Q1 2026 ScanSource Inc Earnings Call
Welcome to the scan Source 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.
The factors identified in our earnings release and in our form 10K for the year ended, June 30, 2025, and in our subsequent reports on form, 10 Q, forward-looking statements represent.
Our views only as of today and scan Source, this claims any duty to date update. These statements except as required. By law during our call, we will discuss both gaap and non-gaap results and have provided reconciliations on our website and in our form AK filed, early or today, I'll now turn the call over to Mike.
Thanks Mary. And thanks everyone for joining us today.
Technology distribution is being transformed with the convergence of Hardware software and services.
As it connectivity and cloud computing markets, continue to converge. We believe that in users will prefer Channel Partners who can provide integrated converge Solutions.
With more choices than ever in user purchasing decisions, the process is getting more complex.
And that's where solution providers and Technology Architects at real value.
They can help end users make technology decisions that will achieve their expected business outcomes.
Because most business outcomes require Technology Solutions from multiple suppliers. The indirect channels in the best position to deliver recurring, complex, and high value Solutions.
How to win in converging technology, markets was the theme at our recent partner events.
Partner first in September and channel connect earlier this week.
Both events highlighted our strategy, helping our partners change and grow as technology markets continue to converge.
We are preparing to assist our Channel Partners in this transformation.
We expect to play an expanded role in supporting our partners, transitioning from traditional VAR to solution provider and from trusted advisor to technology architect.
We'll discuss more about how these business models are evolving as the year progresses.
This quarter, in our Intelis and advisory segment, we are investing to accelerate new order growth.
An example of our investment is the growth of our Solutions engineering team.
Who have expertise in Advanced Technologies including cloud computing Wireless and iot.
Another way to Drive New Order growth is to help our partners by providing new and better tools for growth.
For example, our product development, team launched a new tool called Tech checks which combines AI powered engineering support, with conversational sales, friendly Discovery questions.
During the quarter in our Integrated Solutions group, our launch Point team has delivered new end-to-end industry, Solutions called smart series, starting with Smart Warehouse, and smart retail.
These Solutions consists of products and services from scan sources suppliers.
1 of the new launch points suppliers. We recently signed is a specialist in the next generation of private 5G. That adds a managed Services offering to our smart connectivity series.
also, in isg, in October, we completed the acquisition of data Zoom, a leading provider of B2B, mobile data, connectivity Solutions,
This transaction builds Upon Our August 2024 acquisition of Advantix and expands our ability to scale our relationships across all 3. Major US carriers AT&T Verizon and T-Mobile.
Scan sources deep relationships with the key suppliers of mobile devices, combined with Advanced taxes and data zooms capabilities to integrate, carrier data connectivity. Into these devices is a great example of a converge solution.
Looking ahead, we believe the future of technology distribution lies in helping our Channel Partners deliver Innovative converge Solutions.
This Vision drives our strategic plan.
I'll now turn the call over to Steve to take you through our financial results and outlook for fiscal year 2026.
Thanks Mike.
We're off to a good start to our new fiscal year for q1. We delivered strong profits and free cash. Flow, generation highlighting the strengths of our business model.
Gross profits, grew 6% and non-gaap EPS grew 26% year-over-year.
We delivered 5.2% adjusted, even a margins and our cash conversion of non-gaap. Net income was 88%.
Now, turning to our segments, I'll start with our specialty technology solution segment.
Net sales, declined, 5% year-over-year, and 9% quarter-over-quarter, including approximately $40 million of large deal. Pull-ins that benefited our Q4 results,
For q1. Many of our larger deals were delayed or broken into smaller orders.
With a higher mix of run rate, orders, favorable technology, mix and benefits from supplier price actions, gross profits, increased 7%, year-over-year and 3% quarter over quarter.
for the segment, the percent of gross profits, for a recurring revenues totaled, approximately 13%,
Adjusted, even a margin for the segment increased 61 basis points to 4.2%.
In our Intelius and advisory segment. Net sales increased 4% year-over-year in line with our expectations
Annualized net Billings increased to approximately 2.78 billion dollars and we believe we maintain market share.
Gross profits increased 2% year-over-year while adjusted e. But if for the segment declined, slightly due to increased investments in the sgna, to drive future Billings growth and expand our technical capabilities in Advanced Technologies.
Now, going a bit deeper on our balance sheet and cash flow. We ended q1 with approximately 125 million in cash and a net debt, leverage ratio at approximately 0 on our trailing 12-month adjusted ebit of basis.
Adjusted ROIC for the quarter was 14.6%, and share repurchases for the quarter totaled $21 million.
We have a strong balance sheet and our well positioned to execute on our strategic priorities. And Achieve our 3-year goals that you can find in the infographic and our investor presentation in the investor section of our website.
We Believe with the contributions and are very pleased with the contributions from the Acquisitions. We announced around this time last year and we're excited about the most recent acquisition of data zoom and what they bring to our Channel capabilities and our strategic plan.
We continue to have an active pipeline of acquisition targets for both segments. These targets would expand our capabilities and help us drive additional value across our partner ecosystem, while supporting our strategic goals.
We will maintain our discipline in evaluating m&a opportunities and believe there's room for both Acquisitions and share repurchases while maintaining a Target. Net debt, leverage ratio of 1 to 2 times adjusted IBA,
In closing, we want to reconfirm our FY 26 full year outlook, We Believe the full year. Net sales growth will range between 3.1 billion and 3.3 billion.
Full year, adjusted ibido will range between 150 million, and 160 million, and we'll deliver at least 800 million in free, cash flow.
We still believe that Revenue growth will accelerate in the second half of our fiscal year.
We'll now open it up for questions.
Thank you as a reminder, to ask a question. You will need to press star 1, 1 on your telephone, to remove yourself in the queue. You may press star 1 1 1 again.
Please stand by while we compile the Q&A roster.
Our first question.
Comes from the line.
Of Keith talim of North Coast research. Please go ahead Keith
Great. Hey, good morning guys. And, uh, good to see the performance on the bottom line, but of course, the Top Line probably is a little bit troubling here as we look over the past year, or year and a half. Um, I guess, I guess Mike any thoughts there on, you know, are, are you guys losing shared? Do you think to competitors in the space, or are you guys purposely walking away from some business? But let me any color on, on the decline, in the revenue and I understand the the poll for that. You have the fourth quarter here. But still, if I look over the past year year and a half, you know, the trends have been working against you guys on the top line.
We believe that will attract more suppliers than we traditionally have. So, and again, Keith part of the challenge is, um, we to answer part of your question. We don't believe we lost market share. Um, and as I've said many times before, I think all the manufacturers tell all the Distributors, they don't lose market share so. So I don't put a lot of credibility there. That's just a side comment, but I believe our teams have executed very well with those key suppliers.
great, thanks and you're you're right GP was great, especially in STS, and I noticed in the in the earnings recall
um,
I'm sorry, the earnings report, you know, you guys mentioned these suppliers rebates, you know, or the vendor payments? I guess are those sustainable are those 1 time or is there been a shift here that we should? You know, look at going for the rest of the year.
Hey, good morning, Keith. It's Steve. I'll, I'll take that 1. So, our supplier programs have definitely evolved since, uh, you know, over the last few years, the teams are doing a great job, tying our supplier programs, more to activities, and not inventory. And so, we think a lot of that is sustainable. What we did, see? This quarter is some of the price actions that we that the suppliers, um, did last year, um, flow through our inventory turns. So that was a bit of a help to our margins in that segment and, and on a Consolidated basis,
Yeah, I know you got a price doesn't want to get too much into details or any way you can parse out how much of your GPU is more to that 1 time price actions.
Well, I'll give you the, I'll give you the number Keith, because I think it's important. I think if, if I'm thinking of a Consolidated basis, I think it was probably 30 basis points, uh, to our to our gross profit margins, on a Consolidated basis.
Great, thanks. I appreciate that color, and congratulations on the data. The Zoom acquisition sounds like it fits in really well with Advantix. Um, any more color you can give on that company in terms of, you know, I think they said 17 employees, with perhaps any revenue or margin profiles we can kind of think about going forward?
Yeah, you know, keep when we when we think about uh data zoom and we think about Advantix and what they mean strategically for us. Um they add capabilities and and data Zoom, really helps us scale in this space as far as size. It's really a tuck in size acquisition and we we gave the 17 people to kind of help people size. What that would look like for us. But it's a tuck in size acquisition, but they will have higher margins than our than our typical business in, in the STS segment. So, so it will be margin and creative from a, from a percentage and maybe I'll add 1 more comment to that. Keep that part of the strategy, here is a reminder, is so for us to be able to sell more mobile devices by adding the connectivity to the solution set, we believe our mobile device sales will go up as we are more successful.
Communicating this strategy to our Channel.
Great. Thanks guys. I'll jump back in the uh, in q.
Okay.
Thank you.
Our next question comes from the line of Gary Hardwick of Barclays. Please go ahead, Gary.
for 30 basis points of
EP came margin came from uh, Supply rebates implies that 100 basis points came from mix. Um, first of all is, is that have I got that correct. And maybe be a good time for you, to give us a Refresh on your inventory, valuation method. Uh, bear in mind what you said, about supplier price increases last year, having an impact this year.
Yeah, I guy. Good morning and and thanks for joining us today. So yeah, I would say you're you're in the right range in terms of what what benefited from mix. And again, when we look at and Mike talked a little bit about how we're viewing the business, we also have more netted Revit netted down revenues in that segment, then we've historically had. And that's why we've been uh, talking more about the percentage of recurring revenues at a segment level, because we think that's also an important part of our of our story as we go forward. Um, from from a uh mixed perspective or or how we're thinking about um our inventory turns, just think of it as a
A weighted average, first in, first out inventory. So, our inventory would be valued on a first in, first out weighted average basis.
Okay. Just to follow up. Um, obviously on the slide you have, I think it’s slide 3, the key technologies and growth drivers that’s based on FY 25. If you just take those five end markets, which were up and which were down in the quarter?
For the full year so we we do use FY 25. We we validate whether that's going to be some trends that continued and we use that to to to help us in our guidance. Um, as far as what, uh, what segments were up or down, that really kind of gets into to A supplier discussion in some, in some ways. And so we try to steer clear of that.
2, larger suppliers had revenues up in the
little bit surprised to see.
You guys down so much here on you.
Yeah, and then guys, this is Mike, let me just add a comment to that if I can. Um we we came up with these slides to help out because a year ago we uh changed segments and we talked about less about where the growth was coming from. And we really believe this will give an indicator of what we believe will happen throughout this year, specifically to your comment about suppliers just as a reminder their um
Their success or not on a quarterly basis. It isn't always in line. Remember, with our Channel, all of our suppliers, all of them, still sell direct to end users, and that can impact their results that sometimes they delineate their results as how much grew in the channel or not, but not always. And so, just we have to always remind our investors to. We're a we're a part of their suppliers story, but we're not always aligned with their story. They can have great revenues and the channel as a group does.
Is not. So our measure is typically what we try to lead with which Steve said was, we don't believe we lost any market share. So, within the channel That We compete in, we didn't lose market share. So that's how we, uh, separate our results and try to help you guys understand. Sometimes, our results won't mirror the suppliers. And frankly, when we come out sometimes with our results ahead of our suppliers, people try to read that into the suppliers and generally is wrong. So uh I wish I could help you more on the specifics of why those 2 suppliers would be different than ours, but just remember that we're as a channel, we're only a part of their success.
You bet.
Thank you guys. Uh, next question comes from the line of Adam tendle of Raymond James. Please go ahead to Adam,
Okay, thanks and good morning. Uh, Steve. I wanted to start, uh, with a question for you on on guidance and and leading into this question. I just want to acknowledge, you know, uh, was glad to see gross profit. Uh, growth put into the 3 year targets. I think that, you know, metric makes a lot more sense. Uh, but for now, for this year, we're basing guidance on net sales, so I've got to ask on on that, you decided to reaffirm net sales growth, um, for the year. Um, but uh, we're obviously starting with with net sales down in q1. I think you had previously thought maybe low single digit growth in first half and accelerating in the back half.
To get to that full year, net sales growth that you talked about. Uh I wonder if you might you know, first of all update the the Cadence as you're thinking about that and then secondly, just you know, what gives the confidence to reaffirm, uh, the net sales uh, portion after what you saw in q1, why not? Maybe consider um, you know lowering expectations at this point. Thanks.
Yeah, good morning, Adam. Thanks for the question. You know, when we looked internally to our plan, um, q1 is fairly close to what we thought and so that gave us confidence to reconfirm our, our guidance and our Outlook. Um, you know, 1 of the things that we uh, continue to look at we talked about net net, net down revenues and and we, we are more and more looking at gross profit as a better proxy for the success of our sales teams and our company overall. Um, and then when we think about whether uh, first half or second half, the other thing I would, I would lead to is we, we keep seeing these large deals, push out, our break up, they're not getting cancelled and so that gives us confidence that this is a timing issue. Not necessarily a weakness in overall demand.
Okay. I mean, are you what? Maybe just give us a little bit of color on what you're seeing in October or early November, and, and the pipeline for December on those. And any quantification of those large deals. I, I know. Those are typically, um, deals that can, uh, get done at calendar year end. So it might make sense for that to happen. I'm just wondering what you're seeing early on in, uh, calendar, uh, Q4 the December quarter.
Bit of sales we have and so maybe our our, our accounts receivable may have moved up. And so it it's dangerous for us to try to predict the quarter midpoint
and and Adam, I'll just chime in it's Mike. Good morning. Um, yeah, our um, enthusiasm for our guidance uh, was is reaffirmed as of, you know, last week. So what we knew last week about the quarter to date is reflected in our reaffirming the annual
Okay. That's helpful. Uh, and and maybe just Mike 1 for you. Uh, was glad to see that the 3 year Target updates. And um, I know this is a little bit more of what Steve owns. But the conceptual question here, uh, follow me, the 80 plus percent free cash flow on a, a consistent on an annual basis was nice to see. I wonder if you guys, you know, discussed with the board. You know, about maybe outlining a structure uh on um how to allocate that free cash flow. Some companies do you know, sort of X percent to Acquisitions X percent, to returning cash to shareholders, Etc. Um, you know, is that something that you thought about and not the you know, put you on the spot but if you know we're try to set a investors expectations on you know what the pie chart would look like on that free cash flow in terms of how you're thinking about it, what how would you kind of ballpark that for us, thanks?
Well, I think what we said last quarter and what we said, Steve said in his prepared remarks is that we still believe we can do share repurchases and Acquisitions without any specific, uh, structure of percentile on a chart. But it was a very uh good discussion with our board. The last 2 board meetings, both the fiscal year end, when we gave our guidance for the year and when we had our meeting uh, a week ago, discussing again, how do we feel about the acquisition pipeline that we have and Steve indicated? We do have a pipeline of Acquisitions at the same time. We we believe that um especially at these uh share price levels that uh a good use of our cash right now is for share, we purchase. And so we we like the fact that we are in the bill that we have the capability to do both and right now, that's the message. We're trying to continue to re
re re-emphasizes that we're still doing both Acquisitions and repurchases.
Okay, great to hear. Thank you guys.
Thank you as a reminder to you ask a question, please press star, 1, 1 1 on your telephone. Again, that's star111 on your telephone to ask a question.
Our next question.
Comes from the line of Greg Burns of Saudi. Your line is open, Greg.
Morning. Um,
The uh, the business development.
Investments you're making in Intellisys. Um, are you seeing that translate into pipeline activity? I'm just wondering when we might start to see.
um,
maybe some of those Investments are converting into stronger Revenue growth for the segment.
Uh, hey, Greg, Michael. I'll take that, um, 1 of the ways, uh, that we're, um, talking about the success or not is the New Order growth rate because the, an order, uh, doesn't get billed. And uh, if you will either installed or delivered for anywhere from 6 to 18 months in the intellisense model and and it is different based on the type of Technology being deployed because of that, we have put a much bigger emphasis starting. Frankly last year on New Order growth. And in this quarter, we had double digit New Order growth, um, year-over-year in quarter over quarter. And we believe that's our Benchmark as to are the Investments working.
Okay, great great. Thanks for the uh, the caller there. Appreciate it.
You bet.
Thank you. I would now like to turn the conference back to Steve Jones for closing remarks sir. Yeah, thank you and thank you for joining us today. We expect to hold our next conference. Call to discuss December 31st, quarterly results on Thursday. February 5th at approximately 10:30 a.m.
This concludes today's conference call, thank you for participating. You may now disconnect