PC Connection, Inc. Reports Fourth Quarter and Full Year Results
MERRIMACK, N.H., Jan 31, 2008 (BUSINESS WIRE) -- PC Connection, Inc. (NASDAQ: PCCC)
FOURTH QUARTER HIGHLIGHTS: FULL YEAR HIGHLIGHTS: --------------------------------- ---------------------------------- -- Net sales: $490 million; up -- Net sales: $1,785 million; up 13% y/y 9% y/y --------------------------------- ---------------------------------- -- Net income: $6.2 million; up -- Net income: $23.0 million; up 35% y/y 67% y/y --------------------------------- ---------------------------------- -- Diluted earnings per share: -- Diluted earnings per share: $.23; up from $.17 last year $.85; up from $.54 last year --------------------------------- ----------------------------------
PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter and year ended December 31, 2007. Net sales for the three months ended December 31, 2007 increased by $57.7 million, or 13.4%, to $489.6 million from $431.9 million for the three months ended December 31, 2006. Net income for the quarter was $6.2 million, or $.23 per share, compared to $4.6 million, or $.17 per share, for the corresponding prior year quarter.
The quarter ended December 31, 2007 included special charges related to management restructuring that reduced earnings and earnings per share. Had these charges not been incurred, pro forma net income for the quarter ended December 31, 2007 would have been $6.5 million, or $.24 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.
"We are pleased to report record quarterly and annual sales," said Patricia Gallup, Chairman and Chief Executive Officer of PC Connection, Inc. "The fourth quarter was our eleventh consecutive quarter of year-over-year revenue growth. We also achieved a 29% increase in operating income and a 35% increase in earnings per share over the fourth quarter of 2006."
Net sales for the year ended December 31, 2007 increased by $149.7 million, or 9.2%, to $1,785.4 million from $1,635.7 million for the year ended December 31, 2006. Net income for the year ended December 31, 2007 was $23.0 million, or $.85 per share, compared to $13.8 million, or $.54 per share, for the year ended December 31, 2006. The years ended December 31, 2007 and 2006 included special charges that reduced earnings and earnings per share. Had these charges not been incurred, pro forma net income for the year ended December 31, 2007 would have been $23.3 million, or $.86 per share, compared to $15.2 million, or $.59 per share, for the year ended December 31, 2006.
Quarterly Sales Growth by Business Segment:
-- Net sales for the small- and medium-sized business (SMB) segment increased by 14.0% to $263.8 million compared to the fourth quarter of 2006. Corporate outbound sales within the segment grew 24.9% year over year, reflecting our focus on business customers. Several large Video product orders from three customers drove the majority of this increase.
-- Net sales for MoreDirect, Inc., our Large Account segment, increased by 6.3% to $140.8 million compared to the fourth quarter of 2006. MoreDirect continues to obtain new customers and a greater share of existing customers' business.
-- Net sales for GovConnection, Inc., our Public Sector segment, increased by 25.1% to $85.0 million compared to the fourth quarter of 2006. Increased federal sales, obtained under recent government contracts, drove this double-digit growth.
Quarterly Sales Growth by Product Mix:
-- Video, Imaging and Sound sales increased 52.5% year over year, accounting for 17.7% of net sales in the fourth quarter compared to 13.2% for the corresponding prior year quarter. Several large Video product orders from three SMB customers drove the majority of this revenue increase.
-- Notebooks and PDAs accounted for 14.9% of net sales in the fourth quarter of 2007 compared to 16.9% for the corresponding prior year quarter, reflecting our emphasis on driving sales in other product lines with higher margins.
-- Software sales increased 20.5% year over year, accounting for 13.0% of net sales in the fourth quarter of 2007 compared to 12.2% for the corresponding prior year quarter. We experienced strong year over year growth with several software vendors.
-- Sales of storage devices increased 22.0% year over year, accounting for 9.3% of net sales in the fourth quarter of 2007 compared to 8.6% for the corresponding prior year quarter.
