What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-08-27 compared with 2023-08-22 · 131 added, 108 removed, 372 unchanged (39% of the section changed)

1 unchanged sentence

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 provide technology solutions and services from approximately 500 leading suppliers of mobility, barcode, POS, payments, physical security, networking, unified communications, collaboration, connectivity and cloud services to our approximately 25,000 customers located primarily in the United States, Canada and Brazil.

We operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy.

Our segments operate in the United States, Canada, Brazil and the UK and consist of the following:

Our segments operate primarily in the United States, Canada and Brazil:

• Specialty Technology Solutions

• Modern Communications & Cloud

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

We sell hardware, SaaS, connectivity and cloud solutions and services to customers that are designed to solve end users' challenges.

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

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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, 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.

Our key suppliers include AT&T, Avaya, Axis, Cisco, Comcast Business, Dell, Extreme, Five9, Fortinet, Hanwha, Honeywell, HP Poly, HPE/Aruba, Ingenico, Lumen, Microsoft, PAX Technology, RingCentral, Ubiquiti, Verifone, Verizon, 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

Cost Reduction and Restructuring Program

In January 2024, as part of a strategic review of organizational structure and operations, we executed a cost reduction and restructurin g program to align our cost structure with demand expectations in our hardware business.

These actions resulted in approximately $10.0 million in annualized savings in selling, general and administrative expenses.

UK Divestitures

On December 19, 2023, we completed the sale of our UK-based intY business.

We retained our CASCADE cloud services distribution platform, which has been used to grow the Cisco and Microsoft subscription business in the United States and Brazil.

Impact of the Macroeconomic Environment, Including Inflation

The macroeconomic environment, including the economic impacts of supply chain constraints, rising interest rates and inflation continues to create significant uncertainty and may adversely affect our consolidated results of operations.

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In spite of these challenges and uncertainties, we believe we have managed the supply chain requirements of our customers and suppliers effectively to date.

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

Our strategy is to drive sustainable, profitable growth by orchestrating hybrid technology solutions through a growing ecosystem of partners leveraging our people, processes and tools.

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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.

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

We have plans to expand our investments in the Agency Channel in the near term.

Results of Operations from Continuing Operations

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Interest income (0.3) (0.2) (0.1)

Gain on sale of business (0.4) — —

Other (income) expense, net 0.0 0.0 0.0

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Net income from continuing operations 2.4 2.3 2.5

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

Net income from discontinued operations 0.0 0.0 0.0

Net income 2.4 % 2.4 % 2.5 %

1 unchanged sentence

Below is a discussion of fiscal years ended June 30, 2024 and 2023.

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.

Please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our form 10-K for the fiscal year ended June 30, 2023 for a discussion of fiscal year ended June 30, 2022.

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

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Index to Financial Statements

2023 2022 $ Change % Change % Change Constant Currency, Excluding Divestitures and Acquisitions (a)

2024 2023 $ Change % Change % Change Constant Currency, Excluding Divestitures (a)

(in thousands)

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Total net sales $ 3,259,809 $ 3,787,721 $ (527,912) (13.9) % (14.1) %

(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.

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

Specialty Technology Solutions

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

During fiscal year 2023, net sales for this segment increased $248.7 million, or 11.9%, compared to fiscal year 2022.

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 strong growth in key technologies in North America.

During fiscal year 2024, net sales for this segment decreased $332.4 million, or 14.3%, compared to fiscal year 2023.

Excluding the foreign exchange positive impact of $1.3 million, adjusted net sales for fiscal year 2024 decreased $333.7 million, or 14.3%, compared to the prior fiscal year.

The decrease in net sales and in adjusted net sales is primarily from lower sales volume due to softer demand in a more cautious technology spending environment.

Modern Communications & Cloud

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

During fiscal year 2023, net sales for this segment increased $9.1 million, or 0.6%, compared to fiscal year 2022.

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 networking sales, partially offset by lower sales volumes in our communications hardware.

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

During fiscal year 2024, net sales for this segment decreased $195.5 million, or 13.4%, compared to fiscal year 2023.

