Core Insights - ScanSource reported net sales growth of 3% year-over-year and gross profit growth of 1% year-over-year across both operating segments, but profitability was negatively impacted by unexpected expenses [6][2][3] Financial Performance - In the Specialty Technology Solutions segment, net sales increased 3% year-over-year and 4% sequentially, while gross profits rose 1% year-over-year, with gross profit margins reduced by about 30 basis points due to higher period expenses [1][6] - The company generated strong free cash flow and organic net sales growth in both segments, but profitability declined compared to a strong first quarter due to unexpected expenses [2][3] - For the fiscal year 2026, the updated guidance includes revenue projections of $3.0 billion to $3.1 billion, adjusted EBITDA of $140 million to $150 million, and free cash flow of at least $80 million [6][18] Segment Performance - In the Intelisys and Advisory segment, net sales also increased 3% year-over-year, with annual net billings rising to approximately $2.85 billion and a segment adjusted EBITDA margin of 41% [8][9] - The Specialty Technology Solutions segment's adjusted EBITDA margin was reported at 2.8%, with higher period expenses estimated to have reduced this margin by roughly 60 basis points [7][6] Strategic Initiatives - A new converged communication sales team was launched to unify hardware and cloud offerings, aimed at enhancing sales capabilities and reducing handoffs between teams [11][12] - The company is focusing on increasing gross profit from recurring streams and expanding profitability while evaluating acquisition opportunities to enhance its technology stack [15][14] Balance Sheet and Capital Allocation - ScanSource ended the quarter with approximately $83 million in cash and a net debt leverage ratio of roughly zero, alongside $18 million in share repurchases during the quarter [4][14] - The company has a remaining authorization of $179 million for share repurchases and has closed on a new five-year credit facility to support strategic objectives [14][15]

Financial Data and Key Metrics Changes - In Q2, net sales grew 3% year-over-year in both segments, while gross profits increased by 1% year-over-year [7] - Profitability was negatively impacted by unexpected expenses, leading to declines in both gross profit and EBITDA margins compared to Q1 [4] - The company ended Q2 with approximately $83 million in cash and a net debt leverage ratio of approximately 0 on a trailing 12-month Adjusted EBITDA basis [8] - Adjusted ROIC was 11.9% for the quarter and 13.3% for the first half of FY 2026 [9] Business Line Data and Key Metrics Changes - Specialty Technology Solutions segment saw net sales increase by 3% year-over-year and 4% quarter-over-quarter, with gross profits also increasing by 1% year-over-year [7] - The Intelisys and Advisory segment reported a 3% year-over-year increase in net sales, with annual net billings rising to approximately $2.85 billion [8] Market Data and Key Metrics Changes - The percentage of gross profits from recurring revenues in the Specialty Technology Solutions segment grew to approximately 18%, aided by acquisitions [8] - Brazil's organic sales were down 9% year-over-year, attributed to challenging market conditions [28][30] Company Strategy and Development Direction - The company is launching a new converged communication sales team to unify communications products and services, aiming to capitalize on the convergence of hardware, cloud, and customer experience technologies [4][5] - The strategy focuses on helping channel partners deliver innovative, converged solutions, driving organic net sales and free cash flow [6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for growth in the second half of the fiscal year, despite a reduction in guidance due to slower-than-expected large deal closures [10][51] - The company is confident in its business model and expects to maintain at least $80 million in free cash flow for the year [11][58] Other Important Information - The company is exploring acquisition opportunities to expand its technology stack and capabilities [9] - Share repurchases for the quarter totaled $18 million, with $179 million remaining under the share repurchase authorization [9] Q&A Session Summary Question: Could you provide more details on the period costs mentioned? - Management indicated that higher costs were related to mix and freight expenses, which are expected to be more period-related [14] Question: What caused the slower growth in the technology segment? - Management noted that large deals were being broken into smaller pieces, affecting invoicing and revenue recognition [15] Question: Are there concerns about pricing increases due to supply shortages? - Management acknowledged potential challenges from memory supply issues but indicated that current guidance does not reflect significant impacts from shortages [24] Question: What is the outlook for Intelisys sales in the second half of 2026? - Management believes that new order growth will accelerate, driven by additional sales capabilities and a focus on acquiring new customers [25][26] Question: How does the company view the competitive environment in the TSD market? - Management noted that the TSD space remains competitive, with a shift towards organic growth among competitors [44][45] Question: What are the priorities around capital allocation following the guidance reduction? - Management emphasized maintaining focus on three-year strategic goals, including share repurchases and growth in gross profit contributions [60][62]

Financial Data and Key Metrics Changes - In Q2, net sales grew 3% year-over-year in both segments, while gross profits increased by 1% year-over-year [7] - Profitability was negatively impacted by unexpected expenses, leading to declines in gross profit and EBITDA margins compared to Q1 [4] - Adjusted ROIC was 11.9% for the quarter and 13.3% for the first half of FY 2026 [10] - Full year revenue is now projected to be in the range of $3 billion to $3.1 billion, with Adjusted EBITDA expected between $140 million and $150 million [11] Business Line Data and Key Metrics Changes - Specialty Technology Solutions segment saw net sales increase by 3% year-over-year and 4% quarter-over-quarter, with gross profits also up by 1% year-over-year [8] - The Intelisys and Advisory segment reported a 3% year-over-year increase in net sales, with annual net billings rising to approximately $2.85 billion [9] Market Data and Key Metrics Changes - The percentage of gross profits from recurring revenues in the Specialty Technology Solutions segment grew to approximately 18% [9] - Brazil's organic sales were down 9% year-over-year, attributed to challenging market conditions [28] Company Strategy and Development Direction - The company is launching a new converged communication sales team to unify communications products and services, aiming to capitalize on the convergence of hardware, cloud, and customer experience technologies [4][5] - The strategy focuses on helping channel partners deliver innovative solutions, driving organic net sales and free cash flow [6] - The company continues to explore acquisition opportunities to expand its technology stack and capabilities [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for growth in the second half of the fiscal year, despite the challenges faced in the first half [11] - The company believes that large deals will resume, which is crucial for future revenue growth [16][17] - Management acknowledged the competitive environment in the TSD market and emphasized the importance of organic growth [44][45] Other Important Information - The company closed on a new 5-year credit facility to support strategic objectives and capital priorities [7] - Share repurchases for the quarter totaled $18 million, with $179 million remaining under the share repurchase authorization [10] Q&A Session Summary Question: Clarification on period costs and their impact on future quarters - Management indicated that higher period costs were primarily related to mix and freight expenses, and they expect these to be localized to the current quarter [14] Question: Slower growth in the technology segment - Management noted that large deals have been broken into smaller pieces, affecting invoicing and revenue recognition [16] Question: Impact of memory supply issues on pricing - Management acknowledged that memory supply issues could affect suppliers, but they do not anticipate significant impacts on guidance at this time [24] Question: Update on Intelisys business restructuring - Management clarified that they have added sales capabilities rather than restructuring, focusing on acquiring new customers and orders [25][26] Question: Competitive environment in the TSD market - Management noted that the TSD space remains competitive, with a shift towards organic growth among competitors [44][45] Question: Magnitude of guidance reduction - Management explained that the guidance reduction is primarily related to large deals, not product shortages [43] Question: Dynamics of new orders lagging behind billings - Management highlighted that new orders are growing faster than revenues, indicating future revenue potential, but there is a lag in billing [64][66]