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Connection (CNXN) Reports Record First Quarter 2022 Results

FIRST QUARTER HIGHLIGHTS:

  • Net sales: $788.3 million, up 23.8% y/y
  • Gross profit: $128.3 million, up 27.6% y/y
  • Net income: $21.8 million, up 114.0% y/y
  • Diluted EPS: $0.83, up 113.6% y/y

MERRIMACK, N.H.--(BUSINESS WIRE)--May 5, 2022-- Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading information technology solutions provider to business, government, healthcare and education markets, today announced results for the first quarter ended March 31, 2022.

“We executed well against our business objectives in the first quarter of 2022. There was continued strong demand for workplace solutions driven by a hybrid return to office. This trend is also driving growth in datacenter and cloud transformation,” said Timothy McGrath, President and Chief Executive Officer of Connection.

Net sales for the quarter ended March 31, 2022 increased by 23.8% to $788.3 million, compared to $636.9 million for the prior year quarter. Net income for the quarter ended March 31, 2022 increased by 114.0% to $21.8 million, or $0.83 per diluted share, compared to net income of $10.2 million, or $0.39 per diluted share, for the prior year quarter.

Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and restructuring and other charges (“Adjusted EBITDA”) totaled $129.1 million for the twelve months ended March 31, 2022, compared to $84.4 million for the twelve months ended March 31, 2021. 1

Quarterly Highlights

  • Continued growth in our vertical markets:
    • In the Retail vertical, we grew revenue 26% year-over-year as a result of retailers’ new customer acquisition strategies which include upgrading in-store infrastructure and improving the overall customer experience.
    • The Healthcare vertical experienced revenue growth of 25% year-over-year as healthcare IT decision makers have re-engaged in major IT investments, including electronic health record migrations to the cloud, and the revitalization of on-premise investments as the balance of IT activity shifts more toward infrastructure and datacenter solutions in the workplace.
    • Revenue for the Manufacturing vertical grew 20% year-over-year as manufacturers are revisiting, accelerating, or investing for the first time in smart manufacturing solutions and technology modernization.

Quarterly Performance by Segment:

  • Net sales for the Business Solutions segment increased by 30.1% to $320.4 million in the first quarter of 2022, compared to $246.3 million in the prior year quarter. Gross profit increased by 31.2% to $62.1 million in the first quarter of 2022, compared to $47.4 million in the prior year quarter. Gross margin increased by 16 basis points to 19.4% primarily due to a change in product mix.
  • Net sales for the Public Sector Solutions segment increased by 5.8% to $132.5 million in the first quarter of 2022, compared to $125.3 million in the prior year quarter. Sales to state and local governments and educational institutions increased by 14.4%, compared to the prior year quarter, while sales to the federal government decreased by 15.4%. Gross profit increased by 10.5% to $17.3 million in the first quarter of 2022, compared to $15.6 million in the prior year quarter. Gross margin increased by 56 basis points to 13.1% primarily due to changes in both product and customer mix.
  • Net sales for the Enterprise Solutions segment increased by 26.4% to $335.4 million in the first quarter of 2022, compared to $265.3 million in the prior year quarter. Gross profit increased by 30.3% to $48.9 million in the first quarter of 2022, compared to $37.5 million in the prior year quarter. Gross margin increased by 44 basis points to 14.6% primarily due to a change in product mix.

Quarterly Sales by Product Mix:

  • Notebook/mobility sales, increased 32% year over year and accounted for 39% of net sales in the first quarter of 2022, compared to 37% of net sales in the first quarter of 2021.
  • Accessories sales increased by 16% year over year and accounted for 12% of net sales in the first quarter of 2022, compared to 13% of net sales in the first quarter of 2021.
  • Software sales increased by 8% year over year and accounted for 8% of net sales in the first quarter of 2022, compared to 9% in the first quarter of 2021.
  • Desktop sales increased by 46% year over year and accounted for 11% of net sales in the first quarter of 2022, compared to 9% of net sales in the first quarter of 2021.

Selling, general and administrative (“SG&A”) expenses increased in the first quarter of 2022 to $98.2 million from $86.4 million in the prior year quarter. SG&A as a percentage of net sales decreased to 12.5%, compared to 13.6% in the prior year quarter. The increase in SG&A was primarily due to an increase in variable compensation due to the higher levels of gross profit and an increase in marketing costs.

Cash and cash equivalents were $67.4 million at March 31, 2022, compared to $108.3 million at December 31, 2021.

“I would like to thank our dedicated team for their commitment and hard work in delivering record first quarter results,” concluded Mr. McGrath. “We believe the team and the strategies we have in place well position Connection to gain market share and increase long-term shareholder value.”

