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ScanSource Delivers Outstanding First Quarter Performance

10% net sales growth drove record earnings per share

ScanSource, Inc. (NASDAQ: SCSC), a leading hybrid distributor connecting devices to the cloud, today announced financial results for the first quarter ended September 30, 2022.

 

First Quarter Summary

 

Q1 FY23

 

Q1 FY22

 

Change

 

(in thousands, except per share data)

Select reported measures:

 

 

 

 

 

Net sales

$

943,813

 

 

$

857,583

 

 

10.1

%

Gross profit

$

113,485

 

 

$

101,572

 

 

11.7

%

Gross profit margin %

 

12.02

%

 

 

11.84

%

 

18bp

Operating income

$

34,888

 

 

$

30,328

 

 

15.0

%

GAAP net income

$

24,042

 

 

$

22,073

 

 

8.9

%

GAAP diluted EPS

$

0.94

 

 

$

0.86

 

 

9.3

%

Select Non-GAAP measures:

 

 

 

 

 

Adjusted EBITDA

$

45,275

 

 

$

41,394

 

 

9.4

%

Adjusted EBITDA margin %

 

4.80

%

 

 

4.83

%

 

-3bp

Non-GAAP net income

$

27,203

 

 

$

25,550

 

 

6.5

%

Non-GAAP diluted EPS

$

1.07

 

 

$

0.99

 

 

8.1

%

"We had an outstanding start to our fiscal year, delivering 10% net sales growth and record earnings per share. This exceptional performance is a result of strong demand and working capital investments to meet the needs of our channel partners," said Mike Baur, Chairman and CEO, ScanSource, Inc. "We are winning with our channel partners because of our differentiated hybrid distribution strategy."

Quarterly Results

Net sales for the first quarter of fiscal year 2023 totaled $943.8 million, up 10.1% year-over-year, with strong growth in North America. First quarter fiscal year 2023 net sales in the Specialty Technology Solutions segment increased 14.9% year-over-year to $576.3 million, driven by broad-based demand across technologies and execution by our people. First quarter fiscal year 2023 net sales in Modern Communications & Cloud increased 3.3% year-over-year to $367.5 million, primarily due to increased demand for our communications solutions.

Gross profit for the first quarter of fiscal year 2023 totaled $113.5 million, up 11.7% year-over-year. The increase is primarily due to higher sales volume and higher vendor program recognition compared to the prior-year quarter. Gross profit margin increased to 12.02% for the first quarter of fiscal year 2023, up from 11.84% in the prior-year quarter.

For the first quarter of fiscal year 2023, operating income increased to $34.9 million from $30.3 million in the prior-year quarter. First quarter fiscal year 2023 non-GAAP operating income increased to $39.1 million for a 4.15% non-GAAP operating income margin, compared to $34.9 million and a 4.07% non-GAAP operating margin for the prior-year quarter.

On a GAAP basis, net income for the first quarter of fiscal year 2023 totaled $24.0 million, or $0.94 per diluted share, compared to net income of $22.1 million, or $0.86 per diluted share, for the prior-year quarter. First quarter fiscal year 2023 non-GAAP net income totaled $27.2 million, or $1.07 per diluted share. These results compare to first quarter fiscal year 2022 non-GAAP net income of $25.6 million, or $0.99 per diluted share.

Adjusted EBITDA for the first quarter of fiscal year 2023 increased 9.4% to $45.3 million, or 4.80% of net sales, compared to $41.4 million, or 4.83% of net sales in the prior-year quarter. Adjusted return on invested capital totaled 15.6% for first quarter fiscal year 2023, compared to 17.5% in the prior-year quarter, primarily from increased average invested capital for the current year quarter.

Annual Financial Outlook for Fiscal Year 2023

ScanSource reaffirms previously provided guidance set forth below for the full fiscal year ended June 30, 2023.

 

 

FY23 Annual Outlook

 

 

 

Net sales growth, year-over-year

 

At least 5.5%

Adjusted EBITDA (non-GAAP)

 

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, November 8, 2022, 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 partners across hardware, SaaS, connectivity and cloud. ScanSource enables partners to deliver solutions for their customers to address changing end-user 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 2022 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, 2022

 

June 30, 2022*

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

40,472

 

 

$

37,987

 

Accounts receivable, less allowance of $13,942 at September 30, 2022

and $16,806 at June 30, 2022

 

744,946

 

 

 

729,442

 

Inventories

 

675,798

 

 

 

614,814

 

Prepaid expenses and other current assets

 

126,484

 

 

 

141,562

 

Total current assets

 

1,587,700

 

 

 

1,523,805

 

Property and equipment, net

 

36,853

 

 

 

37,477

 

Goodwill

 

211,736

 

 

 

214,435

 

Identifiable intangible assets, net

 

78,724

 

 

 

84,427

 

Deferred income taxes

 

13,381

 

 

 

15,668

 

Other non-current assets

 

71,918

 

 

 

61,616

 

Total assets

$

2,000,312

 

 

$

1,937,428

 

Liabilities and Shareholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

710,919

 

 

$

714,177

 

