What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-01-30 compared with 2024-11-07 · 287 added, 99 removed, 282 unchanged (58% 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 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.

ScanSource is a leading hybrid distributor connecting devices to the cloud and accelerating growth for customers and 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.

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

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• 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 offer hardware, SaaS, and connectivity and cloud services from leading technology suppliers to customers and channel partners enabling solutions for 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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Recent Developments

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

On August 8, 2024, we completed the acquisition of substantially all of the assets of Secure Path Networks, LLC doing business as Resourcive ("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.

On August 15, 2024, we completed the acquisition of substantially all of the assets of Advantix Solutions Group, Inc.

("Advantix"), a 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.

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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.

Our hybrid distribution strategy utilizes multiple sales models to offer hardware, SaaS, and 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.

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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.

We have plans to continuing expanding our investments in the agency channel in the near term.

Results of Operations

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)

The following tables summarize our net sales results by operating segment and by geographic location for the quarters and six months ended December 31, 2024 and 2023:

Quarter ended December 31, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

Net Sales by Segment:

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Total net sales $ 747,497 $ 884,792 $ (137,295) (15.5) % (15.1) %

Six months ended December 31, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

2024 2023 $ Change % Change

(in thousands)

Specialty Technology Solutions $ 1,475,576 $ 1,715,464 $ (239,888) (14.0) % (13.3) %

Intelisys & Advisory 47,501 45,634 1,867 4.1 % (0.9) %

Total net sales $ 1,523,077 $ 1,761,098 $ (238,021) (13.5) % (12.9) %

(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.

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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.

For the quarter and six months ended December 31, 2024, net sales decreased $138.2 million, or 16.0%, and $239.9 million, or 14.0%, respectively, compared to the prior-year period.

Excluding the impact from foreign exchange rate fluctuations and the impact of divestitures and acquisitions, adjusted net sales decreased $132.7 million , or 15.4%, and $226.9 million, or 13.3%, for the quarter and six months ended December 31, 2024, respectively, compared to the prior-year periods.

The decrease in net sales and adjusted net sales for the quarter is primarily due to lower large deals and 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)

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

For the quarter ended December 31, 2024, net sales increased $0.9 million, or 4.0% compared to the prior-year period.

Excluding the impact from foreign exchange rate fluctuations and the impact of acquisitions, adjusted net sales decreased $0.7 million, or 3.2%.

For the six months ended December 31, 2024, net sales increased $1.9 million, or 4.1%, compared to the prior-year period.

Excluding the impact from foreign exchange rate fluctuations and the impact of acquisitions, adjusted net sales decreased $0.4 million, or 0.9% for the six months ende d December 31, 2024.

The increase in net sales for the quarter and six months ended December 31, 2024 reflects the addition of an acquisition.

The slight decrease in adjusted net sales for the quarter and six months is primarily due to lower Intelisys net sales.

Quarterly net billings for Intelisys increased 5.0% over the prior-year quarter to bring annualized net billings to approximately $2.77 billion.

Quarter ended December 31, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

Net Sales by Geography:

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Total net sales $ 747,497 $ 884,792 $ (137,295) (15.5) % (15.1) %

Six months ended December 31, % Change, Constant Currency, Excluding Divestitures and Acquisitions (a)

2024 2023 $ Change % Change

(in thousands)

United States and Canada $ 1,399,130 $ 1,586,384 $ (187,254) (11.8) % (12.6) %

123,947 174,714 (50,767) (29.1) % (16.0) %

Total net sales $ 1,523,077 $ 1,761,098 $ (238,021) (13.5) % (12.9) %

(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.

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,

(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, respectively.

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, respectively.

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

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

2024 2023 $ Change % Change 2024 2023

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Gross profit $ 101,723 $ 100,748 $ 975 1.0 % 13.6 % 11.4 %

Six months ended December 31, % of Net Sales December 31,

2024 2023 $ Change % Change 2024 2023

(in thousands)

Specialty Technology Solutions $ 156,221 $ 161,854 $ (5,633) (3.5) % 10.6 % 9.4 %

Intelisys & Advisory 47,121 45,402 1,719 3.8 % 99.2 % 99.5 %

Gross profit $ 203,342 $ 207,256 $ (3,914) (1.9) % 13.4 % 11.8 %

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

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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.

