Q1 2022 Scansource Inc Earnings Call
Wanted to Scansource quarterly earnings Conference call, all last name place and I'll 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 like to turn the call over to <unk> Senior Vice President Treasure and Investor Relations Ma'am you may begin.
Good afternoon, and thank you for joining us joining mailed to call today are my sour, our chairman and C. L. John L. R Chief revenue Officer, and State Jones, Our Chief Financial Officer, We'll review the or operating results for the quarter and then take your questions. We posted in earnings into graphic that occur.
Companies are comments and webcast and the Investor Relations section of our website, let me remind you that certain statements in our press release in the earnings into graphic and on this call are forward looking statements. These statements are subject to risks and uncertainties that could cause.
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 put out today and and scanned sources Form 10-K for the year ended June 30th 2021 as filed with the SEC any forward looking statements represent our view.
Use only as of today and should not be relied upon as representing our views as of any subsequent take.
Scansource disclaims any duty to update any forward looking statements to reflect actual results are changes and expectations, except as required by law. During a call. We will discuss both gap and non-GAAP results and if we bought it provided reconciliation between these amount and the earnings into graphics and in our press release.
These reconciliations also can be found on our web site and have been filed with our form 8-K filed today I'll now turn the call over to Mike.
Thanks, Mary and thanks, everyone for joining us today.
Our queue one performance was a terrific start to our fiscal year, driven by 13% net sales growth.
Are excellent top line growth was driven by strong driven by strong demand proves our hybrid strategy is winning.
I am extremely proud of the operational excellence delivered by our employees worldwide all navigating the ongoing supply chain challenges.
This quarter, we made changes to our reported segments now specialty technology solutions, and modern communications and clouds.
To align with our go to market strategy.
Both of the new segments include hardware services and recurring revenue opportunities. This enables us to follow in user consumption patterns for all of our technologies.
The foundation of a hybrid distribution strategy is helping suppliers in sales partners accelerate growth across innovative technologies.
Providing hardware plus services software or other recurring offers.
We connect devices to the cloud and are enabling our channel partners to meet in user demand and the exciting and fast growing digital world.
I will I will turn the call over to John to discuss our business performance.
Thanks, Mike.
I'm very proud of our queue. One performance, we delivered impressive results with 13% year on year net sales growth and 25% year on year gross profit growth, we saw momentum across our business given our power to combine hardware software connectivity and cloud service offer.
<unk>.
This combination of capabilities is enabling us to deliver differentiated value to our partners and suppliers, while accelerating growth opportunities across the channel, resulting in expanded margins across both segments.
Our sales and supplier services teens deep knowledge trust and specialty technology expertise provide us a competitive advantage in the marketplace.
Big differentiator for our business is our focus on specialized technologies. This specialization brings us much closer to our suppliers and in many cases makes us the largest or second largest customer.
Our suppliers trust us to take care of their business and their customers and work to accommodate our inventory requirements.
Our first quarter results reflected strong demand driven by digital acceleration and technology refresh initiatives.
We saw double digit growth across large deals and run right business.
At the end user buying and consumption patterns change Scansource enables partners to win and sell the technology stack by leveraging our hybrid hybrid distribution strategy.
A recent example of a hybrid solution included cloud voice connectivity and SD when controllers for a multi brand retailer looking to consolidate suppliers across a thousand plus sites, while connecting securing and maintaining business continuity.
Scansource orchestrated this solution, which resulted in a 500 K end user MRO ordeal highlighting are differentiated distribution capabilities.
In our specialty technology solutions segment.
Net sales increased 23% year on year fueled by strong demand increases in big deals and market share gains.
Our segment gross profit grew 32% year on year Ah more favorable sales mix increased supplier sales incentives.
In price performance drove higher profit margins with increased demand and continued labor shortages and customers are implementing mobile computing solutions to increase automation in worker productivity.
Retailers are adopting are solutions to reduce friction across the buying experience, including self checkout curbside pickup and storefront fulfillment for online purchases.
Key to our hybrid distribution growth strategy is expanding use cases for attaching higher value services to hardware.
Example, use cases include key injection for payment devices wireless connectivity with mobile computers and integrated hardware deployments. These use cases demonstrate scan sources unique value proposition and enhance our margin profile.
For our modern communications and cloud segment net sales increased 2% year on year, while gross profits increased 21% year on year, reflecting accelerated cloud and subscription adoption.
The hybrid work model considered by many as the new normal is providing significant opportunities for our partners across Ucas Sea Caz cloud enabled endpoints and connectivity.
