ScanSource, Inc.

Welcome to this CAN 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 like to turn the call over to Mary Gentry, Senior Vice President, Treasurer and Investor Relations. Ma'am, you may begin.

Good morning, and thank you for joining us. Joining me on the call today are Mike Bauer, our chairman and CEO, and Steve Jones, our chief financial officer. We will review our operating results for the quarter and then take your questions. We posted an earnings infographic that accompanies our comments and webcast in the investor relations 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. These risks and uncertainties include the factors identified in our earnings release and in our Form 10-K for the year ended June 30, 2023. Forward-looking statements represent our views only as of today, and ScanSource disclaims any duty to update these statements except as required by law. During our call, we will discuss both GAAP and non-GAAP results and have provided reconciliations on our website and in our Form 8K. I'll now turn the call over to Mike.

Thanks, Mary, and thanks, everyone, for joining us today. Our team executed well in a softer revenue environment, and our business fundamentals remain strong. It's our purpose to be a trusted partner for our customers and our suppliers, exceeding their expectations in all demand environments. First quarter net sales were softer than expected. Net sales declined 7% and reflect mixed demand. As in the past, we have benefited from a diverse ecosystem of partners who sell into different areas of technology and in markets. This allows our sales and marketing teams to find growth opportunities as demand changes during challenging market conditions. As an example, during the supply chain crisis, we utilized our strong balance sheet to minimize inventory shortages while enabling our customers to meet stronger than normal demand. During Q1, technology growth areas included networking and physical security, which have been strong throughout this calendar year. And as we have discussed in previous quarters, our strong growth continued from our Cisco portfolio of products and services. especially in the areas of network security, software, and Meraki endpoints. For our barcode, mobility, and point of sale business, demand was lower than expected with fewer large enterprise deals. Based on our survey of customers and suppliers at our recent Channel Connect event, we believe the slowing demand for barcode, mobility, and point of sale was widespread. Our Intellisys technology services business continues to grow, as demand remains solid, with sales growth of 9% in the quarter. This includes growth in contact center, which is CCAS, of 27%, and growth of UCAS of 10%. Our gross profit margin for the quarter remained consistently strong, benefiting from sales mix, especially as our recurring revenue from Intellisys grows faster than our device business. As the highest growth opportunity for our company, Intellisys remains an area of investment for the company. As a reminder, we also benefit from the fact that our Intellisys business has very low working capital requirements. In a quarter like this one, with declining net sales, we expect our business to generate strong free cash flow, and it did. Our first quarter free cash flow topped $91 million. Our strong free cash flow demonstrates that our business model is working as expected. As we indicated last quarter, we expected a slower first half of fiscal year 24 with improvement in the second half of FY24. However, we are now expecting a slower demand outlook for the remainder of our FY24. With the softening demand expectations, we expect free cash flow to be a bright spot throughout our fiscal year. Changes in the technology distribution market and our belief in the growth opportunities ahead make this an ideal time to use our balance sheet to be disruptive in the market, both organically and through acquisitions. As in the past, we will make acquisitions where we expect higher growth and higher margins for the company. We have confidence in our business and are well positioned to take advantage of our opportunities for profitable growth. I'll now turn the call over to Steve to take you through our financial results for the quarter and outlook for fiscal year 2024.