SCSC - Earnings call transcript Q3 2020

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the ScanSource’s quarterly earnings conference call. [Operator instructions] 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

Thank you and welcome to ScanSource's earnings conference call for the quarter ended March 31, 2020.

Our call will include prepared remarks from Mike Baur, our Chairman and CEO; John Eldh, our Chief Revenue Officer; and Gerry Lyons, our Chief Financial Officer.

operating the our take and review questions. your will results quarter for then We CFO accompanies website. commentary webcast a posted We that investor section in our relations of our the and comments

such XX, to, views ScanSource's our Certain on of share, divestitures, the and filed consideration for fair the impact only those statements we the for the in as of Form sales, COVID-XX and of to that Any uncertainties statements. XX-K this These today release including planned quarter from pandemic represent ended relied made XXXX statements are and of for of cause should statements value uncertainties Form forward-looking as XX-Q with any and March representing earnings as expectations forward-looking ended but statements. upon in factors risks XXXX These our not call not date. be views the the and that our the earnings are differ per for XX, contingent quarter actual and include, XXXX, results fiscal-year as put to subject out could SEC. limited subsequent fourth today materially risks year are identified June

ScanSource results disclaims to law. by to expectations, forward-looking except required reflect any or statements any duty update actual as in changes

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

Mike Baur

business pandemic today. the with our how comments Mary, we this are our and time. some us global We to wanted open thank operations unprecedented call Thanks for you on addressing and during joining

health work the of our world. mid-March, the In home is employees safety from employees. we top priority implemented our around protecting for and Our office-based

and are we office. to same the team with and from our customers and were service of if and suppliers work seamlessly in home, meeting we ScanSource swiftly of the made as global the productivity transition needs The levels the

culture remains tools using company keep and how have adapted, Our we our because employees creativity virtual strong connected. to of

replaces nothing to conducted business we suppliers our many when customers years, our look for relationships is which we have interactions how and However, safely. seeing to so able we completely face-to-face forward and do are

business Our which centers. continue essential allowed at to industry operations deemed is our us an distribution

technologies safely equipment. and to our around I includes am tremendously have ScanSource In at protective of levels, This processes proud team although operated use cases, distribution of new we most how sanitation we cleaning, distancing, adapting centers. service our maintained has our social high the and incurred our staffing and of North from of Amidst shipping. growth our pandemic, additional sales across local net with in almost higher we challenges all for Brazil in the global expedited reached quarter third expenses the America currency. forecasted in

accelerated and solutions work-from-home to included RingCentral, from HPE companies workers. Jabra, for Poly, XxX, sales move the Microsoft This as remote made Aruba, Zoom

customer-facing software RPM and in as group. digital great intY, We to brought form software from teams result, With few solutions. the made development over Intelisys, teams we a last software POS acquisitions significant we've the the our capabilities. company from development years, recently single Portal together And a across invested including gained we've

be believe to more enabling us partners our This group automation and group will talent convenience will growth, partner partner put development into customer relationships a partner our their software growth. differentiator, revenue competitive and We and effort combined delivering strengthen solutions. drive and

to we over to call see. now business are positioning we John the I'll highlight the near-term turn and our how opportunities

John Eldh

as March, for our the we caused results seized in as the pandemic performances with communications. COVID-XX February on disruption and our cloud alternatives. all areas started by Mike. business, SaaS except quarter The QX with consistent well work-from-home Thanks customer in premise-based in positive of and Even achieved January as solutions solid and

and adapt technologies. work you from were to too, of home pivot collaboration to able by voice, we from heard today's Mike, incredible and As video quickly leveraging many

delivered quarter. our net In the speakers sales on business, we uptake significant headsets. including saw for solutions a hardware our work-from-home we and our forecast in cameras, And

businesses We mobile for increased by directly telemedicine pickup. networking diagnostics cards, COVID-XX delivery of outfitting participated testing, to sales and for the technologies. related healthcare in helping scanners field devices, and and data equip also scanners We saw hospitals collection pandemic and projects enabling curbside delivering

March cloud-based including for seeing in States. more Zoom, for we this the environment United VARs. VARs solutions. partner ScanSource launched of Microsoft also third for new our new starting Avaya the to challenging traditional recruits office quarter, bars, In sell surge XX% recruitment In Intelisys were partner quarter, offerings digital, In in are cloud we Cloud the including new and Intelisys a

campaign, in Remote to end-to-end customers. Go addition, In we our March, work-from-home to their designed launched enable solutions to partners deliver

hardware, collaborations, with security offerings suppliers. connectivity from headsets, leading our These solutions UCaaS, and CCaS include

on our of going part we'll Remote with our we guide to campaign, providing Virtual As XXXX. and X, Go also our June Summit were definitive remote, hosting be partners

better the programs. complex aid built of the resource partner wellness numerous to have extensive We providing our and navigate government are enablement We community. and guide compiled an and COVID-XX health programs to yet support help our distributed financial partners

partner educational marketing series for financial We partners about informed to these and during keep sales, introducing a recovery also challenging are community our programs channel our times.

