ScanSource Reports Third Quarter Results - Net Sales Up, EPS Up

GREENVILLE, SC -- May 10, 2016 -- ScanSource, Inc. (NASDAQ:SCSC), a leading global provider of technology products and solutions, today announced financial results for fiscal year 2016 third quarter ended March 31, 2016.
  Quarter ended March 31,
  2016   2015   Change
  (in millions, except per share data)
Net sales $ 798.4     $ 763.2     5 %
Operating income 21.6     21.5     1 %
Non-GAAP operating income(1) 25.3     24.2     5 %
GAAP net income 14.0     12.9     8 %
Non-GAAP net income(1) 16.5     14.9     11 %
GAAP diluted EPS $ 0.54     $ 0.45     20 %
Non-GAAP diluted EPS(1) $ 0.64     $ 0.52     23 %
           

(1) A reconciliation of non-GAAP financial information to GAAP financial information is presented in the following Supplementary Information (Unaudited) tables.

“Although sales fell below our expected range primarily from a lower volume of big deals, we are pleased to deliver EPS growth of 20%,” said Mike Baur, CEO, ScanSource, Inc.  “Our 10.6% gross margin reflects the value-added services we provide to our customers and vendors.”

Net sales for the quarter ended March 31, 2016 increased 5% year-over-year to $798.4 million. The increase in net sales includes the acquisition of KBZ in September 2015. Net sales in constant currency excluding acquisitions decreased 1% year-over-year.

Operating income for the quarter ended March 31, 2016 totaled $21.6 million. Non-GAAP operating income of $25.3 million increased 5% year-over-year from $24.2 million.

On a GAAP basis, net income for the quarter ended March 31, 2016 totaled $14.0 million, or $0.54 per diluted share, compared with net income of $12.9 million, or $0.45 per diluted share, for the prior year quarter. Non-GAAP net income for the quarter ended March 31, 2016 of $16.5 million increased 11%, and non-GAAP diluted earnings per share of $0.64 increased 23% year-over-year.

Share Repurchase Update

During the quarter ended March 31, 2016, ScanSource repurchased approximately 0.9 million shares for an aggregate purchase price of approximately $26.8 million. Under the Company’s $120 million share repurchase authorization through March 31, 2016, ScanSource has repurchased approximately 3.3 million shares for approximately $117.2 million, having executed over 97% of the total authorization.

 

Forecast for Next Quarter

The Company announced its current expectations for the fourth quarter of fiscal year 2016. ScanSource expects net sales for the quarter ending June 30, 2016 to range from $900 million to $950 million and non-GAAP diluted earnings per share to range from $0.70 to $0.74 per share. Non-GAAP diluted earnings per share exclude amortization of intangibles, change in fair value of contingent consideration and acquisition costs.

 

Webcast Details

ScanSource will present additional information about its financial results and outlook in a conference call with presentation slides today, May 10, 2016 at 5:00 p.m. (ET).  A webcast of the call and accompanying presentation slides will be available for all interested parties and can be accessed at www.scansource.com (Investor Relations section).  The webcast will be available for replay for 60 days.


 

Safe Harbor Statement

This press release contains comments that are “forward-looking” statements that involve risks and uncertainties; these statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Any number of important factors could cause actual results to differ materially from anticipated or forecasted results, including, but not limited to, utilization and further implementation of the Company's new ERP system; risks in connection with our growth which includes strategic acquisitions; expanded international operations that expose the Company to greater risks than its operations in domestic markets; risks associated with consolidation of the Company's vendors; risks in connection with compliance with laws and regulations governing the Company's international business; macroeconomic circumstances that could impact the business, such as currency fluctuations, credit market conditions, and an economic downturn; expectations of market demand trends; the ability to forecast volatility in earnings resulting from the quarterly revaluation of the Company's earnout obligations; the timing and amount of any share repurchases; the exercise of discretion by the Company to make any repurchase or continue the share repurchase authorization; and changes to the source of funds for any repurchases. For more information concerning factors that could cause actual results to differ from anticipated results, see the Company's annual report on Form 10-K for the year ended June 30, 2015, filed with the Securities and Exchange Commission. Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Information

In addition to disclosing results that are determined in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the Company also discloses certain non-GAAP financial measures, which are summarized below. Non-GAAP financial measures are used to better understand and evaluate performance, including comparisons from period to period. Non-GAAP results exclude amortization of intangible assets related to acquisitions and change in fair value of contingent consideration.

