PC Connection (CNXN) 25 Feb 212020 Q4 Earnings call transcript

Good afternoon and welcome to the Fourth Quarter 2020 Connection Earnings Conference Call. My name is Josh, and I'll be the coordinator for today. At this time, all participants are in a listen-only mode.

Following the prepared remarks, there will be a question-and-answer session.

As a reminder, this conference call is the property of Connection and may not be recorded or rebroadcast without specific permission from the company.

are Baker, President Chief Senior today Officer; Chief Financial call Tom and Vice the Tim and McGrath, Executive Officer. On President and company. now will turn call to I the the over

factors, Safe Thanks, statements. safe that differ Harbor made for each Factors Form XXXX, operator. the harbor Various discussed future expectations, forward-looking plans the prospects period purposes that fact file remarks make of call Securities management not statements conference of now to XXXX, statements XX-Q including may December Reform the that is these Actual Securities I read the year the as those Form commission other section Report files on the those in under be well about for during of company's a the the Risk statement. company's September statements the from by Litigation XX-K deemed or will Annual Exchange for updated in documents company Any provisions XX on references constitute statements ended important in time. as historical with are and Private may with ended Commission, the result to be as of the materially the various as of XXXX. forward-looking indicated Act forward-looking results XX, of time from which may and

of not today In addition, relied should as any as statements and as view forward-looking of representing date. subsequent any management's represent upon be views

you change not representing specifically disclaims forward-looking so, to point as update rely statements statements of to some company today. on the may should any even and in these future, do to company the date obligation elect therefore, forward-looking the if estimates views as While subsequent any at

measures be stated, references The our of Connection's and the would note SEC website. earnings at quarter discussed. call being in XXXX. host, Today's at Investor to release to unless of financial otherwise XXXX comparisons Tim now the be During reconciliation Tim? section and www.connection.com. two made the website available our all against release that webcast non-GAAP website www.connection.com. be quarter will A Please fourth CEO. and today's will like on is I is call are being between GAAP on over and will this call, available the Relations company's fourth at website www.sec.gov in available on President the earnings McGrath, to and the turn

afternoon, recovery our of thank conference business, QX, and late Sector. continued seen in consistent three revenue In us in for that Good we with Samantha. QX quarter. our announce you, year-over-year and the Business growth the XXXX QX experienced Public sales second to call. since We're you in results segments: pleased everyone, trend we've our joining Thank Solutions for reflect Connection's two today improvement sequential

commercial share year Gross margins X.X% or of daily $XX.X million, sales was net Our income year-over-year year-over-year. of XXXX. a essentially or per strong in of obviously a by XX.X%, had from representing of of earnings $XX.X December $X.XX, challenging cash reflecting Operating sales QX revenue of from with unusual an and share from was our Enterprise XXXX to believe XX.X% was for disappointing, cash X.X%. per declining million a tough million $XX.X and earnings sales, quarter XX.X% decreased one-time this a The from million, equivalents, which XXXX flat and the dispute was million from were but year related compared QX and In XX, net growth costs, drive of XXXX. a in lingering these expenses force, in XXXX, will technical down $X.X in $XXX.X a ended sales X.X% to transition prior QX QX two we ERP a new XXXX, year diluted increase net QX decrease beyond. quarter. X.X% introducing Gross decrease and revenues in was decline We to related drop offset XXXX. Fourth which is segments average Enterprise of X.X% million comparison profit business $XXX.X XXXX. down strong a by income legal Solutions, a costs

compared on increased were An K-XX increased the an performance; in a experiencing the of of QX achieved segment Looking SLED governments. growth year quarter. Business state business vendor in XX.X% our by ago. education the first higher-ed, year a a compared to despite experienced to Solutions was by QX quarter. lower prior the sales for an local average QX XX.X% time by margin large XX.X% result rollouts and mix in of local and Sales Gross million, daily a and a net at to across to Solutions decreased to an prior largely points our XX.X% Revenues the of declined After a to Business the quarter. our decreased Gross of to since was due $XX.X institutions the XX in basis were state increase fewer 'XX. XX% $XX.X in of $XXX.X basis and XX.X% compared million changes XXXX, government increase in in decrease government year of increase million, ago. was X.X% year product from and X.X% basis year. quarter incentives. as ago, the the Sales profit points business, net million, growth product XXX profit for Gross X.X% in as decrease result grew to million average In $XX XX.X% daily Sector compared X.X% in in the of the sales million, project segment Solutions increase Public QX X.X% the to sales Gross pandemic-related QX we Public compared $XXX.X organic million, XXXX. $XX.X the than million, changes sales QX. federal to were was $XXX.X headwinds, while in an mix. Sector $XXX.X quarter margin sales segment

