ScanSource — Q1 FY27 Earnings Summary

Financial Performance:

• Net sales totaled $962.3 million, a 30.1% year-over-year increase, or 26.8% on a non-GAAP basis.
• Gross profit increased 8.8% year-over-year to $116.9 million; gross profit margin declined to 12.2% from 14.5% in the prior-year quarter.
• Operating income decreased to $12.4 million from $25.9 million in the prior-year quarter.
• GAAP net income decreased to $8.7 million ($0.42 diluted EPS) from $19.9 million ($0.89 diluted EPS) in the prior-year quarter.
• Non-GAAP net income decreased to $17.7 million ($0.86 diluted EPS) from $23.7 million ($1.06 diluted EPS) in the prior-year quarter.
• Adjusted EBITDA decreased to $31.3 million (3.25% margin) from $38.6 million (5.22% margin) in the prior-year quarter.
• Operating cash flow was a use of $42.3 million; free cash flow (non-GAAP) was a use of $44.1 million, primarily due to working capital investments.
• Recurring revenue increased 15.7% year-over-year, representing 32.8% of gross profit.
• Bad debt expense increased by approximately $4.5 million, primarily related to specific customer credit exposures in Brazil, reducing diluted EPS by approximately $0.16.

Guidance and Future Outlook:

• Raised full-year fiscal 2027 net sales guidance to $3.8 billion to $4.0 billion (6% to 10% year-over-year growth).
• Raised full-year fiscal 2027 adjusted EBITDA guidance to $175 million to $185 million (previously $158 million to $165 million).
• Maintained full-year fiscal 2027 free cash flow guidance at at least $85 million.
• Updated guidance includes the impact of the MicroAge acquisition closed on September 1, 2026.

Business Segments and Product Lines:

• Specialty Technology Solutions segment net sales increased 28.2% year-over-year to $917.3 million, driven by broad-based growth in North America.
• Intelisys & Solution Services segment net sales increased 85.9% year-over-year to $45.0 million, including the MicroAge acquisition; non-GAAP growth was 3.2%.
• Products and services sales increased 30.8% year-over-year.
• MicroAge acquisition adds higher-margin technology solutions capabilities and expands reach in cloud, cybersecurity, data center, and AI.
• MicroAge serves approximately 2,400 U.S. clients and employs more than 200 people.

Market and Competitive Landscape:

• Strong hardware demand and a higher mix of lower-margin, large deals contributed to the decline in gross profit margin.
• Management stated the company is executing its strategy and expanding its total addressable market.

Risks and Challenges:

• Credit risks involving larger channel sales partners and suppliers, specifically noted in Brazil.
• Macroeconomic conditions, including potential prolonged economic weakness, inflation, tariffs, and changes in trade policy.
• Risks related to the failure to manage and implement growth strategy or realize synergies from acquisitions.
• Potential risks from cyberattacks, IT system failures, and failure to hire and retain quality employees.
• Risks associated with loss of major channel sales partners or key supplier relationships.

Management Commentary and Tone:

• Mike Baur, Chair and CEO, stated, "Top-line demand was strong this quarter, and we grew net sales and gross profit in both segments."
• Management expressed confidence in executing strategy and aligning the MicroAge acquisition with 3-year strategic goals.

Other Key Points:

• Completed the acquisition of MicroAge on September 1, 2026.
• Share repurchases totaled $4.8 million during the quarter.
• Cash and cash equivalents were $45.9 million as of September 30, 2026; total debt was $332.4 million.
• Provision for doubtful accounts increased to $6.4 million from $1.9 million in the prior-year quarter.
• Acquisitions and divestiture costs were $4.4 million in the current quarter compared to $0.3 million in the prior-year quarter.
• Restructuring costs were $1.7 million in the current quarter compared to $0 in the prior-year quarter.