Q3 2025 ScanSource Inc Earnings Call
Welcome to the scan source quarterly earnings conference call all lines have been placed in a listen only mode until the question and answer session. Today's call is being recorded if anyone has any objections you may disconnect at this time I would now.
I would like to turn the call over to Mary Gentry, Senior Vice President Finance and Treasurer, Ma'am you may begin.
Speaker Change: 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 will review, our operating results for the quarter and then take your questions. We posted an earnings info graphic that accompanies our comments and webcast in the Investor Relations Sir.
<unk> of our website.
Speaker Change: You know certain statements in our press release, it's a graphic and on this call are forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker Change: These risks and uncertainties include the factors identified in our earnings release and in our Form 10-K for the year ended June 32020 for forward looking statements represent our views only as of today and scan source disclaims any duty to update these statements except as required by law during our call. We got both we will discuss both GAAP and non.
Mike Baur: non-GAAP result, and have provided reconciliations on our website and in our form 8-K, I'll now turn the call over to Mike.
Mike Baur: Thanks, Mary and thanks, everyone for joining us today, our business performed well this quarter each of our segments achieved year over year gross profit growth and higher EBITDA margins.
Speaker Change: As a reminder, we announced new segments in Q1.
Speaker Change: As part of that change, we expanded the roles and responsibilities for our business presidents beyond sales marketing and operations to include strategy acquisitions and setting the priorities for it and finance.
Speaker Change: This supports our plan to increase our pace and accelerate profitable growth.
Speaker Change: Our four business presidents are experienced technology leaders, who understand the growth opportunities ahead in each of their markets to capitalize on these growth opportunities. They are building new innovative programs and services like our recent AI Master class, which is an educational opportunity.
For Entellus as channel partners to learn about emerging trends and actionable strategies around AI cloud security <unk> and wireless.
Speaker Change: Hardware demand improved this quarter, along with the return of large deals.
Speaker Change: We performed better than our seasonal trend for our March quarter with sales declining 6% quarter over quarter.
Speaker Change: This quarter most of our technologies in North America grew year over year.
Speaker Change: <unk> mobility and barcode.
Speaker Change: Working physical security payment terminals and wireless connectivity.
Speaker Change: While the tariff policies remain fluid we are passing through any price increases from our suppliers to our customers with minimal impact on our margins.
Speaker Change: We see momentum building in our business and opportunities to accelerate channel growth for emerging innovative technologies last August we created our integrated solutions group or ISG to provide high margin products and services for channel partners to wrap additional value.
Speaker Change: Round their hardware offerings, we launched this group with our acquisition of advantage and in Q3 growth in wireless connectivity solutions with our channel partners continue.
Speaker Change: As an example, advantaged multi carrier smart Sim solution secured a win for a channel partner with a large utility company by delivering uninterrupted cellular data coverage for Wan enabled tablets and their route delivery fleet.
Speaker Change: Like advantaged, our Pos portal payments business delivers high margin value added services for our channel partners that support mission critical payment solutions.
Speaker Change: Our Pos portal solutions are designed to provide high value deployment and lifecycle services on behalf of our financial partners are crossed their merchant networks.
Speaker Change: P O S. Portals offerings include comprehensive hardware and software integration Hot swap replacement full lifecycle management and customized end to end deployment solutions.
Speaker Change: Building on our success with advantaged <unk> Pos portal, we see similar opportunities for identifying emerging innovative technology growth companies that may not be utilized in the channels successfully today.
Speaker Change: Our integrated solutions group will be launching a new business development team this quarter.
Speaker Change: This team will provide company specific channel programs sales expertise and market building capabilities to propel emerging companies into scalable go to market success.
Speaker Change: We believe this new program.
Speaker Change: We will attract many new suppliers, who want to work with the channel, but don't fit the traditional technology distribution model.
Speaker Change: A recent example of a company that fits this model provides an AI powered guest engagement platform designed for stadiums and other event venues.
