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Connection (CNXN) Reports Record First Quarter Results; EPS and Operating Income Increase by 50% and 35%, Respectively, from Prior Q1

FIRST QUARTER SUMMARY:

  • Operating income: $15.5 million, up 35.1% y/y
  • Gross profit: $96.4 million, up 11.1% y/y
  • Diluted EPS: $0.42, compared to $0.28 for the prior year quarter
  • Q1 Operating cash flow of $37.2 million

 

MERRIMACK, N.H--(BUSINESS WIRE)--May 3, 2018-- Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading technology solutions provider to business, government, and education markets, today announced results for the first quarter ended March 31, 2018. Net income for the first quarter ended March 31, 2018 increased by 52.1% to $11.3 million, or $0.42 per basic and diluted share, compared to net income of $7.4 million, or $0.28 per basic and diluted share for the prior year’s quarter.

Effective January 1, 2018, the Company adopted a new revenue recognition standard. Please note that the financial results 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 March 31, 2018 were $624.9 million. Net sales prior to the impact of the new revenue recognition standard for the quarter ended March 31, 2018 increased by 4.5% to $700.5 million, compared to $670.6 million for the prior year’s quarter.

Gross profit as presented for the quarter ended March 31, 2018 was $96.4 million. Gross profit prior to the impact of the new revenue recognition standard for the quarter ended March 31, 2018 was $95.8 million, compared to $86.7 million in the first quarter a year ago, an increase of 10.4%.

Gross margin as presented for the quarter ended March 31, 2018 was 15.4%. Gross margin prior to the impact of the new revenue recognition standard was 13.7%, compared to 12.9% in the same quarter a year ago.

Operating income as presented for the quarter ended March 31, 2018 was $15.5 million. Operating income prior to the impact of the new revenue recognition standard was $15.0 million, compared to $11.5 million in the same quarter a year ago.

Net income as presented for the quarter ended March 31, 2018 was $11.3 million. Net income prior to the impact of the new revenue recognition standard was $10.9 million, compared to $7.4 million in the first quarter a year ago, an increase of 47%.

Earnings per share (“EPS”) on both a basic and diluted basis as presented for the quarter ended March 31, 2018 was $0.42. EPS prior to the impact of the new revenue recognition standard was $0.41 per share, compared to the prior year’s $0.28 on both a basic and diluted basis.

Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and rebranding, acquisition and restructuring costs (“Adjusted EBITDA”), a non-GAAP measure, totaled $98.6 million for the twelve months ended March 31, 2018, Adjusted EBITDA prior to the impact of the new revenue recognition standard was $98.1 million, compared to $92.1 million for the twelve months ended March 31, 2017.

Quarterly Performance by Segment:

  • Net sales as presented for the first quarter of 2018 were $263.3 million for the Business Solutions (SMB) segment. Net sales prior to the impact of the new revenue recognition standard for the first quarter of 2018 increased by 9.1% to $298.7 million, compared to $273.6 million for the prior year’s quarter. Servers/storage and net/com products experienced strong revenue growth in this segment with an increase of 19% and 18%, respectively. Gross margin increased by 229 basis points to 17.6% primarily due to the adoption of the new revenue recognition standard and the increase in invoice selling margins.
  • Net sales as presented for the first quarter of 2018 were $257.2 million for the Enterprise Solutions (Large Account) segment. Net sales prior to the impact of the new revenue recognition standard for the first quarter of 2018 increased by 14.7% to $290.2 million, compared to $252.9 million for the prior year’s quarter. Mobility and server/storage products experienced solid growth during the quarter at 27% and 13%, respectively. Gross margin increased by 176 basis points to 14.3% primarily due to the adoption of the new revenue recognition standard and the increase in invoice selling margins.
  • Net sales as presented for the first quarter of 2018 were $104.4 million for the Public Sector Solutions segment. Net sales prior to the impact of the new revenue recognition standard for the first quarter of 2018 decreased by 22.5% to $111.6 million, compared to $144.0 million for the prior year’s quarter. Gross margin increased by 364 basis points to 12.9% primarily due to the adoption of the new revenue recognition standard and the increase in invoice selling margins.

