ScanSource Reports Third Quarter Results - Net Sales Up, EPS Up
| Quarter ended March 31, | ||||||||||
| 2016 | 2015 | Change | ||||||||
| (in millions, except per share data) | ||||||||||
| Net sales | $ | 798.4 | $ | 763.2 | 5 | % | ||||
| Operating income | 21.6 | 21.5 | 1 | % | ||||||
| Non-GAAP operating income(1) | 25.3 | 24.2 | 5 | % | ||||||
| GAAP net income | 14.0 | 12.9 | 8 | % | ||||||
| Non-GAAP net income(1) | 16.5 | 14.9 | 11 | % | ||||||
| GAAP diluted EPS | $ | 0.54 | $ | 0.45 | 20 | % | ||||
| Non-GAAP diluted EPS(1) | $ | 0.64 | $ | 0.52 | 23 | % | ||||
|
(1) A reconciliation of non-GAAP financial information to GAAP financial information is presented in the following Supplementary Information (Unaudited) tables. |
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“Although sales fell below our expected range primarily from a lower volume of big deals, we are pleased to deliver EPS growth of 20%,” said Mike Baur, CEO, ScanSource, Inc. “Our 10.6% gross margin reflects the value-added services we provide to our customers and vendors.”
Net sales for the quarter ended March 31, 2016 increased 5% year-over-year to $798.4 million. The increase in net sales includes the acquisition of KBZ in September 2015. Net sales in constant currency excluding acquisitions decreased 1% year-over-year.
Operating income for the quarter ended March 31, 2016 totaled $21.6 million. Non-GAAP operating income of $25.3 million increased 5% year-over-year from $24.2 million.
On a GAAP basis, net income for the quarter ended March 31, 2016 totaled $14.0 million, or $0.54 per diluted share, compared with net income of $12.9 million, or $0.45 per diluted share, for the prior year quarter. Non-GAAP net income for the quarter ended March 31, 2016 of $16.5 million increased 11%, and non-GAAP diluted earnings per share of $0.64 increased 23% year-over-year.
Share Repurchase Update
During the quarter ended March 31, 2016, ScanSource repurchased approximately 0.9 million shares for an aggregate purchase price of approximately $26.8 million. Under the Company’s $120 million share repurchase authorization through March 31, 2016, ScanSource has repurchased approximately 3.3 million shares for approximately $117.2 million, having executed over 97% of the total authorization.
Forecast for Next Quarter
The Company announced its current expectations for the fourth quarter of fiscal year 2016. ScanSource expects net sales for the quarter ending June 30, 2016 to range from $900 million to $950 million and non-GAAP diluted earnings per share to range from $0.70 to $0.74 per share. Non-GAAP diluted earnings per share exclude amortization of intangibles, change in fair value of contingent consideration and acquisition costs.
Webcast Details
ScanSource will present additional information about its financial results and outlook in a conference call with presentation slides today, May 10, 2016 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 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, utilization and further implementation of the Company's new ERP system; risks in connection with our growth which includes strategic acquisitions; expanded international operations that expose the Company to greater risks than its operations in domestic markets; 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; expectations of market demand trends; the ability to forecast volatility in earnings resulting from the quarterly revaluation of the Company's earnout obligations; 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, 2015, 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. Non-GAAP results exclude amortization of intangible assets related to acquisitions and change in fair value of contingent consideration.
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 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 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 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 (Unaudited) tables.
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 emerging technologies. ScanSource's teams provide value-added solutions and operate from two segments, Worldwide Barcode & Security and Worldwide Communications & Services. ScanSource is committed to helping its reseller 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, the Company is headquartered in Greenville, South Carolina and was named one of the 2015 Best Places to Work in South Carolina. ScanSource ranks #775 on the Fortune 1000. For more information, visit www.scansource.com.
| ScanSource, Inc. and Subsidiaries | ||||||||
| Condensed Consolidated Balance Sheets (Unaudited) | ||||||||
| (in thousands) | ||||||||
| March 31, 2016 | June 30, 2015* | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 40,849 | $ | 121,646 | ||||
| Accounts receivable, less allowance of $33,188 at March 31, 2016 and $32,589 at June 30, 2015 | 522,693 | 522,532 | ||||||
| Inventories | 568,247 | 553,063 | ||||||
| Prepaid expenses and other current assets | 54,249 | 46,917 | ||||||
| Deferred income taxes | 17,811 | 20,556 | ||||||
| Total current assets | 1,203,849 | 1,264,714 | ||||||
| Property and equipment, net | 50,076 | 46,574 | ||||||
| Goodwill | 90,912 | 66,509 | ||||||
| Net identifiable intangible assets | 53,064 | 46,272 | ||||||
| Other non-current assets | 41,560 | 52,872 | ||||||
| Total assets | $ | 1,439,461 | $ | 1,476,941 | ||||
| Liabilities and Shareholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Current debt | $ | 774 | $ | 2,860 | ||||
| Accounts payable | 431,913 | 501,329 | ||||||
| Accrued expenses and other current liabilities | 98,429 | 81,000 | ||||||
| Current portion of contingent consideration | 12,915 | 9,391 | ||||||
| Income taxes payable | 3,218 | 4,180 | ||||||
| Total current liabilities | 547,249 | 598,760 | ||||||
| Deferred income taxes | 3,403 | 3,773 | ||||||
| Long-term debt | 5,429 | 5,966 | ||||||
| Borrowings under revolving credit facility | 73,641 | — | ||||||
| Long-term portion of contingent consideration | 14,226 | 24,569 | ||||||
| Other long-term liabilities | 38,139 | 34,888 | ||||||
| Total liabilities | 682,087 | 667,956 | ||||||
| Shareholders' equity: | ||||||||
| Common stock | 67,534 | 157,172 | ||||||
| Retained earnings | 767,009 | 716,315 | ||||||
| Accumulated other comprehensive income (loss) | (77,169 | ) | (64,502 | ) | ||||
| Total shareholders' equity | 757,374 | 808,985 | ||||||
| Total liabilities and shareholders' equity | $ | 1,439,461 | $ | 1,476,941 | ||||
| * | 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, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net sales | $ | 798,404 | $ | 763,203 | $ | 2,662,754 | $ | 2,361,941 | ||||||||
| Cost of goods sold | 713,928 | 683,187 | 2,390,093 | 2,126,168 | ||||||||||||
| Gross profit | 84,476 | 80,016 | 272,661 | 235,773 | ||||||||||||
| Selling, general and administrative expenses | 61,690 | 58,235 | 190,202 | 158,047 | ||||||||||||
| Change in fair value of contingent consideration | 1,139 | 285 | 4,520 | 1,262 | ||||||||||||
| Operating income | 21,647 | 21,496 | 77,939 | 76,464 | ||||||||||||
| Interest expense | 694 | 891 | 1,684 | 1,288 | ||||||||||||
| Interest income | (800 | ) | (731 | ) | (2,509 | ) | (2,057 | ) | ||||||||
| Other, net | 400 | 1,515 | 1,357 | 2,238 | ||||||||||||
| Income before income taxes | 21,353 | 19,821 | 77,407 | 74,995 | ||||||||||||
| Provision for income taxes | 7,311 | 6,878 | 26,713 | 26,023 | ||||||||||||
| Net income | $ | 14,042 | $ | 12,943 | $ | 50,694 | $ | 48,972 | ||||||||
| Per share data: | ||||||||||||||||
| Net income per common share, basic | $ | 0.54 | $ | 0.45 | $ | 1.90 | $ | 1.71 | ||||||||
| Weighted-average shares outstanding, basic | 25,863 | 28,646 | 26,741 | 28,590 | ||||||||||||
| Net income per common share, diluted | $ | 0.54 | $ | 0.45 | $ | 1.88 | $ | 1.70 | ||||||||
| Weighted-average shares outstanding, diluted | 25,967 | 28,855 | 26,908 | 28,825 | ||||||||||||
| ScanSource, Inc. and Subsidiaries | |||||||||||
| Supplementary Information (Unaudited) | |||||||||||
| (in thousands) | |||||||||||
| Net Sales by Segment: | |||||||||||
| Quarter ended March 31, | |||||||||||
| Worldwide Barcode & Security: | 2016 | 2015 | % Change | ||||||||
| Net sales, as reported | $ | 532,534 | $ | 482,780 | 10.3 | % | |||||
| Foreign exchange impact (a) | 11,152 | — | |||||||||
| Net sales, constant currency | 543,686 | 482,780 | 12.6 | % | |||||||
| Less: Acquisitions | (63,637 | ) | — | ||||||||
| Net sales, constant currency excluding acquisitions | $ | 480,049 | $ | 482,780 | (0.6 | )% | |||||
| Worldwide Communications & Services: | |||||||||||
