Scansource, Inc 10-Q for FY2022 Q3

Scansource, Inc. (SCSC)

10-Q 2022-05-10 For: 2022-03-31

Added on April 08, 2026

About this 10-Q

Scansource, Inc filed this 10-Q on May 10, 2022, covering the quarter ended March 31, 2022 (FY2022 Q3).

Headline figures

Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $845.99M; up 15.9% from $729.87M a year earlier
Net income: $23.53M; up 79.6% from net income of $13.1M a year earlier
Diluted EPS: $0.91; up 78.4% from $0.51 a year earlier

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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 May 9, 2022
Common Stock, no par value per share						25,232,074 shares


		Page #
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets (unaudited) at March 31, 202 2 and June 30, 2021	5
	Condensed Consolidated Income Statements (unaudited) for the Quarters and Nine Months Ended March 31, 2022 and 2021	6
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Quarters and Nine Months Ended March 31, 2022 and 2021	7
	Condensed Consolidated Statements of Shareholders' Equity (unaudited) for the Quarters and Nine Months Ended March 31, 2022 and 2021	8
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended March 31, 2022 and 2021	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	47
Item 4.	Controls and Procedures	48

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.	Exhibits	50

SIGNATURES		51


	March 31, 2022		June 30, 2021
Assets
Current assets:
Cash and cash equivalents	$	43,539	$	62,718
Accounts receivable, less allowance of $16,935 at March 31, 2022 and $19,341 at June 30, 2021	642,384		568,984
Inventories	591,396		470,081
Prepaid expenses and other current assets	130,509		117,860

Total current assets	1,407,828		1,219,643
Property and equipment, net	37,815		42,836
Goodwill	218,025		218,877
Identifiable intangible assets, net	90,554		104,860
Deferred income taxes	19,951		21,853
Other non-current assets	66,627		63,615

Total assets	$	1,840,800	$	1,671,684
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	706,359	$	634,805
Accrued expenses and other current liabilities	80,931		87,790

Income taxes payable	3,023		2,501

Current portion of long-term debt	10,660		7,843

Total current liabilities	800,973		732,939
Deferred income taxes	3,753		3,954
Long-term debt, net of current portion	126,546		135,331
Borrowings under revolving credit facility	44,294		—

Other long-term liabilities	58,580		68,269

Total liabilities	1,034,146		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, 25,429,242 and 25,499,465 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively	69,856		71,253
Retained earnings	826,922		758,071
Accumulated other comprehensive loss	(90,124)		(98,133)
Total shareholders’ equity	806,654		731,191
Total liabilities and shareholders’ equity	$	1,840,800	$	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				Nine months ended
	March 31,				March 31,
	2022		2021		2022		2021
Net sales	$	845,990	$	729,873	$	2,567,652	$	2,298,111
Cost of goods sold	739,482		641,757		2,251,920		2,043,172
Gross profit	106,508		88,116		315,732		254,939
Selling, general and administrative expenses	66,522		60,099		199,538		182,681
Depreciation expense	2,612		3,141		8,039		9,634
Intangible amortization expense	4,457		4,880		13,413		14,595
Restructuring and other charges	—		560		—		9,312
Change in fair value of contingent consideration	—		—		—		516
Operating income	32,917		19,436		94,742		38,201
Interest expense	1,483		1,576		4,637		5,285
Interest income	(1,000)		(745)		(2,973)		(1,756)
Other (income) expense, net	(136)		(302)		668		183
Income before income taxes	32,570		18,907		92,410		34,489
Provision for income taxes	9,044		5,121		23,659		9,757
Net income from continuing operations	23,526		13,786		68,751		24,732
Net (loss) income from discontinued operations	—		(688)		100		(37,647)
Net income (loss)	$	23,526	$	13,098	$	68,851	$	(12,915)

Per share data:
Net income from continuing operations per common share, basic	$	0.92	$	0.54	$	2.69	$	0.97
Net loss from discontinued operations per common share, basic	—		(0.03)		$	—	$	(1.48)
Net income (loss) per common share, basic	$	0.92	$	0.51	$	2.69	$	(0.51)
Weighted-average shares outstanding, basic	25,635		25,455		25,577		25,404

