PC Mall Reports Second Quarter 2010 Results

TORRANCE, Calif.--(BUSINESS WIRE)--PC Mall, Inc. (NASDAQ:MALL - News), a leading IT solutions provider, today reported financial results for the second quarter of 2010. Consolidated net sales for Q2 2010 were $317.0 million, an increase of 21% from $261.4 million in Q2 2009. Consolidated gross profit increased to $40.6 million in Q2 2010 compared to $35.8 million in Q2 2009. Consolidated gross profit margin was 12.8% in Q2 2010 compared to 13.7% in Q2 2009. Consolidated operating profit for Q2 2010 increased 45% to $2.8 million compared to consolidated operating profit of $2.0 million for Q2 2009. Q2 2010 results included a $0.4 million increase in costs due to an appreciation of the Canadian dollar relative to the United States dollar and a $0.5 million increase in depreciation expense over Q2 2009 reflecting our IT investments in systems and infrastructure upgrades. The total of these items is $0.9 million. Consolidated net income for Q2 2010 increased 67% to $1.4 million compared to consolidated net income of $0.8 million for Q2 2009. Diluted earnings per share for Q2 2010 was $0.11 compared to diluted EPS of $0.06 for Q2 2009. Adjusted EBITDA (as defined below) for Q2 2010 increased 46% to $5.4 million from $3.7 million in Q2 2009. Information about our use of non-GAAP financial information is provided below under "Non-GAAP Measures."

The Company's second quarter results

Commenting on the Company's second quarter results, Frank Khulusi, Chairman, President and CEO of PC Mall, Inc. said, "I am pleased with our second quarter consolidated results. Our year-over-year growth rate significantly accelerated from the first quarter. Our consolidated sales grew 26% over Q2 last year, excluding sales of Sun Microsystems' solutions, which were negatively affected by Oracle's acquisition of Sun. Our commercial sales companies showed very strong year-over-year growth, with SMB growing 26% year-over-year and MME growing 36% year-over-year. We believe that this growth was driven by both an improving demand environment and by the investments that we have been making in our businesses, which are beginning to pay off. I am especially pleased that our consolidated operating profit grew 45% over Q2 last year, driven primarily by large increases in both our SMB and MME segments. Additionally, our previously discussed strategy shift in our MacMall segment has continued to pay off as evidenced by a 130% sequential improvement in MacMall operating profit from Q1 to Q2, marking our second straight quarter of sequential operating profit growth."

Khulusi continued, "In Q2, we also continued to invest in the growth of our service business, and in late Q2 our SARCOM subsidiary acquired the assets of Network Services Plus, Inc., or NSPI, a managed services provider. NSPI's areas of focus compliment our own very well, and include data center services, remote managed IT services, including support of desktops, servers, networks and VoIP telephony systems, and professional services."

MME operating profit in Q2 2010 increased by $1.3 million, or 29%, to $6.0 million compared to $4.7 million in Q2 2009. The increase in MME operating profit was primarily due to the increase in MME gross profit discussed above, partially offset by a $0.9 million increase in personnel costs due in part to an increase in variable compensation costs related to the increased gross profit discussed above, a $0.2 million increase in bad debt expense and a $0.2 million increase in telecommunication expenses.

Q2 2010 net sales for our Public Sector segment were $41.1 million compared to $38.0 million in Q2 2009, an increase of $3.1 million, or 8%. This increase in Public Sector net sales was due to a 34% increase in net sales of our state and local government and educational institution business driven by stronger demand and our aggressive public sector market share growth strategy. These increases were partially offset by a 7% decrease in our federal government business due to reductions in sales of Sun Microsystems, substantially related to the acquisition of Sun by Oracle and resulting vendor program changes in connection with Sun solutions. These changes also had a significant negative impact on federal sales through a large contract vehicle. Sales in our federal government business excluding Sun Microsystems increased 58% over the prior year.

Public Sector gross profit decreased by $1.2 million, or 32%, to $2.6 million in Q2 2010 compared to $3.8 million in Q2 2009. Public Sector gross profit margin decreased to 6.3% in Q2 2010 compared to 10.0% in Q2 2009. The decrease in Public Sector gross profit and gross profit margin was primarily due to the impact of the Sun changes mentioned above. Gross profit margin also reflects our previously stated market share growth strategy in the Public Sector business, specifically on the Wintel platform in order to broaden our sales mix.

Q2 2010 net sales for our MacMall segment were $42.7 million compared to $45.8 million in Q2 2009, a decrease of $3.1 million, or 7%. Sales in our MacMall segment declined primarily due to our previously announced intentional strategy shift in Q1 2010 to focus the MacMall brand on higher profit customer segments such as small businesses, creative professionals and high-end consumers.

