UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

Quarterly period ended September 30, ~~2020~~2021


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

For the transition period from ____ to ____

Commission File Number: 000-26926

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 ☒ No ☐

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

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

Large accelerated filer

☒

Smaller reporting company

☐

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

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

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

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


Class						Outstanding at November ~~5, 2020~~8, 2021
Common Stock, no par value per share						~~25,364,617~~25,531,069 shares

SCANSOURCE, INC.

INDEX TO FORM 10-Q

September 30, ~~2020~~2021


		Page #
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets (unaudited) at September ~~30, 2020~~ 3 0 , 2021 and June 30, 202 1	5
	Condensed Consolidated Income Statements (unaudited) for the Quarters Ended Septem ber 3 0 , 2021 and 2020	6
	Condensed Consolidated Statements of Comprehensive Income ~~Statements~~ (unaudited) for the Quarters Ended September ~~30, 2020~~ 3 0 , 2021 and ~~2019~~2020	7
	~~Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the Quarters Ended September 30, 2020 and 2019~~	8
	Condensed Consolidated Statements of Shareholders' Equity (unaudited) for the Quarters Ended September ~~30, 2020~~ 3 0 , 2021 and ~~2019~~2020	98
	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Three~~T hree Months Ended ~~September 30,~~Sept ember 3 0 , 2021 and 2020 ~~and 2019~~	1110
	Notes to Condensed Consolidated Financial Statements (unaudited)	1312
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3330
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4843
Item 4.	Controls and Procedures	4944

PART II. OTHER INFORMATION

Item 11.	Legal Proceedings	5045
Item 1A.	Risk Factors	5045
Item 22.	Unregistered Sales of Equity Securities and Use of Proceeds	5045
Item 6.	Exhibits	5045

SIGNATURES		5146

Table of Contents

FORWARD-LOOKING STATEMENTS

Forward-looking statements are included in the "Risk Factors," "Legal Proceedings," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures About Market Risk" sections and elsewhere herein. Words such as "expects," "anticipates," "believes," "intends," "plans," "hopes," "forecasts," "seeks," "estimates," "goals," "projects," "strategy," "future," "likely," "may," "should," and variations of such words and similar expressions generally identify such forward-looking statements. Any forward-looking statement made by us in this Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. Except as may be required by law, we expressly disclaim any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, except as required by law. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited to, supply chain challenges, the impact of the COVID-19 pandemic on the Company's operations and financial condition, ~~and the potential prolonged economic weakness brought on by COVID-19, the Company's ability to complete the Divestitures on acceptable terms or otherwise dispose of the operations,~~ the failure to manage and implement the Company's organic growth strategy, credit risks involving the Company's larger customers and suppliers, changes in interest and exchange rates and regulatory regimes impacting the Company's international operations, risk to the Company's business from a cyber-security attack, a failure of the Company's IT systems, failure to hire and retain quality employees, loss of the Company's major customers, termination of the Company's relationship with key suppliers or a significant modification of the terms under which it operates with a key supplier, changes in the Company's operating strategy, and other factors set forth in "Risk Factors" contained in our Annual Report on Form 10-K for the year ended June 30, ~~2020.~~2021.

Table of Contents

PART I. FINANCIAL INFORMATION


Item 1.			Financial Statements

~~Table of Contents~~

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share information)


		September 30, 2020		June 30, 2020			September 30, 2021		June 30, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	49,889	$	29,485	Cash and cash equivalents	$	55,491	$	62,718
Accounts receivable, less allowance of $21,981 at September 30, 2020 and $21,906 at June 30, 2020		509,779		443,185
Accounts receivable, less allowance of $17,620 at September 30, 2021 and $19,341 at June 30, 2021						Accounts receivable, less allowance of $17,620 at September 30, 2021 and $19,341 at June 30, 2021	589,532		568,984
Inventories	Inventories	423,088		454,885		Inventories	493,541		470,081
Prepaid expenses and other current assets	Prepaid expenses and other current assets	92,216		94,681		Prepaid expenses and other current assets	117,849		117,860
Current assets held for sale		176,903		181,231

Total current assets	Total current assets	1,251,875		1,203,467		Total current assets	1,256,413		1,219,643
Property and equipment, net	Property and equipment, net	52,264		55,641		Property and equipment, net	40,763		42,836
Goodwill	Goodwill	215,170		214,288		Goodwill	216,948		218,877
Identifiable intangible assets, net	Identifiable intangible assets, net	117,492		121,547		Identifiable intangible assets, net	99,496		104,860
Deferred income taxes	Deferred income taxes	24,366		24,630		Deferred income taxes	21,806		21,853
Other non-current assets	Other non-current assets	72,177		72,521		Other non-current assets	61,925		63,615

Total assets	Total assets	$	1,733,344	$	1,692,094	Total assets	$	1,697,351	$	1,671,684
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	544,856	$	454,240	Accounts payable	$	602,229	$	634,805
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	84,537		76,686		Accrued expenses and other current liabilities	72,362		87,790
Current portion of contingent consideration		46,850		46,334

Income taxes payable	Income taxes payable	1,820		5,886		Income taxes payable	9,039		2,501

Current portion of long-term debt	Current portion of long-term debt	7,843		7,839		Current portion of long-term debt	8,785		7,843
Current liabilities held for sale		152,259		128,022

Total current liabilities	Total current liabilities	838,165		719,007		Total current liabilities	692,415		732,939
Deferred income taxes	Deferred income taxes	4,029		3,884		Deferred income taxes	3,846		3,954
Long-term debt, net of current portion	Long-term debt, net of current portion	140,956		143,175		Long-term debt, net of current portion	132,171		135,331
Borrowings under revolving credit facility	Borrowings under revolving credit facility	0		67,714		Borrowings under revolving credit facility	56,400		—

Other long-term liabilities	Other long-term liabilities	78,967		80,068		Other long-term liabilities	66,425		68,269

Total liabilities	Total liabilities	1,062,117		1,013,848		Total liabilities	951,257		940,493
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, NaN issued		0		0
Common stock, no par value; 45,000,000 shares authorized, 25,361,298 and 25,361,298 shares issued and outstanding at September 30, 2020 and June 30, 2020, respectively		64,945		63,765
Preferred stock, no par value; 3,000,000 shares authorized, none issued						Preferred stock, no par value; 3,000,000 shares authorized, none issued	—		—
Common stock, no par value; 45,000,000 shares authorized, 25,528,551 and 25,499,465 shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively						Common stock, no par value; 45,000,000 shares authorized, 25,528,551 and 25,499,465 shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively	74,817		71,253
Retained earnings	Retained earnings	735,457		747,276		Retained earnings	780,144		758,071
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(129,175)		(132,795)		Accumulated other comprehensive loss	(108,867)		(98,133)
Total shareholders’ equity	Total shareholders’ equity	671,227		678,246		Total shareholders’ equity	746,094		731,191
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	1,733,344	$	1,692,094	Total liabilities and shareholders’ equity	$	1,697,351	$	1,671,684

June 30, 2020 amounts are derived from audited consolidated financial statements.
June 30, 2021 amounts are derived from audited consolidated financial statements.						June 30, 2021 amounts are derived from audited consolidated financial statements.
See accompanying notes to these condensed consolidated financial statements.	See accompanying notes to these condensed 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				Quarter ended
		September 30,				September 30,
		2020		2019				2021		2020
Net sales	Net sales	$	757,342	$	842,701		Net sales	$	857,311	$	757,342
Cost of goods sold	Cost of goods sold	676,563		744,176			Cost of goods sold	756,011		676,563
Gross profit	Gross profit	80,779		98,525			Gross profit	101,300		80,779
Selling, general and administrative expenses	Selling, general and administrative expenses	62,112		68,532			Selling, general and administrative expenses	63,582		62,112
Depreciation expense	Depreciation expense	3,396		3,301			Depreciation expense	2,880		3,396
Intangible amortization expense	Intangible amortization expense	4,853		4,538			Intangible amortization expense	4,510		4,853
Restructuring and other charges	Restructuring and other charges	8,268		169			Restructuring and other charges	—		8,268
Change in fair value of contingent consideration	Change in fair value of contingent consideration	516		2,472			Change in fair value of contingent consideration	—		516
Operating income	Operating income	1,634		19,513			Operating income	30,328		1,634
Interest expense	Interest expense	1,913		3,317			Interest expense	1,660		1,913
Interest income	Interest income	(481)		(807)			Interest income	(1,026)		(481)
Other expense, net	Other expense, net	364		374			Other expense, net	263		364
(Loss) income before income taxes		(162)		16,629
(Benefit) Provision for income taxes		(47)		4,338
Net (loss) income from continuing operations		(115)		12,291
Income before income taxes							Income before income taxes	29,431		(162)
Provision for income taxes							Provision for income taxes	7,358		(47)
Net income (loss) from continuing operations							Net income (loss) from continuing operations	22,073		(115)
Net loss from discontinued operations	Net loss from discontinued operations	(11,704)		(761)			Net loss from discontinued operations	—		(11,704)
Net (loss) income		$	(11,819)	$	11,530
Net income (loss)							Net income (loss)	$	22,073	$	(11,819)
Per share data:	Per share data:						Per share data:

Net (loss) income from continuing operations per common share, basic		$	(0.01)	$	0.48
Net income (loss) from continuing operations per common share, basic							Net income (loss) from continuing operations per common share, basic	$	0.87	$	(0.01)
Net loss from discontinued operations per common share, basic	Net loss from discontinued operations per common share, basic	(0.46)		(0.03)			Net loss from discontinued operations per common share, basic	—		(0.46)
Net (loss) income per common share, basic		$	(0.47)	$	0.45
Net income (loss) per common share, basic							Net income (loss) per common share, basic	$	0.87	$	(0.47)
Weighted-average shares outstanding, basic	Weighted-average shares outstanding, basic	25,361		25,539			Weighted-average shares outstanding, basic	25,512		25,361

Net (loss) income from continuing operations per common share, diluted		$	(0.01)	$	0.48
Net income (loss) from continuing operations per common share, diluted							Net income (loss) from continuing operations per common share, diluted	$	0.86	$	(0.01)
Net loss from discontinued operations per common share, diluted	Net loss from discontinued operations per common share, diluted	(0.46)		(0.03)			Net loss from discontinued operations per common share, diluted	—		(0.46)
Net (loss) income per common share, diluted		$	(0.47)	$	0.45
Net income (loss) per common share, diluted							Net income (loss) per common share, diluted	$	0.86	$	(0.47)
Weighted-average shares outstanding, diluted	Weighted-average shares outstanding, diluted	25,361		25,617			Weighted-average shares outstanding, diluted	25,696		25,361


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
	September 30,
	2021		2020
Net income (loss)	$	22,073	$	(11,819)
Unrealized gain on hedged transaction, net of tax	413		109
Foreign currency translation adjustment	(11,147)		3,511
Comprehensive income (loss)	$	11,339	$	(8,199)


See accompanying notes to these condensed consolidated financial statements.

Table of Contents

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE LOSS~~SHAREHOLDERS' EQUITY (UNAUDITED)

(In ~~thousands)~~thousands, except share information)

Quarter ended
September 30,
2020 2019
Net (loss) income $ (11,819) $ 11,530
Unrealized gain (loss) on hedged transaction, net of tax 109 (1,071)
Foreign currency translation adjustment 3,511 (14,369)
Comprehensive loss $ (8,199) $ (3,910)


~~See accompanying notes to these condensed consolidated financial statements.~~


	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
















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, 2020	25,361,298	$	63,765	$	747,276	$	(132,795)	$	678,246
Net loss	—	—		(11,819)		—		(11,819)
Unrealized gain on hedged transaction, net of tax	—	—		—		109		109
Foreign currency translation adjustment	—	—		—		3,511		3,511


Share-based compensation	—	1,180		—		—		1,180
Balance at September 30, 2020	25,361,298	$	64,945	$	735,457	$	(129,175)	$	671,227
















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, 2019 25,408,397 $ 64,287 $ 939,930 $ (90,088) $ 914,129
Net income — — 11,530 — 11,530
Unrealized loss on hedged transaction, net of tax — — — (1,071) (1,071)
Foreign currency translation adjustment — — — (14,369) (14,369)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes 786 (12) — — (12)
Common stock repurchased (168,068) (5,432) — — (5,432)
Share-based compensation — 1,246 — — 1,246
Balance at September 30, 2019 25,241,115 $ 60,089 $ 951,460 $ (105,528) $ 906,021
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)


		Three months ended					Three months ended
		September 30,					September 30,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net (loss) income		$	(11,819)	$	11,530
Net income (loss)						Net income (loss)	$	22,073	$	(11,819)
Net loss from discontinued operations	Net loss from discontinued operations	(11,704)		(761)		Net loss from discontinued operations	—		(11,704)
Net (loss) income from continuing operations		(115)		12,291
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
Net income (loss) from continuing operations						Net income (loss) from continuing operations	22,073		(115)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:						Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:
Depreciation and amortization	Depreciation and amortization	8,710		8,518		Depreciation and amortization	7,650		8,710
Amortization of debt issue costs	Amortization of debt issue costs	104		104		Amortization of debt issue costs	104		104
Provision for doubtful accounts	Provision for doubtful accounts	(8)		1,225		Provision for doubtful accounts	(1,027)		(8)
Share-based compensation	Share-based compensation	1,168		1,241		Share-based compensation	2,570		1,168

Deferred income taxes	Deferred income taxes	139		56		Deferred income taxes	(183)		139

Change in fair value of contingent consideration	Change in fair value of contingent consideration	516		2,472		Change in fair value of contingent consideration	—		516

Finance lease interest	Finance lease interest	37		22		Finance lease interest	17		37
Changes in operating assets and liabilities, net of acquisitions:	Changes in operating assets and liabilities, net of acquisitions:					Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	Accounts receivable	(68,726)		(48,844)		Accounts receivable	(26,714)		(68,726)
Inventories	Inventories	31,155		(49,276)		Inventories	(25,879)		31,155
Prepaid expenses and other assets	Prepaid expenses and other assets	2,369		306		Prepaid expenses and other assets	(1,174)		2,369
Other non-current assets	Other non-current assets	(274)		(7,516)		Other non-current assets	691		(274)
Accounts payable	Accounts payable	92,419		94,587		Accounts payable	(26,962)		92,419
Accrued expenses and other liabilities	Accrued expenses and other liabilities	7,827		10,063		Accrued expenses and other liabilities	(14,683)		7,827
Income taxes payable	Income taxes payable	(4,096)		2,381		Income taxes payable	6,558		(4,096)
Net cash provided by operating activities of continuing operations		71,225		27,630
Net cash (used in) provided by operating activities of continuing operations						Net cash (used in) provided by operating activities of continuing operations	(56,959)		71,225
Cash flows from investing activities of continuing operations:	Cash flows from investing activities of continuing operations:					Cash flows from investing activities of continuing operations:
Capital expenditures	Capital expenditures	(748)		(939)		Capital expenditures	(1,090)		(748)
Cash paid for business acquisitions, net of cash acquired		0		(49,080)

Net cash used in investing activities of continuing operations	Net cash used in investing activities of continuing operations	(748)		(50,019)		Net cash used in investing activities of continuing operations	(1,090)		(748)
Cash flows from financing activities of continuing operations:	Cash flows from financing activities of continuing operations:					Cash flows from financing activities of continuing operations:

Borrowings on revolving credit, net of expenses	Borrowings on revolving credit, net of expenses	477,381		476,171		Borrowings on revolving credit, net of expenses	526,637		477,381
Repayments on revolving credit, net of expenses	Repayments on revolving credit, net of expenses	(545,095)		(515,772)		Repayments on revolving credit, net of expenses	(470,237)		(545,095)
Borrowings on long-term debt, net	Borrowings on long-term debt, net	(2,214)		(1,272)		Borrowings on long-term debt, net	(2,218)		(2,214)
Repayments of finance lease obligations	Repayments of finance lease obligations	(327)		(391)		Repayments of finance lease obligations	(316)		(327)

Taxes paid on settlement of equity awards		0		(12)
Repurchase of common stock		0		(6,077)
Exercise of stock options						Exercise of stock options	994		—

Net cash used in financing activities of continuing operations		(70,255)		(47,353)
Cash flows from discontinued operations:
Net cash flows provided by operating activities of discontinued operations		31,853		19,370
Net cash flows used in by investing activities of discontinued operations		(36)		(1)
Net cash flows (used in) provided by financing activities of discontinued operations		(9,488)		52,861
Net cash flows provided by discontinued operations		22,329		72,230
Effect of exchange rate changes on cash and cash equivalents		(1,439)		(429)
Increase in cash and cash equivalents		21,112		2,059
Cash and cash equivalents at beginning of period		34,455		23,818

Net cash provided by (used in) financing activities of continuing operations						Net cash provided by (used in) financing activities of continuing operations	54,860		(70,255)

1110

Table of Contents


SCANSOURCE, INC. AND SUBSIDIARIES						SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), continued						CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), continued
(In thousands)						(In thousands)

Cash flows from discontinued operations:						Cash flows from discontinued operations:
Net cash flows provided by operating activities of discontinued operations						Net cash flows provided by operating activities of discontinued operations	—		31,853
Net cash flows used in by investing activities of discontinued operations						Net cash flows used in by investing activities of discontinued operations	—		(36)
Net cash flows used in financing activities of discontinued operations						Net cash flows used in financing activities of discontinued operations	—		(9,488)
Net cash flows provided by discontinued operations						Net cash flows provided by discontinued operations	—		22,329
Effect of exchange rate changes on cash and cash equivalents						Effect of exchange rate changes on cash and cash equivalents	(4,038)		(1,439)
(Decrease) increase in cash and cash equivalents						(Decrease) increase in cash and cash equivalents	(7,227)		21,112
Cash and cash equivalents at beginning of period						Cash and cash equivalents at beginning of period	62,718		34,455
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	55,567		25,877		Cash and cash equivalents at end of period	55,491		55,567
Cash and cash equivalents of discontinued operations	Cash and cash equivalents of discontinued operations	5,678		1,526		Cash and cash equivalents of discontinued operations	—		5,678
Cash and cash equivalents of continuing operations	Cash and cash equivalents of continuing operations	$	49,889	$	24,351	Cash and cash equivalents of continuing operations	$	55,491	$	49,889

See accompanying notes to these condensed consolidated financial statements.	See accompanying notes to these condensed consolidated financial statements.					See accompanying notes to these condensed consolidated financial statements.

1211

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 ~~at the center of the solution delivery channel, connecting businesses~~a leading hybrid distributor accelerating growth for partners across hardware, software, connectivity and ~~providing technology solutions.~~cloud. The Company brings technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale (POS), payments, physical security, unified communications and collaboration, ~~and~~ telecom and cloud services to market. The Company operates in the United States, Canada, Brazil ~~additional Latin American countries,~~and the ~~UK and Europe. However,~~UK. During the quarter ended December 31, 2020, the Company ~~is in~~completed the ~~process~~divestitures of ~~divesting~~ its products distribution business in the UK, Europe and Latin America, outside of Brazil. The Company's 2 operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on product and customer type.

Segment Changes

During the quarter ended September 30, 2021, the Company renamed its operating segments to Specialty Technology Solutions, formerly Worldwide Barcode, Networking & Security, and Modern Communications & Cloud, formerly Worldwide Communications & ~~Services, are based~~Services. The Company made changes to the segments to align technologies with its hybrid distribution strategy across hardware, software, connectivity and cloud. The Company moved some North American business with communications and collaboration solutions to the Modern Communications & Cloud segment. With this change, all of the Company's communications and collaboration business is in the Modern Communications & Cloud segment. This technology alignment better represents the operating and financial performance information provided to the Company's Chief Operating Decision Maker.

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

COVID-19

~~In early March 2020, the World Health Organization characterized COVID-19 as a pandemic.~~ The ~~rapid~~ spread of COVID-19 since December 2019 has resulted in the implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders, business shutdowns, and ~~business shutdowns.~~limitations of in-person gatherings. The Company moved quickly to transition ~~our~~its employees, where possible, to a fully remote working environment. The Company ~~took steps to deploy~~also deployed teams to monitor the ~~rapidly~~ evolving situation and recommend risk mitigation actions; implement travel restrictions; and have employees follow physical distancing practices. The Company is following guidance from authorities and health officials including, but not limited to, checking the temperature of associates when entering its facilities, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitation routines.actions. All of the Company's distribution facilities have remained open and ~~operational. Most of~~operational throughout the ~~Company's office-based employees around the world are working remotely.~~pandemic.

The pandemic and these containment measures have had ~~and are expected to continue to have, a substantial~~an impact on the Company's suppliers' businesses ~~around~~and sales partners' businesses. The negative impacts to net sales from the ~~world,~~pandemic, including ~~the Company,~~declines in customer demand and ~~on global, regional and national economies. The~~supply chain disruptions, began to recover throughout fiscal year 2021. While the Company is unable to predict the ultimate impact that COVID-19 will have on its business, ~~due~~certain technologies have benefited from the widespread adoption of work-from-home, as well as the accelerated shift to ~~the inability~~digitize and automate processes. The Company continues to ~~predict the duration or magnitude of the virus' impacts. However, the Company has experienced decreased revenue and increased employee-related~~incur higher employee related healthcare and prevention ~~costs. While~~costs as a result of the pandemic. The Company has made adjustments, including implementing an annualized expense reduction plan ~~for~~in fiscal year ~~2021, it will continue to monitor and make adjustments to the operating practices that it believes to be in the best interests of its employees, customers, suppliers, and shareholders.~~2021. For further discussion on the potential future impacts of COVID-19, see the Risk Factors presented in Part I, Item 1A in the Company's form 10-K for fiscal year ~~2020.~~2021.

Basis of Presentation

Table of Contents

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared by the Company’s management in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring and non-recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, the results of operations for the quarters ended September 30, ~~2020~~2021 and ~~2019,~~2020, the statements of comprehensive ~~(loss)~~ income for the quarters ended September 30, ~~2020~~2021 and ~~2019,~~2020, the statements of shareholders' equity for the quarters ended September 30, ~~2020~~2021 and ~~2019~~2020 and the statements of cash flows for the three months ended September 30, ~~2020~~2021 and ~~2019.~~2020. The results of operations for the quarters ended September 30, ~~2020~~2021 and ~~2019~~2020 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, ~~2020.~~

~~The Company has reclassified certain prior year amounts for the results of discontinued operations to conform to the current year presentation.~~2021. Unless otherwise indicated, ~~amounts~~disclosures provided in ~~these~~the Notes pertain to continuing operations only.

Summary of Significant Accounting Policies

~~Table of Contents~~

~~Except as described below, there~~There have been no material changes to the Company’s significant accounting policies for the three months ended September 30, ~~2020~~2021 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, ~~2020.~~2021. For a discussion of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~

~~See Note 2~~ ~~- Trade Accounts and Notes Receivable~~ ~~for a discussion of the current expected credit loss policy established upon adoption of Accounting Standards Update ("ASU") 2016-13,~~ ~~Financial Instruments - Credit Losses (ASC Topic 326)~~ ~~in fiscal year~~ 2021.

~~Restructuring Costs~~

The Company groups exit or disposal cost obligations into two categories: employee severance and benefit costs and other. Employee separation costs are recognized upon communication of the restructuring plan to the identified employees. Other associated restructuring costs are expensed as incurred. See Note 14 - ~~Restructuring~~ ~~for further disclosures.~~

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 ~~$2.2~~$19.9 million and ~~$15.4~~$14.3 million are included in accounts payable on the condensed consolidated balance sheets at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, respectively.

Long-lived Assets

The Company presents depreciation expense and intangible amortization expense on the Condensed Consolidated Income Statements. The Company's depreciation expense related to selling, general and administrative costs totaled ~~$3.4 million and $3.3~~$2.9 million for the ~~quarters~~quarter ended September 30, ~~2020~~2021 and ~~2019, respectively.~~$3.4 million for the quarter ended September 30, 2020. Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled ~~$0.5 million and $0.7~~$0.3 million for the ~~quarters~~quarter ended September 30, ~~2020~~2021 and ~~2019, respectively.~~$0.5 million for the quarter ended September 30, 2020. The Company's intangible amortization expense reported on the Condensed Consolidated Income Statements relates to selling, general and administrative costs, not the cost of selling goods. Intangible amortization expense totaled ~~$4.9 million and~~ $4.5 million for the ~~quarters~~quarter ended September 30, ~~2020~~2021 and ~~2019, respectively.~~$4.9 million for the quarter ended September 30, 2020.

Recent Accounting Pronouncements

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (ASC Topic 326).~~ ~~In November 2018, the FASB issued ASU 2018-19,~~ ~~Codification Improvements to Topic 326: Financial Instruments - Credit Losses,~~ ~~which provides supplemental guidance and clarification to ASU 2016-13 and must be adopted concurrently~~. The pronouncement revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The Company adopted this standard effective July 1, 2020 and it did not have a material impact on its consolidated financial statements. See Note 2 ~~- Trade Accounts and Notes Receivable~~ ~~for disclosures related to the adoption of ASU 2016-13.~~

~~In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement~~. The pronouncement eliminates, modifies and adds disclosure requirements for fair value measurements. This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. This guidance is applicable to the Company’s fiscal year beginning July 1, 2020. The Company adopted this standard effective July 1, 2020 and it had no impact on its consolidated financial statements.

~~In March 2020, the FASB issued ASU No. 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~ (“ASU No. 2020-04”), which provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.

~~Table of Contents~~

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: ~~(1)~~(i) historical experience, ~~(2)~~(ii) aging of the accounts receivable, ~~(3)~~(iii) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers, ~~(4)~~(iv) the current economic and country-specific environment and ~~(5)~~(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

Table of Contents

are evaluated on an individual basis. Estimates of expected credit losses on trade receivables over the contractual life are recorded at inception.

The changes in the allowance for doubtful accounts for the three months ended September 30, ~~2020~~2021 are set forth in the table below.

June 30, 2020 Amounts Charged to Expense Write-offs
Other (1)
September 30, 2020
(in thousands)
Trade accounts and current notes receivable allowance $ 21,906 $ (8) $ (288) $ 371 $ 21,981


	June 30, 2021		Amounts Charged to Expense		Write-offs		Other (1)		September 30, 2021
	(in thousands)
Trade accounts and current notes receivable allowance	$	19,341	$	(1,027)	$	(763)	$	69	$	17,620

(1)"Other" amounts include recoveries and the effect of foreign currency fluctuations for the three months ended September 30, ~~2020.~~2021.

~~Table of Contents~~

(3) Revenue Recognition

The Company provides technology solutions and services from the world's leading suppliers of mobility and barcode, POS, payments, physical security, unified communications and collaboration, and 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 the Company's warehouse, (ii) drop-shipment directly from the supplier, or (iii) electronic delivery for non-physical products.

Principal versus Agent Considerations

The Company is the principal for sales of all hardware, certain software and ~~certain~~ services, including self-branded warranty programs. The Company considers itself the principal in these transactions as it has control of the product or service before it is transferred to the customer. When the Company provides self-branded warranty programs, it engages a third party, generally the original equipment manufacturer, to cover the fulfillment of any obligations arising from these contracts. These revenues and associated third-party costs are amortized over the life of the contract on a straight-line basis. The Company recognizes the previously described 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.

~~Related to the Company’s~~ The Intelisys business the Company acts as a master agent connecting independent sales partners with service providers or suppliers who offer telecom and cloud services to end-customers. Intelisys’ sales partners earn commission payments from those service providers or suppliers on end-customer sales. Intelisys provides commission processing services to sales partners, earning a percentage of the commission stream. Because the Company acts asoperates under an ~~agent, revenue is recognized on a net basis.~~agency model.

Variable Considerations

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

Contract Balances

The Company records contract assets and liabilities for payments received from customers in advance of services performed. These assets and liabilities are the result of the sales of the Company's self-branded warranty programs and other transactions

Table of Contents

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:

~~Table of Contents~~


	Quarter ended September 30, 2021
			(in thousands)
	Specialty Technology Solutions		Modern Communications & Cloud		Total
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	501,711	$	338,248	$	839,959
Intelisys connectivity and cloud	—		17,352		17,352
	$	501,711	$	355,600	$	857,311

Quarter ended September 30, 2020
(in thousands)
Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
Revenue by product/service:
Technology solutions $ 523,577 $ 218,508 $ 742,085
Master agency(a)
0 15,257 15,257
$ 523,577 $ 233,765 $ 757,342
(a) Includes Intelisys Communications, Inc and Intelisys Global Ltd..

Quarter ended September 30, 2019
(in thousands)
Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
Revenue by product/service:
Technology solutions $ 581,187 $ 247,805 $ 828,992
Master agency(a)
0 13,709 13,709
$ 581,187 $ 261,514 $ 842,701
(a) Includes Intelisys Communications, Inc and Intelisys Global Ltd..