Net income from continuing operations per common share, diluted	$	0.91	$	0.54	$	2.66	$	0.97
Net loss from discontinued operations per common share, diluted	—		(0.03)		$	—	$	(1.48)
Net income (loss) per common share, diluted	$	0.91	$	0.51	$	2.67	(0.51)
Weighted-average shares outstanding, diluted	25,853		25,572		25,812		25,484


☒			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
Net income	—	—		23,252		—		23,252
Unrealized gain on hedged transaction, net of tax	—	—		—		1,172		1,172
Foreign currency translation adjustment	—	—		—		(2,759)		(2,759)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	134,897	(2,513)		—		—		(2,513)
Common stock repurchased	(5,903)	(183)		—		—		(183)
Share-based compensation	—	3,462		—		—		3,462

Balance at December 31, 2021	25,657,545	$	75,583	$	803,396	$	(110,454)	$	768,525
Net income	—	—		23,526		—		23,526
Unrealized gain on hedged transaction, net of tax	—	—		—		3,144		3,144
Foreign currency translation adjustment	—	—		—		17,186		17,186
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	46,549	383		—		—		383
Common stock repurchased	(274,852)	(8,886)		—		—		(8,886)
Share-based compensation	—	2,776		—		—		2,776
Balance at March 31, 2022	25,429,242	$	69,856	$	826,922	$	(90,124)	$	806,654

See accompanying notes to these condensed consolidated financial statements.


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	—		21,704
Net cash flows used in by investing activities of discontinued operations	—		(58)
Net cash flows used in financing activities of discontinued operations	—		(29,494)
Net cash flows used in discontinued operations	—		(7,848)
Effect of exchange rate changes on cash and cash equivalents	(1,037)		(1,942)
(Decrease) increase in cash and cash equivalents	(19,179)		14,866
Cash and cash equivalents at beginning of period	62,718		34,455
Cash and cash equivalents at end of period	43,539		49,321
Cash and cash equivalents of discontinued operations	—		—
Cash and cash equivalents of continuing operations	$	43,539	$	49,321

See accompanying notes to these condensed consolidated financial statements.


	June 30, 2021		Amounts Charged to Expense		Write-offs		Other (1)		March 31, 2022
	(in thousands)
Trade accounts and current notes receivable allowance	$	19,341	$	156	$	(1,761)	$	(801)	$	16,935


	Quarter ended March 31, 2022
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	503,072	$	323,684	$	826,756
Intelisys connectivity and cloud	—		19,234		19,234
	$	503,072	$	342,918	$	845,990


	Nine months ended March 31, 2022
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	1,501,702	$	1,010,825	$	2,512,527
Intelisys connectivity and cloud	—		55,125		55,125
	$	1,501,702	$	1,065,950	$	2,567,652


	Quarter ended March 31, 2021
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	436,462	$	277,134	$	713,596
Intelisys connectivity and cloud	—		16,277		16,277
	$	436,462	$	293,411	$	729,873


	Nine months ended March 31, 2021
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	1,300,488	$	949,843	$	2,250,331
Intelisys connectivity and cloud	—		47,780		47,780
	$	1,300,488	$	997,623	$	2,298,111


	Quarter ended March 31,				Nine months ended March 31,
	2022		2021		2022		2021
	(in thousands)
Tax expense	$	590	$	1,088	$	1,390	$	1,348


	Net Identifiable Intangible Assets
	(in thousands)
Balance at June 30, 2021	$	104,860


Amortization expense	(13,413)
Foreign currency translation adjustment	(893)
Balance at March 31, 2022	$	90,554


		March 31, 2022				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	$	—	$	33	$	—	$	—
Foreign currency hedge	Prepaid expenses and other current assets	$	—	$	—	$	187	$	—
Interest rate swap agreement	Other non-current assets	$	196	$	—	$	—	$	—
Derivative liabilities:
Foreign exchange contracts	Accrued expenses and other current liabilities	$	—	$	—	$	—	$	5
Foreign currency hedge	Accrued expenses and other current liabilities	$	185	$	—	$	—	$	—
Interest rate swap agreement	Other long-term liabilities	$	—	$	—	$	6,280	$	—


	Quarter ended				Nine months ended
	March 31,				March 31,
	2022		2021		2022		2021
	(in thousands)
Net foreign exchange derivative contract losses (gains)	$	3,464	$	(1,061)	$	1,289	$	852
Net foreign currency transactional and re-measurement (gains) losses	(3,206)		1,020		(66)		(74)
Net foreign currency exchange losses (gains)	$	258	$	(41)	$	1,223	$	778


