SCANSOURCE, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview 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. Impact of COVID-19 on our Business Environment 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. 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. Our Strategy 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 30 Table of Contents 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, 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. Our objective is to grow profitable sales in the technologies we offer and expand in higher margin and adjacent markets to help our sales partners offer more products and services and increase recurring revenue opportunities. As part of our strategic plan, we consider strategic acquisitions and alliances to enhance our technology offerings and service capabilities. 31 Table of Contents Results of Operations Net Sales 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: 2021 2020 $ Change % Change (in thousands) 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 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: 2021 2020 $ Change % Change (in thousands) United States and Canada $ 769,499 $ 683,603 $ 85,896 12.6 % 12.6 % International 87,812 73,739 14,073 19.1 % 15.8 % Total net sales $ 857,311 $ 757,342 $ 99,969 13.2 % 12.9 % (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. Gross Profit 32 Table of Contents 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) 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 % 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 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 (in thousands) Selling, general and administrative expenses $ 63,582 $ 62,112 $ 1,470 2.4 % 7.4 % 8.2 % Depreciation expense 2,880 3,396 (516) (15.2) % 0.3 % 0.4 % Intangible amortization expense 4,510 4,853 (343) (7.1) % 0.5 % 0.6 % Restructuring and other charges — 8,268 (8,268) *nm 0.0 % 1.1 % 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") 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 The following tables summarize our operating income for the quarters ended September 30, 2021 and 2020: 33 Table of Contents Quarter ended September 30, % of Net Sales September 30, 2021 2020 $ Change % Change 2021 2020 (in thousands) 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* Operating income $ 30,328 $ 1,634 $ 28,694 1,756.1 % 3.5 % 0.2 % *nm - percentages are not meaningful 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 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 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) Interest expense $ 1,660 $ 1,913 $ (253) (13.2) % 0.2 % 0.3 % Interest income (1,026) (481) (545) (113.3) % (0.1) % (0.1) % Net foreign exchange losses (gains) 485 438 47 10.7 % 0.1 % 0.1 % Other, net (222) (74) (148) (200.0) % (0.0) % (0.0) % Total other expense, net $ 897 $ 1,796 $ (899) (50.1) % 0.1 % 0.2 % 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 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 and the Canadian dollar versus the U.S. dollar. We 34 Table of Contents 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 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%. See Note 14 - Income Taxes to the Notes to Consolidated Financial Statements for further discussion. Non-GAAP Financial Information Evaluating Financial Condition and Operating Performance 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; 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. These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that we report may not be comparable to similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with US GAAP. Return on Invested Capital ROIC assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year. 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 September 30, 2021 and 2020, respectively: Quarter ended September 30, 2021 2020 Return on invested capital ratio, annualized (a) 17.5 % 8.9 % (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 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: 35 Table of Contents Quarter ended September 30, 2021 2020 (in thousands) Reconciliation of net income to adjusted EBITDA: Net income (loss) from continuing operations (GAAP) $ 22,073 $ (115) Plus: Interest expense 1,660 1,913 Plus: Income taxes 7,358 (47) Plus: Depreciation and amortization 7,650 8,710 EBITDA (non-GAAP) 38,741 10,461 Plus: Change in fair value of contingent consideration — 516 Plus: Share-based compensation 2,570 1,168 Plus: Acquisition and divestiture costs (a) 83 498 Plus: Restructuring costs — 8,268 Adjusted EBITDA (numerator for ROIC) (non-GAAP) $ 41,394 $ 20,911 Quarter ended September 30, 2021 2020 (in thousands) Invested capital calculations: Equity – beginning of the quarter $ 731,191 $ 678,246 Equity – end of the quarter 746,094 671,227 Plus: Change in fair value of contingent consideration, net of tax — 390 Plus: Share-based compensation, net 1,922 878 Plus: Acquisition and divestiture costs (a) 83 498 Plus: Restructuring, net — 6,250 Plus: Discontinued operations net loss — 11,704 Average equity 739,645 684,597 Average funded debt (b) 197,406 243,268 Invested capital (denominator for ROIC) (non-GAAP) $ 937,051 $ 927,865 (a) Acquisition and divestiture costs are generally nondeductible for tax purposes. (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 We make references to "constant currency," a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the prior year period. If applicable, we also exclude the impact of acquisitions prior to the first full year of operations from the acquisition date and the impact of Divestitures in order to show net sales results on an organic basis. This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and, the impact of Divestitures and acquisitions, if applicable. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding Divestitures: 36 Table of Contents Net Sales by Segment: Quarter ended September 30, 2021 2020 $ Change % Change Specialty Technology Solutions: (in thousands) Net sales, reported $ 501,711 $ 408,777 $ 92,934 22.7 % Foreign exchange impact (a) (467) — Non-GAAP net sales, constant currency $ 501,244 $ 408,777 $ 92,467 22.6 % Modern Communications & Cloud: Net sales, reported $ 355,600 $ 348,565 $ 7,035 2.0 % Foreign exchange impact (a) (1,970) — Non-GAAP net sales, constant currency $ 353,630 $ 348,565 $ 5,065 1.5 % Consolidated: Net sales, reported $ 857,311 $ 757,342 $ 99,969 13.2 % Foreign exchange impact (a) (2,437) — Non-GAAP net sales, constant currency $ 854,874 $ 757,342 $ 97,532 12.9 % (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 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 September 30, 2021 2020 $ Change % Change United States and Canada: (in thousands) Net sales, as reported $ 769,499 $ 683,603 $ 85,896 12.6 % International: Net sales, reported $ 87,812 $ 73,739 $ 14,073 19.1 % Foreign exchange impact (a) (2,437) — Non-GAAP net sales, constant currency $ 85,375 $ 73,739 $ 11,636 15.8 % Consolidated: Net sales, reported $ 857,311 $ 757,342 $ 99,969 13.2 % Foreign exchange impact (a) (2,437) — Non-GAAP net sales, constant currency $ 854,874 $ 757,342 $ 97,532 12.9 % (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 September 30, 2021 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2020. 