PC Connection, Inc. Reports First Quarter Results
FIRST QUARTER SUMMARY:
-
Net sales:
$461.9 million , up 13% year over year
- Gross margin: 12.7%, improved from 11.9% year over year
-
Operating income:
$7.5 million , 1.6% of net sales
-
Diluted earnings per share:
$0.17 per share
On
Quarterly Sales by Segment:
-
Net sales for the small- and medium-sized businesses ("SMB") segment
increased by 11.7%, to
$210 .9 million compared to the first quarter of 2010. We attribute the growth in SMB sales to our continued focus on solution selling, deeper penetration of existing accounts, and an increase in sales representatives. Year-over-year SMB growth continued to be strong in notebooks and desktops due to the PC refresh and improved profits of SMB customers. -
Net sales for the Large Account segment increased by 16.5% to
$146.8 million compared to the first quarter of 2010. Excluding ValCom's sales for the last two weeks of this period, net sales for this segment increased by 15.7% year over year. An increase in the overall volume of orders, from both new and existing customers, drove the increased sales for the quarter. -
Net sales to government and education customers (Public Sector
segment) increased by 14.0% to
$90.3 million compared to the first quarter of 2010. Sales to higher education and federal government customers drove the majority of the double digit year-over-year growth despite budgetary concerns in these institutions. -
Net sales to consumers and small office/home office customers by PC
Connection Express were
$13 .8 million in the first quarter of 2011 compared to$14 .1 million in the first quarter of 2010. Although sales were slightly lower, gross margin and operating income increased year over year due to our focus on improving operating results.
Quarterly Sales by Product Mix:
- Notebooks and PDA sales, the Company's largest product category, increased by 26% year over year and accounted for 18% of net sales in the first quarter of 2011 compared to 16% of net sales for the first quarter of 2010. Higher unit sales for the quarter drove the year-over-year growth as average selling prices, or ASP's, decreased slightly year over year.
- Desktop/server sales increased by 17% year over year, accounting for 15% of net sales in the first quarter of 2011 and 2010. Desktop sales grew as a result of increased unit sales associated with the continued PC refresh. ASPs for desktops sales also increased, contributing to the year-over-year revenue growth in this category. The increase in desktop sales was partially offset by lower server unit sales compared to the prior year quarter.
- Accessories/Other sales increased by 23% year over year, accounting for 13% of net sales in the first quarter of 2011 compared to 12% of net sales for the first quarter of 2010. The Large Account segment grew sales of these products by 44% year over year due in part to mobile computing and point of sale product demand.
- Software sales increased by 17% year over year and accounted for 14% of net sales in the first quarter of 2011 compared to 13% of net sales for the first quarter of 2010. The year-over-year growth in software revenue was consistent across our three primary business segments.
Overall gross profit dollars increased by
Overall annualized sales productivity increased by 6% in the first
quarter of 2011 compared to the first quarter of 2010. Sales
productivity in both the Large Account and Public Sector segments
increased by 16% in the first quarter of 2011 compared to the prior year
period. This growth was due to year-over-year increases in sales as
sales representative headcount in each segment was largely level
compared to the prior year quarter. Productivity for the SMB segment was
unchanged year over year, despite its revenue increase, due to the
addition of 42 sales representatives compared to the prior year quarter.
On a consolidated basis, the total number of sales representatives was
634 at
Total selling, general and administrative expenses for the quarter
increased year over year by
"We are pleased with the leverage demonstrated by our business model,
with healthy year-over-year operating and net income gains in the first
quarter of 2011 of 80% and 85%, respectively," said
About
pccc-g
"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 and environment, 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 manage personnel
levels in response to fluctuations in revenue, and other risks that
could cause actual results to differ materially from those detailed
under the caption "Risk Factors" in the Company's Annual Report on Form
