What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2025-01-30 compared with 2024-11-07 · 192 added, 134 removed, 521 unchanged (38% of the section changed)

4 unchanged sentences

(In thousands, except share information)

September 30, 2024 June 30, 2024

December 31, 2024 June 30, 2024

Current assets:

Cash and cash equivalents $ 110,520 $ 185,460

Accounts receivable, less allowance of $ 22,721 at September 30, 2024

Accounts receivable, less allowance of $ 25,670 at December 31, 2024

and $ 20,684 at June 30, 2024

27 unchanged sentences

Common stock, no par value;

45,000,000 shares authorized, 24,005,107 and 24,243,848 shares issued and outstanding at September 30, 2024 and June 30, 2024, respectively

45,000,000 shares authorized, 23,612,543 and 24,243,848 shares issued and outstanding at December 31, 2024 and June 30, 2024, respectively

Retained earnings 1,031,934 1,013,738

8 unchanged sentences

(In thousands, except per share data)

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2024 2023 2024 2023

Net sales $ 747,497 $ 884,792 $ 1,523,077 $ 1,761,098

5 unchanged sentences

Restructuring expense 313 — 5,381 —

Change in fair value of contingent consideration 1,143 — 1,143 —

Operating income 18,444 26,826 36,074 50,911

1 unchanged sentence

Interest income ( 2,693 ) ( 2,119 ) ( 5,352 ) ( 3,444 )

Gain on sale of business — ( 14,533 ) — ( 14,533 )

Other (income) expense, net ( 543 ) 73 ( 5,325 ) 750

12 unchanged sentences

(In thousands)

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2024 2023 2024 2023

Net income $ 17,053 $ 32,726 $ 34,028 $ 48,158

Unrealized (loss) gain on hedged transaction, net of tax ( 1,050 ) 153

Unrealized gain (loss) on hedged transaction, net of tax 266 ( 1,547 ) ( 784 ) ( 1,395 )

Realized foreign currency on sale of business — ( 3,805 ) — ( 3,805 )

Foreign currency translation adjustment ( 18,744 ) 6,492 ( 14,635 ) ( 397 )

17 unchanged sentences

Balance at September 30, 2024 24,005,107 $ 2,975 $ 1,030,712 $ ( 112,794 ) $ 920,893

Net income — — 17,053 — 17,053

Unrealized gain on hedged transaction, net of tax — — — 266 266

Foreign currency translation adjustment — — — ( 18,744 ) ( 18,744 )

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 102,489 2,508 — — 2,508

Common stock repurchased, including excise tax ( 495,053 ) ( 8,504 ) ( 15,831 ) — ( 24,335 )

Share-based compensation — 3,021 — — 3,021

Balance at December 31, 2024 23,612,543 $ — $ 1,031,934 $ ( 131,272 ) $ 900,662

See accompanying notes to these condensed consolidated financial statements.

14 unchanged sentences

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

Net income — — 32,726 — 32,726

Unrealized loss on hedged transaction, net of tax — — — ( 1,547 ) ( 1,547 )

Foreign currency translation adjustment — — — 6,492 6,492

Realized foreign currency on sale of business — — — ( 3,805 ) ( 3,805 )

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 230,543 3,162 — — 3,162

Common stock repurchased, including excise tax ( 36,305 ) ( 1,251 ) — — ( 1,251 )

Share-based compensation — 2,571 — — 2,571

Balance at December 31, 2023 25,154,469 $ 63,983 $ 984,836 $ ( 95,218 ) $ 953,601

See accompanying notes to these condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Three months ended

September 30,

Six months ended

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Gain on sale of business — ( 14,533 )

Depreciation and amortization 15,603 14,475

3 unchanged sentences

Deferred income taxes 2,306 ( 1,703 )

Change in fair value of contingent consideration 1,143 —

Finance lease interest 48 46

11 unchanged sentences

Cash paid for business acquisitions, net of cash acquired ( 56,673 ) —

Net cash used in investing activities ( 59,224 ) ( 2,315 )

Proceeds from sale of business, net of cash transferred 2,569 17,978

Net cash (used in) provided by investing activities ( 58,452 ) 13,113

Cash flows from financing activities:

Borrowings on revolving credit, net of expenses 8,381 588,570

Repayments on revolving credit, net of expenses ( 8,430 ) ( 669,424 )

Borrowings on revolving credit 26,587 1,134,629

Repayments on revolving credit ( 26,636 ) ( 1,292,729 )

Repayments on long-term debt ( 4,107 ) ( 3,165 )

15 unchanged sentences

ScanSource, Inc.

