PC Connection (CNXN) 1 May 242024 Q1 Earnings call transcript

Good afternoon, and welcome to the First Quarter 2024 Connection Earnings Conference Call. My name is Marvin, and I'll be the corner for today. [Operator Instructions] As a reminder, this conference call is the property of Connection and may not be recorded or re-pod cast 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 remarks Reform and constitute safe Act plans harbor of management future of the under for prospects make the XXXX. forward-looking about Various company's that Private expectations, provisions purposes statements the may Securities Litigation including for time of Form the Commission those file as XX, annual by time. to with may in that these those which Exchange with in forward-looking as various is differ files important other documents a as report year results Factors factors, on ended December Actual Risk well indicated the result discussed and company's the from section the commission XX-K materially statements Securities company XXXX, the the from of on .

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

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

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

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

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

I'll Conference QX the quarter accounts, were Tom our the Connection's their and with begin first softness the to today results us our Thank of encouraging you walk thank while financials. continued for us quarter, of signs continue into year quarter. devices then joining endpoint implementation saw detailed more customers line a our first XXXX prepare you, we last on the for Samantha. we it challenging net a QX some was successful Clearly, performance. adding were and an Good evaluate overview strategy. will afternoon, Call. for and as commercial new top quarter this highlights through at look everyone, and and There help our in in AI afternoon we

However, did actions we coming our technologies. by loyal Toward not that sales. high to grew technological cloud drive and offset those well that of digits believe single customers demands and our other to revenue are is of end, sequentially. The positioned device to we produce them revolution deeper silver help the lining backlog adoption the help lower meet enough advanced

AI the ecosystem. addition, many storm. we AI partners the driven our to calm They predict experiencing before growth believe are In of that continue by year-over-year the

than half the the of first year. Consequently, stronger of we expect to second be half year the the

Our business product mix and be dynamic. continues is evolving to our

the expansion declined, software reported illustrate profit gross is our and contributed highlight a XX% this appropriate said gross in of for that increased profit we performance. and our I'd year, cloud prior significantly software As cloud our while to more before, margin from that gross the measurement we've believe actual quarter. to the To which like point, revenue

transformation. reprioritizing to Customers prepare through their to budgets we are for AI lead them initiatives, ready capital and are that

to points to last the profit were gross prior below $XXX.X XXX were million, quarter. QX up million, performance. XX.X% QX margins decreased X.X% our $XXX however, compared discuss let's sales Now year basis net to year. Gross XX.X% Consolidated in

QX percentage As X.X% in for million, gross as margins. million of fuel compared the income a of X.X%, which previously and improvement solutions in compared the Net to a in to cloud includes decrease income quarter. of $XX.X prior sales was year Operating QX sales to QX helped net year prior Operating in our decrease mentioned, $XX.X X.X% customer net XX.X% was to was income compared the in XXXX. million, $XX.X demand a software, quarter. Software-as-a-Service of

from XXXX. XXXX, earnings our per decrease $X.XX a diluted X.X% was QX In share QX $X.XX, of in

earlier. in record their XXX $XX.X noted a segment we to year. compared Gross year a spending, was in caution million, categories now ago. the from for the In Business in and quarter Solutions Business Gross will into of deeper XX.X% as across our customers a little million, of sales The lower X.X% a Solutions look increased profit basis our X.X% $XXX.X to was prior function our an decline is the revenue year increase performance. We segment points net were product ago. than segment, QX our most the margin exercising

In were while local to our by and ago. government quarter. $X.X for the lower sales Sector federal business, by Public to the prior QX year sales state million, a educational lower compared and XX.X% net year Sales $XX.X million, million than government Solutions decreased were $XX.X institutions

in for can our that the projects the performance explained included accounted year. by to million, Gross XXXX, fact XXXX. of in 'XX. in was of $XX compared margin first existing for large QX customers to with that compared results quarter decrease quarterly be segment increased the quarter XX% QX Gross the revenue in of XX.X% decline the basis majority profit points a the Sector This XXX Public X the prior to by

a year to compared sales was QX Gross segment million, XXX year than net ago. by year. the for were the Enterprise Enterprise Solutions XX% the profit segment, million, higher to our quarter. the in lower increased $XXX.X X.X% basis margin XX.X% In $XX.X points quarter Gross prior than prior

