CNXN - Earnings call transcript Q2 2022

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Operator

Good afternoon and welcome to the Second Quarter 2022 Connection Earnings Conference Call. My name is Kyle Mode and I will be the coordinator for today. [Operator Instructions] As a reminder, this conference call is the property of Connection and may not be recorded or rebroadcast without specific permission from the company.

On the call today are Tim McGrath, President and Chief Executive Officer and Tom Baker, Senior Vice President and Chief Financial Officer. [Operator Instructions] And now I will turn the call over to the company.

Samantha Tracy

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

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

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

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

Tim McGrath

then Connection’s you, results, conference an Thank I you begin and Tom thank for us more through had will our highlights QX quarter. XXXX everyone of quarter financials. walk us today the on remainder detailed our with our our of afternoon, Good and call. second business our afternoon an Samantha. year. outstanding performance and will overview look share a the of thoughts for at updated We second joining this

Our results These exceptional elevates record results our solutions that demonstrate productivity across of experienced We to growth, customers. double-digit our execution gross against income. with all-time of that we technology our X highly to our the execute team our net segments. customers continued valued with and innovation. The strategic of all strategy growth well for technology objectives empowers business quarterly each our segments across revenue, business profit enhances are continued and by and provide business connect

second the forward, essential sector QX our XX.X% a that their look even Solutions XX.X%, Public grew year’s services believe and quarter. our objectives On products and we revenue grew Enterprise we As consolidated achieve to The the compared to in grew become helping business XX.X% technology. XX.X%. Business segment segment basis, by customers grew last while with will more

productivity, supporting businesses. to both adapt modernize need evolve our they business manage continue to focusing work. as and see the Customers we customers’ improve their on costs addition, In and environments to are remote increased in-office security,

revenue manufacturing in markets market strong growth and XX%, our of and teams respectively. growth double-digit rates vertical XX%, delivered XX% retail with Our finance,

vertical, X% is our which of vertical, growth XXXX. year-over-year, following QX largest care health grew of XX% Our rate a revenue in

it backlog decrease remained higher which The than resulted to year the in although balance improvement we at year. a in supply continue quarter, we the our chain in through ago. a overall the expect the of significantly During of sequentially, chain, slight saw least still pockets challenged, supply and

capabilities our as has distribution behalf leverage continued technology partner to of integration logistical and center team and constraints ongoing to our our scale well customers. navigate strong on the as relationships, supply Our balance sheet

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

earlier, in $XXX.X revenue was quarter QX $XXX.X of or was X.X% earnings an of cash income XX.X% gross diluted from increase X.X% As prior to XXXX, to were $XX.X or equivalents. We cash I $X.XX, In an million, all-time QX up sales second million XXXX. share, stated XX.X% in XXXX, ended from $X.XX compared in sales X increase with from to basis Gross the quarter. of QX margins million, XXXX. year $XX.X points of was both QX XX.X% net records. million XX.X% of our up and up Operating per while profit $XX.X net QX was XX.X%, million

margin prior and categories, to cloud, to profit a points product We Gross hit net sales security of in look all-time mix. changes Business growth segment XX.X% growth. primarily from compared Solutions also in We an saw $XXX.X year now year, center a into deeper Solutions products and with software server increased XX.X% strong to segment in demand little good the quarter million, XX QX will data increase an our of In Business experienced in compared due year segment, was ago. a of Gross performance. for an $XXX.X the ago. million, basis storage to million in increase our an $XX.X the XX.X% increase the record

strong. In products, addition, transformation workplace for remain demand

Public a and to a educational government institutions decreased ago. funds segment, by year the compared transformations. competitive connectivity to technology quarter. year Enterprise business. the market that K-XX business, prior mix. federal customer continues increase Solutions to of driver in for XX.X% compared fund million, our of demand an and will year-over-year. purchases Sales in segment ago. profit XX.X% a Our both to us XX.X% in and to sales of million Gross $XXX.X increase extend Furthermore, In guide for were of a a invest that create calm Enterprise increase the The compared for was and quarter XX.X%. allocates Public year, to sales continue Gross Sector state, margin local million, should SLED for In QX infrastructure XX and to due decrease of stimulus through $XX.X $XXX.X they Sector $XXX.X million, XX.X% ‘XX. the increase to government were Gross technology margin December customers increase continue Solutions our an by $XXX.X of were an through the prior compared points XXXX. $XXX.X basis an partially the net confusion to an for offset decreased of gain turn net our in the be to compared to QX advantage, year them emergency bill changes to million, to million million, to Gross profit XX.X%, QX X.X% the $XX.X of was opportunities to sales to the primarily their product

this line While the XX prior in are than quarter margin they basis the lower historical rates, gross year. points with is

and statement. highlights turn As the flow you not segment from may repeat Enterprise Tom center sheet to additional statement, financial recall, that I’ll in discuss quarter. data Tom? to QX ‘XX, in rollouts call cash income our over balance the now multiple benefited current the did from

