ScanSource(SCSC) - 2026 Q2 - Earnings Call Transcript

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] - Adjusted ROIC was 11.9% for the quarter and 13.3% for the first half of FY 2026 [9] - 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 [10] 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 up by 1% year-over-year [7] - The Intelisys and Advisory segment also reported a 3% year-over-year increase in net sales, with annual net billings reaching 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% [8] - Brazil's market experienced a 9% organic decline this quarter, 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 the challenges faced in the first half [10] - The company is confident in its business model and expects large deals to resume, which is crucial for future revenue growth [15][16] 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 [9] Q&A Session Summary Question: Clarification on period costs and their impact on future quarters - Management indicated that higher period expenses were primarily related to mix and freight costs, 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 [15] Question: Impact of memory supply issues on pricing - Management acknowledged potential challenges due to memory supply issues but stated that current guidance does not reflect significant impacts from shortages [24] Question: Future sales acceleration in Intelisys - Management believes that new order growth will accelerate, driven by additional sales capabilities and a focus on acquiring new customers [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 clarified that the guidance reduction is primarily due to the absence of large deals rather than product shortages [43] Question: Dynamics of new orders lagging behind billings - Management explained that new orders are expected to convert into billings over time, indicating a positive future revenue outlook [66]