Record Quarterly Net Sales; EPS Exceeds
Forecast Range
ScanSource, Inc. (NASDAQ: SCSC), a leading
global provider of technology products and solutions, today
announced financial results for the second quarter ended
December 31, 2018.
Quarter ended December 31, 2018
2017 Change (in millions,
except per share data) Net sales $ 1,046.0
$ 1,032.2 1 %
Operating income
29.7 22.3 33 %
Non-GAAP operating income(1)
36.7 34.7 6 %
GAAP net income 20.0 8.0 151 %
Non-GAAP net income(1)
25.4 23.0 10 %
GAAP diluted
EPS $ 0.78 $ 0.31 152 %
Non-GAAP diluted
EPS(1)
$ 0.99 $ 0.90 10 % (1) Non-GAAP
results exclude amortization of intangible assets related to
acquisitions, change in fair value of contingent consideration and
other non-GAAP items. A reconciliation of non-GAAP financial
information to GAAP financial information is presented in the
Supplementary Information (Unaudited) below.
"We are very pleased with our outstanding second quarter results
and continued successful execution of our strategic plan," said
Mike Baur, CEO, ScanSource, Inc. "Our strategic plan is focused on
building end customer solutions and enabling our channel partners
to deliver more value."
Quarterly Results
For the second quarter of fiscal year 2019, net sales increased
1% to $1,046.0 million, reflecting sales growth in North America
and Brazil. Organic sales, which exclude the impact from foreign
currency translation and recent acquisitions, grew 3.2%
year-over-year. Operating income increased to $29.7 million, as the
expense for the change in contingent consideration related to
Network1 decreased. Non-GAAP operating income increased 6% to $36.7
million, driven by higher sales volumes and higher margins.
On a GAAP basis, net income for the second quarter of fiscal
year 2019 totaled $20.0 million, or $0.78 per diluted share,
compared with net income of $8.0 million, or $0.31 per diluted
share, for the prior-year quarter. Non-GAAP net income for the
second quarter of fiscal year 2019 increased 10% to $25.4 million,
or $0.99 per diluted share, compared to $23.0 million, or $0.90 per
diluted share, for the prior-year quarter.
Forecast for Next Quarter
For the third quarter of fiscal year 2019, ScanSource expects
net sales to range from $910 million to $970 million, diluted
earnings per share to range from $0.48 to $0.54 per share and
non-GAAP diluted earnings per share to range from $0.76 to $0.82
per share. Non-GAAP diluted earnings per share exclude amortization
of intangible assets related to acquisitions, change in fair value
of contingent consideration and other non-GAAP items.
Webcast Details and CFO Commentary
At approximately 4:15 p.m. ET today, a CFO commentary, as a
supplement to this press release and the Company's conference call,
will be available on ScanSource's website, www.scansource.com
(Investor Relations section). ScanSource will present additional
information about its financial results and outlook in a conference
call today, February 5, 2019, at 5:00 p.m. ET. A webcast of
the call will be available for all interested parties and can be
assessed at www.scansource.com (Investor Relations section). The
webcast will be available for replay for 60 days.
Safe Harbor Statement
This press release contains “forward-looking” statements,
including the forecast of sales and earnings per share for next
quarter, that involve risks and uncertainties. Any number of
factors could cause actual results to differ materially from
anticipated or forecasted results, including, but not limited to,
changes in interest and exchange rates and regulatory regimes
impacting the Company's international operations, the impact of tax
reform laws, the failure of acquisitions to meet the Company's
expectations, the failure to manage and implement the Company's
organic growth strategy, credit risks involving the Company's
larger customers and vendors, termination of the Company's
relationship with key vendors or a significant modification of the
terms under which it operates with a key vendor, the decline in
demand for the products and services that the Company provides,
reduced prices for the products and services that the Company
provide due both to competitor and customer action, and other
factors set forth in the "Risk Factors" contained in the Company's
annual report on Form 10-K for the year ended June 30, 2018, 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 understand and evaluate performance, including
comparisons from period to period. Non-GAAP results exclude
amortization of intangible assets related to acquisitions, change
in fair value of contingent consideration, acquisition costs and
other non-GAAP adjustments.
Net sales on a constant currency basis, excluding acquisitions:
The Company discloses the percentage change in net sales excluding
the translation impact from changes in foreign currency exchange
rates between reporting periods and excluding the net sales from
acquisitions prior to the first full year from the acquisition
date. This measure enhances the comparability between periods to
help analyze underlying trends on an organic basis.
Non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net
income and non-GAAP diluted earnings per share: To evaluate current
period performance on a more consistent basis with prior periods,
the Company discloses non-GAAP operating income, non-GAAP pre-tax
income, non-GAAP net income and non-GAAP diluted earnings per share
(non-GAAP diluted "EPS"). These non-GAAP results exclude
amortization of intangible assets related to acquisitions, change
in the fair value of contingent consideration, acquisition costs
and other non-GAAP adjustments. Non-GAAP operating income, non-GAAP
net income, and non-GAAP diluted 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 correlates 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. ROIC is calculated as adjusted
EBITDA over invested capital. Adjusted earnings before interest
expense, income taxes, depreciation and amortization ("Adjusted
EBITDA") excludes the change in fair value of contingent
consideration and acquisition costs, in addition to other non-GAAP
adjustments. Invested capital is defined as average equity plus
average daily funded interest-bearing debt for the period.
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.
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 Supplementary
Information (Unaudited) below.
About ScanSource, Inc.
ScanSource, Inc. (NASDAQ: SCSC) is a leading global provider of
technology products and solutions, focusing on point-of-sale (POS),
payments, barcode, physical security, unified communications and
collaboration and telecom and cloud services. ScanSource's teams
provide value-added solutions and operate from two segments:
Worldwide Barcode, Networking & Security, which includes POS
Portal, and Worldwide Communications & Services, which includes
Intelisys and Canpango. ScanSource is committed to helping its
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 and headquartered in
Greenville, South Carolina, ScanSource was named one of the 2018
Best Places to Work in South Carolina and on FORTUNE magazine's
2019 List of World's Most Admired Companies. ScanSource ranks #653
on the Fortune 1000. For more information, visit
www.scansource.com.
ScanSource, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets (Unaudited) (in thousands)
December 31, 2018 June
30, 2018* Assets Current assets: Cash and cash
equivalents $ 22,749 $ 25,530 Accounts receivable, less allowance
of $45,240 at December 31, 2018 and $45,561 at June 30, 2018
708,531 678,940 Inventories 704,444 595,948 Prepaid expenses and
other current assets 59,785 61,744
Total current assets 1,495,509 1,362,162 Property and equipment,
net 73,354 73,042 Goodwill 326,675 298,174 Identifiable intangible
assets, net 129,020 136,806 Deferred income taxes 20,448 22,199
Other non-current assets 50,727 52,912
Total assets $ 2,095,733 $ 1,945,295
Liabilities and Shareholders' Equity Current liabilities:
Accounts payable $ 604,630 $ 562,564 Accrued expenses and other
current liabilities 89,444 90,873 Current portion of contingent
consideration 39,729 42,975 Income taxes payable 2,421 13,348
Current portion of long-term debt 335 551
Total current liabilities 736,559 710,311 Deferred income
taxes 1,958 1,769 Long-term debt, net of current portion 4,764
4,878 Borrowings under revolving credit facility 367,311 244,000
Long-term portion of contingent consideration 32,157 65,258 Other
long-term liabilities 53,481 52,703
Total liabilities 1,196,230 1,078,919 Shareholders' equity: Common
stock 70,912 68,220 Retained earnings 916,636 882,333 Accumulated
other comprehensive income (loss) (88,045 ) (84,177 )
Total shareholders' equity 899,503 866,376
Total liabilities and shareholders' equity $ 2,095,733
$ 1,945,295
* Derived from audited financial
statements.