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

had the We spending personnel to quarter. by by in on Thanks, X.X% a containment SG&A Tim. driven cost decrease measures. increased prior year compared

align increase XX.X% our sales in solutions points basis the XXX certain SG&A in business of due and the prior strategic basis, to increased by of revenues. in expenses to the investments lower increases in On compared quarter marketing quarter net that with to percentage However, initiatives. XX.X% SG&A our a was sales in taxes, year driven

tax Our QX changes rates. to rate from state effective was XX.X% tax due up XX%, in

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

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

cash dividend $X.XX a we quarterly is has XXXX. payable share on XX, dividend in $X.XX of share. returning The to shareholders, shareholders Board May record a In May quarterly XX and announced dividend our paid we payable Directors to per declared of terms that on of per Today, March. of

Board this share the program. additional repurchases increase authorized effect increase. addition, after share existing giving In an to repurchase is available to Connection's million $XX for $XX.X million

flow the from first of from XXXX generated operations ago. the million improvement a Cash was quarter year for an period $XX.X of same million, $XX.X

$XX.X first XX days and for decreased to DSO balance XX receivable the XXXX, accounts from days. of decreased quarter Our million our

of the for quarter first balance remained fourth inventory to flat quarter XXXX XXXX. Our the compared of

of of million decreased $XXX million investment of cash was used million company balance the a payable QX purchases $XX.X million cash of cash, offset ended quarter $XX.X activities for during with We $X.X dividends million quarter accounts million investments. payments of the used The Cash result of million XXXX. by primarily equivalents investment financing $X.X first in $XXX of activities XXXX, $XX for of Our maturities. ended of first of shareholders. consisting short-term and to investing

a capital and focused investing announced inorganic In terms have above, growth will allocation, continue to both organic are to dividend, quarterly a we in and form committed the cash we business, to stock we growing to opportunities. of Furthermore, disciplined and ongoing an we in continuing remain shareholders repurchase in program return manner. on the as of

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

requirement factors to believe number PC for term, drive in and growth. Thanks, Tom. are XX, IT the near migrate the The to the customers endpoint should device there aging accelerate Windows systems their for AI a In spending. growth demand we refresh of will that

including industry rapid advancements by will as AI deploy positively expect their The like be customers to edge pace, impacted addition, areas is server networking undergoing technologies. IT a cloud infrastructure intelligence, driven storage unprecedented and and In in transformation solutions. begin we artificial an at computing

be to cautious AI their continue customers evaluating However, strategies. they're investments, while their with AI

for properly of tools, threats also necessary demand for to continue modestly adoption course, endpoint We Similar for of have beginning collaboration competitive cybersecurity to and a look AI improve to evaluate security over software improved And factors the AI are QX believe sales be operational that landscape, of catalyst to that future. infrastructure, a as adoption customer and drive powerful solutions. drives Customers will drive to enhance are productivity we demands compute recovery increases. expected they up security we require and believe XXXX, storage, hardware, solutions Windows this device adoption be will These the to are to a AI of the and foreseeable demand cycle environment continuing efficiencies. the been XX, were of expected devices devices. more as refresh The and expecting. secure may services the IT additional solutions increase the of

for connection. on double-click let's Now of areas important these some

we large localized AI, such cloud-based adoption as as seeing CoPilot and Microsoft model developing are applications, systems. of language also well endpoint For AI organizations as

our AI We to our are customers with continuing journey. to tailor better assist their solutions

together launched we the Recall and industry-leading support that Center resources for QX. bringing AI Applied experts, Robotics, Helix during

that the AI customers Center that confident same work share competitive Connection of Helix and advantage are for with We sentiment. who partners in be and our will our Helix a area

you Let a me In year-over-year, while activity. saw decline are on experiencing our momentum. vertical give market we an retail, we update

are revenue For planning we solutions. example, have for future project increase sequential quarterly growth, and did AI an we in seeing

on health Services, is labor. part manufacturing, driven and based secure care the our we in their for health need care, set and the profit our patient's as gross building shortages proposal as In cybersecurity a skill deal pressures materials revenue and In services need year-over-year. to data. automation increased need for on increase saw significant workforce Financial to customers' and for in and inflationary requests by providers our In with well X% forecast

modernize and of support their need also facing X.X. facilities are to technology customers Industry in infrastructure the Many