| Net sales, as reported | $ | 265,870 | $ | 280,423 | (5.2 | )% | |||||
| Foreign exchange impact (a) | 12,193 | — | |||||||||
| Net sales, constant currency | 278,063 | 280,423 | (0.8 | )% | |||||||
| Less: Acquisitions | — | — | |||||||||
| Net sales, constant currency excluding acquisitions | $ | 278,063 | $ | 280,423 | (0.8 | )% | |||||
| Consolidated: | |||||||||||
| Net sales, as reported | $ | 798,404 | $ | 763,203 | 4.6 | % | |||||
| Foreign exchange impact (a) | 23,345 | — | |||||||||
| Net sales, constant currency | 821,749 | 763,203 | 7.7 | % | |||||||
| Less: Acquisitions | (63,637 | ) | — | ||||||||
| Net sales, constant currency excluding acquisitions | $ | 758,112 | $ | 763,203 | (0.7 | )% | |||||
| (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, 2016 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended March 31, 2015. | |||||||||||
| ScanSource, Inc. and Subsidiaries | |||||||||||
| Supplementary Information (Unaudited) | |||||||||||
| (in thousands) | |||||||||||
| Net Sales by Segment: | |||||||||||
| Nine Months ended March 31, | |||||||||||
| Worldwide Barcode & Security: | 2016 | 2015 | % Change | ||||||||
| Net sales, as reported | $ | 1,795,733 | $ | 1,578,723 | 13.7 | % | |||||
| Foreign exchange impact (a) | 77,663 | — | |||||||||
| Net sales, constant currency | 1,873,396 | 1,578,723 | 18.7 | % | |||||||
| Less: Acquisitions | (229,721 | ) | — | ||||||||
| Net sales, constant currency excluding acquisitions | $ | 1,643,675 | $ | 1,578,723 | 4.1 | % | |||||
| Worldwide Communications & Services: | |||||||||||
| Net sales, as reported | $ | 867,021 | $ | 783,218 | 10.7 | % | |||||
| Foreign exchange impact (a) | 19,944 | — | |||||||||
| Net sales, constant currency | 886,965 | 783,218 | 13.2 | % | |||||||
| Less: Acquisitions | (118,926 | ) | (4,686 | ) | |||||||
| Net sales, constant currency excluding acquisitions | $ | 768,039 | $ | 778,532 | (1.3 | )% | |||||
| Consolidated: | |||||||||||
| Net sales, as reported | $ | 2,662,754 | $ | 2,361,941 | 12.7 | % | |||||
| Foreign exchange impact (a) | 97,607 | — | |||||||||
| Net sales, constant currency | 2,760,361 | 2,361,941 | 16.9 | % | |||||||
| Less: Acquisitions | (348,647 | ) | (4,686 | ) | |||||||
| Net sales, constant currency excluding acquisitions | $ | 2,411,714 | $ | 2,357,255 | 2.3 | % | |||||
| (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, 2016 into U.S. dollars using the weighted average foreign exchange rates for the nine months ended March 31, 2015. | |||||||||||
| ScanSource, Inc. and Subsidiaries | |||||||||||||
| Supplementary Information (Unaudited) | |||||||||||||
| (in thousands) | |||||||||||||
| Net Sales by Geography: | |||||||||||||
| Quarter ended March 31, | Non-GAAP % Change | ||||||||||||
| 2016 | 2015 | % Change | Constant Currency(a) | ||||||||||
| United States | $ | 591,663 | $ | 534,742 | 10.6 | % | 10.6 | % | |||||
| International | 206,741 | 228,461 | (9.5 | )% | 0.7 | % | |||||||
| Consolidated | $ | 798,404 | $ | 763,203 | 4.6 | % | 7.7 | % | |||||
| Nine Months ended March 31, | Non-GAAP % Change | ||||||||||||
| 2016 | 2015 | % Change | Constant Currency(a) | ||||||||||
| United States | $ | 1,969,236 | $ | 1,717,600 | 14.7 | % | 14.7 | % | |||||
| International | 693,518 | 644,341 | 7.6 | % | 22.8 | % | |||||||
| Consolidated | $ | 2,662,754 | $ | 2,361,941 | 12.7 | % | 16.9 | % | |||||
| (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 and nine months ended March 31, 2016 into U.S. dollars using the weighted average foreign exchange rates for the quarter and nine months ended March 31, 2015. International net sales excluding the translation impact of foreign currencies for the quarter and nine months ended March 31, 2016 totaled $230.1 million and $791.1 million, respectively. | |||||||||||||
| ScanSource, Inc. and Subsidiaries | |||||||||||||||
| Supplementary Information (Unaudited) | |||||||||||||||
| (in thousands) | |||||||||||||||
| Non-GAAP Financial Information: | |||||||||||||||
| Quarter ended March 31, 2016 | |||||||||||||||
| Operating income | Pre-tax income | Net income | Diluted EPS | ||||||||||||
