CNXN - Earnings call transcript Q3 2021

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Operator

Good afternoon, and welcome to the Third Quarter 2021 Connection Earnings Conference Call. My name is Laurie, and I will 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

Samantha Tracy

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

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

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

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

Timothy McGrath

balance manufacturing and Thank of the to strategy of then overview with Call. markets, and Samantha. connect elevate performance Conference afternoon results, in the empowers thank of improve announce growth us the share We're healthcare last and QX for continued for and need year. growth, for this with consolidated with services. enhances driven number vertical execution and services a us I'll trends our by desktops, including to third Business customers everyone, Good Tom and anywhere On afternoon, These updated gross and mobility, third our our you storage of were profit our of QX capital of strategy. revenue business to through results A performance segment. joining These look Solutions year's thoughts a and revenue innovation. our demonstrate quarter. our technology an that detailed work in the financials today our QX record our displays, and basis, from the by factors compared to Connection's our productivity strong and allocation begin combined highlights XX.X% grew security. along continued results organic results, our on will for our you, quarter XXXX both walk more Enterprise at excited

in than XX.X%, grew several supply, X.X%. areas. was Public grew In times QX, while segment declined Sector our Looking Enterprise greater demand extended XX.X%, Business segment Solutions segments, again at the and the lead

to Our our team customers. navigate capabilities leverage behalf on supply scale of and our ongoing continued the constraints to

the chain fulfill recover demand can to to on that consistently the a it point has yet supply However, timely basis.

fact, continuing basis We and of work some once a for our our of challenges into issues. will balance the manage persist backlog year to again anticipate XXXX. the and on to these In record has levels. partners customers these increased We're with to daily

In inventory and planned support driving addition, in levels to are a secure is than asking effort product number usual. of us higher which to our customers rollouts, store an

scale expertise, on Our loyal for customers us rely services. have that they we know these and so the capacity,

customers even driven help and has security. Looking will levels their cloud backlog remote hybrid the continue of to October. need forward, at our to higher our work, this And with digital end transformation,

Looking vertical the during quarter, markets at grew manufacturing year-over-year. our XX%

IoT, want Our industrial infrastructure, productivity. customers and security, solutions that workplace include cloud manufacturing

vertical our security patient projects the healthcare and healthcare function was addition, long-term recovery double-digit year-over-year. large growth improve In experience also see in the as We customers' operational need experienced for did efficiencies, to care. our Demand a concern clients. top and of our

growth in and patient continued seeing also telehealth are We noncontact monitoring.

discuss our greater in QX detail. let's Now a performance little

up that margin in our client-based XX devices Third up client-based million. our from while XX.X% gross actually meaningfully was The gross XXXX. It more primarily QX shift to Gross devices. decrease mix is is in due basis was was $XXX.X quarter margin product points a revenue up to profit year-over-year. notable were on XXXX, margins $XXX.X million from XX.X% to to XX.X%, down

this as shift volume shift the reduced mix temporary. However, overall We margins. of this share view

government We've that heavily ago. Sales $XX.X software compared of points decrease net Sector products XX normalize. XX.X%, to toward $XXX In XXX $XX.X the more X.X% sales in to level. quarter. In a such several a funding We much compared software $XX.X million to QX margin primarily of prior in six government for $XXX.X million compared year large profit segment $XX.X basis the million, and basis, million, not deeper of QX remains prior of a was XX. we repeat to was $XXX.X offset an our basis our by quarter. We'll an year. the Gross due Gross net the to Gross on year Gross sold net by a from sales the $X.XX performance. Gross increased were XX.X% reduction million, Solutions unallocated diluted to Enterprise the into increase $XX.X profit cash software XXXX, greater the million Operating quarter supply little statement. or $XXX.X with was to the of and our from was in for net mobility in comprised in of Enterprise segment, discuss Solutions Sector and favorably in quarter QX compared contract year state sector XXXX. decreased double-digit Gross Gross prior segment vehicles year, QX of an an The experiencing of this per a increase mix of have million, of year. In contract million, in XX.X% product million income business, devices prior decrease highlights ease, XX.X% manufacturing segment in lower points QX to local in X.X% Customer lower-margin the especially XX.X% Solutions mix sheet increase the XX.X%. of of was federal of year constraints margins were ago. Business affected a healthcare a $X.XX, million mix by the decrease to XX.X% ended to $XX.X increase margins XX.X% of the Solutions verticals, QX turn by of data QX educational demand million, a primarily XX.X% segment the now QX sales increase from this both was In with delays slightly I'll XX.X% XX.X% our sales flow a Tom? margin or Public equivalents. earnings reduction a net our as expect and segment of increase sales financial of projects the X.X% in share due solutions our to in look an ago. year and see income spending is a center tend now was Sales to client compared increase which federal a compared statement, to as compared large a cash stimulus to a points call products. cash for will million, margins. larger-than-normal Enterprise million, segment, As over chain of institutions compared additional an growth. with decreased in the XX.X% million, were $XX.X to $XXX.X to Solutions decreased and sales a quarter. at Public balance net that margin profit achieved that mobility basis X.X% to ago. of Chromebooks. weighted to were were $XXX.X Tom by $XXX were an the continued segment, did strong Business in sales

Thomas Baker

a Thanks, X.X% Tim. an ago. $XX.X million SG&A million year quarter, $XX.X was increase from this of

compensation costs. sales, points up in in and by marketing year-over-year. from QX year increase XX.X% in QX As a basis a increase The variable an million, million increases quarter $XX.X net of XX ago. driven decrease a $XX.X income percentage this represented was operating year-over-year SG&A of primarily this was

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

that bonus prior affected we million increase prior recorded the tax XX.X% favorably earnings income year As the $XX.X from rate. you year year increase an may from $X.XX, of for our $XX in share of ago. Diluted quarter per period. the onetime cash was XX.X% recall, Net some million, an was quarter, a

driven nine year improved first earnings from off adjusted significant terms. Our adjusted first $XXX.X nine depreciation nine DSO quarter, as from the accounts the EBITDA, trailing a was $XX.X compared extended million the for for for amortization, $XX.X ago days flow December. in million operations year flow months decrease activity since cash $X.X business taxes, same versus million we operations partners Cash receivable the months generated by XX-month ago. of Cash and a to million was by or as ago. before was In a year period and dropped XXXX income

nine earlier, are flow. stated cash inventory first shortages, affecting A orders we for negatively the in risk our As of decrease from mitigate resulted product payables of placing to negatively customers levels, months operations also has flow XXXX. in a the cash in advance impacted higher-than-normal which

life investing during months XXXX consisting used of the net used of was payment by activities QX first million from initiatives, of the special and cash nine our in financing of proceeds months, nine for $X.X IT of first offset equipment $X.X company Our purchases of primarily the XXXX result in primarily The cash million insurance. the activities dividend.

that our the growth. XXXX shareholders on XX% on 'XX. $X of return we confidence expect our special per desire to of approximately shareholders, X record Based payable announcing has Board We cash our on exit with our share of to and in November dividend Directors are to a approved business December

Our to to strong dividend balance pay us grow to allows continue the maintaining the this ability business. while sheet

Let over the call existing turn me program. discuss for also remaining stock market remind we $XX.X have million Tim I stock repurchases repurchase trends. under now our will current you, back to to

Timothy McGrath

I to take continued Connection Thanks, in demand from highlights to some Tom. and QX, products want of moments our the productive few that customers to to in experience enable review our be significant a solutions business. anywhere. In

half into trend of We this expect will XXXX. first the continue

employee workforce, revenue In available XXXX automate COVID-XX addition, infrastructure and the as securing year-over-year and sequentially both Manufacturing of saw workforce invest result shortages. and from and XX% markets. vertical new manufacturers in our revenue challenges to across support improving a X% QX access experienced XX% provider technologies Healthcare telemedicine of to growth and experience. long-term look continued the and in activity augment to and compared remote as short-term to growth skills a address the organizations as growth of as well stemming surge workforce expanding year-over-year patient

Group Technology cybersecurity demand Our and managed saw growth services. services, and strong for transformation network Solutions

than Our services grew business more year-over-year. XX%

Microsoft achieved we certification. managed expert addition, Azure In service provider

Azure across offer our and to has capabilities As and resources. environments industry-leading end-to-end Microsoft hyperscale cloud customer access in-demand solutions Connection expert demonstrated an we in cloud offers Azure Excellence. through Center of MSP, support technical

basis balance that constraints believe assuming points the and we industry. can at XXXX, IT chain of long-term further the XXX deliver growth above deteriorate, Looking don't are rates we supply that

their their We'll helping Operator? enable and workforce, transformation entertain We are questions. now accelerate focused hybrid their on our empower customers your innovation. post-COVID digital

Operator

Instructions]. [Operator you. Thank

have of Tindle Raymond James. We question a Adam from

Unidentified Analyst

even though to dive vertical? Was consumer these supply more congratulations this in you let that Catherine a Hi, of step for lean your And strong or and continuing health my category concentration year-over-year. on limited And a up is manufacturing composition add areas? product is double-digits And Adam. this talked times backlog it in further, and taking by Tim, into demand grow. the results. me were backlog? Could to about you

Timothy McGrath

Well, thanks, Catherine.

our you lot cover When clearly, in there's growth So backlog, hear, the to mobility. a had think we about in there. we significant quarter, as

the so strong. storage for backlog data And backlog products, also of is there's additional But the net/com center products. for devices and for backlog some

So reduced margins. improve -- really while of supply we end-to-end pretty to the some help we're But need that that our be to backlog happen. will that chain expect we in overall QX, will confident see

add And see so much to vertical. you it we across supply to see not a constraints certainly, board. just overall, a has When And been think did growth. what pretty Yes, comes see we QX I'd that? recovery continue Tom, our business, the say, to here that throughout backlog would manufacturing we'll constraints margin the challenge. landscape, good good competitive the and and in healthcare

Thomas Baker

just our would the product I on gross mix impact probably say had margins. No, biggest the

we I we mentioned -- the to client exclusively basis devices, able That So the shifts improve margins base there actually look as call, were down well. due you to in pretty said fact, were if think client points. XX product I in we And at reasonably is mix. the in

the it's in affected So a it totality is but the really software. bit devices mix Client the better, of little of margins. what -- softness is were

Unidentified Analyst

expect little the in And helpful. client operational Tom, Okay. basis, in that can the And of That over moderate would they improvement on was a second XXXX? time. said go-forward you very we devices half on margins a bit

Thomas Baker

Yes.

notebooks a think what is a probably mobility towards XX% comprise I more And see and shift and So back mix our software bit should a richer of little you center this a of quarter. richer data revenue mix.

I point or think eight increase. it was nine an

over of revenues this of So not quarter, improvements, certainly terms quarter. And but moderate, That then think also of should up. was the completely quarters. revenues a that operational our next G&A maybe I couple little the as next should moderate in the XX.X% go

Unidentified Analyst

Perfect. Thank you.

Thomas Baker

Thank Catherine. you

Operator

I call are no company this time. there over will remarks. And turn further closing for the at questions back to the

Timothy McGrath

once partners call you Laurie. their of customers, support. dedication want for Well, and listening those the to thank our all I want time. thank extraordinary dedicated shareholders And again, also their afternoon. to throughout to continued efforts I for and you, of this our our vendor coworkers thank

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

Operator

conference call. participating. And this you concludes today's for Thank

may disconnect. now You

PC Connection (CNXN) 7 Nov 212021 Q3 Earnings call transcript