What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-05-10 · 157 added, 324 removed, 206 unchanged (70% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

ScanSource is at the center of the technological solution delivery channel, connecting businesses and institutions and providing solutions for their complex needs.

We provide technology solutions and services from leading suppliers of mobility and

barcode, point-of-sale (POS), payments, physical security, unified communications and collaboration, telecom and cloud services to our customers.

We serve approximately 30,000 sales partners located in the United States, Canada, Brazil, the UK and Europe and provide solutions and services from approximately 500 technology suppliers.

ScanSource is a leading hybrid distributor accelerating growth for partners across hardware, software, connectivity and cloud.

We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, point-of-sale (POS), payments, physical security, unified communications and collaboration (UCaaS, CCaaS), telecom and cloud services to our 30,000-plus sales partners located in the United States, Canada, Brazil, the UK and Europe.

We operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy.

During the quarter ended September 30, 2021, we renamed our operating segments and aligned technologies with our hybrid distribution growth strategy by moving some North American business with communications and collaborations solutions to the Modern Communications & Cloud segment.

Our segments each operate in the United States, Canada, Brazil and the UK:

• Specialty Technology Solutions, formerly Worldwide Barcode, Networking & Security

• Modern Communications & Cloud, formerly Worldwide Communications & Services

We sell hardware, software, connectivity and cloud solutions and services through channel partners to end-customers.

We operate distribution facilities that support our United States and Canada business in Mississippi, California, and Kentucky.

Brazil distribution facilities are located in the Brazilian states of Parana, Espirito Santo and Santa Catarina.

We provide some of our digital products, which include Software as a Service (“SaaS”) and subscriptions, through our digital tools and platforms.

Our key suppliers include 8x8, ACC Business, AT&T, Aruba/HPE, AudioCodes, Avaya, Axis, Barco, Bematech, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Hanwha, Honeywell, HID, Ingenico, Intrado, Jabra, LogMeIn, Lumen, March Networks, Masergy, Microsoft, Mitel, NCR, NICE inContact, Oracle, Palo Alto, Panasonic, Poly, RingCentral, Spectralink, Spectrum, Toshiba Global Commerce Solutions, Ubiquiti, Verifone, Verizon, Windstream, Zebra Technologies and Zoom.

Unless otherwise indicated, the amounts and analysis provided within Management's Discussion and Analysis of Financial Condition and Results of Operations pertain to our continuing operations only.

We operate our business under a management structure that enhances our technology market focus and growth strategy.

We segment our business into two technology-focused areas that each operate in the United States, Canada, Brazil and the UK:

• Worldwide Barcode, Networking & Security

• Worldwide Communications & Services

We sell hardware, software, services and connectivity through channel partners to end-customers.

For our hardware distribution, we sell products (i) to the United States and Canada from our facilities located in Mississippi, California and Kentucky and (ii) to Brazil primarily from facilities located in the Brazilian states of Parana, Espirito Santo and Santa Catarina.

We also have drop shipment arrangements with some of our suppliers, which allow us to offer products to customers without taking physical delivery at our facilities.

We provide some of our digital products, which include Software as a Service (“SaaS”) and subscriptions, through our CASCADE platform.

Our key suppliers include 8x8, ACC Business, AT&T, Aruba/HPE, Axis, AudioCodes, Avaya, Barco, Bematech, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Extreme, Fortinet, Hanwha, Honeywell, HID, Ingenico, Intrado, Jabra, Lumen, March Networks, Masergy, Microsoft, Mitel, NCR, NICE inContact, Oracle, Panasonic, Poly, RingCentral, Samsung, Sony, Spectralink, Spectrum, Toshiba Global Commerce Solutions, TPx, Ubiquiti, Verifone, Verizon, Windstream, Zebra Technologies and Zoom.

We also offer customers significant choices in cloud services through our Intelisys business, including offerings in contact center, infrastructure and unified communications.

Recent Developments

Impact of COVID-19 on our Business Environment

In early March 2020, the World Health Organization characterized COVID-19 as a pandemic.

The rapid spread of COVID-19 since December 2019 has resulted in the implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns.

The pandemic and these containment measures have had, and are expected to continue to have, a substantial impact on businesses around the world and on global, regional and national economies.

During the COVID-19 pandemic, our top priority is protecting the health and safety of our employees.

We moved quickly to transition our employees, where possible, to a fully remote working environment.

We have taken a number of measures to ensure our teams feel secure in their jobs and have the flexibility and resources they need to stay safe and healthy.

We have activated our contingency plans.

We have deployed teams to monitor the rapidly evolving situation and recommend risk mitigation actions;

we have implemented travel restrictions;

and we are following physical distancing guidelines.

We are following global guidance from authorities and health officials including, but not limited to, checking the temperature of associates when entering our facilities, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitation routines.

All of our distribution facilities have remained open and operational.

Most of our office-based employees around the world are working remotely.

Our employees have remained productive across all areas of our business, even while working remotely, and are committed to providing the high level of customer service our partners have grown to expect from us in order to achieve positive results.

We continue to monitor and assess the impacts of the COVID-19 pandemic.

During the first nine months of our fiscal year, GAAP net sales declined 4.7% year-over-year while non-GAAP net sales, which exclude the negative impact of fluctuations in foreign currency translation, decreased 1.9% year-over-year.

The spread of COVID-19 since December 2019 has resulted in the implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders, business shutdowns, and limitations of in-person gatherings.

The pandemic and these containment measures have had a substantial impact on businesses around the world and on global, regional and national economies.

We cannot predict the continued impact of the pandemic, including the impact of the proposed U.S.

vaccine mandate, and the degree to which our business and results of operations may be affected.

Our top priority is protecting the health and safety of our employees.

We have teams monitoring the evolving situation and recommending risk mitigation actions.

All of our distribution facilities have remained open and operational throughout the pandemic.

Our employees are committed to providing the high level of customer service our partners have grown to expect from us in order to achieve positive results.

In July 2020, we announced actions to address the business impacts of the COVID-19 pandemic and prepare for our next phase of growth.

