Connection (PC Connection, Inc.; NASDAQ: CNXN):
FOURTH QUARTER
SUMMARY:
FULL YEAR
SUMMARY:
- Net sales: $696.5 million, down 4.9% y/y
- Gross profit: $129.8 million, up 4.4% y/y
- Net income: $23.8 million, up 26.3% y/y
- Diluted EPS: $0.90, up 26.3% y/y
- Net sales: $2.9 billion, down 8.8% y/y
- Gross profit: $511.7 million, down 2.7% y/y
- Net income: $83.3 million, down 6.7% y/y
- Diluted EPS: $3.15, down 6.6% y/y
Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading
information technology solutions provider to business, government,
healthcare and education markets, today announced results for the
fourth quarter and year ended December 31, 2023, and that its board
of directors has increased the quarterly dividend by 25% to $0.10
per share on the company’s common stock, which will be payable on
March 15, 2024, to shareholders of record as of February 27,
2024.
“Throughout the year we have made significant progress growing
the sale of advanced technologies and improving our profitability
with record gross margins and record cash flow. The market for
end-point devices remains soft, however we continue to prepare for
the gradual recovery in endpoints and improvements in demand driven
by A-I for modern infrastructure and multi-cloud solutions.” said
Timothy McGrath, President and Chief Executive Officer of
Connection.
Fourth Quarter of 2023 Results:
Net sales for the quarter ended December 31, 2023 decreased by
4.9%, year over year. Gross profit increased 4.4% while gross
margin expanded 166 basis points to 18.6%, compared to the prior
year quarter. Net income for the quarter ended December 31, 2023
increased by 26.3% to $23.8 million, or $0.90 per diluted share,
compared to net income of $18.8 million, or $0.71 per diluted
share, for the prior year quarter.
Performance by Segment:
- Net sales for the Business Solutions segment decreased by 2.9%
to $272.4 million in the fourth quarter of 2023, compared to a
$280.7 million in the prior year quarter. Gross profit increased by
5.2% to $63.2 million in the fourth quarter of 2023, compared to
$60.0 million in the prior year quarter. Gross margin increased by
180 basis points to 23.2% due to increased sales of integrated
solutions and advanced technologies, contributed primarily by
services and software, which are recorded on a net basis during the
fourth quarter of 2023.
- Net sales for the Public Sector Solutions segment decreased by
14.2% to $100.6 million in the fourth quarter of 2023, compared to
$117.3 million in the prior year quarter. Sales to state and local
governments and educational institutions decreased by 5.2% to $75.4
million, while sales to the federal government decreased by 33.3%
to $25.1 million, compared to the prior year quarter. Gross profit
remained flat in the fourth quarter of 2023 at $17.0 million
compared to the prior year quarter. Gross margin increased by 246
basis points to 16.9% primarily due to a higher mix of software and
services, which are recorded on a net basis during the fourth
quarter of 2023.
- Net sales for the Enterprise Solutions segment decreased by
3.3% to $323.5 million in the fourth quarter of 2023, compared to
$334.5 million in the prior year quarter. Gross profit increased by
4.8% to $49.6 million in the fourth quarter of 2023, compared to
$47.3 million in the prior year quarter. Gross margin increased by
118 basis points to 15.3% primarily due to growth of advanced
technologies sales which includes networking, servers, storage,
software, and services during the fourth quarter of 2023.
Sales by Product Mix:
- Notebook/mobility sales decreased 17% year over year and
accounted for 32% of net sales in the fourth quarter of 2023,
compared to 36% of net sales in the fourth quarter of 2022.
- Software sales increased by 42% year over year and accounted
for 15% of net sales in the fourth quarter of 2023 and 2022,
compared to 10% of net sales in the fourth quarter of 2022.
- Networking sales increased by 36% year over year and accounted
for 10% of net sales in the fourth quarter of 2023, compared to 7%
of net sales in the fourth quarter of 2022.
- Accessories sales decreased by 24% year over year and accounted
for 10% of net sales in the fourth quarter of 2023, compared to 13%
of net sales in the fourth quarter of 2022.
Selling, general and administrative (“SG&A”) expenses
increased in the fourth quarter of 2023 to $101.8 million from
$100.4 million in the prior year quarter. The increase in SG&A
was due to an increase in investments in our solutions business and
marketing expenses. SG&A as a percentage of net sales increased
to 14.6%, compared to 13.7% 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 compared to the prior year quarter.
Interest income in the fourth quarter of 2023 was $4.1 million,
compared to $0.8 million in the fourth quarter of 2022.
Cash and cash equivalents and short-term investments were $297.2
million at December 31, 2023, compared to $122.9 million at
December 31, 2022.
