SCSC - Earnings call transcript Q3 2024

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Operator

Welcome to the ScanSource Quarterly Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If anyone has any objections, you may now disconnect. I would like to turn the call over to Mary Gentry, Senior Vice President, Treasurer, Investor Relations. Ma'am, you may begin.

Mary Gentry

you us. thank and morning for joining Good

Technology, Our our Jones, Chair include prepared for our us. Mike Baur, remarks from Specialty President and our Financial Tony call also Officer. joining will Chief Sorrentino, is CEO; and Steve

results our website. earnings take Investor an the quarter that Relations in the accompanies our section We your operating and We've our questions. will for review webcast of posted infographic then comments and

are differ infographic you statements know, could in year statements to identified on earnings and June and and and forward-looking As expectations. XXXX. in call risks our press subject the release factors ended XX, risks in and cause this release, include actual materially certain uncertainties Form These our the for our uncertainties that results from to XX-K

views disclaims Forward-looking except statements, required today as only to duty statements update of represent any these and our by law. as ScanSource

and reconciliations our During both we and GAAP discuss in and results website provided our will Form our non-GAAP have call, X-K. on

turn the over Mike. now I'll to call

Mike Baur

Mary. us people for the challenging a In joining environment. demand today. everyone, well in our responded quarter, third Thanks, Thanks,

However, we sales lower-than-expected our hardware our were surprised for at business. net

sales net our partners due our to declined lower channel technologies. demand portfolio from of XX% across quarter Third

margins our robust the strong flow strength cash business reflect Our and free of fundamentals.

and recurring countercyclical committed opportunity execute is expanded revenues. technology volumes. We that on and sales our margins because specific distribution are partners operate and to supplier sell investment benefits value-added working with deep services capital specialized channel we our in devices to with of our sales tools With knowledge of value-added from highly profit markets hybrid helping our this expertise. teams, strategy, ScanSource the

in on aim flow Contact important we QX of free and billion free cash Intelisys X% or Service, this This Center for cash growth CCaaS, end of management this of Intelisys achieved our $X.XX quarter, year identified as totaled XX% user annualized. X% and with and XX%. fiscal includes million year-over-year Intelisys of and and XXXX, billings a our billings year-over-year. Again, shareholders. as flow growth growth $XXX For increased UCaaS we to strong focus

our technology in increase drive to tools and distributor. a services growth We talent, training investments as our are expanding and value

channel many demand. are by we experiencing reported softer and companies suppliers, As

that Our more seeing sales from partners tell cycles. environment by are IT customers spending longer a us accompanied they cautious end sales

board, broad-based For plan, declines networking our what in our technologies. expected across networking. surprised hardware decline the from significant our was What quarter, third Cisco us, our our we revenue revenue including shortfall the caused and across products against

comprised now, team's environment. cycles in near the see term, and and We challenging disruption. have a supply X of a is of last different demand technologies. believe on cycles customer the path and are years we return navigate the forecasting set to creating portfolio normalization diverse business-critical partners. at of of our following a Right chain channel and the with stages of our we continuing hardware their Our they confidence of supply are end pandemic both uncertainty demand, demand to growth support to ability In the macro

a allocation generated strong of share capital and plan We flow another quarter have cash free of and M&A. repurchases disciplined

use growth recurring are free fund margin, revenue preferred to cash businesses capital high is Our of working of that light. flow

XXXX. to and our over take call our for quarter the financial outlook through turn now results the I'll year for Steve to you fiscal

Stephen Jones

than Yes. Mike. QX demand we was expected. Thanks, weaker

benefiting XX% $XXX revenues. million of adjusted delivered from we our mix profit gross declined higher strong business margins. our exceeded and quarter. our of QX cash higher net while EBITDA sales gross lower, profit were than is flow of recurring for sales year-over-year, margin the While projections Free expected, a XX.X%

across segment. our Solutions technologies We in expected Technology softer demand Specialty

XX% declined we're XX% declined saw business, benefits last we from anticipated. gross we networking year-over-year sharper Segment sales than profits to as net seeing increases year. supplier price as compared our year-over-year and lower declines For our

