ScanSource, Inc.

What they do

ScanSource distributes hardware, SaaS, connectivity, and cloud services from over 500 suppliers to channel partners (VARs, advisors, ISOs, ISVs, MSPs) primarily in the U.S., Canada, and Brazil. It operates two segments: Specialty Technology Solutions and Intelisys & Advisory, with distribution facilities in Mississippi, California, Kentucky, and Brazil.

Revenue drivers

• Specialty Technology Solutions — Largest segment; Q3 FY26 net sales of $740.8M, up 9.2% year-over-year, driven by growth across most technologies in North America.
• Intelisys & Advisory — Smaller segment; Q3 FY26 net sales of $26.0M, down 1.5% year-over-year, primarily due to lower Resourcive sales.
• Recurring revenue — Recurring revenue grew 3.6% year-over-year in Q3 FY26; accounted for 34.7% of gross profit in Q3 FY26 versus 35.5% in prior-year quarter.

Recent performance

For the quarter ended March 31, 2026, net sales rose 8.8% year-over-year to $766.8M, with gross profit up 6.9% to $107.1M and gross margin at 14.0% (down 25bp). GAAP net income was $16.9M ($0.78 diluted EPS), down 3.1% from $17.4M, while non-GAAP diluted EPS rose 9.3% to $0.94. For the first nine months of FY26, operating cash flow was $125.4M and free cash flow was $118.6M. Full fiscal 2025 net sales totaled $3.04B with net income of $71.5M.

Strategy

Management's strategy is to drive sustainable, profitable growth by orchestrating converging technology solutions through a growing ecosystem of channel partners, leveraging multiple sales models for hardware, SaaS, connectivity, and cloud. The company focuses on operational excellence, delivering exceptional experiences for partners and suppliers, and using its strong balance sheet for organic growth and strategic acquisitions. It aligns teams, tools, and processes around channel partners to create efficiencies and generate end-user demand. The company realigned its segments effective July 1, 2024, to enhance this strategy.

Risks

• Macroeconomic and tariff uncertainty — Tariffs, inflation, geopolitical conflicts, and trade policy shifts could adversely affect demand and cost structures; the company expects to pass through supplier price increases but cannot predict the ultimate impact.
• Talent retention — Failure to attract and retain high-quality employees in key roles could harm operations and financial results, given the company's dependence on experienced staff.
• Channel partner and supplier concentration — Loss of key supplier relationships or channel partner demand could significantly reduce sales, as the business depends on a broad but critical ecosystem.
• Integration and acquisition risk — Strategic acquisitions, such as Resourcive, may fail to achieve expected synergies or may disrupt operations, as evidenced by lower Intelisys sales attributed to Resourcive.

Outlook

Management reaffirmed its fiscal 2026 annual outlook for net sales of $3.0 billion to $3.1 billion and Adjusted EBITDA, while raising free cash flow expectations. They expressed confidence in achieving their three-year strategic goals. The company is actively monitoring macro conditions and expects to pass through tariff-related supplier price increases, but cannot predict the effectiveness of mitigation strategies.