SCSC - Earnings call transcript Q3 2018

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Operator

Welcome to the ScanSource quarterly earnings conference call. [Operator Instructions] Today's 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. Ma'am, you may begin.

Mary Gentry

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

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

press been X-K. call with between and over and the commentary Baur. the these on can and be our provided like turn both and release. reconciliations I'd filed call have be reconciliations CFO GAAP to website will found during in Mike Form results These to our discussing our now We in our non-GAAP amounts have

Mike Baur

today. Thanks, Mary, joining thanks for and us

of results. our growth and worldwide Both we range. growth X%. For segments would non-GAAP within EPS. operating EPS, delivered both our XX% our strong growth sales sales our profit across with regions. gross better geographic strong income earnings and and net sales realized business growth, was our slightly organic The growth XX% expected on include quarter, Net non-GAAP highlights diluted third year-over-year net we for results, Based for have per share, forecast sales fell non-GAAP

due However, it slightly higher came in a rate. lower tax to

executing This our growth the in strategic key and quarter's six reflects performance opportunities XXXX. plan progress for for

First, benefit This was operating warehouses, markets, strong many demand from mobile from to opportunity. vertical hospitals, broad customers continued mobile business and continues the -- including retail. and for service computing serving refresh mobility solutions based field system

by video second Our reflected concerns. networkings opportunity growth for spend higher driven security and is surveillance

needs Our customers products video are strong building growth control. quarter. networking access drove the around surveillance and out solutions These for in

announcement of expanded excellent opportunity The forward. products And support that and technical coverage software software include both customers. provides expect post-sale field providing for is in independent ScanSource example growth. to XX% initiative, services channel to POS expanded products This had strategies for going continuing bundled POS Portal Our sells Portal an year-over-year route our certification, the another opportunity cloud cloud to fifth and and grow U.S. hardware, is Intelisys. selling vendors. and grew through solution and Portal, with premise-based an also both sell and business agents. record third Mitel Intelisys market. with growth success POS training, we including solution aligns premise-based We of the Mitel more both in our providers payment quarter to solutions and opportunities support an in business relationship services, Fourth, a our channel opportunity customized deployment offered payment communications configuration. and March replacement services, with contract SMB its midmarket kitting for with high-value and of expanded

the agent a vendors is tremendous the in in investments accelerated UCaaS, communications of are business. We Intelisys fastest-growing unified additional part the are of making channel. a leading long-term card this as has CCaS, business Cloud line April, growth By the and announced this which which solutions of expedite And to Master expanding as cloud the however communications hybrid. Agent Avaya solutions cloud relationship, choose, program. premises service, can is customers we the under a addition providers. our center we In or contact Avaya Avaya based, provide service,

Advanced agents such services carrier cloud and as and successful offerings, We Intelisys and most SuperX are and helping Cloud for educational with and our VARs opportunities and through agents. to VARs Convergence, programs their Commission practices Programs University partner build experienced

strong our NetworkX supply had security performance new vendors exceeded and business is net card where year of customers its across growth and NetworkX chain. networking, line in Our our Brazil, teams, our Cisco Cisco sixth first sales SMB, from Strong its collaboration, opportunity the they full goal enterprise, growth is now and team Cisco center selling security. selling in of the data cyber continued.

held the NetworkX this Sao Innovation for for XXXX customers. customers. our and solutions Our barcode in over time at had ScanSource our and attendees team Brazil in event, X,XXX our growth focused included on complete first -- Forum offering Paulo POS Brazil We in partner both and teams and

and And reflect ability of the call Gerry outlook next in with quarter. to to that, financial results that the the take teams our markets results growth detail we more of for Our advantage our our over I'll in the to opportunities discuss serve. turn

Gerald Lyons

Mike. Thanks

for our For dollar Consolidated while of included change forecast added the our $XX in net strengthen of increased well, Portal growth growth flow. within and million & sales X% We sales. our cash growth. and to consideration as from expense sales to year-over-year a GAAP the continued XX% EPS and sales with and EPS on operating $XX XX.X% closely net margin contingent operating gross Communication year-over-year enterprise organic business Services higher-than-expected $XXX The EPS organic Gross forecast our North to that sales below of was volumes to $XX $XXX year-over-year in addition quarter, sales foreign and for we positive currency X% of communications Portal. had tracked and Networking better-than-expected increased Barcode, a XX% as $X.XX, translation sales our million, NetworkX growth in America, Worldwide in range. to the Worldwide POS million. $X.XX million this for a results Brazil increased for XX% result acquisition value net The NetworkX expectations fair impact million in XX% driven had included sales year-over-year in due non-GAAP fell of POS with the dollars range, segment and by actual of Brazil. GAAP Both Net were of year-over-year and our profit segment. organic higher quarter, results the and X% of our Security

margin up from year was the profit Our third quarter period. XX.X% XXXX prior XX.X%, for gross

