17% Net Sales Growth Drove Excellent
Profitability; Raises Full Year Outlook
ScanSource, Inc. (NASDAQ: SCSC), a leading hybrid distributor
connecting devices to the cloud, today announced financial results
for the second quarter ended December 31, 2022.
Second Quarter Summary
Q2 FY23
Q2 FY22
Change
(in thousands, except per
share data)
Select reported measures:
Net sales
$
1,011,241
$
864,079
17.0
%
Gross profit
$
115,334
$
107,653
7.1
%
Gross profit margin %
11.41
%
12.46
%
-105bp
Operating income
$
39,432
$
31,498
25.2
%
GAAP net income
$
25,734
$
23,152
11.2
%
GAAP diluted EPS
$
1.01
$
0.89
13.5
%
Select Non-GAAP measures:
Adjusted EBITDA
$
48,815
$
42,542
14.7
%
Adjusted EBITDA margin %
4.83
%
4.92
%
-9bp
Non-GAAP net income
$
26,941
$
26,446
1.9
%
Non-GAAP diluted EPS
$
1.06
$
1.02
3.9
%
"The ScanSource team executed exceptionally well, delivering 17%
net sales growth and record profitability for the quarter," said
Mike Baur, Chairman and CEO, ScanSource, Inc. "This exceptional
performance is a result of strong demand and operating leverage in
our hardware and Intelisys businesses. With our outstanding second
quarter results, we are raising our full year 2023 outlook for both
net sales growth and adjusted EBITDA."
Quarterly Results
Net sales for the second quarter of fiscal year 2023 totaled
$1.0 billion, up 17.0% year-over-year, or 16.4% year-over-year for
organic growth. Specialty Technology Solutions net sales for the
second quarter increased 26.3% year-over-year to $627.5 million,
driven by broad-based demand across technologies and execution by
our people. Modern Communications & Cloud net sales for the
second quarter increased 4.5% year-over-year to $383.7 million.
Gross profit for the second quarter of fiscal year 2023
increased 7.1% year-over-year to $115.3 million, due to higher
sales volume. Gross profit margin for the second quarter was 11.41%
versus 12.46% in the prior-year quarter, reflecting the sales mix
and higher mix of big deals.
For the second quarter of fiscal year 2023, operating income
increased to $39.4 million from $31.5 million in the prior-year
quarter. Second quarter fiscal year 2023 non-GAAP operating income
increased to a record $40.7 million for a 4.03% non-GAAP operating
income margin, up from $35.9 million for the prior-year
quarter.
On a GAAP basis, net income for the second quarter of fiscal
year 2023 totaled $25.7 million, or $1.01 per diluted share,
compared to net income of $23.2 million, or $0.89 per diluted
share, for the prior-year quarter. Second quarter fiscal year 2023
non-GAAP net income totaled $26.9 million, or $1.06 per diluted
share, up from $26.4 million, or $1.02 per diluted share for the
prior-year quarter.
Adjusted EBITDA for the second quarter of fiscal year 2023
increased 14.7% to $48.8 million, or 4.83% of net sales, compared
to $42.5 million, or 4.92% of net sales, for the prior-year
quarter. Adjusted return on invested capital totaled 15.6% for
second quarter fiscal year 2023, compared to 17.6% in the
prior-year quarter, primarily from increased average invested
capital for the current year quarter.
Annual Financial Outlook for Fiscal Year 2023
ScanSource raises its expectations for the full fiscal year
ended June 30, 2023 and replaces previously provided guidance.
FY23 Annual Outlook
Prior FY23 Outlook
Net sales growth, year-over-year
At least 6.5%
At least 5.5%
Adjusted EBITDA (non-GAAP)
At least $176 million
At least $174 million
Adjusted EBITDA is a non-GAAP measure, which excludes estimates
for amortization of intangible assets, depreciation expense, and
non-cash share-based compensation expense. ScanSource’s outlook
does not include the potential impact of any business combinations,
asset acquisitions, divestitures, strategic investments, or other
significant transactions that may be completed after the date
hereof. These statements are forward-looking, and actual results
may differ materially.
