Attached files
| file | filename |
|---|---|
| 8-K - 8-K - SCANSOURCE, INC. | a2017-q3form8xk03312017.htm |
| EX-99.1 - EXHIBIT 99.1 - SCANSOURCE, INC. | a2017-q3exhibit99103312017.htm |
Q3 FY17 FINANCIAL RESULTS
CONFERENCE CALL
May 9, 2017 at 5:00 pm ET
Exhibit 99.2
SAFE HARBOR AND NON-GAAP
Safe Harbor Statement
This presentation contains certain comments that are “forward-
looking” statements, including sales, GAAP diluted EPS, and non-
GAAP diluted EPS, that involve plans, strategies, economic
performance and trends, projections, expectations, costs or
beliefs about future events and other statements that are not
descriptions of historical facts. Forward-looking information is
inherently subject to risks and uncertainties.
Any number of factors could cause actual results to differ
materially from anticipated or forecasted results, including but not
limited to, changes in interest and exchange rates and regulatory
regimes impacting our overseas operations, the failure of
acquisitions to meet our expectations, the failure to manage and
implement our organic growth strategy, credit risks involving our
larger customers and vendors, termination of our relationship with
key vendors or a significant modification of the terms under which
we operate with a key vendor, the decline in demand for the
products and services that we provide, reduced prices for the
products and services that we provide due both to competitor and
customer actions, and other factors set forth in the “Risk Factors”
in contained in our annual report on Form 10-K for the year ended
June 30, 2016, and subsequent reports on Form 10-Q, filed with
the Securities and Exchange Commission (“SEC”).
Although ScanSource believes the expectations in its forward-
looking statements are reasonable, it cannot guarantee future
results, levels of activity, performance or achievement.
ScanSource disclaims any obligation to update or revise any
forward-looking statements, whether as a result of new
information, future events, or otherwise, except as may be
required by law.
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 measures, including non-GAAP operating income, non-
GAAP operating margin, non-GAAP net income, non-GAAP
diluted earnings per share, adjusted EBITDA, return on invested
capital (“ROIC”) and net sales excluding the impact of foreign
currency exchange rates and acquisitions (organic growth). A
reconciliation of the Company's non-GAAP financial information
to GAAP financial information is provided in the Appendix and in
the Company’s Form 8-K, filed with the SEC, with the quarterly
earnings press release for the period indicated.
2
HIGHLIGHTS
• Net sales of $814 million, +2% Y/Y
• Net sales growth for WW Barcode, Networking & Security, +4% Y/Y, offset
lower sales for WW Communications & Services, -2% Y/Y
• GAAP EPS of $0.49, -9% Y/Y and non-GAAP EPS of $0.65*, +2% Y/Y
Net Sales
and EPS
Within
Forecast
Range
Progress
on Key
Opportunities
for Growth
Favorable
Cash Flows
and
Investment in
Business
• For WW Barcode, Networking & Security, organic growth for all business
units in North America and Europe
• Progress on key opportunities for growth for 2017 – physical security,
ScanSource KBZ, expanded channel for Communications, Intelisys growth
• Q3 FY17 operating cash flow of $48 million; trailing 12-months operating
cash flow of $112 million (up from $73 million for prior year TTM)
• Continued to invest in high-growth, recurring revenue business with Intelisys’
purchase of Verizon partner program assets
* See Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures.
Q3 FY17 Q2 FY17 Q3 FY16
Y/Y
Change
Net sales $813.5 $904.8 $798.4 +2%
Gross profit 92.7 98.5 84.5 +10%
Gross profit margin % (of net sales) 11.4% 10.9% 10.6% +81 bps
Operating income 20.0 23.3 21.6 -8%
Non-GAAP operating income 26.2 29.6 25.3 +3%
GAAP net income 12.4 23.0 14.0 -12%
Non-GAAP net income 16.4 19.1 16.5 -1%
GAAP diluted EPS $0.49 $0.91 $0.54 -9%
Non-GAAP diluted EPS $0.65 $0.75 $0.64 +2%
HIGHLIGHTS – Q3 FY17
4
$ in millions, except EPS
Q3 FY17 Q2 FY17 Q3 FY16
Net sales $549.0 $593.8 $528.0
Gross profit $45.9 $49.0 $45.7
Gross margin 8.4% 8.2% 8.7%
Operating income $11.2 $12.1 $11.2
Operating income % 2.0% 2.0% 2.1%
Non-GAAP operating income $12.3 $13.2 $12.2
Non-GAAP operating income % 2.2% 2.2% 2.3%
Q3 FY16 Q3 FY17
Net Sales, $ in millions
Up +4%
Organic Growth, +3%
WW BARCODE, NETWORKING & SECURITY
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$ in millions
Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and
acquisitions. Non-GAAP operating income excludes amortization of intangibles and change in fair value of contingent
consideration.
$528 $549
Q3 FY17 Q2 FY17 Q3 FY16
Net sales $264.6 $311.0 $270.4
Gross profit $46.8 $49.6 $38.7
Gross margin 17.7% 15.9% 14.3%
Operating income $8.8 $11.5 $10.5
Operating income % 3.3% 3.7% 3.9%
Non-GAAP operating income $13.9 $16.4 $13.1
Non-GAAP operating income % 5.2% 5.3% 4.9%
WW COMMUNICATIONS & SERVICES
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Q3 FY16 Q3 FY17
Net Sales, $ in millions
Down (2)%
Organic Growth, Down (7%)
$ in millions
$265 $270
Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and
acquisitions. Non-GAAP operating income excludes amortization of intangibles and change in fair value of contingent
consideration.
Q3 FY17 Q2 FY17 Q3 FY16
Accounts receivable (Q/E) $565.2 $620.6 $522.7
Days sales outstanding in receivables* 60* 60* 59
Inventory (Q/E) $514.2 $512.9 $568.2
Inventory turns 5.6 6.0 4.9
Accounts payable (Q/E) $437.2 $476.3 $431.9
Paid for inventory days* 12.5* 6.5* 17.2
Working capital (Q/E) (AR+INV–AP) $642.3 $657.1 $659.0
WORKING CAPITAL MEASURES
$ in millions
7
* Excludes the impact of the Intelisys acquisition, which was completed 8/29/16
Q3 FY17 Q2 FY17 Q3 FY16
Adjusted EBITDA (QTR) $29.2 $32.6 $27.5
Adjusted ROIC (QTR)* 12.6% 13.8% 12.3%
Operating cash flow, trailing 12-months $112.0 $128.4 $72.7
Cash and cash equivalents (Q/E) $62.2 $45.1 $40.8
Debt (Q/E) $113.9 $141.7 $79.8
Net debt to adjusted EBITDA, trailing 12-months 0.46x 0.88x 0.31x
Shares repurchased – # of shares (QTR) -- 100,530 870,416
Shares repurchased – dollars (QTR) -- $3.5 $26.8
Cum. repurchases under plan – # shares (as of Q/E) 577,643 577,643 3,300,384
Cum. repurchases under plan – dollars (as of Q/E) $20.3 $20.3 $117.2
Remaining authorization under plan (as of Q/E) $99.7 $99.7 $2.8
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
$ in millions
8
* Excludes non-GAAP adjustments and change in fair value of contingent consideration.
Q4 FY17 OUTLOOK*
9
* Outlook as of May 9, 2017. Non-GAAP diluted EPS excludes amortization of intangible assets, change in fair value of
contingent consideration, and acquisition costs. Reflects the following FX rates: $1.07 to EUR 1.00 for the Euro, $0.32 to
R$1.00 for the Brazilian real (R$3.125 to $1), and $1.27 to GBP 1.00 for the British pound.
