Connection (CNXN) Reports Fourth Quarter and Full Year Results
Operating Income Increases by 20% from Prior Q4
FOURTH QUARTER SUMMARY:
-
Gross profit:
$106.8 million , up 7.3% y/y -
Net income:
$21.3 million , up 2.8% y/y -
Diluted EPS:
$0.80 , compared to$0.77 y/y -
Cash balance:
$91.7 million
FULL YEAR SUMMARY:
-
Gross profit:
$411.1 million , up 7.6% y/y -
Net income:
$64.6 million , up 17.7% y/y -
Diluted EPS:
$2.41 , compared to$2.04 y/y -
Operating cash flows:
$86.8 million
As previously disclosed, effective
Net sales as presented for the quarter ended
Gross profit as presented for the quarter ended
Gross margin as presented for the quarter ended
Operating income as presented for the quarter ended
Net income as presented for the quarter ended
Earnings per share (“EPS”) on a diluted basis as presented for the
quarter ended
Net income, totaled
Net sales as presented for the year ended
Gross profit as presented for the year ended
Gross margin as presented for the year ended
Operating income as presented for the year ended
Net income as presented for the year ended
Quarterly Performance by Segment:
-
Net sales for the Business Solutions segment, as presented, for the
fourth quarter of 2018 were
$249.7 million . Net sales prior to the impact of the new revenue recognition standard for the fourth quarter of 2018 decreased by 0.3% to$297.2 million , compared to$298.0 million for the prior year’s quarter. Net/com and mobility products experienced solid growth during the quarter at 13% and 5%, respectively. Gross margin increased by 318 basis points to 18.7% primarily due to the adoption of the new revenue recognition standard and the increase in invoice selling margins. Gross margin prior to the impact of the new revenue recognition standard for the fourth quarter of 2018 was 15.8%. -
Net sales for the Public Sector Solutions segment, as presented, for
the fourth quarter of 2018 were
$118.4 million . Net sales prior to the impact of the new revenue recognition standard for the fourth quarter of 2018 decreased by 17.1% to$128.9 million , compared to$155.4 million for the prior year’s quarter. Mobility and net/com products experienced strong revenue growth in this segment with an increase of 24% and 14%, respectively. Gross margin increased by 282 basis points to 13.7% primarily due to an increase invoice selling margins and the adoption of the new revenue recognition standard. Gross margin prior to the impact of the new revenue recognition standard for the fourth quarter of 2018 was 12.5%. -
Net sales for the Enterprise Solutions segment, as presented, for the
fourth quarter of 2018 were
$341.4 million . Net sales prior to the impact of the new revenue recognition standard for the fourth quarter of 2018 increased by 26.8% to$391.5 million , compared to$308.8 million for the prior year’s quarter. Servers/storage, mobility and desktops experienced strong growth in this segment with an increase of 29%, 23%, and 15%, respectively. Gross margin increased by 110 basis points to 12.8% primarily due to the adoption of the new revenue recognition standard. Gross margin prior to the impact of the new revenue recognition standard for the fourth quarter of 2018 was 11.2%.
Quarterly Sales by Product Mix:
- Notebook/mobility sales, the Company’s largest product category, as presented, increased by 15% year over year and accounted for 26% of net sales in the fourth quarter of 2018, compared to 21% of net sales in the prior year quarter. Excluding the impact of the adoption of the new revenue recognition standard, notebook/mobility sales increased by 15% year over year and accounted for 22% of net sales in the fourth quarter of 2018, compared to 21% in the prior year quarter. All three selling segments experienced strong year-over-year growth in notebook sales.
- Software sales, as presented, decreased by 53% year over year and accounted for 12% of net sales in the fourth quarter of 2018, compared to 24% of net sales in the prior year quarter. The as presented decrease in software sales was due to the adoption of the new revenue recognition standard. Excluding the impact of the adoption of the new revenue recognition standard, software sales increased by 6% year over year and accounted for 24% of net sales in the fourth quarter of 2018, compared to 24% of net sales in the prior year quarter. We experienced solid growth in cloud-based offerings, security, and office productivity.
- Net/Com products, as presented, increased by 10% year over year and accounted for 8% of net sales in the fourth quarter of 2018, compared to 7% of net sales in the prior year quarter. Excluding the impact of the adoption of the new revenue recognition standard, net/com product sales increased by 10% year over year and accounted for 7% of net sales in the fourth quarter of 2018, compared to 7% in the prior year quarter. The Business Solutions and Public Sector Solutions segments experienced strong year-over-year growth in net/com sales.
Selling, general and administrative (“SG&A”) expenses as presented,
increased in the fourth quarter of 2018 to
In addition, the fourth quarter 2018 results include
Cash and cash equivalents were
“The Company achieved record operating income this quarter. We saw
strong demand for Edge, Core, and Cloud technology solutions. In
addition, we are pleased with the growth in our Enterprise segment and
in our advanced technology solutions,” said
Conference Call and Webcast
Connection will host a conference call and live web cast today,
Non-GAAP Financial Information
Adjusted EBITDA, Adjusted EPS and Adjusted Net Income 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. A reconciliation to the most directly comparable GAAP measure is available in the tables at the end of this release.
