SCSC - Earnings call transcript Q4 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

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

results review commentary our and CFO year the will the of our accompanies comments take We is for questions. Investor posted section then in your quarter website. operating our A that and and webcast Relations

results performance, risks our statements ScanSource's interest value subject differ for earnings, statements. are made are the results not as SEC. to to ended but statements are operating earnings such on quarter from out with for June Certain and XXXX cash the in XX, Form expense, put to, rates, we include, today fiscal statements. first of actual and fair including those contingent identified tax expectations These limited risks operating materially call and divestitures release consideration, XX-K for and could of the factors in These year filed that uncertainties forward-looking cause year sales, the this flow, planned XXXX, that uncertainties

results upon of changes as disclaims law. Any our represent views be only or in to update our by of duty any expectations required to representing and forward-looking actual should statements not as relied reflect any subsequent statements ScanSource as as views today date. forward-looking any

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

with now begin of our Baur overview results. an will Mike discussion our

Mike Baur

looking not our started. for joining and at as did for year results thank In Mary, the fiscal finish as Thanks, we quarter, we our strongly today. us financial you

record record XXXX, EPS year year-over-year. we delivered $X.XX and $X.X net non-GAAP EPS up GAAP of of X% fiscal sales For billion,

began enhance tools we and our making and plan, our well digital channel to strategic teams, systems value our as following year, processes to employee in our significant suppliers. new fiscal the During our sales investments developing as

fiscal identified six the we began key year. we growth for year As initiatives have XXXX,

First, have sales business, channels communications contact collaboration cloud. unified including grow we and to the we center the best believe

For have the with WebEx a digital example, solutions new our way. Cisco partners embraced offers in significant

business Our than Cisco subscription has year-over-year. more doubled

from with platform choices. intY, capabilities with we partners collaboration adding billing accelerate business Now our to new CASCADE for our our are subscription Cisco sales cloud new

for is develop. XXXX. to camera to the to partners demand market rates represent sales strong and the software management surveillance during the channel continues We to believe expected video best our demand industry in video the leading continue Second, at routes suppliers for video double-digit grow for market

for top Our at to year-over-year our third of in suppliers. the which continues XX% area year Intelisys with grow cloud XXXX business, growth cloud is fiscal

the over providers the majority are unified number one Mitel. communications service and of We number the a RingCentral, XxX or two including master as agent

complexity and business contract from a and in portal types software that of services. higher opportunities include higher vendors. XXXX, fiscal with see These mix POS integrated margins opportunities of for payments excellent Fourth, independent reflect deployment a we year payments new

the year-over-year Our we've as continue businesses. where by Brazil our SMB business in cloud the teams XXXX will One We're Cisco fifth growth growth our enterprise have ScanSource the cloud for strengthen for and is also and are of enhancing area provider combined Brazil CASCADE to our for platform this and services Microsoft intY a as and our cloud suppliers market. strong enhancements The in CASCADE platform business, in Brazil. led growing grow business region

and automated CASCADE digital solution add highly for Xst. configuration, tool we provides ScanSource with our with Acronis. The capabilities to Symantec, suppliers and cloud provisioning distribution which intY's partners Microsoft, excited CASCADE July a current services are platform, acquired billing that we six, allows And on

is a XXXX that scalable operational already with partners. sales active is over platform and built It

plan we software, more solutions practices. subscription help cloud XXXX, more and sell build year strategic easily fiscal to recurring to sales cloud Cisco add During our and partners to suppliers, CASCADE revenue including

go-to-market American year began added fiscal XXXX, these During new driven customer a solution over and beginning become investments implemented we marketing supplier with ago a a to organization. structure our new and oriented We teams. capabilities making year North sales,

started the delivering five team for top This solutions, our for quarter, services force recurring and ScanSource sales One in ScanSource line America and March of completed the business consolidation approach. revenue. transformation a is North we growth During of units North selling and designed new in America have

As part of the certain made a Brazil, a businesses in United States, divest earlier announced to we and decision the strategic Canada release of we review of which our press today. businesses, outside

continue and in its distribution will Global. and this to including acquisitions ScanSource intY, Canpango, Intelisys in business operate in geographies digital invest recent these

