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Connection (CNXN) Reports Third Quarter Results

Net Income Increases by 4.9% from Prior Q3

THIRD QUARTER SUMMARY:

  • Gross profit: $100.4 million, up 4.5% y/y
  • Net income: $13.8 million, up 4.9% y/y
  • Diluted EPS: $0.51, compared to $0.49 y/y
  • Cash balance: $102.2 million

 

MERRIMACK, N.H.--(BUSINESS WIRE)--Nov. 1, 2018-- Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading technology solutions provider to business, government, and education markets, today announced results for the third quarter ended September 30, 2018. Net income for the third quarter ended September 30, 2018 increased by 4.9% to $13.8 million, or $0.51 per diluted share, compared to net income of $13.1 million, or $0.49 per diluted share for the prior year third quarter.

As previously disclosed, effective January 1, 2018, the Company adopted a new revenue recognition standard but has not restated prior periods to reflect this new standard. Please note that the financial results for the third quarter ended September 30, 2018 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 September 30, 2018 were $658.5 million. Net sales prior to the impact of the new revenue recognition standard for the quarter ended September 30, 2018 increased by 5.1% to $766.3 million, compared to $729.2 million for the prior year third quarter.

Gross profit as presented for the quarter ended September 30, 2018 was $100.4 million. Gross profit prior to the impact of the new revenue recognition standard for the quarter ended September 30, 2018 was $100.7 million, compared to $96.1 million in the prior year third quarter, an increase of 4.7%.

Gross margin as presented for the quarter ended September 30, 2018 was 15.3%. Gross margin prior to the impact of the new revenue recognition standard was 13.1%, compared to 13.2% for the prior year third quarter.

Operating income as presented for the quarter ended September 30, 2018 was $19.0 million. Operating income prior to the impact of the new revenue recognition standard was $19.2 million, compared to $21.7 million in the prior year third quarter, a decrease of 11.8%.

Net income as presented for the quarter ended September 30, 2018 was $13.8 million. Net income prior to the impact of the new revenue recognition standard was $13.9 million, compared to $13.1 million in the prior year third quarter, an increase of 6.2%.

Earnings per share (“EPS”) on a diluted basis as presented for the quarter ended September 30, 2018 was $0.51. EPS prior to the impact of the new revenue recognition standard was $0.52 per share, compared to $0.49 on a diluted basis in the prior year third quarter.

Net income, totaled $64.0 million for the twelve months ended September 30, 2018, compared to $47.1 million for the twelve months ended September 30, 2017. Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense, acquisition and restructuring costs (“Adjusted EBITDA”), a non-GAAP measure, totaled $99.1 million for the twelve months ended September 30, 2018. Adjusted EBITDA prior to the impact of the new revenue recognition standard was $99.9 million, compared to $92.4 million for the twelve months ended September 30, 2017.

Net sales as presented for the nine months ended September 30, 2018 were $1,990.0 million. Net sales prior to the impact of the new revenue recognition standard for the nine months ended September 30, 2018 increased by 6.4% to $2,286.6 million, compared to $2,149.6 million for the nine months ended September 30, 2017.

Gross profit as presented for the nine months ended September 30, 2018 was $304.3 million. Gross profit prior to the impact of the new revenue recognition standard for the nine months ended September 30, 2018 was $305.3 million, compared to $282.5 million for the nine months ended September 30, 2017, an increase of 8.1%.

Gross margin as presented for the nine months ended September 30, 2018 was 15.3%. Gross margin prior to the impact of the new revenue recognition standard was 13.4%, compared to 13.1% for the nine months ended September 30, 2017.

Operating income as presented for the nine months ended September 30, 2018 was $59.4 million. Operating income prior to the impact of the new revenue recognition standard was $60.2 million, compared to $55.6 million for the nine months ended September 30, 2017, an increase of 8.2%.

Net income as presented for the nine months ended September 30, 2018 was $43.3 million. Net income prior to the impact of the new revenue recognition standard was $43.9 million, compared to $34.1 million for the nine months ended September 30, 2017, an increase of 28.5%.

Quarterly Performance by Segment:

  • Net sales for the Business Solutions segment, as presented, for the third quarter of 2018 were $244.9 million. Net sales prior to the impact of the new revenue recognition standard for the third quarter of 2018 increased by 1.3% to $294.2 million, compared to $290.6 million for the prior year’s quarter. Net/com products experienced solid growth during the quarter at 14%. Gross margin increased by 327 basis points to 18.2% 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 third quarter of 2018 was 15.3%.
  • Net sales for the Enterprise Solutions segment, as presented, for the third quarter of 2018 were $265.5 million. Net sales prior to the impact of the new revenue recognition standard for the third quarter of 2018 increased by 13.3% to $303.6 million, compared to $268.0 million for the prior year’s quarter. Mobility, desktops and net/com products experienced strong growth in this segment with an increase of 26%, 16%, and 13%, respectively. Gross margin increased by 156 basis points to 14.3% 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 third quarter of 2018 was 12.5%.
  • Net sales for the Public Sector Solutions segment, as presented, for the third quarter of 2018 were $148.2 million. Net sales prior to the impact of the new revenue recognition standard for the third quarter of 2018 decreased by 1.2% to $168.5 million, compared to $170.6 million for the prior year’s quarter. Mobility and net/com products experienced strong revenue growth in this segment with an increase of 27% and 8%, respectively. Gross margin increased by 118 basis points to 12.1% 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 third quarter of 2018 was 10.6%.

Quarterly Sales by Product Mix:

  • Notebook/mobility sales, the Company’s largest product category, as presented, increased by 9% year over year and accounted for 28% of net sales in the third quarter of 2018, compared to 23% 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 10% year over year and accounted for 24% of net sales in the third quarter of 2018, compared to 23% in the prior year quarter. The Enterprise Solutions and Public Sector segments experienced strong year-over-year growth in notebook sales.
  • Software sales, as presented, decreased by 58% year over year and accounted for 11% of net sales in the third quarter of 2018, compared to 24% 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 2% year over year and accounted for 23% of net sales in the third quarter of 2018, compared to 24% of net sales in the prior year quarter. We experienced solid growth in cloud-based offerings, security, and office productivity.
  • Net/Com products, as presented, increased by 12% year over year and accounted for 9% of net sales in the third quarter of 2018, compared to 7% of net sales in the prior year quarter. Excluding the impact of the adoption of the new revenue recognition standard, net/com product sales increased by 13% year over year and accounted for 8% of net sales in the third quarter of 2018, compared to 7% in the prior year quarter. All three selling segments experienced strong year-over-year growth in net/com sales.

Selling, general and administrative (“SG&A”) expenses as presented, increased in the third quarter of 2018 to $81.5 million from $74.4 million in the prior year quarter. SG&A in the third quarter of 2018 prior to the impact of the new revenue recognition standard was $81.5 million. The increase was primarily the result of investments made in our technology solutions group and software Center of Excellence as well as increased variable compensation associated with our higher gross profits. SG&A, as reported, as a percentage of net sales, was 12.4%, compared to 10.2% in the prior year quarter. However, SG&A in the third quarter of 2018, prior to the impact of the new revenue recognition standard, was 10.6%.

Cash and cash equivalents were $102.2 million at September 30, 2018, compared to $50.0 million at December 31, 2017. Days sales outstanding were 50 days at September 30, 2018, up from 43 days in the prior year quarter; the increase of 7 days was due to the adoption of the new revenue recognition standard. Inventory turns were 22 turns in the third quarter of 2018 and in the prior year quarter; excluding the impact of the new revenue recognition standard, inventory turns would have increased to 26 turns.

“We are pleased with our vertical market growth in the quarter, as well as with our strong operating cash flows. In addition, we saw acceleration in our cloud and security software, and in our mobility solutions,” said Tim McGrath, President and Chief Executive Officer. “We remain focused on gross margin improvements, operating expense management, and our strategic plan to help our customers solve their business challenges with advanced technology solutions,” concluded Mr. McGrath.

Conference Call and Webcast

Connection will host a conference call and live web cast today, November 1, 2018 at 4:30 p.m. ET to discuss its third quarter financial results. To access the conference call (audio only), please dial 877-776-4016 (US) or 973-638-3231 (International). 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. A reconciliation to the most directly comparable GAAP measure is 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 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 September 30,
    2018     2017      

(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)

          %
Change
                   
Operating Data:                  
Net sales     $ 658,504       $ 729,230       (10 %)
Diluted earnings per share     $ 0.51       $ 0.49       4 %
                   
Gross margin       15.3 %       13.2 %      
Operating margin       2.9 %       3.0 %      
Return on equity (1)       12.9 %       10.6 %      
                   
Inventory turns       22         22        
Days sales outstanding       50         43        
                   

Product Mix:

    % of
Net Sales
    % of
Net Sales
     
Notebooks/Mobility       28 %       23 %      
Software       11         24        
Desktops       10         10        
Servers/Storage       9         8        
Net/Com Products       9         7        
Other Hardware/Services       33         28        

Total Net Sales

      100 %       100 %      
                   
                   
Stock Performance Indicators:                  
Actual shares outstanding       26,730         26,816        
Total book value per share     $ 19.58       $ 17.52        
Tangible book value per share     $ 16.45       $ 14.35        
Closing price     $ 38.89       $ 28.19        
Market capitalization     $ 1,039,530       $ 755,943        
Trailing price/earnings ratio       16.3         15.9        
LTM Adjusted EBITDA (2)     $ 99,068       $ 92,359        
Adjusted market capitalization/LTM Adjusted EBITDA (3)       9.5         7.5        
                   

(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 September 30,
    2018     2017
(amounts in thousands)     Net
Sales
    Gross
Margin
    Net
Sales
    Gross
Margin
                         
Business Solutions     $ 244,872     18.2 %     $ 290,569     14.9 %
Enterprise Solutions       265,477     14.3         268,022     12.7  
Public Sector Solutions       148,155     12.1         170,639     11.0  
Total     $ 658,504     15.3 %     $ 729,230     13.2 %
 

 

                         
CONDENSED CONSOLIDATED STATEMENTS OF INCOME                        
     

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

(amounts in thousands, except per share data)     2018     2017 ((1))     2018     2017 ((1))
                         
Net sales     $ 658,504       $ 729,230       $ 1,989,969       $ 2,149,616  
Cost of sales       558,060         633,087         1,685,685         1,867,070  
Gross profit       100,444         96,143         304,284         282,546  
                         
Selling, general and administrative expenses       81,494         74,404         244,915         226,915  
Income from operations       18,950         21,739         59,369         55,631  
                         
Interest/other expense, net       114         (8 )       412         20  
Income tax provision       (5,298 )       (8,614 )       (16,489 )       (21,517 )
Net income     $ 13,766       $ 13,117       $ 43,292       $ 34,134  
                         
Earnings per common share:                        
Basic     $ 0.52       $ 0.49       $ 1.62       $ 1.28  
Diluted     $ 0.51       $ 0.49       $ 1.61       $ 1.27  
                         
Shares used in the computation of earnings per common share:                        
Basic       26,716         26,802         26,745         26,754  
Diluted       26,902         26,899         26,883         26,886  
                         

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

             
CONDENSED CONSOLIDATED BALANCE SHEETS     September 30,
2018
    December 31,
2017 (1)
(amounts in thousands)            
             
ASSETS            
Current Assets:            
Cash and cash equivalents     $ 102,243       $ 49,990  
Accounts receivable, net       400,831         449,682  
Inventories, net       105,283         106,753  
Prepaid expenses and other current assets       6,068         5,737  
Income taxes receivable       2,658         3,933  
Total current assets       617,083         616,095  
Property and equipment, net       48,176         41,491  
Goodwill       73,602         73,602  
Intangibles assets, net       9,924         11,025  
Other assets       1,442         5,638  
Total Assets     $ 750,227       $ 747,851  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current Liabilities:            
Accounts payable     $ 165,190       $ 194,257  
Accrued expenses and other liabilities       23,475         31,096  
Accrued payroll       20,359         22,662  
Total current liabilities       209,024         248,015  
Deferred income taxes       16,125         15,696  
Other liabilities       1,836         1,888  
Total Liabilities       226,985         265,599  
Stockholders’ Equity:            
Common stock       287         287  
Additional paid-in capital       115,039         114,154  
Retained earnings       428,162         383,673  
Treasury stock at cost       (20,246 )       (15,862 )
Total Stockholders’ Equity       523,242         482,252  
Total Liabilities and Stockholders’ Equity     $ 750,227       $ 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
September 30,

   

Nine Month Ended
September 30,

(amounts in thousands)     2018     2017     2018     2017
Cash Flows from Operating Activities:                        
Net income     $ 13,766       $ 13,117       $ 43,292       $ 34,134  
Adjustments to reconcile net income to net cash provided by (used for) operating activities:                        
Depreciation and amortization       3,633         2,935         10,362         8,645  
Provision for doubtful accounts       734         503         1,428         1,116  
Stock-based compensation expense       273         175         738         560  
Deferred income taxes       -         -         429         164  
Loss on disposal of fixed assets       51         -         51         -  
                         
Changes in assets and liabilities:                        
Accounts receivable       62,429         43,270         63,881         28,101  
Inventories       2,166         11,502         (9,399 )       (16,189 )
Prepaid expenses and other current assets       (1,514 )       357         812         (2,191 )
Other non-current assets       2,279         132         282         (3,945 )
Accounts payable       (35,524 )       (22,092 )       (29,361 )       (13,162 )
Accrued expenses and other liabilities       (8,558 )       (11,780 )       (1,262 )       (8,872 )
Net cash provided by operating activities       39,735         38,119         81,253         28,361  
                         
Cash Flows from Investing Activities:                        
Purchases of equipment       (5,714 )       (3,413 )       (15,641 )       (7,944 )
Net cash used for investing activities       (5,714 )       (3,413 )       (15,641 )       (7,944 )
                         
Cash Flows from Financing Activities:                        
Proceeds from short-term borrowings       -         -         859         -  
Repayment of short-term borrowings       -         -         (859 )       -  
Purchase of treasury shares       -         -         (4,384 )       -  
Dividend payment       -         -         (9,122 )       (9,041 )
Exercise of stock options       -         1         -         1,679  
Issuance of stock under Employee Stock Purchase Plan       -         -         605         603  
Payment of payroll taxes on stock-based compensation through shares withheld       (458 )       (500 )       (458 )       (500 )
Net cash (used for) provided by financing activities       (458 )       (499 )       (13,359 )       (7,259 )
Increase (decrease) in cash and cash equivalents       33,563         34,207         52,253         13,158  
Cash and cash equivalents, beginning of period       68,680         28,131         49,990         49,180  
Cash and cash equivalents, end of period     $ 102,243       $ 62,338       $ 102,243       $ 62,338  
                         
Non-cash Investing Activities:                        
Accrued capital expenditures     $ 1,055       $ 294       $ 1,055       $ 294  
                         
Supplemental Cash Flow Information:                        
Income taxes paid     $ 6,825       $ 8,589       $ 15,134       $ 24,293  
                         

(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 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 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. 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 similar titled measures of other companies.

                                     
(amounts in thousands)     Three Months Ended September 30,     LTM Ended September 30, (1)
      2018     2017     % Change     2018     2017     % Change
Net income     $ 13,766     $ 13,117     5 %     $ 64,015     $ 47,131     36 %
Depreciation and amortization       3,634       2,935     24 %       13,557       11,593     17 %
Income tax expense       5,298       8,614     (38 %)       17,740       30,407     (42 %)
Interest expense       51       30     70 %       142       142     0 %
EBITDA       22,749       24,696     (8 %)       95,454       89,273     7 %
Special charges (2)       -       -     0 %       2,695       2,452     10 %
Stock-based compensation       273       176     55 %       919       634     45 %
Adjusted EBITDA     $ 23,022     $ 24,872     (7 %)     $ 99,068     $ 92,359     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)
     

Three Months Ended September 30,

 

Change
As Presented

 

Change
Previous Revenue Standard

      2018   2017   Amount   Percent   Amount   Percent
                 

Previous Revenue Standard

               
      As
Presented
  % of Net Sales   Impact of New
Revenue Standard
 

Amount

  % of Net Sales   Amount   % of Net Sales                
Net sales     $ 658,504     100.0 %   $ 107,826     $ 766,330     100.0 %   $ 729,230     100.0 %   $ (70,726 )   (9.7 %)   $ 37,100     5.1 %
Cost of sales       558,060     84.7 %     107,575       665,635     86.9 %     633,087     86.8 %     (75,027 )   (11.9 %)     32,548     5.1 %
Gross profit       100,444     15.3 %     251       100,695     13.1 %     96,143     13.2 %     4,301     4.5 %     4,552     4.7 %
                                               
Selling, general and administrative expenses       81,494     12.4 %     27       81,521     10.6 %     74,404     10.2 %     7,090     9.5 %     7,117     9.6 %
Income from operations       18,950     2.9 %     224       19,174     2.5 %     21,739     3.0 %     (2,789 )   (12.8 %)     (2,565 )   (11.8 %)
                                               
Interest income, net       114     -       -       114     -       (8 )   -       122     (1,525.0 %)     122     (1,525.0 %)
Income tax provision       (5,298 )   (0.8 %)     (62 )     (5,360 )   (0.7 %)     (8,614 )   (1.2 %)     3,316     (38.5 %)     3,254     (37.8 %)
Net income     $ 13,766     2.1 %   $ 162     $ 13,928     1.8 %   $ 13,117     1.8 %   $ 649     4.9 %   $ 811     6.2 %
                                               
Earnings per common share:                                              
Basic     $ 0.52         $ -     $ 0.52         $ 0.49         $ 0.03     6.1 %   $ 0.03     6.1 %
Diluted     $ 0.51         $ 0.01     $ 0.52         $ 0.49         $ 0.02     4.1 %   $ 0.03     6.1 %
                                               
Shares used in the computation of earnings per common share                                              
Basic       26,716               26,716           26,802                      
Diluted       26,902               26,902           26,899                      
                                                           

 

 
RECONCILIATION OF CHANGES IN REVENUE STANDARD
(Unaudited, in thousands, except per share amounts)
      Nine Months Ended September 30,   Change
As Presented
  Change
Previous Revenue Standard
      2018   2017   Amount   Percent   Amount   Percent
                 

Previous Revenue Standard

               
      As
Presented
  % of Net Sales   Impact of New
Revenue Standard
 

Amount

  % of Net Sales   Amount   % of Net Sales                
Net sales     $ 1,989,969     100.0 %   $ 296,583     $ 2,286,552     100.0 %   $ 2,149,616     100.0 %   $ (159,647 )   (7.4 %)   $ 136,936   6.4 %
Cost of sales       1,685,685     84.7 %     295,540       1,981,225     86.6 %     1,867,070     86.9 %     (181,385 )   (9.7 %)     114,155   6.1 %
Gross profit       304,284     15.3 %     1,043       305,327     13.4 %     282,546     13.1 %     21,738     7.7 %     22,781   8.1 %
                                               
Selling, general and administrative expenses       244,915     12.3 %     235       245,150     10.7 %     226,915     10.5 %     18,000     7.9 %     18,235   8.0 %
Income from operations       59,369     3.0 %     808       60,177     2.7 %     55,631     2.6 %     3,738     6.7 %     4,546   8.2 %
                                               
Interest income, net       412     -       -       412     0.0 %     20     0.0 %     392     1,960.0 %     392   1,960.0 %
Income tax provision       (16,489 )   (0.8 %)     (224 )     (16,713 )   (0.7 %)     (21,517 )   (1.0 %)     5,028     (23.4 %)     4,804   (22.3 %)
Net income     $ 43,292     2.2 %   $ 584     $ 43,876     1.9 %   $ 34,134     1.6 %   $ 9,158     26.8 %   $ 9,742   28.5 %
                                               
Earnings per common share:                                              
Basic     $ 1.62         $ 0.02     $ 1.64         $ 1.28         $ 0.34     26.6 %   $ 0.36   28.1 %
Diluted     $ 1.61         $ 0.02     $ 1.63         $ 1.27         $ 0.34     26.8 %   $ 0.36   28.3 %
                                               
Shares used in the computation of earnings per common share                                              
Basic       26,745               26,745           26,754                      
Diluted       26,883               26,883           26,886                      
 

 

                   
CONSOLIDATED SELECTED FINANCIAL INFORMATION UNDER PREVIOUS REVENUE RECOGNITION STANDARD
                   
           
      2018   2017
      As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard
Inventory turns     22     4     26     22  
Days sales outstanding     50     (7 )   43     43  
                   
Product Mix:     % of
Net Sales
      % of
Net Sales
  % of
Net Sales
Notebooks/Mobility     28 %   (4 )   24 %   23 %
Software     11     12     23     24  
Desktops     10     (1 )   9     10  
Servers/Storage     9     (1 )   8     8  
Net/Com Products     9     (1 )   8     7  
Other Hardware/Services     33     (5 )   28     28  
Total Net Sales     100 %       100 %   100 %

 

 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET SALES
(Unaudited, in thousands)
      Three Months Ended September 30,   Change
As Presented
  Change
Previous Revenue Standard
      2018   2017   Amount   Percent   Amount   Percent
                                   
Net sales     As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard                
Business Solutions     $ 244,872     $ 49,335     $ 294,207     $ 290,569     $ (45,697 )   (15.7 %)   $ 3,638     1.3 %
Enterprise Solutions       265,477       38,106       303,583       268,022       (2,545 )   (0.9 %)     35,561     13.3 %
Public Sector Solutions       148,155       20,385       168,540       170,639       (22,484 )   (13.2 %)     (2,099 )   (1.2 %)
Total     $ 658,504     $ 107,826     $ 766,330     $ 729,230     $ (70,726 )   (9.7 %)   $ 37,100     5.1 %
                                   
                                   
                                   
                                   
 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS PROFITS
(Unaudited, in thousands)
      Three Months Ended September 30,   Change
As Presented
  Change
Previous Revenue Standard
      2018   2017   Amount   Percent   Amount   Percent
                                   
Gross profits     As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard                
Business Solutions     $ 44,586     $ 377     $ 44,963     $ 43,393     $ 1,193     2.7 %   $ 1,570     3.6 %
Enterprise Solutions       37,880       (13 )     37,867       34,064       3,816     11.2 %     3,803     11.2 %
Public Sector Solutions       17,978       (113 )     17,865       18,686       (708 )   (3.8 %)     (821 )   (4.4 %)
Total     $ 100,444     $ 251     $ 100,695     $ 96,143     $ 4,301     4.5 %   $ 4,552     4.7 %
                                   
                                   
                                   
                                   
 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS MARGINS
(Unaudited, in thousands)
      Three Months Ended September 30,   Change
As Presented
  Change
Previous Revenue Standard
       
      2018   2017   Amount   Amount        
                                   
Gross margins     As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard                
                                   
Business Solutions       18.2 %     (293 )     15.3 %     14.9 %     327     35          
Enterprise Solutions       14.3 %     (180 )     12.5 %     12.7 %     156     (24 )        
Public Sector Solutions       12.1 %     (153 )     10.6 %     11.0 %     118     (35 )        
Total       15.3 %     (211 )     13.1 %     13.2 %     207     (4 )        
 

 

                                   
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET SALES
(Unaudited, in thousands)
      Nine Months Ended September 30,   Change
As Presented
  Change
Previous Revenue Standard
      2018   2017   Amount   Percent   Amount   Percent
                                   
Net sales     As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard                
Business Solutions     $ 778,192     $ 125,983     $ 904,175     $ 860,622     $ (82,430 )   (9.6 %)   $ 43,553     5.1 %
Enterprise Solutions       823,786       119,034       942,820       823,017       769     0.1 %     119,803     14.6 %
Public Sector Solutions       387,991       51,566       439,557       465,977       (77,986 )   (16.7 %)     (26,420 )   (5.7 %)
Total     $ 1,989,969     $ 296,583     $ 2,286,552     $ 2,149,616     $ (159,647 )   (7.4 %)   $ 136,936     6.4 %
                                   
                                   
                                   
                                   
                                   
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS PROFITS
(Unaudited, in thousands)
      Nine Months Ended September 30,   Change
As Presented
  Change
Previous Revenue Standard
      2018   2017   Amount   Percent   Amount   Percent
                                   
Gross profits     As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard                
Business Solutions     $ 138,150     $ 958     $ 139,108     $ 131,461     $ 6,689     5.1 %   $ 7,647     5.8 %
Enterprise Solutions       117,830       198       118,028       102,800       15,030     14.6 %     15,228     14.8 %
Public Sector Solutions       48,304       (113 )     48,191       48,285       19     0.0 %     (94 )   (0.2 %)
Total     $ 304,284     $ 1,043     $ 305,327     $ 282,546     $ 21,738     7.7 %   $ 22,781     8.1 %
                                   
                                   
                                   
                                   
                                   
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS MARGINS
(Unaudited, in thousands)
      Nine Months Ended September 30,   Change
As Presented
  Change
Previous Revenue Standard
       
      2018   2017   Amount   Amount        
                                   
Gross margins     As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard                
                                   
Business Solutions       17.8 %     (237 )     15.4 %     15.3 %     248     11          
Enterprise Solutions       14.3 %     (178 )     12.5 %     12.5 %     181     3          
Public Sector Solutions       12.4 %     (149 )     11.0 %     10.4 %     209     60          
Total       15.3 %     (194 )     13.4 %     13.1 %     215     21          
                                                         

 

                           
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR 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 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. 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 similar titled measures of other companies.
                           
(amounts in thousands)     Three Months Ended September 30,   Change
As Presented
  Change
Previous Revenue Standard
      2018   2017   Percent   Percent
      As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard        
Net income     $ 13,766   $ 162   $ 13,928   $ 13,117   5 %   6 %
Depreciation and amortization       3,634     -     3,634     2,935   24 %   24 %
Income tax expense       5,298     62     5,360     8,614   (38 %)   (38 %)
Interest expense       51     -     51     30   70 %   70 %
EBITDA       22,749     224     22,973     24,696   (8 %)   (7 %)
Stock-based compensation       273     -     273     176   55 %   55 %
Adjusted EBITDA     $ 23,022   $ 224   $ 23,246   $ 24,872   (7 %)   (7 %)
                           
                           
                           
                           
(amounts in thousands)     LTM Ended September 30, (1)   Change
As Presented
  Change
Previous Revenue Standard
      2018   2017   Percent   Percent
      As
Presented
  Impact of New
Revenue Standard
  Previous Revenue Standard        
Net income     $ 64,015   $ 584   $ 64,599   $ 47,131   36 %   37 %
Depreciation and amortization       13,557     -     13,557     11,593   17 %   17 %
Income tax expense       17,740     224     17,964     30,407   (42 %)   (41 %)
Interest expense       142     -     142     142   0 %   0 %
EBITDA       95,454     808     96,262     89,273   7 %   8 %
Special charges (2)       2,695     -     2,695     2,482   9 %   9 %
Stock-based compensation       919     -     919     634   45 %   45 %
Adjusted EBITDA     $ 99,068   $ 808   $ 99,876   $ 92,389   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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