ScanSource reaffirms $3.1B–$3.3B FY26 sales outlook while expanding converged solutions and acquisitions

Earnings Call Insights: ScanSource, Inc. (SCSC) Q1 2026

MANAGEMENT VIEW

* CEO Mike Baur opened by highlighting ScanSource’s strategy in the evolving technology distribution landscape, emphasizing the convergence of hardware, software, and services. He stated, "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."
* Baur detailed recent investments in the Intelisys & Advisory segment, including the expansion of the solutions engineering team focused on advanced technologies and the launch of Tech Checks, an AI-powered sales tool.
* The Integrated Solutions Group (ISG) introduced Smart Series solutions, including Smart Warehouse and Smart Retail, and completed the acquisition of DataXoom in October, adding B2B mobile data connectivity capabilities and strengthening relationships with major U.S. carriers.
* CFO Stephen Jones reported, "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%." He added, "Adjusted ROIC for the quarter was 14.6% and share repurchases for the quarter totaled $21 million."
* Jones reaffirmed the company’s commitment to both acquisitions and share repurchases, stating, "We continue to have an active pipeline of acquisition targets for both segments... while maintaining a target net debt leverage ratio of 1 to 2x adjusted EBITDA."

OUTLOOK

* The company reaffirmed its fiscal year 2026 full year outlook, projecting net sales between $3.1 billion and $3.3 billion, full year adjusted EBITDA between $150 million and $160 million, and at least $80 million in free cash flow.
* Management expects revenue growth to accelerate in the second half of the fiscal year. Baur explained, "We still believe that revenue growth will accelerate in the second half of our fiscal year."

FINANCIAL RESULTS

* Gross profits increased 6% and non-GAAP EPS grew 26% year-over-year for Q1. Adjusted EBITDA margin reached 5.2%, with a cash conversion of non-GAAP net income at 88%.
* Specialty Technology Solutions net sales declined 5% year-over-year and 9% quarter-over-quarter, attributed to large deal pull-ins in Q4, but gross profits grew 7% year-over-year and 3% quarter-over-quarter. Recurring revenues contributed approximately 13% of gross profits in this segment.
* The Intelisys & Advisory segment saw net sales increase 4% year-over-year, annualized net billings rise to $2.78 billion, and gross profits up 2% year-over-year, though adjusted EBITDA declined slightly due to increased investments in SG&A.
* The company ended Q1 with approximately $125 million in cash and a net debt leverage ratio near zero.

Q&A

* Keith Housum, Northcoast Research, questioned the top-line decline and potential market share loss. Baur responded that the focus remains on profitable growth, noting, "We don't believe we lost market share."
* Housum asked about the sustainability of supplier rebates and vendor payments. Jones replied, "We think a lot of that is sustainable...some of the price actions that we -- that the suppliers did last year flow through our inventory turns."
* Guy Hardwick, Barclays, inquired about gross profit mix and inventory valuation. Jones confirmed, "Our inventory would be valued in a first in, first out, weighted average basis."
* Adam Tindle, Raymond James, sought clarification on guidance confidence. Baur stated, "Q1 is fairly close to what we thought. And so that gave us confidence to reconfirm our guidance and our outlook."
* Gregory Burns, Sidoti, asked about Intelisys investments translating to pipeline activity. Baur reported, "We had double-digit new order growth year-over-year and quarter-over-quarter."

SENTIMENT ANALYSIS

* Analysts’ tone was slightly negative, pressing on revenue declines and sustainability of margins, but acknowledged strong bottom-line performance and strategic fit of acquisitions.
* Management maintained a confident tone in prepared remarks and Q&A, frequently reaffirming their strategic direction and guidance. Baur and Jones both emphasized sustainable growth and confidence in long-term plans.
* Compared to the previous quarter, management's confidence remains steady, while analysts' questions shifted more toward sustainability and growth catalysts.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for FY26 net sales and adjusted EBITDA remained unchanged from Q4, with management reiterating expectations of stronger growth in the year’s second half.
* Strategic focus continues on converged solutions, channel partner transformation, and targeted acquisitions, expanding on initiatives introduced last quarter.
* Analysts shifted focus from segment-level growth drivers and competitive pressures in Brazil last quarter to questions about top-line sustainability, market share, and the impact of new investments.
* Management's tone stayed confident, especially regarding new solutions and acquisitions; analysts became more focused on execution risk and growth timing.

RISKS AND CONCERNS

* Management cited delays and fragmentation of large deals as a challenge for Specialty Technology Solutions, yet stressed these were timing issues rather than lost opportunities.
* Jones noted increased SG&A investments affecting Intelisys & Advisory EBITDA, but expects these to drive future billings growth.
* Analysts highlighted concerns over sustained top-line pressure and the durability of supplier-driven margin improvements.

FINAL TAKEAWAY

ScanSource management reiterated confidence in its strategic transformation and ability to deliver on fiscal 2026 targets, supported by strong cash generation, acquisitions, and evolving partner solutions. The company remains focused on expanding its role in converged technology markets, with expectations for accelerated growth in the second half of the fiscal year, while maintaining discipline in capital allocation and operational execution.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/scsc/earnings/transcripts]

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