EX-99.2 3 scsccfocommentary19aug20.htm EXHIBIT 99.2 scsccfocommentary19aug20
Exhibit 99.2 ScanSource, Inc. CFO COMMENTARY Q4 FY2019 CFO COMMENTARY Q4 FY 2019 Q4 FY19 Results: FINANCIAL INFORMATION AND CONFERENCE CALL Please see the accompanying earnings press release available at NET SALES www.scansource.com in the Investor Relations section. The information included in this CFO commentary is unaudited and should be read in conjunction with the Company’s SEC filings on Form 10-K for the year ended $961 million June 30, 2019. ScanSource will present additional information about its financial results and outlook in a conference call on Tuesday, August 20, Forecast: 2019 at 5:00 pm ET. A webcast of the call is available and can be accessed $970 million to at www.scansource.com (Investor Relations section). The webcast will be $1.03 billion available for replay for 60 days. GAAP DILUTED EPS FOURTH QUARTER AND FULL-YEAR SUMMARY For fiscal year 2019, we delivered record net sales of $3.9 billion (up 1% $0.45 Y/Y), GAAP EPS of $2.24 (up 74% Y/Y), and record non-GAAP EPS of Forecast: $3.36 (up 8% Y/Y). For the full-year, we had 4% gross profit growth, and our $0.56 to $0.62 gross profit margin increased to 11.7%. We finished our fiscal year with disappointing fourth quarter results. We NON-GAAP missed our forecast range for net sales and diluted EPS, primarily from lower DILUTED EPS sales volumes in our Worldwide Barcode, Networking and Security segment. Today, we announced plans to divest certain businesses outside of the $0.71 United States, Canada and Brazil (“Planned Divestitures”) to align our investments with higher-growth, higher-margin businesses. These Planned Forecast: $0.80 to $0.86 Divestitures had net sales of $623 million for fiscal year 2019 and at June 30, 2019 had working capital of $205 million. Please see Appendix for calculation of non-GAAP measures and reconciliations to GAAP measures. scansource.com 1 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 QUARTERLY HIGHLIGHTS Y/Y Q4 FY19 Q3 FY19 Q4 FY18 $ in millions, except EPS Change Net sales $960.8 $893.4 $993.9 -3% Gross profit $109.9 $110.0 $113.3 -3% Gross profit margin % 11.4% 12.3% 11.4% +2 bps SG&A expenses $78.0 $77.7 $76.8 +2% Operating income $20.0 $18.8 $19.8 +1% Operating income % 2.1% 2.1% 2.0% +9 bps Non-GAAP operating income $29.4 $29.7 $30.8 -4% Non-GAAP operating income % 3.1% 3.3% 3.1% -4 bps GAAP net income $11.6 $11.7 $10.4 +11% Non-GAAP net income $18.3 $19.8 $19.9 -8% GAAP diluted EPS $0.45 $0.45 $0.40 +13% Non-GAAP diluted EPS $0.71 $0.77 $0.77 -8% • Net sales of $961 million (-3% Y/Y) • Non-GAAP operating income of $29.4 million, down 4% Y/Y - Organic growth of -2% Y/Y - Growth in Worldwide Communications • Operating income margin was 2.1%, and and Services offset by declines in non-GAAP operating income margin was Worldwide Barcode, Networking and 3.1% Security - SG&A includes investments in North - Foreign currency translation negatively America to support the planned growth impacted sales by $15 million for fiscal year 2020 • Gross profit margin of 11.4%, consistent • GAAP EPS increased 13% Y/Y to $0.45, with prior year and non-GAAP EPS decreased 8% Y/Y to $0.71 • Operating income increased 1% Y/Y Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and acquisitions. 