Net Sales of $564.1 million in Q4 and
$2,164.0 Million for Full YearGross Profit Increased 6% in
Q4 to $84.8 Million and 6% for Full Year to $343.9
MillionGross Profit Margin Increased 40 Basis Points to
15.0% in Q4 and 90 Basis Points to 15.9% for Full
YearDiluted EPS Increased $0.75 to $0.48 and Increased $1.63
for Full Year to $1.83Non-GAAP Adjusted EPS Increased $0.54
in Q4 to $0.57 and Increased $1.44 for Full Year to
$2.36Generated Cash Flow from Operations of $46 Million for
Q4 and $134 Million for Full Year
PCM, Inc. (NASDAQ: PCMI), a leading technology solutions
provider, today reported financial results for the fourth quarter
and year ended December 31, 2018.
Consolidated
Financial Summary
Three Months Ended December
31, Year Ended December 31, (in
millions, except per share data) 2018 2017 %
Change 2018 2017 % Change Net Sales $
564.1 $ 544.8 4
%
$ 2,164.0 $ 2,166.9 (0 )% Gross Profit 84.8 79.6 6 343.9 324.7 6
Gross Profit Margin 15.0 % 14.6 % 40 bp 15.9 % 15.0 % 90 bp
SG&A Expenses $ 74.0 $ 80.6 (8 ) $ 303.2 $ 314.1 (3 ) Operating
Profit (Loss) 10.8 (1.0 ) NM (1 ) 40.7 10.6 283 Net Income (Loss)
6.1 (3.2 ) NM (1 ) 22.8 2.6 778 Non-GAAP Net Income 7.2 0.3 2,190
29.3 12.1 142 EBITDA 14.4 2.8 411 55.0 25.3 117 Adjusted
EBITDA 15.1 5.5 174 60.8 37.7 61 Diluted Earnings (Loss) Per
Share 0.48 (0.27 ) NM (1 ) 1.83 0.20 815 Adjusted Diluted Earnings
Per Share 0.57 0.03 1,800 2.36 0.92 157 (1) Not
meaningful.
Frank Khulusi, Chairman and CEO of PCM, Inc., stated, “We
finished the year with another fantastic quarter of profitable
growth while continuing to improve our balance sheet and deliver
shareholder value. These results confirm the effectiveness of our
strategy to leverage our investments, further optimize our sales
mix, while managing our costs. I am very pleased with how our team
executed in the fourth quarter and throughout 2018, further moving
us up the value chain with our customers. Much like we saw in the
first three quarters of the year, we drove solid results in the
fourth quarter in our areas of strategic focus, such as managed
services, advanced technologies and cloud and security solutions,
and again walked away from some non-strategic low-margin volume
business we identified as unprofitable.”
Khulusi continued, “Listing some fourth quarter highlights, our
sales grew 4%, and our gross profit, which continued to grow faster
than sales, increased 6% year over year. Our gross margin was a
solid 15.0%, an increase of 40 basis points over last year, and a
fourth quarter record. Coupled with cost discipline, this resulted
in strong operating leverage, and we achieved a record $0.57 per
share in adjusted EPS for the quarter. For the year, our gross
profit grew 6% to a record $343.9 million and we grew our gross
margin by 90 basis points to an annual record of 15.9%. Our strong
operating leverage profile resulted in us driving significant
improvement in our adjusted EPS, which grew 157% to a record $2.36
per share, exceeding the high end of our guidance. Along with our
increased profitability, we continued to drive strong operating
cash flow by delivering an additional $45.8 million in cash from
operations in the fourth quarter. This brought our total cash
provided by operations for the year to $133.7 million, which helped
reduce our net debt by $125.8 million since the end of 2017.”
Commenting on PCM’s ERP migration, Khulusi stated, “I am also
pleased that during 2018 we made significant progress on our
journey to upgrade and consolidate our ERP systems. During the
fourth quarter, we significantly accelerated our migration to our
new SAP environment, and we exited the year with 32% of
consolidated billings occurring in the new environment. We have
been and intend to continue executing this migration in a very
careful manner in order to minimize any negative customer impact.
This year, we expect to have the vast majority of our business
operating on the new platform. Once completed, we will begin to
focus on optimizing the new environment, which over the next few
years, should allow us to become more efficient and nimble,
increase productivity and drive greater operating leverage.”
