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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Quarterly period ended March 31, 2022

OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____

Commission File Number: 000-26926
scsc-20220331_g1.jpg
ScanSource, Inc.

South Carolina
(State of Incorporation)

57-0965380
(I.R.S. Employer Identification No.)

6 Logue Court
Greenville, South Carolina 29615
(864) 288-2432
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:Trading Symbol:Name of exchange on which registered:
Common stock, no par valueSCSCNASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Smaller reporting company☐
Accelerated filer
☐

Emerging growth company☐
Non-accelerated filer
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding at May 9, 2022
Common Stock, no par value per share
25,232,074 shares


SCANSOURCE, INC.
INDEX TO FORM 10-Q
March 31, 2022
 
  Page #
Item 1.
Financial Statements
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

3
FORWARD-LOOKING STATEMENTS

Forward-looking statements are included in the "Risk Factors," "Legal Proceedings," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures About Market Risk" sections and elsewhere herein. Words such as "expects," "anticipates," "believes," "intends," "plans," "hopes," "forecasts," "seeks," "estimates," "goals," "projects," "strategy," "future," "likely," "may," "should," and variations of such words and similar expressions generally identify such forward-looking statements. Any forward-looking statement made by us in this Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. Except as may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited to the following factors, which are neither presented in order of importance nor weighted: supply chain challenges, the impact of the COVID-19 pandemic on the Company's operations and financial condition, the failure to manage and implement the Company's organic growth strategy, credit risks involving the Company's larger customers and suppliers, changes in interest and exchange rates, regulatory regimes impacting the Company's international operations, risk to the Company's business from a cyber-security attack, a failure of the Company's IT systems, failure to hire and retain quality employees, loss of the Company's major customers, termination of the Company's relationship with key suppliers or a significant modification of the terms under which it operates with a key supplier, changes in the Company's operating strategy, and other factors set forth in "Risk Factors" contained in our Annual Report on Form 10-K for the year ended June 30, 2021.

4
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share information)
March 31, 2022June 30, 2021
Assets
Current assets:
Cash and cash equivalents$43,539 $62,718 
Accounts receivable, less allowance of $16,935 at March 31, 2022
and $19,341 at June 30, 2021
642,384 568,984 
Inventories591,396 470,081 
Prepaid expenses and other current assets130,509 117,860 
Total current assets1,407,828 1,219,643 
Property and equipment, net37,815 42,836 
Goodwill218,025 218,877 
Identifiable intangible assets, net90,554 104,860 
Deferred income taxes19,951 21,853 
Other non-current assets66,627 63,615 
Total assets$1,840,800 $1,671,684 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$706,359 $634,805 
Accrued expenses and other current liabilities80,931 87,790 
Income taxes payable3,023 2,501 
Current portion of long-term debt10,660 7,843 
Total current liabilities800,973 732,939 
Deferred income taxes3,753 3,954 
Long-term debt, net of current portion126,546 135,331 
Borrowings under revolving credit facility44,294 — 
Other long-term liabilities58,580 68,269 
Total liabilities1,034,146 940,493 
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued
— — 
Common stock, no par value; 45,000,000 shares authorized, 25,429,242 and 25,499,465 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively
69,856 71,253 
Retained earnings826,922 758,071 
Accumulated other comprehensive loss(90,124)(98,133)
Total shareholders’ equity806,654 731,191 
Total liabilities and shareholders’ equity$1,840,800 $1,671,684 
June 30, 2021 amounts are derived from audited consolidated financial statements.
See accompanying notes to these condensed consolidated financial statements.
5
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(In thousands, except per share data)
 
