Technology distribution company ScanSource (NASDAQ:SCSC) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 8.9% year on year to $812.9 million. The company’s full-year revenue guidance of $3.2 billion at the midpoint came in 1.5% above analysts’ estimates. Its non-GAAP profit of $1.02 per share was 10.5% above analysts’ consensus estimates.
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ScanSource (SCSC) Q2 CY2025 Highlights:
- Revenue: $812.9 million vs analyst estimates of $776.9 million (8.9% year-on-year growth, 4.6% beat)
- Adjusted EPS: $1.02 vs analyst estimates of $0.92 (10.5% beat)
- Adjusted EBITDA: $38.64 million vs analyst estimates of $36.63 million (4.8% margin, 5.5% beat)
- The company lifted its revenue guidance for the full year to $3.2 billion at the midpoint from $3 billion, a 6.7% increase
- EBITDA guidance for the full year is $155 million at the midpoint, above analyst estimates of $151.2 million
- Operating Margin: 3.3%, in line with the same quarter last year
- Free Cash Flow Margin: 0.6%, down from 7.2% in the same quarter last year
- Market Capitalization: $961 million
“We delivered strong free cash flow for our fiscal year and achieved excellent profitability growth across the board,” said Mike Baur, Chair and CEO, ScanSource, Inc.
Company Overview
Operating as a crucial link in the technology supply chain since 1992, ScanSource (NASDAQ:SCSC) is a hybrid distributor that connects hardware, software, and cloud services from technology suppliers to resellers and business customers.
Revenue Growth
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.
With $3.04 billion in revenue over the past 12 months, ScanSource is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.
As you can see below, ScanSource struggled to increase demand as its $3.04 billion of sales for the trailing 12 months was close to its revenue five years ago. This shows demand was soft, a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. ScanSource’s recent performance shows its demand remained suppressed as its revenue has declined by 11.4% annually over the last two years. 
This quarter, ScanSource reported year-on-year revenue growth of 8.9%, and its $812.9 million of revenue exceeded Wall Street’s estimates by 4.6%.
Looking ahead, sell-side analysts expect revenue to grow 3.7% over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.
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Operating Margin
ScanSource’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 3.1% over the last five years. This profitability was lousy for a business services business and caused by its suboptimal cost structure.
Looking at the trend in its profitability, ScanSource’s operating margin might fluctuated slightly but has generally stayed the same over the last five years, meaning it will take a fundamental shift in the business model to change.
This quarter, ScanSource generated an operating margin profit margin of 3.3%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
ScanSource’s EPS grew at a remarkable 11.7% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For ScanSource, its two-year annual EPS declines of 3.7% mark a reversal from its (seemingly) healthy five-year trend. We hope ScanSource can return to earnings growth in the future.
In Q2, ScanSource reported adjusted EPS of $1.02, up from $0.80 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects ScanSource’s full-year EPS of $3.57 to grow 5.8%.
Key Takeaways from ScanSource’s Q2 Results
We enjoyed seeing ScanSource beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 5.6% to $44.97 immediately following the results.
ScanSource may have had a good quarter, but does that mean you should invest right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.