Commenting on PCM’s outlook for 2019, Khulusi concluded, “On the
back of a stellar 2018 and reflecting a strong outlook for 2019, we
are targeting gross profit growth in the mid single digits over
2018 on low single digit sales growth. We are also targeting
adjusted EPS in the range of $2.55 to $2.75. These results reflect
a continuation of year over year reductions during the first half
of the year of non-strategic lower margin volume business we have
identified as unprofitable while we continue to execute in our
areas of strategic focus. As a result, we expect year over year
growth in sales and gross profit to accelerate throughout the
course of the year, with Q1 being our seasonally lowest quarter in
sales and profitability. We strongly feel that the future for PCM
is very bright, and we’re better positioned than ever. I am
extremely grateful to our PCM team who through their hard work,
dedication and unwavering commitment to our vision are making our
success possible.”
New Accounting Standard
In May 2014, the FASB issued ASU 2014-09, “Revenue from
Contracts with Customers (Topic 606),” which, along with amendments
issued in 2015 and 2016, replaced most existing revenue recognition
guidance under GAAP and eliminate industry specific guidance. The
core principle of the new guidance is that an entity should
recognize revenue for the transfer of goods and services equal to
an amount it expects to be entitled to receive for those goods and
services. We adopted the guidance on January 1, 2018 using the full
retrospective method, which resulted in adjustments to our
consolidated statement of operations for the three and twelve
months ended December 31, 2017, and our consolidated statement of
cash flows for the twelve months ended December 31, 2017 presented
herein.
Results of
Operations
Fourth Quarter
Segment Results Summary
Net Sales
Three Months Ended December 31,
2018 2017 Net Sales
Percentage ofTotal Net Sales Net Sales
Percentage ofTotal Net Sales Dollar Change
PercentChange Commercial $ 440,186 78 % $ 442,357 81
% $ (2,171 ) (0 )% Public Sector 59,893 11 52,507 10 7,386 14
Canada 50,449 9 40,883 8 9,566 23 United Kingdom 13,742 2 9,136 2
4,606 50 Corporate & Other (152 ) — (113 ) — (39 ) 35
Consolidated $ 564,118 100 % $ 544,770 100 %(1) $ 19,348 4
(1) Does not foot due to rounding.
Consolidated net sales were $564.1 million in the three months
ended December 31, 2018 compared to $544.8 million in the three
months ended December 31, 2017, an increase of $19.3 million or 4%.
Consolidated sales of services were $45.5 million in the three
months ended December 31, 2018 compared to $43.0 million in the
three months ended December 31, 2017, an increase of $2.5 million,
or 6%, and represented 8% of consolidated net sales in each of the
three months ended December 31, 2018 and 2017.
Commercial net sales were $440.2 million in the three months
ended December 31, 2018 compared to $442.4 million in the three
months ended December 31, 2017, a decrease of $2.2 million. Sales
of services in our Commercial segment were $32.1 million in the
three months ended December 31, 2018 compared to $31.9 million in
the three months ended December 31, 2017, an increase of $0.2
million or 1%, and represented 7% of Commercial net sales in each
of the three months ended December 31, 2018 and 2017. The decrease
in our Commercial segment net sales in the three months ended
December 31, 2018 was primarily due to a $4.3 million increase in
sales reported on a net basis, and several specific non-strategic
customer deals we elected not to pursue based on our focus on
profitable growth, partially offset by increases in more profitable
sales transactions. In addition, we believe we were negatively
impacted by integrated circuit supply shortages from a major chip
manufacturer due to their high demand, which shortages continued
from the third quarter of 2018 and affected finished goods supply
of certain notebooks and desktops in the fourth quarter of
2018.
Public Sector net sales were $59.9 million in the three months
ended December 31, 2018 compared to $52.5 million in the three
months ended December 31, 2017, an increase of $7.4 million or 14%,
primarily due to a 16% increase in our federal sales and a 11%
increase in our state and local government and educational
institution (“SLED”) business. Sales of services in our Public
Sector segment were $4.6 million in the three months ended December
31, 2018 compared to $3.3 million in the three months ended
December 31, 2017, an increase of $1.3 million or 41%, and
represented 8% and 6% of Public Sector net sales in the three
months ended December 31, 2018 and 2017, respectively.
