ScanSource, Inc. (NASDAQ: SCSC), a leading global provider of
technology products and solutions, today announced financial
results for the first quarter ended September 30, 2017.
Quarter ended September 30, 2017
2016 Change (in millions,
except per share data) Net sales $ 924.6
$ 932.6 (1 )%
Operating income
7.6 22.9 (67 )%
Non-GAAP operating income(1)
30.6 26.7 15 %
GAAP net income 4.1 14.8 (72 )%
Non-GAAP net income(1)
19.4 17.5 11 %
GAAP diluted
EPS $ 0.16 $ 0.58 (72 )%
Non-GAAP diluted
EPS(1)
$ 0.76 $ 0.68 12 % (1) Non-GAAP
results exclude amortization of intangible assets related to
acquisitions, change in fair value of contingent consideration,
acquisition costs and other non-GAAP adjustments. A reconciliation
of non-GAAP financial information to GAAP financial information is
presented in the Supplementary Information (Unaudited) below.
“We delivered a solid quarter despite lower sales volumes than
expected,” said Mike Baur, CEO, ScanSource, Inc. “Our first quarter
results highlight the strength of the investments we've made to
drive profitable growth.”
For the first quarter of fiscal year 2018, net sales decreased
to $924.6 million from lower big deals in North America. Operating
income decreased to $7.6 million, as the expense for the change in
fair value of contingent consideration related to Network1
increased. Non-GAAP operating income increased 15% to $30.6
million, driven by higher gross margins and the addition of the POS
Portal and Intelisys acquisitions.
On a GAAP basis, net income for the quarter totaled $4.1
million, or $0.16 per diluted share, compared with net income of
$14.8 million, or $0.58 per diluted share, for the prior year
quarter. Non-GAAP net income for the first quarter of fiscal year
2018 increased to $19.4 million, or $0.76 per diluted share.
Forecast for Next Quarter
For the second quarter of fiscal year 2018, ScanSource expects
net sales to range from $950 million to $1.01 billion, diluted
earnings per share to range from $0.54 to $0.60 per share, and
non-GAAP diluted earnings per share to range from $0.76 to $0.82
per share. Non-GAAP diluted earnings per share exclude amortization
of intangible assets, 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, November 6, 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 of sales and earnings
per share for next quarter, contains “forward-looking” statements
that involve risks and uncertainties. Any number of factors could
cause actual results to differ materially from anticipated or
forecasted results, including, but not limited to, changes in
interest and exchange rates and regulatory regimes impacting our
international operations, the failure of acquisitions to meet our
expectations, the failure to manage and implement our organic
growth strategy, credit risks involving our larger customers and
vendors, termination of our relationship with key vendors or a
significant modification of the terms under which we operate with a
key vendor, the decline in demand for the products and services
that we provide, reduced prices for the products and services that
we provide due both to competitor and customer actions, and other
factors set forth in the "Risk Factors" contained in our annual
report on Form 10-K for the year ended June 30, 2017, 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, acquisition costs and
other non-GAAP adjustments.
Net sales on a constant currency basis, excluding acquisitions:
The Company discloses the percentage change in net sales excluding
the translation impact from changes in foreign currency exchange
rates between reporting periods and excluding the net sales from
acquisitions prior to the first full year from the acquisition
date. This measure enhances the comparability between periods to
help analyze underlying trends on an organic basis.
Non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net
income and non-GAAP diluted earnings per share: To evaluate current
period performance on a more consistent basis with prior periods,
the Company discloses non-GAAP operating income, non-GAAP pre-tax
income, non-GAAP net income and non-GAAP diluted earnings per share
(non-GAAP diluted "EPS"). These non-GAAP results exclude
amortization of intangible assets related to acquisitions, change
in the fair value of contingent consideration, acquisition costs
and other non-GAAP adjustments. Non-GAAP operating income, non-GAAP
net income, and non-GAAP diluted 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. ROIC is calculated as adjusted
EBITDA over invested capital. Adjusted earnings before interest
expense, income taxes, depreciation and amortization ("Adjusted
EBITDA") excludes the change in fair value of contingent
consideration and acquisition costs, in addition to other non-GAAP
adjustments. Invested capital is defined as average equity plus
average daily funded interest-bearing debt for the period.
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.
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),
payments, barcode, physical security, unified communications and
collaboration, cloud and telecom 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 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 2017 Best Places to Work in South Carolina. ScanSource ranks
#647 on the Fortune 1000. For more information, visit
www.scansource.com.
ScanSource, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets (Unaudited) (in thousands)
September 30, 2017 June 30,
2017* Assets Current assets: Cash and cash equivalents $
23,616 $ 56,094 Accounts receivable, less allowance of $47,249 at
September 30, 2017 and $44,434 at June 30, 2017 661,393 637,293
Inventories 597,344 531,314 Prepaid expenses and other current
assets 72,153 56,322 Total current assets 1,354,506
1,281,023 Property and equipment, net 79,128 56,566 Goodwill
302,930 200,881 Net identifiable intangible assets 154,323 101,513
Deferred income taxes 13,478 29,491 Other non-current assets 45,768
48,829 Total assets $ 1,950,133 $ 1,718,303
Liabilities and Shareholders' Equity Current
liabilities: Current portion of long-term debt $ 26 $ — Accounts
payable 534,919 513,155 Accrued expenses and other current
liabilities 106,506 104,715 Current portion of contingent
consideration 48,931 30,675 Income taxes payable 7,583 7,730
Total current liabilities 697,965 656,275 Deferred income
taxes 14,525 2,008 Long-term debt 5,403 5,429 Borrowings under
revolving credit facility 280,334 91,871 Long-term portion of
contingent consideration 54,562 83,361 Other long-term liabilities
44,368 42,214 Total liabilities 1,097,157 881,158
Shareholders' equity: Common stock 62,939 61,169 Retained earnings
853,327 849,180 Accumulated other comprehensive income (loss)
(63,290 ) (73,204 ) Total shareholders' equity 852,976
837,145 Total liabilities and shareholders' equity $
1,950,133 $ 1,718,303
*Derived from audited financial
statements.
ScanSource, Inc. and Subsidiaries Condensed
Consolidated Income Statements (Unaudited) (in thousands,
except per share data) Quarter
ended September 30, 2017 2016 Net sales $ 924,559
$ 932,566 Cost of goods sold 818,642 841,032 Gross
profit 105,917 91,534 Selling, general and administrative expenses
73,187 63,266 Depreciation expense 3,240 2,070 Intangible
amortization expense 5,011 3,154 Change in fair value of contingent
consideration 16,881 169 Operating income 7,598
22,875 Interest expense 1,585 589 Interest income (881 ) (1,015 )
Other (income) expense, net 114 577 Income before
income taxes 6,780 22,724 Provision for income taxes 2,633
7,908 Net income $ 4,147 $ 14,816 Per share
data: Net income per common share, basic $ 0.16 $ 0.58
Weighted-average shares outstanding, basic 25,434
25,523 Net income per common share, diluted $ 0.16
$ 0.58 Weighted-average shares outstanding, diluted
25,579 25,762
ScanSource, Inc. and
Subsidiaries Supplementary Information (Unaudited)
Net Sales by Segment: Quarter ended
September 30, 2017 2016(a) %
Change Worldwide Barcode, Networking & Security:
(in thousands) Net sales, as reported $ 620,329 $ 627,210
(1.1 )% Foreign exchange impact (b) (5,625 ) — Net sales,
constant currency (non-GAAP) 614,704 627,210 (2.0 )% Less:
Acquisitions (14,553 ) — Net sales, constant currency
excluding acquisitions (non-GAAP) $ 600,151 $ 627,210
(4.3 )%
Worldwide Communications & Services: Net
sales, as reported $ 304,230 $ 305,356 (0.4 )% Foreign exchange
impact (b) (2,414 ) — Net sales, constant currency
(non-GAAP) 301,816 305,356 (1.2 )% Less: Acquisitions (9,750 )
(2,863 ) Net sales, constant currency excluding acquisitions
(non-GAAP) $ 292,066 $ 302,493 (3.4 )%
Consolidated: Net sales, as reported $ 924,559 $ 932,566
(0.9 )% Foreign exchange impact (b) (8,039 ) — Net sales,
constant currency (non-GAAP) 916,520 932,566 (1.7 )% Less:
Acquisitions (24,303 ) (2,863 ) Net sales, constant currency
excluding acquisitions (non-GAAP) $ 892,217 $ 929,703
(4.0 )% (a) Reflects reclassification between segments for
certain geographies to provide comparable financial information.
(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 September 30, 2017
into U.S. dollars using the average foreign exchange rates for the
quarter ended September 30, 2016.
ScanSource, Inc. and
Subsidiaries Supplementary Information (Unaudited)
Net Sales by Geography:
Quarter ended September 30, 2017 2016 %
Change United States: (in thousands) Net sales,
as reported $ 686,671 $ 709,810 (3.3 )% Less: Acquisitions (24,303
) (2,863 ) Net sales, excluding acquisitions (non-GAAP) $ 662,368
$ 706,947 (6.3 )%
International: Net
sales, as reported $ 237,888 $ 222,756 6.8 % Foreign exchange
impact (a) (8,039 ) — Net sales, constant currency
(non-GAAP) 229,849 222,756 3.2 % Less: Acquisitions — —
Net sales, constant currency excluding acquisitions
(non-GAAP) $ 229,849 $ 222,756 3.2 %
Consolidated: Net sales, as reported $ 924,559 $ 932,566
(0.9 )% Foreign exchange impact (a) (8,039 ) — Net sales,
constant currency (non-GAAP) 916,520 932,566 (1.7 )% Less:
Acquisitions (24,303 ) (2,863 ) Net sales, constant currency
excluding acquisitions (non-GAAP) $ 892,217 $ 929,703
(4.0 )% (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 September 30, 2017 into U.S. dollars using the average
foreign exchange rates for the quarter ended September 30, 2016.
ScanSource, Inc. and Subsidiaries Supplementary
Information (Unaudited) (in thousands, except per share
data)
Non-GAAP Financial Information: Quarter ended September
30, 2017
Operating
income
Pre-tax
income
Net
income
Diluted
EPS
GAAP measure $ 7,598 $ 6,780 $ 4,147 $ 0.16 Adjustments:
Amortization of intangible assets 5,011 5,011 3,261 0.13 Change in
fair value of contingent consideration 16,881 16,881 11,005 0.43
Acquisition costs (a) 172 172 172 0.01 Legal settlement 952
952 771 0.03 Non-GAAP measure $ 30,614 $
29,796 $ 19,356 $ 0.76
Quarter ended
September 30, 2016
Operating
income
Pre-tax
income
Net
income
Diluted
EPS
GAAP measure $ 22,875 $ 22,724 $ 14,816 $ 0.58 Adjustments:
Amortization of intangible assets 3,154 3,154 2,108 0.08 Change in
fair value of contingent consideration 169 169 46 — Acquisition
costs (a) 498 498 498 0.02 Non-GAAP measure $
26,696 $ 26,545 $ 17,468 $ 0.68 (a)
Acquisition costs are non-deductible for tax purposes.
ScanSource, Inc. and Subsidiaries Supplementary
Information (Unaudited) (in thousands, except
percentages) Non-GAAP Financial
Information: Quarter ended September 30, 2017
2016 Return on invested capital (ROIC), annualized (a) 13.0
% 13.1 %
Reconciliation of
Net Income to Adjusted EBITDA
Net income - GAAP $ 4,147 $ 14,816 Plus: Interest expense 1,585 589
Plus: Income taxes 2,633 7,908 Plus: Depreciation and amortization
8,864 5,224 EBITDA 17,229 28,537 Adjustments: Change
in fair value of contingent consideration 16,881 169 Acquisition
costs 172 498 Legal settlement, net of attorney fees 952 —
Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 35,234
$ 29,204
Invested Capital
Calculation
Equity - beginning of quarter $ 837,145 $ 774,496 Equity - end of
quarter 852,976 773,161 Adjustments: Change in fair value of
contingent consideration, net of tax 11,005 46 Acquisition costs,
net of tax 172 498 Legal settlement, net of tax 771 —
Average equity 851,035 774,101 Average funded debt (b) 224,956
107,718 Invested capital (denominator for ROIC)
(non-GAAP) $ 1,075,991 $ 881,819
(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.
ScanSource, Inc. and
Subsidiaries Supplementary Information (Unaudited)
Non-GAAP Financial Information:
Forecast for Quarter
ending December 31, 2017
Range Low Range High GAAP diluted EPS $ 0.54 $ 0.60
Adjustments: Amortization of intangible assets 0.14 0.14 Change in
fair value of contingent consideration 0.07 0.07 Acquisition costs
0.01 0.01 Non-GAAP diluted EPS $ 0.76 $ 0.82
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171106006338/en/
ScanSource, Inc.Gerald Lyons, 864-286-4854Executive Vice
President, Chief Financial OfficerorMary M. Gentry,
864-286-4892Vice President, Treasurer and Investor Relations
ScanSource (NASDAQ:SCSC)
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