ScanSource Inc (NASDAQ:SCSC) Stock Falls on Q1 Revenue Miss Despite Earnings Beat

ScanSource Inc (NASDAQ:SCSC) reported financial results for its fiscal first quarter that presented a mixed picture for investors, leading to a notable decline in its stock price during pre-market trading. The technology distributor surpassed bottom-line expectations but fell short on the top line, creating a complex narrative for the market to digest.

Earnings and Revenue Versus Estimates

The company's performance relative to analyst forecasts was the primary driver of the immediate market reaction. While profitability metrics showed strength, the decline in overall sales appeared to concern investors.

• Revenue Miss: First-quarter sales of $739.7 million decreased 4.6% year-over-year and came in below analyst estimates of $803.1 million.
• EPS Beat: Non-GAAP diluted earnings per share of $1.06 exceeded analyst expectations of $0.95, representing a 26.2% increase from the prior-year period.
• Market Reaction: The stock was down approximately 6.9% in pre-market trading following the earnings release, indicating investor focus on the revenue shortfall despite the earnings beat.

First Quarter Performance Highlights

Beyond the headline numbers, ScanSource's quarterly results revealed several positive operational trends, particularly in profitability and strategic areas like recurring revenue.

• Improved Profitability: Gross profit increased 5.8% to $107.5 million, with the gross margin expanding 143 basis points to 14.5%. This was attributed to favorable supplier program recognition and sales mix.
• Strong Bottom-Line Growth: GAAP net income rose 17.1% to $19.9 million, while non-GAAP net income increased 13.7% to $23.7 million.
• Operating Leverage: Operating income saw a significant jump of 46.9% to $25.9 million.
• Recurring Revenue Growth: The company noted an 8.0% year-over-year increase in recurring revenue, including contributions from acquisitions.

Balance Sheet and Capital Allocation

ScanSource maintained a solid financial position, supporting its ongoing strategic initiatives and capital return program.

• The company ended the quarter with $124.9 million in cash and cash equivalents and total debt of $133.9 million.
• Operating cash flow for the quarter was $23.2 million, with free cash flow of $20.8 million.
• ScanSource continued its share repurchase program, buying back $21.3 million of its common stock during the quarter.

Forward-Looking Guidance and Analyst Comparisons

The company's outlook for the full fiscal year provides context for its operational targets versus market expectations.

ScanSource reaffirmed its fiscal 2026 annual outlook, which includes:

• Net sales of $3.1 billion to $3.3 billion
• Adjusted EBITDA of $150 million to $160 million
• Free cash flow of at least $80 million

The midpoint of the revenue guidance range, $3.2 billion, sits slightly above the analyst consensus estimate of $3.238 billion. This suggests that while the first quarter saw a revenue shortfall, management maintains confidence in its full-year sales trajectory.

Conclusion

ScanSource's first-quarter results paint a picture of a company successfully navigating a softer sales environment by focusing on profitability and operational efficiency. The market's negative reaction appears primarily tied to the revenue miss against estimates, overshadowing the strong earnings beat and improved margins. The reaffirmed full-year guidance, which aligns closely with analyst sales expectations, may provide a foundation for stability as investors assess whether the first-quarter sales dip was a temporary setback or a more persistent trend.

For a detailed look at upcoming earnings dates and analyst estimates, review the earnings and estimates page for SCSC.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. The author has no position in SCSC. Investors should conduct their own research and consider their individual financial circumstances before making any investment decisions.