EX-99.2 3 scsccfocommentary19nov12.htm EXHIBIT 99.2 scsccfocommentary19nov12
Exhibit 99.2 ScanSource, Inc. CFO COMMENTARY Q1 FY2020 CFO COMMENTARY Q1 FY 2020 FINANCIAL INFORMATION AND CONFERENCE CALL Q1 FY20 Results: Please see the accompanying earnings press release available at www.scansource.com in the Investor Relations section. The information NET SALES included in this CFO commentary is unaudited and should be read in conjunction with the Company’s SEC filings on Form 10-Q for the quarter ended September 30, 2019. ScanSource will present additional information $1.01 billion about its financial results and outlook in a conference call on Tuesday, Forecast: November 12, 2019 at 5:00 pm ET. A webcast of the call is available and $970 million to can be accessed at www.scansource.com (Investor Relations section). The $1.03 billion webcast will be available for replay for 60 days. NON-GAAP NET SALES FIRST QUARTER SUMMARY Excluding Planned Divestitures Our teams are executing on our strategic growth initiatives, and we $851.4 million delivered net sales of $1.01 billion (up 3.5% Y/Y or up 3.4% Y/Y organic Forecast: growth). GAAP diluted EPS of $0.45 includes a higher-than-expected $830 million to $890 million expense for the change in fair value of contingent consideration for Intelisys as a result of better-than-expected actual results. Our GAAP net GAAP DILUTED EPS sales, non-GAAP net sales, and non-GAAP diluted EPS tracked near the $0.45 midpoint of our forecast range. For first quarter fiscal year 2020, we generated operating cash flow of $47 million, up from $6 million for the Forecast: $0.47 to $0.52 prior-year quarter. In August, we announced plans to divest certain businesses outside of NON-GAAP DILUTED EPS Excluding Planned Divestitures the United States, Canada and Brazil (“Planned Divestitures”) to align our investments with higher-growth, higher-margin businesses. During the $0.72 quarter, we began a process to market and sell the Planned Divestitures. Forecast: $0.70 to $0.75 Please see Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures. In August 2019, ScanSource announced plans to divest its physical product businesses outside of the United States, Canada and Brazil (“Planned Divestitures”). scansource.com 1 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 QUARTERLY HIGHLIGHTS Y/Y Q1 FY20 Q4 FY19 Q1 FY19 $ in millions, except EPS Change Net sales $1,006.9 $960.8 $972.9 +3.5% Non-GAAP net sales $851.4 $811.5 $813.3 +4.7% Gross profit $112.1 $109.9 $112.2 -0.1% Gross profit margin % 11.1% 11.4% 11.5% -40 bps Non-GAAP gross profit $98.7 $96.7 $97.0 +1.7% Non-GAAP gross profit margin %, 11.6% 11.9% 11.9% -34 bps Operating income $18.6 $20.0 $21.4 -13% Operating income % 1.8% 2.1% 2.2% -35 bps Non-GAAP operating income $27.5 $30.9 $32.7 -16% Non-GAAP operating income % 3.2% 3.8% 4.1% -79 bps GAAP net income $11.5 $11.6 $14.3 -19% Non-GAAP net income $18.5 $19.2 $22.9 -19% GAAP diluted EPS $0.45 $0.45 $0.56 -20% Non-GAAP diluted EPS $0.72 $0.75 $0.89 -19% • Net sales of $1 billion (+3.5% Y/Y) • Operating income margin of 1.8% and non-GAAP operating income margin of - Non-GAAP net sales, excluding 3.2% Planned Divestitures, of $851.4 million (+4.7% Y/Y) - SG&A includes investments to support the planned growth for fiscal year 2020 - Organic growth of 3.4% Y/Y; growth across key technologies in North • GAAP diluted EPS decreased 20% Y/Y to America and higher big deal volume $0.45, and non-GAAP diluted EPS decreased 19% Y/Y to $0.72 • Gross profit margin of 11.1% (down 40 bps Y/Y) and non-GAAP gross profit - GAAP diluted EPS below forecast margin of 11.6% (down 34 bps Y/Y) range - Sales mix of more lower-margin big - Non-GAAP diluted EPS near midpoint deals of forecast range Organic