PC Connection, Inc. Reports First Quarter Results
FIRST QUARTER SUMMARY:
-
Net sales:
$505.4 million , up 1.3% year over year - Commercial sales: up 3.8%
-
Diluted earnings per share:
$0.23 -
Cash balance increased to
$59 million , from$40 million at12/31/12
Included in the results for the quarter ended
Quarterly Sales by Segment:
-
Net sales for the SMB segment increased by 4.6% in the quarter to
$235 .7 million, compared to net sales in the first quarter of 2012. Net/com sales experienced the strongest growth due to our investment in solution sales capabilities, and both notebook and desktop sales also increased year over year. -
Net sales for the Large Account segment increased by 2.8% to
$186.4 million , compared to net sales in the first quarter of 2012. We continued to experience strong growth in notebook and software sales in the Large Account segment. Commercial sales, which consists of SMB and Large Account sales, increased by 3.8% from the prior year quarter. -
Net sales to government and education customers (Public Sector
segment) decreased by 9.6% year over year to
$83.4 million . Sales to state and local government and educational institutions increased slightly compared to last year, while sales to the federal government decreased by 29.0% year over year due to federal budget spending cuts.
Quarterly Sales by Product Mix:
- Notebook/tablet sales, the Company's largest product category, increased by 11% year over year and accounted for 19% of net sales in the first quarter of 2013, compared to 17% of net sales in the first quarter of 2012. All three segments contributed to the year-over-year sales growth in this category with Large Account achieving the largest increase of 28%. Unit sales increased by 14% year over year and offset a slight decline in average selling prices.
- Desktop/server sales decreased by 8% year over year, accounting for 15% of net sales in the first quarter of 2013 compared to 17% of net sales in the first quarter of 2012. Decreased demand for desktop/servers from our Large Account customers was partially offset by increased sales in both our SMB and Public Sector segments.
- Software sales increased by 4% year over year, accounting for 15% of net sales in the first quarter of 2013 compared to 14% in the first quarter of 2012. Strong growth in Large Account software sales was due to network management, security, and license renewals.
Overall gross profit dollars increased in the first quarter of 2013 compared to the prior year quarter. However, consolidated gross margin, as a percentage of net sales, decreased slightly to 13.2% in the first quarter of 2013 compared to 13.4% in the prior year quarter.
Total selling, general and administrative expenses increased slightly in dollars year over year, but improved as a percentage of net sales to 11.2% for the first quarter of 2013, from 11.3% for the first quarter of 2012. We are continuing to invest in solution sales capabilities and expect SG&A expenses to rise accordingly as the year progresses, however, we are highly focused on improving efficiencies and streamlining wherever possible.
The Company generated significant positive cash flow in the quarter
ended
"I am pleased with our performance this quarter, especially in light of
the challenging environment in which we were operating.
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
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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 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 and other costs 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 |
2013 | 2012 | |||||||||||||||
% 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 | $ | 505,423 | $ | 498,763 | 1 | % | |||||||||||
Diluted earnings per share | $ | 0.23 | $ | 0.21 | 10 | % | |||||||||||
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Gross margin | 13.2 | % | 13.4 | % | |||||||||||||
Operating margin | 2.0 | % | 1.8 | % | |||||||||||||
Return on equity (1) | 11.5 | % | 11.1 | % | |||||||||||||
Inventory turns | 26 | 25 | |||||||||||||||
Days sales outstanding | 40 | 43 | |||||||||||||||
