ScanSource, Inc. (NASDAQ:SCSC) Q1 2018 Earnings Conference Call Transcript

Nov 06, 2017 • 05:00 pm ET

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ScanSource, Inc. (NASDAQ:SCSC) Q1 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Welcome to the ScanSource Quarterly Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I'd now like to turn the call over to Mary Gentry, Vice President, Treasurer and Investor Relations. Ma'am, you may begin.

Executive
Mary Gentry

Thank you, and welcome to ScanSource's Earnings Conference Call for the Quarter Ended September 30, 2017. With me today are Mike Baur, our CEO; and Gerry Lyons, our CFO. We will review our operating results for the quarter, and then take your questions. A slide presentation that accompanies our comments and webcast is posted in the Investor Relations section of our website.

Certain statements made on this call, including our expectations for sales and earnings for our second quarter 2018 will be forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include, but are not limited to, those factors identified in the earnings release that we put out today and in ScanSource's Form 10-K for the year ended June 30, 2017, as filed with the SEC. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as any -- as of any subsequent date. ScanSource disclaims any duty to update any forward-looking statements to reflect actual results or changes in expectations, except as required by law.

We will be discussing both GAAP and non-GAAP results during our call and have provided reconciliations between these amounts in our slide presentation and in our press release. These reconciliations can also be found on our website and have been filed with our Form 8-K.

Mike Baur will now begin our discussion with an overview of our results.

Executive
Mike Baur

Thanks, Mary, and thank you for joining us today. ScanSource delivered a solid quarter with strong gross margins, which offset lower-than-expected sales volumes. Our focus on value-added margins led to profitability improvements on a non-GAAP basis, including the strengthening of our non-GAAP operating margins, a key goal for fiscal year 2018.

We missed our sales forecast range principally from lower big deals in North America. This includes the timing of large federal deals that are now expected to close in our December quarter. Next quarter sales forecast reflects higher big deals and mid-single-digit organic sales growth. This quarter's lower big deals contributed to our higher gross margins, which is what we would normally expect to see.

In addition, we had a favorable benefit from our higher margin strategic acquisitions, Intelisys and POS Portal, as well as from attainment of certain vendor incentive programs. We had several positive sales trends this quarter. This includes a 7% net sales growth for our International business, driven by Europe point-of-sale and Barcode and Network1 in Brazil. In addition, we made excellent progress on our 2018 growth initiatives, which are listed on Slide 4, and I'll review each of them now.

First of all, we had outstanding growth in