Q1 2025 PC Connection Inc Earnings Call

Operator: Thank you, operator, and good afternoon, everyone. And welcome to the first quarter 2025 Connections Earnings Conference Call. My name is Dede, and I will be the coordinator for today. At this time, all participants are in listen only mode. Following the prepared remarks, there will be a question and answer session.

Thank you operator, and good afternoon, everyone.

And welcome to the first quarter 'twenty 'twenty five connections earnings Conference call. My name is Judy and I will be the coordinator for today at this time all participants are in listen only mode. Following the prepared remarks, there will be a question and answer session. As a reminder, this conference call is the property.

Operator: As a reminder, this conference call is the property of Connection and may not be recorded or rebroadcast without specific permission from the company.

Speaker Change: [noise] 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, I will now turn the call over to the call.

Operator: On the call today are Tim McGrath, President and Chief Executive Officer, and Tom Baker, Senior Vice President and Chief Financial Officer.

Operator: I will now turn the call over to the company.

Hey.

Timothy McGrath: Thank you, Operator, and good afternoon, everyone. 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 provisions 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 factors section of the company's annual report on Form 10-K for the year ended December 31st, 2024, 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.

Tim Mcgrath: Thank you operator, and good afternoon, everyone I will now read our cautionary note regarding forward looking statements and.

Tim Mcgrath: Any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward looking statements.

Tim Mcgrath: 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 provisions 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.

Tim Mcgrath: 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 31, 2024, which is on file with the Securities and Exchange Commission as well as in other documents that the company filed with the commission from time to time in addition.

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.

Tim Mcgrath: 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 as required by law, even if estimates change.

Tim Mcgrath: And therefore, you should not rely on these forward looking statements as representing management's 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 first quarter 2025 comparisons are being made against the first quarter of 2024. Today's call is being webcast and will be available on Connection's website.

Tim Mcgrath: During this call non-GAAP financial measures will be discussed a reconciliation between any non-GAAP financial measure discussed and the most directly comparable GAAP measure is available in today's earnings release and on the company's website at Www dot connections Dot com.

Tim Mcgrath: Please note that unless otherwise stated all references to first quarter 2025 comparisons are being made against the first quarter of 2024.

Tim Mcgrath: 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 Dot SEC Dot Gov and in the Investor Relations section of our website at Www Dot IR Doc connection Dot com.

Timothy McGrath: The earnings release will be available on the SEC website at www.sec.gov and in the Investor Relations section of our website at www.ir.connection.com.

Timothy McGrath: I would now like to turn the call over to our host, Tim McGrath, President and CEO. Tim? Thank you, Samantha. Good afternoon, everyone. And thank you for joining us today for Connections Q1 2025 conference call.

Speaker Change: I would now like to turn the call over to our host Tim Mcgrath, President and CEO Tim.

Tim Mcgrath: Thank you Samantha good afternoon, everyone and thank you for joining us today for Connection's Q1, 2025 conference call.

Timothy McGrath: I'll begin this afternoon with an overview of our first quarter results and highlights of our performance.

Tim Mcgrath: I'll begin this afternoon with an overview of our first quarter results and highlights of our performance Tom.

Timothy McGrath: Tom will then walk us through a more detailed look at our finances. Our team remained focused on delivering extraordinary value through integrated IT solutions and customer service. This resulted in consolidated net sales of $701 million, an increase of 10.9% in the first quarter. We delivered a solid start to 2025 in a dynamic macroeconomic environment. The quarter was characterized by some customers accelerating purchases in an attempt to minimize the impact of tariffs, while others elected to delay purchases due to uncertainty with respect to the near term economic environment. Gross profit increased by nearly 8% to $127.3 million, while gross margins were down slightly to 18.2%, 50 basis points below last year.

Tim Mcgrath: Tom will then walk us through a more detailed look at our financials.

Tim Mcgrath: Our team remained focused on delivering extraordinary value through integrated solutions and customer service. This.

Tim Mcgrath: This resulted in consolidated net sales of $701 million, an increase of 10, 9% in the first quarter.

Tim Mcgrath: We delivered a solid start to 2025 and a dynamic macroeconomic environment.

Tim Mcgrath: There was characterized by some customers accelerating purchases.

Tim Mcgrath: To minimize the impact of tariffs.

Tim Mcgrath: Others elected to delay purchases due to uncertainty with respect to the near term economic environment.

Tim Mcgrath: Gross profit increased by nearly 8% to $127 3 million, while gross margins were down slightly to 18, 2% 50 basis points below last year as.