Webcast Details and Earnings Infographic
At approximately 8:45 a.m. ET today, an Earnings Infographic, as
a supplement to this press release and the Company's conference
call, will be available on ScanSource's website, www.scansource.com
(Investor Relations section). ScanSource will present additional
information about its financial results and business in a
conference call today, February 7, 2023, at 10:30 a.m. ET. A
webcast of the call 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 “forward-looking” statements,
including the Company's FY23 outlook, which involve risks and
uncertainties. Any number of factors could cause actual results to
differ materially from anticipated results, including, but not
limited to, failure to hire and retain quality employees, risk to
the Company's business from a cyber-security attack, supply chain
challenges, the failure to manage and implement the Company's
organic growth strategy, economic weakness and inflation, a failure
of the Company's IT systems, a failure to acquire new businesses,
changes in interest and exchange rates and regulatory regimes
impacting the Company's international operations, credit risks
involving the Company's larger customers and suppliers, loss of the
Company's major customers, termination of the Company's
relationship with key suppliers or a significant modification of
the terms under which it operates with a key supplier, changes in
the Company's operating strategy, and other factors set forth in
the "Risk Factors" contained in the Company's annual report on Form
10-K for the year ended June 30, 2022, 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,
restructuring costs and other non-GAAP adjustments.
Net sales on a constant currency basis, excluding acquisitions
(organic growth): 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.
Additional Non-GAAP Metrics: To evaluate current period
performance on a more consistent basis with prior periods, the
Company discloses non-GAAP SG&A expenses, non-GAAP operating
income, non-GAAP net income and non-GAAP diluted earnings per share
(non-GAAP diluted "EPS"). Non-GAAP results exclude amortization of
intangible assets related to acquisitions, changes in fair value of
contingent consideration, acquisition and divestiture costs,
impairment charges, restructuring costs, and other non-GAAP
adjustments. These year-over-year metrics include the translation
impact of changes in foreign currency exchange rates. Non-GAAP
metrics are useful in assessing and understanding the Company's
operating performance, especially when comparing results with
previous periods or forecasting performance for future periods.
Adjusted earnings before interest expense, income taxes,
depreciation, and amortization (“Adjusted EBITDA”): Adjusted EBITDA
starts with net income and adds back interest expense, income tax
expense, depreciation expense, amortization of intangible assets,
changes in fair value of contingent considerations, and other
non-GAAP adjustments, including acquisition and divestiture costs,
impairment charges, restructuring costs and non-cash share-based
compensation expense. Since Adjusted EBITDA excludes some non-cash
costs of investing in our business and people, management believes
that Adjusted EBITDA shows the profitability from our business
operations more clearly. The presentation for Adjusted EBITDA for
all periods presented has been recast to reflect this change to
enhance comparability between periods.
Adjusted return on invested capital ("Adjusted ROIC"): Adjusted
ROIC assists management in comparing the Company's performance over
various reporting periods on a consistent basis because it removes
from our operating results the impact of items that do not reflect
our core operating performance. We believe the calculation of
Adjusted ROIC provides useful information to investors and is an
additional relevant comparison of our performance. Adjusted ROIC is
calculated as Adjusted EBITDA over invested capital. Invested
capital is defined as average equity plus average daily funded
interest-bearing debt for the period. Management believes the
calculation of Adjusted 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 hybrid distributor
connecting devices to the cloud and accelerating growth for
customers across hardware, SaaS, connectivity and cloud. ScanSource
enables customers to deliver solutions for their end users to
address changing buying and consumption patterns. ScanSource sells
through multiple, specialized routes-to-market with hardware, SaaS,
connectivity and cloud services offerings from the world’s leading
suppliers of point-of-sale (POS), payments, barcode, physical
security, unified communications and collaboration, telecom and
cloud services. Founded in 1992 and headquartered in Greenville,
South Carolina, ScanSource was named one of the 2022 Best Places to
Work in South Carolina and on FORTUNE magazine’s 2023 List of
World’s Most Admired Companies. ScanSource ranks #773 on the
Fortune 1000. For more information, visit www.scansource.com.
