PC Mall, Inc. (NASDAQ:MALL), a leading IT solutions
provider, today reported financial results for the fourth quarter
of 2011. Consolidated net sales for Q4 2011 were $389.8 million, a
decrease of 8%, from $425.4 million in Q4 2010, primarily due to a
$48.5 million decrease in sales to promotional companies under a
vendor program change in Q4 by a large vendor. Excluding the effect
of this program change, sales grew $12.9 million. Consolidated
gross profit for Q4 2011 increased 2% to $50.4 million from $49.5
million in Q4 2010. Consolidated gross profit margin was 12.9% in
Q4 2011 compared to 11.6% in Q4 2010. Consolidated operating profit
for Q4 2011 decreased 84% to $1.1 million compared to $6.8 million
for Q4 2010. Non-GAAP operating profit (as defined below) was $4.0
million in Q4 2011 compared to $6.8 million in Q4 2010.
Consolidated operating profit margin for Q4 2011 decreased to 0.3%
compared to 1.6% in Q4 2010. Non-GAAP operating profit margin (as
defined below) was 1.0% in Q4 2011 compared to 1.6% in Q4 2010.
Including the effects of the adjustments described below,
consolidated net loss was $0.4 million for Q4 2011 compared to
consolidated net income of $3.9 million for Q4 2010. Diluted loss
per share for Q4 2011 was $0.03 compared to diluted EPS of $0.32
for Q4 2010. Adjusted EBITDA (as defined below) for Q4 2011
decreased 22% to $7.4 million from $9.6 million in Q4 2010.
Commenting on the Company’s fourth quarter results, Frank
Khulusi, Chairman, President and CEO of PC Mall, Inc. said, “In the
4th quarter we were able to grow our gross profit by 2%, despite a
sales decline driven by tough comparisons and a significant decline
in sales of certain products made to promotional companies under a
program change which we discussed on our Q3 conference call. Our
gross margin increased to 12.9%, the highest it has been in Q4
since 2008. Our mix improved in Q4 2011, driven by our continued
focus on our services and solutions business. In fact, our services
revenue increased by 23% on a consolidated basis, with double digit
increases in each of our commercial segments. On the SG&A side,
our costs were elevated in Q4, in part because of some one-time
expenses and charges. At the same time, we continue to believe that
the investments we are making are critical to our success going
forward. We expect our investments in people, processes and systems
will benefit us in an increasingly visible way in 2012 and beyond.
While we are continuing to grow and invest in our services and
solutions business, are monetizing real estate assets and are today
announcing important strategic developments that I will discuss
below, we are always focused on the near-term profitability of our
business. As we build for the future, we feel we are well
positioned to reach our previously announced financial goals in
2012.”
Strategic Developments
Commenting on strategic developments, Mr. Khulusi stated, “We
are excited to announce significant strategic developments that we
think are important to our continued success. Given our growth
expectations and strategic initiatives, we have elected to add to
our leadership team. I am very pleased to announce the hiring of
Mark McGrath as President of PC Mall, Inc., working directly with
me in my capacity as Chief Executive Officer, beginning March 5,
2012. Mark brings a wealth of experience and talent to our company
as discussed in the corresponding press release, which speaks to
Mark’s background, his role going forward, and additional
information.”
Khulusi continued, “As many of you know, over the past several
years, our company has grown into a multi-billion dollar enterprise
in part through our acquisition and internal cultivation of
different brands. We have historically differentiated those brands
primarily based on who their customers were. We have, after careful
examination of the markets we serve and the trends taking shape in
the marketplace, determined that going forward, our commercial
customers can benefit from a more unified and streamlined brand
strategy. In the coming quarters, we will begin the process of
unifying our commercial brands, which is what resulted in the
non-cash charge to write down one of our existing trademarks. We
believe this unification will lead to an improved customer
experience, operational synergies and benefits to all of our
stakeholders, and provide a brand that better represents the value
added solutions provider we are today.”
