PC Connection (CNXN) 31 Jul 242024 Q2 Earnings call transcript

Good afternoon, and welcome to the Second Quarter 2024 Connection Earnings Conference Call. My name is Justin, and I will be the coordinator for today. [Operator Instructions] As a reminder, this conference call is the property of Connection and may not be recorded or rebroadcast without any 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'll 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. fact forward-looking not conference historical may be be to statements that call Various remarks the expectations, harbor purposes and plans Act provisions 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 forward-looking future, the management's to the change. you rely the do disclaims if obligation any required law, point specifically as so date these representing even should update at to to some any today. therefore, by company on subsequent estimates forward-looking than company statements in as statements as And may other views not elect of

During this call, non-GAAP financial measures will be discussed.

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

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

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

of and our quarter QX our Connection begin our share XXXX afternoon with for of today through Conference record will thank overview second Thank afternoon, income joining us an net at this financials. and QX then look per of detailed results you, performance. achieved you Tom highlights earnings for walk XXXX. us I'll of Call. Samantha. $X.XX the everyone, second a more Good quarter for Connection's and

we reflect integrated and X% refresh These customer ability increased In to device customers. committed at needs to mix. some of the execution dynamic to forefront device initiatives, began strategic our QX, curve, remain profit Gross as driven a of our We solutions results the change successful evolving the of to Windows due our the in technology by needs XX% of meet customers that experienced PC of which in priorities growth our adapt were our early endpoint some ensuring customers the environment. primarily for and this revenue endpoint adopters. stay AI in XX

storage networking software, offset cybersecurity cloud server increased growth had in X%. were solutions. decrease and Our category including increases a XX% strong of by XX% These and

down you recovery X%. compare. our X.X% advanced technology year quarter, by in from profit in while resulting recall, year advanced networking benefited was a compared a technology increased business prior tough chain revenue the If the Overall, QX for to ago, gross supply

deliberate gross customers growth economic quarter, be IT in of to environment. in continue with profit uncertain experienced our each the this very their While businesses our cautious purchases and

QX QX XX.X% an XX.X% compared million. sales increase basis our $XXX.X to to prior year. $XXX.X compared were profit points of was increased Now an last QX the Operating $XX.X lets margins were to discuss net in to X.X% million, year in Gross QX million, to increase up of performance. quarter. compared Consolidated Gross XXXX. XXX X.X% income

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

a we'll performance. look segment little into deeper our Now

Business were to $XXX.X ago. a increased for XX.X%. basis was our sales million, segment segment, Gross a Business year X.X%. $XX.X an year QX prior quarter points our X.X% In net record than million, of Solutions increase Solutions the profit higher to XX Gross compared margin the

server and as and shift well sales in net a customer affected in by endpoint margins gross were growth Our sales favorably device mix. as

large at Sector compared were prior institutions for by local QX from ago. to and Sales The sales and net by X% $XXX.X QX year federal did million. profit segment current and Gross Gross margin quarter lower a XX.X% million, to million, basis Public sales for business, the not year. the of XXX opportunities XXXX decline to the QX to our in Solutions low few $X.X $XX.X compared was repeat government Public In quarter. increase 'XX. the education increased the in an that decreased government than state decreased and margin to resulted Sector were $XX.X million, points a margins while XX% improvement by year revenue

we the X.X% In our in million, sales Gross was sales devices. experienced the Enterprise than endpoint year a for higher than segment higher profit $XX.X Enterprise were a Solutions ago million, segment, $XXX.X net of of XX% QX X.X% increase The by quarter. customer mix increase as increase quarter. year an improvement recognized software XX and in including result sales, a margins and margin basis Gross cybersecurity basis. points net to XX.X% changes the on in a cloud was prior for

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

the million Interest variable was higher the SG&A in increase quarter. an in primarily for compared profit The million. amounted by due in of XX an points to sales $X.X Thanks, million gross On prior of in Tim. increased to XX.X% income of year. last percentage increase levels to basis increase the due SG&A a XX.X% QX compared year, year quarter. the sales prior to X.X% increased $X.X SG&A to $X.X basis, to net of compared to quarter in compensation

XX.X% from year. down XX.X%, was rate last tax effective Our

was income $XX.X of the an increase last was earnings of an $X.XX, year, of per was increase $XX.X million and XX.X% $X, Net from XX%. diluted share quarter an increase Adjusted per for share XX.X%. million, earnings