	Quarter ended September 30, 2020
			(in thousands)
	Specialty Technology Solutions		Modern Communications & Cloud		Total
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)	$	408,777	$	333,308	$	742,085
Intelisys connectivity and cloud	—		15,257		15,257
	$	408,777	$	348,565	$	757,342

~~Table of Contents~~

(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
September 30,
2020 2019
(in thousands, except per share data)
Numerator:
Net (loss) income from continuing operations $ (115) $ 12,291
Net loss from discontinued operations (11,704) (761)
Net (loss) income $ (11,819) $ 11,530
Denominator:
Weighted-average shares, basic 25,361 25,539
Dilutive effect of share-based payments 0 78
Weighted-average shares, diluted(1)
25,361 25,617
Net (loss) income from continuing operations per common share, basic $ (0.01) $ 0.48
Net loss from discontinued operations per common share, basic (0.46) (0.03)
Net (loss) income per common share, basic $ (0.47) $ 0.45
Net (loss) income from continuing operations per common share, diluted $ (0.01) $ 0.48
Net loss from discontinued operations per common share, diluted (0.46) (0.03)
Net (loss) income per common share, diluted $ (0.47) $ 0.45

Table of Contents

~~(1)~~ ~~The Company calculated weighted average shares of common stock in accordance with~~ ~~ASC 260, Earnings per Share. The Company's diluted weighted average shares for the quarter ended September 30, 2020 are the same as basic weighted average shares due to net loss from continuing operations.~~


	Quarter ended
	September 30,
	2021		2020
	(in thousands, except per share data)
Numerator:
Net income (loss) from continuing operations	$	22,073	$	(115)
Net loss from discontinued operations	—		(11,704)
Net income (loss)	$	22,073	$	(11,819)
Denominator:
Weighted-average shares, basic	25,512		25,361
Dilutive effect of share-based payments	184		—
Weighted-average shares, diluted	25,696		25,361

Net income from continuing operations per common share, basic	$	0.87	$	(0.01)
Net loss from discontinued operations per common share, basic	—		(0.46)
Net income (loss) per common share, basic	$	0.87	$	(0.47)

Net income (loss) from continuing operations per common share, diluted	$	0.86	$	(0.01)
Net loss from discontinued operations per common share, diluted	—		(0.46)
Net income (loss) per common share, diluted	$	0.86	$	(0.47)

For the quarters ended September 30, ~~2020~~2021 and ~~2019,~~September 30, 2020, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were ~~1,063,840~~590,557 and ~~916,875,~~1,063,840, respectively.

(5) Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:


		September 30, 2020		June 30, 2020			September 30, 2021		June 30, 2021
		(in thousands)					(in thousands)
Foreign currency translation adjustment	Foreign currency translation adjustment	$	(122,463)	$	(125,974)	Foreign currency translation adjustment	$	(104,708)	$	(93,561)
Unrealized loss on hedged transaction, net of tax	Unrealized loss on hedged transaction, net of tax	(6,712)		(6,821)		Unrealized loss on hedged transaction, net of tax	(4,159)		(4,572)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	$	(129,175)	$	(132,795)	Accumulated other comprehensive loss	$	(108,867)	$	(98,133)

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

Quarter ended September 30,
2020 2019
(in thousands)
Tax benefit $ 184 $ 290


	Quarter ended September 30,
	2021		2020
	(in thousands)
Tax expense (benefit)	$	284	$	184

~~Table of Contents~~

~~(6) Acquisitions~~

~~intY~~

On July 1, 2019, the Company acquired all of the outstanding shares of intY and its CASCADE cloud services distribution platform. The purchase price of this acquisition, net of cash acquired, was approximately $48.9 million. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date. Intangible assets acquired include trade names, customer relationships, and developed technology. Goodwill recognized on this acquisition is not deductible for tax purposes. The impact of this acquisition was not material to the consolidated financial statements. The Company recognized $0.3 million for the quarter ended September 30, 2019, in acquisition-related costs included in selling, general and administrative expenses on the Condensed Consolidated Income Statements in connection with this acquisition. This acquisition is included in the Worldwide Communications & Services segment.

~~(7)~~(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the three months ended September 30, ~~2020,~~2021, by reporting segment, are set forth in the table below.

Worldwide Barcode, Networking & Security Segment Worldwide Communications & Services Segment Total
(in thousands)
Balance at June 30, 2020 $ 16,370 $ 197,918 $ 214,288
Foreign currency translation adjustment 0 882 882
Balance at September 30, 2020 $ 16,370 $ 198,800 $ 215,170

Table of Contents


	Specialty Technology Solutions		Modern Communications & Cloud		Total
	(in thousands)
Balance at June 30, 2021	$	16,370	$	202,507	$	218,877

Foreign currency translation adjustment	—		(1,929)		(1,929)
Balance at September 30, 2021	$	16,370	$	200,578	$	216,948

The following table shows changes in the amount recognized for net identifiable intangible assets for the three months ended September 30, ~~2020.~~2021.


	Net Identifiable Intangible Assets
	(in thousands)
Balance at June 30, ~~2020~~2021	$	~~121,547~~104,860
Additions	—
Reductions	—
Amortization expense	~~(4,853)~~(4,510)
Foreign currency translation adjustment	~~798~~ (854)
Balance at September 30, ~~2020~~2021	$	~~117,492~~99,496

~~(8)~~(7) Short-Term Borrowings and Long-Term Debt

The following table presents the Company’s debt ~~for continuing and discontinued operations~~ at September 30, ~~2020~~2021 and June 30, ~~2020.~~2021.

September 30, 2020 June 30, 2020
(in thousands)
Short-term borrowings(a)
$ 0 $ 3,524
Current portion of long-term debt 7,843 7,839
Mississippi revenue bond, net of current portion 4,081 4,425
Senior secured term loan facility, net of current portion 136,875 138,750
Borrowings under revolving credit facility(b)
19,932 92,418
Total debt $ 168,731 $ 246,956

~~(a)Short-term borrowings are classified as held for sale in the Consolidated Balance sheets for the Company's discontinued operations at June 30, 2020.~~

~~(b)~~ Borrowings under the revolving credit facility classified as held for sale in the Consolidated Balance Sheets for the Company's discontinued operations totaled $19.9 million and $24.7 million at September 30, 2020 ~~and~~ ~~June 30, 2020, respectively.~~

~~Table of Contents~~

~~Short-term Borrowings~~

The Company has a bank overdraft facility with Bank of America used by its European subsidiaries recognized as short-term borrowings. The facility allows the Company to disburse checks in excess of bank balances up to $14.0 million U.S. dollar equivalent for up to seven days. Borrowings under the overdraft facility bear interest at a rate equal to a spread of 1% over the applicable currency's London Interbank Offered Rate ("LIBOR") with a zero percent floor. There were 0 borrowings outstanding under the overdraft facility at September 30, 2020. At June 30, 2020 there was $3.5 million outstanding under the overdraft facility classified as held for sale in the Consolidated Balance Sheets. The borrowings were denominated in euros, which bore a negative LIBOR rate at June 30, 2020, as such the interest applicable to the Company was 1.0%.


	September 30, 2021		June 30, 2021
	(in thousands)

Current portion of long-term debt	$	8,785	$	7,843
Mississippi revenue bond, net of current portion	3,733		4,081
Senior secured term loan facility, net of current portion	128,438		131,250
Borrowings under revolving credit facility	56,400		—
Total debt	$	197,356	$	143,174

Credit Facility

The Company has a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (the “Amended Credit Agreement”). On April 30, 2019, the Company amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. The Amended Credit Agreement includes (i) a five-year $350 million multi-currency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. Pursuant to an “accordion feature,” the Company may increase its borrowings up to an additional $250 ~~million for a total of up to $750~~ million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit, subject to obtaining additional credit commitments from the lenders participating in the increase. The Company incurred debt issuance costs of $1.1 million in connection with the amendments to the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.

At the Company's option, loans under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over the LIBOR or alternate base rate depending upon the Company's net leverage ratio, calculated as total debt less up to $15 million of unrestricted domestic cash ("Credit Facility Net Debt") to trailing 4-quarter adjusted earnings before interest expense, taxes, depreciation and amortization ("Credit Facility EBITDA") (the "Leverage Ratio"). This spread ranges from 1.00% to 1.75% for LIBOR-based loans and 0.00% to 0.75% for alternate base rate loans. Additionally, the Company is charged commitment fees ranging from 0.15% to 0.30%, depending upon the Leverage Ratio, on non-utilized borrowing availability, excluding swingline loans. The Amended Credit Agreement provides for the substitution of a new interest rate benchmark upon the transition from LIBOR, subject to agreement between the Company and the administrative agent.

Table of Contents

Borrowings under the Amended Credit Agreement are guaranteed by substantially all of the domestic assets of the Company and a pledge of up to 65% of capital stock or other equity interest in certain foreign subsidiaries determined to be either material or a subsidiary borrower as defined in the Amended Credit Agreement. Under the terms of the revolving credit facility, the payment of cash dividends is restricted.

The spread in effect as of September 30, ~~2020~~2021 was ~~1.75%~~1.25% for LIBOR-based loans and ~~0.75%~~0.25% for alternate base rate loans. The commitment fee rate in effect at September 30, ~~2020~~2021 was ~~0.30%~~0.20%. The Amended Credit Agreement includes customary representations, warranties, and affirmative and negative covenants, including financial covenants. Specifically, the Company’s Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, the Company’s Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00 to 1.00 at the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. The Company was in compliance with all covenants under the credit facility at September 30, ~~2020.~~2021.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the three month period ended September 30, 2021 was $54.4 million. Including borrowings for both continuing and discontinued operations, the average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the three ~~month periods~~months ended September 30, 2020 ~~and 2019~~ was $91.2 million. There was $293.6 million and $250.8 million, respectively. Taking into consideration outstanding borrowings on the multi-currency revolving credit facility for both continuing and discontinued operations, there was $330.1 million and $257.6$350.0 million available for additional borrowings as of September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, respectively. ~~At September 30, 2020, based upon the Leverage Ratio calculation, there was $179.9 million available for additional borrowings.~~ There were no letters of credit issued under the multi-currency revolving credit facility ~~for the discontinued operations of $0.3 million~~ at September 30, ~~2020 and~~2021 or June 30, ~~2020.~~2021.

Mississippi Revenue Bond

~~Table of Contents~~

On August 1, 2007, the Company entered into an agreement with the State of Mississippi to provide financing for the acquisition and installation of certain equipment to be utilized at the Company’s Southaven, Mississippi warehouse, through the issuance of an industrial development revenue bond. The bond matures on September 1, 2032 and accrues interest at the 30-day LIBOR rate plus a spread of 0.85%. The terms of the bond allow for payment of interest only for the first 10 years of the agreement, and then, starting on September 1, 2018 through 2032, principal and interest payments are due until the maturity date or the redemption of the bond. The agreement also provides the bondholder with a put option, exercisable only within 180 days of each fifth anniversary of the agreement, requiring the Company to pay back the bonds at 100% of the principal amount outstanding. At September 30, ~~2020,~~2021, the Company was in compliance with all covenants under this bond. The interest rates at September 30, ~~2020~~2021 and June 30, ~~2020~~2021 were ~~1.01%~~0.93% and ~~1.03%~~0.94%, respectively.

Debt Issuance Costs

At September 30, ~~2020,~~2021, net debt issuance costs associated with the credit facility and bond totaled ~~$1.5~~$1.1 million and are being amortized through the maturity date of each respective debt instrument.

~~(9)~~(8) Derivatives and Hedging Activities

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

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

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of ~~$27.2~~$33.7 million and ~~$16.6~~$27.9 million for the exchange of foreign currencies at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, respectively. To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense. Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures included in the Condensed Consolidated Income Statements for the quarters ended September 30, ~~2020~~2021 and ~~2019~~2020 are as follows:

Table of Contents


		Quarter ended					Quarter ended
		September 30,					September 30,
		2020		2019					2021		2020
		(in thousands)				(in thousands)
Net foreign exchange derivative contract losses (gains)		$	95	$	(1,153)
Net foreign exchange derivative contract (gains) losses								Net foreign exchange derivative contract (gains) losses	$	(1,651)	$	95
Net foreign currency transactional and re-measurement losses	Net foreign currency transactional and re-measurement losses	343		1,399				Net foreign currency transactional and re-measurement losses	2,136		343
Net foreign currency exchange losses	Net foreign currency exchange losses	$	438	$	246			Net foreign currency exchange losses	$	485	$	438

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 currency 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, British pound versus the euro and other currencies versus the U.S. dollar.

Interest Rates - The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on interest expense from floating rate debt instruments. The Company manages its exposure to changes in interest rates by using interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating rate debt. The Company entered into an interest rate swap agreement, which was subsequently settled, and entered into a new amended agreement on April 30, 2019. The swap agreement has a notional amount of $100.0 million, with a $50.0 million tranche scheduled to mature on April 30, 2024 and a $50.0 million tranche scheduled to mature April 30, 2026. This swap agreement is designated as a cash

~~Table of Contents~~

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 quarters ended September 30, ~~2020~~2021 and ~~2019.~~2020.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive ~~(Loss)~~ Income for the quarters ended September 30, ~~2020~~2021 and ~~2019,~~2020, are as follows:


		Quarter ended					Quarter ended
		September 30,					September 30,
		2020		2019					2021		2020
		(in thousands)				(in thousands)
Net interest expense recognized as a result of interest rate swap	Net interest expense recognized as a result of interest rate swap	$	560	$	27			Net interest expense recognized as a result of interest rate swap	$	580	$	560
Unrealized loss in fair value of interest rate swap	Unrealized loss in fair value of interest rate swap	(402)		(1,440)				Unrealized loss in fair value of interest rate swap	(15)		(402)
Net increase (decrease) in accumulated other comprehensive (loss) income		$	158	$	(1,413)
Net increase in accumulated other comprehensive income								Net increase in accumulated other comprehensive income	565		158
Income tax effect	Income tax effect	49		(342)				Income tax effect	152		49
Net increase (decrease) in accumulated other comprehensive (loss) income, net of tax		$	109	$	(1,071)
Net increase in accumulated other comprehensive income, net of tax								Net increase in accumulated other comprehensive income, net of tax	$	413	$	109

The Company used the following derivative instruments at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

September 30, 2020 June 30, 2020
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 liabilities:
Foreign exchange contracts Accrued expenses and other current liabilities $ 0 $ 41 $ 0 $ 26
Interest rate swap agreement Other long-term liabilities $ 9,232 $ 0 $ 9,433 $ 0

Table of Contents


		September 30, 2021				June 30, 2021
	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	$	—	$	5	$	—	$	—

Foreign currency hedge	Prepaid expenses and other current assets	$	268	$	—	$	187	$	—
Derivative liabilities:
Foreign exchange contracts	Accrued expenses and other current liabilities	$	—	$	—	$	—	$	5

Interest rate swap agreement	Other long-term liabilities	$	5,675	$	—	$	6,280	$	—

2220

Table of Contents

~~(10)~~(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, interest rate swap agreements and contingent consideration owed to the previous owners of Intelisys. 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 at September 30, ~~2020:~~2021:


		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)		Significant unobservable inputs (Level 3)
		(in thousands)									(in thousands)
Assets:	Assets:									Assets:
Deferred compensation plan investments, current and non-current portion	Deferred compensation plan investments, current and non-current portion	$	28,687	$	28,687	$	0	$	0	Deferred compensation plan investments, current and non-current portion	$	29,883	$	29,883	$	—	$	—
Forward foreign currency exchange contracts										Forward foreign currency exchange contracts	5		—		5		—

Foreign currency hedge										Foreign currency hedge	268		—		268		—
Total assets at fair value	Total assets at fair value	$	28,687	$	28,687	$	0	$	0	Total assets at fair value	$	30,156	$	29,883	$	273	$	—
Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan investments, current and non-current portion	Deferred compensation plan investments, current and non-current portion	$	28,687	$	28,687	$	0	$	0	Deferred compensation plan investments, current and non-current portion	$	29,883	$	29,883	$	—	$	—
Forward foreign currency exchange contracts		41		0		41		0

Interest rate swap agreement	Interest rate swap agreement	9,232		0		9,232		0		Interest rate swap agreement	5,675		—		5,675		—
Liability for contingent consideration		46,850		0		0		46,850

Total liabilities at fair value	Total liabilities at fair value	$	84,810	$	28,687	$	9,273	$	46,850	Total liabilities at fair value	$	35,558	$	29,883	$	5,675	$	—

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at June 30, ~~2020:~~2021:

2321

Table of Contents


		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)		Significant unobservable inputs (Level 3)
		(in thousands)									(in thousands)
Assets:	Assets:									Assets:
Deferred compensation plan investments, current and non-current portion	Deferred compensation plan investments, current and non-current portion	$	27,159	$	27,159	$	0	$	0	Deferred compensation plan investments, current and non-current portion	$	31,168	$	31,168	$	—	$	—

Foreign currency hedge										Foreign currency hedge	187		—		187		—

Total assets at fair value	Total assets at fair value	$	27,159	$	27,159	$	0	$	0	Total assets at fair value	$	31,355	$	31,168	$	187	$	—
Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan investments, current and non-current portion	Deferred compensation plan investments, current and non-current portion	$	27,159	$	27,159	$	0	$	0	Deferred compensation plan investments, current and non-current portion	$	31,168	$	31,168	$	—	$	—
Forward foreign currency exchange contracts	Forward foreign currency exchange contracts	26		0		26		0		Forward foreign currency exchange contracts	5		—		5		—
Interest rate swap agreement	Interest rate swap agreement	9,433		0		9,433		0		Interest rate swap agreement	6,280		—		6,280		—
Liability for contingent consideration		46,334		0		0		46,334

Total liabilities at fair value	Total liabilities at fair value	$	82,952	$	27,159	$	9,459	$	46,334	Total liabilities at fair value	$	37,453	$	31,168	$	6,285	$	—

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

Derivative instruments, such as foreign currency forward contracts, are measured using the market approach on a recurring basis considering foreign currency spot rates and forward rates quoted by banks or foreign currency dealers and interest rates quoted by banks (Level 2). Fair values of interest rate swaps are measured using standard valuation models with inputs that can be derived from observable market transactions, including 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 non-current assets or accrued expenses and other long-term liabilities, depending on the respective instruments' favorable or unfavorable positions. See Note 9 - Derivatives and Hedging Activities.

The Company recorded a contingent consideration liability at the acquisition date of Intelisys 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 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 (loss) income through the changes in foreign currency translation adjustments line item as seen in Note 5 -~~ ~~Accumulated Other Comprehensive Loss~~.

~~Intelisys is part of the Company's Worldwide Communications & Services segment.~~ The table below provides a summary of the changes in fair value of the Company's contingent considerations for the Intelisys earnout, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended September 30, 2020. ~~The final earnout payment due to former owners of Intelisys was paid in October 2020.~~

Quarter ended September 30, 2020

Modern Communications & Cloud

~~Worldwide Communications & Services Segment~~

(in thousands)

Fair value at beginning of period

46,334

Change in fair value of contingent consideration

~~516~~

516

Fair value at end of period

46,850

2422

Table of Contents

~~The table below provides a summary of the changes in fair value of the Company’s contingent considerations (Level 3) for the Intelisys earnout for the quarter ended September 30, 2019.~~

~~Quarter ended September 30, 2019~~

~~Worldwide Communications & Services Segment~~

~~(in thousands)~~

~~Fair value at beginning of period~~

~~77,925~~

~~Change in fair value of contingent consideration~~

~~2,472~~

~~Fair value at end of period~~

~~80,397~~

The fair values of amounts owed are recorded in current ~~portion of contingent consideration and long-term~~ portion of contingent consideration in the Company’s Condensed Consolidated Balance Sheets. In accordance with ASC 805, the Company will revalue the contingent consideration liability at each reporting date through the last payment, with changes in the fair value of the contingent consideration reflected in the change in fair value of contingent consideration line item on the Company’s Condensed Consolidated Income Statements that is included in the calculation of operating income. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including:

•estimated future results, net of pro forma adjustments set forth in the purchase agreements;

•the probability of achieving these results; and

•a discount rate reflective of the Company’s creditworthiness and market risk premium associated with the United States markets.

A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. Valuation techniques and significant observable inputs used in recurring Level 3 fair value measurements for the Company's contingent consideration liability related to Intelisys at June 30, 2020 were as follows. The measurement period for the Intelisys earnout ended on June 30, 2020.

~~Reporting Period~~

~~Valuation Technique~~

~~Significant Unobservable Inputs~~

~~Weighted Average Rates(a)~~

~~June 30, 2020~~

~~Discounted cash flow~~

~~Weighted average cost of capital~~

~~3.0~~

~~(a)~~Weighted average rates identified for each significant unobservable input relate to the valuation of the Intelisys contingent consideration. Since the earnout period for Intelisys closed on June 30, 2020, the weighted average cost of capital represents the cost of debt. There is no EBITDA growth or weighted average cost of capital to report in the current period.

Intelisys

The ~~fair value~~final earnout payment due to the former owners of ~~the liability for the contingent consideration related to~~ Intelisys was paid in October 2020. The Company recognized ~~at September 30, 2020 was $46.9~~$0.5 million ~~all of which is classified as current. The~~in expense from the change in fair value of the contingent consideration ~~recognized~~ in the Condensed Consolidated Income Statement ~~totaled $0.5 million~~ for the quarter ended September 30, 2020. The change in fair value for the prior-year quarter is due to the recurring amortization of the unrecognized fair value discount. ~~The liability recognized at September 30, 2020 is undiscounted and expected to be paid in full during the quarter ended December 31, 2020.~~

The fair value of the liability for the contingent consideration related to Intelisys recognized at September 30, 2019 was $80.4 million, of which $38.5 million was classified as current. The expense from the change in fair value of the contingent consideration recognized in the Condensed Consolidated Income Statement totaled $2.5 million for the quarter ended September 30, 2019. The change in fair value for the prior-year quarter is primarily driven by the recurring amortization of the unrecognized fair value discount and better than expected actual results.

~~(11)~~(10) Segment Information

The Company is a leading provider of technology solutions and services to customers in specialty technology markets. The Company has 2 reportable segments, based on product ~~customer~~ and ~~service~~customer type.

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

The ~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions segment includes ~~a portfolio~~the Company’s business in automatic identification and data capture (“AIDC”), point of sale (“POS”), payments, security, and networking technologies. AIDC solutions ~~primarily for enterprise~~include mobile computing, ~~data capture,~~barcode scanners and imagers, radio frequency identification devices (“RFID”), barcode printing, and services. POS and payments ~~networking, electronic physical security, cyber security~~solutions include POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals, and ~~other~~

~~Table of Contents~~

~~technologies.~~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 operations within this segment in the United States, Canada, and Brazil. The Company sees adjacencies among these technologies in helping its customers develop solutions. Data capture and POS solutions 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.

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

The ~~Worldwide~~Modern Communications & ~~Services~~Cloud segment includes the Company’s business in communications and collaboration, connectivity, and cloud services. Communications and collaboration solutions, delivered in the cloud, on-premise, or hybrid, include voice, video, integration of communication platforms, and contact center solutions. The Intelisys connectivity and cloud marketplace offers telecom, cable, Unified Communications as a ~~portfolio of solutions primarily for communications technologies~~Service (“UCaaS”), Contact Center as a Service (“CCaaS”), Infrastructure as a Service (“IaaS”), Software-Defined Wide-Area Network (“SD-WAN”), and other cloud services.This segment includes SaaS and subscription services, which the Company offers using digital tools and ~~includes the Company's recent acquisition of intY.~~platforms. The Company has business operations within this segment in the United States, Canada, Brazil and the UK. These offerings include voice, video conferencing, wireless, data networking, cable, unified communications and collaboration, cloud and technology services. As these solutions come together on IP networks, new opportunities are created to move into adjacent solutions for all vertical markets, such as education, healthcare and government.

~~Table of Contents~~

Selected financial information for each business segment is presented below:

Quarter ended
September 30,
2020 2019
(in thousands)
Sales:
Worldwide Barcode, Networking & Security $ 523,577 $ 581,187
Worldwide Communications & Services 233,765 261,514
$ 757,342 $ 842,701
Depreciation and amortization:
Worldwide Barcode, Networking & Security $ 4,189 $ 4,202
Worldwide Communications & Services 3,727 3,308
Corporate 795 1,008
$ 8,711 $ 8,518
Change in fair value of contingent consideration:
Worldwide Communications & Services 516 2,472
$ 516 $ 2,472
Operating income (loss):
Worldwide Barcode, Networking & Security $ 2,147 $ 11,071
Worldwide Communications & Services 8,253 9,199
Corporate(1)
(8,766) (757)
$ 1,634 $ 19,513
Capital expenditures:
Worldwide Barcode, Networking & Security $ 339 $ 526
Worldwide Communications & Services 409 413
$ 748 $ 939
Sales by Geography Category:
United States and Canada $ 691,080 $ 777,969
International(2)
73,739 74,193
Less intercompany sales (7,477) (9,461)
$ 757,342 $ 842,701
(1) Includes restructuring costs of $8.3 million for the quarter ended September 30, 2020.
(2) For the quarters ended September 30, 2020 and 2019, no sales exceeded 10% of consolidated net sales to any single international country.

September 30, 2020 June 30, 2020
(in thousands)
Assets:
Worldwide Barcode, Networking & Security $ 749,378 $ 766,746
Worldwide Communications & Services 750,832 685,053
Corporate 56,231 59,064
Assets held for sale 176,903 181,231
$ 1,733,344 $ 1,692,094
Property and equipment, net by Geography Category:
United States and Canada $ 49,702 $ 53,083
International 2,562 2,558
$ 52,264 $ 55,641

2723

Table of Contents


	Quarter ended
	September 30,
	2021		2020
	(in thousands)
Sales:
Specialty Technology Solutions	$	501,711	$	408,777
Modern Communications & Cloud	355,600		348,565
	$	857,311	$	757,342
Depreciation and amortization:
Specialty Technology Solutions	$	2,969	$	3,545
Modern Communications & Cloud	3,962		4,370
Corporate	719		795
	$	7,650	$	8,710
Change in fair value of contingent consideration:

Modern Communications & Cloud	—		516
	$	—	$	516
Operating income:
Specialty Technology Solutions	$	14,104	$	1,684
Modern Communications & Cloud	16,307		8,716
Corporate(1)	(83)		(8,766)
	$	30,328	$	1,634
Capital expenditures:
Specialty Technology Solutions	$	(117)	$	(283)
Modern Communications & Cloud	(973)		(465)

	$	(1,090)	$	(748)
Sales by Geography Category:
United States and Canada	$	771,642	$	691,080
International	87,812		73,739
Less intercompany sales	(2,143)		(7,477)
	$	857,311	$	757,342

(1) For the quarter ended September 30, 2021, the amounts shown above include divestiture costs. For the quarter ended September 30, 2020, the amounts shown above include restructuring and divestiture costs.


	September 30, 2021		June 30, 2021
	(in thousands)
Assets:
Specialty Technology Solutions	$	798,750	$	775,704
Modern Communications & Cloud	876,893		868,752
Corporate	21,708		27,228

	$	1,697,351	$	1,671,684
Property and equipment, net by Geography Category:
United States and Canada	$	37,549	$	39,930
International	3,214		2,906
	$	40,763	$	42,836

~~(12)~~

(11) Leases

Table of Contents

In accordance with 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 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 inthrough fiscal year ~~2022.~~2024. 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 financial statements at September 30, ~~2020~~2021 and June 30, ~~2020.~~2021.

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 Sheet related to operating leases at September 30, ~~2020:~~2021 and June 30, 2021:

Operating leases

Balance Sheet location

September 30, 2020

June 30, 2020

Operating leases

Balance Sheet location

September 30, 2021

June 30, 2021

(in thousands)

Operating lease right-of-use assets

Other non-current assets

22,440

23,581

Operating lease right-of-use assets

Other non-current assets

18,242

19,246

Current operating lease liabilities

Accrued expenses and other current liabilities

4,395

4,476

Current operating lease liabilities

Accrued expenses and other current liabilities

4,217

4,284

Long-term operating lease liabilities

Other long-term liabilities

19,711

20,760

Long-term operating lease liabilities

Other long-term liabilities

15,589

16,550

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 ended September 30, ~~2020~~2021 and ~~2019.~~2020. Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.

Quarter ended September 30,
2020 2019
(in thousands)
Operating lease cost $ 1,356 $ 1,602
Variable lease cost 310 249
$ 1,666 $ 1,851


	Quarter ended September 30,
	2021		2020
	(in thousands)
Operating lease cost	$	1,243	$	1,356
Variable lease cost	322		310
	$	1,565	$	1,666

Supplemental cash flow information related to the Company's operating leases for the ~~three months~~quarter ended September 30, ~~2020~~2021 and ~~2019~~2020 are presented in the table below:


	Quarter ended
	September 30,
	2021		2020
	(in thousands)
Cash paid for amounts in the measurement of lease liabilities	$	1,294	$	1,394
Right-of-use assets obtained in exchange for lease obligations	362		—

Table of Contents

Three months ended
September 30,
2020 2019
(in thousands)
Cash paid for amounts in the measurement of lease liabilities $ 1,394 $ 1,406
Right-of-use assets obtained in exchange for lease obligations 0 1,533

The weighted-average remaining lease term and discount rate at September 30, ~~2020~~2021 are presented in the table below:


	September 30, ~~2020~~2021
Weighted-average remaining lease term	~~5.80~~5.00 years
Weighted-average discount rate	~~4.1~~4.07	%

The following table presents the maturities of the Company's operating lease liabilities at September 30, ~~2020:~~2021:


		Operating leases			Operating leases
		(in thousands)			(in thousands)
Remainder of 2021		$	4,035
2022	2022	4,984		2022	$	3,842
2023	2023	4,654		2023	4,790
2024	2024	4,158		2024	4,284
2025	2025	3,256		2025	3,256
2026				2026	2,721
Thereafter	Thereafter	5,990		Thereafter	3,269
Total future payments	Total future payments	27,077		Total future payments	22,162
Less: amounts representing interest	Less: amounts representing interest	2,971		Less: amounts representing interest	2,356
Present value of lease payments	Present value of lease payments	$	24,106	Present value of lease payments	$	19,806

~~(13)~~(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.

~~In early March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) as a pandemic.~~ The rapid spread of COVID-19 since December 2019 has resulted in the implementation of numerous measures to contain the virus worldwide, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures have had, and are expected to continue to have, a substantial impact on businesses around the world, including the Company’s business, and on global, regional and national economies. The Company is unable at this time to predict the ultimate impact that COVID-19 will have on its business due to the inability to predict the duration or magnitude of the virus' ~~impacts.~~impact.

