Welcome to the ScanSource Quarterly Earnings Conference Call. All lines are 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 afternoon and thank you for joining us. Joining me on the call today are Mike Baur, our Chairman and CEO; John Eldh, our Chief Revenue Officer; 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. Let me remind you that certain statements in our press release in the earnings infographic and on this call are forward-looking statements. These statements are subject to risks and uncertainties that could cause results to differ materially from such statements. These risks and uncertainties include, but are not limited to, those factors identified in the earnings release we put out today and in ScanSource's Form 10-K for the year ended June 30, 2021, 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 of any subsequent date. ScanSource disclaims any duty to update any forward-looking statements to reflect actual results or changes in expectations as required by law. During our call, we will discuss both GAAP and non-GAAP results and have provided reconciliations between these amounts in the earnings infographic and in our press release. These reconciliations also can be found on our website and have been filed with our Form 8-K filed today. I'll now turn the call over to Mike.

Thanks, Mary, and thanks, everyone for joining us today. Our outstanding second quarter performance underscores the strength of our hybrid distribution strategy. For the quarter, we delivered 6.6% net sales growth and adjusted EBITDA margin of 4.9% and record non-GAAP EPS for the quarter and for the trailing 12 month period. Strong demand from channel partners across our technologies drove our top line growth and profitability ahead of expectations. We are proud of the operational excellence delivered by our employees worldwide while the ongoing supply chain challenges. We are confident in our business model and ability to execute. As a result, we are raising our full year fiscal year 2022 outlook and now expect net sales growth of at least 7% and adjusted EBITDA of at least $148 million. The foundation of our hybrid distribution strategy is helping suppliers and sales partners accelerate growth across innovative technologies to meet in user requirements by providing hardware plus services, SaaS and other value added offers. Our hybrid distribution strategy guides, how we operate our business for sustainable growth and profitability. In addition to our outstanding financial results, I am pleased today to announce the promotion of John Eldh to President of ScanSource Inc. John successful two years leading the growth of our device digital and cloud businesses, and his SaaS background have positioned John to drive the next phase of profitable growth for us at ScanSource. John has built a world-class leadership team that we believe will lead us on a sustainable growth trajectory. As President, John will drive and champion our hybrid distribution growth strategy and communicate this message to our key stakeholders, including employees, sales partners, suppliers and investors. Congratulations, John. I'll now turn the call over to you to discuss our business performance.

Thanks Mike. The past two years working with you and the entire ScanSource team have been amazing. I'm truly excited and also humbled by this opportunity and want to thank you for your trust and belief in me. Our future is bright and I look forward to working together as we architect the next chapter of growth for ScanSource. As for the quarter, our employees delivered impressive results with 6.6% year-over-year net sales growth and 25% year-over-year increase in gross profits. Strong demand across technologies drove top line growth and margin expansion, in both of our segments. I'm delighted with how our team is at executing and successfully navigating supply chain challenges. Our second quarter results reflect strong growth from enterprise projects and large deals. While we experience heightened supply chain challenges in the quarter, our differentiators specialization, deep supplier and customer relationships and operational excellence enabled us to manage these challenges and successfully navigate today's supply constrained environment. Another differentiator is our ability to use our balance sheet for strategic inventory investments. Our customers trust us to take care of their business and our dedicated suppliers and sales teams work to take friction out of the buying experience. I'd like to share a recent example of how ScanSource is enabling partners to win with our hybrid distribution strategy across hardware, SaaS, connectivity and cloud services. In this example, in the healthcare market, we enabled a large communication var [ph] with the design and delivery of a collaboration solution that included cloud enabled hardware for voice and video, along with the UCAS software subscription. Our team assisted with the technical design, product specifications, pricing, supplier program requirements and delivery of the total solution. This is a great example of how we enable our sales partners to sell hardware plus SaaS.…

Thanks, John. Our strong second quarter results demonstrate our team's successful execution of our strategic plan. It was an outstanding quarter for delivering top line growth and our margins continue to see the benefit of the expanding mix of recurring revenues and value-added services. We achieved 17.6% ROIC for the quarter, the highest result in five years, as we balance our working capital investment to support our sales growth and meet future demand. As Mike noted in his opening remarks, our strong performance and momentum gives us the confidence to raise our FY '22 sales growth and EBITDA expectations. In the second quarter, we achieve strong top line growth up 6.6% year over year or 7% on an organic basis and expanded our margins in both segments. Our gross profit margins increased to 12.5% adjusted, EBITDA margins increased to 4.92% and our non-GAAP operating income margin increased to 4.15%. Our Q2 net sales of $864 million restrict -- reflects strong customer demand across our technologies. During the quarter, we saw modest benefit from supplier price increases. Our gross profits grew 25% year over year to $108 million. Favorable sales mix and higher supplier sales incentives contributed to our higher gross profit dollars. Our Q2 margins increased to 12.5% up from 10.6% in the prior year's quarter. Our non-GAAP SG&A expense for the quarter of $69.5 million increased $10.4 million or 18% year over year. This includes investment in strategic headcount for Intelisys Brazil and other growth areas, as well as IT investments to expand our capabilities. Our IT investments focus is to in enhance our ability to scale our business as part of our growth strategy. Second quarter adjusted EBITDA which excludes share based compensation totalled $42.5 million up 43% year over year, reflecting of 4.92% adjusted EBITDA margin. Higher…

Thank you. [Operator instructions] And our first question comes from the line of Adam Tindle with Raymond James. Your line is open. Please. Go ahead.

Hello, Steven. Mike. This is Catherine on for Adam and John please let my add -- let me add my congratulations. Mike, can you please start by commenting on the state of the supply constraints in today versus the end of the December quarter. Last night, we heard from a large domestic reseller that they're starting to see some signs of light. And we're wondering if you're starting to see the same and is this baked into your forecast for the year?

I'll let John answer that if that's okay.

No problem.

Hey, thanks for the question and thanks for your congratulations. And yeah, we expect to see supply chain challenges continue and overall our lead times have extended two to four times longer than a year ago. Have not seen much change from last quarter. We think the team's doing a fantastic job of managing and navigating through the environment and yes, the lead times and the supply chain is factored into our second half.

Okay, perfect. Thank you. And then one for Steve, a number of vendor partners have been implementing price increases over the past few quarters, which you mentioned actually benefited ScanSource in the quarter, but what has been the customer response to this so far?

Well, from a customer perspective, we don't have a lot of visibility to end customer and we haven't seen a lot of impact from our channel partners. It was expected it's well communicated. So we really haven't seen much of an impact from a customer perspective.

Thank you. And our next question comes from the line of Keith Housum with Northcoast Research. Your line is open, please. Go ahead.

Good afternoon guys. And John, once again, I'll my congratulations as well. Well deserved. Hey guys, I'll throw us out and I'll let you guys who decide who wants to answer it, but obviously the supply constraints issue has been out there now for several quarters, any thought in terms of how much did that impact your sales for the quarter?

Yeah, Keith, thanks for the question. And thanks also for the congratulations. And, I think the best way to characterize how we're seeing the supply chain is that we did see some impact, we saw some deals push out and we factored that into our second half guide.

Got you. And is your thinking, and I know you partially asked this before, but is your thinking that this is going to continue through release the rest of the calendar year? How is your visibility in terms of lead times and are people able to deliver on time or is it constantly fluctuating right now?

First of all, I would character it as kind of fluid and ongoing and we would definitely say that we see supply chain challenges through the end of the year. And I think I would point back to what I said earlier, my prepared comments, and even last quarter that we are navigating the environment well, and we're extremely proud of our team and that's one of the key differentiators that's helped us to deliver such strong results this quarter.

Got you. And then, one of the things we're starting to hear is the vendor's concern that whenever this supply chain glut ends is that there might be the risk of a lot of inventory. Some are stuck in the channel that might have an impact on sales, I guess can you address, I guess, efforts, the industry and you guys are taking to make sure that doesn't happen at the end of the day?

Well, let me take that one. So Keith, as we're looking at our inventory levels, we've been able to remarkably keep our inventory levels fairly steady as we've gone through this, which really speaks back to the way we're leveraging our balance sheet. And you see that in our ROIC. We're constantly watching the health of our inventory. We don't get too far out and so we're, we're managing that.

Thank you. And I'm showing no further questions and I would like to turn the conference back over to Mr. Steve Jones for any further remarks.

Well thank you. And we'd like to thank everyone for joining us. We expect to hold our next conference call to discuss March 31 quarter results on Tuesday, May 10, 2022.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.