ScanSource Reports Record Net Sales for First Quarter

Contact: Mary Gentry
Title: Vice President, Treasurer and Investor Relations
Phone: 864.286.4892
Location: Greenville, SC - Worldwide Headquarters
Date: Thursday, October 29, 2015

ScanSource, Inc. (NASDAQ:SCSC), a leading global provider of technology products and solutions, today announced financial results for fiscal year 2016 first quarter ended September 30, 2015.

 

Quarter ended September 30,

 

 

2015

 

2014

 

Change

 

 

(in millions, except per share data)

 

Net sales

$

870.8

 

 

$

791.7

 

 

10

%

 

Operating income

24.4

 

 

29.0

 

 

(16

)%

 

Non-GAAP operating income(1)

28.4

 

 

31.8

 

 

(11

)%

 

GAAP net income

16.0

 

 

19.2

 

 

(17

)%

 

Non-GAAP net income(1)

18.9

 

 

21.6

 

 

(12

)%

 

GAAP diluted EPS

$

0.57

 

 

$

0.67

 

 

(15

)%

 

Non-GAAP diluted EPS(1)

$

0.68

 

 

$

0.75

 

 

(9

)%

 

 

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

Net sales for the quarter ended September 30, 2015 totaled $870.8 million, a 10% increase over net sales of $791.7 million for the quarter ended September 30, 2014. Net sales increased 15% year-over-year in constant currency. The increase in net sales includes a full quarter of results from the acquisitions of Imago and Network1 and approximately a month of results from the acquisition of KBZ.

"We completed our first fiscal quarter with profitability ahead of our expectations in a quarter where we executed well on our strategic initiatives,” said Mike Baur, CEO, ScanSource, Inc.  “We implemented our SAP ERP in North America with minimal disruption to our customers and vendors due to the tireless dedication of our employees.  Our three acquisitions during the past year, Imago, Network1, and KBZ, contributed positively to our growth and strong operating performance.”

Operating income for the quarter ended September 30, 2015 totaled $24.4 million, compared with $29.0 million in the prior year quarter. Non-GAAP operating income for the quarter ended September 30, 2015 of $28.4 million decreased from $31.8 million in the prior year quarter.

On a GAAP basis, net income for the quarter ended September 30, 2015 totaled $16.0 million, or $0.57 per diluted share, compared with net income of $19.2 million, or $0.67 per diluted share, for the prior year quarter. Non-GAAP net income for the quarter ended September 30, 2015 totaled $18.9 million, or $0.68 per diluted share, compared with $21.6 million, or $0.75 per diluted share in the prior year quarter.  Average diluted shares for first quarter 2016 totaled 27.9 million, down 3% from 28.8 million shares for the prior year quarter.

Completion of the Acquisition of KBZ

On September 4, 2015, ScanSource completed its acquisition of KBZ, an award-winning Cisco Authorized Distributor specializing in video conferencing, services, and cloud.  Founded in 1987 and based in Doylestown, Pennsylvania, KBZ operates in the United States and has approximately 75 employees.  ScanSource's first quarter results included KBZ from the September 4, 2015 acquisition date.

Share Repurchase Update

Under the Company's $120 million share repurchase authorization through September 30, 2015, the Company has repurchased approximately 1.6 million shares for approximately $61 million, having executed over 50% of the total authorization.  During the quarter ended September 30, 2015, the Company repurchased approximately 1.15 million shares for approximately $42 million.

Forecast for Next Quarter

The Company announced its current expectations for the second quarter of fiscal year 2016. ScanSource expects net sales for the quarter ending December 31, 2015 to range from $900 million to $980 million and non-GAAP diluted earnings per share to range from $0.72 to $0.80 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, October 29, 2015 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; 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 discusses 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 better 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, and data networking. ScanSource's teams provide value-added solutions and operate from two technology segments, Worldwide Barcode & Security and Worldwide Communications & Services. ScanSource is committed to helping its reseller customers choose, configure and deliver the industry's best products 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)

 

 

September 30, 2015

 

June 30, 2015*

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

41,239

 

 

$

121,646

 

Accounts receivable, less allowance of $31,149 at September 30, 2015

 

