PC Connection, Inc. Reports First Quarter Results

PC Connection, Inc. Reports First Quarter Results

FIRST QUARTER SUMMARY:

• Net sales: $505.4 million, up 1.3% year over year

• Commercial sales: up 3.8%

• Diluted earnings per share: $0.23

• Cash balance increased to $59 million, from $40 million at 12/31/12

MERRIMACK, N.H.--(BUSINESS WIRE)-- PC Connection, Inc. , a provider of a full range of information technology (IT) solutions to business, government, and education markets, today announced results for the quarter ended March 31, 2013. Net sales for the first quarter of 2013 were $505.4 million, an increase of 1.3% compared to $498.8 million for the first quarter of 2012. Net income for the quarter ended March 31, 2013 was $6.1 million, or $0.23 per share, compared to net income of $5.5 million, or $0.21 per share, for the corresponding prior year quarter.

Included in the results for the quarter ended March 31, 2012 were pre-tax charges of $1.1 million related to awards granted upon the retirement of a former executive officer, as well as workforce reductions. We did not record any special charges for the first quarter of 2013. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table below immediately following the Condensed Consolidated Statements of Income. Earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, and special charges ("Adjusted EBITDA") totaled $63.3 million for the twelve months ended March 31, 2013, as compared to $57.2 million for the twelve months ended March 31, 2012.

Quarterly Sales by Segment:

• Net sales for the SMB segment increased by 4.6% in the quarter to $235.7 million, compared to net sales in the first quarter of 2012. Net/com sales experienced the strongest growth due to our investment in solution sales capabilities, and both notebook and desktop sales also increased year over year.

• Net sales for the Large Account segment increased by 2.8% to $186.4 million, compared to net sales in the first quarter of 2012. We continued to experience strong growth in notebook and software sales in the Large Account segment. Commercial sales, which consists of SMB and Large Account sales, increased by 3.8% from the prior year quarter.

• Net sales to government and education customers (Public Sector segment) decreased by 9.6% year over year to $83.4 million. Sales to state and local government and educational institutions increased slightly compared to last year, while sales to the federal government decreased by 29.0% year over year due to federal budget spending cuts.

Quarterly Sales by Product Mix:

• Notebook/tablet sales, the Company's largest product category, increased by 11% year over year and accounted for 19% of net sales in the first quarter of 2013, compared to 17% of net sales in the first quarter of 2012. All three segments contributed to the year-over-year sales growth in this category with Large Account achieving the largest increase of 28%. Unit sales increased by 14% year over year and offset a slight decline in average selling prices.

• Desktop/server sales decreased by 8% year over year, accounting for 15% of net sales in the first quarter of 2013 compared to 17% of net sales in the first quarter of 2012. Decreased demand for desktop/servers from our Large Account customers was partially offset by increased sales in both our SMB and Public Sector segments.

• Software sales increased by 4% year over year, accounting for 15% of net sales in the first quarter of 2013 compared to 14% in the first quarter of 2012. Strong growth in Large Account software sales was due to network management, security, and license renewals.

Overall gross profit dollars increased in the first quarter of 2013 compared to the prior year quarter. However, consolidated gross margin, as a percentage of net sales, decreased slightly to 13.2% in the first quarter of 2013 compared to 13.4% in the prior year quarter.

Total selling, general and administrative expenses increased slightly in dollars year over year, but improved as a percentage of net sales to 11.2% for the first quarter of 2013, from 11.3% for the first quarter of 2012. We are continuing to invest in solution sales capabilities and expect SG&A expenses to rise accordingly as the year progresses, however, we are highly focused on improving efficiencies and streamlining wherever possible.

The Company generated significant positive cash flow in the quarter ended March 31, 2013. Total cash was $58.5 million compared to $39.9 million at December 31, 2012. Days sales outstanding were 40 days at March 31, 2013, and inventory was reduced by $10.0 million from December 31, 2012 levels.

"I am pleased with our performance this quarter, especially in light of the challenging environment in which we were operating. PC Connection increased sales in the commercial space by 3.8%, and continued to focus on taking market share through investments in higher value-added sales. Our healthcare vertical was a bright spot, with a 21% sales increase, and software also continued to be a solid growth area. In addition, we strengthened our balance sheet and generated positive cash flow during the quarter," said Timothy McGrath, President and Chief Executive Officer. "We believe we have the right combination of talent, experience, and strategies to gain market share and enhance long-term shareholder value."

Non-GAAP Financial Information

Adjusted EBITDA, pro forma net income, and pro forma earnings per share are non-GAAP financial measures. This information is included to provide information with respect to the Company's operating performance and earnings. Reconciliations of Adjusted EBITDA, pro forma net income, and pro forma earnings per share to GAAP net income are provided in tables immediately following the Condensed Consolidated Statements of Income.

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has three sales companies: PC Connection Sales Corporation, MoreDirect, Inc., and GovConnection, Inc., headquartered in Merrimack, NH; Boca Raton, FL; and Rockville, MD; respectively. All three companies can deliver custom-configured computer systems overnight from our ISO 9001:2008 certified technical configuration lab at our 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 primarily 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 telesales specialists, catalogs, publications, and its website at www.pcconnection.com. This company also serves consumer and small office users and is, under its MacConnection brand (800-800-2222), one of Apple's largest authorized online resellers at www.macconnection.com.

MoreDirect, Inc. (561-237-3300), www.moredirect.com, 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 cloud-based eProcurement system. Backed by over 500 technical certifications, MoreDirect's team of engineers, software licensing specialists, and project managers help reduce the cost and complexity of buying hardware, software, and services throughout the entire IT lifecycle.

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, publications, and online at www.govconnection.com.

pccc-g

# # #

"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 and other costs 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, 2012. More specifically, the statements in this release concerning the Company's outlook for gross margin and selling, general, and administrative expenses in 2013, the Company's anticipated product growth categories, and other statements of a non-historical basis (including statements regarding the Company's ability to grow revenues, improve gross margins, increase market share, and increase earnings per 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 gain or maintain market share, and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. The Company disclaims any 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.