Document


Third Quarter Summary:	Quarter ended March 31,
	2022			2021			Change
	(in thousands, except per share data)
Select reported measures:
Net sales	$	845,990		$	729,873		15.9%
Gross profit	$	106,508		$	88,116		20.9%
Gross profit margin %	12.59		%	12.07		%	52bp
Operating income	$	32,917		$	19,436		69.4%
GAAP net income	$	23,526		$	13,786		70.7%
GAAP diluted EPS	$	0.91		$	0.54		68.5%
Select Non-GAAP measures:
Adjusted EBITDA	$	44,115		$	31,999		37.9%
Adjusted EBITDA margin %	5.21		%	4.38		%	83bp
Non-GAAP net income	$	26,879		$	18,178		47.9%
Non-GAAP diluted EPS	$	1.04		$	0.71		46.5%

Net sales for the third quarter of fiscal year 2022 totaled $846.0 million, up 15.9% year-over-year, or 15.4% year-over-year for organic growth, with strong demand in both segments. Third quarter fiscal year 2022 net sales in the Specialty Technology Solutions segment increased 15.3% year-over-year to $503.1 million, driven by broad-based demand across technologies and execution by our people. Third quarter fiscal year 2022 net sales in Modern Communications & Cloud increased 16.9% year-over-year, or 16.0% year-over-year for organic growth, to $342.9 million, with Intelisys connectivity and cloud business net sales increasing 18.2% year-over-year.

On a GAAP basis, net income for the third quarter of fiscal year 2022 totaled $23.5 million, or $0.91 per diluted share, compared to net income of $13.8 million, or $0.54 per diluted share, for the prior-year quarter. Third quarter fiscal year 2022 non-GAAP net income totaled $26.9 million, or $1.04 per diluted share, up from $18.2 million, or $0.71 per diluted share, for the prior-year quarter. For the trailing 12-month (TTM) period ending March 31, 2022, GAAP diluted earnings per share totaled $3.46, and non-GAAP diluted earnings per share totaled $4.01.

Adjusted EBITDA is a non-GAAP measure, which excludes estimates for amortization of intangible assets, depreciation expense, and non-cash share-based compensation expense (effective with the first quarter of fiscal year 2022). For comparison, fiscal year 2021 Adjusted EBITDA, excluding share-based compensation, totaled $118 million. ScanSource’s outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments, or other significant transactions that may be completed after the date hereof. These statements are forward-looking, and actual results may differ materially.

At approximately 4:15 p.m. ET today, an Earnings Infographic, 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 and business in a conference call today, May 10, 2022, 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.

This press release contains “forward-looking” statements, including the Company's FY22 outlook, which involve risks and uncertainties. Any number of factors could cause actual results to differ materially from anticipated results, including, but not limited to, failure to hire and retain quality employees, risk to the Company's business from a cyber-security attack, the failure to manage and implement the Company's organic growth strategy, the impact of the COVID-19 pandemic on the Company's operations and financial condition and the potential prolonged economic weakness brought on by COVID-19, a failure of the Company's IT systems, a failure to acquire new businesses, changes in interest and exchange rates and regulatory regimes impacting the Company's international operations, credit risks involving the Company's larger customers and suppliers, loss of the Company's major customers, termination of the Company's relationship with key suppliers or a significant modification of the terms under which it operates with a key supplier, 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, 2021, 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.

Net sales on a constant currency basis, excluding acquisitions (organic growth): 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 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.

Additional Non-GAAP Metrics: To evaluate current period performance on a more consistent basis with prior periods, the Company discloses non-GAAP SG&A expenses, non-GAAP operating 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, restructuring costs, and other non-GAAP adjustments. These year-over-year metrics include the translation impact of changes in foreign currency exchange rates. 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.

Adjusted earnings before interest expense, income taxes, depreciation, and amortization (“Adjusted EBITDA”): Adjusted EBITDA starts with net income and adds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, changes in fair value of contingent considerations, and other non-GAAP adjustments, including acquisition and divestiture costs, impairment charges, and restructuring costs. Effective with the first quarter of fiscal year 2022, non-cash share-based compensation expense is also added back in calculating Adjusted EBITDA. Since Adjusted EBITDA excludes some non-cash costs of investing in our business and people, management believes that Adjusted EBITDA shows the profitability from our business operations more clearly. The presentation for Adjusted EBITDA for all periods presented has been recast to reflect this change to enhance comparability between periods.

Adjusted return on invested capital ("Adjusted ROIC"): Adjusted ROIC assists management in comparing the Company's performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of Adjusted ROIC provides useful information to investors and is an additional relevant comparison of our performance. Adjusted ROIC is calculated as Adjusted EBITDA over invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. Management believes the calculation of Adjusted 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.

