PC Connection, Inc. Reports Second Quarter Results
MERRIMACK, N.H., Jul 26, 2007 (BUSINESS WIRE) --
SECOND QUARTER HIGHLIGHTS:
-- Record net sales: $441.1 million, up 8% year over year
-- Operating income: $9.0 million, up 57% year over year
-- Net income: $5.8 million, up 85% year over year
-- Diluted earnings per share: $.21, up from $.12 last year
PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter ended June 30, 2007. Net sales for the three months ended June 30, 2007 increased by $33.0 million, or 8.1%, to $441.1 million from $408.1 million for the three months ended June 30, 2006. Net income for the quarter was $5.8 million, or $.21 per share, compared to $3.1 million, or $.12 per share, for the corresponding prior year quarter.
"We are pleased with the solid overall year-over-year sales growth of PC Connection, Inc. GovConnection, our Public Sector business, led the way with a 17% increase in revenue," said Patricia Gallup, Chairman and Chief Executive Officer. "We also achieved strong growth in earnings with a 57% increase in operating income and a 75% increase in earnings per share over the second quarter of 2006."
Net sales for the six months ended June 30, 2007 increased by $50.7 million, or 6.4%, to $839.3 million from $788.6 million for the six months ended June 30, 2006. Net income for the six months ended June 30, 2007 was $9.1 million, or $.34 per share, compared to $4.8 million, or $.19 per share, for the six months ended June 30, 2006.
Quarterly Sales Growth by Business Segment:
-- Net sales for the SMB segment increased by 7.8% to $231.9 million compared to the second quarter of 2006. Corporate outbound sales within the segment grew 14.0% year over year.
-- Net sales for the Large Account segment increased by 4.1% to $133.6 million compared to the second quarter of 2006.
-- Net sales for the Public Sector segment increased by 16.9% to $75.6 million compared to the second quarter of 2006. Revenues increased primarily due to sales made under recently awarded federal and state government contracts, as well as the acquisition of new accounts.
Quarterly Sales Growth By Product Mix:
-- Desktop computers and servers increased 11.8% year over year, accounting for 14.2% of net sales in the second quarter of 2007 compared to 13.7% of net sales for the corresponding prior year quarter.
-- Video, Imaging, and Sound increased 15.1% year over year, accounting for 13.4% of net sales in the second quarter of 2007 compared to 12.6% of net sales for the corresponding prior year quarter.
-- Notebooks and PDAs, our largest product category, accounted for 16.4% of net sales in the second quarter of 2007 compared to 18.0% for the corresponding prior year quarter.
-- Software represented 12.7% of net sales in the second quarter of 2007 compared to 12.6% of net sales for the corresponding prior year quarter.
Gross profit was $54.0 million for the second quarter of 2007 compared to $50.7 million for the second quarter of 2006. Gross profit margin, as a percentage of net sales, was 12.3% in the second quarter of 2007 compared to 12.4% in the second quarter of 2006. As noted in our first quarter 2007 earnings release, we recorded substantially all vendor consideration as a reduction to cost of inventory purchases, pursuant to Issue No. 02-16 of the Emerging Issues Task Force. Accordingly, this additional consideration accounted for a 22 basis-point increase in gross margin compared to the second quarter of 2006. Offsetting this increase were slightly lower customer invoice margins and additional costs associated with certain customer rebate programs.
Overall annualized sales productivity increased 12% in the second quarter of 2007 compared to the second quarter of 2006. Sales productivity in our Large Account segment increased 21% in the second quarter of 2007 compared to the second quarter of 2006. For our SMB and Public Sector segments, productivity increased 12% and 10%, respectively. On a consolidated basis, the total number of sales representatives was 625 as of June 30, 2007, compared to 659 sales representatives at June 30, 2006.
Selling, general and administrative expenses ("SG&A") totaled $45.0 million for the second quarter of 2007 compared to $44.5 million for the second quarter of 2006. SG&A improved as a percentage of net sales to 10.3% for the second quarter of 2007 compared to 10.9% for the second quarter of 2006.
Ms. Gallup concluded, "Our record results show we remain focused on the IT needs of our customers in our target markets. We continue to invest in expanding and refining our core competencies, while reducing operating costs wherever possible. PC Connection, Inc. has a strong management team in place focused on improving the Company's results and building long-term value for our shareholders."
About PC Connection, Inc.