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 and other non-GAAP items. scansource.com 2 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 WORLDWIDE BARCODE, NETWORKING & SECURITY Q4 FY19 Q3 FY19 Q4 FY18 $ in millions Net sales $636.2 $596.9 $684.6 Gross profit $56.4 $61.6 $62.4 Gross margin 8.9% 10.3% 9.1% Operating income $10.9 $16.9 $15.8 Operating income % 1.7% 2.8% 2.3% Non-GAAP operating income $12.9 $18.8 $16.6 Non-GAAP operating income % 2.0% 3.2% 2.4% Net Sales, $ in millions • Net sales of $636 million, down 7% Y/Y - Organic growth of -6% Y/Y Y/Y Growth -7% Y/Y Organic Growth -6% - Lower volume of big deals $800 - Growth in physical security and in POS systems $702 $700 $685 • Gross profit margin of 8.9%, down 25 bps $655 $636 Y/Y $597 $600 - Prior quarter reflected higher vendor programs $500 • Operating income margin of 1.7% decreased 59 basis points Y/Y $400 • Non-GAAP operating income margin of 2.0% decreased 38 basis points Y/Y $300 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 - Unfavorable operating performance for international business Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and acquisitions. Non-GAAP operating income excludes amortization of intangibles, change in fair value of contingent consideration and restructuring costs. scansource.com 3 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 WORLDWIDE COMMUNICATIONS & SERVICES Q4 FY19 Q3 FY19 Q4 FY18 $ in millions Net sales $324.7 $296.4 $309.3 Gross profit $53.8 $48.5 $51.0 Gross margin 16.6% 16.3% 16.5% Operating income $9.4 $2.2 $4.0 Operating income % 2.9% 0.7% 1.3% Non-GAAP operating income $16.5 $10.9 $14.2 Non-GAAP operating income % 5.1% 3.7% 4.6% Net Sales, $ in millions Y/Y Growth 5% • Net sales of $325 million, up 5% Y/Y Y/Y Organic Growth 7% - Organic growth of 7% Y/Y $400 - Continued strong sales growth in Brazil $344 $318 - Intelisys net sales increased 13% Y/Y $309 $325 $300 $296 • Gross profit margin of 16.6%, consistent with prior year $200 • Operating income margin of 2.9% increased 159 basis points Y/Y $100 • Non-GAAP operating income margin of 5.1% increased 47 basis points Y/Y $- Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Organic growth, a non-GAAP measure, reflects reported sales growth less impacts from foreign currency translation and acquisitions. Non-GAAP operating income excludes amortization of intangibles, change in fair value of contingent consideration and restructuring costs. scansource.com 4 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 FULL-YEAR HIGHLIGHTS Y/Y FY19 FY18 $ in millions, except EPS Change Net sales $3,873.1 $3,846.3 +1% Gross profit $452.6 $436.1 +4% Gross profit margin % 11.7% 11.3% +34 bps SG&A expenses $314.5 $297.5 +6% Operating income $90.0 $67.6 +33% Operating income % 2.3% 1.8% +56 bps Non-GAAP operating income $128.5 $124.0 +4% Non-GAAP operating income % 3.3% 3.2% +10 bps GAAP net income $57.6 $33.2 +74% Non-GAAP net income $86.4 $79.8 +8% GAAP diluted EPS $2.24 $1.29 +74% Non-GAAP diluted EPS $3.36 $3.11 +8% • Record net sales of $3.87 billion • Non-GAAP operating income (+4% Y/Y) grew faster than net sales growth (+1% Y/Y) - +2% Y/Y organic growth - Y/Y organic growth of -0.6% Barcode, • For FY19, effective tax rate of 26.0%, Networking & Security and +8.6% for including tax reform charges, and non- Communications & Services GAAP effective tax rate of 25.8% • Gross profit margin increased 34 basis • Non-GAAP EPS increased 8% Y/Y to a points to 11.7% from higher vendor record $3.36 programs • Operating income, GAAP net income, and GAAP EPS include lower expense for change in fair value of contingent consideration 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, Brazil tax recovery, legal settlement and tax reform charges. scansource.com 5 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 WORKING CAPITAL Q4 FY19 Q3 FY19 Q4 FY18 $ in millions Accounts receivable (Q/E) $655.0 $597.3 $646.1 Days sales outstanding in receivables* 62 60 59 Inventory (Q/E) $697.3 $760.7 $595.9 Inventory turns 4.7 4.3 6.0 Accounts payable (Q/E) $558.1 $585.1 $562.6 Paid for inventory days* 20.5 24.2 6.8 Working capital (Q/E) (AR+INV–AP) $794.2 $772.9 $679.5 * 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 $794 million, up 17% • Inventory turns of 4.7x, slower than the Y/Y and up 3% Q/Q prior year and our typical range • Working capital increased Y/Y, principally - Inventory turns decreased from prior from higher inventory levels year due to opportunistic inventory purchases during the year and lower- • Days sales outstanding in receivables of than-planned sales 62 days - Inventory up 17% Y/Y and down 8% Q/Q • Paid for inventory days of 20.5 reflect higher inventory levels and timing of accounts payable scansource.com 6 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 CASH FLOW AND BALANCE SHEET HIGHLIGHTS Q4 FY19 Q3 FY19 Q4 FY18 $ in millions Adjusted EBITDA (QTR)* $33.6 $34.6 $35.2 Adjusted ROIC (QTR)* 10.6% 11.1% 12.5% Adjusted EBITDA (FY)* $146.6 $142.6 Adjusted ROIC (FY)* 12.0% 12.5% Operating cash flow (QTR) $(2.6) $27.2 $31.0 Operating cash flow, trailing 12 months $(27.1) $6.5 $24.8 Cash and cash equivalents (Q/E) $23.8 $20.4 $25.5 Debt (Q/E) $360.5 $347.7 $249.4 Net debt to adjusted EBITDA, trailing 12 months* 2.3x 2.2x 1.6x Shares repurchased – # of shares (QTR) 314,445 -- -- Shares repurchased – dollars (QTR) $9.8 -- -- Remaining share repurchase authorization $89.5 $99.4 $99.7 (as of Q/E) * Excludes non-GAAP adjustments and change in fair value of contingent consideration • Adjusted EBITDA of $33.6 million, down • Cash and cash equivalent balances of 5% Y/Y, due to lower net sales and $23.8 million at 6/30/19, including $19 investments in the business million held outside of the U.S. • Adjusted return on invested capital of • Net debt to trailing 12-month adjusted 10.6% for the fiscal year EBITDA is 2.3x • Operating cash flow of -$2.6 million for • $9.8 million in share repurchases during the quarter and -$27.1 million for the the quarter; current share repurchase fiscal year authorization expires in August 2019 - Impacted by higher working capital levels scansource.com 7 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 Q1 FY20 OUTLOOK EXCLUDING RESULTS FOR PLANNED DIVESTITURES For the quarter ending September 30, 2019: GAAP NET SALES GAAP DILUTED EPS Forecast Range: Forecast Range: $970 million to $0.47 to $0.52 $1.03 billion per share Q1 FY19: Net sales $973 million Q1 FY19: GAAP diluted EPS $0.56 NON-GAAP NET SALES NON-GAAP DILUTED EPS Excluding Planned Divestitures Excluding Planned Divestitures Forecast Range: Forecast: Range $830 million to $0.70 to $0.75 $890 million per share Q1 FY19: Net sales excluding Planned Q1 FY19: Non-GAAP diluted EPS Divestitures $813 million excluding Planned Divestitures $0.89 • Outlook as of August 20, 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 and results from Planned Divestitures • Forecast midpoint reflects 4% year-over-year organic sales growth • Reflects the following FX rates: $0.26 to R$1.00 for the Brazilian real (R$3.85 to $1) • Expects foreign currency translation to positively impact sales by approximately $2 million • Assumes interest expense will be approximately $4.4 million for Q1 FY20 • Assumes an effective tax rate excluding Planned Divestitures of 25% to 26% for Q1 FY20, excluding discrete items scansource.com 8 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 FORWARD-LOOKING STATEMENTS Although ScanSource believes the expectations in its forward-looking statements This