PC Connection (CNXN) 8-K PC Connection, Inc. Reports Second Quarter 2015 Results

Exhibit 99.1

PC Connection, Inc. Reports Second Quarter 2015 Results

SECOND QUARTER SUMMARY:

• Net income up 2% year over year to $11.6 million
• YTD net income up 9% year over year to $20.2 million
• Net sales: $627.6 million, down 1% year over year
• Diluted earnings per share: $0.44 versus $0.43 last year
• Cash balance $72.5 million

MERRIMACK, N.H.--(BUSINESS WIRE)--July 30, 2015--PC Connection, Inc. (NASDAQ: 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 June 30, 2015. Net sales for the second quarter of 2015 decreased by 1% to $627.6 million, compared to $633.2 million for the prior year quarter. Note that the Company was comparing against a very strong prior year quarter, which had revenue growth of almost 14% and net income growth of 25%. Net income for the quarter ended June 30, 2015 increased by 2% to $11.6 million, or $0.44 per diluted share, compared to net income of $11.4 million, or $0.43 per diluted share for the prior year quarter.

Net sales for the six months ended June 30, 2015 were $1,208.9 million, an increase of $15.9 million or 1.3%, compared to $1,193.0 million for the six months ended June 30, 2014. Net income for the six months ended June 30, 2015 increased by 8.9% to $20.2 million, or $0.76 per diluted share, compared to net income of $18.6 million, or $0.70 per diluted share, for the six months ended June 30, 2014. Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense (“Adjusted EBITDA”) totaled $83.8 million for the twelve months ended June 30, 2015, compared to $73.6 million for the twelve months ended June 30, 2014.

Quarterly Sales by Segment:

• Net sales for the SMB segment decreased by 3.3% to $259.3 million in the second quarter of 2015, compared to the prior year quarter. The decrease was due to a double-digit percentage decrease in desktops, which is consistent with current market conditions in this category. Sales of notebooks, the largest SMB category, increased by 6.3% compared to the prior year quarter, as mobility continues to be a focus area for businesses.
• Net sales for the Large Account segment increased by 4.3% to $231.8 million in the second quarter of 2015, compared to the prior year quarter. Servers, networking, and software sales had strong growth during this quarter at 27.5%, 20.5% and 12.5%, respectively.
• Net sales to the Public Sector segment decreased by 4.5% to $136.5 million in the second quarter of 2015, compared to the prior year quarter. Sales to state and local government and educational institutions decreased by 5.8%, compared to the prior year quarter, while sales to the federal government increased by 0.6%. Notebook/tablet sales were strong in this segment with an increase of 23.7%.

Quarterly Sales by Product Mix:

• Notebook/tablet sales, the Company’s largest product category, increased by 9% year over year and accounted for 24% of net sales in the second quarter of 2015 compared to 22% of net sales in the prior year quarter. Public Sector experienced strong year-over-year growth in notebook/tablet sales.
• Software sales increased by 7% year over year and accounted for 18% of net sales in the second quarter of 2015 compared to 16% of net sales in the prior year quarter. We experienced strong growth in cloud-based offerings.
• Server product sales increased by 14% year over year and accounted for 4% of net sales in the second quarter of 2015 and 2014. We experienced significant sales growth in our Large Account segment in this product category.

Overall gross profit dollars decreased by $0.8 million, or 1%, in the second quarter of 2015, compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, remained unchanged at 13.2%.

Selling, general and administrative dollars decreased in the second quarter of 2015 to $63.1 million from $64.6 million in the prior year quarter and improved as a percentage of net sales to 10.1% due to strict cost controls. We also incurred $0.3 million of start-up costs during the quarter related to our new distribution center, which is scheduled to be operational near the end of the third quarter. 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 six months ended June 30, 2015. Total cash was $72.5 million at June 30, 2015, compared to $60.9 million at December 31, 2014.

