Scansource delivers outstanding second quarter performance
Greenville, s.c.--(business wire)--scansource, inc. (nasdaq: scsc), a leading hybrid distributor connecting devices to the cloud, today announced financial results for the second quarter ended december 31, 2021. all results in this release reflect continuing operations only unless otherwise noted. second quarter summary: quarter ended december 31, 2021 2020 change (in thousands, except per share data) select reported measures: net sales $ 864,351 $ 810,897 6.6% gross profit $ 107,925 $ 86,043 25.4% gross profit margin % 12.49 % 10.61 % 188bp operating income $ 31,498 $ 17,130 83.9% gaap net income $ 23,152 $ 11,061 109.3% gaap diluted eps $ 0.89 $ 0.43 107.0% select non-gaap measures: adjusted ebitda $ 42,542 $ 29,739 43.1% adjusted ebitda margin % 4.92 % 3.67 % 125bp non-gaap net income $ 26,446 $ 16,469 60.6% non-gaap diluted eps $ 1.02 $ 0.65 56.9% "strong demand drove top-line growth with profitability ahead of expectations, as our team successfully navigated ongoing supply chain challenges," said mike baur, chairman and ceo, scansource, inc. "this demand from channel partners across our technologies and operational excellence by our employees lead us to raise our full year 2022 outlook for both net sales growth and adjusted ebitda." quarterly results net sales for the second quarter of fiscal year 2022 totaled $864.4 million, up 6.6% year-over-year, or 7.0% year-over-year for organic growth. second quarter fiscal year 2022 net sales in the specialty technology solutions segment increased 9.2% year-over-year to $496.9 million, driven by broad-based demand across technologies. second quarter fiscal year 2022 net sales in modern communications & cloud increased 3.3% year-over-year, or 3.9% year-over-year for organic growth, to $367.4 million, with intelisys connectivity and cloud business net sales increasing 14.1% year-over-year. gross profit for the second quarter of fiscal year 2022 totaled $107.9 million, up 25.4% year-over-year. gross profit margin increased to 12.5% for the second quarter of fiscal year 2022, up from 10.6% in the prior-year quarter. the increase is primarily due to sales volume, sales mix and higher supplier sales incentives compared to the prior-year quarter. for the second quarter of fiscal year 2022, operating income increased to $31.5 million from $17.1 million in the prior-year quarter. second quarter fiscal year 2022 non-gaap operating income increased to $35.9 million for a 4.15% non-gaap operating income margin, up from $23.8 million for the prior-year quarter. on a gaap basis, net income for the second quarter of fiscal year 2022 totaled $23.2 million, or $0.89 per diluted share, compared to net income of $11.1 million, or $0.43 per diluted share, for the prior-year quarter. second quarter fiscal year 2022 non-gaap net income totaled $26.4 million, or $1.02 per diluted share, up from $16.5 million, or $0.65 per diluted share, for the prior-year quarter. adjusted ebitda for the second quarter of fiscal year 2022 increased to $42.5 million, or 4.92% of net sales, compared to $29.7 million, or 3.67% of net sales in the prior-year quarter, primarily due to higher gross profits and operating leverage. return on invested capital increased to 17.6% for second quarter fiscal year 2022, compared to 13.3% in the prior-year quarter. naming to fortune magazine's list of world's most admired companies in february, scansource announced its naming to fortune magazine's 2022 list of world's most admired companies. scansource's inclusion in this year's list marks the sixth consecutive year the company has received the recognition. the annual survey, which is given to thousands of senior executives, directors and financial analysts from more than 600 global companies, identifies the organizations with the strongest reputations within their industries and across other industries. annual financial outlook for fiscal year 2022 scansource raises its expectations for the full fiscal year ended june 30, 2022 and replaces previously provided guidance. fy22 annual outlook net sales growth, year-over-year at least 7% adjusted ebitda (non-gaap) at least $148 million adjusted ebitda is a non-gaap measure, which excludes estimates for amortization of intangible assets, depreciation expense, and non-cash share-based compensation expense (effective with the first quarter of fiscal year 2022). for comparison, fiscal year 2021 adjusted ebitda, excluding share-based compensation, totaled $118 million. 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. webcast details and earnings infographic at approximately 4:15 p.m. et today, an earnings infographic, as a supplement to this press release and the company's 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, february 8, 2022, at 5:00 p.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 the company's fy22 outlook, operating strategy, supply chain challenges, capital allocation plans, growth opportunities and the impact of the covid-19 pandemic, which involve risks and uncertainties. any number of factors could cause actual results to differ materially from anticipated results, including, but not limited to, failure to hire and retain quality employees, risk to the company's business from a cyber-security attack, the failure to manage and implement the company's organic growth strategy, the impact of the covid-19 pandemic on the company's operations and financial condition and the potential prolonged economic weakness brought on by covid-19, a failure of the company's it systems, a failure to acquire new businesses, changes in interest and exchange rates and regulatory regimes impacting the company's international operations, credit risks involving the company's larger customers and suppliers, loss of the company's major customers, termination of the company's relationship with key suppliers or a significant modification of the terms under which it operates with a key supplier, changes in the company's operating strategy, and other factors set forth in the "risk factors" contained in the company's annual report on form 10-k for the year ended june 30, 2021, 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 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, change in fair value of contingent consideration, acquisition costs, restructuring costs and other non-gaap adjustments. net sales on a constant currency basis, excluding acquisitions (organic growth): the company 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 prior to the first full year from the acquisition date. this measure enhances the comparability between periods to help analyze underlying trends on an organic basis. income statement non-gaap metrics: to evaluate current period performance on a more consistent basis with prior periods, the company discloses non-gaap net sales, non-gaap gross profit, non-gaap operating income, non-gaap other expense, net, non-gaap pre-tax income, non-gaap net income and non-gaap diluted earnings per share (non-gaap diluted "eps"). non-gaap results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition and divestiture costs, impairment charges, 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 the company'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, impairment charges, and restructuring costs. effective with the first quarter of fiscal year 2022, non-cash share-based compensation expense is also added back in calculating adjusted ebitda. since adjusted ebitda excludes some non-cash costs of investing in our business and people, management believes that adjusted ebitda shows the profitability from our 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. return on invested capital ("roic"): roic assists management in comparing the company's performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. we believe the calculation of roic provides useful information to investors and is an additional relevant comparison of our performance. 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 roic provides useful information to investors and is an additional relevant comparison of the company's performance during the year. these non-gaap financial measures have limitations as analytical tools, and the non-gaap financial measures that the company 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 the company'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 partners across hardware, saas, connectivity and cloud. scansource enables partners to deliver solutions for their customers to address changing end-user 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 point-of-sale (pos), payments, barcode, 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 2021 best places to work in south carolina and on fortune magazine’s 2022 list of world’s most admired companies. scansource ranks #655 on the fortune 1000. for more information, visit www.scansource.com. scansource, inc. and subsidiaries condensed consolidated balance sheets (unaudited) (in thousands) december 31, 2021 june 30, 2021* assets current assets: cash and cash equivalents $ 34,123 $ 62,718 accounts receivable, less allowance of $17,393 at december 31, 2021 and $19,341 at june 30, 2021 613,186 568,984 inventories 562,397 470,081 prepaid expenses and other current assets 124,633 117,860 total current assets 1,334,339 1,219,643 property and equipment, net 39,239 42,836 goodwill 216,755 218,877 identifiable intangible assets, net 95,045 104,860 deferred income taxes 21,668 21,853 other non-current assets 63,824 63,615 total assets $ 1,770,870 $ 1,671,684 liabilities and shareholders’ equity current liabilities: accounts payable $ 653,190 $ 634,805 accrued expenses and other current liabilities 81,570 87,790 income taxes payable 2,283 2,501 current portion of long-term debt 9,723 7,843 total current liabilities 746,766 732,939 deferred income taxes 3,862 3,954 long-term debt, net of current portion 129,358 135,331 borrowings under revolving credit facility 57,785 — other long-term liabilities 64,574 68,269 total liabilities 1,002,345 940,493 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, 25,657,545 and 25,499,465 shares issued and outstanding at december 31, 2021 and june 30, 2021, respectively 75,583 71,253 retained earnings 803,396 758,071 accumulated other comprehensive loss (110,454 ) (98,133 ) total shareholders’ equity 768,525 731,191 total liabilities and shareholders’ equity $ 1,770,870 $ 1,671,684 *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, 2021 2020 2021 2020 net sales $ 864,351 $ 810,897 $ 1,721,662 $ 1,568,238 cost of goods sold 756,426 724,854 1,512,437 1,401,415 gross profit 107,925 86,043 209,225 166,823 selling, general and administrative expenses 69,433 60,470 133,016 122,580 depreciation expense 2,547 3,097 5,427 6,494 intangible amortization expense 4,447 4,862 8,956 9,716 restructuring and other charges — 484 — 8,753 change in fair value of contingent consideration — — — 516 operating income 31,498 17,130 61,826 18,764 interest expense 1,493 1,796 3,153 3,709 interest income (947 ) (531 ) (1,973 ) (1,011 ) other expense, net 543 121 807 484 income before income taxes 30,409 15,744 59,839 15,582 provision for income taxes 7,257 4,683 14,614 4,636 net income from continuing operations 23,152 11,061 45,225 10,946 net income (loss) from discontinued operations 100 (25,255 ) 100 (36,959 ) net income (loss) $ 23,252 $ (14,194 ) $ 45,325 $ (26,013 ) per share data: net income from continuing operations per common share, basic $ 0.91 $ 0.44 $ 1.77 $ 0.43 net loss from discontinued operations per common share, basic — (1.00 ) — (1.46 ) net income (loss) per common share, basic $ 0.91 $ (0.56 ) $ 1.77 $ (1.03 ) weighted-average shares outstanding, basic 25,585 25,395 25,549 25,378 net income from continuing operations per common share, diluted $ 0.89 $ 0.43 $ 1.75 $ 0.43 net loss from discontinued operations per common share, diluted — (0.99 ) — (1.45 ) net income (loss) per common share, diluted $ 0.90 $ (0.56 ) $ 1.76 $ (1.02 ) weighted-average shares outstanding, diluted 25,895 25,475 25,806 25,458 scansource, inc. and subsidiaries condensed consolidated statements of cash flows (unaudited) (in thousands) six months ended december 31, 2021 2020 cash flows from operating activities: net income (loss) $ 45,325 $ (26,013 ) net income (loss) from discontinued operations 100 (36,959 ) net income from continuing operations 45,225 10,946 adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations: depreciation and amortization 14,879 17,059 amortization of debt issue costs 209 209 provision for doubtful accounts 921 (180 ) share-based compensation 6,032 3,174 deferred income taxes (109 ) (694 ) change in fair value of contingent consideration — 516 contingent consideration payments excess — (5,457 ) finance lease interest 26 70 changes in operating assets and liabilities, net of acquisitions: accounts receivable (54,370 ) (86,683 ) inventories (95,531 ) 35,124 prepaid expenses and other assets (11,236 ) 2,256 other non-current assets (1,561 ) 1,328 accounts payable 25,444 132,074 accrued expenses and other liabilities (5,130 ) 11,150 income taxes payable (177 ) (5,218 ) net cash (used in) provided by operating activities of continuing operations (75,378 ) 115,674 cash flows from investing activities of continuing operations: capital expenditures (2,645 ) (1,454 ) cash received for business disposal 3,125 34,356 net cash provided by investing activities of continuing operations 480 32,902 cash flows from financing activities of continuing operations: borrowings on revolving credit, net of expenses 1,115,161 959,848 repayments on revolving credit, net of expenses (1,057,376 ) (1,022,561 ) repayments on long-term debt, net (4,093 ) (4,089 ) repayments of finance lease obligations (624 ) (652 ) contingent consideration payments — (41,393 ) exercise of stock options 1,114 — taxes paid on settlement of equity awards (2,634 ) (1,036 ) common stock repurchased (183 ) — net cash provided by (used in) financing activities of continuing operations 51,365 (109,883 ) scansource, inc. and subsidiaries condensed consolidated statements of cash flows (unaudited), continued (in thousands) cash flows from discontinued operations: net cash flows provided by operating activities of discontinued operations — 21,704 net cash flows used in investing activities of discontinued operations — (58 ) net cash flows used in financing activities of discontinued operations — (29,494 ) net cash flows used in discontinued operations — (7,848 ) effect of exchange rate changes on cash and cash equivalents (5,062 ) 1,887 (decrease) increase in cash and cash equivalents (28,595 ) 32,732 consolidated cash and cash equivalents at beginning of period 62,718 34,455 consolidated cash and cash equivalents at end of period 34,123 67,187 cash and cash equivalents of discontinued operations — — cash and cash equivalents of continuing operations $ 34,123 $ 67,187 scansource, inc. and subsidiaries supplementary information (unaudited) (in thousands, except percentages) non-gaap financial information: quarter ended december 31, 2021 2020 return on invested capital ratio (roic), annualized (a) 17.6 % 13.3 % reconciliation of net income to adjusted ebitda: net income from continuing operations (gaap) $ 23,152 $ 11,061 plus: interest expense 1,493 1,796 plus: income taxes 7,257 4,683 plus: depreciation and amortization 7,229 8,349 ebitda (non-gaap) 39,131 25,889 plus: share-based compensation 3,464 2,006 plus: acquisition and divestiture costs(b) (53 ) 1,360 plus: restructuring costs — 484 adjusted ebitda (numerator for roic) (non-gaap) $ 42,542 $ 29,739 invested capital calculations: equity – beginning of the quarter $ 746,094 $ 671,227 equity – end of the quarter 768,525 682,139 plus: share-based compensation, net 2,590 1,510 plus: acquisition and divestiture costs(b) (53 ) 1,360 plus: restructuring, net — 366 plus: discontinued operations net (income) loss (100 ) 25,255 average equity 758,528 690,929 average funded debt (c) 200,708 198,620 invested capital (denominator for roic) (non-gaap) $ 959,236 $ 889,549 (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) average funded debt, which includes both continuing and discontinued operations, 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, 2021 2020 % change specialty technology solutions: (in thousands) net sales, reported $ 496,920 $ 455,248 9.2 % foreign exchange impact (a) 1,011 — non-gaap net sales, constant currency $ 497,931 $ 455,248 9.4 % modern communications & cloud: net sales, reported $ 367,431 $ 355,649 3.3 % foreign exchange impact (a) 1,961 — non-gaap net sales, constant currency $ 369,392 $ 355,649 3.9 % consolidated: net sales, reported $ 864,351 $ 810,897 6.6 % foreign exchange impact (a) 2,972 — non-gaap net sales, constant currency $ 867,323 $ 810,897 7.0 % (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, 2021 into u.s. dollars using the average foreign exchange rates for the quarter ended december 31, 2020. scansource, inc. and subsidiaries supplementary information (unaudited) net sales by geography: quarter ended december 31, 2021 2020 % change united states and canada: (in thousands) net sales, as reported $ 773,932 $ 720,004 7.5 % international: net sales, reported $ 90,419 $ 90,893 (0.5 ) % foreign exchange impact(a) 2,972 — non-gaap net sales, constant currency $ 93,391 $ 90,893 2.7 % consolidated: net sales, reported $ 864,351 $ 810,897 6.6 % foreign exchange impact(a) 2,972 — non-gaap net sales, constant currency $ 867,323 $ 810,897 7.0 % (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, 2021 into u.s. dollars using the average foreign exchange rates for the quarter ended december 31, 2020. quarter ended december 31, 2021 gaap measure intangible amortization expense change in fair value of contingent consideration acquisition and divestiture costs restructuring costs non-gaap measure (in thousands, except per share data) net sales $ 864,351 $ — $ — $ — $ — $ 864,351 gross profit 107,925 — — — — 107,925 operating income 31,498 4,447 — (53 ) — 35,892 other expense, net 1,089 — — — — 1,089 pre-tax income 30,409 4,447 — (53 ) — 34,803 net income 23,152 3,347 — (53 ) — 26,446 diluted eps $ 0.89 $ 0.13 $ — $ — $ — $ 1.02 quarter ended december 31, 2020 gaap measure intangible amortization expense change in fair value of contingent consideration acquisition and divestiture costs restructuring costs non-gaap measure (in thousands, except per share data) net sales $ 810,897 $ — $ — $ — $ — $ 810,897 gross profit 86,043 — — — — 86,043 operating income 17,130 4,862 — 1,360 484 23,836 other expense, net 1,386 — — — — 1,386 pre-tax income 15,744 4,862 — 1,360 484 22,450 net income 11,061 3,682 — 1,360 366 16,469 diluted eps $ 0.43 $ 0.15 $ — $ 0.06 $ 0.01 $ 0.65 scansource, inc. and subsidiaries supplementary forward-looking information (unaudited) annual financial outlook for fiscal year 2022: fy22 outlook gaap, operating income at least $105 million intangible amortization $18 million depreciation expense $13 million share-based compensation expense $12 million adjusted ebitda (non-gaap) at least $148 million
