Market Overview

Connection (CNXN) Reports Record Second Quarter Results

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Net Income Increases by 34% from Prior Q2

SECOND QUARTER SUMMARY:

  • Gross profit: $107.5 million, up 7.8% y/y
  • Operating income: $24.9 million, up 11.2% y/y
  • Net income: $18.2 million, up 34.2% y/y
  • Diluted EPS: $0.68, compared to $0.51 for Q2 2017

Connection (PC Connection, Inc.; NASDAQ: CNXN),
a leading technology solutions provider to business, government, and
education markets, today announced results for the second quarter ended
June 30, 2018. Net income for the second quarter ended June 30, 2018
increased by 34.2% to $18.2 million, or $0.68 per basic and diluted
share, compared to net income of $13.6 million, or $0.51 per basic and
diluted share for the prior year's quarter.

As previously disclosed, effective January 1, 2018, the Company adopted
a new revenue recognition standard. Please note that the financial
results presented in this release include both amounts, "as presented,"
which reflect the implementation of the new revenue recognition
standard, as well as amounts prior to the impact of the new revenue
recognition standard to allow for comparability against historical
results. Starting in calendar year 2019, we will no longer present our
financial results under the previous revenue recognition standard. For
additional information and reconciliations of our financial results
between the new and prior revenue recognition standards, please see the
additional tables included in this press release.

Net sales as presented for the quarter ended June 30, 2018 were $706.6
million. Net sales prior to the impact of the new revenue recognition
standard for the quarter ended June 30, 2018 increased by 9.3% to $819.8
million, compared to $749.8 million for the prior year's quarter.

Gross profit as presented for the quarter ended June 30, 2018 was $107.5
million. Gross profit prior to the impact of the new revenue recognition
standard for the quarter ended June 30, 2018 was $108.9 million,
compared to $99.7 million in the second quarter a year ago, an increase
of 9.2%.

Gross margin as presented for the quarter ended June 30, 2018 was 15.2%.
Gross margin prior to the impact of the new revenue recognition standard
was 13.3%, consistent with the same quarter a year ago.

Operating income as presented for the quarter ended June 30, 2018 was
$24.9 million. Operating income prior to the impact of the new revenue
recognition standard was $26.0 million, compared to $22.4 million in the
same quarter a year ago.

Net income as presented for the quarter ended June 30, 2018 was $18.2
million. Net income prior to the impact of the new revenue recognition
standard was $19.0 million, compared to $13.6 million in the second
quarter a year ago, an increase of 39.9%.

Earnings per share ("EPS") on both a basic and diluted basis as
presented for the quarter ended June 30, 2018 was $0.68. EPS prior to
the impact of the new revenue recognition standard was $0.71 per share,
compared to the prior year's $0.51 on both a basic and diluted basis.

Earnings before interest, taxes, depreciation and amortization, adjusted
for stock-based compensation expense and rebranding, acquisition and
restructuring costs ("Adjusted EBITDA"), a non-GAAP measure, totaled
$100.9 million for the twelve months ended June 30, 2018, Adjusted
EBITDA prior to the impact of the new revenue recognition standard was
$101.5 million, compared to $94.0 million for the twelve months ended
June 30, 2017.

Net sales for the six months ended June 30, 2018 were $1,331.5 million.
Net sales prior to the impact of the new revenue recognition standard
for the six months ended June 30, 2018 increased by 7.0% to $1,520.2
million, compared to $1,420.4 million for the six months ended June 30,
2017.

Gross profit for the six months ended June 30, 2018 was $203.8 million.
Gross profit prior to the impact of the new revenue recognition standard
for the six months ended June 30, 2018 was $204.6 million, compared to
$186.4 million for the six months ended June 30, 2017, an increase of
9.8%.

Gross margin as presented for the six months ended June 30, 2018 was
15.3%. Gross margin prior to the impact of the new revenue recognition
standard was 13.5%, compared to 13.1% for the six months ended June 30,
2017.

Operating income as presented for the six months ended June 30, 2018 was
$40.4 million. Operating income prior to the impact of the new revenue
recognition standard was $41.0 million, compared to $33.9 million for
the six months ended June 30, 2017.

Net income as presented for the six months ended June 30, 2018 was $29.5
million. Net income prior to the impact of the new revenue recognition
standard was $29.9 million, compared to $21.0 million for the six months
ended June 30, 2017, an increase of 42.5%.

