Connection (CNXN) Reports Fourth Quarter and Full Year 2017 Results
FOURTH QUARTER SUMMARY:
-
Record net sales:
$762.3 million , up 3.6% y/y -
Gross profit:
$99.5 million , up 1.4% y/y -
Diluted EPS:
$0.77 , compared to$0.49 for the prior year quarter -
Adjusted EPS excluding tax benefit and special charges:
$0.54 , compared to$0.52 for the prior year quarter
FULL YEAR SUMMARY:
-
Record net sales:
$2.9 billion , up 8.1% y/y -
Record gross profit:
$382.1 million , up 2.9% y/y -
Diluted EPS:
$2.04 , compared to$1.80 for the prior year -
Adjusted EPS excluding tax benefit and special charges:
$1.84 , compared to$1.88 for the prior year
On
Net sales for the year ended
Quarterly Performance by Segment:
-
Net sales for the Business Solutions (SMB) segment increased by 7.6%
to
$298.0 million in the fourth quarter of 2017, compared to the prior year quarter. Desktop, servers, and software products experienced strong revenue growth in this segment with an increase of 31%, 26%, and 15%, respectively. Gross margin decreased by 17 basis points due to an increase in sales of velocity products, such as desktops and notebooks. -
Net sales for the Enterprise Solutions (Large Account) segment
increased by 7.2% to
$308.8 million in the fourth quarter of 2017, compared to the prior year quarter. Storage, software, and servers experienced solid growth during the quarter at 37%, 16%, and 8%, respectively. Gross margin decreased by 43 basis points primarily due to a continued competitive market environment. -
Net sales to the Public Sector Solutions segment decreased by 8.8% to
$155.4 million in the fourth quarter of 2017, compared to the prior year quarter. Sales to state and local government and educational institutions decreased by 5.1%, compared to the prior year quarter, and sales to the federal government decreased by 11.9%. Gross margin decreased by 56 basis points primarily due to an ongoing competitive market environment.
Quarterly Sales by Product Mix:
- Software sales, the Company’s largest product category, increased by 20% year over year and accounted for 24% of net sales in the fourth quarter of 2017, compared to 21% of net sales in the prior year quarter. We experienced solid growth in cloud-based offerings, security, and office productivity.
- Notebook/mobility sales decreased slightly year over year and accounted for 21% of net sales in the fourth quarter of 2017, compared to 22% of net sales in the prior year quarter. Sales of this product category grew year over year in Business Solutions and Enterprise Solutions, but were offset by lower notebook sales made under federal contracts in our Public Sector, compared to the prior year quarter.
- Desktop sales increased slightly year over year and accounted for 11% of net sales in the fourth quarter of 2017 and 2016. Desktop sales to federal government customers in the Public Sector declined year over year but were offset by strong year-over-year growth in the Business Solutions segment.
- Servers increased by 22% year over year and accounted for 5% of net sales in the fourth quarter of 2017, compared to 4% of net sales in the prior year quarter. Both Business Solutions and Enterprise Solutions experienced strong year-over-year growth in server sales.
Overall gross profit increased by
Selling, general and administrative expenses increased slightly in the
fourth quarter of 2017 to
Total cash was
“I was pleased to see continued growth in our four strategic vertical
markets; manufacturing, retail, healthcare, and finance. We also saw
strong growth in software and workforce productivity during the
quarter,” said
Non-GAAP Financial Information
Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures. 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 – Business Solutions (800-800-5555), (the original business
of
Connection – Public Sector Solutions (800-800-0019), operating through
our
Connection – Enterprise Solutions (561-237-3300), www.connection.com/enterprise,
operating through our
cnxn-g
