UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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) December 9, 2004
PC Connection, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
| 0-23827 | 02-0513618 | |
| (Commission File Number) | (IRS Employer Identification No.) |
| Rt. 101A, 730 Milford Road Merrimack, NH | 03054 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(603) 683-2000
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | 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 8.01 Other Events and Required FD Disclosure
On December 9, 2004, PC Connection, Inc., a Delaware corporation (“PCC”), is planning to participate in the Raymond James IT Supply Chain Conference and will be discussing various aspects of its business. During the course of those discussions, certain limited financial information and other limited facts of its business will be presented to investors. This information is included below as an Exhibit.
| (c) | Exhibits |
| 99.1 | Presentation for Raymond James IT Supply Chain Conference. |
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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.
| Date: December 9, 2004 |
REGISTRANT | |||
| PC CONNECTION, INC. | ||||
| By: |
/s/ Patricia Gallup | |||
| Patricia Gallup | ||||
| President and Chief Executive Officer | ||||
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EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Presentation for Raymond James IT Supply Chain Conference. |
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Exhibit 99.1
RAYMOND JAMES IT SUPPLY CHAIN CONFERENCE
December 9, 2004
Patricia Gallup, Chief Executive Officer
Stephen Baldridge, VP of Finance & Corporate Controller
Safe Harbor Statement
“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 other risks detailed under the caption “Factors That May Affect Future Results and Financial Condition” in the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 2004. More specifically, the statements in this presentation concerning the Company’s outlook for the remainder of 2004 and the statements concerning the Company’s gross margin percentage and selling and administrative costs and other statements of a non-historical basis (including statements regarding implementing strategies for future growth and the ability of the Company to improve sales productivity) 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.
Fortune 1000
Founded 1982 Employees* 1,360 Exchange NASDAQ Symbol PCCC Shares Outstanding* 25.1 Million Float* 7.9 Million Market Capitalization* $172 Million 2003 Sales: $1.31 Billion Total Book Value Per Share* $6.54 Tangible Book Value Per Share* $4.63 Closing Price – 11/30/04 $7.03
*As of September 30, 2004
Business Overview
A rapid response provider of information technology (IT) products and solutions
Operates through three sales subsidiaries
Relationship-based model with 571 sales representatives as of September 30, 2004
Offering more than 100,000 brand-name products
Multiple vendor relationships
PC Connection,
A Widely Recognized Brand Name
Building Brand Awareness
Broad Product Selection
Major Vendor Partners
Organizational Structure & Business Segments
PC Connection, Inc.
(Parent Holding Company)
PC Connection Sales Corporation
(dba PC Connection®)
• Small- and Medium-Sized Business Sales
Merrimack Services Corporation
(dba PC Connection Services)
Distribution
Sales Support & Services Human Resources Information Services Finance Marketing Administrative Services Business Development Product Management Advertising eCommerce
GovConnection, Inc.
Federal Government State/Local Government Education Sales & Support
MoreDirect, Inc.
Medium-to-Large Organization Sales
PC Connection Sales Corporation (SMB)
Focused on small- and medium-sized businesses (SMBs: 20-500 seats)
Utilize outbound telemarketing (394 reps), catalog, and Web site marketing
Differentiated by providing superior service and value to customers
September ‘04 YTD sales – $597 million
GovConnection, Inc. (Public Sector)
Focused on Public Sector: Four distinct markets
Federal K-12
State and Local Higher Ed
Utilize field sales, outbound telemarketing (104 reps), teaming, catalog, and Web site
Awarded new GSA Schedule
September’ 04 YTD sales – $195 million
MoreDirect, Inc. (Large Account)
Focused on large customer segment (>500 seats)
Knowledgeable, high-level field sales account managers (73 reps) with 10-20 years experience in IT hardware
