PC Connection, Inc.

Please continue to stand by. Your conference will begin momentarily. Once again, this is your conference operator. Please stand by. Your conference will begin momentarily. Thank you. Thank you. Thank you. Good afternoon and welcome to the first quarter 2021 connection earnings conference call. My name is Jackie and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. As a reminder, this conference call is the property of connection and may not be recorded or broadcasted 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 company.

Thanks and good afternoon, everyone. I will now read our Safe Harbor Statement. 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 factor section of the company's annual report on Form 10-K for the year ended December 31, 2020, 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. 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, even if estimates change, and therefore you should not rely on these forward-looking statements as representing views as of any date subsequent to today. During this call, gap and non-gap financial measures will be discussed. A reconciliation between the two 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 2021 comparisons are being made against the first quarter of 2020. 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 at www.connection.com. 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 2021 conference call. As you saw from the press release Q1 revenues were down 10 and a half percent year over year, however, the overall level of business activity and customer opportunities accelerated throughout the first quarter and into April. The economic recovery combined with the federal stimulus program is giving our customers both the confidence and the funding to invest in their businesses. In fact, our ending backlog for Q1 in both enterprise and business solutions segments grew over 20% from the end of last year, and our consolidated backlog grew over 15% from March to April, reflecting the increased demand. As business momentum continues, we remain optimistic that we'll show year-over-year improvements in Q2 and for the calendar year 2021. Our main headwind right now is the supply chain. Order to delivery time has stretched out longer than we've ever experienced, and we expect this condition to persist for at least the balance of the year. As you know, the supply chain dynamic is playing out in many industries, not just ours. Let me now turn to the Q1 numbers. First quarter revenue was $636.9 million, down 10.5% from 2020. Gross profit of $100.5 million was down 11.1%, and average daily sales decreased by 9.1%. If you recall, we experienced a record first quarter in 2020, mainly due to the work from home buying rush created by the pandemic. Gross margins of 15.8% were down 11 basis points from Q1 in 2020, primarily due to public sector representing a larger percentage of revenue in the quarter. Our public sector business runs at slightly lower margins than our other segments, particularly with the mix of mobility products we sold in the quarter. SG&A was in line with expectations. As an absolute number, it was lower than Q1 2020 because of a decrease in variable compensation and a reduction in bad debt expense. As a percentage of sales, SG&A was 13.6% in the first quarter compared with 13% in Q1 of 2020. We are managing expenses closely and expect improvement as the year progresses. Operating income in Q1 was $14.1 million, a decrease of 31.6% or 2.2% of net sales compared to $20.7 million or 2.9% of net sales in the prior year quarter. In Q1 2021, diluted earnings per share was $0.39, a decrease from $0.56 in Q1 2020. We ended Q1 with $92.3 million of cash and cash equivalents, We will now look a little deeper at segment performance. In our business solution segment, our Q1 net sales were 246.3 million, a decrease of 11.6%, compared to 278.8 million a year ago. While average daily sales decreased by 10.2% in the quarter, gross profit in the business solution segment was 47.4 million, a decrease of 9.8% from a year ago. Gross margin increased by 40 basis points to 19.2% in the quarter compared to 18.8% in the prior year as a result of changes in product mix. We're excited to say we're seeing a steady increase in the number of buying accounts in our business solution segment. As you know, the small business sector was among the hardest hit in 2020. In our public sector solutions business, Q1 net sales were 125.3 million, an increase of 25.7% compared to 99.6 million a year ago. Sales on an average daily basis grew 27.7% in the quarter. Sales to state and local government and educational institutions was 89 million, an increase of 13.2% compared to the prior year. K-12 customers were largely responsible for the increase in the sled business. Sales to the federal government were $36.3 million, an increase of 72.6% compared to the prior year. The increase in federal business was due to large project rollouts in the quarter. Gross profit for the public sector segment was $15.6 million, an increase of 8.6%. compared to Q120. Gross margin decreased by 197 basis points to 12.5%, as mobility solutions represented a larger portion of the product mix. We expect our margins to normalize in the months ahead. We anticipate our customer spend will continue to be strong in this sector. In our enterprise solution segment, Q1 net sales were $265.3 million, a 20.4% decrease compared to $333.4 million a year ago, or a 19.2% decrease on an average daily sales basis. Gross profit for the enterprise segment was $37.5 million, a decrease of 18.8% in the quarter. Gross margin for the quarter increased by 28 basis points to 14.1%. In Q1, the enterprise space experienced challenges with product availability with a number of our suppliers. As you know, enterprise customers predominantly order custom configurations that are currently experiencing longer lead times due to supply chain constraints. Consequently, our enterprise segment exited the quarter with a record backlog. I will now turn the call over to Tom to discuss additional financial highlights from our income statement balance sheet, and cash flow statement. Tom?