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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, 2024

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
scansourcelogo4a291a06.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 filerSmaller reporting company
Accelerated filer

Emerging growth company
Non-accelerated filer





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 2, 2024
Common Stock, no par value per share
24,709,204 shares



SCANSOURCE, INC.
INDEX TO FORM 10-Q
March 31, 2024
 
  Page #
Item 1.
Financial Statements
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 5.
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," "will," 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: macroeconomic conditions, including potential prolonged economic weakness, inflation and supply chain challenges, 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 and regulatory regimes impacting the Company's international operations, risk to the Company's business from a cyber attack, a failure of the Company's IT systems, failure to hire and retain quality employees, loss of the Company's major customers, relationships with the Company's key suppliers and sales partners or a termination or a significant modification of the terms under which it operates with such suppliers and sales partners, 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, 2023.

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, 2024June 30, 2023
Assets
Current assets:
Cash and cash equivalents$159,050 $36,178 
Accounts receivable, less allowance of $19,566 at March 31, 2024
and $15,480 at June 30, 2023
589,847 753,236 
Inventories529,163 757,574 
Prepaid expenses and other current assets138,100 110,087 
Total current assets1,416,160 1,657,075 
Property and equipment, net35,594 37,379 
Goodwill207,616 216,706 
Identifiable intangible assets, net41,510 68,495 
Deferred income taxes19,231 17,764 
Other non-current assets62,877 70,750 
Total assets$1,782,988 $2,068,169 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$555,733 $691,119 
Accrued expenses and other current liabilities74,664 78,892 
Income taxes payable4,792 9,875 
Current portion of long-term debt7,857 6,915 
Total current liabilities643,046 786,801 
Deferred income taxes 3,816 
Long-term debt, net of current portion138,024 144,006 
Borrowings under revolving credit facility 178,980 
Other long-term liabilities57,867 49,268 
Total liabilities838,937 1,162,871 
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, 24,708,808 and 24,844,203 shares issued and outstanding at March 31, 2024 and June 30, 2023, respectively
46,426 58,241 
Retained earnings997,642 936,678 
Accumulated other comprehensive loss(100,017)(89,621)
Total shareholders’ equity944,051 905,298 
Total liabilities and shareholders’ equity$1,782,988 $2,068,169 
June 30, 2023 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,
 2024202320242023
Net sales$752,599 $885,519 $2,513,696 $2,840,573 
Cost of goods sold658,118 773,757 2,211,958 2,499,992 
Gross profit94,481 111,762 301,738 340,581 
Selling, general and administrative expenses66,574 70,669 208,930 211,337 
Depreciation expense2,690 2,644 8,449 8,085 
Intangible amortization expense3,752 4,170 11,982 12,561 
Restructuring expense3,923  3,923  
Operating income17,542 34,279 68,454 108,598 
Interest expense2,001 5,715 10,947 14,223 
Interest income(2,652)(1,710)(6,096)(5,327)
Gain on sale of business  (14,533) 
Other expense, net241 361 991 1,314 
Income before income taxes17,952 29,913 77,145 98,388 
Provision for income taxes5,146 8,692 16,181 27,391 
Net income$12,806 $21,221 $60,964 $70,997 
Per share data:
Net income per common share, basic$0.51 $0.84 $2.44 $2.81 
Weighted-average shares outstanding, basic25,025 25,196 24,982 25,228 
Net income per common share, diluted$0.50 $0.83 $2.41 $2.79 
Weighted-average shares outstanding, diluted25,437 25,439 25,291 25,436 
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,
 2024202320242023
Net income$12,806 $21,221 $60,964 $70,997 
Unrealized gain (loss) on hedged transaction, net of tax148 (1,165)(1,246)718 
Realized foreign currency gain on sale of business  3,805  
Foreign currency translation adjustment(4,947)4,291 (12,955)4,474 
Comprehensive income$8,007 $24,347 $50,568 $76,189 
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, 202324,844,203 $58,241 $936,678 $(89,621)$905,298 
Net income— — 15,432 — 15,432 
Unrealized gain on hedged transaction, net of tax— — — 153 153 
Foreign currency translation adjustment— — — (6,890)(6,890)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes116,028 (1,510)— — (1,510)
Share-based compensation— 2,770 — — 2,770 
Balance at September 30, 202324,960,231 $59,501 $952,110 $(96,358)$915,253 
Net income— — 32,726 — 32,726 
Unrealized loss on hedged transaction, net of tax— — — (1,547)(1,547)
Foreign currency translation adjustment— — — (1,118)(1,118)
Realized foreign currency translation gain from disposal of a business— — — 3,805 3,805 
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes230,543 3,162 — — 3,162 
Common stock repurchased(36,305)(1,251)— — (1,251)
Share-based compensation— 2,571 — — 2,571 
Balance at December 31, 202325,154,469 $63,983 $984,836 $(95,218)$953,601 
Net income  12,806  12,806 
Unrealized gain on hedged transaction, net of tax   148 148 
Foreign currency translation adjustment   (4,947)(4,947)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes24,220 180   180 
Common stock repurchased(469,881)(20,117)  (20,117)
Share-based compensation 2,380   2,380 
Balance at March 31, 202424,708,808 $46,426 $997,642 $(100,017)$944,051 
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, 202225,187,351 $64,297 $846,869 $(104,638)$806,528 
Net income— — 24,042 — 24,042 
Unrealized gain on hedged transaction, net of tax— — — 1,879 1,879 
Foreign currency translation adjustment— — — (7,217)(7,217)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes38,551 (586)— — (586)
Share-based compensation— 2,358 — — 2,358 
Balance at September 30, 202225,225,902 $66,069 $870,911 $(109,976)$827,004 
Net income— — 25,734 — 25,734 
Unrealized gain on hedged transaction, net of tax— — — 3 3 
Foreign currency translation adjustment— — — 7,401 7,401 
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes117,112 (1,112)— — (1,112)
Share-based compensation— 3,356 — — 3,356 
Balance at December 31, 202225,343,014 $68,313 $896,645 $(102,572)$862,386 
Net income— — 21,221 — 21,221 
Unrealized loss on hedged transaction, net of tax— — — (1,165)(1,165)
Foreign currency translation adjustment— — — 4,291 4,291 
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes20,851 118 — — 118 
Common stock repurchased(356,469)(10,906)— — (10,906)
Share-based compensation— 2,950 — — 2,950 
Balance at March 31, 202325,007,396 $60,475 $917,866 $(99,446)$878,895 
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,
 20242023
Cash flows from operating activities:
Net income$60,964 $70,997 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on sale of business(14,533) 
Depreciation and amortization21,217 21,359 
Amortization of debt issue costs289 481 
Provision for doubtful accounts5,863 1,852 
Share-based compensation7,729 8,633 
Deferred income taxes(1,565)1,409 
Finance lease interest70 31 
Changes in operating assets and liabilities:
Accounts receivable143,774 46,652 
Inventories226,878 (136,257)
Prepaid expenses and other assets(28,163)39,178 
Other non-current assets6,022 (1,772)
Accounts payable(117,860)(60,717)
Accrued expenses and other liabilities11,338 (16,780)
Income taxes payable(5,115)4,426 
Net cash provided by (used in) operating activities316,908 (20,508)
Cash flows from investing activities:
Capital expenditures(7,285)(6,549)
Proceeds from sale of business, net of cash transferred17,978  
Net cash provided by (used in) investing activities10,693 (6,549)
Cash flows from financing activities:
Borrowings on revolving credit, net of expenses1,242,915 1,871,909 
Repayments on revolving credit, net of expenses(1,421,895)(1,848,554)
(Repayments) borrowings on long-term debt, net(5,040)16,527 
Repayments on finance lease obligation(585)(612)
Debt issuance costs (1,407)
Exercise of stock options4,626 853 
Taxes paid on settlement of equity awards(2,794)(2,433)
Common stock repurchased(21,168)(10,718)
Net cash (used in) provided by financing activities(203,941)25,565 
Effect of exchange rate changes on cash and cash equivalents(788)879 
Increase (decrease) in cash and cash equivalents122,872 (613)
Cash and cash equivalents at beginning of period36,178 37,987 
Cash and cash equivalents at end of period$159,050 $37,374 
See accompanying notes to these condensed consolidated financial statements.
10

