PC Connection, Inc. Reports Second Quarter Earnings of $0.29 Per Share
MERRIMACK, N.H.--(BUSINESS WIRE)--July 27, 1999--
SECOND QUARTER HIGHLIGHTS:
33% growth in net sales
53% growth in outbound sales
86% growth in Internet sales
24% growth in average order size
PC Connection, Inc. (NASDAQ:PCCC - news) today announced net income for the quarter ended June 30, 1999 of $4.7 million, or $0.29 per share, compared to net income of $4.1 million, or $.26 per share, for the corresponding quarter a year ago. Net sales were $231.8 million for the second quarter of 1999, compared to $174.3 million for the corresponding quarter a year ago, representing an increase of $57.5 million, or 33%.
For the six months ended June 30, 1999, the Company reported net income of $9.1 million, or $0.57 per share, compared to pro forma net income of $7.1 million, or $0.46 per share, for the corresponding six month period. Net sales reported for the six month period ended June 30, 1999 were $456.8 million, compared to $343.0 million for the corresponding six month period one year ago, an increase of $113.8 million, or 33.2%.
Patricia Gallup, Chairman and Chief Executive Officer, said, ''This was another solid quarter for PC Connection, with strong year-over-year sales growth. We continued to enhance our growth prospects through the rapid expansion of our outbound sales staff and with the strategic acquisition at the end of the quarter of ComTeq Federal, a leading supplier of computer equipment and services to federal government agencies.
The acquisition of ComTeq broadens our existing government sales capabilities, gives us a large and established client base, and will be additive to our 1999 results. Other highlights during the quarter included closing on a $50 million unsecured line of credit to support our continued expansion, the launch of our EPIQ Business PC Line, and the inclusion of PC Connection in the Russell 2000 and 3000 Indexes.''
The Company's strong outbound sales growth trends continued during the quarter, increasing 52.8% to $147.3 million in the second quarter of 1999, compared to $96.4 million in the year ago quarter. These sales represent a 14.5% sequential increase over the first quarter of 1999. The average outbound account representative generated approximately $1.8 million in annualized net sales during the 1999 quarter.
Wayne Wilson, President and Chief Operating Officer said, ''During the quarter, we continued to aggressively build and train our outbound managed account staff and to grow our outbound business. We added 53 new account managers bringing the quarter end total to 313, an increase of 20.4%, putting us ahead of our plan for the full year. The added size and scale of our outbound managed account staff will allow us to drive additional sales volumes through new accounts and to expand the relationships we have with our already large base of long-term corporate customers.''
Internet sales processed directly online during the second quarter of 1999 increased 86% to $12.2 million compared to $6.6 million in the year ago quarter. Second quarter sales sourced from the company's web site, including orders processed online and web-generated phone orders, were approximately $25.0 million in 1999 or 10.8% of net sales, representing a 68.9% increase over the prior year period. Total Internet-sourced sales for the six months ended June 30, 1999 increased 101.6% to $52.0 million, compared with $25.8 million for the year ago period.
Ms. Gallup continued, ''PC Connection understands the Internet and is committed to leveraging it to increase our penetration of the small and medium-sized market. We are actively developing the tools corporate customers need to more efficiently procure computing products. Most recently we rolled-out our Internet Business Accounts(TM) service which allows business, educational and government customers to create secure, personalized accounts for conducting seamless transactions online. Ongoing initiatives such as these have resulted in PC Connection being ranked by several industry publications as one of the top companies providing business technology solutions to small and medium-sized businesses over the Internet.''
Computer systems and memory accounted for 47.9% of net sales and continued to be the fastest growing product category in the second quarter, up 50.2% from the year ago quarter. Peripherals and software grew by 26.3% and 19.9% respectively, over the year ago quarter. Computer system average selling prices (ASPs) increased 9% in the second quarter compared to the first quarter of 1999, while declining year over year by approximately 4%.
Notebook, desktop and server unit volumes increased year over year by 53%, 64% and 169%, respectively.
Gross profit margin as a percentage of net sales decreased from 13.0% in the second quarter of 1998 to 12.0% in the second quarter of 1999. This decrease was due primarily to the continued growth in systems sales and growth in outbound telemarketing sales, which generally carry lower margins. As stated in previous releases, 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, market conditions and other factors.
Continued growth in unit volumes and an increase in average order size to $741 enabled the Company to continue to leverage its operating expenses. Total selling, general, and administrative expenses, as a percentage of net sales, decreased from 9.2% in the second quarter of 1998, to 8.6% in the second quarter of 1999.