588,008

 

 

522,532

 

and $32,589 at June 30, 2015

 

 

 

 

Inventories

 

588,195

 

 

553,063

 

Prepaid expenses and other current assets

 

69,602

 

 

46,917

 

Deferred income taxes

 

19,787

 

 

20,556

 

Total current assets

 

1,306,831

 

 

1,264,714

 

Property and equipment, net

 

45,461

 

 

46,574

 

Goodwill

 

83,251

 

 

66,509

 

Net identifiable intangible assets

 

57,459

 

 

46,272

 

Other non-current assets

 

50,265

 

 

52,872

 

Total assets

 

$

1,543,267

 

 

$

1,476,941

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

Current debt

 

$

1,700

 

 

$

2,860

 

Accounts payable

 

516,146

 

 

501,329

 

Accrued expenses and other current liabilities

 

87,747

 

 

81,000

 

Current portion of contingent consideration

 

15,456

 

 

9,391

 

Income taxes payable

 

11,190

 

 

4,180

 

Total current liabilities

 

632,239

 

 

598,760

 

Deferred income taxes

 

3,559

 

 

3,773

 

Long-term debt

 

5,769

 

 

5,966

 

Borrowings under revolving credit facility

 

87,000

 

 

 

Long-term portion of contingent consideration

 

13,601

 

 

24,569

 

Other long-term liabilities

 

36,406

 

 

34,888

 

Total liabilities

 

778,574

 

 

667,956

 

Shareholders' equity:

 

 

 

 

Common stock

 

116,849

 

 

157,172

 

Retained earnings

 

732,311

 

 

716,315

 

Accumulated other comprehensive income (loss)

 

(84,467

)

 

(64,502

)

Total shareholders' equity

 

764,693

 

 

808,985

 

Total liabilities and shareholders' equity

 

$

1,543,267

 

 

$

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 September 30,

 

 

2015

 

2014

Net sales

 

$

870,829

 

 

$

791,720

 

Cost of goods sold

 

783,277

 

 

714,075

 

Gross profit

 

87,552

 

 

77,645

 

Selling, general and administrative expenses

 

61,547

 

 

48,155

 

Change in fair value of contingent consideration

 

1,564

 

 

513

 

Operating income

 

24,441

 

 

28,977

 

Interest expense

 

281

 

 

190

 

Interest income

 

(942

)

 

(835

)

Other, net

 

680

 

 

386

 

Income before income taxes

 

24,422

 

 

29,236

 

Provision for income taxes

 

8,426

 

 

10,028

 

Net income

 

$

15,996

 

 

$

19,208

 

Per share data:

 

 

 

 

Net income per common share, basic

 

$

0.58

 

 

$

0.67

 

Weighted-average shares outstanding, basic

 

27,702

 

 

28,544

 

 

 

 

 

 

Net income per common share, diluted

 

$

0.57

 

 

$

0.67

 

Weighted-average shares outstanding, diluted

 

27,929

 

 

28,794

 

 

 

ScanSource, Inc. and Subsidiaries

Supplementary Information (Unaudited)

(in thousands)

 

 

 

 

 

 

Net Sales by Segment:

 

 

 

 

 

 

Quarter ended

September 30,

 

 

 

Non-GAAP      % Change

 

2015

 

2014

 

% Change

 

Constant Currency(a)

Worldwide Barcode & Security

$

515,669

 

 

$

500,960

 

 

2.9

%

 

9.8

%

Worldwide Communications & Services

355,160

 

 

290,760

 

 

22.1

%

 

23.1

%

Consolidated

$

870,829

 

 

$

791,720

 

 

10.0

%

 

14.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales by Geography:

 

 

 

 

 

 

Quarter ended

September 30,

 

 

 

Non-GAAP     % Change

 

2015

 

2014

 

% Change

 

Constant Currency(b)

North American (U.S. and Canada)

$

641,931

 

 

$

595,791

 

 

7.7

%

 

7.7

%

International

228,898

 

 

195,929

 

 

16.8

%

 

35.8

%

Consolidated

$

870,829

 

 

$

791,720

 

 

10.0

%

 

14.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

 

 

 

 

 

 

 

(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 September 30, 2015 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended September 30, 2014.  Worldwide Barcode & Security net sales excluding the translation impact of foreign currencies for the quarter ended September 30, 2015, as adjusted, totaled $549.9 million.  Worldwide Communications & Services net sales excluding the translation impact of foreign currencies for the quarter ended September 30, 2015, as adjusted, totaled $358 million.