37 Table of Contents Operating Income by Segment: Quarter ended September 30, % of Net Sales September 30, 2021 2020 $ Change % Change 2021 2020 Specialty Technology Solutions: (in thousands) GAAP operating income $ 14,104 $ 1,684 $ 12,420 737.5 % 2.8 % 0.4 % Adjustments: Amortization of intangible assets 1,531 1,610 (79) Non-GAAP operating income $ 15,635 $ 3,294 $ 12,341 374.7 % 3.1 % 0.8 % Modern Communications & Cloud: GAAP operating income $ 16,307 $ 8,716 $ 7,591 87.1 % 4.6 % 2.5 % Adjustments: Amortization of intangible assets 2,979 3,243 (264) Change in fair value of contingent consideration — 516 (516) Non-GAAP operating income $ 19,286 $ 12,475 $ 6,811 54.6 % 5.4 % 3.6 % Corporate: GAAP operating income $ (83) $ (8,766) $ 8,683 nm* nm* nm* Adjustments: Acquisition and divestiture costs 83 498 (415) Restructuring costs — 8,268 (8,268) Non-GAAP operating income $ — $ — $ — nm* nm* nm* Consolidated: GAAP operating income $ 30,328 $ 1,634 $ 28,694 1,756.1 % 3.5 % 0.2 % Adjustments: Amortization of intangible assets 4,510 4,853 (343) Change in fair value of contingent consideration — 516 (516) Acquisition and divestiture costs 83 498 (415) Restructuring costs — 8,268 (8,268) Non-GAAP operating income $ 34,921 $ 15,769 $ 19,152 121.5 % 4.1 % 2.1 % 38 Table of Contents Income Statement Non-GAAP Metrics To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP net sales, non-GAAP gross profit, non-GAAP operating income, non-GAAP net other expense, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition and divestiture costs, restructuring costs, impact of Divestitures and other non-GAAP adjustments. These year-over-year metrics include the translation impact of changes in foreign currency exchange rates. These metrics are useful in assessing and understanding our operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above: 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) Net sales $ 857,311 $ — $ — $ — $ — $ 857,311 Gross profit 101,300 — — — — 101,300 Operating income 30,328 4,510 — 83 — 34,921 Other expense, net 897 — — — — 897 Pre-tax income 29,431 4,510 — 83 — 34,024 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) Net sales $ 757,342 $ — $ — $ — $ — $ 757,342 Gross profit 80,779 — — — — 80,779 Operating income 1,634 4,853 516 498 8,268 15,769 Other expense, net 1,796 — — — — 1,796 Pre-tax income (162) 4,853 516 498 8,268 13,973 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 39 Table of Contents Liquidity and Capital Resources Our primary sources of liquidity are cash flows from operations and borrowings under our $350 million revolving credit facility. Our business requires significant investment in working capital, particularly accounts receivable and inventory, partially financed through our accounts payable to vendors, cash generated from operations and revolving lines of credit. In general, as our sales volumes increase, our net investment in working capital increases, which typically results in decreased cash flow from operating activities. 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 $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 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. Three months ended September 30, 2021 2020 Cash provided by (used in): Operating activities $ (56,959) $ 71,225 Investing activities (1,090) (748) Financing activities 54,860 (70,255) 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 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. 40 Table of Contents Credit Facility We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks. On April 30, 2019, we amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. The Amended Credit Agreement established (i) a five-year $350 million multi-currency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. Pursuant to an “accordion feature,” we may increase borrowings up to an additional $250 million. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit, subject to obtaining additional credit commitments from the lenders participating in the increase. At our option, loans under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over the London Interbank Offered Rate ("LIBOR") or alternate base rate depending upon the our net leverage ratio, calculated as total debt less up to $15 million of unrestricted domestic cash to trailing four-quarter adjusted EBITDA. This spread ranges from 1.00% to 1.75% for LIBOR-based loans and 0.00% to 0.75% for alternate base rate loans. The Amended Credit Agreement provides for the substitution of a new interest rate benchmark upon the transition from LIBOR, subject to agreement between the Company and the administrative agent. The Amended Credit Agreement contains customary yield protection provisions. Additionally, we are assessed commitment fees ranging from 0.15% to 0.30%, depending upon the Leverage Ratio, on non-utilized borrowing availability, excluding swingline loans. The secured term loan facility will amortize based on the percentage of original principal amount with 2.5% in Year 1, 5.0% in Year 2, 5.0% in Year 3, 7.5% in Year 4 and 10.0% in Year 5. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of our domestic assets and a pledge of up to 65% of capital stock or other equity interest in certain foreign subsidiaries determined to be either material or a subsidiary borrower as defined in the Amended Credit Agreement. The Amended Credit Agreement includes customary representations, warranties, and affirmative and negative covenants, including financial covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00 to 1.00 at the end of each fiscal quarter. 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 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 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. Summary 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. Off-Balance Sheet Arrangements and Contractual Obligations 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 41 Table of Contents 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. Accounting Standards Recently Issued See Note 1 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effects on our consolidated financial position and results of operations. Critical Accounting Policies and Estimates Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. 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. 42 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk For a description of our market risks, see Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. No material changes have occurred to our market risks since June 30, 2021. 43 Table of Contents