Contact: | ||||||||
Steve Jones | Mary M. Gentry | |||||||
Senior EVP, Chief Financial Officer | SVP, Treasurer and Investor Relations | |||||||
ScanSource, Inc. | ScanSource, Inc. | |||||||
(864) 286-4302 | (864) 286-4892 |
Second Quarter Summary | |||||||||||||||||
Q2 FY23 | Q2 FY22 | Change | |||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
Select reported measures: | |||||||||||||||||
Net sales | $ | 1,011,241 | $ | 864,079 | 17.0% | ||||||||||||
Gross profit | $ | 115,334 | $ | 107,653 | 7.1% | ||||||||||||
Gross profit margin % | 11.41 | % | 12.46 | % | -105bp | ||||||||||||
Operating income | $ | 39,432 | $ | 31,498 | 25.2% | ||||||||||||
GAAP net income | $ | 25,734 | $ | 23,152 | 11.2% | ||||||||||||
GAAP diluted EPS | $ | 1.01 | $ | 0.89 | 13.5% | ||||||||||||
Select Non-GAAP measures: | |||||||||||||||||
Adjusted EBITDA | $ | 48,815 | $ | 42,542 | 14.7% | ||||||||||||
Adjusted EBITDA margin % | 4.83 | % | 4.92 | % | -9bp | ||||||||||||
Non-GAAP net income | $ | 26,941 | $ | 26,446 | 1.9% | ||||||||||||
Non-GAAP diluted EPS | $ | 1.06 | $ | 1.02 | 3.9% |
FY23 Annual Outlook | Prior FY23 Outlook | |||||||||||||
Net sales growth, year-over-year | At least 6.5% | At least 5.5% | ||||||||||||
Adjusted EBITDA (non-GAAP) | At least $176 million | At least $174 million | ||||||||||||
ScanSource, Inc. and Subsidiaries | |||||||||||
Condensed Consolidated Balance Sheets (Unaudited) | |||||||||||
(in thousands) | |||||||||||
December 31, 2022 | June 30, 2022* | ||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 66,445 | $ | 37,987 | |||||||
Accounts receivable, less allowance of $13,353 at December 31, 2022 and $16,806 at June 30, 2022 | 779,562 | 729,442 | |||||||||
Inventories | 761,936 | 614,814 | |||||||||
Prepaid expenses and other current assets | 111,119 | 141,562 | |||||||||
Total current assets | 1,719,062 | 1,523,805 | |||||||||
Property and equipment, net | 36,593 | 37,477 | |||||||||
Goodwill | 214,367 | 214,435 | |||||||||
Identifiable intangible assets, net | 75,950 | 84,427 | |||||||||
Deferred income taxes | 14,751 | 15,668 | |||||||||
Other non-current assets | 69,806 | 61,616 | |||||||||
Total assets | $ | 2,130,529 | $ | 1,937,428 | |||||||
Liabilities and Shareholders’ Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 748,662 | $ | 714,177 | |||||||
Accrued expenses and other current liabilities | 76,985 | 88,455 | |||||||||
Income taxes payable | 6,049 | 34 | |||||||||
Current portion of long-term debt | 5,040 | 11,598 | |||||||||
Total current liabilities | 836,736 | 814,264 | |||||||||
Deferred income taxes | 3,132 | 3,144 | |||||||||
Long-term debt, net of current portion | 147,756 | 123,733 | |||||||||
Borrowings under revolving credit facility | 230,000 | 135,839 | |||||||||
Other long-term liabilities | 50,519 | 53,920 | |||||||||
Total liabilities | 1,268,143 | 1,130,900 | |||||||||
Commitments and contingencies | |||||||||||
Shareholders’ equity: | |||||||||||
Preferred stock, no par value; 3,000,000 shares authorized, none issued | — | — | |||||||||
Common stock, no par value; 45,000,000 shares authorized, 25,343,014 and 25,187,351 shares issued and outstanding at December 31, 2022 and June 30, 2022, respectively | 68,313 | 64,297 | |||||||||
Retained earnings | 896,645 | 846,869 | |||||||||
Accumulated other comprehensive loss | (102,572) | (104,638) | |||||||||
Total shareholders’ equity | 862,386 | 806,528 | |||||||||
Total liabilities and shareholders’ equity | $ | 2,130,529 | $ | 1,937,428 |
ScanSource, Inc. and Subsidiaries | |||||||||||||||||||||||
Condensed Consolidated Income Statements (Unaudited) | |||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||
