What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2025-01-30 · 149 added, 145 removed, 424 unchanged (41% of the section changed)

1 unchanged sentence

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.

ScanSource uses multiple sales

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

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

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

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

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

• Specialty Technology Solutions

5 unchanged sentences

Recent Developments

Impact of the Macroeconomic Environment, Including Growth Outlook, Inflation and Tariffs

The macroeconomic environment, including the economic impacts of growth outlook, inflation, tariffs and shifting relations between the U.S.

and other countries , continues to create significant uncertainty and may adversely affect our financial condition and results of operations.

In 2025, the U.S.

announced a variety of additional tariffs on goods from multiple nations and trading blocks and has been targeted with reciprocal tariffs and other retaliatory actions in response.

Although the U.S.

has announced a 90-day pause on certain tariffs, negotiations and the state of international trade policy and relations continue to evolve.

We are mindful of the potential impact these conditions could have on our customers, suppliers and end-customer demand and w e are actively monitoring changes to the global macroeconomic environment and assessing the potential impacts these challenges may have on our financial condition, results of operations and liquidity.

We expect to pass any price increases from our suppliers resulting from tariffs to our customers.

W e are also mitigating risks through strategic planning and maintaining financial flexibility , but we cannot predict the outcome of our mitigation strategies or the ultimate impact of tariffs and the global macroeconomic environment on our financial condition or results of operations .

Business Acquisitions

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.

Resourcive delivers strategic IT sourcing solutions to mid-market and enterprise businesses.

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.

Restructuring

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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As a trusted adviser to our customers, we provide solutions through our strong understanding of end-user needs.

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 and six months ended December 31, 2024 and 2023:

Quarter ended December 31, % 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 nine months ended March 31, 2025 and 2024:

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

Net Sales by Segment:

4 unchanged sentences

Total net sales $ 704,847 $ 752,599 $ (47,752) (6.3) % (6.4) %

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

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

2025 2024 $ Change % Change

5 unchanged sentences

Specialty Technology Solutions

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

For the quarter 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.

The Specialty Technology Solutions segment consists of sales to channel partners in the United States, Canada and Brazil.

For the quarter and nine months ended March 31, 2025, net sales decreased $51.4 million, or 7.0%, and $291.3 million, or 11.9%, respectively, compared to the prior-year periods.

Excluding the impact from foreign exchange rate fluctuations and the impact of divestitures and acquisitions, adjusted net sales decreased $49.4 million , or 6.8%, and $276.3 million, or 11.3%, respectively, compared to the prior-year periods.

For the quarter e nded March 31, 2025, net sales decreased primarily due to lower net sales in Brazil.

In North America, most of the technologies in this segment had year-over-year growth.

For the nine months ended March 31, 2025, net sales decreased primarily due to soft demand in a more cautious technology spending environment.

Intelisys & Advisory

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.

The Intelisys & Advisory segment consists of sales and services to both channel partners (Intelisys) and end-users (Advisory) in the United States.

For the quarter ended March 31, 2025, net sales increased $3.6 million, or 16.0%, compared to the prior-year period.

Excluding the impact from foreign exchange rate fluctuations and the impact of acquisitions, adjusted net sales increased $1.0 million, or 4.3% for the quarter ended March 31, 2025.

For the nine months ended March 31, 2025, net sales increased $5.5 million, or 8.1%, compared to the prior-year period.

Excluding the impact from foreign exchange rate fluctuations and the impact of acquisitions, adjusted net sales increased $0.6 million, or 0.9% for the nine months ende d March 31, 2025.

The increase in net sales for the quarter and nine months ended March 31, 2025 reflects the addition of an acquisition and Intelisys net sales growth.

Quarterly net billings for Intelisys increased 6.8% over the prior-year quarter to bring annualized net billings to approximately $2.86 billion.

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

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

Net Sales by Geography:

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Total net sales $ 704,847 $ 752,599 $ (47,752) (6.3) % (6.4) %

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

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

2025 2024 $ Change % Change

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(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, 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,

(b) Countries outside of Brazil represent $0.1 million, or 0.2% of sales, and $0.3 million, or 0.2% of sales, for the quarter and nine months ended March 31, 2025, respectively.