Cisco Intelisys as Communications gross XX% margins Communications year-over-year. segment, declined growth. including revenues concentrations grew sales & networking And a supply Cloud declined declined favorable normalizing. recurring X% Intelisys revenues chain Modern our big profit & X% demand revenues mix, Cloud in deals In only our year-over-year, our of Modern year-over-year. segment adjusted stalled for higher reflecting and from

our flow. million in efficiency, sacrificing growth sales without focus we balancing quarter, and the improvements our working declined capital For lower reflects delivered needed profitable lasting opportunities. This $XXX free when cash in on working capital

to current guidance the and our we As close of expects continue, reflect demand to demand. our fiscal year, we near-term look our views to environment updating are company a challenging

backlog As based day. inventories little that our each of a demand from indication us reminder, very ship on we received give day we orders to have as

We business. our investing spending our managing for beyond 'XX expectations and our SG&A recurring revenue FY revenue to by Intelisys resources and are match in redirecting

with restructuring result our include results separation We are plans. review align to $X.X our expense annualized continually actions resources we a GAAP in resource workforce January, expenses expenses to of QX investments. our executed million. reduction to and expected $XX employee benefit savings strategic plan These of In million. related approximately

which believe 'XX, be of net approximately EBITDA reflects sales an will now FY adjusted our that at be least will billion, and at our $XXX X.XX%. EBITDA For least we $X.X million, margin

our least increasing $XXX free outlook cash at are million. to flow We

environment. and the Our resilience guidance the our We expectations of near-term strategy. demand strength opportunities, distribution reflects the hybrid in confident our growth business remain of our of our model

sheet cash going the deeper into bit Now and balance flows. a

that working plans. we're We with progress improvement are capital the making pleased with

turns of Inventory levels demand. meet days million goal of XX.X. decreased XX the Our to quarter-over-quarter, levels improved while outstanding, working to is shortfall QX end slight quarter. sales in maintaining channel improve and the capital at sales the impacted DSO, our efficiency increase Days partner were revenue. for is have by our to negatively inventory $XXX paid inventory X.Xx days of timing a reflecting inventory appropriate

net cash Our debt balance leverage EBITDA in ratio ended sheet is trailing QX basis. a and on million very below with strong. X XX-month adjusted We $XXX

and maintaining balance with while plans, levels allocation sheet strong a repurchases, leverage. capital modest of share balanced Our acquisitions

to For This of million. is $XX end. a March authorization announced in of million repurchases the as quarter million. totaled $XXX current QX, Today, the remaining addition new of share $XX authorization repurchase we share

repurchase long-term by of authorized program and the cash our strength flow generation. reflects free our business confidence of Board ScanSource's our Directors new in Our

I'll now turn the call over back Mike. to

Mike Baur

for acquired Recently, market after identified competitive much key distribution and several opportunities growth affecting in the analysis, future we has business. research in been XXXX, Since Intelisys Intelisys changing. landscape the business our our trends ScanSource

of consolidation number During this TSD X time, today. competitors XX reduced to the down from

margin Intelisys revenue have our results. experienced we discussed, our business, Intelisys have we pressure in As which growth lowers

remains business. services distributor in technology the the with Intelisys the consolidation, even largest However,

XX partners. seen last This the we've also in During pressures consolidation months, increasing also our activity agency margins.

offerings to increased haven't these roll-ups end innovation or deliver We demand. agency drive new customer seen

itself. addition, they in introduced have agency our agencies. acquired acquire our the last to some has offer TSD is contracts various introduce development acquire offers agencies. own And In business and to convinced that contracts cases, books this competitor of from It to and us

life a partners last off exit asked a proposition to if take were interested providing their partners chips table repeatedly stage give Our to way offer as business us we or them. business would cycle. in the have channel This completely the few our agency the in this value

business ScanSource future. model announced the channel Intelisys, would of we from separate new a for create a to that the So entity, platform be

acquire leadership a and to existing are evaluating ScanSource with culture. has fits team an the opportunities agency strong We that

develop the Second, best opportunities channel. partners in channel the to digital practices and we contract contracts. would be and tools supplier are manage with new acquire user we need evaluating other Intelisys These our end tools to will shared entity management the

more have their the model businesses partners the forward future about faster to to share expansion soon. the help all to investments in We and channel better. grow agency channel expect We to our look our launching of

questions. We'll now for open it up

Operator

[Operator question comes Our Instructions] Burns from Greg with first Sidoti.