Timothy McGrath: As predicted, our mix shifted towards notebooks and desktops as customers executed on their device refresh initiative. We continued our focus on driving internal efficiencies and reducing costs, resulting in operating income of $14.5 million in Q1, an increase of 7.9% compared to Q1 2024. Operating income as a percentage of sales remained flat at 2.1% year over year, although operating income excluding severance expense was $17.5 million, an increase of 29.6%. Operating income excluding severance expenses as a percentage of sales was 2.5%, an increase of 40 basis points. Net income was $13.5 million, an increase of 2.5% compared to $13.2 million in the prior year quarter.

Tim Mcgrath: As predicted our mix shifted towards notebooks and desktops as customers executed on their device refresh initiative.

Tim Mcgrath: We continue our focus on driving internal efficiencies and reducing costs, resulting in an operating income of $14 5 million in Q1, an increase of seven 9% compared to Q1 2024.

Tim Mcgrath: Operating income as a percentage of sales remained flat at two 1% year over year, although operating income excluding severance expense was $17 5 million an increase of 29, 6%.

Tim Mcgrath: Operating income excluding severance expenses as a percentage of sales was two 5% an increase of 40 basis points.

Tim Mcgrath: Net income was $13 5 million, an increase of two 5% compared to $13 2 million in the prior year quarter.

Timothy McGrath: In Q1 2025, our diluted earnings per share was $0.51, an increase of 2% from $0.50 in Q1 2024. However, adjusted diluted earnings per share was $0.60, an increase of 20%. In Q1, notebooks and desktops net sales increased 21% year over year and were up 7% on a sequential basis as a result of customers moving forward with their device refresh initiative. Revenue for advanced technologies and integrated solutions increased by 7%, propelled by sales of software and server storage solutions.

Tim Mcgrath: Q1, 2025, our diluted earnings per share was <unk> 51, and.

Tim Mcgrath: An increase of 2% from 50 cents in Q1 2024, However, adjusted diluted earnings per share was <unk> 60.

Tim Mcgrath: An increase of 20%.

Tim Mcgrath: In Q1 notebooks and desktops net sales increased 21% year over year and were up 7% on a sequential basis as a result of customers moving forward with their device refresh initiatives.

Tim Mcgrath: Revenue for advanced technologies, and integrated solutions increased by 7% propelled by sales of software and servers storage solutions.

Timothy McGrath: Customer priorities around data center refresh, server consolidation, and edge computing are gaining momentum.

Tim Mcgrath: Customer priorities around data center refresh server consolidation and edge computing are gaining momentum.

Timothy McGrath: We'll now look a little deeper into our segment performance. In our business solution segment, our Q1 net sales were $258.4 million, an increase of 1% compared to the prior year. Our gross profit, which we believe is a better indicator of our performance, increased by 8.4% to $65.4 million compared to the prior year. Gross margin increased 170 basis points compared to the prior year quarter to 25.3%. Gross margins were favorably affected by both customer and product mix.

Tim Mcgrath: Now look a little deeper into our segment performance.

In our business solutions segment, our Q1 net sales were $258 4 million, an increase of 1% compared to the prior year, our gross profit, which we believe is a better indicator of our performance increased by eight 4% to $65 4 million compared to the <unk>.

Tim Mcgrath: Per year.

Tim Mcgrath: Gross margin increased 170 basis points compared to the prior year quarter to 25, 3%.

Tim Mcgrath: Gross margins were favorably affected by both customer and product mix in.

Timothy McGrath: In our public sector solutions business, Q1 net sales were $144.6 million, 54.7% higher than a year ago. Sales to the federal government increased by $40 million, while sales to state and local government and educational institutions increased by $11 million. Gross profit for the public sector segment was $19.6 million, an increase of 30.9% compared to Q1'24. Gross Margin decreased by 240 basis points to 13.6% for the quarter compared to the prior year. The revenue increase and margin decline resulted from a few large project rollouts in Q1 2025 that were at lower than average margins.

Tim Mcgrath: And our public sector solutions business Q1, net sales were $144 6 million.

Tim Mcgrath: <unk> 54, 7% higher than a year ago sales to the federal government increased by $40 million, while sales to state and local government and educational institutions increased by 11 million.

Gross profit for the public sector segment was $19 6 million, an increase of 39% compared to Q1 'twenty four.

Tim Mcgrath: Gross margin decreased by 240 basis points to 13, 6% for the quarter compared to the prior year. The revenue increase and margin decline resulted from a few large project rollouts in Q1 2025.

Tim Mcgrath: Lower than average margins.

Timothy McGrath: In our Enterprise Solutions segment, Q1 Net Sales grew 5.4% to $298 million compared to last year. Our strategy to deliver enterprise solutions is taking hold as we drove an increase of 8% in advanced technology. Gross profit for the enterprise segment was $42.3 million, 1% lower than the prior year. Gross margin decreased by 90 basis points to 14.2% for the quarter. The margin decrease was a result of the expected lower license fees from enterprise agreements.