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, networking, physical security, unified communications and collaboration, telecom and cloud services to market. The Company operates primarily in the United States, Canada and Brazil. The Company's two operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on technology type and are generally related to (i) technology devices and (ii) communication, connectivity and cloud services, respectively. Some of the offerings of our major suppliers include products that blend technologies and include both technology devices and communication and connectivity and cloud services products. We assign all of the offerings of those suppliers' products to the same segment based on which technology predominates the offering.

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, as amended (the "Exchange Act"). 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, 2024 and June 30, 2023, the results of operations for the quarters and nine months ended March 31, 2024 and 2023, the condensed consolidated statements of comprehensive income for the quarters and nine months ended March 31, 2024 and 2023, the condensed consolidated statements of shareholders' equity for the quarters and nine months ended March 31, 2024 and 2023 and the condensed consolidated statements of cash flows for the nine months ended March 31, 2024 and 2023. The results of operations for the quarter and nine months ended March 31, 2024 are not necessarily indicative of the results to be expected for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Unless otherwise indicated, disclosures provided in the notes to the Company's consolidated financial statements 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, 2024 from the policies described in the notes to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2023. 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, 2023.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company maintains zero-balance disbursement accounts at various financial institutions at which the Company does not maintain significant depository relationships. Due to the terms of the agreements governing these accounts, the Company generally does not have the right to offset outstanding checks written from these accounts against cash on hand, and the respective institutions are not legally obligated to honor the checks until sufficient funds are transferred to fund the checks. As a result, checks released but not yet cleared from these accounts in the amount of $0.2 million and $8.0 million are included in accounts payable on the condensed consolidated balance sheets at March 31, 2024 and June 30, 2023, respectively.