These actions included a $30 million annualized expense reduction plan.

During the quarter and nine months ended March 31, 2021, we recognized approximately $0.6 million and $9.3 million, respectively, for restructuring and other charges, largely for severance and employee benefits for employees who left the Company as part of this plan.

These actions are designed to better align the cost structure for our wholesale distribution business with lower sales volumes as a result of the

COVID-19 pandemic.

As part of the plan, we are continuing to invest in our higher growth agency business, Intelisys.

These actions were designed to better align the cost structure for our wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic.

As part of the plan, we have continued to invest in our higher growth agency business, Intelisys.

Strong growth for the Intelisys business has continued, even with the COVID-19 pandemic.

We rely on a channel sales model offering hardware, software, services and connectivity from leading technology suppliers to sales partners that solve end customers' challenges.

With our CASCADE platform, we also offer customers SaaS and subscription services from leading technology suppliers.

We rely on a channel sales model using a hybrid distribution strategy to offer hardware, software, connectivity and cloud from leading technology suppliers to sales partners that solve end customers' challenges.

Through our digital tools and platforms, we offer customers SaaS and subscription services from leading technology suppliers.

While we do not manufacture products, we provide technology solutions and services from leading technology suppliers.

Our solutions may include a combination of offerings from multiple suppliers or give our sales partners access to additional services, such as custom configuration, key injection, integration support, custom development and other services.

Our solutions may include a combination of

offerings from multiple suppliers or give our sales partners access to additional services, such as custom configuration, key injection, integration support, custom development and other services.

We also offer the flexibility of on-premise, cloud and hybrid solutions.

As a trusted adviser to our sales partners, we provide more complete solutions through a better understanding of end-customer needs.

We drive growth through enhancing our sales partners' capabilities to provide hardware, software, services and connectivity solutions.

We drive growth through enhancing our sales partners' capabilities to provide hardware, software, connectivity and cloud solutions.

Our teams deliver value-added support programs and services, including education and training, network assessments, implementation, custom development and marketing to help our sales partners extend their capabilities, develop new technology practices or reach new end customers.

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As part of our strategic plan, we consider strategic acquisitions and alliances to enhance our technology offerings and service capabilities.

Results of Operations from Continuing Operations

The following tables summarize our net sales results by technology segment and by geographic location for our continuing operations for the quarters and nine months ended March 31, 2021 and 2020:

Quarter ended March 31, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

Results of Operations

The following tables summarize our net sales results by technology segment and by geographic location for the quarters ended September 30, 2021 and 2020:

Quarter ended September 30, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

Net Sales by Segment:

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(in thousands)

Worldwide Barcode, Networking & Security $ 502,227 $ 489,218 $ 13,009 2.7 % 3.5 %

Worldwide Communications & Services 227,646 255,366 (27,720) (10.9) % (6.8) %

Total net sales $ 729,873 $ 744,584 $ (14,711) (2.0) % — %

Nine months ended March 31, % Change, Constant Currency, Excluding Planned Divestitures and Acquisitions (a)

2021 2020 $ Change % Change

(in thousands)

Worldwide Barcode, Networking & Security $ 1,577,197 $ 1,645,406 $ (68,209) (4.1) % (2.9) %

Worldwide Communications & Services 720,914 765,879 (44,965) (5.9) % 0.4 %

Specialty Technology Solutions $ 501,711 $ 408,777 $ 92,934 22.7 % 22.6 %

Modern Communications & Cloud 355,600 348,565 7,035 2.0 % 1.5 %

Total net sales $ 857,311 $ 757,342 $ 99,969 13.2 % 12.9 %

(a) A reconciliation of non-GAAP net sales in constant currency, excluding Divestitures and acquisitions is presented at the end of Results of Operations , under Non-GAAP Financial Information.

Worldwide Barcode, Networking & Security

The Worldwide Barcode, Networking & Security segment consists of sales to customers in North America and Brazil.

For the quarter ended March 31, 2021, net sales for the Barcode, Networking & Security segment increased $13.0 million, or 2.7%, compared to the prior-year quarter.

Excluding the foreign exchange negative impact, adjusted net sales increased $17.1 million, or 3.5%, for the quarter ended March 31, 2021 compared to the prior-year quarter.

The increase in net sales and adjusted net sales is primarily due to increased sales in our business in North America and Brazil (in local currency).

During the quarter, we saw continued progress in recovering from the sales impacts of the COVID-19 pandemic across key technologies in North America and Brazil.

Net sales decreased $68.2 million, or 4.1% for the nine months ended March 31, 2021 compared to the prior nine month period.

Excluding the foreign exchange negative impact, adjusted net sales decreased $48.5 million, or 2.9%, compared to the prior nine month period.

The decrease in net sales and adjusted net sales is primarily due to lower sales volume across North America, partially offset by sales growth in Brazil.

Worldwide Communications & Services

The Worldwide Communications & Services segment consists of sales to customers in North America, Brazil, Europe and the UK.

For the quarter ended March 31, 2021, net sales decreased $27.7 million, or 10.9% compared to the prior-year quarter.

Excluding the foreign exchange negative impact, adjusted net sales for the quarter ended March 31, 2021 decreased $17.2 million, or 6.8% from the quarter ended March 31, 2020.

The decrease in net sales and adjusted net sales reflects lower sales volumes in North America, excluding Intelisys, partially offset by sales growth in Brazil (in local currency).

For the nine months ended March 31, 2021, net sales decreased $45.0 million, or 5.9% compared to the prior nine month period, primarily from decreases in sales volume in North America and Brazil.

Excluding the foreign exchange negative impact, adjusted net sales increased $2.7 million, or 0.4%, primarily due to sales growth in Brazil (in local currency).

Quarter ended March 31, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

(a) A reconciliation of non-GAAP net sales in constant currency is presented at the end of Results of Operations , under Non-GAAP Financial Information.

Specialty Technology Solutions

The Specialty Technology Solutions segment consists of sales to customers in North America and Brazil.

For the quarter ended September 30, 2021, net sales for the Specialty Technology Solutions segment increased $92.9 million, or 22.7%, compared to the prior-year quarter.

