CNXN - Earnings call transcript Q3 2024

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Operator

Good afternoon, and welcome to the Third Quarter 2024 Connection Earnings Conference Call. My name is Antoine, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is the property of Connection and may not be recorded or rebroadcast without specific permission from the company.

On the call today, we have Tim McGrath, President and Chief Executive Officer; and Tom Baker. Senior Vice President and Chief Financial Officer. I will now turn the call over to the company.

Samantha Smith

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

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

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

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

Timothy McGrath

you, thank with third QX overview you more at today I'll and of Conference Connection's begin us us an and for XXXX walk financials. Thank afternoon will highlights a quarter Tom Call. look of through afternoon, Good for this our results Samantha. everyone, joining our QX detailed then our performance.

has advancements unprecedented are We of Technology digital are period The been never an AI pace. rapid in a at transformation promise of innovation. greater. hybrid by happening enabled

that help quarter third of earnings confident the we We and through achieved strategy of record Connection income per XXXX. demand as are right navigate net to $X.XX for this share have IT recovers, our challenging customers environment. the

making position business lies ahead of our QX. while recovery addition, growth in desktop those In of gross our profit PC initiatives XX% PCs and strategic customers. some growth moderate ourselves evidence experienced our business we of notebook our evolving in mobility for the by landscape industry. We investments our technology driven areas segments to for AI-enabled. of better each refresh by in and what We in revenue of select experienced were Approximately XX%, saw year-over-year

longer in of for recovery continue year. that our technology We to this our advanced a struggle believe been in than the conservative the for of customers IT by our for balance spending approach been anticipated. resulted negatively the This customers' road IT affected we may uncertainty. ongoing has their with demand AI map has However, delayed maintain face

This decline by impacting tough benefited have prior of the year networking networking result category, networking from In increase in technology, our part terms of a advanced in to solutions. decrease the This includes and offset technology compare a of prior been to cybersecurity, cloud which This had growth was results an compared XX% XX%. software quarter. chain backlogged. which advanced in in issues, year, strong equipment XX% revenue in decline resolution that overall supply against the the was contributed of

XXXX, an XX% to million, segment X.X% discuss sales quarter. in $XX.X Gross an offset record $XX.X basis the to products, segment, million, Business XX%. $XXX.X of technology increase year quarter. quarter. net of per million, compared points $XXX.X prior a were sales X.X% our QX $XXX.X were $XX.X in sales our million, X.X%. the as to last down net Gross a now than net X.X% $XX XXXX. We'll X.X% was a experienced decrease an look diluted to in Gross the $X.XX X.X% QX a income Solutions by sales of our endpoint to share X.X% year for of percentage XXXX. device of of QX Solutions compared we increase was our into increased QX income $X.XX, X.X% were compared record year increase QX performance. the compared profit segment Net let's X% X.X% in our in of in million, ago the sales. an XX.X% in was was In Now Operating margins million million. margin basis to prior compared of Consolidated performance. year. a partially to as earnings points decrease a XXX QX income year record In was increase compared in to a Business an sales from XX lower deeper advanced increase increased prior a quarter of year Gross to QX QX little profit Operating prior

by project QX an $XX.X state a sales. In higher sales to $XX.X our XX.X% in QX government turn margins million, Solutions segment mix, a QX ago rollouts experienced the we our devices. favorably Sector profit sales net were increase XXX higher while federal Enterprise higher X.X% segment, and in net an prior QX Public as basis margin year Solutions to Our $XXX.X additional in Tom institutions cash customer gross few education decrease software Sector for mix. I'll quarter and balance large lower and from to compared sales $XX.X sheet cybersecurity financial margin compared affected X.X% was decreased net Gross XX points our call margins. In to million, million, and Gross business, margin were points quarter. year XX% income $XXX in increased to increase from a decreased the lower increase license and the at year. local The result Gross segment year highlights prior a Gross profit over than for statement. discuss by the $X Tom? was sales Public for for XX.X% increased that basis of were Sales was million, margin XXXX decline of endpoint for were and increase to software resulted quarter. product by million, X.X% by the than million. Enterprise of to revenue ago. a government sales now The than the 'XX. by the flow XX.X% statement, fees

Thomas Baker

Thanks, in service in to strengthen sales was to sales, Tim. to SG&A X.X% and capabilities. prior increase investments and increase quarter. year The the technical our SG&A resources an primarily due compared increased by

XX.X% quarter. to QX settlement compared $X.X customers. On marketing Interest a In addition, to sales quarter increased of on of technical Included sales income targeted XX.X% SG&A received our in we other for $X.X last during compared prior points the spent percentage net events legal XX basis, a for year $X.X the of income incremental income million to quarter. an year, million amounted to in million. increase million million in an the $X.X $X.X is from of basis

