What changed in this filing

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Item 1A. Risk Factors

2023-08-22 compared with 2022-08-23 · 49 added, 69 removed, 233 unchanged (34% of the section changed)

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Additionally, there are other risks which could impact us that we may not describe, because we currently do not perceive them to be material or because they are presently unknown.

If any of these risks develops into actual events, our business, financial condition and results of operations could be negatively affected, the market price of our common stock could decline and you may lose all or part of your investment in our common stock.

If any of these risks develops into actual events, our business, financial condition and

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results of operations could be negatively affected, the market price of our common stock could decline and you may lose all or part of your investment in our common stock.

We expressly disclaim any obligation to update or revise any risk factors, whether as a result of new information, future events or otherwise, except as required by law.

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People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected.

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Our operating results could be adversely affected by increased competition for employees, difficulty in recruiting employees, higher employee turnover or increased compensation and benefit costs.

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In addition, increases in the size and complexity of our business may place a significant strain on our management, operations, technical performance, financial resources and internal financial control and reporting functions, and there are no assurances that we will be able to manage the acquisition process or newly acquired companies effectively.

It is not always possible to conduct an assessment of an acquired business’s internal control over financial reporting in the period between the consummation date and the date of management’s assessment.

Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations under Section 404 of the Sarbanes-Oxley Act of 2002.

Our personnel, systems, procedures and controls may not be adequate to effectively manage our future operations, especially as we employ personnel in multiple domestic and international locations.

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Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, financial condition and results of operations.

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In addition, the information systems of companies we acquire may not meet our standards or we may not be able to successfully convert them to provide acceptable information on a timely and cost-effective basis.

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Any disruption to our business due to such issues, or an increase in our costs to cover these issues, could have an adverse effect on our financial results and operations.

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Our customers rely on our electronic ordering and information systems as a source for product information, including availability and pricing.

There can be no assurance that our systems will not fail or experience disruptions, and any significant failure or disruption of these systems could prevent us from making sales, ordering and delivering products and otherwise conducting our business.

Many of our customers use our website to check product availability, see their customized pricing and place orders.

While our website has not experienced any material disruptions or security breakdowns, it may in the future and any disruptions could harm our relationship with our suppliers, customers and other business partners.

Any material disruption of our website or the Internet in general could impair our order processing or prevent our suppliers and customers from accessing information and cause us to lose business.

Our customers rely on our electronic ordering, information systems and website for product information, including availability, pricing and placing orders.

Our systems were disrupted during our recent ransomware incident, and there can be no assurance that our systems will not fail or experience disruptions again in the future, and any significant failure or disruption of these systems could prevent us from making sales, ordering and delivering products and otherwise conducting our business.

Supply Chain issues, include a shortage of products, may increase our costs or cause a delay in fulfilling customer orders, completing services or purchasing products and services needed to support our internal operations, resulting in an adverse impact on our financial results.

Our business depends on the timely supply of products in order to meet the demands of our customers.

At present, there is a worldwide shortage of certain technology products resulting from shortages in semiconductors and other components of those products.

Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times and the predictability of lead times for delivery of products, the costs of products and our ability to meet customer demands in a timely fashion.

If we are unable to mitigate these disruptions, our financial results may be adversely impacted.

Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, natural disasters, political or social unrest, pandemics (such as the ongoing COVID-19 pandemic) or other public health crises or other adverse occurrences affecting any of our suppliers’ facilities, could further disrupt our supply chain.

Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, natural disasters, political or social unrest, pandemics or other public health crises or other adverse occurrences affecting any of our suppliers’ facilities, could further disrupt our supply chain.

We could experience product constraints due to the failure of suppliers to accurately forecast customer demand or to manufacture sufficient quantities of product to meet customer demand (including as a result of shortages of product components), among other reasons.

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Our failure to effectively manage our organic growth could have an adverse effect on our business, financial condition and results of operations.

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Credit exposure - We have credit exposure to our customers.

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As is customary in our industry, we extend credit to our customers, and most of our sales are on open accounts;

we also provide financing to some Intelisys customers based on their future commission flows.

As we grow and compete for business, our typical payment terms tend to be longer, and therefore may increase our credit risk.

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While we evaluate our customers' qualifications for credit and monitor our extensions of credit, these efforts cannot prevent all credit losses and any credit losses negatively impact our performance.

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As a result of these factors and other challenges in extending credit to international customers, we generally face greater credit risk from international sales compared to domestic sales.

As customers continue to face the negative economic impacts of COVID 19, recession and inflation, we may face heightened credit losses not otherwise experienced before the pandemic.

Reliance on third parties - We are dependent on third parties for some services, including the delivery of a majority of our products, logistics and warehousing.

