UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

Quarterly period ended ~~March 31,~~September 30, 2022


☐			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 ~~May 9,~~November 1, 2022
Common Stock, no par value per share						~~25,232,074~~25,245,216 shares

SCANSOURCE, INC.

INDEX TO FORM 10-Q

~~March 31,~~September 30, 2022


		Page #
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets (unaudited) at ~~March~~ ~~31, 202~~2 September 30, 2022 and June 30, ~~2021~~2022	5
	Condensed Consolidated Income Statements (unaudited) for the Quarters ~~and Nine Months~~ Ended ~~March 31,~~September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Quarters ~~and Nine Months~~ Ended ~~March 31,~~September 30, 2022 and 2021	7
	Condensed Consolidated Statements of Shareholders' Equity (unaudited) for the Quarters ~~and Nine Months~~ Ended ~~March 31,~~September 30, 2022 and 2021	8
	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Three Months Ended ~~March 31,~~September 3 0 , 2022 and 2021	10
	Notes to Condensed Consolidated Financial Statements (unaudited)	1211
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3024
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4736
Item 4.	Controls and Procedures	4837

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4938
Item 1A.	Risk Factors	4938
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4938
Item 6.	Exhibits	5039

SIGNATURES		5140

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. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors including, but not limited to the following factors, which are neither presented in order of importance nor weighted: ~~supply chain challenges,~~ the impact of the COVID-19 pandemic, ~~on the Company's operations~~macroeconomic conditions, including potential prolonged economic weakness, inflation and ~~financial condition,~~supply chain challenges, the failure to manage and implement the Company's organic growth strategy, credit risks involving the Company's larger customers and suppliers, changes in interest and exchange rates and regulatory regimes impacting the Company's international operations, risk to the Company's business from a cyber-security attack, a failure of the Company's IT systems, failure to hire and retain quality employees, loss of the Company's major customers, termination of the Company's relationship with key suppliers or a significant modification of the terms under which it operates with a key supplier, changes in the Company's operating strategy and other factors set forth in "Risk Factors" contained in our Annual Report on Form 10-K for the year ended June 30, ~~2021.~~2022.

Table of Contents

PART I. FINANCIAL INFORMATION


Item 1.			Financial Statements

SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share information)


		March 31, 2022		June 30, 2021			September 30, 2022		June 30, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	43,539	$	62,718	Cash and cash equivalents	$	40,472	$	37,987
Accounts receivable, less allowance of $16,935 at March 31, 2022 and $19,341 at June 30, 2021		642,384		568,984
Accounts receivable, less allowance of $13,942 at September 30, 2022 and $16,806 at June 30, 2022						Accounts receivable, less allowance of $13,942 at September 30, 2022 and $16,806 at June 30, 2022	744,946		729,442
Inventories	Inventories	591,396		470,081		Inventories	675,798		614,814
Prepaid expenses and other current assets	Prepaid expenses and other current assets	130,509		117,860		Prepaid expenses and other current assets	126,484		141,562

Total current assets	Total current assets	1,407,828		1,219,643		Total current assets	1,587,700		1,523,805
Property and equipment, net	Property and equipment, net	37,815		42,836		Property and equipment, net	36,853		37,477
Goodwill	Goodwill	218,025		218,877		Goodwill	211,736		214,435
Identifiable intangible assets, net	Identifiable intangible assets, net	90,554		104,860		Identifiable intangible assets, net	78,724		84,427
Deferred income taxes	Deferred income taxes	19,951		21,853		Deferred income taxes	13,381		15,668
Other non-current assets	Other non-current assets	66,627		63,615		Other non-current assets	71,918		61,616

Total assets	Total assets	$	1,840,800	$	1,671,684	Total assets	$	2,000,312	$	1,937,428
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	706,359	$	634,805	Accounts payable	$	710,919	$	714,177
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	80,931		87,790		Accrued expenses and other current liabilities	73,760		88,455

Income taxes payable	Income taxes payable	3,023		2,501		Income taxes payable	5,274		34

Current portion of long-term debt	Current portion of long-term debt	10,660		7,843		Current portion of long-term debt	4,102		11,598

Total current liabilities	Total current liabilities	800,973		732,939		Total current liabilities	794,055		814,264
Deferred income taxes	Deferred income taxes	3,753		3,954		Deferred income taxes	2,882		3,144
Long-term debt, net of current portion	Long-term debt, net of current portion	126,546		135,331		Long-term debt, net of current portion	149,631		123,733
Borrowings under revolving credit facility	Borrowings under revolving credit facility	44,294		—		Borrowings under revolving credit facility	172,702		135,839

Other long-term liabilities	Other long-term liabilities	58,580		68,269		Other long-term liabilities	54,038		53,920

Total liabilities	Total liabilities	1,034,146		940,493		Total liabilities	1,173,308		1,130,900
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued	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, 25,429,242 and 25,499,465 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively		69,856		71,253
Common stock, no par value; 45,000,000 shares authorized, 25,225,902 and 25,187,351 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively						Common stock, no par value; 45,000,000 shares authorized, 25,225,902 and 25,187,351 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively	66,069		64,297
Retained earnings	Retained earnings	826,922		758,071		Retained earnings	870,911		846,869
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(90,124)		(98,133)		Accumulated other comprehensive loss	(109,976)		(104,638)
Total shareholders’ equity	Total shareholders’ equity	806,654		731,191		Total shareholders’ equity	827,004		806,528
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	1,840,800	$	1,671,684	Total liabilities and shareholders’ equity	$	2,000,312	$	1,937,428

June 30, 2021 amounts are derived from audited consolidated financial statements.
June 30, 2022 amounts are derived from audited consolidated financial statements.						June 30, 2022 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				Nine months ended					Quarter ended
		March 31,				March 31,					September 30,
		2022		2021		2022		2021			2022		2021
Net sales	Net sales	$	845,990	$	729,873	$	2,567,652	$	2,298,111	Net sales	$	943,813	$	857,583
Cost of goods sold	Cost of goods sold	739,482		641,757		2,251,920		2,043,172		Cost of goods sold	830,328		756,011
Gross profit	Gross profit	106,508		88,116		315,732		254,939		Gross profit	113,485		101,572
Selling, general and administrative expenses	Selling, general and administrative expenses	66,522		60,099		199,538		182,681		Selling, general and administrative expenses	71,593		63,854
Depreciation expense	Depreciation expense	2,612		3,141		8,039		9,634		Depreciation expense	2,763		2,880
Intangible amortization expense	Intangible amortization expense	4,457		4,880		13,413		14,595		Intangible amortization expense	4,241		4,510
Restructuring and other charges		—		560		—		9,312
Change in fair value of contingent consideration		—		—		—		516

Operating income	Operating income	32,917		19,436		94,742		38,201		Operating income	34,888		30,328
Interest expense	Interest expense	1,483		1,576		4,637		5,285		Interest expense	3,448		1,660
Interest income	Interest income	(1,000)		(745)		(2,973)		(1,756)		Interest income	(1,589)		(1,026)
Other (income) expense, net		(136)		(302)		668		183
Other expense, net										Other expense, net	746		263
Income before income taxes	Income before income taxes	32,570		18,907		92,410		34,489		Income before income taxes	32,283		29,431
Provision for income taxes	Provision for income taxes	9,044		5,121		23,659		9,757		Provision for income taxes	8,241		7,358
Net income from continuing operations		23,526		13,786		68,751		24,732
Net (loss) income from discontinued operations		—		(688)		100		(37,647)
Net income (loss)		$	23,526	$	13,098	$	68,851	$	(12,915)
Net income										Net income	$	24,042	$	22,073

Per share data:	Per share data:									Per share data:
Net income from continuing operations per common share, basic		$	0.92	$	0.54	$	2.69	$	0.97
Net loss from discontinued operations per common share, basic		—		(0.03)		$	—	$	(1.48)
Net income (loss) per common share, basic		$	0.92	$	0.51	$	2.69	$	(0.51)
Net income per common share, basic										Net income per common share, basic	$	0.95	$	0.87
Weighted-average shares outstanding, basic	Weighted-average shares outstanding, basic	25,635		25,455		25,577		25,404		Weighted-average shares outstanding, basic	25,201		25,512

Net income from continuing operations per common share, diluted		$	0.91	$	0.54	$	2.66	$	0.97
Net loss from discontinued operations per common share, diluted		—		(0.03)		$	—	$	(1.48)
Net income (loss) per common share, diluted		$	0.91	$	0.51	$	2.67	(0.51)
Net income per common share, diluted										Net income per common share, diluted	$	0.94	$	0.86
Weighted-average shares outstanding, diluted	Weighted-average shares outstanding, diluted	25,853		25,572		25,812		25,484		Weighted-average shares outstanding, diluted	25,451		25,696


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				Nine months ended					Quarter ended
		March 31,				March 31,					September 30,
		2022		2021		2022		2021			2022		2021
Net income (loss)		$	23,526	$	13,098	$	68,851	$	(12,915)
Net income										Net income	$	24,042	$	22,073
Unrealized gain on hedged transaction, net of tax	Unrealized gain on hedged transaction, net of tax	3,144		1,582		4,730		2,209		Unrealized gain on hedged transaction, net of tax	1,879		413
Foreign currency translation adjustment	Foreign currency translation adjustment	17,186		(9,216)		3,279		6,269		Foreign currency translation adjustment	(7,217)		(11,147)
Realized foreign currency loss from discontinued operations		—		—		—		11,635

Comprehensive income	Comprehensive income	$	43,856	$	5,464	$	76,860	$	7,198	Comprehensive income	$	18,704	$	11,339


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			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
Balance at June 30, 2022											Balance at June 30, 2022	25,187,351	$	64,297	$	846,869	$	(104,638)	$	806,528
Net income	Net income	—	—		22,073		—		22,073		Net income	—	—		24,042		—		24,042
Unrealized gain on hedged transaction, net of tax	Unrealized gain on hedged transaction, net of tax	—	—		—		413		413		Unrealized gain on hedged transaction, net of tax	—	—		—		1,879		1,879
Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—		(11,147)		(11,147)		Foreign currency translation adjustment	—	—		—		(7,217)		(7,217)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	29,086	994		—		—		994		Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	38,551	(586)		—		—		(586)

Share-based compensation	Share-based compensation	—	2,570		—		—		2,570		Share-based compensation	—	2,358		—		—		2,358

Balance at September 30, 2021		25,528,551	$	74,817	$	780,144	$	(108,867)	$	746,094
Net income		—	—		23,252		—		23,252
Unrealized gain on hedged transaction, net of tax		—	—		—		1,172		1,172
Foreign currency translation adjustment		—	—		—		(2,759)		(2,759)
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes		134,897	(2,513)		—		—		(2,513)
Common stock repurchased		(5,903)	(183)		—		—		(183)
Share-based compensation		—	3,462		—		—		3,462
Balance at September 30, 2022											Balance at September 30, 2022	25,225,902	$	66,069	$	870,911	$	(109,976)	$	827,004

Balance at December 31, 2021		25,657,545	$	75,583	$	803,396	$	(110,454)	$	768,525
Net income		—	—		23,526		—		23,526
Unrealized gain on hedged transaction, net of tax		—	—		—		3,144		3,144
Foreign currency translation adjustment		—	—		—		17,186		17,186
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes		46,549	383		—		—		383
Common stock repurchased		(274,852)	(8,886)		—		—		(8,886)
Share-based compensation		—	2,776		—		—		2,776
Balance at March 31, 2022		25,429,242	$	69,856	$	826,922	$	(90,124)	$	806,654

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 STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands, except share information)


		Common Stock (Shares)	Common Stock (Amount)		Retained Earnings		Accumulated Other Comprehensive Loss		Total			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
Net loss		—	—		(14,194)		—		(14,194)
Unrealized gain on hedged transaction, net of tax		—	—		—		519		519
Foreign currency translation adjustment		—	—		—		11,974		11,974
Realized foreign currency translation loss from discontinued operations		—	—		—		11,635		11,635
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes		90,342	(1,036)		—		—		(1,036)

Share-based compensation		—	2,015		—		—		2,015
Balance at December 31, 2020		25,451,640	$	65,924	$	721,263	$	(105,048)	$	682,139
Balance at June 30, 2021											Balance at June 30, 2021	25,499,465	$	71,253	$	758,071	$	(98,133)	$	731,191
Net income	Net income	—	—		13,098		—		13,098		Net income	—	—		22,073		—		22,073
Unrealized gain on hedged transaction, net of tax	Unrealized gain on hedged transaction, net of tax	—	—		—		1,582		1,582		Unrealized gain on hedged transaction, net of tax	—	—		—		413		413
Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—		(9,216)		(9,216)		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	Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	14,725	439		—		—		439		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	Share-based compensation	—	2,532		—		—		2,532		Share-based compensation	—	2,570		—		—		2,570
Balance at March 31, 2021		25,466,365	$	68,895	$	734,361	$	(112,681)	$	690,575
Balance at September 30, 2021											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.	See accompanying notes to these condensed consolidated financial statements.										See accompanying notes to these condensed consolidated financial statements.