These the led and We Canada determined States focus physical business. of faster and model to XXXX us distribution that market X% year this we our plan. are to X% year sales Brazil, need for certain fiscal value-added expecting on our we positioning annual XXXX, maximize than fiscal are product to net and a actions scale for for United growth the growth our amount in

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

Gerry Lyons

the range and a EPS with sales had range our to lower missed finish We from disappointing primarily volumes. Mike. for fiscal sales expected our Thanks year quarter. We below our forecast

at businesses million of XXXX, These planned announced of certain net we operating non-GAAP of divestitures was Earlier million. the of divestitures physical for capital June fiscal fiscal had Brazil. full and for investment $XXX Canada The breakeven approximately had planned today, United income XX, XXXX outside planned the States, these XXXX. a year year working product $XXX the and divestiture sales

or quarter sales net an down totaled million, Consolidated year-over-year basis. X% $XXX for on down organic the X% fourth

headwinds struggling Foreign premise-based to areas communications sales been volume by business significant We've grow we lower of million. from delayed reflected currency translation our not deals $XX lower that impacted suppliers. certain our sales lost. negatively The due to were believe big

fourth North Additionally, we some during our transformation who partners missed were sales by from impacted America. quarter, efforts sales team the in

the quarter for X% year-over-year volume. decreased the dollars Gross lower consistent with profit sales

year Our down fourth previous consistent the and from year XXXX quarter the with quarter. XX.X% profit gross was margin ago fiscal period

we programs indicated not the which we quarter, As margin at higher quarter included to did levels. last vendor continue expect previous those

for SG&A to last expenses These One increased expenses prior million quarter to our sales year $X.X $XX expenses the fourth plan year new year for fiscal in were planned called transformation significant million fully investments We've from XXXX. we quarter quarter the made operating the as executed growth realized fiscal support ScanSource. XXXX.

on drive revenue. teams higher top these We will as our gain line leverage expenses,

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

consideration contingent June and reflects our balance We the liability have our on this XX, Intelisys present value of acquisition. a for sheet, payments million XXXX earn-out expected $XX future

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

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

For the rate tax fourth quarter XXXX, the was effective XX.X%.

any year rate of by effective Brazil, the in tax planned America. XX% offset assets Our divestitures settlement non-GAAP the excluding in partially include to net the from items. discrete for a tax deferred Latin XXXX, from the tax to fiscal write-off And impacts the XX% favorable estimate excluding range we items

year comments And results. few now on full a for a

fiscal represented X% prior we X% prior gross XXXX. few a that basis. had tariffs the things fiscal to year and year in We from we recur points XXXX, not increases year opportunistic these up on year XXXX purchases. price from We're were fiscal XX.X%, organic year $X.X Our of our a benefited higher inventory margins fiscal had In billion year. expecting had an levels of increase vendor The sales for related the to events net basis margin. XXXX or XX

We growth our higher are however expecting faster margin businesses. from

expenses million X% for made to investments the and SG&A CRM. operating Our XXXX. the organization, acquired We're investments the growth non-GAAP our year the of sales companies X.X%. Fiscal year non-GAAP up income to $XXX.X for throughout SG&A fiscal XXXX additional operating leverage is Salesforce X% or in increased during year for including margin to year sales expecting due

to cash shifting year. million the working inventory $XX higher for of opportunistic level Now operations balance this quarter the negative a including $X from purchases. Cash reflects used investment, million sheet. flow capital The used and

positive We operating fiscal during generate cash flow XXXX. expect to year

capital In working XX, addition, expect a million those the planned planned and divestitures would we $XXX at we announced in June earlier divestitures. had today benefit cash approximately from XXXX, significant

volumes. sales this levels times, typical do than of reflects inventory the fourth in and first For planned at are the levels inventory to opportunistic inventory due inventory be the from quarter, end lower and range turns purchases of expect quarter we quarter. We to higher than had slower X.X higher which the lower the the sales our

days Our quarter at year XX from day the days in sales outstanding came days, in the up XX quarter. in prior prior XX and

At equivalents June $XX debt had million of $XXX XX, XXXX, million. of cash and we cash and

