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PC Connection, Inc. Reports First Quarter Results

“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 and environment, 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 manage personnel levels in response to fluctuations in revenue, and other risks that could cause actual results to differ materially from those detailed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2011. More specifically, the statements in this release concerning the Company’s outlook for gross margin and selling, general, and administrative expenses in 2012 and other statements of a non-historical basis (including statements regarding the Company’s ability to grow revenues, improve gross margins, increase market share, and increase earnings per share) 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, the ability of the Company to integrate the operations of ValCom Technology, the ability of the Company to gain or maintain market share, and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. The Company disclaims any 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.

 
 
CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months Ended March 31,         2012       2011        
(Dollars and shares in thousands, except operating data, P/E ratio, and per share data)           % of   % of %
              Net Sales     Net Sales Change
 
Operating Data:
Net sales $ 498,763 $ 461,926 8 %
Diluted earnings per share $ 0.21 $ 0.17 24 %
Pro forma diluted earnings per share $ 0.23 $ 0.17 35 %
 
Gross margin 13.4 % 12.7 %
Operating margin 1.8 % 1.6 %
Return on equity (1) 8.0 % 6.9 %
 
Orders entered (2) 339,000 346,000 (2 %)
Average order size (2) $ 1,765 $ 1,606 10 %
 
Inventory turns (1) 25 24
Days sales outstanding 43 41
 
 
Product Mix:
Notebook $ 84,699 17 % $ 83,283 18 % 2 %
Desktop/Server 82,443 17 70,998 15 16 %
Software 72,286 14 62,846 14 15 %
Video, Imaging & Sound 48,203 10 48,669 10 (1 %)
Net/Com Product 48,351 10 43,285 9 12 %
Storage Device 36,033 7 39,329 9 (8 %)
Printer & Printer Supplies 37,171 7 36,224 8 3 %
Memory & System Enhancement 17,073 3 18,679 4 (9 %)
Accessory/Other   72,504   15     58,613   13   24 %
Total Net Sales $ 498,763   100 % $ 461,926   100 % 8 %
 
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
 
$ 186,634   37 % $ 161,733   35 % 15 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,276 26,673
Total book value per share $ 10.59 $ 9.84
Tangible book value per share $ 8.45 $ 7.72
Closing price $ 8.22 $ 8.86
Market capitalization $ 215,989 $ 236,323
Trailing price/earnings ratio 7.3 9.5
LTM Adjusted EBITDA (3) $ 57,402 $ 48,877
Market capitalization/LTM EBITDA 3.8 4.8

(1) Annualized(2) Does not reflect cancellations or returns(3) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and special charges.

                         
REVENUE AND MARGIN INFORMATION                
For the Three Months Ended March 31,         2012   2011  
Net Gross Net Gross
(Dollars in thousands) Sales   Margin Sales   Margin
 
SMB $ 225,295 15.2 % $ 224,734 14.1 %
Large Account 181,316 11.8 146,847 11.4
Public Sector   92,152 11.9   90,345 11.5
Total $ 498,763 13.4 % $ 461,926 12.7 %

 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31,         2012       2011  
(amounts in thousands, except per share data)         Amount   % of Net Sales   Amount   % of Net Sales
 
Net sales $ 498,763 100.0 % $ 461,926 100.0 %
Cost of sales   432,152   86.6     403,107     87.3  
Gross profit 66,611 13.4 58,819 12.7
 
Selling, general and administrative expenses 56,450 11.3 51,290 11.1
Special charges   1,135   0.3     -     -  
Income from operations 9,026 1.8 7,529 1.6
 
Interest expense - - (41 ) -
Other, net 46 - 65 -
Income tax provision   (3,597 ) (0.7 )   (3,059 )   0.6  
Net income $ 5,475   1.1 % $ 4,494     1.0 %
 
 
Earnings per common share:
Basic $ 0.21   $ 0.17  
Diluted $ 0.21   $ 0.17  
 
Weighted average common shares outstanding:
Basic   26,439     26,901  
Diluted   26,586     26,986  
 
                         
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME
Three Months Ended March 31,
Provided for comparison of our operating results without special charges. (amounts in thousands)     2012       2011  
 
GAAP net income $ 5,475 $ 4,494
Special charges (after tax)   681     -  
Pro forma net income $ 6,156   $ 4,494  
 
