ScanSource (SCSC) Q2 2025 earnings summary

Executive summary

• Net sales declined 15.5% year-over-year to $747.5M for Q2 FY25, driven by soft demand and fewer large deals, partially offset by growth in the Intelisys & Advisory segment.

• Gross profit increased 1.0% to $101.7M, with margin up to 13.6% from 11.4% year-over-year, supported by a higher mix of recurring revenue and hybrid distribution strategy.

• Recurring revenue grew 31.2% year-over-year, now accounting for over 32% of consolidated gross profit, driven by recent acquisitions.

• GAAP net income fell 47.9% to $17.1M, with operating income down 31.2% to $18.4M, reflecting higher SG&A, restructuring, and acquisition-related costs.

• Recent acquisitions (Resourcive and Advantix) expanded recurring revenue and next-gen technology offerings for channel partners.

Financial highlights

• Gross profit margin improved to 13.6%, with recurring revenue accounting for 32% of consolidated gross profits.

• Adjusted EBITDA margin was 4.7%; Adjusted EBITDA declined 8% year-over-year to $35.3M.

• Non-GAAP net income was $20.7M, with non-GAAP diluted EPS flat at $0.85 year-over-year.

• Free cash flow for the quarter was negative $8M, but $34.3M was generated year-to-date; six-month operating cash flow was $38.6M.

• SG&A expenses rose 10.5% to $73.9M, mainly due to higher bad debt expense and acquisition costs.

Outlook and guidance

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

• Management expects demand to improve in the second half of FY25, with cautious optimism based on channel sentiment.

• Effective tax rate for fiscal 2025 (excluding discrete items) expected to be 28.5%–29.5%; capital expenditures projected at $8M–$12M.