ScanSource Achieves Record Sales Quarter

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 international operations that expose the Company to greater risks than its operations in domestic markets; risks in connection with our growth which includes strategic acquisitions; costs and delays in connection with the Company's new ERP system; the ability to forecast volatility in earnings resulting from the quarterly revaluation of the Company's earnout obligations; 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; 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, 2014, 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. The Company completed acquisitions on September 19, 2014 and January 13, 2015, which were both structured with earnout payments. Given the size of the acquisitions and potential variability of fair value adjustments on operating results, non-GAAP results exclude amortization of intangible assets related to acquisitions and change in fair value of contingent consideration.

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.

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 acquisition costs. Non-GAAP operating income, non-GAAP net income, and non-GAAP EPS measures 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.

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 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 #751 on the Fortune 1000. For more information, visit www.scansource.com.

 

ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
			December 31, 2014				June 30, 2014*
Assets
Current assets:
Cash and cash equivalents			$	121,513			$	194,851
Accounts receivable, less allowance of $22,125 at December 31, 2014			490,713				464,405
and $26,257 at June 30, 2014
Inventories			518,419				504,758
Prepaid expenses and other current assets			39,872				33,558
Deferred income taxes			18,246				18,109
Total current assets			1,188,763				1,215,681
Property and equipment, net			43,232				31,823
Goodwill			48,966				32,342
Other non-current assets, including net identifiable intangible assets			69,531				55,278
Total assets			$	1,350,492			$	1,335,124
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable			$	419,614			$	421,721
Accrued expenses and other current liabilities			66,477				63,574
Current portion of contingent consideration			7,582				5,851
Income taxes payable			1,935				8,685
Total current liabilities			495,608				499,831
Deferred income taxes			3,931				185
Long-term debt			5,429				5,429
Long-term portion of contingent consideration			2,423				5,256
Other long-term liabilities			24,353				21,780
Total liabilities			531,744				532,481
Shareholders' equity:
Common stock			171,825				168,447
Retained earnings			686,925				650,896
Accumulated other comprehensive income (loss)			(40,002		)		(16,700		)
Total shareholders' equity			818,748				802,643
Total liabilities and shareholders' equity			$	1,350,492			$	1,335,124
*	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,
		2014				2013				2014				2013
Net sales		$	807,019			$	740,618			$	1,598,738			$	1,472,522
Cost of goods sold		728,908				663,362				1,442,981				1,318,767
Gross profit		78,111				77,256				155,757				153,755
Selling, general and administrative expenses		51,658				49,296				99,813				96,836
Change in fair value of contingent consideration		463				499				976				1,237
Operating income		25,990				27,461				54,968				55,682
Interest expense		207				235				397				482
Interest income		(492		)		(525		)		(1,327		)		(1,099		)
Other, net		337				(58		)		724				51
Income before income taxes		25,938				27,809				55,174				56,248
Provision for income taxes		9,117				9,511				19,145				18,513
Net income		$	16,821			$	18,298			$	36,029			$	37,735
Per share data:
Net income per common share, basic		$	0.59			$	0.65			$	1.26			$	1.34
Weighted-average shares outstanding, basic		28,579				28,293				28,562				28,164
Net income per common share, diluted		$	0.58			$	0.64			$	1.25			$	1.33
Weighted-average shares outstanding, diluted		28,831				28,597				28,813				28,434