PC Connection, Inc.

Good afternoon, and welcome to the fourth quarter 2023 Connections Earnings Conference Call. My name is Justin, 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 call is the property of Connection and may not be recorded or rebroadcast without specific permission from the company. On the call today are Tim McGrath, President and Chief Executive Officer, and Tom Baker, Senior Vice President and Chief Financial Officer. I'll now turn the call over to the company.

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, 2022, 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 views 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, and therefore, you should not rely on these forward-looking statements as representing management's views as of any date subsequent to today. During this call, non-GAAP financial measures will be discussed. 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 2023 comparisons are being made against the year ended December 31st, 2022 and the fourth quarter thereof. Today's call is being webcast and will be available on Connections 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.ir.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 Connection's Q4 2023 conference call. I'll begin this afternoon with an overview of our fourth quarter results and highlights of our performance. Tom will then walk us through a more detailed look at our Q4 financials. In 2023, we achieved several milestones in spite of the macroeconomic backdrop. We prioritized and then executed on a number of strategic initiatives to grow our solution categories within advanced technologies and to shore up our AI readiness. In fact, our advanced technology sales, which includes sales of software, servers, storage, netcom, and services grew by 15 percent in 2023. Furthermore, the sales of advanced technologies drove an increase in gross margins of 111 basis points to a record 18 percent. The improvement in sales of advanced technologies is the result of continued investment in technical resources, a journey that started over two years ago and will continue for the foreseeable future. In addition to our sales performance, we continued to improve operationally, and as a result, we generated over $197 million of cash flow from operating activities. Now looking specifically at Q4, sales of advanced technology products were up 21%, but that growth was more than offset by the decline of 15% in the sale of endpoint devices, which includes notebooks, desktops, displays, and accessories. From a linearity perspective, Q4 was different from historical trends. Generally, December tends to be the strongest month of the quarter for us from a sales perspective. This Q4 was just the opposite. October and November were stronger than last year, but December was significantly softer than last year, as we experienced very little budget flush and customers pushed out their buying decisions. We continue to believe that gross profit is a better measurement of our performance, and we grew gross profit in the quarter. Now let's discuss our Q4 performance in a little more detail. Consolidated net sales were 696.5 million, 4.9% below last year. Solid execution and strong growth in operating margins helped to minimize the impact of a softer top line. Gross profit increased 4.4% to 129.8 million, and gross margins were up 166 basis points to 18.6% in Q4 compared to Q4 2022. Customer demand for software, which includes cloud and SaaS solutions, helped to fuel the improvement in our gross margins. Operating income in Q4 was $27.9 million, an increase of 16.9% compared to Q4 2022. Operating income as a percentage of sales was 4% compared to 3.3% of net sales in the prior year quarter. Net income in Q4 was 23.8 million, an increase of 26.3 percent compared to 18.8 million in the prior year quarter. In Q4 2023, our diluted earnings per share was 90 cents, an increase of 26.3 percent from 71 cents in Q4 2022. Now we'll look a little deeper into our segment performance. In our business solution segment, our Q4 net sales were 272.4 million, 2.9% lower than a year ago. The decline in revenue was largely a result of the reduction in demand for endpoint devices. Gross profit for the business solution segment was 63.2 million, an increase of 5.2% from a year ago. Gross margin increased 180 basis points to 23.2% in the quarter compared to the prior year. This increase was in large part the result of our successful execution in growing the sales of integrated solutions and advanced technologies, contributed primarily by services and software that are recorded on a net basis. In our public sector solutions business, Q4 net sales were 100.6 million, 14.2% lower than a year ago. We experienced a decrease in sales of endpoint devices consistent with our industry, partially offset by an increase in sales of advanced technology solution categories, primarily driven by software and servers. Sales to state and local government and educational institutions were lower by 5.2% compared to last year. Sales to the federal government were lower by 33.3 percent compared to the prior year quarter. Gross profit for the public sector segment was 17 million, which was consistent with the prior year. Gross margin increased by 246 basis points to 16.9 percent in the quarter compared to the prior year. The increase in gross margin percentage was due to a higher mix of software and services. In our enterprise solution segment, Q4 net sales were 323.5 million, 3.3 percent lower than a year ago. The decline in revenue was primarily due to a decrease in endpoint device sales compared to the prior year. Gross profit for the enterprise segment was 49.6 million, 4.8 percent lower than the prior year quarter. Gross margin increased by 118 basis points to 15.3 percent due to growth of advanced technology solutions. I'll now turn the call over to Tom to discuss additional financial highlights. Tom?