Good day, everyone, and welcome to the PC Connection Fourth Quarter 2011 Earnings Conference. As a reminder, today's presentation is being recorded. At this time, I would like to turn the conference over to Mr. Jack Ferguson, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, and good afternoon, everyone. This is Jack Ferguson. Joining me is Tim McGrath, President and CEO. We're pleased to have you join us today for PC Connection's 2011 Fourth Quarter Earnings Call. If you haven't already seen our press release, you can contact Janice Rush at (603) 683-2322, and she will e-mail a copy to you. You can also view it on our website. Today's call is also being webcast and will be available from PC Connection's website. Additionally, this conference call is the property of PC Connection and may not be recorded or rebroadcast without specific permission from the company. I'd like to inform our participants that 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 we 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 Factors section of the company's annual report on Form 10-K for the year ended December 31, 2010, which is on file with the Securities and Exchange Commission, as well as in other documents that the company files with that agency from time to time. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. And therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. I'm now going to turn the call over to our CEO, Tim McGrath, for his remarks on our quarterly results. Tim?

Good afternoon, everyone. Thank you for joining us to review the company's quarterly and annual financial results. Unless otherwise noted, all of my fourth quarter 2011 comparisons are being made against our fourth quarter 2010 results. Net sales for the fourth quarter were $530 million -- excuse me, $553 million, which are comparable to the 2010 fourth quarter sales. The 2010 revenues included certain large sales of tablets and media players that did not repeat in 2011 due to a contractual change with one of our suppliers. We continue to invest in our solution sales capabilities, including our Q1 2011 acquisition of ValCom and expect that as we execute our business plans, we will capture additional market share. Net income for the quarter increased by 8% to $7.4 million, and earnings per share increased from $0.26 in 2010 to $0.28 per share in 2011. Consolidated gross profit dollars in the quarter increased by over $5 million or 9% to $69 million. Gross margin, representing gross profit as a percentage of net sales, increased by over 100 basis points through our continued focus on margin improvement. All 4 segments improved their invoice selling margins and contributed to the overall margin increase. Consolidated SG&A expenses in the quarter increased by 10% to $57 million. SG&A as a percentage of net sales was 10.3% for the quarter compared to 9.3% for the prior year quarter. We attribute the dollar and rate increase to investments in solution sales capabilities, higher variable compensation associated with improved gross profits and the inclusion of ValCom's operating cost for the quarter. Investments in our solution sales capabilities include the addition of technical sales personnel -- excuse me, technical services personnel to support our data center, Net/Com, software and storage products. Additionally, we incurred approximately $1 million in non-reoccurring…

Thanks, Tim. In summary, our operating results for the quarter were positive, especially considering the continuing uncertainty in the economy. Consolidated sales for the quarter remained relatively constant on a year-over-year basis as the declines in SMB and consumer sales were offset by strong Large Account sales. There were significant gross margin improvements in all 4 business segments and earnings per share increased from $0.26 to $0.28 in the quarter. We continue to invest in long-term growth strategies in order to produce strong operating results. We also manage our resources and liquidity to maintain a strong financial base. Even though our cash balance decreased by $31 million in 2011, we believe our balance sheet demonstrates a continuing strength. Cash flow used by operations for the year, ended December 31, 2011, was $5.3 million compared to a $900,000 use of cash in 2010. The primary use of operating cash in 2011 relates to a $57 million increase in accounts receivable. This increase was only partially offset by increased earnings and an increase in accounts payable. Cash used for investment activities in 2011 was $16 million compared to $7.2 million in 2010. Our net cash investments in 2011 for the ValCom acquisition is $4.7 million. We have agreed to pay an additional $2 million in contingent considerations in 2012 for this acquisition upon the achievement of certain revenue milestones. Cash used for other capital expenditures in 2011 increased by $4.5 million. These expenditures relate, in large part, to the first phase of our IT initiative, which we expect to complete in late 2012. As reported in prior calls, we are continuing to consider comprehensive upgrades to our IT systems. And if these are implemented, our additional capital investment will likely exceed $20 million over the next 3 years. Net cash used for…

[Operator Instructions] And we'll take our first question from Brian Alexander with Raymond James.

Yes. Could you guys talk about the DSO issue again. I'm not sure I understood what you were referencing, Jack, when you talked about customers demanding longer payment terms. I haven't heard this from your peers and I don't think you guys have talked about this in the past. So what's different in this environment that's causing that? But this sounds like this is across your customer base. That's my first question and I have a few follow-ups.