Full Year 2023 Results:
Net sales for the year ended December 31, 2023 decreased by
8.8%, compared to the year ended December 31, 2022. Gross profit
decreased 2.7% while gross margin expanded 111 basis points to
18.0%, compared to the year ended December 31, 2022. Net income for
the year ended December 31, 2023 decreased by 6.7% to $83.3
million, or $3.15 per diluted share, compared to net income of
$89.2 million, or $3.37 per diluted share, for the year ended
December 31, 2022. Earnings before interest, taxes, depreciation
and amortization, adjusted for stock-based compensation expense and
restructuring and other charges (“Adjusted EBITDA”)1 decreased 3%
to $135.5 million for the year ended December 31, 2023, compared to
$139.3 million for the year ended December 31, 2022. Adjusted
Diluted Earnings per Share1, decreased to $3.23 per share for the
year ended December 31, 2023, compared to $3.37 per share for the
year ended December 31, 2022.
Conference Call and Webcast
Connection will host a conference call and live web cast today,
February 14, 2023 at 4:30 p.m. EST to discuss its fourth 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, Adjusted Net Income 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 similarly
titled measures of other companies. Definitions for each Non-GAAP
measure and a reconciliation to their most directly comparable GAAP
measures are 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 include
statements concerning, among other things, our future financial
results, business plans (including statements regarding new
products and services we may offer and future expenditures, costs
and investments), liabilities, impairment charges, competition and
the expected 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 and are based on assumptions
as of the date of this report. Such assumptions are based upon
internal estimates and other analysis of current market conditions
and trends, management’s expectations, plans and strategies,
economic conditions and other factors. 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), the execution of our business plans (including our
inventory management, cost structure and 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 fourth-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
the other subsequent filings we make with the Securities and
Exchange Commission from time to time.
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 included in this
release. 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
except as required by law.
_________________________
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 December 31,
2023
2022
%
(Amounts and shares in thousands, except operating data, P/E ratio,
and per share data)
Change
Operating Data: Net sales
$ 696,466
$ 732,451
(5%)
Diluted earnings per share
$ 0.90
$ 0.71
27%
Gross margin
18.6%
17.0%
Operating margin
4.0%
3.3%
Inventory turns (1)
17
11
Days sales outstanding (2)
73
70
% of % of Product Mix: Net Sales
Net Sales Notebooks/Mobility
32%
36%
Software
15
10
Net/Com Products
10
7
Accessories
10
13
Desktops
10
9
Displays
8
9
Servers/Storage
7
8
Other Hardware/Services
8
8
Total Net Sales
100%
100%
Stock Performance Indicators: Actual shares
outstanding
26,360
26,350
Closing price
$67.21
$46.90
Market capitalization
$1,771,656
$1,235,815
Trailing price/earnings ratio
21.3
13.9
LTM Net Income
$83,271
$89,219
LTM Adjusted EBITDA (3)
$135,509
$139,298
(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 December 31,
2023
2022
Net Gross Net Gross (amounts in
thousands)
Sales Margin Sales Margin
Enterprise Solutions
$
323,469
15.3
%
$
334,501
14.1
%
Business Solutions
272,437
23.2
280,700
21.4
Public Sector Solutions
100,560
16.9
117,250
14.5
Total
$
696,466
18.6
%
$
732,451
17.0
%
CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months
Ended December 31, Years Ended December 31, (amounts in
thousands, except per share data)
2023
2022
2023
2022
Net sales
$
696,466
$
732,451
$
2,850,644
$
3,124,996
Cost of sales
566,691
608,107
2,338,908
2,598,819
Gross profit
129,775
124,344
511,736
526,177
Selling, general and administrative expenses
101,831
100,436
405,896
405,625
Restructuring and other charges
-
-
2,687
-
Income from operations
27,944
23,908
103,153
120,552
Other income, net
4,112
764
9,961
1,083
Income tax provision
(8,278
)
(5,849
)
(29,843
)
(32,416
)
Net income
$
23,778
$
18,823
$
83,271
$
89,219
Earnings per common share: Basic
$
0.90
$
0.72
$
3.17
$
3.40
Diluted
$
0.90
$
0.71
$
3.15
$
3.37
Shares used in the computation of earnings per common share:
Basic
26,305
26,312
26,287
26,279
Diluted
26,488
26,478
26,429
26,443
December 31, December 31, CONDENSED
CONSOLIDATED BALANCE SHEETS
2023
2022
(amounts in thousands)
ASSETS Current Assets: Cash
and cash equivalents
$
144,954
$
122,930
Short-term investments
152,232
-
Accounts receivable, net
606,834
610,280
Inventories, net
