ScanSource Q3 Earnings Call Highlights
ScanSource (NASDAQ:SCSC) reported stronger third-quarter results as improved hardware demand lifted sales and helped drive gains in adjusted earnings, free cash flow and return on invested capital, executives said on the company’s quarterly earnings call.
Chairman and CEO Mike Baur said the company delivered “strong third quarter results,” with adjusted EBITDA, EPS, free cash flow and ROIC all increasing from the prior year. He attributed the sales improvement to better hardware demand, with net sales rising 9% year-over-year and growth across most technologies, particularly networking and security.
Chief Financial Officer Steve Jones said consolidated net sales and non-GAAP EPS each grew 9% from a year earlier. ScanSource also generated $69 million in free cash flow during the quarter, bringing year-to-date free cash flow to $119 million.
Specialty Technology Solutions Leads Growth
In the Specialty Technology Solutions segment, net sales increased 9% year-over-year, led by North America hardware sales growth across most technologies, Jones said. Segment gross profit rose 10% to $81 million.
Jones said approximately 15% of the segment’s gross profit came from recurring revenue, led by managed connectivity growth tied to the company’s Advantix and DataXoom acquisitions. Segment adjusted EBITDA increased 6% to $24.7 million, with an adjusted EBITDA margin of 3.3%.
During the question-and-answer session, Northcoast Research analyst Keith Housum asked about improved gross margins in the Specialty Technology Solutions segment. Jones said freight costs had normalized after a prior quarter impact and attributed the margin improvement primarily to business mix.
Intelisys Segment Sees Sequential Improvement
ScanSource’s Intelisys Advisory segment posted a 1% year-over-year decline in net sales, while Intelisys annualized net billings increased to approximately $2.88 billion. Sequentially, both segment net sales and gross profit increased 4%, Jones said.
Adjusted EBITDA for the segment was $11 million, up 6% from the prior quarter, with an adjusted EBITDA margin of 42%.
Asked about Intelisys order trends, Baur said the company is focused on accelerating new order growth, especially through the value-added reseller channel. He said ScanSource is “doing everything we’ve said we’re gonna do,” but added that management wants growth to occur faster.
New Converged Communications Unit
Baur announced that ScanSource is creating a new converged communications business unit designed to deliver what he described as a unified “One ScanSource” partner experience. The unit will combine the ScanSource Specialty Communications team with the Intelisys CX cloud-based solutions team.
The new organization will include business development and sales resources, pre-sales engineering, marketing and supplier management functions. Baur said the goal is to help specialty communications VARs sell more cloud recurring revenue products and solutions, while helping Intelisys partners attach more hardware.
The business unit will be led by Katherine White, who Baur said has five years of experience at ScanSource across both the specialty business and Intelisys.
Baur said end users increasingly want complete business outcomes rather than point products, and prefer buying from trusted partners that can deliver across the full technology stack.
He also highlighted artificial intelligence opportunities in customer experience solutions. In one example, Baur said a financial institution adopted an AI-powered platform with AI agents to handle routine inquiries, freeing roughly four to five hours per live agent each week. In another example, AI supported inside sales agents during live interactions by providing real-time recommendations to help with revenue expansion and cross-selling.
Balance Sheet and Capital Allocation
ScanSource ended the quarter with $120 million in cash and a net debt leverage ratio of approximately zero on a trailing 12-month adjusted EBITDA basis, Jones said.
The company repurchased $33 million of shares during the quarter and had $146 million remaining under its share repurchase authorization as of March 31, 2026. Adjusted ROIC was 14.3% for the quarter and 13.6% year-to-date.
Jones said the company continues to evaluate acquisitions that could expand its technology stack, add capabilities and accelerate recurring revenue growth. He also said ongoing share repurchases remain part of ScanSource’s capital allocation priorities.
Outlook Maintained, Free Cash Flow View Raised
ScanSource maintained its full-year projections for revenue and adjusted EBITDA. The company raised its fiscal 2026 free cash flow expectation to at least $90 million.
In response to an analyst question about the revenue outlook for the remainder of the year, Jones said the company had previously indicated it would need large deals and second-half growth to meet its expectations. He said the third quarter delivered on that requirement, but management does not want to “get over our skis” when looking at the fourth quarter.
Jones also said ScanSource does not believe it saw material demand pulled forward into the third quarter.
Asked about fiscal 2027, Jones said the company has not yet issued guidance and typically provides that outlook when it reports fourth-quarter results. Still, he pointed to momentum in areas such as security and networking and said it was encouraging that most technologies showed growth in the quarter.
ScanSource expects to discuss its June 30 quarterly and full fiscal year results on Aug. 20, Jones said in closing remarks.
About ScanSource (NASDAQ:SCSC)
ScanSource, Inc is a global provider of technology products and solutions designed to help businesses enhance operational efficiency and customer engagement. The company specializes in the distribution of point-of-sale (POS) systems, barcode and data capture devices, networking and communications equipment, and value-added software and cloud services. By combining hardware, software and professional services, ScanSource supports channel partners in delivering end-to-end solutions across multiple industries, including retail, hospitality, healthcare and logistics.
Founded in 1992 and headquartered in Greenville, South Carolina, ScanSource has built a broad international footprint, serving customers throughout North, Central and South America as well as Europe, the Middle East and Africa.
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