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]

Core Viewpoint - ScanSource reported quarterly earnings of $0.85 per share, missing the Zacks Consensus Estimate of $0.89 per share, representing an earnings surprise of -4.49% [1][2] Financial Performance - The company posted revenues of $747.5 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 10.78%, and a decline from year-ago revenues of $879.58 million [2] - Over the last four quarters, ScanSource has surpassed consensus EPS estimates only once [2] Stock Performance - ScanSource shares have increased by approximately 5.4% since the beginning of the year, outperforming the S&P 500's gain of 2.7% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.79 on revenues of $778.8 million, and for the current fiscal year, it is $3.51 on revenues of $3.24 billion [7] - The estimate revisions trend for ScanSource is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Industrial Services industry, to which ScanSource belongs, is currently in the bottom 15% of over 250 Zacks industries, which may negatively impact stock performance [8]

Financial Performance - Net sales for the quarter ended December 31, 2024, were $747,497,000, a decrease of 15.5% compared to $884,792,000 for the same quarter in 2023[18]. - Gross profit for the six months ended December 31, 2024, was $203,342,000, down from $207,256,000 in the same period of 2023, reflecting a decline of 1.9%[18]. - Net income for the quarter ended December 31, 2024, was $17,053,000, a decrease of 47.9% compared to $32,726,000 for the same quarter in 2023[18]. - Net income for the six months ended December 31, 2024, was $34,028,000, compared to $48,158,000 for the same period in 2023, reflecting a decrease of approximately 29.4%[27]. - Basic earnings per share for the quarter ended December 31, 2024, were $0.72, compared to $1.31 for the same quarter in 2023, a decline of approximately 45%[57]. - Comprehensive income for the quarter was $(1,425) thousand, compared to $33,866 thousand in the prior year, indicating a significant decline[20]. Assets and Liabilities - Total current assets decreased to $1,283,765,000 as of December 31, 2024, from $1,404,699,000 as of June 30, 2024, representing a decline of 8.6%[15]. - Total liabilities decreased to $801,867,000 as of December 31, 2024, from $854,777,000 as of June 30, 2024, a reduction of 6.2%[15]. - The company’s total assets decreased to $1,702,529,000 as of December 31, 2024, from $1,779,032,000 as of June 30, 2024, a decrease of 4.3%[15]. - Total debt as of December 31, 2024, was $139,899,000, a decrease from $144,056,000 as of June 30, 2024[63]. - The company’s retained earnings increased to $1,031,934,000 as of December 31, 2024, from $1,013,738,000 as of June 30, 2024, an increase of 1.8%[15]. Cash Flow and Investments - The company reported a net cash provided by operating activities of $38,642,000 for the six months ended December 31, 2024, a significant decrease from $156,757,000 in the prior year[27]. - Cash and cash equivalents at the end of the period were $110,520,000, down from $185,460,000 at the beginning of the period, indicating a decrease of 40.4%[27]. - The company reported a net cash used in investing activities of $58,452,000, compared to a net cash provided of $13,113,000 in the previous year[27]. - The company incurred a cash outflow of $56,673,000 for business acquisitions during the six months ended December 31, 2024[27]. Segment Performance - The Specialty Technology Solutions segment reported sales of $723.277 million for the quarter ended December 31, 2024, down from $861.514 million in the same quarter of 2023, representing a decrease of approximately 16.1%[95]. - The Intelisys & Advisory segment achieved sales of $24.220 million for the quarter ended December 31, 2024, compared to $23.278 million in the same quarter of 2023, reflecting an increase of approximately 4.0%[95]. - Operating income for the Specialty Technology Solutions segment was $14.077 million for the quarter ended December 31, 2024, down from $19.696 million in the same quarter of 2023, a decrease of approximately 28.0%[95]. Restructuring and Expenses - The company reported a restructuring expense of $5,381,000 for the six months ended December 31, 2024, compared to no such expense in the same period of 2023[18]. - The company executed restructuring programs in January and September 2024, expected to yield annualized savings of approximately $20.5 million in selling, general, and administrative expenses[112]. - The company recorded depreciation and amortization expenses of $8.131 million for the quarter ended December 31, 2024, compared to $7.258 million in the same quarter of 2023, an increase of approximately 12.0%[95]. Tax and Compliance - The Company recorded a discrete net tax benefit of $3.0 million for the quarter ended December 31, 2024, compared to a $3.8 million benefit in the same quarter of 2023[106]. - The effective tax rate for the quarter ended December 31, 2024, was 13.5%, down from 18.3% in the same quarter of 2023[107]. - The Company was in compliance with all covenants under the Amended Credit Agreement as of December 31, 2024[67]. Future Outlook and Strategy - The company plans to focus on market expansion and new product development to drive future growth[18]. - The company is currently evaluating the impact of new accounting standards on its consolidated financial statements and disclosures[40].

