Attached files
| file | filename |
|---|---|
| 8-K - 8-K - SCANSOURCE, INC. | a2018-q3form8xk03312018.htm |
| EX-99.1 - EXHIBIT 99.1 - SCANSOURCE, INC. | a2018-q3exhibit99103312018.htm |
Exhibit 99.2 ScanSource, Inc. CFO COMMENTARY Q3 FY2018 CFO COMMENTARY Q3 FY 2018 FINANCIAL INFORMATION AND CONFERENCE CALL Q3 FY18 Results: Please see the accompanying earnings press release available at www.scansource.com in the Investor Relations section. The information NET SALES included in this CFO commentary is unaudited and should be read in conjunction with the Company’s SEC filings on Form 10-K for the year ended June 30, 2017 and subsequent reports on Form 10-Q. $896 million ScanSource will present additional information about its financial results and outlook in a conference call on Tuesday, May 8, 2018 at 5:00 pm ET. Forecast: A webcast of the call is available and can be accessed at $860 million to www.scansource.com (Investor Relations section). The webcast will be $920 million available for replay for 60 days. GAAP THIRD QUARTER SUMMARY DILUTED EPS We delivered both strong sales growth and non-GAAP profitability $0.42 growth during the third quarter of fiscal year 2018. Both Worldwide segments increased net sales 10% year-over-year. Operating results Forecast: $0.44 to $0.50 tracked our expectations with 5% year-over-year organic sales growth and a gross margin of 11.6%. GAAP diluted EPS of $0.42 includes a higher than expected expense for the change in fair value of NON-GAAP DILUTED EPS contingent consideration for Network 1 as a result of better than expected actual results. Both net sales and non-GAAP diluted EPS $0.68 were within our forecast range. For third quarter fiscal year 2018, a seasonally strong quarter for cash flows, we generated operating cash Forecast: $0.67 to $0.73 flow of $81 million, up from $48 million for the prior year quarter. Please see Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures. scansource.com 1 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 HIGHLIGHTS Y/Y Q3 FY18 Q2 FY18 Q3 FY17 $ in millions, except EPS Change Net sales $895.6 $1,032.2 $813.5 +10% Gross profit $103.9 $113.0 $92.7 +12% Gross profit margin % 11.6% 10.9% 11.4% +21 bps SG&A expenses $72.7 $74.8 $63.9 +14% Operating income $17.9 $22.3 $20.0 -10% Operating income % 2.0% 2.2% 2.5% -46 bps Non-GAAP operating income $27.8 $34.7 $26.2 +6% Non-GAAP operating income % 3.1% 3.4% 3.2% -10 bps GAAP net income $10.6 $8.0 $12.4 -14% Non-GAAP net income $17.5 $23.0 $16.4 +7% GAAP diluted EPS $0.42 $0.31 $0.49 -14% Non-GAAP diluted EPS $0.68 $0.90 $0.65 +5% • Net sales of $896 million • Operating income of $17.9 million and GAAP EPS of $0.42 includes higher - 5% Y/Y organic growth intangible amortization and higher expense - Organic growth for both Worldwide for change in fair value of contingent segments consideration - Organic growth for North America, Latin • Non-GAAP operating income of $27.8 America and Europe million increased 6% Y/Y primarily from • Gross profit margin of 11.6% higher sales volumes, higher gross margin, and the addition of the POS Portal - Q/Q increase from lower mix of big deals acquisition in North America - Y/Y includes higher margins from POS • For Q3 FY18, effective tax rate of 32.6% Portal acquisition and non-GAAP effective tax rate of 31.9% • Non-GAAP EPS increased 5% Y/Y to $0.68 Non-GAAP operating income, non-GAAP net income and non-GAAP diluted EPS exclude amortization of intangibles, change in fair value of contingent consideration and tax reform charges. scansource.com 2 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 WORLDWIDE BARCODE, NETWORKING & SECURITY Q3 FY18 Q2 FY18 Q3 FY17 $ in millions Net sales $604.3 $719.8 $549.0 Gross profit $56.5 $62.0 $45.9 Gross margin 9.3% 8.6% 8.4% Operating income $11.6 $15.5 $11.2 Operating income % 1.9% 2.2% 2.0% Non-GAAP operating income $13.9 $17.9 $12.3 Non-GAAP operating income % 2.3% 2.5% 2.2% • Net sales of $604 