Pro forma diluted earnings per common share $ 0.23   $ 0.17  
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31,
(amounts in thousands)                     2012       2011  
 
ASSETS
Current Assets:
Cash and cash equivalents $ 49,752 $ 4,615
Accounts receivable, net 242,403 295,188
Inventories 62,528 77,437
Prepaid expenses and other current assets 5,250 4,713
Deferred income taxes 3,398 4,436
Income taxes receivable   3,229     1,927  
Total current assets 366,560 388,316
Property and equipment, net 24,088 22,570
Goodwill 51,276 51,276
Other intangibles, net 4,971 5,205
Other assets   720     652  
Total Assets $ 447,615   $ 468,019  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate $ 998 $ 971
Borrowings under bank line of credit - 5,267
Accounts payable 111,949 130,900
Accrued expenses and other liabilities 30,513 30,902
Accrued payroll   12,213     12,964  
Total current liabilities 155,673 181,004
Deferred income taxes 9,882 9,026
Other liabilities 2,975 3,471
Capital lease obligation to affiliate, less current maturities   729     989  
Total Liabilities   169,259     194,490  
Stockholders’ Equity:
Common stock 276 276
Additional paid-in capital 100,284 99,957
Retained earnings 187,749 182,274
Treasury stock at cost   (9,953 )   (8,978 )
Total Stockholders’ Equity   278,356     273,529  
Total Liabilities and Stockholders’ Equity $ 447,615   $ 468,019  

 
 
EBITDA AND ADJUSTED EBITDA
 
A reconciliation of EBITDA and Adjusted EBITDA is detailed below. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA means EBITDA adjusted for certain items which are described in the table below. Both EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide helpful information with respect to our operating performance including our ability to fund our future capital expenditures and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our credit agreements.
             
(amounts in thousands)

Three Months Ended March 31,

LTM Ended March 31, (1)

  2012     2011   % Change   2012     2011   % Change
Net income $ 5,475 $ 4,494 $ 29,768 $ 25,021
Depreciation and amortization 1,558 1,344 6,165 5,202
Income tax expense 3,597 3,059 19,182 16,769
Interest expense, net   -   41   328   432
EBITDA   10,630   8,938   55,443   47,424
Stock-based compensation 1,047 205

1,666

1,453
Other special charges   293   -    

293

  -  
Adjusted EBITDA $ 11,970 $ 9,143 31% $ 57,402 $ 48,877 17%

(1) LTM: Last twelve months

           
                 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, (amounts in thousands)           2012     2011  
 
Cash Flows from Operating Activities:
Net income $ 5,475 $ 4,494
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,558 1,344
Provision for doubtful accounts 99 414
Deferred income taxes 1,894 571
Stock-based compensation expense 1,047 205
Loss on disposal of fixed assets 71 3
Income tax benefit from stock-based compensation 6 -
Fair value adjustment to contingent consideration 10 -
 
Changes in assets and liabilities:
Accounts receivable 52,686 23,072
Inventories 14,909 6,889
Prepaid expenses and other current assets (1,839 ) (712 )
Other non-current assets (68 ) (104 )
Accounts payable (19,041 ) (5,205 )
Accrued expenses and other liabilities   (1,646 )   (1,842 )
Net cash provided by operating activities   55,161     29,129  
 
Cash Flows from Investing Activities:
Purchases of property and equipment (2,823 ) (2,120 )
Acquisition of ValCom Technology, net of cash acquired   -     (3,745 )
Net cash used for investing activities   (2,823 )   (5,865 )
 
Cash Flows from Financing Activities:
Repayment of short-term borrowings (12,471 ) -
Proceeds from short-term borrowings 7,204 -
Purchase of treasury shares (1,715 ) -
Repayment of capital lease obligation to affiliate (233 ) (209 )
Exercise of stock options   14     131  
Net cash used for financing activities   (7,201 )   (78 )
Increase in cash and cash equivalents 45,137 23,186
Cash and cash equivalents, beginning of period   4,615     35,374  
Cash and cash equivalents, end of period $ 49,752   $ 58,560  
 
Non-cash Investing and Financing Activities:
Issuance of nonvested stock from treasury $ 740 $ -
Accrued capital expenditures 520 1,707
Contingent consideration recorded in accrued expenses and other liabilities - 2,880




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