Press Release Details

MERRIMACK, N.H.--(BUSINESS WIRE)-- PC Connection, Inc. (NASDAQ: PCCC):

SECOND QUARTER SUMMARY:

• Q2 net sales: $512.6 million, up 7% year over year
• Record gross margin: 13.0% of net sales
• Operating income: $12.4 million, or 2.4% of net sales
• Diluted earnings per share: $0.28 per share, 56% increase

PC Connection, Inc. (NASDAQ: PCCC), which provides a full range of information technology (IT) solutions from design through deployment in business, government, and education markets, today announced results for the quarter ended June 30, 2011. Net sales for the three months ended June 30, 2011 were $512.6 million, a year-over-year increase of $35.0 million or 7.3%. Net income for the quarter was $7.5 million, or $0.28 per share, compared to net income of $5.0 million, or $0.18 per share for the corresponding prior year quarter.

Net sales for the six months ended June 30, 2011 were $974.5 million, an increase of $88.7 million or 10.0%, compared to $885.8 million for the six months ended June 30, 2010. Net income for the six months ended June 30, 2011 was $12.0 million, or $0.44 per share, compared to net income of $7.5 million, or $0.27 per share, for the six months ended June 30, 2010.

Quarterly Sales by Segment:

• Net sales for the SMB business segment increased by 14.4% to $218.0 compared to net sales in the second quarter of 2010. The increase in revenues was due to improved SMB customer profits and the related fulfillment of delayed IT replacement needs.
• Net sales for the Large Account segment increased by 7.6% to $160.7 million compared to sales in the second quarter of 2010. As announced last quarter, we acquired ValCom Technology ("ValCom"), a provider of infrastructure management and onsite managed services to medium-to-large corporations. We have included the operating results for ValCom from March 17, 2011, the closing date of the acquisition, in this segment. Excluding ValCom's sales for the quarter, Large Account sales would have increased year over year by 2.3%.
• Net sales to government and education customers (Public Sector segment) were $119.7 million in the quarter, compared to $120.6 million in the second quarter of 2010. A decrease in federal government sales was largely offset by an increase in higher education sales.
• Net sales to consumers and SOHO customers by PC Connection Express were $14.1 million, compared to $16.8 million in the second quarter of 2010. Profitability and gross margin improvements continue to be the primary focus for this segment in 2011.

Quarterly Sales by Product Mix:

• Notebook and PDA sales, the Company's largest product category, increased by 10% year over year and accounted for 18% of net sales in the second quarter of 2011 and 2010. Higher unit sales for the quarter, associated with the PC refresh, drove the quarterly revenue growth as average selling prices, or ASPs, decreased year over year.
• Desktop/server sales increased by 12% year over year, accounting for 16% of net sales in the second quarter of 2011 and 2010. Desktop sales grew primarily as a result of increased unit sales associated with the PC refresh, as ASPs increased slightly year over year. Server sales decreased year over year by 4% as a result of a delay in enterprise product rollouts.
• Software sales increased by 22%, accounting for 15% of net sales in the second quarter of 2011 compared to 13% in the prior year quarter. The three primary business segments contributed to the year-over-year growth in this product category.
• Accessory/Other sales by grew 15% year over year and accounted for 13% of net sales in the second quarter of 2011, compared to 12% in the prior year quarter. The increase was due largely to ValCom service revenues and increased sales of point-of-sale equipment.

Overall gross profit dollars for the quarter increased by 19%, or $10.9 million, compared to the second quarter of 2010. Consolidated gross margin, as a percentage of net sales, increased by 130 basis points from 11.7% in the second quarter of 2010 to 13.0% in 2011. Improved invoice selling margins, higher agency revenues, and additional vendor consideration contributed to the significant increase. All four business segments increased their gross margin compared to the prior year quarter as a result of their focus on margin improvement.

Overall annualized sales productivity was largely unchanged in the second quarter of 2011 compared to the second quarter of 2010. Sales productivity in the SMB segment increased by 5%, but was offset by decreases in the Large Account and Public Sector segments of 5% and 1%, respectively. On a consolidated basis, the total number of sales representatives was 630 at June 30, 2011, compared to 588 at June 30, 2010, and 634 at March 31, 2011.

Total selling, general and administrative expenses for the quarter increased year over year by 15%, or $7 million, and increased as a percentage of net sales from 9.9% for the second quarter of 2010 to 10.6% for the second quarter of 2011. The year-over-year increase was attributable to investments in solutions sales capabilities, increased variable compensation associated with improved gross profit, increased marketing expenditures, and the inclusion of ValCom's operating costs for the quarter.

