SOURCE: Zones, Inc.

January 30, 2008 16:01 ET

Zones Announces Financial Results for the Quarter and Year Ended December 31, 2007

AUBURN, WA--(Marketwire - January 30, 2008) - Zones, Inc. (the "Company," "Zones"™) (NASDAQ: ZONS):

--  Fourth quarter 2007 net sales improved 10.1% to $176.1 million
--  2007 net sales were up 17.8% compared to the prior year
--  Fourth quarter 2007 SMB sales grew 28.2% compared to the prior year
--  2007 SMB sales grew 32.5% compared to 2006
--  Fourth quarter 2007 diluted earnings per share increased 30.0% to
    $0.26 compared to $0.20 in 2006
--  2007 earnings improved 36.4% to $0.90 per diluted share compared to
    earnings of $0.66 per diluted share in 2006
--  2007 unassisted sales increased to $215.2 million, or 31.7% of total
    sales
    

Zones, a single-source direct marketing reseller of name-brand information technology products, today announced its results for the three and twelve-month periods ended December 31, 2007.

The Company's fourth quarter 2007 net income was $3.8 million, or $0.26 per diluted share, compared with net income of $3.0 million, or $0.20 per diluted share, for the same quarter a year ago. Total fourth quarter 2007 net sales were $176.1 million compared to $159.9 million in the fourth quarter of 2006.

For the year ended December 31, 2007, net income improved to $13.1 million, or $0.90 per diluted share; this compares to $9.7 million, or $0.66 per diluted share, for 2006. Net sales for the year ended December 31, 2007 increased 17.8% to $679.5 million from $577.0 million for the year ended December 31, 2006.

Firoz Lalji, CEO, commented, "Our operating performance was solid during 2007 as we increased net income 35.6% over last year, and attained an annual operating profit of 3.1%. Total sales this year expanded 17.8% while sales to our SMB customers grew a very healthy 32.5%." Mr. Lalji also said, "During 2007 we invested in the development of a national field sales force which we believe holds significant promise as a foundation for future sustained growth."

Operating Highlights

Consolidated outbound sales increased 11.2% to $174.8 million in the fourth quarter of 2007 compared to $157.2 million in the same period of 2006. Sales to SMB businesses grew 28.2% in the quarter, compared with the same quarter a year ago. Unassisted sales during the quarter were $70.7 million, an increase of 46.1% over the same period of 2006, and represented 40.1% of total fourth quarter 2007 net sales.

Gross profit margin improved 10 basis points to 12.1% in the fourth quarter of 2007, compared to 12.0% in the fourth quarter of 2006. The gross profit margin percentage in the fourth quarter of 2007 was positively affected by product and customer mix, vendor programs and pricing. Gross profit margins as a percent of sales are expected to vary on a quarterly basis due to vendor programs and credits, product mix, pricing strategies, customer mix and economic conditions.

Total selling, general and administrative expenses as a percent of net sales were 7.8% in the fourth quarter 2007, which is flat compared to the corresponding period of 2006 and represented a sequential increase from 7.4% in the third quarter of 2007. The sequential increase is due to compensation and benefit related expenses resulting from incentive compensation and employee benefits.

Asset Management

The balance sheet remained strong and the Company ended the year with a cash balance of $12.0 million. Consolidated working capital was $55.0 million at December 31, 2007, compared with $41.7 million at December 31, 2006.

Inventories decreased slightly to $21.3 million at December 31, 2007 from $21.4 million at December 31, 2006. On hand inventory includes approximately $6.3 million of inventory for which the Company has binding customer purchase orders. Trade accounts receivable increased to $71.7 million at December 31, 2007 from $64.2 million at December 31, 2006.

About Zones, Inc.

Zones, Inc. is a single-source direct marketing reseller of name-brand information technology products to the small-to-medium-sized business market, enterprise accounts and public sector accounts. Zones sells these products through outbound and inbound account executives, a national field sales force, catalogs and the Internet. Zones offers more than 150,000 products from leading manufacturers including Adobe, Apple, Avaya, Cisco, HP, IBM, Kingston, Lenovo, Microsoft, NEC, Nortel Networks, Sony, Symantec and Toshiba.

Incorporated in 1988, Zones, Inc. is headquartered in Auburn, Washington. Buying information is available at http://www.zones.com, or by calling 800-258-2088. The Company's investor relations information can be accessed online at www.zones.com/IR.

A live webcast of the Company's management discussion of the fourth quarter results will be available on the Company's Web site at www.zones.com/IR under upcoming events. The webcast will be held today, January 30, 2008 at 2:00 pm PT.

This press release may contain statements that are forward-looking. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These risk factors include, without limitation, the effect of fluctuating or unfavorable economic conditions on IT purchasing trends and price competition, and the Company's ability to appropriately react to those changing conditions; future growth; account executive hiring and productivity; increased expenses of being a public company; pressure on margin; competition; state tax uncertainties; rapid technological change and inventory obsolescence; reliance on vendor relationships; dependence on personnel; potential disruption of business from information systems failure; reliance on outsourced distribution; variations in gross profit margin percentages due to vendor programs and credits, product and customer mix, pricing strategies, and economic conditions; and other risks and uncertainties detailed in the Company's filings with the SEC.

                                ZONES, INC.
                        CONSOLIDATED BALANCE SHEETS
                              (in thousands)
                                (Unaudited)


                                             December 31,      December 31,
                                                 2007              2006
                                             ------------      ------------
ASSETS
Current assets
  Cash and cash equivalents                     $  12,004         $   9,191
  Receivables, net of allowances of $1,993
   and $1,936, respectively                        73,581            66,027
  Vendor Receivables                               15,139            12,228
  Inventories                                      21,278            21,385
  Prepaids                                            861             1,076
  Deferred tax asset                                1,377             1,473
                                             ------------      ------------

       Total current assets                       124,240           111,380

Property and equipment, net                         3,383             3,771
Goodwill                                            5,098             5,098
Deferred tax asset                                    411               251
Other assets                                          190               195
                                             ------------      ------------

       Total assets                             $ 133,322         $ 120,695
                                             ============      ============

LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $  37,040         $  42,592
  Inventory flooring                               20,252            14,385
  Accrued liabilities and other                    11,479            12,584
  Income taxes payable                                510               150
                                             ------------      ------------

       Total current liabilities                   69,281            69,711

Deferred rent obligation                            1,733             1,502
                                             ------------      ------------

       Total liabilities                           71,014            71,213
                                             ------------      ------------

Commitments and contingencies

Shareholders' equity:
  Common stock                                     35,676            35,983
  Retained earnings                                26,632            13,499
                                             ------------      ------------

       Total shareholders' equity                  62,308            49,482
                                             ------------      ------------

       Total liabilities & shareholders'
        equity                                  $ 133,322         $ 120,695
                                             ============      ============


                                ZONES, INC.
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in thousands, except per share data)
                                (unaudited)


                                For the three months  For the twelve months
                                  ended December 31,    ended December 31,
                                   2007       2006       2007       2006
                                ---------  ---------  ---------  ---------

Net sales                       $ 176,109  $ 159,919  $ 679,492  $ 577,027
Cost of sales                     154,744    140,753    599,223    505,508
                                ---------  ---------  ---------  ---------

  Gross profit                     21,365     19,166     80,269     71,519
Selling, general and
 administrative expenses           13,704     12,516     51,201     48,434
Advertising expense                 1,804      1,872      8,038      7,159
                                ---------  ---------  ---------  ---------

  Income from operations            5,857      4,778     21,030     15,926
                                ---------  ---------  ---------  ---------

Other (income) expense                (47)       (11)       174        270

Income before income taxes          5,904      4,789     20,856     15,656
Provision for income taxes          2,101      1,806      7,723      5,971
                                ---------  ---------  ---------  ---------


  Net income                    $   3,803  $   2,983  $  13,133  $   9,685
                                =========  =========  =========  =========


  Basic earnings per share      $    0.29  $    0.23  $    1.00  $    0.73
  Shares used in computation of
     basic earnings per share      13,146     13,208     13,139     13,195
                                =========  =========  =========  =========

  Diluted earnings per share    $    0.26  $    0.20  $    0.90  $    0.66
  Shares used in computation of
     diluted earnings per share    14,652     14,800     14,635     14,756
                                =========  =========  =========  =========


                             Operating Highlights
                              Supplemental Data


                               Three months ended     Twelve months ended
                              ---------------------  ----------------------
                              12/31/2007 12/31/2006  12/31/2007  12/31/2006
                              ---------- ----------  ----------  ----------
  Operating Data
    Unassisted net sales (in
     000's)                    $  70,674  $  48,363   $ 215,235  $ 172,385
    Sales force, end of period                              342        342

  Average Productivity
   (annualized)
     Per Account Executive (in
      000's)                   $   2,060  $   1,870   $   1,987  $   1,687
     Per Employee (in 000's)   $     999  $     968   $     964  $     873


  Product Mix (% of sales)
    Notebook & PDA's                14.5%      12.7%       14.2%      12.4%
    Desktops & Servers              19.1%      19.3%       21.3%      20.3%
    Software                        18.8%      19.7%       18.6%      17.7%
    Storage                          7.0%       8.0%        7.0%       9.1%
    NetComm                          5.1%       4.5%        5.2%       4.9%
    Printers                         8.5%       8.5%        8.2%       8.2%
    Monitors & Video                10.2%      11.4%        9.7%      10.4%
    Memory & Processors              4.4%       5.8%        4.8%       6.2%
    Accessories & Other             12.4%      10.2%       11.0%      10.8%

Contact Information

  • Contact:
    Ronald McFadden
    Zones, Inc.
    Chief Financial Officer
    253-205-3000