Q4 2024 PC Connection Inc Earnings Call
Unknown Executive: Good afternoon, and welcome to the fourth quarter 2024 Connection Earnings Conference Call.
Good afternoon, and welcome to the fourth quarter of 2020 for connection earnings Conference call. My name is Josh 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.
Unknown Executive: My name is Josh 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.
Unknown Executive: As a reminder, this conference call is the property of Connection and may not be recorded for rebroadcast without specific permission from the On the call today are Tim McGrath, President and Chief Executive Officer, and Tom Baker, Senior Vice President and Chief Financial Officer.
This call is the property of connection and May not be recorded for rebroadcast without specific permission from the company on.
Speaker Change: On the call today are 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.
Timothy McGrath: I will now turn the call over to the company. Thanks, operator. And good afternoon, everyone.
Speaker Change: Thanks, operator, and good afternoon, everyone I will now read our cautionary note regarding forward looking statements.
Timothy McGrath: I will now read our cautionary note regarding forward looking statements. Any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward-looking statements. Various remarks that management may make about the company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factor section of the company's annual report on Form 10-K for the year ended December 31, 2023, which is on file with the Securities and Exchange Commission, as well as in other documents that the company files with the Commission from time to time.
Speaker Change: Any statements or Washington made during the conference call that are not statements of historical fact may be deemed to be forward looking statements.
Speaker Change: Various remarks that management may make about the company's future expectations plans and prospects constitute forward looking statements for purposes of the safe Harbor provision under the private Securities Litigation Reform Act of 1995 actual results may differ materially from those indicated by these forward looking statements.
Speaker Change: As a result of various important factors, including those discussed in the risk factors section of the company's annual report on Form 10-K for the year ended December 31st 2023, which is on file with the Securities and Exchange Commission as well as in other documents that the company files with the commission.
Speaker Change: Time to time.
Timothy McGrath: In addition, any forward-looking statements represent management's view as of today and should not be relied upon as representing views as of any subsequent date. While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so, other than is required by law, even if estimates change. And therefore, you should not rely on these forward-looking statements as representing management's views as of any date subsequent to today.
Speaker Change: In addition, any forward looking statements represent management's view as of today and should not be relied upon as representing views and if any subsequent date, while the company may elect to update forward looking statements at some point in the future. The company specifically disclaims any obligation to do so other than as required by law, even if Esther.
Speaker Change: That has changed and therefore, you should not rely on these forward looking statements as representing management views as of any date subsequent to today.
Timothy McGrath: During this call, non-GAAP financial measures will be discussed. A reconciliation between any non-GAAP financial measure discussed and its most directly comparable GAAP measure is available in today's earnings release and on the company's website at www.connection.com. Please note that unless otherwise stated, all references to full year and fourth quarter 2024 comparisons are being made against the year ended December 31st, 2023 and the fourth quarter thereof.
Speaker Change: During this call non-GAAP financial measures will be discussed a reconciliation between any non-GAAP financial measure discussed and its most directly comparable GAAP measure is available in today's earnings release and on the company's website at Www Dot connection Dot com.
Speaker Change: Please note that unless otherwise stated all references to full year and fourth quarter 2024 comparisons are being made against the year ended December 31st 2023, and the fourth quarter thereof.
Unknown Executive: Today's call is being webcast and will be available on Connection's website. The earnings release will be available on the SEC website at www.sec.gov and in the Investor Relations section of our website, www.ir.connection.com.
Speaker Change: Today's call is being webcast and will be available on Connection's website.
Speaker Change: The earnings release will be available on the SEC website at Www Dot S. E C dot Gov and in the Investor relation section of our website Www Dot IR dot connection dot com.
Timothy McGrath: I would now like to turn the call over to our host, Tim McGrath, President and CEO. Tim.
Speaker Change: I'd now like to turn the call over to our host Tim Mcgrath President and CEO.
Timothy McGrath: Thank you, Samantha.
Speaker Change: Tim Thank.
Timothy McGrath: Good afternoon, everyone. And thank you for joining us today for Connections Q4 2024 conference call. I'll begin this afternoon with an overview of our 2024 performance, followed by our fourth quarter results. Tom will then walk us through a more detailed look at our financial... For the full year, revenue was $2.8 billion, a decrease of 1.7% compared to the prior year. Well, gross profit was 519.8 million, an increase of 1.6%. Gross margin was a record 18.6%, growing 60 base Our SG&A was $422.3 million, an increase of 4% compared to the prior year. This increase was due to our investment in critical areas of our business, which we will discuss in detail later in the call.
