What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-08-22 compared with 2022-08-23 · 118 added, 277 removed, 362 unchanged (52% of the section changed)

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

ScanSource is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, SaaS, connectivity and cloud.

We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, POS and payments, physical security and networking, communications and collaboration, connectivity and cloud services to our approximately 30,000 sales partners located in the United States, Canada, Brazil, the UK and Europe.

ScanSource is a leading hybrid distributor connecting devices to the cloud and accelerating growth for customers across hardware, SaaS, connectivity and cloud.

We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, POS and payments, physical security and networking, communications and collaboration, connectivity and cloud services to our approximately 30,000 customers 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.

2 unchanged sentences

• Modern Communications & Cloud

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

We sell hardware, SaaS, connectivity and cloud solutions and services through channel partners to end users.

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

1 unchanged sentence

We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms.

Our key suppliers include 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.

Our key suppliers include 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Logitech, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly HP, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.

Recent Developments

Cybersecurity Incident

On May 14, 2023, we discovered that we were subject to a cybersecurity attack perpetrated by unauthorized third parties that affected our IT systems.

Upon detection, we took immediate steps to address the incident, engaged third-party experts, and notified law enforcement.

We have cyber insurance and are working with our insurance carriers on claims to recover costs incurred.

On May 26, 2023, we substantially recovered our operations and completed the restoration of our pertinent IT systems.

We have taken actions to strengthen our existing IT security infrastructure and will continue to implement additional measures to prevent unauthorized access to, or manipulation of, our systems and data.

Impact of the Macroeconomic Environment, Including Inflation and Supply Chain Constraints

6 unchanged sentences

Our goal is to provide exceptional experiences for our partners, suppliers and employees, and we strive for operational excellence.

Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to sales partners that solve end-customers’ challenges.

ScanSource enables sales partners to deliver solutions for their customers to address changing end-customer buying and consumption patterns.

Our solutions may include a combination of offerings from multiple suppliers or give our sales partners access to additional services.

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

Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to customers that solve end users’ challenges.

ScanSource enables customers to deliver solutions for their end users to address changing buying and

Index to Financial Statements

consumption patterns.

Our solutions may include a combination of offerings from multiple suppliers or give our customers access to additional services.

As a trusted adviser to our customers, we provide customized solutions through our strong understanding of end user needs.

Results of Operations from Continuing Operations

1 unchanged sentence

Totals may not sum due to rounding.

Index to Financial Statements

Fiscal Year Ended June 30,

8 unchanged sentences

Restructuring and other charges 0.0 0.0 0.3

Impairment charges 0.0 0.0 4.0

Change in fair value of contingent consideration 0.0 0.0 0.2

Operating income 3.6 3.5 2.0

2 unchanged sentences

Other (income) expense, net 0.0 0.0 0.0

Income (loss) from continuing operations before income taxes 3.4 1.8 (2.4)

Income from continuing operations before income taxes 3.2 3.4 1.8

Provision for income taxes 0.9 0.8 0.4

Net income (loss) from continuing operations 2.5 1.4 (2.6)

Net loss from discontinued operations 0.0 (1.1) (3.7)

Net income (loss) 2.5 % 0.3 % (6.3) %

Net income from continuing operations 2.3 2.5 1.4

Net income (loss) from discontinued operations 0.0 0.0 (1.1)

Net income 2.4 % 2.5 % 0.3 %

Comparison of Fiscal Years Ended June 30, 2023 and 2022

Below is a discussion of fiscal years ended June 30, 2023 and 2022.

Fiscal year 2022 compared to fiscal year 2021

Please refer to our form 10-K for the fiscal year ended June 30, 2022 for a discussion of fiscal year ended June 30, 2021.

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

12 unchanged sentences

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

Our sales during our fourth quarter were adversely impacted by the cybersecurity attack that we discovered on May 14, 2023.

Until the appropriate restoration was completed, we generally were not able to use our core systems to accept orders or ship products.

Because some of the lost sales may simply have been deferred, we do not yet have a complete estimate of the ultimate impact.

We have business interruption insurance that should cover a portion of the lost profits attributable to any lost sales.

Specialty Technology Solutions

2 unchanged sentences

Excluding the foreign exchange positive impact of $0.9 million, adjusted net sales for fiscal year 2023 increased $247.8 million, or 11.9%, compared to the prior year.

The increase in net sales and in adjusted net sales is primarily due to increased broad-based demand across our technologies.

The increase in net sales and in adjusted net sales is primarily due to strong growth in key technologies in North America.

Modern Communications & Cloud

2 unchanged sentences

Excluding the foreign exchange positive impact of $3.5 million, adjusted net sales increased $5.6 million, or 0.4%, compared to the prior year.