CFO Commentary contains certain are reasonable, it cannot guarantee future comments that are “forward-looking” results, levels of activity, performance or statements, including statements about achievement. ScanSource disclaims any expected sales, Planned Divestitures, GAAP obligation to update or revise any forward- diluted earnings per share (“EPS”), non-GAAP looking statements, whether as a result of new diluted EPS, operating cash flow, foreign information, future events, or otherwise, currency rates, tax rates and interest expense except as may be required by law. that involve plans, strategies, economic performance and trends, projections, expectations, costs or beliefs about future NON-GAAP FINANCIAL INFORMATION events and other statements that are not In addition to disclosing results that are descriptions of historical facts. Forward- determined in accordance with United States looking information is inherently subject to Generally Accepted Accounting Principles risks and uncertainties. (“GAAP”), the Company also discloses certain non-GAAP measures, including non-GAAP Any number of factors could cause actual operating income, non-GAAP operating results to differ materially from anticipated or income margin, non-GAAP net income, non- forecasted results, including but not limited to, GAAP diluted EPS, non-GAAP net sales, our ability to complete the Planned adjusted EBITDA, ROIC and net sales Divestitures on acceptable terms or at all, excluding the impact of foreign currency changes in our operating strategy, changes in translation and acquisitions (organic growth). interest and exchange rates and regulatory A reconciliation of the Company's non-GAAP regimes impacting our international financial information to GAAP financial operations, the impact of tax reform laws, the information is provided in the Appendix and in failure of acquisitions to meet our the Company’s Form 8-K, filed with the SEC, expectations, the failure to manage and with the quarterly earnings press release for implement our organic growth strategy, credit the period indicated. risks involving our larger customers and 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, 2018, filed with the Securities and Exchange Commission (“SEC”). scansource.com 9 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS – QTR ($ in thousands) Quarter Ended June 30, 2019 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 20,022 $ 16,238 $ 11,578 $ 0.45 Adjustments: Amortization of intangible assets 5,024 5,024 3,802 0.15 Change in fair value of contingent consideration 3,665 3,665 2,780 0.11 Acquisition costs (a) 230 230 230 0.01 Restructuring costs 483 483 342 0.01 Tax recovery, net - - (387) (0.02) Non-GAAP measure $ 29,424 $ 25,640 $ 18,345 $ 0.71 Quarter Ended March 31, 2019 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 18,804 $ 15,795 $ 11,715 $ 0.45 Adjustments: Amortization of intangible assets 5,005 5,005 3,789 0.15 Change in fair value of contingent consideration 5,101 5,101 3,619 0.14 Acquisition costs (a) 222 222 222 0.01 Restructuring costs 592 592 443 0.02 Non-GAAP measure $ 29,724 $ 26,715 $ 19,788 $ 0.77 Quarter Ended June 30, 2018 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 19,759 $ 18,043 $ 10,388 $ 0.40 Adjustments: Amortization of intangible assets 5,056 5,056 3,521 0.14 Change in fair value of contingent consideration 8,448 8,448 5,679 0.22 Tax recovery and related interest income (2,466) (3,119) (2,058) (0.08) Tax reform charges (b) - - 2,345 0.09 Non-GAAP measure $ 30,797 $ 28,428 $ 19,875 $ 0.77 (a) Acquisition costs are 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 