"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, product availability and market acceptance, new products, continuation of key vendor and customer relationships and support programs, the ability to realize market demand for and competitive pricing pressures on the products and services marketed by the Company, fluctuations in operating results and the ability of the Company to manage personnel levels in response to fluctuations in revenue, the ability of the Company to hire and retain qualified sales representatives and other essential personnel, 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. 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 December 31, |
2017 | 2016 | |||||||||||||||||
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data) | % Change |
||||||||||||||||||
Operating Data: | |||||||||||||||||||
Net sales | $ | 762,267 | $ | 735,548 | 4 | % | |||||||||||||
Diluted earnings per share | $ | 0.77 | $ | 0.49 | 57 | % | |||||||||||||
Adjusted diluted earnings per share | $ | 0.54 | $ | 0.52 | 4 | % | |||||||||||||
Gross margin | 13.1 | % | 13.3 | % | |||||||||||||||
Operating margin | 2.9 | % | 3.0 | % | |||||||||||||||
Return on equity (1) | 12.0 | % | 11.7 | % | |||||||||||||||
Inventory turns | 24 | 22 | |||||||||||||||||
Days sales outstanding | 48 | 48 | |||||||||||||||||
Product Mix: | % of Net Sales |
% of Net Sales |
|||||||||||||||||
Software | 24 | % | 21 | % | |||||||||||||||
Notebooks/Mobility | 21 | 22 | |||||||||||||||||
Servers/Storage | 9 | 9 | |||||||||||||||||
Net/Com Products | 7 | 9 | |||||||||||||||||
Other Hardware/Services | 39 | 39 | |||||||||||||||||
Total Net Sales | 100 | % | 100 | % | |||||||||||||||
Stock Performance Indicators: | |||||||||||||||||||
Actual shares outstanding | 26,853 | 26,609 | |||||||||||||||||
Total book value per share | $ | 17.96 | $ | 16.29 | |||||||||||||||
Tangible book value per share | $ | 14.81 | $ | 13.05 | |||||||||||||||
Closing price | $ | 26.21 | $ | 28.09 | |||||||||||||||
Market capitalization | $ | 703,817 | $ | 747,447 | |||||||||||||||
Trailing price/earnings ratio | 12.9 | 15.6 | |||||||||||||||||
LTM Adjusted EBITDA (2) | $ | 93,967 | $ | 95,468 | |||||||||||||||
Adjusted market capitalization/LTM Adjusted EBITDA (3) | 7.0 | 7.3 | |||||||||||||||||
(1) Based on last twelve months' net income. | |||||||||||||||||||
(2) Adjusted EBITDA is defined as EBITDA (earnings before
interest, taxes, depreciation and amortization) |
|||||||||||||||||||
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance. | |||||||||||||||||||
REVENUE AND MARGIN INFORMATION For the Three Months Ended December 31, |
2017 | 2016 | |||||||||||||||||
(amounts in thousands) | Net Sales |
Gross Margin |
Net Sales |
Gross Margin |
|||||||||||||||
Business Solutions (SMB) (1) | $ | 298,017 | 15.6 | % | $ | 277,059 | 15.7 | % | |||||||||||
Enterprise Solutions (Large Account) (1) | 308,806 | 11.7 | 288,126 | 12.2 | |||||||||||||||
Public Sector Solutions | 155,444 | 10.9 | 170,363 | 11.5 | |||||||||||||||
Total | $ | 762,267 | 13.1 | % | $ | 735,548 | 13.3 | % | |||||||||||
(1) The Q4 2016 results for Business and Enterprise Solutions have been updated to reflect segment methodology used in our 2016 Annual Report on Form 10-K, which allocated the operating results for Softmart between these two segments.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended December 31, |
2017 | 2016 | ||||||||||||||
(amounts in thousands, except per share data) | Amount | % of Net Sales | Amount | % of Net Sales | ||||||||||||
Net sales | $ | 762,267 | 100.0 | % | $ | 735,548 | 100.0 | % | ||||||||
Cost of sales | 662,737 | 86.9 | 637,425 | 86.7 | ||||||||||||
Gross profit | 99,530 | 13.1 | 98,123 | 13.3 | ||||||||||||
Special charges | 2,695 | 0.4 | 1,511 | 0.2 | ||||||||||||
Selling, general and administrative expenses, other | 74,939 | 9.8 | 74,711 | 10.1 | ||||||||||||
Income from operations | 21,896 | 2.9 | 21,901 | 3.0 | ||||||||||||
Interest/other expense, net | 78 | – | (14 | ) | – | |||||||||||
Income tax provision | (1,251 | ) | (0.2 | ) | (8,890 | ) | (1.2 | ) | ||||||||
