PC Connection, Inc. Reports Second Quarter Results; Company Achieves Record Quarterly Sales; Earnings Per Share Doubles Year Over Year
MERRIMACK, N.H., July 27, 2006 (BUSINESS WIRE) -- PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology products and solutions, today announced results for the quarter ended June 30, 2006. Net sales for the three months ended June 30, 2006 increased by $57.4 million, or 16.4%, to $408.1 million from $350.7 million for the three months ended June 30, 2005. Net income for the quarter ended June 30, 2006 was $3.1 million, or $.12 per share, compared to $1.6 million, or $.06 per share for the three months ended June 30, 2005.
The three-month period ended June 30, 2006 included special charges that reduced earnings and earnings per share. Had these charges not been incurred, pro forma net income for the quarter ended June 30, 2006 would have been $3.4 million, or $.13 per share. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table immediately following the Consolidated Income Statements.
Net sales for the six months ended June 30, 2006 increased by $114.0 million, or 16.9%, to $788.6 million from $674.6 million for the six months ended June 30, 2005. The three- and six-month periods ended June 30, 2006 included revenue generated by former sales representatives of Amherst Technologies who joined the Company after our purchase of Amherst assets in October 2005. Net income for the six months ended June 30, 2006 was $4.8 million, or $.19 per share, compared to $2.5 million, or $.10 per share for the six months ended June 30, 2005. The six-month period ended June 30, 2006 included special charges that reduced earnings and earnings per share. Had these charges not been recorded, pro forma net income for the six months ended June 30, 2006 would have been $5.6 million, or $.22 per share.
Net sales for the small- and medium-sized business (SMB) segment increased by 3.8% to $215.1 million compared to the second quarter of 2005. Sales to large account customers increased by 63.6% to $128.3 million compared to the second quarter of 2005, due in part to the Amherst transaction referred to above. Sales to government and education customers (the Company's public sector segment) decreased for the quarter by 0.5% to $64.7 million compared to the second quarter of 2005.
"We are aggressively executing our business strategies, and experiencing positive returns on our investments," said Patricia Gallup, Chairman and Chief Executive Officer of PC Connection, Inc. "The Company achieved record sales of $408 million and our earnings per share doubled year over year. In addition, gross margins improved in all three of our business segments, and total gross profit dollars increased 25.7% year over year."
Notebooks and PDAs continued to be the Company's largest product category, accounting for 18.0% of net sales in the second quarter of 2006 compared to 18.1% for the corresponding period a year ago. Desktop computers and servers accounted for 13.7% of net sales in the second quarter of 2006 compared to 14.8% of net sales for the corresponding period a year ago. The average sales price for computer systems decreased 3.2% in the second quarter compared to the corresponding period a year ago, and decreased 4.0% compared to the first quarter of 2006. Sales of accessories and other products increased 26.8% year over year due to higher attachment sales of services and companion products. Software and Video, Imaging and Sound product lines each increased 19% or more compared to the second quarter of 2005.
Gross profit margin, as a percentage of net sales, increased 90 basis points to 12.4% in the second quarter of 2006 from 11.5% in the second quarter of 2005. Gross margin improved in all three segments, due to greater vendor consideration received in the quarter and increased service revenues and software referral fees. As previously stated, the Company expects that its gross profit margin as a percentage of net sales may vary by quarter based upon vendor support programs, product mix, pricing strategies, market conditions, and other factors.
Consolidated annualized productivity increased in the second quarter of 2006 by 5.6% compared to the second quarter of 2005. The total number of sales representatives increased by 57 to 659 as of June 30, 2006 from 602 as of June 30, 2005.
Total selling, general, and administrative ("SG&A") expenses for the quarter increased year over year by $7.2 million, or 19.1%, over the second quarter of 2005. The year-over-year dollar increase resulted from the additional operating expenses related to the Amherst transaction, increased variable compensation associated with higher gross profit dollars, and increased investments in our services business. The Company expects that its SG&A expenses, as a percentage of net sales, may vary by quarter depending on changes in sales volume, as well as the levels of continuing investments in key growth initiatives.
Ms. Gallup concluded, "We are pleased with our second quarter performance. Our strong financial results demonstrate that the PC Connection team is working harder and smarter to provide enhanced IT solutions to our customers, improve operating efficiency, and increase 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.
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 solutions. It offers more than 130,000 brand-name products through its staff of technically trained sales account managers and catalog telesales representatives, catalogs, and publications, and its Web site 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® 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 rapid-response provider of IT products and solutions to federal, state, and local government agencies and educational institutions through specialized account managers, catalogs, and publications, and online at www.govconnection.com.
"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, 2006. More specifically, the statements in this release concerning the Company's outlook for 2006 and the statements concerning the Company's gross margin percentage, productivity, and selling and administrative costs and other statements of a non-historical basis (including statements regarding implementing strategies for future growth, the ability of the Company to improve sales productivity and increase its active customers) 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.
