ScanSource, Inc. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Industry Transformation: Technology distribution is evolving with the convergence of hardware, software, and services. End users prefer channel partners offering integrated converged solutions.
• Partner Events: Highlighted strategy to assist partners in transitioning from traditional VAR to solution provider and from trusted adviser to technology architect at events like Partner First and Channel Connect.
• Intelisys & Advisory Investments: Investing in solutions engineering teams with expertise in advanced technologies (cloud computing, wireless, IoT) and launching the Tech Checks tool combining AI-powered engineering support and conversational sales-friendly discovery questions.
• Integrated Solutions Group (ISG): Launch Point delivered end-to-end industry solutions (Smart Warehouse, Smart Retail). Completed acquisition of DataXoom, expanding B2B mobile data connectivity capabilities and scaling relationships across major U.S. carriers.

Segment Performance

• Specialty Technology Solutions (STS): Net sales declined 5% year-over-year and 9% quarter-over-quarter, including ~$40 million of large deal pull-ins. Gross profits increased 7% year-over-year and 3% quarter-over-quarter. Recurring revenues accounted for approximately 13% of gross profits. Adjusted EBITDA margin increased 61 basis points to 4.2%.
• Intelisys & Advisory: Net sales increased 4% year-over-year. Annualized net billings reached approximately $2.78 billion. Gross profits grew 2% year-over-year, but adjusted EBITDA declined slightly due to increased investments in SG&A to drive future billings growth and expand technical capabilities in advanced technologies.

Guidance

• Full year net sales growth expected to range between $3.1 billion and $3.3 billion.
• Full year adjusted EBITDA projected to be between $150 million and $160 million.
• At least $80 million in free cash flow is expected.
• Revenue growth is anticipated to accelerate in the second half of fiscal year 2026.

Risks

• Forward-looking statements are subject to risks and uncertainties identified in the earnings release, Form 10-K for the year ended June 30, 2025, and subsequent Form 10-Q reports.
• Large deals being delayed or broken into smaller orders, which can impact top-line growth.

Question and Answer

Q: Thoughts on the top line decline over the past year and a half?

A: Focus on profitable growth; gross profit growth is strong. Don't believe market share was lost; teams have executed well with key suppliers.

Q: Sustainability of supplier rebates or vendor payments?

A: Supplier programs have evolved to tie more to activities than inventory; some price actions from suppliers benefited margins, contributing ~30 basis points to consolidated gross profit margins.

Q: Details on the DataXoom acquisition?

A: It's a tuck-in sized acquisition with 17 employees, and it will be margin accretive as it has higher margins than the typical STS segment business.

Q: Reaffirmation of guidance after Q1 net sales decline?

A: Q1 was close to expectations; large deals are timing issues, not a sign of weak demand.

Q: Allocation of free cash flow?

A: Capable of doing both share repurchases and acquisitions, with no specific percentile structure outlined yet.

Q: When will Intelisys investments translate to stronger revenue growth?

A: Double-digit new order growth year-over-year and quarter-over-quarter in Intelisys is used as a benchmark for investment success, indicating investments are starting to show impact