CNXN - Earnings call transcript Q4 2019

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Operator

Good afternoon, and welcome to the Fourth Quarter 2019 Connection Earnings Conference Call. My name is Chris, and I'll be the coordinator for today. At this time, all participants are in a listen-only mode.

Following the prepared remarks, there will be 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 Baker, President Chief Senior today Officer; Chief Financial call Tom and Vice the Tim and McGrath, Executive Officer. On President and

company. now will turn call to I the the over

Unidentified Company Representative

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

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

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

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

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

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

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

Tim McGrath

afternoon, Connection's a for conference joining us full financial our and including Good for the be a you sharing update results. Baker, everyone, to quarter brief our initiatives; today Officer me XXXX business, quarter and fourth Tom of I'll company's year review Financial strategic Chief fourth on thank will join and provide call. our

With a our year this fueled decade Connection's the review beginning in opportunity the be start to in that items XXth kick-off of with of call a I success. new of our would great thought the business, a outstanding have

environments. level small expertise Connection's able subsidiaries teams, distinct service large three of our and combined with customized to public of enterprises. a of Industry of sector a organizations, the our needs Solutions customer's the solutions deliver sales and technology we Connection's When businesses deliver Group to specific are deep medium-sized and understanding market-focused vertical

It's or department out of and We specific our possible just a needs the needs. of customers into And it name a collaborate their team our the service business. the with and without solutions This specialization sales on This beyond of grows based in rep specialization, level environment I goes be really teams. can would and deliver customer's our understand customer's to mentioned. interest the culture their training, baked their different title. unique the focus our not

goals a for of productivity innovation empowering elevating our and is sales our have living great core all, job an a done around teams customers. of After exceptional mission. organization team growth, our enhancing Connection purpose-driven sales and built support our We've and

Center. a Integration like In and Solutions the to work our enterprise that's Group and done spotlight shine groups, Technology and to I'd public solutions being sector, Technology addition by Distribution on great business our our

customers' solutions, sales expectations. of to follow-through outstanding our and need continues drive delivering Our to the our sales teams expertise the TSG advanced exceed team technology technical

our focused capabilities enhance The on continues customer Technology experience. the Integration and while Distribution remaining to team Center

give twice teams to the over completed ago. we're That's look forward many company. XXX,XXX to innovations to configurations custom work great able a bring they'll as of seeing last have almost Just done I year. years team a to frame as Both few and TIDC the to reference, you the do just continue

On It's to per or diluted pleasure in and our company's announce strongest year XX% my the of achieved profits earnings XXXX. annual with $X.XX than record basis, we higher history. earnings an gross share

compared to revenue our gross XXXX. $XXX.X to increased by increased quarter, fourth and QX During profit million of X%

quarter, the of basis by of prior the XXX of net points. million gross increased compared in grew we year $XX.X margins profit XX.X% sales X.X% by achieved fourth income to X.X% $XX.X sales year-over-year million to quarter. or Operating a which gross of or During XX.X%, growth and represented net X.X%

XXXX increased X% per QX XXXX. by diluted earnings from In share QX

Solutions charges segments. X% adjusted contract both and QX restructuring the settlement of earnings XXXX, share in increased from Excluding dispute and Solutions We Sector of Public Business per favorable a diluted operating experienced strong in QX our growth XXXX.

partially profit in our for of and our basis, is XX% to than growth achieved security the a software segment growth QX quarter revenue. to net decrease a Sector growth offset which Public XXXX Solutions selling compared X% which a of our believe revenue growth we in Business recorded on that cloud-based segment. in the by success Solutions better by X%, followed The experienced in Due revenue segment, continued is gross Enterprise indicator

in fourth QX Enterprise quarter Gross the the Sector in increased by by decreased profit XXXX. XX% Group compared X% in Business in Public and to Solutions, XX%

We to and build We and efficiently solutions and IT. refresh. Everything-as-a-Service, help that customers remain continue intelligently software in a led growth our from This PC towards out shift the mobility, solve to strong helping to hybrid benefit committed categories. cloud the desktop

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

have benefited and represented segment, segment to QX Business margins in increase mix. volume of margins and Solutions million revenue compared million that ago. technologies to XX.X% on had $XXX.X increased continue by to higher In Business a net sales an Public Solutions from larger a quarter. our Sector in in advanced $XXX.X change customer this Our percentage focus a Solutions year

in XX.X% X.X%. margins and desktop Sales the grew prior the project increased for in the segment includes gross Sector Public increased and to large increased double-digit the due workplace, which state sales by solutions. government to mobility XX.X%, growth quarter and local federal the government profit year to compared the by XX.X% points a institutions XXX for to basis of by Gross and educational result wins as by modern while

$XXX.X were a experienced to X.X% a by software X.X%. also strength compared year segment, quarter Gross profit ago. decrease in We $XXX.X In QX net our million Enterprise declined in sales. million, sales the

recall QX experienced QX, growth repeat timing profit in XX% large that XXXX several As did of Enterprise you Group XXXX. not from gross resulting may of the in the project rollouts

