PC Mall, Inc. (NASDAQ:MALL), a leading IT solutions
provider, today reported financial results for the first quarter of
2012. Consolidated net sales for Q1 2012 were a first quarter
record $342.3 million, an increase of 2%, from $335.9 million in Q1
2011, and was impacted by a $27.1 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, our
sales grew $33.5 million, or 11% compared to Q1 2011. Consolidated
gross profit for Q1 2012 increased 8% to a first quarter record
$46.8 million from $43.5 million in Q1 2011. Consolidated gross
profit margin was 13.7% in Q1 2012 compared to 12.9% in Q1 2011.
Consolidated operating profit for Q1 2012, which includes $0.6
million of severance and restructuring related costs, decreased 93%
to $0.1 million compared to $1.9 million for Q1 2011. EBITDA (as
defined below) for Q1 2012 decreased $0.8 million to $3.3 million
from $4.1 million in Q1 2011. Consolidated net loss for Q1 2012 was
$0.5 million compared to consolidated net income of $0.7 million
for Q1 2011. Diluted loss per share for Q1 2012 was $0.04 compared
to diluted EPS of $0.06 for Q1 2011.
Commenting on the Company’s first quarter results, Frank
Khulusi, Chairman, President and CEO of PC Mall, Inc. said,
“We are pleased that we grew sales by 11% excluding the program
change mentioned above, and that we grew our gross margin to 13.7%
from 12.9% year over year. This margin growth was primarily due to
our continued focus on improving our mix of services and solutions
sales. Our operating profit in Q1 was impacted by a number of
factors, including our ongoing investments, our IT upgrades and
$0.6 million of severance and restructuring related costs incurred
during the quarter. As we previously discussed on our Q4 2011
conference call, we are committed to our goal of generating $30
million to $32 million in EBITDA in 2012, excluding any severance
or restructuring related expenses.”
Strategic Developments
Khulusi continued, “As we discussed on our Q4 2011 conference
call, we are in the midst of several strategic initiatives with the
goal being to unify our commercial brands and streamline our
go-to-market strategies. An important part of these initiatives is
a focused reduction of our overhead expenses. To that end, we took
actions in Q1 that will result in $1.7 million of annualized cost
savings. These and other actions resulted in severance and
restructuring related expenses of approximately $0.6 million in Q1.
We are evaluating additional actions to take place in Q2 and Q3 and
would expect incremental annualized cost reductions of at least
$3.5 million resulting from those actions. We currently expect that
we will incur additional severance and restructuring related costs
in connection with these actions. Looking forward, as we discussed
on our fourth quarter conference call, we believe that when our
commercial brands are unified and we simplify our go-to-market
strategies we will be able to achieve additional synergies,
including simplified and more effective sales and marketing
campaigns and additional reductions in overhead.”
Segment Results
As stated last quarter, in Q1 2012 we restored operating and
reporting of the OnSale and MacMall businesses within a single
segment and now have four operating segments – SMB, MME, Public
Sector and MacMall/OnSale. We include corporate related expenses
such as legal, accounting, information technology, product
management, certain professional and pre-sales support services and
other administrative costs that are not otherwise allocated to our
reportable operating segments in Corporate and Other. All
historical segment financial information provided herein has been
revised to reflect these new reportable operating segments.
SMB
Q1 2012 net sales for our SMB segment were $117.6 million
compared to $138.7 million in Q1 2011, a decrease of $21.1 million,
or 15%. This decrease was due to a $21.6 million decline in sales
to promotional companies as a result of the program change
mentioned earlier, offset by a $0.5 million increase in sales to
customers outside that program. As we indicated previously, the
effects of this program change will continue to have an impact on
year over year comparisons throughout 2012. In 2011, sales under
this program were approximately $23.2 million, $20.0 million, $12.7
million and $8.8 million in Q1, Q2, Q3 and Q4 respectively.
Q1 2012 SMB gross profit decreased by $0.1 million, or 1%, to
$16.8 million compared to $16.9 million in Q1 2011 resulting
primarily from the SMB net sales decrease discussed above, but
offset by an increase in gross profit for the core SMB business.
SMB gross profit margin increased to 14.3% in Q1 2012 compared to
12.2% in Q1 2011 primarily due to an increase in selling margin for
the core SMB business as well as a decrease in sales to promotional
companies at lower margins.