Quarterly Performance by Segment:

  • Net sales as presented for the second quarter of 2018 were $270.0
    million for the Business Solutions segment. Net sales prior to the
    impact of the new revenue recognition standard for the second quarter
    of 2018 increased by 5.0% to $311.3 million, compared to $296.4
    million for the prior year's quarter. Net/com and mobility products
    experienced strong revenue growth in this segment with an increase of
    18% and 8%, respectively. Gross margin increased by 191 basis points
    to 17.5% primarily due to the adoption of the new revenue recognition
    standard. Gross margin prior to the impact of the new revenue
    recognition standard for the second quarter of 2018 was 15.5%.
  • Net sales as presented for the second quarter of 2018 were $301.1
    million for the Enterprise Solutions segment. Net sales prior to the
    impact of the new revenue recognition standard for the second quarter
    of 2018 increased by 15.5% to $349.0 million, compared to $302.1
    million for the prior year's quarter. Mobility and server/storage
    products experienced solid growth during the quarter at 37% and 27%,
    respectively. Gross margin increased by 208 basis points to 14.4%
    primarily due to the adoption of the new revenue recognition standard
    and the increase in invoice selling margins. Gross margin prior to the
    impact of the new revenue recognition standard for the second quarter
    of 2018 was 12.6%.
  • Net sales as presented for the second quarter of 2018 were $135.5
    million for the Public Sector Solutions segment. Net sales prior to
    the impact of the new revenue recognition standard for the second
    quarter of 2018 increased by 5.4% to $159.4 million, compared to
    $151.3 million for the prior year's quarter. Gross margin increased by
    170 basis points to 12.5% primarily due to the adoption of the new
    revenue recognition standard. Gross margin prior to the impact of the
    new revenue recognition standard for the second quarter of 2018 was
    10.6%.

Quarterly Sales by Product Mix:

  • Notebook/mobility sales, the Company's largest product category, as
    presented, increased by 16% year over year and accounted for 26% of
    net sales in the second quarter of 2018, compared to 21% of net sales
    in the prior year quarter. Excluding the impact of the adoption of the
    new revenue recognition standard, notebook/mobility sales increased by
    17% year over year and accounted for 23% of net sales in the second
    quarter of 2018, compared to 21% in the prior year quarter. The
    Enterprise Solutions and Business Solutions segments experienced
    strong year-over-year growth in notebook sales.
  • Servers/storage, as presented, increased by 7% year over year and
    accounted for 10% of net sales in the second quarter of 2018, compared
    to 9% of net sales in the prior year quarter. Excluding the impact of
    the adoption of the new revenue recognition standard, servers/storage
    sales increased by 8% year over year and accounted for 8% of net sales
    in the second quarter of 2018, compared to 9% in the prior year
    quarter. The Enterprise Solutions and Public Sector Solutions segments
    experienced strong year-over-year growth in server/storage sales.
  • Software sales, as presented, decreased by 50% year over year and
    accounted for 12% of net sales in the second quarter of 2018, compared
    to 23% of net sales in the prior year quarter. The decrease in
    software sales was due to the adoption of the new revenue recognition
    standard. Excluding the impact of the adoption of the new revenue
    recognition standard, software sales increased by 13% year over year
    and accounted for 24% of net sales in the second quarter of 2018,
    compared to 23% of net sales in the prior year quarter. We experienced
    solid growth in cloud-based offerings, security, and office
    productivity.

Selling, general and administrative ("SG&A") expenses as presented,
increased in the second quarter of 2018 to $82.5 million from $77.2
million in the prior year quarter. SG&A in the second quarter of 2018
prior to the impact of the new revenue recognition standard was $82.8
million. The increase was primarily the result of increased variable
compensation associated with our higher gross profits as well as
investments made in our technology solutions group. SG&A as reported as
a percentage of net sales was 11.7%, compared to 10.3% in the prior year
quarter. However, SG&A in the second quarter of 2018, prior to the
impact of the new revenue recognition standard, was 10.1%.

