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MERRIMACK, N.H.--(BUSINESS WIRE)--May 4, 2023--
Connection (PC Connection, Inc.; NASDAQ: CNXN):
FIRST QUARTER SUMMARY: | |
|
Connection (PC Connection, Inc.; NASDAQ: CNXN ), a leading information technology solutions provider to business, government, healthcare and education markets, today announced results for the first quarter ended March 31, 2023. The company also announced that its board of directors has declared a quarterly dividend of $0.08 per share on the company’s common stock, which will be payable on June 2, 2023, to shareholders of record as of May 16, 2023.
“During the quarter, the economic backdrop led our customers to exercise greater caution and selectivity with their short-term IT investment plans. Sales of endpoint devices were lower than anticipated across our customer base. While we saw good overall growth in software, security, and networking solutions, that led to record first quarter gross margin, it was not enough to offset the contraction in demand. We are confident our business strategy remains well aligned with the shifting dynamics of how our customers deploy, utilize, and consume technology,” said Timothy McGrath, President and Chief Executive Officer of Connection.
Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and restructuring and other charges (“Adjusted EBITDA”) increased 1% to $130.0 million for the twelve months ended March 31, 2023, compared to $129.1 million for the twelve months ended March 31, 2022. 1
Quarterly Performance by Segment:
Quarterly Highlights
Quarterly Sales by Product Mix:
Selling, general and administrative (“SG&A”) expenses increased in the first quarter of 2023 to $103.3 million from $98.2 million in the prior year quarter. The increase in SG&A was primarily due to an increase in personnel costs related to investments in resources to strengthen our sales, technical sales, information technology and services organizations. SG&A as a percentage of net sales increased to 14.2%, compared to 12.5% in the prior year quarter. The increase in SG&A as a percentage of net sales is primarily due to the decrease in net sales.
In addition, the first quarter of 2023 results include $0.9 million of restructuring and other related costs associated with severance and other costs related to internal restructuring activities.
Cash and cash equivalents were $134.8 million at March 31, 2023, compared to $67.4 million at March 31, 2022. During the first quarter of 2023, the Company repurchased 79,197 shares of stock for $3.4 million.
Conference Call and Webcast
Connection will host a conference call and live web cast today, May 4, 2023 at 4:30 p.m. ET to discuss its first quarter financial results. For participants who would like to participate via telephone, please register here to receive the dial-in number along with a unique PIN number that is required to access the call. 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
EBITDA and Adjusted EBITDA 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 measures 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 that 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) is a rapid-response provider of IT products and services serving primarily the small-and medium-sized business sector. It offers more than 460,000 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, provides corporate technology buyers with best-in-class IT solutions, in-depth IT supply-chain expertise, and real-time access to over 460,000 products and 2,500 vendors through MarkITplace ®, a proprietary next-generation, cloud-based supply chain solution. The team’s engineers, software licensing specialists, and subject matter experts help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.
Connection–Public Sector Solutions (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, publications, and online at www.connection.com/publicsector.
Cautionary Note Regarding Forward-Looking Statements
This earnings release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, financial results, business plans (including statements regarding new products and services we may offer and future expenditures, costs and investments), future liabilities, impairments, competition, and the impact of current macroeconomic conditions on our businesses and results of operations. You can generally identify forward-looking statements by words such as “believe,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “may,” “should,” “will,” or similar statements or variations of such terms, although not all forward-looking statements include such terms. These statements reflect our current views with respect to future events and are based on assumptions as of the date of this report. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
Such differences may result from actions taken by us, including expense reduction or strategic initiatives (including reductions in force, capital investments and new or expanded product offerings or services), our execution of our business plans (including our inventory management, our cost structure and our management and other personnel decisions) or other business decisions, as well as from developments beyond our control, including;
Additional factors include those described in this Annual Report on Form 10-K for the year ended December 31, 2022, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our subsequent filings with the Securities and Exchange Commission.
