CNXN - Earnings call transcript Q4 2018

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Operator

Good afternoon, and welcome to the Fourth Quarter 2018 Connection Earnings Conference Call. My name is Daniel, and I will be the coordinator for today. At this time, all participants are in listen-only mode.

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.

are Sarno, President Chief Senior today Officer; Chief Financial call Steve and Vice the Tim and McGrath, Executive Officer. On President and Sarno. now will turn call to I the Steve over

Steve Sarno

Safe Thank Harbor is you. on of today being X webcast Page now our as I read part also statement today's of call, will for which slides presented the our call.

may statements. www.connection.com. expectations, references the our Litigation also Reform may the Investor Our plans, during in website management to Safe the call for slides from be not as as available with discussed ended various by as may future after Report that results indicated for these to for those on constitute that Private make filed or Actual be statements Securities prospects Risk Form the deemed fact under the statements in forward-looking today's be made Any factors, statements XXXX, forward-looking call the Various important section which remarks XX-K provisions the Commission conference of at and of Factors call other made differ today on in company's section XXXX. time. and year of with of the statements files commission XX, company's will Act are the from Relations and the Exchange earlier company purposes file forward-looking documents about Annual Securities of the of that Harbor result December including is materially historical the a was well those time

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

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

company's being will measures XXXX that between otherwise being along and webcast The section available SEC both the presented on available made Please are of are supplemental Today's available non-GAAP is the available the quarter earnings two website Connection's call, and is at website. today's this XX-K be Investor at quarter financial in stated, call to www.connection.com. the website. will the reconciliation Relations at note discussed. During earnings and XXXX. fourth fourth comparisons GAAP website The on be website www.connection.com. our A in the with references is also www.sec.gov, on our release, and all against Form on of unless release slides

begin today's we remind impacting new revenue review to our the of results, Before company's to you recognition how operating QX the minutes it spend adoption like of of of results. reporting a QX and few is the I'd standard our

standard. today, of have we million revenue impact This recognition In reviewing reported net The and our to under less adopting the that the related we addition recognition X, while are bill-and-hold approach of to recognition, results standard opposed maintenance recognition In January new Connection between In to on revenue revenue to a are would the the the full term, million referencing prior prior million results recognition of cloud-based basis. than the Tim is have standard and amounts under as as to treating release, to QX accounting related revenue this over the results. under XXXX of was will current such some standard. as year's security, adopted comparability implementation other transactions. we provided of new turn the $XXX the of results stated impact standard on as to results certain standards. under recognition for approach. to prior arrangements, timing a in reported new revenue today's previous which our As the we provide presented, $XXX software $X.X our financial recognition the standard I'll to QX Tim? the main call revenue standard using color operating words, our new prior historical our revenue XXXX, modified now comparison as the impact new the for be earnings revenue QX stated the revenue standard new the retrospective QX XXXX retrospective well as allow of reflects against recognition licenses, results. was

Tim McGrath

focus driving solutions. Steve. with result of We and on in efficiencies, assisting operational the Thanks, had our strong QX that growth, our customers technology was performance strategic advanced

we QX, networking and XX% of gross servers growth in saw million a profit products. both by $XXX record During driven

In of our business addition, model. QX helped XX% year of an improvements strong $XX.X of income operational scalability the deliver operational increase a demonstrating our focus million, on power ago, from and

Lastly, $X million we versus cash year a $XX.X the a ago, year-over-year period saw our improvement. fourth use $X.X the of consecutive in cash positive million quarter flows million of same operating representing of

as the to sales million standard Slide $XXX.X December QX sales, by to X.X% to increased prior new XXXX Net million Net Moving revenue X. were in the XX, compared for to $XXX.X ended months year the X $XXX.X million. a presented, impact ago. of

year sales for the basis points X.X% million, new to revenue margin, sales, $XXX.X more as segment. for compared net to as was $XXX Solutions decrease our year QX $XX.X quarter. segment, a prior XX.X% increased compared margin, of Gross performance XX.X% XXX profit, to provide Gross now million in Prior presented, represents a our by X XX.X% X. quarter, to margin as detailed to ago. $XXX.X this on Slide Slide In increased by segment ago. the discussion the presented, million. of of segment. a compared Gross were $XXX.X in million by Business to representing our to presented, a million net highest record to which to year We're presented, impact the as Moving were X.X% the moving standard,

