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SCANSOURCE, INC. (SCSC)·Q2 2025 Earnings Summary

Executive Summary

  • Net sales fell 15.5% year-over-year to $747.5M; gross profit rose 1.0% to $101.7M and gross margin expanded 222bp to 13.6%, driven by higher recurring revenue mix . GAAP diluted EPS was $0.70; non-GAAP diluted EPS was $0.85 (flat YoY) and adjusted EBITDA was $35.3M (4.72% margin) .
  • Specialty Technology Solutions declined on large-deal weakness; Intelisys & Advisory grew 4% YoY with acquisitions contributing, and recurring revenue rose 31.2% YoY .
  • Management reaffirmed FY25 guidance at Q2 (net sales $3.1–$3.5B; adj. EBITDA $140–$160M; FCF ≥$70M) , but later updated guidance at Q3 to ~$3.0B net sales and $140–$145M adj. EBITDA while keeping FCF ≥$70M .
  • Narrative/catalysts: mix shift to higher-margin recurring revenue, Advantix/Resourcive integration and vendor rebates supported margins; near-term caution on hardware large deals and Brazil FX headwinds tempered top-line visibility .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expansion and gross profit growth despite soft demand: “we delivered gross profit growth and a strong gross profit margin” and recurring revenue now 32.4% of gross profit .
  • Recurring revenue momentum and higher profitability mix: recurring revenue +31.2% YoY; adjusted EBITDA margin improved to 4.72% .
  • Strategic acquisitions expanding recurring revenue opportunities: “Our recent acquisitions are expanding recurring revenue opportunities… Advantix… a high margin recurring revenue add-on” .

What Went Wrong

  • Large-deal weakness and demand softness led to top-line miss vs internal expectations: net sales declined 4% sequentially (QoQ) and large deals saw double-digit decline; “this was a large deal-driven miss” .
  • Brazil FX headwinds and hardware visibility: STS faced FX headwinds in Brazil; visibility limited due to lack of backlog and daily shipment model .
  • Free cash flow negative in the quarter due to late-quarter timing of sales/vendor payments: Q2 free cash flow was -$8.2M vs $60.7M in prior-year quarter .

Financial Results

MetricQ2 FY24 (older)Q1 FY25Q2 FY25 (current)
Net Sales ($USD Millions)$884.8 $775.6 $747.5
Gross Profit ($USD Millions)$100.7 $101.6 $101.7
Gross Margin (%)11.4% 13.10% 13.6%
Operating Income ($USD Millions)$26.8 $17.6 $18.4
GAAP Diluted EPS ($)$1.29 $0.69 $0.70
Non-GAAP Diluted EPS ($)$0.85 $0.84 $0.85
Adjusted EBITDA ($USD Millions)$38.5 $35.7 $35.3
Adjusted EBITDA Margin (%)4.35% 4.60% 4.72%
Free Cash Flow ($USD Millions)$60.7 $42.5 -$8.2
Cash and Equivalents ($USD Millions)$44.99 $145.0 $110.5
Total Debt ($USD Millions)—$143.6 $139.9

Segment Net Sales

SegmentQ2 FY24 (older)Q1 FY25Q2 FY25 (current)
Specialty Technology Solutions ($USD Millions)$861.5 $752.3 $723.3
Intelisys & Advisory ($USD Millions)$23.3 $23.3 $24.2

Revenue Type

Revenue TypeQ2 FY24 (older)Q1 FY25Q2 FY25 (current)
Products & Services ($USD Millions)$857.2 $741.6 $711.2
Recurring Revenue ($USD Millions)$27.6 $34.0 $36.3

Geography

GeographyQ2 FY24 (older)Q1 FY25Q2 FY25 (current)
U.S. & Canada ($USD Millions, reported)$795.4 $712.0 $687.1
Brazil ($USD Millions, reported)$89.4 $63.6 $60.4

KPIs and Mix

KPIQ2 FY24 (older)Q1 FY25Q2 FY25 (current)
Recurring Revenue Share of Gross Profit (%)27.1% 31.8% 32.4%
Adjusted ROIC (annualized, %)13.2% 13.3% 13.3%
Net Debt Leverage (TTM adj. EBITDA, x)——0.2x
Intelisys End-User Billings (annualized, $USD Billions)——~$2.77

