Q4 2021 Scansource Inc Earnings Call
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Welcome to the dance or 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.
One has any objections you may disconnect at this time.
I would now like to turn the call over to Mary Gentry, Senior Vice President Treasurer, and Investor Relations Ma'am you may begin.
Good afternoon, and thank you for joining us joining me on the call today are Mike Baur, our chairman and CEO, John <unk>, Our Chief revenue Officer, and Steve Jones, Our Chief Financial Officer will review, our operating results for the quarter and fiscal year and then take your questions we posted a CFO.
Commentary that accompanies our comments and webcast in the Investor Relations section of our webcast website.
Let me remind you that certain statements in our press release and the CFO commentary and on this call are forward looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include but are not limited to those factors identified in the earnings release we.
Without today, and then scan sources Form 10-K for the year ended June 32021 as filed with the SEC any forward looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.
<unk> disclaims any duty to update forward looking statements to reflect actual results or changes in expectations, except as required by law. During our call. We will discuss both GAAP and non-GAAP results and have provided reconciliations between these amounts in the CFO commentary and in our press release this <unk>.
Reconciliations also can be found on our website and have been filed with our form 8-K, I'll now turn the call over to Mike.
Thank you Mary and thanks, everyone for joining us today.
Each quarter of our fiscal year I have shared with you our consistent execution and strong momentum in driving our strategic plan.
For our fourth quarter, we achieved outstanding sales and profitability growth.
Throughout the fiscal year, we built back our sales volumes in our fourth quarter sales of $853 million topped our pre COVID-19 sales levels.
For the fourth quarter operational excellence by our employees drove the achievement of 34% year over year net sales growth in our non-GAAP EPS of <unk> 96.
During fiscal year 2021 scan sources demonstrated that our hybrid distribution model is winning in the marketplace. Our talented team of sales marketing and engineering professionals create hybrid solutions that allow our channel partners to meet the technology demands of end user customers.
Yeah.
We are enabling our channel partners to accelerate their transformation to an exciting and fast growing digital world of opportunity.
Due to our specialized expertise scam source is uniquely positioned to capitalize on the massive marketplace shift to cloud.
X, which is everything as a service and subscription based models.
John in a few minutes, we will describe some of the ways our channel both sales and supplier partners are delivering innovative value to end user customers across many different markets.
We are gaining market share from competitors, while creating demand for new opportunities that require our specialized expertise.
As we transition from the impacts of Covid on our business during FY 'twenty. One we are prepared for the business opportunities ahead.
Our team of highly motivated and immensely talented professionals, who will make a difference as we tackle the year ahead.
Our successes in FY 'twenty, one were achieved because our people strengthen their relationships with long standing customers and gained new customers as well.
I will now turn the call over to John to discuss our business performance.
Thanks, Mike Q4 was a strong finish to an impressive year of improving results our team achieved 34% year over year sales growth in the second highest quarterly sales performance in scan sources 29 year history IMAX.
I am excited by the continued energy and momentum across our business as evidenced by the broad based sales and profitability growth we delivered in Q4.
Our growth was fueled by strength in big deals.
Taking share from competitors, increasing wallet share with our existing customers and adding new customers.
Our fourth quarter results reflected operational excellence by our employees throughout the business as we navigated a challenging and supply constrained environment.
Our teams delivered outstanding partner and supplier experiences and proved our ability to exceed partner expectations.
In our barcode networking and security segment net sales increased 34% year over year, and 19% quarter over quarter led by strong market demand, especially in mobility.
With increased demand and continued labor shortages and customers are implementing mobile computing solutions to increase worker productivity.
With the reopening of main street, our payments business, which has a higher margin profile from wrapping margin rich services around hardware rebounded well, we saw accelerated demand for more complex and innovative offerings to support curbside pickup and pay at the table.
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Within our communications and services segment, we grew net sales, 35% year over year and 12% quarter over quarter.
For our unified communications business the growth in cloud enabled end points accelerated by the shift to cloud.
Paced the decline in premise based communications.
The hybrid office and remote work trends are proving significant opportunities for our ucas seek as cloud enabled end points and connectivity solutions.
In our SaaS business, we achieved double digit sales growth across North America, Brazil, and empty U K and we continue to invest in people ahead of revenue.
Impressively, our Intel is business the leader in the industry crossed the $2 billion Mark in annual recurring revenue. This is billings by suppliers to end users.
This number is up from 700 million five years ago, when we acquired intelligence.
Year over year Unified Communications as a service grew 19, 5% and contact center as a service grew 68% overall.
Overall, it was another record quarter for Intel assist achieving 13% year over year growth.
This marks our 20 <unk> quarter in a row of double digit growth.
Given our heritage and leadership position in premise based communications, we are uniquely positioned to capitalize on this technology shift to the cloud.
We are enabling our 2000 and on premise communication vars to transform their businesses to take advantage of cloud opportunities subscription and recurring revenue.
Each quarter of our fiscal year, including Q4, our team in Brazil has delivered consistent performance on both top line revenue and profitability through strong financial discipline.
We experienced strength in big deals and increased market share with strong double digit growth across barcode and mobility cyber security and digital workplace.
