ScanSource, Inc. (NASDAQ:SCSC) Q4 2025 Earnings Conference Call August 21, 2025 10:30 AM ET Company Participants Mary M. Gentry - Vice President of Investor Relations & Treasurer Michael L. Baur - Founder, Chairman, CEO & President Stephen T. Jones - Senior EVP & CFO Conference Call Participants Adam Tyler Tindle - Raymond James & Associates, Inc., Research Division Damian Mark Karas - UBS Investment Bank, Research Division Gregory John Burns - Sidoti & Company, LLC Keith Michael Housum - Northcoast Researc ...

Financial Data and Key Metrics Changes - Net sales for Q4 grew almost 9% year over year, while adjusted EBITDA grew 13% and non-GAAP net income grew 17% over last year [9] - Q4 non-GAAP earnings per share of $1.02 grew 27.5% year over year [10] - Full year net sales totaled just over $3 billion, a year-over-year decline of 6.7%, while gross profits grew by 2.4% to $408.6 million [12] - Non-GAAP net income of $85.1 million increased by 9.6% over last year, with full year free cash flow of $104 million representing 122% conversion of non-GAAP net income [13] Business Segment Data and Key Metrics Changes - Specialty Technology Solutions segment net sales increased 9% year over year and 16% quarter over quarter, driven by hardware growth in North America [10] - Intellisys and Advisory segment net sales and gross profits increased 1% year over year, but adjusted EBITDA declined 4% due to increased investments in SG&A [11] - Annual end user billing for Intelisys increased 4.5% year over year, totaling approximately $2.8 billion [12] Market Data and Key Metrics Changes - Brazil's business model is transitioning to focus more on cloud and recurring products, with growth in local currency despite economic challenges [51][54] - The company is experiencing competitive pressures in the Intelisys segment due to private equity-backed competitors [39] Company Strategy and Development Direction - The company is focusing on building capabilities in converged solutions, integrating hardware, software, and services [7] - A new business development team, LaunchPoint, has been created to assist emerging technology companies [6] - The company aims to increase the percentage of gross profits from recurring revenues to 50% over the next three years [44][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in growth opportunities despite navigating a dynamic macro environment [15][16] - The company anticipates low single-digit growth in the first half of fiscal year 2026, with expectations for acceleration in the second half [15][16] Other Important Information - The company ended Q4 with $126 million in cash and a net debt leverage ratio of approximately zero [13] - Share repurchases totaled $25 million for the quarter, with ongoing acquisition targets to expand capabilities [14] Q&A Session Summary Question: Discussion on midterm targets and free cash flow - Management emphasized the importance of free cash flow conversion as a metric for long-term outlook and capital allocation priorities [21][22] Question: Strategic investments in the Intelisys segment - Management discussed a new partner segmentation strategy and investments to support growth in the Intelisys business [27][29] Question: Expectations for the Intelisys business in 2026 - Management indicated a focus on adding new suppliers and sales resources to drive growth in the Intelisys segment [41] Question: Guidance for next year and factors affecting EBITDA - Management highlighted the importance of investments and mix in determining the range for adjusted EBITDA growth [42][43] Question: Recurring revenue as a driver of gross profits - Management noted that acquisitions and emerging technologies will contribute to increasing recurring revenue [44][46] Question: Growth in technology segment and market outlook for Brazil - Management acknowledged strong growth in the technology segment but noted challenges in Brazil due to economic conditions [49][51]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________________ FORM 10-K _______________________________________________ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☒ For the fiscal year ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number: 000-26926 ___________________________________ ...

FOR IMMEDIATE RELEASE Contact: Steve Jones Mary M. Gentry Senior EVP, Chief Financial Officer SVP, Finance and Treasurer ScanSource, Inc. ScanSource, Inc. (864) 286-4302 (864) 286-4892 SCANSOURCE REPORTS FOURTH QUARTER AND FULL-YEAR RESULTS Achieves Full-Year Outlook with Strong Q4 Performance GREENVILLE, SC -- August 21, 2025 -- ScanSource, Inc. (NASDAQ: SCSC), a leading technology distributor uniquely-positioned to address complex, converging technologies, today announced financial results for the fourth ...

Investor Presentation May 2025 SAFE HARBOR AND NON-GAAP Safe Harbor Statement This presentation contains "forward-looking" statements, including our FY25 outlook, mid- term goals, market growth rates, growth opportunities, and our operating and acquisition strategies, which involve risks and uncertainties, many of which are beyond our control. No undue reliance should be placed on such statements, as any number of factors could cause actual results to differ materially from anticipated or forecasted results ...

