ScanSource, Inc. Q2 FY2026 earnings call

• Launched a new converged communication sales team unifying ScanSource communications products and Intelisys products and services to embrace technology convergence. - Intelisys and advisory segment's investment strategy driving growth in new orders, with new orders increasing faster than current revenue from billings. - Both segments had organic net sales growth in Q2, though Specialty Technology Solutions segment's growth was slower than expected. - Focused on helping channel partners deliver innovative converged solutions, executing strategic plan for profitable growth.

The Specialty Technology Solutions segment had net sales growing 3% year over year and 4% quarter over quarter, with gross profits increasing 1% year over year. Higher period expenses, including freight cost and mix, impacted gross profit margins. Recurring revenues accounted for approximately 18% of the segment's gross profit. The segment's adjusted EBITDA margin was 2.8%. For the Intelisys and Advisory segment, net sales grew 3% year over year, in line with expectations. Annual net billings reached approximately $2.85 billion, gross profits increased 3% year over year, and the segment's adjusted EBITDA margin was 41%.

• Updated full-year projections based on first-half performance, expecting full-year revenue to be in the range of $3 billion to $3.1 billion, adjusted EBITDA in the range of $140 million to $150 million, and annual free cash flow of at least $80 million. - Expecting increase in large deals in the second half and investment in Intelisys and Advisory segment to drive new order growth.

• Memory issue affecting suppliers potentially causing price or supply shortages. - Challenging market conditions in Brazil for the distribution segment, impacting organic growth.

Q: Could you give more color on period costs and if they'll continue into the second half?

A: Steve mentioned period costs like mix, freight expense in COGS and bad debt in SG&A were more period-related and likely not to continue into second half.

Q: Could you give more color on slower growth in Specialty Technology Solutions segment?

A: Mike said large deals were broken up into smaller pieces, slowing invoicing.

Q: Any confidence large deals will resume?

A: Mike said based on partner community surveys and sales kickoff, believed large deals would resume.

Q: Thoughts on memory issue impact?

A: Mike said suppliers indicating memory issue may affect them, but not significant in current guidance.

Q: Intelisys sales acceleration in 2026?

A: Mike said added sales capabilities and new orders growing faster than billings indicated acceleration.

Q: Brazil organic decline?

A: Mike said it's a challenging market condition, management managing under their control.

Q: Launch of converged communication team details?

A: Mike explained it unifies sales teams to sell both hardware and Intelisys products to partners, making it easier.

Q: How much guidance lowering is due to large deals vs product shortages?

A: Mike said guidance lowering due to large deals, not product shortages.

Q: Competitive environment in TSD market?

A: Mike said TSD space competitive, organic growth focus, expecting market share change.

Q: Key variances from initial fiscal 2026 plan?

A: Mike said business hard to forecast, first half lower than expected, second half expected to show growth.

Q: Magnitude of guidance cut and free cash flow maintenance?

A: Steve said second half looks like first half, free cash flow due to business model confidence.

Q: Capital allocation priorities?

A: Mike said focus on three-year goals, share repurchase still ongoing.

Q: Intelisys billings lagging new orders dynamic?

A: Mike said started talking about new orders growth due to margin pressure and market share land grab, new orders grow faster than billings as orders take time to bill.