Conference Call and Webcast

Connection will host a conference call and live web cast today, May 5, 2022 at 4:30 p.m. ET to discuss its first quarter financial results. To access the conference call (audio only), please dial 877-776-4016 (US) or 973-638-3231 (International) and enter the confirmation number 1897202. A web-cast of the conference call, which will be broadcast live via the Internet, and a copy of this press release, 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

EBITDA and Adjusted EBITDA are non-GAAP financial measures. These measures are included to provide additional 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 measures are 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 that 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) is a rapid-response provider of IT products and services serving primarily the small-and medium-sized business sector. It offers more than 460,000 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, provides corporate technology buyers with best-in-class IT solutions, in-depth IT supply-chain expertise, and real-time access to over 460,000 products and 2,500 vendors through MarkITplace®, a proprietary next-generation, cloud-based supply chain solution. The team’s engineers, software licensing specialists, and subject matter experts help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

Connection–Public Sector Solutions (800.800.0019), is a rapid-response provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, publications, and online at www.connection.com/publicsector.

Cautionary Note Regarding Forward-Looking Statements

Statements in this release, other than statements of historical fact, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve important risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. You can generally identify forward-looking statements by words such as "believe," "expect," "intend," "plan," "estimate," "anticipate," "may," "should," "will," or similar statements or variations of such terms, although not all forward-looking statements include such terms. Such risks and uncertainties include, but are not limited to, the continuation of the COVID-19 pandemic, including, without limitation, the actions taken by governments in responses to it, disruptions impacting the global supply chain, including those attributable to the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine 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, 2021. 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.

______________________________

1 Adjusted EBITDA is a non-GAAP measure. See page 10 for the definition and reconciliation.

CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months Ended March 31,

2022

 

2021

   

%

(Amounts and shares in thousands, except operating data, P/E ratio, and per share data) Change
 
Operating Data:
Net sales

$

788,344

 

$

636,892

 

24

%

Diluted earnings per share

$

0.83

 

$

0.39

 

113

%

 
Gross margin

 

16.3

%

 

15.8

%

Operating margin

 

3.8

%

 

2.2

%

 
Inventory turns

 

12

 

 

17

 

Days sales outstanding

 

69

 

 

74

 

 
% of % of
Product Mix: Net Sales Net Sales
Notebooks/Mobility

 

39

%

 

37

%

Accessories

 

12

 

 

13

 

Displays

 

11

 

 

9

 

Desktops

 

11

 

 

9

 

Software

 

8

 

 

9

 

Net/Com Products

 

7

 

 

8

 

Servers/Storage

 

6

 

 

7

 

Other Hardware/Services

 

6

 

 

8

 

Total Net Sales

 

100

%

 

100

%

 
 
Stock Performance Indicators:
Actual shares outstanding

 

26,261

 

 

26,175

 

Total book value per share

$

26.86

 

$

24.74

 

Tangible book value per share

$

23.85

 

$

21.67

 

Closing price

$

52.39

 

$

46.39

 

Market capitalization

$

1,375,814

 

$

1,214,258

 

Trailing price/earnings ratio

 

17.0

 

 

23.8

 

LTM Adjusted EBITDA (1)

$

129,125

 

$

84,395

 

 
(1) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted
for stock-based compensation and restructuring and other related charges.
   
 
 
 
REVENUE AND MARGIN INFORMATION
For the Three Months Ended March 31,

2022

2021

Net Gross Net Gross
(amounts in thousands) Sales Margin Sales Margin
 
Enterprise Solutions

$

335,396

 

14.6

%

$

265,285

 

14.1

%

Business Solutions

 

320,444

 

19.4

 

 

246,334

 

19.2

 

Public Sector Solutions

 

132,504

 

13.1

 

 

125,273

 

12.5

 

Total

$

788,344

 

16.3

%

$

636,892

 

15.8

%

 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31,
(amounts in thousands, except per share data)

 

2022

 

 

2021

 

 
Net sales

$

788,344

 

$

636,892

 

Cost of sales

 

660,038

 

 

536,372

 

Gross profit

 

128,306

 

 

100,520

 

 
Selling, general and administrative expenses

 

98,172

 

 

86,400

 

Restructuring and other charges

 

-

 

 

-

 

Income from operations

 

30,134

 

 

14,120

 

 
Other expense, net

 

(3

)

 

(7

)

Gain from insurance policies

 

-

 

 

-

 

Income tax provision

 

(8,339

)

 

(3,929

)

Net income

$

21,792

 

$

10,184

 

 
Earnings per common share:
Basic

$

0.83

 

$

0.39

 

Diluted

$

0.83

 

$

0.39

 

 
Shares used in the computation of earnings per common share:
Basic

 

26,255

 

 

26,172

 

Diluted

 

26,405

 

 

26,360

 

 
 
              March 31,   December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS      

 

2022

 

 

2021

 

(amounts in thousands)
 
ASSETS
Current Assets:
Cash and cash equivalents 

 $

             67,409

 

 $

          108,310

 

Accounts receivable, net

 

              634,142

 

 

             607,532

 

Inventories, net

 

              234,601

 

 

             206,555

 

Prepaid expenses and other current assets  

 

                14,588

 

 

               10,016

 

Total current assets

 

              950,740

 

 

             932,413

 

Property and equipment, net

 

                60,835

 

 

               61,011

 

Right-of-use assets, net

 

