ScanSource Q1 2026 Earnings Results & Report

ScanSource EPS Results

• Actual EPS: $1.06
• Consensus EPS: $0.91
• Beat/Miss: Beat by +$0.15
• One Year Ago EPS: $0.84
• EPS Beat Rate: 5 of last 8 quarters

ScanSource Revenue Results

• Actual Revenue: $739.65 million
• Expected Revenue: $787.37 million
• Beat/Miss: Missed by -$47.72 million
• YoY Revenue Growth: -4.60%

ScanSource (NASDAQ:SCSC) is a technology distributor that connects manufacturers with resellers and other channel partners. Its products and services support business communications, networking, physical security, and point-of-sale operations.

The company distributes equipment such as barcode scanners, mobile computers, payment devices, networking hardware, and communications and security systems. Through its Intelisys business, ScanSource also supports channel partners offering connectivity, cloud, and related technology services.

Founded in 1992 and headquartered in Greenville, South Carolina, ScanSource serves customers primarily in North America and also has operations in Brazil. It focuses on helping its channel partners select, source, and deliver technology solutions to business customers.

ScanSource Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: ScanSource reported a strong Q1 — gross profit +6%, non‑GAAP EPS +26%, adjusted EBITDA margin 5.2%, ~ $125M cash and net debt near zero — and reaffirmed FY26 guidance of $3.1–$3.3B in sales, $150–$160M adjusted EBITDA and at least $80M free cash flow.
• Negative Sentiment: Top‑line pressure persists as STS net sales were down ~5% YoY (‑9% QoQ) with several large deals delayed or broken into smaller orders, which management attributes to timing rather than lost channel share.
• Positive Sentiment: Management is pushing a strategic shift into converged solutions, expanding Intelisys and solutions engineering, launching AI‑enabled tools (Tech Checks) and industry offerings (LaunchPoint Smart Series), and completed the DataZoom tuck‑in to scale mobile connectivity across carriers.
• Neutral Sentiment: Margins received a near‑term boost from supplier price actions and evolved supplier programs (supplier payments contributed roughly 30 basis points to consolidated gross margin), which management says are increasingly tied to activities and partially sustainable.
• Neutral Sentiment: Capital allocation remains balanced and disciplined: an active pipeline of acquisitions (tuck‑ins) plus ongoing share repurchases (Q1 buybacks $21M), with a stated target net‑debt leverage of 1–2x adjusted EBITDA but no fixed split between M&A and buybacks.

Presentation

[Operator]

Welcome to the ScanSource quarterly earnings conference call. All lines have been placed in a listen-only mode until the question-and-answer session. Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mary Gentry, Senior Vice President, Finance and Treasurer. Please go ahead.

[Mary Gentry, SVP, Finance, and Treasurer at ScanSource]

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.

[Mary Gentry, SVP, Finance, and Treasurer at ScanSource]

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 early today. I'll now turn the call over to Mike.

[Mike Baur, Chair and CEO at ScanSource]

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. That is 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. Channel Connect earlier this week.

[Mike Baur, Chair and CEO at ScanSource]

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 advisor to technology architect. We'll discuss more about how these business models are evolving as the year progresses. This quarter, in our Intellisys and 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.

[Mike Baur, Chair and CEO at ScanSource]

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 three major U.S. carriers: AT&T, Verizon, and T-Mobile.

[Mike Baur, Chair and CEO at ScanSource]

ScanSource's deep relationships with the key suppliers of mobile devices, combined with Advantix's 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.

[Steve Jones, CFO at ScanSource]

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.

[Steve Jones, CFO at ScanSource]

For the segment, the % of gross profits from recurring revenues totaled approximately 13%. Adjusted EBITDA margin for the segment increased 61 basis points to 4.2%. In our Intellisys and 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 maintain market share. Gross profits increased 2% year-over-year, while Adjusted EBITDA for the segment declined slightly due to increased investments in the 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 zero on our trailing 12-month Adjusted EBITDA basis. Adjusted ROIC for the quarter was 14.6%, and share repurchases for the quarter totaled $21 million.

