What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2023-02-07 · 118 added, 126 removed, 360 unchanged (40% of the section changed)

25 unchanged sentences

Results of Operations

We have two reportable segments, which are based on technology.

The following tables summarize our net sales results by business segment and by geographic location for the quarters and six months ended December 31, 2022 and 2021:

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

We have two reportable segments, which are based on technology type.

The following tables summarize our net sales results by business segment and by geographic location for the quarters and nine months ended March 31, 2023 and 2022:

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

Net Sales by Segment:

4 unchanged sentences

Total net sales $ 885,519 $ 845,990 $ 39,529 4.7 % 4.7 %

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

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

2023 2022 $ Change % Change

6 unchanged sentences

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

For the quarter and six months ended December 31, 2022, net sales for the Specialty Technology Solutions segment increased $130.6 million, or 26.3%, and $205.2 million, or 20.6%, respectively, compared to the prior-year periods.

Excluding the foreign exchange positive impact, adjusted net sales increased $129.5 million, or 26.1% for the quarter ended December 31, 2022 and $204.2 million, or 20.4%, for the six months ended December 31, 2022, compared to the prior-year periods.

The increase in net sales and adjusted net sales for the quarter and six month periods is primarily due to strong growth across technologies in North America.

For the quarter and nine months ended March 31, 2023, net sales for the Specialty Technology Solutions segment increased $62.6 million, or 12.4%, and $267.8 million, or 17.8%, respectively, compared to the prior-year periods.

Excluding the foreign exchange positive impact, adjusted net sales increased $62.6 million, or 12.5% for the quarter ended March 31, 2023 and $266.8 million, or 17.8%, for the nine months ended March 31, 2023, compared to the prior-year periods.

The increase in net sales and adjusted net sales for the quarter and nine month periods is primarily due to strong growth in key technologies in North America.

Modern Communications & Cloud

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

For the quarter and six months ended December 31, 2022, net sales for the Modern Communications & Cloud segment increased $16.5 million, or 4.5%, and $28.1 million, or 3.9%, respectively, compared to the prior-year periods.

Excluding the foreign exchange positive impact, adjusted net sales increased $12.0 million, or 3.3%, for the quarter ended December 31, 2022 and $24.3 million, or 3.4%, for the six months ended December 31, 2022, compared to the prior-year periods.

The increase in net sales and adjusted net sales for the quarter and six month periods is primarily due to increased demand for our Cisco products and growth in Brazil.

For our Intelisys business, net sales for the second quarter and six month period of fiscal year 2023 increased 9.2% and 8.1%, respectively, year-over-year.

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

For the quarter ended March 31, 2023, net sales for the Modern Communications & Cloud segment decreased $23.1 million, or 6.7%, compared to the prior-year period.

Excluding the foreign exchange negative impact, adjusted net sales decreased $22.7 million, or 6.6%, for the quarter ended March 31, 2023, compared to the prior-year period.

The decrease in net sales and adjusted net sales for the quarter is primarily due to lower sales volumes in our communications hardware, partially offset by increased networking sales.

For the nine months ended March 31, 2023, net sales for the Modern Communications & Cloud segment increased $5.1 million, or 0.5%, compared to the prior-year period.

Excluding the foreign exchange positive impact, adjusted net sales increased $1.5 million, or 0.1%, for the nine months ended March 31, 2023, compared to the prior-year period.

For our Intelisys business, net sales for the third quarter and nine month period of fiscal year 2023 increased 4.3% and 6.8%, respectively, year-over-year.

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

Net Sales by Geography:

4 unchanged sentences

Total net sales $ 885,519 $ 845,990 $ 39,529 4.7 % 4.7 %

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

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

2023 2022 $ Change % Change

4 unchanged sentences

(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 table summarizes our gross profit for the quarters and six months ended December 31, 2022 and 2021:

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

The following table summarizes our gross profit for the quarters and nine months ended March 31, 2023 and 2022:

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

2023 2022 $ Change % Change 2023 2022

3 unchanged sentences

Gross profit $ 111,762 $ 106,508 $ 5,254 4.9 % 12.6 % 12.6 %

Six months ended December 31, % of Net Sales December 31,

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

2023 2022 $ Change % Change 2023 2022

8 unchanged sentences

Specialty Technology Solutions

For the quarter ended December 31, 2022, gross profit dollars for the Specialty Technology Solutions segment increased $4.7 million, or 9.0%.