Canada net sales were $50.4 million in the three months ended
December 31, 2018 compared to $40.9 million in the three months
ended December 31, 2017, an increase of $9.6 million, or 23%. Sales
of services in our Canada segment were $7.8 million in the three
months ended December 31, 2018, compared to $7.4 million in the
three months ended December 31, 2017, an increase of $0.4 million
or 5%, and represented 15% and 18% of Canada net sales in the three
months ended December 31, 2018 and 2017, respectively.
Our United Kingdom segment, which officially launched in the
second quarter of 2017, generated net sales of $13.7 million in the
three months ended December 31, 2018 compared to $9.1 million in
the three months ended December 31, 2017, an increase of $4.6
million, or 50%. Sales of services in our United Kingdom segment
were $1.0 million in the three months ended December 31, 2018,
compared to $0.5 million in the three months ended December 31,
2017, an increase of $0.5 million or 100%, and represented 7% and
5% of United Kingdom net sales in the three months ended December
31, 2018 and 2017, respectively.
Gross Profit and Gross Profit Margin
Consolidated gross profit was $84.8 million in the three months
ended December 31, 2018 compared to $79.6 million in the three
months ended December 31, 2017, an increase of $5.2 million, or 6%.
Consolidated gross profit margin increased to 15.0% in the three
months ended December 31, 2018 from 14.6% in the same period last
year. The increase in consolidated gross profit was primarily due
to a shift in mix toward higher margin solutions and service sales,
partially offset by a decrease in vendor consideration. The
increase in gross profit margin was primarily due to the increased
gross profit margin associated with the shift in mix towards higher
margin solutions and services, and the increase in sales recorded
on a net basis, partially offset by a decrease in vendor
consideration as a percentage of net sales.
Selling, General & Administrative Expenses
Consolidated SG&A expenses were $74.0 million in the three
months ended December 31, 2018 compared to $80.6 million in the
three months ended December 31, 2017, a decrease of $6.6 million or
8%. Consolidated SG&A expenses as a percentage of net sales
decreased to 13.1% in the three months ended December 31, 2018 from
14.8% in the same period last year. The decrease in consolidated
SG&A expenses was primarily due to a decrease in personnel
costs of $2.2 million, a decrease in restructuring charges of $0.9
million, a decrease in credit card related costs of $0.8 million, a
decrease in telecommunication expense of $0.7 million, a decrease
in outside service costs of $0.6 million and an adjustment to
reduce $1.1 million of contingent consideration relating to the
Provista Technology acquisition.
Operating Profit (Loss)
Consolidated operating profit increased by $11.8 million to
$10.8 million in the three months ended December 31, 2018 compared
to operating loss $1.0 million in the same period prior year due to
the increase in gross profit and reduction in SG&A expenses as
discussed above.
Income Taxes
Income tax expense was $2.6 million in the three months ended
December 31, 2018 compared to income tax benefit of $18,000 in the
three months ended December 31, 2017. Our effective tax rate was
29.9% compared to 0.6% in the same period prior year. Income taxes
in the three months ended December 31, 2018 benefited from the
decrease in enacted US federal income tax rates from 35% to 21%.
Income taxes in the three months ended December 31, 2017 reflected
a one-time reduction in income expense of $0.4 million associated
with the adoption of ASU 2014-09, as well as certain adjustments
related to the Tax Cuts and Jobs Act of 2017 including a $1.9
million one-time benefit of revaluing our deferred tax liabilities
at a new lower US federal tax rate, partially offset by a $0.7
million one-time expense related to the foreign income transition
tax.
Net Income (Loss)
Net income for the three months ended December 31, 2018 was $6.1
million compared to a net loss of $3.2 million for the three months
ended December 31, 2017. Diluted earnings per share was $0.48
compared to a loss per share of $0.27 in the same period of the
prior year.
Adjusted EPS
Non-GAAP EPS (adjusted EPS) was $0.57 for the three months ended
December 31, 2018 compared to $0.03 for the three months ended
December 31, 2017.
Full Year Segment
Results Summary
Net Sales
Year Ended December 31,
2018 2017 Net Sales
Percentage ofTotal Net Sales Net Sales
Percentage ofTotal Net Sales Dollar Change
PercentChange Commercial $ 1,647,431 76 % $ 1,709,249
79 % $ (61,818 ) (4 )% Public Sector 258,945 12 274,650 13 (15,705
) (6 ) Canada 195,846 9 171,208 8 24,638 14 United Kingdom 62,359 3
12,235 1 50,124 410 Corporate & Other (621 ) — (455 ) — (166 )
36 Consolidated $ 2,163,960 100 % $ 2,166,887 100 %(1) $ (2,927 )
(0 ) (1) Does not foot due to rounding.