[Steve Jones, CFO at ScanSource]

We have a strong balance sheet and are well-positioned to execute on our strategic priorities and achieve our three-year goals that you can find in the infographic and our investor presentation in the investor section of our website. We believe with the contributions and are very pleased with the contributions from the acquisitions we announced around this time last year, and we're excited about the most recent acquisition of DataXoom and what they bring to our channel capabilities and our strategic plan. We continue to have an active pipeline of acquisition targets for both segments. These targets would expand our capabilities and help us drive additional value across our partner ecosystem while supporting our strategic goals. We will maintain our discipline in evaluating M&A opportunities and believe there's room for both acquisitions and share repurchases while maintaining a target net debt leverage ratio of one to two times Adjusted EBITDA.

[Steve Jones, CFO at ScanSource]

In closing, we want to reconfirm our FY 2026 full-year outlook. We believe the full-year net sales growth will range between $3.1 billion and $3.3 billion. Full-year Adjusted EBITDA will range between $150 million and $160 million, and we'll deliver at least $80 million in Free Cash Flow. We still believe that revenue growth will accelerate in the second half of our fiscal year. We'll now open it up for questions.

[Operator]

Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Keith Housem of North Coast Research. Please go ahead, Keith.

[Keith Housum, Senior Research Analyst at North Coast Research]

Great. Hey, good morning, guys. Good to see the performance of the bottom line, but of course, the top line probably is a little bit troubling here as we look over the past year, year and a half. I guess, Mike, any thoughts there on, are you guys losing share, do you think, to competitors in this space, or are you guys purposely walking away from some business? Maybe 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, year and a half, the trends have been working against you guys on the top line.

[Mike Baur, Chair and CEO at ScanSource]

Hey, Keith. From our standpoint, we have always said that we want profitable growth, right, from the top line. 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 two years talking about, the measure for our future is our GP growth. 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. Part of the challenge is to answer part of your question, we don't believe we lost market share. As I've said many times before, I think all the manufacturers tell all the distributors they don't lose market share. I don't put a lot of credibility there. That's just a side comment. I believe our teams have executed very well with those key suppliers.

[Keith Housum, Senior Research Analyst at North Coast Research]

Great. Thanks. You're right. GP was great, especially in STS. I noticed in the earnings report, you guys mentioning suppliers' rebates or vendor payments. I guess, are those sustainable? Are those one-time? Or has there been a shift here that we should look at going for the rest of the year?

[Steve Jones, CFO at ScanSource]

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

[Keith Housum, Senior Research Analyst at North Coast Research]

Yeah. I know you probably don't want to get too much into details, but any way you can parse out how much of your GP was more to that one-time price actions?

[Steve Jones, CFO at ScanSource]

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.

[Keith Housum, Senior Research Analyst at North Coast Research]

Great. Thanks. I appreciate that color. Congratulations on the DataXoom acquisition. 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 at 17 employees, but perhaps any revenue or margin profile to kind of think about going forward?

[Steve Jones, CFO at ScanSource]

Yeah. 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 sized acquisition. They will have higher margins than our typical business in the STS segment. It will be margin accretive from a percentage.

[Mike Baur, Chair and CEO at ScanSource]

Maybe I'll add one more comment to that, Keith, that part of the strategy here is a reminder 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.

[Keith Housum, Senior Research Analyst at North Coast Research]

Great. Thanks, guys. I'll jump back in the queue.

[Mike Baur, Chair and CEO at ScanSource]

Okay.

[Operator]

Thank you. Our next question comes from the line of Gury Hardwick of Barclays. Please go ahead, Gury.

[Guy Hardwick, Director at Barclays]

It's Guy Hardwick. Good morning, guys. If 30 basis points of GP margin came from supplier rebates in place, 100 basis points came from mix. First of all, have I got that correct? Maybe it'd be a good time for you to give us a refresher on your inventory valuation method. Bear in mind what you said about supplier price increases last year having impact this year.

[Steve Jones, CFO at ScanSource]

Yeah. Hi, Guy. Good morning, and thanks for joining us today. Yeah, I would say you're in the right range in terms of what benefited it from mix. 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. 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. Our inventory would be valued in a first-in, first-out weighted average basis.

[Guy Hardwick, Director at Barclays]

Okay. Just to follow up. Obviously, on the slide, you have, I think it's slide three, the key technologies and growth drivers. That's based on FY 2025. If you just take those five end markets, which were up and which were down in the quarter?

[Steve Jones, CFO at ScanSource]

Those charts that we add in there, those really help us guide where we were thinking for the full year. We do use FY 2025. 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. We try to steer clear of that.

[Guy Hardwick, Director at Barclays]

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

[Mike Baur, Chair and CEO at ScanSource]

Yeah. 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 less about where the growth was coming from. 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 is not 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. Sometimes they delineate their results as how much grew in the channel or not, but not always. We have to always remind our investors, too. We are a part of their supplier story, but we are not always aligned with their story.

[Mike Baur, Chair and CEO at ScanSource]

They can have great revenues, and the channel as a group does not. Our measure is typically what we try to lead with, which Steve said was, "We don't believe we lost any market share." Within the channel that we compete in, we didn't lose market share. That is how we separate our results and try to help you guys understand sometimes our results won't mirror the suppliers. 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. I wish I could help you more on the specifics of why those two suppliers would be different than ours, but just remember that we're, as a channel, we're only a part of their success.

[Guy Hardwick, Director at Barclays]

Thank you. I'll pass it on.

[Mike Baur, Chair and CEO at ScanSource]

You bet.

[Operator]

Thank you, Guy. Our next question comes from the line of Adam Tendl of Raymond James. Please go ahead, Adam.

[Adam Tindle, Managing Director at Raymond James]

Okay. Thanks. Good morning. Steve, I wanted to start with a question for you on guidance. Leading into this question, I just want to acknowledge I was glad to see gross profit growth put into the three-year targets. I think that metric makes a lot more sense. For now, for this year, we're basing guidance on net sales. 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 the 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?

[Adam Tindle, Managing Director at Raymond James]

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? Thanks.

[Steve Jones, CFO at ScanSource]

Yeah. Good morning, Adam. Thanks for the question. When we looked internally to our plan, Q1 is fairly close to what we thought. 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. 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. That gives us confidence that this is a timing issue, not necessarily a weakness in overall demand.

[Adam Tindle, Managing Director at Raymond James]

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. I'm just wondering what you're seeing early on in calendar Q4, the December quarter.

[Steve Jones, CFO at ScanSource]

Yeah. 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 two 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.

[Mike Baur, Chair and CEO at ScanSource]

Adam, I'll just chime in as Mike. Good morning. Our enthusiasm for our guidance is reaffirmed as of last week. What we knew last week about the quarter to date is reflected in our reaffirming the annual.

[Adam Tindle, Managing Director at Raymond James]

Okay. That's helpful. Maybe just Mike, one for you. I was glad to see the three-year target updates. I know this is a little bit more of what Steve owns, but the conceptual question here, follow me. The 80+% 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% to acquisitions, X% to returning cash to shareholders, etc. 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?

[Adam Tindle, Managing Director at Raymond James]

Thanks.

[Mike Baur, Chair and CEO at ScanSource]

I think what we said last quarter and what Steve said in his prepared remarks is that we still believe we can do share repurchases and acquisitions without any specific structure or percentile on a chart. It was a very good discussion with our board, the last two 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. 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. We like the fact that we have the capability to do both.

[Mike Baur, Chair and CEO at ScanSource]

Right now, that's the message we're trying to continue to reemphasize is that we're still doing both, acquisitions and repurchases.

[Adam Tindle, Managing Director at Raymond James]

Okay. Great to hear. Thank you, guys.

[Mike Baur, Chair and CEO at ScanSource]

You bet.

[Operator]

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Again, that's star one one on your telephone to ask a question. Our next question comes from the line of Greg Burns of Sidoti. Your line is open, Greg.

[Greg Burns, Analyst at Sidoti]

Morning. 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?

[Mike Baur, Chair and CEO at ScanSource]

Hey, 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. An order doesn't get billed and, if you will, either installed or delivered for anywhere from 6-18 months in the Intelisys model. 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. In this quarter, we had double-digit new order growth year-over-year and quarter-over-quarter. We believe that's our benchmark as to are the investments working.

[Greg Burns, Analyst at Sidoti]

Okay. Great. Great. Thanks for the color there. Appreciate it.

[Mike Baur, Chair and CEO at ScanSource]

You bet.

[Operator]

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

[Steve Jones, CFO at ScanSource]

Thank you. 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.

[Operator]

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

Participants

Executives

• Steve Jones, CFO
• Mary Gentry, SVP, Finance, and Treasurer
• Mike Baur, Chair and CEO

Analysts

• Guy Hardwick, Director at Barclays
• Keith Housum, Senior Research Analyst at North Coast Research
• Greg Burns, Analyst at Sidoti
• Adam Tindle, Managing Director at Raymond James