Attached files
| file | filename |
|---|---|
| EX-99.1 - EX-99.1 - SCANSOURCE, INC. | a2021-q2exhibit99112312020.htm |
| 8-K - 8-K - SCANSOURCE, INC. | scsc-20210202.htm |
CFO COMMENTARY Q2 FY2021 ScanSource, Inc. scansource.com FINANCIAL INFORMATION AND CONFERENCE CALL Please see the accompanying earnings press release available at www.scansource.com in the Investor Relations section. The information included in this CFO commentary is unaudited and should be read in conjunction with the Company’s SEC filings on Form 10-Q for the quarter ended December 31, 2020. All results reflect continuing operations only unless otherwise noted. ScanSource will present additional information about its financial results and outlook in a conference call on Tuesday, February 2, 2021 at 5:00 pm ET. A webcast of the call is available and can be accessed at www.scansource.com (Investor Relations section). The webcast will be available for replay for 60 days. SECOND QUARTER SUMMARY For the second quarter of our fiscal year, we continued to build back sales volumes with 7% Q/Q sales growth and gained operating leverage on SG&A expenses. We realized the planned quarterly impact of the expense reduction plan we announced in July. We delivered net sales of $810.9 million (down 2% Y/Y, or up 2% Y/Y for organic growth). We saw continued progress in recovering from the sales impact of the COVID-19 pandemic in North America and Brazil. As expected, Intelisys net sales grew 15% Y/Y. The gross profit margin was lower than expected due to sales mix and vendor program recognition. We strengthened our balance sheet, reducing working capital by $22 million Q/Q (down $181 million Y/Y) and generating strong cash flow of $44 million for the quarter and $215 million for the trailing 12-month period. For the quarter, our return on invested capital (ROIC) increased to 12.4%. During the quarter, we completed the sale of our products distribution businesses in Latin America (on 10/30/20) and in Europe and the UK (on 11/12/20). CFO COMMENTARY Q2 FY 2021 February 2, 20211 Please see the Appendix for calculation of non- GAAP measures and reconciliations to GAAP measures. Q2 FY2021: Stronger sales growth than expected Exhibit 99.2
CFO COMMENTARY Q2 FY2021 ScanSource, Inc. scansource.com Q2 FY21 Q1 FY21 Q2 FY20 Q/Q Change Y/Y Change Net sales $810.9 $757.3 $824.0 +7% -2% Gross profit $86.0 $80.8 $98.3 +7% -12% Gross profit margin % 10.6% 10.7% 11.9% -6 bps -132 bps SG&A expenses $60.5 $62.1 $67.8 -3% -11% Non-GAAP SG&A expenses $59.1 $61.6 $66.7 -4% -11% Operating income $17.1 $1.6 $18.6 n/m -8% Operating income % 2.1% 0.2% 2.3% n/m -14 bps Non-GAAP operating income $23.8 $15.8 $28.5 +51% -16% Non-GAAP operating income % 2.9% 2.1% 3.5% +86 bps -51 bps GAAP net income $11.1 ($0.1) $11.6 n/m -5% Non-GAAP net income $16.5 $10.7 $19.4 +54% -15% GAAP diluted EPS $0.43 ($0.01) $0.46 n/m -7% Non-GAAP diluted EPS $0.65 $0.42 $0.77 +55% -16% $ in millions, except EPS February 2, 2021 QUARTERLY HIGHLIGHTS Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and acquisitions. Non-GAAP operating income, non-GAAP net income, and non-GAAP diluted EPS exclude amortization of intangibles, change in fair value of contingent consideration, impairment charges, restructuring charges, acquisition/divestiture costs, and other non-GAAP items. 