PC Connection, Inc. Reports Fourth Quarter and Full Year Results
MERRIMACK, N.H., Jan 25, 2007 (BUSINESS WIRE) -- PC Connection, Inc. (NASDAQ: PCCC)
FOURTH QUARTER HIGHLIGHTS: FULL YEAR HIGHLIGHTS: ---------------------------------- ---------------------------------- -- Net sales: $432 million, 8.3% -- Net sales: $1,636 million, growth y/y 13.3% growth y/y ---------------------------------- ---------------------------------- -- Gross profit margin: 12.0%, up -- Gross profit margin: 12.2%, up in all segments in all segments ---------------------------------- ---------------------------------- -- Net income: $4.6 million -- Net income: $13.8 million ---------------------------------- ---------------------------------- -- Diluted earnings per share: -- Diluted earnings per share: $.17 $.54 ---------------------------------- ----------------------------------
PC Connection, Inc. (NASDAQ: PCCC) achieved record quarterly sales and increased earnings per share year over year in the quarter ended December 31, 2006.
Net sales for the three months ended December 31, 2006 increased by $33.3 million, or 8.3%, to $431.9 million from $398.6 million for the three months ended December 31, 2005. Net income for the quarter was $4.6 million, or $.17 per share, compared to break even for the corresponding prior year quarter.
"We are pleased with the Company's 2006 performance for both the fourth quarter and the year," said Patricia Gallup, Chairman and Chief Executive Officer, PC Connection, Inc. "We added significantly to the number of new and active accounts, improved gross margins, and increased our earnings per share."
The three-month period ended December 31, 2005 included special charges that reduced earnings and earnings per share. Had these charges not been incurred, pro forma net income for the quarter ended December 31, 2005 would have been $0.8 million, or $.03 per share, compared to $4.6 million, or $.17 per share, for the quarter ended December 31, 2006. We did not record any special charges for the quarter ended December 31, 2006. 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 year ended December 31, 2006 increased by $191.4 million, or 13.3%, to $1,635.7 million from $1,444.3 million for the year ended December 31, 2005. The three- and twelve-month periods ended December 31, 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 year ended December 31, 2006 was $13.8 million, or $.54 per share, compared to $4.4 million, or $.18 per share, for the year ended December 31, 2005. The twelve-month periods ended December 31, 2006 and 2005 included special charges that reduced earnings and earnings per share. Had these charges not been recorded, pro forma net income for the year ended December 31, 2006 would have been $15.2 million, or $.59 per share, compared to $5.7 million, or $.23 per share, for the year ended December 31, 2005.
Quarterly Sales Growth By Business Segment:
-- Net sales for the small- and medium-sized business (SMB) segment increased by 3.6% to $231.5 million compared to the fourth quarter of 2005.
-- Net sales to large account customers increased by 18.0% to $132.5 million compared to the fourth quarter of 2005.
-- Net sales to government and education customers (Public Sector segment) increased by 8.1% to $67.9 million compared to the fourth quarter of 2005.
Quarterly Sales Growth By Product Mix:
-- Notebooks and PDAs continued to be the Company's largest product category, accounting for 16.9% of net sales in the fourth quarter of 2006 compared to 17.3% for the corresponding period a year ago.
-- Desktop computers and servers accounted for 14.0% of net sales in the fourth quarter of 2006 compared to 14.4% of net sales for the corresponding period a year ago.
-- Video, Imaging, and Sound accounted for 13.2% of net sales in the fourth quarter of 2006 compared to 13.7% of net sales for the corresponding period a year ago.
-- Net/Com products grew 24.9% year over year to 9.4% of net sales due to an increase in infrastructure, switching, and routing solutions sales.
-- Sales of accessories and other products increased 11.6% year over year to 11.0% of net sales due to higher attachment sales of services and companion products.
Gross profit margin, as a percentage of net sales, increased 100 basis points to 12.0% in the fourth quarter of 2006 from 11.0% in the fourth quarter of 2005. Gross margin improved in all three business segments due to increased focus on invoice margins, greater vendor consideration received in the quarter, and increased service revenues and software referral fees. Annualized sales productivity in the large account and public sectors increased 18% and 5%, respectively, in the fourth quarter of 2006 compared to the fourth quarter of 2005. However, productivity decreased 11% in SMB due to the addition of a new call center. The total number of sales representatives increased by 48 to 666 as of December 31, 2006 from 618 as of December 31, 2005.
Total selling, general and administrative expenses ("SG&A") for the quarter increased year over year by $2.5 million, or 6.0% but decreased as a percentage of sales to 10.2% in the fourth quarter of 2006 from 10.5% for the fourth quarter of 2005. The year-over-year dollar increase resulted primarily from increased variable compensation associated with higher gross profit dollars, incremental operating expenses associated with our new Texas sales office, and other variable support costs related to revenue growth. The 2006 reduction in SG&A as a percentage of sales resulted from improved leveraging of our expense structure.
