SCSC - Earnings call transcript Q2 2019

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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’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. begin. may you Ma'am,

Mary Gentry

welcome December 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

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

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

Mike Baur

another Mary, of strategic Thanks, performance today. continued us report and excellent quarter for pleased to our you thank financial of and joining plan. I am execution

year-over-year X% For year sales and income second quarter we non-GAAP growth. on growth growth, fiscal delivered net operating gross X% profit basis XXXX X% of a

good quarterly and our excellent execution X% diluted net Our EPS with reflect GAAP sales teams. high range. of operating and market sales Both results We growth. our demand exceeded record delivered by organic end forecast net non-GAAP

big the Our sales growth higher tracked year in prior expectations our deal volume quarter. the given sales

to also organic sales. last the we've X% had five quarter. each growth from growing quarters, During faster profits We've ranging XX% had than net sales

Second quarter key gross in profit increased XX.X% continued. increased X% opportunities X.X%. growth to we've six our gross profit operating margin and growth identified Strong with an margin non-GAAP the

market growth in mobile new America Brazil. demand, solutions operating use system and continued computing drove First for android transition cases to and North

another strong for and we image driven video, growth including for Second, quarter of resolution increased integration video better analytics. had surveillance and applications by more technologies

of transition Third communications the contract POS new direct large saw Fourth growth ScanSource. business our our a customers year-over-year customer in Mitel to opportunity business previously increase reflecting had deployment from channel Portal double-digit business. from

all a and and to Polycom had resource contact from headsets based business strong in Zebra. we across billings the however, cloud-based commissions Fifth, of XX% a typical year-over-year month record and rate. Software, NetworkX increased handsets lower revenue for business with to a than our In primary our and Enterprise Brazil in center operating agency of this segments as voice paying our demand system. January, investments And SMB. grow were is recurring business. and our sixth new acquired the As is expect these and North supplier digital to growing fastest and strategy, quarter move marketing to we calculating part growth increased growth We continuing tools commissioning that beginning In more year and in RPM Intelisys December, seeing normal rates our teams. making American model. we processes Plantronics, centric Intelisys, growth sales, channel investments We had our with sales growth telecomm for a in business a platform sales cloud opportunity customer net return a teams, from ago quarter. our are began solution we another making Cisco

of deliver board achievements. XXXX his first and on have chairman Steve dedicated experience. Fischer. has solutions years Steve solutions acquisition influenced growth part since a include and our partner to Chairman. sales as our of focus support that XXXX, Earlier approved was our leadership strategy from support his operating our distributor services, to technology move today, provider. margin computer his issued units service implemented hardware, contributions be Steve These to system our and legacy release products our want which retirement in collaborate channel XX an significantly a and In SAP and this a Intelisys, for for announcing Directors and a to I we joined and board focused getting Steve's and thank system. press strategy customer. Chairman our our growth of are of the our step to teams served the being successfully Under board in of industry ScanSource’s XXXX. to faster truly we the especially it continued leadership, solutions ScanSource we are board combining the a delivering connectivity and We replaced for enterprise Board are investments selling making the for easier software, expansion. excellent that Steve to closer and centered ScanSource With business around on end sales specific our

in will wish board best. and additional I of confidence We role me all to I'll over appointing greatly the that, quarter. in to more member and and Gerry next the Director. lead detail Independent the for Chairman miss With him our his appreciate call outlook results Steve Peter Browning to turn board's to selected family was the financial our of serve as discuss and

Gerry Lyons

Thanks Mike.

profitability. and quarter strong results Our reflect growth continued second

XXX% GAAP year-over-year Second GAAP exceeded our net and $X.XX non-GAAP XXXX per at while end increased of share diluted EPS increased forecast the and share range per EPS upper were sales Quarter $X.XX the XX%, of EPS of non-GAAP EPS midpoint.

For growth the quarter, operating margin our results X% and margin. X.X% gross organic operating XX.X% included non-GAAP sales and

net Our non-GAAP the billion quarter operating to Consolidated income record for sales net for the quarterly X% growth sales. X%. grew $X.XX X% outpacing our year-over-year of increased sales

sales expectation. Foreign currency our forecast by translation $XX negatively in with our impacted line million

and Brazil our primarily POS big due and organic our year or higher in by in We quarter. volume deal at in segment on basis, to increased an and sales networking with the worldwide from North X% and America had or sales As increased strong in for security sales X% year-over-year The Intelisys. Net continued profit communications XX% net year-over-year double-digit XX% video higher we was worldwide barcode, year-over-year driven organic volume. growth sales sales Gross forecasted, growth higher on margins services segment Portal. an down prior and growth strong and surveillance basis. decreased X% dollars

fiscal margin quarter XXXX was Our profit second XX.X%. gross year

prior a reflecting versus security the barcode, gross the year to For mix quarter. margin segment, and the big lower of X.X% networking increased worldwide deals

gross communications and consistent For XX.X% the was year. services the with segment, prior worldwide margin the

