CNXN - Connection (CNXN) Reports Third Quarter 2019 Results

Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading technology solutions provider to business, government, and education markets, today announced results for the third quarter ended September 30, 2019. Net sales for the quarter ended September 30, 2019 increased by 10.8% to $729.4 million, compared to $658.5 million for the prior year quarter. Net income for the third quarter ended September 30, 2019 increased by 72.5% to $23.7 million, or $0.90 per diluted share, compared to net income of $13.8 million, or $0.51 per diluted share, for the prior year quarter.

Net sales for the nine months ended September 30, 2019 increased by 5.7% to $2.1 billion, compared to $2.0 billion for the nine months ended September 30, 2018. Our average daily sales during the nine months ended September 30, 2019 increased by 6.3%, compared to the nine months ended September 30, 2018. Net income for the nine months ended September 30, 2019 increased by 38.9% to $60.1 million, or $2.27 per diluted share, compared to net income of $43.3 million, or $1.61 per diluted share, for the nine months ended September 30, 2018.

Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and restructuring and other charges (“Adjusted EBITDA”) totaled $129.0 million for the twelve months ended September 30, 2019, compared to $99.1 million for the twelve months ended September 30, 2018.

Quarterly Performance by Segment:

• Net sales for the Business Solutions segment increased 11.8% to $273.8 million in the third quarter of 2019, compared to $244.9 million in the prior year quarter. We experienced strong growth in sales of mobility, desktops, and software products in the quarter. Gross margin increased by 83 basis points to 19.0% due to higher sales volumes and the change in customer mix.

• Net sales for the Public Sector Solutions segment increased by 19.7% to $177.4 million in the third quarter of 2019, compared to the prior year quarter. Sales to the federal government increased by 88.2%, compared to the prior year, while sales to state and local government and educational institutions increased by 1.5%. Gross margin increased by 175 basis points to 13.9% primarily due to increases in the level of both hardware and software sales, and changes in customer mix.

• Net sales for the Enterprise Solutions segment increased by 4.8% to $278.3 million in the third quarter of 2019, compared to the prior year quarter. Gross margin increased by 86 basis points to 15.1% primarily due to an increase in sales of cloud-based and security software, which are recognized on a net basis.

Quarterly Sales by Product Mix:

• Notebook/mobility sales, the Company’s largest product category, increased by 20% year over year and accounted for 30% of net sales in the third quarter of 2019, compared to 28% of net sales in the prior year quarter. All three selling segments experienced strong year-over-year growth in notebook/mobility sales.

• Accessories sales decreased slightly year over year and accounted for 12% of net sales in the third quarter of 2019, compared to 13% of net sales in the third quarter of 2018. The decrease was due to the timing of large rollouts, primarily in the Enterprise Solutions segment. The Business Solutions and Public Sector segments experienced year-over-year growth in accessories sales, compared to the prior year quarter.

• Desktop sales increased by 33% year over year and accounted for 13% of net sales in the third quarter of 2019, compared to 10% of net sales in the prior year quarter. All three selling segments experienced strong year-over-year growth in desktop sales.

• Software sales increased by 8% year over year and accounted for 11% of net sales in the third quarter of 2019 and 2018. The Business Solutions and Enterprise Solutions segments experienced strong year-over-year growth in software sales.

Selling, general and administrative (“SG&A”) expenses increased in the third quarter of 2019 to $86.2 million from $81.5 million in the prior year quarter, but decreased 55 basis points as a percentage of net sales. The increase in SG&A was driven in part by an increase in variable compensation, which increased in the third quarter of 2019 compared to the third quarter of 2018, due to the higher level of sales and gross profit achieved compared to the prior year quarter.

Cash and cash equivalents were $98.5 million at September 30, 2019, compared to $91.7 million at December 31, 2018. During the third quarter of 2019, the Company repurchased 23,472 shares of stock for $0.9 million.

“We are pleased that our efforts to help customers solve IT resulted in a 75% increase in earnings per share,” said Tim McGrath, President and Chief Executive Officer. “Our success is attributed to our continued focus and strategic plan to help our customers build out solutions for software defined datacenter, hybrid cloud, and the digital workplace,” concluded Mr. McGrath. “I would like to thank our dedicated team for their commitment and support delivering these record results. In a rapidly changing industry, we believe our team and the strategies we have in place, well position Connection to gain market share and increase long-term shareholder value.”

Conference Call and Webcast

Connection will host a conference call and live web cast today, October 30, 2019 at 4:30 p.m. ET to discuss its third quarter financial results. To access the conference call (audio only), please dial 877-776-4016 (US) or 973-638-3231 (International). 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

Adjusted EBITDA, Adjusted EPS and Adjusted Net Income are non-GAAP financial measures. 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. A reconciliation to the most directly comparable GAAP measure 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 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.

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"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, 2018. 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.