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PC Connection, Inc. Reports Second Quarter Results

PC Connection, Inc. (NASDAQ: PCCC):

SECOND QUARTER SUMMARY:
  • Q2 net sales: $512.6 million, up 7% year over year
  • Record gross margin: 13.0% of net sales
  • Operating income: $12.4 million, or 2.4% of net sales
  • Diluted earnings per share: $0.28 per share, 56% increase

PC Connection, Inc. (NASDAQ: PCCC), which provides a full range of information technology (IT) solutions from design through deployment in business, government, and education markets, today announced results for the quarter ended June 30, 2011. Net sales for the three months ended June 30, 2011 were $512.6 million, a year-over-year increase of $35.0 million or 7.3%. Net income for the quarter was $7.5 million, or $0.28 per share, compared to net income of $5.0 million, or $0.18 per share for the corresponding prior year quarter.

Net sales for the six months ended June 30, 2011 were $974.5 million, an increase of $88.7 million or 10.0%, compared to $885.8 million for the six months ended June 30, 2010. Net income for the six months ended June 30, 2011 was $12.0 million, or $0.44 per share, compared to net income of $7.5 million, or $0.27 per share, for the six months ended June 30, 2010.

Quarterly Sales by Segment:
  • Net sales for the SMB business segment increased by 14.4% to $218.0 compared to net sales in the second quarter of 2010. The increase in revenues was due to improved SMB customer profits and the related fulfillment of delayed IT replacement needs.
  • Net sales for the Large Account segment increased by 7.6% to $160.7 million compared to sales in the second quarter of 2010. As announced last quarter, we acquired ValCom Technology (“ValCom”), a provider of infrastructure management and onsite managed services to medium-to-large corporations. We have included the operating results for ValCom from March 17, 2011, the closing date of the acquisition, in this segment. Excluding ValCom’s sales for the quarter, Large Account sales would have increased year over year by 2.3%.
  • Net sales to government and education customers (Public Sector segment) were $119.7 million in the quarter, compared to $120.6 million in the second quarter of 2010. A decrease in federal government sales was largely offset by an increase in higher education sales.
  • Net sales to consumers and SOHO customers by PC Connection Express were $14.1 million, compared to $16.8 million in the second quarter of 2010. Profitability and gross margin improvements continue to be the primary focus for this segment in 2011.

Quarterly Sales by Product Mix:
  • Notebook and PDA sales, the Company’s largest product category, increased by 10% year over year and accounted for 18% of net sales in the second quarter of 2011 and 2010. Higher unit sales for the quarter, associated with the PC refresh, drove the quarterly revenue growth as average selling prices, or ASPs, decreased year over year.
  • Desktop/server sales increased by 12% year over year, accounting for 16% of net sales in the second quarter of 2011 and 2010. Desktop sales grew primarily as a result of increased unit sales associated with the PC refresh, as ASPs increased slightly year over year. Server sales decreased year over year by 4% as a result of a delay in enterprise product rollouts.
  • Software sales increased by 22%, accounting for 15% of net sales in the second quarter of 2011 compared to 13% in the prior year quarter. The three primary business segments contributed to the year-over-year growth in this product category.
  • Accessory/Other sales by grew 15% year over year and accounted for 13% of net sales in the second quarter of 2011, compared to 12% in the prior year quarter. The increase was due largely to ValCom service revenues and increased sales of point-of-sale equipment.

Overall gross profit dollars for the quarter increased by 19%, or $10.9 million, compared to the second quarter of 2010. Consolidated gross margin, as a percentage of net sales, increased by 130 basis points from 11.7% in the second quarter of 2010 to 13.0% in 2011. Improved invoice selling margins, higher agency revenues, and additional vendor consideration contributed to the significant increase. All four business segments increased their gross margin compared to the prior year quarter as a result of their focus on margin improvement.

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