Tim Mcgrath: Thank you Samantha good afternoon, everyone and thank you for joining us today for Connection's Q4, 2024 conference call.
Tim Mcgrath: I'll begin this afternoon with an overview of our 2024 performance followed by our fourth quarter results.
Tim Mcgrath: Tom will then walk us through a more detailed look at our financials.
Speaker Change: For the full year revenue was $2 8 billion, a decrease of one 7% compared to the prior year.
Speaker Change: While gross profit was $519 8 million an increase of 1.6% gross margin was a record 18, 6% growing 60 basis points.
Speaker Change: Our SG&A was $422 3 million, an increase of 4% compared to the prior year. This increase was due to our investment in critical areas of our business, which we will discuss in detail later in the call.
Timothy McGrath: Net income was $87.1 million, an increase of 4.6% compared to the prior year. Earnings per diluted share was $3.29 for 2024 compared to $3.15 in the prior year.
Speaker Change: Net income was $87 1 million an increase of $4.
Speaker Change: Percent compared to the prior year.
Speaker Change: Earnings per diluted share was $3 29 for 2024 compared to $3 15 in the prior year.
Timothy McGrath: Now let's discuss our Q4 performance. Consolidated net sales were $708.9 million, an increase of 1.8% compared to last year. Gross profit was flat at $129.8 million. Gross margins were down 30 basis points to 18.3% in Q4 compared to the prior year quarter, primarily due to a shift in product mix. Operating income in Q4 was $22.6 million, a decrease of 19% compared to Q4 2023. Operating income as a percent of sales was 3.2% compared to 4% in net sales in the prior year quarter. That income in Q4 was $20.7 million, a decrease of 12.9% compared to $23.8 million in the prior year quarter.
Speaker Change: Now, let's discuss our Q4 performance.
Speaker Change: Consolidated net sales were $708 9 million, an increase of one 8% compared to last year.
Speaker Change: Gross profit was flat at $129 8 million gross margins were down 30 basis points to 18, 3% in Q4 compared to the prior year quarter, primarily due to a shift in product mix.
Speaker Change: Operating income in Q4 was $22 6 million a decrease of 19% compared to Q4 2023.
Speaker Change: Operating income as a percent of sales was three 2% compared to 4% in net sales in the prior year quarter.
Speaker Change: Net income in Q4 was $20 7 million a decrease of 12, 9% compared to $23 8 million in the prior year quarter.
Timothy McGrath: Q4 2024 are diluted earnings per share with 78 cents, a decrease of 12.8% from 90 cents in Q4 2023.
Speaker Change: In Q4 2024, our diluted earnings per share was <unk> 78.
Speaker Change: A decrease of 12, 8% from 90% in Q4 2023.
Timothy McGrath: Last quarter, during our conference call, we noted that the recovery in IT spending was taking longer than we anticipated. This trend continues in Q4, which is reflected in our results. In Q4, we saw some evidence of a recovery year over year in select areas of our business. We experience notebook mobility and desktop revenue growth of 14%, driven primarily by PC refresh initiatives by our customers. Revenue for Advanced Technologies continues to be challenged as customers wrestle with the timing of their AI deployments and data center refreshes. Although our results for advanced technologies did not meet our expectations in Q4, we are cautiously optimistic about the future as we've seen a marked increase in our pipeline of opportunities.
Speaker Change: Last quarter during our conference call, we noted that the recovery in it spending was taking longer than we anticipated.
Speaker Change: This trend continued in Q4, which is reflected in our results.
Speaker Change: In Q4, we saw some evidence of a recovery year over year in select areas of our business.
Speaker Change: We experienced notebook mobility and desktop revenue growth of 14% driven primarily by PC refresh initiatives by our customers.
Speaker Change: Revenue for advanced technologies continues to be challenged as customers wrestle with the timing of their AI deployment and data kind of refresh although our results for advanced technology. It did not meet our expectations. In Q4, we are cautiously optimistic about the future as we've seen a marked increase in our.
Speaker Change: Pipeline of opportunities.
Timothy McGrath: We'll now look a little deeper into our segment performance. In our business solutions segment, our Q4 net sales were $262.4 million, 3.7% lower than a year ago, as we experienced a 12% decrease in the sale of advanced technology products, partially offset by an increase of 2% in endpoint devices. Gross profit for the business solution segment was $62.6 million, a decrease of 0.8%. Gross margin increased 70 basis points compared to the prior year quarter to 23.9%. Our net sales and growth margins were favorably affected by customer mix and an increase in the mix of software recognized on a net basis.
