Document


	Second Quarter Summary
	Q2 FY24			Q2 FY23			Change
	(in thousands, except per share data)
Select reported measures:
Net sales	$	884,792		$	1,011,241		-12.5%
Gross profit	$	100,748		$	115,334		-12.6%
Gross profit margin %	11.39		%	11.41		%	-2bp
Operating income	$	26,826		$	39,432		-32.0%
GAAP net income	$	32,726		$	25,734		27.2%
GAAP diluted EPS	$	1.29		$	1.01		27.7%
Operating cash flow	$	63,224		$	(26,885)		n/m
Select Non-GAAP measures:
Adjusted EBITDA	$	38,459		$	48,815		-21.2%
Adjusted EBITDA margin %	4.35		%	4.83		%	-48bp
Non-GAAP net income	$	21,587		$	26,941		-19.9%
Non-GAAP diluted EPS	$	0.85		$	1.06		-19.8%
Free cash flow	$	60,675		$	(29,389)		n/m
n/m - not meaningful

Net sales for the second quarter of fiscal year 2024 totaled $884.8 million, down 12.5% year-over-year. Specialty Technology Solutions net sales for the second quarter decreased 17.0% year-over-year to $520.7 million. Soft demand in barcode, mobility and point of sale was partially offset by growth in networking. Modern Communications & Cloud net sales for the second quarter decreased 5.1% year-over-year to $364.1 million due to lower sales volumes in communications hardware, partially offset by growth in Cisco products. Intelisys net billings increased to approximately $2.64 billion annualized, and Intelisys net sales for the second quarter increased 7.5%.

On a GAAP basis, net income for the second quarter of fiscal year 2024 totaled $32.7 million, or $1.29 per diluted share, compared to net income of $25.7 million, or $1.01 per diluted share, for the prior-year quarter. Second quarter fiscal year 2024 non-GAAP net income totaled $21.6 million, or $0.85 per diluted share, down from $26.9 million, or $1.06 per diluted share, for the prior-year quarter. Interest expense for the quarter decreased to $3.4 million, down from $5.1 million for the prior-year quarter, reflecting lower borrowings.

Adjusted EBITDA is a non-GAAP measure, which excludes estimates for amortization of intangible assets, depreciation expense, and non-cash shared-based compensation expense. 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 8:45 a.m. ET today, an Earnings Infographic, as a supplement to this press release and the earnings 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, February 6, 2024, at 10:30 a.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 ScanSource's FY24 outlook, which involve risks and uncertainties. Any number of factors could cause actual results to differ materially from anticipated or forecasted results, including, but not limited to, the following factors, which are neither presented in order of importance nor weighted: macroeconomic conditions, including potential prolonged economic weakness, inflation, the failure to manage and implement ScanSource's organic growth strategy, credit risks involving ScanSource's larger customers and suppliers, changes in interest and exchange rates and regulatory regimes impacting ScanSource's international operations, economic weakness and inflation, risk to the business from a cyberattack, a failure of IT systems, failure to hire and retain quality employees, loss of ScanSource's major customers, relationships with key suppliers and customers or a termination or a modification of the terms under which it operates with these key suppliers, changes in ScanSource's operating strategy, and other factors set forth in the "Risk Factors" contained in ScanSource's annual report on Form 10-K for the year ended June 30, 2023. Except as may be required by law, ScanSource 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.

In addition to disclosing results that are determined in accordance with United States Generally Accepted Accounting Principles ("GAAP"), ScanSource 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, acquisition and divestiture costs, gain on sale of business, restructuring costs and other non-GAAP adjustments.

Net sales on a constant currency basis excluding acquisitions and divestitures (organic growth): ScanSource 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 and divestitures prior to the first full year from the transaction 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, ScanSource discloses non-GAAP SG&A expenses, non-GAAP operating income, non-GAAP operating income margin, and non-GAAP diluted earnings per share (non-GAAP diluted EPS). Non-GAAP results exclude amortization of intangible assets related to acquisitions, acquisition and divestiture costs, gain on sale of business, 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 ScanSource'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, gain on sale of business, restructuring costs, cyberattack restoration costs, tax recovery, and non-cash share-based compensation expense. Since Adjusted EBITDA excludes some non-cash costs of investing in ScanSource’s business and people, management believes that Adjusted EBITDA shows the profitability from the 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. The Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net sales.

Adjusted return on invested capital ("Adjusted ROIC"): Adjusted ROIC assists management in comparing ScanSource'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. Management believes the calculation of Adjusted ROIC provides useful information to investors and is an additional relevant comparison of its 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 ScanSource's performance during the year.

These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that ScanSource 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 ScanSource'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 customers across hardware, software as a service ("SaaS"), connectivity and cloud. ScanSource enables customers to deliver solutions for their end users to address changing 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 mobility and barcode, point-of-sale (POS), payments, networking, 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 2023 Best Places to Work in South Carolina and on FORTUNE magazine’s 2024 List of World’s Most Admired Companies. ScanSource ranks #817 on the Fortune 1000. For more information, visit www.scansource.com.


