SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 value	SCSC	NASDAQ 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 x☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x☒ 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

x☒

Smaller reporting company

☐

Accelerated filer

¨☐

Emerging growth company

☐

Non-accelerated filer

¨☐

~~(Do not check if a smaller reporting company)~~

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 x☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class						Outstanding at February ~~2, 2018~~1, 2023
Common Stock, no par value per share						~~25,571,355~~25,349,304 shares

SCANSOURCE, INC.

INDEX TO FORM 10-Q

December 31, ~~2017~~2022


						Page #
PART I. FINANCIAL INFORMATION

Item 1.						~~Page #~~
~~PART I. FINANCIAL INFORMATION~~ Financial Statements		45

~~Item 1.~~	~~Financial Statements~~			4
	Condensed Consolidated Balance Sheets ~~as of~~(unaudited) at December 31, ~~2017~~2022 and June 30, ~~2017~~2022	45
			Condensed Consolidated Income Statements (unaudited) for the ~~Quarter~~Quarters and Six Months Ended December 31, ~~2017~~2022 and ~~2016~~2021			56
			Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~(unaudited) for the ~~Quarter~~Quarters and Six Months Ended December 31, ~~2017~~2022 and ~~2016~~2021			67
			Condensed Consolidated Statements of Shareholders' Equity (unaudited) for the Quarters and Six Months Ended December 31, 2022 and 2021			8
			Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended December 31, ~~2017~~2022 and ~~2016~~2021			710
			Notes to Condensed Consolidated Financial Statements (unaudited)			811
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			2625
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			3942
Item 4.			Controls and Procedures			4043

PART II. OTHER INFORMATION

Item 1.			Legal Proceedings			4144

Item 1	~~Legal Proceedings~~1A.	41Risk Factors			44
Item ~~1A.~~2.			~~Risk Factors~~			41
~~Item 2~~	Unregistered Sales of Equity Securities and Use of Proceeds	4144
Item 6.			Exhibits			4245

SIGNATURES						4346

Table of Contents

FORWARD-LOOKING STATEMENTS

~~We include forward-looking~~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" ~~and "Risk Factors"~~ sections and elsewhere herein. ~~These statements generally can be identified by words~~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.~~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 or to reflect the occurrence of unanticipated events.~~10-Q. Actual results could differ materially from those ~~suggested by~~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: the impact of the COVID-19 pandemic, 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 ~~our overseas~~the Company's international operations, risk to the ~~impact of tax reform laws, the~~Company's business from a cyber-security attack, a failure of ~~acquisitions to meet our expectations,~~ the Company's IT systems, failure to ~~manage~~hire and ~~implement our organic growth strategy, credit risks involving our larger~~retain quality employees, loss of the Company's major customers, ~~and vendors,~~ termination of ~~our~~the Company's relationship with key ~~vendors~~suppliers or a significant modification of the terms under which ~~we operate~~it operates with a key ~~vendor,~~supplier, changes in the ~~decline in demand for the products~~Company's operating strategy and ~~services that we provide, reduced prices for the products and services that we provide due both to competitor and customer actions, and the~~ other factors set forth in "Risk Factors" contained in our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2022.

Table of Contents

PART I. FINANCIAL INFORMATION



Item 1.			Financial Statements

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share information)


	December 31, 2022		June 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	66,445	$	37,987
Accounts receivable, less allowance of $13,353 at December 31, 2022 and $16,806 at June 30, 2022	779,562		729,442
Inventories	761,936		614,814
Prepaid expenses and other current assets	111,119		141,562

Total current assets	1,719,062		1,523,805
Property and equipment, net	36,593		37,477
Goodwill	214,367		214,435
Identifiable intangible assets, net	75,950		84,427
Deferred income taxes	14,751		15,668
Other non-current assets	69,806		61,616

Total assets	$	2,130,529	$	1,937,428
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	748,662	$	714,177
Accrued expenses and other current liabilities	76,985		88,455

Income taxes payable	6,049		34

Current portion of long-term debt	5,040		11,598

Total current liabilities	836,736		814,264
Deferred income taxes	3,132		3,144
Long-term debt, net of current portion	147,756		123,733
Borrowings under revolving credit facility	230,000		135,839

Other long-term liabilities	50,519		53,920

Total liabilities	1,268,143		1,130,900
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, 25,343,014 and 25,187,351 shares issued and outstanding at December 31, 2022 and June 30, 2022, respectively	68,313		64,297
Retained earnings	896,645		846,869
Accumulated other comprehensive loss	(102,572)		(104,638)
Total shareholders’ equity	862,386		806,528
Total liabilities and shareholders’ equity	$	2,130,529	$	1,937,428

June 30, 2022 amounts are derived from audited consolidated financial statements.
See accompanying notes to these condensed consolidated financial statements.

December 31, 2017 June 30, 2017
Assets
Current assets:
Cash and cash equivalents $ 35,435
$ 56,094
Accounts receivable, less allowance of $47,264 at December 31, 2017 and $44,434 at June 30, 2017 717,336
637,293
Inventories 581,802
531,314
Prepaid expenses and other current assets 76,667
56,322
Total current assets 1,411,240
1,281,023
Property and equipment, net 76,626
56,566
Goodwill 302,912
200,881
Identifiable intangible assets, net 148,443
101,513
Deferred income taxes 11,794
29,491
Other non-current assets 54,267
48,829
Total assets $ 2,005,282
$ 1,718,303
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt $ 104
$ —
Accounts payable 515,302
513,155
Accrued expenses and other current liabilities 97,597
104,715
Current portion of contingent consideration 38,629
30,675
Income taxes payable 5,086
7,730
Total current liabilities 656,718
656,275
Deferred income taxes 11,110
2,008
Long-term debt 5,325
5,429
Borrowings under revolving credit facility 355,503
91,871
Long-term portion of contingent consideration 58,402
83,361
Other long-term liabilities 57,437
42,214
Total liabilities 1,144,495
881,158
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, 25,571,355 and 25,431,845 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively
64,896
61,169
Retained earnings 861,296
849,180
Accumulated other comprehensive income (loss) (65,405 ) (73,204 )
Total shareholders’ equity 860,787
837,145
Total liabilities and shareholders’ equity $ 2,005,282
$ 1,718,303

June 30, 2017 amounts are derived from audited consolidated financial statements.
See accompanying notes to these condensed consolidated financial statements.

Table of Contents

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)

(In thousands, except per share data)

Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
Net sales $ 1,032,212
$ 904,792
$ 1,956,771
$ 1,837,357
Cost of goods sold 919,241
806,258
1,737,883
1,647,289
Gross profit 112,971
98,534
218,888
190,068
Selling, general and administrative expenses 74,763
66,880
147,950
130,145
Depreciation expense 3,467
2,423
6,707
4,492
Intangible amortization expense 5,487
4,165
10,498
7,320
Change in fair value of contingent consideration 6,913
1,791
23,794
1,961
Operating income 22,341
23,275
29,939
46,150
Interest expense 2,285
912
3,870
1,501
Interest income (580 ) (892 ) (1,462 ) (1,908 )
Other (income) expense, net 326
(12,526 ) 441
(11,948 )
Income before income taxes 20,310
35,781
27,090
58,505
Provision for income taxes 12,341
12,745
14,974
20,653
Net income $ 7,969
$ 23,036
$ 12,116
$ 37,852
Per share data:
Net income per common share, basic $ 0.31
$ 0.92
$ 0.48
$ 1.49
Weighted-average shares outstanding, basic 25,506
25,146
25,470
25,334

Net income per common share, diluted $ 0.31
$ 0.91
$ 0.47
$ 1.48
Weighted-average shares outstanding, diluted 25,648
25,285
25,612
25,490


	Quarter ended				Six months ended
	December 31,				December 31,
	2022		2021		2022		2021
Net sales	$	1,011,241	$	864,079	$	1,955,054	$	1,721,662
Cost of goods sold	895,907		756,426		1,726,236		1,512,437
Gross profit	115,334		107,653		228,818		209,225
Selling, general and administrative expenses	69,074		69,161		140,667		133,016
Depreciation expense	2,678		2,547		5,441		5,427
Intangible amortization expense	4,150		4,447		8,391		8,956


Operating income	39,432		31,498		74,319		61,826
Interest expense	5,060		1,493		8,507		3,153
Interest income	(2,027)		(947)		(3,618)		(1,973)
Other expense, net	207		543		955		807
Income before income taxes	36,192		30,409		68,475		59,839
Provision for income taxes	10,458		7,257		18,699		14,614
Net income from continuing operations	25,734		23,152		49,776		45,225
Net income from discontinued operations	—		100		—		100
Net income	$	25,734	$	23,252	$	49,776	$	45,325

Per share data:
Net income from continuing operations per common share, basic	$	1.02	$	0.91	$	1.97	$	1.77
Net income from discontinued operations per common share, basic	—		—		—		—
Net income per common share, basic	$	1.02	$	0.91	$	1.97	$	1.77
Weighted-average shares outstanding, basic	25,287		25,585		25,244		25,549

Net income from continuing operations per common share, diluted	$	1.01	$	0.89	$	1.96	$	1.75
Net income from discontinued operations per common share, diluted	—		—		—		—
Net income per common share, diluted	$	1.01	$	0.90	$	1.96	$	1.76
Weighted-average shares outstanding, diluted	25,502		25,895		25,454		25,806



See accompanying notes to these condensed consolidated financial statements.

Table of Contents

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
Net income $ 7,969
$ 23,036
$ 12,116
$ 37,852
Unrealized gain on hedged transaction, net of tax 320
—
349
—
Foreign currency translation adjustment (2,435 ) (8,625 ) 7,450
(9,563 )
Comprehensive income $ 5,854
$ 14,411
$ 19,915
$ 28,289


	Quarter ended				Six months ended
	December 31,				December 31,
	2022		2021		2022		2021
Net income	$	25,734	$	23,252	$	49,776	$	45,325
Unrealized gain on hedged transaction, net of tax	3		1,172		1,882		1,585
Foreign currency translation adjustment	7,401		(2,759)		184		(13,906)
Comprehensive income	$	33,138	$	21,665	$	51,842	$	33,004



See accompanying notes to these condensed consolidated financial statements.

Table of Contents

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, 2022	25,187,351	$	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 taxes	38,551	(586)		—		—		(586)

Share-based compensation	—	2,358		—		—		2,358

Balance at September 30, 2022	25,225,902	$	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 taxes	117,112	(1,112)		—		—		(1,112)

Share-based compensation	—	3,356		—		—		3,356

Balance at December 31, 2022	25,343,014	$	68,313	$	896,645	$	(102,572)	$	862,386








See accompanying notes to these condensed consolidated financial statements.

Table of Contents

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, 2021	25,499,465	$	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 taxes	29,086	994		—		—		994

Share-based compensation	—	2,570		—		—		2,570
Balance at September 30, 2021	25,528,551	$	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 taxes	134,897	(2,513)		—		—		(2,513)
Common stock repurchased	(5,903)	(183)		—		—		(183)
Share-based compensation	—	3,462		—		—		3,462
Balance at December 31, 2021	25,657,545	$	75,583	$	803,396	$	(110,454)	$	768,525








See accompanying notes to these condensed consolidated financial statements.

Table of Contents

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Six months ended
	December 31,
	2022		2021
Cash flows from operating activities:
Net income	$	49,776	$	45,325
Net income from discontinued operations	—		100
Net income from continuing operations	49,776		45,225
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	14,285		14,879
Amortization of debt issue costs	385		209
Provision for doubtful accounts	33		921
Share-based compensation	5,679		6,032

Deferred income taxes	932		(109)



Finance lease interest	24		26
Changes in operating assets and liabilities:
Accounts receivable	(49,541)		(54,370)
Inventories	(146,826)		(95,531)
Prepaid expenses and other assets	30,487		(11,236)
Other non-current assets	(7,168)		(1,561)
Accounts payable	33,820		25,444
Accrued expenses and other liabilities	(13,268)		(5,130)
Income taxes payable	6,036		(177)
Net cash used in operating activities	(75,346)		(75,378)
Cash flows from investing activities:
Capital expenditures	(4,262)		(2,645)

Proceeds from the sale of discontinued operations	—		3,125

Net cash (used in) provided by investing activities	(4,262)		480
Cash flows from financing activities:

Borrowings on revolving credit, net of expenses	1,232,058		1,115,161
Repayments on revolving credit, net of expenses	(1,137,897)		(1,057,376)
Borrowings (repayments) on long-term debt, net	17,465		(4,093)
Repayments on finance lease obligation	(492)		(624)
Debt issuance costs	(1,407)		—

Exercise of stock options	634		1,114
Taxes paid on settlement of equity awards	(2,332)		(2,634)
Common stock repurchased	—		(183)

Net cash provided by financing activities	108,029		51,365
Effect of exchange rate changes on cash and cash equivalents	37		(5,062)
Increase (decrease) in cash and cash equivalents	28,458		(28,595)
Cash and cash equivalents at beginning of period	37,987		62,718
Cash and cash equivalents at end of period	$	66,445	$	34,123

See accompanying notes to these condensed consolidated financial statements.