PC Connection, Inc., a Fortune 1000 company, owns three sales companies: 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(R) 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 detailed under the caption "Risk Factors" in the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended March 31, 2007. More specifically, the statements in this release concerning the Company's outlook for 2007 and the statements concerning the Company's gross margin percentage, productivity, and selling and administrative costs and other statements of a non-historical basis 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 June 30, 2007 2006
-------------------------------------------- -------------------------
(Dollars and shares in
thousands, except
operating data,
price/earnings ratio,
and per share data) % of % of %
Net Net Change
Sales Sales
-------------------------------------------- -------------------------
Operating Data:
Net sales $ 441,122 $ 408,094 8.1%
Diluted earnings per
share $ .21 $ .12
Gross profit margin 12.3% 12.4%
Operating margin 2.0 1.4
Return on equity (1) 11.2 7.2
Catalogs distributed 3,404,000 3,645,000 -6.6%
Orders entered (2) 365,240 359,200 1.7%
Average order size (2) $ 1,396 $ 1,322 5.6%
Inventory turns (1) 22 23
Days sales outstanding 42 44
Product Mix:
Notebooks & PDAs $ 72,374 16.4% $ 73,377 18.0% -1.4%
Desktops/Servers 62,479 14.2 55,893 13.7 11.8
Storage Devices 39,649 9.0 34,170 8.4 16.0
Software 56,205 12.7 51,656 12.6 8.8
Net/Com Products 35,630 8.1 32,946 8.1 8.1
Printers & Printer
Supplies 41,743 9.5 40,684 10.0 2.6
Video, Imaging & Sound 59,146 13.4 51,403 12.6 15.1
Memory & System
Enhancements 24,032 5.4 19,892 4.9 20.8
Accessories/Other 49,864 11.3 48,073 11.7 3.7
----------- ------ ----------- ------
$ 441,122 100.0% $ 408,094 100.0% 8.1%
=========== ====== =========== ======
Net Sales of Enterprise
Server and Networking
Products (included in
the above Product Mix):
$ 144,552 32.8% $ 125,562 30.8% 15.1%
=========== ===========
Stock Performance
Indicators:
Actual shares
outstanding 26,824 25,323
Total book value per
share $ 7.80 $ 6.98
Tangible book value per
share $ 5.54 $ 4.54
Closing price $ 13.24 $ 5.85
Market capitalization $ 355,150 $ 148,140
Trailing price/earnings
ratio (3) 19 22
(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 June 30, 2007 2006
------------------------------------------------------ ---------------
Net Gross Net Gross
(Dollars in thousands) Sales Margin Sales Margin
(%) (%)
------------------------------------------------------ ---------------
PC Connection Sales Corporation
(SMB) $231,935 13.3% $215,108 13.8%
MoreDirect (Large Account) 133,602 11.3 128,333 10.7
GovConnection (Public Sector) 75,585 10.8 64,653 11.3
-------- ------ -------- ------
Total $441,122 12.3% $408,094 12.4%
======== ====== ======== ======
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended June 30, 2007 2006
----------------------------------------------------- ----------------
% of % of
(Amounts in thousands, except per Net Net
share data) Amount Sales Amount Sales
----------------------------------------------------- ----------------
Net sales $441,122 100.0% $408,094 100.0%
Cost of sales 387,082 87.7 357,351 87.6
--------- ------ --------- ------
Gross Profit 54,040 12.3 50,743 12.4
Selling, general and administrative
expenses 45,005 10.3 44,534 10.9
Special charges - 0.0 450 0.1
--------- ------ --------- ------
Income From Operations 9,035 2.0 5,759 1.4
Interest expense (242) (0.1) (437) (0.1)
Other, net 260 0.1 (15) -
Income tax provision (3,300) 0.7 (2,196) (0.5)
--------- ------ --------- ------
Net Income $ 5,753 1.3% $ 3,111 0.8%
========= ====== ========= ======
Weighted average common shares
outstanding:
Basic 26,798 25,283
========= =========
Diluted 26,995 25,396
========= =========
Earnings per common share:
Basic $ 0.21 $ 0.12
========= =========
Diluted $ 0.21 $ 0.12
========= =========
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Six Months Ended June 30, 2007 2006
----------------------------------------------------- ----------------
% of % of
(Amounts in thousands, except per Net Net
share data) Amount Sales Amount Sales
----------------------------------------------------- ----------------
Net sales $839,302 100.0% $788,572 100.0%
Cost of sales 735,347 87.6 691,411 87.7
--------- ------ --------- ------
Gross Profit 103,955 12.4 97,161 12.3
Selling, general and administrative
expenses 89,198 10.6 86,489 10.9
Special charges - 0.0 1,341 0.2
--------- ------ --------- ------
Income From Operations 14,757 1.8 9,331 1.2
Interest expense (450) (0.1) (1,081) (0.2)
Other, net 461 0.1 (4) -
Income tax provision (5,630) 0.7 (3,429) (0.4)
--------- ------ --------- ------
Net Income $ 9,138 1.1% $ 4,817 0.6%