Speaker Change: Opportunities with companies like this will serve as a catalyst for incremental growth across our business, we will be announcing more details on the innovative program during Q4.
Speaker Change: At <unk>, we are developing growth opportunities by attracting new suppliers that want to engage with our channel of trusted advisors. During the past year, we had a nine suppliers as part of our strategy to enhance our cyber and AI offerings.
Speaker Change: Two of the suppliers participated in our recent AI Master class, where we launched our AI AMC framework.
Speaker Change: Teach advisers, how to take customers from an AI idea to execution of our solution.
Speaker Change: Other ways, we are adding value to our channels by equipping our sales partners with AI certifications offered through our <unk> University.
Speaker Change: Abiding customized training on AI consultations and we're providing cyber security training at our regional events. We believe value added investments like these will differentiate <unk> from our competitors.
Speaker Change: Our vision for resources, our advisory business acquired last August is to build the channel model of the future and drive more value by simplifying the complexity of technology choices for end customers.
Speaker Change: <unk> has expertise and capabilities in cyber CX and networks. Our team provides project management and practice leaders to assist customers in deploying complex technologies.
Speaker Change: As a recent example of a significant win we advised and recommended a solution for an enterprise customer who wanted to transform their existing contact center by adding the latest AI enabled capabilities. This enterprise customer win reinforces the value of the trusted advisor channel.
Speaker Change: In Brazil, our team is experienced in navigating the macro uncertainties over the years.
Speaker Change: While still achieving profitability and managing working capital efficiently.
Speaker Change: Our business in Brazil is well diversified both from the supplier base and our customer base.
Speaker Change: With our strong market position, we believe we are prepared for growth when demand improves.
Speaker Change: Now looking ahead, we are focused on driving profitable growth organically and through attractive acquisitions in both segments.
Speaker Change: Our team's success with our recent acquisitions of resources and advantage gives us the confidence to make strategic acquisitions, a higher capital allocation priority.
Speaker Change: I'll now turn the call over to Steve to take you through our financial results and outlook for fiscal year 2025.
Steve Jones: Thanks, Mike for Q3, we delivered strong profitability and free cash flow and an improved demand environment.
Steve Jones: While our net sales declined 6% year over year, our gross profit and adjusted EBITDA, both increased 6% we.
Steve Jones: We saw strong gross profit margins.
Steve Jones: Led by a higher mix of recurring revenue, which for Q3 represents 36% of our consolidated gross profits.
Steve Jones: Our more profitable mix and the contribution from our recent acquisitions translated into a higher gross profit margin of 14, 2% and a higher adjusted EBITDA margin of 497%.
Steve Jones: non-GAAP net income increased 16%, while non-GAAP diluted EPS increased 25%.
Steve Jones: We remain focused on delivering profitable growth and free cash flow and believe that our Q3 results demonstrates the resilience of our business model.
Steve Jones: Now turning to our segments I'll start with our specialty technology solution segment.
Steve Jones: Net sales declined 7% year over year, and 6% quarter over quarter, primarily from lower sales in Brazil, including recording more netted down revenue and FX headwinds.
Steve Jones: As Mike discussed most of our technologies in North America, including mobility, and barcode networking physical security payment terminals and wireless connectivity grew year over year.
Steve Jones: While revenues were down gross profit increased 3% year over year, reflecting a higher mix of recurring revenue, including the contribution of advantage and improved vendor program recognition.
Steve Jones: For the segment the percent of gross profit from recurring revenue increased to approximately 14%.
Steve Jones: Segment gross profit margins increased to 10, 9% and adjusted EBIT margin was three 4%.
Steve Jones: And our intelligence and advisory segment net sales and gross profits increased 16% year over year, including the positive contribution from the resource of acquisition, while adjusted EBITDA for the segment grew 20% year over year.
Steve Jones: Q3 end user billings for intelligence increased 7% year over year to bring the annualized net billings to approximately $2 86 billion.