About Connection
Connection – Business Solutions (800-800-5555), (the original business
of
Connection – Enterprise Solutions (561-237-3300), www.connection.com/enterprise,
operating through our
Connection – Public Sector Solutions (800-800-0019), 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, the
impact of changes in accounting requirements, and other risks detailed
in the Company's filings with the
CONSOLIDATED SELECTED FINANCIAL INFORMATION | ||||||||||||||||||||||
At or for the Three Months Ended December 31, | 2018 | 2017 | ||||||||||||||||||||
% |
||||||||||||||||||||||
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data) | ||||||||||||||||||||||
Operating Data: | ||||||||||||||||||||||
Net sales | $ | 709,520 | $ | 762,267 | (7 | %) | ||||||||||||||||
Diluted earnings per share | $ | 0.80 | $ | 0.77 | 4 | % | ||||||||||||||||
Gross margin | 15.1 | % | 13.1 | % | ||||||||||||||||||
Operating margin | 3.7 | % | 2.9 | % | ||||||||||||||||||
Return on equity (1) | 12.7 | % | 12.0 | % | ||||||||||||||||||
Inventory turns | 21 | 24 | ||||||||||||||||||||
Days sales outstanding | 51 | 48 | ||||||||||||||||||||
% of Net Sales |
% of Net Sales |
|||||||||||||||||||||
Product Mix: | ||||||||||||||||||||||
Notebooks/Mobility | 26 | % | 21 | % | ||||||||||||||||||
Accessories | 14 | 9 | ||||||||||||||||||||
Software | 12 | 24 | ||||||||||||||||||||
Desktops | 10 | 11 | ||||||||||||||||||||
Servers/Storage | 10 | 9 | ||||||||||||||||||||
Displays | 9 | 9 | ||||||||||||||||||||
Net/Com Products | 8 | 7 | ||||||||||||||||||||
Other Hardware/Services | 11 | 10 | ||||||||||||||||||||
Total Net Sales | 100 | % | 100 | % | ||||||||||||||||||
Stock Performance Indicators: | ||||||||||||||||||||||
Actual shares outstanding | 26,396 | 26,853 | ||||||||||||||||||||
Total book value per share | $ | 19.92 | $ | 17.96 | ||||||||||||||||||
Tangible book value per share | $ | 16.77 | $ | 14.81 | ||||||||||||||||||
Closing price | $ | 29.73 | $ | 26.21 | ||||||||||||||||||
Market capitalization | $ | 784,753 | $ | 703,817 | ||||||||||||||||||
Trailing price/earnings ratio | 12.3 | 12.9 | ||||||||||||||||||||
LTM Adjusted EBITDA (2) | $ | 102,620 | $ | 93,967 | ||||||||||||||||||
Adjusted market capitalization/LTM Adjusted EBITDA (3) | 6.8 | 7.0 | ||||||||||||||||||||
(1) Calculated as the trailing twelve months' of net income divided by the average trailing twelve months' of equity. | |
(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and restructuring and other related charges. |
|
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance. | |
REVENUE AND MARGIN INFORMATION | ||||||||||||||||||
For the Three Months Ended December 31, | 2018 | 2017 | ||||||||||||||||
(amounts in thousands) |
Net |
Gross Margin |
Net Sales |
Gross Margin |
||||||||||||||
Business Solutions | $ | 249,726 | 18.7 | % | $ | 298,017 | 15.6 | % | ||||||||||
Enterprise Solutions | 341,356 | 12.8 | 308,806 | 11.7 | ||||||||||||||
Public Sector Solutions | 118,438 | 13.7 | 155,444 | 10.9 | ||||||||||||||
Total | $ | 709,520 | 15.1 | % | $ | 762,267 | 13.1 | % | ||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||||||||
Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||||||||
(amounts in thousands, except per share data) | 2018 |
2017 (1) |
2018 |
2017 (1) |
||||||||||||||||||
Net sales | $ | 709,520 | $ | 762,267 | $ | 2,699,489 | $ | 2,911,883 | ||||||||||||||
Cost of sales | 602,718 | 662,737 | 2,288,403 | 2,529,807 | ||||||||||||||||||
Gross profit | 106,802 | 99,530 | 411,086 | 382,076 | ||||||||||||||||||
Selling, general and administrative expenses | 79,518 | 74,939 | 324,433 | 300,913 | ||||||||||||||||||
Restructuring and other charges | 967 | 2,695 | 967 | 3,636 | ||||||||||||||||||
Income from operations | 26,317 | 21,896 | 85,686 | 77,527 | ||||||||||||||||||
Other income/(expense), net | 2,566 | 78 | 2,978 | 98 | ||||||||||||||||||
Income tax provision | (7,583 | ) | (1,251 | ) | (24,072 | ) | (22,768 | ) | ||||||||||||||
Net income | $ | 21,300 | $ | 20,723 | $ | 64,592 | $ | 54,857 | ||||||||||||||
Earnings per common share: | ||||||||||||||||||||||
