Attached files
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| EX-99.1 - EX-99.1 - SCANSOURCE, INC. | a2021-q3exhibit9913312021.htm |
| 8-K - 8-K - SCANSOURCE, INC. | scsc-20210510.htm |
CFO COMMENTARY Q3 FY2021 ScanSource, Inc. scansource.com FINANCIAL INFORMATION AND CONFERENCE CALL Please see the accompanying earnings press release available at www.scansource.com in the Investor Relations section. The information included in this CFO commentary is unaudited and should be read in conjunction with the Company’s SEC filings on Form 10-Q for the quarter ended March 31, 2021. All results reflect continuing operations only unless otherwise noted. ScanSource will present additional information about its financial results and outlook in a conference call on Monday, May 10, 2021 at 5:00 pm ET. A webcast of the call is available and can be accessed at www.scansource.com (Investor Relations section). The webcast will be available for replay for 60 days. THIRD QUARTER SUMMARY Strong execution by our teams in North America and Brazil drove third quarter profitability growth. For the quarter, net sales declined 2% Y/Y (flat for organic growth) and were down 10% Q/Q in line with historical seasonality. Intelisys net sales grew 12% Y/Y, continuing to drive our recurring revenue shift. Our profits grew faster than sales. We drove 4% Y/Y gross profit growth, expanded margins (12.1% for gross profit margin and 3.45% for non-GAAP operating margin), and gained operating leverage on our SG&A expenses. Our balance sheet remains strong. Our working capital investment increased during the quarter with inventory levels aligned with anticipated customer demand. For the trailing 12-months ending March 31, 2021, we generated operating cash flow of $129 million, compared with $143 million for the trailing 12-months ending March 31, 2020. For the third quarter, our return on invested capital (ROIC) increased to 13.6%. CFO COMMENTARY Q3 FY 2021 May 10, 20211 Please see the Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures. Q3 FY2021: Third quarter 2.66% operating margin, 3.45% non-GAAP operating margin, and 13.6% ROIC reflect strong execution Exhibit 99.2
CFO COMMENTARY Q3 FY2021 ScanSource, Inc. scansource.com Q3 FY21 Q2 FY21 Q3 FY20 Q/Q Change Y/Y Change Net sales $729.9 $810.9 $744.6 -10% -2% Gross profit $88.1 $86.0 $84.6 +2% +4% Gross profit margin % 12.1% 10.6% 11.4% +146 bps +71 bps SG&A expenses $60.1 $60.5 $65.0 -1% -7% Non-GAAP SG&A expenses $59.8 $59.1 $66.5 +1% -10% Operating income $19.4 $17.1 $10.4 +13% +87% Operating income % 2.66% 2.11% 1.40% +55 bps +127 bps Non-GAAP operating income $25.1 $23.8 $14.8 +6% +70% Non-GAAP operating income % 3.45% 2.94% 1.99% +51 bps +146 bps GAAP net income $13.8 $11.1 $5.7 +25% +141% Non-GAAP net income $18.2 $16.5 $9.2 +10% +97% GAAP diluted EPS $0.54 $0.43 $0.23 +26% +135% Non-GAAP diluted EPS $0.71 $0.65 $0.36 +9% +97% • Net sales of $729.9 million, down 2% Y/Y - FX impact of ($15) million; flat for organic growth - Down 10% Q/Q in line with historical seasonality - Intelisys recurring revenue increased approximately 12% Y/Y • Gross profit margin increased to 12.1% - More favorable sales