ScanSource Reports Second Quarter Results

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ScanSource Reports Second Quarter Results

Solid Sales Results for North America Security, Communications, and POS & Barcode Business Units

GREENVILLE, S.C.--(BUSINESS WIRE)-- ScanSource, Inc. (NAS: SCSC) , the leading international value-added distributor of specialty technology products, today announced complete financial results for its second quarter ended December 31, 2012.

Quarter ended December 31, 2012:
 
Net sales$747.7 million
GAAP net income$16.4 million
Adjusted net income(1)$17.8 million
GAAP diluted EPS$0.59 per share
Adjusted diluted EPS(1)$0.64 per share

(1) A reconciliation of non-GAAP financial information to GAAP financial information is presented

in the following Supplementary Information table.


"Our sales teams delivered results within our planned range, including record quarterly sales for POS & Barcode and Security products worldwide," said Mike Baur, CEO, ScanSource, Inc. "In addition, our North America Communications team achieved record sales results for the quarter."

For the quarter ended December 31, 2012, net sales decreased 4.5% to $747.7 million, compared with $782.7 million for the quarter ended December 31, 2011. Excluding the translation impact of foreign currencies, net sales decreased 3.1% year-over-year. Operating income decreased to $24.4 million from $32.1 million in the comparable prior year quarter. The effective tax rate decreased to 34.0% in the current quarter from 34.7% in the prior year quarter. Net income for the quarter ended December 31, 2012 was $16.4 million, or $0.59 per diluted share, compared with net income of $21.4 million, or $0.77 per diluted share, for the prior year quarter.

Selling, general and administrative expenses for the quarter ended December 31, 2012 included $2.1 million pre-tax ($1.4 million after-tax) in one-time costs associated with the Company's attaining compliance with local Belgian tax matters. These costs include the replacement of certain personnel in the Company's Belgian office and related severance costs, as well as tax accruals and professional fees. Excluding the one-time costs associated with personnel replacement in the Company's local Belgian office, including related tax compliance and professional fees, adjusted net income for the quarter ended December 31, 2012 totaled $17.8 million, or $0.64 per diluted share.

Forecast for Next Quarter

The Company announced its current expectations for the third quarter of fiscal 2013. ScanSource expects that net sales for the quarter ending March 31, 2013 could range from $675 million to $695 million, and diluted earnings per share could be in the range of $0.48 to $0.50 per share.

Webcast Details

ScanSource will present additional information about its financial results and outlook on a conference call today at 5:00 p.m. (ET). A webcast of the call will be available for all interested parties and can be accessed at www.scansourceinc.com (Investor Relations section). The webcast will be available for replay for 60 days.

Safe Harbor Statement

This press release contains comments that are "forward-looking" statements that involve risks and uncertainties; these statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Any number of important factors could cause actual results to differ materially from anticipated or forecasted results, including, but not limited to, factors affecting one-time costs associated with tax compliance and personnel replacement in the Company's local Belgian office; expanded operations in emerging markets, such as Brazil, that expose us to greater political and economic volatility than our operations in established markets; additional costs and delays in connection with the implementation of our new ERP system and associated litigation; our ability to forecast volatility in earnings resulting from the quarterly revaluation of the Company's earnout obligation to the sellers of CDC; macroeconomic circumstances that could impact our business, such as currency fluctuations; continued adverse capital and credit market conditions; and an economic downturn. For more information concerning factors that could cause actual results to differ from anticipated results, see the Company's annual report on Form 10-K for the year ended June 30, 2012 filed with the Securities and Exchange Commission. Except as may be required by law, the Company 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"), the Company also discloses non-GAAP measures. To evaluate current period performance on a clearer and more consistent basis with prior periods, the Company discloses adjusted net income and adjusted diluted earnings per share, which exclude one-time costs associated with tax compliance and personnel replacement in the Company's local Belgian office. Management uses return on invested capital ("ROIC"), a non-GAAP measure, as a performance measurement because management believes that this metric best balances the Company's operating results with its asset and liability management. The Company's Board of Directors uses ROIC in evaluating management performance and setting management compensation. The Company also discloses the percentage change in net sales excluding the impact of foreign currency exchange rates to better assess the changes from prior periods.

Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP. A reconciliation of the Company's non-GAAP financial information to GAAP is set forth in the following Supplemental Information table.

About ScanSource, Inc.

ScanSource, Inc. (NAS: SCSC) is the leading international distributor of specialty technology products, operating from dedicated business units in North America, Latin America and Europe. ScanSource POS & Barcode delivers AIDC (automatic identification and data capture) and POS (point-of-sale) solutions; Catalyst Telecom and ScanSource Communications provide voice, video, data and converged communications equipment; ScanSource Security offers physical security solutions; and ScanSource Services Group delivers value-added support programs and services. Founded in 1992, the company ranks #760 on the Fortune 1000. For more information, call the toll-free sales telephone number at 800.944.2432 or visit www.scansourceinc.com.

ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
  
December 31, 2012June 30, 2012*
Assets
Current assets:
Cash and cash equivalents$31,455$29,173
Accounts receivable, less allowance of464,286470,808
$29,840 at December 31, 2012
$27,349 at June 30, 2012
Inventories474,713475,479
Prepaid expenses and other current assets42,54041,846
Deferred income taxes15,278 14,624 
Total current assets1,028,2721,031,930
Property and equipment, net48,68548,785
Goodwill54,08053,885
Other non-current assets, including identifiable intangible assets72,486 67,206 
Total assets$1,203,523 $1,201,806 
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings$544$4,268
Accounts payable353,108419,683
Accrued expenses and other current liabilities69,70067,776
Current portion of contingent consideration4,9524,976
Income taxes payable2,267 1,698 
Total current liabilities430,571498,401
Deferred income taxes2,787
Long-term debt5,4295,429
Borrowings under revolving credit facility21,808
Long-term portion of contingent consideration8,13811,677
Other long-term liabilities37,830 33,988 
Total liabilities506,563549,495
Shareholders' equity:
Common stock144,894139,557
Retained earnings568,443534,445
Accumulated other comprehensive income (loss)(16,377)(21,691)
Total shareholders' equity696,960 652,311 
Total liabilities and shareholders' equity$1,203,523 $1,201,806 
*Derived from audited financial statements.
ScanSource, Inc. and Subsidiaries
Condensed Consolidated Income Statements (Unaudited)
(in thousands, except per share data)
    
Quarter ended

December 31,

Six months ended

December 31,

2012201120122011
Net sales$747,716$782,684$1,481,320$1,552,943
Cost of goods sold673,365 702,845 1,332,930 1,394,013 
Gross profit74,35179,839148,390158,930
Operating expenses:
Selling, general and administrative expenses49,39348,47496,45495,043
Change in fair value of contingent consideration533 (722)1,296 172 
Operating income24,42532,08750,64063,715
Other expense (income):
Interest expense1307492541,236
Interest income(532)(1,002)(1,166)(1,452)
Other, net53 (374)39 3,157 
Income before income taxes24,77432,71451,51360,774
Provision for income taxes8,417 11,347 17,514 21,028 
Net income$16,357 $21,367 $33,999 $39,746 
Per share data:
Weighted-average shares outstanding, basic27,713 27,244 27,665 27,191 
Net income per common share, basic$0.59 $0.78 $1.23 $1.46 
 
Weighted-average shares outstanding, diluted27,958 27,674 27,928 27,604 
Net income per common share, diluted$0.59 $0.77 $1.22 $1.44 
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
  
Net Sales by Geographic Segment:
Non-GAAP
Quarter ended December 31,% Change
2012 2011% ChangeExcluding FX(a)
North American (U.S. and Canada)$547,987$562,923(2.7)%(2.7)%
International199,729 219,761 (9.1)%(4.4)%
Consolidated$747,716 $782,684 (4.5)%(3.1)%
 
Non-GAAP
Six months ended December 31,% Change
20122011% ChangeExcluding FX(a)
North American (U.S. and Canada)$1,093,799$1,136,395(3.7)%(3.7)%
International387,521 416,548 (7.0)%1.2%
Consolidated$1,481,320 $1,552,943 (4.6)%(2.4)%
 
Notes:
(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 and six months ended December 31, 2012 into U.S. dollars using the weighted average foreign exchange rates for the quarter and six months ended December 31, 2011, respectively. International net sales excluding the translation impact of foreign currencies for the quarter and six months ended December 31, 2012, as adjusted, totaled $210.2 million and $421.6 million.
ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except per share data)
 
Non-GAAP Financial Information:
Quarter ended December 31, 2012
Pre-TaxAfter-Tax Diluted EPS
Net income (GAAP)$24,774$16,357$0.59
Adjustments:
Costs associated with Belgian tax compliance and personnel replacement costs, including related professional fees2,121 1,400 0.05 
Adjusted net income (Non-GAAP)$26,895 $17,757 $0.64 
 
Quarter ended December 31,
20122011
Return on invested capital (ROIC), annualized (a)15.2%19.3%
 

Reconciliation of EBITDA to Net Income

Net income (GAAP)$16,357$21,367
Plus: Income taxes8,41711,347
Plus: Interest expense130749
Plus: Depreciation and amortization2,275 2,258 
EBITDA (numerator for ROIC)$27,179 $35,721 
 

Invested Capital Calculation

Equity - beginning of quarter$676,136$597,658
Equity - end of quarter696,960 616,103 
Average equity686,548606,881
Average funded debt (b)23,850 128,805 
Invested capital (denominator for ROIC)$710,398 $735,686 
 
Notes:
(a) Calculated as net income plus interest expense, income taxes, depreciation and amortization (EBITDA), annualized and divided by invested capital for the period.
(b) Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.

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