In of Provider the consecutive XXXX and the in in year, Forbes the was Year list. in also named addition, Personal achievements priority Connection ranked We're was XXXX Connection organizations named the list. growth exemplary Employers Systems XX Best innovation. top National Solution of the to manufacturing. XXX Partner pleased America's Connection QX that on cybersecurity HP remains a for second for out

the our Innovation. of Microsoft more and rates. awarded Azure awarded was was This Digital infrastructure return the also Azure applications, Connection addition, X of new of but In areas, all designation and solution uncertain, data second the for AI, was Cloud. is in of The App Connection customer proficiency solutions technology Year. on spending we're security, ServiceNow's normalized partner and half achieving named work, Microsoft for optimistic business Azure modern will that by growth we XXXX, to timing Reseller

We term, rate near the will believe U.S. for environment. market outperform macroeconomic in can to expect IT the challenging notwithstanding the continue take the IT market we however, market growth share, and we the be challenging

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

through help effort with within connect our elevate We We technology customers our calm We of to and complex technology growth, to extremely valued like set rapidly a enhances continue that employees IT of confusion thank navigate our choices this landscape. the continued customers. changing for the extraordinary innovation. help our and environment. On during productivity I'd customers dedicated expertly to an the empower note, moment that for a take

now questions. We your will entertain Operator?

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

just share still of you hopeful could wondering more the about just kind you the just details, you're the it talk sales any should talk just second outlook comment would think you more as far half. as QX? how the sounds If quarter, about But quarter? about know guys maybe And for also your quarter. like can could if that cadence throughout maybe caution and reported on be you second in could on I you great. just of first, then So second your just but quarter we there's the the

Anthony.

be XX% honest of terms was of in is through Typically, the cadence to what we'll to lot quarter, revenues it the a our XX% you. coming In QX, through like see with March.

it was quarter, XX%. This about

and little a to So think the quarter I the on, apprehensive think economy as about get the interest rate I bit people went more continue environment.

So a that's pullback was what I . causing bit. the think little

harder of In tell, to all terms harder software forecast is because netting. getting and of the you just revenue can QX, as

so had when effect looking maybe going kind is line now. it's year-over-year. we're you And be special the And the operating last growth. the low digits back what right income what that on line, of up probably year, maybe flat out to tell I'll of you some the to single-digit low see charges we That's gross profit single like

Okay.

profit year-over-year, growth low right? gross single-digit So

Yes. to Yes. single digits. [indiscernible] low Flat just up

Okay. That's very helpful.

So you well about about this talked call previous calls PCs. as as AI-enabled

as how can far to as anything devices, And as have could that those when you happen. what rollout, could better timing as the on As as of your impact the that the you far to business? sense -- a share ASPs

Sure.

some you're The marks question. itself the -- I the still this timing much it, technology around Anthony, are the clearer. but So getting there's for Tim. time question is hope -- Thanks well. lines

out a apps processing the early many, users that as CoPilots, which get can processor, capability a will environment. and generation from year, more PC AMD, certainly run can of enable PC in and next have next-generation be couple the products suppliers many have Quadcomm year our will over the and will run neuro we'll chipset. advantages and an of the coming you is AI more Intel months But that. today, out legacy in the of announcing next AI will know, the it participate many that on the will you for So that's late

a own for be your that example, better next-generation collaboration, that, will AI performance. better securely an security, you application environment. with run PC in better could So

And applications in transformation But so today. end And that expire year. is that understanding coming now you many port we've AI though, for plan of to could a of months, customers, time that line October generation with our generation that in will them been our and of their PCs XX run is is of helping starting to but Windows There couple next of a their rollout. technology are many XXXX. customers and really

So they're ready.

As will some over you many of a time and applications AI to know, lot finally, take testing. port

the say uncertain, bright, of and the the that half and timing still toward is it our is I'd second future later but So year. more in looks

Got Got you. it.

to good so others. a lot last to And me question you very guys then have balance is Okay. which it a to for Obviously, before see. increase, strong pass buyback I sheet, continue cash. the on of

any Now still since far acquisitions, whether as comment far can you multiples? as call? that, valuation your there on as you're as changed of been looking and last Has sort anything

really, changed our Anthony, since Yes, last not call. much has

interested continue the certainly, sheet least been. solutions additional to do see, have more there at balance it landscape, and think, complementary acquiring cultures. I starting than are in out to look And capabilities a heat we in to with the are We we had M&A up competitive little we activity the that, and our

we're we meantime, we to in confident we're strategy have have deploying team But the plan. place, execute and look. the about So that to in the we really plan go continue the

