UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-K
_______________________________________________
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 000-26926
_______________________________________________
ScanSource, Inc.
(Exact name of registrant as specified in its charter)
South Carolina
57-0965380
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
6 Logue Court
29615
Greenville, South Carolina
(Zip Code)
(Address of principal executive offices)
(864) 288-2432
(Registrant's telephone number, including area code)
_______________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock, no par value
SCSC
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None.
_______________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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
☒
Accelerated filer
☐
Non-accelerated filer
(Do not check if a smaller reporting company)
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers
during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant at December 31, 2023 was $978,094,206, as computed by reference to the closing price of
such stock on such date.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
Outstanding at August 20, 2024
Common Stock, no par value
24,030,822 shares
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this report certain portions of its definitive proxy statement for its 2024 Annual Meeting of Shareholders, which is expected to be filed
within 120 days after the end of the registrant’s fiscal year ended June 30, 2024.
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Index to Financial Statements
FORWARD-LOOKING STATEMENTS
Forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) are included in the “Business,” “Risk
Factors,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative
Disclosures About Market Risk” sections and elsewhere herein. Words such as “expects,” “anticipates,” “believes,” “intends,” “plans,” “hopes,” “forecasts,”
“seeks,” “estimates,” “goals,” “projects,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and variations of such words and similar expressions generally
identify such forward-looking statements. Any forward-looking statement made by us in this Form 10-K 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 Annual Report on Form 10-K or otherwise. These forward-looking statements are subject to a
number of risks and uncertainties, many of which are beyond our control. You should not place undue reliance on forward-looking statements as actual results
could differ materially from those anticipated in such statements as a result of a number of factors including, but not limited to the following, which are neither
presented in order of importance nor weighted: macroeconomic conditions, including potential prolonged economic weakness, inflation and supply chain
challenges, the failure to manage and implement the Company's growth strategy, the Company’s ability to realize synergies or other benefits from acquisitions,
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, economic weakness and inflation, risk to the Company's business from a cyberattack, a failure of the Company's IT systems, failure to
hire and retain quality employees, loss of the Company's major customers, relationships with the Company's key suppliers and customers or a termination or a
modification of the terms under which it operates with these key suppliers and customers, changes in the Company's operating strategy and the other factors set
forth in “Risk Factors” contained herein.
Table of Contents
Index to Financial Statements
TABLE OF CONTENTS
Page
PART I
1
Item 1.
Business
1
Item 1A.
Risk Factors
8
Item 1B.
Unresolved Staff Comments
17
Item 1C.
Cybersecurity
17
Item 2.
Properties
18
Item 3.
Legal Proceedings
19
Item 4.
Mine Safety Disclosures
19
PART II
20
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
20
Item 6.
[Reserved]
21
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
38
Item 8.
Financial Statements and Supplementary Data
39
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
80
Item 9A.
Controls and Procedures
80
Item 9B.
Other Information
80
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
80
PART III
81
Item 10.
Directors, Executive Officers and Corporate Governance
81
Item 11.
Executive Compensation
81
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
81
Item 13.
Certain Relationships and Related Transactions, and Director Independence
81
Item 14.
Principal Accountant Fees and Services
81
PART IV
82
Item 15.
Exhibits and Financial Statement Schedules
82
Item 16.
Form 10-K Summary
83
Signatures
84
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Index to Financial Statements
PART I
ITEM 1. Business.
ScanSource, Inc. (together with its subsidiaries referred to as the “Company” or “ScanSource” or “we”) is a leading hybrid distributor connecting devices to the
cloud and accelerating growth for customers across hardware, Software as a Service (“SaaS”), connectivity and cloud. ScanSource enables customers to deliver
solutions for their end users to address changing buying and consumption patterns. ScanSource sells through multiple, specialized routes-to-market with
hardware, SaaS, connectivity and cloud service offerings from the world's leading technology suppliers. We provide technology solutions and services from
more than 500 leading suppliers of mobility, barcode, point-of-sale (“POS”), payments, physical security, networking, unified communications, collaboration
unified communications as a service (“UCaaS”), Contact Center as a Service (“CCaaS”), connectivity and cloud services.
ScanSource was incorporated in South Carolina in 1992 and serves approximately 25,000 customers. Net sales for fiscal year ended June 30, 2024 totaled
$3.26 billion. Our common stock trades on the NASDAQ Global Select Market under the symbol “SCSC.”
Our customers include businesses of all sizes that sell to end-customers across many industries. Our customer channels include value-added resellers (“VARs”),
customers or agents, independent sales organizations (“ISOs”) and independent software vendors (“ISVs”). These customer channels provide us with multiple
routes-to-market. We align our teams, tools and processes around all of our customers to help them grow through reducing their costs, creating efficiencies and
generating end-customer demand for business solutions. We enable our customers to create, deliver and grow hybrid technology offerings for end-customers
across almost every vertical market in the United States, Canada, and Brazil.
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 people, 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
customers that solve end users’ challenges. ScanSource enables customers to deliver solutions for their end users to address changing buying and consumption
patterns. Our solutions may include a combination of offerings from multiple suppliers or give our customers access to additional services. As a trusted adviser
to our customers, we provide customized solutions through our strong understanding of end user needs.
Value Proposition
Our customer channels and supplier relationships serve as competitive advantages. From our pivotal position at the intersection of technology distribution
trends, we provide robust value to both our customers and our suppliers. We make it easier for our sales partners and suppliers to deliver leading technology
solutions that drive business outcomes for end users.
Value proposition for our customers/sales partners:
•
Enable end-user consumption preferences
•
Provide pre-sale engineering
•
Make it easier to sell the technology stack
•
Inventory availability
•
Offer training, education and marketing services
•
Provide custom configuration, services, platforms and digital tools
•
Offer innovative financial solutions for our customers
Value proposition for our suppliers:
•
Expand reach at a variable cost
•
Provide access to multiple routes to market
•
Lower customer acquisition cost
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•
Recruit and train new sales partners
•
Manage channel credit
Financial Strength
Our consolidated balance sheet reflects financial strength. Our strong balance sheet and cash generated from our business provide us with the ability to execute
our capital allocation plan, which includes organic growth and strategic acquisitions. We have the financial flexibility to invest in our business and in future
growth.
Business Segments
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 and Brazil and consist of the following:
•
Specialty Technology Solutions
•
Modern Communications & Cloud
Specialty Technology Solutions Segment
The Specialty Technology Solutions portfolio includes enterprise mobile computing, data capture, barcode printing, POS, payments, networking, electronic
physical security, cybersecurity and other technologies. There are adjacencies among these technologies to develop and deliver solutions for our customers.
These solutions include data capture and POS solutions that interface with computer systems to automate the collection, processing and communication of
information for commercial and industrial applications, including retail sales, distribution, shipping, inventory control, materials handling, warehouse
management and health care applications. Electronic physical security products include identification, access control, video surveillance and intrusion-related
devices. Our networking products include wireless and networking infrastructure products. This segment also includes recurring revenue from hardware rentals
and other SaaS offerings.
Modern Communications & Cloud Segment
The Modern Communications & Cloud portfolio of solutions includes communications technologies and services for voice, video conferencing, wireless, data
networking, cybersecurity, cable, unified communications and collaboration, cloud and technology services. As these solutions come together on IP networks,
new opportunities are created to move into adjacent solutions for all vertical markets, such as education, healthcare and government. The Intelisys recurring
revenue model in the connectivity and cloud marketplace offers telecom, cable, UCaaS, CCaaS, infrastructure as a service, software-defined wide-area network
and other cloud services. This segment also includes recurring revenue from our intY US businesses.
Customers
Our customers, include sales partners that are businesses of all sizes that sell to end users across industries ranging from manufacturing, warehouse and
distribution, retail and e-commerce, hospitality, transportation and logistics, government, education and healthcare, among others. Our customers provide us
with multiple, specialized routes-to-market through various channels, including: VARs, agents, ISOs and ISVs. No single customer accounted for more than
5% of our total net sales for the fiscal year ended June 30, 2024.
VARs
Within VARs, our customers include specialty technology VARs, direct marketers, IT system integrators, network integrators, service providers, managed
service providers and cloud service providers. Specialty technology VARs focus on one or more technologies, providing specialized knowledge and expertise
for technology solutions, such as tailored software or integrated hardware. Direct marketers provide a very broad range of technology brands to business,
government, education and healthcare markets. IT system integrators and network integrators develop computer and networking solutions for end-customers’
IT needs. Service providers, managed service providers and cloud service providers deliver advanced multi-discipline services with customized solutions that
bundle data, collaboration, cloud, network and digital telecommunication services for end-customers' needs.
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Agents
Agents focus on selling telecommunications and cloud services to end-customers and advise on various services, technologies and cost alternatives to help
customers make informed choices. Agents typically earn monthly commissions on multi-year contract sales as they build their recurring revenue business.
Independent Sales Organizations
ISOs focus on selling credit card processing and finding new merchant customers for credit card member banks. They offer on-going customer service and
support and look to bundle hardware, software and processing services.
Independent Software Vendors
ISVs develop software, apps and integrated solutions. They generally focus on cloud solutions and sell or certify bundled hardware, software and service
solutions.
Suppliers
We provide products and services from approximately 500 suppliers, including key suppliers AT&T, Avaya, Axis, Cisco, Comcast Business, Dell, Extreme,
Five9, Fortinet, Hanwha, Honeywell, HP Poly, HPE/Aruba, Ingenico, Lumen, Microsoft, PAX Technology, RingCentral, Ubiquiti, Verifone, Verizon, Zebra
Technologies and Zoom.
We provide products and services from many of our key suppliers in all of our geographic markets; however, certain suppliers only allow distribution to
specific geographies. We typically purchase products directly from the supplier and our supplier agreements generally do not restrict us from selling similar or
competitive products or services. We have the flexibility to terminate or curtail sales of one product line in favor of another due to technological change,
pricing considerations, product availability, customer demand or supplier distribution policies.
Products from two suppliers, Cisco and Zebra, each constituted more than 10% of our net sales for the fiscal year ended June 30, 2024.
•
We have three non-exclusive agreements with Cisco. One agreement covers the distribution of Cisco products in the United States and has a two-year
term. The second agreement covers the distribution of products in Brazil and has a two-year term. Each of these agreements must be renewed by
written agreement. Either party may terminate these agreements upon 30 days' notice to the other party. The third agreement is an agency contract for
North America and has a two-year term. Either party may terminate this agreement upon 60 days' prior written notice.
•
We have three non-exclusive agreements with Zebra. One agreement covers sales of Zebra Enterprise Visibility & Mobility (“EVM”) products in
North America and Brazil, while the other two agreements cover sales of Zebra Asset Intelligence & Tracking (“AIT”) products in North America and
Brazil. The Zebra agreements each have a one-year term that automatically renews for additional one-year terms. Either party may terminate the EVM
agreement upon 30 days' notice to the other party. Either party may terminate the AIT agreement for North America upon 60 days’ notice to the other
party. Either party may terminate the AIT agreement for Brazil upon 90 days’ notice to the other party.
In addition to the agreements mentioned above, we have written agreements with almost all of our other suppliers. These agreements generally include the
following terms:
•
Non-exclusive distribution rights to resell products and related services in geographical areas (supplier agreements often include territorial restrictions
that limit the countries in which we can sell their products and services).
•
Short-term periods, subject to periodic renewal, and termination rights by either party without cause upon 30 to 120 days' notice.
•
Stock rotation rights, which give us the ability, subject to limitations, to return for credit or exchange a portion of the items purchased.
•
Price protection provisions, which enables us to take a credit for declines in inventory value resulting from the supplier's price reductions.
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Along with our inventory management policies and practices, these stock rotation rights and price protection provisions are designed to reduce our risk of loss
due to slow-moving inventory, supplier price reductions, product updates and obsolescence.
We participate in various rebate, cash discount and cooperative marketing programs offered by our suppliers to support expenses associated with selling and
marketing the suppliers' products and services. These rebates and purchase discounts are largely influenced by sales volumes and are subject to change.
Our suppliers generally warrant their products that we sell and allow returns of defective products, including those returned to us by our customers. For certain
of our product offerings, we offer a self-branded warranty program. We purchase contracts from unrelated third parties, generally the original equipment
manufacturers, to fulfill our obligations to service or replace defective products claimed on these warranty programs. To maintain customer relations, we also
facilitate returns of defective products from our customers by accepting for exchange, with our prior approval, most defective products within 30 days of
invoicing. In addition, local laws may in some cases impose warranty obligations on the Company.
Offerings and Markets
We currently market over 65,000 products from approximately 500 hardware, software and service suppliers to approximately 25,000 customers. We sell
products and services to the United States and Canada from our facilities located in Mississippi, California and Kentucky; into Brazil from facilities located
within the Brazilian states of Paraná, Espírito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions,
through our digital tools and platforms. See “Risk Factors” for a discussion of the risks related to our foreign operations.
Our offerings to our customers include hardware, software, services and connectivity across premise, hybrid and cloud environments. We believe that
customers want to offer end users complete technology solutions that solve end-user challenges and deliver positive outcomes. We align our people, processes
and tools to help our sales partners grow by providing more hybrid solutions through a better understanding of end-customer needs. We are able to provide a
combination of offerings from multiple suppliers or give our sales partners access to additional services, including configuration, key injection, integration
support and others to deliver solutions.
We provide our customers and suppliers with an array of pre-sale business tools and value-added services, including market and technology solution expertise,
education and training, product configuration tools, technical support, logistics and channel financial services. These services allow our customers to gain
knowledge and experience on marketing, negotiation and selling, to improve customer service, to profitably grow their business and be more cost effective.
Our business is enhanced by our ability and willingness to provide the extra level of services that keep both our sales partners and suppliers satisfied.
We offer technology solutions and services that include the following:
•
Mobility and Barcode: We offer automatic identification and data capture (“AIDC”) technology that incorporates the capabilities for electronic
identification and data processing without the need for manual input. These solutions consist of a wide range of products that include portable data
collection terminals, wireless products, barcode label printers and scanners. As AIDC technology has become more pervasive, applications have
evolved from traditional uses, such as inventory control, materials handling, distribution, shipping and warehouse management, to more advanced
applications, such as healthcare.
•
POS: We provide POS solutions for retail, grocery and hospitality environments to efficiently manage in-store sales and operations. POS solutions
include computer-based terminals, tablets, monitors, payment processing solutions, receipt printers, pole displays, cash drawers, keyboards, peripheral
equipment and fully integrated processing units. These solutions may include self-service checkout, kiosks and products that attach to the POS
network in the store, including network access points, routers and digital signage.
•
Payments: We offer payment terminals, comprehensive key injection services, reseller partner branding, extensive key libraries, ability to provide
point-to-point encryption, and redundant key injection facilities. We have the resources to deliver secure payment devices that are preconfigured and
ready for use. In addition, we partner with ISVs to deliver to merchants integrated tablet POS hardware that a merchant may purchase outright or “as a
service,” and offer merchant hardware support and next-day replacement of tablets, terminals and peripherals.
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•
Physical Security and Networking: We provide electronic physical security solutions that include identification, access control, video surveillance and
intrusion-related products. Physical security products are used every day across every vertical market to protect lives, property and information. These
technology solutions require specialized knowledge to deploy effectively, and we offer in-depth training and education to our sales partners to enable
them to maintain the appropriate skill levels. Our networking products include wireless and networking infrastructure products.
•
Communications and Collaboration: We offer communications and collaboration solutions, delivered through the cloud, on-premise or via a hybrid
approach, such as voice, video, integration of communication platforms and contact center solutions. These offerings combine voice, video and data
with computers, telecommunications and the internet to deliver communications solutions on-premise. Software and hardware products include IP-
based telephony platforms, Voice over Internet Protocol systems, private branch exchanges, call center applications, video conferencing, desk phones,
headsets and cloud-enabled endpoints. Cloud-delivered services, such as unified communications, contact center and video conferencing, enable end-
customers to consume and pay for communications services, typically on a monthly subscription basis.
•
Connectivity and Cloud Services: We offer business communications services, including voice, data, access, cable collaboration, wireless and cloud.
We focus on empowering and educating sales partners so they can advise end-customers in making informed choices about services, technology and
cost savings. Through our digital tools and platforms, we offer sales partners another way to grow their recurring revenue practices and take the
friction out of acquiring, provisioning and managing SaaS offerings. We have contracts with more than 200 of the world’s leading telecom carriers and
cloud services providers.
People and Culture
As a people-first organization, respecting and protecting our people and our partners is among our top priorities. From ensuring and supporting an inclusive and
diverse workforce and partner base; providing a safe, healthy work environment, and working with suppliers and partners that share the same commitment, we
are dedicated to doing what is right for our employees, channel partners and end customers.
General
Our real competitive advantage is our people, who strive to help our customers and partners grow their businesses. The foundation of ScanSource has always
been based on strong values and a people-first culture and vision. To meet the needs of a changing work environment, including the rise in popularity of hybrid
work models, ScanSource invested in new infrastructure, tools and programs to ensure a “productivity anywhere” outcome. In 2024, the Company was named
one of the Best Places to Work in South Carolina for the eighth consecutive year.
As of June 30, 2024, we have approximately 2,300 employees, of which approximately 1,500 are in the United States and 800 are located internationally in
Canada and Brazil and a strong employee remote presence. We have no organized labor or trade unions in the United States.
Professional Development
We want to help our employees succeed—both personally and professionally. We focus heavily on the intellectual and professional development of our
employees, and we strive to create an immersive working environment for them. To promote personal and professional growth, we also encourage our
employees to pursue ongoing training and career development opportunities, and we provide tuition assistance and reimbursement for certain pre-approved
continuing education programs and professional certifications. We enhanced our learning management system, The Hub, to provide a modernized and engaging
user experience for our global employees at all levels. The ScanSource Leadership Institute (“SLI”) is another important program that focuses on identifying
and developing the next wave of senior leaders for the Company. The SLI program brings together twelve hand-selected leaders from our global offices for a
two-week program of intensive training and development. This program promotes individual education and growth and nurtures cross-functional collaboration
among colleagues.
Benefits
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We offer a comprehensive benefits package which includes traditional health insurance, as well as telemedicine alternatives, life insurance, disability insurance
and work-life balance resources. The financial futures of our employees are important to us, which is why we have a 401(k) program with a market-competitive
employer match, a performance-based bonus program and employee ownership opportunities for a meaningful portion of our employees through our Employee
Stock Purchase Plan, as well as our equity incentive grants. We also partner with Fidelity to provide employees access to knowledge and tools to help manage
or plan for student loan debt. To further expand our financial wellness offerings, we offer workshops and webinars focused on student debt and general debt-
counselling services.
Health and Safety
We care about our employees’ overall well-being and encourage a healthy lifestyle, both physically and mentally. That’s why we offer dedicated resources to
help foster a healthy work/life balance. We have implemented a work-from-home policy for all employees across all geographies, except for our distribution
centers. We are pleased with how our employees have adjusted to this new way of doing business and maintained an extremely high level of productivity and
performance. With a largely remote workforce, it is critical that we continue to focus on our employees’ health. We continue to build our “360you” program,
which provides employees with extensive education and training/coaching opportunities, wellness and fitness challenges, and other valuable resources.
Diversity and Inclusion
One of our core values is to promote an environment that respects and values the diverse backgrounds, interests and talents of our employees. ScanSource is
committed to a diverse and inclusive workplace with our comprehensive Diversity & Inclusion (D&I) program, led by our Chief Diversity Officer (“CDO”)
and an internal D&I Advisory Council. The Council is an employee-led group focused on sharing insights, ideas, and opinions from our employee base to assist
in the implementation of our DEI plan. To foster an inclusive workplace, our DEI strategic plan focuses on awareness and education, workforce representation,
partner diversity and community relations. Additionally, initiatives including a D&I book and movie club, educational DEI opportunities, and global employee
resource groups are allowing interested employees to broaden their knowledge on various topics related to diversity and inclusion.
Board Role in People and Culture Management
Our Board of Directors (“Board”) believes that people and culture management is an important component of our continued growth and success and is essential
for our ability to attract, retain and develop talented and skilled employees. We pride ourselves on a culture that respects co-workers and values concern for
others. Our Board provides oversight of the Company's policies and strategies relating to talent including corporate culture, diversity and inclusion and
employee development, as well as the Company's compensation principles and practices. Our Board, through the Compensation Committee, evaluates and
approves the Company's compensation plans, policies and programs applicable to our senior executives. Our Board also engages in an active succession
planning process.
Employee Engagement
Employee outreach and engagement remain critical to the continued success and growth of ScanSource. Inclusion, participation, and appreciation are key
components in retaining talent, maintaining our culture, and keeping employees engaged. In support of that, in 2023, we launched a new global digital
workplace, The Bridge, as our new corporate intranet. We are excited to enhance global communication, increase employee recognition, and celebrate
milestones through this engaging new platform.
Employee Feedback
We foster opportunities for employee engagement and have multiple avenues for communication, which allows all full-time employees to anonymously give us
feedback on our workplace culture, employee programs and more. We also implement employee engagement surveys globally to gather feedback and build the
best environment possible for our employees.
Competition
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We believe we are a leader in the specialty technology markets we serve. The market for technology products and solutions is highly competitive, both in the
United States and internationally. Competitive factors include price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing
programs, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines and services and availability of technical
and product information.
Our competitors include local, regional, national and international distributors, as well as suppliers that sell directly to resellers and to end users. In addition,
our competitors include resellers that sell to franchisees, third-party dealers and end users. Competition has increased over the last several years as broad-line
and other value-added distributors have entered the specialty technology markets. Such competition could also result in price reductions, reduced margins and
loss of market share.
In our Specialty Technology Solutions segment, we compete with broad-line distributors, such as Ingram Micro and TD Synnex, in most geographic areas, and
more specialized security distributors, such as ADI and Wesco. We also compete against other smaller, more specialized AIDC and POS distributors, such as
BlueStar. In our Modern Communications & Cloud segment, we compete against broad-line distributors, such as Ingram Micro and TD Synnex, and more
specialized distributors, such as Jenne. Additionally, for Intelisys' technology services, we compete against other smaller, technology services distributors, such
as Avant and Telarus. As we seek to expand our business into other areas closely related to our offerings, we may encounter increased competition from current
competitors and/or from new competitors, some of which may be our current customers.
Sales
Our sales organization consists of inside and field sales representatives located in the United States, Canada and Brazil. The majority of our sales partners are
assigned to a dedicated sales representative or team whose main focus is developing customer relationships and providing our customers with solutions to meet
their end-customer’s needs. Our sales teams are advocates for and trusted advisers to our customers. Sales teams are responsible for developing technical
expertise within broad product markets, recruiting sales partners, creating demand, negotiating pricing and reviewing overall product and service requirements
of our customers. Our sales representatives receive comprehensive training with respect to the technical characteristics of suppliers’ products, supplemented by
frequent product and service seminars conducted by supplier representatives and bi-weekly meetings among product, marketing and sales managers.
Our sales teams also provide customers with online ordering, API, EDI and other information systems, allowing customers to easily gain access to product
specifications, availability and customized pricing, as well as the ability to place and follow the status of orders.
Marketing
We market our technology solutions and services through a range of digital and print channels, including online product catalogs customized for our North
American and Brazilian markets; social media; search engine optimization and marketing; content marketing; content automation; e-commerce and email direct
marketing, among others. Our marketing practices are tailored to fit the specific needs of our customers and suppliers - ensuring we help our partners create,
deliver and manage solutions for end users across our vertical markets. Our comprehensive marketing efforts include sales promotions, advertisements,
management of sales leads, trade show design and event management, advertorials, content creation, partner events and training and certification courses with
leading suppliers in an effort to recruit prospective sales partners.
Operations
Information Technology Systems
Our information systems are scalable and capable of supporting numerous operational functions including purchasing, receiving, order processing, shipping,
inventory management and accounting. Our customers and employees rely on our information systems for online, real-time information on pricing, inventory
availability and reservation and order status. Our warehouse operations use bar code technology for receiving and shipping and automated systems for freight
processing and shipment tracking, each of which is integrated with our multiple information systems. The customer service and technical support departments
employ systems for documentation and faster processing of sales partner inquiries. To ensure that adequate inventory levels are maintained, our buyers depend
on the system’s purchasing and receiving functions to track inventory on a perpetual basis.
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Warehouse and Shipping Strategy
We operate a 741,000 square foot distribution center in Southaven, Mississippi, which is located near the FedEx hub facility in Memphis, Tennessee, and
primarily serves North America. We also operate warehouses in California and Kentucky. Our principal warehouses for our Brazil operations are located in the
Brazilian states of Paraná, Espírito Santo and Santa Catarina. Our objective is to ship all orders on the same day, using technology to expedite shipments and
minimize shipping errors. We offer reduced freight rates and flexible delivery options to minimize our sales partners’ need for inventory.
Financial Services
Our sales terms include trade credit, various third-party financing options, which include leasing, flooring and other secured financing for qualified customers.
These sales terms allow us to compete within our specific geographic areas to facilitate our growth plans. We believe these options reduce the customer’s need
to establish multiple credit relationships.
Trade and Service Marks
We conduct our business under the trade names “ScanSource POS and Barcode,” “ScanSource Catalyst,” “ScanSource Communications,” “ScanSource
Services,” “ScanSource Networking and Security,” “ScanSource KBZ,” “ScanSource Brasil,” “Network1, a ScanSource company,” “Intelisys,” “POS Portal,”
“RPM Software, a ScanSource company” and “intY, a ScanSource company.”
Certain of our tradenames, trademarks and service marks are registered, or are in the process of being registered, in the United States or various other countries.
We have been issued registrations for many of our marks including, among others, “ScanSource,” “Catalyst Telecom,” and “Network1” in countries in our
principal markets. Even though our marks are not registered in every country where we conduct business, in many cases we have acquired rights in those marks
because of our continued use of them. These marks do not have value assigned to them and have a designated indefinite life. We do not believe that our
operations are dependent upon any of our marks. We also sell products and provide services under various third-party tradenames, trademarks and service
marks, some of which we reference in this report, and these tradenames, trademarks and service marks are the property of their respective owners.
Additional Information
Our principal internet address is www.scansource.com. The information contained on, or that can be accessed through, our website is not incorporated by
reference into this annual report. We provide our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all
amendments to those reports, free of charge on www.scansource.com, as soon as reasonably practicable after they are electronically filed with, or furnished to,
the Securities and Exchange Commission (“SEC”).
ITEM 1A. Risk Factors.
The following are certain risks that could affect our business, financial position and results of operations. These risks should be considered in connection with
evaluating an investment in our company and, in particular, together with the forward-looking statements contained in this Report because these risks could
cause the actual results to differ materially from those suggested by the forward-looking statements. These factors are neither presented in order of importance
nor weighted. Additionally, there are other risks which could impact us that we may not describe, because we currently do not perceive them to be material or
because they are presently unknown. If any of these risks develops into actual events, our business, financial condition and results of operations could be
negatively affected, the market price of our common stock could decline and you may lose all or part of your investment in our common stock. We expressly
disclaim any obligation to update or revise any risk factors, whether as a result of new information, future events or otherwise, except as required by law.
Risk Factors Related to our Operations
Acquisitions - Our growth strategy includes acquisitions of companies that complement or expand our existing business. Acquisitions involve unique risks
and uncertainties, including difficulty in identifying and completing potential acquisitions.
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We have acquired, and may continue to acquire, companies that complement or expand our existing business in the United States and internationally, and some
of these acquisitions may be in business lines where we have little, if any, experience. Acquisitions entail a number of risks, including that the acquired
company will not perform as expected and that we will be responsible for unexpected costs or liabilities. In addition, increases in the size and complexity of our
business may place a significant strain on our management, operations, technical performance, financial resources and internal financial control and reporting
functions, and there are no assurances that we will be able to manage the acquisition process or newly acquired companies effectively.
Our personnel, systems, procedures and controls may not be adequate to effectively manage our future operations, especially as we employ personnel in
multiple domestic and some international locations. We may not be able to hire, train, retain and manage the personnel required to address our growth. Failure
to effectively manage our acquisition opportunities could damage our reputation, limit our future growth, and adversely affect our business, financial condition
and operating results.
