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| EX-99.1 - EXHIBIT 99.1 - SCANSOURCE, INC. | a2018-q4exhibit99106302018.htm |
| 8-K - SCANSOURCE, INC. | a2018-q4form8xk06302018.htm |
Exhibit 99.2 ScanSource, Inc. CFO COMMENTARY Q4 FY2018 CFO COMMENTARY Q4 FY 2018 FINANCIAL INFORMATION AND CONFERENCE CALL Please see the accompanying earnings press release available at Q4 FY18 Results: www.scansource.com in the Investor Relations section. The information included in this CFO commentary is unaudited and should be read in NET SALES conjunction with the Company’s SEC filings on Form 10-K for the year ended June 30, 2018. ScanSource will present additional information about its financial results and outlook in a conference call on Tuesday, $994 million August 28, 2018 at 5:00 pm ET. A webcast of the call is available and can be accessed at www.scansource.com (Investor Relations section). Forecast: The webcast will be available for replay for 60 days. $940 million to $1 billion FOURTH QUARTER SUMMARY GAAP We completed our fiscal year 2018 with strong sales growth and DILUTED EPS strong non-GAAP profitability growth. Fourth quarter net sales increased 8% year-over-year with 5% organic growth for both $0.40 Worldwide segments. Our fourth quarter gross profit grew faster than Forecast: $0.48 to $0.54 sales with 12% year-over-year growth and a gross profit margin of 11.4%. Fourth quarter GAAP diluted EPS of $0.40 includes a higher than expected expense for the change in fair value of contingent NON-GAAP consideration for Network 1 as a result of better than expected actual DILUTED EPS results. Both net sales and non-GAAP diluted EPS were within our forecast range. For fiscal year 2018, we delivered record net sales of $0.77 $3.85 billion (+8% Y/Y), operating income of $68 million (-23% Y/Y Forecast: $0.74 to $0.80 due to the higher expense for the change in fair value of contingent consideration) and record non-GAAP operating income of $124 million (+12% Y/Y). Please see Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures. scansource.com 1 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 QUARTERLY HIGHLIGHTS Y/Y Q4 FY18 Q3 FY18 Q4 FY17 $ in millions, except EPS Change Net sales $993.9 $895.6 $917.3 +8% Gross profit $113.3 $103.9 $100.9 +12% Gross profit margin % 11.4% 11.6% 11.0% +41 bps SG&A expenses $76.8 $72.7 $71.2 +8% Operating income $19.8 $17.9 $22.1 -11% Operating income % 2.0% 2.0% 2.4% -42 bps Non-GAAP operating income $30.8 $27.8 $27.8 +11% Non-GAAP operating income % 3.1% 3.1% 3.0% +7 bps GAAP net income $10.4 $10.6 $19.0 -45% Non-GAAP net income $19.9 $17.5 $17.3 +15% GAAP diluted EPS $0.40 $0.42 $0.74 -46% Non-GAAP diluted EPS $0.77 $0.68 $0.68 +13% • Net sales of $994 million (+8% Y/Y) • Non-GAAP operating income (+11% Y/Y) grew faster than net sales growth (+8% Y/Y) - 5% Y/Y organic growth consolidated and for both Worldwide segments - Non-GAAP operating income growth from higher sales volumes and the addition of - Organic growth for all regions: North the POS Portal acquisition America, Latin America and Europe • For Q4 FY18, effective tax rate of 42.4%, • Gross profit margin of 11.4%, a 41 bp Y/Y which includes one-time tax reform charges, improvement and non-GAAP effective tax rate of 30.1% - Higher margins from POS Portal • Non-GAAP EPS increased 13% Y/Y to • Operating income of $19.8 million and $0.77 GAAP EPS of $0.40 includes higher expense for change in fair value of contingent consideration and higher intangible amortization Non-GAAP operating income, non-GAAP net income and non-GAAP diluted EPS exclude amortization of