ScanSource Delivers Mixed Q2 Results, Lowers Full-Year Outlook as Shares Decline
Technology distributor ScanSource Inc (NASDAQ:SCSC) reported financial results for its fiscal second quarter, ending December 31, 2025. The company posted modest top-line growth but fell short of analyst expectations on both revenue and profitability, prompting a downward revision to its full-year forecast. The market reaction was negative, with shares trading lower in pre-market activity following the announcement.
Quarterly Performance Versus Estimates
The company's second-quarter results presented a mixed picture, with reported growth failing to meet Wall Street's projections.
- Revenue: ScanSource reported net sales of $766.5 million, a 2.5% increase compared to the $747.5 million reported in the same quarter last year. However, this figure fell short of the analyst consensus estimate of approximately $795.0 million.
- Earnings Per Share: On a non-GAAP basis, diluted earnings per share (EPS) came in at $0.80. This represents a 5.9% decline from the $0.85 per share earned in the prior-year period and missed the analyst estimate of $1.03 per share by a significant margin.
While the company highlighted growth in both of its business segments and a 15.9% increase in recurring revenue, the core profitability metrics showed pressure. Gross profit margin contracted slightly to 13.4% from 13.6% a year ago. More notably, the company's adjusted EBITDA margin declined by 65 basis points to 4.07%, reflecting higher selling, general, and administrative expenses.
Revised Annual Guidance
A key driver of the negative market sentiment appears to be ScanSource's updated financial outlook for the full fiscal year 2026. The company lowered its expectations from its previous forecast.
- Net Sales: The new guidance range is $3.0 billion to $3.1 billion, down from the prior range of $3.1 billion to $3.3 billion. The midpoint of $3.05 billion is approximately 3% below the current analyst consensus estimate of $3.205 billion.
- Adjusted EBITDA: The company now expects adjusted EBITDA between $140 million and $150 million, compared to the previous range of $150 million to $160 million.
The company maintained its expectation for free cash flow of at least $80 million. Management stated the revised outlook aligns with its strategic plan and three-year goals, but the lowered targets suggest a more challenging operating environment than previously anticipated.
Financial Position and Capital Allocation
Amid the earnings pressure, ScanSource demonstrated strength in its balance sheet and cash generation.
- The company ended the quarter with $83.5 million in cash and cash equivalents and total debt of $102.7 million.
- For the first six months of fiscal 2026, ScanSource generated $54.1 million in operating cash flow and $49.7 million in free cash flow.
- The company also returned capital to shareholders, repurchasing $38.7 million worth of its stock during the six-month period.
Market Reaction and Path Forward
The pre-market decline in ScanSource's stock price reflects investor disappointment with the earnings miss and the reduction in full-year guidance. The market is likely weighing the near-term headwinds against the company's strategic initiatives, such as growing its recurring revenue mix and maintaining strong cash flow.
CEO Mike Baur emphasized the team's delivery of sales and gross profit growth alongside strong free cash flow, reaffirming commitment to the long-term strategic plan. However, the immediate focus for investors will be on the company's ability to navigate current challenges and execute against its revised, more conservative targets for the remainder of the fiscal year.
For a detailed breakdown of past earnings and future analyst estimates for ScanSource, you can review the data here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on publicly available data and should not be the sole basis for any investment decision.
