Unified Communications Industry News


TMCNet:  ScanSource Reports Third Quarter Results

[May 08, 2018]

ScanSource Reports Third Quarter Results

ScanSource, Inc. (NASDAQ: SCSC), a leading global provider of technology products and solutions, today announced financial results for the third quarter ended March 31, 2018.



 
Quarter ended March 31,
2018   2017   Change
(in millions, except per share data)
Net sales $ 895.6   $ 813.5   10 %
Operating income 17.9 20.0 (10 )%
Non-GAAP operating income(1) 27.8 26.2 6 %
GAAP net income 10.6 12.4 (14 )%
Non-GAAP net income(1) 17.5 16.4 7 %
GAAP diluted EPS $ 0.42 $ 0.49 (14 )%
Non-GAAP diluted EPS(1) $ 0.68 $ 0.65 5 %
 
(1) Non-GAAP results exclude amortization of intangible assets related to acquisitions and change in fair value of contingent consideration. A reconciliation of non-GAAP financial information to GAAP financial information is presented in the Supplementary Information (Unaudited) below.
 

"ScanSource delivered another quarter of very good financial results, with 10% net sales growth for both of our segments and 12% gross profit growth," said Mike Baur, CEO, ScanSource, Inc. "Our teams did a great job this quarter achieving 5% organic sales growth, while executing our strategic plan for growth."

For the third quarter of fiscal year 2018, net sales increased 10% to $895.6 million, driven by sales growth in both Worldwide segments. Organic sales growth, which excludes the impact from foreign currency translation and a recent acquisition, was 5.4%. Operating income decreased to $17.9 million from increased expense for the change in fair value of contingent consideration. Non-GAAP operating income increased 6% to $27.8 million, primarily from higher sales volume, higher gross margin and the addition of the POS Portal acquisition.

On a GAAP basis, net income for the quarter totaled $10.6 million, or $0.42 per diluted share, compared with net income of $12.4 million, or $0.49 per diluted share, for the prior-year quarter. Non-GAAP net income for the third quarter of fiscal year 2018 increased to $17.5 million, or $0.68 per diluted share.

Forecast for Next Quarter

For the fourth quarter of fiscal year 2018, ScanSource expects net sales to range from $940 million to $1 billion, diluted earnings per share to range from $0.48 to $0.54 per share, and non-GAAP diluted earnings per share to range from $0.74 to $0.80 per share. Non-GAAP diluted earnings per share exclude amortization of intangible assets related to acquisitions and change in fair value of contingent consideration.

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, May 8, 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 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 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)
 
        March 31, 2018     June 30, 2017*
Assets
Current assets:
Cash and cash equivalents $ 35,361 $ 56,094
Accounts receivable, less allowance of $47,139 at March 31, 2018 and $44,434 at June 30, 2017 664,091 637,293
Inventories 569,538 531,314
Prepaid expenses and other current assets 71,923   56,322  
Total current assets 1,340,913 1,281,023
Property and equipment, net 74,582 56,566
Goodwill 303,458 200,881
Net identifiable intangible assets 143,726 101,513
Deferred income taxes 12,795 29,491
Other non-current assets 52,501   48,829  
Total assets $ 1,927,975   $ 1,718,303  
 
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 471 $ -
Accounts payable 496,688 513,155
Accrued expenses and other current liabilities 96,006 104,715
Current portion of contingent consideration 40,802 30,675
Income taxes payable 7,500   7,730  
Total current liabilities 641,467 656,275
Deferred income taxes 10,582 2,008
Long-term debt 4,957 5,429
Borrowings under revolving credit facility 276,730 91,871
Long-term portion of contingent consideration 60,976 83,361
Other long-term liabilities 55,467   42,214  
Total liabilities 1,050,179 881,158
Shareholders' equity:
Common stock 66,501 61,169
Retained earnings 871,945 849,180
Accumulated other comprehensive income (loss) (60,650 ) (73,204 )
Total shareholders' equity 877,796   837,145  
Total liabilities and shareholders' equity $ 1,927,975   $ 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 March 31, Nine months ended March 31,
2018 2017 2018 2017
Net sales $ 895,637 $ 813,538 $ 2,852,408 $ 2,650,895
Cost of goods sold 791,749   720,867   2,529,632   2,368,155  
Gross profit 103,888 92,671 322,776 282,740
Selling, general and administrative expenses 72,691 63,853 220,642 193,999
Depreciation expense 3,352 2,663 10,059 7,155
Intangible amortization expense 5,103 4,217 15,600 11,537
Change in fair value of contingent consideration 4,801   1,960   28,595   3,921  
Operating income 17,941 19,978 47,880 66,128
Interest expense 2,784 780 6,655 2,281
Interest income (887 ) (1,040 ) (2,349 ) (2,948 )
Other (income) expense, net 252   667   691   (11,280 )
Income before income taxes 15,792 19,571 42,883 78,075
Provision for income taxes 5,143   7,147   20,118   27,799  
Net income $ 10,649   $ 12,424   $ 22,765   $ 50,276  
Per share data:
Net income per common share, basic $ 0.42   $ 0.49   $ 0.89   $ 1.99  
Weighted-average shares outstanding, basic 25,572   25,262   25,503   25,311  
 
