Announces new $100M share purchase
authorization
ScanSource, Inc. (NASDAQ: SCSC), a leading hybrid distributor
connecting devices to the cloud, today announced financial results
for the third quarter ended March 31, 2024.
Third Quarter Summary
Q3 FY24
Q3 FY23
Change
(in thousands, except
percentages and per share data)
Select reported measures:
Net sales
$
752,599
$
885,519
-15.0%
Gross profit
$
94,481
$
111,762
-15.5%
Gross profit margin %
12.55
%
12.62
%
-7bp
Operating income
$
17,542
$
34,279
-48.8%
GAAP net income
$
12,806
$
21,221
-39.7%
GAAP diluted EPS
$
0.50
$
0.83
-39.8%
Operating cash flow
$
160,152
$
54,837
n/m
Select Non-GAAP measures*:
Adjusted EBITDA
$
33,095
$
45,656
-27.5%
Adjusted EBITDA margin %
4.40
%
5.16
%
-76bp
Non-GAAP net income
$
17,461
$
24,330
-28.2%
Non-GAAP diluted EPS
$
0.69
$
0.96
-28.1%
Free cash flow
$
157,732
$
52,551
n/m
n/m - not meaningful
* Represents non-GAAP financial measures.
For more information and a reconciliation to the most directly
comparable GAAP financial measure, see "Non-GAAP Financial
Information" below as well as the accompanying Supplemental
Information.
“While hardware sales were lower than we expected, our resilient
business model delivered strong margins and robust free cash flow,”
said Mike Baur, Chair and CEO, ScanSource, Inc. “Our strong balance
sheet gives us the capacity and flexibility to execute our
disciplined capital allocation plans.”
Quarterly Results
Net sales for the third quarter of fiscal year 2024 totaled
$752.6 million, down 15.0% year-over-year. Specialty Technology
Solutions net sales for the third quarter decreased 14.5%
year-over-year to $483.7 million from softer demand across
technologies within the segment. Modern Communications & Cloud
net sales for the third quarter decreased 15.9% year-over-year to
$268.9 million from lower sales volumes in communications hardware
and Cisco products. Net billings for Intelisys increased to
approximately $2.68 billion annualized, and Intelisys net sales for
the third quarter increased 4.0%.
Gross profit for the third quarter of fiscal year 2024 decreased
15.5% year-over-year to $94.5 million with a gross profit margin of
12.55% versus 12.62% in the prior-year quarter and 11.39% in the
second quarter of fiscal year 2024. The gross profit margin
reflects a higher percentage of Intelisys revenue in our overall
revenue mix, which is recorded on a net basis and therefore
contributes to higher gross profit margin.
For the third quarter of fiscal year 2024, operating income was
$17.5 million compared to $34.3 million in the prior-year quarter.
Third quarter fiscal year 2024 non-GAAP operating income decreased
to $25.3 million down from $38.4 million for the prior-year
quarter.
On a GAAP basis, net income for the third quarter of fiscal year
2024 totaled $12.8 million, or $0.50 per diluted share, compared to
net income of $21.2 million, or $0.83 per diluted share, for the
prior-year quarter. Third quarter fiscal year 2024 non-GAAP net
income totaled $17.5 million, or $0.69 per diluted share, down from
$24.3 million, or $0.96 per diluted share, for the prior-year
quarter. Interest expense for the quarter decreased to $2.0
million, down from $5.7 million for the prior-year quarter,
reflecting lower borrowings.
On a non-GAAP basis, adjusted EBITDA for the third quarter of
fiscal year 2024 decreased 27.5% to $33.1 million, or 4.40% of net
sales, compared to $45.7 million, or 5.16% of net sales, for the
prior-year quarter.
ScanSource generated $316.9 million of operating cash flow and
$309.6 million of free cash flow (non-GAAP) in the first nine
months of fiscal year 2024.
Updated Annual Financial Outlook for Fiscal Year 2024
ScanSource updates its expectations for the full fiscal year
ending June 30, 2024 and replaces previously provided guidance:
FY24 Annual Outlook
Prior FY24 Annual
Outlook
Net sales
At least $3.3 billion
At least $3.5 billion
Adjusted EBITDA (non-GAAP)
At least $140 million
At least $155 million
Free cash flow (non-GAAP)
At least $275 million
At least $200 million
Adjusted EBITDA is a non-GAAP measure, which excludes estimates
for amortization of intangible assets, depreciation expense, and
non-cash shared-based compensation expense. ScanSource’s outlook
does not include the potential impact of any business combinations,
asset acquisitions, divestitures, strategic investments, or other
significant transactions that may be completed after the date
hereof. These statements are forward-looking, and actual results
may differ materially.
