Good afternoon ladies and gentlemen, and welcome to the Second Quarter 2012 PC Connection, Inc. Earnings Conference Call. My name is Justin, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference call is the property of PC Connection and may not be recorded or rebroadcasted without specific permission from the company. On the call today is Tim McGrath, President and Chief Executive Officer; and Joe Driscoll, Chief Financial Officer. Any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward-looking statements. Various remarks that management may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factor section of the company's annual report on Form 10-K for the year ended December 31, 2011, which is on file with the Securities and Exchange Commission, as well as in other documents that the company files with the commission from time to time. In addition, any forward-looking statements represent management's view as of today and should not be relied upon as representing views as of any subsequent date. While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so, even if estimates change. And therefore, you should not rely on these forward-looking statements as representing views as of any date subsequent to today. If you have not already seen the press release, you can contact Janice Rush at (603) 683-2322, and she will email a copy to you. You can also view it on the company's website. Today's call is being webcast and will be available from PC Connection's website. I would now like to turn the call over to Tim McGrath. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us today to review the company's financial results for the second quarter of 2012. During the quarter, we continue to execute our strategy by providing a full range of IT solutions, increasing market share, making operational improvements and driving productivity gains. We have a company-wide focus on these goals, and we are pleased with the progress that we have made, as evidenced by our solid Q2 performance. As we review our results, please note that unless otherwise stated, all of our second quarter 2012 comparisons are being made against our second quarter 2011 results. Net sales for the quarter increased year-over-year by $30 million, or 6%, to $543 million. Lower sales to our consumer, SOHO and government customers were more than offset by strong large account sales. We continue to invest in improving our operations and expanding our solution sales capabilities. These include standards of excellence in data center, network services, software, mobility, storage and life cycle services. In addition, our health care business continues to achieve significant growth. We've experienced strong demand and expect to continue to invest in these strategically important practice areas. Net income for the quarter increased by 18% to $8.8 million, and earnings per share increased from $0.28 per share in 2011 to $0.33 per share in 2012. We continue to strive to increase earnings per share at a rate faster than the growth in sales by leveraging our fixed costs over our larger sales base. Gross profit dollars in the quarter increased by $5 million, or 7%, to $72 million. Gross margin representing gross profit as a percentage of net sales increased to 13.2% versus 13% in the prior year quarter. This is a result of our strategic focus on operational improvements, which have resulted in…

Thanks, Tim. In summary, our operating results for the quarter were strong, specially considering the continuing macroeconomic concerns. Consolidated sales for the quarter increased 6% on a year-over-year basis. We continue to drive operational efficiencies, which contributed to our 30-basis-point improvement in operating margin. Earnings per share increased from $0.28 to $0.33 in the quarter, an increase of 18%. And we generated significant positive cash flow during the first 6 months of 2012. Our cash balance at the end of the quarter was approximately $63 million compared to $5 million at December 31, 2011, and we had 0 bank debt outstanding at June 30, 2012. Cash flow provided by operations for the 6 months ended June 30, 2012 was $72 million compared to $33 million in the first half of 2011. The primary source of operating cash during the first half of 2012 was a $41 million decrease in accounts receivable. Day sales outstanding, or DSOs, were 41 days as of June 30, 2012, and June 30, 2011, compared to 47 days as of December 31, 2011. In addition, our inventory levels decreased in the first 6 months of 2012 by $2.5 million, primarily due to much tighter working capital management. Inventory turns for the second quarter of 2012 increased to 28x compared to 25x in Q2 of 2011. Capital expenditures in the first half of 2012 totaled $5.2 million. These expenditures were primarily related to our customer, Master Data Management project, which we expect to have substantially completed in late 2012. Net cash used in financing activities in the first 6 months of 2012 was $7.1 million. Of this total, $5.3 million was used to repay bank debt during the first quarter of 2012. We also purchased $1.5 million of our outstanding stock for treasury at an average price of $9.05 per share during the first 6 months of 2012, which was comparable to treasury stock purchases made in the first 6 months of 2011. Overall, we continue to experience positive cash flow in the first 6 months of 2012. Note that we expect the cash balance to decrease somewhat over the balance of the year due to projected higher levels of sales and working capital in the last 2 quarters of 2012. We expect that the balance sheet will be healthy for the remainder of this year. We will now entertain your questions. Operator?

[Operator Instructions] And our first question comes from Jared Schramm with Roth Capital Partners.

