ScanSource (SCSC) 9 May 232023 Q3 Earnings call transcript

Welcome to the ScanSource Quarterly Earnings Conference Call. All lines have been placed in a listen-only mode until the question-and-answer session. Today's call is being recorded. If anyone has any objection, you may disconnect at this time.

I would now like to turn the call over to Mary Gentry, Senior Vice President, Treasurer and Investor Relations. begin. may you Ma'am,

thank joining and you morning, us. for Good

under today Baur, Jones, to our me President, Chief on and join Mike call the is our Eldh, Steve Joining us Chairman today. not are CEO; Officer. John weather the and Financial able our and

We our Investor Web comments our and for in the operating the take our and then accompanies will questions. infographic We that section review Relations site. of your posted results quarter an earnings webcast

the certain that earnings actual only of you and earnings subsequent June those to, Let but in this year the we our representing are SEC. such Any date. the represent remind me could release XX-K upon of These results risks in release, relied today statements materially forward-looking include, from filed the are subject our statements. infographic, put should ended call not Form cause press differ ScanSource's as uncertainties views that to on and These any with as identified limited as statements and factors to today views uncertainties statements in and in risks not forward-looking for statements. are be XX, as and XXXX, out our

ScanSource to except or changes any as disclaims in required forward-looking duty update reflect any expectations, to statements actual results by law.

our with infographics in results been provided reconciliations on have Form have and and between our found Web release. call, our non-GAAP can site in both will and X-K we the amounts and During today. our These filed be earnings GAAP discuss these reconciliations press

over call the turn now Mike. I'll to

delivered is ahead 'XX, joining for no of our us expectations, thanks team and fiscal Mary, QX Thanks, year today. exception. and everyone results has Throughout

and net sales we adjusted positive and delivered gross quarter, operating This cash flow. EBITDA strong growth, margins, X%

strategy products services working. of portfolio diversified Our is and

end demand world. Our channel meet offerings to this of trust broaden us digital technology in customers the their to customers increasingly

recurring of successful result a opportunity customers business. revenue more to in build sustainable we profitable stream addition, the give our channel and that In a will

the Since John update is not for him. able to provide join today, business performance I'll us

sales year-over-year. For positions. with X% increased net our were QX, to both customer and able profit demand strong inventory meet gross We

As most we be we products with normal the enabling us seeing to times levels. supply lead are return more for of enter levels QX, efficient inventory sell, our we to

In our Specialty and segment, security, sales enable QX the fueled barcoding, segment growth networking, that devices net and Technology gross sales and our Solutions X%. increased XX% increased productivity, QX profit had automation experience. by strong in customer We year-over-year,

included and data scanners physical printers, This barcode quarter's networking, and drivers security. growth

America successful was sales recently Year. with Aruba's in strategies. Our this expertise recognition named our engagement space North team This to team and execute growth Aruba Distributor demonstrates the of the specialized

on year-over-year, federal Cisco X% gross hardware shifts as our Strength double-digit offset had networking the to increased cloud. cybersecurity our Cloud led lower was by sales We Modern growth segment, business in X% profit networking, decreased business Moving to while growth sales QX Communications by volumes and net and in sales in year-over-year. fast-growing our in business. communications the

as with growth CCaaS. Contact as UC offerings, our for well-positioned Service, cloud and UCaaS, a are We Center including a Service,

As part XX%. billings business, billings CCaaS grew grew of XX%, and our our Intelisys UCaaS

business to communications to continues our communication business continues cloud grow, our While on-premise decline.

the to agency of sales, sales for be company. the XX% in space. a than consolidated of only represented X% continues net less total on-premise QX, For total the segment leader but Intelisys

year-over-year user $X.X QX X% and end X% billings billion net increased QX Our annualized. increased sales Intelisys exceed year-over-year. now

our technologies how portfolio diversified for this of success. driving hybrid quarter demonstrate our is results distribution strong Our

Now I'll call to through turn our will results. the who you over take Steve, financial