Basic | $ | 0.80 | $ | 0.77 | $ | 2.42 | $ | 2.05 | ||||||||||||||
Diluted | $ | 0.80 | $ | 0.77 | $ | 2.41 | $ | 2.04 | ||||||||||||||
Shares used in the computation of earnings per common share: | ||||||||||||||||||||||
Basic | 26,632 | 26,822 | 26,717 | 26,771 | ||||||||||||||||||
Diluted | 26,766 | 26,907 | 26,854 | 26,891 | ||||||||||||||||||
(1) Amounts are not restated and represent the amounts recognized under generally accepted accounting principles in place during the relevant reporting period. |
|
December 31, |
December 31, |
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CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||||
(amounts in thousands) | ||||||||||||
ASSETS | ||||||||||||
Current Assets: | ||||||||||||
Cash and cash equivalents | $ | 91,703 | $ | 49,990 | ||||||||
Accounts receivable, net | 447,698 | 449,682 | ||||||||||
Inventories, net | 119,195 | 106,753 | ||||||||||
Income taxes receivable | 922 | 3,933 | ||||||||||
Prepaid expenses and other current assets | 9,661 | 5,737 | ||||||||||
Total current assets | 669,179 | 616,095 | ||||||||||
Property and equipment, net | 51,799 | 41,491 | ||||||||||
Goodwill | 73,602 | 73,602 | ||||||||||
Intangibles assets, net | 9,564 | 11,025 | ||||||||||
Other assets | 1,211 | 5,638 | ||||||||||
Total Assets | $ | 805,355 | $ | 747,851 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Accounts payable | $ | 201,640 | $ | 194,257 | ||||||||
Accrued payroll | 24,319 | 22,662 | ||||||||||
Accrued expenses and other liabilities | 33,840 | 31,096 | ||||||||||
Total current liabilities | 259,799 | 248,015 | ||||||||||
Deferred income taxes | 17,184 | 15,696 | ||||||||||
Other liabilities | 2,469 | 1,888 | ||||||||||
Total Liabilities | 279,452 | 265,599 | ||||||||||
Stockholders’ Equity: | ||||||||||||
Common stock | 288 | 287 | ||||||||||
Additional paid-in capital | 115,842 | 114,154 | ||||||||||
Retained earnings | 441,010 | 383,673 | ||||||||||
Treasury stock at cost | (31,237 | ) | (15,862 | ) | ||||||||
Total Stockholders’ Equity | 525,903 | 482,252 | ||||||||||
Total Liabilities and Stockholders’ Equity | $ | 805,355 | $ | 747,851 | ||||||||
(1) Amounts are not restated and represent the amounts recognized under generally accepted accounting principles in place during the relevant reporting period. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||||||||
Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||||||||
(amounts in thousands) | 2018 |
2017 (1) |
2018 |
2017 (1) |
||||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||||
Net income | $ | 21,300 | $ | 20,723 | $ | 64,592 | $ | 54,857 | ||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||||||||
Depreciation and amortization | 3,701 | 3,194 | 14,063 | 11,839 | ||||||||||||||||||
Provision for doubtful accounts | 252 | 542 | 1,680 | 1,658 | ||||||||||||||||||
Stock-based compensation expense | 342 | 181 | 1,080 | 741 | ||||||||||||||||||
Deferred income taxes | 1,059 | (4,070 | ) | 1,488 | (3,906 | ) | ||||||||||||||||
Loss on disposal of fixed assets | - | 24 | 51 | 24 | ||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||
Accounts receivable | (49,009 | ) | (67,558 | ) | 14,872 | (39,457 | ) | |||||||||||||||
Inventories | (13,912 | ) | (29 | ) | (23,311 | ) | (16,218 | ) | ||||||||||||||
Prepaid expenses and other current assets | (1,857 | ) | 94 | (1,045 | ) | (2,097 | ) | |||||||||||||||
Other non-current assets | 2,121 | (320 | ) | 2,403 | (4,265 | ) | ||||||||||||||||
Accounts payable | 35,083 | 28,969 | 5,722 | 15,807 | ||||||||||||||||||
Accrued expenses and other liabilities | 6,506 | 9,209 | 5,244 | 337 | ||||||||||||||||||
Net cash provided by (used in) operating activities | 5,586 | (9,041 | ) | 86,839 | 19,320 | |||||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||||
Purchases of equipment | (5,597 | ) | (3,859 | ) | (21,238 | ) | (11,803 | ) | ||||||||||||||
Net cash used in investing activities | (5,597 | ) | (3,859 | ) | (21,238 | ) | (11,803 | ) | ||||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||||
Proceeds from short-term borrowings | - | - | 859 | - | ||||||||||||||||||
Repayment of short-term borrowings | - | - | (859 | ) | - | |||||||||||||||||
Purchase of treasury shares | (10,991 | ) | - | (15,375 | ) | - | ||||||||||||||||
Dividend payment | - | - | (9,122 | ) | (9,041 | ) | ||||||||||||||||
Exercise of stock options | - | 71 | - | 1,750 | ||||||||||||||||||
Issuance of stock under Employee Stock Purchase Plan | 642 | 594 | 1,247 | 1,197 | ||||||||||||||||||
Payment of payroll taxes on stock-based compensation through shares withheld | (180 | ) | (113 | ) | (638 | ) | (613 | ) | ||||||||||||||
Net cash (used in) provided by financing activities | (10,529 | ) | 552 | (23,888 | ) | (6,707 | ) | |||||||||||||||
Increase (decrease) in cash and cash equivalents | (10,540 | ) | (12,348 | ) | 41,713 | 810 | ||||||||||||||||
Cash and cash equivalents, beginning of period | 102,243 | 62,338 | 49,990 | 49,180 | ||||||||||||||||||
Cash and cash equivalents, end of period | $ | 91,703 | $ | 49,990 | $ | 91,703 | $ | 49,990 | ||||||||||||||
Non-cash Investing Activities: | ||||||||||||||||||||||
Dividend declaration | $ | 8,452 | $ | 9,122 | $ | 8,452 | $ | 9,122 | ||||||||||||||
Accrued capital expenditures | 2,422 | 699 | 2,422 | 699 | ||||||||||||||||||
Supplemental Cash Flow Information: | ||||||||||||||||||||||
Income taxes paid | $ | 4,811 | $ | 4,634 | $ | 19,945 | $ | 28,927 | ||||||||||||||
(1) Amounts are not restated and represent the amounts recognized under generally accepted accounting principles in place during the relevant reporting period. |
EBITDA AND ADJUSTED EBITDA | |
A reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for restructuring and other charges, favorable resolution of a contract dispute, and 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. 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 similar titled measures of other companies. |
(amounts in thousands) | Three Months Ended December 31, |
Years Ended December 31, |
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2018 | 2017 | % Change | 2018 | 2017 | % Change | |||||||||||||||||||||
Net income | $ | 21,300 | $ | 20,723 | 3% | $ | 64,592 | $ | 54,857 | 18% | ||||||||||||||||
Depreciation and amortization | 3,701 | 3,194 | 16% | 14,064 | 11,839 | 19% | ||||||||||||||||||||
Income tax expense | 7,583 | 1,251 | 506% | 24,072 | 22,768 | 6% | ||||||||||||||||||||
Interest expense | 41 | 38 | 8% | 145 | 126 | 15% | ||||||||||||||||||||
EBITDA | 32,625 | 25,206 | 29% | 102,873 | 89,590 | 15% | ||||||||||||||||||||
Restructuring and other charges (2) | 967 | 2,695 | (64%) | 967 | 3,636 | (73%) | ||||||||||||||||||||
Favorable resolution of a contract dispute, net (3) | (2,300 | ) | - | (100%) | (2,300 | ) | - | (100%) | ||||||||||||||||||
Stock-based compensation | 342 | 181 | 89% | 1,080 | 741 | 46% | ||||||||||||||||||||
Adjusted EBITDA | $ | 31,634 | $ | 28,082 | 13% | $ | 102,620 | $ | 93,967 | 9% | ||||||||||||||||
(1) LTM: Last twelve months |
(2) Restructuring and other charges in 2018 consist of severance related to internal restructuring activities. Restructuring and other 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. |
(3) The Company recorded $2.3 million of income in other income/(expense), net as a result of a favorable resolution of a contract dispute. |
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE |
A reconciliation from Net Income to Adjusted Net Income is detailed below. Adjusted Net Income is defined as Net Income plus restructuring and other charges, net of tax, less the favorable resolution of a contract dispute, net of tax, and the impact of the Tax Cuts and Jobs Act of 2017. Adjusted Net Income and Adjusted Earnings Per Share are considered non-GAAP financial measures (see note above in Adjusted EBITDA for a description of non-GAAP financial measures). The Company believes that these non-GAAP disclosures provide helpful information with respect to the Company's operating performance. |
(amounts in thousands, except per share data) | Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||||||||||||||
2018 | 2017 | % Change | 2018 | 2017 | % Change | |||||||||||||||||||||||