ScanSource, Inc. and Subsidiaries Condensed
Consolidated Income Statements (Unaudited) (in thousands,
except per share data)
Quarter ended December 31, Six
months ended December 31, 2018 2017 2018
2017 Net sales $ 1,046,021 $ 1,032,212 $ 2,018,921 $
1,956,771 Cost of goods sold 925,543 919,241
1,786,229 1,737,883 Gross profit
120,478 112,971 232,692 218,888 Selling, general and administrative
expenses 80,950 74,763 158,880 147,950 Depreciation expense 3,272
3,467 6,538 6,707 Intangible amortization expense 4,700 5,487 9,703
10,498 Change in fair value of contingent consideration
1,850 6,913 6,434 23,794
Operating income 29,706 22,341 51,137 29,939 Interest
expense 3,119 2,285 5,746 3,870 Interest income (264 ) (580 ) (715
) (1,462 ) Other expense, net 201 326
233 441 Income before income taxes
26,650 20,310 45,873 27,090 Provision for income taxes 6,668
12,341 11,570 14,974
Net income $ 19,982 $ 7,969 $ 34,303 $
12,116 Per share data: Net income per common share, basic $
0.78 $ 0.31 $ 1.34 $ 0.48
Weighted-average shares outstanding, basic 25,640
25,506 25,619 25,470
Net income per common share, diluted $ 0.78 $ 0.31
$ 1.33 $ 0.47 Weighted-average shares
outstanding, diluted 25,750 25,648
25,752 25,612
ScanSource, Inc. and Subsidiaries Supplementary
Information (Unaudited) Net
Sales by Segment: Quarter ended December 31, 2018
2017 % Change Worldwide Barcode,
Networking & Security: (in thousands) Net sales, as
reported $ 701,639 $ 719,786 (2.5 )% Foreign exchange impact (a)
7,805 — Net sales, constant currency
(non-GAAP) 709,444 719,786 (1.4 )% Less: Acquisitions —
— Net sales, constant currency excluding acquisitions
(non-GAAP) $ 709,444 $ 719,786 (1.4 )%
Worldwide
Communications & Services: Net sales, as reported $ 344,382
$ 312,426 10.2 % Foreign exchange impact (a) 12,915
— Net sales, constant currency (non-GAAP) 357,297 312,426
14.4 % Less: Acquisitions (1,832 ) — Net sales,
constant currency excluding acquisitions (non-GAAP) $ 355,465
$ 312,426 13.8 %
Consolidated: Net sales, as
reported $ 1,046,021 $ 1,032,212 1.3 % Foreign exchange impact (a)
20,720 — Net sales, constant currency
(non-GAAP) 1,066,741 1,032,212 3.3 % Less: Acquisitions
(1,832 ) — Net sales, constant currency excluding
acquisitions (non-GAAP) $ 1,064,909 $ 1,032,212 3.2 %
(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 December 31, 2018
into U.S. dollars using the average foreign exchange rates for the
quarter ended December 31, 2017.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited) Net Sales by
Segment: Six months ended December 31, Worldwide
Barcode, Networking & Security: 2018 2017
% Change (in thousands) Net sales, as reported $
1,356,752 $ 1,340,114 1.2 % Foreign exchange impact (a)
15,317 — Net sales, constant currency
1,372,069 1,340,114 2.4 % Less: Acquisitions (23,465 )
(14,553 ) Net sales, constant currency excluding
acquisitions $ 1,348,604 $ 1,325,561 1.7 %
Worldwide Communications & Services: Net sales, as
reported $ 662,169 $ 616,657 7.4 % Foreign exchange impact (a)
26,221 — Net sales, constant currency
688,390 616,657 11.6 % Less: Acquisitions (2,796 ) —
Net sales, constant currency excluding acquisitions $
685,594 $ 616,657 11.2 %
Consolidated:
Net sales, as reported $ 2,018,921 $ 1,956,771 3.2 % Foreign
exchange impact (a) 41,538 — Net sales,
constant currency 2,060,459 1,956,771 5.3 % Less: Acquisitions
(26,261 ) (14,553 ) Net sales, constant currency
excluding acquisitions $ 2,034,198 $ 1,942,218 4.7 %
(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 six months ended
December 31, 2018 into U.S. dollars using the average foreign
exchange rates for the six months ended December 31, 2017.