Worldwide Portal the and our acquisition. Security the of Barcode, segment, addition X.X% from higher-margin For the POS Networking margin gross increased to

segment, the Worldwide the Services unchanged year. the & Communications was gross XX.X% from and the quarter For previous margin than lower prior

year growth. XXXX. our prior vendor margin SG&A opportunities our the million in Services unusually making investments related Portal, increase fiscal also for we strategic quarter reflected recognition our quarter to & reflects POS prior for third in $XX segment. Worldwide high business addition program are million of expenses Our to the to year Communications gross $X.X This plan from the increased and accelerate

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

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

of fair XXXX, For for value an in the expense million. increase of the recorded contingent third we of $X.X quarter consideration

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

and tax XX.X%. the rate year For third the effective the effective non-GAAP XXXX, was fiscal rate was quarter tax XX.X%,

was targeted item than quarter. from a rate rate higher effective our Our XX% in the of discrete

for currently the a rate. the fiscal forecast, the For year we XX% are range XX%. effective to using effective we from fourth quarter XXXX XX.X% fiscal rate estimate tax XXXX, to year And

Now balance the shifting to sheet.

is is flow. we than significantly year this of quarter of cash strong And prior higher million operating operating $XX third the cash typically for The fiscal quarter year which flow, in a quarter, generated period. our

around for levels giving Intelisys, that inventory we well June certain the XX, March turns, came March recent days. in The or typically in of to trends DSO sales at markets. to appropriate quarter, extended international XX terms sales DSO, And higher slower -- year of given for our inventory as most in quarter. our reflects believe quarter. credit the X.Xx outstanding, aging excluding X.Xx XX North the days, than compared higher day America, forecast as offering as our Our portfolio primarily our receivables are the decreased ago in

our standards, however. We underwriting have changed not

organic order, of At million. ability we Our includes, capital growth, to balance share provide and continues of and allocation plan, acquisitions to million cash us $XXX $XX sheet the the remains our cash which debt and in strong very with equivalents strategic quarter-end, had execute repurchases. and

Our X.Xx and net quarter XX-month the XXXX. EBITDA, leverage third approximately ROIC was totaled XX.X% adjusted trailing for

our EBITDA POS discussed repurchased adjusted the I quarter $XXX year-over-year, earlier, plan, borrowings share quarter and our the remaining shares XX% for facility no third million the While credit repurchase and have decreased due the authorization. for strategic as We ROIC approximately increased from revolving the investments in our increased Portal to under on acquisition.

Now turning to our forecast.

earnings per $X.XX share for range range range sales per digits in The to gross quarter per share from margin to range share. to single per growth and segments to share over GAAP to diluted diluted and $X.XX little net a the organic million expect earnings to sales a $X.XX of billion, midpoint $X We forecast per $XXX from the both $X.XX that's share XX%. non-GAAP low per reflects fourth from our for profit share

interest to resulting average the the rate lower interest expect the next over from higher to expense balances. quarters March similar quarter from be and debt few -- We

fiscal full expense. a XXXX. I effective quarter of comments. for assuming a tax the we the fourth year we're closing quarter when of year year rate to for reform, XX.X% tax fiscal for XX% range assume tax the the I'd for fiscal back to in million now fourth impact like approximately mentioned be we'll XXXX, $X.X XX%. And For the And over have interest to we earlier, rate to XXXX, as call turn of anticipate Mike

Mike Baur

Thanks, Gerry.

achieved growth sales results. For and our segments that profit the quarter, gross across outpaced we sales results both strong

and to see our for are growth executing ahead to strategic focus growth We are opportunities. making We strategic at initiatives profitable support the plan investments opportunities value-added these margins. excellent on

open questions. will it for up now We

Operator

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

Your line is open. now

Adam Tindle

good thanks afternoon. Okay, and

beginning about to you'll on wanted fall those the implies At operating this a goals. like Looks couple XXXX, X.X% of a here talk goals you fair, goals maybe some that ROIC. guidance short margin fiscal changed solid fiscal growth little anticipate with, the to X about including achieving start And set the improve shorter a of then fiscal the maybe First make business. to and didn't bit those takes in bit year, to XXXX? puts to you talk But of goals? Mike. question, what in of those a little And you for out be second, first and fall

Mike Baur

Adam. hey, Sure,

two versus we're with as today opportunities we our even are at strategic than where excited the were about we look we think we I growth quarters more three where ago are then or plan.

