What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-05-07 · 129 added, 286 removed, 252 unchanged (62% 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 customers across hardware, SaaS, connectivity and cloud.

We provide technology solutions and services from more than 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 primarily in the United States, Canada and Brazil:

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

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

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

Our segments operate primarily in the United States, Canada and Brazil and are based on sales models:

• Specialty Technology Solutions

• Modern Communications & Cloud

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

• Intelisys & Advisory

We offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to customers and sales partners enabling solutions for end users' needs and 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 AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Dell, Extreme, Five9, Hanwha, Honeywell, Ingenico, Lumen, Microsoft, NCR, Poly HP, RingCentral, Verifone, Verizon, Zebra Technologies and Zoom.

Recent Developments

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

On August 8, 2024, we completed the acquisition of Resourcive, a leading technology advisor.

Resourcive delivers strategic IT sourcing solutions to mid-market and enterprise businesses, advising clients on value creation strategies that are enabled by technology.

On August 15, 2024, we completed the acquisition of Advantix, a VAR-focused, managed connectivity experience provider specializing in wireless enablement solutions.

In September 2024, as part of a strategic review of organizational structure and operations, the Company executed a cost reduction and restructuring program to align our cost structure with demand expectations in our hardware business.

These actions are expected to result in approximately $10.5 million in annualized savings in selling, general and administrative expenses.

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.

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

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Results of Operations

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

The following tables summarize our net sales results by business segment and by geographic location for the quarters and nine months ended March 31, 2024 and 2023:

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

We have two reportable segments, which are based on sales channels.

The following tables summarize our net sales results by operating segment and by geographic location for the quarters ended September 30, 2024 and 2023:

Quarter ended September 30, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

Net Sales by Segment:

2 unchanged sentences

Specialty Technology Solutions $ 752,299 $ 853,950 $ (101,651) (11.9) % (11.1) %

Modern Communications & Cloud 268,895 319,867 (50,972) (15.9) % (16.3) %

Total net sales $ 752,599 $ 885,519 $ (132,920) (15.0) % (15.2) %

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

2024 2023 $ Change % Change

(in thousands)

Specialty Technology Solutions $ 1,513,926 $ 1,769,530 $ (255,604) (14.4) % (14.6) %

Modern Communications & Cloud 999,770 1,071,043 (71,273) (6.7) % (7.6) %

Intelisys & Advisory 23,281 22,355 926 4.1 % 1.5 %

Total net sales $ 775,580 $ 876,305 $ (100,725) (11.5) % (10.7) %

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

(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.

Specialty Technology Solutions

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

For the quarter and nine months ended March 31, 2024, net sales decreased $81.9 million, or 14.5%, and $255.6 million, or 14.4%, respectively, compared to the prior-year period.

Excluding the foreign exchange positive impact, adjusted net sales decreased $82.6 million , or 14.6%, and $258.0 million, or 14.6%, for the quarter and nine months ended March 31, 2024, respectively, compared to the prior-year period.

The decrease in net sales and adjusted net sales for the quarter is primarily due to lower sales volumes across technologies .

The decrease in net sales and adjusted net sales for the nine-month period is primarily due to lower sales volumes in our mobility and barcoding business, partially offset by an increase in networking sales.

Modern Communications & Cloud

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

For the quarter and nine months ended March 31, 2024, net sales decreased $51.0 million, or 15.9%, and $71.3 million, or 6.7%, respectively, compared to the prior-year period.

Excluding the foreign exchange positive impact and the impact of divestitures, adjusted net sales decreased $51.6 million, or 16.3%, and $80.5 million, or 7.6%, for the quarter and nine months ended March 31, 2024, compared to the prior-year period.

The decrease in net sales and adjusted net sales for the quarter is primarily due to lower sales volumes in communications hardware and Cisco products.

The decrease in net sales and adjusted net sales for the nine month period is primarily due to lower sales volume in communications hardware products, partially offset by growth in Cisco products.

Net billings for Intelisys increased to approximately $2.68 billion annualized.

Intelisys net sales for the quarter and nine months ended March 31, 2024 increased 4.0% and 6.7%, respectively, year-over-year.

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

The Specialty Technology Solutions segment consists of sales to customers primarily in the United States, Canada and Brazil through value-added resellers.

For the quarter ended September 30, 2024, net sales decreased $101.7 million, or 11.9%, compared to the prior-year period.

Excluding the foreign exchange positive impact and sales from divestitures and acquisitions, adjusted net sales decreased $94.2 million , or 11.1%, for the quarter ended September 30, 2024, compared to the prior-year period.

The decrease in net sales and adjusted net sales for the quarter is primarily due to continued soft demand in a more cautious technology spending environment.

Intelisys & Advisory

The Intelisys & Advisory segment consists of sales to sales partners primarily in the United States through technology services distributors and technology advisors.

For the quarter ended September 30, 2024, net sales increased $0.9 million, or 4.1%, compared to the prior-year period.

Excluding the foreign exchange positive impact and sales from acquisitions, adjusted net sales increased $0.3 million, or 1.5%, for the quarter ended September 30, 2024, compared to the prior-year period.

The increase in net sales and adjusted net sales for the quarter is primarily due to higher Intelisys sales.

Quarterly net billings for Intelisys increased 6% over the prior-year quarter to bring annualized net billings to approximat ely $2.74 billion.

Quarter ended September 30, % Change, Constant Currency, Excluding Divestitures (a)

Net Sales by Geography:

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United States and Canada $ 712,019 $ 791,000 $ (78,981) (10.0) % (10.5) %

International 81,353 76,722 4,631 6.0 % 4.5 %

Total net sales $ 752,599 $ 885,519 $ (132,920) (15.0) % (15.2) %

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

2024 2023 $ Change % Change

(in thousands)

United States and Canada $ 2,257,629 $ 2,577,556 $ (319,927) (12.4) % (12.4) %

International 256,067 263,017 (6,950) (2.6) % (7.2) %

63,561 85,305 (21,744) (25.5) % (13.0) %

Total net sales $ 775,580 $ 876,305 $ (100,725) (11.5) % (10.7) %

(a) A reconciliation of non-GAAP net sales in constant currency is presented at the end of Results of Operations in the non-GAAP section.

The following table summarizes our gross profit for the quarters and nine months ended March 31, 2024 and 2023:

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

2024 2023 $ Change % Change 2024 2023

(in thousands)

Specialty Technology Solutions $ 45,077 $ 57,664 $ (12,587) (21.8) % 9.3 % 10.2 %

Modern Communications & Cloud 49,404 54,098 (4,694) (8.7) % 18.4 % 16.9 %

Gross profit $ 94,481 $ 111,762 $ (17,281) (15.5) % 12.6 % 12.6 %

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

(b) Countries outside of Brazil represent $0.1 million, or 0.2% of sales, for the quarter ended September 30, 2024 and $2.4 million, or 2.8% of sales, for the quarter ended September 30, 2023.

The following table summarizes our gross profit for the quarters ended September 30, 2024 and 2023:

Quarter ended September 30, % of Net Sales September 30,

2024 2023 $ Change % Change 2024 2023

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Specialty Technology Solutions $ 78,457 $ 84,263 $ (5,806) (6.9) % 10.4 % 9.9 %

Modern Communications & Cloud 160,345 167,781 (7,436) (4.4) % 16.0 % 15.7 %

Intelisys & Advisory 23,162 22,245 917 4.1 % 99.5 % 99.5 %

Gross profit $ 101,619 $ 106,508 $ (4,889) (4.6) % 13.1 % 12.2 %

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Specialty Technology Solutions

For the quarter ended March 31, 2024, gross profit dollars for the Specialty Technology Solutions segment declined $12.6 million, or 21.8%, compared to the prior-year quarter.

Lower sales volume, after considering the associated cost of goods sold, reduced gross profit dollars by $8.4 million.

Gross profit margin decreased 88 basis points quarter-over-quarter to 9.3%.

Gross margin mix negatively impacted gross profit by $4.2 million largely due to lower vendor program recognition.

For the nine months ended March 31, 2024, gross profit dollars decreased $31.4 million, or 18.2%, compared to the prior-year period.

Lower sales volume, after considering the associated cost of goods sold, reduced gross profit by $25.0 million.

Gross profit margin decreased 4 3 basis points ye ar-over-year to 9.3%.

Gross margin mix negatively impacted gross profit by $6.4 million largely from lower vendor program recognition partially offset by lower freight costs.

Modern Communications & Cloud

For the quarter ended March 31, 2024, gross profit dollars for the Modern Communications & Cloud segment decreased $4.7 million, or 8.7%, compared to the prior-year quarter.

Lower sales volume, after considering the associated cost of goods sold, reduced gross profit dollars by $8.6 million.

Gross profit margin increased 146 basis points quarter-over-quarter to 18.4%.

Gross margin mix positively impacted gross profit by $3.9 million largely from a more favorable sales mix, partially offset by lower vendor program recognition.

For the nine months ended March 31, 2024, gross profit dollars declined $7.4 million, or 4.4%, compared to the prior-year period.

For the quarter ended September 30, 2024, gross profit dollars for the Specialty Technology Solutions segment declined $5.8 million, or 6.9%, compared to the prior-year quarter.

Lower sales volume, after considering the associated cost of goods sold, reduced gross profit dollars by $9.2 million.

Gross profit margin increased 37 basis points year-over-year to 16.0%.

Gross margin mix positively impacted gross profit dollars by $3.7 million primarily from a reduction in freight costs.

Operating Expenses

The following table summarizes our operating expenses for the quarters and nine months ended March 31, 2024 and 2023:

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

2024 2023 $ Change % Change 2024 2023

(in thousands)

Selling, general and administrative expenses $ 66,574 $ 70,669 $ (4,095) (5.8) % 8.8 % 8.0 %

Depreciation expense 2,690 2,644 46 1.7 % 0.4 % 0.3 %

Intangible amortization expense 3,752 4,170 (418) (10.0) % 0.5 % 0.5 %

Restructuring and other charges 3,923 — 3,923 100.0 % 0.5 % 0.0 %

Gross profit margin increased 45 basis points over the prior year quarter to 10.4%.

Gross margin mix positively impacted gross profit by $3.4 million largely due to higher vendor program recognition and favorable sales mix.

Intelisys & Advisory

For the quarter ended September 30, 2024, gross profit dollars for the Intelisys & Advisory segment increased $0.9 million, or 4.1%, compared to the prior-year quarter.

Higher sales volume increased gross profit dollars by $0.9 million.

Gross profit margin remained consistent at 99.5%.

Operating Expenses

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

The following table summarizes our operating expenses for the quarters ended September 30, 2024 and 2023:

Quarter ended September 30, % of Net Sales September 30,

2024 2023 $ Change % Change 2024 2023

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Operating expenses $ 83,989 $ 82,424 $ 1,565 1.9 % 10.8 % 9.4 %

Selling, general and administrative expenses (“SG&A”) decreased by $4.1 million, or 5.8%, for the quarter ended March 31, 2024, compared to the prior-year period.

The decrease for the quarter ended March 31, 2024 is primarily attributable to lower employee costs for the quarter.

For the nine months ended March 31, 2024, SG&A expenses decreased by $2.4 million, or 1.1%, compared to the prior-year period.

The decrease for the nine months ended March 31, 2024 is primarily attributable to lower employee costs, partially offset by higher bad debt expense as a result of increases in specific customer reserves.

Restructuring and other charges incurred of $3.9 million during the quarter ended March 31, 2024 related to employee separation and benefit costs in connection with our expense reduction and restructuring plans implemented in January 2024.

Operating Income

The following table summarizes our operating income for the quarters and nine months ended March 31, 2024 and 2023:

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

2024 2023 $ Change % Change 2024 2023

(in thousands)

Specialty Technology Solutions $ 9,080 $ 19,811 $ (10,731) (54.2) % 1.9 % 3.5 %

Modern Communications & Cloud 12,989 14,468 (1,479) (10.2) % 4.8 % 4.5 %

Corporate (4,527) — (4,527) nm* nm* nm*

Selling, general and administrative expenses (“SG&A”) decreased by $3.7 million, or 4.9%, for the quarter ended September 30, 2024, compared to the prior-year period.

The decrease for the quarter ended September 30, 2024 is primarily attributable to lower employee costs and reduced customer specific bad debt expenses in the United States and Canada.

Restructuring and other charges incurred of $5.1 million during the quarter ended September 30, 2024 related to employee separation and benefit costs in connection with our expense reduction and restructuring plans implemented in September 2024.

Operating Income

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

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

Quarter ended September 30, % of Net Sales September 30,

2024 2023 $ Change % Change 2024 2023

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Specialty Technology Solutions $ 16,738 $ 17,636 $ (898) (5.1) % 2.2 % 2.1 %

Modern Communications & Cloud 40,004 47,253 (7,249) (15.3) % 4.0 % 4.4 %

Intelisys & Advisory 6,413 6,649 (236) (3.5) % 27.5 % 29.7 %

Corporate (5,521) (201) (5,320) nm* nm* nm*

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Specialty Technology Solutions

For the Specialty Technology Solutions segment, operating income decreased $10.7 million, or 54.2%, and $27.0 million, or 44.1%, respectively, for the quarter and nine months ended March 31, 2024, compared to the prior-year period.

Operating margin decreased to 1.9% and 2.3% for the quarter and nine months ended March 31, 2024, respectively.

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

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income decreased $1.5 million, or 10.2%, and $7.2 million, or 15.3%, respectively, for the quarter and nine months ended March 31, 2024 compared to the prior-year period.

Operating margin increased to 4.8% for the quarter ended March 31, 2024 driven by higher gross profit margin for the quarter.

For the nine months ended March 31, 2024 operating margin decreased to 4.0%.

Operating income and margin decreased for the nine month period primarily from lower gross profits.

For the quarter and nine months ended March 31, 2024, Corporate operating loss of $4.5 million and $5.9 million, represents costs associated with the sale of our intY business, cyberattack restoration cost and restructuring costs.

For the Specialty Technology Solutions segment, operating income decreased $0.9 million, or 5.1%, for the quarter ended September 30, 2024, compared to the prior-year period.

Operating margin remained at 2.2% for the quarters ended September 30, 2024 and September 30, 2023.

The decrease in operating income for the quarter is primarily due to lower gross profits.

Intelisys & Advisory

For the Intelisys & Advisory segment, operating income decreased $0.2 million, or 3.5%, for the quarter ended September 30, 2024 compared to the prior-year period.

Operating margin decreased to 27.5% from 29.7% for the quarter ended September 30, 2024 primarily driven by higher employee expenses for the quarter.

For the quarter ended September 30, 2024, Corporate incurred an operating loss of $5.5 million which represents restructuring and acquisition-related costs.

Total Other (Income) Expense

The following table summarizes our total other (income) expense for the quarters and nine months ended March 31, 2024 and 2023:

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

2024 2023 $ Change % Change 2024 2023

(in thousands)

Interest expense $ 2,001 $ 5,715 $ (3,714) (65.0) % 0.3 % 0.6 %

Interest income (2,652) (1,710) (942) 55.1 % (0.4) % (0.2) %

Net foreign exchange losses 508 505 3 0.6 % 0.1 % 0.1 %

Gain on sale of business — — — nm* — % — %

Other, net (267) (144) (123) 85.4 % (0.0) % (0.0) %

Total other (income) expense, net $ (410) $ 4,366 $ (4,776) (109.4) % (0.1) % 0.5 %

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

The following table summarizes our total other (income) expense for the quarters ended September 30, 2024 and 2023:

Quarter ended September 30, % of Net Sales September 30,

2024 2023 $ Change % Change 2024 2023

3 unchanged sentences

Net foreign exchange losses 334 696 (362) (52.0) % 0.0 % 0.1 %

Gain on sale of business (14,533) — (14,533) nm* (0.6) % — %

Other, net (641) (461) (180) 39.0 % (0.0) % (0.0) %

Other, net (5,116) (19) (5,097) nm* (0.7) % (0.0) %

Total other (income) expense, net $ (5,332) $ 4,937 $ (10,269) (208.0) % (0.7) % 0.6 %

1 unchanged sentence

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 decreased for the quarter and nine months ended March 31, 2024 compared to the prior-year periods, primarily from lower average borrowings on our multi-currency revolving credit facility.

Interest income increased for the quarter and nine months ended March 31, 2024 primarily from interest earned on higher cash balances in North America.

Interest expense decreased for the quarter ended September 30, 2024 compared to the prior-year period, primarily from lower average borrowings on our multi-currency revolving credit facility.

Interest income increased for the quarter ended September 30, 2024 primarily from interest earned on higher cash balances in the United States.

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.

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The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses.

For the nine months ended March 31, 2024, we recognized a $14.5 million gain on the sale of our UK-based intY business.

For the three months ended September 30, 2024, we recognized a $5.1 million gain as a result of an insurance recovery in connection with the cybersecurity attack in the fourth quarter of fiscal year 2023.

Provision for Income Taxes

For the quarter and nine months ended March 31, 2024, income tax expense was $5.1 million and $16.2 million, respectively, reflecting an effective tax rate of 28.7% and 21.0%, respectively.

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

The decrease in the effective tax rate for the quarter is due to a $1.5 million discrete tax benefit, which is attributable to an income tax recovery in Brazil related to a prior period.

For the quarter ended September 30, 2024, income tax expense was $6.0 million reflecting an effective tax rate of 26.1%.

In comparison, for the quarter ended September 30, 2023, income tax expense was $3.7 million reflecting an effective tax rate of 19.4%.

The increase in the effective tax rate for the quarter is primarily due to a decrease in non-taxable income and discrete items.

We expect the effective tax rate, excluding discrete items, for fiscal year 2025 to be approximately 28.9% to 29.9%.

21 unchanged sentences

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

The following table summarizes annualized adjusted ROIC for the quarters ended March 31, 2024 and 2023, respectively:

Quarter ended March 31,

The following table summarizes annualized adjusted ROIC for the quarters ended September 30, 2024 and 2023, respectively:

Quarter ended September 30,

Adjusted return on invested capital ratio, annualized (a)

1 unchanged sentence

(a) The annualized EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for leap year.

There were 91 days in the current and 90 days in the prior-year quarter.

There were 92 days in the current and prior-year quarter.

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

Quarter ended March 31,

Quarter ended September 30,

(in thousands)

5 unchanged sentences

EBITDA (non-GAAP) 32,542 31,949

Tax recovery (515) —

Share-based compensation 2,471 2,769

2 unchanged sentences

Restructuring costs 5,068 —

Insurance recovery, net of payments (4,868) —

Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) $ 35,666 $ 34,919

Quarter ended March 31,

Quarter ended September 30,

(in thousands)

6 unchanged sentences

Restructuring, net 3,818 —

Tax recovery, net (1,648) —

Insurance recovery, net of payments (3,667) —

Average equity 923,794 911,385

13 unchanged sentences

Net Sales by Segment:

Quarter ended March 31,

Quarter ended September 30,

2024 2023 $ Change % Change

3 unchanged sentences

Foreign exchange impact (a)

Non-GAAP net sales $ 483,084 $ 565,652 $ (82,568) (14.6) %

Modern Communications & Cloud:

Net sales, reported $ 268,895 $ 319,867 $ (50,972) (15.9) %

Foreign exchange impact (a)

Divestitures — (2,282)

Non-GAAP net sales $ 265,718 $ 317,337 $ (51,619) (16.3) %

Consolidated:

Net sales, reported $ 752,599 $ 885,519 $ (132,920) (15.0) %

Foreign exchange impact (a)

Divestitures — (2,530)

Non-GAAP net sales $ 748,802 $ 882,989 $ (134,187) (15.2) %

(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.

Calculated by translating the net sales for the quarter ended March 31, 2024 into U.S.

dollars using the average foreign exchange rates for the quarter ended March 31, 2023.

Net Sales by Segment:

Nine months ended March 31,

2024 2023 $ Change % Change

Specialty Technology Solutions (in thousands)

Net sales, reported $ 1,513,926 $ 1,769,530 $ (255,604) (14.4) %

Foreign exchange impact (a)

Acquisitions (3,512) —

Non-GAAP net sales $ 757,432 $ 851,668 $ (94,236) (11.1) %

Modern Communications & Cloud

Intelisys & Advisory:

Net sales, reported $ 23,281 $ 22,355 $ 926 4.1 %

Foreign exchange impact (a)

Divestitures (3,747) (6,737)

Acquisitions (577) —

Non-GAAP net sales $ 22,701 $ 22,355 $ 346 1.5 %

3 unchanged sentences

Divestitures — (2,282)

Acquisitions (4,089) —

Non-GAAP net sales $ 780,133 $ 874,023 $ (93,890) (10.7) %

(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 nine months ended March 31, 2024 into U.S.

dollars using the average foreign exchange rates for the nine months ended March 31, 2023.

Calculated by translating the net sales for the quarter ended September 30, 2024 into U.S.

dollars using the average foreign exchange rates for the quarter ended September 30, 2023.

Net Sales by Geography:

Quarter ended March 31,

Quarter ended September 30,

2024 2023 $ Change % Change

2 unchanged sentences

Net sales, as reported $ 712,019 $ 791,000 $ (78,981) (10.0) %

International:

Net sales, reported $ 81,353 $ 76,722 $ 4,631 6.0 %

Foreign exchange impact (a)

Divestitures — (2,530)

Non-GAAP net sales $ 77,556 $ 74,192 $ 3,364 4.5 %

Consolidated:

Net sales, reported $ 752,599 $ 885,519 $ (132,920) (15.0) %

Foreign exchange impact (a)

Divestitures — (2,530)

Acquisitions (4,089) —

Non-GAAP Net sales $ 707,930 $ 791,000 $ (83,070) (10.5) %

(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 quarter ended March 31, 2024 into U.S.

dollars using the average foreign exchange rates for the quarter ended March 31, 2023.

Nine months ended March 31,

2024 2023 $ Change % Change

United States and Canada:

(in thousands)

Net sales, as reported $ 2,257,629 $ 2,577,556 $ (319,927) (12.4) %

International:

Net sales, reported $ 256,067 $ 263,017 $ (6,950) (2.6) %

Foreign exchange impact (a)

Net sales, reported (a)

$ 63,561 $ 85,305 $ (21,744) (25.5) %

Foreign exchange impact (b)

Divestitures — (2,282)

Non-GAAP net sales $ 237,702 $ 256,280 $ (18,578) (7.2) %

Non-GAAP net sales, constant currency $ 72,203 $ 83,023 $ (10,820) (13.0) %

Consolidated:

Net sales, reported $ 2,513,696 $ 2,840,573 $ (326,877) (11.5) %

Foreign exchange impact (a)

Net sales, reported (a)

$ 775,580 $ 876,305 $ (100,725) (11.5) %

Foreign exchange impact (b)

Divestitures — (2,282)

Non-GAAP net sales $ 2,495,331 $ 2,833,836 $ (338,505) (11.9) %

(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 nine months ended March 31, 2024 into U.S.

dollars using the average foreign exchange rates for the nine months ended March 31, 2023.

Acquisitions (4,089) —

Non-GAAP net sales, constant currency $ 780,133 $ 874,023 $ (93,890) (10.7) %

(a) Countries outside of Brazil represent $0.1 million, or 0.2% of sales, for the quarter ended September 30, 2024 and $2.4 million, or 2.8% of sales, for the quarter ended September 30, 2023.

(b) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.

Calculated by translating the net sales for the quarter ended September 30, 2024 into U.S.

dollars using the average foreign exchange rates for the quarter ended September 30, 2023.

Operating Income by Segment:

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

Quarter ended September 30, % of Net Sales September 30,

2024 2023 $ Change % Change 2024 2023

3 unchanged sentences

Amortization of intangible assets 2,276 2,277 (1)

Restructuring costs — — —

Non-GAAP operating income $ 19,014 $ 19,913 $ (899) (4.5) % 2.5 % 2.3 %

Modern Communications & Cloud:

Intelisys & Advisory:

GAAP operating income $ 6,413 $ 6,649 $ (236) (3.5) % 27.5 % 29.7 %

Amortization of intangible assets 2,082 1,916 166

Tax recovery (a)

(515) — (515)

Restructuring costs — — —

Non-GAAP operating income $ 8,495 $ 8,565 $ (70) (0.8) % 36.5 % 38.3 %

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Amortization of intangible assets 4,358 4,193 165

Cyberattack restoration costs 93 — 93

Tax recovery (a)

(515) — (515)

Acquisition and divestiture costs 377 — 377

Restructuring costs 5,068 — 5,068

Non-GAAP operating income $ 25,306 $ 38,449 $ (13,143) (34.2) % 3.4 % 4.3 %

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

Operating Income by Segment:

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

2024 2023 $ Change % Change 2024 2023

Specialty Technology Solutions:

(in thousands)

GAAP operating income $ 34,321 $ 61,345 $ (27,024) (44.1) % 2.3 % 3.5 %

Amortization of intangible assets 3,784 3,874 (90)

Non-GAAP operating income $ 38,105 $ 65,219 $ (27,114) (41.6) % 2.5 % 3.7 %

Modern Communications & Cloud:

GAAP operating income $ 40,004 $ 47,253 $ (7,249) (15.3) % 4.0 % 4.4 %

Amortization of intangible assets 8,198 8,687 (489)

Tax recovery (a)

(1,901) (2,858) 957

Non-GAAP operating income $ 46,301 $ 53,082 $ (6,781) (12.8) % 4.6 % 5.0 %

GAAP operating loss $ (5,871) $ — $ (5,871) nm* nm* nm*

Cyberattack restoration costs 76 201 (125)

Acquisition and divestiture costs 1,215 — 1,215

Restructuring costs 3,923 — 3,923

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

Consolidated:

GAAP operating income $ 68,454 $ 108,598 $ (40,144) (37.0) % 2.7 % 3.8 %

Amortization of intangible assets 11,982 12,561 (579)

Cyberattack restoration costs 733 — 733

Tax recovery (a)

(1,901) (2,858) 957

Acquisition and divestiture costs 1,215 — 1,215

Restructuring costs 3,923 — 3,923

Non-GAAP operating income $ 27,509 $ 28,478 $ (969) (3.4) % 3.5 % 3.2 %

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

Additional Non-GAAP Metrics

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

Quarter ended March 31, 2024

Quarter ended September 30, 2024

Measure Intangible

expense Acquisition and Divestiture costs (a)

Restructuring costs Tax

recovery Cyberattack

Restructuring costs Insurance recovery Cyberattack

restoration costs Non-GAAP

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Diluted EPS $ 0.69 $ 0.13 $ 0.02 $ 0.15 $ (0.15) $ — $ 0.84

Quarter ended March 31, 2023

Quarter ended September 30, 2023

Measure Intangible

expense Acquisition and Divestiture costs (a)

Restructuring costs Tax

recovery Cyberattack

Restructuring costs Insurance recovery Cyberattack

restoration costs Non-GAAP

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Diluted EPS $ 0.61 $ 0.12 $ — $ — $ — $ 0.01 $ 0.74

(a) Acquisition and divestiture costs for the quarter ended March 31, 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 since there were no offsetting capital gains.

Nine months ended March 31, 2024

Measure Intangible

expense Acquisition and Divestiture costs (a)

Restructuring costs Tax

recovery Cyberattack

restoration costs Gain on

a business (b)

SG&A expenses $ 208,930 $ — $ (1,215) $ (3,923) $ 1,901 $ (733) $ — $ 204,960

Operating income 68,454 11,982 1,215 3,923 (1,901) 733 — 84,406

Pre-tax income 77,145 11,982 1,215 3,923 (1,901) 733 (14,533) 78,564

Net income 60,964 8,909 1,215 2,935 (2,288) 548 (14,533) 57,750

Diluted EPS $ 2.41 $ 0.35 $ 0.05 $ 0.12 $ (0.09) $ 0.02 $ (0.57) $ 2.28

Nine months ended March 31, 2023

Measure Intangible

expense Acquisition and Divestiture costs (a)

Restructuring costs Tax

recovery Cyberattack

restoration costs Gain on

a business (b)

SG&A expenses $ 211,337 $ — $ — $ — $ 2,858 $ — $ — $ 214,195

Operating income 108,598 12,561 — — (2,858) — — 118,301

Pre-tax income 98,388 12,561 — — (2,858) — — 108,091

Net income 70,997 9,363 — — (1,886) — — 78,474

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

(a) Acquisition and divestiture costs for the quarter ended March 31, 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 since there were no offsetting capital gains.

(a) Acquisition and divestiture costs for the quarters ended September 30, 2024 and 2023 are generally nondeductible for tax purposes.

Liquidity and Capital Resources

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Conversely, when sales volume decreases, our net investment in working capital typically decreases, which typically results in increased cash flow from operating activities.

Our cash and cash equivalents balance totaled $159.1 million at March 31, 2024, compared to $36.2 million at June 30, 2023, including $23.4 million and $31.0 million held outside of the United States at March 31, 2024 and June 30, 2023, respectively.

Checks released but not yet cleared in the amount of $0.2 million and $8.0 million are included in accounts payable at March 31, 2024 and June 30, 2023, respectively.

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

Our cash and cash equivalents balance totaled $145.0 million at September 30, 2024, compared to $185.5 million at June 30, 2024, including $32.6 million and $20.0 million held outside of the United States at September 30, 2024 and June 30, 2024, respectively.

Checks released but not yet cleared in the amount of $0.3 million and $5.9 million are included in accounts payable at September 30, 2024 and June 30, 2024, respectively.

We conduct business primarily in the United States, Canada 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, defined as accounts receivable plus inventories less accounts payable, decreased $256.4 million to $563.3 million at March 31, 2024 from $819.7 million at June 30, 2023, primarily from decreases in inventory and accounts receivable, partially offset by lower accounts payable, as a result of lower sales volume and our multi-quarter working capital improvement plan.

Our net investment in working capital, defined as accounts receivable plus inventories less accounts payable, decreased $13.6 million to $492.5 million at September 30, 2024 from $506.2 million at June 30, 2024, primarily from decreases in inventory and accounts receivable, partially offset by lower accounts payable, as a result of lower sales volume reflecting the results of 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.

Nine months ended

Three months ended

September 30,

(in thousands)

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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.

Net cash provided by operating activities was $316.9 million for the nine months ended March 31, 2024, compared to $20.5 million used in operating activities in the prior-year period.

Cash provided by operating activities for the nine months ended March 31, 2024 is primarily attributable to net income adjusted for non-cash items plus, reductions in inventory and accounts receivable, partially offset by a reduction in accounts payable.

Compared to June 30, 2023 , inventory and accounts receivable decreased 30% and 22% respectively, while accounts payable decreased 20%.

Cash used in operating activities for the nine months ended March 31, 2023 is primarily attributable to increases in inventory of 22% compared to June 30, 2022, partially offset by net income adjusted for non-cash items.

The number of days sales outstanding ("DSO") was 71 days at March 31, 2024, compared to 72 days at June 30, 2023 and 70 days at March 31, 2023.

Inventory turned 4.8 times during the quarter ended March 31, 2024, compared to 4.4 times during the quarter ended June 30, 2023 and 4.1 times in the prior-year quarter ended March 31, 2023.

Cash provided by investing activities for the nine months ended March 31, 2024 was $10.7 million, compared to $6.5 million used in investing activities in the prior-year period.

Cash provided by investing activities for the nine months ended March 31, 2024 is largely due to cash received from the sale of our intY UK business, partially offset by capital expenditures.

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

Management expects capital expenditures for fiscal year 2024 to range from $8.0 million to $10.0 million, primarily for IT investments and facility improvements.

For the nine months ended March 31, 2024, cash used in financing activities totaled $203.9 million, compared to $25.6 million provided by financing activities for the prior-year period.

Cash used in financing activities for the nine months ended March 31, 2024 is primarily attributable to net repayments on the revolving credit facility.

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

Share Repurchase Authorization

In August 2021, our Board of Directors approved a $100.0 million share repurchase authorization of which approximately $45.0 million remained outstanding as of March 31, 2024.The authorization does not have any time limit.

In May 2024, our Board of Directors approved a new $100.0 million share repurchase authorization.

This supplements the existing authorization.

The authorization does not have any time limit.

Net cash provided by operating activities was $44.8 million and $93.5 million for the three months ended September 30, 2024 and September 30, 2023, respectively .

Cash provided by operating activities for the three months ended September 30, 2024 is primarily attributable to net income adjusted for non-cash items plus reductions in accounts receivable and inventory partially offset by a reduction in accounts payable.

Compared to September 30, 2023 , accounts receivable and inventory decreased 18.0% and 23.2% respectively, while accounts payable decreased 6.3%.

The number of days sales outstanding ("DSO") was 66 days at September 30, 2024, compared to 71 days at June 30, 2024 and 71 days at September 30, 2023.

Inventory turned 5.3 times during the quarter ended September 30, 2024, compared to 5.0 times during the quarter ended June 30, 2024 and 4.4 times in the prior-year quarter ended September 30, 2023.

Cash used in investing activities for the three months ended September 30, 2024 was $59.2 million, compared to $2.3 million used in investing activities in the prior-year period.

Cash used in investing activities for the three months ended September 30, 2024 is largely due to cash paid for acquisitions and capital expenditures.

Cash used in investing activities for the three months ended September 30, 2023 represents capital expenditures.

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

For the three months ended September 30, 2024 and September 30, 2023 , cash used in financing activities totaled $26.6 million and $83.5 million, respectively.

Cash used in financing activities for the three months ended September 30, 2024 is primarily attributable to common stock repurchases in the quarter.

Cash used in financing activities for the three months ended September 30, 2023 is primarily attributable to net borrowings on the revolving credit facility.

Credit Facility

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

During the quarter and nine months ended March 31, 2024, our borrowings under the Amended Credit Agreement were U.S.

During the quarter ended September 30, 2024, our borrowings under the Amended Credit Agreement were U.S.

dollar loans.

The spread in effect as of March 31, 2024 was 1.25% for SOFR-based loans and 0.25% for alternate base rate loans.

The commitment fee rate in effect at March 31, 2024 was 0.20%.

The spread in effect as of September 30, 2024 was 1.00% for SOFR-based loans and 0.00% for alternate base rate loans.

The commitment fee rate in effect at September 30, 2024 was 0.15%.

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

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

We were in compliance with all covenants under the credit facility at March 31, 2024.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the quarters ended March 31, 2024 and 2023 w as $94.6 million and $227.2 million, respectively.

There was $350.0 million and $171.0 million available for additional borrowings as of March 31, 2024 and June 30, 2023, respectively.

The effective interest rates for the revolving line of credit were 6.68% and 6.74% as of March 31, 2024 and June 30, 2023, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at March 31, 2024 or June 30, 2023.

We were in compliance with all covenants under the credit facility at September 30, 2024.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the quarters ended September 30, 2024 and 2023 w as $144.0 million and $200.9 million, respectively.

There was $350.0 million and $349.9 million available for additional borrowings as of September 30, 2024 and June 30, 2024, respectively.

The effective interest rates for the revolving line of credit were 5.95% and 6.44% as of September 30, 2024 and June 30, 2024, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at September 30, 2024 or June 30, 2024.

Availability to use this borrowing capacity depends upon, among other things, the levels of our Leverage Ratio and Interest Coverage Ratio, which, in turn, will depend upon (1) our Credit Facility Net Debt relative to our Credit Facility EBITDA and (2) Credit Facility EBITDA relative to total interest expense, respectively.

As a result, our availability will increase if EBITDA increases (subject to the limit of the facility) and decrease if EBITDA decreases.

While we were in compliance with the financial covenants contained in the Amended Credit Agreement as of March 31, 2024, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Amended Credit Agreement lending group has been strong and we anticipate their continued support of our long-term business.

We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under our credit agreements, will provide sufficient resources to meet our present and future working capital and cash requirements for at least the next twelve months.

While we were in compliance with the financial covenants contained in the Amended Credit Agreement as of September 30, 2024, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Amended Credit Agreement lending group has been strong and we anticipate their continued support of our long-term business.

future working capital and cash requirements for at least the next twelve months.

We also believe that our longer-term working capital, planned expenditures and other general funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis