PC Connection (CNXN) 14 Feb 242023 Q4 Earnings call transcript

Good afternoon, and welcome to the Fourth Quarter 2023 Connections Earnings Conference Call. My name is Justin, and I will be the coordinator for today. [Operator Instructions] 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. call the the turn now over company. to I'll

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

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

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

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

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

in of to of a XXXX, advanced our categories the initiatives spite achieved within executed AI In solution we strategic several We readiness. then number shore macroeconomic on and and technologies to prioritized milestones our backdrop. grow up

A advanced fact, in which XXX of sales, Advanced an of XX% In in by the storage, drove of technical future. foreseeable for started sales result is in Advanced in to of improvement a record Technologies gross Technologies sales technology netcomm software, points continued continue the journey basis and our years XX%. grew servers, X investment increase resources. of services margins will and The a XXXX. Furthermore, includes sales ago over that

activities. million as from we result, operating a addition And of In to operationally. flow sales generated to performance, cash our improve $XXX we continue over

from QX but and November in products December devices decline December of of sales growth the sales of specifically linearity technology trends. looking historical was This at a the offset notebooks, accessories. includes flush last From XX% year, perspective. a Generally, endpoint that quarter was than advanced QX than little customers XX%, Now very as decisions. opposite. from were stronger month their by budget desktops, pushed of was strongest tends just sale out but more softer the QX, which and we was the buying significantly perspective, us displays last October up different year be the than to experienced for and were

to is we a profit performance, believe better profit the and continue gross measurement We our that in gross of quarter. grew

let's little QX our X.X% discuss performance last Now detail. Consolidated sales year. million, a below were in net more $XXX.X

compared margins our fuel XX.X% Customer in XX.X% an in to XX.X% income software, profit impact X% percentage was the as $XX.X the margins. Operating of to compared XXXX. prior Solid sales of was Net income which million, earnings QX top X.X% of cloud increased XX.X% solutions to execution improvement increase million, sales million, Gross of income $X.XX X.X% compared a and operating minimize was XXX and XXXX. quarter. year strong in XXXX, gross per points million in demand to for diluted XXXX. in was increase an QX of compared QX basis an the QX net to to in the line. Operating a QX to softer to $X.XX, gross $XX.X includes $XX.X QX our in growth year SaaS helped QX and helped quarter. in were from of up $XXX.X margins share In prior increase

a our $XXX.X In revenue in were Gross an year to growing increase QX Solutions primarily decline part offset technologies, lower for of than discuss net year a were the XXX profit by XX.X% sales over our solutions. of contributed XX.X% the million, local Now was that educational QX X.X% our prior the endpoint of and software Enterprise the Enterprise was software advanced and the X.X% for look the quarter. ago. ago. and government Sector I'll was sales prior Solutions million, result and Tom? an state increased by was profit in basis. In profit the a compared servers. Sales than and X.X% prior QX year in revenue institutions due Sales Gross a increase Sector basis Solutions consistent solutions government year year. the compared margin growth net by deeper lower with to decrease $XXX.X Gross financial year prior Tom points a net mix sales increase recorded were in categories reduction to XXX advanced Public for from in in segment year. points services. In We basis demand now advanced by quarter to of to Solutions federal our than $XX.X by to increased partially million software decline sales endpoint integrated execution result our devices. X.X% than XX.X% prior to were million, year. driven last we'll basis sales a points technology to This Public consistent in to large Gross a the Gross quarter which quarter. device a of business, was year. increase by successful the segment margin highlights. Business and gross The margin $XX net segment, lower in endpoint were to higher XXX by compared was segment, compared sales industry, to Gross of lower primarily the prior our little to Business XX.X% lower due turn for the largely into sales The XX.X% primarily additional devices year to percentage decrease million, of million, lower in a $XX.X ago. the a experienced technology was due solution The $XXX.X in performance. the year. the was ago. segment to the on increased in to of margin compared our call services are segment X.X% with

prior of compared XX.X% increased from ago. the by to SG&A XX in million, income $XX.X The XX.X% an XX.X% in sales revenue the due quarter SG&A our increase in Tim. quarter netting. QX to in business of an marketing quarter, prior On compared year increase increase lower a operating a was to to this SG&A basis, Thanks, of $X.X increased was solutions $XX.X and year basis quarter. driven points net year million a as percentage in million expenses. the more of result revenues sales investments

income to increase $XX.X XX% million state moving anticipate tax the per in low range quarter XX.X% effective XX.X% Diluted rate up QX We the in a from was Our last for tax XX.X%, income due earnings of rate from forward. Net was an rates. tax increase $X.XX, $XX.X changes year. was of an million, share XX.X%.