Excluding the foreign exchange positive impact of $8.5 million, adjusted net sales decreased $198.7 million, or 13.7%, compared to the prior year.

The decrease in net sales and adjusted net sales is primarily due to decreased lower sales volumes in our communications hardware and Cisco products.

Intelisys connectivity and cloud net sales for fiscal year 2024 increased 6.6% year-over-year.

For our Intelisys business, net sales reflect the net commissions received from suppliers after paying sales partner commissions.

For our Intelisys business, net sal es reflect the net commissions received from suppliers after paying sales partner commissions.

For fiscal year 2024, Intelisys net billings, which are amounts billed by suppliers to end users and represents annual recurring revenue, totaled approximately $2.67 billion.

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The following table summarizes our gross profit for the fiscal years ended June 30, 2024 and 2023:

Index to Financial Statements

2024 2023 $ Change % Change 2024 2023

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Total gross profit $ 399,052 $ 449,239 $ (50,187) (11.2) % 12.2 % 11.9 %

Index to Financial Statements

Our gross profit is primarily affected by sales volume and gross margin mix.

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Specialty Technology Solutions

For the Specialty Technology Solutions segment, gross profit dollars increased $18.5 million.

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 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%.

For the Specialty Technology Solutions segment, gross profit dollars decreased $36.5 million.

Lower sales volume, after considering the associated cost of goods sold, impacted gross profit decline by $32.0 million for the current fiscal year.

Gross margin mix negatively impacted gross profit by $4.5 million, largely from unfavorable vendor program recognition partially offset by lower freight costs.

For the fiscal year ended June 30, 2024, the gross profit margin decreased 23 basis points over the prior-year to 9.4%.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, gross profit dollars increased $4.2 million.

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 $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%.

For the Modern Communications & Cloud segment, gross profit dollars decreased $13.7 million.

Lower sales volume, after considering the associated cost of goods sold, unfavorably impacted gross profit dollars by $30.2 million.

Gross margin mix positively impacted gross profit by $16.5 million, largely from a more favorable sales mix and lower freight costs.

For the fiscal year ended June 30, 2024, the gross profit margin increased 131 basis points over the prior fiscal year to 16.8%.

Operating expenses

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Intangible amortization expense 15,723 16,746 (1,023) (6.1) % 0.5 % 0.4 %

Restructuring and other charges 4,358 — 4,358 *nm 0.1 % — %

Operating expenses $ 308,728 $ 313,353 $ (4,625) (1.5) % 9.5 % 8.3 %

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, 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

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.

*nm - not meaningful

Selling, general and administr ative expenses (“SG&A”) decreased $8.3 million for the fiscal year ended June 30, 2024 compared to the prior year.

The decrease in SG&A expenses is primarily attributable to lower employee costs, partially offset by an increase in bad debt expense as a result of increases in specific customer reserves.

Intangible amortization expense decreased $1.0 million for the fiscal year ended June 30, 2024 compared to the prior fiscal year.

Amortization expense decreased during fiscal year 2024 due to primarily due to the removal of intangible assets related to the intY UK divestiture.

Restructuring and other charges of $4.4 million related to employee separation and benefit costs in connection with our expense reduction and restructuring plans implemented during fiscal year 2024.

Operating Income

The following table summarizes our operating income for the periods ended June 30, 2024 and 2023:

Index to Financial Statements

2024 2023 $ Change % Change 2024 2023

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Modern Communications & Cloud 52,547 61,658 (9,111) (14.8) % 4.2 % 4.2 %

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

Corporate (6,949) (1,460) (5,489) 376.0 % — % — %

Total operating income $ 90,324 $ 135,886 $ (45,562) (33.5) % 2.8 % 3.6 %

*nm - not meaningful

Specialty Technology Solutions

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.

For the Specialty Technology Solutions segment, operating income decreased $31.0 million, and operating margin decreased 101 basis points to 2.2% for the fiscal year ended June 30, 2024, compared to the prior fiscal year.

The decrease in operating income and operating margin is primarily due to lower gross profits.

Modern Communications & Cloud

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.

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.

For the Modern Communications & Cloud segment, operating income decreased $9.1 million with the operating margin increasing slightly to 4.2% for the fiscal year ended June 30, 2024, compared to the prior fiscal year.

The decrease in operating income is largely due to lower gross profits.

For the fiscal year ended June 30, 2024, Corporate operating loss totaled $6.9 million which represents $4.4 million in restructuring expenses, $1.7 million of acquisition and divestiture costs as well as $0.9 million in cyberattack restoration charges.

During the fiscal year ended June 30, 2023 Corporate incurred a loss of $1.5 million representing cyberattack restoration charges.

Total Other (Income) Expense

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Net foreign exchange losses 2,198 2,168 30 1.4 % 0.1 % 0.1 %

Gain on sale of business (14,155) — (14,155) *nm (0.4) % — %

Other, net (1,210) (504) (706) 140.1 % — % — %

Total other (income) expense $ (9,517) $ 14,036 $ (23,553) (167.8) % (0.3) % 0.4 %

Index to Financial Statements

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.

Interest expense decreased in fiscal 2024 as compared to 2023 primarily from lower average borrowings on our multi-currency revolving credit facility.

Interest income for the fiscal year ended June 30, 2024 increased compared to fiscal year ended June 30, 2023 primarily from interest earned on higher cash balances in North America.

Index to Financial Statements

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.

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

dollar versus the Brazilian real and the Canadian dollar versus the U.S.

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.

For the fiscal year ended June 30, 2024 we recognized a $14.2 million gain on sale of our UK-based intY business.

Provision for Income Taxes

Income tax expense for continuing operations was $22.8 million and $33.8 million for the fiscal years ended June 30, 2024 and 2023, respectively, reflecting effective tax rates of 22.8% and 27.7%, respectively.

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.

The decrease in the effective tax rate for fiscal 2024 compared to fiscal 2023 is primarily the result of the tax treatment for the intY divestiture, the creditability of foreign taxes as a result of IRS Notice 2023-55 and a decrease in global intangible low taxed income tax.

In December of 2021, the Organization for Economic Co-operation and Development ("OECD") released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a global minimum tax rate of 15%.

Several member countries have enacted Pillar Two provisions that are effective in fiscal year 2025.

The Company believes it will qualify for safe harbor exemptions in many of these jurisdictions and any remaining impact to future effective tax rates and corporate tax liability will be minimal.

We expect the fiscal year 2025 effective tax rate from continuing operations to be approximately 27.5% to 28.5%.

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and constant currency.

Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods.

Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods and certain impacts related to acquisitions and divestitures.

We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.

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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.

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

We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital.

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Cyberattack restoration costs 874 1,460

Divestiture costs (a)

Gain on sale of business (14,155) —

Acquisition and divestiture costs (a)

Restructuring costs 4,358 —

Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) $ 140,654 $ 179,943

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Share-based compensation, net 7,120 8,326

Divestiture costs (a)

Acquisition and divestiture costs (a)

Cyberattack restoration costs, net 655 1,092

Restructuring, net 3,262 —

Gain on sale of business (14,155) —

Tax recovery, net (2,566) (3,985)

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Invested capital (denominator for adjusted ROIC) (non-GAAP) $ 1,133,321 $ 1,230,006

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

(a) Includes divestiture costs for the fiscal year ended June 30, 2023.

Divestiture costs are generally non-deductible for tax purposes.

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dollar into U.S.

dollars using the comparable average foreign exchange rates from the prior year period.

We also exclude the impact of acquisitions prior to the first full year of operations from the acquisition date in order to show net sales results on an organic basis.

This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions.

Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding acquisitions:

dollars using the comparable average foreign exchange rates from the prior fiscal year period.

We also exclude the impact of acquisitions and divestitures prior to the first full year of operations from the acquisition or divestiture date in order to show net sales results on an organic basis.

This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions or divestitures.

Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding acquisitions and divestitures:

Index to Financial Statements

Net Sales by Segment:

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Foreign exchange impact (a)

Divestitures (3,747) (9,140)

Non-GAAP net sales, constant currency $ 1,248,884 $ 1,447,551 $ (198,667) (13.7) %

2 unchanged sentences

Foreign exchange impact (a)

Divestitures (3,747) (9,140)

Non-GAAP net sales, constant currency $ 3,246,179 $ 3,778,581 $ (532,402) (14.1) %

(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, 2023 into U.S.

dollars using the average foreign exchange rates for the year ended June 30, 2022.

Index to Financial Statements

Calculated by translating the net sales for the fiscal year ended June 30, 2024 into U.S.

dollars using the average foreign exchange rates for the fiscal year ended June 30, 2023.

Net Sales by Geography:

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Net sales, as reported $ 2,921,172 $ 3,432,074 $ (510,902) (14.9) %

Acquisitions — —

Net sales, excluding acquisitions $ 2,921,172 $ 3,432,074 $ (510,902) (14.9) %

International:

1 unchanged sentence

Foreign exchange impact (a)

Divestitures (3,747) (9,140)

Non-GAAP net sales, constant currency $ 325,007 $ 346,507 $ (21,500) (6.2) %

2 unchanged sentences

Foreign exchange impact (a)

Divestitures (3,747) (9,140)

Non-GAAP net sales, constant currency $ 3,246,179 $ 3,778,581 $ (532,402) (14.1) %

(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, 2023 into U.S.

dollars using the average foreign exchange rates for the year ended June 30, 2022.

Calculated by translating the net sales for the fiscal year ended June 30, 2024 into U.S.

dollars using the average foreign exchange rates for the fiscal year ended June 30, 2023.

Index to Financial Statements

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Cyberattack restoration costs 874 1,460 (586)

Restructuring costs 4,358 — 4,358

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

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Divestiture costs 1,717 — 1,717

Restructuring costs 4,358 — 4,358

Tax recovery (2,558) (2,986) 428

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Year ended June 30, 2024

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

GAAP Measure Intangible amortization expense Acquisition and Divestiture costs (a)

Restructuring costs Tax recovery Cyberattack restoration costs Gain on sale of business (b)

Non-GAAP measure

(in thousands, except per share data)

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Year ended June 30, 2023

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

GAAP Measure Intangible amortization expense Acquisition and Divestiture costs (a)

Restructuring costs Tax recovery Cyberattack restoration costs Gain on sale of business (b)

Non-GAAP measure

(in thousands, except per share data)

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Diluted EPS $ 3.47 $ 0.49 $ — $ — $ (0.16) $ 0.04 $ — $ 3.85

(a) Acquisition and divestiture costs for the fiscal year ended June 30, 2024 are generally nondeductible for tax purposes.

(b) Reflects gain on the sale of the UK-based intY business.

This transaction resulted in a capital loss for tax purposes.

The Company did not record a tax provision on the capital loss as there were no offsetting capital gains.

Index to Financial Statements

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(i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by us on the financial condition and the current creditworthiness of its customers, (iv) the current economic and country specific environment and (v) reasonable and supportable forecasts about collectability.

We account for credit losses based upon ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326).

Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model.

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

Refer to Note 2 - Accounts Receivable and Notes Receivable, Net for further details.

Inventory Reserves

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Supplier receivables are generally collected through reductions to accounts payable authorized by the supplier.

In addition, we may receive early payment discounts from certain suppliers.

We record early payment discounts received as a

Index to Financial Statements

reduction of inventory, thereby resulting in a reduction of cost of goods sold when the related inventory is sold.

In addition, we may receive early payment discounts from certain suppliers.

We record early payment discounts received as a reduction of inventory, thereby resulting in a reduction of cost of goods sold when the related inventory is sold.

ASC 606 requires management to make certain estimates of the amounts of supplier consideration that will be received.

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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.

Purchase Price Allocation

The Company accounts for business combinations in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, Business Combinations .

For each acquisition, the Company allocates the purchase price to assets acquired, liabilities assumed and goodwill and intangibles.

