SCSC - Earnings call transcript Q3 2017

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Operator

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’ call is being recorded. If anyone has any objections you may disconnect at this time. I would now like to turn the call over to Mary Gentry, Vice President, Treasurer and Investor Relations. begin. may you Ma'am,

Mary Gentry

welcome September earnings today XX, CEO; our Baur, and the are call quarter our CFO. Lyons, Gerry ended XXXX. and to you, conference ScanSource's for Mike Thank With me

identified and be filed results update to, operating year A call, Certain is statements our our expectations could questions. that posted These forward-looking the as our to of review include, the in presentation as will for law. quarter Any the put as Relations of Form limited that date. we in take or factors as for today views representing differ to actual slide the duty will forward-looking and sales statements. quarter our uncertainties XX-K risks represent for cause that and comments views risks subsequent such These any results our not XXXX required should release with those to this out XX, only earnings statements. as upon and today except for are uncertainties website. reflect Investor ScanSource's second to made including our disclaims the earnings accompanies results SEC. in statements on your subject materially then changes June ScanSource in webcast ended of forward-looking any our statements statements We section any from but and expectations, XXXX relied and be and by are not actual

and with X-K. discussion also and on with These our amounts of in website results. and have found non-GAAP in during will begin presentation call these provided Mike GAAP our been have reconciliations and both discussing now slide release. be between Form overview filed reconciliations our an press be our our Baur results will We can our our

Mike Baur

today. offset joining thank than expected and Mary, for margins volumes. which solid sales you lower strong with a gross ScanSource us delivered Thanks, quarter

goal to led that deals missed non-GAAP sales profitability strengthening deals XXXX. non-GAAP margins including the added of the in expected federal our are value December on fiscal big of quarter. includes forecast basis to now from America. key This large close North a We improvements focus lower Our for on year a in timing principally our margins, range our operating

Next sales digit deals higher forecast sales reflects quarter’s big organic in growth. mid-single

quarter’s margins which what we This our see. gross normally contributed would expect deals lower big higher to to is

margins positive programs. well includes Barcode attainment Brazil. In Portal addition, had driven for [Indiscernible] sales strategic benefit international several net business POS we NetworkX and from from higher sales by We Europe this Intelisys as had trends quarter. a our incentive and growth vendor certain as favourable and X% This our acquisitions, in of a

addition, on review four made of now. we I’ll our excellent XXXX them listed and were In slide which growth progress initiatives on each

we had mobile driven of the all customer in by strong First outstanding opportunity. growth mobility demand being computing in system refresh all in operating with our geographies, part

processing. user resolution a strong for more intelligent efficient which allowed images video quarter Due cameras, and we demand end had increased to Second, higher more surveillance. in

more class are for available enterprise at solutions video prices. SMB addition, market In now affordable the

initiative for and is industry focus third expertise unique in team. completed the Our talented brings Portal an deep acquisition a POS payments on July a integrating and channel we years XX.POS growing serving and with Portals, XX

of all to enterprise. about sizes excited from accomplish SMB we together what are We can customers serving

at configuration [Ph] retail pricing POS pre the past being customers payment we Portal, Portal out for POS quarter, process for a support. terminals. with The to To Portal program defined our knowledge our Success through wares Sharing. rolled program and past source selling begin simplify the as gives During Assisted the past resource

strengthened As business this results financial expected, margin our POS Portal’s quarter. higher

move vendor America is where communications a our to a mall. in [Indiscernible] initiative North in business are tier fourth two Our key we assisting

During premises their business the boarding continues. quarter, direct on for ShoreTel ScanSource of to partners the

a added to planned, in resources dedicated of higher invested value have services. and we As provide

that Our margins gross quarter. higher contributed focus this on services mix margins to communications business our are in also better

and – schedule. selling with growing staying the We a and believe in and we in of sales ShoreTel be ScanSource to business services us regional its service leveraging we addition ahead cable the take September And Intelisys, year-over-year for fifth stronger services. even interested value of had growth critical see Their engineers had Mitel customer to is is in services. billings recruiting adds launched management achieved quarter new enable the growth sales building of success an us XX% advantage. As Intelisys program new to hiring XX, is success our purchasing cable a The we quarter. community Intelisys and and in new revenue company Intelisys accelerate clear financial that channel to is encouraged drive growth, important position n opportunity agents telecom, programs, the this to agents record programs. a borrowers. for of in channel of cloud an continuing products success advantage completed success the their ahead acquisition close tremendous in which to and channel through agents, opportunity customer grow another great managers competitive power cloud providing to to opportunity telecom record of By has

of the largest in partner business is strong has I’d its has team year-over-year focussed both develop Temple. and new and firm most our customers going The include and co-chair Network vendors conference VMware, public Lead” successful Betty welcome like board Network ever and director called the security CEO initiative that, strong driven Bond to customers directors. pipeline that “Taking on on Fortinet, is X enablement welcome recently companies vendors of key to with Our of Womble over strategic our categories private her priorities. Network X a growth say Betty and been their business been in Dickinson, Brazil XXX of Veritas. to held of Cisco, law leader global sixth attending. effective the top had by has recruitment a X counselled new XXX networking Betty With our and into and and higher incredibly quarter. law December which they and our firm,

to We our Betty have in share governance, are board acquisitions regulations. securities and risk delighted corporate on of management, her areas expertise and the

next results I’ll more our that, Gerry with in outlook So quarter. discuss to turn call and to the over detail for our financial

Gerry Lyons

Mike. Thanks

of we expected by range while For delivered the of end non-GAAP of below low million. net quarter expected the sales within range $X.XX fell our $XXX our million our EPS $XX

timing net this from include additional are large the we plus deals sales to of higher the forecast our in quarter Next quarter some expecting sales.

dollars North during $XXX sales million. final net net year-over-year a to First from in segments $X.XX the for America XX% for positive net principally for currency due earn profit our EPS from deals lower earlier. in The to the to despite added sales year below of big $XX.X the we Organic decreased value and lower sales. well X. quarter impact on dollar sales. $X and consideration margins for increased as described out sales change higher acquisitions both Gross expense the for quarter X% X, million declined of Network foreign year-over-year recorded GAAP made range. In estimates million gross $XX determination translation in contingent was million the of was fair September to a the month diluted Consolidated change forecasted Network

lesser of for Our programs. sequential and quarter, segment. lower the gross you first our On quarter addition Intelisys deals XXXX. first year X.X% the SG&A big to a quarter $XX which expense. addition see of quarter vendor increase not reflected current was extent up and higher debt acquisitions, quarter to bad XX.X% reflects attainment and the million due better $X.X year by expenses, prior XXXX profit prior POS from from Portal six increased for This the was to seven, fully million the slide year in prior quarter margins and the quarter and prior of can a

XXXX, the non-GAAP quarter. prior to income or Our operating million year compared million of X.X% was X.X% first $XX.X $XX.X in net quarter sales or

financial year to margin. our Our operating XXXX expand goal for key fiscal is non-GAAP

We payments expected the value XX, have on contingent present XXXX balance $XXX earnout acquisitions. of September our consideration our million future for sheet reflecting

quarter, Network X for first of for much contingent expense of increase quarter. was the $XX.X fair the million the recorded value $XX.X in the million which from during consideration we higher For than expected

For we $X consideration our of forecast contingent estimate related value second quarter XXXX the in of expense change to Intelisys. million to principally an fair approximately be

XX% the XXXX was fiscal $XXX,XXX quarter item for first tax effective item. discrete of rate for reflecting Our a

been item, that would for Excluding discrete effective XXXX September the the ended XX.X%. the XX, quarter recognition have rate of

using our XX.X% second XXXX we rate. For are a quarter forecast, effective

was per or $XX.X $X.X was diluted income net and XXXX year per fiscal non-GAAP income million diluted $X.XX share quarter net $X.XX share. or First million

the the and plan. to sheet balance shifting to Now allocation capital

sheet presentations. Cash balance cash and months. inventory our over capital XX referenced the on from $XX quarter had consumed flow are cash million this $XX last we in levels. operations slide million working higher principally and from And operating of flow measures generated X Our X

some portfolio Our X.X higher the reflects quarter. levels X.X where our and quarter inventory expected ago. excluding North excluding the in at timing Intelisys POS deals shifted for America. POS purchases times X outstanding quarter big for The the came from in quarter sales primarily of Portal and include December times days or for strategic last receivables Portal the year to to inventory Day’s decreased times and inventory and inventory the ago, XX ageing

Latin we standards experienced to services to our note more And communications changed for I reseller slower that take in our America, on our collections business has financial want In risk. underwriting team not worldwide Brazil. addition including

and million remains approximately execute At balance total and $XXX allocation organic us to plan, had cash and provide XX, capital $XX for we of Our net XXXX, growth million acquisitions. debt equivalents the includes, strategic approximately with which to sheet continues and of cash $XXX approximately September million. of debt strong our ability very

XX, million. was trailing two roughly for fiscal initial million April and to XX% borrowings under $XXX with and facility purchase XXXX. Portal facility our adjusted our credit closed we for million on $XXX ROIC first On totaled acquisition leverage committed we credit of increased approximately net a on to to of POS in July revolving have credit $XXX XX borrowings EBITDA from quarter borrowings and $XXX liquidity the our additional price facility. to our On fund X, months times cash now investments. the XXXX, funded Our matures We revolving amended XXXX million X, provide that committed XXXX increase August

share. forecast for share non-GAAP quarter to diluted per from $X.XX million $X.XX $X.XX to earnings share to range to sales on share from XX, per to billion. range per per turning net $X.XX to our per we earnings and range from fiscal Now share share GAAP diluted XXXX $XXX expect Slide per the second to $X.XX

single-digit margin mid reflects organic quarter. XX% and results Portal includes growth, forecast profit the a little Our POS gross for over full a

Our be forecast principally earnout borrowing average also higher reflects million higher to acquisition for rate November XX. a Portal $XX.X the made expense on quarter. higher from a The average higher interest therefore also POS to debt and leads debt the including payment

currency sales like are to foreign by December comments to approximately over The positively our expect rates in translation call Mike for summarized I’d foreign now in the million. exchange our closing impact forecast We the to $XX turn used back for quarter slides. presentation

Mike Baur

Gerry. Thanks,

we year. our As to double goals our operating Portal, cash And increase POS adjusted financial business margin digit year continue and grow flow through to addition ROIC deliver operations, including we indicated prior non-GAAP our and strong plan XXXX growth for strategic in drive quarter, last acquisitions. to EBITDA execute expand organically from fiscal from will the are

now will open We up questions. for

Operator

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

Adam Tindle

Okay, thanks and evening. good

you with temporary lower quarter like I mix what below on program starting couple maybe since I is this are I’m of big that the and revenue because in and but in the some sequentially think of that is there gross was it but quarter questions percent plus gross was in a I quarter know know expectation low I and level, near vendor do deals had gross the performance point. Just but typically margin margins, still sustainable around XX% that implying I think POS the asking margin understand a XX margin. you December declined at your Portal XX.X%. represents think items gross margin

Gerry Lyons

XX. that on above expecting We this December is to did the Gerry. are be say we Adam quarter margins Yeah,

our In calls sustain can that, we’ve high we think would that I on range, low indicated I mean terms maybe XXs of how that we the or somewhere in previously long what is XXs. be

Adam Tindle

now more, year in to and then some margin in into improve over for is so percent Okay, Intelisys in the X the do that you there years the the is to I but there plus you operating what we’ve seen been was do to plus which is accretive business, opportunity X alluded comp so can that below operating get segment few the changes margins dig this, margin operating it years non-GAAP a back past this needs past not the and structural that this was help how range to can if on there? percent that has get and before may think think you happen or goal and about think to to the to wanted level, improve enable timing but level

Mike Baur

shot to it. Mike, at Gerry add take to I’ll it’s first wants Adam, a Hey if it see and

changes vendor our has significant vendor we’ve the at You landscape you know new were and some we vendors. know the delivered, contributed on a And that had same as that to as all think gone know. year from changes a comp ago of segment through we’ve bringing in some the that we struggles as some some got I we time we’ve tremendous

the we a we on some months And margin, we not this of I to would honest, say opportunities to benefit we have margin that bringing to past percent so some And as see dollars. are degradation. additional worked be the lost replace lost we lost had of starting through margin we also only XX some areas

what businesses we if So with through achieve segment we’re our key vendors. to and of significant one having back a our to ago, decline think actually a used fighting is you comps year

forward, does And if show bring back going help to this we coming so that that’s other really and that as we it form vendors has of think better can us this a well. outlook

So there yes. opportunity, upside we think is to that

Adam Tindle

one Okay from last one me. and maybe

segments. being some recognized the POS I developed? this distributors strength regarding quite Barcode in there the like key number should it not you perhaps were challenges You quarter. a in of us vendors and how update mentioned serving & margin last perspective the Europe from region know ScanSource Can on

Mike Baur

opportunities had and Yeah to advantage we program this that sure changed led of of market making vendors I our advantage now are their vendor in quarter. really going to one to that really and think to nothing of than Adam continue our that normal grow take business we you plan execute other levels the we fact place higher I key doing inventory gains and market able of well and some take share is we in think we are took our to

like competitiveness not to do market would changed Europe, see what hasn’t overall quarter we concerned the and really we So but yet are we in that’s expect the get it vendors for and with as about making quarter. change, attributed this we regular last to do customers that hustling just that believe the it that to really discussed difference was success our think our competitors. our really the that this of have doing job product our good sure right available quarter, was service we We to better, excellent

Adam Tindle

Thank you. that’s Okay, helpful.

Operator

Thank you.

McGinnis from Question, of comes Chris Sidoti Inc. question please next Our

Chris McGinnis

first for – good and taking morning, question. Good I it. afternoon appreciate thanks morning, my good

Mike Baur

Sure.

Chris McGinnis

you to bit, in a guess walk at since I levels? the is how the stay maybe and on margin to dig in [Ph] little I going just components don’t gross its the these of much through increase can sustainable

Gerry Lyons

Chris, is Yeah Gerry. this

neighbourhood And high in expect to XXs. now going do mid in know you have in that stay gross that we’ve to they XXs, they or what us very I that improved somewhere in it. our XXs low walk XXs, have been the high seen gross really X%, improve in low margins of had overtime think this components have quarter. But historically I really from the don't you this we margins XX% XXs, are

Mike Baur

It’s XX easier are and this anything Yeah new growth and add much is still, has growth driving thing years of those I organic think to focussed without fight our again hardware we plus business challenge. to X.X% are Mike. with we lot over effort show still and we there trying that to any maybe, I gross I and work XX%, in and them bringing years. are with show it’s a it’s bring so maybe opportunities would historically that with in Intelisys a been right our many as for on still But the many will clearly, we that value having work to not vendors it’s Portal heck as not a driving these that place of that traditional both One our like in our maintain to we Chris know you is, customers higher. and value margin think POS as drive margin to believe

Chris McGinnis

Great.

Now I seeing margin, side? of appreciate to at improving help any much that’s And are the from least benefits you And the goal from get in new the going that. system? how you very margin ERP that helpful, operating are the

Gerry Lyons

Yes.

business a is yet. in business got We being Brazil portion complex, that. So, we're I cautious a we've is remind from rules and approach we've making just primarily not just improvements. do -- very about years been that year we on sure not a guess that our it. Not you, lot still on and you -- efficiencies to as that to on some There's and SAP that guess, some we're The currently seen is would still about Brazil and say now, perspective. is what tax to incredibly systematic of we're very being in I SAP of a half, all business transacted so about the two we large our that, my I more there and way

in efficiencies to SAP, be seeing you're operating -- there's a think, the a to So, there had. but maybe related more is from little I bit, lot that's that margins

Chris McGinnis

in last one, I'll And Okay. jump one queue. back

just you the as do have where the ratio. I you well. your comfortable sheet, guess, availability X.X balance I know feel the that you increased -- right acquisition? on Just -- for

it So, near-term, and the balance maybe sheet? just how just wondering up acquisition you take right how much you for about the would feel

Gerry Lyons

Sure. sort guess, forced what expecting it right a along, go cash down. if around to right is think And if business -- if still we're But I times, expecting comes our it's our the to you comfortable is debt depends. the give opportunity. or up. right answer the number, we'll I certainly But generate if opportunity come to of probably somewhere three with We're

Chris McGinnis

my for questions. Great. taking queue. Thanks jump in I'll back

Gerry Lyons

Okay. Thank you.

Mike Baur

you. Thank Sure.

Operator

Thank you.

comes Question Northcoast next Keith Research. please. Our from Housum of question

Keith Housum

Appreciate deals Good were mean maybe was Because I just I months back large want can chose you deals you for And had? hoping to I the are a large commentary pushed from there. this from gap of reconciling walk but afternoon off, and few Mike or you here, said it. your the away looked it fed deals fed large deals can quarter be only matter prevalent. And I guys regarding -- everyone. of sounded guidance online? large like kind next guys to to weren't just going reconcile deals deals. last at I'm for bidding quarter, and performance a your we've the just some was and come

Mike Baur

feel happen Yes, Keith, they're expected And the until that don't unlike we as November Sitting large end in federal Xth, had the yet try forecast fact deals as the shipments we total We highlighted following estimate for you this or the here recognize at a that going to September, deals, deals. always this close have know that typical guys certain spends, and two we months. after to quarter, quarter we when on particular issue. sometimes, for will happen, finished. case, large don't don't sometimes we them month large them will in have because good we the government of September In when competitive not, you timing federal it's case, good it's these they strong here feel sitting we deals, because or this really happen visibility. we're we had November Xth, complete. that And loss. In very they the

just to you quarter the and So, forecast was just they our difference. off, It The it if thought. what we was timing up September take our you Keith, that's December timing the add forecast a quarter, for for all. add together to

Keith Housum

Okay. more And deals is than, retail this federal distribution? to the limited say, or

Mike Baur

Yes, yes.

-- and forecasting If if ones any so those deals, them we didn't, the do of not that. large we happened to they wouldn't we that we're somehow generally don't happen And don't or next have certainty. We the downplay happen, In on this the a something lot a generally -- we generally case, don't them we more in count a POS quarter. likelihood. have deal

Keith Housum

Got you.

over that value than to recovery. much quarter, a that turning NetworkX, is you I a that if I something remember in a fair ago? a I guys Was said the quarter, significantly a that this quarter? quarter And I during happened Okay. can If charge you had NetworkX. mean, say charge consideration. have didn't the -- got visibility the think last gives different large a for Was then a was performance there change you it improved great NetworkX value correctly, outward

Gerry Lyons

Yes, Keith.

things I sort of are two in this there drove the that think really quarter.

made estimate. in a growth this -- business those we so and changing change know merging from that particular for there's the we combining Both quarter. merger future we've that so are So, future and has their investments for activity, in of both that, also business some Brazil. entities amount us driving you then really in and our fair recognized things impacts been and And as

Keith Housum

in if Okay. in can I more sneak And here. then one

Following the will acquisition, POS Portal ratio your leverage be? what

Gerry Lyons

sorry. I'm

question one the more time? Ask

Keith Housum

forget Following done. that it, quarter, question. that of acquisition actually during closing the occurred the the POS Portal -- I'm

Gerry Lyons

Okay.