Excluding the foreign exchange negative impact, adjusted net sales increased $92.5 million, or 22.6%, for the quarter ended September 30, 2021 compared to the prior-year quarter.

The increase in net sales and adjusted net sales is primarily due to broad-based growth across our technologies in North America.

Modern Communications & Cloud

The Modern Communications & Cloud segment consists of sales to customers in North America, Brazil, Europe and the UK.

For the quarter ended September 30, 2021, net sales increased $7.0 million, or 2.0% compared to the prior-year quarter.

Excluding the foreign exchange negative impact, adjusted net sales for the quarter ended September 30, 2021 increased $5.1 million, or 1.5% from the prior-year quarter.

The increase in net sales and adjusted net sales reflects the shift to cloud and subscriptions.

For the Intelisys business, first quarter 2022 net sales increased 13.7% year-over-year.

Quarter ended September 30, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

Net Sales by Geography:

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Total net sales $ 857,311 $ 757,342 $ 99,969 13.2 % 12.9 %

Nine months ended March 31, % Change, Constant Currency, Excluding Planned Divestitures and Acquisitions (a)

2021 2020 $ Change % Change

(in thousands)

United States and Canada $ 2,069,327 $ 2,173,515 $ (104,188) (4.8) % (4.8) %

International 228,784 237,770 (8,986) (3.8) % 24.6 %

Total net sales $ 2,298,111 $ 2,411,285 $ (113,174) (4.7) % (1.9) %

(a) A reconciliation of non-GAAP net sales in constant currency, excluding Divestitures and acquisitions is presented at the end of Results of Operations in the non-GAAP section.

The following tables summarize our gross profit for our continuing operations for the quarters and nine months ended March 31, 2021 and 2020:

Quarter ended March 31, % of Net Sales March 31,

2021 2020 $ Change % Change 2021 2020

(in thousands)

Worldwide Barcode, Networking & Security $ 43,869 $ 41,870 $ 1,999 4.8 % 8.7 % 8.6 %

Worldwide Communications & Services 44,247 42,708 1,539 3.6 % 19.4 % 16.7 %

Gross profit $ 88,116 $ 84,578 $ 3,538 4.2 % 12.1 % 11.4 %

Nine months ended March 31, % of Net Sales March 31,

(a) A reconciliation of non-GAAP net sales in constant currency is presented at the end of Results of Operations in the non-GAAP section.

The following tables summarize our gross profit for the quarters ended September 30, 2021 and 2020:

Quarter ended September 30, % of Net Sales September 30,

2021 2020 $ Change % Change 2021 2020

(in thousands)

Worldwide Barcode, Networking & Security $ 127,639 $ 143,293 $ (15,654) (10.9) % 8.1 % 8.7 %

Worldwide Communications & Services 127,300 138,130 (10,830) (7.8) % 17.7 % 18.0 %

Specialty Technology Solutions $ 45,694 $ 34,665 $ 11,029 31.8 % 9.1 % 8.5 %

Modern Communications & Cloud 55,606 46,114 9,492 20.6 % 15.6 % 13.2 %

Gross profit $ 101,300 $ 80,779 $ 20,521 25.4 % 11.8 % 10.7 %

Worldwide Barcode, Networking & Security

Gross profit dollars and gross profit margin for the Worldwide Barcode, Networking & Security segment increased for the quarter ended March 31, 2021, primarily from increased sales volume and higher margin sales mix compared to the prior year quarter.

For the nine months ended March 31, 2021, gross profit dollars and gross profit margin decreased due to lower vendor program recognition, compared to the prior-year period.

Worldwide Communications & Services

Gross profit dollars and gross profit margin increased for the Worldwide Communications & Services segment for the quarter ended March 31, 2021 primarily from a higher margin sales mix and higher vendor program recognition compared to the prior year quarter.

For the nine months ended March 31, 2021, gross profit margin and gross profit dollars decreased, primarily from lower margin sales mix compared to the prior-year period, partially offset by the results contributed by our Intelisys recurring revenue business.

Operating Expenses

The following tables summarize our operating expenses for our continuing operations for the quarters and nine months ended March 31, 2021 and 2020:

Quarter ended March 31, % of Net Sales March 31,

2021 2020 $ Change % Change 2021 2020

(in thousands)

Selling, general and administrative expenses $ 60,099 $ 64,971 $ (4,872) (7.5) % 8.2 % 8.7 %

Depreciation expense 3,141 3,268 (127) (3.9) % 0.4 % 0.4 %

Intangible amortization expense 4,880 5,159 (279) (5.4) % 0.7 % 0.7 %

Restructuring and other charges 560 169 391 *nm 0.1 % 0.0 %

Change in fair value of contingent consideration — 618 (618) (100.0) % 0.0 % 0.1 %

Specialty Technology Solutions

Gross profit dollars and gross profit margin for the Specialty Technology Solutions segment increased for the quarter ended September 30, 2021, primarily from increased sales volume, a higher margin sales mix and higher vendor program recognition, respectively, compared to the prior-year quarter.

Modern Communications & Cloud

Gross profit dollars and gross profit margin increased for the Modern Communications & Cloud segment for the quarter ended September 30, 2021, primarily from a higher sales volume and higher margin sales mix, respectively, compared to the prior-year quarter.

Operating Expenses

Nine months ended March 31, % of Net Sales March 31,

The following tables summarize our operating expenses for the quarters ended September 30, 2021 and 2020:

Quarter ended September 30, % of Net Sales September 30,

2021 2020 $ Change % Change 2021 2020

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Restructuring and other charges — 8,268 (8,268) *nm 0.0 % 1.1 %

Change in fair value of contingent consideration 516 6,266 (5,750) (91.8) % 0.0 % 0.3 %

Change in fair value of contingent consideration — 516 (516) *nm 0.0 % 0.1 %

Operating expenses $ 70,972 $ 79,145 $ (8,173) (10.3) % 8.3 % 10.5 %

*nm - percentages are not meaningful

Selling, general and administrative expenses ("SG&A") decreased $4.9 million and $18.7 million for the quarter and nine months ended March 31, 2021, respectively, compared to the prior-year periods due to lower employee costs and a decrease in travel expenses due to the COVID-19 pandemic.

