PC Connection, Inc. Reports First Quarter Results
-
Net sales:
$498.8 million , up 8% year over year - Gross profit: 13.4% of net sales, up 62 basis points y/y
-
Diluted earnings per share:
$0.21 , up 24% y/y -
Pro forma diluted EPS (before special charges):
$0.23 , up 35% y/y -
Cash balance increased to
$49.8 million , from$4.6 million at12/31/2011
Included in the results for the quarter ended
During the first quarter of 2012, we combined our consumer and small office/home office ("SOHO") sales company with our small- and medium-sized business (SMB) segment. In order to facilitate comparison with current period results, 2011 revenues and gross margins for the SMB segment have been restated on a pro forma basis to include consumer and SOHO sales.
Quarterly Sales by Segment:
-
Net sales for the SMB segment increased only nominally in the quarter
to
$225 .3 million, compared to net sales in the first quarter of 2011. The increase in net sales to our SMB customers was partially offset by lower consumer and SOHO sales in 2012. Excluding sales to these customers, SMB sales would have increased by 4.0% year over year. Software and net/com sales increased year over year with double-digit growth due to our investment in solution sales capabilities. -
Net sales for the Large Account segment increased by 23.5% to
$181.3 million compared to net sales in the first quarter of 2011. This segment includes the operating results for ValCom Technology, a provider of infrastructure management and onsite managed services to medium-to-large corporations, which we acquired late in the first quarter of 2011. Excluding ValCom Technology's sales for the quarter, Large Account sales would have increased year over year by 17.1% as demand continued to be strong for enterprise solutions. -
Net sales to government and education customers (Public Sector
segment) increased year over year by 2.0% to
$92.2 million . Sales to state and local government and educational institutions were relatively unchanged compared to last year, while sales to the federal government increased by 5.5% year over year.
Quarterly Sales by Product Mix:
- Notebook sales, the Company's largest product category, increased by 2% year over year and accounted for 17% of net sales in the first quarter of 2012 compared to 18% of net sales in the first quarter of 2011. Notebook unit sales increased by 7% year over year and offset a decline in average selling prices.
- Desktop/server sales increased by 16% year over year, accounting for 17% of net sales in the first quarter of 2012 compared to 15% of net sales in the first quarter of 2011. Desktop/server sales increased due to strong demand from our large account and public sector customers.
- Software sales increased by 15% year over year, accounting for 14% of net sales in the first quarter of 2012 and 2011. All three segments contributed to the overall sales growth with double-digit increases compared to the prior year quarter.
- Net/com products continued to grow with an increase of 12% year over year, accounting for 10% of net sales in the first quarter of 2012 compared to 9% of net sales in the first quarter of 2011. All three segments achieved double-digit sales growth in this product category.
Overall gross profit dollars increased by
Total selling, general and administrative expenses increased year over
year by
The Company generated significant positive cash flow in the quarter
ended
"I am pleased with our results this quarter. Our team continues to
execute well. We generated solid sales growth and increased our pro
forma earnings per share by 35%. In addition, we strengthened our
balance sheet and generated significant positive cash flow," said
Non-GAAP Financial Information
Adjusted EBITDA, pro forma net income, and pro forma earnings per share are non-GAAP financial measures. This information is included to provide information with respect to the Company's operating performance and earnings. Reconciliations of Adjusted EBITDA, pro forma net income, and pro forma earnings per share to GAAP net income are provided in tables immediately following the Condensed Consolidated Statements of Income.
