Form 8-K SCANSOURCE INC For: Nov 07
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 7, 2016
ScanSource, Inc.
(Exact name of registrant as specified in its charter)
Commission File Number: 000-26926
SC | 00-26926 | 57-0965380 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
6 Logue Court, Greenville, SC 29615
(Address of principal executive offices, including zip code)
864-288-2432
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition
On November 7, 2016 ScanSource, Inc. issued a press release announcing its financial results for its first quarter September 30, 2016. A copy of the press release and accompanying presentation slides are attached as Exhibit 99.1 and 99.2 hereto and incorporated herein by reference and also made available through the Company’s website at www.scansource.com.
The information in this Item 2.02 Current Report on Form 8-K, including the exhibits, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
On November 2, 2016, Mr. Charles A. Mathis, the executive vice president and chief financial officer of the Company, notified the Company that he was resigning effective November 11, 2016, to take a position with another company.
Effective November 11, 2016, Mr. Gerald Lyons will serve as the Company’s interim chief financial officer. Mr. Lyons has served as senior vice president, corporate controller and principal accounting officer of the Company since September 2016, and served as its senior vice president of finance and principal accounting officer from July 2012 to September 2016 and its vice president, financial business systems from January 2010 to July 2012. Mr. Lyons joined the Company in April 2007 and served as vice president and corporate controller from April 2007 to January 2010.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
99.1 – Press release issued by ScanSource, Inc. on November 7, 2016. The information contained in the attached exhibit is unaudited and should be read in conjunction with the Registrant’s annual and quarterly reports filed with the Securities and Exchange Commission.
99.2 – Presentation slides for the financial results conference call issued on November 7, 2016. The information contained in the attached exhibit is unaudited and should be read in conjunction with the Registrant’s annual and quarterly reports filed with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ScanSource, Inc. | |||||||
Date: | 11/7/2016 | By: | /s/ Charles A. Mathis | ||||
Name: | Charles A. Mathis | ||||||
Its: | Executive Vice President and Chief Financial Officer | ||||||
Exhibit 99.1
FOR IMMEDIATE RELEASE
Contact: | ||
Charles A. Mathis | Mary M. Gentry | |
Executive Vice President and Chief Financial Officer | - or - | Vice President, Treasurer and Investor Relations |
ScanSource, Inc. | ScanSource, Inc. | |
(864) 286-4975 | (864) 286-4892 | |
SCANSOURCE REPORTS FIRST QUARTER RESULTS
Net Sales and EPS Exceed Forecast
GREENVILLE, SC -- November 7, 2016 -- ScanSource, Inc. (NASDAQ: SCSC), a leading global provider of technology products and solutions, today announced financial results for fiscal year 2017 first quarter ended September 30, 2016.
Quarter ended September 30, | ||||||||||
2016 | 2015 | Change | ||||||||
(in millions, except per share data) | ||||||||||
Net sales | $ | 932.6 | $ | 870.8 | 7 | % | ||||
Operating income | 22.9 | 24.4 | (6 | )% | ||||||
Non-GAAP operating income(1) | 26.7 | 28.4 | (6 | )% | ||||||
GAAP net income | 14.8 | 16.0 | (7 | )% | ||||||
Non-GAAP net income(1) | 17.5 | 18.9 | (8 | )% | ||||||
GAAP diluted EPS | $ | 0.58 | $ | 0.57 | 2 | % | ||||
Non-GAAP diluted EPS(1) | $ | 0.68 | $ | 0.68 | — | % | ||||
(1) A reconciliation of non-GAAP financial information to GAAP financial information is presented in the Supplementary Information (Unaudited) below. | ||||||||||
“We are pleased with our solid financial results for our first quarter,” said Mike Baur, CEO, ScanSource, Inc. "We achieved 7% net sales growth primarily from our businesses in North America. In addition, the acquisition of Intelisys, closed during the quarter, brings the benefits of a successful recurring revenue model and adds capabilities in the growing telecom and cloud services market.”
For the first quarter of fiscal year 2017, operating income of $22.9 million and non-GAAP operating income of $26.7 million decreased from the prior year quarter, primarily from a less favorable sales mix. On a GAAP basis, net income for the first quarter totaled $14.8 million, or $0.58 per diluted share, compared with net income of $16.0 million, or $0.57 per diluted share, for the prior year quarter. Non-GAAP net income for the first quarter totaled to $17.5 million, or $0.68 per diluted share.