2 • Net sales of $810.9 million; up 7% Q/Q and down 2% Y/Y - FX impact of ($28) million; organic growth up 2% Y/Y - Volume increases across most technologies; record net sales in Brazil - Intelisys recurring revenue increased approximately 15% Y/Y • Gross profit margin of 10.6% - Reflects lower supplier program recognition - Lower margin sales mix, including large deals • Non-GAAP operating income of $23.8 million - Y/Y decrease from lower sales volume and lower margin - Partially offset by lower SG&A expense • SG&A expenses down 11% Y/Y - SG&A reflects realization of $30 million annualized expense reduction program • GAAP diluted EPS of $0.43 and non- GAAP diluted EPS of $0.65
CFO COMMENTARY Q2 FY2021 ScanSource, Inc. scansource.com Q2 FY21 Q1 FY21 Q2 FY20 Net sales $551.4 $523.6 $575.0 Gross profit $42.7 $41.1 $51.1 Gross profit margin % 7.7% 7.8% 8.9% Operating income $5.9 $2.1 $13.3 Operating income % 1.1% 0.4% 2.3% Non-GAAP operating income $7.9 $4.1 $15.3 Non-GAAP operating income % 1.4% 0.8% 2.7% 1 February 2, 2021 WORLDWIDE BARCODE, NETWORKING & SECURITY • Net sales of $551 million; up 5% Q/Q and down 4% Y/Y (organic growth down 3% Y/Y) - Growth across key technologies including mobility, self-checkout, video surveillance and networking - Strong growth in Brazil • Gross profit margin of 7.7%, down both Y/Y and Q/Q - Lower supplier program recognition - Lower margin sales mix, including large deals • Operating income of $7.9 million - Y/Y reflects lower gross profits from lower sales volumes and gross margin declines $575 $489 $448 $524 $551 $300 $400 $500 $600 $700 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Net Sales, $ in millions Y/Y Growth -4% Y/Y Organic Growth -3% $ 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, impairment charges and other non-GAAP items. 3
CFO COMMENTARY Q2 FY2021 ScanSource, Inc. scansource.com Q2 FY21 Q1 FY21 Q2 FY20 Net sales $259.5 $233.8 $249.0 Gross profit $43.4 $39.7 $47.2 Gross profit margin % 16.7% 17.0% 19.0% Operating income $13.1 $8.3 $6.4 Operating income % 5.0% 3.5% 2.6% Non-GAAP operating income $16.0 $11.7 $13.2 Non-GAAP operating income % 6.2% 5.0% 5.3% February 2, 2021 WORLDWIDE COMMUNICATIONS & SERVICES $249 $255 $189 $234 $260 $- $100 $200 $300 $400 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Net Sales, $ in millions Y/Y Growth +4% Y/Y Organic Growth +12% $ in millions • Net sales of $260 million; up 11% Q/Q and up 4% Y/Y (organic growth up 12% Y/Y) - For communications, growth in cloud solutions, cloud-enabled endpoints and headsets - Strong growth in Brazil - Record net sales for Intelisys master agency, up 15% Y/Y • Gross profit margin of 16.7% - Lower supplier program recognition - Lower margin sales mix • Non-GAAP operating income of $16.0 million (+21% Y/Y) - Higher sales volumes - Lower SG&A expenses 4 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, change in fair value of contingent consideration, impairment charges, and other non-GAAP items.
CFO COMMENTARY Q2 FY2021 ScanSource, Inc. scansource.com Q2 FY21 Q1 FY21 Q2 FY20 Accounts receivable (Q/E) $534.6 $509.8 $513.6 Days sales outstanding in receivables 60 61 56 Inventory (Q/E) $421.0 $423.1 $621.1 Inventory turns 6.9 6.2 4.8 Accounts payable (Q/E) $589.3 $544.9 $587.0 Paid for inventory days* (11.8) (7.2) 12.2 Working capital (Q/E) (AR+INV–AP) $366.3 $388.0 $547.8 February 2, 2021 WORKING CAPITAL • Working capital of $366.3 million, down 6% Q/Q and down 33% Y/Y • Days sales outstanding in receivables of 60 days, in line with typical levels • Inventory of $421.0 million, down 32% Y/Y - Inventory turns increased to 6.9x • Paid for inventory days of (11.8) driven by reduction in inventory and timing of accounts payable • Cash conversion cycle improves to 48 days (down from 54 for previous quarter and 68 for previous year) $ in millions * Paid for inventory days represent Q/E inventory days less Q/E accounts payable days 5
CFO COMMENTARY Q2 FY2021 ScanSource, Inc. scansource.com Q2 FY21 Q1 FY21 Q2 FY20 Adjusted EBITDA (QTR)* $27.7 $19.7 $33.0 Adjusted ROIC (QTR)* 12.4% 8.4% 9.9% Operating cash flow (QTR) $44.4 $71.2 $55.1 Operating cash flow, trailing 12 months $215.0 $225.6 $134.9 Cash and cash equivalents (Q/E), including discontinued operations $67.2 $55.6 $42.0 Debt (Q/E), including discontinued operations $151.9 $168.7 $357.7 Net debt, including discontinued operations to adjusted EBITDA, trailing 12 months* 1.1x 1.3x 2.3x February 2, 2021 CASH FLOW AND BALANCE SHEET HIGHLIGHTS • Adjusted EBITDA of $27.7 million - Up 40% Q/Q from higher sales volumes and lower SG&A expenses - Down 16% Y/Y primarily from lower sales volumes and lower gross profit margins • Operating cash flow of $44.4 million for the quarter and $215.0 million for the trailing-12 months - Primarily from lower working capital, including higher accounts payable and lower inventory • Cash and cash equivalent balances of $67.2 million at 12/31/20, including $48.5 million held outside of the U.S. • Net debt to trailing 12-month adjusted EBITDA is 1.1x $ in millions * Excludes non-GAAP adjustments and change in fair value of contingent consideration 6
CFO COMMENTARY Q2 FY2021 ScanSource, Inc. scansource.com FORWARD-LOOKING STATEMENTS This CFO Commentary contains certain comments that are “forward-looking” statements, including statements about the impact of the COVID-19 pandemic and our operating strategies 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 or forecasted results, including but not limited to, the impact of the COVID-19 pandemic on our operations and financial condition and the potential prolonged economic weakness brought on by COVID-19, the failure to manage and implement our organic growth strategy, credit risks involving our larger customers and suppliers, changes in interest and exchange rates and regulatory regimes impacting our international operations, risk to our business from a cyber-security attack, a failure of our IT systems, failure to hire and retain quality employees, loss of our major customers, termination of our relationship with key suppliers or a significant modification of the terms under which we operate with a key supplier, changes in our operating strategy, and other factors set forth in the “Risk Factors” contained in our annual report on Form 10-K for the year ended June 30, 2020, and subsequent reports on Form 10-Q, 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 income margin, non-GAAP net income, non- GAAP diluted EPS, non-GAAP net sales, non- GAAP gross profit, non-GAAP gross margin, non-GAAP SG&A expenses, adjusted EBITDA, ROIC and net sales excluding the Divestitures less impacts from foreign currency translation and acquisitions (organic growth). 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. February 2, 20217