mix - Higher vendor sales program achievement - Higher-than-normal margin for Brazil • Operating income margin of 2.66% and non-GAAP operating income margin of 3.45% - Higher gross profit margin and operating leverage on SG&A • SG&A expenses and non-GAAP SG&A expenses down 7% Y/Y and 10% Y/Y, respectively - SG&A reflects realization of $30 million annualized expense reduction program • GAAP diluted EPS of $0.54 and non- GAAP diluted EPS of $0.71 $ in millions, except EPS May 10, 2021 QUARTERLY HIGHLIGHTS Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and acquisitions. Non-GAAP SG&A expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP diluted EPS exclude amortization of intangibles, change in fair value of contingent consideration, impairment charges, restructuring charges, acquisition/divestiture costs, and other non-GAAP items. 2
CFO COMMENTARY Q3 FY2021 ScanSource, Inc. scansource.com • Net sales of $502.2 million, up 3% Y/Y - Organic growth up 4% Y/Y - Growth across key technologies including mobile computing, self- checkout, video surveillance, and networking - Strong growth in Brazil in local currency • Gross profit margin increased to 8.7% - More favorable sales mix - Higher vendor sales program achievement • Operating income margin of 1.6% and non-GAAP operating income margin of 2.0% - Higher gross profit margin - Lower SG&A from cost savings Q3 FY21 Q2 FY21 Q3 FY20 Net sales $502.2 $551.4 $489.2 Gross profit $43.9 $42.7 $41.9 Gross profit margin % 8.7% 7.7% 8.6% Operating income $8.1 $5.9 $4.8 Operating income % 1.6% 1.1% 1.0% Non-GAAP operating income $10.0 $7.9 $5.3 Non-GAAP operating income % 2.0% 1.4% 1.1% May 10, 2021 WORLDWIDE BARCODE, NETWORKING & SECURITY $489 $448 $524 $551 $502 $300 $400 $500 $600 $700 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Net Sales, $ in millions Y/Y Growth +3% Y/Y Organic Growth +4% $ 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, impairment charges and other non-GAAP items. 3
CFO COMMENTARY Q3 FY2021 ScanSource, Inc. scansource.com Q3 FY21 Q2 FY21 Q3 FY20 Net sales $227.6 $259.5 $255.4 Gross profit $44.2 $43.4 $42.7 Gross profit margin % 19.4% 16.7% 16.7% Operating income $12.2 $13.1 $6.4 Operating income % 5.4% 5.0% 2.5% Non-GAAP operating income $15.1 $16.0 $9.5 Non-GAAP operating income % 6.6% 6.2% 3.7% May 10, 2021 WORLDWIDE COMMUNICATIONS & SERVICES $255 $189 $234 $260 $228 $- $100 $200 $300 $400 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Net Sales, $ in millions Y/Y Growth -11% Y/Y Organic Growth -7% $ in millions • Net sales of $227.6 million, down 11% Y/Y - Shift in unified communications mix to reflect growth in cloud solutions and Audio Visual solutions stacks - Net sales for Intelisys master agency, up 12% Y/Y; 36% Y/Y growth for UCaaS and 67% Y/Y growth for CCaaS • Gross profit margin of 19.4% - More favorable sales mix - Higher vendor sales program achievement - Higher-than-normal margin for Brazil • Operating income margin of 5.4% and non- GAAP operating income margin of 6.6% - Higher gross profit margin - Y/Y SG&A cost reductions 4 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, impairment charges, and other non-GAAP items.