Completion of the Acquisition of Intelisys
On August 29, 2016, ScanSource completed its acquisition of Intelisys Communications, Inc., the industry-leading technology services distributor of business telecommunications and cloud services. Founded in 1994 and based in Petaluma, California, Intelisys operates in the United States and has approximately 120 employees, more than 130 supplier partners, and over 2,300 sales partners. Under the agreement, the all-cash transaction included an initial purchase price of approximately $83.6 million, plus earn-out payments based on a multiple of EBITDA over the next four years, which could range from $100 million to $150 million.
Share Repurchase Update
In August 2016, ScanSource announced a new $120 million three-year authorization by its Board of Directors to repurchase shares of the Company’s common stock. Under this authorization through September 30, 2016, the Company has repurchased approximately 0.5 million shares for approximately $16.9 million.
1
Exhibit 99.1
Forecast for Next Quarter
For the second quarter of fiscal year 2017, ScanSource expects net sales to range from $930 million to $980 million, diluted earnings per share to range from $0.47 to $0.53 per share, and non-GAAP diluted earnings per share to range from $0.67 to $0.73 per share. Non-GAAP diluted earnings per share exclude amortization of intangibles, change in fair value of contingent consideration and acquisition costs.
Chief Financial Officer Resigns to Accept Another Opportunity
Mr. Charles A. Mathis, chief financial officer, advised the company of his intent to resign effective November 11, 2016. Mr. Mathis has accepted a financial executive position in the defense industry, which is the industry he has devoted most of his career. Mr. Mathis has served as the Company’s executive vice president and chief financial officer since December 2012.
“Charlie has been an important part of ScanSource’s growth and success for four years, and we greatly appreciate his contributions to the Company,” said Mike Baur, CEO, ScanSource, Inc. “We thank him for his years of service to the Company and wish him and his family all the best.”
“I have enjoyed building and growing a successful team during my four years,” said Charlie Mathis. “ScanSource is an exciting growth company, and I have developed many great relationships.”
Effective November 11, 2016, Mr. Gerald Lyons will serve as the Company’s interim chief financial officer. Mr. Lyons had been serving as the Company’s senior vice president, corporate controller and principal accounting officer. Mr. Lyons joined the Company in April 2007.
Webcast Details
ScanSource will present additional information about its financial results and outlook in a conference call with presentation slides today, November 7, 2016 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 for next quarter, contains “forward-looking” statements that involve risks and uncertainties. Any number of important factors could cause actual results to differ materially from anticipated or forecasted results, including, but not limited to, expanded international operations that expose the Company to greater risks than its operations in domestic markets; risks in connection with the Company's growth which includes strategic acquisitions; risks in connection with compliance with laws and regulations governing the Company's international business; risks associated with the Company's reliance on key vendors; the ability to forecast volatility in earnings resulting from the quarterly revaluation of the Company's earnout obligations; utilization and further implementation of the Company's new ERP system; macroeconomic circumstances that could impact the business, such as currency fluctuations, credit market conditions, and an economic downturn; expectations of market demand trends; the timing and amount of any share repurchases; the exercise of discretion by the Company to make any repurchase or continue the share repurchase authorization; and changes to the source of funds for any repurchases. 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, 2016, 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 better 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, and other non-GAAP adjustments.
Net sales on a constant currency basis: The Company discloses the percentage change in net sales excluding the translation impact from changes in foreign currency exchange rates between reporting periods. This measure enhances comparability between periods to help analyze underlying trends.
2
Exhibit 99.1
Non-GAAP operating income, non-GAAP net income and non-GAAP EPS: To evaluate current period performance on a clearer and more consistent basis with prior periods, the Company discloses non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, change in the fair value of contingent consideration, and other non-GAAP adjustments. Non-GAAP operating income, non-GAAP net income, and non-GAAP 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. Adjusted earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") excludes the change in fair value of contingent consideration, in addition to other non-GAAP adjustments. 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. In addition, the Company's Board of Directors uses ROIC in evaluating business and management performance. Certain management incentive compensation targets are set and measured relative to ROIC.