segment sales were increased the our were by million. an Enterprise many $XXX.X as are focused margin, $XXX.X year increase growth million sales, million segment QX were $XXX.X as to new group. Business ago. of Prior compared $XXX.X XX.X% In Gross and the Gross standard, sales products segment Prior a on million. a a million, $XX.X segment, sales, Our the were to presented, by new standard, as majority $XXX.X the decline our to Solutions for as year revenue $XXX.X transformation. net customers workplace digital basis to to net business, segment Solutions Sector was strong presented, our Enterprise for from large million XX%, of decrease saw and Public XX.X%. XX.X%. project at Solutions of as drove net/com grew points increased The the presented, In continue quarter solutions. to of XX%, in in mobility products, The in which, representing combination million, our market points presented, growth benefit government in the XX% margin, compared refreshes and as desktop during XXX ago. a federal presented, mobility in to basis strong server/storage, vertical XXX This respectively. QX

Steve? to In now balance addition, financial margin income and cloud from performance, additional we our and call continue to statement, the covered benefit I'll Having highlights our cash statement. to over discuss Steve sales security sheet and flow turn from gross migrations.

Steve Sarno

Thanks, Tim.

to net of webcast along XX.X% X.X% recognition the sales to quarter new was SG&A, prior XXX year have revenue on presented, we're $XX.X a would X.X%. in those as from as this of $XX.X of points. our the X our revenue our of standard, Page due primarily For increased This presentation. a expense percentage the million revenue standard, SG&A increase of added million Under net recognition which on SG&A, or presented, and ago. slides, following been sales percentage basis as

our capabilities emphasis In solution cloud we associated data on the over in income four as an center QX, addition, statement. been a last investing line are $XXX,XXX with we presented incurred In with restructuring reduction internal resources. in have solutions. charges some separate quarters, in These our of and cost our of sales

million. million Our of increased Under a balances was Included earned QX. quarter from during revenue of cash operating interest favorable $XX.X $XX.X income a a ago. of is this $X.X standard, dispute. have resolution $XXX,XXX contract a $XX.X been net other other is year The in of our income on presented, our million prior that operating the as recognition from would income income, to our benefit million remainder resulting XX.X% past income

to in benefit Our of XX.X%, Tax X.X% up QX increase as due the the a effective of we Act. a tax period liabilities Cuts ago net remeasurement the year $X.X result QX our and in of is from Jobs nonrecurring ago. This same that a recognized rate tax was a due year to deferred million largely

X.X% the tax our to returns. benefited a accounting QX provision from Our year been would the associated impact filing the also quarter million new for have Prior tax increased as to to $XX.X rate October from income, of presented, income ago. Net of million. million with $XX.X return $XX.X XXXX standard, net adjustments

nonrecurring and when to was previously to per of the $X.XX of impact to to net $X.XX nonrecurring employees diluted the addition, restructuring to respectively. of compared ago. impact adjusting cash adjusted tax related mentioned $X.X have and XX.X%. of contract increased share $X.X along last tax the and bonus per income were to and a year million with restructuring basic each related a per the of new X% as In the dispute all year growth other X% and was and $X.XX accounting of charges our Earnings benefit Prior resolution nonexecutive for the earnings deferred onetime share, and X% revaluation a basic for in diluted per $X.XX, favorable an year items to liabilities QX million $X.XX, to $X.XX Earnings paid increase for XXXX would presented, $XXX,XXX standard, charges. other share compared adjusted of the share

million. $XX or as increased presentation, a ago. Moving impact Prior adjusted the our XX-month a our new X million we $X.XX year, EBITDA, per shareholders. returning to of Slide share January income adjusted this revenue to paid In of XX-month to and to dividend, $XXX.X would amortization declared earnings standard, year adjusted XX% XX% EBITDA today's million taxes, increased trailing the QX, $XXX.X million in of was have from depreciation which to $X.X before presented, special trailing our

