ScanSource Logs Another Record Quarter, Spurred By Acquisitions

ScanSource roared to another record quarter for revenue, hitting the higher end of its expectations while shattering its earnings projections, the Greenville, S.C.-based distributor said Thursday.

The company recorded close to $871 million in net sales for the first quarter of its 2016 fiscal year, ended Sept. 30. That surpassed the record $857 million ScanSource brought in during the previous quarter. Its first-quarter projected revenue range was $820 million to $880 million.

Meanwhile, its earnings per share of 68 cents exceeded the company’s projection of 50 to 58 cents, but was less than the 75 cents per share it returned in the first quarter of the last fiscal cycle. ScanSource reported first-quarter net income of $18.9 million, down from $21.6 million in the same quarter last year.

[Related: ScanSource To Buy $225M Cisco Videoconferencing Distributor]

And company officials expect another record in the second quarter, with a target revenue range of $900 million to $980 million with earnings per share of between 72 and 80 cents.

The first-quarter results were "strong," CEO Mike Baur told analysts Thursday afternoon in a conference call. He noted that ScanSource’s most recent acquisitions -- Network1, Imago and KBZ -- contributed to the company’s revenue growth. It was the first full quarter for Network1 and Imago under the ScanSource umbrella. KBZ, a videoconferencing distributor that notched $225 million in sales for its most recent fiscal year, officially became part of ScanSource on Sept. 4, two weeks after ScanSource said it would acquire the company.

The KBZ integration is ’going very well’ and ScanSource expects it to be a growth area, Baur said. ScanSource made the acquisition to improve the alignment of its offerings with Cisco as it focuses more heavily on collaboration tools.

ScanSource saw the largest percentage growth in first-quarter sales from its communications and services division, which jumped 23 percent, to $355 million, on a constant-currency basis. In a post-call interview with CRN, Baur pointed out sales of networking products, which have been strong for several quarters, ’and we expect that to continue for quite a while.’

Meanwhile, ScanSource’s chief source of revenue -- bar code, point-of-sale and security products -- gained just under 10 percent in year-over-year sales, to $516 million, also on a constant-currency basis. Yet that was higher than a 7 percent jump in the fourth quarter of ScanSource’s 2015 fiscal cycle.

Much of that growth is tied to the adoption of chip and PIN EMV (EuroPay, MasterCard and Visa) technology. As of Oct. 15, end-user businesses -- rather than credit card issuers -- are being held responsible for any fraud that results from credit or debit transactions on systems that do not use the technology. In an interview with CRN in September, Baur said that for VARs, there is ’at least another year of opportunity to take advantage of this shift. It's going to still take well beyond October for all of those retailers to implement this.’

ScanSource officials also see improved ability to handle projected growth in the coming quarters after the completion of an SAP installation in its North American operations that was on time and on budget, although implementation was ’not perfect’ because the company was replacing a 20-year-old legacy system, Baur said on the earnings call.

Despite seeing a drop of about two-thirds of the company’s cash from the previous quarter -- ScanSource used $61 million toward the purchase of KBZ -- the company saw a gain of more than 4 percent in its assets, and ScanSource remains ’disciplined and focused on [additional] acquisition opportunities,’ CFO Charlie Mathis told analysts.

PUBLISHED OCT. 29, 2015