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Our business, like that of other distributors, is subject to the risk that the value of our inventory will be adversely affected by price reductions by manufacturers, by technological changes affecting the usefulness or desirability of our products or by foreign currency fluctuations.

Most of our supplier agreements and most manufacturers’ policies have some price protection and stock rotation opportunities with respect to slow-moving or obsolete inventory items.

However, these protections are limited in scope and do not protect against all declines in inventory value, excess inventory, or product obsolescence, and in some instances we may not be able to fulfill all necessary conditions or successfully manage such price protection or stock rotation opportunities.

Some of our supplier agreements and certain manufacturers’ policies have some price protection and stock rotation opportunities with respect to slow-moving or obsolete inventory items;

however, these protections are becoming less standard, subject to change, limited in scope and do not protect against all declines in inventory value, excess inventory, or product obsolescence, and in some instances we may not be able to fulfill all necessary conditions or successfully manage such price protection or stock rotation opportunities.

In addition, these protections are not always reflected in supplier agreements and their application in a particular situation is dependent upon negotiations with our suppliers.

As a result, occasionally we are required to write down the value of excess and obsolete inventory, and should any of these write-downs occur at a significant level, they could have an adverse effect on our business, financial condition and results of operations.

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Suppliers - Changes to supply agreement terms or lack of product availability from our suppliers could adversely affect our operating margins, revenues or the level of capital required to fund our operations.

Suppliers - Changes to supply agreement terms or lack of product availability from our suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our operations.

Our future success is highly dependent on our relationships with our suppliers.

A significant percentage of our net sales relates to products we purchase from relatively few suppliers, including Cisco and Zebra.

As a result of such concentration risk, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenues or the level of capital required to fund our operations.

Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and rebates they make available to us.

In addition, our suppliers have the ability to terminate sales to us.

As a result of such concentration risk, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our operations.

Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and

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rebates they make available to us.

In addition, our supplier agreements typically are short-term and may be terminated without cause on short notice.

We have no guaranteed price or delivery agreements with our suppliers.

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Our ability to obtain particular products or product lines in the required quantities and our ability to fulfill customer orders on a timely basis is critical to our success.

Our suppliers have experienced product supply shortages from time to time due to the inability of certain of their suppliers to supply products on a timely basis, which has been more prevalent since the COVID-19 pandemic began.

Our suppliers have experienced product supply shortages from time to time due to the inability of certain of their suppliers to supply products on a timely basis.

Specifically, shortages of computer chips may lead to product constraints and adversely affect our sales volumes and product availability.

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Changes in payment terms with either suppliers or customers could also increase our capital requirements.

We have historically relied upon cash generated from operations, borrowings under our revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth.

We have historically relied on cash generated from operations, borrowings under our revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth.

While we believe our existing sources of liquidity will provide sufficient resources to meet our current working capital and cash requirements, if we require an increase in capital to meet our future business needs or if we are unable to comply with covenants under our borrowings, such capital may not be available to us on terms acceptable to us, or at all.

We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (the “Amended Credit Agreement”).

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

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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 3.50:1.00 at all times.

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In addition, the cost of borrowings under our existing sources of capital and any potential new sources of capital as a result of variable interest rates may increase, which could have an adverse effect on our financial condition.

Changes in how lenders rate our credit worthiness, as well as macroeconomic factors such as an economic downturn, inflation, rising interest rates and global economic instability may restrict our ability to raise capital in adequate amounts or on terms acceptable to us, and the failure to do so could harm our ability to operate our business.

Changes in how lenders rate our credit worthiness, as well as macroeconomic factors such as an economic downturn, inflation, rising interest rates and

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global economic instability may restrict our ability to raise capital in adequate amounts or on terms acceptable to us, and the failure to do so could harm our ability to operate our business.

In addition, our cash and cash equivalents are deposited with various financial institutions located in the various countries in which we operate.

We endeavor to monitor these financial institutions regularly for credit quality;

however, we are exposed to risk of loss on such funds or we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to suffer bankruptcy or similar restructuring.

however, we are exposed to risk of loss on such funds or we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to fail or suffer bankruptcy or similar restructuring.

Customers - We operate in a highly competitive environment and good customer relations are critical to our success.

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Transactions with our customers generally are performed on a purchase order basis rather than under long term supply agreements.

Therefore, our customers readily can choose to purchase from other sources.

Therefore, our customers can choose to purchase from other sources.

From time to time, we experience shortages in availability of some products from suppliers, and this impacts customers' decisions regarding whether to make purchases from us.

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The loss or deterioration of a major customer relationship could adversely affect our business, financial condition and results of operations.