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), barcode, physical security, video, voice, data networking and technology 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 resellers and sales partners choose, configure and deliver the industry's best solutions across almost every vertical market in North America, Latin America and Europe. In August 2016, ScanSource entered the recurring revenue telecom and cloud services market through its acquisition of Intelisys, the industry's leading technology services distributor. Founded in 1992, the Company is headquartered in Greenville, South Carolina and was named one of the 2016 Best Places to Work in South Carolina. ScanSource ranks #685 on the Fortune 1000. For more information, visit www.scansource.com.
3
ScanSource Reports First Quarter Results
ScanSource, Inc. and Subsidiaries | ||||||||
Condensed Consolidated Balance Sheets (Unaudited) | ||||||||
(in thousands) | ||||||||
September 30, 2016 | June 30, 2016* | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 45,125 | $ | 61,400 | ||||
Accounts receivable, less allowance of $39,767 at September 30, 2016 and $39,032 at June 30, 2016 | 637,804 | 559,557 | ||||||
Inventories | 567,287 | 558,581 | ||||||
Prepaid expenses and other current assets | 56,254 | 49,367 | ||||||
Total current assets | 1,306,470 | 1,228,905 | ||||||
Property and equipment, net | 57,080 | 52,388 | ||||||
Goodwill | 201,197 | 92,715 | ||||||
Net identifiable intangible assets | 110,614 | 51,127 | ||||||
Deferred income taxes | 29,392 | 28,813 | ||||||
Other non-current assets | 39,368 | 37,237 | ||||||
Total assets | $ | 1,744,121 | $ | 1,491,185 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 533,001 | $ | 471,487 | ||||
Accrued expenses and other current liabilities | 105,818 | 98,975 | ||||||
Current portion of contingent consideration | 32,837 | 11,594 | ||||||
Income taxes payable | 10,850 | 3,056 | ||||||
Total current liabilities | 682,506 | 585,112 | ||||||
Deferred income taxes | 2,482 | 2,555 | ||||||
Long-term debt | 5,429 | 5,429 | ||||||
Borrowings under revolving credit facility | 160,712 | 71,427 | ||||||
Long-term portion of contingent consideration | 77,998 | 13,058 | ||||||
Other long-term liabilities | 41,833 | 39,108 | ||||||
Total liabilities | 970,960 | 716,689 | ||||||
Shareholders' equity: | ||||||||
Common stock | 52,036 | 67,249 | ||||||
Retained earnings | 794,750 | 779,934 | ||||||
Accumulated other comprehensive income (loss) | (73,625 | ) | (72,687 | ) | ||||
Total shareholders' equity | 773,161 | 774,496 | ||||||
Total liabilities and shareholders' equity | $ | 1,744,121 | $ | 1,491,185 | ||||
* | Derived from audited financial statements. |
4
ScanSource Reports First Quarter Results
ScanSource, Inc. and Subsidiaries | |||||||||
Condensed Consolidated Income Statements (Unaudited) | |||||||||
(in thousands, except per share data) | |||||||||
Quarter ended September 30, | |||||||||
2016 | 2015 | ||||||||
Net sales | $ | 932,566 | $ | 870,829 | |||||
Cost of goods sold | 841,032 | 783,277 | |||||||
Gross profit | 91,534 | 87,552 | |||||||
Selling, general and administrative expenses | 68,490 | 61,547 | |||||||
Change in fair value of contingent consideration | 169 | 1,564 | |||||||
Operating income | 22,875 | 24,441 | |||||||
Interest expense | 589 | 281 | |||||||
Interest income | (1,015 | ) | (942 | ) | |||||
Other, net | 577 | 680 | |||||||
Income before income taxes | 22,724 | 24,422 | |||||||
Provision for income taxes | 7,908 | 8,426 | |||||||
Net income | $ | 14,816 | $ | 15,996 | |||||
Per share data: | |||||||||
Net income per common share, basic | $ | 0.58 | $ | 0.58 | |||||
Weighted-average shares outstanding, basic | 25,523 | 27,702 | |||||||
Net income per common share, diluted | $ | 0.58 | $ | 0.57 | |||||
Weighted-average shares outstanding, diluted | 25,762 | 27,929 | |||||||
5
ScanSource Reports First Quarter Results