Looking at K through '12, you mentioned it was slightly up on the year-over-year basis, have you seen any early indications in regard to purchases on the K through '12 levels, so far, just through the month of July?

Interestingly enough, our education component of the Public Sector was our best-performing, highest-growth area. It's a little too early to call it, but clearly this is the quarter for Public Sector sales as you know. So we're still early in the quarter to tell, but we've not seen anything significant yet.

Okay. And turning to the Windows 8 launch this fall, could you just give us some high-level thoughts on what you're doing to prepare yourself for this launch?

So we've got a multi-pronged initiative out there, spanning all of the sales segments. We're doing a lot of training and a lot of promotion and development. And we're optimistic in working with our customers. There's a lot of anticipation, a lot of excitement about what Windows can do as it relates to mobility, security and the opportunity to have one common operating system from your handheld to your tablet to your desktop.

And turning now to health care, you mentioned you saw a 28% year-over-year growth in that sector across all 3 operating segments. What in particular are you doing from a sales force angle to really promote this channel?

So we have our company-wide marketing and training focus that we call health connection, and we do a very detailed training with our sales force. Now we also give very specific areas of focus, digital medical records, for example, and a number of other areas that we look at so that our sales force has an engineering team in a practice area and a marketing team to help them promote and reach their customers.

Okay. And lastly here, on the MDM project, is that about going to be completed on schedule compared to your original expectations?

It's basically on track with our original expectations. We are taking a little bit more time just to make sure we have a smooth transition with all the sales teams. But it's basically on track. A vast majority of it will be implemented later this year. Some of it will roll into 2013, as we hit all of the different subsidiaries. But it's rolling along nicely.

[Operator Instructions] The next question comes from Arie [indiscernible] with Raymond James.

I'm just on the call for Brian Alexander today. Just a couple of questions. Did you see any incremental demand softness as the quarter progress, which is what one of your competitors suggested yesterday on their call? And if so, could you maybe, by product segment or a customer segment, tell me where you saw that weakness, if any?

Welcome, Arie. So we saw a fairly normal seasonality and linearity to the sales ramp-up throughout the quarter. But as you know, as our -- you've been hearing there are certainly some economic headwinds out there. And in particular, in our Public Sector business, we are seeing some reduction in federal spending, as I mentioned earlier. So that will be the one thing that really stands out for us.

Got you. And if I could ask another one. Operating margins continue to rise and right now approaching 3%, what revenue level do you need to achieve for operating margins to be sustainably above 3%? And is that something that's conceivable for calendar year '13?

Yes. It's probably around $600 million a quarter thereabouts, as I said, if we maintain our gross margins or hopefully, pick them up a little bit. But we should be getting leverage off our fixed SG&A cost structure. So probably somewhere around $600 million to $620 million a quarter should theoretically get us to that range.

Great, that was really helpful. And if I could ask one more. What should we think about our revenue growth in the second half relative to the first half? Which segments do you think will be accelerating and which ones do you think may be slowing?

So traditionally, the second half of the year is going to be larger than the first half of the year. There's a couple of reasons for that. One is that the Public Sector space, although it -- we are seeing some softness there, traditionally, due to budget cycles, it usually is stronger than in the second half of the year than the first half of the year. There -- the other pieces of the business should be fairly steady in terms of year-over-year performance. You'll -- we will see some upticks but, generally speaking, that's what you'll see is that the second half will be somewhat higher than the first half of the year.

Great. I do have one more, if I could just exhaust my whole list here. Have you -- have there been any impacts from a vendor incentive programs on gross margins? And are any of them worth calling out?

No dramatic impacts, except for some of our software deals have changed slightly from a year ago. That's about the only thing that we saw. But generally speaking, it's fairly stable as far as we can tell.

And that does conclude the question-and-answer session. I will now turn the conference back over to Mr. McGrath for any closing or additional remarks.

Thank you, operator. I'm pleased with our solid second quarter results. It continued improvement in gross margin and operating income. The macroeconomic environment continues to be a challenge, which includes constrained government spending. However, we believe that our strong team and our core business strategies position us well for future success. I'd like to thank all of our customers, vendor partners and shareholders for their continued support and our dedicated co-workers for their efforts. I also like to thank all of you listening to our call this afternoon. Your time and interest in PC Connection are appreciated. Have a great evening.

And that does conclude today's conference. We do thank you for your participation today.

Thanks.

Thank you, sir.