0000918965-26-000013
SEC filingScanSource's Q2 FY26 net sales grew 2.5% YoY to $766.5M, but operating margin contracted 20 bps to 2.3% due to increased costs and acquisitions.
For the quarter ended December 31, 2025, ScanSource reported net sales of $766.5 million, up 2.5% year-over-year from $747.5 million. The increase was driven by growth in both segments, though Specialty Technology Solutions saw a 2.5% rise partly offset by lower large deals in the six-month period. Gross profit increased 1.2% to $102.9 million, with gross margin contracting 20 basis points to 13.4% due to higher freight costs in the Specialty segment. Operating income declined 3.1% to $17.9 million, as SG&A expenses rose 5.7% to $78.1 million, primarily from employee-related and acquisition costs. Net income fell 3.3% to $16.5 million, while diluted EPS increased to $0.75 from $0.70 in the prior year quarter, aided by a lower share count.
Specialty Technology Solutions net sales grew 2.5% to $741.5 million, with organic growth of 1.6% excluding acquisitions and currency. Segment operating income decreased 21.9% to $11.0 million, resulting in an operating margin of 1.5% (down from 1.9%). The decline was attributed to increased acquisition-related costs and employee expenses. Intelisys & Advisory net sales rose 3.1% to $25.0 million, driven by organic growth in Intelisys. Segment operating income increased 16.7% to $7.5 million, with operating margin expanding to 30.1% from 26.6%, reflecting operating leverage on higher sales volume.
Management outlined expectations for fiscal year 2026, including an effective tax rate (excluding discrete items) of 27.2% to 28.2%, and capital expenditures between $8.0 million and $12.0 million primarily for IT and warehouse investments. The company noted ongoing uncertainty from tariffs and macroeconomic conditions, but expects to pass through supplier price increases to partners. The One Big Beautiful Bill Act signed in July 2025 permanently extends 100% bonus depreciation, which may benefit future cash flows. Management believes existing liquidity and cash flows will be sufficient for at least the next twelve months, and the company is in compliance with all debt covenants under the new credit agreement entered in December 2025.
Cash and cash equivalents decreased to $83.5M from $126.2M at June 30, 2025. Total debt was $102.7M, down from $136.1M, driven by net repayments. A new $400M revolving credit facility and $100M term loan were entered into on December 18, 2025, replacing the prior agreement. Shareholders' equity was flat at $910.9M, with retained earnings increasing slightly to $1,027.3M offset by higher accumulated other comprehensive loss.
The company disclosed operating lease liabilities with total future payments of $12.4M, with $2.6M due within one year. Contingent consideration liabilities totaled $28.6M, including $16.4M classified as current. No other purchase commitments (e.g., inventory or capacity) were disclosed in the Notes.
During the six months ended December 31, 2025, the company repurchased $38.7M of common stock (including excise tax), representing 913,509 shares. No dividends were declared or paid. Capital expenditures were $4.4M (0.3% of sales). Debt issuance costs of $1.4M were incurred related to the new credit agreement. The company used borrowings and repayments on the revolving credit facility and term loan to manage liquidity.
Segment data revealed significant differences: Specialty Technology Solutions generated 96.7% of total revenue ($1,457.0M in H1 FY26) but a lower operating margin (2.2%), while Intelisys & Advisory contributed 3.3% of revenue ($49.2M) with a much higher margin (27.1%). Geographic breakdown showed United States sales of $1,391.9M and Brazil sales of $116.6M. Goodwill increased to $244.2M, primarily due to the DataXoom acquisition.
Operating cash flow of $54.1M exceeded net income of $36.4M, indicating strong cash conversion. Depreciation and amortization ($12.1M) and share-based compensation ($6.5M) were the main non-cash add-backs. Working capital changes were mixed: accounts receivable declined $24.1M (favorable), but inventories rose $6.6M and accounts payable fell $21.4M (both unfavorable). Capital expenditure intensity was low at 8.1% of CFO, reflecting a capital-light business model. The company returned $38.7M to shareholders via buybacks, covered by CFO after capex ($49.7M). Investing activities also included $18.4M for acquisitions, while financing included net debt repayments of $33.5M. Overall, cash generation remains healthy with disciplined capital allocation.