PC Connection, Inc. Reports Second Quarter Results; Company Experiences Year-over-Year and Sequential Sales Growth in All Business Segments.MERRIMACK Merrimack, river, United States Merrimack, river, c.110 mi (180 km) long, formed at Franklin, S central N.H., by the junction of the Pemigewasset (rising in the White Mts.) and Winnipesaukee rivers. It flows S past Concord and Manchester into NE Mass. , N.H. -- PC Connection, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : PCCC PCCC Passaic County Community College (Paterson, NJ) PCCC Platform Communication on Climate Change (The Netherlands) PCCC Porsche Ceramic Composite Clutch ), a leading direct marketer of information technology products and solutions, today announced results for the quarter ended June June: see month. 30, 2005. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the three months ended June 30, 2005 increased by $15.4 million, or 4.6%, to $350.7 million from $335.3 million for the three months ended June 30, 2004. Net income for the quarter ended June 30, 2005 was $1.7 million, or $.07 per share, compared to $2.3 million, or $.09 per share for the three months ended June 30, 2004. Net sales for the six months ended June 30, 2005 increased by $11.6 million, or 1.7%, to $674.6 million from $663.0 million for the six months ended June 30, 2004. Net income for the six months ended June 30, 2005 was $2.7 million, or $.11 per share, compared to $3.4 million, or $.14 per share for the six months ended June 30, 2004. Net sales for the small- and medium-sized Me´di`um-sized` a. 1. Having a medium size; as, a medium-sized man s>. Adj. 1. medium-sized - intermediate in size medium-size, moderate-size, moderate-sized business (SMB (1) (Small to Medium-sized Business) Also called "SME" (small to medium-sized enterprise), it refers to companies that are larger than the small office/home office (SOHO), but not huge. ) segment increased by 6.8% from the second quarter of 2004 to $207.3 million and increased sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen by 3.5% over the immediately preceding quarter. Sales to large account customers increased by 0.7% over the second quarter of 2004 to $78.5 million and increased by 2.7% over the first quarter of 2005. Sales to government and education customers (the Company's public sector segment) increased for the quarter by 2.6% to $65.0 million compared to the second quarter of 2004. Patricia Gallup Gallup, town (1990 pop. 19,154), alt. 6,515 ft (1,986 m), seat of McKinley co., NW N.Mex., on the Puerco River near the Ariz. line; inc. 1891. It is a rail and trade center in a large mining, timber, and ranching area. , Chairman and Chief Executive Officer of PC Connection, Inc., said, "We are encouraged by our overall second quarter results, having experienced both year-over-year and sequential One after the other in some consecutive order such as by name or number. sales growth in our SMB, large account, and public sector segments. We expect the year-over-year trend to continue for all three business segments. In the public sector, which is entering the historically strongest purchasing period, we are positioned to expand our current GSA (1) (Global mobile Suppliers Association, Sawbridgeworth, U.K., www.gsacom.com) A membership organization of suppliers of GSM products and services. Its goal is to promote GSM as the worldwide mobile communications standard. See GSM Association and GSM. schedule, secure new contracts, and increase market share." Notebooks and PDAs continued to be the Company's largest product category, accounting for 18.1% of net sales in the second quarter of 2005 compared to 20.1% for the corresponding period a year ago. Desktop computers and servers accounted for 14.8% of net sales in the second quarter of 2005 compared to 13.8% of net sales for the corresponding period a year ago. The Company experienced double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. year-over-year growth in several product categories. Sales of desktops and servers, net/com products, and accessories/other increased 11.9%, 17.5%, and 17.1%, respectively, in the second quarter of 2005. Gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. , as a percentage of net sales, was 11.6% in the second quarter of 2005 compared to 10.8% in the second quarter of 2004, and compared to 11.5% in the first quarter of 2005. The year-over-year increase was attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the Company's refinement of its reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of certain vendor consideration proceeds from selling, general, and administrative expenses ("SG&A") to cost of sales, as required by issue No. 02-16 of the Emerging Issues Task Force ("EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation 02-16"). During the second quarter of 2005, the Company reclassified an additional $3.6 million of vendor consideration from SG&A expenses to cost of goods sold Cost of goods sold The total cost of buying raw materials, and paying for all the factors that go into producing finished goods. cost of goods sold , increasing gross profit margins by 103 basis points. Partially offsetting this increase was a 23-basis-point reduction in gross profit margin due to the increased competitive nature of the business during the second quarter. As previously stated, the Company expects that its gross profit margin as a percentage of net sales may vary by quarter based upon vendor support programs, product mix, pricing strategies There are many ways in which the price of a product can be determined. The following are the foremost strategies that businesses are likely to use. Competition-based pricing Setting the price based upon prices of the similar competitor products. , market conditions, and other factors. Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. productivity decreased slightly in the second quarter of 2005 by 1.8% compared to the second quarter of 2004 but increased sequentially by 6.4%, as all three segments improved sequentially. The total number of sales representatives as of June 30, 2005 increased by 6.9% to 602 from 586 as of March 31, 2005 and from 563 as of June 30, 2004. Total selling, general, and administrative expenses, as a percentage of sales, increased to 10.7% in the second quarter of 2005 compared to 9.4% in the corresponding period a year ago, primarily as the result of the EITF 02-16 reclassification referred to earlier. The Company expects that its SG&A, as a percentage of net sales, may vary by quarter depending on changes in sales volume, as well as the levels of continuing investments in key growth initiatives. Earlier this month, the Company hired Kenneth A. Grady Grady is the name of more than one place in the United States:
Ms. Gallup concluded, "PC Connection continues to add talent to its already strong and experienced management team. In addition, we believe we have the right product and market strategies, brand recognition, and sharp focus on service to grow our business and enhance long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. shareholder value." PC Connection, Inc., a Fortune 1000 company, operates three sales subsidiaries, PC Connection Sales Corporation of Merrimack, NH, GovConnection, Inc. of Rockville Rockville, city (1990 pop. 44,835), seat of Montgomery co., W central Md., a NW suburb of Washington, D.C.; settled c.1760s, inc. as a city 1860. It has several scientific research and technology laboratories that focus on the aerospace, electronics, nuclear energy, , MD, and MoreDirect, Inc. of Boca Raton Boca Raton (bō`kə rətōn`), city (1990 pop. 61,492), Palm Beach co., SE Fla., on the Atlantic; inc. 1925. Boca Raton is a popular resort and retirement community that experienced significant industrial development in the 1970s and 80s. , FL. PC Connection Sales Corporation (1-800-800-5555) is a rapid-response provider of information technology (IT) products and solutions offering more than 100,000 brand-name products to businesses through its staff of technically trained sales account managers and catalog catalog, descriptive list, on cards or in a book, of the contents of a library. Assurbanipal's library at Nineveh was cataloged on shelves of slate. The first known subject catalog was compiled by Callimachus at the Alexandrian Library in the 3d cent. B.C. telesales telesales Noun the selling of a commodity or service by telephone telesales npl → televentas fpl telesales npl → representatives, catalogs, and publications, and its web site at www.pcconnection.com. The subsidiary serves the Apple/Macintosh community through its MacConnection division (1-800-800-2222), which also publishes specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. catalogs and is online at www.macconnection.com. GovConnection, Inc. (1-800-800-0019) is a rapid-response provider of IT products and solutions to federal, state, and local government agencies and educational institutions through specialized account managers, catalogs, and publications, and online at www.govconnection.com. MoreDirect, Inc. (www.moredirect.com) provides corporate technology buyers with a comprehensive web-based e-procurement (Electronic-PROCUREMENT) Purchasing online. E-procurement systems are used to obtain materials and parts via the Web or using traditional EDI standards either for internal manufacturing (direct procurement) or office supplies and equipment (indirect procurement). solution and in-depth in-depth adj. Detailed; thorough: an in-depth study. in-depth Adjective detailed or thorough: an in-depth analysis IT supply-chain expertise, serving as a one-stop one-stop adj. Relating to or providing a comprehensive selection of goods or services at a single location: one-stop shopping; a one-stop health-care center. source by aggregating more than 300,000 products from the inventories of leading IT wholesale distributors and manufacturers. All three subsidiaries can deliver custom-configured computer systems overnight. A live webcast of PC Connection management's discussion of the second quarter will be available on the Company's Web site at www.pcconnection.com and on www.streetevents.com. The webcast will begin today at 11:00 a.m. Eastern Time. "Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " Statement Under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995: This release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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, 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 other risks detailed under the caption "Factors That May Affect Future Results and Financial Condition" in the Company's Quarterly Report on Form 10-Q Form 10-Q See 10-Q. filed with the Securities and Exchange Commission for the quarter ended March 31, 2005. More specifically, the statements in this release concerning the Company's outlook for 2005 and the statements concerning the Company's gross margin percentage, productivity, and selling and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. and other statements of a non-historical basis (including statements regarding implementing strategies for future growth, the ability of the Company to improve sales productivity and increase its active customers) 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 continuation - continuation passing style of key vendor and customer relationships and support programs and the ability of the Company to hire and retain qualified sales representatives and other essential personnel.