Quarter endedNine months ended
 March 31,March 31,
 2022202120222021
Net sales$845,990 $729,873 $2,567,652 $2,298,111 
Cost of goods sold739,482 641,757 2,251,920 2,043,172 
Gross profit106,508 88,116 315,732 254,939 
Selling, general and administrative expenses66,522 60,099 199,538 182,681 
Depreciation expense2,612 3,141 8,039 9,634 
Intangible amortization expense4,457 4,880 13,413 14,595 
Restructuring and other charges— 560 — 9,312 
Change in fair value of contingent consideration— — — 516 
Operating income32,917 19,436 94,742 38,201 
Interest expense1,483 1,576 4,637 5,285 
Interest income(1,000)(745)(2,973)(1,756)
Other (income) expense, net(136)(302)668 183 
Income before income taxes32,570 18,907 92,410 34,489 
Provision for income taxes9,044 5,121 23,659 9,757 
Net income from continuing operations23,526 13,786 68,751 24,732 
Net (loss) income from discontinued operations— (688)100 (37,647)
Net income (loss)$23,526 $13,098 $68,851 $(12,915)
Per share data:
Net income from continuing operations per common share, basic$0.92 $0.54 $2.69 $0.97 
Net loss from discontinued operations per common share, basic— (0.03)$— $(1.48)
Net income (loss) per common share, basic$0.92 $0.51 $2.69 $(0.51)
Weighted-average shares outstanding, basic25,635 25,455 25,577 25,404 
Net income from continuing operations per common share, diluted$0.91 $0.54 $2.66 $0.97 
Net loss from discontinued operations per common share, diluted— (0.03)$— $(1.48)
Net income (loss) per common share, diluted$0.91 $0.51 $2.67 (0.51)
Weighted-average shares outstanding, diluted25,853 25,572 25,812 25,484 
See accompanying notes to these condensed consolidated financial statements.

6
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)

Quarter endedNine months ended
March 31,March 31,
 2022202120222021
Net income (loss)$23,526 $13,098 $68,851 $(12,915)
Unrealized gain on hedged transaction, net of tax3,144 1,582 4,730 2,209 
Foreign currency translation adjustment17,186 (9,216)3,279 6,269 
Realized foreign currency loss from discontinued operations— — — 11,635 
Comprehensive income$43,856 $5,464 $76,860 $7,198 
See accompanying notes to these condensed consolidated financial statements.

7
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(In thousands, except share information)

Common
Stock
(Shares)		Common
Stock
(Amount)		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Balance at June 30, 202125,499,465 $71,253 $758,071 $(98,133)$731,191 
Net income— — 22,073 — 22,073 
Unrealized gain on hedged transaction, net of tax— — — 413 413 
Foreign currency translation adjustment— — — (11,147)(11,147)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes29,086 994 — — 994 
Share-based compensation— 2,570 — — 2,570 
Balance at September 30, 202125,528,551 $74,817 $780,144 $(108,867)$746,094 
Net income— — 23,252 — 23,252 
Unrealized gain on hedged transaction, net of tax— — — 1,172 1,172 
Foreign currency translation adjustment— — — (2,759)(2,759)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes134,897 (2,513)— — (2,513)
Common stock repurchased(5,903)(183)— — (183)
Share-based compensation— 3,462 — — 3,462 
Balance at December 31, 202125,657,545 $75,583 $803,396 $(110,454)$768,525 
Net income— — 23,526 — 23,526 
Unrealized gain on hedged transaction, net of tax— — — 3,144 3,144 
Foreign currency translation adjustment— — — 17,186 17,186 
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes46,549 383 — — 383 
Common stock repurchased(274,852)(8,886)— — (8,886)
Share-based compensation— 2,776 — — 2,776 
Balance at March 31, 202225,429,242 $69,856 $826,922 $(90,124)$806,654 
See accompanying notes to these condensed consolidated financial statements.

8
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(In thousands, except share information)

Common
Stock
(Shares)		Common
Stock
(Amount)		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Balance at June 30, 202025,361,298 $63,765 $747,276 $(132,795)$678,246 
Net loss— — (11,819)— (11,819)
Unrealized gain on hedged transaction, net of tax— — — 109 109 
Foreign currency translation adjustment— — — 3,511 3,511 
Share-based compensation— 1,180 — — 1,180 
Balance at September 30, 202025,361,298 $64,945 $735,457 $(129,175)$671,227 
Net loss— — (14,194)— (14,194)
Unrealized gain on hedged transaction, net of tax— — — 519 519 
Foreign currency translation adjustment— — — 11,974 11,974 
Realized foreign currency translation loss from discontinued operations— — — 11,635 11,635 
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes90,342 (1,036)— — (1,036)
Share-based compensation— 2,015 — — 2,015 
Balance at December 31, 202025,451,640 $65,924 $721,263 $(105,048)$682,139 
Net income— — 13,098 — 13,098 
Unrealized gain on hedged transaction, net of tax— — — 1,582 1,582 
Foreign currency translation adjustment— — — (9,216)(9,216)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes14,725 439 — — 439 
Share-based compensation— 2,532 — — 2,532 
Balance at March 31, 202125,466,365 $68,895 $734,361 $(112,681)$690,575 
See accompanying notes to these condensed consolidated financial statements.

9
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine months ended
 March 31,
 20222021
Cash flows from operating activities:
Net income (loss)$68,851 $(12,915)
Net income (loss) from discontinued operations100 (37,647)
Net income from continuing operations68,751 24,732 
Adjustments to reconcile net income to net cash (used in) provided by operating activities of continuing operations:
Depreciation and amortization22,184 25,417 
Amortization of debt issue costs313 313 
Provision for doubtful accounts156 226 
Share-based compensation8,792 5,711 
Deferred income taxes1,995 (26)
Change in fair value of contingent consideration— 516 
Contingent consideration payments excess— (5,457)
Finance lease interest32 96 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable(67,404)(68,654)
Inventories(118,349)(5,907)
Prepaid expenses and other assets(15,002)(1,641)
Other non-current assets(2,791)2,846 
Accounts payable67,535 69,609 
Accrued expenses and other liabilities(12,745)8,434 
Income taxes payable862 (793)
Net cash (used in) provided by operating activities of continuing operations(45,671)55,422 
Cash flows from investing activities of continuing operations:
Capital expenditures(3,326)(2,283)
Proceeds from the sale of discontinued operations3,125 34,356 
Net cash (used in) provided by investing activities of continuing operations(201)32,073 
Cash flows from financing activities of continuing operations:
Borrowings on revolving credit, net of expenses1,597,270 1,486,464 
Repayments on revolving credit, net of expenses(1,552,976)(1,500,375)
Repayments on long-term debt, net(5,968)(5,964)
Repayments of finance lease obligations(932)(974)
Contingent consideration payments— (41,393)
Exercise of stock options1,592 439 
Taxes paid on settlement of equity awards(2,729)(1,036)
Common stock repurchased(8,527)— 
Net cash provided by (used in) financing activities of continuing operations27,730 (62,839)
10
SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), continued
(In thousands)
Cash flows from discontinued operations:
Net cash flows provided by operating activities of discontinued operations— 21,704 
Net cash flows used in by investing activities of discontinued operations— (58)
Net cash flows used in financing activities of discontinued operations— (29,494)
Net cash flows used in discontinued operations— (7,848)
Effect of exchange rate changes on cash and cash equivalents(1,037)(1,942)
(Decrease) increase in cash and cash equivalents(19,179)14,866 
Cash and cash equivalents at beginning of period62,718 34,455 
Cash and cash equivalents at end of period43,539 49,321 
Cash and cash equivalents of discontinued operations— — 
Cash and cash equivalents of continuing operations$43,539 $49,321 
See accompanying notes to these condensed consolidated financial statements.
11
SCANSOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) Business and Summary of Significant Accounting Policies

Business Description

ScanSource, Inc. (together with its subsidiaries referred to as “the Company” or “ScanSource”) is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, Software as a Service ("SaaS"), connectivity and cloud. The Company brings technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale (POS), payments, physical security, unified communications and collaboration, telecom and cloud services to market. The Company operates in the United States, Canada, Brazil and the UK. During the quarter ended December 31, 2020, the Company completed the divestitures of its products distribution business in the UK, Europe and Latin America, outside of Brazil. The Company's two operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on product and customer type.

Segment Changes

The Company has moved all of its communications and collaboration business to the Modern Communications & Cloud segment. This technology alignment better represents the operating and financial performance information provided to the Company's chief operating decision maker.

The Company has reclassified certain prior-year amounts in the segment results to conform with current year presentation. These reclassifications had no effect on the condensed consolidated financial results. See Note 10 - Segment Information for descriptions of the Company's segments.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared by the Company’s management in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at March 31, 2022 and June 30, 2021, the results of operations for the quarters and nine months ended March 31, 2022 and 2021, the statements of comprehensive income for the quarters and nine months ended March 31, 2022 and 2021, the statements of shareholders' equity for the quarters and nine months ended March 31, 2022 and 2021 and the statements of cash flows for the nine months ended March 31, 2022 and 2021. The results of operations for the quarters and nine months ended March 31, 2022 and 2021 are not necessarily indicative of the results to be expected for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021. Unless otherwise indicated, disclosures provided in the Notes pertain to continuing operations only.

Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies for the nine months ended March 31, 2022 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2021. For a discussion of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Cash and Cash Equivalents

12
The Company considers all highly-liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company maintains zero-balance disbursement accounts at various financial institutions at which the Company does not maintain significant depository relationships. Due to the terms of the agreements governing these accounts, the Company generally does not have the right to offset outstanding checks written from these accounts against cash on hand, and the respective institutions are not legally obligated to honor the checks until sufficient funds are transferred to fund the checks. As a result, checks released but not yet cleared from these accounts in the amounts of $20.0 million and $14.3 million are included in accounts payable on the condensed consolidated balance sheets at March 31, 2022 and June 30, 2021, respectively.