Enterprise Enterprise last in Gross to software year. had of increased segment XX.X%. basis the points on quarter the Sales financial this margin by margin cloud-based for a same than impact gross XX segment quarter for the greater and security

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

Tom Baker

by The to driven achieved a sales year prior variable compensation increase part higher million profit to increase in level of year gross million this from increased quarter Thanks $XX.X and to was the SG&A in Tim. ago. in an due SG&A compared quarter. $XX.X

percentage increased XX a year-over-year. basis points by net of sales as SG&A

to quarter million this XX.X% $XX.X a increased income operating Our ago. year $XX.X million from

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

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

charges net effect in income and contract favorable QX earnings the respectively. and of and share XXXX, restructuring grew settlement X.X% by the Excluding per X.X% of

and income amortization dividend million XX-month to was In trailing this increased a adjusted special QX, in a $XXX.X or share declared XX% year million adjusted shareholders. from $X.XX paid earnings January $XXX.X $X.X per to Our ago. which EBITDA of before year depreciation returning million we taxes,

a XXX,XXX shareholders. QX repurchased at per cash million Between equivalents. cash $XX.X $X.X cash shares and was of average price ended for of repurchase, returned In million with special of million XXXX the addition, stock of total an to during share. and We dividend we $XX.XX $XX.X

flow year from was $XX.X a ago. year operations versus period same ended the the XXXX for for Cash million $XX.X million

During the the by flow million. operations cash $X.X our of timing the affected fourth in quarter, in Cash used was operations was deliveries flow quarter. product from

December. quarter basis for reported experienced in Specifically and in net. which end of a XX% segments, we sales on the recorded near the the strong revenue of Across delivered receivable quarterly segment is all gross is the the was revenue Enterprise software

of equipment system is and investing for our in Our the was million of year primarily process. result of activities upgrade net $XX.X the used ERP capitalization that in cash purchases

used of the $XX.X financing of dividend declared of primarily activities cash QX for of million special previously consisting the stock million for and payment for repurchases. XXXX $X.X our ended million $X.X company The XXXX year

As existing remaining our stock repurchase have stock under of we program. December XX, $XX.X repurchases XXXX for million

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

Tim McGrath

users demonstrating another Business of that customer Thanks We Sector and needs tailored by many in solid the technologies had are Tom. segmentation. and success quarter and the our specialization importance to ways diverse Customer Solutions measured of is enabled unique and Public of in environments. segments, advanced performance

to accelerate our evolve, in to critical continues industry the need investments As areas. we'll certain

grow needs their we'll change empower to and technology. enhance growth, be customers' there innovation them their As elevate with our and productivity help

which in matter experts the exceptional for service us continue to we and quality We to invest and are known. will deliver subject enable systems that

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

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

entertain We'll Operator? now questions. your

Operator

the Tindle Raymond Thank Adam And comes line you. our [Operator from of James. question Instructions] first with

Your open. now is line

Adam Tindle

post We've I last January I see you spending in fear and overall good kind Thank growth into wanted some the of And end IT expiration dovetailing Tim, at afternoon. that passed the think of start comment forward. slowing of we expectations may Microsoft to would just you that that was slow. here. as PC moving some made Support about just there that cycle this Okay.

growth? terms in confidence just single-digit what of? that about in your strong you're seeing impact spending times that the And to about talk are some coming talk any see your evidence given we'll and expectation changing come IT Is growth of really curious to off the there two you Just year out low backlog?

Tim McGrath

Well, Adam thanks.

So there's cover. a lot there to

If certainly there uncertainty out about has look all the been than there. are you of that there the more when at is happening events you macroeconomic think backdrop,

take we But combine spending upgrades the concerned. certainly that's Windows So can -- reasonable market continue we're us. the market times in we we're that still for believe with the or growth and of any two target very times conscientious to of two XX slowing of the that. GDP about that that IT condition a a really share really When rate you around is target little

Adam Tindle

that based up be Okay. to going that spending And with you're IT and we're growth XXXX? see expectations on customers budgets some thinking in are likely budget in to into talking XXXX going

Tim McGrath

Yes but confident off tail that. number that definitely. the around There's will opportunities at doubt no some We're as and hybrid of of there's a point, clouds. service a everything PC refresh

Adam Tindle

then one maybe Okay. for And Tom.

improving about As going expecting from we year-over-year solutions gross custom away be is sounds up XXXX? probably business margin to and we PC the should mix move it in be if shaping accelerating, think are like XXXX to

Tom Baker

question. loaded a that's Yeah

typically think client product. And that's But see sold. on of little forward. little the volumes is from this really product that some going type of of the a that of predict bit see benefited we you'd have we margins bit have I to year, higher level hard a you'd what

some you we decent So higher a I sit pretty volume and margins the back you drift say, product on little. But think of should see we've generically got this up year. yeah margins

