CNXN - Earnings call transcript Q1 2020

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Operator

Good afternoon and welcome to the First Quarter 2020 Connection Earnings Conference Call. My name is Kevin, and I'll be your coordinator for today. At this time, all participants are in a 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 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

may harbor make safe Thank statements. and purposes harbor made you. Various which year to other as the on management may that fact annual a is of Risk XX-K XXXX. in file differ call not XX, forward-looking the about conference now to under safe with that these may various prospects well of report the I for forward-looking read be documents those from section during act. that statements deemed those December or future statements will Any by the of references with statements plans of the Securities historical the the are Securities remarks as discussed expectations, in the Private for on be result Exchange Factors materially constitute Form files statements commission the company's as Act Litigation ended important Commission provisions from the indicated company's Reform XXXX, of and the results factors, time. Actual company including time forward-looking

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

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

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

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

Tim McGrath

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

an us finds call time. unprecedented earnings quarter's This

the recent world all health are facing experienced the of greatest has threats in one We history.

As an employees the to date, essential remotely, of the business our with successfully. against working are fight we we made majority rapidly operating transition in a and, COVID-XX, currently

months. the two As you can needs imagine, customers significantly of have evolved our past over the

this During communication facing top mind and time, customers of our employees, are intensified. continue depth we for and with our frequency partners pandemic has us. is of of challenges the unfold. that The to together all This

business. the predict we Naturally, impact cannot our precise to

model business team that and future and with the appropriately scalable respond to employees to our We conditions. are resilient enable will combined confident our committed us of adapt economic

a had I will thought and in review call start Connection's We live to would our work. we good of I'm success. with to our communities the results to serve that that where fueled announce history, and everything our a our opportunity customers do strength and in we pleased best our power this have the be QX

a we're goes sector customized focus Connection's of public beyond vertical and sales unique enterprises. service technology market-focused title. specialization our and rep deep of culture Solutions sales deliver businesses of a training, into the to Connection's name a to When Industry This the of of deliver our customers' subsidiaries and our able understanding and or with solutions the the three environment. team, medium-sized needs combined level large baked teams. distinct expertise the It's department small organizations, our a specific different Group,

can mission. solutions level with our business. have and organization, of a sales customers. done After elevating collaborate based teams the specialization team our grows an purpose-driven their growth, to living needs and a their exceptional understand needs. team We understanding support without of of not our enhancing This around committed productivity specific I mentioned, their deliver and customers on sales customers' empowering our innovation all, service our and for possible environment, is of We've be our just built out job customer's mission it Connection and our really and the would of

I'd work Solutions Group, being that's Technology or and our done also Technology to Distribution our like and Center. in highlight TSG, the Integration great

Our records need solutions, outstanding capabilities achieved We our TSG quarter and drive remaining and the gross on exceed income sales the of our share. continues per through gross while net and Distribution sales customer Center the teams enhance to revenue, advanced delivering team focused customers' expertise our to team technology follow expectations. Integration continues in margin, profits, The technical earnings Technology first to experience. our

by of of of or increased first sales We by million XXXX. or X.X% and of million to XX QX to XX.X%, points. $XXX.X which million growth increased XX% solutions from the share our QX in earnings net to diluted quarter. compared per X.X% experienced strong operating revenue enterprise Operating sales solutions $XX.X QX prior the to and compared by [ph] In gross XXXX. business $XX.X net both achieved of XXXX, in year by XX.X% XX% income We XX.X% gross basis represented During profit increased quarter, increased margins growth segments.

in profit to better growth We by XX% and then XXXX. increased Sector growth in partially in in Gross in Solutions XX% Business The of the segment, as gross QX to success that metric. revenue by by the these Enterprise Solutions public XX%. compared XXXX. in segment growth which our experienced sector QX a XX% alone segments quarter Solutions growth decrease achieved quarter customers Solutions of the growth a was Public indicator profit segment. Followed is believe in XX% revenue our X% our compared serving Solutions, in Business The Enterprise using offset a

March, we work due vertical a profit both benefited initiative the pandemic. enhanced gross customers strong to increase growth markets. demand and revenue In global and by home the all in our was from healthcare from The from of in higher

our a and also saw We IT. that helping categories. our solve out strong accessories committed customers solutions intelligently We customers growth and to networking mobility, in help efficiently remain build