Hybrid work environments are transforming the way we work according to Frost and Sullivan research pre 2020, only 10% of meeting space as qualified as huddle rooms by 2024, approximately 75% of all video meetings will take place.
And huddle rooms. This expected growth is creating tremendous opportunity for our sales partners to update and refresh Hill.
Collaboration technologies in conference and huddle rooms, enabling hybrid work.
Included in this segment is in Telesis, and we achieved 13% year on year net sales growth.
<unk> exceeded 2 billion in end user AOR annual recurring revenue or billings by suppliers to end users this marks or 21st quarter in a row of double digit growth within telesis.
We are adding additional head count ahead of revenue to accelerate our growth opportunity.
We are encouraged by the continued adoption of the agency model by the bar community as witnessed by 23% year on year growth in new supplier billings through Vars.
These vars now represents 56% of intelligence sales partners up from 30% at the time of acquisition five years ago.
Our team in Brazil continues to deliver consistent performance on top line revenue and profitability along with strong financial discipline.
During the quarter, we experienced strengthened big deals with double digit growth across datacenter digital workplace and cyber security solutions and.
In addition to our success across hardware our business in Brazil continues to build outstanding momentum across SaaS and digital solutions.
In summary.
We are leading the way in hybrid distribution accelerating the future of technology for our partners and suppliers across hardware software connectivity and cloud services I'm very excited about our queue, one performance the strength and momentum of our business and the opportunities that lay ahead.
I would like to thank our employees for all their outstanding efforts in the quarter and our suppliers and customers for their continued commitment to scan source.
Now I will turn it over to Steve who will take you through our financial results.
Thanks, John.
Strong first quarter results demonstrates our team successful execution of our strategic plan. It was an outstanding quarter for delivering growth and higher returns. Our business is built on top line growth and we realised operational leveraging Q1 and our bottom line results non-GAAP EPS for the quarter was 900.
<unk> and represents the fifth consecutive quarter of improvement.
As might noted in his opening statements, we made changes to our reporting segments to align technologies with our go to market strategy or new segments better reflect how we manage the business today and in the future.
And the first quarter, we achieve strong top line growth up.
13% year over year and expanded our margins are gross profit margins increase to 11, 8% adjusted EBITDA margins increased to 483% and non-GAAP operating income margin increased to 4.07%.
And both segments gross profit adjusted EBITDA and non-GAAP operating income grew faster than sales demonstrating are increasing operating leverage Q.
Q1, net sales of $857 million reflects a strong demand from our customers are gross profits grew 25% year over year to $101 million favorable sales mix and higher supplier sales incentives contributed to our gross profit margin of 11.8% an increase from $10 seven per.
<unk> and the prior year's quarter.
Are non-GAAP SG&A expense for the quarter of $63.5 million increased $1.9 million or 3% year over year, which includes investment in strategic head count for an telesis, Brazil, and other growth areas, including investments to expand our capabilities.
We are shifting to adjusted EBITDA as our key profitability metrics.
First quarter, adjusted EBITDA, which now excludes share based compensation totaled $41.4 million up a 98% year over year.
Our first quarter income tax rate of 25% reflects an increase in forecasted tax exempt income primarily from Brazil.
For fiscal year 2022, we estimate the effective tax rate, excluding discrete items to range from 25, 5% 24, 5% to 25, 5%.
Now turning to the balance sheet and cash flow neck.
Negative operating cash flow of $57 million for the quarter and $11 million for the 12th trailing 12 months reflects working capital investment to support our sales growth.
Year over year, working capital increased $93 million, 24% year over year increase.
Q1, DSO came in at 62 days in line with our expected range or.
R Q1 inventory turns of six three times, we're up modestly from our typical range.
On September 30th 2022.
2021, we had cash and cash equivalents of $55 million and that $197 million our balance sheet remains strong from a net debt leverage perspective. We ended Q1 at approximately one time trailing 12 month, adjusted EBITDA, demonstrating our financial flexibility to support growth opera.
Communities and create long term value there.
During the quarter, we had no repurchases under our $100 million a share repurchase authorization.
And finally first quarter of fiscal year 2022 return on invested capital increased to 17.5% the highest quarterly roissy in over five years or.
R Q1, Roissy includes the change in our adjusted EBITDA calculation to exclude share based compensation.
With our queue for earnings announcement in August we provided an annual outlook for the first time, we are reaffirming our full year outlook for fiscal year 2022, we expect our year over year net sales growth to be at least five 5% and we expect adjusted EBITDA to be at least 135 million.
We will now open it up for questions.
If you would like to ask a question. Please press Star then one if.
If your question has been answered and you'd like to remove yourself in the queue press the pound key.
Our first question comes from Adam symbol with Raymond James Your line is open.
Hi, This is Catherine on for Adams. Thank you so much for taking our questions today.
Looks like your new segment for modern communication in cloud massively this quarter sequentially and year over year was this attributable to the reshuffling in segments or increased activity and spending this channel.
Well I don't think from from a year over year perspective, if you look at the compare we've restated our year over year performance. So this would be strong demand driving our growth.
Okay, and then can you dig a little bit into backlog are you seeing elevated backlog you lead time and could you go into the composition that this backlog please.
Yeah, Hi, this is John he'll thanks for the question.
What we.
Thinking about backlogs quite frankly, it wasn't material coming out acute Q1.
And we are anticipating it to be material in queue too.
Okay and last one for me it looks like inventory could be putting a little bit of pressure on operating cash flow and as you mentioned turns are up year over year. When can we expect this metric to normalize.
Well when we look at our inventory turns we're kind of in the middle of where we think we should be at 6263 times. So it's a little bit faster than what we historically scene, but right kind of in the middle So we're seeing.
We're comfortable with where our inventory levels are right now.
Okay. Thank you so much.
Right.
Thank you.
Our next question comes from Keith Houston with North Coast Research. Your line is open.
Hey, guys congratulations on the quarter great to see.
If you look at your gross margins, obviously gross margins were very oppressive and vendor rebates were a big part of that as you kind of look at it and analyze the activity there how sustainable is that level of achievement and lose their religious and up for them to the court.
And the measured doses here.
Yeah, Let me take that one Keith this is Steve so when we look at our gross margins, we believe that will be able to sustain these and the reason why let me let me go into a little detail, we see higher growth rates in a recurring business and that has a higher margin for us and so we think that will be sustainable for us for sure. The one thing that we look at on the gross margin.
Side is our mix of large deals and so as we see larger deals we can see some fluctuation in the margin.
Gotcha makes sense in terms of the supply chain challenges that you guys are saying I'd love to get your perspective, just because you guys see a cross section of industries. There do you see the supply chain challenge is getting worse for you guys getting better I guess, how would you guys kind of look at them right now.
Yeah, Hey, Keith is John <unk>. Thanks for the question.
As it relates to the supply chain constraints clear.
Clearly like everybody else we're seeing.
Supply chain challenges this quarter, when we see them continuing as we move forward lead times of extended as you would imagine.
But overall as you heard in my prepared comments, our team is doing a fantastic job and working through it very well.
Gotcha, Okay appreciate it and in terms of the the guidance.
First quarter is generally not one of your strongest course to begin with for you guys had an essential a quarter, especially on the adjusted EBITDA line why not raise your guidance at least a little bit or is there a far past year for the rest of the year basically it out.
Well Keith This is Steve Jones again, let me, let me start off by saying that we just gave guidance for the first time ever in the company's history from an annual perspective, we stop giving guidance and from a quarterly perspective, and we started the annual guidance. So we're wanting to make sure that we're very comfortable.
Q1, definitely gives us confidence and or at least guidance for sure.
But they're still there are still challenges out there with the supply chain and we historically cr's seasonality impacted in Q3.
So with those with those things out there, we really don't have any new news other than Q1 performance to to update the guidance.
All right guys.
Bankruptcy thanks, guys.
Our next question comes from Chris Mcguinness with Cydonia <unk> Company. Your line is open.
Good afternoon. Thanks for taking my questions are nice quarter.
I guess, just a follow up to piggyback on the guidance question.
I guess when you when you think about the performance in Q1 with the big deals I know those fluctuate can you just talk a little bit about how much that played into maybe the margin performance.
I thought typically the larger deals were.
A little bit lower margin at times can you just walk through how that impacts of the margin where you could have ended up without those I guess.
Chris John talked about double digit growth in our big deals and our run rate business. So we were really pleased with the mix of business that we saw in Q1 as far as the margins with the supply chain. The way it is and the supply constraints, we actually had.
Some pricing performance that we historically don't see and those big deals. So that was a help to us for the quarter.
That makes sense, Okay and then.
John I think you mentioned just some investment for some growth ahead.
I don't know if it was specifically around the palaces, but can you just talk are you seeing a greater growth opportunity at this point given the strong performance.