Quarter ended December 31, | Six months ended December 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net sales | $ | 1,011,241 | $ | 864,079 | $ | 1,955,054 | $ | 1,721,662 | |||||||||||||||
Cost of goods sold | 895,907 | 756,426 | 1,726,236 | 1,512,437 | |||||||||||||||||||
Gross profit | 115,334 | 107,653 | 228,818 | 209,225 | |||||||||||||||||||
Selling, general and administrative expenses | 69,074 | 69,161 | 140,667 | 133,016 | |||||||||||||||||||
Depreciation expense | 2,678 | 2,547 | 5,441 | 5,427 | |||||||||||||||||||
Intangible amortization expense | 4,150 | 4,447 | 8,391 | 8,956 | |||||||||||||||||||
Operating income | 39,432 | 31,498 | 74,319 | 61,826 | |||||||||||||||||||
Interest expense | 5,060 | 1,493 | 8,507 | 3,153 | |||||||||||||||||||
Interest income | (2,027) | (947) | (3,618) | (1,973) | |||||||||||||||||||
Other expense, net | 207 | 543 | 955 | 807 | |||||||||||||||||||
Income before income taxes | 36,192 | 30,409 | 68,475 | 59,839 | |||||||||||||||||||
Provision for income taxes | 10,458 | 7,257 | 18,699 | 14,614 | |||||||||||||||||||
Net income from continuing operations | 25,734 | 23,152 | 49,776 | 45,225 | |||||||||||||||||||
Net income from discontinued operations | — | 100 | — | 100 | |||||||||||||||||||
Net income | $ | 25,734 | $ | 23,252 | $ | 49,776 | $ | 45,325 | |||||||||||||||
Per share data: | |||||||||||||||||||||||
Net income from continuing operations per common share, basic | $ | 1.02 | $ | 0.91 | $ | 1.97 | $ | 1.77 | |||||||||||||||
Net income from discontinued operations per common share, basic | — | — | — | — | |||||||||||||||||||
Net income per common share, basic | $ | 1.02 | $ | 0.91 | $ | 1.97 | $ | 1.77 | |||||||||||||||
Weighted-average shares outstanding, basic | 25,287 | 25,585 | 25,244 | 25,549 | |||||||||||||||||||
Net income from continuing operations per common share, diluted | $ | 1.01 | $ | 0.89 | $ | 1.96 | $ | 1.75 | |||||||||||||||
Net income from discontinued operations per common share, diluted | — | — | — | — | |||||||||||||||||||
Net income per common share, diluted | $ | 1.01 | $ | 0.90 | $ | 1.96 | $ | 1.76 | |||||||||||||||
Weighted-average shares outstanding, diluted | 25,502 | 25,895 | 25,454 | 25,806 |
ScanSource, Inc. and Subsidiaries | ||||||||||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||||||||||
(in thousands) | ||||||||||||||
Six months ended December 31, | ||||||||||||||
2022 | 2021 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income | $ | 49,776 | $ | 45,325 | ||||||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||
Depreciation and amortization | 14,285 | 14,879 | ||||||||||||
Amortization of debt issue costs | 385 | 209 | ||||||||||||
Provision for doubtful accounts | 33 | 921 | ||||||||||||
Share-based compensation | 5,679 | 6,032 | ||||||||||||
Deferred income taxes | 932 | (109) | ||||||||||||
Finance lease interest | 24 | 26 | ||||||||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||||
Accounts receivable | (49,541) | (54,370) | ||||||||||||
Inventories | (146,826) | (95,531) | ||||||||||||
Prepaid expenses and other assets | 30,487 | (11,236) | ||||||||||||
Other non-current assets | (7,168) | (1,561) | ||||||||||||
Accounts payable | 33,820 | 25,444 | ||||||||||||
Accrued expenses and other liabilities | (13,268) | (5,130) | ||||||||||||
Income taxes payable | 6,036 | (177) | ||||||||||||
Net cash used in operating activities | (75,346) | (75,378) | ||||||||||||
Cash flows from investing activities: | ||||||||||||||
Capital expenditures | (4,262) | (2,645) | ||||||||||||
Cash received for business disposal | — | 3,125 | ||||||||||||
Net cash (used in) provided by investing activities | (4,262) | 480 | ||||||||||||