This for and the fiscal to investments $XX of addition reflects XXXX. the million for growth. second increased $X.X year expenses SG&A our employee costs to quarter quarter of year prior million including the support higher increase from Our acquisitions opportunities

following restructuring We Latin and in those lower SG&A geographies. America had also the expenses in Europe

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

the operating These and barcode, those performance from reflect the as margin as the totaled improved segments X.X%. following non-GAAP For results international security operating to worldwide increased leverage non-GAAP networking for and sales operating margin communications worldwide the services segment, record restructurings. and volumes operating well X.X%

XX, million This $XX contingent balance sheet. acquisition. our liability expected for of on payments a have consideration our December value Intelisys present the future earnout reflects We XXXX

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

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

XXXX, from from year XX.X% we first the And excluding of to to consumed our accounts XXXX, higher XX.X% quarter $XX.X estimate the tax Cash effective is was fiscal year This second U.S. discrete to fiscal rate this purchases. for due tax Reform. XX%. range from and the operations effective million Tax full any quarter strong following For sheet. also items. rate sales to the inventory from balance Shifting receivable

We expect month had trailing We $XX fiscal flow period. remainder the of flow cash of to generate cash XX year during for million XXXX. operating the operating

excluding DSO a quarter, improvement Our previous X.X Intelisys were inventory XX comparable prior they ago at times for in but the to quarters. turns prior X were from and the year. times X.X the year came day from down days, and

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

And last totaled approximately a XXXX. tariffs of these of seeing similar our from few trailing share for a fiscal comments we've the far thus impact imported tariffs wanted of we quarter, not our impacted certain any is on the quarter times XX Our the year approaches. are second the ScanSource not adjusted to and tariffs. EBITDA are generally impact importer X.X China. demand net leverage And these ROIC of record the just of reflects XX.X% and products by forecast months was I on who and take seen variety suppliers, to

our forecast. to turning Now

interest mix range March $X.XX million The per sales growth higher reflects the million, and XX.X% from quarter of for to and XXXX $XXX earnings X%. share net range quarter to expect $X.X earnings for fiscal We a to to range approximately quarter organic rate $X.XX assume mid-point sales $X.XX range of our from of per The March share be forecast per XX.X% $XXX diluted diluted gross in we our share to in typical for range expense approximately of per share to the of from estimate to for brings year quarter. share fiscal $X.XX million share. XXXX. per that We for the tax to non-GAAP third margin normally GAAP the per sales year

prepare move open for the and the Brexit to Additionally, in in UK. from potential to impacts the a in center to Belgium warehouse to inventory our quarter, UK distribution March new planned we

additional now the over I'll I'll turn Mike. in And warehouse Our the closing new expenses back Mike call to for turn the forecast comments. UK. with reflects associated to

Mary Gentry

to thank the I quarter. suppliers our Thanks. outstanding and ScanSource team, Gerry. an Thanks, our for want customers

growth. EPS partner momentum expand excited customer and in ahead deliver to opportunities excellent continuing see our operating end are We sales this We margins with and strategy. about strong growth, invest accelerate the centric business,

open will up We it for now questions.

Operator

our And first Housum from Instructions] [Operator Northcoast Keith Research. from question is

is Your now open. line

Keith Housum

Good here, you afternoon Intelisys there? question of quarter quarter for previous year-over-year the was Is the actually guys running math really it growth. in that happened stumbled plus was it that guys. looks from and there My XX% that sequentially on you business, kind something doing the down like

Mike Baur

What was picked expect back we rate Hey, Keith, to up the happened the it’s we December what Mike. and for January quarter has we on that that have certainly the quarter. that has today is expected didn't for our the would said call business

stumble. a don't still our that new slowdown. we competitors, pressures was like market And There so again There team. any is that. it part nothing think is or a new in us for was all any it there December in maybe clearly, quarter business happen by if the something and no of was mistakes quarter. this might I no know was from is at So, don't that

hit come forecasted So, we certainly were feel has strong. much January already didn't we very better but it the plan, because disappointed that in

Keith Housum

you understand. Okay. as Help it revenue grow quarters actually and we'd to the expect are was so was previous not Intelisys a as growing pretty primarily in and Correct? to guys I me fall business, back that predictable recurring thought long sequentially.

Mike Baur

we revenue a quarter also new that's true. is Yes. primarily but recurring customers. every business, No, get It

Keith Housum

Okay.

