PC Connection (CNXN) 3 Nov 222022 Q3 Earnings call transcript

Good afternoon, and welcome to the Third Quarter 2022 Connection Earnings Conference Call. My name is Justin, and I will be the coordinator for today. [Operator Instructions] As a reminder, this conference call is the property of Connection and may not be recorded or rebroadcast without specific permission from the company.

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

afternoon, good and operator, everyone. Thanks, read I statements. note forward-looking cautionary will now regarding our Any conference to during not made statements references or the historical may statements. statements fact call be forward-looking deemed be of are that remarks Litigation and constitute safe Reform XXXX. plans harbor Act management future of the under for prospects make the of forward-looking about Various company's that Private expectations, provisions purposes statements the may Securities and

indicated year including from Exchange which by of is Commission time Actual discussed to these statements the files documents on results and from as may December Factors well company result factors, differ Securities as company's on other time. in Risk various the the for those important XX, the annual as those that ended materially in a commission file the XXXX, of the with with Form forward-looking section report XX-K

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

update representing the other than the any if so of forward-looking not may do While rely you company specifically to therefore, date by today. as as obligation on forward-looking elect law And to the statements company estimates statements future, even required point management's should disclaims in view some at change. any these to subsequent

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

Thank for quarter conference thoughts this performance call. through thank you detailed highlights the you, overview our our and remainder will third us of XXXX. and Connection's Tom Samantha. begin Good afternoon, share us afternoon our on more our today everyone, with QX of for results, and at look then walk an XXXX I'll a our joining business of financials. updated

continue our We delivered another as objectives. against strategic we to strong well quarter execute

transformation, and their cloud security customers our complex than started their shift to technology During broad-based digital center technology guide and customers solve with related endpoint initiatives them the through focus data optimization to modernization, to at Connection devices our ever quarter, rollouts needs and look capabilities. before, from of technology More solutions.

the net XX.X% in quarter the shift of a grew grew record over profit previous a result sales third customer of as while demand, year-over-year X.X% Gross in revenue performance XXXX.

customers with points continued results their Our their enhances and to to a our connect the execution elevate technology XXX compared grew growth, quarter that These of business in our productivity the XX.X% prior year. gross margins in demonstrate record basis innovation. XX.X% the strategy their to empower

technology customers. our by are The we solutions highly that and provide valued

segment in that segment their we and and declined and these helping and As Enterprise continue services the X.X%, Public XX.X%, automation. objectives respectively. products be to technology customers believe The grew forward, with Sector will we look essential business achieve Solutions while to our X.X% Business

as and Public net services of sales Enterprise Sector recognized sales. of segment placed software net increased Our an basis which a on on experienced downward revenue level and pressure

margin We rate our the consolidated true on year indicator profit basis to quarter. prior we of the XX.X% gross believe is of a best past, pointed the a prior in compared the record improved quarter quarter. year As we've out XX.X% Gross compared in in gross to growth. the profit XX.X% achieved

advanced to drive focus our to plans solutions technology execute contributed to this and margin XXX ability Our more improvement. basis point

As allocated heavily software center, are data being customers more build-out endpoint and services. of now toward solutions, complete budgets their

to service growth capabilities, solutions a to invest on and focused managed customers strong continue and our we We experiencing costs modernize the in productivity, increase as our their are need security, improve are for infrastructure. manage

of growth finance delivered we markets, growth and strong our experienced health and growth also XX%, We care in with respectively. double-digit in rates revenue vertical XX% strong and markets our

year During sequentially. a improvements we resulted in our in well compared chain, saw quarter, in as last supply which the backlog to as decrease our

elevated. remains backlog our However,

expect through the the year at challenges and We least will XXXX. of balance some remain into

million QX our was sales of in prior earnings of or of detail. QX net our in XXXX. in cash increase increase little $XX.X and an $X.XX, of $X.XX In XX.X% XX.X% sales QX the share million, was discuss income compared year let's QX $XXX.X We a QX ended an XXXX, quarter. cash diluted million X.X% per X.X% equivalents. in $XX.X or to Operating greater with net Now performance in from

for due of to Solutions increase increased in compared Now our to to basis. a net increase segment points in XX.X% performance. segment, primarily margin XX net and of increase we'll recognized on the Business deeper into XX.X% sales compared quarter QX XX% was segment prior year, $XX.X to basis year an a million, $XXX.X a as the million of software revenue demand Solutions profit from services a an ago. look the Gross $XXX.X ago. our Gross Business In year little in million, an

a year cybersecurity and with institutions for local million, services in saw government million, the X.X% to Sales education other technologies. cost-saving X.X% business QX the net We and were to increase decreased to state prior The X.X% year, sales and while Public for decrease to a demand of $XXX.X cloud $XXX.X sales Solutions off-premise and ago. federal subscription Sector data a our software of in compared software, shifting $XXX.X In networking and government were more services, an million a their decrease demand compared year-over-year. increase customers is of solutions, along business, result products. center

to Gross to profit million, by for 'XX. Public XX.X% the XX.X% margin was in of points QX compared Gross increase segment basis increased the quarter. Sector $XX.X XXX an

customers solutions of the QX our pressure on on-premise transition a while year increased recognition sales were As margins. downward In million, net cloud and decrease on solutions, $XXX.X revenue puts gross revenue Enterprise net ago. to segment, generating to from a compared basis a Solutions million our $XXX.X of X.X% off-premise

the million, profit increased year enterprise primarily by to discuss Gross additional record of to a solutions. $XX.X statement, income from an for Tom compared driven turn X.X% points Gross financial call over basis by prior to segment XX.X%, margin Enterprise I'll need highlights balance quarter. business-driven flow to sheet customers' the cloud increase the cash data for and Tom? was center statement. now our and XXX

the revenue SG&A quarter. basis the XXX of Approximately in Tim. solely dollar quarter. XX% rate XX.X% prior XX.X% net in SG&A Thanks, is to due of On points net increased to increase in million year basis, increased compared to to this a recognized in sales sales quarter increase the compared the $XX.X the on of a are year which basis. as products, prior

compensation impact increase on due in to inflation incremental profit. addition wages, variable resulting of also was gross the increased from to SG&A have there higher levels to continues In

up technical spend. QX a focused $XX.X incremental investments XX.X% make increased organization to income in million our continued also operating year was from have building on this million, marketing $XX.X headcount sales and as We quarter ago. as well

ago. tax $XX the effective ago. same was XX.X% million XX.X% rate for an from year Our XX.X%, year the period was $XX.X a Net in from million, up a income of quarter increase

was an share per from earnings Diluted period. $X.XX, year of increase the prior XX.X%

depreciation from levels and million compared in of $XX.X million first was from increase both an accounts to increase by Our months operations EBITDA, cash period as as trailing $XXX.X payable. in decrease X ago. for increases $XXX.X the taxes, reflect XX-month the accounts same year million amortization generated well earnings receivable a flow of income a inventory offset of Cash in or flow XXXX before in $X.X and year compared operations a was adjusted The to million XX%. earnings adjusted ago, higher

basis. was driven increase the of while our at a large by has on end is function by take accounts I'd is on XXXX. components XX basis, revenue This recorded reduction end a few which purchased working quarter. advance XX to inventory ongoing of our segment, capital reported of net the increased $X.X Inventories Enterprise increased million a The gross like trends increase in by moment XXXX. discuss plan. DSO versus a project offset days of receivable from the our products in netted days to a past of in inventory to rollouts, the

Our XXXX. accounts declined first of $XX.X the X payable for million balance months

IT and of months cash used initiatives the primarily future in the drive result activities for will X net equipment million of of purchases Our $X XXXX was that efficiencies. investing first

current to turn back discuss now call the will market trends. over I to Tim

of Thanks, Tom. take highlights moments a few I our the to want business. of review to some

Our is our customized growth to efforts behalf as deliver competitive attributable on customers integrate to of the and QX in transformation work and solutions with continue IT their that they gain to largely digital through advantage technology. we

toward Connection to initiatives. customers services their and digital to capability leverage infrastructure data managed integrate deliver look that as our innovative attention Toward solutions. to customers Our turn end, transformation continue these we centers, and

and of supply for experience an with a be years ability to growth important our custom component our and continue differentiator Our solutions deliver to optimization us. integrated chain of competitive

markets. vertical our expertise customized delivering to attributed also was growth to our in solutions Our

the as opportunities. revenue and increasing on cybersecurity, new hardware reduction example, grew focusing focus in as year-over-year XX% were vertical, process as on and sequentially risk well their legacy finance long-term we environment. and grew securing integration X% For to investment customers year-over-year XX% in clients as growth revenue technologies and upgrading support automation our Manufacturing

and year-over-year, delivery investments refreshes care new and Revenue by in traditional in technology grew Healthcare XX% new patient post-pandemic models. driven

for while Looking of to for as and advantage. XXXX, believe want costs manage customers forward greater an technology leveraging competitive we enabler remainder to efficiency the

term We focus they Last will indicated center, security which in customers cloud near and anticipate continue quarter, top rates line trend we our did. growth quarter. be it moderating, that expect this on We will and put did the continue would revenue this transformation. on pressure to growth as will year-over-year data

trend the near record We continue due expectations to part in expect recorded term. are results for These prior that period. to the year in

being and being are in more Additionally, us in they're uncertainty. telling sending economic deliberate increasing on restrictive that of the face our more customers budget are

year remain at the above customers with goals rapidly during to end changing our this we our environment. a focused environment. efficiency take their believe effort in thank while industry them moment connected will we to growth and and said, market the extraordinary dedication secure valued share. X% on being and to I'd IT take productivity this X% continued to growth like and achieve keeping uncertain for continue employees their we'll rate, helping That We economic

will We questions. your now entertain

from Tindle James. Adam [Operator from Raymond first Instructions] And our question comes

IT I thinking to you That Tim, making with even the industry you just XXXX, there. QX. it's revenues comments could want to above going maybe on X% imply might were based IT for start on help you're was growth model that with of be simpler, I want us that what down to helpful. you're QX maybe very last you year-over-year. the industry the make right making I getting sure rate the that X% think we're and the as to commentary When say

Yes. Adam. think I that's Well, right. thanks, Yes,

think had that at we and good some QX, a look can moderating rate take year. market see do in I obviously, think you pretty year-to-date, bit our a if that, little we share. growth We we've

still to X% well So I at think year X% within is our above reach. exiting market the

Yes. And full you're at if kind I growth that, of X% X% we're so base X%, rate, thinking looking the to year. think for X% baseline we

Got it.

we this -- some And how think helpful. maybe of particularly as about experienced try what slowing here, That's wondering as model XXXX. Okay. we margins I'm moving we to forward, Tom,

might we line. have challenges like on continued Sounds top some

I clarify really about line roll moving and think and margin down comparisons top we might or the flat case. so, how trajectory free feel But even to if and QX. You're going QX as be so, if to difficult that's in forward If into in well. imagine QX the QX, some would not

rate the at try in pieces on continue effect margins material why the look our right? that's profit cloud continue question of we had moving growth is, The what's a services stay growth because on does mean in gross has percentage, thing. focused X how certainly there, quarter, to right? important I few the that going kind you that's forward? If just there's a and So this to margin our

Now our the of that able you I on we should be take it, said, if think historical to being out mix hardware. margins hold

think quarter we the at this QX. a As roll spending least as into the storage. can -- probably And the P&L. you reported hold we margin the historical that terms to our XXX% is going to year, last endpoint can next continue I really see rates year. little from kind wildcard product and I'm it's equipment the of the margin the endpoint thinking compared it's that services of in those how we going was do And data, into on But and numbers, to margins in down expect to be roll through cloud

drive on that. net in our optimistic quarters on CSP seeing strong business rate and margin basis, We're pretty incredibly that up. our in growth rates which that's cloud, software We're does our a general,

it. Got

typically could what Just tends the you we've at from we're force just with qualitatively you your got hear on might ultimately sales as or here flush coming you budget month pipeline be you're budget December that XXXX. for one and flush hearing more in wondering look the metrics of Tim, me. to November, your the corporate in it at I'm as out, that anything what look like month. support the And look sitting

is that question, a So great Adam.

on are a little that. We conservative

Just talked data center for the in customers of they're of equipment advanced still waiting solutions. a number technology and some to some cases, who,

our into to is critical, that, truly to pushed many forecast. could our that involved in down. the constrained, you XXXX. that of lot are pretty that mission going endpoints of extent still confident speaking, we're now deliver we're slowing feel a and we generally So But And know, the that and projects meet are expectation as be

comes question Sidoti. from Lebiedzinski next And Anthony from our

So terms the much software toward of sales impact shifting netting mix of versus that how of environment? I XQ of implied or in impact just you macro of mean slower business the the that projections demand is first the the because have, of because from more users

It's Anthony. from good thanks, you. hear Well, to

So Tom?

of clearly hardware we're a Anthony, mean a categories, I the on devices. say, bit would some the little endpoint pullback especially of I seeing in

all think, have and So there QX vast there. on in last from a is net through some the did baked software is And the we the year. pressure nice I coming really But of basis. of that, majority coming a services

I more is coming. but think softness software, accounting some it's the underlying the it's of there demand net and So

mid-market Anthony, and what has business. that looks for like enterprise very our business us commercial our with is strong been

for are, feel some end you're some very an We delaying. as industry day, in there that But are they're hearing the cases, signature. out hearing additional confident. customers the of in the still In asking cases, we at

Got it.

Okay.

revenue So profit not guess, overall, your netting. to of it think your point, this even I because like QX, as the sounds in gross I maybe be reported should certainly good though will all increase,

is to profit you fourth would quarter? the up that to your say expect fair dollars in So be gross that

lot on that, up. seeing a integrated of course, of lot in. recorded Okay, is drive part most -- jump margins and mix I'll start that software. and that basis And net lot gross we're seeing a cybersecurity that, then But does clearly, know, Tom you into of shift is all of I'll of we're that solutions, and as as let and a cloud, a a of of

Yes.

answer Anthony, I out on to still question be that. and to think. It's tuck, jury the think I I going your think directly, nip is

me Can you guys? hear

Yes, we now. you can hear

Okay.

there's a there. Sorry, pause long

Okay. flow second question, you made your And cash inventories improved. is progress so I last I guess your quarter, guess, versus obviously, with my

goal And priorities, your for you on would your reasonable just say if that also touch could your So what flow great. you would is year-end be inventories? cash

frees continue see inventory, and it's quarter, that to think supply down. up. how our improvement I drive an goal We going is depend just So the a lot number to the on Anthony, did to on of chain this

very it a are think couple right lot that can And of up. I being to at year. to in depend large the QX. projects of said, comes going that out we We of coming it is how inventory have Now end a do on that push the

it's think I we're here. $XX million talking $XX X thing, million,

supply chain. down to the on should I of timing drive equal, all to million, being going think. another able $XX-ish else be depend it's the So we But

compared Anthony, And mentioned. also ordinary significantly are our than in to elevated. year, levels, we But put that last perspective, lower to as levels inventory they're

And Right. in terms flow cash priorities? of your then

Yes.

of sticking there, to we're our So guns Anthony. kind

-- looking have be and place, an we'll are at We in that. buyback approved share

We sheet acquisitions. And doing enhance upgrades made our staff. also We've that system. areas. also our Right specific some at our our and some now, is looking our continually solution to and clean have is made balance capabilities in idea powder as to could tuck-in open know, to senior I'm upgrades tuck of you opportunities and we're and the dry additional

over turn showing for am closing to I the like questions. Tim would I back call no now to McGrath remarks. And further

Thanks, of this their customers, our like through afternoon. also this vendor all our to call those like to thank of thank partners I'd to listening dedication I'd Justin. for you time.

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

conference participating. today's for concludes This call. Thank you

may You now disconnect.