We may be unable to identify acquisitions or strategic relationships we deem suitable. Even if we do, we may be unable to successfully complete any such
transactions on favorable terms or at all, or to successfully integrate an acquired business, facilities, technologies, or products into our business or retain any
key personnel, suppliers, or customers. Furthermore, even if we complete such transactions and effectively integrate the newly acquired business or strategic
alliance into our existing operations, we may fail to realize the anticipated returns and/or fail to capture the expected benefits, such as strategic or operational
synergies or cost savings.
People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected.
Our operating results could be adversely affected by increased competition for employees, difficulty in recruiting employees, higher employee turnover or
increased compensation and benefit costs. Our employees are important to our success and we are dependent in part on our ability to retain the services of our
employees in key roles. We have built our business on a set of core values, and we attempt to hire and retain employees who are committed to these values and
our culture of providing exceptional service to our customers and suppliers. In order to compete and to continue to grow, we must attract, retain and motivate
employees, including those in executive, senior management, sales, marketing, logistics, technical support and other operating positions.
Many of our employees work in small teams to provide specific services to customers and suppliers. They are trained to develop their knowledge of products,
services, programs and practices and customer business needs, as well as to enhance the skills required to provide exceptional service and to manage our
business. As they gain experience and develop their knowledge and skills, our employees become highly desired by other businesses. Therefore, to retain our
employees and attract new ones, we have to provide a satisfying work environment and competitive compensation and benefits.
IT Systems - Our ability to manage our business and monitor results is highly dependent upon information and communication systems. A failure of these
systems could disrupt our business.
We are highly dependent upon a variety of computer and telecommunication systems to operate our business, including our enterprise resource planning
systems. As we are dependent upon our ability to gather and promptly transmit accurate information to key decision makers, our business, results of operations
and financial condition may be adversely affected if our information systems do not allow us to transmit accurate information, even for a short period of time.
Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could adversely affect our
reputation, competitive position, business, financial condition and results of operations.
In addition, the information systems of companies we acquire may not meet our standards or we may not be able to successfully convert them to provide
acceptable information on a timely and cost-effective basis. Furthermore, we must attract and retain qualified people to operate our systems, expand and
improve them, integrate new programs effectively with our existing programs and convert to new systems efficiently when required. Any disruption to our
business due to such issues, or an increase in our costs to cover these issues, could have an adverse effect on our financial results and operations.
Our customers rely on our electronic ordering, information systems and website for product information, including availability, pricing and placing orders. A
ransomware incident in 2023 disrupted our systems, and there can be no assurance that our
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systems will not fail or experience disruptions again in the future. Any significant failure or disruption of these systems could prevent us from making sales,
ordering and delivering products and otherwise conducting our business.
Organic growth strategies - If we fail to effectively manage and implement our operating strategies, we may experience a negative effect on our business
and financial results.
A significant component of our growth strategy is to expand our channels and expand our existing products and services in our existing channels and entry into
new channels. These efforts may divert our resources and systems, require additional resources that might not be available (or available on acceptable terms),
result in new or more intense competition, require longer implementation times or greater expenditures than anticipated and otherwise fail to achieve timely
desired results, if at all. If we are unable to increase our sales and earnings by expanding our product and service offerings in a cost-effective manner, our
results may suffer.
Our ability to successfully manage our organic growth will require continued enhancement of our operational, managerial and financial resources, controls, and
models. Our failure to effectively manage our organic growth could have an adverse effect on our business, financial condition and results of operations.
Supply Chain issues, include a shortage of products, may increase our costs or cause a delay in fulfilling customer orders, completing services or
purchasing products and services needed to support our internal operations, resulting in an adverse impact on our financial results.
Our business depends on the timely supply of products in order to meet the demands of our customers.
Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes,
natural disasters, political or social unrest, pandemics or other public health crises or other adverse occurrences affecting any of our suppliers’ facilities, could
further disrupt our supply chain. We could experience product constraints due to the failure of suppliers to accurately forecast customer demand or to
manufacture sufficient quantities of product to meet customer demand (including as a result of shortages of product components), among other reasons.
Our supply chain is also exposed to risks related to international operations. While we purchase our products primarily in the markets we serve (for example,
products for United States customers are primarily sourced in the United States), our vendor partners manufacture or purchase a significant portion of the
products we sell outside of the United States, primarily in Asia. Political, social or economic instability in Asia, or in other regions in which our vendor partners
purchase or manufacture the products we sell, could cause disruptions in trade, including exports to the United States.
Supply chain issues, including a shortage of technology products and available services, may increase our costs or cause a delay in purchasing technology
products needed to support our internal systems and infrastructure or operations, resulting in an impact on our operations and availability of our systems, which
could result in a materially adverse effect on our operations and financial results.
Credit exposure - We have credit exposure to our customers. Any adverse trends or significant adverse incidents in their businesses could cause us to suffer
credit losses.
As is customary in our industry, we extend credit to our customers, and most of our sales are on open accounts. We also provide financing to some Intelisys
customers based on their future commission flows. As we grow and compete for business, our typical payment terms tend to get longer, increasing our credit
risk.
While we evaluate our customers' qualifications for credit and monitor our extensions of credit, these efforts cannot prevent all credit losses and any credit
losses negatively impact our performance. In addition, for financial reporting purposes, we estimate future credit losses and establish reserves. To the extent
that our credit losses exceed those reserves, our financial performance will be negatively impacted beyond what is expected. If there is deterioration in the
collectability of our receivables, or if we fail to take other actions to adequately mitigate such credit risk, our earnings, cash flows and our ability to utilize
receivable-based financing could deteriorate.
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In addition, extending credit to international customers involves additional risks. It is often more difficult to evaluate credit risk with a customer or obtain credit
protections in our international operations. Also, credit cycles and collection periods are typically longer in our international operations. As a result of these
factors and other challenges in extending credit to international customers, we generally face greater credit risk from international sales compared to domestic
sales.
Reliance on third parties - We are dependent on third parties for some services, including the delivery of a majority of our products, logistics and
warehousing. Changes in shipping terms or the failure or inability of our third-party shippers to perform could have an adverse impact on our business
and results of operations.
We rely on third parties to perform certain services for our business and for our customers, which, if not performed by these third parties in accordance with the
terms of the arrangement, could result in significant disruptions or costs to our organization, including monetary damages and an adverse effect on our
customer relationships.
In particular, we are dependent upon major shipping companies, including FedEx and UPS, for the shipment of our products to and from our centralized
warehouses. Changes in shipping terms, or the inability of these third-party shippers to perform effectively, could affect our responsiveness to our customers.
From time to time, we have experienced significant increases in shipping costs due to increases in fuel costs and transit losses due to a congested supply chain.
Increases in our shipping costs or transit losses may adversely affect our financial results if we are unable to pass on these higher costs to our customers.
In Brazil, we use third parties to provide warehousing and logistics services in order to provide cost-effective operations and scale in certain regions. The
failure or inability of one or more of these third parties to deliver products from suppliers to us, or products from us to our customers, for any reason could
disrupt our business and harm our reputation and operating results. We work closely with our third-party logistics and warehousing providers to anticipate
issues, and also review public information regarding their financial health. However, issues may not be timely identified, which may lead to lack of or poor
execution of services, loss or litigation. Additionally, deterioration of the financial condition of our logistical and warehousing providers could result in delayed
responsiveness or delivery failure, which would ultimately affect our responsiveness to our customers and thus may adversely affect our business, financial
condition and results of operations.
Inventory - The value of our inventory may be adversely affected by market and other factors.
Our business, like that of other distributors, is subject to the risk that the value of our inventory will be adversely affected by price reductions by manufacturers,
by technological changes affecting the usefulness or desirability of our products or by foreign currency fluctuations. Some of our supplier agreements and
certain manufacturers’ policies have some price protection and stock rotation opportunities with respect to slow-moving or obsolete inventory items; however,
these protections are becoming less standard, subject to change, limited in scope and do not protect against all declines in inventory value, excess inventory, or
product obsolescence, and in some instances we may not be able to fulfill all necessary conditions or successfully manage such price protection or stock
rotation opportunities. In addition, these protections are not always reflected in supplier agreements and their application in a particular situation is dependent
upon negotiations with our suppliers. As a result, we are required to write down the value of excess and obsolete inventory, and should any of these write-
downs occur at a significant level, they could have an adverse effect on our business, financial condition and results of operations.
Suppliers - Changes to supply agreement terms or lack of product availability from our suppliers could adversely affect our operating margins, revenue or
the level of capital required to fund our operations.
Our future success is highly dependent on our relationships with our suppliers. A significant percentage of our net sales relates to products we purchase from
relatively few suppliers, including Cisco and Zebra. As a result of such concentration risk, terminations of supply or services agreements or a change in terms
or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our
operations. Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and
rebates they make available to us. In addition, our supplier agreements typically are short-term and may be terminated without cause on short notice. We have
no guaranteed price or delivery agreements with our suppliers. In certain product categories, limited price protection or return rights offered by our suppliers
may have a bearing on the amount of product we are willing to stock. Our inability to pass through to our customers the impact of these changes, as well as if
we fail to develop or maintain systems to manage ongoing supplier programs, could cause us to record inventory write-downs or other losses and could have
significant negative impact on our gross margins.
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We receive purchase discounts and rebates from some suppliers based on various factors, including goals for quantitative and qualitative sales or purchase
volume and customer related metrics. Certain purchase discounts and rebates may affect gross margins. Many purchase discounts from suppliers are based on
percentage increases in sales of products. Our operating results could be adversely impacted if these rebates or discounts are reduced or eliminated or if our
suppliers significantly increase the complexity of their refund procedures and thus increase costs for us to obtain such rebates.
Our ability to obtain particular products or product lines in the required quantities and our ability to fulfill customer orders on a timely basis is critical to our
success. Our suppliers have experienced product supply shortages from time to time due to the inability of certain of their suppliers to supply products on a
timely basis. Specifically, shortages of computer chips may lead to product constraints and adversely affect our sales volumes and product availability. In
addition, our dependence on a limited number of suppliers leaves us vulnerable to having an inadequate supply of required products, price increases, late
deliveries and poor product quality. As a result, we have experienced, and may in the future continue to experience, short-term shortages of specific products or
be unable to purchase our desired volume of products. Suppliers that currently distribute their products through us, may decide to shift to or substantially
increase their existing distribution with other distributors, their own dealer networks, or directly to resellers or end-customers. Suppliers have, from time to
time, made efforts to reduce the number of distributors with which they do business. This could result in more intense competition as distributors strive to
secure distribution rights with these suppliers, which could have an adverse impact on our operating results. We cannot provide any assurances that suppliers
will maintain an adequate supply of products to fulfill all of our customer orders on a timely basis. Our reputation, sales and profitability may suffer if suppliers
are not able to provide us with an adequate supply of products to fulfill our customer orders on a timely basis or if we cannot otherwise obtain particular
products or product lines.
Increasingly, our suppliers are combining and merging, leaving us with fewer alternative sources. Supplier consolidation may also lead to changes in the nature
and terms of relationships with our suppliers. In addition, suppliers may face liquidity or solvency issues that in turn could negatively affect our business and
operating results. Any loss or deterioration of a major supplier relationship could adversely affect our business, financial condition and results of operations.
Liquidity and capital resources - Market factors and our business performance may increase the cost and decrease the availability of capital. Additional
capital may not be available to us on acceptable terms to fund our working capital needs and growth.
Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. We have an
increased demand for capital when our business is expanding, including through acquisitions and organic growth. Changes in payment terms with either
suppliers or customers could also increase our capital requirements. We have historically relied on cash generated from operations, borrowings under our
revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth. While we believe our existing sources of
liquidity will provide sufficient resources to meet our current working capital and cash requirements, if we require an increase in capital to meet our future
business needs or if we are unable to comply with covenants under our borrowings, such capital may not be available to us on terms acceptable to us, or at all.
We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (the “Amended
Credit Agreement”). 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 3.50:1.00 at all times. In addition, our Interest Coverage Ratio (as such term
is defined in the Amended Credit Agreement) must be at least 3.00:1.00 as of 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.
In addition, the cost of borrowings under our existing sources of capital and any potential new sources of capital as a result of variable interest rates may
increase, which could have an adverse effect on our financial condition. Changes in how lenders rate our credit worthiness, as well as macroeconomic factors
such as an economic downturn, inflation, rising interest rates and global economic instability may restrict our ability to raise capital in adequate amounts or on
terms acceptable to us, and the failure to do so could harm our ability to operate our business.
In addition, our cash and cash equivalents are deposited with various financial institutions located in the various countries in which we operate. We endeavor to
monitor these financial institutions regularly for credit quality; however, we are exposed to risk of loss on such funds or we may experience significant
disruptions in our liquidity needs if one or more of these financial institutions were to fail or suffer bankruptcy or similar restructuring.
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Customers - We operate in a highly competitive environment and good customer relations are critical to our success. There can be no assurance that we
will be able to retain and expand our customer relationships or acquire new customers.
Meeting our customers’ needs quickly and fairly is critical to our business success. Transactions with our customers generally are performed on a purchase
order basis rather than under long term supply agreements. Therefore, our customers can choose to purchase from other sources. From time to time, we
experience shortages in availability of some products from suppliers, and this impacts customer decisions regarding whether to make purchases from us.
Anything that negatively influences customer relations can also negatively impact our operating results. As a distributor in a channel business model our
offerings can create channel conflict. These perceived channel conflicts can impact or customer relationships and negatively impact our operating results and
our ability to retain those customers.
Customer consolidation also may lead to changes in the nature and terms of relationships with our customers. The loss or deterioration of a major customer
relationship could adversely affect our business, financial condition and results of operations. Economic recession, higher interest rates and inflation could
result in some of our customers shuttering their businesses, thus negatively impacting our business.
Litigation - We routinely are involved in litigation that can be costly and lead to adverse results.
In the ordinary course of our business, we are involved in a wide range of disputes, some of which result in litigation. We are routinely involved in litigation
related to commercial disputes surrounding our business activities, intellectual property disputes, employment disputes and accounts receivable collection
activity. In addition, as a public company with a large shareholder base, we are susceptible to class-action lawsuits and other litigation resulting from
disclosures that we or our officers and directors make (or do not make) and our other activities. Litigation is expensive to bring and defend, and the outcome of
litigation can be adverse and significant. Not all adverse outcomes can be anticipated, and applicable accounting rules do not always require or permit the
establishment of a reserve until a final result has occurred or becomes probable and estimable. In some instances we are insured or indemnified for the potential
losses; in other instances we are not. An uninsured, under-insured or non-indemnified adverse outcome in significant litigation could have an adverse effect on
our business, financial condition and results of operations. We can make no assurances that we will ultimately be successful in any dispute that we are a party
to. See Item 3. “Legal Proceedings” for further discussion of our material legal matters.
Fair value measurement of goodwill and other intangible assets - Changes in the fair value of the assets and liabilities measured at fair value could have a
significant effect on our reported earnings.
We have substantial goodwill. On at least an annual basis, we are required to assess our goodwill and other intangible assets, including but not limited to
customer relationships, trademarks and trade names, for impairment. This includes continuously monitoring events and circumstances that could trigger an
impairment test outside of our annual impairment testing date in the fourth quarter of each year. Testing goodwill and other intangibles for impairment requires
the use of significant estimates and other inputs outside of our control. If the carrying value of goodwill in any of our goodwill reporting units or other
intangible assets is determined to exceed their respective fair values, we may be required to record significant impairment charges. In addition, our decision to
dispose of certain of our operations has in the past and may in the future require us to recognize an impairment to the carrying value of goodwill and other
intangible assets attendant to those operations. As of June 30, 2024, the Specialty Technology Solutions and Modern Communications & Cloud reporting units'
goodwill balances are $16.4 million and $189.9 million, respectively. The fair value of the reporting units exceeded its carrying value by 11% and 33%,
respectively, as of the annual goodwill impairment testing date. Any declines resulting in a goodwill impairment or long-lived asset impairment may result in
material non-cash charges to our earnings. Impairment charges would also reduce our consolidated shareholders' equity and increase our debt-to-total-
capitalization ratio, which could negatively impact our credit rating and access to the public debt and equity markets.
International operations - Our international operations expose us to risks that are different from, and possibly greater than, the risks we are exposed to
domestically.
We currently have significant facilities outside the United States. For fiscal year ending June 30, 2024, approximately 10.4% of our revenue is derived from our
international operations outside of the United States and Canada. These operations are subject to a variety of risks that are different from the risks that we face
domestically or are similar risks but with potentially greater exposure. These risks include:
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•
Fluctuations of foreign currency and exchange rates, which can impact sales, costs of goods sold and the reporting of our results from operations and
financial conditions, including the value of certain assets on our financial statements;
•
Changes in international trade laws, trade agreements, or trading relationships affecting our import and export activities, including export license
requirements, restrictions on the export of certain technology and tariff changes, or the imposition of new or increased trade sanctions;
•
Difficulties in collecting accounts receivable and longer collection periods;
•
Changes in, or expiration of, various foreign incentives that provide economic benefits to us;
•
Labor laws or practices that impact our ability and costs to hire, retain and discharge employees;
•
Difficulties in staffing and managing operations in foreign countries;
•
Changes in the interpretation and enforcement of laws (in particular related to items such as duty and taxation), and laws related to data privacy and
other similar privacy laws that impact our IT systems and processes;
•
Global economic and financial market instability;
•
Potential political and economic instability and changes in governments;
•
Compliance with foreign and domestic import and export regulations and anti-corruption laws, including the Iran Threat Reduction and Syria Human
Rights Act of 2012, U.S. Foreign Corrupt Practices Act and similar laws of other jurisdictions, governing our business activities outside the United
States, the violation of which could result in severe penalties, including monetary fines, criminal proceedings and suspension of export or import
privileges; and
•
Terrorist or military actions that result in destruction or seizure of our assets or suspension or disruption of our operations or those of our customers,
suppliers or service providers.
We have substantial operations in Brazil and face risks related to these countries’ complex tax, labor, trade compliance and consumer protection laws and
regulations. Additionally, developing markets such as Brazil have greater political volatility and vulnerability to infrastructure and labor disruptions, are more
likely to experience market and interest rate fluctuations and may have higher inflation. In addition, doing business in foreign countries poses additional
challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and
identifying and retaining qualified suppliers, resellers, agents and service providers, among other risks. Furthermore, in developing markets it may be common
for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act or similar local
anti-bribery laws. Our commitment to legal compliance could put us at a competitive disadvantage, and any lapses in our compliance could subject us to civil
and criminal penalties that could materially and adversely affect our financial condition and results of operations.
In addition, competition in developing markets is increasing. If we cannot successfully increase our business, our product sales, our financial condition and
results of operations could be adversely affected.
Quarterly fluctuations - Our net sales and operating results are dependent on several factors. Our net sales will fluctuate from quarter to quarter, and these
fluctuations may cause volatility in our stock price.
Our net sales and operating results may fluctuate quarterly and, as a result, our performance in one period may vary significantly from our performance in the
preceding quarter, and may differ significantly from our performance forecast from quarter to quarter. The impact of these variances may cause volatility in our
stock price. Additionally, any past financial performance should not be considered an indicator of future performance, and investors should not use historical
trends to anticipate results or trends in the future as our operating results may fluctuate significantly quarter to quarter. The results of any quarterly period are
not indicative of results to be expected for a full fiscal year.
Centralized functions - We have centralized several functions to provide efficient support to our business. As a result, a loss or reduction of use of one of
our locations could have an adverse effect on our business operations and financial results.
In order to be as efficient as possible, we centralize a number of critical functions. For instance, we currently distribute products to the majority of North
America from a single warehouse. Similarly, for our primary business operations, we utilize a single information system based in the United States for the
majority of our North American operations, while our Brazilian operations utilize a separate system. While we have backup systems and business continuity
plans, any significant or lengthy interruption of our ability to provide these centralized functions as a result of natural disasters, prolonged inclement weather,
security breaches (including cyberattacks) or otherwise would significantly impair our ability to continue normal business operations. In addition, the
centralization of these functions increases our exposure to local risks, such as the availability of qualified employees and increased competition for, or lack of
access to, critical services, such as freight and communications.
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Risk Factors Related to our Industry
Competition - We experience intense competition in all our markets. This competition could result in reduced margins and loss of our market share.
Our markets are fiercely competitive. We compete on the basis of price, product and service availability, speed and accuracy of delivery, effectiveness of sales
and marketing programs, credit availability and terms, ability to tailor solutions to the needs of our customers, quality and breadth of product line and services
and availability of technical and product information. Our competitors include local, regional, national and international distributors as well as hardware and
service suppliers that sell directly to resellers and to end-customers. In addition, we compete with resellers and master agents that sell to franchisees, third-party
dealers and end-customers. Certain of our current and potential competitors have greater financial, technical, marketing and other resources than we have and
may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Certain smaller, regional competitors, that are
specialty two-tier or mixed model master resellers may be able to respond more quickly to new or emerging technologies and changes in customer
requirements in their regions. Competition has increased for our sales units as broad-line and other value-added distributors have entered into the specialty
technology markets. Such competition could result in price reductions, reduced margins and loss of our market share.
As a result of intense price competition in our industry, our gross margins and our operating profit margins historically have been narrow, and we expect them
to continue to be narrow in the future. To remain competitive, we may be forced to offer more credit or extend payment terms to our customers. This could
result in an increase in our need for capital, increase our financing costs, increase our bad debt expenses and have an adverse impact on our financial condition
and results of operations. We may lose market share, reduce our prices in response to actions of our competitors, or withdraw from geographical markets where
we do not believe we can earn appropriate margins. We expect continued intense competition as current competitors expand their operations and new
competitors enter the market. Our inability to compete successfully against current and future competitors could cause our revenue and earnings to decline.
Disruptive technology - We may not be able to respond and adapt to rapid technological changes, evolving industry standards or changing customer needs
or requirements, and thus may become less competitive.
The market for some of our products and services is subject to rapid technological change, evolving industry standards and changes in customer demand, which
can contribute to a decline in value or obsolescence of inventory. Although some of our suppliers provide us with certain protections from a loss in value of
inventory (such as price protection and certain return rights), we cannot be sure that such protections will fully compensate for any loss in value, or that such
suppliers will choose to, or be able to, honor such agreements.
Our ability and our suppliers’ ability to anticipate and react quickly to new technology trends and customer requirements is crucial to our overall success,
financial condition and results of operations. If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service
offerings or to engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, our ability to retain or increase
market share, profit margins and revenue could be adversely affected. Some of our competitors and our suppliers’ competitors may be better at adapting to
disruptive technology or entering new markets. Our future success depends, in part, on our ability to adapt and manage our product and service offerings to
meet customer needs at prices that our customers are willing to pay.
General Risk Factors
Cybersecurity risk - If we are the subject of a ransomware or other cyberattack, we could lose valuable financial and operational data, we could be
prevented from processing customer orders, ordering and tracking inventory, and efficiently operating our business, and we could lose revenue and profits
and incur significant costs. In addition, we could be subject to legal claims in the event of loss, disclosure or misappropriation of, or loss of access to, our
customers’, business partners’ or our own information.
We make extensive use of online services and integrated information systems, including through third-party service providers. The secure maintenance and
transmission of customer information is a critical element of our operations. Our information technology and other systems that maintain and transmit customer
or employee information or those of our service providers or business partners may be compromised by a malicious third-party penetration of network security
or impacted by the advertent or inadvertent actions or inactions of our employees, third-party service providers or business partners. With constant changes
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Index to Financial Statements
in the security landscape, experienced computer programmers and hackers may be able to penetrate our network security, or that of our third-party service
providers and business partners, and misappropriate or compromise confidential information, create system disruptions or cause shutdowns. As a result, our
customers’ information may be lost, disclosed, accessed or taken without our customers’ consent.
We are subject to laws and regulations relating to customer privacy and the protection of personal information. Any such loss, disclosure or misappropriation
of, or access to, our customers’ or business partners’ information or our information or other data breach affecting such information can result in legal claims or
legal proceedings, including regulatory investigations and actions, and may have a serious impact on our reputation and may adversely affect our businesses,
operating results and financial condition.
In May 2023, we learned that we had been the subject of a ransomware attack. The attacker encrypted files that, in turn, made certain of our systems
inaccessible until they were restored. This attack interrupted our ability to accept and process orders for approximately nine business days and resulted in the
disclosure on the “dark web” of various information from our systems. Upon detection, we took immediate steps to address the incident, engaged third-party
experts, and notified law enforcement.
We have taken steps to strengthen our existing IT security infrastructure and continue to implement additional measures to prevent unauthorized access to, or
manipulation of, our systems and data. Although restoration is complete, there can be no assurance that we will not be a victim of a ransomware or other
cyberattack again in the future.
Although we have insurance to offset financial losses incurred for events such as the ransomware attack we experienced in May 2023, there can be no
guarantee that we will recover all insurance proceeds claimed. Any insurance proceeds received related to the cybersecurity incident will be recorded in selling,
general and administrative expenses of the consolidated income statement for the relevant period.
Increased government regulation - We may be subject to additional costs and subject to fines and penalties because certain governmental entities are end-
customers of products that we sell.
Certain of our customers sell our products to government entities, which requires us to comply with additional laws, regulations and contractual requirements
relating to how we conduct business. In complying with such laws, regulations and other requirements, we may incur additional costs. In addition, non-
compliance with such laws, regulations and other requirements also may expose us to fines and penalties, including contractual damages or the loss of certain
contracts or business. We also may be subject to increased scrutiny and investigation into our business practices, which may increase operating costs and
increase legal liability, as well as expose us to additional reputational risk.
Foreign currency - Our international operations expose us to fluctuations in foreign currency exchange rates that could adversely affect our results of
operations.
We transact sales, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Volatility in foreign exchange rates
increase our risk of loss related to products and services purchased in a currency other than the currency in which those products and services are sold. We
maintain policies to reduce our net exposure to foreign currency exchange rate fluctuations through the use of derivative financial instruments, however there
can be no assurance that fluctuations in foreign currency exchange rates will not materially affect our financial results. Because our consolidated financial
statements are presented in U.S. dollars, we must translate our financial statements into U.S. dollars at exchange rates in effect during each reporting period.
Therefore, increases or decreases in the exchanges rates between the U.S. dollar and other currencies we transact in may positively or negatively affect our
results of operations. In addition, unexpected and dramatic changes in foreign currency exchange rates may negatively affect our earnings from foreign
markets.
Economic weakness - Economic weakness and uncertainty, including the possibility of recession and heightened levels of inflation, and geopolitical
uncertainty could adversely affect our results and prospects.
Our financial results, operations and prospects depend significantly on worldwide economic and geopolitical conditions, the demand for our products and
services, and the financial condition of our customers and suppliers. Economic weakness and geopolitical uncertainty have in the past resulted, and may result
in the future, in reduced demand for products resulting in decreased sales, margins and earnings. Economic weakness and geopolitical uncertainty may also
lead us to impair assets, including goodwill, intangible assets and other long-lived assets, take restructuring actions or adjust our operating strategy and
16
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reduce expenses in response to decreased sales or margins. We may not be able to adequately adjust our cost structure in a timely fashion, which may adversely
impact our profitability. Uncertainty about economic conditions also may increase foreign currency volatility in such markets, which may negatively impact
our results. Economic weakness and geopolitical uncertainty also make it more difficult for us to manage inventory levels and/or collect customer receivables,
which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs.
Although U.S. inflation rates have shown signs of moderating, periods of elevated inflation contribute to increased costs for labor, materials and services. The
re-emergence of high levels of inflation could further increase our costs and otherwise adversely impact our results of operations and financial condition.
Although we monitor changes to the macroeconomic environment, we cannot predict any future trends in the rate of inflation or the general state of the
economy.
Volatility of Stock Price - The trading price of our common stock fluctuates.