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

quarterly returning shareholders, an $XX.XX of quarter dividend purchase average cash paid per price In at repurchased to May, in of terms having in a an the of shares million price $X.XX we and $X.X share we per share. aggregate

we shareholders for $XX.X to existing August our on XX, on million. and remaining Today, repurchase share. Board XXXX. declared stock repurchases that XXXX, of The of half per record our dividend XX, August XX, of has we Tax June quarterly $XX.X flow of million generated XXXX of dividend under $X.XX a program. As announced had first payable the payable XXXX, for was from is operations Directors

Our half the first accounts and balance at for remained our balance of of DSO decrease receivable for inventory while XX half $X.X XXXX. increased million days, our the first million XXXX, $XX.X

of used to of result the the million end million increased XXXX, of investment quarter. XXXX, in of Our million of the a $X.X Cash first investing of due of was $X.X stock of first financing to purchases million largely million accounts consisting of payable $XXX.X dividends offset million half of payments repurchases. at cash activities shareholders used for million during investment $XXX.X timing $XXX.X half of for of payments activities by primarily maturities. $XX.X the We and balance $X

cash equivalents of cash, ended with QX and million $XXX.X We investments. short-term

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

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

Thanks, Tom.

quarter, a we Manufacturing growth strong in saw several vertical revenue the year-over-year. markets. of XX% our increased During

Software X% they while by year-over-year and productivity heavy focus secure. as in be look upgrades software driven businesses Health manufacturers their continue major care customer to for a and endpoint base. devices, increased revenue our for networking gains keeping system cybersecurity

part continue growth solutions talent and which cloud, In majority investments IT Services strong ongoing of to technology, as result as a revenue investment addressability systems. are of our our year-over-year, in and we our area resulted important progress our XX% an and Financial make in evaluating in increased cybersecurity business, the to interoperability strategy. customers in is managed tools, AI services. of AI their between

through Connection the to initiatives. AI Helix We strengthen capabilities continue our

underscoring our Helix SMB customers Helix ongoing presents Connection element of our with to to workshops the we're development success program. a their the which Furthermore, journey. a our targeted of to team help growth central approach go-to-market AI exciting long-term is opportunities, crafting sector, actively the delivering AI As them Connection and for commitment strategy, the

was on Newsweek's for the We investor for are in that list recognized pleased customer, America Connection trust. the companies and of most outstanding in also consecutive trustworthy employee QX, third year,

as ServiceNow OEM the in entering that of in discussions of cycle of several result believe vails growth professional enterprise the platform on the were products ServiceNow to of based stages with dry We as the device partners. We of beginning well a Year as America's Reseller refresh XXXX recognized Partner the our we QX services a packaged our market. as made

for the year. that result, the a improve believe As will we modestly device demand balance of

uncertainty to be the cautious investment to backdrop with as We about as expect impacted aggregate concerns macroeconomic an demand this infrastructure due IT well in election year. being by

is and gross of device in refresh profitability, to terms change the downward anticipated margins. the pressure In produce likely on product mix

see growth for outperform that market are result, rate the As IT our XXX points. modest basis by we performance, a of in XXXX, we we'll of expect we the improvements that balance and can confident

of aligned utilize business deploy, shifting technology. with Our how the remain focus strategy dynamics and customers and consume well

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

moment of technology We complex We confusion for the happens world our extraordinary this expertly questions. dedicated our know environment. and We'll We of the Operator? like complex for and to changing expertise that in extremely of that choices efforts help this navigate and our during set calm within note, their customers. wins. help entertain change IT valued employees our On rapidly to thank customers technology take your now through landscape. a I'd continued

[Operator Instructions]

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

comment wanted that beginning with seeing to device refresh. of on I the the start Tim, stages

the from could underpinning what's why your that's that color OEMs wondering little is more now and/or share if you whether or materializing on Just belief? customers the bit a

light to of quantitatively there's a that update you on metrics And maybe be your think pipeline like gross now? might for headwind a for expectation Any profit the related in of But supporting to margin then it for single-digit that be How kind Tom, that year, this. gross of understand this, that? mix growth, low would was this. prior on dollar kind I to going

the question. appreciate I and thanks, Adam, Well,

We'll So a start. the we mentioned. refresh bit about I'll that talk little device

we in customers are forward-looking see question to much in our our the sales see the starting So an do the of of refresh that early that they around a AI refresh reality AI PCs with doesn't then next-generation is the XX some the is XXXX, be and and PC just device to is and in are end how that that pickup refresh that application. parts of using And in of cases, wanted that applications available we In so of device adoption are Windows Windows market, continue AI that the market the how for AI would PC-based. And to them it will device PC-based. those primarily XX purely driven. but a OEM work the device partners future. as XXXX, are of much much believe bigger is hold. very closely they're know toward in mean XX% take And little you Around AI is many PCs it

