Net Sales of $1.0 Billion with 3.5%
Year-Over-Year Growth; Acquired Strategic SaaS Capabilities
ScanSource, Inc. (NASDAQ: SCSC), a leading provider of
technology products and solutions, today announced financial
results for the first quarter ended September 30, 2019.
Quarter ended September
30,
2019
2018
Change
(in millions, except per share
data)
Net sales
$
1,006.9
$
972.9
3
%
Non-GAAP net sales, excluding Planned
Divestitures(1)
851.4
813.3
5
%
Operating income
18.6
21.4
(13
)%
Non-GAAP operating income(1)
(2)
27.5
32.7
(16
)%
GAAP net income
11.5
14.3
(19
)%
Non-GAAP net income(1) (2)
18.5
22.9
(19
)%
GAAP diluted EPS
$
0.45
$
0.56
(20
)%
Non-GAAP diluted EPS(1) (2)
$
0.72
$
0.89
(19
)%
(1) A reconciliation of non-GAAP financial
information to GAAP financial information is presented in the
Supplementary Information (Unaudited) below.
(2) Non-GAAP results exclude amortization
of intangible assets related to acquisitions, change in fair value
of contingent consideration, the impact of Planned Divestitures and
other non-GAAP items. A reconciliation of non-GAAP to GAAP
financial information is presented below.
“For the quarter, we are pleased to deliver 3.5% year-over-year
sales growth,” said Mike Baur, Chairman and CEO, ScanSource, Inc.
“With our acquisition of intY, we added strategic SaaS capabilities
to meet strong customer demand for software. We became a Microsoft
cloud solution provider, which allows our channel partners access
to Office 365, Azure, and Teams.”
Quarterly Results
Net sales for the first quarter of fiscal year 2020 increased
3.5% year-over-year to $1.0 billion, driven primarily by growth
across key technologies in North America. Operating income for the
first quarter decreased to $18.6 million year-over-year and
non-GAAP operating income decreased to $27.5 million from the
prior-year quarter, primarily from investments in our business for
future growth.
On a GAAP basis, net income for the first quarter of fiscal year
2020 totaled $11.5 million, or $0.45 per diluted share, compared
with net income of $14.3 million, or $0.56 per diluted share, for
the prior-year quarter. GAAP diluted EPS included a higher than
expected expense for the change in fair value of contingent
consideration for Intelisys as a result of better than expected
actual results. Non-GAAP net income totaled $18.5 million, or $0.72
per diluted share, compared to $22.9 million, or $0.89 per diluted
share, for the prior-year quarter. Non-GAAP diluted EPS was near
the midpoint of the forecast range.
Acquisition of intY
On July 1, 2019, ScanSource announced and closed the acquisition
of intY and its award-winning CASCADE cloud services distribution
platform. As an additional element of ScanSource’s cloud and
digital strategy, intY’s CASCADE solution provides ScanSource
channel partners with another route-to-market to enable key
strategic cloud services, including Microsoft, Symantec, and
Acronis.
Plan to Divest Certain Businesses Outside of US, Canada and
Brazil
On August 20, 2019, ScanSource announced plans to divest its
physical products distribution businesses outside of the United
States, Canada and Brazil. ScanSource will continue to operate and
invest in its digital distribution business in these geographies.
These plans are part of a strategic portfolio repositioning to
align investments with higher-growth, higher-margin businesses.
During the quarter, the Company began a process to market and sell
the Planned Divestitures. There can be no assurance that this sale
process will result in a transaction or regarding the timing of any
transaction. The Planned Divestitures, comprised of physical
product businesses in Europe, UK, Mexico, Colombia, Chile, Peru and
the Miami-based export operations, had net sales of $156 million
for the first quarter fiscal year 2020 and at September 30, 2019
had working capital of $180 million.
Forecast for Next Quarter
For the second quarter of fiscal year 2020, ScanSource expects
GAAP net sales to range from $1.03 billion to $1.09 billion and
non-GAAP net sales excluding the Planned Divestitures to range from
$880 million to $940 million. For the second quarter of fiscal year
2020, ScanSource expects diluted earnings per share to range from
$0.54 to $0.59 and non-GAAP diluted earnings per share to range
from $0.80 to $0.85. Non-GAAP diluted earnings per share exclude
amortization of intangible assets related to acquisitions, change
in fair value of contingent consideration, the impact of Planned
Divestitures 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, November 12, 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 and the Planned Divestitures, 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 provides due both to competitor and
customer action, the Company's ability to find a buyer for the
Planned Divestitures on acceptable terms or to otherwise dispose of
the operations, changes in the Company's operating strategy 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,
2019, 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,
restructuring costs and other non-GAAP adjustments.
Net sales on a constant currency basis, excluding Planned
Divestitures and acquisitions ("organic sales"): 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 Planned
Divestitures, as well as 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.
Income Statement Non-GAAP Metrics: To evaluate current period
performance on a more consistent basis with prior periods, the
Company discloses non-GAAP net sales, non-GAAP gross profit,
non-GAAP operating income, non-GAAP other expense, net, non-GAAP
pre-tax income, non-GAAP net income and non-GAAP diluted earnings
per share (non-GAAP diluted "EPS"). Non-GAAP results exclude
amortization of intangible assets related to acquisitions, changes
in fair value of contingent consideration, acquisition and
divestiture costs, impact of Planned Divestitures and other
non-GAAP adjustments. Non-GAAP metrics 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, 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 at the center of the
technology solution delivery channel, connecting businesses and
providing solutions for their complex needs. ScanSource sells
through multiple, specialized routes-to-market with digital,
physical and services offerings from the world’s leading suppliers
of point-of-sale (POS), payments, barcode, physical security,
unified communications and collaboration, telecom and cloud
services. ScanSource enables its sales partners to create, deliver
and manage solutions for end-customers across almost every vertical
market. Founded in 1992 and headquartered in Greenville, South
Carolina, ScanSource was named one of the 2019 Best Places to Work
in South Carolina and on FORTUNE magazine’s 2019 List of World’s
Most Admired Companies. ScanSource ranks #643 on the Fortune 1000.
For more information, visit www.scansource.com.
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets (Unaudited)
(in thousands)
September 30, 2019
June 30, 2019*
Assets
Current assets:
Cash and cash equivalents
$
25,877
$
23,818
Accounts receivable, less allowance of
$37,083 at September 30, 2019 and $38,849 at June 30, 2019
706,428
654,983
Inventories
715,224
697,343
Prepaid expenses and other current
assets
101,608
101,171
Total current assets
1,549,137
1,477,315
Property and equipment, net
63,309
63,363
Goodwill
364,867
319,538
Identifiable intangible assets, net
122,217
127,939
Deferred income taxes
24,033
24,724
Other non-current assets
94,962
54,382
Total assets
$
2,218,525
$
2,067,261
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable
$
656,150
$
558,101
Accrued expenses and other current
liabilities
99,021
91,407
Current portion of contingent
consideration
38,531
38,393
Income taxes payable
6,657
4,310
Short-term borrowings
—
4,590
Current portion of long-term debt
5,026
4,085
Total current liabilities
805,385
700,886
Deferred income taxes
1,257
1,395
Long-term debt, net of current portion
148,800
151,014
Borrowings under revolving credit
facility
216,504
200,817
Long-term portion of contingent
consideration
41,866
39,532
Other long-term liabilities
98,962
59,488
Total liabilities
1,312,774
1,153,132
Shareholders' equity:
Common stock
60,089
64,287
Retained earnings
951,460
939,930
Accumulated other comprehensive income
(loss)
(105,798
)
(90,088
)
Total shareholders' equity
905,751
914,129
Total liabilities and shareholders'
equity
$
2,218,525
$
2,067,261
*
Derived from audited financial
statements.
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated Income
Statements (Unaudited)
(in thousands, except per
share data)
Quarter ended September
30,
2019
2018
Net sales
$
1,006,927
$
972,900
Cost of goods sold
894,828
860,685
Gross profit
112,099
112,215
Selling, general and administrative
expenses
82,512
77,931
Depreciation expense
3,548
3,265
Intangible amortization expense
4,962
5,003
Change in fair value of contingent
consideration
2,472
4,584
Operating income
18,605
21,432
Interest expense
3,792
2,627
Interest income
(800
)
(451
)
Other expense, net
32
32
Income before income taxes
15,581
19,224
Provision for income taxes
4,051
4,902
Net income
$
11,530
$
14,322
Per share data:
Net income per common share, basic
$
0.45
$
0.56
Weighted-average shares outstanding,
basic
25,539
25,599
Net income per common share, diluted
$
0.45
$
0.56
Weighted-average shares outstanding,
diluted
25,617
25,755
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
Net Sales by Segment:
Quarter ended September
30,
2019
2018
% Change
Worldwide Barcode, Networking &
Security:
(in thousands)
Net sales, reported
$
697,791
$
655,113
6.5
%
Planned Divestitures
(116,603
)
(118,366
)
Non-GAAP net sales, excluding Planned
Divestitures
581,188
536,747
8.3
%
Foreign exchange impact(a)
95
—
Non-GAAP net sales, constant currency
excluding Planned Divestitures and acquisitions
$
581,283
$
536,747
8.3
%
Worldwide Communications &
Services:
Net sales, reported
$
309,136
$
317,787
(2.7
)%
Planned Divestitures
(38,913
)
(41,279
)
Non-GAAP net sales, excluding Planned
Divestitures
270,223
276,508
(2.3
)%
Foreign exchange impact(a)
244
—
Less: Acquisitions
(12,157
)
(964
)
Non-GAAP net sales, constant currency
excluding Planned Divestitures and acquisitions
$
258,310
$
275,544
(6.3
)%
Consolidated:
Net sales, reported
$
1,006,927
$
972,900
3.5
%
Planned Divestitures
(155,516
)
(159,645
)
Non-GAAP net sales, excluding Planned
Divestitures
851,411
813,255
4.7
%
Foreign exchange impact(a)
339
—
Less: Acquisitions
(12,157
)
(964
)
Non-GAAP net sales, constant currency
excluding Planned Divestitures and acquisitions
$
839,593
$
812,291
3.4
%
(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, 2019 into U.S. dollars using the
average foreign exchange rates for the quarter ended September 30,
2018.
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
Net Sales by Geography:
Quarter ended September
30,
2019
2018
% Change
United States and Canada:
(in thousands)
Net sales, as reported
$
769,637
$
737,957
4.3
%
Less: Acquisitions
(3,595
)
(964
)
Non-GAAP net sales, excluding
acquisitions
$
766,042
$
736,993
3.9
%
International:
Net sales, as reported
$
237,290
$
234,943
1.0
%
Planned Divestitures
(155,516
)
(159,645
)
Non-GAAP net sales, excluding Planned
Divestitures
81,774
75,298
8.6
%
Foreign exchange impact(a)
339
—
Less: Acquisitions
(8,562
)
—
Non-GAAP net sales, constant currency
excluding Planned Divestitures and acquisitions
$
73,551
$
75,298
(2.3
)%
Consolidated:
Net sales, as reported
$
1,006,927
$
972,900
3.5
%
Planned Divestitures
(155,516
)
(159,645
)
Non-GAAP net sales, excluding Planned
Divestitures
851,411
813,255
4.7
%
Foreign exchange impact(a)
339
—
Less: Acquisitions
(12,157
)
(964
)
Non-GAAP net sales, constant currency
excluding Planned Divestitures and acquisitions
$
839,593
$
812,291
3.4
%
(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, 2019 into U.S. dollars using the
average foreign exchange rates for the quarter ended September 30,
2018.
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
(in thousands, except per
share data)
Non-GAAP Financial Information:
Quarter ended September 30,
2019
Reported GAAP measure
Intangible amortization
expense
Change in fair value of
contingent consideration
Acquisition and Divestiture
costs(a)
Restructuring costs
Impact of Planned
Divestitures
Non- GAAP measure
in thousands, except per share
data
Net sales
$
1,006,927
$
—
$
—
$
—
$
—
$
(155,516
)
$
851,411
Gross profit
112,099
—
—
—
—
(13,397
)
98,702
Operating income
18,605
4,962
2,472
757
169
507
27,472
Other expense, net
3,024
—
—
—
—
(140
)
2,884
Pre-tax income
15,581
4,962
2,472
757
169
647
24,588
Net income
11,530
3,746
1,869
757
128
444
18,474
Diluted EPS
$
0.45
$
0.15
$
0.07
$
0.03
$
—
$
0.02
$
0.72
Quarter ended September 30,
2018
Reported GAAP measure
Intangible amortization
expense
Change in fair value of
contingent consideration
Acquisition costs (a)
Restructuring costs
Impact of Planned
Divestitures
Non- GAAP measure
in thousands, except per share
data
Net sales
$
972,900
$
—
$
—
$
—
$
—
$
(159,645
)
$
813,255
Gross profit
112,215
—
—
—
—
(15,198
)
97,017
Operating income
21,432
5,003
4,584
355
1,328
(49
)
32,653
Other expense, net
2,208
—
—
—
—
167
2,375
Pre-tax income
19,224
5,003
4,584
355
1,328
(216
)
30,278
Net income
14,322
3,798
3,487
355
955
(47
)
22,870
Diluted EPS
$
0.56
$
0.15
$
0.14
$
0.01
$
0.03
$
—
$
0.89
(a) Acquisition and divestiture costs are
generally non-deductible for tax purposes.
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
(in thousands, except
percentages)
Non-GAAP Financial Information:
Quarter ended September
30,
2019
2018
Return on invested capital ratio (ROIC),
annualized (a)
9.6
%
12.8
%
Reconciliation of
net income to EBITDA:
Net income (GAAP)
$
11,530
$
14,322
Plus: Interest expense
3,792
2,627
Plus: Income taxes
4,051
4,902
Plus: Depreciation and amortization
9,189
9,268
EBITDA (non-GAAP)
28,562
31,119
Plus: Change in fair value of contingent
consideration
2,472
4,584
Plus: Acquisition and divestiture
costs
757
355
Plus: Restructuring costs
169
1,328
Plus: Impact of Planned Divestitures
(76
)
(486
)
Adjusted EBITDA (numerator for ROIC)
(non-GAAP)
$
31,884
$
36,900
Invested Capital
Calculation
Equity – beginning of the quarter
$
914,129
$
866,376
Equity – end of the quarter
905,751
877,897
Plus: Change in fair value of contingent
consideration, net of tax
1,869
3,487
Plus: Acquisition and divestiture
costs
757
355
Plus: Restructuring, net of tax
128
955
Plus: Impact of Planned Divestitures, net
of tax
444
908
Average equity
911,539
874,989
Average funded debt(b)
407,306
272,277
Invested capital (denominator for ROIC)
(non-GAAP)
$
1,318,845
$
1,147,266
(a) Calculated as earnings before 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)
(in thousands, except per
share data)
Non-GAAP Financial Information:
Forecast for Quarter ending
December 31, 2019
Range Low
Range High
GAAP net sales, reported
$
1,030,000
$
1,090,000
Adjustments:
Net sales for Planned Divestitures
(150,000
)
(150,000
)
Non-GAAP net sales, excluding Planned
Divestitures
$
880,000
$
940,000
GAAP diluted EPS
$
0.54
$
0.59
Adjustments:
Amortization of intangible assets
0.17
0.17
Change in fair value of contingent
consideration
0.05
0.05
Impact of Planned Divestitures(a)
0.02
0.02
Other (restructuring costs and divestiture
costs)
0.02
0.02
Non-GAAP diluted EPS
$
0.80
$
0.85
(a) Reflects operating results for Planned
Divestitures and does not include any non-cash charges from
write-downs or costs associated with a sale or liquidation of the
businesses and their assets.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191112006029/en/
Gerald Lyons Executive Vice President, Chief Financial Officer
ScanSource, Inc. (864) 286-4854
- or -
Mary M. Gentry Vice President, Treasurer and Investor Relations
ScanSource, Inc. (864) 286-4892
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