PC Connection Q4 2024 Earnings Report

Sandvik AB (publ) EPS Results

• Actual EPS: $0.78
• Consensus EPS: $0.90
• Beat/Miss: Missed by -$0.12
• One Year Ago EPS: $0.90

Sandvik AB (publ) Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $716.23 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Sandvik AB (publ) Announcement Details

• Quarter: Q4 2024
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 5, 2025
• Conference Call Time: 4:30PM ET

Sandvik AB (publ) (OTCMKTS:SDVKY), an engineering company, provides products and solutions for mining and rock excavation, metal cutting, and materials technology worldwide. The company offers mining and rock excavation equipment, including drill rigs and bolters, underground loaders and trucks, mechanical cutting equipment, rock tools and rock drills, and mining automation; rock processing equipment, such as crushers, screens, hydraulic breakers, demolition tools, and breaker booms. It also provides metal-cutting tools and tooling systems, and digital solutions and software; metal powder for additive manufacturing, and components made from controlled expansion alloys; and tungsten powders, as well as recycling services of secondary tungsten raw materials. The company serves aerospace, automotive, energy, general engineering, infrastructure, and mining industries. Sandvik AB (publ) was founded in 1862 and is headquartered in Stockholm, Sweden.

Sandvik AB (publ) Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, and welcome to the Fourth Quarter twenty twenty four 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 call is the property of Konnection and may not be recorded for rebroadcast without specific permission from the company.

[Operator]

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.

[Samantha Smith, Account Manager at PC Connection]

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 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 Factors section of the company's annual report on Form 10 K for the year ended 12/31/2023, 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.

[Samantha Smith, Account Manager at PC Connection]

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 measure discussed and this most directly comparable GAAP measure is available in today's earnings release and on the company's website at www.connection.com.

[Samantha Smith, Account Manager at PC Connection]

Please note that unless otherwise stated, all references to full year and fourth quarter twenty twenty four comparisons are being made against the year ended 12/31/2023 and the fourth quarter thereof. 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.connections.com. I would now like to turn the call over to our host, Tim McGrath, President and CEO. Tim?

[Timothy McGrath, President & CEO at PC Connection]

Thank you, Samantha. Good afternoon, everyone, and thank you for joining us today for Connection's Q4 twenty twenty four 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 financials. For the full year, revenue was $2,800,000,000 a decrease of 1.7 compared to the prior year, while gross profit was $519,800,000 an increase of 1.6%.

[Timothy McGrath, President & CEO at PC Connection]

Gross margin was a record 18.6% growing 60 basis points. Our SG and A was 422,300,000 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. Net income was $87,100,000 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.

[Timothy McGrath, President & CEO at PC Connection]

Now let's discuss our Q4 performance. Consolidated net sales were $708,900,000 an increase of 1.8% compared to the last year. Gross profit was flat at $129,800,000 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 $22,600,000 a decrease of 19% compared to Q4 twenty twenty three. Operating income as a percent of sales was 3.2% compared to 4% in net sales in the prior year quarter.

[Timothy McGrath, President & CEO at PC Connection]

Net income in Q4 was $20,700,000 a decrease of 12.9% compared to $23,800,000 in the prior year quarter. In Q4 twenty twenty four, our diluted earnings per share was $0.78 a decrease of 12.8 percent from $0.9 in Q4 twenty twenty three. Last quarter during our conference call, we noted that the recovery in IT spending was taking longer than we anticipated. This trend continued 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.

[Timothy McGrath, President & CEO at PC Connection]

We experienced 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 deployment and data center refresh. 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. We'll now look a little deeper into our segment performance. In our Business Solutions segment, our Q4 net sales were $262,400,000 3 point 7 percent 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.

[Timothy McGrath, President & CEO at PC Connection]

Gross profit for the Business Solutions segment was $62,600,000 a decrease of 0.8%. Gross margin increased 70 basis points compared to the prior year quarter to 23.9%. 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. In our Public Sector Solutions business, Q4 net sales were $143,700,000 40 2 point 9 percent higher than a year ago. Sales to the federal government increased by 41,100,000 while sales to state and local government and educational institutions increased by $2,000,000 Gross profit for the Public Sector segment was $22,200,000 an increase of 30.2% compared to Q4 twenty twenty three.