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets (Unaudited)
(in thousands)
December 31, 2022
June 30, 2022*
Assets
Current assets:
Cash and cash equivalents
$
66,445
$
37,987
Accounts receivable, less allowance of
$13,353 at December 31, 2022
and $16,806 at June 30, 2022
779,562
729,442
Inventories
761,936
614,814
Prepaid expenses and other current
assets
111,119
141,562
Total current assets
1,719,062
1,523,805
Property and equipment, net
36,593
37,477
Goodwill
214,367
214,435
Identifiable intangible assets, net
75,950
84,427
Deferred income taxes
14,751
15,668
Other non-current assets
69,806
61,616
Total assets
$
2,130,529
$
1,937,428
Liabilities and
Shareholders’ Equity
Current liabilities:
Accounts payable
$
748,662
$
714,177
Accrued expenses and other current
liabilities
76,985
88,455
Income taxes payable
6,049
34
Current portion of long-term debt
5,040
11,598
Total current liabilities
836,736
814,264
Deferred income taxes
3,132
3,144
Long-term debt, net of current portion
147,756
123,733
Borrowings under revolving credit
facility
230,000
135,839
Other long-term liabilities
50,519
53,920
Total liabilities
1,268,143
1,130,900
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000
shares authorized, none issued
—
—
Common stock, no par value; 45,000,000
shares authorized, 25,343,014 and 25,187,351 shares issued and
outstanding at December 31, 2022 and June 30, 2022,
respectively
68,313
64,297
Retained earnings
896,645
846,869
Accumulated other comprehensive loss
(102,572
)
(104,638
)
Total shareholders’ equity
862,386
806,528
Total liabilities and shareholders’
equity
$
2,130,529
$
1,937,428
*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,
2022
2021
2022
2021
Net sales
$
1,011,241
$
864,079
$
1,955,054
$
1,721,662
Cost of goods sold
895,907
756,426
1,726,236
1,512,437
Gross profit
115,334
107,653
228,818
209,225
Selling, general and administrative
expenses
69,074
69,161
140,667
133,016
Depreciation expense
2,678
2,547
5,441
5,427
Intangible amortization expense
4,150
4,447
8,391
8,956
Operating income
39,432
31,498
74,319
61,826
Interest expense
5,060
1,493
8,507
3,153
Interest income
(2,027
)
(947
)
(3,618
)
(1,973
)
Other expense, net
207
543
955
807
Income before income taxes
36,192
30,409
68,475
59,839
Provision for income taxes
10,458
7,257
18,699
14,614
Net income from continuing operations
25,734
23,152
49,776
45,225
Net income from discontinued
operations
—
100
—
100
Net income
$
25,734
$
23,252
$
49,776
$
45,325
Per share data:
Net income from continuing operations per
common share, basic
$
1.02
$
0.91
$
1.97
$
1.77
Net income from discontinued operations
per common share, basic
—
—
—
—
Net income per common share, basic
$
1.02
$
0.91
$
1.97
$
1.77
Weighted-average shares outstanding,
basic
25,287
25,585
25,244
25,549
Net income from continuing operations per
common share, diluted
$
1.01
$
0.89
$
1.96
$
1.75
Net income from discontinued operations
per common share, diluted
—
—
—
—
Net income per common share, diluted
$
1.01
$
0.90
$
1.96
$
1.76
Weighted-average shares outstanding,
diluted
25,502
25,895
25,454
25,806
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(in thousands)
Six months ended December
31,
2022
2021
Cash flows from operating activities:
Net income
$
49,776
$
45,325
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization
14,285
14,879
Amortization of debt issue costs
385
209
Provision for doubtful accounts
33
921
Share-based compensation
5,679
6,032
Deferred income taxes
932
(109
)
Finance lease interest
24
26
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
(49,541
)
(54,370
)
Inventories
(146,826
)
(95,531
)
Prepaid expenses and other assets
30,487
(11,236
)
Other non-current assets
(7,168
)
(1,561
)
Accounts payable
33,820
25,444
Accrued expenses and other liabilities
(13,268
)
(5,130
)
Income taxes payable
6,036
(177
)
Net cash used in operating activities
(75,346
)
(75,378
)
Cash flows from investing activities:
Capital expenditures
(4,262
)
(2,645
)
Cash received for business disposal
—
3,125
Net cash (used in) provided by investing
activities
(4,262
)
480
Cash flows from financing activities:
Borrowings on revolving credit, net of
expenses
1,232,058
1,115,161
Repayments on revolving credit, net of
expenses
(1,137,897
)
(1,057,376
)
Borrowings (repayments) on long-term debt,
net
17,465
(4,093
)
Repayments on finance lease obligation
(492
)
(624
)
Debt issuance costs
(1,407
)
—
Exercise of stock options
634
1,114
Taxes paid on settlement of equity
awards
(2,332
)
(2,634
)
Common stock repurchased
—
(183
)
Net cash provided by financing
activities
108,029
51,365
Effect of exchange rate changes on cash
and cash equivalents
37
(5,062
)
Increase (decrease) in cash and cash
equivalents
28,458
(28,595
)
Cash and cash equivalents at beginning of
period
37,987
62,718
Cash and cash equivalents at period
end
$
66,445
$
34,123
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
(in thousands, except
percentages)
Non-GAAP Financial Information:
Quarter ended December
31,
2022
2021
Adjusted return on invested capital ratio
(Adjusted ROIC), annualized(a)
15.6
%
17.6
%
Reconciliation of Net Income to
Adjusted EBITDA:
Net income (GAAP)
$
25,734
$
23,152
Plus: Interest expense
5,060
1,493
Plus: Income taxes
10,458
7,257
Plus: Depreciation and amortization
7,057
7,229
EBITDA (non-GAAP)
48,309
39,131
Plus: Share-based compensation
3,364
3,464
Plus: Acquisition and divestiture
costs(b)
—
(53
)
Plus: Tax recovery(c)
(2,858
)
—
Adjusted EBITDA (numerator for Adjusted
ROIC) (non-GAAP)
$
48,815
$
42,542
Invested Capital Calculations:
Equity – beginning of the quarter
$
827,004
$
746,094
Equity – end of the quarter
862,386
768,525
Plus: Share-based compensation, net
2,496
2,590
Plus: Acquisition and divestiture
costs(b)
—
(53
)
Plus: Discontinued operations net (income)
loss
—
(100
)
Plus: Tax recovery, net
(1,886
)
—
Average equity
845,000
758,528
Average funded debt (d)
392,853
200,708
Invested capital (denominator for Adjusted
ROIC) (non-GAAP)
$
1,237,853
$
959,236
(a) The annualized adjusted EBITDA amount
is divided by days in the quarter times 365 days per year, or 366
days for leap year. There were 92 days in the current and
prior-year quarter.