Our trailing year leverage X.X ROIC totaled for adjusted net EBITDA approximately fiscal and XXXX. month XX% XX was times

fiscal not acquisitions have yet growth. contributed $XX built EBITDA but XXXX, During to year invested million capabilities we that for our

forecast. Now turning to our

our of forecast to the forecast we divestitures divestitures XXXX planned XXX sales quarter sales XXX our sales range midpoint approximately of planned fiscal million. are and to we net first from non-GAAP that The million billion, to range from first year We for organic XXX sales quarter and million non-GAAP range X%. net the $X.XX growth GAAP providing excluding the expect to announced excluding today, our reflects earlier

per GAAP I'd gross planned per the any ongoing from XX.X% associated expect operating the from closer share to not $X.XX for a to or And the quarter, diluted to share $X.XX earnings we the to $X.XX per non-GAAP like to does costs and share for shares margin write-downs point close non-cash are charges share. X.X% per diluted to $X.XX share margin the divestitures. businesses. include out EPS for earnings ongoing businesses the to from per that with per non-GAAP GAAP range expected range and

interest year period, XX% Before XXXX excluding and range this in also expense to estimate assuming fiscal discrete XX% at full we're tax be $X.X items. the we million for to forecasted approximately

to And a with closing call that, back I'd comment. the like to over for turn Mike

Mike Baur

executing our our business, we are higher review plan margins our for growth. After higher strategic and of

driven at that these network to We be driven channel. we channel of delivery solutions the and will efforts. commitment shift plans fiscal a growth is year by we center are with the results believe services, to driven by solution an serviced knowledgeable for partners. a sales will showcase strategy digital The value-added supplier the we XXXX offering being from end-customer By of have physical of initiatives

We open for up it will questions. now

Operator

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

Your line open. is

Madison Suhr

mid-teens my long-term financial several thanks have there ROIC. -- being Good Madison questions. This XQ you I wanted on Adam and X.X% targets is operating afternoon. ones and for for to to X% out margins start taking with

should how think likely this So and was divestiture given after margin diluted operating the we these about for metrics? ROIC

Gerry Lyons

Madison. hi, Yes, This is Gerry.

as it number, more -- X.X% our certainly that a going get to of that But that previously said just some margin we higher short-term get time a on up sort ROIC, think operating the take to to outlook. So, we it's is can number to that's mid-teens.

XX% XX, that. XX months, number indicated we we've get going So, -- need to another we we're at something in up like that order to to where need to finished XX

Madison Suhr

a And potentially that follow-up, And is pursuing this how business? then wanted would if so, could just only Are write-down? a of a cause as to the chance sale be? non-digital there a you I distribution clarify. much quick Or that

Gerry Lyons

as that -- we at moment. we've a what and at that the moment sale plan planned so is announced Yes, have the there's that’s the the only that

Operator

you. Thank

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

open. Your is line

Keith Housum

Good everyone. afternoon

the businesses guys was disappointing You -- impacted very that been be there. some at we the divesting segment, that barcoding the going be POS results as businesses retained? How you're are that look to to going much by of obviously versus

Gerry Lyons

Yes, disappointing the have some in Keith, results segment. we barcode did

that call sales sales the of was part just in lower volume. on indicated volumes, and all really was we think geographies of I most that the lower really, that,

we're So, upon improve to divestitures. on expecting that executing these based planned in both segments we’re going

Keith Housum

have to existing the going be any there ability to earn your vendor the that that is will you terms up? rebates what mean, or of of nature? the in volume any divestitures, risk Post line relationships forward to incentives impact or I

Mike Baur

get on targets and we particular we the it’s benefits geography. Keith, today geographies. across and based a negotiate no terms All certainly Mike. because conditions program We're not that do what rebate expecting in suppliers really

America for and does Europe not and and affect North benefits rebates our So our example, versa. in in revenue programs vice

Keith Housum

way were than disappointing appreciate may. question, you it, I the I the up just a And be down is sales one did. inventory it. and Again, is more Got platform? thought it guys vendors there worked of down preventing Or a or sales or really to inventory in worked it much? understand was extremely levels is you would matter were that's Last and if entire got anything the across honest, from got bit you being but high have two catch further? I the too little to it quarter, really

Gerry Lyons

bit Yes, a our we were so it but of is also some indicated we of issue, in opportunistic a certainly sales that buys.