For the quarter ended March 31, 2023, gross profit dollars for the Specialty Technology Solutions segment increased $3.6 million, or 6.7%.

Gross profit margin decreased 54 basis points over the prior-year to 10.2%.

Higher sales volume, after considering the associated cost of goods sold, contributed $6.7 million to the growth of gross profit dollars.

Gross margin mix negatively impacted gross profit by $9.0 million, largely from a less favorable sales mix and decreased vendor program recognition.

For the quarter ended December 31, 2022, the gross profit margin decreased 143 basis points over the prior-year to 9.0%.

For the six months ended December 31, 2022, the Specialty Technology Solutions segment achieved gross profit growth of $17.4 million, or 17.8%.

Gross margin mix reduced gross profit by $3.1 million, largely from a less favorable sales mix and decreased vendor program recognition.

For the nine months ended March 31, 2023, the Specialty Technology Solutions segment achieved gross profit growth of $21.0 million, or 13.9%.

Gross profit margin decreased 34 basis points over the prior-year to 9.8%.

Increases in sales volume, after considering the associated cost of goods sold, contributed $27.1 million to the growth of gross profit dollars.

Gross margin mix negatively impacted gross profit by $2.7 million, primarily from increased freight costs.

For the six months ended December 31, 2022, the gross profit margin decreased 22 basis points over the prior year to 9.6%.

Gross margin mix reduced gross profit by $6.0 million, primarily from increased freight costs and lower vendor program recognition.

Modern Communications & Cloud

For the quarter ended December 31, 2022, the Modern Communications & Cloud segment gross profit increased by $3.0 million, or 5.4%.

Higher sales volume, after considering the associated cost of goods sold, positively contributed $2.5 million to gross profit dollars.

Gross margin mix positively impacted gross profit by $0.5 million, largely driven by a more favorable sales mix.

For the quarter ended December 31, 2022, the gross profit margin increased 13 basis points over the prior year to 15.3%.

For the six months ended December 31, 2022, the Modern Communications & Cloud segment achieved gross profit growth of $2.2 million, or 2.0%.

For the quarter ended March 31, 2023, gross profit dollars for the Modern Communications & Cloud segment increased $1.6 million, or 3.1%.

Gross profit margin increased 161 basis points over the prior-year to 16.9%.

Lower sales volume, after considering the associated cost of goods sold, reduced gross profit dollars by $3.6 million.

Gross margin mix increased gross profit by $5.1 million, largely driven by a more favorable sales mix.

For the nine months ended March 31, 2023, the Modern Communications & Cloud segment achieved gross profit growth of $3.8 million, or 2.3%.

Gross profit margin increased 28 basis points over the prior-year to 15.7%.

Increases in sales volume, after considering the associated cost of goods sold, contributed $0.7 million to the growth of gross profit dollars.

Gross margin mix negatively impacted gross profit by $2.1 million, primarily from increased freight costs.

For the six months ended December 31, 2022, the gross profit margin decreased 28 basis points over the prior year to 15.1%.

Gross margin mix increased gross profit by $3.1 million, primarily from a more favorable sales mix.

Operating Expenses

The following table summarizes our operating expenses for the quarters and six months ended December 31, 2022 and 2021:

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

The following table summarizes our operating expenses for the quarters and nine months ended March 31, 2023 and 2022:

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

2023 2022 $ Change % Change 2023 2022

4 unchanged sentences

Operating expenses $ 77,483 $ 73,591 $ 3,892 5.3 % 8.8 % 8.7 %

Six months ended December 31, % of Net Sales December 31,

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

2023 2022 $ Change % Change 2023 2022

4 unchanged sentences

Operating expenses $ 231,983 $ 220,990 $ 10,993 5.0 % 8.2 % 8.6 %

Selling, general and administrative expenses ("SG&A") decreased by less than $0.1 million for the quarter ended December 31, 2022, compared to the prior-year period.