Countries outside of Brazil represent $0.1 million, or 0.2% of sales, and $4.3 million, or 1.7% of sales, for the quarter and nine months ended March 31, 2024, respectively.

The following table summarizes our gross profit for the quarters and nine months ended March 31, 2025 and 2024:

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

2025 2024 $ Change % Change 2025 2024

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Gross profit $ 100,202 $ 94,481 $ 5,721 6.1 % 14.2 % 12.6 %

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

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

2025 2024 $ Change % Change 2025 2024

8 unchanged sentences

Specialty Technology Solutions

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.

For the quarter ended March 31, 2025, gross profit dollars for the Specialty Technology Solutions segment increased $2.2 million, or 3.0%, compared to the prior-year quarter.

Vendor program recognition positively impacted gross profit by $7.2 million, offsetting the impact of lower sales volumes of $5.0 million.

Gross profit margin increased 106 basis points over the prior-year quarter to 10.9%.

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.

For the nine months ended March 31, 2025, gross profit dollars decreased $3.5 million, or 1.5%, compared to the prior-year period.

Lower sales volume reduced gross profit dollars by $27.8 million.

Gross margin mix positively impacted gross profit by $24.3 million largely due to higher vendor program recognition and a more favorable sales mix.

Gross profit margin increased 113 basis points year-over-year to 10.7%.

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 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.

For the quarter ended March 31, 2025, gross profit dollars for the Intelisys & Advisory segment increased $3.6 million, or 15.8%, compared to the prior-year quarter.

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

Gross profit margin decreased 24 basis points compared to the prior-year quarter to 99.2%, reflecting the addition of professional services to the sales mix.

For the nine months ended March 31, 2025, gross profit dollars increased $5.3 million, or 7.8%, compared to the prior-year period.

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

Gross profit margin decreased 27 basis points compared to the prior-year nine-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 and six months ended December 31, 2024 and 2023:

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

The following table summarizes our operating expenses for the quarters and nine months ended March 31, 2025 and 2024:

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

2025 2024 $ Change % Change 2025 2024

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Operating expenses $ 77,863 $ 76,939 $ 924 1.2 % 11.0 % 10.2 %

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

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

2025 2024 $ Change % Change 2025 2024

6 unchanged sentences

Operating expenses $ 245,131 $ 233,284 $ 11,847 5.1 % 11.0 % 9.3 %

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.

Selling, general and administrative expenses (“SG&A”) increased by $3.1 million, or 4.7%, and $6.4 million, or 3.1% for the quarter and nine months ended March 31, 2025, respectively compared to the prior-year periods.

The increase for the quarter is primarily attributable to increased costs related to acquisitions.

The increase for the nine-month period is primarily attributable to increased costs related to acquisitions as well as increased customer specific bad debt expense.

The increase in amortization expense of $1.2 million and $2.3 million during the quarter and nine months ended March 31, 2025, respectively, is largely due to intangible assets acquired in our acquisitions of Advantix and Resourcive.

Restructuring and other charges of $5.4 million were incurred during the nine months ended March 31, 2025 compared to charges of $3.9 million for the quarter and nine months ended March 31, 2024.

Restructuring and other charges relate to employee separation and benefit costs in connection with our expense reduction and restructuring plans implemented during the current and prior fiscal year.

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.

We recorded a fair value adjustment expense of $0.9 million and $2.0 million in the quarter and nine months ended March 31, 2025, respectively.

The expense from changes in fair value of contingent consideration for the quarter and nine 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 and six months ended December 31, 2024 and 2023:

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

The following table summarizes our operating income for the quarters and nine months ended March 31, 2025 and 2024:

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

2025 2024 $ Change % Change 2025 2024

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Operating income $ 22,339 $ 17,542 $ 4,797 27.3 % 3.2 % 2.3 %

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

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

2025 2024 $ Change % Change 2025 2024

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Specialty Technology Solutions

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.