The market price of our common stock could be subject to wide fluctuations. This volatility could significantly reduce the price of our common stock at any
time, without regard to our own operating performance, particularly because we are designated as a small cap stock that is thinly traded. Our stock price can be
affected by numerous factors such as variations in our quarterly operating results or expectations with regard thereto; revisions in securities analysts’ estimates;
announcements by us or our competitors of significant acquisitions, transactions, partnerships, joint ventures or capital commitments; interest rates; business
conditions in our industry or the general state of the securities markets and the economy.
A material decline in the price of our common stock may result in the assertion of certain claims against us, and/or the commencement of inquiries and/or
investigations against us. A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction
in our ability to raise capital, if needed, and the inability for you to obtain a favorable price at which you could sell your shares.
ITEM 1B. Unresolved Staff Comments.
Not applicable.
ITEM 1C. Cybersecurity.
Risk Management and Strategy
Our cybersecurity risk management program is intended to protect the confidentiality, integrity, and availability of our critical IT systems and information. Our
program is integrated into, and cybersecurity risks are among the risks evaluated and considered by, our broader enterprise risk management program, which is
designed to identify, assess, prioritize and mitigate risks across the organization to enhance our resilience and support the achievement of our strategic
objectives.
Our cybersecurity risk management program is led by our Vice President of Information Security (“VP”), who manages our security team principally
responsible for managing our cybersecurity risk assessment processes, our security controls, and our detection and response to cybersecurity incidents. Our
program includes protocols for preventing, detecting and responding to cybersecurity incidents, and cross-functional coordination, and planning for business
continuity and disaster recovery. We rely on our information security management system supported by a set of policies based upon industry frameworks,
including the NIST Cybersecurity Framework. We have a Cyber Incident Response Team (“CIRT”) in place to respond to, and prepare appropriate responses to
cybersecurity threats or incidents. Components of our program include:
•
risk assessments designed to help identify and assess cybersecurity threats to our critical IT systems, information, and our broader enterprise IT
environment;
•
monthly, mandatory cybersecurity awareness training for our employees, covering such topics such as phishing tactics, ransomware and developments
in the current landscape of cyber-threats;
•
assessments of [and improvements to], among others, disaster recovery testing, access control, remote access, personnel security, system and
communications protection, media protection, change management, data backup and recovery, audit logging, vulnerability and patch management,
physical security, configuration management;
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•
periodic engagement of independent security firms and other third-party experts, where appropriate, to assess, test, and certify components of our
cybersecurity program, and to otherwise assist with various aspects of our cybersecurity processes and controls; and
•
regular assessments of the design and operational effectiveness of the program’s key processes and controls by our internal audit team assisted by
external consultants.
We also have a cybersecurity incident response plan for the CIRT to assess and manage cybersecurity incidents, which includes escalation procedures based on
the nature and severity of the incident including, where appropriate, escalation to the Board.
As part of our overall risk mitigation strategy, we maintain insurance coverage that is intended to address certain aspects of cybersecurity risks; however, such
insurance may not be sufficient in type or amount to cover us against claims related to cybersecurity breaches, cyberattacks and other related breaches.
As of the date of this report, we do not believe that any risks from cybersecurity threats, including as a result of the May 2023 ransomware incident or any
other previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect our Company, including our business strategy,
results of operations or financial condition. Despite our security measures, however, there can be no assurance that we, or third parties with which we interact,
will not experience a cybersecurity incident in the future that will materially affect us. For more information on our cybersecurity related risks, see Item IA,
“Risk Factors - “Cybersecurity risk.”
Governance
Our Board has primary responsibility for oversight of our cybersecurity and other information technology risks, including our plans to mitigate cybersecurity
risks and to respond to data breaches.
The Board receives regular reports from our Chief Information Officer (“CIO”) on cybersecurity matters. These reports include a range of topics, including our
cybersecurity risk profile, the current cybersecurity and emerging threat landscape, the status of ongoing cybersecurity initiatives, incident reports, and the
results of internal and external assessments of our information systems. The Audit Committee also annually reviews the adequacy and effectiveness of our
information and technology security policies and the internal controls regarding information and technology security and cybersecurity, and periodically
receives updates from our internal audit function on the results of our cybersecurity audits and related mitigation activities. The Chair of the Audit Committee
reports to the full Board on these discussions as appropriate. In addition, Board members periodically receive presentations on cybersecurity matters from
external experts as part of the Board’s continuing education and overall risk oversight.
At the management level, our VP leads our enterprise-wide cybersecurity program, and is responsible for assessing and managing our materials risks from
cybersecurity threats. In performing his role, our VP is informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity
risks and incidents through the management of, and participation in, the cybersecurity risk management program and other processes described above,
including the maintenance and execution of our cyber incident response plan. Our VP reports to our CIO who, in turn, reports directly to our CEO.
Our VP and our CIO, are both experienced cybersecurity executives. Our VP has more more than 20 years of experience building and leading cybersecurity,
risk management, and information technology teams. Our CIO has nearly 30 years of experience and has held a variety of senior information technology
leadership roles at multiple Fortune 500 organizations. Members of our security team also hold industry-recognized cybersecurity certifications, including the
Certified Information Systems Security Professional (CISSP) certification.
ITEM 2. Properties.
Our fixed assets include office space and warehouses. Our principal locations and/or properties as of June 30, 2024, were as follows:
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Location
Approximate
Square Footage
Type of Interest
Description of Use
United States
Greenville, SC
174,000
Owned
Headquarters - Principal Executive and Sales Offices
Southaven, MS
741,000
Leased
Warehouse
Sacramento, CA
53,000
Leased
Sales and Administration Offices and Warehouse
Louisville, KY
22,000
Leased
Warehouse
Brazil
Serra, Espírito Santo, Brazil
31,000
Leased
Sales Office and Warehouse
Itajai, Santa Catarina, Brazil
30,100
Leased
Sales Office and Warehouse
Of the 174,000 owned square footage in Greenville, South Carolina approximately 40,000 square feet is subleased to an unrelated third party. Our primary
North American distribution operations are located in Southaven, Mississippi. We utilize the logistical services of various third-party warehouses in the United
States and Brazil. We also lease various additional sales offices and warehouse spaces, each approximately 20,000 square feet or less throughout the United
States and Brazil.
Management believes our office and warehouse facilities are adequate to support our operations at their current levels and for the foreseeable future.
ITEM 3. 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 and results of operations.
ITEM 4. Mine Safety Disclosures.
Not applicable.
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PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is quoted on the NASDAQ Global Select Market under the symbol “SCSC.” As of August 20, 2024, there were approximately 800 holders
of record of our common stock.
Stock Performance Chart
The following stock performance graph compares cumulative total shareholder return on our common stock over a five-year period with the Nasdaq Composite
Index and with the Standard Industrial Classification (“SIC”) Code Index (SIC Code 5045 – Wholesale Computers and Peripheral Equipment and Software) for
the same period. Total shareholder return represents stock price changes and assumes the reinvestment of dividends. The graph assumes the investment of $100
on June 30, 2019.
2019
2020
2021
2022
2023
2024
ScanSource, Inc.
$
100
$
74
$
86
$
96
$
91
$
136
NASDAQ Composite
$
100
$
127
$
184
$
141
$
178
$
231
SIC Code 5045 – Computers & Peripheral Equipment and Software
$
100
$
110
$
218
$
187
$
195
$
248
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Share Repurchases
The following table shows the share-repurchase activity for the quarter ended June 30, 2024 (in thousands except share and per share data):
Period
Total number of shares
purchased
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
April 1, 2024 through April 30, 2024
70,000
$42.64
70,000
$141,930,496
May 1, 2024 through May 31, 2024
219,908
$46.78
219,908
$131,503,175
June 1, 2024 through June 30, 2024
186,180
$45.31
184,445
$123,149,303
Total
476,088
474,353
Includes 1,735 shares withheld from employees' stock-based awards to satisfy required tax withholding obligations for the month of June 2024. There were
no shares withheld during the months of April and May 2024.
In August 2021, our Board authorized a $100 million share repurchase program, which does not have any time limit. In May 2024, our Board subsequently
increased the authorization for the share repurchase program by an additional $100 million, which does not have any time limit. In fiscal year 2024, we
repurchased 980,539 shares totaling $43.3 million under the share repurchase program.
Dividends
We have never declared or paid a cash dividend. Under the terms of our credit facility, the payment of cash dividends is restricted.
ITEM 6. [Reserved].
(1)
(2)
(2)
(1)
(2)
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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
ScanSource is a leading hybrid distributor connecting devices to the cloud and accelerating growth for customers across hardware, SaaS, connectivity and
cloud. We provide technology solutions and services from approximately 500 leading suppliers of mobility, barcode, POS, payments, physical security,
networking, unified communications, collaboration, connectivity and cloud services to our approximately 25,000 customers located primarily in the United
States, Canada and Brazil.
We operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy. Our segments operate
primarily in the United States, Canada and Brazil:
•
Specialty Technology Solutions
•
Modern Communications & Cloud
We sell hardware, SaaS, connectivity and cloud solutions and services to customers that are designed to solve end users' challenges. We operate distribution
facilities that support our United States and Canada business in Mississippi, California and Kentucky. Brazil distribution facilities are located in the Brazilian
states of Paraná, Espirito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools
and platforms.
Our key suppliers include AT&T, Avaya, Axis, Cisco, Comcast Business, Dell, Extreme, Five9, Fortinet, Hanwha, Honeywell, HP Poly, HPE/Aruba, Ingenico,
Lumen, Microsoft, PAX Technology, RingCentral, Ubiquiti, Verifone, Verizon, Zebra Technologies and Zoom.
Recent Developments
Cost Reduction and Restructuring Program
In January 2024, as part of a strategic review of organizational structure and operations, we executed a cost reduction and restructuring program to align our
cost structure with demand expectations in our hardware business. These actions resulted in approximately $10.0 million in annualized savings in selling,
general and administrative expenses.
UK Divestitures
On December 19, 2023, we completed the sale of our UK-based intY business. We retained our CASCADE cloud services distribution platform, which has
been used to grow the Cisco and Microsoft subscription business in the United States and Brazil.
Impact of the Macroeconomic Environment, Including Inflation
The macroeconomic environment, including the economic impacts of supply chain constraints, rising interest rates and inflation continues to 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
chain requirements of our customers and suppliers effectively to date.
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
customers that solve end users’ challenges. ScanSource enables customers to deliver solutions for their end users to address changing buying and
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Index to Financial Statements
consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our customers access to additional services. As a
trusted adviser to our customers, we provide customized solutions through our strong understanding of end user needs. We have plans to expand our
investments in the Agency Channel in the near term.
Results of Operations from Continuing Operations
The following table sets forth for the periods indicated certain income and expense items as a percentage of net sales. Totals may not sum due to rounding.
Fiscal Year Ended June 30,
2024
2023
2022
Statement of income data:
Net sales
100.0 %
100.0 %
100.0 %
Cost of goods sold
87.8
88.1
87.9
Gross profit
12.2
11.9
12.1
Selling, general and administrative expenses
8.5
7.5
7.8
Depreciation expense
0.3
0.3
0.3
Intangible amortization expense
0.5
0.4
0.5
Restructuring and other charges
0.1
0.0
0.0
Operating income
2.8
3.6
3.5
Interest expense
0.4
0.5
0.2
Interest income
(0.3)
(0.2)
(0.1)
Gain on sale of business
(0.4)
—
—
Other (income) expense, net
0.0
0.0
0.0
Income from continuing operations before income taxes
3.1
3.2
3.4
Provision for income taxes
0.7
0.9
0.8
Net income from continuing operations
2.4
2.3
2.5
Net income from discontinued operations
0.0
0.0
0.0
Net income
2.4 %
2.4 %
2.5 %
Comparison of Fiscal Years Ended June 30, 2024 and 2023
Below is a discussion of fiscal years ended June 30, 2024 and 2023. Please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our form 10-K for the fiscal year ended June 30, 2023 for a discussion of fiscal year ended June 30, 2022.
Net Sales
We have two reportable segments, which are based on technology. The following table summarizes our net sales results by business segment and by geographic
location for the comparable fiscal years ended June 30, 2024 and 2023.
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2024
2023
$ Change
% Change
% Change Constant
Currency, Excluding
Divestitures
(in thousands)
Sales by Segment:
Specialty Technology Solutions
$
1,998,636
$
2,331,030
$
(332,394)
(14.3)%
(14.3)%
Modern Communications & Cloud
1,261,173
1,456,691
(195,518)
(13.4)%
(13.7)%
Total net sales
$
3,259,809
$
3,787,721
$
(527,912)
(13.9)%
(14.1)%
Sales by Geography Category:
United States
$
2,921,172
$
3,432,074
$
(510,902)
(14.9)%
(14.9)%
International
338,637
355,647
(17,010)
(4.8)%
(6.2)%
Total net sales
$
3,259,809
$
3,787,721
$
(527,912)
(13.9)%
(14.1)%
A reconciliation of non-GAAP net sales in constant currency, excluding divestitures 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. During fiscal year 2024, net sales for this segment
decreased $332.4 million, or 14.3%, compared to fiscal year 2023. Excluding the foreign exchange positive impact of $1.3 million, adjusted net sales for fiscal
year 2024 decreased $333.7 million, or 14.3%, compared to the prior fiscal year. The decrease in net sales and in adjusted net sales is primarily from lower
sales volume due to softer demand in a more cautious technology spending environment.
Modern Communications & Cloud
The Modern Communications & Cloud segment consists of sales to customers in North America and Brazil. During fiscal year 2024, net sales for this segment
decreased $195.5 million, or 13.4%, compared to fiscal year 2023. Excluding the foreign exchange positive impact of $8.5 million, adjusted net sales decreased
$198.7 million, or 13.7%, compared to the prior year. The decrease in net sales and adjusted net sales is primarily due to decreased lower sales volumes in our
communications hardware and Cisco products.
Intelisys connectivity and cloud net sales for fiscal year 2024 increased 6.6% year-over-year. For our Intelisys business, net sales reflect the net commissions
received from suppliers after paying sales partner commissions. For fiscal year 2024, Intelisys net billings, which are amounts billed by suppliers to end users
and represents annual recurring revenue, totaled approximately $2.67 billion. The fiscal year 2024 Intelisys net billings resulted in Intelisys net sales of
approximately $84.7 million.
Gross Profit
The following table summarizes our gross profit for the fiscal years ended June 30, 2024 and 2023:
% of Sales
June 30,
2024
2023
$ Change
% Change
2024
2023
(in thousands)
Specialty Technology Solutions
$
187,739
$
224,239
$
(36,500)
(16.3)%
9.4 %
9.6 %
Modern Communications & Cloud
211,313
225,000
(13,687)
(6.1)%
16.8 %
15.4 %
Total gross profit
$
399,052
$
449,239
$
(50,187)
(11.2)%
12.2 %
11.9 %
(a)
(a)
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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 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 Specialty Technology Solutions segment, gross profit dollars decreased $36.5 million. Lower sales volume, after considering the associated cost of
goods sold, impacted gross profit decline by $32.0 million for the current fiscal year. Gross margin mix negatively impacted gross profit by $4.5 million,
largely from unfavorable vendor program recognition partially offset by lower freight costs. For the fiscal year ended June 30, 2024, the gross profit margin
decreased 23 basis points over the prior-year to 9.4%.
Modern Communications & Cloud
For the Modern Communications & Cloud segment, gross profit dollars decreased $13.7 million. Lower sales volume, after considering the associated cost of
goods sold, unfavorably impacted gross profit dollars by $30.2 million. Gross margin mix positively impacted gross profit by $16.5 million, largely from a
more favorable sales mix and lower freight costs. For the fiscal year ended June 30, 2024, the gross profit margin increased 131 basis points over the prior
fiscal year to 16.8%.
Operating expenses
The following table summarizes our operating expenses for the periods ended June 30, 2024 and 2023:
% of Sales
June 30,
2024
2023
$ Change
% Change
2024
2023
(in thousands)
Selling, general and administrative expenses
$
277,428
$
285,695
$
(8,267)
(2.9)%
8.5 %
7.5 %
Depreciation expense
11,219
10,912
307
2.8 %
0.3 %
0.3 %
Intangible amortization expense
15,723
16,746
(1,023)
(6.1)%
0.5 %
0.4 %
Restructuring and other charges
4,358
—
4,358
*nm
0.1 %
— %
Operating expenses
$
308,728
$
313,353
$
(4,625)
(1.5)%
9.5 %
8.3 %
*nm - not meaningful
Selling, general and administrative expenses (“SG&A”) decreased $8.3 million for the fiscal year ended June 30, 2024 compared to the prior year. The decrease
in SG&A expenses is primarily attributable to lower employee costs, partially offset by an increase in bad debt expense as a result of increases in specific
customer reserves.
Intangible amortization expense decreased $1.0 million for the fiscal year ended June 30, 2024 compared to the prior fiscal year. Amortization expense
decreased during fiscal year 2024 due to primarily due to the removal of intangible assets related to the intY UK divestiture.
Restructuring and other charges of $4.4 million related to employee separation and benefit costs in connection with our expense reduction and restructuring
plans implemented during fiscal year 2024.
Operating Income
The following table summarizes our operating income for the periods ended June 30, 2024 and 2023:
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% of Sales
June 30,
2024
2023
$ Change
% Change
2024
2023
(in thousands)
Specialty Technology Solutions
$
44,726
$
75,688
$
(30,962)
(40.9)%
2.2 %
3.2 %
Modern Communications & Cloud
52,547
61,658
(9,111)
(14.8)%
4.2 %
4.2 %
Corporate
(6,949)
(1,460)
(5,489)
376.0 %
— %
— %
Total operating income
$
90,324
$
135,886
$
(45,562)
(33.5)%
2.8 %
3.6 %
Specialty Technology Solutions
For the Specialty Technology Solutions segment, operating income decreased $31.0 million, and operating margin decreased 101 basis points to 2.2% for the
fiscal year ended June 30, 2024, compared to the prior fiscal year. The decrease in operating income and operating margin is primarily due to lower gross
profits.
Modern Communications & Cloud
For the Modern Communications & Cloud segment, operating income decreased $9.1 million with the operating margin increasing slightly to 4.2% for the
fiscal year ended June 30, 2024, compared to the prior fiscal year. The decrease in operating income is largely due to lower gross profits.
Corporate
For the fiscal year ended June 30, 2024, Corporate operating loss totaled $6.9 million which represents $4.4 million in restructuring expenses, $1.7 million of
acquisition and divestiture costs as well as $0.9 million in cyberattack restoration charges. During the fiscal year ended June 30, 2023 Corporate incurred a loss
of $1.5 million representing cyberattack restoration charges.
Total Other (Income) Expense
The following table summarizes our total other (income) expense for the fiscal years ended June 30, 2024 and 2023:
% of Sales
June 30,
2024
2023
$ Change
% Change
2024
2023
(in thousands)
Interest expense
$
13,031
$
19,786
$
(6,755)
(34.1)%
0.4 %
0.5 %
Interest income
(9,381)
(7,414)
(1,967)
26.5 %
(0.3)%
(0.2)%
Net foreign exchange losses
2,198
2,168
30
1.4 %
0.1 %
0.1 %
Gain on sale of business
(14,155)
—
(14,155)
*nm
(0.4)%
— %
Other, net
(1,210)
(504)
(706)
140.1 %
— %
— %
Total other (income) expense
$
(9,517)
$
14,036
$
(23,553)
(167.8)%
(0.3)%
0.4 %
Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt
issuance costs. Interest expense decreased in fiscal 2024 as compared to 2023 primarily from lower average borrowings on our multi-currency revolving credit
facility.
Interest income for the fiscal year ended June 30, 2024 increased compared to fiscal year ended June 30, 2023 primarily from interest earned on higher cash
balances in North America.
26
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Index to Financial Statements
Net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign exchange
forward contracts gains and losses. Foreign exchange gains and losses are generated primarily as the result of fluctuations in the value of the U.S. dollar versus
the Brazilian real and the Canadian dollar versus the U.S. dollar. We partially offset foreign currency exposure with the use of foreign exchange contracts to
hedge against these exposures. The costs associated with foreign exchange contracts are included in the net foreign exchange losses.
For the fiscal year ended June 30, 2024 we recognized a $14.2 million gain on sale of our UK-based intY business.
Provision for Income Taxes
Income tax expense for continuing operations was $22.8 million and $33.8 million for the fiscal years ended June 30, 2024 and 2023, respectively, reflecting
effective tax rates of 22.8% and 27.7%, respectively. The decrease in the effective tax rate for fiscal 2024 compared to fiscal 2023 is primarily the result of the
tax treatment for the intY divestiture, the creditability of foreign taxes as a result of IRS Notice 2023-55 and a decrease in global intangible low taxed income
tax.
In December of 2021, the Organization for Economic Co-operation and Development ("OECD") released Pillar Two Model Rules defining the global
minimum tax rules, which contemplate a global minimum tax rate of 15%. Several member countries have enacted Pillar Two provisions that are effective in
fiscal year 2025. The Company believes it will qualify for safe harbor exemptions in many of these jurisdictions and any remaining impact to future effective
tax rates and corporate tax liability will be minimal.
We expect the fiscal year 2025 effective tax rate from continuing operations to be approximately 27.5% to 28.5%. See Note 13 - Income Taxes in the Notes to
Consolidated Financial Statements for further discussion including an effective tax rate reconciliation.
27
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Index to Financial Statements
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 currency. Constant currency is a measure that excludes the translation exchange impact from changes in foreign
currency exchange rates between reporting periods and certain impacts related to acquisitions and divestitures. We use non-GAAP financial measures to better
understand and evaluate performance, including comparisons from period to period.
These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that we report may not be comparable to
similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in
substitution for or as superior to, measurements of financial performance prepared in accordance with US GAAP.
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, changes
in fair value of contingent consideration, non-cash shared-based compensation expense and other non-GAAP adjustments. Since adjusted EBITDA excludes
some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more
clearly.
We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-
bearing debt for the period. The following table summarizes annualized adjusted ROIC for the fiscal years ended June 30, 2024 and 2023.
2024
2023
Adjusted return on invested capital ratio
12.4 %
14.6 %
The components of our adjusted ROIC calculation and reconciliation to our financial statements are shown, as follows:
Fiscal Year Ended June 30,
2024
2023
(in thousands)
Reconciliation of net income to adjusted EBITDA:
Net income from continuing operations (GAAP)
$
77,060
$
88,092
Plus: Interest expense
13,031
19,786
Plus: Income taxes
22,781
33,758
Plus: Depreciation and amortization
28,009
28,614
EBITDA (non-GAAP)
140,881
170,250
Plus: Share-based compensation
9,537
11,219
Plus: Tax recovery
(2,558)
(2,986)
Plus: Cyberattack restoration costs
874
1,460
Plus: Gain on sale of business
(14,155)
—
Plus: Acquisition and divestiture costs
1,717
—
Plus: Restructuring costs
4,358
—
Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP)
$
140,654
$
179,943
(a)
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Index to Financial Statements
Fiscal Year Ended June 30,
2024
2023
(in thousands)
Invested capital calculations:
Equity – beginning of the year
$
905,298
$
806,528
Equity – end of the year
924,255
905,298
Plus: Share-based compensation, net
7,120
8,326
Plus: Acquisition and divestiture costs
1,717
—
Plus: Cyberattack restoration costs, net
655
1,092
Plus: Restructuring, net
3,262
—
Plus: Gain on sale of business
(14,155)
—
Plus: Tax recovery, net
(2,566)
(3,985)
Plus: Impact of discontinued operations, net
—
(1,717)
Average equity
912,793
857,771
Average funded debt
220,528
372,235
Invested capital (denominator for adjusted ROIC) (non-GAAP)
$
1,133,321
$
1,230,006
Includes divestiture costs for the fiscal year ended June 30, 2023. Divestiture costs are generally non-deductible for tax purposes.
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 fiscal year period. We also exclude the impact of acquisitions and
divestitures prior to the first full year of operations from the acquisition or divestiture date in order to show net sales results on an organic basis. This
information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions or
divestitures. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding acquisitions and divestitures:
(a)
(b)
(a)
(b)
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Index to Financial Statements
Net Sales by Segment:
Fiscal Year Ended June 30,
2024
2023
$ Change
% Change
Specialty Technology Solutions:
(in thousands)
Net sales, reported
$
1,998,636
$
2,331,030
$
(332,394)
(14.3)%
Foreign exchange impact
(1,341)
—
Non-GAAP net sales, constant currency
$
1,997,295
$
2,331,030
$
(333,735)
(14.3)%
Modern Communications & Cloud:
Net sales, reported
$
1,261,173
1,456,691
$
(195,518)
(13.4)%
Foreign exchange impact
(8,542)
—
Less: Divestitures
(3,747)
(9,140)
Non-GAAP net sales, constant currency
$
1,248,884
$
1,447,551
$
(198,667)
(13.7)%
Consolidated:
Net sales, reported
$
3,259,809
$
3,787,721
$
(527,912)
(13.9)%
Foreign exchange impact
(9,883)
—
Less: Divestitures
(3,747)
(9,140)
Non-GAAP net sales, constant currency
$
3,246,179
$
3,778,581
$
(532,402)
(14.1)%
(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 fiscal year ended June 30, 2024
into U.S. dollars using the average foreign exchange rates for the fiscal year ended June 30, 2023.
Net Sales by Geography:
Fiscal Year Ended June 30,
2024
2023
$ Change
% Change
United States and Canada:
(in thousands)
Net sales, as reported
$
2,921,172
$
3,432,074
$
(510,902)
(14.9)%
Less: Acquisitions
—
—
Net sales, excluding acquisitions
$
2,921,172
$
3,432,074
$
(510,902)
(14.9)%
International:
Net sales, reported
$
338,637
$
355,647
$
(17,010)
(4.8)%
Foreign exchange impact
(9,883)
—
Less: Divestitures
(3,747)
(9,140)
Non-GAAP net sales, constant currency
$
325,007
$
346,507
$
(21,500)
(6.2)%
Consolidated:
Net sales, reported
$
3,259,809
$
3,787,721
$
(527,912)
(13.9)%
Foreign exchange impact
(9,883)
—
Less: Divestitures
(3,747)
(9,140)
Non-GAAP net sales, constant currency
$
3,246,179
$
3,778,581
$
(532,402)
(14.1)%
(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 fiscal year ended June 30, 2024
into U.S. dollars using the average foreign exchange rates for the fiscal year ended June 30, 2023.
(a)
(a)
(a)
(a)
(a)
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Index to Financial Statements
Operating Income by Segment:
Fiscal Year Ended June 30,
% of Net Sales
June 30,
2024
2023
$ Change
% Change
2024
2023
Specialty Technology Solutions:
(in thousands)
GAAP operating income
$
44,726 $
75,688 $
(30,962)
(40.9)%
2.2 %
3.2 %
Adjustments:
Amortization of intangible assets
5,046
5,136
(90)
Non-GAAP operating income
$
49,772 $
80,824 $
(31,052)
(38.4)%
2.5 %
3.5 %
Modern Communications & Cloud:
GAAP operating income
$
52,547 $
61,658 $
(9,111)
(14.8)%
4.2 %
4.2 %
Adjustments:
Amortization of intangible assets
10,677
11,610
(933)
Tax recovery
(2,558)
(2,986)
428
Non-GAAP operating income
$
60,666 $
70,282 $
(9,616)
(13.7)%
4.8 %
4.8 %
Corporate:
GAAP operating loss
$
(6,949) $
(1,460) $
(5,489)
nm*
nm*
nm*
Adjustments:
Divestiture costs
1,717
—
1,717
Cyberattack restoration costs
874
1,460
(586)
Restructuring costs
4,358
—
4,358
Non-GAAP operating income
$
— $
— $
—
nm*
nm*
nm*
Consolidated:
GAAP operating income
$
90,324
$
135,886
$
(45,562)
(33.5)%
2.8 %
3.6 %
Adjustments:
Amortization of intangible assets
15,723
16,746
(1,023)
Cyberattack restoration costs
874
1,460
(586)
Divestiture costs
1,717
—
1,717
Restructuring costs
4,358
—
4,358
Tax recovery
(2,558)
(2,986)
428
Non-GAAP operating income
$
110,438
$
151,106
$
(40,668)
(26.9)%
3.4 %
4.0 %
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Index to Financial Statements
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:
Year ended June 30, 2024
GAAP
Measure
Intangible
amortization
expense
Acquisition
and
Divestiture
costs
Restructuring
costs
Tax recovery
Cyberattack
restoration
costs
Gain on sale
of business
Non-GAAP
measure
(in thousands, except per share data)
SG&A expenses $
277,428 $
— $
(1,717) $
— $
2,558 $
(874) $
— $
277,395
Operating
income
90,324
15,723
1,717
4,358
(2,558)
874
—
110,438
Pre-tax income
99,841
15,723
1,717
4,358
(2,558)
874
(14,155)
105,800
Net income
77,060
11,697
1,717
3,262
(2,566)
655
(14,155)
77,670
Diluted EPS
$
3.06 $
0.46 $
0.07 $
0.13 $
(0.10) $
0.03 $
(0.56) $
3.08
Year ended June 30, 2023
GAAP
Measure
Intangible
amortization
expense
Acquisition
and
Divestiture
costs
Restructuring
costs
Tax recovery
Cyberattack
restoration
costs
Gain on sale
of business
Non-GAAP
measure
(in thousands, except per share data)
SG&A expenses $
285,695 $
— $
— $
— $
2,986 $
(1,460) $
— $
287,221
Operating
income
135,886
16,746
—
—
(2,986)
1,460
—
151,106
Pre-tax income
121,850
16,746
—
—
(2,986)
1,460
—
137,070
Net income
88,092
12,489
—
—
(3,985)
1,092
—
97,688
Diluted EPS
$
3.47 $
0.49 $
— $
— $
(0.16) $
0.04 $
— $
3.85
Acquisition and divestiture costs for the fiscal year ended June 30, 2024 are generally nondeductible for tax purposes.