ScanSource, Inc. (NASDAQ: SCSC) is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, SaaS, connectivity and cloud. ScanSource enables partners to deliver solutions for their customers to address changing end-user buying and consumption patterns. ScanSource sells through multiple, specialized routes-to-market with hardware, SaaS, connectivity and cloud 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. Founded in 1992 and headquartered in Greenville, South Carolina, ScanSource was named one of the 2021 Best Places to Work in South Carolina and on FORTUNE magazine’s 2022 List of World’s Most Admired Companies. ScanSource ranks #655 on the Fortune 1000. For more information, visit www.scansource.com.


ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
	March 31, 2022		June 30, 2021*
Assets
Current assets:
Cash and cash equivalents	$	43,539	$	62,718
Accounts receivable, less allowance of $16,935 at March 31, 2022 and $19,341 at June 30, 2021	642,384		568,984
Inventories	591,396		470,081
Prepaid expenses and other current assets	130,509		117,860
Total current assets	1,407,828		1,219,643
Property and equipment, net	37,815		42,836
Goodwill	218,025		218,877
Identifiable intangible assets, net	90,554		104,860
Deferred income taxes	19,951		21,853
Other non-current assets	66,627		63,615

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

Income taxes payable	3,023		2,501

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

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

Other long-term liabilities	58,580		68,269
Total liabilities	1,034,146		940,493
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued	—		—
Common stock, no par value; 45,000,000 shares authorized, 25,429,242 and 25,499,465 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively	69,856		71,253
Retained earnings	826,922		758,071
Accumulated other comprehensive loss	(90,124)		(98,133)
Total shareholders’ equity	806,654		731,191
Total liabilities and shareholders’ equity	$	1,840,800	$	1,671,684


ScanSource, Inc. and Subsidiaries
Condensed Consolidated Income Statements (Unaudited)
(in thousands, except per share data)

	Quarter ended March 31,				Nine months ended March 31,
	2022		2021		2022		2021
Net sales	$	845,990	$	729,873	$	2,567,652	$	2,298,111
Cost of goods sold	739,482		641,757		2,251,920		2,043,172
Gross profit	106,508		88,116		315,732		254,939
Selling, general and administrative expenses	66,522		60,099		199,538		182,681
Depreciation expense	2,612		3,141		8,039		9,634
Intangible amortization expense	4,457		4,880		13,413		14,595
Restructuring and other charges	—		560		—		9,312

Change in fair value of contingent consideration	—		—		—		516
Operating income	32,917		19,436		94,742		38,201
Interest expense	1,483		1,576		4,637		5,285
Interest income	(1,000)		(745)		(2,973)		(1,756)
Other (income) expense, net	(136)		(302)		668		183
Income before income taxes	32,570		18,907		92,410		34,489
Provision for income taxes	9,044		5,121		23,659		9,757
Net income from continuing operations	23,526		13,786		68,751		24,732
Net (loss) income from discontinued operations	—		(688)		100		(37,647)
Net income (loss)	$	23,526	$	13,098	$	68,851	$	(12,915)

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

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


ScanSource, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
	Nine months ended March 31,
		2022		2021
Cash flows from operating activities:
Net income (loss)		$	68,851	$	(12,915)
Net income (loss) from discontinued operations		100		(37,647)
Net income from continuing operations		68,751		24,732
Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:
Depreciation and amortization		22,184		25,417
Amortization of debt issue costs		313		313
Provision for doubtful accounts		156		226
Share-based compensation		8,792		5,711

Deferred income taxes		1,995		(26)
Change in fair value of contingent consideration		—		516
Contingent consideration payments excess		—		(5,457)
Finance lease interest		32		96
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(67,404)		(68,654)
Inventories		(118,349)		(5,907)
Prepaid expenses and other assets		(15,002)		(1,641)
Other non-current assets		(2,791)		2,846
Accounts payable		67,535		69,609
Accrued expenses and other liabilities		(12,745)		8,434
Income taxes payable		862		(793)
Net cash (used in) provided by operating activities of continuing operations		(45,671)		55,422
Cash flows from investing activities of continuing operations:
Capital expenditures		(3,326)		(2,283)

Cash received for business disposal		3,125		34,356

Net cash (used in) provided by investing activities of continuing operations		(201)		32,073
Cash flows from financing activities of continuing operations:

Borrowings on revolving credit, net of expenses		1,597,270		1,486,464
Repayments on revolving credit, net of expenses		(1,552,976)		(1,500,375)
Repayments on long-term debt, net		(5,968)		(5,964)
Repayments of finance lease obligations		(932)		(974)

Contingent consideration payments		—		(41,393)
Exercise of stock options		1,592		439
Taxes paid on settlement of equity awards		(2,729)		(1,036)
Common stock repurchased		(8,527)		—

