FREE

1QFY25 EPS of $0.16 Beats Consensus and WTR Estimate on Strong Margins; Management Reiterates FY25 Guidance Range

SCS posted 1QFY25 EPS of $0.16 versus 1QFY24 EPS of $0.09, beating consensus of $0.10 and our estimate of $0.11 despite a Y/Y revenue decline of 3.3% (-1% on an organic basis). Total revenue of $727.3 million was slightly below our estimate of $729.6 million. Americas revenue of $554.4 million was down 1% on an organic basis, while International revenue of $172.9 million was down 2% on an organic basis. Order growth in the Americas of +10% and International +2% positive, building on the momentum seen in 2H24. In Americas, large companies continue to be a source of strength. Management noted government and education contributed to the strong order growth this quarter, with K-12 investment at the state level strong and universities looking to upgrading facilities in order to better attract students. Within International, EMEA orders were up 4%, despite Germany seeing a decline, while Asia-Pacific saw a 3% decline despite a strong showing in India. Margin improvement on efficiency gains and pricing power the story here, with gross margin up 103 bps Y/Y to 32.2%, largely on the strength of Americas (+139 bps to 33.4%) despite lower volumes. In addition to better pricing and these operational improvements and efficiency gains, SCS saw a favorable product mix and lower inflation inputs in the quarter, which contributed to the margin improvement. Operating expense discipline also contributed to improved margins. 2QFY25 revenue guidance of $850-875 million in line with current consensus, while adjusted EPS range of $0.36-0.40 above consensus and WTR’s current estimate of $0.30. This seems to suggest management believes current margin strength should continue. FY25 guidance is unchanged, with organic revenue expected to increase between 1% and 5% and FY25 EPS between $0.85 and $1.00. The strength in margins did lead management to express more confidence that FY25 EPS could be at the higher end of this range, however, assuming macro conditions remain benign. The balance sheet remains a strength. SCS has $209 million in cash and short-term securities, which increases to $378 million when including the cash surrender value of company-owned life insurance. Net debt to trailing four-quarter adjusted EBITDA is 0.9x. Returns to shareholders, via dividends and buybacks, remain a priority even as company continues to invest. In the quarter, SCS repurchased 1.5 million shares for $18.7 million and announced a $0.10 dividend. We will publish revised EPS and revenue estimates and our revised model soon.