SCSC - Earnings call transcript Q1 2020

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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

Chairman welcome is and ScanSource's XXXX. year prepared our Baur, will and our Gerry for John joining CFO, our conference us. the include Eldh, our Mike from quarter ended Revenue remarks CEO; to you and earnings Lyons, Officer the Chief call call and also Thank September XX,

Investor accompanies We Relations posted We posted questions. then take will review your Web is our our of webcast operating commentary section results our that site. for in and the the quarter and comments a

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

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

can be Form filed have commentary release. these site Web we reconciliations and found amounts the During on and X-K. non-GAAP been CFO also will reconciliations our our results between GAAP press our both our These in with provided call, in discuss and and

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

Mike Baur

thank Thanks, you today. us for and joining Mary,

One ScanSource to operations our the sales was quarter new are quarter with X.X% second of full sales for of billion first net $X year-over-year. our We pleased deliver up This structure.

partners with customers. and pleased to were more are and their progress the we making drive sales growth We our for value

We attributed to expected higher in We we business revenues delivered. we The achieved. shift business. our the forecasted can communications be higher than cloud than premise-based slightly shortfall communications to

pleased growth UCaS time, sales VAR the same channels we of our see grew to our agent accelerated through business, are the very which including XX% year-over-year. At and

announced suppliers Our that recently will RingCentral and revenue and us for have cloud VARs. additional give Including XxX our agents Polly Avaya and opportunities and recurring offerings

and of lineup UCaS are to routes ideally our market. take advantage growing to due We positioned shift and suppliers this to large excellent of

quarter we've first our reflects key in progress plan initiatives the for the strategic performance and growth executing Our for identified year. six

cloud First, With the CCaS to both growing sell business UCaS discussed, end for with to access we to to and cloud our accelerate VARs. are we market CCaS developing our that the and and agents UCaS move just our suppliers, communication providers want as to partnerships offerings through routes customers. are we for easy

demand year our see during expected we for video gain continue opportunities market is market surveillance strong XXXX fiscal to Second to share. and

had we a quarter growing which our a and first is record large of year, for quarter physical the channel. fiscal for For our security, market

new security years many delighted commercial for are Honeywell to Our asking has we as security add security been channel and for a Honeywell products supplier.

Third, opportunity Brazil high represents a growth high ScanSource. for margin

customers providers grow solution their As the give to reach scale Brazil, largest business. in and the of one we in greatest our suppliers

to Microsoft the capabilities grow business expect new recently We our SaaS acquired. with we faster

Brazil all in ScanSource. technologies This quarter, to as in place put across sales we sell integration One tools

at We've tools the channel Intelisys year's and North Our accelerate highlighted supplier sales RPM year-over-year enhancements. shared cable. had master we've channel we've cloud added growth, partner fourth Canpango in for portal We XXXX accelerate million our quarter growth Intelisys, connectivity, largest the including engineers made for record sales be of in new acquisitions. to and XX% plans participants America across growth and opportunity, our connect which portfolio a and new intY, we We to the partners continues with with and new agent $XXX to in October. added help investments managers this solution our

including portal we successful spares. for fiscal and a POS margins Fifth through includes deployment mix in excellent payments at of hot execution reflect our XXXX, higher contract margins This year opportunities see double-digit that business. management services of lifecycle

is we growth and X, automated our revenue will that believe of a area acquired highly services. we sixth tool billing on which which practice. allows we be recurring cornerstone business, cloud have intY, platform, our a of provisioning Our With July SaaS CASCADE configuration,

today SaaS more. we Microsoft, add plan Symantec suppliers many Acronis and to Our are and

we the United December, States. Brazil plan SaaS both the we to platform In launch with Microsoft in live and to January, for for agents plan go Microsoft. In the the in VARs

recurring calling, back? and Should teams, solutions revenue Meetings, build sales more go we easily our cloud I will and partners sell practices. strategic help

Okay.

a little Had that. about disconnect. Sorry

like Chief the and I'd Now, Revenue routes joined profitable X is to geographies. all across for to team October today's responsible John John call. sales welcome our Officer and driving across growth market to on multiple Eldh, ScanSource our

in the addition excellence his throughout building business experience helping goals instrumental John model. to brings SaaS on transform helping a business drive deep John channel In and sales a our us to sales understanding experience inside field companies and leading and execute be our business. and teams, will subscription-based of extensive operating