Six months ended
December 31,
2017 2016
Cash flows from operating activities:
Net income $ 12,116
$ 37,852
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 18,766
11,812
Amortization of debt issuance costs 158
148
Provision for doubtful accounts 5,331
4,007
Share-based compensation 3,233
3,147
Deferred income taxes (1,540 ) (57 )
Excess tax benefits from share-based payment arrangements —
(88 )
Change in fair value of contingent consideration 23,794
1,961
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (72,975 ) (49,791 )
Inventories (37,749 ) 40,792
Prepaid expenses and other assets (10,081 ) (20,805 )
Other non-current assets (4,775 ) (1,205 )
Accounts payable (11,524 ) (12,863 )
Accrued expenses and other liabilities (5,654 ) 13,892
Income taxes payable (3,283 ) 6,929
Net cash (used in) provided by operating activities (84,183 ) 35,731
Cash flows from investing activities:
Capital expenditures (3,296 ) (3,261 )
Cash paid for business acquisitions, net of cash acquired (143,768 ) (83,804 )
Net cash (used in) investing activities (147,064 ) (87,065 )
Cash flows from financing activities:
Borrowings on revolving credit 1,279,193
829,141
Repayments on revolving credit (1,015,672 ) (764,332 )
Debt issuance costs (296 ) —
Repayments on capital lease obligation (281 ) (123 )
Contingent consideration payments (54,025 ) (10,241 )
Exercise and issuance of equity awards 2,126
4,217
Taxes paid on settlement of equity awards (1,616 ) (1,736 )
Repurchase of common stock —
(20,882 )
Excess tax benefits from share-based payment arrangements —
88
Net cash provided by financing activities 209,429
36,132
Effect of exchange rate changes on cash and cash equivalents 1,159
(1,127 )
Decrease in cash and cash equivalents (20,659 ) (16,329 )
Cash and cash equivalents at beginning of period 56,094
61,400
Cash and cash equivalents at end of period $ 35,435
$ 45,071

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

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 ~~global provider~~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 ~~technology products~~mobility and ~~solutions. ScanSource, Inc.~~barcode, point-of-sale ("POS"), payments, physical security, unified communications and ~~its subsidiaries (the "Company") provide value-added solutions from technology suppliers~~collaboration, telecom and ~~sell~~cloud services to ~~customers in specialty technology markets through its Worldwide Barcode, Networking & Security segment and Worldwide Communications & Services segment.~~

market. The Company operates in the United States, Canada, Latin America and Europe. The Company sells products into the United States and Canada principally from a facility located in Mississippi; into Latin America principally from facilities located in Florida, Mexico, Brazil and ~~Colombia;~~the UK. The Company's two operating segments, Specialty Technology Solutions and ~~into Europe from facilities located in Belgium, France, Germany and the United Kingdom.~~Modern Communications & Cloud, are based on technology.

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 ~~as of~~ at December 31, ~~2017~~2022 and June 30, ~~2017~~,2022, the results of operations for the quarters and six months ended December 31, ~~2017~~2022 and ~~2016~~,2021, the statements of comprehensive income for the quarters and six months ended December 31, ~~2017~~2022 and ~~2016~~,2021, the statements of shareholders' equity for the quarters and six months ended December 31, 2022 and 2021 and the statements of cash flows for the six months ended December 31, ~~2017~~2022 and ~~2016~~.2021. The results of operations for the quarters and six months ended December 31, ~~2017~~ ~~and~~ ~~2016~~2022 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, ~~2017~~.2022. Unless otherwise indicated, disclosures provided in the Notes pertain to continuing operations only.

The Company has reclassified certain prior-year amounts in the segment results to conform with current year presentation. The reclassifications had no effect on the condensed consolidated financial results.

Summary of Significant Accounting Policies

~~Except as described below, there~~There have been no material changes to the Company’s significant accounting policies for the six months ended December 31, ~~2017~~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, ~~2017~~.2022. 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, ~~2017~~.2022.

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 amounts of ~~$7.5~~$8.9 million and ~~$8.3~~$18.0 million are included in accounts payable ~~as of~~ on the condensed consolidated balance sheets at December 31, ~~2017~~2022 and June 30, ~~2017~~,2022, respectively.

Long-lived Assets

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The Company presents depreciation expense and intangible amortization expense ~~individually~~ on the Condensed Consolidated Income Statements. The Company's depreciation expense related to selling, general and administrative costs totaled ~~$3.5~~$2.7 million and ~~$6.7~~$5.4 million for the quarter and six months ended December 31, ~~2017~~2022 and ~~$2.4~~$2.5 million and ~~$4.5~~$5.4 million for the quarter and six months ended December 31, ~~2016, respectively.~~2021. Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled ~~$0.9~~$0.2 million and ~~$1.6~~$0.5 million for the quarter and six months ended December 31, ~~2017. There was no depreciation expense reported as part of cost of goods sold prior to the acquisition of POS Portal on July 31, 2017.~~2022 and 2021. The Company's intangible amortization expense reported on the Condensed Consolidated Income Statements ~~relate~~relates to selling, general and administrative costs, not the cost of selling goods. Intangible amortization expense totaled ~~$5.5~~$4.2 million and ~~$10.5~~$8.4 million for the quarter and six months ended December 31, ~~2017~~2022 and ~~$4.2~~$4.4 million and ~~$7.3~~$9.0 million for the quarter and six months ended December 31, ~~2016, respectively.~~2021.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued a comprehensive new revenue recognition standard for contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance under Accounting Standards Update ("ASU") 2014-09, ~~Revenue from Contracts with Customers~~ (Topic 606). In March, April, May and December 2016 the FASB issued additional ASUs to provide supplemental adoption guidance and clarification to ASU 2014-09. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. This guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. This guidance will be applicable to the Company for the fiscal year beginning July 1, 2018. The Company is currently in the process of evaluating the impact of this guidance on our consolidated financial results to determine the appropriate transition method for the Company. The Company has engaged a third-party consultant to assist with developing a multi-phase plan to assess the impact of adoption and is currently in the process of finalizing its conclusions on several aspects of the standard including principal versus agent considerations, identification of performance obligations, and the determination of when control of goods and services transfers to the Company’s customers. Additionally, the Company is in the process of evaluating the impact of the expanded disclosure requirements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ requiring lessees to reflect most leases on their balance sheets and recognize expenses on their income statements. Under the new guidance, lessees will be required to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received, and the lessee's initial direct costs. For leases with a lease term of 12 months or less, as long as the lease does not include options to purchase the underlying assets, lessees can elect not to recognize a lease liability and right-of-use asset. Under the new guidance, lessor accounting is largely unchanged, and the accounting for sale and leaseback transactions is simplified. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This guidance will be applicable to the Company for the fiscal year beginning July 1, 2019. The guidance must be adopted using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this new guidance.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718)~~ effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This guidance was adopted by the Company prospectively on July 1, 2017. The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, an entity will recognize all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement. This change eliminates the current practice of recognizing excess tax benefits in additional paid-in-capital ("APIC") and tax deficiencies in APIC to the extent that there is a sufficient APIC pool related to previously recognized excess tax benefits. In addition, excess tax benefits and tax deficiencies are considered discrete items in the reporting period they occur and are not included in the estimate of an entity’s annual effective tax rate. As for classification on the statement of cash flows, excess tax benefits will no longer represent a financing activity since they are recognized in the income statement and will appropriately be classified as an operating activity. See the ~~Condensed Consolidated Statements of~~

~~Cash Flows~~ ~~for the six months ended December 31, 2017~~for the prospective presentation of classifying excess tax benefits as an operating activity, not a financing activity as in prior years. The ASU allows an entity to elect as an accounting policy either to continue to estimate the total number of awards for which the requisite service period will not be rendered (as currently required) or to account for forfeitures when they occur. The Company elected to maintain its accounting policy to estimate to the total number of forfeitures for stock awards granted. In regards to statutory withholding requirements, the new guidance stipulates that the net settlement of an award would not result, by itself, in liability classification of the award provided that the amount withheld for taxes does not exceed the maximum statutory tax rate in the employees’ relevant tax jurisdictions.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230)~~ intended to reduce diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update addresses eight specific cash flow issues, with the treatment of contingent consideration payments made after a business combination being the most directly applicable to the Company. The update requires that cash payments made approximately three months or less after an acquisition's consummation date should be classified as cash outflows for investing activities. Payment made thereafter up to the amount of the original contingent consideration liability should be classified as cash outflows from financing activities. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows from operating activities. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The standard will be applicable to the Company for the fiscal year beginning July 1, 2018. Early adoption is permitted, provided all eight amendments are adopted in the same period. The guidance requires adoption using a retrospective transition method. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this new guidance.

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 six months ended December 31, 2022 are set forth in the table below.


	June 30, 2022		Amounts Charged to Expense		Write-offs		Other (1)		December 31, 2022
	(in thousands)
Trade accounts and current notes receivable allowance	$	16,806	$	33	$	(2,842)	$	(644)	$	13,353

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

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

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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:


	Quarter ended December 31, 2022
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service
Hardware, software and cloud (excluding Intelisys)	$	627,548	$	363,743	$	991,291
Intelisys connectivity and cloud	—		19,950		19,950
	$	627,548	$	383,693	$	1,011,241

	Six months ended December 31, 2022
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	1,203,878	$	712,373	$	1,916,251
Intelisys connectivity and cloud	—		38,803		38,803
	$	1,203,878	$	751,176	$	1,955,054

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	Quarter ended December 31, 2021
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service
Hardware, software and cloud (excluding Intelisys)	$	496,920	$	348,893	$	845,813
Intelisys connectivity and cloud	—		18,266		18,266
	$	496,920	$	367,159	$	864,079


	Six months ended December 31, 2021
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	998,630	$	687,142	$	1,685,772
Intelisys connectivity and cloud	—		35,890		35,890
	$	998,630	$	723,032	$	1,721,662

(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.


	Quarter ended				Six months ended
	December 31,				December 31,
	2022		2021		2022		2021
	(in thousands, except per share data)
Numerator:
Net income from continuing operations	$	25,734	$	23,152	$	49,776	$	45,225
Net income from discontinued operations	—		100		—		100
Net income	$	25,734	$	23,252	$	49,776	$	45,325
Denominator:
Weighted-average shares, basic	25,287		25,585		25,244		25,549
Dilutive effect of share-based payments	215		310		210		257
Weighted-average shares, diluted	25,502		25,895		25,454		25,806

Net income from continuing operations per common share, basic	$	1.02	$	0.91	$	1.97	$	1.77
Net loss from discontinued operations per common share, basic	—		—		—		—
Net income per common share, basic	$	1.02	$	0.91	$	1.97	$	1.77

Net income from continuing operations per common share, diluted	$	1.01	$	0.89	$	1.96	$	1.75
Net loss from discontinued operations per common share, diluted	—		—		—		—
Net income per common share, diluted	$	1.01	$	0.90	$	1.96	$	1.76

Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
(in thousands, except per share data)
Numerator:
Net Income $ 7,969
$ 23,036
$ 12,116
$ 37,852
Denominator:
Weighted-average shares, basic 25,506
25,146
25,470
25,334
Dilutive effect of share-based payments 142
139
142
156
Weighted-average shares, diluted 25,648
25,285
25,612
25,490

Net income per common share, basic $ 0.31
$ 0.92
$ 0.48
$ 1.49
Net income per common share, diluted $ 0.31
$ 0.91
$ 0.47
$ 1.48

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For the ~~quarter~~quarters and six months ended December 31, ~~2017,~~2022, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were ~~405,159~~847,651 and ~~432,846,~~1,268,455, respectively. For the ~~quarter~~quarters and six months ended December 31, ~~2016, there were 568,955 and 517,845, respectively,~~2021, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be ~~anti-dilutive.~~anti-dilutive were 847,484 and 1,149,352, respectively.

~~(3)~~(5) Accumulated Other Comprehensive ~~Income (Loss)~~Loss

Accumulated other comprehensive ~~income (loss)~~loss consists of the following:


	December 31, 2022		June 30, 2022
	(in thousands)
Foreign currency translation adjustment	$	(105,715)	$	(105,899)
Unrealized gain on hedged transaction, net of tax	3,143		1,261
Accumulated other comprehensive loss	$	(102,572)	$	(104,638)

December 31, 2017 June 30, 2017
(in thousands)
Foreign currency translation adjustment $ (65,767 ) $ (73,217 )
Unrealized gain (loss) on hedged transaction, net of tax 362
13
Accumulated other comprehensive income (loss) $ (65,405 ) $ (73,204 )

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


	Quarter ended December 31,				Six months ended December 31,
	2022		2021		2022		2021
	(in thousands)
Tax expense	$	166	$	517	$	580	$	800

Quarter ended December 31, Six months ended December 31,
2017 2016 2017 2016
(in thousands)
Tax expense (benefit) $ 75
$ 144
$ 379
$ 92

~~(4) Acquisitions~~

~~POS Portal~~

On July 31, 2017, the Company acquired all of the outstanding shares of POS Portal, Inc. ("POS Portal") a leading provider of payment devices and services primarily to the small and midsized ("SMB") market segment in the United States. POS Portal joined the Worldwide Barcode, Networking & Security segment.

Under the purchase agreement, the all-cash transaction included an initial purchase price of approximately $144.9 million paid in cash at closing. The Company paid an additional $3.4 million for customary closing adjustments during the six months ended December 31, 2017. The Company acquired $4.6 million in cash, net of debt payoff and other customary closing adjustments, resulting in $143.8 million net cash paid for POS Portal. The agreement also included a cash earn-out payment up to $13.2 million based on POS Portal's earnings before interest expense, taxes, depreciation and amortization (EBITDA) for the trailing twelve months (TTM) ending September 30, 2017, which was paid in full during the quarter ended December 31, 2017. A portion of the purchase price was placed into escrow to indemnify the Company for certain pre-acquisition damages. A portion of the escrow was released during the quarter ended December 31, 2017. As of December 31, 2017, the balance available in escrow was $13.1 million.

The purchase price of this acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date. The goodwill balance is primarily attributed to expanding the Company's high-value capabilities and market reach across all payment channels. Goodwill, identifiable intangible assets and the related deferred tax liability are not deductible for tax purposes. Pro forma results of operations have not been presented for the acquisition of POS Portal because such results are not material to our consolidated results.

POS Portal
(in thousands)
Receivables $ 8,914
Inventory 8,352
Other current assets 917
Property and equipment 24,963
Goodwill 101,198
Identifiable intangible assets 57,000
Other non-current assets 100
$ 201,444

Accounts payable $ 10,897
Accrued expenses and other current liabilities 5,130
Contingent consideration 13,098
Other long-term liabilities 102
Long-term deferred taxes payable 28,449
Consideration transferred, net of cash acquired 143,768
$ 201,444

Intangible assets acquired include trade names, customer relationships, non-compete agreements and an encryption key library. The weighted-average amortization period for these identified intangible assets after purchase accounting adjustments, other than goodwill, was 10 years.

~~Intelisys~~

On August 29, 2016, the Company acquired substantially all the assets of Intelisys, a technology services company with voice, data, cable, wireless, and cloud services. Intelisys is part of the Company's Worldwide Communications and Services operating segment. With this acquisition, the Company broadens its capabilities in the telecom and cloud services market and generates the opportunity for high-growth recurring revenue.