Long-lived Assets

11

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 $2.7 million and $8.4 million for the quarter and nine months ended March 31, 2024 and $2.6 million and $8.1 million for the quarter and nine months ended March 31, 2023. Depreciation expense reported as part of cost of goods sold on the condensed consolidated income statements totaled $0.3 million and $0.8 million for the quarter and nine months ended March 31, 2024 and $0.3 million and $0.7 million for the quarter and nine months ended March 31, 2023. 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 $3.8 million and $12.0 million for the quarter and nine months ended March 31, 2024 and $4.2 million and $12.6 million for the quarter and nine months ended March 31, 2023.

Recent Accounting Pronouncements

In July 2023, the Securities and Exchange Commission issued final rules that require new and enhanced disclosures on cybersecurity risk management, strategy, governance, and incident reporting. Under the final rules, companies must report a material cybersecurity incident on Form 8-K within four business days of determining that such cybersecurity incident is material. To the extent the nature, scope, timing or the impact of the incident is not determinable at the time such Form 8-K is required to be filed, additional information about the material aspects of the cybersecurity incident must be filed on a Form 8-K/A within four business days after such additional information becomes available. These disclosure requirements on Form 8-K were effective beginning December 18, 2023. For fiscal years ending on or after December 15, 2023, companies must disclose their cybersecurity processes, management's role in cybersecurity governance, and cybersecurity oversight by the Board of Directors on Form 10-K.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. This ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. This ASU is applicable to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2025, and subsequent interim periods, with early application permitted. The Company is currently evaluating the impact of the application of this ASU on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU updates income tax disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation and disaggregation of income taxes paid by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024 and is applicable to the Company’s fiscal year beginning July 1, 2025, with early application permitted. The Company is currently evaluating the impact of the application of this ASU on its consolidated financial statements and disclosures.

The Company has reviewed other 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 and adjusted over the contractual life.

The changes in the allowance for doubtful accounts for the nine months ended March 31, 2024 are set forth in the table below.
12

June 30, 2023Amounts Charged to ExpenseWrite-offs
Other (1)
March 31, 2024
(in thousands)
Trade accounts and current notes receivable allowance$15,480 $5,863 $(1,975)$198 $19,566 
(1)"Other" amounts include recoveries and the effect of foreign currency fluctuations for the nine months ended March 31, 2024.


(3) Revenue Recognition

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

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 a Company 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 a 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 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:

13

Quarter ended March 31, 2024
Specialty Technology SolutionsModern Communications & CloudTotal
(in thousands)
Revenue by product/service
Hardware, software and cloud (excluding Intelisys)$483,704 $248,029 $731,733 
Intelisys connectivity and cloud 20,866 20,866 
$483,704 $268,895 $752,599 
Nine months ended March 31, 2024
Specialty Technology SolutionsModern Communications & CloudTotal
(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)$1,513,926 $936,946 $2,450,872 
Intelisys connectivity and cloud 62,824 62,824 
$1,513,926 $999,770 $2,513,696 
Quarter ended March 31, 2023
Specialty Technology SolutionsModern Communications & CloudTotal
(in thousands)
Revenue by product/service
Hardware, software and cloud (excluding Intelisys)$565,652 $299,803 $865,455 
Intelisys connectivity and cloud 20,064 20,064 
$565,652 $319,867 $885,519 
Nine months ended March 31, 2023
Specialty Technology SolutionsModern Communications & CloudTotal
(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)$1,769,530 $1,012,176 $2,781,706 
Intelisys connectivity and cloud 58,867 58,867 
$1,769,530 $1,071,043 $2,840,573 

(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.

14

Quarter endedNine months ended
 March 31,March 31,
 2024202320242023
 (in thousands, except per share data)
Numerator:
Net income$12,806 $21,221 $60,964 $70,997 
Denominator:
Weighted-average shares, basic25,025 25,196 24,982 25,228 
Dilutive effect of share-based payments412 243 309 208 
Weighted-average shares, diluted25,437 25,439 25,291 25,436 
Net income per common share, basic$0.51 $0.84 $2.44 $2.81 
Net income per common share, diluted$0.50 $0.83 $2.41 $2.79 

For the quarter and nine months ended March 31, 2024, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 164,093 and 755,797, respectively. For the quarter and nine months ended March 31, 2023, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 779,688 and 1,152,714, respectively.