also to repurchased XXX,XXX for In dividend, during million of average $XX cost special the an we share. QX shares at $XX.XX per addition

million during $XX.X $XX.X XXX,XXX spent million $X.X $XX.XX stock payments our of of total per a of XXXX. declared benefit at XXXX, yields were share. for together, $XX.X an accruing on of the a shareholders whole the total the and of of Adding of During dividends repurchases million price average repurchased million shares to

versus Turning same million year. prior $XX.X the Slide cash Cash we ended $XX.X cash an X, balance sheet the currently and on a the our $XX.X for to representing from of an for system million million Investing activities Slide flow with were cash cash that upgrade equivalents, of the is shown primarily in of capitalization from ago, $XX.X and million in increase QX representing $XX.X million on $XX.X equipment X, generated. year generated of period of of result operations, year process. million increase purchases the of

was used Board which used QX XXXX, plans. during million for repurchase for reflects $XX.X our our repurchase of our note $XX of stock repurchases an we stock of that declared cash earlier $X.X year additional the of which XX financing million XXX,XXX XX, existing common as December previously stock our $XX.X Our the which stock Please special remaining cash, back our million and have to under payment dividend Directors, million due on of $XX.X the to in under XXXX program, QX. buy shares authorized activities was of authorized aforementioned announced by Slide million previously

use lower year at days DSO, ago outstanding, the Moving our revenue or QX. which in days net denominator due to the sales to new of of to X-day standard, a days The in the sales resulted calculation. the a from entire increased XX is DSO receivable, accounts impact our end XX increase of

Moving to capitalized expenditures.

was During to $X QX, which currently system progress. ERP due capitalized is our million, in we mainly that upgrade

next and to six $X to the both be of expensable nine this to spend, months. over $X for project million the in million capitalizable range our expect remaining We

of do the we of do QX to average annual continue seen to that expect have into to a our we differences of basis, provide quarter. Although during X%. slight quarterly have guidance, at about basis industry grow quarterly out shifting had not On and above XXX points impact timing revenue fourth XXXX the formal we XXX or estimated

similar trends. a shift it's As now we believe a to result, back turn call see I'll over to reasonable Tim discuss to XXXX. current in the market

Tim McGrath

evolve solutions. industry pleased data intelligent Thanks, and customers our IT as group. businesses. vertical continued market product edge continue solutions to and be performance Steve. transform secure strong net/com continues with and and Demand solutions in I'm for our their products to to strong technology are server/storage in center using

business advanced major in and market We healthcare ways our segment and in innovation. with subject are customers order The enterprise technologies. contributor retail, opportunities by many in transformation growth have and enabled to We're systems matter our their We'll the empower is to continue vertical success our experts QX. transforming in to productivity, we Customer enabling our assist manufacturing. continued invest customers customers to in help and enhance success about measured our was growth improve a in optimistic business. in

operating strong see We create customers by demand achieved growth to strong We edge, and technology. company this competitive saw our for core continue The with cloud a record helping advantages technologies. income quarter.

our technology in the with the position questions. that strategies us We your pleased our market we solutions. In share have and enterprise advanced well gain team increase value. our addition, segment and long-term and in We'll shareholder in Operator? are to entertain place now we that believe growth

Operator

[Operator you. Instructions]. Thank

Our first question with comes from James. Raymond Adam Tindle

Your line now is open.

Madison Suhr

has partner for and difficult, are customer on of A but be beyond. and of lot a Okay. wanted into confusion reform, seen This you about view expectations out like distributor XXXX? at to reseller make community talk Thank what cycle you year-end for is it just you. pretty continuation PC hearing more on I healthy seems growth the in Can solid comps XXXX and that start Adam. the investment tax tough the level the seems slowing to on potential from outlook. there will a Madison spend

Tim McGrath

Sure. Thanks. there amount good optimism Overall, of a I think at XXXX. is looking

that, and driving large about really day, drivers and growth. customers strategy their to are You've got some our refresh, of talk a the of advantage many we looking the competitive number of for technology but to at use end project digital of gain

been we security and enterprise optimistic. refresh PC slower refresh pace lot edge think we're slightly that pretty there. our the We and a still we're than opportunity of And strong. refresh seeing, continue, can with space, of has for lot technologies kind Some the we've optimistic, a at opportunity think perhaps is been there software, upgrade of but of

we that And and through growth said overall, we rate so are committed carry we market XXX basis that we points, what we're as to pretty of XXX and the outpace by just confident we'll can believe, XXXX. to

Madison Suhr

just could be to fiscal kind whether wondering would then you of cadence split? touch of operating like And kind be on a about helpful. half was That's dollars should the we be Okay. follow-up EPS there profit it I first half, if or insight thinking second Any for year helpful. seasonality Any XXXX.

Steve Sarno

now mention stronger to years we seasonality think did with the QXs. preannounce to we've I and remarks, company has same see being some the Madison, kind really years of each QX struggled for quarter. I and to that the we'll couple bit prior pushing we've think that in were of think revenues Sure. continue I I having seen of QX in obviously of QX a in in that a last QX, seen my of see I a think continue towards that

not really of changing that, So to the just year, just I really, between quarters. focus looking the think, reallocate

So that what of we're I think is sort seeing. seasonality

Tim McGrath

the of that's certainly right. a software is QX for showing then QX, SMB group. QX traditionally, and quarter Sector And or strongest and for a net strong basis -- Public Account large for affect quarter a historically, software our a software now does and we're bit. enterprise and very part enterprise that always QX, for That's large Large little on

Operator

comes And Gibson from ROTH our William with Partners. next Capital question Thank you.

now open. is line Your

William Gibson

cloud. server about impact going gaining there adversely Or business? what's in talking is that Wouldn't picking a surprised; that up? I'm Or guys? is center server little that on data you're larger

Tim McGrath

Thanks, Bill.

is is cloud really is couple together so two think customers been cloud of that an business net solution a and really of end customer that has cloud that on. of hybrid should absolutely, that component is and is much modified we our in So a -- on strong. cloud subscription-based very or the that there on-prem basis, that And majority that a base we're what now there's really technology, shown we and it's But with components One being comment blended and seeing solution, cloud in lookout areas. think a our we an in growth across large up is off-prem category. pure

workloads of up of In and in our addition business, that edge should are and and to a the are that, on-premise. there lot hybrid. driving in all that and network about should we out of software ends cloud defined being, that will live will form one There workloads or that can, another, reside space and can, think

And both areas. in so we're seeing good growth

William Gibson

Is a as well? about software? Good. And hardware that have does what that security? element mainly Or

Tim McGrath

elements security. both there's Yes, to

the As many we're a seeing and hardware in is there and there you element across there's solution. know, that our really as offer Certainly, there. end-to-end net/com we category. good software element well good growth vendors appliance And growth and

William Gibson

that resolved you customer? And contract just the just then on got your favor. onto the dispute Did hang in

Tim McGrath

Yes, about a that contract consortium, buy-in and retain contract. really we was did that

Operator

Thank from Sidoti. question Anthony you. Lebiedzinski our And next with comes

Your line open. is now

Anthony Lebiedzinski

you good and and the for you, Thank taking questions. thank afternoon

Or follow-up, to the Is a you're other talked that good optimism you as for out wanted two seeing that XXXX, amount of that Tim, perhaps there. think the just So there's mostly segments? well you enterprise about for space?

Tim McGrath

what than this and pretty will in been a perhaps about space. great again, is refresh seeing continue we've in that our enterprise enterprise but but pace we're that lower Yes, confident much had a and a our We've the project of that's we're confident. by business mentioned, are, I of performance we Anthony, team, Well, year large slightly solution, question. lines at delivering as great seeing and continue,

in the Solutions. strong in with noted our many had now would do team we job of to edge what's to that solution reasons manufacturing, Also almost think our arena. upgrade customers our Connection's you looking markets. enterprise. to when terrific revenue vertical with technology, half or stack there's that Business very and many see of medium When small healthcare, been there In space, the you across technologies, selling that business a that we it in QX, the comes retail, in about Solutions especially even in finance, growth doing has coming in happening advanced and particular, be an gain As Business

because confident offering So technology will competitive pretty we're that advantage. is continue,

public are we more with sheepish sector, the little a Regarding there.