[Timothy McGrath, President & CEO at PC Connection]

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 twenty twenty four that were at lower than average margins. In our Enterprise Solutions segment, Q4 net sales were $302,700,000 6 point 4 percent 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 $45,000,000 9 point 3 percent lower than the prior year quarter. Gross margin decreased by 50 basis points to 14.9% for the quarter.

[Timothy McGrath, President & CEO at PC Connection]

The margin decrease was a result of lower software license fees and product mix. 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?

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

Thanks, Tim. In the fourth quarter, SG and A increased by 5.2% over the prior year. The increase in SG and A was primarily due to investments in resources to strengthen our sales, technical sales and services capabilities. On a percentage of sales basis, SG and 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 $4,800,000 compared to $4,100,000 last year, an increase of $660,000 and our effective tax rate was 24.1% down from 25.8%.

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

Net income for the quarter was 20,700,000 a decrease of 12.9% from $23,800,000 and diluted earnings per share was $0.78 a decrease of 12.8%. Our trailing twelve month adjusted earnings for interest income taxes, depreciation and amortization or adjusted EBITDA was $118,900,000 compared to $125,500,000

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

a year ago, a decrease of 5%.

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

In the fourth quarter, we paid a $0.1 per share quarterly dividend and we repurchased shares having a total cost of $4,900,000 at an average of $70.39 per share. At the end of the year, we had $59,700,000 remaining for stock repurchases under our existing stock repurchase program. Today, we announced that our Board of Directors have declared a 50% increase

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

in our quarterly dividend to

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

$0.15 per share. The dividend is payable to shareholders of record on February 25 and payable on 03/14/2025. Cash flow generated from operations from year ended 2024 was $173,900,000 Our accounts receivable balance increased $6,500,000 for the year ended 2024 and our DSO decreased to seventy two days from seventy three days for the same period a year ago. Cash from operations benefited from a reduction in inventory of $29,100,000 for the year. Our accounts payable balance increased $36,500,000 for the year ended 2024, largely due to timing of payments.

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

Cash used in investing activities of $115,300,000 was the result of $358,300,000 of investment purchases, offset by $250,600,000 of investment maturities. We used $25,200,000 of cash for financing activities during the year, primarily for the payment of $10,500,000 of dividends to shareholders and repurchases of $12,400,000 of stock. We ended Q4 with $442,600,000 of cash, cash equivalents and short term investments. When we're thinking about capital allocation, we remain committed to growing the business and have an ongoing program focused on investing in organic opportunities in organic growth programs that Tim will expand upon later. Furthermore, as announced above, we have increased our dividend by 50%.

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

We anticipate evaluating our dividend program regularly and target a payout in the range of 15% to 20% of net income. During 2024, we significantly increased our repurchases of stock and we anticipate continuing to do so in a disciplined manner. I will now turn

[Timothy McGrath, President & CEO at PC Connection]

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.

[Timothy McGrath, President & CEO at PC Connection]

We do believe that budgets will free up to support those initiatives throughout 2025. 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. 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 solution sales executives, pre- and post sales technical sales experts, engineering personnel, services personnel, additional resources focused on Helix AI initiatives.

[Timothy McGrath, President & CEO at PC Connection]

In 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 in 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 and A and are a key component of our ongoing transformation. There are other catalysts for growth in 2025.

[Timothy McGrath, President & CEO at PC Connection]

We expect customers to focus on refreshing their networks, data management and security. AI automation and hyper personalized marketing solutions will drive deployment at scale in 2025. AI remains a focus of investment as many of our customers assess their AI strategies. We continue to strengthen our AI capabilities through Connexion's Helix initiative. We're excited to report advancements in our connection Helix capabilities, which continue to mature and excel with the AI sector.

[Timothy McGrath, President & CEO at PC Connection]

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. 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 applications. This accolade serves not only as a recognition of Connexion'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.

[Timothy McGrath, President & CEO at PC Connection]

However, there are a number of macroeconomic events that could impact the timing of customer investments. These include recent developments with the AI landscape and the potential impact of tariffs. For 2025, we're confident we can outperform The U. S. IT market rate of growth by 200 basis points.

