ScanSource Reports Second Quarter Results

Contact: Mary M. Gentry
Title: Treasurer and Director, Investor Relations
Phone: 864.286.4892
Location: Greenville, SC - Worldwide Headquarters
Date: Thursday, January 30, 2014

ScanSource, Inc. (NASDAQ:SCSC), the leading international value-added distributor of specialty technology products, today announced financial results for its second quarter in fiscal year 2014, for the period ended December 31, 2013.

 

Quarter ended December 31, 2013:

Net sales

$740.6

million

Net income

$18.3

million

Diluted EPS

$0.64

per share

 

"Year-over-year growth for both of our communications business units in North America drove strong operating performance," said Mike Baur, CEO, ScanSource, Inc. "Our worldwide POS and barcode business units showed improved market demand, and quarterly revenues for Brazil were an all-time record."   

For the quarter ended December 31, 2013, net sales totaled $740.6 million.  This represents a 1.2% increase from the prior quarter’s sales of $731.9 million and a 0.9% decrease from net sales of $747.7 million for the quarter ended December 31, 2012.   Operating income totaled $27.5 million, compared with $24.4 million in the prior year quarter.  Net income for the quarter ended December 31, 2013 totaled $18.3 million, or $0.64 per diluted share, compared with net income of $16.4 million, or $0.59 per diluted share, for the prior year quarter. Excluding expenses associated with Belgian tax compliance and personnel replacement costs, adjusted net income for the quarter ended December 31, 2012 totaled $17.8 million, or $0.64 per diluted share.

Forecast for Next Quarter
The Company announced its current expectations for the third quarter of fiscal year 2014.  ScanSource expects that net sales for the quarter ending March 31, 2014 could range from $700 million to $720 million, and diluted earnings per share could be in the range of $0.53 to $0.55 per share. 

Webcast Details
ScanSource will present additional information about its financial results and outlook in a conference call with presentation slides today, January 30, 2014, 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; costs and delays in connection with the Company's new ERP system and the costs associated with the litigation of the prior ERP system project; 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 and the Company's quarterly report on Form 10-Q for the quarter ended September 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 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, 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. 

Adjusted net income and adjusted EPS: To evaluate current period performance on a clearer and more consistent basis with prior periods, the Company discloses adjusted net income and adjusted diluted earnings per share, which exclude costs associated with tax compliance and personnel replacement in the Company's Belgian office for the quarter ended December 31, 2012. Management believes that these historical items are outside of the Company's normal operating expenses. Adjusted net income and adjusted EPS are useful in better assessing and understanding the Company's operating performance, especially when comparing results with previous periods or forecasting performance for future periods.

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 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)

 

 

December 31, 2013

 

June 30, 2013*

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

157,130

 

 

$

148,164

 

Accounts receivable, less allowance of

 

438,358

 

 

435,028

 

$29,545 at December 31, 2013

 

 

 

 

$25,479 at June 30, 2013

 

 

 

 

Inventories

 

467,202

 

 

402,307

 

Prepaid expenses and other current assets

 

40,731

 

 

40,105

 

Deferred income taxes

 

16,815

 

 

16,456

 

Total current assets

 

1,120,236

 

 

1,042,060

 

Property and equipment, net

 

18,890

 

 

20,203

 

Goodwill

 

31,994

 

 

31,795

 

Other non-current assets, including identifiable intangible assets

 

67,182

 

 

70,125

 

Total assets

 

$

1,238,302

 

 

$

1,164,183

 

Liabilities and Shareholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of contingent consideration

 

$

5,229

 

 

$

3,732

 

Accounts payable

 

383,996

 

 

362,271

 

Accrued expenses and other current liabilities

 

59,705

 

 

59,983

 

Income taxes payable

 

2,137

 

 

1,696

 

Total current liabilities

 

451,067

 

 

427,682

 

Deferred income taxes

 

201

 

 

205

 

Long-term debt

 

5,429

 

 

5,429

 

