Business Wire | Aug 5, 2021 04:06PM EDT

Connection (CNXN) Reports Second Quarter 2021 Results

Aug. 05, 2021

MERRIMACK, N.H.--(BUSINESS WIRE)--Aug. 05, 2021--Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading information technology solutions provider to business, government, healthcare and education markets, today announced results for the second quarter ended June 30, 2021.

"We are pleased to report 28% revenue growth in all of our segments and we currently expect solid demand to continue through 2021," said Tim McGrath, President and CEO of Connection. McGrath continued, "Our financial performance was strong, albeit impacted by supply chain disruptions. We continue to work collaboratively with suppliers and our customers to address these challenges. We believe we have the right team in place and are well positioned to deliver long-term shareholder value."

Net sales for the quarter ended June 30, 2021 increased by 28.0% to $704.2 million, compared to $550.0 million for the prior year quarter. Net income for the quarter ended June 30, 2021 increased by 126.3% to $17.3 million, or $0.66 per diluted share, compared to net income of $7.6 million, or $0.29 per diluted share, for the prior year quarter.

Net sales for the six months ended June 30, 2021 increased by 6.3% to $1,341.1 million, compared to $1,261.9 million for the six months ended June 30, 2020. Net income for the six months ended June 30, 2021 increased by 21.9% to $27.5 million, or $1.04 per diluted share, compared to net income of $22.5 million, or $0.86 per diluted share for the six months ended June 30, 2020.

Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and restructuring and other charges ("Adjusted EBITDA") totaled $96.7 million for the twelve months ended June 30, 2021, compared to $110.0 million for the twelve months ended June 30, 2020. 1

Quarterly Highlights

* Strong growth across three of our four vertical markets: Healthcare, Connection's largest vertical market, saw 30% year-over-year revenue growth and 19% sequentially as customers invested in technology to lower operational costs, increase patient flow efficiency, and penetrate new markets. Retail had impressive revenue growth of 25% year-over-year and 10% sequentially driven by businesses seeking automated solutions to cover their productivity needs and improve the customer experience. Manufacturing grew revenue 59% year-over-year as companies continued to invest in security and infrastructure, automation and data capabilities to improve efficiencies and offset workforce shortages.

* We further advanced our overall cloud strategy and we continued to see strong growth in the cloud ecosystem, including subscriptions and security.

* Our services business grew over 40% helping to support our customers hybrid work initiatives.

Quarterly Performance by Segment

* Net sales for the Business Solutions segment increased by 39.9% to $267.3 million in the second quarter of 2021, compared to $191.1 million in the prior year quarter. Gross profit increased by 37.9% to $51.3 million in the second quarter of 2021, compared to $37.2 million in the prior year quarter. Gross margin decreased by 28 basis points to 19.2% primarily due to changes in product mix.

* Net sales for the Public Sector Solutions segment increased by 15.7% to $129.7 million in the second quarter of 2021, compared to $112.2 million in the prior year quarter. Sales to state and local government and educational institutions increased by 22.4%, compared to the prior year quarter, while sales to the federal government decreased by 6.3%. Gross profit increased by 24.6% to $18.0 million in the second quarter of 2021, compared to $14.5 million in the prior year quarter. Gross margin increased by 99 basis points to 13.9% primarily due to a change in customer mix and an increase in cloud solutions and security software.

* Net sales for the Enterprise Solutions segment increased by 24.5% to $307.2 million in the second quarter of 2021, compared to $246.8 million in the prior year quarter. Gross profit increased by 25.9% to $47.0 million in the second quarter of 2021, compared to $37.3 million in the prior year quarter. Gross margin increased by 17 basis points to 15.3% primarily due to an increase in cloud solutions and security software.

Quarterly Sales by Product Mix

* Notebook/mobility sales had a record quarter at $254 million which represented an increase of 32% year over year and accounted for 36% of net sales in the second quarter of 2021, compared to 35% of net sales in the second quarter of 2020. The increase in this product category was due to the growing hybrid work environment.

* Accessories sales increased by 25% year over year and accounted for 11% of net sales in the second quarter of 2021, compared to 12% of net sales in the second quarter of 2020.