Our diluted was effective was XX%, X.X%. an flat earnings down X.X% per share last tax of $X.XX, diluted per quarter increase for increase million, of and from XX.X%. the $XX.X Net at an million $X.XX. Adjusted earnings year, was share $XX.X from remained rate income

taxes, was million depreciation before Our ago, compared amortization million an to X%. trailing of and adjusted XX-month adjusted or earnings year EBITDA $XXX.X interest, a $XXX.X increase income

a the In having an quarter repurchased of August of price in share. cash and per price dividend at purchase of aggregate to $X.X average we quarterly per terms share paid $X.XX in million we returning shares an $XX.XX shareholders,

repurchases on from Board operations generated dividend The As shareholders our of we XXXX, dividend repurchase announced declared quarterly a XX, Today, we of $XX.X under payable X for million. existing XX, has XXXX, for XX, flow is per million stock to record remaining Directors that and XXXX $X.XX of our November program. of of the months $XXX.X September payable stock share. Cash first on XXXX. November was had

$XX.X for of decreased months first million the Our receivable X balance XXXX. accounts

Our DSO decreased XX year a XX ago. same the period days days from for to

balance of Our $XX.X inventory months X for the first million XXXX. decreased

quarter. maturities. of to of $XXX.X of $XXX.X a cash payment million Cash during We stock the of of investment $XX.X million $X.X consisting of repurchases $X.X from of for of increased activities primarily shareholders first activities the $XXX.X dividends in balance We million investing investment used XXXX, million. million QX the end to largely million of in the offset first of equivalents the $XX.X purchases payable payments accounts million aggregate X XXXX, million financing of $XXX.X investments. at cash of ended with by months and cash, due short-term timing X Our of used was result of months the

we inorganic ongoing to announced organic and capital opportunities. have committed in of In and form quarterly on an dividend to stock plan trends. and focused terms business of call allocation, to as manner. I investing program turn return in the continued have over remain discuss current above, the back cash to continue we market growing both the repurchase a disciplined shareholders to to now will in to a Tim Furthermore,

Timothy McGrath

Thanks, Tom.

approach verticals, our sectors. our growth our market go-to-market each customized in have across We key consistent for of resulting

large client large was revenue with Manufacturing Solutions began XX% of both electronic increased accelerating focus, year-over-year to attribute system refresh. continue our and Solutions to of Business continue of and the device business. Health retail year-over-year success year-over-year. strong customer and success Also, did deals throughout prioritize customers strong all revenue software endpoint record number of X% a increased levels The large to system as large health retail result deployments Group strength continued their care in care revenue our in our our XX% of upgrades. revenue underpins the increased execution Enterprise we customers While our solutions. this vertical our have momentum, health as the multiple performance growth contribute we which sustained to refreshes. Retail

in infrastructure many flexibility cybersecurity, address of increased and manufacturers in and industrial continue manufacturing digital X% systems. threats. Financial focus technologies that networking be for customers device, and manufacturing to facilities the many continue keeping technology their look as need businesses be secure. We cybersecurity of productivity their gains heavy a part while manufacturers between cybersecurity in interoperability targets are endpoint to the to facing of support modernize Services for of intelligent processes. in Software they integration to our and And believe year-over-year, IT

continue investment make has technology, We investments a our by managed in business, AI services in growth ongoing cybersecurity our progress AI their strategies. talent in as to remains driven focus strong tools. of good and Solutions business. and customers cloud, our assess in of many This resulted

for capabilities programs Center strategies, continue foundational robotics solutions. We fostering strengthen initiatives. The Helix capabilities to AI Applied with and for a Connection us our partners, Helix AI Through AI specialized through AI collaboration provider and and our of focused developed infrastructure positioning innovation our as and Connection vertical the customers. key to we've is

our Our and early investments objectives. customers the as growth foundation future strategies AI refine setting their are for

saw to Helix in maps services continue similar stands XX ready clients. In Connection the of technology certainty, faced Our QX, to headwinds we we and Windows and IT infrastructure and support team road in face our AI their those to exploration QX. navigate Customers Center that changes. the

