ScanSource Reports Record Net Sales for the Fourth Quarter and Full-Year

Fourth Quarter Profitability Reflects Strong Execution

GREENVILLE, S.C.--()--ScanSource, Inc. (NASDAQ:SCSC), the leading international value-added distributor of specialty technology products, today announced financial results for fiscal year 2015 fourth quarter and year ended June 30, 2015.

  Quarter ended June 30,   Year ended June 30,
2015   2014   Change 2015   2014   Change
(in millions, except per share data) (in millions, except per share data)
Net sales $ 856.7 $ 758.1 13 % $ 3,219 $ 2,914 10 %
Operating income 25.0 40.4 (38 )% 101.4 121.8 (17 )%
Non-GAAP operating income(1) 28.6 26.2 9 % 114.0 112.5 1 %
GAAP net income 16.4 27.1 (39 )% 65.4 81.8 (20 )%
Non-GAAP net income(1) 19.0 18.2 5 % 75.1 76.1 (1 )%
GAAP diluted EPS $ 0.57 $ 0.94 (39 )% $ 2.27 $ 2.86 (21 )%
Non-GAAP diluted EPS(1) $ 0.66 $ 0.63 5 % $ 2.61 $ 2.66 (2 )%

(1) A reconciliation of non-GAAP financial information to GAAP financial information is presented in the following Supplementary Information (Unaudited) table.

Net sales for the quarter ended June 30, 2015 totaled $856.7 million, a 13% increase over net sales of $758.1 million for the quarter ended June 30, 2014. Excluding the translation impact of foreign currencies, net sales increased 18% year-over-year. The increase in net sales includes results from the acquisitions of Imago and Network1, each completed during the current fiscal year.

"Fiscal year 2015 was a year where we accomplished the successful go-live for our SAP ERP global system in Europe, completed strategic acquisitions of two value-added international communications distributors, and returned cash to shareholders through share repurchases," said Mike Baur, CEO, ScanSource, Inc. "We ended the year with record net sales and strong profitability, including 5% non-GAAP earnings per share growth in the fourth quarter."

Operating income for the quarter ended June 30, 2015 totaled $25.0 million, compared with $40.4 million in the prior year quarter, which includes a $15.5 million legal recovery, net of attorney fees. Non-GAAP operating income for the quarter ended June 30, 2015 of $28.6 million increased 9% over the prior year.

On a GAAP basis, net income for the quarter ended June 30, 2015 totaled $16.4 million, or $0.57 per diluted share, compared with net income of $27.1 million, or $0.94 per diluted share, for the prior year quarter. Non-GAAP net income for the quarter ended June 30, 2015 increased 5% to $19.0 million, or $0.66 per diluted share, from $18.2 million, or $0.63 per diluted share.

Full-Year Results

For the year ended June 30, 2015, net sales increased 10% to $3.2 billion from $2.9 billion. Non-GAAP operating income increased to $114.0 million for the year ended June 30, 2015 from $112.5 million for the prior year. Non-GAAP net income for the year ended June 30, 2015 totaled $75.1 million, or $2.61 per diluted share, compared with non-GAAP net income of $76.1 million, or $2.66 per diluted share, for the prior year.

On a GAAP basis, operating income totaled $101.4 million, compared with $121.8 million in the prior year. GAAP net income for the year ended June 30, 2015 totaled $65.4 million, or $2.27 per diluted share, compared with net income of $81.8 million, or $2.86 per diluted share, for the prior year.

Share Repurchase Update

Under the Company’s $120 million share repurchase authorization through August 19, 2015, the Company has repurchased approximately $39 million of shares, having executed over 30% of the total authorization.

Forecast for Next Quarter

The Company announced its current expectations for the first quarter of fiscal year 2016. ScanSource expects net sales for the quarter ending September 30, 2015 to range from $820 million to $880 million and non-GAAP diluted earnings per share to range from $0.50 to $0.58 per share. Non-GAAP diluted earnings per share exclude amortization of intangibles, change in fair value of contingent consideration and acquisition costs.