The decrease in employee costs for the quarter and nine months ended March 31, 2021 is a result of our expense reduction plan, which was implemented at the end of July 2020.

Amortization expense decreased $0.3 million and $0.4 million for the quarter and nine months ended March 31, 2021, respectively, compared to the prior-year periods largely due to Canpango intangible write-offs at the end of the prior fiscal year.

Restructuring and other charges incurred of $0.6 million and $9.3 million for the quarter and nine months ended March 31, 2021, respectively, primarily relate to employee severance and benefit costs in connection with our expense reduction plan implemented at the end of July 2020.

We recorded no expense for the change in fair value of contingent consideration for the quarter ended March 31, 2021 and $0.5 million for the nine months ended March 31, 2021, all of which relates to Intelisys.

The expense from the change in fair value for the nine months ended March 31, 2021 is due to the amortization of the unrecognized fair value discount for the final Intelisys earnout payment, which was paid in October 2020.

Operating Income

The following tables summarize our operating income for our continuing operations for the quarters and nine months ended March 31, 2021 and 2020:

Quarter ended March 31, % of Net Sales March 31,

2021 2020 $ Change % Change 2021 2020

(in thousands)

Worldwide Barcode, Networking & Security $ 8,054 $ 4,779 $ 3,275 68.5 % 1.6 % 1.0 %

Worldwide Communications & Services 12,214 6,394 5,820 91.0 % 5.4 % 2.5 %

Corporate (832) (780) (52) nm* nm* nm*

Selling, general and administrative expenses ("SG&A") increased $1.5 million, or 2.4%, for the quarter ended September 30, 2021 compared to the prior-year quarter.

The increase is attributable to higher employee costs, partially offset by lower bad debt expense.

Restructuring and other charges incurred of $8.3 million for the quarter ended September 30, 2020 primarily relate to employee severance and benefit costs in connection with our expense reduction plan implemented at the end of July 2020.

For the quarter ended September 30, 2020, we recorded a $0.5 million expense from change in fair value of contingent consideration, all of which relates to Intelisys.

The final Intelisys earnout payment was paid in October 2020.

Operating Income

Nine months ended March 31, % of Net Sales March 31,

The following tables summarize our operating income for the quarters ended September 30, 2021 and 2020:

Quarter ended September 30, % of Net Sales September 30,

2021 2020 $ Change % Change 2021 2020

(in thousands)

Worldwide Barcode, Networking & Security $ 16,088 $ 29,153 $ (13,065) (44.8) % 1.0 % 1.8 %

Worldwide Communications & Services 33,555 22,009 11,546 52.5 % 4.7 % 2.9 %

Specialty Technology Solutions $ 14,104 $ 1,684 $ 12,420 737.5 % 2.8 % 0.4 %

Modern Communications & Cloud 16,307 8,716 7,591 87.1 % 4.6 % 2.5 %

Corporate (83) (8,766) 8,683 nm* nm* nm*

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*nm - percentages are not meaningful

Worldwide Barcode, Networking & Security

For the Worldwide Barcode, Networking & Security segment, operating income increased $3.3 million and operating margin increased to 1.6% for the quarter ended March 31, 2021 compared to the prior-year quarter.

The increase in operating income and margin for the quarter is due to higher gross profits and decreased operating expenses.

Operating income decreased $13.1 million and operating margin decreased to 1.0% for the nine months ended March 31, 2021, compared to the prior-year period.

The decreases for the nine months ended March 31, 2021 are due to lower gross profits, partially offset by lower SG&A expenses.

Worldwide Communications & Services

For the Worldwide Communications & Services segment, operating income increased $5.8 million and $11.5 million for the quarter and nine months ended March 31, 2021, respectively, and operating margin increased to 5.4% and 4.7% for the quarter and nine months ended March 31, 2021, respectively, compared to the prior-year periods.

The increases in operating income and operating margin are primarily from lower SG&A expense, partially offset by lower gross profits for the nine months ended March 31, 2021.

Corporate incurred $0.8 million and $11.4 million in restructuring and divestiture expenses for the quarter and nine months ended March 31, 2021, respectively, compared to $0.8 million and $2.7 million in acquisition and divestiture expenses for the quarter and nine months ended March 31, 2020, respectively.

Specialty Technology Solutions

For the Specialty Technology Solutions segment, operating income increased $12.4 million for the quarter ended September 30, 2021, compared to the prior-year quarter.

Operating margin increased to 2.8% for the quarter ended September 30, 2021 compared to 0.4% for the quarter ended September 30, 2020.

The increase in operating income and margin for the quarter is primarily due to higher gross profits.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income increased $7.6 million for the quarter ended September 30, 2021, compared to the prior-year quarter.

Operating margin increased to 4.6% for the quarter ended September 30, 2021, compared to 2.5% for the quarter ended September 30, 2020.

The increase in operating income and operating margin for the quarter is primarily due to higher gross profits.

Corporate incurred less than $0.1 million in divestiture expenses for the quarter ended September 30, 2021, compared to $8.8 million in restructuring and divestiture expenses for the quarter ended September 30, 2020.

Total Other (Income) Expense

The following tables summarize our total other (income) expense for our continuing operations for the quarters and nine months ended March 31, 2021 and 2020:

Quarter ended March 31, % of Net Sales March 31,

The following tables summarize our total other (income) expense for the quarters ended September 30, 2021 and 2020:

Quarter ended September 30, % of Net Sales September 30,

2021 2020 $ Change % Change 2021 2020

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Total other expense, net $ 897 $ 1,796 $ (899) (50.1) % 0.1 % 0.2 %

Nine months ended March 31, % of Net Sales March 31,

2021 2020 $ Change % Change 2021 2020

(in thousands)

Interest expense $ 5,285 $ 9,727 $ (4,442) (45.7) % 0.2 % 0.4 %

Interest income (1,756) (2,627) 871 33.2 % (0.1) % (0.1) %

Net foreign exchange losses 778 86 692 804.7 % 0.0 % 0.0 %

Other, net (595) 112 (707) (631.3) % (0.0) % 0.0 %

Total other expense, net $ 3,712 $ 7,298 $ (3,586) (49.1) % 0.2 % 0.3 %

Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs.

Interest expense decreased for the quarter and nine months ended March 31, 2021, compared to the prior-year quarter principally from reduced borrowings on our multi-currency revolving credit facility.

Interest income for the quarter and nine months ended March 31, 2021 was generated on interest-bearing customer receivables and interest earned on cash and cash equivalents.

Interest income decreased for the quarter and nine months ended March 31, 2021, compared to the prior-year principally from lower interest earned on customer receivables in North America.

Interest expense decreased for the quarter ended September 30, 2021, compared to the prior-year quarter principally from reduced borrowings on our multi-currency revolving credit facility.

Interest income for the quarter ended September 30, 2021 was generated on interest-bearing customer receivables and interest earned on cash and cash equivalents.

Interest income increased for the quarter ended September 30, 2021, compared to the prior-year principally from higher interest earned on cash and cash equivalents in Brazil.

Net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses.

Foreign exchange gains and losses are primarily generated as the result of fluctuations in the value of the U.S.

dollar versus the Brazilian real, the British pound versus the euro, and the Canadian dollar versus the U.S.

We partially offset foreign currency exposure with the use of foreign exchange forward contracts to hedge against these exposures.

dollar versus the Brazilian real and the Canadian dollar versus the U.S.

partially offset foreign currency exposure with the use of foreign exchange forward contracts to hedge against these exposures.

The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses.

Provision for Income Taxes

For the quarter and nine months ended March 31, 2021, income tax expense was $5.1 million and $9.8 million, respectively, reflecting an effective tax rate of 27.1% and 28.3%, respectively.

In comparison, for the quarter and nine months ended March 31, 2020, income tax expense totaled $2.8 million and $11.5 million, respectively, reflecting an effective tax rate of 32.9% and 28.0%, respectively.

The decrease in the effective tax rate for the quarter is primarily due to the recognition of a net discrete tax benefit of $0.5 million.

The increase in the effective tax rate for the nine months ended March 31, 2021 is primarily due to a change in geographical mix of income as compared to the prior-year.

For the quarter ended September 30, 2021, income tax expense was $7.4 million reflecting an effective tax rate of 25.0%.

In comparison, for the quarter ended September 30, 2020, income tax expense totaled less than $0.1 million, reflecting an effective tax rate of 29.0%.

The decrease in the effective tax rate for the quarter is primarily due to an increase in forecasted tax exempt income.

We expect the effective tax rate, excluding discrete items, for fiscal year 2022 to be approximately 24.5% to 25.5%.

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In addition to disclosing results that are determined in accordance with United States generally accepted accounting principles ("US GAAP" or "GAAP"), we also disclose certain non-GAAP financial measures.

These measures include non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income, non-GAAP EPS, return on invested capital ("ROIC") and "constant currency." Constant currency is a measure that excludes the translation exchange impact from changes in foreign

currency exchange rates between reporting periods.

These measures include non-GAAP operating income;

non-GAAP pre-tax income;

non-GAAP net income;

non-GAAP EPS;

adjusted earnings before interest expense, income taxes, depreciation, and amortization ("adjusted EBITDA");

return on invested capital ("ROIC");

and "constant currency." Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods.

We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.

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We believe the calculation of ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year.

We calculate ROIC as earnings before interest expense, income taxes, depreciation and amortization, plus change in fair value of contingent consideration and other non-GAAP adjustments ("adjusted EBITDA"), divided by invested capital.

Adjusted EBITDA starts with net income and adds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, changes in fair value of contingent considerations, and other non-GAAP adjustments.

Effective with the first quarter of fiscal year 2022, non-cash share-based compensation expense is also added back in calculating adjusted EBITDA.

Since adjusted EBITDA excludes some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more clearly.

We calculate ROIC as adjusted EBITDA, divided by invested capital.

Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period.

The following table summarizes annualized ROIC for the quarters ended March 31, 2021 and 2020, respectively:

Quarter ended March 31,

The following table summarizes annualized ROIC for the quarters ended September 30, 2021 and 2020, respectively:

Quarter ended September 30,

Return on invested capital ratio, annualized (a)

(a) The annualized EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for leap year.

There were 90 days in the current quarter and 91 days in the prior-year quarter.

There were 92 days in the current and prior-year quarter.

The components of this calculation and reconciliation to our financial statements are shown on the following schedule:

Quarter ended March 31,

Quarter ended September 30,

(in thousands)

Reconciliation of net income to EBITDA:

Net income from continuing operations (GAAP) $ 13,786 $ 5,715

Reconciliation of net income to adjusted EBITDA:

Net income (loss) from continuing operations (GAAP) $ 22,073 $ (115)

Interest expense 1,660 1,913

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Change in fair value of contingent consideration — 516

Share-based compensation 2,570 1,168

Acquisition and divestiture costs (a)

Restructuring costs — 8,268

Tax recovery — (2,320)

Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 41,394 $ 20,911

Quarter ended March 31,

Quarter ended September 30,

(in thousands)

Invested capital calculations:

Equity – beginning of the quarter (b)

$ 682,139 $ 927,580

Equity – end of the quarter (b)

690,575 897,678

Equity – beginning of the quarter $ 731,191 $ 678,246

Equity – end of the quarter 746,094 671,227

Change in fair value of contingent consideration, net of tax — 390

Share-based compensation, net 1,922 878

Acquisition and divestiture costs (a)

Restructuring, net of tax

Tax recovery, net of tax — (1,754)

Restructuring, net — 6,250

Discontinued operations net loss — 11,704

Average equity 739,645 684,597

Average funded debt (c)

Average funded debt (b)

197,406 243,268

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(a) Acquisition and divestiture costs are generally nondeductible for tax purposes.

(b) In the quarter ending June 30, 2020, the Company recorded impairment charges of $120.5 million.

Impairment charges, net of tax reduced equity by $114.4 million.

(c) Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.

(b) Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.

Net Sales in Constant Currency, Excluding Acquisitions and Divestitures

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Net Sales by Segment:

Quarter ended March 31,

2021 2020 $ Change % Change

Worldwide Barcode, Networking & Security:

(in thousands)

Net sales, reported $ 502,227 $ 489,218 $ 13,009 2.7 %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 506,359 $ 489,218 $ 17,141 3.5 %

Worldwide Communications & Services:

Net sales, reported $ 227,646 $ 255,366 $ (27,720) (10.9) %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 238,122 $ 255,366 $ (17,244) (6.8) %

Consolidated:

Net sales, reported $ 729,873 $ 744,584 $ (14,711) (2.0) %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 744,481 $ 744,584 $ (103) — %

(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.

Calculated by translating the net sales for the quarter ended March 31, 2021 into U.S.

dollars using the average foreign exchange rates for the quarter ended March 31, 2020.

Net Sales by Segment:

Nine months ended March 31,

Quarter ended September 30,

2021 2020 $ Change % Change

Worldwide Barcode, Networking & Security:

Specialty Technology Solutions:

(in thousands)

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Non-GAAP net sales, constant currency $ 501,244 $ 408,777 $ 92,467 22.6 %

Worldwide Communications & Services:

Modern Communications & Cloud:

Net sales, reported $ 355,600 $ 348,565 $ 7,035 2.0 %

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(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.

Calculated by translating the net sales for the nine months ended March 31, 2021 into U.S.

dollars using the average foreign exchange rates for the nine months ended March 31, 2020.

Calculated by translating the net sales for the quarter ended September 30, 2021 into U.S.

dollars using the average foreign exchange rates for the quarter ended September 30, 2020.

Net Sales by Geography:

Quarter ended March 31,

2021 2020 $ Change % Change

United States and Canada:

(in thousands)

Net sales, as reported $ 665,720 $ 670,175 $ (4,455) (0.7) %

International:

Net sales, reported $ 64,153 $ 74,409 $ (10,256) (13.8) %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 78,761 $ 74,409 $ 4,352 5.8 %

Consolidated:

Net sales, reported $ 729,873 $ 744,584 $ (14,711) (2.0) %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 744,481 $ 744,584 $ (103) — %

(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.

Calculated by translating the net sales for the quarter ended March 31, 2021 into U.S.

dollars using the average foreign exchange rates for the quarter ended March 31, 2020.

Nine months ended March 31,

Quarter ended September 30,

2021 2020 $ Change % Change

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(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.

Calculated by translating the net sales for the nine months ended March 31, 2021 into U.S.

dollars using the average foreign exchange rates for the nine months ended March 31, 2020.

Operating Income by Segment:

Quarter ended March 31, % of Net Sales March 31,

2021 2020 $ Change % Change 2021 2020

Worldwide Barcode, Networking & Security:

(in thousands)

GAAP operating income $ 8,054 $ 4,779 $ 3,275 68.5 % 1.6 % 1.0 %

Amortization of intangible assets 1,968 1,968 —

Tax recovery, net — (1,452) 1,452

Non-GAAP operating income $ 10,022 $ 5,295 $ 4,727 89.3 % 2.0 % 1.1 %

Worldwide Communications & Services:

GAAP operating income $ 12,214 $ 6,394 $ 5,820 91.0 % 5.4 % 2.5 %

Amortization of intangible assets 2,912 3,191 (279)

Change in fair value of contingent consideration — 618 (618)

Restructuring costs — 169 (169)

Tax recovery, net — (868) 868

Non-GAAP operating income $ 15,126 $ 9,504 $ 5,622 59.2 % 6.6 % 3.7 %

GAAP operating income $ (832) $ (780) $ (52) nm* nm* nm*

Restructuring costs 560 — 560

Acquisition and divestiture costs 272 780 (508)

Non-GAAP operating income $ — $ — $ — nm* nm* nm*

Consolidated:

GAAP operating income $ 19,436 $ 10,393 $ 9,043 87.0 % 2.7 % 1.4 %

Amortization of intangible assets 4,880 5,159 (279)

Change in fair value of contingent consideration — 618 (618)

Tax recovery, net — (2,320) 2,320

Acquisition and divestiture costs 272 780 (508)

Restructuring costs 560 169 391

Non-GAAP operating income $ 25,148 $ 14,799 $ 10,349 69.9 % 3.4 % 2.0 %

Calculated by translating the net sales for the quarter ended September 30, 2021 into U.S.

dollars using the average foreign exchange rates for the quarter ended September 30, 2020.

Operating Income by Segment:

Nine months ended March 31, % of Net Sales March 31,

Quarter ended September 30, % of Net Sales September 30,

2021 2020 $ Change % Change 2021 2020

Worldwide Barcode, Networking & Security:

Specialty Technology Solutions:

(in thousands)

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Amortization of intangible assets 1,531 1,610 (79)

Tax recovery, net — (1,452) 1,452

Non-GAAP operating income $ 15,635 $ 3,294 $ 12,341 374.7 % 3.1 % 0.8 %

Worldwide Communications & Services:

Modern Communications & Cloud:

GAAP operating income $ 16,307 $ 8,716 $ 7,591 87.1 % 4.6 % 2.5 %

1 unchanged sentence

Change in fair value of contingent consideration — 516 (516)

Tax recovery, net — (868) 868

Restructuring costs — 604 (604)

Non-GAAP operating income $ 19,286 $ 12,475 $ 6,811 54.6 % 5.4 % 3.6 %

7 unchanged sentences

Change in fair value of contingent consideration — 516 (516)

Tax recovery, net — (2,320) 2,320

Acquisition and divestiture costs 83 498 (415)

7 unchanged sentences

Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above:

Quarter ended March 31, 2021

GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Acquisition and divestiture costs Restructuring costs Tax recovery, net Non-GAAP measure

(in thousands, except per share data)