Product Mix: | |||||||||||||||||
Notebook/Tablet | $ | 94,311 | 19 | % | $ | 84,699 | 17 | % | 11 | % | |||||||
Desktop/Server | 76,204 | 15 | 82,443 | 17 | (8 | %) | |||||||||||
Software | 75,213 | 15 | 72,286 | 14 | 4 | % | |||||||||||
Net/Com Product | 50,187 | 10 | 48,351 | 10 | 4 | % | |||||||||||
Video, Imaging & Sound | 43,706 | 8 | 48,203 | 10 | (9 | %) | |||||||||||
|
37,238 | 7 | 37,171 | 7 | 0 | % | |||||||||||
Storage | 30,301 | 6 | 36,033 | 7 | (16 | %) | |||||||||||
Memory & System Enhancement | 13,223 | 3 | 17,073 | 3 | (23 | %) | |||||||||||
Accessory/Services/Other | 85,040 | 17 | 72,504 | 15 | 17 | % | |||||||||||
Total Net Sales | $ | 505,423 | 100 | % | $ | 498,763 | 100 | % | 1 | % | |||||||
Stock Performance Indicators: | |||||||||||||||||
Actual shares outstanding | 26,071 | 26,276 | |||||||||||||||
Total book value per share | $ | 11.47 | $ | 10.59 | |||||||||||||
Tangible book value per share | $ | 9.37 | $ | 8.45 | |||||||||||||
Closing price | $ | 16.35 | $ | 8.22 | |||||||||||||
Market capitalization | $ | 426,261 | $ | 215,989 | |||||||||||||
Pro forma trailing price/earnings ratio | 13.0 | 7.3 | |||||||||||||||
LTM Adjusted EBITDA (2) | $ | 63,291 | $ | 57,232 | |||||||||||||
Adjusted market capitalization/LTM Adjusted EBITDA (3) | 5.8 | 2.9 | |||||||||||||||
(1) Based on last twelve month's net income. | |||||||||||||||||
(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and special charges. | |||||||||||||||||
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance. | |||||||||||||||||
REVENUE AND MARGIN INFORMATION | |||||||||||||||||
For the Three Months Ended |
2013 | 2012 | |||||||||||||||
Net | Gross | Net | Gross | ||||||||||||||
(amounts in thousands) | Sales | Margin | Sales | Margin | |||||||||||||
SMB | $ | 235,678 | 15.1 | % | $ | 225,295 | 15.2 | % | |||||||||
Large Account | 186,395 | 11.5 | 181,316 | 11.8 | |||||||||||||
Public Sector | 83,350 | 11.9 | 92,152 | 11.9 | |||||||||||||
Total | $ | 505,423 | 13.2 | % | $ | 498,763 | 13.4 | % | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||
Three Months Ended |
2013 | 2012 | ||||||||||||
(amounts in thousands, except per share data) | Amount | % of Net Sales | Amount | % of Net Sales | ||||||||||
Net sales | $ | 505,423 | 100.0 | % | $ | 498,763 | 100.0 | % | ||||||
Cost of sales | 438,585 | 86.8 | 432,152 | 86.6 | ||||||||||
Gross profit | 66,838 | 13.2 | 66,611 | 13.4 | ||||||||||
Selling, general and administrative expenses | 56,713 | 11.2 | 56,450 | 11.3 | ||||||||||
Special charges | - | - | 1,135 | 0.3 | ||||||||||
Income from operations | 10,125 | 2.0 | 9,026 | 1.8 | ||||||||||
Interest/other expense, net |
(50 | ) | - | 46 | - | |||||||||
Income tax provision | (3,977 | ) | (0.8 | ) | (3,597 | ) | (0.7 | ) | ||||||
Net income | $ | 6,098 | 1.2 | % | $ | 5,475 | 1.1 | % | ||||||
Earnings per common share: | ||||||||||||||
Basic | $ | 0.23 | $ | 0.21 | ||||||||||
Diluted | $ | 0.23 | $ | 0.21 | ||||||||||
Shares used in the computation of earnings per share: | ||||||||||||||
Basic | 25,998 | 26,439 | ||||||||||||
Diluted | 26,272 | 26,586 | ||||||||||||
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME | ||||||
Three Months Ended |
2013 | 2012 | ||||
(provided for comparison of our operating results without special charges, amounts in thousands) | ||||||
GAAP net income | $ | 6,098 | $ | 5,475 | ||
Special charges (after tax) | - | 681 | ||||
Pro forma net income | $ | 6,098 | $ | 6,156 | ||
Pro forma diluted earnings per common share | $ | 0.23 | $ | 0.23 | ||
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 |
|||||||||||||||
2013 | 2012 | % Change | 2013 | 2012 | % Change | ||||||||||||
Net income | $ | 6,098 | $ | 5,475 | $ | 33,694 | $ | 29,768 | |||||||||
Depreciation and amortization | 1,627 | 1,558 | 6,964 | 6,165 | |||||||||||||
Income tax expense | 3,977 | 3,597 | 21,816 | 19,182 | |||||||||||||
Interest/other expense, net |
50 | (46 | ) | 221 | 158 | ||||||||||||
EBITDA | 11,752 | 10,584 | 62,695 | 55,273 | |||||||||||||
Stock-based compensation | 148 | 1,047 | 596 | 1,666 | |||||||||||||
Other special charges | - | 293 | - | 293 | |||||||||||||
