What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-05-09 · 108 added, 182 removed, 456 unchanged (39% of the section changed)

4 unchanged sentences

(In thousands, except share information)

March 31, 2023 June 30, 2022

September 30, 2023 June 30, 2023

Current assets:

Cash and cash equivalents $ 42,647 $ 36,178

Accounts receivable, less allowance of $ 14,236 at March 31, 2023

Accounts receivable, less allowance of $ 19,570 at September 30, 2023

and $ 15,480 at June 30, 2023

26 unchanged sentences

Common stock, no par value;

45,000,000 shares authorized, 25,007,396 and 25,187,351 shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively

45,000,000 shares authorized, 24,960,231 and 24,844,203 shares issued and outstanding at September 30, 2023 and June 30, 2023, respectively

59,501 58,241

9 unchanged sentences

(In thousands, except per share data)

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

Quarter ended

September 30,

Net sales $ 876,305 $ 943,813

10 unchanged sentences

Provision for income taxes 3,715 8,241

Net income from continuing operations 21,221 23,526 70,997 68,751

Net income from discontinued operations — — — 100

Net income $ 15,432 $ 24,042

Per share data:

Net income from continuing operations per common share, basic $ 0.84 $ 0.92 $ 2.81 $ 2.69

Net income from discontinued operations per common share, basic — — — —

Net income per common share, basic $ 0.62 $ 0.95

Weighted-average shares outstanding, basic 24,886 25,201

Net income from continuing operations per common share, diluted $ 0.83 $ 0.91 $ 2.79 $ 2.66

Net income from discontinued operations per common share, diluted — — — —

Net income per common share, diluted $ 0.61 $ 0.94

5 unchanged sentences

(In thousands)

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

Quarter ended

September 30,

Net income $ 15,432 $ 24,042

Unrealized (loss) gain on hedged transaction, net of tax ( 1,165 ) 3,144 718 4,730

Unrealized gain on hedged transaction, net of tax 153 1,879

Foreign currency translation adjustment ( 6,890 ) ( 7,217 )

16 unchanged sentences

Balance at September 30, 2023 24,960,231 $ 59,501 $ 952,110 $ ( 96,358 ) $ 915,253

Net income — — 25,734 — 25,734

Unrealized gain on hedged transaction, net of tax — — — 3 3

Foreign currency translation adjustment — — — 7,401 7,401

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 117,112 ( 1,112 ) — — ( 1,112 )

Share-based compensation — 3,356 — — 3,356

Balance at December 31, 2022 25,343,014 $ 68,313 $ 896,645 $ ( 102,572 ) $ 862,386

Net income — — 21,221 — 21,221

Unrealized loss on hedged transaction, net of tax — — — ( 1,165 ) ( 1,165 )

Foreign currency translation adjustment — — — 4,291 4,291

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 20,851 118 — — 118

Common stock repurchased ( 356,469 ) ( 10,906 ) — — ( 10,906 )

Share-based compensation — 2,950 — — 2,950

Balance at March 31, 2023 25,007,396 $ 60,475 $ 917,866 $ ( 99,446 ) $ 878,895

See accompanying notes to these condensed consolidated financial statements.

14 unchanged sentences

Balance at September 30, 2022 25,225,902 $ 66,069 $ 870,911 $ ( 109,976 ) $ 827,004

Net income — — 23,252 — 23,252

Unrealized gain on hedged transaction, net of tax — — — 1,172 1,172

Foreign currency translation adjustment — — — ( 2,759 ) ( 2,759 )

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 134,897 ( 2,513 ) — — ( 2,513 )

Common stock repurchased ( 5,903 ) ( 183 ) — — ( 183 )

Share-based compensation — 3,462 — — 3,462

Balance at December 31, 2021 25,657,545 $ 75,583 $ 803,396 $ ( 110,454 ) $ 768,525

Net income — — 23,526 — 23,526

Unrealized gain on hedged transaction, net of tax — — — 3,144 3,144

Foreign currency translation adjustment — — — 17,186 17,186

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 46,549 383 — — 383

Common stock repurchased ( 274,852 ) ( 8,886 ) — — ( 8,886 )