Cash and cash equivalents were $68.7 million at June 30, 2018, compared
to $50.0 million at December 31, 2017. During the second quarter of
2018, the Company repurchased 53,221 shares of stock for $1.4 million.
As of June 30, 2018, the Company had $13.4 million available for stock
repurchases remaining under previous authorizations made by its Board of
Directors. Days sales outstanding were 53 days at June 30, 2018, up from
47 days in the prior year quarter; the increase of 6 days from 47 days
was due to the adoption of the new revenue recognition standard.
Inventory turns were 26 turns in the second quarter of 2018, up from 22
turns in the prior year quarter; excluding the impact of the new revenue
recognition standard, inventory turns would have increased to 31 turns.

"We executed well during the second quarter and in the first half of
2018. We continued to see strong growth in advanced technologies and
vertical markets." said Tim McGrath, President and Chief Executive
Officer. "We believe our team and the strategies we have in place
position Connection well to gain market share and increase long-term
shareholder value," concluded Mr. McGrath.

Conference Call and Webcast

Connection will host a conference call and live web cast today, August
2, 2018 at 4:30 p.m. ET to discuss its second quarter financial results.
A web cast of the conference call, which will be broadcast live via the
Internet, and a copy of this press release, along with supplemental
slides used during the call, 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 is a non-GAAP financial measure. This information is
included to provide 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.

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 9001:2008
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, 2017. 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 June 30,       2018   2017    
%
(Amounts and shares in thousands, except operating data, P/E
ratio, and per share data)
                       

Change

 
Operating Data:
Net sales $ 706,570 $ 749,792 (6 %)
Diluted earnings per share $ 0.68 $ 0.51 33 %
 
Gross margin 15.2 % 13.3 %
Operating margin 3.5 % 3.0 %
Return on equity (1) 13.1 % 11.0 %
 
Inventory turns 26 22
Days sales outstanding 53 47
 
% of % of
Product Mix: Net Sales Net Sales
Notebooks/Mobility 26 % 21 %
Software 12 23
Desktops 11 10
Servers/Storage 10 9
Net/Com Products 9 8
Other Hardware/Services   32     29  
Total Net Sales   100 %   100 %
 
 
Stock Performance Indicators:
Actual shares outstanding 26,703 26,785
Total book value per share $19.09 $17.07
Tangible book value per share $15.94 $13.88
Closing price $33.20 $27.06
Market capitalization $886,540 $724,802
Trailing price/earnings ratio 14.1 15.1
LTM Adjusted EBITDA (2) $100,918 $94,017
Adjusted market capitalization/LTM Adjusted EBITDA (3) 8.1 7.4
 
(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
acquisition, rebranding, and restructuring costs.
(3) Adjusted market capitalization is defined as gross market
capitalization less cash balance.
 
 
REVENUE AND MARGIN INFORMATION
For the Three Months Ended June 30,       2018       2017
Net Gross Net Gross
(amounts in thousands) Sales       Margin Sales     Margin
 
Business Solutions $ 270,042 17.5 % $ 296,420 15.6 %
Enterprise Solutions 301,065 14.4 302,077 12.3
Public Sector Solutions   135,463   12.5   151,295   10.8
Total $ 706,570   15.2 % $ 749,792   13.3 %

                   
                             
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
        Three Months Ended June 30,   Six Month Ended June 30,
(amounts in thousands, except per share data) 2018 2017 2018 2017
 
Net sales $ 706,570 $ 749,792 $ 1,331,465 $ 1,420,386
Cost of sales   599,102     650,122     1,127,625     1,233,983  
Gross profit 107,468 99,670 203,840 186,403
 
Selling, general and administrative expenses   82,521     77,230     163,421     152,511  
Income from operations 24,947 22,440 40,419 33,892
 
Interest/other expense, net 182 9 298 28
Income tax provision   (6,903 )   (8,864 )   (11,191 )   (12,903 )
Net income $ 18,226   $ 13,585   $ 29,526   $ 21,017  
 
Earnings per common share:
Basic $ 0.68   $ 0.51   $ 1.10   $ 0.79  
Diluted $ 0.68   $ 0.51   $ 1.10   $ 0.78  
 
Shares used in the computation of earnings per common share:
Basic   26,686     26,761     26,760     26,729  
Diluted   26,820     26,893     26,868     26,879  
 

 

(1) Amounts are not restated and represent the amounts recognized under
generally accepted accounting principles in place during the relevant
reporting period.

                     
          June 30,   December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS         2018  

2017 (1)

(amounts in thousands)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 68,680 $ 49,990
Accounts receivable, net 463,994 449,682
Inventories, net 107,449 106,753
Prepaid expenses and other current assets 6,279 5,737
Income taxes receivable   933     3,933  
Total current assets 647,335 616,095
Property and equipment, net 46,012 41,491
Goodwill 73,602 73,602
Intangibles assets, net 10,284 11,025
Long-term accounts receivable 1,890 -
Other assets   1,831     5,638  
Total Assets $ 780,954   $ 747,851  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 200,940 $ 194,257
Accrued expenses and other liabilities 28,915 31,096
Accrued payroll   23,458     22,662  
Total current liabilities 253,313 248,015
Deferred income taxes 16,125 15,696
Other liabilities   1,855     1,888  
Total Liabilities   271,293     265,599  
Stockholders' Equity:
Common stock 287 287
Additional paid-in capital 115,224 114,154
Retained earnings 414,396 383,673
Treasury stock at cost   (20,246 )   (15,862 )
Total Stockholders' Equity   509,661     482,252  
Total Liabilities and Stockholders' Equity $ 780,954   $ 747,851  
 

 

(1) Amounts are not restated and represent the amounts recognized under
generally accepted accounting principles in place during the relevant
reporting period.

                                   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                          
          Three Months Ended June 30, Six Month Ended June 30,
(amounts in thousands) 2018 2017 2018 2017
Cash Flows from Operating Activities:
Net income $ 18,226 $ 13,585 $ 29,526 $ 21,017
Adjustments to reconcile net income to net cash provided by (used
for) operating activities:
Depreciation and amortization 3,429 2,855 6,729 5,710
Provision for doubtful accounts 277 68 694 613
Stock-based compensation expense 258 202 465 385
Deferred income taxes - 126 429 164
 
Changes in assets and liabilities:
Accounts receivable (55,937 ) (48,054 ) 1,452 (15,169 )
Inventories (21,867 ) (18,253 ) (11,565 ) (27,691 )
Prepaid expenses and other current assets (395 ) (3,564 ) 2,326 (2,548 )
Other non-current assets (117 ) (4,099 ) (1,997 ) (4,077 )
Accounts payable 48,684 15,107 6,163 8,930
Accrued expenses and other liabilities   11,716     6,844     7,296     2,908  
Net cash provided by (used for) operating activities   4,274     (35,183 )   41,518     (9,758 )
 
Cash Flows from Investing Activities:
Purchases of equipment   (4,920 )   (3,044 )   (9,927 )   (4,531 )
Net cash used for investing activities   (4,920 )   (3,044 )   (9,927 )   (4,531 )
 
Cash Flows from Financing Activities:
Proceeds from short-term borrowings - - 859 -
Repayment of short-term borrowings (859 ) (859 )
Purchase of treasury shares (1,387 ) - (4,384 ) -
Dividend payment - - (9,122 ) (9,041 )
Exercise of stock options - - - 1,678
Issuance of stock under Employee Stock Purchase Plan   605     603     605     603  
Net cash (used for) provided by financing activities   (1,641 )   603     (12,901 )   (6,760 )
(Decrease) increase in cash and cash equivalents (2,287 ) (37,624 ) 18,690 (21,049 )
Cash and cash equivalents, beginning of period   70,967     65,755     49,990     49,180  
Cash and cash equivalents, end of period $ 68,680   $ 28,131   $ 68,680   $ 28,131  
 
Non-cash Investing Activities:
Accrued capital expenditures $ 1,281 $ 662 $ 1,281 $ 662
 
Supplemental Cash Flow Information:
Income taxes paid $ 7,990 $ 14,159 $ 8,309 $ 15,705
 

(1) Amounts are not restated and represent the amounts recognized under
generally accepted accounting principles in place during the relevant
reporting period.

