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PC Connection, Inc. Reports Third Quarter Results

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 September 30, 2012. Net sales for the three months ended September 30, 2012 decreased by 2.5% year over year to $561.3 million. Overall gross profit dollars for the quarter increased from $70.4 million to $72.2 million, or 2.5%, compared to the third quarter of 2011. Net income for the quarter increased to $9.9 million, or $0.37 per share, compared to net income of $9.4 million, or $0.35 per share, for the corresponding prior year quarter.

Net sales for the nine months ended September 30, 2012 increased by $52.5 million, or 3.4% to $1,602.6 million, compared to $1,550.1 million for the nine months ended September 30, 2011. Net income for the nine months ended September 30, 2012 increased to $24.2 million, or $0.91 per share, compared to net income of $21.4 million, or $0.80 per share, for the comparable prior year period. Excluding special charges, pro forma net income for the nine months ended September 30, 2012 would have been $24.9 million, or $0.93 per share, representing 16.3% growth over prior year. We did not record any special charges for the nine months ended September 30, 2011. Earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and special charges (“Adjusted EBITDA”) totaled $60.0 million for the twelve months ended September 30, 2012, as compared to $54.3 million for the twelve months ended September 30, 2011.

In 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 to include consumer and SOHO sales.

Quarterly Sales by Segment:

  • Net sales for the SMB business segment were $219.2 million in the third quarter of 2012. Sales to small and medium businesses increased by 2.2% year over year, however, when combined with lower consumer and SOHO sales, overall sales for this segment decreased by 2.3%.
  • Net sales for the Large Account segment decreased by 6.7% to $192.8 million compared to net sales in the third quarter of 2011. The decrease was due to two, large product roll-outs in the prior year which totaled $36 million that did not repeat in 2012. However, gross profit increased from $20.2 million to $22.3 million due to our strategic focus on improving results through higher-margin sales.
  • Net sales to government and education customers (Public Sector segment) increased year over year by 3.2% to $149.2 million. Sales to state and local government and educational institutions increased by 4.1% compared to last year, and sales to the federal government increased by 1.6% year over year due to higher contract sales.

Quarterly Sales by Product Mix:

  • Notebook sales, the Company’s largest product category, increased by 10.5% year over year and accounted for 19% of net sales in the third quarter of 2012 compared to 17% of net sales in the prior year quarter. The growth was attributable to both increased unit sales and higher average selling prices.
  • Desktop/server sales decreased by 15.1% year over year, accounting for 15% of net sales in the third quarter of 2012 compared to 17% of net sales in the prior year quarter. The decline in desktop sales was primarily a result of the prior year Large Account rollouts which did not repeat this quarter.
  • Software sales were unchanged, accounting for 15% of net sales in the third quarter of 2012, compared to 14% in the prior year quarter. Software sales increased in Large Account, and we experienced increasing demand in virtualization and security.

Consolidated gross margin, as a percentage of net sales, increased year over year by 63 basis points to 12.9% in the third quarter of 2012. As our customers migrate to data center and advanced technology solutions, we have experienced increased sales of higher margin products and services.

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