Long-term portion of contingent consideration

 

4,318

 

 

8,813

 

Other long-term liabilities

 

25,841

 

 

26,098

 

Total liabilities

 

486,856

 

 

468,227

 

Shareholders' equity:

 

 

 

 

Common stock

 

163,680

 

 

149,821

 

Retained earnings

 

606,842

 

 

569,107

 

Accumulated other comprehensive income (loss)

 

(19,076

)

 

(22,972

)

Total shareholders' equity

 

751,446

 

 

695,956

 

Total liabilities and shareholders' equity

 

$

1,238,302

 

 

$

1,164,183

 

 

*

Derived from audited financial statements.

 

 

ScanSource, Inc. and Subsidiaries

Condensed Consolidated Income Statements (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

December 31,

 

Six months ended  

December 31,

 

 

2013

 

2012

 

2013

 

2012

Net sales

 

$

740,618

 

 

$

747,716

 

 

$

1,472,522

 

 

$

1,481,320

 

Cost of goods sold

 

663,362

 

 

673,365

 

 

1,318,767

 

 

1,332,930

 

Gross profit

 

77,256

 

 

74,351

 

 

153,755

 

 

148,390

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

49,296

 

 

49,393

 

 

96,836

 

 

96,454

 

Change in fair value of contingent consideration

 

499

 

 

533

 

 

1,237

 

 

1,296

 

Operating income

 

27,461

 

 

24,425

 

 

55,682

 

 

50,640

 

Other expense (income):

 

 

 

 

 

 

 

 

Interest expense

 

235

 

 

130

 

 

482

 

 

254

 

Interest income

 

(525

)

 

(532

)

 

(1,099

)

 

(1,166

)

Other, net

 

(58

)

 

53

 

 

51

 

 

39

 

Income before income taxes

 

27,809

 

 

24,774

 

 

56,248

 

 

51,513

 

Provision for income taxes

 

9,511

 

 

8,417

 

 

18,513

 

 

17,514

 

Net income

 

$

18,298

 

 

$

16,357

 

 

$

37,735

 

 

$

33,999

 

Per share data:

 

 

 

 

 

 

 

 

Weighted-average shares outstanding, basic

 

28,293

 

 

27,713

 

 

28,164

 

 

27,665

 

Net income per common share, basic

 

$

0.65

 

 

$

0.59

 

 

$

1.34

 

 

$

1.23

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding, diluted

 

28,597

 

 

27,958

 

 

28,434

 

 

27,928

 

Net income per common share, diluted

 

$

0.64

 

 

$

0.59

 

 

$

1.33

 

 

$

1.22

 

 

 

ScanSource, Inc. and Subsidiaries

 

Supplementary Information (Unaudited)

 

(in thousands)

 

 

 

 

 

 

 

Net Sales by Segment:

 

 

 

 

 

 

Quarter ended         December 31,

 

 

 

Non-GAAP      % Change

 

2013

 

2012

 

% Change

 

Excluding FX(a)

Worldwide Barcode & Security

$

476,206

 

 

$

489,075

 

 

(2.6

)%

 

(2.7

)%

Worldwide Communications & Services

264,412

 

 

258,641

 

 

2.2

%

 

1.9

%

Consolidated

$

740,618

 

 

$

747,716

 

 

(0.9

)%

 

(1.1

)%

 

 

 

 

 

 

 

Six months ended    December 31,

 

 

 

Non-GAAP      % Change

 

2013

 

2012

 

% Change

 

Excluding FX(a)

Worldwide Barcode & Security

$

926,850

 

 

$

945,262

 

 

(1.9

)%

 

(2.0

)%

Worldwide Communications & Services

545,672

 

 

536,058

 

 

1.8

%

 

1.5

%

Consolidated

$

1,472,522

 

 

$

1,481,320

 

 

(0.6

)%

 

(0.7

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales by Geographic Segment:

 

 

 

 

 

 

Quarter ended          December 31,

 

 

 

