Record Second Quarter Margin Performance;
Industry Demand Remains Challenged
SECOND QUARTER SUMMARY:
- Net sales: $733.5 million, down 11.5% y/y
- Gross profit: $127.8 million, down 6.7% y/y
- Net income: $19.7 million, down 22.4% y/y
- Diluted EPS: $0.75, down 22.3% y/y
- Adjusted EPS: $0.80, down 17.2% y/y1
Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading
information technology solutions provider to business, government,
healthcare and education markets, today announced results for the
second quarter ended June 30, 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
September 1, 2023, to shareholders of record as of August 15,
2023.
“We executed well against our strategic plans during the second
quarter. We are successfully transitioning our business, driving
growth in integrated technology solutions and services across each
of our segments, resulting in a 90 basis point improvement in
consolidated gross margin. While we are seeing a continuation of
the challenging economic environment, we are confident that our
business plans remain 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.
Net sales for the quarter ended June 30, 2023 decreased by
11.5%, year over year. Gross profit decreased 6.7% while gross
margin expanded 90 basis points to 17.4%, compared to the prior
year quarter. Net income for the quarter ended June 30, 2023
decreased by 22.4% to $19.7 million, or $0.75 per diluted share,
compared to net income of $25.4 million, or $0.96 per diluted
share, for the prior year quarter. Earnings per share, adjusted for
restructuring and other charges (“Adjusted Diluted Earnings per
Share”), decreased to $0.80 cents per share for the quarter ended
June 30, 2023, compared to $0.96 cents per share for the prior year
quarter.1
Net sales for the six months ended June 30, 2023 decreased by
9.6%, compared to the six months ended June 30, 2022. Gross profit
decreased 5.7% while gross margin expanded 71 basis points to
17.1%, compared to the six months ended June 30, 2022. Net income
for the six months ended June 30, 2023 decreased by 28.2% to $33.9
million, or $1.28 per diluted share, compared to net income of
$47.2 million, or $1.79 per diluted share, for the six months ended
June 30, 2022. Adjusted Diluted Earnings per Share, decreased to
$1.36 cents per share for the six months ended June 30, 2023,
compared to $1.79 cents per share for the six months ended June 30,
2022.1
Earnings before interest, taxes, depreciation and amortization,
adjusted for stock-based compensation expense and restructuring and
other charges (“Adjusted EBITDA”) decreased 11% to $124.4 million
for the twelve months ended June 30, 2023, compared to $140.5
million for the twelve months ended June 30, 2022.1
Quarterly Performance by Segment:
- Net sales for the Business Solutions segment decreased by 20.5%
to $261.0 million in the second quarter of 2023, compared to a
record $328.4 million in the prior year quarter. Gross profit
decreased by 6.3% to $61.4 million in the second quarter of 2023,
compared to $65.5 million in the prior year quarter. Gross margin
increased by 356 basis points to a record 23.5% primarily due to a
shift in product mix to sales of datacenter products, including
services, software, and networking, in addition to a higher mix of
netted down revenue during the second quarter of 2023.
- Net sales for the Public Sector Solutions segment increased by
22.6% to a record $185.4 million in the second quarter of 2023,
compared to $151.2 million in the prior year quarter. Sales to the
state and local governments and educational institutions increased
by 15.7% to $151.7 million, while sales to the federal government
increased by 67.8% to $33.6 million, compared to the prior year
quarter. Gross profit increased by 12.8% to $23.5 million in the
second quarter of 2023, compared to $20.8 million in the prior year
quarter. Gross margin decreased by 110 basis points to 12.7%
primarily due to a higher mix of large rollouts of end-point
devices in the second quarter of 2023.
- Net sales for the Enterprise Solutions segment decreased by
17.7% to $287.2 million in the second quarter of 2023, compared to
$348.9 million in the prior year quarter. Gross profit decreased by
15.1% to $43.0 million in the second quarter of 2023, compared to
$50.6 million in the prior year quarter. Gross margin increased by
46 basis points to 15.0% primarily due to an increase in software
and services recorded on a net basis.
