ScanSource Q4 FY2026 Earnings Call - Record EPS and Strategic MicroAge Acquisition

Moderator: Welcome to the ScanSource 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 objections, you may disconnect at this time. I would now like to turn the call over to Mary Gentry, Senior Vice President, Finance, and Treasurer. Please go ahead.

Mary Gentry, Senior Vice President, Finance, and Treasurer, ScanSource: Good morning, and thank you for joining us. Our call will include prepared remarks from Mike Baur, our Chair and CEO, and Steve Jones, our Chief Financial Officer. We’ll review our operating results for the quarter and the year, and 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 cause actual results to differ materially from expectations. These risks and uncertainties include the factors identified in our earnings release and in our Form 10-K for the year ended June 30, 2026. Forward-looking statements represent our views only as of today, and ScanSource disclaims any duty to update these statements except as required by law.

During our call, we’ll discuss both GAAP and non-GAAP results. We’ve provided reconciliations on our website and in the press release included in our Form 8-K filed earlier today. I’ll now turn the call over to Mike.

Mike Baur, Chair and CEO, ScanSource: Thanks, Mary, and good morning, everyone. I appreciate you joining us today. We finished our fiscal year with a strong fourth quarter, and I’m pleased with the progress our team made throughout the year. Our results reflect disciplined execution, improving demand across the business, and momentum toward our three-year strategic goals. Sales were up 17% year-over-year in the fourth quarter and 6% for the full year. This growth reflects outstanding performance by our account management teams, including sales, engineering, financial services, and operations, and the deep relationships that we’ve maintained over decades with our partners. We were able to respond successfully to the increased demand for our technologies from our channel partners. For the second half of our year, we saw renewed growth for key technologies, including physical security, mobility, networking, CX, cloud compute, and connectivity.

Our business has returned to growth, and we believe we’re at the beginning of a stronger growth trajectory. We’re excited about today’s announcement that we signed a definitive agreement to acquire MicroAge, and I want to start with why we believe this is such a strong fit for ScanSource. The acquisition expands ScanSource’s TAM, adds new services capabilities, and provides greater visibility into end-user needs. First, MicroAge’s technologies. Many of them are new to ScanSource. Expand our TAM in high-growth technologies like cloud, cybersecurity, data center, and AI. Second, MicroAge brings additional services offerings to enable ScanSource channel partners to partner and co-sell new technologies, capabilities including cloud migration and management, cybersecurity services, next-generation AI data center implementation, and AI solutions development. We see great opportunities ahead to help our trusted advisors and our solution providers take advantage of these new services that will become available from MicroAge.

We built ScanSource over the years by identifying technologies that are transitioning to the channel and require specialized expertise to deliver value to the end user. That’s the driving force behind our converged communication business unit we started last quarter. As we all know, the communications market has been moving from on-prem to cloud for many years in a market where everything is connected. That’s where our converged communications team comes in, helping our partners capture the full stack of opportunities. The idea is simple. Help solution providers sell more cloud recurring revenue, help Intelisys trusted advisors attach more edge devices, and build on these successes to accelerate growth. We are proud to have three longstanding brands in one channel company. ScanSource has been serving the channel for 34 years, Intelisys also for 34 years, and MicroAge is celebrating its 50th anniversary this year.

All three companies have built decades-long relationships with channel partners and end users across most industries. ScanSource’s differentiation is building specialized expertise while developing deep relationships with channel partners and end users founded on trust. I’ll now turn the call over to Steve to take you through our financial results and outlook for fiscal year 2027.

Steve Jones, Chief Financial Officer, ScanSource: Thanks, Mike. Our Q4 results reflect strong demand and profitable growth across our technologies and reporting segments. Net sales and gross profits saw strong mid-teen year-over-year growth, while our non-GAAP EPS grew 43% to $1.46 a share, a record for the company. Our full-year results reflect strengthening second-half demand and the return of large deals. Our FY 2026 full-year results align well with our three-year goals, with net sales for products growing 5.9% year over year, while recurring revenues increased 10.6% year over year. Consolidated gross profits increased 7% year over year, the higher end of our range. With the gross profit contribution from recurring revenues increasing to 34% of the consolidated results. We grew our business and delivered annual free cash flow of $114 million, with cash conversion of non-GAAP net income of 124%. Turning to our segments, I’ll start with Specialty Technology Solutions.

Net sales for the quarter increased 18% year-over-year, led by broad-based North America hardware sales growth across our technologies. Gross profits increased 16% year-over-year to $94 million. Adjusted EBITDA increased 28% year-over-year to $36.7 million, with an adjusted EBITDA margin of 3.96%. For the full year, segment revenues increased 6% to $3.12 billion, while gross profits increased 8.4% to $338 million, with approximately 15% of segment gross profits coming from recurring revenues. In our Intelisys & Advisory segment, Q4 net sales and gross profits grew 7% and 8% year-over-year respectively. Adjusted EBITDA for the segment was $9.4 million, with an adjusted EBITDA margin of 36.4%. For the full year, segment revenues grew 3.1% to $101 million. Intelisys FY26 net billings increased to approximately $2.88 billion.

Going a bit deeper on our balance sheet and cash flow, we ended Q4 with $88 million in cash and a net debt leverage ratio of approximately zero on a trailing 12-month adjusted EBITDA basis. For the full year, we generated $114 million in free cash flow, 124% conversion of our non-GAAP net income. Share repurchases totaled $27 million for the quarter, taking our full-year share repurchases to $98 million. As of June 30th, 2026, we had approximately $121 million remaining under our share repurchase authorization. Adjusted ROIC was 18.2% for the quarter and 14.7% for the full year, reflecting our disciplined approach to both working capital and capital allocation priorities. As Mike discussed, we signed a definitive agreement to acquire MicroAge, which is expected to close by the end of Q1.

The planned acquisition is an exciting opportunity to advance our three-year goals and aligns with our capital allocation priorities, expanding our total addressable market, our technology stack, our capabilities, and our channel reach with accretive margins and positive free cash generation. Our capital allocation priorities remain the same: maintain a strong balance sheet with leverage of one to two times adjusted EBITDA and be disciplined in capital deployment, including strategic acquisitions and share repurchases. We are providing an annual outlook excluding the benefit from the planned acquisition of MicroAge. On an organic basis, we expect revenues to increase between 6% and 10%, believing we will see continued strong demand across our technologies and with normal lead times. We expect adjusted EBITDA to be between $158 million and $165 million, reflecting an expected 4.6% to 4.65% adjusted EBITDA margin.

Free cash flow, we expect to generate at least $85 million in free cash flow. We expect the FY27 effective income tax rate to range from 27.5% to 28.5%. We plan to update our annual outlook including, the MicroAge acquisition during our FY27 Q1 earnings call. We will now open up for questions.

Moderator: To ask a question, please press 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Greg Burns with Sidoti. Your line is open.

Greg Burns, Analyst, Sidoti: Morning. Can we just talk a little bit about the outperformance for the fourth quarter and the full year relative to your guide? What came in stronger than you were expecting? It doesn’t seem like it, but are you seeing I think last quarter there was a little caution around macro risks and maybe supply shortages around memory, but it doesn’t seem like that’s impacting your business. What’s the risk of that, going forward as we head into FY27?

Steve Jones, Chief Financial Officer, ScanSource: Greg, good morning. This is Steve. I would say what we saw this year when we think about the full year, was really what we thought was going to happen coming into the year. We believed we were going to have a stronger second half growth performance. As we saw the second half unfold, what we saw was actually a very strong demand environment and the return of those large deals that we continue to talk about being in our pipe, as the fourth quarter unfolded. So we were very pleased, like many other technologies, that we saw this strong demand. When we think about the macro environment, of course, we’re always cautious about what’s going on in the macro environment because it’s out of our control.

We believe that in our guide that we’re not expecting to see any kind of supply disruption, and we still believe we’re going to see continued strong demand.

Greg Burns, Analyst, Sidoti: Okay. Could you just maybe give us a little insight into product segment categories, where you were seeing particular strength or whether or not it sounds like it was across the board, but is there any particular areas of strength that are worth highlighting?

