PC Mall, Inc. (NASDAQ:MALL), a leading IT solutions
provider, today reported financial results for the second quarter
of 2012. Consolidated net sales for Q2 2012 were a second quarter
record $362.6 million, an increase of $0.7 million, from $361.9
million in Q2 2011, and was impacted by a $16.7 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 $17.4 million, or 5% compared to Q2 2011. Consolidated
gross profit for Q2 2012 increased 5% to a second quarter record
$48.5 million from $46.4 million in Q2 2011. Consolidated gross
profit margin was 13.4% in Q2 2012 compared to 12.8% in Q2 2011.
EBITDA (as defined below), which includes $0.5 million of severance
and restructuring related costs for Q2 2012, increased $1.6 million
to $6.6 million from $5.0 million in Q2 2011. Consolidated
operating profit for Q2 2012, which includes $0.7 million of
severance and restructuring related costs, increased 33% to $3.4
million compared to $2.6 million for Q2 2011. Consolidated net
income for Q2 2012 was $1.4 million compared to $1.0 million for Q2
2011. Diluted EPS for Q2 2012 was $0.12 compared to diluted EPS of
$0.08 for Q2 2011.
Commenting on the Company’s second quarter results, Frank
Khulusi, Chairman, President and CEO of PC Mall, Inc. said,
“We are pleased that, despite an uncertain macro environment, we
were able to grow our sales by 5% year over year in Q2 excluding
the vendor program change, while increasing our gross margin to
13.4%. We continue to be focused on our operating expenses, and
through disciplined cost controls we were able to grow our EBITDA
by 31% and our diluted EPS by 50% year over year. Included in
EBITDA are $0.5 million of severance and restructuring related
costs and, excluding those costs, our EBITDA would have been $7.1
million in Q2. Our focus on our services business is paying off, as
evidenced by strong services growth in the first half of 2012 of
27%. We are also excited about the pending changes associated with
our rebranding, which we expect to be effected on January 1, 2013.
We look forward to sharing more information and details regarding
our rebranding strategies in the weeks to come.”
Khulusi continued, “While we are cautiously optimistic about the
demand environment in the 2nd half of 2012, based upon the demand
trends we saw in the second quarter and macro-economic uncertainty,
our current financial goals for this year are to achieve revenue of
at least $1.5 billion and EBITDA, excluding severance and
restructuring related expenses, of between $29 million and $31
million. We continue to take steps to improve our gross margins,
including making significant investments in our services
businesses, which, in addition to many cost control measures, are
making meaningful contributions to our bottom line. We believe we
are well positioned in the marketplace and well situated for the
future, and as we consummate our rebranding, our IT systems upgrade
and integration and make additional planned improvements, we expect
these changes will have a positive and material effect on our
results.”
Segment Results
SMB
Q2 2012 net sales for our SMB segment were $115.6 million
compared to $131.3 million in Q2 2011, a decrease of $15.7 million,
or 12%. This decrease was due to a $17.2 million decline in sales
to promotional companies as a result of the program change
mentioned earlier, offset by a $1.6 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.
Q2 2012 SMB gross profit remained flat at $16.8 million in Q2
2012 and Q2 2011. SMB gross profit margin increased to 14.5% in Q2
2012 compared to 12.8% in Q2 2011 primarily due to an increase in
vendor consideration as a percentage of net sales as well as a
decrease in sales to promotional companies at lower margins.
Q2 2012 SMB operating profit increased by $0.6 million, or 7%,
to $9.6 million compared to $9.0 million in Q2 2011. This increase
resulted primarily from small improvements in a number of
components of selling, general and administrative expenses.
MME
Q2 2012 net sales for our MME segment were $149.0 million
compared to $128.6 million in Q2 2011, an increase of $20.4
million, or 16%. This increase was primarily due to a 14% increase
in net sales of products in Q2 2012 compared to Q2 2011, as well as
a 26% increase in sales of services. In Q2 2012, sales of services
increased to 20% of MME segment sales from 18% of sales in Q2
2011.
MME gross profit increased by $1.9 million, or 10%, to $21.8
million in Q2 2012 compared to $19.9 million in Q2 2011, and MME
gross profit margin decreased to 14.6% in Q2 2012 compared to 15.4%
in Q2 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 50 basis point decrease in vendor
consideration as a percentage of sales and a competitive pricing
environment for product sales.