Khulusi continued, “In addition, during the quarter we
successfully completed the relocation to our new building in Los
Angeles, strategically adjacent to LAX, which is a significant
upgrade for our customers, vendor partners and employees. We
purchased and have improved this building because we want it to be
a compelling destination for customers who want to experience new
and cutting edge IT solutions in person. The new headquarters was
designed to drive higher productivity and efficiency for our
employees and to provide a state-of-the-art demo center for our
customers and vendor partners, as well as increase capacity to
support our growth well into the future. In conjunction with the
move, we relocated and substantially upgraded our primary data
center from Torrance, CA to our own hosting facility in Atlanta,
GA, which incorporates state of the art monitoring and disaster
recovery capabilities. All of this activity had a significant
one-time cost for the quarter but we think this cost will be much
more than offset going forward, as we were in the last building for
13 years and we plan on being in the new one for even longer.”
Khulusi stated, “With respect to the OnSale daily deals
business, being in this space has allowed us to learn a lot about
evolving online customer behavior, what works and what doesn’t
work, and how this customer behavior has continued to drastically
change. One such significant change is the rapid progression of the
daily deals space towards product sales. Some of the largest
competitors in the daily deals space are moving furiously towards
such product sales. We are already there, and selling products is
one of our core competencies. We have discovered that certain
product sales in a daily deal format can do considerably better
than in a traditional ecommerce catalog format. As a result, and in
order to take advantage of this opportunity, we have determined
that we will no longer operate a stand-alone “daily deals”
business. Instead, we intend to take the best practices and
technology we have developed in the OnSale daily deals business and
incorporate them into our overall eCommerce offering. With that in
mind, going forward we will restore operating and reporting the
OnSale and MacMall businesses within a single segment. There are
substantial cost savings and sales leverage associated with
bringing these businesses together. We are excited about this
change, as we believe it best leverages OnSale’s creative and
innovative approach to customer marketing while significantly
minimizing the investments required in a stand-alone approach.”
Preliminary Analysis of Goodwill Impairment
In accordance with ASC 350-20, “Goodwill and Other Intangible
Assets,” we are performing our annual impairment analysis of
goodwill and indefinite-lived intangible assets for possible
impairment. Our management, with the assistance of an independent
third-party valuation firm, is determining the fair value of our
reporting units and comparing them to their respective carrying
values. Our 2011 impairment analysis includes goodwill and
purchased indefinite-lived intangibles that are held by our MME
segment, totaling $34.4 million, net, as of December 31, 2011.
While we have determined that an impairment existed for one of our
trademarks based on our expected unification of brands, resulting
in a change to its remaining life, and which resulted in a $0.8
million pre-tax impairment charge in the fourth quarter of 2011, we
have not yet completed our overall review. The completion of our
review may result in a further non-cash impairment charge, which
could be material and would decrease our GAAP operating profit, net
income and earnings per share for the fourth quarter and year ended
December 31, 2011, which is preliminarily reported in this
release. We expect to complete our impairment review in the
near term and additional non-cash impairment charge, if any, will
be determined prior to the filing of our Annual Report on Form 10-K
for the year ended December 31, 2011 with the SEC.
Segment Results
SMB
Q4 2011 net sales for our SMB segment were $119.6 million
compared to $162.1 million in Q4 2010, a decrease of $42.5 million,
or 26%. This decrease was primarily due to a $37.9 million decrease
in sales to promotional companies as a result of a program change
in Q4 by a large vendor, and a constraint in hardware supply
affecting notebooks and desktops. Going forward, we expect the
effects of the program change to have an impact on year over year
comparisons throughout 2012. Sales under this program in 2011 were
approximately $23.2 million, $20.0 million, $12.7 million and $8.8
million in each of the four quarters of 2011.
Q4 2011 SMB gross profit decreased by $0.7 million, or 4%, to
$17.0 million compared to $17.7 million in Q4 2010 resulting
primarily from the SMB net sales decrease discussed above. SMB
gross profit margin increased to 14.2% in Q4 2011 compared to 10.9%
in Q4 2010 primarily due to a change in product mix weighted more
to service solutions as well as a decrease in sales to promotional
companies at lower margins.
