ScanSource Inc.
11/05/2026 | Press release | Distributed by Public on 11/05/2026 07:32
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
| Management's Discussion and Analysis of Financial Condition and Results of Operations |
Overview
ScanSource is a leading technology distributor uniquely positioned to address complex technologies and to accelerate growth for channel sales partners across hardware, SaaS, connectivity, cloud and services. Our recent acquisition of MicroAge expands our offerings to include hardware and managed services to end-users across cloud, AI, data center, and cybersecurity. We provide technology solutions and services from approximately 700 leading suppliers of mobility and barcode, POS, payment terminals, physical security, networking, communications, connectivity, cloud, data center and cyber security to our approximately 27,000 channel sales partners and end-users located primarily in the United States, Canada and Brazil.
We operate our business under a management structure that enhances our technology distribution growth strategy. Our segments operate primarily in the United States and Brazil:
•Specialty Technology Solutions
•Intelisys & Solution Services
We operate product distribution facilities in Mississippi, California, and Kentucky that support the United States and Canada. Brazil product distribution facilities are located in the Brazilian states of Paraná, Espirito Santo and Santa Catarina.
Recent Developments
Impact of the Macroeconomic Environment, Including Growth Outlook, Inflation and Tariffs
The macroeconomic environment, including the economic impacts of growth outlook, inflationary pressures, tariffs and evolving geopolitical conflicts and trade relationships, continues to create significant uncertainty and may adversely affect our financial condition, results of operations and liquidity. We remain mindful of the potential impact these conditions could have on our channel sales partners, suppliers and end-user demand. We expect to pass through to our channel sales partners any supplier price increases resulting from tariffs or other factors. While we are monitoring these conditions and maintaining financial flexibility to mitigate potential impacts; the extent and duration of any effects remain uncertain.
Our Strategy
Our strategy is to drive sustainable, profitable growth by providing complex technology solutions through a growing ecosystem of channel sales partners leveraging our people, processes and tools. Our goal is to provide exceptional experiences for our channel sales partners, suppliers and employees, and we strive for operational excellence. Our differentiated technology distribution strategy utilizes multiple sales models to offer hardware, SaaS, connectivity, cloud and services from leading technology suppliers to channel sales partners that solve end users' challenges. ScanSource enables channel sales partners to deliver solutions for their end users to address changing buying and consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our channel sales partners access to additional services. As a trusted adviser to our channel sales partners, we provide innovative solutions through our strong understanding of end-user needs.
Results of Operations
Net Sales
We have two reportable segments, which are based on sales channels. The following tables summarize our net sales results by operating segment and by geographic location for the quarters ended September 30, 2026 and 2025:
| Quarter ended September 30, |
% Change, Constant Currency, Excluding Acquisitions (a)
|
||||||||||||||||||||||||||||
| Net Sales by Segment: | 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Specialty Technology Solutions | $ | 917,299 | $ | 715,447 | $ | 201,852 | 28.2 | % | 27.5 | % | |||||||||||||||||||
| Intelisys & Solution Services | 44,995 | 24,203 | 20,792 | 85.9 | % | 3.2 | % | ||||||||||||||||||||||
| Total net sales | $ | 962,294 | $ | 739,650 | $ | 222,644 | 30.1 | % | 26.8 | % | |||||||||||||||||||
(a) A reconciliation of non-GAAP net sales in constant currency, excluding acquisitions, is presented at the end of Results of Operations, under Non-GAAP Financial Information.
Specialty Technology Solutions
The Specialty Technology Solutions segment consists of sales to channel partners in the United States, Canada and Brazil. For the quarter ended September 30, 2026, net sales increased $201.9 million, or 28.2%, compared to the prior-year quarter. Excluding the impact of acquisitions and the impact of foreign exchange rate fluctuations, non-GAAP net sales increased $197.1 million, or 27.5%, for the quarter ended September 30, 2026 compared to the prior-year quarter. The increase in net sales and non-GAAP net sales for the quarter is primarily due to broad-based growth in North America.
