CNXN 8-K

Pc Connection Inc (CNXN)

8-K 2021-08-05 For: 2021-08-05

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Delaware	0-23827	02-0513618
(State or other juris- diction of incorporation	(Commission File Number)	(IRS Employer Identification No.)

730 Milford Road Merrimack, New Hampshire	03054
(Address of principal executive offices)	(Zip Code)

	☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

	☐	Soliciting material pursuant to Rule 14a‑12 under the Exchange Act (17 CFR 240.14a‑12)

	☐	Pre-commencement communications pursuant to Rule 14d‑2(b) under the Exchange Act (17 CFR 240.14d‑2(b))

	☐	Pre-commencement communications pursuant to Rule 13e‑4(c) under the Exchange Act (17 CFR 240.13e‑4(c))


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CNXN	Nasdaq Global Select Market

(d)	Exhibits

	Exhibit No.	Description

	99.1	Press Release issued by PC Connection, Inc. on August 5, 2021.

	104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

CNXN 8-K

Connection (CNXN) Reports Second Quarter 2021 Results

Contacts

Date: August 5, 2021	PC CONNECTION, INC.

	By:	/s/ Thomas C. Baker
		Thomas C. Baker
		Senior Vice President, Chief Financial
		Officer & Treasurer

CONSOLIDATED SELECTED FINANCIAL INFORMATION
At or for the Three Months Ended June 30,	2021					2020
											%
(Amounts and shares in thousands, except operating data, P/E ratio, and per share data)											Change

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					% of
Product Mix:	Net Sales					Net Sales
Notebooks/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 Performance Indicators:
Actual shares outstanding		26,187					26,120
Total book value per share	$	25.42				$	23.40
Tangible book value per share	$	22.36				$	20.29
Closing price	$	46.27				$	46.36
Market capitalization	$	1,211,672				$	1,210,923
Trailing price/earnings ratio		19.9					18.0
LTM Adjusted EBITDA ⁽²⁾	$	96,661				$	110,015
Adjusted market capitalization/LTM Adjusted EBITDA ⁽³⁾		11.3					9.5

(1) Calculated as the trailing twelve months' of net income divided by the average trailing twelve months' of equity.
(2) Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for stock-based compensation and restructuring and other related charges.
(3) Adjusted market capitalization is defined as gross market capitalization less cash balance.


REVENUE AND MARGIN INFORMATION
For the Three Months Ended June 30,	2021					2020
	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 OF INCOME
	Three Months Ended June 30,						Six Months Ended June 30,
(amounts in thousands, except per share data)	2021			2020			2021			2020

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 administrative expenses		92,563			77,420			178,963			169,887
Restructuring and other charges		-			992			-			992
Income from operations		23,764			10,588			37,884			31,239

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 common share:
Basic	$	0.66		$	0.29		$	1.05		$	0.86
Diluted	$	0.66		$	0.29		$	1.04		$	0.86

Shares used in the computation of earnings per 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)

ASSETS
Current 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’ EQUITY
Current 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 CONSOLIDATED STATEMENTS OF CASH FLOWS
	Three Months Ended June 30,						Six Months Ended June 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 reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,053			3,355			6,218			6,502
Adjustments to credit losses reserve		1,129			794			1,059			3,627
Stock-based compensation expense		1,026			624			2,092			1,248
Loss on disposal of fixed assets		-			13			-			13

Changes in assets and liabilities:
Accounts receivable		(28,089	)		37,806			26,806			99,283
Inventories		(26,545	)		(28,647	)		(26,212	)		(40,966	)
Prepaid expenses and other current assets		1,776			1,909			(2,151	)		(1,391	)
Other non-current assets		673			(82	)		317			(180	)
Accounts payable		51,728			27,999			(9,134	)		12,500
Accrued expenses and other liabilities		3,815			6,441			5,349			(764	)
Net cash provided by operating activities		25,858			57,855			31,820			102,411

Cash Flows from Investing Activities:
Purchases of equipment and capitalized software		(2,208	)		(3,619	)		(4,611	)		(8,214	)
Proceeds from life insurance		-			-			1,500			-
Net cash used in investing activities		(2,208	)		(3,619	)		(3,111	)		(8,214	)

Cash Flows from Financing Activities:
Purchase of treasury shares		-			-			-			(10,222	)
Dividend payments		-			-			(8,375	)		(8,427	)
Issuance of stock under Employee Stock Purchase Plan		-			536			-			536
Payment of payroll taxes on stock-based compensation through shares withheld		(242	)		(152	)		(324	)		(201	)
Net cash (used in) provided by financing activities		(242	)		384			(8,699	)		(18,314	)
Increase in cash and cash equivalents		23,408			54,620			20,010			75,883
Cash and cash equivalents, beginning of period		92,257			111,323			95,655			90,060
Cash and cash equivalents, end of period	$	115,665		$	165,943		$	115,665		$	165,943

Non-cash Investing Activities:
Accrued capital expenditures	$	609		$	327			609			327

Supplemental Cash Flow Information:
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 comparable GAAP measure is detailed below. Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for restructuring and other charges, and stock-based compensation. Both EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either includes or excludes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide helpful information with respect to our operating performance including our ability to fund our future capital expenditures and working capital requirements. Adjusted EBITDA also provides helpful information as it is the primary measure used in certain financial covenants contained in our credit agreements. 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 similar titled measures of other companies.

(amounts in thousands)	Three Months Ended June 30,					LTM Ended June 30, ⁽¹⁾
	2021		2020		% Change	2021		2020		% Change
Net income	$	17,292	$	7,643	126%	$	60,702	$	68,255	(11%)
Depreciation and amortization		3,053		3,355	(9%)		13,320		12,739	5%
Income 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 other charges ⁽²⁾		-		992	(100%)		-		992	(100%)
Stock-based compensation		1,026		624	64%		3,511		2,278	54%
Adjusted 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 other charges 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 other charges, net of tax. Adjusted Net Income and Adjusted Earnings Per Share are considered non-GAAP financial measures (see note above in Adjusted EBITDA for a description of non-GAAP financial measures). The Company believes that these non-GAAP disclosures provide helpful information with respect to the Company's operating performance.
(amounts in thousands, except per share data)	Three Months Ended June 30,					Six Months Ended June 30,
	2021		2020		% Change	2021		2020		% Change
Net income	$	17,292	$	7,643		$	27,476	$	22,539
Restructuring and other charges, net of tax ⁽¹⁾		-		715			-		713
Adjusted Net Income	$	17,292	$	8,358	107%	$	27,476	$	23,252	18%
Diluted shares		26,359		26,279			26,361		26,350
Adjusted Diluted Earnings per Share	$	0.66	$	0.32	106%	$	1.04	$	0.88	18%


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