PC Connection, Inc. Reports Third Quarter Results
MERRIMACK, N.H., Oct 25, 2007 (BUSINESS WIRE) -- PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter ended September 30, 2007. Net sales for the three months ended September 30, 2007 increased by $41.3 million, or 9.9%, to $456.5 million from $415.2 million for the three months ended September 30, 2006. Net income for the quarter was $7.7 million, or $.28 per share, compared to $4.4 million, or $.17 per share, for the corresponding prior year quarter.
"We are pleased with our record-setting Q3 performance," said Patricia Gallup, Chairman and Chief Executive Officer. "We achieved the largest revenue quarter in the Company's 25-year history, and at the same time, we experienced a 76% increase in operating income and a 65% increase in earnings per share over the third quarter of 2006."
Net sales for the nine months ended September 30, 2007 increased by $92.0 million, or 7.6%, to $1,295.8 million from $1,203.8 million for the nine months ended September 30, 2006. Net income for the nine months ended September 30, 2007 was $16.8 million, or $.62 per share, compared to $9.2 million, or $.36 per share, for the nine months ended September 30, 2006.
Quarterly Sales Growth by Business Segment:
-- Net sales for the SMB segment increased by 6.1% to $234.9 million compared to the third quarter of 2006. Although sales to consumers declined, corporate outbound sales within the segment grew 15.7% year over year, reflecting our focus on business customers.
-- Net sales for MoreDirect, Inc., our Large Account segment, increased by 14.4% to $130.0 million compared to the third quarter of 2006. This segment continues to obtain new customers and a greater share of existing customers' business.
-- Net sales for GovConnection, Inc., our Public Sector segment, increased by 14.2% to $91.6 million compared to the third quarter of 2006. Double digit growth was generated with federal, state, and local government and education customers.
Quarterly Sales Growth By Product Mix:
-- Desktop computer and server sales increased 16.3% year over year, accounting for 14.4% of net sales in the third quarter of 2007 compared to 13.6% for the corresponding prior year quarter.
-- Sales of storage devices increased 19.5% year over year, accounting for 9.0% of net sales in the third quarter of 2007 compared to 8.3% for the corresponding prior year quarter.
-- Notebooks and PDAs, our largest product sales category, accounted for 15.7% of net sales in the third quarter of 2007 compared to 17.4% for the corresponding prior year quarter.
-- Software sales represented 12.8% of net sales in the third quarter of 2007 compared to 12.4% for the corresponding prior year quarter.
Gross profit was $57.5 million for the third quarter of 2007 compared to $51.1 million for the third quarter of 2006. Gross profit margin, as a percentage of net sales, was 12.6% in the third quarter of 2007 compared to 12.3% in the third quarter of 2006. As noted in our first quarter 2007 earnings release, we recorded substantially all vendor consideration in 2007 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 third quarter of 2006. Larger agency fee revenues in the third quarter of 2007 were largely offset by lower back-end vendor rebates.
Overall annualized sales productivity increased 17% in the third quarter of 2007 compared to the third quarter of 2006. Sales productivity in our Large Account segment increased 28% in the third quarter of 2007 compared to the third quarter of 2006. For our SMB and Public Sector segments, productivity increased 15% and 9%, respectively. On a consolidated basis, the total number of sales representatives, after the inclusion of inside sales representatives, was 654 as of September 30, 2007, compared to 713 sales representatives at September 30, 2006. We estimate sales representative headcount at December 31, 2007 to grow to approximately 685.
Selling, general and administrative expenses ("SG&A") totaled $45.6 million for the third quarter of 2007 compared to $43.3 million for the third quarter of 2006. SG&A improved as a percentage of net sales to 10.0% for the third quarter of 2007 compared to 10.4% for the third quarter of 2006, reflecting our continuing effort to leverage our cost structure.
Gallup concluded, "PC Connection remains committed to making the investments necessary to continue to grow our business and improve operating performance. We believe we have the strategies and talent in place to position us well for future success and enhance long-term shareholder value."
