0000918965-25-000045
SEC filingNet sales declined 4.6% YoY, but gross margin expanded 140 bps to 14.5%, driving operating income growth of 46.9%.
For the quarter ended September 30, 2025, ScanSource reported net sales of $739.7M, a decrease of 4.6% year-over-year (5.4% on a constant currency, organic basis). The decline was driven by lower large deals in the Specialty Technology Solutions segment. Gross profit improved 5.8% to $107.5M, with gross margin expanding 140 basis points to 14.5%, primarily due to favorable supplier program recognition and sales mix. Operating income surged 46.9% to $25.9M, reflecting both higher gross profit and the absence of $5.1M in restructuring charges recorded in the prior year. Net income rose to $19.9M ($0.89 per diluted share) from $17.0M ($0.69 per diluted share).
Specialty Technology Solutions net sales fell 4.9% to $715.4M, impacted by a decline in large deals. Despite the revenue drop, segment gross profit increased 6.9% to $83.9M, and gross margin improved 130 bps to 11.7%. Segment operating income grew 21.7% to $20.4M, with operating margin expanding 60 bps to 2.8%. Intelisys & Advisory net sales rose 4.0% to $24.2M, driven by the Resourcive acquisition and Intelisys net sales growth. Segment gross profit increased 1.8% to $23.6M, but gross margin contracted 211 bps to 97.4% due to a higher mix of professional services. Segment operating income decreased 9.3% to $5.8M, with operating margin declining 350 bps to 24.0% as employee-related expenses increased.
Management expects the effective tax rate for fiscal year 2026 to be between 27.2% and 28.2%, and capital expenditures to range from $10M to $15M, primarily for IT and warehouse investments. The company highlighted ongoing macroeconomic uncertainties, including tariffs and trade policy, but expects to pass cost increases to partners. Adjusted ROIC (annualized) was 14.6%, up from 13.3% in the prior year, reflecting improved profitability. No specific revenue or earnings guidance was provided beyond these metrics.
As of September 30, 2025, ScanSource held $124.9M in cash and cash equivalents, down slightly from $126.2M at June 30, 2025. Total assets were $1.72B, with current assets of $1.31B. Inventories increased to $505.3M from $483.8M, while accounts receivable (net) decreased to $557.1M from $635.5M. Total debt was $133.9M, consisting of $7.9M current portion and $126.0M long-term debt. The company had $350.0M available under its revolving credit facility. Shareholders' equity was $914.0M, up from $906.4M, driven by net income and foreign currency translation gains partially offset by share repurchases.
The Notes disclose contingent consideration liabilities of $18.0M ($1.8M current, $16.3M long-term) related to the Advantix and Resourcive acquisitions. During the quarter, $1.4M was paid to Advantix sellers. Operating lease liabilities totaled $11.2M (present value), with future payments of $13.2M. Pre-acquisition contingencies related to Network1 were $3.8M, with a reasonably possible range up to $15.3M, all indemnifiable. No other material purchase commitments were disclosed.
During the quarter, ScanSource repurchased 489,737 shares for $21.1M (including excise tax). No dividends were declared. Net debt decreased by $2.2M, with $49.2M borrowed and $51.4M repaid on the revolving credit facility. Capital expenditures were $2.4M (0.3% of sales). The company also paid $1.4M in contingent consideration. No new buyback authorization was announced.
ScanSource operates two segments: Specialty Technology Solutions (STS) and Intelisys & Advisory. STS generated $715.4M in revenue (down 4.9% YoY) and $20.4M in operating income (up from $16.7M). Intelisys & Advisory generated $24.2M in revenue (up 4.0% YoY) and $5.8M in operating income (down from $6.4M). Geographically, U.S. sales were $683.1M and Brazil sales were $57.4M, with intercompany eliminations of $0.9M. Total assets were $1.49B for STS and $222.9M for Intelisys & Advisory.
Operating cash flow of $23.2 million covered net income of $19.9 million by 1.2x, reflecting solid cash conversion. Key non-cash add-backs included depreciation/amortization ($6.2M), share-based compensation ($2.9M), and deferred taxes ($2.1M). Major working capital headwinds included a $70.3M decrease in accounts payable and a $20.6M inventory build, partially offset by a $79.0M reduction in accounts receivable.
Capital expenditures of $2.4M remained consistent with the prior year, resulting in free cash flow of $20.8 million (down from $42.5M YoY). The company returned $21.3M to shareholders via repurchases, exceeding FCF by a slight margin, and also borrowed/net repaid $49.2M on its revolving credit facility to manage liquidity.
Notable anomalies include a $1.4M contingent consideration payment and a $2.6M tax withholding on equity awards. The overall cash position decreased $1.2M to $124.9M at period end. No dividends were paid during the quarter.