CNXN - Earnings call transcript Q3 2019

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Operator

Good afternoon, and welcome to the Third Quarter 2019 Connection Earnings Conference Call. My name is Kylie, and I'll 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 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 would now turn the call over to the company.

Unidentified Company Representative

you. Thank read statement. now Safe the will Harbor I Any that fact are references made may conference call during the not statements. deemed be statements to or be forward-looking statements of historical the remarks XXXX. company's constitute Various statements of the provisions purposes Safe for may Reform Private management make Securities forward-looking future plans Litigation and that expectations, prospects Harbor under the about Act of

XX, for the in year which with the the file a including from ended Exchange files may well company December indicated by with Form and in the as as differ those statements factors, Commission commission important the as materially on those XXXX, Securities Factors the result from results of time. on various Actual forward-looking to of that documents report section company's other is Risk discussed time these annual XX-K

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

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

Please XXXX. XXXX During third third the that A today's to two www.connection.com. being will is company's unless of GAAP earnings the references non-GAAP available otherwise are all quarter release be this note call reconciliation made financial at quarter measures website in and stated discussed. between the comparisons and against on

at www.connection.com. the will website on both Form section the The being Connections release is the www.sec.gov and website. at investor in available and our webcast relations on are available and of call Today's SEC website, be XX-K earnings

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

Tim McGrath

growth earnings in We you including quarter, results. Enterprise quarter Public operating quarter by XX% experienced business all revenue joining the increase to grew Solutions everyone. segments. us the in the experienced XXXX. QX XX% company's our XX% which afternoon, thank which achieved share segment, in followed And X%. It's a another The by from and of strong segment, per growth review to financial performance, diluted three growth Sector the Good today segment pleasure solution for third announce

technological success and anticipated rollouts that refresh, of the attributed the PC enable desktop quarter these support the Our hardware in modern the by to in X of to due was mobility categories growth timing in The solution-based end strong and partially for advances categories. large growth workplace and solutions. project was in the driven Windows

we addition, build in intelligently our hybrid In and continue our committed focus to solutions helping customers that efficiently to digital workplace. security the see data software, remain We out cloud include our growth on software-defined and cloud center, businesses. and

our the During gross profit, growth by year-over-year, company third and increase business and focus profit in achieved gross initiatives. margin gross represented share. XXX The the which and by record record gross on achieved earnings profit was both continued per gross grew XX.X% record of quarter, margin points. XX.X%, driven margin basis of we Gross our

sales cycles levels year three significant perform all our these period, operating we When the of experience leverage. versus prior at

growth double-digit markets. in of our three a saw also vertical We

net cloud XX, months sales, require continue QX in XXXX, million, benefiting XX.X% sales year software to pressure million and on the sales net margin. Net a to revenue, more in down effect, for three September based puts compared $XXX.X $XXX.X while gross us ended Increased to increased to downward security which, by ago.

$XX Gross of in margin X.X% XX.X% was XX.X% million million $XX.X in income profit $XXX.X X.X% quarter. compared increased of compared by year XX.X% year Gross to to XX.X% prior quarter. record by record year to to a net the or million a $XXX.X Operating increased to million prior or the compared a sales net ago. sales

our segment. $XXX.X increased to by million like ago. segment, more Gross our margin in a this business year of sales quarter. XX.X% XX to a I'd for discussion to performance detailed Now provide QX by basis solution segment $XXX.X compared by points net to the In million increased XX%

Our the and segment that continue of change represented our advanced from percentage mix. larger focus benefited a on in to higher Business revenue and quarter. volume increase this Business margins customer Solution in technologies a Solutions have

$XXX.X compared X.X%. sales to increased to to In educational institutions Sales compared our year Sector wins, by local increased result and Solutions million as increased by federal prior year, of business, Public XX.X% project the to $XXX.X government large a to million by net sales ago. state QX XX.X% the a government while and

for QX net margin sales were XX.X% the basis net/com XXX in public points Gross server by X.X% increase $XXX.X storage segment, increased the mobility, to growth due and In desktops, sector to double-digit million Enterprise million categories. segment to increased Solutions quarter compared in cloud-based a basis XX points a of this margin the to security than had for Sales XX.X%. margin on software financial greater same year. quarter impact last the and Gross ago. segment enterprise by year the gross a for $XXX.X

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

Tom Baker

to an to increase $XX.X the SG&A percentage and as XX by quarter. managing SG&A driven ago. gross The year increase operational demonstrating decreased of a million this efficiencies was variable $XX.X expenses. level in points in year-over-year, our higher quarter compared prior commitment by to driving SG&A basis part achieved in profit from sales and compensation net sales of Tim. a uptick million to Thanks, year due

million that highlighting increased $XX.X $XX.X the the the profit, Of in year million this in quarter increase of business. operating in recognized operating gross $XX ago. to $XX.X income income leverage or from was million million XX% Our XX.X% a increase

Our ago. in same the down XX.X% a was rate XX.X% effective tax period from year

ago. a for Diluted the earnings million per to income XX.X% increase $XX.X an year $X.XX, $XX.X Net share million quarter was of XX%. increased from

and earnings XX% depreciation increase taxes, adjusted million XX amortization income a before EBITDA adjusted ago. $XXX or trailing year to from $XX.X million Our month

We average of equivalents. $XX.X million the $XX.XX for versus operations for flow cost per repurchased the nine and $XX We with ago. Cash from cash at cash during $XXX,XXX months shares share. same ended of first for million XX,XXX was of million a the QX an $XX.X XXXX quarter period year

the in of The we strong in the a change was part to enjoyed last quarter result year. business compared environment third

of increased in growing Specifically receivables levels change and for the support cash and accounted flows. operating most inventory business of is

inventory the our an outstanding $XX.X million, from as a was which EBITDA exceeded During flow improvement turns. of the quarter, our cash days sales for and quarter result operations slightly and

our of upgrade cash of of million the activities the for for $X.X of first of million in nine activities special company QX result $X.X is used primarily declared process. $XX.X use $XX.X repurchases. The dividend, was million for purchases financing ERP the investing system the year cash consisting equipment stock and for of million months payment nine XXXX our in that XXXX, first capitalization of previously net of months and the Our primarily of

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

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

Tim McGrath

resulting of solid in business segmentation. of customer performance across Tom. our We quarter all specialization importance had Thanks, segments, the and strong and demonstrating another operating leverage of

as pleased in improve that for to these security. our with in are we productivity, deliver continue double-digit efficiency enhance customers finance vertical strengthen our We also markets vertical markets a solutions manufacturing healthcare, and and

Customer in that technologies and many enabled environments. success customers our unique by the is to ways of are measured diverse advanced needs their tailored and

migrating our to will industry and As to our needs growth which help customers need as SG&A of organizations. and areas, levels. We'll critical experts empower certain back we result productivity, percentage closer enhance to continue the in to and invest matter revenue in innovation accelerate likely across evolve, historical subject order a in improve investments continue in customer's to our systems our will their

the in industry ahead, growth growth. approximate GDP Looking current low-single-digits and expectations are

grow to value. as strategies is gain us to increase fast the in that place shareholder believe market market. Our overall share plan position long-term We our well the and twice to have we and team that continue

Operator? We'll now your entertain questions.

Operator

Adam from Raymond [Operator with Tindle James. Instructions] question Our first comes

open. is line Your now

Adam Tindle

Okay, dollar only growing good but to operational click I very close impressive the double here, just thanks growth, afternoon. obviously to mid-single-digits. OpEx profit aspect, gross and wanted on XX%

level. just So, of what I double And, alluded in click this can think to the on could it's maybe basis, a we revenue think kind on about Tom, you're more you prepared margin forward Tim, the a ratios operating what doing percent operationally. whether guys sustainable as you is if of But remarks. OpEx or

Tim McGrath

thanks. Adam,

think about forward our we strategy. go So

cloud lot a of engineers, investments, additional general. our are more in folks more engineers, more there changes require customer base technical So security in

detail. And, systems Tom, go So plans. forward we investments in a little that look more you We're our and let cover I'll personnel. in making at some

Tom Baker

Yes.

quantify Adam. to try I little here a I'll So help is you think what bit, happening

QX of I versus a If we those our you revenue QX look basis hit expectation My think XX year-on-year, as points. SG&A at of as a was few down, us gone percentage volumes probably in invest and call and the a as these business that step functions to to back increase. of a amount third half need continued that investment, to systems will these

Adam Tindle

that and And that Is kind something is helpful. you're an there kind aspiring That's for target in there shooting of Okay. beyond? to? you're XXXX of margin operating

Tom Baker

Because revenues starts But think what saw is, revolve to We're we going go to up quarter, this specifically we is the lot always volumes. revenue you to no, haven't our in but more. starts a aspiring be, of outline, that around higher when this at. as and coming

Your bit margins a to accelerate tend disproportionately. little

year-over-year. of lot how depend this perform on is we a So

Adam Tindle

Got it.

curious customer Tim, we base obviously through PCs that strong. cycle. And I'm just in partners view your on Okay. vendor here, results going either remained from the where or I are know very on

you going Thanks. headwind seeing if expires business we of in think, growth later very And the still so Microsoft aspect driven it well-known PCs be in talking -- -- XXXX. get you're about like from strong that's the by that been think that support year? there's think you're maybe in Do any has to Do January. sounds that? in you the I as

Tim McGrath

time it's the I is answer. kind saw of QX go views. a end So great going we one to refresh XXXX. trying We desktop And think the anyone's but day, guess, that's probably of through of all at the we if off, will a to of spent but of consolidate question, lot tail the

seeing a And about feature of for only sets So mentioned, but it's rollout. are solutions lot end advances and of we in X, to the that. are optimistic life lot you important a of technological support that we're the hardware Windows not as

both So drivers. really those positive are of

although starting too. suppliers to warnings sure, many have point Across our this of And said, significant, we're That I'm getting also hearing shortages Intel. in clearly we not the are today, that. potential you're from processors industry, anything to experienced about

headwind bit going a cautious make there a out our So little of bit that's feel to little that's on a statements. us

Adam Tindle

strong results. very the Make Okay. on sense. congrats And

Tim McGrath

Thank you.

Operator

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

line Your now open. is

Anthony Lebiedzinski

Good Thank for question. afternoon, the you taking gentlemen.

So, be about the quarter year? with of you're good other why to anything can any Intel, there the or us may perhaps get to thinking as the wanted QX than thoughts issue as you as sort not just your fourth point is to rest of to how that else

Tim McGrath

Anthony, thanks.

think So look as about large when federal federal of business end September season. the the government did we at have QX, government we buying being we a

in probably budget enterprise And out I around big in well. in more repeat there as little so, won't seeing side, traditional notes cycles we cautionary flush. clearly the see will remains, enterprise the that question the what that we're federal budget business And think QX,

that three look but segments our all So we has at and the probably funnels nothing our most one uncertainty. of when the forecast, is the definitive, enterprise

Tom Baker

go thing and at other add only last if you that, back to The Anthony, is quarter. look I'd

kind some fact had QX. we that talked a the would rollouts into inventories little we about had spice Our of that are and roll

from the bit tailwind of a kind that last compare to a got you quarter we that. year. So of can And same

some experienced supply little. the we a which issues, of kind think I revenues depress chain

tailwind, a of year-on-year, you've of year, little a had bit we last we headwind. this got -- So year, little bit

Anthony Lebiedzinski

Got it.

customer you your Thanks maybe for detail Can changes just about Okay. about mix public helping gross clarification. more sectors your also or talked us that? give that for and you the And margin. impacting in SMB

Tim McGrath

Sure.

really to a we did selling they across we in us Also to for federal strong higher that they solution medium and the a tend space, technologies lot our growth be positive arena, advanced in Solutions customers, in job in the was business, stack, Business stickier. little group, really had our small So did sector margin the public good selling a really job, a good and to in QX.

that had that you the didn't was XX% repeat. margin as prior So very gross that we that know, was in quarter a year of couple large and was positive. the so of that Contributing that -- to lack a projects another business,

And margin so pressure we didn't have as there. much

a a So being that of ended up little bit benefit.

Anthony Lebiedzinski

it. Got

quite as moment. know, sitting you you of far balance at your had time. the for have Okay. a are as cash on in certainly sheet, lot strong some lastly, a And I value

cash far acquisitions? some So any flow thoughts, potential as as your priorities and for usage updated

Tim McGrath

can't I acquisitions, top the you'll in really the Well, discussed deployed of that historically. that absent I our I way the same in to potential our priority. But in think, Anthony. capital grow kind done think accelerate business and of talk about kind And invest see or past. we as assets growth our Opportunities we've will

Tom Baker

in But add, strategy. team our to I confident want business our plan, really and also in our we are

and we'll culture. an out we feel could our do So don't remain accretive set, our our to be company go round acquisition. solution to or But open that pressure anything any undue to

Anthony Lebiedzinski

of and right. Got it. much best very luck. Thank All you

Tim McGrath

Thank you.

Operator

comes ROTH Partners. question from with Capital Gibson next Our William

now Your line open. is

William Gibson

Thank you.

the that's out of Is I it was the your level? configuration a reference operating of flush? high How's or backlog shipped advanced a that assume product one-time quarter, still Or of center. You in now? stain that

Tim McGrath

Well, Bill, thanks.

So, we advanced center great that configuration do offers our customer value really our for base. feel

busy. very there the rise the real does our we and expect continue been value have that to solutions bring It to in we rollout, to continue volumes future. So

So think add. we our we're real growth and it's configuration value good advanced seeing really business in

William Gibson

mentioned financial you you third? in what And double-digit missed verticals X Good. and I him, then but was went in growth the over and healthcare,

Tim McGrath

third The manufacturing. was

the a had markets. X very quarter some ago So of vertical retail but large good strong, we're rollout. we growth been in seeing year across all those Retails

a we had tough So compare there.

William Gibson

Thanks. Okay.

Tim McGrath

and manufacturing. So the healthcare are finance, X

William Gibson

Yes.

Sounds good.

Tim McGrath

you. Thank

Operator

And time, back to call I'd like questions. at showing for any this I'm further remarks. no turn the over closing

Tim McGrath

the thank of shareholders to Well, vendor those thank to afternoon. our their for efforts. their of all co-workers listening partners support, like continued like customers, and thank this also you, I'd call I'd to all dedicated our operator. and for

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

Operator

conference today's concludes this call. Thank participating. gentlemen, you for and Ladies

disconnect. now may You

PC Connection (CNXN) 3 Nov 192019 Q3 Earnings call transcript