The decrease for the quarter ended December 31, 2022 is primarily attributable to a recovery of prior period withholding taxes in Brazil, which reduced SG&A by $2.9 million, partially offset by higher employee costs.

For the six months ended December 31, 2022, SG&A expenses increased by $7.7 million, or 5.8%, compared to the prior-year period.

The increase for the six months ended December 31, 2022 is primarily attributable to higher employee costs, partially offset by a $2.9 million recovery of prior period withholding taxes in Brazil.

Selling, general and administrative expenses ("SG&A") increased by $4.1 million, or 6.2%, for the quarter ended March 31, 2023, compared to the prior-year period.

The increase for the quarter ended March 31, 2023 is primarily attributable to higher bad debt expense, which increased year-over-year primarily due to a large bad debt recovery in the prior-year quarter, and higher employee costs.

For the nine months ended March 31, 2023, SG&A expenses increased by $11.8 million, or 5.9%, compared to the prior-year period.

The increase for the nine months ended March 31, 2023 is primarily attributable to higher employee costs, partially offset by a $2.9 million recovery of prior period withholding taxes in Brazil.

Operating Income

The following table summarizes our operating income for the quarters and six months ended December 31, 2022 and 2021:

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

The following table summarizes our operating income for the quarters and nine months ended March 31, 2023 and 2022:

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

2023 2022 $ Change % Change 2023 2022

4 unchanged sentences

Operating income $ 34,279 $ 32,917 $ 1,362 4.1 % 3.9 % 3.9 %

Six months ended December 31, % of Net Sales December 31,

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

2023 2022 $ Change % Change 2023 2022

6 unchanged sentences

Specialty Technology Solutions

For the Specialty Technology Solutions segment, operating income increased $3.1 million and $10.9 million for the quarter and six months ended December 31, 2022, respectively, compared to the prior-year period.

Operating margin decreased to 3.1% for the quarter ended December 31, 2022.

For the six months ended December 31, 2022, operating margin increased to 3.5%.

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

For the Specialty Technology Solutions segment, operating income decreased $0.8 million, or 3.9% for the quarter ended March 31, 2023 compared to the prior-year period.

Operating margin decreased to 3.5% for the quarter ended March 31, 2023.

The decrease in operating income and margin for the quarter is primarily due to higher bad debt expense, which increased year-over-year primarily due to a large bad debt recovery in the prior-year quarter.

For the nine months ended March 31, 2023, operating income increased $10.1 million, or 19.6%, compared to the prior-year period.

Operating margin increased to 3.5% for the nine months ended March 31, 2023.

The increase in operating income and margin for the nine month period is due to higher gross profits.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income increased $4.9 million and $1.6 million for the quarter and six months ended December 31, 2022, respectively, compared to the prior-year period.

Operating margin increased to 5.1% and 4.4% for the quarter and six months ended December 31, 2022, respectively.

The increase in operating income and margin for the quarter and six month period is primarily due to higher gross profits and a $2.9 million recovery of prior period withholding taxes in Brazil.

Corporate recognized no restructuring or divestiture expenses for the quarter and six months ended December 31, 2022, compared to less than $0.1 million in the prior-year quarter and six month period.

For the Modern Communications & Cloud segment, operating income increased $2.2 million and $3.8 million for the quarter and nine months ended March 31, 2023, respectively, compared to the prior-year period.

Operating margin increased to 4.5% and 4.4% for the quarter and nine months ended March 31, 2023, respectively.

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

Corporate recognized no restructuring or divestiture expenses for the quarter and nine months ended March 31, 2023 or the quarter ended March 31, 2022.

During the nine months ended March 31, 2022, Corporate incurred less than $0.1 million of restructuring and divestiture expenses.

Total Other (Income) Expense

The following table summarizes our total other (income) expense for the quarters and six months ended December 31, 2022 and 2021:

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

The following table summarizes our total other (income) expense for the quarters and nine months ended March 31, 2023 and 2022:

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

2023 2022 $ Change % Change 2023 2022

5 unchanged sentences

Total other expense, net $ 4,366 $ 347 $ 4,019 1,158.2 % 0.5 % 0.0 %

Six months ended December 31, % of Net Sales December 31,

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

2023 2022 $ Change % Change 2023 2022

6 unchanged sentences

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 increased for the quarter and six months ended December 31, 2022 compared to the prior-year periods, primarily from higher borrowings and increases in interest rates on our multi-currency revolving credit facility.

Interest income for the quarter and six months ended December 31, 2022 was generated on interest-bearing investments in Brazil and customer receivables.

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.

Interest expense increased for the quarter and nine months ended March 31, 2023 compared to the prior-year periods, primarily from higher interest rates and higher average borrowings on our multi-currency revolving credit facility.

Interest income for the quarter and nine months ended March 31, 2023 was generated on interest-bearing investments in Brazil and customer receivables.

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

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

dollar versus the Brazilian real, the U.S.

dollar versus the euro, 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, the Canadian dollar versus the U.S.

dollar, the euro versus the U.S.

dollar, and the British pound versus the U.S.

We partially offset foreign currency exposure with the use of foreign exchange 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 six months ended December 31, 2022, income tax expense was $10.5 million and $18.7 million reflecting an effective tax rate of 28.9% and 27.3%, respectively.

In comparison, for the quarter and six months ended December 31, 2021, income tax expense was $7.3 million and $14.6 million, reflecting an effective tax rate of 23.9% and 24.4%, respectively.

The increase in the effective tax rate for the quarter and six months is primarily due to a decrease in forecasted tax exempt income and a decrease in creditable foreign taxes compared to the prior-year quarter.

For the quarter and nine months ended March 31, 2023, income tax expense was $8.7 million and $27.4 million reflecting an effective tax rate of 29.1% and 27.8%, respectively.

In comparison, for the quarter and nine months ended March 31, 2022, income tax expense was $9.0 million and $23.7 million, reflecting an effective tax rate of 27.8% and 25.6%, respectively.

The increase in the effective tax rate for the quarter and nine months is primarily due to a decrease in forecasted tax exempt income and a decrease in creditable foreign taxes compared to the prior-year quarter.

We expect the effective tax rate for fiscal year 2023 to be approximately 27.4% to 28.4%.

22 unchanged sentences

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

The following table summarizes annualized adjusted ROIC for the quarters ended December 31, 2022 and 2021, respectively:

Quarter ended December 31,

The following table summarizes annualized adjusted ROIC for the quarters ended March 31, 2023 and 2022, respectively:

Quarter ended March 31,

Adjusted return on invested capital ratio, annualized (a)

3 unchanged sentences

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

Quarter ended December 31,

Quarter ended March 31,

(in thousands)

5 unchanged sentences

EBITDA (non-GAAP) 42,702 41,358

Tax recovery (a)

Share-based compensation 2,954 2,757

Acquisition and divestiture costs (b)

Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) $ 45,656 $ 44,115

Quarter ended December 31,

Quarter ended March 31,

(in thousands)

3 unchanged sentences

Share-based compensation, net 2,191 2,063

Acquisition and divestiture costs (b)

Tax recovery, net (1,886) —

Discontinued operations net loss — (100)

Average equity 871,736 788,621

Average funded debt (c)

Average funded debt (a)

398,318 205,073

Invested capital (denominator for adjusted ROIC) (non-GAAP) $ 1,270,054 $ 993,694

(a) Recovery of prior period withholding taxes in Brazil.

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

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

(a) 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

7 unchanged sentences

Net Sales by Segment:

Quarter ended December 31,

Quarter ended March 31,

2023 2022 $ Change % Change

13 unchanged sentences

(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 December 31, 2022 into U.S.

dollars using the average foreign exchange rates for the quarter ended December 31, 2021.

Calculated by translating the net sales for the quarter ended March 31, 2023 into U.S.

dollars using the average foreign exchange rates for the quarter ended March 31, 2022.

Net Sales by Segment:

Six months ended December 31,

Nine months ended March 31,

2023 2022 $ Change % Change

12 unchanged sentences

(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 six months ended December 31, 2022 into U.S.

dollars using the average foreign exchange rates for the six months ended December 31, 2021.

Calculated by translating the net sales for the nine months ended March 31, 2023 into U.S.

dollars using the average foreign exchange rates for the nine months ended March 31, 2022.

Net Sales by Geography:

Quarter ended December 31,

Quarter ended March 31,

2023 2022 $ Change % Change

11 unchanged sentences

(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 December 31, 2022 into U.S.

dollars using the average foreign exchange rates for the quarter ended December 31, 2021.

Six months ended December 31,

Calculated by translating the net sales for the quarter ended March 31, 2023 into U.S.

dollars using the average foreign exchange rates for the quarter ended March 31, 2022.

Nine months ended March 31,

2023 2022 $ Change % Change

11 unchanged sentences

(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 six months ended December 31, 2022 into U.S.

dollars using the average foreign exchange rates for the six months ended December 31, 2021.

Calculated by translating the net sales for the nine months ended March 31, 2023 into U.S.

dollars using the average foreign exchange rates for the nine months ended March 31, 2022.

Operating Income by Segment:

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

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

2023 2022 $ Change % Change 2023 2022

7 unchanged sentences

Amortization of intangible assets 2,904 2,966 (62)

Tax recovery (a)

(2,858) — (2,858)

Non-GAAP operating income $ 17,372 $ 15,260 $ 2,112 13.8 % 5.4 % 4.5 %

5 unchanged sentences

Amortization of intangible assets 4,170 4,457 (287)

Tax recovery (a)

(2,858) — (2,858)

Acquisition and divestiture costs — (53) 53

Non-GAAP operating income $ 38,449 $ 37,374 $ 1,075 2.9 % 4.3 % 4.4 %

1 unchanged sentence

Operating Income by Segment:

Six months ended December 31, % of Net Sales December 31,

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

2023 2022 $ Change % Change 2023 2022

27 unchanged sentences

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

Quarter ended December 31, 2022

GAAP Measure Intangible amortization expense Acquisition and divestiture costs Tax recovery (a)

Non-GAAP measure

Quarter ended March 31, 2023

GAAP Measure Intangible amortization expense Acquisition and divestiture costs Tax recovery Non-GAAP measure

(in thousands, except per share data)

4 unchanged sentences

Diluted EPS $ 0.83 $ 0.12 $ — $ — $ 0.96

Quarter ended December 31, 2021

Quarter ended March 31, 2022

GAAP Measure Intangible amortization expense Acquisition and divestiture costs Tax recovery Non-GAAP measure

5 unchanged sentences

Diluted EPS $ 0.91 $ 0.13 $ — $ — $ 1.04

(a) Recovery of prior period withholding taxes in Brazil

Six months ended December 31, 2022

Nine months ended March 31, 2023

GAAP Measure Intangible amortization expense Acquisition and divestiture costs Tax recovery (a)

6 unchanged sentences

Diluted EPS $ 2.79 $ 0.37 $ — $ (0.07) $ 3.09

Six months ended December 31, 2021

Nine months ended March 31, 2022

GAAP Measure Intangible amortization expense Acquisition and divestiture costs Tax recovery Non-GAAP measure

11 unchanged sentences

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 $66.4 million at December 31, 2022, compared to $38.0 million at June 30, 2022, including $44.3 million and $35.0 million held outside of the United States at December 31, 2022 and June 30, 2022, respectively.

Checks released but not yet cleared in the amounts of $8.9 million and $18.0 million are included in accounts payable at December 31, 2022 and June 30, 2022, respectively.

Our cash and cash equivalents balance totaled $37.4 million at March 31, 2023, compared to $38.0 million at June 30, 2022, including $31.4 million and $35.0 million held outside of the United States at March 31, 2023 and June 30, 2022, respectively.

Checks released but not yet cleared in the amounts of $7.4 million and $18.0 million are included in accounts payable at March 31, 2023 and June 30, 2022, respectively.

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

1 unchanged sentence

See Note 13 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion.

Our net investment in working capital increased $172.8 million to $882.3 million at December 31, 2022 from $709.5 million at June 30, 2022, primarily from increases in accounts receivable and inventory.

Our net investment in working capital increased $123.8 million to $833.4 million at March 31, 2023 from $709.5 million at June 30, 2022, primarily from increases in 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.

For the six months ended December 31, 2022, our working capital investment increased to support our 13.6% year-over-year net sales growth.

Six months ended

For the nine months ended March 31, 2023, our working capital investment increased to support our 10.6% year-over-year net sales growth.

Nine months ended

(in thousands)

3 unchanged sentences

Financing activities 25,565 27,730

Net cash used in operating activities was $75.3 million for the six months ended December 31, 2022, compared to $75.4 million used in operating activities in the prior-year period.

Cash used in operating activities for the six months ended December 31, 2022 is attributable to increases in inventory and accounts receivable, which increased 24% and 7%, respectively, compared to the beginning of the six month period.

Cash used in operating activities for the six months ended December 31, 2021 is primarily attributable to increases in inventory and accounts receivable, which increased 20% and 8%, respectively, compared to the beginning of the six month period.

Net cash used in operating activities was $20.5 million for the nine months ended March 31, 2023, compared to $45.7 million used in operating activities in the prior-year period.

Cash used in operating activities for the nine months ended March 31, 2023 is attributable to a 22% increase in inventory and an 8% decrease in accounts payable compared to the beginning of the nine month period.

Cash used in operating activities for the nine months ended March 31, 2022 is primarily attributable to increases in inventory and accounts receivable, which increased 26% and 13%, respectively, compared to the beginning of the nine month period.

Operating cash flows are subject to variability period over period as a result of the timing of payments related to accounts receivable, accounts payable, and other working capital items.

The number of days sales outstanding ("DSO") was 69 days at December 31, 2022, compared to 68 days at June 30, 2022 and 64 days at December 31, 2021.

The increase in DSO for the quarter ended December 31, 2022 is primarily due to increased net receivables, driven by project specific customer terms and timing of sales near the end of the reporting period.

Inventory turned 5.0 times during the quarter ended December 31, 2022, compared to 5.1 times for previous quarter ended September 30, 2022 and 5.7 times in the prior-year quarter ended December 31, 2021.

The decrease in inventory turns for the quarter ended December 31, 2022 is primarily due to increased average inventory.

Cash used in investing activities for the six months ended December 31, 2022 was $4.3 million, compared to $0.5 million provided by investing activities in the prior-year period.

Cash used in investing activities for the six months ended December 31, 2022 represents capital expenditures, primarily for IT investments.

Cash provided by investing activities for the six months ended December 31, 2021 represents proceeds from the sale of our discontinued operations, partially offset by capital expenditures.

The number of days sales outstanding ("DSO") was 70 days at March 31, 2023, compared to 68 days at June 30, 2022 and 69 days at March 31, 2022.

The increase in DSO for the quarter ended March 31, 2023 is primarily due to increased net receivables, driven by customer terms and timing of sales near the end of the reporting period.

Inventory turned 4.1 times during the quarter ended March 31, 2023, compared to 5.0 times for previous quarter ended December 31, 2022 and 5.1 times in the prior-year quarter ended March 31, 2022.

The decrease in inventory turns for the quarter ended March 31, 2023 is primarily due to increased inventory.