Additionally, November XXXX. balance caused X the uncertainty and election remain we guarded for to the that has believe continue of will customers around

demand device to scrutiny demand impacted to backdrop. that will may deal macroeconomic and XXXX cautious in IT expect the infrastructure We overall. by continue investments in improve be due

change device will assumed profitability, product produce in gross mix refresh terms to on continue of downward In and pressure margins. the

to remainder As anticipate XXXX, somewhat a remain result, for the muted. we of demand

customers integrated solutions points. our XXX We evolving the stay are aligned remain committed confident believe that basis that at ensuring the market focus to and remain effectively dynamics shifting technology We well and how by customers. of meet curve, growth consume forefront the strategy the We of the utilize our with our needs we technology. of deploy, IT business can outperform

extraordinary valued that confusion dedicated efforts elevate in Operator? know during continued this and We of now our a moment We help We change happens world employees to empower set continue complex enhances expertise our for extremely and expertly complex customers take the our that changing technology like through of customers growth, technology, to and to environment. thank within note, the their wins. On landscape. your this that choices with connect of innovation. for and our help navigate We'll IT a We I'd calm technology questions. productivity customers. entertain rapidly

Operator

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

Adam Tindle

that But I on to I the down understand points Tim, wanted was that just as be driving Okay. and basis may start, of that. mix XX PC gross I wanted environment noticed competitive to ask well. some margin

of cited main morning your competitive environment. One competitors an this increasingly

what expecting going how quarter forward? you're seeing you're in to the and just wondering So evolve that from that standpoint

Timothy McGrath

Well, main thanks, really, were we large big project say, with government pressure the the margin Adam. the I for was had enterprise. particular, Those gross of in and would our that federal contract in rollouts wins drivers. result

next that like has IT customers year, really market are they doubt more the is cautious. the as they've customers competitive that no adopt fits very They're to and what concerned AI how going been And in into However, made economic look budget. their that about budget where evaluate options. about -- this it, backdrop,

Adam Tindle

Got it.

Okay. had that going the line, makes gross And device margin refresh Tom, sense. which mentioned is to the to pressure down put Tim and on mix continue

the operating sort ability earnings? how to and initiatives about operating margin to grow of offset margin that grow you're impact ability how earnings. and gross margin you're thinking considering wondering and think Any Just to pressure should we to that about

Thomas Baker

Yes.

up profit what device margin XXXX. is One, think which on device the everyone things. seeing should in happen compression, So We'll think just you're I I some pickup get a we agrees a endpoint gross growth. overall see but see if to is rate much few market, pretty going we and the

we've our we'll dollars. to say opportunity And some was kind of our wouldn't So struggle operating, the investing. up. the grow the the had had improved in things And time taking to SG&A themselves improve those and set quarter, hire been we've capabilities. manifest trying struggle, our this Frankly, I people, we but little necessarily been to really trying it. profit. advantage take just year. to next We're we're a for of into technical time get a -- up But sales of bit We've

kind So we're at. that's I think where of

Adam Tindle

Got it.

QX kind Okay. near One just last as Tim, think we term trends. of one, about

flush negatively be I segment been expecting recovery QX. impacted advanced mentioned delayed important the for continue think you're tech AI I to tends that a has you that's for XXXX. know by and going to pausing category budget in that

based QX are pipeline give standpoint Tom, expectations about the And you're parameters that for QX, and might you're want the the how Just thinking you we so trends any seeing? us in plus that same page. for budget on on modeling to from just a

Timothy McGrath

has XXXX, use customer drivers know, is for on-prem But not driver in it -- feels that edge of expiration. environment. technology, for will started, the our We lot awful we look believe still been will But QX like an that technologies question. I in we've That just balance and that, Well, Fog. term think election. in optimistic might of kind out the thanks. do you seeing quarter the of happen if a it's a including growth. the what we That everything remained technologies a lot is Windows of speculation around a where think, seeing. QX. the we're November XXXX, have, what the lot driver be real like AI year, as has in after in great QX, at there kind growth. But that of Fog advanced a be X We There's AI we're XX been of

Thomas Baker

Yes.

you with look it's QX -- from is really would side. the it's for bit coming -- to you way way back probably to QX. What weaker going growth out, it's a kind any can't I I has to today sequential be And tell patterns. the started That's the think, looking. defer of QX XXXX and on Adam, little the

In a should going think be rate. terms those had a some see SG&A of change quarter. expect this I margin pull to down we modeling, of you we're I wouldn't to of in kind gross that events -- because we -- out see the onetime huge little should

to kind like QX, next going I Tim like said. look on So the of think

Operator

Our next Co. from comes from question Lebiedzinski Sidoti & Anthony

Anthony Lebiedzinski

So terms to the it of when the up as to about you for guess we when the of just far benefits strategic reasonable on that engagement. from would tangible any Would benefits readiness, previous see be a follow or I spending? QX mean gauge in sort expect helpful could start I it AI technical estimate sales and guess us to later? comment guys be of customer just ballpark I for be that? investments just as would

Timothy McGrath

Anthony. thanks, Well,

components are there of that. think I different a really up couple that So make

I in in base But a think of uptick and edge, continued PC see in you'll side AI aging so Windows installed the the the is device XXXX, lot that the need And the of the is to a driver. that by think going just be level do do refresh. at that AI XX at Again, continued driven ecosystem. the to we

AI of lot more applications think require of longer-term really as what concept They a back and AI pushed at engagements. ROIs of look the the of are the will lot study, the cautious they to and lot half still the proof year. we be. of proof There a However, customers are and a concepts of implementations, the on-prem are

does probably is for the since Internet, greatest the remain that, in little a our industry of of the the timing that think, yet So the irony advent delayed. seen promise technology we've I

Thomas Baker

Yes.

of logos amount just sales and hired to people a a over now. terms investments year, of to starting in I takes hold past little bit we've It in the sellers have going time. mean, sales expand on made technical win we've of those activity we new wallet the our tremendous think, hiring take are people I share. technical that Anthony, and the

your So directly, the that's usually -- where of to come light probably is QX, we'll to through. we're tangible with. begin I But results. a stuff some think, QX, start answer question think QX pretty is I seeing hopefully, seeing quarter some QX,

Anthony Lebiedzinski

Got you.

as looking environment, X the Well, X at as to the quarter, good in I segments. so And -- sales hear. of out the up even far Okay. macro mean -- were your that's obviously, with tough

just it are which recovery about think just You just next how was delayed Solutions, thoughts down, of on we what terms the In think the for Solutions? year? Business segment? that be should your will Like until Business

Timothy McGrath

Yes. Again, Anthony. question, good a

start our for So to customers the seeing we're Enterprise future. plan really

an RFPs, in for we're quotation. uptick seeing requests in So

So on done current really endpoint on continued growth seeing and We're reality I the is concerned Enterprise the is space, more level devices, in than windows But our the we're dependent our the business we is move. to that expect devices cautious. And some of election about SMB upgrades overall. upgrades. the And the space. didn't lot SMB to macroeconomic are And that. talked outcome we Not being starting a federal new also backdrop. seeing been customer, customers just that and rather more that. about have in the Very think, of cautious

customer we back with on. see be speed coming we that coming will enterprise don't the So think SMB customer velocity that or the that

Thomas Baker

impressive was but revenue The gross Yes. that's mean, pretty in was the up. actually. down I SMB, profit

Anthony Lebiedzinski

to just gross the Yes, actually margin. follow indeed. And up -- on SMB that's actually

X% think So far endpoint -- devices a bit you have with as to this business of, headwind solutions. is increase even in I guess, the and right I a used as

a it increase? behind there? percentage Is So that the else favorable gross mix Or what what drove shift? just margin scenes is

Thomas Baker

and couple Cloud a sales, software. had we buy ]. site I customers a and have [ cloud lot software cloud large didn't that of

Anthony Lebiedzinski

you. Got

helpful. Okay. That's

progress guys the you do you further I obviously, you progress do with on nice impact touching out you And reductions? you're can nice Okay. make made flows. mean, -- just And a then your on had that's tapped sheet think cash a further with that some based inventory think inventory. balance Or there?

Thomas Baker

probably time probably starts ecosystem the in I play And we're low to of device the we're to million put go going being. inventory because as that's as once pretty picking quickly. about think going up, $XX for

soon headway our or as more maybe think X DSOs it's in although with years. a little our receivables, been make I probably So X as

So that pretty business part of for actually kind of us. is clicking the well

yes. So,

Timothy McGrath

add, we're efficiencies I'll on focus a But efficiencies, Anthony, better internally on AI and we drive using that operational big there. getting focused and very to do have

improvement, business. continuous would some be with our as should there So you expect

Anthony Lebiedzinski

And your helpful AR. Right. you. the Got about it's hear to comment

generally uncertainties like, macro the in sounds people bills paying time. despite are the on it environment, their So speaking,

So that's hear. to good

So thanks of very much, best luck. and

Operator

turn questions Thank Tim you. no to I'm McGrath at closing will for showing further it I this over remarks. time.

Timothy McGrath

Well, thank to once of to like and again, Antoine. like I'd their support. our are of all partners And and thank continued vendor you, call for their those customers, who this shareholders listening coworkers to dedication. efforts also thank you extraordinary for our I'd afternoon. our

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

Operator

does Thank you in conference. participation for your the today's conclude program. This

disconnect. now may You

PC Connection (CNXN) 30 Oct 242024 Q3 Earnings call transcript