Connection Reports Fourth Quarter and Full Year 2016 Results
FOURTH QUARTER SUMMARY:
-
Record net sales:
$735.5 million , up 7.5% y/y -
Record gross profit:
$98.1 million , up 6.8% y/y -
Diluted EPS:
$0.49 , compared to$0.51 -
Adjusted EPS excluding special charges:
$0.53 , compared to$0.52
FULL YEAR SUMMARY:
-
Record net sales:
$2.7 billion , up 4.6% y/y -
Record gross profit:
$371.2 million , up 8.8% y/y -
Diluted EPS:
$1.80 , compared to$1.76 -
Adjusted EPS excluding special charges
$1.90 , compared to$1.78
The fourth quarter 2016 results include
Net sales for the year ended
Quarterly Performance by Segment:
-
Net sales for the SMB segment increased by 5.2% to
$276.4 million in the fourth quarter of 2016, compared to the prior year quarter. Strong performance in advanced technology solution categories contributed to a 3.9% increase in gross profit. -
Net sales for the Large Account segment increased by 4.3% to
$288.8 million in the fourth quarter of 2016, compared to the prior year quarter. Gross margin improved by 51 basis points due to a strong performance in software, which contributed to an 8.9% increase in gross profit. -
Net sales to the Public Sector segment increased by 17.7% to
$170.4 million in the fourth quarter of 2016, compared to the prior year quarter. Sales to the federal government increased by 46.1%, compared to the prior year, while sales to state and local government and educational institutions decreased by 3.8%. Notebooks/mobility sales were strong in this segment with a 31.4% increase, and contributed to a 10.0% increase in gross profit. The Company’s Public Sector current order backlog is up over$30 million from a year ago. This segment won several large deals in the fourth quarter, driving the increase. Some of these deals are at lower than average margins due to the competitive nature of the bidding process.
Quarterly Sales by Product Mix:
- Notebook/mobility sales, the Company’s largest product category, increased by 14% year over year and accounted for 22% of net sales in the fourth quarter of 2016 compared to 20% of net sales in the prior year quarter. Mobility continues to be a strategic focus area for customers in all segments.
- Software sales increased by 14% year over year and accounted for 21% of net sales in the fourth quarter of 2016 compared to 20% of net sales in the prior year quarter. We experienced growth in cloud-based offerings, security, and virtualization.
Overall gross profit increased by
Selling, general and administrative expenses increased in the fourth
quarter of 2016 to
Total cash was
As announced last quarter, the Company acquired
“The Company achieved record sales and gross profit this quarter in an
overall muted IT spending environment,” said
Non-GAAP Financial Information
Adjusted EBITDA, Adjusted EPS and Adjusted S,G & A are non-GAAP financial measures. This information is included to provide information with respect to the Company’s operating performance and earnings.
About Connection
Connection (www.connection.com;
NASDAQ: CNXN), is the combined corporate brand name for
Connection – Business Solutions (800-800-5555), (the original
business of
Connection – Public Sector Solutions (800-800-0019), our
Connection – Enterprise Solutions (561-237-3300), www.connection.com/enterprise,
our
cnxn-g
# # #
“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,” "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, competitive products and pricing, product
availability and market acceptance, new products, market acceptance of
the Company’s new branding, fluctuations in operating results, the
ability of the Company to manage personnel levels in response to
fluctuations in revenue, and other risks detailed in the Company’s
filings with the
CONSOLIDATED SELECTED FINANCIAL INFORMATION | |||||||||||||||
At or for the Three Months Ended December 31, | 2016 | 2015 | |||||||||||||
% of | % of | % | |||||||||||||
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data) | Net Sales | Net Sales | Change | ||||||||||||
Operating Data: | |||||||||||||||
Net sales | $ | 735,548 | $ | 684,323 | 7% | ||||||||||
Diluted earnings per share | $ | 0.49 | $ | 0.51 | (4%) | ||||||||||
Adjusted diluted earnings per share | $ | 0.53 | $ | 0.51 | 4% | ||||||||||
Gross margin | 13.3% | 13.4% | |||||||||||||
Operating margin | 3.0% | 3.3% | |||||||||||||
Return on equity (1) | 11.7% | 12.5% | |||||||||||||
Inventory turns | 22 | 22 | |||||||||||||
Days sales outstanding | 48 | 44 | |||||||||||||
% of | % of | ||||||||||||||
Product Mix: | Net Sales | Net Sales | |||||||||||||
Notebooks/Mobility | 22% | 20% | |||||||||||||
Software | 21 | 20 | |||||||||||||
Servers/Storage | 9 | 12 | |||||||||||||
Net/Com Products | 9 | 10 | |||||||||||||
Other Hardware/Services | 39 | 38 | |||||||||||||
Total Net Sales | 100% | 100% | |||||||||||||
Stock Performance Indicators: | |||||||||||||||
Actual shares outstanding | 26,609 | 26,498 | |||||||||||||
Total book value per share | $ | 16.29 | $ | 14.81 | |||||||||||
Tangible book value per share | $ | 13.05 | $ | 12.81 | |||||||||||
Closing price | $ | 28.09 | $ | 22.64 | |||||||||||
Market capitalization | $ | 747,447 | $ | 599,915 | |||||||||||
Trailing price/earnings ratio | 15.6 | 12.9 | |||||||||||||
LTM Adjusted EBITDA (2) | $ | 95,468 | $ | 89,535 | |||||||||||
Adjusted market capitalization/LTM Adjusted EBITDA (3) | 7.3 | 5.9 | |||||||||||||
(1) Based on last twelve months' net income. | |||||||||||||||
(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for acquisition, rebranding, and restructuring costs, and stock-based compensation. |
|||||||||||||||
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance. | |||||||||||||||
REVENUE AND MARGIN INFORMATION | |||||||||||||||||||
For the Three Months Ended December 31, | 2016 | 2015 | |||||||||||||||||
Net | Gross | Net | Gross | ||||||||||||||||
(amounts in thousands) | Sales | Margin | Sales | Margin | |||||||||||||||
SMB | $ | 276,373 | 15.7 | % | $ | 262,646 | 15.9 | % | |||||||||||
Large Account | 288,812 | 12.2 | 276,980 | 11.6 | |||||||||||||||
Public Sector | 170,363 | 11.5 | 144,697 | 12.3 | |||||||||||||||
Total | $ | 735,548 | 13.3 | % | $ | 684,323 | 13.4 | % | |||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||||||||||
Three Months Ended December 31, | 2016 | 2015 | ||||||||||||||||||||||
(amounts in thousands, except per share data) | Amount | % of Net Sales | Amount | % of Net Sales | ||||||||||||||||||||
Net sales | $ | 735,548 | 100.0 | % | $ | 684,323 | 100.0 | % | ||||||||||||||||
Cost of sales | 637,425 | 86.7 | 592,472 | 86.6 | ||||||||||||||||||||
Gross profit | 98,123 | 13.3 | 91,851 | 13.4 | ||||||||||||||||||||
Acquisition and restructuring costs | 1,511 | 0.2 | 296 | 0.0 | ||||||||||||||||||||
Amortization of acquired intangible assets | 469 | – | – | – | ||||||||||||||||||||
Selling, general and administrative expenses, other | 74,242 | 10.1 | 68,664 | 10.1 | ||||||||||||||||||||
Income from operations | 21,901 | 3.0 | 22,891 | 3.3 | ||||||||||||||||||||
Interest/other expense, net | (14 | ) | – | (20 | ) | – | ||||||||||||||||||
Income tax provision | (8,890 | ) | (1.2 | ) | (9,258 | ) | (1.3 | ) | ||||||||||||||||
Net income | $ | 12,997 | 1.8 | % | $ | 13,613 | 2.0 | % | ||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||
Basic | $ | 0.49 | $ | 0.51 | ||||||||||||||||||||
Diluted | $ | 0.49 | $ | 0.51 | ||||||||||||||||||||
Shares used in the computation of earnings per common share: | ||||||||||||||||||||||||
Basic | 26,569 | 26,459 | ||||||||||||||||||||||