ScanSource, Inc. and Subsidiaries Supplementary
Information (Unaudited)
Net Sales by Geography: Quarter ended December
31, 2018 2017 % Change United States
and Canada: (in thousands) Net sales, as reported $
779,455 $ 755,312 3.2 % Less: Acquisitions (1,832 ) —
Net sales, excluding acquisitions (non-GAAP) $ 777,623 $
755,312 3.0 %
International: Net sales, as reported $
266,566 $ 276,900 (3.7 )% Foreign exchange impact (a) 20,720
— Net sales, constant currency (non-GAAP) 287,286
276,900 3.8 % Less: Acquisitions — — Net
sales, constant currency excluding acquisitions (non-GAAP) $
287,286 $ 276,900 3.8 %
Consolidated: Net
sales, as reported $ 1,046,021 $ 1,032,212 1.3 % Foreign exchange
impact (a) 20,720 — Net sales, constant
currency (non-GAAP) 1,066,741 1,032,212 3.3 % Less: Acquisitions
(1,832 ) — Net sales, constant currency excluding
acquisitions (non-GAAP) $ 1,064,909 $ 1,032,212 3.2 %
(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 December 31, 2018
into U.S. dollars using the average foreign exchange rates for the
quarter ended December 31, 2017.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited) Net Sales by
Geography: Six months ended December 31, 2018
2017 % Change United States and Canada: (in
thousands) Net sales, as reported $ 1,517,412 $ 1,441,982 5.2 %
Less: Acquisitions (26,261 ) (14,553 ) Net sales,
excluding acquisitions $ 1,491,151 $ 1,427,429 4.5 %
International: Net sales, as reported $ 501,509 $
514,789 (2.6 )% Foreign exchange impact (a) 41,538
— Net sales, constant currency 543,047 514,789 5.5 %
Less: Acquisitions — — Net sales,
constant currency excluding acquisitions $ 543,047 $ 514,789
5.5 %
Consolidated: Net sales, as reported $
2,018,921 $ 1,956,771 3.2 % Foreign exchange impact (a)
41,538 — Net sales, constant currency
2,060,459 1,956,771 5.3 % Less: Acquisitions (26,261 )
(14,553 ) Net sales, constant currency excluding
acquisitions $ 2,034,198 $ 1,942,218 4.7 % (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 six months ended December 31,
2018 into U.S. dollars using the average foreign exchange rates for
the six months ended December 31, 2017.
