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Steel Connect, Inc. (STCN)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 FY2024 revenue declined 19.5% year over year to $41.3M on lower volumes in computing and consumer electronics; gross margin held at 27.8% and diluted EPS was $0.15 .
  • Adjusted EBITDA fell to $3.3M (8.0% margin) from $7.3M (14.2% margin) a year ago, reflecting lower volumes; interest income on money market funds ($3.2M) supported net income of $4.4M .
  • Liquidity remained a standout: cash and cash equivalents rose to $276.7M with net debt of $(264.4)M; free cash flow was $6.0M in the quarter .
  • No formal guidance or earnings call transcript was provided; near‑term stock narrative hinges on sustained margin discipline, interest income tailwind, and visibility on demand recovery in computing/consumer electronics .

What Went Well and What Went Wrong

  • What Went Well

    • Gross margin held flat at 27.8% despite a 19.5% revenue decline YoY, indicating pricing/mix discipline and cost control .
    • Strong balance sheet and liquidity: cash of $276.7M, net debt of $(264.4)M, and FCF of $6.0M in Q1 .
    • Interest income tailwind: $3.2M interest income on money market funds in Q1 bolstered other income and supported profitability .

  • What Went Wrong

    • Top-line pressure: revenue fell 19.5% YoY on lower volumes with clients in computing and consumer electronics; similar commentary persisted in recent quarters .
    • Adjusted EBITDA compressed to $3.3M (8.0% margin) vs. $7.3M (14.2% margin) YoY on lower sales volume .
    • Limited external signaling: no formal guidance or earnings call transcript for Q1, reducing clarity on demand trajectory and strategic initiatives .

Financial Results

Quarterly comparisons (oldest → newest):

MetricQ3 2023Q4 2023Q1 2024
Revenue ($M)$46.142 $40.804 $41.341
Gross Margin (%)28.0% 27.1% 27.8%
Net Income ($M)$3.029 $8.149 $4.436
Diluted EPS ($)$0.04 $0.29 $0.15
Adjusted EBITDA ($M)$5.233 $10.560 $3.311
Adjusted EBITDA Margin (%)11.3% 25.9% 8.0%

Q1 FY2024 YoY context:

  • Revenue: $41.3M vs $51.4M, down 19.5% YoY, primarily due to lower volumes in computing and consumer electronics .
  • Gross margin: 27.8% vs 27.8% YoY (flat) .
  • Net income: $4.4M vs $5.0M YoY (down $0.5M), reflecting lower gross profit partially offset by lower opex/non‑operating expenses .

Segment breakdown (Supply Chain is the sole segment):

SegmentQ3 2023 Revenue ($M)Q3 2023 Op Inc ($M)Q4 2023 Revenue ($M)Q4 2023 Op Inc ($M)Q1 2024 Revenue ($M)Q1 2024 Op Inc ($M)
Supply Chain$46.142 $5.249 $40.804 $3.328 $41.341 $2.675

Key performance indicators:

KPIQ3 2023Q4 2023Q1 2024
Cash & Cash Equivalents ($M)$62.738 $121.372 $276.705
Total Debt ($M)$11.543 (total debt, net) $12.461 (total debt, net) $12.3 fair value outstanding debt
Net Debt ($M)$(48.798) $(108.911) $(264.378)
Cash from Operations ($M)$(0.588) $8.523 $6.583
Free Cash Flow ($M)$(1.033) $5.250 $6.031

Estimates vs actuals:

  • S&P Global consensus estimates for Q1 FY2024 EPS/Revenue/EBITDA were unavailable for STCN; estimate comparisons are not presented.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Company guidance (all metrics)FY2024/Q2 FY2024N/ANo formal guidance provided in Q1 FY2024 materials—

Earnings Call Themes & Trends

Note: No Q1 FY2024 earnings call transcript located; themes below synthesize press releases.

TopicPrevious Mentions (Q3 2023 and Q4 2023)Current Period (Q1 2024)Trend
Demand/Volumes in Computing & Consumer ElectronicsQ3: Lower demand and loss of certain programs reduced revenue . Q4: Lower volumes in computing and consumer electronics; exit of medical device customer .Revenue down 19.5% YoY primarily from lower volumes in computing and consumer electronics .Persistent headwind YoY; sequential revenue modestly higher vs Q4 (calc. from cited values)
Gross MarginQ3: Margin rose to 28.0% on mix and lower materials . Q4: Margin 27.1% on higher value‑added mix .Margin 27.8%, flat YoY despite revenue decline .Stable/high-20s
FX ImpactQ3: FX impact insignificant to revenue/margin . Q4: FX impact insignificant .FX impact insignificant .Unchanged/immaterial
Other (Interest Income/Other Gains)Q3: Other gains included Tallan sale, settlement, interest income . Q4: $6.4M other gains incl. $5.1M Aerojet-related gain and $0.7M interest income .$3.2M interest income on money market funds; modest FX gains and sublease income .Ongoing non‑operating income tailwind (interest)
Accounting/Pushdown & AmortizationQ4: Pushdown accounting drove $0.9M amortization .$0.9M amortization from pushdown accounting intangible recognition .Continuing non‑cash amortization

Management Commentary

  • “Net revenue for the first quarter decreased $10.0 million, or 19.5%, as compared to the same period in the prior fiscal year. This decrease … was primarily driven by lower volumes associated with clients in the computing and consumer electronics markets.”
  • “The Company recorded $3.5 million to Other gains, net for the first quarter, primarily due to: (1) $3.2 million interest income on money market funds, (2) $0.4 million net foreign exchange gains, and (3) $0.2 million sublease income…”
  • “As of October 31, 2023, the Company had cash and cash equivalents of $276.7 million … [and] the fair value of outstanding debt was $12.3 million” .
  • “Gross profit … decreased by approximately $2.8 million … The gross profit percentage remained relatively unchanged from the prior period.”

Q&A Highlights

  • No Q1 FY2024 earnings call transcript was available in the company document set; as a result, there are no Q&A highlights to report.

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q1 FY2024 EPS, revenue, and EBITDA were unavailable for STCN; comparisons to consensus are not presented.
  • Given limited external guidance and coverage, future estimate adjustments (if any) will likely track end‑market demand updates in computing/consumer electronics and interest income trends disclosed in subsequent filings .

Key Takeaways for Investors

  • Balance sheet strength is a core pillar: $276.7M cash, net debt $(264.4)M, providing strategic flexibility and downside protection .
  • Revenue headwinds remain concentrated in computing and consumer electronics; watch for sequential stabilization or new program ramps to offset declines .
  • Margins have held in the high‑20s despite lower volumes, suggesting resilient value‑added mix and cost controls; sustaining this amid volume recovery would be a catalyst .
  • Non‑operating income (notably interest income) is materially supporting earnings; changes in cash deployment or rates could affect this tailwind .
  • Adjusted EBITDA compression this quarter underscores sensitivity to revenue; execution on cost levers and mix will be key to restoring double‑digit EBITDA margins seen in Q4 .
  • Absence of formal guidance and a call limits visibility; next updates should focus on client pipeline, segment demand signals, and capital allocation priorities .
  • Short term: trading likely keyed to signs of demand stabilization and continued cash generation. Medium term: thesis rests on monetizing cash/carry, margin durability, and re‑acceleration in end markets .