UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):   July 27, 2017

 
Registrant’s telephone number, including area code:   (603) 683-2000

⃞ 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))

 

Item 2.02.  Results of Operations and Financial Condition

On July 27, 2017, PC Connection, Inc. announced its financial results for the quarter ended June 30, 2017.  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.

Item 9.01.  Financial Statements and Exhibits

 

SIGNATURE

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.

 

EXHIBIT INDEX

Exhibit 99.1

Connection (CNXN) Reports Record Second Quarter 2017 Results

SECOND QUARTER SUMMARY:

• Record net sales: $750 million, up 10.9% y/y
• Record gross profit: $100 million, up 6.2% y/y
• Net income up 9.0% y/y
• Diluted EPS: $0.51, up 8.2% y/y
• Adjusted EPS excluding special charges: $0.53, up 8.0% y/y

MERRIMACK, N.H.--(BUSINESS WIRE)--July 27, 2017--Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading technology solutions provider of a full range of information technology (IT) solutions to business, government, and education markets, today announced results for the quarter ended June 30, 2017. Net sales for the quarter ended June 30, 2017 increased by 10.9% to $749.8 million, compared to $676.2 million for the prior year quarter. Net income for the quarter ended June 30, 2017 increased by 9.0% to $13.6 million, or $0.51 per diluted share, compared to net income of $12.5 million, or $0.47 per diluted share for the prior year quarter.

The second quarter 2017 results include $0.9 million of severance and restructuring costs. Earnings per share, adjusted for severance and restructuring charges, increased to $0.53 cents per share for the quarter ended June 30, 2017, compared to $0.49 cents per share for the prior year quarter.

Net sales for the six months ended June 30, 2017 were $1,420.4 million, an increase of $171.8 million or 13.8%, compared to $1,248.6 million for the six months ended June 30, 2016. Net income for the six months ended June 30, 2017 was $21.0 million, or $0.78 per diluted share, compared to net income of $21.5 million, or $0.81 per diluted share, for the six months ended June 30, 2016. Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and rebranding, acquisition and restructuring costs (“Adjusted EBITDA”) totaled $94.0 million for the twelve months ended June 30, 2017, compared to $93.1 million for the twelve months ended June 30, 2016.

Quarterly Performance by Segment:

• Net sales for the Business Solutions (SMB) segment increased by 9.4% to $296.4 million in the second quarter of 2017, compared to the prior year quarter. Software, mobility, and desktop products were strong in this segment with an increase of 12%, 11%, and 11%, respectively. Gross margin decreased by 44 basis points due to increased sales of lower-margin mobility and desktop products.
• Net sales for the Enterprise Solutions (Large Account) segment increased by 12.1% to $302.1 million in the second quarter of 2017, compared to the prior year quarter. Software and net/com products had strong growth during this quarter at 23% and 60%, respectively. Gross margin decreased by 39 basis points due to an increase in large project rollouts and a competitive sales environment.
• Net sales to the Public Sector Solutions segment increased by 11.5% to $151.3 million in the second quarter of 2017, compared to the prior year quarter. Sales to the federal government increased by 44.7%, while sales to state and local government and educational institutions increased by 3.1%. Gross margin decreased by 119 basis points due to the completion of several large project rollouts that included lower-margin products such as desktops, which grew 48% during the quarter.

 

Quarterly Sales by Product Mix:

• Software sales, the Company’s largest product category, increased by 15% year over year and accounted for 23% of net sales in the second quarter of 2017 compared to 22% of net sales in the prior year quarter. We experienced growth in cloud-based offerings, security, and office productivity.
• Notebook/mobility sales increased by 2% year over year and accounted for 21% of net sales in the second quarter of 2017 compared to 23% of net sales in the prior year quarter. Business Solutions experienced strong year-over-year growth in notebook/mobility sales.
• Desktop sales increased by 6% year over year and accounted for 10% of net sales in the second quarter of both 2017 and 2016. The Business Solutions and Public Sector Solutions segments experienced strong year-over-year growth in desktop sales.

Overall gross profit increased by $5.8 million, or 6.2%, in the second quarter of 2017, compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, decreased to 13.3% in the second quarter of 2017, compared to 13.9% for the prior year quarter.

Selling, general and administrative dollars, excluding severance and restructuring costs, increased in the second quarter of 2017 to $76.3 million from $72.0 million in the prior year quarter, with variable cost increasing due to higher levels of gross profit. We also had three months of Softmart SG&A in the current quarter. We continue to invest in technical solution sales capabilities and expect SG&A expenses to rise accordingly. However, we are highly focused on improving efficiencies and streamlining wherever possible.