Share-based compensation — 2,776 — — 2,776

Balance at March 31, 2022 25,429,242 $ 69,856 $ 826,922 $ ( 90,124 ) $ 806,654

See accompanying notes to these condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Nine months ended

Quarter ended

September 30,

Cash flows from operating activities:

Net income $ 15,432 $ 24,042

Net income from discontinued operations — 100

Net income from continuing operations 70,997 68,751

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 7,217 7,228

12 unchanged sentences

Income taxes payable ( 1,798 ) 5,256

Net cash used in operating activities ( 20,508 ) ( 45,671 )

Net cash provided by (used in) operating activities 93,533 ( 48,459 )

Cash flows from investing activities:

Capital expenditures ( 2,315 ) ( 684 )

Proceeds from the sale of discontinued operations — 3,125

Net cash used in investing activities ( 2,315 ) ( 684 )

2 unchanged sentences

Repayments on revolving credit, net of expenses ( 669,424 ) ( 542,147 )

Borrowings (repayments) on long-term debt, net 16,527 ( 5,968 )

(Repayments) borrowings on long-term debt, net ( 938 ) 18,402

Repayments on finance lease obligation ( 191 ) ( 303 )

2 unchanged sentences

Taxes paid on settlement of equity awards ( 1,582 ) ( 596 )

Common stock repurchased ( 10,718 ) ( 8,527 )

Net cash provided by financing activities 25,565 27,730

Net cash (used in) provided by financing activities ( 83,493 ) 52,970

Effect of exchange rate changes on cash and cash equivalents ( 1,256 ) ( 1,342 )

Decrease in cash and cash equivalents ( 613 ) ( 19,179 )

Increase in cash and cash equivalents 6,469 2,485

Cash and cash equivalents at beginning of period 36,178 37,987

8 unchanged sentences

(together with its subsidiaries referred to as “the Company” or “ScanSource”) is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, Software as a Service ("SaaS"), connectivity and cloud.

The Company brings technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale ("POS"), payments, physical security, unified communications and collaboration, telecom and cloud services to market.

The Company operates in the United States, Canada, Brazil and the UK.

The Company brings technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale ("POS"), payments, networking, physical security, unified communications and collaboration, telecom and cloud services to market.

The Company operates in the United States, Canada, Brazil and the United Kingdom ("UK").

The Company's two operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on technology type and are generally related to technology devices and communication, connectivity and cloud services, respectively.

4 unchanged sentences

GAAP for annual financial statements.

The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at March 31, 2023 and June 30, 2022, the results of operations for the quarters and nine months ended March 31, 2023 and 2022, the statements of comprehensive income for the quarters and nine months ended March 31, 2023 and 2022, the statements of shareholders' equity for the quarters and nine months ended March 31, 2023 and 2022 and the statements of cash flows for the nine months ended March 31, 2023 and 2022.

The results of operations for the quarters and nine months ended March 31, 2023 are not necessarily indicative of the results to be expected for a full year.

The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at September 30, 2023 and June 30, 2023, the results of operations for the quarters ended September 30, 2023 and 2022, the condensed consolidated statements of comprehensive income for the quarters ended September 30, 2023 and 2022, the condensed consolidated statements of shareholders' equity for the quarters ended September 30, 2023 and 2022 and the condensed consolidated statements of cash flows for the quarters ended September 30, 2023 and 2022.

The results of operations for the quarter ended September 30, 2023 are not necessarily indicative of the results to be expected for a full year.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

Unless otherwise indicated, disclosures provided in the Notes pertain to continuing operations only.

The Company has reclassified certain prior-year amounts in the segment results to conform with current year presentation.

The reclassifications had no effect on the condensed consolidated financial results.

Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies for the nine months ended March 31, 2023 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

There have been no material changes to the Company’s significant accounting policies for the quarter ended September 30, 2023 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

For a discussion of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

3 unchanged sentences

Due to the terms of the agreements governing these accounts, the Company generally does not have the right to offset outstanding checks written from these accounts against cash on hand, and the respective institutions are not legally obligated to honor the checks until sufficient funds are transferred to fund the checks.

As a result, checks released but not yet cleared from these accounts in the amounts of $ 7.4 million and $ 18.0 million are included in accounts payable on the condensed consolidated balance sheets at March 31, 2023 and June 30, 2022, respectively.