A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances. You should not place undue reliance on the forward-looking statements. Unless required by law, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made.
| _____________________________ | |
1 | Adjusted EBITDA is a non-GAAP measure. See page 10 for the definition and reconciliation. |
| CONSOLIDATED SELECTED FINANCIAL INFORMATION | ||||||||||||||
| At or for the Three Months Ended March 31, |
| 2023 |
| 2022 | ||||||||||
% | ||||||||||||||
| (Amounts and shares in thousands, except operating data, P/E ratio, and per share data) | Change | |||||||||||||
| Operating Data: | ||||||||||||||
| Net sales | $ | 727,545 |
| $ | 788,344 |
| (8 | %) | ||||||
| Diluted earnings per share | $ | 0.54 |
| $ | 0.83 |
| (35 | %) | ||||||
| Gross margin |
| 16.8 | % |
| 16.3 | % | ||||||||
| Operating margin |
| 2.5 | % |
| 3.8 | % | ||||||||
| Inventory turns (1) |
| 12 |
|
| 12 |
| ||||||||
| Days sales outstanding (2) |
| 71 |
|
| 69 |
| ||||||||
| % of | % of | |||||||||||||
| Product Mix: | Net Sales | Net Sales | ||||||||||||
| Notebooks/Mobility |
| 36 | % |
| 39 | % | ||||||||
| Accessories |
| 12 |
|
| 12 |
| ||||||||
| Software |
| 12 |
|
| 8 |
| ||||||||
| Displays |
| 9 |
|
| 11 |
| ||||||||
| Desktops |
| 9 |
|
| 11 |
| ||||||||
| Net/Com Products |
| 9 |
|
| 7 |
| ||||||||
| Servers/Storage |
| 6 |
|
| 6 |
| ||||||||
| Other Hardware/Services |
| 7 |
|
| 6 |
| ||||||||
| Total Net Sales |
| 100 | % |
| 100 | % | ||||||||
| Stock Performance Indicators: | ||||||||||||||
| Actual shares outstanding |
| 26,281 |
|
| 26,261 |
| ||||||||
| Total book value per share | $ | 29.55 |
| $ | 26.86 |
| ||||||||
| Tangible book value per share | $ | 26.58 |
| $ | 23.85 |
| ||||||||
| Closing price | $ | 44.96 |
| $ | 52.39 |
| ||||||||
| Market capitalization | $ | 1,181,594 |
| $ | 1,375,814 |
| ||||||||
| Trailing price/earnings ratio |
| 14.6 |
|
| 17.0 |
| ||||||||
| LTM Adjusted EBITDA (3) | $ | 130,038 |
| $ | 129,125 |
|
| (1) Represents the annualized cost of goods sold for the period divided by the average inventory for the prior four-month period. |
| (2) Represents the trade receivable at the end of the period divided by average daily net sales for the same three-month period. |
| (3) LTM Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and restructuring and other related charges for the last twelve months. |
| REVENUE AND MARGIN INFORMATION | |||||||||||
| For the Three Months Ended March 31, | 2023 | 2022 | |||||||||
| Net | Gross | Net | Gross | ||||||||
| (amounts in thousands) | Sales | Margin | Sales | Margin | |||||||
| Enterprise Solutions | $ | 313,943 | 13.4 | % | $ | 335,396 | 14.6 | % | |||
| Business Solutions |
| 273,114 | 21.9 |
|
| 320,444 | 19.4 |
| |||
| Public Sector Solutions |
| 140,488 | 14.5 |
|
| 132,504 | 13.1 |
| |||
| Total | $ | 727,545 | 16.8 | % | $ | 788,344 | 16.3 | % | |||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
| Three Months Ended March 31, | ||||||||
| (amounts in thousands, except per share data) | 2023 | 2022 | ||||||
| Net sales | $ | 727,545 |
| $ | 788,344 |
| ||
| Cost of sales |
| 605,249 |
|
| 660,038 |
| ||
| Gross profit |
| 122,296 |
|
| 128,306 |
| ||
| Selling, general and administrative expenses |
| 103,282 |
|
| 98,172 |
| ||
| Restructuring and other charges |
| 897 |
|
| - |
| ||
| Income from operations |
| 18,117 |
|
| 30,134 |
| ||
| Other income/(expense), net |
| 1,286 |
|
| (3 | ) | ||
| Income tax provision |
| (5,205 | ) |
| (8,339 | ) | ||
| Net income | $ | 14,198 |
| $ | 21,792 |
| ||
| Earnings per common share: | ||||||||
| Basic | $ | 0.54 |
| $ | 0.83 |
| ||
| Diluted | $ | 0.54 |
| $ | 0.83 |
| ||
| Shares used in the computation of earnings per common share: | ||||||||
| Basic |
| 26,325 |
|
| 26,255 |
| ||
| Diluted |
| 26,436 |
|
| 26,405 |
|
March 31, | December 31, | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | 2023 | 2022 | ||||||
| (amounts in thousands) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 134,810 |
| $ | 122,930 |
| ||
| Accounts receivable, net |
| 621,844 |
|
| 610,280 |