5-Quarter Financial Summary - for continuing operations ($ in thousands, except per share data) Q2 FY21 Q1 FY21 Q4 FY20 Q3 FY20 Q2 FY20 Q/Q Y/Y Select reported GAAP measures: Net sales $ 810,897 $ 757,342 $ 636,450 $ 744,584 $ 823,999 7% (2)% Gross profit $ 86,043 $ 80,779 $ 74,147 $ 84,579 $ 98,319 7% (12)% Gross profit margin % 10.6 % 10.7 % 11.7 % 11.4 % 11.9 % (6) bp (132) bp SG&A expenses $ 60,470 $ 62,112 $ 58,192 $ 65,140 $ 67,840 (3)% (11)% Operating income (loss) $ 17,130 $ 1,634 $ (113,439) $ 10,393 $ 18,566 n/m (8)% Operating income (loss) % 2.11 % 0.22 % (17.82) % 1.40 % 2.25 % n/m (14) bp Net income (loss) $ 11,061 $ (115) $ (108,859) $ 5,715 $ 11,626 n/m (5)% Diluted EPS $ 0.43 $ (0.01) $ (4.29) $ 0.22 $ 0.46 n/m (7)% Select reported Non-GAAP measures: (a) Net sales $ 810,897 $ 757,342 $ 636,450 $ 744,584 $ 823,999 7% (2)% Gross profit $ 86,043 $ 80,779 $ 74,147 $ 84,579 $ 98,319 7% (12)% Gross profit margin % 10.6 % 10.7 % 11.7 % 11.4 % 11.9 % (6) bp (132) bp Non-GAAP SG&A expenses $ 59,110 $ 61,614 $ 62,624 $ 66,679 $ 66,689 (4)% (11)% Non-GAAP Operating income $ 23,836 $ 15,769 $ 8,219 $ 14,800 $ 28,469 51% (16)% Non-GAAP Operating income % 2.94 % 2.08 % 1.29 % 1.99 % 3.45 % 86 bp (52) bp Non-GAAP Net income $ 16,469 $ 10,698 $ 4,857 $ 9,243 $ 19,406 54% (15)% Non-GAAP Diluted EPS $ 0.65 $ 0.42 $ 0.19 $ 0.35 $ 0.77 55% (16)% Adjusted EBITDA $ 27,732 $ 19,743 $ 12,321 $ 19,845 $ 33,019 40% (16)% Adjusted ROIC 12.4 % 8.4 % 4.0 % 6.0 % 9.9 % 393 bp 251 bp Operating cash flow (QTR) $ 44,449 $ 71,225 $ 73,953 $ 25,348 $ 55,104 (38)% (19)% Operating cash flow (TTM) $ 214,975 $ 225,630 $ 182,035 $ 142,534 $ 134,948 (5)% 59% (a) See page 9 through 11 of the Appendix for the calculation of non-GAAP measures and reconciliations to GAAP measures. ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 8 February 2, 2021
Operating Income, Pre-Tax Income, Net Income & EPS - QTR ($ in thousands) Quarter ended December 31, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 810,897 $ — $ — $ — $ — $ — $ 810,897 Gross profit 86,043 — — — — — 86,043 SG&A expenses 60,470 — — (1,360) — — 59,110 Operating income 17,130 4,862 — 1,844 — — 23,836 Other expense, net 1,386 — — — — — 1,386 Pre-tax income 15,744 4,862 — 1,844 — — 22,450 Net income 11,061 3,682 — 1,726 — — 16,469 Diluted EPS $ 0.43 $ 0.15 $ — $ 0.07 $ — $ — $ 0.65 (a) Acquisition and divestiture costs totaled $1.4 million for the quarter ended December 31, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled $0.5 million for the quarter ended December 31, 2020. ($ in thousands) Quarter ended September 30, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 757,342 $ — $ — $ — $ — $ — $ 757,342 Gross profit 80,779 — — — — — 80,779 SG&A expenses 62,112 — — (498) — — 61,614 Operating income 1,634 4,853 516 8,766 — — 15,769 Other expense, net 1,796 — — — — — 1,796 Pre-tax (loss) income (162) 4,853 516 8,766 — — 13,973 Net (loss) income (115) 3,675 390 6,748 — — 10,698 Diluted EPS $ (0.01) $ 0.14 $ 0.02 $ 0.27 $ — $ — $ 0.42 (a) Acquisition and divestiture costs totaled $0.5 million for the quarter ended September 30, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled $8.3 million for the quarter ended September 30, 2020. ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 9 February 2, 2021