Consolidated net sales were $2,164.0 million in 2018 compared to
$2,166.9 million in 2017, a decrease of $2.9 million. Consolidated
sales of services were $178.2 million in 2018 compared to $160.8
million in 2017, an increase of $17.4 million, or 11%, and
represented 8% and 7% of consolidated net sales in 2018 and 2017,
respectively.
Commercial net sales were $1,647.4 million in 2018 compared to
$1,709.2 million in 2017, a decrease of $61.8 million or 4%. Sales
of services in our Commercial segment were $125.0 million in 2018
compared to $116.3 million in 2017, an increase of $8.7 million, or
7%, and represented 8% and 7% of Commercial net sales in 2018 and
2017, respectively. The decrease in our Commercial segment net
sales in 2018 was primarily due to a $35.2 million increase in
sales reported on a net basis, the impact of a couple of large,
lower-margin enterprise customer projects in the prior year that
did not reoccur, and several specific, non-strategic customer deals
we elected not to pursue based on our focus on profitable growth.
In addition, we believe we were negatively impacted by integrated
circuit supply shortages from a major chip manufacturer due to
their high demand, which shortages affected finished goods supply
of certain notebooks and desktops in the second half of 2018.
Public Sector net sales were $258.9 million in 2018 compared to
$274.7 million in 2017, a decrease of $15.7 million, or 6%. Sales
of services in our Public Sector segment were $17.8 million in 2018
compared to $13.9 million in 2017, an increase of $3.9 million, or
28%, and represented 7% and 5% of Public Sector net sales in 2018
and 2017, respectively. The decrease in our Public Sector net sales
in 2018 was primarily due to a 20% decrease in our federal sales
which were negatively impacted by the loss of a single Federal
contract, which we were unwilling to rebid at a loss, and a large
rollout to a different Federal agency that did not reoccur.
Canada net sales were $195.8 million in 2018 compared to $171.2
million in 2017, an increase of $24.6 million, or 14%. Sales of
services in our Canadian segment were $30.6 million in 2018
compared to $30.1 million in 2017, an increase of $0.5 million, or
2%, and represented 16% and 18% of Canada net sales in 2018 and
2017, respectively.
United Kingdom net sales were $62.4 million in 2018 compared to
$12.2 million in 2017, an increase of $50.2 million, or 410%. Sales
of services in our United Kingdom segment were $4.8 million in 2018
compared to $0.5 million in 2017, an increase of $4.3 million, or
837%, and represented 8% and 4% of United Kingdom net sales in 2018
and 2017, respectively.
Gross Profit and Gross Profit Margin
Consolidated gross profit was $343.9 million in 2018 compared to
$324.7 million in 2017, an increase of $19.2 million, or 6%.
Consolidated gross profit margin increased to 15.9% in 2018 from
15.0% in the same period last year. The increase in consolidated
gross profit was primarily due to a shift in mix toward higher
margin solutions and service sales, partially offset by a decrease
in vendor consideration. The increase in gross profit margin was
primarily due to the increase in sales recorded on a net basis and
the increased gross profit margin associated with the shift in mix
towards higher margin solutions and services, partially offset by a
decrease in vendor consideration as a percentage of net sales.
Selling, General & Administrative Expenses
Consolidated SG&A expenses were $303.2 million in 2018
compared to $314.1 million in 2017, a decrease of $10.9 million or
3%. Consolidated SG&A expenses as a percentage of net sales
decreased to 14.0% in 2018 from 14.5% in the same period last year.
The decrease in consolidated SG&A expenses was primarily due to
a decrease in outside services of $4.9 million, primarily related
to the termination of the service contract with our prior BPO
service provider in Pakistan and a decrease in third party
logistics costs, a decrease in restructuring related costs of $3.3
million, a decrease in credit card related costs of $2.2 million, a
decrease in telecommunication costs of $1.8 million, a decrease in
net advertising costs of $1.3 million and an adjustment to reduce
$1.1 million of contingent consideration relating to the Provista
Technology acquisition, slightly offset by an increase in personnel
costs of $1.2 million.