During the Company's due diligence for the Network1 acquisition, several pre-acquisition contingencies were identified regarding various Brazilian federal and state tax exposures. The Company recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as the funds were escrowed as part of the acquisition. The amount available after the impact of foreign currency translation for future pre-acquisition contingency settlements or to be released to the sellers was ~~$4.6~~$3.7 million and ~~$4.8~~$4.0 million, at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, respectively.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets at September 30, ~~2020~~2021 and June 30, ~~2020:~~2021:


	September 30, 2021		June 30, 2021
	Network1
	(in thousands)
Assets
Prepaid expenses and other current assets	$	14	$	16
Other non-current assets	$	3,677	$	3,998
Liabilities
Accrued expenses and other current liabilities	$	14	$	16
Other long-term liabilities	$	3,677	$	3,998

2926

Table of Contents

September 30, 2020 June 30, 2020
Network1
(in thousands)
Assets
Prepaid expenses and other current assets $ 14 $ 14
Other non-current assets $ 3,546 $ 3,652
Liabilities
Accrued expenses and other current liabilities $ 14 $ 14
Other long-term liabilities $ 3,546 $ 3,652

The ~~reduction~~decrease in pre-acquisition contingencies and corresponding indemnification receivables is due to a slight ~~reduction~~decrease in the foreign exchange rate of the Brazilian real against the US dollar.

~~(14)~~(13) Restructuring

In July 2020, as part of a strategic review of organizational structure and operations, the Company announced a global cost reduction and restructuring program. These actions are designed to better align the cost structure for the wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. The Company also initiated the closure of its Canpango business, its ~~salesforce~~Salesforce implementation and consulting business. There ~~has~~had been limited adoption by the Company's partner community of the services Canpango offers. These actions include entering into severance and termination agreements with employees, legal fees to execute the reduction in force and costs associated with lease terminations.

The following table presents the restructuring and severance costs incurred for the ~~quarter~~quarters ended September 30, 2021 and 2020:


	~~Total~~Quarter ended September 30, 2021		Quarter ended September 30, 2020
	(in thousands)
Severance and benefit costs	$	~~8,111~~—	$	8,111
Other	~~157~~—		157
Total restructuring and other charges	$	~~8,268~~—	$	8,268

For the quarter ended September 30, 2020, all restructuring costs ~~are~~were recognized in the Corporate reporting unit and ~~have~~were not ~~been~~ allocated to the ~~Worldwide~~Modern Communications & ~~Services~~Cloud or ~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions segment. ~~The Company incurred restructuring charges in the prior year that were immaterial to the condensed consolidated financial statements and unrelated to the program described above.~~

Accrued restructuring and severance costs are included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. The following table represents activity for the ~~quarter~~three months ended September 30, ~~2020:~~2021:


	Accrued Expenses
	(in thousands)
Balance at ~~July 1, 2020~~June 30, 2021	$	01,199
Charged to expense	~~8,268~~—
Cash payments	~~(1,436)~~(633)
Balance at September 30, ~~2020~~2021	$	~~6,832~~566

The remaining balance as of September 30, ~~2020~~2021 of ~~$6.8~~$0.6 million, primarily related to Corporate, is expected to be paid through the ~~first~~third quarter of fiscal year 2022.

~~(15)~~(14) Income Taxes

~~Table of Contents~~

Income taxes for the quarters ended September 30, ~~2020~~2021 and ~~2019~~2020 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate. In addition to applying the estimated annual effective tax rate to pre-tax income, the Company includes certain items treated as discrete events to arrive at an estimated overall tax provision. There were no material discrete items recognized during the ~~quarter~~quarters ended September 30, ~~2020~~2021 and ~~2019.~~September 30, 2020.

The Company’s effective tax rate of ~~29.0% and 26.1%~~25.0% for the ~~quarters~~quarter ended September 30, ~~2020 and 2019, respectively,~~2021 differs from the current federal statutory rate of 21% primarily as a result of income derived from tax jurisdictions with varying income tax rates, nondeductible expenses and state income taxes. The Company's effective tax rate was 29.0% for the quarter ended September 30, 2020.

As of the quarter ended September 30, 2021, the Company is not permanently reinvested with respect to all earnings generated by foreign operations. The Company has ~~provided for U.S. income taxes for~~determined that there is no material deferred tax liability related to federal, state and withholding tax related to undistributed earnings. There is no certainty to the current earnings of its Canadian subsidiary and will continue to distribute the earnings of its Canadian subsidiary. Earnings from Brazil will continue to be considered retained indefinitely for reinvestment and all other foreign geographies are immaterial. It has been the practicetiming of the Company to reinvest those earnings in the businesses outside the United States. For Latin America and Europe, where the Company has discontinued operations, as these entities sell, the Company intends to repatriate thedistribution of such earnings to the ~~United States.~~U.S. in whole or in part.

~~The Tax Act created a provision known as global intangible low-tax income ("GILTI") that imposes a tax on certain earnings~~

Table of ~~foreign subsidiaries. The GILTI tax became effective for the Company during fiscal year 2019 and an accounting policy election was made to treat the tax as a current period expense.~~Contents

The Company had approximately ~~$1.2~~$1.1 million of total gross unrecognized tax benefits at September 30, ~~2020~~2021 and June 30, ~~2020.~~2021. Of this total at September 30, ~~2020,~~2021, approximately $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 September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, the Company had approximately $1.1 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, ~~2015.~~

~~Table of Contents~~

2016.

~~(16)~~(15) Discontinued Operations

On August 20, 2019, the Company announced plans to divest the product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and the Miami-based export operations ("Divestitures") as these businesses ~~have~~had been performing below management's expectations. The Company ~~will continue~~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 product distribution, leading the Company to focus and invest in its higher-growth, ~~higher margin~~higher-margin businesses. Results from the Divestitures were included within each reportable ~~segment; Worldwide Barcode, Networking & Security~~ segment, which includes the Specialty Technology Solutions and ~~Worldwide~~Modern Communications & ~~Services segment.~~Cloud segments.

During the quarter ended June 30, 2020, the Company recorded a pre-tax loss on ~~held for~~ sale classification of $88.9 million to reduce the carrying value of the Divestitures to its estimate of fair value (the net proceeds ~~expected to be realized~~received at closing), less estimated costs to sell. As this loss was determined not to be attributable to any individual components in the Divestitures' net assets, it was reflected as a valuation allowance against the total assets of the Divestitures. During the quarter ended September 30, 2020, the Company recorded an additional pre-tax loss on ~~held for sale classification~~disposal group of $10.7 million. This additional loss was attributable primarily to a reduction in the net proceeds expected to be realized at closing for the Divestitures.

The Company signed an agreement on July 23, 2020 with Intcomex for its businesses located in Latin America, outside of Brazil. The Company finalized the sale of the Latin America businesses on October 30, 2020. The Company ~~is actively working on sales opportunities for businesses in~~also finalized the sale of the Europe and UK business on November 12, 2020. Total cash received for the ~~UK.~~sale of divestitures was $34.4 million.

Major components of net loss from discontinued operations for the ~~quarters~~quarter ended September 30, 2020 ~~and 2019~~ were as follows:

Quarter ended September 30,
2020 2019
(in thousands)
Net sales $ 145,049 $ 155,716
Cost of goods sold 134,534 142,142
Gross profit 10,515 13,574
Selling, general and administrative expenses 10,913 13,810
Depreciation expense 201 248
Intangible amortization expense 0 424
Operating loss (599) (908)
Interest expense, net 125 483
Loss on held for sale classification 10,686 0
Other expense, net 291 (343)
Loss from discontinued operations before taxes (11,701) (1,048)
Income tax expense 3 (287)
Net loss from discontinued operations $ (11,704) $ (761)



	Quarter ended September 30, 2020
	(in thousands)
Net sales	$	145,049
Cost of goods sold	134,534
Gross profit	10,515
Selling, general and administrative expenses	10,913



Operating loss	(398)
Interest expense, net	125
Loss on disposal group	10,686
Other (income) expense, net	492
Loss from discontinued operations before taxes	(11,701)
Income tax expense	3
Net loss from discontinued operations	$	(11,704)

~~The major classes of~~There were no assets ~~and~~or liabilities classified as held-for-sale in the accompanying consolidated balance sheets ~~were as follows as of~~at September 30, ~~2020~~2021 and June 30, ~~2020:~~2021.

3228

Table of Contents

September 30, 2020 June 30, 2020
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 5,678 $ 4,970
Accounts receivable, net 130,553 117,200
Inventories, net 95,560 106,779
Prepaid expenses and other current assets 27,465 23,808
Total current assets 259,256 252,757
Property and equipment, net 1,724 1,833
Deferred income taxes 9,633 9,349
Other non-current assets 5,899 6,215
Total assets, before valuation allowance 276,512 270,154
Less: valuation allowance (99,609) (88,923)
Total assets, net of valuation allowance (1)
$ 176,903 $ 181,231
Liabilities
Current liabilities:
Accounts payable $ 84,657 $ 56,098
Accrued expenses and other current liabilities 15,834 14,815
Other taxes payable 23,136 20,378
Short-term borrowings 0 3,524
Income tax payable 1,338 1,085
Total current liabilities 124,965 95,900
Borrowings under revolving credit facility 19,932 24,704
Other long-term liabilities 7,362 7,418
Total liabilities(1)
$ 152,259 $ 128,022

(1) Total assets and liabilities of discontinued operations are classified in current assets and liabilities, respectively, in the Company's consolidated balance sheet as of September 30, 2020 and June 30, 2020, as the discontinued operations are expected to be disposed of by June 30, 2021.

Significant non-cash operating items and capital expenditures reflected in the cash flows from discontinued operations for the three months ended September 30, 2020 ~~and 2019~~ were as follows:

Three months ended September 30,
2020 2019
(in thousands)
Loss on held for sale classification $ 10,686 $ 0
Depreciation and amortization 201 672
Capital expenditures (36) (1)



	Three months ended September 30, 2020
	(in thousands)
Loss on disposal group	$	10,686


Capital expenditures	(36)

Table of Contents

~~(17) Subsequent Events~~

~~The Company finalized the sale of its Divestitures in Latin America, outside of Brazil, on October 30, 2020. See Note 16 -~~ ~~Discontinued Operation~~s.


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

~~Table of Contents~~

Overview

ScanSource is ~~at the center of the technological solution delivery channel, connecting businesses~~a leading hybrid distributor accelerating growth for partners across hardware, software, connectivity and ~~institutions and providing solutions for their complex needs.~~cloud. We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, point-of-sale (POS), payments, physical security, unified communications and collaboration (UCaaS, CCaaS), telecom and cloud services to our ~~customers. We serve approximately 30,000~~30,000-plus sales partners located in the United States, Canada, Brazil, the UK and ~~Europe~~Europe.

We operate our business under a management structure that enhances our technology focus and ~~provide~~hybrid distribution growth strategy. During the quarter ended September 30, 2021, we renamed our operating segments and aligned technologies with our hybrid distribution growth strategy by moving some North American business with communications and collaborations solutions to the Modern Communications & Cloud segment. Our segments each operate in the United States, Canada, Brazil and the UK:

•Specialty Technology Solutions, formerly Worldwide Barcode, Networking & Security

•Modern Communications & Cloud, formerly Worldwide Communications & Services

We sell hardware, software, connectivity and cloud solutions and services ~~from over 500 technology suppliers.~~ 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 Parana, Espirito Santo and Santa Catarina. We provide some of our digital products, which include Software as a Service (“SaaS”) and subscriptions, through our digital tools and platforms.

Our key suppliers include 8x8, ACC Business, AT&T, Aruba/HPE, AudioCodes, Avaya, Axis, Barco, Bematech, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Hanwha, Honeywell, HID, Ingenico, Intrado, Jabra, LogMeIn, Lumen, March Networks, Masergy, Microsoft, Mitel, NCR, NICE inContact, Oracle, Palo Alto, Panasonic, Poly, RingCentral, Spectralink, Spectrum, Toshiba Global Commerce Solutions, Ubiquiti, Verifone, Verizon, Windstream, Zebra Technologies and Zoom.

Unless otherwise indicated, the amounts and analysis provided within Management's Discussion and Analysis of Financial Condition and Results of Operations pertain to our continuing operations only.

We operate our business under a management structure that enhances our technology market focus and growth strategy. We segment our business into two technology-focused areas that each operate in the United States, Canada, Brazil and the UK:

•~~Worldwide Barcode, Networking & Security~~

•~~Worldwide Communications & Services~~

We sell hardware, software, services and connectivity through channel partners to end-customers. For our hardware distribution, we sell products (i) to the United States and Canada from our facilities located in Mississippi, California and Kentucky and (ii) to Brazil primarily from facilities located in the Brazilian states of Parana, Espirito Santo and Santa Catarina. We also have drop shipment arrangements with some of our suppliers, which allow us to offer products to customers without taking physical delivery at our facilities. We provide some of our digital products, which include Software as a Service (“SaaS”) and subscriptions, through our CASCADE platform.

Our key suppliers include 8x8, ACC Business, AT&T, Aruba/HPE, Axis, AudioCodes, Avaya, Barco, Bematech, Cisco, Comcast Business, Datalogic, Dell, Dialogic, Elo, Epson, Extreme, Fortinet, Hanwha, Honeywell, HID, Ingenico, Jabra, Lumen, March Networks, Masergy, Microsoft, Mitel, NCR, NICE inContact, Oracle, Panasonic, Poly, RingCentral, Samsung, Sony, Spectralink, Spectrum, Toshiba Global Commerce Solutions, TPx, Ubiquiti, Verifone, Verizon, Windstream, Zebra Technologies and Zoom. We also offer customers significant choices in cloud services through our Intelisys business, including offerings in contact center, infrastructure and unified communications.

~~Recent Developments~~

Impact of COVID-19 on our Business Environment

~~During the COVID-19 pandemic, our~~Our top priority is protecting the health and safety of our employees. We ~~moved quickly to transition our employees, where possible, to a fully remote working environment. We~~ have ~~taken a number of measures to ensure our~~ teams ~~feel secure in their jobs and have~~monitoring the ~~flexibility and resources they need to stay safe and healthy.~~

~~We have activated our contingency plans. We have deployed teams to monitor the rapidly~~ evolving situation and ~~recommend~~recommending risk mitigation actions; we have implemented travel restrictions; and we are following physical distancing guidelines. We are following global guidance from authorities and health officials including, but not limited to, checking the temperature of associates when entering our facilities, requiring associates to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitation routines.actions. All of our distribution facilities have remained open and ~~operational. Most of our office-based employees around~~operational throughout the ~~world are working remotely.~~pandemic. Our employees ~~have remained productive across all areas of our business, even while working remotely, and~~ are committed to providing the high level of customer service our partners have grown to expect from us in order to achieve positive results.

We continue to see significant impact from the COVID-19 pandemic. During the first quarter of our fiscal year, GAAP net sales declined 10.1% year-over-year and non-GAAP net sales, which exclude the negative impact of fluctuations in foreign currency translation, declined 7.1% year-over-year.

~~Table of Contents~~

In July 2020, we announced actions to address the business impacts of the COVID-19 pandemic and prepare for ~~the~~our next phase of growth. These actions included a $30 million annualized expense reduction plan. During the quarter ended September 30, 2020, we recognized approximately $8.3 million for Restructuring and Other Charges, largely for severance and employee benefits for employees who left the Company as part of this plan. These actions ~~are~~were designed to better align the cost structure for our wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. As part of the plan, we ~~are continuing~~have continued to invest in our higher growth agency business, Intelisys. Strong growth for the Intelisys business has continued, even with the COVID-19 pandemic.

~~Closure of the Canpango Professional Services Business~~

In July 2020, we initiated actions to close Canpango, our salesforce implementation and consulting business. In August 2018, we acquired Canpango to help partners build out their customer relationship management capabilities as part of a CCaaS solution. There has been limited adoption by our partner community. We are in the process of completing existing contracts and expect operations to cease b~~y December 31, 2020.~~

~~Divestitures~~

~~The Company signed an agreement on July 23, 2020 with Intcomex for its businesses located in Latin America, outside of Brazil. The Company finalized the sale of the Latin America businesses on October 30 2020. The Company is actively working on sales opportunities for businesses in Europe and the UK.~~

Our Strategy

We rely on a channel sales model ~~offering~~using a hybrid distribution strategy to offer hardware, software, ~~services~~connectivity and ~~connectivity~~cloud from leading technology suppliers to sales partners that solve end customers' challenges. ~~With~~Through our ~~CASCADE platform,~~digital tools and platforms, we ~~also~~ offer customers SaaS and subscription services from leading technology suppliers. While we do not manufacture products, we provide technology solutions and services from leading technology suppliers. Our solutions may include a combination of

Table of Contents

offerings from multiple suppliers or give our sales partners access to additional services, such as custom configuration, key injection, integration support, custom development and other services. We also offer the flexibility of on-premise, cloud and hybrid solutions.

As a trusted adviser to our sales partners, we provide more complete solutions through a better understanding of ~~end customer~~end-customer needs. We drive growth through enhancing our sales partners' capabilities to provide hardware, software, ~~services~~connectivity and ~~connectivity~~cloud solutions. Our teams deliver value-added support programs and services, including education and training, network assessments, implementation, custom development and marketing to help our sales partners extend their capabilities, develop new technology practices or reach new end customers.

Our objective is to grow profitable sales in the technologies we offer and expand in higher margin and adjacent markets to help our sales partners offer more products and services and increase recurring revenue opportunities. As part of our strategic plan, we consider strategic acquisitions and alliances to enhance our technology offerings and service capabilities.

~~Profitability~~

Our operating income is driven by gross profits and by control of operating expenses. Our operations feature scalable information systems, streamlined management and centralized distribution, enabling us to achieve the economies of scale necessary for cost-effective solution selling. In order to continue to grow in our markets, we have continued to invest in new technologies and increased marketing efforts to recruit new customers.

3531

Table of Contents

Results of Operations ~~from Continuing Operations~~

Net Sales

The following tables summarize our net sales results by technology segment and by geographic location for ~~our continuing operations for~~ the quarters ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Quarter ended September 30,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)			Quarter ended September 30,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Segment:	Net Sales by Segment:	2020		2019		$ Change		% Change				Net Sales by Segment:	2021		2020		$ Change		% Change
		(in thousands)											(in thousands)
Worldwide Barcode, Networking & Security		$	523,577	$	581,187	$	(57,610)	(9.9)	%	(8.6)	%
Worldwide Communications & Services		233,765		261,514		(27,749)		(10.6)	%	(3.9)	%
Specialty Technology Solutions												Specialty Technology Solutions	$	501,711	$	408,777	$	92,934	22.7	%	22.6	%
Modern Communications & Cloud												Modern Communications & Cloud	355,600		348,565		7,035		2.0	%	1.5	%
Total net sales	Total net sales	$	757,342	$	842,701	$	(85,359)	(10.1)	%	(7.1)	%	Total net sales	$	857,311	$	757,342	$	99,969	13.2	%	12.9	%

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

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

The ~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions segment consists of sales to customers in North America and Brazil. For the quarter ended September 30, ~~2020,~~2021, net sales for the ~~Barcode, Networking & Security~~Specialty Technology Solutions segment ~~decreased $57.6~~increased $92.9 million, or ~~9.9%~~22.7%, compared to the prior-year quarter. Excluding the foreign exchange negative impact, adjusted net sales ~~decreased $49.9~~increased $92.5 million, or ~~8.6%~~22.6%, for the quarter ended September 30, ~~2020~~2021 compared to the prior-year quarter. The ~~decrease~~increase in net sales and adjusted net sales is primarily due to ~~lower sales volume~~broad-based growth across our technologies in North ~~America largely due to the negative impacts of the pandemic, partially offset by growth in Brazil.~~America.

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

The ~~Worldwide~~Modern Communications & ~~Services~~Cloud segment consists of sales to customers in North America, Brazil, Europe and the UK. For the quarter ended September 30, ~~2020,~~2021, net sales ~~decreased $27.7~~increased $7.0 million, or ~~10.6%.~~2.0% compared to the prior-year quarter. Excluding the foreign exchange negative impact, ~~of $17.4 million,~~ adjusted net sales ~~decreased $10.3~~for the quarter ended September 30, 2021 increased $5.1 million, or ~~3.9%, compared to~~1.5% from the prior-year quarter. The ~~decrease~~increase in net sales and adjusted net sales ~~is primarily due~~reflects the shift to ~~lower sales volumes in~~cloud and subscriptions. For the ~~communications~~Intelisys business, ~~in North America largely due to the negative impacts of the pandemic. This impact was partially offset by sales growth in local currency in Brazil and increases in~~first quarter 2022 net sales ~~for our master agency business, Intelisys.~~increased 13.7% year-over-year.


		Quarter ended September 30,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)			Quarter ended September 30,								% Change, Constant Currency, Excluding Divestitures and Acquisitions (a)
Net Sales by Geography:	Net Sales by Geography:	2020		2019		$ Change		% Change				Net Sales by Geography:	2021		2020		$ Change		% Change
		(in thousands)											(in thousands)
United States and Canada	United States and Canada	$	683,603	$	768,508	$	(84,905)	(11.0)	%	(11.0)	%	United States and Canada	$	769,499	$	683,603	$	85,896	12.6	%	12.6	%
International	International	73,739		74,193		(454)		(0.6)	%	33.3	%	International	87,812		73,739		14,073		19.1	%	15.8	%
Total net sales	Total net sales	$	757,342	$	842,701	$	(85,359)	(10.1)	%	(7.1)	%	Total net sales	$	857,311	$	757,342	$	99,969	13.2	%	12.9	%

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

Gross Profit

Table of Contents

The following tables summarize our gross profit for ~~our continuing operations for~~ the quarters ended September 30, ~~2020~~2021 and ~~2019:~~

Quarter ended September 30, % of Net Sales September 30,
2020 2019 $ Change % Change 2020 2019
(in thousands)
Worldwide Barcode, Networking & Security $ 41,085 $ 50,289 $ (9,204) (18.3) % 7.8 % 8.7 %
Worldwide Communications & Services 39,694 48,236 (8,542) (17.7) % 17.0 % 18.4 %
Gross profit $ 80,779 $ 98,525 $ (17,746) (18.0) % 10.7 % 11.7 %
2020:

~~Worldwide Barcode, Networking & Security~~


	Quarter ended September 30,								% of Net Sales September 30,
	2021		2020		$ Change		% Change		2021		2020
	(in thousands)
Specialty Technology Solutions	$	45,694	$	34,665	$	11,029	31.8	%	9.1	%	8.5	%
Modern Communications & Cloud	55,606		46,114		9,492		20.6	%	15.6	%	13.2	%
Gross profit	$	101,300	$	80,779	$	20,521	25.4	%	11.8	%	10.7	%

Specialty Technology Solutions

Gross profit dollars and gross profit margin for the ~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions segment ~~decreased~~increased for the quarter ended September 30, ~~2020 compared to the prior-year quarter~~2021, primarily from ~~lower~~increased sales ~~volumes~~volume, a higher margin sales mix and ~~lower~~higher vendor program recognition, ~~than in~~respectively, compared to the prior-year quarter.

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

Gross profit dollars and gross profit margin ~~decreased~~increased for the ~~Worldwide~~Modern Communications & ~~Services~~Cloud segment for the quarter ended September 30, ~~2020~~2021, primarily from ~~lower~~a higher sales ~~volumes~~volume and ~~and lower vendor program recognition~~higher margin sales mix, respectively, compared to the prior-year ~~quarter, partially offset by the results contributed by our Intelisys recurring revenue business.~~quarter.

Operating Expenses

The following tables summarize our operating expenses for ~~our continuing operations for~~ the quarters ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Quarter ended September 30,								% of Net Sales September 30,					Quarter ended September 30,								% of Net Sales September 30,
		2020		2019		$ Change		% Change		2020		2019			2021		2020		$ Change		% Change		2021		2020
		(in thousands)													(in thousands)
Selling, general and administrative expenses	Selling, general and administrative expenses	$	62,112	$	68,532	$	(6,420)	(9.4)	%	8.2	%	8.1	%	Selling, general and administrative expenses	$	63,582	$	62,112	$	1,470	2.4	%	7.4	%	8.2	%
Depreciation expense	Depreciation expense	3,396		3,301		95		2.9	%	0.4	%	0.4	%	Depreciation expense	2,880		3,396		(516)		(15.2)	%	0.3	%	0.4	%
Intangible amortization expense	Intangible amortization expense	4,853		4,538		315		6.9	%	0.6	%	0.5	%	Intangible amortization expense	4,510		4,853		(343)		(7.1)	%	0.5	%	0.6	%
Restructuring and other charges	Restructuring and other charges	8,268		169		8,099		4,792.3	%	1.1	%	0.0	%	Restructuring and other charges	—		8,268		(8,268)		*nm		0.0	%	1.1	%
Change in fair value of contingent consideration	Change in fair value of contingent consideration	516		2,472		(1,956)		(79.1)	%	0.1	%	0.3	%	Change in fair value of contingent consideration	—		516		(516)		*nm		0.0	%	0.1	%
Operating expenses	Operating expenses	$	79,145	$	79,012	$	133	0.2	%	10.5	%	9.4	%	Operating expenses	$	70,972	$	79,145	$	(8,173)	(10.3)	%	8.3	%	10.5	%

*nm - percentages are not meaningful

Selling, general and administrative expenses ("SG&A") ~~decreased $6.4~~increased $1.5 million, or 2.4%, for the quarter ended September 30, ~~2020~~2021 compared to the prior-year ~~quarter largely due~~quarter. The increase is attributable to higher employee costs, partially offset by lower ~~employee costs. The reduction in SG&A also reflects a partial quarter impact for the Company's expense reduction plan, which was implemented at the end of July 2020.~~

~~Depreciation expense remained fairly consistent for the quarter ended September 30, 2020 compared to the prior-year quarter.~~

Amortization expense increased $0.3 million for the quarter ended September 30, 2020 compared to the prior-year quarter largely due to intangible amortization expense for assets acquired in the intY acquisition.bad debt expense.

Restructuring and other charges incurred ~~for the quarter~~ of $8.3 million for the quarter ended September 30, 2020 primarily relate to employee severance and benefit costs in connection with our expense reduction plan ~~announced in~~implemented at the end of July 2020.

~~Table of Contents~~

WeFor the quarter ended September 30, 2020, we recorded a $0.5 million expense from change in fair value of contingent consideration, ~~of $0.5 million for the quarter ended September 30, 2020,~~ all of which relates to Intelisys. The ~~expense from the change in fair value for the quarter is due to the recurring amortization of the unrecognized fair value discount for the~~ final Intelisys earnout payment ~~which~~ was paid in October 2020.

Operating Income

The following tables summarize our operating income for ~~our continuing operations for~~ the quarters ended September 30, ~~2020~~2021 and ~~2019:~~2020:

Quarter ended September 30, % of Net Sales September 30,
2020 2019 $ Change % Change 2020 2019
(in thousands)
Worldwide Barcode, Networking & Security $ 2,147 $ 11,071 $ (8,924) (80.6) % 0.4 % 1.9 %
Worldwide Communications & Services 8,253 9,199 (946) (10.3) % 3.5 % 3.5 %
Corporate (8,766) (757) (8,009) nm* nm* nm*
Operating income $ 1,634 $ 19,513 $ (17,879) (91.6) % 0.2 % 2.3 %

Table of Contents


	Quarter ended September 30,								% of Net Sales September 30,
	2021		2020		$ Change		% Change		2021		2020
	(in thousands)
Specialty Technology Solutions	$	14,104	$	1,684	$	12,420	737.5	%	2.8	%	0.4	%
Modern Communications & Cloud	16,307		8,716		7,591		87.1	%	4.6	%	2.5	%
Corporate	(83)		(8,766)		8,683		nm*		nm*		nm*
Operating income	$	30,328	$	1,634	$	28,694	1,756.1	%	3.5	%	0.2	%

*nm - percentages are not meaningful

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

For the ~~Worldwide Barcode, Networking & Security~~Specialty Technology Solutions segment, operating income ~~decreased $8.9~~increased $12.4 million ~~and operating~~for the quarter ended September 30, 2021, compared to the prior-year quarter. Operating margin ~~decreased~~increased to 2.8% for the quarter ended September 30, 2021 compared to 0.4% for the quarter ended September 30, ~~2020 compared to~~2020. The increase in operating income and margin for the ~~prior-year quarter. The decreases are~~quarter is primarily due to ~~lower~~higher gross profits.

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

For the ~~Worldwide~~Modern Communications & ~~Services~~Cloud segment, operating income ~~decreased~~increased $7.6 million for the quarter ended September 30, ~~2020 while operating margins remained flat. Lower~~2021, compared to the prior-year quarter. Operating margin increased to 4.6% for the quarter ended September 30, 2021, compared to 2.5% for the quarter ended September 30, 2020. The increase in operating income and operating margin for the quarter is primarily ~~from lower~~due to higher gross ~~profits, partially offset by lower SG&A expense and lower change in fair value of contingent consideration.~~profits.

Corporate

Corporate incurred less than $0.1 million in divestiture expenses for the quarter ended September 30, 2021, compared to $8.8 million in restructuring and divestiture expenses for the quarter ended September 30, ~~2020, compared to $0.8 million in acquisition expenses for the quarter ended September 30, 2019.~~2020.