The Company recognizes assets and liabilities acquired at their estimated fair values.

Management uses judgment to (i) identify the acquired assets and liabilities assumed, (ii) estimate the fair value of these assets, (iii) estimate the useful life of the assets and (iv) assess the appropriate method for recognizing depreciation or amortization expense over the assets' useful life.

Index to Financial Statements

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

Index to Financial Statements

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 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.

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Checks released but not yet cleared from these accounts in the amounts of $5.9 million and $8.0 million are classified as accounts payable as of June 30, 2024 and 2023, respectively.

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

We conduct business primarily in North America and Brazil where we generate and use cash.

We provide for United States income taxes from the earnings of our Canadian and Brazilian subsidiaries.

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

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, defined as accounts receivable plus inventories less accounts payable, decreased $313.5 million to $506.2 million at June 30, 2024 from $819.7 million at June 30, 2023, primarily as a result of lower sales volumes and our multi-quarter working capital improvement plan.

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, 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.

For the fiscal year ended June 30, 2024, our working capital investment decreased in return growing our availability and cash on hand to help finance future growth.

Cash (used in) provided by:

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Financing activities of continuing operations (227,767) 39,531

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.

Net cash provided by operating activities was $371.6 million for the fiscal year ended June 30, 2024 and cash used in operating activities was $35.8 million for the fiscal years ended June 30, 2023 , respectively.

Cash provided by operating activities for the fiscal year ended June 30, 2024 is primarily due to decreases in inventory and accounts receivable, which decreased 32.3% and 22.8%, respectively compared to the beginning of the fiscal year.

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

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 71 at June 30, 2024 compared to 72 at June 30, 2023.

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 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 2024, DSO ranged from 68 to 72.

Inventory turnover was 5.0 times during the fourth quarter fiscal year 2024, compared to 4.4 times in the fourth quarter of fiscal year 2023.

Throughout fiscal year 2024, inventory turnover ranged from 4.4 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 $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

Cash provided by investing activities was $9.0 million for the fiscal year ended June 30, 2024 compared to cash used in investing activities of $8.3 million for the fiscal year ended June 30, 2023.

Cash provided by investing activities for fiscal year 2024 is largely due to cash received from the sale of our intY UK business, partially offset by capital expenditures.

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.

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

Management expects capital expenditures for fiscal year 2025 to range from $10.0 million to $15.0 million, primarily for IT investments.

Cash used in financing activities totaled $227.8 million for the fiscal year ended June 30, 2024 primarily due to repayments on the revolving line of credit and the repurchase of common stock.

Cash provided by financing activities of $39.5 million for the fiscal year ended June 30, 2023 was primarily from net borrowings on the revolving line of credit.

Share Repurchase Program

In May 2024, our Board approved an additional $100.0 million share repurchase authorization, which supplements the existing $100 million repurchase program authorized in August 2021.

The share repurchase authorizations do not have any time limits.

In fiscal year 2024 , we repurchased 980,539 shares totaling $43.3 million.

As of June 30, 2024, the Company had approximately $123.1 million available for repurchases under Board approved authorizations.

Credit Facility

9 unchanged sentences

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”);

dollars, other than swingline loans, bear interest at a rate per annum equal to, at our 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 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.

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We were in compliance with all covenants under the Amended Credit Agreement as of June 30, 2024.

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.

There were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2023 and 2022.

Index to Financial Statements

The average daily balance on the revolving credit facility, excluding the term loan facility, was $71.1 million and $223.5 million during the fiscal years ended June 30, 2024 and June 30, 2023 , respectively.

There was $349.9 million and $171.0 million available for additional borrowings as of June 30, 2024 and June 30, 2023 , respectively.

There were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2024 and June 30, 2023 .

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.

3 unchanged sentences

Contractual Obligations

Index to Financial Statements

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

At June 30, 2024, we had less than $0.1 million outstanding under our revolving credit facility.

We also had $140.6 million outstanding under our term loan facility, $7.5 million of which matures in fiscal year 2024.

9 unchanged sentences

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