ScanSource’s third quarter results were met with a negative market reaction, as sales came in below Wall Street expectations and declined year over year. Management attributed the underperformance largely to continued weakness in Brazil and the effects of reporting more netted down revenue, particularly in the company’s Specialty Technology Solutions segment. CEO Mike Baur acknowledged that while some technology categories grew in North America, certain legacy areas remained in decline, tempering overall top-line momentum. Baur highlighted ongoing gross profit margin improvements and growth in recurring revenue, stating, “Each of our segments achieved year-over-year gross profit growth and higher EBITDA margins.”
Is now the time to buy SCSC? Find out in our full research report (it’s free for active Edge members).
ScanSource (SCSC) Q3 CY2025 Highlights:
- Revenue: $739.7 million vs analyst estimates of $787.4 million (4.6% year-on-year decline, 6.1% miss)
- Adjusted EPS: $1.06 vs analyst estimates of $0.93 (14% beat)
- Adjusted EBITDA: $38.59 million vs analyst estimates of $35.03 million (5.2% margin, 10.2% beat)
- The company reconfirmed its revenue guidance for the full year of $3.2 billion at the midpoint
- EBITDA guidance for the full year is $155 million at the midpoint, above analyst estimates of $150.8 million
- Operating Margin: 3.6%, in line with the same quarter last year
- Market Capitalization: $910 million
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From ScanSource’s Q3 Earnings Call
- Adam Tindle (RJ): asked about the sequential growth expectations for the next quarter and whether large deals are driving the outlook. CFO Steve Jones explained that lapping last year’s netted down revenue and improved April trends provide confidence in the guidance.
- Adam Tindle (RJ): inquired about the reasoning and timing behind the new $200 million share repurchase authorization versus prioritizing acquisitions. CEO Mike Baur said acquisitions of high-margin businesses are a higher priority but that the company can pursue both initiatives depending on leverage.
- Greg Burns (Sidoti): requested more detail on Brazil’s demand trends and how netted down revenue affects reported sales. Jones clarified that macro and FX pressures are present, but profitability is protected due to local cost structures, and netting down revenue is a headwind for reported top-line growth.
- Keith Housum (Northcoast Research): questioned the apparent disconnect between reported North American growth in some technologies and overall segment declines. Baur acknowledged that legacy product declines and netted down revenue obscure growth in newer categories.
- Guy Hardwick (Freedom Capital Markets): asked about the competitive environment for acquisitions and whether higher interest rates have made deals more attractive. Baur said pricing discipline remains, but a wide pipeline of targets is available, with earn-out structures helping mitigate risk.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be watching (1) the pace and integration of new acquisitions in emerging, high-margin segments, (2) the continued growth in recurring revenue streams from advisory and AI-enabled services, and (3) stabilization or improvement in Brazil’s demand environment. Execution of the Integrated Solutions Group’s new business development initiatives and onboarding innovative suppliers will also be important markers for sustained profitability and growth.
ScanSource currently trades at $41.53, in line with $41.83 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).
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