ScanSource Navigates Tech Downturn with Margin Expansion, Strong Cash Flow

TL;DR

**SCSC is a buy; they're crushing margins and cash flow despite a revenue dip, proving their strategic pivot to recurring revenue and M&A is paying off big time.**

AI Summary

ScanSource, Inc. (SCSC) reported full year net sales of just over $3 billion for fiscal 2025, a 6.7% year-over-year decline due to softer technology spending. Despite this, the company achieved strong gross profit growth of 2.4% to $408.6 million and adjusted EBITDA growth of 2.8% to $144.7 million. Gross profit margins expanded by 120 basis points to 13.4%, and adjusted EBITDA margins increased by 45 basis points to 4.76%. Recurring revenues significantly contributed to this margin expansion, representing 32.8% of consolidated gross profits, up from 27.5% in the prior year. Non-GAAP net income rose 9.6% to $85.1 million, and non-GAAP EPS increased 15.9% to $3.57, partly benefiting from $106.5 million in share repurchases. The company ended fiscal 2025 with a strong balance sheet, including $126 million in cash and $104.1 million in free cash flow, representing a 122% conversion of non-GAAP net income. Acquisitions of Resourcive and Advantix in August 2024 were accretive to both non-GAAP EPS and adjusted ROIC, which reached 13.6%. ScanSource is strategically focused on converged solutions in IT, connectivity, and cloud computing, with an active M&A pipeline and a commitment to share repurchases, targeting a net debt leverage of 1 to 2 times adjusted EBITDA.

Why It Matters

ScanSource's ability to grow gross profits and expand margins despite a 6.7% decline in net sales demonstrates resilience in a challenging tech market, signaling effective cost management and a successful shift towards higher-margin recurring revenues. For investors, the 15.9% increase in non-GAAP EPS and 122% free cash flow conversion highlight strong operational efficiency and shareholder returns, supported by $106.5 million in share repurchases. The strategic focus on converged solutions and an active M&A pipeline positions ScanSource to capitalize on the evolving technology ecosystem, potentially increasing its addressable market and competitive edge against rivals in technology distribution. Employees and customers benefit from the company's investment in an AI Center of Excellence and a 'people-first' culture, fostering innovation and strong channel partnerships.

Risk Assessment

Risk Level: medium — While ScanSource demonstrated strong margin expansion and cash flow, the 6.7% year-over-year decline in net sales to just over $3 billion indicates exposure to a 'softer demand in a more cautious technology spending environment.' This revenue contraction, despite positive profit metrics, suggests ongoing market headwinds could impact future top-line growth, posing a medium risk to sustained performance if demand doesn't rebound.

Analyst Insight

Investors should consider initiating or increasing a position in SCSC, focusing on its strong free cash flow generation and margin expansion. Monitor the company's M&A pipeline and recurring revenue growth, as these are key drivers for future value in a consolidating and evolving tech distribution market.

Financial Highlights

debt To Equity

Not Disclosed

revenue

$3 billion

operating Margin

Not Disclosed

total Assets

Not Disclosed

total Debt

Not Disclosed

net Income

$85.1 million

eps

$3.57

gross Margin

13.4%

cash Position

$126 million

revenue Growth

-6.7%

Executive Compensation

Key Numbers

• $3 billion — Full year net sales (6.7% year-over-year decline)
• $408.6 million — Gross profits (2.4% growth year-over-year)
• 13.4% — Gross profit margins (Increased 120 basis points year-over-year)
• $144.7 million — Adjusted EBITDA (2.8% growth year-over-year)
• 32.8% — Recurring revenues as % of gross profits (Up from 27.5% last year)
• $85.1 million — Non-GAAP net income (9.6% increase over last year)
• $3.57 — Non-GAAP EPS (15.9% increase year-over-year)
• $104 million — Free cash flow (122% conversion of non-GAAP net income)
• $106.5 million — Share repurchases (Benefited non-GAAP EPS)
• 13.6% — Adjusted ROIC (Increased for the year)

Key Players & Entities

• ScanSource, Inc. (company) — Registrant
• Michael L. Baur (person) — Chair and Chief Executive Officer
• Resourcive (company) — Acquired company
• Advantix (company) — Acquired company
• Deloitte & Touche LLP (company) — Independent registered public accounting firm
• SEC (regulator) — Securities and Exchange Commission
• Board of Directors (person) — Governing body
• Nominating and Corporate Governance Committee (person) — Board committee
• Compensation Committee (person) — Board committee
• Hurricane Helene (event) — Community engagement

FAQ

Industry Context

ScanSource operates in the technology solutions distribution sector, which is characterized by a complex supply chain and evolving product portfolios. The industry is influenced by broader economic conditions affecting IT spending, such as the reported 'softer technology spending' impacting ScanSource's net sales. Key trends include the shift towards cloud computing, connectivity solutions, and converged IT infrastructure, areas where ScanSource is strategically focusing.

Regulatory Implications

As a public company, ScanSource is subject to SEC regulations governing proxy solicitations and financial reporting, including the disclosure of executive compensation and risk factors. The company must ensure compliance with accounting standards and auditor independence rules. Shareholder proposals and advisory votes on executive compensation are mechanisms for regulatory oversight and corporate governance.

What Investors Should Do

1. Review the Compensation Discussion and Analysis (CD&A) section.
2. Examine the 'Fees Paid to Independent Registered Public Accounting Firm' section.
3. Evaluate the 'Security Ownership of Certain Beneficial Owners and Management' section.
4. Note the company's strategic focus on converged solutions and M&A.

Key Dates

• 2025-12-09: Annual Meeting of Shareholders — Shareholders will vote on director nominees, executive compensation, and ratification of the independent auditor.
• 2025-10-23: Proxy Statement available online and Notice of Internet Availability of Proxy Materials mailed — Key information for shareholders regarding the annual meeting and voting is disseminated.
• 2025-10-03: Record date for shareholders entitled to vote — Establishes the list of shareholders eligible to vote at the Annual Meeting.
• 2026-06-30: Fiscal year end — Marks the end of the fiscal year for which the independent auditor is being ratified.

Glossary

DEF 14A

A proxy statement filed by public companies with the U.S. Securities and Exchange Commission (SEC) detailing information about the annual meeting of shareholders, including executive compensation, board of directors, and voting matters. (This document provides the basis for the analysis of ScanSource's governance and compensation practices.)

Named Executive Officers (NEOs)

The top executive officers of a company whose compensation is disclosed in detail in proxy statements. (Their compensation is subject to shareholder advisory votes and is a key focus of this filing.)

Non-GAAP Financial Measures

Financial metrics that are not calculated in accordance with Generally Accepted Accounting Principles (GAAP), often used to provide a clearer view of underlying business performance. (ScanSource uses non-GAAP measures like net income and EPS, which showed growth despite declining net sales.)

Adjusted EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization, adjusted for certain non-recurring or non-operational items. (ScanSource reported growth in Adjusted EBITDA, indicating improved operational profitability on a non-GAAP basis.)

Free Cash Flow

The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. (ScanSource generated strong free cash flow, demonstrating its ability to convert profits into cash.)

Adjusted ROIC

Return on Invested Capital, adjusted for specific items to better reflect the efficiency of capital deployment. (The company's acquisitions were accretive to Adjusted ROIC, showing positive returns on investment.)

Year-Over-Year Comparison

While the DEF 14A filing itself does not contain comparative financial data from the prior year's filing, the provided context indicates a year-over-year decline in net sales of 6.7% to $3 billion. However, gross profit and adjusted EBITDA saw modest growth of 2.4% and 2.8% respectively, with significant margin expansion driven by a higher contribution from recurring revenues. Non-GAAP net income and EPS also increased, partly due to share repurchases, suggesting improved profitability and shareholder returns despite top-line challenges.