Cash used in investing activities for the nine months ended March 31, 2023 was $6.5 million, compared to $0.2 million used in investing activities in the prior-year period.

Cash used in investing activities for the nine months ended March 31, 2023 represents capital expenditures, primarily for IT investments.

Cash provided by investing activities for the nine months ended March 31, 2022 represents proceeds from the sale of our discontinued operations, partially offset by capital expenditures.

Management expects capital expenditures for fiscal year 2023 to range from $7.0 million to $9.0 million, primarily for IT investments and facility improvements.

For the six months ended December 31, 2022, cash provided by financing activities totaled $108.0 million, compared to $51.4 million provided by financing activities for the prior-year period.

Cash provided by financing activities for the six months ended December 31, 2022 and 2021 is primarily attributable to net borrowings on the revolving credit facility.

For the nine months ended March 31, 2023, cash provided by financing activities totaled $25.6 million, compared to $27.7 million provided by financing activities for the prior-year period.

Cash provided by financing activities for the nine months ended March 31, 2023 and 2022 is primarily attributable to net borrowings on the revolving credit facility.

Credit Facility

9 unchanged sentences

Loans denominated in U.S.

dollars, other than swingline loans, shall bear interest at a rate per annum equal to, at our option, (i) the adjusted Term SOFR or adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75%, depending upon our ratio of (A) total consolidated debt less up to $30 million of unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”);

dollars, other than swingline loans, bear interest at a rate per annum equal to, at our option, (i) the adjusted term SOFR or adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our ratio of (A) total consolidated debt less up to $30 million of unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”);

or (ii) the alternate base rate plus an additional margin ranging from 0% to 0.75%, depending upon our leverage ratio, plus, if applicable, certain mandatory costs.

All swingline loans denominated in U.S.

dollars shall bear interest based upon the adjusted daily simple SOFR, floating daily, plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio, or such other rate as agreed upon with the applicable swingline lender.

dollars bear interest based upon the adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our leverage ratio, or such other rate as agreed upon with the applicable swingline lender.

The adjusted term SOFR and adjusted daily simple SOFR include a fixed credit adjustment of 0.10% over the applicable SOFR reference rate.

Loans denominated in foreign currencies shall bear interest at a rate per annum equal to the applicable benchmark rate set forth in the New Credit Agreement plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio, plus, if applicable, certain mandatory costs.

During the quarter and six months ended December 31, 2022, our borrowings under the credit facility were U.S.

Loans denominated in foreign currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the Amended Credit Agreement plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio plus, if applicable, certain mandatory costs.

During the quarter and nine months ended March 31, 2023, our borrowings under the credit facility were U.S.

dollar loans.

The spread in effect as of December 31, 2022 was 1.50% for LIBOR and SOFR-based loans and 0.50% for alternate base rate loans.

The commitment fee rate in effect at December 31, 2022 was 0.25%.

The spread in effect as of March 31, 2023 was 1.50% for LIBOR and SOFR-based loans and 0.50% for alternate base rate loans.

The commitment fee rate in effect at March 31, 2023 was 0.25%.

The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants.

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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 December 31, 2022.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the six month periods ended December 31, 2022 and 2021 was $219.5 million and $57.1 million, respectively.

There was $120.0 million and $214.2 million available for additional borrowings as of December 31, 2022 and June 30, 2022, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at December 31, 2022 or June 30, 2022.

We were in compliance with all covenants under the credit facility at March 31, 2023.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine month periods ended March 31, 2023 and 2022 was $227.2 million and $60.0 million, respectively.

There was $190.8 million and $214.2 million available for additional borrowings as of March 31, 2023 and June 30, 2022, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at March 31, 2023 or June 30, 2022.

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.

While we were in compliance with the financial covenants contained in the Credit Facility as of December 31, 2022, 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.

While we were in compliance with the financial covenants contained in the Credit Facility as of March 31, 2023, 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 our present and future working capital and cash requirements for at least the next twelve months.

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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