The increase in net sales and adjusted net sales is primarily due to increased demand across our communications solutions.

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

Intelisys connectivity and cloud net sales for fiscal year 2023 increased 7.0% year-over-year.

2 unchanged sentences

The fiscal year 2023 Intelisys net billings resulted in Intelisys net sales of approximately $79.5 million.

Fiscal year 2021 compared to fiscal year 2020

Index to Financial Statements

2021 2020 $ Change % Change % Change Constant Currency, Excluding Divestitures and Acquisitions (a)

(in thousands)

Sales by Segment:

Specialty Technology Solutions $ 1,815,933 $ 1,580,441 $ 235,492 14.9 % 16.1 %

Modern Communications & Cloud 1,334,873 1,467,293 (132,420) (9.0) % (5.9) %

Total net sales $ 3,150,806 $ 3,047,734 $ 103,072 3.4 % 5.5 %

Sales by Geography Category:

United States $ 2,840,731 $ 2,755,134 $ 85,597 3.1 % 3.1 %

International 310,075 292,600 17,475 6.0 % 28.5 %

Total net sales $ 3,150,806 $ 3,047,734 $ 103,072 3.4 % 5.5 %

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

Specialty Technology Solutions

During fiscal year 2021, net sales for this segment increased $235.5 million, or 14.9%, compared to fiscal year 2020.

Excluding the foreign exchange negative impact of $19.3 million, adjusted net sales for fiscal year 2021 increased $254.8 million, or 16.1%, compared to the prior year.

The increase in net sales and in adjusted net sales is primarily due to higher sales volume across our technologies in North America.

Modern Communications & Cloud

During fiscal year 2021, net sales for this segment decreased $132.4 million, or 9.0%, compared to fiscal year 2020.

Excluding the foreign exchange negative impact of $46.5 million, adjusted net sales decreased $86.0 million, or 5.9%, compared to the prior year.

The decrease in net sales and adjusted net sales is primarily due to lower sales volume across our communications technologies.

Intelisys connectivity and cloud net sales for fiscal year 2021 increased 13.1% year-over-year.

Fiscal year 2022 compared to fiscal year 2021

The following table summarizes our gross profit for the fiscal years ended June 30, 2023 and 2022:

Index to Financial Statements

2023 2022 $ Change % Change 2023 2022

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Net sales derived from our Intelisys business contribute 100% to our gross profit dollars and margin as they have no associated cost of goods sold.

Index to Financial Statements

Specialty Technology Solutions

1 unchanged sentence

Higher sales volume, after considering the associated cost of goods sold, contributed $24.6 million to the growth of gross profit dollars.

Gross margin mix positively impacted gross profit by $23.6 million, largely from higher vendor program recognition.

For the year ended June 30, 2022, the gross profit margin increased 113 basis points over the prior-year to 9.9%.

Gross margin mix negatively impacted gross profit by $6.1 million, largely from a less favorable sales mix.

For the year ended June 30, 2023, the gross profit margin decreased 26 basis points over the prior-year to 9.6%.

Modern Communications & Cloud

1 unchanged sentence

Higher sales volume, after considering the associated cost of goods sold, contributed $1.4 million to the growth of gross profit dollars.

Gross margin mix positively impacted gross profit by $12.7 million, largely from a more favorable sales mix.

For the year ended June 30, 2022, the gross profit margin increased 87 basis points over the prior year to 15.3%.

Fiscal year 2021 compared to fiscal year 2020

2021 2020 $ Change % Change 2021 2020

(in thousands)

Specialty Technology Solutions $ 158,833 $ 153,511 $ 5,322 3.5 % 8.7 % 9.7 %

Modern Communications & Cloud 191,883 202,058 (10,175) (5.0) % 14.4 % 13.8 %

Total gross profit $ 350,716 $ 355,569 $ (4,853) (1.4) % 11.1 % 11.7 %

Specialty Technology Solutions

For the Specialty Technology Solutions segment, gross profit dollars increased $5.3 million.

Higher sales volume, after considering the associated cost of goods sold, contributed $22.9 million to the growth of gross profit dollars.

Gross margin mix negatively impacted gross profit by $17.6 million, largely from lower vendor program recognition.

For the year ended June 30, 2021, the gross profit margin decreased 96 basis points over the prior-year to 8.7%.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, gross profit dollars decreased $10.2 million.

Lower sales volume, after considering the associated cost of goods sold, negatively impacted gross profit by $18.2 million.

This impact was partially offset by a more favorable sales mix, which positively impacted gross profit by $8.0 million.

Gross margin mix positively impacted gross profit by $2.8 million, largely from a more favorable sales mix, partially offset by lower vendor program recognition.