So she goes. steady as

comes question from James. Adam Tindle of next Raymond of Our line the

Tim, guidance I year. wanted on the about for profit to last to you low to dollars think for just for start had I digits. XXXX, overall mid-single call, grow on expectation gross the And talked

gross product to it And downside. bit the know about lower the different suggested I obviously, dollars we growth be low upside year-over-year. a at Is maybe looking little should that to helpful. be be that drivers was maybe with for in here, predict, some that thinking dollar the we've to that, start you're that QX it's gross digits way sounded to think down. drive profit I things profit that commentary wildcards might but the the of or the than if over go And there total? or things a be year hard key might on you of want got hole single like a going would greater

Yes.

to I'll Good half say the when When right continue for to in do growth net you the expecting it year from thinking in be that half. we front GP, from Adam. is happy is of is profit are we question. the to back going for do as it, back amount So that metric business focused stronger Tom going we little single-digit to to more help repeat on were the gross I comes with QX you. QX, but see are hear that's not back in and because -- on the you QX to a about be the QX, we a about weighted believe, heard to thanks think here, of we'll half and year think and Clearly, us is And certainly be the But get of half. the basis. we recovery the towards than know

And And in expectations. say the meet didn't so is, Adam, would themselves results. in the QX year full going to what I show are clearly, I think results QX

single-digit you're at a than this QX in in weaker expected well So probably I the year low single-digit because growth low we had think as when we looking looking little bit started maybe year. out is GP

to are So those I through. think going carry

volume that back will to see little little a and quarter in lot half lot. back, this of for think a the a In NetComm be although the that, will comes obviously of a device devices. probably we year, comes sales, out of it if quarter that we of us. had accretive. spike pretty terms If changes in it weak does more back this A And help lower cycle margin, what us that a

kind pretty now. thinking that's of how still. we're it So It's murky about

Yes.

is margin AI-enabled category. storage and know, device in or good on you software category sure for have Adam, later endpoint category server year, to good I'm as our now, been endpoint PC categories, product cybersecurity And AI strong, specific the right ecosystem very cloud and our the side the of players. be terms going In whole so

months, still PC really if in So customers -- need will reasons start confident Windows year supported. aging move to device it adoption PCs the the start to good to the for that up. pick this to to get and our even installed balance through see and of offered we're XX base start with what along AI pretty we are there application not are benefits to their And endpoint they're that that early an is

That's Okay. in that And for -- Microsoft one prepared to are is as remarks, obviously, topic very a everybody. AI leading Tim, mentioned really you the product helpful. huge I on in AI. charge leading that's kind most focused of a think you the the investors be seems of Copilot that sort

on mean how what reseller EA the product or the of for that if a or terms versus cover type are that traditional wonder Just specifically, of in does license? a ELA? could Copilot different economics you And to similar a reseller a

Thanks. Yes.

So Many ecosystem monthly for good fee as are Copilot, as there our of customers. again, around now. is we running and customers pretty that, it We're our well. running a internally a there's it help

fact, have They strong. had for quarter a Copilot. annuity is stream. been good very In an have Copilot our sales ongoing that And

so volume. drive secure some are Now Copilots in more Copilot to that be we and more run expect do as to be to a without a at environment continue accelerated contained individual be that because out your diverse rate next-gen that and system secure we adopted having expect on cloud we'll an you'll will necessarily the PCs available, will able

customer adopt is difference as that the the and on commission side that will the are really the ongoing annuity revenue versions. But an side, to continues be today

I to being you more factor trend, a bit dollar and about in I a of different sort for know the and little software decline? that any whether color revenue in big relates that Was maybe that guess something it revenue this a difference should on just continue? software. talked profit gross Okay.

Yes.

we year margin. there's very not. were in of this a a believe that couple gross But at time, the couple I recorded Certainly, Adam. some there, through things basis, had in think deals a of on go it or large other there. contributed that to things Last there's

it, but gross And in nature look profit. to you a particular pretty that's really going at a increase that the do through in has revenue, why are when that nice significant had we the deals just quarter. it So with drop of

couple does a $XX of needle. million get You deals, move the $XX . it million,

remarks. question-and-answer the session. Tim I now This it for back concludes to turn would like McGrath closing to

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

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

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

You may now disconnect.