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Connection Makes Customer Inroads With Vertical-Focused Strategy

Connection's infusion of vertical expertise into its sales, product management, and marketing teams has yielded dividends across all of the company's customer segments.

Connection's infusion of vertical expertise into its sales, product management, and marketing teams has yielded dividends across all of the company's customer segments.

"We believe specialization matters, and we believe it's mission-critical in these vertical markets that our salesforce is trained in that space," Tim McGrath, Connection CEO, told Wall Street analysts Thursday. "And that combination has worked really well for us."

The Merrimack, N.H.-based company, No. 22 on the 2017 CRN Solution Provider 500, rode its retail, manufacturing and financial services domain knowledge to double-digit growth in the company's most recent quarter.

[RELATED: Connection Plans To Ride Healthcare, Financial Services Sectors For Accelerated Growth]

Retail led the way for Connection, McGrath said, with the solution provider enjoying 27 percent year-over-year sales growth in the vertical overall and 44 percent growth in selling retail solutions and services specifically to enterprise customers.

But healthcare remains an Achilles' heel due to uncertainty stemming from the Trump Administration's discussions around repealing or replacing the Affordable Care Act (ACA), McGrath said. As a result, McGrath said, many healthcare clients have held off on major expenditures until they figure out where the industry is going next.

"I don't expect that growth to come back significantly until we really figure out what's happening with the ACA and the next steps," McGrath said. "But other than a little pause in healthcare, we're pretty bullish."

Connection has enjoyed really good demand in the large enterprise space, McGrath said, thanks to the Windows 10 refresh, Intel's seventh-generation core processors, and more customer conversations around endpoint security.

"It is the large desktop projects driving that growth," McGrath said.

But competition remains stiff as cloud becomes an increasingly viable alternative for many of those workloads, McGrath said. That's particularly true in the federal space, where McGrath said large projects are typically subject to a competitive bid process.

Sales for the second quarter ended June 30 jumped to a record $749.8 million, up 10.9 percent from $676.2 million in the same quarter last year. That crushed Seeking Alpha's projection of $733.2 million.

Net income improved to $13.6 million, or 51 cents per share, up 9 percent from $12.5 million, or 47 cents per share, the year prior. On a non-GAAP basis, net income jumped to $14.2 million, or 53 cents per share, up 9.2 percent from $13 million, or 49 cents per share, last year. That beat Seeking Alpha's estimate of 50 cents per share.

Connection's large-account quarterly sales jumped to $302.1 million, up 12.1 percent from $269.5 million due to massive growth in network, communication and software sales. Small and mid-sized business revenue increased to $296.4 million, up 9.4 percent from $269.5 million thanks to strength across the software, mobility and desktop segments.

Public sector sales, meanwhile, soared to $151.3 million, up 11.5 percent from $135.7 million last year thanks to strength in the desktop segment. Quarterly sales to the federal government skyrocketed 44.7 percent on a year-over-year basis, while state, local and education (SLED) sales climbed 3.1 percent.

Connection's stock remained unchanged in after-hours trading at $26.82 per share. Earnings were announced after the market closed Thursday.

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