SCSC

LLM Evaluations

Transcript Summary

ScanSource, Inc. delivered a strong third quarter for fiscal year 2026, with net sales and non-GAAP EPS both growing 9% year-over-year. Results were driven by robust hardware demand in the Specialty Technology Solutions segment, particularly in networking and security. The company highlighted its strong liquidity position, ending the quarter with zero net debt and raising its full-year free cash flow guidance to at least $90 million. Central to the strategy is the newly formed Converged Communications business unit, which merges the Specialty Communications and Intelisys CX teams into a "OneScanSource" approach. This seeks to simplify the partner experience and facilitate the cross-selling of hardware and recurring cloud services. While the Intelisys segment saw a minor 1% sales dip, management is focused on accelerating new order growth through restructuring and AI-integrated solutions. During the Q&A, management defended a conservative Q4 outlook, citing a desire for prudent forecasting despite Q3’s momentum. They addressed concerns regarding Intelisys growth rates and explained that the benefits of strategic investments typically realize over 6-to-18 months. Overall, ScanSource is leveraging its strong balance sheet to pivot toward a more integrated, service-oriented distribution model.

5-year share-count history (top 10 holders by peak, incl. exited) + price

Revenue Segments

Filing Risk Scores

ScanSource, Inc.: Aggressive Buybacks and Level 3 Earn-Out Estimates Mask Brazilian Tax Risks

Full Earnings Call Transcript — Q3 • 2026-05-07

Operator: Welcome to the ScanSource, Inc. quarterly earnings conference call. All lines have been placed in a listen-only mode until the question-and-answer session. Today’s call is being recorded. If anyone has any objection, you may disconnect at this time. I would now like to turn the call over to Mary M. Gentry, Senior Vice President, Finance, and Treasurer. Please go ahead.
Mary M. Gentry: Good morning, and thank you for joining us. Our call will include prepared remarks from Michael L. Baur, our Chair and CEO, and Stephen T. Jones, our Chief Financial Officer. We will review our operating results for the quarter, then open the line for your questions. We posted an earnings infographic that accompanies our comments and webcast in the Investor Relations section of our website. As you know, certain statements in our press release, infographic, and on this call are forward-looking and subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include the factors identified in our earnings release, and our Form 10-K for the year ended 06/30/2025, and in our subsequent reports on Form 10-Q. Forward-looking statements represent our views only as of today, and ScanSource, Inc. disclaims any duty to update these statements except as required by law. During our call, we will discuss both GAAP and non-GAAP results. We provide reconciliations on our webcast website and in the press release included in our Form 8-K filed earlier today. I will now turn the call over to Mike.
Michael L. Baur: Thanks, Mary, and thanks to everyone for joining us today. Our team delivered strong third quarter results, with adjusted EBITDA, EPS, free cash flow, and ROIC all increasing versus the prior year. I am pleased to see improved hardware demand drove 9% growth in net sales with growth across most technologies, especially networking and security. We believe end users have more choices than ever, and solutions are getting more complex, but what they are really looking for are business outcomes—complete solutions, not point products. Research shows us that end users prefer to buy from trusted partners who can deliver across the full technology stack. That is why we are taking the next step to help our partners grow their business by launching a new Converged Communications business unit to deliver a unified OneScanSource partner experience. This new business unit will include the business development and sales resources, pre-sales engineering, marketing, and supplier management functions, bringing together the ScanSource, Inc. Specialty Communications team and the Intelisys CX cloud-based solutions team into one combined business unit. This team will support Specialty Communications VARs and Intelisys CX partners, helping VARs sell more cloud recurring revenue products and solutions and helping Intelisys partners attach more hardware. Importantly, each partner will have dedicated sales resources to sell across our OneScanSource portfolio. The Converged Communications business unit will be led by Katherine White, who brings five years of ScanSource, Inc. experience across both our Specialty business and Intelisys. Looking ahead, we are focused on helping our channel partners grow by delivering innovative converged solutions, including, of course, new opportunities in AI. Our partners are finding excellent opportunities for AI adoption in the CX solutions area. Let me share two examples of recent AI channel wins. First, with AI as automation, a financial institution adopted an AI-powered platform with AI agents to handle routine inquiries. That freed up approximately four to five hours per live agent each week so they could focus on more complex customer needs. Second, with AI as augmentation, AI helps drive revenue expansion, including cross-selling. In this deployment, AI supports inside sales agents during live interactions by providing real-time recommendations. We believe both examples highlight how ScanSource, Inc. helps our partners bring converged, AI-enabled CX solutions to market. Overall, our strong results this quarter reinforce our confidence in our business model as we look to the future. I will now turn the call over to Steve to take you through our financial results and our outlook for fiscal year 2026.
Stephen T. Jones: Thanks, Mike. We are pleased with our Q3 results, with consolidated net sales and non-GAAP EPS growing 9% year over year. We also delivered strong free cash flow for the quarter and feel very well positioned to deliver our fiscal year 2026 outlook. Turning to our segments, I will start with Specialty Technology Solutions. Net sales increased 9% year over year, led by North America hardware sales growth across most of our technologies. Gross profit increased 10% year over year to $81 million. Approximately 15% of segment gross profit is coming from recurring revenue, led by managed connectivity growth from our Advantix and DataZoom acquisitions. Segment adjusted EBITDA grew 6% year over year to $24.7 million, with an adjusted EBITDA margin of 3.3%. In our Intelisys and Advisory segment, net sales declined 1% year over year. Intelisys annualized net billings increased to approximately $2.88 billion. Quarter over quarter, both segment net sales and gross profit increased 4%. Adjusted EBITDA for the segment was $11 million, a sequential quarter growth of 6%, with segment adjusted EBITDA margin of 42%. Going a bit deeper on balance sheet and cash flow, we ended Q3 with $120 million in cash and a net debt leverage ratio of approximately zero on a trailing twelve-month adjusted EBITDA basis. For the quarter, we generated $69 million in free cash flow, bringing our year-to-date free cash flow to $119 million. Share repurchases totaled $33 million in the quarter, and we had $146 million remaining as of 03/31/2026 under our share repurchase authorization. Adjusted ROIC was 14.3% for the quarter and 13.6% year to date. We continue to have a strong balance sheet, and we are well positioned to execute our strategic priorities and achieve our three-year goals. Our three-year goals focus on growing the company’s gross contributions from recurring revenue, expanding our profitability, delivering strong free cash flow, and maintaining disciplined capital deployment. You can find our goals in the infographic and our investor presentation in the Investor Relations section of our website. We continue to explore acquisition opportunities that could expand our technology stack, our capabilities, and accelerate our recurring revenue growth. Our capital allocation priorities also include continued share repurchases. We are confident in our business model, and our Q3 results support our expectations for our annual outlook. We are maintaining our full-year projections for both revenue and adjusted EBITDA, and for FY 2026 free cash flow, we are raising our expectations to at least $90 million. We will now open the call for questions.
Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. Please stand by while we compile. Our first question comes from the line of Keith Michael Housum of Northcoast Research. Your line is open.