10-K filed with the
CONSOLIDATED SELECTED FINANCIAL INFORMATION | |||||||||||||||||
At or for the Three Months Ended March 31, | 2011 | 2010 | |||||||||||||||
(Dollars and shares in thousands, except operating data, P/E ratio, and per share data) |
% of |
% of |
% |
||||||||||||||
Operating Data: | |||||||||||||||||
Net sales | $ | 461,926 | $ | 408,262 | 13 | % | |||||||||||
Diluted earnings per share | $ | 0.17 | $ | 0.09 | 89 | % | |||||||||||
Gross margin | 12.7 | % | 11.9 | % | |||||||||||||
Operating margin | 1.6 | % | 1.0 | % | |||||||||||||
Return on equity (1) | 6.9 | % | 4.1 | % | |||||||||||||
Catalogs distributed | 1,766,000 | 2,741,000 | (36 | )% | |||||||||||||
Orders entered (2) | 346,000 | 335,000 | 3 | % | |||||||||||||
Average order size (2) | $ | 1,606 | $ | 1,472 | 9 | % | |||||||||||
Inventory turns (1) | 24 | 25 | |||||||||||||||
Days sales outstanding | 47 | 48 | |||||||||||||||
Product Mix: | |||||||||||||||||
Notebook & PDA | $ | 83,283 | 18 | % | $ | 65,953 | 16 | % | 26 | % | |||||||
Desktop/Server | 70,998 | 15 | 60,562 | 15 | 17 | ||||||||||||
Software | 62,846 | 14 | 53,846 | 13 | 17 | ||||||||||||
Video, Imaging & Sound | 48,669 | 10 | 54,553 | 13 | (11 | ) | |||||||||||
Net/Com Product | 43,285 | 9 | 37,136 | 9 | 17 | ||||||||||||
Storage Device | 39,329 | 9 | 33,026 | 8 | 19 | ||||||||||||
Printer & Printer Supplies | 36,224 | 8 | 38,703 | 10 | (6 | ) | |||||||||||
Memory & System Enhancement | 18,679 | 4 | 16,813 | 4 | 11 | ||||||||||||
Accessory/Other | 58,613 | 13 | 47,670 | 12 | 23 | ||||||||||||
$ | 461,926 | 100 | % | $ | 408,262 | 100 | % | 13 | % | ||||||||
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix): | |||||||||||||||||
$ | 161,733 | 35 | % | $ | 148,398 | 36 | % | 9 | % | ||||||||
Stock Performance Indicators: | |||||||||||||||||
Actual shares outstanding | 26,673 | 26,827 | |||||||||||||||
Total book value per share | $ | 9.84 | $ | 8.87 | |||||||||||||
Tangible book value per share | $ | 7.72 | $ | 7.00 | |||||||||||||
Closing price | $ | 8.86 | $ | 6.20 | |||||||||||||
Market capitalization | $ | 236,323 | $ | 166,327 | |||||||||||||
Trailing price/earnings ratio (3) | 10 | 16 | |||||||||||||||
(1) Annualized | |||||||||||||||||
(2) Does not reflect cancellations or returns | |||||||||||||||||
(3) Earnings calculation is based on the trailing four quarters and excludes 2009 special charges. | |||||||||||||||||
REVENUE AND MARGIN INFORMATION | |||||||||||||||||
For the Three Months Ended March 31, | 2011 | 2010 | |||||||||||||||
(Dollars in thousands) |
Net |
Gross |
Net |
Gross |
|||||||||||||
SMB | $ | 210,934 | 14.3 | % | $ | 188,795 | 13.8 | % | |||||||||
Large Account | 146,847 | 11.4 | 126,102 | 10.6 | |||||||||||||
Public Sector | 90,345 | 11.5 | 79,249 | 9.8 | |||||||||||||
Consumer/SOHO | 13,800 | 11.2 | 14,116 | 10.3 | |||||||||||||
Total | $ | 461,926 | 12.7 | % | $ | 408,262 | 11.9 | % | |||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
Three Months Ended March 31, | 2011 | 2010 | |||||||||||||
(amounts in thousands, except per share data) | Amount | % of Net Sales | Amount | % of Net Sales | |||||||||||
Net sales | $ | 461,926 | 100.0 | % | $ | 408,262 | 100.0 | % | |||||||
Cost of sales | 403,107 | 87.3 | 359,611 | 88.1 | |||||||||||
Gross profit | 58,819 | 12.7 | 48,651 | 11.9 | |||||||||||
Selling, general and administrative expenses | 51,290 | 11.1 | 44,474 | 10.9 | |||||||||||
Income from operations | 7,529 | 1.6 | 4,177 | 1.0 | |||||||||||
Interest expense | (41 | ) | - | (99 | ) | - | |||||||||
Other, net | 65 | - | 75 | - | |||||||||||
Income tax provision | (3,059 | ) | 0.6 | (1,719 | ) | 0.4 | |||||||||
Net income | $ | 4,494 | 1.0 | % | $ | 2,434 | 0.6 | % | |||||||
Earnings per common share: | |||||||||||||||
Basic | $ | 0.17 | $ | 0.09 | |||||||||||
Diluted | $ | 0.17 | $ | 0.09 | |||||||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 26,901 | 27,157 | |||||||||||||
Diluted | 26,986 | 27,193 | |||||||||||||
CONSOLIDATED BALANCE SHEETS | March 31, | December 31, | |||||||||||||
(amounts in thousands) | 2011 | 2010 | |||||||||||||
ASSETS | |||||||||||||||
Current Assets: | |||||||||||||||
Cash and cash equivalents | $ | 58,560 | $ | 35,374 | |||||||||||
Accounts receivable, net | 217,788 | 238,011 | |||||||||||||
Inventories | 67,698 | 74,293 | |||||||||||||
Prepaid expenses and other current assets | 4,840 | 4,210 | |||||||||||||
Deferred income taxes | 3,895 | 3,813 | |||||||||||||
Income taxes receivable | 1,839 | 1,489 | |||||||||||||
Total current assets | 354,620 | 357,190 | |||||||||||||