For the Specialty Technology Solutions segment, operating income decreased $0.3 million, or 2.0%, and $6.8 million, or 13.1% for the quarter and nine months ended March 31, 2025 , respectively, compared to the prior-year periods.

Operating margin was 2.1% for the quarter and nine months ended March 31, 2025.

The decrease in operating income for the quarter is primarily due to higher amortization expense related to a recent acquisition.

The decrease in operating income for the nine months is primarily due to lower gross profits from lower sales volumes as well as higher bad debt expense.

Intelisys & Advisory

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.

For the Intelisys & Advisory segment, operating income increased $0.8 million, or 11.1%, for the quarter ended March 31, 2025.

Operating margin decreased to 31.5% for the quarter ended March 31, 2025.

The increase in operating income for the quarter ended March 31, 2025 is a result of higher gross profits for the quarter.

For the nine months ended March 31, 2025, operating income decreased $1.2 million, or 5.5%, compared to the prior-year period.

Operating margin decreased to 28.6% for the nine months ended March 31, 2025.

The decrease in operating income for the nine-month period ended March 31, 2025 is primarily driven by expense related to the change in fair value of contingent consideration.

For the quarter and nine months ended March 31, 2025, Corporate operating losses of $0.3 million and $7.9 million, respectively, represent restructuring and acquisition-related costs and a legal settlement incurred during the fiscal year.

Total Other (Income) Expense

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,

The following table summarizes our total other (income) expense for the quarters and nine months ended March 31, 2025 and 2024:

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

2025 2024 $ Change % Change 2025 2024

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Net foreign exchange losses 130 508 (378) (74.4) % 0.0 % 0.1 %

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

Other, net (1,012) (267) (745) 279.0 % (0.1) % (0.0) %

Total other (income) expense, net $ (1,887) $ (410) $ (1,477) 360.2 % (0.3) % (0.1) %

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

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

2025 2024 $ Change % Change 2025 2024

8 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 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.

Interest expense decreased for the quarter and nine months ended March 31, 2025 compared to the prior-year periods, primarily from lower average borrowings on our multi-currency revolving credit facility.

Interest income increased for the quarter and nine months ended March 31, 2025 primarily from interest earned on higher average 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.

5 unchanged sentences

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

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.

For the quarter and nine months ended March 31, 2025, we recognized a gain of $1.0 million and $6.4 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 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.

For the quarter and nine months ended March 31, 2025, income tax expense was $6.8 million and $15.4 million, respectively, reflecting an effective tax rate of 28.0% and 23.1%.

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

The decrease in the effective tax rate for the quarter is primarily driven by a change in the geographical mix of earnings.

The increase in the effective tax rate for the nine-month period is primarily due to the higher amount of discrete tax benefits recognized in the prior-year period.

We expect the effective tax rate, excluding discrete items, for fiscal year 2025 to be approximately 28.2% to 29.2%.

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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 December 31, 2024 and 2023, respectively:

Quarter ended December 31,

The following table summarizes annualized adjusted ROIC for the quarters ended March 31, 2025 and 2024, respectively:

Quarter ended March 31,

Adjusted return on invested capital ratio, annualized (a)

1 unchanged sentence

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

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

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

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

Quarter ended December 31,

Quarter ended March 31,

(in thousands)

7 unchanged sentences

Share-based compensation 2,896 2,388

Acquisition and divestiture costs 151 703

Acquisition and divestiture costs (a)

Cyberattack restoration costs 71 93

Restructuring costs — 3,923

Legal settlement 1,579 —

Tax recovery (1,820) (515)

Gain on sale of business — (14,533)

Insurance recovery, net of payments (756) —

Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) $ 35,053 $ 33,095

Quarter ended December 31,

Quarter ended March 31,

(in thousands)

7 unchanged sentences

Restructuring, net — 2,935

Legal settlement 1,189 —

Insurance recovery, net of payments (570) —

Tax recovery, net (1,201) (1,648)

Gain on sale of business — (14,533)

Average equity 901,876 950,652

13 unchanged sentences

Net Sales by Segment:

Quarter ended December 31,

Quarter ended March 31,

2025 2024 $ Change % Change

3 unchanged sentences

Foreign exchange impact (a)

Divestitures — (1,737)

Acquisitions (6,660) —

8 unchanged sentences

Foreign exchange impact (a)

Divestitures — (1,737)

Acquisitions (9,322) —

1 unchanged sentence

(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 December 31, 2024 into U.S.

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

Calculated by translating the net sales for the quarter ended March 31, 2025 into U.S.

dollars using the average foreign exchange rates for the quarter ended March 31, 2024.

Net Sales by Segment:

Six months ended December 31,

Nine months ended March 31,

2025 2024 $ Change % Change

8 unchanged sentences

Foreign exchange impact (a)

Divestitures — —

Acquisitions (4,924) —

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

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

Calculated by translating the net sales for the nine months ended March 31, 2025 into U.S.

dollars using the average foreign exchange rates for the nine months ended March 31, 2024.

Net Sales by Geography:

Quarter ended December 31,

Quarter ended March 31,

2025 2024 $ Change % Change

7 unchanged sentences

Foreign exchange impact (b)

Divestitures — (1,737)

Non-GAAP net sales, constant currency $ 56,588 $ 81,353 $ (24,765) (30.4) %

3 unchanged sentences

Foreign exchange impact (b)

Divestitures — (1,737)

Acquisitions (9,322) —

Non-GAAP net sales, constant currency $ 704,230 $ 752,599 $ (48,369) (6.4) %

(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.

(a) Countries outside of Brazil represent $0.1 million, or 0.2% of sales, for the quarter ended March 31, 2025 and $0.1 million, or 0.2% of sales, for the quarter ended March 31, 2024.

(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 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,

Calculated by translating the net sales for the quarter ended March 31, 2025 into U.S.

dollars using the average foreign exchange rates for the quarter ended March 31, 2024.

Nine months ended March 31,

2025 2024 $ Change % Change

3 unchanged sentences

Acquisitions (21,983) —

1,386,469 1,586,384

Non-GAAP net sales 2,034,111 2,257,629 $ (223,518) (9.9) %

Net sales, reported (a)

2 unchanged sentences

Divestitures — (4,019)

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

Non-GAAP net sales, constant currency $ 199,895 $ 252,048 $ (52,153) (20.7) %

Consolidated:

3 unchanged sentences

Acquisitions (21,983) —

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.

Non-GAAP net sales, constant currency $ 2,234,006 $ 2,509,677 $ (275,671) (11.0) %

(a) Countries outside of Brazil represent $0.3 million, or 0.2% of sales, for the nine months ended March 31, 2025 and $4.3 million, or 1.7% of sales, for the nine months ended March 31, 2024.

(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 nine months ended March 31, 2025 into U.S.

dollars using the average foreign exchange rates for the nine months ended March 31, 2024.

Operating Income by Segment:

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

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

2025 2024 $ Change % Change 2025 2024

15 unchanged sentences

Cyberattack restoration costs 71 93 (22)

Legal settlement 1,579 — 1,579

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

8 unchanged sentences

Cyberattack restoration costs 71 93 (22)

Legal settlement 1,579 — 1,579

Non-GAAP operating income $ 26,639 $ 25,306 $ 1,333 5.3 % 3.8 % 3.4 %

1 unchanged sentence

Operating Income by Segment:

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

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

2025 2024 $ Change % Change 2025 2024

36 unchanged sentences

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

Quarter ended December 31, 2024

Quarter ended March 31, 2025

Measure Intangible

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

Restructuring costs Tax

Restructuring costs Insurance recovery Tax

recovery Cyberattack

restoration costs Legal settlement Non-GAAP

restoration costs Non-GAAP

(in thousands, except per share data)

4 unchanged sentences

Diluted EPS $ 0.74 $ 0.16 $0.03 $ 0.01 $ — $ (0.02) $ (0.05) $ — $ 0.86

Quarter ended December 31, 2023

Quarter ended March 31, 2024

Measure Intangible

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

Restructuring costs Tax

Restructuring costs Insurance recovery Tax

recovery Cyberattack

restoration costs Gain on

a business (b)

restoration costs Non-GAAP

(in thousands, except per share data)

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Diluted EPS $ 0.50 $ 0.11 $ — $ 0.02 $ 0.12 $ — $ (0.06) $ — $ 0.69

(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

(a) Acquisition and divestiture costs for the quarters ended March 31, 2025 and 2024 are generally nondeductible for tax purposes.