Ms. Gallup concluded, "PC Connection's 2006 financial results are encouraging. Overall sales were at the highest level in the Company's history, and our operating margins continued to improve. The Company's positive performance was a result of our success in executing our business plans, and offering the best combination of products, services, solutions, and customer care in the industry. We believe PC Connection has the right strategies, resources, and talent in place to continue to build on our successes and increase 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 solutions. 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 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(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 solutions 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 September 30, 2006. 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 (including statements regarding implementing strategies for future growth, the ability of the Company to improve sales productivity and increase its 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 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 December
31, 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 $ 431,866 $ 398,612 8.3%
Diluted earnings per
share $ 0.17 $ .00 100.0
Gross profit margin 12.0% 11.0%
Operating margin 1.8% 0.2%
Return on equity (1) 9.7% 0.0%
Catalogs distributed 4,440,000 6,284,000 -29.3%
Orders entered (2) 403,700 379,600 6.3%
Average order size (2) $ 1,208 $ 1,195 1.1%
Inventory turns (1) 20 20
Days sales outstanding 45 47
Product Mix:
Notebooks & PDAs $ 73,160 16.9% $ 69,139 17.3% 5.8%
Desktops/Servers 60,474 14.0 57,189 14.4 5.7
Storage Devices 37,211 8.6 33,641 8.4 10.6
Software 52,714 12.2 48,266 12.1 9.2
Net/Com Products 40,458 9.4 32,383 8.1 24.9
Printers & Printer
Supplies 40,430 9.4 38,677 9.7 4.5
Video, Imaging & Sound 56,817 13.2 54,552 13.7 4.2
Memory & System
Enhancements 23,013 5.3 22,110 5.6 4.1
Accessories/Other 47,589 11.0 42,655 10.7 11.6
----------- ------ ----------- ------
$ 431,866 100.0% $ 398,612 100.0% 8.3%
=========== ====== =========== ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 138,123 32.0% $ 116,705 29.3% 18.4%
=========== ===========
Stock Performance
Indicators:
Actual shares
outstanding 26,500 25,259
Total book value per
share $ 7.43 $ 6.79
Tangible book value
per share $ 5.12 $ 4.32
Closing price $ 14.83 $ 5.38
Market capitalization $ 392,995 $ 135,895
Trailing
price/earnings ratio
(3) 28 30
(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
December 31, 2006 2005
------------------------------------------------ ---------------------
Gross Gross
(Dollars in thousands) Net Sales Margin (%) Net Sales Margin (%)
------------------------------------------------ ---------------------
PC Connection Sales
Corporation (SMB) $231,481 12.9% $223,504 12.2%
MoreDirect (Large Account) 132,465 10.7 112,303 9.3
GovConnection (Public
Sector) 67,920 11.9 62,805 9.6
--------- ----------- --------- -----------
Total $431,866 12.0% $398,612 11.0%
========= =========== ========= ===========
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended December 31, 2006 2005
---------------------------------------------------- ----------------
% of % of
(Amounts in thousands, except per Net Net
share data) Amount Sales Amount Sales
---------------------------------------------------- ----------------
Net sales $431,866 100.0% $398,612 100.0%
Cost of sales 379,919 88.0 354,794 89.0
--------- ------ --------- ------
Gross Profit 51,947 12.0 43,818 11.0
Selling, general and administrative
expenses 44,147 10.2 41,655 10.5
Special charges - 0.0 1,274 0.3
--------- ------ --------- ------
Income From Operations 7,800 1.8 889 0.2
Interest expense (353) (0.1) (601) (0.1)
Other, net 87 - 39 -
Income tax provision (2,963) 0.6 (316) (0.1)
--------- ------ --------- ------
Net Income $ 4,571 1.1% 11 0.0%
========= ====== ========= ======
Weighted average common shares
outstanding:
Basic 26,067 25,226
========= =========
Diluted 26,507 25,290
========= =========
Earnings per common share:
Basic $ 0.18 $ .00
========= =========
Diluted $ 0.17 $ .00
========= =========
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Twelve Months Ended December
31, 2006 2005
-------------------------------------------------- ------------------
% of % of
(Amounts in thousands, except Net Net
per share data) Amount Sales Amount Sales
-------------------------------------------------- ------------------
Net sales $1,635,651 100.0% $1,444,297 100.0%
Cost of sales 1,435,400 87.8 1,280,701 88.7
----------- ------ ----------- ------
Gross Profit 200,251 12.2 163,596 11.3
Selling, general and
administrative expenses 173,927 10.6 151,981 10.5
Special charges 2,391 0.1 2,127 0.1
----------- ------ ----------- ------
Income From Operations 23,933 1.5 9,488 0.7
Interest expense (1,828) (0.1) (1,447) (0.1)
Other, net 121 - 89 -
Income tax provision (8,450) 0.6 (3,683) (0.3)
----------- ------ ----------- ------
Net Income $ 13,776 0.8% $ 4,447 0.3%
=========== ====== =========== ======
Weighted average common shares
outstanding:
Basic 25,516 25,184
=========== ===========
Diluted 25,731 25,281
=========== ===========
Earnings per common share:
Basic $ 0.54 $ 0.18
=========== ===========
Diluted $ 0.54 $ 0.18
=========== ===========
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME
-------------------------------------------------------------
This information is being provided so as to allow for a comparison of
our operating results without special charges.