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 |
2012 | 2011 | ||||||||||||||||||||
(Dollars and shares in thousands, except operating data, P/E ratio, and per share data) | % of | % of | % | |||||||||||||||||||
Net Sales | Net Sales | Change | ||||||||||||||||||||
Operating Data: | ||||||||||||||||||||||
Net sales | $ | 498,763 | $ | 461,926 | 8 | % | ||||||||||||||||
Diluted earnings per share | $ | 0.21 | $ | 0.17 | 24 | % | ||||||||||||||||
Pro forma diluted earnings per share | $ | 0.23 | $ | 0.17 | 35 | % | ||||||||||||||||
Gross margin | 13.4 | % | 12.7 | % | ||||||||||||||||||
Operating margin | 1.8 | % | 1.6 | % | ||||||||||||||||||
Return on equity (1) | 8.0 | % | 6.9 | % | ||||||||||||||||||
Orders entered (2) | 339,000 | 346,000 | (2 | %) | ||||||||||||||||||
Average order size (2) | $ | 1,765 | $ | 1,606 | 10 | % | ||||||||||||||||
Inventory turns (1) | 25 | 24 | ||||||||||||||||||||
Days sales outstanding | 43 | 41 | ||||||||||||||||||||
Product Mix: | ||||||||||||||||||||||
Notebook | $ | 84,699 | 17 | % | $ | 83,283 | 18 | % | 2 | % | ||||||||||||
Desktop/Server | 82,443 | 17 | 70,998 | 15 | 16 | % | ||||||||||||||||
Software | 72,286 | 14 | 62,846 | 14 | 15 | % | ||||||||||||||||
Video, Imaging & Sound | 48,203 | 10 | 48,669 | 10 | (1 | %) | ||||||||||||||||
Net/Com Product | 48,351 | 10 | 43,285 | 9 | 12 | % | ||||||||||||||||
Storage Device | 36,033 | 7 | 39,329 | 9 | (8 | %) | ||||||||||||||||
|
37,171 | 7 | 36,224 | 8 | 3 | % | ||||||||||||||||
Memory & System Enhancement | 17,073 | 3 | 18,679 | 4 | (9 | %) | ||||||||||||||||
Accessory/Other | 72,504 | 15 | 58,613 | 13 | 24 | % | ||||||||||||||||
Total Net Sales | $ | 498,763 | 100 | % | $ | 461,926 | 100 | % | 8 | % | ||||||||||||
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix): | ||||||||||||||||||||||
$ | 186,634 | 37 | % | $ | 161,733 | 35 | % | 15 | % | |||||||||||||
Stock Performance Indicators: | ||||||||||||||||||||||
Actual shares outstanding | 26,276 | 26,673 | ||||||||||||||||||||
Total book value per share | $ | 10.59 | $ | 9.84 | ||||||||||||||||||
Tangible book value per share | $ | 8.45 | $ | 7.72 | ||||||||||||||||||
Closing price | $ | 8.22 | $ | 8.86 | ||||||||||||||||||
Market capitalization | $ | 215,989 | $ | 236,323 | ||||||||||||||||||
Trailing price/earnings ratio | 7.3 | 9.5 | ||||||||||||||||||||
LTM Adjusted EBITDA (3) | $ | 57,402 | $ | 48,877 | ||||||||||||||||||
Market capitalization/LTM EBITDA | 3.8 | 4.8 |
(1) Annualized
(2) Does not reflect cancellations or returns
(3)
Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes,
depreciation and amortization) adjusted for stock-based compensation and
special charges.