Adjusted EBITDA | $ | 11,900 | $ | 11,924 | - | $ | 63,291 | $ | 57,232 | 11% | |||||||
(1) LTM: Last twelve months | |||||||||||||||||
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CONDENSED CONSOLIDATED BALANCE SHEETS | 2013 | 2012 | ||||||
(amounts in thousands) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 58,529 | $ | 39,907 | ||||
Accounts receivable, net | 236,282 | 267,310 | ||||||
Inventories | 59,593 | 69,637 | ||||||
Prepaid expenses and other current assets | 5,134 | 3,934 | ||||||
Deferred income taxes | 5,250 | 5,250 | ||||||
Income taxes receivable | 204 | 434 | ||||||
Total current assets | 364,992 | 386,472 | ||||||
Property and equipment, net | 26,546 | 26,104 | ||||||
Goodwill | 51,276 | 51,276 | ||||||
Other intangibles, net | 3,532 | 3,757 | ||||||
Other assets | 703 | 714 | ||||||
Total Assets | $ | 447,049 | $ | 468,323 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Current maturities of capital lease obligation to affiliate | $ | 729 | $ | 989 | ||||
Accounts payable | 94,609 | 126,110 | ||||||
Accrued expenses and other liabilities | 27,010 | 22,562 | ||||||
Accrued payroll | 12,202 | 13,824 | ||||||
Total current liabilities | 134,550 | 163,485 | ||||||
Deferred income taxes | 10,403 | 10,514 | ||||||
Other liabilities | 3,012 | 3,021 | ||||||
Total Liabilities | 147,965 | 177,020 | ||||||
Stockholders' Equity: | ||||||||
Common stock | 280 | 278 | ||||||
Additional paid-in capital | 103,416 | 101,735 | ||||||
Retained earnings | 211,369 | 205,271 | ||||||
Treasury stock at cost | (15,981 | ) | (15,981 | ) | ||||
Total Stockholders' Equity | 299,084 | 291,303 | ||||||
Total Liabilities and Stockholders' Equity | $ | 447,049 | $ | 468,323 | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
Three Months Ended |
2013 | 2012 | ||||||
(amounts in thousands) | ||||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 6,098 | $ | 5,475 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,627 | 1,558 | ||||||
Provision for doubtful accounts | 202 | 99 | ||||||
Deferred income taxes | (111 | ) | 1,894 | |||||
Stock-based compensation expense | 148 | 1,047 | ||||||
Loss on disposal of fixed assets | 5 | 71 | ||||||
Income tax benefit from stock-based compensation | 155 | 6 | ||||||
Excess tax benefit from exercise of stock options | (216 | ) | - | |||||
Fair value adjustment to contingent consideration | - | 10 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 30,826 | 52,686 | ||||||
Inventories | 10,044 | 14,909 | ||||||
Prepaid expenses and other current assets | (970 | ) | (1,839 | ) | ||||
Other non-current assets | 11 | (68 | ) | |||||
Accounts payable | (31,605 | ) | (19,041 | ) | ||||
Accrued expenses and other liabilities | 2,817 | (1,646 | ) | |||||
Net cash provided by operating activities | 19,031 | 55,161 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchases of property and equipment | (1,745 | ) | (2,823 | ) | ||||
Net cash used for investing activities | (1,745 | ) | (2,823 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Repayment of short-term borrowings | - | (12,471 | ) | |||||
Proceeds from short-term borrowings | - | 7,204 | ||||||
Exercise of stock options | 1,380 | 14 | ||||||
Excess tax benefit from exercise of stock options | 216 | - | ||||||
Repayment of capital lease obligation to affiliate | (260 | ) | (233 | ) | ||||
Purchase of treasury shares | - | (1,466 | ) | |||||
Payment of payroll taxes on stock-based compensation through shares withheld | - | (249 | ) | |||||
Net cash provided by (used for) financing activities |
1,336 | (7,201 | ) | |||||
Increase in cash and cash equivalents | 18,622 | 45,137 | ||||||
Cash and cash equivalents, beginning of period | 39,907 | 4,615 | ||||||
Cash and cash equivalents, end of period | $ | 58,529 | $ | 49,752 | ||||
Non-cash Investing and Financing Activities: | ||||||||
Accrued capital expenditures | $ | 356 | $ | 520 | ||||
Issuance of nonvested stock from treasury | - | 740 |
pccc-g
Senior Vice
President, Treasurer and Chief Financial Officer
Source:
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