* Software sales increased by 24% year over year and accounted for 10% of net sales in the second quarter of 2021 and 2020.

* Desktop sales increased by 34% year over year and accounted for 10% of net sales in the second quarter of 2021, compared to 9% of net sales in the second quarter of 2020.

Selling, general and administrative ("SG&A") expenses increased in the second quarter of 2021 to $92.6 million from $77.4 million in the prior year quarter. SG&A as a percentage of net sales was 13.1%, compared to 14.1% in the prior year quarter. The increase in SG&A was primarily due to an increase in variable compensation due to the higher level of gross profit and increased health care costs.

Cash and cash equivalents were $115.7 million at June 30, 2021, compared to $95.7 million at December 31, 2020.

Conference Call and Webcast

Connection will host a conference call and live web cast today, August 5, 2021 at 4:30 p.m. ET to discuss its second quarter financial results. To access the conference call (audio only), please dial 877-776-4016 (US) or 631-813-4880 (International) and enter the confirmation number 4558005. 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

Adjusted EBITDA is a non-GAAP financial measure. This measure is 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 other similarly titled measures of other companies. A reconciliation to the most directly comparable GAAP measure is 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 425,000 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 access to over 425,000 products and 1,600 vendors through TRAXX(tm), a proprietary cloud-based eProcurement system. The team's engineers, software licensing specialists, and project managers 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.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are based on currently available information, operating plans, and projections about future events and trends. Terms such as "believe," "expect," "intend," "plan," "estimate," "anticipate," "may," "should," "will," or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements include such terms. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties include, but are not limited to, the continuation of the COVID-19 pandemic and responses to it, the impact of changes in market demand and the overall level of economic activity and environment, or in the level of business investment in information technology products, product availability and market acceptance, new products, continuation of key vendor and customer relationships and support programs, the ability to realize market demand for and competitive pricing pressures on the products and services marketed by the Company, fluctuations in operating results and the ability of the Company to manage personnel levels in response to fluctuations in revenue, the ability of the Company to hire and retain qualified sales representatives and other essential personnel, the impact of changes in accounting requirements, continued successful integration of the new ERP system, and other risks detailed in the Company's filings with the Securities and Exchange Commission, including under the caption "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") for the year ended December 31, 2020. The Company assumes no obligation to update the information in this press release or revise any forward-looking statements, whether as a result of any new information, future events, or otherwise, except as required by law.

1 Adjusted EBITDA is a non-GAAP measure. See page 10 for the definition and reconciliation.

CONSOLIDATED SELECTEDFINANCIAL INFORMATIONAt or for the Three Months 2021 2020Ended June 30, %

(Amounts and shares inthousands, except Changeoperating data, P/E ratio,and per share data) Operating Data:Net sales $ 704,161 $ 550,002 28 %

Diluted earnings per share $ 0.66 $ 0.29 128 %

Gross margin 16.5 % 16.2 %

Operating margin 3.4 % 1.9 %

Return on equity ^(1) 9.5 % 11.5 %

Inventory turns 16 12

Days sales outstanding 70 68

% of % ofProduct Mix: Net Sales Net SalesNotebooks/Mobility 36 % 35 %

Accessories 11 12

Software 10 10

Desktops 10 9

Displays 10 9

Servers/Storage 8 10

Net/Com Products 7 8

Other Hardware/Services 8 7

Total Net Sales 100 % 100 %

Stock PerformanceIndicators:Actual shares outstanding 26,187 26,120

Total book value per share $ 25.42 $ 23.40

Tangible book value per $ 22.36 $ 20.29 shareClosing price $ 46.27 $ 46.36

Market capitalization $ 1,211,672 $ 1,210,923

Trailing price/earnings 19.9 18.0 ratioLTM Adjusted EBITDA ^(2) $ 96,661 $ 110,015

Adjusted market 11.3 9.5 capitalization/LTMAdjusted EBITDA ^(3) (1) Calculated as the trailing twelve months' of net income divided by theaverage trailing twelve months' of equity.(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes,depreciation and amortization) adjusted for stock-based compensation andrestructuring and other related charges.(3) Adjusted market capitalization isdefined as gross market capitalizationless cash balance. REVENUE AND MARGININFORMATIONFor the Three Months Ended 2021 2020June 30, Net Gross Net Gross(amounts in thousands) Sales Margin Sales Margin Enterprise Solutions $ 307,161 15.3 % $ 246,759 15.1 %

Business Solutions 267,258 19.2 191,089 19.5

Public Sector Solutions 129,742 13.9 112,154 12.9

Total $ 704,161 16.5 % $ 550,002 16.2 %

CONDENSED CONSOLIDATED STATEMENTS OFINCOME Three Months Ended June Six Months Ended June 30, 30,(amounts in 2021 2020 2021 2020thousands, except pershare data) Net sales $ 704,161 $ 550,002 $ 1,341,053 $ 1,261,852

Cost of sales 587,834 461,002 1,124,206 1,059,734

Gross profit 116,327 89,000 216,847 202,118

Selling, general and 92,563 77,420 178,963 169,887 administrativeexpensesRestructuring and - 992 - 992 other chargesIncome from 23,764 10,588 37,884 31,239 operations Other income, net 14 5 7 96

Income tax provision (6,486 ) (2,950 ) (10,415 ) (8,796 )

Net income $ 17,292 $ 7,643 $ 27,476 $ 22,539

Earnings per commonshare:Basic $ 0.66 $ 0.29 $ 1.05 $ 0.86

Diluted $ 0.66 $ 0.29 $ 1.04 $ 0.86

Shares used in thecomputation of earningsper common share:Basic 26,187 26,107 26,180 26,172

Diluted 26,359 26,279 26,361 26,350

June 30, December 31,

CONDENSED CONSOLIDATED BALANCE SHEETS 2021 2020

(amounts in thousands) ASSETSCurrent Assets:Cash and cash equivalents $ 115,665 $ 95,655

Accounts receivable, net 581,656 611,021

Inventories, net 167,079 140,867

Prepaid expenses and other current assets 13,588 11,437

Total current assets 877,988 858,980

Property and equipment, net 61,002 61,537

Right-of-use assets, net 11,174 12,821

Goodwill 73,602 73,602

Intangibles assets, net 6,478 7,088

Other assets 1,028 1,345

Total Assets $ 1,031,272 $ 1,015,373

LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable $ 258,163 $ 266,846

Accrued payroll 26,119 17,828

Accrued expenses and other liabilities 46,212 57,586

Total current liabilities 330,494 342,260

Deferred income taxes 18,525 18,525

Operating lease liability 8,124 9,631

Other liabilities 8,558 8,630

Total Liabilities 365,701 379,046

Stockholders' Equity:Common stock 289 289

Additional paid-in capital 121,659 119,891

Retained earnings 589,560 562,084

Treasury stock at cost (45,937 ) (45,937 )

Total Stockholders' Equity 665,571 636,327

Total Liabilities and Stockholders' Equity $ 1,031,272 $ 1,015,373

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS Three Months Ended June Six Months Ended June 30, 30,(amounts in thousands) 2021 2020 2021 2020

Cash Flows from Operating Activities:Net income $ 17,292 $ 7,643 $ 27,476 $ 22,539

Adjustments to reconcilenet income to net cashprovided by operatingactivities:Depreciation and 3,053 3,355 6,218 6,502 amortizationAdjustments to credit 1,129 794 1,059 3,627 losses reserveStock-based compensation 1,026 624 2,092 1,248 expenseLoss on disposal of - 13 - 13 fixed assets Changes in assets andliabilities:Accounts receivable (28,089 ) 37,806 26,806 99,283

Inventories (26,545 ) (28,647 ) (26,212 ) (40,966 )

Prepaid expenses and 1,776 1,909 (2,151 ) (1,391 )other current assetsOther non-current assets 673 (82 ) 317 (180 )

Accounts payable 51,728 27,999 (9,134 ) 12,500

Accrued expenses and 3,815 6,441 5,349 (764 )other liabilitiesNet cash provided by 25,858 57,855 31,820 102,411 operating activities Cash Flows fromInvesting Activities:Purchases of equipment (2,208 ) (3,619 ) (4,611 ) (8,214 )and capitalized softwareProceeds from life - - 1,500 - insuranceNet cash used in (2,208 ) (3,619 ) (3,111 ) (8,214 )investing activities Cash Flows fromFinancing Activities:Purchase of treasury - - - (10,222 )sharesDividend payments - - (8,375 ) (8,427 )