(5) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax are as follows: 
March 31, 2024June 30, 2023
 (in thousands)
Foreign currency translation adjustment$(102,285)$(93,136)
Unrealized gain on hedged transaction, net of tax2,268 3,515 
Accumulated other comprehensive loss$(100,017)$(89,621)

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

Quarter ended March 31,Nine months ended March 31,
2024202320242023
(in thousands)
Tax expense (benefit)$136 $(354)$(555)$225 

(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended March 31, 2024, by reporting segment, are set forth in the table below.
Specialty Technology SolutionsModern Communications & CloudTotal
 (in thousands)
Balance at June 30, 2023$16,370 $200,336 $216,706 
Goodwill disposed upon business sale (8,539)(8,539)
Foreign currency translation adjustment (551)(551)
Balance at March 31, 2024$16,370 $191,246 $207,616 

15

The following table shows changes in the amount recognized for net identifiable intangible assets for the nine months ended March 31, 2024.
Net Identifiable Intangible Assets
(in thousands)
Balance at June 30, 2023$68,495 
Intangibles disposed upon business sale(14,927)
Amortization expense(11,982)
Foreign currency translation adjustment(76)
Balance at March 31, 2024$41,510 


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

The following table presents the Company’s debt at March 31, 2024 and June 30, 2023.
March 31, 2024June 30, 2023
(in thousands)
Current portion of long-term debt$7,857 $6,915 
Mississippi revenue bond, net of current portion3,024 3,381 
Senior secured term loan facility, net of current portion135,000 140,625 
Borrowings under revolving credit facility 178,980 
Total debt$145,881 $329,901 

Credit Facility

The Company has a multi-currency senior secured credit facility (as amended, the "Amended Credit Agreement") with JPMorgan Chase Bank N.A., as administrative agent (the "Administrative Agent"), and a syndicate of banks (collectively the "Lenders"). On September 28, 2022, the Company amended and restated the Amended Credit Agreement, which includes (i) a five-year, $350 million multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. The Amended Credit Agreement extended the credit facility maturity date to September 28, 2027. In addition, pursuant to an “accordion feature,” the Company may increase its borrowing limit by up to an additional $250 million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of the domestic subsidiaries of the Company and secured by their assets. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. The Company incurred debt issuance costs of $1.4 million in connection with the amendment and restatement of the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.

Loans denominated in U.S. dollars, other than swingline loans, bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted term Secured Overnight Financing Rate ("SOFR") or adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon the Company’s ratio of (A) total consolidated debt less up to $30 million of unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”); or (ii) the alternate base rate plus an additional margin ranging from 0% to 0.75%, depending upon the Company’s leverage ratio, plus, if applicable, certain mandatory costs. All swingline loans denominated in U.S. dollars bear interest based upon the adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon the Company's leverage ratio, or such other rate as the Company and the applicable swingline lender may agree. The adjusted term SOFR and adjusted daily simple SOFR include a fixed credit adjustment of 0.10% over the applicable SOFR reference rate. Loans denominated in foreign currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the Amended Credit Agreement plus an additional margin ranging from 1.00% to 1.75%, depending upon the Company’s leverage ratio plus, if applicable, certain mandatory costs.

During the quarter and nine months ended March 31, 2024, all of the Company's borrowings under the Amended Credit Agreement were U.S. dollar loans. The spread in effect as of March 31, 2024 was 1.25%, plus a 0.10% credit spread adjustment
16

for SOFR-based loans and 0.25% for alternate base rate loans. The commitment fee rate in effect at March 31, 2024 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 Amended Credit Agreement at March 31, 2024.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine month periods ended March 31, 2024 and 2023 was $94.6 million and $227.2 million, respectively. There was $350.0 million and $171.0 million available for additional borrowings as of March 31, 2024 and June 30, 2023, respectively. The effective interest rates for the revolving line of credit were 6.68% and 6.74% as of March 31, 2024 and June 30, 2023, respectively. There were no letters of credit issued under the multi-currency revolving credit facility at March 31, 2024 or June 30, 2023.

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. The bond accrues interest at the one-month term SOFR plus an adjustment of 0.10% plus a spread of 0.85%. 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, 2024, the Company was in compliance with all covenants under this bond. The interest rates at March 31, 2024 and June 30, 2023 were 6.28% and 6.11%, respectively.

Debt Issuance Costs

At March 31, 2024, net debt issuance costs associated with the credit facility and bond totaled $1.3 million and are being amortized on a straight-line basis 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 Condensed 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 $27.7 million and $34.3 million for the exchange of foreign currencies at March 31, 2024 and June 30, 2023, 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, 2024 and 2023 are as follows:

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 Quarter endedNine months ended
March 31,March 31,
 2024202320242023
 (in thousands)
Net foreign exchange derivative contract (gains) losses$(526)$564 $132 $1,873 
Net foreign currency transactional and re-measurement losses (gains)1,034 (59)1,500 (98)
Net foreign currency exchange losses$508 $505 $1,632 $1,775 

Net foreign currency exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses and are included in other income and expense. Foreign exchange gains and losses are generated as the result of fluctuations in the value of the U.S. dollar versus the Brazilian real, the U.S. dollar versus the euro, the British pound versus the euro, and the Canadian dollar versus the U.S. dollar.

