[February 15, 2018]

Connection (CNXN) Reports Fourth Quarter and Full Year 2017 Results

Connection (PC Connection, Inc.; NASDAQ: CNXN), a leading technology solutions provider to business, government, and education markets, today announced results for the quarter and year ended December 31, 2017. Net sales for the quarter ended December 31, 2017 increased by 3.6% to $762.3 million, compared to $735.5 million for the prior year quarter. Net income for the quarter ended December 31, 2017 increased by 59.4% to $20.7 million, or $0.77 per diluted share, compared to net income of $13.0 million, or $0.49 per diluted share for the prior year quarter.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted, which among other changes, reduced the federal corporate income tax rate. This rate reduction took effect on January 1, 2018, and the Company expects its corporate income tax rate for 2018 to range from 27% to 29%. The Company was also required to adjust its net deferred tax balance, which resulted in the Company recording a non-cash income tax benefit of $7.7 million for the fourth quarter of 2017. In addition, the Company recorded in the fourth quarter of 2017, a special charge of $2.7 million related to a one-time cash bonus paid to all non-executive employees. Earnings per share, adjusted for the reduction of federal income tax expense and the special bonus described above, was $0.54 cents per share for the quarter ended December 31, 2017, compared to $0.52 cents per share for the prior year quarter.

Net sales for the year ended December 31, 2017 were $2.9 billion, an increase of $219.3 million or 8.1%, compared to $2.7 billion for the year ended December 31, 2016. Net income for the year ended December 31, 2017 was $54.9 million, or $2.04 per diluted share, compared to net income of $48.1 million, or $1.80 per diluted share, for the year ended December 31, 2016. Earnings before interest, taxes, depreciation and amortization, adjusted for stock-based compensation expense and rebranding, acquisition and restructuring costs ("Adjusted EBITDA"), a non-GAAP measure, totaled $94.0 million for the year ended December 31, 2017, compared to $95.5 million for the year ended December 31, 2016.

Quarterly Performance by Segment:

• Net sales for the Business Solutions (SMB) segment increased by 7.6% to $298.0 million in the fourth quarter of 2017, compared to the prior year quarter. Desktop, servers, and software products experienced strong revenue growth in this segment with an increase of 31%, 26%, and 15%, respectively. Gross margin decreased by 17 basis points due to an increase in sales of velocity products, such as desktops and notebooks.
• Net sales for the Enterprise Solutions (Large Account) segment increased by 7.2% to $308.8 million in the fourth quarter of 2017, compared to the prior year quarter. Storage, software, and servers experienced solid growth during the quarter at 37%, 16%, and 8%, respectively. Gross margin decreased by 43 basis points primarily due to a continued competitive market environment.
• Net sales to the Public Sector Solutions segment decreased by 8.8% to $155.4 million in the fourth quarter of 2017, compared to the prior year quarter. Sales to state and local government and educational institutions decreased by 5.1%, compared to the prior year quarter, and sales to the federal government decreased by 11.9%. Gross margin decreased by 56 basis points primarily due to an ongoing competitive market environment.

Quarterly Sales by Product Mix:

• Software sales, the Company's largest product category, increased by 20% year over year and accounted for 24% of net sales in the fourth quarter of 2017, compared to 21% of net sales in the prior year quarter. We experienced solid growth in cloud-based offerings, security, and office productivity.
• Notebook/mobility sales decreased slightly year over year and accounted for 21% of net sales in the fourth quarter of 2017, compared to 22% of net sales in the prior year quarter. Sales of this product category grew year over year in Business Solutions and Enterprise Solutions, but were offset by lower notebook sales made under federal contracts in our Public Sector, compared to the prior year quarter.
• Desktop sales increased slightly year over year and accounted for 11% of net sales in the fourth quarter of 2017 and 2016. Desktop sales to federal government customers in the Public Sector declined year over year but were offset by strong year-over-year growth in the Business Solutions segment.
• Servers increased by 22% year over year and accounted for 5% of net sales in the fourth quarter of 2017, compared to 4% of net sales in the prior year quarter. Both Business Solutions and Enterprise Solutions experienced strong year-over-year growth in server sales.

Overall gross profit increased by $1.4 million, or 1.4%, in the fourth quarter of 2017, compared to the prior year quarter. Consolidated gross margin, as a percentage of net sales, decreased to 13.1% in the fourth quarter of 2017, compared to 13.3% for the prior year quarter. The decline in gross margin was attributed to higher sales of velocity products and an ongoing competitive marketplace.

Selling, general and administrative expenses increased slightly in the fourth quarter of 2017 to $77.6 million from $77.2 million in the prior year quarter due to increased variable compensation on our higher gross profits, as well as the one-time bonus discussed above. SG&A as a percentage of net sales was 10.2%, compared to 10.3% in the prior year quarter. We continue to invest in technical solution sales capabilities and expect SG&A expenses to rise accordingly. However, we are highly focused on improving efficiencies and streamlining wherever possible.

Total cash was $50.0 million at December 31, 2017, compared to $49.2 million at December 31, 2016. In January 2018, we paid a 34 cent per share special dividend to shareholders, which totaled $9.1 million. Days sales outstanding were 48 days at December 31, 2017, unchanged from the prior year end, and inventory turns were 24 turns in the fourth quarter of 2017, up slightly from 22 days in the prior year quarter.

"I was pleased to see continued growth in our four strategic vertical markets; manufacturing, retail, healthcare, and finance. We also saw strong growth in software and workforce productivity during the quarter," said Tim McGrath, President and Chief Executive Officer. "We believe our team and the strategies we have in place position Connection well to gain market share and increase long-term shareholder value," concluded Mr. McGrath.

Non-GAAP Financial Information

Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures. This information is included to provide 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.

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 9001:2008 certified technical configuration lab at its distribution center in Wilmington, OH. In addition, the Company has over 2,500 technical certifications to ensure 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.pcconnection.com.

Connection - Business Solutions (800-800-5555), (the original business of PC Connection) operating through our PC Connection Sales Corp. subsidiary, is a rapid-response provider of IT products and services serving primarily the small- and medium-sized business sector. It offers more than 300,000 brand-name products through its staff of technically trained sales account managers, publications, and its website at www.connection.com.

Connection - Public Sector Solutions (800-800-0019), operating through our GovConnection, Inc. subsidiary, 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.

Connection - Enterprise Solutions (561-237-3300), www.connection.com/enterprise, operating through our MoreDirect, Inc. subsidiary, provides corporate technology buyers with best-in-class IT solutions, in-depth IT supply-chain expertise, and access to over 300,000 products and 1,600 vendors through TRAXX™, 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.

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"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 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, 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 for the year ended December 31, 2016. 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) The Q4 2016 results for Business and Enterprise Solutions have been updated to reflect segment methodology used in our 2016 Annual Report on Form 10-K, which allocated the operating results for Softmart between these two segments.

(1) The Company recorded a non-cash federal income tax benefit of $7.7 million as a result of the Tax Cuts and Jobs Act of 2017.
(2) Special charges in 2017 consist of a fourth quarter one-time bonus paid to all employees except executive officers as well as severance and relocation costs for our Softmart facility incurred in the second quarter 2017. Special charges in 2016 consist of our acquisition of Softmart, the rebranding of the Company, and duplicate costs incurred with the move of our Chicago-area facility.

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