Quarterly Sales by Product Mix:

  • Notebook/mobility sales, the Company’s largest product category, as presented, increased by 7% year over year and accounted for 26% of net sales in the first quarter of 2018, compared to 22% 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 6% year over year and accounted for 23% of net sales in the first quarter of 2018, compared to 22% in the prior year quarter. Sales of this product category grew year over year in Enterprise Solutions, but were offset by lower notebook sales made under federal contracts in our Public Sector, compared to the prior year quarter.
  • Servers/storage, as presented, increased by 21% year over year and accounted for 12% of net sales in the first quarter of 2018, compared to 9% of net sales in the prior year quarter. Excluding the impact of the adoption of the new revenue recognition standard, servers/storage sales increased by 21% year over year and accounted for 10% of net sales in the first quarter of 2018, compared to 9% in the prior year quarter. All three selling segments experienced strong year-over-year growth in server/storage sales.
  • Software sales, as presented, decreased by 46% year over year and accounted for 11% of net sales in the first quarter of 2018, compared to 19% of net sales in the prior year quarter. The decrease in software sales was due to the adoption the new revenue recognition standard. Excluding the impact of the adoption of the new revenue recognition standard, software sales increased by 15% year over year and accounted for 21% of net sales in the first quarter of 2018, compared to 19% of net sales in the prior year quarter. We experienced solid growth in cloud-based offerings, security, and office productivity.

As reported, gross profit increased by $9.6 million, or 11.1%, in the first quarter of 2018, compared to the prior year quarter. Gross profit prior to the impact of the new revenue recognition standard increased by $9.0 million, or 10.4% from the first quarter a year ago. Consolidated gross margin as reported, as a percentage of net sales, increased to 15.4% in the first quarter of 2018, compared to 12.9% for the prior year quarter. Gross margin prior to the impact of the new revenue recognition standard was 13.7% compared to 12.9% a year ago. The increase in gross margin was attributed to an increase in invoice selling margins related to an increase in higher-margin advanced solution sales.

Selling, general and administrative (“SG&A”) expenses as reported, increased in the first quarter of 2018 to $80.9 million from $75.3 million in the prior year quarter. SG&A in the first quarter of 2018 prior to the impact of the new revenue recognition standard was $80.8 million. The increase was primarily the result of increased variable compensation associated with our higher gross profits as well as investments made in our technology solutions group. SG&A as reported as a percentage of net sales was 12.9%, compared to 11.2% in the prior year quarter. However, SG&A in the first quarter of 2018, prior to the impact of the new revenue recognition standard, was 11.5%.

Cash and cash equivalents were $71.0 million at March 31, 2018, compared to $50.0 million at December 31, 2017. During the quarter we paid a $9.1 million special dividend to our shareholders. Also during the first quarter of 2018, the Company repurchased 116,241 shares of stock for $3.0 million. As of March 31, 2018, the Company had $14.8 million available for stock repurchases remaining under previous authorizations made by its Board of Directors. Days sales outstanding were 53 days at March 31, 2018, up from 48 days in the prior year quarter; the increase of 5 days from 48 days was due to the adoption of the new revenue recognition standard. Inventory turns were 23 turns in the first quarter of 2018, down from 25 turns in the prior year quarter; excluding the impact of the new revenue recognition standard, inventory turns would have increased to 26 turns.

“We are pleased with our record first quarter results in gross margin and earnings per share, while generating significant operating cash flow. It was also good to see continued execution and double-digit growth in our vertical markets; retail, manufacturing, healthcare, and finance.” said Tim McGrath, President and Chief Executive Officer. “We remain focused on our strategic plan to help our customers solve their business challenges with innovative technology solutions,” concluded Mr. McGrath.

Non-GAAP Financial Information

Adjusted EBITDA is a non-GAAP financial measure. This information is included to provide information with respect to the Company’s operating performance and earnings. Non-GAAP measures are not a substitute for GAAP measures and should be considered together with the GAAP financial measures. Our non-GAAP financial measures may not be comparable to other similarly titled measures of other companies.

About Connection

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 9001:2008 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.pcconnection.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 – 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.

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.

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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 March 31,     2018       2017      
                          %
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)             Change
                           
Operating Data:                          
Net sales     $ 624,895           $ 670,594           (7 %)
Diluted earnings per share     $ 0.42           $ 0.28           50 %
                           
Gross margin       15.4 %           12.9 %          
Operating margin       2.5 %           1.7 %          
Return on equity (1)       12.5 %           11.0 %          
                           
Inventory turns       23             25            
Days sales outstanding       53             48            
                           
      % of         % of          
Product Mix:     Net Sales         Net Sales          
Notebooks/Mobility       26 %           22 %          
Servers/Storage       12             9            
Software       11             19            
Net/Com Products       8             9            
Other Hardware/Services       43             41            
Total Net Sales       100 %           100 %          
                           
                           
Stock Performance Indicators:                          
Actual shares outstanding       26,737             26,761            
Total book value per share     $18.40           $16.54            
Tangible book value per share     $15.25           $13.34            
Closing price     $25.00           $29.79            
Market capitalization     $668,425           $797,210            
Trailing price/earnings ratio       11.4             17.0            
LTM Adjusted EBITDA (2)     $98,551           $92,136            
Adjusted market capitalization/LTM Adjusted EBITDA (3)       6.1             7.9            
                           
(1) Based on last twelve months' net income.    
(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and    
acquisition, rebranding, and restructuring costs.                          
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance.    
                           
                           
REVENUE AND MARGIN INFORMATION                          
For the Three Months Ended March 31,     2018     2017      
      Net   Gross     Net   Gross      
(amounts in thousands)     Sales   Margin     Sales   Margin      
                           
Business Solutions (SMB)     $ 263,278     17.6 %     $ 273,633     15.3 %      
Enterprise Solutions (Large Account)       257,244     14.3         252,918     12.5        
Public Sector Solutions       104,373     12.9         144,043     9.2        
Total     $ 624,895     15.4 %     $ 670,594     12.9 %      
                                       

 

                     
CONDENSED CONSOLIDATED STATEMENTS OF INCOME    
Three Months Ended March 31,     2018      

2017 (1)

 
(amounts in thousands, except per share data)   Amount     % of Net Sales       Amount     % of Net Sales  
                                 
Net sales       $ 624,895       100.0 %       $ 670,594         100.0 %    
Cost of sales         528,523       84.6           583,861         87.1      
Gross profit         96,372       15.4           86,733         12.9      
                                 
Selling, general and administrative expenses     80,900       12.9           75,281         11.2      
Income from operations         15,472       2.5           11,452         1.7      
                                 
Interest/other expense, net         116                 19              
Income tax provision         (4,288 )     (0.7 )         (4,039 )       (0.6 )    
Net income       $ 11,300       1.8 %       $ 7,432         1.1 %    
                                 
Earnings per common share:                                
Basic       $ 0.42               $ 0.28            
Diluted       $ 0.42               $ 0.28            
                                 
Shares used in the computation of earnings per common share:              
Basic         26,835                 26,697            
Diluted         26,916                 26,866            
                                 
(1) Amounts are not restated and represent the amounts recognized under generally accepted accounting principles in place during that period.
                                 
                                 
                                 
EBITDA AND ADJUSTED EBITDA                              
                                 
A reconciliation of EBITDA and Adjusted EBITDA is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and special charges. Both EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either includes or excludes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide helpful information with respect to our operating performance including our ability to fund our future capital expenditures and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our credit agreements.
(amounts in thousands)   Three Months Ended March 31,       LTM Ended March 31, (1)
    2018   2017     % Change       2018     2017   % Change
Net income   $ 11,300   $ 7,432       52 %       $ 58,725       $ 46,480     26 %
Depreciation and amortization     3,301     2,855       16 %         12,285         10,892     13 %
Income tax expense     4,288     4,039       6 %         23,017         30,294     (24 %)
Interest expense     25     28       (11 %)         123         121     2 %
EBITDA     18,914     14,354       32 %         94,150         87,787     7 %
Special charges (2)     -     -       N/A           3,636         3,406     7 %
Stock-based compensation     207     183       13 %         765         943     (19 %)
Adjusted EBITDA   $ 19,121   $ 14,537       32 %       $ 98,551       $ 92,136     7 %
                                 

(1) LTM: Last twelve months
(2) Special charges in 2017 consist of a fourth quarter one-time bonus paid to all employees except executive officers as well as severance and relocation costs for our Softmart facility incurred in the second quarter 2017. Special charges in 2016 consist of our acquisition of Softmart, the rebranding of the Company, and duplicate costs incurred with the move of our Chicago-area facility.

                     
              March 31,     December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS   2018    

2017(1)

(amounts in thousands)                    
                     
ASSETS                    
Current Assets:                    
Cash and cash equivalents             $ 70,967       $ 49,990  
Accounts receivable, net               408,334         449,682  
Inventories               85,582         106,753  
Prepaid expenses and other current assets             6,437         5,737  
Income taxes receivable               380         3,933  
Total current assets               571,700         616,095  
Property and equipment, net               44,019         41,491  
Goodwill               73,602         73,602  
Other intangibles, net               10,645         11,025  
Long-term accounts receivable               1,890         -  
Other assets               1,714         5,638  
Total Assets             $ 703,570       $ 747,851  
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY                  
Current Liabilities:                    
Borrowings under bank line of credit           $ 859       $ -  
Accounts payable               152,115         194,257  
Accrued expenses and other liabilities             23,434         31,096  
Accrued payroll               17,207         22,662  
Total current liabilities               193,615         248,015  
Deferred income taxes               16,125         15,696  
Other liabilities               1,871         1,888  
Total Liabilities               211,611         265,599  
Stockholders’ Equity:                    

Common stock

              287         287  
Additional paid-in capital               114,361         114,154  
Retained earnings               396,170         383,673  
Treasury stock at cost               (18,859 )       (15,862 )
Total Stockholders’ Equity               491,959         482,252  
Total Liabilities and Stockholders’ Equity           $ 703,570       $ 747,851  
                     

(1) Amounts are not restated and represent the amounts recognized under generally accepted accounting principles in place during that period.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS              
Three Months Ended March 31,         2018    

2017(1)

(amounts in thousands)                
Cash Flows from Operating Activities:                
Net income         $ 11,300       $ 7,432  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization           3,300         2,855  
Deferred income taxes           429         38  
Provision for doubtful accounts           417         545  
Stock-based compensation expense           207         183  
                 
Changes in assets and liabilities:                
Accounts receivable           57,389         32,885  
Inventories           10,302         (9,438 )
Prepaid expenses and other current assets           2,721         1,016  
Other non-current assets           (1,880 )       22  
Accounts payable           (42,521 )       (6,177 )
Accrued expenses and other liabilities           (4,420 )       (3,936 )
Net cash provided by operating activities           37,244         25,425  
                 
Cash Flows from Investing Activities:                
Purchases of equipment           (5,007 )       (1,487 )
Net cash used for investing activities           (5,007 )       (1,487 )
                 
Cash Flows from Financing Activities:                
Proceeds from short-term borrowings           859         -  
Purchase of treasury shares           (2,997 )       -  
Dividend payment           (9,122 )       (9,041 )
Exercise of stock options           -         1,678  
Net cash used for financing activities           (11,260 )       (7,363 )
Increase in cash and cash equivalents           20,977         16,575  
Cash and cash equivalents, beginning of period           49,990         49,180  
Cash and cash equivalents, end of period         $ 70,967       $ 65,755  
                 
Non-cash Investing Activities:                
Accrued capital expenditures         $ 1,140       $ 291  
                 

Supplemental Cash Flow Information:

               
Income taxes paid         $ 320       $ 1,546  
                 

(1) Amounts are not restated and represent the amounts recognized under generally accepted accounting principles in place during that period.

                                                           
RECONCILIATION OF CHANGES IN REVENUE STANDARD                                                  
(Unaudited, in thousands, except per share amounts)                                                      
                                        Change     Change
    Three Months Ended March 31,     As Presented     Previous Revenue Standard
    2018     2017     Amount     Percent     Amount     Percent
    As         Impact of New   Previous Revenue Standard                        
    Presented   % of Net Sales     Revenue Standard   Amount   % of Net Sales   Amount   % of Net Sales                      
Net sales   $ 624,895     100.0 %     $ 75,558       $ 700,453     100.0 %     $ 670,594     100.0 %     $ (45,699 )     (6.8 %)     $ 29,859       4.5 %
Cost of sales     528,523     84.6 %       76,168         604,691     86.3 %       583,861     87.1 %       (55,338 )     (9.5 %)       20,830       3.6 %
Gross profit     96,372     15.4 %       (610 )       95,762     13.7 %       86,733     12.9 %       9,639       11.1 %       9,029       10.4 %
                                                           
Selling, general and administrative expenses     80,900     12.9 %       (113 )       80,787     11.5 %       75,281     11.2 %       5,619       7.5 %       5,506       7.3 %
Income from operations     15,472     2.5 %       (497 )       14,975    

2.1

%       11,452     1.7 %       4,020       35.1 %       3,523       30.8 %
                                                           
Interest income, net     116     -         -         116     -         19     -         97       510.5 %       97       510.5 %
Income tax provision     (4,288 )   (0.7 %)       135         (4,153 )   (0.6 %)       (4,039 )   (0.6 %)       (249 )     6.2 %       (114 )     2.8 %
Net income   $ 11,300     1.8 %     $ (362 )     $ 10,938     1.6 %     $ 7,432     1.1 %     $ 3,868       52.0 %     $ 3,506       47.2 %
                                                           
Earnings per common share:                                                          
Basic   $ 0.42           $ (0.01 )     $ 0.41           $ 0.28           $ 0.14       50.0 %     $ 0.13       46.4 %
Diluted   $ 0.42           $ (0.01 )     $ 0.41           $ 0.28           $ 0.14       50.0 %     $ 0.13       46.4 %
                                                           
Shares used in the computation of earnings per common share                                                  
Basic     26,835                   26,835             26,697                              
Diluted     26,916                   26,916             26,866                              
                                                           
                                                           
                                                           
                                                           
CONSOLIDATED SELECTED FINANCIAL INFORMATION UNDER PREVIOUS REVENUE RECOGNITION STANDARD                          
                                                           
                                                 
    2018         2017                                  
    As   Impact of New                                                  
    Presented   Revenue Standard     Previous Revenue Standard                                  
Inventory turns     23     3         26           25                                    
Days sales outstanding     53     (5 )       48           48      

 

                           
                                                           
    % of         % of         % of                                  
Product Mix:   Net Sales         Net Sales         Net Sales                                  
Notebooks/Mobility     26 %   (3 )       23 %         22 %                                  
Servers/Storage     12     (2 )       10           9                                    
Software     11     10         21           19                                    
Net/Com Products     8     (1 )       7           9                                    
Other Hardware/Services     43     (4 )       39           41                                    
Total Net Sales     100 %           100 %         100 %                                  
                                                                     

 

       

RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET SALES

     

(Unaudited, in thousands)

     
                    Change   Change
    Three Months Ended March 31,   As Presented   Previous Revenue Standard
    2018   2017   Amount   Percent   Amount   Percent
                                 
    As   Impact of New                        
Net sales   Presented   Revenue Standard   Previous Revenue Standard        
Business Solutions (SMB)   $ 263,278     $ 35,388     $ 298,666     $ 273,633     $ (10,355 )   (3.8 %)   $ 25,033     9.1 %
Enterprise Solutions (Large Account)     257,244       32,951       290,195       252,918       4,326     1.7 %     37,277     14.7 %
Public Sector Solutions     104,373       7,219       111,592       144,043       (39,670 )   (27.5 %)     (32,451 )   (22.5 %)
Total   $ 624,895     $ 75,558     $ 700,453     $ 670,594     $ (45,699 )   (6.8 %)   $ 29,859     4.5 %
                                 
                                 
                                 