Tim Mcgrath: Our enterprise solutions segment Q1, net sales grew five 4% to $298 million compared to last year.

Tim Mcgrath: Our strategy to deliver enterprise solutions is taking hold as we drove an increase of 8% and advanced technologies.

Tim Mcgrath: Gross profit for the enterprise segment was $42 3 million, 1% lower than the prior year gross margin decreased by 90 basis points to 14, 2% for the quarter. The margin decrease was a result of the expected lower license fees from enterprise agreements.

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 Statement. Thanks, Tim. In the first quarter, SG&A increased by 5% over the prior year. The increase in SG&A was primarily due to an increase in variable compensation due to higher levels of gross profit in the quarter. On a percentage of sales basis, SD&A decreased 88 basis points to 15.7% of net sales in the quarter, compared to 16.6% in the prior year quarter.

Tim Mcgrath: I'll now turn the call over to Tom to discuss additional financial highlights from our income statement balance sheet and cash flow statement Tom.

Tom Baker: Thanks, Ken in the first quarter SG&A increased by 5% over the prior year. The increase in SG&A was primarily due to an increase in variable compensation due to higher levels of gross profit in the quarter.

Tom Baker: On a percentage of sales basis, SG&A decreased to 88 basis points to 15, 7% of net sales in the quarter compared to 16, 6% in the prior year quarter.

Thomas Baker: In the first quarter of 2025, we continued our initiative to reduce our cost structure. As a result, we recorded a charge of $2.9 million for severance expenses associated with internal cost reduction activities. Currently, we expect these actions to result in approximately $5 million of net annualized savings split evenly between SG&A and cost of goods sold. Interest income for Q1 amounted to $3.9 million compared to $4.6 million last year, a decrease of $664,000. Our effective tax rate was 27.1%, up from 27%. Net income for the quarter was $13.5 million, an increase of 2.5% from $13.2 million in the prior year quarter.

Tom Baker: In the first quarter of 2025, we continued our initiative to reduce our cost structure.

Tom Baker: As a result, we recorded a charge of $2 9 million for severance expenses associated with internal cost reduction activities.

Tom Baker: Currently we expect these actions to result in approximately $5 million of net annualized savings split evenly between SG&A and cost of goods sold.

Interest income for Q1 amounted to $3 9 million compared to $4 6 million last year, a decrease of 664000 and our effective tax rate was 27, 1% up from 27%.

Tom Baker: Net income for the quarter was $13 5 million, an increase of two 5% from $13 2 million in the prior year quarter.

Thomas Baker: In Q1 2025, diluted earnings per share was $0.51, an increase of 2%. Adjusted diluted earnings per share was $0.60, an increase of 20%. Our trailing 12-month adjusted earnings before interest, income taxes, depreciation, and amortization, or adjusted EBITDA, was $123.1 million compared to $120.3 million a year ago.

Tom Baker: In Q1 2025 diluted earnings per share was <unk> 51, an increase of 2% adjusted diluted earnings per share was <unk> 60 cents, an increase of 20%.

Tom Baker: Our trailing 12 month adjusted earnings before interest income taxes, depreciation and amortization or adjusted EBITDA was $123 1 million compared to $123 million a year ago.

Thomas Baker: In the first quarter, we paid a $0.15 per share quarterly dividend. In addition, we significantly increased the activity under our share buyback program. We purchased 697,000 shares at an average price of $64.22 per share for a total cost of $44.8 million. This represented 2.7% of shares outstanding at December 31, 2024. At the end of the quarter, we had $14.9 million remaining for share repurchases under our existing stock repurchase program.

Tom Baker: In the first quarter, we paid a <unk> 15 per share quarterly dividend. In addition, we significantly increase the activity under our share buyback program. We purchased 697000 shares at an average price of $64 22 per share for a total cost of $44 8 million.

Tom Baker: This represented two 7% of shares outstanding at December 31, 2024.

Tom Baker: At the end of the quarter, we had $14 9 million remaining for share repurchases under our existing stock repurchase program.

Thomas Baker: As we announced earlier today, our Board of Directors authorized an additional $50 million to be added to our existing share repurchase program as we consumed virtually all of the buybacks previously authorized in the month of April. As of today, we have 25.4 million shares outstanding, a decrease of 3.4% from December 31st, 2024.

Tom Baker: As we announced earlier today, our board of directors authorized an additional $50 million to be added to our existing share repurchase program as we consume FERC all with buybacks previously authorized in the month of April.

Tom Baker: As of today.