| ||
| Inventories, net |
| 199,317 |
|
| 208,682 |
| ||
| Prepaid expenses and other current assets |
| 18,145 |
|
| 11,900 |
| ||
| Total current assets |
| 974,116 |
|
| 953,792 |
| ||
| Property and equipment, net |
| 58,372 |
|
| 59,171 |
| ||
| Right-of-use assets, net |
| 6,611 |
|
| 7,558 |
| ||
| Goodwill |
| 73,602 |
|
| 73,602 |
| ||
| Intangibles assets, net |
| 4,343 |
|
| 4,648 |
| ||
| Other assets |
| 1,013 |
|
| 1,055 |
| ||
| Total Assets | $ | 1,118,057 |
| $ | 1,099,826 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 239,058 |
| $ | 232,638 |
| ||
| Accrued payroll |
| 24,304 |
|
| 24,071 |
| ||
| Accrued expenses and other liabilities |
| 54,947 |
|
| 53,808 |
| ||
| Total current liabilities |
| 318,309 |
|
| 310,517 |
| ||
| Deferred income taxes |
| 17,970 |
|
| 17,970 |
| ||
| Operating lease liability |
| 4,623 |
|
| 4,994 |
| ||
| Other liabilities |
| 672 |
|
| 170 |
| ||
| Total Liabilities |
| 341,574 |
|
| 333,651 |
| ||
| Stockholders’ Equity: | ||||||||
| Common stock |
| 291 |
|
| 291 |
| ||
| Additional paid-in capital |
| 127,424 |
|
| 125,784 |
| ||
| Retained earnings |
| 698,128 |
|
| 686,037 |
| ||
| Treasury stock at cost |
| (49,360 | ) |
| (45,937 | ) | ||
| Total Stockholders’ Equity |
| 776,483 |
|
| 766,175 |
| ||
| Total Liabilities and Stockholders’ Equity | $ | 1,118,057 |
| $ | 1,099,826 |
|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| Three Months Ended March 31, | ||||||||
| (amounts in thousands) | 2023 | 2022 | ||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 14,198 |
| $ | 21,792 |
| ||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization |
| 3,073 |
|
| 2,991 |
| ||
| Adjustments to credit losses reserve |
| (99 | ) |
| 567 |
| ||
| Stock-based compensation expense |
| 1,853 |
|
| 1,382 |
| ||
| Deferred income taxes |
| - |
|
| - |
| ||
| Loss on disposal of fixed assets |
| 474 |
|
| 10 |
| ||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable |
| (11,465 | ) |
| (27,177 | ) | ||
| Inventories |
| 9,365 |
|
| (28,046 | ) | ||
| Prepaid expenses and other current assets |
| (6,245 | ) |
| (4,572 | ) | ||
| Other non-current assets |
| 42 |
|
| 32 |
| ||
| Accounts payable |
| 5,859 |
|
| (10,494 | ) | ||
| Accrued expenses and other liabilities |
| 2,450 |
|
| 5,230 |
| ||
| Net cash provided by (used in) operating activities |
| 19,505 |
|
| (38,285 | ) | ||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of equipment and capitalized software |
| (1,882 | ) |
| (2,451 | ) | ||
| Net cash used in investing activities |
| (1,882 | ) |
| (2,451 | ) | ||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from short-term borrowings |
| 59,310 |
|
| 1,385 |
| ||
| Repayment of short-term borrowings |
| (59,310 | ) |
| (1,385 | ) | ||
| Purchase of common stock for treasury shares |
| (3,423 | ) |
| - |
| ||
| Dividend payments |
| (2,107 | ) |
| - |
| ||
| Payment of payroll taxes on stock-based compensation through shares withheld |
| (213 | ) |
| (165 | ) | ||
| Net cash used in financing activities |
| (5,743 | ) |
| (165 | ) | ||
| Increase (decrease) in cash and cash equivalents |
| 11,880 |
|
| (40,901 | ) | ||
| Cash and cash equivalents, beginning of period |
| 122,930 |
|
| 108,310 |
| ||
| Cash and cash equivalents, end of period | $ | 134,810 |
| $ | 67,409 |
| ||
| Non-cash Investing Activities: | ||||||||
| Accrued capital expenditures | $ | 753 |
| $ | 266 |
| ||
| Supplemental Cash Flow Information: | ||||||||
| Income taxes paid | $ | 7,279 |
| $ | 287 |
| ||
| Interest paid | $ | 17 |
| $ | - |
|
| 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 (defined as earnings before interest, taxes, depreciation and amortization) adjusted for restructuring and other charges, 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. When analyzing our operating performance, investors should use EBITDA and Adjusted EBITDA in addition to, and not as alternatives for Net income or any other performance measure presented in accordance with GAAP. Our non-GAAP financial measures may not be comparable to other similar titled measures of other companies.
| (amounts in thousands) | Three Months Ended March 31, | LTM Ended March 31, (1) | ||||||||||||||
2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||
| Net income | $ | 14,198 | $ | 21,792 | (35%) | $ | 81,625 | $ | 81,514 | 0% | ||||||
| Depreciation and amortization |
| 3,073 |
| 2,991 | 3% |
| 12,060 |
| 12,028 | 0% | ||||||
| Income tax expense |
| 5,205 |
| 8,339 | (38%) |
| 29,282 |
| 31,026 | (6%) | ||||||
| Interest expense |
| 24 |
| 6 | 100% |
| 28 |
| 10 | 180% | ||||||
| EBITDA |
| 22,500 |
| 33,128 | (32%) |
| 122,995 |
| 124,578 | (1%) | ||||||
| Restructuring and other charges (2) |
| 897 |
| - | 100% |
| 897 |
| - | (100%) | ||||||
| Stock-based compensation |
| 1,853 |
| 1,382 | 34% |
| 6,146 |
| 4,547 | 35% | ||||||
| Adjusted EBITDA | $ | 25,250 | $ | 34,510 | (27%) | $ | 130,038 | $ | 129,125 | 1% | ||||||
| (1) LTM: Last twelve months |
| (2) Restructuring and other charges in 2023 consist of severance and other charges related to internal restructuring activities. |
| ADJUSTED NET INCOME AND ADJUSTED DILUTED 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. A reconciliation from Diluted Earnings per Share to Adjusted Diluted Earnings per Share is detailed below. Adjusted Diluted Earnings per Share is defined diluted earnings per share adjusted for restructuring and other charges, net of tax. Adjusted Net Income and Adjusted Diluted Earnings Per Share are considered non-GAAP financial measures (see note above in EBITDA and Adjusted EBITDA for a description of non-GAAP financial measures). The Company believes that Adjusted Net Income and Adjusted Diluted Earnings per Share provide helpful information with respect to the Company's operating performance. When analyzing our operating performance, investors should use Adjusted Net Income and Adjusted Diluted Earnings per Share in addition to, and not as alternatives for Net income and Diluted Earnings per Share or any other performance measure presented in accordance with GAAP. Our non-GAAP financial measures may not be comparable to other similar titled measures of other companies.
| (amounts in thousands, except per share data) | Three Months Ended March 31, | |||||||
2023 | 2022 | % Change | ||||||
| Net income | $ | 14,198 |
| $ | 21,792 | -35% | ||
| ||||||||
| Restructuring and other charges (1) |
| 897 |
|
| - | 100% | ||
| Tax benefit |
| (241 | ) |
| - | 100% | ||
| Restructuring and other charges, net of tax |
| 656 |
|
| - | 100% | ||
| ||||||||
| Adjusted Net Income | $ | 14,854 |
| $ | 21,792 | -32% | ||
| Diluted shares |
| 26,436 |
|
| 26,405 |
| ||
| Diluted Earnings per Share | $ | 0.54 |
| $ | 0.83 | -35% | ||
| Adjusted Diluted Earnings per Share | $ | 0.56 |
| $ | 0.83 | -32% | ||
| (1) Restructuring and other charges in 2023 consist of severance and other charges related to internal restructuring activities. |
View source version on businesswire.com:https://www.businesswire.com/news/home/20230504005899/en/
CONTACT: Investor Relations:
Thomas Baker, 603.683.2505
Senior Vice President, CFO, and Treasurer
tom@connection.com
KEYWORD: NEW HAMPSHIRE UNITED STATES NORTH AMERICA
INDUSTRY KEYWORD: SECURITY HARDWARE DATA MANAGEMENT TECHNOLOGY SOFTWARE
SOURCE: PC Connection, Inc.
Copyright Business Wire 2023.
PUB: 05/04/2023 04:05 PM/DISC: 05/04/2023 04:05 PM
http://www.businesswire.com/news/home/20230504005899/en