Quarterly Highlights
- Our Healthcare revenue grew 5% sequentially, driven primarily
by customers investing in integrated workplace transformation
solutions. In addition, demand for networking and collaboration
solutions continued to be an integral component of patient care and
the overall patient experience.
- Our commitment to providing exceptional customer service and
supporting workplace transformation needs helped us to be named
both the Microsoft US Surface Solutions Partner of the Year and
Modern Work, Surface Hub Reseller US Partner of the Year for
2023.
- Our Technology Integration and Distribution Center completed a
record number of custom configurations in the second quarter as
customers demand for managed services has increased.
- Our Public Sector Solutions segment achieved record net sales
to K-12 customers.
- The company generated record cashflow from operations of $116
million in the second quarter.
Quarterly Sales by Product Mix:
- Notebook/mobility sales decreased 19% year over year and
accounted for 34% of net sales in the second quarter of 2023,
compared to 37% of net sales in the second quarter of 2022.
- Accessories sales decreased by 23% year over year and accounted
for 11% of net sales in the second quarter of 2023, compared to 13%
of net sales in the second quarter of 2022.
- Networking sales increased by 44% year over year and accounted
for 11% of net sales in the second quarter of 2023, compared to 7%
of net sales in the second quarter of 2022.
- Software sales decreased by 10% year over year and accounted
for 9% of net sales in the second quarter of 2023 and 2022.
Selling, general and administrative (“SG&A”) expenses
decreased in the second quarter of 2023 to $101.0 million from
$102.1 million in the prior year quarter. The decrease in SG&A
was primarily due to cost reduction initiatives partially offset by
on-going investments in our services business. SG&A as a
percentage of net sales increased to 13.8%, compared to 12.3% 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 second quarter of 2023 results include $1.7
million of restructuring and other related costs associated with
severance and other costs related to internal restructuring
activities.
Cash and cash equivalents were $244.0 million at June 30, 2023,
compared to $94.9 million at June 30, 2022. During the second
quarter of 2023, the Company repurchased 49,538 shares of stock for
$2.0 million.
Conference Call and Webcast
Connection will host a conference call and live web cast today,
August 2, 2023 at 4:30 p.m. EST to discuss its second 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, Adjusted EBITDA and Adjusted Diluted Earnings per Share
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;
- substantial competition reducing our market share;
- significant price competition reducing our profit margins;
- the loss of any of our major vendors adversely affecting the
number of type of products we may offer;
- virtualization of information technology resources and
applications, including networks, servers, applications, and data
storage disrupting or altering our traditional distribution
models;
- service interruptions at third-partly shippers negatively
impacting our ability to deliver the products we offer to our
customers;
- increases in shipping and postage costs reducing our margins
and adversely affecting our results of operations;
- loss of key persons or the inability to attract, train and
retain qualified personnel adversely affecting our ability to
operate our business;
- cyberattacks or the failure to safeguard personal information
and our IT systems resulting in liability and harm to our
reputation; and
- the rate of innovations in the hardware, software and services
we offer as well as macroeconomics factors facing the global
economy, including disruptions in the capital markets, economic
sanctions and economic slowdowns or recessions, rising inflation
and changing interest rates have impacted and are expected to
continue to impact the level of investment our customers are
willing to make in IT products.
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 and Adjusted
Earnings per Share are non-GAAP measures. See page 10 for the
definition and reconciliation.
CONSOLIDATED SELECTED FINANCIAL INFORMATION At or for the
Three Months Ended June 30,
2023
2022
%
(Amounts and shares in thousands, except operating data, P/E ratio,
and per share data)
Change
Operating Data: Net sales
$
733,547
$
828,509
(11
%)
Diluted earnings per share
$
0.75
$
0.96
(22
%)
Gross margin
17.4
%
16.5
%
Operating margin
3.4
%
4.2
%
Inventory turns (1)
14
12
Days sales outstanding (2)
68
66
% of % of Product Mix: Net Sales
Net Sales Notebooks/Mobility
34
%
37
%
Net/Com Products
11
7
Accessories
11
13
Desktops
10
11
Software
9
9
Displays
9
11
Servers/Storage
7
6
Other Hardware/Services
9
6
Total Net Sales
100
%
100
%
Stock Performance Indicators: Actual shares
outstanding
26,256
26,272
Closing price
$
45.10
$
44.05
Market capitalization
$
1,184,146
$
1,157,282
Trailing price/earnings ratio
15.7
13.0
LTM Net Income
$
75,924
$
89,620
LTM Adjusted EBITDA (3)
$
124,423
$
140,453
(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 a non-GAAP
measure 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. See page 10 for a reconciliation.