Intelisys & Solution Services
The Intelisys & Solution Services segment consists of sales and services to channel partners and end-users in the United States and Canada. For the quarter ended September 30, 2026, net sales increased $20.8 million, or 85.9%, compared to the prior-year quarter. The increase in net sales includes the acquisition of MicroAge. Excluding the impact of acquisitions, non-GAAP net sales increased $0.8 million, or 3.2%, for the quarter ended September 30, 2026 compared to the prior-year quarter, primarily from Intelisys business growth. Quarterly net billings for Intelisys increased 3.8% over the prior-year quarter to bring annualized net billings to approximately $2.89 billion.
| Quarter ended September 30, |
% Change, Constant Currency, Excluding Acquisitions (a)
|
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| Net Sales by Geography: | 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
|
United States & Canada (b)
|
$ | 913,975 | $ | 682,217 | $ | 231,758 | 34.0 | % | 30.7 | % | |||||||||||||||||||
| Brazil | 48,319 | 57,433 | (9,114) | (15.9) | % | (20.5) | % | ||||||||||||||||||||||
| Total net sales | $ | 962,294 | $ | 739,650 | $ | 222,644 | 30.1 | % | 26.8 | % | |||||||||||||||||||
(a) A reconciliation of non-GAAP net sales in constant currency is presented at the end of Results of Operations in the non-GAAP section.
(b) Net sales in Canada are supported by U.S. operations and represent less than 5.0% of net sales for the quarters ended September 30, 2026 and 2025.
Gross Profit
The following table summarizes our gross profit for the quarters ended September 30, 2026 and 2025:
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | 2026 | 2025 | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Specialty Technology Solutions | $ | 86,600 | $ | 83,903 | $ | 2,697 | 3.2 | % | 9.4 | % | 11.7 | % | |||||||||||||||||||||||
| Intelisys & Solution Services | 30,344 | 23,570 | 6,774 | 28.7 | % | 67.4 | % | 97.4 | % | ||||||||||||||||||||||||||
| Gross profit | $ | 116,944 | $ | 107,473 | $ | 9,471 | 8.8 | % | 12.2 | % | 14.5 | % | |||||||||||||||||||||||
Our gross profit is primarily affected by sales volume and gross margin mix. Gross margin mix is impacted by multiple factors, which include sales mix (proportion of sales of higher margin products or services relative to total sales), supplier program recognition (consisting of volume rebates, inventory price changes and purchase discounts) and freight costs. Increases in supplier program recognition decrease cost of goods sold, thereby increasing gross profit. Gross profit margin in our Intelisys & Solution Services segment has historically been significantly higher than our Specialty Technology Solutions segment due to a larger contribution of recurring revenue which is recorded on a net basis. With the acquisition of MicroAge into the Intelisys & Solution Services segment, we are introducing a different sales mix that includes hardware, software and services recorded on a gross basis.
Specialty Technology Solutions
For the quarter ended September 30, 2026, gross profit dollars for the Specialty Technology Solutions segment increased $2.7 million, or 3.2%, compared to the prior-year quarter. Higher sales volumes, after considering cost of goods sold, increased gross profit by $23.7 million. Sales mix reduced gross profit by $21.0 million for the quarter. Gross profit margin decreased 229 basis points over the prior-year quarter to 9.4%.
Intelisys & Solution Services
For the quarter ended September 30, 2026, gross profit dollars for the Intelisys & Solution Services segment increased $6.8 million, or 28.7%, compared to the prior-year quarter. The MicroAge acquisition increased gross profit by $5.6 million for the quarter. Excluding the impact of the acquisition, gross profit increased $1.2 million. Higher sales volumes, after considering cost of goods sold, increased gross profit by $0.8 million. Sales mix increased gross profit by $0.4 million. Gross profit margin, excluding acquisitions, increased 161 basis points compared to the prior-year quarter. Gross profit margin was 67.4% for the quarter ended September 30, 2026, compared to 97.4% in the prior year due to the inclusion of MicroAge.
Operating Expenses
The following table summarizes our operating expenses for the quarters ended September 30, 2026 and 2025:
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | 2026 | 2025 | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | $ | 96,509 | $ | 75,275 | $ | 21,234 | 28.2 | % | 10.0 | % | 10.2 | % | |||||||||||||||||||||||
| Depreciation expense | 1,874 | 1,577 | 297 | 18.8 | % | 0.2 | % | 0.2 | % | ||||||||||||||||||||||||||
| Intangible amortization expense | 4,662 | 4,404 | 258 | 5.9 | % | 0.5 | % | 0.6 | % | ||||||||||||||||||||||||||
| Restructuring expense | 1,653 | - | 1,653 | (100.0) | % | 0.2 | % | 0.0 | % | ||||||||||||||||||||||||||
| Change in fair value of contingent consideration | (147) | 314 | (461) | *nm | 0.0 | % | 0.0 | % | |||||||||||||||||||||||||||
| Operating expenses | $ | 104,551 | $ | 81,570 | $ | 22,981 | 28.2 | % | 10.9 | % | 11.0 | % | |||||||||||||||||||||||
Selling, general and administrative expenses ("SG&A") increased by $21.2 million, or 28.2%, for the quarter ended September 30, 2026, compared to the prior-year quarter. The increase for the quarter ended September 30, 2026 is primarily attributable to increased employee-related expenses and costs related to acquisitions. In addition, SG&A includes approximately $4.5 million of higher bad debt expenses, primarily related to specific customer credit exposures in Brazil.
The increase in depreciation expense during the quarter ended September 30, 2026 is largely due to IT assets put into service in the first quarter of fiscal 2027.
Restructuring expense incurred in the quarter ended September 30, 2026 relate to employee separation and benefit costs in connection with our expense reduction and restructuring plan.
We present changes in fair value of the contingent consideration owed to the former shareholders of businesses that we acquire as a separate line item in operating expenses. We recorded a fair value adjustment of $0.1 million in the quarter ended September 30, 2026 largely due to changes in forecasted results, partially offset by the recurring amortization of the unrecognized fair value discount. Comparatively, we recorded expense of $0.3 million in the prior-year quarter largely due to the recurring amortization of the unrecognized fair value discount.
Operating Income
The following table summarizes our operating income for the quarters ended September 30, 2026 and 2025:
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | 2026 | 2025 | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Specialty Technology Solutions | $ | 10,170 | $ | 20,375 | $ | (10,205) | (50.1) | % | 1.1 | % | 2.8 | % | |||||||||||||||||||||||
| Intelisys & Solution Services | 8,265 | 5,818 | 2,447 | 42.1 | % | 18.4 | % | 24.0 | % | ||||||||||||||||||||||||||
| Corporate | (6,042) | (290) | (5,752) | *nm | *nm | *nm | |||||||||||||||||||||||||||||
| Operating income | $ | 12,393 | $ | 25,903 | $ | (13,510) | (52.2) | % | 1.3 | % | 3.5 | % | |||||||||||||||||||||||
Specialty Technology Solutions
For the Specialty Technology Solutions segment, operating income decreased $10.2 million, or 50.1% for the quarter ended September 30, 2026, compared to the prior-year quarter. Operating margin was 1.1% and 2.8% for the quarters ended September 30, 2026 and 2025, respectively. The decrease in operating income for the quarter is primarily due to increased costs related to bad debt expense, as well as increased employee-related expenses.
Intelisys & Solution Services
For the Intelisys & Solution Services segment, operating income increased $2.4 million, or 42.1%, for the quarter ended September 30, 2026, compared to the prior-year quarter. Operating margin was 18.4% and 24.0% for the quarters ended September 30, 2026 and 2025, respectively. The increase in operating income for the quarter is primarily due to the MicroAge acquisition. The decrease in operating margin reflects a higher mix of hardware, software, and services as a result of the acquisition.
Corporate
For the quarter ended September 30, 2026, Corporate operating losses of $6.0 million represents $4.4 million of acquisition-related costs and $1.6 million of restructuring costs. For the quarter ended September 30, 2025, Corporate operating losses of $0.3 million largely represent acquisition-related costs.
Total Other (Income) Expense
The following table summarizes our total other (income) expense for the quarters ended September 30, 2026 and 2025:
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | 2026 | 2025 | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Interest expense | $ | 3,091 | $ | 1,914 | $ | 1,177 | 61.5 | % | 0.3 | % | 0.3 | % | |||||||||||||||||||||||
| Interest income | (2,664) | (3,180) | 516 | (16.2) | % | (0.3) | % | (0.4) | % | ||||||||||||||||||||||||||
| Net foreign exchange losses (gains) | 94 | 348 | (254) | (73.0) | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||
| Other, net | (47) | (175) | 128 | (73.1) | % | (0.0) | % | (0.0) | % | ||||||||||||||||||||||||||
| Total other (income) expense, net | $ | 474 | $ | (1,093) | $ | 1,567 | (143.4) | % | 0.0 | % | (0.1) | % | |||||||||||||||||||||||
*nm - percentages are not meaningful
Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs. Interest expense increased for the quarter ended September 30, 2026 compared to the prior-year quarter, primarily from higher average borrowings on our multi-currency revolving credit facility.
Interest income decreased for the quarter ended September 30, 2026 primarily from lower cash balances.
Net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign exchange forward contracts gains and losses. Foreign exchange gains and losses are generated as the result of fluctuations in the value of the U.S. dollar versus the Brazilian real, the Canadian dollar versus the U.S. dollar, the euro versus the U.S. dollar, and the British pound versus the U.S. dollar. We partially offset foreign currency exposure with the use of foreign exchange contracts to hedge against these exposures. The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses.
Provision for Income Taxes
For the quarter ended September 30, 2026, income tax expense was $3.2 million reflecting an effective tax rate of 27.1%. In comparison, for the quarter ended September 30, 2025, income tax expense was $7.1 million reflecting an effective tax rate of 26.4%. See Note 13 - Income Taxes to the Notes to Consolidated Financial Statements for further discussion.
Non-GAAP Financial Information
Evaluating Financial Condition and Operating Performance
In addition to disclosing results that are determined in accordance with United States generally accepted accounting principles ("US GAAP" or "GAAP"), we also disclose certain non-GAAP financial measures. These measures include non-GAAP operating income; non-GAAP pre-tax income; non-GAAP net income; non-GAAP EPS; adjusted earnings before interest expense, income taxes, depreciation, and amortization ("adjusted EBITDA"); adjusted return on invested capital ("adjusted ROIC"); and constant currency. Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods. We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.
These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that we report may not be comparable to similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with US GAAP.
Adjusted Return on Invested Capital
Adjusted ROIC assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of adjusted ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year.
Adjusted EBITDA starts with net income and adds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, share-based compensation expense, and other non-GAAP adjustments. Since adjusted EBITDA excludes some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more clearly.
We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. The following table summarizes annualized adjusted ROIC for the quarters ended September 30, 2026 and 2025, respectively:
| Quarter ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
|
Adjusted return on invested capital ratio, annualized (a)
|
10.7 | % | 14.6 | % | |||||||
(a)The annualized EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for leap year. There were 92 days in the current and in the prior-year quarter.
The components of this calculation and reconciliation to our financial statements are shown on the following schedule:
| Quarter ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Reconciliation of net income to adjusted EBITDA: | |||||||||||
| Net income (GAAP) | $ | 8,691 | $ | 19,878 | |||||||
| Plus: Interest expense | 3,091 | 1,914 | |||||||||
| Plus: Income taxes | 3,228 | 7,118 | |||||||||
| Plus: Depreciation and amortization | 6,734 | 6,200 | |||||||||
| EBITDA (non-GAAP) | 21,744 | 35,110 | |||||||||
| Plus: Change in fair value of contingent consideration | (147) | 314 | |||||||||
| Plus: Share-based compensation | 3,659 | 2,876 | |||||||||
|
Plus: Acquisition costs (a)
|
4,389 | 261 | |||||||||
| Plus: Cyberattack restoration costs | - | 29 | |||||||||
| Plus: Restructuring costs | 1,653 | - | |||||||||
| Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) | $ | 31,298 | $ | 38,590 | |||||||
(a) Acquisition costs are generally non-deductible for tax purposes.
