8-K
Scansource, Inc. (SCSC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 31, 2020
ScanSource, Inc.
(Exact name of registrant as specified in its charter)
| SC | 00-26926 | 57-0965380 |
|---|---|---|
| (State or other jurisdiction<br>of incorporation) | (Commission File Number) | (IRS Employer<br>Identification No.) |
6 Logue Court, Greenville, SC 29615
(Address of principal executive offices, including zip code)
864-288-2432
(Registrant’s telephone number, including area code)
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
|---|---|---|
| Common Stock, no par value | SCSC | NASDAQ Global Select Market |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | | --- | --- || ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | | --- | --- || ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | | --- | --- || ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | | --- | --- |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
| Emerging growth company | ☐ |
|---|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition
On August 31, 2020, ScanSource, Inc. (the "Company") issued a press release announcing its financial results for its fourth quarter ended June 30, 2020. A copy of the press release and accompanying CFO commentary are attached as Exhibits 99.1 and 99.2 hereto and incorporated herein by reference and also made available through the Company’s website at www.scansource.com. An updated investor presentation will be made available on the Company's website within approximately two weeks.
The information in Item 2.02 of this Report, including the exhibits, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any other filing under the Securities Act of 1933 or the Exchange Act.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
99.1 – Press release issued by ScanSource, Inc. on August 31, 2020. The information contained in the attached exhibit is unaudited and should be read in conjunction with the Company’s annual and quarterly reports filed with the Securities and Exchange Commission.
99.2 – CFO commentary for the financial results conference call held on August 31, 2020. The information contained in the attached exhibit is unaudited and should be read in conjunction with the Company’s annual and quarterly reports filed with the Securities and Exchange Commission.
| Exhibit<br>Number | Description |
|---|---|
| 99.1 | Press release |
| 99.2 | CFO commentary |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ScanSource, Inc. | |||
|---|---|---|---|
| Date: | August 31, 2020 | By: | /s/ Gerald Lyons |
| Name: | Gerald Lyons | ||
| Its: | Senior Executive Vice President and Chief Financial Officer |
Document
Exhibit 99.1
FOR IMMEDIATE RELEASE
| Contact: | ||
|---|---|---|
| Gerald Lyons | Mary M. Gentry | |
| Executive Vice President, Chief Financial Officer | - or - | Vice President, Treasurer and Investor Relations |
| ScanSource, Inc. | ScanSource, Inc. | |
| (864) 286-4854 | (864) 286-4892 |
SCANSOURCE REPORTS FOURTH QUARTER AND FISCAL YEAR 2020 RESULTS
GREENVILLE, SC -- August 31, 2020 -- ScanSource, Inc. (NASDAQ: SCSC), a leading provider of technology products and solutions, today announced financial results for the fourth quarter and fiscal year ended June 30, 2020. All results in this release reflect continuing operations only unless otherwise noted.
Fourth Quarter Summary:
•Net sales: $636.5 million, down 22% year-over-year
•Gross profit: $74.1 million, down 23% year-over-year
•GAAP operating loss of $(113.4) million; non-GAAP operating income of $8.2 million
•Net loss from continuing operations of $(108.9) million, which includes non-cash goodwill and asset impairment charges of $120.5 million
•GAAP and non-GAAP diluted EPS of $(4.29) and $0.19 per share, respectively
•Classified divestitures of products distribution business outside of the United States, Canada and Brazil ("Divestitures") as assets held for sale at June 30, 2020 and reported as discontinued operations in the financial results
•Generated strong operating cash flow of $74.0 million during the quarter
"While the COVID-19 pandemic had a significant impact on our quarterly financial results, I am proud of how our teams have executed and the value we deliver to our suppliers and customers," said Mike Baur, Chairman and CEO, ScanSource, Inc. "We've taken the necessary actions to strengthen our balance sheet, improve our cost structure, and continue to drive investments in our higher-margin, VAR cloud platform and agency business."
Quarterly Results
Net sales totaled $636.5 million for the fourth quarter of fiscal year 2020, down 22% year-over-year, or down 19% for organic growth. The reduction in net sales is primarily due to the impact of the COVID-19 pandemic, which resulted in lower demand from customers. For the Intelisys master agency business, net sales increased 15% year-over-year for the fourth quarter of fiscal year 2020.
For the fourth quarter of fiscal year 2020, operating income decreased to $(113.4) million, and non-GAAP operating income decreased to $8.2 million. As of the annual goodwill impairment test date of April 30th, the Company’s revenue projections were lowered, primarily as a result of the COVID-19 pandemic. As a result, the Company recognized pre-tax, non-cash goodwill and asset impairment charges of $120.5 million. This accounting adjustment does not involve any cash outflow.
On a GAAP basis, net income for the fourth quarter of fiscal year 2020 totaled $(108.9) million, or $(4.29) per diluted share, compared to net income of $16.0 million, or $0.62 per diluted share, for the prior-year quarter. Non-GAAP net income totaled $4.9 million, or $0.19 per diluted share, compared to $19.3 million, or $0.75 per diluted share, for the prior-year quarter.
At June 30, 2020, ScanSource had cash and cash equivalents of $29.5 million and total debt of $218.7 million for continuing operations. Borrowings for discontinued operations totaled $28.2 million. In the fourth quarter of fiscal year 2020, the Company generated $74.0 million of operating cash flow.
Full Year Results
For fiscal year 2020, net sales decreased 6% to $3.0 billion, or a 5% year-over-year decrease on an organic basis. Fiscal year 2020 GAAP operating income decreased to $(65.0) million, largely from the non-cash goodwill and asset impairment charges, and non-GAAP operating income decreased to $78.9 million.
Exhibit 99.1
On a GAAP basis, net income for fiscal year 2020 totaled $(79.2) million, or $(3.12) per diluted share, compared to net income of $64.9 million, or $2.52 per diluted share for the prior year. Non-GAAP net income totaled $52.0 million, or $2.05 per diluted share, compared to $87.7 million, or $3.41 per diluted share for the prior year.
Discontinued Operations
On August 20, 2019, ScanSource announced plans to divest its products distribution businesses outside of the United States, Canada and Brazil. ScanSource continues to operate in its digital distribution business in these geographies. These plans are part of a strategic portfolio repositioning to align investments with higher-growth, higher-margin businesses. On July 23, 2020, ScanSource signed an agreement to sell its products distribution business located in Mexico, Colombia, Chile, Peru and its Miami-based export operations to Intcomex. The Company is actively working on sales opportunities for its divestitures in Europe and the UK.
At June 30, 2020, the Divestitures were classified as assets held for sale and recorded as discontinued operations. Net loss from discontinued operations for the fourth quarter of fiscal year 2020 includes a $88.9 million non-cash loss on held for sale classification to establish a valuation allowance and $13.7 million for non-cash impairment charges.
COVID-19 Update
Our top priority during the COVID-19 pandemic is protecting the health and safety of our employees. We implemented travel restrictions and transitioned our employees, where possible, to a remote working environment. Nearly all office-based employees around the world are working remotely. We have taken a number of measures to ensure our teams have the flexibility and resources they need to stay safe and healthy. We are experiencing higher costs from these safety measures to protect our employees. We are continuing to provide the high level of customer service our partners expect from us.
Initiated Expense Reduction Plan
In July 2020, ScanSource initiated a $30 million annualized expense reduction plan to address the business impacts of the COVID-19 pandemic and prepare for the next phase of growth.
Webcast Details and CFO Commentary
At approximately 4:15 p.m. ET today, a CFO commentary, as a supplement to this press release and the Company's conference call, will be available on ScanSource's website, www.scansource.com (Investor Relations section). ScanSource will present additional information about its financial results in a conference call today, August 31, 2020, at 5:00 p.m. ET. A webcast of the call 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 “forward-looking” statements, including the Company's Divestitures and the impact of the COVID-19 pandemic, which involve risks and uncertainties. Any number of factors could cause actual results to differ materially from anticipated results, including, but not limited to, the impact of the COVID-19 pandemic on our operations and financial condition, the Company's ability to complete the Divestitures on acceptable terms or to otherwise dispose of the operations, changes in interest and exchange rates and regulatory regimes impacting the Company's international operations, the impact of tax reform laws, the failure of acquisitions to meet the Company's expectations, the failure to manage and implement the Company's organic growth strategy, credit risks involving the Company's larger customers and suppliers, termination of the Company's relationship with key suppliers or a significant modification of the terms under which it operates with a key supplier, the decline in demand for the products and services that the Company provides, reduced prices for the products and services that the Company provides due both to competitor and customer action, changes in the Company's operating strategy, and other factors set forth in the "Risk Factors" contained in the Company's annual report on Form 10-K for the year ended June 30, 2020, 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 understand and evaluate performance, including comparisons from period to period. Non-GAAP results exclude amortization of intangible assets related to acquisitions, change in fair value of contingent consideration, acquisition costs, restructuring costs and other non-GAAP adjustments.
Net sales on a constant currency basis, excluding Divestitures and acquisitions: The Company discloses the percentage change in net sales excluding the translation impact from changes in foreign currency exchange rates between reporting periods and excluding the net sales from Divestitures, as well as acquisitions prior to the first full year from the acquisition date. This measure enhances the comparability between periods to help analyze underlying trends on an organic basis.