10 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Operating Income, Pre-Tax Income, Net Income & EPS – FY ($ in thousands) Fiscal Year Ended June 30, 2019 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 89,964 $ 77,908 $ 57,597 $ 2.24 Adjustments: Amortization of intangible assets 19,732 19,732 14,956 0.58 Change in fair value of contingent consideration 15,200 15,200 11,294 0.44 Acquisition costs (a) 1,218 1,218 1,218 0.05 Restructuring costs 2,402 2,402 1,740 0.07 Tax recovery, net - - (387) (0.02) Non-GAAP measure $ 128,516 $ 116,460 $ 86,418 $ 3.36 Fiscal Year Ended June 30, 2018 Operating Pre-tax Net Diluted Income income income EPS GAAP measure $ 67,639 $ 60,925 $ 33,153 $ 1.29 Adjustments: Amortization of intangible assets 20,657 20,657 14,021 0.55 Change in fair value of contingent consideration 37,043 37,043 24,697 0.96 Acquisition costs (a) 172 172 172 0.01 Legal settlement, net of attorney fees 952 952 771 0.03 Tax recovery and related interest income (2,466) (3,119) (2,058) (0.08) Tax reform charges and tax settlement (b) - - 9,034 0.35 Non-GAAP measure $ 123,997 $ 116,630 $ 79,790 $ 3.11 (a) Acquisition costs are 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 11 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 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 June 30, 2019: Q4 FY19 net sales, as reported $ 636,172 $ 324,661 $ 960,833 Foreign exchange impact (a) 7,199 7,489 14,688 Q4 FY19 net sales, constant currency 643,371 332,150 975,521 Less: Acquisitions - (2,042) (2,042) Q4 FY19 net sales, constant currency excluding $ 643,371 $ 330,108 $ 973,479 acquisitions Q4 FY18 net sales, as reported $ 684,552 $ 309,300 $ 993,852 Less: Acquisitions - - - Q4 FY18 net sales, excluding acquisitions $ 684,552 $ 309,300 $ 993,852 Y/Y % Change: As reported -7.1% 5.0% -3.3% Constant currency -6.0% 7.4% -1.8% Constant currency, excluding acquisitions (organic growth) -6.0% 6.7% -2.0% (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 June 30, 2019 into U.S. dollars using the weighted average foreign exchange rates for the quarter ended June 30, 2018. scansource.com 12 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Sales, Constant Currency and Excluding Acquisitions (Organic Growth) – FY ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Consolidated For the fiscal year ended June 30, 2019: FY 2019 net sales, as reported $ 2,589,837 $ 1,283,274 $ 3,873,111 Foreign exchange impact (a) 33,318 45,655 78,973 FY 2019 net sales, constant currency 2,623,155 1,328,929 3,952,084 Less: Acquisitions (23,465) (7,261) (30,726) FY 2019 net sales, constant currency excluding acquisitions $ 2,599,690 $ 1,321,668 $ 3,921,358 FY 2018 net sales, as reported $ 2,628,988 $ 1,217,272 $ 3,846,260 Less: Acquisitions (14,553) - (14,553) FY 2018 net sales, excluding acquisitions $ 2,614,435 $ 1,217,272 $ 3,831,707 Y/Y % Change: As reported -1.5% 5.4% 0.7% Constant currency -0.2% 9.2% 2.8% Constant currency, excluding acquisitions (organic growth) -0.6% 8.6% 2.3% (a) Year-over-year sales growth excluding the translation impact of changes in foreign currency rates. Calculated by translating net sales for the fiscal year ended June 30, 2019 into U.S. dollars using the weighted average foreign exchange rates for the fiscal year ended June 30, 2018. scansource.com 13 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Highlights by Segment – QTR Quarter Ended June 30, 2019 ($ in thousands) WW Barcode, WW Comms. FY19 NW & Security & Services Corporate Consolidated Consolidated Net sales $ 636,172 $ 324,661 $ - $ 960,833 $ 3,873,111 GAAP operating