Tom Baker: We have $25 4 million shares outstanding a decrease of three 4% from December 31 2024.

Thomas Baker: Today, we also announced that our board of directors declared a quarterly dividend of $0.15 per share. The dividend is payable to shareholders of record on May 13, 2025 and payable on May 30, 2025.

Tom Baker: Today, We also announced that our board of directors declared a quarterly dividend of <unk> 15 per share the dividend is payable to shareholders of record on may 13th 2025 and payable on May 32025.

Thomas Baker: Cash flow used in operations for the first quarter of 2025 was $52.4 million, primarily driven by an increase in inventory of $56.7 million and a decrease in accounts payable of $27 million. These outflows were partially offset by $13.5 million in net income and an increase in accrued expenses and other liabilities of $7.8 million and a decrease in accounts receivable of $7.1 The increase in inventory was a result of our decision to stage inventory for both daily customer needs and rollouts in advance of anticipated price increases resulting from tariffs. Our accounts payable balance decreased $27 million for the first quarter of 2025, largely due to the timing of payments.

Tom Baker: Cash flow used in operations for the first quarter of 2025 was $52 4 million, primarily driven by an increase in inventory of $56 7 million a decrease in accounts payable of $27 million. These outflows were partially offset by $13 5 million and net income and an increase in accrued expenses.

Tom Baker: In other liabilities of $7 8 million and a decrease in accounts receivable of $7 1 million.

Tom Baker: The increase in inventory was a result of our decision to stage inventory for both daily customer needs and Rollouts in advance of anticipated price increases resulting from tariffs.

Tom Baker: Our accounts payable balance decreased $27 million for the first quarter of 2025, largely due to the timing of payments.

Thomas Baker: Cash generated from investing activities of $104.7 million was a result of $108.8 million of proceeds from the sale of investments and $50 million of investment maturities offset by $52.4 million of investment purchases. We used $48.2 million of cash for financing activities during the first quarter of 2025, primarily for repurchases of $43.7 million of stock and payment of $3.9 million of dividends to shareholders.

Tom Baker: Cash generated from investing activities of $104 7 million was a result of a $108 8 million of proceeds from the sale of investments.

Tom Baker: $50 million of investment maturities offset by $52 4 million of investment purchases.

Tom Baker: We used $48 $2 million of cash for financing activities. During the first quarter of 2025, primarily for repurchases of $43 7 million of stock and payment of $3 9 million of dividends to shareholders.

Thomas Baker: We ended Q1 with $340.3 million of cash, cash equivalents, and short-term investments.

Tom Baker: We ended Q1 with $343 million of cash cash equivalents and short term investments.

Timothy McGrath: When we are thinking about capital allocation, we remain committed to growing the business and have an ongoing program focused on investing in inorganic opportunities and organic growth programs. I will now turn the call back over to Tim to discuss current market trends. Thanks, Tom. Reflecting on the quarter, we executed well against our strategic plans as evidenced by our Q1 results. In fact, our performance has been recognized by our partner community as we've been the recipient of several awards, including Intel's AIPC Partner of the Year.

Tom Baker: When we are thinking about capital allocation, we remain committed to growing the business and have an ongoing program focused on investing in inorganic opportunities and organic growth programs I.

I will now turn the call back over to Tim to discuss current market trends.

Tim Mcgrath: Thanks, Tom.

Tim Mcgrath: Secondly, on the quarter, we executed well against our strategic plan as evidenced by our Q1 results.

Tim Mcgrath: In fact, our performance has been recognized by our partner community as we've been the recipient of several awards, including Intel's AI PC partner of the year.

Timothy McGrath: HPI's U.S. Print National Solution Provider of the Year HPI's U.S. Commercial Supplies Partner of the Year And finally, Samsung's Display Partner of the Year Shifting to our vertical market performance, financial services net sales increased 32% and gross profit 31% year over year. Our healthcare team grew net sales by 13% and gross profit 10% year over year. As we look across the evolving technology landscape, we are seeing strong momentum in the AI PC space. Entire application layers are being built around AI-capable PCs, creating tailwinds for refresh cycles across enterprise and commercial markets. This transformation is driving two consistent themes.

Tim Mcgrath: HP is U S national solution provider of the year HP is U S commercial supplier partner of the year and finally, Samsung display partner of the year.

Tim Mcgrath: Shifting to our vertical market performance financial services net sales increased 32% and gross profit 31 per se year over year.

Tim Mcgrath: Our healthcare team grew net sales by 13% and gross profit 10% year over year.

Tim Mcgrath: As we look across the evolving technology landscape, we are seeing strong momentum in the AI PC space entire application layers are being built around AI capable Pcs, creating tailwind for refresh cycles across enterprise and commercial markets.