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 June 30, 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 September 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 $ 456,470 $ 415,213 9.9%
Diluted earnings per
share $ .28 $ .17 64.7%
Gross profit margin 12.6% 12.3%
Operating margin 2.6 1.6
Return on equity (1) 14.5 9.8
Catalogs distributed 3,199,000 3,641,000 (12.1)%
Orders entered (2) 363,700 381,700 (4.7)%
Average order size (2) $ 1,543 $ 1,295 19.2%
Inventory turns (1) 22 22
Days sales outstanding 45 43
Product Mix:
Notebooks & PDAs $ 71,730 15.7% $ 72,123 17.4% (0.5)%
Desktops/Servers 65,776 14.4 56,545 13.6 16.3
Storage Devices 41,233 9.0 34,508 8.3 19.5
Software 58,104 12.8 51,692 12.4 12.4
Net/Com Products 37,924 8.3 34,610 8.3 9.6
Printers & Printer
Supplies 43,449 9.5 43,535 10.5 (0.2)
Video, Imaging & Sound 65,236 14.3 57,250 13.8 13.9
Memory & System
Enhancements 20,460 4.5 19,028 4.6 7.5
Accessories/Other 52,558 11.5 45,922 11.1 14.5
---------- ------ ---------- ------
$ 456,470 100.0% $ 415,213 100.0% 9.9%
========== ====== ========== ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 146,913 32.2% $ 125,766 30.3% 16.8%
=========== ===========
Stock Performance
Indicators:
Actual shares outstanding 26,815 25,695
Total book value per
share $ 8.10 $ 7.16
Tangible book value per
share $ 5.84 $ 4.77
Closing price $ 12.50 $ 11.55
Market capitalization $ 335,188 $ 296,777
Trailing price/earnings
ratio (3) 16 32
(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 September
30, 2007 2006
-------------------------------------- --------------- ---------------
Net Gross Net Gross
(Dollars in thousands) Sales Margin Sales Margin
(%) (%)
-------------------------------------- -------- ------ -------- ------
PC Connection Sales Corporation (SMB) $234,850 14.3% $221,330 13.3%
MoreDirect (Large Account) 130,027 11.5 113,690 11.4
GovConnection (Public Sector) 91,593 9.8 80,193 10.8
-------- ------ -------- ------
Total $456,470 12.6% $415,213 12.3%
======== ====== ======== ======
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended September 30, 2007 2006
----------------------------------- ----------------- ----------------
% of % of
(Amounts in thousands, except per Net Net
share data) Amount Sales Amount Sales
----------------------------------- --------- ------- --------- ------
Net sales $456,470 100.0% $415,213 100.0%
Cost of sales 398,940 87.4 364,070 87.7
--------- ------ --------- ------
Gross Profit 57,530 12.6 51,143 12.3
Selling, general and administrative
expenses 45,572 10.0 43,291 10.4
Special charges - - 1,050 0.3
--------- ------ --------- ------
Income From Operations 11,958 2.6 6,802 1.6
Interest expense (218) (0.1) (394) (0.1)
Other, net 192 0.1 38 -
Income tax provision (4,247) (0.9) (2,058) (0.4)
--------- ------ --------- ------
Net Income $ 7,685 1.7% $ 4,388 1.1%
========= ====== ========= ======
Weighted average common shares
outstanding:
Basic 26,814 25,446
========= =========
Diluted 27,017 25,667
========= =========
Earnings per common share:
Basic $ 0.29 $ 0.17
========= =========
Diluted $ 0.28 $ 0.17
========= =========
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Nine Months Ended September 30, 2007 2006
------------------------------- ------------------- ------------------
% of % of
(Amounts in thousands, except Net Net
per share data) Amount Sales Amount Sales
------------------------------- ----------- ------- ----------- ------
Net sales $1,295,772 100.0% $1,203,785 100.0%
Cost of sales 1,134,287 87.5 1,055,481 87.7
----------- ------ ----------- ------
Gross Profit 161,485 12.5 148,304 12.3
Selling, general and
administrative expenses 134,770 10.4 129,780 10.8
Special charges - - 2,391 0.2
----------- ------ ----------- ------
Income From Operations 26,715 2.1 16,133 1.3
Interest expense (668) (0.1) (1,475) (0.1)
Other, net 653 0.1 34 -
Income tax provision (9,877) (0.8) (5,487) (0.4)
----------- ------ ----------- ------
Net Income $ 16,823 1.3% $ 9,205 0.8%
=========== ====== =========== ======
Weighted average common shares
outstanding:
Basic 26,765 25,330
=========== ===========
Diluted 27,009 25,459
=========== ===========
Earnings per common share:
Basic $ 0.63 $ 0.36
=========== ===========
Diluted $ 0.62 $ 0.36
=========== ===========
CONSOLIDATED BALANCE SHEETS September December
30, 31,
-------------------------------------------------- --------- ---------
(amounts in thousands) 2007 2006
------------------------------------------------ --------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 23,685 $ 17,582
Accounts receivable, net 187,020 170,222
Inventories-merchandise 75,537 69,407
Deferred income taxes 4,403 3,837
Income taxes receivable 675 627
Prepaid expenses and other current assets 3,578 3,882
--------- ---------
Total current assets 294,898 265,557
Property and equipment, net 20,319 19,542
Goodwill 56,867 56,867
Other intangibles, net 3,559 4,363
Other assets 264 355
--------- ---------
Total Assets $375,907 $346,684
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 504 $ 464
To third party 73 395
Accounts payable 117,013 110,977
Accrued expenses and other liabilities 18,527 17,389
Accrued payroll 7,874 9,367
--------- ---------
Total current liabilities 143,991 138,592
Capital lease obligations, less current
maturities:
To affiliate 4,453 4,836
Other liabilities 2,883 -
Deferred income taxes 7,430 6,352
--------- ---------
Total Liabilities 158,757 149,780
--------- ---------
Stockholders' Equity:
Common stock 272 269
Additional paid-in capital 93,145 89,537
Retained earnings 125,798 109,321
Treasury stock at cost (2,065) (2,223)
--------- ---------
Total Stockholders' Equity 217,150 196,904
--------- ---------
Total Liabilities and Stockholders'
Equity $375,907 $346,684
========= =========
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Nine months ended September 30, 2007 (amounts in thousands)
----------------------------------------------------------------------
Common Stock Additional Retained Treasury Shares
------------- ---------------
Shares Amount Paid-In Earnings Shares Amount Total
Capital
------------------------- --------------------------------------------
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
compensation
expense - - 202 - - - 202
Exercise of
stock
options,
including
income tax
benefits 305 3 3,430 - - - 3,433
Issuance of
stock under
Employee
Stock
Purchase
Plan 10 - 134 - - - 134
Nonvested
stock
awards (158) 25 158 -
Net income - - - 16,823 - - 16,823
------ ------ ---------- -------- ------ -------- --------
Balance -
September
30, 2007 27,177 $272 $93,145 $125,798 (327) ($2,065) $217,150
====== ====== ========== ======== ====== ======== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Nine Months Ended September 30, (Amounts in
thousands) 2007 2006
------------------------------------------------- --------- ----------
Cash Flows from Operating Activities:
Net income $ 16,823 $ 9,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,158 5,227
Provision for doubtful accounts 1,482 2,094
Deferred income taxes 512 1,536
Loss on disposal of fixed assets 53 63
Stock compensation expense 202 277
Gross excess tax benefit from exercise of
stock options (359) (1)
Income tax benefits from exercise of stock
options 889 231
Changes in assets and liabilities:
Accounts receivable (18,280) 1,415
Inventories (6,130) 6,945
Prepaid expenses and other current assets 256 1,142
Other non-current assets 91 36
Accounts payable 6,036 (14,723)
Accrued expenses and other liabilities 2,182 5,533
--------- ----------
Net cash provided by operating activities 8,915 18,980
--------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment (5,184) (6,401)
Proceeds from sale of property and equipment - 20
--------- ----------
Net cash used for investing activities (5,184) (6,381)
--------- ----------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 3,313 317,280
Repayment of short-term borrowings (3,313) (330,159)
Repayment of capital lease obligations (665) (614)
Exercise of stock options 2,544 2,822
Gross excess tax benefit from exercise of stock
options 359 1
Issuance of stock under Employee Stock Purchase
Plan 134 120
--------- ----------
Net cash provided by (used for) financing
activities 2,372 (10,550)
--------- ----------
Increase in cash and cash equivalents 6,103 2,049
Cash and cash equivalents, beginning of period 17,582 9,770
--------- ----------
Cash and cash equivalents, end of period $ 23,685 $ 11,819
========= ==========
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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