ScanSource Notches Record Sales On Eve Of Electronic Payment Liability Shift

ScanSource recorded its highest-ever quarter of revenue, thanks to overwhelming interest in its payment-processing hardware, networking and wireless offerings.

The Greenville, S.C.-based distributor said sales for the quarter ended June 30 increased 18 percent, to $856.7 million, after factoring out changes in foreign-currency exchange rates. This clobbered Seeking Alpha projections of $822.1 million.

Non-GAAP earnings climbed 5 percent, from $18.2 million last year to $19 million this year, or 66 cents per share, besting Seeking Alpha estimates of 58 cents per share.

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

"We executed our plan to grow our business very well," ScanSource CEO Mike Baur said during the earnings call Thursday.

Roughly half of ScanSource's sales growth can be attributed to its August 2014 acquisitions of Brazilian distributor Network1 and U.K.-based voice, video and data company Imago Group, the distributor reported.

But even after excluding those acquisitions, ScanSource posted organic sales growth of 9.2 percent on a constant currency basis, fueled by high demand for payment terminals, physical security and networking products.

Bar-code and physical security revenue climbed 7 percent on a constant currency basis, to $490 million, with sales of payment-processing hardware more than doubling from this time last year.

As of Oct. 15, end-user businesses -- rather than credit card issuers -- will be held responsible for any fraud that results from credit or debit transactions on systems that do not use chip and PIN EMV (EuroPay, MasterCard and Visa) technology.

And the switch to EMV-compliant terminals is still in its infancy, with Baur telling CRN that many small retailers ultimately won't end up migrating until summer or fall 2016.

ScanSource's physical security business delivered 11 percent sales growth on a constant currency basis off the strength of its wireless and network assessments practices. The distributor also bolstered this division by launching a cabling and connectivity practice in May.

Outside North America, ScanSource posted double-digit growth on a constant currency basis in bar-coding and security in the United Kingdom, France and Germany despite many vendors' raising prices because of the weakening Euros. And Brazilian sales soared by 27 percent, thanks to unusually strong demand for specialized printers.

Meanwhile, communications and services sales jumped by 38.3 percent on a constant currency basis, to $367 million, with the Imago acquisition dramatically improving profitability in ScanSource's European communication business by allowing for the sharing of best practices.

Network1, meanwhile, delivered lower-than-expected revenue because of delays in making large purchases and obstacles associated with incorporating the distributor into a much larger public company.

Excluding acquisitions, ScanSource's communications and services divisions notched 13.2 percent revenue growth on a constant currency basis, thanks to both higher-margin services and large delayed deals that came through in the most recent quarter.

The communications and services unit will receive a big boost in October after ScanSource closes its acquisition of $225 million videoconferencing distributor KBZ. The Doylestown, Pa.-based company will boost ScanSource's bottom line by September 2016 after factoring out one-time acquisition costs.

ScanSource will also spend $4.3 million between April and September of this year to implement a global Enterprise Resource Planning (ERP) system from SAP, which Baur said will make it easier for the distributor to scale and integrate acquisitions. The ERP system is fully integrated in Europe, Baur said, with the distributor beginning implementation in North America in early July.

This stands in sharp contrast to Ingram Micro, which in late July announced plans to halt its global SAP ERP implementation after concluding that it would be cheaper and provide more flexibility to marry Ingram's legacy systems to the already-installed SAP systems.

ScanSource's stock price remained unchanged at $36.39 in after-hours trading. Earnings were announced after the market closed Thursday.

For the next quarter, ScanSource expects earnings per share of 50 cents per share to 58 cents per share on sales to $820 million to $880 million. That falls short of analyst projections of earnings of 73 cents per share on revenue of $876.7 million.

PUBLISHED AUG. 20, 2015