(b) Acquisition and divestiture costs are
generally nondeductible for tax purposes.
(c) Recovery of prior period withholding
taxes in Brazil.
(d) 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)
Net Sales by Segment:
Quarter ended December
31,
2022
2021
% Change
Specialty Technology Solutions:
(in thousands)
Net sales, reported
$
627,548
$
496,920
26.3
%
Foreign exchange impact (a)
(1,120
)
—
Non-GAAP net sales, constant currency
$
626,428
$
496,920
26.1
%
Modern Communications &
Cloud:
Net sales, reported
$
383,693
$
367,159
4.5
%
Foreign exchange impact (a)
(4,497
)
—
Non-GAAP net sales, constant currency
$
379,196
$
367,159
3.3
%
Consolidated:
Net sales, reported
$
1,011,241
$
864,079
17.0
%
Foreign exchange impact (a)
(5,617
)
—
Non-GAAP net sales, constant currency
$
1,005,624
$
864,079
16.4
%
(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 December 31, 2022 into U.S. dollars using the average
foreign exchange rates for the quarter ended December 31, 2021.
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
Net Sales by Geography:
Quarter ended December
31,
2022
2021
% Change
United States and Canada:
(in thousands)
Net sales, as reported
$
909,221
$
773,660
17.5
%
International:
Net sales, reported
$
102,020
$
90,419
12.8
%
Foreign exchange impact(a)
(5,617
)
—
Non-GAAP net sales, constant currency
$
96,403
$
90,419
6.6
%
Consolidated:
Net sales, reported
$
1,011,241
$
864,079
17.0
%
Foreign exchange impact(a)
(5,617
)
—
Non-GAAP net sales, constant currency
$
1,005,624
$
864,079
16.4
%
(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 December 31, 2022 into U.S. dollars using the average
foreign exchange rates for the quarter ended December 31, 2021.
Quarter ended December 31,
2022
GAAP Measure
Intangible amortization
expense
Acquisition and divestiture
costs
Tax recovery (a)
Non-GAAP measure
(in thousands, except per
share data)
SG&A expenses
$
69,074
—
—
$
2,858
$
71,932
Operating income
39,432
4,150
—
(2,858
)
40,724
Net income
25,734
3,093
—
(1,886
)
26,941
Diluted EPS
$
1.01
$
0.12
—
$
(0.07
)
$
1.06
Quarter ended December 31,
2021
GAAP Measure
Intangible amortization
expense
Acquisition and divestiture
costs (b)
Tax recovery
Non-GAAP measure
(in thousands, except per
share data)
SG&A expense
$
69,161
—
$
53
—
$
69,214
Operating income
31,498
4,447
(53
)
—
35,892
Net income
23,152
3,347
(53
)
—
26,446
Diluted EPS
$
0.89
$
0.13
—
—
$
1.02
(a) Recovery of prior period withholding
taxes in Brazil.
(b) Acquisition and divestiture costs
totaled less than $(0.1) million for the quarter ended December 31,
2021 and are generally nondeductible for tax purposes.
ScanSource, Inc. and
Subsidiaries
Supplementary Forward-Looking
Information (Unaudited)
Annual Financial Outlook for Fiscal
Year 2023:
FY23 Outlook
GAAP, Operating income
At least $135 million
Intangible amortization
$17 million
Depreciation expense
$12 million
Share-based compensation expense
$12 million
Interest income and other income
(expense), net
$3 million
Tax recovery
$(3) million
Adjusted EBITDA (non-GAAP)
At least $176 million
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230207005362/en/
Steve Jones Senior EVP, Chief Financial Officer ScanSource, Inc.
(864) 286-4302
Mary M. Gentry SVP, Treasurer and Investor Relations ScanSource,
Inc. (864) 286-4892
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