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
At or for the Three
Months Ended June 30, 2005 2004
(Dollars and shares % of % of %
in thousands, except Net Net Change
operating data, Sales Sales
price/earnings ratio
and per share data)
Operating Data:
Net sales $350,710 $ 335,335 4.6%
Diluted earnings
per share $ .07 $ .09 (22.2)
Gross profit margin 11.6% 10.8%
Operating margin 0.9 1.2
Return on equity(1) 4.1 5.7
Catalogs distributed 7,196,000 7,205,000 (0.1)
Orders entered(2) 351,300 308,700 13.8
Average order size(2) $ 1,160 $ 1,318 (12.0)
Inventory turns(1) 19 16
Days sales
outstanding 41 41
Product Mix:
Notebooks & PDAs $ 63,615 18.1 $ 67,413 20.1% (5.6)%
Desktops/Servers 51,720 14.8 46,228 13.8 11.9
Storage Devices 28,739 8.2 26,710 8.0 7.6
Software 42,557 12.1 39,435 11.8 7.9
Net/Com Products 27,830 7.9 23,680 7.0 17.5
Printers & Printer
Supplies 37,696 10.8 39,737 11.8 (5.1)
Video, Imaging &
Sound 43,165 12.3 42,157 12.6 2.4
Memory & System
Enhancements 17,480 5.0 17,593 5.2 (0.6)
Accessories/Other 37,908 10.8 32,382 9.7 17.1
--------- ------ --------- ------ -----
$ 350,710 100.0% $ 335,335 100.0% 4.6%
========= ====== ========= ======
Net Sales of Enterprise Server and Networking Products (included in
the above Product Mix):
$ 95,066 27.1% $ 83,696 25.0% 13.6%
========= =========
Stock Performance
Indicators:
Actual shares
outstanding 25,224 25,045
Total book value
per share $ 6.72 $ 6.43
Tangible book value
per share $ 4.55 $ 4.51
Closing price $ 6.21 $ 6.53
Market
capitalization $ 156,641 $ 163,544
Trailing
price/earnings
ratio(3) 21 25
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters
SELECTED SEGMENT INFORMATION
For the Three Months
Ended June 30, 2005 2004
(Dollars in Net Gross Net Gross
thousands) Sales Margin (%) Sales Margin (%)
PC Connection Sales
Corporation (SMB) $ 207,296 12.4% $ 194,058 11.7%
GovConnection (Public
Sector) 64,957 10.4 63,335 9.1
MoreDirect (Large
Account) 78,457 10.5 77,942 9.8
--------- ----- --------- -----
Total $ 350,710 11.6% $ 335,335 10.8%
========= ===== ========== =====
CONSOLIDATED INCOME STATEMENTS
Three Months Ended June 30, 2005 2004
(Amounts in thousands, except Amount % of Net Amount % of Net
per share data) Sales Sales
Net sales $350,710 100.00% $335,335 100.00%
Cost of sales 310,096 88.42 299,173 89.22
-------- ------ -------- -------
Gross Profit 40,614 11.58 36,162 10.78
Selling, general, and
administrative expenses 37,379 10.66 31,483 9.39
Special charges - - 753 .22
-------- ------ -------- -------
Income From Operations 3,235 .92 3,926 1.17
Interest expense (285) (.08) (341) (.10)
Other, net 50 .01 54 .01
Income tax provision (1,274) (.36) (1,383) (.41)
---------- ----- --------- ------
Net Income $ 1,726 .49% $ 2,256 .67%
========== ===== ========= ======
Weighted average common shares
outstanding:
Basic 25,157 25,008
========= ========
Diluted 25,211 25,225
========= ========
Earnings per common share:
Basic $ .07 $ .09
========= ========
Diluted $ .07 $ .09
========= ========
CONSOLIDATED INCOME STATEMENTS
Six Months Ended June 30, 2005 2004
(Amounts in thousands, except Amount % of Amount % of
per share data) Net Net
Sales Sales
Net sales $674,561 100.00% $662,970 100.00%
Cost of sales 596,613 88.45 592,883 89.43
-------- ------- -------- -------
Gross Profit 77,948 11.55 70,087 10.57
Selling, general, and
administrative expenses 72,795 10.79 62,173 9.38
Special charges - - 1,783 .27
-------- ------- -------- -------
Income From Operations 5,153 .76 6,131 .92
Interest expense (557) (.08) (725) (.11)
Other, net 25 - 101 .02
Income tax provision (1,947) ( .28) (2,093) (.32)
-------- ------- -------- -------
Net Income $ 2,674 .40% $ 3,414 .51%
======== ======= ======== =======
Weighted average common shares
outstanding:
Basic 25,142 25,003
======== =======
Diluted 25,274 25,295
======== =======
Earnings per common share:
Basic $ .11 $ .14
======== =======
Diluted $ .11 $ .14
======== =======
CONSOLIDATED BALANCE SHEETS June 30, December 31,