Property and equipment, net | 19,285 | 13,500 | |||||||||||||
Goodwill | 51,152 | 48,060 | |||||||||||||
Other intangibles, net | 5,330 | 1,786 | |||||||||||||
Other assets | 537 | 405 | |||||||||||||
Total Assets | $ | 430,924 | $ | 420,941 | |||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||
Current Liabilities: | |||||||||||||||
Current maturities of capital lease obligation to affiliate | $ | 894 | $ | 870 | |||||||||||
Accounts payable | 112,475 | 114,632 | |||||||||||||
Accrued expenses and other liabilities | 31,345 | 23,963 | |||||||||||||
Accrued payroll | 10,962 | 12,652 | |||||||||||||
Total current liabilities | 155,676 | 152,117 | |||||||||||||
Deferred income taxes | 6,475 | 5,822 | |||||||||||||
Capital lease obligation to affiliate, less current maturities | 1,727 | 1,960 | |||||||||||||
Other liabilities | 4,577 | 3,403 | |||||||||||||
Total Liabilities | 168,455 | 163,302 | |||||||||||||
Stockholders' Equity: | |||||||||||||||
Common stock | 275 | 275 | |||||||||||||
Additional paid-in capital | 99,207 | 98,871 | |||||||||||||
Retained earnings | 168,569 | 164,075 | |||||||||||||
Treasury stock at cost | (5,582 | ) | (5,582 | ) | |||||||||||
Total Stockholders' Equity | 262,469 | 257,639 | |||||||||||||
Total Liabilities and Stockholders' Equity | $ | 430,924 | $ | 420,941 | |||||||||||
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY | |||||||||||||||||||||||
Three months ended March 31, 2011 (amounts in thousands) | |||||||||||||||||||||||
Common Stock |
Additional |
Retained | Treasury Stock | ||||||||||||||||||||
Shares | Amount | Paid-In Capital | Earnings | Shares | Amount | Total | |||||||||||||||||
Balance — January 1, 2011 | 27,507 | $ | 275 | $ | 98,871 | $ | 164,075 | (854 | ) | $ | (5,582 | ) | $ | 257,639 | |||||||||
Stock-based compensation expense | - | - | 205 | - | - | - | 205 | ||||||||||||||||
Issuance of common stock under stock incentive plans |
20 | - | 131 | - | - | - | 131 | ||||||||||||||||
|
|||||||||||||||||||||||
Net income and comprehensive income | - | - | - | 4,494 | - | - | 4,494 | ||||||||||||||||
Balance — March 31, 2011 | 27,527 | $ | 275 | $ | 99,207 | $ | 168,569 | (854 | ) | $ | (5,582 | ) | $ | 262,469 | |||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||||||||
Three Months Ended March 31, (amounts in thousands) | 2011 | 2010 | |||||||||||||||||||||
Cash Flows from Operating Activities: | |||||||||||||||||||||||
Net income | $ | 4,494 | $ | 2,434 | |||||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||||||||||||||||||
Depreciation and amortization | 1,344 | 1,572 | |||||||||||||||||||||
Provision for doubtful accounts | 414 | 527 | |||||||||||||||||||||
Stock-based compensation expense | 205 | 283 | |||||||||||||||||||||
Deferred income taxes | 571 | 160 | |||||||||||||||||||||
Loss on disposal of fixed assets | 3 | 1 | |||||||||||||||||||||
Income tax deficiency from stock-based compensation | - | (9 | ) | ||||||||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||||||||
Accounts receivable | 23,072 | 21,528 | |||||||||||||||||||||
Inventories | 6,889 | 6,634 | |||||||||||||||||||||
Prepaid expenses and other current assets | (712 | ) | (544 | ) | |||||||||||||||||||
Other non-current assets | (104 | ) | 131 | ||||||||||||||||||||
Accounts payable | (5,205 | ) | (17,324 | ) | |||||||||||||||||||
Accrued expenses and other liabilities | (1,842 | ) | (1,647 | ) | |||||||||||||||||||
Net cash provided by operating activities | 29,129 | 13,746 | |||||||||||||||||||||
Cash Flows from Investing Activities: | |||||||||||||||||||||||
Acquisition of ValCom Technology, net of cash acquired | (3,745 | ) | - | ||||||||||||||||||||
Purchases of property and equipment | (2,120 | ) | (692 | ) | |||||||||||||||||||
Net cash used for investing activities | (5,865 | ) | (692 | ) | |||||||||||||||||||
Cash Flows from Financing Activities: | |||||||||||||||||||||||
Repayment of capital lease obligation to affiliate | (209 | ) | (187 | ) | |||||||||||||||||||
Exercise of stock options | 131 | - | |||||||||||||||||||||
Purchase of treasury shares | - | (129 | ) | ||||||||||||||||||||
Net cash used for financing activities | (78 | ) | (316 | ) | |||||||||||||||||||
Increase in cash and cash equivalents | 23,186 | 12,738 | |||||||||||||||||||||
Cash and cash equivalents, beginning of period | 35,374 | 46,297 | |||||||||||||||||||||
Cash and cash equivalents, end of period | $ | 58,560 | $ | 59,035 | |||||||||||||||||||
pccc-g |
Sr. Vice
President of Finance & Corporate Controller
Source:
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