ScanSource, Inc. (NASDAQ:SCSC) Q2 2016 Earnings Conference Call - Final Transcript

Feb 09, 2016 • 05:00 pm ET

Previous

ScanSource, Inc. (NASDAQ:SCSC) Q2 2016 Earnings Conference Call - Final Transcript

Share
Close

Loading Event

Loading Transcript

Presentation
Executive
Mike Baur

providing more than just boxes of products. That is why our Company is evolving from just a product distributor to a technology solutions provider.

With that, I'll turn the call over to Charlie to discuss our financial results in more detail and our outlook for next quarter.

Executive
Charles Mathis

Thanks, Mike. And as you can see on slide 4 and as Mike said, we had an exceptional quarter. Net sales increased 23% year-over-year, non-GAAP EPS grew 29% year-over-year to a record $0.88 per share, GAAP EPS grew 33% year-over-year, gross margins were 10.1% and non-GAAP operating margins were 3.7%, and return on invested capital was 17.5%. Our results were stronger than expected across our core businesses as well as recently acquired companies.

Large deals led to higher than forecasted sales. Our gross profit margins were higher from better vendor program recognition in North America POS and Barcode, improvements in profitability in Latin America and Europe communications, and a higher services mix in our communications business in North America.

Recently acquired KBZ performed better than expected due to the combination of the two companies and we had a $38 million government deal that generated strong ROIC, but at a low gross margin. We are excited about the investments we have made in our networking businesses to build on the growing demand for networking solutions and connectivity throughout all of our business units. As of October 1st, 2015, we branded ScanSource Security as ScanSource Networking and Security. With this organizational change and the acquisition of KBZ, we moved some business operations from our Communications and Services segment to our Barcode and Security segment.

We've reclassified prior period results to provide comparable financial information. This information is available in tables in our press release. As you can see on slide 5, net sales totaled $994 million compared to $807 million, which is a 5.1% organic growth rate. The dollar impact on sales, due to foreign currency translation was a negative $35 million. Our presentation includes a summary of constant currency growth, excluding acquisitions, by segment for the current quarter and year-to-date period.

Our second quarter 2016 gross profit was $100.6 million or 10.1% of net sales compared to $78.1 million or 9.7% of net sales a year ago. This reflects a favorable mix in better vendor program recognition. SG&A expenses, excluding amortization of intangible assets and acquisition costs were $64.4 million or 6.48% of net sales compared to $48.7 million or 6% of net sales in the prior-year quarter. SG&A expenses were higher year-over-year due to increased employee-related expenses, primarily from acquisitions and bad debt expense.

Our second quarter 2016 non-GAAP operating income was $36.3 million or 3.7% of net sales compared to $29.4 million or 3.6% in the prior-year quarter. Our effective tax rate was 34.7% for second quarter 2016 and 35.1% for the prior-year period. Our estimated annual effective tax rate for the full fiscal year is 34.5% to 35%. Second quarter 2016 non-GAAP net income was $23.7 million or $0.88 per diluted