So, in more we pointed are have and we’re going board. have things across the going we do down, driving absolutely because than at past. because to It’s places. I differently it's are committed partly partly wouldn’t numbers say to volume to we certain those higher sales the But little

Keith Housum

you sales what volume gives had the the What the confidence I guys more XQ? going compared higher to are in XQ you that apologize sneak with have in I'll you one here.

Gerry Lyons

that to, and the bigger started year ago into we Keith, is our group a we March. the structure structure of made. a One really phased new actually sales in July, sales of in indicated We customers that that things in changes we that

recognized was a then into prior, our salesperson months nine once even a how hey, sales though we transformation structure, work? customers by for go-to-market. so, in forces really now learned new some a does even this lot this on or team, big And I and And we new sales the which combining have that had said, turned disruption definitely five there one, was some we

revenue that that believe we once and the this to based understand and lost they'll it they new the customers definitely we perform. actually We sales And some back it in benefit quarter will new get so, but maybe we on that we'll start the that our believe They will from team feedback, believe of -- like was at didn't too. first, structure.

Operator

Capital next question William Instructions] from you. Partners. [Operator line Our ROTH the Gibson of Thank comes of

open. is line Your

William Gibson

color Thank businesses, to you what on regard are you. divested more With products the give involved? us could a little

Gerry Lyons

Sure.

it's it's it's communications America the Europe. both primarily Europe, both communications and it's as our and in so point-of-sale barcode, And So, both products Latin in segments, barcode barcodes. products same so in well,

William Gibson

terms of pay going of you're they're down in is any once use funds, to debt? that divested, And

Gerry Lyons

certainly pay we will yes, debt. Well, down

dollars that we want performing which we we've invest them regions the performing higher also We These the need rate make. indicated as perform, and going we we to have be some the other Brazil of as we're that investments to at to that would those aren't have, have in so U.S. indicated. areas still

William Gibson

you be discontinued you. quarter to Thank And first results, businesses report then, one they the show as last will operations question. included? divested When or well, be

Gerry Lyons

whether tests there we there's some number of meet, that meet bunch and point a a to not those this and is Well, Yes. at so guidance accounting there -- it's of can that is clear we around have tests.

operations. either will without reconciliation these or of create they as non-GAAP we out report operations non-GAAP So, to be sort some discontinued to broken you we what from get a will

Operator

you. Thank

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

Your is open. line

Chris McGinnis

afternoon. questions. for taking my Good Thanks

around just you and for the look planned the been I guess a divestitures? back XXXX, divestitures. What would follow-up if I organic have out x think growth the

Gerry Lyons

second. one on Hold

of Let been me find that Chris. X% paper, would around It piece organic. have

Chris McGinnis

components rate? so of I X% X% And you're saying What's the targeted share full the the think year. what -- range by the expecting indicated or Mike about maybe the for on is guess biggest I for that the was improvement growth to

Gerry Lyons

some interesting And from is think growing opportunity. our areas very what subscription, important for we Chris, And much were opportunities higher that we growth what's these selling and example and gave I growth area we results of first and that part that revenue and Yes, the year. are probably the these areas, at specifically rates. we the six believe how are better of well, in actually today, quickly were reflecting for example the doing Cisco the comments is, WebEx collaboration at identified much last than our are

surveillance for video the Obviously, years rates. market at few to example. talking example one -- been better continues be to we've do now than was that traditional So a another about growing

CASCADE Portal, had channel we our us digital take the software well. and in services share believe year. and products partners, lead make we ScanSource that to POS look then to digital than And and take We tools do and money, that's general. X% new next share we have obviously more strategy if selling will and from we that, we market what We believe market call that a by helping our so, when Intelisys, at platform, opportunity better

Chris McGinnis

And can elaborate that to strategy little helps go-to-market? you maybe with or change that that just how you changes And -- bit on you Thanks. you? to brings CASCADE like going in a what

Mike Baur

sure. Yes,

One a or one to a place sales of needed as any part platform, we that our those of sales of agents, our partner so and of VARs VARs, was of areas strategy one key of go central the an types place our or that order. could a

have configure as they be to Microsoft an what use software, able and First, they call example. provision to