Keith Michael Housum: Great. Thanks, guys. Appreciate the opportunity. Hey, Steve, in terms of the revenue guide for the full year, based on the strong quarter you have, if my math is right, that would suggest at the top side revenue growth of only 2% in the quarter, and on the downside, it would be a decline of 10%. Was that intentional in terms of what you are thinking about for the next quarter?
Stephen T. Jones: Well, Keith, thanks for the question. When we look at our full-year outlook that we gave last quarter, we said that we would need some large deals coming in, and we had growth projected for the second half. Q3 delivered on that, and we are confident that we can deliver our full-year guidance, but we do not want to get over our skis as we look at Q4.
Keith Michael Housum: Okay. Is there a sense that business was pulled forward from fourth quarter into third quarter based on, you know, the world that is in chaos when it comes to memory pricing right now?
Stephen T. Jones: What I would say on that, Keith, is visibility is always hard on pull-forwards and that kind of detail, but we do not believe that we saw material pull-forwards in our Q3 results.
Keith Michael Housum: Okay. Appreciate it. You guys called out Resourcive sales being down in the quarter. I would assume those would sequentially grow every quarter. Was there anything unique that happened in the quarter that would cause that to be down?
Stephen T. Jones: Well, on Resourcive, remember that is our end-customer-facing business, and what you will see in that is there is recurring revenue and there is services revenue in that business, and some of those services revenues can be up and down quarter over quarter.
Keith Michael Housum: Okay. Gotcha. How were Intelisys’ orders for the quarter? I know you guys mentioned billings were $2.88 billion. How did the orders do?
Michael L. Baur: Hey, Keith. It is Mike. Good morning. One of the things that we are focused on is how do we accelerate new order growth, and that is one reason we really are focusing on establishing this new group, this new team. We believe that we need to put additional focus on new orders, especially through the VAR community. So this Converged Communications team is going to have as a primary goal how do we get more partners selling Intelisys and getting the new order growth to accelerate. We would like to see that grow faster.
Keith Michael Housum: So do I assume that order growth did not grow for the quarter year over year?
Michael L. Baur: No, I did not say that. Our belief is that we are doing everything we said we are going to do, but we want to go faster, and we do not believe it is growing at the rate we would like to see.
Keith Michael Housum: Gotcha. Hey, last question for me, and I will turn it back over. In terms of the STS segment, revenue is almost identical to the third quarter, but gross margins were about 50 basis points higher. I know last quarter you guys called out freight costs due to more small and medium-sized businesses. Anything else that drove the improved gross profits for the quarter?
Stephen T. Jones: I would say it is more mix driving that benefit. We have seen the freight costs normalize for us. We thought that was going to be more of a one-time impact in the quarter, so I would say it is more of a mix story in terms of the improved margins.
Operator: Thank you. Our next question comes from the line of Gregory John Burns of Sidoti. Please go ahead.
Gregory John Burns: Good morning. Just to follow up on the investments you are making on the Intelisys side of the business to drive faster growth. I know you announced this new Converged business unit, but you have done a number of things over the last 12 to 18 months to stimulate that growth. Are you finding the impact of those investments and changes that you previously made are not what you expected them to be, or has there been increased competitive response? Why have you not been able to get the growth on Intelisys where you think it should be?
Michael L. Baur: Hey, Greg. It is Mike. Good morning. From my perspective, we have been very clear that we need to see acceleration of our new orders growth. We have been able to talk consistently over time about end-user billings being also the indicator of how our revenue is going to come in. New order growth, if you remember, has a lag between a new order and revenue for us. So we clearly have to not only continue doing what we were doing for new orders, but everything that I am talking about today that is new, we will not see the results of that for anywhere from six to 18 months. Really, what I am saying today is we are going to do more so that we can, a year from now, see even more of those results. I would say the challenge with our Intelisys business is we are seeing in new order growth now the actions we took a year ago, and we are saying we would like to see better results. We want to accelerate that, and we believe now is the time. One more point, Greg: we felt like we needed to get to this point in the year. Our strategy and our outlook for the year required a strong second half, and some of our decisions for more investments would not be made until we got through the first half. We are there, and we saw what happened in Q3, so we have the confidence that we should do that now. That is why now—it is a timing question for us.
Operator: Thank you. Once again, to ask a question, please press 11 on your telephone. Our next question comes from the line of Logan Katzman of Raymond James. Please go ahead.
Logan Katzman: Yeah, hi. Thanks for taking my question. This is Logan on for Adam. Maybe back to one of the first questions that was asked earlier. When we are looking into 2027, since we have to start to model that, first, any guidelines or parameters you want to give us as we look into modeling that? And then secondly, what do customer conversations look like around the first half of 2027? I know it is a little early, but kind of back to the pull-in question. Are you seeing a big potential drop-off in demand as we move into that first half of 2027, second half calendar 2026? Just wanted to see what you are hearing on that front. Thank you.
Stephen T. Jones: Yeah, Logan, thanks for the question. I would start by saying we have not given 2027 guidance yet. We typically do that when we deliver our fourth quarter results, so we are a little bit early in talking about FY 2027 for us. But we are happy with where Q3 came in, and we are confident in our Q4 forecast that builds to our full-year guidance—the guidance range. There are some things in our business right now that have a lot of momentum. Mike talked about security and networking having a lot of momentum from a sales perspective, and what we saw this quarter that we have not seen in previous quarters is most of our technologies showed growth, which is a great sign for us as we think about going into 2027 to have that momentum.
Logan Katzman: Awesome. I appreciate the color. Thank you.
Operator: I would now like to turn the conference back to Stephen T. Jones for closing remarks.
Stephen T. Jones: Yes. Thank you for joining us today. We expect to hold our next conference call to discuss our June 30 quarterly and full fiscal year results on Thursday, August 20, approximately 10:30 AM.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.