intangibles, change in fair value of contingent consideration, acquisition costs, Brazil tax recovery and tax reform charges. scansource.com 2 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 WORLDWIDE BARCODE, NETWORKING & SECURITY Q4 FY18 Q3 FY18 Q4 FY17 $ in millions Net sales $684.6 $604.3 $619.2 Gross profit $62.4 $56.5 $51.7 Gross margin 9.1% 9.3% 8.3% Operating income $15.8 $11.6 $13.0 Operating income % 2.3% 1.9% 2.1% Non-GAAP operating income $16.6 $13.9 $13.8 Non-GAAP operating income % 2.4% 2.3% 2.2% • Net sales of $685 million, up 11% Y/Y Net Sales, $ in millions - Includes POS Portal acquisition Y/Y Growth +11% - Organic growth up 5% Y/Y Y/Y Organic Growth +5% - Growth led by mobile computing, physical security, networking and $800 payment solutions $720 $700 $685 • Gross profit margin of 9.1% $620 - Y/Y increase from addition of higher $619 $604 $600 margin POS Portal acquisition • Operating income margin of 2.3% $500 increased Y/Y from Brazil tax recovery $400 • Non-GAAP operating income margin of 2.4% increased 20 basis points Y/Y $300 • Non-GAAP operating income increased Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 20% Y/Y 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 Brazil tax recovery. scansource.com 3 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 WORLDWIDE COMMUNICATIONS & SERVICES Q4 FY18 Q3 FY18 Q4 FY17 $ in millions Net sales $309.3 $291.3 $298.0 Gross profit $51.0 $47.4 $49.2 Gross margin 16.5% 16.3% 16.5% Operating income $4.0 $6.4 $9.5 Operating income % 1.3% 2.2% 3.2% Non-GAAP operating income $14.2 $14.0 $14.0 Non-GAAP operating income % 4.6% 4.8% 4.7% Net Sales, $ in millions • Net sales of $309 million, up 4% Y/Y Y/Y Growth +4% - Strong sales growth in Latin America Y/Y Organic Growth +5% - Intelisys net sales increased 26% Y/Y $400 - Organic growth up 5% Y/Y • Gross profit margin of 16.5%, consistent $312 $309 $298 $304 $300 $291 with prior year • Lower operating income due to higher expense for the change in fair value of $200 contingent consideration ($8.4 million for Q4 FY18 versus $1.3 million for Q4 FY17) $100 • Non-GAAP operating margin of 4.6% • Non-GAAP operating income increased $0 1% Y/Y Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 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, change in fair value of contingent consideration and Brazil tax recovery. scansource.com 4 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 FULL-YEAR HIGHLIGHTS Y/Y FY18 FY17 $ in millions, except EPS Change Net sales $3,846.3 $3,568.2 +8% Gross profit $436.1 $383.6 +14% Gross profit margin % 11.3% 10.8% +59 bps SG&A expenses $297.5 $265.2 +12% Operating income $67.6 $88.2 -23% Operating income % 1.8% 2.5% -71 bps Non-GAAP operating income $124.0 $110.2 +12% Non-GAAP operating income % 3.2% 3.1% +13 bps GAAP net income $33.2 $69.2 -52% Non-GAAP net income $79.8 $70.3 +14% GAAP diluted EPS $1.29 $2.71 -52% Non-GAAP diluted EPS $3.11 $2.75 +13% • Record net sales of $3.85 billion • Operating income, GAAP net income, and GAAP EPS include higher expense for - 4% Y/Y organic growth change in fair value of contingent - Y/Y organic growth of 5% Barcode, consideration and higher intangible Networking & Security and 2% for amortization Communications & Services • Non-GAAP operating income (+12% Y/Y) • Gross profit margin increased 59 basis grew faster than net sales growth (+8% Y/Y) points to 11.3% • For FY18, effective tax rate of 45.6%, - Higher margins from POS Portal including tax reform charges, and non- acquisition GAAP effective tax rate of 31.6% - Full-year and faster sales growth for Intelisys • Non-GAAP EPS increased 13% Y/Y to a record $3.11 Non-GAAP operating income, non-GAAP net income and non-GAAP diluted EPS exclude amortization of intangibles, change in fair value of contingent consideration, acquisition costs, Brazil tax recovery, legal settlement and tax reform charges. scansource.com 5 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 WORKING CAPITAL Q4 FY18 Q3 FY18 Q4 FY17 $ in millions Accounts receivable (Q/E) $678.9 $664.1 $637.3 Days sales outstanding in receivables* 59 64 61 Inventory (Q/E) $595.9 $569.5 $531.3 Inventory turns 6.0 5.5 6.2 Accounts payable (Q/E) $562.6 $496.7 $513.2 Paid for inventory days* 6.8 11.6 4.7 Working capital (Q/E) (AR+INV–AP) $712.3 $736.9 $655.5 * Excludes the impact of Intelisys for all periods; paid for inventory days represent Q/E inventory days less Q/E accounts payable days • Working capital of $712.3, up 9% Y/Y and • Inventory turns of 6.0x with inventory up down 3% Q/Q 12% Y/Y and 5% Q/Q • Additional working capital investment to • Paid for inventory days of 6.8 reflect support faster growth timing of accounts payable • Days sales outstanding in receivables decreased to 59 days, back in line with recent trends scansource.com 6 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 CASH FLOW AND BALANCE SHEET HIGHLIGHTS Q4 FY18 Q3 FY18 Q4 FY17 $ in millions Adjusted EBITDA (QTR)* $35.2 $32.8 $31.0 Adjusted ROIC (QTR)* 12.5% 11.2% 13.2% Adjusted EBITDA (FY)* $142.6 $122.0 Adjusted ROIC (FY)* 12.5% 13.1% Operating cash flow (QTR) $31.0 $81.0 $10.8 Operating cash flow, trailing 12-months $27.9 $7.6 $94.9 Cash and cash equivalents (Q/E) $25.5 $35.4 $56.1 Debt (Q/E) $249.4 $282.2 $97.3 Net debt to adjusted EBITDA, trailing 12-months 1.6x 1.8x 0.3x Remaining authorization under share repurchase $99.7 $99.7 $99.7 plan (as of Q/E) * Excludes non-GAAP adjustments and change in fair value of contingent consideration • FY18 adjusted EBITDA of $142.6 million, • Cash and cash equivalent balances of up 17% Y/Y, due to higher sales volume $25.5 million at 6/30/18, including $20.3 and the addition of the POS Portal million held outside of the U.S. acquisition • Net debt to trailing 12-months adjusted • FY18 adjusted return on invested capital EBITDA is 1.6x of 12.5%, down from prior year due to increased borrowings on revolving credit • No shares repurchased during the quarter facility for POS Portal acquisition and fiscal year • Operating cash flow of $31.0 million for • Balance sheet remains strong and the fourth quarter and $27.9 million for FY provides us with the ability to execute our 2018 capital allocation plan scansource.com 7 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 Q1 FY19 OUTLOOK* For the quarter ending September 30, 2018: NET SALES GAAP DILUTED EPS NON-GAAP DILUTED EPS Forecast Range: Forecast Range: Forecast: Range $950 million to $0.56 to $0.62 $0.83 to $0.89 $1.01 billion per share per share Q1 FY18: Net sales $925 million Q1 FY18: GAAP diluted EPS $0.16 Q1 FY18: Non-GAAP diluted EPS $0.76 • Outlook as of August 28, 2018 • Non-GAAP diluted EPS excludes amortization of intangible assets, change in fair value of contingent consideration, restructuring costs and acquisition costs • Forecast midpoint reflects organic sales growth of 6% to 7% for both segments • Reflects the following FX rates: $1.16 to EUR 1.00 for the Euro, $0.255 to R$1.00 for the Brazilian real (R$3.92 to $1), and $1.30 to GBP 1.00 for the British pound • Expects foreign currency translation to negatively impact sales by approximately $15 million • Assumes interest expense will be approximately $2.8 million for Q1 FY19 • Assumes an effective tax rate of 26% to 27% for Q1 FY19 scansource.com 8 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 FORWARD-LOOKING STATEMENTS Although ScanSource believes the expectations in its forward-looking statements This CFO Commentary contains certain are reasonable, it cannot guarantee future comments that are “forward-looking” results, levels of activity, performance or statements, including statements about achievement. ScanSource disclaims any expected EBITDA, return on invested capital obligation to update or revise any forward- (“ROIC”), sales, GAAP diluted earnings per looking statements, whether as a result of new share (“EPS”), non-GAAP diluted EPS, foreign information, future events, or otherwise, currency rates, tax rates and interest expense except as may be required by law. that involve plans, strategies, economic performance and trends, projections, expectations, costs or beliefs about future NON-GAAP FINANCIAL INFORMATION events and other statements that are not In addition to disclosing results that are descriptions of historical facts. Forward- determined in accordance with United States looking information is inherently subject to Generally Accepted Accounting Principles risks and uncertainties. (“GAAP”), the Company also discloses certain non-GAAP measures, including non-GAAP Any number of factors could cause actual operating income, non-GAAP operating results to differ materially from anticipated or income margin, non-GAAP net income, non- forecasted results, including but not limited to, GAAP diluted EPS, adjusted EBITDA, ROIC changes in interest and exchange rates and and net sales excluding the impact of foreign regulatory regimes impacting our international currency translation and acquisitions (organic operations, the impact of tax reform laws, the growth). A reconciliation of the Company's failure of acquisitions to meet our non-GAAP financial information to GAAP expectations, the failure to manage and financial information is provided in the implement our organic growth strategy, credit Appendix and in the Company’s Form 8-K, risks involving our larger customers and filed with the SEC, with the quarterly earnings vendors, termination of our relationship with press release for the period indicated. 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” contained in our annual report on Form 10-K for the year ended June 30, 2018, filed with the Securities and Exchange Commission (“SEC”). scansource.com 9 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS – QTR ($ in thousands) Quarter Ended June 30, 2018 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 19,759 $ 18,043 $ 10,388 $ 0.40 Adjustments: Amortization of intangible assets 5,056 5,056 3,521 0.14 Change in fair value of contingent consideration 8,448 8,448 5,679 0.22 Tax recovery and related interest income (2,466) (3,119) (2,058) (0.08) Tax reform charges (a) - - 2,345 0.09 Non-GAAP measure $ 30,797 $ 28,428 $ 19,875 $ 0.77 Quarter Ended March 31, 2018 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 17,941 $ 15,792 $ 10,649 $ 0.42 Adjustments: Amortization of intangible assets 5,103 5,103 3,590 0.14 Change in fair value of contingent consideration 4,801 4,801 3,272 0.12 Non-GAAP measure $ 27,845 $ 25,696 $ 17,511 $ 0.68 Quarter Ended June 30, 2017 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 22,111 $ 23,420 $ 18,970 $ 0.74 Adjustments: Amortization of intangible assets 3,987 3,987 2,625 0.10 Change in fair value of contingent consideration 1,290 1,290 680 0.03 Acquisition costs (b) 422 422 422 0.02 Tax recovery and related interest income - (1,382) (5,370) (0.21) Non-GAAP measure $ 27,810 $ 27,737 $ 17,327 $ 0.68 (a) Reflects adjustments to the one-time charge from the estimated impact of the inclusion of foreign earnings and revaluations of deferred tax assets and liabilities, as a result of tax reform laws enacted in the United States and Belgium in December 2017. (b) Acquisition costs are nondeductible for tax purposes. scansource.com 10 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS – FY ($ in thousands) Fiscal Year Ended June 30, 2018 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 67,639 $ 60,925 $ 33,153 $ 1.29 Adjustments: Amortization of intangible assets 20,657 20,657 14,021 0.55 Change in fair value of contingent consideration 37,043 37,043 24,697 0.96 Acquisition costs (a) 172 172 172 0.01 Legal settlement, net of attorney fees 952 952 771 0.03 Tax recovery and related interest income (2,466) (3,119) (2,058) (0.08) Tax reform charges (b) - - 9,034 0.35 Non-GAAP measure $ 123,997 $ 116,630 $ 79,790 $ 3.11 Fiscal Year Ended June 30, 2017 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 88,239 $ 101,495 $ 69,246 $ 2.71 Adjustments: Amortization of intangible assets 15,524 15,524 10,247 0.40 Change in fair value of contingent consideration 5,211 5,211 2,921 0.11 Acquisition costs (a) 1,256 1,256 1,256 0.06 Legal settlement, net of attorney fees - (12,777) (8,047) (0.32) Tax recovery and related interest income - (1,382) (5,370) (0.21) Non-GAAP measure $ 110,230 $ 109,327 $ 70,253 $ 2.75 (a) Acquisition costs are nondeductible for tax purposes. (b) Reflects adjustments to the one-time charge from the estimated impact of the inclusion of foreign earnings and revaluations of deferred tax assets and liabilities, as a result of tax reform laws enacted in the United States and Belgium in December 2017. scansource.com 11 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Sales, Constant Currency and Excluding Acquisitions (Organic Growth) – QTR ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Consolidated For the quarter ended June 30, 2018: Q4 FY18 net sales, as reported $ 684,552 $ 309,300 $ 993,852 Foreign exchange impact (a) (4,318) 4,218 (100) Q4 FY18 net sales, constant currency 680,234 313,518 993,752 Less: Acquisitions (30,842) - (30,842) Q4 FY18 net sales, constant currency excluding acquisitions $ 649,392 $ 313,518 $ 962,910 Q4 FY17 net sales, as reported $ 619,241 $ 298,050 $ 917,291 Less: Acquisitions - - - Q4 FY17 net sales, excluding acquisitions $ 619,241 $ 298,050 $ 917,291 Y/Y % Change: As reported 10.5% 3.8% 8.3% Constant currency 9.8% 5.2% 8.3% Constant currency, excluding acquisitions (organic growth) 4.9% 5.2% 5.0% (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 June 30, 2018 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended June 30, 2017. scansource.com 12 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Sales, Constant Currency and Excluding Acquisitions (Organic Growth) – FY ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Consolidated For the year ended June 30, 2018: FY18 net sales, as reported $ 2,628,988 $ 1,217,272 $ 3,846,260 Foreign exchange impact (a) (32,561) (5,055) (37,616) FY18 net sales, constant currency 2,596,427 1,212,217 3,808,644 Less: Acquisitions (87,461) (9,750) (97,211) FY18 net sales, constant currency excluding acquisitions $ 2,508,966 $ 1,202,467 $ 3,711,433 FY17 net sales, as reported $ 2,389,256 $ 1,178,930 $ 3,568,186 Less: Acquisitions - (2,863) (2,863) FY17 net sales, excluding acquisitions $ 2,389,256 $ 1,176,067 $ 3,565,323 Y/Y % Change: As reported 10.0% 3.3% 7.8% Constant