Aggregates inventories of leading wholesale distributors and manufacturers (virtual inventory–no warehousing or logistics) through e-procurement system
September’ 04 YTD sales – $222 million
Pursuing Market Opportunities
Company Market (1) Market Company Segments Opportunity Share (2)
Small- and Medium-Sized
Businesses $75 Billion 1.1% Government & Education 40 Billion 0.6%
Large Corporate Accounts 85 Billion 0.3%
Total $200 Billion 0.7%
(1) IDC and PC Connection estimate (2) PC Connection estimate
Growth Strategies Overview
Improve Sales Productivity
Increase the Number of Sales Representatives Continue Margin Rate Improvement Expand Product and Service Offerings
Voice Over Internet Protocol (VOIP) ServiceConnection
Pursue Strategic Initiatives
Improve Sales Productivity
($ amounts in thousands) Average Productivity
Sales Reps Annual
Company Segments Annual 2004 (1) Target
Small- and Medium-Sized
Businesses 394 $ 2,030 $ 2,500 Government & Education 104 2,500 3,200 Large Corporate Account 73 4,040 4,500
Total/Average 571 $ 2,373 $ 2,900
(1) Based on September ‘04 YTD annualized sales
Annualized Sales Rep Productivity(1)
(Amounts in thousands)
$5,000 $4,500 +26.5% $4,000 +17.7% $3,500 $3,000
$2,500 +8.2% (60.0%)
2003 $2,000 2004 $1,500 $1,000 $500 $0 SMB SLED Large Federal Account
(1) Represents Q3 annualized sales rep productivity
Increase the Number of Sales Representatives
Enhance recruitment efforts at current call centers
Consider additional call centers
Expand the number of field reps in our Large Account and Public Sector segments
Investigate Virtual Call Centers for SMB segment
Strategic Initiatives
Internal
K2
Monadnock
Rapid Response Sales Support
External
ServiceConnection Acquisition Opportunities
Financial Summary
Stephen Baldridge, VP of Finance & Corporate Controller
Operating Results–Consolidated
(Amounts in thousands, except EPS) Q3 2004 Q3 2003 Sept 04 YTD Sept 03 YTD Net Sales $ 351,265 $ 349,420 $ 1,014,235 $ 954,515 Gross Profit 39,406 35,926 109,493 101,358
% of Net Sales 11.2% 10.3% 10.8% 10.6%
SG&A Expenses 32,765 32,059 94,938 91,716
% of Net Sales 9.3% 9.2% 9.4% 9.6%
Special Charges 1,800 - 3,583 397 Operating Income 4,841 3,867 10,972 9,245
% of Net Sales 1.4% 1.1% 1.1% 1.0%
Net Income $ 2,817 $ 2,180 $ 6,231 $ 5,158
% of Net Sales 0.8% 0.6% 0.6% 0.5%
EPS (GAAP) $ 0.11 $ 0.09 $ 0.25 $ 0.21
Net Sales by Segment
($ amounts in thousands) Large Account Public Sector
$400,000 SMB
$350,000
$66,259 $77,458 $300,000 $66,359 $59,969 $77,942 $52,255 $250,000 $53,852 $77,864 $75,023 $63,355 $103,596 $52,632
$200,000
$150,000
$207,424 $194,058 $195,943 $100,000 $178,640 $186,576 $179,565
$50,000
$0
2003 2004 2003 2004 2003 2004
Q1 Q2 Q3
Gross Margin% of Sales
Q3 Q3 2004 2003
SMB 12.2% 11.2% Public Sector 9.8% 8.0% Large Account 10.2% 11.3% Consolidated 11.2% 10.3%
SG&A% of Sales
11.0%
10.2%
10.0%
9.5%
9.4%
9.0%
8.0%
FY 2002 FY 2003 Sept. 2004 YTD
Operating Margin % of Sales
1.6% 1.4% 1.2% 1.0%
0.8%
1.4%
0.6% 1.2%
1.1% 1.0%
0.4% 0.8%
0.7%
0.2%
0.0%
2003 2004 2003 2004 2003 2004
Q1 Q2 Q3
Diluted Earnings per Share
$0.18
$0.16
$0.16 $0.14
$0.11
$0.12
$0.09
$0.10
Additional Pro Forma (1)
$0.07 $0.07 GAAP
$0.08 $0.06 $0.06 $0.11
$0.09 $0.09
$0.04
$0.06 $0.06 $0.05
$0.02 $0.00
2003 2004 2003 2004 2003 2004
Q1 Q2 Q3
(1) Pro forma EPS exclude special charges
A Reconciliation Between GAAP and Pro Forma Results
This information is being furnished so as to allow for a comparison of our operating results without special charges.
($ in thousands, except EPS) Q1 Q2 Q3 2003 2004 2003 2004 2003 2004
GAAP Net Income: $ 1,575 $ 1,158 $ 1,403 $ 2,256 $ 2,180 $ 2,817 Special Charges (after tax): GSA and Other - 299 - 451 - 1,111 Workforce Reduction - 340 240 16 - 5 Subtotal - 639 240 467 - 1,116
Pro Forma Net Income $ 1,575 $ 1,797 $ 1,643 $ 2,723 $ 2,180 $ 3,933
GAAP Earnings Per Share: $ 0.06 $ 0.05 $ 0.06 $ 0.09 $ 0.09 $ 0.11 Special charges (after tax): - 0.02 0.01 0.02 - 0.05 Pro Forma Earnings Per Share: $ 0.06 $ 0.07 $ 0.07 $ 0.11 $ 0.09 $ 0.16
Asset Utilization
Q3 2004 Q3 2003 DSO 41 48 Inventory Turns 16 19
Financial Model
Sept Two-Year YTD Target
2001 2002 2003
2004 Ranges REVENUE GROWTH (17.6)% 0.4% 10.2% 6.3% 15% + (annual) EPS GROWTH (75.4)% (56.7)% 76.9 % 19.0% 30% + (annual) GROSS PROFIT 11.1% 10.8% 10.5% 10.8% 11.3-11.8% MARGIN
SG&A (1) 9.9% 10.2% 9.5% 9.4% 8.8%-9.3% OPERATING MARGIN 1.0% 0.5% 0.8% 1.1% 2.0%-2.5% INVENTORY TURNS 18X 22X 15X 16X 20-24X DAYS SALES
OUTSTANDING (DSO) 53 49 47 41 36-40 Days
(1) Excludes special charges
we solve IT.