Tim Mcgrath: This transformation is driving to consistent themes.

Timothy McGrath: AI trust and AI return on investment. They are now at the forefront in decision-making for every AI deployment. Trust in AI systems around security and compliance is a gating factor. Similarly, the ability to measure and defend return on investment is shaping AI adoption curves. Both areas are core focus points for our Connection Helix organization, and we're investing in building frameworks, playbooks, and advisory capabilities to lead these conversations.

Tim Mcgrath: I Trust and AI return on investment.

Tim Mcgrath: They are now at the forefront in decision, making for every AI deployment trusted AI systems around security and compliance is a gating factor.

Tim Mcgrath: Similarly, the ability to measure and defend our return on investment is shaping AI adoption curve.

Tim Mcgrath: Both areas are core focus points for our connection helix organization and we're investing in building frameworks Playbooks and advisory capabilities to lead these conversations.

Timothy McGrath: Looking to the future, there's much speculation about near-term economic conditions. We remain confident in our ability to outperform the market and take market share. We're encouraged by several emerging trends that reinforce our positive outlook, including continued momentum around device refresh, compelling business cases for data center modernization. customer initiatives to implement AI technology to drive return on investment. Momentum and Edge Computing and AIPCs as data becomes increasingly distributed. Our pipeline of opportunities continues to grow. Finally, our backlog at the end of Q1 was at its highest level in nearly two years. We anticipate that 2025 will outperform the results we saw in 2024.

Tim Mcgrath: Looking to the future there is much speculation about near term economic conditions, we remain confident in our ability to outperform the market and take market share.

Tim Mcgrath: Encouraged by several emerging trends that reinforce our positive outlook, including continued momentum around device refresh compelling business cases for data center modernization.

Tim Mcgrath: Customer initiatives to implement AI technology to drive return on investment.

Tim Mcgrath: Momentum in edge computing, and AI Pcs as data becomes increasingly distributed our pipeline of opportunities continues to grow finally, our backlog at the end of Q1 was at its highest level in nearly two years.

Tim Mcgrath: We anticipate that 2025 will outperform the results we saw in 2024.

Timothy McGrath: Because of its confidence in our business, we continue to invest in key projects and programs to enhance our sales, services, delivery and systems. At the same time, we took additional steps this quarter to reduce costs, allowing us to allocate more resources toward driving long term growth and strengthening the foundation of our business. We are optimistic about the prospects for the balance of the year and believe that we can outperform the US IT market growth by 200 basis points. We believe our focus and business strategy remains well aligned with the shifting dynamics of how customers deploy, utilize, and consume technology.

Tim Mcgrath: Because of this confidence in our business, we continue to invest in key projects and programs to enhance our sales services delivery and systems at the same time, we took additional steps this quarter to reduce costs, allowing us to allocate more resources towards driving long term growth.

Tim Mcgrath: And strengthening the foundation of our business.

Tim Mcgrath: We are optimistic about the prospects for the balance of the year and believe that we can outperform the U S. It market growth by 200 basis points.

Tim Mcgrath: We believe our focused business strategy remains well aligned with the shifting dynamics of how customers deploy utilized and consumed technology.

Timothy McGrath: We continue to connect our customers with technology that enhances growth, elevates productivity and empowers innovation. We help our customers expertly navigate through a complex set of choices within the technology landscape. We help calm the confusion of IT for our customers. We know that in this complex world of technology, change happens and expertise wins.

Tim Mcgrath: We continue to connect our customers with technology that enhances growth elevates productivity and empowers innovation, we help our customer to expertly navigated through a complex set of choices within the technology landscape, we help calm the confusion for our customers.

Tim Mcgrath: In this complex world of technology change happens and expertise waves.

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 effort during this rapidly changing environment. We will now entertain your questions.

Tim Mcgrath: On that note I'd like to take a moment to thank our extremely dedicated and our valued employees for their continued and extraordinary effort. During this rapidly changing environment.

Tim Mcgrath: We will now entertain your questions.

Operator: Operator. Thank you. 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. Please stand by while we compile the Q&A room.

Operator.

Tim Mcgrath: 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, please standby, while we compile the Q&A roster.

Tim Mcgrath: Okay.

Adam Tindle: And our first question comes from Adam Tindle of Raymond James. Your line is open. Okay, thanks. Good afternoon.

Adam Tindle: And our first question comes from Adam Tindle of Raymond James Your line is open.

Timothy McGrath: Tim, I want to start in your opening comments, how you talked about how some customers in the quarter were accelerating purchases, some customers were delaying purchases, so kind of like two different camps. Is there more of a pattern to the type of customer or vertical that was accelerating versus maybe holding off? And similar question on product category, you know, any particular product category that's, you know, sort of being sweated on in terms of sweating assets versus maybe accelerating? So thanks, Adam. I'll start with kind of the customer perspective. And it really has been a mixed bag.

