EXHIBIT 99.1
Frank Khulusi, Chairman, President and CEO
Brandon LaVerne, CFO
Joseph Hayek, Executive Vice President
PC Mall, Inc.
(310) 354-5600
PC MALL REPORTS RECORD SECOND QUARTER 2008 RESULTS
NON-GAAP DILUTED EPS OF $0.25 IN Q2 2008 ON 26% REVENUE GROWTH
Consolidated Second Quarter Highlights: |
| • | Consolidated net sales were a Q2 record $331.2 million, up 26% year-over-year (YOY) |
| • | Gross profit was a Q2 record $46.2 million, up 36% YOY |
| • | Gross profit margin for the quarter was 14.0% vs. 12.9% in Q2 2007 |
| • | Non-GAAP operating profit for Q2 2008 was $6.6 million, up 14% YOY |
| • | Non-GAAP operating profit margin for Q2 2008 was 2.0% |
| • | Non-GAAP diluted EPS was $0.25 vs. $0.22 last year; GAAP diluted EPS was $0.22 |
Torrance, California – July 29, 2008 — PC Mall, Inc. (NASDAQ:MALL) today reported record second quarter financial results. Consolidated net sales for Q2 2008 increased 26% to $331.2 million. Consolidated gross profit for Q2 2008 increased 36% to $46.2 million. Consolidated gross profit margin was 14% in Q2 2008 compared to 12.9% in Q2 2007. GAAP operating profit for Q2 2008 increased 1% to $5.9 million, and included a $0.8 million charge related to a lawsuit settlement. GAAP operating profit margin for Q2 2008 was 1.8% vs. 2.2% in the prior year. Excluding the charge, non-GAAP operating profit for the quarter increased 14% to $6.6 million, and non-GAAP operating profit margin was 2.0%. GAAP net income for Q2 2008 was $3.0 million, flat with the prior year; however, excluding the $0.5 million after-tax charge, non-GAAP net income increased 17% to $3.5 million. GAAP diluted EPS in Q2 2008 was $0.22, flat with Q2 2007. Excluding the charge, non-GAAP diluted EPS was $0.25.
Frank Khulusi, Chairman, President and CEO of PC Mall, Inc. said, “Once again, we are very pleased to report record second quarter results despite continued softness in IT spending. In a challenging macro environment, we performed well, and as we enter the second half of the year, we remain focused on executing our strategy to bring value to our customers and vendor partners across our market segments.”
Information about PC Mall’s use of non-GAAP financial information is provided under “Non-GAAP Measures” below.
Segment Results
SMB
Q2 2008 net sales for our SMB segment were $129.9 million, a $4.6 million, or 4%, increase despite continued softness in our volume iPod sales to certain customers.
Gross profit for SMB increased by $0.5 million, or 3%, to $16.1 million in Q2 2008 compared to $15.7 million in Q2 2007, resulting primarily from the increased sales discussed above. Gross profit margin for SMB remained relatively flat at 12.4% in Q2 2008 compared to 12.5% in Q2 2007.
Operating profit in Q2 2008 for SMB decreased 14% to $7.6 million compared to $8.9 million in Q2 2007. The decrease was primarily due to an increase in SMB personnel costs and bad debt expense, partially offset by the increase in gross profit as discussed above. The increase in SMB personnel costs was primarily due to our investment in SMB account executive headcount for future growth, a reduction in our Canadian labor subsidy under a new program which began in January 2008 and a weakening of the U.S. dollar.
MME
Q2 2008 net sales for our MME segment were $104.4 million compared to $44.6 million in Q2 2007, an increase of $59.8 million or 134%. This increase was due primarily to the inclusion of SARCOM results in Q2 of 2008, and strong growth in our legacy MME business. Excluding the impact of the SARCOM acquisition in Q2 2008, net sales in our MME business increased 10% to $49.0 million from $44.6 million.
