CNXN - Earnings call transcript Q3 2020

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Operator

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

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

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

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

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

Tim McGrath

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

release, over third As the substantially quarter. from our you quarter press improved our second see

net deliver security. and technology, with business quarter through for work not our acceleration June, services picked activity compared XX.X% and of XX, $XXX.X XXXX. and of quarter customers sales, $X.XX, million, clearly or QX which We define managed Operating $XX.X was XX.X% public back XXXX. our basis cash million to These respectively million net to teams million. XXXX. per on record profit While fall pre-COVID levels, a X.X% results million Gross increase is of points a call, XX.X% October, September of our and cloud XXXX. subscriptions, mentioned remote from to XX representing home and health from gross strategies. work the decrease we their to late from I digital software year us and with of to activity earnings prior demand in and in July revenue XXXX, our QX continuation were second Through saw of August this growing third further were $XXX.X e-commerce an as platforms, equivalents XX.X% of of of cash up digital through Momentum compared December The up a QX QX an stepped of $XX.X continued quarter. this ended down sales and $XXX X.X% QX of diluted helped has In decrease $XX X.X% adoption, compared or increased up improvement share continued increasing. were a margins help income million as in of

said anticipated Planning was detailed I discussed it began was. Enterprise in complete update QX. implementation, our But Before quarter in essentially as on the than August. QX costly provide I been more you a which on performance call discussion by in our in segment, of want second to the ERP I implementation and it’s more Resource our or

in quarter, pain. new system continuing across helping our without foundation are than efficiency cloud, a service I CRM, remind and greater improvements serve evaluating foundation sales, as levels with in lower process It customer growth, give path QX. the common and an supporting improved for also To adjustments and forward will catalogues, organization QX, the but entire solution collaboration, not at the has integrating Some us transition visibility you, last better will financial. been and future acquisitions. as enable said But for and

to related Business we segment. Solutions determined to recorded errors, certain primarily that due the other the switchover company During processing QX, period adjustments

year prior will a with the over significant that at our it statements. I current and of adjustments optimistic were net gross by benefits who QX but results. with adjustments not bear and are material consultation our ERP reflected long-term we am determined respectively. as be to $X tell sales, lives were net advisors, done million quarter of $X.X you, out point Accordingly, these profit were clear Second understated period we them and In financial in the through that ahead. are having $XXX,XXX, anyone will income, million professional these our implementations

XX% net to for performance segment. ago. segment, were million, Business of a by was the by this year In in the our decrease Solutions a an compared Solutions were and segment adjustments are segment. impact our to a improvement increased points to increase was Business the basis of profit XXX segment prior experiencing XX.X%, We ago just and in The period margin year. gross Now let sales out which due through Solutions $XX.X million, Gross basis XX.X% the me decrease QX security $XXX.X cloud-based and $XXX year a in partially a of go our net sales of XX.X% the in discussed. million increase Business recognized quarter, to in software, compared on from

government year. QX QX a the sales of XX% lower large largely that segment In this returned Gross segment However were as business customers state to that Public timing ago. million, Federal most pandemic have in and increase to to sales levels QX the ed prior of million, profit a the decrease of be growth to sales Solutions of not by compared of in result repeat $XXX to compared for XXXX of several $XX.X was than to project for $XX.X continues X.X%, not segment, prior our benefited remote and the XXXX. was the COVID-XX Sales QX record million, activity. institutions affected million, net educational purchasing of to increase business the The were Federal government $XXX.X Sector yet X.X%, increased many did the million SLED X.X%, our a experiencing was year XX.X% $XXX.X XXXX. in year. local the decrease from rollouts compared Public an Sector XXXX, higher to the learning of of institutions were devices previous after

points strong in for over discuss remote devices continued XX.X%. of profit now Enterprise However, the XX.X%, balance Gross product a workforce. support of Software-as-a-Service component quarter. segment, Enterprise for covered X.X% million sales sales of the sheet to gross X.X% mix. in for grew I’ll software highlights $XXX.X Enterprise flow gross The decrease was a our and million, segment continue a margin Tom? our for were points decreased by margin to Enterprise additional XX $XX.X as cash financial to turn QX ago. to year income and to Tom In Gross basis basis the see statement. call margin from segment Having became Solutions the our endpoint XX net largest by statement, compared to performance, $XXX.X and our decrease, demand the million, segment a

Thomas Baker

and Thanks, million in a sales the an increase of of achieved fees, decrease year SG&A quarter. professional level of million in ERP, quarter, spending net primarily to XXX rollout advertising revenue. by ago. due lower prior the a driven increase new lower of Tim. million gross was a an from and result variable year of profit with this due sales our SG&A by of $X.X to largely increase basis compensation offset a to as $XX.X as the percentage points was year-over-year, increased associated compared $XX.X The X.X% in SG&A

the to of is improve, business optimizing a as points. our our However, continue basis variable ERP conditions moderate will in structure scale the business and a to despite with revenue portion revenue necessary. continued cost cost to as we percentage scale sequentially, business system. as SG&A A with of declined expect our of structure investment by SG&A as some do to percentage committed XX We large demands of remain our

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

is XX% the per XX.X%, million the decrease period quarter’s first rate expense million, same tax a down related $X.XX, effective one-time was tax $XX.X the Our to ago. from for $X.X R&D million income decrease Diluted ago. from year Included tax of time. was recognizing $XX.X year from the share period. discrete credits prior of earnings was current a a quarter XX.X% credit for Net a in tax the XX.X% of year a in

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

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

QX consisting discuss million special primarily The was of cash used $X.X in for financing of first declared and net purchases of million will $XX.X of market repurchases. nine dividend million payment current months months activities investing XXXX cash turn of activities now used call I trends. nine million over Tim the for previously primarily $XX.X initiatives. and in XXXX, XXXX to stock $X.X during our result to the back of of IT of first the equipment company the the Our

Tim McGrath

Tom. Thanks,

our meet adjust earlier, how about said I brought about positioned that COVID-XX to optimistic their helped are our of am pandemic. customers continued going forward. continue am the our confident needs team to in improvement has very I well by I the remain business. As proud We challenges we to

their work support we optimize and ongoing care second following institutions to strong as during customers healthcare, managing customers Education efforts investments support telemedicine, to continues knowledge the learning. technology in first market These hybrid closely infrastructure, online for to their our of a continue and home-based In solutions working pandemic. as workflow customer’s with are a needs classroom we the evolved our We with our environment waves. workers. virtual and be

In quarter fact, in TSG combination delivers our levels. Software-as-a-Service among this area comprehensive industry-leading We this through strong and technology brands solutions TSG. Solutions advanced our business transformation, we customers things. match last expect for continued our and for to resiliency Group, of growth and security, through consulting workplace healthcare a demand years’ cloud, other revenue saw Technology solutions

expertise largest showed vertical markets, retail industry manufacturing, in become core have strong and Our our continued growth. sequential and our industry-specific differentiators solutions markets vertical healthcare,

in also growth year-over-year the market. We retail double-digit saw

shareholders grow with be want growth, technology. efforts needs for relationships XXXX, our that customers’ And will entertain questions. to team enhance forward to that Operator? years unprecedented we passion and to we for I them pursuit workforce, our change, through are dedicated and innovation, will this empower We’ll you, propel forward our relentless productivity financial Moving and confident thank now for want their balance strong come. customer I of continued innovation us and our extraordinary to the time. here and elevate of strength, many help your as thank

Operator

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

open. now line Your is

Adam Tindle

total has curious December finer month there a And is the secondly, for so and on you Are based a afternoon. on in us to seeing the exhausted, Tim, do or into and expect months I company growth left trend also, Just on the seeing? customer are you the of early of continuous finer on perspective Okay. how is just are and start of was improvement maybe – to and possible there it growth? budget to Thanks if December. indications funds to pipeline points just point positive year-over-year notion a if now point on you of put you a your October what Thanks. November October been flush from seeing wanted months where good November?

Tim McGrath

Adam. the questions. appreciate thanks, I Well,

saw least of factors we QX, as the about seeing being slightly in think I not really to we are the there continuous vaccine balance I we So, pandemic, improvement throughout about if competitors still quarter is, for QX. though, is think the have in similar thinking the QX we are of macroeconomic modeling, a been what what down the obviously, lot our are mentioned, year-over-year which

think, pointed out, graphical as I root, good we’ve representation and you see square of of a sort what I’d seen. a

So we outlook unknowns. we continuing a improving, are lot want as are cautious still of very that there be but is to about

back Regarding because token We companies some challenges. large do we quarter. see some by that see in their companies flush, a the budget projects also other are there of same out the holding rolling strong are investing,

the to happening. traditional flush not And budget add? see so, really anything we Tom, do

Thomas Baker

of QX and whether real two saw of in purchasing last now. that quarter a software happens we lot about think there the weeks last – the the year, a In through risk was I

Adam Tindle

Yes. helpful demand. I That’s of on That’s to and first a supply supply. Tim, guess, ask, your just I though. about on understandable. obviously is and you two-parter notebook Thank category kind also biggest talk wanted both you.

to now? So on secondly, category? is of Is stock associated how But Are soften typically is home that today to what obviously, just of then, moderate to demand, beginning market that. with for you constrained a missing from cadence the yet? going this and in right that notebooks. opportunities category seeing us is in it talk demand about are is supply terms the work thinks curious And you

Tim McGrath

Yes.

So, yet. to soften begin haven’t we it seen

very So, we as been space, resilient. supply Chromebooks for you Right incredibly the you demand are know, as notebooks have been there know high now, education and constrained. seeing in has

don’t times our that the with going in moderate a in seeing And big to several said, see being environment. constraints although constrained. really across based just we of happening are supplier on what’s from spotty We it’s demand base happening, pullback logically models overall, economic the too

Adam Tindle

of cash software it’s issue just one to its quarter. guessing Tom, on Maybe I been but flow. the quarter Understood. I an opportunity AR of was just health that last this that’s and use an but in receivables talk some am on probably for to clarification you the sales, healthy the year-to-date, know maybe portfolio? related about

Thomas Baker

are software between on Adam, that the are granted if difference through receivable back, go current have and you I the one sales extended you differential to two economic environment. on at quarters is DSO see, based in Number that Number we if So, doubled customers there terms nearly some based billings quarters. we two that has computing, things is versus two balance. look three go really affecting as revenue,

So, third, sales. our a you – are real a software little money seeing impact the on system. real of extra then we’ve And lift spent ERP

we that and are we highly how do what to One customers the things customers invoices items format really our it was then one one the there point in delays. to our in in and we hadn’t quarter, of muscled for expect of our both invoices deliver a them. of each they accounts deliver a balance. those getting is, In that growth we we some the in reasonably through customized were three third And format

Adam Tindle

you Thank guys. helpful. Very

Tim McGrath

Yes. Thank you.

Operator

you. Thank

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

Your line open. now is

Anthony Lebiedzinski

taking for good the afternoon. questions. Thank And thanks you and

So, highlighted quarter, first, you just strength. looking retail market at vertical the

well. TSG about You also as talked

Solutions sales – your So, us first, can the of I guess, gross percent of your Tech strengths? what’s driving some is sense retail to profit from group? the as or you also your maybe a specifically coming what dollars of And give

Tim McGrath

hear Good thanks. to from you. Anthony,

segment’s market for of are that and pleased there couple think drivers We growth. large are So, our with retail that. very we yes,

them Industry our expertise is helping One relevant solutions. Solutions deliver sales a done retail of of specific force group our that’s lot work around really in and

is other retail just The roll as project outs. large

really of that And is growth. so, that driving combination the what’s

markets the the group. We ISG, retail have or the broken not virtual out specifically

Thomas Baker

Or the TSG group.

Tim McGrath

Or TSG group. the

have don’t that time. we this So, at

Anthony Lebiedzinski

Got it.

That’s fine. Okay.

the you’ve I that be issues QX, as system, some will by that far out? behind mean, the called you you as ERP the end do guys of So, of think

Thomas Baker

called saw probably other And we $XXX,XXX Anthony, in prepared $XXX,XXX, $XXX,XXX, costs remarks were there. incurred. fees million in $X of specifically Yes, is out total. We there professional that our

going it at that this down cut it’s Our are QX, we a than rolling should quarter. come expectation by is I third come to into mean QX least to And even more down, going that.

the are light the at end of going we So, here. are tunnel seeing think – I we to the

Anthony Lebiedzinski

it. Got

Perfect. Okay.

And pointed news Okay. you vaccine mean, so, some today. been out, about as there I then, a has positive

happens are foresee the about this, think how impact say impact next your business? you on given business broadly the what about year? we So, let’s the thinking should on Or you that

Tim McGrath

Anthony. modeled we think we it. enterprise, we’ve our are competitive the what seen competitive for And that range, has in the landscape. those certainly you growth Again, SMB in Yes, about are where it range landscape the forecasted of if of business, have our I business, who kind think commercial

are we QX, range. thinking And think so we that same about when about

is many pull We are that that really too thinking really up. to there dramatically forecast uncertainties

I so, continue to growth. in to terms are the we for QX about think in way forecast we of And QX going did revenue

Anthony Lebiedzinski

Got Okay. it.

the that, help I comparisons that Okay. that going then, that also. be next facing should year, that you assume But would to given are

Tom, back down – and the guess in quarter? range and XX% XX%, to I – Okay, expect for that rates okay, do fourth last the tax to then I question, you guess, go

Thomas Baker

Yes.

million. are the still seeing So, of percent tax you R&D filed the in us that gave with quarter fact, that range. for about first in time discrete credits in our that rate is and this normalized XX.X-ish $X.X What just item tax we

current our normalized to about expense, the tax back that rate. to add you if get So, you

Anthony Lebiedzinski

luck. Well, Alright. you of best it. thank Got and

Tim McGrath

we lot think a a is and system, want there color we there ERP to. there thing, forward Anthony, on the lot customer our around around encouraging base signals our growth of XXXX, as about provide about more are look and specifically to out last think our little we new efficiencies to

when are be it to we to in will So, thinking relatively comes there a compares, growth. XXXX, easier legitimate market addition

Anthony Lebiedzinski

best you of and Thank Alright. luck. it. Got

Tim McGrath

Thank you.

Operator

extraordinary Thank you. Tim call Thank questions customers, I am over turn McGrath thank I showing to their listening co-workers I'd and partners efforts and once thank closing for further shareholders all now through would afternoon. dedication not any those I'd you dedicated you. to to the time. our for of for vendor this like time. remarks. support, again, to our call this back of their to also this continued like and like our at

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

Operator

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

You disconnect. may now

PC Connection (CNXN) 9 Nov 202020 Q3 Earnings call transcript