Income Statement Non-GAAP Metrics: To evaluate current period performance on a more consistent basis with prior periods, the Company discloses non-GAAP net sales, non-GAAP gross profit, non-GAAP operating income, non-GAAP other expense, net, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share (non-GAAP diluted "EPS"). Non-GAAP results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition and divestiture costs, impairment charges and other non-GAAP adjustments. Non-GAAP metrics are useful in 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 correlates 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. ROIC is calculated as adjusted EBITDA over invested capital. Adjusted earnings before interest expense, income taxes, depreciation and amortization ("Adjusted EBITDA") excludes the change in fair value of contingent consideration, in addition to other non-GAAP adjustments. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. 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.
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 Supplementary Information (Unaudited) below.
About ScanSource, Inc.
ScanSource, Inc. (NASDAQ: SCSC) is at the center of the technology solution delivery channel, connecting businesses and providing solutions for their complex needs. ScanSource sells through multiple, specialized routes-to-market with digital, physical and services offerings from the world’s leading suppliers of point-of-sale (POS), payments, barcode, physical security, unified communications and collaboration, telecom and cloud services. ScanSource enables its sales partners to create, deliver and manage solutions for end-customers across almost every vertical market. Founded in 1992 and headquartered in Greenville, South Carolina, ScanSource was named one of the Best Places to Work in South Carolina and on FORTUNE magazine’s 2020 List of World’s Most Admired Companies. ScanSource ranks #654 on the Fortune 1000. For more information, visit www.scansource.com.
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||
|---|---|---|---|---|
| Condensed Consolidated Balance Sheets (Unaudited) | ||||
| (in thousands) | ||||
| June 30, 2020 | June 30, 2019 | |||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 29,485 | $ | 19,305 |
| Accounts receivable, less allowance of $21,906 at June 30, 2020<br><br>and $27,521 at June 30, 2019 | 443,185 | 523,424 | ||
| Inventories | 454,885 | 554,080 | ||
| Prepaid expenses and other current assets | 94,681 | 83,753 | ||
| Current assets held for sale | 181,231 | 296,753 | ||
| Total current assets | 1,203,467 | 1,477,315 | ||
| Property and equipment, net | 55,641 | 60,570 | ||
| Goodwill | 214,288 | 310,715 | ||
| Identifiable intangible assets, net | 121,547 | 121,214 | ||
| Deferred income taxes | 24,630 | 15,447 | ||
| Other non-current assets | 72,521 | 52,921 | ||
| Non-current assets held for sale | — | 29,079 | ||
| Total assets | $ | 1,692,094 | $ | 2,067,261 |
| Liabilities and Shareholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 454,240 | $ | 488,291 |
| Accrued expenses and other current liabilities | 76,686 | 64,629 | ||
| Current portion of contingent consideration | 46,334 | 38,393 | ||
| Income taxes payable | 5,886 | 3,956 | ||
| Short-term borrowings | — | — | ||
| Current portion of long-term debt | 7,839 | 4,085 | ||
| Current liabilities held for sale | 128,022 | 101,532 | ||
| Total current liabilities | 719,007 | 700,886 | ||
| Deferred income taxes | 3,884 | — | ||
| Long-term debt, net of current portion | 143,175 | 151,014 | ||
| Borrowings under revolving credit facility | 67,714 | 172,390 | ||
| Long-term portion of contingent consideration | — | 39,532 | ||
| Other long-term liabilities | 80,068 | 57,153 | ||
| Long-term liabilities held for sale | — | 32,157 | ||
| Total liabilities | 1,013,848 | 1,153,132 | ||
| 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, 25,361,298 and 25,408,397 shares issued and outstanding at June 30, 2020 and June 30, 2019, respectively | 63,765 | 64,287 | ||
| Retained earnings | 747,276 | 939,930 | ||
| Accumulated other comprehensive loss | (132,795) | (90,088) | ||
| Total shareholders’ equity | 678,246 | 914,129 | ||
| Total liabilities and shareholders’ equity | $ | 1,692,094 | $ | 2,067,261 |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||||
|---|---|---|---|---|---|---|---|---|
| Condensed Consolidated Income Statements (Unaudited) | ||||||||
| (in thousands, except per share data) | ||||||||
| Quarter ended June 30, | Fiscal year ended June 30, | |||||||
| 2020 | 2019 | 2020 | 2019 | |||||
| Net sales | $ | 636,450 | $ | 811,432 | $ | 3,047,734 | $ | 3,249,799 |
| Cost of goods sold | 562,303 | 714,789 | 2,692,165 | 2,856,996 | ||||
| Gross profit | 74,147 | 96,643 | 355,569 | 392,803 | ||||
| Selling, general and administrative expenses | 58,192 | 62,923 | 260,139 | 252,948 | ||||
| Depreciation expense | 3,304 | 2,952 | 13,033 | 12,028 | ||||
| Intangible amortization expense | 4,946 | 4,542 | 19,953 | 17,893 | ||||
| Impairment charges | 120,470 | — | 120,470 | — | ||||
| Change in fair value of contingent consideration | 674 | 3,666 | 6,941 | 15,200 | ||||
| Operating (loss) income | (113,439) | 22,560 | (64,967) | 94,734 | ||||
| Interest expense | 2,497 | 3,851 | 12,224 | 13,162 | ||||
| Interest income | (3,199) | (446) | (5,826) | (1,818) | ||||
| Other expense (income), net | 213 | 22 | 411 | (247) | ||||
| (Loss) Income before income taxes | (112,950) | 19,133 | (71,776) | 83,637 | ||||
| Provision for income taxes | (4,091) | 3,137 | 7,451 | 18,778 | ||||
| Net (loss) income from continuing operations | (108,859) | 15,996 | (79,227) | 64,859 | ||||
| Net loss from discontinued operations | (108,403) | (4,418) | (113,427) | (7,262) | ||||
| Net (loss) income | $ | (217,262) | $ | 11,578 | $ | (192,654) | $ | 57,597 |
| Per share data: | ||||||||
| Net (loss) income from continuing operations per common share, basic | $ | (4.29) | $ | 0.62 | $ | (3.12) | $ | 2.53 |
| Net loss from discontinued operations per common share, basic | (4.28) | (0.17) | (4.47) | (0.28) | ||||
| Net (loss) income per common share, basic | $ | (8.57) | $ | 0.45 | $ | (7.59) | $ | 2.25 |
| Weighted-average shares outstanding, basic | 25,353 | 25,627 | 25,378 | 25,642 | ||||
| Net (loss) income from continuing operations per common share, diluted | $ | (4.29) | $ | 0.62 | $ | (3.12) | $ | 2.52 |
| Net loss from discontinued operations per common share, diluted | (4.28) | (0.17) | (4.47) | (0.28) | ||||
| Net (loss) income per common share, diluted | $ | (8.57) | $ | 0.45 | $ | (7.59) | $ | 2.24 |
| Weighted-average shares outstanding, diluted | 25,353 | 25,691 | 25,378 | 25,734 |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||||
|---|---|---|---|---|---|---|---|---|
| Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||||
| (in thousands) | ||||||||
| Quarter ended June 30, | Fiscal year ended June 30, | |||||||
| 2020 | 2019 | 2020 | 2019 | |||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (217,262) | $ | 11,578 | $ | (192,654) | $ | 57,597 |
| Net loss from discontinued operations | (108,403) | (4,418) | (113,427) | (7,262) | ||||
| Net (loss) income from continuing operations | (108,859) | 15,996 | (79,227) | 64,859 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities of continuing operations: | ||||||||
| Depreciation and amortization | 8,743 | 8,321 | 35,328 | 33,652 | ||||
| Provision for doubtful accounts | 222 | (1,197) | 1,621 | 1,712 | ||||
| Share-based compensation | 1,425 | 1,210 | 5,478 | 6,045 | ||||
| Impairment charges | 120,470 | — | 120,470 | — | ||||
| Deferred income taxes | (10,714) | (3,698) | (12,193) | (2,757) | ||||
| Change in fair value of contingent consideration | 674 | 3,666 | 6,941 | 15,200 | ||||
| Contingent consideration payments excess | — | — | (3,050) | (10,190) | ||||