income 10,901 9,351 (230) 20,022 89,964 Adjustments: Amortization of intangible assets 1,968 3,057 - 5,024 19,732 Change in fair value of contingent - 3,665 - 3,665 15,200 consideration Acquisition costs - - 230 230 1,218 Restructuring costs 86 397 - 483 2,402 Non-GAAP operating income $ 12,954 $ 16,469 $ - $ 29,424 $ 128,516 GAAP operating income % (of net sales) 1.71% 2.88% n/m 2.08% 2.32% Non-GAAP operating income % (of net sales) 2.04% 5.07% n/m 3.06% 3.32% Quarter Ended March 31, 2019 ($ in thousands) WW Barcode, WW Comms. NW & Security & Services Corporate Consolidated Net sales $ 596,913 $ 296,444 $ - $ 893,357 GAAP operating income 16,865 2,161 (222) 18,804 Adjustments: Amortization of intangible assets 1,968 3,037 - 5,005 Change in fair value of contingent - 5,101 - 5,101 consideration Acquisition costs - - 222 222 Restructuring costs - 592 - 592 Non-GAAP operating income $ 18,833 $ 10,891 $ - $ 29,724 GAAP operating income % (of net sales) 2.83% 0.73% n/m 2.10% Non-GAAP operating income % (of net sales) 3.16% 3.67% n/m 3.33% Quarter Ended June 30, 2018 ($ in thousands) WW Barcode, WW Comms. FY18 NW & Security & Services Corporate Consolidated Consolidated Net sales $ 684,552 $ 309,300 $ - $ 993,852 $ 3,846,260 GAAP operating income 15,768 3,991 - 19,759 67,639 Adjustments: Amortization of intangible assets 2,309 2,747 - 5,056 20,657 Change in fair value of contingent 37,043 consideration - 8,448 - 8,448 Acquisition costs - - - - 172 Tax recovery (1,512) (954) - (2,466) (2,466) Legal settlement, net of attorney fees - - - - 952 Non-GAAP operating income $ 16,565 $ 14,232 $ - $ 30,797 $ 123,997 GAAP operating income % (of net sales) 2.30% 1.29% n/m 1.99% 1.76% Non-GAAP operating income % (of net sales) 2.42% 4.60% n/m 3.10% 3.22% n/m = not meaningful scansource.com 14 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Average Return on Invested Capital - QTR ($ in thousands) Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Adjusted return on invested capital (ROIC), annualized (a) 10.6% 11.1% 13.3% 12.9% 12.5% Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 11,578 $ 11,715 $ 19,982 $ 14,322 $ 10,388 Plus: Interest expense 3,966 3,670 3,119 2,627 2,494 Income taxes 4,660 4,080 6,668 4,902 7,655 Depreciation and amortization 9,053 9,363 8,935 9,268 9,291 EBITDA 29,257 28,828 38,704 31,119 29,828 Adjustments: Change in fair value of contingent consideration 3,665 5,101 1,850 4,584 8,448 Acquisition costs 230 222 414 353 - Restructuring costs 483 456 - 1,328 - Tax recovery and related interest income - - - - (3,119) Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 33,635 $ 34,607 $ 40,968 $ 37,384 $ 35,157 Invested Capital Calculation Equity - beginning of the quarter $ 911,063 $ 899,503 $ 877,897 $ 866,376 $ 877,796 Equity - end of quarter 914,129 911,063 899,503 877,897 866,376 Adjustments: Change in fair value of contingent consideration, net of tax 2,780 3,619 1,408 3,487 5,679 Acquisition costs, net of tax 230 222 414 353 - Restructuring costs, net of tax 342 334 - 955 - Tax recovery and related interest income, net of tax (387) - - - (2,058) Tax reform charges - - - - 2,345 Average equity 914,079 907,371 889,611 874,535 875,069 Average funded debt (b) 355,932 357,443 333,138 272,277 253,393 Invested capital (denominator for ROIC)(non-GAAP) $ 1,270,011 $ 1,264,814 $ 1,222,749 $ 1,146,812 $ 1,128,462 (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 15 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Average Return on Invested Capital – FY ($ in thousands) Fiscal Year ended June 30, 2019 2018 Adjusted return on invested capital (ROIC), annualized (a) 12.0% 12.5% Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 57,597 $ 33,153 Plus: Interest expense 13,382 9,149 Income taxes 20,311 27,772 Depreciation and amortization 36,619 37,495 EBITDA 127,909 107,569 Adjustments: Change in fair value of contingent consideration 15,200 37,043 Acquisition costs 1,218 172 Restructuring costs 2,267 - Legal settlement, net of attorney fees - 952 Tax recovery and related interest income - (3,119) Adjusted EBITDA (numerator for ROIC)(non-GAAP) $ 146,594 $ 142,617 Invested Capital Calculation Equity - beginning of the quarter $ 866,376 $ 837,145 Equity - end of quarter 914,129 866,376 Adjustments: Change in fair value of contingent consideration, net of tax 11,294 24,697 Acquisition costs, net of tax 1,218 172 Restructuring costs, net of tax 1,631 - Legal settlement, net of attorney fees, net of tax - 771 Tax recovery and related interest income, net of tax (387) (2,058) Tax reform charges and tax settlement - 9,034 Average equity 897,131 868,069 Average funded debt (b) 329,473 276,233 Invested capital (denominator for ROIC)(non-GAAP) $ 1,226,604 $ 1,144,302 (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 16 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Net Debt and EBITDA Metrics ($ in thousands) Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18 Q2 FY18 Q1 FY18 Debt (Q/E) $360,506 $347,672 $372,410 $281,859 $249,429 $282,158 $360,932 $285,763 Less: Cash and cash equivalents (Q/E) (23,818) (20,400) (22,749) (18,858) (25,530) (35,361) (35,435) (23,616) Net debt (Q/E) $336,688 $327,272 $349,661 $263,000 $223,899 $246,797 $325,497 $262,147 Reconciliation of Net Income to Adjusted EBITDA Net income - GAAP $ 11,578 $ 11,715 $ 19,982 $ 14,322 $ 10,388 $ 10,649 $ 7,969 $ 4,147 Plus: Interest expense 3,966 3,670 3,119 2,627 2,494 2,784 2,285 1,585 Income taxes 4,660 4,080 6,668 4,902 7,655 5,143 12,341 2,633 Depreciation and amortization 9,053 9,363 8,935 9,268 9,291 9,438 9,901 8,864 EBITDA 29,257 28,828 38,704 31,119 29,828 28,014 32,496 17,229 Adjustments: Change in fair value of contingent consideration 3,665 5,101 1,850 4,584 8,448 4,801 6,913 16,881 Acquisition costs 230 222 414 353 - - - 172 Restructuring costs 483 456 - 1,328 - - - - Legal settlement, net of attorney fees - - - - - - - 952 Tax recovery and related interest income - - - - (3,119) - - - Adjusted EBITDA (non-GAAP) $ 33,635 $ 34,607 $ 40,968 $ 37,384 $ 35,157 $ 32,815 $ 39,409 $ 35,234 Adjusted EBITDA, TTM (a) $ 146,594 $ 148,116 $ 146,324 $ 144,765 $ 142,617 $ 138,418 $ 134,794 $ 128,015 Net Debt / Adjusted EBITDA, TTM (a) 2.3x 2.2x 2.4x 1.8x 1.6x 1.8x 2.4x 2.0x (a) Adjusted EBITDA for the trailing 12-month period scansource.com 17 August 20, 2019


 
ScanSource, Inc. CFO COMMENTARY Q4 FY2019 APPENDIX: RECONCILIATIONS FOR NON-GAAP FINANCIAL INFORMATION Forecasted Range for EPS – Q1 FY20 Outlook Excluding Planned Divestitures ($ in thousands) Forecast for Quarter ending September 30, 2019 Range Low Range High Net sales, reported $ 970,000 $ 1,030,000 Adjustments: Net sales for planned divestitures (140,000) (140,000) Net sales, excluding planned divestitures $ 830,000 $ 890,000 GAAP diluted EPS $ 0.47 $ 0.52 Adjustments: Amortization of intangible assets 0.13 0.13 Change in fair value of contingent consideration 0.05 0.05 Results for planned divestitures(a) 0.05 0.05 Non-GAAP diluted EPS $ 0.70 $ 0.75 (a) Reflects operating results for planned divestitures and does not include any non-cash charges from write-downs or costs associated with a sale or liquidation of the businesses and their assets scansource.com 18 August 20, 2019