Webcast Details

ScanSource will present additional information about its financial results and outlook in a conference call with presentation slides today, August 20, 2015 at 5:00 p.m. (ET). A webcast of the call and accompanying presentation slides 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 comments that are “forward-looking” statements that involve risks and uncertainties; these statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Any number of important factors could cause actual results to differ materially from anticipated or forecasted results, including, but not limited to, expanded international operations that expose the Company to greater risks than its operations in domestic markets; risks in connection with our growth which includes strategic acquisitions; utilization and further implementation of the Company's new ERP system; the ability to forecast volatility in earnings resulting from the quarterly revaluation of the Company's earnout obligations; risks associated with consolidation of the Company's vendors; risks in connection with compliance with laws and regulations governing the Company's international business; macroeconomic circumstances that could impact the business, such as currency fluctuations, credit market conditions, and an economic downturn; the timing and amount of any share repurchases; the exercise of discretion by the Company to make any repurchase or continue the share repurchase authorization; and changes to the source of funds for any repurchases. For more information concerning factors that could cause actual results to differ from anticipated results, see the Company's annual report on Form 10-K for the year ended June 30, 2014 and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2015, 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 better understand and evaluate performance, including comparisons from period to period. The Company completed acquisitions on September 19, 2014 and January 13, 2015, which were both structured with earnout payments. Given the size of the acquisitions and potential variability of fair value adjustments on operating results, non-GAAP results exclude amortization of intangible assets related to acquisitions and change in fair value of contingent consideration.

Net sales excluding the translation impact of foreign currencies: The Company discusses the percentage change in net sales excluding the translation impact from changes in foreign currency exchange rates between reporting periods. This measure enhances comparability between periods to help analyze underlying trends.

Non-GAAP operating income, non-GAAP net income and non-GAAP EPS: To evaluate current period performance on a clearer and more consistent basis with prior periods, the Company discloses non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, change in the fair value of contingent consideration, and other non-GAAP adjustments. Non-GAAP operating income, non-GAAP net income, and non-GAAP EPS measures are useful in better assessing and understanding the Company's operating performance, especially when comparing results with previous periods or forecasting performance for future periods.

Return on invested capital ("ROIC"): Management uses ROIC as a performance measurement to assess efficiency in allocating capital under the Company's control to generate returns. Management believes this metric balances the Company's operating results with asset and liability management, is not impacted by capitalization decisions and is considered to have a strong correlation with shareholder value creation. In addition, it is easily computed, communicated and understood. ROIC also provides management a measure of the Company's profitability on a basis more comparable to historical or future periods.

ROIC assists management in comparing the Company's performance over various reporting periods on a consistent basis because it removes from operating results the impact of items that do not reflect core operating performance. Adjusted earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") excludes the change in fair value of contingent consideration, in addition to other non-GAAP adjustments. 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. In addition, the Company's Board of Directors uses ROIC in evaluating business and management performance. Certain management incentive compensation targets are set and measured relative to ROIC.

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 following Supplementary Information (Unaudited) tables.

About ScanSource, Inc.

ScanSource, Inc. (NASDAQ: SCSC) is the leading international distributor of specialty technology products, focusing on point-of-sale (POS) and barcode, communications and physical security solutions. ScanSource's teams provide value-added services and operate from two technology segments, Worldwide Barcode & Security and Worldwide Communications & Services. ScanSource is committed to helping its reseller customers choose, configure and deliver the industry's best products across almost every vertical market in North America, Latin America and Europe. Founded in 1992, the Company is headquartered in Greenville, South Carolina and was named one of the 2015 Best Places to Work in South Carolina. ScanSource ranks #775 on the Fortune 1000. For more information, visit www.scansource.com.

ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
  June 30, 2015   June 30, 2014*
Assets
Current assets:
Cash and cash equivalents $ 121,646 $ 194,851
Accounts receivable, less allowance of $32,589 at June 30, 2015 522,532 464,405
and $26,257 at June 30, 2014
Inventories 553,063 504,758
Prepaid expenses and other current assets 46,917 33,558
Deferred income taxes 20,556   18,109  
Total current assets 1,264,714 1,215,681
Property and equipment, net 46,574 31,823
Goodwill 66,509 32,342
Net identifiable intangible assets 46,272 15,995
Other non-current assets 52,872   39,283  
Total assets $ 1,476,941   $ 1,335,124  
 
Liabilities and Shareholders' Equity
Current liabilities:
Current debt $ 2,860 $
Accounts payable 501,329 421,721
Accrued expenses and other current liabilities 81,000 63,574
Current portion of contingent consideration 9,391 5,851
Income taxes payable 4,180   8,685  
Total current liabilities 598,760 499,831
Deferred income taxes 3,773 185
Long-term debt 5,966 5,429
Long-term portion of contingent consideration 24,569 5,256
Other long-term liabilities 34,888   21,780  
Total liabilities 667,956 532,481
Shareholders' equity:
Common stock 157,172 168,447
Retained earnings 716,315 650,896
Accumulated other comprehensive income (loss) (64,502 ) (16,700 )
Total shareholders' equity 808,985   802,643  
Total liabilities and shareholders' equity $ 1,476,941   $ 1,335,124  

* Derived from audited financial statements.