Tell us is has that thanks.
Yeah, Hey, Chris Thanks for the question and.
Yeah, absolutely as I said in my prepared remarks, we had a strong quarter once again, 13% growth and absolutely we see.
Further growth opportunities across and telesis and so we're investing ahead of ahead of revenue and we're doing so across customer facing rolls expanding inside expanding our inside sales capabilities.
And also technical technical sales and technical capabilities, so across the board.
Chris is Mike John if I can just add to that I think the other big story that Jon talked about and we've been talking about for a few quarters as we've expanded dramatically our customer opportunities and tells us with the really rush by the bar channel to be part of our intelligence story. So we've now got a lot more <unk>.
Needs to go visit and cover and a lot of those bars or at early stages of selling and so a lot of John's team have to do a lot of education and development. So this is a multi year return kind of plan. So we're adding investments to really help these and the bars are you just doing a fantastic job there.
Contributed so much to our growth and this is what I talked about five years ago that we really wanted to happen is we would have this great and telesis.
Mr Agency that would one day a track bars at a level nobody else is doing so I think that's the real story as to where that investments going.
Okay great.
That color.
And then maybe just if you could just touch on Brazil, what's happening in that Mark.
Seems like they are in and out of flux with the pandemic and can.
Can you just are you gaining considerable share in that marketplace, maybe describe a little bit about what's happened there. Thank you.
Yeah, Chris we're really excited about Brazil.
They continue to deliver consistent.
Performance.
We got a great leadership team as we've talked about before real real strength in the in the overall team I think there's a couple of things also going on there are volumes there are.
At at a real positive level, which is helping us to get greater leverage.
On our SG&A.
And also we're seeing real strong recurring revenue growth, which is contributing positively.
Not only on the top line, but really to the gross profit margin.
Great and I don't know if you'd give us nowhere.
Do you have a growth rate of the recurring revenue itself I don't know if you're buffeted I don't think I've ever heard you discuss it that way, but I was wondering you can give us that color.
Hi, Chris This is Steve Jones, we don't aggregate are recurring revenues and report them out.
But it is something that we're focused on for sure is growing that recurring revenue base.
On both sides of our our of our segments now as well you'll see recurring revenue.
Okay.
Yeah, and thanks for all the [laughter]. Thanks for all the data realignment was very helpful.
And then just last question just given the strength of the balance sheet and then you have to share repurchase that you've put in last quarter.
But when you look at.
Possible M&A, where you would like to add to the team at this point.
Yeah, well first.
If you look at our quarter, we added about $93 million, we're working capital and we're in our sweet spot low end of our capital.
Leverage.
Range I would tell you that we have an active M&A pipeline and we are we are looking to acquire.
Especially to expand our capabilities. So that is more to come on that one stay tuned but that is something that we're focused on.
Great. Thanks for taking my questions and congrats on the quarter and good luck with you too.
Thank you.
Again to ask a question. Please press Star then one.
There are no further questions at this time I'd like to turn the call back over to Mr Bar for any closing remarks.
Hi, This is Steve Jones again, just like to thank everyone for joining us we expect to hold our next conference call to discuss December 31 quarter quarterly results on Tuesday February the eighth.
This does conclude the conference you may now disconnect everyone have a great day.
[music].
[music].
[music].
Welcome to the scans fourth quarterly earnings conference call all lines someplace in a listen only mode until the question answer session.
Today's call is being recorded.
Anyone has any objections you may disconnect at this time.
Let's 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 the operating results for the quarter and then take your questions. We posted an earnings infographic that accompany.
Our comments and webcast in the Investor Relations section of our website, let me remind you that certain statements in our press release and the earnings of the graphic and on this call are forward looking statements. These statements are subject to risks and uncertainties that could cause.
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 put out today and 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 scan source disclaims any duty to update any forward looking statements to reflect actual results or changes in expectations, except as required by law during the call we will discuss both GAAP.
GAAP and non-GAAP results and a pre bought it provided reconciliations between these amounts in the earnings into graphics and in our press release. These reconciliations also can be found on our website and has been filed with our form 8-K filed today I'll now turn the call over to Mike.
Thanks, Barry and thanks to everyone for joining us today.
Our Q1 performance was a terrific start to our fiscal year, driven by 13% net sales growth our excellent top line growth was driven by strong driven by strong demand proves our hybrid strategy is winning IMAX.
I am extremely proud of the operational excellence delivered by our employees worldwide.
<unk> the ongoing supply chain challenges this.
This quarter, we made changes to our reported segments now specialty technology solutions, and modern communications and cloud.
To align with our go to market strategy.
Both of the new segments include hardware services and recurring revenue opportunities. This enables us to follow and user consumption patterns for all of our technologies.
The foundation of our hybrid distribution strategy is helping suppliers and sales partners accelerate growth across innovative technologies provide.
Providing hardware plus services software or other recurring offers.
We connect devices to the cloud and are enabling our channel partners to meet end user demand in the exciting and fast growing digital world.
I will now turn the call over to John to discuss our business performance.
Thanks, Mike.
I am very proud of our Q1 performance, we delivered impressive results with 13% year on year net sales growth and 25% year on year gross profit growth, we saw momentum across our business given our power to combine hardware software connectivity and cloud service off.
This combination of capabilities is enabling us to deliver differentiated value to our partners and suppliers, while accelerating growth opportunities across the channel, resulting in expanded margins across both segments.
Our sales and supplier services team's deep knowledge trust and specialty technology expertise provide us a competitive advantage in the marketplace.
Big differentiator for our business is our focus on specialized technologies. This specialization brings us much closer to our suppliers and in many cases makes us the largest or second largest customer.
Our supplier, it's trust us to take care of their business and their customers and work to accommodate our inventory requirements.
Our first quarter results reflected strong demand driven by digital acceleration and technology refresh initiatives.
We saw double digit growth across large deals and run rate business.
As end user buying and consumption patterns change scan source enables partners to win and sell the technology stack by leveraging our hybrid hybrid distribution strategy.
Recent example of a hybrid solution included cloud voice connectivity and SD Wan controllers for a multi brand retailer looking to consolidate suppliers across.
Plus sites, while connecting securing and maintaining business continuity.
Scan source orchestrated this solution, which resulted in a 500 K end user MRO deal highlighting our differentiated distribution capabilities.
In our specialty technology solutions segment net sales increased 23% year on year fueled by strong demand increases in big deals and market share gains.
Our segment gross profit grew 32% year on year, a more favorable sales mix increased supplier sales incentives and price performance.
Rove higher profit margins with increased demand and continued labor shortages and customers are implementing mobile computing solutions to increase automation and worker productivity.
Retailers are adopting our solutions to reduce friction across the buying experience, including self checkout curbside pickup and storefront fulfillment for online purchases.
Key to our hybrid distribution growth strategy is expanding use cases for attaching higher value services to hardware.
For example use cases include key injection for payment devices.
Wireless connectivity with mobile computers and integrated hardware deployments. These use cases demonstrate scan sources unique value proposition and enhance our margin profile.
For our modern communications and cloud segment net sales increased 2% year on year, while gross profit increased 21% year on year, reflecting accelerated cloud and subscription adoption.
The hybrid work model considered by many as the new normal is providing significant opportunities for our partners across ucas seek as cloud enabled end points and connectivity.
Hybrid work environments are transforming the way we work according to Frost <unk> Sullivan research pre 2020, only 10% of meeting space is qualified as huddle rooms by 2020 for approximately 75% of all video meetings will take place.
In huddle rooms. This expected growth is creating tremendous opportunity for our sales partners to update and refresh.
Collaboration technologies and conference and huddle rooms, enabling hybrid work.
Included in this segment is in Telesis, and we achieved 13% year on year net sales growth.
<unk> exceeded $2 billion in end user <unk> annual recurring revenue or billings by suppliers to end users. This marks our 21st quarter in a row of double digit growth within telesis, we're adding additional head count ahead of revenue.
To accelerate our growth opportunity.
We are encouraged by the continued adoption of the agency model by the var community as witnessed by 23% year on year growth in new supplier billings through Vars. These vars now represents 56% of intelligent sales partners up from 30.
<unk> percent at the time of acquisition five years ago.
Our team in Brazil continues to deliver consistent performance on top line revenue and profitability along with strong financial discipline.
During the quarter, we experienced strength in big deals with double digit growth across data center digital workplace and cyber security solutions.
In addition to our success across hardware our business in Brazil continues to build outstanding momentum across SaaS and digital solutions.
In summary.
We are leading the way in hybrid distribution accelerating the future of technology for our partners and suppliers across hardware software connectivity and cloud services I'm very excited about our Q1 performance the strength and momentum of our business and the opportunities that lay ahead.
I'd like to thank our employees for all their outstanding efforts in the quarter and our suppliers and customers for their continued commitment to scan source.
