ScanSource, Inc. (SCSC) Earnings

Management highlights

### Overall Quarterly and Full-Year Performance - Q4 net sales grew 17% year-over-year, full-year FY26 net sales grew 6% year-over-year, with stronger growth in the second half of the fiscal year - Non-GAAP Q4 EPS grew 43% to a company record $1.46; full-year consolidated gross profit increased 7% year-over-year, at the higher end of the company's expected range - Recurring revenues grew 10.6% year-over-year full-year, and recurring revenues now contribute 34% of total consolidated gross profit - Full-year annual free cash flow was $114 million, with 124% cash conversion of non-GAAP net income; adjusted ROIC was 18.2% for Q4 and 14.7% for the full year - The company has $88 million in cash as of Q4 end, with a trailing 12-month net debt leverage ratio of approximately zero ### Strategic Updates - The company signed a definitive agreement to acquire MicroAge, expected to close by the end of FY27 Q1 - The acquisition expands ScanSource's total addressable market (TAM) into high-growth areas including cloud, cybersecurity, data center, and AI - Adds new service capabilities including cloud migration and management, cybersecurity services, next-generation AI data center implementation, and AI solution development, which can be offered to ScanSource's existing channel partners - Launched a new converged communications business unit in the prior quarter to help channel partners capture full-stack opportunities in the ongoing shift from on-premise to cloud communications, with a goal of helping partners grow cloud recurring revenue and attach more edge devices - Implemented sales leadership and structure changes to shift to a market share gain mindset instead of a defensive posture, which contributed to Q4 outperformance - The Brazilian business delivered consistent profitability despite weak top-line performance, after structural headcount adjustments to maintain margin

Guidance

- Organic FY27 guidance (excluding the impact of the MicroAge acquisition) expects total revenue to increase 6% to 10% year-over-year, driven by continued strong demand across technology segments - Adjusted EBITDA is expected to be between $158 million and $165 million, representing an adjusted EBITDA margin of 4.6% to 4.65% - Full-year FY27 free cash flow is expected to be at least $85 million - The FY27 effective income tax rate is projected to range from 27.5% to 28.5% - Growth is expected to be higher in the first half of FY27 compared to the second half, due to easier year-over-year comparables in the first half and tougher comparables from the strong FY26 Q4 results; this sequential slowdown is already incorporated into the 6% to 10% overall revenue growth guidance - Management will update FY27 guidance to include the MicroAge acquisition during the FY27 Q1 earnings call

Segment performance

1. Specialty Technology Solutions: Q4 net sales increased 18% year-over-year, gross profits increased 16% to $94 million, adjusted EBITDA increased 28% to $36.7 million with a 3.96% adjusted EBITDA margin. Full-year FY26 segment revenues increased 6% to $3.12 billion, gross profits increased 8.4% to $338 billion, with ~15% of segment gross profits coming from recurring revenues. This segment contributed ~96.8% of total company full-year revenue. 2. Intellisys and Advisory: Q4 net sales and gross profits grew 7% and 8% year-over-year respectively, adjusted EBITDA was $9.4 million with a 36.4% adjusted EBITDA margin. Full-year FY26 segment revenues grew 3.1% to $101 million, and full-year net billings increased to approximately $2.88 billion. This segment contributed ~3.2% of total company full-year revenue.

Risks & headwinds

- Broad macroeconomic conditions are outside of management's control and represent an ongoing source of uncertainty - The addition of Juniper networking to the company's Lioncard program is facing near-term supply chain constraints, which will delay near-term revenue contributions from the new vendor - There is low but non-zero risk of channel conflict from the MicroAge acquisition; management has committed to prioritizing existing ScanSource channel partners in cases of conflict, though third-party research indicates most end users already work with multiple channel partners simultaneously - Brazil's weak top-line performance continues to pressure segment results, despite maintained profitability through structural cost adjustments

Analyst Q&A

• Q: What drove Q4 and full-year outperformance versus prior guidance, what is the outlook for macro and supply risks heading into FY27, and what is the risk of channel conflict from the MicroAge acquisition? /

  A: The stronger-than-expected performance aligned with management's prior expectation of strong second half growth, driven by rebounding demand and the return of large deals in the pipeline. Management guidance does not factor in expected supply disruptions and assumes continued strong demand. Channel conflict risk is assessed as very low: most end users already work with 6+ partners, MicroAge only serves ~2,500 end users, and management will prioritize existing ScanSource partners in any overlapping accounts.

• Q: What is the timeline for revenue contributions from the newly added Juniper product line? /

  A: Juniper is currently facing supply chain constraints due to extremely strong existing demand, so near-term order fulfillment will be slower than originally expected. Contributions will ramp gradually through the first half of FY27, and reach full swing in the second half of the year, though the exact size of contribution will depend on resolving supply constraints outside of management's control.

• Q: Why did management choose to acquire MicroAge rather than prioritize additional share repurchases, given the company's strong core growth and attractive current valuation? /

  A: This acquisition aligns with a 10-year long strategic plan to add services capabilities that ScanSource's channel partners have repeatedly requested. Most partners lack the resources to provide end-to-end implementation and support for high-growth technologies like cybersecurity, and MicroAge's existing services business fills this gap. Management expects the acquisition to deliver higher returns than share repurchases, as MicroAge is already a profitable growing business in high-growth market segments.

• Q: What is the expected split of price versus volume growth in Q4 for the Specialty Technology Solutions segment? /

  A: The company benefited from broad-based supplier price increases year-over-year, similar to other technology distributors. Over 80% of sales are under supplier-controlled special pricing agreements, so isolating the exact split of price versus volume growth is difficult due to custom configurations and product mix shifts. Management confirmed the majority of Q4 revenue growth was driven by higher demand.