Cash flows from financing activities: | ||||||||||||||
Borrowings on revolving credit, net of expenses | 1,232,058 | 1,115,161 | ||||||||||||
Repayments on revolving credit, net of expenses | (1,137,897) | (1,057,376) | ||||||||||||
Borrowings (repayments) on long-term debt, net | 17,465 | (4,093) | ||||||||||||
Repayments on finance lease obligation | (492) | (624) | ||||||||||||
Debt issuance costs | (1,407) | — | ||||||||||||
Exercise of stock options | 634 | 1,114 | ||||||||||||
Taxes paid on settlement of equity awards | (2,332) | (2,634) | ||||||||||||
Common stock repurchased | — | (183) | ||||||||||||
Net cash provided by financing activities | 108,029 | 51,365 | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 37 | (5,062) | ||||||||||||
Increase (decrease) in cash and cash equivalents | 28,458 | (28,595) | ||||||||||||
Cash and cash equivalents at beginning of period | 37,987 | 62,718 | ||||||||||||
Cash and cash equivalents at period end | $ | 66,445 | $ | 34,123 |
ScanSource, Inc. and Subsidiaries | |||||||||||
Supplementary Information (Unaudited) | |||||||||||
(in thousands, except percentages) | |||||||||||
Non-GAAP Financial Information: | |||||||||||
Quarter ended December 31, | |||||||||||
2022 | 2021 | ||||||||||
Adjusted return on invested capital ratio (Adjusted ROIC), annualized(a) | 15.6 | % | 17.6 | % | |||||||
Reconciliation of Net Income to Adjusted EBITDA: | |||||||||||
Net income (GAAP) | $ | 25,734 | $ | 23,152 | |||||||
Plus: Interest expense | 5,060 | 1,493 | |||||||||
Plus: Income taxes | 10,458 | 7,257 | |||||||||
Plus: Depreciation and amortization | 7,057 | 7,229 | |||||||||
EBITDA (non-GAAP) | 48,309 | 39,131 | |||||||||
Plus: Share-based compensation | 3,364 | 3,464 | |||||||||
Plus: Acquisition and divestiture costs(b) | — | (53) | |||||||||
Plus: Tax recovery(c) | (2,858) | — | |||||||||
Adjusted EBITDA (numerator for Adjusted ROIC) (non-GAAP) | $ | 48,815 | $ | 42,542 | |||||||
Invested Capital Calculations: | |||||||||||
Equity – beginning of the quarter | $ | 827,004 | $ | 746,094 | |||||||
Equity – end of the quarter | 862,386 | 768,525 | |||||||||
Plus: Share-based compensation, net | 2,496 | 2,590 | |||||||||
Plus: Acquisition and divestiture costs(b) | — | (53) | |||||||||
Plus: Discontinued operations net (income) loss | — | (100) | |||||||||
Plus: Tax recovery, net | (1,886) | — | |||||||||
Average equity | 845,000 | 758,528 | |||||||||
Average funded debt (d) | 392,853 | 200,708 | |||||||||
Invested capital (denominator for Adjusted ROIC) (non-GAAP) | $ | 1,237,853 | $ | 959,236 | |||||||
(a) The annualized adjusted EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for leap year. There were 92 days in the current and prior-year quarter. | |||||||||||
(b) Acquisition and divestiture costs are generally nondeductible for tax purposes. | |||||||||||
(c) Recovery of prior period withholding taxes in Brazil. | |||||||||||
(d) Average funded debt is calculated as the average daily amounts outstanding on short-term and long-term interest-bearing debt. |
ScanSource, Inc. and Subsidiaries | |||||||||||||||||
Supplementary Information (Unaudited) | |||||||||||||||||
Net Sales by Segment: | |||||||||||||||||
Quarter ended December 31, | |||||||||||||||||
2022 | 2021 | % Change | |||||||||||||||
Specialty Technology Solutions: | (in thousands) | ||||||||||||||||
Net sales, reported | $ | 627,548 | $ | 496,920 | 26.3 | % | |||||||||||
Foreign exchange impact (a) | (1,120) | — | |||||||||||||||
Non-GAAP net sales, constant currency | $ | 626,428 | $ | 496,920 | 26.1 | % | |||||||||||
Modern Communications & Cloud: | |||||||||||||||||
Net sales, reported | $ | 383,693 | $ | 367,159 | 4.5 | % | |||||||||||
Foreign exchange impact (a) | (4,497) | — | |||||||||||||||
Non-GAAP net sales, constant currency | $ | 379,196 | $ | 367,159 | 3.3 | % | |||||||||||
Consolidated: | |||||||||||||||||
Net sales, reported | $ | 1,011,241 | $ | 864,079 | 17.0 | % | |||||||||||
Foreign exchange impact (a) | (5,617) | — | |||||||||||||||
Non-GAAP net sales, constant currency | $ | 1,005,624 | $ | 864,079 | 16.4 | % | |||||||||||
(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 December 31, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2021. |
ScanSource, Inc. and Subsidiaries | |||||||||||||||||
Supplementary Information (Unaudited) | |||||||||||||||||
Net Sales by Geography: | |||||||||||||||||
Quarter ended December 31, | |||||||||||||||||
2022 | 2021 | % Change | |||||||||||||||
United States and Canada: | (in thousands) | ||||||||||||||||
Net sales, as reported | $ | 909,221 | $ | 773,660 | 17.5 | % | |||||||||||
International: | |||||||||||||||||
Net sales, reported | $ | 102,020 | $ | 90,419 | 12.8 | % | |||||||||||
Foreign exchange impact(a) | (5,617) | — | |||||||||||||||
Non-GAAP net sales, constant currency | $ | 96,403 | $ | 90,419 | 6.6 | % | |||||||||||
Consolidated: | |||||||||||||||||
Net sales, reported | $ | 1,011,241 | $ | 864,079 | 17.0 | % | |||||||||||
Foreign exchange impact(a) | (5,617) | — | |||||||||||||||
Non-GAAP net sales, constant currency | $ | 1,005,624 | $ | 864,079 | 16.4 | % | |||||||||||
(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 December 31, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2021. |
Quarter ended December 31, 2022 | ||||||||||||||||||||||||||||||||
GAAP Measure | Intangible amortization expense | Acquisition and divestiture costs | Tax recovery (a) | Non-GAAP measure | ||||||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||||||
SG&A expenses | $69,074 | — | — | $2,858 | $71,932 | |||||||||||||||||||||||||||
Operating income | 39,432 | 4,150 | — | (2,858) | 40,724 | |||||||||||||||||||||||||||
Net income | 25,734 | 3,093 | — | (1,886) | 26,941 | |||||||||||||||||||||||||||
Diluted EPS | $1.01 | $0.12 | — | $(0.07) | $1.06 | |||||||||||||||||||||||||||
Quarter ended December 31, 2021 | ||||||||||||||||||||||||||||||||
GAAP Measure | Intangible amortization expense | Acquisition and divestiture costs (b) | Tax recovery | Non-GAAP measure | ||||||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||||||
SG&A expense | $69,161 | — | $53 | — | $69,214 | |||||||||||||||||||||||||||
Operating income | 31,498 | 4,447 | (53) | — | 35,892 | |||||||||||||||||||||||||||
Net income | 23,152 | 3,347 | (53) | — | 26,446 | |||||||||||||||||||||||||||
Diluted EPS | $0.89 | $0.13 | — | — | $1.02 | |||||||||||||||||||||||||||
(a) Recovery of prior period withholding taxes in Brazil. | ||||||||||||||||||||||||||||||||
(b) Acquisition and divestiture costs totaled less than $(0.1) million for the quarter ended December 31, 2021 and are generally nondeductible for tax purposes. |
ScanSource, Inc. and Subsidiaries | ||||||||||||||
Supplementary Forward-Looking Information (Unaudited) | ||||||||||||||
Annual Financial Outlook for Fiscal Year 2023: | ||||||||||||||
FY23 Outlook | ||||||||||||||
GAAP, Operating income | At least $135 million | |||||||||||||
Intangible amortization | $17 million | |||||||||||||
Depreciation expense | $12 million | |||||||||||||
Share-based compensation expense | $12 million | |||||||||||||
Interest income and other income (expense), net | $3 million | |||||||||||||
Tax recovery | $(3) million | |||||||||||||
Adjusted EBITDA (non-GAAP) | At least $176 million | |||||||||||||