Now I'll turn it over to Steve who will take you through our financial results.
Thanks, John our strong first quarter results demonstrates our team's successful execution of our strategic plan. It was an outstanding quarter for delivering growth and higher returns. Our business is built on top line growth and we realized operational leverage in Q1, and our bottom line results non-GAAP EPS.
For the quarter was <unk> 99, and.
And represents the fifth consecutive quarter of improvement.
As Mike noted in his opening statements, we made changes to our reporting segments to align technologies with our go to market strategy.
Our new segments better reflect how we manage the business today and in the future.
In the first quarter, we achieved strong top line growth up 13% year over year and expanded our margins our gross profit margins increased to 11, 8%.
Adjusted EBITDA margins increased to $4, 83% and non-GAAP operating income margin increased to $4 zero, 7%.
And both segments gross profit adjusted EBITDA and non-GAAP operating income grew faster than sales demonstrating our increasing operating leverage.
Q1, net sales of $857 million reflects strong demand from our customers. Our gross profit grew 25% year over year to $101 million favorable sales mix and higher supplier sales incentives contributed to our gross profit margin of 11, 8% an increase from 10 seven.
<unk> in the prior year's quarter.
Our non-GAAP SG&A expense for the quarter of $63 5 million increased $1 9 million or 3% year over year, which includes investment in strategic head count for Entellus us, Brazil, and other growth areas, including investments to expand our capabilities.
We are shifting to adjusted EBITDA as our key profitability metrics.
First quarter, adjusted EBITDA, which now excludes share based compensation totaled $41 4 million up 98% year over year.
Our first quarter income tax rate of 25% reflects an increase in forecasted tax exempt income primarily from Brazil.
For fiscal year 2022, we estimate the effective tax rate, excluding discrete items to range from 25, 5% or 24, 5% to 25, 5%.
Now turning to the balance sheet and cash flow negative.
Negative operating cash flow of $57 million for the quarter and $11 million for the trailing 12 months reflects working capital investment to support our sales growth.
Year over year, working capital increased $93 million or 24% year over year increase.
Q1, DSO came in at 62 days in line with our expected range our.
Our Q1 inventory turns of six three times were up modestly from our typical range.
On September 32022, or.
2021, we had cash and cash equivalents of $55 million and debt of $197 million our balance sheet remains strong from a net debt leverage perspective. We ended Q1 at approximately one times trailing 12 months adjusted EBITDA, demonstrating our financial flexibility to support growth.
<unk> and create long term value.
During the quarter, we had no repurchases under our $100 million share repurchase authorization.
And finally first quarter fiscal year 2020 to return on invested capital increased to 17, 5% the highest quarterly ROIC in over five years.
Our Q1 ROIC includes the change in our adjusted EBITDA calculation to exclude share based compensation.
With our Q4 earnings announcement in August we provided an annual outlook for the first time, we are reaffirming our full year outlook for fiscal year 2022, we expect our year over year net sales growth to be at least five 5% and we expect adjusted EBITDA to be at least a $135 million.
Yeah.
We will now open it up for questions.
If you would like to ask a question. Please press Star then one is.
Your question has been answered and you'd like to remove yourself from the queue press the pound key.
First question comes from Adam Tindle with Raymond James Your line is open.
Hi, This is Kathy on for Adam. Thank you so much for taking our questions today. It looks like your new segment for modern communication and cloud massively this quarter sequentially and year over year was this attributable to the reshuffling in segments or increased activity and spend in this channel.
Well I don't think from that from a year over year perspective, if you look at the compare we've restated our year over year performance. So this would be strong demand driving our growth.
Okay, and then can you dig a little bit into backlog or are you seeing elevated backlog and lead time and could you go into the composition of this backlog. Please.
Yes, Hi, this is Jon al Thanks for the question.
When we.
Thinking about backlogs quite frankly, it wasn't material coming out of Q Q1.
And we aren't.
Anticipating it to be material in Q2.
Okay and last one for me it looks like inventory could be putting a little bit of pressure on operating cash flow and as you mentioned turns are up year over year. When can we expect this metric to normalize.
Well when we look at our inventory turns were kind of in the middle of where we think we should be at 6263 times. So it's a little bit faster than what we've historically seen but right kind of in the middle So we're seeing.
We're comfortable with where our inventory levels are right now.
Okay. Thank you so much.
Right.
Thank you.
Our next question comes from Keith Tucson, with Northcoast Research Your line is open.
Hey, guys congratulations.