SCSC 10-Q

Scansource, Inc. (SCSC)

10-Q 2021-11-09 For: 2021-09-30

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Added on April 08, 2026

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Securities registered pursuant to Section 12(b) of the Act:
Title of each class:	Trading Symbol:	Name of exchange on which registered:
Common stock, no par value	SCSC	NASDAQ Global Select Market


Class						Outstanding at November 8, 2021
Common Stock, no par value per share						25,531,069 shares


		Page #
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets (unaudited) at September 3 0 , 2021 and June 30, 202 1	5
	Condensed Consolidated Income Statements (unaudited) for the Quarters Ended Septem ber 3 0 , 2021 and 2020	6
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Quarters Ended September 3 0 , 2021 and 2020	7
	Condensed Consolidated Statements of Shareholders' Equity (unaudited) for the Quarters Ended September 3 0 , 2021 and 2020	8
	Condensed Consolidated Statements of Cash Flows (unaudited) for the T hree Months Ended Sept ember 3 0 , 2021 and 2020	10
	Notes to Condensed Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	45

SIGNATURES		46


	September 30, 2021		June 30, 2021
Assets
Current assets:
Cash and cash equivalents	$	55,491	$	62,718
Accounts receivable, less allowance of $17,620 at September 30, 2021 and $19,341 at June 30, 2021	589,532		568,984
Inventories	493,541		470,081
Prepaid expenses and other current assets	117,849		117,860

Total current assets	1,256,413		1,219,643
Property and equipment, net	40,763		42,836
Goodwill	216,948		218,877
Identifiable intangible assets, net	99,496		104,860
Deferred income taxes	21,806		21,853
Other non-current assets	61,925		63,615

Total assets	$	1,697,351	$	1,671,684
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	602,229	$	634,805
Accrued expenses and other current liabilities	72,362		87,790

Income taxes payable	9,039		2,501

Current portion of long-term debt	8,785		7,843

Total current liabilities	692,415		732,939
Deferred income taxes	3,846		3,954
Long-term debt, net of current portion	132,171		135,331
Borrowings under revolving credit facility	56,400		—

Other long-term liabilities	66,425		68,269

Total liabilities	951,257		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, 25,528,551 and 25,499,465 shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively	74,817		71,253
Retained earnings	780,144		758,071
Accumulated other comprehensive loss	(108,867)		(98,133)
Total shareholders’ equity	746,094		731,191
Total liabilities and shareholders’ equity	$	1,697,351	$	1,671,684

June 30, 2021 amounts are derived from audited consolidated financial statements.
See accompanying notes to these condensed consolidated financial statements.


	Quarter ended
	September 30,
	2021		2020
Net sales	$	857,311	$	757,342
Cost of goods sold	756,011		676,563
Gross profit	101,300		80,779
Selling, general and administrative expenses	63,582		62,112
Depreciation expense	2,880		3,396
Intangible amortization expense	4,510		4,853
Restructuring and other charges	—		8,268
Change in fair value of contingent consideration	—		516
Operating income	30,328		1,634
Interest expense	1,660		1,913
Interest income	(1,026)		(481)
Other expense, net	263		364
Income before income taxes	29,431		(162)
Provision for income taxes	7,358		(47)
Net income (loss) from continuing operations	22,073		(115)
Net loss from discontinued operations	—		(11,704)
Net income (loss)	$	22,073	$	(11,819)
Per share data:

Net income (loss) from continuing operations per common share, basic	$	0.87	$	(0.01)
Net loss from discontinued operations per common share, basic	—		(0.46)
Net income (loss) per common share, basic	$	0.87	$	(0.47)
Weighted-average shares outstanding, basic	25,512		25,361

Net income (loss) from continuing operations per common share, diluted	$	0.86	$	(0.01)
Net loss from discontinued operations per common share, diluted	—		(0.46)
Net income (loss) per common share, diluted	$	0.86	$	(0.47)
Weighted-average shares outstanding, diluted	25,696		25,361


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Common Stock (Shares)	Common Stock (Amount)		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at June 30, 2021	25,499,465	$	71,253	$	758,071	$	(98,133)	$	731,191
Net income	—	—		22,073		—		22,073
Unrealized gain on hedged transaction, net of tax	—	—		—		413		413
Foreign currency translation adjustment	—	—		—		(11,147)		(11,147)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	29,086	994		—		—		994

Share-based compensation	—	2,570		—		—		2,570

Balance at September 30, 2021	25,528,551	$	74,817	$	780,144	$	(108,867)	$	746,094
















See accompanying notes to these condensed consolidated financial statements.


	Three months ended
	September 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	22,073	$	(11,819)
Net loss from discontinued operations	—		(11,704)
Net income (loss) from continuing operations	22,073		(115)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:
Depreciation and amortization	7,650		8,710
Amortization of debt issue costs	104		104
Provision for doubtful accounts	(1,027)		(8)
Share-based compensation	2,570		1,168

Deferred income taxes	(183)		139

Change in fair value of contingent consideration	—		516

Finance lease interest	17		37
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(26,714)		(68,726)
Inventories	(25,879)		31,155
Prepaid expenses and other assets	(1,174)		2,369
Other non-current assets	691		(274)
Accounts payable	(26,962)		92,419
Accrued expenses and other liabilities	(14,683)		7,827
Income taxes payable	6,558		(4,096)
Net cash (used in) provided by operating activities of continuing operations	(56,959)		71,225
Cash flows from investing activities of continuing operations:
Capital expenditures	(1,090)		(748)



Net cash used in investing activities of continuing operations	(1,090)		(748)
Cash flows from financing activities of continuing operations:

Borrowings on revolving credit, net of expenses	526,637		477,381
Repayments on revolving credit, net of expenses	(470,237)		(545,095)
Borrowings on long-term debt, net	(2,218)		(2,214)
Repayments of finance lease obligations	(316)		(327)


Exercise of stock options	994		—



Net cash provided by (used in) financing activities of continuing operations	54,860		(70,255)


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	—		31,853
Net cash flows used in by investing activities of discontinued operations	—		(36)
Net cash flows used in financing activities of discontinued operations	—		(9,488)
Net cash flows provided by discontinued operations	—		22,329
Effect of exchange rate changes on cash and cash equivalents	(4,038)		(1,439)
(Decrease) increase in cash and cash equivalents	(7,227)		21,112
Cash and cash equivalents at beginning of period	62,718		34,455
Cash and cash equivalents at end of period	55,491		55,567
Cash and cash equivalents of discontinued operations	—		5,678
Cash and cash equivalents of continuing operations	$	55,491	$	49,889

See accompanying notes to these condensed consolidated financial statements.


	June 30, 2021		Amounts Charged to Expense		Write-offs		Other (1)		September 30, 2021
	(in thousands)
Trade accounts and current notes receivable allowance	$	19,341	$	(1,027)	$	(763)	$	69	$	17,620


	Quarter ended September 30, 2021
			(in thousands)
	Specialty Technology Solutions		Modern Communications & Cloud		Total
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	501,711	$	338,248	$	839,959
Intelisys connectivity and cloud	—		17,352		17,352
	$	501,711	$	355,600	$	857,311


	Quarter ended September 30, 2020
			(in thousands)
	Specialty Technology Solutions		Modern Communications & Cloud		Total
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	408,777	$	333,308	$	742,085
Intelisys connectivity and cloud	—		15,257		15,257
	$	408,777	$	348,565	$	757,342


	Quarter ended September 30,
	2021		2020
	(in thousands)
Tax expense (benefit)	$	284	$	184


	Net Identifiable Intangible Assets
	(in thousands)
Balance at June 30, 2021	$	104,860
Additions	—
Reductions	—
Amortization expense	(4,510)
Foreign currency translation adjustment	(854)
Balance at September 30, 2021	$	99,496


