ScanSource(SCSC) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended September 30, 2023 Condensed Consolidated Balance Sheets Total assets decreased to $1.90 billion and liabilities to $983.3 million as of September 30, 2023 Condensed Consolidated Balance Sheets (unaudited) | (In thousands) | September 30, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Total current assets | $1,507,435 | $1,657,075 | | Total assets | $1,898,535 | $2,068,169 | | Total current liabilities | $701,049 | $786,801 | | Total liabilities | $983,282 | $1,162,871 | | Total shareholders' equity | $915,253 | $905,298 | Condensed Consolidated Income Statements Net sales decreased to $876.3 million and net income to $15.4 million for the quarter ended September 30, 2023 Condensed Consolidated Income Statements (unaudited) | (In thousands, except per share data) | Quarter ended Sep 30, 2023 | Quarter ended Sep 30, 2022 | | :--- | :--- | :--- | | Net sales | $876,305 | $943,813 | | Gross profit | $106,508 | $113,485 | | Operating income | $24,084 | $34,888 | | Net income | $15,432 | $24,042 | | Net income per common share, diluted | $0.61 | $0.94 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $93.5 million for the quarter ended September 30, 2023 Condensed Consolidated Statements of Cash Flows (unaudited) | (In thousands) | Quarter ended Sep 30, 2023 | Quarter ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $93,533 | $(48,459) | | Net cash used in investing activities | $(2,315) | $(684) | | Net cash (used in) provided by financing activities | $(83,493) | $52,970 | | Increase in cash and cash equivalents | $6,469 | $2,485 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information on accounting policies, revenue recognition, debt, and segment performance - The company operates as a hybrid distributor in two segments: Specialty Technology Solutions and Modern Communications & Cloud, serving markets in the US, Canada, Brazil, and the UK[27] Disaggregation of Revenue by Segment (Q3 2023) | (in thousands) | Specialty Technology Solutions | Modern Communications & Cloud | Total | | :--- | :--- | :--- | :--- | | Hardware, software and cloud (excl. Intelisys) | $509,570 | $346,232 | $855,802 | | Intelisys connectivity and cloud | — | $20,503 | $20,503 | | Total | $509,570 | $366,735 | $876,305 | Segment Operating Income (Q3 2023 vs Q3 2022) | (in thousands) | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Specialty Technology Solutions | $11,872 | $21,852 | | Modern Communications & Cloud | $12,413 | $13,036 | | Corporate | $(201) | — | | Total Operating Income | $24,084 | $34,888 | Management's Discussion and Analysis (MD&A) Management discusses the financial results for the quarter ended September 30, 2023, covering sales, income, non-GAAP metrics, and liquidity Results of Operations Net sales decreased by 7.2% year-over-year, primarily in Specialty Technology Solutions, with operating income falling 31.0% Net Sales by Segment (YoY Change) | Net Sales by Segment (in thousands) | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Specialty Technology Solutions | $509,570 | $576,329 | (11.6)% | | Modern Communications & Cloud | $366,735 | $367,484 | (0.2)% | | Total net sales | $876,305 | $943,813 | (7.2)% | - The decrease in Specialty Technology Solutions sales was primarily due to lower sales volumes in mobility and barcoding, partially offset by increased networking and security sales[101] - SG&A expenses increased by $3.8 million (5.4%) primarily due to higher bad debt expense from increases in specific customer reserves[107] - Interest expense increased 62.0% to $5.6 million, driven by higher interest rates and higher average borrowings[113] Non-GAAP Financial Information The company provides non-GAAP metrics, including operating income, diluted EPS, and Adjusted ROIC, for a clearer view of performance GAAP vs. Non-GAAP EPS (Diluted) | (per share data) | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | GAAP Diluted EPS | $0.61 | $0.94 | | Intangible amortization | $0.12 | $0.12 | | Cyberattack restoration costs | $0.01 | — | | Non-GAAP Diluted EPS | $0.74 | $1.07 | Adjusted Return on Invested Capital (ROIC) | | Quarter ended Sep 30, 2023 | Quarter ended Sep 30, 2022 | | :--- | :--- | :--- | | Adjusted ROIC, annualized | 11.0% | 15.6% | Reconciliation to Adjusted EBITDA (in thousands) | | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net income (GAAP) | $15,432 | $24,042 | | Plus: Interest, Taxes, D&A | $16,517 | $18,917 | | EBITDA (non-GAAP) | $31,949 | $42,959 | | Plus: Share-based comp, Cyberattack costs | $2,970 | $2,316 | | Adjusted EBITDA (non-GAAP) | $34,919 | $45,275 | Liquidity and Capital Resources The company's liquidity is supported by strong operating cash flow and a $350 million revolving credit facility, with $251.9 million available Cash Flow Summary (in thousands) | | Quarter ended Sep 30, 2023 | Quarter ended Sep 30, 2022 | | :--- | :--- | :--- | | Operating activities | $93,533 | $(48,459) | | Investing activities | $(2,315) | $(684) | | Financing activities | $(83,493) | $52,970 | - Net working capital decreased by $63.9 million during the quarter, primarily from decreases in inventory attributable to lower sales volume and a working capital improvement plan[136] - The company has a $350 million multicurrency senior secured revolving credit facility and a $150 million senior secured term loan facility, both maturing on September 28, 2027[142] - As of September 30, 2023, there was $251.9 million available for additional borrowings under the revolving credit facility[146] Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risks have occurred since the disclosures in its June 30, 2023 Annual Report on Form 10-K - No material changes have occurred to the company's market risks since June 30, 2023[151] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - Based on an evaluation, management concluded that disclosure controls and procedures were effective as of September 30, 2023[153] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[153] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various lawsuits but does not expect any material adverse effect on its financial condition or operations - The company does not expect any current lawsuits to have a material adverse effect on its financial condition or results of operations[155] Risk Factors No material changes to the risk factors previously disclosed in the company's June 30, 2023 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2023 have occurred[157] Share Repurchases and Dividends The company has a $100 million share repurchase program with $66.2 million remaining, and no cash dividends have been paid - As of September 30, 2023, approximately $66.2 million remained available for purchase under the company's share repurchase program[158] - The company has never declared or paid a cash dividend, and its credit facility restricts the payment of cash dividends[159] Other Information CEO Michael Baur adopted a Rule 10b5-1 trading plan on September 2, 2023, for the potential sale of up to 427,001 shares - On September 2, 2023, CEO Michael Baur adopted a Rule 10b5-1 trading plan for the sale of up to 427,001 shares of common stock, effective until November 20, 2024[160]