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ScanSource Reports Record Second Quarter Results

2016-02-09 16:05 ET - News Release

Net Sales Growth of 23% and EPS Growth of 33%


Company Website: http://www.scansource.com
GREENVILLE, S.C. -- (Business Wire)

ScanSource, Inc. (NASDAQ:SCSC), a leading global provider of technology products and solutions, today announced financial results for fiscal year 2016 second quarter ended December 31, 2015.

Quarter ended December 31,
2015   2014   Change
(in millions, except per share data)
Net sales$993.5 $ 807.0 23 %
Operating income31.9 26.0 23 %
Non-GAAP operating income(1)36.3 29.4 24 %
GAAP net income20.7 16.8 23 %
Non-GAAP net income(1)23.7 19.7 20 %
GAAP diluted EPS$0.77 $ 0.58 33 %
Non-GAAP diluted EPS(1)$0.88 $ 0.68 29 %
 

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

"Strong demand across our business led to record net sales and record non-GAAP EPS,” said Mike Baur, CEO, ScanSource, Inc. “Sales exceeded our expectations due to large deals and excellent execution by our sales and support teams across the globe.”

Net sales for the quarter ended December 31, 2015 increased 23% year-over-year to $993.5 million. The increase in net sales includes the acquisitions of Network1 in January 2015 and KBZ in September 2015. Net sales in constant currency excluding acquisitions grew 5% year-over-year.

Operating income for the quarter ended December 31, 2015 totaled $31.9 million, compared with $26.0 million in the prior year quarter. Non-GAAP operating income of $36.3 million increased 24% year-over-year, and the non-GAAP operating margin increased to 3.7%.

On a GAAP basis, net income for the quarter ended December 31, 2015 totaled $20.7 million, or $0.77 per diluted share, compared with net income of $16.8 million, or $0.58 per diluted share, for the prior year quarter. Non-GAAP net income for the quarter ended December 31, 2015 of $23.7 million increased 20%, and non-GAAP diluted earnings per share of $0.88 increased 29% year-over-year.

Share Repurchase Update

During the quarter ended December 31, 2015, ScanSource repurchased approximately 0.8 million shares for an aggregate purchase price of approximately $29.6 million. Under the Company’s $120 million share repurchase authorization through December 31, 2015, ScanSource has repurchased approximately 2.43 million shares for approximately $90.4 million, having executed 75% of the total authorization.

ScanSource Networking and Security

As of October 1, 2015, we branded ScanSource Security as ScanSource Networking and Security to build on the growing demand for networking solutions. With this organizational change, we moved some business operations from our Communications & Services segment to our Barcode & Security segment. Prior period results have been reclassified to provide comparable financial information.

Forecast for Next Quarter

The Company announced its current expectations for the third quarter of fiscal year 2016. ScanSource expects net sales for the quarter ending March 31, 2016 to range from $850 million to $900 million and non-GAAP diluted earnings per share to range from $0.62 to $0.70 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, February 9, 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)
  December 31, 2015   June 30, 2015*
Assets
Current assets:
Cash and cash equivalents $ 39,438 $ 121,646
Accounts receivable, less allowance of $31,967 at December 31, 2015 588,443 522,532
and $32,589 at June 30, 2015
Inventories 604,093 553,063
Prepaid expenses and other current assets 62,563 46,917
Deferred income taxes 19,152   20,556  
Total current assets 1,313,689 1,264,714
Property and equipment, net 46,642 46,574
Goodwill 83,313 66,509
Net identifiable intangible assets 54,765 46,272
Other non-current assets 50,721   52,872  
Total assets $ 1,549,130   $ 1,476,941  
 
Liabilities and Shareholders' Equity
Current liabilities:
Current debt $ 705 $ 2,860
Accounts payable 512,034 501,329
Accrued expenses and other current liabilities 98,683 81,000
Current portion of contingent consideration 12,605 9,391
Income taxes payable 2,287   4,180  
Total current liabilities 626,314 598,760
Deferred income taxes 3,354 3,773
Long-term debt 5,429 5,966
Borrowings under revolving credit facility 108,989
Long-term portion of contingent consideration 11,395 24,569
Other long-term liabilities 38,855   34,888  
Total liabilities 794,336 667,956
Shareholders' equity:
Common stock 89,284 157,172
Retained earnings 752,967 716,315
Accumulated other comprehensive income (loss) (87,457 ) (64,502 )
Total shareholders' equity 754,794   808,985  
Total liabilities and shareholders' equity $ 1,549,130   $ 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 December 31,Six Months ended December 31,
2015201420152014
Net sales $ 993,522 $ 807,019 $ 1,864,350 $ 1,598,738
Cost of goods sold 892,889   728,908   1,676,166   1,442,981  
Gross profit 100,633 78,111 188,184 155,757
Selling, general and administrative expenses 66,965 51,658 128,510 99,813
Change in fair value of contingent consideration 1,816   463   3,381   976  
Operating income 31,852 25,990 56,293 54,968
Interest expense 709 207 990 397
Interest income (767 ) (492 ) (1,709 ) (1,327 )
Other, net 278   337   958   724  
Income before income taxes 31,632 25,938 56,054 55,174
Provision for income taxes 10,976   9,117   19,402   19,145  
Net income $ 20,656   $ 16,821   $ 36,652   $ 36,029  
Per share data:
Net income per common share, basic $ 0.78   $ 0.59   $ 1.35   $ 1.26  
Weighted-average shares outstanding, basic 26,648   28,579   27,175   28,562  
 
Net income per common share, diluted $ 0.77   $ 0.58   $ 1.34   $ 1.25  
Weighted-average shares outstanding, diluted 26,902   28,831   27,427   28,813  
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
 
Net Sales by Segment:
Quarter ended December 31,
Worldwide Barcode & Security:2015   2014% Change
Net sales, as reported $ 689,530 $ 547,171 26.0 %
Foreign exchange impact (a) 31,923    
Net sales, constant currency 721,453 547,171 31.9 %
Less: Acquisitions (131,461 )  
Net sales, constant currency excluding acquisitions $ 589,992   $ 547,171   7.8 %
 
Worldwide Communications & Services:
Net sales, as reported $ 303,992 $ 259,848 17.0 %
Foreign exchange impact (a) 3,537    
Net sales, constant currency 307,529 259,848 18.3 %
Less: Acquisitions (49,049 )  
Net sales, constant currency excluding acquisitions $ 258,480   $ 259,848   (0.5 )%
 
Consolidated:
Net sales, as reported $ 993,522 $ 807,019 23.1 %
Foreign exchange impact (a) 35,460    
Net sales, constant currency 1,028,982 807,019 27.5 %
Less: Acquisitions (180,510 )  
Net sales, constant currency excluding acquisitions $ 848,472   $ 807,019   5.1 %
 
(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, 2015 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended December 31, 2014.

ScanSource, Inc. and Subsidiaries

Supplementary Information (Unaudited)
(in thousands)
 
Net Sales by Segment:
Six Months ended December 31,
Worldwide Barcode & Security:2015   2014% Change
Net sales, as reported $ 1,263,199 $ 1,095,943 15.3 %
Foreign exchange impact (a) 66,845    
Net sales, constant currency 1,330,044 1,095,943 21.4 %
Less: Acquisitions (166,084 )  
Net sales, constant currency excluding acquisitions $ 1,163,960   $ 1,095,943   6.2 %
 
Worldwide Communications & Services:
Net sales, as reported $ 601,151 $ 502,795 19.6 %
Foreign exchange impact (a) 7,115    
Net sales, constant currency 608,266 502,795 21.0 %
Less: Acquisitions (118,926 ) (4,686 )
Net sales, constant currency excluding acquisitions $ 489,340   $ 498,109   (1.8 )%
 
Consolidated:
Net sales, as reported $ 1,864,350 $ 1,598,738 16.6 %
Foreign exchange impact (a) 73,960    
Net sales, constant currency 1,938,310 1,598,738 21.2 %
Less: Acquisitions (285,010 ) (4,686 )
Net sales, constant currency excluding acquisitions $ 1,653,300   $ 1,594,052   3.7 %
 
(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, 2015 into U.S. dollars using the weighted average foreign exchange rates for the six months ended December 31, 2014.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
     
Net Sales by Geography:
Quarter ended December 31,

Non-GAAP
% Change

20152014% Change

Constant
Currency(a)

United States $ 735,642 $ 587,068 25.3 % 25.3 %
International 257,880   219,951   17.2 % 33.4 %
Consolidated $ 993,522   $ 807,019   23.1 % 27.5 %
 
 
Six Months ended December 31,

Non-GAAP
% Change

20152014% Change

Constant
Currency(a)

United States $ 1,377,572 $ 1,182,858 16.5 % 16.5 %
International 486,778   415,880   17.0 % 34.8 %
Consolidated $ 1,864,350   $ 1,598,738   16.6 % 21.2 %
 
(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 and six months ended December 31, 2015 into U.S. dollars using the weighted average foreign exchange rates for the quarter and six months ended December 31, 2014. International net sales excluding the translation impact of foreign currencies for the quarter and six months ended December 31, 2015 totaled $293.3 million and $560.7 million, respectively.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
     
Non-GAAP Financial Information:
Quarter ended December 31, 2015

Operating

income

Pre-tax

income

Net

income

Diluted

EPS

GAAP measure $ 31,852 $ 31,632 $ 20,656 $ 0.77
Adjustments:
Amortization of intangible assets 2,545 2,545 1,732 0.06
Change in fair value of contingent consideration 1,816 1,816 1,244 0.05
Acquisition costs (a) 60   60   60  
Non-GAAP measure $ 36,273   $ 36,053   $ 23,692   $ 0.88
 
Quarter ended December 31, 2014

Operating

income

Pre-tax

income

Net

income

Diluted

EPS

GAAP measure $ 25,990 $ 25,938 $ 16,821 $ 0.58
Adjustments:
Amortization of intangible assets 1,443 1,443 1,025 0.04
Change in fair value of contingent consideration 463 463 346 0.01
Acquisition costs (a) 1,474   1,474   1,474   0.05
Non-GAAP measure $ 29,370   $ 29,318   $ 19,666   $ 0.68
 
(a) Acquisition costs are non-deductible for tax purposes.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
   
Non-GAAP Financial Information:
Quarter ended December 31,
20152014
Return on invested capital (ROIC), annualized (a) 17.5 % 14.8 %
 

Reconciliation of Net Income to Adjusted EBITDA

Net income - GAAP $ 20,656 $ 16,821
Plus: Income taxes 10,976 9,117
Plus: Interest expense 709 207
Plus: Depreciation and amortization 4,351   2,443  
EBITDA 36,692 28,588
Adjustments:
Change in fair value of contingent consideration 1,816 463
Acquisition costs 60   1,474  
Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 38,568   $ 30,525  
 
 

Invested Capital Calculation

Equity - beginning of quarter $ 764,693 $ 810,265
Equity - end of quarter 754,794 818,748
Adjustments:
Change in fair value of contingent consideration, net of tax 1,244 346
Acquisition costs, net of tax 60   1,474  
Average equity 760,396 815,417
Average funded debt (b) 117,421   5,429  
Invested capital (denominator for ROIC) (non-GAAP) $ 877,817   $ 820,846  
 
 
 
(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)
(in thousands)
     
Segment Information(a)
Quarter ended

December 31,

2015

September 30,

2015

Net Sales:
Worldwide Barcode & Security $ 689,530 $ 573,669
Worldwide Communications & Services 303,992   297,160  
$ 993,522   $ 870,829  
 
Gross Profit:
Worldwide Barcode & Security 57,687 48,048
Worldwide Communications & Services 42,946   39,504  
$ 100,633   $ 87,552  
 
Operating Income:
Worldwide Barcode & Security $ 19,000 $ 13,814
Worldwide Communications & Services 12,912 10,847
Corporate (acquisition costs) (60 ) (220 )
$ 31,852   $ 24,441  
 
Amortization of Intangible Assets:
Worldwide Barcode & Security $ 1,047 $ 610
Worldwide Communications & Services 1,498   1,575  
$ 2,545   $ 2,185  
 
Change in Fair Value of Contingent Consideration:
Worldwide Barcode & Security $ $ 126
Worldwide Communications & Services 1,816   1,438  
$ 1,816   $ 1,564  
 
Non-GAAP Operating Income:
Worldwide Barcode & Security $ 20,047 $ 14,550
Worldwide Communications & Services 16,226   13,860  
$ 36,273   $ 28,410  
 
(a) As of October 1, 2015, we branded ScanSource Security as ScanSource Networking and Security to build on the growing demand for networking solutions. With this organizational change, we moved some business operations from our Communications & Services segment to our Barcode & Security segment. Prior period results have been reclassified to provide comparable financial information.
 
 
 
 
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
 
Segment Information(a)
 
Quarter ended
June 30,

2015

  March 31,

2015

 

December 31,
2014

 

September 30,
2014

Net Sales:
Worldwide Barcode & Security $ 555,401 $ 482,780 $ 547,171 $ 548,772
Worldwide Communications & Services 301,284   280,423   259,848   242,948  
$ 856,685   $ 763,203   $ 807,019   $ 791,720  
 
Gross Profit:
Worldwide Barcode & Security $ 47,266 $ 41,208 $ 43,618 $ 45,743
Worldwide Communications & Services 44,052   38,808   34,493   31,902  
$ 91,318   $ 80,016   $ 78,111   $ 77,645  
 
Operating Income:
Worldwide Barcode & Security $ 12,157 $ 10,081 $ 13,269 $ 13,537
Worldwide Communications & Services 12,958 11,707 14,195 16,790
Corporate (acquisition costs) (138 ) (292 ) (1,474 ) (1,350 )
$ 24,977   $ 21,496   $ 25,990   $ 28,977  
 
Amortization of Intangible Assets:
Worldwide Barcode & Security $ 431 $ 464 $ 519 $ 580
Worldwide Communications & Services 1,660   1,650   924   412  
$ 2,091   $ 2,114   $ 1,443   $ 992  
 
Change in Fair Value of Contingent Consideration:
Worldwide Barcode & Security $ 806 $ 172 $ 160 $ 498
Worldwide Communications & Services 600   113   303   15  
$ 1,406   $ 285   $ 463   $ 513  
 
Non-GAAP Operating Income:
Worldwide Barcode & Security $ 13,394 $ 10,717 $ 13,948 $ 14,615
Worldwide Communications & Services 15,218   13,470   15,422   17,217  
$ 28,612   $ 24,187   $ 29,370   $ 31,832  
 
(a) As of October 1, 2015, we branded ScanSource Security as ScanSource Networking and Security to build on the growing demand for networking solutions. With this organizational change, we moved some business operations from our Communications & Services segment to our Barcode & Security segment. Prior period results have been reclassified to provide comparable financial information.

Contacts:

ScanSource, Inc.
Charles A. Mathis
Executive Vice President and Chief Financial Officer
864-286-4975
or
Mary M. Gentry
Vice President, Treasurer and Investor Relations
864-286-4892

Source: ScanSource, Inc.

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