Operating Profit
Consolidated operating profit increased by $30.1 million to
$40.7 million in 2018 compared to $10.6 million in 2017, primarily
due to the increase in gross profit and reduction in SG&A
expenses as discussed above.
Income Taxes
Income tax expense was $9.3 million in 2018 compared to $0.7
million in 2017. Our effective tax rate was 28.9% compared to 20.4%
in 2017. Income taxes in 2018 benefited from the decrease in
enacted US federal income tax rates from 35% to 21%.Income taxes in
2017 benefited from a one-time reduction in income tax expense of
$0.4 million associated with the adoption of ASU 2014-09, as well
as certain adjustments related to the Tax Cuts and Jobs Act of 2017
including a $1.9 million one-time benefit of revaluing our deferred
tax liabilities at a new lower federal tax rate, partially offset
by a $0.7 million one-time expense related to the foreign income
transition tax.
Net Income
Net income for 2018 was $22.8 million compared to $2.6 million
in 2017. Diluted earnings per share was $1.83 in 2018 compared
$0.20 in 2017.
Adjusted EPS
Non-GAAP EPS (adjusted EPS) was $2.36 in 2018 compared to $0.92
in 2017.
Consolidated Balance Sheet and Cash
Flow
We had cash and cash equivalents of $6.0 million at December 31,
2018 compared to $9.1 million at December 31, 2017. We had $133.7
million of net cash provided by operating activities in the year
ended December 31, 2018 compared to $64.8 million of net cash used
in operating activities in the year ended December 31, 2017.
Accounts receivable at December 31, 2018 was $463.5 million, an
increase of $23.8 million from December 31, 2017. Inventory at
December 31, 2018 was $61.6 million, a decrease of $41.9 million
from December 31, 2017, primarily related to the sell through
of certain purchases made in the fourth quarter of 2017. Accounts
payable at December 31, 2018 was $357.2 million, an increase of
$68.0 million from December 31, 2017.
Cash used in investing activities in the year ended December 31,
2018 totaled $5.8 million compared to $22.1 million in the year
ended December 31, 2017. Investing activities in the year ended
December 31, 2018 were primarily related to expenditures relating
to investments in our IT infrastructure. Investing activities in
the year ended December 31, 2017 were primarily related to $17.3
million of capital expenditures, including a purchase of real
property in Woodridge, Illinois for $3.1 million, expenditures
relating to investments in our IT infrastructure and leasehold
improvements and the acquisitions of Provista Technology and Stack
Technology in the UK for $3.1 million and $1.7 million,
respectively.
Within cash flows from financing activities, we paid earnout
payments totaling $2.2 million in the year ended December 31, 2018,
compared to $13.4 million in the year ended December 31, 2017.
Our outstanding borrowings under our line of credit was $88.4
million at December 31, 2018, a $125.4 million decrease compared to
$213.8 million at December 31, 2017 as a result of the cash
flow generated from our earnings combined with our focus on working
capital management during 2018.
Sales Mix Summary
The following table sets forth our gross billed sales (net of
returns) by major categories as a percentage of total gross billed
sales (net of returns) for the periods presented, determined based
upon our internal product code classifications:
Three Months Ended December 31,
Year Ended December 31, 2018
2017 Y/YSales Growth
2018
2017 Y/YSales Growth Software
(1) 29 % 25 % 19 % 29 % 28 % 5 % Notebooks and
tablets 18 22 (15 ) 17 20 (12 ) Networking 9 6 48 8 6 26 Services 8
8 6 8 7 11 Desktops 7 8
(5
)
8 7 3 Display 5 4 16 5 4 10 Manufacturer service and warranties (1)
5
5
12
6 6 4 Accessories 4 4 (4 ) 3 4 (6 ) Storage 3 4 (22 ) 3 3 (5 )
Input Devices 2 2 5 2 2 0 Printers 2 2 (1 ) 2 2 (14 ) Servers 2 3
(41 ) 3 3 (5 ) Other (2) 6 7 (17 ) 6 8 (7 ) Total 100 % 100 % 100 %
100 %
________________________________________________________________________________________
(1) Software, including software licenses, maintenance and
enterprise agreements, and manufacturer service and warranties are
shown, for purposes of this table, on a gross sales billed to
customers basis, net of returns and do not reflect the net down
impact related to revenue recognition for sales of such products.
(2) Other includes power, supplies, consumer electronics, memory,
iPod/MP3 and miscellaneous other items.
Non-GAAP Measures
We are presenting earnings before interest, taxes, depreciation
and amortization expenses (EBITDA), adjusted EBITDA and non-GAAP
EPS (adjusted EPS), which are financial measures that are not
determined in accordance with accounting principles generally
accepted in the United States of America, or GAAP. Adjusted EBITDA
and adjusted EPS remove the effect of severance and restructuring
related expenses related to our cost reduction initiatives and
stock-based compensation, as well as uncommon, non-recurring or
special items. Adjusted EPS also removes the effect of amortization
of intangibles acquired in acquisitions. 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. EBITDA, adjusted EBITDA and adjusted EPS should be
used in conjunction with other GAAP financial measures and are not
presented as an alternative measure of operating results, as
determined in accordance with GAAP. We believe that these non-GAAP
financial measures allow 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. We believe that adjusted EBITDA and adjusted EPS
provide a better understanding of our company’s operating
performance and cash flows. A reconciliation of the non-GAAP
consolidated financial measures is included in a table below.
Conference Call
Management will hold a conference call, which will be webcast,
on February 6, 2019 at 9:00 a.m. Eastern Time (6:00 a.m.
Pacific Time) to discuss its fourth quarter and full year results.
To listen to PCM management’s discussion of its fourth quarter and
full year results live, access
http://investor.pcm.com/events-presentations.
The archived webcast can be accessed at http://investor.pcm.com
under “Events & Presentations.” A replay of the conference
call by phone will be available from 12:00 p.m. ET on February 6,
2019 until February 13, 2019 and can be accessed by calling (855)
859-2056 (International (404) 537-3406) and inputting code
3284949.
About PCM, Inc.
PCM, Inc., through its wholly-owned subsidiaries, is a leading
multi-vendor provider of technology solutions, including hardware,
software and services to small, medium and enterprise businesses,
state, local and federal governments and educational institutions
across the United States, Canada and the UK. We generated net sales
of approximately $2.2 billion in the twelve months ended December
31, 2018. For more information, please visit investor.pcm.com 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 the effectiveness of our strategy to leverage our
investments and further optimize our sales mix while managing
costs; our intentions to continue executing our ERP migration in a
very careful manner in order to minimize any negative customer
impact; our expectations to have the vast majority of our business
operating on the new ERP platform and once completed, optimizing
the new environment and becoming more efficient and nimble,
increasing productivity and driving operating leverage;
expectations of financial performance; opportunities, expectations
or intentions for top or bottom line operating results including
without limit sales and gross profit growth; and expectations for
non-GAAP earnings per share. 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; our ability to attract and retain key employees;
our ability to receive expected returns on changes in our sales and
services organizations or strategic investments, including without
limit, investments in security, cloud, hybrid data center, advanced
technology solutions and services, our call centers and our
international expansion; availability of key vendor incentives and
other vendor assistance; risks associated with cyber and data
security including compliance with related regulatory requirements
such as the European Union General Data Protection Regulation and
the California Consumer Privacy Act; the relationship between the
number of our account executives and productivity; 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; possible
discontinuance of IT licenses or authorizations 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 misappropriation or unauthorized use of our proprietary or
confidential information by competitors or others; our loss of
personnel to competitors; the effect of our pricing strategy on our
operating results; potential decreases in sales related to changes
in our vendors products; the potential lack of availability of
government funding applicable to our Public Sector business; the
impact of seasonality on our sales; availability of products from
third party suppliers at reasonable prices; business and other
conditions in Canada, the UK and Europe and the Asia Pacific
region and the related effects on our Canadian, UK and our
Asia-Pacific operations, including without limitation our executive
management’s lack of experience operating in some of these markets;
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; other risks
related to foreign currency fluctuations; warranties and
indemnities we may be required to provide to third parties through
our commercial contracts; litigation by or against us, including
without limitation the litigation and other actions related to our
En Pointe acquisition; 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 September 30, 2018, 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.