                  9,201

 

 

                 9,579

 

Goodwill

 

                73,602

 

 

               73,602

 

Intangibles assets, net

 

                  5,563

 

 

                 5,868

 

Other assets

 

                    878

 

 

                   910

 

Total Assets

 $

        1,100,819

 

 $

       1,083,383

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current Liabilities:
Accounts payable

 $

           271,411

 

 $

          281,836

 

Accrued payroll

 

                26,839

 

 

               30,966

 

Accrued expenses and other liabilities

 

                71,553

 

 

               61,830

 

Total current liabilities

 

              369,803

 

 

             374,632

 

Deferred income taxes

 

                19,278

 

 

               19,278

 

Operating lease liability

 

                  6,077

 

 

                 6,789

 

Other liabilities

 

                    179

 

 

                   211

 

Total Liabilities

 

              395,337

 

 

             400,910

 

Stockholders’ Equity:
Common stock

 

                    290

 

 

                   290

 

Additional paid-in capital

 

              123,571

 

 

             122,354

 

Retained earnings

 

              627,558

 

 

             605,766

 

Treasury stock at cost

 

              (45,937

)

 

             (45,937

)

Total Stockholders’ Equity

 

              705,482

 

 

             682,473

 

Total Liabilities and Stockholders’ Equity  

 $

        1,100,819

 

 $

       1,083,383

 

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
Three Months Ended March 31,
(amounts in thousands)

 

2022

 

 

 

2021

 

Cash Flows from Operating Activities:  
Net income

$

21,792

 

 

$

10,184

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:  
Depreciation and amortization

 

2,991

 

 

 

3,165

 

Adjustments to credit losses reserve

 

567

 

 

 

(70

)

Stock-based compensation expense

 

1,382

 

 

 

1,066

 

Loss on disposal of fixed assets

 

10

 

 

 

-

 

   
Changes in assets and liabilities:  
Accounts receivable

 

(27,177

)

 

 

54,895

 

Inventories

 

(28,046

)

 

 

333

 

Prepaid expenses and other current assets

 

(4,572

)

 

 

(3,927

)

Other non-current assets

 

32

 

 

 

(356

)

Accounts payable

 

(10,494

)

 

 

(60,862

)

Accrued expenses and other liabilities

 

5,230

 

 

 

1,534

 

Net cash (used in) provided by operating activities

 

(38,285

)

 

 

5,962

 

   
Cash Flows from Investing Activities:  
Purchases of equipment and capitalized software

 

(2,451

)

 

 

(2,403

)

Proceeds from life insurance

 

-

 

 

 

1,500

 

Net cash used in investing activities

 

(2,451

)

 

 

(903

)

   
Cash Flows from Financing Activities:  
Proceeds from short-term borrowings

 

1,385

 

 

 

-

 

Repayment of short-term borrowings

 

(1,385

)

 

 

-

 

Dividend payments

 

-

 

 

 

(8,375

)

Payment of payroll taxes on stock-based compensation through shares withheld

 

(165

)

 

 

(82

)

Net cash used in financing activities

 

(165

)

 

 

(8,457

)

Decrease in cash and cash equivalents

 

(40,901

)

 

 

(3,398

)

Cash and cash equivalents, beginning of period

 

108,310

 

 

 

95,655

 

Cash and cash equivalents, end of period

$

67,409

 

 

$

92,257

 

   
Non-cash Investing Activities:  
Accrued capital expenditures

$

266

 

 

$

714

 

   
Supplemental Cash Flow Information:  
Income taxes paid

$

287

 

 

$

261

 

   
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, 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. When analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA in addition to, and not as alternatives for Net income or any other performance measure presented in accordance with GAAP. Our non-GAAP financial measures may not be comparable to other similar titled measures of other companies.
 
(amounts in thousands) Three Months Ended March 31, LTM Ended March 31, (1)

 

2022

 

2021

% Change

 

2022

 

2021

% Change
Net income

$

21,792

$

10,184

114

%

$

81,514

$

51,053

60

%

Depreciation and amortization

 

2,991

 

3,165

(5

%)

 

12,028

 

13,622

(12

%)

Income tax expense

 

8,339

 

3,929

112

%

 

31,026

 

15,514

100

%

Interest expense

 

6

 

-

100

%

 

10

 

81

(88

%)

EBITDA

 

33,128

 

17,278

92

%

 

124,578

 

80,270

55

%

Restructuring and other charges (2)

 

-

 

-

0

%

 

-

 

992

(100

%)

Stock-based compensation

 

1,382

 

1,066

30

%

 

4,547

 

3,109

46

%

Adjusted EBITDA

$

34,510

$

18,344

88

%

$

129,125

$

84,371

53

%

 
(1) LTM: Last twelve months
(2) Restructuring and other charges in 2020 consist of severance and other charges related to internal restructuring activities.

 

Investor Relations:
Thomas Baker, 603.683.2505
Senior Vice President, CFO, and Treasurer
tom@connection.com

Source: PC Connection, Inc.

 




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