ScanSource(US:SCSC)2021-11-12 22:04Financial Data and Key Metrics Changes - The company reported a 13% year-on-year net sales growth for Q1, with net sales reaching $857 million [8][28] - Gross profit increased by 25% year-on-year to $101 million, resulting in a gross profit margin of 11.8%, up from 10.7% in the prior year's quarter [29] - Non-GAAP EPS for the quarter was $0.99, marking the fifth consecutive quarter of improvement [26] - Adjusted EBITDA for Q1 totaled $41.4 million, up 98% year-over-year, with adjusted EBITDA margins increasing to 4.83% [30][28] - Return on invested capital (ROIC) increased to 17.5%, the highest quarterly ROIC in over five years [32] Business Line Data and Key Metrics Changes - Specialty Technology Solutions segment saw net sales increase by 23% year-on-year, with gross profit growing by 32% year-on-year [16] - Modern Communications and Cloud segment reported a 2% year-on-year increase in net sales, while gross profits increased by 21% year-on-year [19] - The company emphasized the importance of combining hardware, software, connectivity, and cloud services to deliver differentiated value [12] Market Data and Key Metrics Changes - The company experienced strong demand driven by digital acceleration and technology refresh initiatives, with double-digit growth across large deals and run rate business [14] - In Brazil, the company reported consistent performance with double-digit growth across data center, digital workplace, and cybersecurity solutions [23] Company Strategy and Development Direction - The company is focused on a hybrid distribution strategy that combines hardware with services, software, and recurring revenue opportunities [10] - The restructuring of reporting segments aims to align with the go-to-market strategy and better reflect how the company manages its business [27] - The company is actively investing in growth areas, including expanding capabilities in Intelisys and Brazil [30][56] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges but expressed confidence in the company's ability to navigate these issues [44] - The company reaffirmed its full-year outlook, expecting at least 5.5% year-over-year net sales growth and adjusted EBITDA of at least $135 million [33] - Management highlighted the importance of the agency model by the VAR community, which has seen a 23% year-on-year growth in new supplier billings [22] Other Important Information - The company reported negative operating cash flow of $57 million for the quarter due to working capital investments to support sales growth [31] - The balance sheet remains strong, with cash and cash equivalents of $55 million and debt of $197 million [32] Q&A Session Summary Question: Was the strong performance in the modern communication and cloud segment due to reshuffling or increased activity? - Management indicated that the growth was driven by strong demand rather than the segment reshuffling [36] Question: Is there elevated backlog or lead times? - Management stated that backlog was not material coming out of Q1 and is not anticipated to be material in Q2 [37] Question: When can inventory turns be expected to normalize? - Management expressed comfort with current inventory levels, indicating they are in the middle of the expected range [38] Question: How sustainable are the gross margins achieved this quarter? - Management believes the current gross margins can be sustained due to higher growth rates in recurring business [43] Question: What is the outlook on supply chain challenges? - Management acknowledged ongoing supply chain constraints but noted that the team is managing through it effectively [44] Question: Why not raise guidance after a strong Q1? - Management explained that they are maintaining guidance due to ongoing supply chain challenges and historical seasonality impacts [45] Question: What is the growth opportunity in Brazil? - Management expressed excitement about Brazil's consistent performance and strong recurring revenue growth [56] Question: Is there an active M&A pipeline? - Management confirmed an active M&A pipeline focused on expanding capabilities [60]