----------------------------------------------------------------------
----------------------------------------------------------------------
December 31, Three Months Ended Twelve Months Ended
==============================----------------------------------------
(Amounts in thousands) 2006 2005 2006 2005
----------------------------------------------------------------------
GAAP net income $ 4,571 $ 11 $ 13,776 $ 4,447
Special charges (after tax):
Management restructuring - 131 900 643
Amherst transaction - 633 535 633
--------- --------- --------- ---------
- 764 1,435 1,276
--------- --------- --------- ---------
Pro forma net income $ 4,571 $ 775 $ 15,211 $ 5,723
========= ========= ========= =========
CONSOLIDATED BALANCE SHEETS December 31, December 31,
-------------------------------------------- ------------ ------------
(Amounts in thousands) 2006 2005
-------------------------------------------- ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 17,582 $ 9,770
Accounts receivable, net 170,222 162,525
Inventories - merchandise 69,407 75,374
Deferred income taxes 3,837 3,769
Income taxes receivable 627 1,742
Prepaid expenses and other current assets 3,882 4,219
------------ ------------
Total current assets 265,557 257,399
Property and equipment, net 19,542 17,700
Goodwill, net 56,867 56,820
Other intangibles, net 4,363 5,427
Other assets 355 359
------------ ------------
Total assets $ 346,684 $ 337,705
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 464 $ 416
To third party 395 412
Note payable - bank - 19,975
Accounts payable 110,977 114,413
Accrued expenses and other liabilities 26,756 21,290
------------ ------------
Total current liabilities 138,592 156,506
Capital lease obligations, less current
maturities:
To affiliate 4,836 5,299
To third party - 396
Deferred income taxes 6,352 4,105
------------ ------------
Total liabilities 149,780 166,306
------------ ------------
Stockholders' Equity:
Common stock 269 256
Additional paid-in capital 89,600 77,884
Retained earnings 109,321 95,545
Treasury stock at cost (2,286) (2,286)
------------ ------------
Total stockholders' equity 196,904 171,399
------------ ------------
Total liabilities and stockholders'
equity $ 346,684 $ 337,705
============ ============
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Twelve months ended December 31, 2006 (Amounts in thousands)
----------------------------------------------------------------------
Treasury
Common Stock Additional Shares
------------- Paid-In Retained --------------
Shares Amount Capital Earnings Shares Amount Total
----------------------------------------------------------------------
Balance -
December 31,
2005 25,622 $256 $77,884 $95,545 (362)($2,286)$171,399
Exercise of
stock
options,
including
income tax
benefits 1,210 12 11,066 - - - 11,078
Issuance of
stock under
Employee
Stock
Purchase
Plan 30 1 232 - - - 233
Stock
compensation
expense - - 418 - - - 418
Net income - - - 13,776 - - 13,776
--------------------------------- -----------------------
Balance -
December 31,
2006 26,862 $269 $89,600 $109,321 (362)($2,286)$196,904
================================= =======================
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Twelve Months Ended December 31, (Amounts in
thousands) 2006 2005
----------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 13,776 $ 4,447
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,049 7,197
Provision for doubtful accounts 2,885 3,993
Deferred income taxes 2,179 (111)
Loss on disposal of fixed assets 86 43
Stock compensation expense 418 34
Gross excess tax benefit from exercise of
stock options (240) -
Changes in assets and liabilities:
Accounts receivable (10,582) (45,766)
Inventories 5,967 3,016
Prepaid expenses and other current assets 1,452 (992)
Other non-current assets 4 (170)
Accounts payable (3,436) 34,704
Income tax benefits from exercise of stock
options 1,338 82
Accrued expenses and other liabilities 5,466 3,152
---------- ----------
Net cash provided by operating activities 26,362 9,629
---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment (7,981) (6,572)
Proceeds from sale of property and equipment 21 13
Purchase of intangible asset - (475)
Payment of acquisition earn-out obligation - (6,921)
Payment for acquisition - (7,779)
---------- ----------
Net cash used for investing activities (7,960) (21,734)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 402,039 320,379
Repayment of short-term borrowings (422,014) (305,214)
Repayment of capital lease obligations (828) (797)
Exercise of stock options 9,740 366
Gross excess tax benefit from exercise of stock
options 240 -
Issuance of stock under employee stock purchase
plan 233 312
---------- ----------
Net cash (used for) provided by financing
activities (10,590) 15,046
---------- ----------
Increase in cash and cash equivalents 7,812 2,941
Cash and cash equivalents, beginning of period 9,770 6,829
---------- ----------
Cash and cash equivalents, end of period $ 17,582 $ 9,770
========== ==========
SOURCE: PC Connection, Inc.
PC Connection, Inc. Stephen Baldridge, 603-683-2322 VP of Finance & Corporate Controller
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