Q4 2011 SMB operating profit decreased by $0.5 million, or 5%,
to $9.3 million compared to $9.8 million in Q4 2010. This decrease
resulted primarily from the SMB gross profit decrease discussed
above, partially offset by a $0.3 million decrease in personnel
costs primarily due to decreased variable compensation expenses
related to SMB’s decreased gross profit.
MME
Q4 2011 net sales for our MME segment were $156.8 million
compared to $138.0 million in Q4 2010, an increase of $18.8
million, or 14%. This increase was primarily due to a 12% increase
in net sales of products in Q4 2011 compared to Q4 2010, as well as
a 26% increase in sales of services.
MME gross profit increased by $2.1 million, or 10%, to $22.4
million in Q4 2011 compared to $20.3 million in Q4 2010, and MME
gross profit margin decreased to 14.3% in Q4 2011 compared to 14.7%
in Q4 2010. The increase in MME gross profit was primarily due to
the increased MME net sales discussed above. The decrease in MME
gross profit margin was primarily due to a 38 basis point decrease
in vendor consideration as a percentage of sales and the
competitive pricing environment for product sales.
MME operating profit in Q4 2011 increased by $0.7 million, or
11%, to $7.4 million compared to $6.7 million in Q4 2010. The
increase was primarily due to the increased MME gross profit
discussed above, partially offset by a $0.8 million write down of
the Sarcom trademark as a result of the anticipated brand strategy
change mentioned earlier and a $0.6 million increase in personnel
costs.
Public Sector
Q4 2011 net sales for our Public Sector segment were $49.3
million compared to $48.7 million in Q4 2010, an increase of $0.6
million, or 1%. This increase in Public Sector net sales was due to
a 31% increase in sales to state and local government and
educational institutions (SLED) resulting primarily from increased
account executive headcount focused on SLED business, partially
offset by a 12% decrease in our federal government business due to
ongoing federal budgetary constraints.
Public Sector gross profit increased by $0.7 million, or 20%, to
$4.5 million in Q4 2011 compared to $3.8 million in Q4 2010. Public
Sector gross profit margin increased to 9.2% in Q4 2011 compared to
7.8% in Q4 2010. The increase in Public Sector gross profit was
primarily due to the increased Public Sector net sales discussed
above and a $0.3 million increase in vendor consideration. The
increase in Public Sector gross profit margin was primarily due to
an improved mix of sales of products and services made at higher
margins.
Public Sector operating profit decreased by $47,000, or 9%, to
$487,000 in Q4 2011 compared to $534,000 in Q4 2010. The decrease
in Public Sector operating profit was primarily due to a $0.7
million increase in personnel costs primarily relating to our
investment in our SLED and healthcare businesses, offset by the
decrease in Public Sector gross profit discussed above.
MacMall
Q4 2011 net sales for our MacMall segment were $53.4 million
compared to $69.7 million in Q4 2010, a decrease of $16.3 million,
or 23%. This decrease was primarily due to $10.6 million reduction
in sales resulting from the vendor program change described above
and continued softness in the demand environment due to the general
macro environment. Going forward, we expect the effects of the
program change to have an impact on year-over-year comparisons
throughout the first half of 2012. Sales under this program in 2011
were approximately $5.5 million and $2.7 million in each of the
first two quarters of 2011.
MacMall gross profit decreased by $1.3 million, or 19%, to $5.6
million in Q4 2011 compared to $6.9 million in Q4 2010. MacMall
gross profit margin increased to 10.4% in Q4 2011 compared to 9.9%
in Q4 2010. The decrease in MacMall gross profit was primarily due
to the decreased MacMall net sales discussed above. The increase in
MacMall gross profit margin was primarily due to the reduction in
sales at low margins to promotional companies.
MacMall operating profit decreased by $1.4 million to $0.8
million in Q4 2011 compared to $2.2 million in Q4 2010. This
decrease was primarily due to the decrease in MacMall gross profit
discussed above.
