CNXN

PC CONNECTION INC

Technology | Small Cap

$1.12

EPS Forecast

$733.5

Revenue Forecast

The company already released most recent quarter's earnings. We will publish our AI's next quarter's forecast around 2024-12-31
EX-99.1 2 a52168541ex99_1.htm EXHIBIT 99.1
Exhibit 99.1

Connection (CNXN) Reports Fourth Quarter and Full Year Results

Gross Profit Increases by 8.7% From Prior Q4

FOURTH QUARTER SUMMARY:

  • Gross profit: $116.1 million, up 8.7% y/y
  • Net income: $22.0 million, up 3.1% y/y
  • Diluted EPS: $0.83, compared to $0.80 y/y

FULL YEAR SUMMARY:

  • Gross profit: $451.3 million, up 9.8% y/y
  • Net income: $82.1 million, up 27.1% y/y
  • Diluted EPS: $3.10, compared to $2.41 y/y

MERRIMACK, N.H.--(BUSINESS WIRE)--February 4, 2020--Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading technology solutions provider to business, government, and education markets, today announced results for the fourth quarter and year ended December 31, 2019. Net sales for the quarter ended December 31, 2019 increased by 1.0% to $716.6 million, compared to $709.5 million for the prior year quarter. Net income for the fourth quarter ended December 31, 2019 increased by 3.1% to $22.0 million, or $0.83 per diluted share, compared to net income of $21.3 million, or $0.80 per diluted share, for the prior year quarter. Included in the prior year results was a favorable resolution of a contract dispute that resulted in an increase of $0.06 per diluted share.

Net sales for the year ended December 31, 2019 increased by 4.5% to $2.8 billion, compared to $2.7 billion for the year ended December 31, 2018. Net income for the year ended December 31, 2019 increased by 27.1% to $82.1 million, or $3.10 per diluted share, compared to net income of $64.6 million, or $2.41 per diluted share, for the year ended December 31, 2018.

Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and restructuring and other charges (“Adjusted EBITDA”) totaled $128.7 million for the year ended December 31, 2019, compared to $102.6 million for the year ended December 31, 2018.

Quarterly Performance by Segment:

  • Net sales for the Business Solutions segment increased 5.0% to $262.3 million in the fourth quarter of 2019, compared to $249.7 million in the prior year quarter. We experienced strong growth in sales of desktops and software products in the quarter. Gross profit increased by 12.5% to $52.6 million in the fourth quarter of 2019, compared to $46.8 million in the prior year quarter. Gross margin increased by 133 basis points to 20.1% due to higher sales volumes and the change in customer mix.
  • Net sales for the Public Sector Solutions segment increased by 11.9% to $132.5 million in the fourth quarter of 2019, compared to $118.4 million in the prior year quarter. Sales to the federal government increased by 25.4%, compared to the prior year quarter, while sales to state and local government and educational institutions increased by 3.8%. Gross profit increased by 28.5% to $20.9 million in the fourth quarter of 2019, compared to $16.3 million in the prior year quarter. Gross margin increased by 205 basis points to 15.8% primarily due to growth in sales and an increase in cloud-based and security software revenue, which is recognized on a net basis.
  • Net sales for the Enterprise Solutions segment decreased by 5.7% to $321.9 million in the fourth quarter of 2019, compared to $341.4 million in the prior year quarter. Gross profit decreased by 2.7% to $42.6 million in the fourth quarter of 2019, compared to $43.8 million in the prior year quarter. Gross margin increased by 41 basis points to 13.2% primarily due to an increase in sales of cloud-based and security software, which are recognized on a net basis.

Quarterly Sales by Product Mix:

  • Notebook/mobility sales, the Company’s largest product category, increased by 9% year over year and accounted for 28% of net sales in the fourth quarter of 2019, compared to 26% of net sales in the prior year quarter. The Public Sector and Enterprise Solutions segments experienced strong year-over-year growth in notebook/mobility sales.
  • Accessories sales decreased by 15% year over year and accounted for 12% of net sales in the fourth quarter of 2019, compared to 14% of net sales in the fourth quarter of 2018. The decrease was due to the timing of large rollouts, primarily in the Enterprise Solutions segment. The Business Solutions and Public Sector segments experienced year-over-year growth in accessories sales, compared to the prior year quarter.
  • Desktop sales increased by 21% year over year and accounted for 12% of net sales in the fourth quarter of 2019, compared to 10% of net sales in the prior year quarter. All three selling segments experienced strong year-over-year growth in desktop sales.
  • Software sales increased by 4% year over year and accounted for 12% of net sales in the fourth quarter of 2019 and 2018. The Business Solutions segment experienced strong year-over-year growth in software sales.

