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Recurring revenue growth

ScanSource(SCSC) - 2026 Q2 - Earnings Call Transcript

2026-02-05 16:30

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]

ScanSource(US:SCSC)

Converged communication

Converged communication