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Connection (CNXN) Reports Second Quarter 2022 Results

Best Quarter in Company History

SECOND QUARTER HIGHLIGHTS:

  • Record net sales: $828.5 million, up 17.7% y/y
  • Record gross profit: $136.9 million, up 17.7% y/y
  • Record net income: $25.4 million, up 46.9% y/y
  • Record diluted EPS: $0.96, up 46.5% y/y

MERRIMACK, N.H.--(BUSINESS WIRE)--Aug. 4, 2022-- Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading information technology solutions provider to business, government, healthcare and education markets, today announced results for the second quarter ended June 30, 2022.

“We continued to execute well against our strategic objectives across each of our business segments and delivered another record quarter. There was strong demand for hybrid work solutions, cloud, and software, as companies continue to modernize and secure their environments,” said Timothy McGrath, President and Chief Executive Officer of Connection.

Net sales for the quarter ended June 30, 2022 increased by 17.7% to $828.5 million, compared to $704.2 million for the prior year quarter. Net income for the quarter ended June 30, 2022 increased by 46.9% to $25.4 million, or $0.96 per diluted share, compared to net income of $17.3 million, or $0.66 per diluted share, for the prior year quarter.

Net sales for the six months ended June 30, 2022 increased by 20.6% to $1,616.9 million, compared to $1,341.1 million for the six months ended June 30, 2021. Net income for the six months ended June 30, 2022 increased by 71.8% to $47.2 million, or $1.79 per diluted share, compared to net income of $27.5 million, or $1.04 per diluted share for the six months ended June 30, 2021.

Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and restructuring and other charges (“Adjusted EBITDA”) increased 45% to $140.5 million for the twelve months ended June 30, 2022, compared to $96.7 million for the twelve months ended June 30, 2021. 1

Quarterly Performance by Segment:

  • Net sales for the Business Solutions segment increased by 22.9% to $328.4 million in the second quarter of 2022, compared to $267.3 million in the prior year quarter. Gross profit increased by 27.7% to $65.5 million in the second quarter of 2022, compared to $51.3 million in the prior year quarter. Gross margin increased by 75 basis points to 19.9% primarily due to a change in product mix.
  • Net sales for the Public Sector Solutions segment increased by 16.5% to $151.2 million in the second quarter of 2022, compared to $129.7 million in the prior year quarter. Sales to state and local governments and educational institutions increased by 24.8%, compared to the prior year quarter, while sales to the federal government decreased by 18.6%. Gross profit increased by 15.5% to $20.8 million in the second quarter of 2022, compared to $18.0 million in the prior year quarter. Gross margin decreased by 12 basis points to 13.8% primarily due to changes in both product and customer mix.
  • Net sales for the Enterprise Solutions segment increased by 13.6% to $348.9 million in the second quarter of 2022, compared to $307.2 million in the prior year quarter. Gross profit increased by 7.6% to $50.6 million in the second quarter of 2022, compared to $47.0 million in the prior year quarter. Gross margin decreased by 80 basis points to 14.5% primarily due to a change in product mix.

Quarterly Highlights

  • Continued growth in our vertical markets:
    • In the Retail vertical, we grew revenue 10% year-over-year as a result of retailers investing in employee productivity, customer experience, and inventory management systems.
    • Revenue for the Manufacturing vertical grew 16% year-over-year as manufacturers focused on productivity, cost reduction, and improved quality through the use of innovative technologies as a means to meet business objectives and gain long-term competitive advantages. These changes are driving investments in networking, security, hybrid data center, and end-user devices.

Quarterly Sales by Product Mix:

  • Notebook/mobility sales increased 21% year over year and accounted for 37% of net sales in the second quarter of 2022, compared to 36% of net sales in the second quarter of 2021.
  • Accessories sales increased by 35% year over year and accounted for 13% of net sales in the second quarter of 2022, compared to 11% of net sales in the second quarter of 2021.
  • Software sales increased by 1% year over year and accounted for 9% of net sales in the second quarter of 2022, compared to 10% of net sales in the second quarter of 2021.
  • Desktop sales increased by 32% year over year and accounted for 11% of net sales in the second quarter of 2022, compared to 10% of net sales in the second quarter of 2021.

