Sign in

You're signed outSign in or to get full access.

SC

Steel Connect, Inc. (STCN)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 FY2024 net revenue was $43.0M, down 15.2% YoY; gross margin expanded 70 bps to 26.4% on customer mix shift .
  • Net income swung to $5.3M vs a $0.5M loss YoY, driven by higher interest income and investment gains in “Other gains, net” despite lower operating income .
  • Adjusted EBITDA was $3.7M (8.6% margin), down 20.1% YoY on softer operational net income; free cash flow was $(1.1)M for the quarter .
  • Liquidity remains strong: cash and equivalents $276.4M, net cash $263.5M; total debt $12.9M (SPHG convertible note) .
  • No formal guidance or Q2 earnings call transcript was available; stock narrative hinges on profitability supported by non-operating income vs ongoing demand pressure in computing/consumer electronics .

What Went Well and What Went Wrong

What Went Well

  • Gross margin improved to 26.4% (+70 bps YoY) on favorable customer sales mix, partially offsetting volume pressure .
  • SG&A declined ~16.5% YoY in the quarter, largely on lower corporate legal/professional fees, improving expense discipline .
  • Strong non-operating contribution: $3.5M interest income on money market funds and $1.0M net gains on equity investments drove “Other gains, net,” lifting net income despite lower operations .

What Went Wrong

  • Revenue fell 15.2% YoY on lower volumes and program losses with existing clients in computing and consumer electronics, only partially offset by new program starts .
  • Adjusted EBITDA decreased 20.1% YoY as operational net income weakened; adjusted EBITDA margin compressed to 8.6% from 9.1% YoY .
  • Free cash flow was negative $(1.1)M in Q2 due to minimal operating cash generation and higher capex vs prior year .

Financial Results

Consolidated performance vs prior year and prior quarter

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$50.781 $41.341 $43.045
Gross Profit ($USD Millions)$13.062 $11.475 $11.347
Gross Margin %25.7% 27.8% 26.4%
Operating Income ($USD Millions)$2.603 $1.805 $1.722
Other Gains (Losses), net ($USD Millions)$(2.627) $3.549 $4.067
Net Income ($USD Millions)$(0.526) $4.436 $5.346
Diluted EPS ($USD)$(0.16) $0.15 $0.18
Adjusted EBITDA ($USD Millions)$4.631 $3.311 $3.701
Adjusted EBITDA Margin %9.1% 8.0% 8.6%
Cash from Operations ($USD Millions)$1.336 $6.583 $0.078
Free Cash Flow ($USD Millions)$1.018 $6.031 $(1.070)
Capital Expenditure ($USD Millions)$0.318 $0.552 $1.148

Segment breakdown

Segment MetricQ2 2023Q1 2024Q2 2024
Supply Chain Net Revenue ($USD Millions)$50.781 $41.341 $43.045
Supply Chain Operating Income ($USD Millions)$5.388 $2.675 $3.065

KPIs and balance sheet

KPIQ2 2023Q1 2024Q2 2024
Cash and Equivalents ($USD Millions)$62.427 $276.705 $276.422
Total Debt ($USD Millions)$12.903 (SPHG Note) $12.327 $12.903
Net Cash ($USD Millions)—$(264.378) Net Debt $263.519 Net Cash
Weighted Avg Shares Diluted (Millions)6.448 26.066 26.083

Note: Net Cash/Net Debt as defined and reconciled per company non-GAAP measures .

Results vs Estimates

S&P Global consensus estimates for Q2 FY2024 were unavailable for STCN; therefore, comparison to Street estimates cannot be provided. Values retrieved from S&P Global were unavailable due to missing mapping.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/Q2 2024——No formal guidance provided in Q2 release
MarginsFY/Q2 2024——No formal guidance provided in Q2 release
OpExFY/Q2 2024——No formal guidance provided in Q2 release
Tax RateFY/Q2 2024——No formal guidance provided in Q2 release

Earnings Call Themes & Trends

No Q2 FY2024 earnings call transcript was available; themes below draw from Q4 FY2023, Q1 FY2024, and Q2 FY2024 press releases.

TopicPrevious Mentions (Q4 FY2023)Previous Mentions (Q1 FY2024)Current Period (Q2 FY2024)Trend
Demand in computing/consumer electronicsLower volumes; exit of a medical devices customer Lower volumes vs prior year Lower volumes offset partially by new program starts Ongoing demand pressure with pockets of new wins
Gross margin driversValue-added revenue mix lifted GM to 27.1% GM stable at 27.8% GM +70 bps YoY to 26.4% on mix Mix supportive despite lower volumes
SG&A and corporate costsSG&A –$3.0M YoY on lower corporate costs SG&A –$1.6M YoY (bad debt not recurring; lower corporate fees) SG&A –$1.7M YoY (lower legal/pro fees) Sustained cost discipline
Other gains/interest incomeGains from investment sales and interest income Interest income and FX gains lifted “Other gains, net” Interest income $3.5M and equity gains $1.0M; FX losses partially offset Non-operating income meaningful support
Tax/valuation allowanceLower tax expense YoY; mix of earnings Lower tax expense vs prior year Routine tax expense in Q2 after large allowance release later in Q3 Neutral in Q2; major Q3 one-time benefit
Pushdown accounting effectsIntangibles; amortization introduced Amortization from intangible recognition Amortization $0.9M in Q2 Continued amortization expense

Management Commentary

  • “Net revenue for the second quarter decreased $7.7 million, or 15.2%, … primarily driven by lower volumes associated with existing clients in the computing and consumer electronics markets, offset partially by new business revenue and new program starts” .
  • “Gross profit percentage increased 70 basis points to 26.4% … primarily due to changes in customer sales mix” .
  • “SG&A expenses during the second quarter decreased by approximately $1.7 million … primarily due to a decrease in legal and other professional fees” .
  • “The Company recorded $4.1 million to Other gains, net … $3.5 million interest income … and $1.0 million … gains recognized on investments … partially offset by $0.6 million in unrealized losses … fair value remeasurement of the SPHG Note” .
  • “Net income for the second quarter increased $5.9 million … largely driven by the $6.7 million favorable change in … Other gains (losses), net” .

Q&A Highlights

No Q2 FY2024 earnings call transcript was available to extract Q&A; the quarter’s narrative is based on the 8-K earnings press release .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 FY2024 was unavailable for STCN; comparisons to estimates cannot be provided. Values retrieved from S&P Global were unavailable due to missing mapping.

Key Takeaways for Investors

  • Profitability supported by non-operating income: interest on sizable cash balances and investment gains drove the swing to positive net income despite operational softness; sustainability depends on rates/returns rather than core demand .
  • Underlying demand remains weak in key end markets (computing/consumer electronics), pressuring revenue and Adjusted EBITDA; watch for traction from new program starts to offset churn .
  • Cost discipline is tangible: SG&A reductions at the corporate level continue to cushion margin pressure and should remain a lever into FY2024/FY2025 .
  • Free cash flow volatility: Q2 FCF was negative on light operating cash generation and higher capex; monitor quarterly cadence and investment requirements .
  • Balance sheet strength: $276.4M cash and $263.5M net cash provide strategic flexibility while the SPHG convertible note remains the only debt liability .
  • No guidance/limited external communication this quarter; without consensus comparisons or a call, near‑term trading likely reacts to headline profitability versus concerns about core revenue trajectory .
  • Medium‑term thesis hinges on stabilizing volumes, mix improvements, and continued corporate cost control; absent a clear demand inflection, valuation may be anchored to cash and non‑operating income contribution .