ScanSource(US:SCSC)2026-02-05 16:32Financial 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]