For the year ended June 30, 2023, the gross profit margin increased 20 basis points over the prior year to 15.4%.

Operating expenses

Fiscal year 2022 compared to fiscal year 2021

The following table summarizes our operating expenses for the periods ended June 30, 2023 and 2022:

Index to Financial Statements

2023 2022 $ Change % Change 2023 2022

3 unchanged sentences

Intangible amortization expense 16,746 17,853 (1,107) (6.2) % 0.4 % 0.5 %

Restructuring and other charges — 9,258 (9,258) (100.0) % — % 0.3 %

Change in fair value of contingent consideration — 516 (516) (100.0) % — % — %

Operating expenses $ 313,353 $ 304,357 $ 8,996 3.0 % 8.3 % 8.6 %

Selling, general and administrative expenses ("SG&A") increased $10.3 million for the fiscal year ended June 30, 2023 compared to the prior year.

The increase in SG&A expenses is primarily attributable to higher employee costs.

Restructuring and other charges incurred of $9.3 million during the fiscal year ended June 30, 2021 primarily related to employee severance and benefit costs in connection with our expense reduction plan implemented at the end of July 2020.

We recorded expense of $0.5 million for the change in fair value of contingent consideration for the fiscal year ended June 30, 2021, all of which relates to Intelisys.

The final Intelisys earnout payment was paid in October 2020.

Fiscal year 2021 compared to fiscal year 2020

The following table summarizes our operating expenses for the periods ended June 30, 2021 and 2020:

2021 2020 $ Change % Change 2021 2020

(in thousands)

Selling, general and administrative expenses $ 247,438 $ 259,535 $ (12,097) (4.7) % 7.9 % 8.5 %

Depreciation expense 12,533 13,033 (500) (3.8) % 0.4 % 0.4 %

Intangible amortization expense 19,488 19,953 (465) (2.3) % 0.6 % 0.7 %

Restructuring and other charges 9,258 604 8,654 *nm 0.3 % — %

Impairment charges — 120,470 (120,470) *nm — % 4.0 %

Change in fair value of contingent consideration 516 6,941 (6,425) (92.6) % — % 0.2 %

Operating expenses $ 289,233 $ 420,536 $ (131,303) (31.2) % 9.2 % 13.8 %

*nm - percentages are not meaningful

SG&A decreased $12.1 million for the fiscal year ended June 30, 2021 compared to the prior year.

The decrease in SG&A expenses is primarily due to the expense reduction plan announced in July 2020, partially offset by a Brazilian tax recovery in the prior year that did not recur.

No impairment charges were recorded in the fiscal year ended June 30, 2021.

Impairment charges for the fiscal year ended June 30, 2020 include $119.0 million in goodwill impairment charges and $1.4 million in intangible asset impairment charges for our Canpango business.

The increase in SG&A expenses is primarily attributable to higher employee costs, partially offset by net tax recoveries of $3.0 million related to prior periods.

SG&A includes approximately $1.5 million in costs attendant to the cybersecurity attack.

We have cyber-related insurance that should cover a portion (or all) of these expenses.

While we continuously try to improve our cybersecurity, the nature of the particular attack did not suggest a broad problem with our cybersecurity efforts, and we do not expect a significant increase in ongoing cybersecurity-related expenses.

Index to Financial Statements

In fiscal 2021, we recorded a $0.5 million expense from change in fair value of contingent consideration, all of which is related to Intelisys.

The expense is due to the recurring amortization of the unrecognized fair value discount and a reduction in the discount rate for the Intelisys liability.

Intangible amortization expense decreased $1.1 million for the fiscal year ended June 30, 2023 compared to the prior year.

Amortization expense decreased during fiscal year 2023 due to certain trade name and non-compete intangibles becoming fully amortized in the current year.

Operating Income

Fiscal year 2022 compared to fiscal year 2021

The following table summarizes our operating income for the periods ended June 30, 2023 and 2022:

3 unchanged sentences

Modern Communications & Cloud 61,658 55,511 6,147 11.1 % 4.2 % 3.8 %

Corporate (30) (11,634) 11,604 99.7 % — % — %

Corporate (1,460) (30) (1,430) *nm — % — %

Total operating income $ 135,886 $ 122,167 $ 13,719 11.2 % 3.6 % 3.5 %

*nm - not meaningful

Specialty Technology Solutions

For the Specialty Technology Solutions segment, operating income increased $37.1 million, and operating margin increased to 3.2% for the fiscal year ended June 30, 2022 compared to the prior year.

For the Specialty Technology Solutions segment, operating income increased $9.0 million, and operating margin increased 5 basis points to 3.2% for the fiscal year ended June 30, 2023, compared to the prior year.