Operating Income, Pre-Tax Income, Net Income & EPS - QTR, continued ($ in thousands) Quarter ended June 30, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 636,450 $ — $ — $ — $ — $ — $ 636,450 Gross profit 74,147 — — — — — 74,147 SG&A expenses 58,192 — — (1,311) 5,743 — 62,624 Operating (loss) income (113,439) 4,946 674 1,311 (5,743) 120,470 8,219 Other expense, net (489) — — — 2,681 — 2,192 Pre-tax (loss) income (112,950) 4,946 674 1,311 (8,424) 120,470 6,027 Net (loss) income (108,859) 3,744 510 1,311 (6,247) 114,398 4,857 Diluted EPS $ (4.29) $ 0.15 $ 0.02 $ 0.05 $ (0.25) $ 4.51 $ 0.19 (a) Acquisition and divestiture costs totaled $1.3 million for the quarter ended June 30, 2020 and are generally nondeductible for tax purposes. ($ in thousands) Quarter ended March 31, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 744,584 $ — $ — $ — $ — $ — $ 744,584 Gross profit 84,579 — — — — — 84,579 SG&A expenses 65,140 — — (781) 2,320 — 66,679 Operating income 10,393 5,159 618 950 (2,320) — 14,800 Other expense, net 1,881 — — — — — 1,881 Pre-tax income 8,513 5,159 618 950 (2,320) — 12,920 Net income 5,715 3,909 467 906 (1,754) — 9,243 Diluted EPS $ 0.22 $ 0.15 $ 0.02 $ 0.04 $ (0.07) $ — $ 0.35 (a) Acquisition and divestiture costs totaled $0.8 million for the quarter ended March 31, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled $0.2 million for the quarter ended March 31, 2020. ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 10 February 2, 2021
Operating Income, Pre-Tax Income, Net Income & EPS - QTR, continued ($ in thousands) Quarter ended December 31, 2019 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 823,999 $ — $ — $ — $ — $ — $ 823,999 Gross profit 98,319 — — — — — 98,319 SG&A expenses 67,840 — — (1,151) — — 66,689 Operating income 18,566 5,310 3,176 1,417 — — 28,469 Other expense, net 2,533 — — — — — 2,533 Pre-tax income 16,033 5,310 3,176 1,417 — — 25,936 Net income 11,626 4,032 2,401 1,347 — — 19,406 Diluted EPS $ 0.46 $ 0.16 $ 0.09 $ 0.06 $ — $ — $ 0.77 (a) Acquisition and divestiture costs totaled $1.2 million for the quarter ended December 31, 2019 and are generally nondeductible for tax purposes. Restructuring costs totaled $0.3 million for the quarter ended December 31, 2019. ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 11 February 2, 2021
Net Sales, Constant Currency and Excluding Acquisitions (Organic Growth) - QTR ($ in thousands) WW Barcode, NW & Security WW Comms. & Services Consolidated For the quarter ended December 31, 2020: Q2 FY21 net sales, as reported $ 551,394 $ 259,503 $ 810,897 Foreign exchange impact (a) 7,903 19,882 27,785 Q2 FY21 net sales, constant currency (non-GAAP) $ 559,297 $ 279,385 $ 838,682 For the quarter ended December 31, 2019: Q2 FY20 net sales, as reported $ 575,001 $ 248,998 $ 823,999 Y/Y % Change: As reported (4.1) % 4.2 % (1.6) % Constant currency (non-GAAP) (2.7) % 12.2 % 1.8 % (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, 2020 into U.S. dollars using the weighted-average foreign exchange rates for the quarter ended December 31, 2019. ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 12 February 2, 2021