For the quarter ending June 30, 2017, excluding amortization of intangible assets, change
in fair value of contingent consideration, and acquisition costs:
Range from $860 million to $920 million
Range from $0.44 to $0.51 per share
Net Sales
GAAP
Diluted EPS
Range from $0.64 to $0.71 per share
Non-GAAP
Diluted EPS
APPENDIX: NON-GAAP FINANCIAL INFORMATION
10
Operating Income, Pre-Tax Income, Net Income & EPS – QTR
($ in thousands) Quarter Ended March 31, 2017
Operating
Income
Pre-tax
income
Net
income
Diluted
EPS
GAAP measure $ 19,978 $ 19,571 $ 12,424 $ 0.49
Adjustments:
Amortization of intangible assets 4,217 4,217 2,774 0.11
Change in fair value of contingent consideration 1,960 1,960 1,194 0.05
Acquisition costs (a) - - - -
Non-GAAP measure $ 26,155 $ 25,748 $ 16,392 $ 0.65
Quarter Ended December 31, 2016
Operating
Income
Pre-tax
income
Net
income
Diluted
EPS
GAAP measure $ 23,275 $ 35,781 $ 23,036 $ 0.91
Adjustments:
Amortization of intangible assets 4,165 4,165 2,740 0.11
Change in fair value of contingent consideration 1,791 1,791 1,000 0.04
Acquisition costs (a) 335 335 335 0.01
Non-GAAP measure - (12,777) (8,047) (0.32)
$ 29,566 $ 29,295 $ 19,064 $ 0.75
Quarter Ended March 31, 2016
Operating
Income
Pre-tax
income
Net
income
Diluted
EPS
GAAP measure $ 21,647 $ 21,353 $ 14,042 $ 0.54
Adjustments:
Amortization of intangible assets 2,507 2,507 1,703 0.07
Change in fair value of contingent consideration 1,139 1,139 748 0.03
Acquisition costs (a) 29 29 29 -
Non-GAAP measure $ 25,322 $ 25,028 $ 16,522 $ 0.64
(a) Acquisition costs are nondeductible for tax purposes.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
11
Net Sales, Constant Currency and Excluding Acquisitions – QTR
($ in thousands)
WW Barcode,
NW & Security
WW Comms.
& Services Consolidated
For the quarter ended March 31, 2017:
Q3 FY17 net sales, as reported $ 548,971 $ 264,567 $ 813,538
Foreign exchange impact (a) (3,130) (3,707) (6,837)
Q3 FY17 net sales, constant currency 545,841 260,860 806,701
Less: Acquisitions - (8,893) (8,893)
Q3 FY17 net sales, constant currency excluding acquisitions $ 545,841 $ 251,967 $ 797,808
Q3 FY16 net sales, as reported $ 528,009 $ 270,395 $ 798,404
Less: Acquisitions - - -
Q3 FY16 net sales, excluding acquisitions $ 528,009 $ 270,395 $ 798,404
Y/Y % Change:
As reported 4.0% -2.2% 1.9%
Constant currency 3.4% -3.5% 1.0%
Constant currency, excluding acquisitions (organic growth) 3.4% -6.8% -0.1%
(a) Year-over-year sales growth excluding the translation impact of changes in foreign currency rates. Calculated by translating net sales for the quarter ended March
31, 2017 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended March 31, 2016.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
12
Highlights by Segment – Y/Y for Quarter
Quarter Ended March 31, 2017
($ in thousands)
WW Barcode,
NW & Security
WW Comms.
& Services Corporate Consolidated
Net sales $ 548,971 $ 264,567 $ - $ 813,538
GAAP operating income $ 11,175 $ 8,803 $ - $ 19,978
Adjustments:
Amortization of intangible assets 1,098 3,119 - 4,217
Change in fair value of contingent consideration - 1,960 - 1,960
Acquisition costs - - - -
Non-GAAP operating income $ 12,273 $ 13,882 $ - $ 26,155
GAAP operating income % (of net sales) 2.0% 3.3% n/m 2.5%
Non-GAAP operating income % (of net sales) 2.2% 5.2% n/m 3.2%
Quarter Ended March 31, 2016 (a)
($ in thousands)
WW Barcode,
NW & Security
WW Comms.