| Quarter ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Invested capital calculations: | |||||||||||
| Equity - beginning of the quarter | $ | 910,792 | $ | 906,409 | |||||||
| Equity - end of the quarter | 915,655 | 914,032 | |||||||||
| Plus: Change in fair value of contingent consideration, net of tax | (110) | 236 | |||||||||
| Plus: Share-based compensation, net | 2,739 | 2,152 | |||||||||
|
Plus: Acquisition costs (a)
|
4,389 | 261 | |||||||||
| Plus: Cyberattack restoration costs, net | - | 21 | |||||||||
| Plus: Restructuring, net | 1,241 | - | |||||||||
| Average equity | 917,353 | 911,556 | |||||||||
|
Average funded debt (b)
|
242,334 | 137,113 | |||||||||
|
Invested capital (denominator for adjusted ROIC) (non-GAAP) (c)
|
$ | 1,159,687 | $ | 1,048,669 | |||||||
(a) Acquisition costs are generally non-deductible for tax purposes.
(b)Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.
(c)The annualized adjusted EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for a leap year. There were 92 days in the current quarter and the prior-year quarter.
Net Sales in Constant Currency Excluding Acquisitions
We make references to "constant currency," a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the prior-year period. We also exclude the impact of acquisitions prior to the first full year of operations from the acquisition date in order to show net sales results on an organic basis. This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency excluding acquisitions:
| Net Sales by Segment: | |||||||||||||||||||||||
| Quarter ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| Specialty Technology Solutions: | (in thousands) | ||||||||||||||||||||||
| Net sales, reported | $ | 917,299 | $ | 715,447 | $ | 201,852 | 28.2 | % | |||||||||||||||
|
Foreign exchange impact (a)
|
(2,650) | - | |||||||||||||||||||||
| Less: Acquisitions | (2,119) | - | |||||||||||||||||||||
| Non-GAAP net sales | $ | 912,530 | $ | 715,447 | $ | 197,083 | 27.5 | % | |||||||||||||||
| Intelisys & Solution Services: | |||||||||||||||||||||||
| Net sales, reported | $ | 44,995 | $ | 24,203 | $ | 20,792 | 85.9 | % | |||||||||||||||
| Less: Acquisitions | (20,006) | - | |||||||||||||||||||||
| Non-GAAP net sales | $ | 24,989 | $ | 24,203 | $ | 786 | 3.2 | % | |||||||||||||||
| Consolidated: | |||||||||||||||||||||||
| Net sales, reported | $ | 962,294 | $ | 739,650 | $ | 222,644 | 30.1 | % | |||||||||||||||
|
Foreign exchange impact (a)
|
(2,650) | - | |||||||||||||||||||||
| Less: Acquisitions | (22,125) | - | |||||||||||||||||||||
| Non-GAAP net sales | $ | 937,519 | $ | 739,650 | $ | 197,869 | 26.8 | % | |||||||||||||||
|
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended September 30, 2026 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2025.
|
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| Net Sales by Geography: | |||||||||||||||||||||||
| Quarter ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| United States & Canada: | (in thousands) | ||||||||||||||||||||||
|
Net sales, reported (a)
|
$ | 913,975 | $ | 682,217 | $ | 231,758 | 34.0 | % | |||||||||||||||
| Less: Acquisitions | (22,125) | - | |||||||||||||||||||||
| Non-GAAP net sales | $ | 891,850 | $ | 682,217 | $ | 209,633 | 30.7 | % | |||||||||||||||
| Brazil: | |||||||||||||||||||||||
|
Net sales, reported (b)
|
$ | 48,319 | $ | 57,433 | $ | (9,114) | (15.9) | % | |||||||||||||||
|
Foreign exchange impact (c)
|
(2,650) | - | |||||||||||||||||||||
| Non-GAAP net sales, constant currency | $ | 45,669 | $ | 57,433 | $ | (11,764) | (20.5) | % | |||||||||||||||
| Consolidated: | |||||||||||||||||||||||
|
Net sales, reported
|
$ | 962,294 | $ | 739,650 | $ | 222,644 | 30.1 | % | |||||||||||||||
|
Foreign exchange impact (c)
|
(2,650) | - | |||||||||||||||||||||
| Less: Acquisitions | (22,125) | - | |||||||||||||||||||||
| Non-GAAP net sales, constant currency | $ | 937,519 | $ | 739,650 | $ | 197,869 | 26.8 | % | |||||||||||||||
|
(a) Net sales in Canada are supported by U.S. operations and represent less than 5.0% of United States net sales for the quarters ended September 30, 2026 and 2025.
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(b) Includes net sales from outside of the United States, Canada and Brazil, which represent less than 0.1% of Brazil net sales for the quarters ended September 30, 2026 and 2025.
|
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(c) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended September 30, 2026 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2025.
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| Operating Income by Segment: | |||||||||||||||||||||||||||||||||||
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | 2026 | 2025 | ||||||||||||||||||||||||||||||
| Specialty Technology Solutions: | (in thousands) | ||||||||||||||||||||||||||||||||||
| GAAP operating income | $ | 10,170 | $ | 20,375 | $ | (10,205) | (50.1) | % | 1.1 | % | 2.8 | % | |||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 1,843 | 2,216 | (373) | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | 473 | 145 | 328 | ||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | 12,486 | $ | 22,736 | $ | (10,250) | (45.1) | % | 1.4 | % | 3.2 | % | |||||||||||||||||||||||
| Intelisys & Solution Services: | |||||||||||||||||||||||||||||||||||
| GAAP operating income | $ | 8,265 | $ | 5,818 | $ | 2,447 | 42.1 | % | 18.4 | % | 24.0 | % | |||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 2,819 | 2,188 | 631 | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | (620) | 169 | (789) | ||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | 10,464 | $ | 8,175 | $ | 2,289 | 28.0 | % | 23.3 | % | 33.8 | % | |||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||||||||
| GAAP operating loss | $ | (6,042) | $ | (290) | $ | (5,752) | *nm | *nm | *nm | ||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Acquisition costs | 4,389 | 261 | 4,128 | ||||||||||||||||||||||||||||||||
| Restructuring costs | 1,653 | - | 1,653 | ||||||||||||||||||||||||||||||||
| Cyberattack restoration costs | - | 29 | (29) | ||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | - | $ | - | $ | - | *nm | *nm | *nm | ||||||||||||||||||||||||||
| Consolidated: | |||||||||||||||||||||||||||||||||||
| GAAP operating income | $ | 12,393 | $ | 25,903 | $ | (13,510) | (52.2) | % | 1.3 | % | 3.5 | % | |||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 4,662 | 4,404 | 258 | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | (147) | 314 | (461) | ||||||||||||||||||||||||||||||||
| Acquisition costs | 4,389 | 261 | 4,128 | ||||||||||||||||||||||||||||||||
| Restructuring costs | 1,653 | - | 1,653 | ||||||||||||||||||||||||||||||||
| Cyberattack restoration costs | - | 29 | (29) | ||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | 22,950 | $ | 30,911 | $ | (7,961) | (25.8) | % | 2.4 | % | 4.2 | % | |||||||||||||||||||||||
|
*nm - percentages are not meaningful
|
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Additional Non-GAAP Metrics
To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP SG&A expenses, non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to divestitures, cyberattack restoration costs and other non-GAAP adjustments. These year-over-year metrics include the translation impact of changes in foreign currency exchange rates. These metrics are useful in assessing and understanding our operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above:
| Quarter ended September 30, 2026 | ||||||||||||||||||||||||||||||||||||||
|
GAAP Measure |
Intangible amortization expense |
Change in fair value of contingent consideration |
Acquisition costs (a)
|
Restructuring costs |
Non-GAAP measure |
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| (in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||
| SG&A expenses | $ | 96,509 | $ | - | $ | - | $ | (4,389) | $ | - | $ | 92,120 | ||||||||||||||||||||||||||
| Operating income | 12,393 | 4,662 | (147) | 4,389 | 1,653 | 22,950 | ||||||||||||||||||||||||||||||||
| Pre-tax income | 11,919 | 4,662 | (147) | 4,389 | 1,653 | 22,476 | ||||||||||||||||||||||||||||||||
| Net income | 8,691 | 3,499 | (110) | 4,389 | 1,241 | 17,710 | ||||||||||||||||||||||||||||||||
| Diluted EPS | $ | 0.42 | $ | 0.17 | $ | (0.01) | $ | 0.21 | $ | 0.06 | $ | 0.86 | ||||||||||||||||||||||||||
| Quarter ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
|
GAAP Measure |
Intangible amortization expense |
Change in fair value of contingent consideration |
