SNX — Q3 2026 Financial Report Analysis

AI server builds and a European recovery push profit up 84%, but the growth is being paid for in cash

TD SYNNEX makes money as a middleman. It buys PCs, servers, networking gear and software from vendors such as Apple, HP and Cisco and resells them to tens of thousands of IT resellers. Through its Hyve Solutions unit it also designs and builds data-center servers for a small number of very large cloud companies. In the quarter to August 31, 2026 (its fiscal third quarter; the fiscal year ends in November), revenue rose 37.7% to $21.6 billion and net income rose 83.5% to $416 million. Profit grew more than twice as fast as sales because overhead barely moved: selling, general and administrative (SG&A) costs rose only 4.9% while gross profit rose 26.2%. The catch is cash. Operations used $917 million in the quarter, against $246 million generated a year ago, because inventory built up for Hyve's server programs grew far faster than sales.

At a glance

• Revenue +37.7% to $21.6B, above the top of the company's own forecast range. Every one of the four segments grew more than 20%. Hyve's server business grew fastest at +51.7%.
• Operating margin 2.98%, up from 2.45%. In plain terms the company keeps about 3 cents of each sales dollar after running the business. That is thin even for a distributor, but it is 0.53 points better than a year ago, and Europe's profit more than tripled.
• Inventory $15.3B, up 67% from a year earlier, while cost of goods sold rose 39%. That pushed nine-month operating cash flow to −$2.1B and was paid for with new borrowing.

The numbers

bps = basis points; 100 bps is 1 percentage point. n/m = not meaningful. The cash conversion cycle is how many days pass between TD SYNNEX paying for goods and getting paid for them: days of receivables plus days of inventory, minus days of payables. More days means more of the company's own money is tied up.

Why "gross billings" is bigger than revenue. On some sales, mostly software subscriptions, vendor service contracts and some of Hyve's supply-chain work, TD SYNNEX only arranges the deal and does not own the goods. Accounting rules then let it book only its fee as revenue, not the full invoice. Gross billings adds the full invoice value back, so it is the better measure of how much business actually passed through. In Q3, 32.3% of billings were removed this way, up from 31.1% a year ago.

Segment performance

The company changed its segment reporting this fiscal year. The distribution business is now split into three regions, and Hyve is reported on its own. Prior-year figures have been restated to match.

• Hyve is now 18% of revenue and 39% of segment operating income. The filing credits growth in both server manufacturing (design and contract manufacturing for cloud and AI data centers) and supply-chain services. The reported +51.7% understates the real volume growth. More Hyve programs are now booked "net" (fee only), and the filing says this cut Hyve's revenue growth by about 66 percentage points. The same accounting shift is also why Hyve's margin looks higher: management says net presentation added about 2 points to it.
• Europe is the biggest profit story. Operating income went from $35M to $117M. The filing attributes this to higher sales plus better gross margin on Endpoint Solutions (PCs, phones, printers), partly offset by higher personnel costs and lower margins in Advanced Solutions (data-center hardware, security and software). Europe's margin is still well below the Americas, so there is room left to improve, but a 1.84% margin also means a small change in pricing can swing results a lot.
• Americas growth is partly accounting mix as well, in the other direction. More product sold on a "gross" basis (full invoice booked as revenue) added about 12 points to Americas revenue growth. On an adjusted (non-GAAP) basis that same mix pulled the Americas operating margin down slightly, from 3.04% to 2.96%. Underlying Americas demand grew closer to the high-20s percent.

What the headline numbers hide

• Cash conversion is poor, and getting worse. Over nine months net income was $1,077M, but operating cash flow was −$2,078M. A year ago it was +$71M. Free cash flow (operating cash minus capital spending) was −$976M in Q3 alone. The cause is inventory: up $5.8B in nine months, from $9.5B in November to $15.3B. The filing says this was "primarily to support growth in our Hyve Solutions business." Days of inventory rose to 70 from 58 a year ago. Suppliers carried much of the load, with payables up $4.8B and days payable at 103, but the gap was still filled with debt. Total borrowings are $5.5B, up from $4.6B in November. Cash fell to $749M from $2.4B, partly because $700M of bonds were repaid in August. For a distributor, a cash outflow in a growth year is normal. The scale is what deserves attention: building inventory for a few large server customers ties up more cash than the core distribution business ever did.
• Interest costs are climbing. Interest and finance charges rose 32.2% to $121M. Fees on receivables sold to banks (a way of getting customer payments early) rose to $28.6M from $18.0M. That is the direct cost of carrying the bigger working-capital balance.
• GAAP EPS includes a one-off investment gain that adjusted EPS removes. Other income includes $37.4M of dividends from equity investments in Q3 (plus $33.1M of gains on selling investments earlier in the year). The company's adjusted figures exclude these. Its adjusted (non-GAAP) EPS also excludes $75M of amortization (an accounting write-down of intangible assets from past acquisitions), $16M of share-based pay and $2M of restructuring cost. Adjusted EPS of $5.68 grew a more modest 58.7%, which is the better guide to the underlying pace.
• A new customer warrant reduces revenue. In May 2026 TD SYNNEX gave Amazon a warrant, a right to buy up to 3.24 million shares, most of it at $191.10, that vests as Amazon's qualifying purchases reach set thresholds. This cut Q3 revenue by $14.5M, and adjusted results do not exclude it. In effect it is a volume discount paid in stock, and it will keep reducing revenue as purchases vest more of the warrant.
• Buybacks and taxes played a small part. Diluted shares fell 3.0% to 79.4M, so most of the 89% EPS gain came from higher profit, not a lower share count. Taxes worked against EPS, with the effective rate rising to 25.0% from 22.7%.
• Receivables look normal. Net receivables rose 37% from a year earlier, in line with revenue, and days sales outstanding held at 64. The bad-debt allowance is flat at $105M despite higher sales. The filing does cite "higher credit costs" as a reason SG&A rose, so it is worth watching.
• Vendor and customer concentration shifted. Apple products fell below 10% of revenue this quarter (11% a year ago), as did HP. A single customer, which was 11% of revenue a year ago, is also below 10% now. Growth is broadening across customers even as Hyve's share grows.

Takeaway: TD SYNNEX's profit is growing far faster than its sales because overhead is nearly flat while volume rises about 40%. That is real operating leverage, not accounting. But a growing share of the growth comes from Hyve's data-center server programs, which require billions of dollars of inventory up front. So for now every extra dollar of profit comes with several dollars of new borrowing. The earnings are solid. The open question is whether the cash comes back once that inventory ships.

Outlook

Management's fiscal Q4 forecast (September–November 2026), from the September 24 earnings release:

The revenue midpoint of $22.2B would be about 28% above last year's fiscal Q4 ($17.4B), a slowdown from Q3's 37.7% growth but from a much bigger base. The GAAP net income range sits below Q3's $416M, consistent with Q3 having been lifted by the $37.4M investment dividend that the outlook does not assume will recur. The non-GAAP EPS midpoint of $5.90 is about 4% above Q3's $5.68. The release says Q3 came in above the high end of the company's own outlook for revenue, gross billings and non-GAAP EPS.

What to watch in the Q4 (full-year) filing: whether inventory starts to fall and operating cash turns positive. The 10-Q notes that fiscal Q4 is seasonally the company's strongest sales quarter, so it is the natural point for some of the built-up inventory to turn back into cash. Also watch whether Europe's margin gains hold, and how much more revenue the Amazon warrant takes as it vests. If inventory is still rising at year-end, the debt-funded growth becomes a bigger part of the story.