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. Please go ahead.

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 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 and 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, and in our subsequent reports on Form 10-Q. 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 filed earlier today. I'll now turn the call over to Mike.

Thanks, Mary, and thanks, everyone, for joining us today. Technology distribution is being transformed with the convergence of hardware, software and services. As IT, connectivity and cloud computing markets continue to converge, we believe that end users will prefer channel partners who can provide integrated converged solutions. With more choices than ever, end-user purchasing decisions are getting more complex, and that's where solution providers and technology architects add real value. They can help end users make technology decisions that will achieve their expected business outcomes. Because most business outcomes require technology solutions from multiple suppliers, the indirect channel is in the best position to deliver recurring, complex and high-value solutions. How to win in converging technology markets was the theme at our recent partner events. Partner First in September and Channel Connect earlier this week. Both events highlighted our strategy, helping our partners change and grow as technology markets continue to converge. We are preparing to assist our channel partners in this transformation. We expect to play an expanded role in supporting our partners' transition from traditional VAR to solution provider and from trusted adviser to technology architect. We'll discuss more about how these business models are evolving as the year progresses. This quarter, in our Intelisys & Advisory segment, we are investing to accelerate new order growth. An example of our investment is the growth of our solutions engineering team who have expertise in advanced technologies, including cloud computing, wireless and IoT. Another way to drive new order growth is to help our partners by providing new and better tools for growth. For example, our product development team launched a new tool called Tech Checks, which combines AI-powered engineering support with conversational sales-friendly discovery questions. During the quarter, in our Integrated Solutions Group, our Launch Point team has delivered new end-to-end industry solutions called Smart Series, starting with Smart Warehouse and Smart Retail. These solutions consist of products and services from ScanSource's suppliers. One of the new Launch Point suppliers we recently signed is a specialist in the next generation of private 5G that adds a managed services offering to our Smart Connectivity Series. Also in ISG, in October, we completed the acquisition of DataXoom, a leading provider of B2B mobile data connectivity solutions. This transaction builds upon our August 2024 acquisition of Advantix and expands our ability to scale our relationships across all 3 major U.S. carriers: AT&T, Verizon and T-Mobile. ScanSource's deep relationships with the key suppliers of mobile devices, combined with Advantix' and DataXoom's capabilities to integrate carrier data connectivity into these devices is a great example of a converged solution. Looking ahead, we believe the future of technology distribution lies in helping our channel partners deliver innovative converged solutions. This vision drives our strategic plan. I'll now turn the call over to Steve to take you through our financial results and outlook for fiscal year 2026.

Thanks, Mike. We're off to a good start to our new fiscal year. For Q1, we delivered strong profits and free cash flow generation, highlighting the strength of our business model. Gross profits grew 6% and non-GAAP EPS grew 26% year-over-year. We delivered 5.2% adjusted EBITDA margins and our cash conversion of non-GAAP net income was 88%. These results are in line with our annual outlook. Now turning to our segments. I'll start with our Specialty Technology Solutions segment. Net sales declined 5% year-over-year and 9% quarter-over-quarter, including approximately $40 million of large deal pull-ins that benefited our Q4 results. For Q1, many of our larger deals were delayed or broken into smaller orders with a higher mix of run rate orders, favorable technology mix and benefits from supplier price actions, gross profits increased 7% year-over-year and 3% quarter-over-quarter. For the segment, the percent of gross profits from recurring revenues totaled approximately 13%. Adjusted EBITDA margin for the segment increased 61 basis points to 4.2%. In our Intelisys & Advisory segment, net sales increased 4% year-over-year, in line with our expectations. Annualized net billings increased to approximately $2.78 billion, and we believe we maintained market share. Gross profits increased 2% year-over-year, while adjusted EBITDA for the segment declined slightly due to increased investments in SG&A to drive future billings growth and expand our technical capabilities in advanced technologies. Now going a bit deeper on our balance sheet and cash flow. We ended Q1 with approximately $125 million in cash and a net debt leverage ratio at approximately 0 on a trailing 12-month adjusted EBITDA basis. Adjusted ROIC for the quarter was 14.6% and share repurchases for the quarter totaled $21 million. We have a strong balance sheet and are well positioned to execute on our strategic priorities and achieve our…

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

Good to see the performance on the bottom line. But of course, the top line probably is a little bit troubling here as we look over the past year, 1.5 years. I guess, Mike, any thoughts there on -- are you guys losing share, do you think, to competitors in the space? Or are you guys purposely walking away from some business? But any color on the decline in the revenue? I understand the pull forward that you had in the fourth quarter here. But still, if I look over the past year, 1.5 years, the trends have been working against you guys on the top line?

