ScanSource Q1 Earnings Call Highlights

Key Points

• ScanSource raised its fiscal 2027 outlook after first-quarter revenue grew 30% year over year, now forecasting net sales of $3.8 billion to $4 billion and adjusted EBITDA of $175 million to $185 million. It reaffirmed its expectation for at least $85 million in free cash flow; the updated forecast includes MicroAge.
• Profitability was pressured by a higher mix of lower-margin hardware deals, which management estimated compressed margins by 110 to 120 basis points, and a reserve covering essentially all of its exposure to Brazilian customer Oi S.A. The company said these pressures were largely limited to the quarter.
• The Intelisys & Solution Services segment’s sales rose 86%, including MicroAge, while Intelisys quarterly net billings increased 3.8%. ScanSource is investing in partner recruitment and piloting co-selling MicroAge managed services and AI solutions to support future growth.

ScanSource NASDAQ: SCSC raised its fiscal 2027 sales and adjusted EBITDA outlook after first-quarter revenue grew 30% year over year, though a concentration of lower-margin hardware deals and bad debt reserves in Brazil weighed on profitability.

The updated forecast includes contributions from MicroAge, which ScanSource acquired in September. The company now expects fiscal-year net sales of $3.8 billion to $4 billion and adjusted EBITDA of $175 million to $185 million. It reaffirmed its expectation for at least $85 million in free cash flow.

Chair and CEO Mike Baur said demand was strong across North America, with large deals and market share gains contributing to growth. He described the factors that pressured first-quarter profitability as largely confined to the quarter and not reflective of the business’s underlying profitability.

Chief Financial Officer Steve Jones said the first-quarter sales growth was stronger than the company expected and helped lift its full-year revenue outlook. He said the balance of the guidance increase was related to positive contributions from MicroAge, while ScanSource remained confident in the outlook it had originally provided for the second through fourth quarters.

Hardware Mix and Brazil Reserves Weigh on Results

ScanSource reported non-GAAP net income of $17.7 million, or $0.86 per share, for the quarter. Non-GAAP selling, general and administrative expenses, including the acquisition, were $92 million, or 9.6% of sales, compared with $75 million, or 10.1% of sales, a year earlier.

In the Specialty Technology Solutions segment, net sales rose 28% year over year, while gross profit increased 3% to $87 million. Jones attributed the difference primarily to a higher mix of large hardware deals, which carry lower gross margins. Segment adjusted EBITDA was $20 million, with a margin of 2.18%.

Jones said the quarter included deliveries of deals carried forward from last year as well as deals booked and shipped during the period. He estimated that those large transactions accounted for 110 to 120 basis points of margin compression and said the company expects a better balance between large and routine deals over the full year.

Sales in Brazil, which represented about 5% of the segment’s quarterly net sales, fell more than 20% on a constant-currency basis. Jones said ScanSource took a significant reserve related to longtime customer Oi S.A. and that essentially all of its exposure to the customer is now reserved. Oi was the company’s largest customer concentration in Brazil, he said.

MicroAge and Intelisys Growth Plans

The newly renamed Intelisys & Solution Services segment, which includes MicroAge, reported an 86% increase in net sales, or 3.2% growth on an organic basis. Gross profit rose 29% to $30 million, and adjusted EBITDA was $11.3 million.

Intelisys quarterly net billings increased 3.8% year over year, bringing annualized net billings to approximately $2.9 billion. Baur said accelerating new orders is key to gaining market share, and the company is redirecting investments toward activities such as recruiting and onboarding partners.

Jones said investments in Intelisys can take six to nine months to produce revenue from smaller deals and 12 to 18 months for larger ones. The company is seeing momentum in orders, he said, but wants to accelerate growth.

ScanSource is also launching a pilot to co-sell MicroAge managed services and artificial intelligence solutions with its specialty channel partners. Baur said the company intends to use the results to develop a catalog of repeatable, scalable services.

Asked whether about $20 million in fiscal-year EBITDA contribution from MicroAge was a reasonable estimate, Jones said it was close. He noted that the forecast covers only 10 months of ownership and said the company has bigger expectations for the business.

Cash Flow and Capital Allocation

ScanSource used $44 million in free cash flow during the first quarter, primarily because of higher working capital balances associated with revenue growth. Jones said the company expects positive free cash flow for the fiscal year and plans to reduce debt while continuing share repurchases.

The company ended the quarter with $46 million in cash and net debt leverage of approximately two times trailing 12-month adjusted EBITDA. It repurchased $5 million of shares during the quarter and had approximately $116 million remaining under its authorization as of September 30, 2026.

For fiscal 2027, ScanSource expects interest expense of $18 million to $20 million and an effective tax rate of 27.5% to 28.5%.

About ScanSource (NASDAQ:SCSC)

ScanSource, Inc NASDAQ: SCSC is a technology distributor that connects manufacturers of business technology products with value-added resellers, systems integrators and other channel partners. The company provides products, services and expertise intended to help partners design, deploy and support technology solutions for business customers.

ScanSource's offerings include point-of-sale and payment technology, barcode scanners, mobile computing devices, networking equipment, cybersecurity products, communications systems and cloud-based services.

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