Long-lived Assets

The Company presents depreciation expense and intangible amortization expense on the Condensed Consolidated Income Statements. The Company's depreciation expense related to selling, general and administrative costs totaled $2.6 million and $8.0 million for the quarter and nine months ended March 31, 2022 and $3.1 million and $9.6 million for the quarter and nine months ended March 31, 2021. Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled $0.2 million and $0.7 million for the quarter and nine months ended March 31, 2022 and $0.3 million and $1.2 million for the quarter and nine months ended March 31, 2021. The Company's intangible amortization expense reported on the Condensed Consolidated Income Statements relates to selling, general and administrative costs, not the cost of selling goods. Intangible amortization expense totaled $4.5 million and $13.4 million for the quarter and nine months ended March 31, 2022 and $4.9 million and $14.6 million for the quarter and nine months ended March 31, 2021.

Recent Accounting Pronouncements

The Company has reviewed newly issued accounting pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on its consolidated financial statements as a result of future adoption.

(2) Trade Accounts and Notes Receivable, Net

The Company maintains an allowance for doubtful accounts receivable for estimated future expected credit losses resulting from customers’ failure to make payments on accounts receivable due to the Company. The Company has notes receivable with certain customers, which are included in “Accounts receivable, less allowance” in the Condensed Consolidated Balance Sheets.

Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including: (i) historical experience, (ii) aging of the accounts receivable, (iii) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers, (iv) the current economic and country-specific environment and (v) reasonable and supportable forecasts about collectability. Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model. Receivables that do not share risk characteristics are evaluated on an individual basis. Estimates of expected credit losses on trade receivables over the contractual life are recorded at inception.

The changes in the allowance for doubtful accounts for the nine months ended March 31, 2022 are set forth in the table below.
June 30, 2021Amounts Charged to ExpenseWrite-offs
Other (1)
March 31, 2022
(in thousands)
Trade accounts and current notes receivable allowance$19,341 $156 $(1,761)$(801)$16,935 
(1)"Other" amounts include recoveries and the effect of foreign currency fluctuations for the nine months ended March 31, 2022.


(3) Revenue Recognition

The Company provides technology solutions and services from the world's leading suppliers of mobility, barcode, POS, payments, physical security, unified communications, collaboration, telecom and cloud services. This includes hardware, related accessories and device configuration as well as software licenses, professional services and hardware support programs.

13
In determining the appropriate amount of revenue to recognize, the Company applies the following five-step model: (i) identify contracts with customers; (ii) identify performance obligations in the contracts; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations per the contracts; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company recognizes revenue as control of products and services are transferred to customers, which is generally at the point of shipment. The Company delivers products to customers in several ways, including: (i) shipment from the Company's warehouse, (ii) drop-shipment directly from the supplier or (iii) electronic delivery for non-physical products.

Principal versus Agent Considerations

The Company is the principal for sales of all hardware and certain software and services. The Company considers itself the principal in those transactions where it has control of the product or service before it is transferred to the customer. The Company recognizes the principal-associated revenue and cost of goods sold on a gross basis.

The Company is the agent for third-party service contracts, including product warranties and supplier-hosted software. These service contracts are sold separately from the products, and the Company often serves as the agent for the contract on behalf of the original equipment manufacturer. The Company's responsibility is to arrange for the provision of the specified service by the original equipment manufacturer, and the Company does not control the specified service before it is transferred to the customer. Because the Company acts as an agent, revenue is recognized net of cost at the time of sale. The Intelisys business operates under an agency model.

Variable Considerations

For certain transactions, products are sold with a right of return and may also provide other rebates or incentives, which are accounted for as variable consideration. The Company estimates returns allowance based on historical experience and reduces revenue accordingly. The Company estimates the amount of variable consideration for rebates and incentives by using the expected value or the most likely amount to be given to the customer and reduces the revenue by those estimated amounts. These estimates are reviewed and updated as necessary at the end of each reporting period.

Contract Balances

The Company records contract assets and liabilities for payments received from customers in advance of services performed. These assets and liabilities are the result of the sales of the Company's self-branded warranty programs and other transactions where control has not yet passed to the customer. These amounts are immaterial to the consolidated financial statements for the periods presented.

Disaggregation of Revenue

The following tables represent the Company's disaggregation of revenue:
14
Quarter ended March 31, 2022
Specialty Technology SolutionsModern Communications & CloudTotal
(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)$503,072 $323,684 $826,756 
Intelisys connectivity and cloud— 19,234 19,234 
$503,072 $342,918 $845,990 
Nine months ended March 31, 2022
Specialty Technology SolutionsModern Communications & CloudTotal
(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)$1,501,702 $1,010,825 $2,512,527 
Intelisys connectivity and cloud— 55,125 55,125 
$1,501,702 $1,065,950 $2,567,652 
Quarter ended March 31, 2021
Specialty Technology SolutionsModern Communications & CloudTotal
(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)$436,462 $277,134 $713,596 
Intelisys connectivity and cloud— 16,277 16,277 
$436,462 $293,411 $729,873 
Nine months ended March 31, 2021
Specialty Technology SolutionsModern Communications & CloudTotal
(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)$1,300,488 $949,843 $2,250,331 
Intelisys connectivity and cloud— 47,780 47,780 
$1,300,488 $997,623 $2,298,111 


(4) Earnings Per Share

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

15
Quarter endedNine months ended
 March 31,March 31,
 2022202120222021
 (in thousands, except per share data)
Numerator:
Net income from continuing operations$23,526 $13,786 $68,751 $24,732 
Net (loss) income from discontinued operations— (688)100 (37,647)
Net income (loss)$23,526 $13,098 $68,851 $(12,915)
Denominator:
Weighted-average shares, basic25,635 25,455 25,577 25,404 
Dilutive effect of share-based payments218 117 235 80 
Weighted-average shares, diluted25,853 25,572 25,812 25,484 
Net income from continuing operations per common share, basic$0.92 $0.54 $2.69 $0.97 
Net loss from discontinued operations per common share, basic— (0.03)— (1.48)
Net income (loss) per common share, basic$0.92 $0.51 $2.69 $(0.51)
Net income from continuing operations per common share, diluted$0.91 $0.54 $2.66 $0.97 
Net loss from discontinued operations per common share, diluted— (0.03)— (1.48)
Net income (loss) per common share, diluted$0.91 $0.51 $2.67 $(0.51)

For the quarter and nine months ended March 31, 2022 weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 429,605 and 969,871, respectively. For the quarter and nine months ended March 31, 2021, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 1,532,961 and 1,285,153, respectively.

(5) Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following: 
March 31, 2022June 30, 2021
 (in thousands)
Foreign currency translation adjustment$(90,281)$(93,561)
Unrealized gain (loss) on hedged transaction, net of tax157 (4,572)
Accumulated other comprehensive loss$(90,124)$(98,133)

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

Quarter ended March 31,Nine months ended March 31,
2022202120222021
(in thousands)
Tax expense$590 $1,088 $1,390 $1,348 

(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended March 31, 2022, by reporting segment, are set forth in the table below.
16
Specialty Technology SolutionsModern Communications & CloudTotal
 (in thousands)
Balance at June 30, 2021$16,370 $202,507 $218,877 
Foreign currency translation adjustment— (852)(852)
Balance at March 31, 2022$16,370 $201,655 $218,025 

The following table shows changes in the amount recognized for net identifiable intangible assets for the nine months ended March 31, 2022.
Net Identifiable Intangible Assets
(in thousands)
Balance at June 30, 2021$104,860 
Amortization expense(13,413)
Foreign currency translation adjustment(893)
Balance at March 31, 2022$90,554 


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

The following table presents the Company’s debt at March 31, 2022 and June 30, 2021.
March 31, 2022June 30, 2021
(in thousands)
Current portion of long-term debt$10,660 $7,843 
Mississippi revenue bond, net of current portion3,733 4,081 
Senior secured term loan facility, net of current portion122,813 131,250 
Borrowings under revolving credit facility44,294 — 
Total debt$181,500 $143,174 

Credit Facility

The Company has a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (as amended, the “Amended Credit Agreement”). On April 30, 2019, the Company amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. The Amended Credit Agreement includes (i) a five-year $350 million multi-currency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. Pursuant to an “accordion feature,” the Company may increase its borrowings up to an additional $250 million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit, subject to obtaining additional credit commitments from the lenders participating in the increase. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of the domestic assets of the Company and a pledge of up to 65% of capital stock or other equity interest in certain foreign subsidiaries determined to be either material or a subsidiary borrower as defined in the Amended Credit Agreement. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. The Company incurred debt issuance costs of $1.1 million in connection with the amendments to the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.