Steve Jones, Chief Financial Officer, ScanSource: No, Greg, again, it’s Steve. I think it was across the board. We saw all year long that physical security’s been a great performer for us. But as we saw the second half, it’s been very broad-based.

Greg Burns, Analyst, Sidoti: Okay. Then just flipping over to MicroAge, could you give us a little better understanding of their revenue mix? How much is it product versus maybe services?

Mike Baur, Chair and CEO, ScanSource: Hey, Greg, it’s Mike. Yeah, I think we’re going to wait to talk more about the details of MicroAge after Q1, once we get it closed, and there’ll be some revenue in the quarter. So stand by for that. But just in general, what we were looking for, frankly, for the last year, was a company that had a services strategy that we could not only buy into from their perspective, meaning selling their services business growing into their customer base, but also a services business that we could scale and have some of those services work with our existing channel partners. We found MicroAge as a company that had a services business, but also comes out of a traditional reseller business for 50 years.

This company, for sure, comes out of the legacy hardware model, moved into services, and now have been very successful at the blend of selling hardware and providing services, whether they’re some managed services, professional services. We really like the composition, and we’ll talk more about that after our Q1 call.

Greg Burns, Analyst, Sidoti: Okay. Then just lastly, is there any risk of a channel conflict here for you?

Mike Baur, Chair and CEO, ScanSource: We think the risk is very low, but we’re also, as we said when we acquired Resourcive a couple of years ago, if any of our partners feel like there’s some channel conflict with their customers, we’re going to do our best to make sure we prefer our existing channel partner if they’re already in account and MicroAge shows up. Here’s what the research really is showing across the IT landscape is, and this is from third-party research experts, that most end users today at mid-market and enterprise companies are working with six or more partners all the time. We believe that MicroAge has a motion into their community. By the way, they’re really only selling to about 2,500 or so end users, which is a very small number. But where MicroAge’s lane is very clear. We might today have someone else in there selling products.

For example, we could have a security VAR in there selling security and not even know MicroAge is there, and we might have an agent in there selling connectivity. Today, all three could be in the same account and not even know each other’s there because the end users today, again, from what the research shows, the IT end user today is comfortable working with a small set of partners as a team, not having one partner do it all. We really believe that just offers more opportunity for our channel partners today to actually go to market alongside MicroAge and vice versa. That’s really the model that we’re talking about, and we’ll do everything we can to make sure no one feels like they’ve gotten disenfranchised. We think our longstanding relationships with our partners have given us permission to be able to do this.

Greg Burns, Analyst, Sidoti: All right, great. Thank you.

Mike Baur, Chair and CEO, ScanSource: You bet.

Moderator: Thank you. Our next question comes from Keith Housum with Northcoast Research. Your line is open.

Keith Housum, Analyst, Northcoast Research: Good morning, guys, and congratulations on a great quarter. Great to see the leverage from the model coming through. Steve, as we look at the guidance and we kind of think about the tougher comps that you are going to have in the second half of the year, is it fair to say that you expect a stronger, I guess, percentage growth in the first half of the year compared to the second half of the year?

Steve Jones, Chief Financial Officer, ScanSource: Yeah, Keith. Good morning. Thanks for the question. I believe that is the way, if you look at a percentage year-over-year growth, that it’s going to lay out. I think our first half has easier comps. The second half, especially with this fourth quarter, is going to be a tougher comp. But that is all captured in our 6%-10% expectations.

Keith Housum, Analyst, Northcoast Research: Yep. Based on your guidance, I’m assuming the pipeline coming out of the quarter and the conversations you had at quarter-end was just as strong as the prior quarter, if not even better.

Steve Jones, Chief Financial Officer, ScanSource: Yeah, I would say that our account management teams were very busy going through the end of June.

Keith Housum, Analyst, Northcoast Research: Great. You guys had a press release with Hewlett Packard Enterprise, adding Juniper to your line card for networking. Can you perhaps talk about your expectations for when that might start to kick in and benefit you guys, and how you’re thinking the addition of one vendor? I know one vendor doesn’t always make the numbers, but Juniper, you guys used to carry, and Aruba, of course, you were there first, so it important to you guys. Maybe help us understand how you’re thinking about that benefit.

