Strong Q1 Cash Flow Exceeds Expectations
ScanSource, Inc. (NASDAQ: SCSC), a leading hybrid distributor
connecting devices to the cloud, today announced financial results
for the first quarter ended September 30, 2023.
First Quarter Summary
Q1 FY24
Q1 FY23
Change
(in thousands, except per
share data)
Select reported measures:
Net sales
$
876,305
$
943,813
-7.2
%
Gross profit
$
106,508
$
113,485
-6.1
%
Gross profit margin %
12.15
%
12.02
%
13bp
Operating income
$
24,084
$
34,888
-31.0
%
GAAP net income
$
15,432
$
24,042
-35.8
%
GAAP diluted EPS
$
0.61
$
0.94
-35.1
%
Operating cash flow
$
93,533
$
(48,459
)
nm
Select Non-GAAP measures:
Adjusted EBITDA
$
34,919
$
45,275
-22.9
%
Adjusted EBITDA margin %
3.98
%
4.80
%
-82bp
Non-GAAP net income
$
18,728
$
27,203
-31.2
%
Non-GAAP diluted EPS
$
0.74
$
1.07
-30.8
%
Free cash flow
$
91,218
$
(49,143
)
nm
"Strong cash flow and Intelisys growth are the hallmarks of our
first quarter," said Mike Baur, Chairman and CEO, ScanSource, Inc.
"Our business fundamentals remain strong in a softer revenue
environment."
Quarterly Results
Net sales for the first quarter of fiscal year 2024 totaled
$876.3 million, down 7.2% year-over-year. Specialty Technology
Solutions net sales for the first quarter decreased 11.6%
year-over-year to $509.6 million. Soft demand in barcode, mobility
and point of sale was partially offset by growth in networking and
security. Modern Communications & Cloud net sales for the first
quarter decreased 0.2% year-over-year to $366.7 million due to
lower sales volumes in communications hardware, partially offset by
growth in Cisco products. Intelisys net billings increased to
approximately $2.51 billion annualized, and Intelisys net sales for
the first quarter increased 8.8%.
Gross profit for the first quarter of fiscal year 2024 decreased
6.1% year-over-year to $106.5 million. Gross profit margin for the
first quarter was 12.15% versus 12.02% in the prior-year
quarter.
For the first quarter of fiscal year 2024, operating income was
$24.1 million compared to $34.9 million in the prior-year quarter.
First quarter fiscal year 2024 non-GAAP operating income decreased
to $28.5 million for a 3.25% non-GAAP operating income margin, down
from $39.1 million for the prior-year quarter.
On a GAAP basis, net income for the first quarter of fiscal year
2024 totaled $15.4 million, or $0.61 per diluted share, compared to
net income of $24.0 million, or $0.94 per diluted share, for the
prior-year quarter. First quarter fiscal year 2024 non-GAAP net
income totaled $18.7 million, or $0.74 per diluted share, down from
$27.2 million, or $1.07 per diluted share, for the prior-year
quarter. Interest expense increased to $5.6 million, up from $3.4
million for the prior-year quarter, reflecting higher interest
rates and higher borrowings.
Adjusted EBITDA for the first quarter of fiscal year 2024
decreased 22.9% to $34.9 million, or 3.98% of net sales, compared
to $45.3 million, or 4.80% of net sales, for the prior-year
quarter.
ScanSource generated $93.5 million of operating cash flow and
$91.2 million of free cash flow in the first quarter of fiscal year
2024.
Annual Financial Outlook for Fiscal Year 2024
ScanSource updates its expectations for the full fiscal year
ended June 30, 2024 and replaces previously provided guidance.
FY24 Annual Outlook
Prior FY24 Annual
Outlook
Net sales
At least $3.8 billion
Net sales growth: At least
3%
Adjusted EBITDA (Non-GAAP)
At least $170 million
At least $180 million
Free cash flow
At least $200 million
At least $150 million
Adjusted EBITDA is a non-GAAP measure, which excludes estimates
for amortization of intangible assets, depreciation expense, and
non-cash shared-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, November 9, 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 FY24 outlook, which 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, the following factors, which are
neither presented in order of importance nor weighted:
macroeconomic conditions, including potential prolonged economic
weakness, inflation, the failure to manage and implement the
Company's organic growth strategy, credit risks involving the
Company's larger customers and suppliers, changes in interest and
exchange rates and regulatory regimes impacting the Company's
international operations, economic weakness and inflation, risk to
our business from a cyberattack, a failure of our IT systems,
failure to hire and retain quality employees, loss of the Company's
major customers, relationships with our key suppliers and customers
or a termination or a modification of the terms under which it
operates with these key suppliers, 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, 2023. 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 operating income margin, 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, cyberattack restoration
costs, tax recovery, 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. The Adjusted EBITDA margin is calculated as Adjusted
EBITDA as a percentage of net sales.