Financial Data and Key Metrics Changes - For Q3, the company reported a 6% year-over-year decline in net sales, while gross profit and adjusted EBITDA both increased by 6% [15][21] - Gross profit margin improved to 14.2%, and adjusted EBITDA margin rose to 4.97% [15] - Non-GAAP net income increased by 16%, and non-GAAP diluted EPS rose by 25% [16] Business Line Data and Key Metrics Changes - Specialty Technology Solutions segment saw a 7% year-over-year decline in net sales, but gross profits increased by 3% due to a higher mix of recurring revenue [17] - The Intelisys and Advisory segment experienced a 16% year-over-year increase in net sales and gross profits, with adjusted EBITDA growing by 20% [18] Market Data and Key Metrics Changes - Most technologies in North America, including mobility, barcode, networking, physical security, payment terminals, and wireless connectivity, grew year-over-year [7][17] - The business in Brazil faced challenges due to macroeconomic issues and foreign exchange impacts, but it represents less than 10% of total revenues [45][46] Company Strategy and Development Direction - The company is focused on driving profitable growth both organically and through strategic acquisitions, with a higher capital allocation priority for acquisitions [14][20] - The Integrated Solutions Group was created to provide high-margin products and services, and a new business development team will be launched to support emerging technology companies [10][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business model's resilience and highlighted the importance of free cash flow generation [15][19] - The company updated its FY 2025 outlook to approximately $3 billion in net sales and adjusted EBITDA between $140 million and $145 million [21] Other Important Information - The company announced a new share repurchase authorization of $200 million, in addition to the remaining $42 million from the previous authorization [20] - The company is actively pursuing acquisition targets that align with its strategy for growth and margin improvement [20][76] Q&A Session Summary Question: Guidance for Q4 and trends in April - Management discussed expectations for sequential growth in Q4, citing improvements in netted down revenue and historical averages [27][28] Question: Share repurchase authorization and capital allocation - Management clarified that both acquisitions and share repurchases are priorities, with a focus on maintaining a target net debt leverage of one to two times adjusted EBITDA [33][36] Question: Demand trends in Brazil - Management noted macroeconomic challenges and foreign exchange impacts affecting performance in Brazil, which is less than 10% of total revenues [45][46] Question: Channel exchange and new suppliers - Management highlighted the success of the channel exchange in recruiting new suppliers, particularly in the AI space [49][58] Question: Competitive environment for acquisitions - Management indicated a favorable environment for acquisitions, with a wide range of targets available and a disciplined approach to valuations [75] Question: Impact of large orders on gross margins - Management acknowledged that large deals typically have a lower margin profile but emphasized the benefits of acquired businesses and recurring revenues [77] Question: Free cash flow guidance - Management explained that timing of sales in Q4 could impact free cash flow, but they remain confident in achieving at least $70 million [78]

Financial Data and Key Metrics Changes - For Q3, the company reported a net sales decline of 6% year over year, while gross profit and adjusted EBITDA both increased by 6% [13][14] - Gross profit margin improved to 14.2%, and adjusted EBITDA margin rose to 4.97% [13] - Non-GAAP net income increased by 16%, and non-GAAP diluted EPS rose by 25% [14] Business Line Data and Key Metrics Changes - Specialty Technology Solutions segment saw net sales decline by 7% year over year, but gross profits increased by 3% due to a higher mix of recurring revenue [14][15] - The Intelisys and Advisory segment experienced a 16% increase in net sales and gross profits, with adjusted EBITDA growing by 20% year over year [15][16] Market Data and Key Metrics Changes - Most technologies in North America, including mobility, barcode, networking, physical security, payment terminals, and wireless connectivity, grew year over year [6][14] - The business in Brazil faced challenges due to macroeconomic issues and foreign exchange impacts, but it remains less than 10% of total revenues [11][42] Company Strategy and Development Direction - The company is focused on driving profitable growth both organically and through strategic acquisitions, with a higher capital allocation priority for acquisitions [12][18] - The Integrated Solutions Group was created to provide high-margin products and services, and a new business development team will be launched to support emerging technology companies [6][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business model's resilience and highlighted the importance of free cash flow generation [13][17] - The company updated its FY 2025 outlook to approximately $3 billion in net sales and adjusted EBITDA between $140 million and $145 million [19] Other Important Information - The company announced a new share repurchase authorization of $200 million, in addition to the remaining $42 million from the previous authorization [18] - The company is actively pursuing acquisitions that align with its strategy and maintain a target net debt leverage of one to two times adjusted EBITDA [18][32] Q&A Session Summary Question: Guidance for Q4 and trends in April - Management discussed expectations for sequential growth in Q4, citing improvements in large deals and netted down revenue comparisons from the previous year [21][24] Question: Share repurchase authorization and capital allocation - Management clarified that the larger share repurchase authorization reflects confidence in acquisitions while maintaining a balanced approach to capital allocation [27][30] Question: Demand trends in Brazil - Management noted that Brazil is facing macroeconomic challenges and foreign exchange impacts, but profitability remains insulated due to cost management [42][43] Question: Channel exchange and SaaS revenue streams - Management highlighted the success of the channel exchange in recruiting new suppliers, particularly in the AI space, which is contributing to revenue growth [45][47] Question: Top line performance and competitive environment - Management acknowledged weaknesses in certain areas while emphasizing growth in specific technologies, attributing some performance discrepancies to netted down revenue [50][52] Question: Large orders and gross margins - Management indicated that large deals typically have a lower margin profile, but the acquired businesses and recurring revenues help offset this impact [72][74] Question: Free cash flow guidance - Management explained that free cash flow guidance remains at least $70 million, with potential fluctuations based on the timing of sales within the quarter [75]

Core Insights - ScanSource (SCSC) reported quarterly earnings of $0.86 per share, exceeding the Zacks Consensus Estimate of $0.77 per share, and up from $0.69 per share a year ago, representing an earnings surprise of 11.69% [1] - The company posted revenues of $704.85 million for the quarter ended March 2025, missing the Zacks Consensus Estimate by 11.21%, and down from $752.6 million year-over-year [2] - ScanSource shares have declined approximately 23.9% since the beginning of the year, compared to a decline of 4.3% for the S&P 500 [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.87 on revenues of $826.7 million, and for the current fiscal year, it is $3.33 on revenues of $3.14 billion [7] - The estimate revisions trend for ScanSource is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Industrial Services industry, to which ScanSource belongs, is currently ranked in the top 38% of over 250 Zacks industries, suggesting that companies in the top 50% outperform those in the bottom 50% by more than 2 to 1 [8]

Financial Performance - Net sales for the quarter ended March 31, 2025, were $704.8 million, a decrease of 6.3% compared to $752.6 million for the same quarter in 2024[19] - Gross profit for the quarter was $100.2 million, representing a gross margin of 14.2%, compared to $94.5 million and a gross margin of 12.6% in the prior year[19] - Net income for the quarter was $17.4 million, an increase of 36.5% from $12.8 million in the same quarter last year[19] - The company reported a basic net income per share of $0.75 for the quarter, up from $0.51 in the prior year[19] - Total revenue for the quarter ended March 31, 2025, was $665,229,000, with recurring revenue contributing $39,618,000[50] - Operating income for the quarter was $22.3 million, an increase of 27.5% from $17.5 million in the same quarter of 2024[95] - Comprehensive income for the quarter was $27.1 million, compared to $8.0 million in the same quarter of 2024[20] Assets and Liabilities - Total assets decreased to $1.725 billion as of March 31, 2025, down from $1.779 billion as of June 30, 2024[16] - Total liabilities decreased to $823.5 million from $854.8 million over the same period[16] - Total current assets decreased to $1.31 billion from $1.40 billion, a decline of 6.7%[16] - Shareholders' equity as of March 31, 2025, was $901.7 million, down from $924.3 million at June 30, 2024[16] - The total debt as of March 31, 2025, was $138,024,000, a decrease from $144,056,000 at June 30, 2024[60] Cash Flow and Expenditures - Cash provided by operating activities for the nine months ended March 31, 2025, was $104,704,000, down from $316,908,000 in 2024, indicating a significant decline of about 66.9%[25] - The company reported capital expenditures of $5,769,000 for the nine months ended March 31, 2025, compared to $7,285,000 in 2024, reflecting a decrease of approximately 20.8%[25] - Total cash and cash equivalents at the end of the period on March 31, 2025, were $146,287,000, down from $159,050,000 at the end of March 2024, a decrease of about 8.5%[25] - The company incurred a net cash used in financing activities of $83,424,000 for the nine months ended March 31, 2025, compared to $203,941,000 in 2024, showing a reduction of approximately 59.0%[25] Segment Performance - Specialty Technology Solutions segment sales were $678.4 million, down 7.0% from $729.8 million year-over-year[95] - Intelisys & Advisory segment sales increased by 16.0% to $26.4 million compared to $22.8 million in the prior year[95] - The company has realigned its operating segments effective July 1, 2024, into Specialty Technology Solutions and Intelisys & Advisory to enhance its hybrid distribution growth strategy[30] Restructuring and Future Plans - The company plans to continue focusing on market expansion and new product development as part of its growth strategy[1] - The Company expects annualized savings of approximately $10.0 million and $10.5 million from restructuring programs initiated in January 2024 and September 2024, respectively[110] Tax and Compliance - The effective tax rate for the quarter ended March 31, 2025, was 28.0%, compared to 28.7% for the same quarter in 2024, reflecting a decrease of 2.4%[105] - The Company had approximately $1.2 million of total gross unrecognized tax benefits as of March 31, 2025, slightly up from $1.1 million at June 30, 2024[107] Foreign Currency and Derivatives - The company experienced a foreign currency translation adjustment gain of $10.1 million for the quarter[20] - The foreign currency translation adjustment resulted in an accumulated other comprehensive loss of $121,653,000 as of March 31, 2025[55] - The Company recorded net foreign exchange derivative contract losses of $1,446 thousand for the quarter ended March 31, 2025, compared to gains of $526 thousand in the same quarter of 2024[70] Goodwill and Intangible Assets - Goodwill increased to $228,835,000 as of March 31, 2025, from $206,301,000 at June 30, 2024, due to additions of $22,776,000[57] - The net identifiable intangible assets rose to $67,815,000 as of March 31, 2025, from $37,634,000 at June 30, 2024[58] Lease Obligations - Operating lease right-of-use assets increased to $11,155,000 as of March 31, 2025, from $9,057,000 as of June 30, 2024, representing a 23.2% increase[99] - Total operating lease costs for the quarter ended March 31, 2025, were $1,511,000, slightly up from $1,507,000 in the same quarter of 2024[100] - Cash paid for lease liabilities during the nine months ended March 31, 2025, was $3,039,000, down from $4,019,000 in the same period of 2024, indicating a 24.4% reduction[100]