[Timothy McGrath, President & CEO at PC Connection]

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.

[Timothy McGrath, President & CEO at PC Connection]

We know that in this complex world of technology, change happens and expertise wins. 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. We'll now entertain your questions. Operator?

[Operator]

Thank you. Our first question comes from Anthony Levandowski with Sidoti. You may proceed.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

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? Again, just wanted to get a better sense as to how the quarter trended October through December. And so any early indication about how Q1 has started, that would be great.

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

Yes. So I think Anthony, October was probably a little bit better than we've had seen in the last three years. November was markedly worse in terms of a percentage of sales that we've seen in the last three years and December was about the same. We didn't really see any budget flush, but November was pretty low. And then in terms of what we're seeing going forward, I think for Q1 flat maybe up very low single digits on the top line is kind of what we're expecting and that's kind of how things are looking right now.

[Timothy McGrath, President & CEO at PC Connection]

Yes. Thanks, Anthony. 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 number of those projects will be significant for us in 2025.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

That's very helpful color. And just a 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, maybe just as far as talk about the opportunity that you see going forward as far which of your vertical markets do you think will have the most opportunity and maybe conversely, which ones are you less bullish on?

[Timothy McGrath, President & CEO at PC Connection]

Well, thanks. So let me start with our subsidiaries and 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. So we're very optimistic about that. Our SMB group, our business solutions team, also their funnels are building, but but probably at a lower rate.

[Timothy McGrath, President & CEO at PC Connection]

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 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. So those would be kind of the leaders of our vertical market segment.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

Thank you for that, Tim. And then I guess just to switch gears here as far as the SG and A. So it was up 4% in 2024 versus gross profit growth of 1.6%. 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?

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

Well, as we said throughout the call to Anthony, I think Tim in his remarks, we've invested a lot of money in people and 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. To answer your question directly, I think we'll probably see three ish, four ish percent SG and 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.

[Timothy McGrath, President & CEO at PC Connection]

Yes. 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 2025, that SG and A growth a lot will come from variable compensation.

[Timothy McGrath, President & CEO at PC Connection]

Yes.

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

And the other thing I would add on Q4 specifically, Anthony, because there was a bit of a miss there. We had a couple of, I would say, two or three one time items that probably cost us $2,500,000 3 million dollars that will not repeat and those were just kind of out of the blue.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

Okay. Well, thanks for clarifying that. That's definitely very helpful color. I guess 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?

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

Just curious to get your thoughts on that.

[Timothy McGrath, President & CEO at PC Connection]

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 accuracy in our predictions. The sort of the upside is, it's a great opportunity to reach out and touch all of our customers.

[Timothy McGrath, President & CEO at PC Connection]

It's a great opportunity to engage them and have meaningful conversations about planning for their contingencies. But generally speaking, the majority of our suppliers manufacture their desktops in Mexico. Generally speaking, 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.

[Timothy McGrath, President & CEO at PC Connection]

So many of our suppliers are moving quickly to stand up alternatives to some of the tariff countries. But that said, still not really clear. And it's not clear to our customers either, but we will work through this together.

[Thomas Baker, Senior VP, CFO & Treasurer at PC Connection]

Yes. And the only other thing I'd add to that, Anthony, we're going to work with customers to tailor programs to help optimize all of us through this. So I think a lot is going to evolve over the next three weeks or so.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

All right. Well, thank you very much and best of luck.

[Timothy McGrath, President & CEO at PC Connection]

Okay. Thanks, Andy.

[Operator]

Thank you. I would now like to turn the call back over to Tim McGrath for any closing remarks.

[Timothy McGrath, President & CEO at PC Connection]

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. I'd also like to thank all of you listening to the call this afternoon. Your time and interest in connection are appreciated.

[Timothy McGrath, President & CEO at PC Connection]

Have a great evening.

[Operator]

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Participants

Analysts

• Samantha Smith, Account Manager at PC Connection
• Timothy McGrath, President & CEO at PC Connection
• Thomas Baker, Senior VP, CFO & Treasurer at PC Connection
• Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC