SCANSOURCE, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview 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 • 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. Brazil distribution facilities are located in the Brazilian states of Paraná, Espirito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms. Recent Developments 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. 26 Table of Contents 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. Our Strategy 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. Our goal is to provide exceptional experiences for our customers, suppliers and employees through operational excellence. Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to customers that solve end users’ challenges. ScanSource enables customers to deliver solutions for their end users to address changing buying and consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our customers access to additional services. As a trusted adviser to our customers, we provide solutions through our strong understanding of end user needs. We have plans to expand our investments in the agency channel in the near term. 27 Table of Contents Results of Operations Net Sales 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: 2024 2023 $ Change % Change (in thousands) Specialty Technology Solutions $ 752,299 $ 853,950 $ (101,651) (11.9) % (11.1) % 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, 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 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: 2024 2023 $ Change % Change (in thousands) United States and Canada $ 712,019 $ 791,000 $ (78,981) (10.0) % (10.5) % Brazil (b) 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. (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. 28 Table of Contents Gross Profit 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 (in thousands) Specialty Technology Solutions $ 78,457 $ 84,263 $ (5,806) (6.9) % 10.4 % 9.9 % 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 % Our gross profit is primarily affected by sales volume and gross margin mix. Gross margin mix is impacted by multiple factors, which include sales mix (proportion of sales of higher margin products or services relative to total sales), vendor program recognition (consisting of volume rebates, inventory price changes and purchase discounts) and freight costs. Increases in vendor program recognition decrease cost of goods sold, thereby increasing gross profit. Net sales derived from our Intelisys business contribute 100% to our gross profit dollars and margin as they have no associated cost of goods sold. Specialty Technology Solutions 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 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 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 (in thousands) Selling, general and administrative expenses $ 71,706 $ 75,436 $ (3,730) (4.9) % 9.2 % 8.6 % Depreciation expense 2,857 2,795 62 2.2 % 0.4 % 0.3 % Intangible amortization expense 4,358 4,193 165 3.9 % 0.6 % 0.5 % Restructuring and other charges 5,068 — 5,068 100.0 % 0.7 % 0.0 % Operating expenses $ 83,989 $ 82,424 $ 1,565 1.9 % 10.8 % 9.4 % 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 29 Table of Contents 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 (in thousands) Specialty Technology Solutions $ 16,738 $ 17,636 $ (898) (5.1) % 2.2 % 2.1 % Intelisys & Advisory 6,413 6,649 (236) (3.5) % 27.5 % 29.7 % Corporate (5,521) (201) (5,320) nm* nm* nm* Operating income $ 17,630 $ 24,084 $ (6,454) (26.8) % 2.3 % 2.7 % *nm - percentages are not meaningful Specialty Technology Solutions 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. Corporate 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 ended September 30, 2024 and 2023: Quarter ended September 30, % of Net Sales September 30, 2024 2023 $ Change % Change 2024 2023 (in thousands) Interest expense $ 2,109 $ 5,585 $ (3,476) (62.2) % 0.3 % 0.6 % Interest income (2,659) (1,325) (1,334) 100.7 % (0.3) % (0.2) % Net foreign exchange losses 334 696 (362) (52.0) % 0.0 % 0.1 % 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 % *nm - percentages are not meaningful 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 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. 30 Table of Contents 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. dollar. We partially offset foreign currency exposure with the use of foreign exchange contracts to hedge against these exposures. The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses. 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 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%. See Note 13 - Income Taxes to the Notes to Consolidated Financial Statements for further discussion. Non-GAAP Financial Information Evaluating Financial Condition and Operating Performance In addition to disclosing results that are determined in accordance with United States generally accepted accounting principles (“US GAAP” or “GAAP”), we also disclose certain non-GAAP financial measures. These measures include non-GAAP operating income; non-GAAP pre-tax income; non-GAAP net income; non-GAAP EPS; adjusted earnings before interest expense, income taxes, depreciation, and amortization (“adjusted EBITDA”); adjusted return on invested capital (“adjusted ROIC”); and constant currency. Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods. We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period. These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that we report may not be comparable to similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with US GAAP. Adjusted Return on Invested Capital Adjusted ROIC assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of adjusted ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year. Adjusted EBITDA starts with net income and adds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, share-based compensation expense, and other non-GAAP adjustments. Since adjusted EBITDA excludes some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more clearly. We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital. 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 September 30, 2024 and 2023, respectively: Quarter ended September 30, 2024 2023 Adjusted return on invested capital ratio, annualized (a) 13.3 % 11.0 % (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 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: 31 Table of Contents Quarter ended September 30, 2024 2023 (in thousands) Reconciliation of net income to adjusted EBITDA: Net income (GAAP) $ 16,974 $ 15,432 Plus: Interest expense 2,109 5,585 Plus: Income taxes 5,988 3,715 Plus: Depreciation and amortization 7,471 7,217 EBITDA (non-GAAP) 32,542 31,949 Plus: Share-based compensation 2,471 2,769 Plus: Acquisition and divestiture costs 377 — Plus: Cyberattack restoration costs 76 201 Plus: Restructuring costs 5,068 — Plus: Insurance recovery, net of payments (4,868) — Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) $ 35,666 $ 34,919 Quarter ended September 30, 2024 2023 (in thousands) Invested capital calculations: Equity – beginning of the quarter $ 924,254 $ 905,298 Equity – end of the quarter 920,893 915,253 Plus: Share-based compensation, net 1,856 2,068 Plus: Cyberattack restoration costs, net 57 150 Plus: Acquisition and divestiture costs (a) 377 — Plus: Restructuring, net 3,818 — Plus: Insurance recovery, net of payments (3,667) — Average equity 923,794 911,385 Average funded debt (b) 144,020 352,897 Invested capital (denominator for adjusted ROIC) (non-GAAP) $ 1,067,814 $ 1,264,282 (a) Acquisition and divestiture costs are generally non-deductible for tax purposes. (b) Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt. Net Sales in Constant Currency Excluding Acquisitions and Divestitures We make references to “constant currency,” a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the prior year period. We also exclude the impact of acquisitions or 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 and divestitures. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency excluding acquisitions and divestitures: 32 Table of Contents Net Sales by Segment: Quarter ended September 30, 2024 2023 $ Change % Change Specialty Technology Solutions: (in thousands) Net sales, reported $ 752,299 $ 853,950 $ (101,651) (11.9) % Foreign exchange impact (a) 8,645 — Less: Divestitures — (2,282) Less: Acquisitions (3,512) — Non-GAAP net sales $ 757,432 $ 851,668 $ (94,236) (11.1) % Intelisys & Advisory: Net sales, reported $ 23,281 $ 22,355 $ 926 4.1 % Foreign exchange impact (a) (3) — Less: Acquisitions (577) — Non-GAAP net sales $ 22,701 $ 22,355 $ 346 1.5 % Consolidated: Net sales, reported $ 775,580 $ 876,305 $ (100,725) (11.5) % Foreign exchange impact (a) 8,642 — Less: Divestitures — (2,282) Less: 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 quarter ended September 30, 2024 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2023. 33 Table of Contents Net Sales by Geography: Quarter ended September 30, 2024 2023 $ Change % Change United States and Canada: (in thousands) Net sales, as reported $ 712,019 $ 791,000 $ (78,981) (10.0) % Less: Acquisitions (4,089) — Non-GAAP Net sales $ 707,930 $ 791,000 $ (83,070) (10.5) % Brazil: Net sales, reported (a) $ 63,561 $ 85,305 $ (21,744) (25.5) % Foreign exchange impact (b) 8,642 — Less: Divestitures — (2,282) Non-GAAP net sales, constant currency $ 72,203 $ 83,023 $ (10,820) (13.0) % Consolidated: Net sales, reported (a) $ 775,580 $ 876,305 $ (100,725) (11.5) % Foreign exchange impact (b) 8,642 — Less: Divestitures — (2,282) Less: 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. 34 Table of Contents Operating Income by Segment: Quarter ended September 30, % of Net Sales September 30, 2024 2023 $ Change % Change 2024 2023 Specialty Technology Solutions: (in thousands) GAAP operating income $ 16,738 $ 17,636 $ (898) (5.1) % 2.2 % 2.1 % Adjustments: 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 % Intelisys & Advisory: GAAP operating income $ 6,413 $ 6,649 $ (236) (3.5) % 27.5 % 29.7 % Adjustments: Amortization of intangible assets 2,082 1,916 166 Restructuring costs — — — Non-GAAP operating income $ 8,495 $ 8,565 $ (70) (0.8) % 36.5 % 38.3 % Corporate: GAAP operating loss $ (5,521) $ (201) $ (5,320) nm* nm* nm* Adjustments: Acquisition and divestiture costs 377 — 377 Restructuring costs 5,068 — 5,068 Cyberattack restoration costs 76 201 (125) Non-GAAP operating income $ — $ — $ — nm* nm* nm* Consolidated: GAAP operating income $ 17,630 $ 24,084 $ (6,454) (26.8) % 2.3 % 2.7 % Adjustments: Amortization of intangible assets 4,358 4,193 165 Acquisition and divestiture costs 377 — 377 Restructuring costs 5,068 — 5,068 Cyberattack restoration costs 76 201 (125) Non-GAAP operating income $ 27,509 $ 28,478 $ (969) (3.4) % 3.5 % 3.2 % 35 Table of Contents Additional Non-GAAP Metrics To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP SG&A expenses, non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to divestitures, cyberattack restoration costs and other non-GAAP adjustments. These year-over-year metrics include the translation impact of changes in foreign currency exchange rates. These metrics are useful in assessing and understanding our operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above: Quarter ended September 30, 2024 GAAP Measure Intangible amortization expense Acquisition and Divestiture costs (a) Restructuring costs Insurance recovery Cyberattack restoration costs Non-GAAP measure (in thousands, except per share data) SG&A expenses $ 71,706 $ — $ (377) $ — $ — $ (76) $ 71,253 Operating income 17,630 4,358 377 5,068 — 76 27,509 Pre-tax income 22,962 4,358 377 5,068 (4,868) 76 27,973 Net income 16,974 3,264 377 3,818 (3,667) 57 20,823 Diluted EPS $ 0.69 $ 0.13 $ 0.02 $ 0.15 $ (0.15) $ — $ 0.84 Quarter ended September 30, 2023 GAAP Measure Intangible amortization expense Acquisition and Divestiture costs (a) Restructuring costs Insurance recovery Cyberattack restoration costs Non-GAAP measure (in thousands, except per share data) SG&A expenses $ 75,436 $ — $ — $ — $ — $ (201) $ 75,235 Operating income 24,084 4,193 — — — 201 28,478 Pre-tax income 19,147 4,193 — — — 201 23,541 Net income 15,432 3,146 — — — 150 18,728 Diluted EPS $ 0.61 $ 0.12 $ — $ — $ — $ 0.01 $ 0.74 (a) Acquisition and divestiture costs for the quarters ended September 30, 2024 and 2023 are generally nondeductible for tax purposes. 36 Table of Contents Liquidity and Capital Resources Our primary sources of liquidity are cash flows from operations and borrowings under our $350 million revolving credit facility. Our business requires significant investment in working capital, particularly accounts receivable and inventory, partially financed through our accounts payable to vendors, cash generated from operations and revolving lines of credit. In general, as our sales volume increases, our net investment in working capital increases, which typically results in decreased cash flow from operating activities. 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 $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 $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. Three months ended September 30, 2024 2023 (in thousands) Cash provided by (used in): Operating activities $ 44,830 $ 93,533 Investing activities (59,224) (2,315) Financing activities (26,630) (83,493) 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 $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. 37 Table of Contents 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 We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (as amended, the “Amended Credit Agreement”). On September 28, 2022, we amended and restated our Amended Credit Agreement, which includes (i) a five-year, $350 million multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. The Amended Credit Agreement extended the credit facility maturity date to September 28, 2027. In addition, pursuant to an “accordion feature,” we may increase our borrowing limits up to an additional $250 million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and secured by substantially all of our domestic assets. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. We incurred debt issuance costs of $1.4 million in connection with the amendment and restatement of the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility. Loans denominated in U.S. dollars, other than swingline loans, bear interest at a rate per annum equal to, at our option, (i) the adjusted term SOFR or adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our ratio of (A) total consolidated debt less up to $30 million of unrestricted domestic cash 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 our leverage ratio, plus, if applicable, certain mandatory costs. All swingline loans denominated in U.S. dollars bear interest based upon the adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our leverage ratio, or such other rate as agreed upon with the applicable swingline lender. The adjusted term SOFR and adjusted daily simple SOFR include a fixed credit adjustment of 0.10% over the applicable SOFR reference rate. Loans denominated in foreign currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the Amended Credit Agreement plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio plus, if applicable, certain mandatory costs. During the quarter ended September 30, 2024, our borrowings under the Amended Credit Agreement were U.S. dollar loans. 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. Specifically, our Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00 to 1.00 at the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. We were in compliance with all covenants under the credit facility 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 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. Summary 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 38 Table of Contents 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. Accounting Standards Recently Issued See Note 1 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effects on our consolidated financial position and results of operations. Critical Accounting Policies and Estimates Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. See Management's Discussion and Analysis of Financial Condition and Results from Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 for a complete discussion. 39 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk For a description of our market risks, see Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. No material changes have occurred to our market risks since June 30, 2024. 40 Table of Contents