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

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income increased $12.0 million and the operating margin increased to 3.8% for the fiscal year ended June 30, 2022, compared to the prior year.

For the Modern Communications & Cloud segment, operating income increased $6.1 million and the operating margin increased 40 basis points to 4.2% for the fiscal year ended June 30, 2023, compared to the prior year.

The increase in operating income and margin is largely due to higher gross profits.

Corporate incurred less than $0.1 million in divestiture costs for fiscal year ended June 30, 2022, compared to $11.6 million in divestiture and restructuring costs for the year ended June 30, 2021.

Fiscal year 2021 compared to fiscal year 2020

The following table summarizes our operating income for the periods ended June 30, 2021 and 2020:

2021 2020 $ Change % Change 2021 2020

(in thousands)

Specialty Technology Solutions $ 29,566 $ (67,706) $ 97,272 143.7 % 1.6 % (4.3) %

Modern Communications & Cloud 43,551 6,739 36,812 546.3 % 3.3 % 0.5 %

Corporate (11,634) (4,000) (7,634) (190.9) % — % — %

Total operating income (loss) $ 61,483 $ (64,967) $ 126,450 194.6 % 2.0 % (2.1) %

Index to Financial Statements

Specialty Technology Solutions

For the Specialty Technology Solutions segment, operating income increased $97.3 million, and operating margin increased to 1.6% for the fiscal year ended June 30, 2021 compared to the prior-year.

The increase in operating income and operating margin for the fiscal year is due to goodwill impairment charges in the fiscal year 2020.

Excluding goodwill impairment charges of $119.0 million in fiscal year 2020, adjusted operating income for the fiscal year ended June 30, 2021 decreased $21.7 million compared to the prior-year.

The decrease in adjusted operating income is due to a Brazilian tax recovery in the prior year that did not recur.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income increased $36.8 million and the operating margin increased to 3.3% for the fiscal year ended June 30, 2021, compared to the prior year.

The increase in operating income and margin is largely due to lower employee-related expenses, which decreased year-over-year by $16.4 million, or 11.5%.

The increase in operating income and margin is also due to impairment charges of $23.1 million in fiscal year 2020, which did not recur in fiscal year 2021.

Corporate incurred $11.6 million in divestiture and restructuring costs for fiscal year ended June 30, 2021, compared to $4.0 million in acquisition and divestiture costs for the year ended June 30, 2020.

The fiscal year ended June 30, 2023 Corporate operating loss of $1.5 million represents cyberattack restoration charges.

Corporate incurred less than $0.1 million in divestiture costs during the fiscal year ended June 30, 2022.

Total Other (Income) Expense

Fiscal year 2022 compared to fiscal year 2021

The following table summarizes our total other (income) expense for the fiscal years ended June 30, 2023 and 2022:

6 unchanged sentences

Total other (income) expense $ 14,036 $ 3,544 $ 10,492 296.0 % 0.4 % 0.1 %

Interest expense reflects interest incurred on borrowings, non-utilization fees from our revolving credit facility and amortization of debt issuance costs.

Interest expense decreased in fiscal 2022 as compared to 2021 primarily from lower interest rates including the spread during the first nine months of fiscal year 2022.

Interest income for the year ended June 30, 2022 and 2021 was generated on interest-bearing customer receivables principally 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 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, the Canadian dollar versus the U.S.

dollar and other currencies versus the U.S.

We 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.

Fiscal year 2021 compared to fiscal year 2020

Index to Financial Statements

The following table summarizes our total other (income) expense for the fiscal years ended June 30, 2021 and 2020:

2021 2020 $ Change % Change 2021 2020

(in thousands)

Interest expense $ 6,929 $ 12,224 $ (5,295) (43.3) % 0.2 % 0.4 %

Interest income (3,097) (5,826) 2,729 (46.8) % (0.1) % (0.2) %

Net foreign exchange losses 845 525 320 61.0 % — % — %

Other, net (729) (114) (615) 539.5 % — % — %

Total other (income) expense $ 3,948 $ 6,809 $ (2,861) (42.0) % 0.1 % 0.2 %

Interest expense decreased in fiscal year 2021 as compared to 2020 principally from reduced borrowings on our multi-currency revolving credit facility.

Interest income for the year ended June 30, 2021 and 2020 was generated on interest-bearing customer receivables and interest earned on cash and cash equivalents, principally in Brazil.

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 in fiscal 2023 as compared to 2022 primarily from higher interest rates and higher average borrowings on our multi-currency revolving credit facility.

Interest income for the year ended June 30, 2023 and 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 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 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 contracts are included in the net foreign exchange losses.

Provision for Income Taxes

Income tax expense for continuing operations was $33.8 million and $29.9 million for the fiscal years ended June 30, 2023 and 2022, respectively, reflecting effective tax rates of 27.7% and 25.2%, respectively.