currency 8.7% 2.8% 6.7% Constant currency, excluding acquisitions (organic growth) 5.0% 2.2% 4.1% (a) Year-over-year sales growth excluding the translation impact of changes in foreign currency rates. Calculated by translating net sales for the fiscal year ended June 30, 2018 into U.S. dollars using the weighted average foreign exchange rates for the fiscal year ended June 30, 2017. scansource.com 13 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Highlights by Segment – QTR Quarter Ended June 30, 2018 ($ in thousands) WW Barcode, WW Comms. FY18 NW & Security & Services Corporate Consolidated Consolidated Net sales $ 684,552 $ 309,300 $ - $ 993,852 $ 3,846,260 GAAP operating income $ 15,768 $ 3,991 $ - $ 19,759 $ 67,639 Adjustments: Amortization of intangible assets 2,309 2,747 - 5,056 20,657 Change in fair value of contingent - 8,448 - 8,448 37,043 consideration Tax recovery (1,512) (954) - (2,466) (2,466) Legal settlement - - - - 952 Acquisition costs - - - - 172 Non-GAAP operating income $ 16,565 $ 14,232 $ - $ 30,797 $ 123,997 GAAP operating income % (of net sales) 2.30% 1.29% n/m 1.99% 1.76% Non-GAAP operating income % (of net sales) 2.42% 4.60% n/m 3.10% 3.22% Quarter Ended March 31, 2018 ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Corporate Consolidated Net sales $ 604,322 $ 291,315 $ - $ 895,637 GAAP operating income $ 11,566 $ 6,375 $ - $ 17,941 Adjustments: Amortization of intangible assets 2,310 2,793 - 5,103 Change in fair value of contingent - 4,801 - 4,801 consideration Non-GAAP operating income $ 13,876 $ 13,969 $ - $ 27,845 GAAP operating income % (of net sales) 1.91% 2.19% n/m 2.00% Non-GAAP operating income % (of net sales) 2.30% 4.80% n/m 3.11% Quarter Ended June 30, 2017 ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Corporate Consolidated Net sales $ 619,241 $ 298,050 $ - $ 917,291 GAAP operating income $ 12,997 $ 9,536 $ (422) $ 22,111 Adjustments: Amortization of intangible assets 770 3,217 - 3,987 Change in fair value of contingent consideration - 1,290 - 1,290 Acquisition costs - - 422 422 Non-GAAP operating income $ 13,767 $ 14,043 $ - $ 27,810 GAAP operating income % (of net sales) 2.10% 3.20% n/m 2.41% Non-GAAP operating income % (of net sales) 2.22% 4.71% n/m 3.03% n/m = not meaningful scansource.com 14 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Average Return on Invested Capital - QTR ($ in thousands) Q4 FY18 Q3 FY18 Q2 FY18 Q1 FY18 Q4 FY17 Adjusted return on invested capital (ROIC), annualized (a) 12.5% 11.2% 13.3% 13.0% 13.2% Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 10,388 $ 10,649 $ 7,969 $ 4,147 $ 18,970 Plus: Interest expense 2,494 2,784 2,285 1,585 934 Income taxes 7,655 5,143 12,342 2,633 4,450 Depreciation and amortization 9,291 9,438 9,901 8,864 6,276 EBITDA 29,828 28,014 32,497 17,229 30,630 Adjustments: Change in fair value of contingent consideration 8,448 4,801 6,913 16,881 1,290 Acquisition costs - - - 172 422 Tax recovery and related interest income (3,119) (1,382) Legal settlement, net of attorney fees - - - 952 - Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 35,157 $ 32,815 $ 39,410 $ 35,234 $ 30,960 Invested Capital Calculation Equity - beginning of the quarter $ 877,796 $ 860,787 $ 852,976 $ 837,145 $ 808,719 Equity - end of quarter 866,376 877,796 860,787 852,976 837,145 Adjustments: Change in fair value of contingent consideration, net of tax 5,679 3,272 4,742 11,005 680 Acquisition costs, net of tax - - - 172 422 Tax recovery and related interest income, net of tax (2,058) - - - (5,370) Legal settlement, net of attorney fees, net of tax - - - 771 - Tax reform