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SCANSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


		Nine months ended					Three months ended
		March 31,					September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	68,851	$	(12,915)
Net income (loss) from discontinued operations		100		(37,647)
Net income from continuing operations		68,751		24,732
Adjustments to reconcile net income to net cash (used in) provided by operating activities of continuing operations:
Net income						Net income	$	24,042	$	22,073
Adjustments to reconcile net income to net cash used in operating activities:						Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	22,184		25,417		Depreciation and amortization	7,228		7,650
Amortization of debt issue costs	Amortization of debt issue costs	313		313		Amortization of debt issue costs	289		104
Provision for doubtful accounts	Provision for doubtful accounts	156		226		Provision for doubtful accounts	125		(1,027)
Share-based compensation	Share-based compensation	8,792		5,711		Share-based compensation	2,316		2,570

Deferred income taxes	Deferred income taxes	1,995		(26)		Deferred income taxes	2,274		(183)

Change in fair value of contingent consideration		—		516
Contingent consideration payments excess		—		(5,457)

Finance lease interest	Finance lease interest	32		96		Finance lease interest	2		17
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	(67,404)		(68,654)		Accounts receivable	(18,799)		(26,714)
Inventories	Inventories	(118,349)		(5,907)		Inventories	(62,192)		(25,879)
Prepaid expenses and other assets	Prepaid expenses and other assets	(15,002)		(1,641)		Prepaid expenses and other assets	14,690		(1,174)
Other non-current assets	Other non-current assets	(2,791)		2,846		Other non-current assets	(9,469)		691
Accounts payable	Accounts payable	67,535		69,609		Accounts payable	(1,053)		(26,962)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(12,745)		8,434		Accrued expenses and other liabilities	(13,168)		(14,683)
Income taxes payable	Income taxes payable	862		(793)		Income taxes payable	5,256		6,558
Net cash (used in) provided by operating activities of continuing operations		(45,671)		55,422
Cash flows from investing activities of continuing operations:
Net cash used in operating activities						Net cash used in operating activities	(48,459)		(56,959)
Cash flows from investing activities:						Cash flows from investing activities:
Capital expenditures	Capital expenditures	(3,326)		(2,283)		Capital expenditures	(1,758)		(1,090)

Proceeds from the sale of discontinued operations		3,125		34,356

Net cash (used in) provided by investing activities of continuing operations		(201)		32,073
Cash flows from financing activities of continuing operations:

Net cash used in investing activities						Net cash used in investing activities	(1,758)		(1,090)
Cash flows from financing activities:						Cash flows from financing activities:

Borrowings on revolving credit, net of expenses	Borrowings on revolving credit, net of expenses	1,597,270		1,486,464		Borrowings on revolving credit, net of expenses	579,011		526,637
Repayments on revolving credit, net of expenses	Repayments on revolving credit, net of expenses	(1,552,976)		(1,500,375)		Repayments on revolving credit, net of expenses	(542,147)		(470,237)
Repayments on long-term debt, net		(5,968)		(5,964)
Repayments of finance lease obligations		(932)		(974)
Borrowings (repayments) on long-term debt, net						Borrowings (repayments) on long-term debt, net	18,402		(2,218)
Finance lease obligations						Finance lease obligations	771		(316)
Debt issuance costs						Debt issuance costs	(1,407)		—

Contingent consideration payments		—		(41,393)
Exercise of stock options	Exercise of stock options	1,592		439		Exercise of stock options	10		994
Taxes paid on settlement of equity awards	Taxes paid on settlement of equity awards	(2,729)		(1,036)		Taxes paid on settlement of equity awards	(596)		—
Common stock repurchased		(8,527)		—

Net cash provided by (used in) financing activities of continuing operations		27,730		(62,839)

Net cash provided by financing activities						Net cash provided by financing activities	54,044		54,860
Effect of exchange rate changes on cash and cash equivalents						Effect of exchange rate changes on cash and cash equivalents	(1,342)		(4,038)
Increase (decrease) in cash and cash equivalents						Increase (decrease) in cash and cash equivalents	2,485		(7,227)
Cash and cash equivalents at beginning of period						Cash and cash equivalents at beginning of period	37,987		62,718
Cash and cash equivalents at end of period						Cash and cash equivalents at end of period	$	40,472	$	55,491

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

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SCANSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), continued
(In thousands)
Cash flows from discontinued operations:
Net cash flows provided by operating activities of discontinued operations — 21,704
Net cash flows used in by investing activities of discontinued operations — (58)
Net cash flows used in financing activities of discontinued operations — (29,494)
Net cash flows used in discontinued operations — (7,848)
Effect of exchange rate changes on cash and cash equivalents (1,037) (1,942)
(Decrease) increase in cash and cash equivalents (19,179) 14,866
Cash and cash equivalents at beginning of period 62,718 34,455
Cash and cash equivalents at end of period 43,539 49,321
Cash and cash equivalents of discontinued operations — —
Cash and cash equivalents of continuing operations $ 43,539 $ 49,321
See accompanying notes to these condensed consolidated financial statements.

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SCANSOURCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Business and Summary of Significant Accounting Policies

Business Description

ScanSource, Inc. (together with its subsidiaries referred to as “the Company” or “ScanSource”) is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, Software as a Service ("SaaS"), connectivity and cloud. The Company brings technology solutions and services from the world’s leading suppliers of mobility and barcode, point-of-sale ~~(POS)~~("POS"), payments, physical security, unified communications and collaboration, telecom and cloud services to market. The Company operates in the United States, Canada, Brazil and the UK. ~~During the quarter ended December 31, 2020, the Company completed the divestitures of its products distribution business in the UK, Europe and Latin America, outside of Brazil.~~ The Company's 2two operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on ~~product and customer type.~~

~~Segment Changes~~

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

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

Basis of Presentation

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

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

Summary of Significant Accounting Policies

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

Cash and Cash Equivalents

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The Company considers all highly-liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company maintains zero-balance disbursement accounts at various financial institutions at which the Company does not maintain significant depository relationships. Due to the terms of the agreements governing these accounts, the Company generally does not have the right to offset outstanding checks written from these accounts against cash on hand, and the respective institutions are not legally obligated to honor the checks until sufficient funds are transferred to fund the checks. As a result, checks released but not yet cleared from these accounts in the amounts of ~~$20.0~~$11.5 million and ~~$14.3~~$18.0 million are included in accounts payable on the condensed consolidated balance sheets at ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively.

Long-lived Assets

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The Company presents depreciation expense and intangible amortization expense on the Condensed Consolidated Income Statements. The Company's depreciation expense related to selling, general and administrative costs totaled ~~$2.6 million and $8.0~~$2.8 million for the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and ~~$3.1 million and $9.6~~$2.9 million for the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2021. Depreciation expense reported as part of cost of goods sold on the Condensed Consolidated Income Statements totaled $0.2 million for the quarter ended September 30, 2022 and ~~$0.7~~$0.3 million for the quarter ~~and nine months~~ ended ~~March 31, 2022 and $0.3 million and $1.2 million for the quarter and nine months ended March 31,~~September 30, 2021. The Company's intangible amortization expense reported on the Condensed Consolidated Income Statements relates to selling, general and administrative costs, not the cost of selling goods. Intangible amortization expense totaled ~~$4.5 million and $13.4~~$4.2 million for the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and ~~$4.9 million and $14.6~~$4.5 million for the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2021.

Recent Accounting Pronouncements

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

(2) Trade Accounts and Notes Receivable, Net

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

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

The changes in the allowance for doubtful accounts for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 are set forth in the table below.

June 30, 2021 Amounts Charged to Expense Write-offs
Other (1)
March 31, 2022
(in thousands)
Trade accounts and current notes receivable allowance $ 19,341 $ 156 $ (1,761) $ (801) $ 16,935


	June 30, 2022		Amounts Charged to Expense		Write-offs		Other (1)		September 30, 2022
	(in thousands)
Trade accounts and current notes receivable allowance	$	16,806	$	125	$	(2,721)	$	(268)	$	13,942

(1)"Other" amounts include recoveries and the effect of foreign currency fluctuations for the ~~nine~~three months ended ~~March 31,~~September 30, 2022.

(3) Revenue Recognition

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

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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~~a Company warehouse, (ii) drop-shipment directly from the supplier or (iii) electronic delivery for non-physical products.

Principal versus Agent Considerations

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

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

Variable Considerations

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

Contract Balances

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

Disaggregation of Revenue

The following tables represent the Company's disaggregation of revenue:

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	Quarter ended September 30, 2022
	Specialty Technology Solutions		Modern Communications & Cloud		Total
			(in thousands)
Revenue by product/service
Hardware, software and cloud (excluding Intelisys)	$	576,329	$	348,631	$	924,960
Intelisys connectivity and cloud	—		18,853		18,853
	$	576,329	$	367,484	$	943,813

Quarter ended March 31, 2022
Specialty Technology Solutions Modern Communications & Cloud Total
(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys) $ 503,072 $ 323,684 $ 826,756
Intelisys connectivity and cloud — 19,234 19,234
$ 503,072 $ 342,918 $ 845,990
Nine months ended March 31, 2022
Specialty Technology Solutions Modern Communications & Cloud Total
(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys) $ 1,501,702 $ 1,010,825 $ 2,512,527
Intelisys connectivity and cloud — 55,125 55,125
$ 1,501,702 $ 1,065,950 $ 2,567,652


		Quarter ended March 31, 2021						Quarter ended September 30, 2021
		Specialty Technology Solutions		Modern Communications & Cloud		Total				Specialty Technology Solutions		Modern Communications & Cloud		Total
				(in thousands)								(in thousands)
Revenue by product/service:
Revenue by product/service									Revenue by product/service
Hardware, software and cloud (excluding Intelisys)	Hardware, software and cloud (excluding Intelisys)	$	436,462	$	277,134	$	713,596		Hardware, software and cloud (excluding Intelisys)	$	501,711	$	338,248	$	839,959
Intelisys connectivity and cloud	Intelisys connectivity and cloud	—		16,277		16,277			Intelisys connectivity and cloud	—		17,624		17,624
		$	436,462	$	293,411	$	729,873			$	501,711	$	355,872	$	857,583

		Nine months ended March 31, 2021
		Specialty Technology Solutions		Modern Communications & Cloud		Total
				(in thousands)
Revenue by product/service:
Hardware, software and cloud (excluding Intelisys)		$	1,300,488	$	949,843	$	2,250,331
Intelisys connectivity and cloud		—		47,780		47,780
		$	1,300,488	$	997,623	$	2,298,111

(4) Earnings Per Share

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

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Quarter ended Nine months ended
March 31, March 31,
2022 2021 2022 2021
(in thousands, except per share data)
Numerator:
Net income from continuing operations $ 23,526 $ 13,786 $ 68,751 $ 24,732
Net (loss) income from discontinued operations — (688) 100 (37,647)
Net income (loss) $ 23,526 $ 13,098 $ 68,851 $ (12,915)
Denominator:
Weighted-average shares, basic 25,635 25,455 25,577 25,404
Dilutive effect of share-based payments 218 117 235 80
Weighted-average shares, diluted 25,853 25,572 25,812 25,484
Net income from continuing operations per common share, basic $ 0.92 $ 0.54 $ 2.69 $ 0.97
Net loss from discontinued operations per common share, basic — (0.03) — (1.48)
Net income (loss) per common share, basic $ 0.92 $ 0.51 $ 2.69 $ (0.51)
Net income from continuing operations per common share, diluted $ 0.91 $ 0.54 $ 2.66 $ 0.97
Net loss from discontinued operations per common share, diluted — (0.03) — (1.48)
Net income (loss) per common share, diluted $ 0.91 $ 0.51 $ 2.67 $ (0.51)


	Quarter ended
	September 30,
	2022		2021
	(in thousands, except per share data)
Numerator:
Net income	$	24,042	$	22,073
Denominator:
Weighted-average shares, basic	25,201		25,512
Dilutive effect of share-based payments	250		184
Weighted-average shares, diluted	25,451		25,696

Net income per common share, basic	$	0.95	$	0.87
Net income per common share, diluted	$	0.94	$	0.86

For the ~~quarter~~quarters ended September 30, 2022 and nine months ended March 31, 2022 weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were 429,605 and 969,871, respectively. For the quarter and nine months ended March 31, 2021, weighted-average shares outstanding excluded from the computation of diluted earnings per share because their effect would be anti-dilutive were ~~1,532,961~~1,128,445 and ~~1,285,153,~~1,213,398, respectively.

(5) Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:


		March 31, 2022		June 30, 2021			September 30, 2022		June 30, 2022
		(in thousands)					(in thousands)
Foreign currency translation adjustment	Foreign currency translation adjustment	$	(90,281)	$	(93,561)	Foreign currency translation adjustment	$	(113,116)	$	(105,899)
Unrealized gain (loss) on hedged transaction, net of tax		157		(4,572)
Unrealized gain on hedged transaction, net of tax						Unrealized gain on hedged transaction, net of tax	3,140		1,261
Accumulated other comprehensive loss	Accumulated other comprehensive loss	$	(90,124)	$	(98,133)	Accumulated other comprehensive loss	$	(109,976)	$	(104,638)

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

Quarter ended March 31, Nine months ended March 31,
2022 2021 2022 2021
(in thousands)
Tax expense $ 590 $ 1,088 $ 1,390 $ 1,348


	Quarter ended September 30,
	2022		2021
	(in thousands)
Tax expense	$	414	$	284

(6) Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the ~~nine~~three months ended ~~March 31,~~September 30, 2022, by reporting segment, are set forth in the table below.

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Specialty Technology Solutions Modern Communications & Cloud Total
(in thousands)
Balance at June 30, 2021 $ 16,370 $ 202,507 $ 218,877
Foreign currency translation adjustment — (852) (852)
Balance at March 31, 2022 $ 16,370 $ 201,655 $ 218,025


	Specialty Technology Solutions		Modern Communications & Cloud		Total
	(in thousands)
Balance at June 30, 2022	$	16,370	$	198,065	$	214,435
Foreign currency translation adjustment	—		(2,699)		(2,699)
Balance at September 30, 2022	$	16,370	$	195,366	$	211,736

The following table shows changes in the amount recognized for net identifiable intangible assets for the ~~nine~~three months ended ~~March 31,~~September 30, 2022.

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	Net Identifiable Intangible Assets
	(in thousands)
Balance at June 30, ~~2021~~2022	$	~~104,860~~84,427


Amortization expense	~~(13,413)~~(4,241)
Foreign currency translation adjustment	~~(893)~~(1,462)
Balance at ~~March 31,~~September 30, 2022	$	~~90,554~~78,724

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

The following table presents the Company’s debt at ~~March 31,~~September 30, 2022 and June 30, ~~2021.~~2022.


		March 31, 2022		June 30, 2021			September 30, 2022		June 30, 2022
		(in thousands)					(in thousands)

Current portion of long-term debt	Current portion of long-term debt	$	10,660	$	7,843	Current portion of long-term debt	$	4,102	$	11,598
Mississippi revenue bond, net of current portion	Mississippi revenue bond, net of current portion	3,733		4,081		Mississippi revenue bond, net of current portion	3,381		3,733
Senior secured term loan facility, net of current portion	Senior secured term loan facility, net of current portion	122,813		131,250		Senior secured term loan facility, net of current portion	146,250		120,000
Borrowings under revolving credit facility	Borrowings under revolving credit facility	44,294		—		Borrowings under revolving credit facility	172,702		135,839
Total debt	Total debt	$	181,500	$	143,174	Total debt	$	326,435	$	271,170

Credit Facility

The Company has a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (as amended, the “Amended Credit Agreement”). On ~~April 30, 2019,~~September 28, 2022, ScanSource, Inc. amended and restated the ~~Company amended this credit facility to expand the borrowing capacity and extend its maturity to April 30, 2024. The~~ Amended Credit Agreement, which includes (i) a five-year, $350 million ~~multi-currency~~multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. ~~Pursuant~~The Amended Credit Agreement extends the credit facility maturity date to September 28, 2027. In addition, pursuant to an “accordion feature,” the Company may increase its borrowings up to an additional $250 million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of ~~credit, subject to obtaining additional credit commitments from the lenders participating in the increase.~~credit. 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.~~its domestic subsidiaries. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. The Company incurred debt issuance costs of ~~$1.1~~$1.5 million in connection with the ~~amendments to~~amendment and restatement of the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.

~~At the Company's option,~~Loans denominated in U.S. ~~dollar loans under the Amended Credit Agreement,~~dollars, other than swingline loans, shall bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted Term SOFR or daily simple SOFR rate plus a fixed credit spread ~~over LIBOR or the alternate base rate~~adjustment of 0.10%, plus an additional margin ranging from 1.00% to 1.75%, depending upon the ~~Company's net leverage~~Company’s ratio ~~calculated as~~of (A) total consolidated debt less up to ~~$15~~$30 million of unrestricted domestic cash ("to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”); or (ii) the alternate base rate plus an additional margin ranging from 0% to 0.75%, depending upon the Company’s leverage ratio, plus, if applicable, certain mandatory costs. Loans denominated in foreign currencies shall bear interest at a rate per annum equal to the applicable benchmark rate set forth in the New Credit ~~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~~Agreement plus an additional margin ranging 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~~Company’s leverage ratio, plus, if applicable, certain mandatory costs. All swingline ~~loans. The Amended Credit Agreement provides for the substitution of a new~~

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loans denominated in U.S. dollars shall bear interest ~~rate benchmark~~based upon the ~~transition~~adjusted daily simple SOFR, floating daily, plus an additional margin ranging from ~~LIBOR for U.S. dollar loans, subject~~1.00% to ~~agreement between~~1.75%, depending upon the Company’s leverage ratio, or such other rate as the Company and the ~~administrative agent. On December 23, 2021, the Company amended its credit facility to replace LIBOR as the benchmark rate for non-U.S. dollar loans, among other things.~~applicable swingline lender may agree.

During the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022, the Company's borrowings under the credit facility were U.S. dollar loans. The spread in effect as of ~~March 31,~~September 30, 2022 was ~~1.25%~~1.50% for ~~LIBOR-based~~LIBOR and SOFR-based loans and ~~0.25%~~0.50% for alternate base rate loans. The commitment fee rate in effect at ~~March 31,~~September 30, 2022 was ~~0.20%~~0.25%. The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants. Specifically, the Company’s Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, the Company’s Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00 to 1.00 at the end of each fiscal quarter.

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In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. The Company was in compliance with all covenants under the credit facility at ~~March 31,~~September 30, 2022.

The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the ~~nine~~three month ~~period~~periods ended ~~March 31,~~September 30, 2022 ~~was $60.0 million. Including borrowings for both continuing~~ and ~~discontinued operations, the average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the nine months ended March 31,~~ 2021 was ~~$62.1 million.~~$200.5 million and $54.4 million, respectively. There was ~~$305.7~~$177.3 million and ~~$350.0~~$214.2 million available for additional borrowings as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively. There were no letters of credit issued under the multi-currency revolving credit facility at ~~March 31,~~September 30, 2022 or June 30, ~~2021.~~2022.

Mississippi Revenue Bond

On August 1, 2007, the Company entered into an agreement with the State of Mississippi to provide financing for the acquisition and installation of certain equipment to be utilized at the Company’s Southaven, Mississippi warehouse, through the issuance of an industrial development revenue bond. The bond matures on September 1, 2032 and accrues interest at the 30-day LIBOR rate plus a spread of 0.85%. The terms of the bond allow for payment of interest only for the first 10 years of the agreement, and then, starting on September 1, 2018 through 2032, principal and interest payments are due until the maturity date or the redemption of the bond. The agreement also provides the bondholder with a put option, exercisable only within 180 days of each fifth anniversary of the agreement, requiring the Company to pay back the bonds at 100% of the principal amount outstanding. At ~~March 31,~~September 30, 2022, the Company was in compliance with all covenants under this bond. The interest rates at ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 were ~~1.08%~~3.21% and ~~0.94%~~1.97%, respectively.

Debt Issuance Costs

At ~~March 31,~~September 30, 2022, net debt issuance costs associated with the credit facility and bond totaled ~~$0.9~~$2.0 million and are being amortized on a straight-line basis through the maturity date of each respective debt instrument.

(8) Derivatives and Hedging Activities

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

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

The Company had contracts outstanding for purposes of managing cash flows with notional amounts of ~~$35.8~~$35.9 million and ~~$27.9~~$34.5 million for the exchange of foreign currencies at ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively. To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are adjusted to fair value through earnings in other income and expense. Summarized financial information related to these derivative contracts and changes in the underlying value of the foreign currency exposures included in the Condensed Consolidated Income Statements for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021 are as follows:


	Quarter ended
	September 30,
	2022		2021
	(in thousands)
Net foreign exchange derivative contract losses (gains)	$	438	$	(1,651)
Net foreign currency transactional and re-measurement losses	484		2,136
Net foreign currency exchange losses	$	922	$	485

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Quarter ended Nine months ended
March 31, March 31,
2022 2021 2022 2021
(in thousands)
Net foreign exchange derivative contract losses (gains) $ 3,464 $ (1,061) $ 1,289 $ 852
Net foreign currency transactional and re-measurement (gains) losses (3,206) 1,020 (66) (74)
Net foreign currency exchange losses (gains) $ 258 $ (41) $ 1,223 $ 778

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~~On April 30, 2019, the Company entered into an interest rate swap agreement, which was ~~subsequently settled, and entered into a new~~ amended ~~agreement~~ on ~~April 30, 2019.~~September 28, 2022 to change the reference rate from LIBOR to SOFR. The swap agreement has a notional amount of $100.0 million, with a $50.0 million tranche 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 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 ~~March 31,~~September 30, 2022 and 2021.

The components of the cash flow hedge included in the Condensed Consolidated Statement of Comprehensive Income for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021, are as follows:


		Quarter ended				Nine months ended					Quarter ended
		March 31,				March 31,					September 30,
		2022		2021		2022		2021			2022		2021
		(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	$	532	$	557	$	1,689	$	1,682	Net interest expense recognized as a result of interest rate swap	$	32	$	580
Unrealized gain in fair value of interest rate swap		3,675		1,549		4,658		1,281
Unrealized gain (loss) in fair value of interest rate swap										Unrealized gain (loss) in fair value of interest rate swap	2,500		(15)
Net increase in accumulated other comprehensive income	Net increase in accumulated other comprehensive income	4,207		2,106		6,347		2,963		Net increase in accumulated other comprehensive income	2,532		565
Income tax effect	Income tax effect	1,062		524		1,619		754		Income tax effect	653		152
Net increase in accumulated other comprehensive income, net of tax	Net increase in accumulated other comprehensive income, net of tax	$	3,145	$	1,582	$	4,728	$	2,209	Net increase in accumulated other comprehensive income, net of tax	$	1,879	$	413

The Company used the following derivative instruments at ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, reflected in its Condensed Consolidated Balance Sheets, for the risk management purposes detailed above:

~~Table of Contents~~


		~~March 31, 2022~~				~~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~~	$	—	$	33	$	—	$	—
~~Foreign currency hedge~~	~~Prepaid expenses and other current assets~~	$	—	$	—	$	~~187~~	$	—
~~Interest rate swap agreement~~	~~Other non-current assets~~	$	~~196~~	$	—	$	—	$	—
~~Derivative liabilities:~~
~~Foreign exchange contracts~~	~~Accrued expenses and other current liabilities~~	$	—	$	—	$	—	$	5
~~Foreign currency hedge~~	~~Accrued expenses and other current liabilities~~	$	~~185~~	$	—	$	—	$	—
~~Interest rate swap agreement~~	~~Other long-term liabilities~~	$	—	$	—	$	~~6,280~~	$	—


		September 30, 2022				June 30, 2022
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments		Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments
		(in thousands)
Derivative assets:
Foreign exchange contracts	Prepaid expenses and other current assets	$	—	$	4	$	—	$	—
Foreign currency hedge	Prepaid expenses and other current assets	$	8	$	—	$	—	$	—
Interest rate swap agreement	Other non-current assets	$	4,218	$	—	$	1,686	$	—
Derivative liabilities:
Foreign exchange contracts	Accrued expenses and other current liabilities	$	—	$	—	$	—	$	5
Foreign currency hedge	Accrued expenses and other current liabilities	$	—	$	—	$	93	$	—

2017

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(9) Fair Value of Financial Instruments

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

•Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2 – Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

•Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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

The following table summarizes the valuation of the Company’s remaining assets and liabilities measured at fair value on a recurring basis at ~~March 31,~~September 30, 2022:


		Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)
		(in thousands)									(in thousands)
Assets:	Assets:									Assets:
Deferred compensation plan investments, current and non-current portion	Deferred compensation plan investments, current and non-current portion	$	28,587	$	28,587	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	25,674	$	25,674	$	—
Forward foreign currency exchange contracts	Forward foreign currency exchange contracts	33		—		33		—		Forward foreign currency exchange contracts	4		—		4
Interest rate swap agreement	Interest rate swap agreement	196		—		196		—		Interest rate swap agreement	4,218		—		4,218

Foreign currency hedge										Foreign currency hedge	8		—		8
Total assets at fair value	Total assets at fair value	$	28,816	$	28,587	$	229	$	—	Total assets at fair value	$	29,904	$	25,674	$	4,230
Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan investments, current and non-current portion	Deferred compensation plan investments, current and non-current portion	$	28,495	$	28,495	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	25,674	$	25,674	$	—

Foreign currency hedge		185		—		185		—

Total liabilities at fair value	Total liabilities at fair value	$	28,680	$	28,495	$	185	$	—	Total liabilities at fair value	$	25,674	$	25,674	$	—

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, ~~2021:~~2022:

2118

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		Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)
		(in thousands)									(in thousands)
Assets:	Assets:									Assets:
Deferred compensation plan investments, current and non-current portion	Deferred compensation plan investments, current and non-current portion	$	31,168	$	31,168	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	25,178	$	25,178	$	—

Foreign currency hedge		187		—		187		—

Interest rate swap agreement										Interest rate swap agreement	1,686		—		1,686
Total assets at fair value	Total assets at fair value	$	31,355	$	31,168	$	187	$	—	Total assets at fair value	$	26,864	$	25,178	$	1,686
Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan investments, current and non-current portion	Deferred compensation plan investments, current and non-current portion	$	31,168	$	31,168	$	—	$	—	Deferred compensation plan investments, current and non-current portion	$	25,178	$	25,178	$	—
Forward foreign currency exchange contracts	Forward foreign currency exchange contracts	5		—		5		—		Forward foreign currency exchange contracts	5		—		5
Interest rate swap agreement		6,280		—		6,280		—

Foreign currency hedge										Foreign currency hedge	93		—		93
Total liabilities at fair value	Total liabilities at fair value	$	37,453	$	31,168	$	6,285	$	—	Total liabilities at fair value	$	25,276	$	25,178	$	98

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 8 - 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.

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 and nine months ended March 31, 2021.

~~Quarter ended March 31, 2021~~

~~Nine months ended March 31, 2021~~

~~Modern Communications & Cloud~~

~~(in thousands)~~

~~Fair value at beginning of period~~

—

~~46,334~~

~~Payments~~

—

~~(46,850)~~

~~Change in fair value of contingent consideration~~

—

~~516~~

~~Fair value at end of period~~

—

~~Table of Contents~~

The fair values of amounts owed are recorded in current portion of contingent consideration in the Company’s Condensed Consolidated Balance Sheets. In accordance with ASC 805, the Company revalued 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 was 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.~~

The final earnout payment due to the former owners of Intelisys was paid in October 2020. The Company recognized $0.5 million in expense from the change in fair value of the contingent consideration in the Condensed Consolidated Income Statement for the nine months ended March 31, 2021. The change in fair value was due to the recurring amortization of the unrecognized fair value discount.

(10) Segment Information

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

Specialty Technology Solutions Segment

The Specialty Technology Solutions segment includes the Company’s business in ~~automatic identification~~mobility and ~~data capture (“AIDC”), point of sale (“POS”),~~barcode, POS, payments, security and networking technologies. ~~AIDC~~Mobility and barcode solutions include mobile computing, barcode scanners and imagers, radio frequency identification devices, ~~(“RFID”),~~ barcode printing and services. POS and payments solutions include POS systems, integrated POS software platforms, self-service kiosks including self-checkout, payment terminals and mobile payment devices. Security solutions include video surveillance and analytics, video management software and access control. Networking solutions include switching, routing and wireless products and software. The Company has business operations within this segment in the United States, Canada and Brazil.

Modern Communications & Cloud Segment

The Modern Communications & Cloud segment includes the Company’s business in communications and collaboration, connectivity and cloud services. Communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, include voice, video, integration of communication platforms and contact center solutions. The Intelisys connectivity and cloud marketplace offers telecom, cable, Unified Communications as a 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 platforms. The Company has business operations within this segment in the United States, Canada, Brazil and the UK.

Selected financial information for each business segment is presented below:

2319

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		Quarter ended				Nine months ended					Quarter ended
		March 31,				March 31,					September 30,
		2022		2021		2022		2021			2022		2021
		(in thousands)									(in thousands)
Sales:	Sales:									Sales:
Specialty Technology Solutions	Specialty Technology Solutions	$	503,072	$	436,462	$	1,501,702	$	1,300,488	Specialty Technology Solutions	$	576,329	$	501,711
Modern Communications & Cloud	Modern Communications & Cloud	342,918		293,411		1,065,950		997,623		Modern Communications & Cloud	367,484		355,872
		$	845,990	$	729,873	$	2,567,652	$	2,298,111		$	943,813	$	857,583
Depreciation and amortization:	Depreciation and amortization:									Depreciation and amortization:
Specialty Technology Solutions	Specialty Technology Solutions	$	2,874	$	3,200	$	8,741	$	10,054	Specialty Technology Solutions	$	2,702	$	2,969
Modern Communications & Cloud	Modern Communications & Cloud	3,738		4,439		11,312		13,055		Modern Communications & Cloud	3,649		3,962
Corporate	Corporate	693		719		2,131		2,308		Corporate	877		719
		$	7,305	$	8,358	$	22,184	$	25,417
Change in fair value of contingent consideration:

Modern Communications & Cloud		—		—		—		516
		$	—	$	—	$	—	$	516		$	7,228	$	7,650
Operating income (loss):	Operating income (loss):									Operating income (loss):
Specialty Technology Solutions	Specialty Technology Solutions	$	20,623	$	8,713	$	51,278	$	17,558	Specialty Technology Solutions	$	21,852	$	14,104
Modern Communications & Cloud	Modern Communications & Cloud	12,294		11,555		43,494		32,085		Modern Communications & Cloud	13,036		16,307
Corporate	Corporate	—		(832)		(30)		(11,442)		Corporate	—		(83)
		$	32,917	$	19,436	$	94,742	$	38,201		$	34,888	$	30,328
Capital expenditures:	Capital expenditures:									Capital expenditures:
Specialty Technology Solutions	Specialty Technology Solutions	$	(62)	$	(532)	$	(496)	$	(1,097)	Specialty Technology Solutions	$	(502)	$	(117)
Modern Communications & Cloud	Modern Communications & Cloud	(620)		(297)		(2,830)		(1,186)		Modern Communications & Cloud	(1,256)		(973)

		$	(682)	$	(829)	$	(3,326)	$	(2,283)		$	(1,758)	$	(1,090)
Sales by Geography Category:	Sales by Geography Category:									Sales by Geography Category:
United States and Canada	United States and Canada	$	766,035	$	666,773	$	2,312,250	$	2,081,377	United States and Canada	$	861,602	$	771,914
International	International	81,461		64,153		259,693		228,784		International	84,275		87,812
Less intercompany sales	Less intercompany sales	(1,506)		(1,053)		(4,291)		(12,050)		Less intercompany sales	(2,064)		(2,143)
		$	845,990	$	729,873	$	2,567,652	$	2,298,111		$	943,813	$	857,583


		March 31, 2022		June 30, 2021			September 30, 2022		June 30, 2022
		(in thousands)					(in thousands)
Assets:	Assets:					Assets:
Specialty Technology Solutions	Specialty Technology Solutions	$	905,073	$	775,704	Specialty Technology Solutions	$	1,059,022	$	1,030,538
Modern Communications & Cloud	Modern Communications & Cloud	925,367		868,752		Modern Communications & Cloud	940,677		906,890
Corporate	Corporate	10,360		27,228		Corporate	613		—

		$	1,840,800	$	1,671,684		$	2,000,312	$	1,937,428
Property and equipment, net by Geography Category:	Property and equipment, net by Geography Category:					Property and equipment, net by Geography Category:
United States and Canada	United States and Canada	$	33,151	$	39,930	United States and Canada	$	31,685	$	32,715
International	International	4,664		2,906		International	5,168		4,762
		$	37,815	$	42,836		$	36,853	$	37,477

(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

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months or less on the Condensed Consolidated Balance Sheets. Operating leases are recorded as other non-current assets, accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets. The Company has finance leases for information technology equipment expiring through fiscal year ~~2024.~~2027. Finance leases are recorded as property and equipment, net, accrued expenses and other current liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets. The gross amount of the balances recorded related to finance leases is immaterial to the financial statements at ~~March 31,~~September 30, 2022 and June 30, ~~2021.~~2022.

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

The following table presents amounts recorded on the Condensed Consolidated Balance Sheet related to operating leases at ~~March 31,~~September 30, 2022 and June 30, ~~2021:~~2022:


			March 31, 2022		June 30, 2021				September 30, 2022		June 30, 2022
Operating leases	Operating leases	Balance Sheet location	(in thousands)				Operating leases	Balance Sheet location	(in thousands)
Operating lease right-of-use assets	Operating lease right-of-use assets	Other non-current assets	$	17,569	$	19,246	Operating lease right-of-use assets	Other non-current assets	$	15,184	$	16,217
Current operating lease liabilities	Current operating lease liabilities	Accrued expenses and other current liabilities	$	4,391	$	4,284	Current operating lease liabilities	Accrued expenses and other current liabilities	$	4,533	$	4,499
Long-term operating lease liabilities	Long-term operating lease liabilities	Other long-term liabilities	$	14,591	$	16,550	Long-term operating lease liabilities	Other long-term liabilities	$	11,962	$	13,085

The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed Consolidated Income Statements during the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021. Operating lease costs contain immaterial amounts of short-term lease costs for leases with an initial term of 12 months or less.


		Quarter ended March 31,				Nine months ended March 31,					Quarter ended September 30,
		2022		2021		2022		2021			2022		2021
		(in thousands)									(in thousands)
Operating lease cost	Operating lease cost	$	1,366	$	1,277	$	3,877	$	3,964	Operating lease cost	$	1,286	$	1,243
Variable lease cost	Variable lease cost	317		297		966		880		Variable lease cost	344		322
		$	1,683	$	1,574	$	4,843	$	4,844		$	1,630	$	1,565

Supplemental cash flow information related to the Company's operating leases for the ~~nine months~~quarters ended ~~March 31,~~September 30, 2022 and 2021 are presented in the table below:


		Nine months ended					Quarter ended
		March 31,					September 30,
			2022		2021				2022		2021
		(in thousands)					(in thousands)
Cash paid for amounts in the measurement of lease liabilities	Cash paid for amounts in the measurement of lease liabilities		$	4,082	$	4,116		Cash paid for amounts in the measurement of lease liabilities	$	1,339	$	1,294
Right-of-use assets obtained in exchange for lease obligations	Right-of-use assets obtained in exchange for lease obligations		2,313		—			Right-of-use assets obtained in exchange for lease obligations	111		362

The weighted-average remaining lease term and discount rate at ~~March 31,~~September 30, 2022 are presented in the table below:

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	~~March 31,~~September 30, 2022
Weighted-average remaining lease term	~~4.52~~4.17 years
Weighted-average discount rate	~~4.09~~3.99	%

The following table presents the maturities of the Company's operating lease liabilities at ~~March 31,~~September 30, 2022:


		Operating leases			Operating leases
		(in thousands)			(in thousands)
2022		$	1,438
2023	2023	5,507		2023	$	4,006
2024	2024	4,666		2024	4,543
2025	2025	3,563		2025	3,416
2026	2026	3,029		2026	2,878
2027				2027	2,597
Thereafter	Thereafter	2,621		Thereafter	632
Total future payments	Total future payments	20,824		Total future payments	18,072
Less: amounts representing interest	Less: amounts representing interest	1,842		Less: amounts representing interest	1,577
Present value of lease payments	Present value of lease payments	$	18,982	Present value of lease payments	$	16,495

(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.

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 ~~$4.4 million and $4.0~~$4.1 million at ~~March 31,~~September 30, 2022 and June 30, ~~2021, respectively.~~2022.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2022 and June 30, ~~2021:~~2022:

March 31, 2022 June 30, 2021
Network1
(in thousands)
Assets
Prepaid expenses and other current assets $ 16 $ 16
Other non-current assets $ 4,221 $ 3,998
Liabilities
Accrued expenses and other current liabilities $ 16 $ 16
Other long-term liabilities $ 4,221 $ 3,998


	September 30, 2022		June 30, 2022
	Network1
	(in thousands)
Assets
Prepaid expenses and other current assets	$	14	$	15
Other non-current assets	$	3,699	$	3,818
Liabilities
Accrued expenses and other current liabilities	$	14	$	15
Other long-term liabilities	$	3,699	$	3,818

(13) ~~Restructuring~~

In July 2020, as part of a strategic review of its organizational structure and operations, the Company announced a global cost reduction and restructuring program. These actions were 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 implementation and consulting business. There had been limited adoption by the Company's

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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.

There were no restructuring or severance costs incurred during the quarter and nine months ended March 31, 2022. The following table presents the restructuring and severance costs incurred for the quarter and nine months ended March 31, 2021:

Quarter ended March 31, 2021 Nine months ended March 31, 2021
(in thousands)
Severance and benefit costs $ 326 $ 8,825
Other 234 487
Total restructuring and other charges $ 560 $ 9,312

~~All restructuring costs were recognized in the Corporate reporting unit and were not allocated to the Specialty Technology Solutions or Modern Communications & Cloud segments.~~

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 nine months ended March 31, 2022:


	~~Accrued Expenses~~
	~~(in thousands)~~
~~Balance at June 30, 2021~~	$	~~1,199~~
~~Charged to expense~~	—
~~Cash payments~~	~~(1,146)~~
~~Balance at March 31, 2022~~	$	53

~~The remaining balance as of March 31, 2022 of less than $0.1 million is expected to be paid through the fourth quarter of fiscal year 2022.~~

~~(14)~~ Income Taxes

Income taxes for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021 have been included in the accompanying condensed consolidated financial statements using an estimated annual effective tax rate. In addition to applying the estimated annual effective tax rate to pre-tax income, the Company includes certain items treated as discrete events to arrive at an estimated overall tax provision. ~~There were no material discrete items during~~During the quarter ended ~~March 31, 2022. During the nine months ended March 31,~~September 30, 2022, a discrete net tax benefit of ~~$0.9~~$0.5 million was recorded, which is primarily attributable to ~~excess tax benefits on stock compensation and~~ a notional interest deduction on the net equity of the Company's Brazilian subsidiary. There were no material discrete items during the quarter ended September 30, 2021.

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The Company’s effective tax rate of ~~27.8% and 25.6%~~25.5% for the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022, ~~respectively,~~ 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 ~~27.1% and 28.3%~~25.0% for the quarter ~~and nine months~~ ended ~~March 31, 2021, respectively.~~September 30, 2021.