OnSale
Our OnSale segment currently includes sales made under our
OnSale and eCost brand names primarily to consumers and small
businesses via the Internet. During Q2 2011, OnSale launched its
expanded platform in beta through its existing website at
www.OnSale.com to include the marketing of daily deals in local
markets through social commerce.
Q4 2011 net sales for our OnSale segment were $11.4 million
compared to $7.1 million in Q4 2010, an increase of $4.3 million.
This increase was primarily due to net sales made through our eCost
brand, which was acquired in February 2011.
OnSale gross profit increased to $0.9 million in Q4 2011
compared to $0.8 million in Q4 2010. OnSale gross profit margin
decreased to 7.6% in Q4 2011 compared to 10.9% in Q4 2010. The
increase in OnSale gross profit was primarily due to the increased
OnSale net sales discussed above. The decrease in OnSale gross
profit margin was primarily due to lower product selling margins
and a 106 basis point reduction in vendor consideration as a
percentage of sales.
OnSale operating loss was $1.7 million in Q4 2011 compared to an
operating profit of $76,000 in Q4 2010. This increase in OnSale
operating loss was primarily due to significant investments related
to the expansion of our OnSale business model discussed above. In
Q4 2011 compared to Q4 2010, OnSale personnel costs increased by
$1.2 million, of which employee severance costs represented $0.2
million, credit card related fees increased by $0.1 million and
variable fulfillment costs increased by $0.1 million.
Corporate & Other
Corporate & Other operating expenses includes corporate
related expenses such as legal, accounting, information technology,
product management and certain support services and other
administrative costs that are not otherwise included in our
reportable operating segments. Q4 2011 Corporate & Other
operating expenses increased by $2.7 million, or 22%, to $15.2
million from $12.5 million in Q4 2010. The increase in Q4 2011 was
primarily related to unallocated costs associated with our
headquarters move of $0.7 million, an increase in net personnel
costs of $0.6 million resulting primarily from additions of
technical and pre-sales support and IT, a $0.5 million increase in
depreciation expense associated with the completed portions of our
on-going systems upgrades and a $0.3 million increase in legal
costs. In January 2012, we settled the lawsuit that significantly
impacted legal costs in prior quarters without liability to the
company. In 2011, we spent approximately $1.5 million in litigation
costs associated with this specific lawsuit, of which approximately
$0.1 million was incurred in Q4 2011.
In Q1 2012, we announced that we have signed a definitive
agreement to sell the property we own in Southern California, where
one of our retail stores is currently located, for $17.5 million.
While there are no guarantees that this transaction will close, we
would realize a book gain of $15.9 million at the time of closing,
which we currently expect to close during Q2 2012. In connection
with this sale, we intend to explore potential purchases or
exchanges of real estate through Section 1031 of the Internal
Revenue Code of 1986, as amended. We expect to effectuate such
exchanges through one or more purchases of real property to be used
in connection with our company’s business and operations. We
will evaluate potential exchanges and purchases, but would expect
that any exchanges/purchases we make would benefit us through
direct ownership of facilities that are strategic to our
operations, reductions in our lease obligations, or other ancillary
benefits.
Consolidated Balance Sheet
Accounts receivable at December 31, 2011 of $208.0 million
increased by $24.0 million from December 31, 2010, primarily
due to an increase in sales during the last month of 2011 compared
to 2010. Our inventory of $79.5 million at December 31, 2011
represents an increase of $15.9 million from December 31, 2010
due to a strategic purchase late in the fourth quarter of 2011 that
we expect to largely sell through during the first quarter of 2012.