	Quarter ended
	September 30,
	2021		2020
	(in thousands)
Net foreign exchange derivative contract (gains) losses	$	(1,651)	$	95
Net foreign currency transactional and re-measurement losses	2,136		343
Net foreign currency exchange losses	$	485	$	438


		September 30, 2021				June 30, 2021
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments
		(in thousands)
Derivative assets:
Foreign exchange contracts	Prepaid expenses and other current assets	$	—	$	5	$	—	$	—

Foreign currency hedge	Prepaid expenses and other current assets	$	268	$	—	$	187	$	—
Derivative liabilities:
Foreign exchange contracts	Accrued expenses and other current liabilities	$	—	$	—	$	—	$	5

Interest rate swap agreement	Other long-term liabilities	$	5,675	$	—	$	6,280	$	—


	Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(in thousands)
Assets:
Deferred compensation plan investments, current and non-current portion	$	29,883	$	29,883	$	—	$	—
Forward foreign currency exchange contracts	5		—		5		—

Foreign currency hedge	268		—		268		—
Total assets at fair value	$	30,156	$	29,883	$	273	$	—
Liabilities:
Deferred compensation plan investments, current and non-current portion	$	29,883	$	29,883	$	—	$	—


Interest rate swap agreement	5,675		—		5,675		—

Total liabilities at fair value	$	35,558	$	29,883	$	5,675	$	—


Operating leases	Balance Sheet location	September 30, 2021		June 30, 2021
		(in thousands)
Operating lease right-of-use assets	Other non-current assets	$	18,242	$	19,246
Current operating lease liabilities	Accrued expenses and other current liabilities	4,217		4,284
Long-term operating lease liabilities	Other long-term liabilities	15,589		16,550


	September 30, 2021
Weighted-average remaining lease term	5.00 years
Weighted-average discount rate	4.07	%


	Operating leases
	(in thousands)
2022	$	3,842
2023	4,790
2024	4,284
2025	3,256
2026	2,721
Thereafter	3,269
Total future payments	22,162
Less: amounts representing interest	2,356
Present value of lease payments	$	19,806


	September 30, 2021		June 30, 2021
	Network1
	(in thousands)
Assets
Prepaid expenses and other current assets	$	14	$	16
Other non-current assets	$	3,677	$	3,998
Liabilities
Accrued expenses and other current liabilities	$	14	$	16
Other long-term liabilities	$	3,677	$	3,998


	Accrued Expenses
	(in thousands)
Balance at June 30, 2021	$	1,199
Charged to expense	—
Cash payments	(633)
Balance at September 30, 2021	$	566



	Three months ended September 30, 2020
	(in thousands)
Loss on disposal group	$	10,686


Capital expenditures	(36)


	Quarter ended September 30,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Segment:	2021		2020		$ Change		% Change
	(in thousands)
Specialty Technology Solutions	$	501,711	$	408,777	$	92,934	22.7	%	22.6	%
Modern Communications & Cloud	355,600		348,565		7,035		2.0	%	1.5	%
Total net sales	$	857,311	$	757,342	$	99,969	13.2	%	12.9	%


	Quarter ended September 30,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Geography:	2021		2020		$ Change		% Change
	(in thousands)
United States and Canada	$	769,499	$	683,603	$	85,896	12.6	%	12.6	%
International	87,812		73,739		14,073		19.1	%	15.8	%
Total net sales	$	857,311	$	757,342	$	99,969	13.2	%	12.9	%


	Quarter ended September 30,								% of Net Sales September 30,
	2021		2020		$ Change		% Change		2021		2020
	(in thousands)
Specialty Technology Solutions	$	45,694	$	34,665	$	11,029	31.8	%	9.1	%	8.5	%
Modern Communications & Cloud	55,606		46,114		9,492		20.6	%	15.6	%	13.2	%
Gross profit	$	101,300	$	80,779	$	20,521	25.4	%	11.8	%	10.7	%