Estimates vs. Actuals

MetricConsensus EstimateActualResult
Revenue ($USD Millions)N/A – SPGI consensus unavailable$747.5 N/A
GAAP Diluted EPS ($)N/A – SPGI consensus unavailable$0.70 N/A
Note: S&P Global consensus data was unavailable at time of analysis due to API limits; results vs. estimates are not provided.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance (Q2)Change
Net SalesFY25$3.1B–$3.5B $3.1B–$3.5B Maintained
Adjusted EBITDA (non-GAAP)FY25$140M–$160M $140M–$160M Maintained
Free Cash Flow (non-GAAP)FY25At least $70M At least $70M Maintained
Net SalesFY25 (updated at Q3)$3.1B–$3.5B Approximately $3.0B Lowered
Adjusted EBITDA (non-GAAP)FY25 (updated at Q3)$140M–$160M $140M–$145M Narrowed lower end
Free Cash Flow (non-GAAP)FY25 (updated at Q3)At least $70M At least $70M Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24, Q1 FY25)Current Period (Q2 FY25)Trend
Demand & Large DealsFY24 soft demand; hardware volumes down; mix aided margins Large deals declined double-digit; sequential sales down 4%; “large deal-driven miss” Weak then stabilizing late-Q3 per later commentary
Recurring Revenue MixIntelisys mix supporting margins; recurring revenue up 18.8% YoY in Q1 Recurring revenue +31.2% YoY; 32.4% of gross profit Increasing mix; margin accretive
Brazil & FXFY24/early FY25 FX and international pressures FX headwinds in Brazil cited for STS Persistent headwind
Acquisitions (Advantix, Resourcive)Announced Aug-2024; integration underway Expanding recurring opportunities; Advantix drives hybrid devices+connectivity Strategic execution progressing
Intelisys Competitiveness & PlatformQ1: Intelisys +4.1% YoY; competitive pressures acknowledged New “channel exchange” SaaS platform; partner segmentation; billings +5% YoY to ~$2.77B annualized Improving tools; aiming for growth
Capital AllocationFY24 strong FCF; repurchases Q2 repurchases $24M; target 1–2x net debt leverage; disciplined M&A pipeline Balanced buybacks/M&A
Outlook & VisibilityFY25 guide set/reaffirmed Reaffirmed at Q2 but noted limited top-line visibility; sentiment-driven back-half Later lowered at Q3

Management Commentary

  • “In a soft demand environment, our team delivered second quarter gross profit growth and a strong gross profit margin.” – Mike Baur, Chair & CEO .
  • “With our recent acquisitions, we have expanded recurring revenue opportunities… Advantix… represents a recurring revenue opportunity for many of our VARs and a great example of a hybrid solution, combining devices and recurring revenue.” – Mike Baur .
  • “Our more profitable mix translated into a higher adjusted EBITDA margin… recurring revenue represents 32% of our consolidated gross profit.” – CFO Steve Jones .
  • “We ended Q2 with $111 million in cash and a net debt leverage ratio of 0.2x… Adjusted ROIC for the quarter is 13.3%.” – CFO Steve Jones .

Q&A Highlights

  • Large-deal cadence and miss: December-weighted quarter did not deliver expected large deals; “double-digit decline year-over-year was the surprise… large deal-driven miss” .
  • Guidance confidence vs. visibility: Reaffirmed FY25 ranges based on sentiment and recurring revenue predictability, but hardware top-line visibility is “really hard” without backlog .
  • Intelisys strategy: New “channel exchange” SaaS platform to attract suppliers; partner segmentation to align value and commission splits; competitive pressures acknowledged; billings +5% YoY .
  • Mix of technologies: Barcode/mobility and physical security performed; other areas challenged; expectation for broader technology recovery needed to meet annual guidance .

Estimates Context

  • S&P Global consensus for Q2 FY25 revenue and EPS was unavailable at time of analysis due to API limits; company-reported results are provided without estimate comparisons [GetEstimates errors].
  • Given margin outperformance and recurring revenue growth, near-term estimate revisions likely center on mix-driven margin resilience vs. cautious top-line trajectory, especially in hardware and Brazil .

Key Takeaways for Investors

  • Mix-led margin strength: Gross margin up 222bp YoY to 13.6% despite top-line declines, supported by recurring revenue and vendor programs—a positive for earnings quality in a soft demand environment .
  • Hardware large-deal volatility: Double-digit decline in large deals and limited visibility without backlog constrain near-term revenue confidence; monitor large-deal cadence and Brazil FX .
  • Recurring revenue scaling: Recurring revenue +31.2% YoY and now 32.4% of gross profit; Intelisys billings +5% YoY and platform upgrades (channel exchange) should support margin durability .
  • Free cash flow discipline: Q2 FCF negative due to timing, but YTD FCF $34.3M and CFO reiterates cash culture—watch conversion in H2 .
  • Capital allocation: $24M Q2 repurchases and active M&A pipeline with target leverage 1–2x adj. EBITDA; later Q3 added $200M repurchase authorization—supportive for EPS and downside protection .
  • Guidance risk skew: Reaffirmed ranges in Q2, but updated at Q3 to lower net sales and tighten EBITDA—expect cautious sell-side resets on revenue while margins hold up .
  • Trading setup: Near-term stock moves likely keyed to evidence of large-deal recovery and Brazil stabilization; margin resilience and recurring momentum are offsets if top-line remains choppy .