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PC Connection, Inc. Reports Second Quarter Results

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has four sales companies: PC Connection Sales Corporation, MoreDirect, Inc., GovConnection, Inc., and Professional Computer Center, Inc. d/b/a ValCom Technology, headquartered in Merrimack, NH, Boca Raton, FL, Rockville, MD, and Itasca, IL, respectively. All four companies can deliver custom-configured computer systems overnight from our ISO 9001:2008 certified technical configuration lab at our distribution center in Wilmington, OH. Investors and media can find more information about PC Connection, Inc. at http://ir.pcconnection.com.

PC Connection Sales Corporation (800-800-5555), the original business of PC Connection, Inc. serving primarily the small- and medium-sized business sector, is a rapid-response provider of IT products and services. It offers more than 300,000 brand-name products through its staff of technically trained sales account managers and telesales specialists, catalogs, publications, and its website at www.pcconnection.com. This company also serves the consumer and small office users under its PC Connection Express brand (888-800-0323) at www.pcconnectionexpress.com and is, under its MacConnection brand (800-800-2222), one of Apple’s largest authorized online resellers at www.macconnection.com.

MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides corporate technology buyers with best-in-class IT solutions, in-depth IT supply-chain expertise, and access to over 300,000 products and 1,600 vendors through TRAXX™, a cloud-based eProcurement system. Backed by over 500 technical certifications, MoreDirect’s team of engineers, software licensing specialists, and project managers help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

GovConnection, Inc. (800-800-0019) is a rapid-response provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, catalogs, and publications, and online at www.govconnection.com.

Professional Computer Center, Inc. d/b/a ValCom Technology (630-285-0500), www.valcomtechnology.com, provides technology services to medium-to-large corporate organizations utilizing its proprietary cloud-based IT service management software, WebSPOC™. Through its experienced technical service personnel, ValCom Technology provides network, server, storage, mission-critical onsite support, installation, and hosting of lifecycle services.

“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 June 30,   2012   2011    

(Amounts 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 $ 542,569 $ 512,561 6 %
Diluted earnings per share $ 0.33 $ 0.28 18 %
 
Gross margin 13.2 % 13.0 %
Operating margin 2.7 % 2.4 %
Return on equity (1) 12.6 % 11.3 %
 
Orders entered (2) 321,100 340,600 (6 %)
Average order size (2) $ 2,129 $ 1,883 13 %
 
Inventory turns (1) 28 25
Days sales outstanding 41 41
 
 
Product Mix:
Notebook $ 105,342 19 % $ 94,350 18 % 12 %
Software 84,839 16 76,254 15 11 %
Desktop/Server 82,424 15 81,494 16 1 %
Net/Com Product 52,361 10 50,089 10 5 %
Video, Imaging and Sound 49,764 9 52,326 10 (5 %)
Storage 38,659 7 35,720 7 8 %
Printer and Printer Supplies 37,143 7 37,557 7 (1 %)
Memory and System Enhancement 14,985 3 18,713 4 (20 %)
Accessory/Other   77,052   14     66,058   13   17 %
Total Net Sales $ 542,569   100 % $ 512,561   100 % 6 %
 
Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):
 
$ 193,135   36 % $ 184,279   36 % 5 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,352 26,541
Total book value per share $ 10.92 $ 10.13
Tangible book value per share $ 8.80 $ 7.99
Closing price $ 10.62 $ 8.28
Market capitalization $ 279,858 $ 219,759
Trailing price/earnings ratio 9.1 8.0
LTM Adjusted EBITDA (3) $ 59,607 $ 52,810
Market capitalization/LTM Adjusted EBITDA 4.7 4.2
 
(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 June 30,   2012     2011  
  Net   Gross Net   Gross
(amounts in thousands) Sales   Margin Sales   Margin
 
SMB $ 229,619 15.5 % $ 232,117 14.8 %
Large Account 196,947 11.6 160,717 12.0
Public Sector   116,003 11.3   119,727 11.1
Total $ 542,569 13.2 % $ 512,561 13.0 %

 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,   2012     2011  
(amounts in thousands, except per share data)   Amount   % of Net Sales   Amount   % of Net Sales
 
Net sales $ 542,569 100.0 % $ 512,561 100.0 %
Cost of sales   470,998   86.8     445,667   87.0  
Gross profit 71,571 13.2 66,894 13.0
 
Selling, general and administrative expenses   56,903   10.5     54,477   10.6  
Income from operations 14,668 2.7 12,417 2.4
 
Interest expense (64 ) - (87 ) -
Other, net (29 ) - 32 -
Income tax provision   (5,749 ) (1.1 )   (4,882 ) (0.9 )
Net income $ 8,826   1.6 % $ 7,480   1.5 %
 
Earnings per common share:
Basic $ 0.33   $ 0.28  
Diluted $ 0.33   $ 0.28  
 
Weighted average common shares outstanding:
Basic   26,403     26,852  
Diluted   26,519     26,923  
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30,   2012     2011  
(amounts in thousands, except per share data)   Amount   % of Net Sales   Amount   % of Net Sales
 
Net sales $ 1,041,332 100.0 % $ 974,487 100.0 %
Cost of sales   903,150   86.7     848,774   87.1  
Gross profit 138,182 13.3 125,713 12.9
 
Selling, general and administrative expenses 113,353 10.9 105,767 10.9
Special charges   1,135   0.1     -   -  
Income from operations 23,694 2.3 19,946 2.0
 
Interest expense (64 ) - (128 ) -
Other, net 17 - 97 -
Income tax provision   (9,346 ) (0.9 )   (7,941 ) (0.8 )
Net income $ 14,301   1.4 % $ 11,974   1.2 %
 
Earnings per common share:
Basic $ 0.54   $ 0.45  
Diluted $ 0.54   $ 0.44  
 
Weighted average common shares outstanding:
Basic   26,421     26,877  
Diluted   26,554     26,959  
 
A RECONCILIATION BETWEEN GAAP AND PRO FORMA NET INCOME
Six Months Ended June 30,           2012   2011
(provided for comparison of our operating results without special charges, amounts in thousands)
           
GAAP net income $ 14,301 $ 11,974
Special charges (after tax)   681   -
Pro forma net income $ 14,982 $ 11,974
 
Pro forma diluted earnings per common share $ 0.56 $ 0.44

 
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 June 30, Twelve Months Ended June 30,
2012 2011 % Change   2012 2011 % Change  
Net income $ 8,826 $ 7,480 $ 31,114 $ 27,478
Depreciation and amortization 1,623 1,545 6,243 5,427
Income tax expense 5,749 4,882 20,049 18,253
Interest expense, net   64   87   305   424
EBITDA   16,262   13,994   57,711   51,582
Stock-based compensation 172 235 1,603 1,228
Other special charges   -   -     293   -  
Adjusted EBITDA $ 16,434 $ 14,229 15 % $ 59,607 $ 52,810 13 %
         
  June 30,   December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS   2012 2011
(amounts in thousands)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 63,424 $ 4,615
Accounts receivable, net 253,734 295,188
Inventories 74,921 77,437
Prepaid expenses and other current assets

 

4,655

4,713
Deferred income taxes 3,398 4,436
Income taxes receivable   2,479     1,927  
Total current assets 402,611 388,316
Property and equipment, net 24,902 22,570
Goodwill 51,276 51,276
Other intangibles, net 4,697 5,205
Other assets   708     652  
Total Assets $ 484,194   $ 468,019  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate $ 1,026 $ 971
Borrowings under bank line of credit - 5,267
Accounts payable 138,199 130,900
Accrued expenses and other liabilities 31,222 30,902
Accrued payroll   12,649     12,964  
Total current liabilities 183,096 181,004
Deferred income taxes 9,877 9,026
Other liabilities 3,017 3,471
Capital lease obligation to affiliate, less current maturities   462     989  
Total Liabilities   196,452     194,490  
Stockholders’ Equity:
Common stock 277 276
Additional paid-in capital 100,716 99,957
Retained earnings 196,575 182,274
Treasury stock at cost   (9,826 )   (8,978 )
Total Stockholders’ Equity   287,742     273,529  
Total Liabilities and Stockholders’ Equity $ 484,194   $ 468,019  

         
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS    
Six Months Ended June 30,   2012 2011
(amounts in thousands)
Cash Flows from Operating Activities:
Net income $ 14,301 $ 11,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,181 2,889
Provision for doubtful accounts 690 1,119
Deferred income taxes 1,889 1,077
Stock-based compensation expense 1,219 441
Loss on disposal of fixed assets 85 13
Income tax benefit (deficiency) from stock-based compensation 41 (6 )
Excess tax benefit from exercise of stock options (5 ) -
Fair value adjustment to contingent consideration (30 ) (20 )
 
Changes in assets and liabilities:
Accounts receivable 40,764 (884 )
Inventories 2,516 (845 )
Prepaid expenses and other current assets (494 ) (680 )
Other non-current assets (56 ) (165 )
Accounts payable 7,385 18,925
Accrued expenses and other liabilities   541     (962 )
Net cash provided by operating activities   72,027     32,876  
 
Cash Flows from Investing Activities:
Purchases of property and equipment (5,180 ) (6,120 )
Proceeds from sale of equipment 4 -
Acquisition of ValCom Technology, net of cash acquired - (4,745 )
Purchase of intangible asset   -     (450 )
Net cash used for investing activities   (5,176 )   (11,315 )
 
Cash Flows from Financing Activities:
Repayment of short-term borrowings (12,471 ) -
Proceeds from short-term borrowings 7,204 -
Purchase of treasury shares (1,466 ) (1,477 )
Payment of contingent consideration (960 ) -
Payment of payroll taxes on stock-based compensation through shares withheld (308 ) (57 )
Repayment of capital lease obligation to affiliate (472 ) (423 )
Issuance of stock under Employee Stock Purchase Plan 260 183
Exercise of stock options 166 131
Excess tax benefit from exercise of stock options   5     -  
Net cash used for financing activities   (8,042 )   (1,643 )
Increase in cash and cash equivalents 58,809 19,918
Cash and cash equivalents, beginning of period   4,615     35,374  
Cash and cash equivalents, end of period $ 63,424   $ 55,292  
 
Non-cash Investing and Financing Activities:
Issuance of nonvested stock from treasury $ 926 $ 183
Accrued capital expenditures 344 454
Contingent consideration recorded in accrued expenses and other liabilities - 1,900

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Stock quotes in this article: PCCC 

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