PC Connection, Inc. -- Second Quarter Earnings -- 07/27/06
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CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
------------------------------------------ ---------------------------
At or for the Three
Months Ended June 30, 2006 2005
------------------------------------------ ---------------------------
(Dollars and shares in
thousands, except
operating data, % of % of
price/earnings ratio, Net Net %
and per share data) Sales Sales Change
------------------------------------------ ---------------------------
Operating Data:
Net sales $ 408,094 $350,710 16.4%
Diluted earnings per
share $ 0.12 $ 0.06
Gross profit margin 12.4% 11.5%
Operating margin 1.4 0.9
Return on equity (1) 7.2 3.7
Catalogs distributed 3,645,000 7,196,000 (49.3%)
Orders entered (2) 359,200 351,300 2.2
Average order size (2) $1,322 $1,160 14.0
Inventory turns (1) 23 19
Days sales
outstanding 44 41
Product Mix:
Notebooks & PDAs $ 73,377 18.0% $ 63,615 18.1% 15.3%
Desktops/Servers 55,893 13.7 51,720 14.8 8.1
Storage Devices 34,170 8.4 28,739 8.2 18.9
Software 51,656 12.6 42,557 12.1 21.4
Net/Com Products 32,946 8.1 27,830 7.9 18.4
Printers & Printer
Supplies 40,684 10.0 37,696 10.8 7.9
Video, Imaging, &
Sound 51,403 12.6 43,165 12.3 19.1
Memory & System
Enhancements 19,892 4.9 17,480 5.0 13.8
Accessories/Other 48,073 11.7 37,908 10.8 26.8
---------- ------- ---------- -------
$ 408,094 100.0% $350,710 100.0% 16.4%
========== ======= ========== =======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 125,562 30.8% $ 95,066 27.1% 32.1%
========== ==========
Stock Performance
Indicators:
Actual shares
outstanding 25,323 25,224
Total book value per
share $ 6.98 $ 6.71
Tangible book value
per share $ 4.54 $ 4.55
Closing price $ 5.85 $ 6.21
Market capitalization $ 148,140 $156,641
Trailing
price/earnings ratio
(3) 22 21
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
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SELECTED SEGMENT INFORMATION
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For the Three Months
Ended June 30, 2006 2005
------------------------------------------ ---------------------------
Gross Gross
(Dollars in thousands) Net Margin Net Margin
Sales (%) Sales (%)
------------------------------------------ ---------------------------
PC Connection Sales
Corporation (SMB) $215,108 13.8% $207,296 12.4%
MoreDirect (Large
Account) 128,333 10.7 78,457 10.5
GovConnection (Public
Sector) 64,653 11.3 64,957 10.0
---------- ------- ---------- -------
Total $408,094 12.4% $350,710 11.5%
========== ======= ========== =======
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PC Connection, Inc. -- Second Quarter Earnings -- 07/27/06
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CONSOLIDATED INCOME STATEMENTS
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Three Months Ended June 30, 2006 2005
----------------------------------------------------------------------
% of % of
(Amounts in thousands, except per Net Net
share data) Amount Sales Amount Sales
----------------------------------------------------- ----------------
Net sales $408,094 100.0% $350,710 100.0%
Cost of sales 357,351 87.6 310,346 88.5
-------- ------ -------- ------
Gross Profit 50,743 12.4 40,364 11.5
Selling, general, and
administrative expenses 44,534 10.9 37,379 10.6
Special charges 450 0.1 - -
-------- ------ -------- ------
Income From Operations 5,759 1.4 2,985 0.9
Interest expense (437) (0.1) (285) (0.1)
Other, net (15) - 50 -
Income tax provision (2,196) (0.5) (1,186) (0.4)
-------- ------ -------- ------
Net Income $ 3,111 0.8% $ 1,564 0.4%
======== ====== ======== ======
Weighted average common shares
outstanding:
Basic 25,283 25,157
======== ========
Diluted 25,396 25,211
======== ========
Earnings per common share:
Basic $ 0.12 $ 0.06
======== ========
Diluted $ 0.12 $ 0.06
======== ========
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----------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Six Months Ended June 30, 2006 2005
----------------------------------------------------------------------
% of % of
(Amounts in thousands, except per Net Net
share data) Amount Sales Amount Sales
---------------------------------- ------------------ ----------------
Net sales $788,572 100.0% $674,561 100.0%
Cost of sales 691,411 87.7 596,863 88.5
-------- ------ -------- ------
Gross Profit 97,161 12.3 77,698 11.5
Selling, general, and
administrative expenses 86,489 10.9 72,795 10.8
Special charges 1,341 0.2 - -
-------- ------ -------- ------
Income From Operations 9,331 1.2 4,903 0.7
Interest expense (1,081) (0.2) (557) (0.1)
Other, net (4) - 25 -
Income tax provision (3,429) (0.4) (1,859) (0.2)
-------- ------ -------- ------
Net Income $ 4,817 0.6% $ 2,512 0.4%
======== ====== ======== ======
Weighted average common shares
outstanding:
Basic 25,271 25,142
======== ========
Diluted 25,372 25,274
======== ========
Earnings per common share:
Basic $ 0.19 $ 0.10
======== ========
Diluted $ 0.19 $ 0.10
======== ========
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A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME
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This information is being provided so as to allow for a comparison of
our operating results without special charges.
