Summary of ScanSource Conference Call (December 09, 2025) Company Overview - **Company**: ScanSource (NasdaqGS:SCSC) - **Industry**: Technology Hardware Distribution Key Points and Arguments Company Evolution - ScanSource has transformed from a traditional technology hardware distributor to a more diversified business model since 2016, focusing on higher-margin recurring revenue streams [4][12][15] - The company initially operated on single-digit margins but maintained 10% gross margins for many years [6][10] - In 2016, ScanSource identified a new channel of partners called agents, which allowed them to tap into recurring revenue models [13][14] Strategic Direction - The company is focusing on the convergence of hardware, software, and services, aiming to provide a comprehensive solution to end users [16][18] - ScanSource is working to educate its partners on selling converged solutions, which include both hardware and recurring services [19][23] Competitive Environment - The competitive landscape includes various partners, with ScanSource often working with only one of them, indicating a fragmented market [21] - The company aims to differentiate itself by being a unique distributor that combines hardware and recurring revenue services, unlike its competitors [29][30] Financial Segments - ScanSource has two main segments: Specialty Hardware and Intelisys, each with different sales models and margin profiles [24][26] - Specialty Hardware has traditional hardware margins (3%-4% EBITDA margins), while Intelisys has high gross margins (almost 100%) and EBITDA margins between 30%-40% [26][27] - Intelisys now contributes approximately 25% of gross profit dollars, highlighting its importance to the overall financial health of the company [27] Market Demand and Trends - Recent demand has been disappointing, with larger orders being broken into smaller chunks due to IT budget constraints, particularly influenced by AI projects [36][37] - Price increases due to tariffs have generally benefited the channel, but there are concerns about the long-term impact on demand [39][40] Growth Outlook - Key growth areas include physical security (IP-enabled cameras) and networking, with expectations for continued demand in these sectors [42][43] - The company is focused on gross profit dollar growth of 5%-6% over the next three years and aims to improve EBITDA margins [47][48] Capital Allocation and M&A - ScanSource is actively repurchasing shares and pursuing small acquisitions to enhance its product offerings, such as the recent acquisition of DataZoom [52][53] - The company sees potential for further investments in the Intelisys channel, which is attracting private equity interest [54] Investor Messaging - The company believes its Intelisys business is undervalued compared to the broader market, with potential for significant growth driven by private equity investments [54] Additional Important Insights - The transition to a cash culture has improved inventory management, allowing ScanSource to buy only what is necessary [41] - The company is adapting its sales strategies to align with the new recurring revenue model, which requires changes in compensation structures for sales personnel [31][34]

Core Viewpoint - ScanSource (SCSC) shows potential for significant upside, with a mean price target of $53 indicating a 26.6% increase from the current price of $41.87 [1] Price Targets - The average price target consists of three estimates ranging from a low of $43.00 to a high of $66.00, with a standard deviation of $11.79, indicating variability among analysts [2] - The lowest estimate suggests a 2.7% increase, while the highest indicates a 57.6% upside [2] Analyst Sentiment - Analysts exhibit strong agreement regarding SCSC's ability to report better earnings than previously predicted, which supports the expectation of stock upside [4] - The Zacks Consensus Estimate for the current year has risen by 3.9% over the past month, with two estimates increasing and no negative revisions [12] Zacks Rank - SCSC holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate factors, suggesting a strong potential for near-term upside [13] Price Movement Insights - While consensus price targets may not be entirely reliable, the direction they imply can serve as a useful guide for potential price movements [14]

Core Viewpoint - Growth stocks are appealing due to their potential for above-average financial growth, but identifying strong candidates can be challenging due to inherent volatility and risks [1] Group 1: Growth Stock Identification - The Zacks Growth Style Score system aids in identifying promising growth stocks by analyzing real growth prospects beyond traditional metrics [2] - ScanSource (SCSC) is highlighted as a recommended stock with a favorable Growth Score and a top Zacks Rank [2] Group 2: Earnings Growth - Earnings growth is a critical factor for growth investors, with double-digit growth being particularly attractive [3] - ScanSource's historical EPS growth rate is 6.6%, but projected EPS growth for this year is 15.5%, surpassing the industry average of 13.9% [4] Group 3: Asset Utilization - The asset utilization ratio, or sales-to-total-assets (S/TA) ratio, is an important indicator of efficiency in growth investing [5] - ScanSource's S/TA ratio is 1.73, indicating it generates $1.73 in sales for every dollar in assets, compared to the industry average of 0.93 [5] Group 4: Sales Growth - Sales growth is another key metric, with ScanSource expected to achieve a 3.9% sales growth this year, outpacing the industry average of 2.5% [6] Group 5: Earnings Estimate Revisions - Positive trends in earnings estimate revisions correlate strongly with stock price movements [7] - Current-year earnings estimates for ScanSource have been revised upward, with a 3.9% increase in the Zacks Consensus Estimate over the past month [8] Group 6: Overall Assessment - ScanSource has earned a Growth Score of B and a Zacks Rank 2 due to positive earnings estimate revisions, indicating it is a solid choice for growth investors [10]