million, up 10% Y/Y Net Sales, $ in millions - Includes POS Portal acquisition; organic Y/Y Growth +10% growth, up 4% Y/Y Y/Y Organic Growth +4% - Growth led by mobile computing, POS $800 business and networking $720 • Gross profit margin of 9.3% $700 - Q/Q increase from lower mix of big deals $619 $620 $604 $600 - Y/Y increase from addition of higher $549 margin POS Portal acquisition $500 • Operating income margin of 1.9% decreased 13 basis points Y/Y from higher intangible amortization $400 • Non-GAAP operating income margin of $300 2.3% increased 6 basis points Y/Y Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 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. scansource.com 3 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 WORLDWIDE COMMUNICATIONS & SERVICES Q3 FY18 Q2 FY18 Q3 FY17 $ in millions Net sales $291.3 $312.4 $264.6 Gross profit $47.4 $51.0 $46.8 Gross margin 16.3% 16.3% 17.7% Operating income $6.4 $6.8 $8.8 Operating income % 2.2% 2.2% 3.3% Non-GAAP operating income $14.0 $16.9 $13.9 Non-GAAP operating income % 4.8% 5.4% 5.2% • Net sales of $291 million, up 10% Y/Y Net Sales, $ in millions - Strong sales growth in Latin America Y/Y Growth +10% and North America Y/Y Organic Growth +9% - Intelisys net sales increased 20% Y/Y $400 • Gross profit margin of 16.3% - Unchanged Q/Q $304 $312 $298 $291 $300 $265 - Y/Y decrease from unusually high vendor program recognition in prior year $200 • Operating income margin decreased to 2.2% from a higher expense for the $100 change in fair value of contingent consideration $0 • Non-GAAP operating margin of 4.8% Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 decreased Q/Q and Y/Y 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. scansource.com 4 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 WORKING CAPITAL Q3 FY18 Q2 FY18 Q3 FY17 $ in millions Accounts receivable (Q/E) $664.1 $717.3 $565.2 Days sales outstanding in receivables* 64 60 60 Inventory (Q/E) $569.5 $581.8 $514.2 Inventory turns 5.5 6.2 5.6 Accounts payable (Q/E) $496.7 $515.3 $437.2 Paid for inventory days* 11.6 9.4 12.5 Working capital (Q/E) (AR+INV–AP) $736.9 $783.8 $642.3 * Excludes the impact of Intelisys for all periods; paid for inventory days represent Q/E inventory days less Q/E accounts payable days • Working capital of $736.9, up 15% Y/Y • Inventory turns of 5.5x with inventory up and down 6% Q/Q 11% Y/Y and down 2% Q/Q • Higher Y/Y working capital investment to • Paid for inventory days of 11.6 reflect support growth timing of accounts payable • Days sales outstanding in receivables increased to 64 days - Aging of receivables portfolio, primarily in North America - Offering of extended credit terms in certain international markets scansource.com 5 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 CASH FLOW AND BALANCE SHEET HIGHLIGHTS Q3 FY18 Q2 FY18 Q3 FY17 $ in millions Adjusted EBITDA (QTR)* $32.8 $39.4 $29.2 Adjusted ROIC (QTR)* 11.2% 13.3% 12.6% Operating cash flow (QTR) $81.0 $(46.8) $48.4 Operating cash flow, trailing 12-months $7.6 $(25.0) $112.0 Cash and cash equivalents (Q/E) $35.4 $35.4 $62.2 Debt (Q/E) $282.2 $360.9 $113.9 Net debt to adjusted EBITDA, trailing 12-months 1.8x 2.4x 0.5x Shares repurchased – # of shares (QTR) -- -- -- Shares repurchased – dollars (QTR) -- -- -- Remaining authorization under plan (as of Q/E) $99.7 $99.7 $99.7 * Excludes non-GAAP adjustments and change in fair value of contingent consideration • Adjusted EBITDA of $32.8 million, up • Cash and cash equivalent balances of 12% Y/Y, from higher sales volume and $35.4 million at 3/31/18, including $27.6 the addition of the POS Portal acquisition million held outside of the U.S. • Adjusted return on invested capital of • Net debt to trailing 12-months adjusted 11.2%, down from prior year due to EBITDA is 1.8x increased borrowings on revolving credit facility for POS Portal acquisition • No shares repurchased during the quarter • Generated strong