Welcome to the ScanSource Quarterly Earnings Conference Call. [Operator Instructions] Today's call is being recorded. [Operator Instructions] I would now like to turn the call over to Mary Gentry, Senior Vice President, Finance and Treasurer. Ma'am, you may begin.

Good morning, and thank you for joining us. Our call will include prepared remarks from Mike Baur, our Chair and CEO; and Steve Jones, our Chief Financial Officer. We will review our operating results for the quarter and the year and then take your questions. We posted an earnings infographic that accompanies our comments and webcast in the Investor Relations section of our website. As you know, certain statements in our press release, infographic on this call are forward-looking statements and subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include the factors identified in our earnings release and in our Form 10-K for the year ended June 30, 2025. Forward-looking statements represent our views only as of today, and ScanSource disclaims any duty to update these statements, except as required by law. During our call, we will discuss both GAAP and non-GAAP results and have provided reconciliations on our website and in our Form 8-K. I'll now turn the call over to Mike.

Thanks, Mary, and thanks, everyone, for joining us today. We are excited about the growth opportunities ahead for our channel partners and the expanding role of technology distribution. The convergence of IT, connectivity and cloud computing is propelling a shift toward converged solutions that are redefining success in technology distribution. We are the leading technology distributor uniquely positioned to build cutting-edge skills, capabilities and expertise to excel in a connected cloud-driven world. We believe end users face increasing complexity when making technology investment decisions. Because of this complexity, end users are looking to the indirect channel for their technology solutions, given the need for integration and the number of solutions, especially as advanced technologies like AI become part of the solution. Our multiple sales channels are a key competitive advantage for ScanSource, with our suppliers as they seek new routes to market. Our channel partners have different skills and capabilities and for certain opportunities, they will take advantage of additional services that ScanSource can deliver to end users on behalf of our partners. We are building capabilities that end users require and our partners' demand in our converging technology ecosystem. This includes an innovative supplier portfolio, financial enablement, expert pre- and post-sales engineering support, powerful tools, marketing support and an exceptional customer experience. Last quarter, we announced the creation of Launch Point, a new business development team that will identify and assist emerging innovative technology growth companies as they are getting ready for channel success. The Launch Point team has an active pipeline of innovative suppliers and has recently signed contracts with companies offering products to enhance our smart warehouse initiative, which includes private cellular networks, robotics, drones and additional IoT solutions. We have channel partners in both segments that have end-user demand for converging solutions that include hardware, software and services. To illustrate with an example. We have a channel sales partner who developed a converged solution for a leading auto parts retailer that bundled wireless connectivity plans with 30,000 mobile computing devices. Our ability to support the converged solution was a differentiator, allowing the partner to win the deal and providing the end user with an improved business outcome. We see hardware plus software plus services convergence as the future of technology distribution. This is the vision for our strategic plan, and the new 3-year strategic goals that Steve will introduce in his remarks. Our goals reflect our confidence in our growth strategy to deliver complex converging solutions for our partner ecosystem that will increase our addressable market. I'll now turn the call over to Steve to take you through our financial results and outlook for fiscal year 2026.

Thanks, Mike. Q4 was a strong close to our fiscal year. We delivered on our guidance for revenue, adjusted EBITDA and free cash flow. Net sales returned to growth, and we delivered strong profitability. Net sales for the quarter grew almost 9% year-over-year, while adjusted EBITDA grew 13%, and non-GAAP net income grew 17% over last year. Our Q4 non-GAAP earnings per share of $1.02 grew 27.5% year-over-year. Now turning to our segments. I want to call your attention to additional information that we included in our earnings infographic on our key technologies and growth drivers. I'll start with our Specialty Technology Solutions segment. Net sales increased 9% year- over-year and 16% quarter-over-quarter, with broad-based hardware growth in North America, led by double-digit growth in mobility and barcode, physical security, and managed connectivity. We also benefited from some large deals that were pulled in late in the quarter. We estimate the pull-ins contributed $30 million to $40 million of revenue in Q4. Gross profit followed revenues growing 8% year-over-year, reflecting a higher mix of hardware for the quarter. For the segment, the percent of gross profits from recurring revenues totaled approximately 11%. Segment gross profit margin was similar to last year at 10.3%, while the segment adjusted EBITDA margin was up 35 basis points to 3.6%. In our Intelisys & Advisory segment, net sales and gross profits increased 1% year-over-year, including the positive contribution from our Resourcive of acquisition, while adjusted EBITDA for the segment declined 4%, due to increasing investments in SG&A to drive future billings growth and expand our technical capabilities in emerging technologies like AI. Annual end-user billing for Intelisys increased 4.5% year-over-year to bring annualized net billings to approximately $2.8 billion, including double-digit growth year-over-year in CX, which includes UCaaS, CCaaS and AI-enabled CX solutions. This…

[Operator Instructions] And our first question comes from the line of Adam Tindle of RJ.

Okay. And congrats on a strong finish to the year-end. I just wanted to start on the midterm targets. I was noticed that free cash flow as a percent of net income was included, Steve. I wonder if you could maybe just expand a little bit on why to include that metric. Obviously, I was happy to see it, but just a little bit more on the conversation on including that metric. And if we start doing some math here, based on your current leverage, which is fairly minimal and in the future cash generation, we're going to have quite a bit of cash coming in. I think you mentioned it on there, but if you could just talk a little bit more about the capital allocation priorities with that incremental cash? And then I have a follow-up.

Sure, Adam. When we thought about the free cash flow conversion metric for our long-term -- or kind of a longer outlook that we provided we wanted to do 2 things. One, we wanted to build on the back of what we said before that we were building this cash culture. This, I think, really puts a stake in the ground for us and how we're thinking about the business. We also think this is a key -- a key reason why we're very attractive. Our financial position is very attractive is to have this kind of metric and this kind of discipline in generating free cash. When we think about our capital allocation framework, we want to do 2 things. If you look at the combined set of targets that we have for our 3-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 in 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.

Okay. Got it. Yes, I wonder if it might make sense at some point to kind of split up and do a percentage of cash flow for shareholder return, or a pie chart or something like that. Is that something you guys would consider?

Still early in our ability to generate cash. We think we've gone out here and put some pretty aggressive 3-year goals out there.

Okay. That's fair. And maybe, Mike, as a follow-up. Obviously, as we kind of look at the segment results, the Intelisys & Advisory segment has very healthy margin in total and attractive margins. But the adjusted EBITDA, I think you said was down for the year. I just wonder if you might expand a little bit more kind of how you're thinking about that segment strategically. And on a forward basis, I think in the press release, you talked a little bit about investments expected in fiscal '26. I wonder if maybe it's related to that segment or if you could expand on the nature of the investments that you're thinking about?

Yes. Sure, Adam. We believe that the opportunity to grow the Intelisys business is substantial. And one of the things that we learned over the last couple of years as we saw the competitive pressures from some of the PE-backed companies, there was a land grab for partners and their business. And along the way, we did everything we could in our old model to retain that. And what we are learning is that we need to do some new things. And a couple of those that we've already invested in last year that really will see the payoff over time is a different partner segmentation strategy to make sure that we're providing the right, I'll call it, mix of services for partners. We tended to treat our partners mostly based just on volume historically, and we've changed that. And under Ken's leadership, our team has added more head count to focus on strategic partners and a strategic partner for us going forward is a partner that can grow. In the past, we were, frankly, having partners that were earning a lot of resources and taking resources from our teams, but they weren't growing. And so we really are driving a new sales demand strategy around finding the places that growth is happening and putting our resources there. So we've done a significant amount of reorganization within the Intelisys 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 going to use our balance sheet to better support the growth partners that we believe can drive future opportunities for us. So we're going to invest in 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. So those are the things that we've started in FY '25 that we'll see happen and pay off throughout the year, but we certainly saw in '25 kind of a disappointing growth year, because we didn't make these investments in FY '24. So I really believe we've got the right team. We've got the right programs, and we're making the right investments because we still believe this business can grow substantially.

[Operator Instructions] Our next question comes from the line of Keith Housum of Northcoast Research.

Congratulations on a good quarter. And thanks for the added information and the infographic on the businesses and what makes up the different segments, much appreciated. Just kind of piggybacking on Adam's question in terms of the Intelisys business. It looks like sequentially, the revenue is down in that segment, which is the first. I understand there's some competitive challenges there. But perhaps can you -- perhaps talk about the expectations here as you look into '26 and how quickly you can turn that around? And is it possible to quantify how much strategic investments you need to put forward during the year?

Yes, Keith, Mike again. We've been looking at this, frankly, for more than a year. We saw this and we identified it, I think, 3 years ago that there was -- as we all know, there was revenue pressure because we had margin pressure from the land grab by some of the PE-backed competitors, who are willing to make little to no margin to get partners to move their business from Intelisys to them based purely on a commission split change. So we had to decide how to react to that. And in some cases, we lost some partners that went away. And what we decided to do is let's start, let's build for the longer term. And one of the things we did last year that I know you remember is we created this new strategy around Channel Exchange and what the reason for that was, was we needed to start adding new suppliers to help drive growth, too. We had not really added a lot of significant suppliers along the way. And we needed the suppliers that -- some of the strategic partners that we're trying to recruit that I talked about a few minutes ago, the ones that can drive growth. These strategic partners were asking us for suppliers that transacted differently than the old Intelisys model. So the Channel Exchange transaction model without getting too much in the weeds, is allowing us to add new suppliers. We just added Sophos and [ Trustifi ]. And we think those are examples of the kind of new opportunities that are going to be incremental to our revenue and -- so these aren't suppliers that will replace existing revenue. So we've got a pipeline of new suppliers coming online. And again, as we all know, we've been following this Intelisys model, we won't see all of that show up in our revenue as quickly as we'd like, but there are new orders and deals being done now, and we've modeled for FY '26, a reasonable approach to growth. And what that means is we're doing everything we can to add sales resources, financial enablement and new suppliers, so that as we exit '26, we expect to be back on a significant growth trajectory.

Great. And as we think about the guidance for next year, perhaps maybe some puts and takes on that. Again, come back to adjusted EBITDA guidance you guys gave at the low end of the range, it's only 3% growth, but you at the top end of the range, it's obviously in the double digits. How are you thinking about, I guess, what has to go right, what has to go wrong in order to meet the top and bottom end of your ranges there?

Well, Keith, as we were talking about last year, similar as we're sitting here this year, looking at FY '26, we see the growth coming in the second half. We see a faster growth trajectory coming in the second half as we're still in this kind of choppy tariff and interest rate environment. So the low end of the range, both ends of the range include our investments that we need to make. What Mike was talking about in Intelisys, what we're talking about in our other businesses, we've got investments in that guidance. What we'll do as we go along is we'll throttle those investments to make sure that we manage to that EBITDA margin. And so that's how we're thinking about it. The other thing that can swing through there a little bit is mix. And as we think about the mix, the mix can move around a bit on our EBITDA. And so those are the key things that we're thinking about as we think about that range.

Great. Appreciate it. And maybe just one more for me, if you don't mind. Talking on the 3-year strategic goals, getting your recurring revenue as a driver of gross profits up to -- building towards 50%, obviously, a pretty massive move considering the 31% you have here in this quarter or so. How much of M&A is part of that is involved in that versus what you guys believe you can do organically? And then if -- is '26 going to be like a rebuilding year for that? Is this really a '27, '28 fiscal year performance?

Well, Keith, I'll go back to what we called out in our prepared remarks. We went from 27.5%, I think, to 30 -- almost 33% for the year in recurring revenue as a percent of our gross profits. A lot of that is because of our acquisitions, and they weren't big, but they're very impactful. We also see that those advanced emerging technologies, they're going to transact more in that netted down revenue space. And so that will help us grow as well. And I think Mike has some comments.

Yes. And one other thing we added in our materials we provided, I don't know if you've had a chance to look at them yet, Keith, but on Page 12 of our supporting materials, we added a new schedule, which shows the recurring revenue gross profit and how it's changed over time. And if you look at that, we're going in the specialty technology area, we were 6.6% back in Q4 of '24, and now we're at 11%. And so we're seeing what Steve just said is we're making some acquisitions that seem to be fairly small on the scale of the Advantix and Resourcive, but look at how quickly they can change and add to our recurring revenue contribution. So we believe -- and if you remember from our last -- I think it was our last call, I talked about the fact that we have 4 presidents that each have a strategy around acquisitions. And each of them have a real focus on how do they increase the recurring revenue in their particular business. So we feel very good about the ability to get on this path towards 50% even as we exit '26.

[Operator Instructions] Our next question comes from the line of Gregory Burns of Sidoti.

You mentioned some strong, I guess, broad-based growth in the Technology segment. Were there any detractors, though in the quarter?

Well, Greg, we continue to have a very profitable business in our communications business. And that's probably the one that has -- we've talked about for a very long time, has -- does not have a growth -- real growth path to it, but it is very profitable for us, and it helps us also sell other solutions. So I would say that's the one that probably is setting out there that's the slower growth. I'd also just kind of send you to our infographic. And if you look at that Specialty Technology segment, you can kind of see how that breaks out.

Great. And then can you maybe update us on the outlook for Brazil? Any changes there? And what your expectations are for that market?

Well, Brazil is an interesting dynamic for us. They're growing in local currency. And they're now getting ready to lap a pretty significant supplier shift out of some channels. And so we like where Brazil is going. We're just going to have to settle through these FX headwinds that we're seeing.

And Greg, this is Mike. One other comment to that. We talked about, obviously, Brazil a lot recently. And what I want to remind our investors is Brazil's model, business model is what we're trying to move to, frankly, in the U.S. They've been selling many more products that are in the cloud, recurring. They've been selling converged solutions before we started calling them converged solutions. And so really, we've been able to -- because in Brazil, we're one of the dominant players. We are not a small distributor. There's not the scenario where we can't get suppliers like we have in some cases in the U.S. So we're really -- we love the fact that we've got a business that is profitable, that we have a very engaged team, and they're able to recruit suppliers in Brazil and sell the suppliers on the value proposition of ScanSource and our channel in a way that we're still getting suppliers to understand in the U.S. So we love that business. We hate the economic environment they go to as a country and the political environment. But it's a profitable business, and we have a very strong management team that understands exactly what we're trying to accomplish now in the U.S. with our recurring revenue business.

[Operator Instructions] And our next question comes from the line of Damian Karas of UBS.

Congrats on the progress.

Thank you.

Yes. Thank you.

So I just have a couple of more specific questions. First, I wanted to ask you about barcoding and mobility solutions and what your expectation is there for that part of the business that you have factored into your fiscal 2026 guidance? And I think typically, like the fourth calendar quarter of the year, so your guys second quarter is when like a lot of the larger project activity kind of often consummates for that part of the business. Just curious if you think there might be still larger projects that are fewer in number, comparable level maybe to what you saw last year, or if there's the possibility that there might be a larger project ramp as we kind of get through the end of this calendar year?

Yes. Thanks for the question. So when we think about the mobility and barcode technologies, what we talked about in our prepared remarks is that was a great growth area for the fourth quarter. What we also want to caveat is we're still facing -- and our large deals, particularly some uncertainty in the macro environment that we're not sure if that's a first half or second half growth trajectory for us. So I think it's a bit of a wait and see on when those big deals start rolling out. We saw some of that happen in the fourth quarter. We were happy to see it, but it's not widespread yet.

Really helpful. And then I guess kind of a new news item in the last month is Zebra acquiring Elo. I was just wondering if you could maybe discuss ScanSource's relationship with Elo? And do you think that transaction potentially changes anything on your side for either of those product categories, barcoding and point of sale?

This is Mike. I'll take that one. We try not to comment on our partners' acquisitions or their strategy per se. But our relationship with both of them, I can comment on. And we've been a long-time partner with Elo, Obviously, Zebra as well. And I talk to both of their CEOs about it and what they're trying to accomplish. And for ScanSource, what is interesting is, in general, to be very transparent, consolidation of suppliers rarely helps us, okay? It only helps us as if there is a creation of a new market opportunity. And so what we're hoping to see from something like this is they're going to create new solutions that will go to the market in a way that ScanSource and our channel partners can benefit from. And there is that -- there is this idea that, that could happen. And we talked about throughout our prepared remarks, the idea of converged solutions, which is a multi-vendor thought. And what that typically means is no one vendor can provide all of the pieces to that. Now that you have Zebra and Elo together, there's still going to need to be other parts of that solution that we can provide. And anything they're going to do to invest in retail is good for us. We've always had a strong retail channel presence. And we think that this is going to drive new technology at the front end of retail, which is what they communicated. We think that's nothing but positive for ScanSource and our channel partners.

Very interesting. Good luck.

You bet.

Thank you.

[Operator Instructions] I'm showing no further questions at this time. I'll now turn it back to Steve Jones for closing remarks.

Yes. Thank you for joining us today. We expect to hold our next conference call to discuss September 30 quarterly results on Thursday, November 6, at approximately 10:30 a.m.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.