PC Connection, Inc. (NASDAQ: PCCC), a holder of companies that provide a full range of information technology (IT) solutions from design through deployment to business, government, and education markets, today announced results for the quarter ended September 30, 2011. Net sales for the three months ended September 30, 2011 were $575.6 million, a year-over-year increase of $42.8 million or 8.0%. Net income for the quarter was $9.4 million, or $0.35 per share, compared to net income of $8.6 million, or $0.32 per share for the corresponding prior year quarter.
Net sales for the nine months ended September 30, 2011 were $1,550.1 million, an increase of $131.5 million or 9.3%, compared to $1,418.6 million for the nine months ended September 30, 2010. Net income for the nine months ended September 30, 2011 was $21.4 million, or $0.80 per share, compared to net income of $16.1 million, or $0.59 per share, for the nine months ended September 30, 2010.
Quarterly Sales by Segment:
- Net sales for the SMB business segment increased by 1.7% to $212.2 compared to net sales in the third quarter of 2010. Sales of desktops and notebooks related to the PC refresh continued in the quarter, however, the year-over-year growth rate for the quarter was lower due to higher sales of tablets in the third quarter of 2010.
- Net sales for the Large Account segment increased by 29.4% to $206.6 million compared to sales in the third quarter of 2010. This segment includes the operating results for ValCom Technology (“ValCom”), a provider of infrastructure management and onsite managed services to medium-to-large corporations, which we acquired in the first quarter of 2011. Excluding ValCom’s sales for the quarter, Large Account sales would have increased year over year by 24.1% due to increased sales to both existing and new customers.
- Net sales to government and education customers (Public Sector segment) were $144.6 million in the quarter, compared to $145.6 million in the third quarter of 2010. Increased sales to educational institutions during the quarter were offset by decreased sales to the federal government, which were impacted by constraints in the federal budget.
- Net sales to consumers and SOHO customers by PC Connection Express were $12.2 million, compared to $18.8 million in the third quarter of 2010. Gross margin improvements continued to be the primary focus for this segment in 2011.
Quarterly Sales by Product Mix:
- Desktop/server sales increased by 20% year over year, accounting for 17% of net sales in the third quarter of 2011 compared to 15% of net sales in the prior year quarter. Desktop sales grew primarily as a result of increased unit sales in our Large Account segment as ASPs were largely unchanged year over year.
- Notebook and PDA sales increased by 6% year over year and accounted for 17% of net sales in the third quarter of 2011 and 2010. Higher unit sales offset a decrease in average selling prices, or ASPs, which prices were impacted by competitive pricing pressures.
- Software sales decreased slightly by 1%, accounting for 14% of net sales in the third quarter of 2011, compared to 15% in the prior year quarter. Software sales increased in both the Large Account and SMB segments, but were offset by a year-over-year decrease in Public Sector sales, which reported an unusually large software sale in the third quarter of 2010.
- Video, Imaging and Sound sales grew by 27% year over year and accounted for 11% of net sales in the third quarter of 2011 compared to 10% in the prior year quarter. Year-over-year growth was largely due to a successful 2011 product roll-out in the Large Account segment.
Overall gross profit dollars for the quarter increased by 14%, or $8.5 million, compared to the third quarter of 2010. Consolidated gross margin, as a percentage of net sales, increased year over year by 60 basis points to 12.2% in the third quarter of 2011. Improved invoice selling margins was the primary driver for the increase. SMB, Public Sector, and Consumer/SOHO increased their gross margin compared to the prior year quarter, while Large Account experienced a decrease due in part to lower sales of high-margin enterprise software.
Overall annualized sales productivity increased slightly in the third quarter of 2011 compared to the third quarter of 2010. Sales productivity in the Large Account segment increased by 1%, but was largely offset by decreases in the SMB and Public Sector segments of 1% and 6%, respectively. On a consolidated basis, the total number of sales representatives was 636 at September 30, 2011, compared to 595 at September 30, 2010, and 630 at June 30, 2011.
Total selling, general and administrative expenses for the quarter increased year over year by 15%, or $6.9 million, and increased as a percentage of net sales from 8.9% for the third quarter of 2010 to 9.4% for the third quarter of 2011. The year-over-year increase was attributable to investments in solutions sales capabilities, increased variable compensation associated with improved gross profit, increased marketing expenditures, and the inclusion of ValCom’s operating costs for the quarter.