	Quarter ended March 31,				Nine months ended March 31,
	2022		2021		2022		2021
	(in thousands)
Operating lease cost	$	1,366	$	1,277	$	3,877	$	3,964
Variable lease cost	317		297		966		880
	$	1,683	$	1,574	$	4,843	$	4,844


	March 31, 2022
Weighted-average remaining lease term	4.52 years
Weighted-average discount rate	4.09	%


	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	$	28,587	$	28,587	$	—	$	—
Forward foreign currency exchange contracts	33		—		33		—
Interest rate swap agreement	196		—		196		—

Total assets at fair value	$	28,816	$	28,587	$	229	$	—
Liabilities:
Deferred compensation plan investments, current and non-current portion	$	28,495	$	28,495	$	—	$	—

Foreign currency hedge	185		—		185		—


Total liabilities at fair value	$	28,680	$	28,495	$	185	$	—


		March 31, 2022		June 30, 2021
Operating leases	Balance Sheet location	(in thousands)
Operating lease right-of-use assets	Other non-current assets	$	17,569	$	19,246
Current operating lease liabilities	Accrued expenses and other current liabilities	$	4,391	$	4,284
Long-term operating lease liabilities	Other long-term liabilities	$	14,591	$	16,550


	March 31, 2022		June 30, 2021
	Network1
	(in thousands)
Assets
Prepaid expenses and other current assets	$	16	$	16
Other non-current assets	$	4,221	$	3,998
Liabilities
Accrued expenses and other current liabilities	$	16	$	16
Other long-term liabilities	$	4,221	$	3,998


	Accrued Expenses
	(in thousands)
Balance at June 30, 2021	$	1,199
Charged to expense	—
Cash payments	(1,146)
Balance at March 31, 2022	$	53



	Nine months ended March 31, 2021
	(in thousands)
Loss on disposal group	$	34,496


Capital expenditures	$	(58)


	Quarter ended March 31,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Segment:	2022		2021		$ Change		% Change
	(in thousands)
Specialty Technology Solutions	$	503,072	$	436,462	$	66,610	15.3	%	15.1	%
Modern Communications & Cloud	342,918		293,411		49,507		16.9	%	16.0	%
Total net sales	$	845,990	$	729,873	$	116,117	15.9	%	15.4	%

	Nine months ended March 31,								% Change, Constant Currency, Excluding Planned Divestitures and Acquisitions (a)
	2022		2021		$ Change		% Change
	(in thousands)
Specialty Technology Solutions	$	1,501,702	$	1,300,488	$	201,214	15.5	%	15.4	%
Modern Communications & Cloud	1,065,950		997,623		68,327		6.8	%	6.6	%
Total net sales	$	2,567,652	$	2,298,111	$	269,541	11.7	%	11.6	%


	Quarter ended March 31,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Geography:	2022		2021		$ Change		% Change
	(in thousands)
United States and Canada	$	764,529	$	665,720	$	98,809	14.8	%	14.8	%
International	81,461		64,153		17,308		27.0	%	21.4	%
Total net sales	$	845,990	$	729,873	$	116,117	15.9	%	15.4	%

	Nine months ended March 31,								% Change, Constant Currency, Excluding Planned Divestitures and Acquisitions (a)
	2022		2021		$ Change		% Change
	(in thousands)
United States and Canada	$	2,307,959	$	2,069,327	$	238,632	11.5	%	11.5	%
International	259,693		228,784		30,909		13.5	%	12.2	%
Total net sales	$	2,567,652	$	2,298,111	$	269,541	11.7	%	11.6	%


	Quarter ended March 31,								% of Net Sales March 31,
	2022		2021		$ Change		% Change		2022		2021
	(in thousands)
Specialty Technology Solutions	$	54,021	$	39,002	$	15,019	38.5	%	10.7	%	8.9	%
Modern Communications & Cloud	52,487		49,114		3,373		6.9	%	15.3	%	16.7	%
Gross profit	$	106,508	$	88,116	$	18,392	20.9	%	12.6	%	12.1	%