Net sales on a constant currency basis: The Company discloses the percentage change in net sales excluding the translation impact from changes in foreign currency exchange rates between reporting periods. This measure enhances comparability between periods to help analyze underlying trends.

Non-GAAP operating income, non-GAAP net income and non-GAAP EPS: To evaluate current period performance on a clearer and more consistent basis with prior periods, the Company discloses non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, change in the fair value of contingent consideration, and other non-GAAP adjustments. Non-GAAP operating income, non-GAAP net income, and non-GAAP EPS measures are useful in assessing and understanding the Company's operating performance, especially when comparing results with previous periods or forecasting performance for future periods.

Return on invested capital ("ROIC"): Management uses ROIC as a performance measurement to assess efficiency in allocating capital under the Company's control to generate returns. Management believes this metric balances the Company's operating results with asset and liability management, is not impacted by capitalization decisions and is considered to have a strong correlation with shareholder value creation. In addition, it is easily computed, communicated and understood. ROIC also provides management a measure of the Company's profitability on a basis more comparable to historical or future periods.

ROIC assists management in comparing the Company's performance over various reporting periods on a consistent basis because it removes from operating results the impact of items that do not reflect core operating performance. Adjusted earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") excludes the change in fair value of contingent consideration, in addition to other non-GAAP adjustments. Management believes the calculation of ROIC provides useful information to investors and is an additional relevant comparison of the Company's performance during the year. In addition, the Company's Board of Directors uses ROIC in evaluating business and management performance. Certain management incentive compensation targets are set and measured relative to ROIC.

These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that the Company reports may not be comparable to similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with GAAP. A reconciliation of the Company's non-GAAP financial information to GAAP is set forth in the following Supplementary Information (Unaudited) tables.

About ScanSource, Inc.

 

ScanSource, Inc. (NASDAQ: SCSC) is a leading global provider of technology products and solutions, focusing on point-of-sale (POS), barcode, physical security, video, voice, data networking and emerging technologies. ScanSource's teams provide value-added solutions and operate from two segments, Worldwide Barcode & Security and Worldwide Communications & Services. ScanSource is committed to helping its reseller customers choose, configure and deliver the industry's best solutions across almost every vertical market in North America, Latin America and Europe. Founded in 1992, the Company is headquartered in Greenville, South Carolina and was named one of the 2015 Best Places to Work in South Carolina. ScanSource ranks #775 on the Fortune 1000. For more information, visit www.scansource.com.


ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
    March 31, 2016   June 30, 2015*
Assets        
Current assets:        
Cash and cash equivalents   $ 40,849     $ 121,646  
Accounts receivable, less allowance of $33,188 at March 31, 2016 and $32,589 at June 30, 2015   522,693     522,532  
Inventories   568,247     553,063  
Prepaid expenses and other current assets   54,249     46,917  
Deferred income taxes   17,811     20,556  
Total current assets   1,203,849     1,264,714  
Property and equipment, net   50,076     46,574  
Goodwill   90,912     66,509  
Net identifiable intangible assets   53,064     46,272  
Other non-current assets   41,560     52,872  
Total assets   $ 1,439,461     $ 1,476,941  
         
Liabilities and Shareholders' Equity        
Current liabilities:        
Current debt   $ 774     $ 2,860  
Accounts payable   431,913     501,329  
Accrued expenses and other current liabilities   98,429     81,000  
Current portion of contingent consideration   12,915     9,391  
Income taxes payable   3,218     4,180  
Total current liabilities   547,249     598,760  
Deferred income taxes   3,403     3,773  
Long-term debt   5,429     5,966  
Borrowings under revolving credit facility   73,641      
Long-term portion of contingent consideration   14,226     24,569  
Other long-term liabilities   38,139     34,888  
Total liabilities   682,087     667,956  
Shareholders' equity:        
Common stock   67,534     157,172  
Retained earnings   767,009     716,315  
Accumulated other comprehensive income (loss)   (77,169 )   (64,502 )
Total shareholders' equity   757,374     808,985  
Total liabilities and shareholders' equity   $ 1,439,461     $ 1,476,941  
* Derived from audited financial statements.
ScanSource, Inc. and Subsidiaries
Condensed Consolidated Income Statements (Unaudited)
(in thousands, except per share data)
                 