Share Repurchase Authorization
ScanSource announced a new $100 million authorization by its
Board of Directors to purchase shares of the Company's common
stock. This supplements the existing authorization of which
approximately $45 million remained outstanding as of March 31,
2024.
Repurchases may be made at management's discretion through open
market or privately negotiated transactions, including pursuant to
one or more Rule 10b5-1 trading plans to facilitate. This share
repurchase authorization does not obligate ScanSource to purchase
any particular amount of common stock, and it may be suspended at
any time at the Company's discretion. The authorization does not
have any time limit.
Webcast Details and Earnings Infographic
At approximately 8:45 a.m. ET today, an Earnings Infographic, as
a supplement to this press release and the earnings conference
call, will be available on ScanSource's website, www.scansource.com
(Investor Relations section). ScanSource will present additional
information about its financial results and business in a
conference call today, May 7, 2024, at 10:30 a.m. ET. A webcast of
the call 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 contains “forward-looking” statements,
including ScanSource's FY24 outlook, which involve 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 following factors, which are
neither presented in order of importance nor weighted:
macroeconomic conditions, including potential prolonged economic
weakness, inflation, the failure to manage and implement
ScanSource's organic growth strategy, credit risks involving
ScanSource's larger customers and suppliers, changes in interest
and exchange rates and regulatory regimes impacting ScanSource's
international operations, economic weakness and inflation, risk to
the business from a cyberattack, a failure of IT systems, failure
to hire and retain quality employees, loss of ScanSource's major
customers, relationships with key suppliers and customers or a
termination or a modification of the terms under which it operates
with these key suppliers, changes in ScanSource's operating
strategy, and other factors set forth in the "Risk Factors"
contained in ScanSource's annual report on Form 10-K for the year
ended June 30, 2023. Except as may be required by law, ScanSource
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"), ScanSource also discloses certain non-GAAP
financial measures, which are summarized below. Non-GAAP financial
measures are used to understand and evaluate performance, including
comparisons from period to period. Non-GAAP results exclude
amortization of intangible assets related to acquisitions,
acquisition and divestiture costs, gain on sale of business,
restructuring costs and other non-GAAP adjustments.
Net sales on a constant currency basis excluding acquisitions
and divestitures to calculate organic growth ("non-GAAP net
sales"): ScanSource discloses the percentage change in net sales
excluding the translation impact from changes in foreign currency
exchange rates between reporting periods and excluding the net
sales from acquisitions and divestitures prior to the first full
year from the transaction date. This measure enhances the
comparability between periods to help analyze underlying trends on
an organic basis.
Additional Non-GAAP Metrics: To evaluate current period
performance on a more consistent basis with prior periods,
ScanSource discloses non-GAAP SG&A expenses, non-GAAP operating
income, non-GAAP operating income margin, and non-GAAP diluted
earnings per share (non-GAAP diluted EPS). Non-GAAP results exclude
amortization of intangible assets related to acquisitions,
acquisition and divestiture costs, gain on sale of business,
restructuring costs, and other non-GAAP adjustments. These
year-over-year metrics include the translation impact of changes in
foreign currency exchange rates. Non-GAAP metrics are useful in
assessing and understanding ScanSource's operating performance,
especially when comparing results with previous periods or
forecasting performance for future periods.
Adjusted earnings before interest expense, income taxes,
depreciation, and amortization (“Adjusted EBITDA”): Adjusted EBITDA
starts with net income and adds back interest expense, income tax
expense, depreciation expense, amortization of intangible assets,
changes in fair value of contingent considerations, and other
non-GAAP adjustments, including acquisition and divestiture costs,
gain on sale of business, restructuring costs, cyberattack
restoration costs, tax recovery, and non-cash share-based
compensation expense. Since Adjusted EBITDA excludes some non-cash
costs of investing in ScanSource’s business and people, management
believes that Adjusted EBITDA shows the profitability from the
business operations more clearly. The presentation for Adjusted
EBITDA for all periods presented has been recast to reflect this
change to enhance comparability between periods. The Adjusted
EBITDA margin is calculated as Adjusted EBITDA as a percentage of
net sales.
Adjusted return on invested capital ("Adjusted ROIC"): Adjusted
ROIC assists management in comparing ScanSource'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. Management believes the calculation of
Adjusted ROIC provides useful information to investors and is an
additional relevant comparison of its performance. Adjusted ROIC is
calculated as Adjusted EBITDA over invested capital. Invested
capital is defined as average equity plus average daily funded
interest-bearing debt for the period. Management believes the
calculation of Adjusted ROIC provides useful information to
investors and is an additional relevant comparison of ScanSource's
performance during the year.
Free cash flow: ScanSource presents free cash flow as it is a
measure used by management to measure our business. We believe this
measure provides more information regarding liquidity and capital
resources. Free cash flow is defined as cash flows from operating
activities less capital expenditures.
These non-GAAP financial measures have limitations as analytical
tools, and the non-GAAP financial measures that ScanSource 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 ScanSource'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 hybrid distributor
connecting devices to the cloud and accelerating growth for
customers across hardware, software as a service ("SaaS"),
connectivity and cloud. ScanSource enables customers to deliver
solutions for their end users to address changing buying and
consumption patterns. ScanSource sells through multiple,
specialized routes-to-market with hardware, SaaS, connectivity and
cloud services offerings from the world’s leading suppliers of
mobility and barcode, point-of-sale (POS), payments, networking,
physical security, unified communications and collaboration,
telecom and cloud services. Founded in 1992 and headquartered in
Greenville, South Carolina, ScanSource was named one of the 2023
Best Places to Work in South Carolina and on FORTUNE magazine’s
2024 List of World’s Most Admired Companies. ScanSource ranks #817
on the Fortune 1000. For more information, visit
www.scansource.com.
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets (Unaudited)
(in thousands, except share
data)
March 31, 2024
June 30, 2023*
Assets
Current assets:
Cash and cash equivalents
$
159,050
$
36,178
Accounts receivable, less allowance of
$19,566 at March 31, 2024
and $15,480 at June 30, 2023
589,847
753,236
Inventories
529,163
757,574
Prepaid expenses and other current
assets
138,100
110,087
Total current assets
1,416,160
1,657,075
Property and equipment, net
35,594
37,379
Goodwill
207,616
216,706
Identifiable intangible assets, net
41,510
68,495
Deferred income taxes
19,231
17,764
Other non-current assets
62,877
70,750
Total assets
$
1,782,988
$
2,068,169
Liabilities and
Shareholders’ Equity
Current liabilities:
Accounts payable
$
555,733
$
691,119
Accrued expenses and other current
liabilities
74,664
78,892
Income taxes payable
4,792
9,875
Current portion of long-term debt
7,857
6,915
Total current liabilities
643,046
786,801
Deferred income taxes
—
3,816
Long-term debt, net of current portion
138,024
144,006
Borrowings under revolving credit
facility
—
178,980
Other long-term liabilities
57,867
49,268
Total liabilities
838,937
1,162,871
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, 24,708,808 and 24,844,203 shares issued and
outstanding at March 31, 2024 and June 30, 2023, respectively
46,426
58,241
Retained earnings
997,642
936,678
Accumulated other comprehensive loss
(100,017
)
(89,621
)
Total shareholders’ equity
944,051
905,298
Total liabilities and shareholders’
equity
$
1,782,988
$
2,068,169
*Derived from audited financial
statements.
