SCSC — ScanSource, Inc.

Summary of SCSC Q3 2026 Earnings Call

1. Key Financial Results and Metrics

• Net Sales: Increased by 9% year-over-year, driven by strong hardware demand, particularly in networking and security.
• Adjusted EBITDA: Grew by 6% to $24.7 million, with an adjusted EBITDA margin of 3.3%.
• Non-GAAP EPS: Increased by 9% year-over-year.
• Free Cash Flow: Generated $69 million in Q3, totaling $119 million year-to-date.
• Gross Profit: Increased by 10% to $81 million, with approximately 15% coming from recurring revenue.
• Cash Position: Ended Q3 with $120 million in cash and a net debt leverage ratio near zero.
• Adjusted ROIC: Reported at 14.3% for the quarter.

2. Strategic Updates and Business Highlights

• New Business Unit: Launched the Converged Communications business unit to enhance partner support and drive sales of cloud recurring revenue products.
• AI Integration: Highlighted successful AI implementations in customer experience solutions, showcasing the potential for AI in driving business outcomes.
• Focus on Growth: Emphasized the importance of helping channel partners grow and the need for additional focus on new order growth through the VAR community.

3. Forward Guidance and Outlook

• Full-Year Projections: Maintained guidance for revenue and adjusted EBITDA for FY 2026, with an increase in free cash flow expectations to at least $90 million.
• Market Momentum: Positive outlook for Q4 based on strong Q3 performance, with growth across most technologies indicating a favorable trajectory heading into FY 2027.

4. Bad News, Challenges, or Points of Concern

• Intelisys Segment Performance: Experienced a 1% decline in net sales year-over-year, raising concerns about order growth and competitive pressures.
• Order Growth: Executives acknowledged that new order growth has not accelerated as desired, with a need for more focus on driving this metric.
• Visibility Issues: Challenges in predicting potential pull-forwards in demand, particularly in light of market volatility, were noted.

5. Notable Q&A Insights

• Revenue Guidance: Clarified that while Q3 was strong, there are cautious expectations for Q4, with potential revenue growth ranging from a 2% increase to a 10% decline.
• Resourcive Sales Decline: The drop in Resourcive sales was attributed to variability in services revenue, which can fluctuate quarter to quarter.
• Future Growth Strategies: Management emphasized the need for ongoing investments to stimulate growth, particularly in the Intelisys segment, with results expected to materialize over the next 6 to 18 months.

Overall, SCSC reported solid financial performance in Q3 2026, driven by hardware demand and strategic initiatives aimed at enhancing partner support and AI integration. However, challenges in the Intelisys segment and order growth remain areas of concern as the company looks to maintain momentum into the next fiscal year.