don't While government of delay shutdown much an hoping so, we're that QX. us they government we think federal a further QX, had if purchases, any the in effect QX shutdown to in should push on but wouldn't

So is we government think that along. business plot our to going

However, good optimistic and some about to XXXX, ed some grow business. in opportunity our good we has SLED think higher we're and rates

XXX So the to when misrepresent, talking still to basis altogether, market the that don't you XXX I about growth rate want and that still points region. put of though we're in above X%

Anthony Lebiedzinski

Okay.

just see and October back on look that how subject. And much performance, to here like shift you the checking was actually just supply this helped in timing that to you about So QX QX, the of talked that also to announcement wondering wanted doesn't timing? just shortages, back about clarify going your you hurting guys but then, talked was case of shipments that

Tim McGrath

Thanks.

$XX been on try across of that our to was one impact that. when about some there, evasive think overall, about will about it some to reason and push had as thought or there half realized reality and of but think push material done as we have segments, in is, not we our that supply we much for half million the another. we've to but us, particular moves out inventory there against QX, So that another with we that, again, And ensure about out has probably shortages chain smoothes do a in

that some So as mid-market is overall, project I we that lumpiness we QX. project's of overall, that pretty ebb segmentation. and below, upper going mid-market. target very enterprise so But that the in and same our to there's too say be as And oriented, to when flow and we've think and business, large on or applies and and to too lumpiness flow. SMB ebb about think X,XXX define that That does about much would we and have echelon the seats recovered think we're

Anthony Lebiedzinski

Got it.

I'm we you also And Okay. done for that operating about are margins How happy with XXXX? the you're gross should about sure margins -- just now comparisons, that. think all and XXX

Tim McGrath

Yes, we're Thanks, let in Steve behind Anthony. by thrilled comments. answer and that that's that jump I'll echoing us. your

Steve Sarno

looking look going some you part isn't the I And think XXX new helpful looking in certainly, first, is revenues of have the at to looking of how how to really cloud. the by these, Absolutely. standard, much which do impacted profit margins, gross in to continue what at earned and software move at of the to is by at

margins. So bit if up, see percentage upward a actually is you'll of that little on going lift

So of profit same to because of that and flowing. I starting see how continues lot percentage netted quarter-by-quarter of little that continue a us that operating that things allows We're gross and of netting margins. a guess. trend without so that's a up take does we comments levels to of inch lot and On ebbing income, being really thoughts, to the that's a list impact at gross that and do on as look as bit to the have software a

Anthony Lebiedzinski

it. Got

questions. two more And quick Okay.

restructuring cost savings you far that quarter, did As annualized as in should much expect that? how we the the fourth from

Steve Sarno

range in for $X million is million Sure. what we Several dollars million to $X that. the modeled

Anthony Lebiedzinski

Got it.

And far as as Okay. lastly, --

Steve Sarno

the That Part is reinvested worth noting. being of is business. that -- in was

Anthony Lebiedzinski

Got it. Okay.

a XXXX, lastly, your have CapEx expectations number you do And for as for that? Okay. as far total

Steve Sarno

up ERP projects project, other also finish A or place. in few really, but add as what the implementation a on there higher little to bit in than you saw 'XX similar we

Anthony Lebiedzinski

best Got and it. All of right. Thanks so much luck.

Operator

remarks. any showing over I questions the now back call time. further any further at to like not turn I'm And would this you. to for Tim Thank McGrath

Tim McGrath

also evening. support efforts. our coworkers Have me, and to operator. and you, excuse this like -- thank thank I'd continued great their of to partners their for customers, listening who like dedicated of a for call those those I'd you thank vendor for our are of to shareholders all all our Well, evening.

Operator

thank in and have may Ladies a today's and program, disconnect. today's This you does all gentlemen, conference. wonderful for conclude day. participating you Everyone,

PC Connection (CNXN) 8 Feb 192018 Q4 Earnings call transcript