                                         
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 and special charges. 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 June 30,   LTM Ended June 30, (1)
2018 2017 % Change   2018 2017 % Change
Net income $ 18,226 $ 13,585 34 % $ 63,366 $ 47,607 33 %
Depreciation and amortization 3,428 2,855 20 % 12,858 11,359 13 %
Income tax expense 6,903 8,864 (22 %) 21,056 30,618 (31 %)
Interest expense   28   30 (7 %)   121   139 (13 %)
EBITDA 28,585 25,334 13 % 97,401 89,723 9 %
Special charges (2) - 941 (100 %) 2,695 3,506 (23 %)
Stock-based compensation   258   201 28 %   822   788 4 %
Adjusted EBITDA $ 28,843 $ 26,476 9 % $ 100,918 $ 94,017 7 %
 
(1) LTM: Last twelve months
(2) Special charges in 2017 consist of a fourth quarter one-time
bonus paid to all employees except executive officers as well as
severance and relocation costs for our Softmart facility incurred in
the second quarter 2017. Special charges in last twelve months of
2017 consist of our acquisition of Softmart, the rebranding of the
Company, and duplicate costs incurred with the move of our
Chicago-area facility.

 
RECONCILIATION OF CHANGES IN REVENUE STANDARD
(Unaudited, in thousands, except per share amounts)                                                
Change Change
Three Months Ended June 30, As Presented Previous Revenue Standard
2018 2017 Amount Percent Amount Percent
As Impact of New Previous Revenue Standard
Presented     % of Net Sales Revenue Standard Amount     % of Net Sales Amount     % of Net Sales
Net sales $ 706,570 100.0 % $ 113,199 $ 819,769 100.0 % $ 749,792 100.0 % $ (43,222 ) (5.8 %) $ 69,977 9.3 %
Cost of sales   599,102       84.8 %   111,797     710,899       86.7 %   650,122       86.7 %   (51,020 ) (7.8 %)   60,777 9.3 %
Gross profit 107,468 15.2 % 1,402 108,870 13.3 % 99,670 7,798 7.8 % 9,200 9.2 %
 
Selling, general and administrative expenses   82,521       11.7 %   321     82,842       10.1 %   77,230       10.3 %   5,291   6.9 %   5,612 7.3 %
Income from operations 24,947 3.5 % 1,081 26,028 3.2 % 22,440 3.0 % 2,507 11.2 % 3,588 16.0 %
 
Interest income, net 182 0.1 % - 182 - 9 - 173 1,922.2 % 173 1,922.2 %
Income tax provision   (6,903 )     (1.0 %)   (297 )   (7,200 )     (0.9 %)   (8,864 )     (1.2 %)   1,961   (22.1 %)   1,664 (18.8 %)
Net income $ 18,226   2.6 % $ 784   $ 19,010   2.3 % $ 13,585   1.8 % $ 4,641   34.2 % $ 5,425 39.9 %
 
Earnings per common share:
Basic $ 0.68   $ 0.03 $ 0.71   $ 0.51   $ 0.17 33.3 % $ 0.20 39.2 %
Diluted $ 0.68   $ 0.03 $ 0.71   $ 0.51   $ 0.17 33.3 % $ 0.20 39.2 %
 
Shares used in the computation of earnings per common share
Basic   26,686     26,686     26,791  
Diluted   26,820     26,820     26,893  
 
 
 
 
 
                                                                       
RECONCILIATION OF CHANGES IN REVENUE STANDARD                                                                      
(Unaudited, in thousands, except per share amounts)
Change Change
Six Months Ended June 30,       As Presented Previous Revenue Standard
2018       2017 Amount Percent   Amount Percent
As Impact of New Previous Revenue Standard
Presented     % of Net Sales Revenue Standard Amount     % of Net Sales Amount     % of Net Sales  
Net sales $ 1,331,465 100.0 % $ 188,757 $ 1,520,222 100.0 % $ 1,420,386 100.0 % $ (88,921 ) (6.3 %) $ 99,836 7.0 %
Cost of sales   1,127,625       84.7 %   187,965     1,315,590       86.5 %   1,233,983       86.9 %   (106,358 ) (8.6 %)   81,607 6.6 %
Gross profit 203,840 15.3 % 792 204,632 13.5 % 186,403 13.1 % 17,437 9.4 % 18,229 9.8 %
 
Selling, general and administrative expenses   163,421       12.3 %   208     163,629       10.8 %   152,511       10.7 %   10,910   7.2 %   11,118 7.3 %
Income from operations 40,419 3.0 % 584 41,003 2.7 % 33,892 2.4 % 6,527 19.3 % 7,111 21.0 %
 