REVENUE AND MARGIN INFORMATION For the Three
Months Ended June 30,
2023
2022
Net Gross Net Gross (amounts in
thousands)
Sales Margin Sales Margin
Enterprise Solutions
$
287,153
15.0
%
$
348,954
14.5
%
Business Solutions
261,027
23.5
328,351
19.9
Public Sector Solutions
185,367
12.7
151,204
13.8
Total
$
733,547
17.4
%
$
828,509
16.5
%
CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three
Months Ended June 30, Six Months Ended June 30, (amounts
in thousands, except per share data)
2023
2022
2023
2022
Net sales
$
733,547
$
828,509
$
1,461,092
$
1,616,853
Cost of sales
605,770
691,608
1,211,019
1,351,646
Gross profit
127,777
136,901
250,073
265,207
Selling, general and administrative expenses
100,960
102,131
204,242
200,302
Restructuring and other charges
1,746
-
2,643
-
Income from operations
25,071
34,770
43,188
64,905
Other income, net
1,874
15
3,160
11
Income tax provision
(7,248
)
(9,387
)
(12,453
)
(17,726
)
Net income
$
19,697
$
25,398
$
33,895
$
47,190
Earnings per common share: Basic
$
0.75
$
0.97
$
1.29
$
1.80
Diluted
$
0.75
$
0.96
$
1.28
$
1.79
Shares used in the computation of earnings per common share:
Basic
26,256
26,268
26,291
26,262
Diluted
26,365
26,429
26,400
26,417
June 30, December 31, CONDENSED
CONSOLIDATED BALANCE SHEETS
2023
2022
(amounts in thousands)
ASSETS Current Assets: Cash
and cash equivalents
$
243,983
$
122,930
Accounts receivable, net
592,663
610,280
Inventories, net
159,734
208,682
Income taxes receivable
9,016
-
Prepaid expenses and other current assets
16,537
11,900
Total current assets
1,021,933
953,792
Property and equipment, net
58,012
59,171
Right-of-use assets, net
5,775
7,558
Goodwill
73,602
73,602
Intangibles assets, net
4,038
4,648
Other assets
915
1,055
Total Assets
$
1,164,275
$
1,099,826
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
Liabilities: Accounts payable
$
277,235
$
232,638
Accrued payroll
20,257
24,071
Accrued expenses and other liabilities
49,813
53,808
Total current liabilities
347,305
310,517
Deferred income taxes
17,970
17,970
Operating lease liability
4,196
4,994
Other liabilities
684
170
Total Liabilities
370,155
333,651
Stockholders’ Equity: Common stock
291
291
Additional paid-in capital
129,486
125,784
Retained earnings
715,726
686,037
Treasury stock at cost
(51,383
)
(45,937
)
Total Stockholders’ Equity
794,120
766,175
Total Liabilities and Stockholders’ Equity
$
1,164,275
$
1,099,826
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Three Months Ended June 30, Six Months Ended
June 30, (amounts in thousands)
2023
2022
2023
2022
Cash Flows from Operating Activities: Net income
$
19,697
$
25,398
$
33,895
$
47,190
Adjustments to reconcile net income to net cash provided by (used
in) operating activities: Depreciation and amortization
3,094
2,989
6,167
5,980
Adjustments to credit losses reserve
1,346
1,075
1,247
1,642
Stock-based compensation expense
1,783
1,408
3,636
2,790
Deferred income taxes
-
-
-
-
Loss on disposal of fixed assets
1
3
475
13
Changes in assets and liabilities: Accounts receivable
27,835
(10,886
)
16,370
(38,063
)
Inventories
39,583
11,443
48,948