| GAAP measure | $ | 21,647 | $ | 21,353 | $ | 14,042 | $ | 0.54 | |||||||
| Adjustments: | |||||||||||||||
| Amortization of intangible assets | 2,507 | 2,507 | 1,703 | 0.07 | |||||||||||
| Change in fair value of contingent consideration | 1,139 | 1,139 | 748 | 0.03 | |||||||||||
| Acquisition costs (a) | 29 | 29 | 29 | — | |||||||||||
| Non-GAAP measure | $ | 25,322 | $ | 25,028 | $ | 16,522 | $ | 0.64 | |||||||
| Quarter ended March 31, 2015 | |||||||||||||||
| Operating income | Pre-tax income | Net income | Diluted EPS | ||||||||||||
| GAAP measure | $ | 21,496 | $ | 19,821 | $ | 12,943 | $ | 0.45 | |||||||
| Adjustments: | |||||||||||||||
| Amortization of intangible assets | 2,114 | 2,114 | 1,464 | 0.05 | |||||||||||
| Change in fair value of contingent consideration | 285 | 285 | 200 | 0.01 | |||||||||||
| Acquisition costs (a) | 292 | 292 | 292 | 0.01 | |||||||||||
| Non-GAAP measure | $ | 24,187 | $ | 22,512 | $ | 14,899 | $ | 0.52 | |||||||
| Nine months ended March 31, 2016 | |||||||||||||||
| Operating income | Pre-tax income | Net income | Diluted EPS | ||||||||||||
| GAAP measure | $ | 77,939 | $ | 77,407 | $ | 50,694 | $ | 1.88 | |||||||
| Adjustments: | |||||||||||||||
| Amortization of intangible assets | 7,237 | 7,237 | 5,032 | 0.19 | |||||||||||
| Change in fair value of contingent consideration | 4,520 | 4,520 | 3,072 | 0.11 | |||||||||||
| Acquisition costs (a) | 309 | 309 | 309 | 0.01 | |||||||||||
| Non-GAAP measure | $ | 90,005 | $ | 89,473 | $ | 59,107 | $ | 2.19 | |||||||
| Nine months ended March 31, 2015 | |||||||||||||||
| Operating income | Pre-tax income | Net income | Diluted EPS | ||||||||||||
| GAAP measure | $ | 76,464 | $ | 74,995 | $ | 48,972 | $ | 1.70 | |||||||
| Adjustments: | |||||||||||||||
| Amortization of intangible assets | 4,550 | 4,550 | 3,149 | 0.11 | |||||||||||
| Change in fair value of contingent consideration | 1,262 | 1,262 | 887 | 0.03 | |||||||||||
| Acquisition costs (a) | 3,116 | 3,116 | 3,116 | 0.11 | |||||||||||
| Non-GAAP measure | $ | 85,392 | $ | 83,923 | $ | 56,124 | $ | 1.95 | |||||||
| (a) Acquisition costs are non-deductible for tax purposes. | |||||||||||||||
| ScanSource, Inc. and Subsidiaries | |||||||||||||||||
| Supplementary Information (Unaudited) | |||||||||||||||||
| (in thousands) | |||||||||||||||||
| Non-GAAP Financial Information: | |||||||||||||||||
|
Quarter ended March 31, |
Nine Months ended March 31, | ||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||||
| Return on invested capital (ROIC), annualized (a) | 12.3 | % | 12.1 | % | 14.5 | % | 14.5 | % | |||||||||
| Reconciliation of Net Income to Adjusted EBITDA | |||||||||||||||||
| Net income - GAAP | $ | 14,042 | $ | 12,943 | $ | 50,694 | $ | 48,972 | |||||||||
| Plus: Income taxes | 7,311 | 6,878 | 26,713 | 26,023 | |||||||||||||
| Plus: Interest expense | 694 | 891 | 1,684 | 1,288 | |||||||||||||
| Plus: Depreciation and amortization | 4,281 | 3,710 | 12,570 | 8,050 | |||||||||||||
| EBITDA | 26,328 | 24,422 | 91,661 | 84,333 | |||||||||||||
| Adjustments: | |||||||||||||||||
| Change in fair value of contingent consideration | 1,139 | 285 | 4,520 | 1,262 | |||||||||||||
| Acquisition costs | 29 | 292 | 309 | 3,116 | |||||||||||||
| Adjusted EBITDA (numerator for ROIC) (non-GAAP) | $ | 27,496 | $ | 24,999 | $ | 96,490 | $ | 88,711 | |||||||||
| Invested Capital Calculation | |||||||||||||||||
| Equity - beginning of quarter | $ | 754,794 | $ | 818,748 | $ | 808,985 | $ | 802,643 | |||||||||
| Equity - end of quarter | 757,374 | 799,051 | 757,374 | 799,051 | |||||||||||||
| Adjustments: | |||||||||||||||||
| Change in fair value of contingent consideration, net of tax | 748 | 200 | 3,072 | 887 | |||||||||||||
| Acquisition costs, net of tax | 29 | 292 | 309 | 3,116 | |||||||||||||
| Average equity | 756,473 | 809,146 | 784,870 | 802,849 | |||||||||||||
| Average funded debt (b) | 146,213 | 32,046 | 100,755 | 14,432 | |||||||||||||
| Invested capital (denominator for ROIC) (non-GAAP) | $ | 902,686 | $ | 841,192 | $ | 885,625 | $ | 817,281 | |||||||||
| (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. |
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