Interest income, net 298 - - 298 0.0 % 28 0.0 % 270 964.3 % 270 964.3 %
Income tax provision   (11,191 )     (0.8 %)   (162 )   (11,353 )     (0.7 %)   (12,903 )     (0.9 %)   1,712   (13.3 %)   1,550 (12.0 %)
Net income $ 29,526   2.2 % $ 422   $ 29,948   2.0 % $ 21,017   1.5 % $ 8,509   40.5 % $ 8,931 42.5 %
 
Earnings per common share:
Basic $ 1.10   $ 0.02 $ 1.12   $ 0.79   $ 0.31 39.2 % $ 0.33 41.8 %
Diluted $ 1.10   $ 0.01 $ 1.11   $ 0.78   $ 0.32 41.0 % $ 0.33 42.3 %
 
Shares used in the computation of earnings per common share
Basic   26,760     26,760     26,729  
Diluted   26,868     26,868     26,879  

                                   
CONSOLIDATED SELECTED FINANCIAL INFORMATION UNDER PREVIOUS
REVENUE RECOGNITION STANDARD
 
                 
                   
2018 2017
As Impact of New
Presented       Revenue Standard Previous Revenue Standard
Inventory turns 26 5 31 22
Days sales outstanding 53 (6 ) 47 47
 
% of % of % of
Product Mix: Net Sales Net Sales Net Sales
Notebooks/Mobility 26 % (3 ) 23 % 21 %
Software 12 12 24 23
Desktops 11 (1 ) 10 10
Servers/Storage 10 (2 ) 8 9
Net/Com Products 9 (2 ) 7 8
Other Hardware/Services 32 (4 ) 28 29
Total Net Sales 100 % 100 % 100 %

                                               
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET
SALES
 
(Unaudited, in thousands)
Change Change
Three Months Ended June 30, As Presented Previous Revenue Standard
2018   2017 Amount Percent Amount Percent
 
As Impact of New
Net sales Presented Revenue Standard   Previous Revenue Standard
Business Solutions $ 270,042 $ 41,260 $ 311,302 $ 296,420 $ (26,378 ) (8.9 %) $ 14,882 5.0 %
Enterprise Solutions 301,065 47,977 349,042 302,077 (1,012 ) (0.3 %) 46,965 15.5 %
Public Sector Solutions   135,463     23,962     159,425     151,295     (15,832 ) (10.5 %)   8,130 5.4 %
Total $ 706,570   $ 113,199   $ 819,769   $ 749,792   $ (43,222 ) (5.8 %) $ 69,977 9.3 %
 
 
 
 
   
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS
PROFITS
 
(Unaudited, in thousands)
Change Change
Three Months Ended June 30, As Presented Previous Revenue Standard
2018 2017 Amount Percent Amount Percent
 
As Impact of New
Gross profits Presented Revenue Standard   Previous Revenue Standard
Business Solutions $ 47,329 $ 784 $ 48,113 $ 46,277 $ 1,052 2.3 % $ 1,836 4.0 %
Enterprise Solutions 43,256 618 43,874 37,107 6,149 16.6 % 6,767 18.2 %
Public Sector Solutions   16,883     -     16,883     16,286     597   3.7 %   597 3.7 %
Total $ 107,468   $ 1,402   $ 108,870   $ 99,670   $ 7,798   7.8 % $ 9,200 9.2 %
 
 
 
 
                                                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS
MARGINS
 
(Unaudited, in thousands)
Change Change
Three Months Ended June 30, As Presented Previous Revenue Standard
2018 2017 Amount Amount
 
As Impact of New
Gross margins Presented Revenue Standard   Previous Revenue Standard
 
Business Solutions 17.5 % (207 ) 15.5 % 15.6 % 191 (16 )
Enterprise Solutions 14.4 % (180 ) 12.6 % 12.3 % 208 29
Public Sector Solutions 12.5 % (187 ) 10.6 % 10.8 % 170 (17 )
Total 15.2 % (193 ) 13.3 % 13.3 % 192 (1 )

 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT NET
SALES
(Unaudited, in thousands)                                                
Change Change
Six Months Ended June 30, As Presented Previous Revenue Standard
2018 2017 Amount Percent Amount Percent
 