Q1 2012 SMB operating profit increased by $0.1 million, or 2%,
to $9.3 million compared to $9.2 million in Q1 2011. This increase
resulted primarily from a decrease in bad debt expense of $0.2
million and a decrease in facility expenses of $0.1 million,
partially offset by the SMB gross profit decrease discussed above
and a $0.2 million increase in personnel costs primarily due to
increased variable compensation expenses related to higher selling
margin for SMB’s core business.
MME
Q1 2012 net sales for our MME segment were $137.3 million
compared to $110.5 million in Q1 2011, an increase of $26.8
million, or 24%. This increase was primarily due to a 25% increase
in net sales of products in Q1 2012 compared to Q1 2011, as well as
a 23% increase in sales of services.
MME gross profit increased by $1.9 million, or 10%, to $19.9
million in Q1 2012 compared to $18.0 million in Q1 2011, and MME
gross profit margin decreased to 14.5% in Q1 2012 compared to 16.3%
in Q1 2011. The increase in MME gross profit was due to the
increased MME net sales discussed above, partially offset by a
decrease in product margins. The decrease in MME gross profit
margin was primarily due to a 55 basis point decrease in vendor
consideration as a percentage of sales and a competitive pricing
environment for product sales.
MME operating profit in Q1 2012 increased by $1.1 million, or
22%, to $6.3 million compared to $5.2 million in Q1 2011. The
increase was primarily due to the increased MME gross profit
discussed above, partially offset by a $0.3 million increase in
depreciation and amortization expenses primarily related to the
accelerated amortization of SARCOM’s trademark resulting from our
rebranding strategy, and increases in personnel costs of $0.2
million and variable fulfillment costs of $0.2 million.
Public Sector
Q1 2012 net sales for our Public Sector segment were $32.2
million compared to $31.7 million in Q1 2011, an increase of $0.5
million, or 2%. This increase in Public Sector net sales was due to
a 26% 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 an 18% decrease in our federal government business.
Public Sector gross profit increased by $0.6 million, or 18%, to
$3.8 million in Q1 2012 compared to $3.2 million in Q1 2011. Public
Sector gross profit margin increased to 11.7% in Q1 2012 compared
to 10.1% in Q1 2011. The increase in Public Sector gross profit was
primarily due to the increased Public Sector net sales discussed
above, an increase in selling margin and a $0.2 million increase in
vendor consideration. The increase in Public Sector gross profit
margin was primarily due to a 51 basis point increase in vendor
consideration as a percentage of sales and an improvement in mix of
higher margin solutions.
Public Sector operating profit was $36,000 in Q1 2012 compared
to $41,000 in Q1 2011. Public Sector operating profit was primarily
impacted by a $0.5 million increase in personnel costs and a $0.1
million increase in variable fulfillment costs, partially offset by
the increased Public Sector gross profit discussed above.
MacMall/OnSale
Q1 2012 net sales for our MacMall/OnSale segment were $55.2
million compared to $55.3 million in Q1 2011. These results
included a $5.5 million decrease in MacMall net sales due to the
vendor program change mentioned earlier. As previously indicated,
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/OnSale gross profit increased by $0.5 million, or 8%, to
$6.3 million in Q1 2012 compared to $5.8 million in Q1 2011.
MacMall/OnSale gross profit margin increased to 11.4% in Q1 2012
compared to 10.5% in Q1 2011. The increase in MacMall/OnSale gross
profit and gross profit margin was primarily due to an increase in
selling margin and a reduction in sales at low margins to
promotional companies.
MacMall/OnSale operating profit decreased by $0.5 million to
$0.3 million in Q1 2012 compared to $0.8 million in Q1 2011. This
decrease was primarily due to an increase in personnel costs of
$0.8 million due to increased costs associated with our retail
stores and incremental marketing resources, as well as a $0.1
million increase in severance costs, partially offset by an
increase in MacMall/OnSale gross profit discussed above. The OnSale
business, including the results of eCost, incurred a loss during Q1
2012 of $0.8 million, and we expect this part of the business to be
profitable beginning in Q2 2012 as a result of the operating
changes mentioned above.
Corporate & Other
Corporate & Other operating expenses includes corporate
related expenses such as legal, accounting, information technology,
product management and certain professional and pre-sales support
services and other administrative costs that are not otherwise
included in our reportable operating segments. Q1 2012
Corporate & Other operating expenses increased by $2.5
million, or 20%, to $15.8 million from $13.3 million in Q1 2011.
The increase in Q1 2012 was primarily related to a $0.6 million
increase in depreciation expense associated with the completed
portions of our on-going systems upgrades, a $0.5 million increase
in net costs associated with our professional and pre-sales support
services supporting our commercial segments, a $0.4 million
increase in legal and accounting costs, and other increases in
costs associated with our back office infrastructure, partially
offset by a $0.5 million decrease in costs associated with the
write-down of first generation iPads in Q1 2011 that did not have a
corresponding charge in Q1 2012. In January 2012, we settled a
lawsuit that significantly impacted legal costs in prior quarters
without liability to the company.
Consolidated Balance Sheet
Accounts receivable at March 31, 2012 was $190.7 million
and decreased by $17.3 million from December 31, 2011.
Inventory at March 31, 2012 was $60.1 million and decreased $19.3
million from December 31, 2011, reflecting a sell-through of
seasonal purchases made in later 2011. Accounts payable at
March 31, 2012 was $114.9 million and decreased by $7.6
million from December 31, 2011. We completed the financing of
our headquarters building improvements, furniture and fixtures,
totaling approximately $7.2 million of increases to notes and
leases payable during the first quarter of 2012. Capital
expenditures during Q1 2012 were $2.5 million compared to capital
expenditures of $11.5 million during Q1 2011, with the decrease
primarily due to the purchase in Q1 2011 of our new headquarters
building for $9.6 million. Outstanding borrowings under our line of
credit decreased by $27.6 million to $64.2 million at
March 31, 2012 compared to December 31, 2011. Working
capital increased by $6.5 million as of March 31, 2012
compared to December 31, 2011.
Selected Segment Information
Selected information for our reportable operating segments is as
follows (in thousands, except headcount data):
Three Months
EndedMarch 31, 2012 Three Months EndedMarch
31, 2011 Net Sales Gross Profit
OperatingProfit Net Sales
Gross Profit
OperatingProfit SMB $ 117,555 $ 16,764 $ 9,348 $
138,738 $ 16,918 $ 9,184 MME 137,333 19,856 6,271 110,509 17,986
5,159 Public Sector 32,230 3,776 36 31,677 3,197 41 MacMall/OnSale
55,229 6,274 320 55,275 5,812 784 Corporate & Other (1 ) 102
(15,846 ) (261 ) (444 ) (13,253 ) Total $ 342,346 $ 46,772 $ 129 $
335,938 $ 43,469 $ 1,915
Average
Account Executive Three Months EndedMarch 31,
Headcount By Segment(1): 2012
2011 SMB
353 374 MME 111 111 Public Sector 134 103 MacMall/OnSale 153 125
Total 751 713
(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 earnings before interest, taxes, depreciation
and amortization expenses (EBITDA), which is a financial measure
that is not determined in accordance with accounting principles
generally accepted in the United States of America, or GAAP. EBITDA
should be used in conjunction with other GAAP financial measures
and is not presented as an alternative measure of operating
results, as determined in accordance with GAAP. We believe that
this non-GAAP financial measure 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. 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. A
reconciliation of the non-GAAP consolidated financial measure is
included in a table below.
Conference Call
Management will hold a conference call, which will be webcast,
on May 9, 2012 at 4:30 p.m. Eastern Time (1:30 p.m.
Pacific Time) to discuss first quarter results. To listen to PC
Mall management’s discussion of its first 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 May 9, 2012 until
May 16, 2012 and can be accessed by calling: (888) 286-8010
and inputting pass code 67548725.
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 March 31,
2012, we generated approximately $1.5 billion in revenue and now
have over 2,900 employees, over 65% 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 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 I
of our Form 10-K for the fiscal year ended December 31, 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 EndedMarch 31, 2012
2011 Net
sales $ 342,346 $ 335,938 Cost of goods sold 295,574 292,469 Gross
profit 46,772 43,469 Selling, general and administrative expenses
46,643 41,554 Operating profit 129 1,915 Interest expense, net 931
723 (Loss) income before income taxes (802 ) 1,192 Income tax
(benefit) expense (332 ) 465 Net (loss) income $ (470 ) $ 727
Basic and Diluted Earnings (Loss) Per Common Share
Basic $ (0.04 ) $ 0.06 Diluted (0.04 ) 0.06 Weighted average
number of common shares outstanding: Basic 12,001 12,232 Diluted
12,001 12,607
PC MALL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES TO
CONSOLIDATED OPERATING PROFIT
Three Months EndedMarch 31, 2012
2011
EBITDA(a): Consolidated operating profit $ 129 $ 1,915
Add:
Consolidated depreciation expense
2,404 1,660 Consolidated amortization expense 746 505 EBITDA $
3,279 $ 4,080
(a) EBITDA — earnings before interest, taxes, depreciation and
amortization.
