ScanSource (SCSC) 27 Aug 242024 Q4 Earnings call transcript

Welcome to the ScanSource Quarterly Earnings Conference Call. [Operator Instructions] This call is being recorded. If anyone has objections, you may disconnect at this time.

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

you us. thank and morning, for joining Good

Our our Jones, Chair include prepared our Mike Baur, remarks from and Financial call Officer. will Chief CEO; and Steve

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

XX, and statements on and risks certain factors know, from in that risks this subject XX-K release earnings XXXX. are you release, materially and in in our identified actual As infographic and cause our for statements call forward-looking to differ June the results Form uncertainties could year press the our and uncertainties to include These expectations. ended

our today, any of represent statements law. and statements, as as only to duty required views disclaims except by these update ScanSource Forward-looking

will During have our reconciliations on and our GAAP call, results in X-K. we and non-GAAP provided Form and discuss website both our

the I'll call now over turn Mike. to

and thanks, for us today. Mary, Thanks, joining everyone,

start First our we get zones hosted of we we of are which strategy, more fiscal our we where embrace our will and year, to opportunities adoption drive distribution hybrid at Partner attendees Last believe new week, our XXX demand. sales seeing we comfort partners growth. Conference challenged accelerated new out As their for

IT sell the technology of requirements. partners stack more Our end distribution to our meet user enables hybrid customers' sales strategy to

us market. President their expand July, of partners channel offering, joined expands total our stack as In As ScanSource our Ken Mills technology addressable Intelisys.

and a years experience the growth. at user years to customers EMC he recently channel, Cisco previously of Ken company through double-digit OEMs and all in X end when TSDs VARs, dealing a private has most IO, funded CEO Dell. supplier background, the many MSPs, agents, channel as equity With where worked with of he led of the Epic

investments are in is AI as advanced channel for and our as phase technologies private making growth next the At Intelisys, of XG. such leading Ken we

differentiated value set also as We partner who customized segmentation see partners services. to to demonstrate require our a a strategy of

be IT Partners will on and focus Our fastest-growing Advanced partners, VARs, telco Technology the agents. including

August, in business announced acquisitions of are revenue different distribution businesses phase the hybrid our are our segments for working Both next capital of strategy. high-margin, we X in Earlier recurring acquisitions that light.

last with life is previewed of of ScanSource with to call, Resourcive, we the the X. As closed August we channel best came on that channel advisory partner on quarter's business the our Intelisys community. model share practices advisory acquisition future, can earnings with which Starting our Resourcive, creating developing

August, provider in Advantix them a the the stream of recurring and our On of Also of we deliver with connectivity focused more on closed mobility new specialty mobility solutions VARs to solutions provide devices. we hybrid sell the announced This the enables revenue their Integrated is group for with hardware from connectivity acquisition August solutions. to mobility XX, bars Advantix, technology launch value XG by with Group. combining Solutions hardware. new will the

and the strategy high-margin executing to expanded distribution accelerate well our opportunities investments We growth are hybrid on ahead.

use plan. strategic will of part said we that opportunities our continue last quarter, growth to are to we the in our sheet As invest balance

financial results turn through now over to the fiscal you Steve, year call I'll take outlook to our XXXX. and for

Mike. Thanks,

proud I'm As teams how year, our of fiscal we close our have executed.

for channel both many in our soft experiencing demand of of suppliers, by companies many As we our segments. technologies reported are and

Specialty physical UCaaS CCaaS see However, growth segment some in Technology in Cloud segment. Modern QX, and and we Solutions in our good our security experienced did Communication have technologies including &

profitability able year, and the deliver cash including fourth teams strong our focused were to was stayed quarter. full the flow it While year, free a significant challenging and for

flow cash profit gross quarter, and free the business delivered strong million. For our adjusted of margins, $XX margins EBITDA

totaled declined our Technology & Cloud segment, while net In year-on-year. net declined while profit our sales XX% year-on-year XX% Center for as year-on-year, $X.XX year-on-year, Specialty segment, of in billion growth billings increased year-on-year. billings Moderate in grew and or declined UCaaS Contact includes Communications of FY X% net end-user QX QX This XX%. In XX% Solutions sales a 'XX. CCaaS, and Intelisys gross X% Service Intelisys sales XX%

segment including in Communication our profit less higher favorable revenues reflecting mix, concentration Modern than Intelisys. the year-on-year, of Gross Cloud a & declined decline, sales recurring XX% from

