692 | ||||||||
Stockholders’ Equity: | ||||||||||
Common stock | 286 | 285 | ||||||||
Additional paid-in capital | 112,941 | 111,081 | ||||||||
Retained earnings | 345,370 | 337,938 | ||||||||
Treasury stock at cost | (15,862 | ) | (15,862 | ) | ||||||
Total Stockholders’ Equity | 442,735 | 433,442 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 676,492 | $ | 686,134 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
Three Months Ended March 31, | 2017 | 2016 | ||||||||
(amounts in thousands) | ||||||||||
Cash Flows from Operating Activities: | ||||||||||
Net income | $ | 7,432 | $ | 9,063 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 2,855 | 2,416 | ||||||||
Provision for doubtful accounts | 545 | (103 | ) | |||||||
Stock-based compensation expense | 183 | 289 | ||||||||
Deferred income taxes | 38 | 34 | ||||||||
Excess tax benefit from exercise of equity awards | - | (32 | ) | |||||||
Changes in assets and liabilities: | ||||||||||
Accounts receivable | 32,885 | 67,942 | ||||||||
Inventories | (9,438 | ) | 5,431 | |||||||
Prepaid expenses and other current assets | 1,016 | (1,928 | ) | |||||||
Other non-current assets | 22 | (128 | ) | |||||||
Accounts payable | (6,177 | ) | (52,359 | ) | ||||||
Accrued expenses and other liabilities | (3,936 | ) | (7,156 | ) | ||||||
Net cash provided by operating activities | 25,425 | 23,469 | ||||||||
Cash Flows from Investing Activities: | ||||||||||
Purchases of equipment | (1,487 | ) | (2,078 | ) | ||||||
Net cash used for investing activities | (1,487 | ) | (2,078 | ) | ||||||
Cash Flows from Financing Activities: | ||||||||||
Dividend payment | (9,041 | ) | (10,591 | ) | ||||||
Exercise of stock options | 1,678 | - | ||||||||
Excess tax benefit from exercise of equity awards | - | 32 | ||||||||
Payment of payroll taxes on stock-based compensation through shares withheld | - | (40 | ) | |||||||
Net cash used for financing activities | (7,363 | ) | (10,599 | ) | ||||||
Increase in cash and cash equivalents | 16,575 | 10,792 | ||||||||
Cash and cash equivalents, beginning of period | 49,180 | 80,188 | ||||||||
Cash and cash equivalents, end of period | $ | 65,755 | $ | 90,980 | ||||||
Non-cash Investing Activities: | ||||||||||
Accrued capital expenditures | $ | 291 | $ | 578 | ||||||
Supplemental Cash Flow Information: | ||||||||||
Income taxes paid | $ | 1,546 | $ | 7,638 | ||||||
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View source version on businesswire.com: http://www.businesswire.com/news/home/20170420006444/en/
Source: Connection
Connection
Investor Relations Contact:
William Schulze, 603-683-2262
Vice President, Interim Treasurer & Chief Financial Officer
william.schulze@connection.com