PC Connection, Inc. Reports Fourth Quarter and Record Full Year 2014 Results

MERRIMACK, N.H.--(BUSINESS WIRE)--

PC Connection, Inc. PCCC:

FOURTH QUARTER SUMMARY:					FULL YEAR SUMMARY:
Net income up 21% y/y					Net income up 20% y/y
Net sales: $630.8 million, up 9.0% y/y					Net sales: $2.46 billion, up 10.9% y/y
Diluted EPS: $0.45, up 22% y/y					Diluted EPS: $1.61, up 19% y/y

PC Connection, Inc. PCCC, a national provider of a full range of information technology (IT) solutions to business, government, healthcare, and education markets, today announced results for the quarter ended December 31, 2014. Net sales for the fourth quarter of 2014 increased by 9.0% to $630.8 million, compared to $578.6 million for the prior year quarter. Net income for the quarter ended December 31, 2014 increased by 21.4% to $11.9 million, or $0.45 per diluted share, compared to net income of $9.8 million, or $0.37 per diluted share for the prior year quarter.

Net sales for the year ended December 31, 2014 were $2.46 billion, an increase of $241.7 million or 10.9%, compared to $2.22 billion for the year ended December 31, 2013. Net income for the year ended December 31, 2014 increased by 19.6% to $42.7 million, or $1.61 per diluted share, compared to net income of $35.7 million, or $1.35 per diluted share, for the year ended December 31, 2013. Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense (“Adjusted EBITDA”) totaled $80.5 million for the year ended December 31, 2014, compared to $67.4 million for the year ended December 31, 2013. Net sales, net income, and diluted per share amounts for the year ended December 31, 2014 represent full year records for the Company.

Quarterly Sales by Segment:

• Net sales for the SMB segment increased by 9.2% to $261.7 million in the fourth quarter of 2014, compared to the prior year quarter. Sales of notebooks, the largest SMB category, increased by 23.4% compared to the prior year quarter.
• Net sales for the Large Account segment increased by 3.5% to $225.6 million in the fourth quarter of 2014, compared to the prior year quarter. Storage and software sales were strong in this segment with an increase of 31.9% and 21.9%, respectively. Commercial sales, which consists of SMB and Large Account sales, increased by 6.5% from the prior year quarter.
• Net sales to the Public Sector segment increased by 18.7% to $143.5 million in the fourth quarter of 2014, compared to the prior year quarter. Sales to state and local government and educational institutions increased by 18.4%, compared to the prior year quarter, while sales to the federal government increased by 19.1%. Net/Com product sales for the Public Sector were strong with 55% growth from the prior year quarter.

Quarterly Sales by Product Mix:

• Notebook/tablet sales, the Company's largest product category, increased by 15% year over year and accounted for 20% of net sales in the fourth quarter of 2014 compared to 19% of net sales in the prior year quarter. Continued corporate refresh activity and increased demand for Chromebooks resulted in strong year-over-year growth in this category in both SMB and Public Sector segments.
• Software sales increased by 13% year over year and accounted for 18% of net sales in the fourth quarter of 2014 compared to 17% of net sales in the prior year quarter. We experienced strong growth in security, office productivity, and operating system software, including cloud-based offerings.
• Net/Com product sales increased by 19% year over year and accounted for 10% of net sales in the fourth quarter of 2014 and 2013. We experienced significant sales growth in Public Sector segment in this product category.
• Storage sales increased by 11% year over year and accounted for 7% of net sales in the fourth quarter of 2014 and 2013. We experienced significant sales growth in our Large Account segment in this product category.

Overall gross profit dollars increased by $7.4 million, or 9.8%, in the fourth quarter of 2014, compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, slightly increased to 13.2% in the fourth quarter of 2014, compared to 13.1% in the prior year quarter as a result of increased demand in advanced technologies that generate relatively higher margins.

Total selling, general and administrative dollars increased in the fourth quarter of 2014 to $63.0 million from $59.3 million in the prior year quarter, but decreased as a percentage of net sales from 10.3% to 10.0% due to leveraging our fixed costs over higher net sales. Variable SG&A increased year over year due to the higher levels of sales and gross profit achieved in 2014. We continue to invest in technical solution sales capabilities and expect SG&A expenses to rise accordingly. However, we are highly focused on improving efficiencies and streamlining wherever possible.