that as suppliers partner Networks, channel providing assistance not programs pleased after of only Axis, and of financial variety and than support suppliers Datalogic this a are as ScanSource. to with help emerging and through stepped very but sales XX partners with well survive, our many provide more also during midsized up are to We crisis. HPE Cisco, Honeywell, significant us our to recover programs Extreme Aruba, Epson, have

partners support working ensuring our ways and that We help and ScanSource suppliers are are aware the our all to of them. are

will through our outlook financial you quarter. for take Gerry Now, the and results next

Gerry Lyons

cost EPS our range third forecast. quarter was EPS includes our achieved lower results open November. went our million $X.X a the following below increased conversion quarter. These The system, forecast charges inventory the our sold, forecasted third range. while for last versus inventory Thanks, net expense for John. with lowered of I'll a sales, charges an We overview for of profit our which new to goods gross live management which

by million our $X.X negatively our our were this impacted which with approximately non-GAAP expectations. charge, Excluding line forecast $X.XX, EPS operating results in

XX, announced million businesses working at Brazil. These States, our discrepancies third the an and operations businesses of net address divest the product August, implemented capital XXXX. and of inventory We to United April. to physical sales typical outside action $XXX million plans In $XXX month plan March the inventory warehouse for warehouse to are and quarter Canada we certain had during back of of

significant quarter. during of no loss had the We've headcount

due We businesses, diligence purchase have with identified those we buyers. are and and these potential in agreement negotiations buyers for

of pandemic agreements COVID-XX and slowed end by interest the the anticipate continued June the While process down and has strong having timing, quarter. see the still the we

our net sales on quarter X.X% Consolidated an and basis. $XXX totaled million, for third down organic year-over-year X% up

basis. translation sales our sales year-over-year organic by Security currency impacted an worldwide X% X.X% Net million. Barcode, approximately non-GAAP for $XX or Foreign on negatively and segment Networking declined

segment by business, up in growth X% sales of local We other had in across areas Services on declined were technologies. parts Brazil an for currency. growth year-over-year in Communications by Net & in lower our diversified partially North and basis, America offset driven X% Worldwide our our sales organic

than the business growth headwinds premise-based our accelerated which in work-from-home for had solutions in North March, offset continued in more America. We communications

our year-over-year. We business. for service million for profit Intelisys, were Both and sales had quarter, to XX% software where intY net $X.X intY for third a recognition we for sales record quarter increased sales Starting changed gross net quarter. and the this revenue for

the for mentioned year year. divestitures, inventory the that I $X.X profit Excluding previously. decreased This quarter expense gross over included dollars decrease the million planned non-GAAP for XX%

result, non-GAAP gross below XXXX margin our the we third-quarter third XX% forecast. in a As margin was quarter profit XX.X% expected our gross fiscal-year

million $X.X third-quarter prior for from the XXXX. SG&A million fiscal-year expenses the year $XX to increased

We have and our recurring revenue in businesses. made service-based investments growing

intY. our software is Our part group investments the include around also with we've mentioned strategy capabilities digital of This Mike acquisition of which our earlier. development the added

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

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

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

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

excluding For effective in we XXXX, discrete items. range XX.X% rate the forecasted mix. of the increased and changes XX.X% lower to estimate impact This the from to fiscal-year geographical earnings from tax estimate

million. quarter generated Now was million turning strong and XX-month for operating flow $XXX cash our cash flow. cash balance operating $XX of flow third We to trailing and our sheet

million in quarter XXXX, planned of X% and had year. the and divestitures March capital working declined At XX, XXXX, equivalents $XX XX, XXXX, at investment $XXX approximately capital Working of $XXX quarter XX, approximately we and million. cash over June million from year cash million had XX% debt $XX March The over balance. down

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

earnings COVID-XX, economic for a XXXX. sales June we near-term forecast per providing are the certainty fourth-quarter entered the range not With or to disruption fiscal-year for we with around net customer due Accordingly, quarter share the demand.

We as the be sequentially quarter. compared and quarter share to for sales the expect third our fourth to earnings per down

XX% net you sales I year over month for While for a net year forecast April can that we the sales. range, are of not declined providing with our GAAP share

over the of now, call that's to back year-over-year comments. the For April, foreign impact month turn decline. currency of translation, a I'd sales for like excluding XX% non-GAAP negative closing And the Mike to net

Mike Baur

to COO as our With Hyperion this also XX at directors. our Ingram Micro Jeff served Rodek, spent we as of leadership president take want Solutions, close, director, and opportunity investments deliver and welcome our of to years FedEx. positioned continues look as guidance CEO chairman and Before board digital strategy. well industries Jeff's extensive enterprise Jeff solutions, our I Jeff's advance in digital and has ScanSource of experience to through cloud and experience, initiatives his logistics as sales to multiple to we our With well in as forward software to channels. are software solutions technology we new

believe team the the weather best us employees of the world, technology success. storm to position the prepared help of We world-class to group suppliers well with are we pandemic. of sales working achieve Our COVID-XX our unusual partners in

it will questions. up now open We for

Operator

with Raymond Adam question [Operator James. comes first Tindle Instructions] from Our

proceed. may You

Unidentified Analyst

into trough did you other on color do declines through appreciate and Adam. the wondering, think the progressed? is April Madison those for April second modestly I of we're as derivative trends, the declines better? kind but getting moderate of I words, In was the

Mike Baur

is speaking. Baur Mike This

think to clear month first certainly, for not it's being it's all the still yet far concerned, is willing never the the something of the color in as I quarters So happen in might and that talk understand one gave to what we're about. of to early going of quarter. And we're month and It's are, what's quarter, all we has so our clearly, the we us as rest exactly looking know that what down indicate quarter. XX% But closely at means. the this

Unidentified Analyst

And a it's then understand a very I follow-up. just dynamic environment.

some And or you Thanks. some safety costs you to was higher costs just from are that if of any related have these? And incremental costs. attenuate quarter us you extent You had next sense that could headwinds do any these. then any to expecting types start I to tailwind give color, well expedite or these just the as potentially of magnitude mentioned you as measures the of wondering

Gerry Lyons

Yes.

give trying a the to have a just that really number Madison, of We're but of we June So is we're March increased to fruition there do And in yet. quarter. this the sense what bit sense cost had more that quarter, to don't we is Gerry. exactly what expecting really think is come little a in I that

Operator

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

proceed, may You sir.

have unmute mute, your line line. you your on If please

Keith Housum

into. XXXX, of did that And that remind entering then make maintained? in right. Thanks. you asking up? I quality. us And credit the terms the Can about your Gerry, of, Crazy what little of just guess, appreciate the, to sure give just happened times bit taking are additional I quality All credit it. a we're is XXXX? steps color guys me I guess, hold in credit quality how recession all you

Gerry Lyons

Yes. Sure, Keith.

a people figured all than as XXXX we had we've XXXX. right? crisis. was XXXX completely got are absolutely in, episode financial we're That XXXX more that different lot than a So you We've out, and have and in impacted figured as this out,

completely being as And so viewing we're this different.

we And So to reaching our are are that our -- to all if what and sure out experiencing. they're that we're suppliers, need help, they businesses are thrive. doing, customers our to we're doing making shape they and in to for -- again, do those taking really safe. business able is I they're we how It of along are their of And to designing the how all with us, really COVID quarter. seen programs June Keith, continue quarter. -- take wasn't March impact We think, haven't really shape starting be in for the people is to this

-- credit closely. So very we're but monitoring people's

Keith Housum

Got going you. that to was POS more business a an Portal appreciate big last is see retailers more it. think assume also And more I we're and business, to owner, impact I about as Portal's probably correct? I are restaurants, if to skewed and correctly, primary Because not of quarter, customers small, now? safe POS to your impact remember then medium-sized it a

Gerry Lyons

to deal through. they then we deal small but go Well, we very that medium, so businesses independent or retail. that with, And software they're three wouldn't customers There's large also through some and are And there's two contract vendors. yes, have channels or all more those that I medium they to hospitality go small may with. that they different say

a a have seen little bit decline We there. of

place. not present, place sheltering credit are in so. credit transactions, think, with taking think again, card Most about, Just card people I

Keith Housum

more done I Perhaps a you me the back forward? come in we going right, you guys on if the you did question with put system understood now? any can inventory with in it. you more And appreciate give little are the I guys here. I adjustments November. color guess, all X adjustment I out how And Okay. then squeeze can If adjustment? guys in

Gerry Lyons

Sure.

quarter, us as and realize into -- So were all resources think, think involved. amount that not, of further in getting with number just trying to time any be that's caused are made have sure procedures, as the those which our got were issues, really a new we're spending need I doing, better to to the care quarter, Keith, new changes we to we new those system, as And have we began I December the and the we that some our we I in to for they system, take results customers, increase as getting other April. accuracy activities resulted that that acclimated or whether counts satisfied. processes March bin-level of were make and of activity we new cycle And had IT -- indicated,

that but us. we're that it just seen, trend worst the definitely that We're be continue, anticipating remains but confident is will to behind

Keith Housum

had So issue was and this an where versa? you guys vice didn't you inventory thought or

Gerry Lyons

would we we X. the XX, but Keith, had we Basically, Yes. was hey, a to bin. saying, system have we And go think

out bin oh, And March X, XX. okay, of thinking, in was, what it's so part found in well, in we're the quarter it's not bin we

cycle the in along something Well, do as that further we is we got a the called linear process warehouse count.

we're So literally one warehouse, we and in XX,XXX really our counting one. by by have bins one

-- we're the we another So accuracy was bin. got not that find it figured in along, going we out further as to

Keith Housum

it. Got guys. luck. Thanks Good Okay.

