Connection (CNXN) Reports Record Second Quarter Results

August 2, 2018

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.

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View source version on businesswire.com: https://www.businesswire.com/news/home/20180802005856/en/

Source: Connection

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

Press Release Details

Connection (CNXN) Reports Record Second Quarter Results