Keith Housum

Thanks.

Sorry.

Gerry Lyons

That's I fine. misunderstood. I Don't thought worry.

Keith Housum

Not at guys. all. Thanks

Mike Baur

you, Keith. Thank

Gerry Lyons

Keith. Sure. Thank you,

Operator

Thank you.

question comes Wells Fargo. sir. next Our of Spinola from Question Andrew

Andrew Spinola

is sort big fiscal in growth all that is QX. QX of first in that, the organic saying I in think I quarter X% you're call the from due Mike of, to it, decline organic federal the second deals? to the and Thanks. sort entire the orders Is entirely guess, these rebound mid-single-digits

Mike Baur

would happening showed for federal we of was quarter We things did and good necessarily. that December say frankly, in some I the not the a in part say remarks us happening that other And very No, strong that. I are a business growth prepared they would quarter, and the say results. had good internationally.

take that quarters two versus suggest a ago, does rate again, you got -- roughly. again year them about you it organically, the together mid-single-digit So, growth if and put

Andrew Spinola

Wouldn't of first sort -- flat, would year-over-year, half so it be no? be

Mike Baur

so. think don't I

Andrew Spinola

organically First up quarter was and down X%, second right, mid-single? quarter's

Gerry Lyons

Yes.

it So, growth there. slight some -- would be there'd be slightly

Andrew Spinola

Okay.

question kind I of new just the was guys I last -- you acquisitions curious. focused know Just have on. two you're that

through of of think or barcode all level starting and five terms I terms interest sales. six business that you, and of up picked ways solve sort that. types target new forward. for wanted the point at or points to of of of VARs old sorts of wondering called sort seen different I and off? to still percolate different relationships, things POS it up if solutions Mike, retail Has anything's I'm out in different is in to tracking focus of we've you years sort in or kind your ask the going just if of RFID increased sort for your things of developing in with like just markets your

Mike Baur

Well, asking RFID specifically are you or in--? things other about

Andrew Spinola

bag, sale. kind of seen track sort then eliminate need what's point? use point out, your and where can smartphone, number walk you Yes, are I've just and potentially where I'm their and in those right application an kind of wondering solutions of just in, walk your of vantage development with different from of for the your

Mike Baur

exactly, that self-serve. not is seeing are we that it part more but the is think I Yes,

and someone and kiosk people this in think In cetera. heard customer That out whether hospitality, for place phone, definitely anything seen and order. Panera, big if what as could combination pay that's smartphone. it some you And the and ago more self-serve, a that are wins that Haven't So, new reason there's and no mobile, a was that order, device it, self-serve call using we're what see as beyond substantial are it a XX a bill. some store in seeing trend. your the of self-scanning we've years can't. case, happen of rolled pilot yet We was dock think walk your quick-serve, your certainly McDonald's, and do then you the again, device on of your restaurants, et phase would some with the exit you doing place There's of that self-serve.

haven't value we issue that, digitally order of heard big of. yet. your more transaction. hearing of And are seen more the the way to a as becoming what and then It's haven't a placing Just that’s that kiosk increase using combination

Andrew Spinola

Appreciate Thanks. color. that

Mike Baur

Sure.

Operator

I further show to to Mike the like the back for call no over this you. in Thank at questions queue remarks. turn closing I time. Baur

Mike Baur

you. Thank us you Appreciate today. joining

We of X, on results call our quarterly December next discuss whole XX, to conference February expect the XXXX. Tuesday

Operator

and participation conference. ladies you, Thank gentlemen your conclude for the program. in today's This does

may You day. Good disconnect. all

ScanSource (SCSC) 6 Nov 172017 Q3 Earnings call transcript