COVID-19's continued widespread disruptive economic impacts, economic recession, and higher interest rates and inflation could result in some of our customers shuttering their businesses, thus negatively impacting our revenues.

Economic recession, higher interest rates and inflation could result in some of our customers shuttering their businesses, thus negatively impacting our business.

Litigation - We routinely are involved in litigation that can be costly and lead to adverse results.

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If the carrying value of goodwill in any of our goodwill reporting units or other intangible assets is determined to exceed their respective fair values, we may be required to record significant impairment charges.

In addition, our decision to dispose of certain of our operations may require us to recognize an impairment to the carrying value of goodwill and other intangible assets attendant to those operations.

We recognized significant goodwill and intangible asset impairment in the fiscal year ended June 30, 2020.

Any declines resulting in a goodwill impairment or long-lived asset

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impairment may result in material non-cash charges to our earnings.

In addition, our decision to dispose of certain of our operations has in the past and may in the future require us to recognize an impairment to the carrying value of goodwill and other intangible assets attendant to those operations.

As of June 30, 2023, the Specialty Technology Solutions and Modern Communications & Cloud reporting units' goodwill balances are $16.4 million and $200.3 million, respectively.

The fair value of the reporting units exceeded its carrying value by 2% and 13%, respectively, as of the annual goodwill impairment testing date.

Any declines resulting in a goodwill impairment or long-lived asset impairment may result in material non-cash charges to our earnings.

Impairment charges would also reduce our consolidated shareholders' equity and increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating and access to the public debt and equity markets.

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International operations - Our international operations expose us to risks that are different from, and possibly greater than, the risks we are exposed to domestically.

We currently have significant facilities outside the United States, and a substantial portion of our revenue is derived from our international operations.

We currently have significant facilities outside the United States.

For fiscal year ending June 30, 2023, approximately 9.4% of our revenue is derived from our international operations outside of the United States and Canada.

These operations are subject to a variety of risks that are different from the risks that we face domestically or are similar risks but with potentially greater exposure.

These risks include:

• Disproportionate negative impact from COVID-19 in a foreign location;

• Fluctuations of foreign currency and exchange rates, which can impact sales, costs of the goods we sell and the reporting of our results and assets on our financial statements;

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• Changes in the interpretation and enforcement of laws (in particular related to items such as duty and taxation), and laws related to data privacy such as GDPR and other similar privacy laws that impact our IT systems and processes;

• Global economic and financial market instability related to the UK’s referendum withdrawal from the E.U., as well as instability from the possibility of withdrawal of other E.U.

member states:

• Global economic and financial market instability;

• Potential political and economic instability and changes in governments;

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• Terrorist or military actions that result in destruction or seizure of our assets or suspension or disruption of our operations or those of our customers, suppliers or service providers.

We currently transact business in the UK, where we also have offices.

The UK's ongoing process of exiting the E.U.

is a source of continued uncertainty.

A number of agreements have already been made that alter the UK’s relationship with the E.U., including the terms of trade between the UK and the E.U.

and the rest of the world.

The measures could potentially disrupt the markets we serve and the tax jurisdictions in which we operate and adversely change tax benefits or liabilities in these or other jurisdictions.

Changes resulting from these measures, including access to free trade agreements, tariffs and customs and currency fluctuations may cause us to lose customers, suppliers and employees and adversely affect our financial condition.

We have substantial operations in Brazil and face risks related to these countries' complex tax, labor, trade compliance and consumer protection laws and regulations.

Additionally, developing markets such as Brazil have greater political volatility and vulnerability to infrastructure and labor disruptions, are more likely to experience market and interest rate fluctuations and may have higher inflation.

In addition, doing business in these countries poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, agents and service providers, among other risks.

In addition, doing business in foreign countries poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, agents and service providers, among other risks.

Furthermore, in developing markets it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S.

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If we cannot successfully increase our business, our product sales, financial condition and results of operations could be adversely affected.

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Quarterly fluctuations - Our net sales and operating results are dependent on a number of factors.

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The results of any quarterly period are not indicative of results to be expected for a full fiscal year.

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Centralized functions - We have centralized a number of functions to provide efficient support to our business.

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This could result in an increase in our need for capital, increase our financing costs, increase our bad debt expenses and have an adverse impact on our results of operations.

We may lose market share, or reduce our prices in response to the action of our competitors and thereby experience a reduction in our gross margins, or that we will remain in any geographical market where we do not believe we can earn appropriate margins.

We may lose market share, reduce our prices in response to actions of our competitors, or withdraw from geographical markets where we do not believe we can earn appropriate margins.

We expect continued intense competition as current competitors expand their operations and new competitors enter the market.

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The market for some of our products and services is subject to rapid technological change, evolving industry standards and changes in customer demand, which can contribute to the decline in value or obsolescence of inventory.

Although most of our suppliers provide us with certain protections from the loss in value of inventory (such as price protection and certain return

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rights), we cannot be sure that such protections will fully compensate for any loss in value, or that the suppliers will choose to, or be able to, honor such agreements.

Although some of our suppliers provide us with certain protections from the loss in value of inventory (such as price protection and certain return rights), we cannot be sure that such protections will fully compensate for any loss in value, or that the suppliers will choose to, or be able to, honor such agreements.

Our ability and our supplier's ability to anticipate and react quickly to new technology trends and customer requirements is crucial to our overall success, financial condition and results of operations.

If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, it would adversely affect our ability to retain or increase market share and revenues.

New technologies may emerge that quickly surpass the capabilities of the products we currently hold in inventory or have access to sell through our existing supplier network, and our customers may no longer view our product offerings as desirable or necessary, which could result in a reduction in our market share and ability to obtain sufficient profit margins.

Some of our competitors and our suppliers’ competitors may be better at adapting to disruptive technology or entering new markets.

Some of our competitors and our suppliers’ competitors may be better at adapting to disruptive technology or entering

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Our future success depends, in part, on our ability to adapt and manage our product and service offerings to meet customer needs at prices that our customers are willing to pay.

General Risk Factors

Cyber security risk - Our reputation and business may be harmed from cyber security risk and we may be subject to legal claims if there is loss, disclosure or misappropriation of or access to our customers' or our business partners' or our own information or other breaches of our information security.

Cybersecurity risk - If we are the subject of a ransomware or other cyberattack, we could lose valuable financial and operational data, we could be prevented from processing customer orders, ordering and tracking inventory, and efficiently operating our business, and we could lose revenue and profits and incur significant costs.

In addition, we could be subject to legal claims in the event of the loss, disclosure or misappropriation of, or access to, our customer's or business partners' or our own information.

We make extensive use of online services and integrated information systems, including through third-party service providers.

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Any such loss, disclosure or misappropriation of, or access to, customers' or business partners' information or our information or other breach of such information security can result in legal claims or legal proceedings, including regulatory investigations and actions, and may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition.

COVID-19 - COVID-19 continues to create macroeconomic uncertainty and could negatively impact our financial results

We are vulnerable to the general economic impacts of pandemics, such as the COVID-19 pandemic, which continue to create significant macroeconomic uncertainty and supply chain constraints.

These supply chain constraints have caused shortages in electronics components, resulting in extended lead times and unpredictability.

The COVID-19 pandemic has also resulted in the implementation of numerous measures to contain the virus worldwide, which may continue to cause significant disruptions to the US and global economy.

The extent to which COVID-19 and related challenges will continue to impact our results will depend on future developments, which are uncertain and cannot be predicted with confidence.

While we are unable to predict the ultimate impact that COVID-19 will have on our business, certain technologies have benefited from the widespread adoption to a work-from-anywhere business model, as well as the accelerated shift to digitize and automate processes.

However, our revenues could decrease significantly if our suppliers are not able to supply us products in a timely manner.

Additionally, our distribution centers may not be able to maintain staffing levels, which could affect our ability to ship products timely and negatively impact our cash flow.

To the extent the COVID-19 pandemic continues, the mitigation efforts and the resulting economic impact could adversely affect many aspects of our business.

COVID-19 may also have the effect of heightening many of the other risk factors disclosed herein, such as those relating to our growth strategies, credit exposure, liquidity and capital resources, people, volatility of stock price and economic weakness.

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In May 2023, we learned that we had been the subject of a ransomware attack.

The attacker encrypted files that, in turn, made certain of our systems inaccessible until they were restored.

This attack interrupted our ability to accept and process orders for approximately nine business days and resulted in the disclosure on the "dark web" of various information from our systems.

Although substantially all of the restoration is complete, there can be no assurance that we will not be a victim of a ransomware or other cyberattack again in the future.

Increased government regulation - We may be subject to additional costs and subject to fines and penalties because certain governmental entities are end-customers of products that we sell.

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A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital, if needed, and the inability for you to obtain a favorable price at which you could sell your shares.

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Foreign currency - Our international operations expose us to fluctuations in foreign currency exchange rates that could adversely affect our results of operations.

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Economic weakness and geopolitical uncertainty also make it more difficult for us to manage inventory levels and/or collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs.

The economic weakness brought about by COVID-19 may result in prolonged recession, inflation and increasing interest rates, which has the potential to disproportionately impact our business depending on which sectors of the economy and which geographies are most impacted.

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Unresolved Staff Comments.

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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-K

Item 1A. Risk Factors