Financial Performance - Net sales for Q2 FY25 totaled $747.5 million, a decrease of 15.5% year-over-year[4] - Gross profit increased by 1.0% year-over-year to $101.7 million, with a gross profit margin of 13.6%, up from 11.4% in the prior-year quarter[5] - Operating income for Q2 FY25 was $18.4 million, down 31.2% from $26.8 million in the prior-year quarter[6] - GAAP net income decreased by 47.9% to $17.1 million, or $0.70 per diluted share, compared to $32.7 million, or $1.29 per diluted share, in Q2 FY24[7] - Non-GAAP net income for Q2 FY25 was $20.7 million, or $0.85 per diluted share, compared to $21.6 million, or $0.85 per diluted share, in the prior-year quarter[7] - Adjusted EBITDA for Q2 FY25 decreased by 8.2% to $35.3 million, representing 4.72% of net sales[7] - Net income for the quarter was $17,053 thousand, down 47.9% from $32,726 thousand in the prior year[29] - Adjusted EBITDA for the quarter was $35,299 thousand, compared to $38,459 thousand in the same quarter of 2023, reflecting a decrease of 5.6%[34] - Diluted EPS for the quarter was $0.70, down from $1.29 in the same quarter last year, representing a decrease of 45.7%[46] Revenue and Sales - Recurring revenue grew by 31.2% year-over-year, contributing to 32.4% of gross profit[5] - Net sales for the quarter ended December 31, 2024, were $747,497 thousand, a decrease of 15.5% compared to $884,792 thousand in the same quarter of 2023[29] - Non-GAAP net sales in the United States and Canada were $678,538,000, reflecting a 14.7% decline from $795,382,000 in the prior year[42] - Net sales in Brazil decreased by 32.5% to $60,386,000 in Q2 2024 from $89,410,000 in Q2 2023[42] - The company reported a foreign exchange impact of $10,718,000 on consolidated net sales for the quarter ended December 31, 2024[42] Cash Flow and Assets - Free cash flow for the first six months of FY25 was $34.3 million, with share repurchases totaling $52.3 million[8] - Cash and cash equivalents at the end of the period were $110,520 thousand, down from $185,460 thousand at the beginning of the period[31] - Free cash flow for the quarter ended December 31, 2024, was $(8,164,000), a significant decrease from $60,675,000 in the same quarter of 2023[43] - The company experienced a significant decline in GAAP operating cash flow, reporting $(6,190,000) for the quarter compared to $63,224,000 in the same quarter of the previous year[43] Expenses and Liabilities - The company reported a restructuring charge of $313 thousand for the quarter, with total selling, general and administrative expenses increasing to $73,920 thousand from $66,921 thousand year-over-year[29] - Total current assets decreased to $1,283,765 thousand from $1,404,699 thousand, a decline of 8.6%[27] - Total liabilities decreased to $801,867 thousand from $854,777 thousand, a reduction of 6.2%[27] - SG&A expenses for Q2 2024 were $73,920,000, an increase from $66,921,000 in Q2 2023[46] Guidance and Future Outlook - For FY25, the company reaffirms guidance of net sales between $3.1 billion and $3.5 billion[10] - The adjusted return on invested capital (Adjusted ROIC) for the quarter was 13.3%, slightly up from 13.2% in the previous year[34]

Industry Overview - The Zacks Industrial Services industry provides industrial equipment products and MRO services, serving customers across commercial, government, healthcare, and manufacturing sectors [3] - The industry's products include power tools, hand tools, lubricants, and personal protective equipment, which are used in production and plant maintenance but are not directly related to customers' core products [4] - The manufacturing sector contributes around 70% to the industry's revenues, with customer activity trends historically correlated to changes in the Industrial Production Index [5] Industry Trends - The manufacturing sector has been in a prolonged contraction, with the Institute for Supply Management's manufacturing index remaining below 50% for most of 2024, indicating contraction [6] - The New Orders Index showed expansion in November and December 2024 after seven consecutive months of contraction, but consistent growth has not been sustained since May 2022 [7] - The industry is experiencing significant inflation levels, including higher prices for labor, freight, and fuel, leading to pricing actions and cost-cutting measures [8] - E-commerce is a key growth driver, with global e-commerce revenues expected to reach $4,791 billion in 2025 and a CAGR of 7.83% between 2025 and 2029 [10] Industry Performance and Valuation - The Industrial Services industry has underperformed its sector and the S&P 500, growing 9.6% over the past year compared to the sector's 14.9% and the S&P 500's 24.3% [13] - The industry is currently trading at a forward 12-month EV/EBITDA ratio of 28.52X, higher than the S&P 500's 13.96X and the Industrial Products sector's 19.84X [14] Key Companies - **Eos Energy Enterprises**: Projects 2025 revenues between $150 million and $190 million, driven by increased production and supply chain improvements [15][16] - **ClearSign Technologies**: Received a significant follow-on purchase order in December 2024 and expanded its partnership with Zeeco, Inc., positioning the company for solid growth [17][18][19] - **Grainger**: Delivers robust results with margin improvements and strong operating performance, focusing on e-commerce and digital capabilities [21][22] - **ScanSource**: Shifting business mix and cost-saving efforts are driving stronger earnings and cash flow, with recent acquisitions enhancing its advisory channel model [24][25] Growth Catalysts - The rise in e-commerce activities is a key catalyst for the industry, with companies leveraging strategies to capitalize on this demand [2] - Companies are focusing on lowering costs, increasing productivity, and investing in automation and digitization to aid growth [2]