| Other | 125 | 98 | 502 | 350 | ||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | 57,562 | (38,060) | 57,477 | (5,490) | ||||
| Inventories | 93,623 | 61,948 | 86,177 | (85,862) | ||||
| Prepaid expenses and other assets | (2,903) | (14,657) | (13,880) | (10,091) | ||||
| Other non-current assets | (12,534) | (2,545) | (13,563) | (2,438) | ||||
| Accounts payable | (76,224) | (5,622) | (20,846) | 16,134 | ||||
| Accrued expenses and other liabilities | (1,992) | 6,118 | 11,239 | 2,377 | ||||
| Income taxes payable | 4,334 | 2,873 | (441) | (7,469) | ||||
| Net cash provided by operating activities of continuing operations | 73,952 | 34,451 | 182,033 | 16,032 | ||||
| Cash flows from investing activities of continuing operations: | ||||||||
| Capital expenditures | 188 | 4,093 | (6,387) | (5,797) | ||||
| Cash paid for business acquisitions, net of cash acquired | — | — | (48,921) | (32,161) | ||||
| Net cash used in investing activities of continuing operations | 188 | 4,093 | (55,308) | (37,958) | ||||
| Cash flows from financing activities of continuing operations: | ||||||||
| Borrowings on revolving credit, net of expenses | 477,446 | 458,522 | 2,085,918 | 2,061,090 | ||||
| Repayments on revolving credit, net of expenses | (539,732) | (611,877) | (2,190,595) | (2,132,702) | ||||
| Borrowings on long-term debt, net | (938) | 150,000 | (4,085) | 149,670 | ||||
| Repayments of finance lease obligations | (1,105) | (166) | (1,765) | (662) | ||||
| Debt issuance costs | — | (1,096) | — | (1,096) | ||||
| Contingent consideration payments | — | — | (35,482) | (35,606) | ||||
| Exercise of stock options | — | — | 754 | 1,509 | ||||
| Taxes paid on settlement of equity awards | — | — | (1,353) | (1,406) | ||||
| Repurchase of common stock | — | (9,176) | (6,078) | (9,483) | ||||
| Net cash (used in) provided by financing activities of continuing operations | (64,329) | (13,793) | (152,686) | 31,314 |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||||
|---|---|---|---|---|---|---|---|---|
| Condensed Consolidated Statements of Cash Flows (Unaudited), continued | ||||||||
| (in thousands) | ||||||||
| Cash flows from discontinued operations: | ||||||||
| Net cash flows provided by (used in) operating activities of discontinued operations | 2,235 | (37,031) | 44,238 | (43,159) | ||||
| Net cash flows (used in) provided by investing activities of discontinued operations | (35) | (330) | (77) | (1,416) | ||||
| Net cash flows (used in) provided by financing activities of discontinued operations | (10,663) | 15,748 | (3,921) | 32,917 | ||||
| Net cash flows provided by (used in) discontinued operations | (8,463) | (21,613) | 40,240 | (11,658) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (1,489) | 280 | (3,642) | 558 | ||||
| Increase (decrease) in cash and cash equivalents | (141) | 3,418 | 10,637 | (1,712) | ||||
| Consolidated cash and cash equivalents at beginning of period | 34,596 | 20,400 | 23,818 | 25,530 | ||||
| Consolidated cash and cash equivalents at end of period | 34,455 | 23,818 | 34,455 | 23,818 | ||||
| Cash and cash equivalents of discontinued operations | 4,970 | 4,513 | 4,970 | 4,513 | ||||
| Cash and cash equivalents of continuing operations | $ | 29,485 | $ | 19,305 | $ | 29,485 | $ | 19,305 |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Supplementary Information (Unaudited) | ||||||||||||
| (in thousands, except percentages) | ||||||||||||
| Non-GAAP Financial Information: | ||||||||||||
| Quarter ended June 30, | Fiscal year ended June 30, | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Return on invested capital ratio (ROIC), annualized ^(a)^ | 4.0 | % | 11.2 | % | 7.5 | % | 12.1 | % | ||||
| Reconciliation of net income to EBITDA: | ||||||||||||
| Net (loss) income from continuing operations (GAAP) | $ | (108,859) | $ | 15,996 | $ | (79,227) | $ | 64,859 | ||||
| Plus: Interest expense | 2,497 | 3,851 | 12,224 | 13,162 | ||||||||
| Plus: Income taxes | (4,091) | 3,137 | 7,451 | 18,778 | ||||||||
| Plus: Depreciation and amortization | 8,743 | 8,321 | 35,328 | 33,652 | ||||||||
| EBITDA (non-GAAP) | (101,710) | 31,305 | (24,224) | 130,451 | ||||||||
| Plus: Change in fair value of contingent consideration | 674 | 3,666 | 6,941 | 15,200 | ||||||||
| Plus: Acquisition and divestiture costs | 1,311 | 230 | 4,000 | 1,218 | ||||||||
| Plus: Restructuring costs | — | — | 604 | — | ||||||||
| Plus: Impairment charges | 120,470 | — | 120,470 | — | ||||||||
| Plus: Tax reform and settlement, includes interest income | (8,424) | — | (10,744) | — | ||||||||
| Adjusted EBITDA (numerator for ROIC) (non-GAAP) | $ | 12,321 | $ | 35,201 | $ | 97,047 | $ | 146,869 | ||||
| Invested Capital Calculation | ||||||||||||
| Equity – beginning of the period | $ | 897,678 | $ | 911,063 | $ | 914,129 | $ | 866,376 | ||||
| Equity – end of the period | 678,246 | 914,129 | 678,246 | 914,129 | ||||||||
| Plus: Change in fair value of contingent consideration, <br>net of tax | 510 | 2,780 | 5,247 | 11,294 | ||||||||
| Plus: Acquisition and divestiture costs | 1,311 | 230 | 4,000 | 1,218 | ||||||||
| Plus: Restructuring, net of tax | — | — | 449 | — | ||||||||
| Plus: Impairment charges, net | 114,398 | — | 114,398 | — | ||||||||
| Plus: Tax recovery, net | (6,247) | (3,110) | (8,001) | (3,110) | ||||||||
| Plus: Impact of discontinued operations, net of tax | 98,794 | (16,557) | 98,794 | (16,557) | ||||||||
| Average equity | 892,345 | 904,268 | 903,631 | 886,675 | ||||||||
| Average funded debt^(b)^ | 337,973 | 355,932 | 390,709 | 329,473 | ||||||||
| Invested capital (denominator for ROIC) (non-GAAP) | $ | 1,230,318 | $ | 1,260,200 | $ | 1,294,340 | $ | 1,216,148 | ||||
| ^(a)^ Calculated as earnings before 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)^ Average funded debt, which includes both continuing and discontinued operations, is calculated as the average daily amounts outstanding on short-term and long-term interest-bearing debt. |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||
|---|---|---|---|---|---|---|
| Supplementary Information (Unaudited) | ||||||
| Net Sales by Segment: | ||||||
| Quarter ended June 30, | ||||||
| 2020 | 2019 | % Change | ||||
| Worldwide Barcode, Networking & Security: | (in thousands) | |||||
| Non-GAAP net sales, including Divestitures | $ | 543,996 | $ | 636,172 | (14.5) | % |
| Planned Divestitures | (96,184) | (107,079) | ||||
| Net sales, reported | 447,812 | 529,093 | (15.4) | % | ||
| Foreign exchange impact ^(a)^ | 4,911 | — | ||||
| Non-GAAP net sales, constant currency excluding Divestitures | $ | 452,723 | $ | 529,093 | (14.4) | % |
| Worldwide Communications & Services: | ||||||
| Non-GAAP net sales, including Divestitures | $ | 214,422 | $ | 324,661 | (34.0) | % |
| Planned Divestitures | (25,784) | (42,322) | ||||
| Net sales, reported | 188,638 | 282,339 | (33.2) | % | ||
| Foreign exchange impact ^(a)^ | 14,674 | — | ||||
| Less: Acquisitions | (1,567) | — | ||||
| Non-GAAP net sales, constant currency excluding Divestitures and acquisitions | $ | 201,745 | $ | 282,339 | (28.5) | % |
| Consolidated: | ||||||
| Non-GAAP net sales, including Divestitures | $ | 758,418 | $ | 960,833 | (21.1) | % |
| Planned Divestitures | (121,968) | (149,401) | ||||
| Net sales, reported | 636,450 | 811,432 | (21.6) | % | ||
| Foreign exchange impact ^(a)^ | 19,585 | — | ||||
| Less: Acquisitions | (1,567) | — | ||||
| Non-GAAP net sales, constant currency excluding Divestitures and acquisitions | $ | 654,468 | $ | 811,432 | (19.3) | % |
| ^(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 ended June 30, 2020 into U.S. dollars using the average foreign exchange rates for the quarter ended June 30, 2019. |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||
|---|---|---|---|---|---|---|