months the in as our ahead normalize recovers. to revenue margins expect We

basis average focused on for are an million, Enterprise million profit margin daily or $XXX.X Enterprise historical decrease segment levels In Solutions ago, was to XX% sales quarter basis. XX.X% Gross quarter, business X.X% on were to federal to a a segment, of the year our in decrease decrease of We $XXX.X an a for million, increase helped $XX.X the a XX.X%. QX in compared drive the gross of performance. XXX points the sales which returning

challenges with and a few sales availability during our has issues highest year-over-year In silver with product continuous difficult large with addition the the a to experienced Enterprise comparison, Enterprise ended Perhaps quarter the backlog growth of the their QX, actually the the segment suppliers. in history. since experienced Solutions quarter, pace lining,

this We quarters to expect it normalize. couple will for backlog of take a

additional call Tom to discuss income highlights balance Tom? over the cash turn our me to statement, Let and financial sheet statement. from flow

million Thanks, increase Tim. a SG&A million this $XX.X $XX.X X% year quarter, from an ago. of was

planned associated increase As slightly of net sales, with amounting with this the a costs by an down ERP ERP driven commercial QX by dispute professional fees and the will technical $X.XX percentage over rollout, associated to year-over-year XX% continuing sales basis to and about spend was The a new the legal one-time we establishing represented year-over-year related a per share QX. and declined in ERP Sequentially, QX. XXX SG&A increase force. reduce fees from in of points as spend

in ago. XX.X% from this trending $XX.X year here. we're was quarter So, $XX.X the right million operating a QX income direction million, down

tax from expense down certain XX.X%, Included was rate same proceeds a R&D a XX.X% tax exempt benefit favorability effective is from an period from ago. year Our current in the tax credit. quarter's insurance the tax and in

per XX% Net $XX.X expect income million, XX.X% back for period. decrease to of XX% to a decrease was a from share prior year $X.XX, the from ago. the $XX Going range. a was the forward, rate diluted the we The million year of revert tax quarter earnings

special Our was XX-month year EBITDA, and January depreciation which In $X.X XX% before year, taxes, million this in earnings shareholders. $X.XX million from per share to decreased declared $XX.X dividend, trailing million adjusted we $XXX.X or paid amortization, QX, returning to a a ago. income of adjusted

repurchased repurchase, to and in million we dividend returned XXXX, shareholders XXX,XXX for shares special million. stock was the during total cash of $XX.X Between addition, XXXX. of the a In $XX.X

and Group We and stock change was accounts have the quarter our was existing the ended year a million Public an million by in an for repurchase year DSO for offset operations repurchases from for X%. under in receivable inventory. $XX.X Sector accounts the remaining for improved by XXXX Group flow both $XX.X million Solutions ago. stock versus same program. primarily $XX.X by Business driven period Cash The sequentially the for increase payable, increase

Group. a Enterprise basis. was offset was which software DSO due in almost sales, the an The Group in increased increase net the by DSO Enterprise entirely is revenue However, increase in recognized on to the for this

Tim Our net company million cash the trends. initiatives. payment for and dividend over repurchases. to consisting year, primarily activities the equipment used market IT and of back current $X.X of investing previously The special $XX.X of activities of purchases stock was primarily million financing $XX.X the to call used discuss the during result of XXXX turn QX our in for $XX million cash million I declared now of will

Thanks, Tom.

notable for We health a into XXXX. move success. building made position were these. of upon to growth the about number care believe during industry-leading our had challenging to some of efforts are future, minute a accomplishments. we I'd we take to like during optimistic XXXX, As us we've a There we XXXX review in

from Year Year, HP The XX% the awards and We the manufacturing Intel the by Year our Technical And in for including Our by Surface PC. quarter. lifecycle Partner vertical Solution National innovation QX. business of of by grew XX.X% US Microsoft for PC for grew several received the business services SLED we XXXX. partners, of Partner Solutions and grew XX% Group Partner our

addition, record during In the new we a customers pandemic. number of added

can points expect points we rate XXX basis of we Moving basis in grow XXX revenue of forward, excess market growth. the to that

to in and impact performance and remain deliver to needs operating cloud, your year our transformation, well of services and the software-as-a-service XXXX. customers in going positioned In business Obviously, Solutions and very managed and expect for focus the our past strong, the pandemic forward forward. workplace the the on We're expenses, deserve. significant Demand over our confident security we about Technology financial business We our entertain continuing optimistic that look continued performance improving costs to growth meet our continue our of had our terms are driving we shareholders Operator? out customer service on expect XXXX, now to we customers and We'll and through a operations. Group. was questions.