ScanSource, Inc. and Subsidiaries | |||||||||||
Supplementary Information (Unaudited) | |||||||||||
(in thousands) | |||||||||||
Net Sales by Segment: | |||||||||||
Quarter ended September 30, | |||||||||||
2016 | 2015 | % Change | |||||||||
Worldwide Barcode, Networking & Security: | |||||||||||
Net sales, as reported | $ | 633,405 | $ | 573,669 | 10.4 | % | |||||
Foreign exchange impact (a) | (3,122 | ) | — | ||||||||
Net sales, constant currency | 630,283 | 573,669 | 9.9 | % | |||||||
Less: Acquisitions | (99,332 | ) | (34,628 | ) | |||||||
Net sales, constant currency excluding acquisitions | $ | 530,951 | $ | 539,041 | (1.5 | )% | |||||
Worldwide Communications & Services: | |||||||||||
Net sales, as reported | $ | 299,161 | $ | 297,160 | 0.7 | % | |||||
Foreign exchange impact (a) | (906 | ) | — | ||||||||
Net sales, constant currency | 298,255 | 297,160 | 0.4 | % | |||||||
Less: Acquisitions | (2,863 | ) | — | ||||||||
Net sales, constant currency excluding acquisitions | $ | 295,392 | $ | 297,160 | (0.6 | )% | |||||
Consolidated: | |||||||||||
Net sales, as reported | $ | 932,566 | $ | 870,829 | 7.1 | % | |||||
Foreign exchange impact (a) | (4,028 | ) | — | ||||||||
Net sales, constant currency | 928,538 | 870,829 | 6.6 | % | |||||||
Less: Acquisitions | (102,195 | ) | (34,628 | ) | |||||||
Net sales, constant currency excluding acquisitions | $ | 826,343 | $ | 836,201 | (1.2 | )% | |||||
(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, 2016 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended September 30, 2015. | |||||||||||
6
ScanSource Reports First Quarter Results
ScanSource, Inc. and Subsidiaries | |||||||||||
Supplementary Information (Unaudited) | |||||||||||
(in thousands) | |||||||||||
Net Sales by Geography: | |||||||||||
Quarter ended September 30, | |||||||||||
2016 | 2015 | % Change | |||||||||
United States: | |||||||||||
Net sales, as reported | $ | 709,810 | $ | 641,931 | 10.6 | % | |||||
Less: Acquisitions | (102,195 | ) | (34,628 | ) | |||||||
Net sales, excluding acquisitions | 607,615 | 607,303 | 0.1 | % | |||||||
International: | |||||||||||
Net sales, as reported | 222,756 | 228,898 | (2.7 | )% | |||||||
Foreign exchange impact (a) | (4,028 | ) | — | ||||||||
Net sales, constant currency | 218,728 | 228,898 | (4.4 | )% | |||||||
Less: Acquisitions | — | — | |||||||||
Net sales, constant currency excluding acquisitions | 218,728 | 228,898 | (4.4 | )% | |||||||
Consolidated: | |||||||||||
Net sales, as reported | 932,566 | 870,829 | 7.1 | % | |||||||
Foreign exchange impact (a) | (4,028 | ) | — | ||||||||
Net sales, constant currency | 928,538 | 870,829 | 6.6 | % | |||||||
Less: Acquisitions | (102,195 | ) | (34,628 | ) | |||||||
Net sales, constant currency excluding acquisitions | 826,343 | 836,201 | (1.2 | )% | |||||||
(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, 2016 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended September 30, 2015. | |||||||||||
7
ScanSource Reports First Quarter Results
ScanSource, Inc. and Subsidiaries | |||||||||||||||
Supplementary Information (Unaudited) | |||||||||||||||
(in thousands) | |||||||||||||||
Non-GAAP Financial Information: | |||||||||||||||
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 | |||||||
Quarter ended September 30, 2015 | |||||||||||||||
Operating income | Pre-tax income | Net income | Diluted EPS | ||||||||||||
GAAP measure | $ | 24,441 | $ | 24,422 | $ | 15,996 | $ | 0.57 | |||||||
Adjustments: | |||||||||||||||
Amortization of intangible assets | 2,185 | 2,185 | 1,597 | 0.06 | |||||||||||
Change in fair value of contingent consideration | 1,564 | 1,564 | 1,080 | 0.04 | |||||||||||
Acquisition costs (a) | 220 | 220 | 220 | 0.01 | |||||||||||
Non-GAAP measure | $ | 28,410 | $ | 28,391 | $ | 18,893 | $ | 0.68 | |||||||
(a) Acquisition costs are non-deductible for tax purposes. | |||||||||||||||
8
ScanSource Reports First Quarter Results