Selling, general and administrative (“SG&A”) expenses increased in the fourth quarter of 2019 to $86.5 million from $79.5 million in the prior year quarter. SG&A as a percentage of net sales, was 12.1%, compared to 11.2% in the prior year quarter. The increase in SG&A was primarily due to an increase in variable compensation due to the higher level of gross profit, as well as, an increase in advertising expense compared to the prior year quarter.

Cash and cash equivalents were $90.1 million at December 31, 2019, compared to $91.7 million at December 31, 2018. In January 2020, we paid a $0.32 per share special dividend to shareholders, which totaled $8.4 million. During the fourth quarter of 2019, the Company repurchased 2,333 shares of stock for $0.1 million.

“Connection achieved record fourth quarter and full year 2019 results. We saw strong demand for cloud, hybrid-cloud, software, and security solutions. We also continued to experience significant growth in modern workplace solutions driven by the PC refresh,” said Timothy McGrath, President and Chief Executive Officer. “I would like to thank our dedicated team for their commitment and hard work in delivering these record results,” concluded Mr. McGrath. “We believe the team and the strategies we have in place well position Connection to gain market share and increase long-term shareholder value.”


Conference Call and Webcast

Connection will host a conference call and live web cast today, February 4, 2020 at 4:30 p.m. ET to discuss its fourth quarter financial results. To access the conference call (audio only), please dial 877-776-4016 (US) or 973-638-3231 (International). A web-cast of the conference call, which will be broadcast live via the Internet, and a copy of this press release, can be accessed on Connection’s website at ir.connection.com. For those unable to participate in the live call, a replay of the webcast will be available at ir.connection.com approximately 90 minutes after the completion of the call and will be accessible on the site for approximately one year.

Non-GAAP Financial Information

Adjusted EBITDA, Adjusted EPS and Adjusted Net Income are non-GAAP financial measures. These measures are included to provide additional information with respect to the Company’s operating performance and earnings. Non-GAAP measures are not a substitute for GAAP measures and should be considered together with the GAAP financial measures. Our non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. A reconciliation to the most directly comparable GAAP measure is available in the tables at the end of this release.

About Connection

PC Connection, Inc. and its subsidiaries, dba Connection, (www.connection.com; NASDAQ: CNXN) is a Fortune 1000 company headquartered in Merrimack, NH. With offices throughout the United States, Connection delivers custom-configured computer systems overnight from its ISO 9001:2015 certified technical configuration lab at its distribution center in Wilmington, OH. In addition, the Company has over 2,500 technical certifications to ensure it can solve the most complex issues of its customers. Connection also services international customers through its GlobalServe subsidiary, a global IT procurement and service management company. Investors and media can find more information about Connection at http://ir.connection.com.

Connection – Business Solutions (800-800-5555), (the original business of PC Connection) operating through our PC Connection Sales Corp. subsidiary, is a rapid-response provider of IT products and services serving primarily the small‑ and medium-sized business sector. It offers more than 300,000 brand-name products through its staff of technically trained sales account managers, publications, and its website at www.connection.com.

Connection – Enterprise Solutions (561-237-3300), www.connection.com/enterprise, operating through our MoreDirect, Inc. subsidiary, 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 proprietary cloud-based eProcurement system. The team’s engineers, software licensing specialists, and project managers help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

Connection – Public Sector Solutions (800-800-0019), operating through our GovConnection, Inc. subsidiary, is a rapid-response provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, publications, and online at www.connection.com/publicsector.

cnxn-g

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are based on currently available information, operating plans, and projections about future events and trends. Terms such as "believe," "expect," "intend," "plan," "estimate," "anticipate," "may," "should," "will," or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements include such terms. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties include, but are 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, product availability and market acceptance, new products, continuation of key vendor and customer relationships and support programs, the ability to realize market demand for and competitive pricing pressures on the products and services marketed by the Company, fluctuations in operating results and the ability of the Company to manage personnel levels in response to fluctuations in revenue, the ability of the Company to hire and retain qualified sales representatives and other essential personnel, the impact of changes in accounting requirements, and other risks detailed in the Company's filings with the Securities and Exchange Commission, including 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, 2018. 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, except as required by law.

