charges 2,345 - 6,689 - - Average equity 875,069 870,928 862,597 851,035 820,798 Average funded debt (b) 253,393 315,872 311,327 224,956 117,970 Invested capital (denominator for ROIC)(non-GAAP) $ 1,128,462 $ 1,186,800 $ 1,173,924 $ 1,075,991 $ 938,768 (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. scansource.com 15 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Average Return on Invested Capital – FY ($ in thousands) Fiscal Year Ended June 30, 2018 2017 Adjusted return on invested capital (ROIC), annualized (a) 12.5% 13.1% Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 33,153 $ 69,246 Plus: Interest expense 9,149 3,215 Income taxes 27,772 32,249 Depreciation and amortization 37,495 24,968 EBITDA 107,569 129,678 Adjustments: Change in fair value of contingent consideration 37,043 5,211 Acquisition costs 172 1,256 Tax recovery and related interest income (3,119) (1,382) Legal settlement, net of attorney fees 952 (12,777) Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 142,617 $ 121,986 Invested Capital Calculation Equity - beginning of the quarter $ 837,145 $ 774,496 Equity - end of quarter 866,376 837,145 Adjustments: Change in fair value of contingent consideration, net of tax 24,697 2,921 Acquisition costs, net of tax 172 1,256 Tax recovery and related interest income, net of tax (2,058) (5,370) Legal settlement, net of attorney fees, net of tax 771 (8,047) Tax reform charges 9,034 - Average equity 868,069 801,201 Average funded debt (b) 276,233 131,445 Invested capital (denominator for ROIC)(non-GAAP) $ 1,144,302 $ 932,646 (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. scansource.com 16 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Debt and EBITDA Metrics ($ in thousands) Q4 2018 Q3 FY18 Q2 FY18 Q1 FY18 Q4 FY17 Q3 FY17 Q2 FY17 Q1 FY17 Debt (Q/E) $ 249,429 $ 282,158 $ 360,932 $ 285,763 $ 97,300 $ 113,934 $ 141,666 $ 166,141 Less: Cash and cash equivalents (Q/E) (25,530) (35,361) (35,435) (23,616) (56,094) (62,187) (45,071) (45,125) Net debt (Q/E) $ 223,899 $ 246,797 $ 325,497 $ 262,147 $ 41,206 $ 51,747 $ 96,595 $ 121,016 Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 10,388 $ 10,649 $ 7,969 $ 4,147 $ 18,970 $ 12,424 $ 23,037 $ 14,816 Plus: Interest expense 2,494 2,784 2,285 1,585 934 780 912 589 Income taxes 7,655 5,143 12,342 2,633 4,450 7,147 12,744 7,908 Depreciation and amortization 9,291 9,438 9,901 8,864 6,276 6,880 6,588 5,224 EBITDA 29,828 28,014 32,497 17,229 30,630 27,231 43,281 28,537 Adjustments: Change in fair value of contingent 8,448 4,801 6,913 16,881 1,290 1,960 1,791 169 consideration Acquisition costs - - - 172 422 - 335 498 Tax recovery and related interest (3,119) - - - (1,382) - - - income Legal settlement, net of attorney fees - - - 952 - - (12,777) - Adjusted EBITDA (non-GAAP) $ 35,157 $ 32,815 $ 39,410 $ 35,234 $ 30,960 $ 29,191 $ 32,630 $ 29,204 Adjusted EBITDA, TTM (a) $ 142,617 $ 138,419 $ 134,795 $ 128,015 $ 121,986 $ 111,979 $ 110,284 Net Debt / Adjusted EBITDA, TTM (a) 1.6x 1.8x 2.4x 2.0x 0.3x 0.5x 0.9x (a) Adjusted EBITDA for the trailing 12-month period scansource.com 17 August 28, 2018
ScanSource, Inc. CFO COMMENTARY Q4 FY2018 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Forecasted Range for EPS – Q1 FY19 Outlook ($ in thousands) Forecast for Quarter ending September 30, 2018 Range Low Range High GAAP diluted EPS $ 0.56 $ 0.62 Adjustments: Amortization of intangible assets 0.14 0.14 Change in fair value of contingent consideration 0.07 0.07 Restructuring costs 0.05 0.05 Acquisition costs 0.01 0.01 Non-GAAP diluted EPS $ 0.83 $ 0.89 scansource.com 18 August 28, 2018