Unified Communications Industry News


TMCNet:  ScanSource Reports Record Quarterly Sales

[February 06, 2018]

ScanSource Reports Record Quarterly Sales

ScanSource, Inc. (NASDAQ: SCSC), a leading global provider of technology products and solutions, today announced financial results for the second quarter ended December 31, 2017.



 
Quarter ended December 31,
2017   2016   Change
(in millions, except per share data)
Net sales $ 1,032.2   $ 904.8   14 %
Operating income 22.3 23.3 (4 )%
Non-GAAP operating income(1) 34.7 29.6 18 %
GAAP net income 8.0 23.0 (65 )%
Non-GAAP net income(1) 23.0 19.1 21 %
GAAP diluted EPS $ 0.31 $ 0.91 (66 )%
Non-GAAP diluted EPS(1) $ 0.90 $ 0.75 20 %
 
(1) Non-GAAP results exclude amortization of intangible assets related to acquisitions, change in fair value of contingent consideration, tax reform charges, acquisition costs and other non-GAAP adjustments. A reconciliation of non-GAAP financial information to GAAP financial information is presented in the Supplementary Information (Unaudited) below.
 

"Second quarter showed strong growth and improved profitability," said Mike Baur, CEO, ScanSource, Inc. "Our quarterly sales exceeded $1 billion for the first time with organic sales growth of 10%. We are executing our strategic plan to deepen customer relationships and grow profitably."

For the second quarter of fiscal year 2018, net sales increased 14% to $1.032 billion, driven by strength in the Worldwide Barcode, Networking and Security segment, including higher big deals in North America. Organic sales growth, which excludes the impact from foreign currency translation and a recent acquisition, was 10%. Operating income totaled $22.3 million, reflecting a decline of 4% from increased expense for the change in fair value of contingent consideration and higher intangible amortization. Non-GAAP operating income increased 18% to $34.7 million, driven by operating leverage from higher sales volumes and the addition of the POS Portal acquisition.

On a GAAP basis, net income for the quarter totaled $8.0 million, or $0.31 per diluted share, and included current quarter tax reform charges of $6.7 million. Non-GAAP net income increased to $23.0 million, or $0.90 per diluted share, including a $0.07 per share benefit from U.S. tax reform lower rates.

U.S. Tax Reform

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act reduces the corporate federal tax rate on U.S. earnings from 35% to 21% effective January 1, 2018 and provides for a one-time charge for certain foreign earnings. Since ScanSource has a June 30th fiscal year-end, the lower tax rate is expected to result in a blended U.S. statutory federal rate of approximately 28% for the fiscal year ending June 30, 2018. As a result of the Tax Act and tax reform laws enacted in Belgium, ScanSource recognized a one-time tax charge of approximately $6.7 million in the December quarter from the estimated impact of the inclusion of foreign earnings and revaluation of deferred tax assets and liabilities. Excluding these tax charges, the effective tax rate for the quarter and six months ended December 31, 2017 would have been 28% and 29.8%, respectively.

Forecast for Next Quarter

For the third quarter of fiscal year 2018, ScanSource expects net sales to range from $860 million to $920 million, diluted earnings per share to range from $0.44 to $0.50 per share, and non-GAAP diluted earnings per share to range from $0.67 to $0.73 per share. Non-GAAP diluted earnings per share exclude amortization of intangible assets, change in fair value of contingent consideration and acquisition costs. This forecast assumes a 30% effective tax rate for the quarter.

Webcast Details and CFO Commentary

At approximately 4:15 p.m. ET, a CFO commentary, as a supplement to our press release and 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 6, 2018 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, including the forecast of sales and earnings per share for next quarter, contains "forward-looking" statements 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 our international operations, the impact of tax reform laws, the failure of acquisitions to meet our expectations, the failure to manage and implement our organic growth strategy, credit risks involving our larger customers and vendors, termination of our relationship with key vendors or a significant modification of the terms under which we operate with a key vendor, the decline in demand for the products and services that we provide, reduced prices for the products and services that we provide due both to competitor and customer actions, and other factors set forth in the "Risk Factors" contained in our annual report on Form 10-K for the year ended June 30, 2017, 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, cloud and telecom 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. 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 2017 Best Places to Work in South Carolina and on FORTUNE magazine's 2018 List of World's Most Admired Companies. ScanSource ranks #647 on the Fortune 1000. For more information, visit www.scansource.com.

 
ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
    December 31, 2017     June 30, 2017*
Assets
Current assets:
Cash and cash equivalents $ 35,435 $ 56,094
Accounts receivable, less allowance of $47,264 at December 31, 2017 and $44,434 at June 30, 2017 717,336 637,293
Inventories 581,802 531,314
Prepaid expenses and other current assets 76,667   56,322  
Total current assets 1,411,240 1,281,023
Property and equipment, net 76,626 56,566
Goodwill 302,912 200,881
Net identifiable intangible assets 148,443 101,513
Deferred income taxes 11,794 29,491
Other non-current assets 54,267   48,829  
Total assets $ 2,005,282   $ 1,718,303  
 
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 104 $ -
Accounts payable 515,302 513,155
Accrued expenses and other current liabilities 97,597 104,715
Current portion of contingent consideration 38,629 30,675
Income taxes payable 5,086   7,730  
Total current liabilities 656,718 656,275
Deferred income taxes 11,110 2,008
Long-term debt 5,325 5,429
Borrowings under revolving credit facility 355,503 91,871
Long-term portion of contingent consideration 58,402 83,361
Other long-term liabilities 57,437   42,214  
Total liabilities 1,144,495 881,158
Shareholders' equity:
Common stock 64,896 61,169
Retained earnings 861,296 849,180
Accumulated other comprehensive income (loss) (65,405 ) (73,204 )
Total shareholders' equity 860,787   837,145  
Total liabilities and shareholders' equity $ 2,005,282   $ 1,718,303  
* 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,
2017 2016 2017 2016
Net sales $ 1,032,212 $ 904,792 $ 1,956,771 $ 1,837,357
Cost of goods sold 919,241   806,258   1,737,883   1,647,289  
Gross profit 112,971 98,534 218,888 190,068
Selling, general and administrative expenses 74,763 66,880 147,950 130,145
Depreciation expense 3,467 2,423 6,707 4,492
Intangible amortization expense 5,487 4,165 10,498 7,320
Change in fair value of contingent consideration 6,913   1,791   23,794   1,961  
Operating income 22,341 23,275 29,939 46,150
Interest expense 2,285 912 3,870 1,501
Interest income (580 ) (892 ) (1,462 ) (1,908 )
Other (income) expense, net 326   (12,526 ) 441   (11,948 )
Income before income taxes 20,310 35,781 27,090 58,505
Provision for income taxes 12,341   12,745   14,974   20,653  
Net income $ 7,969   $ 23,036   $ 12,116   $ 37,852  
Per share data:
Net income per common share, basic $ 0.31   $ 0.92   $ 0.48   $ 1.49  
Weighted-average shares outstanding, basic 25,506   25,146   25,470   25,334  
 
Net income per common share, diluted $ 0.31   $ 0.91   $ 0.47   $ 1.48  
Weighted-average shares outstanding, diluted 25,648   25,285   25,612   25,490  
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
       
Net Sales by Segment:
Quarter ended December 31,
2017     2016(a) % Change
Worldwide Barcode, Networking & Security: (in thousands)
Net sales, as reported $ 719,786 $ 593,833 21.2 %
Foreign exchange impact (b) (9,669 ) -  
Net sales, constant currency (non-GAAP) 710,117 593,833 19.6 %
Less: Acquisitions (19,706 ) -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 690,411   $ 593,833   16.3 %
 
Worldwide Communications & Services:
Net sales, as reported $ 312,426 $ 310,959 0.5 %
Foreign exchange impact (b) (4,162 ) -  
Net sales, constant currency (non-GAAP) 308,264 310,959 (0.9 )%
Less: Acquisitions -   -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 308,264   $ 310,959   (0.9 )%
 
Consolidated:
Net sales, as reported $ 1,032,212 $ 904,792 14.1 %
Foreign exchange impact (b) (13,831 ) -  
Net sales, constant currency (non-GAAP) 1,018,381 904,792 12.6 %
Less: Acquisitions (19,706 ) -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 998,675   $ 904,792   10.4 %
 
(a) Reflects reclassification between segments for certain geographies to provide comparable financial information.
(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 December 31, 2017 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2016.
 
           
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
 
Net Sales by Segment:
Six months ended December 31,
Worldwide Barcode, Networking & Security: 2017 (a) 2016 (a) % Change
(in thousands)
Net sales, as reported $ 1,340,114 $ 1,221,043 9.8 %
Foreign exchange impact (b) (15,293 ) -  
Net sales, constant currency 1,324,821 1,221,043 8.5 %
Less: Acquisitions (34,259 ) -  
Net sales, constant currency excluding acquisitions $ 1,290,562   $ 1,221,043   5.7 %
 
Worldwide Communications & Services:
Net sales, as reported $ 616,657 $ 616,314 0.1 %
Foreign exchange impact (b) (6,576 ) -  
Net sales, constant currency 610,081 616,314 (1.0 )%
Less: Acquisitions (9,750 ) (2,863 )
Net sales, constant currency excluding acquisitions $ 600,331   $ 613,451   (2.1 )%
 
Consolidated:
Net sales, as reported $ 1,956,771 $ 1,837,357 6.5 %
Foreign exchange impact (b) (21,869 ) -  
Net sales, constant currency 1,934,902 1,837,357 5.3 %
Less: Acquisitions (44,009 ) (2,863 )
Net sales, constant currency excluding acquisitions $ 1,890,893   $ 1,834,494   3.1 %
 
(a) Reflects reclassification between segments for certain geographies to provide comparable financial information.
(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 six months ended December 31, 2017 into U.S. dollars using the average foreign exchange rates for the six months ended December 31, 2016.
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
           
Net Sales by Geography:
Quarter ended December 31,
2017 2016 % Change
United States and Canada: (in thousands)
Net sales, as reported $ 755,312 $ 667,818 13.1 %
Less: Acquisitions (19,706 ) -  
Net sales, excluding acquisitions (non-GAAP) $ 735,606   $ 667,818   10.2 %
 
International:
Net sales, as reported $ 276,900 $ 236,974 16.8 %
Foreign exchange impact (a) (13,831 ) -  
Net sales, constant currency (non-GAAP) 263,069 236,974 11.0 %
Less: Acquisitions -   -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 263,069   $ 236,974   11.0 %
 
Consolidated:
Net sales, as reported $ 1,032,212 $ 904,792 14.1 %
Foreign exchange impact (a) (13,831 ) -  
Net sales, constant currency (non-GAAP) 1,018,381 904,792 12.6 %
Less: Acquisitions (19,706 ) -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 998,675   $ 904,792   10.4 %
 
(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 December 31, 2017 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2016.
 
