PC Mall, Inc. Q3 2008 Earnings Call Transcript

Nov. 3.08 | About: PCM, Inc. (PCMI)

PC Mall, Inc (MALL) Q3 2008 Earnings Call October 29, 2008 4:30 PM ET

Executives

Frank Khulusi- Chairman, President and CEO

Brandon Laverne- CFO

Kristin Rogers- VP of Marketing

Daniel DeVries- Executive VP

Analysts

Brian Alexander- Raymond James

Chris Krueger- Northland Securities

Bill Dockins- Burlington Dockins

Operator

At this time I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call management may discuss financial projections, information, or expectations about the company’s products, markets, or other statements made about the future which are forward-looking and subject to a number of risks and uncertainties that can cause actual results to differ materially from statements made. These risks and uncertainties are detailed in the company’s filings with the SEC. I would now like to turn the call over to Mr. Frank Khulusi.

Frank Khulusi

I will begin with an overview of PC Mall’s third quarter results. Consolidated net sales were a Q3 record $325.9 million which was up 13% year-over-year. Gross profit was a Q3 record at $44.3 million, up 30% on a year-over-year basis. Gross profit margin for the quarter was 13.6% versus 11.9% in Q3 2007; and diluted EPS was $.18 per share in Q3 2008 versus $.22 a share last year.

Operating cash flow was a positive $20 million in Q3 2008. Initially I am pleased to announce that our Board of Directors authorized that discretionary common stock repurchase program for up to $10 million with an aggregate with all other repurchase programs. Under this program the shares will be repurchased from time to time at prevailing market prices to open market or unsolicited negotiated transactions depending on market conditions.

Now I would like to turn the call over to Brandon Laverne, CFO which will present the financial results in a bit more results.

Brandon Laverne

Now I will speak a bit about our Q3 2008 results. All comparisons are against Q3 2007 unless otherwise noted. As Frank indicated, consolidated sales for Q3 2008 were a record $325.9 million, a 13% increase over last years $287.7 million. Consolidated gross profit for Q3 2008 was $44.3 million, a 30% increase over last years $34.2 million. Consolidated operating profit was $5.2 million, a 10% decline over last years $5.8 million. Our effective tax rate in Q3 2007 was 41% compared to 40% in the prior year.

Our segment results were as follows: For our SNB segment, Q3 2008 net sales were $112.4 million, a decrease of $18.3 million, or 14% , in Q3 2007 primarily due to continued softening in IT spending and an $8 million decrease in lower margin I-pod sales to certain customers; gross profit for our SNB segment decreased by $1.2 million, or 8%, to $14.2 million in Q3 2008 compared to $15.4 million in Q3 2007 resulting primarily from decreased sales discussed above. Gross profit margins for SNB increased by 80 basis points to 12.6% in Q3 2008 compared to 11.8% in Q3 2007 primarily due to an improvement in product mix and reduction in lower margin volume I-pod sales to certain customers partially offset by pricing pressure in certain product categories.

Operating profit in Q3 2008 for our SNB segment decreased 20% to $6.6 million compared to $8.3 million in Q3 2007. The decrease was primarily due to the decrease in gross profit discussed above, and an increase in SNB personnel costs and an increase in Bad Debt expense. The increase in SNB personnel costs were primarily due to our investment in SNB account executive Ted Camp for future growth and a reduction in our Canadian labor subsidy under a new program which began January, 2008.

Average account executive Ted Camp during Q3 2008 for the SNB segment was $378, compared to $347 in Q3 2007. For our MME segment Q3 2008 net sales were $113.4 million compared to $49.8 million in Q3 2007 an increase of $63.6 million, or 128%. This increase was primarily due to the inclusion of stock comp results in Q3 2008 and a strong growth in our Legacy MME business. Excluding the impact of the SARCOM acquisition net sales in our MME business increased 18% to $49.2 million in Q3 2008, from $41.9 million in Q3 2007.

Gross profit for our MME segment increased by $12.3 million, or 174% to $19.3 million in Q3 2008, compared to $7 million in Q3 2007; and gross profit margin increased by 290 basis points to 17% in Q3 2008 compared to 14.1% in Q3 2007. The increase in MME gross profit was primarily due to the increase in MME sales as discussed above. The increase in MME gross profit margin was due to a favorable increase in the mix of services in our Legacy MME business in Q3 2008 and an increase in sales of certain software licenses by SARCOM which are recorded on a net basis.

Our MME operating profit in Q3 2008 increased by $3.8 million, or 292% to $5.1 million compared to $1.3 million in Q3 2007. The improvement was primarily due to the increase in MME gross profit primarily offset by $6.4 million in MME personnel costs. The increase in MME personnel costs was primarily due to the addition of SARCOM personnel as well as the investment in sales account executives in both sarcom and our Legacy MME business.

Average account executive headcount during Q3 2008 in our MME segment was 155 compared to 109 compared to Q3 2007. However that prior year total only includes sarcom for a few weeks. The total MME account executive headcount at September 30th, 2007 was 143.

For our public sector segment Q3 2008 net sales were $52.2 million compared to $48.4 million in Q3 2007, an increase of $3.8 million, or 8%. This increase was primarily due to sales realized under existing contracts in our state and local business and an increase in transactional sales in our federal government business. Gross profit for our public sector segment increased by $600,000 or 13% to $5.1 million in Q3 2008 compared to $4.5 million in Q3 2007, and gross profit margin increased by 50 basis points to 9.7% in Q3 2008 compared to 9.2% in Q3 2007.

The increase in our public sector segment gross profit and gross profit margin was primarily due to our product mix.

Operating profit in Q3 2008 for our public sector segment increased by $400,000 or 26% to $1.9 million compared to $1.5 million in Q3 2007. The increase was primarily due to the increase in gross profit partially offset by increased personnel costs driven by investment and sales account executives.

Average account executive headcount during Q3 2008 in our public sector segment was 90 compared to 88 in Q3 2007. For our consumer segment, Q3 2008 net sales were $47.8 million compared to $58.8 million in Q3 2007, a decrease of $11 million, or 19%. We believe this decrease was primarily due to continued softening in consumer spending and the timing of the recently announced Apple Notebook transition.

Gross profit for our consumer segment decreased by $1.6 million, or 22% to $5.7 million in Q3 2008 compared to $7.3 million in Q3 2007; and gross profit margin decreased by 50 basis points to 11.9% in Q3 2008 compared to 12.4% in Q3 2007. The decrease in our consumer segment and gross profit margin was primarily the result of decreased sales and aggressive competitive pricing which we believe was also the result of continued softening in consumer spending.

Operating profit in Q3 2008 for our consumer segment decreased $500,000, or 24% to $1.6 million compared to $2.1 million in Q3 2007 primarily due to the decrease in gross profit partially offset by a reduction in operating expenses including a $500,000 reduction in advertising expenditures; a $400,000 reduction in credit card related costs; and a $200,000 reduction in personnel costs.

Average account executive headcount during Q3 2008 for our consumer segment was 112, compared to 117 in Q3 2007. Corporate and other selling, general, and administrative expenses includes corporate related expenses such as legal, accounting, information technology, product management, and other administrative costs not otherwise included in reportable operating segments.

Q3 and 2008 Corporate and other SG&A expenses increased by $2.6 million, or 34%, to $10.1 million from $7.5 in Q3 2007. The increase was primarily due to a $1.6 million increase in personnel costs resulting from investments in our marketing, information technology, and credit departments which includes specialization of certain resources from our MME segment and a $400,000 increase in professional fees, much of which we don’t expect to recur.

On our September 30th consolidated down sheet accounts receivable was $166.6 million, an increase of $7.2 million from December 31st, 2007 primarily due from an increase in SARCOM receivables. Our inventory at $55.2 million in September 30th, 2008 represents a decrease of $9.3 million from December 31st, 2007.

Accounts payable increased from $19.7 from December 31st, 2007 primarily due to the timing event of payables. Outstanding borrowings under our line of credit decreased by $600,000 net to $53.3 million at September 30th 2008 from December 31st, 2007 and declined $13.2 million from June 30th, 2007. We reported operating cash flow during Q3 2008 of approximately $20 million. Now I would like to turn the call over to Kris Rogers.

Kris Rogers

I will spend a few minutes on both the segments specific results as well as other key performance indicators for our business, to give more color on both the environment and our numbers. For key performance indicators I will review areas like product mix, manufacturing and category concentration and growth rates, all of which are on a “gross” basis.

I will start by discussing the results of our segments in a little more detail. As Brandon indicated, net sales for SMB segment declined by 14% year-over-year, with the 9% drop in the SMB business excluding lower-margin iPod sales to certain customers. The decline in sales of the SMB business was due primarily to a weaker demand environment. During the quarter we saw demand decelerate with a weakness driven by what we believe was uncertainty about the economic environment in the U.S. We were able to maintain and increase margins in the SMB business largely due to an improvement in our sales product mix.

Operating margins however were adversely affected as a result of the investment in SMB headcounts for our call centers, particularly in Montreal. But we remain confident that these investments are prudent in that they allow us to continue to acquire customers throughout these uncertain times, which we believe positions us for long-term growth as the demand environment improves. As part of our strategy for future growth in this segment we started off 2008 with an investment in headcount for SMB primarily in our Montreal call center, and the establishment of the new SMB call center in the metropolitan Chicago area.

From a product based perspective the SMB had strong year-over-year growth in the business software and enterprise licensing categories along with the networking category, while demand softened for server, desktop, notebook and printer categories. We did see improving growth results and a ramp of sales of services both packaged and managed for our SMB segment.

In our MME segment we showed solid growth year-over-year with an increase in sales of 128% for Q3 2008. On an organic basis, excluding the impact of SARCOM acquisition, our [inaudible] MME business grew 18%. We are very pleased with the overall performance of our MME business which is not only outpacing the industry growth rate but also showed strong growth in its gross margins, gross profits, and operating margins. The combination of Wareforce and SARCOM, which were merged on July 1st, 2008 and now operate under one brand, SARCOM, has provided significant leverage to both companies demonstrated through the strong operating performance of both companies. We continue to invest in sales and service personnel in SARCOM, again positioning ourselves for sustainable long-term growth. For SARCOM services continue to be a key focus. While we continue to see some weakness in demand for some traditional products such as servers, desktops, notebooks and printers in this market space we have seen an acceleration of demand for storage, networking, software and services and we believe that the growth in the hardware and software categories are fueling incremental additional services.

Services represented 20% of MME’s revenues in Q3 2008 versus 6% in Q3 2007, largely driven by the incremental services volume from SARCOM and Abreon. In our public sector segment PC Mall Gov for its revenues 8% in Q3 2008 over Q3 2007. Strong growth of 15% year-over-year from our state, local, and education business and 5% growth in our federal business combined to produce a solid-growth quarter.

The growth we experience in our Sun space is driven by the growing productivity in the contract vehicles run by Pc Mall Gov throughout 2007 and 2008, as well as by the increase in sales account executive headcount. In the federal space the growth was driven largely by overall increases in transactional business with overall demand in the federal space increasing by 15% for Q3 2008 versus Q3 2007. In our federal business we secured a large backlog into Q4 2008 consistent with the backlog we carried into Q4 2007. Product mix remained consistent at PC Mall Gov with strong results in networking and software but also showed high single-digit growth with some products. In Q3 2008 PC Mall Gov remained the number one retailer for Sun storage in the federal space.

At this time I will review the product category results which include the impact of SARCOM acq8isition which was complete on September 17th, 2007. From a concentration standpoint overall mix changed slightly in Q3 2008 primarily driven by acceleration in the overall networking business as well as a significant decline in the iPod MP3 market. Our largest product categories were software at 14% and Notebooks at 14%, both categories growing at 12% and 11% respectively over Q3 2007. Networking and desktops each represented 9% of revenue with growth of 221% and 15% respectively over the prior year. Other categories of note include storage, which represented 7% of revenue; managed and professional services which were 6% of revenue, and servers at 4% of revenue. While the server hardware business is not currently growing we believe that with services attached to categories like storage and servers there is a growth opportunity for us.

In general we see the current softened demand environment hitting core product categories like printers, desktops, and servers and to a lesser extent, Notebooks, while we see an ongoing opportunity for solutions and CIOs and IT departments characterized as essential. We believe that our results in Q3 support these trends for where our IT dollars are being and will be allocated. Enterprise storage sales were 33% in Q3, 2008 versus Q3 2007; sales in VM ware grew 86% year-over-year, and sales of security software Semantic grew 16% year-over-year. We are currently working with our manufacturing partners to create a new Solutions Taxonomy as well as enhancing our existing sales and marketing tools and vehicles to better address the needs of both our commercial and consumer customers going forward. We also see strong growth for what we see as emerging categories for solutions which we do not represent a huge volume for out of the gate but what we believe will be a long term opportunity for us. The areas of point of sale and data capture as well as areas like physical security are examples of categories that grew in strong double digits in Q3 2008.

Also noted earlier were the strong results for services which we believe is representative of a growing trend for businesses to look to partners to outsource certain functions, particularly as they look to tighten up their fixed costs. Serves is a strategic focus area for us as we saw; several significant long-term wins for service engagements in Q3 2008 and are investing in our capabilities for the long term.

From a manufacturing concentration standpoint on a consolidated gross basis our top five manufacturers for Q3 2008 were HP, Apple, Cisco, Microsoft and Lenovo as an aggregate represented 50% of our total revenues. Now I would like to turn the call over to Dan DeVries.

Dan DeVries

I will spend a couple of minutes talking about Q3 2008 results for our consumer segment sales. Sales in our consumer segment which includes our Mac Mall and Onsale brands declined by 19%, or $11 million, from $58.8 million in Q3 2007 to $47.8 million in Q3 2008. We believe this decrease was primarily due to continued softening in consumer spending, and the timing of the recently announced Apple Notebooks transitions. Sales of notebooks accounted for 34% of our consumer sales in Q3 2008.

Sales of desktops accounted for 23% of our consumer sales. Software accounted for 10% of our consumer sales; iPods, iPod accessories and TV’s accounted for 7% of consumer sales, and storage accounted for 7% of consumer sales also. The current economic conditions does create some immediate opportunities for us. We are excited about the terrific product deals that we have been able to make recently, and we believe that some of these deals will be able to help counter some of the consumer spending headwinds that we are likely to face in the fourth quarter.

At this point I will turn the call back over to Frank Khulusi.

Frank Khulusi

Despite the economic headwinds during the third quarter we achieved record consolidated revenues. These economic headwinds, accompanied by our continuing investments for growth, had an impact on our Q3 2008 bottom-line results. That said, we believe we are well-positioned with an excellent base of talented employees, solid customers, and world-class vendor partners. In the third quarter we took steps to improve our cost structure by reducing our personnel expense by over $4 million in annualized expenses which saving we expect will be realized in the beginning of the fourth quarter of 2008. While we will closely be monitoring the developments in our demand environment, and make adjustments as we deem necessary, our plan calls for continued investments for growth including investments which may be an offset to the aforementioned savings. We believe that not retrenching in the current environment, and continuing to selectively invest and be aggressive in the market place will position us even better in the future. Now I would like to open up this call for any questions you may have.

Question and Answer Session

(Operator Instructions)

Our first questions comes from Brian Alexander of Raymond James.

Brian Alexander- Raymond James

Kris, can you go into a little more detail on some of the service engagement wins that you alluded to in terms of what types of services are we talking about? Are they an expansion on the traditional services you have offered or are you starting to move into some other service categories? Just some more color on the service side, thanks.