growth, a non-GAAP measure, reflects reported sales growth, excluding Planned Divestitures less impacts from foreign currency translation and acquisitions. Non-GAAP net sales and non-GAAP gross profit exclude Planned Divestitures. Non-GAAP operating income, non-GAAP net income, and non-GAAP diluted EPS exclude amortization of intangibles, change in fair value of contingent consideration, acquisition costs, impact of Planned Divestitures, and other non-GAAP items. scansource.com 2 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 WORLDWIDE BARCODE, NETWORKING & SECURITY Q1 FY20 Q4 FY19 Q1 FY19 $ in millions Net sales $697.8 $636.2 $655.1 Non-GAAP net sales $581.2 $529.1 $536.7 Gross profit $58.3 $56.4 $62.0 Gross profit margin % 8.4% 8.9% 9.5% Non-GAAP gross profit $50.3 $49.1 $52.7 Non-GAAP gross profit margin % 8.7% 9.3% 9.8% Operating income $12.0 $10.9 $13.5 Operating income % 1.7% 1.7% 2.1% Non-GAAP operating income $13.2 $13.5 $16.1 Non-GAAP operating income % 2.3% 2.6% 3.0% 1 Net Sales, $ in millions • Net sales of $697.8 million, up 6.5% Y/Y Y/Y Growth +6.5% - Organic growth of 8.3% Y/Y Y/Y Organic Growth +8.3% - Higher volume of big deals $800 - Growth across key technologies including mobile computing, video surveillance, and $700 payments $122 $117 $600 • Gross profit margin of 8.4% (down 111 bps) $118 $107 $100 and non-GAAP gross profit margin of 8.7% $500 (down 118 bps) $580 $581 - Sales mix of more lower-margin big deals $537 $400 $497 $529 • Operating income margin of 1.7% decreased $300 35 basis points Y/Y Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 • Non-GAAP operating income margin of 2.3% Planned Divestitures decreased 71 basis points Y/Y Continuing Operations Organic growth, a non-GAAP measure, reflects reported sales growth, excluding Planned Divestitures less impacts from foreign currency translation and acquisitions. Non-GAAP net sales and non-GAAP gross margin exclude Planned Divestitures. Non-GAAP operating income excludes amortization of intangibles, impact of Planned Divestitures, and restructuring costs. scansource.com 3 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 WORLDWIDE COMMUNICATIONS & SERVICES Q1 FY20 Q4 FY19 Q1 FY19 $ in millions Net sales $309.1 $324.7 $317.8 Non-GAAP net sales $270.2 $282.4 $276.5 Gross profit $53.8 $53.5 $50.3 Gross profit margin 17.4% 16.5% 15.8% Non-GAAP gross profit $48.4 $47.6 $44.3 Non-GAAP gross profit margin % 17.9% 16.9% 16.0% Operating income $7.4 $9.4 $8.3 Operating income % 2.4% 2.9% 2.6% Non-GAAP operating income $14.2 $17.4 $16.6 Non-GAAP operating income % 5.3% 6.2% 6.0% Net Sales, $ in millions • Net sales of $309.1 million, down 2.7% Y/Y - Organic growth of -6.3% Y/Y Y/Y Growth -2.7% Y/Y Organic Growth -6.3% - Lower sales in the premise-based $400 communications business in North America - Intelisys net sales increased 14% Y/Y $51 $300 $41 $43 $40 $39 • Gross profit margin of 17.4% (up 159 bps) and non-GAAP gross margin of 17.9% (up 191 bps) $200 - More favorable sales mix from higher services $293 $277 $256 $282 $270 $100 • Operating income margin of 2.4% decreased 22 basis points Y/Y $- • Non-GAAP operating income margin of 5.3% Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 decreased 73 basis points Y/Y Planned Divestitures - Investments in future growth including recent Continuing Operations acquisitions Organic growth, a non-GAAP measure, reflects reported sales growth, excluding Planned Divestitures less impacts from foreign currency translation and acquisitions. Non-GAAP net sales and non-GAAP gross margin exclude Planned Divestitures. Non-GAAP operating income excludes amortization of intangibles, change in fair value of contingent consideration, impact of Planned Divestitures, and restructuring costs. scansource.com 4 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 WORKING CAPITAL Q1 FY20 Q4 FY19 Q1 FY19 $ in millions Accounts receivable (Q/E) $706.4 $655.0 $643.5 Days sales outstanding in receivables* 63 62 60 Inventory (Q/E) $715.2 $697.3 $672.7 Inventory turns 5.1 4.7 5.4 Accounts payable (Q/E) $656.2 $558.1 $629.2 Paid for inventory days* 11.8 20.5 8.1 Working capital (Q/E) (AR+INV–AP) $765.5 $794.2 $687.0 * 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 $765.5 million, down • Days sales outstanding in receivables of 4% Q/Q and up 11% Y/Y 63 days - Lower level of working capital • Inventory turns of 5.1x; slower-than- investment Q/Q expected range - Working capital at 9/30/19 for the - Inventory up 3% Q/Q and 6% Y/Y Planned Divestitures decreased to $179.5 million, down $25.4 million from • Paid for inventory days of 11.8 reflect $204.9 million at 6/30/19 timing of accounts payable scansource.com 5 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 CASH FLOW AND BALANCE SHEET HIGHLIGHTS Q1 FY20 Q4 FY19 Q1 FY19 $ in millions Adjusted EBITDA (QTR)* $31.9 $35.1 $36.9 Adjusted ROIC (QTR)* 9.6% 11.1% 12.8% Operating cash flow (QTR) $47.0 $(2.6) $5.7 Operating cash flow, trailing 12 months $14.2 $(27.1) $71.0 Cash and cash equivalents (Q/E) $25.9 $23.8 $18.9 Debt (Q/E) $370.3 $360.5 $281.9 Net debt to adjusted EBITDA, trailing 12 months* 2.4x 2.3x 1.8x Shares repurchased – # of shares (QTR) 168,094 314,445 -- Shares repurchased – dollars (QTR) $5.4 $9.8 -- Remaining share repurchase authorization -- $89.5 $99.7 (as of Q/E) * Excludes non-GAAP adjustments and change in fair value of contingent consideration • Adjusted EBITDA of $31.9 million, down • Cash and cash equivalent balances of 14% Y/Y, primarily from our acquisition $25.9 million at 9/30/19, including $17.5 investments million held outside of the U.S. • Adjusted return on invested capital of • Net debt to trailing 12-month adjusted 9.6% for the quarter EBITDA is 2.4x (target range: 1.5x to 2.5x) • Operating cash flow of $47 million for the quarter and $14.2 million for the trailing • $5.4 million in share repurchases during 12 months the quarter; share repurchase authorization expired in August 2019 - Earnings from our business and lower working capital Q/Q scansource.com 6 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 Q2 FY20 OUTLOOK For the quarter ending December 31, 2019: GAAP NET SALES GAAP DILUTED EPS Forecast Range: Forecast Range: $1.03 billion to $0.54 to $0.59 $1.09 billion per share Q2 FY19: Net sales $1.05 billion Q2 FY19: GAAP diluted EPS $0.78 NON-GAAP NET SALES NON-GAAP DILUTED EPS Excluding Planned Divestitures Excluding Planned Divestitures Forecast Range: Forecast: Range $880 million to $0.80 to $0.85 $940 million per share Q2 FY19: Net sales excluding Q2 FY19: Non-GAAP diluted EPS Planned Divestitures $872 million excluding Planned Divestitures $0.96 • Outlook as of November 12, 2019 • Excludes operating results for Planned Divestitures (physical product distribution businesses in Europe, UK, Mexico, Colombia, Chile, Peru and Miami-based export operations) • Non-GAAP diluted EPS excludes amortization of intangible assets, change in fair value of contingent consideration, impact of Planned Divestitures, restructuring costs, and divestiture costs • Forecast sales midpoint reflects approximately 4% year-over-year organic sales growth • Reflects a FX rate of $0.244 to R$1.00 for the Brazilian real (R$4.10 to $1) • Expects foreign currency translation to negatively impact sales by approximately $10 million • Assumes interest expense will be approximately $3.8 million for Q2 FY20 • Assumes an effective tax rate excluding Planned Divestitures of 25% to 26% for Q2 FY20, excluding discrete items