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Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------------------
(Amounts in thousands) 2006 2005 2006 2005
----------------------------------------------------------------------
GAAP net income $ 3,111 $1,564 $ 4,817 $2,512
Special charges (after tax):
GSA review 270 - 270 -
Management restructuring - - 535 -
-------- ------ -------- ------
270 - 805 -
-------- ------ -------- ------
Pro forma net income $ 3,381 $1,564 $ 5,622 $2,512
======== ====== ======== ======
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PC Connection, Inc. -- Second Quarter Earnings -- 07/27/06
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CONSOLIDATED BALANCE SHEETS June 30, December 31,
------------------------------------------ ------------ ------------
(Amounts in thousands) 2006 2005
------------------------------------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,328 $ 9,770
Accounts receivable, net 161,915 162,525
Inventories - merchandise 67,653 75,374
Deferred income taxes 3,566 3,769
Income taxes receivable 1,369 1,742
Prepaid expenses and other current assets 3,794 4,219
------------ -----------
Total current assets 246,625 257,399
Property and equipment, net 19,290 17,700
Goodwill, net 56,867 56,820
Other intangibles, net 4,898 5,427
Other assets 352 359
------------ -----------
Total assets $ 328,032 $ 337,705
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 439 $ 416
To third party 422 412
Note payable - bank 17,798 19,975
Accounts payable 96,690 114,413
Accrued expenses and other liabilities 25,476 21,290
------------ -----------
Total current liabilities 140,825 156,506
Capital lease obligations, less current
maturities:
To affiliate 5,074 5,299
To third party 182 396
Deferred income taxes 5,169 4,105
------------ -----------
Total liabilities 151,250 166,306
------------ -----------
Stockholders' Equity:
Common stock 257 256
Additional paid-in capital 78,449 77,884
Retained earnings 100,362 95,545
Treasury stock at cost (2,286) (2,286)
------------ -----------
Total stockholders' equity 176,782 171,399
------------ -----------
Total liabilities and stockholders'
equity $ 328,032 $ 337,705
============ ===========
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Six months ended June 30, 2006 (Amounts in thousands)
----------------------------------------------------------------------
Common Stock Additional
-------------- Paid-In Retained
Shares Amount Capital Earnings
----------------------------------------------------------------------
Balance - December 31, 2005 25,622 $256 $77,884 $95,545
Exercise of stock options,
including income tax benefits 41 1 243
Issuance of stock under Employee
Stock Purchase Plan 22 - 120
Stock compensation expense - - 202 -
Net income - - - 4,817
------- ------ ---------- ---------
Balance - June 30, 2006 25,685 $257 $78,449 $100,362
======= ====== ========== =========
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Six months ended June 30, 2006 (Amounts in thousands)
----------------------------------------------------------------------
Treasury Shares
---------------
Shares Amount Total
----------------------------------------------------------------------
Balance - December 31, 2005 (362) ($2,286) $171,399
Exercise of stock options, including 244
income tax benefits
Issuance of stock under Employee 120
Stock Purchase Plan
Stock compensation expense - - 202
Net income - - 4,817
------ -------- ---------
Balance - June 30, 2006 (362) ($2,286) $176,782
====== ======== =========
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PC Connection, Inc. -- Second Quarter Earnings -- 07/27/06
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CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Six Months Ended June 30,
(Amounts in thousands) 2006 2005
----------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 4,817 $ 2,512
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 3,456 3,586
Provision for doubtful accounts 2,452 1,805
Deferred income taxes 1,267 334
Loss on disposal of fixed assets 63 40
Stock compensation expense 202 -
Changes in assets and liabilities:
Accounts receivable (1,842) (4,796)
Inventories 7,721 16,797
Prepaid expenses and other current
assets 798 (1,133)
Other non-current assets 7 (144)
Accounts payable (17,723) 5,155
Income tax benefits from exercise of
stock options 17 80
Accrued expenses and other liabilities 4,186 (732)
------------ -----------
Net cash provided by operating activities 5,421 23,504
------------ -----------
Cash Flows from Investing Activities:
Purchases of property and equipment (4,647) (2,222)
Proceeds from sale of property and
equipment 20 13
Payment of acquisition earn-out obligation - (6,921)
------------ -----------
Net cash used for investing activities (4,627) (9,130)
------------ -----------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 244,402 125,205
Repayment of short-term borrowings (246,579) (130,015)
Repayment of capital lease obligations (406) (407)
Exercise of stock options 227 348
Issuance of stock under employee stock
purchase plan 120 168
------------ -----------
Net cash used for financing activities (2,236) (4,701)
------------ -----------
Decrease in cash and cash equivalents (1,442) 9,673
Cash and cash equivalents, beginning of
period 9,770 6,829
------------ -----------
Cash and cash equivalents, end of period $ 8,328 $ 16,502
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SOURCE: PC Connection, Inc.
PC Connection, Inc. Stephen Baldridge, 603-683-2322 VP of Finance & Corporate Controller
Copyright Business Wire 2006
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