Gregory Burns

think of of view In terms do side you of working have their couple Cisco Cisco Do quarters declines from that? business? this and in a to has of about this the on of lasting needs networking How on backlog at see saw a hangover you the customers that you be deployed. I talked the still inventory long quarter,

Tony Sorrentino

this There's backlog. softer lot working It's through and combination around is gets demand worked of this through. a Greg, uncertainty that backlog Tony Sorrentino. a when of

know on that. definitive don't answer we a I So have that

Gregory Burns

does then the new there of, And industry that overall bringing -- conflict? works, is but on a for an risk for servicing partners? Intelisys, channel don't the there Any initiative terms in any And is the Intelisys agency there maybe of versus agency the do your of risk agency what Okay. so for margins this business? I broader conflict in-house channel know,

Mike Baur

this. doing models And and as understand that our also that something we've we our in concerned? different partners flavors. those surveys We different channel it out, tackle created with many Mike. I'll competitors of how working of question, we've like all for it's potential Greg, channel model. of are are still that actually, somewhat turns distributors absolutely a doing the this And to are learned have just conflict have you competitive our hey, partners been are in are doing competitors some aware our that one. Because asked

right looked we separation. management to we're to So so have has team. will from entity Intelisys. We're amount believe We'll separate NewCo, report We going a ScanSource what at creating through this Intelisys, not of new others something it this that are the doing. separate

idea and with standard investors this an used. our almost between new all to industry partners or before that our is acquired our data product which is which that because goal the remember XXXX of -- agency. And a Our firewall back called tool off shared of some partners we competitors commissioning 'XX, have RPM we've became any Intelisys

time, with said, successfully data, firewall years. won't we've And the for many see to And we'll that Intelisys do our been data. at agency's I your of the and competitors able off so each met

So that track out record the a separating the we've data, would conflict. of got be

let's to, -- within to But a we your call this will for say, we have Have let we've make this want at into brings had ever new data a looking customer and but We a they'll Intelisys do partners see will check we'll end solution. partner notify hey, it, you new selling look immediately that that to who and first sure also that top -- we agency ScanSource is customer? we the or current on that talked we'll that new new lately? said him do, the have know, a Intelisys at say, further. a if sell structure, they customer someone logo, we them And gone before have we end and the

going we're in. to first know to we try so And do partners do our before how to inform we to everything go

maybe Steve can that frankly, the margins. we how things, about do primary don't second to management that work And which our affect some being then more I'll in channel. is the let today question, about an agency learn is a get this see goal how talk in So team, future and done the of part here does

Stephen Jones

opportunity, look Intelisys taking share. Thanks, the Greg, Jones. this agent compressed margin our have When margins Yes. on Mike. is at we margin what's space in happened really more is the started Steve the to get of as side is the

ScanSource, opportunity agency So we expand think for this help in this margin channel. will our

way it. the we're that's That's looking modeling way we're So at it. the

Operator

Our next Keith comes Instructions] question [Operator from Housum Research. Northcoast with

Keith Housum

of the of the to want or small makeup getting dollars we kind market large that does here tens agency is shops? line of Are about on X like primarily people, of talking an today, end millions a little we me continue the you and shops? give guys Mike, agency into? you obviously, What Are like can Just are of initiative. talking what market perspective market? today million-dollar just people of questioning the X

Mike Baur

Keith. Yes,

they have but to QuickBooks, primary Most one. I'll honest, we Just agencies And agency do partner and about, remember, business just office. everybody, back or selling. employees XX run have today as function their reminder say, have distributed. as doing would with have virtually just for They X,XXX off even less. And of be the is a typical partners I of us, no Intelisys it about say widely these an has technical we larger resources, the

billed are by the We suppliers. the commissions, process the and users all end

really to any back so have of significance. And have don't they office a

and sales agency an they're really new. organizations, that's out customers really opportunities and work is with So does they what end go on for

an see the help we is partners renewals. think to we existing though, with Where opportunity,

over to One they just of time to need don't the have is efficient expire. technologies, an agencies renewals with way new and technologies renewed as be scale challenges of change, as contracts contracts, most

advantages the of one that's think we So can build. we

to use, work If set build have frankly, contract the of can resources some goes can that that churn. to this rest the they how to scale their our people, along Intelisys with we believe management show how of so we partners tool installed and we base less

don't infrastructure So with have to this is renewals. a typical of agency they is manage the lot the challenges one of