scansource.com 7 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 FORWARD-LOOKING STATEMENTS expectations in its forward-looking statements are reasonable, it cannot guarantee future This CFO Commentary contains certain results, levels of activity, performance or comments that are “forward-looking” achievement. ScanSource disclaims any statements, including statements about obligation to update or revise any forward- expected sales, Planned Divestitures, GAAP looking statements, whether as a result of new diluted earnings per share (“EPS”), non-GAAP information, future events, or otherwise, diluted EPS, operating cash flow, foreign except as may be required by law. currency rates, tax rates and interest expense that involve plans, strategies, economic performance and trends, projections, NON-GAAP FINANCIAL INFORMATION expectations, costs or beliefs about future In addition to disclosing results that are events and other statements that are not determined in accordance with United States descriptions of historical facts. Forward- Generally Accepted Accounting Principles looking information is inherently subject to (“GAAP”), the Company also discloses certain risks and uncertainties. non-GAAP measures, including non-GAAP operating income, non-GAAP operating Any number of factors could cause actual income margin, non-GAAP net income, non- results to differ materially from anticipated or GAAP diluted EPS, non-GAAP net sales, non- forecasted results, including but not limited to, GAAP gross profit, non-GAAP gross margin, our ability to complete the Planned adjusted EBITDA, ROIC and net sales Divestitures on acceptable terms or at all, excluding the Planned Divestitures less changes in our operating strategy, changes in impacts from foreign currency translation and interest and exchange rates and regulatory acquisitions (organic growth). A reconciliation regimes impacting our international of the Company's non-GAAP financial operations, the impact of tax reform laws, the information to GAAP financial information is failure of acquisitions to meet our provided in the Appendix and in the expectations, the failure to manage and Company’s Form 8-K, filed with the SEC, with implement our organic growth strategy, credit the quarterly earnings press release for the risks involving our larger customers and period indicated. vendors, termination of our relationship with 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, 2019, filed with the Securities and Exchange Commission (“SEC”). Although ScanSource believes the scansource.com 8 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS – QTR ($ in thousands) Quarter Ended September 30, 2019 Change in fair Reported Intangible value of Acquisition & Tax Impact of GAAP amortization contingent divestiture Restructuring recovery, Planned Non-GAAP measure expense consideration costs (a) costs net Divestitures measure Net sales $ 1,006,927 $ - $ - $ - $ - $ - $ (155,516) $ 851,411 Gross profit 112,099 - - - - - (13,397) 98,702 Operating Income 18,605 4,962 2,472 757 169 - 507 27,472 Other expense, net 3,024 - - - - - (140) 2,884 Pre-tax income 15,581 4,962 2,472 757 169 - 647 24,588 Net income 11,530 3,746 1,869 757 128 - 444 18,474 Diluted EPS $ 0.45 $ 0.15 $ 0.07 $ 0.03 $ - $ - $ 0.02 $ 0.72 Quarter Ended June 30, 2019 Change in fair Reported Intangible value of Acquisition & Tax Impact of GAAP amortization contingent divestiture Restructuring recovery, Planned Non-GAAP measure expense consideration costs (a) costs net (b) Divestitures measure Net sales $ 960,833 $ - $ - $ - $ - $ - $ (149,336) $ 811,497 Gross profit 109,864 - - - - - (13,157) 96,707 Operating Income 20,022 5,024 3,665 230 483 - 1,456 30,880 Other expense, net 3,783 - - - - - (357) 3,426 Pre-tax