Gallup concluded, ''We are confident about our growth prospects for the remainder of the year. We will continue to build upon PC Connection's strong track record for sales growth and profitability by providing our core business customers with the computer solutions they need. With our dedicated Internet e-commerce sites supporting our other channels, we are well positioned to further penetrate the rapidly growing small and medium-sized business market. ''
PC Connection, Inc. is a leading direct marketer of over 25,000 brand-name personal computer products through its catalogs PC Connection (1-800-800-5555) and MacConnection (1-800-800-2222), its comprehensive web sites at www.pcconnection.com and www.macconnection.com, and its staff of technically trained corporate account managers and catalog telesales representatives. The company's full-service Distribution and Custom-Configuration Center allow it to deliver custom-configured computer systems overnight. PC Connection was recently listed as one of the 100 hottest companies on the Internet. In recognition of its role as a critical link between manufacturers of computer products and end users of these products, the Company has received the highest ranking of any computer reseller for the last two years on the list of 100 Most Influential Companies in the Computer Industry, published in PC Magazine. In addition, PC Connection has won PC World magazine's prestigious ''World Class Award'' eight times over the past ten years, including 1999.
''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 competitive products and pricing, product demand and market acceptance, new products, fluctuations in operating results and other risks detailed under the caption ''Risk Factors'' in the Company's 1998 Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998.
CONSOLIDATED SELECTED FINANCIAL HIGHLIGHTS
(Dollars and shares in thousands, except operating data,
price/earnings ratio and per share data)
At or for the Three Months
Ended June 30, 1999 1998
% of % of
Net Net %
Operating Data: Sales Sales Change
Net sales growth 33.0% 43.5%
Gross profit margin 12.0 13.0
Operating margin 3.4 3.8
Active customers (1) 720,000 559,000 28.8%
Catalogs distributed 11,068,000 10,312,000 7.3
Orders entered (2) 384,000 344,000 11.6
Average order size (2) $ 741 $ 600 23.5
Inventory turns (3) 14.0 10.3
Days sales outstanding 25 17
Product Mix:
Computer systems/memory $ 111,102 47.9% $ 73,941 42.4% 50.2%
Peripherals 74,891 32.3 59,245 34.0 26.3
Software 30,637 13.2 25,545 14.6 19.9
Networking and
communications 15,203 6.6 15,618 9.0 (2.7)
---------- ----- -------- ----- ----
$ 231,833 100.0% $ 174,349 100.0% 33.0%
Stock Performance Indicators:
Actual shares outstanding 15,649 15,428
Closing price $ 12.06 $ 15.25
Market capitalization $ 188,727 $ 235,277
Price/earnings ratio (3) 10 15
(1) All customers included in the Company's mailing list who have made
a purchase within the last twelve-month period.
(2) Does not reflect cancellations or returns.
(3) Annualized.
CONSOLIDATED INCOME STATEMENTS (1) (2)
(Amounts in thousands, except per share data)
Three Months Ended June 30,
1999 1998
% of Net % of Net
Amount Sales Amount Sales
Net Sales
Net sales $ 231,833 100.00% $ 174,349 100.00%
Cost of sales 204,034 88.01 151,768 87.05
Gross Profit 27,799 11.99 22,581 12.95
Selling, general and
administrative expenses 20,040 8.64 16,042 9.20
Income From Operations 7,759 3.35 6,539 3.75
Interest expense (276) (0.12) (51) (.03)
Other, net 47 0.02 213 .12
Income tax provision (1) (2,862) (1.24) (2,613) (1.50)
Net Income $ 4,668 2.01% $ 4,088 2.34%
Weighted average common
shares outstanding:
Basic 15,627 15,414
Diluted 16,058 15,938
Earnings per common share:
Basic $ 0.30 $ .27
Diluted $ 0.29 $ .26
CONSOLIDATED INCOME STATEMENTS (1) (2)
(Amounts in thousands, except per share data)
Six Months Ended June 30,
1999 1998
% of Net % of Net
Amount Sales Amount Sales
Net Sales
Net sales $ 456,812 100.00% $ 342,992 100.00%
Cost of sales 401,947 87.99 298,462 87.02
Gross Profit 58,865 12.01 44,530 12.98
Selling, general and
administrative expenses 39,803 8.71 32,900 9.59
Additional
stockholder/officer
compensation -- -- 2,354 .69
Income From Operations 15,062 3.30 9,276 2.70
Interest expense (542) (0.12) (257) (.07)
Other, net 141 0.03 299 .09
Income tax benefit
(provision) (1) (5,572) (1.22) 1,175 .34
Net Income $ 9,089 1.99% $ 10,493 3.06%
Weighted average common shares
outstanding:
Basic 15,627
Diluted 16,058
Earnings per common share:
Basic $ 0.58
Diluted $ 0.57
Pro forma data:
Historical income before income taxes $ 9,318
Pro forma adjustment - stockholder/officer
compensation in excess of the aggregate base
salaries 2,354
Pro forma income before income taxes 11,672
Pro forma income taxes (4,552)
Pro forma net income (2) $ 7,120
Pro forma weighted average shares outstanding:
Basic 14,829
Diluted 15,371
Pro forma earnings per share:
Basic $ .48
Diluted $ .46
(1) For all periods prior to March 6, 1998 described herein, the
Company elected to be treated as an S Corporation under Subchapter S
of the Code, and applicable state laws. Effective March 6, 1998, the
closing of the Company's initial public offering, the Company's S
Corporation election was automatically terminated, and the Company
became subject to federal and state income taxes as a C Corporation
from that date forward. For the quarter ended March 31, 1998, the
income tax provision includes a $4.2 million tax benefit related to
the establishment of additional deferred tax assets for future tax
deductions resulting from the termination of the Company's Subchapter
S Corporation status.