PCM, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited, in thousands, except per
share amounts)
Three Months EndedDecember 31,
Year EndedDecember 31, 2018
2017 2018 2017 Net sales
$ 564,118 $ 544,770 $ 2,163,960 $ 2,166,887 Cost of goods sold
479,323 465,142 1,820,018 1,842,159 Gross profit 84,795 79,628
343,942 324,728 Selling, general and administrative expenses 74,040
80,621 303,196 314,100 Operating profit (loss) 10,755 (993 ) 40,746
10,628 Interest expense, net 2,436 2,305 9,486 7,894 Equity income
from unconsolidated affiliate 393 104 770 528 Income (loss) before
income taxes 8,712 (3,194 ) 32,030 3,262 Income tax expense
(benefit) 2,604 (18 ) 9,257 667 Net income (loss) $ 6,108 $ (3,176
) $ 22,773 $ 2,595
Basic and Diluted Earnings (Loss) Per
Common Share Basic $ 0.50 $ (0.27 ) $ 1.90 $ 0.21 Diluted 0.48
(0.27 ) 1.83 0.20 Weighted average number of common shares
outstanding: Basic 12,162 11,770 11,993 12,269 Diluted 12,738
11,770 12,437 13,094
PCM, INC.
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
(unaudited, in thousands, except per
share amounts)
Three Months Ended
December 31,
Year Ended
December 31,
2018 2017 2018 2017
EBITDA(a) Consolidated operating profit (loss) $ 10,755 $
(993 ) $ 40,746 $ 10,628 Add: Consolidated depreciation expense
2,523 2,663 10,429 10,052 Consolidated amortization expense 682
1,036 3,011 4,129 Equity income from unconsolidated affiliate(b).
393 104 770 528
EBITDA $ 14,353 $ 2,810 $
54,956 $ 25,337
EBITDA Adjustments Contingent
consideration adjustment(c) $ (1,075 ) $ — $ (1,075 ) $ —
Stock-based compensation 801 686 3,059 2,605 M&A and related
litigation costs and fees(d) 481 539 1,793 2,916 Severance and
restructuring related costs(e) 242 1,482 1,528 6,818 Foreign
exchange loss (gain) 251 (22 ) 533 (25 )
Total
EBITDA adjustments $ 700 $ 2,685 $ 5,838 $ 12,314
Adjusted EBITDA EBITDA $ 14,353 $ 2,810 $ 54,956 $ 25,337
Add: EBITDA Adjustments 700 2,685 5,838 12,314
Adjusted EBITDA $ 15,053 $ 5,495 $ 60,794 $ 37,651
Net income (loss) Income (loss) before income taxes $ 8,712
$ (3,194 ) $ 32,030 $ 3,262 Less: Income tax expense (benefit)
2,604 (18 ) 9,257 667
Net income (loss) $
6,108 $ (3,176 ) $ 22,773 $ 2,595 Income (loss) before
income taxes $ 8,712 $ (3,194 ) $ 32,030 $ 3,262 Add: EBITDA
Adjustments 700 2,685 5,838 12,314 Amortization of purchased
intangibles(f) 679 1,032 2,996 4,112 One-time interest charge(g) —
— — 321 Adjusted income before income taxes 10,091 523 40,864
20,009 Less: Adjusted income tax expense(h) 2,856 207 11,565
7,904
Non-GAAP net income $ 7,235 $ 316 $ 29,299 $ 12,105
Diluted earnings (loss) per share GAAP diluted EPS $
0.48 $ (0.27 ) $ 1.83 $ 0.20 Non-GAAP diluted EPS 0.57 0.03 2.36
0.92 GAAP diluted weighted average number of common shares
outstanding 12,738 11,770 12,437 13,094 Non-GAAP diluted weighted
average number of common shares outstanding 12,738
12,246
(i) 12,437 13,094
______________________________________________
(a) EBITDA — earnings from operations before interest,
taxes, depreciation and amortization expenses. (b) Represents our
equity income resulting from our 49% ownership interest in the NCE.
(c) Represents adjustment to contingent consideration related to
the Provista Technology acquisition. (d) Includes
acquisition-related costs and fees, including litigation. (e)
Includes employee severance related costs related to our cost
reduction initiatives, duplicate costs associated with the Ovex
transition, lease vacancy costs and other restructuring related
costs. (f) Includes amortization expense for acquisition-related
intangible assets, which include trademarks, trade names,
non-compete agreements and customer relationships. (g) Represents
interest expense levied against the company for unclaimed property
reports for periods dating back to 2003. (h) The 2018 adjusted
income tax expense assumes an estimated annual effective tax rate
of 28.3%, which excludes out of period impacts of the Tax Reform
and Jobs Act of 2017. The 2017 adjusted income tax expense assumes
an estimated annual effective tax rate of 39.5%. (i) Includes
approximately 476,000 dilutive shares for the three months ended
December 31, 2017 for computation of non-GAAP diluted EPS.