Gross profit was $57.5 million for the fourth quarter of 2007 compared to $51.9 million for the fourth quarter of 2006. Gross profit margin, as a percentage of net sales, was 11.7% in the fourth quarter of 2007 compared to 12.0% in the fourth quarter of 2006. The large Video product orders shipped in the fourth quarter decreased our gross margin rates by approximately 70 basis points. Higher agency fee revenues and additional vendor consideration in the fourth quarter of 2007 partially offset these lower-margin SMB sales.
Annualized sales representative productivity increased 19% on a consolidated basis in the fourth quarter of 2007 compared to the fourth quarter of 2006. Sales productivity in our Large Account segment increased 21% in the fourth quarter of 2007 compared to the fourth quarter of 2006. Sales productivity in our SMB and Public Sector segments increased quarter over quarter by 20% and 19%, respectively. On a consolidated basis, the total number of sales representatives was 692 as of December 31, 2007, compared to 654 at September 30, 2007, and 702 at December 31, 2006.
Selling, general and administrative expenses ("SG&A") totaled $46.9 million for the fourth quarter of 2007 compared to $44.1 million for the fourth quarter of 2006. SG&A improved as a percentage of net sales to 9.5% for the fourth quarter of 2007 compared to 10.2% for the fourth quarter of 2006, reflecting our continuing efforts to leverage our cost structure.
Ms. Gallup continued, "Again, we are pleased with PC Connection's accomplishments in 2007. Our performance-improvement initiatives and our efforts to enhance the effectiveness of our sales organizations are producing positive results. In 2007, our GovConnection subsidiary was awarded both SEWP IV and First Source. These contracts allow us to more effectively reach new customers and better provide IT solutions to all of the largest agencies in the federal marketplace. PC Connection again placed on Fortune's list of the 1000 largest U.S. companies, and was ranked as one of the top business technology innovators on the InformationWeek 500."
Gallup concluded, "PC Connection is a recognized leader in our industry. We believe we are well-positioned to continue in a leadership role, and to grow sales and earnings to build 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. Additional risk factors that could cause actual results to differ materially from those in our forward-looking statements are disclosed in our most recent quarterly report on Form 10-Q for the quarter ended September 30, 2007 and annual report on Form 10-K for the year ended December 31, 2006. We encourage you to read those disclosures. More specifically, the statements in this release concerning the Company's outlook for 2008 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. 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.
PC Connection, Inc. -- Fourth Quarter Earnings -- 01/31/08
----------------------------------------------------------------------
----------------------------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------
At or for the Three
Months Ended December
31, 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 $ 489,607 $ 431,866 13.4%
Diluted earnings per
share $ .23 $ .17 35.3%
Gross profit margin 11.7% 12.0%
Operating margin 2.1 1.8
Return on equity (1) 11.2 9.7
Catalogs distributed 3,563,000 4,440,000 (19.8)%
Orders entered (2) 367,100 403,700 (9.1)%
Average order size
(2) $ 1,515 $ 1,208 25.4%
Inventory turns (1) 21 20
Days sales
outstanding 43 45
Product Mix:
Notebooks & PDAs $ 72,962 14.9% $ 73,160 16.9% (0.3)%
Desktops/Servers 64,984 13.3 60,474 14.0 7.5
Storage Devices 45,383 9.3 37,211 8.6 22.0
Software 63,511 13.0 52,714 12.2 20.5
Net/Com Products 41,281 8.4 40,458 9.4 2.0
Printers & Printer
Supplies 44,118 9.0 40,430 9.4 9.1
Video, Imaging &
Sound 86,657 17.7 56,817 13.2 52.5
Memory & System
Enhancements 20,525 4.2 23,013 5.3 (10.8)
Accessories/Other 50,186 10.2 47,589 11.0 5.5
----------- ------ ----------- ------
$ 489,607 100.0% $ 431,866 100.0% 13.4%
=========== ====== =========== ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 164,922 33.7% $ 138,123 32.0% 19.4%
=========== ===========
Stock Performance