Net sales $ 729,873 $ — $ — $ — $ — $ — $ 729,873

Gross profit 88,116 — — — — — 88,116

Operating income 19,436 4,880 — 272 560 — 25,148

Other expense, net 529 — — — — — 529

Pre-tax income 18,907 4,880 — 272 560 — 24,619

Net income from continuing operations 13,786 3,697 — 272 423 — 18,178

Diluted EPS from continuing operations $ 0.54 $ 0.14 $ — $ 0.01 $ 0.02 $ — $ 0.71

Quarter ended March 31, 2020

GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Acquisition and divestiture Restructuring costs Tax recovery, net Non-GAAP measure

(in thousands, except per share data)

Net sales $ 744,584 $ — $ — $ — $ — $ — $ 744,584

Gross profit 84,578 — — — — — 84,578

Operating income 10,393 5,159 618 780 169 (2,320) 14,799

Other expense, net 1,881 — — — — — 1,881

Pre-tax income 8,512 5,159 618 780 169 (2,320) 12,918

Net income from continuing operations 5,715 3,909 467 780 125 (1,754) 9,242

Diluted EPS from continuing operations $ 0.23 $ 0.15 $ 0.02 $ 0.03 $ — $ (0.07) $ 0.36

Nine months ended March 31, 2021

GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Acquisition and divestiture costs Restructuring costs Tax recovery, net Non-GAAP measure

Quarter ended September 30, 2021

GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Acquisition and divestiture costs Restructuring costs Non-GAAP measure

(in thousands, except per share data)

4 unchanged sentences

Pre-tax income 29,431 4,510 — 83 — 34,024

Net income from continuing operations 24,732 11,055 390 2,130 7,040 — 45,347

Diluted EPS from continuing operations $ 0.97 $ 0.43 $ 0.02 $ 0.08 $ 0.28 $ — $ 1.78

Nine months ended March 31, 2020

GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Acquisition and divestiture Restructuring costs Tax recovery, net Non-GAAP measure

Net income 22,073 3,394 — 83 — 25,550

Diluted EPS $ 0.86 $ 0.13 $ — $ — $ — $ 0.99

Quarter ended September 30, 2020

GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Acquisition and divestiture Restructuring costs Non-GAAP measure

(in thousands, except per share data)

4 unchanged sentences

Pre-tax income (162) 4,853 516 498 8,268 13,973

Net income from continuing operations 29,633 11,347 4,737 2,689 449 (1,754) 47,101

Diluted EPS from continuing operations $ 1.16 $ 0.45 $ 0.19 $ 0.11 $ 0.02 $ (0.07) $ 1.85

Net income (115) 3,675 390 498 6,250 10,698

Diluted EPS $ (0.01) $ 0.14 $ 0.02 $ 0.02 $ 0.25 $ 0.42

Liquidity and Capital Resources

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Conversely, when sales volumes decrease, our net investment in working capital typically decreases, which typically results in increased cash flow from operating activities.

Our cash and cash equivalents balance totaled $49.3 million at March 31, 2021, compared to $29.5 million at June 30, 2020, including $42.3 million and $23.6 million held outside of the United States at March 31, 2021 and June 30, 2020, respectively.

Checks released but not yet cleared in the amounts of $17.0 million and $17.1 million are included in accounts payable at March 31, 2021 and June 30, 2020, respectively.

Our cash and cash equivalents balance totaled $55.5 million at September 30, 2021, compared to $62.7 million at June 30, 2021, including $48.4 million and $52.1 million held outside of the United States at September 30, 2021 and June 30, 2021, respectively.

Checks released but not yet cleared in the amounts of $19.9 million and $14.3 million are included in accounts payable at September 30, 2021 and June 30, 2021, respectively.

We conduct business in many locations throughout the world where we generate and use cash.

We provide for U.S.

income taxes for the earnings of our Canadian subsidiary, but earnings from Brazil will continue to be considered retained indefinitely for reinvestment.

All other foreign geographies are immaterial.

It has been our practice to reinvest those earnings in the businesses outside the United States.

As a result of the sale of the Latin American and European entities, we repatriated the proceeds to the United States with minimal tax consequences.

Our net investment in working capital at March 31, 2021 was $495.1 million, compared to $431.3 million at June 30, 2020 and $513.5 million at March 31, 2020.

We provide for United States income taxes from the earnings of our Canadian and Brazilian subsidiaries.

See Note 14 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion.

Our net investment in working capital increased $77.3 million to $564.0 million at September 30, 2021 from $486.7 million at June 30, 2021, primarily from increases in accounts receivable and inventory and decreases in accounts payable.

Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from customers, increases and decreases to inventory levels and payments to vendors.

Nine months ended

Three months ended

September 30,

Cash provided by (used in):

(in thousands)

Operating activities $ (56,959) $ 71,225

1 unchanged sentence

Financing activities 54,860 (70,255)

Effect of exchange rate change on cash and cash equivalents (1,942) (2,151)

Increase in cash and cash equivalents $ 14,866 $ 10,778

Net cash provided by operating activities was $55.4 million for the nine months ended March 31, 2021, compared to $108.1 million provided in the prior-year period.

Cash provided by operating activities for the nine months ended March 31, 2021 is primarily attributable to cash provided by increased accounts payable and earnings from operations adjusted for non-cash items, partially offset by increased accounts receivable.

Cash provided by operating activities for the nine months ended March 31, 2020 is primarily attributable to earnings from operations adjusted for non-cash items and increased accounts payable.

The number of days sales outstanding ("DSO") was 63 days at March 31, 2021, compared to 63 days at June 30, 2020 and 61 days at March 31, 2020.

Inventory turned 5.8 times during the quarter ended March 31, 2021, compared to 6.9 times for previous quarter ended December 31, 2020 and 4.5 times in the prior-year quarter ended March 31, 2020.

Cash provided by investing activities for the nine months ended March 31, 2021 was $32.1 million, compared to $55.5 million used in the prior-year period.

Cash provided by investing activities primarily represents the sale of our discontinued operations in the nine months ended March 31, 2021.

The prior-year period includes cash of $48.9 million used for the acquisition of intY.

Net cash used in operating activities was $57.0 million for the three months ended September 30, 2021, compared to $71.2 million provided by operating activities in the prior-year period.