Operating Income by Segment:
	Quarter ended September 30,								% of Net Sales September 30,
	2021		2020		$ Change		% Change		2021		2020
Specialty Technology Solutions:	(in thousands)
GAAP operating income	$	14,104	$	1,684	$	12,420	737.5	%	2.8	%	0.4	%
Adjustments:
Amortization of intangible assets	1,531		1,610		(79)




Non-GAAP operating income	$	15,635	$	3,294	$	12,341	374.7	%	3.1	%	0.8	%

Modern Communications & Cloud:
GAAP operating income	$	16,307	$	8,716	$	7,591	87.1	%	4.6	%	2.5	%
Adjustments:
Amortization of intangible assets	2,979		3,243		(264)
Change in fair value of contingent consideration	—		516		(516)




Non-GAAP operating income	$	19,286	$	12,475	$	6,811	54.6	%	5.4	%	3.6	%

Corporate:
GAAP operating income	$	(83)	$	(8,766)	$	8,683	nm*		nm*		nm*
Adjustments:
Acquisition and divestiture costs	83		498		(415)
Restructuring costs	—		8,268		(8,268)

Non-GAAP operating income	$	—	$	—	$	—	nm*		nm*		nm*

Consolidated:
GAAP operating income	$	30,328	$	1,634	$	28,694	1,756.1	%	3.5	%	0.2	%
Adjustments:
Amortization of intangible assets	4,510		4,853		(343)
Change in fair value of contingent consideration	—		516		(516)

Acquisition and divestiture costs	83		498		(415)
Restructuring costs	—		8,268		(8,268)


Non-GAAP operating income	$	34,921	$	15,769	$	19,152	121.5	%	4.1	%	2.1	%


	Quarter ended September 30, 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	$	857,311	$	—	$	—	$	—	$	—	$	857,311
Gross profit	101,300		—		—		—		—		101,300
Operating income	30,328		4,510		—		83		—		34,921
Other expense, net	897		—		—		—		—		897
Pre-tax income	29,431		4,510		—		83		—		34,024
Net income	22,073		3,394		—		83		—		25,550
Diluted EPS	$	0.86	$	0.13	$	—	$	—	$	—	$	0.99

	Quarter ended September 30, 2020
	GAAP Measure		Intangible amortization expense		Change in fair value of contingent consideration		Acquisition and divestiture		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)
Net sales	$	757,342	$	—	$	—	$	—	$	—	$	757,342
Gross profit	80,779		—		—		—		—		80,779
Operating income	1,634		4,853		516		498		8,268		15,769
Other expense, net	1,796		—		—		—		—		1,796
Pre-tax income	(162)		4,853		516		498		8,268		13,973
Net income	(115)		3,675		390		498		6,250		10,698
Diluted EPS	$	(0.01)	$	0.14	$	0.02	$	0.02	$	0.25	$	0.42


Exhibit Number			Description

10.1			S canSource , Inc. 2021 Board of Directors C ompensation Program

31.1			Certification of the Chief Executive Officer, Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer, Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, 2021 and June 30, 2021; (ii) the Condensed Consolidated Income Statements for the quarters ended September 30, 2021 and 2020; (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income for the quarters ended September 30, 2021 and 2020; (iv) the Condensed Consolidated Statements of Shareholder's Equity at September 30, 2021 and 2020; (v) the Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2021 and 2020; and (vi) the Notes to the Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL

104			Cover page Inline XBRL File (Included in Exhibit 101)


		ScanSource, Inc.

		/s/ MICHAEL L. BAUR
		Michael L. Baur
Date:	November 9, 2021	Chairman and Chief Executive Officer (Principal Executive Officer)


		/s/ STEVE JONES
		Steve Jones
Date:	November 9, 2021	Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)