ScanSource (SCSC) Q1 2025 earnings summary

Executive summary

• Q1 FY25 net sales declined 11.5% year-over-year to $775.6M amid soft technology demand, but recurring revenue grew 18.8% and gross margin improved to 13.1% from 12.2% due to a higher recurring revenue mix.

• GAAP net income rose 10% to $17.0M ($0.69/share), aided by a $5.1M insurance recovery related to a prior cyberattack; non-GAAP net income increased 11.2% to $20.8M ($0.84/share).

• Adjusted EBITDA grew 2.1% to $35.7M, with margin up to 4.6%; free cash flow was $42.5M, and $28.1M was used for share repurchases.

• Realigned reporting segments to Specialty Technology Solutions and Intelisys & Advisory, reflecting different sales models and margin profiles.

• Closed acquisitions of Resourcive and Advantix in August 2024, expanding advisory and connectivity offerings and launching the Integrated Solutions Group.

Financial highlights

• Net sales: $775.6M, down 11.5% year-over-year; organic net sales down 10.7%.

• Gross profit: $101.6M, down 4.6% year-over-year; gross margin up to 13.1%.

• Adjusted EBITDA: $35.7M, up 2.1% year-over-year; Adjusted ROIC annualized at 13.3%.

• Free cash flow: $42.5M; cash and equivalents: $145.0M at quarter-end; net debt leverage ratio at zero.

• Non-GAAP net income and diluted EPS increased 11% and 14% year-over-year, respectively.

Outlook and guidance

• FY25 guidance reaffirmed: net sales $3.1B–$3.5B, adjusted EBITDA $140M–$160M, free cash flow at least $70M.

• Management expects the effective tax rate for FY2025 to be approximately 28.9% to 29.9%.

• Capital expenditures for FY2025 projected at $10–15M, focused on IT investments.

• Cost reduction and restructuring actions in September 2024 are expected to yield $10.5M in annualized SG&A savings.

• Expect a cautious tech spending environment with gradual demand improvement, anticipating a stronger second half of the year.