Highlights by Segment - QTR ($ in thousands) Quarter Ended December 31, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, Divestiture, and Restructuring costs Tax recovery, net Impairment charges Non-GAAP measure Worldwide Barcode, NW & Security: Net sales 551,394 — — — — — $ 551,394 Gross Profit 42,685 — — — — — $ 42,685 Gross profit margin % 7.7 % — % — % — % — % — % 7.7 % Operating income 5,887 1,968 — — — — $ 7,855 Operating income margin % 1.1 % — % — % — % — % — % 1.4 % Worldwide Communications & Services: Net sales 259,503 — — — — — $ 259,503 Gross Profit 43,358 — — — — — $ 43,358 Gross profit margin % 16.7 % — % — % — % — % — % 16.7 % Operating income 13,087 2,894 — — — — $ 15,981 Operating income margin % 5.0 % — % — % — % — % — % 6.2 % ($ in thousands) Quarter Ended September 30, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, Divestiture, and Restructuring costs Tax recovery, net Impairment charges Non-GAAP measure Worldwide Barcode, NW & Security: Net sales 523,577 — — — — — $ 523,577 Gross Profit 41,085 — — — — — $ 41,085 Gross profit margin % 7.8 % — % — % — % — % — % 7.8 % Operating income 2,147 1,968 — — — — $ 4,115 Operating income margin % 0.4 % — % — % — % — % — % 0.8 % ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 13 February 2, 2021
Highlights by Segment - QTR, continued ($ in thousands) Quarter Ended September 30, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, Divestiture, and Restructuring costs Tax recovery, net Impairment charges Non-GAAP measure Worldwide Communications & Services: Net sales 233,765 — — — — — $ 233,765 Gross Profit 39,694 — — — — — $ 39,694 Gross profit margin % 17.0 % — % — % — % — % — % 17.0 % Operating income 8,253 2,885 516 — — — $ 11,654 Operating income margin % 3.5 % — % — % — % — % — % 5.0 % ($ in thousands) Quarter Ended December 31, 2019 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, Divestiture, and Restructuring costs Tax recovery, net Impairment charges Non-GAAP measure Worldwide Barcode, NW & Security: Net sales 575,001 — — — — — $ 575,001 Gross Profit 51,133 — — — — — $ 51,133 Gross profit margin % 8.9 % — % — % — % — % — % 8.9 % Operating income 13,302 1,968 — — — — $ 15,270 Operating income margin % 2.3 % — % — % — % — % — % 2.7 % Worldwide Communications & Services: Net sales 248,998 — — — — — $ 248,998 Gross Profit 47,186 — — — — — $ 47,186 Gross profit margin % 19.0 % — % — % — % — % — % 19.0 % Operating income 6,415 3,342 3,176 266 — — $ 13,199 Operating income margin % 2.6 % — % — % — % — % — % 5.3 % ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 14 February 2, 2021
Average Return on Invested Capital - QTR ($ in thousands) Q2 FY21 Q1 FY21 Q4 FY20 Q3 FY20 Q2 FY20 Adjusted return on invested capital (ROIC), annualized (a) 12.4 % 8.4 % 4.0 % 6.0 % 9.9 % Reconciliation of Net Income to Adjusted EBITDA Net income (loss) from continuing operations - GAAP $ 11,061 $ (115) $ (108,859) $ 5,716 $ 11,626 Plus: Interest expense 1,796 1,913 2,497 3,098 3,312 Income taxes 4,683 (47) (4,091) 2,797 4,407 Depreciation and amortization 8,349 8,710 8,743 8,986 9,081 EBITDA 25,889 10,461 (101,710) 20,597 28,426 Adjustments: Change in fair value of contingent consideration — 516 674 618 3,176 Tax recovery, net — — (8,424) (2,320) — Acquisition and divestiture costs 1,359 498 1,311 781 1,151 Restructuring costs 484 8,268 — 169 266 Impairment charges — — 120,470 — — Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 27,732 $ 19,743 $ 12,321 $ 19,845 $ 33,019 Invested Capital Calculation Equity - beginning of the quarter $ 671,227 $ 678,246 $ 897,678 $ 927,580 $ 905,751 Equity - end of quarter 682,139 671,227 678,246 897,678 927,580 Adjustments: Change in fair value of contingent