Workplace solutions.
In addition to our success across hardware our business in Brazil continues to build outstanding momentum across SaaS and cloud solutions.
We're on a journey to identify and address end user technology buying and consumption patterns, we've been expanding on our capabilities organic Lee and through acquisitions to enable our partners to meet these end user requirements.
As a leader in hybrid distribution, we are accelerating the future of technology for our partners across hardware software connectivity and cloud.
<unk> mental to our strategy is alignment with our suppliers and sales partners to understand the ever changing requirements of our markets.
With this market knowledge, we've developed deep specialized expertise in suppliers technologies and end user buying preferences.
Around these we built some of the industry's most impactful services and programs to enable our partners success.
Because of our success in hybrid distribution.
Supply is look to scan source to help solve their most complex go to market challenges as an example in June we announced our expanded relationship with Cisco to help them unlock new opportunities for growth in UC cloud and recurring revenue across our Intel.
This channel.
As a part of our commitment to partner success, we lead in enabling our partners to thrive in today's digital world.
In FY 'twenty, one we hosted an unprecedented 450 marketing events focused on the skills technologies talent and business opportunities needed for success in this new age.
I'm also excited about key leadership changes we've made in August Tony Sorrentino, a 22 year <unk> veteran and expert in hardware distribution in channels was promoted to president of our North America hardware business and will lead the merging of hardware distribution and serve.
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For our next phase of growth.
A few weeks later, we announced that 26 year channel veteran and expert in cloud services and channels, John <unk> joined us as president of Intel assists.
John is a longtime supporter of the channel who is laser focused on partner and supplier of success, including uncovering new opportunities for growth there.
The collective expertise and experience that Tony and John bring to the channel in hardware and cloud services will help us accelerate and scale our hybrid distribution growth strategy.
In summary, we are excited about our Q4 performance the strength and momentum of our business and the opportunities that lay ahead I also want to send out a massive thank you to all of our employees and all of our partners for their commitment dedication and loyalty to scan source and our.
Success.
Now Steve will take you through the financial results.
Thanks, John our strong fourth quarter results demonstrate our team's successful execution of our strategic plan, we have proven our ability to drive top line growth in the midst of COVID-19 and industry wide supply chain challenges, our fourth quarter net sales of $853 million increased 34.
4% year over year, and 17% quarter over quarter.
It's significant that this growth was broad based across our technology segments and geographies.
Our gross profit grew 29% year over year to $96 million.
Sales mix, including large deals contributed to our gross profit margin of 11, 2% compared to 11, 7% for prior year's quarter.
Our non-GAAP SG&A expense for the quarter of $64.5 million increased $1.9 million or 3% year over year, which includes investments in strategic head count for <unk> and other growth areas.
Non-GAAP EPS for the quarter of 96.
And crude.
Non-GAAP EPS for the quarter was 96 and improved each quarter of our fiscal year.
Our fourth quarter income tax includes a benefit from discrete tax items related to our international operations, primarily Brazil, a $4.9 million or <unk> 19 per diluted share for.
For fiscal year 2022, we estimate the effective tax rate to range from 25% to 26%, reflecting Brazil tax items and geographic mix.
Now turning to the balance sheet and cash flow, we had strong operating cash flow for the quarter of $61 million and for the year of $117 million year over year, we reduced working capital investment by $40 million or 10% year over year decline and strengthened our balance sheet Q4 DSO.
<unk> came in at 60 days, an improvement from the previous year and quarter of 63 days and in line with our expected range.
Our Q4 inventory turns of six five times are faster than our typical range as we navigate through industry wide supply chain constraints.
On June 32021, we had cash and cash equivalents of $63 million and debt of $143 million.
Our net leverage totaled approximately 0.7 times trailing 12 month adjusted EBITDA.
While our top capital allocation priority remains investing in growth opportunities to drive long term value, we are announcing a new $100 million share repurchase authorization, reflecting our confidence in scan sources business and the strength of our long term cash flow generation.
And finally for the fourth quarter FY 'twenty, one our return on invested capital increased to 14, 9% the highest quarterly ROIC in over five years.
I would now like to turn the call back over to Mike for closing comments and annual outlook.
Thanks, Steve.
In a press release earlier today, we announced the retirement of longtime director Jack Riley and the appointment of Charlie Mathis to our board of directors. This is a well deserved. Thank you Jack for 20 years of service and a welcome back to the company for Charlie.
2012 to 2016, Charlie service canceled our CFO and he was instrumental in crafting the strategy that resulted in our intelligence acquisition.
As we exit FY 'twenty, one with such momentum.
We are increasingly more confident of the growth and valuation creation opportunity ahead for <unk> and.
In the past, we have provided quarterly financial guidance, and we were always explaining to our investors.
That our hardware distribution business works with limited visibility without bookings or backlog.
However, with the change in our business to a hybrid model, where we have more recurring revenue each year and the growing attach rate of our services and software to our hardware sales, we have decided to provide an annual outlook for the first time.
For fiscal year 2022, we expect our year over year net sales growth to be at least five 5%.
We expect adjusted EBITDA to be at least a $135 million. This.
This compares to last year of $118 million.
Finally, we are pleased to announce our $100 million share repurchase authorization that reflects the board's continued confidence in our strategic plan.
We will now open it up for questions.
Thank you.
Ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone again to ask a question. Please press Star then one.
One moment please.
Our first question comes from Keith Hausman of North Coast Research. Your line is open.
Good afternoon guys.
Great job.
Question for you on the inventory levels inventory levels are roughly equal to last year, which seems kind of surprising based on the supply constraints that we're seeing in the overall market.
Talk to the quality of your inventory levels.
So you have in terms of.
The supply chain constraints as you look into the first quarter.
Hey, Keith Thanks for your question good to hear your voice.
I think as it relates to supply chain look I would have to say that.
Im really pleased.
With the work, we've done and what we've had to do to navigate.
The environment over the past several quarters.
And I have to hand, it to our sales and our head of our supplier services and purchasing purchasing teams for doing what I really think it was an outstanding job.
Dealing with the environment.
We managed inventory well over the past.
Two or three quarters, and I believe that we'll be able to continue to navigate the environment moving forward.
Great.
Would you say that your sales were impacted by your inability to obtain any product.
Not not really nothing that.
Negligible if anything.
Gotcha, and then you guys have issued guidance for second quarter of 2020. If my memory is correct would you say that you guys have increased confidence in your ability to forecast, but I think it was when we issued guidance. We're citing is why you didn't provide guidance.
Hey, <unk>, it's Mike Yes.
Certainly spent a lot of time over the last few quarters.
Making sure we can understand what is driving our growth.
For the last four quarters and going forward and we really believe we've gotten a significant advantage now having recurring revenue become a bigger part of our business and the attachment.
Recurring revenue services software to hardware makes that transaction stickier than it was in the past. So we believe we have more confidence and then secondly, if.
If you remember, we really restructured the sales organization, a year and a half two years ago.
What John and his team have done this past year to better develop a relationship both in a transactional basis, but more importantly, strategic so that our customers are spending a lot more time talking to us about their planned purchases, where theyre going to grow what areas and this relation.
Ship that has really dramatically changed over the last year is also enabling us to do our business more efficiently.
Back to your inventory question and so we have better knowledge of what our customers see coming than ever before and I think that's a big change in what gives me a lot more confidence is still doesn't mean just for the record that we're going to have this thing perfectly done. This is our our attempt at a longer term out.
Look we believe quarterly was just always really hard and still can be because we still will have some seasonality in our business, but we believe providing this first annual outlook, which by the way we will update quarterly will be a way for us to show our confidence in our business.
Gotcha I appreciate it.
And jumping a QC regulatory questions. Thanks Keith.
Thank you. Our next question comes from Chris Mcginnis of Sidoti and company. Your line is open.
Thanks for taking my <unk>.
Nice quarter.
Can you just touch on the market share gains you talked about is that sustainable and what's driving that and the offering or the ability to get supply can you just dive into that a little bit more thank you.
Yes, Chris This is John Thanks for the question.
Yes, the market share gains.
First of all I do think they are absolutely sustainable.
Co.
Covid really.
Was kind of in an.
An ignition point.
For digital transformation initiatives as you know all across the business and we play in many of the markets are large and growing that impact People's.
Path to digital.
And so yes, we had some wins because we had some inventory which is great but more so than that we took share we drove big deals.
And we were able to execute really I think in large part to some of the things Mike talked about.
In the reorganization of the sales organization, a year and a half where really driving tighter better and more aligned relationships with both our sales partners and our suppliers.
And building deep meaningful relationships that are driving too to joint success. So we're pretty excited and we feel good about 'twenty two.
Great.
If I remember I don't think as last quarter, maybe two quarters ago, you talked about Pos.
Having some issues in the market and that come back and can you give a level of growth that youre seeing from that business.
Yes.
You heard me talk in my prepared remarks about the reopening of main street.
We are we continue to be excited by that business. Obviously in the early days of Covid, we were impacted greatly because main street shut down but as it began to reopen we saw R. R.
Our revenues our attach rate with services.
Our volumes increase and actually now we are back to pre COVID-19 levels.
So we're very excited about that business and if you remember that business is a business that.
Drives higher margins for us due to services that we wrap around the hardware and so we are excited that main streets opened and we are definitely back in business there.
Okay and then.
Just last question just on the new share authorization.
Do you expect to be active on that relatively soon or is there opportunities maybe for M&A. When you look at the strength of our balance sheet and the cash flow. Thank you.
Yeah, Hi, Chris This is Steve Jones. Thanks for the question. So I would say that our first priority is always going to be to look for those long term value creation opportunities and that would be around growth, both organic and in our M&A opportunities so that would be our top priority.
Okay, great. Thanks for taking my questions and good luck in Q1.
Thanks.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one.
One moment please.
I'm showing no further questions at this time I'd like to turn the call back over to Mike Baur for any closing remarks.
Great. Thank you for joining us today, we expect to hold our next conference call to discuss September 30 quarterly results on Tuesday November 19.2021.
Thank you.
Ladies and gentlemen, this does conclude today's conference. Thank you all participating you may all disconnect have a great day.
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