Tom Baker

due in decreased an was dollar to $X.X revenue. marketing efficiencies primarily basis, personnel increase quarter. On XX technical operating up ago. building an to Tim. in investment on XX.X% variable to increase compared in $XX.X of compensation due higher a on QX SG&A million, improved levels income with $XX.X was stronger cost points associated organizations this the and gross million a an net from incremental this million year and XX.X% in Thanks, SG&A increased quarter to SG&A focused due headcount, quarter year profit. basis higher in The of to prior sales increase

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

in to first operations was adjusted from ago, receivable million and same the $XXX.X adjusted improved taxes, million. and decrease accounts from million consequently, operations months $XX.X an of used Our XXXX generated increased the versus decreased the The days earnings million quarter, or inventory in the X year million cash X flow inventory flow by cash balance a ago. our flow $X.X higher $XX.X year increase period $XX.X XX%. trailing income XX-month for reflects amortization, DSO X both for was million as before and a activity months Cash levels EBITDA, $XX.X and flow we compared of first in operations business year. depreciation cash of in In by of operating our generated the of

IT equipment in the million the activities net of initiatives. cash used was of X in Our and XXXX result primarily of $X.X investing first months purchases

I We turn now stock back current $XX.X our repurchases will the for discuss trends. program. under Tim call also market over to have million to stock existing purchase

Tim McGrath

I Tom. want some to our few highlights the of take minutes to Thanks, review a business. in

our advantage Our to attributable IT gain solutions through to they that largely customized work with to we again, the behalf and technology. as on transformation growth in efforts customers QX, is their deliver competitive of continue digital

to Connection look these customers Our deliver solutions. innovative the

at managed activity center. the that about Towards our experienced distribution during and that and to of end, and services integration continued we the our capability, quarter volume second leverage we excited performance we’re technology the

fact, in in achieved customers their record with configurations we custom quarter. volume solution and a deployments the Our us of trust mission-critical

for Our to our competitive growth custom differentiator components optimization to solutions of and us. deliver supply continue years ability with of our experience important and chain a be

delivering Our growth in our custom vertical attributed our to was expertise solutions to also markets.

the manufacturing grew investing experience productivity, the For vertical systems. networking, the competitive retail of in and These example, driving means for are the result as Revenue retailers and objectives management cost data center, grew manufacturers XX% on focused business hybrid inventory revenue innovative and and use gain devices. XX% changes employee technologies reduction customer a through vertical, year-over-year long-term security, to as investments in as improved in productivity, end-user year-over-year quality meet of we a advantages.

the as efficiency an of costs to XXXX, advantage. for want customers enabler Looking technology remainder forward leveraging manage to competitive greater for while and

to focus cloud We expect data continue and customers center, on transformation. our to security

believe constraints we chain will supply industry. plague the discussed, to As continue the

into Although headwinds us, continue will worst the XXXX. behind is

their from to believe a prior customers growth to rates and can the organic expect that half in comparison we share. quarter-on-quarter above the the to serving environment. continued more work deliberate expectations effort hybrid result are remain I’d year be We These secure our continue a on for productivity IT their our are half. becoming of this technology environment. take and in points rapidly global a moment customers keeping to tougher dedication the while to deliver lower this and still basis XXX extraordinary efficiency We like first achieve our focused evolving investments. our changing and their during and them second growth rates We goals market in markets than XXX industry helping valued connected thank employees take

entertain your We questions. will Operator? now

Operator

Thank first you. comes [Operator Instructions] Anthony Our Lebiedzinski. from question

Anthony Lebiedzinski

Tim, taking being now Good customers the back for tougher afternoon. of Yes Thank face more deliberate you now recognizing I the half – the you that you year. in do talked about so comparisons certainly the guess question. first, and

each should So in your of – board how segments are that there any you growth? seeing is the one or bit main you’re more Just that – think are that? kind are seeing three segments a about of other the across we modest of

Tim McGrath

Anthony. thanks, Well,

most you are are So when presence. backdrop, half, clearly, and macroeconomic global have are going look those effective the think we customers customers that perhaps large in a the at second be that to the

of large backlog Some And extraordinary an half. year. would overall, second the are business. SMB been we’re has the heading on confident into we’re But remains of for we’ve overall, very customers the the down pretty resilient half and slowing back got strong. I say our bullish again,

the public We’re season for going into sector. busy

federal. is for September a As you know, busy month

there in so say think, pressure. I company. is a most But Enterprise great probably that, the think the what is you’re under I’d seeing we’re consistent with in I And out landscape, competitive

announced they had the results. competition of couple over You our extraordinary and days, last saw too

Anthony Lebiedzinski

correct. That’s

would backlog? so was about great. you a us mean, changed down I Has year. color So that And far that that sequentially, mentioned as but components the Can as far as as can over backlog, that, much? talk just little bit still if up it the you your of you be more a give

Tom Baker

Yes.

type things, little So in I we at device to a the be area. eased bit up Anthony, that look was networking continues think, challenged. part When certainly server/storage, the that pretty

I’d So the gigantic, backlog moderate. say – drop but – in wasn’t drop and was, it I’d wasn’t the say, our

Anthony Lebiedzinski

Okay. Got it.

here. questions color. couple more Okay. Thanks for that then a And

you where you’ll we think So How with up down inventory think year was inventory? should sequentially. about end the

Tom Baker

you high. think Anthony, was So I all-time an know, as last quarter, it

a it to in down. to what in more work ease and really start chain, – the we ship as we things of bit hard we supply more up We do can So bring have inventory. little

as normal levels, by So that’s the the range. through year, end I XXX year, I kind our go direction. but return kind call there XXX in that think the it headed of That certainly, think it, the don’t of moderate way to where back gently go of we will we’re all towards the,

Anthony Lebiedzinski

Got it.

Okay.

your So that light progress plans? that just as hiring of in to Have nice be own the are on from of you then out going made world lastly, there. would far in everything And sort that’s macro here. changes as so any concerns

Tim McGrath

were our in bit of things we’ve ability hire. full seen pressure ahead a of back. had We’ve to little a a There recovery nice steam when Actually, been under couple lull quarters been there. a

a getting now to more we’re normal cycle. back So

sales much let and starting ordinary And are way. a in sales we arenas. classes also technical technical plans usual and we on the up no more have that. We’re – engineering investing And in to

Tom Baker

Yes. half last fair last make the amount. of a been And would also our and our the benefit Anthony. reduce turnover some have compensation programs programs. to did to we adjustments we to In able I that, add year,

Anthony Lebiedzinski

Got it.

best Okay, very and thank luck. of much you

Tim McGrath

Anthony. you, Thank

Tom Baker

Anthony. Thanks,

Operator

Thank Anthony. you,

Our Catherine your of next from of line open. question is the comes Raymond Huntley Catherine, James. line

Catherine Huntley

Hi, guys.

Tim McGrath

Catherine. Hi,

Catherine Huntley

the maybe using hiring guys environment are an instead? so turning managed little this quarter-over-quarter? to the the just bit they you you would talk uptick capabilities? about and Was services customers to facing, stressed attribute a are that that And service guys you maybe incremental Could your

Tim McGrath

Yes, Catherine.

areas. a So observation. few in that’s see We a demand great up the picking

components us more a As remotely I them customers quarter working asset, mentioned, a for And the emergency fashion wrapping deinstall. services to that helpdesk or and for our before, in managed image will are manage us than a to configurations. hybrid in record ever completely employees was some asking cases, advanced that service outfit and install and where are And that it that. certainly, around be

So, all been demand. goes around support worker driver hybrid that a of that has the

seeing their we deliberate to center. office able integration technology We in And want either and who their an companies uptick are our that us a now and very outfit or distribution to for are way in also do location. precise

shipment, location cases, So office in go. can – and everything ready an by preconfigured we preloaded, many to deliver a or with one

really has volume. uptick that our been So the in

Catherine Huntley

give Okay. are I And you customers but that you. down has are to customers inventory? get COVID, to elevated may far Awesome. you that so sense been us ahead during orders really Thank far it much for know all of book or a how color. orders out out? could come you started seeing back booking that maybe still just have for Thank

Tim McGrath

think, So we does on are – I it category. depend, the

times. long other better, in very of some data they are are device, some including longest products. our seeing com the lead Some times pressure certainly times of those device lead business way which our long and in our center little getting products, And net endpoint booking have out is because a lead very advance probably security much manufacturer-specific The we’re easing lead that but there. around times

So the it’s extended still infrastructure, center lead mostly have security times. the products and data that

Tom Baker

to hopefully, like little multiple through to of of a as month chain way hold rather to our worth severity, would few – a you to inventory And Yes. convince or weeks let’s about be inventory. bit inventory work tell months. get their back holding than issues we’re going the able on in customers I heard to not a start lessen me supplies, talk you supply and the

all work we the to together pull down try the this capital invested slowly working stuff will and we think have company. I in So

Catherine Huntley

and Awesome. Best of luck great quarter.

Tom Baker

Thank you.

Tim McGrath

Thanks, Catherine.

Operator

remarks. Catherine. like you, turn to closing Thank to I the back would it now company for

Tim McGrath

thank extraordinary Well, great their coworkers thank all efforts once for our our customers, their support partners, and this for want Thanks. a I continued evening. you, dedicated Kyle. time. and, through vendors, Have shareholders our again, dedication to

Operator

the Thank today’s conference. Thank you you, now This participation for in Thank does disconnect. program, you. you may gentlemen. and conclude

PC Connection (CNXN) 6 Aug 222022 Q2 Earnings call transcript