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Connection (CNXN) Reports Record Second Quarter Results

Net Income Increases by 34% from Prior Q2

SECOND QUARTER SUMMARY:

  • Gross profit: $107.5 million, up 7.8% y/y
  • Operating income: $24.9 million, up 11.2% y/y
  • Net income: $18.2 million, up 34.2% y/y
  • Diluted EPS: $0.68, compared to $0.51 for Q2 2017

 

MERRIMACK, N.H.--(BUSINESS WIRE)--Aug. 2, 2018-- Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading technology solutions provider to business, government, and education markets, today announced results for the second quarter ended June 30, 2018. Net income for the second quarter ended June 30, 2018 increased by 34.2% to $18.2 million, or $0.68 per basic and diluted share, compared to net income of $13.6 million, or $0.51 per basic and diluted share for the prior year’s quarter.

As previously disclosed, 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 June 30, 2018 were $706.6 million. Net sales prior to the impact of the new revenue recognition standard for the quarter ended June 30, 2018 increased by 9.3% to $819.8 million, compared to $749.8 million for the prior year’s quarter.

Gross profit as presented for the quarter ended June 30, 2018 was $107.5 million. Gross profit prior to the impact of the new revenue recognition standard for the quarter ended June 30, 2018 was $108.9 million, compared to $99.7 million in the second quarter a year ago, an increase of 9.2%.

Gross margin as presented for the quarter ended June 30, 2018 was 15.2%. Gross margin prior to the impact of the new revenue recognition standard was 13.3%, consistent with the same quarter a year ago.

Operating income as presented for the quarter ended June 30, 2018 was $24.9 million. Operating income prior to the impact of the new revenue recognition standard was $26.0 million, compared to $22.4 million in the same quarter a year ago.

Net income as presented for the quarter ended June 30, 2018 was $18.2 million. Net income prior to the impact of the new revenue recognition standard was $19.0 million, compared to $13.6 million in the second quarter a year ago, an increase of 39.9%.

Earnings per share (“EPS”) on both a basic and diluted basis as presented for the quarter ended June 30, 2018 was $0.68. EPS prior to the impact of the new revenue recognition standard was $0.71 per share, compared to the prior year’s $0.51 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 $100.9 million for the twelve months ended June 30, 2018, Adjusted EBITDA prior to the impact of the new revenue recognition standard was $101.5 million, compared to $94.0 million for the twelve months ended June 30, 2017.

Net sales for the six months ended June 30, 2018 were $1,331.5 million. Net sales prior to the impact of the new revenue recognition standard for the six months ended June 30, 2018 increased by 7.0% to $1,520.2 million, compared to $1,420.4 million for the six months ended June 30, 2017.

Gross profit for the six months ended June 30, 2018 was $203.8 million. Gross profit prior to the impact of the new revenue recognition standard for the six months ended June 30, 2018 was $204.6 million, compared to $186.4 million for the six months ended June 30, 2017, an increase of 9.8%.

Gross margin as presented for the six months ended June 30, 2018 was 15.3%. Gross margin prior to the impact of the new revenue recognition standard was 13.5%, compared to 13.1% for the six months ended June 30, 2017.

Operating income as presented for the six months ended June 30, 2018 was $40.4 million. Operating income prior to the impact of the new revenue recognition standard was $41.0 million, compared to $33.9 million for the six months ended June 30, 2017.

Net income as presented for the six months ended June 30, 2018 was $29.5 million. Net income prior to the impact of the new revenue recognition standard was $29.9 million, compared to $21.0 million for the six months ended June 30, 2017, an increase of 42.5%.

Quarterly Performance by Segment:

  • Net sales as presented for the second quarter of 2018 were $270.0 million for the Business Solutions segment. Net sales prior to the impact of the new revenue recognition standard for the second quarter of 2018 increased by 5.0% to $311.3 million, compared to $296.4 million for the prior year’s quarter. Net/com and mobility products experienced strong revenue growth in this segment with an increase of 18% and 8%, respectively. Gross margin increased by 191 basis points to 17.5% 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 second quarter of 2018 was 15.5%.
  • Net sales as presented for the second quarter of 2018 were $301.1 million for the Enterprise Solutions segment. Net sales prior to the impact of the new revenue recognition standard for the second quarter of 2018 increased by 15.5% to $349.0 million, compared to $302.1 million for the prior year’s quarter. Mobility and server/storage products experienced solid growth during the quarter at 37% and 27%, respectively. Gross margin increased by 208 basis points to 14.4% 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 second quarter of 2018 was 12.6%.
  • Net sales as presented for the second quarter of 2018 were $135.5 million for the Public Sector Solutions segment. Net sales prior to the impact of the new revenue recognition standard for the second quarter of 2018 increased by 5.4% to $159.4 million, compared to $151.3 million for the prior year’s quarter. Gross margin increased by 170 basis points to 12.5% 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 second quarter of 2018 was 10.6%.

Quarterly Sales by Product Mix:

  • Notebook/mobility sales, the Company’s largest product category, as presented, increased by 16% year over year and accounted for 26% of net sales in the second 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 17% year over year and accounted for 23% of net sales in the second quarter of 2018, compared to 21% in the prior year quarter. The Enterprise Solutions and Business Solutions segments experienced strong year-over-year growth in notebook sales.
  • Servers/storage, as presented, increased by 7% year over year and accounted for 10% of net sales in the second 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 8% year over year and accounted for 8% of net sales in the second quarter of 2018, compared to 9% in the prior year quarter. The Enterprise Solutions and Public Sector Solutions segments experienced strong year-over-year growth in server/storage sales.
  • Software sales, as presented, decreased by 50% year over year and accounted for 12% of net sales in the second quarter of 2018, compared to 23% of net sales in the prior year quarter. The 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 13% year over year and accounted for 24% of net sales in the second quarter of 2018, compared to 23% of net sales in the prior year quarter. We experienced solid growth in cloud-based offerings, security, and office productivity.

Selling, general and administrative (“SG&A”) expenses as presented, increased in the second quarter of 2018 to $82.5 million from $77.2 million in the prior year quarter. SG&A in the second quarter of 2018 prior to the impact of the new revenue recognition standard was $82.8 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 11.7%, compared to 10.3% in the prior year quarter. However, SG&A in the second quarter of 2018, prior to the impact of the new revenue recognition standard, was 10.1%.

Cash and cash equivalents were $68.7 million at June 30, 2018, compared to $50.0 million at December 31, 2017. During the second quarter of 2018, the Company repurchased 53,221 shares of stock for $1.4 million. As of June 30, 2018, the Company had $13.4 million available for stock repurchases remaining under previous authorizations made by its Board of Directors. Days sales outstanding were 53 days at June 30, 2018, up from 47 days in the prior year quarter; the increase of 6 days from 47 days was due to the adoption of the new revenue recognition standard. Inventory turns were 26 turns in the second quarter of 2018, up from 22 turns in the prior year quarter; excluding the impact of the new revenue recognition standard, inventory turns would have increased to 31 turns.

“We executed well during the second quarter and in the first half of 2018. We continued to see strong growth in advanced technologies and vertical markets.” said Tim McGrath, President and Chief Executive Officer. “We believe our team and the strategies we have in place position Connection 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, August 2, 2018 at 4:30 p.m. ET to discuss its second quarter financial results. 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 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.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 June 30,       2018         2017        
                                    %
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)                                  

Change

                                     
Operating Data:                                    
Net sales       $ 706,570                 $ 749,792             (6 %)
Diluted earnings per share       $ 0.68                 $ 0.51             33 %
                                     
Gross margin         15.2 %                 13.3 %            
Operating margin         3.5 %                 3.0 %            
Return on equity (1)         13.1 %                 11.0 %            
                                     
Inventory turns         26                   22              
Days sales outstanding         53                   47              
                                     
        % of               % of            
Product Mix:       Net Sales               Net Sales            
Notebooks/Mobility         26 %                 21 %            
Software         12                   23              
Desktops         11                   10              
Servers/Storage         10                   9              
Net/Com Products         9                   8              
Other Hardware/Services         32                   29              
Total Net Sales         100 %                 100 %            
                                     
                                     
Stock Performance Indicators:                                    
Actual shares outstanding         26,703                   26,785              
Total book value per share       $19.09                 $17.07              
Tangible book value per share       $15.94                 $13.88              
Closing price       $33.20                 $27.06              
Market capitalization       $886,540                 $724,802              
Trailing price/earnings ratio         14.1                   15.1              
LTM Adjusted EBITDA (2)       $100,918                 $94,017              
Adjusted market capitalization/LTM Adjusted EBITDA (3)         8.1                   7.4              
                                     
(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
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 June 30,       2018       2017      
        Net       Gross       Net     Gross      
(amounts in thousands)       Sales       Margin       Sales     Margin      
                                     
Business Solutions       $ 270,042         17.5 %       $ 296,420       15.6 %      
Enterprise Solutions         301,065         14.4           302,077       12.3        
Public Sector Solutions         135,463         12.5           151,295       10.8        
Total       $ 706,570         15.2 %       $ 749,792       13.3 %      

 

                             
                             
CONDENSED CONSOLIDATED STATEMENTS OF INCOME                            
        Three Months Ended June 30,       Six Month Ended June 30,
(amounts in thousands, except per share data)       2018     2017       2018     2017
                             
Net sales       $ 706,570       $ 749,792         $ 1,331,465       $ 1,420,386  
Cost of sales         599,102         650,122           1,127,625         1,233,983  
Gross profit         107,468         99,670           203,840         186,403  
                             
Selling, general and administrative expenses         82,521         77,230           163,421         152,511  
Income from operations         24,947         22,440           40,419         33,892  
                             
Interest/other expense, net         182         9           298         28  
Income tax provision         (6,903 )       (8,864 )         (11,191 )       (12,903 )
Net income       $ 18,226       $ 13,585         $ 29,526       $ 21,017  
                             
Earnings per common share:                            
Basic       $ 0.68       $ 0.51         $ 1.10       $ 0.79  
Diluted       $ 0.68       $ 0.51         $ 1.10       $ 0.78  
                             
Shares used in the computation of earnings per common share:                            
Basic         26,686         26,761           26,760         26,729  
Diluted         26,820         26,893           26,868         26,879  
                             

 

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

                     
            June 30,       December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS           2018      

2017 (1)

(amounts in thousands)                    
                     
ASSETS                    
Current Assets:                    
Cash and cash equivalents           $ 68,680         $ 49,990  
Accounts receivable, net             463,994           449,682  
Inventories, net             107,449           106,753  
Prepaid expenses and other current assets             6,279           5,737  
Income taxes receivable             933           3,933  
Total current assets             647,335           616,095  
Property and equipment, net             46,012           41,491  
Goodwill             73,602           73,602  
Intangibles assets, net             10,284           11,025  
Long-term accounts receivable             1,890           -  
Other assets             1,831           5,638  
Total Assets           $ 780,954         $ 747,851  
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
Current Liabilities:                    
Accounts payable           $ 200,940         $ 194,257  
Accrued expenses and other liabilities             28,915           31,096  
Accrued payroll             23,458           22,662  
Total current liabilities             253,313           248,015  
Deferred income taxes             16,125           15,696  
Other liabilities             1,855           1,888  
Total Liabilities             271,293           265,599  
Stockholders’ Equity:                    
Common stock             287           287  
Additional paid-in capital             115,224           114,154  
Retained earnings             414,396           383,673  
Treasury stock at cost             (20,246 )         (15,862 )
Total Stockholders’ Equity             509,661           482,252  
Total Liabilities and Stockholders’ Equity           $ 780,954         $ 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 June 30,         Six Month Ended June 30,
(amounts in thousands)         2018       2017         2018     2017
Cash Flows from Operating Activities:                                  
Net income         $ 18,226         $ 13,585           $ 29,526       $ 21,017  
Adjustments to reconcile net income to net cash provided by (used for) operating activities:                                  
Depreciation and amortization           3,429           2,855             6,729         5,710  
Provision for doubtful accounts           277           68             694         613  
Stock-based compensation expense           258           202             465         385  
Deferred income taxes           -           126             429         164  
                                   
Changes in assets and liabilities:                                  
Accounts receivable           (55,937 )         (48,054 )           1,452         (15,169 )
Inventories           (21,867 )         (18,253 )           (11,565 )       (27,691 )
Prepaid expenses and other current assets           (395 )         (3,564 )           2,326         (2,548 )
Other non-current assets           (117 )         (4,099 )           (1,997 )       (4,077 )
Accounts payable           48,684           15,107             6,163         8,930  
Accrued expenses and other liabilities           11,716           6,844             7,296         2,908  
Net cash provided by (used for) operating activities           4,274           (35,183 )           41,518         (9,758 )
                                   
Cash Flows from Investing Activities:                                  
Purchases of equipment           (4,920 )         (3,044 )           (9,927 )       (4,531 )
Net cash used for investing activities           (4,920 )         (3,044 )           (9,927 )       (4,531 )
                                   
Cash Flows from Financing Activities:                                  
Proceeds from short-term borrowings           -           -             859         -  
Repayment of short-term borrowings           (859 )                   (859 )      
Purchase of treasury shares           (1,387 )         -             (4,384 )       -  
Dividend payment           -           -             (9,122 )       (9,041 )
Exercise of stock options           -           -             -         1,678  
Issuance of stock under Employee Stock Purchase Plan           605           603             605         603  
Net cash (used for) provided by financing activities           (1,641 )         603             (12,901 )       (6,760 )
(Decrease) increase in cash and cash equivalents           (2,287 )         (37,624 )           18,690         (21,049 )
Cash and cash equivalents, beginning of period           70,967           65,755             49,990         49,180  
Cash and cash equivalents, end of period         $ 68,680         $ 28,131           $ 68,680       $ 28,131  
                                   
Non-cash Investing Activities:                                  
Accrued capital expenditures         $ 1,281         $ 662           $ 1,281       $ 662  
                                   
Supplemental Cash Flow Information:                                  
Income taxes paid         $ 7,990         $ 14,159           $ 8,309       $ 15,705  
                                   

(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 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 June 30,       LTM Ended June 30, (1)
        2018     2017     % Change       2018     2017     % Change
Net income       $ 18,226     $ 13,585     34 %       $ 63,366     $ 47,607     33 %
Depreciation and amortization         3,428       2,855     20 %         12,858       11,359     13 %
Income tax expense         6,903       8,864     (22 %)         21,056       30,618     (31 %)
Interest expense         28       30     (7 %)         121       139     (13 %)
EBITDA         28,585       25,334     13 %         97,401       89,723     9 %
Special charges (2)         -       941     (100 %)         2,695       3,506     (23 %)
Stock-based compensation         258       201     28 %         822       788     4 %
Adjusted EBITDA       $ 28,843     $ 26,476     9 %       $ 100,918     $ 94,017     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 last twelve months of 2017 consist of our acquisition of Softmart, the rebranding of the Company, and duplicate costs incurred with the move of our Chicago-area facility.

 

 
RECONCILIATION OF CHANGES IN REVENUE STANDARD
(Unaudited, in thousands, except per share amounts)                                                                      
                                                    Change     Change
        Three Months Ended June 30,     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       $ 706,570       100.0 %     $ 113,199       $ 819,769       100.0 %       $ 749,792       100.0 %     $ (43,222 )     (5.8 %)     $ 69,977     9.3 %
Cost of sales         599,102       84.8 %       111,797         710,899       86.7 %         650,122       86.7 %       (51,020 )     (7.8 %)       60,777     9.3 %
Gross profit         107,468       15.2 %       1,402         108,870       13.3 %         99,670               7,798       7.8 %       9,200     9.2 %
                                                                       
Selling, general and administrative expenses         82,521       11.7 %       321         82,842       10.1 %         77,230       10.3 %       5,291       6.9 %       5,612     7.3 %
Income from operations         24,947       3.5 %       1,081         26,028       3.2 %         22,440       3.0 %       2,507       11.2 %       3,588     16.0 %
                                                                       
Interest income, net         182       0.1 %       -         182       -           9       -         173       1,922.2 %       173     1,922.2 %
Income tax provision         (6,903 )     (1.0 %)       (297 )       (7,200 )     (0.9 %)         (8,864 )     (1.2 %)       1,961       (22.1 %)       1,664     (18.8 %)
Net income       $ 18,226       2.6 %     $ 784       $ 19,010       2.3 %       $ 13,585       1.8 %     $ 4,641       34.2 %     $ 5,425     39.9 %
                                                                       
Earnings per common share:                                                                      
Basic       $ 0.68             $ 0.03       $ 0.71               $ 0.51             $ 0.17       33.3 %     $ 0.20     39.2 %
Diluted       $ 0.68             $ 0.03       $ 0.71               $ 0.51             $ 0.17       33.3 %     $ 0.20     39.2 %
                                                                       
Shares used in the computation of earnings per common share                                                                      
Basic         26,686                     26,686                 26,791                                
Diluted         26,820                     26,820                 26,893                                
                                                                       
                                                                       
                                                                       
                                                                       
                                                                       
                                                                       
RECONCILIATION OF CHANGES IN REVENUE STANDARD                                                                      
(Unaudited, in thousands, except per share amounts)                                                                      
                                                    Change     Change
        Six Months Ended June 30,           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       $ 1,331,465       100.0 %     $ 188,757       $ 1,520,222       100.0 %       $ 1,420,386       100.0 %     $ (88,921 )     (6.3 %)     $ 99,836     7.0 %
Cost of sales         1,127,625       84.7 %       187,965         1,315,590       86.5 %         1,233,983       86.9 %       (106,358 )     (8.6 %)       81,607     6.6 %
Gross profit         203,840       15.3 %       792         204,632       13.5 %         186,403       13.1 %       17,437       9.4 %       18,229     9.8 %
                                                                       
Selling, general and administrative expenses         163,421       12.3 %       208         163,629       10.8 %         152,511       10.7 %       10,910       7.2 %       11,118     7.3 %
Income from operations         40,419       3.0 %       584         41,003       2.7 %         33,892       2.4 %       6,527       19.3 %       7,111     21.0 %
                                                                       
Interest income, net         298       -         -         298       0.0 %         28       0.0 %       270       964.3 %       270     964.3 %
Income tax provision         (11,191 )     (0.8 %)       (162 )       (11,353 )     (0.7 %)         (12,903 )     (0.9 %)       1,712       (13.3 %)       1,550     (12.0 %)
Net income       $ 29,526       2.2 %     $ 422       $ 29,948       2.0 %       $ 21,017       1.5 %     $ 8,509       40.5 %     $ 8,931     42.5 %
                                                                       
Earnings per common share:                                                                      
Basic       $ 1.10             $ 0.02       $ 1.12               $ 0.79             $ 0.31       39.2 %     $ 0.33     41.8 %
Diluted       $ 1.10             $ 0.01       $ 1.11               $ 0.78             $ 0.32       41.0 %     $ 0.33     42.3 %
                                                                       
Shares used in the computation of earnings per common share                                                                      
Basic         26,760                     26,760                 26,729                                
Diluted         26,868                     26,868                 26,879                                

 

                                   
CONSOLIDATED SELECTED FINANCIAL INFORMATION UNDER PREVIOUS REVENUE RECOGNITION STANDARD  
                                   
                                   
        2018       2017  
        As       Impact of New                
        Presented       Revenue Standard     Previous Revenue Standard
Inventory turns       26       5         31       22  
Days sales outstanding       53       (6 )       47       47  
                                   
        % of               % of       % of  
Product Mix:       Net Sales               Net Sales       Net Sales  
Notebooks/Mobility       26 %     (3 )       23 %     21 %
Software       12       12         24       23  
Desktops       11       (1 )       10       10  
Servers/Storage       10       (2 )       8       9  
Net/Com Products       9       (2 )       7       8  
Other Hardware/Services       32       (4 )       28       29  
Total Net Sales       100 %             100 %     100 %

 

                                                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET SALES  
(Unaudited, in thousands)                                                                
                                        Change       Change
        Three Months Ended June 30,       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       $ 270,042         $ 41,260         $ 311,302         $ 296,420         $ (26,378 )       (8.9 %)       $ 14,882       5.0 %
Enterprise Solutions         301,065           47,977           349,042           302,077           (1,012 )       (0.3 %)         46,965       15.5 %
Public Sector Solutions         135,463           23,962           159,425           151,295           (15,832 )       (10.5 %)         8,130       5.4 %
Total       $ 706,570         $ 113,199         $ 819,769         $ 749,792         $ (43,222 )       (5.8 %)       $ 69,977       9.3 %
                                                                 
                                                                 
                                                                 
                                                                 
   
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS PROFITS  
(Unaudited, in thousands)                                                                
                                        Change       Change
        Three Months Ended June 30,       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       $ 47,329         $ 784         $ 48,113         $ 46,277         $ 1,052         2.3 %       $ 1,836       4.0 %
Enterprise Solutions         43,256           618           43,874           37,107           6,149         16.6 %         6,767       18.2 %
Public Sector Solutions         16,883           -           16,883           16,286           597         3.7 %         597       3.7 %
Total       $ 107,468         $ 1,402         $ 108,870         $ 99,670         $ 7,798         7.8 %       $ 9,200       9.2 %
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS MARGINS  
(Unaudited, in thousands)                                                                
                                        Change       Change                
        Three Months Ended June 30,       As Presented       Previous Revenue Standard          
        2018       2017       Amount       Amount                
                                                                 
        As       Impact of New                                                
Gross margins       Presented       Revenue Standard       Previous Revenue Standard                        
                                                                 
Business Solutions         17.5 %         (207 )         15.5 %         15.6 %         191         (16 )                
Enterprise Solutions         14.4 %         (180 )         12.6 %         12.3 %         208         29                  
Public Sector Solutions         12.5 %         (187 )         10.6 %         10.8 %         170         (17 )                
Total         15.2 %         (193 )         13.3 %         13.3 %         192         (1 )                

 

 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET SALES
(Unaudited, in thousands)                                                                
                                        Change       Change
        Six Months Ended June 30,       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       $ 533,320         $ 76,648         $ 609,968         $ 570,053         $ (36,733 )       (6.4 %)       $ 39,915         7.0 %
Enterprise Solutions         558,309           80,928           639,237           554,995           3,314         0.6 %         84,242         15.2 %
Public Sector Solutions         239,836           31,181           271,017           295,338           (55,502 )       (18.8 %)         (24,321 )       (8.2 %)
Total       $ 1,331,465         $ 188,757         $ 1,520,222         $ 1,420,386         $ (88,921 )       (6.3 %)       $ 99,836         7.0 %
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS PROFITS
(Unaudited, in thousands)                                                                
                                        Change       Change
        Six Months Ended June 30,       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       $ 93,564         $ 581         $ 94,145         $ 88,068         $ 5,496         6.2 %       $ 6,077         6.9 %
Enterprise Solutions         79,950           211           80,161           68,736           11,214         16.3 %         11,425         16.6 %
Public Sector Solutions         30,326           -           30,326           29,599           727         2.5 %         727         2.5 %
Total       $ 203,840         $ 792         $ 204,632         $ 186,403         $ 17,437         9.4 %       $ 18,229         9.8 %
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS MARGINS  
(Unaudited, in thousands)                                                                
                                        Change       Change                
        Six Months Ended June 30,       As Presented       Previous Revenue Standard          
        2018       2017       Amount       Amount                
                                                                 
        As       Impact of New                                                
Gross margins       Presented       Revenue Standard       Previous Revenue Standard                        
                                                                 
Business Solutions         17.5 %         (211 )         15.4 %         15.4 %         209         (1 )                
Enterprise Solutions         14.3 %         (178 )         12.5 %         12.4 %         194         16                  
Public Sector Solutions         12.6 %         (145 )         11.2 %         10.0 %         262         117                  
Total         15.3 %         (185 )         13.5 %         13.1 %         219         34                  

 

 
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 June 30,       As Presented       Previous Revenue Standard
        2018       2017       Percent       Percent
        As       Impact of New                                
        Presented       Revenue Standard       Previous Revenue Standard                
Net income       $ 18,226       $ 784       $ 19,010       $ 13,585       34 %       40 %
Depreciation and amortization         3,428         -         3,428         2,855       20 %       20 %
Income tax expense         6,903         297         7,200         8,864       (22 %)       (19 %)
Interest expense         28         -         28         30       (7 %)       (7 %)
EBITDA         28,585         1,081         29,666         25,334       13 %       17 %
Special charges (1)         -         -         -         941       N/A         N/A  
Stock-based compensation         258         -         258         201       28 %       28 %
Adjusted EBITDA       $ 28,843       $ 1,081       $ 29,924       $ 26,476       9 %       13 %
                                                 
(1) Special charges in 2017 consist of a fourth quarter one-time bonus paid to all employees except executive officers as well as severance and relocation costs for our Softmart facility incurred in the second quarter 2017.
                                                 
                                                 
                                                 
                                        Change       Change
(amounts in thousands)       LTM Ended June 30, (1)       As Presented       Previous Revenue Standard
        2018       2017       Percent       Percent
        As       Impact of New                                
        Presented       Revenue Standard       Previous Revenue Standard        
Net income       $ 63,366       $ 422       $ 63,788       $ 47,607       33 %       34 %
Depreciation and amortization         12,858         -         12,858         11,359       13 %       13 %
Income tax expense         21,056         162         21,218         30,618       (31 %)       (31 %)
Interest expense         121         -         121         139       (13 %)       (13 %)
EBITDA         97,401         584         97,985         89,723       9 %       9 %
Special charges (2)         2,695         -         2,695         3,506       (23 %)       (23 %)
Stock-based compensation         822         -         822         788       4 %       4 %
Adjusted EBITDA       $ 100,918       $ 584       $ 101,502       $ 94,017       7 %       8 %
                                                 
(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 last twelve months of 2017 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: Connection

Investor Relations Contact:
Connection
Steve Sarno, 603-683-2505
Steve.Sarno@connection.com

 

 




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