Connection reports giant increase in first-quarter income

Sales, lower tax rate boost results, company says

Buoyed by a lower tax rate and strong business sales, especially related to large advanced technology projects, Connection posted great numbers for the first quarter, handing out special dividends, buying back shares and paying off debt.

The Merrimack-based recently firm switched accounting systems to better report more subscription-based software arrangements for security software, cloud-based licenses and maintenance, indicating a decades long-shift from a commodity hardware company to a technology service company.

Connection reported net income of $11.3 million, or 42 cents a share, for the quarter ending March 31, a 47 percent increase compared to the same quarter last year (if the accounting systems were consistent), thanks to a 4.5 revenue increase to $624.9 million, the company reported last week.

Part of this was due to a Windows 10 refresh as well as large businesses – the biggest beneficiaries of the federal corporate tax break – felt more free to upgrade their IT systems.

Enterprise solutions (large account) sales rose by nearly 15 percent. Sales of mobility and service storage products grew by 25 and 13 percent, respectively. Small business sales rose 9.1 percent, with servers going up by 19 percent.

Only public sector sales went down, but that was partly due to a banner first quarter last year.

“We’re really getting great penetration with the advanced technologies. Server/storage looks good. And I think that business is going to be fairly consistent,” said CEO Tim McGrath, in a conference call transcribed by SeekingAlpha.com

Connection’s effective first-quarter tax rate dipped from 35.2 to 27 percent (It would have been 21 percent, but state taxes rose because there was less federal tax to deduct.)

Connection paid out a special $9.1 million dividend to shareholders and spent another $3 million to purchase its own shares.