PC Connection (CNXN) 2 Aug 232023 Q2 Earnings call transcript

Good day, and thank you for standing by. Welcome to the PC Connection Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to management. Please go ahead.

good and operator, you, afternoon, everyone. Thank now will read our statements. forward-looking regarding note cautionary I

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

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

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

is in at company's discussed financial on and comparable reconciliation financial today's between During directly earnings discussed. website non-GAAP available be release measure most its non-GAAP A this call, GAAP and www.connection.com. measures measures will the any

will made SEC at on otherwise unless section and www.sec.gov quarter the www.connection.com. website second is available and being in The earnings be XXXX. against our stated, second Relations available on the the that will are release website being website. note Today's all webcast call be Investor Connection's XXXX of to comparisons quarter references Please at of

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

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

has quarters. we last As know, IT been the the all products services pressure demand X for for and under

continue exercise Sector segments. plans Solutions While saw with to our record their Solutions Business selectivity a Public short-term and greater in quarter, IT caution delivered year-over-year Enterprise customers commercial investment and our second we our declines as

did commercial as the However, space. improvement progressed, some the see quarter in in we demand

our integrated to segments. transition In strategic addition, progress continued business, against our technology to in plans services make and each driving across successfully growth solutions in we QX, of our

solutions, a taken enable center. our changes sales have to these also higher management of engagements at technology technology We incentives. services a of mix of and additional the improve of record resources depth executive improve of record performed actions believe a Solution increase technical sales managed our integration number level Enterprise drove We alignment through advanced and training, the team,

our also in new quarter. experience accounts we acquiring accounts within expanded to addition, In continued existing the success and offerings during solutions

to performance. QX our $XXX.X QX compared discuss let's sales XX.X% Consolidated net XXXX. Now to declined million by

through customers solutions overall headcount. that to our growth good though integrated devices as includes enough slower this demand and business, was our in saw work we not the hiring backdrop economic for endpoint discussed, reduced decreased As offset it

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

any business economic prior in our QX, margin advanced points year helping their resilience customers basis to and in increase compared XX evident with up This reflects our to environment, were mix technology in it's technologies. in solve margins gross in quarter. the XX.X% product in shift the However, to gross challenges

XX.X% in net million, income decrease QX QX year a $XX.X year record or X.X% a million, quarter. in of XX.X%, of the net to sales the was $XX.X sales, in in million prior prior decrease was compared income Net compared $XX.X Operating of of or to X.X% quarter. million $XX.X

In for XXXX. our and QX XX.X% of of $X.XX was while in diluted was XXXX, restructuring charges other diluted share a per share decrease $X.XX, decrease QX of XX.X%, per earnings $X.XX, a from earnings adjusted

to record little year Business segment, a We'll decrease QX In quarter software $XX.X services, second Solutions our to a segment our during software shift profit Gross X.X% plans in XX.X%, networking business primarily points of addition year of was to Business XX.X% result and services. including million center the revenue, decrease to record compared into mix from quarter, basis net to our prior of margin was a the increased deeper XXX a Gross the were a This sales of million, segment the ago. increase ago. a million, performance. a now down in and data of higher compared our of Solutions sales products, year. the the $XXX.X XXXX, mix to a netted look product $XXX for

record sales local compared state net In year ago. increased institutions prior $XX.X to XX.X%, and the Solutions million, and to XX.X% Public compared million, XX.X% increase by demand $XXX.X Sales government strong K-XX. to our a a Sector a by increased an quarter. to business, year government record were of to $XXX.X educational million, by driven federal million to Sales QX $XXX.X in

with vehicles new Our contracts contract quarter. expanding Public existing an pursuit capture during the won Sector teams while

XX.X% XXXX. of Public to to large in year. for Gross XX.X% points the increase decreased compared higher $XX.X second 'XX. solutions compared million, percentage quarter, margin gross to in mix The of margin was was rollouts to XXX of by in the an basis segment due Gross QX a the decrease of the Sector endpoint prior profit quarter

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

progressed, momentum also technology of activity. experienced with to to engagements within the see As an account solutions beginning integrated number and increased quarter quoting in the for we customer respect segment. We're the uptick large RFPs

in by sequentially solutions. Taking revenue a we closer transformation customers X% verticals, workplace Healthcare look at primarily saw our industry driven investing by grow

addition, networking In to collaboration be continue of the patient integral overall component solutions experience. for an and patient care and demand

our to Year enable with and ability digital Partner U.S. also Surface commitment that Connection for to We're Solutions was of Modern recognized share Microsoft transformation service team's both pleased exceptional the Year XXXX. U.S. named Hub Partner X Awards. Partner the and Year Work, to Microsoft the Reseller of of Surface the customer our the was

continue the success customers drive help deploy as and transformation. build workplace to will that solutions we computing on cloud that We

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

ongoing the On SG&A cost Tim. SG&A decrease services basis in primarily prior decreased SG&A sales XXX year $X.X initiatives, compared to to to to dollar in basis, by in primarily The investments in was lower business. increased by compared Thanks, points quarter, prior reduction the our partially revenues. a XX.X% due XX.X% driven net quarter, million, the quarter. offset year of

G&A anticipate of a we Looking similar rate to QX. that forward,

quarter we to second our cost initiative In XXXX, the structure. of our continued reduce

$XX.X and As down operating activities. recorded million ago. XX.X% result, QX a costs restructuring our of internal year million, charge million reduction $X.X was associated income we a for quarter other with $XX.X this from related cost a

down was same in rate tax Our year. from the period last effective XX.X%, XX%

Net the income a ago. XX.X% was for decrease million year million, from $XX.X quarter of a $XX.X

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

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

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

under million XXXX, XX, and declared quarterly our stock XXXX. per plan. have we a share XXXX, As September August repurchases repurchase stock of Directors existing had payable we payable of $X.XX Board of that June X, on $XX.X dividend announced our Today, record remaining to on for of shareholders

We are as committed to such capital and aggressively assessing M&A opportunities allocations and other buybacks. stock dividends

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

decreased first balance receivable half XXXX. of the million Our for accounts $XX.X

days XX same from year netted sales. primarily function a increased Our a XX days DSO to of the period for product ago,

was decreased XXXX. to due balance with of orders amount decrease and for half first inventory inventory The in million continued $XX.X inventory held backlog. of inventory the Our primarily associated the combined we of purchased delivery the with fulfillment decrease of in a the

million to the partner payable half due accounts payments. $XX.X timing balance increased XXXX Our first the for of of

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

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

on customer aggressively focused acquisition are customers, our of we remain our We spend new Tom. existing the of customers. Thanks, and with increasing share pursuing IT

standardize, to their The to technology. productivity infrastructure, on we want deliver their supporting enable their and Our outcomes help operate offer are in their this that improving digital still economic and optimize help integrating business effectively deliver customers environments Connection Customers technology businesses designed and can simplify their to solutions they know that challenging improvements our more through solutions them customers and end-to-end environment. their transformation. need IT count and

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

Finally, our transformations. better all tools our we've other the technology technical security markets resources in enable continued of invest and and these serve. to across these make remain to trends, to mission-critical solutions cloud to customers designed we In response that

their disclosed these and months quarter, that investments and brought the in Last the some to will be forefront we coming quarters. results of

intelligence potential. adopters. realize a of our know, AI internally to to you customers As unlock automation, and has with significant adoption and potential greater valuable efficiency benefits advancements for as accelerated, artificial that and to We AI tool recognize promising the productivity, both powerful

strategy business team anchored intelligence. with services our software, and We and a infrastructure, dynamics to deploy, remains on driving how our the aligned solutions consume customers has focused our well artificial and of partners, shifting automation dedicated focus Connection utilize believe working with around and technology.

complex We our continue innovation. that connect empowers help help productivity navigate technology a our choices of We confusion growth, our customers for of within expertly technology with enhances the the IT calm through customers set landscape. to elevates customers. and We

the focus could expand of to forward been: enables balance on and demonstrate and customers. organization in diversity base. XXXX, grow is it's us where every As to no believe ability value what situation our client move see size to you We any always with that is continue to confident value the we or our We industry. that our be engagement matter our

as endpoint they we challenged interactions Based to our were our for continue the believe demand on devices with QX. be customers, in will

in increase an seeing engagements. are we project new However,

While uncertain, of encouraged activity. remains uptick projects the in timing the we are by these

U.S. While we the in can market challenging and for rates believe we share. IT take growth market be outperform market to term, continue the near the

of conditions the Great present any we'll remainder our our improving valuable and on the focused showcase right best to can expenses challenging expertise As environment, the companies and we can market XXXX, navigate economic share managing and opportunities how costs appropriately. operational take remain guidance our efficiencies, through scaling be. in often

dedication for continued environment. I'd rapidly note, thank that during their efforts changing and our like to extraordinary take On valued employees this to a moment

We'll your Operator? questions. now entertain

Anthony of first Our Instructions] Sidoti. from question line comes of Lebiedzinski the [Operator

talked seeing seeing talked went in about about So performance as better engagements, quarter Tim, on. an you project increase the

what so So as as you you're the far quarter? can into seeing us trends in what third share your business terms far with of

rough. month us, thanks, continuing did a progressively you get Well, was then When that QX. quarter pretty and it I about think trend Anthony. And off better. started lower QX, for the is into think April

about seeing XX% at our are we're perspective, looking busy think all up engagement booking they're a from across segments. so trend and And our real our year-over-year. with funnels, their We enterprise around positive about they solution engineers a engagements architects X how and

So projects overall, will we're optimistic that the continue. mission-critical

I QX bottom. bumping still hopeful we're date little technologies, start But to again think seeing We're more We devices when that device, advanced endpoint see When solid it firm we're don't really then we're we will momentum uptick. still solid have comes in a net/com -- for we'll when seeing QX. area. a it endpoint the in comes demand, think to to around demand the in and

So Tom, did out anything there? I leave

happen continues inquiry and the side of cautious quoting Yes, is they business. we've a of Anthony, of activity the that on the lot what to of being People are still very thing kind invest. the seen

in to QX. I that's to QX, probably kind firm the is of tell things a going little We're had we're to So QX be but see than sitting here a you, little today, up on. more trajectory hoping if bit better

ahead expectations, to of your about going the forward? in terms gross here in should of margin Understood. that. sustainability And see gross we How our came think margin, nice certainly so the then of

there are and those you saw And One, in really we release, in margin. can also services. you components margins. And significant to tend had to the So right? notebooks pretty which look our X bit if So Anthony. the net/com lower press products and desktops, tend a in see there, change of increase you market mix be a at higher things little be a

So things software And drove just shift chunk those netting then obviously, -- that that's is component there. mix of another a change. in that drove the

we we very quarters to devices think our to a the little margins where back are. revenue. When were happy think had endpoint start those and I back that that back, of where come get we drift XX% level, we're with I When bit. down will

we with team. our Business I in will add what Solutions very pleased that we're saw

we As the shift point by based the in again, to work you heard, mix we'll a momentum. certainly, XXX that sustain increase And do was basis that can great on in team. margin, all

It's And plenty strong then gears just Understood. obviously sheet, switching very balance to sheet. cash. balance your of

down Your that? about further think make how think nicely. we can you inventory Do your Or with inventory? you was progress should

can think I more out maybe to little -- we squeeze of bit that. there's a

we us what order that inventory quarter, we fulfillment some is saw that had lot release of hand. the a to During on enabled

to bit changed if this. we've all But coming Now why out got So a do ship much that of we like business the that allowed liquidated of supply probably we our hasn't kind wasn't since levels inventory whole QX? hand. little squeeze a backlog It's really had bunch products There's down it remain we backlog. challenges. more like just we to us getting we're can of closer before where historically chain been on

next James. of [Operator Instructions] of comes the from question Norrison Raymond line Our Jake

Can you me? hear

Yes.

below But what segment was the rewinding based Jake's or from were on start Okay. you I'm bit actually QX? is wondering And wanted out versus variance by maybe revenue whether call what you [indiscernible] would a your as customer own little vertical back in it's I product largest Adam internal expectations, QX to just category, been. This obviously, it to our results. perspective. expectations a expecting

say we was of bit than was earlier a month. would there, I a in I anticipated, a said tough like less little activity had Adam. that pretty Yes. remarks Tim Overall his in things think April couple business

other netting pushing we're the all The services is that experiencing. on really component software revenue just that's and

the margin gross why below profit despite is an okay the were was for -- earnings So of us, which issue while the revenues. gross less or the level gross expectations, actually -- revenue of the was our

really our in through then nice at do business. Yes. sustainable specific their we And is when we that in obviously, the Public expectations now. are clearly, a backdrop look QX our And on of moving just segments, nature think Sector busy based Enterprise Solutions team what right our and our through growth Business were economic customers the going the season. below and But

it. Got

guess good at And sounds to start. of customer quarter out a the and Okay. of call to by it as I or either anything kind of to really shoots what's you category the finishing mentioned green turn the July some here? off strong, the is driving vertical like end month

the SLED Sector the contracts and large way Public areas. both leading in federal with Again,

good funnels in a our customers, up mission-critical that seeing small momentum the and we're And given that when they'll solutions looking So really at and start projects team. the to the enterprise we're that QX the of the there optimistic, little out nature our optimistic just we're our medium and there. for pick Solutions, same more Business

So confident, both and are some is I get will think Sector And with momentum like and to see we'd Public SMB. enterprise there. we

optimization quarter. you moving thinking the the the a Got a trajectory back Just then OpEx whether about basis would that's the should of forward be one on obviously be trajectory? revenue? about it. dollar of as some And are year, Tom. I we you It how maybe half of OpEx percent How for guess in thinking helpful. occur in had or

Yes.

rate a think to rate are Adam, revenue, on and $X.X continuing of more charge that I amount costs let's selling run and things a our to you're of percentage about some services to quarter the those But business technical it, was We on strength if a a in to A demonstrate out, fair take $X probably of going So year or see QX. invest run call like QX couple that it million the we areas. we as our a looks organization a in there. I a primarily think in take did as million basis. -- little try going

of as bit foreseeable bit it's might as as a next back that then in gotten hopefully, of in future. come level hopefully, the be little see uptick. QX, spending terms going But quarter. the as rate And we'll an high be obviously, to little absolute has revenues -- dollar think for revenue I up quarter-over-quarter a

I question-and-answer like hand Please go Tim. that now time, ahead. the to call session. would this to concludes At back the

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

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

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

disconnect. now may You