Cash used in operating activities for the three months ended September 30, 2021 is primarily attributable to increases in accounts receivable and inventory, and decreases in accounts payable.

Cash provided by operating activities for the three months ended September 30, 2020 is primarily attributable to increased accounts payable and decreased inventory, partially offset by decreased accounts receivable.

The number of days sales outstanding ("DSO") was 62 days at September 30, 2021, compared to 60 days at June 30, 2021 and 61 days at September 30, 2020.

Inventory turned 6.3 times during the quarter ended September 30, 2021, compared to 6.5 times for previous quarter ended June 30, 2021 and 6.2 times in the prior-year quarter ended September 30, 2020.

Cash used in investing activities for the three months ended September 30, 2021 was $1.1 million, compared to $0.7 million used in the prior-year period.

Cash used in investing activities primarily represents capital expenditures in the three months ended September 30, 2021 and 2020 .

Management expects capital expenditures for fiscal year 2022 to range from $5 million to $8 million, primarily for IT investments and facility improvements.

For the nine months ended March 31, 2021, cash used for financing activities totaled $62.8 million, compared to $88.4 million used in the prior-year period.

Cash used for financing activities for both periods was primarily for repayments on the revolving credit facility and contingent consideration payments to the former shareholders of Intelisys.

For the three months ended September 30, 2021, cash provided by financing activities totaled $54.9 million, compared to $70.3 million used in financing activities for the prior-year period.

Cash provided by financing activities for the three months ended September 30, 2021 is primarily attributable to net borrowings on the revolving credit facility.

For the three months ended September 30, 2020 cash used in financing activities was primarily for net repayments on the revolving credit facility.

Credit Facility

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In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates.

We were in compliance with all covenants under the credit facility at March 31, 2021.

Including borrowings for both continuing and discontinued operations, there was $53.8 million and $92.4 million in outstanding borrowings on our revolving credit facility at March 31, 2021 and June 30, 2020, respectively.

Including borrowings for both continuing and discontinued operations, the average daily balance for the revolving credit facility, excluding the term loan facility, was $62.1 million and $252.4 million for the nine month periods ended March 31, 2021 and 2020, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at March 31, 2021 and $0.3 million at June 30, 2020, respectively.

Taking into consideration outstanding borrowings on the multi-currency revolving credit facility for both continuing and discontinued operations, there was $296.2 million and $257.3 million available for additional borrowings at March 31, 2021 and June 30, 2020, respectively.

We were in compliance with all covenants under the credit facility at September 30, 2021.

There was $56.4 million in outstanding borrowings on our revolving credit facility at September 30, 2021.

There was no outstanding borrowings on our revolving credit facility at June 30, 2021.

The average daily balance for the revolving credit facility, excluding the term loan facility, was $54.4 million for the three month period ended September 30, 2021.

Including borrowings for both continuing and discontinued operations, the average daily balance for the revolving credit facility, excluding the term loan facility, was $91.2 million for the three month period ended September 30, 2020.

There were no letters of credit issued under the multi-currency revolving credit facility at September 30, 2021 and June 30, 2021, respectively.

There was $293.6 million and $350.0 million available for additional borrowings at September 30, 2021 and June 30, 2021, respectively.

Availability to use this borrowing capacity depends upon, among other things, the levels of our Leverage Ratio and Interest Coverage Ratio, which, in turn, will depend upon (1) our Credit Facility Net Debt relative to our Credit Facility EBITDA and (2) Credit Facility EBITDA relative to total interest expense, respectively.

As a result, our availability will increase if EBITDA increases (subject to the limit of the facility) and decrease if EBITDA decreases.

At March 31, 2021, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $172.6 million available for borrowing.

While we were in compliance with the financial covenants contained in the Credit Facility as of March 31, 2021, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Credit Facility lending group has been strong and we anticipate their continued support of our long-term business.

We had a bank overdraft facility with Bank of America used by our European subsidiaries, which was terminated with the sale of the Europe distribution business in November 2020.

The facility allowed us to disburse checks in excess of bank balances up to $14.0 million U.S.

dollar equivalent for up to seven days.

Borrowings under the overdraft facility had interest at a rate equal to a spread of 1.0% over the applicable currency's LIBOR with a zero percent floor.

There was no outstanding balance on the overdraft facility at March 31, 2021 and $3.5 million was outstanding for the discontinued operations at June 30, 2020.

Earnout Payments

Related to the acquisition on August 29, 2016, the final earnout payment for Intelisys, which totaled $46.9 million, was paid in October 2020, funded by borrowings on our revolving credit facility.

At September 30, 2021, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $293.6 million available for borrowing.

While we were in compliance with the financial covenants contained in the Credit Facility as of September 30, 2021, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Credit Facility lending group has been strong and we anticipate their continued support of our long-term business.

We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under our credit agreements, will provide sufficient resources to meet the present and future working capital and cash requirements for at least the next twelve months.

1 unchanged sentence

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the company is a party, under which the company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest;

obligation arising under a guarantee contract, derivative instrument or variable interest;

or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

See Note 10 - Fair Value of Financial Instruments for a discussion on the liabilities recorded.

There have been no other material changes in our contractual obligations and commitments disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Accounting Standards Recently Issued

4 unchanged sentences

See Management's Discussion and Analysis of Financial Condition and Results from Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for a complete discussion.

Allowances for Trade and Notes Receivable

We adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326) effective July 1, 2020.

The adoption did not have a material impact on our consolidated financial statements.

Our policy for estimating allowance for doubtful accounts receivable is described below.

We maintain an allowance for doubtful accounts receivable for estimated future expected credit losses resulting from customers’ failure to make payments on accounts receivable due us.

Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including:

(i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by us on the financial condition and the current creditworthiness of its customers, (iv) the current economic and country-specific environment and (v) reasonable and supportable forecasts about collectability.

Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model.

Receivables that do not share risk characteristics are evaluated on an individual basis.

Estimates of expected credit losses on trade receivables over the contractual life are recorded at inception.

Quantitative and Qualitative Disclosures About Market Risk

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis