PC Connection, Inc. Reports First Quarter Results
MERRIMACK, N.H., May 01, 2008 (BUSINESS WIRE) -- PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter ended March 31, 2008. Net sales for the three months ended March 31, 2008 increased by $25.5 million, or 6.4%, to $423.7 million from $398.2 million for the three months ended March 31, 2007. Net income for the quarter increased by $1.4 million to $4.8 million, or $.18 per share, compared to $3.4 million, or $.13 per share, for the corresponding prior year quarter.
"We are pleased with the Company's overall performance during the first quarter of 2008, especially in light of this challenging market," said Patricia Gallup, Chairman and Chief Executive Officer. "The PC Connection team delivered another quarter of record sales, and achieved significant increases in both operating income and earnings per share, largely due to our sales growth and our success in managing overall operating costs."
Quarterly Sales Growth By Business Segment:
-- Net sales for the small- and medium-sized business (SMB) segment increased by 2.7% to $240.1 million compared to the first quarter of 2007. Corporate outbound sales within the segment grew 8.7% year over year. Sales to consumers continued to decline, reflecting our focus on business customers.
-- Net sales for MoreDirect, Inc., our Large Account segment, increased by 6.2% to $117.2 million compared to the first quarter of 2007. Revenue growth resulted primarily from the acquisition of several new enterprise customers and a greater share of existing customers' business.
-- Net sales to government and education customers (Public Sector segment) increased by $12.4 million, or 23.1%, to $66.4 million compared to the first quarter of 2007. Strong federal contract sales drove this double-digit increase.
Quarterly Sales Growth by Product Mix:
-- Video, Imaging and Sound sales increased 30% year over year, accounting for 15% of net sales in the first quarter of 2008 compared to 12% for the corresponding prior year quarter. Strong video product sales drove the majority of this revenue growth.
-- Software sales increased 16% year over year, accounting for 13% of net sales in the first quarter of 2008 compared to 12% of net sales for the first quarter of 2007.
-- Storage Devices sales increased 22% year over year, accounting for 10% of net sales in the first quarter of 2008 compared to 9% of net sales for the corresponding period a year ago.
-- Net/Com Products sales increased 20% year over year, accounting for 8% of net sales in the first quarter of 2008 compared to 7% of net sales for the corresponding period a year ago.
-- Sales of Computer Systems, consisting of Notebooks, PDAs, Desktops, and Servers, decreased 7% year over year, accounting for 29% of net sales in the first quarter of 2008 compared to 33% of net sales for the corresponding period a year ago.
Gross profit dollars increased by $2.8 million, or 5.7%, in the first quarter of 2008 from the corresponding period a year ago primarily due to larger revenues in 2008. Gross profit margin, as a percentage of net sales, was down 10 basis-points to 12.4% in the first quarter of 2008 compared to the first quarter of 2007, primarily due to lower agency fee revenues in 2008 which are recorded on a net basis.
Overall annualized sales productivity increased 5% in the first quarter of 2008 compared to the first quarter of 2007. Sales productivity in our Large Account segment increased 16% in the first quarter of 2008 compared to the first quarter of 2007. Sales productivity in our Public Sector segment increased 17% year over year primarily due to increased Federal contract sales in 2008. For our SMB segment, productivity was level year over year. On a consolidated basis, the total number of sales representatives was 698 at March 31, 2008, compared to 675 at March 31, 2007 and 692 at December 31, 2007.
Total selling, general and administrative expenses ("SG&A") for the quarter increased year over year by $1.2 million, or 2.7%, but decreased as a percentage of net sales to 10.7% for the first quarter of 2008 from 11.1% for the first quarter of 2007. The year-over-year dollar increase was primarily attributable to the incremental variable compensation associated with higher revenues and gross profits. Improved leverage of our cost structure decreased our SG&A expenses as a percentage of net sales in Q1 2008 compared to Q1 2007.
Ms. Gallup concluded, "The investments we are making to increase sales and improve efficiencies are producing positive results. Our first quarter performance reflects a solid team effort to run our business more effectively while continuing to offer the best customer service in our marketplace. We believe we have the right strategies, resources, and talent in place to continue to improve our operating performance and enhance long-term shareholder value."
About PC Connection, Inc.
PC Connection, Inc., a Fortune 1000 company, has three sales subsidiaries: PC Connection Sales Corporation, MoreDirect, Inc., and GovConnection, Inc., headquartered in Merrimack, NH, Boca Raton, FL, and Rockville, MD, respectively. All three companies can deliver custom-configured computer systems overnight. Investors and media can find more information about PC Connection, Inc. at http://ir.pcconnection.com.