Accounts payable at December 31, 2011 of $122.5 million decreased
by $2.3 million from December 31, 2010. In June 2011, we
secured a long-term mortgage for our property located in El Segundo
and $7.2 million was outstanding under this note payable at
December 31, 2011. Total capital expenditures for 2011 were $28.0
million, which includes $17.2 million related to the move of our
new headquarters facility and data center compared to capital
expenditures of $8.0 million in 2010. Outstanding borrowings under
our line of credit increased by $41.6 million to $91.9 million at
December 31, 2011 compared to December 31, 2010. This increase
was primarily due to the increases in accounts receivable,
inventory and the incremental capital expenditures related to our
headquarters move described above. However, working capital
declined by only $7.4 million as of December 31, 2011 compared to
December 31, 2010. We expect to finance an incremental $7 million
of building related capital expenditures in Q1 2012 through a
combination of long term notes and capital leases which will
contribute to working capital at that time.
Income Taxes
Our effective tax rate for 2011 increased to 49.3% from 39.2% in
2010 primarily due to a $0.5 million increase in valuation
allowance against certain of our state net operating loss
carryforwards, which represented 7.8% of the rate increase, as well
as the effect of non-deductible expenses as a proportion of pre-tax
income. Based on our expectations surrounding the profitability of
our various subsidiaries in 2012, we would expect our effective tax
rate for 2012 to decrease to levels in the 41%-43% range.
Selected Segment Information
Selected information for our reportable operating segments is as
follows (in thousands, except headcount data):
Three Months EndedDecember 31, 2011
Three Months EndedDecember 31, 2010 Net Sales
Gross Profit
OperatingProfit Net Sales Gross
Profit OperatingProfit SMB $
119,615 $ 16,969 $ 9,293 $ 162,129 $ 17,698 $ 9,759 MME 156,822
22,369 7,373 138,002 20,261 6,653 Public Sector 49,251 4,548 487
48,681 3,795 534 MacMall 53,375 5,575 823 69,652 6,923 2,240 OnSale
11,382 869 (1,662 ) 7,053 767 76 Corporate & Other (621 ) 102
(15,205 ) (139 ) 27 (12,457 ) Total $ 389,824 $ 50,432 $ 1,109 $
425,378 $ 49,471 $ 6,805
Year Ended
December 31, 2011
Year EndedDecember 31, 2010 Net Sales
Gross Profit OperatingProfit
(Loss) Net Sales Gross Profit
OperatingProfit (Loss) SMB $ 509,463 $ 67,205
$ 36,899 $ 487,865 $ 60,324 $ 31,362 MME 532,402 81,483 27,582
493,733 75,301 23,190 Public Sector 181,795 16,908 1,748 187,331
14,189 737 MacMall 190,237 20,465 4,553 188,677 20,345 5,365 OnSale
43,307 4,679 (4,563 ) 10,857 1,059 (36 ) Corporate & Other
(1,985 ) (252 ) (56,763 ) (149 ) 77 (46,150 ) Total $ 1,455,219 $
190,488 $ 9,456 $ 1,368,314 $ 171,295 $ 14,468
Average Account
Executive Three Months EndedDecember
31, Headcount By Segment(1): 2011
2010 SMB 362 362 MME 113 113 Public Sector 131 97 MacMall
136 120 Total 742 692
________________
(1) Excludes the OnSale segment. Headcount numbers are
calculated based on an average of all sales executives and trainees
employed during the period.