Mike. Thanks,

EBITDA that growth exceeded our sales net QX delivered team adjusted expectations. Our and

of all-time positive sales million. EBITDA We $XXX.X adjusted $XX.X $XX delivered QX million, million. net X% operating and EBITDA had we of cash adjusted trailing of QX, growth For and flow XX-month record

for Gross benefits in to from the quarters. year-over-year quarter price supplier with margin gross increases increased both similar million with XX.X% profits $XXX profit X%

generated transformed $XX.X X% QX of Our model recurring million, revenues business up year-over-year.

from For the our recurring business. trailing revenue XX-month profits now consolidated are approximately XX% period, of gross

Our for million quarter year-over-year. million SG&A or $XX.X increased $X.X of X% the expense

X.X% higher adjusted $X.XX and QX EBITDA X% Our a non-GAAP QX includes year. EBITDA the and $X.X of X.XX% year-over-year $XX.X of the million $X.X expense adjusted million -- EPS year-over-year million, represents growth margin. of prior in X.X% decreased interest significantly than

expense higher reflects interest both borrowings. higher and interest average rates higher Our

will quarter, approximately June quarter. million expense $X As the we believe we look fourth for be to the interest

million. down cash to the to to improvements operating returning brought quarter turning million QX XX and we the our receivable capital of in our reflect lead and days. increased and accounts to sheet $XX We working improve normal. efficiency Year-over-year balance continued June quarter-over-quarter increased flows, as flow $XX $XX cash achieved inventory times DSO positive Now we in million, QX, expect

From net debt QX XX-month remains EBITDA. we sheet a strong. at balance trailing Our adjusted leverage approximately X.Xx perspective, ended

approximately outstanding had we share an million quarter, repurchases with $XX March have and authorization approximately remaining. million in the $XX.X During

As in our a value. top drive allocation priority reminder, long-term investing opportunities to remains capital growth

XXXX and sales are of at least growth raising our be adjusted at X.X%. maintaining our full-year EBITDA least year-over-year outlook to Finally, for we $XXX million

addition, In of cash year, XX%. we for positive full flow rate an expect approximately and effective fiscal the operating tax

expense quarter. expect approximately to fiscal other year fourth full $XX million interest with expenses a our interest which we million help $XX and $X million for the expense, for To for approximately to analyst XXXX, be models, income net reflects

open for questions. We'll up now it

of our is [Operator question first Raymond Certainly. And Norrison coming James. Jake from Instructions]

is Your line open.

Perfect.

couple if conversely a helpful. delayed you from see from so, Are pulled get there color get linearity a be me, would could XQ? into anything Just did any pushed you quarters? of deals out, seeing just you quarter, couple talk XQ about Just in any the

I out. in, push is this haven't our not in really joining big -- say Hi, QX for Yes. that Thanks question. Thanks for on results, see Steve. and we anything that a did pull the in us would seen we QX today.

us. for normalized very is linearity the think I So,

demand anything We in changed seen haven't pattern. our

one Okay, then, for perfect. last And me.

X% Just what's will around have underpinning calling XQ down of you XXXX. high peers been your mix? So, or confidence Is function guys when declines a curious I'm there? for this backlog single-digit other in why only be think

Yes.

I where the quarter. we're think end weeks we're our in, to to the think X few we weeks. where in we're it's best giving going next look of we over I kind you at and are mean

Okay, perfect. Thank you.

And question line of our next will Greg from Sidoti. your Greg, Burns come open. is

a up of commentary morning. Good partners. follow of balance to larger just from bit did I for cautious some little wanted the of for the year. question that outlook on see the We your last

the the you're buying a So, give Anything I look just wanted be put caution in XX seeing market? you not seeing on hold? might to may to a sense sense of little of six getting cycles bit out what extending, next you that months? Are a we over decisions, get sales as of

guidance, Maybe in Greg, growth comment full-year our we're sales this QX cognizant that's be the is QX keeping the certainly actually in. Mike. it's suppliers think growth this announcing. would is our We're of in a what We environment from to implied macro if modest, at that look it's with are you QX. what

allowed certain QX believe we business, we're that of is to in a where is in for you markets especially moving. we're trying compete exceed growth our the believe today and be talked And was that we us saw portfolio our frankly, to, environment allows in about, Our as we've really results And the evidenced QX know, again, to balanced we've areas that are today, got our as we is cognizant that guidance us however, expectations. appropriate. and

businesses? us part give the the relative Okay. the of And business, could rates on then, you of versus communications in those the of modern the on-prem communications portions segment growth cloud

we Greg, in about double that we've side, talked years. that's total few business about of and segment XX% a And continuation been it's declining over still the seen growth, the Yes, as our on-prem on that it's past digits.

the de wouldn't consistent. now terms decelerating. driving say total revenue I in it's is that So, It's or for accelerating our amount of really And minimis it's company. of pretty

Okay, thank you.

