Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - SCANSOURCE, INC. | a2017-q2exhibit99112312016.htm |
| 8-K - 8-K - SCANSOURCE, INC. | a2017-q2form8xk12312016.htm |
Q2 FY17 FINANCIAL RESULTS
CONFERENCE CALL
February 7, 2017 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 quarterly report on Form 10-Q for
the quarter ended December 31, 2016 and 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
• GAAP diluted EPS of $0.91 and non-GAAP diluted EPS* of $0.75 exceed
forecast range
• Higher gross margins in both segments contribute to EPS upside
• Net sales of $905 million below forecast; miss primarily in Worldwide
Barcode, Networking and Security segment
Vs. Forecast:
EPS Up and
Net Sales
Down
Improved
Sequential
Financial
Results
Favorable
Cash Flows
and ROIC
• First full quarter of operations following our acquisition of Intelisys with
excellent results from recurring revenue model; drove sequential increases
in gross and operating margins
• In addition to Intelisys benefit, gross margin of 10.9% reflects an increased
mix of higher margin sales
• Q2 FY17 operating cash flow of $29 million, reflecting some working capital
efficiency; trailing 12-months operating cash flow of $128 million
• Adjusted return on invested capital of 13.8%*
• Outlook midpoint for Q3 FY17 reflects Y/Y organic sales growth
* See Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures.
Q2 FY17 Q1 FY17 Q2 FY16
Y/Y
Change
Q/Q
Change
Net sales $904.8 $932.6 $993.5 -9% -3%
Gross profit 98.5 91.5 100.6 -2% +8%
Gross profit margin % (of net
sales)
10.9% 9.8% 10.1% +76 bps +107 bps
Operating income 23.3 22.9 31.9 -27% +2%
Non-GAAP operating income 29.6 26.7 36.3 -18% +11%
GAAP net income 23.0 14.8 20.7 +12% +55%
Non-GAAP net income 19.1 17.5 23.7 -20% +9%
GAAP diluted EPS $0.91 $0.58 $0.77 +18% +57%
Non-GAAP diluted EPS $0.75 $0.68 $0.88 -15% +10%
HIGHLIGHTS – Q2 FY17
4
$ in millions, except EPS
Q2 FY17 Q1 FY17 Q2 FY16
Net sales $595.4 $633.4 $689.5
Gross profit $49.2 $50.1 $57.7
Gross margin 8.3% 7.9% 8.4%
Operating income $12.0 $13.5 $19.0
Operating income % 2.0% 2.1% 2.8%
Non-GAAP operating income $13.1 $14.5 $20.0
Non-GAAP operating income % 2.2% 2.3% 2.9%
Q2 FY16 Q2 FY17
Net Sales, $ in millions
Down (14%)
Organic Growth, Down (14%)
WW BARCODE, NETWORKING & SECURITY
5
$ 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.
$690
$595
Q2 FY17 Q1 FY17 Q2 FY16
Net sales $309.4 $299.2 $304.0
Gross profit $49.3 $41.4 $42.9
Gross margin 15.9% 13.9% 14.1%
Operating income $11.6 $9.9 $12.9
Operating income % 3.8% 3.3% 4.2%
Non-GAAP operating income $16.5 $12.2 $16.2
Non-GAAP operating income % 5.3% 4.1% 5.3%
WW COMMUNICATIONS & SERVICES
6
Q2 FY16 Q2 FY17
Net Sales, $ in millions
Up 2%
Organic Growth, Down (2%)
$ in millions
$309 $304
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.
Q2 FY17 Q1 FY17 Q2 FY16
Accounts receivable (Q/E) $620.6 $637.8 $588.4
Days sales outstanding in receivables* 60* 59* 53
Inventory (Q/E) $512.9 $567.3 $604.1
Inventory turns 6.0 6.0 6.0
Accounts payable (Q/E) $476.3 $533.0 $512.0
Paid for inventory days* 6.5* 6.0* 9.3
Working capital (Q/E) (AR+INV–AP) $657.1 $672.1 $680.5
WORKING CAPITAL MEASURES
$ in millions
7
* Excludes the impact of the Intelisys acquisition, which was completed 8/29/16
Q2 FY17 Q1 FY17 Q2 FY16
Adjusted EBITDA (QTR) $32.6 $29.2 $38.6
Adjusted return on invested capital (QTR)* 13.8% 13.1% 17.5%
Operating cash flow, trailing 12-months $128.4 $116.2 $44.7
Cash and cash equivalents (Q/E) $45.1 $45.1 $39.4
Debt (Q/E) $141.7 $166.1 $115.1
Net debt to adjusted EBITDA, trailing 12-months 0.88x 1.04x 0.61x
Shares repurchased – # of shares (QTR) 100,530 477,113 801,040
Shares repurchased – dollars (QTR) $3.5 $16.9 $29.6
Cum. repurchases under plan – # shares (as of Q/E) 577,643 477,113 2,429,968
Cum. repurchases under plan – dollars (as of Q/E) $20.3 $16.9 $90.4
Remaining authorization under plan (as of Q/E) $99.7 $103.1 $29.6
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
$ in millions
8
* Excludes non-GAAP adjustments and change in fair value of contingent consideration.
Q3 FY17 OUTLOOK*
9
* Outlook as of February 7, 2017. Non-GAAP diluted EPS excludes amortization of intangible assets, change in fair value of
contingent consideration, and acquisition costs. Reflects the following FX rates: $1.07 to EUR 1.00 for the Euro, $0.3125
to R$1.00 for the Brazilian real (R$3.20 to $1), and $1.25 to GBP 1.00 for the British pound.
For the quarter ending March 31, 2017, excluding amortization of intangible assets, change
in fair value of contingent consideration, and acquisition costs:
Range from $800 million to $860 million
Range from $0.42 to $0.49 per share
Net Sales
GAAP
Diluted EPS
Range from $0.62 to $0.69 per share
Non-GAAP
Diluted EPS
APPENDIX: NON-GAAP FINANCIAL INFORMATION
10
Operating Income, Pre-Tax Income, Net Income & EPS – QTR
($ in thousands) Quarter Ended December 31, 2016
Operating
Income
Pre-tax
income
Net
income
Diluted
EPS
GAAP measure $ 23,275 $ 35,781 $ 23,036 $ 0.91
Adjustments:
Amortization of intangible assets 4,165 4,165 2,740 0.11
Change in fair value of contingent consideration 1,791 1,791 1,000 0.04
Acquisition costs (a) 335 335 335 0.01
Legal settlement, net of attorney fees - (12,777) (8,047) (0.32)
Non-GAAP measure $ 29,566 $ 29,295 $ 19,064 $ 0.75
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 December 31, 2015
Operating
Income
Pre-tax
income
Net
income
Diluted
EPS
GAAP measure $ 31,852 $ 31,632 $ 20,656 $ 0.77
Adjustments:
Amortization of intangible assets 2,545 2,545 1,732 0.06
Change in fair value of contingent consideration 1,816 1,816 1,244 0.05
Acquisition costs (a) 60 60 60 0.00
Non-GAAP measure $ 36,273 $ 36,053 $ 23,692 $ 0.88
(a) Acquisition costs are nondeductible for tax purposes.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
11
Net Sales, Constant Currency and Excluding Acquisitions – QTR
($ in thousands)
WW Barcode,
NW & Security
WW Comms.
& Services Consolidated
For the quarter ended December 31, 2016:
Q2 FY17 net sales, as reported $ 595,359 $ 309,433 $ 904,792
Foreign exchange impact (a) (3,257) (2,557) (5,814)
Q2 FY17 net sales, constant currency 592,102 306,876 898,978
Less: Acquisitions - (8,487) (8,487)
Q2 FY17 net sales, constant currency excluding acquisitions $ 592,102 $ 298,389 $ 890,491
Q2 FY16 net sales, as reported $ 689,530 $ 303,992 $ 993,522
Less: Acquisitions - - -
Q2 FY16 net sales, excluding acquisitions $ 689,530 $ 303,992 $ 993,522
Y/Y % Change:
As reported -13.7% 1.8% -8.9%
Constant currency -14.1% 0.9% -9.5%
Constant currency, excluding acquisitions (organic
growth) -14.1% -1.8% -10.4%
(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
December 31, 2016 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended December 31, 2015.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
12
Highlights by Segment – Y/Y for Quarter
Quarter Ended December 31, 2016
($ in thousands) WW Barcode,
NW & Security
WW Comms.
& Services Corporate Consolidated
Net sales $ 595,359 $ 309,433 $ - $ 904,792
GAAP operating income $ 11,985 $ 11,625 $ (335) $ 23,275
Adjustments:
Amortization of intangible assets 1,079 3,086 - 4,165
Change in fair value of contingent consideration - 1,791 - 1,791
Acquisition costs - - 335 335
Non-GAAP operating income $ 13,064 $ 16,502 $ - $ 29,566
GAAP operating income % (of net sales) 2.0% 3.8% n/m 2.6%
Non-GAAP operating income % (of net sales) 2.2% 5.3% n/m 3.3%
Quarter Ended December 31, 2015
($ in thousands) WW Barcode,
NW & Security
WW Comms.
& Services Corporate Consolidated
Net sales $ 689,530 $ 303,992 $ - $ 993,522
GAAP operating income $ 19,000 $ 12,912 $ (60) $ 31,852
Adjustments:
Amortization of intangible assets 1,047 1,498 - 2,545
Change in fair value of contingent consideration - 1,816 - 1,816
Acquisition costs - - 60 60
Non-GAAP operating income $ 20,047 $ 16,226 $ - $ 36,273
GAAP operating income % (of net sales) 2.8% 4.2% n/m 3.2%
Non-GAAP operating income % (of net sales) 2.9% 5.3% n/m 3.7%
n/m = not meaningful
APPENDIX: NON-GAAP FINANCIAL INFORMATION
13
Highlights by Segment – Prior 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%
n/m = not meaningful
APPENDIX: NON-GAAP FINANCIAL INFORMATION
14
Adjusted Return on Invested Capital
($ in thousands)
Q2 FY17 Q1 FY17 Q4 FY16 Q3 FY16 Q2 FY16
Adjusted return on invested capital (ROIC), annualized (a) 13.8% 13.1% 10.1% 12.3% 17.5%
Reconciliation of Net Income to EBITDA
Net income - GAAP $ 23,036 $ 14,816 $ 12,925 $ 14,042 $ 20,656
Plus: Income taxes 12,745 7,908 5,678 7,311 10,976
Plus: Interest expense 912 589 440 694 709
Plus: Depreciation and amortization 6,588 5,224 4,584 4,281 4,351
EBITDA 43,281 28,537 23,627 26,328 36,692
Change in fair value of contingent consideration 1,791 169 (3,226) 1,139 1,816
Acquisition costs 335 498 553 29 60
Legal settlement, net of attorney fees (12,777) - - - -
Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 32,630 $ 29,204 $ 20,954 $ 27,496 $ 38,568
Invested Capital Calculation
Equity - beginning of the quarter $ 773,161 $ 774,496 $ 757,374 $ 754,794 $ 764,693
Equity - end of quarter 787,536 773,161 774,496 757,374 754,794
Add: Change in fair value of contingent consideration, net of tax 1,000 46 (2,095) 748 1,244
Add: Acquisition costs, net of tax 335 498 553 29 60
Add: Legal settlement, net of attorney fees, net of tax (8,047) - - - -
Average equity 776,993 774,101 765,164 756,473 760,396
Average funded debt (b) 162,483 107,718 71,577 146,213 117,421
Invested capital (denominator for ROIC)(non-GAAP) $ 939,476 $ 881,819 $ 836,741 $ 902,686 $ 877,817
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
15
Forecasted Range for EPS – Q3 FY17 Outlook
($ in thousands)
Forecast for Quarter ending
March 31, 2017
Range Low Range High
GAAP diluted EPS $ 0.42 $ 0.49
Adjustments:
Amortization of intangible assets 0.11 0.11
Change in fair value of contingent consideration 0.09 0.09
Non-GAAP diluted EPS $ 0.62 $ 0.69