Gross profit for MME increased by $12.5 million, or 196%, to $18.8 million in Q2 2008 compared to $6.3 million in Q2 2007, and gross profit margin increased by 380 basis points to 18.0% in Q2 2008 compared to 14.2% in Q2 2007. The increase in MME gross profit was due primarily to the increase in MME sales as discussed above. The increase in MME gross profit margin was due to a favorable increase in the mix of services in Q2 2008 and an increase in sales of certain software licenses by SARCOM, which are recorded on a net basis.
MME operating profit in Q2 2008 increased 176% to $4.8 million compared to $1.8 million in Q2 2007. The improvement was due primarily to the increase in MME gross profit discussed above, partially offset by a $6.9 million increase in MME personnel costs which was due primarily to the addition of SARCOM personnel as well as investment in sales account executives in our legacy MME business.
Public Sector
Q2 2008 net sales for our Public Sector segment were $37.3 million compared to $37.7 million in Q2 2007, a decrease of $0.4 million or 1%. This decrease was due primarily to a decline in our federal business which was impacted by the timing of certain shipments at the end of the quarter, largely offset by increases in our state and local (“SLED”) business capitalizing on the close of the SLED budget year and recent contract wins in this sector.
Gross profit for our Public Sector segment decreased by $0.4 million, or 9%, to $3.9 million in Q2 2008 compared to $4.3 million in Q2 2007, and gross profit margin decreased by 90 basis points to 10.5% in Q2 2008 compared to 11.4% in Q2 2007. The decrease in our Public Sector gross profit and gross profit margin was due primarily to the loss of a state contract under which we provided contractual licensing products which we record on a net basis.
Operating profit in Q2 2008 for our Public Sector segment decreased 10% to $0.77 million compared to $0.85 million in Q2 2007. The decline was due primarily to the decrease in gross profit discussed above, partially offset by decreased bad debt expense and personnel costs.
Consumer
Q2 2008 net sales for our Consumer segment were $59.5 million compared to $55.3 million in Q2 2007, an increase of $4.2 million or 8%. This increase was due primarily to the overall strength in the Apple market and our aggressive consumer promotions, partially offset by what we believe is general softness in the consumer market.
Gross profit for our Consumer segment decreased by $0.3 million, or 4%, to $7.4 million in Q2 2008 compared to $7.7 million in Q2 2007, and gross profit margin decreased by 140 basis points to 12.4% in Q2 2008 compared to 13.8% in Q2 2007. The decrease in our Consumer gross profit and gross profit margin in the current quarter was primarily the result of increased sales of lower margin consumer CPUs and increased promotional activities in the quarter.
Operating profit in Q2 2008 for our Consumer segment decreased 1% to $2.8 million compared to $2.9 million in Q2 2007, remaining relatively flat due to the decrease in gross profit, largely offset by a decrease in advertising expense.
Corporate and Other
Corporate and Other selling, general and administrative expenses (“SG&A”) includes corporate related expenses such as legal, accounting, information technology, product management and other administrative costs that are not otherwise included in our reportable operating segments. Q2 2008 Corporate and Other SG&A expenses increased by $1.7 million, or 20%, to $10.2 million from $8.5 million in Q2 2007. The increase was primarily due to a $1.1 million increase in personnel costs resulting from investments in our marketing, information technology and credit departments, as well as centralization of resources from our MME segment, and the $0.8 million lawsuit settlement charge described above, partially offset by a $0.2 million decrease in telecommunication costs.
Consolidated Balance Sheet
Accounts receivable at June 30, 2008 of $167.0 million increased by $7.7 million from December 31, 2007, primarily due to an increase in SARCOM receivables. Our inventory of $50.5 million at June 30, 2008 represents a decrease of $14.0 million from December 31, 2007. Accounts payable decreased by $27.8 million from December 31, 2007, primarily due to timing of vendor payables. Outstanding borrowings under our line of credit increased by $12.6 million net to $66.5 million at June 30, 2008 from December 31, 2007.
