Q4 2024 ScanSource Inc Earnings Call

August 27, 2024

The End

Speaker Change: Welcome to the Scan Source, quarterly earnings conference call. All lines have been placed in a listen-only mode into the question answer session. Today's call is being recorded.

Speaker Change: If anyone has objections, you may disconnect at this time. I'll not like to turn the call over to Mary Gentry's Senior Vice President, Trisha Rest of Relations, man, you may begin.

Speaker Change: Good morning and thank you for joining us. Our call will include prepare remarks from Mike Bauer, our chair and CEO and Steve Jones, our chief financial officer. We will review our operating results for the quarter and the year and then take your questions.

Speaker Change: We posted an earnings infographic that accompanies our comments and webcasts in the investor-relation section of our website.

Speaker Change: As you know, certain statements in our press release, infographic and on this call are forward-looking statements and subject to risks and uncertainties that could cause actual results to differ materially from expectations.

Speaker Change: These risks in the start days include the factors identified in our earnings release and in our form 10 pay for the year end of June 30th, 2024.

Speaker Change: Board-looking statements represent our views only as of today, and scan sources' claims in a duty to update these statements except as required by law.

Speaker Change: During our call, we will discuss both gaps and non-gap results and have provided reconciliation on our website in our form 8K. I'll now tell you how to turn the call over to Mike.

Mike Bauer: Thanks, Mary, and thanks everyone for joining us today as we start our new fiscal year. We are seeing accelerated adoption of our hybrid distribution strategy, which we believe will drive more demand.

Speaker Change: Last week we hosted 800 attendees at our partner first conference where we challenge our sales partners to get out of their comfort zones and embrace new opportunities for growth.

Speaker Change: Our hybrid distribution strategy enables our sales partners to sell more of the technology stack to meet in-user customers' IT requirements. As our channel partners expand their technology stack offerings, scan source expands our total addressable market.

Ken Mills: In July, Ken Mills joined us as President of Intelligence, with a background most recently as CEO of Epic IO, a supplier to all the TSDs in the channel, where he led a private equity funded company through four years of double-digit growth.

Unknown Executive: Welcome to the ScanSource quarterly earnings conference call. All lines have been placed in a listen only mode into the question and answer session. Today's call is being recorded. If anyone has objections, you may disconnect at this time.

Ken Mills: Jen has many years of channel experience, dealing with agents, bars, MSPs, OEMs, and in user customers. When he worked previously at Cisco and EMC Dell.

Mary Gentry: I'll not like to turn the call over to Mary Gentry, Senior Vice President, Treasurer of Master Relations. Ma'am, you may begin. Good morning and thank you for joining us. Our call will include prepared remarks from Mike Baur, our Chair and CEO, and Steve Jones, our Chief Financial Officer. We will review our operating results for the quarter in the year and then take your questions. We posted an earnings infographic that accompanies our comments and webcasts in the Investor Relations section of our website.

Speaker Change: And in tell us this, can is leading our next phase of growth for the channel, as we are making investments in advanced technologies such as AI and private 5G.

Speaker Change: We also see partner segmentation as a strategy to demonstrate our differentiated value to partners who require a customized set of services.

Mary Gentry: As you know, certain statements in our press release, infographic and on this call, are forward-looking statements and subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include the factors identified in our earnings release and in our form 10K for the year ended June 30th, 2024. Board-looking statements represent our views only as of today and ScanSource declines any duty to update these statements except as required by law. During our call, we will discuss those gaps and non-gap results and have provided reconciliations on our website and in our form 8K.

Speaker Change: Our focus will be on the fastest growing partners, including IT vars, advanced technology partners, and Telco agents.

Speaker Change: Earlier in August, we announced two acquisitions in different segments of our business for the next phase of a hybrid distribution strategy.

Speaker Change: Both acquisitions are high margin recurring revenue businesses that are working capital light. As we previewed on last quarter's earnings call, our advisory channel business came to life with our acquisition of resources which closed on August 8th.

Mary Gentry: I'll now tell you how to turn the call over to Mike.

Mary M. Gentry: I'll now tell you how to turn the call over to Mike.

Speaker Change: Starting with Resources, Scansources Creating the Advisory Channel model of the future, developing best practices that we can share with the Inteluses Partner community.

Michael Baur: Thanks, Mary, and thanks everyone for joining us today. As we start our new fiscal year, we are seeing accelerated adoption of our hybrid distribution strategy, which we believe will drive more demand. Last week, we hosted 800 attendees at our partner first conference where we challenged our sales partners to get out of their comfort zones and embrace new opportunities for growth. Our hybrid distribution strategy enables our sales partners to sell more of the technology stack to meet in-user customers IT requirements. As our channel partners expand their technology stack offering, ScanSource expands our total addressable market.

Speaker Change: Also, in August, we announced the launch of our integrated solutions group. This new group is focused on specialty technology bars, and we'll provide them with new solutions to deliver more value with their hardware.

Michael Baur: Last week, we hosted 800 attendees at our partner first conference where we challenged our sales partners to get out of their comfort zones and embrace new opportunities for growth. Our hybrid distribution strategy enables our sales partners to sell more of the technology stack to meet in-user customers IT requirements. As our channel partners expand their technology stack offering, ScanSource expands our total addressable market.

Speaker Change: On August 15th, we closed the acquisition of advantages, a connectivity provider of 5G formability solutions.

Speaker Change: Advantage enables mobility bars to sell hybrid solutions by combining the recurring revenue stream from the connectivity with the hardware mobility devices.

Michael Baur: In July, Ken Mills joined us as president of Intellysis with a background most recently, a CEO of Epic I.O., a supplier to all the TSDs in the channel where he led a private equity funded company through four years of double-digit growth. Ken has many years of channel experience, dealing with agents, bars, MSPs, OEMs, and in-user customers when he worked previously at Cisco in EMC Dell. At Intellysis, Ken is leading our next phase of growth for the channel.

Speaker Change: We are executing well on investments to accelerate by hybrid distribution strategy and the expanded high margin growth opportunities ahead. As we said last quarter, we will continue to use our balance sheet to invest in the growth opportunities that are part of our strategic plan.

Speaker Change: I'm now turning the call over to Steve to take you through our financial results and outlook for fiscal year 2025.

Steve Jones: Thanks, Mike. As we close our fiscal year, I'm proud of how our teams have executed. As reported by many channel companies and suppliers, we are experiencing soft demand for many of our technologies in both of our segments.

Michael Baur: As we are making investments in advanced technology such as AI and private 5G. We also see partner segmentation as a strategy to demonstrate our differentiated value to partners who require a customized set of services. Our focus will be on the fastest growing partners, including IT Vars, Advanced Technology Partners, and Telco agents.

Speaker Change: However, we did see some technologies that experience good growth in Q4, including physical security and our specialty technology solution segment, and UCAS and C-CAS in our modern communication and cloud segment.

Speaker Change: While it was a challenging year, our team's state focus and were able to deliver strong profitability and significant free cash flow for the full year including the fourth quarter.

Michael Baur: Earlier in August, we announced two acquisitions in different segments of our business for the next phase of our hybrid distribution strategy. Both acquisitions are high margin, recurring revenue businesses that are working capital-light.

Speaker Change: For the quarter, our business delivered strong, gross profit margins, adjusted EBITDA margins, and free cash flow of $53 million.

Michael Baur: As we previewed on last quarter's earnings call, our advisory channel business came to life with our acquisition of Resources, which closed on August 8th. Starting with Resources, ScanSource is creating the advisory channel model of the future, developing best practices that we can share with the Intellysis Partner Community.

Speaker Change: and our specialty technology solution segment, net cells decline 14% year on year, while grows profit decline 10% year on year.

Speaker Change: and our modern communication and cloud segment, net sales decline 32% year on year, while in tell us this net sales grew 6% year on year.

Michael Baur: Also, in August, we announced the launch of our Integrated Solutions Group. This new group is focused on specialty technology Vars, and will provide them with new solutions to deliver more value with their hardware.

Michael Baur: Also, in August, we announced the launch of our Integrated Solutions Group.

Speaker Change: Q4, end user buildings for Inteluses increased 9% year on year and total $2.67 billion in FY24.

Michael Baur: This new group is focused on specialty technology Vars, and will provide them with new solutions to deliver more value with their hardware.

Speaker Change: This includes Q4 Billings Group in Context Center's A Service or C-Cass of 35% and U-Cass of 13%.

Michael Baur: On August 15th, we closed the acquisition of Advantics, a connectivity provider of 5G for mobility solutions. Advantics enables mobility Vars to sell hybrid solutions by combining the recurring revenue stream from the connectivity with the hardware mobility devices. We are executing well on investments to accelerate our hybrid distribution strategy and the expanded high margin growth opportunities ahead.

Speaker Change: Gross profit and our modern communication and cloud segment declined 11% year on year. Less than the self-decline reflecting a favorable mix, including higher concentration of recurring revenues from Inteluses.

Speaker Change: For FY24, net sales declined 14% while gross profits declined 11%.

Speaker Change: Gap and non-gap net income declined 12.5% and 20.5% respectively.

Michael Baur: As we said last quarter, we will continue to use our balance sheet to invest in the growth opportunities that are part of our strategic plan.

Speaker Change: FY204 non-gap EPS is $3.8 compared to $3.85 last year.

Stephen Jones: I'll now turn the call over to Steve to take you through our financial results and outlook for fiscal year 2025.

Speaker Change: Free cash flow for the year was $363 million. Driven by a significant reduction in working capital from lower sales and our working capital efficiency improvements.

Stephen Jones: Thanks, Mike. As we close our fiscal year, I'm proud of how our teams have executed. As reported by many channel companies and suppliers, we are experiencing soft demand for many of our technologies in both of our segments. However, we did see some technologies that experienced good growth in Q4, including physical security and our specialty technology solution segment, and UCAS and C-CAS in our modern communication and cloud segment. While it was a challenging year, our teams stayed focused and were able to deliver strong profitability and significant free cash flow for the full year, including the fourth quarter.

Speaker Change: For the year, especially technology and solution segment, net sales declined 14% year on year. Logrose profits declined 16%.

Speaker Change: Modern Communication and Cloud segment net sales declined 13% while gross profit declined 6%. Again, reflecting a higher mix of recurring revenue from our intelligence business, which saw 6.6% year on year growth in net sales.

Speaker Change: Recurring revenue represented 27% of the company's consolidated gross profits.

Stephen Jones: For the quarter, our business delivered strong growth profit margins, adjusted EBITDA margins, and free cash flow of $53 million. In our specialty technology solution segment, net sales declined 14% year on year, while growth profit declined 10% year on year. In our modern communication and cloud segment, net sales declined 32% year on year, while untilysis net sales grew 6% year on year. Q4 end-user buildings for end-tellysis increased 9% year on year, and totaled $2.67 billion in FY24.

Speaker Change: Now turning to the balance sheet and cash flow.

Speaker Change: We are very pleased with the progress we are making on our working capital efficiency. Our goal throughout the year was to improve our working capital efficiency while maintaining appropriate inventory levels to meet Channel Partner to land.

Speaker Change: We sell inventory's decrease $245 million a year and sustainable improvements in our inventory turns.

Speaker Change: Our Council Receivable balances are inline with our change in revenue and both are inventory and a Council Receivable Portfolios are healthy.

Stephen Jones: This includes Q4 Billings Growth in Contact Centers of Service or C-CAS of 35% and U-CAS of 13%. Gross profit in our modern communication and cloud segment declined 11% year-on-year, less than the self-declined, reflecting a favorable mix, including higher concentration of recurring revenues from Intellysis. For FY-24, net sales declined 14% while gross profits declined 11%, gap and non-gap net income declined 12.5% and 20.5% respectively. FY-24 non-gap EPS is $3.08 compared to $3.85 last year.

Speaker Change: Our balance sheet is strong. We ended Q4 with $185 million in cash, and a net net leverage ratio below zero on a trelling 12 month adjusted even a basis.

Speaker Change: Our capital allocation plans balance acquisitions and share repurchases while maintaining a strong balance sheet with a modest net leverage target of one to two times adjusted EBITDA.

Sherry: Sherry purchases total $22 million for Q4 and $43 million for FY24.

Speaker Change: For FY25, we have an active pipeline of acquisition targets and room to continue to do share repurchases while staying within our targeted net leverage ratio.

Speaker Change: As we look to our FY25 annual outlook, the company expects the challenging demand environment to continue in the near term, particularly in the first half of our fiscal year.

Stephen Jones: Free cash flow for the year was $363 million, driven by a significant reduction in working capital from lower sales and are working capital efficiency improvements. For the year, the specially technology and solution segment net sales declined 14% year-on-year while gross profits declined 16%. Modern communication and cloud segment net sales declined 13%, while gross profit declined 16%. Again, reflecting a higher mix of recurring revenue from our Intellysis business, which saw 6.6% year-on-year growth in net sales.

Speaker Change: As a reminder, we have very little backlog to give us an indication of the demand, as we ship each day from our inventory based on orders received that day.

Speaker Change: We continue to manage our SGNA spending to match our revenue growth expectations for FY-25 and beyond by redirecting resources and investing in our recurring revenue businesses.

Speaker Change: We continually review our resource investment and adjust based on market opportunities.

Stephen Jones: Recurring revenue represented 27% of the company's consolidated gross profits. Now turning to the balance sheet and cash flow, we are very pleased with the progress we're making on our working capital efficiency. Our goal throughout the year was to improve our working capital efficiency while maintaining appropriate inventory levels to meet channel partner demand. We saw inventory's decreased $245 million year over year and sustainable improvements in our inventory turns. Our counts receivable balances are in line with our change in revenue and both our inventory and accounts receivable portfolios are healthy.

Speaker Change: For FY25, we currently believe our net sales will be between 3.1 and 3.5 billion dollars with adjusted EBITDA ranging between 140 and 160 million dollars.

Stephen Jones: Now turning to the balance sheet and cash flow, we are very pleased with the progress we're making on our working capital efficiency. Our goal throughout the year was to improve our working capital efficiency while maintaining appropriate inventory levels to meet channel partner demand. We saw inventory's decreased $245 million year over year and sustainable improvements in our inventory turns. Our counts receivable balances are in line with our change in revenue and both our inventory and accounts receivable portfolios are healthy.

Speaker Change: This reflects an adjusted EBITDA margin of approximately 4.5 to 4.6%.

Speaker Change: As we reported last year, the company is building a cash culture as we believe generating predictable free cash flow is a key measure of success.

Speaker Change: For FY25, we believe that we will generate at least $70 million in pretty cash flow. While this is significantly lower than FY24, we believe the majority of our working capital reduction actions are complete and will shift to a continuous working capital efficiency improvement.