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

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

(together with its subsidiaries referred to as “the Company” or “ScanSource”) is a leading hybrid distributor connecting devices to the cloud and acce lerating growth for channel partners across hardware, software as a service ("SaaS"), and connectivity and cloud services.

ScanSource uses multiple sales models to offer hybrid distribution solutions from leading suppliers of specialty technologies and connectivity and cloud services.

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

5 unchanged sentences

GAAP for annual financial statements.

The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at September 30, 2024 and June 30, 2024, the results of operations for the quarters ended September 30, 2024 and 2023, the condensed consolidated statements of comprehensive income for the quarters ended September 30, 2024 and 2023, the condensed consolidated statements of shareholders' equity for the quarters ended September 30, 2024 and 2023 and the condensed consolidated statements of cash flows for the quarters ended September 30, 2024 and 2023.

The results of operations for the quarter ended September 30, 2024 are not necessarily indicative of the results to be expected for a full year.

The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at December 31, 2024 and June 30, 2024, the results of operations for the quarters and six months ended December 31, 2024 and 2023, the condensed consolidated statements of comprehensive income for the quarters and six months ended December 31, 2024 and 2023, the condensed consolidated statements of shareholders' equity for the quarters and six months ended December 31, 2024 and 2023 and the condensed consolidated statements of cash flows for the six months ended December 31, 2024 and 2023.

The results of operations for the quarter and six months ended December 31, 2024 are not necessarily indicative of the results to be expected for a full year.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

10 unchanged sentences

Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies for the quarter ended September 30, 2024 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

There have been no material changes to the Company’s significant accounting policies for the six months ended December 31, 2024 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

For a discussion of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less, when purchased, to be cash equivalents.

T he Company considers all highly-liquid investments with original maturities of three months or less, when purchased, to be cash equivalents.

The Company maintains zero-balance disbursement accounts at various financial institutions at which the Company does not maintain significant depository relationships.

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

As a result, checks released but not yet cleared from these accounts in the amount of $ 0.3 million and $ 5.9 million are included in accounts payable on the condensed consolidated balance sheets at September 30, 2024 and June 30, 2024, respectively.

As a result, checks released but not yet cleared from these accounts in the amount of $ 0.1 million and $ 5.9 million are included in accounts payable on the condensed consolidated balance sheets at December 31, 2024 and June 30, 2024, respectively.

Long-lived Assets

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

The Company's depreciation expense related to selling, general and administrative costs totaled $ 2.9 million and $ 2.8 million for the quarters ended September 30, 2024 and September 30, 2023, respectively.

Depreciation expense reported as part of cost of goods sold on the condensed consolidated income statements totaled $ 0.3 million and $ 0.2 million for the quarters ended September 30, 2024 and September 30, 2023, respectively.

The Company's depreciation expense related to selling, general and administrative costs totaled $ 2.9 million and $ 5.8 million for the quarter and six months ended December 31, 2024, respectively, and $ 3.0 million and $ 5.8 million for the quarter and six months ended December 31, 2023, respectively.

Depreciation expense reported as part of cost of goods sold on the condensed consolidated income statements totaled $ 0.2 million and $ 0.5 million for the quarter and six months ended December 31, 2024, respectively, and $ 0.3 million and $ 0.5 million for the quarter and six months ended December 31, 2023, respectively.

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

Intangible amortization expense totaled $ 4.4 million and $ 4.2 million for the quarters ended September 30, 2024 and September 30, 2023, respectively.

Intangible amortization expense totaled $ 5.0 million and $ 9.4 million for the quarter and six months ended December 31, 2024, respectively, and $ 4.0 million and $ 8.2 million for the quarter and six months ended December 31, 2023, respectively.

Recent Accounting Pronouncements

20 unchanged sentences

Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including:

(i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by the Company 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.

(i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by the Company 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.

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

1 unchanged sentence

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

The changes in the allowance for doubtful accounts for the three months ended September 30, 2024 are set forth in the table below.

The changes in the allowance for doubtful accounts for the six months ended December 31, 2024 are set forth in the table below.