124,179
208,682
Income taxes receivable
4,348
-
Prepaid expenses and other current assets
16,092
11,900
Total current assets
1,048,639
953,792
Property and equipment, net
56,658
59,171
Right-of-use assets, net
4,340
7,558
Goodwill
73,602
73,602
Intangibles assets, net
3,428
4,648
Other assets
1,714
1,055
Total Assets
$
1,188,381
$
1,099,826
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
Liabilities: Accounts payable
$
263,682
$
232,638
Accrued payroll
20,440
24,071
Accrued expenses and other liabilities
43,843
53,808
Total current liabilities
327,965
310,517
Deferred income taxes
15,844
17,970
Operating lease liability
3,181
4,994
Other liabilities
624
170
Total Liabilities
347,614
333,651
Stockholders’ Equity: Common stock
293
291
Additional paid-in capital
130,878
125,784
Retained earnings
760,898
686,037
Accumulated other comprehensive income
81
-
Treasury stock at cost
(51,383
)
(45,937
)
Total Stockholders’ Equity
840,767
766,175
Total Liabilities and Stockholders’ Equity
$
1,188,381
$
1,099,826
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three
Months Ended December 31, Years Ended December 31,
(amounts in thousands)
2023
2022
2023
2022
Cash Flows from Operating Activities: Net income
$
23,778
$
18,823
$
83,271
$
89,219
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
3,198
2,978
12,654
11,978
Adjustments to credit losses reserve
33
594
1,847
3,252
Stock-based compensation expense
1,597
1,603
7,022
5,675
Deferred income taxes
(2,148
)
(1,308
)
(2,148
)
(1,308
)
Amortization of discount on short-term investments
(1,522
)
-
(1,522
)
-
Loss on disposal of fixed assets
9
1
572
17
Changes in assets and liabilities: Accounts receivable
(19,270
)
35,782
1,599
(6,000
)
Inventories
18,064
4,634
84,503
(2,127
)
Prepaid expenses and other current assets
1,016
(1,805
)
(8,540
)
(1,884
)
Other non-current assets
(893
)
(150
)
(659
)
(145
)
Accounts payable
(502
)
(25,788
)
31,146
(49,056
)
Accrued expenses and other liabilities
(11,071
)
(16,164
)
(11,791
)
(14,732
)
Net cash provided by operating activities
12,289
19,200
197,954
34,889
Cash Flows from Investing Activities: Purchases of
short-term investments
(101,908
)
-
(150,607
)
-
Purchases of property and equipment
(2,240
)
(2,102
)
(9,595
)
(9,077
)
Net cash used in investing activities
(104,148
)
(2,102
)
(160,202
)
(9,077
)
Cash Flows from Financing Activities: Proceeds from
short-term borrowings
17,321
-
88,198
36,463
Repayment of short-term borrowings
(17,321
)
-
(88,198
)
(36,463
)
Dividend payments
(2,103
)
(8,948
)
(8,410
)
(8,948
)
Purchase of common stock for treasury shares
-
-
(5,392
)
-
Issuance of stock under Employee Stock Purchase Plan
552
-
1,089
-
Payment of payroll taxes on stock-based compensation through shares
withheld
(2,145
)
(1,410
)
(3,015
)
(2,244
)
Net cash used in financing activities
(3,696
)
(10,358
)
(15,728
)
(11,192
)
Increase (decrease) in cash and cash equivalents
(95,555
)
6,740
22,024
14,620
Cash and cash equivalents, beginning of period
240,509
116,190
122,930
108,310
Cash and cash equivalents, end of period
$
144,954
$
122,930
$
144,954
$
122,930
Non-cash Investing Activities: Accrued purchases of
property and equipment
$
90
$
192
90
192
Accrued excise tax on treasury purchases
$
54
$
-
54
-
Supplemental Cash Flow Information: Income taxes paid
$
7,417
$
2,928
$
41,668
$
33,687
Interest paid
$
5
$
-
$
24
$
4
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 agreement. 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 December 31, LTM Ended
December 31, (1)
2023
2022
% Change
2023
2022
% Change Net income
$
23,778
$
18,823
26
%
$
83,271
$
89,219
(7
%)
Depreciation and amortization
3,198
2,978
7
%
12,654
11,978
6
%
Income tax expense
8,278
5,849
42
%
29,843
32,416
(8
%)
Interest expense
5
-
100
%
32
10
220
%
EBITDA
35,259
27,650
28
%
125,800
133,623
(6
%)
Restructuring and other charges (2)
-
-
0
%
2,687
-
100
%
Stock-based compensation
1,597
1,603
(0
%)
7,022
5,675
24
%
Adjusted EBITDA
$
36,856
$
29,253
26
%
$
135,509
$
139,298
(3
%)
(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 December
31,
Years Ended December
31,
2023
2022
% Change
2023
2022
% Change
Net income
$
23,778
$
18,823
26
%
$
83,271
$
89,219
(7
%)
Restructuring and other charges (1)
-
-
0
%
2,687
-
100
%
Tax benefit
-
-
0
%
(709
)
-
(100
%)
Restructuring and other charges, net of tax
-
-
0
%
1,978
-
100
%
Adjusted Net Income
$
23,778
$
18,823
26
%
$
85,249
$
89,219
(4
%)
Diluted shares
26,488
26,478
26,429
26,443
Diluted Earnings per Share
$
0.90
$
0.71
26
%
$
3.15
$
3.37
(7
%)
Adjusted Diluted Earnings per Share
$
0.90
$
0.71
26
%
$
3.23
$
3.37
(4
%)
(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/20240214122923/en/
Investor Relations Contact: Thomas Baker, 603.683.2505
Senior Vice President, CFO, and Treasurer tom@connection.com
PC Connection (NASDAQ:CNXN)
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