Adam Tindle: Okay. Thanks, Good afternoon, Jim I wanted to start in your opening commentary you talked about how some customers in the quarter were accelerating purchases. Some customers are delaying purchases. So I think two different camps is there more of a pattern to the type of customer or vertical that was accelerating versus <unk>.

Adam Tindle: May be holding off and similar question on product category, any particular product category, that's sort of being so.

Adam Tindle: In terms of sweating assets versus maybe accelerating purchases.

Adam Tindle: Thanks, Adam.

Adam Tindle: I'll start with kind of a customer perspective, and it really has been a mixed bag.

Timothy McGrath: You know, we're talking with many customers who are very concerned with cost containment, expense reduction, and doing everything they can do to prepare for this economic backdrop and for the tariff waves that are certainly affecting their future outlook. So, a lot of concern around expense optimization and productivity gains. There are other customers who are realizing that many of these projects, some enabled by AI, are driving productivity and that technology is the right path forward. So, it really is a mixed bag, and as you know, it continues to be an evolving situation as the threat of tariffs kind of moves up and down.

Adam Tindle: We're talking with many customers who are very concerned with cost containment expense reduction and doing everything they can do to prepare for this economic backdrop is sort of a tariff waves.

Adam Tindle: That are certainly affecting their future outlook. So a lot of concern around expense optimization and productivity gains there are other customers who are realizing that many of these projects.

Adam Tindle: By AI are driving productivity and technology is the right path forward. So it really is a mixed bag.

Adam Tindle: And as you know it continues to be an evolving situation as the.

Adam Tindle: The threat of tariffs kind of moves up and down.

Timothy McGrath: That said, we did see really good growth in the quarter in a couple of our vertical markets. To begin with, we consider federal part of our GovConnection subsidiary, but that said, federal was very strong. That is large project driven. We also had good growth in finance and healthcare vertical markets. And again, that's based on business-driven projects that were kind of in the queue. Our BSG and small mid-market teams have been very consistent, but their forecasted growth is a little lower than what we're expecting in large enterprise just based on our enterprise funnel. But we do need customers to have a clear view of the future, and obviously, if they're concerned about their customer end markets and their share price, it does affect their spending.

Adam Tindle: That said, we did see really good growth in the quarter a couple of our vertical markets to begin with we consider federal part of our Dove connection subsidiary, but that said federal was very strong that is large project driven we also had good growth in finance and healthcare vertical market.

Adam Tindle: And again, that's based on business driven projects that were kind of in the queue.

Adam Tindle: Our BSG.

Adam Tindle: Small and mid market teams have been very consistent but theyre forecasted growth.

Adam Tindle: Is a little lower than what we're expecting a large enterprise just based on our enterprise funnel.

Adam Tindle: But we do need customers to have a clear view of the future and obviously if they are concerned about their customer end markets and their share price it does affect their spending.

Timothy McGrath: got it. Okay. And then as we kind of left that endpoint, sorry, Adam. And, you know, we are seeing now, we had about 21% growth in our endpoint business. About 40% of that was AI enabled customers, we think are placing those orders for investment protection, but also to prepare for their AI projects and projects at the edge. That's helpful.

Got it Okay, and then as I kind of look.

Adam Tindle: I left out endpoint sorry, Adam.

Adam Tindle: We are seeing now we had about 21% growth in our endpoint business about 40% of that was AI enabled customers. We think of placing those orders for investment protection, but also to prepare for their AI projects and projects at the edge.

Timothy McGrath: And as we look forward, your comment there at the end, talking about how backlogs at the highest level in nearly two years is very encouraging. I guess, you know, would you maybe try to put a little bit finer point on expected growth for the year? I know IT market plus 200 basis points. But I mean, here we are in Q1 with gross profit dollar growth in the high single digit range. I'm just wondering, as you think on a forward basis, you know, what a reasonable gross profit dollar growth might be given that backlog. And Tom, you know, I imagine you might weigh in on that.

Adam Tindle: That's helpful.

Adam Tindle: And as we look forward your commentary at the end talking about backlog to the highest level in nearly two years is very encouraging.

Adam Tindle: Yes.

Adam Tindle: Would you maybe try to put a little bit finer point on expected growth for the year I know it market plus 200 basis points, but I mean here. We are in Q1 with gross profit dollar growth in the high single digit range I'm just wondering as you think on a forward basis.

Adam Tindle: A reasonable gross profit dollar growth might be given that backlog and Tom I imagine you might weigh in on that if you could also maybe just double click on.