operating cash flow of • Balance sheet remains strong and $81.0 million for the third quarter, in line provides us with the ability to execute our with expectations capital allocation plan scansource.com 6 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 Q4 FY18 OUTLOOK* For the quarter ending June 30, 2018: NET SALES GAAP DILUTED EPS NON-GAAP DILUTED EPS Forecast Range: Forecast Range: Forecast: Range $940 million to $0.48 to $0.54 $0.74 to $0.80 $1 billion per share per share Q4 FY17: Net sales $917 million Q4 FY17: GAAP diluted EPS $0.74 Q4 FY17: Non-GAAP diluted EPS $0.68 • Outlook as of May 8, 2018 • Non-GAAP diluted EPS excludes amortization of intangible assets, change in fair value of contingent consideration and acquisition costs • Forecast midpoint reflects organic sales growth in the low single digits for both segments • Reflects the following FX rates: $1.21 to EUR 1.00 for the Euro, $0.29 to R$1.00 for the Brazilian real (R$3.45 to $1), and $1.38 to GBP 1.00 for the British pound • Expect foreign currency translation to positively impact sales by approximately $7 million • Assumes an effective tax rate of 30.4% for Q4 FY18; for FY19, anticipate an effective tax rate of 26% to 27% • Expect interest expense over the next few quarters to be similar to the March quarter from higher interest rates and lower average debt balances; assumes interest expense will be approximately $2.6 million for fourth quarter fiscal year 2018 scansource.com 7 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 FORWARD-LOOKING STATEMENTS This CFO Commentary contains certain Although ScanSource believes the comments that are “forward-looking” expectations in its forward-looking statements statements, including statements about are reasonable, it cannot guarantee future expected EBITDA, return on invested capital results, levels of activity, performance or (“ROIC”), sales, GAAP diluted earnings per achievement. ScanSource disclaims any share (“EPS”), non-GAAP diluted EPS, foreign obligation to update or revise any forward- currency rates, tax rates and interest expense looking statements, whether as a result of new that involve plans, strategies, economic information, future events, or otherwise, performance and trends, projections, except as may be required by law. expectations, costs or beliefs about future events and other statements that are not NON-GAAP FINANCIAL INFORMATION descriptions of historical facts. Forward- In addition to disclosing results that are looking information is inherently subject to determined in accordance with United States risks and uncertainties. Generally Accepted Accounting Principles (“GAAP”), the Company also discloses certain Any number of factors could cause actual non-GAAP measures, including non-GAAP results to differ materially from anticipated or operating income, non-GAAP operating forecasted results, including but not limited to, income margin, non-GAAP net income, non- changes in interest and exchange rates and GAAP diluted EPS, adjusted EBITDA, ROIC regulatory regimes impacting our international and net sales excluding the impact of foreign operations, the impact of tax reform laws, the currency translation and acquisitions (organic failure of acquisitions to meet our growth). A reconciliation of the Company's expectations, the failure to manage and non-GAAP financial information to GAAP implement our organic growth strategy, credit financial information is provided in the risks involving our larger customers and Appendix and in the Company’s Form 8-K, vendors, termination of our relationship with filed with the SEC, with the quarterly earnings key vendors or a significant modification of the press release for the period indicated. terms under which we operate with a key vendor, the decline in demand for the products and services that we provide, reduced prices for the products and services that we provide due both to competitor and customer actions, and other