For the quarter ended December 31, 2024, gross profit dollars for the Specialty Technology Solutions segment increased $0.2 million, or 0.2%, compared to the prior-year quarter.

A more favorable sales mix positively impacted gross profit by $12.6 million, offsetting lower sales volumes of $12.4 million.

Gross profit margin increased 175 basis points over the prior-year quarter to 10.8%.

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

For the six months ended December 31, 2024, gross profit dollars decreased $5.6 million, or 3.5%, compared to the prior-year period.

Lower sales volume, after considering the associated cost of goods sold, reduced gross profit dollars by $22.6 million.

Gross profit margin increased 115 basis points year-over-year to 10.6%.

Gross margin mix positively impacted gross profit by $17.0 million largely due to favorable sales mix and higher vendor program recognition.

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%.

For the quarter ended December 31, 2024, gross profit dollars for the Intelisys & Advisory segment increased $0.8 million, or 3.5%, compared to the prior-year quarter.

Higher sales volume, largely due to the impact of our Advisory business, increased gross profit for the quarter.

Gross profit margin decreased 56 basis points compared to the prior-year quarter to 98.9%, reflecting the addition of professional services to the sale mix.

For the six months ended December 31, 2024, gross profit dollars increased $1.7 million, or 3.8%, compared to the prior-year period.

Higher sales volume, largely due to the recent Resourcive acquisition, increased gross profit for the six-month period.

Gross profit margin decreased 29 basis points compared to the prior-year six-month period to 99.2%, reflecting the addition of professional services to the sales mix.

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,

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

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

2024 2023 $ Change % Change 2024 2023

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Restructuring and other charges 313 — 313 100.0 % 0.0 % 0.0 %

Change in fair value of contingent consideration 1,143 — 1,143 *nm 0.2 % 0.0 %

Operating expenses $ 83,279 $ 73,922 $ 9,357 12.7 % 11.1 % 8.4 %

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.

Six months ended December 31, % of Net Sales December 31,

2024 2023 $ Change % Change 2024 2023

(in thousands)

Selling, general and administrative expenses $ 145,626 $ 142,356 $ 3,270 2.3 % 9.6 % 8.1 %

Depreciation expense 5,759 5,759 — 0.0 % 0.4 % 0.3 %

Intangible amortization expense 9,359 8,230 1,129 13.7 % 0.6 % 0.5 %

Restructuring and other charges 5,381 — 5,381 100.0 % 0.4 % 0.0 %

Change in fair value of contingent consideration 1,143 — 1,143 *nm 0.1 % 0.0 %

Operating expenses $ 167,268 $ 156,345 $ 10,923 7.0 % 11.0 % 8.9 %

Selling, general and administrative expenses (“SG&A”) increased by $7.0 million, or 10.5%, and $3.3 million, or 2.3% for the quarter and six months ended December 31, 2024, respectively compared to the prior-year periods.

The increase for the quarter ended and six-month period is primarily attributable to increased customer specific bad debt expense in the United States and Canada, as well as higher costs related to recent acquisitions.

Restructuring and other charges incurred of $0.3 million and $5.4 million during the quarter and six months ended December 31, 2024, respectively, related to employee separation and benefit costs in connection with our expense reduction and restructuring plans implemented during the current fiscal year.

The increase in amortization expense of $1.0 million and $1.1 million during the quarter and six months ended December 31, 2024, respectively, is largely due to intangible assets acquired in our recent acquisitions of Advantix and Resourcive.

We present changes in fair value of the contingent consideration owed to the former shareholders of businesses that we acquire as a separate line item in operating expenses.

We recorded a fair value adjustment expense of $1.1 million in the quarter ended December 31, 2024.

The expense from change in fair value of contingent consideration for the quarter and six months is largely due to the recurring amortization of the unrecognized fair value discount.

Operating Income

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,

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

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

2024 2023 $ Change % Change 2024 2023

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Operating income $ 18,444 $ 26,826 $ (8,382) (31.2) % 2.5 % 3.0 %

Six months ended December 31, % of Net Sales December 31,

2024 2023 $ Change % Change 2024 2023

(in thousands)

Specialty Technology Solutions $ 30,816 $ 37,333 $ (6,517) (17.5) % 2.1 % 2.2 %

Intelisys & Advisory 12,853 14,921 (2,068) (13.9) % 27.1 % 32.7 %

Corporate (7,595) (1,343) (6,252) nm* nm* nm*

Operating income $ 36,074 $ 50,911 $ (14,837) (29.1) % 2.4 % 2.9 %

*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.

For the Specialty Technology Solutions segment, operating income decreased $5.6 million, or 28.5%, and $6.5 million, or 17.5%, respectively, for the quarter and six months ended December 31, 2024 , respectively, compared to the prior-year periods.

Operating margin was at 1.9% and 2.1% for the quarter and six months ended December 31, 2024, respectively.

The decrease in operating income for the quarter is primarily due to higher bad debt expense.

The decrease in operating income for the six month period is primarily due to lower gross profits from lower sales volumes.

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.

For the Intelisys & Advisory segment, operating income decreased $1.8 million, or 22.2%, and $2.1 million, or 13.9%, respectively, for the quarter and six months ended December 31, 2024, respectively, compared to the prior-year periods.

Operating margin decreased to 26.6% and 27.1% for the quarter and six months ended December 31, 2024, respectively.

The decrease in the quarter and six-month comparative periods is primarily driven by higher employee costs and expense related to the change in fair value of contingent consideration.

For the quarter and six months ended December 31, 2024, Corporate operating losses of $2.1 million and $7.6 million, respectively, represent restructuring, acquisition-related costs and a legal settlement incurred in December 2024.

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,

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

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

2024 2023 $ Change % Change 2024 2023

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Net foreign exchange losses (252) 429 (681) (158.7) % (0.0) % 0.0 %

Gain on sale of business — (14,533) 14,533 nm* — % (1.6) %

Other, net (291) (356) 65 (18.3) % (0.0) % (0.0) %

Total other (income) expense, net $ (1,266) $ (13,220) $ 11,954 (90.4) % (0.2) % (1.5) %

Six months ended December 31, % of Net Sales December 31,

2024 2023 $ Change % Change 2024 2023

(in thousands)

Interest expense $ 4,078 $ 8,945 $ (4,867) (54.4) % 0.3 % 0.5 %

Interest income (5,352) (3,444) (1,908) 55.4 % (0.4) % (0.2) %

Net foreign exchange losses 83 1,124 (1,041) (92.6) % 0.0 % 0.1 %

Gain on sale of business — (14,533) 14,533 nm* — % (0.8) %

Other, net (5,408) (374) (5,034) nm* (0.4) % (0.0) %

2 unchanged sentences

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.

Interest expense decreased for the quarter and six months ended December 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 six months ended December 31, 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 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.

For the quarter and six months ended December 31, 2024, we recognized a gain of $0.3 million and $5.4 million, respectively primarily 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.

For the quarter and six months ended December 31, 2024, income tax expense was $2.7 million and $8.6 million, respectively, reflecting an effective tax rate of 13.5% and 20.3%.

In comparison, for the quarter and six months ended December 31, 2023, income tax expense was $7.3 million and $11.0 million reflecting an effective tax rate of 18.3% and 18.6%, respectively.

The decrease in the effective tax rate for the quarter is primarily due to discrete items.

We expect the effective tax rate, excluding discrete items, for fiscal year 2025 to be approximately 28.5% to 29.5%.

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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,

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

Quarter ended December 31,

Adjusted return on invested capital ratio, annualized (a)

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

Quarter ended September 30,

Quarter ended December 31,

(in thousands)

5 unchanged sentences

EBITDA (non-GAAP) 29,812 50,663

Change in fair value of contingent consideration 1,143 —

Share-based compensation 3,021 2,571

2 unchanged sentences

Restructuring costs 313 —

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

Legal settlement 1,579 —

Tax recovery (750) (1,386)

Gain on sale of business — (14,533)

Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) $ 35,299 $ 38,459

Quarter ended September 30,

Quarter ended December 31,

(in thousands)

2 unchanged sentences

Equity – end of the quarter 900,662 953,601

Change in fair value of contingent consideration, net of tax 861 —

Share-based compensation, net 2,271 1,919

Cyberattack restoration costs, net 57 150

Acquisition and divestiture costs (a)

Cyberattack restoration costs, net 23 329

Restructuring, net 236 —

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

Legal settlement 1,189 —

Tax recovery, net (2,560) (640)

Gain on sale of business — (14,533)

Average equity 911,863 928,316

13 unchanged sentences

Net Sales by Segment:

Quarter ended September 30,

Quarter ended December 31,

2024 2023 $ Change % Change

18 unchanged sentences

(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.

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

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

Net Sales by Segment:

Six months ended December 31,

2024 2023 $ Change % Change

Specialty Technology Solutions (in thousands)

Net sales, reported $ 1,475,576 $ 1,715,464 $ (239,888) (14.0) %

Foreign exchange impact (a)

Divestitures (4,019)

Acquisitions (10,399) —

Non-GAAP net sales $ 1,484,545 $ 1,711,445 $ (226,900) (13.3) %

Intelisys & Advisory

Net sales, reported $ 47,501 $ 45,634 $ 1,867 4.1 %

Foreign exchange impact (a)

Divestitures — —

Acquisitions (2,262) —

Non-GAAP net sales $ 45,231 $ 45,634 $ (403) (0.9) %

Consolidated:

Net sales, reported $ 1,523,077 $ 1,761,098 $ (238,021) (13.5) %

Foreign exchange impact (a)

Divestitures — (4,019)

Acquisitions (12,661) —

Non-GAAP net sales $ 1,529,776 $ 1,757,079 $ (227,303) (12.9) %

(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 six months ended December 31, 2024 into U.S.

dollars using the average foreign exchange rates for the six months ended December 31, 2023.

Net Sales by Geography:

Quarter ended September 30,

Quarter ended December 31,

2024 2023 $ Change % Change

16 unchanged sentences

Non-GAAP net sales, constant currency $ 749,642 $ 883,055 $ (133,413) (15.1) %

(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.

(a) Countries outside of Brazil represent $0.1 million, or 0.2% of sales, for the quarter ended December 31, 2024 and $1.8 million, or 2.0% of sales, for the quarter ended December 31, 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.

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

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

Six months ended December 31,

2024 2023 $ Change % Change

United States and Canada:

(in thousands)

Net sales, as reported $ 1,399,130 $ 1,586,384 $ (187,254) (11.8) %

Acquisitions (12,661) —

1,386,469 1,586,384

Net sales, reported (a)

$ 123,947 $ 174,714 $ (50,767) (29.1) %

Foreign exchange impact (b)

Divestitures — (4,019)

Non-GAAP net sales $ 143,307 $ 170,695 $ (27,388) (16.0) %

Consolidated:

Net sales, reported $ 1,523,077 $ 1,761,098 $ (238,021) (13.5) %

Foreign exchange impact (b)

Divestitures — (4,019)

Acquisitions (12,661) —

Non-GAAP net sales $ 1,529,776 $ 1,757,079 $ (227,303) (12.9) %

(a) Countries outside of Brazil represent $0.2 million, or 0.2% of sales, for the six months ended December 31, 2024 and $4.2 million, or 2.4% of sales, for the six months ended December 31, 2023.

(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 six months ended December 31, 2024 into U.S.

dollars using the average foreign exchange rates for the six months ended December 31, 2023.

Operating Income by Segment:

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

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

2024 2023 $ Change % Change 2024 2023

3 unchanged sentences

Amortization of intangible assets 2,740 2,119 621

Restructuring costs — — —

Change in fair value of contingent consideration 473 — 473

Tax recovery, net (750) (1,386) 636

Non-GAAP operating income $ 16,540 $ 20,429 $ (3,889) (19.0) % 2.3 % 2.4 %

2 unchanged sentences

Amortization of intangible assets 2,261 1,918 343

Restructuring costs — — —

Change in fair value of contingent consideration 670 — 670

Non-GAAP operating income $ 9,371 $ 10,192 $ (821) (8.1) % 38.7 % 43.8 %

3 unchanged sentences

Cyberattack restoration costs 30 441 (411)

Legal settlement 1,579 — 1,579

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

2 unchanged sentences

Amortization of intangible assets 5,001 4,037 964

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

Tax recovery (a)

(750) (1,386) 636

Acquisition and divestiture costs 151 703 (552)

1 unchanged sentence

Cyberattack restoration costs 30 441 (411)

Legal settlement 1,579 — 1,579

Non-GAAP operating income $ 25,911 $ 30,621 $ (4,710) (15.4) % 3.5 % 3.5 %

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

Operating Income by Segment:

Six months ended December 31, % of Net Sales December 31,

2024 2023 $ Change % Change 2024 2023

Specialty Technology Solutions:

(in thousands)

GAAP operating income $ 30,816 $ 37,333 $ (6,517) (17.5) % 2.1 % 2.2 %

Amortization of intangible assets 5,016 4,396 620

Change in fair value of contingent consideration 473 — 473

Tax recovery (a)

(750) (1,386) 636

Non-GAAP operating income $ 35,555 $ 40,343 $ (4,788) (11.9) % 2.4 % 2.4 %

Intelisys & Advisory:

GAAP operating income $ 12,853 $ 14,921 $ (2,068) (13.9) % 27.1 % 32.7 %

Amortization of intangible assets 4,343 3,834 509

Change in fair value of contingent consideration 670 — 670

Non-GAAP operating income $ 17,866 $ 18,755 $ (889) (4.7) % 37.6 % 41.1 %

GAAP operating loss $ (7,595) $ (1,343) $ (6,252) nm* nm* nm*

Cyberattack restoration costs 106 640 (534)

Acquisition and divestiture costs 529 703 (174)

Restructuring costs 5,381 — 5,381

Legal settlement 1,579 1,579

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

Consolidated:

GAAP operating income $ 36,074 $ 50,911 $ (14,837) (29.1) % 2.4 % 2.9 %

Amortization of intangible assets 9,359 8,230 1,129

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

Cyberattack restoration costs 106 640 (534)

Tax recovery (a)

(750) (1,386) 636

Acquisition and divestiture costs 529 703 (174)

Restructuring costs 5,381 — 5,381

Legal settlement 1,579 — 1,579

Non-GAAP operating income $ 53,421 $ 59,098 $ (5,677) (9.6) % 3.5 % 3.4 %

(a) Recovery of prior period withholding 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 September 30, 2024

Quarter ended December 31, 2024

Measure Intangible

expense Acquisition and Divestiture costs (a)

Restructuring costs Insurance recovery Cyberattack

restoration costs Non-GAAP

expense Change in fair value of contingent consideration Acquisition and Divestiture costs (a)

Restructuring costs Tax

recovery Cyberattack

restoration costs Legal settlement Non-GAAP

(in thousands, except per share data)

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Diluted EPS $ 0.70 $ 0.15 $0.04 $ 0.01 $ 0.01 $ (0.11) $ — $ 0.05 $ 0.85

Quarter ended September 30, 2023

Quarter ended December 31, 2023

Measure Intangible

expense Acquisition and Divestiture costs (a)

Restructuring costs Insurance recovery Cyberattack

restoration costs Non-GAAP

expense Change in fair value of contingent consideration Acquisition and Divestiture costs (a)

Restructuring costs Tax

recovery Cyberattack

restoration costs Gain on

a business (b)

(in thousands, except per share data)

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Diluted EPS $ 1.29 $ 0.12 $— $ 0.03 $ — $ (0.03) $ 0.01 $ (0.57) $ 0.85

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

(a) Acquisition and divestiture costs for the quarters ended December 31, 2024 and 2023 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.

Six months ended December 31, 2024

Measure Intangible

expense Change in fair value of contingent consideration Acquisition and Divestiture costs (a)

Restructuring costs Tax

recovery Cyberattack

restoration costs Insurance recovery Legal settlement Non-GAAP

SG&A expenses $ 145,626 $ — $ — $ (529) $ — $ 750 $ (106) $ — $ (1,579) $ 144,162

Operating income 36,074 9,359 1,143 529 5,381 (750) 106 — 1,579 53,421

Pre-tax income 42,673 9,359 1,143 529 5,381 (750) 106 (4,868) 1,579 55,152

Net income 34,028 7,010 861 529 4,054 (2,560) 80 (3,667) 1,189 41,524

Diluted EPS $ 1.39 $ 0.29 $ 0.04 $ 0.02 $ 0.17 $ (0.10) $ — $ (0.15) $ 0.05 $ 1.70

Six months ended December 31, 2023

Measure Intangible

expense Change in fair value of contingent consideration Acquisition and Divestiture costs (a)

Restructuring costs Tax

recovery Cyberattack

restoration costs Insurance recovery Gain on

a business (b)

SG&A expenses $ 142,356 $ — $ — $ (703) $ — $ 1,386 $ (640) $ — $ — $ 142,399

Operating income 50,911 8,230 — 703 — (1,386) 640 — — 59,098

Pre-tax income 59,193 8,230 — 703 — (1,386) 640 — (14,533) 52,847

Net income 48,158 6,121 — 703 — (640) 479 — (14,533) 40,288

Diluted EPS $ 1.91 $ 0.24 $ — $ 0.03 $ — $ (0.03) $ 0.02 $ — $ (0.58) $ 1.60

(a) Acquisition and divestiture costs for the six months ended December 31, 2024 and 2023 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.

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 $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.

Our cash and cash equivalents balance totaled $110.5 million at December 31, 2024, compared to $185.5 million at June 30, 2024, including $26.0 million and $20.0 million held outside of the United States at December 31, 2024 and June 30, 2024, respectively.

Checks released but not yet cleared in the amount of $0.1 million and $5.9 million are included in accounts payable at December 31, 2024 and June 30, 2024, respectively.

We conduct business primarily in the United States, Canada and Brazil where we generate and use cash.

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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, defined as accounts receivable plus inventories less accounts payable, decreased $14.5 million to $520.7 million at December 31, 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 focus on working capital efficiency improvements.

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,

Six months ended

(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 $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.

Net cash provided by operating activities was $38.6 million and $156.8 million for the six months ended December 31, 2024 and December 31, 2023, respectively .

Cash provided by operating activities for the six months ended December 31, 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 December 31, 2023 , accounts receivable and inventory decreased 17.2% and 14.5% respectively, while accounts payable decreased 3.7%.

The number of days sales outstanding ("DSO") was 66 days at December 31, 2024, compared to 71 days at June 30, 2024 and 68 days at December 31, 2023.

Inventory turned 5.2 times during the quarter ended December 31, 2024, compared to 5.0 times during the quarter ended June 30, 2024 and 5.1 times in the prior-year quarter ended December 31, 2023.

Cash used in investing activities for the six months ended December 31, 2024 was $58.5 million, compared to cash provided by investing activities of $13.1 million in the prior-year period.

Cash used in investing activities for the six months ended December 31, 2024 is largely due to cash paid for acquisitions and capital expenditures.

Cash provided by investing activities for the six months ended December 31, 2023 represents the proceeds from the sale of business offset by capital expenditures.

Management expects capital expenditures for fiscal year 2025 to range from $8.0 million to $12.0 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.

For the six months ended December 31, 2024 and December 31, 2023 , cash used in financing activities totaled $52.4 million and $161.3 million, respectively.

Cash used in financing activities for the six months ended December 31, 2024 is primarily attributable to common stock repurchases in the six months.

Cash used in financing activities for the six months ended December 31, 2023 is primarily attributable to repayments of 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 ended September 30, 2024, our borrowings under the Amended Credit Agreement were U.S.

During the quarter and six months ended December 31, 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 spread in effect as of December 31, 2024 was 1.00% 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 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 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.

We were in compliance with all covenants under the credit facility 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 w as $0.3 million and $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.

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.

While we were in compliance with the financial covenants contained in the Amended Credit Agreement as of December 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

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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