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

MERRIMACK, N.H.--(BUSINESS WIRE)--Feb. 7, 2019-- Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading technology solutions provider to business, government, and education markets, today announced results for the fourth quarter and year ended December 31, 2018. Net income for the fourth quarter ended December 31, 2018 increased by 2.8% to $21.3 million, or $0.80 per diluted share, compared to net income of $20.7 million, or $0.77 per diluted share for the prior year fourth quarter. This is being compared to Q4 2017 which benefited from a $7.8 million tax benefit resulting from the adoption of the Tax Cuts and Jobs Act. Net income growth adjusted for this and other non-recurring items was 39.1%.

As previously disclosed, effective January 1, 2018, the Company adopted a new revenue recognition standard but has not restated prior periods to reflect this new standard. Please note that the financial results for the fourth quarter ended December 31, 2018 presented in this release include both amounts, “as presented,” which reflect the implementation of the new revenue recognition standard, as well as amounts prior to the impact of the new revenue recognition standard to allow for comparability against historical results. Starting in calendar year 2019, we will no longer present our financial results under the previous revenue recognition standard. For additional information and reconciliations of our financial results between the new and prior revenue recognition standards, please see the additional tables included in this press release.

Net sales as presented for the quarter ended December 31, 2018 were $709.5 million. Net sales prior to the impact of the new revenue recognition standard for the quarter ended December 31, 2018 increased by 7.3% to $817.6 million, compared to $762.3 million for the prior year fourth quarter.

Gross profit as presented for the quarter ended December 31, 2018 was $106.8 million. Gross profit prior to the impact of the new revenue recognition standard for the quarter ended December 31, 2018 was $106.7 million, compared to $99.5 million in the prior year fourth quarter, an increase of 7.2%.

Gross margin as presented for the quarter ended December 31, 2018 was 15.1%. Gross margin prior to the impact of the new revenue recognition standard was 13.1%, compared to 13.1% for the prior year fourth quarter.

Operating income as presented for the quarter ended December 31, 2018 was $26.3 million. Operating income prior to the impact of the new revenue recognition standard was $26.3 million, compared to $21.9 million in the prior year fourth quarter, an increase of 19.9%.

Net income as presented for the quarter ended December 31, 2018 was $21.3 million. Net income prior to the impact of the new revenue recognition standard was $21.3 million, compared to $20.7 million in the prior year fourth quarter, an increase of 2.6%.

Earnings per share (“EPS”) on a diluted basis as presented for the quarter ended December 31, 2018 was $0.80. EPS prior to the impact of the new revenue recognition standard was $0.79 per share, compared to $0.77 on a diluted basis in the prior year fourth quarter.

Net income, totaled $64.6 million for the year ended December 31, 2018, compared to $54.9 million for the year ended December 31, 2017. Earnings before interest, taxes, depreciation and amortization, adjusted for restructuring and other charges, favorable resolution of a contract dispute, and stock-based compensation expense (“Adjusted EBITDA”), a non-GAAP measure, totaled $102.6 million for the year ended December 31, 2018. Adjusted EBITDA prior to the impact of the new revenue recognition standard was $103.4 million, compared to $94.0 million for the year ended December 31, 2017.

Net sales as presented for the year ended December 31, 2018 were $2,699.5 million. Net sales prior to the impact of the new revenue recognition standard for the year ended December 31, 2018 increased by 6.6% to $3,104.2 million, compared to $2,911.9 million for the year ended December 31, 2017.

Gross profit as presented for the year ended December 31, 2018 was $411.1 million. Gross profit prior to the impact of the new revenue recognition standard for the year ended December 31, 2018 was $412.0 million, compared to $382.1 million for the year ended December 31, 2017, an increase of 7.8%.

Gross margin as presented for the year ended December 31, 2018 was 15.2%. Gross margin prior to the impact of the new revenue recognition standard was 13.3%, compared to 13.1% for the year ended December 31, 2017.

Operating income as presented for the year ended December 31, 2018 was $85.7 million. Operating income prior to the impact of the new revenue recognition standard was $86.4 million, compared to $77.5 million for the year ended December 31, 2017, an increase of 11.5%.

Net income as presented for the year ended December 31, 2018 was $64.6 million. Net income prior to the impact of the new revenue recognition standard was $65.1 million, compared to $54.9 million for the year ended December 31, 2017, an increase of 18.7%.

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 $79.5 million from $74.9 million in the prior year quarter. SG&A in the fourth quarter of 2018 prior to the impact of the new revenue recognition standard was $79.5 million. The increase was primarily the result of increased variable compensation associated with our higher gross profits. SG&A, as reported, as a percentage of net sales, was 11.2%, compared to 9.8% in the prior year quarter. However, SG&A in the fourth quarter of 2018, prior to the impact of the new revenue recognition standard, was 9.7%.

In addition, the fourth quarter 2018 results include $1.0 million of restructuring and other related costs. This charge includes severance related to internal restructuring activities. Included in other income (expense), net is $2.3 million related to the favorable resolution of a contract dispute.

