Connection income surges in second quarter

Tax cuts, laptop and smartphone sales fuel Merrimack-based tech firm’s results

Merrimack-based technology provider Connection’s profits rose substantially, though about half of the increase has to do with the federal tax cuts.

Earnings reports are a bit more complicated this year since accounting rules require a tougher revenue recognition system. 

Driven by a surge in sale of laptops and smartphones, Connection’s sales were $706 million in the second quarter under the new accounting system, but would have been $820 million under the old, a 9.3 percent increase. That means net sales for the first half rose to $1.3 billion under the new system and $1.5 billion under the old.

The result? A 33 percent increase in net income, to $18.2 million (or 68 cents a share) under the new system, or a 40 percent increase, to $19 million (71 cents a share) under the old. But 11 cents of that 20-cent increase was related to federal tax cuts, which reduced the company’s effective tax rate from 39.5 percent to 27.5 percent.

Notebook sales rose about 17 percent, services went up 8 percent, while software sales, once the company’s main product before it switched from bring a mail order company to a technologies services company, fell by 50 percent year over year for the quarter. 

The strongest growth came enterprise solutions (larger businesses), which rose 15.5 percent. The business solutions segment, which handles smaller businesses and public sector agencies, which includes government and schools, went up by about 5 percent.

CEO Tim McGrath said he expected that growth to continue.

“We are seeing consistently strong demand for large enterprise projects. We're certainly optimistic that that demand will carry through the rest of the year. Naturally, we don't have a crystal ball, but at this point, we don't see any letting up in that enterprise,” he said during the earnings call.