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

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

XXXX Cash for XX, by XX, XX% our shareholders dividend As repurchases $XXX $XXX.X quarterly program. Today, under $X.XX XXXX, payable to flow February of we Directors ended share. million, we same a was the year per has stock and dividend our period million the record $XX.X remaining XXXX of December existing is million repurchase stock our increased on payable on that a had Board of of XX, March an generated announced The to improvement for ago. year from operations record from XXXX.

$X.X the accounts Our receivable ended million balance for decreased year XXXX.

a but not netted days Our due same the to the product year revenue DSO XX XX ago days the balance. to which increased increased period for sales, from reduced receivable

inventory for were a Improvements and balance supply decreased holding the we year. last Our complete the chain portion to million XXXX. have ended year the in inventory us for orders of $XX.X enabled deliver which

accounts supplier balance for year the increased payable payments. ended of Our $XX.X largely the to XXXX, million time due

primarily investment $XXX.X equipment in We to million cash the million million year IT over consisting cash stock to current million to the of trends. refinancing will and of of cash, dividends activities result short-term equivalents XXXX, the year-end through million investing call cash of XXXX investments. repurchases. ended shareholders with back purchases of of The Tim company were QX used and million I $X.X net $X.X and $X.X used of $XXX.X ended now activities $XX.X was of the $XXX million of market turn purchases. discuss Our payments for

Thanks, Tom.

about continue to XXXX, we As enter deploy be they capital. where cautious customers

project with respect uncertain as some factors do throughout attitude to will revenue timing we're taking timing number wait-and-see device large for of with early affect refresh and year. our spending to and see a our customer spending climate expect the customers. to increase while we customers adopters, economic trends However, favorable we believe in are of rollouts are the the growth XXXX. a we There of Many that the

There As expect several of IT drive number will we last very factors remain areas. in a growth IT about we quarter, significant optimistic are said the that we landscape.

properly storage, adoption factors infrastructure, that demands a the our solutions. and drive these to and For of security artificial necessary that to drives following composable combine example, connectivity demand server into legacy environment enable that are and tools, infrastructure on challenges a impact AI I productivity reduce flexibility, And consistent device cybersecurity. persistent for we compute IT trends, will increases. the blocks actions. expected solutions to be and the end, AI-enhanced more software additional and costs. infrastructure artificial will continuing high-speed and new that X entire Security improve and These address evaluate to storage as for efficiencies. in future. To to believe foreseeable replaces in AI collaboration the as demand systems We threats improved security solutions operating security devices. edge its and encompassing to adoption but course, are secure better catalyst AI also intelligence are for of solutions XG, refresh flexible through workloads customer hardware, drive intelligent require increase intelligence of better Hyperconverged expected customers ecosystem. Toward and operational adoption software and powerful of taking that building are cycle wide The services adoption, our IT look

AI For seeing journey. adoption tailor as continuing AI our endpoint early We're better AI, assist solutions with our customers to such CoPilot. we're their of to applications

experiencing an solutions for As initiatives. required increase technology advanced AI are customers' also demand we to stated in previously, which we're power

true tools need customers unravel and help automation. Center its and realize addition, support announced of AI all needs. around we Applied recently provide their and for environments brings AI complexity the benefits potential organizations together resources designed sizes business and confusion designed support Helix In The experts, the is to access artificial Helix Applied AI and Helix unique guidance, for Center for the of identify, the robotics industry-leading properly intelligence and robotics. to understand and and to the and

and endpoint AI identify customers our applications. to on evaluate will to help take hardware readiness environment collaboration and security, their a to assessments For software facilitate, we're device, opportunities with that improve of run new and current working them provide upgrade enhance platform advantage

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

network with we're automated key areas: managed catalog our all network presales engagement we've firewall to We've offerings, of analytics our enhanced To security model our complex ability For capabilities. security investments with also to X improve solutions and accomplish including fabric modern these continuing provisioning, security, new develop All tools, and service our capabilities product modernize these, behalf integration, of to offerings significant virtualization to customers. on designed and activities of these our deliver made and expertise. are networks.