“The Company had solid performance this quarter in a challenging IT environment. We were able to increase earnings despite having to compare against the industry leading growth rates that we experienced in the prior year,” said Timothy McGrath, President and Chief Executive Officer. “We continue to focus on building our advanced technology solution capabilities to help solve our customer’s most complex business issues. We believe our team and the strategies we have in place position us well 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. In addition, the company has over 2,500 technical certifications to ensure that we can solve the most complex issues of our customers. 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. 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, 2014. 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 and the Company’s continuing investments in technical solution sales capabilities) 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 June 30,		2015					2014
				% 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	$	627,622				$	633,244					(1	%)
Diluted earnings per share	$	0.44				$	0.43					2	%
Gross margin		13.2	%				13.2	%
Operating margin		3.1	%				3.0	%
Return on equity (1)		12.4	%				12.1	%
Inventory turns		24					28
Days sales outstanding		43					40
Product Mix:
Notebooks/Tablets	$	148,481		24	%	$	136,126		22	%		9	%
Software		111,454		18			104,157		16			7	%
Desktops		68,662		11			76,733		12			(11	%)
Video, Imaging & Sound		55,862		9			56,775		9			(2	%)
Net/Com Products		49,833		8			57,908		9			(14	%)
Printer & Printer Supplies		35,332		6			37,175		6			(5	%)
Storage		34,272		5			39,452		6			(13	%)
Servers		28,025		4			24,671		4			14	%
Memory & System Enhancements		19,181		3			21,349		3			(10	%)
Accessories/Services/Other		76,520		12			78,898		13			(3	%)
Total Net Sales	$	627,622		100	%	$	633,244		100		%	(1	%)
Stock Performance Indicators:
Actual shares outstanding		26,396					26,224
Total book value per share	$	14.23				$	12.94
Tangible book value per share	$	12.23				$	10.89
Closing price	$	24.74				$	20.68
Market capitalization	$	653,037				$	542,312
Trailing price/earnings ratio		14.8					14.1
LTM Adjusted EBITDA (2)	$	83,813				$	73,595
Adjusted market capitalization/LTM Adjusted EBITDA (3)		6.9					6.5
(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 June 30,		2015					2014
	Net			Gross		Net			Gross
(amounts in thousands)	Sales			Margin		Sales			Margin
SMB	$	259,346		15.4	%	$	268,056		15.3	%
Large Account		231,803		12.4			222,276		12.3
Public Sector		136,473		10.5			142,912		10.8
Total	$	627,622		13.2	%	$	633,244		13.2	%

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,		2015					2014
(amounts in thousands, except per share data)	Amount			% of Net Sales		Amount			% of Net Sales
Net sales	$	627,622		100.0	%	$	633,244		100.0	%
Cost of sales		544,635		86.8			549,478		86.8
Gross profit		82,987		13.2			83,766		13.2
Start-up costs - new distribution center		271		–			–		–
Selling, general and administrative expenses, other		63,093		10.1			64,564		10.2
Income from operations		19,623		3.1			19,202		3.0
Interest/other expense, net		(39	)	–			(26	)	–
Income tax provision		(7,955	)	(1.2	)		(7,747	)	(1.2	)
Net income	$	11,629		1.9	%	$	11,429		1.8	%
Earnings per common share:
Basic	$	0.44				$	0.44
Diluted	$	0.44				$	0.43
Shares used in the computation of earnings per common share:
Basic		26,363					26,206
Diluted		26,616					26,487
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30,		2015					2014
(amounts in thousands, except per share data)	Amount			% of Net Sales		Amount			% of Net Sales
Net sales	$	1,208,881		100.0	%	$	1,193,004		100.0	%
Cost of sales		1,048,281		86.7			1,036,391		86.9
Gross profit		160,600		13.3			156,613		13.1
Start-up costs - new distribution center		271		–			–		–
Selling, general and administrative expenses, other		126,527		10.5			125,665		10.5
Income from operations		33,802		2.8			30,948		2.6
Interest/other expense, net		(38	)	–			(36	)	–
Income tax provision		(13,551	)	(1.1	)		(12,352	)	(1.0	)
Net income	$	20,213		1.7	%	$	18,560		1.6	%
Earnings per common share:
Basic	$	0.77				$	0.71
Diluted	$	0.76				$	0.70
Shares used in the computation of earnings per common share:
Basic		26,354					26,204
Diluted		26,605					26,485