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

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

increased not Public several by XXXX prior QX QX to XXXX. $XXX benefited in in million net software. profit increase governments Sector with driven by quarter was from and X.X% timing $XX.X for decreased X.X% XX.X% net/com of to sales basis products. local large Sector to business, year. of customer ago. federal compared solutions In sales a government points did Gross and QX the repeat segment Public state million XX.X%. by increased educational along grew the mobility Sales Sales cloud-based by XX.X% margin to changes of by gross the decreased and rollouts This in institutions our by and the to XXX increased that year due mix the to project compared to

basis our profit $XXX.X for by a $XXX.X a XX% XX.X% decrease the changes Enterprise in gross ago. the Gross points in to The and margin segment by XX.X%. Gross decreased for mix. QX sales net In million, the hardware Enterprise segment, segment to customer Solutions compared year was product in quarter. increase to Enterprise the margin million related were increased XXX

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

Tom Baker

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

$X.X from expense recognized an been pandemic. the of by impacted million to of compared bad COVID-XX the customers, certain prior million, challenges debt we increase have collection Additionally, $X.X We anticipate significantly who year.

net increased increase by net year-over-year. of a points in XX XX bad sales by SG&A SG&A effect a of had expense sales basis of percentage the as percentage debt The points. in basis as increase

variable is with large our scale portion of structure Looking the forward, a and business. will cost

to scale structure necessary. to are of optimizing business the We cost as our our committed with demands

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

year period ago. earnings for tax Our of QX the a XX% rate a increased from XX% per ago. XX.X% year year effective up from Net prior was income was the period. million share XX.X%, $XX.X an Diluted increase $XX.X million to $X.XX, quarter from

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

million During for shares XXX,XXX share. price an $XX.X repurchased $XX.XX at per QX, average we of

year million quarter XX, March versus under ago. change The program. stock same by was from operations was had repurchase primarily for existing period remaining $XX.X we Cash flow the XXXX, for in million of a a first As receivable. the accounts our $XX.X stock million repurchases driven for reduction $XX.X

million initiatives. activities $X.X in special financing the the result of and of the $XX.X activities for IT repurchases. and was Our $XX.X previously cash primarily primarily payment stock in The quarter, equipment of consisting $X.X for XXXX of investing net million a purchases company used used of declared the million dividend quarter cash million first during

continues We XXst. cash ended December QX representing from of sheet and equivalents, increase balance of with $XX.X $XXX.X Our million cash be million to an strong.

created and industries requested customers The COVID-XX concessions. across the of financial has pandemic have a affected global various number uncertainty

the worked the have to We these company. mitigate on our concessions would with impact partners have

through affected. the And near-term, ongoing revenue We as expect situations in adversely will will that we believe these this crisis. we navigate be be

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

Tim McGrath

Tom. Thanks,

segmentation. to solid As Solutions see performance Enterprise In and discussed, Solutions we customer our the and Business our across organization. particular, of demonstrating importance specialization continue segments

solutions challenges time services. As are pandemic, our through technological are and the COVID-XX about by brought to focused difficult with helping this on them adjusting we customers the

example, need and For their our need also in asset management, support related work home initiatives. asset from services customers including many deployment. recovery They

need many staff. augmenting and companies our addition, existing their help redeploying assets IT In

our seamlessly us of to strength engine customers the enables remotely. Finally, our e-commerce transact with

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

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

on have will in it's possible business. Tom As not will believe our term. revenues near impact what affected earlier, the pandemic that predict do adversely be stated we But to as global said, the

of shift be to the are and we that believe what a future. to way operate the is have in many flexible ahead businesses us. in resilient We will experiencing We fundamental navigate

technology We are confident to this the whatever critical transformation. brings, will future business be

share to rapidly environment. can customer is condition, we continue In that win believe We growth. IT market market enabler of any in technology this an changing

continue long-term forward to to move customers our everything increase we have our strategy the share will do We in power believe to path on gain and position place value. our help in recovery. us team that well and We the that shareholder market to

We Operator? will questions. your entertain now

Operator

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

Adam Tindle

maybe of and you expecting the Tom you some worse? impact Hi, give wanted How have on Obviously, very effective in late us now seeing afternoon. to commentary. in you're is those but what been? moving results touch closes? an revenue are And of understandable. seen better what getting both yet? adversely March quarter, I view thanks. updated large Have be forward, maybe adversely you Good effected mentioned which you you or the as Could they Tim, just had March April declines just that strong and to saw

Tim McGrath

Adam. Sure, Thanks.

of products we care meaning I we anything March think pandemic. real growth the health commentary that those in for work really arena in through and from the this as target in enabled services. home on that And work about saw real growth types saw that is we you written