Non-GAAP Measures
We are presenting adjusted earnings before interest, taxes,
depreciation and amortization expenses (EBITDA), non-GAAP operating
profit and related margin, which are financial measures that are
not determined in accordance with accounting principles generally
accepted in the United States of America, or GAAP. Adjusted EBITDA
eliminates the effect of non-cash stock-based compensation
expenses, the results of our OnSale segment, and other uncommon,
non-recurring or special items. Non-GAAP operating profit and
related margin eliminate the effect of the results of our OnSale
segment and other uncommon, non-recurring or special items. In all
periods presented, adjusted EBITDA excludes litigation costs
incurred in defending a lawsuit that was settled in January 2012
without liability to the company. In QTD and YTD Q4 2011, adjusted
EBITDA excludes a non-recurring, special pickup that occurred in Q2
2011 and Q4 2011, as applicable, resulting from a change in fair
value of the earnout obligation related to the acquisition of our
NSPI business, an impairment charge related to a writedown of an
indefinite-lived Sarcom trademark based on reassessment of its
remaining useful life, and non-recurring moving costs related to
the move of our headquarters office from Torrance, California to El
Segundo, California. YTD Q4 2011 adjusted EBITDA also excludes a
non-recurring, special charge related to bad debt expense
associated with an external fraudulent transaction in our Public
Sector segment and a non-recurring, special charge that occurred in
Q1 2011 relating to an unreimbursed write-down of end-of-life first
generation Apple iPads upon the release of the iPad 2. Adjusted
EBITDA, non-GAAP operating profit and related margin should be used
in conjunction with other GAAP financial measures and are not
presented as an alternative measure of operating results, as
determined in accordance with GAAP. We believe that these non-GAAP
financial measures allow 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. Depreciation and amortization expenses primarily
represent an allocation to current expense of the cost of
historical capital expenditures and for acquired intangible assets
resulting from prior business acquisitions. Stock-based
compensation is governed by the compensation committee of our Board
of Directors and results in a non-cash operating expense for stock
option grants that were made in prior operating periods. A
reconciliation of the non-GAAP consolidated financial measures is
included in a table below.
Conference Call
Management will hold a conference call, which will be webcast,
on March 1, 2012 at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time)
to discuss fourth quarter results. To listen to PC Mall
management’s discussion of its fourth quarter results live, access
www.pcmall.com/investor.
The archived webcast can be accessed at www.pcmall.com/investor
under “Calendar of Events.” A replay of the conference call by
phone will be available from 7:30 p.m. ET on March 1, 2012 until
March 8, 2012 and can be accessed by calling: (888) 286-8010
and inputting pass code 97260296.
About PC Mall, Inc.
PC Mall, Inc., through its wholly-owned subsidiaries, is a
leading value added direct marketer of technology products,
services and solutions to small and medium sized businesses,
mid-market and enterprise customers, government and educational
institutions and individual consumers. Our brands
include: PC Mall, PC Mall Gov, Sarcom, MacMall, Abreon, NSPI,
eCost and OnSale. In the twelve months ended December 31,
2011, we generated approximately $1.5 billion in revenue and now
have over 3,000 employees, over 64% of which are in sales or
service positions. For more information please visit
pcmall.com/investor or call (310) 354-5600.
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 expanded business models and opportunities
and benefits of our investments in these business models and
markets, statements related to strategic developments such as our
hiring of Mr. McGrath and the benefits Mr. McGrath may bring to the
Company, statements related to our brand strategy and related
potential benefits of a more streamlined and unified brand
strategy, statements related to our new headquarters and the
related benefits to our customers, vendors and employees and impact
on future growth, statements related to the benefits of the coupon
business or other statements or expectations or goals for sales
growth or operating leverage. 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: risks or uncertainties related to our
ability to retain key employees, expanded business models and
related investments; risks relates to our IT infrastructure,
uncertainties relating to the relationship between the number of
our account executives and productivity; risks related to our
ability to receive expected returns on strategic investments such
as investments in new offices, decreased sales related to any of
our segments, including but not limited to, potential decreases in
sales resulting from the loss of or a reduction in purchases from
significant customers; availability of key vendor incentives and
other vendor assistance, 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
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; 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 PC Mall Gov contracts; 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, foreign currency
transaction gains/losses, and other expenses which may increase as
a result of future 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 our expanded coupon
business, including regulatory and litigation risks, market
acceptance of the expanded business model, competition and emerging
market risks; risks related to foreign currency fluctuations; risks
related to warranties and indemnities we may be required to provide
to third parties through our commercial contracts; risks related to
data security; litigation by or against us; and availability of
financing, including availability under our existing credit lines.
Additional factors that could cause our actual results to differ
are discussed under the heading “Risk Factors” in Item 1A,
Part II of our Form 10-Q for the quarterly period ended
September 30, 2011, 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.