PC Connection Sales Corporation (1-800-800-5555), the original business of PC Connection, Inc. serving the small- and medium-sized business sector (SMB), is a rapid-response provider of information technology (IT) products and services. It offers more than 150,000 brand-name products through its staff of technically trained sales account managers and catalog telesales representatives, catalogs, and publications, and its website at www.pcconnection.com. The subsidiary serves the Apple/Macintosh community through its MacConnection division (1-800-800-2222), which also publishes specialized catalogs and is online at www.macconnection.com.
MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides corporate technology buyers with a comprehensive web-based e-procurement solution and in-depth IT supply-chain expertise, serving as a one-stop source by aggregating more than 300,000 products from the inventories of leading IT wholesale distributors and manufacturers. MoreDirect's TRAXX(TM) system is a seamless end-to-end interface that empowers clients to electronically source, evaluate, compare prices, and track related technology product purchases in real-time.
GovConnection, Inc. (1-800-800-0019) is a provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, catalogs, and publications, and online at www.govconnection.com.
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"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, the impact of changes in market demand and the overall level of economic activity, or in the level of business investment in information technology products, competitive products and pricing, product availability and market acceptance, new products, fluctuations in operating results, and the ability of the Company to hire and retain essential personnel, and other risks that could cause actual results to differ materially from these detailed 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, 2007. More specifically, the statements in this release concerning the Company's outlook for 2008 and the statements concerning the Company's gross margin percentage, productivity, and selling and administrative costs and other statements of a non-historical basis (including statements regarding implementing strategies for future growth and the ability of the Company to improve sales productivity) are forward-looking statements that involve certain risks and uncertainties. Such risks and uncertainties include the ability to realize market demand for and competitive pricing pressures on the products and services marketed by the Company, the continued acceptance of the Company's distribution channel by vendors and customers, continuation of key vendor and customer relationships and support programs and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. 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.
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------
At or for the Three
Months Ended March 31, 2008 2007
------------------------------------------- ------------------
(Dollars and shares in
thousands, except
operating data,
price/earnings ratio,
and per share data)
% of % of
Net Net %
Sales Sales Change
------------------------------------------- ------------------ ------
Operating Data:
Net sales $ 423,724 $ 398,180 6%
Diluted earnings per
share $ .18 $ .13 38%
Gross profit margin 12.4% 12.5%
Operating margin 1.7 1.4
Return on equity (1) 8.5 6.8
Catalogs distributed 3,059,000 3,638,000 (16%)
Orders entered (2) 377,500 384,000 (2%)
Average order size
(2) $ 1,267 $ 1,190 6%
Inventory turns (1) 21 21
Days sales
outstanding 44 42
Product Mix:
Notebooks & PDAs $ 64,101 15% $ 73,643 19% (13%)
Desktops/Servers 58,409 14 57,528 14 2
Storage Devices 42,562 10 34,808 9 22
Software 56,146 13 48,286 12 16
Net/Com Products 35,794 8 29,819 7 20
Printers & Printer
Supplies 40,839 10 41,653 11 (2)
Video, Imaging &
Sound 62,291 15 48,101 12 30
Memory & System
Enhancements 15,094 4 19,949 5 (24)
Accessories/Other 48,488 11 44,393 11 9
----------- ------ ----------- ------
$ 423,724 100% $ 398,180 100% 6%
=========== ====== =========== ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 143,344 34% $ 122,832 31% 17%
=========== ===========
Stock Performance
Indicators:
Actual shares
outstanding 26,803 26,802
Total book value per
share $ 8.52 $ 7.59
Tangible book value
per share $ 6.29 $ 5.31
Closing price $ 7.92 $ 14.30
Market
capitalization $ 212,280 $ 383,269
Trailing
price/earnings
ratio (3) 9 24
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
SELECTED SEGMENT INFORMATION
----------------------------------------------------------------------
For the Three Months
Ended March 31, 2008 2007
------------------------------------------------ --------------------
Net Gross Net Gross
(Dollars in thousands) Sales Margin (%) Sales Margin (%)
------------------------------------------------ --------------------
PC Connection Sales
Corporation (SMB) $240,149 13.9% $233,933 13.5%
MoreDirect (Large
Account) 117,208 10.8 110,315 10.8
GovConnection (Public
Sector) 66,367 10.2 53,932 11.8
-------- ---------- -------- ----------
Total $423,724 12.4% $398,180 12.5%
======== ========== ======== ==========
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended
March 31, 2008 2007
----------------------------------------------------------------------