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

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

believe devices and refresh We [indiscernible] will the of XXXX with in IT continue improve that to beyond. endpoint

of that expect new chipsets, AI-enabled growth will optimistic customer The of time by after but the second uncertain, release half frame. of happen adoption return will is our technologies these of more timing which that We the QX to scheduled are we rates. normalized QX occur the the during XXXX and to are

to the term. rates will be U.S. market continue for in We near growth the expect IT the challenging

to for with we However, and environment. a by to outperform extremely questions. note, and We'll during your acquiring, the that employees we're effort we're still valued new number we thank continued the and extraordinary customers market macroeconomic I'd market moment encouraged their dedicated like can take share, rapidly the notwithstanding of environment. On our and challenges take this entertain now the believe changing

our & question. One from from our first first Sidoti comes Company. Instructions]. for [Operator Anthony And moment question Lebiedzinski

the Tim, trends great that the quarter. color it provided about was So you throughout

of lack doing December. curious early that not saying as were first about talked out like far -- flush? it a -- or that as far if a as in to the the you mostly that Is like more in don't business on through comment quarter. was flush pockets of typical we're kind your You certain can budget was I the of then just budget trends the customers you so know to And spread

Sure.

So good hear thanks, you. from Anthony. That's to

in quarter. our growth. be to pullback we towards So did a think the a That said, we during the is terms QX, did little end December, of mentioned, IT of month of in the QX see, as real going And better. our rates very team similar of business solutions

sector that businesses. economic our had of I evaluate to effects the their think public is and interest because means what And of enterprise more rates backdrop significant likely for trying really inflation, the all are and pullbacks. customers

that think saw. I really that's we consistent So landscape, our what of but is across kind technology

Yes. things.

So did, this is quarter. you saw what December, the of into of we the I would first of tell end softness December, in kind starting to leak the fact, part in

a last that's we're at looking to this Early look going of to QX like kind year QX but probably tell, overall. what a lot of kind we're of net-net, So quarter thinking. that's

Okay.

you on And Because or that towards gross as similar, I so say the know you mean the revenue there's more been -- as side? profit netting. far this more seemingly on constant more trend when like

level. I better and you on in profit a your it's gross remarks, evaluate business said -- that So more to prepared know your

gross clarify, to profit as just as from So mean standpoint? Tom, similar did far QX you a

Yes.

kind of talking whole see, yes, the pressure So as you I profit, continue products be G&A, about from the of last the to selling. we're the But QX And the think kind on see is profit picture. to gross revenue what line. year we just mix were Anthony, same gross implied, going of you're roughly going the to if you

That's Okay. helpful.

Got Okay. you.

more any -- Okay. half just respect so early And back Or of think? really it as it down, but is seeing then green devices? are obviously, as devices, is just shoots were those say? a to far the to Or with recovery, endpoint endpoint you you too

discussion. a certainly of lot there's Well,

lots everybody's discussion. I the related of you our think are ecosystem AI guess, and us is engaging minds for might customers as and on

ramped the solutions want really readiness to really projects, and green overall say lot about started. yet haven't there's wouldn't services to in capabilities have for are of kind regime AI of more a but -- shoots technical We start and our that business. But using us customers seeing Our been off. up take that we're discussion business I their that

just Understood, Okay. certainly. And -- gears now. then switching

But cash? I the to you see need other now? as dividend. that, far Your as million. and $XXX is that more of investments your deploying mean, the close than so what I are But increased than cash as as think to your did priorities now run what cash thoughts it's top are business. far I flow

Well, thanks, Anthony.

course, a of strategic and M&A, is us. driver a priority for So

good sheet Over of good M&A. the on place really had a history is with M&A. And we've a there. success years, lot We've balance had our to take in