Speaker Change: I'll now look a little deeper into our segment performance and our business solutions segment. Our Q4 net sales were $262 4 million $3, 7% lower than a year ago as we experienced a 12% decrease in the sale of advanced technology products, partially offset by an increase of 2% and then.
Speaker Change: <unk> devices.
Speaker Change: Gross profit for the business solutions segment was $62 6 million a decrease of 8%.
Speaker Change: <unk> margin increased 70 basis points compared to the prior year quarter to 23, 9%.
Speaker Change: Our net sales and gross margins were favorably affected by customer mix and an increase in the mix of software recognized on a net basis and our <unk>.
Timothy McGrath: In our public sector solutions business, Q4 net sales were $143.7 million, 42.9% higher than a year ago. Sales to the federal government increased by 41.1 million while sales to state and local government and educational institutions increased by 2 million. Gross profit for the public sector segment was $22.2 million, an increase of 30.2% compared to Q4'23. Gross margin decreased by 150 basis points to 15.4% for the quarter compared to the prior year. The revenue increase and margin decline resulted from a few large project rollouts in Q4, 2024 that were at lower than average margins.
Speaker Change: <unk> sector solutions business Q4, net sales were $143 7 million 42, 9% higher than a year ago.
Speaker Change: Sales to the federal government increased by $41 1 million, while sales to state and local government and educational institutions increased by $2 million.
Speaker Change: Gross profit for the public sector segment was $22 2 million, an increase of 32% compared to Q4 'twenty three gross margin decreased by 150 basis points to 15, 4% for the quarter compared to the prior year.
Speaker Change: The revenue increase and margin decline resulted from a few large project rollouts in Q4 2024.
Speaker Change: Were at lower than average margins.
Timothy McGrath: In our enterprise solution segment, Q4 net sales were $302.7 million, 6.4% lower than a year ago as we experienced an increase of 3% in device sales offset by a 28% decrease in the sale of advanced technology. Gross profit for the enterprise segment was $45 million, 9.3% lower than the prior year quarter. Gross margin decreased by 50 basis points to 14.9% for the quarter. The margin decrease was a result of lower software license fees and product merit.
Speaker Change: In our enterprise solutions segment Q4, net sales were $302 7 million six 4% lower than a year ago as we experienced an increase of 3% in device sales offset by a 28% decrease in the sale of advanced technology gross.
Speaker Change: Profit for the Enterprise segment was 45 million $9, 3% lower than the prior year quarter gross margin decreased by 50 basis points to 14, 9% for the quarter. The margin decrease was a result of lower software license fees and product mix.
Thomas Baker: I'll now turn the call over to Tom to discuss additional financial highlights from our Income Statement, Balance Sheet, and Cash Flow Statements. Thanks, Tim. In the fourth quarter, SG&A increased by 5.2% over the prior year. The increase in FG&A was primarily due to investments in resources to strengthen our sales, technical sales, and services capabilities. On a percentage of sales basis, FD&A increased 49 basis points to 15.1% of net sales in the quarter. compared to 14.6% in the prior year. Interest income for Q4 amounted to $4.8 million compared to $4.1 million last year, an increase of $660,000.
Speaker Change: I'll now turn the call over to Tom to discuss additional financial highlights from our income statement balance sheet and cash flow statement.
Speaker Change: Tom.
Tom Baker: Thanks, Tim.
Speaker Change: Fourth quarter SG&A increased by five 2% over the prior year.
Speaker Change: The increase in SG&A was primarily due to investments in resources to strengthen our sales technical sales and services capabilities.
Speaker Change: On a percentage of sales basis, SG&A increased 49 basis points to 15, 1% of net sales in the quarter.
Speaker Change: Compared to 14, 6% in the prior year.
Speaker Change: Interest income for Q4 amounted to $4 8 million compared to $4 1 million last year, an increase of 660000.
Thomas Baker: and our effective tax rate was 24.1% down from 25.8%. Net income for the quarter was $20.7 million, a decrease of 12.9% from $23.8 million, and diluted earnings per share was $0.78, a decrease of 12.8%. Our trailing 12-month adjusted earnings for interest, income taxes, depreciation, and amortization, or adjusted EBITDA, was $118.9 million, compared to $125.5 million a year ago, a decrease of 5%.
Speaker Change: And our effective tax rate was 24, 1% down from 25, 8%.
Speaker Change: Net income for the quarter was $20 7 million a decrease of 12, 9% from $23 8 million and diluted earnings per share was <unk> 78 a.
Speaker Change: A decrease of 12, 8%.
Speaker Change: Our trailing 12 month adjusted earnings before interest income taxes, depreciation and amortization or adjusted EBITDA was $118 9 million compared to $125 5 billion a year ago, a decrease of 5%.