Steve Jones: Including double digit year over year growth in CX, which includes Ucas sea cast an AI enabled <unk> solutions.
Steve Jones: For the quarter, we generated $65 million in free cash flow, bringing our year to date free cash flow to $99 million.
Steve Jones: Across our organization, we continue to build our cash culture and reinforce the importance of free cash flow generation as a key measure demonstrating our improved business model.
Steve Jones: But going a bit deeper on the balance sheet. We ended Q3 with a $146 million in cash and a net debt leverage ratio of approximately zero on a 12 trailing 12 months adjusted EBITDA basis.
Steve Jones: Adjusted ROIC for the quarter is 13, 6% a two year high.
Steve Jones: Our resources and advanced X acquisitions completed last August were accretive to both EPS and ROIC this quarter.
Steve Jones: Q3 capital allocation again demonstrated our plant for both acquisitions and share repurchases.
Steve Jones: Share repurchases totaled $29 million for Q3, and we're pleased with the contribution from our two acquisitions and what they bring to our channel capabilities and our strategic plans.
Steve Jones: We have an active pipeline of acquisition targets for both segments that would expand our capabilities across our businesses.
Steve Jones: They fit our preference for faster growing margin accretive opportunities that our working capital light and.
Steve Jones: We will maintain our discipline in evaluating these opportunities.
Steve Jones: Today, we announced a new share repurchase authorization of $200 million. This is in addition to the approximately $42 million of current authorization remaining as of March quarter end we.
Steve Jones: We believe there is room to do both acquisitions and share repurchases, while maintaining a target net debt leverage of one to two times adjusted EBITDA.
Steve Jones: As we finished the last quarter of our fiscal year. If the improved demand continues we expect a more typical quarter over quarter increase for the June quarter.
Steve Jones: We are updating our FY 'twenty five outlook to net sales of approximately $3 billion and adjusted EBITDA to range between $140 million and $145 million.
Steve Jones: In addition, we continue to expect to deliver free cash flow of at least $70 million.
Steve Jones: We will now open it up for questions.
Steve Jones: Thank you at this time, we will conduct a question and answer session to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Steve Jones: Yes.
Speaker Change: Our first question comes from the line of Adam Tindle of RJ. Your line is now open.
Adam Tindle: Okay. Thanks, Good morning, I wanted to start.
Steve Richter: Steve Richter.
Speaker Change: That implied guidance here for Q4, I know you gave a lot of bread crumbs, but if I look at what it needs to be from Q3 to Q4 in terms of growth in order to hit the 3 billion, it's kind of a high single digit sequential improvement and if I compare that to what happened last year. It was more flat sequentially.
Speaker Change: So I just wonder if you could maybe walk through some of the parts that make that sequential growth a little bit higher in Q4 this year than the year prior.
Speaker Change: If you could maybe dovetail some comments I don't know if Mike wants to.
Speaker Change: Weigh in here, but some trends in April and the month of April or the early start of Q4 that might help to give us a little bit more confidence in that higher up tick. It sounds like large deals are picking up so that you can kind of compare what's going on in April versus January and February marks that would be helpful.
Speaker Change: Yeah. Thanks, Adam Good morning, let me maybe start by talking about our guide update of $3 billion and where we are so we've got the benefit right now of setting here at May eight and we've got April in the books, So thats kind of our starting point of how our Q4 started out when we look at that.
Speaker Change: Why we think the sequential improvement.
Speaker Change: Kind of returns to our to more of our historical average is when we when we really peel back.
Speaker Change: The Q4 of last year, one of the things that we started seeing as we started reporting more netted down revenue in our specialty technology solution segment, and so that compare that we will lap that compare this year in Q4, so that will help our year over year confidence in why we believe that we will see a growth in Q4 and to you.
