ScanSource(SCSC +2.25%) reported fourth-quarter 2025 results on Aug. 21, 2025, with net sales up nearly 9% year over year, adjusted EBITDA up 13% year over year, and non-GAAP earnings per share rising 27.5% to $1.02. Management introduced new three-year strategic goals focused on increasing recurring gross profit, pursuing strategic acquisitions, and maintaining disciplined capital allocation, while guiding for full-year fiscal 2026 (period ending June 30, 2026) net sales of $3.1 billion to $3.13 billion and adjusted EBITDA of $150 million to $160 million. The following insights highlight key developments in recurring revenue, strategic investments, and capital deployment that shape the company’s long-term investment thesis.
Recurring revenue mix boosts ScanSource margin
Gross profit margin for the full year increased by 120 basis points to 13.4%, driven by recurring revenues rising to 32.8% of consolidated gross profit from 27.5% the prior year. In the specialty technology solutions segment, recurring revenue as a share of gross profits rose from 6.6% in fiscal 2024 to 11%, reflecting the impact of recent acquisitions and a shift toward higher-margin business.
"For the year, recurring revenues represented 32.8% of our consolidated gross profits compared to 27.5% last year. The higher contributions and concentration is the primary driver of our improved margins."
-- Steve Jones, Chief Financial Officer
This rapid growth in recurring high-margin revenues strengthens earnings resilience and positions the company to achieve its new three-year target of building recurring gross profit toward 50%.
ScanSource invests in Intellisys and growth platforms
The Intellisys and Advisory segment posted 1% year-over-year growth in both net sales and gross profit, supported by the ResourceV acquisition and targeted investment in artificial intelligence (AI) capabilities. Annualized end user net billings for Intellisys rose 4.5% year over year to approximately $2.8 billion, with double-digit year-over-year growth in customer experience (CX) solutions, including unified communications as a service (UCaaS) and AI-enabled platforms.
"We've done a significant amount of reorganization within the Intellisys team. And what we've learned is that our partners trust us. That we have this level of trust about the simple stuff for us, which is making sure that partners get paid on time and accurately. And we believe that we're still the most attractive distributor for these trusted advisers. But we're also cognizant that we have these private equity-based competitors who are still trying to do a land grab. So we're gonna use our balance sheet to better support the growth partners that we believe can drive future opportunities for us. So we're gonna invest some cases, our balance sheet with these partners. And we've talked about this in the past. Some of our programs, we've got some new names for them, but there's one we call a revenue accelerator program where we'll invest alongside the partner if they are committed to making sure all of that future revenue comes to us exclusively."
-- Mike Baur, Chair and CEO
By reallocating resources to strategic partners and growth platforms, management is proactively addressing industry shifts and positioning Intellisys for long-term growth, even as near-term margins are pressured by investment.
Capital allocation at ScanSource supports growth and returns
Full-year free cash flow reached $104 million, representing 122% conversion of non-GAAP net income, and the fourth quarter ended with $126 million in cash and near-zero net debt on a trailing twelve-month adjusted EBITDA basis. The company executed $107 million in share repurchases over the year and maintains an acquisition pipeline focused on expanding recurring revenue and strategic capabilities.
"When we think about our capital allocation framework, we want to do two things. If you look at the combined set of targets that we have for our three-year goals, you'll see several things. One is we need to expand our GP. We also are expanding that percent of recurring revenue. That will come through acquisition and faster growth than some of these emerging technologies that we have. But we also think it's important to balance that with returning cash to shareholders when we don't have opportunities to deploy that to help us hit those goals."
-- Steve Jones, Chief Financial Officer
Allocating surplus cash to share buybacks and targeted acquisitions enhances capital efficiency and supports returns on invested capital, which reached 13.6% for the year.
Looking Ahead
Management expects net sales between $3.1 billion and $3.13 billion, adjusted EBITDA of $150 million to $160 million, and at least $80 million in free cash flow for fiscal 2026. Revenue acceleration is anticipated in the second half, with low single-digit growth expected in the first half due to ongoing macroeconomic uncertainty. New three-year strategic goals set higher targets for adjusted EBITDA margin, recurring gross profit, and return on invested capital, and introduce a free cash flow metric as part of these new goals.