Stephen Jones: Our balance sheet is strong. We ended Q4 with $185 million in cash and a net leverage ratio below zero on a trailing 12-month adjusted eva-the-basis. Our capital allocation plans balance acquisitions and share repurchases while maintaining a strong balance sheet with a modest net leverage target of one to two times adjusted eva-the. Share repurchases total $22 million for Q4 and $43 million for FY24. For FY25, we have an active pipeline of acquisition targets and room to continue to do share repurchases while staying within our targeted net leverage ratio.

Speaker Change: Our outlook includes our recent acquisitions, and we remain confident in our growth opportunities, the resilience of our business model, and the strength of our hybrid distribution strategy.

Speaker Change: Well, now I'll open it up for questions.

Speaker Change: Thank you, at this time we'll go to the question and session to ask the question, you'll need to press start one one on your telephone and wait for your name to be announced. To draw your question, please press start one one again, please expand and buy what we compile the Q&A roster.

Speaker Change: Our first question, concerned line of Adam Tindall Raymond James, the line is not open.

Stephen Jones: As we look to our FY25 annual outlook, the company expects the challenging demand environment to continue in the near term, particularly in the first half of our fiscal year. As a reminder, we have very little backlog to give us an indication of demand. As we ship each day from our inventory based on orders received it, today. We continue to manage our SGNA spending to match our revenue growth expectations for FY25 and beyond by redirecting resources and investing in our recurring revenue businesses.

Stephen T. Jones: As we look to our FY25 annual outlook, the company expects the challenging demand environment to continue in the near term, particularly in the first half of our fiscal year. As a reminder, we have very little backlog to give us an indication of demand. As we ship each day from our inventory based on orders received it, today. We continue to manage our SGNA spending to match our revenue growth expectations for FY25 and beyond by redirecting resources and investing in our recurring revenue businesses. We continually review our resource investment and adjust based on market opportunities.

Adam Tindall: Okay, thanks. Good morning. Mike, you talked earlier in the call about the appointment of Ken Mills as a president of Intelysis in July and I think that's a really interesting turning point for the company. I wonder if you could maybe just.

Speaker Change: Double-click on that, maybe a little bit more details on the structure of the organization, how that's changing the KPIs for that business and how those might be changing things.

Speaker Change: Yeah, hey Adam, you know for us as you know we took quite a while to actually appoint a new president.

Speaker Change: and at the time.

Speaker Change: I was acting in that capacity to make sure I understood not only

Stephen Jones: We continually review our resource investment and adjust based on market opportunities. For FY25, we currently believe our net sales will be between $3.1 and $3.5 billion with adjusted EBITDA ranging between $140 and $160 million. This reflects an adjusted EBITDA margin of approximately 4.5 to 4.6%. As we reported last year, the company is building a cash culture as we believe generating predictable free cash flow is a key measure of success. For FY25, we believe that we will generate at least $70 million in free cash flow.

Speaker Change: Where we were doing things well, but also where we weren't doing things maybe for the future and it looked to me like we needed more.

Stephen Jones: For FY25, we currently believe our net sales will be between $3.1 and $3.5 billion with adjusted EBITDA ranging between $140 and $160 million. This reflects an adjusted EBITDA margin of approximately 4.5 to 4.6%. As we reported last year, the company is building a cash culture as we believe generating predictable free cash flow is a key measure of success. For FY25, we believe that we will generate at least $70 million in free cash flow.

Speaker Change: Strategy and Vision, execution of something I think that Intel says has always been very good at, but I think as the competition changed on us over the last couple years.

Speaker Change: We need to take a hard look at where our value is, and where our value can become in the future. And can bring such a strong background in different channel approaches.

Speaker Change: that really resonates with our team as we interview can and looked at.

Speaker Change: Others that might come more directly.

Stephen Jones: While this is significantly lower than FY24, we believe the majority of our working capital reduction actions are complete and we'll shift to a continuous working capital efficiency improvement. Our outlook includes our recent acquisitions and we remain confident in our growth opportunities the resilience of our business model and the strength of our hybrid distribution strategy.

Speaker Change: from the TSD channel community.

Kim: Kim's background, not only at Cisco and EMC Dell, but also at a supplier.

Kim: To all of the TSDs really brings a unique approach to the knowledge base that frankly I didn't have.

Kim: and so, as Kim and I said, I talked about.

Unknown Executive: We'll now open it up for questions. Thank you. At this time, we'll talk to the question and succession. To ask the question, you'll need to pre-star one-one or telephone and wait for your name to be announced. To draw your question, please pre-star one-one again. Please stand by what we compiled the Q&A roster.

Speaker Change: You know, where in tell us this is, it became more the conversation about where it can go and what it can become. And so we are very bullish on the TSD model and why we believe going forward, we can create more growth. The matter of fact, Kennedy discussed.

Goyne Ford: Goyne Ford, we believe we can get back to double-digit growth and intelligence.

Adam Tindall: Our first question comes from the line of Adam Tindall, Raymond James. The line is now open. Okay. Thanks. Good morning. My key talked earlier in the call about the appointment of Ken Mills as president of Intellysis in July and I think that's a really interesting turning point for the company. I wonder if you could maybe just double-click on that.

Speaker Change: God, that's helpful. I'm going to hurt many who come from Tiger 2, so I hope you're there.

Speaker Change: Well, you know, we try not to use those things to influence us, but yes, it wasn't a bad thing.

Speaker Change: [inaudible]

Michael L. Baur: I wonder if you could maybe just double-click on that. Maybe a little bit more details on the structure of the organization, how that's changing, the KPIs for that business and how those might be changing. Thanks. Yeah.

Speaker Change: Steve, I wanted to maybe follow up on that. Obviously, this is part of sort of a broader strategy to, you know, also build up the ISS group and we've got a couple acquisitions.

Adam Tindall: Maybe a little bit more details on the structure of the organization, how that's changing, the KPIs for that business and how those might be changing. Thanks. Yeah.

Speaker Change: and here, any help that you could maybe provide us in terms of expected contribution from those acquisitions as you built up your fiscal 25 guidance.

Michael Baur: Hey, Adam. For us, as you know, we took quite a while to actually appoint a new president and at the time, I was acting in that capacity to make sure I understood not only where we were doing things well, but also where we weren't doing things maybe for the future. And it looked to me like we needed more strategy and vision, execution is something I think that Intellysis has always been very good at, but I think as the competition changed on us over the last couple years, we needed to take a hard look at where our value is and where our value can become in the future.

Speaker Change: and then separately from that, just more broadly speaking as you built up the fiscal 25 guidance. I wonder how that process might have been.

Speaker Change: Similar or different from entering fiscal 24. I know that whole process was kind of new work to you guys at that time and sure there's been some learning since so if you could maybe just touch on the process to guide and centering the school 25, how it was different and then any acquisition contribution color would be helpful.

Speaker Change: Yeah, I'm thanks for the question, and good morning.

Michael Baur: And Ken brings such a strong background in different channel approaches that that really resonated with our team as we interviewed Ken and looked at others that might come more directly from the TSD channel community. Ken's background, not only at Cisco and EMC Dell, but also at a supplier to all of the TSDs really brings a unique approach to the knowledge base that frankly I didn't have. And so as Ken and I said, and I talked about where Intellysis is, it became more the conversation about where it can go and what it can become.

Speaker Change: Let me talk about the first one about our acquisitions. Again, when we talk about our, and we've been thinking about this for a while and working through this, when we think about our acquisition strategy, it's really around acquiring higher margin.

Speaker Change: Opportunities that are low in working capital.

Speaker Change: and this will always be over the context of the white return for the company. So when we think about, are they a creative to our EBITDA, are they a creative to our...

Speaker Change: to our overall.

Speaker Change: Contribution, yes they are. They're small. These are small acquisitions that we're announcing more of a programmatic approach to our acquisition strategy.

Speaker Change: and so they are included in our guidance, but I would say that they're not significant to the consolidated results for FY25 that we've got in our guidance.

Michael Baur: And so we are very bullish on the TSD model and why we believe going forward we can create more growth. The matter fact Ken and I discussed going forward we believe we can get back to double digit growth at[inaudible] God, that's helpful. I haven't heard that he's a Clemson Tiger too, so I'm sure that that's was welcome. Well, you know, we try not to use those things to implement this, but yes, it wasn't a bad thing.

Speaker Change: Let me maybe move to the second question on, we learned a lot and the thing that we learned is this is a tough time to try to predict the top-line growth.

Speaker Change: You know, when we entered the last year...

Speaker Change: There was a lot of changes going on in the market. We were coming out of the supply chain constraints.

Speaker Change: and our technologies, you know, we do have this differentiated portfolio which helps us, but our technologies all went through different cycles of that portfolio. So what we learned is...

Adam Tindall: Yeah, Steve, I wanted to maybe follow up on that. Obviously this is part of sort of a broader strategy to, you know, also build up the ISS group, and we've got a couple acquisitions here. Any help that you could maybe provide us in terms of expected contribution from those acquisitions as you built up your fiscal 25 guidance. And then separately from that, just, you know, more broadly speaking as you built up the fiscal 25 guidance, I wonder how that process might have been similar or different from entering fiscal 24.

Speaker Change: predicting this thing is hard again.

Speaker Change: and so that kind of guided our decisions as we came into 25 on how we would guide. We wanted to maintain guidance because we think it's important but also what's important to us.

Speaker Change: and one of the things that became crystal clear last year is we need to focus our whole company on...

Speaker Change: Driving Free Cash Flow and making good decisions on our working capital. And so that gave us confidence that we could guide again this year for Free Cash Flow. But really I would say the two takeaways is...

Adam Tindall: I know, you know, that whole process was kind of new work to you guys at that time, and sure there's been some learning since, so if you could maybe just touch on the process to guide and center into school 25, how it was different, and then any acquisition contribution color would be helpful. Thanks. Yeah, Adam, thanks for the question, and good morning. Let me talk about the first one about our acquisitions.

Stephen Jones: I know, you know, that whole process was kind of new work to you guys at that time, and sure there's been some learning since, so if you could maybe just touch on the process to guide and center into school 25, how it was different, and then any acquisition contribution color would be helpful. Thanks. Yeah, Adam, thanks for the question, and good morning. Let me talk about the first one about our acquisitions.

Speaker Change: Hard to predict the top line as we go through the year and we gave wider ranges because of that and keeping everyone laser focused on the trade-off between expanded top line and the return on free cash flow.

Adam Tindall: Again, when we talk about our, and we've been thinking about this for a while, and working through this, when we think about our acquisition strategy, it's really around acquiring higher margin opportunities that are low in working capital, and this will always be over the context of the right return for the company. So when we think about, are they creative to our EBITDA? Are they creative to our overall contribution? Yes, they are. They're small.

Stephen Jones: Again, when we talk about our, and we've been thinking about this for a while, and working through this, when we think about our acquisition strategy, it's really around acquiring higher margin opportunities that are low in working capital, and this will always be over the context of the right return for the company. So when we think about, are they creative to our EBITDA? Are they creative to our overall contribution? Yes, they are. They're small.

Stephen Jones: These are small acquisitions that we're announcing more of a programmatic approach to our acquisition strategy, and so they are included in our guidance, but I would say that they're not significant to the consolidated results for FY25 that we've got in our guidance. Let me maybe move to the second question on, we learned a lot, and the thing that we learned is, this is a tough time to try to predict the top line growth.

Speaker Change: Thanks very much.

Speaker Change: Thank you, we'll move on for our next question.

Speaker Change: Our next question comes from a line of Greg Burns' facility, your line is not open.

Greg Burns: Good morning.

Greg Burns: We've had some, I guess.

Greg Burns: I don't know if you can characterize it as positive, but maybe improving kind of outlook from some of your supplier partners like Cisco and Zebra, or maybe just more positive comments or green shoots there in terms of maybe demand for me up. Is it just a function of...

Speaker Change: Maybe the cycles of, like you mentioned, the different technologies, or where you sit in terms of the timing of orders that is like maybe climbing the man, I'm just trying to understand.

Speaker Change: Maybe the climb, do you saw this quarter in both segments and your outlook relative to maybe?

Stephen Jones: When we entered last year, there was a lot of changes going on in the market. We were coming out of the supply chain constraints, and our technologies, we do have this differentiated portfolio, which helps us, but our technologies all went through different cycles of that portfolio. So what we learned is predicting this thing is hard again, and so that kind of guided our decisions as we came into 25 on how we would guide, we wanted to maintain guidance because we think it's important, but also what's important to us.

Speaker Change: Some of the more positive commentary we're seeing from your supplier partners, thank you.

Speaker Change: I'll tackle it. I think SDF indicated

Speaker Change: the approach we took this year.

Speaker Change: Similar to what we've done in many years as we ask our teams what's their best estimate of what we're going to do and I've...

Speaker Change: I've argued for a long, long time that for us as a distributor.

Stephen Jones: And one of the things that became crystal clear last year is we needed to focus our whole company on driving free cash flow and making good decisions on our working capital. And so that gave us confidence that we could guide again this year for free cash flow, but really I would say the two takeaways is hard to predict the top line as we go through the year, and we gave wider ranges because of that. And keeping everyone laser focused on the trade off between expanded top line and the return on free cash flow, as well. Make sense. Thank you very much. Thank you.

Speaker Change: who really, we don't control the demand. We don't typically create demand.

Speaker Change: Very hard for us to know what's coming and as you know as well we don't maintain a backlog.

Unknown Executive: We'll move on to our next question.

Speaker Change: except for that brief period during the supply chain crisis where there was no product and so we did kind of understand what the man was.

Speaker Change: We're more back to where our business normally operated from a distributor standpoint of hardware, which is...

Speaker Change: We have to depend on our partners to tell us what they think they're going to need within place orders with our suppliers and our suppliers, let me tell you, they're asking us constantly, hey, are we starting to see as you indicated green shoots?

Speaker Change: This idea that we gave for this year, unlike last year, where we had an at least number for the top line. We decided to come up with this wide range because it's the timing question, and Stephen indicated in his prepared remarks.

Gregory Burns: Our next question comes from the line of Greg Burns of Sedotti. Your line is now open.

Gregory Burns: Our next question comes from the line of Greg Burns of Sedotti. Your line is now open. Morning. We've had some, I guess, I don't know if you characterize it as positive, but maybe improving kind of outlook from some of your supplier partners like Cisco and Zebra, or maybe just more positive comments or green shoots there in terms of maybe the man firming up. Is it just a function of maybe the cycles of the, like you mentioned, the different technologies or where you sit in terms of the timing of orders that is like maybe cutting demand? I'm just trying to understand maybe the clients you saw this quarter in both segments and your outlook relative to maybe some of the more positive commentary we're seeing from your supplier partners. Thank you.

Stephen: Well, we believe right now that there's a first half second half dynamic that should play out. That's based on all the information we have that may or may not be true. Meaning, I think the first half of our fiscal year is going to be...