REVENUE AND MARGIN INFORMATION | ||||||||||||||||
For the Three Months Ended |
2012 | 2011 | ||||||||||||||
Net | Gross | Net | Gross | |||||||||||||
(Dollars in thousands) | Sales | Margin | Sales | Margin | ||||||||||||
SMB | $ | 225,295 | 15.2 | % | $ | 224,734 | 14.1 | % | ||||||||
Large Account | 181,316 | 11.8 | 146,847 | 11.4 | ||||||||||||
Public Sector | 92,152 | 11.9 | 90,345 | 11.5 | ||||||||||||
Total | $ | 498,763 | 13.4 | % | $ | 461,926 | 12.7 | % |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||||
Three Months Ended |
2012 | 2011 | |||||||||||||||||
(amounts in thousands, except per share data) | Amount | % of Net Sales | Amount | % of Net Sales | |||||||||||||||
Net sales | $ | 498,763 | 100.0 | % | $ | 461,926 | 100.0 | % | |||||||||||
Cost of sales | 432,152 | 86.6 | 403,107 | 87.3 | |||||||||||||||
Gross profit | 66,611 | 13.4 | 58,819 | 12.7 | |||||||||||||||
Selling, general and administrative expenses | 56,450 | 11.3 | 51,290 | 11.1 | |||||||||||||||
Special charges | 1,135 | 0.3 | - | - | |||||||||||||||
Income from operations | 9,026 | 1.8 | 7,529 | 1.6 | |||||||||||||||
Interest expense | - | - | (41 | ) | - | ||||||||||||||
Other, net | 46 | - | 65 | - | |||||||||||||||
Income tax provision | (3,597 | ) | (0.7 | ) | (3,059 | ) | 0.6 | ||||||||||||
Net income | $ | 5,475 | 1.1 | % | $ | 4,494 | 1.0 | % | |||||||||||
Earnings per common share: | |||||||||||||||||||
|
$ | 0.21 | $ | 0.17 | |||||||||||||||
Diluted | $ | 0.21 | $ | 0.17 | |||||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||||
|
26,439 | 26,901 | |||||||||||||||||
Diluted | 26,586 | 26,986 | |||||||||||||||||
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME | |||||||||||||||||||
Three Months Ended |
|||||||||||||||||||
Provided for comparison of our operating results without special charges. (amounts in thousands) | 2012 | 2011 | |||||||||||||||||
GAAP net income | $ | 5,475 | $ | 4,494 | |||||||||||||||
Special charges (after tax) | 681 | - | |||||||||||||||||
Pro forma net income | $ | 6,156 | $ | 4,494 | |||||||||||||||
Pro forma diluted earnings per common share | $ | 0.23 | $ | 0.17 | |||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
|
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(amounts in thousands) | 2012 | 2011 | |||||||||||||||||
ASSETS | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 49,752 | $ | 4,615 | |||||||||||||||
Accounts receivable, net | 242,403 | 295,188 | |||||||||||||||||
Inventories | 62,528 | 77,437 | |||||||||||||||||
Prepaid expenses and other current assets | 5,250 | 4,713 | |||||||||||||||||
Deferred income taxes | 3,398 | 4,436 | |||||||||||||||||
Income taxes receivable | 3,229 | 1,927 | |||||||||||||||||
Total current assets | 366,560 | 388,316 | |||||||||||||||||
Property and equipment, net | 24,088 | 22,570 | |||||||||||||||||
Goodwill | 51,276 | 51,276 | |||||||||||||||||
Other intangibles, net | 4,971 | 5,205 | |||||||||||||||||
Other assets | 720 | 652 | |||||||||||||||||
Total Assets | $ | 447,615 | $ | 468,019 | |||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Current maturities of capital lease obligation to affiliate | $ | 998 | $ | 971 | |||||||||||||||
Borrowings under bank line of credit | - | 5,267 | |||||||||||||||||
Accounts payable | 111,949 | 130,900 | |||||||||||||||||
Accrued expenses and other liabilities | 30,513 | 30,902 | |||||||||||||||||
Accrued payroll | 12,213 | 12,964 | |||||||||||||||||
Total current liabilities | 155,673 | 181,004 | |||||||||||||||||
Deferred income taxes | 9,882 | 9,026 | |||||||||||||||||
Other liabilities | 2,975 | 3,471 | |||||||||||||||||
Capital lease obligation to affiliate, less current maturities | 729 | 989 | |||||||||||||||||
Total Liabilities | 169,259 | 194,490 | |||||||||||||||||
Stockholders' Equity: | |||||||||||||||||||