ScanSource, Inc. and Subsidiaries | |||||||||
Supplementary Information (Unaudited) | |||||||||
(in thousands) | |||||||||
Non-GAAP Financial Information: | |||||||||
Quarter ended September 30, | |||||||||
2016 | 2015 | ||||||||
Return on invested capital (ROIC), annualized (a) | 13.1 | % | 14.6 | % | |||||
Reconciliation of Net Income to Adjusted EBITDA | |||||||||
Net income - GAAP | $ | 14,816 | $ | 15,996 | |||||
Plus: Income taxes | 7,908 | 8,426 | |||||||
Plus: Interest expense | 589 | 281 | |||||||
Plus: Depreciation and amortization | 5,224 | 3,938 | |||||||
EBITDA | 28,537 | 28,641 | |||||||
Adjustments: | |||||||||
Change in fair value of contingent consideration | 169 | 1,564 | |||||||
Acquisition costs | 498 | 220 | |||||||
Adjusted EBITDA (numerator for ROIC) (non-GAAP) | $ | 29,204 | $ | 30,425 | |||||
Invested Capital Calculation | |||||||||
Equity - beginning of quarter | $ | 774,496 | $ | 808,985 | |||||
Equity - end of quarter | 773,161 | 764,693 | |||||||
Adjustments: | |||||||||
Change in fair value of contingent consideration, net of tax | 46 | 1,080 | |||||||
Acquisition costs, net of tax | 498 | 220 | |||||||
Average equity | 774,101 | 787,489 | |||||||
Average funded debt (b) | 107,718 | 39,124 | |||||||
Invested capital (denominator for ROIC) (non-GAAP) | $ | 881,819 | $ | 826,613 | |||||
(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. | |||||||||
9
ScanSource Reports First Quarter Results
ScanSource, Inc. and Subsidiaries | |||||||
Supplementary Information (Unaudited) | |||||||
(in thousands) | |||||||
Non-GAAP Financial Information: | |||||||
Forecast for quarter ended December 31, 2016 | |||||||
Range Low | Range High | ||||||
GAAP diluted EPS | $ | 0.47 | $ | 0.53 | |||
Adjustments: | |||||||
Amortization of intangible assets | 0.11 | 0.11 | |||||
Change in fair value of contingent consideration | 0.09 | 0.09 | |||||
Non-GAAP diluted EPS | $ | 0.67 | $ | 0.73 | |||
10
Q1 FY17 FINANCIAL RESULTS
CONFERENCE CALL
November 7, 2016 at 5:00 pm ET
Exhibit 99.2
SAFE HARBOR AND NON-GAAP
Safe Harbor Statement
This presentation contains certain comments that are
“forward-looking” statements, including sales, GAAP diluted
EPS, and non-GAAP diluted EPS, that involve plans,
strategies, economic performance and trends, projections,
expectations, costs or beliefs about future events and other
statements that are not descriptions of historical facts.
Forward-looking information is inherently subject to risks and
uncertainties.
Any number of factors could cause actual results to differ
materially from anticipated results, including declines in sales
and margins, currency fluctuations, difficulties in integrating
acquisitions and general economic factors. For more
information concerning factors that could cause actual results
to differ from anticipated results, see the “Risk Factors”
included in the Company’s annual report on Form 10-K for
the fiscal year ended June 30, 2016, filed with the Securities
and Exchange Commission (“SEC”).
Although ScanSource believes the expectations in its
forward-looking statements are reasonable, it cannot
guarantee future results, levels of activity, performance or
achievement. ScanSource disclaims any obligation to
update or revise any forward-looking statements, whether as
a result of new information, future events, or otherwise,
except as may be required by law.
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 measures, including non-GAAP operating
income, non-GAAP operating margin, non-GAAP net income,
non-GAAP diluted earnings per share, return on invested
capital (“ROIC”) and the percentage change in net sales
excluding the impact of foreign currency exchange rates. A
reconciliation of the Company's non-GAAP financial
information to GAAP financial information is provided in the
Appendix and in the Company’s Form 8-K, filed with the
SEC, with the quarterly earnings press release for the period
indicated.