Thomas Baker: If you could also maybe just double click on OPEX in general. Obviously, we saw, you know, the leverage come through with the SDNA initiatives. Is that fully reflected? Is there more in the future? How can we think about OPEX growth for the year as well? So I think Adam, in terms of overall growth, I think we're probably looking at may be mid-high single digits on the air. You know, we came out of the chute at 10%. You know, looking here in April, I'd say I think there's still a little bit of uneasiness in the market.

Adam Tindle: Opex in general obviously, we saw the leverage come through.

Adam Tindle: SG&A initiatives is that fully reflected as they're more in the future. How can we think about opex growth for the year as well. Thanks.

Adam Tindle: Yes, so I think Adam in terms of overall growth I think we're probably looking at.

Adam Tindle: Maybe mid to high single digits on the year, we came out of the assured of 10%.

Adam Tindle: Looking here in April I would say I think there is still a little bit of unusual noise in the market.

Thomas Baker: We're still in the early innings of Q2, but I think mid to high single digits is probably about where we're going to be on the top line. In terms of SG&A growth, in the quarter, in Q3, none of the cost savings were really realized in Q1. Those will start to come through in Q2. And like I said in my remarks, they're kind of split evenly between G&A and Cost of Goods Sold. And I think, you know, as we go through the quarter, we're probably looking at I'd say mid-ish single-digit growth in SG&A year-over-year. So we're definitely, absolutely trying to keep it below the revenue.

We're still in the early innings of Q2.

Adam Tindle: I think.

Adam Tindle: Mid to high single digits is probably about where we're going to be on the top line.

Adam Tindle: And in terms of SG&A growth.

Adam Tindle: In the quarter in Q3.

Adam Tindle: None of the cost savings were really realized in Q1 I mean.

Adam Tindle: Those will start to come through in Q2, and like I said in my remarks. It was it kind of split evenly between G&A and cost of goods sold.

Adam Tindle: And I think as we go through the quarter, we're probably looking at.

Adam Tindle: I would say.

Adam Tindle: Mid mid ish single digit growth in SG&A year over year. So we're definitely absolutely plan to keep it below the revenue growth.

Timothy McGrath: Thank you, Adam. You did ask about the markets and I clearly say that our large enterprise business has a pretty robust funnel of projects to roll out. Of course, we need customers to agree to move forward on those projects, but our funnel and our forecast is solid, with the caveat being the economic backdrop. Very understandable. Thanks, guys. Thank you.

Speaker Change: Thank you Ed.

Speaker Change: But the market's clearly say that our large enterprise business.

It's a pretty robust funnel of projects to rollout of course, we need customers.

Speaker Change: To agree to move forward on those projects, but our funnel and our forecast is solid.

Speaker Change: With the caveat being the economic backdrop.

Mary: Mary understandable thanks, guys.

Speaker Change: Thank you.

Mary: Thank you.

Mary: Okay.

Anthony Lebiedzinski: Our next question comes from Anthony Lebiedzinski of Sidoti. Your line is open. Good afternoon and thank you for taking the questions, you know, certainly nice to see the better than expected Q1 results.

Speaker Change: Our next question comes from Anthony <unk> of Sidoti Your line is open.

Anthony <unk>: Good afternoon, and thank you for taking my questions certainly nice to see the better than expected Q1 results.

Timothy McGrath: So just curious to get first of all, you know your take on how the quarter progressed I mean, it sounds like there was some pre-tariff buying but maybe just kind of maybe walk us through As far as you know, January through March how the quarter progressed Yeah, so I'll tell you, January and February were a little bit on the light side and... March certainly came through better. and I would. So we're more heavily weighted to March than last year, but it really hasn't gotten back to the 22, 23 range yet. So I think we were like.

Speaker Change: So just curious to get your first of all.

How the quarter progressed I mean, it sounds like there was some pre tariff buying but maybe just kind of maybe walk us through January.

January through March how the quarter progressed.

Speaker Change: Yes, So let me tell you.

Speaker Change: January and February were a little bit on the light side and.

Speaker Change: March certainly came through better.

Speaker Change: And I would say so.

Speaker Change: So it was more heavily weighted to march than last year, but it really hasn't gotten back to the 'twenty two 'twenty three range yet so.

Speaker Change: We were like.

Timothy McGrath: 34% of our revenues came through in March of this year. So it definitely improved through the quarter. I think people were getting more and more. are comfortable with the economic situation. I think they cut some POs loose and I also think there was definitely some buying ahead of expected tariffs. We bought inventory ourselves to get some price down.

Speaker Change: 34% of our revenues came through in March this year. So it's definitely improved through the quarter and I think.