Mike Baur, Chair and CEO, ScanSource: Hey, Keith, it’s Mike. I’ll comment on that. I would say right now, one of the challenges that we’ve already faced is Juniper has some supply chain constraints. They’ve had such a big year already that by adding us, our partner opportunities are going to be a little slower to be fulfilled. They’ve just got some incredible pipelines of deals and opportunities. I think it will be slower than we would have wanted it to be and what we thought even a quarter ago. It’s going to develop throughout, I would say, slowly through the first half of our year, and then by the time we get to the second half, we should be in full swing with Juniper from not only being able to sell, but also to deliver.

There’s going to be a little bit of a backlog from us being able to get product to sell until we get to the second half.

Keith Housum, Analyst, Northcoast Research: Do you think the second half of the year, that can be a noticeable contributor to growth?

Mike Baur, Chair and CEO, ScanSource: I think let us talk about that as the year unfolds, because again, some of these constraints are not anything we have control over.

Keith Housum, Analyst, Northcoast Research: Right. All right, appreciate it. Your quarter was so strong this quarter. Did you guys have any new customer wins to help to drive that, or was it true, just broad demand across the board?

Mike Baur, Chair and CEO, ScanSource: Well, I would say this, as everybody on the call knows, we made some changes in our leadership and sales structure, and we’ve got a different mindset right now about winning instead of defending. I think that’s a reflection on the emphasis we have put on we need to take market share and not just defend market share. I think that spirit is something that is coming through. All across the business, especially under Mark Morgan’s leadership, there’s a sense of people are excited and our partners are, because again, we probably had a little bit of complacency about being able to grow our market share. So that’s a new trend that we expect to continue through 2027.

Keith Housum, Analyst, Northcoast Research: Great. Appreciate it. Ken, can you talk about the Intelisys turnaround? I know it’s been a work in progress now for several quarters, but if you could talk about the progress with that and then what Intelisys bookings were for the quarter.

Mike Baur, Chair and CEO, ScanSource: Yeah. You know what we’ve done, again, under Ken’s leadership, is we’ve gotten our teams more focused on how do we win instead of just defend. When you’re the largest TSD, as Intelisys has been in its history, it’s easier for competitors just to pick off partners with better commission splits, better margins, if you will, for them. So what we’ve done is focus more on some of the technologies that are growing faster than others, put more resources behind it. Some of that, I think, is evident in our results for the year, where when you look at that segment, we have some investments that are showing up in the additional SG&A spend because we’re adding some capabilities with resources.

And some of the results we talked about earlier on the call, like in cloud compute and connectivity and even CX, we had very strong results that we haven’t had in a while. Frankly, the connectivity is one that we were talking to Ken about it some more, and some of that’s coming from some of the new data center connections back to enterprises, and they need more bandwidth and more connectivity, and so that’s improving our opportunity in that space. I think the whole space, Keith, is seeing a growth surge and acceleration. Of course, as you know, we don’t see all that right away, but the early days are very positive.

Keith Housum, Analyst, Northcoast Research: How were bookings in this quarter for those guys?

Mike Baur, Chair and CEO, ScanSource: Well, as you know, we’re not reporting on bookings these days.

Keith Housum, Analyst, Northcoast Research: All right. I guess, final question for you. Brazil seemed to have another tough quarter, which I guess was a surprise to us. Anything happening in that business structurally that we should be thinking about?

Mike Baur, Chair and CEO, ScanSource: Well, I think the main thing is we have got such great operators there that no matter how the marketplace treats us from a market demand for our products and technologies, we’re always managing to a profitability. This is a business that’s been consistently profitable, nicely profitable, since we got into Brazil. Unfortunately, it means we have to take some actions. We had to make some structural changes with headcount. That team understands that in their environment, they have to be responsive so that we don’t lose leverage on the revenue that does come in, Keith. Again, disappointed at the top line, pleased with the profitability.

Keith Housum, Analyst, Northcoast Research: Great. Thanks, guys. Buck.

Mike Baur, Chair and CEO, ScanSource: Thank you.

Moderator: Thank you. Our next question comes from Guy Hardwick with Barclays. Your line is open.

Guy Hardwick, Analyst, Barclays: Hi. Good morning. Congrats on the excellent results.

Mike Baur, Chair and CEO, ScanSource: Appreciate it.

Keith Housum, Analyst, Northcoast Research: Thanks, Guy.

Guy Hardwick, Analyst, Barclays: Steve, I think I heard you say when you gave the guidance for 2027 as organic 6%-10%. Maybe if you could bear in mind the previous comments about first half versus second half, just a question of what visibility do you have on that 6%-10%? To what extent are you factoring in large deals, or new business prospects, or the impact of some of the changes that you said to kind of reenergize the business?

Mike Baur, Chair and CEO, ScanSource: Yeah. Guy, thanks for the question. When we think about that 6-10%, that is our business, our organic business, and we want to be really clear in our guidance that it did not include the benefits of the acquisition. We will update that when we do our Q1 results. But what we are seeing is that is the way this business should operate as large deals continue to roll out the technologies that we are in. One of the things that I go back to for this year even is in our Specialty Technology Solutions segment, you look at the hardware versus the recurring revenues, and you see the 6-10%. That is a mixed statement. We believe things will operate more normally for FY 2027.

Guy Hardwick, Analyst, Barclays: And just maybe in Q4, I mean, is it possible to give a kind of a split between price and volume, particularly in STS? How much of a tailwind to revenues or billings was inflation in the period on a year-on-year basis?

Mike Baur, Chair and CEO, ScanSource: Yeah, let me double-click on that. Great question. We definitely benefited year over year from broad-based price increases across our technologies, like most other distributors and those in the technology did. Remember that 80% plus of our sales are under special pricing agreements controlled by the supplier. Isolating the difference with custom configuration, the mix, isolating that price difference is really difficult for us. What I would say, though, is the majority is demand driven.

Guy Hardwick, Analyst, Barclays: Okay. Thank you.

Moderator: Thank you. As a reminder, to ask a question, please press star one one on your telephone. Again, that is star one one to ask a question. Our next question comes from Adam Tindle with Raymond James. Your line is open.

Adam Tindle, Analyst, Raymond James: Okay, thanks. Good afternoon, and congrats on a strong Q4 finish. Mike, I want to start on MicroAge, just given the sheer magnitude of this. I think it’s more than 20% of your market cap, so a big bet on this acquisition. I wonder if we just take a step back and kind of walk investors through the decision on capital allocation here. I think you mentioned your core business is returning to growth. Obviously, returns in the core business are very strong. Your stock’s trading at 6 or 7 times the EBITDA right now. So doing this acquisition versus perhaps more share repurchase, why this was sort of the decision that you made.

Mike Baur, Chair and CEO, ScanSource: Well, there’s probably two different ways I’d go at this. One is we’ve been planning this for a long time. When I go back to literally 2016 when we bought Intelisys, we’ve been talking about how the business, the IT business, is going to change in the channel over 10 years, and the idea for why we believe an acquisition of a company like this is important to the future growth of our business because our channel partners need access to more services and capabilities, not just selling hardware. We predicted this. We forecasted. We have slides back to 2016 where we were trying to locate managed services capabilities to add over time. As we went through those 10 years, at different times, we made big bets. We made a big bet back then, if you recall. That, at the time, was the largest transaction we’d ever done.

Of course, it was an earn-out, so that made it a little more palatable from a cash perspective, but that was a bet on adjacencies. Again, what we believe this is not only adjacent, but it also is going to help not only MicroAge grow, this is a growth company. This is a company that we believe if we do nothing to it from a synergy with our existing channel partners, where our channel partners can bring them in, on their own, this company is growing fantastically and very profitable because they’re in the sweet spots of technology growth, and they have long-standing relationships. The average tenure of their employees is way up there compared to other companies we’ve seen.

If the core business that they’re in is going to grow and give strong returns, why would we not want to invest in that with our balance sheet? This became almost an easy decision from, is this as good or better return than share repurchases? Absolutely, it is. It fits our long-term plan. That’s why we did it.

Adam Tindle, Analyst, Raymond James: Okay. Any kind of color you can give on that. If I was to back into this versus share repurchase, this acquisition should bring $30 million or so of EBITDA. Is that a reasonable ballpark? I know we’re going to get more details, but just so we can sort of think about what could be coming after a close.

Mike Baur, Chair and CEO, ScanSource: Yeah, Adam, I would say we’re still not closed, and so right now, probably not appropriate for us to project on what that might look like. Stay tuned to Q1. We’ll give you a lot of color because we’ll update our annual guidance to include it.

Adam Tindle, Analyst, Raymond James: Okay. Then Mike, as I kind of think about MicroAge under ScanSource’s care, if and when that does happen, I’d be curious your view on both the vendor and customer reaction to this. On one hand, the vendors, sometimes, when a bigger entity acquires, they may be excited about this and potentially consolidate more share to the company. So I imagine, obviously, conversations may have been limited given it was just announced, but just as you kind of did your diligence, how you think vendors might react, especially given some of them are new to ScanSource. Then customers, it was mentioned earlier that there’s potential for channel conflict here, which is obvious. But there’s also potential for synergy and empowering your existing partners. So how you’re thinking about the reaction from vendors and customers is the heart of the question. Thanks.

Mike Baur, Chair and CEO, ScanSource: Sure. I will go back just a little bit, too. When we met the management team not that long ago, the first question they had for us as we went in to ask them questions was, "Mike, what is your thesis for this?" Again, this is a management team that has been at MicroAge a long time, some of them 30 years. When we talked about one of the things that ScanSource channel partners need, both our solution providers and our trusted advisors under Intelisys, they are always asking us, "How can we grow, and what can you do, ScanSource, to help us grow?" One of the things we keep seeing is they are not, most of our partners, and we have a subset that are very large and have a lot of capability to add skills.

For example, if you are trying to sell cybersecurity today as a solution provider or an agent, trusted advisor, they do not have the resources to follow a sale of security, cybersecurity products with implementation, deployment, and then follow-on support. None of our partners, except the very largest, have their own NOC or SOC. This is something we have been trying to figure out. How can we provide that service from ScanSource on a wholesale model, if you will, to our channel? By buying a company that is already doing that for their own customers, and then us adding scale to that, because MicroAge can now add people they were not able to do under a private equity ownership. They can add more scale and provide services that, frankly, none of our competitors can offer our channel.

We believe that this is going to allow our partners. By the way, I had a call, in anticipation, of course, of the announcement, with four of our longtime barcode and mobility partners, not to tell them the name, but to tell them the idea. They were enthusiastic because they trust that we are not going to bring a partner in that will compete with them. Whereas today, if they want to go to a partner to say, "Help us with cybersecurity," or, "Help us with data center," if they do not know them really well, they do not know if that entity might not compete with them. But they trust that we will manage the competition, and they trust us to do it.

We had this call, Mark Morgan and I did, a couple of days ago with four partners and said, "If we do this, what will your reaction be?" They were enthusiastic. I did talk to a couple of vendors and told them what we are doing, and they were thrilled because, frankly, we have got a lot more financial ability to expand the MicroAge business than they could without us. The vendors are delighted because MicroAge is doing a fantastic job with those key vendors, and they see giving them access to ScanSource balance sheet is nothing but positive.

Adam Tindle, Analyst, Raymond James: That’s helpful. Thank you.

Mike Baur, Chair and CEO, ScanSource: You bet.

Moderator: Thank you. I’m showing no further questions at this time. I would now like to turn it back to Steve Jones for closing remarks.

Mike Baur, Chair and CEO, ScanSource: Thank you for joining us today. We expect to hold our next conference call to discuss our September 30th quarterly results on Thursday, November 5th, at approximately 10:30 A.M.

Moderator: This concludes today’s conference call. Thank you for participating. You may now disconnect.