- Free Cash Flow (Q4): $53 million
- Specialty Technology Solutions Segment Net Sales (Q4): Declined 14% year-on-year
- Specialty Technology Solutions Segment Gross Profit (Q4): Declined 10% year-on-year
- Modern Communications & Cloud Segment Net Sales (Q4): Declined 32% year-on-year
- Intelisys Net Sales (Q4): Grew 6% year-on-year
- Intelisys End-User Billings (Q4): Increased 9% year-on-year, totaling $2.67 billion in FY24
- CCaaS Billings Growth (Q4): 35%
- UCaaS Billings Growth (Q4): 13%
- Modern Communications & Cloud Segment Gross Profit (Q4): Declined 11% year-on-year
- Net Sales (FY24): Declined 14%
- Gross Profit (FY24): Declined 11%
- GAAP Net Income (FY24): Declined 12.5%
- Non-GAAP Net Income (FY24): Declined 20.5%
- Non-GAAP EPS (FY24): $3.08 compared to $3.85 last year
- Free Cash Flow (FY24): $363 million
- Specialty Technology & Solutions Segment Net Sales (FY24): Declined 14% year-on-year
- Specialty Technology & Solutions Segment Gross Profit (FY24): Declined 16%
- Modern Communications & Cloud Segment Net Sales (FY24): Declined 13%
- Modern Communications & Cloud Segment Gross Profit (FY24): Declined 6%
- Recurring Revenue (FY24): Represented 27% of consolidated gross profit
- Cash (End of Q4): $185 million
- Net Debt Leverage Ratio (End of Q4): Below 0 on a trailing 12-month adjusted EBITDA basis
- Share Repurchases (Q4): $22 million
- Share Repurchases (FY24): $43 million
- Net Sales Outlook (FY25): Between $3.1 billion and $3.5 billion
- Adjusted EBITDA Outlook (FY25): Between $140 million and $160 million
- Adjusted EBITDA Margin Outlook (FY25): Approximately 4.5% to 4.6%
- Free Cash Flow Outlook (FY25): At least $70 million
Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ScanSource Inc (SCSC, Financial) is seeing accelerated adoption of its hybrid distribution strategy, which is expected to drive more demand.
- The company hosted 800 attendees at its Partner First Conference, encouraging sales partners to embrace new growth opportunities.
- ScanSource Inc (SCSC) announced two high-margin, recurring revenue acquisitions that are working capital light.
- The company delivered strong gross profit margins, adjusted EBITDA margins, and free cash flow of $53 million for the quarter.
- Intelisys net sales grew 6% year-on-year, with Q4 end-user billings increasing 9% year-on-year.
Negative Points
- Net sales in the specialty technology solutions segment declined 14% year-on-year, while gross profit declined 10% year-on-year.
- Net sales in the modern communications & cloud segment declined 32% year-on-year.
- GAAP and non-GAAP net income declined 12.5% and 20.5%, respectively, for FY24.
- The company expects the challenging demand environment to continue in the near term, particularly in the first half of FY25.
- Free cash flow for FY25 is expected to be significantly lower at $70 million compared to $363 million in FY24.
Q & A Highlights
Highlights of ScanSource Inc (SCSC) Earnings Call
Q: Mike, you talked earlier in the call about the appointment of Ken Mills as President of Intelisys in July. Can you provide more details on the structure of the organization, how that's changing, and the KPIs for that business?
A: Michael Baur, Chairman of the Board, Chief Executive Officer: We took a while to appoint a new President to ensure we understood our strengths and areas for improvement. Ken Mills brings a strong background in different channel approaches, which resonated with our team. We believe his leadership will help us achieve double-digit growth at Intelisys.
Q: Steve, can you provide details on the expected contribution from recent acquisitions as you build up your fiscal '25 guidance?
A: Stephen Jones, Senior Executive Vice President, Chief Financial Officer: The acquisitions are small but accretive to our EBITDA and overall contribution. They are included in our guidance but are not significant to the consolidated results for FY25. The process for building FY25 guidance involved learning from the challenges of predicting top-line growth in FY24.
Q: Greg Burns from Sidoti asked about the outlook from supplier partners like Cisco and Zebra and the declines seen in both segments this quarter.
A: Michael Baur, Chairman of the Board, Chief Executive Officer: We depend on our partners to tell us their needs and place orders accordingly. The first half of our fiscal year is hard to forecast, but we believe the second half will be easier. Some technologies did better than others, and we are making investment decisions for '25 and '26 accordingly.
Q: Why was Resourcive the right first acquisition in the advisory space?
A: Michael Baur, Chairman of the Board, Chief Executive Officer: We prioritized acquiring a leadership team that would stay and build the business. Resourcive's team has been there for about seven years and is excited to be part of ScanSource. We also need a technology tool to help manage contracts and renewals, which we are still looking for.
Q: Keith Housum from Northcoast Research asked about the scalability of the newly acquired companies and their contribution to margins.
A: Stephen Jones, Senior Executive Vice President, Chief Financial Officer: Both companies are scalable and have unique capabilities. Advantix will help us sell more hardware, and both acquisitions are higher-margin, primarily recurring revenue businesses.
Q: Are there any new challenges in the hardware portfolio that might affect growth?
A: Michael Baur, Chairman of the Board, Chief Executive Officer: No new challenges in the Specialty segment. We expect it to return to growth. The Comms segment, particularly Cisco, has been challenging but should do better in fiscal year '25.
Q: What's the strategy for capital allocation between M&A and share buybacks?
A: Stephen Jones, Senior Executive Vice President, Chief Financial Officer: We plan to do both. We have cash on the balance sheet and room for acquisitions and share repurchases while maintaining our leverage ratio.
Q: Matthew Harrigan from The Benchmark Company asked about the M&A market and multiples.
A: Michael Baur, Chairman of the Board, Chief Executive Officer: We are generally well-received as an acquirer, which helps us make smart decisions. We have a target list for '25 based on the work done in '24. Stephen Jones added that acquiring recurring revenue businesses naturally comes with higher multiples, but we are doing a better job of fitting them to our strategy.
Q: What are you seeing in terms of the equilibrium between secular decline and innovation in the barcode market?
A: Michael Baur, Chairman of the Board, Chief Executive Officer: The acquisition of Advantix will drive demand for hardware and give us a stronger position in the market as it comes back. We believe we will do better than our competitors in the barcode space because of this acquisition.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