CFO COMMENTARY Q3 FY2021 ScanSource, Inc. scansource.com Q3 FY21 Q2 FY21 Q3 FY20 Accounts receivable (Q/E) $509.4 $534.6 $504.4 Days sales outstanding in receivables 63 60 61 Inventory (Q/E) $459.7 $421.0 $550.1 Inventory turns 5.8 6.9 4.5 Accounts payable (Q/E) $521.6 $589.3 $533.1 Paid for inventory days* 2.2 (11.8) 11.0 Working capital (Q/E) (AR+INV–AP) $447.5 $366.3 $521.3 May 10, 2021 WORKING CAPITAL • Working capital of $447.5 million, up 22% Q/Q and down 14% Y/Y • Days sales outstanding in receivables of 63 days - Primarily due to timing of sales • Inventory of $459.7 million, up 9% Q/Q and down 16% Y/Y • Inventory turns of 5.8x, in line with expected range • Paid for inventory days of 2.2, up Q/Q and down Y/Y - Reflects timing of accounts payable $ in millions * Paid for inventory days represent Q/E inventory days less Q/E accounts payable days 5
CFO COMMENTARY Q3 FY2021 ScanSource, Inc. scansource.com Q3 FY21 Q2 FY21 Q3 FY20 Adjusted EBITDA (QTR)* $29.5 $27.7 $19.8 Adjusted ROIC (QTR)* 13.6% 12.4% 6.0% Operating cash flow (QTR) ($60.3) $44.4 $25.3 Operating cash flow, trailing 12 months $129.4 $215.0 $142.5 Cash and cash equivalents (Q/E), including discontinued operations $49.3 $67.2 $34.6 Debt (Q/E), including discontinued operations $198.9 $151.9 $320.6 Net debt, including discontinued operations to adjusted EBITDA, trailing 12 months* 1.7x 1.1x 2.4x May 10, 2021 CASH FLOW AND BALANCE SHEET HIGHLIGHTS • Adjusted EBITDA of $29.5 million - Up 6% Q/Q from higher gross profit margin - Up 48% Y/Y from higher gross profit margin and lower SG&A expenses • Operating cash flow of ($60.3) million for the quarter and $129.4 million for the trailing-12 months - Increase in working capital and inventory levels aligned with anticipated customer demand • Cash and cash equivalent balances of $49.3 million at 3/31/21, including $42.3 million held outside of the U.S. • Net debt to trailing 12-month adjusted EBITDA is 1.7x, within targeted range $ in millions * Excludes non-GAAP adjustments and change in fair value of contingent consideration 6
CFO COMMENTARY Q3 FY2021 ScanSource, Inc. scansource.com FORWARD-LOOKING STATEMENTS This CFO Commentary contains certain comments that are “forward-looking” statements, including statements about the impact of the COVID-19 pandemic and our operating strategies 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, the impact of the COVID-19 pandemic on our operations and financial condition and the potential prolonged economic weakness brought on by COVID-19, the failure to manage and implement our organic growth strategy, credit risks involving our larger customers and suppliers, changes in interest and exchange rates and regulatory regimes impacting our international operations, risk to our business from a cyber-security attack, a failure of our IT systems, failure to hire and retain quality employees, loss of our major customers, termination of our relationship with key suppliers or a significant modification of the terms under which we operate with a key supplier, changes in our operating strategy, and other factors set forth in the “Risk Factors” contained in our annual report on Form 10-K for the year ended June 30, 2020, 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 income margin, non-GAAP net income, non- GAAP diluted EPS, non-GAAP net sales, non- GAAP gross profit, non-GAAP gross margin, non-GAAP SG&A expenses, adjusted EBITDA, ROIC and net sales less impacts from foreign currency translation 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. May 10, 20217