ScanSource, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
	December 31, 2023		June 30, 2023*
Assets
Current assets:
Cash and cash equivalents	$	44,987	$	36,178
Accounts receivable, less allowance of $19,243 at December 31, 2023 and $15,480 at June 30, 2023	662,799		753,236
Inventories	575,137		757,574
Prepaid expenses and other current assets	122,272		110,087
Total current assets	1,405,195		1,657,075
Property and equipment, net	36,546		37,379
Goodwill	208,214		216,706
Identifiable intangible assets, net	45,313		68,495
Deferred income taxes	19,478		17,764
Other non-current assets	66,059		70,750

Total assets	$	1,780,805	$	2,068,169
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	540,642	$	691,119
Accrued expenses and other current liabilities	58,460		78,892

Income taxes payable	3,653		9,875

Current portion of long-term debt	7,857		6,915

Total current liabilities	610,612		786,801
Deferred income taxes	—		3,816
Long-term debt, net of current portion	139,899		144,006
Borrowings under revolving credit facility	20,878		178,980

Other long-term liabilities	55,815		49,268
Total liabilities	827,204		1,162,871
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, 25,154,469 and 24,844,203 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively	63,983		58,241
Retained earnings	984,836		936,678
Accumulated other comprehensive loss	(95,218)		(89,621)
Total shareholders’ equity	953,601		905,298
Total liabilities and shareholders’ equity	$	1,780,805	$	2,068,169


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

	Quarter ended December 31,				Six months ended December 31,
	2023		2022		2023		2022
Net sales	$	884,792	$	1,011,241	$	1,761,098	$	1,955,054
Cost of goods sold	784,044		895,907		1,553,842		1,726,236
Gross profit	100,748		115,334		207,256		228,818
Selling, general and administrative expenses	66,921		69,074		142,356		140,667
Depreciation expense	2,964		2,678		5,759		5,441
Intangible amortization expense	4,037		4,150		8,230		8,391



Operating income	26,826		39,432		50,911		74,319
Interest expense	3,359		5,060		8,945		8,507
Interest income	(2,119)		(2,027)		(3,444)		(3,618)
Gain on sale of business	(14,533)		—		(14,533)		—
Other expense, net	73		207		750		955
Income before income taxes	40,046		36,192		59,193		68,475
Provision for income taxes	7,320		10,458		11,035		18,699


Net income	$	32,726	$	25,734	$	48,158	$	49,776

Per share data:


Net income per common share, basic	$	1.31	$	1.02	$	1.93	$	1.97
Weighted-average shares outstanding, basic	25,035		25,287		24,961		25,244



Net income per common share, diluted	$	1.29	$	1.01	$	1.91	$	1.96
Weighted-average shares outstanding, diluted	25,334		25,502		25,235		25,454


ScanSource, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
	Six months ended December 31,
	2023		2022
Cash flows from operating activities:
Net income	$	48,158	$	49,776


Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on sale of business	(14,533)		—
Depreciation and amortization	14,475		14,285
Amortization of debt issue costs	193		385
Provision for doubtful accounts	4,472		33
Share-based compensation	5,340		5,679

Deferred income taxes	(1,703)		932


Finance lease interest	46		24
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	75,579		(49,541)
Inventories	182,168		(146,826)
Prepaid expenses and other assets	(11,576)		30,487
Other non-current assets	3,208		(7,168)
Accounts payable	(135,138)		33,820
Accrued expenses and other liabilities	(7,678)		(13,268)
Income taxes payable	(6,254)		6,036
Net cash provided by (used in) operating activities	156,757		(75,346)
Cash flows from investing activities:
Capital expenditures	(4,865)		(4,262)

Proceeds from sale of business, net of cash transferred	17,978		—

Net cash provided by (used in) investing activities	13,113		(4,262)
Cash flows from financing activities:

Borrowings on revolving credit, net of expenses	1,134,629		1,232,058
Repayments on revolving credit, net of expenses	(1,292,729)		(1,137,897)
Repayments on long-term debt, net	(3,165)		(1,407)
Borrowings (repayments) on finance lease obligation	(442)		17,465
Debt issuance costs	—		(492)

Exercise of stock options	4,309		634
Taxes paid on settlement of equity awards	(2,657)		(2,332)
Common stock repurchased	(1,251)		—

Net cash (used in) provided by financing activities	(161,306)		108,029













Effect of exchange rate changes on cash and cash equivalents	245		37
Increase in cash and cash equivalents	8,809		28,458
Cash and cash equivalents at beginning of period	36,178		37,987
Cash and cash equivalents at period end	44,987		$	66,445


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

Non-GAAP Financial Information:
	Quarter ended December 31,
	2023			2022
Adjusted return on invested capital ratio (Adjusted ROIC), annualized(a)	13.2		%	15.6		%