really adoption So some greater early but the in will adopters next-gen today, future. we technology are that seeing much drive

projects. pick terms across in our for say ] right large probably enterprise the traction and business, the funnels of terms very In up is now forecast most of seeing I'd funnel [

perform And we're anticipating for We our public Tom? on had really that rough well, better we QX. way. QX, the a we to then team consistently knowing solutions a is are balance finally, but business, XXXX, they'll our business of also and sector that performing bullish continue expect

digits single So terms the still gross year. terms profit low I we're for in maybe growth, the of GP Adam, of mid-single think growth in digits, in

XX ]% heard you of devices our and our XX% part the remarks, As device endpoint -- [ revenue our XX% GP. in represent first in --

not of that was going persist I'm good a the headwind quarter, So pretty for but through sure frankly year. is the the to balance

sure not expectations of going for we're GP our bit. the little the what's a on that's tempering growth So to I'm year. hold balance that

GP nice better make done the Tom, the about you've sense. to driving obviously the from might that a some trajectory be the it leverage. That that Obviously, line, investments. How could time indications job here? operating environment make getting below some makes additional And is maybe argument

investments Just how for margin means operating leverage you're at what and thinking this going that point versus about balance forward? the and operating

go to we and of I disciplined fund past solutions have, a we hard areas. of put the as through we business. investments, So other couple think, quarters by cutting we're And try reasonably it continue services very into our capital just trying and -- significant amount to

we think investing about I we've So go as along. been pretty good

some. little a a improve especially quarter up next you'll in the tick the SG&A the for think I if X, should bit little revenues a down of although rate or bit, come see

I track we're the continue So I on we're plan, our -- to investment at. about think and think, with trajectory

from next our & Sidoti comes Anthony Lebiedzinski Company. from question And

guess, trends started the I comment early of you on for you you? curious, indication here QX, saw just that an and as quarter So can kind first, how as that the far throughout

Yes.

actually So we're of And happened quarter, June, the not, of same the kind XX%. in our past been when were about were or quarter, I June, from points little a got then we X first pretty last believe what linearity we've within And like of which the more couple of the did it week XX% we've at tough. X bit of in year. down days XX% than weeks is in years, month that the thing in last X the a Anthony, we the last -- the couple look shipped about

unexpected. was end So of the with glad we quarter, bit did -- the see you, a it, little was which honest to a it at but have to we're spike be

far, seeing? as I And Okay. what mean, as QX so far there as as July, comments far any you're

we cylinders our what Anthony, the into so QX are we're environment, obviously, be think come large on funnel. tough quarter a strong on historically projects firing is a with all the us, We're macro for to want for in and we there. we enterprise cautious seeing

our We're with business steady as she good our goes with business of in team. sector kind projects solutions public

improvement been We optimistic So for first calling competitive QX, change. point and in hearing to come yet. common over do expect for second expect is as you've We inflection this that which in QX of our half I certainly are better starting think QX that we 'XX half. quite not landscape. the very be to our do welcome than a an some business. device we're But we're And see refresh picture, into is sequentially, the

that's as to Yes, recently hear. as far you. then Got event. And just good

work the the or clients? with positive you a negative for with your issues curious terms with Just was CrowdStrike, of your in that

thanks. So

CrowdStrike, sell affected not do a company. we we So and were as

was ground great In the opportunity by fix provided could clients help in Microsoft, setting However, customers their some were centers feet cases, be several call up to and hands with working and the needed. walk a a with them, changes the them we provide support to to needs. our turned on to bodies help of for and XX-hour most through cases, it out us CrowdStrike so

we was an event us that was opportunity regard, help customers. good it customers. in to help us In So to for our a able tragic very were our for that

hear. to good That's

device the on commented yes, refresh up So also here. you cycle, picking

was XX% as up quarter. in X% As your and areas far business, the other up of software storage

For of I think going the here? that how X, you mean, those about forward do sustainability

Yes.

as cutting actually very lot of POs. we're business, I when the start but enterprise very think, we're -- it's seeing activity, unclear especially they to in a

spending going environment think does. I of what it's a function the to overall be So

well little cut budgets it is we're for think happens. why we're going infrastructure to And think the the with just we tempered positioned business. We're waiting loose. I that's what happen when a bit on to

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

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

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

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

disconnect. now may You