Financial Performance - Net sales for Q3 FY25 totaled $704.8 million, a decrease of 6.3% year-over-year[2] - Gross profit increased by 6.1% year-over-year to $100.2 million, with a gross profit margin of 14.2% compared to 12.6% in the prior-year quarter[5] - GAAP net income for Q3 FY25 was $17.4 million, or $0.74 per diluted share, representing a 36.1% increase from the prior-year quarter[7] - Operating income for Q3 FY25 was $22.3 million, an increase of 27.3% year-over-year[6] - Net sales for the quarter ended March 31, 2025, were $704,847 thousand, a decrease of 6.3% compared to $752,599 thousand in the same quarter of 2024[27] - Gross profit for the quarter was $100,202 thousand, up from $94,481 thousand year-over-year, reflecting a gross margin improvement[27] - Net income for the quarter was $17,431 thousand, representing an increase of 36.5% from $12,806 thousand in the prior year[27] - Adjusted EBITDA for Q3 FY25 rose by 5.9% to $35.1 million, with an adjusted EBITDA margin of 4.97%[7] - Adjusted EBITDA for the quarter was $35,053 thousand, compared to $33,095 thousand in the same quarter of 2024, indicating a year-over-year growth of 5.9%[32] - Operating income for Q1 2025 was $22,339 thousand, while net income was $17,431 thousand, resulting in a diluted EPS of $0.74[42] Revenue Composition - Recurring revenue increased by 41.0% year-over-year, contributing to the overall revenue mix[4] - Specialty Technology Solutions segment net sales were $678,433 thousand, a decline of 7.0% compared to $729,834 thousand in the same quarter of 2024[35] - Non-GAAP net sales in the United States and Canada were $647,642 thousand, reflecting a 3.5% decline from $671,246 thousand in the prior year[39] - Net sales in Brazil reported a significant decline of 41.1%, dropping to $47,883 thousand from $81,353 thousand year-over-year[39] - Acquisitions impacted net sales by $9,322 thousand in Q1 2025, with no such impact reported in Q1 2024[39] Cash Flow and Assets - Cash and cash equivalents as of March 31, 2025, were $146.3 million, with total debt of $138.0 million[8] - Free cash flow for the first nine months of FY25 was $98.9 million (non-GAAP)[8] - Free cash flow for the quarter ended March 31, 2025, was $64,638 thousand, compared to $157,732 thousand in the same quarter of 2024[40] - Total current assets decreased to $1,310,268 thousand as of March 31, 2025, down from $1,404,699 thousand at June 30, 2024[25] - Total liabilities decreased to $823,462 thousand from $854,777 thousand, indicating a reduction in financial obligations[25] - Cash and cash equivalents at the end of the period were $146,287 thousand, down from $185,460 thousand at the beginning of the period[30] - The company reported a net cash provided by operating activities of $104,704 thousand, significantly lower than $316,908 thousand in the prior year[30] Shareholder Actions - A new $200 million share repurchase authorization was announced, supplementing the existing authorization[12] Other Financial Metrics - The Adjusted return on invested capital (Adjusted ROIC) for the period was 13.6%, up from 12.1% in the previous year[32] - SG&A expenses for Q1 2025 were $69,698 thousand, compared to $66,574 thousand in Q1 2024[42] - The company experienced a capital loss from the sale of its UK-based intY business, which did not result in a tax provision due to the absence of offsetting capital gains[42] - The company reported a foreign exchange impact of $8,705 thousand on consolidated net sales for Q1 2025[39]