Net income | $ | 21,300 | $ | 20,723 | $ | 64,592 | $ | 54,857 | ||||||||||||||||||||
Restructuring and other charges, net of tax (1) | 713 | 1,598 | 705 | 2,211 | ||||||||||||||||||||||||
Favorable resolution of a contract dispute, net of tax (2) | (1,662 | ) | - | (1,644 | ) | - | ||||||||||||||||||||||
Reduction of federal income tax expense (3) | - | (7,689 | ) | - | (7,689 | ) | ||||||||||||||||||||||
Adjusted Net Income | $ | 20,351 | $ | 14,632 | 39% | $ | 63,653 | $ | 49,379 | 29% | ||||||||||||||||||
Diluted shares | 26,766 | 26,907 | 26,854 | 26,891 | ||||||||||||||||||||||||
Adjusted Diluted Earnings per Share | $ | 0.76 | $ | 0.54 | 40% | $ | 2.37 | $ | 1.84 | 29% | ||||||||||||||||||
(1) Restructuring and other charges in 2018 consist severance related to internal restructuring activities. Restructuring and other 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. |
|
(2) The Company recorded $2.3 million of income in other income/(expense), net as a result of a favorable resolution of a contract dispute. | |
(3) The Company recorded a non-cash federal income tax benefit of $7.7 million as a result of the Tax Cuts and Jobs Act of 2017. | |
RECONCILIATION OF CHANGES IN REVENUE STANDARD | ||||||||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands, except per share amounts) |
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ChangeAs Presented |
Change |
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Three Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||||||||||||||
As |
% of Net Sales |
Impact of New |
Previous Revenue Standard | |||||||||||||||||||||||||||||||||||||||||||||||||
Amount | % of Net Sales | Amount | % of Net Sales | |||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 709,520 | 100.0 | % | $ | 108,107 | $ | 817,627 | 100.0 | % | $ | 762,267 | 100.0 | % | $ | (52,747 | ) | (6.9 | %) | $ | 55,360 | 7.3 | % | |||||||||||||||||||||||||||||
Cost of sales | 602,718 | 84.9 | % | 108,197 | 710,915 | 86.9 | % | 662,737 | 86.9 | % | (60,019 | ) | (9.1 | %) | 48,178 | 7.3 | % | |||||||||||||||||||||||||||||||||||
Gross profit | 106,802 | 15.1 | % | (90 | ) | 106,712 | 13.1 | % | 99,530 | 13.1 | % | 7,272 | 7.3 | % | 7,182 | 7.2 | % | |||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 79,518 | 11.2 | % | (32 | ) | 79,486 | 9.7 | % | 74,939 | 9.8 | % | 4,579 | 6.1 | % | 4,547 | 6.1 | % | |||||||||||||||||||||||||||||||||||
Restructuring and other charges | 967 | 0.1 | % | - | 967 | 0.1 | % | 2,695 | 0.4 | % | (1,728 | ) | (64.1 | %) | (1,728 | ) | (64.1 | %) | ||||||||||||||||||||||||||||||||||
Income from operations | 26,317 | 3.7 | % | (58 | ) | 26,259 | 3.2 | % | 21,896 | 2.9 | % | 4,421 | 20.2 | % | 4,363 | 19.9 | % | |||||||||||||||||||||||||||||||||||
Other income/(expense), net | 2,566 | - | - | 2,566 | - | 78 | - | 2,488 | 3,189.7 | % | 2,488 | 3,189.7 | % | |||||||||||||||||||||||||||||||||||||||
Income tax provision | (7,583 | ) | (1.1 | %) | 14 | (7,569 | ) | (0.9 | %) | (1,251 | ) | (0.2 | %) | (6,332 | ) | 506.2 | % | (6,318 | ) | 505.0 | % | |||||||||||||||||||||||||||||||
Net income | $ | 21,300 | 3.0 | % | $ | (44 | ) | $ | 21,256 | 2.6 | % | $ | 20,723 | 2.7 | % | $ | 577 | 2.8 | % | $ | 533 | 2.6 | % | |||||||||||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | $ | 0.80 | $ | - | $ | 0.80 | $ | 0.77 | $ | 0.03 | 3.9 | % | $ | 0.03 | 3.9 | % | ||||||||||||||||||||||||||||||||||||
Diluted | $ | 0.80 | $ | (0.01 | ) | $ | 0.79 | $ | 0.77 | $ | 0.03 | 3.9 | % | $ | 0.02 | 2.6 | % | |||||||||||||||||||||||||||||||||||
Shares used in the computation of earnings per common share | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | 26,632 | 26,632 | 26,822 | |||||||||||||||||||||||||||||||||||||||||||||||||
Diluted | 26,766 | 26,766 | 26,907 | |||||||||||||||||||||||||||||||||||||||||||||||||
RECONCILIATION OF CHANGES IN REVENUE STANDARD | ||||||||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Change |
Change |
|||||||||||||||||||||||||||||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||||||||||||||
As |
% of Net Sales |
Impact of New |
Previous Revenue Standard | |||||||||||||||||||||||||||||||||||||||||||||||||
