PC Connection CEO: Softmart Acquisition Makes Us One of World's Top Microsoft Partners

The combination of PC Connection and Softmart has unleashed some of the industry's deepest capabilities around software licensing, deployment and management, the company's top executive said Thursday.

"Their Microsoft business, combined with the existing PC Connection business, makes us one of the top Microsoft partners in the world," Tim McGrath, PC Connection's president and CEO, said during the company's second-quarter earnings call. "We're very excited about the opportunities this presents."

PC Connection acquired Softmart, the 200-employee, Downingtown, Penn.-based solution provider, on May 27.

Softmart's software licensing optimization tools - which have helped thousands of customers streamline their software usage and license requirements – made the company an appealing acquisition target, according to McGrath.

[RELATED: PC Connection Buys $200M Softmart As Ranks of Microsoft Licensing Partners Dwindle]

Sales for the second quarter (ended June 30) for Merrimack, N.H.-based PC Connection, No. 21 on the CRN Solution Provider 500, increased by 7.7 percent to $676.2 million from $627.6 million in the same quarter last year. That beat Seeking Alpha's estimate of $663.2 million.

Net income increased by 7.1 percent to $12.5 million in the quarter from $11.6 million last year. Earnings were 47 cents per share. On a non-GAAP basis, earnings climbed by 10.3 percent from $11.8 million to $13 million, or 49 cents per share, beating Seeking Alpha projections of 46 cents per share.

Wall Street responded favorably to the earnings, with PC Connection's stock rising 4.9 percent in after-hours trading to $27.00 per share. Earnings were announced after the market closed Thursday.

Softmart's capabilities in providing cloud offerings and services electronically will change the way legacy PC Connection customers procure and utilize cloud resources, McGrath said. Softmart has obtained Microsoft's coveted Tier 1 Cloud Solution Provider (CSP) status, McGrath said, and has robust cloud offerings and cloud services capabilities.

Legacy Softmart customers, meanwhile, will benefit from PC Connection's deep relationships with other vendors, McGrath said, realizing lower prices while obtaining better logistical support, technical expertise and end-to-end solutions. HP is PC Connection's largest vendor, accounting for 22 percent of its net sales in 2015, according to a filing with the U.S. Securities and Exchange Commission (SEC).

PC Connection and Softmart have already begun analyzing and taking advantage of the best practices of both companies, McGrath said.

For instance, the companies have married Softmart's approach to software – which McGrath said generates real cost savings for customers through a comprehensive evaluation, assessing and deployment process – with PC Connection's existing Microsoft licensing optimization and software optimization practices to deliver a meaningful impact for customers, McGrath said.

Both PC Connection and Softmart have Microsoft's prized Licensing Solution Provider (LSP) status, making them two of only a handful of North American Microsoft partners authorized to handle software volume licensing transactions.

PC Connection's small and mid-sized business quarterly sales grew by 8.3 percent from $259.3 million last year to $280.8 million this year, thanks to strength in advanced solutions areas such as software and networking, according to Joe Driscoll, the company's chief financial officer. Softmart's June revenue was also counted in this category since most of their customers are SMB, Driscoll said.

Large-account sales climbed 12.4 percent from $231.8 million last year to $259.6 million this year due to strength around software and in the healthcare market, Driscoll said. This segment also saw a number of projects roll out over the quarter, McGrath said.

Public sector sales fell 0.6 percent from $136.5 million last year to $135.7 million this year, though Driscoll said changes in product mix drove margin improvements.

Softmart is expected to deliver $100 million of revenue in the second half of 2016, McGrath said, with sales and profits coming in slightly higher in the fourth quarter.