And our Sheerin will Matt come next question Stifel. of from

Your line is open.

constraints start and fulfill orders? And backlog about related backlog double-digit good you to regarding that your questions. come how networking, and those backlog growth couple down getting as just are that Cisco, much strong with of to of very in One, start thanks Yes, had I -- the those is that morning. to customers comments VAR a and component growth filled? seeing your specifically,

Matt, it's example, very speak general, one. our don't to able time based be responding demand a to I'll at an customer good lead tend user has we In an on been end we example, tackle meet believe appropriately Mike. to And because the lot that Cisco as as needs. they about customers' specific backlog what needs.

saw meeting we couple really the able job, customer much after we're do better And that to of quarters last better job of a demand. so,

we of need. in quarter us the other too. space networking we Cisco. think benefited also did say we would I suppliers, we And Aruba, were to saw on call, able get supply and including that the an did the And Cisco contribute so, really we the is have as that's mentioned just who it networking the story overall, I for acceleration But

ScanSource, our VAR very think space customers, for strong. I customers, general, So, our in that felt we was for

expect you quarter? do And to that this continue into

tell and think our forecasting it's We that job the a doing team. for the customers end do. that's demand ongoing that us We great are for need one users our marketplace, an of is

to given to or and year-on-year, it And the constraints up of what a ease inventory you. just other you're expect metrics? of significantly going terms down. idea on component which give be you in working that Could us question Thank inventory, that Okay. is like still sounds the an days

the customer's talk the But we say, metrics. of we want a Steve the tackle and I deal. need. don't in We a one about thinking miss miss things sure just make -- to Well, Matt, on general, don't -- let I'll overall would

as have maintain reason. always, for we levels these, probably higher choice customers, and like we that we're first a that. inventory that And to to for leveraged a their so -- meet customer so, we that historically demand believe balance customer for our and want our distributor of we customers we've don't lose sheet products to also primary company, And our

balance purchases. historically know, be However, opportunistic as our having that, sheet in said you used also to inventory we of some have our

those as with our diminish as able levels. we opportunities to and meet strategically, demand we're that So, inventory inventory, will we see lower lower

it. Got

thank very you much. Okay,

You bet.

come our will of question Adam And James. from Instructions] Tindle next [Operator Raymond

Your line open. is

correctly, this very if heard to UCaaS business. in portion Okay. ask, the Thanks, and double-digit in good wanted morning. think of becoming growth just CCaaS, a strong that's those, obviously, and I Mike, bigger I growth I

curious very up the accustomed I past, strong the think commentary think double-digit including and been net we've just revenue, in maybe I if mentioned that so in that right, was on I I any in X% getting larger. to particular, know rates or got also And Intelisys, business, you growth that quarter. it's

and business the any So, puts net on that the rate of commentary that of level. maybe growth at takes revenue, the the piece and

Sure.

You bet.

versus that end strategy what it's other happening market billings I been What's sure always And this that a really and specific for we've on net a Intelisys. is is strategic The quarters margin quarter, talked of share user metric for decision grew that good the we don't we've us few is our X% that tracking, X% specifically And we're think at customer. maybe lose we're our tells indicator the a getting customers. that sales make made end this not losing about pressure. now we've to for

is, willing revenue also margin, does this way goal in since take the we're do a lower so, works. that. even result business our lower if And That we to

small to where because down As revenue the netted very the margin you XXX%. is is it's at know,

to think more leader always price I others believe does and compete meet we're that on player, market. and that and the reflect the the to price dominant we're see So, is we fact going competition the having in have the leader we're that it

terms a competitive through makes still of sense. Understood. That major there in obviously broadly maybe of got the players more larger integration. I you've dynamics, out guess one the going

that speak curious, but just that the that if maybe distribution environment, specifically, helpful. a seeing competitors you broadly result Intelisys you're be competitive would not to Just little can are as of distracted a opportunities bit

did we Well, to Year. but I'll that of guys the will competitors, not those about our all Distributor I as of beat Aruba the try talk comment

we before. was that by acquired of HP, were so, HP recall, And distributor really because as and proud we you were Aruba an not

distributors our And believe that that broad of with pleased team's so, we to frankly, some over line be where, was to wins compete even price knowledge with our performance I head-to-head the specialized really in in space. space able

with pleased I'm that. we're So, --

a I distributor. think most we and our they And they from what now of has the been whole that we're customers, networking need expect business the place. for the part understand competitive our winning fact suggests what historically right that