Interest Rates - The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on interest expense from floating rate debt instruments. The Company manages its exposure to changes in interest rates by using interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating rate debt.

On April 30, 2019, the Company entered into an interest rate swap agreement to lock into a fixed LIBOR interest rate, which was amended on September 28, 2022, to change the reference rate from LIBOR to SOFR. The swap agreement has a notional amount of $100.0 million, with a $50.0 million tranche that matured on April 30, 2024 and a $50.0 million tranche scheduled to mature April 30, 2026.

On March 31, 2023, the Company entered into an interest rate swap agreement to lock into a fixed SOFR interest rate with a notional amount of $25 million and a maturity date of March 31, 2028.

These interest rate swap agreements are designated as cash flow hedges to hedge the variable rate interest payments on the revolving credit facility. Interest rate differentials paid or received under the swap agreements are recognized as adjustments to interest expense. To the extent the swaps are effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swaps are not included in current earnings but are reported as other comprehensive income (loss). There was no ineffective portion to be recorded as an adjustment to earnings for the quarters and nine months ended March 31, 2024 and 2023.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters and nine months ended March 31, 2024 and 2023, are as follows:
Quarter endedNine months ended
March 31,March 31,
 2024202320242023
(in thousands)
Net interest income recognized as a result of interest rate swap$(895)$(556)$(2,676)$(869)
Unrealized gain (loss) in fair value of interest rate swap1,093 (1,013)1,021 1,837 
Net increase (decrease) in accumulated other comprehensive income198 (1,569)(1,655)968 
Income tax effect50 (404)(409)250 
Net increase (decrease) in accumulated other comprehensive income, net of tax$148 $(1,165)$(1,246)$718 

The Company used the following derivative instruments at March 31, 2024 and June 30, 2023, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

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 March 31, 2024June 30, 2023
 Balance Sheet LocationFair Value  of
Derivatives
Designated 
as Hedge Instruments
Fair Value  of
Derivatives
Not Designated as  Hedge Instruments
Fair Value  of
Derivatives
Designated
as Hedge Instruments
Fair Value  of
Derivatives
Not Designated as Hedge Instruments
 (in thousands)
Derivative assets:
Foreign exchange contractsPrepaid expenses and other current assets   $1
Foreign currency hedgePrepaid expenses and other current assets$27 $100 
Interest rate swap agreementOther non-current assets$3,032 $4,687 
Derivative liabilities:
Foreign exchange contractsAccrued expenses and other current liabilities $15  

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(9) Fair Value of Financial Instruments

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company classifies certain assets and liabilities based on the fair value hierarchy, which aggregates fair value measured assets and liabilities based upon the following levels of inputs:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The assets and liabilities maintained by the Company that are required to be measured at fair value on a recurring basis include deferred compensation plan investments, forward foreign currency exchange contracts, foreign currency hedge agreements and interest rate swap agreements. The carrying value of debt is considered to approximate fair value, as the Company’s debt instruments are indexed to a variable rate using the market approach (Level 2).

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

TotalQuoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
 (in thousands)
Assets:
Deferred compensation plan investments, current and non-current portion$30,995 $30,995 $ 
Interest rate swap agreement3,032  3,032 
Foreign currency hedge27  27 
Total assets at fair value$34,054 $30,995 $3,059 
Liabilities:
Deferred compensation plan investments, current and non-current portion$31,005 $31,005 $ 
Forward foreign currency exchange contracts15  15 
Total liabilities at fair value$31,020 $31,005 $15 

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at June 30, 2023:
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TotalQuoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
 (in thousands)
Assets:
Deferred compensation plan investments, current and non-current portion$28,209 $28,209 $ 
Forward foreign currency exchange contracts1  1 
Foreign currency hedge100  100 
Interest rate swap agreement4,687  4,687 
Total assets at fair value$32,997 $28,209 $4,788 
Liabilities:
Deferred compensation plan investments, current and non-current portion$28,229 $28,229 $ 
Total liabilities at fair value$28,229 $28,229 $ 

The investments in the deferred compensation plan are held in a "rabbi trust" and include mutual funds and cash equivalents for payment of non-qualified benefits for certain retired, terminated and active employees. These investments are recorded to prepaid expenses and other current assets or other non-current assets depending on their corresponding, anticipated distribution dates to recipients, which are reported in accrued expenses and other current liabilities or other long-term liabilities, respectively.

