PC Connection, Inc. Reports Third Quarter Results

--Net sales: $403 million, down 9% y/y

--SG&A expense down 12% y/y

--Diluted EPS: $0.11 per share

--Cash balance: $66 million

PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and services, today announced results for the quarter ended September 30, 2009. Net sales for the three months ended September 30, 2009 were $403.1 million, a decrease of $38.4 million or 8.7%, compared to $441.4 million for the three months ended September 30, 2008. Net income for the quarter was $2.9 million, or $0.11 per share, compared to net income of $3.2 million, or $0.12 per share, for the corresponding prior year period.

Net sales for the nine months ended September 30, 2009 were $1,106.5 million, a decrease of $208.0 million or 15.8%, compared to $1,314.6 million for the nine months ended September 30, 2008. Net loss for the nine months ended September 30, 2009 was $5.2 million, or $0.19 per share, compared to net income of $13.1 million, or $0.48 per share, for the nine months ended September 30, 2008. The nine-month periods ended September 30, 2009 and 2008 included special charges that reduced earnings and earnings per share. Had these charges not been incurred, pro forma net income for the nine months ended September 30, 2009 would have been $3.0 million, or $0.11 per share, compared to $14.0 million, or $0.52 per share, for the nine months ended September 30, 2008. A reconciliation between net loss (income) on a GAAP basis and pro forma net income is provided in a table below immediately following the Consolidated Statements of Operations.

Quarterly Sales by Business Segment:

-- Net sales for the small- and medium-sized business (SMB) segment decreased by 16.0% to $182.6 million compared to the third quarter of 2008, reflecting the reduced capital spending of SMB customers. The SMB segment however increased sales on a sequential basis for the second straight quarter.

-- Net sales for MoreDirect, Inc., the Company's Large Account segment, decreased by 11.4% to $103.9 million compared to the third quarter of 2008. Large account customers continue to be cautious in their IT spending.

-- Net sales to government and education customers (Public Sector segment) increased by 9.3% to $116.6 million compared to the third quarter of 2008. Increased federal contract sales and strong K-12 education sales contributed to the year-over-year increase.

Quarterly Sales by Product Mix:

-- Sales of Notebooks and PDAs decreased by 12% year over year and accounted for 15% of net sales in the third quarter of 2009 compared to 16% of net sales in the third quarter of 2008. Higher unit sales were offset by lower average selling prices, or ASPs, as competitive pricing pressures as well as the growth of netbook sales impacted ASPs.

-- Software sales decreased by 1% year over year in dollars and accounted for 14% of net sales in the third quarter of 2009 compared to 13% of net sales in the third quarter of 2008. Strong federal government sales offset slight declines to corporate customers.

-- Accessories/Other sales decreased by 3% year over year, accounting for 13% of net sales in the third quarter of 2009 compared to 12% of net sales in the corresponding prior year period. Increased sales of point-of-sale products and mobile computing accessories partially offset the year-over-year decline of other products in this category.

-- Desktop/Servers sales decreased by 4% year over year and accounted for 14% of net sales in the third quarter of 2009 compared to 13% of net sales in the third quarter of 2008. Lower unit volumes, partially offset by higher server ASPs, accounted for this decrease year over year.

Gross profit dollars decreased by $7.0 million, or 13.1%, in the third quarter of 2009 from the corresponding period a year ago due to decreased revenues and lower gross profit margins. Gross profit margin, as a percentage of net sales, declined year over year by 58 basis points to 11.5% in the third quarter of 2009. Continued aggressive price competition led to lower invoice product margins in the third quarter of 2009 compared to the prior year quarter.

Overall annualized sales productivity increased by 1% in the third quarter of 2009 compared to the third quarter of 2008 as an increase in SMB productivity offset decreased productivity in the Large Account and Public Sector segments. Sales productivity in the Large Account segment decreased by 6% year over year due to lower enterprise revenues. Sales productivity in the Public Sector segment decreased by 9% year over year due to increased 2009 headcount added late in 2008. Despite lower revenues, sales productivity in the SMB segment increased by 3% year over year. On a consolidated basis, the total number of sales representatives was 601 at September 30, 2009, compared to 666 at September 30, 2008 and 603 at June 30, 2009. The Company has reduced both sales representatives and sales support headcount over the last year consistent with the year-over-year declines in revenues.

Total selling, general and administrative expenses for the quarter decreased year over year by $5.6 million, or 12.0%, and decreased as a percentage of net sales to 10.2% for the third quarter of 2009 from 10.6% for the third quarter of 2008. The year-over-year decreases were primarily attributable to reduced headcount and lower variable compensation associated with decreased gross profits.