PC MALL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
Three Months Ended
December 31,
Year Ended
December 31,
2011 2010
2011 2010 Net sales $ 389,824 $
425,378 $ 1,455,219 $ 1,368,314 Cost of goods sold 339,392 375,907
1,264,731 1,197,019 Gross profit 50,432 49,471 190,488 171,295
Selling, general and administrative expenses 48,952 42,666 181,461
156,827 Revaluation of earnout liability (429 ) — (1,229 ) —
Impairment of indefinite- lived trademark 800 — 800 — Operating
profit 1,109 6,805 9,456 14,468 Interest expense, net 903 482 3,284
2,019 Income before income taxes 206 6,323 6,172 12,449 Income tax
expense 599 2,406 3,040 4,876 Net (loss) income $
(393
) $
3,917 $
3,132 $
7,573
Basic and Diluted Earnings (Loss) Per Common Share
Basic $ (0.03 ) $ 0.32 $ 0.26 $ 0.62 Diluted (0.03 ) 0.32 0.25 0.61
Weighted average number of common shares outstanding: Basic
12,013 12,137 12,225 12,220 Diluted 12,013 12,403 12,476 12,468
PC MALL, INC. RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES TO CONSOLIDATED OPERATING PROFIT
Three Months EndedDecember 31, Year
EndedDecember 31, 2011 2010
2011 2010 Net sales:
Consolidated net sales $ 389,824 $ 425,378 $ 1,455,219 $ 1,368,314
Less: OnSale net sales (11,382 ) (7,053 ) (43,307 ) (10,857 )
Adjusted net sales $ 378,442 $ 418,325 $ 1,411,912 $
1,357,457
Operating Profit: Consolidated operating
profit $ 1,109 $ 6,805 $ 9,456 $ 14,468 Add: OnSale operating loss
(profit) 1,662 (76 ) 4,563 36 Litigation costs (a) 85 103 1,492 476
Impairment of indefinite-lived trademark(b) 800 — 800 — External
fraudulent transaction (c) — — 173 — Inventory write-down (d) — —
504 — HQ move-related costs (e) 735 874 Less: Decrease in earnout
liability (f) (429 ) — (1,229 ) — Non-GAAP operating profit $ 3,962
$ 6,832 $ 16,633 $ 14,980 Non-GAAP operating profit margin 1.0 %
1.6 % 1.2 % 1.1 % Consolidated operating profit margin 0.3 %
1.6 % 0.6 % 1.1 % Non-GAAP operating profit $ 3,962 $ 6,832
$ 16,633 $ 14,980 Add: Consolidated depreciation expense 2,282
1,654 7,849 6,299 Consolidated amortization expense 557 504 2,195
1,858 Consolidated stock-based compensation expense 755 590 2,404
2,365 Less: OnSale depreciation expense (71 ) — (182 ) — OnSale
amortization expense (53 ) — (177 ) — OnSale stock-based
compensation expense (4 ) (4 ) (27 ) (8 ) Adjusted EBITDA (g) $
7,428 $ 9,576 $ 28,695 $ 25,494
(a) Relates to legal costs incurred in defending a lawsuit that
was settled in January 2012 without liability to the company.
(b) Relates to writedown of indefinite-lived Sarcom trademark
based on reassessment of its remaining useful life.
(c) Relates to an external fraudulent transaction in our Public
Sector segment.
(d) Relates to a write down of first generation iPads in
conjunction with the release of the iPad 2 in Q1 2011.
(e) Relates to the move to our new headquarters building in El
Segundo, California.
(f) Relates to a decrease in the estimated fair value of
the contingent consideration liability in Q2 2011 and Q4 2011
related to the NSPI acquisition.
(g) EBITDA — earnings before interest, taxes, depreciation and
amortization.
