ScanSource reported first‑quarter 2026 results that showed a 4.6% year‑over‑year decline in net sales to $739.7 million, but the company’s gross margin rose to 14.5% from 13.1% and operating income increased 46.9% to $25.9 million. Net income was $19.9 million, or $0.89 per diluted share, while non‑GAAP net income reached $23.7 million, or $1.06 per diluted share, beating the consensus EPS estimate of $0.91 by $0.15. The company’s adjusted EBITDA climbed 8.2% to $38.6 million, a 5.22% margin, and it reaffirmed its fiscal‑year 2026 guidance of $3.1 billion to $3.3 billion in net sales, $150 million to $160 million in adjusted EBITDA, and at least $80 million in free cash flow.
The revenue decline was driven by a 5.2% drop in product and service sales and fewer large deals, which weighed on the Specialty Technology Solutions segment that fell 4.9% year‑over‑year. In contrast, the Intelisys & Advisory segment grew 4.0%, reflecting stronger demand for consulting and managed services. The mix shift toward higher‑margin recurring revenue, which grew 8% year‑over‑year, helped offset the top‑line weakness and contributed to the margin expansion.
Margin growth was largely a result of favorable supplier program recognition and a shift in the revenue mix toward recurring contracts. The company’s gross margin improvement from 13.1% to 14.5% reflects both pricing power in its high‑margin services and cost discipline in its product distribution channel. Operating income’s 46.9% increase, despite lower sales, underscores the company’s ability to leverage its recurring revenue base to drive profitability.
The EPS beat was driven by disciplined cost management and the expansion of recurring revenue, which provided a higher contribution margin. Non‑GAAP EPS of $1.06 surpassed the consensus of $0.90–$0.91 by $0.16, a 17% beat. Management attributed the strong earnings to “double‑digit EPS growth and strong free cash flow” and emphasized that the company is executing its three‑year strategic plan. The company’s GAAP EPS of $0.89, while slightly below the consensus of $0.91, still represented a modest beat of $0.02.
Management reaffirmed its fiscal‑year outlook and highlighted expected revenue acceleration in the second half of the year, driven by the integration of the DataXoom acquisition and continued growth in recurring revenue streams. The DataXoom deal, completed on October 20, 2025, added a connectivity platform and 17 employees, strengthening ScanSource’s hybrid distribution capabilities. The company’s guidance signals confidence in its strategic focus on recurring revenue and channel partner enablement, even as it navigates a challenging sales environment.
Investors reacted negatively to the revenue miss, which fell short of the consensus estimate of $784.85 million to $788.77 million. The market’s focus on the top‑line shortfall outweighed the EPS beat and margin expansion, underscoring the importance investors place on revenue growth in the technology distribution sector.
Management’s comments and the company’s guidance suggest a cautious but optimistic outlook: the firm is confident in its ability to generate sustainable cash flow and to accelerate revenue in the second half of the year, while remaining vigilant about the headwinds posed by a weaker sales environment.
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