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

Gerry Lyons

Thanks, Mike.

expected forecast fair value Intelisys from midpoint tracked For include our the the diluted net sales a of higher for expected near change in results. than GAAP quarter, expense of contingent of actual non-GAAP the diluted sales, than for net $X.XX consideration EPS EPS better our range. GAAP non-GAAP and

and Our business our non-GAAP expected forecast, than profit operating our gross than from Brazil. margin results from income lower were principally in lower non-GAAP

our improve plan. the expect since we Brazil ScanSource However, in One our of integration results to completion

had certain $XXX $XXX of the businesses million. at and million had XXXX physical XXXX products, Brazil. Canada divest outside to net of These sales States, plans for fiscal United announced year first working we of August, XX, capital the In businesses September quarter and

process to quarter, we the the sell year we anticipate have by of of agreement the interest began received, During XXXX. Based we the businesses. fiscal significant on end third having these an a quarter

quarter sales basis. totaled billion for X.X% the year-over-year net organic Consolidated X.X% up first an $X.XX or up on

growth including higher computing, deals. Foreign with video as impact of volume a in in and networking X% on strength and up minimal surveillance worldwide X.X% currency net technologies across growth big was and payments security sales. North translation had led barcode mobile We had by organic net a strong this key segment well our up sales as America

in plan Net business services or America declined XX% indicated the basis, significant for and organic our growth communications year-over-year. premise-based had X% worldwide primarily our from dollars sales We earlier. year-over-year a profit Mike for communications our excluding an X% quarter gross is business segment increased X% in UCaS for divestitures, record including as North headwinds quarter non-GAAP Intelisys on the

was fiscal first down the gross and ago profit period year the margin XXXX Our from XX.X% quarter quarter. non-GAAP from previous

$X.X fiscal plan increased to execution fiscal quarter the quarter include from of expenses first support One investment We've transformation $XX year operating for significant our XXXX. of million growth the the expenses to SG&A year for year plan sales prior These called in made XXXX. ScanSource. million expenses the

Our acquisitions and Canpango. the we've of intY, investments RPM also include with the digital added capabilities

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

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

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

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

quarter we rate and XXXX, fiscal rate fiscal from first effective the of plan the items. any range tax to was tax XX% estimate discrete For to divestitures XXXX, excluding the for year excluding XX% year XX% effective

The $XXX generate year in Now capital cash a million from The at for turning capital of operating timing fiscal divestitures. generated to XXXX. the quarter-over-quarter $XX XX, September quarter, working during balance capital working we lower our flow expect million to cashflow to planned We payable plan the working positive XXXX. approximately had reduction cash the from $XX million includes accounts divestitures operating and strong of primarily and the sheet flow.

and With of completion a using that At cash expect benefit and to $XX a anticipate plan million. cash September pay the down debt. cash cash of significant of million divestitures, we $XXX we would had and debt equivalent XXXX, XX,

approximately totaled trailing EBITDA. leverage X.Xx Our adjusted XX-month net

growth. And acquisitions but was as our plan yet expect X.X% year, we've invested for the And and fiscal divestitures, of ROIC million Our completion not RPM Canpango, strategic the capabilities we quarter that ROIC our our for year during contributed to have EBITDA built improve have XXXX. revenue $XX to past for the intY the recurring with first well. would

we excluding our operating second five divestitures and included to are our quarters. reconciliations in results commentary, show Now we've CFO quarter the the turning providing last to excluding our divestitures non-GAAP forecast, the forecast, for plan our plan

range $XXX quarter range sales divestitures billion from excluding to from organic to approximately plan forecast million million. year GAAP to For $X.XX $X.XX to the non-GAAP growth $XXX reflects sales the fiscal sales X%. sales second of our midpoint expect we XXXX, of The billion and net net range non-GAAP

at from per divestitures include share non-GAAP share share per diluted from not does per reasonably diluted any We to any from $X.XX range charges to EPS be per earnings the cannot share. per estimated $X.XX non-cash and per those $X.XX share The GAAP expect share earnings to time. range to and $X.XX GAAP this plan