Group 1 - Momentum investing contrasts with the traditional "buy low and sell high" strategy, focusing instead on "buying high and selling higher" to capitalize on fast-moving stocks [1] - Identifying the right entry point for momentum stocks can be challenging, as they may lose momentum if future growth does not justify their high valuations [1] - A safer investment approach involves targeting bargain stocks that exhibit recent price momentum, utilizing tools like the Zacks Momentum Style Score [2] Group 2 - ScanSource (SCSC) is highlighted as a strong candidate for momentum investing, having experienced a 7.3% price increase over the past four weeks [3] - SCSC has shown a significant 11.3% price gain over the last 12 weeks, indicating its ability to deliver positive returns over a longer timeframe [4] - The stock has a beta of 1.44, suggesting it moves 44% more than the market, indicating fast-paced momentum [4] Group 3 - SCSC holds a Momentum Score of B, suggesting it is an opportune time to invest in the stock to leverage its momentum [5] - The stock has achieved a Zacks Rank 1 (Strong Buy) due to upward revisions in earnings estimates, which typically attract more investor interest [6] - SCSC is trading at a Price-to-Sales ratio of 0.40, indicating it is undervalued, as investors pay only 40 cents for each dollar of sales [6] Group 4 - SCSC is positioned for further growth, with potential for fast-paced momentum [7] - There are additional stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, suggesting a broader opportunity for investors [7] - Various Zacks Premium Screens are available to assist in identifying winning stock picks based on different investing styles [8]

Core Viewpoint - ScanSource (SCSC) has demonstrated strong stock performance, achieving a 52-week high and significantly outperforming its industry and the S&P 500 year-to-date, driven by improved margins and strategic acquisitions despite lower revenues due to cautious technology spending [1][2][20]. Financial Performance - SCSC reported adjusted earnings per share of 84 cents for Q1 fiscal 2025, exceeding the Zacks Consensus Estimate of 77 cents, marking a 14% year-over-year increase [9]. - The company experienced an 11.5% decline in net sales to $776 million, which was below the Zacks Consensus Estimate of $799 million, but showed a 4% sequential increase, indicating potential demand recovery [10]. - Gross margin improved to 13.10% from 12.15% year-over-year, attributed to a higher contribution of recurring revenues [12]. - As of September 30, 2024, SCSC had cash and cash equivalents of $145 million and total debt of $143.6 million, with a total debt-to-total capital ratio of 13.5%, down from 21.3% a year ago [13]. Strategic Acquisitions - SCSC completed the acquisition of Resourcive, enhancing its advisory capabilities in IT sourcing solutions [14]. - The acquisition of Advantix allows SCSC to offer hardware combined with recurring revenue streams, creating the Integrated Solutions Group (ISG) focused on value-added services [15]. Guidance and Estimates - SCSC affirmed its fiscal 2025 revenue guidance of $3.1-$3.5 billion, indicating a midpoint growth of 1% year-over-year, with adjusted EBITDA expected between $140 million and $160 million, reflecting a 7% growth from fiscal 2024 [16]. - The Zacks Consensus Estimate for fiscal 2025 earnings has increased, reflecting better-than-expected results and a favorable revenue mix [17]. Valuation and Market Sentiment - SCSC is trading at a forward earnings multiple of 14.56X, which is a discount compared to the industry average of 28.19X, indicating an attractive valuation [20]. - The stock is currently above its 50-day and 200-day moving averages, suggesting strong upward momentum and positive market sentiment regarding its financial health [5][6].

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use tried-and-true metrics and fundamental analysis to find compa ...