(Amounts in
thousands, except
per share data) Amount % of Net Sales Amount % of Net Sales
--------------------------------------------- ------------------------
Net sales $423,724 100.0% $398,180 100.0%
Cost of sales 370,980 87.6 348,265 87.5
--------- -------------- --------- --------------
Gross Profit 52,744 12.4 49,915 12.5
Selling, general
and
administrative
expenses 45,393 10.7 44,193 11.1
--------- -------------- --------- --------------
Income From
Operations 7,351 1.7 5,722 1.4
Interest expense (162) - (208) (0.1)
Other, net 159 - 201 0.1
Income tax
provision (2,574) (0.6) (2,330) (0.5)
--------- -------------- --------- --------------
Net Income $ 4,774 1.1% $ 3,385 0.9%
========= ============== ========= ==============
Weighted average
common shares
outstanding:
Basic 26,860 26,680
========= =========
Diluted 26,974 27,005
========= =========
Earnings per
common share:
Basic $ 0.18 $ 0.13
========= =========
Diluted $ 0.18 $ 0.13
========= =========
CONSOLIDATED BALANCE SHEETS March 31, December 31,
(Amounts in thousands) 2008 2007
----------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 20,488 $ 13,741
Accounts receivable, net 178,473 202,216
Inventories-merchandise 65,670 76,090
Deferred income taxes 2,880 2,858
Income taxes receivable 2,010 345
Prepaid expenses and other current assets 3,735 4,322
--------- ------------
Total current assets 273,256 299,572
Property and equipment, net 22,807 20,831
Goodwill 56,867 56,867
Other intangibles, net 3,024 3,291
Other assets 308 318
--------- ------------
Total Assets $356,262 $380,879
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligation to affiliate $ 571 $ 527
Accounts payable 86,413 111,140
Accrued expenses and other liabilities 19,428 20,557
Accrued payroll 6,959 10,816
--------- ------------
Total current liabilities 113,371 143,040
Capital lease obligation to affiliate, less
current maturities 4,141 4,309
Deferred income taxes 6,883 5,436
Other liabilities 3,486 3,784
--------- ------------
Total Liabilities 127,881 156,569
--------- ------------
Stockholders' Equity:
Common stock 273 273
Additional paid-in capital 94,368 94,132
Retained earnings 136,744 131,970
Treasury stock at cost (3,004) (2,065)
--------- ------------
Total Stockholders' Equity 228,381 224,310
--------- ------------
Total Liabilities and Stockholders'
Equity $356,262 $380,879
========= ============
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Three months ended March 31, 2008 (Amounts in thousands)
----------------------------------------------------------------------
Common Stock Additional
------------- Paid-In Retained
Shares Amount Capital Earnings
----------------------------------------------------------------------
Balance - December 31, 2007 27,252 $273 $94,132 $131,970
Stock compensation expense - - 207 -
Exercise of stock options, including
income tax benefits 3 - 29 -
Repurchase of common stock for
Treasury - - - -
Net income - - - 4,774
------ ------ ---------- --------
Balance - March 31, 2008 27,255 $273 $94,368 $136,744
====== ====== ========== ========
Treasury Shares
---------------
Shares Amount Total
----------------------------------------------------------------------
Balance - December 31, 2007 (327) ($2,065) $224,310
Stock compensation expense - - 207
Exercise of stock options, including
income tax benefits - - 29
Repurchase of common stock for Treasury (92) (939) (939)
Net income - - 4,774
------ -------- --------
Balance - March 31, 2008 (419) ($3,004) $228,381
====== ======== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Three Months Ended March 31, (Amounts in
thousands) 2008 2007
----------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 4,774 $ 3,385
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,670 1,888
Provision for doubtful accounts 399 337
Deferred income taxes 1,425 (168)
Stock compensation expense 207 (68)
Income tax benefits from exercise of stock
options 4 887
Excess tax benefit from exercise of stock
options (1) (343)
Loss on disposal of fixed assets - 6
Changes in assets and liabilities:
Accounts receivable 23,344 23,551
Inventories 10,420 2,000
Prepaid expenses and other current assets (1,078) (1,454)
Other non-current assets 10 8
Accounts payable (25,180) (21,910)
Accrued expenses and other liabilities (5,284) (2,179)
--------- ---------
Net cash provided by operating activities 10,710 5,940
--------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,926) (1,474)
--------- ---------
Net cash used for investing activities (2,926) (1,474)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 28,815 -
Repayment of short-term borrowings (28,815) -
Repayment of capital lease obligations (124) (217)
Purchase of treasury shares (939) -
Exercise of stock options 25 2,494
Excess tax benefit from exercise of stock
options 1 343
--------- ---------
Net cash (used for) provided by financing
activities (1,037) 2,620
--------- ---------
Increase in cash and cash equivalents 6,747 7,086
Cash and cash equivalents, beginning of period 13,741 17,582
--------- ---------
Cash and cash equivalents, end of period $ 20,488 $ 24,668
========= =========
SOURCE: PC Connection, Inc.
PC Connection, Inc. Stephen Baldridge, 603-683-2322 Sr. Vice President of Finance & Corporate Controller
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