Reflects gain on the sale of the UK-based intY business. This transaction resulted in a capital loss for tax purposes. The Company did not record a tax provision on the capital
loss as there were no offsetting capital gains.
(a)
(b)
(a)
(b)
(a)
(b)
32
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Index to Financial Statements
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been
prepared in conformity with US GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis management evaluates its estimates, including those related to the allowance for
uncollectible accounts receivable, inventory reserves to reduce inventories to the lower of cost or net realizable value, supplier incentives and goodwill.
Management bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances,
the results of which form a basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual
results may differ materially from these estimates under different assumptions or conditions. For further discussion of our significant accounting policies, refer
to Note 1 - Business and Summary of Significant Accounting Policies.
Allowances for Trade and Notes Receivable
We adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326) effective July 1, 2020. The adoption did not have a material impact on our
consolidated financial statements. Our policy for estimating allowances for doubtful accounts receivable is described below.
We maintain an allowance for uncollectible accounts receivable for estimated future expected credit losses resulting from customers’ failure to make payments
on accounts receivable due us. 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 us 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.
We account for credit losses based upon ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326). 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 are recorded at inception and adjusted over the contractual life. Refer to Note 2 - Accounts
Receivable and Notes Receivable, Net for further details.
Inventory Reserves
Management determines the inventory reserves required to reduce inventories to the lower of cost or net realizable value based principally on the effects of
technological changes, quantities of goods and length of time on hand and other factors. An estimate is made of the net realizable value, less cost to dispose, of
products whose value is determined to be impaired. If these products are ultimately sold at less than estimated amounts, additional reserves may be required.
The estimates used to calculate these reserves are applied consistently. The adjustments are recorded in the period in which the loss of utility of the inventory
occurs, which establishes a new cost basis for the inventory. This new cost basis is maintained until such time that the reserved inventory is disposed of,
returned to the supplier or sold. To the extent that specifically reserved inventory is sold, cost of goods sold is expensed for the new cost basis of the inventory
sold.
Supplier Programs
We receive incentives from suppliers related to cooperative advertising allowances, volume rebates and other incentive programs. These incentives are
generally under quarterly, semi-annual or annual agreements with the suppliers. Some of these incentives are negotiated on an ad hoc basis to support specific
programs mutually developed between the Company and the supplier. Suppliers generally require that we use the suppliers’ cooperative advertising allowances
for advertising or other marketing programs. Incentives received from suppliers for specifically identified incremental cooperative advertising programs are
recorded as adjustments to selling, general and administrative expenses. ASC 606– Revenue from Contracts with Customers addresses accounting for
consideration payable to a customer, which the Company interprets and applies as the customer (i.e., the Company) receives advertising funds from a supplier.
The portion of these supplier funds in excess of our costs are reflected as a reduction of inventory. Such funds are recognized as a reduction of the cost of goods
sold when the related inventory is sold.
We record unrestricted volume rebates received as a reduction of inventory and reduces the cost of goods sold when the related inventory is sold. Amounts
received or receivables from suppliers that are not yet earned are deferred in the Consolidated Balance Sheets. Supplier receivables are generally collected
through reductions to accounts payable authorized by the supplier.
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Index to Financial Statements
In addition, we may receive early payment discounts from certain suppliers. We record early payment discounts received as a reduction of inventory, thereby
resulting in a reduction of cost of goods sold when the related inventory is sold. ASC 606 requires management to make certain estimates of the amounts of
supplier consideration that will be received. Estimates are based on the terms of the incentive program and historical experiences. Actual recognition of the
supplier consideration may vary from management estimates.
Goodwill
We account for recorded goodwill in accordance with ASC 350, Goodwill and Other Intangible Assets, which requires that goodwill be reviewed annually for
impairment or more frequently if impairment indicators exist. Goodwill testing utilizes an impairment analysis, whereby we compare the carrying value of each
identified reporting unit to its fair value. The carrying value of goodwill is reviewed at a reporting unit level at least annually for impairment, or more
frequently if impairment indicators exist. Our goodwill reporting units align directly with our operating segments, Specialty Technology Solutions and Modern
Communications & Cloud. The fair values of the reporting units are estimated using the net present value of discounted cash flows generated by each reporting
unit. Considerable judgment is necessary in estimating future cash flows, discount rates and other factors affecting the estimated fair value of the reporting
units, including the operating and macroeconomic factors. Historical financial information, internal plans and projections and industry information are used in
making such estimates.
Under ASC 350, if fair value of goodwill fair value is determined to be less than carrying value, an impairment loss is recognized for the amount of the
carrying value that exceeds the amount of the reporting units' fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Additionally,
we would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss, if applicable. We also assess the recoverability of goodwill if facts and circumstances indicate goodwill may be impaired. In our most recent annual test,
we estimated the fair value of our reporting units primarily based on the income approach utilizing the discounted cash flow method. As of June 30, 2024, the
Specialty Technology and Modern Communications & Cloud reporting units' goodwill balances are $16.4 million and $189.9 million, respectively. The fair
value of the reporting units exceeded its carrying value by 11% and 33%, respectively, as of the annual goodwill impairment testing date. We also utilized fair
value estimates derived from the market approach utilizing the public company market multiple method to validate the results of the discounted cash flow
method, which required us to make assumptions about the applicability of those multiples to our reporting units. The discounted cash flow method requires us
to estimate future cash flows and discount those amounts to present value. The key assumptions utilized in determining fair value included:
•
Industry WACC: We utilized a WACC relative to each reporting unit's respective geography and industry as the discount rate for estimated future
cash flows. The WACC is intended to represent a rate of return that would be expected by a market place participant in each respective
geography.
•
Operating income: We utilized historical and expected revenue growth rates, gross margins and operating expense percentages, which varied
based on the projections of each reporting unit being evaluated.
•
Cash flows from working capital changes: We utilized a projected cash flow impact pertaining to expected changes in working capital as each of
our goodwill reporting units grow.
While we believe our assumptions are appropriate, they are subject to uncertainty and by nature include judgments and estimates regarding future events,
including projected growth rates, margin percentages and operating efficiencies. Key assumptions used in determining fair value include projected growth and
operating margin, working capital requirements and discount rates. During fiscal years 2024 and 2023, we completed our annual impairment test as of April
30th and determined that our goodwill was not impaired.
See Note 7 - Goodwill and Other Identifiable Intangible Assets in the Notes to Consolidated Financial Statements for further discussion on our goodwill
impairment testing and results.
Purchase Price Allocation
The Company accounts for business combinations in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") 805, Business Combinations. For each acquisition, the Company allocates the purchase price to assets acquired, liabilities assumed and goodwill and
intangibles. The Company recognizes assets and liabilities acquired at their estimated fair values. Management uses judgment to (i) identify the acquired assets
and liabilities assumed, (ii) estimate the fair value of these assets, (iii) estimate the useful life of the assets and (iv) assess the appropriate method for
recognizing depreciation or amortization expense over the assets' useful life.
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Index to Financial Statements
Accounting Standards Recently Issued
See Note 1 in the Notes to Consolidated Financial Statements for the discussion on recent accounting pronouncements.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and borrowings under the $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 suppliers. In
general, as our sales volumes increase, our net investment in working capital typically 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.
Cash and cash equivalents totaled $185.5 million and $36.2 million at June 30, 2024 and 2023, respectively, of which $20.0 million and $31.0 million was held
outside of the United States as of June 30, 2024 and 2023, respectively. Checks released but not yet cleared from these accounts in the amounts of $5.9 million
and $8.0 million are classified as accounts payable as of June 30, 2024 and 2023, respectively.
We conduct business primarily in North America and Brazil where we generate and use cash. We provide for United States income taxes from the earnings of
our Canadian and Brazilian subsidiaries. See Note 13 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion.
Our net investment in working capital, defined as accounts receivable plus inventories less accounts payable, decreased $313.5 million to $506.2 million at
June 30, 2024 from $819.7 million at June 30, 2023, primarily as a result of lower sales volumes and our multi-quarter working capital improvement plan. 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 fiscal year ended June 30, 2024, our working capital investment decreased in
return growing our availability and cash on hand to help finance future growth.
Year ended
Cash (used in) provided by:
June 30, 2024
June 30, 2023
(in thousands)
Operating activities of continuing operations
$
371,647
$
(35,769)
Investing activities of continuing operations
9,045
(8,262)
Financing activities of continuing operations
(227,767)
39,531
Net cash provided by operating activities was $371.6 million for the fiscal year ended June 30, 2024 and cash used in operating activities was $35.8 million for
the fiscal years ended June 30, 2023, respectively. Cash provided by operating activities for the fiscal year ended June 30, 2024 is primarily due to decreases in
inventory and accounts receivable, which decreased 32.3% and 22.8%, respectively compared to the beginning of the fiscal year. Cash provided by operating
activities for the fiscal year ended June 30, 2023 is primarily due to increases in inventory, which increased 23.2% compared to the beginning of the fiscal year,
partially offset by earnings from operations.
Operating cash flows are subject to variability period over period as a result of the timing of payments related to accounts receivable, accounts payable and
other working capital items.
The number of days sales outstanding ("DSO") was 71 at June 30, 2024 compared to 72 at June 30, 2023. Throughout fiscal year 2024, DSO ranged from 68 to
72. Inventory turnover was 5.0 times during the fourth quarter fiscal year 2024, compared to 4.4 times in the fourth quarter of fiscal year 2023. Throughout
fiscal year 2024, inventory turnover ranged from 4.4 to 5.1 times.
Cash provided by investing activities was $9.0 million for the fiscal year ended June 30, 2024 compared to cash used in investing activities of $8.3 million for
the fiscal year ended June 30, 2023. Cash provided by investing activities for fiscal year 2024 is largely due to cash received from the sale of our intY UK
business, partially offset by capital expenditures. Cash used in
35
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Index to Financial Statements
investing activities for the fiscal year 2023 represents capital expenditures, partially offset by proceeds from the sale of our discontinued operations.
Management expects capital expenditures for fiscal year 2025 to range from $10.0 million to $15.0 million, primarily for IT investments.
Cash used in financing activities totaled $227.8 million for the fiscal year ended June 30, 2024 primarily due to repayments on the revolving line of credit and
the repurchase of common stock. Cash provided by financing activities of $39.5 million for the fiscal year ended June 30, 2023 was primarily from net
borrowings on the revolving line of credit.
Share Repurchase Program
In May 2024, our Board approved an additional $100.0 million share repurchase authorization, which supplements the existing $100 million repurchase
program authorized in August 2021. The share repurchase authorizations do not have any time limits. In fiscal year 2024, we repurchased 980,539 shares
totaling $43.3 million. As of June 30, 2024, the Company had approximately $123.1 million available for repurchases under Board approved authorizations.
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 (as amended, the
“Amended Credit Agreement”). On September 28, 2022, we amended and restated our Amended Credit Agreement, which includes (i) a five-year,
$350 million multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. The amendment extended
the revolving credit facility maturity date to September 28, 2027. In addition, pursuant to an “accordion feature,” we may increase our borrowings up to an
additional $250 million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement
allows for the issuance of up to $50 million for letters of credit. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of our
domestic assets and our domestic subsidiaries. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. We incurred debt
issuance costs of $1.4 million in connection with the amendment and restatement of the Amended Credit Agreement. These costs were capitalized to other non-
current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.
Loans denominated in U.S. dollars, other than swingline loans, bear interest at a rate per annum equal to, at our option, (i) the adjusted term Secured Overnight
Financing Rate (“SOFR”) or adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our ratio of (A) total
consolidated debt less up to $30 million of unrestricted domestic cash (“Credit Facility Net Debt”) to (B) trailing four-quarter consolidated EBITDA measured
as of the end of the most recent year or quarter, as applicable (Credit Facility EBITDA”), 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. All swingline loans denominated in U.S. dollars bear interest based upon the adjusted daily simple SOFR plus an additional margin
ranging from 1.00% to 1.75% depending upon our leverage ratio, or such other rate as agreed upon with the applicable swingline lender. The adjusted term
SOFR and adjusted daily simple SOFR include a fixed credit adjustment of 0.10% over the applicable SOFR reference rate. Loans denominated in foreign
currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the Amended Credit Agreement plus an additional margin
ranging from 1.00% to 1.75%, depending upon our leverage ratio plus, if applicable, certain mandatory costs.
During the fiscal year ended June 30, 2024, our borrowings under the credit facility were U.S. dollar loans. The spread in effect as of June 30, 2024 was 1.00%,
plus a 0.10% credit spread adjustment for SOFR-based loans and 0.00% for alternate base rate loans. The commitment fee rate in effect as of June 30, 2024
was 0.15%. 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 as of 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 Amended Credit Agreement as
of June 30, 2024.
36
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Index to Financial Statements
The average daily balance on the revolving credit facility, excluding the term loan facility, was $71.1 million and $223.5 million during the fiscal years ended
June 30, 2024 and June 30, 2023, respectively. There was $349.9 million and $171.0 million available for additional borrowings as of June 30, 2024 and
June 30, 2023, respectively. There were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2024 and June 30, 2023.
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 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 June 30, 2024, based upon
the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $349.9 million available for borrowing. While we were in
compliance with the financial covenants contained in the Credit Facility as of June 30, 2024, 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.
Contractual Obligations
At June 30, 2024, we had less than $0.1 million outstanding under our revolving credit facility. We also had $140.6 million outstanding under our term loan
facility, $7.5 million of which matures in fiscal year 2024. Our revolving credit facility and our term loan facility have a maturity date September 28, 2027. The
remaining principal debt payments on our industrial development revenue bond, which total $3.4 million, have maturity dates in 2025 through 2032. See
Footnote 8 - Short Term Borrowings and Long Term Debt.
We also had a non-cancelable operating lease agreement of $9.9 million at June 30, 2024, of which $4.2 million is expected to be paid within the next 12
months. Remaining amounts are expected to be paid through 2030. See Footnote 14 - Leases.
Summary
We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds
under our credit agreements, will provide sufficient resources to meet 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.
37
Table of Contents
Index to Financial Statements
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
Our principal exposure to changes in financial market conditions in the normal course of our business is a result of our selective use of bank debt and
transacting business in foreign currencies in connection with our foreign operations.
Interest Rate Risk
We are exposed to changes in interest rates primarily as a result of our borrowing activities, which include revolving credit facilities with a group of banks used
to maintain liquidity and fund our business operations. The nature and amount of our debt may vary as a result of future business requirements, market
conditions and other factors. A hypothetical 100 basis point increase or decrease in interest rates on total borrowings on our revolving credit facility and
variable rate long-term debt, net of the impact of interest rate swaps, would have resulted in approximately a $1.0 million and $2.5 million increase or decrease
in pre-tax income for the fiscal years ended June 30, 2024 and June 30, 2023, respectively.
We evaluate our interest rate risk and utilize interest rate swaps to mitigate the risk of interest rate fluctuations associated with our current and long-term debt.
At June 30, 2024 and June 30, 2023, we had $144.1 million and $329.9 million, respectively, in variable rate debt.
We entered into an interest rate swap on April 30, 2019, which was amended on September 28, 2022. The interest rate swap has a notional amount of $100.0
million, of which a $50.0 million tranche matured on April 30, 2024 and the remaining $50.0 million tranche is scheduled to mature on April 30, 2026. We
entered into an additional interest rate swap on March 31, 2023 to lock into a fixed SOFR interest rate. The interest rate swap has a notional amount of
$25 million and a maturity date of March 31, 2028.
The purpose of these interest rate swaps is to manage or hedge our exposure to floating rate debt and achieve a desired proportion of fixed versus floating rate
debt. Our use of derivative instruments have the potential to expose us to certain market risks including the possibility of (1) our hedging activities not being as
effective as anticipated in reducing the volatility of our cash flows, (2) the counterparties not performing their obligations under the applicable hedging
arrangement, (3) the hedging arrangement being imperfect or ineffective or (4) the terms of the swaps or associated debt changing. We seek to manage such
risks through our policy of identifying, controlling and managing market risks, and by otherwise limiting our counterparties for certain transactions to major
financial institutions.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency risks that arise from our foreign operations in Canada and Brazil. These risks include transactions denominated in non-
functional currencies and intercompany loans with foreign subsidiaries. In the normal course of the business, foreign exchange risk is managed by the use of
currency options and forward contracts to hedge these exposures as well as balance sheet netting of exposures. In addition, exchange rate fluctuations may
cause our international results to fluctuate significantly when translated into U.S. dollars. A hypothetical 10% increase or decrease in foreign exchange rates
would have resulted in approximately a $0.1 million and $2.7 million increase or decrease in pre-tax income for fiscal years ended June 30, 2024 and June 30,
2023, respectively. These risks may change over time as business practices evolve and could have a material impact on our financial results in the future.
Our senior management has approved a foreign exchange hedging policy to reduce foreign currency exposure. Our policy is to utilize financial instruments to
reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency derivative instruments for speculative or trading
purposes. We monitor our risk associated with the volatility of certain foreign currencies against our functional currencies and enter into foreign exchange
derivative contracts to minimize short-term currency risks on cash flows. These positions are based upon balance sheet exposures and, in certain foreign
currencies, our forecasted purchases and sales. We continually evaluate foreign exchange risk and may enter into foreign exchange transactions in accordance
with our policy. Actual variances from these forecasted transactions can adversely impact foreign exchange results. Foreign currency gains and losses are
included in other expense (income).
We have elected not to designate our foreign currency contracts as hedging instruments, and therefore, the instruments are marked-to-market with changes in
their values recorded in the consolidated income statement each period. Our foreign currencies are primarily Brazilian reais and Canadian dollars. At June 30,
2024 and June 30, 2023, the fair value of our currency forward contracts were a net asset or payable of less than $0.1 million.
38
Table of Contents
Index to Financial Statements
ITEM 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Page
Financial Statements
Report of Grant Thornton LLP Independent Registered Public Accounting Firm (PCAOB ID: 248)
40
Report of Grant Thornton LLP Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
41
Consolidated Balance Sheets
42
Consolidated Income Statements
43
Consolidated Statements of Comprehensive Income (Loss)
44
Consolidated Statements of Shareholders’ Equity
45
Consolidated Statements of Cash Flows
46
Notes to Consolidated Financial Statements
48
All schedules and exhibits not included are not applicable, not required or would contain information that is shown in the financial statements or notes thereto.
39
Table of Contents
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
ScanSource, Inc.:
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of ScanSource, Inc. (a South Carolina corporation) and subsidiaries (the “Company”) as of
June 30, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three
years in the period ended June 30, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s
internal control over financial reporting as of June 30, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated August 27, 2024 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to
the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Grant Thornton LLP
We have served as the Company’s auditor since 2014.
Charlotte, North Carolina
August 27, 2024
40
Table of Contents
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
ScanSource, Inc.:
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of ScanSource, Inc. (a South Carolina corporation) and subsidiaries (the “Company”) as of June
30, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
June 30, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
financial statements of the Company as of and for the year ended June 30, 2024, and our report dated August 27, 2024 expressed an unqualified opinion on
those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s report on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ Grant Thornton, LLP
Charlotte, North Carolina
August 27, 2024
41
Table of Contents
Index to Financial Statements
ScanSource, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share information)
June 30,
2024
June 30,
2023
Assets
Current assets:
Cash and cash equivalents
$
185,460
$
36,178
Accounts receivable, less allowance of $20,684 at June 30, 2024
and $15,480 at June 30, 2023
581,523
753,236
Inventories
512,634
757,574
Prepaid expenses and other current assets
125,082
110,087
Total current assets
1,404,699
1,657,075
Property and equipment, net
33,501
37,379
Goodwill
206,301
216,706
Identifiable intangible assets, net
37,634
68,495
Deferred income taxes
19,902
17,764
Other non-current assets
76,995
70,750
Total assets
$
1,779,032
$
2,068,169
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
$
587,984
$
691,119
Accrued expenses and other current liabilities
65,616
78,892
Income taxes payable
7,895
9,875
Current portion of long-term debt
7,857
6,915
Total current liabilities
669,352
786,801
Deferred income taxes
—
3,816
Long-term debt, net of current portion
136,149
144,006
Borrowings under revolving credit facility
50
178,980
Other long-term liabilities
49,226
49,268
Total liabilities
854,777
1,162,871
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued
—
—
Common stock, no par value; 45,000,000 shares authorized, 24,243,848 and 24,844,203 shares issued and
outstanding at June 30, 2024 and June 30, 2023, respectively
26,370
58,241
Retained earnings
1,013,738
936,678
Accumulated other comprehensive loss
(115,853)
(89,621)
Total shareholders’ equity
924,255
905,298
Total liabilities and shareholders’ equity
$
1,779,032
$
2,068,169
See accompanying notes to consolidated financial statements.
42
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Index to Financial Statements
]ScanSource, Inc. and Subsidiaries
Consolidated Income Statements
Years Ended June 30, 2024, 2023 and 2022
(in thousands, except per share information)
2024
2023
2022
Net sales
$
3,259,809
$
3,787,721
$
3,529,935
Cost of goods sold
2,860,757
3,338,482
3,103,411
Gross profit
399,052
449,239
426,524
Selling, general and administrative expenses
277,428
285,695
275,442
Depreciation expense
11,219
10,912
11,062
Intangible amortization expense
15,723
16,746
17,853
Restructuring and other charges
4,358
—
—
Operating income
90,324
135,886
122,167
Interest expense
13,031
19,786
6,523
Interest income
(9,381)
(7,414)
(4,333)
Gain on sale of business
(14,155)
—
—
Other expense, net
988
1,664
1,354
Income before income taxes
99,841
121,850
118,623
Provision for income taxes
22,781
33,758
29,925
Net income from continuing operations
77,060
88,092
88,698
Net income from discontinued operations
—
1,717
100
Net income
$
77,060
$
89,809
$
88,798
Per share data:
Net income from continuing operations per common share, basic
$
3.10
$
3.50
$
3.48
Net income from discontinued operations per common share, basic
—
0.07
—
Net income per common share, basic
$
3.10
$
3.57
$
3.48
Weighted-average shares outstanding, basic
24,868
25,142
25,504
Net income from continuing operations per common share, diluted
$
3.06
$
3.47
$
3.44
Net income from discontinued operations per common share, diluted
—
0.07
—
Net income per common share, diluted
$
3.06
$
3.54
$
3.45
Weighted-average shares outstanding, diluted
25,222
25,362
25,758
See accompanying notes to consolidated financial statements.
43
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Index to Financial Statements
ScanSource, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended June 30, 2024, 2023 and 2022
(in thousands)
2024
2023
2022
Net income
$
77,060
$
89,809
$
88,798
Unrealized (loss) gain on hedged transaction, net of tax
(1,482)
2,254
5,833
Foreign currency translation adjustment
(20,945)
12,763
(12,338)
Realized foreign currency translation on sale of business
(3,805)
—
—
Comprehensive income
$
50,828
$
104,826
$
82,293
See accompanying notes to these consolidated financial statements.
44
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Index to Financial Statements
ScanSource, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Years Ended June 30, 2024, 2023 and 2022
(in thousands, except share information)
Common
Stock
(Shares)
Common
Stock
(Amount)
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Balance at June 30, 2021
25,499,465
$
71,253
$
758,071
$
(98,133)
$
731,191
Net income
—
—
88,798
—
88,798
Unrealized gain on hedged transaction, net of tax
—
—
—
5,833
5,833
Foreign currency translation adjustment
—
—
—
(12,338)
(12,338)
Exercise of stock options and shares issued under share-based
compensation plans, net of shares withheld for employee
taxes
238,080
(450)
—
—
(450)
Common stock repurchased
(550,194)
(18,203)
—
—
(18,203)
Share-based compensation
—
11,697
—
—
11,697
Balance at June 30, 2022
25,187,351
64,297
846,869
(104,638)
806,528
Net income
—
—
89,809
—
89,809
Unrealized gain on hedged transaction, net of tax
—
—
—
2,254
2,254
Foreign currency translation adjustment
—
—
—
12,763
12,763
Exercise of stock options and shares issued under share-based
compensation plans, net of shares withheld for employee
taxes
180,960
(1,553)
—
—
(1,553)
Common stock repurchased
(524,108)
(15,753)
—
—
(15,753)
Share-based compensation
—
11,250
—
—
11,250
Balance at June 30, 2023
24,844,203
58,241
936,678
(89,621)
905,298
Net income
—
—
77,060
—
77,060
Unrealized loss on hedged transaction, net of tax
—
—
—
(1,482)
(1,482)
Foreign currency translation adjustment
—
—
—
(20,945)
(20,945)
Realized foreign currency translation from sale of a business
—
—
—
(3,805)
(3,805)
Exercise of stock options and shares issued under share-based
compensation plans, net of shares withheld for employee
taxes
380,184
1,937
—
—
1,937
Common stock repurchased
(980,539)
(43,337)
—
—
(43,337)
Share-based compensation
—
9,529
—
—
9,529
Balance at June 30, 2024
24,243,848
$
26,370
$
1,013,738
$
(115,853)
$
924,255
See accompanying notes to consolidated financial statements.
45
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Index to Financial Statements
ScanSource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended June 30, 2024, 2023 and 2022
(in thousands)
2024
2023
2022
Cash flows from operating activities:
Net income
$
77,060
$
89,809
$
88,798
Net income from discontinued operations
—
1,717
100
Net income from continuing operations
77,060
88,092
88,698
Adjustments to reconcile net income to net cash (used in) provided by operating activities of
continuing operations:
Gain on sale of a business
(14,155)
—
—
Depreciation and amortization
28,009
28,614
29,884
Amortization of debt issue costs
386
577
417
Provision for doubtful accounts
8,317
2,785
1,514
Share-based compensation
9,537
11,219
11,663
Deferred income taxes
(2,472)
(1,496)
5,737
Finance lease interest
101
44
34
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
138,264
(17,368)
(165,939)
Inventories
239,157
(138,313)
(145,962)
Prepaid expenses and other assets
(17,804)
32,653
(27,371)
Other non-current assets
(10,689)
(7,582)
1,123
Accounts payable
(78,167)
(30,656)
82,969
Accrued expenses and other liabilities
(3,872)
(14,195)
(4,869)
Income taxes payable
(2,025)
9,857
(2,252)
Net cash (used in) provided by operating activities of continuing operations
371,647
(35,769)
(124,354)
Cash flows from investing activities of continuing operations:
Capital expenditures
(8,555)
(9,979)
(6,849)
Cash received for business disposal
17,600
1,717
3,125
Net cash (used in) provided by investing activities of continuing operations
9,045
(8,262)
(3,724)
Cash flows from financing activities of continuing operations:
Borrowings on revolving credit, net of expenses
1,259,728
2,499,166
2,166,409
Repayments on revolving credit, net of expenses
(1,438,658)
(2,456,025)
(2,030,569)
Debt issuance costs
—
(1,407)
—
Borrowings (repayments) on long-term debt
(6,915)
15,590
(7,843)
Repayments of finance lease obligations
(964)
(589)
(1,238)
Exercise of stock options
4,813
910
2,304
Taxes paid on settlement of equity awards
(2,876)
(2,463)
(2,754)
Repurchase of common stock
(42,895)
(15,651)
(18,203)
Net cash provided by (used in) financing activities of continuing operations
(227,767)
39,531
108,106
Net cash flows used in by discontinued operations
—
—
—
46
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Index to Financial Statements
Effect of exchange rate changes on cash and cash equivalents
(3,643)
2,691
(4,759)
(Decrease) increase in cash and cash equivalents
149,282
(1,809)
(24,731)
Cash and cash equivalents at beginning of period
36,178
37,987
62,718
Cash and cash equivalents at end of period
185,460
36,178
37,987
Cash and cash equivalents of discontinued operations
—
—
—
Cash and cash equivalents of continuing operations
$
185,460
$
36,178
$
37,987
Supplemental disclosure of consolidated cash flow information:
Interest paid during the year
$
12,953
$
18,789
$
6,066
Income taxes paid during the year
$
27,129
$
28,547
$
29,418
See accompanying notes to consolidated financial statements.
47
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2024
(1) Business and Summary of Significant Accounting Policies
Business Description
ScanSource, Inc. (together with its subsidiaries referred to as “the Company” or “ScanSource”) is a leading hybrid distributor connecting devices to the cloud
and accelerating growth for partners across hardware, Software as a Service ("SaaS"), connectivity and cloud. The Company brings technology solutions and
services from the world's leading suppliers of mobility and barcode, point-of-sale ("POS"), payments, networking, physical security, unified communications
and collaboration, telecom and cloud services to market. The Company primarily operates in the United States, Canada and Brazil. The Company's two
operating segments, Specialty Technology Solutions and Modern Communications & Cloud, are based on technology type and are generally related to
technology devices and communication, connectivity and cloud services, respectively.
Cybersecurity Incident
On May 14, 2023, the Company discovered it was subject to a cybersecurity attack perpetrated by unauthorized third parties that affected its IT systems. Upon
detection, the Company took immediate steps to address the incident, engaged third-party experts, and notified law enforcement. The Company has cyber
insurance and is working with its insurance carriers on claims to recover costs incurred. On May 26, 2023, the Company substantially recovered its operations
and completed the restoration of its pertinent IT systems. The Company has taken actions to strengthen its existing IT security infrastructure and continues to
implement additional measures to prevent unauthorized access to, or manipulation of, its systems and data.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions
have been eliminated. Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations only.
Related Party Transactions
A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s
management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company or (iv) anyone who can
significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties. There were no material related party transactions for the fiscal years ended June 30, 2024, 2023 and
2022.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to the allowance for uncollectible
accounts receivable, asset impairments, inventory reserves, purchase price allocations, goodwill and intangibles and supplier incentives. Management bases its
estimates on assumptions that management believes to be reasonable under the circumstances, the results of which form a basis for making judgments about the
carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different
assumptions or conditions; however, management believes that its estimates, including those for the above-described items, are reasonable and that the actual
results will not vary significantly from the estimated amounts.
The following accounting policies relate to the more significant judgments and estimates used in the preparation of the Consolidated Financial Statements:
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
(a) Allowances for Trade and Notes Receivable
The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from customers’ failure to make payments on
accounts receivable due to the Company.
Management determines the estimate of the allowance for uncollectible 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. If the financial condition of the Company’s customers were to deteriorate and reduce the ability of the Company’s customers to make
payments on their accounts, the Company may be required to increase its allowance by recording additional bad debt expense. Likewise, should the
financial condition of the Company’s customers improve and result in payments or settlements of previously reserved amounts, the Company may be
required to record a reduction in bad debt expense to reverse the recorded allowance.
(b) Inventory Reserves
Management determines the inventory reserves required to reduce inventories to the lower of cost or net realizable value based principally on the effects of
technological changes, quantities of goods on hand, length of time on hand and other factors. Net realizable value is determined based on continual
inquiries of suppliers who are able to provide credible knowledge of the salability and value of the products. An estimate is made of the net realizable
value, less cost to dispose, of products whose value is determined to be impaired. If these products are ultimately sold at less than estimated amounts,
additional reserves may be required. The estimates used to calculate these reserves are applied consistently. The adjustments are recorded in the period in
which the loss of utility of the inventory occurs, which establishes a new cost basis for the inventory. This new cost basis is maintained until the reserved
inventory is disposed of, returned to the supplier or sold. To the extent that specifically reserved inventory is sold, cost of goods sold is expensed for the
new cost basis of the inventory sold.
(c) Purchase Price Allocations
The Company accounts for business combinations in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 805, Business Combinations. For each acquisition, the Company allocates the purchase price to assets acquired, liabilities assumed
and goodwill and intangibles. The Company recognizes assets and liabilities acquired at their estimated fair values. Management uses judgment to (i)
identify the acquired assets and liabilities assumed, (ii) estimate the fair value of these assets, (iii) estimate the useful life of the assets and (iv) assess the
appropriate method for recognizing depreciation or amortization expense over the assets' useful life.
(d) Goodwill and Intangible Asset Fair Value
The Company estimates the fair value of its goodwill reporting units, as well as its finite lived intangible assets primarily based on the income approach
utilizing the discounted cash flow method. The Company also utilizes fair value estimates derived from the market approach utilizing the public company
market multiple method to validate the results of the discounted cash flow method for fair value of goodwill, which requires it to make assumptions about
the applicability of those multiples to its reporting units. The discounted cash flow method requires the Company to estimate future cash flows, using key
assumptions such as the weighted average cost of capital, revenue growth rates, projected gross margin and operating margin percentage growth, expected
working capital changes and a related cash flow impact from working capital changes, and then discount those amounts at an appropriate discount rate to
present value.
(e) Supplier Incentives
The Company receives incentives from suppliers as achievement-based supplier rebates that require management to make certain estimates about the
amount of supplier consideration that will be received. Achievement-based supplier rebates are earned by achieving certain sales or purchase targets on a
periodic basis. The Company determines whether, among other
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
items, all qualifying sales and purchases are considered in calculating the rebates and cash receipts or credit memos received are appropriately applied. The
determination of achievement-based rebates requires management to make assumptions about future purchases and sales. Estimates are based on the terms
of the incentive program and historical experiences.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company
maintains zero-balance disbursement accounts at various financial institutions at which the Company does not maintain significant depository relationships.
Due to the terms of the agreements governing these accounts, the Company generally does not have the right to offset outstanding checks written from these
accounts against cash on hand, and the respective institutions are not legally obligated to honor the checks until sufficient funds are transferred to fund the
checks. As a result, checks released but not yet cleared from these accounts in the amounts of $5.9 million and $8.0 million are classified as accounts payable
as of June 30, 2024 and 2023, respectively.
The Company maintains its cash with various financial institutions globally that are monitored regularly for credit quality, although it may hold amounts in
excess of Federal Deposit Insurance Corporation or other insured limits. Cash and cash equivalents held outside of the United States totaled $20.0 million and
$31.0 million as of June 30, 2024 and 2023, respectively.
Concentration of Credit Risk
The Company sells to a large base of customers throughout the United States, Canada, Brazil and the UK. The Company performs ongoing credit evaluations
of its customers’ financial condition. In certain cases, the Company will accept tangible assets as collateral to increase the trade credit of its customers. Sales to
any one customer were less than 10% of the Company’s net sales for fiscal years 2024, 2023 and 2022.
In the event that the Company does not collect payment on accounts receivable within the established trade terms for certain customers, the Company may
establish arrangements for longer-term financing. The Company accounts for these arrangements by recording them at their historical cost less specific
allowances at balance sheet dates. Interest income is recognized in the period earned and is recorded as interest income in the Consolidated Income Statement.
Derivative Financial Instruments
The Company uses derivative instruments to manage certain exposures related to fluctuations in foreign currency exchange rates and changes in interest rates
in connection with borrowing activities. The Company records all derivative instruments as either assets or liabilities in the Consolidated Balance Sheet at fair
value. The Company does not use derivative financial instruments for trading or speculative purposes.
The Company’s exposure to changes in foreign currency exchange rates results from foreign currency denominated assets and liabilities, purchasing and selling
internationally in several foreign currencies and from intercompany loans with foreign subsidiaries. The Company’s objective is to preserve the economic value
of non-functional currency denominated cash flows. The Company's foreign currencies are denominated primarily in Brazilian reais, British pounds and
Canadian dollars.
The Company may reduce its exposure to fluctuations in foreign exchange rates by creating offsetting positions through the use of derivative financial
instruments. The market risk related to the foreign exchange agreements is offset by changes in the valuation of the underlying items. These contracts are
generally for a duration of 90 days or less. The Company has elected not to designate its foreign currency contracts as hedging instruments. They are, therefore,
marked-to-market with changes in their fair value recorded in the Consolidated Income Statement each period. Derivative financial instruments related to
foreign currency exposure are accounted for on an accrual basis with gains or losses on these contracts recorded in income in the period in which their value
changes, with the offsetting entry for unsettled positions reflected in either other assets or other liabilities.
The Company's earnings are affected by changes in interest rates due to the impact those changes have on interest expense from floating rate debt instruments.
To manage the exposure, the Company has an interest rate swap agreement and has designated this instrument as a hedge of the cash flows on certain variable
rate debt. To the extent the derivative instrument was effective
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
in offsetting the variability of the hedged cash flows, changes in the fair value of the derivative instrument were not included in current earnings, but were
reported as other comprehensive income (loss). There was no ineffective portion recorded as an adjustment to earnings for the years ended June 30, 2024, 2023
and 2022.
Investments
The Company has investments that are held in a grantor trust formed by the Company related to the ScanSource, Inc. Nonqualified Deferred Compensation
Plan and founder’s Supplemental Executive Retirement Plan. The Company has classified these investments as trading securities, and they are recorded at fair
value with unrealized gains and losses included in the accompanying Consolidated Income Statements. The Company’s obligations under this deferred
compensation plan change in concert with the performance of the investments along with contributions to and withdrawals from the plan. The fair value of
these investments and the corresponding deferred compensation obligation was $31.0 million and $28.2 million as of June 30, 2024 and June 30, 2023,
respectively. These investments are classified as either prepaid expenses and current assets or other non-current assets in the Consolidated Balance Sheets
depending on the timing of planned disbursements. The deferred compensation obligation is classified either within accrued expenses and other current
liabilities or other long-term liabilities as well. The amounts of these investments classified as current assets with corresponding current liabilities were $3.4
million and $3.5 million at June 30, 2024 and June 30, 2023, respectively.
Inventories
Inventories (consisting entirely of finished goods) are stated at the lower of cost (first-in, first-out method) or net realizable value.
Supplier Programs
The Company receives incentives from suppliers related to cooperative advertising allowances, volume rebates and other incentive programs. These incentives
are generally under quarterly, semi-annual or annual agreements with the suppliers. Some of these incentives are negotiated on an ad hoc basis to support
specific programs mutually developed between the Company and the supplier. Suppliers generally require that the Company use the suppliers' cooperative
advertising allowances for advertising or other marketing programs. Incentives received from suppliers for specifically identified incremental cooperative
advertising programs are recorded as adjustments to net sales. ASC 606, Revenue from Contracts with Customers addresses accounting for consideration
payable to a customer, which the Company interprets and applies as the customer (i.e., the Company) receiving advertising funds from a supplier. The portion
of these supplier funds in excess of our costs are reflected as a reduction of inventory. Such funds are recognized as a reduction of the cost of goods sold when
the related inventory is sold.
The Company records unrestricted volume rebates received as a reduction of inventory and reduces the cost of goods sold when the related inventory is sold.
Amounts received or receivables from suppliers that are not yet earned are deferred in the Consolidated Balance Sheets. Supplier receivables are generally
collected through reductions to accounts payable authorized by the supplier. In addition, the Company may receive early payment discounts from certain
suppliers. The Company records early payment discounts received as a reduction of inventory, thereby resulting in a reduction of cost of goods sold when the
related inventory is sold. Management makes certain estimates of the amounts of supplier consideration that will be received. Estimates are based on the terms
of the incentive program and historical experiences. Actual recognition of the supplier consideration may vary from management estimates.
Supplier Concentration
The Company sells products from many suppliers; however, sales of products supplied by Cisco and Zebra each constituted more than 10% of the Company's
net sales for the years ended June 30, 2024, 2023 and 2022.
Product Warranty
The Company’s suppliers generally provide a warranty on the products provided by the Company and allow the Company to return defective products,
including those that have been returned to the Company by its customers. In three of its product lines,
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
the Company offers a self-branded warranty program, in which management has determined that the Company is the primary obligor. The Company purchases
contracts from unrelated third parties, generally the original equipment manufacturers, to fulfill any obligation to service or replace defective product claimed
on these warranty programs. As a result, the Company has not recorded a provision for estimated service warranty costs. To maintain customer relations, the
Company facilitates returns of defective products from the Company's customers by accepting for exchange, with the Company's prior approval, most defective
products within 30 days of invoicing.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of 3 to 10 years for furniture,
equipment and computer software, 25 to 40 years for buildings and 15 years for building improvements. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life. Maintenance, repairs and minor renewals are charged to expense as incurred. Additions, major renewals
and betterments to property and equipment are capitalized.
Capitalized Software
The Company accounts for capitalized software in accordance with ASC 350-40, Computer Software Developed for Internal Use, which provides guidance for
computer software developed or obtained for internal use. The Company is required to continually evaluate the stage of the implementation process to
determine whether or not costs are expensed or capitalized. Costs incurred during the preliminary project phase or planning and research phase are expensed as
incurred. Costs incurred during the development phase, such as material and direct services costs, compensation costs of employees associated with the
development and interest cost, are capitalized as incurred. Costs incurred during the post-implementation or operation phase, such as training and maintenance
costs, are expensed as incurred. In addition, costs incurred to modify existing software that result in additional functionality are capitalized as incurred.
Goodwill
The Company accounts for recorded goodwill in accordance with ASC 350, Goodwill and Other Intangible Assets, which requires that goodwill be reviewed
annually for impairment or more frequently if impairment indicators exist. Goodwill testing utilizes an impairment analysis, whereby the Company compares
the carrying value of each identified reporting unit to its fair value. The Company's goodwill reporting units align directly with its operating segments,
Specialty Technology Solutions and Modern Communications & Cloud. The fair values of the reporting units are estimated using the net present value of
discounted cash flows generated by each reporting unit. Considerable judgment is necessary in estimating future cash flows, discount rates and other factors
affecting the estimated fair value of the reporting units, including operating and macroeconomic factors. Historical financial information, internal plans and
projections and industry information are used in making such estimates.
Under Accounting Standards Update ("ASU") 2017-04, if fair value of goodwill is determined to be less than carrying value, an impairment loss is recognized
for the amount of the carrying value that exceeds the amount of the reporting units' fair value, not to exceed the total amount of goodwill allocated to the
reporting unit. Additionally, the Company would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit
when measuring the goodwill impairment loss, if applicable. The Company also assesses the recoverability of goodwill if facts and circumstances indicate
goodwill may be impaired. In its most recent annual test, the Company estimated the fair value of its reporting units primarily based on the income approach
utilizing the discounted cash flow method. The Company also corroborated the fair value estimates derived from the income approach by considering the
implied market multiples of comparable transactions and companies. The discounted cash flow method required the Company to estimate future cash flows and
discount those amounts to present value. The key assumptions utilized in determining fair value included:
•
Industry weighted-average cost of capital ("WACC"): The Company utilized a WACC relative to each reporting unit's respective geography and
industry as the discount rate for estimated future cash flows. The WACC is intended to represent a rate of return that would be expected by a
market participant in each respective geography.
•
Operating income: The Company utilized historical and expected revenue growth rates, gross margins and operating expense percentages, which
varied based on the projections of each reporting unit being evaluated.
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
•
Cash flows from working capital changes: The Company utilized a projected cash flow impact pertaining to depreciation, capital expenditures
and expected changes in working capital as each of its goodwill reporting units grow.
No goodwill impairment charges were recognized for the fiscal years ended June 30, 2024, 2023 and 2022. See Note 7 - Goodwill and Other Identifiable
Intangible Assets for more information regarding goodwill and the results of our testing.
Intangible Assets
Intangible assets consist of customer relationships, trade names, distributor agreements, supplier partner programs, developed technology, non-compete
agreements and an encryption key library. Customer relationships, trade names, supplier partner programs, developed technology and the encryption key
library are amortized using the straight-line method over their estimated useful lives, which range from 3 to 19 years. Non-compete agreements are amortized
over their contract life.
These assets are shown in detail in Note 7 - Goodwill and Other Identifiable Intangible Assets.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset
group may not be recoverable. Tests for recoverability of a long-lived asset to be held and used are measured by comparing the carrying amount of the long-
lived asset to the sum of the estimated future undiscounted cash flows expected to be generated by the asset. In estimating the future undiscounted cash flows,
the Company uses projections of cash flows directly associated with, and which are expected to arise as a direct result of, the use and eventual disposition of
the assets. If it is determined that a long-lived asset is not recoverable, an impairment loss would be calculated equal to the excess of the carrying amount of the
long-lived asset over its fair value. No intangible asset or other long-lived asset impairment charges were recognized for the fiscal years ended June 30, 2024,
2023 and 2022. See Note 7 - Goodwill and Other Identifiable Intangible Assets for more information regarding intangible asset impairment charges.
Fair Value of Financial Instruments
The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying
values of financial instruments such as accounts receivable, accounts payable, accrued liabilities, borrowings under the revolving credit facility and subsidiary
lines of credit approximate fair value based upon either short maturities or variable interest rates of these instruments. For additional information related to the
fair value of derivatives, please see Note 10 - Fair Value of Financial Instruments.
Contingencies
The Company accrues for contingent obligations, including estimated legal costs, when it is probable that a liability is incurred and the amount is reasonably
estimable. As facts concerning contingencies become known, management reassesses its position and makes appropriate adjustments to the financial
statements. Estimates that are particularly sensitive to future changes include tax, legal and other regulatory matters, which are subject to change as events
evolve and as additional information becomes available during the administrative and litigation process.
Revenue Recognition
The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. In determining the appropriate amount of revenue
to recognize, the Company applies the following five-step model: (i) identify contracts with customers; (ii) identify performance obligations in the contracts;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations per the contracts; and (v) recognize revenue when (or as)
the Company satisfies a performance obligation. The Company recognizes revenue as control of products and services are transferred to customers, which is
generally at the point of shipment. The Company delivers products to customers in several ways, including: (i) shipment from a Company warehouse, (ii) drop-
shipment directly from the supplier, or (iii) electronic delivery for software licenses. For more detailed disclosures on the Company's revenue recognition
policies, see Note 3 - Revenue Recognition.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Advertising Costs
The Company defers advertising-related costs until the advertising is first run in trade or other publications or, in the case of brochures, until the brochures are
printed and available for distribution or posted online. Advertising costs, net of supplier reimbursement, are included in selling, general and administrative
expenses and were not significant in any of the three fiscal years ended June 30, 2024, 2023 and 2022. Deferred advertising costs for each of these three fiscal
years were also not significant.
Foreign Currency
The currency effects of translating the financial statements of the Company’s foreign entities that operate in their local currency are included in the cumulative
currency translation adjustment component of accumulated other comprehensive income or loss. The Company's functional currencies include U.S. dollars,
Brazilian reals, British pounds, euros and Canadian dollars. The assets and liabilities of these foreign entities are translated into U.S. dollars using the exchange
rate at the end of the respective period. Sales, costs and expenses are translated at average exchange rates effective during the respective period. Foreign
currency transactional and re-measurement gains and losses are included in other expense (income) in the Consolidated Income Statements. Such amounts are
not significant to any of the periods presented.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes reflect tax consequences on future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts. In accordance with ASC 740, Accounting for Income Taxes, valuation allowances are
provided against deferred tax assets when it is more likely than not that an asset will not be realized. Additionally, the Company maintains reserves for
uncertain tax provisions. See Note 13 - Income Taxes for further discussion.
Share-Based Payments
The Company accounts for share-based compensation using the provisions of ASC 718, Accounting for Stock Compensation, which requires the recognition of
the fair value of share-based compensation. Furthermore, the Company adopted ASU 2016-09, which simplified several aspects of the accounting for share-
based compensation, including income tax effects, forfeitures, statutory withholding requirements and cash flow statement classifications. Share-based
compensation is estimated at the grant date based on the fair value of the awards. Since this compensation cost is based on awards ultimately expected to vest,
it has been reduced for estimated forfeitures. ASU 2016-09 allows companies to elect an accounting policy to estimate the total number of awards for which the
requisite service period will not be rendered or to account for forfeitures when they occur. The Company estimates the total number of awards expected to be
forfeited at the time of grant and revise such estimates, if necessary, in subsequent periods if actual forfeitures differ. The Company has elected to expense
grants of awards with graded vesting on a straight-line basis over the requisite service period for each separately vesting portion of the award.
Common stock repurchases
Repurchases of common stock are accounted for at cost, which includes brokerage fees, and are included as a component of shareholder's equity on the
Consolidated Balance Sheets.
Comprehensive Income
ASC 220, Comprehensive Income, defines comprehensive income as the change in equity (net assets) of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. The components of comprehensive income for the Company include net income, unrealized gains
or losses on hedged transactions, net of tax and foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiaries.
Recent Accounting Pronouncements
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
In July 2023, the Securities and Exchange Commission issued final rules that require new and enhanced disclosures on cybersecurity risk management,
strategy, governance, and incident reporting. Under the final rules, companies must report a material cybersecurity incident on Form 8-K within four business
days of determining that such cybersecurity incident is material. To the extent the nature, scope, timing or the impact of the incident is not determinable at the
time such Form 8-K is required to be filed, additional information about the material aspects of the cybersecurity incident must be filed on a Form 8-K/A
within four business days after such additional information becomes available. These disclosure requirements on Form 8-K were effective beginning December
18, 2023. For fiscal years ending on or after December 15, 2023, companies must disclose their cybersecurity processes, management's role in cybersecurity
governance, and cybersecurity oversight by the Board of Directors on Form 10-K.
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07 “Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures.” This ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are
regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its
composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. This ASU is effective for fiscal years beginning
after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. This ASU is applicable to the Company’s Annual
Report on Form 10-K for the fiscal year ended June 30, 2025, and subsequent interim periods, with early application permitted. The Company is currently
evaluating the impact of the application of this ASU on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU updates income tax
disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation and disaggregation of income taxes
paid by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024 and is applicable to the Company’s fiscal year beginning July
1, 2025, with early application permitted. The Company is currently evaluating the impact of the application of this ASU on its consolidated financial
statements and disclosures.
The Company has reviewed 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 are recorded at inception and adjusted over the contractual life.
The changes in the allowance for doubtful accounts for the fiscal years ended June 30, 2024, 2023 and 2022 are set forth in the tables below.
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Description
Balance at
Beginning
of Period
Amounts
Charged to
Expense
Write-offs
Other
Balance at
End of
Period
(in thousands)
Allowance for doubtful accounts:
Year ended June 30, 2022
$
19,341
1,514
(1,751)
(2,298)
$
16,806
Year ended June 30, 2023
$
16,806
2,785
(2,062)
(2,049)
$
15,480
Year ended June 30, 2024
$
15,480
8,317
(2,803)
(310)
$
20,684
(1)
"Other" amounts include recoveries and the effect of foreign currency fluctuations for the fiscal years ended June 30, 2024, 2023 and 2022, respectively.
(3) Revenue Recognition
The Company provides technology solutions and services from the world's leading suppliers of mobility, barcode, POS, payments, networking, 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.
Significant Judgments:
Principal versus Agent Considerations
The Company is the principal for sales of hardware, and certain software services. The Company considers itself the principal in those transactions
where it has control of the product or service before it is transferred to the customer. The Company recognizes the principal-associated revenue and
cost of goods sold on a gross basis.
The Company is the agent for third-party service contracts, including product warranties and supplier-hosted software. These service contracts are sold
separately from the products, and the Company often serves as the agent for the contract on behalf of the original equipment manufacturer. The
Company's responsibility is to arrange for the provision of the specified service by the original equipment manufacturer, and the Company does not
control the specified service before it is transferred to the customer. Because the Company acts as an agent, revenue is recognized net of cost at the
time of sale. The Intelisys business operates under an agency model.
Variable Considerations
For certain transactions, products are sold with a right of return, and the Company may also provide other rebates or incentives, which are accounted
for as variable consideration. The Company estimates the amount of variable consideration for rebates and incentives by using the expected value to
be given to the customer and reduces the revenue by those estimated amounts. These estimates are reviewed and updated as necessary at the end of
each reporting period. The Company estimates returns allowance based on historical experience and reduces revenue accordingly.
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.
(1)
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Practical Expedients & Accounting Policy Elections
•
Incremental costs of obtaining a contract - These costs are included in selling, general and administrative expenses as the amortization period is
generally one year or less. The Company expenses costs associated with obtaining and fulfilling contracts as incurred.
•
Shipping costs - The Company accounts for certain shipping and handling activities as fulfillment costs and expenses them as incurred.
•
Significant financing components - The Company has elected not to adjust the promised amount of consideration for the effects of a significant
financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a
customer and when the customer pays for that good or service will generally be one year or less.
•
Sales tax and other related taxes - Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from
revenue.
Disaggregation of Revenue
The following tables represent the Company's disaggregation of revenue:
Fiscal year ended June 30, 2024
Specialty Technology
Solutions
Modern
Communications &
Cloud
Total
Revenue by product/service type:
(in thousands)
Hardware, software and cloud (excluding Intelisys)
$
1,998,636
$
1,176,428
$
3,175,064
Intelisys connectivity and cloud
—
84,745
84,745
$
1,998,636
$
1,261,173
$
3,259,809
Fiscal year ended June 30, 2023
Specialty Technology
Solutions
Modern
Communications &
Cloud
Total
Revenue by product/service type:
(in thousands)
Hardware, software and cloud (excluding Intelisys)
$
2,331,030
$
1,377,185
$
3,708,215
Intelisys connectivity and cloud
—
79,506
79,506
$
2,331,030
$
1,456,691
$
3,787,721
Fiscal year ended June 30, 2022
Specialty Technology
Solutions
Modern
Communications &
Cloud
Total
Revenue by product/service type:
(in thousands)
Hardware, software and cloud (excluding Intelisys)
$
2,082,321
$
1,373,342
$
3,455,663
Intelisys connectivity and cloud
—
74,272
74,272
$
2,082,321
$
1,447,614
$
3,529,935
(4) Earnings per Share
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
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.
Fiscal year ended June 30,
2024
2023
2022
(in thousands, except per share data)
Numerator:
Net income from continuing operations
$
77,060
$
88,092
$
88,698
Net income from discontinued operations
—
1,717
100
Net income
$
77,060
$
89,809
$
88,798
Denominator:
Weighted-average shares, basic
24,868
25,142
25,504
Dilutive effect of share-based payments
354
220
254
Weighted-average shares, diluted
25,222
25,362
25,758
Net income from continuing operations per common share, basic
$
3.10
$
3.50
$
3.48
Net income from discontinued operations per common share, basic
—
0.07
—
Net income per common share, basic
$
3.10
$
3.57
$
3.48
Net income from continuing operations per common share, diluted
$
3.06
$
3.47
$
3.44
Net income from discontinued operations per common share, diluted
—
0.07
—
Net income per common share, diluted
$
3.06
$
3.54
$
3.45
For the years ended June 30, 2024, 2023 and 2022, weighted-average shares outstanding excluded from the computation of diluted earnings per share because
their effect would have been antidilutive were 348,604, 1,135,984 and 926,286, respectively.
(5) Property and Equipment
Property and equipment is comprised of the following:
June 30,
2024
2023
(in thousands)
Land
$
2,063
$
2,143
Buildings and leasehold improvements
20,140
20,326
Computer software and equipment
74,649
77,673
Furniture, fixtures and equipment
14,150
17,895
Construction in progress
1,006
919
Rental equipment
10,288
10,734
122,296
129,690
Less accumulated depreciation
(88,795)
(92,311)
$
33,501
$
37,379
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Depreciation expense recorded as selling, general and administrative costs in the accompanying Consolidated Income Statements was $11.2 million, $10.9
million and $11.1 million for the fiscal years ended June 30, 2024, 2023 and 2022, respectively. Depreciation expense recorded as cost of goods sold in the
accompanying Consolidated Income Statements was $1.1 million, $1.0 million and $1.0 million for the fiscal years ended June 30, 2024, 2023 and 2022,
respectively.
(6) Other Assets and Liabilities, Current and Noncurrent
The table below details prepaid expenses and other current assets.
June 30,
2024
2023
(in thousands)
Other receivables
$
90,412
$
72,539
Prepaid expense
11,777
14,547
Other taxes receivable
10,610
7,500
Other current assets
12,283
15,501
$
125,082
$
110,087
The table below details accrued expenses and other current liabilities.
June 30,
2024
2023
(in thousands)
Deferred warranty revenue
$
7,058
$
8,640
Accrued compensation
19,077
24,403
Other taxes payable
6,808
5,848
Accrued marketing expense
6,730
7,878
Accrued freight
3,759
3,428
Short-term operating lease liability
3,398
4,355
Other accrued liabilities
18,786
24,340
$
65,616
$
78,892
The table below details other long-term liabilities.
June 30,
2024
2023
(in thousands)
Long-term deferred warranty revenue
$
3,137
$
3,741
Long-term deferred compensation liability
27,592
24,716
Long-term income taxes payable
2,195
3,952
Long-term operating lease liability
6,507
9,329
Other long-term liabilities
9,795
7,530
$
49,226
$
49,268
(7) Goodwill and Other Identifiable Intangible Assets
In accordance with ASC 350, Intangibles - Goodwill and Other Intangible Assets, the Company performs its annual goodwill impairment test during the fourth
quarter of each fiscal year, or whenever indicators of impairment are present. The reporting
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
units utilized for goodwill impairment tests align directly with our operating segments, Specialty Technology Solutions and Modern Communications & Cloud.
The testing includes the determination of each reporting unit's fair value using a discounted cash flows model compared to each reporting unit's carrying value.
Key assumptions used in determining fair value include projected growth and operating margin, working capital requirements and discount rates. During fiscal
years ended June 30, 2024, 2023 and 2022, no impairment charges related to goodwill were recorded. The fair value of the Specialty Technology Solutions and
Modern Communications & Cloud reporting units exceeded its carrying value by 11% and 33%, respectively, as of the annual goodwill impairment testing
date.
Changes in the carrying amount of goodwill for the years ended June 30, 2024 and 2023, by reportable segment, are set forth in the table below.
Specialty Technology
Solutions
Modern
Communications &
Cloud
Total
(in thousands)
Balance at June 30, 2022
$
16,370
$
198,065
$
214,435
Unrealized loss on foreign currency translation
—
2,271
2,271
Balance at June 30, 2023
$
16,370
$
200,336
$
216,706
Unrealized gain on foreign currency translation
—
(10,405)
(10,405)
Balance at June 30, 2024
$
16,370
$
189,931
$
206,301
The following table shows the Company’s identifiable intangible assets as of June 30, 2024 and 2023, respectively.
June 30, 2024
June 30, 2023
Gross
Carrying
Amount
Accumulated
Amortization
Net
Book
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net
Book
Value
(in thousands)
Amortized intangible assets:
Customer relationships
$
107,875
$
79,235
$
28,640
$
138,574
$
90,650
$
47,924
Trade names
13,036
10,021
3,015
19,562
14,109
5,453
Non-compete agreements
—
—
—
2,410
2,410
—
Supplier partner program
4,085
2,911
1,174
4,085
2,481
1,604
Encryption key library
19,900
17,205
2,695
19,900
14,718
5,182
Developed technology
4,612
2,501
2,111
14,262
5,930
8,332
Total intangibles
$
149,508
$
111,873
$
37,635
$
198,793
$
130,298
$
68,495
The weighted-average amortization period for all intangible assets was approximately 10 years for the fiscal years ended June 30, 2024, 2023 and 2022.
Amortization expense for continuing operations for the years ended June 30, 2024, 2023 and 2022 was $15.7 million, $16.7 million and $17.9 million,
respectively, all of which relates to selling, general and administrative costs, not the cost of selling goods, and has been presented as such in the accompanying
Consolidated Income Statements. Certain fully amortized intangible assets have been removed during the current fiscal year.
Estimated future amortization expense is as follows:
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Amortization
Expense
(in thousands)
Year Ended June 30,
2025
$
14,915
2026
11,071
2027
4,902
2028
3,531
2029
3,002
Thereafter
214
Total
$
37,635
(8) Short Term Borrowings and Long Term Debt
The following table shows the Company’s short-term and long-term debt as of June 30, 2024 and 2023, respectively.
June 30,
2024
2023
(in thousands)
Current portion of long-term debt
$
7,857
$
6,915
Mississippi revenue bond, net of current portion
3,024
3,381
Senior secured term loan facility, net of current portion
133,125
140,625
Borrowings under revolving credit facility
50
178,980
Total debt
$
144,056
$
329,901
Credit Facility
The Company has a multi-currency senior secured credit facility (as amended, the "Amended Credit Agreement") with JPMorgan Chase Bank N.A., as
administrative agent, and a syndicate of banks (collectively the "Lenders"). On September 28, 2022, the Company amended and restated the Amended Credit
Agreement, which includes (i) a five-year, $350 million multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured
term loan facility. The Amended Credit Agreement extended the credit facility maturity date to September 28, 2027. In addition, pursuant to an “accordion
feature,” the Company may increase its 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. Borrowings under the Amended
Credit Agreement are guaranteed by substantially all of the domestic assets of the Company and 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 $1.4 million in connection with the amendment and
restatement of the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and
added to the unamortized debt issuance costs from the previous credit facility.
Loans denominated in U.S. dollars, other than swingline loans, bear interest at a rate per annum equal to, at the Company’s option, (i) the adjusted term
Secured Overnight Financing Rate ("SOFR") or adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon the
Company’s ratio of (A) total consolidated debt less up to $30 million of unrestricted domestic cash to (B) trailing four-quarter consolidated EBITDA measured
as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the “leverage ratio”); or (ii)
the alternate base rate plus an additional margin ranging from 0% to 0.75%, depending upon the Company’s leverage ratio, plus, if applicable, certain
mandatory costs. All swingline loans denominated in U.S. dollars bear interest based upon the adjusted daily simple SOFR plus an additional margin ranging
from 1.00% to 1.75% depending upon the Company's leverage ratio, or such other rate as the Company and the applicable swingline lender may agree. The
adjusted term SOFR and adjusted daily simple SOFR include a fixed credit adjustment of 0.10% over the applicable SOFR reference rate. Loans denominated
in foreign
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the Amended Credit Agreement plus an additional margin
ranging from 1.00% to 1.75%, depending upon the Company’s leverage ratio plus, if applicable, certain mandatory costs.
During the fiscal year ended June 30, 2024, the Company's borrowings under the credit facility were U.S. dollar loans. The spread in effect as of June 30, 2024
was 1.00%, plus a 0.10% credit spread adjustment for SOFR-based loans and 0.00% for alternate base rate loans. The commitment fee rate in effect as of
June 30, 2024 was 0.15%. The effective interest rates for the term loan were 6.44% and 6.70% as of June 30, 2024 and June 30, 2023, respectively. 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 as of the end of each fiscal quarter. In the event of a default, customary remedies are
available to the lenders, including acceleration and increased interest rates. The Company was in compliance with all covenants under the Amended Credit
Agreement as of June 30, 2024.
The average daily balance outstanding on the revolving credit facility, excluding the term loan facility, was $71.1 million and $223.5 million during the fiscal
year ended June 30, 2024 and 2023, respectively. There was $349.9 million and $171.0 million available for additional borrowings as of June 30, 2024 and
2023, respectively. The effective interest rates for the revolving line of credit were 6.44% and 6.74% as of June 30, 2024 and June 30, 2023, respectively. There
were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2024 and 2023.
Mississippi Revenue Bond
On August 1, 2007, the Company entered into an agreement with the State of Mississippi in order to provide financing for the acquisition and installation of
certain equipment to be utilized at the Company’s Southaven, Mississippi facility through the issuance of an industrial development revenue bond. The bond
matures on September 1, 2032 and accrues interest at a rate equal to one-month term SOFR plus 0.10% plus the applicable margin 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 5th anniversary of the agreement, requiring the Company to pay back the bonds at 100% of the principal amount outstanding. As of
June 30, 2024, the Company was in compliance with all covenants under this bond. The interest rates at June 30, 2024 and 2023 were 6.28% and 6.11%,
respectively.
Scheduled maturities of the Company’s short-term borrowings, revolving credit facility and long-term debt at June 30, 2024 are as follows:
Revolving
Credit Facility
Term Loan
Facility
Mississippi
Bond
(in thousands)
Fiscal year:
2025
$
—
$
7,500
$
357
2026
—
7,500
361
2027
—
10,313
366
2028
50
115,312
371
2029
—
—
375
Thereafter
—
—
1,551
Total principal payments
$
50
$
140,625
$
3,381
Debt Issuance Costs
As of June 30, 2024, net debt issuance costs associated with the credit facility and bonds totaled $1.2 million and are being amortized on a straight-line basis
through the maturity date of each respective debt instrument.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
(9) 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. See
Note 1- Business and Summary of Significant Accounting Policies for more information regarding the Company's policy on derivative financial instruments.
The Company had contracts outstanding with notional amounts of $27.5 million and $34.3 million for the exchange of foreign currencies as of June 30, 2024
and 2023, respectively. To date, the Company has chosen not to designate these derivatives as hedging instruments, and accordingly, these instruments are
adjusted to fair value through earnings in other income and expense. Summarized financial information related to these derivative contracts and changes in the
underlying value of the foreign currency exposures are as follows:
Fiscal year ended June 30,
2024
2023
2022
(in thousands)
Net foreign exchange derivative contract losses (gains)
$
(1,864)
$
3,928
$
(304)
Net foreign currency transactional and re-measurement (gains) losses
4,062
(1,760)
2,382
Net foreign currency losses
$
2,198
$
2,168
$
2,078
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 and are included in other income and expense. Foreign exchange gains and losses are generated as the result of fluctuations
in the value of the U.S. dollar versus the Brazilian real, the U.S. dollar versus the euro, the British pound versus the euro, and the Canadian dollar versus the
U.S. dollar.
Interest Rates – The Company’s earnings are also affected by changes in interest rates due to the impact those changes have on interest expense from floating
rate debt instruments. The Company manages its exposure to changes in interest rates by using interest rate swaps to hedge this exposure and to achieve a
desired proportion of fixed versus floating rate debt.
On April 30, 2019, the Company entered into an interest rate swap agreement to lock into a fixed LIBOR interest rate, which was amended on September 28,
2022, to change the reference rate from LIBOR to SOFR. The swap agreement has a notional amount of $100.0 million, with a $50.0 million tranche that
matured on April 30, 2024 and a $50.0 million tranche scheduled to mature April 30, 2026.
On March 31, 2023, the Company entered into an interest rate swap agreement to lock into a fixed SOFR interest rate with a notional amount of $25 million
and a maturity date of March 31, 2028.
These interest rate swap agreements are designated as 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 fiscal years ended June 30, 2024, 2023 and 2022.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
The components of the cash flow hedge included in accumulated other comprehensive (loss) income, net of income taxes, in the Consolidated Statements of
Shareholders’ Equity, are as follows:
Fiscal Year Ended June 30,
2024
2023
2022
(in thousands)
Net interest (income) expense recognized as a result of interest rate swap
$
(3,305) $
(1,553) $
2,088
Unrealized gain in fair value of interest swap rates
1,316
4,554
5,748
Net increase (decrease) in accumulated other comprehensive income (loss)
(1,989)
3,001
7,836
Income tax effect
(507)
747
2,003
Net increase (decrease) in accumulated other comprehensive income, net of tax
$
(1,482) $
2,254 $
5,833
The Company has the following derivative instruments for continuing operations located on the Consolidated Balance Sheets as of June 30, 2024, utilized for
the risk management purposes detailed above:
June 30, 2024
Balance Sheet Location
Fair Value of
Derivatives
Designated as
Hedge
Instruments
Fair Value of
Derivatives
Not Designated as Hedge
Instruments
(in thousands)
Derivative assets:
Foreign currency hedge
Other current assets
$
345
$
—
Interest rate swap agreement
Other current assets
$
2,698
$
—
Derivative liabilities:
Foreign exchange contracts
Accrued expenses and other current liabilities
$
—
$
12
The Company has the following derivative instruments located on the Consolidated Balance Sheets as of June 30, 2023, utilized for the risk management
purposes detailed above:
June 30, 2023
Balance Sheet Location
Fair Value of
Derivatives
Designated as
Hedge
Instruments
Fair Value of
Derivatives
Not Designated as Hedge
Instruments
(in thousands)
Derivative assets:
Foreign currency hedge
Other current assets
$
100
$
—
Foreign exchange contracts
Prepaid expenses and other current assets
$
—
$
1
Interest rate swap agreement
Other current assets
$
4,687
$
—
(10) 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 is required to
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
classify certain assets and liabilities based on the fair value hierarchy, which groups 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;
•
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e.
supported by little or no market activity).
The assets and liabilities maintained by the Company that are required to be measured at fair value on a recurring basis include deferred compensation plan
investments, forward foreign currency exchange contracts, foreign currency hedge agreements, interest rate swap agreements and contingent consideration
owed to the previous owners of Intelisys. The carrying value of debt listed in Note 8 - Short-Term Borrowings and Long Term Debt is considered to
approximate fair value, as the Company's debt instruments are indexed to a variable rate using the market approach (Level 2 criteria).
The following table summarizes the valuation of the Company's remaining assets and liabilities measured at fair value on a recurring basis as of June 30, 2024:
Total
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
(in thousands)
Assets:
Deferred compensation plan investments, current and non-current portion
$
31,014
$
31,014
$
—
Interest rate swap agreement
2,698
—
2,698
Foreign currency hedge
345
—
345
Total assets at fair value
$
34,057
$
31,014
$
3,043
Liabilities:
Deferred compensation plan investments, current and non-current portion
$
31,014
$
31,014
$
—
Forward foreign currency exchange contracts
12
—
12
Total liabilities at fair value
$
31,026
$
31,014
$
12
The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2023:
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Total
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
(in thousands)
Assets:
Deferred compensation plan investments, current and non-current portion
$
28,209
$
28,209
$
—
Forward currency exchange contracts
1
—
$
1
Interest rate swap agreement
4,687
—
4,687
Foreign currency hedge
100
—
$
100
Total assets at fair value
$
32,997
$
28,209
$
4,788
Liabilities:
Deferred compensation plan investments, current and non-current portion
$
28,229
$
28,229
$
—
Total liabilities at fair value
$
28,229
$
28,229
$
—
The investments in the deferred compensation plan are held in a "rabbi trust" and include mutual funds and cash equivalents for payment of non-qualified
benefits for certain retired, terminated or active employees. These investments are recorded to prepaid and other current assets or other non-current assets
depending on their corresponding, anticipated distributions 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 Consolidated Balance Sheet as prepaid expenses and other current assets
or accrued expenses and other current liabilities, depending on the respective instruments' favorable or unfavorable positions. See Note 9 - Derivatives and
Hedging Activities.
(11) Share-Based Compensation
Share-Based Compensation Plans
The Company has awards outstanding from two share-based compensation plans (the 2013 Long-Term Incentive Plan and the 2021 Long-Term Incentive Plan).
The 2021 Long-Term Incentive Plan was approved at the annual meeting of the shareholders on January 27, 2022. The 2021 Plan permits the grant of any or all
of the following types of awards to grantees: stock options, including non-qualified options and ISOs; SARs; restricted stock ("RSA"); deferred stock and
restricted stock units ("RSU"); performance units ("PU") and performance shares; dividend equivalents; and other stock-based awards. Eligible grantees
include employees, officers, non-employee consultants and non-employee directors of the Company and its affiliates. Awards are currently only being granted
under the 2021 Long-Term Incentive Plan. As of June 30, 2024, there were 1,037,261 shares available for future grant under the 2021 Long-Term Incentive
Plan. All of the Company’s share-based compensation plans are shareholder approved, and it is the Company’s belief that such awards align the interests of its
employees and directors with those of its shareholders. An RSA is common stock that is subject to risk of forfeiture or other restrictions that lapse upon
satisfaction of specified conditions. An RSU represents the right to receive shares of common stock in the future with the right to future delivery of the shares
subject to risk of forfeiture or other restrictions that lapse upon satisfaction of specified conditions. A PU represents the right to receive shares of common stock
in the future contingent on performance against predetermined objectives over a specified performance period.
The Company accounts for its share-based compensation awards in accordance with ASC 718, Stock Compensation, which requires all share-based
compensation to be recognized in the income statement based on fair value and applies to all awards granted, modified, canceled or repurchased after the
effective date. Total share-based compensation included as a component of selling, general and administrative expenses in our Consolidated Income Statements
was as follows:
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Fiscal Year Ended June 30,
2024
2023
2022
(in thousands)
Share-based compensation related to:
Equity classified stock options
$
550
$
1,426
$
1,848
Equity classified restricted stock
8,987
9,793
9,815
Total share-based compensation
$
9,537
$
11,219
$
11,663
Stock Options
The Company did not grant stock options during the fiscal year ended June 30, 2024, June 30, 2023 or June 30, 2022. Stock options granted prior to June 30,
2022 vested annually over 3 years and have a 10-year contractual life. These options were granted with an exercise price that is no less than 100% of the fair
market value of the underlying shares on the date of the grant.
The fair value of each option (for purposes of calculation of share-based compensation) was estimated on the date of grant using the Black-Scholes-Merton
option pricing formula that uses assumptions determined at the date of grant. Use of this option pricing model requires the input of subjective assumptions.
These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the
estimated volatility of the Company's common stock price over the expected term ("expected volatility") and the number of options that will ultimately not
complete their vesting requirements ("forfeitures"). Changes in the subjective assumptions can materially affect the estimate of the fair value of share-based
compensation and, consequently, the related amount recognized in the Consolidated Income Statements.
The weighted-average expected term of the options represents the period of time the options are expected to be outstanding based on historical trends and
behaviors of certain groups and individuals receiving these awards. The expected volatility is predominantly based on the historical volatility of our common
stock for a period approximating the expected term. The risk-free interest rate reflects the interest rate at grant date on zero-coupon United States governmental
bonds that have a remaining life similar to the expected option term. The dividend yield assumption was based on the Company's dividend payment history and
management's expectations of future dividend payments.
A summary of activity under our stock option plans is presented below:
Fiscal Year Ended June 30, 2024
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Outstanding, beginning of year
1,026,671
$
32.76
Granted during the period
—
—
Exercised during the period
(195,073)
24.72
Canceled, forfeited, or expired during the period
(119,646)
42.15
Outstanding, end of year
711,952
33.38
3.47
$
7,784,250
Vested and expected to vest at June 30, 2024
711,952
33.38
3.47
$
7,784,250
Exercisable, end of year
711,952
$
33.38
3.47
$
7,784,250
The aggregate intrinsic value was calculated using the market price of the Company's stock on June 30, 2024, and the exercise price for only those options that
have an exercise price that is less than the market price of our stock. This amount will change as the market price per share changes. The aggregate intrinsic
value of options exercised during the fiscal years ended June 30, 2024, 2023 and 2022 was $2.1 million, $0.2 million and $0.6 million, respectively.
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
As of June 30, 2024 there were no unvested options as presented below:
Fiscal Year Ended June 30, 2024
Options
Weighted Average
Exercise Price
Weighted Average
Grant Date
Fair Value
Unvested, beginning of year
170,837
$
25.12
$
9.06
Granted
—
—
—
Vested
(51,191)
25.14
9.08
Canceled or forfeited
(119,646)
42.15
11.85
Unvested, end of year
—
$
—
$
—
The total fair value of options vested during the fiscal years ended June 30, 2024, 2023 and 2022 is $1.5 million, $1.6 million and $1.9 million, respectively.
The following table summarizes information about stock options outstanding and exercisable as of June 30, 2024:
Options Outstanding
Options Exercisable
Range of Exercise Prices
Shares
Outstanding
Weighted
Average
Remaining
Contractual Life
Weighted Average
Exercise
Price
Number Exercisable
Weighted Average
Exercise
Price
$22.27 - $26.38
168,920
6.38
24.62
168,920
24.62
$26.38 - $30.49
119,021
6.40
27.14
119,021
27.14
$30.49 - $34.60
53,079
3.44
34.35
53,079
34.35
$34.60 - $38.71
206,839
1.82
37.72
206,839
37.72
$38.71 - $42.82
164,093
0.43
41.13
164,093
41.13
711,952
3.47
$
33.38
711,952
$
33.38
The Company issues shares to satisfy the exercise of options.
Restricted Stock
Grants of Restricted Shares
During the fiscal year ended June 30, 2024, the Company granted 488,208 shares of restricted stock to employees and non-employee directors, all of which
were issued in the form of RSUs:
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Fiscal Year Ended June 30, 2024
Shares
granted
Date granted
Grant date
fair value
Vesting period
Employees
Certain employees based on performance
315,731
August 25, 2023
$
31.52
Annually over 4 years
Certain employees based on performance
64,532
August 25, 2023
$
35.15
Annually over 3 years
Certain employees based on performance
64,527
August 25, 2023
$
31.52
Annually over 3 years
Certain employees based on performance
1,507
September 1, 2023
$
33.20
Annually over 4 years
Certain employees based on hire
2,276
March 31, 2024
$
43.94
Annually over 4 years
Certain employees based on hire
1,563
June 3, 2024
$
48.01
Annually over 4 years
Non-Employee Directors
Certain Directors
38,072
August 25, 2023
$
31.52
12 months
A summary of the status of the Company’s outstanding restricted stock is presented below:
Fiscal Year Ended June 30, 2024
Shares
Weighted-Average
Grant Date Fair
Value
Outstanding, beginning of year
889,910
$
30.43
Granted during the period
488,208
32.12
Vested during the period
(273,134)
28.63
Cancelled, forfeited, or expired during the period
(217,674)
31.70
Outstanding, end of year
887,310
$
31.73
As of June 30, 2024, there was approximately $15.6 million of unrecognized compensation cost related to unvested performance units and restricted stock units
granted, which is expected to be recognized over a weighted-average period of 1.22 years. The Company withheld 88,023 shares for income taxes during the
fiscal year ended June 30, 2024.
(12) Employee Benefit Plans
The Company maintains defined contribution plans that cover all employees located in the United States that meet certain eligibility requirements and provides
a matching contribution equal to 50% of each participant’s contribution, up to a maximum of 6% of the participant's eligible compensation. Employer
contributions are vested based upon tenure over a five-year period.
Fiscal Year Ended June 30,
2024
2023
2022
(in thousands)
Matching contributions
$
3,099
$
3,270
$
2,929
Internationally, the Company contributes to either plans required by local governments or to various employee annuity plans. Additionally, the Company
maintains a non-qualified, unfunded deferred compensation plan that allows eligible members of management to defer a portion of their compensation in
addition to receiving discretionary matching contributions from the Company. Employer contributions are vested over a five-year period.
(13) Income Taxes
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
As of the fiscal year ended June 30, 2024, the Company maintains the ability to access the earnings of foreign subsidiaries. The Company considered recording
a deferred tax liability related to federal, state and withholding tax and determined that no liability should be recorded. There is no certainty as to the timing of
the distributions of such earnings to the U.S. in whole or in part.
Income tax expense (benefit) consists of:
Fiscal Year Ended June 30,
2024
2023
2022
(in thousands)
Current:
Federal
$
15,626
$
25,034
$
16,895
State
3,608
6,455
5,238
Foreign
5,578
4,507
3,896
Total current
24,812
35,996
26,029
Deferred:
Federal
(827)
(2,991)
3,429
State
(911)
(541)
129
Foreign
(293)
1,294
338
Total deferred
(2,031)
(2,238)
3,896
Provision for income taxes
$
22,781
$
33,758
$
29,925
A reconciliation is provided below of the U.S. Federal income tax expense for the fiscal years ended June 30, 2024, June 30, 2023 and June 30, 2022 with the
applicable statutory rate of 21%.
Fiscal Year Ended June 30,
2024
2023
2022
(in thousands)
U.S. statutory rate
21.0 %
21.0 %
21.0 %
U.S. Federal income tax at statutory rate
$
20,967
$
25,588
$
24,911
Increase (decrease) in income taxes due to:
State and local income taxes, net of Federal benefit
1,939
4,559
4,265
Tax credits
(1,794)
(909)
(796)
Valuation allowance
1,131
1,087
(200)
Effect of varying statutory rates in foreign operations, net
2,109
2,751
1,145
Stock compensation
(76)
37
(121)
Disallowed interest
—
—
—
Earnings from foreign subsidiaries
776
957
928
Losses on dispositions
(2,816)
—
—
Global intangible low taxed income tax
(832)
1,551
630
Nontaxable income
(927)
(3,189)
(2,050)
Nondeductible compensation
1,412
1,240
1,166
Notional interest deduction on net equity
—
(733)
(780)
Other
892
819
827
Provision for income taxes
$
22,781
$
33,758
$
29,925
Certain amounts in the prior year have been reclassified to the current year presentation in presented table.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
(a)
(a)
(a)
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
June 30,
2024
2023
(in thousands)
Deferred tax assets derived from:
Allowance for accounts receivable
$
7,787
$
5,811
Inventories
2,927
3,326
Nondeductible accrued expenses
7,538
7,561
Net operating loss carryforwards
243
596
Tax credits
8,771
8,430
Deferred compensation
7,706
7,173
Stock compensation
4,490
4,718
Capital loss carryforwards
12,306
7,348
Timing of amortization deduction from intangible assets
6,680
6,170
Total deferred tax assets
58,448
51,133
Valuation allowance
(19,594)
(14,397)
Total deferred tax assets, net of allowance
38,854
36,736
Deferred tax liabilities derived from:
Timing of depreciation and other deductions from building and equipment
(724)
(1,533)
Timing of amortization deduction from goodwill
(13,716)
(10,886)
Timing of amortization deduction from intangible assets
(4,512)
(10,369)
Total deferred tax liabilities
(18,952)
(22,788)
Net deferred tax assets
$
19,902
$
13,948
The components of pretax earnings are as follows:
Fiscal Year Ended June 30,
2024
2023
2022
(in thousands)
Domestic
$
78,653
$
94,994
$
93,586
Foreign
21,188
26,856
25,037
Worldwide pretax earnings
$
99,841
$
121,850
$
118,623
As of June 30, 2024, there were (i) gross net operating loss carryforwards of approximately $0.9 million for U.S. federal income tax purposes; (ii) gross state
net operating loss carryforwards of approximately $1.5 million; (iii) state income tax credit carryforwards of approximately $3.3 million that began to expire in
the 2023 tax year; (iv) withholding tax credits of approximately $5.0 million; (v) foreign tax credits of $1.2 million, and (vi) gross capital loss carryovers of
$49.9 million. The Company maintains a valuation allowance of $0.1 million for U.S. federal net operating losses, $12.3 million for capital loss carryforwards,
a less than $0.1 million valuation allowance for state net operating losses, a $5.0 million valuation allowance for withholding tax credits, a $1.2 million
valuation allowance for foreign tax credits, and a $1.0 million valuation allowance for state income tax credits, where it was determined that, in accordance
with ASC 740, it is more likely than not that they cannot be utilized.
The Company recognizes excess tax benefits and tax deficiencies as income tax expense or benefit for stock award settlements in accordance with ASU 2016-
09. The Company recognized net tax expense of less than $0.1 million for the fiscal year ended June 30, 2024, net tax benefit of less than $0.1 million and
$0.3 million for the fiscal years ended June 30, 2023 and 2022, respectively.
As of June 30, 2024, the Company had gross unrecognized tax benefits of $1.1 million, $0.9 million of which, if recognized, would affect the effective tax rate.
This reflects a decrease of less than $0.1 million on a gross basis over the prior fiscal year.
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
The Company does not expect that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated
Income Statement. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheet. The total amount of
interest and penalties accrued, but excluded from the table below, were $1.3 million, $1.2 million and $1.2 million for the fiscal years ended June 30, 2024,
2023 and 2022, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
June 30,
2024
2023
2022
(in thousands)
Beginning Balance
$
1,172
$
1,065
$
1,121
Additions based on tax positions related to the current year
89
123
139
Reduction for tax positions of prior years
(120)
(16)
(195)
Ending Balance
$
1,141
$
1,172
$
1,065
During the June 30, 2024 fiscal year, the Company received a favorable ruling in Brazil regarding an exclusion from taxable income and as a result recognized
a $1.5 million income tax recovery for prior years. A court ruling in Brazil in June 2023 confirmed that Brazilian state-provided tax benefits are not subject to
income tax and the Company recognized a tax benefit of $2.2 million during the June 30, 2023 fiscal year.
Subsequent to the 2023 fiscal year-end, the IRS issued Notice 2023-55 which provides taxpayers with Brazilian subsidiaries temporary relief from the final
foreign tax credit regulations. As a result, the company recognized a tax benefit of $1.5 million during the 2024 fiscal year for creditable foreign taxes for the
2023 fiscal year.
The Company conducts business globally and, as a result, one or more of its subsidiaries files income tax returns in the United States federal, various state,
local and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in countries in which it operates.
With certain exceptions, the Company is no longer subject to state and local, or non-United States income tax examinations by tax authorities for tax years
before June 30, 2019.
(14) Leases
In accordance with ASC 842, Leases, at contract inception the Company determines if a contract contains a lease by assessing whether the contract contains an
identified asset and whether the Company has the ability to control the asset. The Company also determines if the lease meets the classification criteria for an
operating lease versus a finance lease under ASC 842. Substantially all of the Company's leases are operating leases for real estate, warehouse and office
equipment ranging in duration from 1 year to 10 years. The Company has elected not to record short-term operating leases with an initial term of 12 months or
less on the Condensed Consolidated Balance Sheets. Operating leases are recorded as other non-current assets, accrued expenses and other current liabilities
and other long-term liabilities on the Condensed Consolidated Balance Sheets. The Company has finance leases for information technology equipment expiring
through fiscal year 2027. Finance leases are recorded as property and equipment, net, accrued expenses and other current liabilities and other long-term
liabilities on the Condensed Consolidated Balance Sheets. The gross amount of the balances recorded related to finance leases is immaterial to the financial
statements at June 30, 2024 and 2023.
Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the net present value of future minimum lease
payments over the lease term. The Company generally is not able to determine the rate implicit in its leases and has elected to apply an incremental borrowing
rate as the discount rate for the present value determination, which is based on the Company's cost of borrowings for the relevant terms of each lease and
geographical economic factors. Certain operating lease agreements contain options to extend or terminate the lease. The lease term used is adjusted for these
options when the Company is reasonably certain it will exercise the option. Operating lease expense is recognized on a straight-line basis over the lease term.
Variable lease payments not based on a rate or index, such as costs for common area maintenance, are
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
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 June 30, 2024 and 2023:
Operating leases
Balance Sheet location
June 30, 2024
June 30, 2023
(in thousands)
Operating lease right-of-use assets
Other non-current assets
$
9,057
$
12,539
Current operating lease liabilities
Accrued expenses and other current liabilities
3,398
4,355
Long-term operating lease liabilities
Other long-term liabilities
6,507
9,329
The following table presents amounts recorded in operating lease expense as part of selling general and administrative expenses on the Condensed
Consolidated Income Statements during the fiscal years ended June 30, 2024, 2023 and 2022. Operating lease costs contain immaterial amounts of short-term
lease costs for leases with an initial term of 12 months or less.
Fiscal year ended June 30,
2024
2023
2022
(in thousands)
Operating lease cost
$
4,917
$
5,224
$
5,239
Variable lease cost
1,416
1,460
1,208
$
6,333
$
6,684
$
6,447
Supplemental cash flow information related to the Company's operating leases for the fiscal years ended June 30, 2024, 2023 and 2022 are presented in the
table below:
Fiscal year ended June 30,
2024
2023
2022
(in thousands)
Cash paid for amounts in the measurement of lease liabilities
$
4,747
$
5,463
$
5,182
Right-of-use assets obtained in exchange for lease obligations
840
897
2,313
The weighted-average remaining lease term and discount rate at June 30, 2024 and 2023 are presented in the table below:
June 30, 2024
June 30, 2023
Weighted-average remaining lease term
3.03
3.62
Weighted-average discount rate
4.84 %
4.30 %
The following table presents the maturities of the Company's operating lease liabilities at June 30, 2024:
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Operating leases
(in thousands)
2025
$
4,174
2026
3,811
2027
3,428
2028
1,409
2029
721
Thereafter
300
Total future payments
13,843
Less: amounts representing interest
3,938
Present value of lease payments
$
9,905
(15) Commitments and Contingencies
A majority of the Company’s net revenues in fiscal years 2024, 2023 and 2022 were received from the sale of products purchased from the Company’s ten
largest suppliers. The Company has entered into written agreements with substantially all of its major suppliers. While the Company’s agreements with most of
its suppliers contain standard provisions for periodic renewals, these agreements generally permit termination by either party without cause upon 30 to 120
days' notice.
The Company or 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 and results of operations.
Capital Projects
The Company expects total capital expenditures to range from $10.0 million to $15.0 million during fiscal year 2025 primarily for IT investments.
Pre-Acquisition Contingencies
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. There were no deposits into, or releases from the escrow account during the fiscal year ended June 30, 2024. There were no
deposits into the escrow account and $1.2 million was released from the escrow account during the fiscal year ended June 30, 2023. The amount available after
the impact of foreign currency translation, as of June 30, 2024 and 2023, for future pre-acquisition contingency settlements or to be released to the sellers was
$3.2 million and $3.4 million, respectively.
The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification
receivables in the Company's consolidated balance sheet:
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
June 30, 2024
June 30, 2023
(in thousands)
Assets
Prepaid expenses and other assets (current)
$
14
$
16
Other assets (noncurrent)
$
3,598
$
4,150
Liabilities
Other current liabilities
$
14
$
16
Other long-term liabilities
$
3,598
$
4,150
The amount of reasonably possible undiscounted pre-acquisition contingencies as of June 30, 2024 is estimated to range from $3.6 million to $14.6 million at
this time, of which all exposures are indemnifiable under the share purchase agreement.
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SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
(16) Segment Information
The Company is a leading provider of technology solutions and services to customers in specialty technology markets. The Company has two reportable
segments, based on technology type.
Specialty Technology Solutions Segment
The Specialty Technology Solutions segment includes the Company’s business in mobility and barcode, POS, payments, security and networking technologies.
Mobility and barcode solutions include mobile computing, barcode scanners and imagers, radio frequency identification devices, barcode printing and related
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, UCaaS, CCaaS, infrastructure as a service, software-defined
wide-area network and other cloud services. This segment includes SaaS and subscription services, which the Company offers using digital tools and platforms.
The Company has business operations within this segment in the United States, Canada and Brazil.
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Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Selected financial information for each business segment is presented below:
Fiscal Year Ended June 30,
2024
2023
2022
(in thousands)
Sales:
Specialty Technology Solutions
$
1,998,636
$
2,331,030
$
2,082,321
Modern Communications & Cloud
1,261,173
1,456,691
1,447,614
$
3,259,809
$
3,787,721
$
3,529,935
Depreciation and amortization:
Specialty Technology Solutions
$
11,197
$
10,838
$
11,754
Modern Communications & Cloud
13,875
14,901
15,110
Corporate
2,937
2,875
3,020
$
28,009
$
28,614
$
29,884
Operating income:
Specialty Technology Solutions
$
44,726
$
75,688
$
66,686
Modern Communications & Cloud
52,547
61,658
55,511
Corporate
(6,949)
(1,460)
(30)
$
90,324
$
135,886
$
122,167
Capital expenditures:
Specialty Technology Solutions
$
(2,374)
$
(3,966)
$
(1,667)
Modern Communications & Cloud
(6,181)
(6,013)
(5,182)
$
(8,555)
$
(9,979)
$
(6,849)
Sales by Geography Category:
United States
$
2,928,606
$
3,443,561
$
3,178,829
International
338,637
355,647
356,241
Less intercompany sales
(7,434)
(11,487)
(5,135)
$
3,259,809
$
3,787,721
$
3,529,935
For the year ended June 30, 2024, the amounts shown above include restructuring expenses, acquisition and divestiture expenses as well as cyberattack restoration costs. For the year ended June 30,
2023, the amounts shown above include cyberattack restoration costs. For the year ended June 30, 2022, the amounts shown above include divestiture costs.
June 30, 2024
June 30, 2023
(in thousands)
Assets:
Specialty Technology Solutions
$
878,025
$
1,104,103
Modern Communications & Cloud
901,007
964,066
$
1,779,032
$
2,068,169
Property and equipment, net by Geography Category:
United States
$
21,613
$
27,323
International
11,888
10,056
$
33,501
$
37,379
(17) Accumulated Other Comprehensive Income
(1)
(1)
77
Table of Contents
Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
The components of accumulated other comprehensive loss, net of tax, are as follows:
Fiscal Years Ended June 30,
2024
2023
2022
(in thousands)
Currency translation adjustment
$
(117,885)
$
(93,136)
$
(105,899)
Unrealized loss on fair value of interest rate swap, net of tax
2,032
3,515
1,261
Accumulated other comprehensive loss
$
(115,853)
$
(89,621)
$
(104,638)
The tax effect of amounts in comprehensive loss reflect a tax expense or benefit as follows:
Fiscal years ended June 30,
2024
2023
2022
(in thousands)
Tax (benefit) expense
$
(484)
$
737
$
1,741
(18) Business Sale
On December 19, 2023, the Company completed the sale of its UK-based intY business, which was part of the Modern Communications & Cloud segment.
The Company retained its CASCADE cloud services distribution platform which has been used to grow the Cisco and Microsoft subscription businesses in the
United States and Brazil. Under the stock purchase agreement, the Company received proceeds of $17.6 million in cash for the sale, net of cash transferred.
The business sale resulted in a $14.2 million gain on sale after considering the net assets sold. The impact of this sale was not material to the consolidated
financial statements.
During the fiscal year ended June 30, 2023, the Company received a payment related to a tax settlement of $1.7 million for its divested businesses in Latin
America, outside of Brazil. During the fiscal year ended June 30, 2022, the Company received a payment of $3.1 million for its divested businesses in Latin
America related to working capital adjustments and in accordance with the Share Purchase Agreement between Intcomex and the Company.The receipt of these
payments resulted in a gain on disposal group.
(19) Restructuring
During fiscal 2024, as part of a strategic review of organizational structure and operations, the Company executed a cost reduction and restructuring program to
align our cost structure with demand expectations in our hardware business. These actions are expected to result in approximately $10.0 million in annualized
savings in selling, general and administrative expenses.
The following table presents the restructuring and employee separation costs incurred for the fiscal year ended ended June 30, 2024:
Fiscal Year Ended June 30,
2024
(in thousands)
Employee separation and benefit costs
$
4,358
For the fiscal year ended June 30, 2024, all restructuring costs are recognized in the Corporate reporting unit and have not been allocated to the Specialty
Technology Solutions or Modern Communications & Cloud segments.
78
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Index to Financial Statements
SCANSOURCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
June 30, 2024
Accrued restructuring costs are included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. The following table
represents activity for the fiscal year ended June 30, 2024:
Accrued Expenses
(in thousands)
Balance at June 30, 2023
$
—
Charged to expense
4,358
Cash payments
(2,729)
Balance at June 30, 2024
$
1,629
The remaining balance as of June 30, 2024 of $1.6 million is expected to be paid through the third quarter of fiscal year 2025.
(20) Subsequent Events
On August 8, 2024, ScanSource acquired Resourcive, a leading technology advisor. Resourcive delivers strategic IT sourcing solutions to mid-market and
enterprise businesses, advising clients on value creation strategies that are enabled by technology.
On August 15, 2024, ScanSource acquired Advantix, a VAR-focused, managed connectivity experience provider specializing in wireless enablement solutions.
79
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Index to Financial Statements
ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
ITEM 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply judgment in evaluating the cost-benefit
relationship of those disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives.
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures, as of June 30, 2024, were effective in providing reasonable assurance that the objectives of
the disclosure controls and procedures are met.
(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the
Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of June 30, 2024. In making this assessment, we used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 Internal Control – Integrated Framework. Based on its assessment
using those criteria, our management concluded that our internal control over financial reporting was effective as of June 30, 2024.
The effectiveness of our internal control over financial reporting as of June 30, 2024 has been audited by Grant Thornton LLP, an independent
registered public accounting firm, as stated in their Report of Independent Registered Public Accounting Firm on internal control over financial reporting which
is included with the Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal year ended June 30, 2024 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information.
During the three months ended June 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act adopted or terminated a Rule
10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act).
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
80
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Index to Financial Statements
PART III
Information called for by Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K has been omitted as we intend to file with the SEC,
pursuant to General Instructions G(3) to Form 10K, not later than 120 days after the end of our fiscal year ended June 30, 2024, a definitive Proxy Statement
relating to the 2024 Annual Meeting pursuant to Regulation 14A promulgated under the Exchange Act (the “Part III Filing”). . Such information will be set
forth in such Part III Filing and is incorporated herein by reference.
ITEM 10. Directors, Executive Officers and Corporate Governance.
The information required to be included by Item 10 of Form 10-K will be included in our Part III Filing and such information is incorporated by reference
herein.
ITEM 11. Executive Compensation.
The information required to be included by Item 11 of the Form10-K will be included in our Part III Filing and such information is incorporated by reference
herein.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required to be included by Item 12 of Form 10-K will be included in our Part III Filing and such information is incorporated by reference
herein.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
The information required to be included by Item 13 of Form 10-K will be included in our Part III Filing and such information is incorporated by reference
herein.
ITEM 14. Principal Accountant Fees and Services.
The information required to be included by Item 14 of Form 10-K will be included in our Part III Filing and such information is incorporated by reference
herein.
81
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Index to Financial Statements
PART IV
ITEM 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements. For a list of the financial statements included in this Annual Report on Form 10-K, see “Index to Financial Statements”
included herein.
(a)(2) Financial Statement Schedules. None.
(a)(3) Exhibits. The list of exhibits filed as a part of this Annual Report on Form 10-K is set forth on the Exhibit Index immediately preceding such
exhibits and is incorporated by reference in this Item 15(a)(3).
(b) Exhibits. See Exhibit Index.
(c) Separate Financial Statements and Schedules. None.
82
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Index to Financial Statements
ITEM 16. FORM 10-K SUMMARY
None
83
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Index to Financial Statements
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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:
August 27, 2024
By:
/s/ MICHAEL L. BAUR
Michael L. Baur
Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature
Title
Date
/s/ MICHAEL L. BAUR
Chairman and Chief Executive Officer
August 27, 2024
Michael L. Baur
(Principal Executive Officer)
/s/ STEVE JONES
Senior Executive Vice President and Chief Financial Officer
August 27, 2024
Steve Jones
(Principal Financial Officer)
/s/ BRANDY FORD
Senior Vice President and Chief Accounting Officer
August 27, 2024
Brandy Ford
(Principal Accounting Officer)
/s/ PETER C. BROWNING
Lead Independent Director
August 27, 2024
Peter C. Browning
/s/ FRANK E. EMORY, JR.
Director
August 27, 2024
Frank E. Emory, Jr.
/s/ CHARLES A. MATHIS
Director
August 27, 2024
Charles A. Mathis
/s/ VERNON NAGEL
Director
August 27, 2024
Vernon Nagel
/s/ DOROTHY F. RAMONEDA
Director
August 27, 2024
Dorothy F. Ramoneda
/s/ JEFFREY R. RODEK
Director
August 27, 2024
Jeffrey R. Rodek
/s/ ELIZABETH O. TEMPLE
Director
August 27, 2024
Elizabeth O. Temple
84
Table of Contents
Index to Financial Statements
Exhibit Index
Exhibit
Number
Description
Filed
herewith
Form
Exhibit
Filing
Date
2.1
Share Purchase and Sale Agreement for Global Data Network LLP dated January 8, 2015
10-Q
2.1
2/3/2015
3.1
Second Amended and Restated Articles of Incorporation and Articles of Amendment
8-K
3.1
1/27/2022
3.2
Amended and Restated Bylaws
10-Q
3.1
5/7/2024
4.1
Form of Common Stock Certificate
SB-2
4.1
2/7/1994
4.2
Description of Securities
X
Executive Compensation Plans and Arrangements
10.1
ScanSource, Inc. 2024 Board of Directors Compensation Program
X
10.2
ScanSource, Inc. Nonqualified Deferred Compensation Plan, as Amended and Restated
Effective January 1, 2021
10-Q
10.3
5/10/2021
10.3
Executive Severance Plan
8-K
10.3
6/21/2017
10.4
ScanSource, Inc. Management Incentive Plan
10-K
10.7
8/22/2023
10.5
Amended and Restated Employment Agreement, effective as of July 1, 2017, of Michael
L. Baur
8-K
10.1
6/21/2017
10.6
Employment Letter, dated September 27, 2019 of John Eldh
10-K
10.26
8/24/2021
10.7
Separation Agreement and General Release, dated September 22, 2023, by and between
Registrant and John Eldh
8-K
10.1
9/26/2023
10.8
Employment Letter, dated November 16, 2020, of Stephen Jones
10-Q
10.1
2/2/2021
10.9
Employment Letter, dated May 6, 2021 of Rachel Hayden
10-K
10.29
8/24/2021
10.10
Employment Letter, dated February 9, 2023 of Shana Smith
10-K/A
10.23
10/24/2023
10.11
Employment Letter, dated June 29, 2023 of Alexandre Conde
X
10.12
Severance Plan, dated December 13, 2023 for Alexandre Conde
X
10.13
2013 Long-Term Incentive Plan
S-8
99
12/5/2013
10.14
Form of Incentive Stock Option Award Certificate under ScanSource, Inc. 2013 Long-
Term Incentive Plan for grants on or after December 5, 2013
10-Q
10.3
2/6/2014
10.15
Form of Non-Qualified Stock Option Award Certificate under ScanSource, Inc. 2013
Long-Term Incentive Plan for grants on or after December 5, 2013
10-Q
10.4
2/6/2014
10.16
Form of Non-Qualified Stock Option Award Certificate under the 2013 Long-Term
Incentive Plan (2017 version)
8-K
10.3
12/8/2017
10.17
Form of Incentive Stock Option Award Certificate under the 2013 Long-Term Incentive
Plan (2017 version)
8-K
10.4
12/8/2017
10.18
Form of Restricted Stock Unit Award Certificate (Performance- and Service-based) under
the ScanSource, Inc. 2013 Long-Term Incentive Plan
10-K/A
10.37
10/26/2021
10.19
Form of Restricted Stock Unit Award Certificate (Service-based) under the ScanSource,
Inc. 2013 Long-Term Incentive Plan
10-K
10.38
8/24/2021
85
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Index to Financial Statements
10.20
ScanSource, Inc. 2021 Omnibus Incentive Compensation Plan
10-K
10.3
8/22/2023
10.21
Form of Employee Restricted Stock Award Certificate under the 2021 Omnibus Incentive
Compensation Plan
8-K
10.2
1/27/2022
10.22
Form of Restricted Stock Unit Award Certificate (Service-Based) under the 2021 Omnibus
Incentive Compensation Plan
8-K
10.4
1/27/2022
10.23
Form of Director Restricted Stock Unit Award Certificate (Service-Based) under the 2021
Omnibus Incentive Compensation Plan
8-K
10.5
1/27/2022
10.24
Form of Employee Restricted Stock Unit Award Certificate (Performance and Service-
Based) under the 2021 Omnibus Incentive Compensation Plan
8-K
10.6
1/27/2022
10.25
Form of Incentive Stock Option Award Certificate under the 2021 Omnibus Incentive
Compensation Plan
8-K
10.7
1/27/2022
10.26
Form of Non-Qualified Stock Option Award Certificate under the 2021 Omnibus Incentive
Compensation Plan
8-K
10.8
1/27/2022
10.27
Form of Director Stock Award Certificate under the 2021 Omnibus Incentive
Compensation Plan
8-K
10.9
1/27/2022
Bank Agreements
10.28
Third Amended and Restated Credit Agreement
8-K
10.1
9/29/2022
10.29
Suspension of Rights Agreement, dated as of April 16, 2024, to the Third Amended and
Restated Credit Agreement
10-Q
10.1
5/7/2024
Other Agreements
10.30
+
Industrial Lease Agreement between Registrant and Industrial Developments International,
Inc.
10-K
10.26
8/29/2007
10.31
+
Third Amendment to Industrial Lease Agreement between Registrant and Industrial
Developments International, Inc.
10-K
10.54
8/29/2016
10.32
Fourth Amendment to Industrial Lease Agreement
10-Q
10.1
5/9/2019
10.33
+
Nonexclusive Value Added Distributor Agreement between ScanSource, Inc. and Cisco
Systems, Inc.
10-K
10.38
8/22/2019
10.34
+
Amendment No. 3 to Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.39
8/22/2019
10.35
+
Amendment No. 5 to Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.40
8/22/2019
10.36
+
Amendment No. 6 to Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.41
8/22/2019
10.37
+
Amendment No. 7 to Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.42
8/22/2019
10.38
Amendment No. 9 to Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.43
8/22/2019
10.39
+
Amendment No. 11 to Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.44
8/22/2019
10.40
Amendment No. 13 to Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.46
8/22/2019
10.41
Amendment No. 14 to Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.47
8/22/2019
10.42
Amendment No. 17 to Cisco Nonexclusive Value Added Distributor Agreement
10-Q
10.2
5/10/2021
10.43
Amendment No. 21 to the Nonexclusive Value Added Distributor Agreement
10-K
10.59
8/22/2023
10.44
+
Addendum to Cisco Nonexclusive Value Added Distributor Agreement dated March 25,
2019
10-K
10.48
8/22/2019
10.45
+
Addendum to Cisco Nonexclusive Value Added Distributor Agreement dated March 2,
2015
10-K
10.49
8/22/2019
86
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Index to Financial Statements
10.46
+
Affiliate Agreement under Cisco Nonexclusive Value Added Distributor Agreement
10-K
10.50
8/22/2019
10.47
+
Distribution Agreement with US Motorola (f/k/a Symbol Technologies, Inc.)
10-K
10.58
8/24/2021
10.48
+
Amendment to PartnerEmpower Distribution Agreement with Zebra
10-K
10.59
8/24/2021
10.49
Participation Agreement Relating to Distribution Agreement with Zebra
10-K
10.51
8/29/2016
10.50
+
Amendment to PartnerConnect EVM Distributor Agreement
10-K
10.61
8/24/2021
10.51
+
Addendum to Zebra PartnerConnect Distributor Agreement
10-Q
10.2
5/9/2019
10.52
Letter of Agreement to PartnerConnect EVM Distributor Agreement
10-K
10.55
8/31/2020
10.53
Addendum to Zebra PartnerConnect EVM Distributor Agreement
10-K
10.64
8/24/2021
10.54
+
Addendum to Zebra PartnerConnect EVM Distributor Agreement
X
19.1
Insider Trading Policy
X
21.1
Subsidiaries of the Company
X
23.1
Consent of Grant Thornton LLP
X
31.1
Certification of the Chief Executive Officer
X
31.2
Certification of the Chief Financial Officer
X
32.1
Certification of the Chief Executive Officer
X
32.2
Certification of the Chief Financial Officer
X
97.1
Compensation Recovery Plan
10-Q
99.1
11/9/2023
101
The following materials from our Annual Report on Form 10-K for the year ended June 30,
2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the
Consolidated Balance Sheets as of June 30, 2024 and June 30, 2023, (ii) the Consolidated
Income Statements for the years ended June 30, 2024, June 30, 2023 and June 30, 2022,
(iii) the Consolidated Statements of Shareholders' Equity for the years ended June 30,
2024, June 30, 2023 and June 30, 2022, (iv) the Consolidated Statements of Cash Flows
for the years ended June 30, 2024, June 30, 2023 and June 30, 2022, and (v) the Notes to
the Consolidated Financial Statements, tagged as blocks of text. The instance document
does not appear in the Interactive Data File because XBRL tags are embedded within the
Inline XBRL document.
X
104
Cover page Inline XBRL File (Included in Exhibit 101)
X
+
Portions of this exhibit have been omitted pursuant to Item 601(b) of Regulation S-K.
Our SEC file number for documents filed with the SEC pursuant to the Exchange Act is 000-26926.
87
Exhibit 4.2
ScanSource, Inc.
Description of Securities
The following is a summary of the general terms and provisions of the common stock of ScanSource, Inc. (the “Company”). The description set forth
below does not purport to be complete and is subject to and qualified in its entirety by reference to the Company’s Amended and Restated Articles of
Incorporation, as amended (the “Articles of Incorporation”) and Amended and Restated Bylaws (the “Bylaws”) each of which is incorporated herein by
reference and attached as an exhibit to the Company’s Annual Report on Form 10-K. You are encouraged to read the Articles of Incorporation, Bylaws, and the
applicable provisions of the South Carolina Business Corporation Act of 1988, as amended from time to time (the “SCBCA”) for additional information.
Authorized Shares of Common Stock
The Company has 45,000,000 shares of authorized common stock, without par value. Authority is expressly granted to and vested in the directors to
provide for the issue of common stock.
Common Stock
Voting Rights
Holders of common stock are entitled to one vote per share for each share held of record on any matter submitted to the holders of common stock for a
vote. Holders of common stock do not have cumulative voting rights. The election of directors requires the affirmative vote of the holders of at least a majority
of the votes cast on the election of directors; provided, that if the number of director nominees to be considered at the vote exceeds the number of directors to
be elected, each director shall be elected by a vote of the plurality of the shares represented in person or by proxy and entitled to vote on the election of
directors. With respect to election of directors, a majority of votes cast shall mean that the number of votes cast “for” a Director’s election exceeds the number
of votes cast “against” that director’s election (with “abstentions” and “broker non votes” not counted as a vote cast either “for” or “against” that director’s
election). Any other corporate action shall be authorized by a majority of the votes cast at the meeting unless otherwise provided by the SCBCA, the Articles of
Incorporation, or the Bylaws.
Dividends
Subject to the rights of the holders of any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the board of directors out of legally available funds.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share equally and ratably, based on
the number of shares held, in the assets, if any, remaining after payment of all of the Company's debts and liabilities and the liquidation preference of any
outstanding series of preferred stock granted a liquidation preference upon its designation by the board of directors.
Absence of Other Rights
Holders of common stock do not have preemptive or other rights to subscribe for or purchase any additional shares of capital stock issued by the
Company.
Preferred Stock
Under the Articles of Incorporation, the Company is authorized to issue up to 3,000,000 shares of preferred stock in one or more series. As of June 30,
2024, no shares of preferred stock were issued and outstanding. The
Exhibit 4.2
Company’s board of directors is authorized to fix by resolution the designations, preferences and rights, and the qualifications, limitations or restrictions
thereof, of each series of preferred stock, including, without limitation, the authority to fix the dividend rights, voting rights, conversion rights, and liquidation
preferences of any wholly unissued series of preferred stock, and the number of shares constituting any such series.