Common stock | 276 | 276 | |||||||||||||||||
Additional paid-in capital | 100,284 | 99,957 | |||||||||||||||||
Retained earnings | 187,749 | 182,274 | |||||||||||||||||
Treasury stock at cost | (9,953 | ) | (8,978 | ) | |||||||||||||||
Total Stockholders' Equity | 278,356 | 273,529 | |||||||||||||||||
Total Liabilities and Stockholders' Equity | $ | 447,615 | $ | 468,019 |
EBITDA AND ADJUSTED EBITDA |
A reconciliation of EBITDA and Adjusted EBITDA is detailed below. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA means EBITDA adjusted for certain items which are described in the table below. 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 excludes or includes 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 |
LTM Ended |
|||||||||||||||||
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||
Net income | $ | 5,475 | $ | 4,494 | $ | 29,768 | $ | 25,021 | |||||||||||
Depreciation and amortization | 1,558 | 1,344 | 6,165 | 5,202 | |||||||||||||||
Income tax expense | 3,597 | 3,059 | 19,182 | 16,769 | |||||||||||||||
Interest expense, net | - | 41 | 328 | 432 | |||||||||||||||
EBITDA | 10,630 | 8,938 | 55,443 | 47,424 | |||||||||||||||
Stock-based compensation | 1,047 | 205 |
1,666 |
1,453 | |||||||||||||||
Other special charges | 293 | - |
293 |
- | |||||||||||||||
Adjusted EBITDA | $ | 11,970 | $ | 9,143 | 31% | $ | 57,402 | $ | 48,877 | 17% |
(1) LTM: Last twelve months
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
Three Months Ended |
2012 | 2011 | ||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income | $ | 5,475 | $ | 4,494 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 1,558 | 1,344 | ||||||||||
Provision for doubtful accounts | 99 | 414 | ||||||||||
Deferred income taxes | 1,894 | 571 | ||||||||||
Stock-based compensation expense | 1,047 | 205 | ||||||||||
Loss on disposal of fixed assets | 71 | 3 | ||||||||||
Income tax benefit from stock-based compensation | 6 | - | ||||||||||
Fair value adjustment to contingent consideration | 10 | - | ||||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | 52,686 | 23,072 | ||||||||||
Inventories | 14,909 | 6,889 | ||||||||||
Prepaid expenses and other current assets | (1,839 | ) | (712 | ) | ||||||||
Other non-current assets | (68 | ) | (104 | ) | ||||||||
Accounts payable | (19,041 | ) | (5,205 | ) | ||||||||
Accrued expenses and other liabilities | (1,646 | ) | (1,842 | ) | ||||||||
Net cash provided by operating activities | 55,161 | 29,129 | ||||||||||
Cash Flows from Investing Activities: | ||||||||||||
Purchases of property and equipment | (2,823 | ) | (2,120 | ) | ||||||||
Acquisition of ValCom Technology, net of cash acquired | - | (3,745 | ) | |||||||||
Net cash used for investing activities | (2,823 | ) | (5,865 | ) | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Repayment of short-term borrowings | (12,471 | ) | - | |||||||||
Proceeds from short-term borrowings | 7,204 | - | ||||||||||
Purchase of treasury shares | (1,715 | ) | - | |||||||||
Repayment of capital lease obligation to affiliate | (233 | ) | (209 | ) | ||||||||
Exercise of stock options | 14 | 131 | ||||||||||
Net cash used for financing activities | (7,201 | ) | (78 | ) | ||||||||
Increase in cash and cash equivalents | 45,137 | 23,186 | ||||||||||
Cash and cash equivalents, beginning of period | 4,615 | 35,374 | ||||||||||
Cash and cash equivalents, end of period | $ | 49,752 | $ | 58,560 | ||||||||
Non-cash Investing and Financing Activities: | ||||||||||||
Issuance of nonvested stock from treasury | $ | 740 | $ | - | ||||||||
Accrued capital expenditures | 520 | 1,707 | ||||||||||
Contingent consideration recorded in accrued expenses and other liabilities | - | 2,880 |
Senior Vice
President, CFO and Treasurer
Source:
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