                                 
                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS PROFITS              
(Unaudited, in thousands)                                
                    Change   Change
    Three Months Ended March 31,   As Presented   Previous Revenue Standard
    2018           2017   Amount   Percent   Amount   Percent
                                 
    As   Impact of New                        
Gross profits   Presented   Revenue Standard   Previous Revenue Standard        
Business Solutions (SMB)   $ 46,235     $ (203 )   $ 46,032     $ 41,791     $ 4,444     10.6 %   $ 4,241     10.1 %
Enterprise Solutions (Large Account)     36,694       (408 )     36,286       31,629       5,065     16.0 %     4,657     14.7 %
Public Sector Solutions     13,443       -       13,443       13,313       130     1.0 %     130     1.0 %
Total   $ 96,372     $ (611 )   $ 95,761     $ 86,733     $ 9,639     11.1 %   $ 9,028     10.4 %
                                 
                                 
                                 
                                 
                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS MARGINS            
(Unaudited, in thousands)                                
                    Change   Change        
    Three Months Ended March 31,   As Presented   Previous Revenue Standard        
    2018   2017   Amount   Amount        
                                 
    As   Impact of New                        
Gross margins   Presented   Revenue Standard   Previous Revenue Standard            
                                 
Business Solutions (SMB)     17.6 %     (215 )     15.4 %     15.3 %     229     14          
Enterprise Solutions (Large Account)     14.3 %     (176 )     12.5 %     12.5 %     176     (0 )        
Public Sector Solutions     12.9 %     (83 )     12.0 %     9.2 %     364     280          
Total     15.4 %     (175 )     13.7 %     12.9 %     249     74          
                                                       

 

                         
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR EBITDA AND ADJUSTED EBITDA      
                         
A reconciliation of EBITDA and Adjusted EBITDA is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and special charges. 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.
                         
                    Change   Change
(amounts in thousands)   Three Months Ended March 31,   As Presented   Previous Revenue Standard
    2018   2017   Percent   Percent
    As   Impact of New                
    Presented   Revenue Standard   Previous Revenue Standard    
Net income   $ 11,300   $ (362 )   $ 10,938   $ 7,432   52 %   47 %
Depreciation and amortization     3,301     -       3,301     2,855   16 %   16 %
Income tax expense     4,288     (135 )     4,153     4,039   6 %   3 %
Interest expense     25     -       25     28   (11 %)   (11 %)
EBITDA     18,914     (497 )     18,417     14,354   32 %   28 %
Special charges     -     -       -     -   N/A     N/A  
Stock-based compensation     207     -       207     183   13 %   13 %
Adjusted EBITDA   $ 19,121   $ (497 )   $ 18,624   $ 14,537   32 %   28 %
                         
                         
                    Change   Change
(amounts in thousands)   LTM Ended March 31, (1)   As Presented   Previous Revenue Standard
    2018   2017   Percent   Percent
    As   Impact of New                
    Presented   Revenue Standard   Previous Revenue Standard    
Net income   $ 58,725   $ (362 )   $ 58,363   $ 46,480   26 %   26 %
Depreciation and amortization     12,285     -       12,285     10,892   13 %   13 %
Income tax expense     23,017     (135 )     22,882     30,294   (24 %)   (24 %)
Interest expense     123     -       123     121   2 %   2 %
EBITDA     94,150     (497 )     93,653     87,787   7 %   7 %
Special charges (2)     3,636     -       3,636     3,406   7 %   7 %
Stock-based compensation     765     -       765     943   (19 %)   (19 %)
Adjusted EBITDA   $ 98,551   $ (497 )   $ 98,054   $ 92,136   7 %   6 %

(1) LTM: Last twelve months
(2) Special charges in 2017 consist of a fourth quarter one-time bonus paid to all employees except executive officers as well as severance and relocation costs for our Softmart facility incurred in the second quarter 2017. Special charges in 2016 consist of our acquisition of Softmart, the rebranding of the Company, and duplicate costs incurred with the move of our Chicago-area facility.

cnxn-g

Source: PC Connection, Inc.

PC Connection, Inc.
Investor Relations Contact:
William Schulze, 603-683-2262
william.schulze@connection.com

 

 




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