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.
Free cash flow: We present free cash flow as we believe this
measure provides more information regarding our liquidity and
capital resources. Free cash flow is defined as cash flows from
operating activities less capital expenditures.
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 2023 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)
September 30, 2023
June 30, 2023*
Assets
Current assets:
Cash and cash equivalents
$
42,647
$
36,178
Accounts receivable, less allowance of
$19,570 at September 30, 2023
and $15,480 at June 30, 2023
691,669
753,236
Inventories
656,170
757,574
Prepaid expenses and other current
assets
116,949
110,087
Total current assets
1,507,435
1,657,075
Property and equipment, net
36,745
37,379
Goodwill
215,152
216,706
Identifiable intangible assets, net
63,675
68,495
Deferred income taxes
16,421
17,764
Other non-current assets
59,107
70,750
Total assets
$
1,898,535
$
2,068,169
Liabilities and
Shareholders’ Equity
Current liabilities:
Accounts payable
$
617,594
$
691,119
Accrued expenses and other current
liabilities
67,138
78,892
Income taxes payable
8,108
9,875
Current portion of long-term debt
8,209
6,915
Total current liabilities
701,049
786,801
Deferred income taxes
3,679
3,816
Long-term debt, net of current portion
141,774
144,006
Borrowings under revolving credit
facility
98,125
178,980
Other long-term liabilities
38,655
49,268
Total liabilities
983,282
1,162,871
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, 24,960,231 and 24,844,203 shares issued and
outstanding at September 30, 2023 and June 30, 2023,
respectively
59,501
58,241
Retained earnings
952,110
936,678
Accumulated other comprehensive loss
(96,358
)
(89,621
)
Total shareholders’ equity
915,253
905,298
Total liabilities and shareholders’
equity
$
1,898,535
$
2,068,169
*Derived from audited financial
statements.
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated Income
Statements (Unaudited)
(in thousands, except per
share data)
Quarter ended September
30,
2023
2022
Net sales
$
876,305
$
943,813
Cost of goods sold
769,797
830,328
Gross profit
106,508
113,485
Selling, general and administrative
expenses
75,436
71,593
Depreciation expense
2,795
2,763
Intangible amortization expense
4,193
4,241
Operating income
24,084
34,888
Interest expense
5,585
3,448
Interest income
(1,325
)
(1,589
)
Other expense, net
677
746
Income before income taxes
19,147
32,283
Provision for income taxes
3,715
8,241
Net income
$
15,432
$
24,042
Per share data:
Net income per common share, basic
$
0.62
$
0.95
Weighted-average shares outstanding,
basic
24,886
25,201
Net income per common share, diluted
$
0.61
$
0.94
Weighted-average shares outstanding,
diluted
25,178
25,451
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(in thousands)
Quarter ended September
30,
2023
2022
Cash flows from operating activities:
Net income
$
15,432
$
24,042
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization
7,217
7,228
Amortization of debt issue costs
96
289
Provision for doubtful accounts
4,157
125
Share-based compensation
2,769
2,316
Deferred income taxes
1,303
2,274
Finance lease interest
15
2
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
53,284
(18,799
)
Inventories
99,630
(62,192
)
Prepaid expenses and other assets
(7,743
)
14,690
Other non-current assets
11,227
(9,469
)
Accounts payable
(70,292
)
(1,053
)
Accrued expenses and other liabilities
(21,764
)
(13,168
)
Income taxes payable
(1,798
)
5,256
Net cash provided by (used in) operating
activities
93,533
(48,459
)
Cash flows from investing activities:
Capital expenditures
(2,315
)
(684
)
Net cash used in investing activities
(2,315
)
(684
)
Cash flows from financing activities:
Borrowings on revolving credit, net of
expenses
588,570
579,011
Repayments on revolving credit, net of
expenses
(669,424
)
(542,147
)
Borrowings (repayments) on long-term debt,
net
(938
)
18,402
Repayments on finance lease obligation
(191
)
(303
)
Debt issuance costs
—
(1,407
)
Exercise of stock options
72
10
Taxes paid on settlement of equity
awards
(1,582
)
(596
)
Net cash (used in) provided by financing
activities
(83,493
)
52,970
Effect of exchange rate changes on cash
and cash equivalents
(1,256
)
(1,342
)
Increase in cash and cash equivalents
6,469
2,485
Cash and cash equivalents at beginning of
period
36,178
37,987
Cash and cash equivalents at period
end
$
42,647
$
40,472
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
(in thousands, except
percentages)
Non-GAAP Financial Information:
Quarter ended September
30,
2023
2022
Adjusted return on invested capital ratio
(Adjusted ROIC), annualized(a)
11.0
%
15.6
%
Reconciliation of Net Income to
Adjusted EBITDA:
Net income (GAAP)
$
15,432
$
24,042
Plus: Interest expense
5,585
3,448
Plus: Income taxes
3,715
8,241
Plus: Depreciation and amortization
7,217
7,228
EBITDA (non-GAAP)
31,949
42,959
Plus: Share-based compensation
2,769
2,316
Plus: Cyberattack restoration costs
201
—
Adjusted EBITDA (numerator for Adjusted
ROIC) (non-GAAP)
$
34,919
$
45,275
Invested Capital Calculations:
Equity – beginning of the quarter
$
905,298
$
806,528
Equity – end of the quarter
915,253
827,004
Plus: Share-based compensation, net
2,068
1,718
Plus: Cyberattack restoration costs,
net
150
—
Average equity
911,385
817,625
Average funded debt (b)
352,897
336,428
Invested capital (denominator for Adjusted
ROIC) (non-GAAP)
$
1,264,282
$
1,154,053
(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) Average funded debt is calculated as
the average daily amounts outstanding on short-term and long-term
interest-bearing debt.
Quarter Ended September
30,
2023
2022
GAAP operating cash flow
$
93,533
$
(48,459
)
Less: Capital Expenditures
(2,315
)
(684
)
Free cash flow (non-GAAP)
$
91,218
$
(49,143
)
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
Net Sales by Segment:
Quarter ended September
30,
2023
2022
% Change
Specialty Technology Solutions:
(in thousands)
Net sales, reported
$
509,570
$
576,329
(11.6
)%
Foreign exchange impact (a)
(934
)
—
Non-GAAP net sales, constant currency
$
508,636
$
576,329
(11.7
)%
Modern Communications &
Cloud:
Net sales, reported
$
366,735
$
367,484
(0.2
)%
Foreign exchange impact (a)
(4,677
)
—
Non-GAAP net sales, constant currency
$
362,058
$
367,484
(1.5
)%
Consolidated:
Net sales, reported
$
876,305
$
943,813
(7.2
)%
Foreign exchange impact (a)
(5,611
)
—
Non-GAAP net sales, constant currency
$
870,694
$
943,813
(7.7
)%
(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 September 30, 2023 into U.S. dollars using the
average foreign exchange rates for the quarter ended September 30,
2022.
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
Net Sales by Geography:
Quarter ended September
30,
2023
2022
% Change
United States and Canada:
(in thousands)
Net sales, as reported
$
791,000
$
859,538
(8.0
)%
International:
Net sales, reported
$
85,305
$
84,275
1.2
%
Foreign exchange impact(a)
(5,611
)
—
Non-GAAP net sales, constant currency
$
79,694
$
84,275
(5.4
)%
Consolidated:
Net sales, reported
$
876,305
$
943,813
(7.2
)%
Foreign exchange impact(a)
(5,611
)
—
Non-GAAP net sales, constant currency
$
870,694
$
943,813
(7.7
)%
(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 September 30, 2023 into U.S. dollars using the
average foreign exchange rates for the quarter ended September 30,
2022.
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
(in thousands, except per
share data)
Non-GAAP Financial Information:
Quarter ended September 30,
2023
GAAP Measure
Intangible amortization
expense
Cyberattack restoration
costs
Non-GAAP measure
(in thousands, except per
share data)
SG&A expenses
$75,436
—
$(201)
$75,235
Operating income
24,084
4,193
201
28,478
Operating income margin
2.75%
0.48%
0.02%
3.25%
Net income
15,432
3,146
150
18,728
Diluted EPS
$0.61
$0.12
$0.01
$0.74
Quarter ended September 30,
2022
GAAP Measure
Intangible amortization
expense
Cyberattack restoration
costs
Non-GAAP measure
(in thousands, except per
share data)
SG&A expense
$71,593
—
—
$71,593
Operating income
34,888
4,241
—
39,129
Operating income margin
3.70%
0.45%
—
4.15%
Net income
24,042
3,161
—
27,203
Diluted EPS
$0.94
$0.12
—
$1.07
Annual Financial Outlook for Fiscal Year 2024:
FY 24 Outlook
GAAP operating income
At least $126 million
Intangible amortization
$17 million
Depreciation expense
$12 million
Share-based compensation
expense
$12 million
Interest income and income (expense),
net
$3 million
Adjusted EBITDA (non-GAAP)
At least $170 million
GAAP operating cash flow
At least $210 million
Less: Capital expenditures
$10 million
Free cash flow (non-GAAP)
At least $200 million
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231109849157/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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