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ScanSource Reports Second Quarter Results

February 07, 2017 – ScanSource, Inc. (NASDAQ: SCSC), a leading global provider of technology products and solutions, today announced financial results for the second quarter of its fiscal year 2017, which ended December 31, 2016.

Quarter ended December 31, Quarter ended September 30, Quarter ended December 31, Year-over-

Year

Quarter-over-Quarter
2016 2016 2015 Change Change
(in millions, except per share data)
Net sales $ 904.8 $ 932.6 $ 993.5 (9 )% (3 )%
Operating income 23.3 22.9 31.9 (27 )% 2 %
Non-GAAP operating income(1) 29.6 26.7 36.3 (18 )% 11 %
GAAP net income 23.0 14.8 20.7 12 % 55 %
Non-GAAP net income(1) 19.1 17.5 23.7 (20 )% 9 %
GAAP diluted EPS $ 0.91 $ 0.58 $ 0.77 18 % 57 %
Non-GAAP diluted EPS(1) $ 0.75 $ 0.68 $ 0.88 (15 )% 10 %
(1) A reconciliation of non-GAAP financial information to GAAP financial information is presented in the Supplementary Information (Unaudited) below.

“We are pleased to deliver strong bottom-line results, despite top-line growth challenges,” said Mike Baur, CEO, ScanSource, Inc.”Our core business achieved better than expected profitability from higher gross margins. In addition, the recurring revenues and higher margins from our successful Intelisys acquisition led to these strong results.”

For the second quarter of fiscal year 2017, net sales of $904.8 million decreased from $993.5 million in the prior year quarter and $932.6 million in the sequential quarter.  These decreases were primarily due to lower sales volume in the Worldwide Barcode, Networking and Security segment. Lower sales volume contributed to the decrease in operating income to $23.3 million and non-GAAP operating income to $29.6 million compared with the prior year quarter. On a sequential quarter basis, the full quarter impact of the addition of the Intelisys acquisition drove the increase in both operating income and non-GAAP operating income. For the second quarter of fiscal year 2017, other income included $12.8 million pre-tax for a legal settlement, net of attorney fees.

On a GAAP basis, net income for the quarter totaled $23.0 million, or $0.91 per diluted share, compared with net income of $20.7 million, or $0.77 per diluted share, for the prior year quarter and net income of $14.8 million, or $0.58 per diluted share, for the sequential quarter.  Non-GAAP net income for the second quarter of fiscal year 2017 totaled $19.1 million, or $0.75 per diluted share, representing decreases compared with the prior year and increases compared with the sequential quarter.

Share Repurchase Update

In August 2016, ScanSource announced a new $120 million three-year authorization by its Board of Directors to repurchase shares of the Company’s common stock.  Under this authorization through December 31, 2016, the Company has repurchased approximately 0.6 million shares for approximately $20.3 million.

Forecast for Next Quarter

For the third quarter of fiscal year 2017, ScanSource expects net sales to range from $800 million to $860 million, diluted earnings per share to range from $0.42 to $0.49 per share, and non-GAAP diluted earnings per share to range from $0.62 to $0.69 per share. Non-GAAP diluted earnings per share exclude amortization of intangibles and change in fair value of contingent consideration.

Webcast Details

ScanSource will present additional information about its financial results and outlook in a conference call with presentation slides today, February 7, 2017 at 5:00 p.m. (ET).  A webcast of the call and accompanying presentation 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, including the forecast for next quarter, contains “forward-looking” statements that involve risks and uncertainties.  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 the Company’s growth which includes strategic acquisitions; risks in connection with compliance with laws and regulations governing the Company’s international business; risks associated with the Company’s reliance on key vendors;   the ability to forecast volatility in earnings resulting from the quarterly revaluation of the Company’s earnout obligations; utilization and further implementation of the Company’s ERP system; macroeconomic circumstances that could impact the business, such as currency fluctuations, credit market conditions, and an economic downturn; expectations of market demand trends; 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, 2016, and subsequent reports on Form 10-Q, 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, and other non-GAAP adjustments.

Net sales on a constant currency basis:  The Company discloses 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 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 other non-GAAP adjustments. Non-GAAP operating income, non-GAAP net income, and non-GAAP 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. Adjusted earnings before interest expense, income taxes, depreciation and amortization (“Adjusted 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 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), barcode, physical security, video, voice, data networking and technology services. ScanSource’s teams provide value-added solutions and operate from two segments, Worldwide Barcode, Networking & Security and Worldwide Communications & Services. ScanSource is committed to helping its resellers and sales partners choose, configure and deliver the industry’s best solutions across almost every vertical market in North America, Latin America and Europe. In August 2016, ScanSource entered the recurring revenue telecom and cloud services market through its acquisition of Intelisys, the industry’s leading technology services distributor. Founded in 1992, the Company is headquartered in Greenville, South Carolina and was named one of the 2016 Best Places to Work in South Carolina. ScanSource ranks #685 on the Fortune 1000. For more information, visit www.scansource.com.

See the full press release with charts here.

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