Non-GAAP     % Change

 

2013

 

2012

 

% Change

 

Excluding FX(b)

North American (U.S. and Canada)

$

545,089

 

 

$

547,987

 

 

(0.5

)%

 

(0.5

)%

International

195,529

 

 

199,729

 

 

(2.1

)%

 

(2.7

)%

Consolidated

$

740,618

 

 

$

747,716

 

 

(0.9

)%

 

(1.1

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended   December 31,

 

 

 

Non-GAAP     % Change

 

2013

 

2012

 

% Change

 

Excluding FX(b)

North American (U.S. and Canada)

$

1,103,429

 

 

$

1,093,799

 

 

0.9

%

 

0.9

%

International

369,093

 

 

387,521

 

 

(4.8

)%

 

(5.3

)%

        Consolidated

$

1,472,522

 

 

$

1,481,320

 

 

(0.6

)%

 

(0.7

)%

 

 

 

 

 

 

 

 

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 and six months ended December 31, 2013 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended and six months ended December 31, 2012, respectively.  Worldwide Barcode & Security net sales excluding the translation impact of foreign currencies for the quarter ended and six months ended December 31, 2013, as adjusted, totaled $475.8 million and $926.5 million, respectively.  Worldwide Communications & Services net sales excluding the translation impact of foreign currencies for the quarter ended  and six months ended December 31, 2013, as adjusted, totaled $263.6 million and $543.9 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 and six months ended December 31, 2013 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended and six months ended December 31, 2012, respectively.  International net sales excluding the translation impact of foreign currencies for the quarter ended and six months ended December 31, 2013, as adjusted, totaled $194.3 million and $367.0 million, respectively.

 

 

 

 

 

 

 

 

Non-GAAP Financial Information:

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended                    December 31, 2013

 

Quarter ended                        December 31, 2012

 

Pre-tax income

 

Net Income

 

Diluted EPS

 

Pre-tax Income

 

Net Income

 

Diluted EPS

GAAP Measure

$

27,809

 

 

$

18,298

 

 

$

0.64

 

 

$

24,774

 

 

$

16,357

 

 

$

0.59

 

Non-GAAP Adjustment(a)

 

 

 

 

 

 

2,121

 

 

1,400

 

 

0.05

 

Non-GAAP Measure

$

27,809

 

 

$

18,298

 

 

$

0.64

 

 

$

26,895

 

 

$

17,757

 

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended    December 31,

 

 

 

 

 

 

 

 

 

2013

 

2012

 

 

 

 

 

 

 

 

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

15.9

%

 

15.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to EBITDA

 

 

 

 

 

 

 

 

 

 

 

Net income - GAAP

$

18,298

 

 

$

16,357

 

 

 

 

 

 

 

 

 

Plus:  Income taxes

9,511

 

 

8,417

 

 

 

 

 

 

 

 

 

Plus:  Interest expense

235

 

 

130

 

 

 

 

 

 

 

 

 

Plus: Depreciation and amortization (c)

1,778

 

 

2,275

 

 

 

 

 

 

 

 

 

EBITDA (numerator for ROIC)                   (non-GAAP)

$

29,822

 

 

$

27,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Invested Capital Calculation

 

 

 

 

 

 

 

 

 

 

 

Equity - beginning of quarter

$

723,748

 

 

$

676,136

 

 

 

 

 

 

 

 

 

Equity - end of quarter

751,446

 

 

696,960

 

 

 

 

 

 

 

 

 

Average equity

737,597

 

 

686,548

 

 

 

 

 

 

 

 

 

Average funded debt (d)

5,429

 

 

23,850

 

 

 

 

 

 

 

 

 

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

$

743,026

 

 

$

710,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

 

 

 

 

 

 

 

 

 

 

 

(a) Expenses associated with Belgian tax compliance and personnel replacement costs, including related professional fees.

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

(c) Depreciation and amortization for the quarter ended December 31, 2012 includes debt issuance costs of $0.1 million.

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