5-Quarter Financial Summary - for continuing operations ($ in thousands, except per share data) Q3 FY21 Q2 FY21 Q1 FY21 Q4 FY20 Q3 FY20 Q/Q Y/Y Select reported GAAP measures: Net sales $ 729,873 $ 810,897 $ 757,342 $ 636,450 $ 744,584 (10)% (2)% Gross profit $ 88,116 $ 86,043 $ 80,779 $ 74,147 $ 84,579 2% 4% Gross profit margin % 12.1 % 10.6 % 10.7 % 11.7 % 11.4 % 146 bp 71 bp SG&A expenses $ 60,099 $ 60,470 $ 62,112 $ 58,192 $ 64,971 (1)% (7)% Operating income (loss) $ 19,436 $ 17,130 $ 1,634 $ (113,439) $ 10,393 13% 87% Operating income (loss) % 2.66 % 2.11 % 0.22 % (17.82) % 1.40 % 55 bp 127 bp Net income (loss) $ 13,786 $ 11,061 $ (115) $ (108,859) $ 5,715 25% 141% Diluted EPS $ 0.54 $ 0.43 $ (0.01) $ (4.29) $ 0.23 26% 135% Select reported Non-GAAP measures: (a) Net sales $ 729,873 $ 810,897 $ 757,342 $ 636,450 $ 744,584 (10)% (2)% Gross profit $ 88,116 $ 86,043 $ 80,779 $ 74,147 $ 84,578 2% 4% Gross profit margin % 12.1 % 10.6 % 10.7 % 11.7 % 11.4 % 146 bp 71 bp Non-GAAP SG&A expenses $ 59,827 $ 59,110 $ 61,614 $ 62,624 $ 66,511 1% (10)% Non-GAAP operating income $ 25,148 $ 23,836 $ 15,769 $ 8,219 $ 14,799 6% 70% Non-GAAP operating income % 3.45 % 2.94 % 2.08 % 1.29 % 1.99 % 51 bp 146 bp Non-GAAP net income $ 18,178 $ 16,469 $ 10,698 $ 4,857 $ 9,242 10% 97% Non-GAAP diluted EPS $ 0.71 $ 0.65 $ 0.42 $ 0.19 $ 0.36 9% 97% Adjusted EBITDA $ 29,462 $ 27,732 $ 19,743 $ 12,321 $ 19,844 6% 48% Adjusted ROIC 13.6 % 12.4 % 8.4 % 4.0 % 6.0 % 122 bp 761 bp Operating cash flow (QTR) $ (60,252) $ 44,449 $ 71,225 $ 73,953 $ 25,348 (236)% (338)% Operating cash flow (TTM) $ 129,375 $ 214,975 $ 225,630 $ 182,035 $ 142,534 (40)% (9)% (a) See pages 9 through 11 of the Appendix for the calculation of non-GAAP measures and reconciliations to GAAP measures. ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 8 May 10, 2021
Operating Income, Pre-Tax Income, Net Income & EPS - QTR ($ in thousands) Quarter ended March 31, 2021 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 729,873 $ — $ — $ — $ — $ — $ 729,873 Gross profit 88,116 — — — — — 88,116 SG&A expenses 60,099 — — (272) — — 59,827 Operating income 19,436 4,880 — 832 — — 25,148 Other expense, net 529 — — — — — 529 Pre-tax income 18,907 4,880 — 832 — — 24,619 Net income 13,786 3,697 — 695 — — 18,178 Diluted EPS $ 0.54 $ 0.14 $ — $ 0.03 $ — $ — $ 0.71 (a) Acquisition and divestiture costs totaled $0.3 million for the quarter ended March 31, 2021 and are generally nondeductible for tax purposes. Restructuring costs totaled $0.6 million for the quarter ended March 31, 2021. ($ in thousands) Quarter ended December 31, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 810,897 $ — $ — $ — $ — $ — $ 810,897 Gross profit 86,043 — — — — — 86,043 SG&A expenses 60,470 — — (1,360) — — 59,110 Operating income 17,130 4,862 — 1,844 — — 23,836 Other expense, net 1,386 — — — — — 1,386 Pre-tax income 15,744 4,862 — 1,844 — — 22,450 Net income 11,061 3,682 — 1,726 — — 16,469 Diluted EPS $ 0.43 $ 0.15 $ — $ 0.08 $ — $ — $ 0.65 (a) Acquisition and divestiture costs totaled $1.4 million for the quarter ended December 31, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled $0.5 million for the quarter ended December 31, 2020. ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 9 May 10, 2021