    Quarter ended March 31,   Nine Months ended March 31,
    2016   2015   2016   2015
Net sales   $ 798,404     $ 763,203     $ 2,662,754     $ 2,361,941  
Cost of goods sold   713,928     683,187     2,390,093     2,126,168  
Gross profit   84,476     80,016     272,661     235,773  
Selling, general and administrative expenses   61,690     58,235     190,202     158,047  
Change in fair value of contingent consideration   1,139     285     4,520     1,262  
Operating income   21,647     21,496     77,939     76,464  
Interest expense   694     891     1,684     1,288  
Interest income   (800 )   (731 )   (2,509 )   (2,057 )
Other, net   400     1,515     1,357     2,238  
Income before income taxes   21,353     19,821     77,407     74,995  
Provision for income taxes   7,311     6,878     26,713     26,023  
Net income   $ 14,042     $ 12,943     $ 50,694     $ 48,972  
Per share data:                
Net income per common share, basic   $ 0.54     $ 0.45     $ 1.90     $ 1.71  
Weighted-average shares outstanding, basic   25,863     28,646     26,741     28,590  
                 
Net income per common share, diluted   $ 0.54     $ 0.45     $ 1.88     $ 1.70  
Weighted-average shares outstanding, diluted   25,967     28,855     26,908     28,825  
   
ScanSource, Inc. and Subsidiaries  
Supplementary Information (Unaudited)  
(in thousands)  
         
Net Sales by Segment:        
  Quarter ended March 31,      
Worldwide Barcode & Security: 2016   2015   % Change  
Net sales, as reported $ 532,534     $ 482,780     10.3 %  
Foreign exchange impact (a) 11,152            
Net sales, constant currency 543,686     482,780     12.6 %  
Less: Acquisitions (63,637 )          
Net sales, constant currency excluding acquisitions $ 480,049     $ 482,780     (0.6 )%  
             
Worldwide Communications & Services:            
Net sales, as reported $ 265,870     $ 280,423     (5.2 )%  
Foreign exchange impact (a) 12,193            
Net sales, constant currency 278,063     280,423     (0.8 )%  
Less: Acquisitions            
Net sales, constant currency excluding acquisitions $ 278,063     $ 280,423     (0.8 )%  
             
Consolidated:            
Net sales, as reported $ 798,404     $ 763,203     4.6 %  
Foreign exchange impact (a) 23,345            
Net sales, constant currency 821,749     763,203     7.7 %  
Less: Acquisitions (63,637 )          
Net sales, constant currency excluding acquisitions $ 758,112     $ 763,203     (0.7 )%  
             
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended March 31, 2016 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended March 31, 2015.
ScanSource, Inc. and Subsidiaries  
Supplementary Information (Unaudited)  
(in thousands)  
         
Net Sales by Segment:        
  Nine Months ended March 31,      
Worldwide Barcode & Security: 2016   2015   % Change  
Net sales, as reported $ 1,795,733     $ 1,578,723     13.7 %  
Foreign exchange impact (a) 77,663            
Net sales, constant currency 1,873,396     1,578,723     18.7 %  
Less: Acquisitions (229,721 )          
Net sales, constant currency excluding acquisitions $ 1,643,675     $ 1,578,723     4.1 %  
             
Worldwide Communications & Services:            
Net sales, as reported $ 867,021     $ 783,218     10.7 %  
Foreign exchange impact (a) 19,944            
Net sales, constant currency 886,965     783,218     13.2 %  
Less: Acquisitions (118,926 )   (4,686 )      
Net sales, constant currency excluding acquisitions $ 768,039     $ 778,532     (1.3 )%  
             
Consolidated:            
Net sales, as reported $ 2,662,754     $ 2,361,941     12.7 %  
Foreign exchange impact (a) 97,607            
Net sales, constant currency 2,760,361     2,361,941     16.9 %  
Less: Acquisitions (348,647 )   (4,686 )      
Net sales, constant currency excluding acquisitions $ 2,411,714     $ 2,357,255     2.3 %  
             
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the nine months ended March 31, 2016 into U.S. dollars using the weighted average foreign exchange rates for the nine months ended March 31, 2015.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
               
Net Sales by Geography:          
  Quarter ended March 31,       Non-GAAP     % Change
  2016   2015   % Change   Constant Currency(a)
United States $ 591,663     $ 534,742     10.6 %   10.6 %
International 206,741     228,461     (9.5 )%   0.7 %
Consolidated $ 798,404     $ 763,203     4.6 %   7.7 %
               
               
  Nine Months ended March 31,       Non-GAAP     % Change
  2016   2015   % Change   Constant Currency(a)
United States $ 1,969,236     $ 1,717,600     14.7 %   14.7 %
International 693,518     644,341     7.6 %   22.8 %
        Consolidated $ 2,662,754     $ 2,361,941     12.7 %   16.9 %
               