ScanSource, Inc. and Subsidiaries
Condensed Consolidated Income Statements (Unaudited)
(in thousands, except per share data)
       
Quarter ended

June 30,

Year ended

June 30,

2015 2014* 2015 2014*
Net sales $ 856,685 $ 758,113 $ 3,218,626 $ 2,913,634
Cost of goods sold 765,367   684,120   2,891,536   2,612,535  
Gross profit 91,318 73,993 327,090 301,099
Selling, general and administrative expenses 64,935 48,951 222,982 192,492
Legal recovery, net of attorney fees (15,490 ) (15,490 )
Change in fair value of contingent consideration 1,406   93   2,667   2,311  
Operating income 24,977 40,439 101,441 121,786
Interest expense 509 33 1,797 731
Interest income (580 ) (721 ) (2,638 ) (2,364 )
Other, net 137   247   2,376   312  
Income before income taxes 24,911 40,880 99,906 123,107
Provision for income taxes 8,464   13,775   34,487   41,318  
Net income $ 16,447   $ 27,105   $ 65,419   $ 81,789  
Per share data:
Net income per common share, basic $ 0.58   $ 0.95   $ 2.29   $ 2.89  
Weighted-average shares outstanding, basic 28,461   28,525   28,558   28,337  
 
Net income per common share, diluted $ 0.57   $ 0.94   $ 2.27   $ 2.86  
Weighted-average shares outstanding, diluted 28,722   28,763   28,799   28,602  

* Derived from audited financial statements.

ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
     
Net Sales by Segment:
Quarter ended

June 30,

Non-GAAP

% Change

2015   2014 % Change Excluding FX(a)
Worldwide Barcode & Security $ 489,559 $ 490,505 (0.2 )% 7.0 %
Worldwide Communications & Services 367,126   267,608   37.2 % 38.3 %
Consolidated $ 856,685   $ 758,113   13.0 % 18.1 %
 
Year ended

June 30,

Non-GAAP

% Change

2015 2014 % Change Excluding FX(a)
Worldwide Barcode & Security $ 1,912,352 $ 1,873,177 2.1 % 6.1 %
Worldwide Communications & Services 1,306,274   1,040,457   25.5 % 26.3 %
Consolidated $ 3,218,626   $ 2,913,634   10.5 % 13.3 %
 
 
 
 
 
Net Sales by Geography:
Quarter ended

June 30,

Non-GAAP

% Change

2015 2014 % Change Excluding FX(b)
North American (U.S. and Canada) $ 629,165 $ 577,687 8.9 % 8.9 %
International 227,520   180,426   26.1 % 47.4 %
Consolidated $ 856,685   $ 758,113   13.0 % 18.1 %
 
 
Year ended

June 30,

Non-GAAP

% Change

2015 2014 % Change Excluding FX(b)
North American (U.S. and Canada) $ 2,346,764 $ 2,179,890 7.7 % 7.7 %
International 871,862   733,744   18.8 % 30.0 %
Consolidated $ 3,218,626   $ 2,913,634   10.5 % 13.3 %
 
Notes:

(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.

Calculated by translating the net sales for the quarter and year ended June 30, 2015 into U.S. dollars using the weighted

average foreign exchange rates for the quarter and year ended June 30, 2014, respectively. Worldwide Barcode & Security net

sales excluding the translation impact of foreign currencies for the quarter and year ended June 30, 2015, as adjusted,

totaled $525.0 million and $2.0 billion, respectively. Worldwide Communications & Services net sales excluding the

translation impact of foreign currencies for the quarter and year ended June 30, 2015, as adjusted, totaled $370.0 million

and $1.3 billion, respectively.

(b) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.

Calculated by translating the net sales for the quarter and year ended June 30, 2015 into U.S. dollars using the weighted

average foreign exchange rates for the quarter and year ended June 30, 2014, respectively. International net sales

excluding the translation impact of foreign currencies for the quarter and year ended June 30, 2015 totaled $265.9 million

and $954.0 million, respectively.

ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
       
Non-GAAP Financial Information:
Quarter ended June 30, 2015
Operating income Pre-tax income Net income Diluted EPS
GAAP measure $ 24,977 $ 24,911 $ 16,447 $ 0.57
Adjustments:
Amortization of intangible assets 2,091 2,091 1,450 0.05
Change in fair value of contingent consideration 1,406 1,406 955 0.03
Acquisition costs 138   138   138   0.01  
Non-GAAP measure $ 28,612   $ 28,546   $ 18,990   $ 0.66  
 
Quarter ended June 30, 2014
Operating income Pre-tax income Net income Diluted EPS
GAAP measure $ 40,439 $ 40,880 $ 27,105 $ 0.94
Adjustments:
Amortization of intangible assets 1,117 1,117 740 0.03
Change in fair value of contingent consideration 93 93 61
Legal recovery, net of attorney fees (15,490 ) (15,490 ) (9,756 ) (0.34 )
Non-GAAP measure $ 26,159   $ 26,600   $ 18,150   $ 0.63  
 
Year ended June 30, 2015
Operating income Pre-tax income Net income Diluted EPS
GAAP measure $ 101,441 $ 99,906 $ 65,419 $ 2.27
Adjustments:
Amortization of intangible assets 6,641 6,641 4,599 0.16
Change in fair value of contingent consideration 2,667 2,667 1,842 0.06
Acquisition costs 3,254   3,254   3,254   0.12  
Non-GAAP measure $ 114,003   $ 112,468   $ 75,114   $ 2.61  
 
Year ended June 30, 2014
Operating income Pre-tax income Net income Diluted EPS
GAAP measure $ 121,786 $ 123,107 $ 81,789 $ 2.86
Adjustments:
Amortization of intangible assets 3,880 3,880 2,550 0.09
Change in fair value of contingent consideration 2,311 2,311 1,525 0.05
Legal recovery, net of attorney fees (15,490 ) (15,490 ) (9,756 ) (0.34 )
Non-GAAP measure $ 112,487   $ 113,808   $ 76,108   $ 2.66  

ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands)
     
Non-GAAP Financial Information:
Quarter ended

June 30,

Year ended

June 30,

2015 2014 2015 2014
Return on invested capital (ROIC), annualized (a) 15.2 % 14.0 % 14.6 % 15.7 %
 

Reconciliation of Net Income to Adjusted EBITDA

Net income - GAAP $ 16,447 $ 27,105 $ 65,419 $ 81,789
Plus: Income taxes 8,464 13,775 34,487 41,318
Plus: Interest expense 509 33 1,797 731
Plus: Depreciation and amortization 3,947   1,985   11,997   7,375  
EBITDA 29,367 42,898 113,700 131,213
Adjustments:
Change in fair value of contingent consideration 1,406 93 2,667 2,311
Acquisition costs 138 3,254
Legal recovery, net of attorney fees   (15,490 )   (15,490 )
Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 30,911   $ 27,501   $ 119,621   $ 118,034  
 
 

Invested Capital Calculation

Equity - beginning of quarter/year $ 799,051 $ 772,786 $ 802,643 $ 695,956
Equity - end of quarter/year 808,985 802,643 808,985 802,643
Adjustments:
Change in fair value of contingent consideration, net of tax 955 61 1,842 1,525
Acquisition costs, net of tax (b) 138 3,254
Legal recovery, net of attorney fees, net of tax   (9,756 )   (9,756 )
Average equity 804,565 782,867 808,362 745,184
Average funded debt (c) 10,377   5,429   13,421   5,429  
Invested capital (denominator for ROIC) (non-GAAP) $ 814,942   $ 788,296   $ 821,783   $ 750,613  
 
 
 
Notes:

(a) Calculated as net income plus interest expense, income taxes, depreciation and amortization (EBITDA), plus change in

fair value of contingent consideration and other adjustments, annualized and divided by invested capital for the period.

Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period.

(b) Acquisition costs are non-deductible for tax purposes.

(c) Average funded debt is calculated as the average daily amounts outstanding on short-term and long-term

interest-bearing debt.

Contacts

ScanSource, Inc.
Charles A. Mathis, 864-286-4975
Executive Vice President and Chief Financial Officer
or
Mary M. Gentry, 864-286-4892
Vice President, Treasurer and Investor Relations

Contacts

ScanSource, Inc.
Charles A. Mathis, 864-286-4975
Executive Vice President and Chief Financial Officer
or
Mary M. Gentry, 864-286-4892
Vice President, Treasurer and Investor Relations