(b) 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 September 30, 2015 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended September 30, 2014.  International net sales excluding the translation impact of foreign currencies for the quarter ended September 30, 2015 totaled $266 million.

 

 

 

 

 

 

 

 

 

 

ScanSource, Inc. and Subsidiaries

Supplementary Information (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

Non-GAAP Financial Information:

 

 

 

Quarter ended September 30, 2015

 

Operating income

 

Pre-tax income

 

Net income

 

Diluted EPS

GAAP measure

$

24,441

 

 

$

24,422

 

 

$

15,996

 

 

$

0.57

 

Adjustments:

 

 

 

 

 

 

 

Amortization of intangible assets

2,185

 

 

2,185

 

 

1,597

 

 

0.06

 

Change in fair value of contingent consideration

1,564

 

 

1,564

 

 

1,080

 

 

0.04

 

Acquisition costs (a)

220

 

 

220

 

 

220

 

 

0.01

 

Non-GAAP measure

$

28,410

 

 

$

28,391

 

 

$

18,893

 

 

$

0.68

 

 

 

 

 

 

 

 

 

 

Quarter ended September 30, 2014

 

Operating income

 

Pre-tax income

 

Net income

 

Diluted EPS

GAAP measure

$

28,977

 

 

$

29,236

 

 

$

19,208

 

 

$

0.67

 

Adjustments:

 

 

 

 

 

 

 

Amortization of intangible assets

992

 

 

992

 

 

660

 

 

0.02

 

Change in fair value of contingent consideration

513

 

 

513

 

 

341

 

 

0.01

 

Acquisition costs (a)

1,350

 

 

1,350

 

 

1,350

 

 

0.05

 

Non-GAAP measure

$

31,832

 

 

$

32,091

 

 

$

21,559

 

 

$

0.75

 

 

 

 

 

 

 

 

 

(a) Acquisition costs are non-deductible for tax purposes.

 

 

 

 

 

 

 

 

ScanSource, Inc. and Subsidiaries

Supplementary Information (Unaudited)

(in thousands)

 

 

 

 

 

 

Non-GAAP Financial Information:

 

 

Quarter ended

September 30,

 

 

 

2015

 

2014

 

Return on invested capital (ROIC),  annualized (a)

 

14.6

%

 

16.2

%

 

 

 

 

 

 

 

Reconciliation of Net Income to Adjusted EBITDA

 

 

 

 

 

Net income - GAAP

 

$

15,996

 

 

$

19,208

 

 

Plus:  Income taxes

 

8,426

 

 

10,028

 

 

Plus:  Interest expense

 

281

 

 

190

 

 

Plus: Depreciation and amortization

 

3,938

 

 

1,897

 

 

EBITDA

 

28,641

 

 

31,323

 

 

Adjustments:

 

 

 

 

 

   Change in fair value of contingent consideration

 

1,564

 

 

513

 

 

   Acquisition costs

 

220

 

 

1,350

 

 

Adjusted EBITDA (numerator for ROIC) (non-GAAP)

 

$

30,425

 

 

$

33,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Invested Capital Calculation

 

 

 

 

 

Equity - beginning of quarter/year

 

$

808,985

 

 

$

802,643

 

 

Equity - end of quarter/year

 

764,693

 

 

810,265

 

 

Adjustments:

 

 

 

 

 

   Change in fair value of contingent consideration, net of tax

 

1,080

 

 

341

 

 

   Acquisition costs, net of tax

 

220

 

 

1,350

 

 

Average equity

 

787,489

 

 

807,300

 

 

Average funded debt (b)

 

39,124

 

 

6,205

 

 

Invested capital (denominator for ROIC) (non-GAAP)

 

$

826,613

 

 

$

813,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

 

 

 

 

 

(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.