Derivative instruments, such as foreign currency forward contracts, are measured using the market approach on a recurring basis considering foreign currency spot rates and forward rates quoted by banks or foreign currency dealers and interest rates quoted by banks (Level 2). Fair values of interest rate swaps are measured using standard valuation models with inputs that can be derived from observable market transactions, including SOFR spot and forward rates (Level 2). Foreign currency contracts and interest rate swap agreements are classified in the Condensed Consolidated Balance Sheets as prepaid expenses and other non-current assets or accrued expenses and other long-term liabilities, depending on the respective instruments' favorable or unfavorable positions. See Note 8 - Derivatives and Hedging Activities.

(10) Segment Information

The Company is a leading provider of technology solutions and services to customers in specialty technology markets. The Company has two reportable segments, based on technology type.

Specialty Technology Solutions Segment

The Specialty Technology Solutions segment includes the Company’s business in mobility and barcode, POS, payments, security and networking technologies as summarized below:
Mobility and barcode solutions - mobile computing, barcode scanners and imagers, radio frequency identification devices, barcode printing and related services
POS and payments solutions - POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals and mobile payment devices
Security solutions - video surveillance and analytics, video management software and access control
Networking solutions - switching, routing and wireless products and software

The Company primarily has business operations within this segment in the United States, Canada and Brazil.

Modern Communications & Cloud Segment

The Modern Communications & Cloud segment includes the Company’s business in communications and collaboration, connectivity and cloud services. Communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, include voice, video, integration of communication platforms and contact center solutions. The Intelisys connectivity and cloud services include telecom, cable, Unified Communications as a Service, Contact Center as a Service, Infrastructure as a Service, Software-Defined Wide-Area Network and other cloud services. This segment includes SaaS and subscription services, which the Company offers using digital tools and platforms. The Company's business operations within this segment primarily are in the United States, Canada and Brazil.
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Selected financial information for each business segment is presented below:
Quarter endedNine months ended
 March 31,March 31,
 2024202320242023
 (in thousands)
Sales:
Specialty Technology Solutions$483,704 $565,652 $1,513,926 $1,769,530 
Modern Communications & Cloud268,895 319,867 999,770 1,071,043 
$752,599 $885,519 $2,513,696 $2,840,573 
Depreciation and amortization:
Specialty Technology Solutions$2,736 $2,638 $8,390 $8,099 
Modern Communications & Cloud3,287 3,717 10,621 11,102 
Corporate719 719 2,206 2,158 
$6,742 $7,074 $21,217 $21,359 
Operating income (loss):
Specialty Technology Solutions$9,080 $19,811 $34,321 $61,345 
Modern Communications & Cloud12,989 14,468 40,004 47,253 
Corporate(4,527) (5,871) 
$17,542 $34,279 $68,454 $108,598 
Capital expenditures:
Specialty Technology Solutions$(567)$(520)$(2,133)$(1,546)
Modern Communications & Cloud(1,853)(1,766)(5,152)(5,003)
$(2,420)$(2,286)$(7,285)$(6,549)
Sales by Geography Category:
United States and Canada$672,662 $811,963 $2,262,707 $2,584,598 
International81,353 76,722 256,067 263,017 
Less intercompany sales(1,416)(3,166)(5,078)(7,042)
$752,599 $885,519 $2,513,696 $2,840,573 

March 31, 2024June 30, 2023
 (in thousands)
Assets:
Specialty Technology Solutions$892,866 $1,104,103 
Modern Communications & Cloud890,122 964,066 
Corporate  
$1,782,988 $2,068,169 
Property and equipment, net by Geography Category:
United States and Canada$22,846 $27,323 
International12,748 10,056 
$35,594 $37,379 

(11) Leases

In accordance with Accounting Standards Codification ("ASC") 842, at contract inception the Company determines if a contract contains a lease by assessing whether the contract contains an identified asset and whether the Company has the ability to control the asset. The Company also determines if the lease meets the classification criteria for an operating lease versus a
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finance lease under ASC 842. Substantially all of the Company's leases are operating leases for real estate, warehouse and office equipment ranging in duration from 1 year to 10 years. The Company has elected not to record short-term operating leases with an initial term of 12 months or less on the Condensed Consolidated Balance Sheets. Operating leases are recorded as other non-current assets, accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets. The Company has finance leases for information technology equipment expiring through fiscal year 2028. Finance leases are recorded as property and equipment, net, accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets. The gross amount of the balances recorded related to finance leases is immaterial to the condensed consolidated financial statements at March 31, 2024 and the consolidated financial statements at June 30, 2023.

Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the net present value of future minimum lease payments over the lease term. The Company generally is not able to determine the rate implicit in its leases and has elected to apply an incremental borrowing rate as the discount rate for the present value determination, which is based on the Company's cost of borrowings for the relevant terms of each lease and geographical economic factors. Certain operating lease agreements contain options to extend or terminate the lease. The lease term used is adjusted for these options when the Company is reasonably certain it will exercise the option. Operating lease expense is recognized on a straight-line basis over the lease term. Variable lease payments not based on a rate or index, such as costs for common area maintenance, are expensed as incurred. Further, the Company has elected the practical expedient to recognize all lease and non-lease components as a single lease component, where applicable.

The following table presents amounts recorded on the Condensed Consolidated Balance Sheets related to operating leases at March 31, 2024 and June 30, 2023:

March 31, 2024June 30, 2023
Operating leasesBalance Sheet location(in thousands)
Operating lease right-of-use assetsOther non-current assets$10,342 $12,539 
Current operating lease liabilitiesAccrued expenses and other current liabilities$3,808 $4,355 
Long-term operating lease liabilitiesOther long-term liabilities$7,440 $9,329 

The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed Consolidated Income Statements during the quarters and nine months ended March 31, 2024 and 2023. Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.

Quarter ended March 31,Nine months ended March 31,
2024202320242023
(in thousands)
Operating lease cost$1,143 $1,319 $3,786 $3,896 
Variable lease cost364 396 1,069 1,158 
$1,507 $1,715 $4,855 $5,054 

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

Nine months ended
March 31,
20242023
(in thousands)
Cash paid for amounts in the measurement of lease liabilities$4,019 $4,054 
Right-of-use assets obtained in exchange for lease obligations840 746 

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

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March 31, 2024
Weighted-average remaining lease term3.2 years
Weighted-average discount rate5.00 %

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

Operating leases
(in thousands)
2024$1,219 
20254,169 
20263,618 
20273,176 
20281,118 
Thereafter523 
Total future payments13,823 
Less: amounts representing interest2,575 
Present value of lease payments$11,248 
(12) Commitments and Contingencies

The Company is, from time to time, party to lawsuits arising out of operations. Although there can be no assurance, based upon information known to the Company, the Company believes that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

During the Company's due diligence for the Network1 acquisition completed in 2016, several pre-acquisition contingencies were identified regarding various Brazilian federal and state tax exposures. The Company recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as the funds were escrowed as part of the acquisition. The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was $3.6 million and $3.4 million at March 31, 2024 and June 30, 2023.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets at March 31, 2024 and June 30, 2023:
March 31, 2024June 30, 2023
Network1
 (in thousands)
Assets
Prepaid expenses and other current assets$16 $16 
Other non-current assets$4,003 $4,150 
Liabilities
Accrued expenses and other current liabilities$16 $16 
Other long-term liabilities$4,003 $4,150 

(13) Income Taxes

Income taxes for the quarters and nine months ended March 31, 2024 and 2023 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate. In addition to applying the estimated annual effective tax rate to pre-tax income, the Company includes certain items treated as discrete events to arrive at an estimated overall tax provision. During the quarter ended March 31, 2024, a discrete net tax benefit of $1.5 million was recorded, which is attributable to an income tax recovery in Brazil related to a prior period.

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The Company’s effective tax rate of 28.7% and 21.0% for the quarter and nine months ended March 31, 2024, differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, discrete items, nondeductible expenses and state income taxes. The Company's effective tax rates were 29.1% and 27.8% for the quarter and nine months ended March 31, 2023.

As of March 31, 2024, the Company is not permanently reinvested with respect to all earnings generated by foreign operations. The Company has determined that there is no material deferred tax liability for federal, state and withholding tax related to undistributed earnings. During the nine months ended March 31, 2024, foreign subsidiaries did not repatriate cash to the United States. There is no certainty to the timing of any future distributions of such earnings to the U.S. in whole or in part.

The Company had approximately $1.2 million of total gross unrecognized tax benefits at March 31, 2024 and June 30, 2023. Of this total at March 31, 2024, approximately $1.0 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate. The Company does not believe that the total amount of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. At March 31, 2024 and June 30, 2023, the Company had approximately $1.2 million accrued for interest and penalties.

The Company conducts business globally and one or more of its subsidiaries files income tax returns in the U.S. federal, various state, local and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in countries and states in which it operates. With certain exceptions, the Company is no longer subject to federal, state and local or non-U.S. income tax examinations by tax authorities for the years before June 30, 2018.

(14) Business Sale

On December 19, 2023, the Company completed the sale of its UK-based intY business. The Company retained its CASCADE cloud services distribution platform which has been used to grow the Cisco and Microsoft subscription businesses in the United States and Brazil. Under the stock purchase agreement, the Company received proceeds of $18.0 million in cash for the sale, net of cash transferred. The business sale resulted in a $14.5 million gain on sale after considering the net assets sold. The impact of this sale was not material to the consolidated financial statements.