with comes Lebiedzinski you. & Thank Company. from first Sidoti [Operator Instructions] Anthony Our question

your You question. proceed may with

Good questions. afternoon. And thanks for taking the

feel you impact what just see perhaps to revenue? you constraints business chain terms your first, So supply wanted quantify there on I with in guys out the if could maybe of from

Anthony, thanks for the question.

blanked a repeat bit. you little Could that? You out

Yes. Sure.

So, how Is guys I you on that was quantify way of revenue? an constraints. there impact asking much supply about the could that any perhaps had chain

that exacerbated the demand work towards rollouts from Yes. mobility as entire have ebbs the really the for We we of and flows. home, specifically and project some has across industry we're across the ICUs and CPUs were for out that quarter, you displays, the don't industry seeing end delayed as where the reason. But specifically of Anthony, them had large that broken know, it growth

think not So, us. to I do it's unique

back normal, it's that take us couple of think optimistic pretty track. we'll while that, it will right to to I'm quarters industry-wide. a be And resume on I

Got it.

Okay. you Tim. that, Thank for

the as Thomas, far is far you as system as ERP some of out increases, called So the -- the as SG&A, concerned.

as get and then as little the also to love organization, technical far this more I sales which on You bit details one-time that fees. legal a would new have

way of is type SG&A to what's forward? these to pressures? to get is Basically, of normal versus of to -- a I for some there there down? So, sense kind could one-off, of a going expenses you quantify of you you for guys Obviously, guys some as way break want but expense kind was this recurring any

Yes.

with. Let a Anthony, me out to points, you of data just give couple start

components. We've a basis at year, think this one, look lower points to from is Component simply right. to points. percentage year accounts increase number rate base. netted, revenue XX I software the our a function if QX last QX is That a which G&A up XXX So of points two as revenue for got basis of basis XX it's about I

is one-time one-time if them up out, So points strip most were that rate is you And on year. G&A of basis that actual roughly cost. our based costs, due were -- entirely XX to about which say, I'd the these

ERP kind of That stuff commercial the increase other Let's legal lingering ERP, of what of kind of $XXX,XXX is. for and legal it's of $X.X $XXX,XXX million $XXX,XXX say, quantifies things. and -- the dispute for $XXX,XXX

Now, ERP guess going go away, my sub that next million, quarter, million mentioned. current -- to I my going It's probably be not the stuff forecast. all of is would be $X.X $X.X is to

hopefully, bit little a So than usual here. more few moving a lot -- of bit specificity I've a just given there little is you because parts

And Okay. QX? system Yes. you then Thank would expenses you, for Tom, beyond that. additional ERP expect

beyond it's think QX, of level in kind normal to been the I be going kind of we've more maintenance be would historically. [ph] noise the and mode in at that than

further don't I going to it's to anything of going need think about significance be it's to have So, that conversations it.

[ph] XXXX. statements Can your curious on for as expect? is, you how the question go I'd year so, that. it. mentioned the you. get progression your we you thoughts three about think are should that to over you would be Tim, then Got main optimistic about you just through of business And me to Thank last

Yes. about XXXX with completely in there you Well, was year. of When And XXXX we're QX abnormality used thanks, that's as quarter the alignment for course, to. the Anthony. our what base, of was largest this, of industry think out a simply the

work, move we're And basis, QX. in so through as going and moving return available people continued recovery pandemic a to but start is to albeit to more we as through starting we to QX, the that vaccine hybrid think start a then see on and the

year. the be So quarter our of -- best really QX that should QX

of We more I will a to think, course. normal, in our return

I than and high don't higher QX to It's at off When to QX you because single-digit, of where why thing bit look time look I in right? what's going surge with we QX March. X%, know back the kind year struggling last and that transition, think, I than that is was is go be different And it's that. I been like, the -- going of an definitely Anthony, year X%. to hard have think you a there kind to in QX last typically down that's much normal. little have did model in abnormality,

okay. you And the greater get Enterprise? would about say that of you would would growth -- past you'd QX expect be we that? as sales say, Public you gains how even that it, different across think kind should more expect in, revenue those the Or Or expect Got versus gains noise, I segments? let's Sector

So -- way need is I supply think, chains the we about the Andrew, half to the think and at need is around here to the wildcard the second XXXX, really that to as we normalize. we recovery the look pandemic of

half revenue clearly, a and so, than the growth should year a first the better And the second half from be perspective. of

optimistic. their those from was was many In large for in we think will What XXXX of anything enterprise on XXXX. are center of home data return. growth, terms an enterprise In selling we 'XX, focused we home many, and uptick projects saw do many people

'XX. Some delayed that were in in see of we'll XXXX, those

federal expect optimistic will and really Solutions small business second-half progression recover. small to the is enterprise public back we And and to we starts a as back. the that of be kind think Business then, our us. strong should sector, the pandemic. to comes for will come statement the steady the When So, that higher-ed business we're be team, it way K-XX, a medium and That build back Enterprise, come pretty their from with business,

there. higher already we think a progress As fact, as will much a year backlog of the that a much seeing order higher rate matter well. But through we're and

but us. normal it we'll start guess a when seasonality, really that at say best is guess is point, to got is this pandemic the and see to behind we've our So,

best Got right. thank it. Well, you All and of luck.

you. Thank

Anthony. Thanks,

Thank you.

Our Raymond next question James. with comes from Adam Tindle

proceed may with your You question.

Thanks is this for Hi, our Adam. Catherine Huntley questions. taking on for

rebounded. has other question increasing do that and We've from in first heard trends. are Our have current to with competitors XQ bookings year-over-year

the for about seen you sit February? as bookings we trajectory your late So, in can in talk that please here your you've company

So Catherine. thanks,

up. in the definitely a are March know, bookings. as as you is look an bit we our because We a clearly early little year-over-year, Tom to tough late are February, in products kick work-from-home trending seeing bookings uptick compare XXXX. started at see QX, in, they of of we When really mentioned,

the But the think So we of that are are a is, to rate terms overall build model, tougher our products in compare. model bookings across in our which and basis -- and is that to of little points with we've growth, those sticking to board way the anticipate of out But basis do modeled growth. clearly, are points into that plus a up XXX Tom? recovery appropriate we market your coming kind we 'XX. XXX

think on. I spot that's

for the that's second as Thank think how in center XXXX, the into about you increase positive, the net of think projects? do data half net-neutral, potential the negative? look you color. decline And you Do you versus devices in

That is great a question.

Let what can. I provide color me

is is are the that be transformation going there drivers believe, workplace first We that. we to The think whole still strong. of great

when example, work from reasons home, learns anywhere, upgrade. home, there from the are from to you For about continue to think work good

be at XG look you driver. is WiFi X going to connectivity, If and a

collaboration there you to video If will at tools enable better in conferencing. collaboration be built look

upgrading combined video the data, those to mobility. are need more have of all drivers with So, more for still

think we of data So, back tail will year, the delayed. center that And strong be with will will those that year. towards think the of do fairly Many projects. throughout off be half replaced obviously the were but we

technologies. a be there data a the more bit of transition year little that center advanced the in And of second half happens so we think toward and will

is update the costs question, benefits out? elevated any the that term? mentioned longer those come just you're Can start previous In Or can you increase costs there update then, term. on on But transition us see you mitigate and when that their are seeing? an short And awesome. Okay, may we to ERP.

what start the going is -- is are QX going to see to here I post So, you're to plan. post what -- transition up costs think be pretty our inconsequential

standpoint, that after things think I normalized. get that we'll point, after

but will costs, last to start increased in depreciation in come We our rate. see increase And of efficiencies run some currently through. an the year, there started was some terms current in that's

leverage what there So, And build. here is the growing lot think to us is intend we I to there. the grow that's to business the system goal don't help without Obviously, overhead. a the

the It lot opens is and Right. that an around opportunities It's ERP will When a year. one. be But clearly, you secure it capabilities more up system more the expandable. upside for of to like about It's benefits, robust. think more transition offers acquisition. have there's fine throughout tunings the more this

so congrats quarter. the you thank on much. Okay, And

Thank you.

Thank you. at any for like further remarks. to showing And the I'm now to time. questions over this Tim I would further call McGrath turn not back any

like thank continued who our to to I'd I'd dedication their coworkers Josh. of through you the this call are all also for again, listening vendor those thank efforts support thank and time. Well, their partners extraordinary and you, to and like of for once shareholders afternoon. dedicated customers, our this

Your time Have are and evening. great in interest appreciated. Connection a

and Ladies for you. conference call. this participating. today's concludes gentlemen, Thank Thanks

You disconnect. may now