Net income | $ | 20,723 | 2.7 | % | $ | 12,997 | 1.8 | % | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.77 | $ | 0.49 | ||||||||||||
Diluted | $ | 0.77 | $ | 0.49 | ||||||||||||
Shares used in the computation of earnings per common share: | ||||||||||||||||
Basic | 26,822 | 26,569 | ||||||||||||||
Diluted | 26,907 | 26,738 | ||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, |
2017 | 2016 | ||||||||||||||
(amounts in thousands, except per share data) |
Amount |
% of Net Sales |
Amount |
% of Net Sales |
||||||||||||
Net sales | $ | 2,911,883 | 100.0 | % | $ | 2,692,592 | 100.0 | % | ||||||||
Cost of sales | 2,529,807 | 86.9 | 2,321,435 | 86.2 | ||||||||||||
Gross profit | 382,076 | 13.1 | 371,157 | 13.8 | ||||||||||||
Special charges | 3,636 | 0.1 | 3,406 | 0.1 | ||||||||||||
Selling, general and administrative expenses, other | 300,913 | 10.3 | 287,231 | 10.7 | ||||||||||||
Income from operations | 77,527 | 2.7 | 80,520 | 3.0 | ||||||||||||
Interest/other expense, net | 98 | – | (67 | ) | – | |||||||||||
Income tax provision | (22,768 | ) | (0.8 | ) | (32,342 | ) | (1.2 | ) | ||||||||
Net income | $ | 54,857 | 1.9 | % | $ | 48,111 | 1.8 | % | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 2.05 | $ | 1.81 | ||||||||||||
Diluted | $ | 2.04 | $ | 1.80 | ||||||||||||
Shares used in the computation of earnings per common share: | ||||||||||||||||
Basic | 26,771 | 26,528 | ||||||||||||||
Diluted | 26,891 | 26,719 | ||||||||||||||
EBITDA AND ADJUSTED EBITDA | ||||||||||||||||||||||
A reconciliation of EBITDA and Adjusted EBITDA is detailed below.
Adjusted EBITDA is defined as EBITDA |
||||||||||||||||||||||
(amounts in thousands) | Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||||
Net income | $ | 20,723 | $ | 12,997 | $ | 54,857 | $ | 48,111 | ||||||||||||||
Depreciation and amortization | 3,194 | 2,948 | 11,839 | 10,453 | ||||||||||||||||||
Income tax expense | 1,251 | 8,890 | 22,768 | 32,342 | ||||||||||||||||||
Interest/other expense, net | 38 | 54 | 126 | 107 | ||||||||||||||||||
EBITDA | 25,206 | 24,889 | 89,590 | 91,013 | ||||||||||||||||||
Special charges (1) | 2,695 | 1,511 | 3,636 | 3,406 | ||||||||||||||||||
Stock-based compensation | 181 | 74 | 741 | 1,049 | ||||||||||||||||||
Adjusted EBITDA | $ | 28,082 | $ | 26,474 | 6 | % | $ | 93,967 | $ | 95,468 | -2 | % | ||||||||||
(1) Special charges in 2017 consist of a fourth quarter one-time bonus paid to all employees except executive officers as well as severance | ||||||||||||||||||||||
and relocation costs for our Softmart facility incurred in the second quarter 2017. Special charges in 2016 consist of our acquisition of |
||||||||||||||||||||||
Softmart, the rebranding of the Company, and duplicate costs incurred with the move of our Chicago-area facility. | ||||||||||||||||||||||
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE | ||||||||||||||||||||||
A reconciliation from Net Income to Adjusted Net Income is
detailed below. Adjusted Net Income is |
||||||||||||||||||||||
(amounts in thousands, except per share data) | Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||||
Net income | $ | 20,723 | $ | 12,997 | $ | 54,857 | $ | 48,111 | ||||||||||||||
Reduction of federal income tax expense (1) | (7,689 | ) | - | (7,689 | ) | - | ||||||||||||||||
Special charges, net of tax (2) | 1,598 | 898 | 2,211 | 2,037 | ||||||||||||||||||
Adjusted Net Income | $ | 14,632 | $ | 13,895 | $ | 49,379 | $ | 50,148 | ||||||||||||||
Diluted shares | 26,907 | 26,738 | 26,891 | 26,719 | ||||||||||||||||||
Adjusted Diluted Earnings per Share | $ | 0.54 | $ | 0.52 | 5 | % | $ | 1.84 | $ | 1.88 | -2 | % | ||||||||||
(1) The Company recorded a non-cash federal income tax benefit of
(2)
Special charges in 2017 consist of a fourth quarter one-time bonus paid
to all employees except executive officers as well as severance and
relocation costs for our Softmart facility incurred in the second
quarter 2017. Special charges in 2016 consist of our acquisition of
Softmart, the rebranding of the Company, and duplicate costs incurred