(15) Restructuring

In January 2024, as part of a strategic review of organizational structure and operations, the Company executed a cost reduction and restructuring program to align our cost structure with demand expectations in our hardware business. These actions are expected to result in approximately $10.0 million in annualized savings in selling, general and administrative expenses.

The following table presents the restructuring and employee separation costs incurred for the quarter and nine months ended March 31, 2024:
Quarter ended March 31, 2024Nine months ended March 31, 2024
 (in thousands)
Employee separation and benefit costs$3,923 $3,923 

For the quarter and nine months ended March 31, 2024, all restructuring costs are recognized in the Corporate reporting unit and have not been allocated to the Specialty Technology Solutions or Modern Communications & Cloud segments.

Accrued restructuring costs are included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. The following table represents activity for the nine months ended March 31, 2024:
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Accrued Expenses
(in thousands)
Balance at June 30, 2023$ 
Charged to expense3,923 
Cash payments(1,125)
Balance at March 31, 2024$2,798 

The remaining balance as of March 31, 2024 of $2.8 million is expected to be paid through the third quarter of fiscal year 2025.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

ScanSource is a leading hybrid distributor connecting devices to the cloud and accelerating growth for customers across hardware, SaaS, connectivity and cloud. We provide technology solutions and services from more than 500 leading suppliers of mobility, barcode, POS, payments, physical security, networking, unified communications, collaboration, connectivity and cloud services to our approximately 25,000 customers located primarily in the United States, Canada and Brazil.

We operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy. Our segments operate primarily in the United States, Canada and Brazil:

Specialty Technology Solutions
Modern Communications & Cloud

We sell hardware, SaaS, connectivity and cloud services from leading technology suppliers to customers that are designed to solve end users' challenges. We operate distribution facilities that support our United States and Canada business in Mississippi, California and Kentucky. Brazil distribution facilities are located in the Brazilian states of Paraná, Espirito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms.

Our key suppliers include AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Dell, Extreme, Five9, Hanwha, Honeywell, Ingenico, Lumen, Microsoft, NCR, Poly HP, RingCentral, Verifone, Verizon, Zebra Technologies and Zoom.

Recent Developments

In January 2024, as part of a strategic review of organizational structure and operations, the Company executed a cost reduction and restructuring program to align our cost structure with demand expectations in our hardware business. These actions are expected to result in approximately $10.0 million in annualized savings in selling, general and administrative expenses.

On December 19, 2023 we completed the sale of our UK-based intY business. We retained our CASCADE cloud services distribution platform, which has been used to grow the Cisco and Microsoft subscription business in the United States and Brazil.

Our Strategy

Our strategy is to drive sustainable, profitable growth by orchestrating hybrid technology solutions through a growing ecosystem of partners by leveraging our people, processes and tools. Our goal is to provide exceptional experiences for our customers, suppliers and employees through operational excellence. Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to customers that solve end users’ challenges. ScanSource enables customers to deliver solutions for their end users to address changing buying and consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our customers access to additional services. As a trusted adviser to our customers, we provide solutions through our strong understanding of end user needs. We have plans to expand our investments in the Agency Channel in the near term.
26

Results of Operations

Net Sales

We have two reportable segments, which are based on technology type. The following tables summarize our net sales results by business segment and by geographic location for the quarters and nine months ended March 31, 2024 and 2023:
 Quarter ended March 31,
% Change, Constant Currency, Excluding Divestitures (a)
Net Sales by Segment:20242023$ Change% Change
 (in thousands) 
Specialty Technology Solutions$483,704 $565,652 $(81,948)(14.5)%(14.6)%
Modern Communications & Cloud268,895 319,867 (50,972)(15.9)%(16.3)%
Total net sales$752,599 $885,519 $(132,920)(15.0)%(15.2)%
 Nine months ended March 31,
% Change, Constant Currency, Excluding Divestitures (a)
20242023$ Change% Change
 (in thousands) 
Specialty Technology Solutions$1,513,926 $1,769,530 $(255,604)(14.4)%(14.6)%
Modern Communications & Cloud999,770 1,071,043 (71,273)(6.7)%(7.6)%
Total net sales$2,513,696 $2,840,573 $(326,877)(11.5)%(11.9)%
(a) A reconciliation of non-GAAP net sales in constant currency is presented at the end of Results of Operations, under Non-GAAP Financial Information.

Specialty Technology Solutions

The Specialty Technology Solutions segment consists of sales to customers in North America and Brazil. For the quarter and nine months ended March 31, 2024, net sales decreased $81.9 million, or 14.5%, and $255.6 million, or 14.4%, respectively, compared to the prior-year period. Excluding the foreign exchange positive impact, adjusted net sales decreased $82.6 million, or 14.6%, and $258.0 million, or 14.6%, for the quarter and nine months ended March 31, 2024, respectively, compared to the prior-year period. The decrease in net sales and adjusted net sales for the quarter is primarily due to lower sales volumes across technologies