ScanSource Inc. (NASDAQ:SCSC) had a good day Thursday. The stock jumped after the company reported fiscal fourth-quarter 2026 results that beat Wall Street's expectations, and the CEO made it clear the company is done playing defense.
During the earnings call, CEO Mike Bauer said ScanSource has shifted to a mindset of "winning instead of defending," with a greater focus on taking market share. He admitted the company had gotten a bit complacent about expanding its share, but that's changing. The new approach, he said, should carry through 2027.
Bauer also talked up the planned MicroAge acquisition, which will push ScanSource into AI, data centers, cloud, and cybersecurity. He said the deal could enable services that "none of our competitors can offer our channel." CFO Steve Jones added that there's a "very strong demand environment" and that large deals returned in the second half.
ScanSource Earnings Beat Estimates
The numbers were solid. Adjusted earnings came in at $1.46 per share, beating the $1.14 estimate. Net sales rose 17.3% to $953.109 million, topping the $802.063 million estimate. GAAP earnings jumped 40.9% year over year to $1.24 per share, while adjusted earnings increased 43.1% to a company record.
Gross profit rose 14% to $119.8 million, though gross margin narrowed to 12.6% from 12.9%. Adjusted EBITDA increased 19.4% to $46.1 million.
Hardware Demand Drives Growth
Specialty Technology Solutions sales rose 17.6% to $927.2 million, with a gross margin of 10.1%. Intelisys & Advisory sales increased 7.2% to $25.9 million, with a 99.3% gross margin. Recurring revenue increased 13.5% and accounted for 31.5% of gross profit.
Geographically, U.S. sales jumped 20.8%, but Brazil sales fell 21.6%. For the full fiscal 2026, recurring revenue increased 10.6%, and its share of gross profit rose to 33.7% from 32.8%.
Cash flow was healthy too. Operating cash flow totaled $123.1 million, and free cash flow was $113.8 million. ScanSource ended the period with $88.4 million in cash and $101.4 million in debt. The company also spent $97.9 million on share repurchases.
MicroAge Deal Expands Higher-Margin Business
Separately, ScanSource agreed to acquire MicroAge for $220.5 million in cash, funded through its credit facility. The deal is expected to close in the quarter ending Sept. 30, subject to regulatory approval.
ScanSource expects the acquisition to be free-cash-flow positive and to immediately boost gross margin, adjusted EBITDA margin, and non-GAAP earnings per share in the first year. MicroAge has more than 200 associates and about 2,400 U.S. clients, and the acquisition expands ScanSource's capabilities in cloud, cybersecurity, data centers, and AI.
"The acquisition expands ScanSource's total addressable market, adds new services capabilities, and provides greater visibility into end-user needs," Chair and CEO Mike Baur said.
ScanSource Issues Strong 2027 Outlook
Looking ahead, ScanSource expects fiscal 2027 sales of $3.42 billion to $3.549 billion, above the $3.198 billion estimate. That forecast represents growth of 6% to 10% and excludes MicroAge. The company also expects adjusted EBITDA of $158 million to $165 million and free cash flow of at least $85 million.
ScanSource also set three-year targets: 5% to 7% compound annual gross-profit growth, recurring revenue reaching 50% of gross profit, and adjusted EBITDA margin approaching 6%. The company also targets free-cash-flow conversion above 80% and adjusted return on invested capital in the mid-teens.
Of course, there are risks. ScanSource cited economic weakness, inflation, tariffs, and changes in trade policy among its concerns.
SCSC Price Action: ScanSource shares were up 18.30% at $60.83 at the time of publication Thursday.