Under the asset purchase agreement, the Company made an initial cash payment of approximately $84.6 million, which consisted of an initial purchase price of $83.6 million and $1.0 million for additional net assets acquired at closing, and agreed to make four additional annual cash installments based on a form of adjusted EBITDA for the periods ending June 30, 2017 through June 30, 2020. The Company acquired $0.8 million of cash as part of the acquisition, resulting in $83.8 million net cash paid for Intelisys initially. A portion of the purchase price was placed into escrow to indemnify the Company for certain pre-acquisition damages. As of December 31, 2017, the balance available in escrow was $8.5 million.

The purchase price of this acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date. The goodwill balance is primarily attributed to entering the recurring revenue telecom and cloud services market and expanded market opportunities to grow recurring revenue streams. Goodwill and identifiable intangible assets are expected to be fully deductible for tax purposes.

Intelisys
(in thousands)
Receivables $ 21,655
Other current assets 1,547
Property and equipment 5,298
Goodwill 109,005
Identifiable intangible assets 63,110
Other non-current assets 1,839
$ 202,454

Accounts payable $ 21,063
Accrued expenses and other current liabilities 2,587
Contingent consideration 95,000
Consideration transferred, net of cash acquired 83,804
$ 202,454

Intangible assets acquired include trade names, customer relationships and non-compete agreements. The weighted-average amortization period for these identified intangible assets after purchase accounting adjustments, other than goodwill, was 10 years.

~~(5)~~(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the six months ended December 31, ~~2017~~,2022, by reporting segment, are ~~as follows:~~

Barcode, Networking & Security Segment Communications & Services Segment Total
(in thousands)
Balance as of June 30, 2017 $ 36,260
$ 164,621
$ 200,881
Additions 101,198
—
101,198
Foreign currency translation adjustment 146
687
833
Balance as of December 31, 2017 $ 137,604
$ 165,308
$ 302,912

~~The Company completed the acquisition of POS Portal, a leading provider of payment devices and services primarily to the SMB market segment~~set forth in the ~~United States. The addition of goodwill in the Worldwide Barcode, Networking & Security segment is the result of this acquisition.~~table below.


	Specialty Technology Solutions		Modern Communications & Cloud		Total
	(in thousands)
Balance at June 30, 2022	$	16,370	$	198,065	$	214,435
Foreign currency translation adjustment	—		(68)		(68)
Balance at December 31, 2022	$	16,370	$	197,997	$	214,367

The following table shows changes in the amount recognized for net identifiable intangible assets for the six months ended December 31, ~~2017~~.2022.


	Net Identifiable Intangible Assets
	(in thousands)
Balance at June 30, 2022	$	84,427
Amortization expense	(8,391)
Foreign currency translation adjustment	(86)
Balance at December 31, 2022	$	75,950

Net Identifiable Intangible Assets
(in thousands)
Balance as of June 30, 2017 $ 101,513
Additions 57,000
Amortization expense (10,498 )
Foreign currency translation adjustment 428
Balance as of December 31, 2017 $ 148,443

The intangible asset additions represent acquired assets for trade names, customer relationships, non-compete agreements and an encryption key library related to the POS Portal acquisition. These assets will be amortized over a period of four to twelve years.

~~(6)~~(7) Short-Term Borrowings and Long-Term Debt

The following table presents the Company’s debt ~~as of~~at December 31, ~~2017~~2022 and June 30, ~~2017.~~2022.

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						December 31, 2022		June 30, 2022
	December 31, 2017		June 30, 2017			(in thousands)
	(in thousands)
Current portion of long-term debt	$	104	$	—	Current portion of long-term debt	$	5,040	$	11,598
Revolving credit facility	355,503		91,871
Long-term debt	5,325		5,429
Mississippi revenue bond, net of current portion					Mississippi revenue bond, net of current portion	3,381		3,733
Senior secured term loan facility, net of current portion					Senior secured term loan facility, net of current portion	144,375		120,000
Borrowings under revolving credit facility					Borrowings under revolving credit facility	230,000		135,839
Total debt	$	360,932	$	97,300	Total debt	$	382,796	$	271,170

~~Revolving~~ Credit Facility

The Company has a multi-currency senior secured ~~revolving~~ credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks ~~(the~~(as amended, the “Amended Credit Agreement”) ~~that is scheduled to mature on April 3, 2022.~~. On ~~August 8, 2017, the Company~~September 28, 2022, ScanSource, Inc. amended and restated the Amended Credit Agreement, ~~to increase the committed~~which includes (i) a five-year, $350 million multicurrency senior secured revolving credit facility ~~from $300~~and (ii) a five-year $150 million ~~to $400 million.~~senior secured term loan facility. The Amended Credit Agreement ~~allows for~~extended the ~~issuance of~~credit facility maturity date to September 28, 2027. In addition, pursuant to an “accordion feature,” the Company may increase its borrowings up to ~~$50~~an additional $250 million, ~~for letters of credit and has a~~ ~~$200 million~~ ~~accordion feature that allows the Company to increase the availability to~~ ~~$600 million~~, subject to obtaining additional credit commitments from the lenders participating in the increase. The ~~Company incurred $0.3~~Amended Credit Agreement allows for the issuance of up to $50 million ~~in debt issuance costs in connection with the August 8, 2017 amendment.~~

AtLoans denominated in U.S. dollars, other than swingline loans, shall bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted Term 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 shall bear interest based upon the adjusted daily simple SOFR, floating daily, 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 shall bear interest at a rate per annum equal to the applicable benchmark rate set forth in the New 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 six months ended December 31, ~~2017,~~2022, the Company's borrowings under the credit facility were U.S. dollar loans. The spread in effect as of December 31, 2022 was ~~1.625%~~1.50%, plus a 0.10% credit spread adjustment for ~~LIBOR-based~~SOFR-based loans and ~~0.625%~~0.50% for alternate base rate loans. The commitment fee rate in effect ~~as of~~at December 31, ~~2017~~2022 was ~~0.250%~~0.25%. 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 ~~as of~~at December 31, ~~2017.~~2022.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the six month periods ended December 31, ~~2017~~2022 and ~~2016~~2021 was ~~$261.8~~$219.5 million and ~~$129.7~~$57.1 million, respectively. There was ~~$44.6~~$120.0 million and ~~$208.1~~$214.2 million available for additional borrowings as of December 31, ~~2017~~2022 and June 30, ~~2017,~~2022, respectively. There were no letters of credit issued under the multi-currency revolving credit facility ~~as of~~at December 31, ~~2017 and~~2022 or June 30, ~~2017.~~2022.

~~Long-Term Debt~~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. ~~As of~~ At December 31, ~~2017~~,2022, the Company was in compliance with all covenants under this bond. The interest ~~rate~~rates at December 31, ~~2017~~2022 and June 30, ~~2017~~ ~~was 2.23%~~2022 were 4.97% and ~~1.93%~~1.97%, respectively.

~~As of~~At December 31, ~~2017,~~2022, net debt issuance costs associated with the credit facility and bond totaled ~~$1.5~~$1.8 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

~~(7)~~(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 ~~foreign currency exchange rates and interest rates,~~these risks, the Company periodically enters into various derivative instruments. The ~~Company’s~~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 ~~balance sheet~~Condensed Consolidated Balance Sheet at fair value. Derivatives that are not designated as hedging instruments ~~and~~or the ineffective portions of cash flow hedges ~~designated as hedging instruments~~ 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. The exposure~~currencies and is exposed to market risk for changes in foreign currency exchange rates arises from foreign currency-denominated assets and liabilities, and transactions arising from non-functional currency financing or trading activities. The Company’s objective is to preserve the economic value of non-functional currency-denominated cash flows.rates. The Company attempts to hedge transaction exposures with natural offsets to the fullest extent possible and once these opportunities have been exhausted ~~through~~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, Mexican peso, Chilean peso, Colombian peso and Peruvian nuevo sol. While the Company utilizes foreign exchange contracts to hedge foreign currency exposure, the Company's foreign exchange policy prohibits the use of derivative financial instruments for speculative purposes.dollar.

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of ~~$100.6~~$47.4 million and ~~$67.1~~$34.5 million for the exchange of foreign currencies ~~as of~~ at December 31, ~~2017~~2022 and June 30, ~~2017~~,2022, 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 six months ended December 31, 2022 and 2021 are as follows:

Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
(in thousands)
Net foreign exchange derivative contract (gains) losses $ 121
$ (199 ) $ 942
$ (959 )
Net foreign currency transactional and re-measurement (gains) losses 473
507
(160 ) 1,879
Net foreign currency (gains) losses $ 594
$ 308
$ 782
$ 920


	Quarter ended				Six months ended
	December 31,				December 31,
	2022		2021		2022		2021
	(in thousands)
Net foreign exchange derivative contract losses (gains)	$	871	$	(523)	$	1,309	$	(2,175)
Net foreign currency transactional and re-measurement (gains) losses	(524)		1,003		(39)		3,141
Net foreign currency exchange losses	$	347	$	480	$	1,270	$	966

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 ~~other currencies~~the Canadian dollar versus the U.S. ~~dollar.~~dollar..

Interest Rates - The ~~Company's~~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. ~~To manage~~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 ~~exposure, the~~ Company ~~has~~ entered into an interest rate swap agreement, ~~with~~which was amended on September 28, 2022 to change the reference rate from LIBOR to SOFR. The swap agreement has a notional amount of ~~$50.0~~$100.0 million, with a $50.0 million tranche scheduled to mature on April ~~3, 2022~~.30, 2024 and a $50.0 million tranche scheduled to mature April 30, 2026. This swap

agreement is designated as a cash flow hedge to hedge the variable rate interest payments on the revolving credit facility. Interest rate differentials paid or received under the swap agreement are recognized as adjustments to interest expense. To the extent the swap is effective in offsetting the variability of the hedged cash flows, changes in the fair value of the swap 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 ~~quarter~~quarters and six months ended December 31, ~~2017.~~2022 and 2021.

The components of the cash flow hedge included in ~~accumulated other comprehensive income (loss), net of income taxes, in~~ the Condensed Consolidated ~~Balance Sheets,~~Statement of Comprehensive Income for the quarters and six months ended December 31, 2022 and 2021, are as follows:

Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
(in thousands)
Net interest expense recognized as a result of interest rate swap $ 64
$ —
$ 133
$ —
Unrealized gain (loss) in fair value of interest rate swap 447
—
424
—
Net increase (decrease) in accumulated other comprehensive income (loss) $ 511
$ —
$ 557
$ —
Income tax effect 191
—
208
—
Net increase (decrease) in accumulated other comprehensive income (loss), net of tax $ 320
$ —
$ 349
$ —

The Company used the following derivative instruments ~~as of~~at December 31, ~~2017~~2022 and June 30, ~~2017,~~2022, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:


		December 31, 2022		June 30, 2022
	Balance Sheet Location	Fair 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:


Interest rate swap agreement	Other non-current assets	$4,223	—	$1,686	—
Derivative liabilities:
Foreign exchange contracts	Accrued expenses and other current liabilities	—	$9	—	$5
Foreign currency hedge	Accrued expenses and other current liabilities	$281	—	$93	—

December 31, 2017 June 30, 2017
Balance Sheet Location
Fair 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 contracts Prepaid expenses and other current assets $ —
$ 71
$ —
$ 35
Interest rate swap agreement Other non-current assets $ 578
$ —
$ 21
$ —
Derivative liabilities:
Foreign exchange contracts Accrued expenses and other current liabilities $ —
$ 169
$ —
$ 131

~~(8)~~(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 ~~or disclosed~~ at fair value on a recurring basis include ~~the Company’s various debt instruments,~~ deferred compensation plan investments, ~~outstanding~~ forward foreign currency exchange contracts, foreign currency hedge agreements and interest rate swap ~~agreements and contingent consideration owed to the previous owners of Network1 and Intelisys.~~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 criteria)~~2).

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis ~~as of~~ at December 31, ~~2017~~:2022:

The investments in the deferred compensation plan are held in a ~~rabbi trust~~"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 ~~non-current~~ 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)~~. See Note 7 -~~ ~~Derivatives and Hedging Activities~~. Fair values of interest rate swaps are measured using standard valuation models with inputs that can be derived from observable market transactions, including LIBOR 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 ~~current~~non-current assets or accrued expenses and other ~~current~~long-term liabilities, depending on the respective instruments' favorable or unfavorable positions. See Note 8 - Derivatives and Hedging Activities.

The Company recorded contingent consideration liabilities at the acquisition date of Network1, Intelisys and POS Portal representing the amounts payable to former shareholders, as outlined under the terms of the purchase agreements, based upon the achievement of a projected earnings measure, net of specific pro forma adjustments. The contingent consideration due to the former shareholders of POS Portal was paid in full during the quarter ended December 31, 2017. The current and non-current portions of these obligations are reported separately on the Condensed Consolidated Balance Sheets. The fair value of the contingent considerations (Level 3) are determined using a form of a probability weighted discounted cash flow model. Subsequent changes in the fair value of the contingent consideration liabilities are recorded to the change in fair value of contingent consideration line item in the Condensed Consolidated Income Statements. Fluctuations due to foreign currency translation are captured in other comprehensive income through the changes in foreign currency translation adjustments line item as seen in Note 3 - ~~Accumulated Other Comprehensive Income (Loss)~~.