Gregory Burns: Morning. We've had some, I guess, I don't know if you characterize it as positive, but maybe improving kind of outlook from some of your supplier partners like Cisco and Zebra, or maybe just more positive comments or green shoots there in terms of maybe the man firming up. Is it just a function of maybe the cycles of the, like you mentioned, the different technologies or where you sit in terms of the timing of orders that is like maybe cutting demand? I'm just trying to understand maybe the clients you saw this quarter in both segments and your outlook relative to maybe some of the more positive commentary we're seeing from your supplier partners. Thank you.

Speaker Change: Very hard to forecast. We believe the second half will be easier, but we also said that last year.

Speaker Change: So we're doing the best we can.

Speaker Change: and bound in it by what we continue to hear as well from the suppliers.

Speaker Change: That you've referenced, but as you know we've got a lot of suppliers and we indicated that some actually did better last year than others.

Speaker Change: Our physical security business as an example really was very strong and resilient.

Speaker Change: Yet we had some other parts of our business, even beside the Cisco and the Zebras that did not do well. And so we're trying to figure out where we should make an investment decision for 25 and 26 right now.

Michael Baur: Hey, Greg is Mike. I'll tackle it. I think as Steve indicated the approach we took this year similar to what we've done in many years as we asked our teams what's their best estimate of what we're going to do. And I've argued for a long, long time that for us as a distributor who really we don't control the demand. We don't typically create demand very hard for us to know what's coming.

Speaker Change: But we're mindful of the fact that it's Steve Indicated as well, we want to be mindful of.

Speaker Change: Managing our balance sheet, appropriately.

Speaker Change: Not getting into the position where we're using our balance sheet to drive opportunistic purchases. That's something we used to do. We're going to make sure we're very conservative in our use of the balance sheet to drive working capital.

Speaker Change: Alright, thanks and then in terms of resources, why was that the right, I guess first?

Michael Baur: And as you know as well, we don't maintain a backlog except for that brief period during the supply chain crisis where there was no product. And so we did kind of understand what demand was. We're more back to where our business normally operated from a distributor standpoint of hardware which is we have to depend on our partners to tell us what they think they're going to need. We then place orders with our suppliers and our suppliers.

Speaker Change: Acquisition in the advisory space, maybe what was unique about them that attracted you to that purpose.

Speaker Change: Well, when we started talking about this idea of creating a new business group, the two key messages we started talking about with we believed that we needed a management team, a leadership team.

Michael Baur: Let me tell you if they're asking us constantly. Hey, are we starting to see as you indicated green shoots. This idea that we gave for this year, unlike last year where we had an at least number for the top line, we decided to come up with this wide range because it's the timing question. And Steve indicated in his prepared remarks there. We believe right now that there's a first half, second half dynamic that should play out that's based on all the information we have that may or may not be true.

Speaker Change: That could, that we could acquire that would.

Speaker Change: That would be the people that are staying not the people exiting. In this particular case.

Speaker Change: The founder and CEO President of this company is leaving, but the team that he recruited has been there for about seven years and they're on board, they're staying and we're excited about their ability to build.

Speaker Change: Really a team that can continue to perform well going forward and so we believe this is the kind of the starting point for this leadership team.

Michael Baur: Meaning, I think the first half of our fiscal year is going to be very hard to forecast. We believe the second half will be easier, but we also said that last year. So we're doing the best we can and bound in it by what we continue to hear as well from the suppliers that you've referenced. But as you know, we've got a lot of suppliers and we indicated that some actually did better last year than others.

Speaker Change: The second thing we talked about that we were going to need was a some kind of technology tool to help this particular company resource and others like them that buy from us on the analysis side of the fans.

Speaker Change: Manage their contracts, manage renewals, manage...

Speaker Change: Selling Advanced Technologies, and we believe we still need to find.

Speaker Change: that other piece of the puzzle, we need to find the technology tool rather than us building ourselves.

Michael Baur: Our physical security business, as an example, really was very strong and resilient. Yet we had some other parts of our business, even even beside the Cisco and the zebras that did not do well. And so we're trying to figure out where we should make an investment decision for 25 and 26 right now, but we're mindful of the fact that it's Steve indicated as well. We want to be mindful of managing our balance sheet appropriately, not get into the position where we're using our balance sheet to drive opportunistic purchases. That's something we used to do. We're going to make sure we're very conservative in our use of the balance sheet to drive working. Capital. All right, thanks.

Speaker Change: and so for us, if we had to choose between acquiring a technology.

Gregory Burns: All right, thanks.

Speaker Change: A tool if you will, or a leadership team first, our preference was leadership team first and that's where resource of really shine. So we're excited, this team is excited to be part of Scansource and Martin Morgan, who many of our investors and certainly folks at the community know Mark.

Speaker Change: Um...

Speaker Change: He led the discovery of the potential targets and led the acquisition and so mark leading this gives us a lot of confidence that we picked the right team and that we will be able to get started very quickly to generating the kind of business that we expect resources to become.

Marker: Marker, thank you.

Unknown Executive: And then in terms of resource of why was that the right, I guess first acquisition in the advisory space, maybe what was unique about them that it attracted you to that business?

Michael Baur: And then in terms of resource of why was that the right, I guess first acquisition in the advisory space, maybe what was unique about them that it attracted you to that business? Well, when we started talking about this idea of creating a new business group, the two key messages we started talking about was we believed that we needed a management team, a leadership team that we could acquire that would be the people that are staying, not the people exiting.

Speaker Change: Thank you, bon appetit for our next question.

Speaker Change: i

Speaker Change: Our next question, concerned line of Keith Hillsham of North Coast research, it line is now open.

Michael Baur: Well, when we started talking about this idea of creating a new business group, the two key messages we started talking about was we believed that we needed a management team, a leadership team that we could acquire that would be the people that are staying, not the people exiting. In this particular case, the founder and CEO of President of this company is leaving but the team that he recruited has been there for about seven years and they're on board, they're staying and we're excited about their ability to build really a team that can continue to perform well going forward.

Keith Hillsham: Good morning, guys. You see, perhaps you're going to provide some color in terms of the scalability of the company that you just acquired. Are they limited more into some geography there or are you going to actually take them?

Keith Hillsham: Now, come through right now, but how scalable are the businesses and how quickly can you guys scale them up?

Michael Baur: In this particular case, the founder and CEO of President of this company is leaving but the team that he recruited has been there for about seven years and they're on board, they're staying and we're excited about their ability to build really a team that can continue to perform well going forward.

Keith Hillsham: Hey Keith, good morning. Yes, you know, the way we are thinking about both of these companies is they are scalable place. They are smaller companies that we think have unique capabilities, unique management styles.

Speaker Change: and those would then be what we would build on. Advantage that we announced, that's an interesting one because it does two things for first of all, it gives us some advanced.

Michael Baur: And so we believe this is the starting point for this leadership team. The second thing we talked about that we were going to need was a some kind of technology tool to help this particular company resource and others like them that buy from us on the Intellysis side of the fence manage their contracts, manage renewals, manage selling advanced technologies and we believe we still need to find that other piece of the puzzle.

Speaker Change: Um...

Speaker Change: Capabilities and some value added capabilities, much like what we did with P.O.S. Portal years ago.

Speaker Change: But it also then should help us sell more hardware, and that's an exciting thing for us as well, is this will help our bar partners sell more of the technology stack.

Speaker Change: and that's a good thing in that channel for us. We think that will help differentiate our offerings. Again, around the technologies that we know very well and we've been in for a long time.

Michael Baur: We need to find a technology tool rather than us building ourselves. And so for us, if we had to choose between acquiring a technology, a tool, if you will, or a leadership team first, our preference was leadership team first and that's where resource is really shine. So this team is excited to be part of ScanSource and Mark Morgan who many of our investors and certainly folks in the community know Mark. He led the discovery of the potential targets and led the acquisition and so Mark leading this gives us a lot of confidence that we picked the right team and that we will be able to get started very quickly to generating the kind of business that we expect resource to become. Okay, thank you. Yep.

Unknown Executive: Thank you, Boomer, for next question.

Speaker Change: So in terms of the scale, yes, both of these are scalable acquisitions, both small as we start out. But the right, to my point, resource of the right management team to get that opportunity off the ground and with advantage, very established.

Speaker Change: They know their stuff, they're in a very exciting and interesting space in that hardware technology stack that we're really excited about.

Speaker Change: appreciate that. And I know you guys fit in a higher margin. Do I assume at least there are a harm-scent gross margin businesses as well as much better on the bottom line as well?

Speaker Change: Well, they're primarily recurring revenue businesses, resources more so than it's vantics but a vantics also has recurring revenue, but if you think about it, vantics will be a little bit more services around that too.

Keith Housum: Our next question, Control Line of Keith Hussam of North Coast Research, it line is now open. Good morning guys. He's probably going to provide some color in terms of the scalability of the companies that get just acquired. Where they've emitted more into some geographies there or you'll give that, you're taking them now country right now, but how scalable are the businesses and how quickly can you guys scale them up? Hey Keith, good morning.

Speaker Change: But higher margin for sure, and resource of, you know, when the net reporting would be close to 100% advanced, it's going to be very high as well, just the mix of services in there might bring it down a bit.

Stephen Jones: Where they've emitted more into some geographies there or you'll give that, you're taking them now country right now, but how scalable are the businesses and how quickly can you guys scale them up? Hey Keith, good morning. Yes, you know, the way we are thinking about both of these companies is they are scalable place. They are smaller companies that we think have unique capabilities, unique management styles, and those would then be what we would build on.

Speaker Change: Okay, God, God, God.

Speaker Change: In terms of the Internet, let's go to the hardware, in terms of the hardware portfolio. Historically, there has been issues on the CES, the on-prem hardware, but communication systems were declining.

Keith Housum: Yes, you know, the way we are thinking about both of these companies is they are scalable place. They are smaller companies that we think have unique capabilities, unique management styles, and those would then be what we would build on. Advantics that we announced, that's an interesting one because it does two things for us. First of all, it gives us some advanced capabilities and some value added capabilities, much like what we did with POS Portal years ago, but it also then should help us sell more hardware and that's an exciting thing for us as well, is this will help our bar partners sell more of the technology stack and that's a good thing in that channel for us.

Speaker Change: I guess what I'm trying to understand is there anything in their product or folio that perhaps we're seeing is the evolution of technology where there is naturally under pressure from being able to grow going forward.

Stephen Jones: Advantics that we announced, that's an interesting one because it does two things for us. First of all, it gives us some advanced capabilities and some value added capabilities, much like what we did with POS Portal years ago, but it also then should help us sell more hardware and that's an exciting thing for us as well, is this will help our bar partners sell more of the technology stack and that's a good thing in that channel for us.

Speaker Change: Can you perhaps give me an idea that you're portfolio if you're getting the challenges there that perhaps will be hurting hard work or fail going forward?

Speaker Change: Hey Keith, it's Mike and you're talking about our comms business and whether there's any new challenges because that's certainly been a story for seven or eight years. Is that real your questions or anything new there? Yeah, I'm looking for a new challenge. If it's comms or especially group either one.

Keith Hillsham: God, yeah, I don't think they're well. On the specialty itself, no new news there, I think we expect that business to return to growth. We believe the technologies.

Keith Housum: We think that will help differentiate our offerings again around the technologies that we know very well and we've been in for a long time. So in terms of the scale, yes, both of these are scalable acquisitions, both small as we start out, but the right to Mike's point, resource of the right management team to get that opportunity off the ground and with Advantics very established, they know their stuff, they're in a very exciting and interesting space in that hardware technology stack that we're really excited about.

Stephen Jones: We think that will help differentiate our offerings again around the technologies that we know very well and we've been in for a long time. So in terms of the scale, yes, both of these are scalable acquisitions, both small as we start out, but the right to Mike's point, resource of the right management team to get that opportunity off the ground and with Advantics very established, they know their stuff, they're in a very exciting and interesting space in that hardware technology stack that we're really excited about.

Keith Hillsham: That customers want to develop and use, they're going to need to refresh their products. And so that we believe we're in an opportunity where that will become the story. We don't know yet again, is that first half second half.

Speaker Change: Winsack going to start to become a parent, but going over to the comm side, that business is we said, and again we got to remember in our comm segment, we have Cisco, which confuses sometimes our story, right? So Cisco being...

Keith Housum: I appreciate that. And I know that you guys fit in a higher margin. Do I assume that these are a harm some gross margin businesses as well as much better on the bottom line as well? Well, they're primarily recurring revenue businesses, resource of more so than advancements, but advancements also has recurring revenue. But if you think about advancements, there'll be a little bit more services around that too, but higher resource of, you know, when the net reporting would be close to 100%, advancements is going to be very high as well, just the mix of services in there might bring it down a bit. Okay, got it, got it.

Stephen Jones: I appreciate that. And I know that you guys fit in a higher margin. Do I assume that these are a harm some gross margin businesses as well as much better on the bottom line as well? Well, they're primarily recurring revenue businesses, resource of more so than advancements, but advancements also has recurring revenue. But if you think about advancements, there'll be a little bit more services around that too, but higher resource of, you know, when the net reporting would be close to 100%, advancements is going to be very high as well, just the mix of services in there might bring it down a bit.

Speaker Change: Challenge, effects that comm segment more than normal so that's probably why there's maybe some...

Speaker Change: It may be different than it did a year ago, it's because of the Cisco emphasis there. But the traditional other business in the consagment outside of Cisco

Speaker Change: I would say it's operating as our other hardware businesses are. They're challenged, but we expect them to start doing better, not necessarily some of them still declining, but they will do better going forward into fiscal year 25.

Speaker Change: Yeah, if it just touched you on a networking business, if I remember right last year, I would be a lot of tough comparison because you guys were flushed through the supply chain to just go, why those tough comparisons are just about ending here after the first fiscal first quarter, correct?

Keith Housum: In terms of the, let's go over to the hardware. In terms of the hardware portfolio, you know, historically there has been issues on the CIS, the on-prem hardware system, the communication systems were declining. I guess what I'm trying to understand is there anything in their product portfolio that perhaps we're seeing, like, you know, this evolution of technology where there is naturally under pressure from, you know, being able to grow going forward. Can you perhaps give me an idea that you're portfolio, if you're getting the challenges there, that perhaps will be hurting hardware growth sales going forward.

Keith Housum: Okay, got it, got it. In terms of the, let's go over to the hardware. In terms of the hardware portfolio, you know, historically there has been issues on the CIS, the on-prem hardware system, the communication systems were declining. I guess what I'm trying to understand is there anything in their product portfolio that perhaps we're seeing, like, you know, this evolution of technology where there is naturally under pressure from, you know, being able to grow going forward.

Speaker Change: Yeah, that's right. Yeah, okay. Yeah, yeah, yeah, yeah, yeah, yeah, you know, like you said it it was it was there was the last technology for us to come out of the supply chain problems, yeah.

Speaker Change: Yes, absolutely. So last question for me, I'll turn it back over. Capital allocation strategy, I would say $185 million, law cash to work with.

Keith Housum: Can you perhaps give me an idea that you're portfolio, if you're getting the challenges there, that perhaps will be hurting hardware growth sales going forward. Hey, Keith, it's Mike, and you're talking about our comms business and whether it's, there's any new challenges because that's certainly been a story for, you know, seven or eight years. Is that really your questions or anything new there? Yeah, I'm looking for new challenges if it's, you know, comms or especially group either one.

Speaker Change: You guys thought back more shares of the past, you know, two cores you probably have historically. Obviously, acquisition pipeline is large. What's your strategy going forward in terms of mixing your capital allocation, location between M&A and sure by back?

Keith Housum: Hey, Keith, it's Mike, and you're talking about our comms business and whether it's, there's any new challenges because that's certainly been a story for, you know, seven or eight years. Is that really your questions or anything new there? Yeah, I'm looking for new challenges if it's, you know, comms or especially group either one. Got it. Yeah, I don't think they're, well, on the specialty itself, no new news there. I think we expect that business to return to growth.

Speaker Change: Hey Keith, this is Steve again. I'll tackle that one. It really goes back to...

Michael Baur: Got it. Yeah, I don't think they're, well, on the specialty itself, no new news there. I think we expect that business to return to growth. We believe the technologies that customers want to develop and use, they're going to need to refresh their products. And so that we believe we're in an opportunity where that'll become the story. We don't know yet again, is that first half, second half? When's that going to start to become apparent?

Keith Hillsham: What we generate free cash flow, and the focus on our free cash flow that didn't allow us to do our capital allocation strategy. And we think there's room to do both. We think we had some of these opportunities coming out of the, you know, an August to close some of these deals. But we think that there's room to do both.

Keith Housum: We believe the technologies that customers want to develop and use, they're going to need to refresh their products. And so that we believe we're in an opportunity where that'll become the story. We don't know yet again, is that first half, second half? When's that going to start to become apparent? But going over to the comm side, that business as we said, and again, we got to remember in our comm segment, we have Cisco which confuses sometimes our story, right?

Speaker Change: but particularly to your point, we have cash on the balance sheet so we're not concerned about where our leverage ratio would go for 25. So in the near view that we have, you know, it's...

Michael Baur: But going over to the comm side, that business as we said, and again, we got to remember in our comm segment, we have Cisco which confuses sometimes our story, right? So Cisco being challenged affects that comm segment more than normal. So that's probably why there's maybe some, it maybe look different than it did a year ago. It's because of the Cisco emphasis there. But the traditional other business in the comm segment outside of Cisco, I would say it's operating as our other hardware businesses are.

Speaker Change: It's due both, take advantage of the opportunities of the acquisitions that are out there, but be disciplined in those to make sure they fit our strategy and fit our profile. And then return the share with through share repurchase, if you return that capital back to our shareholders.

Keith Housum: So Cisco being challenged affects that comm segment more than normal. So that's probably why there's maybe some, it maybe look different than it did a year ago. It's because of the Cisco emphasis there. But the traditional other business in the comm segment outside of Cisco, I would say it's operating as our other hardware businesses are. They're challenged, but we expect them to start doing better. Not necessarily some of them still declining, but they will do better going forward into fiscal year 25.

Speaker Change: through a Discipline Share Repurchase Program.

Speaker Change: Great, thank you.

Speaker Change: Thank you, one more for our next question.

Michael Baur: They're challenged, but we expect them to start doing better. Not necessarily some of them still declining, but they will do better going forward into fiscal year 25. If it's just touching on that networking business, if I remember right last year, obviously a lot of tough comparals because you guys were flushing through the supply chains, Cisco was, those tough comparals are just about ending here after the first Cisco first quarter, correct? Yeah, that's right. Yeah. Okay. Yeah. Like you said, it was the last technologies for us to come out of the supply chain problems. Yeah. Absolutely.

Speaker Change: Again, as a reminder to ask a question, you need to press star 1-1 on your telephone.

Keith Housum: If it's just touching on that networking business, if I remember right last year, obviously a lot of tough comparals because you guys were flushing through the supply chains, Cisco was, those tough comparals are just about ending here after the first Cisco first quarter, correct? Yeah, that's right. Yeah. Okay. Yeah. Like you said, it was the last technologies for us to come out of the supply chain problems. Yeah. Absolutely. So the last question for me, I'll turn it back over.

Speaker Change: Our next question comes from line of Matthew Arion of the benchmark company, your line is now open.

Matthew Arion: Thank you. Two questions, one more list of derivatives of some of the prior questions. When you look at the MMA market right now, is there any loosening up on multiples given the economic uncertainty? I know you're not going to talk to those immediate sales multiples.

Speaker Change: on the two acquisitions he just did, the source is an embandic, but where do you see that? What's the broad?

Speaker Change: Hallers from all the polls that you're seeing. I know you've got it. Nice are.

Keith Housum: So the last question for me, I'll turn it back over. Capital allocation strategy, obviously $185 million as well, it cash to work with. You guys bought back more shares the past two quarters, you probably have this historically, obviously, acquisition pipeline is large. What's your strategy going forward in terms of mixing your capital allocation between M&A and share bye-bye?

Keith Housum: Capital allocation strategy, obviously $185 million as well, it cash to work with. You guys bought back more shares the past two quarters, you probably have this historically, obviously, acquisition pipeline is large. What's your strategy going forward in terms of mixing your capital allocation between M&A and share bye-bye?

Stephen Jones: Thank you.

Speaker Change: between the operating...

Speaker Change: and the contributions between what you see and the perceived sellers, small people, but just any general thoughts and what that's going since it's been seen, but you got a lot of passion and opportunities to grow a lot.

Speaker Change: and more smaller companies in the same genre of the T-re at least in acquisition. And then secondly, fairly encouraging noises out of the zebra.

Stephen Jones: Thank you. This is Steve again. I'll tackle that one. It really goes back to what we generate free cash flow and the focus on our free cash flow that didn't allow us to do our capital allocation strategy. And we think there's room to do both. We think we were, you know, we had some of these opportunities coming out of that, though, you know, in August to close some of these deals, but we think that there's room to do both, particularly to your point.

Stephen Jones: This is Steve again. I'll tackle that one. It really goes back to what we generate free cash flow and the focus on our free cash flow that didn't allow us to do our capital allocation strategy. And we think there's room to do both. We think we were, you know, we had some of these opportunities coming out of that, though, you know, in August to close some of these deals, but we think that there's room to do both, particularly to your point.

Speaker Change: What are you seeing in terms of kind of the foul equilibrium between a sector decline and innovation on the barcode market right now? Thank you.

Speaker Change: Hey, this is Mike. I'll take part of the first question and I'll come back to the second after Steve answers, but you know when I think about our acquisitions strategy,

Stephen Jones: We have cash on the balance sheet. So we're not concerned about where our leverage ratio would go for 25. So in the near, you know, the near view that we have, you know, it's do both take advantage of the opportunities of the acquisitions that are out there, but be disciplined in those to make sure they fit our strategy and fit our profile. And then return, return the share with through share purchases, return that capital back to our shareholders through a discipline share repurchase program.

Speaker Change: We've got a history of acquiring companies that want to be part of Scansource.

Speaker Change: and that's always allowed us to prankly.

Speaker Change: Make very, I think, good acquisitions from a multiple standpoint from a...

Steve Jones: Returns standpoint because these companies see that if they join with scansource, their employees, and even their founders, and sellers do better.

Unknown Executive: And then return, return the share with through share purchases, return that capital back to our shareholders through a discipline share repurchase program. Great. Thank you. We'll move it for next question. Again, as a reminder, to ask a question, you need to press star 1-1 on your telephone.

Steve Jones: Specycus, many of our acquisitions over the years have included burnout. So, we actually are a generally well received acquire, and I think that helps us make smart decisions.

Unknown Executive: Great. Thank you. We'll move it for next question. Again, as a reminder, to ask a question, you need to press star 1-1 on your telephone.

Steve Jones: and to the earlier question that was being asked about acquisitions.

Speaker Change: You know, I think what we'll see in 25 is a result of the work we did in 24 working on a target list. So we certainly believe that a year ago we didn't have the targets.

Matthew Herrigan: Our next question comes from line of Matthew Herrigan of the benchmark company. Your line is now open. Thank you. Two questions. One more less derivative of some of the prior questions. When you look at the M and M market right now, is there any loosening up on multiple given that economic uncertainty? And I know you're not going to talk about easy to sales multiple on the two acquisitions. You see that what's the broad hauler from multiple that you're seeing?

Speaker Change: Align like we do today.

Michael Baur: I know you've got a nice arbe between the operating contributions between what would you see in the perceived sellers multiple, but just any general thoughts on where they're going since it seems like you've got a lot of Pac-Man opportunities to roll up more smaller companies in the same genre of the team acquisition. And then secondly, thoroughly encouraging noises out of Zebra. And what are you seeing in terms of kind of about equilibrium between Secretary Declan and the innovation on the bar code market right now? Thank you.

Steve Jones: and I'll leave it to Steve to answer some more about the acquisitions and anything I'll save on that. Yeah, the only thing I would add to that, Mike, I think you covered it really well, is that when you talk about acquiring recurring revenue businesses with higher margin, they come naturally with higher multiple.

Matthew Herrigan: I know you've got a nice arbe between the operating contributions between what would you see in the perceived sellers multiple, but just any general thoughts on where they're going since it seems like you've got a lot of Pac-Man opportunities to roll up more smaller companies in the same genre of the team acquisition.

Steve Jones: But we're not seeing any big shift yet in the multiples that are out there. We just think that we're doing a better job of getting them cut up and sitting them to our strategy so that we can then bring them in and make them to Mike's point. Happy Scantsour Family members.

Mike Bauer: Yeah, that's right. And then to the zebra question or the barco question, if you will, you know, one of the things that we really are excited about is this idea of creating this.

Speaker Change: Group now that we're calling ISG and led with this advanced tech acquisition, this is going to actually drive demand for hardware.

Matthew Herrigan: And then secondly, thoroughly encouraging noises out of Zebra. And what are you seeing in terms of kind of about equilibrium between Secretary Declan and the innovation on the bar code market right now? Thank you.

Speaker Change: We know that, and we've experienced this over the last years, we've had experience with advantage for about, I think, four or five years.

Speaker Change: and so this has been kind of we were dating these guys for a long time not really understood understanding whether we should own this business or not but as we looked at how do we...

Michael Baur: Hey, this might. I'll take part of the first question and I'll come to the strategy. We've got a history of acquiring companies that want to be part of Scansors. And that's always allowed us to frankly make very, I think, good acquisitions from a multiple standpoint, from a return standpoint, because these companies see that if they join with Scansors, their employees, then even their founders and sellers do better, especially because many of our acquisitions over the years have included earnouts.

Speaker Change: How do we participate?

Speaker Change: as the market comes back.

Speaker Change: We felt like we needed to create a stronger value proposition for our partners. And we believe having recurring revenue and being able to sell mobility devices gives us a stronger position in the market as it comes back. So we believe that a year from now will actually do much better than our competitors.

Speaker Change: in these competitive barcode spaces because of an acquisition like advantage.

Speaker Change: Thank you, I'm showing no further questions at this time. I'll not like turn it back to Steve Jones for closing remarks.

Michael Baur: So we actually are a generally well-received acquireer. And I think that helps us make smart decisions. And to the earlier question that was being asked about acquisitions, I think what we'll see in 25 is a result of the work we did in 24 working on a target list. So we certainly believe that a year ago we didn't have the targets aligned like we do today. And I'll leave it to Steve to answer some more about the acquisitions and anything else, Steve, on that.

Steve Jones: Thank you and thank you for joining us today. We expect to hold our next conference call to discuss September 30th quarterly results on Thursday, November 7th at 10.30 a.m.

Speaker Change: Thank you for your participation today's conference. This has conclude the program. You will now disconnect.

Stephen Jones: And I'll leave it to Steve to answer some more about the acquisitions and anything else, Steve, on that. Yeah, the only thing I would add to that, Mike, I think you covered it really well, is that when you talk about acquiring recurring revenue businesses with higher margins, they come naturally with higher multiple. But we're not seeing any big shift yet in the multiples that are out there. We just think that we're doing a better job of getting them queued up and sitting them to our strategy so that we can then bring them in and make them to Mike's point. Happy Scantoor family members. Yeah, that's right.

Michael Baur: Yeah, the only thing I would add to that, Mike, I think you covered it really well, is that when you talk about acquiring recurring revenue businesses with higher margins, they come naturally with higher multiple. But we're not seeing any big shift yet in the multiples that are out there. We just think that we're doing a better job of getting them queued up and sitting them to our strategy so that we can then bring them in and make them to Mike's point. Happy Scantoor family members. Yeah, that's right.

Michael Baur: And then to the Zebra question or the Barco question, if you will, you know one of the things that we really are excited about is this idea of creating this group now that we're calling ISG and led with this advanced acquisition. This is going to actually drive demand for hardware. We know that and we've experienced this over the last years. We've had experience with advanced for about I think four or five years.

Michael Baur: And so this has been kind of we were dating these guys for a long time, not really understood understanding whether we should own this business or not, but as we looked at how do we how do we participate as the market comes back. We felt like we need to create a stronger value proposition for our partners. And we believe having recurring revenue and being able to sell mobility devices gives us a stronger position in the market as it comes back. So we believe that a year from now will actually do much better than our competitors. In these competitive barcode spaces because of an acquisition like advance. Thank you.

Speaker Change: [inaudible] Baur,

Unknown Executive: I'm showing all for the questions at this time. I would not like to turn it back to Steve Jones for closing remarks. Thank you. And thank you for joining us today. We expect to hold our next conference call to discuss September 30th quarterly results on Thursday November 7th at 1030 AM. Thank you for your participation today's conference. This is concludes the program. You may now disconnect. Thank you. .

Speaker Change: [inaudible] Baur,

Mary Gentry: and Mary Gentry.

Michael Baur: [inaudible] Michael Baur,

Michael Baur: Music

Michael Baur: and Mary Gentry.

Speaker Change: Welcome to the Scan Source, quarterly earnings conference call. All lines have been placed in a listen only mode into the question answer session. Today's call is being recorded.

Speaker Change: If anyone has objections, you may disconnect at this time. I'll not like to turn the call over to Mary Gentry's Senior Vice President, Trisha Restor Relations, man, you may begin.

Unknown Executive: I'm showing all for the questions at this time.

Michael Baur: [inaudible] Baur, Michael Baur, Michael Baur, Michael Baur, Michael Baur, Michael Baur, Michael Baur,[inaudible] Thanks Mary and thanks everyone for joining us today.

Speaker Change #100: We posted an earnings infographic that accompanies our comments and webcasts in the investor relation section of our website. As you know, certain statements in our press release, infographic and on this call, are forward looking statements and subject to risks and uncertainties that could cause actual results to differ materially from expectations.

Speaker Change #101: These grids from the start, these include the factors identified in our earnings release and in our forum 10K for the year ended June 30, 2024.

Speaker Change #101: Board-looking statements represent our views only as of today, and scan sources' claims in a duty to update these statements except as required by law.

Speaker Change #102: During our call, we will discuss both gaps and non-gap results and have provided reconciliation on our website and in our form 8K. I'll now talk to you all to talk to you all over tonight.

Speaker Change #102: Thanks, Mary, and thanks everyone for joining us today. As we start our new fiscal year, we are seeing accelerated adoption of our hybrid distribution strategy, which we believe will drive more demand.

Speaker Change #103: Last week we hosted 800 attendees at our partner first conference where we challenge our sales partners to get out of their comfort zones and embrace new opportunities for growth.

Speaker Change #103: A hybrid distribution strategy enables our sales partners to sell more of the technology stack to meet in-user customers' IT requirements.

Speaker Change #103: As our channel partners expand their technology stack offerings, scan source, expands our total addressful market.

Ken Mills: Jen has many years of channel experience, dealing with agents, bars, MSPs, OEMs, and in user customers. When he worked previously at Cisco and EMC Dell.

Speaker Change #104: And in tell us this, Ken is leading our next phase of growth for the channel. As we are making investments in advance technologies such as AI and private 5G.

Speaker Change #104: We also see partner segmentation as a strategy to demonstrate our differentiated value to partners who require a customized set of services.

Speaker Change #104: Our focus will be on the fastest growing partners, including IT vars, advanced technology partners, and telco agents.

Speaker Change #105: Earlier in August, we announced two acquisitions in different segments of our business for the next phase of a hybrid distribution strategy.

Speaker Change #105: Both acquisitions are high margin, recurring revenue businesses that are working capital light.

Speaker Change #105: As we previewed on last quarter's earnings call, our advisory channel business came to life with our acquisition of resources which closed on August 8th.

Speaker Change #106: Starting with Resources, Scansources Creating the Advisory Channel model of the future, developing best practices that we can share with the Intel-Sys Partner community.

Michael Baur: As we start our new fiscal year, we are seeing accelerated adoption of our hybrid distribution strategy, which we believe will drive more demand.

Speaker Change #106: Also in August, we announced the launch of our integrated solutions group.

Michael Baur: Last week, we hosted 800 attendees at our partner first conference where we challenged our sales partners to get out of their comfort zones and embrace new opportunities for growth.

Speaker Change #106: This new group is focused on specialty technology vars and will provide them with new solutions to deliver more value with their hardware.

Speaker Change #106: On August 15th, we closed the acquisition of advantage, a connectivity provider of 5G formability solutions.

Michael Baur: Our hybrid distribution strategy enables our sales partners to sell more of the technology stack to meet end user customers' IT requirements.

Speaker Change #106: Advantage enables mobility bars to sell hybrid solutions by combining the recurring revenue stream from the connectivity with the hardware mobility devices.

Michael Baur: As our channel partners expand their technology stack offering, ScanSource expands our total addressable market.

Speaker Change #106: We are executing well on investments to accelerate a hybrid distribution strategy and the expanded high margin growth opportunities ahead. As we said last quarter, we will continue to use our balance sheet to invest in the growth opportunities that are part of our strategic plan.

Michael Baur: Ken has many years of channel experience, dealing with agents, bars, MSPs, OEMs, and end user customers when he worked previously at Cisco and EMC Dell.

Speaker Change #107: I'm now turning the call over to Steve to take you through our financial results and outlook for fiscal year 2025.

Steve Jones: Thanks, Mike. As we close our fiscal year, I'm proud of how our teams have executed.

Michael Baur: At Intellysis, Ken is leading our next phase of growth for the channel as we are making investments in advanced technologies such as AI and private 5G.

Steve Jones: As reported by many channel companies and suppliers, we are experiencing soft demand for many of our technologies in both of our segments.

Michael Baur: We also see partner segmentation as a strategy to demonstrate our differentiated value to partners who require a customized set of services.

Steve Jones: However, we did see some technologies that experience good growth in Q4, including physical security and our specialty technology solution segment, and UCAS and C-CAS in our modern communication and cloud segment.

Michael Baur: Our focus will be on the fastest growing partners, including IT VARS, Advanced Technology Partners, and Telco agents.

Steve Jones: While it was a challenging year, our team's state focus and we're able to deliver strong profitability and significant free cash flow for the full year including the fourth quarter.

Michael Baur: Earlier in August, we announced two acquisitions in different segments of our business for the next phase of our hybrid distribution strategy.

Michael Baur: Both acquisitions are high margin, recurring revenue businesses that are working capital-light.

Steve Jones: For the quarter, our business delivered strong, gross profit margins, adjusted EBITDA margins and free cash flow of $53 million.

Michael Baur: As we previewed on last quarter's earnings call, our advisory channel business came to life with our acquisition of Resources, which closed on August 8th.

Steve Jones: and our specialty technology solution segment, net sales decline 14% year on year, while gross profit decline 10% year on year.

Michael Baur: Starting with Resources, ScanSource is creating the advisory channel model of the future, developing best practices that we can share with the Intellysis Partner Community.

Steve Jones: and our moderate communication and cloud segment, net sales decline 32% year on year, while until us as net sales grew 6% year on year.

Michael L. Baur: Also, in August, we announced the launch of our Integrated Solutions Group.

Steve Jones: Q4, end user buildings for Inteluses increased 9% year on year and totaled $2.67 billion in FY24.

Michael Baur: This new group is focused on specialty technology VARS, and will provide them with new solutions to deliver more value with their hardware.

Steve Jones: This includes Q4 Billings Group and Context Centers of Service or C-Cas, a 35% and U-Cas, a 13%.

Michael Baur: On August 15th, we closed the acquisition of Advantics, a connectivity provider of 5G for mobility solutions.

Speaker Change #108: Gross Profit and our modern communication and cloud segment declined 11% year on year. Less than the self-declined reflecting a favorable mix, including higher concentration of recurring revenues from Inteliffus.

Michael Baur: Advantics enables mobility VARS to sell hybrid solutions by combining the recurring revenue stream from the connectivity with the hardware mobility devices.

Michael Baur: We are executing well on investments to accelerate our hybrid distribution strategy and the expanded high margin growth opportunities ahead.

Speaker Change #108: For FY24, net sales declined 14%, while gross profits declined 11%.

Speaker Change #108: Gap and non-gap net income declined 12.5% and 20.5% respectively.

Michael Baur: As we said last quarter, we will continue to use our balance sheet to invest in the growth opportunities that are part of our strategic plan.

Speaker Change #108: FY24 non-gap EPS is $3.8 compared to $3.85 last year.

Stephen Jones: I would not like to turn it back to Steve Jones for closing remarks. Thank you. And thank you for joining us today.

Stephen Jones: I will now turn the call over to Steve to take you through our financial results and outline the outlook for fiscal year 2025.

Speaker Change #108: Free cash flow for the year was $363 million. Driven by a significant reduction in working capital from lower sales and our working capital efficiency improvements.

Unknown Executive: We expect to hold our next conference call to discuss September 30th quarterly results on Thursday November 7th at 1030 AM. Thank you for your participation today's conference.

Stephen Jones: Thanks, Mike.

Michael Baur: This is concludes the program. You may now disconnect. Thank you. . [inaudible] Baur, Michael Baur, Michael Baur, Michael Baur, Michael Baur, Michael Baur, Michael Baur,[inaudible] Thanks Mary and thanks everyone for joining us today.

Stephen Jones: As we close our fiscal year, I'm proud of how our teams have executed.

Michael Baur: As we start our new fiscal year, we are seeing accelerated adoption of our hybrid distribution strategy, which we believe will drive more demand. Last week, we hosted 800 attendees at our partner first conference where we challenged our sales partners to get out of their comfort zones and embrace new opportunities for growth. Our hybrid distribution strategy enables our sales partners to sell more of the technology stack to meet end user customers' IT requirements. As our channel partners expand their technology stack offering, ScanSource expands our total addressable market.

Stephen Jones: As reported by many channel companies and suppliers, we are experiencing soft demand for many of our technologies in both of our segments.

Speaker Change #108: For the year, especially technology and solution segment, net sales declined 14% year on year, while gross profits declined 16%.

Stephen Jones: However, we did see some technologies that experience good growth in Q4, including physical security and our specialty technology solution segment and UCAS and C-CAS in our modern communication and cloud segment.

Speaker Change #108: Modern Communication and Cloud segment net sales declined 13% while gross profit declined 6%. Again, reflecting a higher mix of recurring revenue from our antelysis business, which saw a 6.6% year on year growth in net sales.

Speaker Change #108: Recurring revenue represented 27% of the company's consolidated gross profits.

Stephen Jones: For the quarter, our business delivered strong growth profit margins, adjusted EBITDA margins, and pre-cash flow of $53 million.

Speaker Change #108: and now turning to the balance sheet and cash flow.

Speaker Change #108: We are very pleased with the progress we're making on our working capital efficiency.

Stephen Jones: In our specialty technology solution segment, net cells declined 14% year on year, while growth's profit declined 10% year on year.

Speaker Change #108: Argo throughout the year was to improve our working capital efficiency while maintaining appropriate inventory levels to meet Channel Partner to advance.

Stephen Jones: In our modern communication and cloud segment, net cells declined 32% year on year, while untilysis net cells grew 6% year on year.

Speaker Change #108: We sell inventory's decrease $245 million a year and sustainable improvements in our inventory turns.

Stephen Jones: Q4 end user buildings for untilysis increased 9% year on year and totaled $2.67 billion in FY24.

Speaker Change #108: Our Council Receivable balances are inline with our change in revenue, and both our inventory and the Council Receivable Portfolios are healthy.

Stephen Jones: This includes Q4 buildings growth and contact centers of service or C-CAS of 35% and UCAS of 13%.

Speaker Change #108: Our balance sheet is strong. We ended Q4 with $185 million in cash and a net-net leverage ratio below 0 on a trailing 12 month adjusted EBITDA basis.

Stephen Jones: Gross profit and our modern communication and cloud segment declined 11% year on year, less than the self decline reflecting a favorable mix including higher concentration of recurring revenues from untilysis.

Speaker Change #108: Our capital allocation plans balance acquisitions and share repurchases while maintaining a strong balance sheet with a modest net leverage target of one to two times adjusted EBITDA.

Stephen Jones: For FY24, net cells declined 14% while gross profits declined 11%.

Speaker Change #109: Sherry purchases total $22 million for Q4 and $43 million for FY24.

Stephen Jones: Gap and non-gap net income declined 12.5% and 20.5% respectively.

Speaker Change #109: For FY25, we have an active pipeline of acquisition targets and room to continue to do share repurchases while staying within our targeted net leverage ratio.

Stephen Jones: FY24 non-gap EPS is $3.8 compared to $3.85 last year.

Speaker Change #109: As we look to our FY-25 annual outlook, the company expects the challenging demand environment to continue in the near term, particularly in the first half of our fiscal year.

Stephen Jones: Free cash flow for the year was $363 million driven by a significant reduction in working capital from lower cells and are working capital efficiency improvements.

Speaker Change #110: As a reminder, we have very little backlog to give us an indication of demand. As we ship each day from our inventory, based on orders receive that day.

Stephen Jones: For the year, the specialty technology and solution segment, net cells declined 14% year on year, while gross profits declined 16%.

Speaker Change #110: We continue to manage our SGA spending to match our revenue growth expectations for FY-25 and beyond by redirecting resources and investing in our recurring revenue businesses.

Stephen Jones: Modern communication and cloud segment, net cells declined 13% while gross profit declined 6%.

Stephen Jones: Again, reflecting a higher mix of recurring revenue from our untilysis business, which saw 6.6% year on year growth in net cells.

Speaker Change #110: We continually review our resource investment and adjust based on market opportunities.

Stephen Jones: Recurring revenue represented 27% of the company's consolidated gross profits.

Speaker Change #110: For FY25, we currently believe our net sales will be between 3.1 and 3.5 billion dollars with adjusted EBITDA ranging between 140 and 160 million dollars.

Stephen Jones: Now turning to the balance sheet and cash flow.

Stephen Jones: We are very pleased with the progress we're making on our working capital efficiency.

Speaker Change #110: This reflects an adjusted even a margin of approximately 4.5 to 4.6%.

Stephen Jones: Our goal throughout the year was to improve our working capital efficiency while maintaining appropriate inventory levels to meet channel partner demand.

Speaker Change #110: As we reported last year, the company is building a cash culture as we believe generating predictable free cash flow is a key measure of success.

Stephen Jones: We saw inventory's decreased $245 million year over year and sustainable improvements in our inventory turn.

Speaker Change #110: For FY25, we believe that we will generate at least $70 million in free cash flow.

Stephen Jones: Our Council receivable balances are in line with our change in revenue and both our inventory and the Council receivable portfolios are healthy.

Speaker Change #110: While this is significantly lower than FY24, we believe the majority of our working capital reduction actions are complete and will shift to a continuous working capital efficiency improvement.

Stephen Jones: Our balance sheet is strong.

Stephen Jones: We ended Q4 with $185 million in cash and a net debt leverage ratio below zero on a trailing 12-month adjusted even a basis.

Speaker Change #111: are outlooking, clues are recent acquisitions.

Speaker Change #111: and we remain confident in our growth opportunities, the resilience of our business model and the strength of our hybrid distribution strategy.

Stephen Jones: Our capital allocation plans balance acquisitions and share repurchases while maintaining a strong balance sheet with a modest net leverage target of one to two times adjusted even though share repurchases total $22 million for Q4 and $43 million for FY24.

Speaker Change #112: Well, now I'll open it up for questions.

Speaker Change #113: Thank you. At this time we'll talk to the question and session. To ask the question, you'll need to press start one one on your telephone and wait for your name to be announced. To draw your question, please press start one one again. Please stand by what we compile the Q&A roster.

Stephen Jones: For FY25 we have an active pipeline of acquisition targets and room to continue to do share repurchases while staying within our targeted net leverage ratio.

Speaker Change #113: i

Speaker Change #114: Our first question, concerned line of Adam Tindall, Raymond James, the line is now open.

Stephen Jones: As we look to our FY25 annual outlook, the company expects the challenging demand environment to continue in the near term, particularly in the first half of our fiscal year.

Adam Tindall: Okay, thanks. Good morning. Mike, you talked earlier in the call about the appointment of Ken Mills as a president of IntelliSystem July. I think that's a really interesting turning point for the company. I wonder if you could maybe just double click on that. Maybe a little bit more details on the structure of the organization, how that's changing the KPIs for that business and how those might be changing things.