Reconciliation of Net Income to Adjusted EBITDA:
Net income (GAAP)	$	32,726		$	25,734
Plus: Interest expense	3,359			5,060
Plus: Income taxes	7,320			10,458
Plus: Depreciation and amortization	7,258			7,057
EBITDA (non-GAAP)	50,663			48,309
Plus: Tax recovery	(1,386)			(2,858)
Plus: Share-based compensation	2,571			3,364
Plus: Acquisition and divestiture costs	703			—
Plus: Cyberattack restoration costs	441			—

Plus: Gain on sale of business	(14,533)			—
Adjusted EBITDA (numerator for Adjusted ROIC) (non-GAAP)	$	38,459		$	48,815

Invested Capital Calculations:
Equity – beginning of the quarter	$	915,253		$	827,004
Equity – end of the quarter	953,601			862,386

Plus: Share-based compensation, net	1,919			2,496
Plus: Cyberattack restoration costs, net	329			—
Plus: Divestiture costs	703			—

Plus: Tax recovery, net	(640)			(1,886)
Plus: Gain on sale of business	(14,533)			—
Average equity	928,316			845,000
Average funded debt (b)	227,688			392,853
Invested capital (denominator for Adjusted ROIC) (non-GAAP)	$	1,156,004		$	1,237,853

(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 92 days in the current and prior-year quarter.
(b) Average funded debt 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 December 31,
	2023		2022		% Change
Specialty Technology Solutions:	(in thousands)


Net sales, reported	$	520,651	627,548		(17.0)	%
Foreign exchange impact (a)	(886)		—

Non-GAAP net sales	$	519,765	$	627,548	(17.2)	%

Modern Communications & Cloud:


Net sales, reported	$	364,141	$	383,693	(5.1)	%
Foreign exchange impact (a)	(4,323)		—
Less: Divestitures	$	(1,628)	$	(2,170)
Non-GAAP net sales	$	358,190	$	381,523	(6.1)	%

Consolidated:


Net sales, reported	$	884,792	$	1,011,241	(12.5)	%
Foreign exchange impact (a)	(5,209)		—
Less: Divestitures	$	(1,628)	$	(2,170)
Non-GAAP net sales	$	877,955	$	1,009,071	(13.0)	%

(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 December 31, 2023 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2022.


ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)

Net Sales by Geography:
	Quarter ended December 31,
	2023		2022		% Change
United States and Canada:	(in thousands)
Net sales, as reported	$	795,382	$	909,221	(12.5)	%



International:


Net sales, reported	$	89,410	$	102,020	(12.4)	%
Foreign exchange impact(a)	(5,209)		—
Less: Divestitures	(1,628)		(2,170)
Non-GAAP net sales	$	82,573	$	99,850	(17.3)	%

Consolidated:


Net sales, reported	$	884,792	$	1,011,241	(12.5)	%
Foreign exchange impact(a)	(5,209)		—
Less: Divestitures	(1,628)		(2,170)
Non-GAAP net sales	$	877,955	$	1,009,071	(13.0)	%

(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 December 31, 2023 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2022.


ScanSource, Inc. and Subsidiaries
Supplementary Information (Unaudited)
(in thousands, except per share data)

Non-GAAP Financial Information:

	Quarter ended December 31, 2023
		GAAP Measure	Intangible amortization expense	Divestiture costs	Tax recovery	Cyberattack restoration costs	Gain on sale of business (a)	Non-GAAP measure
	(in thousands, except per share data)


SG&A expenses		$66,921	—	$(703)	$1,386	$(441)	—	$67,163
Operating income		26,826	4,037	703	(1,386)	441	—	30,621


Pre-tax income		40,046	4,037	703	(1,386)	441	(14,533)	29,308
Net income		32,726	3,002	703	(640)	329	(14,533)	21,587
Diluted EPS		$1.29	$0.12	$0.03	$(0.03)	$0.01	$(0.57)	$0.85

	Quarter ended December 31, 2022
		GAAP Measure	Intangible amortization expense	Divestiture costs	Tax recovery	Cyberattack restoration costs	Gain on sale of business (a)	Non-GAAP measure
	(in thousands, except per share data)


SG&A expense		$69,074	—	—	$2,858	—	—	$71,932
Operating income		39,432	4,150	—	(2,858)	—	—	40,724


Pre-tax income		36,192	4,150	—	(2,858)	—	—	37,484
Net income		25,734	3,093	—	(1,886)	—	—	26,941
Diluted EPS		$1.01	$0.12	—	$(0.07)	—	—	$1.06

(a) Reflects gain on the sale of the UK-based intY business. This transaction resulted in a capital loss for tax purposes. ScanSource did not record a tax provision on the capital loss since there were no offsetting capital gains.


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



			FY 24 Outlook
GAAP operating income			At least $111 million
Intangible amortization			$17 million
Depreciation expense			$12 million
Share-based compensation expense			$11 million
Interest income and income (expense), net			$4 million
Adjusted EBITDA (non-GAAP)			At least $155 million




GAAP operating cash flow			At least $210 million
Less: Capital expenditures			$10 million
Free cash flow (non-GAAP)			At least $200 million