Net income per common share, diluted $ 0.42   $ 0.49   $ 0.89   $ 1.97  
Weighted-average shares outstanding, diluted 25,606   25,400   25,607   25,458  
 
 
 
 
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
 
Net Sales by Segment:
    Quarter ended March 31,  
2018   2017 % Change
Worldwide Barcode, Networking & Security: (in thousands)
Net sales, as reported $ 604,322 $ 548,971 10.1 %
Foreign exchange impact (a) (12,949 ) -  
Net sales, constant currency (non-GAAP) 591,373 548,971 7.7 %
Less: Acquisitions (22,361 ) -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 569,012   $ 548,971   3.7 %
 
Worldwide Communications & Services:
Net sales, as reported $ 291,315 $ 264,567 10.1 %
Foreign exchange impact (a) (2,697 ) -  
Net sales, constant currency (non-GAAP) 288,618 264,567 9.1 %
Less: Acquisitions -   -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 288,618   $ 264,567   9.1 %
 
Consolidated:
Net sales, as reported $ 895,637 $ 813,538 10.1 %
Foreign exchange impact (a) (15,646 ) -  
Net sales, constant currency (non-GAAP) 879,991 813,538 8.2 %
Less: Acquisitions (22,361 ) -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 857,630   $ 813,538   5.4 %
 

(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 March 31, 2018 into U.S. dollars using the average foreign exchange rates for the quarter ended March 31, 2017.

 
 
 
 
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
 
Net Sales by Segment:
    Nine months ended March 31,  
Worldwide Barcode, Networking & Security: 2018   2017 % Change
(in thousands)
Net sales, as reported $ 1,944,436 $ 1,770,015 9.9 %
Foreign exchange impact (a) (28,243 ) -  
Net sales, constant currency 1,916,193 1,770,015 8.3 %
Less: Acquisitions (56,620 ) -  
Net sales, constant currency excluding acquisitions $ 1,859,573   $ 1,770,015   5.1 %
 
Worldwide Communications & Services:
Net sales, as reported $ 907,972 $ 880,880 3.1 %
Foreign exchange impact (a) (9,273 ) -  
Net sales, constant currency 898,699 880,880 2.0 %
Less: Acquisitions (9,750 ) (2,863 )
Net sales, constant currency excluding acquisitions $ 888,949   $ 878,017   1.2 %
 
Consolidated:
Net sales, as reported $ 2,852,408 $ 2,650,895 7.6 %
Foreign exchange impact (a) (37,516 ) -  
Net sales, constant currency 2,814,892 2,650,895 6.2 %
Less: Acquisitions (66,370 ) (2,863 )
Net sales, constant currency excluding acquisitions $ 2,748,522   $ 2,648,032   3.8 %
 

(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 nine months ended March 31, 2018 into U.S. dollars using the average foreign exchange rates for the nine months ended March 31, 2017.

 
 
 
 
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
 
Net Sales by Geography:
    Quarter ended March 31,  
2018   2017 % Change
United States and Canada: (in thousands)
Net sales, as reported $ 653,537 $ 613,157 6.6 %
Less: Acquisitions (22,361 ) -  
Net sales, excluding acquisitions (non-GAAP) $ 631,176   $ 613,157   2.9 %
 
International:
Net sales, as reported $ 242,100 $ 200,381 20.8 %
Foreign exchange impact (a) (15,646 ) -  
Net sales, constant currency (non-GAAP) 226,454 200,381 13.0 %
Less: Acquisitions -   -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 226,454   $ 200,381   13.0 %
 
Consolidated:
Net sales, as reported $ 895,637 $ 813,538 10.1 %
Foreign exchange impact (a) (15,646 ) -  
Net sales, constant currency (non-GAAP) 879,991 813,538 8.2 %
Less: Acquisitions (22,361 ) -  
Net sales, constant currency excluding acquisitions (non-GAAP) $ 857,630   $ 813,538   5.4 %
 

(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 March 31, 2018 into U.S. dollars using the average foreign exchange rates for the quarter ended March 31, 2017.