We are presenting earnings before interest, taxes, depreciation and amortization expenses (EBITDA), which is a financial measure that is not determined in accordance with accounting principles generally accepted in the United States of America, or GAAP. Adjusted EBITDA eliminates the effect of non-recurring, special charges, if any, as well as non-cash stock-based compensation expense. In the quarter and year-to-date periods ending Q2 2010 and Q2 2009, adjusted EBITDA excludes only non-cash stock-based compensation expenses, as there were no reported non-recurring, special charges during those periods. Adjusted EBITDA should be used in conjunction with other GAAP financial measures and is not presented as an alternative measure of operating results, as determined in accordance with GAAP. We believe that adjusted EBITDA allows a more meaningful comparison of our operating performance trends to both management and investors that is more indicative of our consolidated operating results across reporting periods. Depreciation and amortization expenses primarily represent an allocation to current expense of the cost of historical capital expenditures and for acquired intangible assets resulting from prior business acquisitions. Stock-based compensation is governed by the compensation committee of our Board of Directors and results in a non-cash operating expense for stock option grants that were made in prior operating periods. Additionally, we are also presenting our income tax expense on a non-GAAP basis, which is a consolidated financial measure, excluding the impact of an international tax adjustment in Q2 2009. We believe that the exclusion of the international tax adjustment, which is non-recurring year over year, from our results allows a more meaningful comparison of our operating performance trends to both management and investors that is more indicative of our consolidated operating results across reporting periods. We believe that such international tax adjustment is not part of our ordinary business. A reconciliation of the non-GAAP consolidated financial measures is included in a table below.

The archived webcast can be accessed at www

The archived webcast can be accessed at www.pcmall.com/investor under "Calendar of Events." A replay of the conference call by phone will be available from 12:00 p.m. ET on August 5, 2010 until August 12, 2010 and can be accessed by calling: (888) 286-8010 (International 617-801-6888) and inputting pass code 78976480.

PC Mall, Inc., together with its wholly-owned subsidiaries, is a value added direct marketer of technology products, services and solutions to businesses, government and educational institutions and individual consumers. Founded in 1987, PC Mall offers products, services and technology solutions through dedicated account executives, various direct marketing techniques, and three retail stores. The company also utilizes distinctive full-color catalogs under the PC Mall, MacMall, PC Mall Gov and SARCOM brands and the websites pcmall.com, macmall.com, pcmallgov.com, gmri.com, sarcom.com, abreon.com, nspi.com and onsale.com, and other promotional materials. Customer product orders are rapidly filled by a distribution center strategically located near FedEx's main hub or by an extensive network of distributors, which is one of the largest networks in the industry.

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 expectations or statements relating to growing our top-line and operating income and our goal of generating a quarterly non-GAAP operating profit margin of between 1.5% and 2% by fourth quarter of 2010, the impact of our strategy for our MacMall segment to focus on higher profit customers, the impact of our market share growth strategies, the impact of strategic investments including investments in our Chicago office and related additional account executives in Chicago, investments in our Health Dynamix division in our Public Sector segment and investments in the growth of our services business, including our acquisition of NSPI. 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 the following: risks related to our management information systems, uncertainties relating to the relationship between the number of our account executives and productivity; decreases in revenues related to 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 or a further downturn in the economy, future economic recession or reduction in consumer spending; availability of key vendor incentives and other vendor assistance increased competition, including, but not limited to, increased competition from direct sales by some of our largest vendors and increased pricing pressures which affect our pricing strategy in any given period; the effect of the our pricing strategy on our operating results; risks related to our ability to retain key personnel; risks and uncertainties relating to our ability to identify suitable acquisition targets, to complete acquisitions of identified targets (including the challenges and costs of closing the transaction), and our ability to integrate companies we may acquire and our ability to achieve synergies expected from such acquisitions (including our acquisition of NSPI); the impact of acquisitions on relationships with key customers and vendors; potential decreases in sales related to changes in our vendors products; risks of decreased sales related to the potential lack of availability of government funding applicable to our PC Mall Gov contracts; the impact of seasonality on our sales; availability of products from third party suppliers at reasonable prices; risks of business and other conditions in the Asia Pacific region and our limited experience operating in the Philippines, which could prevent us from realizing expected benefits from our Philippines operations; increased expenses, including, but not limited to, interest expense, foreign currency transaction gains/losses, and other expenses which may increase as a result of future inflationary pressures; our advertising, marketing and promotional efforts may be costly and may not achieve desired results; risks due to shifts in market demand or price erosion of owned inventory; risks related to foreign currency fluctuations; risks related to data security; litigation by or against us; and availability of financing, including availability under our existing credit lines. Additional factors that could cause our actual results to differ are discussed under the heading "Risk Factors" in Item 1A, Part II of our Form 10-Q for the quarterly period ended March 31, 2010, 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.