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated Income
Statements (Unaudited)
(in thousands, except per
share data)
Quarter ended March 31,
2024
Nine months ended March
31,
2024
2023
2024
2023
Net sales
$
752,599
$
885,519
$
2,513,696
$
2,840,573
Cost of goods sold
658,118
773,757
2,211,958
2,499,992
Gross profit
94,481
111,762
301,738
340,581
Selling, general and administrative
expenses
66,574
70,669
208,930
211,337
Depreciation expense
2,690
2,644
8,449
8,085
Intangible amortization expense
3,752
4,170
11,982
12,561
Restructuring and other charges
3,923
—
3,923
—
Operating income
17,542
34,279
68,454
108,598
Interest expense
2,001
5,715
10,947
14,223
Interest income
(2,652
)
(1,710
)
(6,096
)
(5,327
)
Gain on sale of business
—
—
(14,533
)
—
Other expense, net
241
361
991
1,314
Income before income taxes
17,952
29,913
77,145
98,388
Provision for income taxes
5,146
8,692
16,181
27,391
Net income
$
12,806
$
21,221
$
60,964
$
70,997
Per share data:
Net income per common share, basic
$
0.51
$
0.84
$
2.44
$
2.81
Weighted-average shares outstanding,
basic
25,025
25,196
24,982
25,228
Net income per common share, diluted
$
0.50
$
0.83
$
2.41
$
2.79
Weighted-average shares outstanding,
diluted
25,437
25,439
25,291
25,436
ScanSource, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(in thousands)
Nine months ended March
31,
2024
2023
Cash flows from operating activities:
Net income
$
60,964
$
70,997
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Gain on sale of business
(14,533
)
—
Depreciation and amortization
21,217
21,359
Amortization of debt issue costs
289
481
Provision for doubtful accounts
5,863
1,852
Share-based compensation
7,729
8,633
Deferred income taxes
(1,565
)
1,409
Finance lease interest
70
31
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
143,774
46,652
Inventories
226,878
(136,257
)
Prepaid expenses and other assets
(28,163
)
39,178
Other non-current assets
6,022
(1,772
)
Accounts payable
(117,860
)
(60,717
)
Accrued expenses and other liabilities
11,338
(16,780
)
Income taxes payable
(5,115
)
4,426
Net cash provided by (used in) operating
activities
316,908
(20,508
)
Cash flows from investing activities:
Capital expenditures
(7,285
)
(6,549
)
Proceeds from sale of business, net of
cash transferred
17,978
—
Net cash provided by (used in) investing
activities
10,693
(6,549
)
Cash flows from financing activities:
Borrowings on revolving credit, net of
expenses
1,242,915
1,871,909
Repayments on revolving credit, net of
expenses
(1,421,895
)
(1,848,554
)
Repayments on long-term debt, net
(5,040
)
16,527
Borrowings (repayments) on finance lease
obligation
(585
)
(612
)
Debt issuance costs
—
(1,407
)
Exercise of stock options
4,626
853
Taxes paid on settlement of equity
awards
(2,794
)
(2,433
)
Common stock repurchased
(21,168
)
(10,718
)
Net cash (used in) provided by financing
activities
(203,941
)
25,565
Effect of exchange rate changes on cash
and cash equivalents
(788
)
879
Increase in cash and cash equivalents
122,872
(613
)
Cash and cash equivalents at beginning of
period
36,178
37,987
Cash and cash equivalents at period
end
$
159,050
$
37,374
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
(in thousands, except
percentages)
Non-GAAP Financial Information:
Quarter ended March
31,
2024
2023
Adjusted return on invested capital ratio
(Adjusted ROIC), annualized(a)
12.1
%
14.6
%
Reconciliation of Net Income to
Adjusted EBITDA:
Net income (GAAP)
$
12,806
$
21,221
Plus: Interest expense
2,001
5,715
Plus: Income taxes
5,146
8,692
Plus: Depreciation and amortization
6,742
7,074
EBITDA (non-GAAP)
26,695
42,702
Plus: Tax recovery
(515
)
—
Plus: Share-based compensation
2,388
2,954
Plus: Cyberattack restoration costs
93
—
Plus: Acquisition and divestiture
costs
511
—
Plus: Restructuring costs
3,923
—
Adjusted EBITDA (numerator for Adjusted
ROIC) (non-GAAP)
$
33,095
$
45,656
Invested Capital Calculations:
Equity – beginning of the quarter
$
953,601
$
862,386
Equity – end of the quarter
944,051
878,895
Plus: Share-based compensation, net
1,784
2,191
Plus: Cyberattack restoration costs,
net
69
—
Plus: Divestiture costs
511
—
Plus: Restructuring, net
2,935
—
Plus: Tax recovery, net
(1,648
)
—
Average equity
950,652
871,736
Average funded debt (b)
153,131
398,318
Invested capital (denominator for Adjusted
ROIC) (non-GAAP)
$
1,103,783
$
1,270,054
(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 91 days in the current and 90 days
in the prior-year quarter.
(b) Average funded debt is calculated as
the average daily amounts outstanding on short-term and long-term
interest-bearing debt.
