ScanSource (NASDAQ: SCSC) reported Q4 FY2026 net sales of $953.1 million, up 17.3% year over year, while GAAP diluted EPS increased 40.9% to $1.24 from $0.88. Broad-based North American hardware demand drove the sales increase, and profit grew faster than revenue despite a lower gross margin. The pending $220.5 million MicroAge acquisition could materially change the business mix, but it is excluded from FY2027 guidance.

Core Earnings Data

For the quarter ended June 30, 2026, sales increased 16.2% on the company’s constant-currency basis excluding acquisitions and divestitures, compared with reported growth of 17.3%. Gross profit rose more slowly than sales, reducing gross margin by 35 basis points to 12.6%.

Net income increased 27.5%, while diluted EPS grew 40.9%. The difference partly reflects an approximately 9.4% reduction in diluted weighted-average shares, from 22.9 million to 20.7 million.

Business and Segment Performance

Specialty Technology Solutions generated approximately 97% of quarterly sales, making its North American growth the principal driver of the consolidated result. Intelisys & Advisory grew more slowly, primarily because of higher Resourcive sales.

Products and services sales increased 17.4%, while recurring revenue rose 13.5% including acquisitions. Recurring revenue contributed 31.5% of gross profit, essentially unchanged from 31.6% one year earlier, indicating that the quarter’s faster sales growth did not materially increase recurring revenue’s share of gross profit.

Profitability, Cash Flow, and the Balance Sheet

Quarterly selling, general and administrative expenses rose approximately 14.1% to $81.7 million, slower than the 17.3% increase in sales. This operating expense leverage helped operating income and adjusted EBITDA grow faster than revenue, partially offsetting the lower gross margin.

Cash flow figures were provided on a full-year basis. FY2026 operating cash flow increased to $123.1 million from $112.3 million, and non-GAAP free cash flow totaled $113.8 million. Working capital movements were significant: accounts receivable used $133.2 million of cash and inventory used $36.7 million, while a $150.9 million increase in accounts payable provided a substantial offset.

Cash declined by $37.8 million during the fiscal year to $88.4 million. ScanSource spent $97.9 million on share repurchases and $18.2 million on acquisitions, while total debt ended the year at $101.4 million, down from approximately $136.1 million at June 30, 2025. Period-end net debt was therefore about $13.0 million.

MicroAge Could Raise the Service Mix, but Guidance Excludes It

ScanSource agreed to acquire MicroAge in an all-cash transaction for $220.5 million, with closing expected in the quarter ending September 30, 2026, subject to regulatory approval and customary conditions. The price is approximately 2.5 times ScanSource’s fiscal year-end cash balance, although the release did not specify the transaction’s funding sources.

MicroAge is an IT solutions integrator and managed services provider with approximately 2,400 U.S. clients and more than 200 employees. ScanSource expects the acquisition to add higher-margin capabilities in cloud, cybersecurity, data centers, and AI. That could shift the company beyond hardware distribution, but the financial contribution and purchase-accounting effects are not included in FY2027 guidance.

FY2027 Guidance

ScanSource expects continued standalone growth in FY2027. The adjusted EBITDA range implies approximately 4% to 9% growth from FY2026’s $151.5 million, while the free cash flow target is presented as a minimum rather than a point estimate. All guidance excludes the pending MicroAge acquisition and related purchase-accounting effects.

Recent Insider Transactions

The transaction-level information supplied lists several executive sales, one director purchase, and equity compensation activity. These transactions are presented objectively and do not, by themselves, establish insiders’ views of the company’s prospects.

Risks Investors Need to Watch

• Gross margin pressure: Hardware-led sales growth lifted revenue, but gross margin declined 35 basis points. Further mix pressure could limit how much sales growth reaches operating profit.
• Acquisition financing and integration: MicroAge’s $220.5 million cash purchase price is substantial relative to ScanSource’s $88.4 million cash balance. Funding details and post-closing leverage were not provided, while the expected benefits depend on successful integration.
• Working capital requirements: Accounts receivable and inventory consumed a combined $169.9 million of FY2026 cash, with higher accounts payable providing most of the offset. Cash conversion could weaken if that offset does not continue.
• Growth concentration: Specialty Technology Solutions accounts for nearly all sales and grew considerably faster than Intelisys & Advisory. Recurring revenue’s share of gross profit was also essentially unchanged, leaving results dependent on the hardware-heavy core business.

Summary

ScanSource’s Q4 FY2026 growth was led by North American hardware demand, with operating income and EPS rising faster than sales even as gross margin declined. Lower operating expense growth and a reduced diluted share count supported the profit increase, while full-year cash generation remained positive despite substantial working capital movements. FY2027 guidance calls for further standalone growth, but the pending MicroAge acquisition—and its effects on margins, leverage, and business mix—will be the most important factor to monitor outside that outlook.

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