As of ~~the quarter ended March 31,~~September 30, 2022, the Company is not permanently reinvested with respect to all earnings generated by foreign operations. The Company has determined that there is no material deferred tax liability for federal, state and withholding tax related to undistributed earnings. During the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022, foreign subsidiaries repatriated cash of ~~$17.4~~$2.9 million to the United States. There is no certainty to the timing of any future distributions of such earnings to the U.S. in whole or in part.

The Company had approximately ~~$1.2 million and~~ $1.1 million of total gross unrecognized tax benefits at ~~March 31,~~September 30, 2022 and June 30, ~~2021, respectively.~~2022. Of this total at ~~March 31,~~September 30, 2022, 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.

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The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. At ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the Company had approximately $1.2 million ~~and $1.1 million, respectively,~~ 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, ~~2016.~~2017.

~~(15)~~(14) 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 were performing below management's expectations. The Company continues to operate its digital business in these countries. Management determined that the Company did not have sufficient scale in these markets to maximize the value-added model for product distribution, leading the Company to focus and invest in its higher-growth, higher-margin businesses. Results from the Divestitures were included within each reportable segment, which includes the Specialty Technology Solutions and Modern Communications & Cloud segments.

During the quarter ended June 30, 2020, the Company recorded a pre-tax loss on sale classification of $88.9 million to reduce the carrying value of the Divestitures to its estimate of fair value (the net proceeds 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 nine months ended March 31, 2021, the Company recorded an additional pre-tax loss on disposal group of $34.5 million, which was primarily attributable to a reduction in the net proceeds realized at closing for the Divestitures. During the quarter ended December 31, 2021, the Company received the second and final payment for its businesses in Latin America, outside of Brazil, related to working capital adjustments and in accordance with the Share Purchase Agreement between Intcomex and the Company. The receipt of payment resulted in a gain on disposal group of $0.1 million.

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 also finalized the sale of the Europe and UK business on November 12, 2020. ~~During the quarter ended December 31, 2021, the Company received a final $3.1 million cash payment for the sale of the Latin America business.~~ Total cash received for the sale of divestitures was $37.5 million.

~~Major~~There were no components of net income or loss ~~(income)~~ from discontinued operations for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and ~~2021 were as follows:~~2021.

Quarter ended March 31, 2022 Quarter ended March 31, 2021 Nine months ended March 31, 2022 Nine months ended March 31, 2021
(in thousands)
Net sales $ — $ — $ — $ 213,373
Cost of goods sold — — — 198,512
Gross profit — — — 14,861
Selling, general and administrative expenses — — — 17,291
Operating loss — — — (2,430)
Interest expense, net — — — 394
Loss (gain) on disposal group — 688 (100) 34,496
Other expense, net — — — 310
(Loss) income from discontinued operations before taxes — (688) 100 (37,630)
Income tax expense — — — 17
Net (loss) income from discontinued operations $ — $ (688) $ 100 $ (37,647)

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There were no assets or liabilities classified as held-for-sale in the accompanying consolidated balance sheets at ~~March 31,~~September 30, 2022 and June 30, ~~2021.~~2022.

There were no cash flows from discontinued operations for the ~~nine~~three months ended ~~March 31, 2022.~~ ~~Significant non-cash operating items~~September 30, 2022 and ~~capital expenditures reflected in the cash~~ ~~flows from discontinued operations for the nine months ended March 31, 2021 were as follows:~~2021.

~~Nine months ended March 31, 2021~~

~~(in thousands)~~

~~Loss on disposal group~~

~~34,496~~

~~Capital expenditures~~

~~(58)~~

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

Overview

ScanSource is a leading hybrid distributor connecting devices to the cloud and accelerating growth for partners across hardware, ~~Software as a Service ("SaaS"),~~SaaS, connectivity and cloud. We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, ~~point-of-sale (POS),~~POS and payments, physical security ~~unified~~and networking, communications and collaboration, ~~(UCaaS, CCaaS), telecom~~connectivity and cloud services to our ~~more than~~approximately 30,000 sales partners located in the United States, Canada, Brazil, the UK and Europe.

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

•Specialty Technology Solutions

•Modern Communications & Cloud

We sell hardware, SaaS, connectivity and cloud solutions and services through channel partners to end-customers. We operate distribution facilities that support our United States and Canada business in Mississippi, California and Kentucky. Brazil distribution facilities are located in the Brazilian states of Paraná, Espirito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms.

Our key suppliers include 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, 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.~~Recent Developments

Impact of ~~COVID-19 on our Business~~the Macroeconomic Environment, Including Inflation and Supply Chain Constraints

The ~~spread~~macroeconomic environment, including the economic impacts of ~~COVID-19~~supply chain constraints, rising interest rates and inflation continues to ~~disrupt~~create significant uncertainty and may adversely affect our consolidated results of operations. We are actively monitoring changes to the global macroeconomic environment and assessing the potential impacts these challenges may have on our financial condition, results of operations and liquidity. We are also mindful of the potential impact these conditions could have on our customers and suppliers.

In spite of these challenges and uncertainties, we believe we have managed the supply ~~chains.~~chain requirements of our customers and suppliers effectively to date. While we are unable to predict the ultimate impact these factors will have ~~been able~~on our business, certain technologies have benefited from the widespread adoption to ~~broadly maintain our operations, we have experienced some disruption in our supply chain caused by product availability, labor scarcity~~a work-from-anywhere business model, as well as the accelerated shift to digitize and logistical disruptions, resulting in extended lead-times, unpredictability and higher costs. We intend to continue to work with our suppliers to implement measures to minimize disruption to the distribution of our products. However, uncertainty in the duration and scope of the pandemic could result in an unforeseen disruption to our supply chain and impact our operations.automate processes.

Our Strategy

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

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Results of Operations

Net Sales

We have two reportable segments, which are based on technology. The following tables summarize our net sales results by ~~technology~~business segment and by geographic location for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021:


		Quarter ended March 31,								% 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:	2022		2021		$ Change		% Change				Net Sales by Segment:	2022		2021		$ Change		% Change
		(in thousands)											(in thousands)
Specialty Technology Solutions	Specialty Technology Solutions	$	503,072	$	436,462	$	66,610	15.3	%	15.1	%	Specialty Technology Solutions	$	576,329	$	501,711	$	74,618	14.9	%	14.9	%
Modern Communications & Cloud	Modern Communications & Cloud	342,918		293,411		49,507		16.9	%	16.0	%	Modern Communications & Cloud	367,484		355,872		11,612		3.3	%	3.4	%
Total net sales	Total net sales	$	845,990	$	729,873	$	116,117	15.9	%	15.4	%	Total net sales	$	943,813	$	857,583	$	86,230	10.1	%	10.1	%

		Nine months ended March 31,								% Change, Constant Currency, Excluding Planned Divestitures and Acquisitions (a)
		2022		2021		$ Change		% Change
		(in thousands)
Specialty Technology Solutions		$	1,501,702	$	1,300,488	$	201,214	15.5	%	15.4	%
Modern Communications & Cloud		1,065,950		997,623		68,327		6.8	%	6.6	%
Total net sales		$	2,567,652	$	2,298,111	$	269,541	11.7	%	11.6	%

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

Specialty Technology Solutions

The Specialty Technology Solutions segment consists of sales to customers in North America and Brazil. For the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022, net sales for the Specialty Technology Solutions segment increased ~~$66.6~~$74.6 million, or ~~15.3%~~14.9%, ~~and $201.2 million, or 15.5%, respectively,~~ compared to the prior-year periods. Excluding the foreign exchange positive impact, adjusted net sales increased $65.7 million, or 15.1%, for the quarter ended March 31, 2022 and $200.8 million, or 15.4%, for the nine months ended March 31, 2022 compared to the prior-year periods.period. The increase in net sales ~~and adjusted net sales~~ for the quarter ~~and nine months periods~~ is primarily due to ~~broad-based demand~~strong growth across ~~our technologies.~~technologies in North America.

Modern Communications & Cloud

The Modern Communications & Cloud segment consists of sales to customers in North America, Brazil, Europe and the UK. For the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022, net sales for the Modern Communications & Cloud segment increased ~~$49.5~~$11.6 million, or ~~16.9%, and $68.3 million, or 6.8%, respectively, compared to the prior-year periods.~~3.3%. Excluding the foreign exchange ~~positive~~negative impact, adjusted net sales increased ~~$46.8~~$12.2 million, or ~~16.0%~~3.4%, for the quarter ended ~~March 31, 2022 and $65.7 million, or 6.6%, for the nine months ended March 31,~~September 30, 2022 compared to the prior-year ~~periods.~~period. The increase in net sales and adjusted net sales for the quarter ~~and nine months periods~~ is primarily due to increased demand ~~across~~for our communications solutions. For our Intelisys business, net sales for the ~~third~~first quarter ~~and nine-month period~~ of fiscal year ~~2022~~2023 increased ~~18.2% and 15.4%, respectively,~~7.0% year-over-year.

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		Quarter ended March 31,								% 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:	2022		2021		$ Change		% Change				Net Sales by Geography:	2022		2021		$ Change		% Change
		(in thousands)											(in thousands)
United States and Canada	United States and Canada	$	764,529	$	665,720	$	98,809	14.8	%	14.8	%	United States and Canada	$	859,538	$	769,771	$	89,767	11.7	%	11.7	%
International	International	81,461		64,153		17,308		27.0	%	21.4	%	International	84,275		87,812		(3,537)		(4.0)	%	(3.3)	%
Total net sales	Total net sales	$	845,990	$	729,873	$	116,117	15.9	%	15.4	%	Total net sales	$	943,813	$	857,583	$	86,230	10.1	%	10.1	%

		Nine months ended March 31,								% Change, Constant Currency, Excluding Planned Divestitures and Acquisitions (a)
		2022		2021		$ Change		% Change
		(in thousands)
United States and Canada		$	2,307,959	$	2,069,327	$	238,632	11.5	%	11.5	%
International		259,693		228,784		30,909		13.5	%	12.2	%
Total net sales		$	2,567,652	$	2,298,111	$	269,541	11.7	%	11.6	%

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

Gross Profit

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The following ~~tables summarize~~table summarizes our gross profit for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021:


		Quarter ended March 31,								% of Net Sales March 31,					Quarter ended September 30,								% of Net Sales September 30,
		2022		2021		$ Change		% Change		2022		2021			2022		2021		$ Change		% Change		2022		2021
		(in thousands)													(in thousands)
Specialty Technology Solutions	Specialty Technology Solutions	$	54,021	$	39,002	$	15,019	38.5	%	10.7	%	8.9	%	Specialty Technology Solutions	$	58,404	$	45,694	$	12,710	27.8	%	10.1	%	9.1	%
Modern Communications & Cloud	Modern Communications & Cloud	52,487		49,114		3,373		6.9	%	15.3	%	16.7	%	Modern Communications & Cloud	55,081		55,878		(797)		(1.4)	%	15.0	%	15.7	%
Gross profit	Gross profit	$	106,508	$	88,116	$	18,392	20.9	%	12.6	%	12.1	%	Gross profit	$	113,485	$	101,572	$	11,913	11.7	%	12.0	%	11.8	%

		Nine months ended March 31,								% of Net Sales March 31,
		2022		2021		$ Change		% Change		2022		2021
		(in thousands)
Specialty Technology Solutions		$	151,763	$	112,279	$	39,484	35.2	%	10.1	%	8.6	%
Modern Communications & Cloud		163,969		142,660		21,309		14.9	%	15.4	%	14.3	%
Gross profit		$	315,732	$	254,939	$	60,793	23.8	%	12.3	%	11.1	%

Our gross profit is primarily affected by sales volume and gross margin mix. Gross margin mix is impacted by multiple factors, which include sales mix (proportion of sales of higher margin products or services relative to total sales), vendor program recognition (consisting of volume rebates, inventory price changes and purchase discounts) and freight costs. Increases in vendor ~~programs~~program recognition decrease cost of goods sold, thereby increasing gross profit. Net sales derived from our Intelisys business contribute 100% to our gross profit dollars and margin as they have no associated cost of goods sold.

Specialty Technology Solutions

For the quarter ended ~~March 31,~~September 30, 2022, gross profit dollars for the Specialty Technology Solutions segment increased ~~$15.0~~$12.7 million, or ~~38.5%~~27.8%. Higher sales volume, after considering the associated cost of goods sold, contributed ~~$6.0~~$6.8 million to the growth of gross profit dollars. Gross margin mix positively impacted gross profit by ~~$9.0~~$5.9 million, largely from ~~higher vendor program recognition.~~a more favorable sales mix. For the quarter ended ~~March 31,~~September 30, 2022, the gross profit margin increased ~~180 basis points over the prior-year to 10.7%.~~

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For the nine months ended March 31, 2022, the Specialty Technology Solutions segment achieved gross profit growth of $39.5 million, or 35.2%. Increases in sales volume, after considering the associated cost of goods sold, contributed $17.4 million to the growth of gross profit dollars. Gross margin mix positively impacted gross profit by $22.1 million, largely from higher vendor program recognition. For the nine months ended March 31, 2022, the gross profit margin increased 150103 basis points over the prior-year to 10.1%.

Modern Communications & Cloud

For the quarter ended ~~March 31,~~September 30, 2022, the Modern Communications & Cloud segment ~~achieved~~ gross profit ~~growth of $3.4~~decreased by $0.8 million, or ~~6.9%~~1.4%. Higher sales volume, after considering the associated cost of goods sold, positively contributed ~~$8.3~~$1.8 million to ~~the growth of~~ gross profit dollars. ~~Lower gross~~Gross margin mix negatively impacted gross profit by ~~$4.9~~$2.6 million, largely driven by a less favorable sales ~~mix in Brazil.~~mix. For the quarter ended ~~March 31,~~September 30, 2022, the gross profit margin decreased ~~140~~71 basis points compared to the prior-year to ~~15.3%~~15.0%.

For the nine months ended March 31, 2022, the Modern Communications & Cloud segment achieved gross profit growth of $21.3 million, or 14.9%. Higher sales volume, after considering the associated cost of goods sold, contributed $9.8 million to the growth of gross profit dollars. Gross margin mix positively impacted gross profit by $11.5 million, driven by a more favorable sales mix, including our higher-margin recurring revenue business, principally from Intelisys connectivity and cloud services and SaaS subscriptions. For the nine months ended March 31, 2022, the gross profit margin increased 110 basis points over the prior-year to 15.4%.

Operating Expenses

The following ~~tables summarize~~table summarizes our operating expenses for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021:


		Quarter ended March 31,								% of Net Sales March 31,					Quarter ended September 30,								% of Net Sales September 30,
		2022		2021		$ Change		% Change		2022		2021			2022		2021		$ Change		% Change		2022		2021
		(in thousands)													(in thousands)
Selling, general and administrative expenses	Selling, general and administrative expenses	$	66,522	$	60,099	$	6,423	10.7	%	7.9	%	8.2	%	Selling, general and administrative expenses	$	71,593	$	63,854	$	7,739	12.1	%	7.6	%	7.4	%
Depreciation expense	Depreciation expense	2,612		3,141		(529)		(16.8)	%	0.3	%	0.4	%	Depreciation expense	2,763		2,880		(117)		(4.1)	%	0.3	%	0.3	%
Intangible amortization expense	Intangible amortization expense	4,457		4,880		(423)		(8.7)	%	0.5	%	0.7	%	Intangible amortization expense	4,241		4,510		(269)		(6.0)	%	0.4	%	0.5	%
Restructuring and other charges		—		560		(560)		(100.0)	%	0.0	%	0.1	%

Operating expenses	Operating expenses	$	73,591	$	68,680	$	4,911	7.2	%	8.7	%	9.4	%	Operating expenses	$	78,597	$	71,244	$	7,353	10.3	%	8.3	%	8.3	%

		Nine months ended March 31,								% of Net Sales March 31,
		2022		2021		$ Change		% Change		2022		2021
		(in thousands)

Selling, general and administrative expenses		$	199,538	$	182,681	$	16,857	9.2	%	7.8	%	7.9	%
Depreciation expense		8,039		9,634		(1,595)		(16.6)	%	0.3	%	0.4	%
Intangible amortization expense		13,413		14,595		(1,182)		(8.1)	%	0.5	%	0.6	%
Restructuring and other charges		—		9,312		(9,312)		(100.0)	%	0.0	%	0.4	%
Change in fair value of contingent consideration		—		516		(516)		(100.0)	%	0.0	%	0.0	%
Operating expenses		$	220,990	$	216,738	$	4,252	2.0	%	8.6	%	9.4	%

Selling, general and administrative expenses ("SG&A") increased ~~$6.4 million and $16.9~~$7.7 million for the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022 ~~respectively,~~ compared to the prior-year ~~periods.~~period. The increase is primarily attributable to higher employee costs.

Restructuring and other charges incurred of $0.6 million and $9.3 million for the quarter and nine months ended March 31, 2021, respectively, primarily relate to employee severance and benefit costs in connection with our expense reduction plan implemented at the end of July 2020.

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We recorded expense of $0.5 million for the change in fair value of contingent consideration for the nine months ended March 31, 2021, all of which relates to Intelisys. The final Intelisys earnout payment was paid in October 2020.

Operating Income

The following ~~tables summarize~~table summarizes our operating income for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021:

Quarter ended March 31, % of Net Sales March 31,
2022 2021 $ Change % Change 2022 2021
(in thousands)
Specialty Technology Solutions $ 20,623 $ 8,713 $ 11,910 136.7 % 4.1 % 2.0 %
Modern Communications & Cloud 12,294 11,555 739 6.4 % 3.6 % 3.9 %
Corporate — (832) 832 nm* nm* nm*
Operating income $ 32,917 $ 19,436 $ 13,481 69.4 % 3.9 % 2.7 %
Nine months ended March 31, % of Net Sales March 31,
2022 2021 $ Change % Change 2022 2021
(in thousands)
Specialty Technology Solutions $ 51,278 $ 17,558 $ 33,720 192.0 % 3.4 % 1.4 %
Modern Communications & Cloud 43,494 32,085 11,409 35.6 % 4.1 % 3.2 %
Corporate (30) (11,442) 11,412 nm* nm* nm*
Operating income $ 94,742 $ 38,201 $ 56,541 148.0 % 3.7 % 1.7 %

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	Quarter ended September 30,								% of Net Sales September 30,
	2022		2021		$ Change		% Change		2022		2021
	(in thousands)
Specialty Technology Solutions	$	21,852	$	14,104	$	7,748	54.9	%	3.8	%	2.8	%
Modern Communications & Cloud	13,036		16,307		(3,271)		(20.1)	%	3.5	%	4.6	%
Corporate	—		(83)		83		nm*		nm*		nm*
Operating income	$	34,888	$	30,328	$	4,560	15.0	%	3.7	%	3.5	%

*nm - percentages are not meaningful

Specialty Technology Solutions

For the Specialty Technology Solutions segment, operating income increased ~~$11.9 million and $33.7~~$7.7 million for the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022 ~~respectively,~~ compared to the prior-year period. Operating margin increased to ~~4.1% and 3.4%~~3.8% for the quarter ~~and nine months~~ ended ~~March 31, 2022, respectively.~~September 30, 2022. The increase in operating income and margin for ~~both~~ the quarter ~~and nine month period~~ is primarily due to higher gross profits.

Modern Communications & Cloud

For the Modern Communications & Cloud segment, operating income ~~increased $0.7~~decreased $3.3 million for the quarter ended ~~March 31,~~September 30, 2022, compared to the prior-year period. Operating margin decreased to 3.5% for the quarter ended March 31, 2022 decreased to 3.6%, primarily due to higher employee costs, partially offset by increased gross profits. For the nine months ended March 31, 2022, operating income increased $11.4 million and operating margin increased to 4.1%.September 30, 2022. The ~~increases~~decrease in operating income and margin for the ~~nine month period~~quarter is primarily due to higher ~~gross profits.~~employee costs.

Corporate

Corporate recognized no restructuring or divestiture expenses for the quarter ended ~~March 31,~~September 30, 2022, compared to ~~$0.8~~$0.1 million in the prior-year quarter. ~~For the nine months ended March 31, 2022 and 2021, corporate incurred restructuring and divestiture expenses of less than $0.1 million and $11.4 million, respectively.~~

Total Other (Income) Expense

The following ~~tables summarize~~table summarizes our total other (income) expense for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021:

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Quarter ended March 31, % of Net Sales March 31,
2022 2021 $ Change % Change 2022 2021
(in thousands)
Interest expense $ 1,483 $ 1,576 $ (93) (5.9) % 0.2 % 0.2 %
Interest income (1,000) (745) (255) (34.2) % (0.1) % (0.1) %
Net foreign exchange losses 258 (41) 299 (729.3) % 0.0 % (0.0) %
Other, net (394) (261) (133) (51.0) % (0.0) % (0.0) %
Total other expense, net $ 347 $ 529 $ (182) (34.4) % 0.0 % 0.1 %
Nine months ended March 31, % of Net Sales March 31,
2022 2021 $ Change % Change 2022 2021
(in thousands)
Interest expense $ 4,637 $ 5,285 $ (648) (12.3) % 0.2 % 0.2 %
Interest income (2,973) (1,756) (1,217) 69.3 % (0.1) % (0.1) %
Net foreign exchange losses 1,223 778 445 57.2 % 0.0 % 0.0 %
Other, net (555) (595) 40 (6.7) % (0.0) % (0.0) %
Total other expense, net $ 2,332 $ 3,712 $ (1,380) (37.2) % 0.1 % 0.2 %


	Quarter ended September 30,								% of Net Sales September 30,
	2022		2021		$ Change		% Change		2022		2021
	(in thousands)
Interest expense	$	3,448	$	1,660	$	1,788	107.7	%	0.4	%	0.2	%
Interest income	(1,589)		(1,026)		(563)		(54.9)	%	(0.2)	%	(0.1)	%
Net foreign exchange losses	922		485		437		90.1	%	0.1	%	0.1	%
Other, net	(176)		(222)		46		20.7	%	(0.0)	%	(0.0)	%
Total other expense, net	$	2,605	$	897	$	1,708	190.4	%	0.3	%	0.1	%

Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs. Interest expense increased for the quarter ended September 30, 2022 compared to the prior-year, primarily from higher borrowings and increases in interest rates on our multi-currency revolving credit facility.

Interest income for the quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022 was generated on interest-bearing customer receivables ~~and interest earned on cash and cash equivalents.~~principally in 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, ~~and~~the U.S. dollar versus the euro, the British pound versus the euro, the Canadian dollar versus the U.S. dollar and other currencies versus the U.S. dollar. We partially offset foreign currency

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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 quarter ~~and nine months~~ ended ~~March 31,~~September 30, 2022, income tax expense was ~~$9.0~~$8.2 million ~~and $23.7 million, respectively,~~ reflecting an effective tax rate of ~~27.8% and 25.6%, respectively.~~25.5%. In comparison, for the quarter ~~and~~ ~~nine months~~ ended ~~March 31,~~September 30, 2021, income tax expense ~~totaled $5.1~~was $7.4 million, ~~and $9.8 million, respectively,~~ reflecting an effective tax rate of ~~27.1% and 28.3%, respectively.~~25.0%. The increase in the effective tax rate for the quarter is primarily due to an increase ~~to forecasted~~in non-deductible expenses ~~for officer compensation. The~~and a decrease in creditable foreign taxes compared to the ~~effective~~prior-year quarter. A discrete tax ~~rate for~~benefit of $0.5 million was recognized in the ~~nine months ended March 31,~~September 30, 2022 is quarter, primarily ~~due~~attributable to ~~an increase in forecasted tax-exempt income and~~ the ~~benefit from discrete items.~~notional interest deduction on the net equity of the Company's Brazilian subsidiary. We expect the effective tax rate, excluding discrete items, for fiscal year ~~2022~~2023 to be approximately ~~25.5%~~26.4% to ~~26.5%~~27.4%. See Note 1413 - 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; non-GAAP pre-tax income; non-GAAP net income; non-GAAP EPS; adjusted earnings before interest expense, income taxes, depreciation, and amortization ("adjusted EBITDA"); adjusted return on invested capital ("adjusted ROIC"); and ~~"constant~~constant currency." Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods. We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.

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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.

Adjusted Return on Invested Capital

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

Adjusted EBITDA starts with net income and adds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, share-based compensation expense, changes in fair value of contingent ~~considerations,~~consideration, and other non-GAAP adjustments. ~~Effective with the first quarter of fiscal year 2022, non-cash share-based compensation expense is also added back in calculating adjusted 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. ~~The presentation for adjusted EBITDA for all periods presented has been recast to reflect this change to enhance comparability between periods.~~

We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. The following table summarizes annualized adjusted ROIC for the quarters ended ~~March 31,~~September 30, 2022 and 2021, respectively:

Quarter ended March 31,
2022 2021
Adjusted return on invested capital ratio, annualized (a)
18.0 % 14.7 %


	Quarter ended September 30,
	2022		2021
Adjusted return on invested capital ratio, annualized (a)	15.6	%	17.5	%

(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 9092 days in the current and prior-year quarter.