2
HIGHLIGHTS
3
• Net sales, GAAP EPS and non-GAAP EPS exceed forecast
• Net sales of $933 million, up 7% Y/Y, from more big deals and growth
in business in North America, including acquisitions
Solid
1Q17
Operating
Results
Intelisys
Acquisition
• Net sales rebounded strongly from the June quarter, up $55 million
and 6% Q/Q
• Gross margin of 9.8% reflects the sales mix from more big deals and
lower international business
• Closed Intelisys acquisition 8/29/16; initial purchase price of $83.6
million plus earn-out payments based on EBITDA over 4 years
(estimated range $100 million to $150 million)
• Excellent results for month of September from recurring revenue model
* See Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures.
ACQUISITION OF INTELISYS
TRANSACTION
4
ABOUT INTELISYS
SMB Spend on
Telecom Services
Industry-leading technology services distributor of business
telecommunications and cloud services
High-growth, recurring revenue model for the channel; two-tier
services-based business model
Founded in 1994 and HQ in Petaluma, CA; operations in the US
~120 employees, more than 130 supplier partners, and over
2,300 sales partners
Experienced management team to remain in place
MARKET DYNAMICS STRATEGIC RATIONALE
~$150
BILLION
10%
INDIRECT
% of Market Served
by Indirect Channel
Large and growing addressable channel market
Expected growth of opportunities for indirect channel
$83.6
MILLION
INITIAL PURCHASE
4 years
EARN-OUT
PERIOD
EBITDA
EARN-OUT
BASED ON
All-cash asset purchase; closed 8/29/16
Initial purchase price $83.6 million (52%) with 4 annual earn-
out payments based on a multiple of EBITDA (12% )
Estimated earn-out payment range from $100 to $150 million
For first full year after closing, estimated net revenues of $34
million with EBITDA margin of 45% to 50%
Enter telecom and cloud services market; large, growing
addressable market with expected channel shift
Acquiring the current market leader in a fragmented market
with relatively small-sized existing master agents
Brings high-growth, recurring revenue model to the
channel
See opportunities for VARs and sales agents to sell
solutions that include connectivity along with products
FIRST QUARTER: Q1 FY17
Forecast
Range,
excluding
Intelisys*
Actual,
excluding
Intelisys
Intelisys
Only**
Actual,
including
Intelisys
Net Sales
In millions
$875 to $925 $929.7 $2.9 $932.6
GAAP EPS $0.49 to $0.57 $0.58 $(0.00) $0.58
Non-GAAP EPS $0.60 to $0.68 $0.65 $0.03 $0.68
ACTUAL VS. FORECAST
5
* Outlook range provided on August 29, 2016
** Results for Intelisys from the August 29, 2016 acquisition date; non-GAAP EPS excludes $0.8 million for
change in fair value of contingent consideration and $0.5 million of intangible amortization expense
Q1 FY17 Q1 FY16 Change
Net sales $932.6 $870.8 +7%
Gross profit 91.5 87.6 +5%
Gross profit margin % (of net sales) 9.8% 10.1% -24 bps
Operating income 22.9 24.4 -6%
Non-GAAP operating income 26.7 28.4 -6%
GAAP net income 14.8 16.0 -7%
Non-GAAP net income 17.5 18.9 -8%
GAAP diluted EPS $0.58 $0.57 +2%
Non-GAAP diluted EPS $0.68 $0.68 --%
HIGHLIGHTS – Q1 FY17
6
In millions, except EPS
Q1 FY17 Q1 FY16
Net sales $633.4 $573.7
Gross profit $50.1 $48.0
Gross margin 7.9% 8.4%
Operating income $13.5 $13.8
Operating income % 2.1% 2.4%
Non-GAAP operating income $14.5 $14.5
Non-GAAP operating income % 2.3% 2.5%
Q1 FY16 Q1 FY17
Net Sales, $ in millions
Up 10%
Organic Growth, -1.5%
WW BARCODE, NETWORKING & SECURITY
7
$ in millions
Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and
acquisitions. Non-GAAP operating income excludes amortization of intangibles and change in fair value of contingent
consideration.
$574
$633
Acqs. & FX
Acqs.
Q1 FY17 Q1 FY16
Net sales $299.2 $297.2
Gross profit $41.4 $39.5
Gross margin 13.9% 13.3%
Operating income $9.9 $10.8
Operating income % 3.3% 3.7%
Non-GAAP operating income $12.2 $13.9
Non-GAAP operating income % 4.1% 4.7%
WW COMMUNICATIONS & SERVICES
8
Q1 FY16 Q1 FY17
Net Sales, $ in millions
Up 1%
Organic Growth, -1%
$ in millions
$299 $297
Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and
acquisitions. Non-GAAP operating income excludes amortization of intangibles and change in fair value of contingent
consideration.