Thomas Baker: In the fourth quarter, we paid a $0.10 per share quarterly dividend, and we repurchased shares having a total cost of $4.9 million at an average of $70.39 per share. At the end of the year, we had $59.7 million remaining for stock repurchases under our existing stock repurchase program.
Speaker Change: In the fourth quarter, we paid a <unk> 10 per share quarterly dividend and we repurchased shares having a total cost of $4 9 million at an average of $70 and <unk> 39 per share.
Speaker Change: At the end of the year, we had $59 7 million remaining for stock repurchases under our existing stock repurchase program.
Thomas Baker: Today we announce that our Board of Directors has prepared a 50% increase in our quarterly dividend to $0.15 per share. The dividend is payable to shareholders of record on February 25th and payable on March 14th, 2025.
Speaker Change: Today, we announced that our board of directors has declared a 50% increase in our quarterly dividend to <unk> 15 per share the dividend is payable to shareholders of record on February 25.
Speaker Change: And payable on March 14th 2025.
Thomas Baker: Cash flow generated from operations from year ended 2024 was $173.9 million. Our accounts receivable balance increased $6.5 million for the year ended 2024 and our DSO decreased to 72 days from 73 days for the same period a year ago. Cash from operations benefited from a reduction in inventory of $29.1 million for the year. Our accounts payable balance increased 36.5 million for the year ended 2024 largely due to timing of Cash used in investing activities of $115.3 million was the result of $358.3 million of investment purchases offset by $250.6 million of investment maturity. We use $25.2 million of cash for financing activities during the year, primarily for the payment of $10.5 million of dividends to shareholders and repurchases of $12.4 million of stock.
Speaker Change: Cash flow generated from operations for the year ended 2024 was $173 9 million.
Speaker Change: Our accounts receivable balance increased $6 5 million for the year ended 2024, and our DSO decreased to 72 days from 73 days for the same period a year ago.
Speaker Change: Cash from operations benefited from a reduction in inventory of $29 $1 million for the year.
Speaker Change: Our accounts payable balance increased $36 5 million for the year ended 2024, largely due to timing of payments.
Speaker Change: Cash used in investing activities of $115 3 million was the result.
Speaker Change: $358 3 million of investment purchases offset by $256 million of investment maturities.
Speaker Change: We used $25 2 million of cash for financing activities during the year.
Speaker Change: Primarily from the payment of $10 $5 million of dividends to shareholders and repurchases of $12 4 million of stock.
Thomas Baker: We ended Q4 with $442.6 million of cash, cash equivalents, and short-term investment.
Speaker Change: We ended Q4 with $442 6 million of cash cash equivalents and short term investments.
Thomas Baker: When we're thinking about capital allocation, we remain committed to growing the business and have an ongoing program focused on investing in inorganic opportunities in organic growth programs that Tim will expand upon later. Furthermore, as announced above, we have increased our dividend by 50 percent. We anticipate evaluating our dividend program regularly and target a payout in the range of 15 to 20 percent of net income. During 2024, we significantly increased our repurchases of stock, and we anticipate continuing to do so in a disciplined manner.
Speaker Change: Okay.
Tim Mcgrath: When we're thinking about capital allocation, we remain committed to growing the business and have an ongoing program focused on investing in inorganic opportunities in organic growth program that Tim will expand upon later.
Tim Mcgrath: Furthermore, as announced the Bob we have increased our dividend by 50%, we anticipate evaluating our dividends for women regularly and target a payout in the range of 15% to 20% of net income.
Tim Mcgrath: During 2024, we significantly improved our repurchases of stock and we anticipate continuing to do so in a disciplined manner.
Timothy McGrath: I will now turn the call back over to Tim to discuss current market trends. Thanks, Tom. During 2024, market conditions remain challenging as customers continue to struggle with the timing and priority of their IT investments. As a result, overall IT spend was lower than expected in Q4 and for all of 2024. While we continue to see year-over-year growth in the device ecosystem, including endpoint and related categories, Many customers have delayed investments in large advanced technology projects. We do believe that budgets will free up to support those initiatives throughout 2025.
Tim Mcgrath: I will now turn the call back over to Tim to discuss current market trends.
Tim Mcgrath: Thanks, Tom during 2024 market conditions remain challenging as customers continued to struggle with the timing and priority of their it investments.
Tim Mcgrath: As a result overall it spend was lower than expected in Q4 and for all of 2024.
While we continue to see year over year growth in the device ecosystem, including endpoint and related categories.
Tim Mcgrath: Many customers have delayed investments in large advanced technology projects.