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

Quarter ended March 31,
2022 2021
(in thousands)
Reconciliation of net income to adjusted EBITDA:
Net income from continuing operations (GAAP) $ 23,526 $ 13,786
Plus: Interest expense 1,483 1,576
Plus: Income taxes 9,044 5,121
Plus: Depreciation and amortization 7,305 8,358
EBITDA (non-GAAP) 41,358 28,841
Plus: Share-based compensation 2,757 2,537
Plus: Acquisition and divestiture costs (a)
— 272
Plus: Restructuring costs — 349
Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) $ 44,115 $ 31,999

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Quarter ended March 31,
2022 2021
(in thousands)
Invested capital calculations:
Equity – beginning of the quarter $ 768,525 $ 682,139
Equity – end of the quarter 806,654 690,575
Plus: Share-based compensation, net 2,063 1,912
Plus: Acquisition and divestiture costs (a)
— 272
Plus: Restructuring, net — 264
Plus: Discontinued operations net loss — 688
Average equity 788,621 687,925
Average funded debt (b)
205,073 191,996
Invested capital (denominator for adjusted ROIC) (non-GAAP) $ 993,694 $ 879,921


	Quarter ended September 30,
	2022		2021
	(in thousands)
Reconciliation of net income to adjusted EBITDA:
Net income (GAAP)	$	24,042	$	22,073
Plus: Interest expense	3,448		1,660
Plus: Income taxes	8,241		7,358
Plus: Depreciation and amortization	7,228		7,650
EBITDA (non-GAAP)	42,959		38,741


Plus: Share-based compensation	2,316		2,570
Plus: Acquisition and divestiture costs (a)	—		83


Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP)	$	45,275	$	41,394


	Quarter ended September 30,
	2022		2021
	(in thousands)
Invested capital calculations:
Equity – beginning of the quarter	$	806,528	$	731,191
Equity – end of the quarter	827,004		746,094

Plus: Share-based compensation, net	1,718		1,922
Plus: Acquisition and divestiture costs (a)	—		83




Average equity	817,625		739,645
Average funded debt (b)	336,428		197,406
Invested capital (denominator for adjusted ROIC) (non-GAAP)	$	1,154,053	$	937,051

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

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

Net Sales in Constant Currency, Excluding Acquisitions and Divestitures

We make references to "constant currency," a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the ~~prior-year~~prior year period. ~~If applicable, we~~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.~~acquisitions. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding ~~Divestitures:~~acquisitions:

Net Sales by Segment:
Quarter ended March 31,
2022 2021 $ Change % Change
Specialty Technology Solutions: (in thousands)
Net sales, reported $ 503,072 $ 436,462 $ 66,610 15.3 %
Foreign exchange impact (a)
(915) —
Non-GAAP net sales, constant currency $ 502,157 $ 436,462 $ 65,695 15.1 %
Modern Communications & Cloud:
Net sales, reported $ 342,918 $ 293,411 $ 49,507 16.9 %
Foreign exchange impact (a)
(2,660) —
Non-GAAP net sales, constant currency $ 340,258 $ 293,411 $ 46,847 16.0 %
Consolidated:
Net sales, reported $ 845,990 $ 729,873 $ 116,117 15.9 %
Foreign exchange impact (a)
(3,575) —
Non-GAAP net sales, constant currency $ 842,415 $ 729,873 $ 112,542 15.4 %

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Net Sales by Segment:
	Quarter ended September 30,
	2022		2021		$ Change		% Change
Specialty Technology Solutions:	(in thousands)


Net sales, reported	$	576,329	$	501,711	$	74,618	14.9	%
Foreign exchange impact (a)	60		—

Non-GAAP net sales, constant currency	$	576,389	$	501,711	$	74,678	14.9	%

Modern Communications & Cloud:


Net sales, reported	$	367,484	$	355,872	$	11,612	3.3	%
Foreign exchange impact (a)	613		—

Non-GAAP net sales, constant currency	$	368,097	$	355,872	$	12,225	3.4	%

Consolidated:


Net sales, reported	$	943,813	$	857,583	$	86,230	10.1	%
Foreign exchange impact (a)	673		—

Non-GAAP net sales, constant currency	$	944,486	$	857,583	$	86,903	10.1	%

(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 ~~March 31,~~September 30, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended ~~March 31,~~September 30, 2021.


Net Sales by Geography:
	Quarter ended September 30,
	2022		2021		$ Change		% Change
United States and Canada:	(in thousands)
Net sales, as reported	$	859,538	$	769,771	$	89,767	11.7	%



International:
Net sales, reported	$	84,275	$	87,812	$	(3,537)	(4.0)	%
Foreign exchange impact (a)	673		—

Non-GAAP net sales, constant currency	$	84,948	$	87,812	$	(2,864)	(3.3)	%

Consolidated:
Net sales, reported	$	943,813	$	857,583	$	86,230	10.1	%
Foreign exchange impact (a)	673		—

Non-GAAP net sales, constant currency	$	944,486	$	857,583	$	86,903	10.1	%

(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, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2021.

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Net Sales by Segment:
Nine months ended March 31,
2022 2021 $ Change % Change
Specialty Technology Solutions (in thousands)
Net sales, reported $ 1,501,702 $ 1,300,488 $ 201,214 15.5 %
Foreign exchange impact (a)
(372) —
Non-GAAP net sales, constant currency $ 1,501,330 $ 1,300,488 $ 200,842 15.4 %
Modern Communications & Cloud
Net sales, reported $ 1,065,950 $ 997,623 $ 68,327 6.8 %
Foreign exchange impact (a)
(2,668) —
Non-GAAP net sales, constant currency $ 1,063,282 $ 997,623 $ 65,659 6.6 %
Consolidated:
Net sales, reported $ 2,567,652 $ 2,298,111 $ 269,541 11.7 %
Foreign exchange impact (a)
(3,040) —
Non-GAAP net sales, constant currency $ 2,564,612 $ 2,298,111 $ 266,501 11.6 %
(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 nine months ended March 31, 2022 into U.S. dollars using the average foreign exchange rates for the nine months ended March 31, 2021.



Operating Income by Segment:
	Quarter ended September 30,								% of Net Sales September 30,
	2022		2021		$ Change		% Change		2022		2021
Specialty Technology Solutions:	(in thousands)
GAAP operating income	$	21,852	$	14,104	$	7,748	54.9	%	3.8	%	2.8	%
Adjustments:
Amortization of intangible assets	1,341		1,531		(190)




Non-GAAP operating income	$	23,193	$	15,635	$	7,558	48.3	%	4.0	%	3.1	%

Modern Communications & Cloud:
GAAP operating income	$	13,036	$	16,307	$	(3,271)	(20.1)	%	3.5	%	4.6	%
Adjustments:
Amortization of intangible assets	2,900		2,979		(79)





Non-GAAP operating income	$	15,936	$	19,286	$	(3,350)	(17.4)	%	4.3	%	5.4	%

Corporate:
GAAP operating loss	$	—	$	(83)	$	83	nm*		nm*		nm*
Adjustments:
Acquisition and divestiture costs	—		83		(83)


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

Consolidated:
GAAP operating income	$	34,888	$	30,328	$	4,560	15.0	%	3.7	%	3.5	%
Adjustments:
Amortization of intangible assets	4,241		4,510		(269)


Acquisition and divestiture costs	—		83		(83)



Non-GAAP operating income	$	39,129	$	34,921	$	4,208	12.1	%	4.1	%	4.1	%

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Net Sales by Geography:
Quarter ended March 31,
2022 2021 $ Change % Change
United States and Canada: (in thousands)
Net sales, as reported $ 764,529 $ 665,720 $ 98,809 14.8 %
International:
Net sales, reported $ 81,461 $ 64,153 $ 17,308 27.0 %
Foreign exchange impact (a)
(3,575) —
Non-GAAP net sales, constant currency $ 77,886 $ 64,153 $ 13,733 21.4 %
Consolidated:
Net sales, reported $ 845,990 $ 729,873 $ 116,117 15.9 %
Foreign exchange impact (a)
(3,575) —
Non-GAAP net sales, constant currency $ 842,415 $ 729,873 $ 112,542 15.4 %
(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 March 31, 2022 into U.S. dollars using the average foreign exchange rates for the quarter ended March 31, 2021.
Nine months ended March 31,
2022 2021 $ Change % Change
United States and Canada: (in thousands)
Net sales, as reported $ 2,307,959 $ 2,069,327 $ 238,632 11.5 %
International:
Net sales, reported $ 259,693 $ 228,784 $ 30,909 13.5 %
Foreign exchange impact (a)
(3,040) —
Non-GAAP net sales, constant currency $ 256,653 $ 228,784 $ 27,869 12.2 %
Consolidated:
Net sales, reported $ 2,567,652 $ 2,298,111 $ 269,541 11.7 %
Foreign exchange impact (a)
(3,040) —
Non-GAAP net sales, constant currency $ 2,564,612 $ 2,298,111 $ 266,501 11.6 %
(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 nine months ended March 31, 2022 into U.S. dollars using the average foreign exchange rates for the nine months ended March 31, 2021.

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Operating Income by Segment:
Quarter ended March 31, % of Net Sales March 31,
2022 2021 $ Change % Change 2022 2021
Specialty Technology Solutions: (in thousands)
GAAP operating income $ 20,623 $ 8,713 $ 11,910 136.7 % 4.1 % 2.0 %
Adjustments:
Amortization of intangible assets 1,491 1,610 (119)
Non-GAAP operating income $ 22,114 $ 10,323 $ 11,791 114.2 % 4.4 % 2.4 %
Modern Communications & Cloud:
GAAP operating income $ 12,294 $ 11,555 $ 739 6.4 % 3.6 % 3.9 %
Adjustments:
Amortization of intangible assets 2,966 3,270 (304)
Non-GAAP operating income $ 15,260 $ 14,825 $ 435 2.9 % 4.5 % 5.1 %
Corporate:
GAAP operating income (loss) $ — $ (832) $ 832 nm* nm* nm*
Adjustments:
Acquisition and divestiture costs — 272 (272)
Restructuring costs — 560 (560)
Non-GAAP operating income $ — $ — $ — nm* nm* nm*
Consolidated:
GAAP operating income $ 32,917 $ 19,436 $ 13,481 69.4 % 3.9 % 2.7 %
Adjustments:
Amortization of intangible assets 4,457 4,880 (423)
Acquisition and divestiture costs — 272 (272)
Restructuring costs — 560 (560)
Non-GAAP operating income $ 37,374 $ 25,148 $ 12,226 48.6 % 4.4 % 3.4 %

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Operating Income by Segment:
Nine months ended March 31, % of Net Sales March 31,
2022 2021 $ Change % Change 2022 2021
Specialty Technology Solutions: (in thousands)
GAAP operating income $ 51,278 $ 17,558 $ 33,720 192.0 % 3.4 % 1.4 %
Adjustments:
Amortization of intangible assets 4,514 4,831 (317)
Non-GAAP operating income $ 55,792 $ 22,389 $ 33,403 149.2 % 3.7 % 1.7 %
Modern Communications & Cloud:
GAAP operating income $ 43,494 $ 32,085 $ 11,409 35.6 % 4.1 % 3.2 %
Adjustments:
Amortization of intangible assets 8,899 9,764 (865)
Change in fair value of contingent consideration — 516 (516)
Non-GAAP operating income $ 52,393 $ 42,365 $ 10,028 23.7 % 4.9 % 4.2 %
Corporate:
GAAP operating loss $ (30) $ (11,442) $ 11,412 nm* nm* nm*
Adjustments:
Acquisition and divestiture costs 30 2,130 (2,100)
Restructuring costs — 9,312 (9,312)
Non-GAAP operating income $ — $ — $ — nm* nm* nm*
Consolidated:
GAAP operating income $ 94,742 $ 38,201 $ 56,541 148.0 % 3.7 % 1.7 %
Adjustments:
Amortization of intangible assets 13,413 14,595 (1,182)
Change in fair value of contingent consideration — 516 (516)
Acquisition and divestiture costs 30 2,130 (2,100)
Restructuring costs — 9,312 (9,312)
Non-GAAP operating income 108,185 64,754 $ 43,431 67.1 % 4.2 % 2.8 %

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Additional Non-GAAP Metrics

To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP SG&A expenses, non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition and divestiture costs, restructuring costs, impact of Divestitures and other non-GAAP adjustments. 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 March 31, 2022								Quarter ended September 30, 2022
		GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Restructuring costs			Non-GAAP measure			GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Non-GAAP measure
		(in thousands, except per share data)								(in thousands, except per share data)
SG&A expenses	SG&A expenses	$	66,522	$	—	$	—	$	—		$	66,522	SG&A expenses	$	71,593	$	—	$	—	$	71,593
Operating income	Operating income	32,917		4,457		—		—			37,374		Operating income	34,888		4,241		—		39,129
Pre-tax income	Pre-tax income	32,570		4,457		—		—			37,027		Pre-tax income	32,283		4,241		—		36,524
Net income	Net income	23,526		3,353		—		—			26,879		Net income	24,042		3,161		—		27,203
Diluted EPS	Diluted EPS	$	0.91	$	0.13	$	—	$	—		$	1.04	Diluted EPS	$	0.94	$	0.12	$	—	$	1.07

		Quarter ended March 31, 2021								Quarter ended September 30, 2021
		GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Restructuring costs			Non-GAAP measure			GAAP Measure		Intangible amortization expense		Acquisition and divestiture costs		Non-GAAP measure
		(in thousands, except per share data)								(in thousands, except per share data)
SG&A expenses	SG&A expenses	$	60,099	$	—	$	(272)	$	—		$	59,827	SG&A expenses	$	63,854	$	—	$	(83)	$	63,771
Operating income	Operating income	19,436		4,880		272		560			25,148		Operating income	30,328		4,510		83		34,921
Pre-tax income	Pre-tax income	18,907		4,880		272		560			24,619		Pre-tax income	29,431		4,510		83		34,024
Net income	Net income	13,786		3,697		272		423			18,178		Net income	22,073		3,394		83		25,550
Diluted EPS	Diluted EPS	$	0.54	$	0.14	$	0.01	$	0.02		$	0.71	Diluted EPS	$	0.86	$	0.13	$	—	$	0.99

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Nine months ended March 31, 2022
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)
SG&A expenses $ 199,538 $ — $ — $ (30) $ — $ 199,508
Operating income 94,742 13,413 — 30 — 108,185
Pre-tax income 92,410 13,413 — 30 — 105,853
Net income 68,751 10,094 — 30 — 78,875
Diluted EPS $ 2.66 $ 0.39 $ — $ — $ — $ 3.06
Nine months ended March 31, 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)
SG&A expenses $ 182,681 $ — $ — $ (2,130) $ — $ 180,551
Operating income 38,201 14,595 516 2,130 9,312 64,754
Pre-tax income 34,489 14,595 516 2,130 9,312 61,042
Net income 24,732 11,055 390 2,130 7,040 45,347
Diluted EPS $ 0.97 $ 0.43 $ 0.02 $ 0.08 $ 0.28 $ 1.78

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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 ~~$43.5~~$40.5 million at ~~March 31,~~September 30, 2022, compared to ~~$62.7~~$38.0 million at June 30, ~~2021,~~2022, including ~~$34.7~~$33.1 million and ~~$52.1~~$35.0 million held outside of the United States at ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively. Checks released but not yet cleared in the amounts of ~~$20.0~~$11.5 million and ~~$14.3~~$18.0 million are included in accounts payable at ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively.