Adam Tindle

enough. repeat. Yeah, volume so Fair don't Okay. some of rebates those maybe

for get So that you operating and investments. target I revenue Tim of OpEx too gross margin accelerating investments based year? margin ahead in operating a about think of touching Maybe maybe mentioned Is we percent far the year margin. said expectations plan for or the think maybe on your dollars or to really investment the shouldn't there us for way ourselves on on a whether

Tom Baker

we we I revenue couple bit things percentage of in a We've than think a year. little Well, in there. last on QX, of going a as SG&A got higher did saw

goes that advertising profit. does up Our some into but and that was reimbursed of gross the get

the relative employee variable So performance there, infrastructure little that's were the of because be of The a it. buried that is the up. then in comp ongoing. was comp up group. rest will to up the was bit gross commissions on And also the variable of And just profit then some there

we some and forward. infrastructure some to systems So technical make some other investments in going have

might I if little bit So, a think drift-up going next this year look you that into at a see year, you in percentage. of

Adam Tindle

congrats makes That Thanks on sense. Okay. a and XXXX. strong

Tom Baker

Thanks.

Tim McGrath

Adam. Thanks,

Operator

with you. our question comes And Lebiedzinski from Company. Sidoti last Anthony & Thank line of the

Your line is now open.

Anthony Lebiedzinski

and afternoon gentlemen, the for good thank Yes, taking questions. you

in just comment that. So the on another as of could you you're your markets well. if have that Tim far as as just question wondering Then different performance vertical I perhaps

Tim McGrath

Well Anthony thanks. Great.

So care double-digits with board. and interesting vertical. in for across vertical very well markets. quarter that did health really pleased We up We were the the

retail a manufacturing a our retail we very We the In year of -- significant rollouts. in couple large also had did significant very a vertical, ago quarter well the vertical. in very

compare very a had we there. So tough

up down was and large the timing financial retail manufacturing is slightly on So then and all the was health project based of vertical was down slightly care just rollouts. up, again

Anthony Lebiedzinski

it. Got

Okay. Well certainly understandable. that's

I that kind up to different then I driven. XX.X% Solutions over think the know at I And Okay. guess segment certainly of. provided -- for I you gross the look most margin was details that up Business impressive the when was the segments in

mix was margin. out was to lower a but there Some desktops is called -- which also of software, shift that you the

different should of margin So perspective? that a segments any I think could the gross the If how we performance helpful. -- be provide would guess when about color you from

Tim McGrath

start selling across specific with a turn we're stack. Solutions and Certainly. financial advanced to is segment well I'll really we'll in team the I'll executing technology little over solution Business seeing then particular across start the Tom and our What information. it more is for the

down that, in margins on continue growth the margin good based does see purely execution up So solutions are the software capability. as good more our we which you netting of mentioned, but cloud some security we rate push little. There's software a software, around and to group certainly

that and we so So the of that by certainly little on Group The with based we're competitive more just tend pretty a business, that Public seen our be confident that Enterprise. Federal project in pleased very associated the in in we that margin lot large to And difficult quarter. a can It's services we're actually Sector and with we've a projects sustain large very in the driven we pickup offer. rollouts those. also good saw our

subsidiaries. the will more of how Tom little kind the give margin you I that's So, of think on a about specific numbers. our three And

Tom Baker

Yes.

So, more. don't little mean I'll -- I I a add bit

accounting. as I think, I call can crazy tell you that, we absent do benefit a tell it of from the software up I we're bit still all you, little -- can that, segments, year-on-year. I But in the our

we're mean the stuff real on just I financials. So, not executing

as I that forward. and -- can evolves So our product continue think, mix going we

Anthony Lebiedzinski

Okay. Got right. it. All

associated the noise would netting of all excluding so even margins with So, be software, still up? the your

Tom Baker

Yes.

Anthony Lebiedzinski

great. Okay,

what's forward get there? that know for changed me wanted Obviously, guys potential there I for lastly thoughts I on acquisitions? Has any of I dividend. looking And Kind mean, you be you priorities. anything cash just yet Okay. -- as appetite to your updated flow that would paid another great. special as also far

Tim McGrath

changed Well thanks, there. has Anthony. Nothing specific

know, have we the right plan. in you solid we team place, As a business think

And so, looking opportunities to anything. a specific or could desperate the tuck-in we're we feel By same capability don't enhance solution do that acquisition. always a token, for

we token, By all changed. to same has nothing remain There's announce. So, the opportunities. nothing to open

Anthony Lebiedzinski

Great. thank much. very Okay. Well, you,

Tim McGrath

Thank you.

Tom Baker

Thanks, Anthony.

Operator

session. the like to McGrath, and to remarks. Officer today's Executive concludes Thank any now you. closing Chief question-and-answer President for This back I Tim call turn would

Tim McGrath

thank partners all the I'd of all all like listening Chris. like dedicated customers', coworkers to for support I'd afternoon. you, for of their also our call continued vendor and and to efforts. this shareholders thank of you their our Thank to

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

Operator

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

You may disconnect. now

PC Connection (CNXN) 4 Feb 202019 Q4 Earnings call transcript