         
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
 
Net Sales by Geography:
Six months ended December 31,
2017 2016 % Change
United States and Canada: (in thousands)
Net sales, as reported $ 1,441,982 $ 1,377,627 4.7 %
Less: Acquisitions (44,009 ) (2,863 )
Net sales, excluding acquisitions $ 1,397,973   $ 1,374,764   1.7 %
 
International:
Net sales, as reported $ 514,789 $ 459,730 12.0 %
Foreign exchange impact (a) (21,869 ) -  
Net sales, constant currency 492,920 459,730 7.2 %
Less: Acquisitions -   -  
Net sales, constant currency excluding acquisitions $ 492,920   $ 459,730   7.2 %
 
Consolidated:
Net sales, as reported $ 1,956,771 $ 1,837,357 6.5 %
Foreign exchange impact (a) (21,869 ) -  
Net sales, constant currency 1,934,902 1,837,357 5.3 %
Less: Acquisitions (44,009 ) (2,863 )
Net sales, constant currency excluding acquisitions $ 1,890,893   $ 1,834,494   3.1 %
 
(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 six months ended December 31, 2017 into U.S. dollars using the average foreign exchange rates for the six months ended December 31, 2016.
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except per share data)
               
Non-GAAP Financial Information:
Quarter ended December 31, 2017

Operating
income

Pre-tax
income

Net
income

Diluted
EPS

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 (a) -   -   6,689   0.26  
Non-GAAP measure $ 34,741   $ 32,710   $ 23,048   $ 0.90  
 
Quarter ended December 31, 2016

Operating
income

Pre-tax
income

Net
income

Diluted
EPS

GAAP measure $ 23,275 $ 35,781 $ 23,036 $ 0.91
Adjustments:
Amortization of intangible assets 4,165 4,165 2,740 0.11
Change in fair value of contingent consideration 1,791 1,791 1,000 0.04
Acquisition costs (b) 335 335 335 0.01
Legal settlement, net of attorney fees $ -   $ (12,777 ) $ (8,047 ) $ (0.32 )
Non-GAAP measure $ 29,566   $ 29,295   $ 19,064   $ 0.75  
 
(a) As a result of tax reform laws enacted in the United States and Belgium, we recognized a one-time charge of $6.7 million in the three months ended December 31, 2017 from the estimated impact of the inclusion of foreign earnings and revaluation of deferred tax assets and liabilities.

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

 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except percentages)
             
Non-GAAP Financial Information:

Quarter ended
December 31,

Six months ended
December 31,

2017 2016 2017 2016
Return on invested capital (ROIC), annualized (a) 13.3 % 13.8 % 13.1 % 13.4 %
 

Reconciliation of Net Income to Adjusted EBITDA

Net income - GAAP $ 7,969 $ 23,036 $ 12,116 $ 37,852
Plus: Interest expense 2,285 912 3,870 1,501
Plus: Income taxes 12,341 12,745 14,974 20,653
Plus: Depreciation and amortization 9,901   6,588   18,766   11,812  
EBITDA 32,496 43,281 49,726 71,818
Adjustments:
Change in fair value of contingent consideration 6,913 1,791 23,794 1,961
Acquisition costs - 335 172 833
Legal settlement, net of attorney fees -   (12,777 ) 952   (12,777 )
Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 39,409   $ 32,630   $ 74,644   $ 61,835  
 
 

Invested Capital Calculation

Equity - beginning of quarter $ 852,976 $ 773,161 $ 837,145 $ 774,496
Equity - end of quarter 860,787 787,536 860,787 787,536
Adjustments:
Change in fair value of contingent consideration, net of tax 4,742 1,000 11,005 1,046
Acquisition costs, net of tax - 335 172 833
Legal settlement, net of attorney fees, net of tax - (8,047 ) - (8,047 )
Tax reform charges 6,689   -   -   -  
Average equity 862,597 776,993 854,555 777,932
Average funded debt (b) 311,327   162,483   207,838   135,101  
Invested capital (denominator for ROIC) (non-GAAP) $ 1,173,924   $ 939,476   $ 1,062,393   $ 913,033  
 
(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 Quarter
ending March 31, 2018

Range Low Range High
GAAP diluted EPS $ 0.44 $ 0.50
Adjustments:
Amortization of intangible assets 0.14 0.14
Change in fair value of contingent consideration 0.09   0.09
Non-GAAP diluted EPS $ 0.67   $ 0.73
 


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