SCSC ScanSource Inc

ScanSource, Inc. (NASDAQ:SCSC), the leading international value-added distributor of specialty technology products, today announced complete financial results for its third quarter ended March 31, 2013.

Quarter ended March 31, 2013:                     Net sales $683.0 million Net income $14.0 million Diluted EPS $0.50 per share

“Our North American business units, led by our Communications unit, drove solid quarterly results,” said Mike Baur, CEO, ScanSource, Inc. “However, our International operating performance was disappointing. As a result, we've taken actions to restructure our overall European business for profitable growth. We are lowering our annualized costs by $3.1 million by reducing headcount in our Communications business in Europe and by moving certain back office functions from Brussels to ScanSource headquarters in Greenville, South Carolina.”

For the quarter ended March 31, 2013, net sales decreased 3.5% to $683.0 million, compared with $707.9 million for the quarter ended March 31, 2012. Excluding the translation impact of foreign currencies, net sales decreased 3.0% year-over-year. Operating income decreased to $20.8 million from $21.5 million in the comparable prior year quarter. The effective tax rate increased to 34.0% in the current quarter from 32.3% in the prior year quarter. Net income for the quarter ended March 31, 2013 was $14.0 million, or $0.50 per diluted share, compared with net income of $14.8 million, or $0.53 per diluted share, for the prior year quarter.

Selling, general and administrative expenses for the quarter ended March 31, 2013 included $1.2 million pre-tax ($0.8 million after tax, or $0.03 per diluted share) in restructuring costs associated with the Company's business in Europe. The restructuring included the elimination of positions to set the cost structure in line with current operations.

Forecast for Next Quarter

The Company announced its current expectations for the fourth quarter of fiscal 2013. ScanSource expects that net sales for the quarter ending June 30, 2013 could range from $715 million to $735 million, and diluted earnings per share could be in the range of $0.58 to $0.60 per share.

Webcast Details

ScanSource will present additional information about its financial results and outlook on a conference call today, April 25, 2013, at 5:00 p.m. (ET). A webcast of the call will be available for all interested parties and can be accessed at www.scansourceinc.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 us to greater political and economic volatility than our operations in established markets; additional costs and delays in connection with our new ERP system and associated litigation; costs and efficiencies expected to be associated with the Company's pan-European strategy and macroeconomic circumstances that could impact the strategy and business independent of the new structure created by the Company; our 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 our 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, 2012 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 non-GAAP measures. Management uses return on invested capital (“ROIC”), a non-GAAP measure, as a performance measurement because management believes that this metric best balances the Company's operating results with its asset and liability management. The Company's Board of Directors uses ROIC in evaluating management performance and setting management compensation. The Company also discloses the percentage change in net sales excluding the impact of foreign currency exchange rates to better assess the changes from prior periods.

Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP. A reconciliation of the Company's non-GAAP financial information to GAAP is set forth in the following Supplemental Information table.

About ScanSource, Inc.

ScanSource, Inc. (NASDAQ: SCSC) is the leading international distributor of specialty technology products, operating from dedicated business units in North America, Latin America and Europe. ScanSource POS & Barcode delivers AIDC (automatic identification and data capture) and POS (point-of-sale) solutions; Catalyst Telecom and ScanSource Communications provide voice, video, data and converged communications equipment; ScanSource Security offers physical security solutions; and ScanSource Services Group delivers value-added support programs and services. Founded in 1992, the company ranks #760 on the Fortune 1000. For more information, call the toll-free sales telephone number at 800.944.2432 or visit www.scansourceinc.com.

ScanSource, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (in thousands)             March 31, 2013 June 30, 2012* Assets Current assets: Cash and cash equivalents $ 93,905 $ 29,173 Accounts receivable, less allowance of 431,264 470,808 $30,996 at March 31, 2013 $27,349 at June 30, 2012 Inventories 407,093 475,479 Prepaid expenses and other current assets 42,041 41,846 Deferred income taxes 14,687   14,624   Total current assets 988,990 1,031,930 Property and equipment, net 49,008 48,785 Goodwill 53,743 53,885 Other non-current assets, including identifiable intangible assets 66,698   67,206   Total assets $ 1,158,439   $ 1,201,806   Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $ — $ 4,268 Accounts payable 325,658 419,683 Accrued expenses and other current liabilities 68,169 67,776 Current portion of contingent consideration 4,524 4,976 Income taxes payable 2,699   1,698   Total current liabilities 401,050 498,401 Deferred income taxes 2,879 — Long-term debt 5,429 5,429 Long-term portion of contingent consideration 8,797 11,677 Other long-term liabilities 30,372   33,988   Total liabilities 448,527 549,495 Shareholders' equity: Common stock 146,975 139,557 Retained earnings 582,421 534,445 Accumulated other comprehensive income (loss) (19,484 ) (21,691 ) Total shareholders' equity 709,912   652,311   Total liabilities and shareholders' equity $ 1,158,439   $ 1,201,806   * 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,

2013 2012 2013 2012 Net sales $   682,965 $   707,883 $   2,164,286 $   2,260,827 Cost of goods sold 614,133   638,615   1,947,063   2,032,630   Gross profit 68,832 69,268 217,223 228,197 Operating expenses: Selling, general and administrative expenses 47,937 46,711 144,392 141,753 Change in fair value of contingent consideration 100   1,072   1,396   1,244   Operating income 20,795 21,485 71,435 85,200 Other expense (income): Interest expense 102 254 356 1,490 Interest income (483 ) (780 ) (1,648 ) (2,233 ) Other, net (4 ) 206   34   3,363   Income before income taxes 21,180 21,805 72,693 82,580 Provision for income taxes 7,202   7,049   24,716   28,077   Net income $   13,978   $   14,756   $   47,977   $   54,503   Per share data: Weighted-average shares outstanding, basic 27,847   27,489   27,725   27,290   Net income per common share, basic $   0.50   $   0.54   $   1.73   $   2.00     Weighted-average shares outstanding, diluted 28,024   27,926   27,960   27,709   Net income per common share, diluted $   0.50   $   0.53   $   1.72   $   1.97   ScanSource, Inc. and Subsidiaries Supplementary Information (Unaudited) (in thousands)     Net Sales by Geographic Segment: Non-GAAP Quarter ended March 31, % Change 2013   2012 % Change Excluding FX(a) North American (U.S. and Canada) $ 508,394 $ 529,845 (4.0 )% (4.0 )% International 174,571   178,038   (1.9 )% 0.1 % Consolidated $ 682,965   $ 707,883   (3.5 )% (3.0 )%   Non-GAAP Nine months ended March 31, % Change 2013 2012 % Change Excluding FX(a) North American (U.S. and Canada) $ 1,602,193 $ 1,666,240 (3.8 )% (3.8 )% International 562,093   594,587   (5.5 )% 0.9 % Consolidated $ 2,164,286   $ 2,260,827   (4.3 )% (2.6 )%  

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 and nine months ended March 31, 2013 into U.S. dollars using the weighted average foreign exchange rates for the quarter and nine months ended March 31, 2013, respectively. International net sales excluding the translation impact of foreign currencies for the quarter and nine months ended March 31, 2013, as adjusted, totaled $178.1 million and $599.8 million, respectively.

ScanSource, Inc. and Subsidiaries Supplementary Information (Unaudited) (in thousands, except per share data)     Non-GAAP Financial Information:   Quarter ended March 31, 2013 2012 Return on invested capital (ROIC), annualized (a) 13.3% 13.5%  

Reconciliation of EBITDA to Net Income

Net income (GAAP) $ 13,978 $ 14,756 Plus: Income taxes 7,202 7,049 Plus: Interest expense 102 254 Plus: Depreciation and amortization 2,274   2,754   EBITDA (numerator for ROIC) $ 23,556   $ 24,813    

Invested Capital Calculation

Equity - beginning of quarter $ 696,960 $ 616,103 Equity - end of quarter 709,912   642,450   Average equity 703,436 629,277 Average funded debt (b) 15,675   111,247   Invested capital (denominator for ROIC) $ 719,111   $ 740,524     Notes: (a) Calculated as net income plus interest expense, income taxes, depreciation and amortization (EBITDA), annualized and divided by invested capital for the period.   (b) Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.