(Amounts in thousands) 2005 2004
ASSETS
Current Assets:
Cash and cash equivalents $ 16,502 $ 6,829
Accounts receivable, net 123,743 120,752
Inventories - merchandise 61,593 78,390
Deferred income taxes 2,858 3,039
Income taxes receivable 1,621 1,325
Prepaid expenses and other current assets 4,491 3,644
---------- ----------
Total current assets 210,808 213,979
Property and equipment, net 16,406 17,647
Goodwill, net 51,687 51,687
Other intangibles, net 2,864 3,040
Other assets 333 189
---------- ----------
Total assets $ 282,098 $ 286,542
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligations:
To affiliate $ 393 $ 373
To third party 403 391
Note payable - bank - 4,810
Accounts payable 84,864 79,709
Accrued expenses and other liabilities 17,156 18,138
Acquisition earn-out obligation - 6,921
---------- ----------
Total current liabilities 102,816 110,342
Capital lease obligation, less current
maturities:
To affiliate 5,513 5,715
To third party 604 841
Deferred income taxes 3,737 3,486
---------- ----------
Total liabilities 112,670 120,384
---------- ----------
Stockholders' Equity:
Common stock 256 255
Additional paid-in capital 77,686 77,091
Retained earnings 93,772 91,098
Treasury stock at cost (2,286) (2,286)
---------- ----------
Total stockholders' equity 169,428 166,158
---------- ----------
Total liabilities and stockholders'
equity $ 282,098 $ 286,542
========== ==========
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six months ended June 30, 2005 (Amounts in thousands)
Common Stock Additional Retained
------------
Shares Amount Paid-In Earnings
Capital
Balance - December 31, 2004 25,462 $ 255 $ 77,091 $ 91,098
Exercise of stock options,
including income tax
benefits 92 1 427 -
Issuance of stock under
employee stock purchase
plan 32 0 168 -
Net income - - - 2,674
------ ------- ---------- ----------
Balance - June 30, 2005 25,586 $ 256 $ 77,686 $ 93,772
====== ======= ========== ==========
Treasury Shares
---------------
Shares Amount Total
Balance - December 31, 2004 (362) $ (2,286) $ 166,158
Exercise of stock options,
including income tax
benefits - - 428
Issuance of stock under
employee stock purchase
plan - - 168
Net income - - 2,674
------- --------- ---------
Balance - June 30, 2005 (362) $ (2,286) $ 169,428
======= ========= =========
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, (Amounts in thousands) 2005 2004
Cash Flows from Operating Activities:
Net income $ 2,674 $ 3,414
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,586 3,539
Deferred income taxes 432 916
Provision for doubtful accounts 1,805 2,076
Loss on disposal of fixed assets 40 1
Changes in assets and liabilities:
Accounts receivable (4,796) 22,441
Inventories 16,797 (232)
Prepaid expenses and other current assets (1,143) 905
Other non-current assets (144) 2
Accounts payable 5,155 (23,576)
Income tax benefits from exercise of stock
options 80 85
Accrued expenses and other liabilities (982) 1,519
------- -------
Net cash provided by operating activities 23,504 11,090
------- -------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,222) (1,002)
Proceeds from sale of property and equipment 13 -
Payment of acquisition earn-out obligation (6,921) (11,095)
Cash escrow distributed for acquisition - 5,000
------- -------
Net cash used for investing activities (9,130) (7,097)
------- -------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 125,205 174,121
Repayment of short-term borrowings (130,015) (179,735)
Repayment of capital lease obligations (407) (163)
Exercise of stock options 348 58
Issuance of stock under employee stock
purchase plan 168 205
------- -------
Net cash used for financing activities (4,701) (5,514)
------- -------
Increase (decrease) in cash and cash
equivalents 9,673 (1,521)
Cash and cash equivalents, beginning of period 6,829 2,977
------- -------
Cash and cash equivalents, end of period $16,502 $1,456
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