Widespread Windows 10 Adoption in the Enterprise Powers PCM's Record Revenues in Q3

PCM reported a record-breaking third quarter, shattering its previous high marks for earnings and revenues, thanks to a Windows 10-driven resurgence of its PC business.

"I think Windows 10 is getting adopted widely," PCM president Jay Miley said during the solution provider's earnings call Wednesday. "Quite a few of the new [device] models that will be coming out in the future will be requiring you to adopt Windows 10."

Although Windows 10 doesn't represent "a return to the glory days," PCM expects that PC sales going forward will be healthier than they have been over the past couple of years. The company is enjoying an expanded refresh cycle in the near-term, and a massive refresh at some point in the future, said company chairman and CEO Frank Khulusi. Khulusi said PCM was wise to continue focusing on client devices.

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"Clearly, the phone does not replace the computer," Khulusi told investors Wednesday. "There was a lot of speculation about the tablet replacing the computer. I was always skeptical of that … and as evidenced by decreases in tablet sales, I think we were more right than wrong in that area."

PCM's client business got an apparent boost from the December 2015 acquisition of Systemax's TigerDirect business, contributing to 49 percent year-over-year sales growth in PCM's notebook and tablet sales.

"Generally, we are seeing positive trends in that strategic area," said Miley, adding that notebooks and tablets now make up 19 percent of PCM's overall business.

The El Segundo, California-based company, No. 28 on the CRN Solution Provider 500, saw sales in the quarter ended Sept. 30 climb 44 percent to to a record $584.9 million, compared to $404.9 million during the year-ago quarter. That boost came from three major acquisitions in 2015 as well as strength around advanced solutions, public sector and larger accounts. Analysts expected PCM to report just $549.8 million, so the company enjoyed an upside surprise.

PCM reported net income of $53 million, or 43 cents a share, compared to a net loss of $785,000 during the third quarter last year. On a non-GAAP basis, earnings from continuing operations jumped to $6.5 million, or 52 cents a share, up about 421 percent from the $1.6 million reported last year. That, too, beat analysts expectations of 31 cents a share.

PCM is very capable of helping clients navigate through increasing complexity in the services space, Khulusi said, and can meet most end user needs around hybrid cloud and security. In the rare instances where PCM isn't able to meet a client's services needs on their own, Khulusi said the solution provider would partner with another company that can.

"People needs consultants by their side and not just people that move boxes," Khulusi said. "And we've positioned ourselves extremely well to be the consultant of choice for customers."

Organizations are looking to harvest more enterprise data to boost their productivity, Miley said, and PCM is working with vendor partners to help end customers better harness data. Advanced solutions have grown from 41 percent to 43 percent of PCM's overall portfolio over the past year, Miley said, despite the acquisition of TigerDirect, which primarily sells outside of the advanced solutions space.

PCM saw sales in its commercial segment climb by 37 percent from $336.4 million last year to $459.6 million this year due to strong organic growth in its field sales team – which supports commercial, mid-market and enterprise accounts – as well as sales added from the acquisition of Systemax's North American technology solutions business.

Public sector sales improved by 31 percent from $68.6 million last year to $89.7 million this year thanks to a strong performance from PCM's state, local and education practices, partially offset by a small decrease in the company's federal business. And Canada sales – which comprise the Acrodex assets as well as the Canadian portion of Systemax's TigerDirect business – came in at $35.7 million.

PCM saw massive growth across the board, with networking sales up 58 percent and software sales up 23 percent. The company's top vendors are Microsoft, Cisco Systems, HP Inc., Dell, Lenovo, Apple and Hewlett Packard Enterprise, which collectively represented 58 percent of PCM's gross billed revenue in the quarter, said CFO Brandon LaVerne.

PCM's stock remained unchanged in after-hours trading Wednesday at $18.58 per share, leaving its market capitalization at around $217 million. So far this year, the company's stock price is up 87 percent.

For the coming quarter, PCM expects adjusted earnings of between 40 and 48 cents a share on revenues of between $565 million to $580 million. Analysts from Roth Capital were projecting earnings of 32 cents per share.