Total Other (Income) Expense

The following tables summarize our total other (income) expense for ~~our continuing operations for~~ the quarters ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Quarter ended September 30,								% of Net Sales September 30,					Quarter ended September 30,								% of Net Sales September 30,
		2020		2019		$ Change		% Change		2020		2019			2021		2020		$ Change		% Change		2021		2020
		(in thousands)													(in thousands)
Interest expense	Interest expense	$	1,913	$	3,317	$	(1,404)	(42.3)	%	0.3	%	0.4	%	Interest expense	$	1,660	$	1,913	$	(253)	(13.2)	%	0.2	%	0.3	%
Interest income	Interest income	(481)		(807)		326		40.4	%	(0.1)	%	(0.1)	%	Interest income	(1,026)		(481)		(545)		(113.3)	%	(0.1)	%	(0.1)	%
Net foreign exchange (gains) losses		438		246		192		78.0	%	0.1	%	0.0	%
Net foreign exchange losses (gains)														Net foreign exchange losses (gains)	485		438		47		10.7	%	0.1	%	0.1	%
Other, net	Other, net	(75)		128		(203)		158.6	%	(0.0)	%	0.0	%	Other, net	(222)		(74)		(148)		(200.0)	%	(0.0)	%	(0.0)	%
Total other (income) expense, net		$	1,795	$	2,884	$	(1,089)	(37.8)	%	0.2	%	0.3	%
Total other expense, net														Total other expense, net	$	897	$	1,796	$	(899)	(50.1)	%	0.1	%	0.2	%

Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs. Interest expense decreased for the quarter ended September 30, ~~2020~~2021, compared to the prior-year quarter principally from reduced borrowings on our multi-currency revolving credit facility.

~~Table of Contents~~

Interest income for the quarter ended September 30, ~~2020~~2021 was generated on interest-bearing customer receivables and interest earned on cash and cash equivalents. Interest income ~~decreased~~increased for the quarter ended September 30, ~~2020~~2021, compared to the prior-year principally from higher interest earned on ~~customer receivables~~cash and cash equivalents in ~~North America.~~Brazil.

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 primarily generated as the result of fluctuations in the value of the U.S. dollar versus the Brazilian real ~~the British pound versus the euro,~~ and the Canadian dollar versus the U.S. dollar. We

Table of Contents

partially offset foreign currency exposure with the use of foreign exchange forward contracts to hedge against these exposures. The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses.

Provision for Income Taxes

For the quarterended September 30, 2021, income tax expense was $7.4 million reflecting an effective tax rate of 25.0%. In comparison, for the quarter ended September 30, 2020, income tax expense ~~was~~totaled less than $0.1 million, reflecting an effective tax rate of 29.0%. ~~In comparison, income tax expense totaled $4.3 million, reflecting an effective tax rate of 26.1% for the quarter ended September 30, 2019.~~ The ~~increase~~decrease in the effective tax rate for the quarter is primarily due to ~~the impact of lowered~~an increase in forecasted ~~earnings and changes in the geographical mix of income as compared to the prior-year.~~tax exempt income. We expect the effective tax rate, excluding discrete items, for fiscal year ~~2021~~2022 to be approximately ~~28.5%~~24.5% to ~~29.5%~~25.5%. See Note 1514 - 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 ("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"); return on invested capital ("ROIC"); and "constant currency." Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods. We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.

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 US GAAP.

Return on Invested Capital

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 ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year.

~~We calculate ROIC as earnings before~~Adjusted EBITDA starts with net income and adds back interest expense, income ~~taxes,~~tax expense, depreciation ~~and~~expense, amortization ~~plus change~~of intangible assets, changes in fair value of contingent ~~consideration~~considerations, and other non-GAAP ~~adjustments ("~~adjustments. Effective with the first quarter of fiscal year 2022, non-cash share-based compensation expense is also added back in calculating adjusted ~~EBITDA"),~~EBITDA. 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 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 ROIC for the quarters ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively:

Quarter ended September 30,
2020 2019
Return on invested capital ratio, annualized(a)
8.4 % 9.6 %


	Quarter ended September 30,
	2021		2020
Return on invested capital ratio, annualized (a)	17.5	%	8.9	%

(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:

3935

Table of Contents


		Quarter ended September 30,				Quarter ended September 30,
		2020		2019				2021		2020
		(in thousands)				(in thousands)
Reconciliation of net income to EBITDA:
Net (loss) income from continuing operations (GAAP)		$	(115)	$	12,291
Reconciliation of net income to adjusted EBITDA:							Reconciliation of net income to adjusted EBITDA:
Net income (loss) from continuing operations (GAAP)							Net income (loss) from continuing operations (GAAP)	$	22,073	$	(115)
Plus: Interest expense	Plus: Interest expense	1,913		3,317			Plus: Interest expense	1,660		1,913
Plus: Income taxes	Plus: Income taxes	(47)		4,338			Plus: Income taxes	7,358		(47)
Plus: Depreciation and amortization	Plus: Depreciation and amortization	8,710		8,518			Plus: Depreciation and amortization	7,650		8,710
EBITDA (non-GAAP)	EBITDA (non-GAAP)	10,461		28,464			EBITDA (non-GAAP)	38,741		10,461
Plus: Change in fair value of contingent consideration	Plus: Change in fair value of contingent consideration	516		2,472			Plus: Change in fair value of contingent consideration	—		516

Plus: Share-based compensation							Plus: Share-based compensation	2,570		1,168
Plus: Acquisition and divestiture costs (a)	Plus: Acquisition and divestiture costs (a)	498		757			Plus: Acquisition and divestiture costs (a)	83		498
Plus: Restructuring costs	Plus: Restructuring costs	8,268		169			Plus: Restructuring costs	—		8,268

Adjusted EBITDA (numerator for ROIC) (non-GAAP)	Adjusted EBITDA (numerator for ROIC) (non-GAAP)	$	19,743	$	31,862		Adjusted EBITDA (numerator for ROIC) (non-GAAP)	$	41,394	$	20,911

Quarter ended September 30,
2020 2019
(in thousands)
Invested capital calculations:
Equity – beginning of the quarter $ 678,246 $ 914,129
Equity – end of the quarter 671,227 905,751
Plus: Change in fair value of contingent consideration, net of tax 390 1,869
Plus: Acquisition and divestiture costs (a)
498 757
Plus: Restructuring, net of tax
6,250 128
Plus: Impact of Divestitures, net of tax 11,704 761
Average equity 684,158 911,698
Average funded debt (b)
243,268 407,306
Invested capital (denominator for ROIC) (non-GAAP) $ 927,426 $ 1,319,004


	Quarter ended September 30,
	2021		2020
	(in thousands)
Invested capital calculations:
Equity – beginning of the quarter	$	731,191	$	678,246
Equity – end of the quarter	746,094		671,227
Plus: Change in fair value of contingent consideration, net of tax	—		390
Plus: Share-based compensation, net	1,922		878
Plus: Acquisition and divestiture costs (a)	83		498
Plus: Restructuring, net	—		6,250

Plus: Discontinued operations net loss	—		11,704

Average equity	739,645		684,597
Average funded debt (b)	197,406		243,268
Invested capital (denominator for ROIC) (non-GAAP)	$	937,051	$	927,865

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

(b)Average funded debt ~~which includes both continuing operations and discontinued operations,~~ 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. If applicable, we also exclude the impact of acquisitions prior to the first full year of operations from the acquisition date and the impact of Divestitures 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 Divestitures and acquisitions, if applicable. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding Divestitures:

4036

Table of Contents

Net Sales by Segment:
Quarter ended September 30,
2020 2019 $ Change % Change
Worldwide Barcode, Networking & Security: (in thousands)
Non-GAAP net sales, including Divestitures $ 638,385 $ 697,791 $ (59,406) (8.5) %
Divestitures (114,808) (116,604)
Net sales, reported 523,577 581,187 (57,610) (9.9) %
Foreign exchange impact(a)
7,724 —
Non-GAAP net sales, constant currency excluding Divestitures $ 531,301 $ 581,187 $ (49,886) (8.6) %
Worldwide Communications & Services:
Non-GAAP net sales, including Divestitures $ 264,005 $ 300,627 $ (36,622) (12.2) %
Divestitures (30,240) (39,113)
Net sales, reported 233,765 261,514 (27,749) (10.6) %
Foreign exchange impact(a)
17,440 —
Non-GAAP net sales, constant currency excluding Divestitures $ 251,205 $ 261,514 $ (10,309) (3.9) %
Consolidated:
Non-GAAP net sales, including Divestitures $ 902,390 $ 998,418 $ (96,028) (9.6) %
Divestitures (145,048) (155,717)
Net sales, reported 757,342 842,701 (85,359) (10.1) %
Foreign exchange impact(a)
25,164 —
Non-GAAP net sales, constant currency excluding Divestitures $ 782,506 $ 842,701 $ (60,195) (7.1) %


Net Sales by Segment:
	Quarter ended September 30,
	2021		2020		$ Change		% Change
Specialty Technology Solutions:	(in thousands)


Net sales, reported	$	501,711	$	408,777	$	92,934	22.7	%
Foreign exchange impact (a)	(467)		—

Non-GAAP net sales, constant currency	$	501,244	$	408,777	$	92,467	22.6	%

Modern Communications & Cloud:


Net sales, reported	$	355,600	$	348,565	$	7,035	2.0	%
Foreign exchange impact (a)	(1,970)		—

Non-GAAP net sales, constant currency	$	353,630	$	348,565	$	5,065	1.5	%

Consolidated:


Net sales, reported	$	857,311	$	757,342	$	99,969	13.2	%
Foreign exchange impact (a)	(2,437)		—

Non-GAAP net sales, constant currency	$	854,874	$	757,342	$	97,532	12.9	%

(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended September 30, ~~2020~~2021 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, ~~2019.~~2020.


Net Sales by Geography:
	Quarter ended September 30,
	2021		2020		$ Change		% Change
United States and Canada:	(in thousands)
Net sales, as reported	$	769,499	$	683,603	$	85,896	12.6	%



International:


Net sales, reported	$	87,812	$	73,739	$	14,073	19.1	%
Foreign exchange impact (a)	(2,437)		—

Non-GAAP net sales, constant currency	$	85,375	$	73,739	$	11,636	15.8	%

Consolidated:


Net sales, reported	$	857,311	$	757,342	$	99,969	13.2	%
Foreign exchange impact (a)	(2,437)		—

Non-GAAP net sales, constant currency	$	854,874	$	757,342	$	97,532	12.9	%

(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended September 30, 2021 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2020.

Table of Contents

Net Sales by Geography:
Quarter ended September 30,
2020 2019 $ Change % Change
United States and Canada: (in thousands)
Net sales, as reported $ 683,603 $ 768,508 $ (84,905) (11.0) %
International:
Non-GAAP net sales, including Divestitures $ 218,787 $ 229,910 $ (11,123) (4.8) %
Divestitures (145,048) (155,717)
Net sales, reported 73,739 74,193 (454) (0.6) %
Foreign exchange impact (a)
25,164 —
Non-GAAP net sales, constant currency excluding Divestitures $ 98,903 $ 74,193 $ 24,710 33.3 %
Consolidated:
Non-GAAP net sales, including Divestitures $ 902,390 $ 998,418 $ (96,028) (9.6) %
Divestitures (145,048) (155,717)
Net sales, reported 757,342 842,701 (85,359) (10.1) %
Foreign exchange impact(a)
25,164 —
Non-GAAP net sales, constant currency excluding Divestitures $ 782,506 $ 842,701 $ (60,195) (7.1) %
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended September 30, 2020 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2019.

~~Table of Contents~~


Operating Income by Segment:	Operating Income by Segment:													Operating Income by Segment:
		Quarter ended September 30,								% of Net Sales September 30,					Quarter ended September 30,								% of Net Sales September 30,
		2020		2019		$ Change		% Change		2020		2019			2021		2020		$ Change		% Change		2021		2020
Worldwide Barcode, Networking & Security:		(in thousands)
Specialty Technology Solutions:														Specialty Technology Solutions:	(in thousands)
GAAP operating income	GAAP operating income	$	2,147	$	11,071	$	(8,924)	(80.6)	%	0.4	%	1.9	%	GAAP operating income	$	14,104	$	1,684	$	12,420	737.5	%	2.8	%	0.4	%
Adjustments:	Adjustments:													Adjustments:
Amortization of intangible assets	Amortization of intangible assets	1,968		1,968		—								Amortization of intangible assets	1,531		1,610		(79)

Non-GAAP operating income	Non-GAAP operating income	$	4,115	$	13,039	$	(8,924)	(68.4)	%	0.8	%	2.2	%	Non-GAAP operating income	$	15,635	$	3,294	$	12,341	374.7	%	3.1	%	0.8	%

Worldwide Communications & Services:
Modern Communications & Cloud:														Modern Communications & Cloud:
GAAP operating income	GAAP operating income	$	8,253	$	9,199	$	(946)	(10.3)	%	3.5	%	3.5	%	GAAP operating income	$	16,307	$	8,716	$	7,591	87.1	%	4.6	%	2.5	%
Adjustments:	Adjustments:													Adjustments:
Amortization of intangible assets	Amortization of intangible assets	2,885		2,570		315								Amortization of intangible assets	2,979		3,243		(264)
Change in fair value of contingent consideration	Change in fair value of contingent consideration	516		2,472		(1,956)								Change in fair value of contingent consideration	—		516		(516)
Restructuring costs		—		169		(169)

Non-GAAP operating income	Non-GAAP operating income	$	11,654	$	14,410	$	(2,756)	(19.1)	%	5.0	%	5.5	%	Non-GAAP operating income	$	19,286	$	12,475	$	6,811	54.6	%	5.4	%	3.6	%

Corporate:	Corporate:													Corporate:
GAAP operating income	GAAP operating income	$	(8,766)	$	(757)	$	(8,009)	nm*		nm*		nm*		GAAP operating income	$	(83)	$	(8,766)	$	8,683	nm*		nm*		nm*
Adjustments:	Adjustments:													Adjustments:
Acquisition and divestiture costs														Acquisition and divestiture costs	83		498		(415)
Restructuring costs	Restructuring costs	8,268		—										Restructuring costs	—		8,268		(8,268)
Acquisition and divestiture costs		498		757		(259)

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

Consolidated:	Consolidated:													Consolidated:
GAAP operating income	GAAP operating income	$	1,634	$	19,513	$	(17,879)	(91.6)	%	0.2	%	2.3	%	GAAP operating income	$	30,328	$	1,634	$	28,694	1,756.1	%	3.5	%	0.2	%
Adjustments:	Adjustments:													Adjustments:
Amortization of intangible assets	Amortization of intangible assets	4,853		4,538		315								Amortization of intangible assets	4,510		4,853		(343)
Change in fair value of contingent consideration	Change in fair value of contingent consideration	516		2,472		(1,956)								Change in fair value of contingent consideration	—		516		(516)

Acquisition and divestiture costs	Acquisition and divestiture costs	498		757		(259)								Acquisition and divestiture costs	83		498		(415)
Restructuring costs	Restructuring costs	8,268		169		8,099								Restructuring costs	—		8,268		(8,268)

Non-GAAP operating income	Non-GAAP operating income	$	15,769	$	27,449	$	(11,680)	(42.6)	%	2.1	%	3.3	%	Non-GAAP operating income	$	34,921	$	15,769	$	19,152	121.5	%	4.1	%	2.1	%