Issuance of stock under - 536 - 536 Employee Stock PurchasePlanPayment of payroll taxes on (242 ) (152 ) (324 ) (201 )stock-based compensationthrough shares withheldNet cash (used in) (242 ) 384 (8,699 ) (18,314 )provided by financingactivitiesIncrease in cash and 23,408 54,620 20,010 75,883 cash equivalentsCash and cash 92,257 111,323 95,655 90,060 equivalents, beginningof periodCash and cash $ 115,665 $ 165,943 $ 115,665 $ 165,943 equivalents, end ofperiod Non-cash InvestingActivities:Accrued capital $ 609 $ 327 609 327 expenditures Supplemental Cash FlowInformation:Income taxes paid $ 12,880 $ 713 $ 13,141 $ 1,082



EBITDA AND ADJUSTED EBITDA



A reconciliation of EBITDA and Adjusted EBITDA to the most directly comparableGAAP measure is detailed below. Adjusted EBITDA is defined as EBITDA (earningsbefore interest, taxes, depreciation and amortization) adjusted forrestructuring and other charges, and stock-based compensation. Both EBITDA andAdjusted EBITDA are considered non-GAAP financial measures. Generally, anon-GAAP financial measure is a numerical measure of a company's performance,financial position, or cash flows that either includes or excludes amountsthat are not normally included or excluded in the most directly comparablemeasure calculated and presented in accordance with GAAP. We believe thatEBITDA and Adjusted EBITDA provide helpful information with respect to ouroperating performance including our ability to fund our future capitalexpenditures and working capital requirements. Adjusted EBITDA also provideshelpful information as it is the primary measure used in certain financialcovenants contained in our credit agreements. Non-GAAP measures are not asubstitute for GAAP measures and should be considered together with the GAAPfinancial measures. Our non-GAAP financial measures may not be comparable toother similar titled measures of other companies.

(amounts in Three Months Ended June 30, LTM Ended June 30, ^(1)thousands) 2021 2020 % 2021 2020 % Change Change

Net income $ 17,292 $ 7,643 126% $ 60,702 $ 68,255 (11%)

Depreciation and 3,053 3,355 (9%) 13,320 12,739 5%amortizationIncome tax expense 6,486 2,950 120% 19,050 25,645 (26%)

Interest expense - 27 (100%) 78 106 (26%)

EBITDA 26,831 13,975 92% 93,150 106,745 (13%)

Restructuring and - 992 (100%) - 992 (100%)other charges ^(2)Stock-based 1,026 624 64% 3,511 2,278 54%compensationAdjusted EBITDA $ 27,857 $ 15,591 79% $ 96,661 $ 110,015 (12%)



(1) LTM: Last twelve months(2) Restructuring and other charges in 2020 consist of severance and othercharges related to internal restructuring activities.







ADJUSTED NET INCOME AND ADJUSTED 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 othercharges, net of tax. Adjusted Net Income and Adjusted Earnings Per Share areconsidered non-GAAP financial measures (see note above in Adjusted EBITDA fora description of non-GAAP financial measures). The Company believes that thesenon-GAAP disclosures provide helpful information with respect to the Company'soperating performance.(amounts in Three Months Ended June 30, Six Months Ended June 30,thousands, exceptper share data) 2021 2020 % 2021 2020 % Change Change

Net income $ 17,292 $ 7,643 $ 27,476 $ 22,539

Restructuring and - 715 - 713 other charges, netof tax ^(1)Adjusted Net $ 17,292 $ 8,358 107% $ 27,476 $ 23,252 18%IncomeDiluted shares 26,359 26,279 26,361 26,350

Adjusted Diluted $ 0.66 $ 0.32 106% $ 1.04 $ 0.88 18%Earnings per Share



(1) Restructuring and other charges in 2020 consist of severance and othercharges related to internal restructuring activities.



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CONTACT: Investor Relations Contact: Thomas Baker, 603.683.2505 Senior Vice President, CFO, and Treasurer tom@connection.com