Key Financial Figures

• $3 b — . Full year net sales totaled just over $3 billion, a year-over-year decline of 6.7%
• $408.6 million — environment. However, gross profits of $408.6 million and adjusted EBITDA* of $144.7 million
• $144.7 million — $408.6 million and adjusted EBITDA* of $144.7 million grew by 2.4% and 2.8%, respectively. Gr
• $85.1 million — mproved margins. Non-GAAP net income of $85.1 million is an increase of 9.6% over last year,
• $104 million — t year, and full year free cash flow of $104 million represents a 122% conversion of our non
• $3.57 — ur non-GAAP net income. Non-GAAP EPS of $3.57 increased by 15.9% year-over-year, incl
• $106.5 million — efit of share repurchases which totaled $106.5 million. Our balance sheet is strong, ending
• $126 million — heet is strong, ending fiscal 2025 with $126 million in cash and $112.3 million of operating
• $112.3 million — scal 2025 with $126 million in cash and $112.3 million of operating cash flow and $104.1 milli
• $104.1 million — 12.3 million of operating cash flow and $104.1 million of free cash flow (non-GAAP). Adjusted

Filing Documents

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Executive Compensation

Executive Compensation 22 Resolution 22 Effect of Resolution 22 Recommendation of the Board of Directors 22 PROPOSAL NUMBER 3—RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 24 Fees Paid to Independent Registered Public Accounting Firm 24 Audit Committee's Pre-approval Policies and Procedures 25 Recommendation of the Board of Directors 25

EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION 26 Information About Our Executive Officers 26 Compensation Discussion and Analysis 27 Compensation Committee Report 46 Compensation Tables 47 Employment Arrangements and Potential Payments upon Certain Events 52 Pay Ratio Disclosure 58 Policies and Practices Related to the Grants of Certain Equity Awards Close in Time to the Release of Material Non-Public Information 58 Pay Versus Performance 59 Compensation Committee Interlocks and Insider Participation 63 EQUITY COMPENSATION PLAN INFORMATION 64 AUDIT COMMITTEE REPORT 65 STOCK OWNERSHIP INFORMATION 66

Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners and Management 66 DELINQUENT SECTION 16(A) REPORTS 67 Delinquent Section 16(a) Reports 67 SHAREHOLDER PROPOSALS 68 HOUSEHOLDING 70 APPENDIX A—NON-GAAP FINANCIAL MEASURES 71 Table of Contents Annual Meeting Information The enclosed proxy is solicited by the Board of Directors (the "Board of Directors" or the "Board") of ScanSource, Inc. for the Annual Meeting of Shareholders (the "Annual Meeting") to be held at 9:00 a.m., Eastern Standard Time, on Tuesday, December 9, 2025 at our principal executive offices located at 6 Logue Court, Greenville, South Carolina 29615 and any adjournment or postponement thereof. This Proxy Statement contains information relating to the proposals to be voted upon at the Annual Meeting, the voting process, the Board, the compensation of our named executive officers ("Named Executive Officers" or "NEOs") and certain other information. The solicitation of proxies is being made by our directors and employees, and the cost of soliciting proxies will be borne by the Company. Copies of solicitation materials may be furnished to brokers, custodians, nominees and other fiduciaries for forwarding to beneficial owners of shares of our common stock, and the Company will reimburse the normal handling charges for such forwarding services. Solicitation of proxies may be made by mail, in person, by telephone or by other electronic means, and by our directors, executive officers and other employees, who will receive no additional compensation for their services. On or about October 23, 2025, we intend to make this Proxy Statement available online and to mail the Notice of Internet Availability of Proxy Materials to all shareholders entitled to vote at the Annual Meeting. As used in this Proxy Statement, the terms "ScanSource," the "Company," "we," "us" and "our" refer to ScanSource, Inc. and its consolidated subsidiaries as a combined entity, except where it is clear that t

View Full Filing

View this DEF 14A filing on SEC EDGAR