The increase in the effective tax rate for fiscal year 2022 compared to fiscal year 2021 is primarily the result of an increase in non-deductible expenses and an inclusion for global intangible low taxed income.

The increase in the effective tax rate for fiscal year 2023 compared to fiscal year 2022 is primarily the result of an increase in global intangible low taxed income.

Subsequent to the 2023 fiscal year end, the IRS issued Notice 2023-55, which provides taxpayers with Brazilian subsidiaries temporary relief from the final foreign tax credit regulations.

As a result, we anticipate recognizing a $1.5 million tax benefit for the 2023 fiscal year as a discrete item in the first quarter of the 2024 fiscal year.

We expect the fiscal year 2024 effective tax rate from continuing operations to be approximately 26.6% to 27.6%.

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We believe the calculation of adjusted 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 consideration, and other non-GAAP adjustments.

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.

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

The presentation for adjusted EBITDA for all periods presented has been recast to reflect this change to enhance comparability between periods.

1 unchanged sentence

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 fiscal years ended June 30, 2022 and 2021, respectively.

The following table summarizes annualized adjusted ROIC for the fiscal years ended June 30, 2023 and 2022.

Adjusted return on invested capital ratio 14.6 % 17.0 %

9 unchanged sentences

Share-based compensation 11,219 11,663

Change in fair value of contingent consideration — 516

Tax recovery (2,986) —

Cyberattack restoration costs 1,460 —

Divestiture costs (a)

Restructuring costs — 9,047

Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) 179,943 166,723

6 unchanged sentences

Share-based compensation, net 8,326 8,709

Change in fair value of contingent consideration, net — 390

Divestiture costs (a)

Restructuring, net — 6,840

Cyberattack restoration costs, net 1,092 —

Tax recovery, net (3,985) —

Impact of discontinued operations, net (1,717) (100)

3 unchanged sentences

Invested capital (denominator for adjusted ROIC) (non-GAAP) $ 1,230,006 $ 982,293

(a) Includes divestiture costs for the year ended June 30, 2022 and 2021.

(a) Includes divestiture costs for the year ended June 30, 2022.

Divestiture costs are generally non-deductible for tax purposes.

28 unchanged sentences

Index to Financial Statements

Net sales by segment

Fiscal Year Ended June 30,

2021 2020 $ Change % Change

Specialty Technology Solutions:

(in thousands)

Net sales, reported $ 1,815,933 $ 1,580,441 $ 235,492 14.9 %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 1,835,244 $ 1,580,441 $ 254,803 16.1 %

Modern Communications & Cloud:

Net sales, reported $ 1,334,873 $ 1,467,293 $ (132,420) (9.0) %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 1,381,343 $ 1,467,293 $ (85,950) (5.9) %

Consolidated:

Net sales, reported $ 3,150,806 $ 3,047,734 $ 103,072 3.4 %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 3,216,587 $ 3,047,734 $ 168,853 5.5 %

(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 year ended June 30, 2021 into U.S.

dollars using the average foreign exchange rates for the year ended June 30, 2020.

Net Sales by Geography:

16 unchanged sentences

Index to Financial Statements

Net Sales by Geography:

Fiscal Year Ended June 30,

2021 2020 $ Change % Change

United States:

(in thousands)

Net sales, as reported $ 2,840,731 $ 2,755,134 $ 85,597 3.1 %

International:

Net sales, as reported $ 310,075 $ 292,600 $ 17,475 6.0 %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 375,856 $ 292,600 $ 83,256 28.5 %

Consolidated:

Net sales, as reported $ 3,150,806 $ 3,047,734 $ 103,072 3.4 %

Foreign exchange impact (a)

Non-GAAP net sales, constant currency $ 3,216,587 $ 3,047,734 $ 168,853 5.5 %

(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 year ended June 30, 2021 into U.S.

dollars using the average foreign exchange rates for the year ended June 30, 2020.

Index to Financial Statements

Operating Income by Segment:

9 unchanged sentences

Amortization of intangible assets 11,610 11,848 (238)

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

Tax recovery (2,986) — (2,986)

Non-GAAP operating income $ 70,282 $ 67,359 $ 2,923 4.3 % 4.8 % 4.7 %

1 unchanged sentence

Divestiture costs — 30 (30)

Restructuring costs — 9,258 (9,258)

Cyberattack restoration costs 1,460 — 1,460

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

2 unchanged sentences

Amortization of intangible assets 16,746 17,853 (1,107)

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

Cyberattack restoration costs 1,460 — 1,460

Divestiture costs — 30 (30)

Restructuring costs — 9,258 (9,258)

Non-GAAP operating income $ 140,050 $ 93,121 $ 46,929 50.4 % 4.0 % 3.0 %

Index to Financial Statements

Operating Income by Segment:

Fiscal year ended June 30, % of Net Sales

2021 2020 $ Change % Change 2021 2020

Specialty Technology Solutions:

(in thousands)

GAAP operating income (loss) $ 29,566 $ (67,706) $ 97,272 143.7 % 1.6 % (4.3) %

Amortization of intangible assets 6,441 6,441 —

Tax recovery (2,986) — (2,986)

Impairment charges — 97,398 (97,398)

Non-GAAP operating income $ 151,106 $ 140,050 $ 11,056 7.9 % 4.0 % 4.0 %

Modern Communications & Cloud:

GAAP operating income $ 43,551 $ 6,739 $ 36,812 546.3 % 3.3 % 0.5 %

Amortization of intangible assets 13,047 13,512 (465)

Change in fair value of contingent consideration 516 6,941 (6,425)

Restructuring costs — 604 (604)

Tax recovery — (2,583) 2,583

Impairment charges — 23,072 (23,072)

Non-GAAP operating income $ 57,114 $ 48,285 $ 8,829 18.3 % 4.3 % 3.3 %

GAAP operating loss $ (11,634) $ (4,000) $ (7,634) nm* nm* nm*

Acquisition and divestiture costs 2,376 4,000 (1,624)

Restructuring costs 9,258 — 9,258

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

Consolidated:

GAAP operating income (loss) $ 61,483 $ (64,967) $ 126,450 194.6 % 2.0 % (2.1) %

Amortization of intangible assets 19,488 19,953 (465)

Change in fair value of contingent consideration 516 6,941 (6,425)

Acquisition and divestiture costs 2,376 4,000 (1,624)

Restructuring costs 9,258 604 8,654

Tax recovery — (8,063) 8,063

Impairment charges — 120,470 (120,470)

Non-GAAP operating income $ 93,121 $ 78,938 $ 14,183 18.0 % 3.0 % 2.6 %

Index to Financial Statements

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Year ended June 30, 2023

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

GAAP Measure Intangible amortization expense Tax recovery Divestiture costs Cyberattack restoration costs Non-GAAP measure

(in thousands, except per share data)

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Year ended June 30, 2022

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

GAAP Measure Intangible amortization expense Tax recovery Divestiture costs Cyberattack restoration costs Non-GAAP measure

(in thousands, except per share data)

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In our most recent annual test, we estimated the fair value of our reporting units primarily based on the income approach utilizing the discounted cash flow method.

As of June 30, 2023, the Specialty Technology 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.

We also utilized fair value estimates derived from the market approach utilizing the public company market multiple method to validate the results of the discounted cash flow method, which required us to make assumptions about the applicability of those multiples to our reporting units.

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See Note 7 - Goodwill and Other Identifiable Intangible Assets in the Notes to Consolidated Financial Statements for further discussion on our goodwill impairment testing and results.

Liability for Contingent Consideration

In addition to the initial cash consideration paid to former shareholders of Intelisys, we agreed to make additional earnout payments based on future results through a specified date based on a multiple of the subsidiary’s pro forma earnings as defined in the respective purchase agreements.

We paid the final earnout payments to the former shareholders of Intelisys in fiscal year 2021.

In accordance with ASC Topic 805, Business Combinations , we determine the fair value of this liability for contingent consideration at each reporting date throughout the term of the earnout using a form of a probability weighted discounted cash flow model.

Each period we reflect the contingent consideration liability at fair value with changes recorded in the change in fair value of contingent consideration line item on the Consolidated Income Statement.

Current and noncurrent portions of the

Index to Financial Statements

liability are presented in the current portion of contingent consideration and long-term portion of contingent consideration line items on the Consolidated Balance Sheets.

Accounting Standards Recently Issued

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Our business requires significant investment in working capital, particularly accounts receivable and inventory, partially financed through our accounts payable to suppliers.

In general, as our sales volumes increase, our net investment in working capital typically increases, which typically results in decreased cash flow from operating activities.

In general, as our sales volumes increase, our net investment in

Index to Financial Statements

working capital typically 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.

Cash and cash equivalents totaled $38.0 million, $62.7 million and $29.5 million at June 30, 2022, 2021 and 2020, respectively, of which $35.0 million, $52.1 million and $23.6 million was held outside of the United States as of June 30, 2022, 2021 and 2020, respectively.

Checks released but not yet cleared from these accounts in the amounts of $18.0 million, $14.3 million and $17.1 million are classified as accounts payable as of June 30, 2022, 2021 and 2020, respectively.

Cash and cash equivalents totaled $36.2 million and $38.0 million at June 30, 2023 and 2022, respectively, of which $31.0 million and $35.0 million was held outside of the United States as of June 30, 2023 and 2022, respectively.

Checks released but not yet cleared from these accounts in the amounts of $8.0 million and $18.0 million are classified as accounts payable as of June 30, 2023 and 2022, respectively.

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

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

Our net investment in working capital increased $222.8 million to $709.5 million at June 30, 2022 from $486.7 million at June 30, 2021, primarily from increases in accounts receivable and inventory.

Our net investment in working capital totaled $431.3 million at June 30, 2020.

Our net investment in working capital increased $160.7 million to $870.3 million at June 30, 2023 from $709.5 million at June 30, 2022, primarily from increases in inventory.

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 fiscal year ended June 30, 2022, our working capital investment increased to support our 12.0% year-over-year net sales growth.

For the fiscal year ended June 30, 2023, our working capital investment increased to support our 7.3% year-over-year net sales growth, as well as impacts from supply chain constraints and the cybersecurity incident.

Cash (used in) provided by:

June 30, 2022 June 30, 2021 June 30, 2020

June 30, 2023 June 30, 2022

(in thousands)

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Financing activities of continuing operations 39,531 108,106

Net cash used in operating activities was $124.4 million for the year ended June 30, 2022, compared to $116.8 million provided by operating activities for the year ended June 30, 2021.

The decrease of $241.1 million was primarily due to increased accounts receivable, which were 28% higher than in 2021, attributable to net sales growth year-over-year.

Also contributing to the decrease in operating cash flows were increased inventory levels, which were 31% higher than in 2021, to support net sales growth.

Cash provided by operating activities is 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 68 at June 30, 2022, compared to 60 at June 30, 2021 and 63 at June 30, 2020.

The increase in DSO for fiscal year 2022 is primarily a result of the timing of sales resulting in higher net receivables at period end.

Net cash used in operating activities was $35.8 million and $124.4 million for the years ended June 30, 2023 and 2022, respectively.

Cash used in operating activities for the year ended June 30, 2023 is primarily due to increases in inventory, which increased 23.2% compared to the beginning of the year, partially offset by earnings from operations.

Cash used in operating activities for the year ended June 30, 2022 is primarily due to increases in accounts receivable and inventory, which increased 28.2% and 30.8%, respectively, compared to the beginning of the prior year 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 72 at June 30, 2023, compared to 68 at June 30, 2022.

The increase in DSO for fiscal year 2023 is driven by a 3.3% increase in net receivables at period end and a 1.8% decrease in fourth quarter average daily sales compared to the prior fiscal year.

Throughout the current fiscal year, DSO ranged from 69 to 72.

Inventory turnover was 5.6 times during the fourth quarter of the current fiscal year, compared to 6.5 times and 4.5 times in the fourth quarter of fiscal year 2021 and 2020, respectively.

Throughout the current fiscal year, inventory turnover ranged from 5.1 to 6.3 times.

Cash used in investing activities was $3.7 million in fiscal year June 30, 2022, as compared to cash provided by investing activities of $32.0 million for the year ended June 30, 2021.

Cash used in investing activities for fiscal year 2020 was $55.3 million.

Cash used in investing activities for fiscal year 2022 represents capital expenditures, partially offset by proceeds from

Index to Financial Statements

the sale of our discontinued operations.

Cash provided by investing activities for fiscal year 2021 is primarily attributable to cash received for the disposal of our Latin American and Europe entities.

Cash used in investing activities for fiscal year 2020 is primarily attributable to cash used to purchase intY.

Inventory turnover was 4.4 times during the fourth quarter of the current fiscal year, compared to 5.6 times in the fourth quarter of fiscal year 2022.

Throughout fiscal year 2023, inventory turnover ranged from 4.1 to 5.1 times.

Cash used in investing activities was $8.3 million and $3.7 million for the years ended June 30, 2023 and 2022, respectively.

Cash used in investing activities for fiscal year 2023 and 2022 represents capital expenditures, partially offset by proceeds from the sale of our discontinued operations.

Management expects capital expenditures for fiscal year 2024 to range from $6.0 million to $8.0 million, primarily for IT investments and facility improvements.

Cash provided by financing activities totaled $108.1 million for the fiscal year ended June 30, 2022, primarily from net borrowings on the revolving line of credit, partially offset by our stock repurchases.

Cash used in financing activities totaled $118.8 million and $152.7 million for the fiscal years ended June 30, 2021 and 2020, primarily from net repayments on the revolving line of credit.

Cash provided by financing activities totaled $39.5 million and $108.1 million for the fiscal years ended June 30, 2023 and 2022, respectively , primarily from net borrowings on the revolving line of credit.