Cash and cash equivalents were $91.7 million at December 31, 2018, compared to $50.0 million at December 31, 2017. In January 2019, we paid a $0.32 cent per share special dividend to shareholders, which totaled $8.5 million. During the fourth quarter of 2018, the Company repurchased 365,703 shares of stock for $11.0 million. Days sales outstanding were 51 days at December 31, 2018, up from 48 days in the prior year quarter; excluding the impact of the new revenue recognition standard, days sales outstanding would have decreased to 45 days outstanding. Inventory turns were 21 turns in the fourth quarter of 2018, down from 24 turns in the prior year quarter; excluding the impact of the new revenue recognition standard, inventory turns would have increased to 25 turns.

“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 Tim McGrath, President and Chief Executive Officer. “We believe that our team and the strategies that we have in place position us well to gain market share and increase long term shareholder value,” concluded Mr. McGrath.

Conference Call and Webcast

Connection will host a conference call and live web cast today, February 7, 2019 at 4:30 p.m. ET to discuss its fourth quarter financial results. To access the conference call (audio only), please dial 877-776-4016 (US) or 973-638-3231 (International). A web cast of the conference call, which will be broadcast live via the Internet, and a copy of this press release, along with supplemental slides used during the call, can be accessed on Connection’s website at ir.connection.com. For those unable to participate in the live call, a replay of the webcast will be available at ir.connection.com approximately 90 minutes after the completion of the call and will be accessible on the site for approximately one year.

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

PC Connection, Inc. and its subsidiaries, dba Connection, (www.connection.com; NASDAQ: CNXN) is a Fortune 1000 company headquartered in Merrimack, NH. With offices throughout the United States, Connection delivers custom-configured computer systems overnight from its ISO 9001:2015 certified technical configuration lab at its distribution center in Wilmington, OH. In addition, the Company has over 2,500 technical certifications to ensure it can solve the most complex issues of its customers. Connection also services international customers through its GlobalServe subsidiary, a global IT procurement and service management company. Investors and media can find more information about Connection at http://ir.connection.com.

Connection – Business Solutions (800-800-5555), (the original business of PC Connection) operating through our PC Connection Sales Corp. subsidiary, is a rapid-response provider of IT products and services serving primarily the small- and medium-sized business sector. It offers more than 300,000 brand-name products through its staff of technically trained sales account managers, publications, and its website at www.connection.com.

Connection – Enterprise Solutions (561-237-3300), www.connection.com/enterprise, operating through our MoreDirect, Inc. subsidiary, 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™, a proprietary cloud-based eProcurement system. The team’s engineers, software licensing specialists, and project managers help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

Connection – Public Sector Solutions (800-800-0019), operating through our GovConnection, Inc. subsidiary, is a rapid-response provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, publications, and online at www.connection.com/publicsector.

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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, 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 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, 2017. 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,	2018			2017
							% Change
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)							% Change

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:	% of Net Sales			% of Net Sales
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 Sales		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, 2018			December 31, 2017 ⁽¹⁾
CONDENSED CONSOLIDATED BALANCE SHEETS	December 31, 2018			December 31, 2017 ⁽¹⁾
(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,
	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)
																			ChangeAs Presented					Change Previous Revenue Standard
	Three Months Ended December 31,																		ChangeAs Presented					Change Previous Revenue Standard
	2018													2017					Amount			Percent		Amount			Percent
	As Presented			% of Net Sales		Impact of New Revenue Standard			Previous Revenue Standard
	As Presented			% of Net Sales		Impact of New 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 As Presented					Change Previous Revenue Standard
	Years Ended December 31,																		Change As Presented					Change Previous Revenue Standard
	2018													2017					Amount			Percent		Amount			Percent
	As Presented			% of Net Sales		Impact of New Revenue Standard			Previous Revenue Standard
	As Presented			% of Net Sales		Impact of New 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 Presented		Impact of New Revenue Standard
	As Presented		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:	% of Net Sales				% of Net Sales		% of Net Sales
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,												Change As Presented					Change Previous Revenue Standard
	2018									2017			Amount			Percent		Amount			Percent

	As Presented			Impact of New Revenue Standard
Net sales	As Presented			Impact of New Revenue Standard			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,												Change As Presented					Change Previous Revenue Standard
	2018									2017			Amount			Percent		Amount			Percent

	As Presented			Impact of New Revenue Standard
Gross profits	As Presented			Impact of New Revenue Standard			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,												Change As Presented			Change Previous Revenue Standard
	2018									2017			Amount			Amount

	As Presented			Impact of New Revenue Standard
Gross margins	As Presented			Impact of New Revenue Standard			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,												Change As Presented					Change Previous Revenue Standard
	2018									2017			Amount			Percent		Amount			Percent

	As Presented			Impact of New Revenue Standard
Net sales	As Presented			Impact of New Revenue Standard			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,												Change As Presented					Change Previous Revenue Standard
	2018									2017			Amount			Percent		Amount			Percent

	As Presented			Impact of New Revenue Standard
Gross profits	As Presented			Impact of New Revenue Standard			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,												Change As Presented			Change Previous Revenue Standard
	2018									2017			Amount			Amount

	As Presented			Impact of New Revenue Standard
Gross margins	As Presented			Impact of New Revenue Standard			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,											Change As Presented		Change Previous Revenue Standard
	2018									2017		Percent		Percent
	As Presented			Impact of New Revenue Standard
	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⁾											Change As Presented		Change Previous Revenue Standard
	2018									2017		Percent		Percent
	As Presented			Impact of New Revenue Standard
	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

(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

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