Indicators:
Actual shares
outstanding 26,892 26,500
Total book value per
share $ 8.34 $ 7.43
Tangible book value
per share $ 6.10 $ 5.12
Closing price $ 11.35 $ 14.83
Market
capitalization $ 305,224 $ 392,995
Trailing
price/earnings
ratio (3) 13 28
(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, 2007 2006
---------------------------------------------------- ---------------
Net Gross Net Gross
Sales Margin Sales Margin
(Dollars in thousands) (%) (%)
---------------------------------------------------- ---------------
PC Connection Sales Corporation
(SMB) $263,785 12.6% $231,481 12.9%
MoreDirect (Large Account) 140,826 11.0 132,465 10.7
GovConnection (Public Sector) 84,996 10.3 67,920 11.9
-------- ------ -------- ------
Total $489,607 11.7% $431,866 12.0%
======== ====== ======== ======
----------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Three Months Ended December
31, 2007 2006
----------------------------------------------------------------------
(Amounts in thousands, % of
except per share data) Net % of Net
Amount Sales Amount Sales
----------------------------------------------- --------------------
Net sales $ 489,607 100.0% $ 431,866 100.0%
Cost of sales 432,122 88.3 379,919 88.0
----------- ------ ----------- -------
Gross Profit 57,485 11.7 51,947 12.0
Selling, general and
administrative expenses 46,870 9.5 44,147 10.2
Special charges 541 0.1 - 0.0
----------- ------ ----------- -------
Income From Operations 10,074 2.1 7,800 1.8
Interest expense (264) - (353) (0.1)
Other, net 111 - 87 -
Income tax provision (3,749) (0.8) (2,963) (0.6)
----------- ------ ----------- -------
Net Income $ 6,172 1.3% $ 4,571 1.1%
=========== ====== =========== =======
Weighted average common
shares outstanding:
Basic 26,844 26,067
=========== ===========
Diluted 27,052 26,507
=========== ===========
Earnings per common
share:
Basic $ 0.23 $ 0.18
=========== ===========
Diluted $ 0.23 $ 0.17
=========== ===========
----------------------------------------------------------------------
----------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------
Years Ended December 31, 2007 2006
----------------------------------------------------------------------
(Amounts in thousands, % of
except per share data) Net % of Net
Amount Sales Amount Sales
----------------------------------------------- --------------------
Net sales $1,785,379 100.0% $1,635,651 100.0%
Cost of sales 1,566,409 87.7 1,435,400 87.8
----------- ------ ----------- -------
Gross Profit 218,970 12.3 200,251 12.2
Selling, general and
administrative expenses 181,640 10.2 173,927 10.6
Special charges 541 - 2,391 0.1
----------- ------ ----------- -------
Income From Operations 36,789 2.1 23,933 1.5
Interest expense (932) - (1,828) (0.1)
Other, net 764 - 121 -
Income tax provision (13,626) (0.8) (8,450) (0.6)
----------- ------ ----------- -------
Net Income $ 22,995 1.3% $ 13,776 0.8%
=========== ====== =========== =======
Weighted average common
shares outstanding:
Basic 26,785 25,516
=========== ===========
Diluted 27,024 25,731
=========== ===========
Earnings per common
share:
Basic $ 0.86 $ 0.54
=========== ===========
Diluted $ 0.85 $ 0.54
=========== ===========
----------------------------------------------------------------------
----------------------------------------------------------------------
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) 2007 2006 2007 2006
----------------------------------------------------------------------
GAAP net income $ 6,172 $4,571 $ 22,995 $13,776
Special charges (after
tax):
Management
restructuring 336 - 336 535
GSA settlement - - - 900
----------- ------- ----------- --------
Total special charges
(after tax) 336 - 336 1,435
----------- ------- ----------- --------
Pro forma net income $ 6,508 $4,571 $ 23,331 $15,211
=========== ======= =========== ========
----------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS December December
31, 31,
---------------------------------------------- ---------- ---------
(amounts in thousands) 2007 2006
---------------------------------------------- ---------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 13,741 $ 17,582
Accounts receivable, net 202,216 170,222
Inventories-merchandise 76,090 69,407