(2) Pro forma net income is determined by (i) eliminating
stockholder/officer compensation in excess of the aggregate base
salaries ($150,000) per quarter and (ii) by eliminating the actual
income tax provision and adding a provision for Federal and state
income taxes that would have been payable by the Company if taxed
under Subchapter C of the Code for all periods prior to March 6, 1998.
CONSOLIDATED BALANCE SHEETS June 30, Dec. 31,
(Amounts in thousands) 1999 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 3,235 $ 11,910
Accounts receivable, net 73,302 58,890
Inventories - merchandise 62,837 63,425
Deferred income taxes 2,038 3,181
Prepaid expenses and other current assets 3,656 4,115
Total current assets 145,068 141,521
Goodwill 9,755 --
Deferred income taxes 330 314
Property and equipment, net 23,786 22,675
Total Assets $178,939 $164,510
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease
obligation to affiliate $ 169 $ 123
Notes payable, current maturities 1,000 --
Accounts payable 78,319 77,561
Accrued expenses and other liabilities 11,140 10,069
Total current liabilities 90,628 87,753
Notes payable, less current maturities 2,000 --
Capital lease obligation to affiliate 7,016 7,081
Total Liabilities 99,644 94,834
Stockholders' Equity:
Common stock 156 156
Additional paid-in capital 57,342 56,812
Retained earnings 21,797 12,708
Total Stockholders' Equity 79,295 69,676
Total Liabilities and
Stockholders' Equity $178,939 $164,510
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1999 (Amounts in thousands)
Additional
Common Stock Paid In Retained
Shares Amount Capital Earnings Total
Balance -
December 31, 1998 15,605 $ 156 $56,812 $12,708 $69,676
Exercise of stock
options, including
income tax benefits 25 -- 266 -- 266
Issuance of stock
under employee stock
purchase plan 19 -- 198 -- 198
Compensation under
nonstatutory
stock option agreements -- -- 66 -- 66
Net income -- -- -- 9,089 9,089
Balance -
June 30, 1999 15,649 $ 156 $57,342 $21,797 $79,295
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Six Months Ended June 30, 1999 1998
Cash Flows from Operating Activities:
Net income $ 9,089 $ 10,493
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 2,367 1,361
Deferred income taxes 1,277 (5,025)
Compensation under nonstatutory
stock option agreements 66 1,172
Provision for doubtful accounts 2,896 1,403
Loss on disposal of fixed assets 24 74
Changes in assets and liabilities:
Accounts receivable (12,767) (5,979)
Inventories 1,206 4,835
Prepaid expenses and other
current assets 912 (1,118)
Accounts payable (7,283) 26,975
Amounts payable to stockholders -- (1,185)
Accrued expenses and other
liabilities (108) 1,506
Net cash provided by (used for)
operating activities (2,321) 34,512
Cash Flows from Investing Activities:
Purchases of property and equipment (3,415) (3,637)
Proceeds from sale of property
and equipment 3 --
Payment for purchase of ComTeq,
net of cash acquired (3,198) --
Net cash used for investing activities (6,610) (3,637)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings 246,251 20,796
Repayment of short-term borrowings (246,251) (49,174)
Repayment of term loan -- (4,500)
Repayment of capital lease
obligations (58) --
Issuance of stock upon exercise of
nonstatutory stock options 116 27
Issuance of stock under
Employee Stock Purchase Plan 198 --
Net proceeds from initial public
offering -- 57,253
Payment of dividend -- (33,037)
Net cash provided by (used for)
financing activities 256 (8,635)
(Decrease) increase in cash
and cash equivalents (8,675) 22,240
Cash and cash equivalents,
beginning of period 11,910 758
Cash and cash equivalents,
end of period $ 3,235 $ 22,998
Supplemental Cash Flow Information:
Interest paid 273 392
Income taxes paid 2,414 2,679
Non-Cash Activities
Issuance of notes payable in
connection with acquisition
of a subsidiary $ 3,000 $ --
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