XX% income close profit margin the for gross closer to X.X% and quarter, to businesses. operating ongoing the expect For a we non-GAAP margin

$X.X tax year expense approximately range fiscal XXXX XXXX excluding fiscal of interest to XX% we for the in and of any estimate be discrete to items. XX% second assuming are the We for year the quarter rate in million

our the XXXX, of plans to As look sales between second half annual growth we and X% to executing we are drive year X%. fiscal

operating to XXXX non-GAAP We our also expect plan reach the target the remainder our for fiscal divestitures. year margin excluding of X.X%

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

Mike Baur

Gerry. Thanks,

this EVP welcome Ramoneda, Dede Information I close, want of our we of Chief First Citizens Directors. Board take to Bank Before and to & Officer to Trust opportunity

to are technology on insight experience leading ScanSource. We Dede an her will our information and expertise lend delighted customer share digital on that Board believe to experience secure in her to delivering a organization have relies

plan year executing strategic and services a Throughout recurring our service, we fiscal revenue. XXXX, devices, software to sell as are

services, in marketplace. physical By routes solution competitive value-added delivery market center will solutions with and the channel. offering be to a digital Our the of are we the believe we advantage at

will up for it open now We questions.

Operator

James. Thank first from Raymond our you. [Operator Adam question comes Tindle And Instructions] with

line open. Your is

Adam Tindle

maybe bridge seeing I to that helpful be wanted good it'd think of versus afternoon. Okay. Thanks, we're vision. and the kind longer-term just trends I start to Mike, near-term

again, x think sales quarter low guidance, growth sales operating based up are profit, But digits. to but I in income double going more there's term, down So, next non-GAAP single in and almost near are terms down divestitures numbers mid-single this than x on us. dollars operating digits, these of divestitures, was I was to up quarter, what be telling XX% know just digits.

So, business bridge profit terms hoping why can shrinking on the dollars the with seeing in core gap we're revenue. you of

due is I'd before part impact least And at those. ultimate will imagine of happen which these see explanation to we investments part of the the in

see along focused plan on that financial can unfolds. the on are that us help other of follow we metrics So, side the which if so

Mike Baur

our operating restated income good investments based a that XXXX. balance that's Number get we Adam. the think can back that and we've made. of of one, goal the the we've we've of to number on time long And we for and said the Sure, is day very for X.X% end a that

do acquisitions at SG&A it's to that operating intY So, acquisitions CASCADE, in the recognize line we're the RPM, these made leverage having all gross and significant year, profitability the that that Canpango, we we've whether added to to last that. these we've we are still acquisitions achieve margin want. the significant We deliver made the when

in profitable business that reason back And that is goal so, North a minute. we the believe at a there having that we that The stay in device our we're That's in we and look in. ensure those still just to businesses to legacy for are and staying America very we in business Brazil. business, decided our core

in We the we there be margins good believe to scale for that. markets believe long two time we very can operating have achieve and those a

not finished any not leverage to ability our on we're SG&A we're yes, get with by So our stretch.

for the X.X% a so, we is think good And year of target. this rest really

Adam Tindle

XX% helpful. on in to margin think QX. in had And near That's the building maybe Okay. that, just remarks prepared that mentioned I down was be Gerry going gross

operating margin X.X% trends bridge is with from current -- it Is think a is what's it half, for back just of gross to to get kind apart operating us. of what, Thanks. that margin, margin, higher we just about going volume? the this X.X%, As kind the level also it come higher to the more break of margins gross

Gerry Lyons

Sure, Adam. Gerry. is This

margins think I spot our expecting are to to you're percentage. on, continue gross expand right? that We

of part where in have X.X%. that's So confidence that we

Adam Tindle

Okay. just question a Gerry. And flow, maybe cash on

positive I to the also I benefit on cash divestitures in quantified for flow of you operating top operating think from and about think x that that? that add cash comment? you year. you Is should divestitures positive talked expecting that flow. remind me the of we number And impact cash flow Could the

Gerry Lyons

Yes.