Net cash provided by (used in) financing activities of continuing operations		27,730		(62,839)


ScanSource, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited), continued
(in thousands)

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


ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except percentages)

Non-GAAP Financial Information:
	Quarter ended March 31,
	2022			2021
Adjusted return on invested capital ratio (adjusted ROIC), annualized(a)	18.0		%	14.7		%

Reconciliation of Net Income to Adjusted EBITDA:
Net income from continuing operations (GAAP)	$	23,526		$	13,786
Plus: Interest expense	1,483			1,576
Plus: Income taxes	9,044			5,121
Plus: Depreciation and amortization	7,305			8,358
EBITDA (non-GAAP)	41,358			28,841

Plus: Share-based compensation	2,757			2,537
Plus: Acquisition and divestiture costs(b)	—			272
Plus: Restructuring costs	—			349


Adjusted EBITDA (numerator for Adjusted ROIC) (non-GAAP)	$	44,115		$	31,999

Invested Capital Calculations:
Equity – beginning of the quarter	$	768,525		$	682,139
Equity – end of the quarter	806,654			690,575

Plus: Share-based compensation, net	2,063			1,912
Plus: Acquisition and divestiture costs(b)	—			272
Plus: Restructuring, net	—			264
Plus: Discontinued operations net loss	—			688



Average equity	788,621			687,925
Average funded debt (c)	205,073			191,996
Invested capital (denominator for Adjusted ROIC) (non-GAAP)	$	993,694		$	879,921

(a) The annualized adjusted EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for leap year. There were 90 days in the current and prior-year quarter.
(b) Acquisition and divestiture costs are generally nondeductible for tax purposes.
(c) 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, Inc. and Subsidiaries
Supplementary Information (Unaudited)

Net Sales by Segment:
	Quarter ended March 31,
	2022		2021		% Change
Specialty Technology Solutions:	(in thousands)


Net sales, reported	$	503,072	$	436,462	15.3	%
Foreign exchange impact (a)	(915)		—

Non-GAAP net sales, constant currency	$	502,157	$	436,462	15.1	%

Modern Communications & Cloud:


Net sales, reported	$	342,918	$	293,411	16.9	%
Foreign exchange impact (a)	(2,660)		—

Non-GAAP net sales, constant currency	$	340,258	$	293,411	16.0	%

Consolidated:


Net sales, reported	$	845,990	$	729,873	15.9	%
Foreign exchange impact (a)	(3,575)		—

Non-GAAP net sales, constant currency	$	842,415	$	729,873	15.4	%

(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 March 31, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended March 31, 2021.


ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)

Net Sales by Geography:
	Quarter ended March 31,
	2022		2021		% Change
United States and Canada:	(in thousands)
Net sales, as reported	$	764,529	$	665,720	14.8	%



International:


Net sales, reported	$	81,461	$	64,153	27.0	%
Foreign exchange impact(a)	(3,575)		—

Non-GAAP net sales, constant currency	$	77,886	$	64,153	21.4	%

Consolidated:


Net sales, reported	$	845,990	$	729,873	15.9	%
Foreign exchange impact(a)	(3,575)		—

Non-GAAP net sales, constant currency	$	842,415	$	729,873	15.4	%

(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 March 31, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended March 31, 2021.


	Quarter ended March 31, 2022
	GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)


SG&A expenses	$	66,522	$	—	$	—	$	—	$	66,522
Operating income	32,917		4,457		—		—		37,374


Net income	23,526		3,353		—		—		26,879
Diluted EPS	$	0.91	$	0.13	$	—	$	—	$	1.04
Diluted EPS, trailing 12-month (TTM)	$	3.46	$	0.53	$	0.01	$	—	$	4.01

	Quarter ended March 31, 2021
	GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)


SG&A expense	$	60,099	$	—	$	(272)	$	—	$	59,827
Operating income	19,436		4,880		272		560		25,148


Net income	13,786		3,697		272		423		18,178
Diluted EPS	$	0.54	$	0.14	$	0.01	$	0.02	$	0.71

ScanSource, Inc. and Subsidiaries

Supplementary Forward-Looking Information (Unaudited)

Annual Financial Outlook for Fiscal Year 2022:

FY22 Outlook

GAAP, Operating income

At least $122 million

Intangible amortization

$18 million

Depreciation expense

$12 million

Share-based compensation expense

$11 million

Interest income and other income (expense), net

$2 million

Adjusted EBITDA (non-GAAP)

At least $165 million


Contact:
Steve Jones						Mary M. Gentry
Senior EVP, Chief Financial Officer						SVP, Treasurer and Investor Relations
ScanSource, Inc.						ScanSource, Inc.
(864) 286-4302						(864) 286-4892