ScanSource, Inc. and Subsidiaries Supplementary
Information (Unaudited) (in thousands, except per share
data)
Non-GAAP Financial Information: Quarter ended December
31, 2018
Operatingincome
Pre-taxincome
Netincome
DilutedEPS
GAAP measure $ 29,706 $ 26,650 $ 19,982 $ 0.78 Adjustments:
Amortization of intangible assets 4,700 4,700 3,567 0.14 Change in
fair value of contingent consideration 1,850 1,850 1,408 0.05
Acquisition costs (a) 414 414 414 0.02
Non-GAAP measure $ 36,670 $ 33,614 $ 25,371 $
0.99
Quarter ended December 31, 2017
Operatingincome
Pre-taxincome
Netincome
DilutedEPS
GAAP measure $ 22,341 $ 20,310 $ 7,969 $ 0.31 Adjustments:
Amortization of intangible assets 5,487 5,487 3,648 0.14 Change in
fair value of contingent consideration 6,913 6,913 4,742 0.18 Tax
reform charges $ — $ — $ 6,689 $ 0.26 Non-GAAP
measure $ 34,741 $ 32,710 $ 23,048 $ 0.90
(a) Acquisition costs are non-deductible for tax purposes.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited) (in thousands,
except per share data)
Non-GAAP Financial Information: Six
months ended December 31, 2018
Operatingincome
Pre-taxincome
Netincome
DilutedEPS
GAAP measure $ 51,137 $ 45,873 $ 34,303 $ 1.33 Adjustments:
Amortization of intangible assets 9,703 9,703 7,365 0.29 Change in
fair value of contingent consideration 6,434 6,434 4,895 0.19
Acquisition costs (a) 769 769 769 0.03 Restructuring costs 1,328
1,328 955 0.04 Non-GAAP measure $ 69,371
$ 64,107 $ 48,287 $ 1.88
Six months
ended December 31, 2017
Operatingincome
Pre-taxincome
Netincome
DilutedEPS
GAAP measure $ 29,939 $ 27,090 $ 12,116 $ 0.47 Adjustments:
Amortization of intangible assets 10,498 10,498 6,909 0.27 Change
in fair value of contingent consideration 23,794 23,794 15,747 0.61
Acquisition costs (a) 172 172 172 0.02 Legal settlement, net of
attorney fees 952 952 771 0.03 Tax reform charges
6,689 0.26 Non-GAAP measure $ 65,355 $ 62,506
$ 42,404 $ 1.66 (a) Acquisition costs are
non-deductible for tax purposes.
ScanSource, Inc.
and Subsidiaries Supplementary Information (Unaudited)
(in thousands, except percentages)
Non-GAAP Financial Information:
Quarter endedDecember
31,
Six months endedDecember
31,
2018 2017 2018 2017 Return on invested
capital (ROIC), annualized (a) 13.3 % 13.3 %
13.1 % 13.1 %
Reconciliation of
Net Income to Adjusted EBITDA
Net income (GAAP) $ 19,982 $ 7,969 $ 34,303 $ 12,116 Plus: Interest
expense 3,119 2,285 5,746 3,870 Plus: Income taxes 6,668 12,341
11,570 14,974 Plus: Depreciation and amortization 8,935
9,901 18,203 18,766
EBITDA (non-GAAP) 38,704 32,496 69,822 49,726 Adjustments:
Change in fair value of contingent consideration 1,850 6,913 6,434
23,794 Acquisition costs 414 — 769 172 Restructuring costs — —
1,328 — Legal settlement, net of attorney fees —
— — 952 Adjusted EBITDA
(numerator for ROIC) (non-GAAP) $ 40,968 $ 39,409 $
78,353 $ 74,644
Invested Capital
Calculation
Equity - beginning of the quarter $ 877,897 $ 852,976 $ 866,376 $
837,145 Equity - end of the quarter 899,503 860,787 899,503 860,787
Adjustments: Change in fair value of contingent consideration, net
of tax 1,408 4,742 4,895 15,747 Acquisition costs 414 — 769 172
Restructuring costs, net of tax — — 955 — Legal settlement, net of
attorney fees, net of tax — — — 771 Tax reform charges —
6,689 — 6,689
Average equity 889,611 862,597 886,249 860,656 Average funded debt
(b) 333,138 311,327 302,707
268,141 Invested capital (denominator for
ROIC) (non-GAAP) $ 1,222,749 $ 1,173,924 $ 1,188,956
$ 1,128,797 (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.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
Non-GAAP Financial Information:
Forecast for Quarterending March
31, 2019
Range Low Range High GAAP diluted EPS $ 0.48 $ 0.54
Adjustments: Amortization of intangible assets 0.14 0.14 Change in
fair value of contingent consideration 0.14 0.14 Non-GAAP
diluted EPS $ 0.76 $ 0.82
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190205005928/en/
Gerald LyonsExecutive Vice President, Chief Financial
OfficerScanSource, Inc.(864) 286-4854orMary M. GentryVice
President, Treasurer and Investor RelationsScanSource, Inc.(864)
286-4892
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