So opportunistic. at to we're a point, at and this be But has of looking be accretive has to obviously opportunities. number

so start we other to at important, evaluate while looking, point it. strategic, slightly come it's this we than seeing it's further we'll and And continue are are valuations nothing down to

next Tindle comes Adam Raymond from from our And James. question

year quarter. the just start wanted lot QX comment the year-ago a I Okay. that this would on like look to

the case. informs bit But about just could I'm that's the right finish the would us the not if QX comment if seeing lot now you're sequentially you back in a it you're a numbers that business. ran because for what sounds it that thinking like we of then that's Tom, profit bounce way of here, I on sounds level that like had the think or that I it weak a down or think on there. And quick Tim either basis, the maybe be case. dollar would some just a wondering gross hope of I QX, flat And was sort little if if to

on So the QX also mid-February end seeing point. And wouldn't lagging. this at with markets see wonder quarter half I finish what in or done comment here might a just would categories if you're why bounce back we the that from you be and that

Yes.

your So gross about a on bit. is I'll what profit now tell is probably based we I sequentially, you, little conclusion, down think, correct see so

a software In for in through. the we're falloff what saw are the terms Software of -- we as And continued just that us, demand, December seeing is of done We've categories kind the there strong push the We're endpoint not is reemerge patterns continues category push start NetCom with the devices. to very just well that just and to in seeing yet. buying Service.

I would Yes. that. echo

We see additional in growth infrastructure. AI driver continue to advanced is technology. a of

There's you solutions. so really a As know, lot hybrid there. server of discussion still storage

has for know really Software and device that's when the in. will. landscape. been strong, across be NetCom know starting start And know becomes kick don't just We to the that But to very the continues the necessarily we point. We strong. question will it case us refresh not the

Okay. I will Yes. fair. a it I'll ask but to That's anyway, that ask, hard Tom. And follow-up be guess question maybe

a XXXX. higher this what think growth, rest wonder profit year outlook, be profit based a overall? QX earnings? think for going don't and XXXX, As year-over-year you a gross on just EBIT sort Or for it's kind dollar on shape whichever gross in profit growth year-over-year. you one I and of XXXX gross how dollar year see most you improvement that rest the to low earnings mid-single-digit year the Do growth growth might you I bit the full on the the about is are or of dollar basis think for comparisons. you meaningful thinking about of in of of the on of a little and flat-ish are focused to

here. not get Try into trouble myself to

in what low gross operating to growth That's the is to what I balance we're of the think the about focused remain Adam, expenses see, profit probably the mid-single for digits. thinking and the We on of year. SG&A. kind going dollar we're

to -- is fussy it our the had half to more partners, still should that week, lot just gross than So talk meeting of a point, increase year, the flow and bit I we hoping of lot some a last profit a about bottom that sales this little last everybody had and the of line. At of seems.

it's think, when the too So of industry, I same kind the hard is to feeling way. whole prescriptive get

Yes. That's fair.

kind think I same the in all we're of boat.

lastly, sector very by highlight kind look Not maybe trends challenged Tim, little for I bit the oriented. would but be of in you project any example, public just mean at QX, is I Just more that guess, if segment? trend. notable a of that I know sure growth, a that's like we can

XXXX, be and that seeing out segment QX? about as you think So to versus would you're the want And parse that sector if versus in broadly enterprise any you're smaller trends seeing trends business by public you helpful.

a Sure. question. It's great

public business, sector. when So the right you about think absolutely you're with

year, are business and that was we that, our the that large funnel Again, have customers growth large project more more the little of exit but seeing the confident that we come back consistency back And and Our a enterprise be the based leader projects bringing probably forecast. growth for and is with we half. timing, group. But rollouts. that dependent, the But project the we little do that be Solutions we predict on toward could will uncertain, just large a are is thinking think will are in federal number a company. said, return as BSG, down, the second we're their our Business that will large the enterprise

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

all support. Justin. Have of shareholders vendor extraordinary once thank And our Thanks, continued again, I'd evening. customers, our their their a for coworkers dedication. like efforts great partners for and and to

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

disconnect. now may You