Deferred income taxes 2,858 3,837
Income taxes receivable 345 627
Prepaid expenses and other current assets 4,322 3,882
--------- ---------
Total current assets 299,572 265,557
Property and equipment, net 20,831 19,542
Goodwill 56,867 56,867
Other intangibles, net 3,291 4,363
Other assets 318 355
--------- ---------
Total Assets $380,879 $346,684
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 527 $ 464
To third party - 395
Accounts payable 111,140 110,977
Accrued expenses and other liabilities 20,557 17,389
Accrued payroll 10,816 9,367
--------- ---------
Total current liabilities 143,040 138,592
Capital lease obligations, less current
maturities:
To affiliate 4,309 4,836
Other liabilities 3,784 -
Deferred income taxes 5,436 6,352
--------- ---------
Total Liabilities 156,569 149,780
--------- ---------
Stockholders' Equity:
Common stock 273 269
Additional paid-in capital 94,132 89,537
Retained earnings 131,970 109,321
Treasury stock at cost (2,065) (2,223)
--------- ---------
Total Stockholders' Equity 224,310 196,904
--------- ---------
Total Liabilities and Stockholders'
Equity $380,879 $346,684
========= =========
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Year ended December 31, 2007 (amounts in thousands)
----------------------------------------------------------------------
Common Stock Additional Retained Treasury Shares
------------- ---------------
Paid-In
Shares Amount Capital Earnings Shares Amount Total
----------------------------------------------------------------------
Balance -
January
01, 2007 26,862 $269 $89,537 $109,321 (352) ($2,223) $196,904
Cumula-
tive
effect
of
change
in
account-
ing
prin-
ciple - - - (346) - - (346)
Stock
compen-
sation
expense - - 579 - - - 579
Exercise
of stock
options,
includ-
ing
income
tax
benefits 364 4 3,876 - - - 3,880
Release
of non-
vested
stock
awards - 3 3
Issuance
of stock
under
Employee
Stock
Purchase
Plan 26 - 295 - - - 295
Issuance
of non-
vested
stock
awards (158) 25 158 -
Net
income - - - 22,995 - - 22,995
------ ------ ---------- --------- ------ -------- ---------
Balance -
December
31, 2007 27,252 $273 $94,132 $131,970 (327) ($2,065) $224,310
====== ====== ========== ========= ====== ======== =========
----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------
Years Ended December 31, (Amounts in thousands) 2007 2006
----------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 22,995 $ 13,776
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,781 7,049
Provision for doubtful accounts 1,587 2,885
Deferred income taxes 63 2,179
Loss on disposal of fixed assets 68 86
Stock compensation expense 579 418
Excess tax benefit from exercise of stock
options (447) (240)
Income tax benefits related to employee
equity awards 974 1,338
Changes in assets and liabilities:
Accounts receivable (33,581) (10,582)
Inventories (6,683) 5,967
Prepaid expenses and other current assets (158) 1,452
Other non-current assets 37 4
Accounts payable 163 (3,436)
Accrued expenses and other liabilities 8,055 5,466
--------- ----------
Net cash provided by operating activities 433 26,362
--------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment (7,066) (7,981)
Proceeds from sale of property and equipment - 21
--------- ----------
Net cash used for investing activities (7,066) (7,960)
--------- ----------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 53,280 402,039
Repayment of short-term borrowings (53,280) (422,014)
Repayment of capital lease obligations (859) (828)
Exercise of stock options 2,910 9,740
Excess tax benefit from exercise of stock
options 447 240
Issuance of stock under Employee Stock
Purchase Plan 294 233
--------- ----------
Net cash provided by (used for) financing
activities 2,792 (10,590)
--------- ----------
(Decrease) increase in cash and cash
equivalents (3,841) 7,812
Cash and cash equivalents, beginning of period 17,582 9,770
--------- ----------
Cash and cash equivalents, end of period $ 13,741 $ 17,582
========= ==========
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SOURCE: PC Connection, Inc.
PC Connection, Inc. Stephen Baldridge, 603-683-2322 Sr. Vice President, Finance & Corporate Controller
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