Operating Income, Pre-Tax Income, Net Income & EPS - QTR, continued ($ in thousands) Quarter ended September 30, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 757,342 $ — $ — $ — $ — $ — $ 757,342 Gross profit 80,779 — — — — — 80,779 SG&A expenses 62,112 — — (498) — — 61,614 Operating income 1,634 4,853 516 8,766 — — 15,769 Other expense, net 1,796 — — — — — 1,796 Pre-tax (loss) income (162) 4,853 516 8,766 — — 13,973 Net (loss) income (115) 3,675 390 6,748 — — 10,698 Diluted EPS $ (0.01) $ 0.14 $ 0.02 $ 0.27 $ — $ — $ 0.42 (a) Acquisition and divestiture costs totaled $0.5 million for the quarter ended September 30, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled $8.3 million for the quarter ended September 30, 2020. ($ in thousands) Quarter ended June 30, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 636,450 $ — $ — $ — $ — $ — $ 636,450 Gross profit 74,147 — — — — — 74,147 SG&A expenses 58,192 — — (1,311) 5,743 — 62,624 Operating (loss) income (113,439) 4,946 674 1,311 (5,743) 120,470 8,219 Other expense, net (489) — — — 2,681 — 2,192 Pre-tax (loss) income (112,950) 4,946 674 1,311 (8,424) 120,470 6,027 Net (loss) income (108,859) 3,744 510 1,311 (6,247) 114,398 4,857 Diluted EPS $ (4.29) $ 0.15 $ 0.02 $ 0.05 $ (0.25) $ 4.51 $ 0.19 (a) Acquisition and divestiture costs totaled $1.3 million for the quarter ended June 30, 2020 and are generally nondeductible for tax purposes. ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 10 May 10, 2021
Operating Income, Pre-Tax Income, Net Income & EPS - QTR, continued ($ in thousands) Quarter ended March 31, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, divestiture and restructuring costs(a) Tax recovery, net Impairment charges Non-GAAP measure Net sales $ 744,584 $ — $ — $ — $ — $ — $ 744,584 Gross profit 84,578 — — — — — 84,578 SG&A expenses 64,971 — — (780) 2,320 — 66,511 Operating (loss) income 10,393 5,159 618 949 (2,320) — 14,799 Other expense, net 1,881 — — — — — 1,881 Pre-tax (loss) income 8,512 5,159 618 949 (2,320) — 12,918 Net (loss) income 5,715 3,909 467 905 (1,754) — 9,242 Diluted EPS $ 0.23 $ 0.15 $ 0.02 $ 0.03 $ (0.07) $ — $ 0.36 (a) Acquisition and divestiture costs totaled $0.8 million for the quarter ended March 31, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled $0.2 million for the quarter ended March 31, 2020. ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 11 May 10, 2021
Net Sales, Constant Currency (Organic Growth) - QTR ($ in thousands) WW Barcode, NW & Security WW Comms. & Services Consolidated For the quarter ended March 31, 2021: Q3 FY21 net sales, as reported $ 502,227 $ 227,646 $ 729,873 Foreign exchange impact (a) 4,132 10,476 14,608 Q3 FY21 net sales, constant currency (non-GAAP) $ 506,359 $ 238,122 $ 744,481 For the quarter ended March 31, 2020: Q3 FY20 net sales, as reported $ 489,218 $ 255,366 $ 744,584 Y/Y % Change: As reported 2.7 % (10.9) % (2.0) % Constant currency (non-GAAP) 3.5 % (6.8) % — % (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, 2021 into U.S. dollars using the weighted-average foreign exchange rates for the quarter ended March 31, 2020. ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 12 May 10, 2021
