ScanSource Reports First Quarter Results

Contact: Mary M. Gentry
Title: Treasurer and Director, Investor Relations
Phone: 864.286.4892
Location: Greenville, SC - Worldwide Headquarters
Date: Thursday, October 24, 2013

ScanSource, Inc. (NASDAQ:SCSC), the leading international value-added distributor of specialty technology products, today announced complete financial results for its first quarter ended September 30, 2013.

 

Quarter ended September 30, 2013:

Net sales

$731.9 million

Net income

$19.4 million

Diluted EPS

$0.69 per share

 

“Our quarterly sales results were led by solid year-over-year growth for our North America Communications and Security business units,” said Mike Baur, CEO, ScanSource, Inc.  “Our teams executed well in a slower growth environment, especially internationally where Europe and Brazil achieved better operating results than a year ago.”    

For the quarter ended September 30, 2013, net sales totaled $731.9 million.  This represents a 2.7% increase from the prior quarter’s sales of $712.7 million and a slight decrease from net sales of $733.6 million for the quarter ended September 30, 2012.   Operating income increased 7.7% to $28.2 million from $26.2 million in the comparable prior year quarter.  Net income for the quarter ended September 30, 2013 was $19.4 million, or $0.69 per diluted share, compared with net income of $17.6 million, or $0.63 per diluted share, for the prior year quarter.

Forecast for Next Quarter and Sales Release Update

The Company announced its current expectations for the second quarter of fiscal 2014.  ScanSource expects that net sales for the quarter ending December 31, 2013 could range from $740 million to $760 million, and diluted earnings per share could be in the range of $0.62 to $0.64 per share.  Starting with the quarter ending December 31, 2013, the Company will no longer provide a sales release in the first week following the quarter end.

Webcast Details

ScanSource will present additional information about its financial results and outlook in a conference call with presentation slides today, October 24, 2013, at 5:00 p.m. (ET).  A webcast of the call and accompanying presentations 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, expanded operations in emerging markets, such as Brazil, that expose the Company to greater political and economic volatility than its operations in established markets; additional costs and delays in connection with the Company's new ERP system and associated litigation; the ability to forecast volatility in earnings resulting from the quarterly revaluation of the Company's earnout obligation to the sellers of CDC; and macroeconomic circumstances that could impact the business, such as currency fluctuations,  credit market conditions, and an economic downturn.  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, 2013 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, including net sales excluding the translation impact of foreign currencies and return on invested capital ("ROIC").  Non-GAAP financial measures are used to better understand and evaluate performance, including comparisons from period to period, as described below.

Net sales excluding the translation impact of foreign currencies:  The Company discusses 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.

Return on invested capital ("ROIC"):  Management uses ROIC as a performance measurement to assess efficiency at 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, excludes the results of capitalization decisions, is easily computed and understood, and is considered to have a strong correlation with shareholder value creation.  ROIC also provides management a measure of the Company's profitability on a basis more comparable to historical or future periods. 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 Supplemental Information tables.

About ScanSource, Inc.

ScanSource, Inc. (NASDAQ: SCSC) is the leading international distributor of specialty technology products, focusing on point-of-sale (POS) and barcode, communications and physical security solutions. ScanSource's teams provide value-added services and operate from two technology segments, Worldwide Barcode & Security and Worldwide Communications & Services. ScanSource is committed to helping its reseller customers choose, configure, and deliver the industry's best products across almost every vertical market in North America, Latin America and Europe. Founded in 1992, the Company ranks #711 on the Fortune 1000. For more information, visit www.scansource.com.

 

 

ScanSource, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands)

 

 

September 30, 2013

June 30, 2013*

Assets

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

193,769

 

 

$

148,164

 

Accounts receivable, less allowance of

 

443,256

 

 

435,028

 

$27,966 at September 30, 2013

 

 

 

 

$25,479 at June 30, 2013

 

 

 

 

Inventories

 

433,109

 

 

402,307

 

Prepaid expenses and other current assets

 

43,023

 

 

40,105

 

Deferred income taxes

 

15,522

 

 

16,456

 

Total current assets

 

1,128,679

 

 

1,042,060

 

Property and equipment, net

 

19,545

 

 

20,203

 

Goodwill

 

32,044

 

 

31,795

 

Other non-current assets, including identifiable intangible assets

 

71,589

 

 

70,125

 

Total assets

 

$

1,251,857

 

 

$

1,164,183

 

Liabilities and Shareholders' Equity

 

 

 

Current liabilities:

 

 

 

 

Current portion of contingent consideration

 

$

5,453

 

 

$

3,732

 

Accounts payable

 

417,103

 

 

362,271

 

Accrued expenses and other current liabilities

 

57,967

 

 

59,983

 

Income taxes payable

 

10,730

 

 

1,696

 

Total current liabilities

 

491,253

 

 

427,682

 

Deferred income taxes

 

698

 

 

205

 

Long-term debt

 

5,429

 

 

5,429

 

Long-term portion of contingent consideration

 

4,053

 

 

8,813

 

Other long-term liabilities

 

26,676

 

 

26,098

 

Total liabilities

 

528,109

 

 

468,227

 

Shareholders' equity:

 

 

 

 

Common stock

 

153,905

 

 

149,821

 

Retained earnings

 

588,544

 

 

569,107

 

Accumulated other comprehensive income (loss)

 

(18,701

)

 

(22,972

)

Total shareholders' equity

 

723,748

 

 

695,956

 

Total liabilities and shareholders' equity

 

$

1,251,857

 

 

$

1,164,183

 

 

*

Derived from audited financial statements.