PC MALL, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per
share amounts and share data)
March 31,
2012
December
31,
2011
ASSETS Current assets: Cash and cash equivalents $ 8,613 $
9,484 Accounts receivable, net of allowances of $1,645 and $1,642
190,718 207,985 Inventories, net 60,129 79,456 Prepaid expenses and
other current assets 11,401 9,681 Deferred income taxes 4,023 3,937
Total current assets 274,884 310,543 Property and equipment, net
45,206 44,745 Deferred income taxes 273 247 Goodwill 25,510 25,510
Intangible assets, net 9,094 9,840 Other assets 2,357 2,387 Total
assets $ 357,324 $ 393,272
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Accounts payable $ 114,940 $
122,523 Accrued expenses and other current liabilities 27,442
31,797 Deferred revenue 15,457 18,079 Line of credit 64,231 91,852
Notes payable — current 1,064 1,015 Total current liabilities
223,134 265,266 Notes payable and other long-term liabilities
17,389 11,574 Deferred income taxes 5,606 5,606 Total liabilities
246,129 282,446 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; 14,401,434 and 14,368,888 shares
issued; and 12,028,250 and 11,995,704 shares outstanding,
respectively 14 14 Additional paid-in capital 108,712 108,061
Treasury stock, at cost: 2,373,184 shares at each period (9,733 )
(9,733 ) Accumulated other comprehensive income 2,444 2,256
Retained earnings 9,758 10,228 Total stockholders’ equity 111,195
110,826 Total liabilities and stockholders’ equity $ 357,324 $
393,272
PC MALL, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited, in thousands)
Three Months endedMarch 31, 2012
2011
Cash Flows From Operating Activities Net (loss) income $
(470 ) $ 727 Adjustments to reconcile net income to net cash (used
in) provided by operating activities: Depreciation and amortization
3,150 2,165 Provision for deferred income taxes 32 231 Net tax
benefit related to stock option exercises — 1 Excess tax benefit
related to stock option exercises (39 ) (660 ) Non-cash stock-based
compensation 571 534 Gain on sale of fixed assets — (4 ) Change in
operating assets and liabilities: Accounts receivable 17,075 13,949
Inventories 19,327 6,621 Prepaid expenses and other current assets
(1,531 ) (714 ) Other assets 30 14 Accounts payable (7,100 )
(30,291 ) Accrued expenses and other current liabilities (5,307 )
(6,005 ) Deferred revenue (2,622 ) 4,868 Total adjustments 23,586
(9,291 ) Net cash provided by (used in) operating activities 23,116
(8,564 )
Cash Flows From Investing Activities Purchase of El
Segundo building — (9,565 ) Purchases of property and equipment
(2,456 ) (1,898 ) Acquisition of assets, net — (2,327 ) Proceeds
from sale of fixed assets — 9 Net cash used in investing activities
(2,456 ) (13,781 )
Cash Flows From Financing Activities Net
(payments) borrowings under line of credit (27,621 ) 11,730 Capital
lease proceeds 4,377 — Borrowing under notes payable 2,859 —
Repayments under notes payable (259 ) (196 ) Change in book
overdraft (567 ) 6,719 Payments of obligations under capital lease
(438 ) (299 ) Payments for deferred financing costs — (25 )
Proceeds from stock issued under stock option plans 80 665 Excess
tax benefit related to stock option exercises 39 660 Net cash (used
in) provided by financing activities (21,530 ) 19,254 Effect of
foreign currency on cash flow (1 ) (21 ) Net change in cash and
cash equivalents (871 ) (3,112 ) Cash and cash equivalents at
beginning of the period 9,484 10,711 Cash and cash equivalents at
end of the period $ 8,613 $ 7,599
Supplemental Cash Flow
Information Interest paid $ 809 $ 608 Income taxes paid 406
2,323
Supplemental Non-Cash Investing and Financing
Activities Purchase of infrastructure system $ 325 $ 1,146
Deferred financing costs — 38
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