Keith, from our standpoint, we have always said we want profitable growth, right, from the top line. And I think that's a theme here is there's always business out there that a distributor can take to drive the top line. As we think about what we've consistently been, I think, for the last 2 years talking about the measure for our future is our GP growth. And I think if you look at that, the 6% growth, we really are pleased with. Would we want more top line growth? Absolutely. I think part of that will come as we add some of the new suppliers that we're talking about through the addition of Launch Point and its strategies as well as this idea of convergence, we believe that will attract more suppliers than we traditionally have. So -- and again, Keith, part of the challenge is we -- to answer part of your question, we don't believe we lost market share. And as I've said many times before, I think all the manufacturers tell all the distributors, they don't lose market share. So I don't put a lot of credibility there. That's just a side comment. But I believe our teams have executed very well with those key suppliers.

Great. And you're right, GP was great, especially in SPS. And I noticed in the earnings recall -- I'm sorry, the earnings report, you guys mentioning suppliers rebates or vendor payments. Are those sustainable or those onetime? Or has there been a shift here that we should look at going for the rest of the year?

Keith, it's Steve. I'll take that one. So our supplier programs have definitely evolved since -- over the last few years. The teams are doing a great job tying our supplier programs more to activities and not inventory. And so we think a lot of that is sustainable. What we did see this quarter is some of the price actions that we -- that the suppliers did last year flow through our inventory turns. So that was a bit of a help to our margins in that segment and on a consolidated basis.

And I know you probably won't get too much into details, but any way you can parse out how much of your GP is more to that onetime price actions?

Well, I'll give you the number, Keith, because I think it's important. I think if I'm thinking of a consolidated basis, I think it was probably 30 basis points to our gross profit margins on a consolidated basis.

Great. I appreciate that color. And then congratulations on the DataXoom acquisition. It sounds like it fits in really well with Advantix. Any more color you can give on that company in terms of -- I think it's 17 employees, but perhaps any revenue or margin profile to kind of think about going forward?

Yes. Keith, when we think about DataXoom and we think about Advantix and what they mean strategically for us, they add capabilities and DataXoom really helps us scale in this space. As far as size, it's really a tuck-in sized acquisition, and we gave the 17 people to kind of help people size what that would look like for us, but it's a tuck-in size acquisition. But they will have higher margins than our typical business in the STS segment. So it will be margin accretive from a percentage.

And maybe I'll add one more comment to that, Keith, that part of the strategy here, as a reminder, is for us to be able to sell more mobile devices by adding the connectivity to the solution set. We believe our mobile device sales will go up as we are more successful communicating this strategy to our channel.

Our next question comes from the line of Gary Hardwick (sic) [ Guy Hardwick ] of Barclays.

It's actually Guy Hardwick. So if 30 basis points of GP margin came from supply rebates implies that 100 basis points came from mix. First of all, is that -- have I got that correct? And maybe it would be a good time for you to give us a refresh on your inventory valuation method. Bear in mind what you said about supplier price increases last year having an impact this year.

Yes. Guy, thanks for joining us today. So yes, I would say you're in the right range in terms of what benefited from mix. And again, when we look at -- and Mike talked a little bit about how we're viewing the business, we also have more netted down revenues in that segment than we've historically had. And that's why we've been talking more about the percentage of recurring revenues at a segment level, because we think that's also an important part of our story as we go forward. From a mix perspective or how we're thinking about our inventory turns, just think of it as a weighted average first in, first out inventory. So our inventory would be valued in a first in, first out, weighted average basis.

Okay. Just a follow-up. Obviously, on the slide, you have, I think it's Slide 3, the key technologies and growth drivers that's based on FY '25. If you just take those 5 end markets, which were up and which were down in the quarter?

Well, those charts that we add in there, those really help us guide where we were thinking for the full year. So we do use FY '25. We validate whether that's going to be some trends that continue, and we use that to help us in our guidance. As far as what segments were up or down, that really kind of gets into a supplier discussion in some ways. And so we try to steer clear of that.

But just your 2 largest suppliers had revenues up in the quarter year-on-year. So I'm a little bit surprised to see you guys down so much year-on-year.

Yes. And Guy, this is Mike. Let me just add a comment to that, if I can. We came up with these slides to help out because a year ago, we changed segments, and we talked about -- less about where the growth was coming from. And we really believe this will give an indicator of what we believe will happen throughout this year. Specifically to your comment about suppliers, just as a reminder, their success or not on a quarterly basis isn't always in line, remember, with our channel. All of our suppliers, all of them still sell direct to end users, and that can impact their results that sometimes they delineate their results as how much grew in the channel or not, but not always. And so just -- we have to always remind our investors to -- we're a part of their supplier story, but we're not always aligned with their story. They can have great revenues and the channel as a group does not. So our measure is typically what we try to lead with, which Steve said was we don't believe we lost any market share. So within the channel that we compete in, we didn't lose market share. So that's how we separate our results and try to help you guys understand, sometimes our results won't mirror the suppliers. And frankly, when we come out sometimes with our results ahead of our suppliers, people try to read that into the suppliers and generally it's wrong. So I wish I could help you more on the specifics of why those 2 suppliers would be different than ours. But just remember that we're -- as a channel, we're only a part of their success.