Quarter ended March
31,
Nine months ended March
31,
2024
2023
2024
2023
GAAP operating cash flow
$
160,152
$
54,837
$
316,908
$
(20,508
)
Less: Capital Expenditures
(2,420
)
(2,286
)
(7,285
)
(6,549
)
Free cash flow (non-GAAP)
$
157,732
$
52,551
$
309,623
$
(27,057
)
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
Net Sales by Segment:
Quarter ended March
31,
2024
2023
% Change
Specialty Technology Solutions:
(in thousands)
Net sales, reported
$
483,704
565,652
(14.5
)%
Foreign exchange impact (a)
(620
)
—
Non-GAAP net sales
$
483,084
$
565,652
(14.6
)%
Modern Communications &
Cloud:
Net sales, reported
$
268,895
$
319,867
(15.9
)%
Foreign exchange impact (a)
(3,177
)
—
Less: Divestitures
—
(2,530
)
Non-GAAP net sales
$
265,718
$
317,337
(16.3
)%
Consolidated:
Net sales, reported
$
752,599
$
885,519
(15.0
)%
Foreign exchange impact (a)
(3,797
)
—
Less: Divestitures
—
(2,530
)
Non-GAAP net sales
$
748,802
$
882,989
(15.2
)%
(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 March 31, 2024 into U.S. dollars using the average
foreign exchange rates for the quarter ended March 31, 2023.
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
Net Sales by Geography:
Quarter ended March
31,
2024
2023
% Change
United States and Canada:
(in thousands)
Net sales, as reported
$
671,246
$
808,797
(17.0
)%
International:
Net sales, reported
$
81,353
$
76,722
6.0
%
Foreign exchange impact(a)
(3,797
)
—
Less: Divestitures
—
(2,530
)
Non-GAAP net sales
$
77,556
$
74,192
4.5
%
Consolidated:
Net sales, reported
$
752,599
$
885,519
(15.0
)%
Foreign exchange impact(a)
(3,797
)
—
Less: Divestitures
—
(2,530
)
Non-GAAP net sales
$
748,802
$
882,989
(15.2
)%
(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 March 31, 2024 into U.S. dollars using the average
foreign exchange rates for the quarter ended March 31, 2023.
ScanSource, Inc. and
Subsidiaries
Supplementary Information
(Unaudited)
(in thousands, except per
share data)
Non-GAAP Financial Information:
Quarter ended March 31,
2024
GAAP Measure
Intangible amortization
expense
Acquisition & divestiture
costs
Restructuring costs
Tax recovery
Cyberattack restoration
costs
Non-GAAP measure
(in thousands, except per
share data)
SG&A expenses
$66,574
$—
$(511)
$(3,923)
$515
$(93)
$62,562
Operating income
17,542
3,752
511
3,923
(515)
93
25,306
Pre-tax income
17,952
3,752
511
3,923
(515)
93
25,716
Net income
12,806
2,788
511
2,935
(1,648)
69
17,461
Diluted EPS
$0.50
$0.11
$0.02
$0.12
$(0.06)
$—
$0.69
Quarter ended March 31,
2023
GAAP Measure
Intangible amortization
expense
Acquisition & divestiture
costs
Restructuring costs
Tax recovery
Cyberattack restoration
costs
Non-GAAP measure
(in thousands, except per
share data)
SG&A expense
$70,669
$—
$—
$—
$—
$—
$70,669
Operating income
34,279
4,170
—
—
—
—
38,449
Pre-tax income
29,913
4,170
—
—
—
—
34,083
Net income
21,221
3,109
—
—
—
—
24,330
Diluted EPS
$0.83
$0.12
$—
$—
$—
$—
$0.96
(a) Reflects gain on the sale of the
UK-based intY business. This transaction resulted in a capital loss
for tax purposes. ScanSource did not record a tax provision on the
capital loss since there were no offsetting capital gains.
Annual Financial Outlook for Fiscal Year 2024:
FY 24 Outlook
GAAP operating income
At least $96 million
Intangible amortization
$16 million
Depreciation expense
$12 million
Share-based compensation
expense
$10 million
Interest income and income (expense),
net
$6 million
Adjusted EBITDA (non-GAAP)
At least $140 million
GAAP operating cash flow
At least $285 million
Less: Capital expenditures
$10 million
Free cash flow (non-GAAP)
At least $275 million
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240507003921/en/
Steve Jones Senior EVP, Chief Financial Officer ScanSource, Inc.
(864) 286-4302
Mary M. Gentry SVP, Treasurer and Investor Relations ScanSource,
Inc. (864) 286-4892
ScanSource (NASDAQ:SCSC)
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ScanSource (NASDAQ:SCSC)
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