Amount | % of Net Sales | Amount | % of Net Sales | |||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 2,699,489 | 100.0 | % | $ | 404,690 | $ | 3,104,179 | 100.0 | % | $ | 2,911,883 | 100.0 | % | $ | (212,394 | ) | (7.3 | %) | $ | 192,296 | 6.6 | % | |||||||||||||||||||||||||||||
Cost of sales | 2,288,403 | 84.8 | % | 403,737 | 2,692,140 | 86.7 | % | 2,529,807 | 86.9 | % | (241,404 | ) | (9.5 | %) | 162,333 | 6.4 | % | |||||||||||||||||||||||||||||||||||
Gross profit | 411,086 | 15.2 | % | 953 | 412,039 | 13.3 | % | 382,076 | 13.1 | % | 29,010 | 7.6 | % | 29,963 | 7.8 | % | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 324,433 | 12.0 | % | 203 | 324,636 | 10.5 | % | 300,913 | 10.3 | % | 23,520 | 7.8 | % | 23,723 | 7.9 | % | ||||||||||||||||||||||||||||||||||||
Restructuring and other charges | 967 | 0.1 | % | - | 967 | 0.1 | % | 3,636 | 0.1 | % | (2,669 | ) | (73.4 | %) | (2,669 | ) | (73.4 | %) | ||||||||||||||||||||||||||||||||||
Income from operations | 85,686 | 3.2 | % | 953 | 86,436 | 2.9 | % | 77,527 | 2.7 | % | 8,159 | 10.5 | % | 8,909 | 11.5 | % | ||||||||||||||||||||||||||||||||||||
Other income/(expense), net | 2,978 | - | - | 2,978 | 0.1 | % | 98 | 0.0 | % | 2,880 | 2,938.8 | % | 2,880 | 2,938.8 | % | |||||||||||||||||||||||||||||||||||||
Income tax provision | (24,072 | ) | (0.9 | %) | (210 | ) | (24,282 | ) | (0.8 | %) | (22,768 | ) | (0.8 | %) | (1,304 | ) | 5.7 | % | (1,514 | ) | 6.6 | % | ||||||||||||||||||||||||||||||
Net income | $ | 64,592 | 2.4 | % | $ | 743 | $ | 65,132 | 2.1 | % | $ | 54,857 | 1.9 | % | $ | 9,735 | 17.7 | % | $ | 10,275 | 18.7 | % | ||||||||||||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | $ | 2.42 | $ | 0.02 | $ | 2.44 | $ | 2.05 | $ | 0.37 | 18.0 | % | $ | 0.39 | 19.0 | % | ||||||||||||||||||||||||||||||||||||
Diluted | $ | 2.41 | $ | 0.02 | $ | 2.43 | $ | 2.04 | $ | 0.37 | 18.1 | % | $ | 0.39 | 19.1 | % | ||||||||||||||||||||||||||||||||||||
Shares used in the computation of earnings per common share | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | 26,717 | 26,717 | 26,771 | |||||||||||||||||||||||||||||||||||||||||||||||||
Diluted | 26,854 | 26,854 | 26,891 | |||||||||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED SELECTED FINANCIAL INFORMATION UNDER PREVIOUS REVENUE RECOGNITION STANDARD | |||||||||||||||
2018 | 2017 | ||||||||||||||
As |
Impact of New Revenue Standard |
||||||||||||||
Previous Revenue Standard | |||||||||||||||
Inventory turns | 21 | 4 | 25 | 24 | |||||||||||
Days sales outstanding | 51 | (6 | ) | 45 | 48 | ||||||||||
% of Net Sales |
% of Net Sales |
% of Net Sales |
|||||||||||||
Product Mix: | |||||||||||||||
Notebooks/Mobility |
26 |
% |
|
(4 | ) |
22 |
% |
|
21 |
% |
|||||
Accessories | 14 | (2 | ) | 12 | 9 | ||||||||||
Software | 12 | 12 | 24 | 24 | |||||||||||
Desktops | 10 | (1 | ) | 9 | 11 | ||||||||||
Servers/Storage | 10 | (1 | ) | 9 | 9 | ||||||||||
Displays | 9 | (1 | ) | 8 | 9 | ||||||||||
Net/Com Products | 8 | (1 | ) | 7 | 7 | ||||||||||
Other Hardware/Services | 11 | (2 | ) | 9 | 10 | ||||||||||
Total Net Sales |
100 |
% |
|
100 |
% |
|
100 |
% |
|||||||
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET SALES | ||||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||||
Change As Presented |
Change Previous Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Three Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||
As Presented |
Impact of New Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Net sales | Previous Revenue Standard | |||||||||||||||||||||||||||||||||||||||
Business Solutions | $ | 249,726 | $ | 47,496 | $ | 297,222 | $ | 298,017 | $ | (48,291 | ) | (16.2 | %) | $ | (795 | ) | (0.3 | %) | ||||||||||||||||||||||
Enterprise Solutions | 341,356 | 50,150 | 391,506 | 308,806 | 32,550 | 10.5 | % | 82,700 | 26.8 | % | ||||||||||||||||||||||||||||||
Public Sector Solutions | 118,438 | 10,461 | 128,899 | 155,444 | (37,006 | ) | (23.8 | %) | (26,545 | ) | (17.1 | %) | ||||||||||||||||||||||||||||
Total | $ | 709,520 | $ | 108,107 | $ | 817,627 | $ | 762,267 | $ | (52,747 | ) | (6.9 | %) | $ | 55,360 | 7.3 | % | |||||||||||||||||||||||