Contingent consideration for the quarter ended Contingent consideration for the six months ended
December 31, 2016 December 31, 2016
Communications & Services Segment Communications & Services Segment
(in thousands)
Fair value at beginning of period $ 110,835
$ 24,652
Issuance of contingent consideration —
95,000
Payments (1,607 ) (10,241 )
Change in fair value of contingent consideration 1,791
1,961
Foreign currency translation adjustment (139 ) (492 )
Fair value at end of period $ 110,880
$ 110,880



~~Reporting Period~~	~~Valuation Technique~~	~~Significant Unobservable Inputs~~	~~Weighted Average Rates~~
~~December 31, 2017~~	~~Discounted cash flow~~	~~Weighted average cost of capital~~	~~15.4~~	%
		~~Adjusted EBITDA growth rate~~	~~17.9~~	%

~~June 30, 2017~~	~~Discounted cash flow~~	~~Weighted average cost of capital~~	~~14.2~~	%
		~~Adjusted EBITDA growth rate~~	~~17.0~~	%

~~Worldwide Barcode, Networking & Security~~

~~Worldwide Communications & Services Segment~~

~~(9)~~(10) Segment Information

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

~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions Segment

The ~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions segment ~~focuses on automatic identification~~includes the Company’s business in mobility and ~~data capture ("AIDC"), point-of-sale ("POS"),~~barcode, POS, payments, ~~networking, electronic physical~~ security and ~~other specialty~~networking technologies. ~~We have~~Mobility and barcode solutions include mobile computing, barcode scanners and imagers, radio frequency identification devices, barcode printing and services. POS and payments solutions include POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals and mobile payment devices. Security solutions include video surveillance and analytics, video management software and access control. Networking solutions include switching, routing and wireless products and software. The Company has business ~~units~~operations within this segment in ~~North America, Latin America~~the United States, Canada and Europe. We see adjacencies among these technologies in helping our customers develop solutions, such as with networking products. AIDC and POS products interface with computer systems used to automate the collection, processing and communication of information for commercial and industrial applications, including retail sales, distribution, shipping, inventory control, materials handling, warehouse management and health care applications. Electronic physical security products include identification, access control, video surveillance, intrusion-related and wireless and networking infrastructure products.Brazil.

~~Worldwide~~Modern Communications & ~~Services~~Cloud Segment

The ~~Worldwide~~Modern Communications & ~~Services~~Cloud segment ~~focuses on~~includes the Company’s business in communications ~~technologies~~ and collaboration, connectivity and cloud services. ~~We have business units within this segment that offer~~Communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, include voice, video, ~~conferencing, wireless, data networking,~~integration of communication platforms and contact center solutions. The Intelisys connectivity and cloud marketplace offers telecom, cable, ~~collaboration, converged communications solutions,~~Unified Communications as a Service (“UCaaS”), Contact Center as a Service (“CCaaS”), Infrastructure as a Service, Software-Defined Wide-Area Network and other cloud services. This segment includes SaaS and ~~telecom services. We have~~subscription services, which the Company offers using digital tools and platforms. The Company has business ~~units~~operations within this segment in ~~North America, Latin America~~the United States, Canada, Brazil and Europe. As these solutions come together on IP networks, new opportunities are created for customers to move into adjacent solutions for all vertical markets, such as education, healthcare and government. Our teams deliver value-added support programs and services, including education and training, network assessments, custom configuration, implementation and marketing to help customers develop a new technology practice, or to extend their capability and reach.the UK.

Selected financial information for each business segment is presented below:

Quarter ended Six months ended
December 31, December 31,
2017 2016 2017 2016
(in thousands)
Sales:
Worldwide Barcode, Networking & Security $ 719,786
$ 593,833
$ 1,340,114
$ 1,221,043
Worldwide Communications & Services 312,426
310,959
616,657
616,314
$ 1,032,212
$ 904,792
$ 1,956,771
$ 1,837,357
Depreciation and amortization:
Worldwide Barcode, Networking & Security $ 4,843
$ 1,718
$ 8,584
$ 3,355
Worldwide Communications & Services 4,173
4,051
8,431
6,820
Corporate 885
819
1,751
1,637
$ 9,901
$ 6,588
$ 18,766
$ 11,812
Change in fair value of contingent consideration:
Worldwide Barcode, Networking & Security $ —
$ —
$ 69
$ —
Worldwide Communications & Services 6,913
$ 1,791
$ 23,725
$ 1,961
$ 6,913
$ 1,791
$ 23,794
$ 1,961
Operating income:
Worldwide Barcode, Networking & Security $ 15,542
$ 12,131
$ 29,578
$ 25,554
Worldwide Communications & Services 6,799
11,479
533
21,429
Corporate —
(335 ) (172 ) (833 )
$ 22,341
$ 23,275
$ 29,939
$ 46,150
Capital expenditures:
Worldwide Barcode, Networking & Security $ 919
$ 523
$ 1,740
$ 1,378
Worldwide Communications & Services 367
476
708
1,091
Corporate 699
286
848
792
$ 1,985
$ 1,285
$ 3,296
$ 3,261
Sales by Geography Category:
United States and Canada $ 764,445
$ 676,600
$ 1,458,824
$ 1,396,971
International⁽¹⁾
276,918
236,977
514,827
459,742
Less intercompany sales (9,151 ) (8,785 ) (16,880 ) (19,356 )
$ 1,032,212
$ 904,792
$ 1,956,771
$ 1,837,357

⁽¹⁾ For the quarters and six months ended December 31, 2017 and 2016, there were no sales in excess of 10% of consolidated net sales to any single international country.


	Quarter ended				Six months ended
	December 31,				December 31,
	2022		2021		2022		2021
	(in thousands)
Sales:
Specialty Technology Solutions	$	627,548	$	496,920	$	1,203,878	$	998,630
Modern Communications & Cloud	383,693		367,159		751,176		723,032
	$	1,011,241	$	864,079	$	1,955,054	$	1,721,662
Depreciation and amortization:
Specialty Technology Solutions	$	2,758	$	2,897	$	5,462	$	5,867
Modern Communications & Cloud	3,738		3,613		7,385		7,574
Corporate	561		719		1,438		1,438
	$	7,057	$	7,229	$	14,285	$	14,879
Operating income (loss):
Specialty Technology Solutions	$	19,682	$	16,551	$	41,534	$	30,655
Modern Communications & Cloud	19,750		14,894		32,785		31,201
Corporate	—		53		—		(30)
	$	39,432	$	31,498	$	74,319	$	61,826
Capital expenditures:
Specialty Technology Solutions	$	(524)	$	(318)	$	(1,026)	$	(435)
Modern Communications & Cloud	(1,980)		(1,236)		(3,236)		(2,210)

	$	(2,504)	$	(1,554)	$	(4,262)	$	(2,645)
Sales by Geography Category:
United States and Canada	$	911,033	$	774,301	$	1,772,637	$	1,546,215
International	102,020		90,419		186,294		178,231
Less intercompany sales	(1,812)		(641)		(3,877)		(2,784)
	$	1,011,241	$	864,079	$	1,955,054	$	1,721,662


	December 31, 2022		June 30, 2022
	(in thousands)
Assets:
Specialty Technology Solutions	$	1,181,810	$	1,030,538
Modern Communications & Cloud	948,719		906,890
Corporate	—		—

	$	2,130,529	$	1,937,428
Property and equipment, net by Geography Category:
United States and Canada	$	29,590	$	32,715
International	7,003		4,762
	$	36,593	$	37,477

In accordance with Accounting Standards Codification ("ASC") 842, at contract inception the Company determines if a contract contains a lease by assessing whether the contract contains an identified asset and whether the Company has the ability to control the asset. The Company also determines if the lease meets the classification criteria for an operating lease versus a finance lease under ASC 842. 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

December 31, 2017 June 30, 2017
(in thousands)
Assets:
Worldwide Barcode, Networking & Security $ 1,103,863
$ 885,786
Worldwide Communications & Services 832,616
769,342
Corporate 68,803
63,175
$ 2,005,282
$ 1,718,303
Property and equipment, net by Geography Category:
United States and Canada $ 72,336
$ 51,853
International 4,290
4,713
$ 76,626
$ 56,566
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 2027. 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 December 31, 2022 and the consolidated financial statements at June 30, 2022.

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 December 31, 2022 and June 30, 2022:

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 six months ended December 31, 2022 and 2021. Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.

Supplemental cash flow information related to the Company's operating leases for the six months ended December 31, 2022 and 2021 are presented in the table below:

The weighted-average remaining lease term and discount rate at December 31, 2022 are presented in the table below:

The following table presents the maturities of the Company's operating lease liabilities at December 31, 2022:

(12) Commitments and Contingencies

The Company and its subsidiaries are, from time to time, parties 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.

~~The Company expects total capital expenditures to range from $8 million to $11 million for fiscal year 2018, primarily for IT investments.~~

The table below summarizes the balances and line item presentation of ~~these~~Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets ~~as of~~at December 31, ~~2017~~2022 and June 30, ~~2017:~~2022:


	December 31, 2022		June 30, 2022
	Network1
	(in thousands)
Assets
Prepaid expenses and other current assets	$	15	$	15
Other non-current assets	$	3,833	$	3,818
Liabilities
Accrued expenses and other current liabilities	$	15	$	15
Other long-term liabilities	$	3,833	$	3,818

CDC Network1
(in thousands)
Assets
Prepaid expenses and other current assets $ 2,212
$ 1,294
Other non-current assets $ —
$ 8,235
Liabilities
Accrued expenses and other current liabilities $ 2,212
$ 1,294
Other long-term liabilities $ —
$ 8,235

~~(11)~~(13) Income Taxes

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduces the corporate federal tax rate from 35% to 21% effective January 1, 2018 and implements a territorial tax system. Since the Company has a June 30th fiscal year-end, the lower tax rate will result in a blended U.S. statutory federal rate of approximately 28% for the fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. As part of the Tax Act, U.S. companies are required to pay a one-time transition tax on the deemed repatriation of undistributed foreign earnings and remeasure deferred tax assets and liabilities.

Income taxes for the ~~quarter~~quarters and six months ended December 31, ~~2017~~2022 and 2021 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 ~~also~~ includes certain items treated as discrete events to arrive at an estimated overall tax provision. ~~The table below summarizes~~During the ~~effect~~quarter ended December 31, 2022, there were no material discrete items. For the six months ended December 31, 2022, a discrete net tax benefit of ~~discrete items~~$0.7 million was recorded, which is primarily attributable to a notional interest deduction on the ~~income~~net equity of the Company's Brazilian subsidiary.

The Company’s effective tax rate of 28.9% and 27.3% for the quarter and six months ended December 31, ~~2017.~~

Quarter ended Six months ended
December 31, 2017 December 31, 2017
(in thousands)
Income before income taxes $ 20,310
$ 27,090
Accrual income tax rate⁽¹⁾
28.0 % 29.8 %
Accrued income tax expense, before discrete items 5,681
8,074
Discrete tax expense (benefit):
Transition tax on repatriation of foreign earnings 9,300
9,300
Remeasurement of deferred taxes (U.S.) (3,510 ) (3,510 )
Remeasurement of deferred taxes (Belgium) 900
900
Other (30 ) 210
Total net discrete tax expense 6,660
6,900
Provision for income taxes $ 12,341
$ 14,974
Effective income tax rate 60.8 % 55.3 %
Income tax rate effect of discrete items 32.8 % 25.5 %

⁽¹⁾~~The estimated effect of the rate change for the quarter and six months ended December 31, 2017 is a benefit of approximately $1.6 million.~~

As ~~part~~ of ~~transitioning~~December 31, 2022, the Company is not permanently reinvested with respect to ~~the territorial~~all earnings generated by foreign operations. The Company has determined that there is no material deferred tax ~~system the Tax Act includes a mandatory deemed repatriation of all~~liability for federal, state and withholding tax related to undistributed ~~foreign earnings that are subject to a U.S. income tax. For~~earnings. During the quarter ended December 31, 2017, the Company recognized a provisional discrete income tax expense of $9.3 million for a one-time transition tax liability on total post-1986 foreign subsidiaries’ earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. The Company has not yet completed the calculation of total post-1986 foreign E&P for2022, foreign subsidiaries ~~and the tax expense currently recognized may change as the value~~repatriated cash of cash and other specified assets changes, which is part of the basis of the transition tax. No additional income tax expense has been provided for any remaining undistributed foreign earnings not subject$9.1 million to the transition tax and any additional outside basis difference inherent for these entities as such amounts continue to be indefinitely reinvested in foreign operations. Further, the amount of related unrecognized deferred tax liabilityUnited States. There is ~~under review but not practicable to estimate at this time.~~

As part of accounting for the Tax Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which such deferred taxes are expected to reverse in the future, which is generally 21%. For the quarter ended December 31, 2017, the Company recognized a provisional discrete income tax benefit of $3.5 million for the remeasurement of the Company’s net deferred tax liability balance. However, the Company is still analyzing certain aspects of the Tax Act and refining calculations, which are dependent on final results for fiscal year 2018, which could potentially affect the measurement of these deferred taxes or give rise to new deferred tax amounts.

At December 31, 2017, the Company has not completed accounting for the tax effects of the enactment of the Tax Act. The Securities and Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impact. The Company currently anticipates finalizing and recording any resulting adjustments by the end of the current fiscal year 2018. The Company made a reasonable estimate of the one-time transition tax and remeasurement of existing deferred tax balances. The transitional impacts resulted in a provisional income tax expense of $5.8 million as a discrete event for the quarter ended December 31, 2017. The Company has not been able to make a reasonable estimate for any additional outside basis difference inherent for foreign subsidiaries as these amounts continue to be reinvested in foreign operations. The Company continues to account for those items based on existing accounting under ASC 740, ~~Income Taxes~~. The Company will continue to provide for U.S. income taxes for the current earnings of its Canadian subsidiary. The provisional estimates provided may be impacted by a number of additional considerations, including, but not limitedno certainty to the ~~issuance~~timing of ~~final regulations,~~any future distributions of such earnings to the ~~Company's ongoing analysis of the new tax law and the Company's actual earnings for the fiscal year ending June 30, 2018.~~U.S. in whole or in part.

The Company had approximately ~~$2.1 million and $2.2~~$1.1 million of total gross unrecognized tax benefits ~~as of~~at December 31, ~~2017~~2022 and June 30, ~~2017, respectively.~~2022. Of this total at December 31, ~~2017,~~2022, approximately ~~$1.4~~$0.9 million represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate. The Company does not believe that the total amount of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. At December 31, 2022 and June 30, 2022, 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, ~~2012.~~2017.

~~The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2017 and June 30, 2017,~~

(14) Discontinued Operations

On August 20, 2019, the Company ~~had approximately $1.2 million~~announced plans to divest the product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and ~~$1.1 million accrued~~the Miami-based export operations ("Divestitures") as these businesses were performing below management's expectations. The Company continues to operate its digital business in these countries. Management determined that the Company did not have sufficient scale in these markets to maximize the value-added model for ~~interest~~product distribution, leading the Company to focus and ~~penalties, respectively.~~invest in its higher-growth, higher-margin businesses. Results from the Divestitures were included within each reportable segment, which includes the Specialty Technology Solutions and Modern Communications & Cloud segments.

~~Financial results~~

The Company signed an agreement on July 23, 2020 with Intcomex for its businesses located in ~~Belgium~~Latin America, outside of Brazil. The Company finalized the sale of the Latin America businesses on October 30, 2020. The Company also finalized the sale of the Europe and UK business on November 12, 2020. Total cash received for the sale of divestitures was $37.5 million.

There were no components of net income or loss from discontinued operations for the quarter and six months ended December 31, ~~2017 produced a pre-tax loss of approximately $1.7 million~~2022. During the quarter and $0.8 million, respectively. In the judgment of management, the conditions that gave rise to the recent losses are temporary and that it is more likely than not that the deferred tax asset will be realized. If Belgium business does not return to profitability as expected, this could affect the valuation of certain deferred tax assets. Belgium enacted a corporate tax reform law onsix months ended December 25, 2017 which reduces the corporate tax rate from 33% to 25% over a three-year period. The Company remeasured certain deferred tax assets and liabilities based on the rates at which such deferred taxes are expected to reverse in the future. As a result,31, 2021, the Company recognized ~~income tax expense~~a gain from the sale of ~~$0.9 million~~discontinued operations of $0.1 million.

There were no assets or liabilities classified as ~~a discrete event during~~held-for-sale in the ~~current quarter.~~accompanying consolidated balance sheets at December 31, 2022 and June 30, 2022.

There were no cash flows from discontinued operations for the six months ended December 31, 2022 and 2021.



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

ScanSource ~~Inc.~~ is a leading ~~global provider~~hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, SaaS, connectivity and cloud. We provide technology solutions and services from more than 500 leading suppliers of ~~technology products~~mobility and ~~solutions. ScanSource, Inc.~~barcode, POS and ~~its subsidiaries (the "Company") provide value-added solutions from over 500 technology suppliers and sell to over 35,000 customers in the following specialty technology markets: point-of-sale (POS),~~ payments, ~~barcode,~~ physical security ~~unified~~and networking, communications and collaboration, connectivity and cloud services to our approximately 30,000 sales partners located in the United States, Canada, Brazil, the UK and ~~telecom services.~~Europe.

We operate our business under a management structure that enhances our ~~worldwide~~ technology ~~market~~ focus and hybrid distribution growth strategy. ~~As a part of this structure, ScanSource has two technology segments: Worldwide Barcode, Networking & Security and Worldwide Communications & Services. We~~Our segments operate in the United States, Canada, ~~Latin America~~Brazil and ~~Europe.~~the UK and consist of the following:

•Specialty Technology Solutions

•Modern Communications & Cloud

We sell hardware, SaaS, connectivity and cloud solutions and services through channel partners to end-customers. 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 ~~vendors~~suppliers include 8x8, AT&T, Aruba/HPE, Avaya, Axis, ~~Bematech, CenturyLink,~~ Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, ~~HP, Ingencio,~~Ingenico, Jabra, Lumen, Microsoft, MetTel, Mitel, NCR, ~~Plantronics, Polycom, Ruckus Wireless,~~NICE CXone, Poly, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and ~~Zebra Technologies.~~Zoom.

Impact of the Macroeconomic Environment, Including Inflation and Supply Chain Constraints

The ~~Tax Cuts~~macroeconomic environment, including the economic impacts of supply chain constraints, rising interest rates and ~~Jobs Act (the "Tax Act") was enacted in the United States on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35%~~inflation continues to ~~21% effective January 1, 2018, implements a territorial tax system,~~create significant uncertainty and ~~requires companies to pay a one-time transition tax on earnings~~may adversely affect our consolidated results of ~~certain foreign subsidiaries that were previously tax deferred, as well as creates new taxes on certain foreign-sourced earnings. See Note 11 -~~ ~~Income Taxes~~ ~~in the Notes~~operations. We are actively monitoring changes to the ~~Consolidated Financial Statements for further discussion.~~

In spite of ~~POS Portal, a leading provider of payment devices~~these challenges and ~~services primarily to the SMB market segment in the United States. POS Portal joined our Worldwide Barcode, Networking & Security operating segment. With the addition of POS Portal,~~uncertainties, we believe we have ~~created~~managed the ~~industry's leading payments channel, ensuring~~supply chain requirements of our customers and suppliers effectively to date. While we are unable to predict the ultimate impact these factors will have ~~access~~on our business, certain technologies have benefited from the widespread adoption to a work-from-anywhere business model, as well as the ~~solutions, services~~accelerated shift to digitize and ~~support that can help them be successful.~~automate processes.

Our ~~objective~~strategy is to ~~continue~~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 ~~grow profitable~~provide exceptional experiences for our partners, suppliers and employees through operational excellence. Our hybrid distribution strategy relies on a channel sales ~~in the technologies~~model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to sales partners that solve end-customers’ challenges. ScanSource enables sales partners to deliver solutions for their customers to address changing end-customer buying and consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our sales partners access to additional services. As a trusted adviser to our sales partners, we ~~sell and to focus on growth in higher margin businesses. We continue to evaluate strategic acquisitions to enhance~~provide customized solutions through our technological offerings and service capabilities. In doing so, we face numerous challenges that require attention and resources. Certain business units and geographies are experiencing increased competition for the products and services we sell. This competition may come in the formstrong understanding of ~~pricing, credit terms, service levels and product availability. As this competition could affect both our market share and pricing~~end-customer needs.

Table of ~~our products, we may change our strategy in order to effectively compete in the marketplace.~~Contents

Results of Operations

Net Sales

We have two reportable segments, which are based on technology. The following tables summarize ~~the Company’s~~our net sales results by ~~technology~~business segment and by geographic location for the quarters and six months ended December 31, ~~2017~~2022 and ~~2016~~.2021:


	Quarter ended December 31,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Segment:	2022		2021		$ Change		% Change
	(in thousands)
Specialty Technology Solutions	$	627,548	$	496,920	$	130,628	26.3	%	26.1	%
Modern Communications & Cloud	383,693		367,159		16,534		4.5	%	3.3	%
Total net sales	$	1,011,241	$	864,079	$	147,162	17.0	%	16.4	%

	Six months ended December 31,								% Change, Constant Currency, Excluding Planned Divestitures and Acquisitions (a)
	2022		2021		$ Change		% Change
	(in thousands)
Specialty Technology Solutions	$	1,203,878	$	998,630	$	205,248	20.6	%	20.4	%
Modern Communications & Cloud	751,176		723,032		28,144		3.9	%	3.4	%
Total net sales	$	1,955,054	$	1,721,662	$	233,392	13.6	%	13.3	%

Quarter ended December 31,
% Change, Constant Currency, Excluding Acquisitions^(a)
Net Sales by Segment: 2017 2016 $ Change % Change
(in thousands)
Worldwide Barcode, Networking & Security $ 719,786
$ 593,833
$ 125,953
21.2 % 16.3 %
Worldwide Communications & Services 312,426
310,959
1,467
0.5 % (0.9 )%
Total net sales $ 1,032,212
$ 904,792
$ 127,420
14.1 % 10.4 %

Six months ended December 31,
% Change, Constant Currency, Excluding Acquisitions ^(a)
2017 2016 $ Change % Change
(in thousands)

Worldwide Barcode, Networking & Security $ 1,340,114
$ 1,221,043
$ 119,071
9.8 % 5.7 %
Worldwide Communications & Services 616,657
616,314
343
0.1 % (2.1 )%
Total net sales $ 1,956,771
$ 1,837,357
$ 119,414
6.5 % 3.1 %

^(a)A reconciliation of non-GAAP net sales in constant currency ~~excluding acquisitions~~ is presented at the end of Results of Operations~~in the non-GAAP section.~~, under Non-GAAP Financial Information.

~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions

The ~~Barcode, Networking & Security~~Specialty Technology Solutions segment consists of sales to customers in North America ~~Europe~~ and ~~Latin America.~~Brazil. For the quarter and six months ended December 31, ~~2017,~~2022, net sales for the ~~Barcode, Networking & Security~~Specialty Technology Solutions segment increased ~~$126.0~~$130.6 million, or 26.3%, and ~~$119.1~~$205.2 million, or 20.6%, respectively, compared to the prior-year ~~quarter and six month period, respectively.~~periods. Excluding the foreign exchange positive impact, ~~and net sales from the POS Portal acquisition,~~ adjusted net sales increased ~~$96.6~~$129.5 million, or ~~16.3%,~~26.1% for the quarter ended December 31, ~~2017~~2022 and ~~$69.5~~$204.2 million, or ~~5.7%~~20.4%, for the six months ended December 31, ~~2017.~~2022, compared to the prior-year periods. The increase in net sales and adjusted net sales for the quarter and six month ~~period~~periods is primarily due to ~~sales~~strong growth across technologies in North ~~America and Europe.~~America.

~~Worldwide~~Modern Communications & ~~Services~~Cloud

The Modern Communications & ~~Services~~Cloud segment consists of sales to customers in North America, ~~Europe~~Brazil and ~~Latin America.~~the UK. For the quarter and six months ended December 31, ~~2017,~~2022, net sales for the Modern Communications & ~~Services~~Cloud segment increased ~~$1.5~~$16.5 million, or 4.5%, and ~~$0.3~~$28.1 million, or 3.9%, respectively, compared to the prior-year ~~quarter and six month period, respectively.~~periods. Excluding the foreign exchange positive impact, adjusted net sales ~~decreased $2.7~~increased $12.0 million, or ~~0.9%~~3.3%, for the quarter ended December 31, 2017 as a result of lower sales volume in our North American business, excluding Intelisys, partially offset by sales growth in Brazil. Intelisys sales increased quarter-over-quarter. Excluding the foreign exchange impact2022 and ~~net sales from the Intelisys acquisition for the three months ended September 30, 2017, adjusted net sales decreased $13.1~~$24.3 million, or ~~2.1%~~3.4%, for the six months ended December 31, ~~2017,~~2022, compared to the prior-year periods. The increase in net sales and adjusted net sales for the quarter and six month periods is primarily due to ~~lower sales volume in~~increased demand for our ~~North American business, partially offset by sales~~Cisco products and growth in Brazil. For our Intelisys business, net sales for the second quarter and six month period of fiscal year 2023 increased 9.2% and 8.1%, respectively, year-over-year.

Table of Contents


	Quarter ended December 31,								% Change, Constant Currency, Excluding Acquisitions^(a)			Quarter ended December 31,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Geography:	2017		2016		$ Change		% Change				Net Sales by Geography:	2022		2021		$ Change		% Change
	(in thousands)											(in thousands)
United States and Canada	$	755,312	$	667,818	$	87,494	13.1	%	10.2	%	United States and Canada	$	909,221	$	773,660	$	135,561	17.5	%	17.5	%
International	$	276,900	$	236,974	39,926		16.8	%	11.0	%	International	102,020		90,419		11,601		12.8	%	6.6	%
Total net sales	$	1,032,212	$	904,792	$	127,420	14.1	%	10.4	%	Total net sales	$	1,011,241	$	864,079	$	147,162	17.0	%	16.4	%

	Six months ended December 31,								% Change, Constant Currency, Excluding Acquisitions^(a)			Six months ended December 31,								% Change, Constant Currency, Excluding Planned Divestitures and Acquisitions (a)
	2017		2016		$ Change		% Change					2022		2021		$ Change		% Change
	(in thousands)											(in thousands)
United States and Canada	$	1,441,982	$	1,377,627	$	64,355	4.7	%	1.7	%	United States and Canada	$	1,768,760	$	1,543,431	$	225,329	14.6	%	14.6	%
International	514,789		459,730		55,059		12.0	%	7.2	%	International	186,294		178,231		8,063		4.5	%	1.7	%
Total net sales	$	1,956,771	$	1,837,357	$	119,414	6.5	%	3.1	%	Total net sales	$	1,955,054	$	1,721,662	$	233,392	13.6	%	13.3	%

^(a)A reconciliation of non-GAAP net sales in constant currency ~~excluding acquisitions~~ is presented at the end of Results of Operations in the non-GAAP section.

The following table summarizes ~~the Company’s~~our gross profit for the quarters and six months ended December 31, ~~2017~~2022 and ~~2016~~:2021:

Quarter ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)
Worldwide Barcode, Networking & Security $ 61,983
$ 48,956
$ 13,027
26.6 % 8.6 % 8.2 %
Worldwide Communications & Services 50,988
49,578
1,410
2.8 % 16.3 % 15.9 %
Gross profit $ 112,971
$ 98,534
$ 14,437
14.7 % 10.9 % 10.9 %

Six months ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)
Worldwide Barcode, Networking & Security $ 119,446
$ 98,207
$ 21,239
21.6 % 8.9 % 8.0 %
Worldwide Communications & Services 99,442
91,861
7,581
8.3 % 16.1 % 14.9 %
Gross profit $ 218,888
$ 190,068
$ 28,820
15.2 % 11.2 % 10.3 %


	Quarter ended December 31,								% of Net Sales December 31,
	2022		2021		$ Change		% Change		2022		2021
	(in thousands)
Specialty Technology Solutions	$	56,732	$	52,048	$	4,684	9.0	%	9.0	%	10.5	%
Modern Communications & Cloud	58,602		55,605		2,997		5.4	%	15.3	%	15.1	%
Gross profit	$	115,334	$	107,653	$	7,681	7.1	%	11.4	%	12.5	%

	Six months ended December 31,								% of Net Sales December 31,
	2022		2021		$ Change		% Change		2022		2021
	(in thousands)
Specialty Technology Solutions	$	115,135	$	97,742	$	17,393	17.8	%	9.6	%	9.8	%
Modern Communications & Cloud	113,683		111,483		2,200		2.0	%	15.1	%	15.4	%
Gross profit	$	228,818	$	209,225	$	19,593	9.4	%	11.7	%	12.2	%

~~Worldwide Barcode, Networking & Security~~

Specialty Technology Solutions

For the quarter ended December 31, 2022, gross profit dollars for the Specialty Technology Solutions segment increased $4.7 million, or 9.0%. Higher sales volume, after considering the associated cost of goods sold, contributed $13.7 million to the growth of gross profit dollars. Gross margin mix negatively impacted gross profit by $9.0 million, largely from a less favorable sales mix and decreased vendor program recognition. For the quarter ended December 31, 2022, the gross profit margin ~~for~~decreased 143 basis points over the ~~Barcode, Networking & Security segment increased for~~prior-year to 9.0%.