with the move of our
CONDENSED CONSOLIDATED BALANCE SHEETS | December 31, 2017 |
December 31, 2016 |
|||||||
(amounts in thousands) | |||||||||
ASSETS | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 49,990 | $ | 49,180 | |||||
Accounts receivable, net | 449,682 | 411,883 | |||||||
Inventories | 106,753 | 90,535 | |||||||
Prepaid expenses and other current assets | 5,737 | 5,453 | |||||||
Income taxes receivable | 3,933 | 2,120 | |||||||
Total current assets | 616,095 | 559,171 | |||||||
Property and equipment, net | 41,491 | 39,402 | |||||||
Goodwill | 73,602 | 73,602 | |||||||
Other intangibles, net | 11,025 | 12,586 | |||||||
Other assets | 5,638 | 1,373 | |||||||
Total Assets | $ | 747,851 | $ | 686,134 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
Current Liabilities: | |||||||||
Accounts payable | $ | 203,379 | $ | 177,862 | |||||
Accrued expenses and other liabilities | 21,974 | 31,047 | |||||||
Accrued payroll | 22,662 | 21,345 | |||||||
Total current liabilities | 248,015 | 230,254 | |||||||
Deferred income taxes | 15,696 | 19,602 | |||||||
Other liabilities | 1,888 | 2,836 | |||||||
Total Liabilities | 265,599 | 252,692 | |||||||
Stockholders’ Equity: | |||||||||
Common stock | 287 | 285 | |||||||
Additional paid-in capital | 114,154 | 111,081 | |||||||
Retained earnings | 383,673 | 337,938 | |||||||
Treasury stock at cost | (15,862 | ) | (15,862 | ) | |||||
Total Stockholders’ Equity | 482,252 | 433,442 | |||||||
Total Liabilities and Stockholders’ Equity | $ | 747,851 | $ | 686,134 | |||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, |
2017 | 2016 | |||||||
(amounts in thousands) | |||||||||
Cash Flows from Operating Activities: | |||||||||
Net income | $ | 54,857 | $ | 48,111 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 11,839 | 10,453 | |||||||
Provision for doubtful accounts | 1,658 | 360 | |||||||
Stock-based compensation expense | 741 | 1,049 | |||||||
Deferred income taxes | (3,906 | ) | 3,506 | ||||||
Loss on disposal of fixed assets | 24 | 92 | |||||||
Excess tax benefit from exercise of equity awards | - | (513 | ) | ||||||
Changes in assets and liabilities: | |||||||||
Accounts receivable | (39,457 | ) | (33,835 | ) | |||||
Inventories | (16,218 | ) | 12,401 | ||||||
Prepaid expenses and other current assets | (2,097 | ) | (1,274 | ) | |||||
Other non-current assets | (4,265 | ) | (321 | ) | |||||
Accounts payable | 24,929 | (3,012 | ) | ||||||
Accrued expenses and other liabilities | (8,785 | ) | (3,431 | ) | |||||
Net cash provided by operating activities | 19,320 | 33,586 | |||||||
Cash Flows from Investing Activities: | |||||||||
Purchases of equipment | (11,803 | ) | (11,885 | ) | |||||
Cash paid for acquisitions | - | (42,990 | ) | ||||||
Net cash used for investing activities | (11,803 | ) | (54,875 | ) | |||||
Cash Flows from Financing Activities: | |||||||||
Dividend payment | (9,041 | ) | (10,591 | ) | |||||
Exercise of stock options | 1,750 | 135 | |||||||
Issuance of stock under Employee Stock Purchase Plan | 1,197 | 961 | |||||||
Excess tax benefit from exercise of equity awards | - | 513 | |||||||
Payment of payroll taxes on stock-based compensation through shares withheld | (613 | ) | (737 | ) | |||||
Net cash used for financing activities | (6,707 | ) | (9,719 | ) | |||||
Increase (decrease) in cash and cash equivalents | 810 | (31,008 | ) | ||||||
Cash and cash equivalents, beginning of period | 49,180 | 80,188 | |||||||
Cash and cash equivalents, end of period | $ | 49,990 | $ | 49,180 | |||||
Non-cash Investing Activities: | |||||||||
Dividend declaration | $ | 9,122 | $ | 9,041 | |||||
Accrued capital expenditures | $ | 699 | $ | 109 | |||||
Supplemental Cash Flow Information: | |||||||||
Income taxes paid | $ | 28,927 | $ | 29,740 | |||||
cnxn-g
View source version on businesswire.com: http://www.businesswire.com/news/home/20180215006302/en/
Source: Connection
Investor Relations Contact:
Connection
William Schulze,
603-683-2262
Vice President, Interim Treasurer & Chief Financial
Officer
william.schulze@connection.com