$X.XX sales profits $X.XX and net is year. declined to and 'XX, GAAP respectively. compared gross FY last non-GAAP income XX%. declined XX.X% For while declined EPS non-GAAP net 'XX XX% XX.X%, FY

year flow working for efficiency capital and by from our sales lower in million, a capital driven $XXX improvements. was the cash Free significant reduction working

Solutions Technology & while Communications For declined XX% Specialty Modern declined profits Recurring gross recurring segment consolidated the the net company's gross higher gross Cloud X%, net year-on-year, sales XX% from while of & segment sales revenue declined our year, in which again profit XX%, declined growth the year-on-year X.X% mix profit. reflecting sales. of revenue a XX%. saw business represented net a Intelisys

Now cash flow. turning balance and to sheet the

we're working pleased We capital the our with progress making are on efficiency. very

our improvements the inventory maintaining turns. while to goal and year-over-year We appropriate demand. our capital Our throughout million levels inventories year was in $XXX working to meet sustainable channel decrease saw improve efficiency partner inventory

portfolios in and accounts receivable line balances both are Our change with revenue, are our our inventory in healthy. and accounts receivable

balance with We XX-month leverage strong. trailing is EBITDA adjusted a million QX debt $XXX net in cash and X below basis. ended Our on sheet ratio a

maintaining balance allocation while modest EBITDA. Xx plans with a sheet capital repurchases, a Our net strong Xx of share balance leverage target and acquisitions to adjusted

million QX for million $XX FY for totaled and 'XX. $XX repurchases Share

an targets do our to leverage net while repurchases, pipeline targeted and we share of For ratio. FY staying continue acquisition to within active room 'XX, have

'XX of particularly our in in to demand As challenging we expects term, continue the to FY first outlook, fiscal the look annual the year. half our the near company environment

inventory very of received based a our ship have give from that As we orders indication backlog on day little reminder, we day. as an to us demand each

revenue to investment and growth based review market continue match resources and beyond, on We SG&A for 'XX FY continually redirecting adjust to businesses. revenue recurring in by opportunities. and our manage expectations our investing our our spending We resource

FY For will $XXX $X.X an of between sales believe billion billion, margin X.X% and between X.X%. ranging This be currently adjusted with 'XX, EBITDA and to $XXX $X.X reflects approximately our million adjusted million. net EBITDA we

we As company reported a generating cash culture last year, the is free believe flow of is we success. key as cash measure building predictable a

cash that we generate 'XX, least $XX in flow. For will million free FY we believe at

'XX, significantly majority improvement. efficiency our this lower is continuous a than actions will to capital While capital shift reduction believe of we and working are working complete the FY

our of our the business distribution the we resilience remain model in strength growth opportunities, of our Our outlook and includes our recent hybrid acquisitions, and confident strategy.

it now open for We'll up questions.

Raymond Our first James. line Instructions] of Tindle Adam the from [Operator of question comes

on talked I of point maybe little really in that's about for how changing? earlier Mike, the for might President company. interesting the the how of just July. Mills appointment double the bit as a Ken of organization, a that Intelisys could the turning you business you that, that's wonder on call I think And KPIs and in the click if maybe structure changing, more details those be

strategy it think, doing we the been future. something, And as while at to capacity is sure Yes. you doing a I know, vision. President. more looked appoint we quite to not also took new to where that maybe a actually where Adam, but well, in at. was we we Intelisys understood make acting has very for me like needed things And only always the Execution us, time, good that and I weren't were things I for

take only as a I come channel a from that, Ken at really as others such of and approach become in community. background, EMC a the But strong on unique brings the our might background also over think to but different directly of the approaches, value look didn't TSD us Cisco with need hard at that where Ken at knowledge a really in we I couple the the interviewed channel And where not is value have. and Ken's we looked competition last to to frankly, all Dell, more and our TSDs future. our team supplier at base that resonated changed years, brings the can

became where conversation can it where it myself about it about as become. of And what can is, talked Ken the so and and go Intelisys more

so on we model, and more growth. are we create can the we bullish TSD very forward, And why believe, going

matter growth of fact, we believe discussed Ken a and Intelisys. at going As double-digit forward, we to I get back can

Got it. I That's heard that helpful. But [indiscernible].

was that sure I'm So welcome.

yes, thing. But try to use a bad to those it us. things we wasn't Well, influence not

separately 'XX that as there's kind guidance? to us in I here. Steve, And wanted wonder of process been built up those know group, whole build guys sort the couple entering of of of of up this was similar contribution And might acquisitions your how 'XX? or that from follow time. and have you process then fiscal you expected newer that. since. up Any broader also as Yes. speaking, just Obviously, that from I maybe broadly to ISS been a is different that, acquisitions the up provide build a maybe part can fiscal 'XX more fiscal help I strategy got on you that from we've at guidance, some terms sure learning to you

color helpful? guidance any on 'XX, you fiscal be if then how and just touch it So maybe the entering to different, process contribution could was acquisition would

the thanks Adam, question. Yes, for

our working context about acquisitions. return of our we've we really when Let while company. Again, working over strategy, me opportunities and be the first -- this, higher-margin this thinking the through are And talk acquiring think about talk and around when acquisition this always low will in been about one our right about for the a the that about for it's we capital.

to These a our we're approach yes, strategy. about to They're announcing, they more small are think programmatic are are. contribution, are accretive of we they when overall So acquisition small. our they our accretive acquisitions to EBITDA, that

guidance. are would they're But results consolidated we've they so got that say FY included the not that our guidance. to for 'XX in I in significant our And

different is but question the supply learned to predict in the of last is, try line lot We through technologies. a move there When this of out chain lot. have year, portfolio. maybe of Let that cycles to technologies us, second that constraints tough to do helps growth. was we all which on time me changes a were thing and our going market. we portfolio, differentiated top on went learned We coming we the our entered And the this the a

what So hard thing predicting is learned this is again. we

the free whole company good clear and our needed focus crystal guided on of 'XX and our we to working guidance we important what's driving that of became capital. last wanted because into kind decisions making think to also us, that on came to We flow so as one things But would we And it's is year cash important. decisions guide. maintain we our on how

And we on takeaways gave and say confidence the hard so, the that I of guide for on that as And go could top gave But top the the free the that us through is expanded year to X trade-off line predict line cash would we cash we wider keeping between flow. laser-focused really, everyone ranges year. this because and return flow. free again

Our Sidoti. from question the from next comes line Greg Burns of

cycles and guess, or or maybe -- of relative you understand of like partners? don't and quarter positive orders firming maybe the you I like just to some, I'm it positive some the or saw terms of terms comments in your Zebra that we're from the of seeing clotting this different outlook more characterize in from you of of had function maybe you up. where kind demand? demand the positive, like Is in your We've timing maybe a shoots just to as more supplier maybe maybe is your it maybe if supplier of but know partners declines there some just segments of improving the sit mentioned, green I commentary outlook both trying technologies Cisco

it's tackle Mike. I'll Greg, it.

long to ask do. done Steve best we that as many as what what's don't the don't year hard our of the control we time for I've approach their demand, coming. is years demand, to create we've what And a argued for to us we very we're for I really, in know typically think, estimate it's teams similar a we indicated, distributor, going long, what's us took this

We they hardware, us then to kind place don't supply we so to where what where normally on backlog from of a business the think have during know product a except did standpoint to that you back tell was. our as to as more our brief there for we operate what And no demand our period chain distributor We're suppliers. partners which going was and crisis of orders well, they're need. depend is understand we maintain with

we remarks, we on if his that green suppliers, last prepared be That's out. the a be the idea unlike or they're first had the not And second tell going true. Meaning, you, for first we there us gave fiscal timing year, forecast. Steve will come easier. is constantly, dynamic where to may indicated line, number half, wide let think hard top with hey, We me That half starting shoots, this all there half now second this indicated, as be have. year, right may net our our year we up this that to we believe because to I the in asking as for of very you we it's to -- question. play the see, is half believe lease And are information decided range a based that should

that we also But said last year.

a the can of what doing bounding actually we've But you you've better it indicated last year we we're than referenced. best by got and know, suppliers, lot others. as we did we and that to some that the as from So well suppliers hear continue

beside example, do Our Zebras Physical really and well. other business, some parts very our as we an the had that Security business, even resilient. not Yet the did of and Cisco strong was

we're trying investment 'XX decision should out And and right 'XX make figure now. so an for we where to

working We're to make want of sheet our sure something use we mindful managing indicated But get to as do. sheet appropriately, using balance we're into we're Steve we where fact that purchases. we're well, position balance the sheet our conservative drive be mindful very going of opportunistic the not balance as of the drive to used in to That's to capital. our

attracted I the unique business? in that about right. of right, that resources, in space? And you first terms guess, them then advisory All why acquisition the was that was what Maybe to

when would this we we are -- team, started that could be a was talking not started the we a idea we that leadership business X of acquire talking team group, Well, exiting. that messages the about staying, needed that believed that a creating key about new the management people could we people

but has their the they're and and ability there really for well they're is particular going team we're this President founder the about In case, and that CEO, he recruited to of years, board, staying, company this that about a build been leaving, can X perform excited on team continue to forward.