Mike Baur

And gaining so always customers. we're new

We billings. have new

coming revenue a is billings of key future measure yes. in, our New

Keith Housum

you announced RPM I the a any just model? into And Intelisys acquisition overall in color in plug provide remember of it you color of to it don't fit got plug the the the idea anywhere. terms that you. little that? where and Okay, Can on or more traditional of size the the perhaps on bit seeing software? does side margins or into communication business Does that

Mike Baur

out Sure. of working was management commission the that The years. company billing team software has written for many, many and Intelisys’ the Intelisys Canada. is the a with used actually Frankly, day RPM by engine paying back a it in

So and it's allows RPM that a all the in and timely take help to It make this which acquire to manage agents and we pay suppliers because the into accurately Canadian we it to all we company us bring that out system for agency our sure to sale put from designed it. the had of System, data us this payments channel. decided

of So advantage relatively for that we decided was the take sale was and did a it it acquisition. and opportunity to that we small

Keith Housum

guess Okay, I before up thanks. queue. jump follow in a question I back the

than you obviously you segment bottom the market was [indiscernible] barcoding step and large what margin are line. guys from Your large walking deals, of expect? for for the profitability took year-over-year obviously improvement that you just some mentioned Where deals less lack some down do or albeit away you a looking deals there great guys is on

Mike Baur

last deals specific did as big ago, a long-term repeat would said that a was were skeptical some ago unlikely we even would long-term knew and I of a a large and When quarters; forecasted We year source what extra we have I of Well, deals. would that we characterize these to less large. be opportunity. we year that think we relationship very these it

not we the we to absolutely. again. that, would knew it going happen a like though, if with low, deal margin right very be you're And was So realized Keith, took

Keith Housum

infer do perhaps I basis? a you was as So a this can business as vendor much regular don't from that do on you

Mike Baur

No, I that. say wouldn't

one it's our think significant I vendors, of yeah.

Keith Housum

the I'll queue. you. in Okay, got jump back Thanks.

Mike Baur

Thanks, Keith. problem. No

Operator

Thank you.

from from Adam Raymond question James. Tindle is next Our

open. now is line Your

Unidentified Analyst

on afternoon. Madison Thanks This for is for question. Adam. taking my Good

we So of about margins half flat type down of you your think single-digit you operating guidance growth. be despite will a stay year, like driving margins expect it the to year-over-year what's the Can should operating revenue this? And change? looks through implies the as mid would or talk Thanks. back we see then

Gerry Lyons

implying. – I is not Gerry. is that what This Madison. Hey, we're

it We expect the in December our operating as to we ended down quarter go margin from where has. historically

December typically up going actually you we're given goes to have year-over-year to but it March from March guidance we've the that down, So – March. should

So…

Unidentified Analyst

Okay, improvement a year-over-year. other led if you And deals a related got accounts large to I'll kind areas some XXX% that I segment, margin of the the or of then of follow-up there take I improvement margin wondering mentioned just for you. barcode on to look. less that know as that are improvement year-over-year. if was the Thanks.

Gerry Lyons

Sure.

volume of guess talking I we from margins, gross we're So operating some margins, a we that a is did Europe these benefit had performance the we about got Mike that little of on our SG&A deals well. also in – most really extra talking our coming better profit just got and bit about we better restructuring when If yes, that you're large we non-GAAP and leverage there. had from as And talked about. some

for account things margin three improvement. operating those the So kind of non-GAAP

Unidentified Analyst

you. thank Okay,

Gerry Lyons

Sure.

Operator

you. Thank

from McGinnis & is question Sidoti next Our Chris Company. from

Your line is open. now

Chris McGinnis

questions Good for quarter. and my Thanks nice taking afternoon.

Mike Baur

Chris. you, Thank

Gerry Lyons

you. Thank

Chris McGinnis

the points at X% you’re now and guess, I the what that on six you Anything, different about organic. thinking on, have guidance? looking – you're the than just anything seeing you're just guess the – when guidance focusing I that revenue

Mike Baur

is I Mike, think this Chris.

do more one of products margin around the we or the kind I referenced things improving is good Intelisys think traditional of key customer so well strategy about investing our how new focus, different selling been solution year we higher services for including that more our we team our we've feel and focused products. customers, last as as some – creating to sell

strategy margin better are communicating and seeing what sell so products. as And our I a execution of what today overall we're higher to think we

that's operating got we're good And top-line do margin. why good continue have improving the seeing top-line on us we confidence believe and gives the expand leverage from think that that operating we what the we've on and getting because that's margins. I we so, line bottom And margin we're the think I to can growth. can And leverage gross a

Chris McGinnis

is the – business the was the melding versus maybe And update the old? Okay. making? the us I little of And of traditional a kind what is just bit reseller transitioning you you’re guess versus newer that the can the on model new