Nine months ended March 31, 2025

Measure Intangible

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Diluted EPS $ 2.13 $ 0.44 $ 0.06 $ 0.03 $ 0.17 $ (0.16) $ 0.01 $ (0.18) $ 0.05 $ 2.56

Six months ended December 31, 2023

Nine months ended March 31, 2024

Measure Intangible

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

(a) Acquisition and divestiture costs for the six months ended December 31, 2024 and 2023 are generally nondeductible for tax purposes.

(a) Acquisition and divestiture costs for the nine months ended March 31, 2025 and 2024 are generally nondeductible for tax purposes.

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

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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 $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.

Our cash and cash equivalents balance totaled $146.3 million at March 31, 2025, compared to $185.5 million at June 30, 2024, including $33.3 million and $20.0 million held outside of the United States at March 31, 2025 and June 30, 2024, respectively.

Checks released but not yet cleared in the amount of $0.2 million and $5.9 million are included in accounts payable at March 31, 2025 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 $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, defined as accounts receivable plus inventories less accounts payable, decreased $7.9 million to $498.3 million at March 31, 2025 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 and our focus on working capital efficiency.

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.

Six months ended

Nine 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 $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 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.

Net cash provided by operating activities was $104.7 million and $316.9 million for the nine months ended March 31, 2025 and March 31, 2024, respectively .

Cash provided by operating activities for the nine months ended March 31, 2025 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 March 31, 2024 , accounts receivable and inventory decreased 4.6% and 10.0% respectively, while accounts payable decreased 2.7%.

The number of days sales outstanding ("DSO") was 72 days at March 31, 2025 and 71 days at March 31, 2024.

Inventory turned 5.0 times during the quarter ended March 31, 2025, compared to 4.8 times in the prior-year quarter ended March 31, 2024.

Cash used in investing activities for the nine months ended March 31, 2025 was $59.9 million, compared to cash provided by investing activities of $10.7 million in the prior-year period.

Cash used in investing activities for the nine months ended March 31, 2025 is largely due to cash paid for acquisitions and capital expenditures.

Cash provided by investing activities for the nine months ended March 31, 2024 represents the proceeds from the sale of a business offset by capital expenditures.

Management expects capital expenditures for fiscal year 2025 to range from $7.0 million to $9.0 million, primarily for IT investments.

For the nine months ended March 31, 2025 and March 31, 2024 , cash used in financing activities totaled $83.4 million and $203.9 million, respectively.

Cash used in financing activities for the nine months ended March 31, 2025 is primarily attributable to common stock repurchases in the nine months.

Cash used in financing activities for the nine months ended March 31, 2024 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 and six months ended December 31, 2024, our borrowings under the Amended Credit Agreement were U.S.

During the quarter and nine months ended March 31, 2025, our borrowings under the Amended Credit Agreement were U.S.

dollar loans.

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 spread in effect as of March 31, 2025 was 1.00% for SOFR-based loans and 0.00% for alternate base rate loans.

The commitment fee rate in effect at March 31, 2025 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 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.

We were in compliance with all covenants under the credit facility at March 31, 2025.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine month periods ended March 31, 2025 and 2024 w as $0.3 million and $94.6 million, respectively.

There was $350.0 million and $349.9 million available for additional borrowings as of March 31, 2025 and June 30, 2024, respectively.

The effective interest rates for the revolving line of credit were 5.45% and 6.44% as of March 31, 2025 and June 30, 2024, respectively.

There were no letters of credit issued under the multi-currency revolving credit facility at March 31, 2025 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 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

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

While we were in compliance with the financial covenants contained in the Amended Credit Agreement as of March 31, 2025, 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 also believe that our longer-term working capital, planned expenditures and other general funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis