Zones, a single-source direct marketing reseller of name-brand information technology products, today announced its results for the three months ended March 31, 2006.
Total first quarter 2006 net sales grew 6.1% to $134.0 million compared to $126.3 million in the first quarter of 2005. The Company's first quarter net income was $1.7 million, or $0.12 per diluted share, compared with a net income of $1.1 million, or $0.08 per diluted share, for the same quarter a year ago.
"Our intense focus on performance this quarter is reflected in our continued sales and earnings growth," commented Firoz Lalji, President and Chief Executive Officer. "It is important to note that our first quarter financial results include the startup costs of our Portland call center, which is a key building block in our strategy to invest aggressively in longer term growth initiatives." Lalji continued, "We continue to execute against our initiatives with a focus on customer service, margin management and team member development."
Operating Highlights
Consolidated outbound sales to commercial customers increased 8.9% to $124.2 million in the first quarter of 2006 compared to $114.1 million in the same period of 2005. Net sales to both commercial and public sector customers as a percent of total net sales for the three month period ended March 31, 2006 and 2005 were 97.5% and 95.3%, respectively. Direct online orders increased to $42.8 million, an increase of 164.9% over the same period of 2005, and represented 31.9% of total first quarter 2006 net sales.
Gross profit margins were 12.4% in the first quarter of 2006 which is an increase from 11.7% in the first quarter of 2005, as well as a sequential increase from 10.4% over the immediately preceding quarter. The sequential increase is due primarily to vendor programs and customer mix. Gross profit margins as a percent of sales vary on a quarterly basis due to vendor programs, product mix, pricing strategies, customer mix, and economic conditions.
Total selling, general and administrative expenses, as a percent of net sales, were 8.9% in the first quarter of 2006 which is flat compared to the corresponding period of the prior year and an increase sequentially from 7.1% for the fourth quarter of 2005. The sequential increase is due to the Company's continued expansion of its account executive sales force and startup costs associated with the opening of the Portland call center. The Company expects to continue hiring additional account executives in both the Portland and Auburn facilities during the second quarter to support its sales growth initiatives.
Asset Management
The Company's balance sheet remains in excellent condition. During the quarter, the Company repurchased and retired 313,600 shares of its common stock at an average price of $6.10 per share. The Company ended the first quarter of 2006 with over $4.4 million of cash and had no outstanding interest bearing borrowings against its line of credit. Consolidated working capital was $33.7 million at March 31, 2006 compared to $33.4 million at December 31, 2005.
The Company's net inventory was $17.5 million at March 31, 2006, a decrease from $19.7 million at December 31, 2005. Inventory turned at 26 times annually during the quarter. Trade accounts receivable decreased to $61.1 million at March 31, 2006 from $70.9 million at December 31, 2005. Days sales outstanding were 49 days, an increase from 44 days at December 31, 2005.
About Zones, Inc.
Zones, Inc. and its subsidiaries are single-source direct marketing resellers of name-brand information technology products to the small to medium sized business market, enterprise and public sector accounts. Zones sells these products through outbound and inbound account executives, specialty print and e-catalogs, and the Internet. Zones offers more than 150,000 products from leading manufacturers including 3COM, Adobe, Apple, Cisco, Epson, HP, IBM, Kingston, Lenovo, Microsoft, Sony and Toshiba.
Incorporated in 1988, Zones, Inc., is headquartered in Auburn, Washington. Buying information is available at http://www.zones.com, or by calling 800-258-2088. The Company's investor relations information can be accessed online at www.zones.com/IR.
A live webcast of the Company's management discussion of the first quarter will be available on the Company's Web site at www.zones.com/IR under upcoming events. The webcast will be held tomorrow, April 28, 2006 at 8:30 am PT.
This press release may contain statements that are forward-looking. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These risk factors include, without limitation, future profitability and sales growth, account executive hiring and productivity, vendor support, competition, rapid technological change and inventory obsolescence, reliance on vendor relationships, increased expenses of being a public company, state tax uncertainties, reliance on distribution, dependence on personnel, potential disruption of business from information systems failure, and other risks and uncertainties detailed in the Company's filings with the SEC.
ZONES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
March 31, December 31,
2006 2005
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 4,433 $ 3,195
Receivables, net of allowance for doubtful
accounts of $1,673 and $1,562 57,063 68,318
Vendor Receivables 14,661 14,750
Inventories, net 17,470 19,736
Prepaids 995 922
Deferred tax asset 1,346 1,346
----------- -----------
Total current assets 95,968 108,267
Property and equipment, net 4,111 3,810
Goodwill 5,098 5,098
Other assets 178 179
----------- -----------
Total assets $ 105,355 $ 117,354
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,961 $ 45,359
Inventory Financing 12,724 8,469
Accrued liabilities and other 9,780 8,621
Line of credit - 10,700
Income taxes payable 809 448
Notes payable to former shareholders of CPCS, Inc. 972 1,272
----------- -----------
Total current liabilities 62,246 74,869
Note payable 17 21
Deferred income tax 35 35
Deferred rent obligation 1,201 1,112
----------- -----------
Total liabilities 63,499 76,037
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock 36,337 37,503
Retained earnings 5,519 3,814
----------- -----------
Total shareholders' equity 41,856 41,317
----------- -----------
Total liabilities & shareholders' equity $ 105,355 $ 117,354
=========== ===========
ZONES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the three months
ended March 31,
2006 2005
------------ ------------
Net sales $ 133,998 $ 126,331
Cost of sales 117,411 111,569
------------ ------------
Gross profit 16,587 14,762
Selling, general and administrative expenses 11,862 11,199
Advertising expense, net 1,802 1,738
------------ ------------
Operating income 2,923 1,825
------------ ------------
Other expense: 178 61
Income before income taxes 2,745 1,764
Provision for income taxes 1,040 673
------------ ------------
Net income $ 1,705 $ 1,091
============ ============
Basic income per share $ 0.13 $ 0.08
Shares used in computation of
basic income per share 13,179 13,443
============ ============
Diluted income per share $ 0.12 $ 0.08
Shares used in computation of
diluted income per share 14,696 14,466
============ ============
Operating Highlights
Supplemental Data
Three months ended
------------------
3/31/2006 3/31/2005
------------ ------------
Operating Data
Number of orders 102,696 99,389
Average order size $ 1,334 $ 1,299
Direct web net sales $ 42,757,000 $ 16,138,000
Sales force, end of period 278 292
Average Productivity (annualized)
Per Account Executive $ 1,928,000 $ 1,731,000
Per Employee $ 884,000 $ 828,000
Product Mix (% of sales)
Notebook & PDA's 12.7% 13.0%
Desktops & Servers 19.7% 24.8%
Software 15.7% 16.6%
Storage 10.3% 9.1%
NetComm 4.7% 3.8%
Printers 8.2% 9.0%
Monitors & Video 11.6% 10.0%
Memory & Processors 7.1% 5.2%
Accessories & Other 10.0% 8.5%
