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PC Connection, Inc.
(NASDAQ: PCCC), a provider of a full range of information technology (IT) solutions to business, government, and education markets, today announced results for the quarter ended March 31, 2012. Net sales for the first quarter of 2012 were $498.8 million, an 8.0% increase compared to $461.9 million for the first quarter of 2011. Net income for the quarter ended March 31, 2012 was $5.5 million, or $0.21 per share, compared to net income of $4.5 million, or $0.17 per share, for the corresponding prior year quarter.
Included in the results for the quarter ended March 31, 2012 were pre-tax charges of $1.1 million related to awards granted upon the retirement of a former executive officer, as well as workforce reductions. Excluding these special charges, pro forma net income for the quarter ended March 31, 2012 would have been $6.2 million, or $0.23 per share, representing 35% growth over prior year. We did not record any special charges for the first quarter of 2011. Earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and special charges (“Adjusted EBITDA”) totaled $57.4 million for the twelve months ended March 31, 2012, as compared to $48.9 million for the twelve months ended March 31, 2011.
During the first quarter of 2012, we combined our consumer and small office/home office (“SOHO”) sales company with our small- and medium-sized business (SMB) segment. In order to facilitate comparison with current period results, 2011 revenues and gross margins for the SMB segment have been restated on a pro forma basis to include consumer and SOHO sales.
Quarterly Sales by Segment:
Net sales for the SMB segment increased only nominally in the quarter to $225.3 million, compared to net sales in the first quarter of 2011. The increase in net sales to our SMB customers was partially offset by lower consumer and SOHO sales in 2012. Excluding sales to these customers, SMB sales would have increased by 4.0% year over year. Software and net/com sales increased year over year with double-digit growth due to our investment in solution sales capabilities.
Net sales for the Large Account segment increased by 23.5% to $181.3 million compared to net sales in the first quarter of 2011. This segment includes the operating results for ValCom Technology, a provider of infrastructure management and onsite managed services to medium-to-large corporations, which we acquired late in the first quarter of 2011. Excluding ValCom Technology’s sales for the quarter, Large Account sales would have increased year over year by 17.1% as demand continued to be strong for enterprise solutions.
Net sales to government and education customers (Public Sector segment) increased year over year by 2.0% to $92.2 million. Sales to state and local government and educational institutions were relatively unchanged compared to last year, while sales to the federal government increased by 5.5% year over year.
Quarterly Sales by Product Mix:
Notebook sales, the Company’s largest product category, increased by 2% year over year and accounted for 17% of net sales in the first quarter of 2012 compared to 18% of net sales in the first quarter of 2011. Notebook unit sales increased by 7% year over year and offset a decline in average selling prices.
Desktop/server sales increased by 16% year over year, accounting for 17% of net sales in the first quarter of 2012 compared to 15% of net sales in the first quarter of 2011. Desktop/server sales increased due to strong demand from our large account and public sector customers.
Software sales increased by 15% year over year, accounting for 14% of net sales in the first quarter of 2012 and 2011. All three segments contributed to the overall sales growth with double-digit increases compared to the prior year quarter.
Net/com products continued to grow with an increase of 12% year over year, accounting for 10% of net sales in the first quarter of 2012 compared to 9% of net sales in the first quarter of 2011. All three segments achieved double-digit sales growth in this product category.
Overall gross profit dollars increased by $7.8 million, or 13%, to $66.6 million in the first quarter of 2012 compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, increased to 13.4% in the first quarter of 2012 compared to 12.7% in the prior year quarter with each segment contributing to the margin improvement. Consolidated gross margin has improved year over year for seven straight quarters due to strategies designed to increase sales of higher margin products and services. We expect the gross margin rate will be below Q1 levels for each of the next three quarters due to an increased mix of public sector sales.