Our next question comes from the line of Adam Tindle of Raymond James.

Steve, I wanted to start with a question for you on guidance. And leading into this question, I just want to acknowledge, I was glad to see gross profit growth put into the 3-year targets. I think that metric makes a lot more sense. But for now, for this year, we're basing guidance on net sales. So I've got to ask on that. You decided to reaffirm net sales growth for the year, but we're obviously starting with net sales down in Q1. I think you had previously thought maybe low single-digit growth in first half and accelerating in the back half to get to that full year net sales growth that you talked about. I wonder if you might, first of all, update the cadence as you're thinking about that? And then secondly, just what gives the confidence to reaffirm the net sales portion after what you saw in Q1? Why not maybe consider lowering expectations at this point?

Adam, thanks for the question. When we look internally to our plan, Q1 is fairly close to what we thought. And so that gave us confidence to reconfirm our guidance and our outlook. One of the things that we continue to look at. We talked about netted down revenues, and we are more and more looking at gross profit as a better proxy for the success of our sales teams and our company overall. And then when we think about whether first half or second half, the other thing I would lead to is we keep seeing these large deals push out or break up. They're not getting canceled. And so that gives us confidence that this is a timing issue, not necessarily a weakness in overall demand.

Okay. I mean maybe just give us a little bit of color on what you're seeing in October or early November and the pipeline for December on those? And any quantification of those large deals? I know those are typically deals that can get done at calendar year-end, so it might make sense for that to happen. But just wondering what you're seeing early on in calendar Q4, the December quarter.

Adam, we typically don't talk about the quarter mid-quarter because a lot of times, what we see is the last month of the quarter is our biggest quarter, and we could make up a lot even in the last 2 weeks. What we've talked about in the past even with our working capital is we would get surprised of how good of sales we have. And so maybe our accounts receivable may have moved up. And so it's dangerous for us to try to predict the quarter midpoint.

And Adam, I'll just chime in, it's Mike. Our enthusiasm for our guidance is reaffirmed as of last week. So what we knew last week about the quarter-to-date is reflected in our reaffirming the annual.

Okay. That's helpful. And maybe just, Mike, one for you. I was glad to see the 3-year target updates, and I know this is a little bit more of what Steve owns, but a conceptual question here, follow me. The 80-plus percent free cash flow on a consistent -- on an annual basis was nice to see. I wonder if you guys discussed with the Board about maybe outlining a structure on how to allocate that free cash flow. Some companies do sort of x percent to acquisitions, x percent to returning cash to shareholders, et cetera. Is that something that you thought about and not to put you on the spot, but if we were to try to set investors' expectations on what the pie chart would look like on that free cash flow in terms of how you're thinking about it, how would you kind of ballpark that for us?

Well, I think what we said last quarter and what we said -- Steve said in his prepared remarks is that we still believe we can do share repurchases and acquisitions without any specific structure of percentile on a chart. But it was a very good discussion with our Board, the last 2 Board meetings, both the fiscal year-end when we gave our guidance for the year and when we had our meeting a week ago discussing again how do we feel about the acquisition pipeline that we have. And Steve indicated, we do have a pipeline of acquisitions. At the same time, we believe that especially at these share price levels that a good use of our cash right now is for share repurchases. And so we like the fact that we are in -- we have the capability to do both. And right now, that's the message we're trying to continue to reemphasize is that we're still doing both acquisitions and repurchases.

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

The business development investments you're making in Intelisys, are you seeing that translate into pipeline activity? I'm just wondering when we might start to see maybe some of those investments start converting into stronger revenue growth for the segment?

Greg, it's Mike. I'll take that. One of the ways that we're talking about the success or not is the new order growth rate because an order doesn't get billed and, if you will, either installed or delivered for anywhere from 6 to 18 months in the Intelisys model. And it is different based on the type of technology being deployed. Because of that, we have put a much bigger emphasis starting, frankly, last year on new order growth. And in this quarter, we had double-digit new order growth year-over-year and quarter-over-quarter. And we believe that's our benchmark as to are the investments working.

Thank you. I would now like to turn the conference back to Steve Jones for closing remarks. Sir?

Thank you, and thank you for joining us today. We expect to hold our next conference call to discuss December 31 quarterly results on Thursday, February 5, at approximately 10:30 a.m.

This concludes today's conference call. Thank you for participating. You may now disconnect.