Selling, general and administrative (“SG&A”) expenses increased in the second quarter of 2022 to $102.1 million from $92.6 million in the prior year quarter. SG&A as a percentage of net sales decreased to 12.3%, compared to 13.1% in the prior year quarter. The increase in SG&A was primarily due to an increase in personnel cost associated with an investment in incremental headcount focused on building stronger marketing and technical organizations and an increase in variable compensation due to higher levels of gross profit.

Cash and cash equivalents were $94.9 million at June 30, 2022, compared to $108.3 million at December 31, 2021.

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

Conference Call and Webcast

Connection will host a conference call and live web cast today, August 4, 2022 at 4:30 p.m. ET to discuss its second quarter financial results. For participants who would like to participate via telephone, please register here to receive the dial-in number along with a unique PIN number that is required to access the call. A web-cast of the conference call, which will be broadcast live via the Internet, and a copy of this press release, can be accessed on Connection’s website at ir.connection.com. For those unable to participate in the live call, a replay of the webcast will be available at ir.connection.com approximately 90 minutes after the completion of the call and will be accessible on the site for approximately one year.

Non-GAAP Financial Information

EBITDA and Adjusted EBITDA are non-GAAP financial measures. These measures are included to provide additional information with respect to the Company’s operating performance and earnings. Non-GAAP measures are not a substitute for GAAP measures and should be considered together with the GAAP financial measures. Our non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. A reconciliation to the most directly comparable GAAP measures are available in the tables at the end of this release.

About Connection

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

Connection–Business Solutions (800.800.5555) is a rapid-response provider of IT products and services serving primarily the small-and medium-sized business sector. It offers more than 460,000 brand-name products through its staff of technically trained sales account managers, publications, and its website at www.connection.com.

Connection–Enterprise Solutions (561.237.3300), www.connection.com/enterprise, provides corporate technology buyers with best-in-class IT solutions, in-depth IT supply-chain expertise, and real-time access to over 460,000 products and 2,500 vendors through MarkITplace®, a proprietary next-generation, cloud-based supply chain solution. The team’s engineers, software licensing specialists, and subject matter experts help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

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

cnxn-g

Cautionary Note Regarding Forward-Looking Statements

Statements in this release, other than statements of historical fact, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve important risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. You can generally identify forward-looking statements by words such as "believe," "expect," "intend," "plan," "estimate," "anticipate," "may," "should," "will," or similar statements or variations of such terms, although not all forward-looking statements include such terms. Such risks and uncertainties include, but are not limited to, the continuation of the COVID-19 pandemic, including, without limitation, the actions taken by governments in responses to it, disruptions impacting the global supply chain, including those attributable to the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine the impact of changes in market demand and the overall level of economic activity and environment, or in the level of business investment in information technology products, product availability and market acceptance, new products, continuation of key vendor and customer relationships and support programs, the ability to realize market demand for and competitive pricing pressures on the products and services marketed by the Company, fluctuations in operating results and the ability of the Company to manage personnel levels in response to fluctuations in revenue, the ability of the Company to hire and retain qualified sales representatives and other essential personnel, the impact of changes in accounting requirements, and other risks detailed in the Company's filings with the Securities and Exchange Commission, including under the caption "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2021. The Company assumes no obligation to update the information in this press release or revise any forward-looking statements, whether as a result of any new information, future events, or otherwise, except as required by law.

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

 
CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months Ended June 30,

2022

2021

%

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

$

828,509

 

$

704,161

 

18

%

Diluted earnings per share

$

0.96

 

$

0.66

 

45

%

 
Gross margin

 

16.5

%

 

16.5

%

Operating margin

 

4.2

%

 

3.4

%

 
Inventory turns

 

12

 

 

16

 

Days sales outstanding

 

66

 

 

70

 

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

 

37

%

 

36

%

Accessories

 

13

 

 

11

 

Displays

 

11

 

 

10

 

Desktops

 

11

 

 

10

 

Software

 

9

 

 

10

 

Net/Com Products

 

7

 

 

7

 

Servers/Storage

 

6

 

 

8

 

Other Hardware/Services

 

6

 

 

8

 

Total Net Sales

 

100

%

 

100

%

 
 
Stock Performance Indicators:
Actual shares outstanding

 

26,272

 

 

26,187

 

Total book value per share

$

27.86

 

$

25.42

 

Tangible book value per share

$

24.86

 

$

22.36

 

Closing price

$

44.05

 

$

46.27

 

Market capitalization

$

1,157,282

 

$

1,211,672

 

Trailing price/earnings ratio

 

13.0

 

 

19.9

 

LTM Adjusted EBITDA (1)

$

140,453

 

$

96,661

 

 
(1) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and
restructuring and other related charges.
 
 
REVENUE AND MARGIN INFORMATION
For the Three Months Ended June 30,

2022

2021

Net

 

Gross

 

Net

 

Gross

(amounts in thousands)

Sales

 

Margin

 

Sales

 

Margin

 
Enterprise Solutions

$

348,954

 

14.5

%

$

307,161

 

15.3

%

Business Solutions

 

328,351

 

19.9

 

 

267,258

 

19.2

 

Public Sector Solutions

 

151,204

 

13.8

 

 

129,742

 

13.9

 

Total

$

828,509

 

16.5

%

$

704,161

 

16.5

%

 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, Six Months Ended June 30,
(amounts in thousands, except per share data)

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 
Net sales

$

828,509

 

$

704,161

 

$

1,616,853

 

$

1,341,053

 

Cost of sales

 

691,608

 

 

587,834

 

 

1,351,646

 

 

1,124,206

 

Gross profit

 

136,901

 

 

116,327

 

 

265,207

 

 

216,847

 

 
Selling, general and administrative expenses

 

102,131

 

 

92,563

 

 

200,302

 

 

178,963

 

Income from operations

 

34,770

 

 

23,764

 

 

64,905

 

 

37,884

 

 
Other income, net

 

15

 

 

14

 

 

11

 

 

7

 

Income tax provision

 

(9,387

)

 

(6,486

)

 

(17,726

)

 

(10,415

)

Net income

$

25,398

 

$

17,292

 

$

47,190

 

$

27,476

 

 
Earnings per common share:
Basic

$

0.97

 

$

0.66

 

$

1.80

 

$

1.05

 

Diluted

$

0.96

 

$

0.66

 

$

1.79

 

$

1.04

 

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

 

26,268

 

 

26,187

 

 

26,262

 

 

26,180

 

Diluted

 

26,429

 

 

26,359

 

 

26,417

 

 

26,361

 

 
 

June 30,

 

December 31,

CONDENSED CONSOLIDATED BALANCE SHEETS

 

2022

 

 

 

2021

 

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

$

94,896

 

$

108,310

 

Accounts receivable, net

 

643,953

 

 

607,532

 

Inventories, net

 

223,158

 

 

206,555

 

Prepaid expenses and other current assets

 

13,368

 

 

10,016

 

Total current assets

 

975,375

 

 

932,413

 

Property and equipment, net

 

60,248

 

 

61,011

 

Right-of-use assets, net

 

8,267

 

 

9,579

 

Goodwill

 

73,602

 

 

73,602

 

Intangibles assets, net

 

5,258

 

 

5,868

 

Other assets

 

883

 

 

910

 

Total Assets

$

1,123,633

 

$

1,083,383

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable

$

278,446

 

$

281,836

 

Accrued payroll

 

31,357

 

 

30,966

 

Accrued expenses and other liabilities

 

57,080

 

 

61,830

 

Total current liabilities

 

366,883

 

 

374,632

 

Deferred income taxes

 

19,278

 

 

19,278

 

Operating lease liability

 

5,242

 

 

6,789

 

Other liabilities

 

231

 

 

211

 

Total Liabilities

 

391,634

 

 

400,910

 

Stockholders’ Equity:
Common stock

 

290

 

 

290

 

Additional paid-in capital

 

124,690

 

 

122,354

 

Retained earnings

 

652,956

 

 

605,766

 

Treasury stock at cost

 

(45,937

)

 

(45,937

)

Total Stockholders’ Equity

 

731,999

 

 

682,473

 

Total Liabilities and Stockholders’ Equity

$

1,123,633

 

$

1,083,383

 

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended June 30, Six Months Ended June 30,
(amounts in thousands)

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Cash Flows from Operating Activities:
Net income

$

25,398

 

$

17,292

 

$

47,190

 

$

27,476

 

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

 

2,989

 

 

3,053

 

 

5,980

 

 

6,218

 

Adjustments to credit losses reserve

 

1,075

 

 

1,129

 

 

1,642

 

 

1,059

 

Stock-based compensation expense

 

1,408

 

 

1,026

 

 

2,790

 

 

2,092

 

Loss on disposal of fixed assets

 

3

 

 

-

 

 

13

 

 

-

 

 
Changes in assets and liabilities:
Accounts receivable

 

(10,886

)

 

(28,089

)

 

(38,063

)

 

26,806

 

Inventories

 

11,443

 

 

(26,545

)

 

(16,603

)

 

(26,212

)

Prepaid expenses and other current assets

 

1,220

 

 

1,776

 

 

(3,352

)

 

(2,151

)

Other non-current assets

 

(5

)

 

673

 

 

27

 

 

317

 

Accounts payable

 

7,049

 

 

51,728

 

 

(3,445

)

 

(9,134

)

Accrued expenses and other liabilities

 

(9,804

)

 

3,815

 

 

(4,574

)

 

5,349

 

Net cash provided by (used in) operating activities

 

29,890

 

 

25,858

 

 

(8,395

)

 

31,820

 

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

 

(2,114

)

 

(2,208

)

 

(4,565

)

 

(4,611

)

Proceeds from life insurance

 

-

 

 

-

 

 

-

 

 

1,500

 

Net cash used in investing activities

 

(2,114

)

 

(2,208

)

 

(4,565

)

 

(3,111

)

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

 

24,669

 

 

-

 

 

26,054

 

 

-

 

Repayment of short-term borrowings

 

(24,669

)

 

-

 

 

(26,054

)

 

-

 

Dividend payments

 

-

 

 

-

 

 

-

 

 

(8,375

)

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

 

(289

)

 

(242

)

 

(454

)

 

(324

)

Net cash used in financing activities

 

(289

)

 

(242

)

 

(454

)

 

(8,699

)

Increase (Decrease) in cash and cash equivalents

 

27,487

 

 

23,408

 

 

(13,414

)

 

20,010

 

Cash and cash equivalents, beginning of period

 

67,409

 

 

92,257

 

 

108,310

 

 

95,655

 

Cash and cash equivalents, end of period

$

94,896

 

$

115,665

 

$

94,896

 

$

115,665

 

 
Non-cash Investing Activities:
Accrued capital expenditures

$

390

 

$

609

 

 

390

 

 

609

 

 
Supplemental Cash Flow Information:
Income taxes paid

$

21,222

 

$

12,880

 

$

21,509

 

$

13,141

 

Interest paid

$

3

 

$

-

 

$

3

 

$

-

 

 
 
EBITDA AND ADJUSTED EBITDA
 
A reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for restructuring and other charges, and stock-based compensation. Both EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either includes or excludes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide helpful information with respect to our operating performance including our ability to fund our future capital expenditures and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our credit agreements. When analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA in addition to, and not as alternatives for Net income or any other performance measure presented in accordance with GAAP. Our non-GAAP financial measures may not be comparable to other similar titled measures of other companies.
 
(amounts in thousands) Three Months Ended June 30, LTM Ended June 30, (1)

 

2022

 

 

2021

 

% Change

 

 

2022

 

 

2021

 

% Change

Net income

$

25,398

$

17,292

47

%

$

89,620

$

60,702

48

%

Depreciation and amortization

 

2,989

 

3,053

(2

%)

 

11,964

 

13,320

(10

%)

Income tax expense

 

9,387

 

6,486

45

%

 

33,927

 

19,050

78

%

Interest expense

 

3

 

-

100

%

 

13

 

78

(83

%)

EBITDA

 

37,777

 

26,831

41

%

 

135,524

 

93,150

45

%

Stock-based compensation

 

1,408

 

1,026

37

%

 

4,929

 

3,511

40

%

Adjusted EBITDA

$

39,185

$

27,857

41

%

$

140,453

$

96,661

45

%

 
(1) LTM: Last twelve months

 

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

Source: PC Connection, Inc.

 




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09/11/22 3:30 am EDT

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