SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 3, 2012
PC Connection, Inc.
(Exact name of registrant as specified in charter)
(State or other juris-
diction of incorporation)
Rt. 101A, 730 Milford Road
(Address of principal executive offices)
Registrant’s telephone number, including area code: (603) 683-2000
|(Former name or former address, if changed since last report)|
⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Results of Operations and Financial Condition
On May 3, 2012, PC Connection, Inc. announced its financial results for the quarter ended March 31, 2012. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Financial Statements and Exhibits
|The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:|
99.1 Press Release issued by PC Connection, Inc. on May 3, 2012.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
May 3, 2012
PC CONNECTION, INC.
/s/ Joseph Driscoll
Senior Vice President, Treasurer, and
Chief Financial Officer
Press release issued by PC Connection, Inc. on May 3, 2012.
PC Connection, Inc. Reports First Quarter Results
MERRIMACK, N.H.--(BUSINESS WIRE)--May 3, 2012--PC Connection, Inc. (NASDAQ: PCCC), a provider of a full range of information technology (IT) solutions to business, government, and education markets, today announced results for the quarter ended March 31, 2012. Net sales for the first quarter of 2012 were $498.8 million, an 8.0% increase compared to $461.9 million for the first quarter of 2011. Net income for the quarter ended March 31, 2012 was $5.5 million, or $0.21 per share, compared to net income of $4.5 million, or $0.17 per share, for the corresponding prior year quarter.
Included in the results for the quarter ended March 31, 2012 were pre-tax charges of $1.1 million related to awards granted upon the retirement of a former executive officer, as well as workforce reductions. Excluding these special charges, pro forma net income for the quarter ended March 31, 2012 would have been $6.2 million, or $0.23 per share, representing 35% growth over prior year. We did not record any special charges for the first quarter of 2011. Earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and special charges (“Adjusted EBITDA”) totaled $57.4 million for the twelve months ended March 31, 2012, as compared to $48.9 million for the twelve months ended March 31, 2011.
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:
Quarterly Sales by Product Mix:
Overall gross profit dollars increased by $7.8 million, or 13%, to $66.6 million in the first quarter of 2012 compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, increased to 13.4% in the first quarter of 2012 compared to 12.7% in the prior year quarter with each segment contributing to the margin improvement. Consolidated gross margin has improved year over year for seven straight quarters due to strategies designed to increase sales of higher margin products and services. We expect the gross margin rate will be below Q1 levels for each of the next three quarters due to an increased mix of public sector sales.
Total selling, general and administrative expenses increased year over year by $5.2 million to $56.5 million and increased as a percentage of net sales to 11.3% for the first quarter of 2012, from 11.1% for the first quarter of 2011. The dollar and percentage increases were attributable to the acquisition of ValCom Technology and investments in significant internal systems projects targeted to improve operational efficiencies. In addition, variable compensation increased due to the improvement in gross profits. We expect that total SG&A will be at least $57.0 million for each of the next three quarters.
The Company generated significant positive cash flow in the quarter ended March 31, 2012. Total cash was $49.8 million compared to $4.6 million at December 31, 2011. In addition, there were no amounts outstanding on the Company’s line of credit at March 31, 2012, compared to $5.3 million outstanding at December 31, 2011. Days sales outstanding were 43 days at March 31, 2012, and inventory was reduced to $62.5 million from $77.4 million at December 31, 2011.
“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 Timothy McGrath, President and Chief Executive Officer. “We believe the strategies we have put in place will position us well to gain market share and enhance long-term shareholder value.”
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 PC Connection, Inc.
PC Connection, Inc., a Fortune 1000 company, has four sales companies: PC Connection Sales Corporation, MoreDirect, Inc., GovConnection, Inc., and Professional Computer Center, Inc. d/b/a ValCom Technology, headquartered in Merrimack, NH, Boca Raton, FL, Rockville, MD, and Itasca, IL, respectively. All four companies can deliver custom-configured computer systems overnight from our ISO 9001:2008 certified technical configuration lab at our 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 primarily the small- and medium-sized business sector, is a rapid-response provider of IT products and services. It offers more than 300,000 brand-name products through its staff of technically trained sales account managers and telesales specialists, catalogs, publications, and its website at www.pcconnection.com. This company also serves the consumer and small office users under its PC Connection Express brand (888-800-0323) at www.pcconnectionexpress.com and is, under its MacConnection brand (800-800-2222), one of Apple’s largest authorized online resellers at www.macconnection.com.
MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides corporate technology buyers with best-in-class IT solutions, in-depth IT supply-chain expertise, and access to over 300,000 products and 1,600 vendors through TRAXX™, a cloud-based eProcurement system. Backed by over 500 technical certifications, MoreDirect’s team of engineers, software licensing specialists, and project managers help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.
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.
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 hosting of lifecycle services.
“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, 2011. More specifically, the statements in this release concerning the Company’s outlook for gross margin and selling, general, and administrative expenses in 2012 and other statements of a non-historical basis (including statements regarding the Company’s ability to grow revenues, improve gross margins, increase market share, and increase earnings per 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, the ability of the Company to gain or maintain market share, and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. The Company disclaims any 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 March 31,||2012||2011|
|(Dollars and shares in thousands, except operating data, P/E ratio, and per share data)||% of||% of||%|
|Net Sales||Net Sales||Change|
|Diluted earnings per share||$||0.21||$||0.17||24||%|
|Pro forma diluted earnings per share||$||0.23||$||0.17||35||%|
|Return on equity (1)||8.0||%||6.9||%|
|Orders entered (2)||339,000||346,000||(2||%)|
|Average order size (2)||$||1,765||$||1,606||10||%|
|Inventory turns (1)||25||24|
|Days sales outstanding||43||41|
|Video, Imaging & Sound||48,203||10||48,669||10||(1||%)|
|Printer & Printer Supplies||37,171||7||36,224||8||3||%|
|Memory & System Enhancement||17,073||3||18,679||4||(9||%)|
|Total Net Sales||$||498,763||100||%||$||461,926||100||%||8||%|
|Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):|
|Stock Performance Indicators:|
|Actual shares outstanding||26,276||26,673|
|Total book value per share||$||10.59||$||9.84|
|Tangible book value per share||$||8.45||$||7.72|
|Trailing price/earnings ratio||7.3||9.5|
|LTM Adjusted EBITDA (3)||$||57,402||$||48,877|
|Market capitalization/LTM EBITDA||3.8||4.8|
(2) Does not reflect cancellations or returns
(3) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and special charges.
|REVENUE AND MARGIN INFORMATION|
|For the Three Months Ended March 31,||2012||2011|
|(Dollars in thousands)||Sales||Margin||Sales||Margin|
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME|
|Three Months Ended March 31,||2012||2011|
|(amounts in thousands, except per share data)||Amount||% of Net Sales||Amount||% of Net Sales|
|Cost of sales||432,152||86.6||403,107||87.3|
|Selling, general and administrative expenses||56,450||11.3||51,290||11.1|
|Income from operations||9,026||1.8||7,529||1.6|
|Income tax provision||(3,597||)||(0.7||)||(3,059||)||0.6|
|Earnings per common share:|
|Weighted average common shares outstanding:|
|A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME|
|Three Months Ended March 31,|
|Provided for comparison of our operating results without special charges. (amounts in thousands)||2012||2011|
|GAAP net income||$||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||$||0.17|
|CONDENSED CONSOLIDATED BALANCE SHEETS||March 31,||December 31,|
|(amounts in thousands)||2012||2011|
|Cash and cash equivalents||$||49,752||$||4,615|
|Accounts receivable, net||242,403||295,188|
|Prepaid expenses and other current assets||5,250||4,713|
|Deferred income taxes||3,398||4,436|
|Income taxes receivable||3,229||1,927|
|Total current assets||366,560||388,316|
|Property and equipment, net||24,088||22,570|
|Other intangibles, net||4,971||5,205|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Current maturities of capital lease obligation to affiliate||$||998||$||971|
|Borrowings under bank line of credit||-||5,267|
|Accrued expenses and other liabilities||30,513||30,902|
|Total current liabilities||155,673||181,004|
|Deferred income taxes||9,882||9,026|
|Capital lease obligation to affiliate, less current maturities||729||989|
|Additional paid-in capital||100,284||99,957|
|Treasury stock at cost||(9,953||)||(8,978||)|
|Total Stockholders’ Equity||278,356||273,529|
|Total Liabilities and Stockholders’ Equity||$||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 March 31,
LTM Ended March 31, (1)
|2012||2011||% Change||2012||2011||% Change|
|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|
|Other special charges||293||-||
(1) LTM: Last twelve months
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Three Months Ended March 31, (amounts in thousands)||2012||2011|
|Cash Flows from Operating Activities:|
|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:|
|Prepaid expenses and other current assets||(1,839||)||(712||)|
|Other non-current assets||(68||)||(104||)|
|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|
PC Connection, Inc.
Joseph Driscoll, 603-683-2322
Senior Vice President, CFO and Treasurer