 

 

ScanSource, Inc. and Subsidiaries

Condensed Consolidated Income Statements (Unaudited)

(in thousands)

 

 

 

 

 

Quarter ended

September 30,

 

2013

2012

Net sales

$

731,904

 

 

$

733,605

 

Cost of goods sold

655,405

 

 

659,565

 

Gross profit

76,499

 

 

74,040

 

Operating expenses:

 

 

 

Selling, general and administrative expenses

47,540

 

 

47,061

 

Change in fair value of contingent consideration

738

 

 

764

 

Operating income

28,221

 

 

26,215

 

Other expense (income):

 

 

 

Interest expense

247

 

 

124

 

Interest income

(574

)

 

(633

)

Other, net

109

 

 

(15

)

Income before income taxes

28,439

 

 

26,739

 

Provision for income taxes

9,002

 

 

9,097

 

Net income

$

19,437

 

 

$

17,642

 

Per share data:

 

 

 

Weighted-average shares outstanding, basic

28,034

 

 

27,618

 

Net income per common share, basic

$

0.69

 

 

$

0.64

 

 

 

 

 

Weighted-average shares outstanding, diluted

28,257

 

 

27,901

 

Net income per common share, diluted

$

0.69

 

 

$

0.63

 

 

 

ScanSource, Inc. and Subsidiaries

 

Supplementary Information (Unaudited)

 

(in thousands)

 

 

 

Net Sales by Segment:

 

 

Non-GAAP

Quarter ended    September 30,

 

 

% Change

 

2013

 

2012

 

% Change

 

Excluding FX(a)

Worldwide Barcode & Security

$

450,644

 

 

$

456,187

 

 

(1.2

)%

 

(1.2

)%

Worldwide Communications & Services

281,260

 

 

277,418

 

 

1.4

%

 

1.0

%

Consolidated

$

731,904

 

 

$

733,605

 

 

(0.2

)%

 

(0.4

)%

 

 

 

 

Net Sales by Geographic Segment:

 

 

Non-GAAP

Quarter ended    September 30,

 

 

% Change

 

2013

 

2012

 

% Change

 

Excluding FX(b)

North American (U.S. and Canada)

$

558,340

 

 

$

545,813

 

 

2.3

%

 

2.3

%

International

173,564

 

 

187,792

 

 

(7.6

)%

 

(8.1

)%

Consolidated

$

731,904

 

 

$

733,605

 

 

(0.2

)%

 

(0.4

)%

 

 

 

 

 

Non-GAAP Financial Information:

Quarter ended    September 30,

 

 

 

 

2013

 

2012

 

 

 

 

Return on invested capital (ROIC), annualized (c)

16.9

%

 

17.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to EBITDA

 

 

 

 

 

 

 

Net income - GAAP

$

19,437

 

 

$

17,642

 

 

 

 

 

Plus:  Income taxes

9,002

 

 

9,097

 

 

 

 

 

Plus:  Interest expense

247

 

 

124

 

 

 

 

 

Plus:  Depreciation and amortization

1,869

 

 

2,314

 

 

 

 

 

EBITDA (numerator for ROIC) (non-GAAP)

$

30,555

 

 

$

29,177

 

 

 

 

 

(a)    Depreciation & amortization for the quarter ended September 30, 2012 includes debt issue costs of $0.1 million.

 

 

 

 

 

 

 

 

 

 

 

 

Invested Capital Calculation

 

 

 

 

 

 

 

Equity - beginning of quarter

$

695,956

 

 

$

652,311

 

 

 

 

 

Equity - end of quarter

723,748

 

 

676,136

 

 

 

 

 

Average equity

709,852

 

 

664,224

 

 

 

 

 

Average funded debt (d)

5,429

 

 

16,563

 

 

 

 

 

Invested capital (denominator for ROIC) (non-GAAP)

$

715,281

 

 

$

680,787

 

 

 

 

 

 

 

 

Notes:

 

 

 

 

 

 

 

(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, 2013 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended September 30, 2012.  Worldwide Barcode & Security net sales excluding the translation impact of foreign currencies for the quarter September 30, 2013, as adjusted, totaled $450.8 million.  Worldwide Communications & Services net sales excluding the translation impact of foreign currencies for the quarter ended September 30, 2013, as adjusted, totaled $280.2 million.

 

(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 September 30, 2013 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended September 30, 2012.  International net sales excluding the translation impact of foreign currencies for the quarter ended September 30, 2013, as adjusted, totaled $172.6 million.

 

(c) Calculated as net income plus interest expense, income taxes, depreciation and amortization (EBITDA), annualized and divided by invested capital for the period.

 

(d) Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.