As a result, checks released but not yet cleared from these accounts in the amounts of $ 10.3 million and $ 8.0 million are included in accounts payable on the condensed consolidated balance sheets at September 30, 2023 and June 30, 2023, respectively.

Long-lived Assets

The Company presents depreciation expense and intangible amortization expense on the condensed consolidated income statements.

The Company's depreciation expense related to selling, general and administrative costs totaled $ 2.6 million and $ 8.1 million for the quarter and nine months ended March 31, 2023 and $ 2.6 million and $ 8.0 million for the quarter and nine months ended March 31, 2022.

Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled $ 0.3 million and $ 0.7 million for the quarter and nine months ended March 31, 2023 and $ 0.2 million and $ 0.7 million for the quarter and nine months ended March 31, 2022.

The Company's depreciation expense related to selling, general and administrative costs totaled $ 2.8 million for the quarters ended September 30, 2023 and 2022.

Depreciation expense reported as part of cost of goods sold on the condensed consolidated income statements totaled $ 0.2 million for the quarters ended September 30, 2023 and 2022.

The Company's intangible amortization expense reported on the condensed consolidated income statements relates to selling, general and administrative costs, not the cost of selling goods.

Intangible amortization expense totaled $ 4.2 million and $ 12.6 million for the quarter and nine months ended March 31, 2023 and $ 4.5 million and $ 13.4 million for the quarter and nine months ended March 31, 2022.

Intangible amortization expense totaled $ 4.2 million for the quarters ended September 30, 2023 and 2022.

Recent Accounting Pronouncements

In July 2023, the Securities and Exchange Commission issued final rules that require new and enhanced disclosures on cybersecurity risk management, strategy, governance, and incident reporting.

Under the final rules, companies must report material cybersecurity incidents within four business days of determining the incident is material on Form 8-K.

As additional information about the material aspects of the previously reported incidents become available, a Form 8-K/A must be filed with the additional disclosures.

These disclosure requirements on Form 8-K are effective beginning December 18, 2023.

For fiscal years ending on or after December 15, 2023, companies must disclose their cybersecurity processes, management's role in cybersecurity governance, and cybersecurity oversight by the Board of Directors on Form 10-K.

The Company has reviewed newly issued accounting pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on its consolidated financial statements as a result of future adoption.

7 unchanged sentences

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

The changes in the allowance for doubtful accounts for the nine months ended March 31, 2023 are set forth in the table below.

The changes in the allowance for doubtful accounts for the three months ended September 30, 2023 are set forth in the table below.

June 30, 2023 Amounts Charged to Expense Write-offs Other (1)

March 31, 2023

September 30, 2023

(in thousands)

Trade accounts and current notes receivable allowance $ 15,480 $ 4,157 $ ( 594 ) $ 527 $ 19,570

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the nine months ended March 31, 2023.

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the three months ended September 30, 2023.

(3) Revenue Recognition

30 unchanged sentences

The following tables represent the Company's disaggregation of revenue:

Quarter ended March 31, 2023

Specialty Technology Solutions Modern Communications & Cloud Total

(in thousands)

Revenue by product/service

Hardware, software and cloud (excluding Intelisys) $ 565,652 $ 299,803 $ 865,455

Intelisys connectivity and cloud — 20,064 20,064

$ 565,652 $ 319,867 $ 885,519

Nine months ended March 31, 2023

Specialty Technology Solutions Modern Communications & Cloud Total

(in thousands)

Revenue by product/service:

Hardware, software and cloud (excluding Intelisys) $ 1,769,530 $ 1,012,176 $ 2,781,706

Intelisys connectivity and cloud — 58,867 58,867

$ 1,769,530 $ 1,071,043 $ 2,840,573

Quarter ended March 31, 2022

Quarter ended September 30, 2023

Specialty Technology Solutions Modern Communications & Cloud Total

4 unchanged sentences

$ 509,570 $ 366,735 $ 876,305

Nine months ended March 31, 2022

Quarter ended September 30, 2022

Specialty Technology Solutions Modern Communications & Cloud Total

7 unchanged sentences

Diluted earnings per share are computed by dividing net income by the weighted-average number of common and potential common shares outstanding.

