Connection Plans To Ride Healthcare, Financial Services Sectors for Accelerated Growth

Connection CEO Tim McGrath expects the growing acceptance of electronic health records (EHR) and the potential for financial services deregulation to boost sales.

"We're engaging on all fronts, and we do expect our pure vertical market growth to be significantly larger than the overall IT industry growth," McGrath told Wall Street analysts during the company's earnings call. "We see that as a real growth engine for us."

The Merrimack, N.H.-based company, No. 21 on the CRN Solution Provider 500, has seen 23 percent growth in its healthcare practice and is excited for future opportunities around EHR, virtual consultations, and ancillary security engagements. And McGrath said the potential for deregulations in the financial services markets is expected to drive more IT upgrades.

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Meanwhile, McGrath said the manufacturing and retail worlds are changing as a result of emerging technologies such as the internet of things (IoT). All told, McGrath said healthcare, financial services, manufacturing, and retail-focused sales contribute significantly to the top line of his company, which was formerly known as PC Connection.

Sales for the quarter ended Dec. 31 jumped to a record $735.5 million, up 7.5 percent, from $684.3 billion last year. That beat Seeking Alpha's projection of $733.1 million.

Net income tumbled to $13 million, or 49 cents a share, down 4.5 percent from $13.6 million, or 51 cents a share, the year prior. On a non-GAAP basis, though, net income improved to $14.2 million, or 53 cents a share, up 2.8 percent from $13.8 million, or 52 cents a share, the year prior. That edged out Seeking Alpha estimates of 52 cents per share.

For all of 2016, Connection's sales increased to a record $2.69 billion, up 4.6 percent from $2.57 billion the year prior. Net income grew to $48.1 million, or $1.80 per diluted share, up 2.7 percent from $46.8 million, or $1.76 a share, last year.

Connection has established two new businesses in its Schaumburg, Ill. facility, McGrath said. The first is a Network Operations Center (NOC), which McGrath said is enjoying increased use from customers who want help managing and securing their networks.

The company is also seeing growth and attracting talent to its new, small and mid-sized business call center in Schaumburg, McGrath said. And McGrath said Connection's legacy managed services practice in Schaumburg had enjoyed double-digit services growth since it is mission critical to the company's overall strategy.

For the coming year, McGrath said Connection expects software, mobility and hybrid IT investments to be significant growth drivers.

"Going forward into 2017, there is a bit more optimism in the air," he said. "We do expect to outperform the industry norms."

Connection's large account quarterly sales jumped to $288.8 million, up 4.3 percent from $277 million last year due to a strong performance in software. Small and mid-sized business revenue increased to $276.4 million, up 5.2 percent from $262.6 million last year thanks to strong mobility, software and advanced technology sales.

Public sector sales, meanwhile, soared to $170.4 million, up 17.7 percent from $144.7 million last year thanks to winning several large deals and strength around mobility and notebooks. Quarterly sales to the federal government soared by 46.1 percent on a year-over-year basis, while state, local and education (SLED) sales fell by 3.8 percent.

Connection's stock remained unchanged in after-hours trading at $27.72 per share. Earnings were announced after the market closed Wednesday.

For 2017, McGrath said Connection hopes to beat market projections of low single-digit growth in the IT services industry.