	Nine months ended March 31,								% of Net Sales March 31,
	2022		2021		$ Change		% Change		2022		2021
	(in thousands)
Specialty Technology Solutions	$	151,763	$	112,279	$	39,484	35.2	%	10.1	%	8.6	%
Modern Communications & Cloud	163,969		142,660		21,309		14.9	%	15.4	%	14.3	%
Gross profit	$	315,732	$	254,939	$	60,793	23.8	%	12.3	%	11.1	%



Operating Income by Segment:
	Quarter ended March 31,								% of Net Sales March 31,
	2022		2021		$ Change		% Change		2022		2021
Specialty Technology Solutions:	(in thousands)
GAAP operating income	$	20,623	$	8,713	$	11,910	136.7	%	4.1	%	2.0	%
Adjustments:
Amortization of intangible assets	1,491		1,610		(119)




Non-GAAP operating income	$	22,114	$	10,323	$	11,791	114.2	%	4.4	%	2.4	%

Modern Communications & Cloud:
GAAP operating income	$	12,294	$	11,555	$	739	6.4	%	3.6	%	3.9	%
Adjustments:
Amortization of intangible assets	2,966		3,270		(304)





Non-GAAP operating income	$	15,260	$	14,825	$	435	2.9	%	4.5	%	5.1	%

Corporate:
GAAP operating income (loss)	$	—	$	(832)	$	832	nm*		nm*		nm*
Adjustments:
Acquisition and divestiture costs	—		272		(272)
Restructuring costs	—		560		(560)

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

Consolidated:
GAAP operating income	$	32,917	$	19,436	$	13,481	69.4	%	3.9	%	2.7	%
Adjustments:
Amortization of intangible assets	4,457		4,880		(423)


Acquisition and divestiture costs	—		272		(272)
Restructuring costs	—		560		(560)


Non-GAAP operating income	$	37,374	$	25,148	$	12,226	48.6	%	4.4	%	3.4	%


	Quarter ended March 31, 2022
	GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)
SG&A expenses	$	66,522	$	—	$	—	$	—	$	66,522
Operating income	32,917		4,457		—		—		37,374
Pre-tax income	32,570		4,457		—		—		37,027
Net income	23,526		3,353		—		—		26,879
Diluted EPS	$	0.91	$	0.13	$	—	$	—	$	1.04

	Quarter ended March 31, 2021
	GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)
SG&A expenses	$	60,099	$	—	$	(272)	$	—	$	59,827
Operating income	19,436		4,880		272		560		25,148
Pre-tax income	18,907		4,880		272		560		24,619
Net income	13,786		3,697		272		423		18,178
Diluted EPS	$	0.54	$	0.14	$	0.01	$	0.02	$	0.71


Period	Total number of shares purchased (1)	Average price paid per share		Total number of shares purchased as part of the publicly announced plan or program	Approximate dollar value of shares that may yet be purchased under the plan or program



January 1 - 31, 2022	43,009	$	30.48	43,009	$	98,506,559
February 1 - 28, 2022	71,500	$	30.65	71,500	$	96,315,084
March 1 - 31, 2022	163,370	$	33.52	160,343	$	90,940,387
Total	277,879	$	32.31	274,852	$	90,940,387


Exhibit Number			Description

3.1			Second Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant's Form 8-K filed on January 27, 2022)

3.2			Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the registrant's Form 8-K filed on January 27, 2022)

10.1			ScanSource, Inc. 2021 Omnibus Incentive Compensation plan (incorporated by reference to Exhibit 10.1 to the registrant's Form 8-K filed on January 27, 2022)

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 March 31, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at March 31, 2022 and June 30, 2021; (ii) the Condensed Consolidated Income Statements for the quarters and nine months ended March 31, 2022 and 2021; (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income for the quarters and nine months ended March 31, 2022 and 2021; (iv) the Condensed Consolidated Statements of Shareholder's Equity at March 31, 2022 and 2021; (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2022 and 2021; 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.

Date:	May 10, 2022	/s/ MICHAEL L. BAUR
		Michael L. Baur
		Chairman and Chief Executive Officer (Principal Executive Officer)


Date:	May 10, 2022	/s/ STEVE JONES
		Steve Jones
		Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)


			/s/ MICHAEL L. BAUR
			Michael L. Baur Chairmen, Chief Executive Officer and President (Principal Executive Officer)


			/s/ STEVE JONES
			Steve Jones Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)