The Company repurchased 304 thousand shares of its common stock for treasury during the quarter. Total treasury stock purchased year-to-date was 487 thousand shares at an average price of $8.28 per share. The Company also considers block repurchases directly from larger stockholders, as well as open market purchases, in carrying out its ongoing stock repurchase program.
“We achieved record third quarter revenue and made significant gains in both gross margin and operating income that outpaced our revenue growth,” said Timothy McGrath, President and Chief Executive Officer. “Our focus on margin improvement resulted in our highest quarterly operating income and earnings per share in over a decade. We believe our strong team and core business strategies position us well for future success.”
About PC Connection, Inc.
PC Connection, Inc., a Fortune 1000 company, owns five sales companies: PC Connection Sales Corporation, MoreDirect, Inc., GovConnection, Inc., PC Connection Express, Inc., and Professional Computer Center, Inc. d/b/a ValCom Technology, headquartered in Merrimack, NH, Boca Raton, FL, Rockville, MD, Portsmouth, NH, and Itasca, IL, respectively. All five companies can deliver custom-configured computer systems overnight from PC Connection Services’ ISO 9001:2008 certified technical configuration lab at its 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 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 catalog telesales representatives, catalogs, publications, and its website at www.pcconnection.com.
MoreDirect, Inc. (561-237-3300), www.moredirect.com, provides corporate technology buyers with a comprehensive web-based e-procurement solution and in-depth IT supply-chain expertise, serving as a one-stop source by aggregating more than 300,000 products from the inventories of leading IT wholesale distributors and manufacturers. MoreDirect’s TRAXX™ system is a seamless end-to-end interface that empowers clients to electronically source, evaluate, compare prices, and track related technology product purchases in real-time.
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.
PC Connection Express, Inc. (888-800-0323) is a rapid-response provider of computer products and consumer electronics to home, home office, and small office users. Customers can purchase the best-known brands in the industry online at www.pcconnectionexpress.com or order by calling a trained sales specialist. The subsidiary includes the MacConnection brand (800-800-2222), one of Apple’s largest authorized online resellers at www.macconnection.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 host 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, 2010. More specifically, the statements in this release concerning the Company’s outlook for 2011 and other statements of a non-historical basis (including statements regarding the Company’s ability to grow revenues, improve gross margins, and increase market 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, and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. The Company assumes no 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 September 30,||2011||2010|
|(Dollars and shares in thousands, except operating data, P/E ratio, and per share data)|
|Diluted earnings per share||$||0.35||$||0.32||9||%|
|Return on equity (1)||13.8||%||14.1||%|
|Orders entered (2)||347,000||345,300||-|
|Average order size (2)||$||2,003||$||1,942||3||%|
|Inventory turns (1)||28||26|
|Days sales outstanding||46||49|
|Notebook & PDA||98,210||17||92,451||17||6|
|Video, Imaging & Sound||64,552||11||50,840||10||27|
|Printer & Printer Supplies||40,691||7||40,379||8||1|
|Memory & System Enhancement||17,745||3||25,171||5||(30||)|
|Total Net Sales||$||575,646||100||%||$||532,827||100||%||8||%|
|Net Sales of Enterprise Server and Networking Products (included in the above Product Mix):|
|Stock Performance Indicators:|
|Actual shares outstanding||26,309||26,544|
|Total book value per share||$||10.49||$||9.40|
|Tangible book value per share||$||8.34||$||7.52|
|Trailing price/earnings ratio||8||9|
|(2) Does not reflect cancellations or returns|
|REVENUE AND MARGIN INFORMATION|
|For the Three Months Ended September 30,||2011||2010|
|(Dollars in thousands)||Net|
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME|
|Three Months Ended September 30,||2011||2010|
|(amounts in thousands, except per share data)||Amount||% of Net Sales||Amount|
% of Net Sales
|Cost of sales||505,210||87.8||470,856||88.4|
|Selling, general and administrative expenses||54,554||9.4||47,640||8.9|
|Income from operations||15,882||2.8||14,331||2.7|