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

Quarter ended

September 30,

(in thousands, except per share data)

Net income from continuing operations $ 21,221 $ 23,526 $ 70,997 $ 68,751

Net income from discontinued operations — — — 100

Net income $ 15,432 $ 24,042

2 unchanged sentences

Weighted-average shares, diluted 25,178 25,451

Net income from continuing operations per common share, basic $ 0.84 $ 0.92 $ 2.81 $ 2.69

Net income from discontinued operations per common share, basic — — — —

Net income per common share, basic $ 0.62 $ 0.95

Net income from continuing operations per common share, diluted $ 0.83 $ 0.91 $ 2.79 $ 2.66

Net income from discontinued operations per common share, diluted — — — —

Net income per common share, diluted $ 0.61 $ 0.94

For the quarter and nine months ended March 31, 2023, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 779,688 and 1,152,714 , respectively.

For the quarter and nine months ended March 31, 2022, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 1,004,992 and 969,871 , respectively.

For the quarters ended September 30, 2023 and 2022, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 854,893 and 1,128,445 , respectively.

(5) Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:

March 31, 2023 June 30, 2022

The components of accumulated other comprehensive loss, net of tax are as follows:

September 30, 2023 June 30, 2023

(in thousands)

3 unchanged sentences

The tax effect of amounts in comprehensive loss reflect a tax (benefit) expense as follows:

Quarter ended March 31, Nine months ended March 31,

2023 2022 2023 2022

Quarter ended September 30,

(in thousands)

1 unchanged sentence

(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended March 31, 2023, by reporting segment, are set forth in the table below.

The changes in the carrying amount of goodwill for the quarter ended September 30, 2023, by reporting segment, are set forth in the table below.

Specialty Technology Solutions Modern Communications & Cloud Total

2 unchanged sentences

Foreign currency translation adjustment — ( 1,554 ) ( 1,554 )

Balance at March 31, 2023 $ 16,370 $ 198,956 $ 215,326

The following table shows changes in the amount recognized for net identifiable intangible assets for the nine months ended March 31, 2023.

Balance at September 30, 2023 $ 16,370 $ 198,782 $ 215,152

The following table shows changes in the amount recognized for net identifiable intangible assets for the three months ended September 30, 2023.

Net Identifiable Intangible Assets

3 unchanged sentences

Foreign currency translation adjustment ( 627 )

Balance at March 31, 2023 $ 72,192

Balance at September 30, 2023 $ 63,675

(7) Short-Term Borrowings and Long-Term Debt

The following table presents the Company’s debt at March 31, 2023 and June 30, 2022.

March 31, 2023 June 30, 2022

The following table presents the Company’s debt at September 30, 2023 and June 30, 2023.

September 30, 2023 June 30, 2023

(in thousands)

15 unchanged sentences

Loans denominated in U.S.

dollars, other than swingline loans, bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted term Secured Overnight Financing Rate ("SOFR") or adjusted daily simple SOFR plus an additional margin ranging from 1.00 % to 1.75 % depending upon the Company’s 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”);

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 the Company’s leverage ratio, plus, if applicable, certain mandatory costs.

3 unchanged sentences

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 the Company’s leverage ratio plus, if applicable, certain mandatory costs.

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

During the quarter ended September 30, 2023, the Company's borrowings under the credit facility were U.S.

dollar loans.

The spread in effect as of March 31, 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 at March 31, 2023 was 0.25 %.

The spread in effect as of September 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 at September 30, 2023 was 0.25 %.

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

2 unchanged sentences

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

The Company was 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.

The Company was in compliance with all covenants under the credit facility at September 30, 2023.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the three month periods ended September 30, 2023 and 2022 was $ 200.9 million and $ 200.5 million, respectively.

There was $ 251.9 million and $ 171.0 million available for additional borrowings as of September 30, 2023 and June 30, 2023, respectively.

The effective interest rates for the revolving line of credit were 6.92 % and 6.74 % as of September 30, 2023 and June 30, 2023, respectively.

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

Mississippi Revenue Bond

1 unchanged sentence

The bond matures on September 1, 2032.

The bond accrued interest at the 30-day LIBOR rate plus a spread of 0.85 %, until March 31, 2023.

An April 1, 2023 amendment changed the benchmark interest rate from LIBOR to SOFR.