The Company generated significant cash flow during the year ended December 31, 2014. Total cash was $60.9 million at December 31, 2014, compared to $42.5 million at December 31, 2013. Our December 31, 2014 cash balance is lower than our September 30, 2014 balance due to the $10.5 million special dividend we paid in the fourth quarter of 2014 and seasonal working capital fluctuations. Days sales outstanding were 40 days at December 31, 2014, and inventory turns were 26 turns in the fourth quarter of 2014.

“We are encouraged with PC Connection's strong performance this quarter and for the year ended December 31, 2014. We had solid execution across all three of our sales segments, reinforcing the strength and diversity of our business model,” said Timothy McGrath, President and Chief Executive Officer. “As a National Solutions Provider, our goal is to consistently invest in more complex solutions capabilities while delivering solid financial performance; we were able to accomplish that goal in 2014 with an 11% sales increase and a 20% increase in net income. In a rapidly changing industry, we believe our team and the strategies we have in place well position PC Connection to gain market share and increase long-term shareholder value.”

Non-GAAP Financial Information

Adjusted EBITDA is a non-GAAP financial measure. This information is included to provide information with respect to the Company's operating performance and earnings.

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has three wholly owned sales subsidiaries: 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, 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™, our proprietary 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.

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“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 costs in response to fluctuations in revenue, and other risks that could cause actual results to differ materially from expectations, including 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, 2013. More specifically, the statements in this release concerning the Company's outlook for selling, general, and administrative expenses, the Company's efforts in improving efficiencies and streamlining its business and other statements of a non-historical basis (including statements regarding the Company's ability to increase market share and enhance long-term shareholder value) 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.

CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months Ended December 31,				2014										2013
									% of										% of					%
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)									Net Sales										Net Sales					Change
Operating Data:
Net sales				$	630,765									$	578,572									9	%
Diluted earnings per share				$	0.45									$	0.37									22	%
Gross margin					13.2	%									13.1	%
Operating margin					3.2	%									2.8	%
Return on equity (1)					12.5	%									11.6	%
Inventory turns					26										24
Days sales outstanding					40										42
Product Mix:
Notebook/Tablet				$	123,485				20	%				$	107,051				19	%				15	%
Software					113,129				18						100,543				17					13	%
Desktop/Server					91,815				14						90,551				16					1	%
Net/Com Product					66,571				10						56,034				10					19	%
Video, Imaging & Sound					54,539				9						51,582				9					6	%
Storage					42,850				7						38,730				7					11	%
Printer & Printer Supplies					35,344				6						35,339				6					-
Memory & System Enhancement					19,240				3						20,613				3					(7	%)
Accessory/Services/Other					83,792				13						78,129				13					7	%
Total Net Sales				$	630,765				100	%				$	578,572				100	%				9	%
Stock Performance Indicators:
Actual shares outstanding					26,343										26,200
Total book value per share				$	13.44									$	12.21
Tangible book value per share				$	11.42									$	10.14
Closing price				$	24.55									$	24.85
Market capitalization				$	646,721									$	651,070
Trailing price/earnings ratio					15.3										18.4
LTM Adjusted EBITDA (2)				$	80,475									$	67,443
Adjusted market capitalization/LTM Adjusted EBITDA (3)					7.3										9.0
(1) Based on last twelve months' net income.
(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation.
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance.
REVENUE AND MARGIN INFORMATION
For the Three Months Ended December 31,				2014										2013
				Net					Gross					Net					Gross
(amounts in thousands)				Sales					Margin					Sales					Margin
SMB				$	261,661				15.2	%				$	239,628				15.3	%
Large Account					225,609				11.6						218,015				11.4
Public Sector					143,495				11.9						120,929				11.7
Total				$	630,765				13.2	%				$	578,572				13.1	%

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31,				2014										2013
(amounts in thousands, except per share data)				Amount					% of Net Sales					Amount					% of Net Sales
Net sales				$	630,765				100.0	%				$	578,572				100.0	%
Cost of sales					547,641				86.8						502,879				86.9
Gross profit					83,124				13.2						75,693				13.1
Selling, general and administrative expenses					63,035				10.0						59,315				10.3
Income from operations					20,089				3.2						16,378				2.8
Interest/other expense, net					(14	)			-						(14	)			-
Income tax provision					(8,131	)			(1.3	)					(6,523	)			(1.1	)
Net income				$	11,944				1.9	%				$	9,841				1.7	%
Earnings per common share:
Basic				$	0.45									$	0.38
Diluted				$	0.45									$	0.37
Shares used in the computation of earnings per common share:
Basic					26,311										26,181
Diluted					26,554										26,453
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,				2014										2013
(amounts in thousands, except per share data)				Amount					% of Net Sales					Amount					% of Net Sales
Net sales				$	2,463,339				100.0	%				$	2,221,638				100.0	%
Cost of sales					2,139,950				86.9						1,928,638				86.8
Gross profit					323,389				13.1						293,000				13.2
Selling, general and administrative expenses					251,935				10.2						233,604				10.5
Income from operations					71,454				2.9						59,396				2.7
Interest/other expense, net					(86	)			-						(149	)			-
Income tax provision					(28,687	)			(1.2	)					(23,565	)			(1.1	)
Net income				$	42,681				1.7	%				$	35,682				1.6	%
Earnings per common share:
Basic				$	1.63									$	1.37
Diluted				$	1.61									$	1.35
Shares used in the computation of earnings per common share:
Basic					26,246										26,120
Diluted					26,512										26,387