For the~~quarter and~~ six months ended December 31, ~~2017, compared~~2022, the Specialty Technology Solutions segment achieved gross profit growth of $17.4 million, or 17.8%. Increases in sales volume, after considering the associated cost of goods sold, contributed $20.1 million to the ~~prior-year~~ growth of gross profit dollars. Gross margin mix negatively impacted gross profit by $2.7 million, primarily from increased freight costs. For the six months ended December 31, 2022, the gross profit margin decreased 22 basis points over the prior year to 9.6%.

Modern Communications & Cloud

For thequarter ~~and six month period.~~ended December 31, 2022, the Modern Communications & Cloud segment gross profit increased by $3.0 million, or 5.4%. Higher sales volume, after considering the associated cost of goods sold, positively contributed $2.5 million to gross profit dollars. Gross margin mix positively impacted gross profit by $0.5 million, largely driven by a more favorable sales mix. For the quarter ~~gross profit dollars and margin increased primarily as a result of increased sales volumes, including results contributed by POS Portal. Gross profit dollars and margin increased for~~ended December 31, 2022, the ~~six month period largely due to improved vendor program recognition and the addition of POS Portal.~~

~~Worldwide Communications & Services~~

For the six months endedDecember 31, ~~2017 largely due~~2022, the Modern Communications & Cloud segment achieved gross profit growth of $2.2 million, or 2.0%. Increases in sales volume, after considering the associated cost of goods sold, contributed $4.3 million to ~~improved sales mix.~~the growth of gross profit dollars. Gross margin mix negatively impacted gross profit by $2.1 million, primarily from increased freight costs. For the six months ended December 31, 2022, the gross profit margin decreased 28 basis points over the prior year to 15.1%.

The following table summarizes our operating expenses for the quarters and six months ended December 31, ~~2017~~2022 and ~~2016~~:2021:


	Quarter ended December 31,								% of Net Sales December 31,
	2022		2021		$ Change		% Change		2022		2021
	(in thousands)
Selling, general and administrative expenses	$	69,074	$	69,161	$	(87)	(0.1)	%	6.8	%	8.0	%
Depreciation expense	2,678		2,547		131		5.1	%	0.3	%	0.3	%
Intangible amortization expense	4,150		4,447		(297)		(6.7)	%	0.4	%	0.5	%


Operating expenses	$	75,902	$	76,155	$	(253)	(0.3)	%	7.5	%	8.8	%

	Six months ended December 31,								% of Net Sales December 31,
	2022		2021		$ Change		% Change		2022		2021
	(in thousands)
Selling, general and administrative expenses	$	140,667	$	133,016	$	7,651	5.8	%	7.2	%	7.7	%
Depreciation expense	5,441		5,427		14		0.3	%	0.3	%	0.3	%
Intangible amortization expense	8,391		8,956		(565)		(6.3)	%	0.4	%	0.5	%


Operating expenses	$	154,499	$	147,399	$	7,100	4.8	%	7.9	%	8.6	%

Quarter ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)
Selling, general and administrative expenses $ 74,763
$ 66,880
$ 7,883
11.8 % 7.2 % 7.4 %
Depreciation expense 3,467
2,423
1,044
43.1 % 0.3 % 0.3 %
Intangible amortization expense 5,487
4,165
1,322
31.7 % 0.5 % 0.5 %
Change in fair value of contingent consideration 6,913
1,791
5,122
286.0 % 0.7 % 0.2 %
Operating expenses $ 90,630
$ 75,259
$ 15,371
20.4 % 8.8 % 8.3 %

Six months ended December 31, % of Net Sales December 31,
2017 2016 $ Change % Change 2017 2016
(in thousands)

Selling, general and administrative expenses $ 147,950
$ 130,145
$ 17,805
13.7 % 7.6 % 7.1 %
Depreciation expense 6,707
4,492
2,215
49.3 % 0.3 % 0.2 %
Intangible amortization expense 10,498
7,320
3,178
43.4 % 0.5 % 0.4 %
Change in fair value of contingent consideration 23,794
1,961
21,833
1,113.4 % 1.2 % 0.1 %
Operating expenses $ 188,949
$ 143,918
$ 45,031
31.3 % 9.7 % 7.8 %

Selling, general and administrative expenses ("SG&A") ~~increased $7.9 million and $17.8~~decreased by less than $0.1 million for the quarter ~~and~~ended December 31, 2022, compared to the prior-year period. The decrease for the quarter ended December 31, 2022 is primarily attributable to a recovery of prior period withholding taxes in Brazil, which reduced SG&A by $2.9 million, partially offset by higher employee costs.

For the six months ended December 31, ~~2017, respectively, as~~2022, SG&A expenses increased by $7.7 million, or 5.8%, compared to the ~~prior year.~~prior-year period. The increase ~~in SG&A~~ for the ~~quarter and six months is primarily due to increased employee-related expenses, largely due to recent acquisitions.~~

The following table summarizes our operating income for the quarters and six months ended December 31, ~~2017~~2022 and ~~2016:~~2021:

~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions

For the ~~Barcode, Networking & Security~~Specialty Technology Solutions segment, operating income increased $3.1 million and operating margin increased for the current quarter and six months ended December 31, 2017 compared to the prior year. The increase for the quarter is largely due to increased sales volume, partially offset by increased employee-related expenses, bad debt expense and intangible amortization expense. The increase for the six month period is largely due to the improved gross profit margin, partially offset by increased employee-related expenses, bad debt expense and intangible amortization expense.

~~Worldwide Communications & Services~~

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income increased $4.9 million and $1.6 million for the quarter and six months ended December 31, ~~2017, respectively. The increased operating income and margin is largely due~~2022, respectively, compared to the ~~positive effect of~~prior-year period. Operating margin increased ~~gross profit margin~~to 5.1% and ~~lower bad debt expense, partially offset by increased employee-related expenses.~~

Corporate recognized no restructuring or divestiture expenses for the quarter and six months ended December 31, 2022, compared to less than $0.1 million in the prior-year quarter and six month period.

Total Other (Income) Expense

The following table summarizes our total other (income) expense for the quarters and six months ended December 31, ~~2017~~2022 and ~~2016~~:2021:

Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs. Interest expense increased for the quarter and six months ended December 31, ~~2017 principally due~~2022 compared to ~~additional~~the prior-year periods, primarily from higher borrowings and increases in interest rates on our multi-currency revolving credit facility.

Interest income ~~consists primarily of interest income~~for the quarter and six months ended December 31, 2022 was generated on ~~longer-term interest bearing receivables~~interest-bearing investments in Brazil and ~~interest earned on cash and cash equivalents, principally in Brazil.~~customer receivables.

Net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign currency exchange contract gains and losses. Foreign exchange gains and losses are generated ~~from~~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, the U.S. dollar versus the Colombian peso and other currencies versus the U.S.~~ dollar. ~~While we utilize foreign exchange contracts and debt in non-functional currencies to hedge~~We partially offset foreign currency exposure our foreign exchange policy prohibits the use of derivative financial instruments for speculative transactions. The Company's net foreign exchange losses are driven by changes in foreign currency exchange rates, partially offset bywith the use of foreign exchange forward contracts to hedge against ~~currency~~these exposures. The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses.

Provision for Income Taxes

For the quarter and six months ended December 31, ~~2017,~~2022, income tax expense was ~~$12.3~~$10.5 million and ~~$15.0~~$18.7 million reflecting an effective tax rate of ~~60.8%~~28.9% and ~~55.3%~~27.3%, respectively. ~~The effective tax rate~~In comparison, for the quarter and six months ended December 31, ~~2016~~2021, income tax expense was ~~35.6%~~$7.3 million and ~~35.3%~~$14.6 million, reflecting an effective tax rate of 23.9% and 24.4%, respectively. The increase in the effective tax rate from the prior year quarter is primarily due to the recognition of a net discrete tax expense of $6.7 million and $6.9 million, respectively. There were no discrete items recognized in the prior year. Excluding the recognition of the discrete item, the effective tax rate for the quarter and six months ~~ended December 31, 2017 would have been 28.0%~~is primarily due to a decrease in forecasted tax exempt income and ~~29.8%, respectively.~~a decrease in creditable foreign taxes compared to the prior-year quarter. We expect the effective tax rate ~~excluding discrete items,~~ for fiscal year ~~2018~~2023 to be approximately ~~30%, which reflects the application of the 21% U.S. statutory tax rate effective January 1, 2018.~~27.0% to 28.0%. See Note 11 13 - Income Taxes to the Notes to Consolidated Financial Statements for further discussion.

Non-GAAP Financial Information

Evaluating Financial Condition and Operating Performance

In addition to disclosing results that are determined in accordance with United States generally accepted accounting principles ("~~U.S,~~US GAAP" or "GAAP"), we also disclose certain non-GAAP financial measures. These measures include non-GAAP operating ~~income,~~income; non-GAAP pre-tax ~~income,~~income; non-GAAP net income; non-GAAP EPS; adjusted earnings before interest expense, income ~~non-GAAP EPS,~~taxes, depreciation, and amortization ("adjusted EBITDA"); adjusted return on invested capital ("adjusted ROIC"); and ~~"constant~~constant currency." Constant currency is a measure that excludes the translation exchange impact from changes in

foreign currency exchange rates

These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that we report may not be comparable to similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with ~~U.S.~~US GAAP.

Adjusted Return on Invested Capital

Adjusted ROIC assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of adjusted ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year.

Adjusted EBITDA starts with net income and adds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, share-based compensation expense, changes in fair value of contingent consideration, and other non-GAAP adjustments. Since adjusted EBITDA excludes some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more clearly.

We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. The following table summarizes annualized adjusted ROIC for the quarters ended December 31, 2022 and 2021, respectively:


	Quarter ended December 31,
	2022		2021
Adjusted return on invested capital ratio, annualized (a)	15.6	%	17.6	%

(a)The annualized EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for leap year. There were 92 days in the current and prior-year quarter.

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


	Quarter ended December 31,
	2022		2021
	(in thousands)
Reconciliation of net income to adjusted EBITDA:
Net income (GAAP)	$	25,734	$	23,152
Plus: Interest expense	5,060		1,493
Plus: Income taxes	10,458		7,257
Plus: Depreciation and amortization	7,057		7,229
EBITDA (non-GAAP)	48,309		39,131

Plus: Tax recovery (a)	(2,858)		—
Plus: Share-based compensation	3,364		3,464
Plus: Acquisition and divestiture costs (b)	—		(53)


Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP)	$	48,815	$	42,542


	Quarter ended December 31,
	2022		2021
	(in thousands)
Invested capital calculations:
Equity – beginning of the quarter	$	827,004	$	746,094
Equity – end of the quarter	862,386		768,525

Plus: Share-based compensation, net	2,496		2,590
Plus: Acquisition and divestiture costs (b)	—		(53)

Plus: Tax recovery, net	(1,886)		—
Plus: Discontinued operations net loss	—		(100)
Average equity	845,000		758,528
Average funded debt (c)	392,853		200,708
Invested capital (denominator for adjusted ROIC) (non-GAAP)	$	1,237,853	$	959,236

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

(b)Acquisition and divestiture costs are generally nondeductible for tax purposes.

(c)Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.

Net Sales in Constant Currency, Excluding Acquisitions and Divestitures

We make references to "constant currency," a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the prior year period. We also exclude the impact of acquisitions prior to the first full year of operations from the acquisition date in order to show net sales results on an organic basis. This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions. Below we ~~provide~~show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding ~~acquisition (organic growth):~~acquisitions:

Foreign exchange impact (a)

Net Sales by Segment:
Quarter ended December 31,
2017 2016 $ Change % Change
Worldwide Barcode, Networking & Security: (in thousands)
Net sales, as reported $ 719,786
$ 593,833
$ 125,953
21.2 %
Foreign exchange impact^(a)
(9,669 ) —

Net sales, constant currency 710,117
593,833
116,284
19.6 %
Less: Acquisitions (19,706 ) —

Net sales, constant currency excluding acquisitions $ 690,411
$ 593,833
$ 96,578
16.3 %

Worldwide Communications & Services:
Net sales, as reported $ 312,426
$ 310,959
$ 1,467
0.5 %
Foreign exchange impact^(a)
(4,162 ) —

Net sales, constant currency 308,264
310,959
(2,695 ) (0.9 )%
Less: Acquisitions —
—

Net sales, constant currency excluding acquisitions $ 308,264
$ 310,959
$ (2,695 ) (0.9 )%

Consolidated:
Net sales, as reported $ 1,032,212
$ 904,792
$ 127,420
14.1 %
Foreign exchange impact^(a)
(13,831 ) —

Net sales, constant currency 1,018,381
904,792
113,589
12.6 %
Less: Acquisitions (19,706 ) —

Net sales, constant currency excluding acquisitions $ 998,675
$ 904,792
$ 93,883
10.4 %

Foreign exchange impact^(a)

Foreign exchange impact (a)

(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the six months ended December 31, 2022 into U.S. dollars using the average foreign exchange rates for the six months ended December 31, 2021.

~~(a)~~ ~~Year-over-year net sales growth rate excluding the translation impact~~

Foreign exchange impact (a)

(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended December 31, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2021.