"During the third quarter, we continued to experience the effects of conservative buying patterns, longer sales cycles, and competitive pricing pressures," said Patricia Gallup, Chairman and Chief Executive Officer. "While the near-term economic outlook remains uncertain, we feel confident our customers will continue to rely on us to provide the IT solutions they need to run their businesses more efficiently. We believe our core business strategies position the Company well for future success and for creating long-term shareholder value."

About PC Connection, Inc.

PC Connection, Inc., a Fortune 1000 company, has three sales subsidiaries: PC Connection Sales Corporation, MoreDirect, Inc., and GovConnection, Inc., headquartered in Merrimack, NH, Boca Raton, FL, and Rockville, MD, respectively. All three companies can deliver custom-configured computer systems overnight. Investors and media can find more information about PC Connection, Inc. at http://ir.pcconnection.com.

PC Connection Sales Corporation (1-800-800-5555), the original business of PC Connection, Inc. serving the small- and medium-sized business sector (SMB), is a rapid-response provider of IT products and services. It offers more than 150,000 brand-name products through its staff of technically trained sales account managers and catalog telesales representatives, catalogs, and publications, and its website at www.pcconnection.com. The subsidiary serves the Apple/Macintosh community through its MacConnection division (1-800-800-2222), which also publishes specialized catalogs and is online at www.macconnection.com.

MoreDirect, Inc. (1-561-237-3300), www.moredirect.com, provides corporate technology buyers with a comprehensive web-based e-procurement solution and in-depth IT supply-chain expertise, serving as a one-stop source by aggregating more than 300,000 products from the inventories of leading IT wholesale distributors and manufacturers. MoreDirect's TRAXX(TM) system is a seamless end-to-end interface that empowers clients to electronically source, evaluate, compare prices, and track related technology product purchases in real-time.

GovConnection, Inc. (1-800-800-0019) is a provider of IT products and services to federal, state, and local government agencies and educational institutions through specialized account managers, catalogs, and publications, and online at www.govconnection.com.

pccc-g

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, 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, competitive products and pricing, product availability and market acceptance, new products, fluctuations in operating results, the ability of the Company to manage personnel levels in response to fluctuations in revenue, and other risks that could cause actual results to differ materially from these detailed under the caption "Risk Factors" in the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 2009. More specifically, the statements in this release concerning the Company's outlook for 2009 and other statements of a non-historical basis (including statements regarding the Company's ability to grow revenues, increase market share, and make further cost reductions as needed) are forward-looking statements that involve certain risks and uncertainties. Such risks and uncertainties include the ability to realize market demand for and competitive pricing pressures on the products and services marketed by the Company, the continued acceptance of the Company's distribution channel by vendors and customers, continuation of key vendor and customer relationships and support programs, and the ability of the Company to hire and retain qualified sales representatives and other essential personnel. 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.

CONSOLIDATED SELECTED FINANCIAL RESULTS
At or for the Three Months Ended September 30,            2009                          2008
(Dollars and shares in thousands, except operating data,                     % of                          % of       %
price/earnings ratio, and per share data)
                                                                             Net Sales                     Net Sales  Change
Operating Data:
Net sales                                                 $   403,052                   $   441,444                   (9  )%
Diluted earnings per share                                $   0.11                      $   0.12
Gross profit margin                                           11.5      %                   12.1      %
Operating margin                                              1.3                           1.1
Return on equity (1)                                          5.1                           5.5
Catalogs distributed                                          2,555,000                     2,965,000                 (14 )%
Orders entered (2)                                            332,900                       343,000                   (3  )%
Average order size (2)                                    $   1,603                     $   1,561                     3   %
Inventory turns (1)                                           24                            22
Days sales outstanding                                        45                            43
Product Mix:
Notebooks & PDAs                                          $   61,679         15   %     $   70,215         16   %     (12 )%
Desktops/Servers                                              56,714         14             59,169         13         (4  )
Software                                                      55,582         14             56,039         13         (1  )
Video, Imaging & Sound                                        53,672         13             65,776         15         (18 )
Net/Com Products                                              42,930         11             46,140         11         (7  )
Printers & Printer Supplies                                   35,188         9              41,557         9          (15 )
Storage Devices                                               31,762         8              35,565         8          (11 )
Memory & System Enhancements                                  13,760         3              13,716         3          -
Accessories/Other                                             51,765         13             53,267         12         (3  )
Total                                                     $   403,052        100  %     $   441,444        100  %     (9  )%
Net Sales of Enterprise Server and Networking Products (included
in the above Product Mix):
                                                          $   149,035        37   %     $   149,615        34   %     -
Stock Performance Indicators:
Actual shares outstanding                                     26,848                        26,838
Total book value per share                                $   8.60                      $   8.85
Tangible book value per share                             $   6.76                      $   6.64
Closing price                                             $   5.44                      $   6.69
Market capitalization                                     $   146,053                   $   179,546
Trailing price/earnings ratio (3)                             (19       )                   9
(1) Annualized
(2) Does not reflect cancellations or returns
(3) Earnings is based on the last four quarters

SELECTED SEGMENT INFORMATION
For the Three Months Ended September 30,   2009                    2008
                                           Net         Gross       Net         Gross
(amounts in thousands)                     Sales       Margin (%)  Sales       Margin (%)
PC Connection Sales Corporation (SMB)      $  182,564  13.6  %     $  217,463  14.2  %
GovConnection (Public Sector)                 116,567  9.0            106,681  8.9
MoreDirect (Large Account)                    103,921  10.6           117,300  11.1
Total                                      $  403,052  11.5  %     $  441,444  12.1  %

CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,                2009                               2008
(amounts in thousands, except per share data)   Amount           % of Net Sales    Amount           % of Net Sales
Net sales                                       $  403,052       100.0   %         $  441,444       100.0   %
Cost of sales                                      356,708       88.5                 388,121       87.9
Gross profit                                       46,344        11.5                 53,323        12.1
Selling, general and administrative expenses       41,263        10.2                 46,872        10.6
Special charges                                    -             -                    1,431         0.4
Income from operations                             5,081         1.3                  5,020         1.1
Interest expense                                   (99       )   -                    (187      )   (0.1    )
Other, net                                         93            -                    246           0.1
Income tax provision                               (2,186    )   0.6                  (1,865    )   (0.4    )
Net income                                      $  2,889         0.7     %         $  3,214         0.7     %
Earnings per common share:
Basic                                           $  0.11                            $  0.12
Diluted                                         $  0.11                            $  0.12
Weighted average common shares outstanding:
Basic                                              27,078                             27,067
Diluted                                            27,095                             27,102
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30,                 2009                               2008
(amounts in thousands, except per share data)   Amount           % of Net Sales    Amount           % of Net Sales
Net sales                                       $  1,106,535     100.0   %         $  1,314,567     100.0   %
Cost of sales                                      974,238       88.0                 1,151,660     87.6
Gross profit                                       132,297       12.0                 162,907       12.4
Selling, general and administrative expenses       126,670       11.5                 140,438       10.7
Special charges                                    12,955        1.2                  1,431         0.1
(Loss) income from operations                      (7,328    )   (0.7    )            21,038        1.6
Interest expense                                   (385      )   -                    (548      )   -
Other, net                                         452           -                    610           -
Income tax benefit (provision)                     2,072         0.2                  (8,025    )   (0.6    )
Net (loss) income                                  ($5,189   )   (0.5    )%        $  13,075        1.0     %
(Loss) earnings per common share:
Basic                                           $  (0.19     )                     $  0.48
Diluted                                         $  (0.19     )                     $  0.48
Weighted average common shares outstanding:
Basic                                              27,017                             26,972
Diluted                                            27,017                             27,058

A RECONCILIATION BETWEEN GAAP AND PRO FORMA RESULTS
This information is being provided so as to allow for a
comparison of our operating results without special charges.
September 30,                                      Three Months Ended      Nine Months Ended
(amounts in thousands)                             2009        2008        2009               2008
GAAP net income (loss)                             $    2,889  $    3,214       ($5,189 )     $    13,075
Special charges (after tax):
Software development write-off and related charges      -           -           7,378              -
Management restructuring                                -           906         771                906
Total special charges (after tax)                       -           906         8,149              906
Pro forma net income                               $    2,889  $    4,120  $    2,960         $    13,981

CONSOLIDATED BALANCE SHEETS                                      September 30,        December 31,
(amounts in thousands)                                           2009                 2008
ASSETS
Current Assets:
Cash and cash equivalents                                        $    65,680          $    47,003
Accounts receivable, net                                              180,878              185,885
Inventories                                                           59,979               60,813
Deferred income taxes                                                 3,574                4,244
Income taxes receivable                                               3,227                1,448
Prepaid expenses and other current assets                             2,958                3,626
Total current assets                                                  316,296              303,019
Property and equipment, net                                           13,303               24,483
Goodwill                                                              48,060               48,060
Other intangibles, net                                                1,417                2,220
Other assets                                                          480                  385
Total Assets                                                     $    379,556         $    378,167
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligation to affiliate      $    759             $    699
Accounts payable                                                      108,894              101,783
Accrued expenses and other liabilities                                20,194               19,993
Accrued payroll                                                       7,968                6,337
Total current liabilities                                             137,815              128,812
Capital lease obligation to affiliate, less current maturities        3,033                3,610
Deferred income taxes                                                 3,821                6,183
Other liabilities                                                     4,062                4,238
Total Liabilities                                                     148,731              142,843
Stockholders' Equity:
Common stock                                                          273                  273
Additional paid-in capital                                            96,612               95,997
Retained earnings                                                     137,147              142,336
Treasury stock at cost                                                (3,207  )            (3,282  )
Total Stockholders' Equity                                            230,825              235,324
Total Liabilities and Stockholders' Equity                       $    379,556         $    378,167

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months ended September 30, 2009 (amounts in thousands)
                                                              Common Stock     Additional      Retained       Treasury Shares
                                                              Shares  Amount   Paid-In Capital Earnings       Shares    Amount        Total
Balance - January 1, 2009                                     27,326  $   273  $     95,997    $  142,336     (492 )    $  (3,282 )   $  235,324
Stock-based compensation expense                              -           -          952          -           -            -             952
Issuance of common stock under Employee Stock Purchase Plan   28          -          138          -           -            -             138
Nonvested stock awards                                        -           -          (372   )     -           58           372           -
Tax shortfall from stock-based compensation                   -           -          (103   )     -           -            -             (103    )
Repurchase of common stock for treasury                       -           -          -            -           (72  )       (297   )      (297    )
Net loss                                                      -           -          -            (5,189  )   -            -             (5,189  )
Balance - September 30, 2009                                  27,354  $   273  $     96,612    $  137,147     (506 )    $  (3,207 )   $  230,825

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, (amounts in thousands)                2009             2008
Cash Flows from Operating Activities:
Net (loss) income                                                     $   (5,189  )    $   13,075
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Non-cash portion of special charges                                       11,625           -
Depreciation and amortization                                             5,221            5,234
Provision for doubtful accounts                                           1,771            1,396
Deferred income taxes                                                     (1,692  )        1,318
Stock-based compensation expense                                          952              1,096
Tax (shortfall) benefit from stock-based compensation                     (103    )        16
Loss (gain) on disposal of fixed assets                                   15               (13     )
Excess tax benefit from exercise of stock options                         -                (3      )
Changes in assets and liabilities:
Accounts receivable                                                       3,236            17,937
Inventories                                                               834              394
Prepaid expenses and other current assets                                 (1,111  )        (599    )
Other non-current assets                                                  (95     )        15
Accounts payable                                                          7,243            4,225
Accrued expenses and other liabilities                                    1,656            (1,149  )
Net cash provided by operating activities                                 24,363           42,942
Cash Flows from Investing Activities:
Purchases of property and equipment                                       (5,012  )        (8,708  )
Proceeds from sale of property and equipment                              2                44
Net cash used for investing activities                                    (5,010  )        (8,664  )
Cash Flows from Financing Activities:
Proceeds from short-term borrowings                                       22,055           37,343
Repayment of short-term borrowings                                        (22,055 )        (37,343 )
Repayment of capital lease obligation                                     (517    )        (383    )
Purchase of treasury shares                                               (297    )        (1,200  )
Issuance of stock under Employee Stock Purchase Plan                      138              129
Exercise of stock options                                                 -                204
Net share settlement obligation                                           -                55
Excess tax benefit from exercise of stock options                         -                3
Net cash used for financing activities                                    (676    )        (1,192  )
Increase in cash and cash equivalents                                     18,677           33,086
Cash and cash equivalents, beginning of period                            47,003           13,741
Cash and cash equivalents, end of period                              $   65,680       $   46,827

SOURCE: PC Connection, Inc.

PC Connection, Inc. 
Stephen Baldridge, Sr., 603-683-2322 
Senior Vice President of Finance & Corporate Controller

Related terms: accounting, book, business, capitalization, community, computer, contract, corporate, earnings, education, environment, eps, equity, exercise, federal, financial results, florida, gaap, government, information technology, investment, local, market, market share, media, mobile computing, nasdaq, networking, new hampshire, online, prices, printer, productivity, products, property, restructuring, revenue, sales, securities, software, stock option, tax, taxes, technology, track, treasury, video, web, wholesale