 
CONSOLIDATED SELECTED FINANCIAL INFORMATION














At or for the Three Months Ended December 31,

2019



2018



















%

(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)













Change















 
Operating Data:














Net sales

$

716,627

 






$

709,520

 






1

%

Diluted earnings per share

$

0.83

 






$

0.80

 






4

%
















 
Gross margin

 

16.2

%






 

15.1

%







Operating margin

 

4.1

%






 

3.7

%







Return on equity (1)

 

14.6

%






 

12.7

%






















 
Inventory turns

 

18

 






 

21

 







Days sales outstanding

 

63

 






 

51

 






















 



% of




% of





Product Mix:

Net Sales




Net Sales





Notebooks/Mobility

 

28

%






 

26

%







Desktops

 

12

 






 

10

 







Accessories

 

12

 






 

14

 







Software

 

12

 






 

12

 







Net/Com Products

 

10

 






 

8

 







Displays

 

9

 






 

9

 







Servers/Storage

 

8

 






 

10

 







Other Hardware/Services

 

9

 






 

11

 







Total Net Sales

 

100

%






 

100

%






















 















 
Stock Performance Indicators:














Actual shares outstanding

 

26,345

 






 

26,396

 







Total book value per share

$

22.67

 






$

19.92

 







Tangible book value per share

$

19.56

 






$

16.77

 







Closing price

$

49.66

 






$

29.73

 







Market capitalization

$

1,308,293

 






$

784,753

 







Trailing price/earnings ratio

 

16.0

 






 

12.3

 







LTM Adjusted EBITDA (2)

$

128,662

 






$

102,620

 







Adjusted market capitalization/LTM Adjusted EBITDA (3)

 

9.5

 






 

6.8

 






















 
(1) Calculated as the trailing twelve months' of net income divided by the average trailing twelve months' of equity.





(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and
restructuring and other related charges.
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance.


























 















 
REVENUE AND MARGIN INFORMATION














For the Three Months Ended December 31,

2019



2018







Net

Gross

Net

Gross


(amounts in thousands)

Sales

Margin

Sales

Margin

















 
Business Solutions

$

262,309

 



20.1

%



$

249,726

 



18.7

%




Enterprise Solutions

 

321,851

 



13.2

 



 

341,356

 



12.8

 




Public Sector Solutions

 

132,467

 



15.8

 



 

118,438

 



13.7

 




Total

$

716,627

 



16.2

%



$

709,520

 



15.1

%



















 















 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME













Three Months Ended December 31,

Years Ended December 31,
(amounts in thousands, except per share data)



2019



2018



2019



2018















 
Net sales



$

716,627

 



$

709,520

 



$

2,820,034

 



$

2,699,489

 

Cost of sales



 

600,514

 



 

602,718

 



 

2,368,724

 



 

2,288,403

 

Gross profit



 

116,113

 



 

106,802

 



 

451,310

 



 

411,086

 















 
Selling, general and administrative expenses



 

86,510

 



 

79,518

 



 

338,635

 



 

324,433

 

Restructuring and other charges



 

-

 



 

967

 



 

703

 



 

967

 

Income from operations



 

29,603

 



 

26,317

 



 

111,972

 



 

85,686

 















 
Other income/(expense), net



 

263

 



 

2,566

 



 

707

 



 

2,978

 

Income tax provision



 

(7,900

)



 

(7,583

)



 

(30,568

)



 

(24,072

)

Net income



$

21,966

 



$

21,300

 



$

82,111

 



$

64,592

 















 
Earnings per common share:













Basic



$

0.83

 



$

0.80

 



$

3.12

 



$

2.42

 

Diluted



$

0.83

 



$

0.80

 



$

3.10

 



$

2.41

 















 
Shares used in the computation of earnings per common share:











Basic



 

26,322

 



 

26,632

 



 

26,335

 



 

26,717

 

Diluted



 

26,523

 



 

26,766

 



 

26,505

 



 

26,854

 















 











 







December 31,

December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS


 

2019

 



 