Mike Baur

for saying our and to it last accomplish. doing in services a two on customer are to that is what a that we customer-specific been Well we've is sell I or around Portal And to the we that provide working part a marketing market, what teams were of end quarter that. obviously think I is the teams our around POS we contact some necessarily part of have out walls can strategy much of that trying customer is from taken more today, them – And is the services, go how it's And we've We will addition and part cloud we're four more a to or what much were down from big of us we to last is of historically, don't think which sales – that three part too, focused limit technologies. type years year so particular help the in more Canpango of it of too Intelisys our kind we back what that teams center. of acquisition acquire the from around that finding that ago, acquisition. did

service that's I selling either a I So got working product think think or product solution, than what more that's And got strategy a a we've products or around a excited. than includes selling which just two that. a real more that's and us

Chris McGinnis

things. of a just minor then and Great couple

XQ guidance. – think the embedded Just was the the I cost – that’s for three Belgium you the facility, – said on XQ it of in new in one is that

Mike Baur

UK. in Yes, actually Chris, it's the

Brexit. are that of come to disruption up warehouse costs yes, so a the UK may whatever happens the included service whatever from So the with we're in XQ guidance. And opening in

Chris McGinnis

much know Can Okay investment? that income down just just more and just drive I that's little obviously, Thanks. of And been out, the – you I that to invest maybe of factor this in just two questions. how as as a How non-operating one color One of continue long rate, bit provide more kind guess the you little then you’ve year-over-year. that help a manner. bit the seeing in that? to growth growth. and referenced the you've guess slides call I investing you're on you I think

Gerry Lyons

Sure.

we is – Gerry. this So Chris,

is that we'll just set thesis see really invest trying Mike to more we but is really continue much long growth. was earlier, people is saying haven't continued We investment them how of our right the is to, your around make effective. as that and trying as to as that Most

we'll next So for I the think still. while continue little to invest

Mike Baur

years think forward. think of the for I get the clear a But as – on two got our last and though that to to X.X% back part investor higher how margin is we've other do we've community focus and I said that operating we over going

X.X% And always as that achieved got that leverage, our back indicative we'll that. is goes target March The this that standpoint, revenue we'll that believe so so we've lose rate. quarter expect we quarter but higher fact some the down we past a quarters that from and forecast of be a we a and on clear sequentially

Chris McGinnis

Great.

Mike Baur

make investments, the continue And sorry. Chris, to

So to maintain that investments margin. were operating still make we ratably, going we the the so

Chris McGinnis

repurchase I maybe last the year? the back but for going about in way minor through cash just the of bit about forward. know then that the cash just just talk appears of And thoughts little it question, And quarter, half Thanks. with your share coming then in Yes, sure. very a

Mike Baur

Yeah, Chris.

take our was happened that's to and opportunistic. So just focus. really not the a That really happened price a when dip that share

as places in the can go focus a shares We're we invest quarter not improve. Our better we cash got think repurchase lot of that our forward. we our cash. expecting to to We've is March collections

quarter. So the we’ll pay down March some debt in

So, yeah, anymore share I repurchases don't think we're expecting really.

Chris McGinnis

in the QX. much Thank you. very time good and Thanks luck Okay. for

Mike Baur

thank you. Sure,

Gerry Lyons

Thank you.

Operator

we question And follow-up a have Instructions] [Operator Research. you. from Housum from Thank Keith Northcoast

open. now Your line is

Keith Housum

it I'm squeeze you was provide just know so or you have driving on guys guys, that UK, does you the the of in new higher guys Hey, what more [indiscernible]? little year-over-year. it that account factor does Inventory, And for the color assuming Or are inventory one-time? here. in XX% or bit but that Is maybe one that? you can was a

Gerry Lyons

Keith, this is Gerry.

include to really UK. we're not expecting does to from it the going Belgium transfer and So what's in inventory on the UK

going a there So be minor the increase you March be it's long to in the or fairly time. And quarter. for would minor us followed

spend we're think disciplined and we time very where I money. our about our

making where pays to we're when so opportunities. us investments we And them see make for in and it inventory

opportunities sheet X% again, to So inventory forecast so of to we that have been take to that take additional additional of inventory. growth, advantage organic need our there plus has some we our a think care us buy some balance for

Keith Housum

Got you. you, thank

Gerry Lyons

Sure.

Operator

to I turn Thank you. for closing like no I call this time, showing At Baur would the questions. further to Mike over am back remarks.

Mike Baur

Thank you for today. joining us

We on to XX X, our conference call results hold the to quarterly March expect Thursday XXXX. discuss next May

Operator

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

You now disconnect. may

ScanSource (SCSC) 5 Feb 192019 Q2 Earnings call transcript