PC Connection (CNXN) 4 May 232023 Q1 Earnings call transcript

Good afternoon and welcome to the First Quarter 2023 Connection Earnings Conference Call. At this time, all participants are in 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.

On the call today are Tim McGrath, President and Chief Executive Officer and Tom Baker, Senior Vice President and Chief Financial Officer.

the to turn company. now will call the over I

during will afternoon, our Any Thanks, be that deemed made fact good forward-looking of I not statements conference now statements are references to statements. operator, and may forward-looking everyone. read historical call regarding cautionary or statements. be the note

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

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

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

stated, are on XXXX to measures made website will in GAAP discussed references www.connection.com. available non-GAAP the quarter discussed. measure of first financial measures XXXX. comparable and being and quarter first comparisons unless note any that at earnings this During against directly financial release company's today's the otherwise Please reconciliation most all call, be A between its non-GAAP is

be www.connection.com. of SEC Investor Connection's on website will at and on Today's The at will release available website our and the Relations available website. section the be earnings being www.sec.gov webcast call is in

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

joining Good Call. this us through Samantha. our you, for Conference financials. then Connection's performance. thank us afternoon detailed for a of you first QX overview quarter begin look more highlights today Thank with at will an walk Tom of QX afternoon, XXXX everyone, and results our our and I'll

last investment the two along to the you've weeks the our Over several seen exercise weak plans. announcement a earnings their a first and our weeks, with our experienced leading continuation We we quarter, results IT customers selectivity backdrop in greater short-term of in released ago. economic industry, preliminary with caution

across of were endpoint customer than devices lower anticipated Sales base. most of our

being and Endpoint in performance enough accessories we were in down demand our While quarter business, it resulted software, to saw in in overall notebooks, This displays devices, not our good XX.X%. cloud, including first offset security include which the networking, Solutions devices. growth contraction our endpoint expectations. desktop, was below and

business year. our prioritize back costs our as improve that productivity, investments XX.X% ongoing in include servers, that software half reduce Advanced services needs. essential the grew networking, and demand in first We The lowest quarter devices quarter should our improve the a for believe first our compared gradually results endpoint a that overall quarter's sequentially us for record this being of are year, and quarter year-ago. to performance is were the improve storage, of customers their will historically to technologies, projects and which and

Due While to strength in outperform we near-term, in to can be growth market we part our long-term continue believe to take the are market challenging for expected customer share. the the market that and IT of rates relationships. the U.S.

Our customer base has remained loyal.

months. of our existing for We're with customer retention we're acquisition customers, pursuing the focused on trailing fact, managed increasing rate our aggressively remains and IT accounts the XX% In for of our share XX over new spend customers.

Connection The on improving to solutions digital operate count environments. transformation. know and customers enable infrastructure our their that deliver want Customers their and standardize, help help supporting their efficiently. can businesses simplify to technology designed their customers still and more them improvements and Our IT we need optimize they are productivity to offer

hybrid demand the and addition, work In continues environment for remote better drive tools. to capabilities collaboration

technical that for environment Finally, enable in security tools future. transformations these successfully across cloud the we've the navigate all remain and mission-critical solutions to to trends, been serve. better these make to customers our this and investing economic markets plan response In we technology and and our resources

these be to is specifically cloud specific the our for of out One their months engine, subscriptions. our forefront quarters. call investment the investments in to Some brought will area and e-commerce and in results coming related

the believe quarters, believe deploy, will utilize market how growth shifting the investments Such engine software our transaction of we're over intended to transaction leading bringing a be to We our e-commerce base. customers that organic a and of well-aligned consume and that Connection. remain We with engine cornerstone are business technology. and dynamics subscription strategy be for our a cloud focus

continue elevate to customers that growth, empower our We with technology innovation. and connect enhances productivity

complex with customers. evolving customers choices around core choices technology for technology and through landscape. within on-prem infrastructure, dynamic calm We the confusion the IT set security our for off-prem software. We constantly our help navigate We and and expertly of our cloud, do this

first QX to Consolidated a QX X.X% declined to let's sales million 'XX, Now million. was us. for QX performance. our compared declined $XXX.X net Gross X.X% record quarter to which by profit $XXX.X in discuss

basis or QX saw in compared in net up increase in to advanced were that XXXX. of compared sales sales, prior X.X% a the However, product QX during gross million net to the quarter. shift the X.X% or million, margins year quarter. This in $XX.X to income XX.X% to margin of QX decrease reflects in mix gross we points XX.X% was XX $XX.X technologies of Operating

diluted restructuring of charges a quarter. $X.XX, per $X.XX per XX.X% in Net while million other our year QX XX.X%, earnings a a XX.X% XXXX. of adjusted prior decrease $X.XX, decrease in decrease income of for for share from million, XXXX, QX to diluted compared was QX $XX.X the was In share $XX.X earnings was and

We'll basis were decrease into $XXX.X $XXX.X sales Gross our our In a segment little Solutions million, a QX Business of for our deeper to XXX was X.X% net a look of now points XXXX. a software, first from XX.X%, segment and a million year-ago. compared increased million, compared year-ago. endpoint during $XX.X profit Business a segment, to performance. of in decrease quarter in the was margin Solutions record products, sales driven shift servers center product a higher-margin XX.X% year. Gross including increase networking data the to prior devices This the the mix of from quarter by to

had to sales we increase Sales an a $XXX.X government to Public million X% driven QX million securing of the In as experienced success emergency new funded fulfilled million, and educational year-over-year our compared year-ago. were orders revenues local QX a Sector state Solutions institutions connectivity compared of year. the net $XX.X contracts. government, many federal million to record $XXX.X decreased to $XX.X as we've the result business, Sales by and XXXX, we In projects. prior the increased

XX.X% the quarter by XX.X% points profit 'XX. Gross XXX Public was segment to the million, Sector increased of for to basis $XX.X an margin QX compared in Gross to compared increase services was simultaneously software, increase the The quarter during XXXX. margin gross and security, of first the profit to networking percentage in prior due sales higher solutions both gross and year. of

million were compared to sales Solutions million, Enterprise year-ago. QX of a a X.X% $XXX.X decrease $XXX.X our In segment,

current enable our IT customers for respect Gross segment with significant compared decrease As spending to a million, a was QX. result to basis Gross primarily enterprise the backdrop, in of year future. in exercised the believe points will profit decreased XX.X%, quarter. prior restraint economic higher-margin Enterprise XX.X% projects $XX.X to of XXX the a by additional margin by the solutions to lower-margin us secure few large that we business driven

revenue XX% retail investment year-over-year deliver in and deploy as future year-over-year In as continues customer security value. vertical to market, for focus and market grew customers services cloud, improve on grew experience. retail to revenue growth. enable vertical customers prepare our reduce Manufacturing Our technology to and automation the XX% cost focused

in Year XXXX Trustworthy Hardware Solution HP announce America Newsweek's Companies quarter that U.S. named of the to Most named to was first list. pleased the in and Connection Print National Provider I'm

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

by to revenues. Investment the year quarter. compared up over primarily year XX.X% slightly general administrative prior increased of quarter our by to in in prior XXX SG&A points sales, information XX%. On technology We quarter, a resources and in million the XX.X% lower to spending compared sales, technical basis, functions increased organizations dollar service in year-over-year. reduced Tim. the to Thanks, strengthen net driven sales the over $X.X were basis and SG&A XX%

we Looking intend business in focusing while in be light a near-term environment. softer invest we to resources continue on efficiency our improving what to technical to perceive of forward,

a as SG&A points. our in by reduction a XXX of anticipate approximately basis we QX, For percentage sales

and included of The other with cost related costs activities. restructuring first results associated quarter internal XXXX of $XXX,XXX reduction

of an [ph] these launched In initiative The XXXX, our to $XX the cost we inflammation quarter intended million structure initiatives $X annually. reduction cost on by of million to track. are first reduce

the reduction reduce additional XXXX. We cost of to measures take further expenses operating planning to remainder are our for

QX down a year-ago. this million, operating from XX.X% income was $XX.X quarter million $XX.X

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

of adjusted and Diluted share earnings other was year a restructuring was $X.XX, a period. decrease prior decrease of charges from period. from XX.X%, the year earnings per XX.X% $X.XX, Diluted the share prior per for

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

in repurchased price XX,XXX per we returning share. dividend $X.X of $XX.XX to paid an share per terms shareholders, at and cash shares March of an In quarterly for $X.XX average million

XXXX, under As stock our remaining repurchases $XX.X we existing stock had XX, of repurchase for million program. March

on our shareholders has XXXX. XX, dividend $X.XX XXXX, that record announce of payable per Directors of a to quarterly X, of and share June to pleased are payable We on Board declared May

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

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

for the inventory decrease operations increase $XX.X from an in payable increase accrued generated an increase of million, an same from accounts quarter million cash year from reflects $XX.X ago. by the The accounts of flow offset a expenses, operations and and in Cash period XXXX improvement flow in first receivable. was a in

Our balance quarter for of million accounts first $XX.X XXXX. receivable the increased

receivable XX recorded the a to basis, from same days for accounts a on revenue net a increased netted gross ago, of while primarily function on products was in a days DSO the year basis. XX Our recorded period

quarter XXXX. balance inventory the has decreased from $X.X of Our million first

accrued payable for increased $X.X while liabilities of increased first and other quarter million the accounts Our XXXX, $X.X expenses million.

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

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

Thanks, Tom.

can is not where new focus As our customer of inflections we balance confident it has with customers. to existing market increase on but through a move XXXX, economic our to experience, our tend our be In forward share uncertainty environment base. our accounts the driven also only been win that by create you rich always

our We and have accordingly. strategies sales aligned marketing

for they challenged demand continue as in to believe QX. endpoint that be devices We will were

Our they projects. canceling that customers us tell are to not continue

priorities will decisions offset market. and we see in continue are more and customers the hybrid our to spending data which weakness toward We tightly center, should transformation, do their partially targeted their However, to cybersecurity expect endpoint shift managed. cloud the expect

for Services to driver growth help their should a as resources advanced continued technology us Connection will and to and clients solutions. needs look for supplement technical be

we companies remain great remainder Remember in of and managing appropriately. market environment. can As focused scaling costs improving navigate operational our our share through take XXXX, on any our economic efficiencies, expenses we'll the that

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

your questions. Operator? now entertain We'll

Sidoti. conduct will [Operator first session. Thank Instructions] At we a from Our comes Anthony Lebiedzinski this question time, from you. question-and-answer

open. now is line Your

and the questions. good Hey, for taking thank you afternoon

have to as this expectation for off So sales, you? first, of piece your in bottoms do of an you terms device the when business

like terms much or And Anthony, hear the all we did is hope behind seen a we've the We would of good estimates. for March worst January from in we We've seen see linearity, than did that certainly us. to you, thanks better of have question. the I -- February. yourself,

perhaps devices QX XX.X% quarter. or expect for we As we I were And the year. mentioned, until recover improvement are sequential hoping down the device to QX. That throughout really in said, don't

environment, demand about color That's for And as just monthly helpful progression overall your us far now. you of so as giving demand mentioned color. -- thanks the

to May, April get As just I mean into was. early how we curious now as

on comment you If could that.

So quarter. great early we we like it's I'd optimistic to say have lot April give or We're in -- QX very April, don't looks a was what outlook over still that QX QX. sequential growth a to you We in will and QX. saw differentiate the March. consistent with But

that, for the public gears to And just Thanks switching Okay. Tim. then sector.

within bright spot one-off a So was federal any sustainability curious deals? for business nice Were government the the Or of federal the that, just government? through sure. about there

Yes.

the confident the we've federal are we continue with So that government. momentum had to sustain we'll

pursue We continue have to won large contracts, a those vigorously. to and few we're going

us But again, and Fed same all I we continue think show for obviously, growth. sequential nice to so And have the progress in will economic this challenges backdrop.

you. Got

I me over to caller. turn right. next And it before All for the then Okay. lastly

share how you the much do the as have share far authorization? guys as buyback, repurchase on Just left

we see continue million $XX probably left, the pulled opportunistic Anthony. did can we on do the a expect little a and forward. side, to to that going from you we'll that quarter back market we said the think try be when I it's what in And like I little,

All right.

go please. Okay, ahead,

in say toward we're of to allocation though, want end. diligent going be I capital terms Anthony, to that

You dividend, announce to a we in great us environment. is opportunity buying believe but back heard continue stock this the

of Sounds good. Best Thank you. luck.

Thank you.

Anthony. Thanks

you. Thank [Operator Instructions].

James. question of Norrison next comes Jake Our from Raymond

Your line is now open.

taking for my thanks question. Hey,

are for the you holding public and provide state at on if seasonality the what in expect color we budgets back And of firstly, should not on segment. level? that you Just how sort Can levels? sort go up could any touch of federal just federal

question. Jake. It's thanks, So a good

the for that in QX. education make ECF me, the expect side year, environment, pressure. me this Given do a been June little local excuse this us Clearly, that. business uncertainty market there's funds the and has under that momentum a of state, little We around give expires, more of expiring more

I as So contracts, that expect into working we QX actively. throughout we're will and roll federal continue to And mentioned, our out QX.

there a pressure is So lot on we're that Tom? confident side. there SLED of fairly the

Yes.

I think appear relative bit. business the shipment year-over-year, a up kind little a And well from hold talked we about SLED basis. a to perspective, of did just fairly April on

little into SLED So will I'm to season continue busy typical that a hopeful going things their together. hold

click allocation on for one real me, And to Okay. just Perfect. wanted then last double quick. capital

characteristics just looking M&A, more there? of terms In for you are would be technologies what you are that color -- talking of What on on sort or helpful.

it's are we tuck-in very additional so comes good it clearly, solutions, good see we to remain on M&A, Yes, that starting us valuations come start. focused to albeit capability. give a down, when But acquisitions

our technology security course, space. areas advanced So cloud, that from focused would include, of and, perspective,

Perfect, thanks so much.

you, Thank Jake.

President I this Executive would to like to it Chief closing for Officer and Thank time, turn McGrath, Tim remarks. you. back At

like dedication. I'd of support. afternoon. customers, and their you call Gerald. their I'd listening to and Thanks, all for to again, our also coworkers our our efforts continued like extraordinary this shareholders thank to for of And thank vendor partners those once

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

for conclude your participation This the in Thank conference. does you program. today's

now You disconnect. may