consideration, net of tax — 390 510 467 2,401 Tax recovery, net and related interest income, net of tax — — (6,247) (1,754) — Acquisition and divestiture costs 1,359 498 1,311 781 1,151 Asset impairment, net of tax — — 114,398 — — Restructuring costs, net of tax 366 6,250 — 125 196 Discontinued operations net loss 25,255 11,704 108,403 4,003 260 Average equity 690,173 684,158 897,150 914,440 918,670 Average funded debt (b) 198,620 243,268 337,973 405,533 411,614 Invested capital (denominator for ROIC) (non-GAAP) $ 888,793 $ 927,426 $ 1,235,123 $ 1,319,973 $ 1,330,284 (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 funded debt, which includes both continuing and discontinued operations, is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt. ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 15 February 2, 2021
Net Debt and EBITDA Metrics ($ in thousands) Q2 FY21 Q1 FY21 Q4 FY20 Q3 FY20 Q2 FY20 Debt of continuing operations(Q/E) $ 151,924 $ 148,799 $ 218,728 $ 281,951 $ 280,791 Debt of discontinued operations (Q/E) — 19,932 28,228 38,645 76,954 Consolidated debt (Q/E) 151,924 168,731 246,956 320,596 357,745 Less: Cash and cash equivalents of continuing operations (Q/E) (67,187) (49,889) (29,485) (29,758) (38,773) Cash and cash equivalents of discontinued operations (Q/E) — (5,678) (4,970) (4,838) (3,232) Consolidated cash and cash equivalents (Q/E) (67,187) (55,567) (34,455) (34,596) (42,005) Net debt (Q/E) $ 84,737 $ 113,164 $ 212,501 $ 286,000 $ 315,740 Reconciliation of Net Income to Adjusted EBITDA Net income (loss) from continuing operations - GAAP $ 11,061 $ (115) $ (108,859) $ 5,716 $ 11,626 Plus: Interest expense 1,796 1,913 2,497 3,098 3,312 Income taxes 4,683 (47) (4,091) 2,797 4,407 Depreciation and amortization 8,349 8,710 8,743 8,986 9,081 EBITDA 25,889 10,461 (101,710) 20,597 28,426 Adjustments: Change in fair value of contingent consideration — 516 674 618 3,176 Tax recovery, net — — (8,424) (2,320) — Acquisition and divestiture costs 1,359 498 1,311 781 1,151 Restructuring costs 484 8,268 — 169 266 Impairment charges — — 120,470 — — Adjusted EBITDA (non-GAAP) $ 27,732 $ 19,743 $ 12,321 $ 19,845 $ 33,019 Adjusted EBITDA, TTM (a) $ 79,642 $ 84,929 $ 97,047 $ 119,925 $ 135,627 Net Debt / Adjusted EBITDA, TTM (a) 1.1x 1.3x 2.2x 2.4x 2.3x (a) Adjusted EBITDA for the trailing 12-month period ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 16 February 2, 2021
Discontinued Operations, Net Sales and Working Capital ($ in thousands) Q2 FY21 Q1 FY21 Q4 FY20 Q3 FY20 Q2 FY20 Net sales from continuing operations $ 810,897 $ 757,342 $ 636,450 $ 744,584 $ 823,999 Net sales from discontinued operations 68,323 145,049 121,969 127,899 155,912 Working capital Net accounts receivable of continuing operations $ 534,583 $ 509,779 $ 443,185 $ 504,366 $ 513,644 Net accounts receivable of discontinued operations — 130,553 117,200 114,392 131,626 Inventory of continuing operations $ 421,003 $ 423,088 $ 454,885 $ 550,072 $ 621,146 Inventory of discontinued operations — 95,560 106,779 116,386 121,833 Accounts payable of continuing operations $ 589,292 $ 544,856 $ 454,240 $ 533,124 $ 586,957 Accounts payable of discontinued operations — 84,657 56,098 75,293 85,949 Working capital of continuing operations $ 366,294 $ 388,011 $ 443,830 $ 521,314 $ 547,833 Working capital of discontinued operations — 141,456 167,881 155,485 167,510 ScanSource, Inc. CFO COMMENTARY Q2 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 17 February 2, 2021