Highlights by Segment - QTR ($ in thousands) Quarter Ended March 31, 2021 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, Divestiture, and Restructuring costs Tax recovery, net Non-GAAP measure Worldwide Barcode, NW & Security: Net sales 502,227 — — — — $ 502,227 Gross profit 43,869 — — — — $ 43,869 Gross profit margin % 8.7 % — % — % — — % 8.7 % Operating income 8,054 1,968 — — — $ 10,022 Operating income margin % 1.6 % — % — % — — % 2.0 % Worldwide Communications & Services: Net sales 227,646 — — — — $ 227,646 Gross profit 44,247 — — — — $ 44,247 Gross profit margin % 19.4 % — % — % — % — % 19.4 % Operating income 12,214 2,912 — — — $ 15,126 Operating income margin % 5.4 % — % — % — % — % 6.6 % ($ in thousands) Quarter Ended December 31, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, Divestiture, and Restructuring costs Tax recovery, net Non-GAAP measure Worldwide Barcode, NW & Security: Net sales 551,394 — — — — $ 551,394 Gross profit 42,685 — — — — $ 42,685 Gross profit margin % 7.7 % — % — % — % — % 7.7 % Operating income 5,887 1,968 — — — $ 7,855 Operating income margin % 1.1 % — % — % — % — % 1.4 % ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 13 May 10, 2021
Highlights by Segment - QTR, continued ($ in thousands) Quarter Ended December 31, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, Divestiture, and Restructuring costs Tax recovery, net Non-GAAP measure Worldwide Communications & Services: Net sales 259,503 — — — — $ 259,503 Gross profit 43,358 — — — — $ 43,358 Gross profit margin % 16.7 % — % — % — % — % 16.7 % Operating income 13,087 2,894 — — — $ 15,981 Operating income margin % 5.0 % — % — % — % — % 6.2 % ($ in thousands) Quarter Ended March 31, 2020 Reported GAAP measure Intangible amortization expense Change in fair value of contingent consideration Acquisition, Divestiture, and Restructuring costs Tax recovery, net Non-GAAP measure Worldwide Barcode, NW & Security: Net sales 489,218 — — — — $ 489,218 Gross profit 41,870 — — — — $ 41,870 Gross profit margin % 8.6 % — % — % — % — % 8.6 % Operating income 4,779 1,968 — — (1,452) $ 5,295 Operating income margin % 1.0 % — % — % — % — % 1.1 % Worldwide Communications & Services: Net sales 255,366 — — — — $ 255,366 Gross profit 42,708 — — — — $ 42,708 Gross profit margin % 16.7 % — % — % — % — % 16.7 % Operating income 6,394 3,191 618 169 (868) $ 9,504 Operating income margin % 2.5 % — % — % — % — % 3.7 % ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 14 May 10, 2021
Average Return on Invested Capital - QTR ($ in thousands) Q3 FY21 Q2 FY21 Q1 FY21 Q4 FY20 Q3 FY20 Adjusted return on invested capital (ROIC), annualized (a) 13.6 % 12.4 % 8.4 % 4.0 % 6.0 % Reconciliation of Net Income to Adjusted EBITDA Net income (loss) from continuing operations - GAAP $ 13,786 $ 11,061 $ (115) $ (108,859) $ 5,715 Plus: Interest expense 1,576 1,796 1,913 2,497 3,098 Income taxes 5,121 4,683 (47) (4,091) 2,797 Depreciation and amortization 8,358 8,349 8,710 8,743 8,987 EBITDA 28,841 25,889 10,461 (101,710) 20,597 Adjustments: Change in fair value of contingent consideration — — 516 674 618 Tax recovery, net — — — (8,424) (2,320) Acquisition and divestiture costs 272 1,360 498 1,311 780 Restructuring costs 349 484 8,268 — 169 Impairment charges — — — 120,470 — Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 29,462 $ 27,733 $ 19,743 $ 12,321 $ 19,844 Invested Capital Calculation Equity - beginning of the quarter (b) $ 682,139 $ 671,227 $ 678,246 $ 897,678 $ 927,580 Equity - end of quarter (b) 690,575 682,139 671,227 678,246 897,678 Adjustments: Change in fair value of contingent consideration, net of tax — — 390 510 467 Tax recovery, net and related interest income, net of tax — — — (6,247) (1,754) Acquisition and divestiture costs 272 1,360 