income 16,238 5,024 3,665 230 483 - 1,814 27,454 Net income 11,578 3,802 2,780 230 342 (387) 853 19,199 Diluted EPS $ 0.45 $ 0.15 $ 0.11 $ 0.01 $ 0.01 $ (0.02) $ 0.03 $ 0.75 Quarter Ended September 30, 2018 Change in fair Reported Intangible value of Acquisition & Tax Impact of GAAP amortization contingent divestiture Restructuring recovery, Planned Non-GAAP measure expense consideration costs (a) costs net Divestitures measure Net sales $ 972,900 $ - $ - $ - $ - $ - $ (159,645) $ 813,255 Gross profit 112,215 - - - - - (15,198) 97,017 Operating Income 21,432 5,003 4,584 355 1,328 - (49) 32,653 Other expense, net 2,208 - - - -- 167 2,375 Pre-tax income 19,224 5,003 4,584 355 1,328 - (216) 30,278 Net income 14,322 3,798 3,487 355 955 - (47) 22,870 Diluted EPS $ 0.56 $ 0.15 $ 0.14 $ 0.01 $ 0.03 $ - $ - $ 0.89 (a) Acquisition costs are generally nondeductible for tax purposes. (b) Reflects adjustments to the one-time charge from the estimated impact of the inclusion of foreign earnings and revaluations of deferred tax assets and liabilities, as a result of tax reform laws enacted in the United States and Belgium in December 2017. scansource.com 9 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Sales, Constant Currency and Excluding Acquisitions (Organic Growth) – QTR ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Consolidated For the quarter ended September 30, 2019: Q1 FY20 net sales, as reported $ 697,791 $ 309,136 $ 1,006,927 Planned Divestitures $ (116,603) $ (38,913) $ (155,516) Q1 FY20 net sales, excluding Planned Divestitures 581,188 270,223 851,411 Foreign exchange impact (a) 95 244 339 Less: Acquisitions - (12,157) (12,157) Q1 FY20 net sales, constant currency excluding Planned Divestitures and acquisitions (non-GAAP) $ 581,283 $ 258,310 $ 839,593 Q1 FY19 net sales, as reported $ 655,113 $ 317,787 $ 972,900 Planned Divestitures (118,366) (41,279) (159,645) Q1 FY19 net sales, excluding Planned Divestitures $ 536,747 $ 276,508 $ 813,255 Less: Acquisitions - (964) (964) Q1 FY19 net sales, excluding Planned Divestitures and acquisitions (non-GAAP) $ 536,747 $ 275,544 $ 812,291 Y/Y % Change: As reported 6.5% -2.7% 3.5% Excluding Planned Divestitures 8.3% -2.3% 4.7% Constant currency, excluding Planned Divestitures and acquisitions (organic growth) 8.3% -6.3% 3.4% (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 September 30, 2019 into U.S. dollars using the weighted-average foreign exchange rates for the quarter ended September 30, 2018. scansource.com 10 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Highlights by Segment – QTR Quarter Ended September 30, 2019 ($ in thousands) Change in fair Reported Intangible value of Impact of GAAP amortization contingent Restructuring Planned Non-GAAP measure expense consideration costs Divestitures measure Worldwide Barcode, NW & Security: Net sales $ 697,791 - - - (116,603) $ 581,188 Gross Profit $ 58,271 - - - (7,982) $ 50,289 Gross profit margin % 8.35% - - - 6.85% 8.65% Operating income $ 11,992 1,968 - 169 (899) $ 13,230 Operating income margin % 1.72% - - - 0.77% 2.28% Worldwide Communications & Services: Net sales $ 309,136 - - - (38,913) $ 270,223 Gross Profit $ 53,828 - - - (5,415) $ 48,413 Gross profit margin % 17.41% - - - 13.92% 17.92% Operating Income $ 7,370 2,994 2,472 - 1,406 $ 14,242 Operating income margin % 2.38% - - - -3.61% 5.27% Quarter Ended June 30, 2019 ($ in thousands) Change in fair Reported Intangible value of Impact of GAAP amortization contingent Restructuring Planned Non-GAAP measure expense consideration costs Divestitures measure Worldwide Barcode, NW & Security: Net sales $ 636,172 - - - (107,078) $ 529,094 Gross Profit $ 56,407 - - - (7,278) $ 49,129 Gross profit margin % 8.87% - - - 6.80% 9.29% Operating