factors set forth in the “Risk Factors” contained in our annual report on Form 10-K for the year ended June 30, 2017, and subsequent reports on Form 10-Q, filed with the Securities and Exchange Commission (“SEC”). scansource.com 8 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS – QTR ($ in thousands) Quarter Ended March 31, 2018 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 17,941 $ 15,792 $ 10,649 $ 0.42 Adjustments: Amortization of intangible assets 5,103 5,103 3,590 0.14 Change in fair value of contingent consideration 4,801 4,801 3,272 0.12 Non-GAAP measure $ 27,845 $ 25,696 $ 17,511 $ 0.68 Quarter Ended December 31, 2017 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 22,341 $ 20,310 $ 7,969 $ 0.31 Adjustments: Amortization of intangible assets 5,487 5,487 3,648 0.14 Change in fair value of contingent consideration 6,913 6,913 4,742 0.18 Tax reform charges (a) - - 6,689 0.26 Non-GAAP measure $ 34,741 $ 32,710 $ 23,048 $ 0.90 Quarter Ended March 31, 2017 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 19,978 $ 19,571 $ 12,424 $ 0.49 Adjustments: Amortization of intangible assets 4,217 4,217 2,774 0.11 Change in fair value of contingent consideration 1,960 1,960 1,194 0.05 Non-GAAP measure $ 26,155 $ 25,748 $ 16,392 $ 0.65 (a) As a result of tax reform laws enacted in the United States and Belgium, the Company recognized a one-time charge of $6.7 million in the December quarter from the estimated impact of the inclusion of foreign earnings and revaluation of deferred tax assets and liabilities. (b) Acquisition costs are nondeductible for tax purposes. scansource.com 9 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Sales, Constant Currency and Excluding Acquisitions (Organic Growth) – QTR ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Consolidated For the quarter ended March 31, 2018: Q3 FY18 net sales, as reported $ 604,322 $ 291,315 $ 895,637 Foreign exchange impact (a) (12,949) (2,697) (15,646) Q3 FY18 net sales, constant currency 591,373 288,618 879,991 Less: Acquisitions (22,361) - (22,361) Q3 FY18 net sales, constant currency excluding acquisitions $ 569,012 $ 288,618 $ 857,630 Q3 FY17 net sales, as reported $ 548,971 $ 264,567 $ 813,538 Less: Acquisitions - - - Q3 FY17 net sales, excluding acquisitions $ 548,971 $ 264,567 $ 813,538 Y/Y % Change: As reported 10.1% 10.1% 10.1% Constant currency 7.7% 9.1% 8.2% Constant currency, excluding acquisitions (organic growth) 3.7% 9.1% 5.4% (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 March 31, 2018 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended March 31, 2017. scansource.com 10 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Highlights by Segment – QTR Quarter Ended March 31, 2018 ($ in thousands) WW Barcode, WW Comms. YTD FY18 NW & Security & Services Corporate Consolidated Consolidated Net sales $ 604,322 $ 291,315 $ - $ 895,637 $ 2,852,408 GAAP operating income $ 11,566 $ 6,375 $ - $ 17,941 $ 47,880 Adjustments: Amortization of intangible assets 2,310 2,793 - 5,103 15,600 Change in fair value of contingent consideration - 4,801 - 4,801 28,595 Acquisition costs - - - - 172 Legal settlement - - - - 952 Non-GAAP operating income $ 13,876 $ 13,969 $ - $ 27,845 $ 93,199 GAAP operating income % (of net sales) 1.91% 2.19% n/m 2.00% 1.68% Non-GAAP operating income % (of net sales) 2.30% 4.80% n/m 3.11% 3.27% Quarter Ended December 31, 2017 ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Corporate Consolidated Net sales $ 719,786 $ 312,426 $ - $ 1,032,212 GAAP operating income $ 15,542 $ 6,799 $ - $ 22,341 Adjustments: Amortization of intangible assets 2,309 3,177 - 5,487 Change in fair value of contingent consideration - 6,913 - 6,913 Non-GAAP operating income $ 17,852 $ 16,889 $ - $ 34,741 GAAP operating income % (of net sales) 2.16% 2.18% n/m 2.16% Non-GAAP operating income % (of net sales) 2.48% 5.41% n/m 3.37% Quarter Ended March 31, 2017 ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Corporate