CNXN - Earnings call transcript Q2 2020

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Operator

Good afternoon, and welcome to the Second Quarter 2020 Connection Earnings Conference Call. My name is Michelle, 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 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

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

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

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

financial otherwise all and quarter Please website. of today's is turn www.sec.gov I website the Connection's second be that of on website XXXX. references our non-GAAP webcast the on Relations like quarter would unless XXXX the is host, and between two release being section SEC will at A this stated, McGrath, made to earnings note company's Today's earnings at second available President measures and www.connection.com. the in being will comparisons call available now will www.connection.com. discussed. the are reconciliation GAAP and call, call During release the to available on website Investor at our and CEO. be be in The over Tim to against

Tim McGrath

conference for and afternoon, Good you you. for call. everyone, us Thank quarter today second joining XXXX thank Connection's

It people our on after home, in start me customers working quarter, was obvious. customer quarter, demand from transitioning stating significant. and by base first a to a part by was tough the pandemic's the from demand Let strong in their driven March urgent impact

April month in It not recover began demand good but for early entered dropped to a in make While to May momentum and to later enough somewhat up June May. with the in we significantly QX declined low point. in

I point over can at that improved say July June. Fortunately, this

our new As quarter the system. planned by of ERP impacted long second noted also in the release, deployment our was press

for sales, evaluating across foundation integrating efficiency The the Although believe customer forward, strongly and us But was pain service or for overdue, last difficult foundation system be deployment common the collaboration, enable with our a is organization, the will the days least. I say serve new over CRM, will also supporting catalog improved worth so the and frankly path system our to greater and much needed it. cloud, an will acquisitions. and financials. solution future entire as growth, helping better XX give new It visibility and

efforts by and distracting certain customers substantially end significant employees focus while circumstance. management in team as proved our integration be of our team, unfortunately pains the was implementation of by in members by extra the to sales quarter, protecting key the While important required complete as which second to well

system the and office quarter. on complete work customer-facing current is some continued essentially Our back into work the has

on mitigate the significant front re-imagine I'm to are believe You the assist that customer continuity, transition. difficulties which a positioned pandemic and as workplace team that very need meet our ERP the security, can grateful their continue behind and drive am our to very execution for with on shout in special adopting most impact system, strengthened the service out this because we focused on now tirelessly dedication. give I business we customers ever future. hard they I us. technologies this I than our and are be to to of to better sure confident mostly the work to of worked want incredible under transform the I'm businesses the challenges to circumstances their unprecedented made the

subscriptions per $XX.X the sales sales was security or In X.X% QX from net in quarter. forward. year and X.X% diluted to We remote from $XX.X decrease representing of growth December prior XXXX. continuity to quarter, a basis going performance of million XXXX. or QX expect of compared Turning million, business to $XX of with XXXX, XX.X% a equivalents, Operating decrease margin was of million, compared gross second share and work, increase of QX gross Overall, cash to XX.X%, cloud, the of earnings while a in million revenue $XXX of XX.X% represented which QX we $XX.X the financials was XX. strong demand net profit decrease for $XXX.X of and achieved a of software XX.X%, a $X.XX, We million, saw XXXX. be income million to an of cash points QX were we XX compared strong for decrease XX.X% ended by

more And in quarter. year of were margin provide this $XXX.X million Gross ago. flat segment, to XX.X% a $XX.X In segment was a segment a the in segment. for XX.X% ago. like performance sales year gross Solutions by profit $XXX.X Business of I'd decrease a the remained discussion a compared on Now from detailed QX to decrease Solutions XX.X% million, net Business our our million, at

of $XX.X XXXX. of and year. QX was prior year the ed was and XXXX result Solutions compared to million, Our April Business by that the in largely their at Solutions Sector $XXX.X were decrease was Many of the million, sharply cases other the Sales of a projects million Margins the for flood time not decrease the year. in benefited XX.X% to institutions strong more and most of frame pandemic. quarter sales state and were advanced remained local certain to $XXX ago. compared federal educational XX.X% later of than government QX a customers decrease federal as technologies. Business the segment to was the repeat the large timing million, to into government QX decrease from $XX.X forced COVID-XX of were segment of Sales March of roll-outs in the from shutdown segment revenue Public derived did in year. purchases project higher were larger half curtailing sales Solutions a the business affected the net XX.X% In that of deferred our equipment, quarter. compared institutions Business to The a lower prior the most closed XX.X% several to were Solutions