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS PROFITS | ||||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||||
Change As Presented |
Change Previous Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Three Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||
As Presented |
Impact of New Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Gross profits | Previous Revenue Standard | |||||||||||||||||||||||||||||||||||||||
Business Solutions | $ | 46,772 | $ | 141 | $ | 46,913 | $ | 46,353 | $ | 419 | 0.9 | % | $ | 560 | 1.2 | % | ||||||||||||||||||||||||
Enterprise Solutions | 43,765 | (104 | ) | 43,661 | 36,210 | 7,555 | 20.9 | % | 7,451 | 20.6 | % | |||||||||||||||||||||||||||||
Public Sector Solutions | 16,265 | (127 | ) | 16,138 | 16,967 | (702 | ) | (4.1 | %) | (829 | ) | (4.9 | %) | |||||||||||||||||||||||||||
Total | $ | 106,802 | $ | (90 | ) | $ | 106,712 | $ | 99,530 | $ | 7,272 | 7.3 | % | $ | 7,182 | 7.2 | % | |||||||||||||||||||||||
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS MARGINS | ||||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||||
Change As Presented |
Change Previous Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Three Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | Amount | |||||||||||||||||||||||||||||||||||||
As Presented |
Impact of New Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Gross margins | Previous Revenue Standard | |||||||||||||||||||||||||||||||||||||||
Business Solutions | 18.7 | % | (295 | ) | 15.8 | % | 15.6 | % | 318 | 23 | ||||||||||||||||||||||||||||||
Enterprise Solutions | 12.8 | % | (167 | ) | 11.2 | % | 11.7 | % | 110 | (57 | ) | |||||||||||||||||||||||||||||
Public Sector Solutions | 13.7 | % | (121 | ) | 12.5 | % | 10.9 | % | 282 | 160 | ||||||||||||||||||||||||||||||
Total | 15.1 | % | (200 | ) | 13.1 | % | 13.1 | % | 200 | (1 | ) | |||||||||||||||||||||||||||||
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET SALES | ||||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||||
Change As Presented |
Change Previous Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||
As Presented |
Impact of New Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Net sales |
|
Previous Revenue Standard | ||||||||||||||||||||||||||||||||||||||
Business Solutions | $ | 1,027,918 | $ | 173,479 | $ | 1,201,397 | $ | 1,158,639 | $ | (130,721 | ) | (11.3 | %) | $ | 42,758 | 3.7 | % | |||||||||||||||||||||||
Enterprise Solutions | 1,165,142 | 169,184 | 1,334,326 | 1,131,823 | 33,319 | 2.9 | % | 202,503 | 17.9 | % | ||||||||||||||||||||||||||||||
Public Sector Solutions | 506,429 | 62,027 | 568,456 | 621,421 | (114,992 | ) | (18.5 | %) | (52,965 | ) | (8.5 | %) | ||||||||||||||||||||||||||||
Total | $ | 2,699,489 | $ | 404,690 | $ | 3,104,179 | $ | 2,911,883 | $ | (212,394 | ) | (7.3 | %) | $ | 192,296 | 6.6 | % | |||||||||||||||||||||||
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS PROFITS | ||||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||||
Change As Presented |
Change Previous Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||||
As Presented |
Impact of New Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Gross profits | Previous Revenue Standard | |||||||||||||||||||||||||||||||||||||||
Business Solutions | $ | 184,922 | $ | 1,099 | $ | 186,021 | $ | 177,814 | $ | 7,108 | 4.0 | % | $ | 8,207 | 4.6 | % | ||||||||||||||||||||||||
Enterprise Solutions | 161,595 | 94 | 161,689 | 139,010 | 22,585 | 16.2 | % | 22,679 | 16.3 | % | ||||||||||||||||||||||||||||||
Public Sector Solutions | 64,569 | (240 | ) | 64,329 | 65,252 | (683 | ) | (1.0 | %) | (923 | ) | (1.4 | %) | |||||||||||||||||||||||||||
Total | $ | 411,086 | $ | 953 | $ | 412,039 | $ | 382,076 | $ | 29,010 | 7.6 | % | $ | 29,963 | 7.8 | % | ||||||||||||||||||||||||
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS MARGINS | ||||||||||||||||||||||||||||||||||||||||
(Unaudited, in thousands) | ||||||||||||||||||||||||||||||||||||||||
Change As Presented |
Change Previous Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | Amount | |||||||||||||||||||||||||||||||||||||
As Presented |
Impact of New Revenue Standard |
|||||||||||||||||||||||||||||||||||||||
Gross margins | Previous Revenue Standard | |||||||||||||||||||||||||||||||||||||||
Business Solutions | 18.0 | % | (251 | ) | 15.5 | % | 15.3 | % | 264 | 14 | ||||||||||||||||||||||||||||||
Enterprise Solutions | 13.9 | % | (175 | ) | 12.1 | % | 12.3 | % | 159 | (16 | ) | |||||||||||||||||||||||||||||
Public Sector Solutions | 12.7 | % | (143 | ) | 11.3 | % | 10.5 | % | 225 | 82 | ||||||||||||||||||||||||||||||
Total | 15.2 | % | (195 | ) | 13.3 | % | 13.1 | % | 211 | 15 | ||||||||||||||||||||||||||||||
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR EBITDA AND ADJUSTED EBITDA |
A reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for restructuring and other charges, favorable resolution of a contract dispute, and 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. 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 similar titled measures of other companies. |
Change As Presented |
Change Previous Revenue Standard |
||||||||||||||||||||||||||||
(amounts in thousands) | Three Months Ended December 31, | ||||||||||||||||||||||||||||
2018 | 2017 | Percent | Percent | ||||||||||||||||||||||||||
As Presented |
Impact of New Revenue Standard |
||||||||||||||||||||||||||||
Previous Revenue Standard | |||||||||||||||||||||||||||||
Net income | $ | 21,300 | $ | (44 | ) | $ | 21,256 | $ | 20,723 | 3 | % | 3 | % | ||||||||||||||||
Depreciation and amortization | 3,701 | - | 3,701 | 3,194 | 16 | % | 16 | % | |||||||||||||||||||||
Income tax expense | 7,583 | (14 | ) | 7,569 | 1,251 | 506 | % | 505 | % | ||||||||||||||||||||
Interest expense | 41 | - | 41 | 38 | 8 | % | 8 | % | |||||||||||||||||||||
EBITDA | 32,625 | (58 | ) | 32,567 | 25,206 | 29 | % | 29 | % | ||||||||||||||||||||
Restructuring and other charges (2) | 967 | - | 967 | 2,695 | (64 | %) | (64 | %) | |||||||||||||||||||||
Favorable resolution of a contract dispute, net (3) | (2,300 | ) | - | (2,300 | ) | - | (100 | %) | 0 | % | |||||||||||||||||||
Stock-based compensation | 342 | - | 342 | 181 | 89 | % | 89 | % | |||||||||||||||||||||
Adjusted EBITDA | $ | 31,634 | $ | (58 | ) | $ | 31,576 | $ | 28,082 | 13 | % | 12 | % | ||||||||||||||||
Change As Presented |
Change Previous Revenue Standard |
||||||||||||||||||||||||||||
(amounts in thousands) | Years Ended December 31, (1) | ||||||||||||||||||||||||||||
2018 | 2017 | Percent | Percent | ||||||||||||||||||||||||||
As Presented |
Impact of New Revenue Standard |
||||||||||||||||||||||||||||
Previous Revenue Standard | |||||||||||||||||||||||||||||
Net income | $ | 64,592 | $ | 540 | $ | 65,132 | $ | 54,857 | 18 | % | 19 | % | |||||||||||||||||
Depreciation and amortization | 14,064 | - | 14,064 | 11,839 | 19 | % | 19 | % | |||||||||||||||||||||
Income tax expense | 24,072 | 210 | 24,282 | 22,768 | 6 | % | 7 | % | |||||||||||||||||||||
Interest expense | 145 | - | 145 | 126 | 15 | % | 15 | % | |||||||||||||||||||||
EBITDA | 102,873 | 750 | 103,623 | 89,590 | 15 | % | 16 | % | |||||||||||||||||||||
Restructuring and other charges (2) | 967 | - | 967 | 3,636 | (73 | %) | (73 | %) | |||||||||||||||||||||
Favorable resolution of a contract dispute, net (3) | (2,300 | ) | - | (2,300 | ) | - | (100 | %) | 0 | % | |||||||||||||||||||
Stock-based compensation | 1,080 | - | 1,080 | 741 | 46 | % | 46 | % | |||||||||||||||||||||
Adjusted EBITDA | $ | 102,620 | $ | 750 | $ | 103,370 | $ | 93,967 | 9 | % |
10 |
% | |||||||||||||||||
(1) LTM: Last twelve months |
(2) Restructuring and other charges in 2018 consist of severance related to internal restructuring activities. Restructuring and other 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. |
(3) The Company recorded $2.3 million of income in other income/(expense), net as a result of a favorable resolution of a contract dispute. |
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View source version on businesswire.com: https://www.businesswire.com/news/home/20190207005803/en/
Source: Connection
Investor Relations Contact:
Steve Sarno, 603.683.2505
Steve.Sarno@connection.com