Kristin Rogers

I am sure you can appreciate that I cannot disclose the actual engagements themselves, but what I can tell you is that the types of service products we are selling, for lack of a better term, are pretty consistent with where our core competencies are. So the things that are very much at the top of the list right now, where we are seeing pipeline and wins, are folks that are reducing their internal IT staff and outsourcing that to us. So in fact somebody may be choosing to take down their fixed infrastructure and instead they are outsourcing it to us on a variable basis. We are seeing more helpdesk engagements; very similar type of situation where they are choosing to not staff their own internal helpdesk but instead to outsource that. We are seeing engagements where we have the opportunity to go in and actually deploy technology, where they are choosing to use our variable staff to deploy as opposed to hiring on or retaining their own personnel to deploy. So I think that the whole area of what we would call “managed services” where we are using staff augmentation and our expertise in our personnel on a variable basis to address their current needs is a very high area for us right now, and I think he other area where we have seen a growing number of engagements and albeit the volume tends to be smaller , it tends to be the more sophisticated types of engagements and those are on the professional services, professional consulting side where we are doing more assessments, so we are being brought into companies to help them assess their current infrastructure or an opportunity for them to potentially reduce their costs by doing a data center consolidation or looking at virtualization or looking at how to put a more cost-effective print solution in.

I hope that gives you a flavor for the types of things that we are being called into both quote and where we are seeing actual wins and we are now starting to deliver at higher volumes than we historically have.

Brian Alexander- Raymond James

It does, and if I can follow up, how much synergy would you say there is between the service customers and the hardware customers, and does one lead the other? Or are they generally independent?

Kristin Rogers

They are not independent at all I would say it is more rare for it to be independent and I don’t think actually I could tell you Brian that there is necessarily a rhyme or reason. I could absolutely show you that we have been relatively successful taking what has been historically primarily hardware and software engagements and the SARCOM acquisition last year gave us a lot more national capability to deploy services than we used to have. So we have absolutely increased the penetration into those accounts by bringing services into existing hardware relationships but at the same time I could absolutely list off for you customers where we started tentatively with a service engagement and that has opened the door for us over time to be able to come in and bid on hardware and other product opportunities because we now have an established relationship with the account.

Brian Alexander- Raymond James

Are you typically displacing another third party service provider, or is this a matter of the customer going from an in-source function to an out-source function?

Kristin Rogers

I don’t know that it is half and half, but I will tell you that it is both, and I will tell you that in any given period it might be more displacing internal costs. That is a lot of what we hear today. But absolutely candidly I can tell you that several of the engagements that we have recently won that will hopefully carry us through the next several years were displacing existing service providers. So I would say it is absolutely mixed.

Brian Alexander- Raymond James

So if I could go to the demand environment. You mentioned that throughout the third quarter there was a deceleration in overall growth, and I was just wondering as we move through the month of October has that changed at all? Are you continuing to see the trends decelerate, or have we reached some point of stabilization? And if you could divvy up the comments per customer segment, primarily SMB and MME.

Frank Khulusi

On the SMB side Brian unfortunately we have seen further deceleration. In our other businesses we are holding our own and doing relatively well. We are extremely happy with our performance on the MME side, and our Gov business continues to perform well as well. Our consumer business has suffered some very tough year-over-year comparisons because at this time last year it was the launch of a new operating system from Apple.

We are actually encouraged by some of the trends in the consumer business although on a year-over-year basis currently we are running if you just look at the numbers and not factor the fact that it was launch date for the new operating system for Apple then you would see some deterioration in the year-over-year comparisons, but we think that is going to dramatically improve as the quarter moves on.

I would say it is a mixed bag out there. MME is stilly carrying the day and the flag and we kind of want it to set the company up for exactly this kind of scenario we are living in right now, and hence our investments which were very well placed last year and expanding and investing on the services side so we can be more a solution that not only do you need when you have discretionary income but you need even when you are trying to save money.

Brian Alexander- Raymond James

On the credit side of the equation Brandon referred to bad debts as having an adverse impact on your OpEx this quarter. I am wonder if number one, was that bad debt experience across several customers or was it concentrated in a few? And secondly if you could just talk about the overall credit environment and how it has impacted your business, your customer’s willingness and ability to spend to the extent that you actually have that feedback from customers. I am wondering how much that SMB decline is based on a reduced appetite for spend or just the lack of ability to spend because of tight credit?

Frank Khulusi

I think it is both. The answer to the last question is both. And actually one of the things that we are stepping up our effort on internally is we are in the process of choosing a product champ if you may to be in charge of financing type and credit type programs to facilitate customer purchases on the SMB side. Now this doesn’t necessarily translate into risk at all for PC Mall because the leasing, you know we don’t carry the paper, but whereas we have had a leasing program before we have not really had any emphasis there so we are just stepping up emphasis on programs such as leasing and financing and other things that actually reduce risk on PC Mall. With respect to the actual bad debt itself we are not at all concerned about it. It is a slight up tick from year’s prior and what we are doing there, and it is in several customers, not a lot of customers and not just one or two customers, of note Linens N’ Things was one of the customers we did get hit on and you’ve heard all the headlines on that and I think that was hundreds of thousands of dollars. But with respect to what we are doing there I think is more communication and more integration between sales and credit to make sure that our interests are aligned and we are optimizing the tension between those.

Brandon Laverne

I would say we are basically optimizing between the risk side of the credit organization and the sales side and making sure that we are in alignment in this day.

Brian Alexander- Raymond James

Final one from me on this share buy-back. With stock below tangible book I am assuming you are looking to get started on that sooner than later. I am just wondering if there is any expiration associated with that program and if you plan to fully utilize it.

Brandon Laverne

Our current plan based on where we are today and the stock price today is to fully utilize it, and we are chomping at the bit to get started. I can’t frankly believe the stock price myself so I think it is a wonderful opportunity for us shareholders for PC Mall for stockholders to be buying back stock at the current level.

Brian Alexander- Raymond James

Is there an expiration print?

Brandon Laverne

There is no current expiration for it but it is a discretionary program so we reserve the right to modify it as the environment changes or as our needs change.

Operator

The next question comes from Chris Krueger with Northland Securities.

Chris Krueger- Northland Securities

Obviously in the market these days everyone is very concerned about companies that have debt. I was hoping you could walk us through your debt covenants and where you stand on those right now, and your overall comfort level.

Frank Khulusi

Our debt covenant is a matter of public record and I consider our current financial agreement as a very covenant-like deal but you need to look at the filing itself and make your own determination on that. We have a lot of room in our existing line. Our existing line is a wonderful line and we have on our existing program two more years. It is not something we are concerned about at all based what we know today.

Chris Krueger- Northland Securities

The U.S. dollar has appreciated about 30% against the Canadian dollar in recent times. What kind of impact would that have on your expenses year-over-year? Is that in effect like an expense reduction in your Canadian co-office or how should we look at that.

Frank Khulusi

I want to go back first to your question about covenants to further add that we have not only covenant-like but it is actually one financial covenant. It is a tangible net-worth covenant. There is no proxibility covenant or anything else that is separate and apart from that. There is no leverage covenant, no ratio covenant. It really is the perfect covenant to have in the kind of environment we have right now. It allows a lot of flexibility.

Chris Krueger- Northland Securities

Is that minimum worth about $6.1 million?

Brandon Laverne

That is close to what that number is.

Chris Krueger- Northland Securities

And your net tangibles is roughly $60 right now?

Brandon Laverne

It is very high and even excluded a lot of the SARCOM intangibles that were acquired.

Frank Khulusi

Without further comment on that with respect to the second question on the Canadian dollar it is another great story there. It is a perfect positive storm if you may with reduction of interest rates and exchange rate going in our favor.

Chris Krueger- Northland Securities

I know you don’t give guidance, but if we are looking just at our fourth quarter gross margin last year you have 11.7% but you were also going through the integration of SARCOM and things like that so there is some kind of moving pieces with margins in general. Directionally would we look at this early stage in the quarter for some similar type of performance this year, or what should we look for there?

Frank Khulusi

We can’t really comment much about gross margin. I think you can recall my comment earlier and I mean this sincerely and out of my heart, not re-trenching the current theory I just learned that we are carrying that flag here internally of being aggressive. Someone used an example with me of the soft drink company Moxy used to be in the post depression basis I heard the largest soft drink company in the U.S. and decided to re-trench at a bad time and Coke and Pepsi decided to actually spend money and well you don’t hear of Moxy any more. So we are not going to manage the business in the fourth quarter for any particular gross margin. We are going to get sales wherever we can. We are going to be as aggressive as we can and whatever the gross margin ends up being we are not managing the operation that way. I think the results for the fourth quarter are going to be oriented toward holding as much position as we can in these hard times.

Operator

The next question comes from Bill Dockins, from Burlington Dockins.

Bill Dockins- Burlington Dockins

Wow, what a market cap. Unbelievable.

Frank Khulusi

We share your enthusiasm on the opportunity that creates.

Bill Dockins- Burlington Dockins

A couple of questions. I am going to ask you Frank since I have been following you for so long, how do you compare what we are going through right now to the 2001-2002 time frame, the 1998 time frame. How does this compare to that in terms of your gut feeling?

Frank Khulusi

First I am going to say that the environment is worse now that it has been in those time frames that you mentioned. But I am glad you bring up those two time frames because PC Mall was used to in times of difficulty emerging ahead of where it was prior to the turn, so at a time when Apple started suffering prior to [inaudible} actually coming in and grabbing the reins back we used that time to further improve out position which ultimately led to our becoming number one in the direct marketing space on the Apple side. Whereas we do things in an environment that is worse than the periods that you are talking about that doesn’t scare us at all. As a matter of fact I believe it presents itself with a lot of opportunity for PC Mall. My favorite expression is “with chaos comes opportunity”.

Bill Dockins- Burlington Dockins

I am glad you answered that way because I wanted to ask you, in an environment like we are experiencing right now, when you look at capturing market share and making acquisitions. What kind of place does this environment put you in with respect to those two categories?

Frank Khulusi

Historically we have used primarily cash in acquisitions. Very little stock in a couple of the five acquisitions that we have made. In the past we have looked at always using cash and thinking even at the higher stock price that our stock was really the currency of last resort. And one of the positives that is going on right now is that some of the values are coming down with respect to what is available out there. We are not going to make acquisitions for acquisitions sake and we are even more selective now than we were before.

Bill Dockins- Burlington Dockins

Kris I wanted to see if you would give me the headcounts again for each of the divisions.

Kris Rogers

I think Brandon actually has those. He can reel them out to you.

Brandon Laverne

The averages during the quarter: SMB 378 this year versus 347 last year. MME was 155 this year versus 109 last year, but qualify that with SARCOM only being here for a few weeks so 143 at the end of the quarter last year. Public sector was90 this year versus 88 last year, and consumer was 112 this year versus 117 last year.

Frank Khulusi

One other thing I would like to add with respect to your comment earlier question with respect to comparing this period to prior periods was the one thing that is very different for us today is we are a lot better positioned today than we were in those periods. Not only have we historically always used that to our advantage but today we have a better ability to use that to our advantage because we are in a better place.

Bill Dockins- Burlington Dockins

Your market cap today is about what it was in 01’ when you were losing money.

Frank Khulusi

So are a lot of companies that have been, well you have seen the stock market. Without further comment about that I really just want to close by saying that we do believe the stock is very attractively priced and that is one of the reasons we announced the stock re-purchase program.

Bill Dockins- Burlington Dockins

Real quick, can you give me a dollar figure or a price-per-share for your hard book?

Brandon Laverne

It is roughly $60 million. I can get you a hard number after.

Operator

At this time there are no further questions in queue. I would like to turn the call back to Frank Khulusi for closing remarks.

Frank Khulusi

As always I would like to thank all the members of the PC Mall team for their hard work and commitment to PC Mall. I am counting on you guys for even more hard work for the fourth quarter and beyond. I would like to thank all of you for participating on this call and to remind you all to call us whenever you have a need for technology products. Call 800-555 Mall or visit us at our website at PCmall.com. As Dan mentioned earlier we are going to have a lot of great deals. Thanks.

Operator

Thank you for your participation in today’s conference. This concludes today’s presentation. You may now disconnect. Good day.

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