Tim Mcgrath: We do believe that budgets will free up to support those initiatives throughout 2025.
Timothy McGrath: In 2024, we made significant investments and improvements in our business. And we are confident that will position us to be successful in 2025 and beyond.
Tim Mcgrath: In 2024, we've made significant investments and improvements in our business and we are confident that will position us to be successful in 2025 and beyond.
Timothy McGrath: We've invested in. a world-class CRM system. AI-enabled workflow tools, enhancement to our technical integration and distribution operations. Perhaps more importantly, we've elevated our investment in key technical resources. These include Solutions Sales Executives. free and post sales technical sales expert. engineering personnel, services personnel. Additional resources focused on Helix AI initiatives.
Tim Mcgrath: We've invested in.
Tim Mcgrath: A world class CRM system.
Tim Mcgrath: AI enabled workflow tool at.
Tim Mcgrath: Enhancements to our technical integration and distribution operations.
Tim Mcgrath: Perhaps more importantly, we've elevated our investment in key technical resources. These include <unk>.
Tim Mcgrath: Solutions sales executives.
Tim Mcgrath: Pre and post sales technical sales expert <unk>.
Speaker Change: Engineering personnel.
Speaker Change: Services personnel additional resources focused on helix AI initiatives.
Timothy McGrath: 2025, we expect customers to invest in data center and infrastructure projects driven in part by AI and server consolidation, as well as anticipated growth coming from the device refresh. These trends and technology advancements are driving growth and a number of opportunities in our pipeline. We believe that the strategic investments we have made will allow us to efficiently and effectively take advantage of this expected increase in demand and enable participation in many more larger scale opportunities. Our investments have resulted in higher levels of SG&A and are a key component of our ongoing transformation.
Speaker Change: In 2025, we expect customers to invest in data center and infrastructure project driven in part by the AI and server consolidation as well as anticipated growth coming from the device refresh these trends and technology advancements are driving growth in a number of opportunities in our pipeline.
Speaker Change: We believe that the strategic investments, we have made will allow us to efficiently and effectively take advantage of this expected increase in demand and enable participation in many more larger scale opportunities.
Speaker Change: Our investments have resulted in higher levels of SG&A.
Speaker Change: A key component of our ongoing transformation.
Timothy McGrath: There are other catalysts for growth in 2025. We expect customers to focus on refreshing their networks, data management and security. AI Automation, and Hyper-Personalized Marketing Solutions will drive deployments at scale in 2025. AI remains the focus of investment as many of our customers assess their AI strategies. We continue to strengthen our AI capabilities through Connections Helix Initiative. We're excited to report advancements in our Connection Helix capabilities, which continue to mature and excel with the AI sector. In Q4, we continue to bolster our technical capabilities, developing a mature pipeline of AI opportunities, and strengthening our alliances with key partner organizations within the AI ecosystem.
Speaker Change: There are other catalysts for growth in 2025, and we expect customers to focus on refreshing their networks data management and security.
Speaker Change: Automation and hyper personalized marketing solutions will drive deployment at scale in 2025.
Speaker Change: It remains a focus of investment as many of our customers assess their AI strategies, we continue to strengthen our AI capabilities.
Speaker Change: Through connections helix initiatives.
Speaker Change: We're excited to report advancements in our connection helix capabilities, which continue to mature and excel in the AI sector.
Speaker Change: In Q4, we continue to bolster our technical capabilities developing a mature pipeline of AI opportunities and strengthening our alliances with key partner organizations within the AI ecosystem.
Timothy McGrath: We are particularly proud to announce that we've been recognized with a first place award in the Naval Information Warfare Center. Their challenge for the Atlantic Palmetto Tech Bridge's secure, commercially-based artificial intelligence environment was for real-world naval application. This accolade serves not only as a recognition of Connection's innovativeness, but also affirms our deep understanding of AI technologies and the specific challenges our clients face. As you can tell by the tone of our call, we're optimistic about our prospects in 2025. However, there are a number of macroeconomic events that could impact the timing of customer investment. These include recent developments with the AI landscape and the potential impact of terror.
Speaker Change: We are particularly proud to announce that we have been recognized with a first place award in the Naval information Warfare Center.
Speaker Change: Their challenge for the Atlantic Palmetto Tech bridges secure commercially based artificial intelligence and environment was for real World Naval applications.
Speaker Change: This accolade serves not only as a recognition of connections innovativeness, but also affirms our deep understanding of AI technologies and the specific challenges our clients face.
Speaker Change: As you can tell by the tone of our call. We're optimistic about our prospects in 2025. However, there are a number of macroeconomic events that could impact the timing of customer investments.