Acqs. & FX
Q1 FY17 Q4 FY16 Q1 FY16
Accounts receivable (Q/E) $637.8 $559.6 $588.0
Days sales outstanding in receivables* 59* 57 56**
Inventory (Q/E) $567.3 $558.6 $588.2
Inventory turns 6.0 5.6 5.3**
Accounts payable (Q/E) $533.0 $471.5 $516.1
Paid for inventory days* 6.0* 9.9 13.0**
Working capital (Q/E) (AR+INV–AP) $672.1 $646.7 $660.1
WORKING CAPITAL MEASURES
$ in millions
9
* Excludes the impact of Intelisys, which was completed 8/29/16
** Excludes the impact of KBZ, which was completed 9/4/15
Q1 FY17 Q4 FY16 Q1 FY16
Adjusted return on invested capital (QTR)* 13.1% 10.1% 14.6%
Operating cash flow, trailing 12-months $116.2 $52.2 $17.1
Cash and cash equivalents (Q/E) $45.1 $61.4 $41.2
Debt (Q/E) $166.1 $76.9 $94.5
Net debt to adjusted EBITDA, trailing 12-months 1.04x 0.13x 0.46x
Shares repurchased – # of shares (QTR) 477,113 63,651 1,149,103
Shares repurchased – dollars (QTR) $16.9 $2.4 $41.9
Cum. repurchases under plan – # shares (as of Q/E) 477,113 3,364,035 1,628,928
Cum. repurchases under plan – dollars (as of Q/E) $16.9 $119.5 $60.7
Remaining authorization under plan (as of Q/E) $103.1 $0.5 $59.3
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
$ in millions
10
* Excludes non-GAAP adjustments and change in fair value of contingent consideration.
Q2 FY17 OUTLOOK*
11
* Outlook as of November 7, 2016. Non-GAAP diluted EPS excludes amortization of intangible assets, change in fair value of
contingent consideration, and acquisition costs. Reflects the following FX rates: $1.09 to EUR 1.00 for the Euro, $0.31 to
R$1.00 for the Brazilian real (R$3.23 to $1), and $1.22 to GBP 1.00 for the British pound.
For the quarter ending December 31, 2016, excluding amortization of intangible assets,
change in fair value of contingent consideration, and acquisition costs:
Range from $930 million to $980 million
Range from $0.47 to $0.53 per share
Net Sales
GAAP
Diluted EPS
Range from $0.67 to $0.73 per share
Non-GAAP
Diluted EPS
APPENDIX: NON-GAAP FINANCIAL INFORMATION
12
Operating Income, Pre-Tax Income, Net Income & EPS – QTR
($ in thousands) 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 0.00
Acquisition costs (a) 498 498 498 0.02
Non-GAAP measure $ 26,696 $ 26,545 $ 17,468 $ 0.68
Quarter Ended September 30, 2015
Operating
Income
Pre-tax
income
Net
income
Diluted
EPS
GAAP measure $ 24,441 $ 24,422 $ 15,996 $ 0.57
Adjustments:
Amortization of intangible assets 2,185 2,185 1,597 0.06
Change in fair value of contingent consideration 1,564 1,564 1,080 0.04
Acquisition costs (a) 220 220 220 0.01
Non-GAAP measure $ 28,410 $ 28,391 $ 18,893 $ 0.68
(a) Acquisition costs are nondeductible for tax purposes.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
13
Net Sales, Constant Currency and Excluding Acquisitions – QTR
($ in thousands)
WW Barcode,
NW & Security
WW Comms.
& Services Consolidated
For the quarter ended September 30, 2016:
Q1 FY17 net sales, as reported $ 633,405 $ 299,161 $ 932,566
Foreign exchange impact (a) (3,122) (906) (4,028)
Q1 FY17 net sales, constant currency 630,283 298,255 928,538
Less: Acquisitions (99,332) (2,863) (102,195)
Q1 FY17 net sales, constant currency excluding acquisitions $ 530,951 $ 295,392 $ 826,343
Q1 FY16 net sales, as reported $ 573,669 $ 297,160 $ 870,829
Less: Acquisitions (34,628) - (34,628)
Q1 FY16 net sales, excluding acquisitions $ 539,041 $ 297,160 $ 836,201
Y/Y % Change:
As reported 10.4% 0.7% 7.1%
Constant currency 9.9% 0.4% 6.6%
Constant currency, excluding acquisitions (organic
growth) -1.5% -0.6% -1.2%
(a) Year-over-year sales growth excluding the translation impact of changes in foreign currency rates. Calculated by translating net sales for
the quarter ended September 30, 2016 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended
September 30, 2015.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
14
Highlights by Segment – Y/Y for Quarter
Quarter Ended September 30, 2016
($ in thousands) WW Barcode,
NW & Security
WW Comms.
& Services Corporate Consolidated
Net sales $ 633,405 $ 299,161 $ - $ 932,566
GAAP operating income $ 13,456 $ 9,917 $ (498) $ 22,875
Adjustments:
Amortization of intangible assets 1,085 2,069 - 3,154
Change in fair value of contingent consideration - 169 - 169
Acquisition costs - - 498 498
Non-GAAP operating income $ 14,541 $ 12,155 $ - $ 26,696
GAAP operating income % (of net sales) 2.1% 3.3% n/m 2.5%
Non-GAAP operating income % (of net sales) 2.3% 4.1% n/m 2.9%
Quarter Ended September 30, 2015
($ in thousands) WW Barcode,
NW & Security
WW Comms.
& Services Corporate Consolidated
Net sales $ 573,669 $ 297,160 $ - $ 870,829
GAAP operating income $ 13,812 $ 10,849 $ (220) $ 24,441
Adjustments:
Amortization of intangible assets 610 1,575 - 2,185
Change in fair value of contingent consideration 126 1,438 - 1,564
Acquisition costs - - 220 220
Non-GAAP operating income $ 14,548 $ 13,862 $ - $ 28,410
GAAP operating income % (of net sales) 2.4% 3.7% n/m 2.8%
Non-GAAP operating income % (of net sales) 2.5% 4.7% n/m 3.3%
n/m = not meaningful
APPENDIX: NON-GAAP FINANCIAL INFORMATION
15
Adjusted Return on Invested Capital
($ in thousands)
Q1 FY17 Q4 FY16 Q3 FY16 Q2 FY16 Q1 FY16
Adjusted return on invested capital (ROIC), annualized (a) 13.1% 10.1% 12.3% 17.5% 14.6%
Reconciliation of Net Income to EBITDA
Net income - GAAP $ 14,816 $ 12,925 $ 14,042 $ 20,656 $ 15,996
Plus: Income taxes 7,908 5,678 7,311 10,976 8,426
Plus: Interest expense 589 440 694 709 281
Plus: Depreciation and amortization 5,224 4,584 4,281 4,351 3,938
EBITDA 28,537 23,627 26,328 36,692 28,641
Change in fair value of contingent consideration 169 (3,226) 1,139 1,816 1,564
Acquisition costs 498 553 29 60 220
Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 29,204 $ 20,954 $ 27,496 $ 38,568 $ 30,425
Invested Capital Calculation
Equity - beginning of the quarter $ 774,496 $ 757,374 $ 754,794 $ 764,693 $ 808,985
Equity - end of quarter 773,161 774,496 757,374 754,794 764,693
Add: Change in fair value of contingent consideration, net of tax 46 (2,095) 748 1,244 1,080
Add: Acquisition costs, net of tax 498 553 29 60 220
Average equity 774,101 765,164 756,473 760,396 787,489
Average funded debt (b) 107,718 71,577 146,213 117,421 39,124
Invested capital (denominator for ROIC)(non-GAAP) $ 881,819 $ 836,741 $ 902,686 $ 877,817 $ 826,613
Notes:
(a) Calculated as net income plus interest expense, income taxes, depreciation and amortization (EBITDA), annualized divided by invested capital for the period. Adjusted EBITDA
reflects other adjustments for non-GAAP measures.
(b) Average daily amounts outstanding on short-term and long-term interest-bearing debt.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
16
Forecasted Range for EPS – Q2FY17 Outlook
($ in thousands)
Forecast for Quarter ended
December 31, 2016
Range Low Range High
GAAP diluted EPS $ 0.47 $ 0.53
Adjustments:
Amortization of intangible assets 0.11 0.11
Change in fair value of contingent consideration 0.09 0.09
Non-GAAP diluted EPS $ 0.67 $ 0.73