XX.X% notable QX Gross $XX.X Sector profit million, quarter to of segment is double for ended year. we it was that prior the backlog the decrease a compared that with the Public a XXXX. However, of

Enterprise $XX.X decrease margins data subscriptions. million, $XXX.X mix. to gross component of center points demand to was Enterprise software-as-a-service shifted segment Gross in by planning the $XXX work to compared Demand million, XX.X% sales grew decrease increased for the a product segment, points XX.X%. XX.X% drop saw home for segment However, XX and XX basis larger as related became our Enterprise for more a and of XX.X% were from Solutions basis the a a quarter. Gross our ago. projects net million a margin year In QX software Enterprise in by projects. profit to

invest Having to margin discuss and Tom highlights their transformational now are flow beginning income this our our statement. cash financial see to and will turn to industry Tom? the additional take balance covered leading We in to sheet technologies. over sales call statement, opportunity I performance, gross from customers

Tom Baker

million of quarter. of part sales $XX.X a The marketing compared quarter, was in by costs Thanks lower decrease profit SG&A million ago. driven Tim. decrease and level from and a product in in this SG&A achieved the was decrease $XX.X year year a to prior variable X.X% gross the due compensation to

will million Additionally, scale large quarter. points we variable our we in of year-over-year, the system SG&A of incurred of expense our lower business. the cost roll-out basis in and debt is new a year of bad of increased costs of sales by percentage a as million credit associated ERP the result a largely versus $X.X structure $X A quarter net incurred $XXX,XXX prior portion with of as revenue. with and the XXX

we of in as our separate remain associated to statement. as do SG&A As of system. reduction a incurred despite in moderate optimizing business necessary. of We conditions we expect to income continue QX, of internal In cost line business with with represent percentage the ERP million a revenue our continued to committed demands some charges our our resources. in costs our investment scale structure to of $X some restructuring These improve,

income XX.X% year million, million this ago. was of operating $XX.X from $XX.X decrease quarter a Our a

were $X.X year from same year. income up year ago. $X.XX, the XX.X% other $XX.X ago. a the the from for charges of last was of XX% a a prior was rate million, adjusted $X.XX share per period. a tax decrease earnings effective year Diluted the per to compared Our $X.XX restructuring XX.X% from XX.X% decrease in million quarter Net period for and share was Earnings

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

We same flow was have record existing XXXX $XXX.X the of our for ago. year operations a payable, repurchase in driven $XX.X The a Cash and by for an was inventory. from in in under by offset $X.X reduction partially million for stock period accounts stock increase first program. receivable million six repurchases change a accounts primarily the versus increases months million remaining

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

how back the impact of will over current While through rebound order which to market started be, end will I the activity, to it how predict economic believe we July, will impossible trends. the pandemic turn now COVID-XX a discuss and near call of to June long in to is continue experience or Tim the severe we

Tim McGrath

Tom. Thanks

and demand of of For digital and public acceleration see adoption, XXXX, in e-commerce second tools platforms an for to technologies. the half we collaboration health cloud growth digital expect

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

For we stabilize work help support customers We're optimization. define home their and from and with to and continue customers remote businesses secure cloud their helping our work also infrastructure example, strategies.

Services our services. customers Lifecycle helping expenses them existing In and assisting through contracts team IT their assets addition, managed is managing maximize warranty with by

them customers' help growth, to grow change, As technology. and our needs productivity and elevating we be here innovation with will empower enhance

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

see a we significant However, in did July. improvement

system the deployment are resulting also of our We disruptions largely ERP behind new us. from believe that

During the several pandemic, key our the in leaders. team and of with addition strengthening management business our invested we

Our business. opportunistic our in to the further in market permit make us financial position and investments strength will

been our well-being and these Distribution which to operational. remains at we've our ensure challenging support and fully staffed the workforce immediate customers. As Integration priorities We've rigorous to and of safety and safety times, needs Technology of the employed have our navigated business Connection's protocols Center, highest

quarter team the While I post COVID-XX of thank extraordinary world certain. need passion to recent the forward. and in is want Technology our their efforts for through reality difficult unclear, a thing most history. to move one and the innovation remains offers safety we

confident are of now workforce, strong and innovation customer pursuit our We will strength, constant our growth. your relationships that Operator? entertain questions. drive financial We'll dedicated

Operator

with Sidoti [Operator Instructions] Our Lebiedzinski Company. first from question Anthony & comes

open. is line Your

Anthony Lebiedzinski

have ERP system So, first, your also as hit which just business was revenue of and estimate start ERP implementation with, far impacted much an do off the new wanted to to as you the as the that areas how the implementation, I most? system

Tim McGrath

bumpy. of implementation a with was obviously pandemic doubt lot moving obviously a the with ERP our to pieces So, quarter, rough about it, there's and quarter no the

of path right in is to benefits for a there in I it's felt time and best like think good new base. forward be distracting felt to it, ERP we implementation backdrop but complete of As be that customer make was a the that prepared to also said really impact system, the quarter, the the would least have this the the we pandemic, to might lot time on it because the us. remarks, we because We see the our

that, it's we succinctly. estimate, But a in look this making delta our those dollars the sure quarter. of we hard the that think because people don't and an pandemic, and break only south them at with the good has the distracted squared out estimate, been know certainty, on that, see what So we and away think result sort with were being but focusing declines little be and of would our around of of doing that really you a to got customers competitive we landscape is is we

no So, surrogate. delta percentage, We market in have it I'd don't and is say hurt but the the at, between doubt, us. average exact a where good an we're the

Anthony Lebiedzinski

then business was or see is versus an the say, a the did to more a - the first question my the you - more as hiccup mean, impact? do it bit color second let's terms of was - part because of perhaps areas of or little I about And which of board Solution Enterprise you as just in far stated, it think Business wanted of just across the as - get this, you

Tim McGrath

slice have the of I you They who also Business largest customers think, we pandemic. it, - number buying impacted way the Solutions were customers have largest SMB was hardest the Group large our team, number hit. of there number by our of and any the the

a would was particular So tough that certainly quarter. our tough be very and our implementation. by government, federal magnified in Behind that had combination ERP business

the go-to-market our strategy Our simply there. Enterprise is probably least because of technology affected and our marketplace

Business Tom? Solutions So I'd clearly most say, affected. was the

Tom Baker

operate, Yes, that's of I [indiscernible] a businesses there because was on the - dependent Enterprise think, I just Tim think the ERP. point the way

Anthony Lebiedzinski

you seeing June, would also better they were that how versus in trends the about were in year trends about We Tim And saw say were you in you what July talked than July. a July? that those ago,

Tim McGrath

low year-over-year we think? would So we a for Tom probably are in take start see July. single-digit did July. to benchmark how would we you - - July If a be recovery probably still what declines in

Tom Baker

Yes.

in that range. Somewhere

Anthony Lebiedzinski

And then last about Tim, believe, - about higher you talked we you year. mentioned the from backlog being doubled

So perhaps you can quantify that?

Tim McGrath

backlog. don't Yes. Anthony, disclose our we typically

You because and that there behind the of bit a is starting of institution a was to we so that government of coming orders know, backlog the the really little we some that I the higher of was back. think I some business little business; flood. product that education few shortages buy, in There one, bit a think processing then things. part affected we're for specifically probably three, is, ERP. And function And a were talking what seeing of two about resurgence is backlog

Xx that but is backlog business. a - healthy in So pretty

Anthony Lebiedzinski

from And then me. last question

As I far was a we How there think impact expense, should about $X million you Tim, that as for rest the in debt the think, bad of mentioned year? the quarter.

Tim McGrath

believe then that honestly happens environment pandemic. between in the the nothing bad and I accelerates really now macro assuming

have shouldn't levels to charges well pretty we forward. of going covered, experience we're and think probably think I I those

Operator

from Adam from next Our question Tindle comes Raymond James.

open. line Your is

Adam Tindle

commentary. just I Tim, on some start the of to want demand

on you're month that's if secondly, bit then could where I significant helpful? following little declines. you uptick that I look that sit for bit some you down And have August, where quarter. see over seen to that of uptick? XX% under that we trend here, give the while July July think color June a of month full low pretty might in growth be said you you And uptick just seeing that trajectory a a year-over-year had as on of August, us the you of just little even just would time in Maybe the of the versus single-digit color month continue

Tim McGrath

Well, thanks, Adam.

going on have focus QX, seasoned we've team. you to so we're love I'd a where and to off, perhaps was as as for said, been. we where But first tough, QX I So, know,

have the driving And in really We We it the getting employees comes to business just to support place extraordinary some back who when we to so to had business. get looking know are a quarter to than is customer-facing aspect, and the but barometer that. system QX. would in there, XX% the to we now pandemic and are forward and there we said add? benchmark Tom, still and about growth. out what negative have you so we we don't maybe be year-over-year, for That maybe the much were QX overall great a where think better really

Tom Baker

day. you Yes. so And had look August. mean, days August think, five specifically in I business the numbers every I at the I because We far, at

what continuing. I appears think to seeing we're in be July

So into July - again five doesn't aberration. like was I it, look an but it we're days

Adam Tindle

is you like an August is and we that entering like uptick an obviously there unfilled And you're of pure filling you do any had seeing that aspect that where of this demand? like actual quarters July think understand, You had or end issue, customer you're ERP in now what QX? backlog

Tom Baker

guess, our bookings so, should I specific, about talking Adam. numbers was about was When more have August, I I leading indicator. orders, in the because been net actually So, best July I talking that's and net

Adam Tindle

Right.

Tim McGrath

as were is our be sector. team QX hardest quarter affected. don't Solutions different many of need do And backlog. It a a public to SMB customers a would it a Business the hit of there for for little see or big is tailwind, was greatly each we segments. market carryover our and I think again hangover or recovery our a segment

will compare, dependent, gaining Perhaps, team tough momentum seasonal in a Enterprise the you we'll So we're is we Enterprise have that we're as our the year-over-year also that but also again QX going as into expecting project be know, momentum. Then there. pickup well. see but large certainly Group, with

Adam Tindle

And the to kind at But competitive landscape kind bigger missed Tim, customers, when - Or the face sounds you lost just QX. losing the question retained? of got in and ERP orders the like that an defections or of guess customers those the I in not I in it to so of to you uptick be will look loss going are QX the - guess customer you sales or transactional competitive that ERP? to prevent one-time how you landscape be landscape? this anything Are device the competitive just do of seeing kind still necessarily customers is and

Tim McGrath

Tindle. Thanks,

lose We - are news. lot lot seeing say took in to effort people was not customer I'm defections. lot of of customers. a the and things manual of of up did lot customers, and not good that did We QX. any pleased That's a a shore we to But a

our down As to know, and you We've we're those relationships. base XXth loyal holds very that's in got our a team customer a sales that year. tribute real

we but sure rough, going defections. have as So is that we QX forward, we was for I said, will And make customer us see And that do not I do execute. to behind us. believe

Tom Baker

some the think the losses. the you, Yes, probably if we I to be backlog net built just or built think just I smoothly flow backlog through with to Adam, orders system be will so little versus a challenge, big anything, honest proved given

Adam Tindle

some Tom, I clarify me, for OpEx one to the last wanted of Maybe comments.

to some know about a I a bit. clarify said come was little heard of that has is you as bit. now rev million lot and right comes up you I obviously that But that to a just SG&A little be you expecting this it I you revenue or SG&A the maybe QX Could if down just that reason? of this think like remember a But percent a in ERP entering remarks, would coming changed. in is where as you're on going $X this prepared down drift year, potentially the I expense because for correctly a had out core year if thought So, percent

Tom Baker

Yes.

and this, XX.X% quarter and at I'm so in. So this a I when thinking as I I'm last about think SG&A at think percentage thinking all were of about we were quarter in, all we revenue, Adam, XX%

SG&A you're year bit of that what see what upon again think forward going what to I it's was some just some, of think be revenues see, I lot little we're going profile north, the back a to a the is forward, bouncing might our last QX because going further but of out But going expect of that's dependent a you doing. get to think for back bad like to fall expense term, percent, I I of we in. the and where $X.X the kind we're take XX.X-ish of investments in this additional instance, million debt would if kind you had, and you an near

Adam Tindle

then Anything year? the notable as to kind think on we of gross rest the about margin about modeling of think

Tom Baker

Yes.

And I little a given to think, there. our pleasantly was the was thought. happened margins, with actually hit surprised is of what than more expecting would I little take hold a I I a bit just thing the revenues. better partner very programs bit with tell up you I

So we those on did nice really executing job programs. a

Adam Tindle

Right. And of out because so was else, software than your favor more anything it pretty... declined was mix

Tim McGrath

Again, you're right.

you're but software-as-a-service did as Software software well. remember, seeing a migration netted also to decline,

does bit help So margins too. little actually that a

Operator

to the Tim turn for McGrath any There to no like I'd further back over call remarks. questions. are closing

Tim McGrath

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

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

Operator

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

disconnect. You may now

PC Connection (CNXN) 10 Aug 202020 Q2 Earnings call transcript