PC Connection (CNXN) 1 Nov 232023 Q3 Earnings call transcript

Good afternoon, and welcome to the Third Quarter Connections Earnings Conference Call. My name is James, and I will be the coordinator for today.

[Operator Instructions] As a reminder, this conference 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.

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

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

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

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

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

record today results for begin with our integrated and a lower flow, and Record and technologies the $X.XX Thank combined efficiencies margins more Good mix operational executed during quarter of continue well we are us everyone, walk our share our a Samantha. at I'll broad of solutions. product cash XXXX is what mix you, quarter. shift improved third endpoint an then QX We afternoon, our advanced our afternoon our look Connection's a deliver for will us QX continued strategic our in overview third through with to of terms, and highlights customers. of detailed earnings against gross enabled for Conference experiencing joining Tom us devices the performance. be our per to while In as Call. . thank priority financials. priorities you improving of this

server storage, In to the margin devices fact, of quarter. in technology technologies, aligned which compared to sales expansion in and networking, X% the segments. across to each grew growth quarter. strategic the and services drive includes year solutions demand meaningful our declined in integrated and in the shift initiatives in our resulted of customer mid-teens Advanced in endpoint software prior services This

our by in a performance profit X.X%, resulted of believe factors declined measurement impact XX.X%. We by continue to reason. profit revenue a is net that while better The these our gross of this of decline for gross

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

X.X% million. technologies investments endpoint though prioritize in and $XXX.X Gross not to the advanced to customers it offset was enough devices. for decrease declined in Our continue demand profit to

our and points basis advanced the increase technology reflects to XX% in mix which gross QX XXXX. This QX margins up a growth margin have devices. of endpoint higher in were margins our record than XXX solutions, gross the However, to shift generally compared in

percentage as prior QX income year was income was million, in $XXX,XXX. QX quarter. of Net of X.X% X.X% the in income was increase Operating an $XX Operating a sales net in in to of record of XXXX. record XXXX, a increase per $XX.X sales In XX.X% earnings a compared share a an from to million, year $XX.X XX.X% $X.XX prior the increase an $X.XX, was in record million diluted our quarter. QX QX of compared

were In for and margin $XXX We'll Business $XX.X Gross in a growing now net at segment QX sales net recorded devices. reduction million, largely the the software of our XX.X% deeper a a Gross our increased decrease was to successful result $XXX.X revenue look decline basis. little XX.X% the ago. year XXX segment, quarter compared million prior compared segment This of for of Solutions the our ago. increase Business in demand in year on from basis result endpoint are our is to includes solutions of was million, execution which services performance. points take X% the a a advanced The year. in Solutions that a sales of technologies, a and to decrease integrated profit

gross due software and addition in the Sales In Advanced growth networking, recorded were margin to an margin million, to servers of and endpoint consistent in our $XXX.X were compared in Gross offset prior in XX%, net and Sales a X.X% and $XX increased compared X% by local Solutions X.X% Public in sales federal to in services, year a the basis, on of Increases services. by The and Gross year. a ago. and by quarter. increase category, $XXX.X XX institutions million higher mix higher state Sector of which basis networking, million, to down the of to education a was software, was Technology Sales sales was segment quarter. market. services. Sector increased the with are decrease ed K-XX which Solutions prior software points the increase devices XX.X% of prior and to the decreased decreases percentage compared for year. local government profit by of business, QX Public a to year state net driven by record in sales offset were XX% to the government

record In Solutions sales million of a was Enterprise segment, compared XX year to the The by prior Enterprise in a the segment Gross points to year. $XXX.X device to a in sales of $XXX.X, our million, profit margin to due net quarter. ago. compared $XX.X primarily endpoint were Gross prior was X.X% X.X% revenue for year decrease a to increased decrease a compared XX%. basis decline decrease QX the

continue services and to software on basis. a customers Our recorded net prioritize enterprise

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

sales million, from XX SG&A the to increased decreased a Tim. cost income the The of of X.X% net in Thanks, quarter SG&A basis increase an decrease by basis, this in quarter, XX.X% revenues. part we quarter. the year of to QX quarter XX.X% was to prior $X.X the initiatives reduction operating sales million prior ago. year points from have driven in ongoing percentage million this of SG&A the $XX was realization compared undertaken lower primarily $XX.X year. year a compared in On results

year. quarter record in $X.XX, from changes for rate was year XX.X% million, increase down $XX.X tax earnings XX.X% the per increase a was an from XX.X% the effective tax a Diluted share to was due . Net an of rates. million record state XX.X%, Our of from prior last income $XX.X period.