Selected Segment Information
Selected information for our reportable operating segments is as follows (in thousands, except headcount data):
| Three Months Ended June 30, 2008 | Three Months Ended June 30, 2007 |
| | Net Sales | | | Gross Profit | | | Operating Profit | | | Net Sales | | | Gross Profit | | | Operating Profit |
SMB | $ | 129,930 | | $ | 16,112 | | $ | 7,604 | | $ | 125,368 | | $ | 15,652 | | $ | 8,861 |
MME | | 104,433 | | | 18,814 | | | 4,830 | | | 44,645 | | | 6,348 | | | 1,750 |
Public Sector | | 37,305 | | | 3,897 | | | 769 | | | 37,692 | | | 4,305 | | | 850 |
Consumer | | 59,521 | | | 7,361 | | | 2,829 | | | 55,277 | | | 7,651 | | | 2,869 |
Corporate & Other | | (7) | | | 35 | | | (10,182) | | | (24) | | | (24) | | | (8,528) |
Consolidated | $ | 331,182 | | $ | 46,219 | | $ | 5,850 | | $ | 262,958 | | $ | 33,932 | | $ | 5,802 |
| | Three Months Ended June 30, | |
Average Account Executive Headcount By Segment(1): | | | 2008 | | | 2007 | |
SMB | | | 410 | | | 353 | |
MME | | | 153 | | | 84 | |
Public Sector | | | 101 | | | 83 | |
Consumer | | | 121 | | | 116 | |
Total | | | 785 | | | 636 | |
________________
(1) Headcount numbers are calculated based on an average of all sales executives and trainees employed during the period.
Non-GAAP Measures
We are presenting certain consolidated financial measures on a non-GAAP basis, which excludes a charge related to a litigation settlement. We believe that the exclusion of the litigation settlement charge, which is non-recurring, from our results allows a more meaningful comparison of our operating performance trends to both management and investors that is more indicative of our consolidated operating results across reporting periods. We believe that such litigation settlement charge is not part of our ordinary business. We indicate the use of these non-GAAP consolidated financial measures within the discussions of our consolidated operating results, including earnings per share. A reconciliation of the non-GAAP consolidated financial measures is included in a table below.
Conference Call
Management will hold a conference call on Tuesday, July 29, 2008 at 4:30 p.m. Eastern time (1:30 a.m. Pacific time) to discuss second quarter results. To listen to PC Mall management’s discussion of second quarter 2008 results live, access the PC Mall website, www.pcmall.com, and click on the Investor Relations section.
A conference call replay will be available from 6:30 p.m. ET following the call until August 19, 2008 and can be accessed by calling: (888) 286-8010 and inputting pass code 13868571.
About PC Mall, Inc.
PC Mall, Inc., together with its wholly-owned subsidiaries, founded in 1987, is a value added direct marketer of technology products, services and solutions, to businesses, government and educational institutions and individual consumers. We offer our products, services and solutions through dedicated account executives, various direct marketing techniques, and three retail stores. We also utilize distinctive full-color catalogs under the PC Mall, MacMall and PC Mall Gov brands and our websites pcmall.com, macmall.com, pcmallgov.com, gmri.com, wareforce.com, sarcom.com, abreon.com and onsale.com, and other promotional materials. Customer product orders are rapidly filled by our distribution center strategically located near FedEx’s main hub or by our extensive network of distributors, which is one of the largest networks in the industry.