|Income tax provision||(6,435||)||(1.2||)||(5,643||)||(1.1||)|
|Earnings per common share:|
|Weighted average common shares outstanding:|
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME|
|Nine Months Ended September 30,||2011||2010|
|(amounts in thousands, except per share data)||Amount||% of Net Sales||Amount||% of Net Sales|
|Cost of sales||1,353,984||87.4||1,252,031||88.3|
|Selling, general and administrative expenses||160,321||10.3||139,615||9.8|
|Income from operations||35,828||2.3||26,989||1.9|
|Income tax provision||(14,376||)||0.9||(10,760||)||(0.8||)|
|Earnings per common share:|
|Weighted average common shares outstanding:|
|CONDENSED CONSOLIDATED BALANCE SHEETS||September 30,||December 31,|
|(amounts in thousands)||2011||2010|
|Cash and cash equivalents||$||39,760||$||35,374|
|Accounts receivable, net||269,916||238,011|
|Deferred income taxes||4,520||3,813|
|Prepaid expenses and other current assets||3,931||4,210|
|Income taxes receivable||250||1,489|
|Total current assets||391,347||357,190|
|Property and equipment, net||21,913||13,500|
|Other intangibles, net||5,389||1,786|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Current maturities of capital lease obligation to affiliate||$||945||$||870|
|Accrued expenses and other liabilities||26,611||23,963|
Total current liabilities
|Deferred income taxes||8,462||5,822|
|Capital lease obligation to affiliate, less current maturities||1,242||1,960|
|Additional paid-in capital||99,369||98,871|
|Treasury stock at cost||(8,978||)||(5,582||)|
|Total Stockholders’ Equity||276,102||257,639|
|Total Liabilities and Stockholders’ Equity||$||470,515||$||420,941|
|CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY|
|Nine Months Ended September 30, 2011 (amounts in thousands)|
|Common Stock||Additional||Retained||Treasury Stock|
|Balance–January 1, 2011||27,507||$||275||$||98,871||$||164,075||(854||)||$||(5,582||)||$||257,639|
|Stock-based compensation expense||-||-||698||-||-||-||698|
|Issuance of common stock under Employee Stock Purchase Plan||23||-||183||-||-||-||183|
|Nonvested stock awards||-||-||(633||)||-||93||633||-|
|Tax benefit from stock-based compensation||-||-||68||-||-||-||68|
|Repurchase of common stock for treasury||-||-||-||-||(487||)||(4,029||)||(4,029||)|
|Issuance of common stock under stock incentive plans||27||1||182||-||-||-||183|
|Net income and comprehensive income||-||-||-||21,360||-||-||21,360|
|Balance–September 30, 2011||27,557||$||276||$||99,369||$||185,435||(1,248||)||$||(8,978||)||$||276,102|
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Nine Months Ended September 30, (amounts in thousands)||2011||2010|
|Cash Flows from Operating Activities:|
|Adjustments to reconcile net income to net cash provided by|
|Depreciation and amortization||4,375||4,152|
|Deferred income taxes||1,933||1,256|
|Provision for doubtful accounts||1,765||1,737|
|Stock-based compensation expense||698||1,102|
|Income tax benefit (deficiency) from stock-based compensation||68||(18||)|
|Loss on disposal of fixed assets||13||6|
|Fair value adjustment to contingent consideration||(20||)||-|
|Changes in assets and liabilities:|
|Prepaid expenses and other current assets||1,786||(1,467||)|
|Other non-current assets||(157||)||71|
|Accrued expenses and other liabilities||(2,761||)||7,676|
|Net cash provided by operating activities||22,370||890|
|Cash Flows from Investing Activities:|
|Purchases of property and equipment||(8,483||)||(2,350||)|
|Acquisition of ValCom Technology, net of cash acquired||(4,745||)||-|
|Purchase of intangible asset||(450||)||(800||)|
|Proceeds from sale of property and equipment||-||6|
|Net cash used for investing activities||(13,678||)||(3,144||)|
|Cash Flows from Financing Activities:|
|Purchase of treasury shares||(4,029||)||(3,067||)|
|Repayment of capital lease obligation to affiliate||(643||)||(576||)|
|Issuance of stock under Employee Stock Purchase Plan||183||135|
|Exercise of stock options||183||-|
|Net cash used for financing activities||(4,306||)||(3,508||)|
|Increase (decrease) in cash and cash equivalents||4,386||(5,762||)|
|Cash and cash equivalents, beginning of period||35,374||46,297|
|Cash and cash equivalents, end of period||$||39,760||$||40,535|
|Non-cash Investing and Financing Activities:|
|Contingent consideration included in accrued expenses and other liabilities||$||1,900||$||-|
|Accrued capital expenditures||746||3,117|
|Issuance of nonvested stock from treasury||633||820|
William Schulze, 603-683-2322
Vice President and Corporate Controller
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