At the Company's option, U.S. dollar loans under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over LIBOR or the alternate base rate depending upon the Company's net leverage ratio, calculated as total debt less up to $15 million of unrestricted domestic cash ("Credit Facility Net Debt") to trailing four-quarter adjusted earnings before interest expense, taxes, depreciation and amortization ("Credit Facility EBITDA") (the "Leverage Ratio"). This spread ranges from 1.00% to 1.75% for LIBOR-based loans and 0.00% to 0.75% for alternate base rate loans. Additionally, the Company is charged commitment fees ranging from 0.15% to 0.30%, depending upon the Leverage Ratio, on non-utilized borrowing availability, excluding swingline loans. The Amended Credit Agreement provides for the substitution of a new
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interest rate benchmark upon the transition from LIBOR for U.S. dollar loans, subject to agreement between the Company and the administrative agent. On December 23, 2021, the Company amended its credit facility to replace LIBOR as the benchmark rate for non-U.S. dollar loans, among other things.

During the nine months ended March 31, 2022, the Company's borrowings under the credit facility were U.S. dollar loans. The spread in effect as of March 31, 2022 was 1.25% for LIBOR-based loans and 0.25% for alternate base rate loans. The commitment fee rate in effect at March 31, 2022 was 0.20%. The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants. Specifically, the Company’s Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, the Company’s Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00 to 1.00 at the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. The Company was in compliance with all covenants under the credit facility at March 31, 2022.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine month period ended March 31, 2022 was $60.0 million. Including borrowings for both continuing and discontinued operations, the average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine months ended March 31, 2021 was $62.1 million. There was $305.7 million and $350.0 million available for additional borrowings as of March 31, 2022 and June 30, 2021, respectively. There were no letters of credit issued under the multi-currency revolving credit facility at March 31, 2022 or June 30, 2021.

Mississippi Revenue Bond

On August 1, 2007, the Company entered into an agreement with the State of Mississippi to provide financing for the acquisition and installation of certain equipment to be utilized at the Company’s Southaven, Mississippi warehouse, through the issuance of an industrial development revenue bond. The bond matures on September 1, 2032 and accrues interest at the 30-day LIBOR rate plus a spread of 0.85%. The terms of the bond allow for payment of interest only for the first 10 years of the agreement, and then, starting on September 1, 2018 through 2032, principal and interest payments are due until the maturity date or the redemption of the bond. The agreement also provides the bondholder with a put option, exercisable only within 180 days of each fifth anniversary of the agreement, requiring the Company to pay back the bonds at 100% of the principal amount outstanding. At March 31, 2022, the Company was in compliance with all covenants under this bond. The interest rates at March 31, 2022 and June 30, 2021 were 1.08% and 0.94%, respectively.

Debt Issuance Costs

At March 31, 2022, net debt issuance costs associated with the credit facility and bond totaled $0.9 million and are being amortized through the maturity date of each respective debt instrument.

(8) Derivatives and Hedging Activities

The Company's results of operations could be materially impacted by significant changes in foreign currency exchange rates and interest rates. In an effort to manage the exposure to these risks, the Company periodically enters into various derivative instruments. The Company's accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with U.S. GAAP. The Company records all derivatives on the consolidated balance sheet at fair value. Derivatives that are not designated as hedging instruments or the ineffective portions of cash flow hedges are adjusted to fair value through earnings in other income and expense.

Foreign Currency Derivatives – The Company conducts a portion of its business internationally in a variety of foreign currencies and is exposed to market risk for changes in foreign currency exchange rates. The Company attempts to hedge transaction exposures with natural offsets to the fullest extent possible and once these opportunities have been exhausted the Company uses currency options and forward contracts or other hedging instruments with third parties. These contracts will periodically hedge the exchange of various currencies, including the U.S. dollar, Brazilian real, euro, British pound and Canadian dollar.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of $35.8 million and $27.9 million for the exchange of foreign currencies at March 31, 2022 and June 30, 2021, respectively. To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense. Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures included in the Condensed Consolidated Income Statements for the quarters and nine months ended March 31, 2022 and 2021 are as follows:
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 Quarter endedNine months ended
March 31,March 31,
 2022202120222021
 (in thousands)
Net foreign exchange derivative contract losses (gains)$3,464 $(1,061)$1,289 $852 
Net foreign currency transactional and re-measurement (gains) losses(3,206)1,020 (66)(74)
Net foreign currency exchange losses (gains)$258 $(41)$1,223 $778