PC MALL, INC. CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts and share
data) December 31, 2011 2010
ASSETS Current assets: Cash and cash equivalents $ 9,484 $
10,711 Accounts receivable, net of allowances of $1,642 and $1,802
207,985 183,944 Inventories, net 79,456 63,583 Prepaid expenses and
other current assets 9,681 10,022 Deferred income taxes 3,937 3,798
Total current assets 310,543 272,058 Property and equipment, net
44,745 21,851 Deferred income taxes 215 604 Goodwill 25,510 25,510
Intangible assets, net 9,840 11,749 Other assets 2,387 2,319 Total
assets $ 393,240 $ 334,091
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Accounts payable $ 122,523 $
124,851 Accrued expenses and other current liabilities 31,797
31,279 Deferred revenue 18,079 12,206 Line of credit 91,852 50,301
Notes payable — current 1,015 783 Total current liabilities 265,266
219,420 Notes payable and other long-term liabilities 11,574 4,607
Deferred income taxes 5,574 2,771 Total liabilities 282,414 226,798
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; 14,368,888 and 14,089,672 shares issued; and
11,995,704 and 12,148,500 shares outstanding, respectively 14 14
Additional paid-in capital 108,061 104,894 Treasury stock, at cost:
2,373,184 and 1,941,172 shares, respectively (9,733 ) (7,176 )
Accumulated other comprehensive income 2,256 2,465 Retained
earnings 10,228 7,096 Total stockholders’ equity 110,826 107,293
Total liabilities and stockholders’ equity $ 393,240 $ 334,091
PC MALL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) Year Ended
December 31, 2011 2010 Cash
Flows From Operating Activities Net income $ 3,132 $ 7,573
Adjustments to reconcile net income to net cash (used in) provided
by operating activities: Depreciation and amortization 10,044 8,157
Provision for deferred income taxes 3,490 3,327 Net tax benefit
related to stock option exercises 1 96 Excess tax benefit related
to stock option exercises (668 ) (31 ) Non-cash stock-based
compensation 2,404 2,365 Decrease in earnout liability (1,229 ) —
Impairment of indefinite-lived trademark 800 — (Gain) loss on sale
of fixed assets (7 ) 14 Change in operating assets and liabilities:
Accounts receivable (24,041 ) (21,516 ) Inventories (14,889 ) 4,981
Prepaid expenses and other current assets 178 (561 ) Other assets
217 324 Accounts payable (9,425 ) 19,352 Accrued expenses and other
current liabilities 2,033 2,351 Deferred revenue 5,873 1,908 Total
adjustments (25,519 ) 20,767 Net cash (used in) provided by
operating activities (22,087 ) 28,340
Cash Flows From Investing
Activities Purchase of El Segundo building, related
improvements, furniture and equipment (17,174 ) — Purchases of
property and equipment (10,865 ) (8,019 ) Acquisition of net assets
(2,284 ) (8,788 ) Proceeds from sale of fixed assets 25 19 Net cash
used in investing activities (30,298 ) (16,788 )
Cash Flows From
Financing Activities Borrowing under notes payable 7,198 —
Payments under notes payable (757 ) (1,143 ) Net borrowings
(payments) under line of credit 41,205 (4,236 ) Change in book
overdraft 7,034 (3,454 ) Payment of earnout liability (1,121 ) —
Payments of obligations under capital lease (1,203 ) (483 )
Proceeds from stock issued under stock option plans 762 72 Payment
for deferred financing costs (25 ) (104 ) Excess tax benefit
related to stock option exercises 668 31 Common shares repurchased
and held in treasury (2,557 ) (922 ) Net cash provided by (used in)
financing activities 51,204 (10,239) Effect of foreign currency on
cash flow (46 ) 183 Net change in cash and cash equivalents (1,227
) 1,496 Cash and cash equivalents at beginning of the period 10,711
9,215 Cash and cash equivalents at end of the period $ 9,484
$
10,711
Supplemental Cash Flow Information Interest paid $
2,797 $ 1,829 Income taxes paid 4,157 1,558
Supplemental
Non-Cash Investing and Financing Activities Purchase of
infrastructure system $ 2,779 $ — Deferred financing costs 346
1,410 NSPI acquisition related: Fair value of assets, net of cash,
acquired $ — $ 13,472 Net cash paid — (8,788 ) Liabilities assumed
$ — $ 4,684
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