Effective April 1, 2023, the bond accrues interest at the one-month term SOFR plus an adjustment of 0.10 % plus a spread of 0.85 %.

The bond accrues interest at the one-month term SOFR plus an adjustment of 0.10 % plus a spread of 0.85 %.

The terms of the bond allow for payment of interest only for the first 10 years of the agreement.

1 unchanged sentence

The agreement also provides the bondholder with a put option, exercisable only within 180 days of each fifth anniversary of the agreement, requiring the Company to pay back the bonds at 100 % of the principal amount outstanding.

At March 31, 2023, the Company was in compliance with all covenants under this bond.

The interest rates at March 31, 2023 and June 30, 2022 were 5.52 % and 1.97 %, respectively.

At September 30, 2023, the Company was in compliance with all covenants under this bond.

The interest rates at September 30, 2023 and June 30, 2023 were 6.28 % and 6.11 %, respectively.

Debt Issuance Costs

At March 31, 2023, net debt issuance costs associated with the credit facility and bond totaled $ 1.7 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

At September 30, 2023, net debt issuance costs associated with the credit facility and bond totaled $ 1.5 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

(8) Derivatives and Hedging Activities

8 unchanged sentences

dollar, Brazilian real, euro, British pound and Canadian dollar.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 37.9 million and $ 34.5 million for the exchange of foreign currencies at March 31, 2023 and June 30, 2022, respectively.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 34.4 million and $ 34.3 million for the exchange of foreign currencies at September 30, 2023 and June 30, 2023, respectively.

To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense.

Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures included in the Condensed Consolidated Income Statements for the quarters and nine months ended March 31, 2023 and 2022 are as follows:

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

Quarter ended

September 30,

(in thousands)

Net foreign exchange derivative contract losses $ 564 $ 3,464 $ 1,873 $ 1,289

Net foreign currency transactional and re-measurement gains ( 59 ) ( 3,206 ) ( 98 ) ( 66 )

Net foreign exchange derivative contract (gains) losses $ ( 368 ) $ 438

Net foreign currency transactional and re-measurement losses 1,064 484

Net foreign currency exchange losses $ 696 $ 922

11 unchanged sentences

To the extent the swaps are effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swaps are not included in current earnings but are reported as other comprehensive income (loss).

There was no ineffective portion to be recorded as an adjustment to earnings for the quarters and nine months ended March 31, 2023 and 2022.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters and nine months ended March 31, 2023 and 2022, are as follows:

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

There was no ineffective portion to be recorded as an adjustment to earnings for the quarter ended September 30, 2023 and 2022.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarter ended September 30, 2023 and 2022, are as follows:

Quarter ended

September 30,

(in thousands)

Net interest (income) expense recognized as a result of interest rate swap $ ( 759 ) $ 32

Unrealized (loss) gain in fair value of interest rate swap ( 1,013 ) 3,675 1,837 4,658

Net (decrease) increase in accumulated other comprehensive income ( 1,569 ) 4,207 968 6,347

Unrealized gain in fair value of interest rate swap 974 2,500

Net increase in accumulated other comprehensive income 215 2,532

Income tax effect 62 653

Net (decrease) increase in accumulated other comprehensive income, net of tax $ ( 1,165 ) $ 3,144 $ 718 $ 4,730

The Company used the following derivative instruments at March 31, 2023 and June 30, 2022, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

March 31, 2023 June 30, 2022

Net increase in accumulated other comprehensive income, net of tax $ 153 $ 1,879

The Company used the following derivative instruments at September 30, 2023 and June 30, 2023, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

September 30, 2023 June 30, 2023

Balance Sheet Location Fair Value of

5 unchanged sentences

Derivative assets:

Foreign exchange contracts Prepaid expenses and other current assets — $ 27 — $ 1

Foreign currency hedge Prepaid expenses and other current assets — — $ 100 —

Interest rate swap agreement Other non-current assets $ 4,902 — $ 4,687 —

Derivative liabilities:

Foreign exchange contracts Accrued expenses and other current liabilities — $ 24 — $ 5

Foreign currency hedge Accrued expenses and other current liabilities $ 108 — — —

7 unchanged sentences

The carrying value of debt is considered to approximate fair value, as the Company’s debt instruments are indexed to a variable rate using the market approach (Level 2).

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at March 31, 2023:

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at September 30, 2023:

(Level 1) Significant

1 unchanged sentence

Deferred compensation plan investments, current and non-current portion $ 28,773 $ 28,773 $ —

Forward foreign currency exchange contracts 27 — 27

Interest rate swap agreement 4,902 — 4,902

1 unchanged sentence

Deferred compensation plan investments, current and non-current portion $ 28,773 $ 28,773 $ —

Forward foreign currency exchange contracts 24 — 24

Foreign currency hedge 108 — 108

4 unchanged sentences

Deferred compensation plan investments, current and non-current portion $ 28,209 $ 28,209 $ —

Forward foreign currency exchange contracts 1 — 1

Foreign currency hedge 100 — 100

Interest rate swap agreement 4,687 — 4,687

1 unchanged sentence

Deferred compensation plan investments, current and non-current portion $ 28,229 $ 28,229 $ —

Forward foreign currency exchange contracts 5 — 5

Foreign currency hedge 93 — 93

Total liabilities at fair value $ 28,229 $ 28,229 $ —

22 unchanged sentences

Selected financial information for each business segment is presented below:

Quarter ended Nine months ended

March 31, March 31,

2023 2022 2023 2022

Quarter ended

September 30,

(in thousands)

21 unchanged sentences

$ 876,305 $ 943,813

March 31, 2023 June 30, 2022

September 30, 2023 June 30, 2023

(in thousands)

15 unchanged sentences

Finance leases are recorded as property and equipment, net , accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.

The gross amount of the balances recorded related to finance leases is immaterial to the condensed consolidated financial statements at March 31, 2023 and the consolidated financial statements at June 30, 2022.

The gross amount of the balances recorded related to finance leases is immaterial to the condensed consolidated financial statements at September 30, 2023 and the consolidated financial statements at June 30, 2023.

Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the net present value of future minimum lease payments over the lease term.

5 unchanged sentences

Further, the Company has elected the practical expedient to recognize all lease and non-lease components as a single lease component, where applicable.

The following table presents amounts recorded on the Condensed Consolidated Balance Sheets related to operating leases at March 31, 2023 and June 30, 2022:

March 31, 2023 June 30, 2022

The following table presents amounts recorded on the Condensed Consolidated Balance Sheets related to operating leases at September 30, 2023 and June 30, 2023:

September 30, 2023 June 30, 2023

Operating leases Balance Sheet location (in thousands)

2 unchanged sentences

Long-term operating lease liabilities Other long-term liabilities $ 8,569 $ 9,329

The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed Consolidated Income Statements during the quarters and nine months ended March 31, 2023 and 2022.

Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.

Quarter ended March 31, Nine months ended March 31,

2023 2022 2023 2022

Quarter ended September 30,

(in thousands)

2 unchanged sentences

$ 1,592 $ 1,630

Supplemental cash flow information related to the Company's operating leases for the nine months ended March 31, 2023 and 2022 are presented in the table below:

Nine months ended

Supplemental cash flow information related to the Company's operating leases for the three months ended September 30, 2023 and 2022 are presented in the table below:

Quarter ended

September 30,

(in thousands)

1 unchanged sentence

Right-of-use assets obtained in exchange for lease obligations 230 111

The weighted-average remaining lease term and discount rate at March 31, 2023 are presented in the table below:

March 31, 2023

The weighted-average remaining lease term and discount rate at September 30, 2023 are presented in the table below:

September 30, 2023

Weighted-average remaining lease term 3.41 years

Weighted-average discount rate 4.58 %

The following table presents the maturities of the Company's operating lease liabilities at March 31, 2023:

The following table presents the maturities of the Company's operating lease liabilities at September 30, 2023:

Operating leases

(in thousands)

Thereafter 632

Total future payments 13,852

6 unchanged sentences

The Company recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as the funds were escrowed as part of the acquisition.

The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $ 3.2 million and $ 4.1 million at March 31, 2023 and June 30, 2022, respectively.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets at March 31, 2023 and June 30, 2022:

March 31, 2023 June 30, 2022

The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $ 3.4 million at September 30, 2023 and June 30, 2023.