Accrued expenses and other current liabilities

 

73,760

 

 

 

88,455

 

Income taxes payable

 

5,274

 

 

 

34

 

Current portion of long-term debt

 

4,102

 

 

 

11,598

 

Total current liabilities

 

794,055

 

 

 

814,264

 

Deferred income taxes

 

2,882

 

 

 

3,144

 

Long-term debt, net of current portion

 

149,631

 

 

 

123,733

 

Borrowings under revolving credit facility

 

172,702

 

 

 

135,839

 

Other long-term liabilities

 

54,038

 

 

 

53,920

 

Total liabilities

 

1,173,308

 

 

 

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, 25,225,902 and 25,187,351 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively

 

66,069

 

 

 

64,297

 

Retained earnings

 

870,911

 

 

 

846,869

 

Accumulated other comprehensive loss

 

(109,976

)

 

 

(104,638

)

Total shareholders’ equity

 

827,004

 

 

 

806,528

 

Total liabilities and shareholders’ equity

$

2,000,312

 

 

$

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 September 30,

 

 

2022

 

 

 

2021

 

Net sales

$

943,813

 

 

$

857,583

 

Cost of goods sold

 

830,328

 

 

 

756,011

 

Gross profit

 

113,485

 

 

 

101,572

 

Selling, general and administrative expenses

 

71,593

 

 

 

63,854

 

Depreciation expense

 

2,763

 

 

 

2,880

 

Intangible amortization expense

 

4,241

 

 

 

4,510

 

Operating income

 

34,888

 

 

 

30,328

 

Interest expense

 

3,448

 

 

 

1,660

 

Interest income

 

(1,589

)

 

 

(1,026

)

Other expense, net

 

746

 

 

 

263

 

Income before income taxes

 

32,283

 

 

 

29,431

 

Provision for income taxes

 

8,241

 

 

 

7,358

 

Net income

$

24,042

 

 

$

22,073

 

 

 

 

 

Per share data:

 

 

 

Net income per common share, basic

$

0.95

 

 

$

0.87

 

Weighted-average shares outstanding, basic

 

25,201

 

 

 

25,512

 

 

 

 

 

Net income per common share, diluted

$

0.94

 

 

$

0.86

 

Weighted-average shares outstanding, diluted

 

25,451

 

 

 

25,696

 

 

ScanSource, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

Quarter ended September 30,

 

 

2022

 

 

 

2021

 

Cash flows from operating activities:

 

 

 

Net income

$

24,042

 

 

$

22,073

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

Depreciation and amortization

 

7,228

 

 

 

7,650

 

Amortization of debt issue costs

 

289

 

 

 

104

 

Provision for doubtful accounts

 

125

 

 

 

(1,027

)

Share-based compensation

 

2,316

 

 

 

2,570

 

Deferred income taxes

 

2,274

 

 

 

(183

)

Finance lease interest

 

2

 

 

 

17

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

Accounts receivable

 

(18,799

)

 

 

(26,714

)

Inventories

 

(62,192

)

 

 

(25,879

)

Prepaid expenses and other assets

 

14,690

 

 

 

(1,174

)

Other non-current assets

 

(9,469

)

 

 

691

 

Accounts payable

 

(1,053

)

 

 

(26,962

)

Accrued expenses and other liabilities

 

(13,168

)

 

 

(14,683

)

Income taxes payable

 

5,256

 

 

 

6,558

 

Net cash used in operating activities

 

(48,459

)

 

 

(56,959

)

Cash flows from investing activities:

 

 

 

Capital expenditures

 

(1,758

)

 

 

(1,090

)

Net cash used in investing activities

 

(1,758

)

 

 

(1,090

)

Cash flows from financing activities:

 

 

 

Borrowings on revolving credit, net of expenses

 

579,011

 

 

 

526,637

 

Repayments on revolving credit, net of expenses

 

(542,147

)

 

 

(470,237

)

Borrowings on long-term debt, net

 

18,402

 

 

 

(2,218

)

Finance lease obligations

 

771

 

 

 

(316

)

Debt issuance costs

 

(1,407

)

 

 

 

Exercise of stock options

 

10

 

 

 

994

 

Taxes paid on settlement of equity awards

 

(596

)

 

 

 

Net cash provided by financing activities

 

54,044

 

 

 

54,860

 

Effect of exchange rate changes on cash and cash equivalents

 

(1,342

)

 

 

(4,038

)

Increase (decrease) in cash and cash equivalents

 

2,485

 

 

 

(7,227

)

Cash and cash equivalents at beginning of period

 

37,987

 

 

 

62,718

 

Cash and cash equivalents at period end

$

40,472

 

 

$

55,491

 

 

ScanSource, Inc. and Subsidiaries

Supplementary Information (Unaudited)

(in thousands, except percentages)

 

 

 

 

Non-GAAP Financial Information:

 

Quarter ended September 30,

 

 

2022

 

 

 

2021

 

Adjusted return on invested capital ratio (Adjusted ROIC), annualized(a)

 

15.6

%

 

 

17.5

%

 

 

 

 