Speaker Change: Point, Adam this will be the first quarter that where we're at the end of the fiscal year and so this will be a quarter that we believe clearly that we're going to see growth in our $3 billion guidance.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Can I just ask one follow up.
Speaker Change: Sure.
Speaker Change: Okay, Yes.
Speaker Change: So I wanted to follow up I'd be remiss.
Speaker Change: If I didn't ask about the share repurchase authorization.
Speaker Change: So I saw that the headline and heard you talk about it obviously the $200 million I was going back through I think it might be double the prior authorization that you did so I think that headline.
Speaker Change: Obviously was very positive the way that it red.
Adam Tindle: But then Mike you also talked about in your prepared remarks strategic acquisitions will be a higher capital allocation priority. I think is what you said so just looking to maybe see if you could flush out how Mike are you and the board are thinking about capital allocation priorities take us through that decision to announce a larger share repurchase authorization.
Speaker Change: And Steve if you could maybe just talk about how youre thinking on timing of going through that authorization.
Adam Tindle: Great Adam.
Adam Tindle: Yeah. Thanks for the question about the acquisitions because as we said in our prepared remarks, we have confidence from the two acquisitions. We did in Q1 advantage. Some resources that we understand the opportunities that are out there and are available to us.
Adam Tindle: And one of the things I also talked about I think for the first time on this call was the fact that we now have these four business presidents.
Adam Tindle: And we've really tasked each one of them with how do you grow your particular market.
Adam Tindle: And the best possible way and each one of those presidents has.
Adam Tindle: Part of their strategy for next year is it.
Adam Tindle: Is it inorganic strategy that includes acquisitions that are specific to their markets in areas that we believe will continue to add higher margin opportunities.
Speaker Change: As Steve said in his remarks generally in a working capital light model.
Speaker Change: The success, we've had year to date of advantaged and resource that give us confidence that if we do more acquisitions like those that will do nothing but add more value to our business and more shareholder value as well. So I think our board felt like if we can continue to not only continue share.
Speaker Change: Repurchases, which we have indicated but if we find more than one or two acquisitions over the next year, we want to do them and we want to do them in a way that doesn't doesn't stress our balance sheet as Steve said, we've got a target leverage of one to two times and as we all know we're at zero <unk>.
Speaker Change: Now and we have an active pipeline.
Speaker Change: Of acquisition targets that we think are very.
Speaker Change: I would say important to our strategy and so we believe that for us to grow the way we want to in 2006, we're going to need to start now and bringing in those acquisitions. So really it's a question of for our board was how do we start setting up ourselves for the next four quarters.
Speaker Change: And that's why we're prioritizing the acquisitions, while maintaining a strategy of share repurchases and then I'll turn it over to Steve for more color on the share repurchases.
Steve: Yes, Adam.
Steve: When we think about our capital allocation priorities and any in any way that you would you think about acquisitions theyre going to be a little bit more lumpy and so it's all about the timing and so we feel like right now to Mike's point is a great time for us to be.
Steve: Executing on some acquisitions that are really strategic for us and so when I think about the timing, it's not that we're not going to do both it's just that that we would we would be focusing on that one to two times lever. So if we levered up we'll focus on delevering back down to our target target ranges, we may pause some of this.
Steve: Share repurchases at that time, but if you think about it from the long our perspective, we think theres room for both of US as you can see we're generating more free cash flow on on a regular basis.
Okay can I just expand on that real quick Mike.
Speaker Change: If you were to kind of think about the framework that investors should expect in terms of valuations on some of those acquisitions I know some of them have net revenue, it's a little bit different I'm, just looking at it relative to buybacks and saying you know you've got a stock that's trading at book value.
Steve: Double digit free cash flow yield on kind of a normalized free cash flow I think.
Steve: So that would be effectively the hurdle that you are overcoming in order to.
Steve: Not repurchase your own stock versus going and buying something so maybe just help investors understand how you would be thinking about valuation frameworks for these acquisitions that you have in the pipeline for this coming year relative to buybacks. Thanks.
Steve: Well one of the ways I'll frame. It today is that we really like the structure of the two acquisitions. We made last year, we believe using an earn out structure allows us to.
Steve: Maintain our ability to still do other things with cash while also being able to provide to sellers and opportunity to show us what that business really can become because in general we're buying companies that are maybe smaller or younger in their lifecycle.
Steve: And for us to pay a value higher than scan sources value they need to be able to show us that they can add additional profitability and capabilities that we can leverage over time and so we love the earn out structure. We think it accomplishes we can go after some of these.
Steve: These acquisitions and execute on them faster because we can give the sellers the opportunity to not only make more money, but also we want to buy where we can our management team that wants to stay in the business for a few years and we think that also de risk the investments, we're making is when we're buying.
Steve: And operating management team that can come along with that business.
Speaker Change: Thank you very much you bet.
Steve: Yes.
Steve: Thank you.
Steve: Our next question comes from the line of.
Speaker Change: Greg Burns of Sidoti Your line is now open.
Greg Burns: Good morning can you just talk a little bit.
Speaker Change: More detail about the demand trends in Brazil.
Speaker Change: Yes.
Speaker Change: Causing the weakness there obviously, we saw a nice rebound in the Americas here, but whats holding Brazil back.
Steve Jones: Yes, Greg this is Steve good morning.
Steve Jones: In Brazil, well they have the same macroeconomic issues that the world is facing in terms of tariff concerns and some other some other macro concerns. They also have a <unk>.
Steve Jones: FX and our business there works a little bit differently with with the way FX impacts the top line and when we think about Brazil for us, we're pretty insulated from that from a.
Steve Jones: Profitability, because we have cost there as well and remember Brazil is less than 10% of our total revenues for the company, but the way the way to think about the Brazil.
Steve Jones: Brazil performance is thinking about it in.
Steve Jones: Constant currency basis, and really think of it in two things we talked about the netting down effect.
Steve Jones: <unk> of our revenues there and so they're going through similar transitions with some of their key suppliers where there.
Steve Jones: Putting it under a net basis and so that's a bit of a headwind and so we dropped down and look at gross profit as well and to make sure that we're doing the right things as well as the profitability and the return on working capital in Brazil, as kind of our our measures for success even in these turbulent times.
Steve Jones: Okay, great. Thanks, and then.
Steve Jones: You mentioned some of the.
Steve Jones: Programs are new new initiatives you have in place too.
Steve Jones: Kind of accelerate growth on the telecom side and some of those more recurring areas I don't think you mentioned channel exchange.
Steve Jones: Can you just maybe give us an update there or any progress you're seeing on that front and any traction they're selling.
Steve Jones: More SaaS type revenue streams.
Steve Jones: Yeah, Greg It's Mike Yeah Channel exchange is a key part of the way, we can transact business so certain suppliers.
Steve Jones: Having channel exchange allows them to operate.
Steve Jones: The way they want to operate so really channel exchange was created so if suppliers for the <unk> channel don't want to building end user if they want the channel to building user or frankly in telesis, we can do that through channel exchanged some new channel exchange.
Steve Jones: A tool that we used to facilitate the transactions and so we're always recruiting.
Steve Jones: And looking at suppliers that need that we didn't have that capability before channel exchange. So that just knocks down once those obstacles to signing new suppliers. So.
Steve Jones: As we said we've signed nine new suppliers most of them are in the AI area and many of these companies, they're not large enough yet where they want to set up the systems to bill either of the channel partner or building and user and so channel exchange allows us do that so actually channel exchanges, helping us recruit these new <unk>.
Steve Jones: Pliers that I mentioned for intelligence, so it's going very well.
Steve Jones: Alright, great. Thank you.
Steve Jones: Yes.
Steve Jones: Thank you.
Speaker Change: Our next question comes from the line of Keith Hausman of Northcoast Research. Your line is now open.
Keith Hausman: Yes, good morning, guys and good job on the profitability, Hey, Mike Im trying to reconcile the topline performance.
Speaker Change: There's a lot of optimism in the commentary that.
Speaker Change: The technologies are growing but yet if I look at the year over year performance in North America, It's still that we have.
Speaker Change: Actual decrease year over year and as I compare it to some of your larger it vendors. There's a difference in performance there as well so can you help.
Speaker Change: Help me bridge that gap.
Speaker Change: Hi, Keith Good morning, well back in September I said August how we're going to talk about technologies, but I guess I got convinced otherwise.
Speaker Change: Sorry, David Steven Murray, we're great at saying, Hey, Mike we need to talk about where we see strength and what we decided not to do is talk about where we actually had weaknesses. Because there are some areas. We mentioned the ones that are that grew and theres still a couple that did not in North America and some of those no surprise had been.
Speaker Change: Around a long time in a declining mode and continue to decline and then one other piece of that Keith just and Steve said this and Steve you'll have to help me be clear about whether it's a year over year metric or not is this netted down revenue continues to be part of the headwind to a growth year over year, Steve is that fair that's exactly right. It's true for.
Steve: Brazil, it's more pronounced in Brazil, but it's true for North America as well, yes. So thats part of the comparable Keith is the netted down revenue is making it look like we're not growing as fast even for those that group.
Speaker Change: Okay I appreciate that color. Thank you.
Speaker Change: You mentioned the nine new suppliers added for entellus is understanding that some of them are very small, but how does that compare to other prior periods.
Speaker Change: We're way up and again I give credit to the team Ken has done a great job again, focusing on channel exchange that was one of the things. We didn't have we didn't have a program that some of these new young small suppliers.
Speaker Change: They're not the Comcast and the the big Lumens that had programs already to pay agency commissions and so we're enabling those new suppliers by providing.
Speaker Change: A program like channel exchange. So we're excited about them and so some of these are going to become immediately contributing to our business. I mean, we've already landed deals with a couple of these small suppliers already because they are basically providing these new AI add ons. If you will primarily in the contact center space, where we're very successful.
Speaker Change: Festival, and as Steve said that business for us grew double digit the CX space in <unk> and so these AI CX.
Speaker Change: <unk> are adding to that growth rate and so we're really excited about that okay. I appreciate that and I. Appreciate the color you guys provided.
Speaker Change: Provided on the presence and the expansion of their responsibilities I'm, assuming with that also comes their way to your incentive them right. So theyre more incentive now on the bottom line as compared to the top line correct.
Speaker Change: Right and that was actually part of their plan for last year or two I think the other big change. It Keith is this idea of setting the priorities for what the bug.
Speaker Change: Budget should do in their particular business, though is what are the.
Speaker Change: Items that they want to focus on in each one of them has different priorities for tools and systems and secondly from an acquisition standpoint, I want for smart people out there looking at acquisitions not just one team within scan. So we're saying so that's another big reason why we wanted to focus on.
Speaker Change: <unk> today is we've got four separate work streams underway for acquisitions.
Speaker Change: Thanks helpful. And then last question for me.
Speaker Change: Mr Kraft that you're offering for entellus.
Speaker Change: Vendor partners.
Speaker Change: How quickly can you monetize that I mean is this more of an investment in the future or do you think youre going to immediately expand their relationships and help drive that revenue immediately.
Speaker Change: Well, we had two of the two of the new suppliers, there and one of them is called Poly AI, we've already announced them and another one was called <unk> and we've already closed deals with both up and.
Speaker Change: And so our partners we're excited to see how they can understand how these applications can help them now so we're already closing business.
We're doing these recently I think the one they had last week, we had 30 channel partners attending and it was very well received and really the key was where we're not only showing them telling them about it but we're actually given them. This framework for how do you talk about AI and how do you actually provide the right information to the.
Speaker Change: In customer so they can then make a decision. So this actually takes it from okay. What is all this to here's actionable strategies for how do you close business. So I think closing business is what this master classes focused on.
Speaker Change: Great. Thank you appreciate it yes.
Speaker Change: Thank you.
Speaker Change: Binder to ask a question you will need to press star one on your telephone.
Speaker Change: Our next question comes from the line of Guy Heartbreak of Freedom capital markets. Your line is now open.
Guy Heartbreak: Hi, good morning.
Speaker Change: Good morning, good morning, Jack.
Speaker Change: Hi.
Speaker Change: I was just wondering how you're finding the competitive environment for acquisitions I mean, there's a lot of anecdotal evidence, suggesting that private equity firms are strong to finance new deals due to higher rates.
Speaker Change: Are you finding pricing coming down for certain deals with just less competitive.
Speaker Change: Hey, guys, Mike Bauer I think from our perspective, our history with doing acquisitions and we've made about 30 over the years is we have found success in getting to know the company.
Speaker Change: And we generally are participating in auctions and so we really get to know the company. Their strategy. There are people what their goals are and we found that that really facilitates a very.
Speaker Change: Comfortable.
Speaker Change: Acquisition, including a reasonable multiple when we can come close to terms, we're ready to start talking terms and part of it is our experience has been these companies want to be part of scan source, Inc. I think thats. The difference is we're acquiring companies and then were going.
Speaker Change: To help them grow faster and provide opportunities for their employees that they wouldn't get otherwise and so most founders love that they love that and we've got a history of frankly, leaving leaving them alone enough to where they still feel entrepreneurial and I think that entrepreneurial feeling is something that I am.
Speaker Change: Really proud of that we've been able to solve over the years and been very successful at at acquisition that doesn't mean that we we do get some that we have to pass on because the valuation is too high and I think we've got a history of being disciplined about what we're willing to pay but we also believe that the market for us too.
Speaker Change: Find acquisitions is vast right now there is a wide group of targets for our team.
Speaker Change: Alright. Thank you just as a follow up can I ask about large orders, particularly as it relates to gross margins because obviously gross margins moved up in both segments.
Speaker Change: Both sequentially and year on year.
Speaker Change: I think the press release SaaS hardware demand improve late in the quarter, along with return of large deals large.
Speaker Change: Large deals not did not have any impact on gross margin in the quarter.
Speaker Change: But will they have an impact next quarter and perhaps early into next year next fiscal as well as they return.
Speaker Change: Yes. This is Steve Jones.
Speaker Change: Typically large deals have a lower margin profile for us so as as the percentage of large deals increase that will put some pressure on our on our gross profit margins. The good thing is is we've got these acquired businesses advantaged in that in that space and more recurring revenues in those those.
Speaker Change: Segments that help offset that so so our business model looks better even with the large deals in them.
Speaker Change: And just sorry, one follow up thank you for that and just follow up for me.
Speaker Change: Free cash flow that suddenly since you didn't raise the free cash flow guidance.
Speaker Change: I believe just imply that you'll have an outflow in Q4.
Speaker Change: Yes, when we were thinking about the guidance on free cash flow. The one thing that we've had a hard time picking is when the sales happen in the quarter and so if sales happened very late in the quarter that will increase our accounts receivable and will impact our period point free cash flow. So so.
Speaker Change: That's one of the things that we're thinking about as we as we gave that guidance now we're quite comfortable with at least $70 million guidance, but we didn't want to get too far over our skis.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Moment for Mark question.
Speaker Change: As a reminder, you can press star one on your telephone.
Speaker Change: Okay.
Speaker Change: And I'm showing no further questions. So I will turn it back to Steve Jones for closing remarks.
Speaker Change: Thank you and we'd like to thank you for joining US today, we expect to hold our next conference call to discuss June 30 quarterly and full year results on Thursday August 21 at approximately 10 30 a M.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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