Diluted | 26,738 | 26,632 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||||||||||
Years Ended December 31, | 2016 | 2015 | ||||||||||||||||||||||
(amounts in thousands, except per share data) | Amount | % of Net Sales | Amount | % of Net Sales | ||||||||||||||||||||
Net sales | $ | 2,692,592 | 100.0 | % | $ | 2,573,973 | 100.0 | % | ||||||||||||||||
Cost of sales | 2,321,435 | 86.2 | 2,232,954 | 86.8 | ||||||||||||||||||||
Gross profit | 371,157 | 13.8 | 341,019 | 13.2 | ||||||||||||||||||||
Acquisition, rebranding and restructuring costs | 3,406 | 0.1 | 1,026 | – | ||||||||||||||||||||
Amortization of acquired intangible assets | 846 | – | – | – | ||||||||||||||||||||
Selling, general and administrative expenses, other | 286,385 | 10.7 | 261,439 | 10.2 | ||||||||||||||||||||
Income from operations | 80,520 | 3.0 | 78,554 | 3.0 | ||||||||||||||||||||
Interest/other expense, net | (67 | ) | – | (87 | ) | – | ||||||||||||||||||
Income tax provision | (32,342 | ) | (1.2 | ) | (31,640 | ) | (1.2 | ) | ||||||||||||||||
Net income | $ | 48,111 | 1.8 | % | $ | 46,827 | 1.8 | % | ||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||
Basic | $ | 1.81 | $ | 1.77 | ||||||||||||||||||||
Diluted | $ | 1.80 | $ | 1.76 | ||||||||||||||||||||
Shares used in the computation of earnings per common share: | ||||||||||||||||||||||||
Basic | 26,528 | 26,398 | ||||||||||||||||||||||
Diluted | 26,719 | 26,616 | ||||||||||||||||||||||
EBITDA AND ADJUSTED EBITDA | |||||||||||||||||||||||
A reconciliation of EBITDA and Adjusted EBITDA is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for acquisition, rebranding and restructuring costs and stock-based compensation. Both EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either includes or excludes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide helpful information with respect to our operating performance including our ability to fund our future capital expenditures and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our credit agreements. | |||||||||||||||||||||||
(amounts in thousands) | Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||||
Net income | $ | 12,997 | $ | 13,613 | $ | 48,111 | $ | 46,827 | |||||||||||||||
Depreciation and amortization | 2,948 | 2,364 | 10,453 | 8,961 | |||||||||||||||||||
Income tax expense | 8,890 | 9,258 | 32,342 | 31,640 | |||||||||||||||||||
Interest expense | 54 | 20 | 107 | 87 | |||||||||||||||||||
EBITDA | 24,889 | 25,255 | 91,013 | 87,515 | |||||||||||||||||||
Acquisition, rebranding and restructuring costs (1) | 1,511 | 296 | 3,406 | 1,026 | |||||||||||||||||||
Stock-based compensation | 74 | 274 | 1,049 | 994 | |||||||||||||||||||
Adjusted EBITDA | $ | 26,474 | $ | 25,825 | 3% | $ | 95,468 | $ | 89,535 | 7% | |||||||||||||
(1) Acquisition, rebranding, and restructuring costs relate to our 2016 acquisitions, the re-branding of the Company to "Connection", severance related to internal restructuring, duplicate costs incurred with the move of our Chicago-area facility, and in 2015, duplicate costs incurred with the transition to our new distribution center. | |||||||||||||||||||||||
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE | |||||||||||||||||||||||
A reconciliation from Net Income to Adjusted Net Income is detailed below. Adjusted Net Income is defined as Net Income plus the Amortization of Acquired Intangible Assets and Acquisition, Rebranding, and Restructuring Costs, net of tax. Adjusted Net Income and Adjusted Earnings Per Share are considered non-GAAP financial measures (see note above in Adjusted EBITDA for a description of non-GAAP financial measures). We believe that these non-GAAP disclosures provide helpful information with respect to our operating performance. | |||||||||||||||||||||||
(amounts in thousands, except per share data) | Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||||
Net income | $ | 12,997 | $ | 13,613 | $ | 48,111 | $ | 46,827 | |||||||||||||||
Acquisition, rebranding, and restructuring costs, net of tax (1) | 898 | 176 | 2,037 | 613 | |||||||||||||||||||
Amortization of acquired intangible assets, net of tax (2) | 279 | - | 506 | - | |||||||||||||||||||
Adjusted Net Income | $ | 14,174 | $ | 13,789 | $ | 50,654 | $ | 47,440 | |||||||||||||||
Diluted shares | 26,738 | 26,632 | 26,719 | 26,616 | |||||||||||||||||||
Adjusted Diluted Earnings per Share | $ | 0.53 | $ | 0.52 | 2% | $ | 1.90 | $ | 1.78 | 6% | |||||||||||||
(1) Acquisition, rebranding, and restructuring costs relate to our 2016 acquisitions, the re-branding of the Company to "Connection," severance related to internal restructuring, duplicate costs incurred with the move of our Chicago-area facility, and in 2015, duplicate costs incurred with the transition to our new distribution center. |
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(2) Amortization of acquired intangible assets relates to intangible assets recorded as a result of our 2016 acquisitions. | |||||||||||||||||||||||
ADJUSTED SELLING, GENERAL AND ADMINISTRATION EXPENSES | |||||||||||||||
A reconciliation from selling, general and administration expenses to adjusted selling, general and administration expenses is detailed below. Adjusted selling, general and administration expenses is defined as selling, general and administration expenses less Acquisition, Rebranding, and Restructuring Costs and Amortization of Acquired Intangible Assets. Adjusted selling, general and administration expenses are considered non-GAAP financial measures (see note above in Adjusted EBITDA and Adjusted EPS for a description of non-GAAP financial measures). We believe that these non-GAAP disclosures provide helpful information with respect to our operating performance. | |||||||||||||||
(amounts in thousands) | Three Months Ended December 31, | Years Ended December 31, | |||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Selling, general and administration | $ 76,222 | $ 68,960 | $ 290,637 | $ 262,465 | |||||||||||
Acquisition, rebranding, and restructuring costs (1) | (1,511) | (296) | (3,406) | (1,026) | |||||||||||
Amortization of acquired intangible assets (2) | (469) | - | (846) | - | |||||||||||
Adjusted selling, general and administration | $ 74,242 | $ 68,664 | $ 286,385 | $ 261,439 | |||||||||||
(1) Acquisition, rebranding, and restructuring costs relate to our 2016 acquisitions, the re-branding of the Company to "Connection," severance related to internal restructuring, duplicate costs incurred with the move of our Chicago-area facility, and in 2015, duplicate costs incurred with the transition to our new distribution center. |
|||||||||||||||
(2) Amortization of acquired intangible assets relates to intangible assets recorded as a result of our 2016 acquisitions. |
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|
December 31, | December 31, | ||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | 2016 | 2015 | |||||||||||||
(amounts in thousands) | |||||||||||||||
ASSETS | |||||||||||||||
Current Assets: | |||||||||||||||
Cash and cash equivalents | $ | 49,180 | $ | 80,188 | |||||||||||
Accounts receivable, net | 411,883 | 356,145 | |||||||||||||
Inventories | 90,535 | 102,780 | |||||||||||||
Prepaid expenses and other current assets | 5,453 | 4,254 | |||||||||||||
Income taxes receivable | 2,120 | 1,575 | |||||||||||||
Deferred income taxes | - | 7,909 | |||||||||||||
Total current assets | 559,171 | 552,851 | |||||||||||||
Property and equipment, net | 39,402 | 32,227 | |||||||||||||
Goodwill | 73,602 | 51,276 | |||||||||||||
Other intangibles, net | 12,586 | 1,668 | |||||||||||||
Other assets | 1,373 | 1,052 | |||||||||||||
Total Assets | $ | 686,134 | $ | 639,074 | |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||
Current Liabilities: | |||||||||||||||
Accounts payable | $ | 177,862 | $ | 166,516 | |||||||||||
Accrued expenses and other liabilities | 31,047 | 36,207 | |||||||||||||
Accrued payroll | 21,345 | 19,280 | |||||||||||||
Total current liabilities | 230,254 | 222,003 | |||||||||||||
Deferred income taxes | 19,602 | 21,615 | |||||||||||||
Other liabilities | 2,836 | 3,005 | |||||||||||||
Total Liabilities | 252,692 | 246,623 | |||||||||||||
Stockholders’ Equity: | |||||||||||||||
Common stock | 285 | 284 | |||||||||||||
Additional paid-in capital | 111,081 | 109,161 | |||||||||||||
Retained earnings | 337,938 | 298,868 | |||||||||||||
Treasury stock at cost | (15,862 | ) | (15,862 | ) | |||||||||||
Total Stockholders’ Equity | 433,442 | 392,451 | |||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 686,134 | $ | 639,074 | |||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||
Years Ended December 31, | 2016 | 2015 | ||||||||||||||
(amounts in thousands) | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net income | $ | 48,111 | $ | 46,827 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 10,453 | 8,961 | ||||||||||||||
Deferred income taxes | 3,506 | 2,652 | ||||||||||||||
Stock-based compensation expense | 1,049 | 994 | ||||||||||||||
Provision for doubtful accounts | 360 | 1,097 | ||||||||||||||
Loss on disposal of fixed assets | 92 | 44 | ||||||||||||||
Excess tax benefit from exercise of equity awards | (513 | ) | (552 | ) | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | (33,835 | ) | (64,215 | ) | ||||||||||||
Inventories | 12,401 | (11,863 | ) | |||||||||||||
Prepaid expenses and other current assets | (1,274 | ) | (285 | ) | ||||||||||||
Other non-current assets | (321 | ) | (328 | ) | ||||||||||||
Accounts payable | (3,012 | ) | 41,324 | |||||||||||||
Accrued expenses and other liabilities | (3,431 | ) | 6,206 | |||||||||||||
Net cash provided by operating activities | 33,586 | 30,862 | ||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Purchases of equipment | (11,885 | ) | (12,337 | ) | ||||||||||||
Purchase of GlobalServe | (11,101 | ) | - | |||||||||||||
Purchase of Softmart | (31,889 | ) | - | |||||||||||||
Purchase of intangible asset | - | (450 | ) | |||||||||||||
Net cash used for investing activities | (54,875 | ) | (12,787 | ) | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Dividend payment | (10,591 | ) | - | |||||||||||||
Issuance of stock under Employee Stock Purchase Plan | 961 | 875 | ||||||||||||||
Excess tax benefit from exercise of equity awards | 513 | 552 | ||||||||||||||
Exercise of stock options | 135 | 437 | ||||||||||||||
Payment of payroll taxes on stock-based compensation through shares withheld | (737 | ) | (660 | ) | ||||||||||||
Net cash (used for) provided by financing activities | (9,719 | ) | 1,204 | |||||||||||||
(Decrease) increase in cash and cash equivalents | (31,008 | ) | 19,279 | |||||||||||||
Cash and cash equivalents, beginning of period | 80,188 | 60,909 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 49,180 | $ | 80,188 | ||||||||||||
Non-cash Investing Activities: | ||||||||||||||||
Accrued capital expenditures | $ | 109 | $ | 504 | ||||||||||||
Dividend declaration | $ | 9,041 | $ | 10,591 | ||||||||||||
Supplemental Cash Flow Information: | ||||||||||||||||
Income taxes paid | $ | 29,740 | $ | 30,371 | ||||||||||||
pccc-g
View source version on businesswire.com: http://www.businesswire.com/news/home/20170201006166/en/
Source:
PC Connection, Inc.
William Schulze, 603-683-2262
Vice
President, Interim Chief Financial Officer