Forward-looking Statements
This press release may contain 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. Such forward-looking statements include statements regarding our expectations, hopes or intentions regarding the future, including, but not limited to, expectations or statements relating to our focus on delivering value to our customers and vendor partners. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause our actual results to differ materially include without limitation the following: uncertainties relating to the relationship between the number of our account executives and productivity; decreases in revenues related to decreased sales related to any of our segments, including but not limited to, potential decreases in sales resulting from the loss of customers and/or a downturn in the economy; increased competition, including, but not limited to, increased competition from direct sales by some of our largest vendors and increased pricing pressures which affect our pricing strategy in any given period; the effect of the our pricing strategy on our operating results; risks related to our ability to retain key personnel; risks and uncertainties relating to our ability to identify suitable acquisition targets, to complete acquisitions of identified targets (including the challenges and costs of closing the transaction), and our ability to integrate companies we may acquire and our ability to achieve synergies expected from such acquisitions (including our recent acquisition of SARCOM); the impact of acquisitions on relationships with key customers and vendors; potential decreases in sales related to changes in our vendors products; risks of decreased sales related to the potential lack of availability of government funding applicable to our public sector contracts; availability of key vendor incentives and other vendor assistance; the impact of seasonality on our sales; availability of products from third party suppliers at reasonable prices; risks of business and other conditions in the Asia Pacific region and our limited experience operating in the Philippines, which could prevent us from realizing expected benefits from our Philippines operations; increased expenses, including, but not limited to, interest expense and other expenses which may increase as a result of inflationary pressures; our advertising, marketing and promotional efforts may be costly and may not achieve desired results; risks due to shifts in market demand or price erosion of owned inventory; risks related to foreign currency fluctuations; risks related to data security; litigation by or against us; availability of financing, including availability under our existing credit lines; and inability to convert back orders to completed sales. Additional factors that could cause our actual results to differ are discussed under the heading "Risk Factors" in Item 1A, Part I of our Form 10-Q for the period ended March 31, 2008, on file with the Securities and Exchange Commission, and in our other reports filed from time to time with the SEC. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statements.
* * *
-Financial Tables Follow-
PC MALL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2008 | | | 2007 | | | 2008 | | | 2007 | |
Net sales | $ | 331,182 | | $ | 262,958 | | $ | 667,809 | | $ | 519,738 | |
Cost of goods sold | | 284,963 | | | 229,026 | | | 576,255 | | | 453,994 | |
Gross profit | | 46,219 | | | 33,932 | | | 91,554 | | | 65,744 | |
Selling, general and administrative expenses | | 40,369 | | | 28,130 | | | 79,554 | | | 55,902 | |
Operating profit | | 5,850 | | | 5,802 | | | 12,000 | | | 9,842 | |
Interest expense, net | | 924 | | | 803 | | | 2,137 | | | 1,730 | |
Income before income taxes | | 4,926 | | | 4,999 | | | 9,863 | | | 8,112 | |
Income tax expense | | 1,893 | | | 2,000 | | | 3,834 | | | 3,245 | |
Net income | $ | 3,033 | | $ | 2,999 | | $ | 6,029 | | $ | 4,867 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Basic and Diluted Earnings Per Common Share | | | | | | | | | | | | |
Basic | $ | 0.23 | | $ | 0.24 | | $ | 0.45 | | $ | 0.39 | |
Diluted | | 0.22 | | | 0.22 | | | 0.43 | | | 0.36 | |
| | | | | | | | | | | | |
Weighted average number of common shares outstanding: | | | | | | | | | | | | |
Basic | | 13,311 | | | 12,431 | | | 13,287 | | | 12,407 | |
Diluted | | 14,069 | | | 13,532 | | | 13,996 | | | 13,543 | |
PC MALL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO
CONSOLIDATED OPERATING PROFIT, CONSOLIDATED OPERATING PROFIT MARGIN, CONSOLIDATED NET INCOME AND DILUTED EARNINGS PER SHARE
(unaudited, in thousands, except per share amounts)
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2008 | | | 2007 | | | 2008 | | | 2007 | |
Consolidated Operating Profit and Operating Profit Margin: | | | | | | | | | | | | |
Consolidated net sales | $ | 331,182 | | $ | 262,958 | | $ | 667,809 | | $ | 519,738 | |
| | | | | | | | | | | | |
Consolidated operating profit | $ | 5,850 | | $ | 5,802 | | $ | 12,000 | | $ | 9,842 | |
Non-GAAP adjustment: | | | | | | | | | | | | |
Litigation settlement charge (a) | | 790 | | | — | | | 790 | | | — | |
Non-GAAP consolidated operating profit | $ | 6,640 | | $ | 5,802 | | $ | 12,790 | | $ | 9,842 | |
| | | | | | | | | | | | |
Consolidated operating profit margin | | 1.8 | % | | 2.2 | % | | 1.8 | % | | 1.9 | % |
Non-GAAP consolidated operating profit margin | | 2.0 | % | | 2.2 | % | | 1.9 | % | | 1.9 | % |
| | | | | | | | | | | | |
Consolidated Net Income: | | | | | | | | | | | | |
Consolidated net income | $ | 3,033 | | $ | 2,999 | | $ | 6,029 | | $ | 4,867 | |
Non-GAAP adjustment: | | | | | | | | | | | | |
Litigation settlement charge, net of taxes (a) | | 467 | | | — | | | 467 | | | — | |
Non-GAAP consolidated net income | $ | 3,500 | | $ | 2,999 | | $ | 6,496 | | $ | 4,867 | |
| | | | | | | | | | | | |
Diluted Earnings Per Share: | | | | | | | | | | | | |
GAAP diluted EPS | $ | 0.22 | | $ | 0.22 | | $ | 0.43 | | $ | 0.36 | |
Non-GAAP diluted EPS | | 0.25 | | | 0.22 | | | 0.46 | | | 0.36 | |
| | | | | | | | | | | | |
Diluted weighted average number of common shares outstanding | | 14,069 | | | 13,532 | | | 13,996 | | | 13,543 | |
| | | | | | | | | | | | |
| (a) | Related to settlement of the Zekiya Whitmill and Lee Hanzy v. PC Mall Gov, Inc. case and the Lee Hanzy v. PC Mall, Inc. dba MACMALL, et al case. |
PC MALL, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts and share data)
| | June 30, 2008 | | December 31, 2007 | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 3,819 | | $ | 6,623 | |
Accounts receivable, net of allowances of $4,763 and $4,653 | | | 167,017 | | | 159,362 | |
Inventories, net | | | 50,544 | | | 64,515 | |
Prepaid expenses and other current assets | | | 10,204 | | | 9,233 | |
Deferred income taxes | | | 4,837 | | | 4,698 | |
Total current assets | | | 236,421 | | | 244,431 | |
Property and equipment, net | | | 8,541 | | | 8,958 | |
Deferred income taxes | | | 7,271 | | | 2,728 | |
Goodwill | | | 21,024 | | | 26,912 | |
Intangible assets, net | | | 12,256 | | | 12,024 | |
Other assets | | | 911 | | | 1,182 | |
Total assets | | $ | 286,424 | | $ | 296,235 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 83,012 | | $ | 110,786 | |
Accrued expenses and other current liabilities | | | 22,323 | | | 29,150 | |
Deferred revenue | | | 17,433 | | | 12,563 | |
Line of credit | | | 66,470 | | | 53,893 | |
Note payable – current | | | 775 | | | 775 | |
Total current liabilities | | | 190,013 | | | 207,167 | |
Note payable and other long-term liabilities | | | 4,164 | | | 4,644 | |
Total liabilities | | | 194,177 | | | 211,811 | |
Commitments and contingencies | | | | | | | |
Stockholders’ equity: | | | | | | | |
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding | | | — | | | — | |
Common stock, $0.001 par value; 30,000,000 shares authorized; 13,800,025 and 13,676,765 shares issued; and 13,383,347 and 13,260,087 shares outstanding, respectively | | | 14 | | | 14 | |
Additional paid-in capital | | | 99,811 | | | 97,869 | |
Treasury stock, at cost: 416,678 shares | | | (1,015 | ) | | (1,015 | ) |
Accumulated other comprehensive income | | | 845 | | | 993 | |
Accumulated deficit | | | (7,408 | ) | | (13,437 | ) |
Total stockholders’ equity | | | 92,247 | | | 84,424 | |
Total liabilities and stockholders’ equity | | $ | 286,424 | | $ | 296,235 | |
| | | | | | | |
