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Connection (CNXN) Reports Third Quarter Results

11/01/18

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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11/16/18 4:39 pm EST

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