investments a recognized long-term making short-term pressure our the quarterly shareholders support As strategic are right is delivering puts result, that on results for some these there and we we but investment some investors. at believe extra that our we looked that that, for to

we're it's would investing. that even say I more we're more -- so areas about excited And the

into expected few quarters those So then. not we dollars we the as about as happening a talked if quick are have more put said that ago even some areas, results we investment of

So right. think you're I

grow market, end be back last of August and I thought some of initiatives. as these make by we to last three looking decided think to at But months fiscal time of than should we opportunities very in new in to specifically the that spent year support XXXX the investments would've we SG&A these four those doable. X.X% over faster

Adam Tindle

goal? changed? And puts still you tenet X.X% a If Or fiscal about company core those core has kind X a puts and XXXX? the still ROIC margin core can Okay. then and for goal, operating of and the that improving achieving of takes and -- takes is talk to it's a

Mike Baur

low last down quarter, then Well, because We where I three if of the grow see so think the back December. it dropping expect these to from Operating was income watermark, quarters, through income or the we were And -- the a improving you four we from we X.XX% this and at were investments. operating certainly here. as look

look So few we the quarters expect to in size. would grow as we that out next it continue

the have we'll it the into was, get understand the a a you It an as more while Intelisys POS insight be case We Intelisys, business. have not better still return for in from that with we in it of And can business business less reflected even challenging from only that a to more our since year. ownership believe And a as is, make seen, year down Intelisys, just also can historical than have into on We necessarily Portal first year like impact a road. business. the guys is that now. of investment owned in

And so that the investments believe of do Portal are in investment. not doesn't POS investment. have some to we're we also make the we making life the quite Portal realized the quarter that POS What

say, X.X% is still of yes. question your So higher I tenet, core would and a

Adam Tindle

for last one clarification And Okay. Gerry.

in think I which Is that basis decline think guidance imply had June? in of to on the would range. seasonality think margin would margin, be the way gross what typical gross And past. about [held] margin sequential I you're for you kind right for XX implying at point to gross the

Gerald Lyons

in is XX%. It'll guidance It the XX% a typically And we think June Adam. somewhere to in quarter. softer above implied point was basis what our I quoting. that go that Yes, at be is down range right March you're going little than quarter or XX right the because

Operator

the Our of Sidoti McGinnis & comes Company. from line next question of Chris

now is line Your open.

Chris McGinnis

of you a behind Good thanks them just the Intelisys. and by that? what's customers the maybe Quickly, afternoon for and talking you're scenes some little talk of initiatives, growths of growth happening question some those nice -- bit acceptance in my I and Thanks. guess, with the working the especially Can of around some taking just quarter. adopting

Mike Baur

brought changed phenomenon doing of has much a very and that -- shifted our opportunity. even example, service, cloud become vendors more last on business with think think is carrier being when around CenturyLinks the that specifically, ScanSource what's world, market unified was recognition for into When nine a months has more channel, these years communications how channel I and as we carrier Intelisys Yes, about route viable to been indirect to the of community thanks, ago that Chris. changed we were two like all we the the we what's in are about excited what UCaas a Intelisys, the can business from acquired we're for Verizon. -- the the And the supplier, planning it is that's a focused really that has to and a year familiar

of they out space And answers the market. we so those want what it. market route is or vendor to pick that's really every has where all winner. we're offer cloud? not trying cloud to that's have do through to a to them to how It's can't it do is the and through VARs? that obvious that obvious also us. so But communication ScanSource we is in it to premises, are a the it or hybrid agents have sell has figure best more And the Or Is products and take sell we

to have through a to agent an having we we're really the but VAR through by an -- equipment a can So model. services sell agency so platform also provide premise-based

want we products sense. if and sell VAR to have VARs agency that So sell make agents products,

provide to which key position make bought And so don't what's ago We we prefers. years turned in bigger We Intelisys. than realized prefers. market that to with our a know channel customer to that's we're the vendors it's that to end user we sure two opportunity out the the want be we think end route

Chris McGinnis

And for maybe like in opportunities little in I in bit about just to this? higher-margin how and terms just business guess, maybe business? the area, expand, I M&A up guess outlook to service-based Great. helps. of And this That a following be but