4338

Table of Contents

Income Statement Non-GAAP Metrics

To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP net sales, non-GAAP gross profit, non-GAAP operating income, non-GAAP net other expense, 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. 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 the aforementioned metrics adjusted for the costs and charges mentioned above:

Quarter ended September 30, 2020
GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Acquisition and divestiture costs Restructuring costs Non-GAAP measure
(in thousands, except per share data)
Net sales $ 757,342 $ — $ — $ — $ — $ 757,342
Gross profit 80,779 — — — — 80,779
Operating (loss) income 1,634 4,853 516 498 8,268 15,769
Other expense, net 1,796 — — — — 1,796
Pre-tax (loss) income (162) 4,853 516 498 8,268 13,973
Net (loss) income from continuing operations (115) 3,675 390 498 6,250 10,698
Diluted EPS from continuing operations $ (0.01) $ 0.14 $ 0.02 $ 0.02 $ 0.25 $ 0.42
Quarter ended September 30, 2019
GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Acquisition and divestiture Restructuring costs Non-GAAP measure
(in thousands, except per share data)
Net sales $ 842,701 $ — $ — $ — $ — $ 842,701
Gross profit 98,525 — — — — 98,525
Operating income 19,513 4,538 2,472 757 169 27,449
Other expense, net 2,884 — — — — 2,884
Pre-tax income 16,629 4,538 2,472 757 169 24,565
Net income from continuing operations 12,291 3,406 1,869 757 128 18,451
Diluted EPS from continuing operations $ 0.48 $ 0.13 $ 0.07 $ 0.03 $ 0.01 $ 0.72


	Quarter ended September 30, 2021
	GAAP Measure		Intangible amortization expense		Change in fair value of contingent consideration		Acquisition and divestiture costs		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)
Net sales	$	857,311	$	—	$	—	$	—	$	—	$	857,311
Gross profit	101,300		—		—		—		—		101,300
Operating income	30,328		4,510		—		83		—		34,921
Other expense, net	897		—		—		—		—		897
Pre-tax income	29,431		4,510		—		83		—		34,024
Net income	22,073		3,394		—		83		—		25,550
Diluted EPS	$	0.86	$	0.13	$	—	$	—	$	—	$	0.99

	Quarter ended September 30, 2020
	GAAP Measure		Intangible amortization expense		Change in fair value of contingent consideration		Acquisition and divestiture		Restructuring costs		Non-GAAP measure
	(in thousands, except per share data)
Net sales	$	757,342	$	—	$	—	$	—	$	—	$	757,342
Gross profit	80,779		—		—		—		—		80,779
Operating income	1,634		4,853		516		498		8,268		15,769
Other expense, net	1,796		—		—		—		—		1,796
Pre-tax income	(162)		4,853		516		498		8,268		13,973
Net income	(115)		3,675		390		498		6,250		10,698
Diluted EPS	$	(0.01)	$	0.14	$	0.02	$	0.02	$	0.25	$	0.42

4439

Table of Contents

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and borrowings under our $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 ~~$49.9~~$55.5 million at September 30, ~~2020,~~2021, compared to ~~$29.5~~$62.7 million at June 30, ~~2020,~~2021, including ~~$38.2~~$48.4 million and ~~$23.6~~$52.1 million held outside of the United States at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, respectively. Checks released but not yet cleared in the amounts of ~~$2.2~~$19.9 million and ~~$15.4~~$14.3 million are included in accounts payable at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, 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, but earnings from Brazil will continue to be considered retained indefinitely for reinvestment. All other foreign geographies are immaterial. It has been our practice to reinvest those earningsand Brazilian subsidiaries. See Note 14 - Income Taxes in the ~~businesses outside~~Notes to the ~~United States.~~Consolidated Financial Statements for further discussion.

Our net investment in working capital increased $77.3 million to $564.0 million at September 30, ~~2020 was $389.1 million compared to $431.3~~2021 from $486.7 million at June 30, ~~2020~~2021, primarily from increases in accounts receivable and ~~$572.9 million at September 30, 2019.~~inventory and decreases in accounts payable. Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from customers, increases and decreases to inventory levels and payments to vendors.


		Three months ended					Three months ended
		September 30,					September 30,
		2020		2019			2021		2020
Cash provided by (used in):	Cash provided by (used in):	(in thousands)				Cash provided by (used in):
Operating activities	Operating activities	$	71,225	$	27,630	Operating activities	$	(56,959)	$	71,225
Investing activities	Investing activities	(748)		(50,019)		Investing activities	(1,090)		(748)
Financing activities	Financing activities	(70,255)		(47,353)		Financing activities	54,860		(70,255)
Effect of exchange rate change on cash and cash equivalents		(1,439)		(429)
Increase in cash and cash equivalents		$	21,112	$	2,059

Net cash ~~provided by~~used in operating activities was ~~$71.2~~$57.0 million for the three months ended September 30, ~~2020,~~2021, compared to ~~$27.6~~$71.2 million provided by operating activities in the prior-year period. Cash used in operating activities for the three months ended September 30, 2021 is primarily attributable to increases in accounts receivable and inventory, and decreases in accounts payable. Cash provided by operating activities for the three months ended September 30, 2020 is primarily attributable to ~~cash provided by~~ increased accounts payable and decreased inventory, partially offset by decreased accounts receivable. Cash provided by operating activities for the three months ended September 30, 2019 is primarily attributable to earnings from operations adjusted for non-cash items and increased accounts payable, partially offset by increased inventory and decreased accounts receivable.

The number of days sales outstanding ("DSO") was 6162 days at September 30, ~~2020,~~2021, compared to 6360 days at June 30, ~~2020~~2021 and 61 days at September 30, ~~2019.~~2020. Inventory turned ~~6.2~~6.3 times during the quarter ended September 30, ~~2020~~2021, compared to ~~4.5~~6.5 times for previous quarter ended June 30, ~~2020~~2021 and ~~5.2~~6.2 times in the prior-year quarter ended September 30, ~~2019.~~2020.

Cash used in investing activities for the three months ended September 30, ~~2020~~2021 was ~~$0.7~~$1.1 million, compared to ~~$50.0~~$0.7 million used in the prior-year period. Cash used in investing activities primarily represents capital expenditures in the three months ended September 30, ~~2020. The prior-year period includes cash of $49.1 million used for the acquisition of intY.~~2021 and 2020.

Management expects capital expenditures for fiscal year ~~2021~~2022 to range from $3$5 million to $6$8 million, primarily for ~~rental equipment investments,~~ IT investments and facility improvements.

For the three months ended September 30, ~~2020,~~2021, cash ~~used for~~provided by financing activities totaled ~~$70.3~~$54.9 million, compared to ~~$47.4~~$70.3 million used in financing activities for the prior-year period. Cash ~~used for~~provided by financing activities for ~~both periods~~the three months ended September 30, 2021 is primarily attributable to net borrowings on the revolving credit facility. For the three months ended September 30, 2020 cash used in financing activities was primarily for net repayments on the revolving credit facility.

4540

Table of Contents

Credit Facility

We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks. On April 30, 2019, we amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. The Amended Credit Agreement established (i) a five-year $350 million multi-currency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. Pursuant to an “accordion feature,” we may increase borrowings up to an additional $250 million. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit, subject to obtaining additional credit commitments from the lenders participating in the increase.

At our option, loans under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over the London Interbank Offered Rate ("LIBOR") or alternate base rate depending upon the our net leverage ratio, calculated as total debt less up to $15 million of unrestricted domestic cash to trailing four-quarter adjusted EBITDA.

This spread ranges from 1.00% to 1.75% for LIBOR-based loans and 0.00% to 0.75% for alternate base rate loans. The Amended Credit Agreement provides for the substitution of a new interest rate benchmark upon the transition from LIBOR, subject to agreement between the Company and the administrative agent. The Amended Credit Agreement contains customary yield protection provisions. Additionally, ~~the Company is~~we are assessed commitment fees ranging from 0.15% to 0.30%, depending upon the Leverage Ratio, on non-utilized borrowing availability, excluding swingline loans. The secured term loan facility will amortize based on the percentage of original principal amount with 2.5% in Year 1, 5.0% in Year 2, 5.0% in Year 3, 7.5% in Year 4 and 10.0% in Year 5. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of ~~the~~our domestic assets ~~of the Company~~ and a pledge of up to 65% of capital stock or other equity interest in certain foreign subsidiaries determined to be either material or a subsidiary borrower as defined in the Amended Credit Agreement.

The Amended Credit Agreement 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 times. In addition, our 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. We were in compliance with all covenants under the credit facility at September 30, ~~2020. Including borrowings for both continuing and discontinued operations, there~~2021. There was ~~$19.9 million and $92.4~~$56.4 million in outstanding borrowings on our revolving credit facility at September 30, ~~2020 and~~2021. There was no outstanding borrowings on our revolving credit facility at June 30, ~~2020, respectively.~~2021.

The average daily balance for the revolving credit facility, excluding the term loan facility, was $54.4 million for the three month period ended September 30, 2021. Including borrowings for both continuing and discontinued operations, the average daily balance for the revolving credit facility, excluding the term loan facility, was $91.2 million ~~and $250.8 million~~ for the three month ~~periods~~period ended September 30, ~~2020 and 2019, respectively.~~2020. There were no letters of credit issued under the multi-currency revolving credit facility ~~for the discontinued operations of $0.3 million~~ at September 30, ~~2020~~2021 and June 30, ~~2020. Taking into consideration outstanding borrowings on the multi-currency revolving credit facility for both continuing and discontinued operations, there~~2021, respectively. There was ~~$330.1~~$293.6 million and ~~$257.6~~$350.0 million available for additional borrowings at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, respectively. Availability to use this borrowing capacity depends upon, among other things, the levels of our Leverage Ratio and Interest Coverage Ratio, which, in turn, will depend upon (1) our Credit Facility Net Debt relative to our Credit Facility EBITDA and (2) Credit Facility EBITDA relative to total interest expense, respectively. As a result, our availability will increase if EBITDA increases (subject to the limit of the facility) and decrease if EBITDA decreases. At September 30, ~~2020,~~2021, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was ~~$179.9~~$293.6 million available for borrowing. While we were in compliance with the financial covenants contained in the Credit Facility as of September 30, ~~2020,~~2021, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Credit Facility lending group has been strong and we anticipate their continued support of our long-term business.

We have a bank overdraft facility with Bank of America used by our European subsidiaries. The facility allows us to disburse checks in excess of bank balances up to $14.0 million U.S. dollar equivalent for up to seven days. Borrowings under the overdraft facility bear interest at a rate equal to a spread of 1.0% over the applicable currency's LIBOR with a zero percent floor. There was no outstanding balance on the overdraft facility at September 30, 2020 and $3.5 million outstanding for the discontinued operations at June 30, 2020.

~~Earnout Payments~~

~~At September 30, 2020, we were obligated to pay one remaining earnout payment to the former shareholders of Intelisys related to the acquisition on August 29, 2016. See Note 10 -~~ ~~Fair Value of Financial Instruments~~ ~~for a discussion on the liabilities recorded. The final earnout payment for Intelisys, which totaled $46.9 million, was paid in October 2020, funded by borrowings on our revolving credit facility.~~

~~Table of Contents~~

Summary

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

Off-Balance Sheet Arrangements and Contractual Obligations

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on our financial condition, revenues or expenses, results of 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

Table of Contents

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.

~~At September 30, 2020, we have made adjustments to our contingent consideration owed to the former shareholders of Intelisys. See Note 10 -~~ ~~Fair Value of Financial Instruments~~ for a discussion on the liabilities recorded. There have been no other material changes in our contractual obligations and commitments disclosed in our Annual Report on Form 10-K filed on August 31, 2020.

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, ~~2020~~2021 for a complete discussion.

~~Allowances for Trade and Notes Receivable~~

~~We adopted ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (ASC Topic 326)~~ ~~effective July 1, 2020. The adoption did not have a material impact on our consolidated financial statements. Our policy to estimating allowance for doubtful accounts receivable is described below.~~

We maintain 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. Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including: (1) historical experience, (2) aging of the accounts receivable, (3) specific information obtained by the Company on the financial condition and the current creditworthiness of its customers, (4) the current economic and country-specific environment and (5) 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.

4742

Table of Contents


Item 3.			Quantitative and Qualitative Disclosures About Market Risk

For a description of ~~the Company's~~our market risks, see Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021. No material changes have occurred to our market risks since June 30, ~~2020.~~2021.

4843

Table of Contents


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 at September 30, ~~2020.~~2021. 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 at September 30, ~~2020.~~2021. During the quarter ended September 30, ~~2020,~~2021, 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.

4944

Table of Contents

PART II. OTHER INFORMATION


Item 1.			Legal Proceedings

The Company and 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 us, we believe that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on our financial condition or results of operations. For a description of our material legal proceedings, see Note 1312 - 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, ~~2020,~~2021, which could materially affect our business, financial condition and/or future operating results.


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

OnShare Repurchases

In August ~~29, 2016, we announced a~~2021, our Board of Directors ~~("BOD") authorization to repurchase shares up to $120~~authorized a $100 million ~~of our common stock over three years. The~~ share repurchase program. The authorization ~~expired in August 2019. Final~~does not have any time limit. There were no share repurchases ~~under this authorization occurred~~ during the quarter ended September 30, ~~2019, totaling 168,068 shares for $5.4 million.~~2021.

Dividends

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


Item 6.			Exhibits


Exhibit Number			Description

10.1			S canSource , Inc. 2021 Board of Directors C ompensation Program

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 September 30, ~~2020,~~2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, ~~2020~~2021 and June 30, ~~2020;~~2021; (ii) the Condensed Consolidated Income Statements for the ~~quarter~~quarters ended September 30, ~~2020~~2021 and ~~2019;~~2020; (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income for the ~~quarter~~quarters ended September 30, ~~2020~~2021 and ~~2019;~~2020; (iv) the Condensed Consolidated Statements of Shareholder's Equity at September 30, ~~2020~~2021 and ~~2019;~~2020; (v) the Condensed Consolidated Statements of Cash Flows for the three months ended September 30, ~~2020~~2021 and ~~2019;~~2020; and (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)

5045

Table of Contents

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.

		/s/ MICHAEL L. BAUR
		Michael L. Baur
Date:	November 9, ~~2020~~2021	Chairman and Chief Executive Officer (Principal Executive Officer)


		/s/ ~~GERALD LYONS~~STEVE JONES
		~~Gerald Lyons~~Steve Jones
Date:	November 9, ~~2020~~2021	Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)

5146


	Quarter ended September 30, 2019
			(in thousands)
	Worldwide Barcode, Networking & Security Segment		Worldwide Communications & Services Segment		Total
Revenue by product/service:
Technology solutions	$	581,187	$	247,805	$	828,992
Master agency(a)	0		13,709		13,709
	$	581,187	$	261,514	$	842,701











(a) Includes Intelisys Communications, Inc and Intelisys Global Ltd..



	Three months ended September 30,
	2020		2019
	(in thousands)
Loss on held for sale classification	$	10,686	$	0

Depreciation and amortization	201		672
Capital expenditures	(36)		(1)