ScanSource, Inc. Debt jumped on 128% and Net Debt / EBITDA jumped on 1.9x from 0.6x to 2.5x
08/28/2018 • About ScanSource, Inc. (
$SCSC) • By InTwits
ScanSource, Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- EBITDA Margin is relatively stable: 2.7% in FY2018 vs. 3.2% in FY2017 vs. 4.4% in FY2014
- ScanSource, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 0.4%.
- The company has potentially unprofitable business model: ROIC is 6.1%
- It operates with high leverage: Net Debt/EBITDA is 2.5x while industry average is 0.2x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue increased on 7.8%. Revenue growth showed acceleration in FY18Q4 - it increased 8.3% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 2.5 pp from 5.4% to 7.9% in 2018. EBITDA Margin followed a declining trend at -0.38 pp per annum in the last 5 years.
Gross Margin increased slightly on 0.59 pp from 10.8% to 11.3% in FY2018. During FY2014-FY2018 Gross Margin bottomed in FY2016 at 10.0% and was growing since that time. SG&A as a % of Revenue showed almost no change in FY2018. SG&A as a % of Revenue grew at 0.28 pp per annum in FY2014-FY2018.
Net Income margin decreased slightly on 1.1 pp from 1.9% to 0.86% in FY2018. Net Income margin followed a declining trend at -0.40 pp per annum in FY2014-FY2018.
Investments (CAPEX, working capital and M&A)
In FY2018 ScanSource, Inc. had CAPEX/Revenue of 0.21%. CAPEX/Revenue showed almost no change from FY2015 to FY2018. It's average CAPEX/Revenue for the last three years was 0.27%. During the last 5 years CAPEX as a % of Revenue topped in FY2015 at 0.65% and was declining since that time.
Return on investment
The company operates at low ROIC (6.1%) and ROE (3.9%). ROIC decreased on 3.2 pp from 9.3% to 6.1% in FY2018. ROE decreased on 4.7 pp from 8.6% to 3.9% in FY2018. ROIC stuck to a declining trend at -2.2 pp per annum in FY2014-FY2018.
Leverage (Debt)
Debt level is 2.5x Net Debt / EBITDA and 2.8x Debt / EBITDA. Net Debt / EBITDA jumped on 1.9x from 0.6x to 2.5x in FY2018. Debt surged on 128% while cash dropped on 54.5%. Net Debt/EBITDA grew at 0.9x per annum in FY2014-FY2018.
ScanSource, Inc. has short term refinancing risk: cash is only 58.7% of short term debt.
Valuation and dividends
ScanSource, Inc.'s trades at EV/EBITDA 12.1x and P/E 30.4x.
Management team
Michael L Baur "Mike" is a ScanSource, Inc.'s CEO. Michael L Baur "Mike" is a founder and has spent 19 years with the company. Gerald Lyons "Gerry" is a the company's CFO. Gerald Lyons "Gerry" has spent 2 years at the company.
Financial and operational results
FY ended 06/30/2018
ScanSource, Inc. ($SCSC) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 2,914 | 3,219 | 3,540 | 3,568 | 3,846 | 7.8% |
| Gross Profit | 301 | 327 | 355 | 384 | 436 | 13.7% |
| SG&A | 192 | 223 | 257 | 265 | 297 | 12.2% |
| EBITDA | 129 | 113 | 114 | 113 | 105 | -7.1% |
| Net Income | 82 | 65 | 64 | 69 | 33 | -52.1% |
Balance Sheet
|
|---|
| Cash | 195 | 122 | 61 | 56 | 26 | -54.5% |
| Short Term Debt | 6 | 12 | 12 | 31 | 44 | 41.9% |
| Long Term Debt | 11 | 6 | 77 | 97 | 249 | 155.8% |
Cash flow
|
|---|
| Capex | 11 | 21 | 12 | 9 | 8 | -7.8% |
Ratios
|
|---|
| Revenue growth | 1.3% | 10.5% | 10.0% | 0.8% | 7.8% | |
| EBITDA growth | 117.1% | -12.2% | 0.5% | -0.7% | -7.1% | |
|
|---|
| Gross Margin | 10.3% | 10.2% | 10.0% | 10.8% | 11.3% | 0.6% |
| EBITDA Margin | 4.4% | 3.5% | 3.2% | 3.2% | 2.7% | -0.4% |
| SG&A, % of revenue | 6.6% | 6.9% | 7.3% | 7.4% | 7.7% | 0.3% |
| Net Income Margin | 2.8% | 2.0% | 1.8% | 1.9% | 0.9% | -1.1% |
| CAPEX, % of revenue | 0.4% | 0.6% | 0.3% | 0.2% | 0.2% | -0.0% |
|
|---|
| ROIC | 15.8% | 12.1% | 11.2% | 9.3% | 6.1% | -3.2% |
| ROE | 10.9% | 8.1% | 8.0% | 8.6% | 3.9% | -4.7% |
| Net Debt/EBITDA | -1.4x | -0.9x | 0.2x | 0.6x | 2.5x | 1.9x |
ScanSource, Inc. ($SCSC) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 925 | 1,032 | 896 | 994 | | -0.9% | 14.1% | 10.1% | 8.3% |
| EBITDA | 16 | 32 | 27 | 29 | | -41.4% | 8.0% | 1.9% | 2.3% |
| Net Income | 4 | 8 | 11 | 10 | | -72.0% | -65.4% | -14.3% | -45.2% |
Balance Sheet
|
|---|
| Cash | 24 | 35 | 35 | 26 | | -47.7% | -21.4% | -43.1% | -54.5% |
| Short Term Debt | 49 | 39 | 41 | 44 | | 49.1% | 18.1% | 32.0% | 41.9% |
| Long Term Debt | 286 | 361 | 282 | 249 | | 72.0% | 154.7% | 147.2% | 155.8% |
Ratios
|
|---|
| Gross Margin | 11.5% | 10.9% | 11.6% | 11.4% | | 1.6% | 0.1% | 0.2% | 0.4% |
| EBITDA Margin | 1.8% | 3.1% | 3.1% | 2.9% | | -1.2% | -0.2% | -0.2% | -0.2% |
| Net Income Margin | 0.4% | 0.8% | 1.2% | 1.0% | | -1.1% | -1.8% | -0.3% | -1.0% |
Peers in Technology Distributors
Below you can find ScanSource, Inc. benchmarking vs. other companies in Technology Distributors industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Tech Data Corporation ($TECD) | | 3.2% | -4.7% | -8.3% | 38.9% |
| EACO Corp ($EACO) | | 4.1% | 5.9% | 5.7% | 23.1% |
| Richardson Electronics, Ltd. ($RELL) | | -0.7% | 3.7% | -3.6% | 19.2% |
| Synnex Corporation ($SNX) | | -3.6% | 5.4% | 21.2% | 17.6% |
| Wayside Technology Group, Inc. ($WSTG) | | 12.1% | 9.4% | -61.6% | 13.0% |
| |
|---|
| Median (16 companies) | | 4.1% | 4.6% | 5.7% | 8.9% |
|---|
| ScanSource, Inc. ($SCSC) | | 10.5% | 10.0% | 0.8% | 7.8% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Taitron Components Incorporated ($TAIT) | 25.4% | 31.1% | -10.8% | 39.4% | 44.0% |
| Richardson Electronics, Ltd. ($RELL) | 29.7% | 30.0% | 31.6% | 32.1% | 33.7% |
| EACO Corp ($EACO) | 27.5% | 29.3% | 29.3% | 28.5% | 28.5% |
| Surge Components Inc ($SPRS) | 24.5% | 25.0% | 25.2% | 25.2% | 25.6% |
| ADDvantage Technologies Group, Inc. ($AEY) | 32.3% | 35.0% | 32.2% | 30.4% | 23.7% |
| |
|---|
| Median (16 companies) | 15.9% | 16.3% | 14.2% | 16.9% | 16.3% |
|---|
| ScanSource, Inc. ($SCSC) | 10.3% | 10.2% | 10.0% | 10.8% | 11.3% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Taitron Components Incorporated ($TAIT) | -8.6% | -3.2% | -39.0% | 13.0% | 19.2% |
| CDW Corporation ($CDW) | 7.3% | 7.5% | 7.7% | 7.6% | 7.7% |
| ePlus inc. ($PLUS) | 7.3% | 7.5% | 7.6% | 7.3% | 7.1% |
| EACO Corp ($EACO) | 4.0% | 4.5% | 4.7% | 4.5% | 5.9% |
| Surge Components Inc ($SPRS) | 2.8% | 3.8% | -1.5% | 1.2% | 4.8% |
| |
|---|
| Median (16 companies) | 3.2% | 3.5% | 3.6% | 3.8% | 4.1% |
|---|
| ScanSource, Inc. ($SCSC) | 4.4% | 3.5% | 3.2% | 3.2% | 2.7% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Richardson Electronics, Ltd. ($RELL) | 2.0% | 3.5% | 3.4% | 3.8% | 3.2% |
| ePlus inc. ($PLUS) | 0.9% | 1.0% | 2.1% | 1.5% | 1.0% |
| EACO Corp ($EACO) | 0.6% | 0.4% | 0.3% | 5.5% | 0.8% |
| Avnet, Inc. ($AVT) | 0.4% | 0.6% | 0.8% | 0.7% | 0.8% |
| PC Connection, Inc. ($CNXN) | 0.3% | 0.5% | 0.4% | 0.4% | 0.8% |
| |
|---|
| Median (16 companies) | 0.5% | 0.5% | 0.4% | 0.5% | 0.5% |
|---|
| ScanSource, Inc. ($SCSC) | 0.4% | 0.6% | 0.3% | 0.2% | 0.2% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Surge Components Inc ($SPRS) | 6.7% | 9.5% | -4.0% | 3.9% | 24.6% |
| CDW Corporation ($CDW) | 16.5% | 17.3% | 18.8% | 20.1% | 23.1% |
| EACO Corp ($EACO) | 19.6% | 21.8% | 22.2% | 16.1% | 21.2% |
| ePlus inc. ($PLUS) | 20.1% | 21.0% | 21.5% | 22.8% | 20.8% |
| Insight Enterprises, Inc. ($NSIT) | 17.0% | 17.4% | 20.7% | 19.3% | 20.0% |
| |
|---|
| Median (17 companies) | 11.9% | 11.9% | 12.5% | 11.5% | 11.8% |
|---|
| ScanSource, Inc. ($SCSC) | 15.8% | 12.1% | 11.2% | 9.3% | 6.1% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Synnex Corporation ($SNX) | 2.0x | 0.9x | 1.2x | 2.1x | 3.9x |
| Anixter International Inc. ($AXE) | 3.2x | 4.7x | 3.6x | 3.0x | 3.1x |
| CDW Corporation ($CDW) | 3.2x | 3.3x | 2.8x | 2.7x | 2.4x |
| Arrow Electronics, Inc. ($ARW) | 1.8x | 2.2x | 2.2x | 2.3x | 2.2x |
| Avnet, Inc. ($AVT) | 1.2x | 1.1x | 2.2x | 1.5x | 2.2x |
| |
|---|
| Median (15 companies) | 0.1x | -0.2x | 0.5x | 1.2x | 0.5x |
|---|
| ScanSource, Inc. ($SCSC) | -1.4x | -0.9x | 0.2x | 0.6x | 2.5x |