& Services Corporate Consolidated
Net sales $ 528,009 $ 270,394 $ - $ 798,404
GAAP operating income $ 11,160 $ 10,516 $ (29) $ 21,647
Adjustments:
Amortization of intangible assets 1,036 1,471 - 2,507
Change in fair value of contingent consideration - 1,139 - 1,139
Acquisition costs - - 29 29
Non-GAAP operating income $ 12,196 $ 13,126 $ - $ 25,322
GAAP operating income % (of net sales) 2.1% 3.9% n/m 2.7%
Non-GAAP operating income % (of net sales) 2.3% 4.9% n/m 3.2%
n/m = not meaningful
(a) Reflects reclassifications between segments for certain geographies to provide comparable financial information.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
13
Highlights by Segment – Prior Quarter
Quarter Ended December 31, 2016 (a)
($ in thousands)
WW Barcode,
NW & Security
WW Comms.
& Services Corporate Consolidated
Net sales $ 593,833 $ 310,959 $ - $ 904,792
GAAP operating income $ 12,131 $ 11,479 $ (335) $ 23,275
Adjustments:
Amortization of intangible assets 1,079 3,086 - 4,165
Change in fair value of contingent consideration - 1,791 - 1,791
Acquisition costs - - 335 335
Non-GAAP operating income $ 13,210 $ 16,356 $ - $ 29,566
GAAP operating income % (of net sales) 2.0% 3.7% n/m 2.6%
Non-GAAP operating income % (of net sales) 2.2% 5.3% n/m 3.3%
n/m = not meaningful
(a) Reflects reclassifications between segments for certain geographies to provide comparable financial information.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
14
Adjusted Return on Invested Capital
($ in thousands)
Q3 FY17 Q2 FY17 Q1 FY17 Q4 FY16 Q3 FY16
Adjusted return on invested capital (ROIC), annualized (a) 12.6% 13.8% 13.1% 10.1% 12.3%
Reconciliation of Net Income to EBITDA
Net income - GAAP $ 12,424 $ 23,037 $ 14,816 $ 12,925 $ 14,042
Plus: Income taxes 7,147 12,744 7,908 5,678 7,311
Plus: Interest expense 780 912 589 440 694
Plus: Depreciation and amortization 6,880 6,588 5,224 4,584 4,281
EBITDA 27,231 43,281 28,537 23,627 26,328
Change in fair value of contingent consideration 1,960 1,791 169 (3,226) 1,139
Acquisition costs - 335 498 553 29
Legal settlement, net of attorney fees - (12,777) - - -
Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 29,191 $ 32,630 $ 29,204 $ 20,954 $ 27,496
Invested Capital Calculation
Equity - beginning of the quarter $ 787,536 $ 773,161 $ 774,496 $ 757,374 $ 754,794
Equity - end of quarter 808,719 787,536 773,161 774,496 757,374
Add: Change in fair value of contingent consideration, net of tax 1,194 1,000 46 2,095) 748
Add: Acquisition costs, net of tax - 335 498 553 29
Add: Legal settlement, net of attorney fees, net of tax - (8,047) - - -
Average equity 798,725 776,993 774,101 765,164 756,473
Average funded debt (b) 137,597 162,483 107,718 71,577 146,213
Invested capital (denominator for ROIC)(non-GAAP) $ 936,322 $ 939,476 $ 881,819 $ 836,741 $ 902,686
Notes:
(a) Calculated as net income plus interest expense, income taxes, depreciation and amortization (EBITDA), annualized divided by invested capital for the period. Adjusted
EBITDA reflects other adjustments for non-GAAP measures.
(b) Average daily amounts outstanding on short-term and long-term interest-bearing debt.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
15
Forecasted Range for EPS – Q4 FY17 Outlook
($ in thousands)
Forecast for Quarter ending
June 30, 2017
Range Low Range High
GAAP diluted EPS $ 0.44 $ 0.51
Adjustments:
Amortization of intangible assets 0.10 0.10
Change in fair value of contingent consideration 0.10 0.10
Non-GAAP diluted EPS $ 0.64 $ 0.71