PCM, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per
share amounts and share data)
December 31, 2018 2017
ASSETS Current assets: Cash and cash equivalents $ 6,032 $
9,113 Accounts receivable, net of allowances of $1,714 and $2,181
463,487 439,658 Inventories 61,617 103,471 Prepaid expenses and
other current assets 8,535 9,333 Total current assets 539,671
561,575 Property and equipment, net 69,286 71,551 Goodwill 87,226
87,768 Intangible assets, net 8,103 11,090 Deferred income taxes
1,483 1,759 Investment and other assets 15,181 6,509 Total assets $
720,950 $ 740,252
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Accounts payable $ 357,212 $
289,201 Accrued expenses and other current liabilities 63,213
55,040 Deferred revenue 7,966 7,913 Line of credit 88,399 213,778
Notes payable — current 3,283 3,362 Total current liabilities
520,073 569,294 Notes payable 29,507 32,892 Other long-term
liabilities 16,583 7,338 Deferred income taxes 1,894 3,102 Total
liabilities 568,057 612,626 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; 17,573,700 and
17,170,273 shares issued; 12,183,048 and 11,779,621 shares
outstanding 18
17
Additional paid-in capital 138,703 134,646 Treasury stock, at cost:
5,390,652 shares (38,536 ) (38,536 ) Accumulated other
comprehensive (loss) income (1,313 ) 251 Retained earnings 54,021
31,248 Total stockholders’ equity 152,893 127,626 Total liabilities
and stockholders’ equity $ 720,950 $ 740,252
PCM, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited, in thousands)
Year EndedDecember 31,
2018 2017 Cash Flows From Operating Activities
Net income $ 22,773 $ 2,595 Adjustments to reconcile net income to
net cash provided by (used in) operating activities: Depreciation
and amortization 13,440 14,181 Equity income from an unconsolidated
affiliate (770 ) (528 ) Distribution from equity method investee
294 237 Provision for deferred income taxes (959 ) 283 Non-cash
stock-based compensation 3,059 2,605 Change in operating assets and
liabilities: Accounts receivable (23,829 ) (67,997 ) Inventories
41,854 (31,252 ) Prepaid expenses and other current assets 798
7,061 Other assets (7,937 ) (333 ) Accounts payable 66,641 8,355
Accrued expenses and other current liabilities 18,253 3,868
Deferred revenue 53 (3,853 ) Total adjustments 110,897 (67,373 )
Net cash provided by (used in) operating activities 133,670 (64,778
)
Cash Flows From Investing Activities Purchases of property
and equipment (5,741 ) (17,325 ) Acquisitions, net of cash acquired
(35 ) (4,806 ) Net cash used in investing activities (5,776 )
(22,131 )
Cash Flows From Financing Activities Net
(payments) borrowings under line of credit (125,379 ) 106,382
Borrowings under notes payable — 5,216 Payments under notes payable
(3,450 ) (3,771 ) Change in book overdraft 1,314 3,195 Payments of
obligations under capital leases (1,009 ) (1,311 ) Payments of
earn-out liability (2,199 ) (13,427 ) Proceeds from capital lease
obligations — 587 Net proceeds from stock issued under stock option
plans 1,646 5,080 Payments for deferred financing costs (275 )
(1,009 ) Common shares repurchased and held in treasury — (11,602 )
Payment of taxes related to net-settled stock awards (646 ) (894 )
Net cash (used in) provided by financing activities (129,998 )
88,446 Effect of foreign currency on cash flow (977 ) 404 Net
change in cash and cash equivalents (3,081 ) 1,941 Cash and cash
equivalents at beginning of the period 9,113 7,172 Cash and cash
equivalents at end of the period $ 6,032 $ 9,113
Supplemental
Cash Flow Information Interest paid $ 9,051 $ 7,071 Income
taxes paid, net 2,048 4,340
Supplemental Non-Cash Investing and
Financing Activities Financed and accrued purchases of property
and equipment $ 2,508 $ 900 Accrued earn-out liability related to
acquisitions — 707
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190206005213/en/
Investor Relations:Kim RogersHayden IR(385)
831-7337kim@haydenir.com
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