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter and nine months ended March 31, 2016 into U.S. dollars using the weighted average foreign exchange rates for the quarter and nine months ended March 31, 2015.   International net sales excluding the translation impact of foreign currencies for the quarter and nine months ended March 31, 2016 totaled $230.1 million and $791.1 million, respectively.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
               
Non-GAAP Financial Information:    
  Quarter ended March 31, 2016
  Operating income   Pre-tax income   Net income   Diluted EPS
GAAP measure $ 21,647     $ 21,353     $ 14,042     $ 0.54  
Adjustments:              
Amortization of intangible assets 2,507     2,507     1,703     0.07  
Change in fair value of contingent consideration 1,139     1,139     748     0.03  
Acquisition costs (a) 29     29     29      
Non-GAAP measure $ 25,322     $ 25,028     $ 16,522     $ 0.64  
               
  Quarter ended March 31, 2015
  Operating income   Pre-tax income   Net income   Diluted EPS
GAAP measure $ 21,496     $ 19,821     $ 12,943     $ 0.45  
Adjustments:              
Amortization of intangible assets 2,114     2,114     1,464     0.05  
Change in fair value of contingent consideration 285     285     200     0.01  
Acquisition costs (a) 292     292     292     0.01  
Non-GAAP measure $ 24,187     $ 22,512     $ 14,899     $ 0.52  
               
  Nine months ended March 31, 2016
  Operating income   Pre-tax income   Net income   Diluted EPS
GAAP measure $ 77,939     $ 77,407     $ 50,694     $ 1.88  
Adjustments:              
Amortization of intangible assets 7,237     7,237     5,032     0.19  
Change in fair value of contingent consideration 4,520     4,520     3,072     0.11  
Acquisition costs (a) 309     309     309     0.01  
Non-GAAP measure $ 90,005     $ 89,473     $ 59,107     $ 2.19  
               
  Nine months ended March 31, 2015
  Operating income   Pre-tax income   Net income   Diluted EPS
GAAP measure $ 76,464     $ 74,995     $ 48,972     $ 1.70  
Adjustments:              
Amortization of intangible assets 4,550     4,550     3,149     0.11  
Change in fair value of contingent consideration 1,262     1,262     887     0.03  
Acquisition costs (a) 3,116     3,116     3,116     0.11  
Non-GAAP measure $ 85,392     $ 83,923     $ 56,124     $ 1.95  
               
(a) Acquisition costs are non-deductible for tax purposes.              
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
                   
Non-GAAP Financial Information:        
   

Quarter ended

March 31,

  Nine Months ended March 31,  
    2016   2015   2016   2015  
Return on invested capital (ROIC),   annualized (a)   12.3 %   12.1 %   14.5 %   14.5 %  
                   
Reconciliation of Net Income to Adjusted EBITDA                  
Net income - GAAP   $ 14,042     $ 12,943     $ 50,694     $ 48,972    
Plus:   Income taxes   7,311     6,878     26,713     26,023    
Plus:   Interest expense   694     891     1,684     1,288    
Plus: Depreciation and amortization   4,281     3,710     12,570     8,050    
EBITDA   26,328     24,422     91,661     84,333    
Adjustments:                  
    Change in fair value of contingent consideration   1,139     285     4,520     1,262    
    Acquisition costs   29     292     309     3,116    
Adjusted EBITDA (numerator for ROIC) (non-GAAP)   $ 27,496     $ 24,999     $ 96,490     $ 88,711    
                   
                   
Invested Capital Calculation                  
Equity - beginning of quarter   $ 754,794     $ 818,748     $ 808,985     $ 802,643    
Equity - end of quarter   757,374     799,051     757,374     799,051    
Adjustments:                  
    Change in fair value of contingent consideration, net of tax   748     200     3,072     887    
    Acquisition costs, net of tax   29     292     309     3,116    
Average equity   756,473     809,146     784,870     802,849    
Average funded debt (b)   146,213     32,046     100,755     14,432    
Invested capital (denominator for ROIC) (non-GAAP)   $ 902,686     $ 841,192     $ 885,625     $ 817,281    
                   
                   
                   
(a) Calculated as net income plus interest expense, income taxes, depreciation and amortization (EBITDA), plus change in fair value of contingent consideration and other adjustments, annualized and divided by invested capital for the period. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period.  
(b) Average funded debt is calculated as the average daily amounts outstanding on short-term and long-term interest-bearing debt.

 

 

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