September 30, 2023 June 30, 2023

(in thousands)

4 unchanged sentences

(13) Income Taxes

Income taxes for the quarters and nine months ended March 31, 2023 and 2022 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate.

Income taxes for the quarters ended September 30, 2023 and 2022 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate.

In addition to applying the estimated annual effective tax rate to pre-tax income, the Company includes certain items treated as discrete events to arrive at an estimated overall tax provision.

During the quarter ended March 31, 2023, there were no material discrete items.

For the nine months ended March 31, 2023, a discrete net tax benefit of $ 0.7 million was recorded, which is primarily attributable to a notional interest deduction on the net equity of the Company's Brazilian subsidiary.

The Company’s effective tax rate of 29.1 % and 27.8 % for the quarter and nine months ended March 31, 2023 differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, nondeductible expenses and state income taxes.

The Company's effective tax rate was 27.8 % and 25.6 % for the quarter and nine months ended March 31, 2022.

As of March 31, 2023, the Company is not permanently reinvested with respect to all earnings generated by foreign operations.

During the quarter ended September 30, 2023, a discrete net tax benefit of $ 1.5 million was recorded for additional foreign tax credits permitted for the 2023 fiscal year as a result of the issuance of IRS Notice 2023-55.

During the quarter ended September 30, 2022, a discrete net tax benefit of $ 0.5 million was recorded, which is primarily attributable to a notional interest deduction on the net equity of the Company's Brazilian subsidiary.

The Company’s effective tax rate of 19.4 % for the quarter ended September 30, 2023, differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, nondeductible expenses, state income taxes, and discrete items.

The Company's effective tax rate was 25.5 % for the quarter ended September 30, 2022.

As of September 30, 2023, the Company is not permanently reinvested with respect to all earnings generated by foreign operations.

The Company has determined that there is no material deferred tax liability for federal, state and withholding tax related to undistributed earnings.

During the quarter ended March 31, 2023, foreign subsidiaries did not repatriate any cash to the United States.

During the quarter ended September 30, 2023, foreign subsidiaries did not repatriate cash to the United States.

There is no certainty to the timing of any future distributions of such earnings to the U.S.

in whole or in part.

The Company had approximately $ 1.2 million and $ 1.1 million of total gross unrecognized tax benefits at March 31, 2023 and June 30, 2022.

Of this total at March 31, 2023, approximately $ 0.9 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.

The Company had approximately $ 1.2 million of total gross unrecognized tax benefits at September 30, 2023 and June 30, 2023.

Of this total at September 30, 2023, approximately $ 1 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.

The Company does not believe that the total amount of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.

At March 31, 2023 and June 30, 2022, the Company had approximately $ 1.2 million accrued for interest and penalties.

At September 30, 2023 and June 30, 2023, the Company had approximately $ 1.2 million accrued for interest and penalties.

The Company conducts business globally and one or more of its subsidiaries files income tax returns in the U.S.

3 unchanged sentences

income tax examinations by tax authorities for the years before June 30, 2018.

(14) Discontinued Operations

On August 20, 2019, the Company announced plans to divest the product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and the Miami-based export operations ("Divestitures") as these businesses were performing below management's expectations.

The Company continues to operate its digital business in these countries.

Management determined that the Company did not have sufficient scale in these markets to maximize the value-added model for product distribution, leading the Company to focus and invest in its higher-growth, higher-margin businesses.

Results from the Divestitures were included within each reportable segment, which includes the Specialty Technology Solutions and Modern Communications & Cloud segments.

The Company signed an agreement on July 23, 2020 with Intcomex for its businesses located in Latin America, outside of Brazil.

The Company finalized the sale of the Latin America businesses on October 30, 2020.

Th e Company also finalized the sale of the Europe and UK businesses on November 12, 2020.

Total cash received for the sale of Divestitures was $ 37.5 million.

There were no components of net income or loss from discontinued operations 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, the Company recognized a gain from the sale of discontinued operations of $ 0.1 million.

There were no assets or liabilities classified as held-for-sale in the accompanying consolidated balance sheets at March 31, 2023 and June 30, 2022.

There were no cash flows from discontinued operations for the nine months ended March 31, 2023 and 2022.

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 1. Financial Statements