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

Stephen Jones: We continue to manage our SGNA spending to match our revenue growth expectations for FY25 and beyond by redirecting resources and investing in our recurring revenue businesses.

Mike Bauer: Hey Adam, you know for us as you know we took quite a while to actually appoint a new president.

Speaker Change #115: and at the time...

Speaker Change #116: I was acting in that capacity to make sure I understood not only

Stephen Jones: We continually review our resource investment and adjust based on market opportunities.

Speaker Change #116: Where we were doing things well, but also where we weren't doing things maybe for the future and it looked to me like we needed more.

Stephen Jones: For FY25 we currently believe our net sales will be between $3.1 and $3.5 billion with adjusted EBITDA ranging between $140 and $160 million.

Speaker Change #116: Strategy and Vision, execution of something I think that Intel says has always been very good at, but I think as the competition changed on us over the last couple of years.

Stephen Jones: This reflects an adjusted EBITDA margin of approximately 4.5 to 4.6%.

Speaker Change #116: We need to take a hard look at where our value is, and where our value can become in the future. And can bring such a strong background in different channel approaches.

Stephen Jones: As we reported last year, the company is building a cash culture as we believe generating predictable free cash flow is a key measure of success.

Stephen Jones: For FY25 we believe that we will generate at least $70 million in free cash flow.

Speaker Change #116: that that really resonates with our team as we interview can and looked at.

Stephen Jones: While this is significantly lower than FY24, we believe the majority of our working capital reduction actions are complete and will shift to a continuous working capital efficiency improvement.

Speaker Change #116: Others that might come more directly.

Speaker Change #116: from the TST Channel Community.

Kim: Kim's background, not only at Cisco and EMC Dell, but also at a supplier.

Stephen Jones: Our outlook includes our recent acquisitions and we remain confident in our growth opportunities, the resilience of our business model and the strength of our hybrid distribution strategy.

Kim: To all of the TSDs really brings a unique approach to the knowledge base that frankly I didn't have.

Kim: and so, as Kim and I said, I talked about.

Unknown Executive: We'll now open it up for questions.

Speaker Change #117: You know, where in tell us this is, it became more of the conversation about where it can go and what it can become. And so we are very bullish on the TSD model and why we believe going forward we can create more growth. The MatterFact can and I discussed.

Unknown Executive: Thank you.

Unknown Executive: At this time we'll talk about the question and succession.

Unknown Executive: To ask the question, you'll need to press start one-one on your telephone and wait for your name to be announced.

Unknown Executive: To draw your question, please press start one-one again.

Unknown Executive: Please stand by what we compiled the Q&A roster.

Speaker Change #118: Goin' forward, we believe we can get back to double-digit growth and intelligence.

Adam Tindall: Our first question comes from a line of Adam Tindall, Raymond James.

Speaker Change #119: God, that's helpful. I haven't heard that he could come from Tiger 2, so I'm sure that that's the...

Adam Tyler Tindle: Your line is now open.

Adam Tindall: Okay, thanks.

Adam Tindall: Good morning.

Speaker Change #120: Well, you know, we try not to use those things to influence us, but yes, it wasn't a bad thing.

Michael Baur: In July, Ken Mills joined us as president of Intellysis with a background most recently, a CEO of EpicIO, a supplier to all the TSDs in the channel, where he led a private equity funded company through four years of double digit growth. Ken has many years of channel experience, dealing with agents, bars, MSPs, OEMs, and end user customers when he worked previously at Cisco and EMC Dell.

Adam Tindall: My key talked earlier in the call about the appointment of Ken Mills as president of Intellysis in July.

Adam Tindall: I think that's a really interesting turning point for the company.

Speaker Change #120: Go darling.

Adam Tindall: I wonder if you could maybe just double click on that.

Pierre: Pierre, Pierre

Pierre: Steve, I wanted to maybe follow up on that. Obviously, this is part of sort of a broader strategy to also build up the ISS group and we've got a couple acquisitions here. Any help that you could maybe provide us in terms of expected contribution from those acquisitions as you built up your fiscal 25 guidance.

Adam Tindall: Maybe a little bit more details on the structure of the organization, how that's changing, the KPIs for that business, and how those might be in the future.

Adam Tindall: Thanks.

Michael Baur: At Intellysis, Ken is leading our next phase of growth for the channel as we are making investments in advanced technologies such as AI and private 5G. We also see partner segmentation as a strategy to demonstrate our differentiated value to partners who require a customized set of services.

Michael Baur: Yeah, hey Adam, you know, for us, as you know, we took quite a while to actually appoint a new president and at the time I was acting in that capacity to make sure I understood not only where we were doing things well, but also where we weren't doing things maybe for the future.

Speaker Change #122: and then separately from that, just more broadly speaking as you built up the fiscal 25 guidance. I wonder how that process might have been.

Speaker Change #123: Similar or different from entering fiscal 24. I know that whole process was kind of new work. You guys at that time and sure there's been some learning since, so if you could maybe just touch on the process to guide and centering the school 25, how it was different and then any acquisition contribution color would be helpful. Thanks.

Michael Baur: And it looked to me like we needed more strategy and vision, execution is something that I think that intelligence has always been very good at, but I think as the competition changed on us over the last couple of years, we need to take a hard look at where our value is and where our value can become in the future and can bring such a strong background in different channel approaches that that really resonated with our team as we interview Ken and looked at others that might come more directly from the TSD channel community.

Speaker Change #124: Yeah, I'm thanks for the question, and good morning.

Speaker Change #125: Let me talk about the first one about our acquisitions. Again, when we talk about our, and we've been thinking about this for a while and working through this, when we think about our acquisition strategy, it's really around acquiring higher margin.

Speaker Change #125: Opportunities that are low in working capital.

Speaker Change #125: and this will always be over the context of the white return for the company so when we think about are they a creative to our EBITDA, are they a creative to our...

Michael Baur: The Ken's background not only at Cisco and EMC Dell, but also at a supplier to all of the TSDs really brings a unique approach to the knowledge base that frankly I didn't have.

Speaker Change #125: to our overall.

Speaker Change #125: Contribution, yes, they are, they're small, these are small acquisitions that we're announcing more of a programmatic approach to our acquisition strategy.

Michael Baur: And so as Ken and I said and I talked about where intelligence is, it became more of the conversation about where it can go and what it can become.

Speaker Change #125: and so they are included in our guidance, but I would say that they're not significant to the consolidated results for FY25 that we've gotten in our guidance.

Michael Baur: And so we are very bullish on the TSD model and why we believe going forward, we can create more growth.

Speaker Change #125: Let me maybe move to the second question on, we learned a lot.

Michael Baur: The matter of fact Ken and I discussed going forward, we believe we can get back to double digit growth at intelligence.

Speaker Change #125: and the thing that we learned is this is a tough time to try to predict the top line growth.

Adam Tindall: God, that's helpful.

Speaker Change #125: You know, when we entered the last year...

Adam Tindall: I've heard that he's a Clemson Tiger too, so I'm sure that was welcome.

Speaker Change #125: There was a lot of changes going on in the market. We were coming out of the supply chain constraints.

Michael Baur: Well, we try not to use those things to implement this, but yes, it wasn't a bad thing.

Speaker Change #125: and our technologies, we do have this differentiated portfolio which helps us, but our technologies all went through different cycles of that portfolio. So what we learned is predicting this thing is hard again.

Adam Tindall: I wanted to maybe follow up on that.

Michael Baur: Our focus will be on the fastest growing partners, including IT VARS, Advanced Technology Partners, and Telco agents. Earlier in August, we announced two acquisitions in different segments of our business for the next phase of our hybrid distribution strategy. Both acquisitions are high margin, recurring revenue businesses that are working capital-light.

Adam Tindall: Obviously this is part of sort of a broader strategy to also build up the ISS group and we've got a couple acquisitions here.

Speaker Change #125: and so that kind of guided our decisions as we came into 25 on how we would guide. We wanted to maintain guides because we think it's important but also what's important to us.

Adam Tindall: Any help that you could maybe provide us in terms of expected contribution from those acquisitions as you built up your fiscal 25 guidance.

Speaker Change #125: and one of the things that became crystal clear last year is we needed to focus our whole company on...

Adam Tindall: And then separately from that, just more broadly speaking as you built up the fiscal 25 guidance, I wonder how that process might have been similar or different from entering fiscal 24.

Speaker Change #125: Driving Free Cash Flow and making good decisions on our working capital. And so that gave us confidence that we could guide again this year for Free Cash Flow. But really I would say the two takeaways is...

Adam Tyler Tindle: I know that whole process was kind of new or do you guys at that time and sure there's been some learning since so if you could maybe just touch on the process to guidance entering fiscal 25, how it was different and then any acquisition contribution color would be helpful.

Speaker Change #125: Hard to predict the top line as we go through the year, and we gave wider ranges because of that, and keeping everyone laser focused on the trade-off between expanded top line and the return on free cash flow.

Adam Tindall: Thanks.

Adam Tindall: Yeah, Adam, thanks for the question and good morning.

Michael Baur: As we previewed on last quarter's earnings call, our advisory channel business came to life with our acquisition of Resources, which closed on August 8th.

Stephen Jones: Let me talk about the first one about our acquisitions.

Michael Baur: Starting with Resources, ScanSource is creating the advisory channel model of the future, developing best practices that we can share with the Intellysis Partner Community.

Stephen Jones: Again, when we talk about our and we've been thinking about this for a while and working through this, when we think about our acquisition strategy, it's really around acquiring higher margin opportunities that are low in working capital and this will always be over the context of the white return for the company.

Speaker Change #126: makes sense. Thank you very much.

Speaker Change #127: Our next question, concerned line of Greg Burns' facility, your line is not open.

Speaker Change #128: Good morning.

Michael Baur: Also, in August, we announced the launch of our Integrated Solutions Group. This new group is focused on specialty technology VARS, and will provide them with new solutions to deliver more value with their hardware.

Stephen Jones: So when we think about are they creative to our EBITDA?

Speaker Change #129: We've had some, I guess.

Stephen Jones: Are they creative to our to our overall contribution?

Speaker Change #130: I don't know if you characterize it as positive, but maybe improving kind of outlooks from some of your supplier partners like Cisco and Zebra, or maybe just more positive comments or green shoots there in terms of maybe the man firming up, is it just a function of...

Stephen Jones: Yes, they are.

Stephen Jones: They're small.

Michael Baur: On August 15th, we closed the acquisition of Advantics, a connectivity provider of 5G for mobility solutions. Advantics enables mobility VARS to sell hybrid solutions by combining the recurring revenue stream from the connectivity with the hardware mobility devices.

Stephen Jones: These are small acquisitions that we're announcing more of a programmatic approach to our acquisition strategy.

Michael Baur: We are executing well on investments to accelerate our hybrid distribution strategy and the expanded high margin growth opportunities ahead.

Stephen Jones: And so they are included in our guidance, but I would say that they're not significant to the consolidated results for FY 25 that we've got in our guide.

Speaker Change #131: Maybe the cycles of, like you mentioned, the different technologies or where you sit in terms of the timing of orders that is like maybe clotting demand. I'm just trying to understand.

Stephen Jones: Let me maybe move to the second question on, we learned a lot and the thing that we learned is this is a, this is a tough time to try to predict the top line growth.

Speaker Change #131: and maybe the climb you saw this quarter in both segments and your outlook relative to maybe.

Michael Baur: As we said last quarter, we will continue to use our balance sheet to invest in the growth opportunities that are part of our strategic plan.

Stephen Jones: You know, when we, when we entered last year, there was a lot of changes going on in the market.

Speaker Change #132: Some of the more positive commentary we're seeing from your supplier partners, thank you.

Stephen Jones: I will now turn the call over to Steve to take you through our financial results and outline the outlook for fiscal year 2025.

Stephen Jones: We were coming out of the supply chain constraints and our technologies, you know, we, we do have this differentiated portfolio which helps us but our technologies all went through different cycles of that portfolio.

Michael Baur: Hey, Greg's Michael, I'll tackle it. I think SDV indicated the approach we took this year, similar to what we've done in many years, as we ask our teams what's their best estimate of what we're going to do. And I've uh...

Stephen Jones: Thanks, Mike.

Stephen T. Jones: So what we learned is predicting this thing is hard again.

Stephen Jones: As we close our fiscal year, I'm proud of how our teams have executed.

Stephen Jones: And so that, that kind of guided our decisions as we came into 25 on how we would guide.

Stephen Jones: As reported by many channel companies and suppliers, we are experiencing soft demand for many of our technologies in both of our segments.

Stephen Jones: We wanted to maintain guides because we think it's important but also what's important to us.

Speaker Change #133: I've argued for a long, long time that for us as a distributor who really, we don't control the demand, we don't typically create demand. Very hard for us to know what's coming, and as you know as well we don't maintain a backlog.

Stephen Jones: And one of the things that became crystal clear last year is we needed to focus our whole company on driving free cash flow and making, making good decisions on our working capital.

Stephen Jones: While it was a challenging year, our teams stayed focused and were able to deliver strong profitability and significant pre-cash flow for the full year, including the fourth quarter. For the quarter, our business delivered strong growth profit margins, adjusted EBITDA margins, and pre-cash flow of $53 million.

Stephen Jones: And so that gave us confidence that we could guide again this year for free cash flow.

Speaker Change #134: except for that brief period during the supply chain crisis where there was no product and so we did kind of understand what the man was.

Stephen Jones: In our specialty technology solution segment, net cells declined 14% year on year, while growth's profit declined 10% year on year.

Stephen Jones: But really, I would say the two takeaways is hard to predict the top line as we go through the year and we gave wider ranges because of that.

Speaker Change #134: We're more back to where our business normally operated from a distributor's standpoint of hardware, which is...

Speaker Change #135: We have to depend on our partners to tell us what they think they're going to need. We then play soldiers with our suppliers. And our suppliers, let me tell you, they're asking us constantly, hey, are we starting to see as you indicated green shoots?

Stephen Jones: And keeping everyone laser focused on the tradeoff between expanded, expanded top line and the return on free cash flow.

Stephen Jones: Makes sense.

Stephen Jones: Thank you very much.

Stephen: This idea that we gave for this year, unlike last year where we had an at least number for the top line, we decided to come up with this wide range because it's the timing question and Stephen indicated in his prepare remarks.

Unknown Executive: Thank you.

Gregory Burns: We'll move on to our next question.

Gregory Burns: Our next question comes from the line of Greg Burns of Sedotti.

Gregory Burns: Your line is now open.

Stephen: Well, we believe right now that there is a first half second half dynamic that should play out. That's based on all the information we have that may or may not be true, meaning I think the first half or fiscal year is going to be...

Gregory Burns: Good morning.

Stephen Jones: In our modern communication and cloud segment, net cells declined 32% year on year, while untilysis net cells grew 6% year on year.

Gregory Burns: We've had some, I guess, I don't know if you characterize it as positive but maybe improving kind of outlook from some of your supplier partners like Cisco and Zebra or maybe just more positive comments or green shoots there in terms of maybe the man firming up.

Speaker Change #136: Very hard to forecast. We believe the second half will be easier, but we also said that last year.

Speaker Change #136: So we're doing the best we can.

Stephen Jones: Q4 end user buildings for untilysis increased 9% year on year and totaled $2.67 billion in FY24. This includes Q4 buildings growth and contact centers of service or C-CAS of 35% and UCAS of 13%.

Gregory Burns: Is it just a function of maybe the cycles of the like you mentioned the different technologies or where you sit in terms of the timing of orders that is like maybe clotting demand.

Speaker Change #136: and bound in it by what we continue to hear as well from the suppliers.

Speaker Change #136: that you've referenced. But as you know, we've got a lot of suppliers and we indicated that some actually did better last year than others.

Gregory Burns: I'm just trying to understand maybe the clients you saw this quarter in both segments and your outlook relative to maybe some of the more positive commentary we're seeing from your supplier partners.

Speaker Change #136: Our physical security business as an example really was very strong and resilient.

Speaker Change #136: Yet we had some other parts of our business even beside the Cisco and the Zebras that did not do well. And so we're trying to figure out where we should make an investment decision for 25 and 26 right now.

Stephen Jones: For FY24, net cells declined 14% while gross profits declined 11%.

Gregory Burns: Thank you.

Stephen Jones: Gap and non-gap net income declined 12.5% and 20.5% respectively.

Michael Baur: Hey Greg, it's Mike.

Stephen Jones: FY24 non-gap EPS is $3.8 compared to $3.85 last year.

Michael Baur: I'll tackle it.

Stephen Jones: Free cash flow for the year was $363 million driven by a significant reduction in working capital from lower cells and are working capital efficiency improvements.

Michael Baur: I think SDV indicated the approach we took this year similar to what we've done in many years as we ask our teams what's their best estimate of what we're going to do.

Speaker Change #136: But we're mindful of the fact that it's the vindicator as well, we want to be mindful of.

Speaker Change #136: Managing our balance sheet appropriately.

Speaker Change #137: Not getting into the position where we're using our balance sheet to drive opportunistic purchases. That's something we used to do. We're going to make sure we're very conservative in our use of the balance sheet to drive working capital.

Stephen Jones: For the year, the specialty technology and solution segment, net cells declined 14% year on year, while gross profits declined 16%.

Michael Baur: And I've argued for a long, long time that for us as a distributor who really we don't control the demand.

Stephen Jones: Modern communication and cloud segment, net cells declined 13% while gross profit declined 6%.

Michael Baur: We don't typically create demand.

Speaker Change #138: Thanks, and then in terms of resources, why was it the right I guess first?

Stephen Jones: Again, reflecting a higher mix of recurring revenue from our untilysis business, which saw 6.6% year on year growth in net cells. Recurring revenue represented 27% of the company's consolidated gross profits.

Michael Baur: Very hard for us to know what's coming.

Stephen Jones: Now turning to the balance sheet and cash flow.

Michael Baur: And as you know as well we don't maintain a backlog except for that brief period during the supply chain crisis where there was no product and so we did kind of understand what demand was.

Speaker Change #139: Acquisition in the advisory space, maybe what was unique about them that attracted you to that purpose.

Stephen Jones: We are very pleased with the progress we're making on our working capital efficiency. Our goal throughout the year was to improve our working capital efficiency while maintaining appropriate inventory levels to meet channel partner demand. We saw inventory's decreased $245 million year over year and sustainable improvements in our inventory turn.

Michael Baur: We're more back to where our business normally operated from a distributor standpoint of hardware which is we have to depend on our partners to tell us what they think they're going to need.

Speaker Change #140: Well, when we started talking about this idea of creating a new business group, the two key messages we started talking about with we believed that we needed a management team, a leadership team.

Stephen Jones: Our Council receivable balances are in line with our change in revenue and both our inventory and the Council receivable portfolios are healthy.

Michael Baur: We then place orders with our suppliers.

Michael Baur: And our suppliers, let me tell you they're asking us constantly, hey are we starting to see is you indicated green shoots.

Speaker Change #140: that we could acquire that would...

Speaker Change #141: That would be the people that are staying not the people exiting, in this particular case.

Michael Baur: This idea that we gave for this year, unlike last year where we had an at least number for the top line, we decided to come up with this wide range because it's the timing question.

Speaker Change #142: The founder and CEO President of this company is leaving, but the team that he recruited has been there for about seven years and they're on board, they're staying and we're excited about their ability to build.

Michael Baur: And Steve indicated in his prepared remarks, there we believe right now that there's a first half, second half dynamic that should play out.

Michael Baur: That's based on all the information we have.

Speaker Change #142: Really a team that can continue to perform well going forward and so we believe this is kind of the starting point for this leadership team.

Michael Baur: That may or may not be true, meaning I think the first half of our fiscal year is going to be very hard to forecast.

Speaker Change #143: The second thing we talked about that we were going to need was some kind of technology tool to help this particular company resource and others like them that buy from us on the intelligence side of the fence.

Michael Baur: We believe the second half will be easier but we also said that last year.

Michael Baur: So we're doing the best we can and bound in it by what we continue to hear as well from the suppliers that you've referenced.

Michael Baur: But as you know, we've got a lot of suppliers and we indicated that some actually did better last year than others.

Michael Baur: Our physical security business, as an example, really was very strong and resilient.

Michael Baur: Yet we had some other parts of our business even beside the Cisco and the Zebras that did not do well.

Michael Baur: And so we're trying to figure out where we should make an investment decision for 25 and 26 right now.

Michael Baur: But we're mindful of the fact that it's Steve indicated as well.

Stephen Jones: Our balance sheet is strong. We ended Q4 with $185 million in cash and a net debt leverage ratio below zero on a trailing 12-month adjusted even a basis. Our capital allocation plans balance acquisitions and share repurchases while maintaining a strong balance sheet with a modest net leverage target of one to two times adjusted even though share repurchases total $22 million for Q4 and $43 million for FY24.

Michael Baur: We want to be mindful of managing our balance sheet appropriately, not getting into the position where we're using our balance sheet to drive opportunistic purchases.

Michael Baur: That's something we used to do.

Stephen Jones: For FY25 we have an active pipeline of acquisition targets and room to continue to do share repurchases while staying within our targeted net leverage ratio.

Michael Baur: We're going to make sure we're very conservative in our use of the balance sheet to drive working.

Stephen Jones: As we look to our FY25 annual outlook, the company expects the challenging demand environment to continue in the near term, particularly in the first half of our fiscal year.

Michael Baur: Capital.

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

Gregory Burns: All right, thanks.

Stephen Jones: We continue to manage our SGNA spending to match our revenue growth expectations for FY25 and beyond by redirecting resources and investing in our recurring revenue businesses.

Michael Baur: And then in terms of resource, why was it the right, I guess, first acquisition in the advisory space, maybe always unique about them that attracted you to that, that business?

Our next question comes from the line of Keith Twosome of Northcoast Research. Your line is now open.

Keith Twosome: Good morning, guys.

Stephen Jones: We continually review our resource investment and adjust based on market opportunities.

Perfect.

Speaker Change #145: Provide some color in terms of the scalability of the company that you just acquired.

Speaker Change #146: Where they made more indexes and geographies, there or youll give that you've taken them in our country right now.

Speaker Change #147: Available or the businesses.

Speaker Change #148: Quickly can you guys scale them up.

Speaker Change #148: Hey, Keith Good morning, Yes.

Stephen Jones: For FY25 we currently believe our net sales will be between $3.1 and $3.5 billion with adjusted EBITDA ranging between $140 and $160 million. This reflects an adjusted EBITDA margin of approximately 4.5 to 4.6%.

Keith: The way we are thinking about both of these companies is they are scalable place. They are smaller companies that we think have a unique capabilities unique management styles and and those would then be what we would build on advanced <unk> that we announced that's an interesting one because it does too.

Stephen Jones: As we reported last year, the company is building a cash culture as we believe generating predictable free cash flow is a key measure of success.

Michael Baur: And we're excited about their ability to build really a team that can continue to perform well going forward.

Stephen Jones: For FY25 we believe that we will generate at least $70 million in free cash flow.

Michael Baur: And so we believe this is the starting point for this leadership team.

Keith: Things for US first of all it gives us some advanced.

Michael Baur: The second thing we talked about that we were going to need was a, some kind of technology tool to help this particular company resource and others like them that buy from us on the their contracts, manage renewals, manage selling advanced technologies.

Keith: Capabilities and some value added capabilities much like what we did with Pos portal.

Speaker Change #150: Years ago, but it also then should help us sell more hardware and Thats, an exciting thing for us as well is as this will help our var partners sell more of the technology stack and that's a good thing in that in that channel for US, we think that will help to differentiate our offerings again around.

Michael Baur: And we believe we still need to find that other piece of the puzzle we need to find a technology tool rather than us building ourselves.

Speaker Change #150: The technologies that we know very well and we've been in for a long time. So so in terms of the scale. Yes. Both of these are scalable Act.

Michael L. Baur: And so for us, if we had to choose between acquiring a technology, a tool, if you will, or a leadership team first, our preference was leadership team first, and that's where resource is really shine.

Speaker Change #150: Acquisitions, both small as we start out but the.

Michael Baur: So we're excited.

Michael Baur: This team is excited to be part of Scansource and Mark Morgan, who many of our investors and certainly folks in the community know Mark, he led the discovery of the potential targets and led the acquisition.

Unknown Executive: We'll now open it up for questions.

Michael Baur: And so Mark leading this gives us a lot of confidence that we picked the right team and that we will be able to get started very quickly to generating the kind of business that we expect resource to become.

Unknown Executive: Thank you.

Michael Baur: Oh, great.

Unknown Executive: At this time we'll talk about the question and succession.

Michael Baur: Thank you.

Unknown Executive: To ask the question, you'll need to press start one-one on your telephone and wait for your name to be announced.

Michael Baur: Yep.

Unknown Executive: To draw your question, please press start one-one again.

Keith Housum: Thank you, one more for next question.

Unknown Executive: Please stand by what we compiled the Q&A roster.

Keith Housum: Our next question, Control Line of Keith Hulsom of North Coast Research.

Adam Tindall: Our first question comes from a line of Adam Tindall, Raymond James.

Keith Housum: It line is now open.

Adam Tindall: Your line is now open.

Keith Housum: Good morning, guys.

Unknown Executive: Okay, thanks.

Stephen Jones: Hey, Steve, perhaps you're going to provide some color in terms of the scalability of the company that you just acquired.

Unknown Executive: Good morning.

Stephen Jones: Where they've emitted more indexes and geographies there, or you'll be actually taking them, you know, country right now, but how scalable are the businesses and how quickly can you guys scale them up?

Adam Tindall: My key talked earlier in the call about the appointment of Ken Mills as president of Intellysis in July.

Stephen T. Jones: Hey, Keith.

Adam Tindall: I think that's a really interesting turning point for the company.

Stephen Jones: Good morning.

Adam Tindall: I wonder if you could maybe just double click on that.

Stephen Jones: Yes.

Adam Tindall: Maybe a little bit more details on the structure of the organization, how that's changing, the KPIs for that business, and how those might be in the future.

Stephen Jones: You know, the way we are thinking about both of these companies is they are scalable place.

Adam Tindall: Thanks.

Stephen Jones: They are smaller companies that we think have unique capabilities, unique management styles and those would then be what we would build on.

Stephen Jones: Advantage that we announced, that's an interesting one because it does two things for us.

Stephen Jones: First of all, it gives us some advanced capabilities and some value added capabilities much like what we did with POS portal years ago.

Michael Baur: The Ken's background not only at Cisco and EMC Dell, but also at a supplier to all of the TSDs really brings a unique approach to the knowledge base that frankly I didn't have.

Stephen Jones: But it also then should help us sell more hardware and that's an exciting thing for us as well is is this will help our bar partners sell more of the technology stack.

Michael Baur: And so as Ken and I said and I talked about where intelligence is, it became more of the conversation about where it can go and what it can become.

Stephen Jones: And that that's a good thing in that in that channel for us.

Stephen Jones: We think that will help differentiate our offerings again around the technologies that we know very well and we've been in for a long time.

Stephen Jones: So in terms of the scale, yes, both of these are scalable acquisitions, both small as we start out, but the right to Mike's point resource of the right management team to get that that opportunity off the ground.

Stephen Jones: And with Advantage very established, they know their stuff.

Stephen T. Jones: They are in a very exciting and interesting space in that hardware technology stack that we are really excited about.

Stephen Jones: I appreciate that.

Stephen T. Jones: And I know that you guys fit a higher margin.

Stephen Jones: Do I assume that these are a harm some gross margin businesses, as well as much better on the bottom line as well?

Stephen Jones: Well, they're primarily recurring revenue businesses, resource of more so than Advantics, but Advantics also has recurring revenue.

Stephen Jones: But if you think about Advantics, there'll be a little bit more services around that too, but higher margin for sure.

Stephen Jones: And resource of, you know, when the net reporting would be close to 100%, Advantics is going to be very high as well, just the mix of services in there might bring it down a bit.

Stephen Jones: Okay, got it, got it.

Keith Housum: In terms of the entire, let's go switch over to the hardware.

Keith Housum: In terms of the hardware portfolio, you know, historically there has been issues, obviously, as the on-prem hardware system, the communication systems were declining.

Keith Housum: I guess what I'm trying to understand is there anything in their product portfolio that perhaps we're seeing like, you know, this evolution of technology where there's naturally under pressure from, you know, being able to grow going forward.

Keith Housum: Can you perhaps give me an idea of your portfolio if you're getting the challenges there that perhaps will be hurting hardware growth sales going forward?

Michael Baur: Hey, Keith, it's Mike and you're talking about our comms business and whether there's any new challenges because that's certainly been a story for, you know, seven or eight years.

Michael Baur: Is that really your questions or anything new there?

Keith Housum: Yeah, I'm looking for new challenges if it's, you know, comms or especially group either one.

Michael Baur: Got it.

Michael L. Baur: Yeah, I don't think they're well on the specialty itself, no new news there.

Michael Baur: I think we expect that business to return to growth.

Michael Baur: And so we are very bullish on the TSD model and why we believe going forward, we can create more growth.

Michael Baur: We believe the technologies that customers want to develop and use, they're going to need to refresh their products.

Michael Baur: The matter of fact Ken and I discussed going forward, we believe we can get back to double digit growth at intelligence.

Michael Baur: And so that we believe we're in an opportunity where that'll become the story.

Adam Tindall: God, that's helpful.

Michael Baur: We don't know yet again, is that first half, second half?

Michael Baur: I've heard that he's a Clemson Tiger too, so I'm sure that was welcome.