about divestitures more think just potential those flow comment about flow us We attractive that when positive standpoint in the to so of the giving the to million. is to the the are flow that's on going our currently are about to that's trying be So, sell we numbers divestitures to the to capital quarter. for cash expecting, those if businesses, there. the decrease these trying And And the working back there Adam, get full we from buyers. -- positive in you year. operating expecting investments And it down from cash XX we're make we XX your had million are include full we have cash year, the

Adam Tindle

that Can capital? what just other debt maybe using why is can talk to about -- that just I debt. down up, down wrapping you proceeds And think of talked and the you decision, you alternatives considered about it pay Okay. use best paying the you

Gerry Lyons

think Well, like I we we top - think just time, to targeted A we're at our this point in ranges. our feel where of at close

earlier really to see paying point said we on. want this So, leverage. anything need earlier down acquisition And debt out strategies. more that there somewhere our make between talked inquisitive calls at to be sense. to we don't about on to X.Xx be seems we X.Xx We've We

So, I'm best is investors. the think debt that really down paying our for

Adam Tindle

to because X.Xxleverage. around on wouldn't of why the operate something just value, that make there stocks that, is share a But clarify below lot repurchases because maybe distributors book trading in sense

Xx, ratings upswing. margins trends think getting the I typically, cap agencies of expanding, on in the at are you year are apparently half back are out the better things

repurchases So not? -- consideration and the share just maybe why for

Mike Baur

had with more is, one investors comment did It's Adam. three last repurchases. -- we Hey, share been that's we're of really around of a come bit Well, we that. wanted one does topic of favor take advantage pristine Mike. quite thought our or over investors the when make prepared we balance to discussion we were and in years, met And this that found to shape, so something that if not our They had not history. sure in along, think I sheet

doesn't key over us we'll And shareholders, we it of mean quite this they with this again. few go. months to Our the this direction listen our to be visiting the take them is We're Board many want to considers frequently poll. and them we next going and certainly listening to a point at believe won't

Adam Tindle

Okay. Thanks, Mike.

Mike Baur

bet. You

Operator

And Keith our Thank Housum with Research. comes question Northcoast next from you.

Your open. line is

Keith Housum

than past correct? anything been UCaS move unique for suggesting Good this quarter. and expected that can because bit your that comment trend seeing you provide is an color look acceleration able the growth communication afternoon I there seeing year, that Mike pretty you some trend little to the this guys. have several segment? this at bigger accelerated on good to last heard you If guys we're quarters, perhaps of the a were quarter I Was the we've

Mike Baur

Yes.

just this the is is more absolutely not has I towards So, move This in us. about more more. we're what think desire much gotten market customer of moving seeing the in driven a specifically end UC idea an excited concerted this cloud And is is, to Keith, this effort.

from We've their feedback got are got we've out that's so, see our cloud. Doesn't million to that data some seats equipment at, feedback try from suppliers. up XXX at there, channel get going some quickly. there to the least we're our of looking wanting a partners. there's And all move legacy of when obviously the customers And everybody's lot you mean of the are But around numbers for grabs. into UC their to premise out

that I that's think key the of our And we the that attracted have sure been size market so, stable fairly has attention, suppliers for that in portfolio.

to so, driving do incentives this. And for more the channel they're

we've opportunity gives of cloud market many to referenced our is So, the faster an call this seeing them got for moving to because new they've that I to the suppliers think them programs you're drive share. on even today, win what

think to to in be that. playing in a and time it's exciting we're I an be role So, glad key

Keith Housum

of to and terms seed any Is there thumb think has a rule or increases offer type us revenue the profitably or about able Does revenue in that you How profitability? be how we that to of go might as as of a down, both impacted that can forward? but moves going project cloud?

Mike Baur

a have Well, distributor today. decide you being trying any of we we'll that share position we only the also. to of much don't because this in unusual We're agent with owns we're specific master still business that want to how numbers share

to want that of more confidential. keep revenue long-term, of for profitable a is so, for us a recurring some and general, And in suppliers, But kind we model business. to much moving our

believe that satisfaction, our incentives business ensure establish experience. have customer of and because agents And customer all also and so, a our like we better recurring do suppliers better doing that we we to a revenue all just our VARs by

that's our stay interest in driving a offer as if end to at we as in that's they want If customers this hat looking and to, option are wants premise. the offer cloud. long you the to the to customer move to And space. want what's why customers, So, options want,

profitable up. it's Again, it's everyone So, the term, longer it's think I Keith, channel. for more in

Keith Housum

you. Got

Okay.

over more provide pain color can we on the this should in think gears Turning Brazil a little about had forward? you you it going Brazil, quarter and to points how

Mike Baur

Sure.