of team. believe And so starting point is this kind for we this the leadership

We find than advanced their manage we contracts, others talked the renewals, The technologies, them us from particular of side some ourselves. of manage find to the piece believe were Resourcive and building tool selling tool second puzzle. technology need and fence, of still to going thing manage we help need rather kind need we this us technology other that the was a to about that like buy on company, to Intelisys that we

a team if for to choose preference shined. will, or you between had we tool, and acquiring really that's team was our technology first where us, the first, leadership so if a Resourcive leadership And

and confidence This discovery So part potential we to led leading kind team that we targets certainly business excited and of so we of the And a the become. quickly generating be Mark picked is of able to this of and very and gives to we're he started expect excited. acquisition will lot that right Mark, Mark be team Resourcive know Morgan us get our that of the ScanSource. the led community investors the who folks to in many the

of line of next question comes Housum Keith Research. Northcoast the Our from

guys company up? were Steve, to can of in some geographies the color can scalable quickly desire how but the just you there? the you some now, scalability terms limited there's in you provide perhaps that like of taking And acquired, they country are them right the more, them how businesses? you scale Or

styles Keith, that unique one would things then those is we what are us. for that and They does scalable unique have these it would that's about build are companies announced, an of we companies yes, we they on. the Advantix plays. are both X interesting think way capabilities, management be we smaller thinking because

an all, but much value-added of did thing that's help some First gives that's the exciting ago, for technology and a that what advanced should Portal us it capabilities also with as us VAR And capabilities, us. thing well some help we us of it And years as for partners like POS sell then channel hardware. more good will in more sell this stack. our

the differentiate technologies for long been our very will again, we time. and offerings, well, help a think that we've around in that We know

that So in both Resourcive we -- out, that scale, Mike's know acquisitions, Advantix, stuff. stack these their opportunity as They're in very exciting hardware right the right really management very yes, both get about. technology off point, the we're with that excited in of team space terms a the scalable that interesting to ground. the and to small of but are start And established. They

that. appreciate you better well? as well higher XXX% the did Do margin. as assume bottom that guys that these I on line gross And I as know margin much businesses I a are

little of high And primarily XXX%. a higher be in more just sure. Advantix mix Advantix, very services down bring to bit Advantix services as the they're also well, But might recurring bit. going than that, Resourcive, to Advantix recurring for you there more would has net revenue is reporting revenue. close margin if the Well, be around it , so think too, but Resourcive about there'll businesses, be but

Okay. it. Got Got it.

hardware. switching of the over terms the to In --

there where give their like pressure seeing portfolio of historically, any there I'm what naturally hardware technology that trying to able from communication challenges portfolio, that perhaps on-prem were going is growth forward? to declining. been hardware portfolio has there anything your perhaps you we're understand, if Can me you as be an hardware grow there get being just under systems hurting the product evolution guess is the will in of of terms obviously, I idea In sales forward? going perhaps issues,

Mike. and that question? it's challenges our X for been there? that's new anything your Keith, business certainly there new And about because or years. a any Is Is talking story really whether there's X Comms you're

Yes. I'm it's Specialty Group, looking for one? new If or challenges. Comms either

Specialty think the the don't it. itself, new I Got news -- well, on Yes, there. no

I customers believe want growth. to need and expect to develop that to business they're their We the we refresh return that technologies to to think use, going products.