Keith Housum

that. a or past of also margin years. about guess, EBITDA quite we experience? EBITDA several we XX%. appreciate a competitive I Okay. average then But Intelisys advantage, looking I bit do little just your margin XX% And bit about north mean, Is going be Obviously, agency's going changed the could I an think in explain I the guess, to gross I your profit's I'm margins. -- And margins, mean to profile. gross has type agencies. great what it more on question were more Steve, know like of margins that's be the a profile? how revenue? And for like I think before agency

Stephen Jones

thanks. Keith, Yes,

this. the start let back through So maybe think beginning, as you me at

in Intelisys getting really and commission for that as that's shifting the to agent as those XX% much a us up more recently you talked the them until about kind terms margins of we when started of to margins being split in eroded we margin give acquired, So to the of the having EBITDA structure. were not started pressure

in setting agent So that in. margin used to want go the back the TSD that we to participate be there's in

And their at probably then margins, when this commission. as again, you of agent an look kind we're at looking

fast, line be look doesn't doesn't right? perspective. XXX% a or that our much. line reported to billion when just impact going grow with margins it's problem as So it Keith, you from $X.X growth, know, business, top number of as our kind But it gross materially top a has our Because as at we

going we overall that's good to interesting expect work. it's how got margin our how So job and will are a to accretive this the company, unpacking this do to we've really of to of us. But be -- economics why this

Keith Housum

in generation long XX- got have get you've where looking are are space the owners for Okay. this relatively the a groups you are that out? they've been barcoding younger, that enough about guess, makeup that around today? retiring owners I If the VARs like of of got same think of I space, that kind in where that XX-year-old to Or is a thing you do to out, agency

Mike Baur

Yes, Keith, Exactly Mike analysis. again. it's right

come private and So just investors, of the have ready their And cycle. those exit. DNA the of to their are pretty own -- years. been happening, agency that They're investors the to frankly, they're reason our call end there in many to for It's we no, said agencies because that few been acquired all we last equity an these they've user for X and the have much will acquired at let's have leaders that. actually roll-ups asked the them in or And not end sell years, last do us agency. not contracts

They're became very talking but part us. of it we're to obvious is they're So just out the our this the margins they because it, agents, benefiting were actually doing for And owners, they're competitors And getting that the there pressure pick once reason buyer a is me. even it's this. me, and big already from a we about that, pick because already nervous is agency our change like, about that know on but there interested. hey, -- us from

in my off whole we don't prepared said But I want some as to some And the saying, they are want the to chips business. them take sell of remarks, table.

a And business. you buy easily a business, unlike part VAR the just can't of VAR

can't because not it's recurring. by You buy deal deal. It's just

annualized amount a partner, that defined of offer $X from have contracts we straightforward, with, make a will to the able let's sell and don't pretty business. recurring just an say, these and be defined profitability, whole to million buy, they of are to revenue we'll term have Here,

And the so that lot market. in has gotten a interest of

we're the again, doing. responding to So what market is

Keith Housum

this announced your of several you've these at And you've conferences, conversations. had one ago months and

tools not, with if maybe to to assuming I good I'm your to now? want conversations you it some management say establishing guess So yourself? use and to M&A option in it team. you're is digital build Is your established that go agency more And a having you're strategy these that organically buy the -- words, safe to is

Mike Baur

because faster than our question, the again, we've we're frankly, competitors For acquisitions already been, dodged catching us, meaning we and have doing We're started. all have listening to catching about talked And to publicly we go up. they come want of are who they've this, out up.

that we absolutely will grow become we sheet the So want we we will then the with tools, That then But adding of have. through means can headcount, balance it and believe do interest. people, player acquisition. we it to

looking by to not goal. happen. that the we're I this It largest. is our mean make could not That's And what agency

goal to from Our younger programs with that so maybe best and, the recruit this still best in agency the is or practices, years who frankly, their partners Intelisys now to that best the from new years can channel the X now. something create XX business we has so want do

a trying so opening as different model. And create, in to I remarks, said we're my

So of future, chips where your we're you table or come to the distributor it potentially some calling business. the take off and channel the model the sell can whole

And maybe size These are all be, are, not the relatively, point small again, of businesses. Intelisys again, these the would was. are and these

said large. Those up. already entities gotten been them having rolled that, some have Now have of

agencies. One has our rolled about already of today partners up XX

acquired rolling they've up. EBITDA significant so And by them

Keith Housum

schedule mind be an Got do let about it. But to with time have running your have I to you strategy? the goal here. your able when that be you want And a going to and roof dictate appreciate under you're your in not agency

Mike Baur

Yes.

soon. earlier, investment I more channel share have to expect think I to we expansion -- said our about

Keith Housum

just change traditional to going business, more the gears on talking I'm that. here appreciate business. about I and right. hardware All you

But the second appreciate year. barcoding day, optimism constructive is larger today. any the conversations hearing in second the would expressed give your days, fact calendar an are your you backlog I'm that sure from that not of for X here half I partners very short. the year? the hearing X half calendar that for of have it's your optimism conversation of I'm improvement And some you Some

Mike Baur

Yes.

me have talk those not Let can public. technology, going all been of about I'm comment -- we have because that different Tony on have to suppliers have he

Tony you where so just are. give can summary kind we of of And a maybe little

Tony Sorrentino

It's Keith. Yes, Tony.

shoots barcode say would optimism a But sure. So as the there's lot in of but there's for our businesses mobility concern and near a security, growth certainly That green said, in also well. physical uncertainty still opportunity I seeing we're for term. there's there, of lot some of

So I've month certainly, time the for them. all spent and top they're lot the of creating uncertainty the a macro with but cautiously customers in our is optimistic, environment over concern past

Operator

comes [Operator with next NCM. Instructions] from question Our Mike Latimore

Mike Latimore

It there? categories? good and one either for can growth. the been I you about another looks UCaaS bit of seeing quarter Has cycles like CCaaS both cycles a or talk change sales in any sales billings you're there little guess, just those

Mike Baur

about Mike, And real as we're Baur. that to you wanting seminars everyone doing of no that, probably center. a would and about is contact is hear I how it's Mike AI and know. business, what say affect AI country, going the surprise, is place change the No big but lot around is educational our story is to in the

want contact the we're that remains results, very with the to more. a and contact affects story of to They So to interest. our lot center space agents. getting but learn going really attractive see We're traction center how

more out, we having -- our is how about best probably example these tremendous team sure to continuing we're building having AI we're we're events. future again, utilize attention at drive center learn make and And to that contact the so can We're revenues. attendance

quarter to be XX this sure, again, longer when And might we're with as it reported, I revenue change or think, the so hesitation of attracted what's this just idea a now we beauty wait model see and that the do months I happens, Or our see of technology building sales space. off for because And another cycle every buy to base But wouldn't the a very recurring growth this today? partners. down. slow that's why I is transactions do some I some be is we very of But strong was we're there surprised available of Intelisys that's still X months?

Mike Latimore

Any UCaaS How Yes. comment pipeline just on in and the Yes. CCaaS? about growth pipeline?

Mike Baur

better is the we our pipelines. Well, are we don't again, being the of entity excited But and we decisions reason to I and the if closer just what opportunity, about Mike, and for that about users and inform that's think overall to thinking end this typically will give about future. believe understanding we'll out that about one us are user, I the new end CCaaS relative help some UCaaS from benefit the think

we're will close what to faster. help tools. hope business happen with will goals is actually Intelisys best of develop I And of going be some some channel And one the to our practices our that

Mike Latimore

themselves pricing user? Great. perhaps in And can UCaaS, the pricing kind market? guess, end pricing charging you pressure vendors pressure of related just consolidation about to lastly, talk software at I CCaaS the the some their you what industry. talked Are about you in the and for seeing

Mike Baur

general, obvious, have I to ago, now. and there couple the say the growing pressure go Significant let's to on was to is prices go years -- growing at a of is back absolutely seat rate just Agents continuing decide down. pressure UCaaS the there. would CCaaS In

seat So down, it price, we harder that off makes price the the see unit grow base. going can to the

sell how the think more of revenue And seats sell They in important critically that to because to for the same I the they that's X ago. to they have channel are going know got future. years needs more amount

the on that pressure more end today, user. UCaaS is on So also at the seats, but CCaaS pressure the seeing definitely

Operator

questions, like Steve back closing remarks. turn it over no for seeing I'd to Jones time, to further [Operator Instructions] At this now

Stephen Jones

joining you for thank Well, us today.

discuss XX on XX next hold We fiscal August call year quarterly expect full results XX -- to and conference June our approximately a.m. Tuesday, at to XX:XX

Operator

conference. today's the This does your Thank in you for conclude participation program.

now disconnect. may You

ScanSource (SCSC) 7 May 242024 Q3 Earnings call transcript