Okay. We did experience that across all of the business segments, particularly in Q4. If you compared your DSOs -- to the previously reported DSOs and the other quarters, you saw the significant increase. And that has to do with -- as we attempted to collect, we found that more and more customers were intentionally trying to preserve their own cash balances and advising us they will pay us after the first of the year, which many of them have, that DSO has come down considerably. But at the year end, that was pretty high. Additionally, we are increasing the number of customers who are getting extended payment terms. Now these are larger companies, and so they have very good credit rating. It's not a case that we're being forced into giving a bad credit. But that is a significant increase in extended payment terms. Additionally, in this quarter, there was a, what I would call a nonrecurring issue with respect to the Public Sector payment, in which we had a delay of receipts coming from one of our teaming partners as a government, those payments have been inadvertently paid to the teaming partners instead of us. So we spent January basically getting those payments back. That probably artificially raised the Public Sector. But it's clear that at this year-end, it's the first time we have experienced that the DSOs were higher because of the customer -- paying the customer delays in payment.

They [indiscernible]?

Yes, perhaps [ph].

But for the larger customers, are you looking to securitize those receivables at all to improve your cash flow? Or is that something where you're going to carry the credit risk on your balance sheet?

I think we would carry the credit risk on our balance sheet. So far, we don't feel that there's -- I think the cost for the securitizing is -- would outweigh the borrowing cost right at this point, considering our low borrowing rate.

Okay. And then just, your revenue relative to my expectation was a little bit less, but your gross margin was better for sure. So how much of this is a conscious decision on the part of the company to either prune revenue or sacrifice some revenue due to competitive environment and preserve margin? I'm trying to get a sense for whether you think your revenue trends are more reflective of the demand environment or more reflective of decisions that you made to preserve profitability in a potentially increasingly competitive environment?

Hi, Brian, this is Tim. Overall, I think we had kind of a mixed bag. And let me start by saying that our Large Account sales grew by 17%. And alternately in the quarter, the big offset really was in the SMB segment and to a lesser degree in the Public Sector. In SMB, it really is all about certain low margin sales of tablets in Q4 and media players that as the result of the contractual change in our supplier agreement, we stopped taking those sales. So accordingly, topline sales were hurt because of that. However, we have several initiatives underway in our solution selling arenas and in the enterprise product lines to improve margins, and our plans are working. And so clearly, I don't expect that contractual change and that supplier agreement change to affect us going forward. We had to move through that in the past.

How much do you think product availability hurt the top line in the quarter and potentially help margin?

That's a tough question. We have our estimates and of course, it varies by product line, but it's really tough to pin that down, as you know, to an exact answer. So ultimately, I think with our larger suppliers, our constraint issues and our inability to deliver as a result of some of the hard drive is fairly consistent with what our suppliers are seeing. But we really don't have an exact number we can call out.

Do you have any meaningful backlog that spilled over into Q1?

We do have a backlog that did spill over. It was about $5 million higher exiting the quarter. But that said, we do anticipate, as I know, you know that the hard drive constraint issue -- we're not out of woods yet. We see that as lasting potentially through the first half of the year.

And were you more constrained on PC-related products or enterprise related?

Clearly it was the desktop and the notebook products that we had a little heavier constraint on. It did affect some of our servers, but ultimately, it was the desktop/notebook line.

And as just a final one for me. You call that a regulatory charge, I think in the prepared remarks. Could you elaborate on what that was for? And whether you expect that -- I think you called it non-recurring, so I assume we won't see that in Q1, but what was that for exactly?

Oh, that has to do with the regulatory audit. And as you know, we try to anticipate what we think the probable assessment might be. And so we made that accrual in the fourth quarter. That audit will take place in this current quarter, and so we had to estimate what we think the likely exposure would be. That's one case. There was another case which states part of business non-income tax, but there was some additional interest in charges for a past assessment there, which we recognized in Q4. So all of those really relate to a nonrecurring, and then there was a -- one of my favorites was a special fee in the District of Columbia for a ballpark that happened to be built there, a few years back so we had to make an assessment for that and we called in Q4.

[Operator Instructions] And there are no further questions at this time. I'll turn the call back to Mr. McGrath for any closing or additional remarks.

Thank you, operator. I'm pleased with our overall performance in 2011. PC Connection achieved record annual sales while attaining highest annual growth margins in over a decade. We remain committed to making the investments necessary to continue to grow our business and improve our operating performance. We believe that the strategies we have put in place will position us well to gain market share and enhance long-term shareholder value. 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'd also like to thank those of you listening to our call this afternoon. Your time and interest in PC Connection are appreciated. Have a great evening.

And ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.