PC Connection, Inc.

Good afternoon, and welcome to the first quarter of 2024 Connection Earnings Conference Call. My name is Marvin, and I'll be the coordinator for today. At this time, I'll participate 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 of connection and may not be recorded or re-podcast 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.

Thanks, 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 Security 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 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. 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 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. A reconciliation between any non-GAAP financial measures discussed and its most directly comparable GAAP measure is available in today's earning release and on the company's website at www.connection.com. Please note that unless otherwise stated, all references to first quarter 2024 comparisons are being made against the first quarter 2023. 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.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 Connections Q1 2024 conference call. I'll begin this afternoon with an overview of our first quarter results and highlights of our performance. Tom will then walk us through a more detailed look at our Q1 financials. Clearly, it was a challenging quarter on the top line as the softness we saw last year in endpoint devices continued into the first quarter. There were some encouraging signs in the quarter, and we were successful in adding net new commercial accounts while we continued to help our customers evaluate and prepare for their AI implementation strategy. However, those actions did not produce enough revenue to offset lower device sales. The silver lining is that we believe we are well positioned to help our loyal customers meet the demands of the coming technological revolution and to help them drive deeper adoption of cloud and other advanced technologies. Toward that end, our backlog grew by high single digits sequentially. In addition, many of our partners believe that we are experiencing the calm before the AI storm. They continue to predict year-over-year growth driven by the AI ecosystem. Consequently, we expect the second half of the year to be stronger than the first half of the year. Our business is evolving and our product mix continues to be dynamic. As we've said before, we believe that gross profit is a more appropriate measurement of our performance. To illustrate this point, I'd like to highlight that while our reported software and cloud revenue declined, our actual gross profit for software and cloud increased 18% from the prior year, which significantly contributed to the gross margin expansion in the quarter. Customers are reprioritizing their capital budgets to prepare for AI initiatives, and we are ready to lead them through that transformation. Now let's discuss our Q1 performance. Consolidated net sales were 632 million, 13.1% below last year. Gross profit decreased 3.5% to 118.1 million. However, gross margins were up 187 basis points to 18.7% in Q1 compared to the prior year quarter. As previously mentioned, customer demand for software, which includes cloud and software-as-a-service solutions, helped to fuel the improvement in our gross margins. Operating income in Q1 was $13.5 million, a decrease of 25.7% compared to Q1 2023. Operating income as a percentage of net sales was 2.1% compared to 2.5% of net sales in the prior year quarter. Net income in Q1 was $13.2 million, a decrease of 7.4% compared to $14.2 million in the prior year quarter. In Q1 2023, our diluted earnings per share was $0.50, a decrease of 7.7% from $0.54 in Q1 2023. We will now look a little deeper into our segment performance. In our business solution segment, our Q1 net sales were 255.9 million, 6.3% lower than a year ago. The decline in revenue was across most product categories and is a function of our customers exercising caution in their spending, as we noted earlier. Gross profit for the business solution segment was 60.6 million, an increase of 0.8% from a year ago. Gross margin... increased 165 basis points to a record 23.6 percent in the quarter compared to the prior year in our public sector solutions business q1 net sales were 93.5 million 33.4 percent lower than a year ago sales to state and local government and educational institutions decreased by 7.5 million, while sales to the federal government were lower by 39.5 million compared to the prior year quarter. This quarterly performance can be explained by the fact that in Q1 2023, our results included two large projects with existing customers that accounted for the majority of the decline in revenue in the first quarter of 2024. Gross profit for the public sector segment was $15 million, a decrease of 26.3% compared to Q1-23. Gross margin increased by 156 basis points to 16% in the quarter compared to the prior year. In our enterprise solution segment, Q1 net sales were $282.7 million, 10% lower than a year ago. Gross profit for the enterprise segment was $42.7 million, 1.6% higher than the prior year quarter. Gross margin increased by 172 basis points to 15.1% in the quarter compared to the prior year. 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?