June 30, 2024 Amounts Charged to Expense Write-offs Other (1)

September 30, 2024

December 31, 2024

(in thousands)

Trade accounts and current notes receivable allowance $ 20,684 $ 5,925 $ ( 285 ) $ ( 654 ) $ 25,670

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the three months ended September 30, 2024.

(1) "Other" amounts include recoveries and the effect of foreign currency fluctuations for the six months ended December 31, 2024.

(3) Revenue Recognition

The Company provides technology solutions and services from the leading global suppliers of mobility, barcode, POS, payments, physical security, unified communications, collaboration, connectivity and cloud services.

The Company uses multiple sales models to offer hybrid distribution solutions from leading suppliers of specialty technologies and connectivity and cloud services.

This includes hardware, related accessories and device configuration as well as software licenses, professional services and hardware support programs.

28 unchanged sentences

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

Quarter ended September 30, 2024

Quarter ended December 31, 2024

Specialty Technology Solutions Intelisys & Advisory Total

5 unchanged sentences

$ 723,277 $ 24,220 $ 747,497

Quarter ended September 30, 2023

Six months ended December 31, 2024

Specialty Technology Solutions Intelisys & Advisory Total

6 unchanged sentences

(a) Recurring revenue represents revenue primarily from agency commissions, SaaS, subscriptions, and hardware rentals.

Quarter ended December 31, 2023

Specialty Technology Solutions Intelisys & Advisory Total

(in thousands)

Revenue by product/service

Products and services $ 856,116 $ 1,038 $ 857,154

Recurring revenue (a)

5,398 22,240 27,638

$ 861,514 $ 23,278 $ 884,792

Six months ended December 31, 2023

Specialty Technology Solutions Intelisys & Advisory Total

(in thousands)

Revenue by product/service:

Products and services $ 1,702,950 $ 1,878 $ 1,704,828

Recurring revenue (a)

12,514 43,756 56,270

$ 1,715,464 $ 45,634 $ 1,761,098

(a) Recurring revenue represents revenue primarily from agency commissions, SaaS, subscriptions, and hardware rentals.

(4) Earnings Per Share

1 unchanged sentence

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

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2024 2023 2024 2023

(in thousands, except per share data)

5 unchanged sentences

Net income per common share, diluted $ 0.70 $ 1.29 $ 1.39 $ 1.91

For the quarters ended September 30, 2024 and 2023, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 109,450 and 854,893 , respectively.

For the quarter and six months ended December 31, 2024, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 197,803 and 210,206 , respectively.

For the quarter and six months ended December 31, 2023, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 563,690 and 931,367 , respectively.

(5) Accumulated Other Comprehensive Loss

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

September 30, 2024 June 30, 2024

December 31, 2024 June 30, 2024

(in thousands)

2 unchanged sentences

Accumulated other comprehensive loss $ ( 131,272 ) $ ( 115,853 )

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

Quarter ended September 30,

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

Quarter ended December 31, Six months ended December 31,

2024 2023 2024 2023

(in thousands)

Tax benefit $ ( 363 ) $ ( 54 )

Tax expense (benefit) $ 157 $ ( 637 ) $ ( 206 ) $ ( 692 )

(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the three months ended September 30, 2024, by reporting segment, are set forth in the table below.

The changes in the carrying amount of goodwill for the six months ended December 31, 2024, by reporting segment, are set forth in the table below.

Specialty Technology Solutions Intelisys & Advisory Total

3 unchanged sentences

Foreign currency translation adjustment ( 1,224 ) 132 ( 1,092 )

Balance at September 30, 2024 $ 162,401 $ 70,455 $ 232,856

The following table shows changes in the amount recognized for net identifiable intangible assets for the three months ended September 30, 2024.

Balance at December 31, 2024 $ 158,273 $ 69,659 $ 227,932

The following table shows changes in the amount recognized for net identifiable intangible assets for the six months ended December 31, 2024.

Net Identifiable Intangible Assets

4 unchanged sentences

Foreign currency translation adjustment ( 84 )

Balance at September 30, 2024 $ 77,800

Balance at December 31, 2024 $ 72,691

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

The following table presents the Company’s debt at September 30, 2024 and June 30, 2024.

September 30, 2024 June 30, 2024

The following table presents the Company’s debt at December 31, 2024 and June 30, 2024.

December 31, 2024 June 30, 2024

(in thousands)

21 unchanged sentences

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

During the quarter ended September 30, 2024, all of the Company's borrowings under the Amended Credit Agreement were U.S.

During the quarter and six months ended December 31, 2024, all of the Company's borrowings under the Amended Credit Agreement were U.S.

dollar loans.

The spread in effect as of September 30, 2024 was 1.00 %, plus a 0.10 % credit spread adjustment 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 effective interest rates for the term loan were 5.95 % and 6.44 % as of September 30, 2024 and June 30, 2024, respectively.

The spread in effect as of December 31, 2024 was 1.00 %, plus a 0.10 % credit spread adjustment for SOFR-based loans and 0.00 % for alternate base rate loans.

The commitment fee rate in effect at December 31, 2024 was 0.15 %.

The effective interest rates for the term loan were 5.46 % and 6.44 % as of December 31, 2024 and June 30, 2024, respectively.

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

2 unchanged sentences

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

The Company was in compliance with all covenants under the Amended Credit Agreement at September 30, 2024.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the three month periods ended September 30, 2024 and 2023 was $ 144.0 million an d $ 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.

The Company was in compliance with all covenants under the Amended Credit Agreement at December 31, 2024.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the six month periods ended December 31, 2024 and 2023 was $ 0.3 million an d $ 138.7 million, respectively.

There was $ 350.0 million and $ 349.9 million available for additional borrowings as of December 31, 2024 and June 30, 2024, respectively.

The effective interest rates for the revolving line of credit were 5.63 % and 6.44 % as of December 31, 2024 and June 30, 2024, respectively.

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

Mississippi Revenue Bond

3 unchanged sentences

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

At September 30, 2024, the Company was in compliance with all covenants under this bond.

The interest rates at September 30, 2024 and June 30, 2024 were 6.15 % and 6.28 %, respectively.

At December 31, 2024, the Company was in compliance with all covenants under this bond.

The interest rates at December 31, 2024 and June 30, 2024 were 5.57 % and 6.28 %, respectively.

Debt Issuance Costs

At September 30, 2024, net debt issuance costs associated with the credit facility and bond totaled $ 1.1 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

At December 31, 2024, net debt issuance costs associated with the credit facility and bond totaled $ 1.0 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

(8) Derivatives and Hedging Activities

8 unchanged sentences

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

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 33.7 million and $ 27.5 million for the exchange of foreign currencies at September 30, 2024 and June 30, 2024, respectively.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $ 24.8 million and $ 27.5 million for the exchange of foreign currencies at December 31, 2024 and June 30, 2024, respectively.

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

Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures included in the Condensed Consolidated Income Statements for the quarters ended September 30, 2024 and 2023 are as follows:

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2024 2023 2024 2023

(in thousands)

Net foreign exchange derivative contract losses (gains) $ 941 $ ( 368 )

Net foreign currency transactional and re-measurement (gains) losses ( 607 ) 1,064

Net foreign currency exchange losses $ 334 $ 696

Net foreign exchange derivative contract (gains) losses $ ( 2,418 ) $ 1,025 $ ( 1,477 ) $ 658

Net foreign currency transactional and re-measurement losses (gains) 2,166 ( 596 ) 1,560 466

Net foreign currency exchange (gains) losses $ ( 252 ) $ 429 $ 83 $ 1,124

Net foreign currency exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses and are included in other income and expense.

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

Foreign exchange gains and losses are primarily generated 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.

7 unchanged sentences

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

There was no ineffective portion to be recorded as an adjustment to earnings for the quarters ended September 30, 2024 and 2023.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters ended September 30, 2024 and 2023, are as follows:

Quarter ended

September 30,

ineffective portion to be recorded as an adjustment to earnings for the quarters and six months ended December 31, 2024 and 2023.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters and six months ended December 31, 2024 and 2023, are as follows:

Quarter ended Six months ended

December 31, December 31,

2024 2023 2024 2023

(in thousands)

Net interest income recognized as a result of interest rate swap $ ( 391 ) $ ( 903 ) $ ( 900 ) $ ( 1,781 )

Unrealized (loss) gain in fair value of interest rate swap ( 885 ) 974

Net (decrease) increase in accumulated other comprehensive income ( 1,393 ) 215

Unrealized gain (loss) in fair value of interest rate swap 745 ( 1,165 ) ( 139 ) ( 72 )

Net increase (decrease) in accumulated other comprehensive income 354 ( 2,068 ) ( 1,039 ) ( 1,853 )

Income tax effect 87 ( 521 ) ( 256 ) ( 458 )

Net (decrease) increase in accumulated other comprehensive income, net of tax $ ( 1,050 ) $ 153

The Company used the following derivative instruments at September 30, 2024 and June 30, 2024, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

September 30, 2024 June 30, 2024

Net increase (decrease) in accumulated other comprehensive income, net of tax $ 267 $ ( 1,547 ) $ ( 783 ) $ ( 1,395 )

The Company used the following derivative instruments at December 31, 2024 and June 30, 2024, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

December 31, 2024 June 30, 2024

Balance Sheet Location Fair Value of

5 unchanged sentences

Derivative assets:

Foreign exchange contracts Prepaid expenses and other current assets — $ 17 — —

Foreign currency hedge Prepaid expenses and other current assets $ 30 $ — $ 345 $ —

2 unchanged sentences

Foreign exchange contracts Accrued expenses and other current liabilities $ — $ 24 $ — $ 12

Foreign currency hedge Accrued expenses and other current liabilities $ 53 — — —

(9) Fair Value of Financial Instruments

4 unchanged sentences

• Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The assets and liabilities maintained by the Company that are required to be measured at fair value on a recurring basis include deferred compensation plan investments, forward foreign currency exchange contracts, foreign currency hedge agreements, interest rate swap agreements and contingent consideration owed to the sellers of Advantix Solutions Group, Inc ("Advantix") and Secure Path Networks, LLC dba Resourcive ("Resourcive").

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

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at September 30, 2024:

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at December 31, 2024:

(Level 1) Significant

2 unchanged sentences

Deferred compensation plan investments, current and non-current $ 31,852 $ 31,852 $ — $ —

Forward foreign currency exchange contracts 17 — 17 —

Interest rate swap agreement 1,658 — 1,658 —

Foreign currency hedge 30 — 30 —

Total assets at fair value $ 33,540 $ 31,852 $ 1,688 $ —

Deferred compensation plan investments, current and non-current $ 31,793 $ 31,793 $ — $ —

Foreign currency hedge 53 — 53 —

Forward foreign currency exchange contracts 24 — 24 —

Liability for contingent consideration, current and non-current 18,343 — — 18,343

11 unchanged sentences

Total liabilities at fair value $ 31,026 $ 31,014 $ 12 $ —

The investments in the deferred compensation plan are held in a "rabbi trust" and include mutual funds and cash equivalents for payment of non-qualified benefits for certain retired, terminated and active employees.

The investments in the deferred compensation plan are held in a "rabbi trust" and include securities and cash equivalents for payment of non-qualified benefits for certain retired, terminated and active employees.

These investments are recorded to prepaid expenses and other current assets or other non-current assets depending on their corresponding, anticipated distribution dates to recipients, which are reported in accrued expenses and other current liabilities or other long-term liabilities, respectively.

4 unchanged sentences

The Company recorded a contingent consideration liability at the acquisition date of both Advantix and Resourcive.

These liabilities represent the amounts payable to former owners, as outlined under the terms of the asset purchase agreements, based upon the achievement of a projected earnings before interest expense, taxes, depreciation and amortization, net of specific pro forma adjustments.

These liabilities represent the amounts payable to sellers, as outlined under the terms of the asset purchase agreements, based upon the achievement of a projected earnings before interest expense, taxes, depreciation and amortization, net of specific pro forma adjustments.

The following tables represent the Company's contingent consideration liabilities at fair value at December 31, 2024:

Quarter ended December 31, 2024

Specialty Technology Solutions Intelisys & Advisory Total

(in thousands)

Fair value at beginning of period $ 7,500 $ 9,700 $ 17,200

Change in fair value of contingent consideration 473 670 1,143

Fair value at end of period $ 7,973 $ 10,370 $ 18,343

Six months ended December 31, 2024

Specialty Technology Solutions Intelisys & Advisory Total

(in thousands)

Fair value at beginning of period $ — $ — $ —

Issuance of contingent consideration 7,500 9,700 17,200

Change in fair value of contingent consideration 473 670 1,143

Fair value at end of period $ 7,973 $ 10,370 $ 18,343

The fair values of amounts owed are recorded in current portion of contingent consideration and long-term portion of contingent consideration in the Company’s Condensed Consolidated Balance Sheets.

3 unchanged sentences

• a risk premium reflective of the Company’s creditworthiness and market risk premium associated with the United States markets.

Advantix Solutions Group, Inc ("Advantix") is part of the Specialty Technology Solutions segment.

Advantix is part of the Specialty Technology Solutions segment.

The fair value of the contingent consideration is determined using a static discounted cash flow model.

The fair value of the liability for the contingent consideration related to Advantix recognized at September 30, 2024 was $ 7.5 million, of which $ 1.9 million is classified as current.

The fair value at September 30, 2024 approximated the fair value recognized upon acquisition in August 2024, as such no change in fair value of contingent consideration was recognized in the Condensed Consolidated Income Statements.

Earnout payments to the former owners of Advantix are payable based on results from fiscal year 2025 to fiscal year 2028.

Secure Path Networks, LLC dba Resourcive ("Resourcive") is part of the Intelisys & Advisory segment.

The fair value of the liability for the contingent consideration related to Advantix recognized at December 31, 2024 was $ 8.0 million, of which $ 2.0 million is classified as current.

The change in fair value for the quarter ended December 31, 2024 is primarily due to the recurring amortization of the unrecognized fair value discount.

Earnout payments to the sellers of Advantix are payable based on results from fiscal year 2025 to fiscal year 2028.

Resourcive is part of the Intelisys & Advisory segment.

The fair value of the contingent consideration for Resourcive is determined using a Monte Carlo simulation.

The fair value of the liability for the contingent consideration related to Resourcive recognized at September 30, 2024 was $ 9.7 million, all of which is classified as non-current and is due to the former owners of Resourcive during fiscal year 2027.

Valuation techniques and significant observable inputs used in recurring Level 3 fair value measurements for the Company's contingent consideration liabilities related to Advantix and Resourcive at September 30, 2024 were as follows.

The fair value of the liability for the contingent consideration related to Resourcive recognized at December 31, 2024 was $ 10.4 million, all of which is classified as non-current and is due to the sellers of Resourcive during fiscal year 2027.

The change in fair value for the quarter ended December 31, 2024 is primarily due to the recurring amortization of the unrecognized fair value discount.

Acquisition Reporting Period Valuation Technique Significant Unobservable Inputs Weighted Average Rates

Advantix September 30, 2024 Discounted cash flow Adjusted EBITDA risk premium 15.7 %

Advantix December 31, 2024 Discounted cash flow Adjusted EBITDA risk premium 15.7 %

Adjusted EBITDA growth rate 19.8 %

Resourcive September 30, 2024 Monte Carlo Adjusted EBITDA risk premium 13.6 %

Resourcive December 31, 2024 Monte Carlo Adjusted EBITDA risk premium 13.7 %

Simulated commission growth percentage 23.0 %

6 unchanged sentences

• Mobility and barcode solutions - mobile computing, barcode scanners and imagers, radio frequency identification devices, barcode printing and related services, wireless enablement and connectivity tools;

• POS and payments solutions - POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals and mobile payment devices;

• Point-of-Sale "POS" and payments solutions - POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals and mobile payment devices;

• Security solutions - video surveillance and analytics, video management software and access control;

6 unchanged sentences

Selected financial information for each business segment is presented below:

Quarter ended

September 30,

Quarter ended Six months ended

December 31, December 31,

2024 2023 2024 2023

(in thousands)

22 unchanged sentences

$ 747,497 $ 884,792 $ 1,523,077 $ 1,761,098

(a) For the quarter ended September 30, 2024, the amounts shown above include restructuring expense, acquisition and divestiture expenses as well as cyberattack restoration costs.

For the quarter ended September 30, 2023, the amounts above include cyberattack restoration costs.

(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.

September 30, 2024 June 30, 2024

(a) For the quarter and six months ended December 31, 2024, the amounts shown above include restructuring expense, acquisition and divestiture, cyberattack restoration costs as well as legal settlement.

For the quarter and six months ended December 31, 2023, the amounts above include acquisition and divestiture costs as well as cyberattack restoration costs.

(b) Countries outside of Brazil represent $ 0.1 million, or 0.2 % of sales, and $ 0.2 million or 0.2 % of sales, for the quarter and six months ended December 31, 2024.

Countries outside of Brazil represent $ 1.8 million, or 2.0 % of sales, and $ 4.2 million, or 2.4 % of sales, for the quarter and six months ended December 31, 2023.

December 31, 2024 June 30, 2024

(in thousands)

6 unchanged sentences

$ 30,152 $ 33,501

In accordance with Accounting Standards Codification ("ASC") 842, at contract inception the Company determines if a contract contains a lease by assessing whether the contract contains an identified asset and whether the Company has the ability to

control the asset.

The Company also determines if the lease meets the classification criteria for an operating lease versus a finance lease under ASC 842.

4 unchanged sentences

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

The gross amount of the balances recorded related to finance leases is immaterial to the condensed consolidated financial statements at September 30, 2024 and the consolidated financial statements at June 30, 2024.

The gross amount of the balances recorded related to finance leases is immaterial to the condensed consolidated financial statements at December 31, 2024 and the consolidated financial statements at June 30, 2024.

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

5 unchanged sentences

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

The following table presents amounts recorded on the Condensed Consolidated Balance Sheets related to operating leases at September 30, 2024 and June 30, 2024:

September 30, 2024 June 30, 2024

The following table presents amounts recorded on the Condensed Consolidated Balance Sheets related to operating leases at December 31, 2024 and June 30, 2024:

December 31, 2024 June 30, 2024

Operating leases Balance Sheet location (in thousands)

2 unchanged sentences

Long-term operating lease liabilities Other long-term liabilities $ 6,572 $ 6,507

The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed Consolidated Income Statements during the quarters ended September 30, 2024 and 2023.

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

Quarter ended September 30,

Quarter ended December 31, Six months ended December 31,

2024 2023 2024 2023

(in thousands)

2 unchanged sentences

$ 1,437 $ 1,756 $ 2,889 $ 3,348

Supplemental cash flow information related to the Company's operating leases for the three months ended September 30, 2024 and 2023 are presented in the table below:

Quarter ended September 30,

Supplemental cash flow information related to the Company's operating leases for the six months ended December 31, 2024 and 2023 are presented in the table below:

Six months ended December 31,

(in thousands)

1 unchanged sentence

Right-of-use assets obtained in exchange for lease obligations 499 232

The weighted-average remaining lease term and discount rate at September 30, 2024 are presented in the table below:

September 30, 2024

The weighted-average remaining lease term and discount rate at December 31, 2024 are presented in the table below:

December 31, 2024

Weighted-average remaining lease term 2.93 years

Weighted-average discount rate 5.09 %

The following table presents the maturities of the Company's operating lease liabilities at September 30, 2024:

The following table presents the maturities of the Company's operating lease liabilities at December 31, 2024:

Operating leases

9 unchanged sentences

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

The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $ 3.4 million and $ 3.2 million at September 30, 2024 and June 30, 2024.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets at September 30, 2024 and June 30, 2024:

September 30, 2024 June 30, 2024

The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $ 2.9 million and $ 3.2 million at December 31, 2024 and June 30, 2024, respectively.

December 31, 2024 June 30, 2024

(in thousands)

4 unchanged sentences

(13) Income Taxes

Income taxes for the quarters ended September 30, 2024 and 2023 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate.

Income taxes for the quarters and six months ended December 31, 2024 and 2023 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate.

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

During the quarter ended September 30, 2024, a discrete net tax benefit of $ 0.8 million was recorded, which is attributable to stock compensation.

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

The Company’s effective tax rate of 26.1 % for the quarter ended September 30, 2024, differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, discrete items, nondeductible expenses and state income taxes.

The Company's effective tax rate was 19.4 % for the quarter ended September 30, 2023.

As of September 30, 2024, the Company is not permanently reinvested with respect to all earnings generated by foreign operations.

During the quarter ended December 31, 2024, a discrete net tax benefit of $ 3.0 million was recorded, which is attributable to a reduction in the Company's prior-year transition tax liability, a notional interest deduction on the net equity of the Company's Brazilian subsidiary, and stock compensation.

During the quarter ended December 31, 2023, a discrete net tax benefit of $ 3.8 million was recorded, which is primarily attributable to the sale of the UK-based intY.

The Company’s effective tax rate of 13.5 % and 20.3 % for the quarter and six months ended December 31, 2024, respectively, differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, discrete items, nondeductible expenses and state income taxes.

The Company's effective tax rate was 18.3 % and 18.6 % for the quarter and six months ended December 31, 2023, respectively.

As of December 31, 2024, the Company is not permanently reinvested with respect to all earnings generated by foreign operations.

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

During the three months ended September 30, 2024, foreign subsidiaries did not repatriate cash to the United States.

During the quarter ended December 31, 2024, foreign subsidiaries repatriated cash of $ 3.5 million to the United States.

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

in whole or in part.

The Company had approximately $ 1.1 million of total gross unrecognized tax benefits at September 30, 2024 and June 30, 2024.

Of this total at September 30, 2024, approximately $ 0.9 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.

The Company had approximately $ 1.2 million and $ 1.1 million of total gross unrecognized tax benefits at December 31, 2024 and June 30, 2024, respectively.

Of this total at December 31, 2024, approximately $ 0.9 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.

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

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

At September 30, 2024 and June 30, 2024, the Company had approximately $ 1.3 million accrued for interest and penalties.

At December 31, 2024 and June 30, 2024, the Company had approximately $ 1.3 million accrued for interest and penalties.

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

5 unchanged sentences

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

The actions taken in January 2024 and September 2024 are expected to result in approximately $ 10.0 million and $ 10.5 million in annualized savings in selling, general and administrative expenses, respectively.

The following table presents the restructuring and employee separation costs incurred for the quarters ended September 30, 2024 and 2023:

Quarter ended September 30,

The following table presents the restructuring and employee separation costs incurred for the quarter and six months ended December 31, 2024:

Quarter ended December 31, 2024 Six months ended December 31, 2024

(in thousands)

Employee separation and benefit costs $ 313 5,381

For the quarter ended September 30, 2024, all restructuring costs are recognized in the Corporate reporting unit and have not been allocated to the Specialty Technology Solutions or Intelisys & Advisory segments.

For the quarter and six months ended December 31, 2024, all restructuring costs are recognized in the Corporate reporting unit and have not been allocated to the Specialty Technology Solutions or Intelisys & Advisory segments.

Accrued restructuring costs are included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

The following table represents activity for the three months ended September 30, 2024:

The following table represents activity for the six months ended December 31, 2024:

Accrued Expenses

3 unchanged sentences

Cash payments ( 4,288 )

Balance at September 30, 2024 $ 4,619

The remaining balance as of September 30, 2024 of $ 4.6 million is expected to be paid through the third quarter of fiscal year 2027.

Balance at December 31, 2024

The remaining balance as of December 31, 2024 of $ 2.7 million is expected to be paid through the third quarter of fiscal year 2027.

(15) Acquisitions

On August 8, 2024, ScanSource acquired Resourcive, a leading technology advisor.

On August 8, 2024, ScanSource acquired substantially all of the assets of Resourcive, a leading technology advisor, through its subsidiary ScanSource Agency, Inc.

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 , ScanSource acquired Advantix, a VAR-focused, managed connectivity experience provider specializing in wireless enablement solutions.

On August 15, 2024, ScanSource acquired, through its subsidiary Advantix ScanSource, LLC, substantially all of the assets of Advantix, a managed connectivity experience provider specializing in wireless enablement solutions.

The combined initial purchase price of these acquisitions, net of cash acquired, was approximately $ 56.7 million.

The Advantix acquisition is included in the Specialty Technology Solutions segment, and the Resourcive acquisition is included in the Intelisys & Advisory segment.

Both acquisitions included future earnout payments, and the Company recorded contingent consideration liabilities at the acquisition dates representing the fair value of estimated amounts payable to former owners.

See Note 9 - Fair Value of Financial Instruments for the related disclosures regarding the contingent consideration liabilities recognized in connection with these acquisitions.

4 unchanged sentences

The impact of these acquisitions was not material to the consolidated financial statements.

The Company recognized $ 0.4 million for the quarter ended September 30, 2024 in acquisition-related costs included in selling, general and administrative expenses on the Condensed Consolidated Income Statements.

The Company recognized $ 0.2 million and $ 0.6 million for the quarter and six months ended December 31, 2024, respectively, in acquisition-related costs included in selling, general and administrative expenses on the Condensed Consolidated Income Statements.

(16) Business Sale

3 unchanged sentences

The business sale resulted in a $ 14.2 million gain on sale after considering the net assets sold.

During the quarter December 31, 2024, $ 2.6 million in cash was released from escrow related to the sale of intY.

The impact of this sale was not material to the consolidated financial statements.

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

What changed 10-Q

Item 1. Financial Statements