ScanSource Reports Second Quarter Results

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, 2012

June 30, 2012*

Assets

Current assets:

Cash and cash equivalents

$

31,455

$

29,173

Accounts receivable, less allowance of

464,286

470,808

$29,840 at December 31, 2012

$27,349 at June 30, 2012

Inventories

474,713

475,479

Prepaid expenses and other current assets

42,540

41,846

Deferred income taxes

15,278

14,624

Total current assets

1,028,272

1,031,930

Property and equipment, net

48,685

48,785

Goodwill

54,080

53,885

Other non-current assets, including identifiable intangible assets

72,486

67,206

Total assets

$

1,203,523

$

1,201,806

Liabilities and Shareholders' Equity

Current liabilities:

Short-term borrowings

$

544

$

4,268

Accounts payable

353,108

419,683

Accrued expenses and other current liabilities

69,700

67,776

Current portion of contingent consideration

4,952

4,976

Income taxes payable

2,267

1,698

Total current liabilities

430,571

498,401

Deferred income taxes

2,787

Long-term debt

5,429

5,429

Borrowings under revolving credit facility

21,808

Long-term portion of contingent consideration

8,138

11,677

Other long-term liabilities

37,830

33,988

Total liabilities

506,563

549,495

Shareholders' equity:

Common stock

144,894

139,557

Retained earnings

568,443

534,445

Accumulated other comprehensive income (loss)

(16,377

)

(21,691

)

Total shareholders' equity

696,960

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,

2012

2011

2012

2011

Net sales

$

747,716

$

782,684

$

1,481,320

$

1,552,943

Cost of goods sold

673,365

702,845

1,332,930

1,394,013

Gross profit

74,351

79,839

148,390

158,930

Operating expenses:

Selling, general and administrative expenses

49,393

48,474

96,454

95,043

Change in fair value of contingent consideration

533

(722

)

1,296

172

Operating income

24,425

32,087

50,640

63,715

Other expense (income):

Interest expense

130

749

254

1,236

Interest income

(532

)

(1,002

)

(1,166

)

(1,452

)

Other, net

53

(374

)

39

3,157

Income before income taxes

24,774

32,714

51,513

60,774

Provision for income taxes

8,417

11,347

17,514

21,028

Net income

$

16,357

$

21,367

$

33,999

$

39,746

Per share data:

Weighted-average shares outstanding, basic

27,713

27,244

27,665

27,191

Net income per common share, basic

$

0.59

$

0.78

$

1.23

$

1.46

Weighted-average shares outstanding, diluted

27,958

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

% Change

Excluding FX(a)

North American (U.S. and Canada)

$

547,987

$

562,923

(2.7

)%

(2.7

)%

International

199,729

219,761

(9.1

)%

(4.4

)%

Consolidated

$

747,716

$

782,684

(4.5

)%

(3.1

)%

Non-GAAP

Six months ended December 31,

% Change

2012

2011

% Change

Excluding FX(a)

North American (U.S. and Canada)

$

1,093,799

$

1,136,395

(3.7

)%

(3.7

)%

International

387,521

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-Tax

After-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 fees

2,121

1,400

0.05

Adjusted net income (Non-GAAP)

$

26,895

$

17,757

$

0.64

Quarter ended December 31,

2012

2011

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 taxes

8,417

11,347

Plus: Interest expense

130

749

Plus: Depreciation and amortization

2,275

2,258

EBITDA (numerator for ROIC)

$

27,179

$

35,721

Invested Capital Calculation

Equity - beginning of quarter

$

676,136

$

597,658

Equity - end of quarter

696,960

616,103

Average equity

686,548

606,881

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.