And in so believe again, that become apparent. second to will going where is half, an start -- opportunity we're yet that half, story. that we We first that don't when is the become to know

Cisco Comms But as to and in we right? our going sometimes side, than So, Comms remember challenged the we we confuses our normal. said, affects story, over got segment, Cisco to being Comms that which more segment that have again, business,

different there's probably it So hardware to are. -- Cisco it better, start the of ago, the segment businesses that's I why it's as emphasis operating did the some Comms of but in there. They're because Cisco, a we business other traditional maybe them expect maybe year outside But necessarily. say, other doing not than challenged, it's looked our would

better declining, still 'XX. them into they will forward of Some going year but fiscal do

Yes.

about flushing chain supply Just last comparables first quarter, Those comparables tough on are year, -- If the Networking fiscal were that a here of ending after guys through remember business. you Cisco-wise. obviously, touching because the lot just correct? first I right, tough

out Like the to technologies Yes, of was were yes. the problems, you they it Yes. chain that's -- for supply come last us right. said,

absolutely. Yes,

and strategy, cash it question Capital of a allocation to with. from million, I'll over. obviously, $XXX So work turn last me, back lot

have capital past Obviously, more the allocation large. buyback? you forward X your back probably bought between What's share cash guys shares your acquisition in M&A is pipeline of strategy going terms in You historically. quarters, mixing and

concerned -- to us cash what I'll there's of again. August of our cash sheet, and that some do these strategy. your It we the both. ratio to And of do -- free think Particularly so we coming generate really allows We balance capital in room But to these 'XX. on close both. the point, the were we had we're one. goes think Steve our to we is leverage some focus back is allocation have this flow that about where free would Keith, deals. we opportunities not out tackle think to that there our we go cash then do room on flow to for

take that view So the that and share and make acquisitions fit to our opportunities that but strategy the to back near through our repurchases, those return both, our of share be sure share we advantage fit out they a do the capital disciplined have, through it's return repurchase are then in the program. disciplined there, profile of -- shareholders

comes next Our of Company. from the the question line Instructions] of Harrigan [Operator Benchmark Matthew

did, M&A one economic When questions, of is on up now, not the X the less look of you what's Resourcive derivative do where or But see you're you that some going right given uncertainty? questions. multiples you I seeing? just Two to Advantix. more multiples on for you're market broad know the loosening acquisitions the [indiscernible] prior EV at -- any sales the there multiples talk and about to the the

perceived out companies of And any the Zebra. more between you general because secular you a of the a of up thoughts see in are sellers on and to secondly, same now? then seems between roll decline back-end just noises And seeing what know got kind lot encouraging the it contributions market between recent genre the you've but opportunities and smaller on barcode of right of you in fairly the X innovation I what the acquisitions. terms that's equilibrium got nice going multiple, operating ARPU like where

This with a good they that and to got return their our the always of take second think, over companies that come answers. back founders the because I'll we've and employees companies us first has from the standpoint strategy, better, be if to included I see want standpoint, think history that acquisition after make sellers Steve acquisitions And ScanSource, acquisitions of even a part a question, acquiring ScanSource. about join their allowed from earnouts. these of multiple of because when is frankly have do Mike. I'll many But especially very, and our to I years part

are the that received a decisions. And acquirer, smart actually did was question I to of in asked we think we'll helps 'XX earlier So 'XX being about well and the working that in make a we list. result target on a I generally think what see is us work acquisitions,

that year today. So ago, anything aligned like to to we certainly do believe a the we Steve that. acquisitions didn't have we leave some on the about else, I'll answer it more and targets And Steve,

covered and strategy only The in I when the think that Mike, our in acquiring queued up businesses a not point, them recurring really them a multiples doing is any make would We that Mike's well, higher better Yes. fitting But getting just bring add naturally come to that of there. them multiple. can to job ScanSource seeing big we're shift that yet members. so thing and you with we're higher revenue are happy it with they family then to I that, about margins, talk out think you we them,

experienced is the are we Yes, will, creating one And question, code or really you few this idea we're I years. bar ISG and things experience about over to for had excited last X or know We question drive going that is now demand X actually think, the right. years, we've Zebra we've Advantix of Advantix that group to that's if the hardware. and then with with the for this this acquisition, this about, calling led that, this of

understanding kind a has were And this should this guys not. time, or we dating for not business long really these been own we so of whether

as But the as partners, back, proposition being able gives to as our recurring for market we we back. we we believe us create a felt value comes do having the and participate need stronger to revenue and mobility at we how in stronger devices like a position looked it sell market comes

acquisition that actually believe in year better now, we'll we than a of because much barcode like So our from these do an Advantix. spaces competitive competitors

now I'm for at time. it closing you. remarks. this to no Jones Thank turn further to Steve like showing I questions would back

thank Thank you us you, and for today. joining

Thursday, hold next call expect to We XX at to XX:XX September discuss results November a.m. on X, quarterly our conference

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