Mike Baur

market, through Well, Portal. about to with is but that a talk we certainly market acquired not have think now MSPs relationships other and we as market, We've ISVs, many routes we some for to think agents, agents that that we that Portal. we've through had picked to but as multiple ISOs we've VARs also got up route a we MSP which got POS don't we a route VARs, as lot have probably years POS

part a And these necessarily would acquisition. be of customer -- to acquire routes base. We the to be is interestingly what all to of new future we're have to So acquisitions don't market have offers. finding were acquire just new

to And And And we that, successful currently us doing as scale service might services that the a all most wholesale. services example as looking key for right, they so of base. either customers, a theme. something form talked customers And customer it's to service this managed have of offer. agents, some year we you're our that last managed they general existing some a don't provide was we VARs, can in find new offering, we what about need tell we're at partners, or our

to would an I to a require just provider, an jointly require or that so be something do existing it And joint signing it acquisition. going may suggest vendor, add new of we're It services but we not like more may investment. with might maybe that, more continue a of a also

want to So service as said, -- do the these customers we've believe got But next. our of it. guidance offerings to and we're are us this giving us develop, necklace we multiple to to as we where trying go they ways

Chris McGinnis

because about feel now? great. the up geographic of Okay, following on acquisitions more footprint your I How recent expansion. about some prior do then, more maybe you that And guess, just were just

Mike Baur

and others geographies. and Latin translate We with we're other Yes, the our POS business. many to Intelisys today that will Portal services of same the geographic them expansion has the product certainly offering to led do Europe think us and America from

yes. time services those same move geographically, would we to So over expect

Chris McGinnis

obviously, Mitel. the Okay. And highlights, lastly then, one of

mean, about that I long from a a you You bit that expect is more relationship? do them And onboard? how that just just maybe XX-month coming bump? bump little --

Mike Baur

Chris? Relationship with I'm who, sorry,

Chris McGinnis

Mitel.

Mike Baur

Yes. Mitel.

to things pretty do key work these to when a it key move has pace to way for sure a the make the So distribution vendor have key at us, we is to we we're of channel customer. they used supplier, want the

very people we customers certainly, And generally be important than to service levels happen. before these it it it better Mitel. takes But longer with so transition. expect a it's even that to give And working we than expect got they successful

support some earlier to this about talked make we've had this. additional this those in SG&A in that And is of again, we investments to, so investments part call. And

ahead than if and we transition once margin transitioned so they're important successfully. have the business this to, direct history transitioning that We And is, beat grow it business is is And this it not that frankly, we more ultimate to that you it these Mitel that of they business will, to invest this and our a skip take businesses revenue the measure our was is was of how And prepared goal: the successful it's grows we're way. when to that comes before. with take formerly that's it. do business grow. this is our And and transitioning

to over three we'll two results So quarters, for next see of the be sure. this able to the

Operator

comes Andrew Spinola of line next from Fargo. Wells Our the question of

Your now open. line is

Andrew Spinola

term, reported step that the about XX% take you're Mike, questions here Intelisys when you those just year-on-year. medium to thinking grew further, one it I think over

sort coming you forward, over looking term? base right it's this XX% it can fiscal the it think growth of can because and you're perform think do -- been how this growing when business rate when potentially, of of Or new off now? describing a mean quarters think market at think What you this geographies longer each you I is do? I the year. about small the it's addressable that for growing

Mike Baur

XX% One think driving to dynamics are have has growth been I two contributed traditional of Well, that shift in Intelisys. with the and the that been going indirect we number. the the is on sure by for carriers. And channel this to beneficiary has this past, that

going -- vendors, these of you I is card, other line will, thing that's on think this the supplies. if expanded

markets list minutes whether everybody and So because are XX or the a world, meaning Intelisys with suppliers take taking And are look the we all market list the than vendors. now at just these as master me but don't showing other these faster about as their because you the want them then in if the working using those the the key a it'll RingCentrals have XX few share UCaaS to of growing market. are is that dramatically. And placeholder competitors; it there, I growth suppliers, agents -- vendors from -- Intelisys -- placeholder, we're their

the we're if at about growing UCaaS at think suggests we about growing is market -- are, XX% the we're XX% XX% it's point. So faster And CAGR cloud and about we than a is study in growing rates of the the space. that that my going

UCaaS an market getting exciting. Intelisys. we already to what these that why gain we're And an have is in growing within to leads share in calling marketplace, and So the investments opportunity believe there and share confidence what's that's space, make unusual internally we're that's accelerated some this to us

Operator

further questions I to back Baur I'm Thank turn And call no the showing now remarks. for would to like Mike closing at this over you. Mr. time.

Mike Baur

Thanks joining us Great. for today.

and expect hold June next XXXX. to year conference Tuesday, call our quarterly XXth August XX, full We on results to discuss

Operator

today's This program. concludes you Ladies for conference. thank participating today's and gentlemen, in

have disconnect. Everyone, great day. all You may a

ScanSource (SCSC) 12 May 182018 Q3 Earnings call transcript