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PC Connection, Inc. Reports First Quarter Results

PC Connection, Inc. (NASDAQ: PCCC):

  • Net sales: $461.9 million, up 13% year over year
  • Gross margin: 12.7%, improved from 11.9% year over year
  • Operating income: $7.5 million, 1.6% of net sales
  • Diluted earnings per share: $0.17 per share

PC Connection, Inc. (NASDAQ: PCCC), which specializes in providing end-to-end information technology (IT) solutions to business, government, and education markets through operating subsidiaries, today announced results for the quarter ended March 31, 2011. Net sales for the three months ended March 31, 2011 increased by $53.7 million, or 13.1%, to $461.9 million from $408.3 million for the three months ended March 31, 2010. Net income for the quarter was $4.5 million, or $0.17 per share, compared to net income of $2.4 million, or $0.09 per share, for the corresponding prior year quarter.

On March 17, 2011, we announced the acquisition of ValCom Technology (“ValCom”), a provider of infrastructure management and onsite managed services to medium-to-large corporations. ValCom had approximately 200 employees as of the acquisition date and is headquartered in the Chicago metro region. Under the terms of the stock purchase agreement, we made a payment of $8.5 million at closing, subject to final validation of stockholders’ equity. In addition, we have agreed to pay up to $3.0 million upon the achievement of certain performance milestones over the next eighteen months. We have included the operating results for ValCom since the closing date in our Large Account segment. The acquisition is expected to be immediately accretive to PC Connection’s earnings, however not material to consolidated results of operations, financial position, or cash flows.

Quarterly Sales by Segment:
  • Net sales for the small- and medium-sized businesses (“SMB”) segment increased by 11.7%, to $210.9 million compared to the first quarter of 2010. We attribute the growth in SMB sales to our continued focus on solution selling, deeper penetration of existing accounts, and an increase in sales representatives. Year-over-year SMB growth continued to be strong in notebooks and desktops due to the PC refresh and improved profits of SMB customers.
  • Net sales for the Large Account segment increased by 16.5% to $146.8 million compared to the first quarter of 2010. Excluding ValCom’s sales for the last two weeks of this period, net sales for this segment increased by 15.7% year over year. An increase in the overall volume of orders, from both new and existing customers, drove the increased sales for the quarter.
  • Net sales to government and education customers (Public Sector segment) increased by 14.0% to $90.3 million compared to the first quarter of 2010. Sales to higher education and federal government customers drove the majority of the double digit year-over-year growth despite budgetary concerns in these institutions.
  • Net sales to consumers and small office/home office customers by PC Connection Express were $13.8 million in the first quarter of 2011 compared to $14.1 million in the first quarter of 2010. Although sales were slightly lower, gross margin and operating income increased year over year due to our focus on improving operating results.

Quarterly Sales by Product Mix:
  • Notebooks and PDA sales, the Company’s largest product category, increased by 26% year over year and accounted for 18% of net sales in the first quarter of 2011 compared to 16% of net sales for the first quarter of 2010. Higher unit sales for the quarter drove the year-over-year growth as average selling prices, or ASP’s, decreased slightly year over year.
  • Desktop/server sales increased by 17% year over year, accounting for 15% of net sales in the first quarter of 2011 and 2010. Desktop sales grew as a result of increased unit sales associated with the continued PC refresh. ASPs for desktops sales also increased, contributing to the year-over-year revenue growth in this category. The increase in desktop sales was partially offset by lower server unit sales compared to the prior year quarter.
  • Accessories/Other sales increased by 23% year over year, accounting for 13% of net sales in the first quarter of 2011 compared to 12% of net sales for the first quarter of 2010. The Large Account segment grew sales of these products by 44% year over year due in part to mobile computing and point of sale product demand.
  • Software sales increased by 17% year over year and accounted for 14% of net sales in the first quarter of 2011 compared to 13% of net sales for the first quarter of 2010. The year-over-year growth in software revenue was consistent across our three primary business segments.

Overall gross profit dollars increased by $10.2 million, or 21%, in the first quarter of 2011 compared to the corresponding period a year ago due to increased revenues and gross margin. Consolidated gross margin, as a percentage of net sales, increased by 80 basis points to 12.7% in the first quarter of 2011 compared to the prior year quarter. Improved invoice selling margins and additional vendor consideration as a percentage of net sales in three months ended March 31, 2011 increased overall gross margin compared to the prior year quarter.

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