| Supplementary Information (Unaudited) | ||||||
| Net Sales by Segment: | ||||||
| Fiscal year ended June 30, | ||||||
| 2020 | 2019 | % Change | ||||
| Worldwide Barcode, Networking & Security: | (in thousands) | |||||
| Non-GAAP net sales, including Divestitures | $ | 2,511,666 | $ | 2,589,837 | (3.0) | % |
| Planned Divestitures | (418,449) | (447,941) | ||||
| Net sales, reported | 2,093,217 | 2,141,896 | (2.3) | % | ||
| Foreign exchange impact ^(a)^ | 10,395 | — | ||||
| Non-GAAP net sales, constant currency excluding Divestitures | $ | 2,103,612 | $ | 2,141,896 | (1.8) | % |
| Worldwide Communications & Services: | ||||||
| Non-GAAP net sales, including Divestitures | $ | 1,097,564 | $ | 1,283,274 | (14.5) | % |
| Planned Divestitures | (143,047) | (175,371) | ||||
| Net sales, reported | 954,517 | 1,107,903 | (13.8) | % | ||
| Foreign exchange impact ^(a)^ | 29,829 | — | ||||
| Less: Acquisitions | (9,122) | (1,026) | ||||
| Non-GAAP net sales, constant currency excluding Divestitures and acquisitions | $ | 975,224 | $ | 1,106,877 | (11.9) | % |
| Consolidated: | ||||||
| Non-GAAP net sales, including Divestitures | $ | 3,609,230 | $ | 3,873,111 | (6.8) | % |
| Planned Divestitures | (561,496) | (623,312) | ||||
| Net sales, reported | 3,047,734 | 3,249,799 | (6.2) | % | ||
| Foreign exchange impact ^(a)^ | 40,224 | — | ||||
| Less: Acquisitions | (9,122) | (1,026) | ||||
| Non-GAAP net sales, constant currency excluding Divestitures and acquisitions | $ | 3,078,836 | $ | 3,248,773 | (5.2) | % |
| ^(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 fiscal year ended June 30, 2020 into U.S. dollars using the average foreign exchange rates for the fiscal year ended June 30, 2019. |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||
|---|---|---|---|---|---|---|
| Supplementary Information (Unaudited) | ||||||
| Net Sales by Geography: | ||||||
| Quarter ended June 30, | ||||||
| 2020 | 2019 | % Change | ||||
| United States and Canada: | (in thousands) | |||||
| Net sales, as reported | $ | 581,619 | $ | 728,212 | (20.1) | % |
| Less: Acquisitions | (131) | — | ||||
| Non-GAAP net sales, excluding acquisitions | $ | 581,488 | $ | 728,212 | (20.1) | % |
| International: | ||||||
| Non-GAAP net sales, including Divestitures | $ | 176,799 | $ | 232,621 | (24.0) | % |
| Divestitures | (121,968) | (149,401) | ||||
| Net sales, reported | 54,831 | 83,220 | (34.1) | % | ||
| Foreign exchange impact^(a)^ | 19,585 | — | ||||
| Less: Acquisitions | (1,436) | — | ||||
| Non-GAAP net sales, constant currency excluding Divestitures and acquisitions | $ | 72,980 | $ | 83,220 | (12.3) | % |
| Consolidated: | ||||||
| Non-GAAP net sales, including Divestitures | $ | 758,418 | $ | 960,833 | (21.1) | % |
| Divestitures | (121,968) | (149,401) | ||||
| Net sales, reported | 636,450 | 811,432 | (21.6) | % | ||
| Foreign exchange impact^(a)^ | 19,585 | — | ||||
| Less: Acquisitions | (1,567) | — | ||||
| Non-GAAP net sales, constant currency excluding Divestitures and acquisitions | $ | 654,468 | $ | 811,432 | (19.3) | % |
| ^(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 ended June 30, 2020 into U.S. dollars using the average foreign exchange rates for the quarter ended June 30, 2019. |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||
|---|---|---|---|---|---|---|
| Supplementary Information (Unaudited) | ||||||
| Net Sales by Geography: | ||||||
| Fiscal year ended June 30, | ||||||
| 2020 | 2019 | % Change | ||||
| United States and Canada: | (in thousands) | |||||
| Net sales, as reported | $ | 2,755,134 | $ | 2,917,780 | (5.6) | % |
| Less: Acquisitions | (3,542) | (1,062) | ||||
| Net sales, excluding acquisitions | $ | 2,751,592 | $ | 2,916,718 | (5.7) | % |
| International: | ||||||
| Non-GAAP net sales, including Divestitures | $ | 854,096 | $ | 955,331 | (10.6) | % |
| Divestitures | (561,496) | (623,312) | ||||
| Net sales, reported | 292,600 | 332,019 | (11.9) | % | ||
| Foreign exchange impact^(a)^ | 40,224 | — | ||||
| Less: Acquisitions | (5,580) | 36 | ||||
| Non-GAAP net sales, constant currency excluding Divestitures and acquisitions | $ | 327,244 | $ | 332,055 | (1.4) | % |
| Consolidated: | ||||||
| Non-GAAP net sales, including Divestitures | $ | 3,609,230 | $ | 3,873,111 | (6.8) | % |
| Divestitures | (561,496) | (623,312) | ||||
| Net sales, reported | 3,047,734 | 3,249,799 | (6.2) | % | ||
| Foreign exchange impact^(a)^ | 40,224 | — | ||||
| Less: Acquisitions | (9,122) | (1,026) | ||||
| Non-GAAP net sales, constant currency excluding Divestitures and acquisitions | $ | 3,078,836 | $ | 3,248,773 | (5.2) | % |
| ^(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 fiscal year ended June 30, 2020 into U.S. dollars using the average foreign exchange rates for the fiscal year ended June 30, 2019. |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| 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 | |||||||
| Operating (loss) income | 4,946 | 674 | 1,311 | (5,743) | 120,470 | 8,219 | |||||||
| Other expense, net | — | — | — | 2,681 | — | 2,192 | |||||||
| Pre-tax income | 4,946 | 674 | 1,311 | (8,424) | 120,470 | 6,027 | |||||||
| Net (loss) income from continuing operations | 3,744 | 510 | 1,311 | (6,247) | 114,398 | 4,857 | |||||||
| Diluted EPS from continuing operations | (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. | |||||||||||||
| 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 | 811,432 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 811,432 |
| Gross profit | — | — | — | — | — | 96,643 | |||||||
| Operating income | 4,542 | 3,666 | 230 | — | — | 30,998 | |||||||
| Other expense, net | — | — | — | — | — | 3,427 | |||||||
| Pre-tax income | 4,542 | 3,666 | 230 | — | — | 27,571 | |||||||
| Net income from continuing operations | 3,418 | 2,780 | 230 | (3,110) | — | 19,314 | |||||||
| Diluted EPS from continuing operations | 0.62 | $ | 0.13 | $ | 0.11 | $ | 0.01 | $ | (0.12) | $ | — | $ | 0.75 |
| (a) Acquisition and divestiture costs totaled 0.2 million for the quarter ended June 30, 2019 and are generally nondeductible for tax purposes. |
All values are in US Dollars.
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| 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 | 3,047,734 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 3,047,734 |
| Gross profit | — | — | — | — | — | 355,569 | |||||||
| Operating (loss) income | 19,953 | 6,941 | 4,604 | (8,063) | 120,470 | 78,938 | |||||||
| Other expense, net | — | — | — | 2,681 | — | 9,490 | |||||||
| Pre-tax income | 19,953 | 6,941 | 4,604 | (10,744) | 120,470 | 69,448 | |||||||
| Net (loss) income from continuing operations | 15,091 | 5,247 | 4,449 | (8,001) | 114,398 | 51,957 | |||||||
| Diluted EPS from continuing operations | (3.12) | $ | 0.59 | $ | 0.21 | $ | 0.18 | $ | (0.32) | $ | 4.51 | $ | 2.05 |
| (a) Acquisition and divestiture costs totaled 4.0 million for the fiscal year ended June 30, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled 0.6 million for the fiscal year ended June 30, 2020 | |||||||||||||
| 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 | 3,249,799 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 3,249,799 |
| Gross profit | — | — | — | — | — | 392,803 | |||||||
| Operating income | 17,893 | 15,200 | 1,218 | — | — | 129,045 | |||||||
| Other expense, net | — | — | — | — | — | 11,097 | |||||||
| Pre-tax income | 17,893 | 15,200 | 1,218 | — | — | 117,948 | |||||||
| Net income from continuing operations | 13,484 | 11,294 | 1,218 | (3,110) | — | 87,745 | |||||||
| Diluted EPS from continuing operations | 2.52 | $ | 0.52 | $ | 0.44 | $ | 0.05 | $ | (0.12) | $ | — | $ | 3.41 |
| (a) Acquisition and divestiture costs totaled 1.2 million for the fiscal year ended June 30, 2019 and are generally nondeductible for tax purposes. |
All values are in US Dollars.
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||||||
|---|---|---|---|---|---|---|---|---|
| Supplementary Information (Unaudited) | ||||||||
| Discontinued Operations - Financial Results: | ||||||||
| Quarter ended June 30, | Fiscal year ended June 30, | |||||||
| 2020 | 2019 | 2020 | 2019 | |||||
| (in thousands) | ||||||||
| Net sales | $ | 121,969 | $ | 149,401 | $ | 561,496 | $ | 623,312 |
| Cost of goods sold | 112,846 | 136,180 | 513,003 | 563,543 | ||||
| Gross profit | 9,123 | 13,221 | 48,493 | 59,769 | ||||
| Selling, general and administrative expenses | 11,337 | 15,028 | 53,946 | 61,574 | ||||
| Depreciation expense | 205 | 249 | 975 | 1,127 | ||||
| Intangible amortization expense | 330 | 483 | 1,403 | 1,839 | ||||
| Impairment charges | 13,747 | — | 13,747 | — | ||||
| Operating loss | (16,496) | (2,539) | (21,578) | (4,771) | ||||
| Interest expense, net | 163 | 114 | 1,399 | 195 | ||||
| Loss on held for sale classification | 88,923 | — | 88,923 | — | ||||
| Other expense, net | 1,221 | 241 | 1,124 | 763 | ||||
| Loss from discontinued operations before taxes | (106,803) | (2,894) | (113,024) | (5,729) | ||||
| Income tax expense | 1,600 | 1,524 | 403 | 1,533 | ||||
| Net loss from discontinued operations | $ | (108,403) | $ | (4,418) | $ | (113,427) | $ | (7,262) |
ScanSource Reports Fourth Quarter and Fiscal Year 2020 Results
| ScanSource, Inc. and Subsidiaries | ||||
|---|---|---|---|---|
| Supplementary Information (Unaudited) | ||||
| Discontinued Operations - Assets and Liabilities: | ||||
| June 30, 2020 | June 30, 2019 | |||
| (in thousands) | ||||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 4,970 | $ | 4,513 |
| Accounts receivable, net | 117,200 | 131,560 | ||
| Inventories, net | 106,779 | 143,263 | ||
| Prepaid expenses and other current assets | 23,808 | 17,417 | ||
| Total current assets | 252,757 | 296,753 | ||
| Property and equipment, net | 1,833 | 2,793 | ||
| Goodwill | — | 8,823 | ||
| Identifiable intangible assets, net | — | 6,726 | ||
| Deferred income taxes | 9,349 | 9,277 | ||
| Other non-current assets | 6,215 | 1,460 | ||
| Total assets, before valuation allowance | 270,154 | 325,832 | ||
| Less: valuation allowance | (88,923) | — | ||
| Total assets, net of valuation allowance ^(a)^ | $ | 181,231 | $ | 325,832 |
| Liabilities | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 56,098 | $ | 69,810 |
| Accrued expenses and other current liabilities | 14,815 | 14,763 | ||
| Other taxes payable | 20,378 | 12,018 | ||
| Short-term borrowings | 3,524 | 4,590 | ||
| Income tax payable | 1,085 | 351 | ||
| Total current liabilities | 95,900 | 101,532 | ||
| Borrowings under revolving credit facility | 24,704 | 28,427 | ||
| Other long-term liabilities | 7,418 | 3,730 | ||
| Total liabilities^(1)^ | $ | 128,022 | $ | 133,689 |
| ^(a)^Total assets and liabilities of discontinued operations are classified in current assets and liabilities, respectively, in the Company's consolidated balance sheet as of June 30, 2020, as the discontinued operations are expected to be disposed within twelve months of that date. The assets and liabilities of discontinued operations are classified in their respective current and long-term classifications, respectively, in the Company's consolidated balance sheet as of June 30, 2019 in accordance with the nature and underlying classification of such assets and liabilities. |
16
cfocommentary08312020fin
Exhibit 99.2 ScanSource, Inc. CFO COMMENTARY Q4 FY2020 CFO COMMENTARY Q4 FY 2020 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-K for the year ended June 30, 2020. 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, August 31, 2020 at 5:00 pm ET. A webcast of the call is available and can be accessed During at www.scansource.com (Investor Relations section). The webcast will be fourth available for replay for 60 days. quarter FOURTH QUARTER SUMMARY fiscal year 2020, We have taken actions to strengthen our balance sheet, improve our cost generated structure, and prepare for the next phase of growth. For fourth quarter fiscal strong year 2020, we delivered net sales of $636.5 million (down 22% Y/Y, or down operating 19% Y/Y for organic growth), reflecting lower customer demand as a result cash flow of of the COVID-19 pandemic. For the Intelisys master agency business, net $74 million sales increased 15% Y/Y. Primarily as a result of the COVID-19 pandemic, in the fourth quarter, we recorded pre-tax, non-cash goodwill and asset impairment charges of $120 million. At June 30, 2020, the Divestitures (defined below) were classified as assets held for sale and recorded as discontinued operations. For fiscal year 2020, we generated strong operating cash flow of $182 million, up from $16 million for fiscal year 2019. Please see Appendix for calculation of non-GAAP This reflects our efforts to reduce working capital investment. measures and reconciliations to GAAP After quarter end, in July, ScanSource initiated a $30 million annualized measures. In August 2019, ScanSource announced expense reduction plan to address the business impacts of the COVID-19 plans to divest its products distribution business pandemic. Also, in July, ScanSource signed an agreement to sell its outside of the United States, Canada and Brazil products distribution business located in Mexico, Colombia, Chile, and Peru, (“Divestitures”). and its Miami-based export operations. scansource.com 1 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 QUARTERLY HIGHLIGHTS Y/Y Q4 FY20 Q3 FY20 Q4 FY19 $ in millions, except EPS Change Net sales $636.5 $744.6 $811.4 -22% Gross profit $74.1 $84.6 $96.6 -23% Gross profit margin % 11.7% 11.4% 11.9% -26 bps SG&A expenses $58.2 $65.1 $62.9 -8% Operating income $(113.4) $10.4 $22.6 n/m Operating income % -17.8% 1.4% 2.8% n/m Non-GAAP operating income $8.2 $14.8 $31.0 -73% Non-GAAP operating income % 1.3% 2.0% 3.8% -253 bps GAAP net income $(108.9) $5.7 $16.0 n/m Non-GAAP net income $4.9 $9.2 $19.3 -75% GAAP diluted EPS $(4.29) $0.23 $0.62 n/m Non-GAAP diluted EPS $0.19 $0.36 $0.75 -75% • Net sales of $636.5 million, down • GAAP operating income, net income 22% Y/Y and diluted EPS reflect $120 million pre-tax, non-cash goodwill and asset - FX impact of $(20) million; organic impairment charges growth down 19% Y/Y • Non-GAAP operating income of $8.2 - Lower customer demand from the million COVID-19 pandemic - Decreases primarily from lower - Record net sales for Intelisys sales volumes master agency, up 15% Y/Y - In July 2020, initiated a $30 million • Gross profit margin of 11.7% expense reduction plan to better - Reflects lower supplier program align the cost structure with lower recognition sales volumes - Better mix from Intelisys and SaaS business Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and acquisitions. 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, acquisition/divestiture costs, and other non- GAAP items. scansource.com 2 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 WORLDWIDE BARCODE, NETWORKING & SECURITY Q4 FY20 Q3 FY20 Q4 FY19 $ in millions Net sales $447.8 $489.2 $529.1 Gross profit $37.3 $41.9 $49.1 Gross profit margin % 8.3% 8.6% 9.3% Operating income $(112.7) $4.8 $11.5 Operating income % -25.2% 1.0% 2.2% Non-GAAP operating income $3.7 $5.3 $13.5 Non-GAAP operating income % 0.8% 1.1% 2.5% Net Sales, $ in millions • Net sales of $447.8 million, down 15% Y/Y; organic growth down 14% Y/Y Y/Y Growth -15% Y/Y Organic Growth -14% - Lower customer demand from the 1 COVID-19 pandemic $700 • Gross profit margin of 8.3%, down both Y/Y and Q/Q $600 $581 $575 - Lower supplier program recognition $529 • Operating income includes $119 million for goodwill impairment charges $500 $489 $448 • Non-GAAP operating income of $3.7 million $400 - Reflects lower gross profits from lower sales volumes and gross $300 profit margin declines Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 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. scansource.com 3 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 WORLDWIDE COMMUNICATIONS & SERVICES Q4 FY20 Q3 FY20 Q4 FY19 $ in millions Net sales $188.6 $255.4 $282.3 Gross profit $36.9 $42.7 $47.5 Gross profit margin % 19.5% 16.7% 16.8% Operating income $0.5 $6.4 $11.3 Operating income % 0.3% 2.5% 4.0% Non-GAAP operating income $4.5 $9.5 $17.5 Non-GAAP operating income % 2.4% 3.7% 6.2% • Net sales of $188.6 million, down 33% Net Sales, $ in millions Y/Y; organic growth down 29% Y/Y Y/Y Growth -33% - Lower customer demand from the Y/Y Organic Growth -29% COVID-19 pandemic $400 - Accelerating decline of premise- based communications and shift to cloud $282 $300 $262 - Record net sales for Intelisys $249 $255 master agency, up 15% Y/Y • Gross profit margin of 19.5%, up both $200 $189 Y/Y and Q/Q - Better mix from Intelisys and SaaS $100 business • Operating income includes $1.4 million of impairment charges related to wind- $- down of Canpango (starting 7/20) Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 • Non-GAAP operating income decreased to $4.5 million, principally from lower sales volumes 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. scansource.com 4 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 FULL-YEAR HIGHLIGHTS Y/Y FY20 FY19 $ in millions, except EPS Change Net sales $3,047.7 $3,249.8 -6% Gross profit $355.6 $392.8 -9% Gross profit margin % 11.7% 12.1% -42 bps SG&A expenses $260.1 $252.9 +3% Operating income ($65.0) $94.7 n/m Operating income % -2.1% 2.9% n/m Non-GAAP operating income $78.9 $129.0 -39% Non-GAAP operating income % 2.6% 4.0% -138 bps GAAP net income ($79.2) $64.9 n/m Non-GAAP net income $52.0 $87.7 -41% GAAP diluted EPS ($3.12) $2.52 n/m Non-GAAP diluted EPS $2.05 $3.41 -40% • Net sales of $3.05 billion, down 6% Y/Y • GAAP operating income, net income and diluted EPS reflect $120 million pre-tax, - FX impact of $(40) million; organic non-cash goodwill and asset impairment growth down 5% Y/Y charges - Lower customer demand from the COVID-19 pandemic • Non-GAAP operating income of $78.9 million - Accelerating decline of premise-based communications and shift to cloud - Decreases primarily from lower sales volumes - Net sales for Intelisys master agency, up 15% Y/Y - In July 2020, initiated a $30 million expense reduction plan to better align • Gross profit margin decreased 42 basis the cost structure with lower sales points to 11.7%; reflects lower supplier volumes program recognition Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and acquisitions. 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, acquisition/divestiture costs, and other non- GAAP items. scansource.com 5 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 WORKING CAPITAL Q4 FY20 Q3 FY20 Q4 FY19 $ in millions Accounts receivable (Q/E) $443.2 $504.4 $523.4 Days sales outstanding in receivables* 63 61 58 Inventory (Q/E) $454.9 $550.1 $554.1 Inventory turns 4.5 4.5 4.9 Accounts payable (Q/E) $454.2 $533.1 $488.3 Paid for inventory days* 10.9 11.0 15.1 Working capital (Q/E) (AR+INV–AP) $443.8 $521.3 $589.2 * 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 $443.8 million, down • Inventory of $454.9 million, down 17% 15% Q/Q and down 25% Y/Y Q/Q and down 18% Y/Y - Decreases due to lower sales - Inventory turns of 4.5x; slower-than- volumes expected range from lower sales volumes • Days sales outstanding in receivables of 63 days • Paid for inventory days of 10.9 reflect timing of accounts payable, including - Increases due to timing of sales and some vendor term extensions providing customized financial solutions for customers scansource.com 6 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 CASH FLOW AND BALANCE SHEET HIGHLIGHTS Q4 FY20 Q3 FY20 Q4 FY19 $ in millions Adjusted EBITDA (QTR)* $12.3 $19.8 $35.2 Adjusted ROIC (QTR)* 4.0% 6.1% 11.2% Operating cash flow (QTR) $74.0 $25.3 $34.5 Operating cash flow, trailing 12 months $182.0 $142.5 $16.0 Cash and cash equivalents (Q/E), including $34.5 $34.6 $23.8 discontinued operations Debt (Q/E), including discontinued operations $247.0 $320.6 $360.5 Net debt, including discontinued operations to 2.2x 2.4x 2.3x adjusted EBITDA, trailing 12 months* Shares repurchased – # of shares (QTR) -- -- 314,445 Shares repurchased – dollars (QTR) -- -- $9.8 Remaining share repurchase authorization -- -- $89.5 (as of Q/E) * Excludes non-GAAP adjustments and change in fair value of contingent consideration • Adjusted EBITDA of $12.3 million, down • Cash and cash equivalent balances from 65% Y/Y, primarily from lower sales continuing operations of $29.5 million at volumes and low operating leverage 6/30/20, including $23.6 million held outside of the U.S. • Operating cash flow of $74 million for the quarter and $182 million for the trailing • Net debt to trailing 12-month adjusted 12 months EBITDA is 2.2x (target range:1.5x to 2.5x) - Earnings from operations adjusted for non-cash items and lower working capital scansource.com 7 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 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 the achievement. ScanSource disclaims any Divestitures, impact of the COVID-19 obligation to update or revise any forward- pandemic and our operating strategies that looking statements, whether as a result of new involve plans, strategies, economic information, future events, or otherwise, performance and trends, projections, except as may be required by law. expectations, costs or beliefs about future events and other statements that are not descriptions of historical facts. Forward- NON-GAAP FINANCIAL INFORMATION looking information is inherently subject to In addition to disclosing results that are risks and uncertainties. determined in accordance with United States Generally Accepted Accounting Principles Any number of factors could cause actual (“GAAP”), the Company also discloses certain results to differ materially from anticipated or non-GAAP measures, including non-GAAP forecasted results, including but not limited to, operating income, non-GAAP operating our ability to complete the Divestitures on income margin, non-GAAP net income, non- acceptable terms or at all, changes in our GAAP diluted EPS, non-GAAP net sales, non- operating strategy, the impact of COVID-19 GAAP gross profit, non-GAAP gross margin, pandemic on our operations and financial adjusted EBITDA, ROIC and net sales condition, changes in interest and exchange excluding the Divestitures less impacts from rates and regulatory regimes impacting our foreign currency translation and acquisitions international operations, the impact of tax (organic growth). A reconciliation of the reform laws, the failure of acquisitions to meet Company's non-GAAP financial information to our expectations, the failure to manage and GAAP 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, 2020, filed with the Securities and Exchange Commission (“SEC”). scansource.com 8 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Select GAAP and Non-GAAP Measures - QTR ($ in thousands) Q4 FY20 Q3 FY20 Q4 FY19 Select reported GAAP measures: Net sales $ 636,450 $ 744,584 $ 811,432 Gross profit 74,147 84,579 96,643 Operating (loss) income (113,439) 10,393 22,560 Other expense (income), net (489) 1,881 3,427 Pre-tax (loss) income (112,950) 8,513 19,133 Net (loss) income $ (108,859) $ 5,716 $ 15,996 Diluted EPS $ (4.29) $ 0.23 $ 0.62 (a) Select Non-GAAP measures: Net sales $ 636,450 $ 744,584 $ 811,432 Gross profit 74,147 84,579 96,643 Operating income 8,219 14,800 30,998 Other expense (income), net 2,192 1,881 3,427 Pre-tax income 6,027 12,920 27,571 Net income $ 4,857 $ 9,244 $ 19,314 Diluted EPS $ 0.19 $ 0.36 $ 0.75 (a) See page 10 and 11 of the Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures scansource.com 9 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS - QTR ($ in thousands) Quarter ended June 30, 2020 Measure, Change in fair Acquisition, including Intangible value of divestiture and Divestitures Impact of Reported amortization contingent restructuring Tax recovery, Impairment Non-GAAP (Non-GAAP) Divestitures GAAP measure expense consideration costs(a) net charges measure Net sales $ 758,418 $ (121,968) $ 636,450 $ — $ — $ — $ — $ — $ 636,450 Gross profit 83,270 (9,123) 74,147 — — — — — 74,147 Operating income (129,935) 16,496 (113,439) 4,946 674 1,311 (5,743) 120,470 8,219 Other expense, net 89,817 (90,306) (489) — — — 2,681 — 2,192 Pre-tax income (219,752) 106,802 (112,950) 4,946 674 1,311 (8,424) 120,470 6,027 Net income (217,262) 108,403 (108,859) 3,744 510 1,311 (6,247) 114,398 4,857 Diluted EPS $ (8.57) $ 4.28 $ (4.29) $ 0.15 $ 0.02 $ 0.05 $ (0.25) $ 4.51 $ 0.19 (a) Acquisition and divestiture costs totaled $1.3 million for the quarter ended June 30, 2020 and are generally nondeductible for tax purposes. ($ in thousands) Quarter ended March 31, 2020 Measure, Change in fair Acquisition, including Intangible value of divestiture and Divestitures Impact of Reported amortization contingent restructuring Tax recovery, Impairment Non-GAAP (Non-GAAP) Divestitures GAAP measure expense consideration costs(a) net charges measure Net sales $ 872,483 $ (127,899) $ 744,584 $ — $ — $ — $ — $ — $ 744,584 Gross profit 94,809 (10,230) 84,579 — — — — — 84,579 Operating income 6,289 4,104 10,393 5,159 618 950 (2,320) — 14,800 Other expense, net 2,638 (757) 1,881 — — — — — 1,881 Pre-tax income 3,652 4,861 8,513 5,159 618 950 (2,320) — 12,920 Net income 1,713 4,003 5,716 3,909 467 906 (1,754) — 9,244 Diluted EPS $ 0.07 $ 0.16 $ 0.23 $ 0.15 $ 0.02 $ 0.04 $ (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 $0.2 million for the quarter ended March 31, 2020. scansource.com 10 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS - QTR, continued ($ in thousands) Quarter ended June 30, 2019 Measure, Change in fair Acquisition, including Intangible value of divestiture and Divestitures Impact of Reported amortization contingent restructuring Tax recovery, Impairment Non-GAAP (Non-GAAP) Divestitures GAAP measure expense consideration costs(a) net charges measure Net sales $ 960,833 $ (149,401) $ 811,432 $ — $ — $ — $ — $ — $ 811,432 Gross profit 109,864 (13,221) 96,643 — — — — — 96,643 Operating income 20,022 2,538 22,560 4,542 3,666 230 — — 30,998 Other expense, net 3,783 (356) 3,427 — — — — — 3,427 Pre-tax income 16,238 2,895 19,133 4,542 3,666 230 — — 27,571 Net income 11,578 4,418 15,996 3,418 2,780 230 (3,110) — 19,314 Diluted EPS $ 0.45 $ 0.17 $ 0.62 $ 0.13 $ 0.11 $ 0.01 $ (0.12) $ — $ 0.75 (a) Acquisition and divestiture costs totaled $0.2 million for the quarter ended June 30, 2020 and are generally nondeductible for tax purposes. scansource.com 11 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS - FY ($ in thousands) Fiscal year ended June 30, 2020 Measure, Change in fair Acquisition, including Intangible value of divestiture and Divestitures Impact of Reported amortization contingent restructuring Tax recovery, Impairment Non-GAAP (Non-GAAP) Divestitures GAAP measure expense consideration costs(a) net charges measure Net sales $ 3,609,230 $ (561,496) $ 3,047,734 $ — $ — $ — $ — $ — $ 3,047,734 Gross profit 404,062 (48,493) 355,569 — — — — — 355,569 Operating income (86,545) 21,578 (64,967) 19,953 6,941 4,604 (8,063) 120,470 78,938 Other expense, net 98,254 (91,445) 6,809 — — — 2,681 — 9,490 Pre-tax income (184,799) 113,023 (71,776) 19,953 6,941 4,604 (10,744) 120,470 69,448 Net income (192,654) 113,427 (79,227) 15,091 5,247 4,449 (8,001) 114,398 51,957 Diluted EPS $ (7.59) $ 4.47 $ (3.12) $ 0.59 $ 0.21 $ 0.18 $ (0.32) $ 4.51 $ 2.05 (a) Acquisition and divestiture costs totaled $4.0 million for the fiscal year ended June 30, 2020 and are generally nondeductible for tax purposes. Restructuring costs totaled $0.6 million for the fiscal year ended June 30, 2020. ($ in thousands) Fiscal year ended June 30, 2019 Measure, Change in fair Acquisition, including Intangible value of divestiture and Divestitures Impact of Reported amortization contingent restructuring Tax recovery, Impairment Non-GAAP (Non-GAAP) Divestitures GAAP measure expense consideration costs(a) net charges measure Net sales $ 3,873,111 $ (623,312) $ 3,249,799 $ — $ — $ — $ — $ — $ 3,249,799 Gross profit 452,572 (59,769) 392,803 — — — — — 392,803 Operating income 89,964 4,770 94,734 17,893 15,200 1,218 — — 129,045 Other expense, net 12,056 (959) 11,097 — — — — — 11,097 Pre-tax income 77,908 5,729 83,637 17,893 15,200 1,218 — — 117,948 Net income 57,597 7,262 64,859 13,484 11,294 1,218 (3,110) — 87,745 Diluted EPS $ 2.24 $ 0.28 $ 2.52 $ 0.52 $ 0.44 $ 0.05 $ (0.12) $ — $ 3.41 (a) Acquisition and divestiture costs totaled $1.2 million for the fiscal year ended June 30, 2019 and are generally nondeductible for tax purposes. scansource.com 12 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Sales, Constant Currency and Excluding Acquisitions (Organic Growth) - QTR WW Barcode, WW Comms. & ($ in thousands) NW & Security Services Consolidated For the quarter ended June 30, 2020: Q4 FY20 net sales, including Divestitures $ 543,996 $ 214,422 $ 758,418 Divestitures (96,184) (25,784) (121,968) Q4 FY20 net sales, as reported $ 447,812 $ 188,638 $ 636,450 Foreign exchange impact (a) 4,911 14,674 19,585 Less: Acquisitions — (1,567) (1,567) Q4 FY20 net sales, constant currency excluding Divestitures and acquisitions (non- GAAP) $ 452,723 $ 201,745 $ 654,468 For the quarter ended June 30, 2019: Q4 FY19 net sales, including Divestitures $ 636,172 $ 324,661 $ 960,833 Divestitures (107,079) (42,322) (149,401) Q4 FY19 net sales, as reported $ 529,093 $ 282,339 $ 811,432 Less: Acquisitions — — — Q4 FY19 net sales, excluding Planned Divestitures and acquisitions (non-GAAP) $ 529,093 $ 282,339 $ 811,432 Y/Y % Change: Including Divestitures (14.5) % (34.0) % (21.1) % As reported (15.4) % (33.2) % (21.6) % Constant currency, excluding Divestitures and acquisitions (organic growth) (14.4) % (28.5) % (19.3) % (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, 2020 into U.S. dollars using the weighted-average foreign exchange rates for the quarter ended June 30, 2019. scansource.com 13 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Sales, Constant Currency and Excluding Acquisitions (Organic Growth) - FY WW Barcode, WW Comms. & ($ in thousands) NW & Security Services Consolidated For the fiscal year ended June 30, 2020: FY20 net sales, including Divestitures $ 2,511,666 $ 1,097,564 $ 3,609,230 Divestitures (418,449) (143,047) (561,496) FY20 net sales, as reported $ 2,093,217 $ 954,517 $ 3,047,734 Foreign exchange impact (a) 10,395 29,829 40,224 Less: Acquisitions — (9,122) (9,122) FY20 net sales, constant currency excluding Divestitures and acquisitions (non-GAAP) $ 2,103,612 $ 975,224 $ 3,078,836 For the fiscal year ended June 30, 2019: FY19 net sales, including Divestitures $ 2,589,837 $ 1,283,274 $ 3,873,111 Divestitures (447,941) (175,371) (623,312) FY19 net sales, as reported $ 2,141,896 $ 1,107,903 $ 3,249,799 Foreign exchange impact (a) — — — Less: Acquisitions — (1,026) (1,026) FY19 net sales, excluding Divestitures and acquisitions (non-GAAP) $ 2,141,896 $ 1,106,877 $ 3,248,773 Y/Y % Change: Including Divestitures (3.0) % (14.5) % (6.8) % As reported (2.3) % (13.8) % (6.2) % Constant currency, excluding Divestitures and acquisitions (organic growth) (1.8) % (11.9) % (5.2) % (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, 2020 into U.S. dollars using the weighted-average foreign exchange rates for the fiscal year ended June 30, 2019. scansource.com 14 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Highlights by Segment - QTR ($ in thousands) Quarter Ended June 30, 2020 Acquisition, Measure, Change in fair Divestiture, including Reported Intangible value of and Divestitures Impact of GAAP amortization contingent Restructuring Tax reform Impairment Non-GAAP (Non-GAAP) Divestitures measure expense consideration costs and settlement charges measure Worldwide Barcode, NW & Security: Net sales $ 543,996 (96,184) 447,812 — — — — — $ 447,812 Gross Profit $ 42,997 (5,708) 37,289 — — — — — $ 37,289 Gross profit margin % 7.9 % 5.9 % 8.3 % — % — % — % — % — % 8.3 % Operating income $ (115,352) 2,683 (112,669) 1,968 — — (4,648) 119,037 $ 3,688 Operating income margin % (21.2) % (2.8) % (25.2) % — % — % — % — % — % 0.8 % Worldwide Communications & Services: Net sales $ 214,422 (25,784) 188,638 — — — — — $ 188,638 Gross Profit $ 40,273 (3,415) 36,858 — — — — — $ 36,858 Gross profit margin % 18.8 % 13.2 % 19.5 % — % — % — % — % — % 19.5 % Operating income $ (13,272) 13,812 540 2,978 674 — (1,095) 1,433 $ 4,530 Operating income margin % (6.2) % (53.6) % 0.3 % — % — % — % — % — % 2.4 % ($ in thousands) Quarter Ended March 31, 2020 Acquisition, Measure, Change in fair Divestiture, including Reported Intangible value of and Divestitures Impact of GAAP amortization contingent Restructuring Tax reform Impairment Non-GAAP (Non-GAAP) Divestitures measure expense consideration costs and settlement charges measure Worldwide Barcode, NW & Security: Net sales $ 583,642 (94,424) 489,218 — — — — — $ 489,218 Gross Profit $ 48,583 (6,712) 41,871 — — — — — $ 41,871 Gross profit margin % 8.3 % 7.1 % 8.6 % — % — % — % — % — % 8.6 % Operating income $ 3,870 925 4,795 1,968 — — (1,452) — $ 5,311 Operating income margin % 0.7 % (1.0) % 1.0 % — % — % — % — % — % 1.1 % scansource.com 15 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Worldwide Communications & Services: Net sales $ 288,841 (33,451) 255,390 — — — — — $ 255,390 Gross Profit $ 46,226 (3,494) 42,732 — — — — — $ 42,732 Gross profit margin % 16.0 % 10.4 % 16.7 % — % — % — % — % — % 16.7 % Operating income $ 3,199 3,199 6,398 3,191 618 169 (868) — $ 9,508 Operating income margin % 1.1 % (9.6) % 2.5 % — % — % — % — % — % 3.7 % ($ in thousands) Quarter Ended June 30, 2019 Acquisition, Measure, Change in fair Divestiture, including Reported Intangible value of and Divestitures Impact of GAAP amortization contingent Restructuring Tax reform Impairment Non-GAAP (Non-GAAP) Divestitures measure expense consideration costs and settlement charges measure Worldwide Barcode, NW & Security: Net sales $ 636,172 (107,079) 529,093 — — — — — $ 529,093 Gross Profit $ 56,407 (7,278) 49,129 — — — — — $ 49,129 Gross profit margin % 8.9 % 6.8 % 9.3 % — % — % — % — % — % 9.3 % Operating income $ 10,901 605 11,506 1,968 — — — — $ 13,474 Operating income margin % 1.7 % (0.6) % 2.2 % — % — % — % — % — % 2.5 % Worldwide Communications & Services: Net sales $ 324,661 (42,322) 282,339 — — — — — $ 282,339 Gross Profit $ 53,458 (5,944) 47,514 — — — — — $ 47,514 Gross profit margin % 16.5 % 14.0 % 16.8 % — % — % — % — % — % 16.8 % Operating income $ 9,351 1,933 11,284 2,574 3,666 — — — $ 17,524 Operating income margin % 2.9 % (4.6) % 4.0 % — % — % — % — % — % 6.2 % scansource.com 16 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Highlights by Segment - FY ($ in thousands) Fiscal year ended June 30, 2020 Acquisition, Measure, Change in fair Divestiture, including Reported Intangible value of and Divestitures Impact of GAAP amortization contingent Restructuring Tax reform Impairment Non-GAAP (Non-GAAP) Divestitures measure expense consideration costs and settlement charges measure Worldwide Barcode, NW & Security: Net sales $ 2,511,666 (418,449) 2,093,217 — — — — — $ 2,093,217 Gross Profit $ 209,987 (29,405) 180,582 — — — — — $ 180,582 Gross profit margin % 8.4 % 7.0 % 8.6 % — % — % — % — % — % 8.6 % Operating income $ (85,414) 1,899 (83,515) 7,871 — — (5,480) 119,037 $ 37,913 Operating income margin % (3.4) % (0.5) % (4.0) % — % — % — % — % — % 1.8 % Worldwide Communications & Services: Net sales $ 1,097,564 (143,047) 954,517 — — — — — $ 954,517 Gross Profit $ 194,075 (19,087) 174,988 — — — — — $ 174,988 Gross profit margin % 17.7 % 13.3 % 18.3 % — % — % — % — % — % 18.3 % Operating income $ 2,869 19,679 22,548 12,082 6,941 604 (2,583) 1,433 $ 41,025 Operating income margin % 0.3 % (13.8) % 2.4 % — % — % — % — % — % 4.3 % ($ in thousands) Fiscal year ended June 30, 2019 Acquisition, Measure, Change in fair Divestiture, including Reported Intangible value of and Divestitures Impact of GAAP amortization contingent Restructuring Tax reform Impairment Non-GAAP (Non-GAAP) Divestitures measure expense consideration costs and settlement charges measure Worldwide Barcode, NW & Security: Net sales $ 2,589,837 (447,941) 2,141,896 — — — — — $ 2,141,896 Gross Profit $ 244,746 (35,503) 209,243 — — — — — $ 209,243 Gross profit margin % 9.5 % 7.9 % 9.8 % — % — % — % — % — % 9.8 % Operating income $ 59,875 (2,856) 57,019 8,099 — — — — $ 65,118 Operating income margin % 2.3 % 0.6 % 2.7 % — % — % — % — % — % 3.0 % scansource.com 17 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION ($ in thousands) Fiscal year ended June 30, 2019 Acquisition, Measure, Change in fair Divestiture, including Reported Intangible value of and Divestitures Impact of GAAP amortization contingent Restructuring Tax reform Impairment Non-GAAP (Non-GAAP) Divestitures measure expense consideration costs and settlement charges measure Worldwide Communications & Services: Net sales $ 1,283,274 (175,371) 1,107,903 — — — — — $ 1,107,903 Gross Profit $ 207,826 (24,266) 183,560 — — — — — $ 183,560 Gross profit margin % 16.2 % 13.8 % 16.6 % — % — % — % — % — % 16.6 % Operating income $ 31,307 7,626 38,933 9,794 15,200 — — — $ 63,927 Operating income margin % 2.4 % (4.3) % 3.5 % — % — % — % — % — % 5.8 % scansource.com 18 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Average Return on Invested Capital - QTR ($ in thousands) Q4 FY20 Q3 FY20 Q2 FY20 Q1 FY20 Q4 FY19 Adjusted return on invested capital (ROIC), annualized (a) 4.0 % 6.1 % 9.9 % 9.6 % 11.2 % Reconciliation of Net Income to Adjusted EBITDA Net (loss) income from continuing operations - GAAP $ (108,859) $ 5,716 $ 11,626 $ 12,291 $ 15,996 Plus: Interest expense 2,497 3,098 3,312 3,317 3,851 Income taxes (4,091) 2,797 4,407 4,338 3,137 Depreciation and amortization 8,743 8,986 9,081 8,517 8,321 EBITDA (101,710) 20,597 28,426 28,463 31,305 Adjustments: Change in fair value of contingent consideration 674 618 3,176 2,472 3,666 Tax recovery, net (8,424) (2,320) — — — Acquisition and divestiture costs 1,311 781 1,151 757 230 Restructuring costs — 169 266 169 — Impairment charges 120,470 — — — — Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 12,321 $ 19,845 $ 33,019 $ 31,861 $ 35,201 Invested Capital Calculation Equity - beginning of the quarter $ 897,678 $ 927,580 $ 905,751 $ 914,129 $ 911,063 Equity - end of quarter 678,246 897,678 927,580 905,751 914,129 Adjustments: Change in fair value of contingent consideration, net of tax 510 467 2,401 1,869 2,780 Tax recovery, net and related interest income, net of tax (6,247) (1,754) — — (3,110) Acquisition and divestiture costs 1,311 781 1,151 757 230 Asset impairment, net of tax 114,398 — — — — Restructuring costs, net of tax — 125 196 128 — Impact of Planned Divestitures, net of tax 98,794 (7,713) (13,520) (12,501) (16,557) Average equity 892,345 908,582 911,780 905,067 904,268 Average funded debt (b) 337,973 405,533 411,614 407,306 355,932 Invested capital (denominator for ROIC) (non-GAAP) $ 1,230,318 $ 1,314,115 $ 1,323,394 $ 1,312,373 $ 1,260,200 (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 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.com 19 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Average Return on Invested Capital - FY ($ in thousands) FY20 FY19 Adjusted return on invested capital (ROIC), annualized (a) 7.5 % 12.1 % Reconciliation of Net Income to Adjusted EBITDA Net (loss) income from continuing operations - GAAP $ (79,227) $ 64,859 Plus: Interest expense 12,224 13,162 Income taxes 7,451 18,778 Depreciation and amortization 35,328 33,652 EBITDA (24,224) 130,451 Adjustments: Change in fair value of contingent consideration 6,941 15,200 Tax recovery, net (10,744) — Acquisition and divestiture costs 4,000 1,218 Restructuring costs 604 — Impairment charges 120,470 — Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 97,047 $ 146,869 Invested Capital Calculation Equity - beginning of the year $ 914,129 $ 866,376 Equity - end of the year 678,246 914,129 Adjustments: Change in fair value of contingent consideration, net of tax 5,247 11,294 Tax recovery, net of tax (8,001) (3,110) Acquisition and divestiture costs 4,000 1,218 Asset impairment, net of tax 114,398 — Restructuring costs, net of tax 449 — Impact of discontinued operations, net of tax 98,794 (16,557) Average equity 903,631 886,675 Average funded debt (b) 390,709 329,473 Invested capital (denominator for ROIC) (non-GAAP) $ 1,294,340 $ 1,216,148 (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 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.com 20 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Debt and EBITDA Metrics ($ in thousands) Q4 FY20 Q3 FY20 Q2 FY20 Q1 FY20 Q4 FY19 Debt of continuing operations(Q/E) $ 218,728 $ 281,951 $ 280,791 $ 286,616 $ 327,489 Debt of discontinued operations (Q/E) 28,228 38,645 76,954 83,714 33,017 Consolidated debt (Q/E) 246,956 320,596 357,745 370,330 360,506 Less: Cash and cash equivalents of continuing operations (Q/E) (29,485) (29,758) (38,773) (24,351) (19,305) Cash and cash equivalents of discontinued operations (Q/E) (4,970) (4,838) (3,232) (1,526) (4,513) Consolidated cash and cash equivalents (Q/E) (34,455) (34,596) (42,005) (25,877) (23,818) Net debt (Q/E) $ 212,501 $ 286,000 $ 315,740 $ 344,453 $ 336,688 Reconciliation of Net Income to Adjusted EBITDA Net (loss) income from continuing operations - GAAP $ (108,859) $ 5,716 $ 11,626 $ 12,291 $ 15,996 Plus: Interest expense 2,497 3,098 3,312 3,317 3,851 Income taxes (4,091) 2,797 4,407 4,338 3,137 Depreciation and amortization 8,743 8,986 9,081 8,517 8,321 EBITDA (101,710) 20,597 28,426 28,463 31,305 Adjustments: Change in fair value of contingent consideration 674 618 3,176 2,472 3,666 Tax recovery, net (8,424) (2,320) — — — Acquisition and divestiture costs 1,311 781 1,151 757 230 Restructuring costs — 169 266 169 — Impairment charges 120,470 — — — — Adjusted EBITDA (non-GAAP) $ 12,321 $ 19,845 $ 33,019 $ 31,861 $ 35,201 Adjusted EBITDA, TTM (a) $ 97,047 $ 119,925 $ 135,627 $ 141,778 $ 146,869 Net Debt / Adjusted EBITDA, TTM (a) 2.2x 2.4x 2.3x 2.4x 2.3x (a) Adjusted EBITDA for the trailing 12-month period scansource.com 21 August 31, 2020
ScanSource, Inc. CFO COMMENTARY Q4 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Discontinued Operations, Net Sales and Working Capital ($ in thousands) Q4 FY20 Q3 FY20 Q2 FY20 Q1 FY20 Q4 FY19 Net sales from continuing operations $ 636,450 $ 744,584 $ 823,999 $ 842,702 $ 811,432 Net sales from discontinued operations 121,969 127,899 155,912 155,716 149,401 Working capital Net accounts receivable of continuing operations $ 443,185 $ 504,366 $ 513,644 $ 567,947 $ 523,424 Net accounts receivable of discontinued operations 117,200 114,392 131,626 138,481 131,560 Inventory of continuing operations $ 454,885 $ 550,072 $ 621,146 $ 599,645 $ 554,080 Inventory of discontinued operations 106,779 116,386 121,833 115,580 143,263 Accounts payable of continuing operations $ 454,240 $ 533,124 $ 586,957 $ 581,743 $ 488,291 Accounts payable of discontinued operations 56,098 75,293 85,949 74,407 69,810 Working capital of continuing operations $ 443,830 $ 521,314 $ 547,833 $ 585,849 $ 589,213 Working capital of discontinued operations 167,881 155,485 167,510 179,654 205,013 scansource.com 22 August 31, 2020