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.

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View source version on businesswire.com: https://www.businesswire.com/news/home/20181101006060/en/

Source: Connection

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