Speaker Change: I think people are getting more and more.

Speaker Change: Im.

Speaker Change: Comfortable with the economic situation.

Speaker Change: So I think the cuts appeals loose and I also think there was definitely some buying ahead of expected tariffs and.

Speaker Change: I mean, we bought we bought inventory ourselves to give some price protection.

Timothy McGrath: I'm just curious what you've seen so far in Q2, obviously there's been a lot of noise with the tariffs. Macroeconomic Concerns. Any kind of early read on Q2 that you can share? Certainly would love to hear what you guys are seeing in the marketplace since the quarter ended.

Speaker Change: Understood Okay. So.

Speaker Change: Just curious what you've seen so far in Q2.

Speaker Change: There's been a lot of noise with the tariffs.

Speaker Change: Macroeconomic concerns any.

Speaker Change: Can you kind of early read on Q2 that you can share.

Speaker Change: We would love to hear what you guys are seeing in the marketplace since the quarter ended.

Timothy McGrath: Well, thanks Anthony. When we think about Q2, there's no denying that the tariffs are weighing heavy on our customer base. And also, when we talk to our suppliers, while they're interested in moving workloads to avoid tariffs, they really can't do it quickly with any certainty or any confidence. And so, again, you know, we believe that we have a short window to help our customers navigate through this, as we had the 90-day reprieve a couple of weeks ago. So, we're working with customers toward that end, but generally speaking, again, they're worried about their end markets, their customer base.

Speaker Change: Well, thanks, Anthony so.

Speaker Change: When we think about Q2, there is no denying that the tariffs are weighing heavy on our customer base.

Speaker Change: And also when we talk to our suppliers, while they're interested in moving workloads to avoid tariffs they really can't do it quickly with any certainty or any confidence in.

Speaker Change: So.

Speaker Change: Again.

Speaker Change: We believe that we have a short window to help our customers navigate through this as we had the 90 day reprieve a couple of weeks ago. So we're working with customers toward that end, but generally speaking.

Speaker Change: They're worried about their end markets their customer base, yes.

Timothy McGrath: Their share price in this economic backdrop, so there is a lot of concern. And we have to move through this together. The projects that are mission critical will drive productivity and efficiency and cost savings. For example, server consolidation. Well, those really make sense. Other projects we know will be scrutinized.

Speaker Change: Their share price in this economic backdrop. So there is a lot of concern and we have to move through this together the projects that are mission critical will drive productivity and efficiencies in cost savings for example, a server consolidation, although it's really makes sense to other projects.

Speaker Change: We know it will be scrutinized.

Speaker Change: Understood. Okay got you, Okay, and then I know you guys have talked about.

Timothy McGrath: I know you guys have talked about looking at acquisitions for a while, given what's going on in the marketplace, are you backing off of that or are you still looking to possibly do some deals? Yeah, so Anthony, as I continue to say, our powder is dry, we are looking, you know, clearly, the interest rate environment has affected some of the opportunities that we're looking at from their perspective. But we are ready to go. We continue to search.

Speaker Change: Looking at acquisitions for a while.

Speaker Change: So given what's going on in the marketplace are you kind of backing off of that or are you still looking to possibly do some deals.

Anthony <unk>: Yes, so Anthony.

Continue to say our powder is dry we are looking.

Anthony <unk>: Clearly the interest rate environment has affected some of the opportunities that we're looking at from their perspective, but we are ready to go we continue to search and to be clear that would be a tuck in acquisition.

Timothy McGrath: And to be clear, that would be a tuck in acquisitions that expand our solutions capability, or bring us into new markets.

Anthony <unk>: Expand our solutions capability.

Operator: For more information visit www.FEMA.gov Well, thank you very much and best of luck.

Anthony <unk>: Or bring us into new markets.

Anthony <unk>: Well, thank you very much and best of luck.

Operator: Thank you. Thanks. Thank you.

Anthony <unk>: Thank you thanks Anthony.

Operator: This concludes our question and answer session.

Speaker Change: Thank you. This concludes our question and answer session I would like to turn it back to Tim Mcgrath for closing remarks.

Timothy McGrath: I'd like to turn it back to Tim McGrath for closing remarks. Thanks, TD. 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. I'd also like to thank those of you listening to our call this afternoon. Your time and interest in connection are appreciated.

Speaker Change: Thanks, Steve I'd like to thank all of our customers vendor partners and shareholders for their continued support and once again, our coworkers for their efforts and extraordinary dedication.

Speaker Change: Also like to thank those of you listening to our call. This afternoon your time and interest in connection are appreciated have a great evening.

Timothy McGrath: Have a great evening.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Operator: Thanks for watching!

Speaker Change: Okay.

Speaker Change: [music].