========= ====== ========= ======
Weighted average common shares
outstanding:
Basic 26,740 25,271
========= =========
Diluted 27,002 25,372
========= =========
Earnings per common share:
Basic $ 0.34 $ 0.19
========= =========
Diluted $ 0.34 $ 0.19
========= =========
CONSOLIDATED BALANCE SHEETS June 30, December
31,
-------------------------------------------------- --------- ---------
(amounts in thousands) 2007 2006
-------------------------------------------------- --------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 17,466 $ 17,582
Accounts receivable, net 169,303 170,222
Inventories-merchandise 75,242 69,407
Deferred income taxes 4,493 3,837
Income taxes receivable 797 627
Prepaid expenses and other current assets 3,642 3,882
--------- ---------
Total current assets 270,943 265,557
Property and equipment, net 19,749 19,542
Goodwill 56,867 56,867
Other intangibles, net 3,827 4,363
Other assets 390 355
--------- ---------
Total Assets $351,776 $346,684
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 490 $ 464
To third party 182 395
Accounts payable 100,809 110,977
Accrued expenses and other liabilities 19,028 17,389
Accrued payroll 7,838 9,367
--------- ---------
Total current liabilities 128,347 138,592
Capital lease obligations, less current
maturities:
To affiliate 4,585 4,836
Other liabilities 2,488 -
Deferred income taxes 7,087 6,352
--------- ---------
Total Liabilities 142,507 149,780
--------- ---------
Stockholders' Equity:
Common stock 272 269
Additional paid-in capital 93,107 89,537
Retained earnings 118,113 109,321
Treasury stock at cost (2,223) (2,223)
--------- ---------
Total Stockholders' Equity 209,269 196,904
--------- ---------
Total Liabilities and Stockholders' Equity $351,776 $346,684
========= =========
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Six months ended June 30, 2007 (amounts in thousands)
----------------------------------------------------------------------
Common Stock Treasury
Additional Shares
------------- Paid-In Retained --------------
Shares Amount Capital Earnings Shares Amount Total
----------------- ------ ---------- --------- -------------- ---------
Balance -
January
01, 2007 26,862 $ 269 $89,537 $109,321 (352) ($2,223) $196,904
Cumulative
effect of
change
in
accounting
principle - - - (346) - - (346)
Stock
compen-
sation
expense - - (23) - - - (23)
Exercise of
stock
options,
including
income tax
benefits 304 3 3,459 - - - 3,462
Issuance of
stock
under
Employee
Stock
Purchase
Plan 10 - 134 - - - 134
Net income - - - 9,138 - - 9,138
------ ------ ---------- --------- -------------- ---------
Balance -
June 30,
2007 27,176 $ 272 $93,107 $118,113 (352) ($2,223) $209,269
====== ====== ========== ========= ============== =========
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Six Months Ended June 30, (Amounts in thousands) 2007 2006
----------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 9,138 $ 4,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,472 3,456
Provision for doubtful accounts 894 1,752
Deferred income taxes 79 1,267
Loss on disposal of fixed assets 8 63
Stock compensation expense (23) 202
Gross excess tax benefit from exercise of
stock options (358) -
Income tax benefits from exercise of stock
options 918 17
Changes in assets and liabilities:
Accounts receivable 25 (1,142)
Inventories (5,835) 7,721
Prepaid expenses and other current assets 70 799
Other non-current assets (35) 7
Accounts payable (10,168) (17,723)
Accrued expenses and other liabilities 2,252 4,185
--------- ----------
Net cash provided by operating activities 437 5,421
--------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment (3,151) (4,647)
Proceeds from sale of property and equipment - 20
--------- ----------
Net cash used for investing activities (3,151) (4,627)
--------- ----------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 1,461 244,402
Repayment of short-term borrowings (1,461) (246,377)
Repayment of capital lease obligations (438) (406)
Exercise of stock options 2,544 227
Gross excess tax benefit from exercise of stock
options 358 -
Issuance of stock under Employee Stock Purchase
Plan 134 120
--------- ----------
Net cash provided by (used for) financing
activities 2,598 (2,034)
--------- ----------
Decrease in cash and cash equivalents (116) (1,240)
Cash and cash equivalents, beginning of period 17,582 9,770
--------- ----------
Cash and cash equivalents, end of period $ 17,466 $ 8,530
========= ==========
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SOURCE: PC Connection, Inc.
PC Connection, Inc. Stephen Baldridge, 603-683-2322 VP of Finance & Corporate Controller
Copyright Business Wire 2007
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