Core Insights - The article compares ScanSource (SCSC) and Siemens AG (SIEGY) to determine which stock presents a better value opportunity for investors [1] Group 1: Zacks Rank and Earnings Outlook - SCSC has a Zacks Rank of 2 (Buy), indicating a positive earnings outlook, while SIEGY has a Zacks Rank of 5 (Strong Sell), suggesting a negative earnings outlook [3] - The Zacks Rank system emphasizes companies with positive earnings estimate revisions, making SCSC a more favorable option for value investors [3] Group 2: Valuation Metrics - SCSC has a forward P/E ratio of 9.97, significantly lower than SIEGY's forward P/E of 20.71, indicating that SCSC may be undervalued [5] - The PEG ratio for SCSC is 0.66, while SIEGY's PEG ratio is 2.95, further suggesting that SCSC is a better value based on expected earnings growth [5] - SCSC's P/B ratio is 0.99, compared to SIEGY's P/B of 2.81, reinforcing the notion that SCSC is undervalued relative to its book value [6] Group 3: Overall Value Grades - SCSC has earned a Value grade of A, while SIEGY has a Value grade of D, indicating a stronger value proposition for SCSC [6] - The combination of Zacks Rank and Style Scores suggests that SCSC is the preferred choice for value investors at this time [6]

Core Viewpoint - ScanSource (SCSC) has experienced significant selling pressure, declining 12% over the past four weeks, but is now positioned for a potential trend reversal as it is in oversold territory, with analysts expecting better earnings than previously predicted [1]. Group 1: Technical Indicators - The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements, with a reading below 30 indicating that a stock is considered oversold [2]. - SCSC's current RSI reading is 29.82, suggesting that the heavy selling pressure may be exhausting itself, indicating a potential trend reversal [5]. Group 2: Fundamental Analysis - There is strong consensus among sell-side analysts that earnings estimates for SCSC have increased by 3.9% over the last 30 days, which typically correlates with price appreciation in the near term [7]. - SCSC holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, further supporting the potential for a turnaround [8].

Core Insights - Growth investors focus on stocks with above-average financial growth, but identifying stocks that can fulfill their potential is challenging due to associated risks and volatility [1] - The Zacks Growth Style Score helps in identifying promising growth stocks, with ScanSource (SCSC) currently recommended due to its favorable Growth Score and top Zacks Rank [2] Earnings Growth - Earnings growth is crucial for investors, with double-digit growth being a strong indicator of future stock price gains [4] - ScanSource's projected EPS growth is 13.3% this year, surpassing the industry average of 13.2% [5] Asset Utilization - The asset utilization ratio, or sales-to-total-assets (S/TA) ratio, is an important metric for growth stocks, indicating efficiency in generating sales [6] - ScanSource has an S/TA ratio of 1.73, significantly higher than the industry average of 0.93, indicating better asset utilization [6] Sales Growth - Sales growth is another critical factor, with ScanSource expected to achieve a sales growth of 5.1% this year, compared to the industry average of 3.3% [7] Earnings Estimate Revisions - Trends in earnings estimate revisions correlate strongly with near-term stock price movements [8] - The current-year earnings estimates for ScanSource have increased by 1.9% over the past month, indicating positive momentum [9] Conclusion - ScanSource has a Growth Score of B and a Zacks Rank 2, positioning it well for outperformance, making it an attractive option for growth investors [11]

Core Insights - ScanSource (SCSC) missed Wall Street's revenue expectations for Q3 CY2025, reporting sales of $739.7 million, a 4.6% decline year on year, and a 6.1% miss against analyst estimates of $787.4 million [1][4] - The company's full-year revenue guidance of $3.2 billion at the midpoint exceeded analysts' estimates by 0.6% [1] - Non-GAAP profit per share was reported at $1.06, which was 14% above analysts' consensus estimates of $0.93 [1][4] Revenue Performance - Q3 revenue was $739.7 million, down 4.6% year on year, and missed analyst expectations by 6.1% [4] - Adjusted EBITDA was $38.59 million, beating analyst estimates of $35.03 million, with a margin of 5.2% [4] - The company reaffirmed its full-year revenue guidance of $3.2 billion and EBITDA guidance of $155 million, which is above analyst estimates of $150.8 million [4] Management Commentary - Management attributed the revenue decline to ongoing weakness in Brazil and changes in revenue reporting, particularly in the Specialty Technology Solutions segment [3] - CEO Mike Baur noted growth in some technology categories in North America but acknowledged declines in certain legacy areas [3] - The company is focusing on profitable growth through acquisitions and a shift towards higher-margin, recurring revenue businesses [3] Strategic Outlook - Management emphasized the importance of strategic M&A and channel programs for emerging tech suppliers [3] - Investments in AI education, channel expansion, and acquisition integration are seen as key drivers for future growth [3] - CFO Steve Jones highlighted potential variability in quarterly performance due to the timing of large deals and the evolving revenue mix [3]