2018

 

(amounts in thousands)



















 
ASSETS









Current Assets:









Cash and cash equivalents





$

90,060

 



$

91,703

 

Accounts receivable, net





 

549,626

 



 

447,698

 

Inventories, net





 

124,666

 



 

119,195

 

Income taxes receivable





 

1,388

 



 

922

 

Prepaid expenses and other current assets




 

10,671

 



 

9,661

 

Total current assets





 

776,411

 



 

669,179

 

Property and equipment, net





 

64,226

 



 

51,799

 

Right-of-use assets, net





 

13,842

 



 

-

 

Goodwill





 

73,602

 



 

73,602

 

Intangibles assets, net





 

8,307

 



 

9,564

 

Other assets





 

947

 



 

1,211

 

Total Assets





$

937,335

 



$

805,355

 











 
LIABILITIES AND STOCKHOLDERS’ EQUITY








Current Liabilities:









Accounts payable





$

235,641

 



$

201,640

 

Accrued payroll





 

28,050

 



 

24,319

 

Accrued expenses and other liabilities




 

45,232

 



 

33,840

 

Total current liabilities





 

308,923

 



 

259,799

 

Deferred income taxes





 

20,170

 



 

17,184

 

Operating lease liability





 

10,330

 



 

-

 

Other liabilities





 

600

 



 

2,469

 

Total Liabilities





 

340,023

 



 

279,452

 

Stockholders’ Equity:









Common stock





 

288

 



 

288

 

Additional paid-in capital





 

118,045

 



 

115,842

 

Retained earnings





 

514,694

 



 

441,010

 

Treasury stock at cost





 

(35,715

)



 

(31,237

)

Total Stockholders’ Equity





 

597,312

 



 

525,903

 

Total Liabilities and Stockholders’ Equity




$

937,335

 



$

805,355

 











 













 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
















Three Months Ended December 31,

Years Ended December 31,
(amounts in thousands)



 

2019

 



 

2018

 



 

2019

 



 

2018

 

Cash Flows from Operating Activities:













Net income



$

21,966

 



$

21,300

 



$

82,111

 



$

64,592

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:











Depreciation and amortization



 

3,130

 



 

3,701

 



 

13,314

 



 

14,063

 

Deferred income taxes



 

2,976

 



 

1,059

 



 

2,986

 



 

1,488

 

Stock-based compensation expense



 

604

 



 

342

 



 

1,863

 



 

1,080

 

Loss on disposal of fixed assets



 

99

 



 

-

 



 

213

 



 

51

 

Provision for doubtful accounts



 

(156

)



 

252

 



 

25

 



 

1,680

 















 
Changes in assets and liabilities:













Accounts receivable



 

(70,563

)



 

(49,009

)



 

(101,953

)



 

14,872

 

Inventories



 

1,412

 



 

(13,912

)



 

(5,471

)



 

(23,311

)

Prepaid expenses and other current assets



 

(5,178

)



 

(1,857

)



 

(1,476

)



 

(1,045

)

Other non-current assets



 

(55

)



 

2,121

 



 

264

 



 

2,403

 

Accounts payable



 

38,127

 



 

35,083

 



 

34,960

 



 

5,722

 

Accrued expenses and other liabilities



 

4,219

 



 

6,506

 



 

9,767

 



 

5,244

 

Net cash provided by (used in) operating activities



 

(3,419

)



 

5,586

 



 

36,603

 



 

86,839

 















 
Cash Flows from Investing Activities:













Purchases of equipment



 

(5,035

)



 

(5,597

)



 

(25,656

)



 

(21,238

)

Net cash used in investing activities



 

(5,035

)



 

(5,597

)



 

(25,656

)



 

(21,238

)















 
Cash Flows from Financing Activities:













Proceeds from short-term borrowings



 

-

 



 

-

 



 

-

 



 

859

 

Repayment of short-term borrowings



 

-

 



 

-

 



 

-

 



 

(859

)

Dividend payment



 

-

 



 

-

 



 

(8,452

)



 

(9,122

)

Purchase of treasury shares



 

(115

)



 

(10,991

)



 

(4,478

)



 

(15,375

)

Issuance of stock under Employee Stock Purchase Plan


 

644

 



 

642

 



 

1,253

 



 

1,247

 

Payment of payroll taxes on stock-based compensation through shares withheld

 

(504

)



 

(180

)



 

(913

)



 

(638

)

Net cash (used in) provided by financing activities



 

25

 



 

(10,529

)



 

(12,590

)



 

(23,888

)

(Decrease)/Increase in cash and cash equivalents



 

(8,429

)



 

(10,540

)



 

(1,643

)



 

41,713

 

Cash and cash equivalents, beginning of period



 

98,489

 



 

102,243

 



 

91,703

 



 

49,990

 

Cash and cash equivalents, end of period



$

90,060

 



$

91,703

 



$

90,060

 



$

91,703

 















 
Non-cash Investing Activities:













Dividend declaration



$

8,427

 



$

8,452

 



$

8,427

 



$

8,452

 

Accrued capital expenditures



$

1,463

 



$

2,422

 



 

1,463

 



 

2,422

 















 
Supplemental Cash Flow Information:













Income taxes paid



$

9,488

 



$

4,811

 



$

28,460

 



$

19,945

 















 















 
EBITDA AND ADJUSTED EBITDA
























 
A reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for restructuring and other charges, favorable resolution of a contract dispute, and stock-based compensation. 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 includes or excludes 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. Non-GAAP measures are not a substitute for GAAP measures and should be considered together with the GAAP financial measures. Our non-GAAP financial measures may not be comparable to other similar titled measures of other companies.














 
(amounts in thousands)

Three Months Ended December 31,
Years Ended December 31, (1)



2019


2018


% Change

2019


2018


% Change
Net income

$

21,966


$

21,300

 


3%


$

82,111


$

64,592

 


27%


Depreciation and amortization

 

3,130


 

3,701

 


(15%)


 

13,314


 

14,064

 


(5%)


Income tax expense

 

7,900


 

7,583

 


4%


 

30,568


 

24,072

 


27%


Interest expense

 

25


 

41

 


(39%)


 

103


 

145

 


(29%)


EBITDA

 

33,021


 

32,625

 


1%


 

126,096


 

102,873

 


23%


Restructuring and other charges (2)

 

-


 

967

 


-


 

703


 

967

 


(27%)


Favorable resolution of a contract dispute, net (3)

 

-


 

(2,300

)


(100%)


 

-


 

(2,300

)


(100%)


Stock-based compensation

 

604


 

342

 


77%


 

1,863


 

1,080

 


73%


Adjusted EBITDA

$

33,625


$

31,634

 


6%


$

128,662


$

102,620

 


25%
















 
(1) LTM: Last twelve months













(2) Restructuring and other charges in 2019 and 2018 consist of severance and other charges related to internal restructuring activities.
(3) The Company recorded $2.3 million of income in other income/(expense), net as a result of a favorable resolution of a contract dispute.














 














 
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
















 
A reconciliation from Net Income to Adjusted Net Income is detailed below. Adjusted Net Income is defined as Net Income plus restructuring and other charges, net of tax. Adjusted Net Income and Adjusted Earnings Per Share are considered non-GAAP financial measures (see note above in Adjusted EBITDA for a description of non-GAAP financial measures). The Company believes that these non-GAAP disclosures provide helpful information with respect to the Company's operating performance.
(amounts in thousands, except per share data)

Three Months Ended December 31,


Years Ended December 31,





2019


2018


% Change

2019


2018


% Change
Net income

$

21,966


$

21,300

 




$

82,111


$

64,592

 




Restructuring and other charges, net of tax (1)

 

-


 

713

 




 

512


 

705

 




Favorable resolution of a contract dispute, net of tax (2)

 

-


 

(1,662

)




 

-


 

(1,644

)




Adjusted Net Income

$

21,966


$

20,351

 


8%


$

82,623


$

63,653

 


30%


Diluted shares

 

26,523


 

26,766

 




 

26,505


 

26,854

 




Adjusted Diluted Earnings per Share

$

0.83


$

0.76

 


9%


$

3.12


$

2.37

 


32%
















 














 
(1) Restructuring and other charges in 2019 and 2018 consist of severance and other charges related to internal restructuring activities.
(2) The Company recorded $2.3 million of income in other income/(expense), net as a result of a favorable resolution of a contract dispute.














 

 

Contacts

Investor Relations Contact:
Tom Baker, 603.683.2505
Tom@connection.com