Acquisition costs (a)
|
Cyberattack restoration costs |
Non-GAAP measure |
|||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||
| SG&A expenses | $ | 75,275 | $ | - | $ | - | $ | (261) | $ | (29) | $ | 74,985 | ||||||||||||||||||||||||||
| Operating income | 25,903 | 4,404 | 314 | 261 | 29 | 30,911 | ||||||||||||||||||||||||||||||||
| Pre-tax income | 26,996 | 4,404 | 314 | 261 | 29 | 32,004 | ||||||||||||||||||||||||||||||||
| Net income | 19,878 | 3,289 | 236 | 261 | 21 | 23,685 | ||||||||||||||||||||||||||||||||
| Diluted EPS | $ | 0.89 | $ | 0.15 | $ | 0.01 | $ | 0.01 | $ | - | $ | 1.06 | ||||||||||||||||||||||||||
|
(a) Acquisition costs for the quarters ended September 30, 2026 and 2025 are generally nondeductible for tax purposes.
|
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Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and borrowings under our $400 million revolving credit facility. Our business requires significant investment in working capital, particularly accounts receivable and inventory, partially financed through our accounts payable to vendors, cash generated from operations and revolving lines of credit. In general, as our sales volume increases, our net investment in working capital increases, which typically results in decreased cash flow from operating activities. Conversely, when sales volume decreases, our net investment in working capital typically decreases, which typically results in increased cash flow from operating activities.
Cash and cash equivalents balance totaled $45.9 million at September 30, 2026, compared to $88.4 million at June 30, 2026, including $32.6 million and $35.4 million held outside of the United States at September 30, 2026 and June 30, 2026, respectively. Checks released but not yet cleared in the amount of $0.2 million and $0.1 million are included in accounts payable at September 30, 2026 and June 30, 2026, respectively.
We conduct business primarily in the United States and Brazil where we generate and use cash. We provide for United States income taxes from the earnings of our Canadian and Brazilian subsidiaries. See Note 13 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion.
Our net investment in working capital, defined as accounts receivable plus inventories less accounts payable, increased $49.6 million to $588.5 million at September 30, 2026 from $538.8 million at June 30, 2026, primarily from an increase in accounts receivable and inventories partially offset by an increase in accounts payable. Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from channel sales partners, increases and decreases to inventory levels, and payments to vendors.
| Three months ended | |||||||||||
| September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Cash (used in) provided by: | |||||||||||
| Operating activities | $ | (42,304) | $ | 23,211 | |||||||
| Investing activities | (219,614) | (2,395) | |||||||||
| Financing activities | 219,456 | (22,950) | |||||||||
Operating cash flows are subject to variability period over period as a result of the timing of payments related to accounts receivable, accounts payable, and other working capital items. Net cash used in operating activities was $42.3 million for the three months ended September 30, 2026 compared to net cash provided by operating activities of $23.2 million for the three months ended September 30, 2025. Cash used in operating activities for the three months ended September 30, 2026 is primarily attributable to changes in working capital balances. Compared to September 30, 2025, accounts payable and accounts receivable increased 46.3% and 46.4%, respectively.
The number of days sales outstanding ("DSO") was 76 days at September 30, 2026, compared to 73 days at June 30, 2026 and 68 days at September 30, 2025. Inventory turned 6.3 times during the quarter ended September 30, 2026, compared to 6.6 times during the quarter ended June 30, 2026 and 5.1 times in the prior-year quarter ended September 30, 2025.
Cash used in investing activities for the three months ended September 30, 2026 and 2025 was $219.6 million and $2.4 million, respectively. Cash used in investing activities for the three months ended September 30, 2026 represents cash paid for acquisitions and capital expenditures. Cash used in investing activities for the three months ended September 30, 2025 represents cash paid for capital expenditures.
Management expects capital expenditures for fiscal year 2027 to range from $8.0 million to $12.0 million, primarily for IT and warehouse investments.
For the three months ended September 30, 2026 cash provided by financing activities totaled $219.5 million compared to cash used in financing activities of $23.0 million for the three months ended September 30, 2025. Cash provided by financing activities for the three months ended September 30, 2026 represents borrowings on our revolving line of credit. Cash used in financing activities for the three months ended September 30, 2025 is primarily attributable to common stock repurchases.
Credit Facility
On December 18, 2025, we entered into a credit agreement (the "New Credit Agreement") with PNC Bank, National Association, as administrative agent ("PNC"), and the other lenders party thereto (the "Lenders"), providing for (i) a five-year, $400 million multicurrency senior secured revolving credit facility and (ii) a five-year $100 million senior secured term loan facility (the "New Credit Facilities"). In addition, pursuant to an "accordion feature," we may increase our borrowings by up to the greater of $250 million or 150% of our EBITDA calculated on a Pro Forma Basis (each as defined in the New Credit Agreement), subject to obtaining additional credit commitments from the Lenders participating in the increase. The New Credit Agreement allows for issuance of up to $50 million for letters of credit. Borrowings under the New Credit Agreement are secured by substantially all of our assets and those of our domestic subsidiaries. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. We incurred debt issuance costs of $1.4 million in connection with the New Credit Agreement, which were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.
Loans denominated in U.S. dollars, other than swingline loans, bear interest at a rate per annum equal to, at our option, (i) the Term Secured Overnight Financing Rate ("SOFR") or daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our ratio of (A) total consolidated debt less its unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the "leverage ratio"); or (ii) the base rate plus an additional margin ranging from 0% to 0.75%, depending upon our leverage ratio. All swingline loans denominated in U.S. dollars bear interest based upon the daily simple SOFR, floating daily, plus an additional margin ranging from 1.00% to 1.75% depending upon our leverage ratio, or such other rate as we and the applicable swingline lender may agree. Loans denominated in foreign currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the New Credit Agreement plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio. A commitment fee is payable on the unused amount of commitments under the revolving credit facility. The commitment fee ranges from 0.15% to 0.30%, depending on our leverage ratio.
In connection with entering into the New Credit Agreement, on December 18, 2025, we terminated and repaid all indebtedness and other obligations outstanding under our Third Amended and Restated Credit Agreement (the "Prior Credit Agreement") with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto, which provided for (i) a five-year, $350 million multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility.
During the quarter ended September 30, 2026, all of our borrowings under New Credit Agreement and Prior Credit Agreement were U.S. dollar loans. The spread in effect as of September 30, 2026 was 1.00% for SOFR-based loans and 0.00% for alternate base rate loans. The commitment fee rate in effect at September 30, 2026 was 0.15%. The effective interest rates for the term loan were 4.91% and 4.65% as of September 30, 2026 and June 30, 2026, respectively. The New Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants. Specifically, our leverage ratio must be less than or equal to 3.50 to 1.00. In addition, our Interest Coverage Ratio (as such term is defined in the New Credit Agreement) must be at least 3.00 to 1.00 at the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. We were in compliance with all covenants under the New Credit Agreement at September 30, 2026.
The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, was $139.9 million and $1.1 million during the three month periods ended September 30, 2026 and 2025, respectively. There was $168.1 million and $400.0 million available for additional borrowings as of September 30, 2026 and June 30, 2026, respectively. The effective interest rates for the revolving line of credit were 4.90% and 4.62% as of September 30, 2026 and June 30, 2026, respectively. There were no letters of credit issued under the multi-currency revolving credit facility as of September 30, 2026 and June 30, 2026.
Summary
We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under our credit agreements, will provide sufficient resources to meet our present and future working capital and cash requirements for at least the next twelve months. We also believe that our longer-term working capital, planned expenditures and other general funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities.
Accounting Standards Recently Issued
See Note 1 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effects on our consolidated financial position and results of operations.
Critical Accounting Policies and Estimates
Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. See Management's Discussion and Analysis of Financial Condition and Results from Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026 for a complete discussion.
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