Speaker Change: These include recent developments with the AI landscape.
Speaker Change: And the potential impact of tariffs.
Timothy McGrath: for 2025. We're confident we can outperform the US IT market rate of growth by 200 basis We remain committed to stay at the forefront of the technology curve, ensuring that our integrated solutions effectively meet the evolving needs of our customers. We believe that our focus and business strategy remains well aligned with the shifting dynamics of how customers deploy, utilize, and consume technology. We continue to connect our customers with technology that enhances growth, elevates productivity, and empowers innovation. We help our customers expertly navigate through our complex set of choices within the technology landscape. We help calm the confusion of IT for our customers.
Speaker Change: For 2025, we're confident we can outperform the U S.
Speaker Change: Market rate of growth by 200 basis points.
Speaker Change: We remain committed to stay at the forefront of the technology curve, ensuring that our integrated solutions effectively meet the evolving needs of our customers.
Speaker Change: We believe that our focused business strategy remains well aligned with the shifting dynamics of how customers deploy utilized and consumed in technology.
Speaker Change: We continue to connect our customers with technology that enhances growth elevate productivity and empowers innovation.
Speaker Change: We help our customers expertly navigated through a complex set of choices within the technology landscape.
Speaker Change: We helped calm the confusion.
For our customers.
Timothy McGrath: We know that in this complex world of technology, change happens and expertise wins.
Speaker Change: We know that in this complex world of technology change happens and expertise wins.
Timothy McGrath: On that note, I'd like to take a moment to thank our extremely dedicated and valued employees for their continued and extraordinary efforts during this rapidly changing environment.
Speaker Change: On that note I'd like to take a moment to thank our extremely dedicated our valued employees for their continued and extraordinary efforts.
Speaker Change: This rapidly changing environment, we will now entertain your questions operator.
Unknown Executive: will now entertain your questions. Operator. Thank you.
Unknown Executive: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Anthony Lebiedzinski: Our first question comes from Anthony Lebiedzinski with Sidoti, you may proceed. Good afternoon, everyone, and thank you for taking the questions. So first, just curious, can you comment on the sales progression that you saw during the quarter? Just again, just wanted to get a better sense as to how the quarter trended, you know, October through December. And so any early indication about, you know, how Q1 has started, that'd be great. Yeah, so I think Anthony, October was Probably a little bit better than we've seen in the last three years. November was markedly worse in terms of a percentage of sales than we've seen in the last three years.
Speaker Change: Our first question comes from Anthony <unk> with Sidoti You May proceed.
Anthony: Hey, good afternoon, everyone and thank you for taking the questions.
Anthony: So first just curious can you comment on the sales progression that you saw during the quarter.
Anthony: Just again, just wanted to get a better sense as to how the quarter trended.
Anthony: October through December.
Anthony: So any early indication about.
Anthony: How Q1 has started that'd be great.
Anthony: Yes, so I think Anthony.
Speaker Change: October was.
Speaker Change: I'll be a little bit better than we've seen in the last three years.
Speaker Change: November was markedly worse in terms of a percentage of sales that we've seen the last three years in December was.
Timothy McGrath: And December was about the same. We didn't really see any budget flush, but November was pretty low. And then in terms of, you know, what we're seeing going forward. You know, I think for Q1, flat maybe up very low single digits on the top line. It's kind of what we're expecting. And, you know, that's kind of how things are looking right now. Yeah, thanks, Anthony.
Speaker Change: About the same we didnt really see any budget flush but November was.
Speaker Change: Pretty well.
Speaker Change: And then in terms of what we're seeing going forward.
Speaker Change: Yeah.
Speaker Change: I think for Q1 flat, maybe up very low single digits on the top line.
Speaker Change: That's kind of what we're expecting.
Speaker Change: That's kind of how things are looking right now.
Timothy McGrath: I'd add that that tells kind of part of the story, looking back, but if we continue to look forward, we are seeing A very large number of projects come into the funnel, our customers engaging us in a number of areas, and we're confident that a number of those projects will be significant for us in 2025. That's very helpful, Culler.
Speaker Change: Yes, Thanks Anthony.
Speaker Change: Thats it.
Speaker Change: Tell us kind of part of the story looking back, but if we continue to look forward.
Speaker Change: We are seeing.
Speaker Change: A very large number of projects come into the funnel our customers engaging us in a number of areas and.
Speaker Change: We're confident that.
Speaker Change: Number of those projects will be significant for us in 2025.
Speaker Change: Yes.
Timothy McGrath: And just to follow up, in terms of those projects, I mean, are you seeing that as far as like, which vertical markets can you speak of, I guess, you know, maybe just as far as talk about the opportunity that you see going forward, which You know, which of your vertical markets do you think will have the most opportunity and maybe conversely, which ones are you less bullish on? Well, thanks. So let me start with our subsidiaries, then we'll talk about vertical. So clearly, our large enterprise group has a large number of new projects, new customers in a lot of momentum going into 2025.
Speaker Change: That's very helpful color.
Speaker Change: And just a follow up in terms of those projects I mean.
Speaker Change: Are you seeing that.
Speaker Change: As far as like which vertical markets can you speak of I guess.
Speaker Change: Maybe just as far as talk about the opportunity that you see going forward is for which.
Speaker Change: Which of your vertical markets do you think.
Speaker Change: We have the most opportunity and maybe Conversely, which ones are you less bullish on.
Speaker Change: Well. Thanks, So let me start with our subsidiaries and then we'll talk about vertical. So currently our large enterprise group has a large number of new projects, new customers and a lot of momentum going into 2025. So we're very optimistic about that.
Timothy McGrath: So we're very optimistic about that. Our SMB group, our business solutions team, also their funnels are building, but probably at a lower rate. And then our public sector team, it's very much large contract, large customer dependent, a few in the federal space and a few in the SLED space. When we think about the vertical markets that underpin a lot of that growth, clearly, we're seeing a number of projects in the retail space. So we are looking at good growth there. A number of projects in healthcare really around the GPOs and the group purchasing organizations, and a number of manufacturing projects coming into play.
Speaker Change: SMB group.
Speaker Change: Our business solutions team.
Speaker Change: Also the funnels are building, but probably at a lower rate than our public sector team.
Speaker Change: Very much.
Speaker Change: Large contract or large customer dependent.
Speaker Change: The federal space and a few in the sled space when we think about the vertical.
Speaker Change: Markets that underpin a lot of that growth.
Speaker Change: Clearly, we're seeing a number of projects in the retail space. So we are looking at good growth. There are a number of projects in health care really around the GPO and the.
Speaker Change: Group purchasing organizations and a number of manufacturing projects coming into play.
Timothy McGrath: So those would be kind of the leaders of our vertical market segment. Thank you for that, Tim.
Speaker Change: Those would be kind of the leaders of our.
Speaker Change: Vertical market segment.
Speaker Change: Thank you for that Tim and then I.
Timothy McGrath: And then, I guess, just to switch gears here, as far as the SG&A, so it was up 4% in 2024 versus gross profit growth of 1.6%. So, as we look forward to 2025, you know, how should we think about expected expense growth versus what you think you can do as far as gross profit growth? You know, as we, you know, said throughout the call to Anthony, you know, I think Tim in his remarks, and we've invested a lot of money in people and, and, you know, solution sellers, and technical people. And we're laying the infrastructure, we've invested in a lot of tools, because we see this pipeline coming and we think we have to be ready.
I guess.
Speaker Change: Just to switch gears here as far as the SG&A. So it was up 4% in 2024 versus gross profit growth of one 6%. So as we look forward to 2025, how should we think about expected expense growth versus what you think you can do as far as gross profit growth.
Speaker Change: Well.
Speaker Change: Absolutely.
The call Anthony I think Tim in his remarks, and we've invested a lot of money.
Speaker Change: People links and salute.
Speaker Change: Solutions sellers and technical people and we're laying the infrastructure we've invested in him a lot of tools because we see this pipeline coming and we think we have to be ready.
Timothy McGrath: To answer your your question directly, I think will probably see. 3-ish, 4-ish percent SG&A growth over the next couple of quarters, year-on-year. Obviously we're doing everything we can to pull it back, but what you're seeing is just a real reallocation of resources here. And also, I would classify 24 as a building year for us, Anthony, we invested in somewhat of a down market. So we have now additional capability, additional capacity, and many of the investments have already been made. So when we think about growth in 25, that SG&A growth, a lot of will come from variable compensation.
Speaker Change: To answer your question directly.
Speaker Change: Thank you.
Speaker Change: We'll probably see.
Speaker Change: Three ish four ish percent.
Speaker Change: G&A growth over the next couple of quarters.
Speaker Change: Year on year.
Speaker Change: Obviously, we're doing everything we can to pull it back but what youre seeing is just a real reallocation of resources here.
Speaker Change: Also I would classify 24 is a building year for us Anthony we invested in somewhat of a down market. So we have now additional capability additional capacity and many of the.
Speaker Change: Investments have already been made so when we think about growth in 'twenty five that SG&A growth a lot of them come from variable.
Timothy McGrath: Yeah, and the other thing I would add on q4 specifically, Anthony, because, you know, there was a bit of a mess there. We had a couple of I would say two, three one-time items that probably cost us, you know, two and a half, three million dollars that will not repeat, and those were just kind of out of the blue. Okay. Well, thanks for clarifying that. That's definitely a very helpful caller.
Speaker Change: Compensation.
Speaker Change: And the other thing I would add on Q4, specifically Anthony because.
Speaker Change: It was a bit of a miss there we had a couple of.
Speaker Change: I would say 231 time items that probably cost us $253 million that will not repeat and those were just kind of out of the blue.
Speaker Change: Okay, well thanks for clarifying that that's definitely very helpful color I got I guess last question for me before I pass it on to others as far as.
Timothy McGrath: I guess the last question for me before I pass on to others, as far as, can you speak to the expected impacts from tariffs that you may have to deal with? Just curious to get your thoughts on that. Thanks. It's a great question. And as you know, our major suppliers have very complex supply chains. And so it's really difficult to have any any accuracy in our predictions. The sort of the upside is, it's a great opportunity to reach out and touch all of our customers. It's a great opportunity to engage them and have meaningful conversations about planning for their contingencies.
Speaker Change: Can you speak to the expected impacts from tariffs that you may have to deal with.
Speaker Change: Just curious to get your thoughts on that.
Speaker Change: Thanks, It's a great question.
Speaker Change: As you know our major suppliers have very complex supply chains.
Speaker Change: It's really difficult.
Speaker Change: To have any any accuracy in our predictions.
Speaker Change: That's sort of the upside is as a great opportunity to reach out and touch all of our customers. It's a great opportunity to engage them and have meaningful conversations about planning for their contingencies.
Timothy McGrath: But, you know, generally speaking, the majority of our suppliers manufacture their desktops in Mexico. Generally speaking, the majority of our suppliers have the majority of their notebook manufacturing in China and Vietnam and standing up a few other locations. And then, of course, display is a little more spread out, but also a lot of display coming out of China. So when you start to put all that together, it really depends on the specific product from the specific supplier at the specific time. So many of our suppliers are moving quickly to stand up alternatives to some of the tariff countries.
Speaker Change: Generally speaking the majority of our suppliers manufacture their desktops and Mexico generally speaking the majority of our suppliers.
Speaker Change: The majority of their notebook manufacturing in China.
Speaker Change: <unk>.
Speaker Change: Vietnam and.
Speaker Change: Standing up a few other locations and then of course display is a little more spread out but also a lot of display coming out of China. So when you start to put all that together it really depends on the specific product from the specific supplier at the specific time, so many of our suppliers.
Speaker Change: Moving quickly to standup alternatives.
Speaker Change: Some of the tariff countries that said.
Timothy McGrath: But that said, still not really clear. And it's not clear to our customers either, but we will work through this together. Yeah, and the only other thing I'd add to that Anthony, you know, we're going to work with customers at Taylor Programs to help optimize all of us through this. So I think I think a lot's going to evolve over the next three to three weeks or so.
Speaker Change: <unk> not really clear.
Speaker Change: Not clear to our customers either but we will work through this together.
Speaker Change: Yeah, and the only other.
Anthony: You will have the thing I would add to that Anthony.
Anthony: We're going to work with customers to tailor programs to help optimize all of us through this so I think I think a lot's going to evolve over the next three to three weeks or so.
Anthony Lebiedzinski: All right, well, thank you very much and best of luck. Okay. Thank you.
Anthony: Mhm.
Anthony: Alright, well, thank you very much and best of luck.
Timothy McGrath: I would now like to turn the call back over to Tim McGrath for any closing remarks. Well, thanks, Josh. I'd like to thank all of our customers, vendor partners and shareholders for their continued support. And once again, our co workers for their efforts and extraordinary dedication.
Speaker Change: Thank you I would now like to turn the call back over to Tim Mcgrath for any closing remarks.
Tim Mcgrath: Well thanks, Josh.
Tim Mcgrath: I'd like to thank all of our customers vendor partners and shareholders for their continued support and once again, our co workers for their efforts and extraordinary dedication.
Timothy McGrath: I'd also like to thank all of you listening to the call this afternoon, your time and interest and connection are appreciated. Have a great evening. Thank you.
Tim Mcgrath: I don't know if I would like to thank all of you listening to the call. This afternoon your time and interest in connection are appreciated have.
Tim Mcgrath: Great evening.
Unknown Executive: This concludes the conference. Thank you for your participation.
Tim Mcgrath: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
Unknown Executive: You may now disconnect.
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