Michael Baur: When's that going to start to become apparent?

Michael Baur: Well, we try not to use those things to implement this, but yes, it wasn't a bad thing.

Michael Baur: But going over to the comm side, that business as we said, and again, we got to remember in our comm segment, we have Cisco, which confuses sometimes our story, right?

Adam Tindall: I wanted to maybe follow up on that.

Michael Baur: So Cisco being challenged, affects that comm segment more than normal.

Michael Baur: So that's probably why there's maybe some, it maybe look different than it did a year ago.

Michael Baur: It's because of the Cisco emphasis there.

Michael Baur: But the traditional other business in the comm segment, outside of Cisco, I would say it's operating as our other hardware businesses are.

Michael L. Baur: They're challenged, but we expect them to start doing better.

Michael Baur: Not necessarily, some of them still declining, but they will do better going forward into fiscal year 25.

Michael Baur: Yeah, if it's just touching on that networking business, if I remember right last year, obviously a lot of tough comparals because you guys were flushing through the supply chains, Cisco was, those tough comparals are just about ending here after the first fiscal first quarter, correct?

Michael Baur: Yeah, that's right.

Michael Baur: Yeah.

Michael Baur: Okay, yeah.

Michael Baur: Yeah, like you said, it was, there was the last technologies for us to come out of the supply chain problems.

Michael Baur: Yeah, absolutely.

Keith Housum: So that's question for me.

Adam Tindall: Obviously this is part of sort of a broader strategy to also build up the ISS group and we've got a couple acquisitions here.

Keith Housum: I'll turn it back over.

Adam Tindall: Any help that you could maybe provide us in terms of expected contribution from those acquisitions as you built up your fiscal 25 guidance.

Keith Housum: Capital allocation strategy, obviously $185 million, a lot of cash to work with.

Adam Tindall: I know that whole process was kind of new or do you guys at that time and sure there's been some learning since so if you could maybe just touch on the process to guidance entering fiscal 25, how it was different and then any acquisition contribution color would be helpful.

Stephen Jones: You guys bought back more shares the past two quarters.

Adam Tindall: Thanks.

Stephen Jones: You probably have historically, obviously, acquisition pipeline is, you know, is large.

Adam Tindall: Yeah, Adam, thanks for the question and good morning.

Stephen Jones: What's your strategy going forward in terms of mixing your capital allocation, location between M&A and share bye-bye.

Stephen Jones: Let me talk about the first one about our acquisitions. Again, when we talk about our and we've been thinking about this for a while and working through this, when we think about our acquisition strategy, it's really around acquiring higher margin opportunities that are low in working capital and this will always be over the context of the white return for the company.

Stephen Jones: Hey Keith, this is Steve again.

Stephen Jones: So when we think about are they creative to our EBITDA?

Stephen Jones: I'll tackle that one.

Stephen Jones: Are they creative to our to our overall contribution?

Stephen Jones: It really goes back to what we generate free cash flow and the focus on our free cash flow that didn't allow us to do our capital allocation strategy.

Stephen Jones: Yes, they are.

Stephen Jones: They're small.

Stephen Jones: And we think there's room to do both.

Stephen Jones: We think we were, you know, we had some of these opportunities coming out of the, you know, in August to close some of these deals.

Stephen Jones: But we think that there's room to do both, particularly to your point, we have cash on the balance sheet.

Stephen Jones: So we're not concerned about where our leverage ratio would go for 25.

Stephen Jones: These are small acquisitions that we're announcing more of a programmatic approach to our acquisition strategy.

Stephen Jones: So in the near, you know, the near view that we have, you know, it's, it's due both take advantage of the opportunities of the acquisitions that are out there, but be disciplined in those to make sure they fit our strategy and fit our profile.

Stephen Jones: And then return, return the, the share, with through shared purchases, return that, that capital back to, our shareholders through a discipline share repurchase program.

Stephen Jones: Great.

Stephen Jones: Thank you.

Unknown Executive: One moment for next question.

Stephen Jones: And so they are included in our guidance, but I would say that they're not significant to the consolidated results for FY 25 that we've got in our guide.

Matthew Herrigan: Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone.

Stephen Jones: Let me maybe move to the second question on, we learned a lot and the thing that we learned is this is a, this is a tough time to try to predict the top line growth.

Matthew Herrigan: Our next question comes from the line of Matthew Aragon of the benchmark company.

Matthew Herrigan: Your line is now open.

Stephen Jones: You know, when we, when we entered last year, there was a lot of changes going on in the market. We were coming out of the supply chain constraints and our technologies, you know, we, we do have this differentiated portfolio which helps us but our technologies all went through different cycles of that portfolio.

Matthew Herrigan: Thank you.

Stephen Jones: So what we learned is predicting this thing is hard again.

Matthew Herrigan: Two questions.

Stephen Jones: And so that, that kind of guided our decisions as we came into 25 on how we would guide.

Matthew Herrigan: One more less derivative of some of the prior questions.

Stephen Jones: We wanted to maintain guides because we think it's important but also what's important to us.

Matthew Herrigan: When you look at the M and M market right now, is there any loosening up on multiples given that economic uncertainty?

Matthew Herrigan: I know you're not going to talk about easy to sales multiples on the two acquisitions.

Stephen Jones: And so that gave us confidence that we could guide again this year for free cash flow.

Matthew Herrigan: You just did the source of an advantage.

Stephen Jones: But really, I would say the two takeaways is hard to predict the top line as we go through the year and we gave wider ranges because of that.

Matthew Herrigan: But where do you see that?

Stephen Jones: And keeping everyone laser focused on the tradeoff between expanded, expanded top line and the return on free cash flow.

Matthew Herrigan: What's nice are between the operating contributions between what would you see in the perceived sellers multiple, but just any general thoughts of where that's going since it seems like you got a lot of Pac-Man opportunities to roll up more smaller companies in the same genre of the two at least in acquisition.

Stephen Jones: Makes sense.

Matthew Herrigan: And then secondly, thoroughly encouraging noises out of Zebra.

Stephen Jones: Thank you very much.

Matthew Herrigan: And what are you seeing in terms of the balance between sector decline and innovation on the bar code market right now?

Unknown Executive: Thank you.

Matthew Herrigan: Thank you.

Gregory Burns: We'll move on to our next question.

Michael Baur: Hey, this is Mike.

Gregory Burns: Our next question comes from the line of Greg Burns of Sedotti.

Michael Baur: I'll take part of the first question and I'll come back to the second after Steve answers.

Gregory Burns: Your line is now open.

Michael Baur: But when I think about our acquisition strategy, we've got a history of acquiring companies that want to be part of scancers.

Gregory Burns: Good morning.

Michael Baur: And that's always allowed us to, frankly, make very, I think, good acquisitions from a multiple standpoint, from a return standpoint.

Michael Baur: Because these companies see that if they join with scancers, their employees, then even their founders and sellers do better, especially because many of our acquisitions over the years have included earnouts.

Michael Baur: So we actually are a generally well received acquireer.

Michael Baur: And I think that helps us make smart decisions.

Gregory Burns: Is it just a function of maybe the cycles of the like you mentioned the different technologies or where you sit in terms of the timing of orders that is like maybe clotting demand.

Michael Baur: And to the earlier question that was being asked about acquisitions, I think what we'll see in 25 is a result of the work we did in 24 working on a target list.

Michael Baur: So we certainly believe that a year ago we didn't have the targets aligned like we do today.

Michael Baur: Thank you.

Stephen Jones: And I'll leave it to Steve to answer some more about the acquisitions and anything else.

Michael Baur: Hey Greg, it's Mike.

Stephen Jones: Yeah, the only thing I would add to that, Mike, I think you covered it really well, is that when you talk about acquiring recurring revenue businesses with higher margins, they come naturally with higher multiple.

Michael Baur: I'll tackle it.

Stephen Jones: But we're not seeing any big shift yet in the multiples that are out there.

Michael Baur: I think SDV indicated the approach we took this year similar to what we've done in many years as we ask our teams what's their best estimate of what we're going to do.

Stephen Jones: We just think that we're doing a better job of getting them queued up and sitting them to our strategy so that we can then bring them in and make them, to Mike's point, happy Scansource family members.

Michael Baur: And I've argued for a long, long time that for us as a distributor who really we don't control the demand.

Stephen Jones: Yeah, that's right.

Michael Baur: We don't typically create demand.

Stephen Jones: And then to the Zebra question or the Barco question, if you will, you know one of the things that we really are excited about is this idea of creating this group now that we're calling ISG and led with this Advantex acquisition, this is going to actually drive demand for hardware.

Michael Baur: Very hard for us to know what's coming.

Stephen Jones: We know that and we've experienced this over the last years, we've had experience with Advantex for about I think four or five years and so this has been kind of we were dating these guys for a long time, not really understood, understanding whether we should own this business or not, but as we looked at how do we, how do we participate as the market comes back, we felt like we need to create stronger value proposition for our partners.

Stephen Jones: And we believe having recurring revenue and being able to sell mobility devices gives us a stronger position in the market as it comes back.

Stephen Jones: So we believe that a year from now will actually do much better than our competitors.

Michael Baur: And our suppliers, let me tell you they're asking us constantly, hey are we starting to see is you indicated green shoots.

Stephen Jones: In these competitive barcode spaces because of an acquisition like Advantex.

Michael Baur: This idea that we gave for this year, unlike last year where we had an at least number for the top line, we decided to come up with this wide range because it's the timing question.

Matthew Herrigan: Thank you.

Michael Baur: And Steve indicated in his prepared remarks, there we believe right now that there's a first half, second half dynamic that should play out.

Unknown Executive: I'm showing all further questions at this time.

Michael Baur: That's based on all the information we have.

Stephen Jones: I would now like to turn it back to Steve Jones for closing remarks.

Michael Baur: That may or may not be true, meaning I think the first half of our fiscal year is going to be very hard to forecast.

Stephen Jones: Thank you and thank you for joining us today.

Michael Baur: We believe the second half will be easier but we also said that last year.

Stephen Jones: We expect to hold our next conference call to discuss September 30th quarterly results on Thursday, November 7th at 1030 AM.

Michael Baur: So we're doing the best we can and bound in it by what we continue to hear as well from the suppliers that you've referenced.

Unknown Executive: Thank you for your participation in today's conference.

Michael Baur: But as you know, we've got a lot of suppliers and we indicated that some actually did better last year than others.

Unknown Executive: This has conclude the program.

Michael Baur: Our physical security business, as an example, really was very strong and resilient.

Unknown Executive: You may now disconnect.

Michael Baur: Yet we had some other parts of our business even beside the Cisco and the Zebras that did not do well.

Michael Baur: And so we're trying to figure out where we should make an investment decision for 25 and 26 right now.

Michael Baur: But we're mindful of the fact that it's Steve indicated as well.

Michael Baur: We want to be mindful of managing our balance sheet appropriately, not getting into the position where we're using our balance sheet to drive opportunistic purchases.

Michael Baur: That's something we used to do.

Michael Baur: We're going to make sure we're very conservative in our use of the balance sheet to drive working.

Michael Baur: Capital.

Michael Baur: All right, thanks.

Unknown Executive: And then in terms of resource, why was it the right, I guess, first acquisition in the advisory space, maybe always unique about them that attracted you to that, that business?

Michael Baur: In this particular case, the founder and CEO president of this company is leaving, but the team that he recruited has been there for about seven years, and they're staying, they're on board, they're staying. And we're excited about their ability to build really a team that can continue to perform well going forward.

Michael Baur: And so we believe this is the starting point for this leadership team.

Michael Baur: And we believe we still need to find that other piece of the puzzle we need to find a technology tool rather than us building ourselves.

Michael Baur: And so for us, if we had to choose between acquiring a technology, a tool, if you will, or a leadership team first, our preference was leadership team first, and that's where resource is really shine.

Michael Baur: So we're excited.

Unknown Executive: Oh, great.

Unknown Executive: Thank you.

Unknown Executive: Yep.

Keith Housum: Thank you, one more for next question.

Keith Housum: Our next question, Control Line of Keith Hulsom of North Coast Research.

Keith Housum: It line is now open.

Keith Housum: Good morning, guys.

Keith Housum: Hey, Steve, perhaps you're going to provide some color in terms of the scalability of the company that you just acquired.

Keith Housum: Where they've emitted more indexes and geographies there, or you'll be actually taking them, you know, country right now, but how scalable are the businesses and how quickly can you guys scale them up?

Keith Housum: Hey, Keith.

Keith Housum: Good morning.

Keith Housum: Yes.

Keith Housum: You know, the way we are thinking about both of these companies is they are scalable place.

Keith Housum: They are smaller companies that we think have unique capabilities, unique management styles and those would then be what we would build on.

Keith Housum: Advantage that we announced, that's an interesting one because it does two things for us.

Keith Housum: First of all, it gives us some advanced capabilities and some value added capabilities much like what we did with POS portal years ago.

Keith Housum: But it also then should help us sell more hardware and that's an exciting thing for us as well is is this will help our bar partners sell more of the technology stack.

Keith Housum: And that that's a good thing in that in that channel for us.

Keith Housum: We think that will help differentiate our offerings again around the technologies that we know very well and we've been in for a long time.

Keith Housum: So in terms of the scale, yes, both of these are scalable acquisitions, both small as we start out, but the right to Mike's point resource of the right management team to get that that opportunity off the ground.

Keith Housum: And with Advantage very established, they know their stuff.

Keith Housum: They are in a very exciting and interesting space in that hardware technology stack that we are really excited about.

Keith Housum: I appreciate that.

Keith Housum: And I know that you guys fit a higher margin.

Keith Housum: Do I assume that these are a harm some gross margin businesses, as well as much better on the bottom line as well?

Keith Housum: Well, they're primarily recurring revenue businesses, resource of more so than Advantics, but Advantics also has recurring revenue.

Keith Housum: But if you think about Advantics, there'll be a little bit more services around that too, but higher margin for sure.

Keith Housum: And resource of, you know, when the net reporting would be close to 100%, Advantics is going to be very high as well, just the mix of services in there might bring it down a bit.

Keith Housum: Okay, got it, got it.

Keith Housum: In terms of the entire, let's go switch over to the hardware.

Keith Housum: In terms of the hardware portfolio, you know, historically there has been issues, obviously, as the on-prem hardware system, the communication systems were declining.

Keith Housum: Can you perhaps give me an idea of your portfolio if you're getting the challenges there that perhaps will be hurting hardware growth sales going forward?

Michael Baur: Hey, Keith, it's Mike and you're talking about our comms business and whether there's any new challenges because that's certainly been a story for, you know, seven or eight years.

Michael Baur: Is that really your questions or anything new there?

Michael Baur: Yeah, I'm looking for new challenges if it's, you know, comms or especially group either one.

Michael Baur: Got it.

Michael Baur: Yeah, I don't think they're well on the specialty itself, no new news there.