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SCANSOURCE, INC. (SCSC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 (fiscal Q1 FY26) delivered mixed results: non-GAAP EPS rose 26% YoY to $1.06 while net sales fell 4.6% YoY to $0.740B; gross profit grew 5.8% with margin expansion to 14.5% .
  • Versus S&P Global consensus, EPS beat while revenue missed; management reaffirmed FY26 guidance ($3.1–$3.3B net sales, $150–$160M adjusted EBITDA, ≥$80M FCF), citing timing of large deals and confidence in second-half revenue acceleration .
  • Segment mix was resilient: STS net sales down 4.9% YoY with 7% gross profit growth; Intelisys & Advisory net sales up 4% YoY with 2% gross profit growth, supported by acquisitions and recurring revenue .
  • Catalysts: continued supplier program benefits (~30bps gross margin tailwind), convergence strategy (cloud/connectivity acquisitions like DataXoom), and double‑digit new order growth at Intelisys; risks include Brazil weakness, netted‑down revenue optics, and large-deal delays .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expanded 143bps YoY to 14.5% on favorable supplier program recognition and mix; gross profit rose 5.8% despite lower sales .
  • Non-GAAP EPS increased 26% YoY to $1.06; adjusted EBITDA margin improved to 5.22% with strong free cash flow ($20.8M) and share repurchases of $21.3M in the quarter .
  • Strategic execution: management emphasized converged solutions and expanded capabilities through the DataXoom acquisition; “Technology distribution is being transformed with the convergence of hardware, software, and services” (Mike Baur) .

What Went Wrong

  • Top-line pressure: net sales declined 4.6% YoY to $739.7M, with STS down 4.9% due to fewer large deals and Brazil weakness; recurring revenue gross profit mix was flat YoY (31.7% vs 31.9%) .
  • Revenue optics impacted by netted‑down revenues and timing: CFO highlighted large deals delayed or broken into smaller orders, and increasing net-down mix affecting reported sales growth .
  • Brazil remained a headwind: reported net sales fell 9.6% YoY; non-GAAP Brazil net sales decreased 11.4% YoY .

Financial Results

Core Financials vs Prior Periods

MetricQ3 FY25 (Mar 31, 2025)Q4 FY25 (Jun 30, 2025)Q1 FY26 / Q3 2025 (Sep 30, 2025)
Net sales ($USD Millions)$704.8 $812.9 $739.7
Gross profit ($USD Millions)$100.2 $105.1 $107.5
Gross profit margin (%)14.2% 12.9% 14.5%
Operating income ($USD Millions)$22.3 $26.8 $25.9
GAAP diluted EPS ($)$0.74 $0.88 $0.89
Non-GAAP diluted EPS ($)$0.86 $1.02 $1.06
Adjusted EBITDA ($USD Millions)$35.1 $38.6 $38.6
Adjusted EBITDA margin (%)4.97% 4.75% 5.22%

Consensus vs Actuals (S&P Global)

MetricQ1 FY26 / Q3 2025 ConsensusQ1 FY26 / Q3 2025 ActualSurprise
Revenue ($USD Millions)787.4739.7Miss: -$47.7M
Primary EPS ($)0.931.06Beat: +$0.13
EBITDA ($USD Millions)35.032.7Miss: -$2.3M
Values retrieved from S&P Global.*

Segment Performance

SegmentQ3 FY25 (Mar 31, 2025)Q4 FY25 (Jun 30, 2025)Q1 FY26 / Q3 2025 (Sep 30, 2025)
STS Net sales ($USD Millions)$678.4 $788.7 $715.4
STS Gross profit ($USD Millions)$74 $81 $84
STS Gross margin (%)10.9% 10.3% 11.7%
I&A Net sales ($USD Millions)$26.4 $24.2 $24.2
I&A Gross profit ($USD Millions)$26 $24 $24
I&A Gross margin (%)99.2% 98.9% 97.4%