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 June 30,						LTM Ended June 30, (1)
		2015		2014	% Change			2015			2014		% Change
Net income	$	11,629	$	11,429			$	44,334		$	38,990
Depreciation and amortization		2,179		1,786				8,599			7,616
Income tax expense		7,955		7,747				29,886			25,757
Interest/other expense, net		39		26				88			89
EBITDA		21,802		20,988				82,907			72,452
Stock-based compensation		225		327				906			1,143
Adjusted EBITDA	$	22,027	$	21,315	3	%	$	83,813		$	73,595		14	%
(1) LTM: Last twelve months
							June 30,			December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS								2015			2014
(amounts in thousands)
ASSETS
Current Assets:
Cash and cash equivalents							$	72,497		$	60,909
Accounts receivable, net								332,899			293,027
Inventories								98,575			90,917
Deferred income taxes								7,749			7,749
Prepaid expenses and other current assets								5,168			5,332
Income taxes receivable								2,118			212
Total current assets								519,006			458,146
Property and equipment, net								29,878			27,861
Goodwill								51,276			51,276
Other intangibles, net								1,568			1,953
Other assets								818			724
Total Assets							$	602,546		$	539,960
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable							$	162,374		$	124,893
Accrued expenses and other liabilities								29,234			22,011
Accrued payroll								14,290			17,793
Total current liabilities								205,898			164,697
Deferred income taxes								18,864			18,803
Other liabilities								2,229			2,452
Total Liabilities								226,991			185,952
Stockholders’ Equity:
Common stock								283			282
Additional paid-in capital								108,289			106,956
Retained earnings								282,845			262,632
Treasury stock at cost								(15,862	)		(15,862	)
Total Stockholders’ Equity								375,555			354,008
Total Liabilities and Stockholders’ Equity							$	602,546		$	539,960

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,		2015			2014
(amounts in thousands)
Cash Flows from Operating Activities:
Net income	$	20,213		$	18,560
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,370			3,863
Provision for doubtful accounts		718			365
Stock-based compensation expense		463			486
Deferred income taxes		61			57
Excess tax benefit from exercise of equity awards		(95	)		(34	)
Changes in assets and liabilities:
Accounts receivable		(40,590	)		(12,641	)
Inventories		(7,658	)		(18,046	)
Prepaid expenses and other current assets		(1,742	)		2,057
Other non-current assets		(94	)		22
Accounts payable		37,231			28,392
Accrued expenses and other liabilities		3,597			(2,232	)
Net cash provided by operating activities		16,474			20,849
Cash Flows from Investing Activities:
Purchases of equipment		(5,752	)		(3,493	)
Proceeds from sale of equipment		-			10
Net cash used for investing activities		(5,752	)		(3,483	)
Cash Flows from Financing Activities:
Issuance of stock under Employee Stock Purchase Plan		435			360
Exercise of stock options		379			16
Excess tax benefit from exercise of equity awards		95			34
Payment of payroll taxes on stock-based compensation through shares withheld		(43	)		(34	)
Net cash provided by financing activities		866			376
Increase in cash and cash equivalents		11,588			17,742
Cash and cash equivalents, beginning of period		60,909			42,547
Cash and cash equivalents, end of period	$	72,497		$	60,289
Non-cash Investing Activities:
Accrued capital expenditures	$	455		$	343
Supplemental Cash Flow Information:
Income taxes paid	$	16,500		$	10,933

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CONTACT:
PC Connection, Inc.
Joseph Driscoll, Senior Vice President, Treasurer and Chief Financial Officer
603-683-2505