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Financial Data and Key Metrics Changes - For Q1 2026, the company reported a 6% increase in gross profits and a 26% year-over-year growth in non-GAAP EPS [9] - Adjusted EBITDA margins were at 5.2%, with cash conversion of non-GAAP net income at 88% [9] - The company ended Q1 with approximately $125 million in cash and a net debt leverage ratio close to zero [10] Business Line Data and Key Metrics Changes - In the specialty technology solutions segment, net sales declined by 5% year-over-year and 9% quarter-over-quarter, influenced by approximately $40 million of large deal pull-ins in Q4 [9] - The Intellisys and advisory segment saw a 4% increase in net sales year-over-year, with annualized net billings reaching approximately $2.78 billion [10] Market Data and Key Metrics Changes - The percentage of gross profits from recurring revenues in the specialty technology solutions segment was approximately 13% [10] - The company maintained its market share despite the decline in net sales, indicating stability in its competitive position [10] Company Strategy and Development Direction - The company is focusing on helping channel partners transition from traditional VAR to solution providers and technology architects, emphasizing the importance of integrated converged solutions [4][5] - Recent acquisitions, including DataZoom, are expected to enhance the company's capabilities in mobile data connectivity and support its strategic goals [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the future growth of technology distribution, driven by the convergence of hardware, software, and services [4] - The company reaffirmed its full-year outlook, expecting net sales growth between $3.1 billion and $3.3 billion, with adjusted EBITDA ranging from $150 million to $160 million [12] Other Important Information - The company is actively pursuing acquisitions to expand its capabilities and drive additional value across its partner ecosystem [11] - The management highlighted the importance of gross profit growth as a key performance indicator moving forward [16] Q&A Session Summary Question: Concerns about top-line revenue decline - Management clarified that they prioritize profitable growth and do not believe they are losing market share, attributing revenue challenges to timing and deal structuring rather than demand weakness [14][17] Question: Sustainability of supplier rebates - Management indicated that supplier programs have evolved and are tied more to activities rather than inventory, suggesting sustainability in the rebates received [18] Question: Insights on DataZoom acquisition - The acquisition is expected to be margin accretive and enhance the company's ability to sell more mobile devices by integrating connectivity solutions [20][21] Question: Guidance on net sales growth - Management reaffirmed confidence in their guidance, citing that Q1 results were in line with expectations and that large deals are merely delayed rather than canceled [36][40] Question: Business development investments in Intellisys - Management reported double-digit new order growth year-over-year, indicating that investments are translating into pipeline activity [49]

Financial Data and Key Metrics Changes - For Q1 2026, the company reported a 6% increase in gross profits and a 26% year-over-year growth in non-GAAP EPS [10] - Adjusted EBITDA margins were at 5.2%, with a cash conversion of non-GAAP net income at 88% [10] - The company ended Q1 with approximately $125 million in cash and a net debt leverage ratio of approximately zero [13] Business Line Data and Key Metrics Changes - In the Specialty Technology Solutions segment, net sales declined by 5% year-over-year and 9% quarter-over-quarter, with gross profits increasing by 7% year-over-year [11] - The Intellisys and Advisory segment saw a 4% increase in net sales year-over-year, with annualized net billings reaching approximately $2.78 billion [12] Market Data and Key Metrics Changes - The company believes it maintained market share despite the decline in revenue, attributing the challenges to timing issues with larger deals rather than loss of market share [21][22] - The company is focusing on the indirect channel to deliver recurring, complex, and high-value solutions as technology markets converge [5] Company Strategy and Development Direction - The company is investing in its Intelisys and Advisory segment to accelerate new order growth, including expanding its solutions engineering team [6] - The recent acquisition of DataZoom is expected to enhance the company's capabilities in mobile data connectivity and support its strategic plan [13][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in reaffirming the full-year net sales growth outlook, expecting revenue growth to accelerate in the second half of the fiscal year [14][45] - The company emphasized that the decline in revenue is not indicative of overall demand weakness but rather a timing issue with large deals [45] Other Important Information - The company is actively pursuing acquisition targets to expand capabilities and drive additional value across its partner ecosystem [13] - The company plans to maintain a target net debt leverage ratio of one to two times adjusted EBITDA while balancing acquisitions and share repurchases [14] Q&A Session Summary Question: Concerns about revenue decline and market share - Management clarified that they prioritize profitable growth and do not believe they are losing market share, attributing revenue challenges to timing and deal structuring [20][21] Question: Sustainability of supplier rebates - Management indicated that supplier programs have evolved and are tied to activities rather than inventory, suggesting sustainability in the rebates [23][24] Question: Details on the DataZoom acquisition - Management described DataZoom as a tuck-in acquisition that will be margin accretive and enhance mobile device sales through improved connectivity solutions [27][28] Question: Guidance on net sales growth - Management reaffirmed guidance based on internal plans and noted that Q1 results were in line with expectations, indicating confidence in future performance [44][45] Question: Business development investments in Intelisys - Management reported double-digit new order growth year-over-year, indicating that investments are translating into pipeline activity [57]