So that's not you. surprise probably a to

So clearly, March was us. up for

that end. we truly uncertainty Moving we that don't will that forward, know exactly this it is and really where referenced, there's

we we really quarter share that don't just there could all is that and how quickly yet growth U-shaped really to do terms customers everyone numbers, us for We But have because depends are think when specific there'll recovery. uncertainty. like anything recover. a be we the on navigate that recover It We this. opportunities help through in our else, we of expecting, for

So I a don't have specific QX estimate.

than April. say that April the of will March, was We lighter start

Adam Tindle

that’s QX because fiscal little bit with Okay, unusual that’s big your a year-end. think vendor the coincides helpful. I And

typically actually QX Your is up sequentially.

you're we of revenue? April being So should kind better, in about any don’t June we if think the based I'm how quarter that's as assuming, what as now, sequentially, seeing on get potentially about models, things down think of

Tim McGrath

Yes.

I you is everything think it's said, pretty to I but early true. tell, think,

Adam Tindle

home that on the lead a quarter, And Okay, that demand that’s devices. lot was there. from the chain secondly, exhausting and fair. home any and supply back like surge the get now times March work in we seen of the have then obviously Did Maybe it? evidence was seeing itself? talk about constraints issues And is end I we're there of of very just from work strong inventory know kind in you’re you and

Tim McGrath

been slice lead longer normal. of where times way the no newfound to demand that. And specific There's some supply will example, are They're catch Chromebooks, that April, late in outstripping you than the demand weeks about extended. it, any couple chain supply. have a for in categories, But doubt are been greatly times is confidence lead There there up May. early extended. some has supply So,

are But the in better going along. still where is spots some get quarter, as we're quarter little we especially it chain. concerned think supply a there So about to the overall,

Adam Tindle

one Okay. And last me, maybe one for Tom.

in on now. obviously, On around comments commentary you bad cash sheet, a wanted debt how you're have balance and Talk But good the particularly your be to little about SMB of just I expand healthy very more? how that through those bit. it. a that a about net to looking AR, us how just expense right to that, you to acknowledging lot us you think Do but ballpark helping to there's large the uncertainty, Just on need quantify base. thinking could customer you're a going you’re sort be, reserve any walk of

Tom Baker

on direct of Yes, lot discussions do their we've X, so have to customers. with going around some is is of working those a we're had a obviously who there saw the is this to hey, there would we customers some upon, customers, some to pay us, it. it. by doubt tell go We're they of But pay – based frankly, ability revenues our and

we many goes back up -- gets back on summer, this profile. profile does and are these thing. companies? to think to this how things one So to really, liquidity of long through going it's of that's go, what's this you're the open have If the different If tomorrow, going a pretty

pretty of had is process a it. detailed of terms think we what get prudent. we've we it's to we exposures of customer-by-customer we through our In there. And were that's We the appropriate, numbers. and how but precise, what did rigid not we a and that we in think did we're reviews that's at. went on a arrived analysis we It's disciplined, were, kind did, And what I thought where

Adam Tindle

Okay.

kind of you’re is potentially it's max worse thinking that expecting? from $X.X Or the you're So there? million the impact that

Tim McGrath

okay. everything does one different go else, be on long like versus this this like But estimates we’re business. making nine other for much Because just to right? of And on, it's think month. it's month going of it if how just I the every part goes

Adam Tindle

structural change distributors what that there. Makes this potential are last Maybe little how the I speak -- a be you're responding is just just the suppliers off last industry, this But major to so your building guess the does bit of that, one, this? How sense. change more to landscape? one. I just a said will seeing on and competitive to

Tim McGrath

have us? a you my we prepared mean had In in partners hey, we gone say, our own. come to on have and we tell I customers all through work said us going this said, how approach. So you can we We're to with do can't I remarks, I'll turn, and crunch.

guys in You that And pitch got to effective been process. an quite help. and has

think I we're neutralize. term the used I think I kind So of where And that's at.

the better in us. a it do… as weather Tim, can in here. suspect But don't I my you smaller some opportunities I thoughts, of create for these give to the that we're position and we of I'll terms storm. know. then And through relative go In this Tim kick think competitors, things, competitiveness, to I should

Tom Baker

totally agree. I No,

this, always in As our with a opportunity. think particular, sheet, you we in know, well that, market we're there is like And balance positioned.

with have We’re also sense suppliers, and us really and have helped a partnership terms the partnered closely our extended really word, and with up it they and every is cash discounts. the of in stepped

that's So advantage. been big a

Adam Tindle

very helpful very much. Okay, Thank you color.

Tim McGrath

Thank you, Adam.

Tom Baker

Thanks, Adam.

Operator

Anthony comes question with Sidoti and next from Our Lebiedzinski Company.

Anthony Lebiedzinski

taking the you question. for afternoon. Thank Good

out results was that kind March was just before level great. could be wondering you and and just after I know I January, outbreak? would if just on of That March touch was but then the So, maybe parse how that saw if the just you the trend you mentioned COVID-XX was? February perhaps how could the strong, overview you in high

Tim McGrath

think pretty a that a nice had had I Anthony, January. Yes, we we

we'll stuff I light. Some work the the to from had new pretty as people initiatives mean year. strong of win that from pretty was very start March. migrating end home, was with a light. February And March we these

Anthony Lebiedzinski

Got it.

helpful. very Okay. That’s

-- by feel some the in color of where potential you which are I segment if of whether most want it's and you related -- areas is of vertical do see the in where of you by give terms the opportunities. you do feel just But COVID-XX, So, you business to terms uncertainty in appropriate. of uncertainty, to that most or whatever markets me guess know, just there's whether concern most terms it's some

Tim McGrath

Anthony. thanks well, Sure,

above arena. challenge. appears to it the having are percentage get us, in be certain concern size, a of to a small a small better. When -- Clearly, of lot small a much that there's significant really business seeing businesses you We’re very

So to the we're Enterprise. large in in medium

think more I a there's lot there. strength

health We there. example, deregulatory environment in us. of healthcare that, Everything's is care speaking, for also, sort driving very the has Many trends very for telemedicine, vertically strong opening up been course, strong. of

education kicks think education. and Education, in come of drive the strong. in as that think on be We opportunity continues will is We the care additional there'll course, stimulus to growth.

as I to through and of they're mean different this opportunities. And at look very differently business So customers overall, may that area different an transformation, going think that's strength. work

that technology. them that. For use they example, way and for there it may the all reevaluate us opportunity is to of in consume for mean really an And

Anthony Lebiedzinski

very in mentioned that so that. that on if had headcount, And you expand That’s it. have helpful. wondering you Got just an could increase your you perhaps

Tim McGrath

so we Yes, that demand we technological-selling initiatives. quarter, the our had going into business strong technology have in strong some in a and been investing services our and of PIDC -- a

most So came of there's headcount from. that's of sales where little in And kind bit in SMB. the a headcount

Tom Baker

demand That’s added as right. a in Tom surged. has Anthony, lot of quarter. the in mentioned, TIDC, And our specialization

that or You really for can cycle that seeing layoff technology you're you’re if and business a us, all requires you're there. to perhaps so technology, interested perhaps of services, a imagine interested was outfitting a we’re in a life furlough, that repurposing company do forced in in demand spike

Anthony Lebiedzinski

lastly about you. if opportunities not just you buybacks versus this potential but appetite could repurchase should competitors, maybe said, your that. so it. could for how near-term -- some comment we as you you additional on present some your think Got what and allocation And Thank like did acquisitions, is capital just -- something as whether wondering far shares, current

Tim McGrath

about his front. buybacks will a then bit, the acquisition discuss I Tim so to on let maybe the I talk will thoughts little Yes,

I we to of until of terms to think out. all little how I suspect going But tempered think a buyback, we optimistic, see we're continue in be be this think. plays we'll I the more

cautious. do something, we're So but to be to we'll trying be going probably

Anthony Lebiedzinski

Okay.

Tom Baker

The opportunity that real this environment capital cautious. And We're have use. then and that but a given going we to currently really we don't to that. will clearly, have view provide to But in way could measured. be a overall we consolidating opportunities opportunities. very perhaps acquisitions be market. our or tuck-in always solution to open are We're benefit, very We opportunities be would open think, the allocation there'll a

Anthony Lebiedzinski

Understood.

Okay, thank Best very you of luck. much.

Tim McGrath

you. Thank

Tom Baker

Anthony. Thanks,

Operator

am like I And at Tim. call the showing further turn any not time. this over I question would to back to

Tim McGrath

Kevin. Thanks,

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

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

Operator

Ladies and presentation. this gentlemen, concludes today’s

now disconnect. And have You wonderful may a day.

PC Connection (CNXN) 29 Apr 202020 Q1 Earnings call transcript