Foreign exchange impact (a)



Operating Income by Segment:
	Quarter ended December 31,								% of Net Sales December 31,
	2022		2021		$ Change		% Change		2022		2021
Specialty Technology Solutions:	(in thousands)
GAAP operating income	$	19,682	$	16,551	$	3,131	18.9	%	3.1	%	3.3	%
Adjustments:
Amortization of intangible assets	1,266		1,491		(225)




Non-GAAP operating income	$	20,948	$	18,042	$	2,906	16.1	%	3.3	%	3.6	%

Modern Communications & Cloud:
GAAP operating income	$	19,750	$	14,894	$	4,856	32.6	%	5.1	%	4.1	%
Adjustments:
Amortization of intangible assets	2,884		2,956		(72)


Tax recovery (a)	(2,858)		—		(2,858)


Non-GAAP operating income	$	19,776	$	17,850	$	1,926	10.8	%	5.2	%	4.9	%

Corporate:
GAAP operating loss	$	—	$	53	$	(53)	nm*		nm*		nm*
Adjustments:
Acquisition and divestiture costs	—		(53)		53


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

Consolidated:
GAAP operating income	$	39,432	$	31,498	$	7,934	25.2	%	3.9	%	3.6	%
Adjustments:
Amortization of intangible assets	4,150		4,447		(297)

Tax recovery (a)	(2,858)		—		(2,858)
Acquisition and divestiture costs	—		(53)		53



Non-GAAP operating income	$	40,724	$	35,892	$	4,832	13.5	%	4.0	%	4.2	%

(a)Recovery of prior period withholding taxes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended December 31, 2017 into U.S. dollars using the average foreign exchange rates for the quarter ended December 31, 2016. Brazil



Operating Income by Segment:
	Six months ended December 31,								% of Net Sales December 31,
	2022		2021		$ Change		% Change		2022		2021
Specialty Technology Solutions:	(in thousands)
GAAP operating income	$	41,534	$	30,655	$	10,879	35.5	%	3.5	%	3.1	%
Adjustments:
Amortization of intangible assets	2,608		3,023		(415)




Non-GAAP operating income	$	44,142	$	33,678	$	10,464	31.1	%	3.7	%	3.4	%

Modern Communications & Cloud:
GAAP operating income	$	32,785	$	31,201	$	1,584	5.1	%	4.4	%	4.3	%
Adjustments:
Amortization of intangible assets	5,783		5,933		(150)

Tax recovery (a)	(2,858)		—		(2,858)



Non-GAAP operating income	$	35,710	$	37,134	$	(1,424)	(3.8)	%	4.8	%	5.1	%

Corporate:
GAAP operating loss	$	—	$	(30)	$	30	nm*		nm*		nm*
Adjustments:
Acquisition and divestiture costs	—		30		(30)


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

Consolidated:
GAAP operating income	$	74,319	$	61,826	$	12,493	20.2	%	3.8	%	3.6	%
Adjustments:
Amortization of intangible assets	8,391		8,956		(565)

Tax recovery (a)	(2,858)		—		(2,858)
Acquisition and divestiture costs	—		30		(30)



Non-GAAP operating income	79,852		70,812		$	9,040	12.8	%	4.1	%	4.1	%

(a)Recovery of prior period withholding taxes in Brazil

Additional Non-GAAP ~~Operating Income, Non-GAAP Pre-Tax Income, Non-GAAP Net Income and Non-GAAP EPS~~Metrics

To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP SG&A expenses, non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition and divestiture costs, restructuring costs, impact of Divestitures and other non-GAAP adjustments. ~~Non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted EPS~~These year-over-year metrics include the translation impact of changes in foreign currency exchange rates. These metrics are useful in assessing and understanding our operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Below we provide a non-GAAP reconciliation of ~~operating income, pre-tax income, net income and earnings per share~~the aforementioned metrics adjusted for the costs and charges mentioned above:


	Quarter ended December 31, 2022
	GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Tax recovery(a)		Non-GAAP measure
	(in thousands, except per share data)
SG&A expenses	$	69,074	$	—	$	—	$	2,858	$	71,932
Operating income	39,432		4,150		—		(2,858)		40,724
Pre-tax income	36,192		4,150		—		(2,858)		37,484
Net income	25,734		3,093		—		(1,886)		26,941
Diluted EPS	$	1.01	$	0.12	$	—	$	(0.07)	$	1.06

	Quarter ended December 31, 2021
	GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Tax recovery		Non-GAAP measure
	(in thousands, except per share data)
SG&A expenses	$	69,161	$	—	$	53	$	—	$	69,214
Operating income	31,498		4,447		(53)		—		35,892
Pre-tax income	30,409		4,447		(53)		—		34,803
Net income	23,152		3,347		(53)		—		26,446
Diluted EPS	$	0.89	$	0.13	$	—	$	—	$	1.02

(a)Recovery of prior period withholding taxes in Brazil

Quarter ended December 31, 2017 Quarter ended December 31, 2016
Operating Income Pre-Tax Income Net Income Diluted EPS Operating Income Pre-Tax Income Net Income Diluted EPS
(in thousands, except per share data)
GAAP Measures $ 22,341
$ 20,310
$ 7,969
$ 0.31
$ 23,275
$ 35,781
$ 23,036
$ 0.91
Adjustments:
Amortization of intangible assets 5,487
5,487
3,648
0.14
4,165
4,165
2,740
0.11
Change in fair value of contingent consideration 6,913
6,913
4,742
0.18
1,791
1,791
1,000
0.04
Acquisition costs —
—
—
—
335
335
335
0.01
Tax reform charges^(a)
6,689
0.26
—
—
—
—
Legal settlement, net of attorney fees —
—
—
—
—
(12,777 ) (8,047 ) (0.32 )
Non-GAAP measures $ 34,741
$ 32,710
$ 23,048
$ 0.90
$ 29,566
$ 29,295
$ 19,064
$ 0.75


	Six months ended December 31, 2022
	GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Tax recovery(a)		Non-GAAP measure
	(in thousands, except per share data)
SG&A expenses	$	140,667	$	—	$	—	$	2,858	$	143,525
Operating income	74,319		8,391		—		(2,858)		79,852
Pre-tax income	68,475		8,391		—		(2,858)		74,008
Net income	49,776		6,254		—		(1,886)		54,144
Diluted EPS	$	1.96	$	0.25	$	—	$	(0.07)	$	2.13

	Six months ended December 31, 2021
	GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Tax recovery		Non-GAAP measure
	(in thousands, except per share data)
SG&A expenses	$	133,016	$	—	$	(30)	$	—	$	132,986
Operating income	61,826		8,956		30		—		70,812
Pre-tax income	59,839		8,956		30		—		68,825
Net income	45,225		6,740		30		—		51,995
Diluted EPS	$	1.75	$	0.26	$	—	$	—	$	2.01

(a)~~As a result~~Recovery of ~~tax reform laws enacted~~prior period withholding taxes in the United States and Belgium, we recognized a one-time charge of $6.7 million in the quarter ended December 31, 2017 from the estimated impact of the inclusion of foreign earnings and revaluation of deferred tax assets and liabilities.

~~Return on Invested Capital~~

Quarter ended December 31,
2017 2016
Return on invested capital ratio, annualized^(a)
13.3 % 13.8 %

Plus: Acquisition costs, net of tax ^(a)

Average funded debt ^(b)

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and borrowings under our ~~$400~~$350 million revolving credit facility. Our business requires significant investment in working capital, particularly accounts receivable and inventory, partially financed through our accounts payable to vendors, cash generated from operations and revolving lines of credit. In general, as our sales volumes increase, our net investment in working capital increases, which typically results in decreased cash flow from operating activities. Conversely, when sales volumes decrease, our net investment in working capital typically decreases, which typically results in increased cash flow from operating activities.

Our cash and cash equivalents balance totaled ~~$35.4~~$66.4 million at December 31, ~~2017~~,2022, compared to ~~$56.1~~$38.0 million at June 30, ~~2017~~,2022, including ~~$26.8~~$44.3 million and ~~$47.9~~$35.0 million held outside of the United States at December 31, ~~2017~~2022 and June 30, ~~2017,~~2022, respectively. Checks released but not yet cleared in the amounts of ~~$7.5~~$8.9 million and ~~$8.3~~$18.0 million are included in accounts payable ~~as of~~at December 31, ~~2017~~2022 and June 30, ~~2017,~~2022, respectively.

We conduct business in many locations throughout the world where we generate and use cash. We provide for ~~U.S.~~United States income taxes ~~for~~from the earnings of our Canadian subsidiary. Earnings from all other geographies will continue to be considered retained indefinitely for reinvestment. Due to recent tax legislation in the United States, we are required to estimate a one-time transition tax on repatriation of foreign earnings during the quarter ended December 31, 2017.and Brazilian subsidiaries. See Note 1113 - Income Taxesin the Notes to the Consolidated Financial Statements for further discussion.

Our net investment in working capital increased $172.8 million to $882.3 million at December 31, ~~2017 was~~ ~~$754.5~~2022 from $709.5 million ~~compared to~~ ~~$624.7 million~~ at June 30, ~~2017~~2022, primarily from increases in accounts receivable and ~~$621.4 million~~ ~~at December 31, 2016.~~inventory. Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from customers, increases and decreases to inventory levels and payments to ~~vendors, as well as cash generated or used by other financing and investing activities.~~vendors. For the six months ended December 31, 2022, our working capital investment increased to support our 13.6% year-over-year net sales growth.

Six months ended
December 31,
2017 2016
Cash provided by (used in): (in thousands)
Operating activities $ (84,183 ) $ 35,731
Investing activities (147,064 ) (87,065 )
Financing activities 209,429
36,132
Effect of exchange rate change on cash and cash equivalents 1,159
(1,127 )
Increase (decrease) in cash and cash equivalents $ (20,659 ) $ (16,329 )

Operating cash flows are subject to variability period over period as a result of the timing of payments related to accounts receivable, accounts payable, and other working capital ~~balances exclude balances acquired from Intelisys at acquisition for the six months ended December 31, 2016.~~items.

Cash used in investing activities for the six months ended December 31, ~~2017~~2022 was ~~$147.1~~$4.3 million, compared to ~~$87.1~~$0.5 million ~~used~~provided by investing activities in the ~~prior year~~prior-year period. Cash used in investing activities for the six months ended December 31, ~~2017~~2022 represents capital expenditures, primarily ~~represents the cash used to acquire POS Portal, compared to cash used~~for IT investments. Cash provided by investing activities for the ~~initial payment to acquire Intelisys in~~six months ended December 31, 2021 represents proceeds from the ~~prior year.~~sale of our discontinued operations, partially offset by capital expenditures.

Management expects capital expenditures for fiscal year ~~2018~~2023 to range from $8$6.5 million to ~~$11~~$9.0 million, primarily for IT ~~investments.~~investments and facility improvements.

For the six months ended December 31, ~~2017,~~2022, cash provided by financing activities totaled ~~to $209.4~~$108.0 million, compared to ~~$36.1~~$51.4 million provided inby financing activities for the ~~prior year~~prior-year period. Cash provided by financing activities for the six months ended December 31, ~~2017 was~~2022 and 2021 is primarily ~~from~~attributable to net borrowings on the revolving credit ~~facility, partially offset by cash used to pay contingent consideration payments~~facility.

to the former shareholders of Network1, Intelisys and POS Portal. Cash provided by financing activities for the six months ended December 31, 2016 was primarily from net borrowings on the revolving credit facility, partially offset by cash used to repurchase common stock and make contingent consideration payments to the former shareholders of Network1 and Imago.Credit Facility

~~The Company has~~We have a multi-currency senior secured ~~revolving~~ credit facility with ~~JP Morgan~~JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks ~~that matures on April 3, 2022.~~(as amended, the “Amended Credit Agreement”). On ~~August 8, 2017, the Company~~September 28, 2022, we amended ~~the~~and restated our Amended Credit Agreement, ~~to increase the maximum~~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,” we may increase our borrowings up to an additional $250 million, subject to obtaining additional credit commitments from ~~$300 million to $400 million.~~the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of ~~credit and has a $200 million accordion feature that allows the Company to increase the availability to~~ ~~$600 million, subject to obtaining additional credit commitments from the lenders participating in the increase.~~

Loans denominated in U.S. dollars, other than swingline loans, shall bear interest at a rate per annum equal to, ~~a spread over~~at our option, (i) the ~~London Interbank Offered Rate ("LIBOR")~~adjusted Term SOFR or ~~alternate base rate~~adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75%, depending upon ~~the Company's~~our ratio of (A) total consolidated debt ~~(excluding accounts payable and accrued liabilities)~~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"~~“leverage ratio”)~~. This~~; or (ii) the alternate base rate plus an additional margin ranging from 0% to 0.75%, depending upon our leverage ratio, plus, if applicable, certain mandatory costs. All swingline loans denominated in U.S. dollars shall bear interest based upon the adjusted daily simple SOFR, floating daily, plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio, or such other rate as agreed upon with the applicable swingline lender. 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 shall bear interest at a rate per annum equal to the applicable benchmark rate set forth in the New Credit Agreement plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio, plus, if applicable, certain mandatory costs.

During the quarter and six months ended December 31, 2022, our borrowings under the credit facility were U.S. dollar loans. The spread ~~ranges from~~ ~~1.00%~~ to ~~2.125%~~in effect as of December 31, 2022 was 1.50% for ~~LIBOR-based~~LIBOR and SOFR-based loans and ~~0.00%~~ to ~~1.125%~~0.50% for alternate base rate loans. ~~Borrowings under the~~The commitment fee rate in effect at December 31, 2022 was 0.25%. The Amended Credit Agreement ~~are guaranteed by substantially~~includes customary representations, warranties and affirmative and negative covenants, including financial covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50 to 1.00 at all ~~of the domestic assets of the Company as well as certain foreign subsidiaries determined to be material under the Amended Credit Agreement and a pledge of up to~~ ~~65%~~ ~~of capital stock or other equity interest in each Guarantor~~times. In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement)~~. The Company was~~ 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. We were in compliance with all covenants under the credit facility ~~as of~~ at December 31, ~~2017~~.2022.