Reconciliation of Net Income to Adjusted EBITDA:

 

 

 

Net income (GAAP)

$

24,042

 

 

$

22,073

 

Plus: Interest expense

 

3,448

 

 

 

1,660

 

Plus: Income taxes

 

8,241

 

 

 

7,358

 

Plus: Depreciation and amortization

 

7,228

 

 

 

7,650

 

EBITDA (non-GAAP)

 

42,959

 

 

 

38,741

 

Plus: Share-based compensation

 

2,316

 

 

 

2,570

 

Plus: Acquisition and divestiture costs(b)

 

 

 

 

83

 

Adjusted EBITDA (numerator for Adjusted ROIC) (non-GAAP)

$

45,275

 

 

$

41,394

 

 

 

 

 

Invested Capital Calculations:

 

 

 

Equity – beginning of the quarter

$

806,528

 

 

$

731,191

 

Equity – end of the quarter

 

827,004

 

 

 

746,094

 

Plus: Share-based compensation, net

 

1,718

 

 

 

1,922

 

Plus: Acquisition and divestiture costs(b)

 

 

 

 

83

 

Average equity

 

817,625

 

 

 

739,645

 

Average funded debt (c)

 

336,428

 

 

 

197,406

 

Invested capital (denominator for Adjusted ROIC) (non-GAAP)

$

1,154,053

 

 

$

937,051

 

 

 

 

 

(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) 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 September 30,

 

 

 

 

2022

 

 

2021

 

% Change

Specialty Technology Solutions:

(in thousands)

 

 

Net sales, reported

$

576,329

 

$

501,711

 

14.9

%

Foreign exchange impact (a)

 

60

 

 

 

 

Non-GAAP net sales, constant currency

$

576,389

 

$

501,711

 

14.9

%

 

 

 

 

 

 

Modern Communications & Cloud:

 

 

 

 

 

Net sales, reported

$

367,484

 

$

355,872

 

3.3

%

Foreign exchange impact (a)

 

613

 

 

 

 

Non-GAAP net sales, constant currency

$

368,097

 

$

355,872

 

3.4

%

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

Net sales, reported

$

943,813

 

$

857,583

 

10.1

%

Foreign exchange impact (a)

 

673

 

 

 

 

Non-GAAP net sales, constant currency

$

944,486

 

$

857,583

 

10.1

%

 

 

 

 

 

 

(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, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2021.

ScanSource, Inc. and Subsidiaries

Supplementary Information (Unaudited)

 

 

 

 

 

 

Net Sales by Geography:

 

 

 

 

Quarter ended September 30,

 

 

 

 

2022

 

 

2021

 

% Change

United States and Canada:

(in thousands)

 

 

Net sales, as reported

$

859,538

 

$

769,771

 

11.7

%

 

 

 

 

 

 

International:

 

 

 

 

 

Net sales, reported

$

84,275

 

$

87,812

 

(4.0

) %

Foreign exchange impact(a)

 

673

 

 

 

 

Non-GAAP net sales, constant currency

$

84,948

 

$

87,812

 

(3.3

) %

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

Net sales, reported

$

943,813

 

$

857,583

 

10.1

%

Foreign exchange impact(a)

 

673

 

 

 

 

Non-GAAP net sales, constant currency

$

944,486

 

$

857,583

 

10.1

%

 

 

 

 

 

 

(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, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2021.

Quarter ended September 30, 2022

 

GAAP Measure

 

Intangible amortization expense

 

Acquisition and divestiture costs

 

Non-GAAP measure

 

(in thousands, except per share data)

SG&A expenses

$

71,593

 

 

 

 

 

 

$

71,593

Operating income

 

34,888

 

 

4,241

 

 

 

 

 

39,129

Net income

 

24,042

 

 

3,161

 

 

 

 

 

27,203

Diluted EPS

$

0.94

 

$

0.12

 

 

 

 

$

1.07

 

 

 

 

 

 

 

 

 

Quarter ended September 30, 2021

 

GAAP Measure

 

Intangible amortization expense

 

Acquisition and divestiture costs

 

Non-GAAP measure

 

(in thousands, except per share data)

SG&A expense

$

63,854

 

 

 

$

(83

)

 

$

63,771

Operating income

 

30,328

 

 

4,510

 

 

83

 

 

 

34,921

Net income

 

22,073

 

 

3,394

 

 

83

 

 

 

25,550

Diluted EPS

$

0.86

 

$

0.13

 

 

 

 

$

0.99

 

 

 

 

 

 

 

 

ScanSource, Inc. and Subsidiaries

Supplementary Forward-Looking Information (Unaudited)

 

 

 

 

 

Annual Financial Outlook for Fiscal Year 2023:

 

 

 

 

 

 

 

 

 

 

FY23 Outlook

 

GAAP, Operating income

 

At least $132 million

Intangible amortization

 

$17 million

Depreciation expense

 

$12 million

Share-based compensation expense

 

$12 million

Interest income and other income (expense), net

 

 

$1 million

 

Adjusted EBITDA (non-GAAP)

 

At least $174 million

 

 

 

 

 

 

Contacts

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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