498 1,311 780 Asset impairment, net of tax — — — 114,398 — Restructuring, net of tax 264 366 6,250 — 125 Discontinued operations net loss 688 25,255 11,704 108,403 4,002 Average equity 686,969 690,174 684,158 897,150 914,439 Average funded debt (c) 191,996 198,620 243,268 337,973 405,533 Invested capital (denominator for ROIC) (non-GAAP) $ 878,965 $ 888,794 $ 927,426 $ 1,235,123 $ 1,319,972 (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) In the quarter ending June 30, 2020, the Company recorded impairment charges of $120.5 million. Impairment charges, net of tax reduced equity by $114.4 million. (c) Average funded debt, which includes both continuing and discontinued operations, is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt. ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 15 May 10, 2021
Net Debt and EBITDA Metrics ($ in thousands) Q3 FY21 Q2 FY21 Q1 FY21 Q4 FY20 Q3 FY20 Debt of continuing operations (Q/E) $ 198,851 $ 151,924 $ 148,799 $ 218,728 $ 281,951 Debt of discontinued operations (Q/E) — — 19,932 28,228 38,645 Consolidated debt (Q/E) 198,851 151,924 168,731 246,956 320,596 Less: Cash and cash equivalents of continuing operations (Q/E) (49,321) (67,187) (49,889) (29,485) (29,758) Cash and cash equivalents of discontinued operations (Q/E) — — (5,678) (4,970) (4,838) Consolidated cash and cash equivalents (Q/E) (49,321) (67,187) (55,567) (34,455) (34,596) Net debt (Q/E) $ 149,530 $ 84,737 $ 113,164 $ 212,501 $ 286,000 Reconciliation of Net Income to Adjusted EBITDA Net income (loss) from continuing operations - GAAP $ 13,786 $ 11,061 $ (115) $ (108,859) $ 5,715 Plus: Interest expense 1,576 1,796 1,913 2,497 3,098 Income taxes 5,121 4,683 (47) (4,091) 2,797 Depreciation and amortization 8,358 8,349 8,710 8,743 8,987 EBITDA 28,841 25,889 10,461 (101,710) 20,597 Adjustments: Change in fair value of contingent consideration — — 516 674 618 Tax recovery, net — — — (8,424) (2,320) Acquisition and divestiture costs 272 1,360 498 1,311 780 Restructuring costs 349 484 8,268 — 169 Impairment charges — — — 120,470 — Adjusted EBITDA (non-GAAP) $ 29,462 $ 27,733 $ 19,743 $ 12,321 $ 19,844 Adjusted EBITDA, TTM (a) $ 89,471 $ 79,642 $ 84,929 $ 97,047 $ 119,925 Net Debt / Adjusted EBITDA, TTM (a) 1.7x 1.1x 1.3x 2.2x 2.4x (a) Adjusted EBITDA for the trailing 12-month period ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 16 May 10, 2021
Discontinued Operations, Net Sales and Working Capital ($ in thousands) Q3 FY21 Q2 FY21 Q1 FY21 Q4 FY20 Q3 FY20 Net sales from continuing operations $ 729,873 $ 810,897 $ 757,342 $ 636,450 $ 744,584 Net sales from discontinued operations — 68,323 145,049 121,969 127,899 Working capital Net accounts receivable of continuing operations $ 509,404 $ 534,583 $ 509,779 $ 443,185 $ 504,366 Net accounts receivable of discontinued operations — — 130,553 117,200 114,392 Inventory of continuing operations $ 459,652 $ 421,003 $ 423,088 $ 454,885 $ 550,072 Inventory of discontinued operations — — 95,560 106,779 116,386 Accounts payable of continuing operations $ 521,552 $ 589,292 $ 544,856 $ 454,240 $ 533,124 Accounts payable of discontinued operations — — 84,657 56,098 75,293 Working capital of continuing operations $ 447,504 $ 366,294 $ 388,011 $ 443,830 $ 521,314 Working capital of discontinued operations — — 141,456 167,881 155,485 ScanSource, Inc. CFO COMMENTARY Q3 FY2021 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION scansource.com 17 May 10, 2021