Total cash was $28.1 million at June 30, 2017, compared to $49.2 million at December 31, 2016. Days sales outstanding were 47 days at June 30, 2017, and inventory turns were 22 turns in the second quarter of 2017.

“We are pleased with our record sales and gross profit for the quarter and with our ability to execute well in all three sales segments in this hyper-competitive demand environment. The Company achieved strong growth in software, networking communications, and services,” said Tim McGrath, President and Chief Executive Officer. “We believe our team and the strategies we have in place position Connection well to gain market share and increase shareholder value,” concluded Mr. McGrath.

Non-GAAP Financial Information

Adjusted EBITDA and Adjusted EPS are non-GAAP financial measure. This information is included to provide information with respect to the Company’s operating performance and earnings. Non-GAAP measures are not a substitute for GAAP measures and should be considered together with the GAAP financial measures. Our non-GAAP financial measures may not be comparable to other similarly titled measures of other companies.

 

About Connection

PC Connection, Inc. and its subsidiaries, dba Connection, (www.connection.com; NASDAQ: CNXN) is a Fortune 1000 company headquartered in Merrimack, NH. With offices throughout the United States, Connection delivers custom-configured computer systems overnight from its ISO 9001:2008 certified technical configuration lab at its distribution center in Wilmington, OH. In addition, the Company has over 2,500 technical certifications to ensure that they can solve the most complex issues of their customers. Connection also services international customers through its GlobalServe subsidiary, a global IT procurement and service management company. Investors and media can find more information about Connection at http://ir.pcconnection.com.

Connection – Business Solutions (800-800-5555), (the original business of PC Connection,) operating through our PC Connection Sales Corp. subsidiary, is a rapid-response provider of IT products and services serving primarily the small- and medium-sized business sector. It offers more than 300,000 brand-name products through its staff of technically trained sales account managers, publications, and its website at www.connection.com.

Connection – Public Sector Solutions (800-800-0019), operating through our GovConnection, Inc. subsidiary, is a rapid-response provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, publications, and online at www.connection.com/publicsector.

Connection – Enterprise Solutions (561-237-3300), www.connection.com/enterprise, operating through our MoreDirect, Inc. subsidiary, 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 proprietary cloud-based eProcurement system. The team’s engineers, software licensing specialists, and project managers help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

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"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are based on currently available information, operating plans, and projections about future events and trends. Terms such as "believe," "expect," "intend," "plan," "estimate," "anticipate," "may," "should," "will," or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements include such terms. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties, include, but are 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, market acceptance of the Company's new branding, fluctuations in operating results, the ability of the Company to manage personnel levels in response to fluctuations in revenue, and other risks detailed in the Company's filings with the Securities and Exchange Commission, including 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, 2016. More specifically, the statements in this release concerning the Company's outlook for selling, general, and administrative expenses, the Company's efforts in improving efficiencies and streamlining its business and other statements of a non-historical basis (including statements regarding the Company's ability to increase market share and enhance long-term shareholder value, and integrate its two acquisitions in an effective manner, and the Company's continuing investments in technical solution sales capabilities) 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 gain or maintain market share, 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, except as required by law.

(1) Based on last twelve months' net income.
(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for acquisition, rebranding, and restructuring costs, and stock-based compensation.
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance.

 

(1) The Q2 2016 results for the Business Solutions and Enterprise Solutions have been updated to reflect our segment methodology used in our 2016 10-K, which divides operating results for Softmart between our SMB and Large Account segments. Our previously reported Q2 2016 results reported all of the operating results of Softmart in our SMB segment. Accordingly, in comparison to our previously reported Q2 2016 results, the above Q2 2016 results reflect the reclassification of net sales of $9,852 and gross profit of $1,979 from our SMB segment to our Large Account segment attributable to Softmart.

 

(1) LTM: Last twelve months
(2) Restructuring and acquisition costs consist of severance, the relocation of our Softmart facility, and certain non-recurring Softmart charges, and in 2016, included our acquisition of Softmart, the rebranding of the Company, and duplicate costs incurred with the move of our Chicago-area facility.

 

(1) Restructuring and acquisition costs consist of severance, the relocation of our Softmart facility, and certain non-recurring Softmart charges, and in 2016, included our acquisition of Softmart, the rebranding of the Company, and duplicate costs incurred with the move of our Chicago-area facility.

 

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CONTACT:
Connection
Investor Relations Contact:
William Schulze, 603-683-2262
Vice President, Interim Treasurer & Chief Financial Officer
william.schulze@connection.com