~~There was $355.5 million and $91.9 million in~~The average daily outstanding ~~borrowings~~balance on ~~our $400 million~~the revolving credit facility, ~~as of~~ ~~December 31, 2017~~ ~~and~~ ~~June 30, 2017, respectively.~~

Table of December 31, 2017, the Company was obligated to pay certain earnout payments to the former shareholders of POS Portal, Intelisys and Network1 related to their acquisitions on July 31, 2017, August 29, 2016 and January 13, 2015, respectively. See Note 8 - ~~Fair Value of Financial Instruments~~ for a discussion on the liabilities recorded. The earnout payment due to the former shareholders of POS Portal was paid in full during the December quarter of the current fiscal year and was funded by cash from operations and our existing revolving credit facility. Future earnout payments for Intelisys are expected to be funded by cash from operations and our existing revolving credit facility. Future earnout payments for Network1 are expected to be funded by existing cash balances in Brazil and cash from operations.Contents

We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under our credit agreements, will provide sufficient resources to meet ~~the~~our present and future working capital and cash requirements for at least the next twelve months.

~~Off-Balance Sheet Arrangements~~ We also believe that our longer-term working capital, planned expenditures and ~~Contractual Obligations~~

~~We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future affect or change on our financial condition, revenues or expenses, results of~~other general funding requirements will be satisfied through cash flows from operations liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the company is a party, under which the company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

~~As of December 31, 2017, we have made adjustments to our contingent consideration owed~~and, to the ~~former shareholders Intelisys and Network 1. See Note 8 -~~ ~~Fair Value of Financial Instruments~~ ~~for a discussion on the liabilities recorded. There have been no other material changes in~~extent necessary, from our ~~contractual obligations and commitments disclosed in our Annual Report on Form 10-K filed on August 29, 2017.~~borrowing facilities.

Accounting Standards Recently Issued

See Note 1 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effects on our consolidated financial position and results of operations.

Critical Accounting Policies and Estimates

Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. See Management's Discussion and Analysis of Financial Condition and Results from Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017~~2022 for a complete discussion.



Item 3.			Quantitative and Qualitative Disclosures About Market Risk

~~Our principal exposure to changes in financial market conditions in the normal course~~For a description of our ~~business is a result of~~market risks, see Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our ~~selective use of bank debt and transacting business in foreign currencies in connection with our foreign operations.~~

~~Interest Rate Risk~~

~~Foreign Currency Exchange Rate Risk~~

Table of ~~the Company’s currency forward contracts outstanding was a net payable of less than $0.1 million. We do not utilize financial instruments for trading or other speculative purposes.~~

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Item 4.			Controls and Procedures

An evaluation was carried out under the supervision and with the participation of ~~the Company’s~~our management, including ~~its~~our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the effectiveness of ~~the Company’s~~our disclosure controls and procedures ~~as of~~ at December 31, ~~2017~~.2022. Based on that evaluation, ~~the Company’s~~our management, including the CEO and CFO, concluded that ~~the Company’s~~our disclosure controls and procedures are effective ~~as of~~ at December 31, ~~2017~~.2022. During the quarter ended December 31, ~~2017~~,2022, there was no change in ~~the Company’s~~our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

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PART II. OTHER INFORMATION



Item 1.			Legal Proceedings

The Company and ~~its~~our subsidiaries are, from time to time, parties to lawsuits arising out of operations. Although there can be no assurance, based upon information known to ~~the Company, the Company believes~~us, we believe that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on ~~the Company’s~~our financial condition or results of operations. For a description of our material legal proceedings, see Note 12 - Commitments and Contingencies in the notes to the condensed consolidated financial statements, which is incorporated herein by reference.



Item 1A.			Risk Factors

In addition to the risk factors discussed in our other reports and statements that we file with the SEC, you should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, ~~2017,~~2022, which could materially affect our business, financial condition and/or future operating results.



Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

~~On August 29, 2016,~~Purchases of Equity Securities by the ~~Company announced a Board of Directors ("BOD") authorization to repurchase shares up to $120 million of the Company's common stock over three years.~~ Issuer

The following table presents the share-repurchase activity for the quarter ended December 31, ~~2017:~~2022:

Period
Total number of shares purchased^(a)

Average price paid per share^(a)
Total number of shares purchased as part of the publicly announced plan or program Approximate dollar value of shares that may yet be purchased under the plan or program
October 1, 2017 through October 31, 2017

103
$ 43.65
103
$ 99,664,707
November 1, 2017 through November 30, 2017

—
$ —
—
$ 99,664,707
December 1, 2017 through December 31, 2017

45,798
$ 34.35
45,798
$ 99,664,707
Total 45,901
$ 34.37
45,901
$ 99,664,707


Period	Total number of shares purchased (1)	Average price paid per share	Total number of shares purchased as part of the publicly announced plan or program	Approximate dollar value of shares that may yet be purchased under the plan or program






October 1 - 31, 2022	2,177	$ 26.41	—	$ 81,814,854
November 1 - 30, 2022	52,230	$ 32.05	—	$ 81,814,854
December 1 - 31, 2022	134	$ 30.70	—	$ 81,814,854
Total	54,541		—

~~(a) Total number of shares purchased represents~~(1) Includes 54,541 shares withheld from ~~employees for~~employees' stock-based awards ~~in order~~ to satisfy ~~the~~ required tax withholding ~~obligations. The purchases of these shares were not made pursuant to any publicly announced repurchase plan. No share repurchases occurred under the BOD authorization~~obligations for the ~~quarter ended~~months of October through December ~~31, 2017.~~2022.

In August 2021, our Board of Directors authorized a $100 million share repurchase program. The authorization does not have any time limit.

Dividends

We have never declared or paid a cash dividend. Under the terms of our credit facility, the payment of cash dividends is restricted.

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Item 6.			Exhibits


Exhibit Number			Description

~~Item 6.~~			~~Exhibits~~



~~Exhibit~~ ~~Number~~	~~Description~~

~~10.1~~31.1	Form of Restricted Stock Unit Award (Performance and Service-Based) under the 2013 Long-Term Incentive Plan (2017 version) (incorporated by reference to Exhibit 10.1 of the registrant's Current Report filed with the SEC on Form 8-K on December 8, 2017).

~~10.2~~	Form of Restricted Stock Unit Award (Service-Based) under the 2013 Long-Term Incentive Plan (2017 version) (incorporated by reference to Exhibit 10.2 of the registrant's Current Report filed with the SEC on Form 8-K on December 8, 2017).

~~10.3~~	Form of Non-Qualified Stock Option Agreement under the 2013 Long-Term Incentive Plan (2017 version) (incorporated by reference to Exhibit 10.3 of the registrant's Current Report filed with the SEC on Form 8-K on December 8, 2017).

~~10.4~~	Form of Incentive Stock Option Agreement under the 2013 Long-Term Incentive Plan (2017 version) (incorporated by reference to Exhibit 10.4 of the registrant's Current Report filed with the SEC on Form 8-K on December 8, 2017).

~~31.1~~	Certification of the Chief Executive Officer, Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer, Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from our Quarterly Report on Form 10-Q for the quarter ended December 31, ~~2017,~~2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets ~~as of~~at December 31, ~~2017~~2022 and June 30, ~~2017;~~2022; (ii) the Condensed Consolidated Income ~~Statement~~Statements for the ~~quarter~~quarters and six months ended December 31, ~~2017~~2022 and ~~2016;~~2021; (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~ for the ~~quarter~~quarters and six months ended December 31, ~~2017~~2022 and ~~2016;~~2021; (iv) the Condensed Consolidated Statements of Shareholder's Equity at December 31, 2022 and 2021; (v) the Condensed Consolidated Statements of Cash Flows for the six months ended December 31, ~~2017~~2022 and ~~2016;~~2021; and ~~(v)~~(vi) the Notes to the Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL

104		Cover page Inline XBRL File (Included in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			ScanSource, Inc.

Date:		February 7, 2023	~~ScanSource, Inc.~~

	/s/ MICHAEL L. BAUR
			Michael L. Baur
~~Date:~~		~~February 6, 2018~~	Chairman and Chief Executive Officer (Principal Executive Officer)



Date:	February 7, 2023	/s/ ~~GERALD LYONS~~STEVE JONES
		~~Gerald Lyons~~Steve Jones
~~Date:~~	~~February 6, 2018~~	Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)


	Quarter ended				Six months ended
	December 31,				December 31,
	2022		2021		2022		2021
	(in thousands)
Net interest (income) expense recognized as a result of interest rate swap	$	(345)	$	579	$	(313)	$	1,157
Unrealized gain in fair value of interest rate swap	349		999		2,849		983
Net increase in accumulated other comprehensive income	4		1,578		2,536		2,140
Income tax effect	1		406		652		555
Net increase in accumulated other comprehensive income, net of tax	$	3	$	1,172	$	1,884	$	1,585


	December 31, 2022
Weighted-average remaining lease term	3.96 years
Weighted-average discount rate	3.98	%


	Operating leases
	(in thousands)
2023	$	2,663
2024	4,546
2025	3,417
2026	2,878
2027	2,597
Thereafter	632
Total future payments	16,733
Less: amounts representing interest	1,312
Present value of lease payments	$	15,421


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	POS Portal
	(in thousands)
Receivables	$	8,914
Inventory	8,352
Other current assets	917
Property and equipment	24,963
Goodwill	101,198
Identifiable intangible assets	57,000
Other non-current assets	100
	$	201,444

Accounts payable	$	10,897
Accrued expenses and other current liabilities	5,130
Contingent consideration	13,098
Other long-term liabilities	102
Long-term deferred taxes payable	28,449
Consideration transferred, net of cash acquired	143,768
	$	201,444



	Intelisys
	(in thousands)
Receivables	$	21,655
Other current assets	1,547
Property and equipment	5,298
Goodwill	109,005
Identifiable intangible assets	63,110
Other non-current assets	1,839
	$	202,454

Accounts payable	$	21,063
Accrued expenses and other current liabilities	2,587
Contingent consideration	95,000
Consideration transferred, net of cash acquired	83,804
	$	202,454



	Barcode, Networking & Security Segment		Communications & Services Segment		Total
	(in thousands)
Balance as of June 30, 2017	$	36,260	$	164,621	$	200,881
Additions	101,198		—		101,198
Foreign currency translation adjustment	146		687		833
Balance as of December 31, 2017	$	137,604	$	165,308	$	302,912


	Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)
	(in thousands)									(in thousands)
Assets:									Assets:
Deferred compensation plan investments, current and non-current portion	$	23,893	$	23,893	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	27,387	$	27,387	$	—
Forward foreign currency exchange contracts	71		—		71		—

Interest rate swap agreement	578		—		578		—		Interest rate swap agreement	4,223		—		4,223

Total assets at fair value	$	24,542	$	23,893	$	649	$	—	Total assets at fair value	$	31,610	$	27,387	$	4,223
Liabilities:									Liabilities:
Deferred compensation plan investments, current and non-current portion	$	23,893	$	23,893	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	27,387	$	27,387	$	—
Forward foreign currency exchange contracts	169		—		169		—		Forward foreign currency exchange contracts	9		—		9
Liability for contingent consideration, current and non-current portion	97,031		—		—		97,031
Foreign currency hedge									Foreign currency hedge	281		—		281

Total liabilities at fair value	$	121,093	$	23,893	$	169	$	97,031	Total liabilities at fair value	$	27,677	$	27,387	$	290



	Contingent consideration for the quarter ended									Contingent consideration for the six months ended
	December 31, 2017									December 31, 2017
	Barcode, Networking & Security Segment			Communications & Services Segment			Total			Barcode, Networking & Security Segment			Communications & Services Segment			Total
	(in thousands)
Fair value at beginning of period	$	13,167		$	90,326		$	103,493		$	—		$	114,036		$	114,036
Issuance of contingent consideration	—			—			—			13,098			—			13,098
Payments	(13,167		)	—			(13,167		)	(13,167		)	(40,858		)	(54,025		)
Change in fair value of contingent consideration	—			6,913			6,913			69			23,725			23,794
Foreign currency translation adjustment	—			(208		)	(208		)	—			128			128
Fair value at end of period	$	—		$	97,031		$	97,031		$	—		$	97,031		$	97,031



	Contingent consideration for the quarter ended			Contingent consideration for the six months ended
	December 31, 2016			December 31, 2016
	Communications & Services Segment			Communications & Services Segment
	(in thousands)
Fair value at beginning of period	$	110,835		$	24,652
Issuance of contingent consideration	—			95,000
Payments	(1,607		)	(10,241		)
Change in fair value of contingent consideration	1,791			1,961
Foreign currency translation adjustment	(139		)	(492		)
Fair value at end of period	$	110,880		$	110,880



	Quarter ended December 31, 2017								Quarter ended December 31, 2016
	Operating Income		Pre-Tax Income		Net Income		Diluted EPS		Operating Income		Pre-Tax Income			Net Income			Diluted EPS
	(in thousands, except per share data)
GAAP Measures	$	22,341	$	20,310	$	7,969	$	0.31	$	23,275	$	35,781		$	23,036		$	0.91
Adjustments:
Amortization of intangible assets	5,487		5,487		3,648		0.14		4,165		4,165			2,740			0.11
Change in fair value of contingent consideration	6,913		6,913		4,742		0.18		1,791		1,791			1,000			0.04
Acquisition costs	—		—		—		—		335		335			335			0.01
Tax reform charges^(a)					6,689		0.26		—		—			—			—
Legal settlement, net of attorney fees	—		—		—		—		—		(12,777		)	(8,047		)	(0.32		)
Non-GAAP measures	$	34,741	$	32,710	$	23,048	$	0.90	$	29,566	$	29,295		$	19,064		$	0.75


~~(a)~~	~~The annualized EBITDA amount is divided by days in the quarter times 365 days per year (366 during leap years). There were 92 days in the current and prior-year quarter.~~


~~(a)~~	~~Acquisition costs are nondeductible for tax purposes.~~


~~(b)~~	~~Average funded debt is calculated as the average daily amounts outstanding on our current and long-term interest-bearing debt.~~



Period	Total number of shares purchased^(a)	Average price paid per share^(a)		Total number of shares purchased as part of the publicly announced plan or program	Approximate dollar value of shares that may yet be purchased under the plan or program
October 1, 2017 through October 31, 2017	103	$	43.65	103	$	99,664,707
November 1, 2017 through November 30, 2017	—	$	—	—	$	99,664,707
December 1, 2017 through December 31, 2017	45,798	$	34.35	45,798	$	99,664,707
Total	45,901	$	34.37	45,901	$	99,664,707