"We are pleased by the continued improvement in our profitability and overall performance," said Patricia Gallup, Chairman and Chief Executive Officer. "During the quarter, PC Connection achieved the highest gross margin in its history, while also achieving record second quarter sales. We believe we are driving the right balance of growth, profitability, and strategic capital investments to position us well for future success."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, operates through five sales subsidiaries: PC Connection Sales Corporation, MoreDirect, Inc., GovConnection, Inc., PC Connection Express, Inc., and Professional Computer Center, Inc. d/b/a ValCom Technology, headquartered in Merrimack, NH, Boca Raton, FL, Rockville, MD, Portsmouth, NH, and Itasca, IL, respectively. All five companies can deliver custom-configured computer systems overnight from PC Connection Services' ISO 9001:2008 certified technical configuration lab at its distribution center in Wilmington, OH. Investors and media can find more information about PC Connection, Inc. at http://ir.pcconnection.com.

PC Connection Sales Corporation (800-800-5555), the original business of PC Connection, Inc. serving the small- and medium-sized business sector, is a rapid-response provider of IT products and services. It offers more than 180,000 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.

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™ 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. (800-800-0019) is a rapid-response 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.

PC Connection Express, Inc. (888-800-0323) is a rapid-response provider of computer products and consumer electronics to home, home office, and small office users. Customers can purchase the best-known brands in the industry online at www.pcconnectionexpress.com or order by calling a trained sales specialist. The subsidiary includes the MacConnection brand (800-800-2222), one of Apple's largest authorized online resellers at www.macconnection.com.

Professional Computer Center, Inc. d/b/a ValCom Technology (630-285-0500), www.valcomtechnology.com, provides technology services to medium-to-large corporate organizations utilizing its proprietary cloud-based IT service management software, WebSPOC™. Through its experienced technical service personnel ValCom Technology provides network, server, storage, mission-critical onsite support, installation, and host of lifecycle services.

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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 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 Securities and Exchange Commission for the year ended December 31, 2010. More specifically, the statements in this release concerning the Company's outlook for 2011 and other statements of a non-historical basis (including statements regarding the Company's ability to grow revenues and increase market share) 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, the ability of the Company to integrate the operations of ValCom Technology, 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 INFORMATION
At or for the Three Months Ended June 30,		2011						2010
(Dollars and shares in thousands, except operating data, P/E ratio, and per share data)					% of Net Sales						% of Net Sales			% Change
Operating Data:
Net sales		$	512,561					$	477,546					7	%
Diluted earnings per share		$	0.28					$	0.18					56	%
Gross margin			13.0	%					11.7	%
Operating margin			2.4	%					1.8	%
Return on equity (1)			11.3	%					8.4	%
Catalogs distributed			1,453,000						2,247,000					(35	%)
Orders entered (2)			340,600						331,700					3	%
Average order size (2)		$	1,883					$	1,777					6	%
Inventory turns (1)			25						27
Days sales outstanding			46						49
Product Mix:
Notebook & PDA		$	94,350		18	%		$	86,145		18	%		10	%
Desktop/Server			81,494		16				73,021		16			12
Software			76,254		15				62,335		13			22
Video, Imaging & Sound			52,326		10				53,044		11			(1	)
Net/Com Product			50,089		10				49,001		10			2
Printer & Printer Supplies			37,557		7				38,867		8			(3	)
Storage Device			35,720		7				38,960		8			(8	)
Memory & System Enhancement			18,713		4				18,483		4			1
Accessory/Other			66,058		13				57,690		12			15
Total Net Sales		$	512,561		100	%		$	477,546		100	%		7	%
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
		$	184,279		36	%		$	178,129		37	%		3	%
Stock Performance Indicators:
Actual shares outstanding			26,541						26,721
Total book value per share		$	10.13					$	9.06
Tangible book value per share		$	7.99					$	7.19
Closing price		$	8.28					$	6.06
Market capitalization		$	219,759					$	161,929
Trailing price/earnings ratio			8						12
(1) Annualized
(2) Does not reflect cancellations or returns
REVENUE AND MARGIN INFORMATION
For the Three Months Ended June 30,		2011						2010
		Net Sales			Gross Margin			Net Sales			Gross Margin
(Dollars in thousands)
SMB		$	218,022		15.2	%		$	190,661		14.4	%
Large Account			160,717		12.0				149,411		10.5
Public Sector			119,727		11.1				120,639		9.5
Consumer/SOHO			14,095		9.6				16,835		8.7
Total		$	512,561		13.0	%		$	477,546		11.7	%

CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,		2011							2010
(amounts in thousands, except per share data)		Amount				% of Net Sales			Amount				% of Net Sales
Net sales		$	512,561			100.0	%		$	477,546			100.0	%
Cost of sales			445,667			87.0				421,564			88.3
Gross profit			66,894			13.0				55,982			11.7
Selling, general and administrative expenses			54,477			10.6				47,501			9.9
Income from operations			12,417			2.4				8,481			1.8
Interest expense			(87	)		-				(95	)		-
Other, net			32			-				35			-
Income tax provision			(4,882	)		(0.9	)			(3,398	)		(0.7	)
Net income		$	7,480			1.5	%		$	5,023			1.1	%
Earnings per common share:
Basic		$	0.28						$	0.19
Diluted		$	0.28						$	0.18
Weighted average common shares outstanding:
Basic			26,852							27,116
Diluted			26,923							27,156
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30,		2011							2010
(amounts in thousands, except per share data)		Amount				% of Net Sales			Amount				% of Net Sales
Net sales		$	974,487			100.0	%		$	885,808			100.0	%
Cost of sales			848,774			87.1				781,175			88.2
Gross profit			125,713			12.9				104,633			11.8
Selling, general and administrative expenses			105,767			10.9				91,975			10.4
Income from operations			19,946			2.0				12,658			1.4
Interest expense			(128	)		-				(194	)		-
Other, net			97			-				110			-
Income tax provision			(7,941	)		(0.8	)			(5,117	)		(0.6	)
Net income		$	11,974			1.2	%		$	7,457			0.8	%
Earnings per common share:
Basic		$	0.45						$	0.27
Diluted		$	0.44						$	0.27
Weighted average common shares outstanding:
Basic			26,877							27,136
Diluted			26,959							27,175

CONSOLIDATED BALANCE SHEETS								June 30,							December 31,
(amounts in thousands)									2011							2010
ASSETS
Current Assets:
Cash and cash equivalents								$	55,292						$	35,374
Accounts receivable, net									241,039							238,011
Inventories									75,432							74,293
Deferred income taxes									4,351							3,813
Prepaid expenses and other current assets									4,102							4,210
Income taxes receivable									2,545							1,489
Total current assets									382,761							357,190
Property and equipment, net									20,560							13,500
Goodwill									51,276							48,060
Other intangibles, net									5,573							1,786
Other assets									598							405
Total Assets								$	460,768						$	420,941
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate								$	919						$	870
Accounts payable									135,352							114,632
Accrued expenses and other liabilities									30,268							23,963
Accrued payroll									11,892							12,652
Total current liabilities									178,431							152,117
Deferred income taxes									7,437							5,822
Capital lease obligation to affiliate, less current maturities									1,488							1,960
Other liabilities									4,584							3,403
Total Liabilities									191,940							163,302
Stockholders' Equity:
Common stock									275							275
Additional paid-in capital									99,437							98,871
Retained earnings									176,049							164,075
Treasury stock at cost									(6,933	)						(5,582	)
Total Stockholders' Equity									268,828							257,639
Total Liabilities and Stockholders' Equity								$	460,768						$	420,941
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 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			-			-			441				-			-				-				441
Issuance of common stock under Employee Stock Purchase Plan			23			-			183				-			-				-				183
Nonvested stock awards			-			-			(183	)			-			28				183				-
Repurchase of common stock for treasury			-			-			-				-			(183	)			(1,534	)			(1,534	)
Issuance of common stock under stock incentive plans			20			-			131				-			-				-				131
Tax shortfall from stock-based compensation			-			-			(6	)			-			-				-				(6	)
Net income and comprehensive income			-			-			-				11,974			-				-				11,974
Balance—June 30, 2011			27,550		$	275		$	99,437			$	176,049			(1,009	)		$	(6,933	)		$	268,828

CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, (amounts in thousands)			2011				2010
Cash Flows from Operating Activities:
Net income		$	11,974			$	7,457
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,889				2,891
Provision for doubtful accounts			1,119				1,177
Stock-based compensation expense			441				743
Deferred income taxes			1,077				352
Fair value adjustment to contingent consideration			(20	)			-
Loss on disposal of fixed assets			13				3
Income tax deficiency from stock-based compensation			(6	)			(78	)
Changes in assets and liabilities:
Accounts receivable			(884	)			(12,252	)
Inventories			(845	)			148
Prepaid expenses and other current assets			(680	)			(831	)
Other non-current assets			(165	)			124
Accounts payable			18,925				2,653
Accrued expenses and other liabilities			(982	)			4,959
Net cash provided by operating activities			32,856				7,346
Cash Flows from Investing Activities:
Purchases of property and equipment			(6,120	)			(1,380	)
Acquisition of ValCom Technology, net of cash acquired			(4,725	)			-
Purchase of intangible asset			(450	)			(800	)
Net cash used for investing activities			(11,295	)			(2,180	)
Cash Flows from Financing Activities:
Purchase of treasury shares			(1,534	)			(1,399	)
Repayment of capital lease obligation to affiliate			(423	)			(379	)
Issuance of stock under Employee Stock Purchase Plan			183				135
Exercise of stock options			131				-
Net cash used for financing activities			(1,643	)			(1,643	)
Increase in cash and cash equivalents			19,918				3,523
Cash and cash equivalents, beginning of period			35,374				46,297
Cash and cash equivalents, end of period		$	55,292			$	49,820
Non-cash Investing and Financing Activities:
Contingent consideration included in accrued expenses and other liabilities		$	1,900			$	-
Accrued capital expenditures			454				126
Issuance of nonvested stock from treasury			183				368

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PC Connection, Inc.
Stephen Baldridge, 603-683-2322
Sr. Vice President of Finance & Corporate Controller

Source: PC Connection, Inc.

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