One You ScanSource year business, follow former integrating mentioned our acquisition now from putting this barcode recall CDC we're frankly, just on with a you our in one business. that and is this this strategy network if there or down

because of this we with technologies SG&A channel year on routes really earlier barcode to one trying to sold new the decided technologies get be some share some the we of to of that the So, network and the should leverage market to many weren't.

had tools, we the down so, a teams that training And of to for our integrating allow go happen. process systems the to the to

And so now that's the happened reassigning we first and that doing did to quarters two disruption behind we And had we've some honest, some similar in Brazil just U.S., us to in what be the accounts got last quarter. U.S. had what quarter. here their

business we been you and displace as in with moving So, us very it's it's proposition, once forward. has behind think us value for you. profitable that in hard Brazil. someone It's there strong know And for we're like get to always a you

we're on especially Brazil, the like suppliers long-term. Microsoft down to there. in our And So, have business on bullish our us delighted are

Keith Housum

Great. Thank you.

Operator

Thank comes from question next And you. with Company. McGinnis Sidoti Instructions] & our [Operator Chris

line is Your open.

Chris McGinnis

Can that on long about runway of six is the that big just for a an you Thanks maybe and for how spend wanted and while? Mike to security talk the talked keys that afternoon. the about expansion is you up the questions. taking when Good with how ones follow Honeywell. opportunity just big on your I one of to side

Mike Baur

is of spinout security only it at recently. a talk to, mentioned commercial of And the been to They distributed opportunity, three it products they've Yes. products. this We guys a under channel believe. want like place buy security We've one not because basically And we business this for They partner the the Honeywell to wanting Honeywell would But, frankly. until with I security from Thanks size point. these have to grow, they up to clamoring security years, had is years. for big Chris. talking the about Honeywell our Honeywell were to big great products. and products channel been for

it believe us we're go for a we share going be at bit market little a significant will it have share of market I or to And some We're it's today. going and so, it and hard mentioned to grab. wouldn't take

Chris McGinnis

the Okay. thinking the bit I And -- just I pretty about room? just about Eldh it's opportunities, early, you but just could in is he's if this point? how know was comment little wondering Thanks. maybe ScanSource John at a

Mike Baur

early why days? And don't John, you tell about your him

John Eldh

am business. at I fantastic And the Anyway, I room. is to are onboard in thanks think over six bigger and opportunity a initially the an question ScanSource the and we in for that had our I first as nice This opportunity I weeks you. it's where anticipated. than to us offer heritage even leverage meet incredible here. would the time able here been for I'm hardware

and to same but business, large now While ISVs our opportunities the and to at not so only market, ISOs. agent the payments and the also growing with in markets, time with expanding the routes the have we differentiating VARs, do channels

and And customers market and so, just scale routes in us markets. create puts in size our to opportunities time, of recurring that the excellent think that through we revenue. platforms of an and SaaS to we've position across moving over And our really partners, large provides into addition the intY much and ecosystem announced moving I planning are stronger

I'm the are opportunities those that so And seeing.

Chris McGinnis

in for it of is back that And about that. one I make progression you. that. last -- so I should Gerry, then half exiting are Great. the question, X.X, the want XXXX the be of Thanks to year? the you just just understand, Thank or at sure

Gerry Lyons

at We're year. Chris. to really X.X% remainder be Yes. of expecting really for the the Sure,

to have expecting from forward, what So, for happen. every quarter that's point this we're

Chris McGinnis

much Thank for good luck, you, right. QX. All and very

Mike Baur

Chris. Thanks,

Gerry Lyons

you. Thank

Operator

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

Mike Baur

today. Thank you us for joining Great.

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

Operator

this gentlemen, today's call. concludes you conference participating. and for Thank Ladies

have Everyone You great day. may disconnect. now a

ScanSource (SCSC) 12 Nov 192020 Q1 Earnings call transcript