ScanSource outlines new 3-year strategic goals and projects $3.1B–$3.3B FY26 revenue as recurring revenues climb

Earnings Call Insights: ScanSource, Inc. (SCSC) Q4 2025

MANAGEMENT VIEW

* Michael L. Baur, CEO, emphasized the company's positioning as a leading technology distributor in a converging IT, connectivity, and cloud computing market. He noted, "We are the leading technology distributor uniquely positioned to build cutting-edge skills, capabilities and expertise to excel in a connected cloud-driven world."
* Baur introduced the Launch Point business development team, which has begun contracts with companies in private cellular networks, robotics, drones, and IoT for the smart warehouse initiative.
* The CEO highlighted ScanSource's support for converged solutions, mentioning a channel partner win with a major auto parts retailer by bundling wireless connectivity and mobile computing devices.
* Baur stated the company's vision for hardware plus software plus services convergence, anchoring their new 3-year strategic plan.
* CFO Stephen T. Jones reported, "Q4 was a strong close to our fiscal year. We delivered on our guidance for revenue, adjusted EBITDA and free cash flow. Net sales returned to growth, and we delivered strong profitability. Net sales for the quarter grew almost 9% year-over-year, while adjusted EBITDA grew 13%, and non-GAAP net income grew 17% over last year."
* Jones further noted, "Our Q4 non-GAAP earnings per share of $1.02 grew 27.5% year-over-year."
* Jones described the Specialty Technology Solutions segment's 9% year-over-year and 16% quarter-over-quarter net sales growth, driven by hardware in North America, and cited an estimated $30 million to $40 million in revenue from large deals pulled in late in the quarter.
* The CFO pointed out that acquisitions of Resourcive and Advantix were accretive to both EPS and ROIC, and stated, "We have an active pipeline of acquisition targets for both segments."

OUTLOOK

* Jones presented fiscal year 2026 guidance: "We believe that the full year net sales will range between $3.1 billion and $3.3 billion. Full year adjusted EBITDA will range between $150 million and $160 million, and we will deliver at least $80 million in free cash flow."
* Management expects revenue acceleration in the second half of the fiscal year and low single-digit growth in the first half, as they navigate macroeconomic conditions.
* Jones introduced new 3-year strategic goals included in the earnings release materials, which update targets for adjusted EBITDA margin, recurring revenue as a percent of gross profits, and ROIC, while adding a GP growth metric and a new free cash flow metric.

FINANCIAL RESULTS

* Q4 net sales grew almost 9% year-over-year.
* Adjusted EBITDA rose 13% year-over-year, with non-GAAP net income up 17%.
* Non-GAAP EPS for the quarter was $1.02, a 27.5% year-over-year increase.
* Specialty Technology Solutions segment net sales rose 9% year-over-year and 16% sequentially, with gross profit up 8%.
* Segment gross profit margin was 10.3%, and adjusted EBITDA margin increased to 3.6%.
* The Intelisys & Advisory segment saw 1% net sales and gross profit growth, but adjusted EBITDA declined 4% due to higher SG&A investments.
* Annual end-user billing for Intelisys rose 4.5% to approximately $2.8 billion.
* Recurring revenues represented 32.8% of consolidated gross profits versus 27.5% last year.
* Full year non-GAAP net income was $85.1 million, and free cash flow reached $104 million.
* Cash at year-end was $126 million, with a net debt leverage ratio of approximately zero.
* Share repurchases for the quarter totaled $25 million.

Q&A

* Adam Tyler Tindle, Raymond James & Associates: Asked about the rationale for including free cash flow as a percent of net income in midterm targets and capital allocation priorities. Jones responded that emphasizing cash generation is central to the company's attractiveness, stating, "We also think it's important to balance that with returning cash to shareholders when we don't have opportunities to deploy that to help us hit those goals."
* Tindle inquired about Intelisys & Advisory investments and strategy. Baur explained, "We really are driving a new sales demand strategy around finding the places that growth is happening and putting our resources there," referencing a reorganization and new partner segmentation.
* Keith Michael Housum, Northcoast Research: Asked about sequential revenue decline in Intelisys & Advisory and the timeline for turnaround. Baur discussed competitive pressures and the Channel Exchange strategy to add new suppliers, expecting a growth trajectory as they exit FY26.
* Housum also questioned recurring revenue drivers. Jones said, "A lot of that is because of our acquisitions, and they weren't big, but they're very impactful."
* Gregory John Burns, Sidoti: Asked about detractors in the Technology segment. Jones identified the communications business as slower growth but profitable.
* Burns requested an update on Brazil. Jones highlighted growth in local currency and FX headwinds, with Baur noting Brazil's advanced recurring revenue model.
* Damian Mark Karas, UBS: Asked about expectations for barcoding and mobility solutions. Jones cited Q4 as a growth area but cautioned on macro uncertainty for large deals.
* Karas asked about the impact of Zebra acquiring Elo. Baur said, "Consolidation of suppliers rarely helps us... what we're hoping to see from something like this is they're going to create new solutions that will go to the market in a way that ScanSource and our channel partners can benefit from."

SENTIMENT ANALYSIS

* Analysts focused on capital allocation, recurring revenue growth, investment pace in Intelisys, and macro uncertainties, with a neutral to slightly positive tone supported by detailed management responses.
* Management maintained a confident tone in prepared remarks, emphasizing strategic goals, investment discipline, and growth opportunities. In Q&A, the tone was constructive and open, with Baur and Jones providing direct answers and reaffirming long-term strategies.
* Compared to the previous quarter, both management and analysts maintained a similarly constructive and confident tone, although there was more discussion of investment and competitive responses in Intelisys.

QUARTER-OVER-QUARTER COMPARISON

* Management's strategic focus shifted from launching the Integrated Solutions Group and AI initiatives to emphasizing converged solutions and the Launch Point team.
* Guidance increased for FY26, with net sales targeted between $3.1 billion and $3.3 billion and adjusted EBITDA between $150 million and $160 million, up from FY25's $140 million to $145 million EBITDA guidance.
* Recurring revenues as a percent of gross profits increased year-over-year, and the company introduced new 3-year strategic goals replacing prior midterm targets.
* Analysts continued to focus on capital allocation and Intelisys growth, with management providing more clarity on recurring revenue growth drivers and competitive positioning.
* The tone remained confident, with a stronger emphasis on acquisitions and recurring revenue expansion.

RISKS AND CONCERNS

* Management highlighted macroeconomic uncertainty, particularly in the timing of large deals in mobility and barcode solutions.
* FX headwinds continue to impact Brazil, though the business remains profitable.
* Competitive pressures in Intelisys from private equity-backed rivals were noted, with management responding through partner segmentation, new supplier additions, and targeted investments.
* The communications business was acknowledged as profitable but lacking a growth trajectory.

FINAL TAKEAWAY

ScanSource delivered strong year-end results and introduced ambitious new 3-year strategic goals, including higher recurring revenue targets and enhanced EBITDA margins. Management projects FY26 net sales between $3.1 billion and $3.3 billion and expects revenue acceleration in the second half of the year. Strategic investments and acquisitions remain a priority to expand capabilities and recurring revenues, while the company maintains a disciplined approach to capital allocation and addresses ongoing macroeconomic and competitive challenges.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/scsc/earnings/transcripts]

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