(16,603
)
Prepaid expenses and other current assets
(7,408
)
1,220
(13,653
)
(3,352
)
Other non-current assets
98
(5
)
140
27
Accounts payable
38,725
7,049
44,584
(3,445
)
Accrued expenses and other liabilities
(8,814
)
(9,804
)
(6,364
)
(4,574
)
Net cash provided by (used in) operating activities
115,940
29,890
135,445
(8,395
)
Cash Flows from Investing Activities: Purchases of
property and equipment
(2,978
)
(2,114
)
(4,860
)
(4,565
)
Net cash used in investing activities
(2,978
)
(2,114
)
(4,860
)
(4,565
)
Cash Flows from Financing Activities: Proceeds from
short-term borrowings
8,585
24,669
67,895
26,054
Repayment of short-term borrowings
(8,585
)
(24,669
)
(67,895
)
(26,054
)
Purchase of common stock for treasury shares
(1,969
)
-
(5,392
)
-
Dividend payments
(2,099
)
-
(4,206
)
-
Issuance of stock under Employee Stock Purchase Plan
537
-
537
-
Payment of payroll taxes on stock-based compensation through shares
withheld
(258
)
(289
)
(471
)
(454
)
Net cash used in financing activities
(3,789
)
(289
)
(9,532
)
(454
)
Increase (decrease) in cash and cash equivalents
109,173
27,487
121,053
(13,414
)
Cash and cash equivalents, beginning of period
134,810
67,409
122,930
108,310
Cash and cash equivalents, end of period
$
243,983
$
94,896
$
243,983
$
94,896
Non-cash Investing Activities: Accrued purchases of
property and equipment
$
205
$
390
205
390
Accrued excise tax on treasury purchases
$
54
$
-
54
-
Supplemental Cash Flow Information: Income taxes paid
$
20,131
$
21,222
$
27,410
$
21,509
Interest paid
$
1
$
3
$
18
$
3
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 June 30, LTM Ended June 30, (1)
2023
2022
% Change
2023
2022
% Change
Net income
$
19,697
$
25,398
(22
%)
$
75,924
$
89,620
(15
%)
Depreciation and amortization
3,094
2,989
4
%
12,165
11,964
2
%
Income tax expense
7,248
9,387
(23
%)
27,143
33,927
(20
%)
Interest expense
2
3
100
%
27
13
108
%
EBITDA
30,041
37,777
(20
%)
115,259
135,524
(15
%)
Restructuring and other charges (2)
1,746
-
100
%
2,643
-
(100
%)
Stock-based compensation
1,783
1,408
27
%
6,521
4,929
32
%
Adjusted EBITDA
$
33,570
$
39,185
(14
%)
$
124,423
$
140,453
(11
%)
(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 June
30,
Six Months Ended June
30,
2023
2022
% Change
2023
2022
% Change Net income
$
19,697
$
25,398
-22
%
$
33,895
$
47,190
-28
%
Restructuring and other charges (1)
1,746
-
100
%
2,643
-
100
%
Tax benefit
(470
)
-
100
%
(710
)
-
100
%
Restructuring and other charges, net of tax
1,276
-
100
%
1,933
-
100
%
Adjusted Net Income
$
20,973
$
25,398
-17
%
$
35,828
$
47,190
-24
%
Diluted shares
26,365
26,429
26,400
26,417
Diluted Earnings per Share
$
0.75
$
0.96
-22
%
$
1.28
$
1.79
-28
%
Adjusted Diluted Earnings per Share
$
0.80
$
0.96
-17
%
$
1.36
$
1.79
-24
%
(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/20230802985225/en/
Investor Relations Contact: Thomas Baker, 603.683.2505
Senior Vice President, CFO, and Treasurer tom@connection.com
Grafico Azioni PC Connection (NASDAQ:CNXN)
Storico
Da Mag 2024 a Giu 2024
Grafico Azioni PC Connection (NASDAQ:CNXN)
Storico
Da Giu 2023 a Giu 2024