CRM or or tool. today, to software any or Azure, you Microsoft So have their of their XXX, a configuration have products

And a ago, us sure to going it'd our years to long ago, right one few was To and years one. we invest resources. so, build too to we we place at be decided weren't building we take one looked buy need

provision we connectivity. a lot the or suppliers that Intelisys VARs build want the to where a build the Microsoft the the that with in to had a solution us to able it had want software, they of be to the have software have build the model one example We or model, lets billing Then it. us of work many you that customer needs. platform bill and software customer needs either we to So, suppliers, and a configure in

a it's but CASCADE platform, configuration what platform. also a billing, So billing as is they're

track products the keep of a also following sold. that, and And it's you've up to all way then

So Partner in provide actually do to business. how much tool you a then sell the using that are the be we more more takes had allow when customer on that sales and of a the the this what are, this future provisioning Insights renewals them data partner called their sales products about to in owns. we And based growth knowledgeable

believe XXXX. to becomes and why that's channel partner. important positively this And this tool us significant real in we is will a impact So, a

Chris McGinnis

services? business And from investment. this maybe a you how if much one is break on around years maybe question, the know don't few this the up. know if, last now How it's I could now been I

yet disclose not you still that is disclose? or can maybe So to it enough

Mike Baur

Well, And year-over-year, we're ways example about be at more can our call if different around it. it doubling and WebEx revenue looking disclose we we to want than we gave can. the in we looked clear we talked at the in Cisco that,

Intelisys trying gather metrics. new at of And like margin, to XXX% this the so, works. revenue commission digital a in as much And we're a more some model the also as and comes right

benefit So, don't the you the get at necessarily you as margin the top line. do line at

So, that aren’t. a model, we do have subscription sold look some like still of but in they're may the products being

So, build purchase someone to of it's and product. the and partners have how channel combination want suppliers of kind a our

So, we are quarter. working on on you as as clarity that that, next we hope to soon more give maybe

Chris McGinnis

luck taking for QX. Thanks and my in questions good

Mike Baur

Thank you.

Operator

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

open. is line Your

Keith Housum

catalysts outlined those of provide? Thanks you going strategies guys. or growth you've quantify how much for catalysts revenue Can kind Mike, six those six forward. six

Mike Baur

insight next we’ll future. over to though, we be to the areas be want certainly We great was but stay you first had and give would tuned, place this opportunity few we’ll refresh really more into more but be But about to a the today, our give the definitely that more in this we start. you to growth thought it Not talking quarters. able

Keith Housum

be that through the will the the Okay, income be that. mentioned come got statement? with areas. up And get guys acquisitions? investments growth follow see these you will then Gerry, cash divestitures that through in additional make investments guess, that Or you you'll here, it. could from to these I we'll the

Gerry Lyons

you’ve if will our seen I portfolio would we there think, investor more right. at look think statement we think when income -- now, look be our through I slides, Keith, the at because our

We outlined. that think we’ve needed those of You’ve now or seen things that holes basically holes all most the to fill. filled we we’ve

investments. really expecting make any not other going we’re So, need that to acquisition we’re to

Keith Housum

early operating no? Okay, forward that so X.X% margins say be it too higher will is or or to or, going

Gerry Lyons

be yes. No, Madison’s we've think that I with -- get indicated I got short-term, to to able earlier, short-term, question the their should we

Keith Housum

Okay, okay. investments, even with those

Gerry Lyons

Yes.

Keith Housum

you Okay, thank guys.

Gerry Lyons

welcome. You're

Mike Baur

Thank you.

Operator

closing I’d you. like Mike Thank turn over remarks. and time, any this And the back Chairman to at CEO, call Baur Sir? for

Mike Baur

you you. us Appreciate joined Thank today.

our XXth Tuesday, to our next to XXXX. on XX, September call We November expect quarterly hold conference results discuss

Operator

you wonderful a conference. this and your participation Thank gentlemen, for and day. Ladies today's concludes have

may time. You disconnect lines your at this

ScanSource (SCSC) 20 Aug 192019 Q4 Earnings call transcript