Share Repurchase Program

Index to Financial Statements

In August 2021, our Board of Directors authorized a $100 million share repurchase program.

The authorization does not have any time limit.

Since the inception of the program, in fiscal year 2022, we repurchased 550,194 shares totaling $18.2 million.

In fiscal year 2023 , we repurchased 524,108 shares totaling $15.8 million.

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.

On December 23, 2021, we entered into an amendment to the Amended Credit Agreement which, among other things, replaced LIBOR as the benchmark rate for non-U.S.

Dollar loans and provided for an interpolated rate for 7-day LIBOR for U.S.

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

On September 28, 2022, we amended and restated our Amended Credit Agreement, which includes (i) a five-year, $350 million multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility.

The amendment extended the revolving credit facility maturity date to September 28, 2027.

In addition, pursuant to an “accordion feature,” we may increase our borrowings up to an additional $250 million, subject to obtaining additional credit commitments from the lenders participating in the increase.

The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit.

Borrowings under the Amended Credit Agreement are guaranteed by substantially all of our domestic assets and our domestic subsidiaries.

Under the terms of the revolving credit facility, the payment of cash dividends is restricted.

We incurred debt issuance costs of $1.4 million in connection with the amendment and restatement of the Amended Credit Agreement.

These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.

Loans denominated in U.S.

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 ("Credit Facility Net Debt") to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable (Credit Facility EBITDA"), 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 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 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 fiscal year ended June 30, 2023, our borrowings under the credit facility were U.S.

dollar loans.

The Amended Credit Agreement includes (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 our borrowings by up to an additional $250 million, for a total of up to $750 million, subject to obtaining additional credit commitments from the lenders participating in the increase.

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 denominated in U.S.

dollars under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over the LIBOR or alternate base rate depending upon the Company's net leverage ratio, calculated as total debt less up to $15 million of unrestricted domestic cash to trailing four-quarter adjusted earnings before interest expense, taxes, depreciation and amortization ("EBITDA") (the "Leverage Ratio").

This spread ranges from 1.00% to 1.750% for LIBOR-based loans and 0.00% to 0.750% 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, the Company is assessed commitment fees ranging from 0.15% to 0.30%, depending upon the Leverage Ratio, on non-utilized borrowing availability, excluding swingline loans.

Borrowings under the Amended Credit Agreement are guaranteed by substantially all of the domestic assets of the Company 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 spread in effect as of June 30, 2023 was 1.50%, plus a 0.10% credit spread adjustment for SOFR-based loans and 0.50% for alternate base rate loans.

The commitment fee rate in effect as of June 30, 2023 was 0.25%.

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 3.00:1.00 as of the end of each fiscal quarter.

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 as of 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 as of June 30, 2022.

There was $135.8 million and $0.0 million outstanding on the revolving credit facility at June 30, 2022 and 2021, respectively.

The average daily balance on the revolving credit facility, excluding the term loan facility, was $69.0 million for the year ended June 30, 2022.

Including borrowings for both continuing and discontinued operations, the average daily balance on the revolving credit facility, excluding the term loan facility was $54.6 million for the year ended 2021.

There were no letters of credit issued as of June 30, 2022 and 2021.

We were in compliance with all covenants under the Amended Credit Agreement as of June 30, 2023.

The average daily balance on the revolving credit facility, excluding the term loan facility, was $223.5 million and $69.0 million during the fiscal years ended June 30, 2023 and 2022, respectively.

There was $171.0 million and $214.2 million available for additional borrowings as of June 30, 2023 and 2022, respectively.

Index to Financial Statements

relative to our EBITDA and (2) Credit Facility EBITDA relative to total interest expense respectively.

There were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2023 and 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 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.

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While we were in compliance with the financial covenants contained in the Credit Facility as of June 30, 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.

Earnout Payments

In fiscal year 2021, we paid the final earnout payment to the former shareholders of Intelisys related to their acquisition on August 29, 2016.

Contractual Obligations

Index to Financial Statements

At June 30, 2023, we had $179.0 million outstanding under our revolving credit facility.

We also had $147.2 million outstanding under our term loan facility, $6.6 million of which matures in fiscal year 2024.

Our revolving credit facility and our term loan facility have an April 30, 2024 maturity date.

The remaining principal debt payments, which total $4.1 million, have maturity dates in 2024 through 2032.

Our revolving credit facility and our term loan facility have a maturity date September 28, 2027 .

The remaining principal debt payments on our industrial development revenue bond, which total $3.7 million, have maturity dates in 2024 through 2032.

See Footnote 8 - Short Term Borrowings and Long Term Debt .

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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 7. Management’s Discussion and Analysis