income $ 10,901 1,968 - 86 555 $ 13,510 Operating income margin % 1.71% - - - -0.52% 2.55% Worldwide Communications & Services: Net sales $ 324,661 - - - (42,258) $ 282,403 Gross Profit $ 53,457 - - - (5,879) $ 47,578 Gross profit margin % 16.47% - - - 13.91% 16.85% Operating Income $ 9,351 3,056 3,665 397 901 $ 17,370 Operating income margin % 2.88% - - - -2.13% 6.15% scansource.com 11 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Highlights by Segment – QTR, continued Quarter Ended September 30, 2018 ($ in thousands) Change in fair Reported Intangible value of Impact of GAAP amortization contingent Restructuring Planned Non-GAAP measure expense consideration costs Divestitures measure Worldwide Barcode, NW & Security: Net sales $ 655,113 - - - (118,366) $ 536,747 Gross Profit $ 61,951 - - - (9,215) $ 52,736 Gross profit margin % 9.46% - - - 7.79% 9.83% Operating income $ 13,532 2,309 - 708 (478) $ 16,071 Operating income margin % 2.07% - - - 0.40% 2.99% Worldwide Communications & Services: Net sales $ 317,787 - - - (41,279) $ 276,508 Gross Profit $ 50,264 - - - (5,983) $ 44,281 Gross profit margin % 15.82% - - - 14.49% 16.01% Operating Income $ 8,255 2,694 4,584 620 429 $ 16,582 Operating income margin % 2.60% - - - -1.04% 6.00% scansource.com 12 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Average Return on Invested Capital - QTR ($ in thousands) Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Adjusted return on invested capital (ROIC), annualized (a) 9.6% 11.1% 11.4% 12.7% 12.8% Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 11,530 $ 11,578 $ 11,715 $ 19,982 $ 14,322 Plus: Interest expense 3,792 3,966 3,670 3,119 2,627 Income taxes 4,051 4,660 4,080 6,668 4,902 Depreciation and amortization 9,189 9,053 9,363 8,935 9,268 EBITDA 28,562 29,257 28,828 38,704 31,119 Adjustments: Change in fair value of contingent consideration 2,472 3,665 5,101 1,850 4,584 Acquisition and divestiture costs 757 230 222 414 355 Restructuring costs 169 483 456 - 1,328 Impact of Planned Divestitures (76) 1,449 854 (1,864) (486) Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 31,884 $ 35,084 $ 35,461 $ 39,104 $ 36,900 Invested Capital Calculation Equity - beginning of the quarter $ 914,129 $ 911,063 $ 899,503 $ 877,897 $ 866,376 Equity - end of quarter 905,751 914,129 911,063 899,503 877,897 Adjustments: Change in fair value of contingent consideration, net of tax 1,869 2,780 3,619 1,408 3,487 Acquisition and divestiture costs 757 230 222 414 355 Restructuring costs, net of tax 128 342 334 - 955 Tax recovery, net and related interest income, net of tax - (387) - - - Impact of Planned Divestitures, net of tax 444 3,918 1,181 (650) 908 Average equity 911,539 916,040 907,961 889,286 874,989 Average funded debt (b) 407,306 355,932 357,443 333,138 272,277 Invested capital (denominator for ROIC)(non-GAAP) $ 1,318,845 $ 1,271,972 $ 1,265,405 $ 1,222,423 $ 1,147,266 (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 daily amounts outstanding on short-term and long-term interest-bearing debt. scansource.com 13 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Debt and EBITDA Metrics ($ in thousands) Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Debt (Q/E) $ 370,330 $ 360,506 $ 347,672 $ 372,410 $ 281,859 Less: Cash and cash equivalents (Q/E) (25,877) (23,818) (20,400) (22,749) (18,858) Net debt (Q/E) $ 344,453 $ 336,688 $ 327,272 $ 349,661 $ 263,000 Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 11,530 $ 11,578 $ 11,715 $ 19,982 $ 14,322 Plus: Interest expense 3,792 3,966 3,670 3,119 2,627 Income taxes 4,051 4,660 4,080 6,668 4,902 Depreciation and amortization 9,189 9,053 9,363 8,935 9,268 EBITDA 28,562 29,257 28,828 38,704 31,119 Adjustments: Change in fair value of contingent consideration 2,472 3,665 5,101 1,850 4,584 Acquisition and divestiture costs 757 230 222 414 355 Restructuring costs 169 483 456 - 1,328 Impact of Planned Divestitures (76) 1,449 854 (1,864) (486) Adjusted EBITDA (non-GAAP) $ 31,884 $ 35,084 $ 35,461 $ 39,104 $ 36,900 Adjusted EBITDA, TTM (a) $ 141,533 $ 146,549 $ 149,660 $ 147,970 $ 148,144 Net Debt / Adjusted EBITDA, TTM (a) 2.4x 2.3x 2.2x 2.4x 1.8x (a) Adjusted EBITDA for the trailing 12-month period scansource.com 14 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Impact of Planned Divestitures ($ in thousands) Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Net sales, reported (GAAP) $ 1,006,927 $ 960,833 $ 893,357 $ 1,046,021 $ 972,900 Less: Planned Divestitures (155,516) (149,336) (140,510) (173,612) (159,645) Non-GAAP net sales, excl. Planned Divestitures 851,411 811,497 752,847 872,409 813,255 Gross profit, reported (GAAP) 112,099 109,864 110,016 120,478 112,215 Less: Planned Divestitures (13,397) (13,157) (14,208) (16,998) (15,198) Non-GAAP gross profit 98,702 96,707 95,808 103,480 97,016 Gross profit margin % 11.13% 11.43% 12.31% 11.52% 11.53% Non-GAAP gross profit margin % 11.59% 11.92% 12.73% 11.86% 11.93% Operating income, reported (GAAP) 18,605 20,022 18,804 29,706 21,432 Adjustments: Intangible amortization expense 4,962 5,024 5,005 4,700 5,003 Change in fair value of contingent consideration 2,472 3,665 5,101 1,850 4,584 Acquisition costs 403 230 222 414 355 Divestiture costs 354 - - - - Restructuring costs 169 483 592 - 1,328 Impact of Planned Divestitures, loss (income) 507 1,456 898 (2,102) (49) Non-GAAP operating income $ 27,472 $ 30,880 $ 30,622 $ 34,568 $ 32,653 Operating income margin % 1.85% 2.08% 2.10% 2.84% 2.20% Non-GAAP operating income margin % 3.23% 3.81% 4.07% 3.96% 4.02% Working capital Accounts receivable, reported (GAAP) $ 706,428 $ 654,983 $ 597,349 $ 673,631 $ 643,518 Less: Planned Divestitures (138,372) (131,446) (114,187) (134,137) (131,036) Accounts receivable, excluding Planned Divestitures 568,056 523,537 483,162 539,494 512,482 Inventory, reported (GAAP) 715,224 697,343 760,711 704,444 672,696 Less: Planned Divestitures (115,580) (143,263) (145,413) (124,852) (125,159) Inventory, excluding Planned Divestitures 599,644 554,080 615,298 579,592 547,536 Accounts payable, reported (GAAP) 656,150 558,101 585,121 604,630 629,242 Less: Planned Divestitures (74,407) (69,810) (92,057) (79,704) (93,404) Accounts payable, excluding Planned Divestitures 581,743 488,291 493,064 524,926 535,838 Working capital, reported (GAAP) 765,502 794,225 772,940 773,444 686,971 Less: Planned Divestitures (179,545) (204,899) (167,543) (179,285) (162,791) Working capital, excluding Planned Divestitures $ 585,957 $ 589,326 $ 605,397 $ 594,159 $ 524,180 scansource.com 15 November 12, 2019


 
ScanSource, Inc. CFO COMMENTARY Q1 FY2020 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Forecasted Range for EPS – Q2 FY20 Outlook Excluding Planned Divestitures ($ in thousands) Forecast for Quarter ending December 31, 2019 Range Low Range High Net sales, reported $ 1,030,00 $ 1,090,000 Adjustments: Net sales for Planned Divestitures (150,000) (150,000) Non-GAAP net sales, excluding Planned Divestitures $ 880,000 $ 940,000 GAAP diluted EPS $ 0.54 $ 0.59 Adjustments: Amortization of intangible assets 0.17 0.17 Change in fair value of contingent consideration 0.05 0.05 Impact of Planned Divestitures(a) 0.02 0.02 Other (restructuring costs and divestiture costs) 0.02 0.02 Non-GAAP diluted EPS $ 0.80 $ 0.85 (a) Reflects operating results for Planned Divestitures and does not include any non-cash charges from write-downs or losses associated with a sale or liquidation of the businesses and their assets scansource.com 16 November 12, 2019