EBITDA AND ADJUSTED EBITDA
A reconciliation of EBITDA and Adjusted EBITDA is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for 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.
(amounts in thousands)				Three Months Ended December 31,													Years Ended December 31,
				2014				2013				% Change					2014				2013				% Change
Net income				$	11,944			$	9,841								$	42,681			$	35,682
Depreciation and amortization					2,095				2,078									8,092				7,089
Income tax expense					8,131				6,523									28,687				23,565
Interest/other expense, net					14				14									86				149
EBITDA					22,184				18,456									79,546				66,485
Stock-based compensation					228				205									929				958
Adjusted EBITDA				$	22,412			$	18,661			20	%				$	80,475			$	67,443			19	%

				December 31,					December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS				2014					2013
(amounts in thousands)
ASSETS
Current Assets:
Cash and cash equivalents				$	60,909				$	42,547
Accounts receivable, net					293,027					283,051
Inventories					90,917					79,141
Deferred income taxes					7,749					6,382
Prepaid expenses and other current assets					5,332					5,117
Income taxes receivable					212					2,256
Total current assets					458,146					418,494
Property and equipment, net					27,861					27,600
Goodwill					51,276					51,276
Other intangibles, net					1,953					2,854
Other assets					724					720
Total Assets				$	539,960				$	500,944
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable				$	124,893				$	124,821
Accrued expenses and other liabilities					22,011					22,362
Accrued payroll					17,793					14,935
Total current liabilities					164,697					162,118
Deferred income taxes					18,803					16,224
Other liabilities					2,452					2,773
Total Liabilities					185,952					181,115
Stockholders' Equity:
Common stock					282					281
Additional paid-in capital					106,956					104,932
Retained earnings					262,632					230,478
Treasury stock at cost					(15,862	)				(15,862	)
Total Stockholders' Equity					354,008					319,829
Total Liabilities and Stockholders' Equity				$	539,960				$	500,944

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,				2014						2013
(amounts in thousands)
Cash Flows from Operating Activities:
Net income				$	42,681					$	35,682
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization					8,092						7,089
Provision for doubtful accounts					1,383						1,078
Deferred income taxes					1,212						4,578
Stock-based compensation expense					929						958
Loss on disposal of fixed assets					14						5
Excess tax benefit from exercise of equity awards					(556	)					(260	)
Changes in assets and liabilities:
Accounts receivable					(11,359	)					(16,819	)
Inventories					(11,776	)					(9,504	)
Prepaid expenses and other current assets					1,829						(3,005	)
Other non-current assets					(4	)					(6	)
Accounts payable					202						(1,371	)
Accrued expenses and other liabilities					2,751						1,231
Net cash provided by operating activities					35,398						19,656
Cash Flows from Investing Activities:
Purchases of equipment					(7,609	)					(7,607	)
Proceeds from sale of equipment					13						2
Net cash used for investing activities					(7,596	)					(7,605	)
Cash Flows from Financing Activities:
Dividend payment					(10,527	)					(10,475	)
Issuance of stock under Employee Stock Purchase Plan					753						591
Excess tax benefit from exercise of equity awards					556						260
Exercise of stock options					356						1,779
Payment of payroll taxes on stock-based compensation through shares withheld					(578	)					(577	)
Repayment of capital lease obligation to affiliate					-						(989	)
Net cash used for financing activities					(9,440	)					(9,411	)
Increase in cash and cash equivalents					18,362						2,640
Cash and cash equivalents, beginning of period					42,547						39,907
Cash and cash equivalents, end of period				$	60,909					$	42,547
Non-cash Investing Activities:
Accrued capital expenditures				$	205					$	335
Issuance of nonvested stock from treasury					-					$	403
Supplemental Cash Flow Information:
Income taxes paid				$	24,219					$	20,891

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