MME operating profit in Q2 2012 increased by $0.5 million, or
6%, to $8.2 million compared to $7.7 million in Q2 2011. The
increase was primarily due to the increased MME gross profit
discussed above, partially offset by a $0.6 million increase in
personnel costs and a $0.3 million increase in depreciation and
amortization expenses primarily related to the acceleration of our
SARCOM and NSPI trademark amortization in connection with our
rebranding strategy. The increase in personnel costs was primarily
related to an increase in unutilized service labor and variable
compensation costs related to the growth in our business and a $0.2
million increase in employee severance costs. Q2 2012 operating
profit also included a $0.2 million benefit from a decrease in the
estimated fair value of the contingent consideration liability
related to our NSPI acquisition, compared to a $0.8 million benefit
recorded in Q2 2011.
Public Sector
Q2 2012 net sales for our Public Sector segment were $41.6
million compared to $41.4 million in Q2 2011, an increase of $0.2
million, or 1%. This increase in Public Sector net sales was due to
a 19% increase in sales to state and local government and
educational institutions (SLED) resulting primarily from increased
account executive headcount focused on SLED business and increased
account executive productivity, partially offset by a 26% decrease
in our federal government business.
Public Sector gross profit increased by $0.3 million, or 10%, to
$3.7 million in Q2 2012 compared to $3.4 million in Q2 2011. Public
Sector gross profit margin increased to 8.8% in Q2 2012 compared to
8.1% in Q2 2011. The increase in Public Sector gross profit and
gross profit margin was primarily due to an increase in selling
margin and an increase in vendor consideration.
Public Sector operating loss decreased by $0.1 million, or 30%,
to $0.2 million in Q2 2012 compared to $0.3 million in Q2 2011. The
decrease in Public Sector operating loss was primarily due to the
increase in Public Sector gross profit discussed above, partially
offset by a $0.4 million increase in personnel costs.
MacMall/OnSale
Q2 2012 net sales for our MacMall/OnSale segment were $56.3
million compared to $61.1 million in Q2 2011, a decrease of $4.7
million, or 8%. The decrease in MacMall/OnSale net sales was
primarily due to what we believe was a combination of soft demand
in anticipation of product releases as well as constrained
inventory once those products were announced.
MacMall/OnSale gross profit remained flat at $6.3 million in Q2
2012 and Q2 2011. MacMall/OnSale gross profit margin increased to
11.2% in Q2 2012 compared to 10.3% in Q2 2011. The increase in
MacMall/OnSale gross profit margin was primarily due to an increase
in selling margin as well as a 28 basis point increase in vendor
consideration as a percentage of sales.
MacMall/OnSale operating profit increased by $1.0 million to
$0.8 million in Q2 2012 compared to an operating loss of $0.2
million in Q2 2011. This increase in MacMall/OnSale operating
profit was primarily due to a decrease in third party support costs
of $0.3 million which were incurred in the prior year to transition
our eCost acquisition, a decrease in personnel costs of $0.2
million, a decrease in legal costs of $0.2 million and a decrease
in credit card related costs of $0.2 million.
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. Q2 2012
Corporate & Other operating expenses increased by $1.2
million, or 9%, to $14.8 million from $13.6 million in Q2 2011. The
increase in Q2 2012 was primarily related to a $1.1 million
increase in personnel costs primarily supporting continued
investments in IT and professional and pre-sales support services,
and a $0.4 million increase in depreciation expense associated with
the completed portions of our on-going systems upgrades, partially
offset by a $0.5 million decrease in litigation costs.
Consolidated Balance Sheet
Accounts receivable at June 30, 2012 was $195.3 million and
decreased by $12.7 million from December 31, 2011. Inventory
at June 30, 2012 was $76.4 million and decreased $3.0 million from
December 31, 2011, primarily reflecting a sell-through of
seasonal purchases made in late 2011, but includes new
opportunistic purchases made near the end of Q2 2012. Accounts
payable at June 30, 2012 was $128.4 million and increased by
$5.8 million from December 31, 2011. Capital expenditures
during the six months ended June 30, 2012 were $5.1 million
compared to capital expenditures of $14.8 million during the six
months ended June 30, 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 $20.1 million to $71.8 million at June 30, 2012 compared to
December 31, 2011. Working capital increased by $7.6 million
as of June 30, 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 EndedJune 30,
2012 Three Months EndedJune 30, 2011
Net Sales Gross Profit
OperatingProfit (Loss) Net Sales
Gross Profit OperatingProfit (Loss) SMB
$ 115,605 $ 16,814 $ 9,592 $ 131,270 $ 16,837 $ 9,005 MME 149,048
21,806 8,163 128,624 19,859 7,697 Public Sector 41,646 3,681 (240 )
41,404 3,356 (344 ) MacMall/OnSale 56,324 6,289 753 61,071 6,305
(185 ) Corporate & Other (30 ) (84 ) (14,843 ) (459 ) 29
(13,592 ) Total $ 362,593 $ 48,506 $ 3,425 $ 361,910 $ 46,386 $
2,581
Six Months Ended
June 30, 2012
Six Months EndedJune 30, 2011 Net Sales
Gross Profit OperatingProfit
(Loss) Net Sales Gross Profit
OperatingProfit (Loss) SMB $ 233,160 $ 33,578 $
18,940 $ 270,008 $ 33,755 $ 18,189 MME 286,381 41,662 14,434
239,133 37,845 12,856 Public Sector 73,876 7,457 (204 ) 73,081
6,553 (303 ) MacMall/OnSale 111,553 12,563 1,073 116,346 12,117 599
Corporate & Other (31 ) 18 (30,689 ) (720 ) (415 ) (26,845 )
Total $ 704,939 $ 95,278 $ 3,554 $ 697,848 $ 89,855 $ 4,496
Average Account Executive Three Months
EndedJune 30, Headcount By Segment(1):
2012 2011 SMB 365 369 MME 109 110 Public
Sector 122 113 MacMall/OnSale 144 153 Total 740 745
____________________________________
(1) Headcount numbers are calculated based on an average of all
sales executives and trainees employed during the period.
Product Sales
Mix(1): Three Months EndedJune 30, 2012
2011
Y/Y Sales Growth
Software 20 % 19 % 10 % Notebooks 14 % 14 % 5 % Desktops 10 % 11 %
(11
%)
Delivered services
9
% 7 % 27 % Networking 8 % 6 % 26 % Tablets 7 % 8 % (17
%)
Displays 5 % 5 % 3 % Storage 4 % 4 % 13 % Servers 3 % 4 % (24
%)
Manufacturer service/warranty 3 % 3 % 5 % Accessories 3 % 3 % 19 %
Input devices 3 % 2 % 24 % All other (2)
11
% 14 % (22
%)
Total 100 % 100 %
_______________________________
(1) Derived from gross billed sales as currently reflected
by our systems. (2) All other includes power, printers, supplies,
consumer electronics, memory, iPod/MP3 and miscellaneous other
items.
Non-GAAP Measure
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 August 7, 2012 at 4:30 p.m. Eastern Time (1:30 p.m.
Pacific Time) to discuss second quarter results. To listen to PC
Mall management’s discussion of its second 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 6:30 p.m. ET on August 7, 2012
until August 14, 2012 and can be accessed by calling:
(888) 286-8010 and inputting pass code 31356946.
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 June 30, 2012, we
generated approximately $1.5 billion in revenue and now have
approximately 2,900 employees, over 68% 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 statements related to
strategic developments such as statements related to operating
expenses and cost controls, investments in our services business
and related benefits, our positioning in the marketplace and for
the future success of our business, our brand strategy and related
potential benefits of a more streamlined and unified brand
strategy, our IT systems upgrade and integration and related
benefits, or other statements or expectations or goals for sales
growth or operating leverage or EBITDA. 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 risks and uncertainties related to the
following: our IT infrastructure; the relationship between the
number of our account executives and productivity; our ability to
attract and retain key employees; our ability to receive expected
returns on strategic investments including without limit
investments in expanded business models; 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; possible discontinuance of
IT licenses used to operate our business which are provided by
vendors; 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; 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; 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; business and other conditions
in the Asia Pacific region and the related effects on 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; shifts in market demand or price erosion of owned
inventory; risks related to foreign currency fluctuations;
warranties and indemnities we may be required to provide to third
parties through our commercial contracts; 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 period ended March 31, 2012, 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
June 30,
Six Months Ended
June 30,
2012 2011 2012
2011 Net sales $ 362,593 $ 361,910 $ 704,939 $
697,848 Cost of goods sold 314,087 315,524 609,661 607,993
Gross profit
48,506 46,386 95,278 89,855 Selling, general and administrative
expenses 45,256 44,605 91,899 86,159 Revaluation of earnout
liability (175 ) (800 ) (175 ) (800 ) Operating profit 3,425 2,581
3,554 4,496 Interest expense, net 909 835 1,840 1,558 Income before
income taxes 2,516 1,746 1,714 2,938 Income tax expense 1,085 710
753 1,175 Net income $
1,431 $
1,036 $
961 $
1,763 Basic and Diluted
Earnings Per Common Share Basic $ 0.12 $ 0.08 $ 0.08 $ 0.14
Diluted 0.12 0.08 0.08 0.14 Weighted average number of
common shares outstanding: Basic 12,032 12,405 12,016 12,318
Diluted 12,166 12,750 12,221 12,679
PC MALL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES TO
CONSOLIDATED OPERATING PROFIT
Three Months EndedJune 30, Six
Months EndedJune 30, 2012 2011
2012 2011 EBITDA(a):
Consolidated operating profit $ 3,425 $ 2,581 $ 3,554 $ 4,496 Add:
Consolidated depreciation expense 2,365 1,879 4,769 3,539
Consolidated amortization expense 787 575 1,533 1,080
EBITDA $ 6,577 $ 5,035 $ 9,856 $ 9,115
______________________________________
(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)
June 30,
2012
December 31,
2011
ASSETS Current assets: Cash and cash equivalents $ 8,558 $
9,484 Accounts receivable, net of allowances of $1,352 and $1,642
195,318 207,985 Inventories, net 76,420 79,456 Prepaid expenses and
other current assets 12,773 9,681 Deferred income taxes 3,741 3,937
Total current assets 296,810 310,543 Property and equipment, net
46,013 44,745 Deferred income taxes 327 247 Goodwill 25,510 25,510
Intangible assets, net 8,396 9,840 Other assets 2,247 2,387 Total
assets $ 379,303 $ 393,272
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Accounts payable $ 128,356 $
122,523 Accrued expenses and other current liabilities 28,101
31,797 Deferred revenue 14,786 18,079 Line of credit 71,753 91,852
Notes payable — current 974 1,015 Total current liabilities 243,970
265,266 Notes payable and other long-term liabilities 16,761 11,574
Deferred income taxes 5,606 5,606 Total liabilities 266,337 282,446
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; 14,408,126 and 14,368,888 shares issued; and
12,034,942 and 11,995,704 shares outstanding, respectively 14 14
Additional paid-in capital 109,204 108,061 Treasury stock, at cost:
2,373,184 shares at each period (9,733 ) (9,733 ) Accumulated other
comprehensive income 2,292 2,256 Retained earnings 11,189 10,228
Total stockholders’ equity 112,966 110,826 Total liabilities and
stockholders’ equity $ 379,303 $ 393,272
PC MALL, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited, in thousands)
Six Months EndedJune 30, 2012
2011 Cash Flows From Operating Activities Net
income $ 961 $ 1,763 Adjustments to reconcile net income to net
cash provided by (used in) operating activities: Depreciation and
amortization 6,302 4,619 Provision for deferred income taxes 2,015
620 Net tax benefit related to stock option exercises — 2 Excess
tax benefit related to stock option exercises (39 ) (660 ) Non-cash
stock-based compensation 1,051 1,062 Decrease in earnout liability
(175 ) (800 ) Gain on sale of fixed assets — (15 ) Change in
operating assets and liabilities: Accounts receivable 10,774 4,917
Inventories 3,036 5,327 Prepaid expenses and other current assets
(3,053 ) (1,956 ) Other assets 51 (100 ) Accounts payable 8,303
(29,497 ) Accrued expenses and other current liabilities (4,602 )
(532 ) Deferred revenue (3,293 ) 6,601 Total adjustments 20,370
(10,412 ) Net cash provided by (used in) operating activities
21,331 (8,649 )
Cash Flows From Investing Activities
Purchase of El Segundo building — (9,565 ) Purchases of property
and equipment (5,082 ) (5,194 ) Acquisition of eCost — (2,284 )
Proceeds from sale of fixed assets — 23 Net cash used in investing
activities (5,082 ) (17,020 )
Cash Flows From Financing
Activities Net (payments) borrowings under line of credit
(20,099 ) 5,769 Capital lease proceeds 4,356 — Borrowing under note
payable 2,859 7,198 Payments under notes payable (552 ) (368 )
Change in book overdraft (2,744 ) 7,660 Payments of obligations
under capital lease (1,123 ) (526 ) Proceeds from stock issued
under stock option plans 92 665 Payment for deferred financing
costs — (25 ) Excess tax benefit related to stock option exercises
39 660 Net cash (used in) provided by financing activities (17,172
) 21,033 Effect of foreign currency on cash flow (3 ) (58 ) Net
change in cash and cash equivalents (926 ) (4,694 ) Cash and cash
equivalents at beginning of the period 9,484 10,711 Cash and cash
equivalents at end of the period $ 8,558 $ 6,017
Supplemental
Cash Flow Information Interest paid $ 1,638 $ 1,346 Income
taxes paid 969 3,648
Supplemental Non-Cash Investing and
Financing Activities Purchase of infrastructure system $ 346 $
2,070 Deferred financing costs — 49
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