We conduct business in many locations throughout the world where we generate and use cash. We provide for United States income taxes from the earnings of our Canadian and Brazilian subsidiaries. See Note 1413 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion.

Our net investment in working capital increased ~~$120.2~~$84.1 million to ~~$606.9~~$793.6 million at ~~March 31,~~September 30, 2022 from ~~$486.7~~$709.5 million at June 30, ~~2021,~~2022, primarily from increases in accounts receivable and inventory. Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from customers, increases and decreases to inventory levels and payments to vendors. For the ~~nine months~~quarter ended ~~March 31,~~September 30, 2022, our working capital investment increased to support our ~~11.7%~~10.1% year-over-year net sales growth.


		Nine months ended					Three months ended
		March 31,					September 30,
		2022		2021			2022		2021
		(in thousands)					(in thousands)
Cash (used in) provided by:	Cash (used in) provided by:					Cash (used in) provided by:
Operating activities	Operating activities	$	(45,671)	$	55,422	Operating activities	$	(48,459)	$	(56,959)
Investing activities	Investing activities	(201)		32,073		Investing activities	(1,758)		(1,090)
Financing activities	Financing activities	27,730		(62,839)		Financing activities	54,044		54,860

Net cash used in operating activities was ~~$45.7~~$48.5 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2022, compared to ~~$55.4~~$57.0 million ~~provided by~~used in operating activities in the prior-year period. ~~The decrease~~Cash used in operating activities for the three months ended September 30, 2022 is attributable to increases in inventory and accounts receivable, which increased 10% and 2%, respectively, compared to the beginning of ~~$101.1 million was~~the three month period. Cash used in operating activities for the three months ended September 30, 2021 is primarily ~~due~~attributable to increases in accounts receivable and inventory, which increased ~~inventory levels, which were 29% higher than in 2021,~~4% and 5%, respectively, compared to ~~support net sales growth.~~the beginning of the three month period. Also contributing to the decrease in operating cash flows for the three months ended September 30, 2021 were ~~fluctuations~~decreases in ~~accrued expenses and other liabilities balances,~~accounts payable, which ~~were 8% lower than in 2021, and 7% higher than in 2020, attributable~~decreased by 5% compared to the ~~timing of payments at the end~~beginning of the ~~reporting~~three month period. ~~The decrease in operating~~

Operating cash flows ~~was partially offset by an increase in income from continuing operations, adjusted for non-cash items. Cash provided by operating activities is~~are subject to variability period over period as a result of the timing of payments related to accounts receivable, accounts payable, and other working capital items.

The number of days sales outstanding ("DSO") was 6971 days at ~~March 31,~~September 30, 2022, compared to 6068 days at June 30, ~~2021~~2022 and 6362 days at ~~March 31,~~September 30, 2021. The increase in DSO for the quarter ended ~~March 31,~~September 30, 2022 is primarily due to increased net receivables, ~~from~~driven by project specific customer terms and timing of sales near the end of the reporting period. Inventory turned 5.1 times during the quarter ended ~~March 31,~~September 30, 2022, compared to ~~5.7~~5.6 times for previous quarter ended ~~December 31, 2021~~June 30, 2022 and ~~5.8~~6.3 times in the prior-year quarter ended ~~March 31,~~September 30, 2021. The decrease in inventory turns for the quarter ended ~~March 31,~~September 30, 2022 is primarily due to increased average inventory.

Cash used in investing activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 was ~~$0.2~~$1.8 million, compared to ~~$32.1~~$1.1 million ~~provided by~~used in investing activities in the prior-year period. Cash used in investing activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 ~~represents~~and 2021 represent capital expenditures, ~~partially offset by proceeds from the sale of our discontinued operations. Cash provided by investing activities~~primarily for ~~the nine months ended~~ ~~March 31, 2021 primarily represents proceeds from the sale of our discontinued operations~~.IT investments.

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Management expects capital expenditures for fiscal year ~~2022~~2023 to range from $4$6.5 million to $5$8.5 million, primarily for IT investments and facility improvements.

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For the ~~nine~~three months ended ~~March 31,~~September 30, 2022, cash provided by financing activities totaled ~~$27.7~~$54.0 million, compared to ~~$62.8~~$54.9 million ~~used in~~provided by financing activities for the prior-year period. Cash provided by financing activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021 is primarily attributable to net borrowings on the revolving credit facility. ~~For the nine months ended~~ ~~March 31, 2021, cash used in financing activities was primarily for net repayments on the revolving credit facility and contingent consideration payments to the former shareholders of Intelisys.~~

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.~~banks (as amended, the “Amended Credit Agreement”). On ~~April 30, 2019,~~September 28, 2022, we amended ~~this credit facility to expand the borrowing capacity~~ and ~~extend its maturity to April 30, 2024. The~~restated our Amended Credit Agreement, ~~established~~which includes (i) a five-year, $350 million ~~multi-currency~~multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. ~~Pursuant~~The Amended Credit Agreement extends the credit facility maturity date to September 28, 2027. In addition, pursuant to an “accordion feature,” we may increase our borrowings up to an additional $250 ~~million.~~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.~~credit. 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.~~our domestic subsidiaries. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. We incurred debt issuance costs of $1.5 million in connection with the amendment and restatement of the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.

~~At our option,~~Loans denominated in U.S. ~~dollar loans under the Amended Credit Agreement,~~dollars, other than swingline loans, shall bear interest at a rate per annum equal to, at our option, (i) the adjusted Term SOFR or daily simple SOFR rate plus a fixed credit spread ~~over the London Interbank Offered Rate ("LIBOR") or alternate base rate~~adjustment of 0.10%, plus an additional margin ranging from 1.00% to 1.75%, depending upon our ~~net leverage~~ ratio ~~calculated as~~of (A) total consolidated debt less up to ~~$15~~$30 million of unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”); or (ii) the alternate base rate plus an additional margin ranging from 0% to 0.75%, depending upon our leverage ratio, plus, if applicable, certain mandatory costs. Loans denominated in foreign currencies shall bear interest at a rate per annum equal to the applicable benchmark rate set forth in the New Credit Agreement plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio, plus, if applicable, certain mandatory costs. All swingline loans denominated in U.S. dollars shall bear interest based upon the adjusted ~~EBITDA.~~daily simple SOFR, floating daily, plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio, or such other rate as agreed upon with the applicable swingline lender.

~~This~~During the quarter ended September 30, 2022, our borrowings under the credit facility were U.S. dollar loans. The spread ~~ranges from 1.00% to 1.75%~~in effect as of September 30, 2022 was 1.50% for ~~LIBOR-based~~LIBOR and SOFR-based loans and ~~0.00% to 0.75%~~0.50% for alternate base rate loans. The ~~Amended Credit Agreement provides for the substitution of a new interest~~commitment fee rate benchmark upon the transition from LIBOR for U.S. dollar loans, subject to agreement between the Company and the administrative agent. On December 23, 2021, we amended our credit facility to replace LIBOR as the benchmark rate for non-U.S. dollar loans, among other things.

The Amended Credit Agreement contains customary yield protection provisions. Additionally, 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.~~

effect at September 30, 2022 was 0.25%. 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 ~~March 31,~~September 30, 2022. ~~There was $44.3 million in outstanding borrowings on our revolving credit facility at March 31, 2022. There was no outstanding borrowings on our revolving credit facility at June 30, 2021.~~

The average daily outstanding balance ~~for~~on the revolving credit facility, excluding the term loan facility, during the three month periods ended September 30, 2022 and 2021 was ~~$60.0~~$200.5 million and $54.4 million, respectively. There was $177.3 million and $214.2 million available for ~~the nine month period ended March 31, 2022. Including~~additional borrowings ~~for both continuing~~as of September 30, 2022 and ~~discontinued operations, the average daily balance for the revolving credit facility, excluding the term loan facility, was $62.1 million for the nine month period ended March 31, 2021.~~June 30, 2022, respectively. There were no letters of credit issued under the multi-currency revolving credit facility at ~~March 31,~~September 30, 2022 ~~and~~or June 30, ~~2021, respectively. There was $305.7 million and $350.0 million available for additional borrowings at March 31, 2022 and June 30, 2021, respectively.~~2022. 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 March 31, 2022, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $305.7 million available for borrowing.~~ While we were in compliance with the financial covenants contained in the Credit Facility as of ~~March 31,~~September 30, 2022, 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.

Summary

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We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under our credit agreements, will provide sufficient resources to meet ~~the~~our present and future working capital and cash requirements for at least the next twelve months. We also believe that our longer-term working capital, planned expenditures and other general funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities.

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, ~~2021~~2022 for a complete discussion.

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Item 3.			Quantitative and Qualitative Disclosures About Market Risk

For a description of 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, ~~2021.~~2022. No material changes have occurred to our market risks since June 30, ~~2021.~~2022.

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Item 4.			Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the effectiveness of our disclosure controls and procedures at ~~March 31,~~September 30, 2022. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures are effective at ~~March 31,~~September 30, 2022. During the quarter ended ~~March 31,~~September 30, 2022, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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 12 - Commitments and Contingencies in the notes to the condensed consolidated financial statements, which is incorporated herein by reference.


Item 1A.			Risk Factors

In addition to the risk factors discussed in our other reports and statements that we file with the SEC, you should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, ~~2021,~~2022, which could materially affect our business, financial condition and/or future operating results.


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

Purchases of Equity Securities by the Issuer

In August 2021, our Board of Directors authorized a $100 million share repurchase program. The authorization does not have any time limit. The following table presents the share-repurchase activity for the quarter ended ~~March 31,~~September 30, 2022:

Period
Total number of shares purchased (1)
Average price paid per share Total number of shares purchased as part of the publicly announced plan or program Approximate dollar value of shares that may yet be purchased under the plan or program
January 1 - 31, 2022 43,009 $ 30.48 43,009 $ 98,506,559
February 1 - 28, 2022 71,500 $ 30.65 71,500 $ 96,315,084
March 1 - 31, 2022 163,370 $ 33.52 160,343 $ 90,940,387
Total 277,879 $ 32.31 274,852 $ 90,940,387


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



July 1 - 31, 2022	—	$	—	—	$	81,814,854
August 1 - 31, 2022	20,822	$	28.66	—	$	81,814,854
September 1 - 30, 2022	—	$	—	—	$	81,814,854
Total	20,822			—

(1)Includes ~~3,027~~20,822 shares withheld from employees' stock-based awards to satisfy required tax withholding obligations for the month of ~~March~~August 2022. There were no shares withheld during the months of ~~January~~July and ~~February~~September 2022.

Dividends

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

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Item 6.			Exhibits


Exhibit Number			Description

~~3.1~~			~~Second Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant's Form 8-K filed on January 27, 2022)~~

~~3.2~~			~~Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the registrant's Form 8-K filed on January 27, 2022)~~

10.1			~~ScanSource, Inc. 2021 Omnibus Incentive Compensation plan (incorporated by reference to Exhibit 10.1 to the registrant's Form 8-K filed on January 27, 2022)~~Third Amended and Restated Credit Agreement

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 ~~March 31,~~September 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2022 and June 30, ~~2021;~~2022; (ii) the Condensed Consolidated Income Statements for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021; (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income for the quarters ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021; (iv) the Condensed Consolidated Statements of Shareholder's Equity at ~~March 31,~~September 30, 2022 and 2021; (v) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021; 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)

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SIGNATURES

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


		ScanSource, Inc.

Date:	~~May 10,~~November 8, 2022	/s/ MICHAEL L. BAUR
		Michael L. Baur
		Chairman and Chief Executive Officer (Principal Executive Officer)


Date:	~~May 10,~~November 8, 2022	/s/ STEVE JONES
		Steve Jones
		Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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	Quarter ended March 31, 2022		Quarter ended March 31, 2021		Nine months ended March 31, 2022		Nine months ended March 31, 2021
	(in thousands)
Net sales	$	—	$	—	$	—	$	213,373
Cost of goods sold	—		—		—		198,512
Gross profit	—		—		—		14,861
Selling, general and administrative expenses	—		—		—		17,291



Operating loss	—		—		—		(2,430)
Interest expense, net	—		—		—		394
Loss (gain) on disposal group	—		688		(100)		34,496
Other expense, net	—		—		—		310
(Loss) income from discontinued operations before taxes	—		(688)		100		(37,630)
Income tax expense	—		—		—		17
Net (loss) income from discontinued operations	$	—	$	(688)	$	100	$	(37,647)