PC Connection (CNXN) 9 Feb 232022 Q4 Earnings call transcript

Good afternoon and welcome to the Fourth Quarter 2022 Connection Earnings Conference Call. My name is Cherie, and I’ll 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

statements other important differ remarks factors, by is Reform and section constitute a with Safe files year Act Actual plans report XX-K including the as well those the Harbor from of management future documents Commission which of the these under Risk may for prospects the make the in XXXX. Exchange forward-looking about the file Various on discussed various on company’s materially that of Factors in that of and Private the ended for XXXX indicated as expectations, provision purposes Securities forward-looking statements annual company from the XX, time-to-time. those the may result Securities results with December company’s Commission Form as Litigation

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

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

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

would CEO. like to the call turn President our and over Tim? now to McGrath, I host, Tim

Samantha. today financials. for Connection’s overview and more of with Good Tom you fourth in this on Thank call. business for share afternoon QX afternoon, thoughts thank our an performance our you, our will everyone highlights walk results, and QX quarter conference begin I’ll of us in detail XXXX joining then XXXX. in our us through

are technology advanced trust This on partner a demand they solutions, customers solutions. data and with more deliver We software services. aligned seeing integrated for endpoint means modernization, have from to optimization can and away center complex including be cloud, devices our security increased shift to solutions

offerings technologies of support our continued transformation. Our tools, resources the strategic align in integrated to priorities to initiatives further and were we order their our We’ve expand developed around customer and make advanced as customers investments and evolution in to in the training needs enable solutions. with digital

business customers our remains believe of the and aligned well to dynamics strategy technology. deploy, We utilize consume shifting how

of and software. evolving cloud, and confusion IT choices We technology connect our with help around their customers expertly set through a help core and We security technology on-prem customers technology calm and enhances navigate our We within customers. empowers productivity dynamic continue elevates of growth, to off-prem the choices innovation. infrastructure, constantly complex that with for the our landscape

Now let’s discuss QX our performance.

through the since had hybrid our solutions. learning and began, success pandemic navigate great have We helping hybrid work customers to

IT decline endpoint this with economic spending shifted XX% their device nearly categories have overall uncertain become and the as experienced in QX, more a environment. in customers priorities During their cautious revenue

As to a declined net result, compared X.X% by QX XXXX. to sales $XXX.X million

million. declined profit Gross $XXX.X X.X% to

net including more QX basis. increase shift of to is product XX% QX on in a XXX compared up the in gross were in reflection a margins gross to However, mix, points margin XXXX. This solutions basis recognized

year $XX.X in XX.X% to million, sales income from X.X% million the the a a quarter. net in of year compared income of diluted prior QX of QX net a XXXX. share QX Net Operating or in million, decrease XXXX, X.X% compared per was $XX.X quarter. was or sales our in decrease decrease $X.XX, $XX.X to prior of earnings $X.XX In $XX.X million of in XX.X% XX.X% QX was

the During a chain, of quarter, the exist in a pockets still with continued we suppliers. saw supply improvement few although constraints

billion, the XX.X% to delivered XX.X% increase million results. earnings full including share XXXX an per gross in profit compared to sales X% record we results, year, $XXX.X growth and $X.XX, represents For to full diluted increase net year a in of which $X.X

Solutions look compared $XXX.X million performance. net year a X.X% to million, into now this little Solutions an of a ago. increase the our sales spite profit of a net of QX decrease In will from gross compare in We segment sales, Business segment, our were $XX was year deeper a ago. in tough and decrease record of Business a our million, In our $XXX.X X.X%

XXX This to increased in customer the with increase basis margin fourth networking our of mix expectation servers is products, data was points shifting and the for during of line spend. including in quarter technology quarter. demand the strong by This software, Gross and driven center XX.X% higher-margin XXXX.

increased to XX.X% profit was basis quarter. to segment prior the educational for institutions XX a a decrease $XXX.X Public compared million the decrease compared XX% to federal in the Public compared million, ago. points million, year. our year, by margin decrease Sector business, of Sector $XXX.X to year-over-year X.X% QX and the and while to net to In prior of Solutions a XX.X% the compared QX million, year local of a Sales government Gross sales Gross increased state were $XX to government were sales $XX.X X.X% ‘XX.

XXXX. in sales the $XX.X basis to for and sales quarter. our Enterprise increase of the a primarily year segment an were to services QX XX.X% prior servers the $XXX.X X.X% compared of profit segment, by net of by a margin year XX during decrease Gross Solutions a In to compared Enterprise million decrease X.X% was million, million, increased ago. Gross of fourth $XXX.X quarter points driven

grew vertical focus market In their Our year-over-year continues market, and on customers customer security vertical a XX% revenue as finance deliver with modernize focus software. to value. environment our

gross year-over-year. relied as addition, the retail XX% profit customers In improve XX% grew technology year-over-year experience. and on enable Retail increased automation to revenue

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

increase result primarily compared XXX On in of lower XX% and by the Thanks, basis compared increased million strengthen increased prior Tim. a by year to revenues. SG&A dollar sales, an $X.X in driven in of labor basis, to net technical to the sales sales of organization. cost year points XX.X% in quarter prior quarter SG&A our as ongoing a investment services the to resources the and quarter

focusing resources technical of Looking forward, continue to XXXX. in what intend to be perceive in light on invest efficiency our to headwinds improving we continued we in while economic

current initiative of fully $X annually. reduce In and we income ago. started will year this QX structure reduction our cost launched an down to XXXX, intended million million, implemented was $XX by million QX. a million be quarter from month to $XX.X this operating quarter the first by Implementations cost initiatives XX.X% $XX.X

of down a year state tax from effective period XX.X% due reduction the same QX a ago income to XX.X%, rate tax expense. in Our was

a of from period. was million, prior a quarter decrease million XX.X% $XX.X ago. decrease earnings per year year the a income $XX.X of Diluted Net for XX.X% $X.XX, was from the share

XX-month adjusted amortization $XXX adjusted trailing earnings a depreciation XX%. million increase compared was EBITDA or $XXX.X an and taxes, Our income year million ago, to before of

to returning addition $XX of increase $X.XX a terms million in special dividend in announced share we In program repurchase cash in shareholders, paid annual QX, December. of to an our in stock per

our announce XX, of of XXXX. on Directors declared shareholders XXXX, to $X.XX share Additionally, quarterly a that and we record have Board payable March pleased are XX, of February per to payable on dividend

is shareholder flexibility. value financial goal maximize Our to maintaining while

to M&A opportunities continue and We buybacks. capital as and other allocations stock assess such dividends

authorized $XX We million previously have in approximately repurchases. share

the reflects accounts for $XX.X operations compared function days was operations end netted primarily revenue year ended from a increase year net same XX as ago. basis. receivable the an in in products while at a for to basis, in XX from increased DSO decrease This on receivable generated from million our million a recorded cash flow XXXX. accounts gross to was of $XX.X the on flow days in a of increase XXXX was recorded period the The DSO Cash

million due to Our million the declined year balance and the product XXXX, for accounts ended declined $XX.X associated while $XX.X timing received other liabilities payable of and accrued expenses payments.

will year of equipment cash that with Our result equivalents. $X.X of million net for cash in XXXX, in returned $XXX.X of cash dividends. activities was ended cash of form of to during efficiencies. we million financing and IT future shareholders in We The initiatives ended $X.X QX the drive XXXX investing used the $XX.X million company million the activities believe purchases primarily was and used of which

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

strategic want Thanks, few our Tom. to a plans. I on take you to moments update

As stated with technologies, earlier, and secure, demand our technology. productive increased competitive in customers and we’re focused seeing on we’re advanced keeping

our data To initiatives, have to workplace optimization. leaders Now these and supply and help plans enhancements sales, center growth: business transformation, and our in year, to our services. hired several accomplish in pillars we of cloud remain world-class and trhee main XXst we’ve sales chain committed transformation technical us made

deliver they to continue businesses, innovative As complex and more our connection customers to and on toward integrate their transform look solutions.

in will continue we XXXX, challenged to first QX. endpoint the they believe of be for half as at were Looking demand devices that

shift customers to endpoint in us weakness which economic the and deliberate customers restrictive the tell data continue spending of center, face expect do in and more on continue our in cybersecurity to our Additionally, being towards budget partially We more are are hybrid they cloud that market. should will transformation, offset priorities their uncertainty.

would. our offset services than the continued and for resources technology This clients as should that their solutions. a growth driver expect their customers need extend they for will normally of help look technology to be technical assets we addition, life more Connection advanced means to and In

predictions market as is growth the managing XXXX, remain improves. and through rate. costs IT industry can appropriately. market should economic our expect we improving environment Consistent that focused companies take end year of second growth half the efficiency, any recover that scaling will XXXX, to operational the we with very believe IT expenses analysts’ we in environment, on our the macroeconomic and above share As the with Great navigate we for overall our X%

their for this to during employees like continued our changing moment effort a thank to valued rapidly dedication extraordinary and environment. I’d take

We will now Operator? questions. your entertain

Sidoti. Instructions] [Operator from Anthony ahead. question you. First go come Lebiedzinski will Thank with Please

How are you? guys. afternoon, Good

Great. Thanks, are you? How Anthony.

for Stefan This in Stefan customer Lebiedzinski. projects? IT given you meaningful the any slower certain cancellations are is seeing This first for I actually. or apologize. postponements My is Anthony is economy, question

thanks. So

an backdrop So, many effect clearly, on the customers. economic the does our economy, have of

in probably right continue customers But enterprise most our are it the add space we now. to seeing overall. We overall,

customers, there current QX on device our our million. working versus engine And if you So, the that in about a call acquisition is have overall you largely as think device is ‘XX taken when QX about us. it’s ‘XX, And over think mentioned extraordinary some I was in an difference the for It well. very pause, that, XX the ecosystem arena.

is that the really And for the so story quarter.

They specifically. But are that buy We tremendous loyal continue a headed have have company. where we where us. them of about device a got taken customers. said, are as we from to excited going devices pause in really Many headed to – are long-term –

more the number in training and really drive transition that. focus have have around those We put on a focus tools a all place technologies, especially to advanced leadership to initiatives, plans of made

and about don’t customers economic trying optimistic than pretty through that you uncertain indicated, we as where are time. to doing headed other are this are we think anything get So, our

We and pretty are here overall, bullish. that to help them through Tom?

Yes.

have haven’t say been cancellations any have at significant to-date, are meaningful that pushed we orders been bit. projects placed. seen have that this of I POs wouldn’t think a time. a I There But few those or

Thanks.

you. you your current got you Thank in the pressure? vertical any question seeing or expecting have you some are And given second the are is Alright. board if markets? of yes, across My meaningful environment, pricing also only macro or

nothing base, being we not the we last technology we there suppliers business. that customer and the solutions frankly, clearly, think have that And and increases our pricing months, see over from they but any we Any the I their had, the deliver along. – been price increases meaningful. extraordinary XX move able have seeing the other as because integrated pressure are mission-critical think probably pandemic our So, have impactful don’t to and been I the successfully to way from over

not we So, have had that pressure.

main of my in much. so your terms great, segments, like you you And how that playing your please. we year? cycle about that should follow-up, And this think could the would talk Thank for about expectations three PC if out be

certainly from we QX our correct industry, – with that, of as know the through So, that. clearly, following QX saw from ‘XX is what and PC cycle, pandemic the me late you let into

essential, During accelerated. the purchases was were and pandemic, course, of PC

the to that now second for saw we see XXXX. drivers Does endpoint really certainly device that. I of in related There and your expect X-year device return of as fact, the market that a around normal purchases to of that, growth start ecosystem late question? customers And In our that the that, are great half I be we result slowness products that. we a think And of slowing and think device along it and least accelerate pick will acceleration started did meaningful year. the first upgrade And did that of answer the in think QX. go half in QX that, will all of We and coming, overall. at cycle many of into in with up after continued indeed

Yes. details the your Can backlog you and of give backlog? composition about more

Yes. supply But I mentioned still the as where backlog pockets chain constrained. the we there is our would bit. little our remarks, say in is prepared are in down during a supply quarter,

quarter. is little bit the easing and still been backlog elevated, a it has So, through

so back the you taking Thank questions. jump queue. much I for will my in

Thank you.

the for Raymond moment come line question, will from our Jake with one Norrison And James. that next of

Your line is open.

to demand please? getting was Hey Adam. little Obviously, sort that into SMB for more just more, in This of enterprise? further, me cautious that seeing you is hoping provide on customers trends with in IT guys. color SMB scrutinizing you compared could guys enterprise. on seeing of you or you sort are Jake index but budgets more the more discussed a towards I are Can a dive little just

Jake. Thanks

result, outline And and when going through hardest business. But hardest. the opportunity, So, the there technology advanced temporary. our of been probably the hit reductions it to of hit has clearly, comes they and seeing and those. as enterprise investing budget are certainly of some pockets the the really, enterprise believe is do that been will customers, across side many board, but large are have a We we it reductions. are device, in I their They them

And great so there. opportunity there is a

we our those go us is and IT customers have do device As through a said, to business SMB been you the provide XXXX. forecasted But again, solutions. be resilient to to in down of SMB as pretty lot look

And that the SMB same. so down enterprise have been with and the and SLED about K-XX And for business. is also the true

they on view funding we growth Federal large with project strong drivers a some horizon will really finally, there that our then are XXXX. good demand. And end is the driver continued We of business, there right now. as are of XXXX. But dependent. expect we That large have We do However, a been of the seeing those last think throughout projects. has will ECF the be through

there. optimistic are we So,

SMB, works be enterprise start technology. see with ECF its the second And first the we In We say a subsidiaries. a some in coming pockets kind see again. K-XX of half we all Fed. see to think We infrastructure in later growth and will would through. year as three are device with in way growth advanced half, the in kick to I we that So, return the little of will down and

Thank Prefect. time. appreciate you I so your much.

Thank you.

in queue any now back remarks. speakers, turn Tim And am McGrath showing Mr. to questions time. closing call no I the I further to the like would over this at for

dedication again, thank this those our through and for like listening times. thank to of and shareholders these would partners call like of thank once their are vendor Thank me, coworkers you, efforts would our excuse dedicated Cherie. continued their extraordinary for all also who – I to customers, of afternoon. I to support all you and all the

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

all concludes for you Thank program. This participating. today’s

You disconnect. now may