Consolidated Net sales $ 548,971 $ 264,567 $ - $ 813,538 GAAP operating income $ 11,175 $ 8,803 $ - $ 19,978 Adjustments: Amortization of intangible assets 1,098 3,119 - 4,217 Change in fair value of contingent consideration - 1,960 - 1,960 Acquisition costs - - - - Non-GAAP operating income $ 12,273 $ 13,882 $ - $ 26,155 GAAP operating income % (of net sales) 2.04% 3.33% n/m 2.46% Non-GAAP operating income % (of net sales) 2.24% 5.25% n/m 3.21% n/m = not meaningful scansource.com 11 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Average Return on Invested Capital ($ in thousands) Q3 FY18 Q2 FY18 Q1 FY18 Q4 FY17 Q3 FY17 Adjusted return on invested capital (ROIC), annualized (a) 11.2% 13.3% 13.0% 13.2% 12.6% Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 10,649 $ 7,969 $ 4,147 $ 18,970 $ 12,424 Plus: Interest expense 2,784 2,285 1,585 934 780 Income taxes 5,143 12,342 2,633 4,450 7,147 Depreciation and amortization 9,438 9,901 8,864 6,276 6,880 EBITDA 28,014 32,497 17,229 30,630 27,231 Adjustments: Change in fair value of contingent consideration 4,801 6,913 16,881 1,290 1,960 Acquisition costs - - 172 422 - Interest income related to tax settlement - - - (1,382) - Legal settlement, net of attorney fees - - 952 - - Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 32,815 $ 39,410 $ 35,234 $ 30,960 $ 29,191 Invested Capital Calculation Equity - beginning of the quarter $ 860,787 $ 852,976 $ 837,145 $ 808,719 $ 787,536 Equity - end of quarter 877,796 860,787 852,976 837,145 808,719 Adjustments: Change in fair value of contingent consideration, net of tax 3,272 4,742 11,005 680 1,194 Acquisition costs, net of tax - - 172 422 - Tax settlement and related interest income, net of tax - - 771 (5,370) - Tax reform charges - 6,689 Average equity 870,928 862,597 851,035 820,798 798,725 Average funded debt (b) 315,872 311,327 224,956 117,970 137,597 Invested capital (denominator for ROIC)(non-GAAP) $ 1,186,800 $ 1,173,924 $ 1,075,991 $ 938,768 $ 936,322 (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. scansource.com 12 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Debt and EBITDA Metrics ($ in thousands) Q3 FY18 Q2 FY18 Q1 FY18 Q4 FY17 Q3 FY17 Q2 FY17 Q1 FY17 Q4 FY16 Debt (Q/E) $ 282,158 $ 360,932 $ 285,763 $ 97,300 $ 113,934 $ 141,666 $ 166,141 $ 76,856 Less: Cash and cash equivalents (Q/E) (35,361) (35,435) (23,616) (56,094) (62,187) (45,071) (45,125) (61,400) Net debt (Q/E) $ 246,797 $ 325,497 $ 262,147 $ 41,206 $ 51,747 $ 96,595 $ 121,016 $ 15,456 Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 10,649 $ 7,969 $ 4,147 $ 18,970 $ 12,424 $ 23,037 $ 14,816 $ 12,925 Plus: Interest expense 2,784 2,285 1,585 934 780 912 589 440 Income taxes 5,143 12,342 2,633 4,450 7,147 12,744 7,908 5,678 Depreciation and amortization 9,438 9,901 8,864 6,276 6,880 6,588 5,224 4,584 EBITDA 28,014 32,497 17,229 30,630 27,231 43,281 28,537 23,627 Adjustments: Change in fair value of contingent consideration 4,801 6,913 16,881 1,290 1,960 1,791 169 (3,226) Acquisition costs - - 172 422 - 335 498 553 Interest income related to tax settlement - - - (1,382) - - - - Legal settlement, net of attorney fees - - 952 - - (12,777) - - Adjusted EBITDA (non-GAAP) $ 32,815 $ 39,410 $ 35,234 $ 30,960 $ 29,191 $ 32,630 $ 29,204 $ 20,954 Adjusted EBITDA, TTM (a) $ 138,419 $ 134,795 $ 128,015 $ 121,985 $ 111,979 $ 110,284 Net Debt / Adjusted EBITDA, TTM (a) 1.8x 2.4x 2.0x 0.3x 0.5x 0.9x (a) Adjusted EBITDA for the trailing 12-month period scansource.com 13 May 8, 2018
ScanSource, Inc. CFO COMMENTARY Q3 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Forecasted Range for EPS – Q4 FY18 Outlook ($ in thousands) Forecast for Quarter ending June 30, 2018 Range Low Range High GAAP diluted EPS $ 0.48 $ 0.54 Adjustments: Amortization of intangible assets 0.14 0.14 Change in fair value of contingent consideration 0.12 0.12 Non-GAAP diluted EPS $ 0.74 $ 0.80 scansource.com 14 May 8, 2018