As Impact of New
Net sales Presented Revenue Standard   Previous Revenue Standard
Business Solutions $ 533,320 $ 76,648 $ 609,968 $ 570,053 $ (36,733 ) (6.4 %) $ 39,915 7.0 %
Enterprise Solutions 558,309 80,928 639,237 554,995 3,314 0.6 % 84,242 15.2 %
Public Sector Solutions   239,836     31,181     271,017     295,338     (55,502 ) (18.8 %)   (24,321 ) (8.2 %)
Total $ 1,331,465   $ 188,757   $ 1,520,222   $ 1,420,386   $ (88,921 ) (6.3 %) $ 99,836   7.0 %
 
 
 
 
                                                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS
PROFITS
(Unaudited, in thousands)
Change Change
Six Months Ended June 30, As Presented Previous Revenue Standard
2018 2017 Amount Percent Amount Percent
 
As Impact of New
Gross profits Presented Revenue Standard Previous Revenue Standard
Business Solutions $ 93,564 $ 581 $ 94,145 $ 88,068 $ 5,496 6.2 % $ 6,077 6.9 %
Enterprise Solutions 79,950 211 80,161 68,736 11,214 16.3 % 11,425 16.6 %
Public Sector Solutions   30,326     -     30,326     29,599     727   2.5 %   727   2.5 %
Total $ 203,840   $ 792   $ 204,632   $ 186,403   $ 17,437   9.4 % $ 18,229   9.8 %
 
 
 
 
                                                                 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR SEGMENT GROSS
MARGINS
 
(Unaudited, in thousands)
Change Change
Six Months Ended June 30, As Presented   Previous Revenue Standard
2018 2017 Amount Amount
 
As Impact of New
Gross margins Presented Revenue Standard   Previous Revenue Standard
 
Business Solutions 17.5 % (211 ) 15.4 % 15.4 % 209 (1 )
Enterprise Solutions 14.3 % (178 ) 12.5 % 12.4 % 194 16
Public Sector Solutions 12.6 % (145 ) 11.2 % 10.0 % 262 117
Total 15.3 % (185 ) 13.5 % 13.1 % 219 34

 
RECONCILIATION OF CHANGES IN REVENUE STANDARD FOR 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 and special charges. 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.
 
Change Change
(amounts in thousands) Three Months Ended June 30, As Presented Previous Revenue Standard
2018 2017 Percent Percent
As Impact of New
Presented Revenue Standard Previous Revenue Standard
Net income $ 18,226 $ 784 $ 19,010 $ 13,585 34 % 40 %
Depreciation and amortization 3,428 - 3,428 2,855 20 % 20 %
Income tax expense 6,903 297 7,200 8,864 (22 %) (19 %)
Interest expense   28   -   28   30 (7 %) (7 %)
EBITDA 28,585 1,081 29,666 25,334 13 % 17 %
Special charges (1) - - - 941 N/A N/A
Stock-based compensation   258   -   258   201 28 % 28 %
Adjusted EBITDA $ 28,843 $ 1,081 $ 29,924 $ 26,476 9 % 13 %
 
(1) Special charges in 2017 consist of a fourth quarter one-time
bonus paid to all employees except executive officers as well as
severance and relocation costs for our Softmart facility incurred in
the second quarter 2017.
 
 
 
Change Change
(amounts in thousands) LTM Ended June 30, (1) As Presented Previous Revenue Standard
2018 2017 Percent Percent
As Impact of New
Presented Revenue Standard Previous Revenue Standard
Net income $ 63,366 $ 422 $ 63,788 $ 47,607 33 % 34 %
Depreciation and amortization 12,858 - 12,858 11,359 13 % 13 %
Income tax expense 21,056 162 21,218 30,618 (31 %) (31 %)
Interest expense   121   -   121   139 (13 %) (13 %)
EBITDA 97,401 584 97,985 89,723 9 % 9 %
Special charges (2) 2,695 - 2,695 3,506 (23 %) (23 %)
Stock-based compensation   822   -   822   788 4 % 4 %
Adjusted EBITDA $ 100,918 $ 584 $ 101,502 $ 94,017 7 % 8 %
 
(1) LTM: Last twelve months
(2) Special charges in 2017 consist of a fourth quarter one-time
bonus paid to all employees except executive officers as well as
severance and relocation costs for our Softmart facility incurred in
the second quarter 2017. Special charges in last twelve months of
2017 consist of our acquisition of Softmart, the rebranding of the
Company, and duplicate costs incurred with the move of our
Chicago-area facility.
 

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