Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong Q2 sales growth of 8.3%, indicating a market recovery.
- Gross profit increased by 2.9%, driven by improved margins in New Zealand.
- Successful integration and profitability improvement in New Zealand operations.
- Addition of major vendors like Adobe, NetApp, and Equinix, enhancing product portfolio.
- Positive outlook for AI opportunities and expected strong performance in H2 2024.
Negative Points
- EBITDA down by 2.4% due to increased costs, including employee expenses and bad debt provisions.
- Revenue recognition issues due to undelivered stock, impacting reported sales.
- Increased finance costs by $2.7 million, affecting profitability.
- Higher working capital investment of $18 million, driven by increased receivables and inventory.
- Soft Q1 performance with a decline in gross sales by 9.6%, impacting overall H1 results.
Q & A Highlights
Q: Firstly, on the revenue run rate into the second half, just noting some of the positive commentary in terms of sequential improvements through the second quarter. Are you hoping that the year-on-year growth that you delivered in the second quarter or 8% can be sustained or accelerated into the second half? What are your open orders telling you at the moment?
A: We are looking at delivering low single-digit growth in Q3, as it is our slowest quarter. However, Q4 is expected to deliver very good growth. Overall, we are aiming for 3% to 4% year-on-year growth for the second half.
Q: On the gross margin outlook, following up on your comments around the impact of chasing some of that enterprise software business had on your gross margin in the half. Where do you see the gross margin trending in the second half? Do you think you can head up closer to that 10% mark?
A: Not in Q3. We need to start seeing uplift in our SMB business. The high-margin SMB business is not quite there yet. We are focusing on Q4 to drive and stimulate the SMB market, which will help improve gross margins.
Q: In terms of the OpEx outlook, you added a number of heads in the first half. Can you provide some more color around the OpEx growth in the second half? And maybe a bit more color on that bad debt provision as well?
A: The increase in employee costs was due to new vendor onboarding and wage inflation. The additional bad debt provisioning was approximately $2 million. We are working towards collections, and there is a possibility that some of that provisioning could be reversed in the second half.
Q: Just on the working capital investment side, how should we be thinking about that into the second half? And how will that impact your net debt position?
A: We are seeing an increase in working capital due to inventory positions for education and retail seasons. We expect this to sell through by the next balance sheet reporting period in December. We have upsized our debt facility to cater to these requirements.
Q: Regarding the AI opportunity, what does the exclusivity agreement with Equinix mean for your business?
A: Equinix will be a key part of our AI strategy, providing facilities for data center space, power, and other infrastructure. We are working on bringing all AI ecosystem partners together to facilitate deals.
Q: On the operating costs, would you expect this new higher OpEx level to hold into the second half?
A: We are not looking to increase headcount specifically other than what's required around new investments. If we can get top-line growth, the percentage of OpEx to sales would improve.
Q: On the top line, can you roughly split the Q1 and Q2 growth rates for both software and hardware segments?
A: Software saw 25.5% growth in Q2 '24 versus Q2 '23, while hardware was flat with 0.1% growth. Q1 was very soft for software, but we nearly doubled our software business between Q1 and Q2.
Q: On the PBT margin heading into calendar '25 and '26, should we still think between that 3.2% to 3.5% range?
A: We expect to improve on that range, especially as we continue to work on improving our New Zealand gross margins and PBT contribution.
Q: On the dividend, your payout ratio is 100%, implying a $0.41 per share dividend. Can you reconcile this with market consensus?
A: Our approach is to have a conservative interim dividend for the first three quarters and allow for a true-up once the final results are determined for the final dividend.
Q: Regarding the PC refresh cycle into '25, is it possible that the refresh cycle might last longer than 2025?
A: Yes, the refresh cycle could extend into '26. AI PCs and the overall AI opportunity will continue to drive growth beyond the initial refresh cycle.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