So, proud that. really I'm of

Okay. And last one for me, Steve.

Are that basically obviously I down year-over-year mentioned to but impact the think price that that's help in of increases. basis, pricing that's and a positively able reverse get was for on you itself at supplier from your quantify model the impacting I it's to think comments that action no some pin to ultimately expectations want forward? about that help don't and something us piece ourselves just going ahead going if point. to you

for thanks would would about say we which from one. I question. XX when say impact, a a is Adam, think on good I our it's to about Yes. it last similar what said we year, margin. the It's basis points margin that

We decline a shifts as suppliers. actions price are of major bit market seeing our some the on

this it we for will of as But we it in business, this So, that's have inventory is as think frame a our in out it's price I when remember roll out think that our sustainability, Adam, basis inventory, pushes would I action, for because way about have impact kind about think the XX that turns. about quarter. inventory point as quarters we we the

So, help when us Mike opportunistic there. talked that and buying about our does inventory some levels,

that's you very helpful. Yes, very Okay. much. Thank

Keith come from of Research. our question Northcoast Housum next And will

Your line is open.

risk there on in more we are pricing future? at [indiscernible] following that there, and action go assuming Intelisys the where at risk and the is being up the could Just decline or permanent the conversation price the business

Keith, I little it's and didn't that. pricing, a sorry, around quite me background. catch give I but know the more? Intelisys I'm the

you I'm here. going Yes, take off here -- yes, I'm iPhone my sorry. to

at the this that the years becoming as for margins quarter the coming of Intelisys, more what's that, competitive. more are several a for you are down of business? the more In price you we guess guys a mentioned like that risk going pricing forward move anticipation terms permanent is out? I hardware of for And type

hardware a about impact have Keith, as we we the is ScanSource what's revenue can margin for pressure, margin strong Well, unique our typically, our I business, is different had revenue. you pressure And know, that on this think Intelisys it in have still if growth.

just for And to we're rate that play line investors and which me, share, believe are trying we be a we really wrong these for we're at is the don't growth to because that suggesting send we're careful losing So, impression maintain margins we market lower that that willing too, required even with rates this for the all and strong, the an profitable operating limited income is of a the EBITDA extremely line. at capital business our it's know, business strategic of growth remember, on working long-term this X%. don't

maintain might going that to we're we share but believe is we continue, So, comfortable that this need on. while market

about quarter. is And Got I commentary the than inventory, accounts just accounts beautiful guys you capital; you working in your quite business your excess it. you receivable capital Is do how the to more want have to make you to it debt Appreciate guys bit brought and take your perhaps payable, thoughts that. more there the what can the share you repurchases? see guys down then you more the going Steve, in also with And going appreciate capital. Are you that much inventory guys when a guys sure cash decline flow? can guys decline you business can or throw but of part guys working working toward on the

chain supply this cycle. while to our take And see quarter particularly great next the question in Well, a few it's it's levels the capital. working the capital, improve, next and as quarters; the to we to through yes, our adjust really able be whole move the on working going a for Keith, we'll inventory

cash the working with that we we would the the our If sheet repurchases. just our back that is the leverage would share terms the term in of goes would if decline, it balance In of and a that additional throw at would it and we what go growth excess it X of -- or strong, we're again, to off opportunity would of don't do our that back generate capital cash lower have -- ratio pour our priorities. we end into,

Steve for like I the would to remarks. closing back call to now turn

us and for you, today. you thank Thank joining

We XX:XX hold fiscal Tuesday, a.m. August and conference to expect our XX on to discuss June next year at results full call quarterly XX

today's conference participating. And call. you concludes this Thank for

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