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

$X.XX paid we of returning in to an dividend cash terms per shareholders, In September. share quarterly

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

same of million Directors XX, months improvement operations on accounts we decrease that flow X, $XXX.X Today, in a increase for first XXXX, payable ago. XXXX $XXX increase and payable record quarterly from payable. declared December inventory XXXX. The our announced the an cash and $X.XX Cash X November has flow share dividend a period year from Board per in in a of on of and an accounts reflects million, receivable shareholders was from generated to operations of the of

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

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

XXXX. $XX.X for at enabled Our which of to in the deliver inventory complete orders us a and million balance inventory months the Improvement has for chain the supply of X year-end. first portion we decreased were holding

accountable Our months for the million first of X increased $XX.X XXXX.

investment Our of million million payments purchases activities of of primarily primarily cash for and company of with the repurchases. for net XXXX cash of million consisting We million X $X.X of and XXXX, financing the to of $X.X used months were shareholders used $XX.X first equivalents. in of ended million QX of activities $X.X cash first $XXX.X investing of purchases. million the $XX $XX.X million The equipment IT result of months X stock cash dividends during and was

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

Thanks, Tom.

We that challenging trends the continue seen with we backdrop. in demand have this year-to-date economic that QX will in expect

Looking demand business. improvement product will storage, growth require forward The infrastructure, AI impact artificial the significant by security. in solutions solutions several in secular compute that IT our drive additional and to areas are categories. of XXXX, efficiencies genuine of number and there should of driven intelligence of positively factors several a and our will in promise productivity

across the for require that confident investments developed are We solutions AI will IT spectrum.

priority factors, This and tools, resurgence. including driven more as for of future. required by environment. need IT experience PCs we as to continue systems, taking should demand properly This are evolution the continues upgrade the number that to our address following an devices. also for to recycles will will powerful be for the actions. the which as improved . Security protect We security their to of well need a demand software customers of impending hardware, high device operating be a foreseeable to the will require be To will AI, endpoint collaboration environment drive trends, services these IT

modern and not with their focused AI, driven artificial team potential, solutions sales customer We integrated a and learning, high-performance complementary by industries we data edge For its of have revenue, on a will that working AI experiences. current a we and intelligence realize a computing. AI, driving driver in future developing go-to-market of and on of analytics, the have on infrastructure transformative To specific help value-added and services. developed to potential of center the recognize excellence. machine support partners, to our solutions focus dedicated role shaping the focus computing enablement This with systems us although growth pivotal

our making bridge By customer unparalleled commitment, power its that this and market successful existing innovation. AI-driven for harness the need offerings receive ensuring will customers solutions the that create we to gaps within

and current of that AI a platform with to and opportunities upgrade customers working identify and advantage will we're device, collaboration endpoint software security, For facilitate take improved our hardware environment run assess to to enhanced applications. their new

We will have secure offerings systems and to design, systems, assess, operating deploy for customers. and service adoption which promote

X automated changes continuing we're We and analytics through IT develop with firewall modern well these of security help believe security the provisioning, managed fabric transformational offerings, security, to network network related customers demand to including virtualization key network. positioned are our For and improves. we and areas: our spending integration, catalog when

Our their how customers deliver and dynamics standardize, customers optimize through aligned consume know simplify help utilize believe of and environment We they can technology. their shifting on and well connection focus the business to strategy technology. them business in our remains outcomes count our deploy, end-to-end with IT

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

acquiring, Our the term. market we by and can encouraged the we of in market market and take near IT outperform new number U.S. continue believe the challenging be growth for rates we're We're the customers share. to

rapidly take that efforts our We'll Operator? and for a extraordinary now I'd environment. their employees note, to extremely entertain this continued like On changing to valued moment and your dedicated questions. thank during

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

margin expansion job So nice here. with gross

near to given you're products say major would be term, would from the least gross and business sustainable expect you of of to you So what seeing here? changes services, the no margins mix in that right and assuming now kind at

say, improvement to things. this year If on a I to of just versus Anthony, last would the couple we due just the our of netted gross bridge margins, was year half product. product about

into categories. by The was product driven profitable mix more half other

the we happens, So forward, where else we thing I of will probably some the being think to The back. are. point, that you I going see is about that margins. all would come about think I equal, pressure going the think hold side some can And at on device when business

Understood.

later? see an guess mentioned will of or the year year you this that expect your point? Tim, you in best endpoint think you'll at it early uptick Do kind that I think And next Okay. What's you be in devices.

lot that in that cycle Anthony. thanks, in that Well, the begins. don't And of we There's upgrade half. be for promise technology AI second said, speculation refresh cycle, of A XXXX. lot and a general around really that know when will

We conversations are relevant customers about having more future conversations with our projects.

are up number. RFPs in Our

Our technical the is recovers. are half. from up, know think consensus but don't And engagements when really I the suppliers, demand that we our second

color. Okay. made That's And towards prepared wanted X your follow remarks. the points that very of helpful Tim, up also then, I on the you to end of

on little across details about board? spoke business new Is would of to love by else? on anything more give encouraged you share being Or little maybe on we're side seeing. I solutions you you additional maybe customers bit number that enterprise? that. or from So can details Can it from? you're gaining -- of hear more a the that the kind it share -- is And the some a

Anthony. Thanks,

indeed So it the board. is across

We for acquisitions have engine that, are X an with of we well X each each sales with top across acquisition are our subsidiaries, doing well on vertical we markets. also very and And of main that. really our doing of

account with competitive It later the to little We're look pretty we into we'll some will customers. So pressure sector, several know, revenue on. start business The you about larger customers also landscape. SMB When takes has of under the been adding legitimate there some enterprise streams from convert logos as large the our new that. key a up. excited new time SMB in winning we're ramp that business, at more

And new the well. And the and sector contract space, federal really as on state vehicles. local those finally, customers ed, winning public in on side, K-XX it's it's the higher about about

engines what IT So board, that acquisition that need are our now to spend well. we I'd and return. say demand really across working is the

Got it.

And on others. to it my Okay. I then pass last question before

sizable very So position you million. have $XXX now a cash investment approaching and

So to are that . plans your what with do cash? all

shareholders, buybacks. a of common share think we capabilities. announce, pursue, or augment be and accretive know. still $XX excuse and rewarding toward when have quarterly that finally, we most that that at So are but we acquisitions importantly, we appropriate me, by level continue most million about that our tuck-in look the the We'll of you buybacks. in end. approved would over allocation and solutions Board continue arena nothing share capital to to to have And do dividend, a importantly, We the solutions as would would doing probably culture, we're immediate extend committed some look very much for

Instructions] [Operator

next Raymond question Our from Norrison Jake from James. comes

the sort SMB on Enterprise? flush the seeing real-time of And there you your the business, are from guys on than budget shoots on other side the of So of December you on touched health on? can the corporate the as just big sales green just just other and currently force can and you touch quoting you update sentiment is any typically pipeline touch there? anticipating and month. Are as you What further, inquiry

Yes.

So then join start I'll Tom, can and in. you maybe

think declines. traditional QX, we QX budget single-digit a QX some -- perhaps down when from but we're the flush QX be right So now, like low forecasting to slightly to lot look perhaps about

the rates instability, all under aware So and to reasons customers to backdrop customers. economic all pressure we that this to continue our of with see from affecting inflation interest geopolitical you're that some

in said, So long they very over they're are term. near term. very cautious the optimistic the That

of productivity for can Tom? my terms prepared customers' our very said in and and do is the efficiencies. I in what . promise of technology remarks, As it significant discussed

nail Tim in is to think how the of QX hit head Yes. I mean look. on terms the going I

to where growth it spot next rate year, more it going seeing that looks we're exploring are bit the are doing We like -- into highly gotten be point . to a digit but going have customers perhaps highly, we're where next year. little confident to a hasn't

top the customers on of co-pilots is there, movement green new we And encouraging certainly, operating seeing that, with question, demand point. and at of many and of is are can our real driver the point systems conclusion, that part we evaluate AI of of of potential part and on Windows piloting in the Then layering activity customers the shoots and XX there as an to this an nothing business. absolute but software

no showing would I'm further to turn now for remarks. closing Tim it questions this I time. McGrath like at to back

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

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

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

now may You disconnect.