Gerry Lyons

you. Thank Sure.

Operator

from question Sidoti Chris Our Sir begin. Instructions] McGinnis Company. you with next & may comes [Operator

Gerry Lyons

Chris. morning Good

Chris McGinnis

afternoon. Good

with So the COVID geographies of out maybe we you're maybe just could the impacted? on being different is within. And how you competing more that start having do anyone see Is that maybe? playing impact maybe

Gerry Lyons

Keith, this Gerry. is

impacted or down work Lat than in what in saw think Brazil. we for closed what that saw definitely or of really us. the Europe We U.S., or then read be then some was of newspaper saw it we I to lastly, the need did all So And is for the offices kind U.S. we sooner. is our us home sooner was from Am

business in the exactly seen just our you've what so followed And news. has

Chris McGinnis

the differently Nothing kind same in tracked of seemingly in XX%. really? other Okay. that the of range region And sales

Gerry Lyons

I reasonably all think overall they're better they're number, that's an little similar. all a Maybe at bit but this similar. Brazil but is reasonably point,

Chris McGinnis

Okay.

that's the back it last sales little think maybe talk thought coming be obviously quarter terms Can bit a bit around good reorganized a obviously them quarter the a I longer issues in -- just reported. there how some I really how were of force. little you maybe would performing?

reorganization. on update sales an just that maybe So

Mike Baur

that Yes. you one? don't John, why take

John Eldh

Yes, afternoon. sales talk you. Kurt, Nice think good Kurt, I to reward... to the

Mike Baur

it's Chris. John, Sorry.

Chris McGinnis

It's No, OK. wrong. got it Chris. they It's OK. That's

John Eldh

That definitely Kurt. hear Okay. me it feel did But better, makes I Chris.

Chris McGinnis

understood. Yes. I I No, No, know. Thanks. no.

John Eldh

a going and teams if in and quarter, calling the mature put it And to to were heard remember, wrote Spend are last the was were if I those of worked able Kurt, we kind in reorg real more like, were I'm position We of. and do processes down. I the that in with be progress hard Chris, to ScanSource, I midst to more than call-outs I trouble coverage were in capacity. we we training. most-affected actually missing we hoping develop took our of with in the we're the longer One But of you we us swear for. at that customers better Anyway, more it better definitely happy rebalance with time beginning transition. that

think Clearly, And work we've And the very in quarter the of more that where results was gotten so we great we've do, we're but sales. seen and made in evidenced happy net with to. progress. to terms by

Chris McGinnis

opportunities bigger-picture question. about But outside And too still just Great. can you've a maybe early the ones you maybe maybe just in. little But a you're bit just some then little of talk business processes trying quicker? share? forward already for seen going to maybe in thought that maybe tack and of of to growth changes How anything opportunity terms your maybe an this go kind your the take

John Eldh

Yes. Absolutely.

continue to and I think and Chris, clearly, pharmacies it, grocery. of at of see about shorter kind I kind healthcare looking you're growth if we're in to vantage my when from think think kind term, of I verticals, going point,

I saw positive that that to those industries. mean space. see we kind specifically will and barcode growth in continue in We scanning of also

think you when go kind that a you You pick curbside, of items scanner the somebody up with there barcode a are to and out. to grocery show about or your now you store up there's checking

So we continue to all see that, growth of in.

relates traditional in We to it also technologies technologies. see as contactless versus continue the street main kind retail of growth to

capabilities last And kind positioned in has so I our obviously, the their we month, in technologies. traditional is well front. really you not relationships we hardware just as others. customers. think least, Mike those and with cloud only Microsoft to will quarter, and continue partners hardware this see our we're with that end mean, work-from-home that definitely And did last to not are past heard the things think on the move ability particular, And RingCentral also in to of what but growth I we and I and Zoom But doing with that announced us but referencing with earlier

Operator

Ladies and Q&A would Mike today's further gentlemen, I any conference. like turn now for the this portion of over call concludes remarks. back to our Baur to

Mike Baur

today. us Great thank for joining and you

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

Operator

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

have may great day. now disconnect. Everyone a You

ScanSource (SCSC) 13 May 202020 Q3 Earnings call transcript