 
 
 
 
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
       
Net Sales by Geography:
Nine months ended March 31,
2018 2017 % Change
United States and Canada: (in thousands)
Net sales, as reported $ 2,095,519 $ 1,990,784 5.3 %
Less: Acquisitions (66,370 ) (2,863 )
Net sales, excluding acquisitions $ 2,029,149   $ 1,987,921   2.1 %
 
International:
Net sales, as reported $ 756,889 $ 660,111 14.7 %
Foreign exchange impact (a) (37,516 ) -  
Net sales, constant currency 719,373 660,111 9.0 %
Less: Acquisitions -   -  
Net sales, constant currency excluding acquisitions $ 719,373   $ 660,111   9.0 %
 
Consolidated:
Net sales, as reported $ 2,852,408 $ 2,650,895 7.6 %
Foreign exchange impact (a) (37,516 ) -  
Net sales, constant currency 2,814,892 2,650,895 6.2 %
Less: Acquisitions (66,370 ) (2,863 )
Net sales, constant currency excluding acquisitions $ 2,748,522   $ 2,648,032   3.8 %
 

(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 nine months ended March 31, 2018 into U.S. dollars using the average foreign exchange rates for the nine months ended March 31, 2017.

 
 
 
 
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except per share data)
                       
Non-GAAP Financial Information:
Quarter ended March 31, 2018

Operating

income

Pre-tax

income

Net

income

Diluted

EPS

GAAP measure $ 17,941 $ 15,792 $ 10,649 $ 0.42
Adjustments:
Amortization of intangible assets 5,103 5,103 3,590 0.14
Change in fair value of contingent consideration 4,801   4,801   3,272   0.12  
Non-GAAP measure $ 27,845   $ 25,696   $ 17,511   $ 0.68  
 
 
Quarter ended March 31, 2017

Operating

income

Pre-tax

income

Net

income

Diluted

EPS

GAAP measure $ 19,978 $ 19,571 $ 12,424 $ 0.49
Adjustments:
Amortization of intangible assets 4,217 4,217 2,774 0.11
Change in fair value of contingent consideration 1,960   1,960   1,194   0.05  
Non-GAAP measure $ 26,155   $ 25,748   $ 16,392   $ 0.65  
 
 
 
 
 
 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except percentages)
 
Non-GAAP Financial Information:
    Quarter ended

March 31,

 

Nine months ended

March 31,

2018   2017 2018   2017
Return on invested capital (ROIC), annualized (a) 11.2 % 12.6 % 12.4 % 13.1 %
 

Reconciliation of Net Income to Adjusted EBITDA

Net income - GAAP $ 10,649 $ 12,424 $ 22,765 $ 50,276
Plus: Interest expense 2,784 780 6,655 2,281
Plus: Income taxes 5,143 7,147 20,118 27,799
Plus: Depreciation and amortization 9,438   6,880   28,204   18,692  
EBITDA 28,014 27,231 77,742 99,048
Adjustments:
Change in fair value of contingent consideration 4,801 1,960 28,595 3,921
Acquisition costs - - 172 833
Legal settlement, net of attorney fees -   -   952   (12,777 )
Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 32,815   $ 29,191   $ 107,461   $ 91,025  
 
 

Invested Capital Calculation

Equity - beginning of quarter $ 860,787 $ 787,536 $ 837,145 $ 774,496
Equity - end of quarter 877,796 808,719 877,796 808,719
Adjustments:
Change in fair value of contingent consideration, net of tax 3,272 1,194 19,018 2,241
Acquisition costs, net of tax - - 172 833
Legal settlement, net of attorney fees, net of tax - - 771 (8,047 )
Tax reform charges -   -   6,689   -  
Average equity 870,928 798,725 870,796 789,121
Average funded debt (b) 315,872   137,597   283,819   135,921  
Invested capital (denominator for ROIC) (non-GAAP) $ 1,186,800   $ 936,322   $ 1,154,615   $ 925,042  
 

(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 June 30, 2018

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 0.12   0.12  
Non-GAAP diluted EPS $ 0.74   $ 0.80  
 
 
 
 


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