KPIs and Cash Metrics

KPIQ3 FY25 (Mar 31, 2025)Q4 FY25 (Jun 30, 2025)Q1 FY26 / Q3 2025 (Sep 30, 2025)
Recurring revenue share of consolidated gross profit (%)36.0% 31.6% 31.7%
Adjusted ROIC (%)13.6% 14.9% 14.6%
Free cash flow ($USD Millions, non-GAAP)$64.6 $5.1 $20.8
Net debt / TTM Adjusted EBITDA (x)~0x (CFO) —0.1x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net sales ($USD Billions)FY26$3.1–$3.3B $3.1–$3.3B Maintained
Adjusted EBITDA ($USD Millions)FY26$150–$160M $150–$160M Maintained
Free cash flow ($USD Millions)FY26≥$80M ≥$80M Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25 and Q4 FY25)Current Period (Q3 2025)Trend
AI/technology initiativesIntelisys AI Master Class; added 9 AI/cyber suppliers; AIMC framework; CX wins (UCaaS/CCaaS/AI) “Converged solutions” focus; Tech Checks AI tool; Smart Series (Warehouse/Retail); private 5G managed services; DataXoom acquisition Expanding scope and tooling
Supply chain/tariffs/macroTariffs passed through with minimal margin impact; Brazil FX/netted-down revenue pressures Large-deal delays/break-up; supplier price actions last year benefited margins this quarter Mixed: demand timing challenges, margin aid
Product performance & large dealsHardware demand improved late Q3; return of large deals; large deals typically lower margin Q1 large deals delayed or split; ~$40M pull-in benefited Q4; run-rate mix lifted gross profit Near-term timing headwind
Regional trends (Brazil)Q3 Brazil reported sales -41% YoY; constant currency view emphasized Q1 Brazil reported sales -9.6% YoY; non-GAAP -11.4% YoY Still weak, moderating YoY
Recurring revenue & netted-down mixQ3 recurring GP 36%; netted-down revenue rising impacting optics Recurring GP ~31.7%; more net-down revenue, margin accretive Normalizing mix, supports margins
Capital allocation (M&A vs buybacks)New $200M buyback auth; pipeline of working-capital-light, margin-accretive deals (earnout structures) Reaffirmed ability to do both; $21M repurchases; active pipeline; target leverage 1–2x Balanced, opportunistic

Management Commentary

  • “Technology distribution is being transformed with the convergence of hardware, software, and services… we expect to play an expanded role in supporting our partners' transition from traditional VAR to solution provider and from trusted advisor to technology architect.” — Mike Baur, CEO .
  • “We’re off to a good start… Gross profits grew 6%, non-GAAP EPS grew 26% YoY… large deals were delayed or broken into smaller orders… Adjusted ROIC was 14.6% and share repurchases totaled $21M.” — Steve Jones, CFO .
  • “Our team delivered double-digit EPS growth and strong free cash flow in the first quarter.” — Mike Baur (press release) .

Q&A Highlights

  • Top-line vs share dynamics: Management emphasized profitable growth and gross profit as the measure, stated they do not believe they lost share; optics affected by netted-down revenue .
  • Margin drivers and sustainability: Supplier program evolution and last year’s supplier price actions provided ~30bps margin benefit; mix also helped .
  • Guidance cadence: FY26 outlook reaffirmed despite Q1 sales decline; large deals seen as timing issues, not demand weakness .
  • Capital allocation: Ability to pursue both buybacks and acquisitions; earnout structures favored to align incentives; target net leverage 1–2x .
  • Intelisys investments: Double-digit new order growth YoY and QoQ; expected to translate into future billings and revenue .
  • DataXoom acquisition: Tuck-in size with higher margins than typical STS business; strategic to drive mobile device sales via connectivity .

Estimates Context

  • Q1 FY26 results vs S&P Global consensus: EPS beat (+$0.13), revenue missed (-$47.7M), EBITDA missed (-$2.3M). Revenue guidance maintained; management expects second-half acceleration, suggesting potential for estimate revisions shifting mix/Margin assumptions rather than raising revenue near-term .
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Mix-led margin resilience: Despite a 4.6% revenue decline, gross profit rose and margins expanded via supplier programs and recurring revenue; focus on GP and adjusted EBITDA appears durable near-term .
  • Near-term top-line risk from large-deal timing: Management indicated deals are delayed/split, not canceled; watch Q2/Q3 cadence and year-end deal closures .
  • Strategic convergence thesis gaining traction: Launch Point Smart Series, private 5G, Tech Checks AI tool, and DataXoom deepen cloud/connectivity exposure and should support margin quality and recurring economics .
  • Intelisys momentum: Double-digit new order growth is a leading indicator for future billings; monitor CX/AI-enabled solutions adoption trajectory .
  • Capital deployment: Active M&A pipeline alongside buybacks; expect opportunistic repurchases balanced by tuck-in acquisitions at higher margins; target leverage discipline supports risk management .
  • Brazil and FX remain watchpoints: Brazil sales declines and netted-down reporting can pressure reported top-line; constant currency and gross profit trends are more informative .
  • Guidance intact: FY26 outlook maintained across net sales, adjusted EBITDA, and free cash flow, anchoring the mid-term thesis on margin expansion and cash conversion .