Certain Provisions of the Articles of Incorporation, Bylaws and South Carolina Law
General
Certain provisions of the Articles of Incorporation, the Bylaws and the SCBCA may impact the rights of holders of common stock or have the effect of
impeding the acquisition of control of the Company. These provisions are designed to reduce, or have the effect of reducing, the Company’s vulnerability to
unsolicited takeover attempts.
Restrictions on Special Meetings
Under the Bylaws, special meetings of the shareholders may be called only by the Chief Executive Officer, the Chairman of the Board, or a majority
of the directors. This provision may impede a shareholder who wishes to require the Company to call a special meeting of shareholders to consider any
proposed corporate action.
Indemnification of Directors and Officers
Section 33-8-500 et seq. of the SCBCA provides the Company with broad powers and authority to indemnify its directors and officers and to purchase
and maintain insurance for such purposes. The SCBCA also mandates the indemnification of the Company’s directors, unless limited by a company’s articles of
incorporation, who are wholly successful on the merits in the defense of any proceeding to which the director was a party because he or she is or was a director
of the Company against reasonable expenses incurred by such director in connection with the proceeding. As permitted by the SCBCA, the Articles of
Incorporation provide that a director of the Company shall not be personally liable to the Company or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Company or its shareholders, (ii) for acts or omissions
not in good faith or which involve gross negligence, intentional misconduct or a knowing violation of law, (iii) for any unlawful distribution as set forth in
Section 33-8-330 of the SCBCA, or (iv) for any transaction from which the director derived an improper personal benefit. These provisions may have the effect
in certain circumstances of reducing the likelihood of derivative litigation against directors. While these provisions eliminate the right to recover monetary
damages from directors except in limited circumstances, rights to seek injunctive or other non-monetary relief is not eliminated.
The Bylaws also provide the Company with the power and authority to the fullest extent legally permissible under the SCBCA to indemnify its
directors and officers, persons serving at the request of the Company or for its benefit as directors or officers of another corporation, and persons serving as the
Company’s representatives in certain circumstances (regardless of whether such proceeding is by or in the right of the Company) against all expenses,
liabilities and losses, including attorneys’ fees, judgments, fines, and amounts paid in settlement, that are suffered or reasonably incurred in connection with the
person’s service. The Company’s Bylaws mandate indemnification of such persons in certain circumstances and set forth such indemnification provisions as a
contractual right of such persons. However, such right is not exclusive of any other right which a director, officer or representative may have or acquire.
Directors, officers, and representatives are further entitled to any respective rights of indemnification under any bylaw, agreement, vote of shareholders,
insurance, provision of law, or otherwise, in addition to the indemnification rights outlined in the Bylaws. Unless a determination has been made that
indemnification is not permissible, and upon receipt of any written affirmation required by the SCBCA from the director, officer or representative to be
indemnified, the Company shall make advances and reimbursements for expenses incurred by such person in a proceeding upon receipt of an undertaking from
such person to repay the same if it is ultimately determined that such person is not entitled to indemnification.
In addition, the Company maintains directors’ and officers’ liability insurance covering some liabilities for actions taken by directors and officers in
their capacities as such.
Exhibit 4.2
South Carolina Anti-Takeover Law
South Carolina has two takeover-related statutes applicable to publicly held corporations organized under the laws of South Carolina. Article 1 of
Chapter 2 of Title 35 of the South Carolina Code of Laws precludes an acquirer of the shares of a South Carolina public corporation who crosses one of three
voting thresholds, 20%, 33 1/3%, or 50%, from obtaining voting control of the shares unless a majority in interest of the disinterested shareholders of the
corporation votes to grant voting power to the shares. Article 2 of Chapter 2 of Title 35 of the South Carolina Code of Laws restricts business combination
transactions involving a South Carolina public corporation and a beneficial owner of 10% or more of its voting stock. Neither of these statutes applies to the
Company because, as permitted by these statutes, the Company elected not to be covered by them and included a provision in the Articles of Incorporation
reflecting that election.
However, the Articles of Incorporation expressly permit the board of directors, when evaluating any proposed tender or exchange offer, any merger,
consolidation, or sale of substantially all of the assets, or any similar extraordinary transaction, to consider: (i) all relevant factors, including without limitation
the social, legal, and economic effects on the employees, customers, suppliers and other constituencies of the Company and its subsidiaries, on the
communities and geographical areas in which the Company and its subsidiaries operate or are located and on any of the business and properties of the
Company or any of its subsidiaries; and (ii) the consideration being offered, not only in relation to the then current market price for the Company's outstanding
shares of capital stock, but also in relation to the then current value of the Company in a freely negotiated transaction and in relation to the board of directors'
estimate of the future value of the Company (including the unrealized value of its properties and assets) as an independent going concern.
Advance Notice for Shareholder Proposals and Nominations
The Bylaws contain advance notice provisions with respect to shareholder nominations of candidates for election as directors and any other business
that the shareholder intends to bring at a meeting of shareholders.
Limitations on Shareholder Action by Written Consent
The SCBCA provides that any action by written consent of shareholders in lieu of a meeting must be unanimous.
Listing
The Company’s common stock is listed on the NASDAQ under the symbol “SCSC.”
Exhibit 10.1
Board of Directors Compensation Program
Effective as of July 1, 2024
Effective as of July 1, 2024, ScanSource, Inc.’s Annual Board Compensation Program:
Retainer (All Directors)
$
90,000
Equity Grant Value (All Directors)
$
160,000
Board Chair Retainer
$
70,000
Audit Committee Chair Retainer
$
25,000
Compensation Committee Chair Retainer
$
20,000
Compensation for Other Committee Retainer
$
15,000
Cash retainers are paid quarterly in arrears.
Equity awards are made in accordance with the Company’s standard practice for directors.
Directors are reimbursed for travel and other expenses reasonably incurred in connection with their service as directors.
Exhibit 10.11
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO S.C. CODE ANN. § 15-48-10, et seq., THE SOUTH CAROLINA
UNIFORM ARBITRATION ACT
SENT VIA E-MAIL
Alexandre Machado de Campos Conde
Av. Marcos Penteado de Ulhoa Rodrigues, 3800 – Ap. 154ª
Santana de Parnaíba 06543-001 - Brazil
June 29, 2022
Dear Alex:
On behalf of ScanSource, Inc. (the “Company”), I am pleased to confirm our offer of employment to you for the position of Senior Executive Vice
President, People & Culture (“SEVP, P&C”), with the title of Chief People Officer (“CPO”). I believe you will find it to be both challenging and rewarding and
we look forward to having you as a critical member of the team.
As we discussed, your first day in this new role, will be on August 1, 2022 (the “Effective Date”). Your compensation and benefits are further
discussed below and will be explained in more detail on your first day, but if you have questions in the meantime, please call Mike at 864-286-4303.
1
Certain Employment Terms. You will assume your role as SEVP, P&C and CPO and may serve as an officer and/or director of one or more of the
Company’s subsidiaries or other affiliates if and as directed by the Chief Executive Officer. Your position is a full-time position, and you will be
expected to devote your full business time and attention to the performance of your duties and responsibilities in the position(s) described above. You
will report to the Chief Executive Officer. Your employment will be for no set duration. You will be an at-will employee, which means that either the
Company or you may terminate the employment relationship at any time, for any reason or no reason, with or without cause. Although your position
will require travel, your principal place of employment will be at the Company’s headquarters in Greenville, South Carolina. You are authorized to
join up to a total of two non-competing public and/or private corporation boards of directors, subject to prior notice to and approval by the CEO.
2
Base Salary. Your annual base salary as of the Effective Date in your role as SEVP, P&C will be $375,000, paid in accordance with the Company’s
payroll practices (every two weeks by direct deposit, paid to a U.S. bank) pro-rated for any partial year, and less applicable taxes and withholdings.
Your salary will be subject to annual review by the CEO/Compensation Committee but shall not be subject to decrease without your consent.
3
Bonuses. You will be eligible to participate in the Company’s cash-based variable compensation incentive plan (the “Bonus Plan”), which runs on our
fiscal year (July 1–June 30). Your target annual bonus opportunity shall be equal to 60% of base salary ($225,000), and your maximum annual bonus
opportunity shall not exceed 200% of your target ($450,000). Thereafter, your target and maximum short-term incentive opportunities shall be
subject to periodic review. Bonuses, if any, will be prorated for any partial years, based on actual performance. The performance measures and goals
applicable to your annual bonus opportunity (for any year) shall be established by the CEO, and the CEO shall have the discretion to determine if, and
the extent to which, any such measures and goals have been met and the bonus has been earned. While it is anticipated that your annual short-term
incentive opportunities will be maintained, your participation in the Bonus Plan does not constitute a promise of payment. Your actual incentive
payout, if any, will depend on the Company’s financial and business performance and/or the CEO’s assessment of your individual performance, and
will be subject to the terms and conditions of the Bonus Plan. Any bonus payment made to you under the Bonus Plan will be paid to you in accordance
with Treasury Reg. Section 1.409A-1(b)(4) or shall otherwise be made in a manner intended to be exempt from, or to comply with, Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”).
4
Long-Term Incentive Awards. You will be eligible to participate in and receive awards under any long-term incentive plan or program of the
Company that is in place from time to time in which other senior executive officers of the Company participate. The amount, form and vesting and
other terms and conditions of such awards will be reviewed and established periodically by the Compensation Committee
Exhibit 10.11
of the Board of Directors, but it is expected that you will be granted equity awards in the normal course of business at a level commensurate with the
level of equity awards granted to other senior executive officers of the Company. For the Company’s annual equity grant for fiscal 2023 (expected to
be awarded in August 2022), you will be considered for inclusion at a grant value of $350,000 on the date of grant, and for subsequent annual equity
grants you will be considered for inclusion at a grant value of $350,000 on the date of grant, all subject to Compensation Committee discretion.
Equity awards will be subject to performance and/or service conditions and of type(s) (options, restricted awards, performance awards) determined by
the Compensation Committee in its discretion and shall be subject to the terms of the Company’s 2022 Long-Term Incentive Plan (as it may be
amended, and any successor plan thereto, the “Stock Plan”), Equity Award Grant Policy, and award agreement(s) in form(s) established by the
Compensation Committee.
5
Health and Welfare Benefits. The Company provides a comprehensive package of benefits, including medical and prescription drug coverage, dental
coverage, vision coverage, life insurance, short- and long-term disability insurance and other offerings. Provided you are an eligible employee as
defined under each of the Company’s health and welfare benefits plan(s), you will be eligible to participate in such plan(s), subject to the applicable
terms of such plan(s) and the Company’s right to modify or terminate such plans.
6
401(k) Savings Plan. You will be eligible to participate in the Company-sponsored 401(k) savings plan, subject to the terms of such plan and the
Company’s right to modify or terminate such plan. The Company may in its discretion match a portion of your contributions in accordance with the
applicable plan provisions. Eligibility requirements and conditions of enrollment and coverage are subject to change and are set forth in the applicable
plan documents.
7
Deferred Compensation. You will be eligible to participate in the Company’s Nonqualified Deferred Compensation Plan, subject to the plan’s terms
and conditions and the Company’s right to modify or terminate such plan. You shall be eligible to participate by deferring up to 50% of base pay and
100% of incentive pay, with a match of 30% of deferred amounts being made by the Company on the first 15% of pay.
8
Vacation. You will be entitled to no less than twenty-one (21) paid time off (PTO) days per calendar year, subject to the terms of the Company’s
vacation policy. The Company also currently offers eight (8) paid holidays.
9
Relocation and Residency Benefits. This position is in the United States and requires frequent time in the corporate office in Greenville, South
Carolina at the direction of the CEO. The Company expects that you will relocate to the United States before August 1, 2023. In connection with your
relocation, the Company will pay you a lump sum of $100,000 as a one-time relocation benefit, which is to be used for temporary housing, packing,
flights to and from Brazil, moving and unpacking of your household goods, closing costs, and incidentals associated with your move. The relocation
benefit will be grossed up to offset taxes in the US and Brazil. The Company will also provide financial support for legal fees and sponsorship for you
to apply for permanent residence status (Green Card).
10
Business Travel; Reimbursements. You will be expected to travel in connection with your employment. The Company will reimburse you for
reasonable business expenses incurred in connection with your employment, upon presentation of documentation in accordance with the Company’s
applicable expense reimbursement policies for senior management. All expenses eligible for reimbursement in connection with your employment with
the Company must be incurred by you during the term of your employment or service to the Company. The amount of reimbursable expenses incurred
in one taxable year shall not affect the expenses eligible for reimbursement in any other taxable year. In no event shall any reimbursement be paid
after the last day of your taxable year following the taxable year during which the expense was incurred. No right to reimbursement is subject to
liquidation or exchange for other benefits.
11
Withholding and Taxes. All amounts payable or that become payable under this Letter Agreement will be subject to any deductions and withholdings
previously authorized by you or required by law. Recognizing that you may be subject to taxation in Brazil and the United States, the organization will
use commercially reasonable efforts to help you remediate your tax consequence in Brazil. You will be responsible for any and all taxes resulting from
the benefits provided under this Letter Agreement in the United States and Brazil. The Company makes no undertakings regarding, and has no
obligation to achieve, any certain tax results for you related to the benefits provided herein.
Exhibit 10.11
12
Waiver and Release. You acknowledge and agree that the Company may at any time require, as a condition to receipt of certain benefits payable
under this Letter Agreement, or other plan, agreement or arrangement, that you (or a representative of your estate) execute a waiver and release
discharging the Company and its subsidiaries, and their respective affiliates, and its and their officers, directors, managers, employees, agents and
representatives and the heirs, predecessors, successors and assigns of all of the foregoing, from any and all claims, actions, causes of action or other
liability, whether known or unknown, contingent or fixed, arising out of or in any way related to your employment, or the ending of your employment
with the Company or the benefits thereunder, including, without limitation, any claims under this Letter Agreement or other related instruments. The
waiver and release will be in a form determined by the Company and shall be executed prior to the expiration of the time period provided for payment
of such benefits and at such time as will not result in any compensation or benefits payable under this Letter Agreement otherwise failing to be exempt
from or comply with Section 409A of the Code.
13
Amendment and Termination; Entire Agreement; Consideration. This Letter Agreement may be amended or terminated by a written agreement
between you and the Company, with the CEO acting on behalf of the Company. Except for the Stock Plan (and related participation and award
agreements), this Letter Agreement contains the entire agreement of you and the Company related to the subject matter hereof and supersedes all prior
verbal or written discussion, agreements and understandings with respect to such subject matter, and you and the Company have made no agreements,
representations or warranties related to the subject matter of this Letter Agreement that are not set forth herein. Your entering into this Letter
Agreement does not violate any other agreements or obligations. You further acknowledge that you are receiving valuable consideration in exchange
for agreeing to the terms of this Letter Agreement.
14
Compliance with Code Section 409A; Recoupment, Ownership and Other Policies or Agreements. You and the Company agree that you both
will cooperate in good faith so that no compensation paid to you by the Company under this Letter Agreement will violate Code Section 409A and the
regulations promulgated thereunder. In case any one or more provisions of this Letter Agreement fail to comply with the provisions of Code Section
409A, the remaining provisions of this Letter Agreement shall remain in effect, and this Letter Agreement shall be administered and applied as if the
non-complying provisions were not part of this Letter Agreement. The parties in that event shall endeavor to agree upon a reasonable substitute for the
non-complying provisions, to the extent that a substituted provision would not cause this Letter Agreement to fail to comply with Code Section 409A,
and, upon so agreeing, shall incorporate such substituted provisions into this Letter Agreement. A termination of your employment hereunder shall not
be deemed to have occurred for purposes of any provision of this Letter Agreement providing for the payment of any amount or benefit constituting
“deferred compensation” under Code Section 409A upon or following a termination of employment unless such termination is also a “separation from
service” within the meaning of Code Section 409A and, for purposes of any such provision of this Letter Agreement, references to a “termination,”
“termination of employment” or like terms shall mean “separation from service.” In the event that any payment or benefit made hereunder or under
any compensation plan, program or arrangement of the Company would constitute payments or benefits pursuant to a non-qualified deferred
compensation plan within the meaning of Code Section 409A and, at the time of your “separation from service” you are a “specified employee” within
the meaning of Code Section 409A, then any such payments or benefits that are provided to you on account of your “separation from service” shall be
delayed until the six-month anniversary of the date of your “separation from service” (such six month anniversary being the “Specified Employee
Payment Date”). The aggregate amount of any payments that would otherwise have been made during such six-month period shall be paid in a lump
sum on the Specified Employee Payment Date with interest and, thereafter, any remaining payments shall be paid without delay in accordance with
their original schedule. If you die before the Specified Employee Payment Date, any delayed payments shall be paid to your estate in a lump sum
within 30 days of your death. Each payment made under this Letter Agreement shall be designated as a “separate payment” within the meaning of
Code Section 409A. You acknowledge and agree that if this Letter Agreement or any benefit described herein shall be deemed not to comply with
Code Section 409A, then neither the Company, the Board, the Compensation Committee nor its or their designees or agents shall be liable to you or
other persons for actions, decisions or determinations made in good faith. Further, as a condition to entering into this Letter Agreement, you agree that
you will abide by all provisions of any compensation recovery (“claw back”) policy, stock ownership guidelines, equity retention policy and/or other
similar policies maintained by the Company, each as in effect from time to time and to the extent applicable to you from time to time. In addition, you
will be subject to such compensation recovery, recoupment, forfeiture or other similar provisions as may apply at any time to you under applicable
law.
Exhibit 10.11
15
Compensation and Benefit Plans Control. The Company’s benefit offerings and other terms and conditions of employment are subject to change or
termination, with or without notice. In the event of differences between any documents relating to compensation and benefits, the terms of the
applicable plan or other document will control.
16
Governing Law; Successors and Assigns. This Letter Agreement will be governed by and construed in accordance with the laws of the State of
South Carolina, without regard to the principles of conflict of laws, and in accordance with applicable U.S. federal law. The provisions, obligations
and rights of this Letter Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
17
Additional Terms. This offer of employment is made in reliance on your representation that there exists no conflict of interest or contractual or
statutory obligation that would prevent you from becoming employed with the Company and performing duties as described in this Letter Agreement.
In addition, this offer is contingent upon your obtaining the proper grant of authorization by all responsible U.S. government agencies allowing you to
work in the United States and otherwise comply with United States immigration laws and to provide acceptable proof of employment eligibility to the
Company. You agree that you will not use trade secret or confidential information of any previous employer on behalf of the Company. You further
represent that you will adhere to ethical business practices in performing your duties and there is no third party that has a financial interest or will
receive monetary benefit from the performance of your duties.
If the terms of this Letter Agreement are acceptable to you, please sign below and return it at your earliest opportunity.
Sincerely,
/s/ Mike Baur
Mike Baur
Chairman and CEO
*********************************************************************************************
I acknowledge receipt and acceptance of the offer of employment in this Letter Agreement. By my signature below, I accept all terms and conditions set forth
above. As a condition of your employment, you will be required to separately sign the Company’s Confidentiality, Non-compete, Non-solicitation, and IP
Assignment agreement. In addition, I acknowledge and agree that I will be employed on an at-will basis and that any change to that status may only be made
through an agreement in writing signed by the Company.
Accepted: /s/ Alex Conde
Alex Conde
Date: June 29, 2022
Exhibit 10.12
Dated dated ScanSource, Inc.
Executive Severance Plan Participation Agreement
December 13, 2023
Alexandre Conde
Senior Executive Vice-President and Chief People Officer
ScanSource, Inc.
6 Logue Court
Greenville, South Carolina 29615
Re: ScanSource, Inc. Executive Severance Plan
Dear Alex:
This Participation Agreement (this "Agreement") is made and entered into by and between Alexandre Conde (the "Participant" or "you") and ScanSource,
Inc. (the "Company").
The Company has adopted the ScanSource, Inc. Executive Severance Plan (as it may be amended and/or restated, the "Plan") in order to provide selected
eligible executive officers with the opportunity to receive severance and other benefits in the event of certain terminations of employment and to attract and
retain qualified executive officers.
A participant in the Plan is eligible to receive severance and other benefits if his or her employment is terminated under certain circumstances, as described in
the Plan.
The Company has selected you to be a participant in the Plan, subject to the terms and conditions set forth in this Agreement and the Plan. A copy of the Plan
has been provided to you and this Agreement is deemed to be part of the Plan. Unless otherwise defined herein, any capitalized terms used in this Agreement
shall have the meanings set forth in the Plan.
In consideration of the mutual covenants contained herein and in the Plan, the Participant and the Company hereby agree as follows:
1.
Your Severance Multiple shall be 1.5.
2.
Your Change in Control Multiple shall be 2.0.
3.
You further agree to be bound by the terms of the Plan, including but in no way limited to the restrictive covenants, arbitration and other provisions set
forth in the Plan, and the right of the Company to cease payments and/or recover payments in the event that you breach or threaten to breach such
restrictive covenants or as otherwise provided in the Plan. You also hereby consent and agree that the Company shall be entitled to seek, in addition to
other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of
competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and
without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, and not in lieu of, legal
remedies, monetary damages or other available forms of relief.
1.
You agree that the Plan contains all of the understandings and representations between you and the Company pertaining to the subject matter hereof
and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such
subject matter, including, without limitation, that certain Employment Letter (the "Employment Letter") entered into between you and the Company
effective as of August 1, 2022. You also agree that, if you are entitled to receive severance benefits under the Plan, then you shall not be entitled to
receive severance benefits under any other severance plan, employment agreement, employment letter or other plan, agreement or arrangement
maintained by the Company, as such plan, agreement or arrangement may be amended from time to time, and you hereby waive any right to such
benefits.
You acknowledge and agree that you have fully read and understand the Plan and the Agreement and you voluntarily enter into the Agreement and become a
participant in the Plan. You acknowledge and agree that you
Exhibit 10.12
have received a copy of the Plan and have had an opportunity to consult with your personal tax or financial planning advisor and/or attorney about the tax,
financial and legal consequences of your participation in the Plan before signing this Agreement.
This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and
the same instrument. The Agreement may be amended as provided in the Plan.
IN WITNESS WHEREOF, the Company has executed this Agreement by its duly authorized officer as of the date set forth below. Please sign below and return
the Agreement to the Company's Chief Legal Officer. Failure to execute and return the Agreement may, in the Company's discretion, render your eligibility to
participate in the Plan and the Plan void and of no effect.
Very truly yours, ScanSource, Inc.
By: /s/ Shana Smith
Name: Shana Smith
Title: Chief Legal Officer
By my signature below, I accept my designation as a Participant in the Plan and agree to be bound by and subject to the terms and conditions of this Agreement
and the Plan, including but in no way limited to the restrictive covenants, arbitration provisions and other terms set forth in the Plan.
PARTICIPANT:
By: /s/ Alex Conde
Name: Alexandre Conde
Title: Senior Executive Vice-President and Chief People Officer
Date: December 13, 2023
Exhibit 10.54
IN ACCORDANCE WITH ITEM 601(b) OF REGULATION S-K, CERTAIN IDENTIFIED INFORMATION (THE “CONFIDENTIAL INFORMATION”) HAS BEEN EXCLUDED
FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) IS OF THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THE
CONFIDENTIAL INFORMATION IS DENOTED HEREIN BY [*****].
FIXED INDUSTRIAL SCANNERS ADDENDUM
TO PARTNERCONNECT EVM DISTRIBUTION AGREEMENT
THIS Fixed Industrial Scanners Addendum (the "Addendum") is made by and between:
Zebra Technologies International, LLC, with an office at 3 Overlook Point, Lincolnshire IL 60069 (“Zebra”)
AND
ScanSource, Inc., a company incorporated in South Carolina, with its registered office at 6 Logue Court, Greenville, South Carolina 29615 ("Distributor")
"Zebra" and the "Distributor" are referred to collectively as 'Parties" and individually as a "Party".
WHEREAS Zebra and ScanSource, Inc. are Parties to a Distribution Agreement with an effective date of February 12, 2014, as amended (the "Agreement"),
under which Distributor purchases Products for further resale to Resellers (as defined therein).
WHEREAS Zebra is expanding the product portfolios offered to Distributors under the Program and the Agreement to also include Fixed Industrial Scanners
(as defined below).
WHEREAS The Parties desire to amend the Agreement by adding Fixed Industrial Scanners thereto and authorizing Distributor to purchase such products
from Zebra for further resale in the Market (i.e. US and Canada) to Program Members who participate in the industrial Automation Track of the Program,
THEREFORE, in consideration of the mutual covenants and promises, and subject to the terms and conditions of the Agreement, the Parties agree as follows:
Defined terms used in this Addendum shall have the same meanings given to them in the Agreement, unless the context requires otherwise.
This Addendum automatically incorporates any future amendments to the Agreement and such amendments will be made part of this Addendum to the extent
that the amendments do not conflict therewith, unless otherwise agreed in writing by the Parties.
Definitions:
"Fixed Industrial Scanners" shall mean Zebra's portfolio of ultra-rugged stationary barcode scanners used in manufacturing and logistics applications, as
well as accessories and associated software and services. As of the date of execution of this Addendum, Fixed Industrial Scanners are Zebra's FS10, FS20,
FS40 and FS70 devices. Zebra may add or remove products from this Fixed Industrial Scanners technology segment at any time and at its sole discretion upon
notice. Fixed Industrial Scanners will be considered for the purposes of the Agreement as a Product Technology Segment.
"Industrial Automation Track" shall mean a Program channel segment comprising companies that resell and/or implement solutions that include Zebra
Fixed Industrial Scanners.
"Premier Industrial Automation Distributor'' shall mean Program Members who participate in the Industrial Automation Track that resell Zebra's Fixed
Industrial Scanners to Registered Industrial Automation System Integrators, Select Industrial Automation Partners, and others, including End Users.
"Registered Industrial Automation System Integrators" shall mean Program Members who participate in the Industrial Automation Track that primarily
provide installation and commissioning services.
"Select Industrial Automation Partners" shall mean Program Members who participate in the Industrial Automation Track that resell Zebra's Fixed
Industrial Scanners.
Zebra PartnerConnect Fixed Industrial Scanners Addendum • NA
@2024 Zebra Technologies Corp and / or its Affiliates. All rights reserved. Proprietary and Confidential.
Exhibit 10.54
(a) Except as specified in Section 4 (b) below, commencing on the Effective Date hereof, Fixed Industrial Scanners will be considered for all intents and
purposes of the Agreement as Products and the purchase and sale thereof will be conducted in accordance with, and subject to the terms and conditions of the
Agreement and the Program.
(b) For the [*****] following the Effective Date hereof, stock rotation on Fixed Industrial Scanners only, will be based on the net dollar value of Distributor's'
purchases of Fixed Industrial Scanners in [*****]. At the end of the [*****] period, stock rotation privileges for such products will return to Zebra's standard
terms and will be based on Fixed industrial Scanners purchases in [*****]. At all times, stock rotation allowance will be calculated [*****] during the
applicable period.
Distributor will only sell Fixed Industrial Scanners to Premier Industrial Automation Distributors, Select Industrial Automation Partners and to Registered
Industrial Automation System Integrators who are Program Members that participate in the Industrial Automation Track.
Inventory. Distributor will order and maintain sufficient inventory levels of Fixed Industrial Scanners as necessary to meet market demand and the applicable
product lead time requirements for such products. The Parties will agree on the appropriate inventory levels (typically six-to-eight-weeks' worth of inventory
turnover) which must be achieved and maintained by Distributor at all times during the term of this Addendum.
Industrial Automation Lab. Distributor will maintain an industrial automation lab with a dedicated workspace for Fixed Industrial Scanners, as specified in
the Program.
Demo Equipment Program. Distributor will assist Zebra .in the management of the Fixed Industrial Scanners Demo & Lab Equipment Program and support
the Industrial Automation Track Members Distributor is authorized to sell to, by providing them with the applicable Fixed Industrial Scanners Demo
Equipment per the Program requirements. Distributor will comply with the Demo Equipment purchase requirements applicable to Distributors, as specified in
the Industrial
Automation Demo & Lab Equipment Program guide posted at
file:/1/C:/Users/MRQC?4/OneDrive%20-%20Zebra%20Technoloqies/Documents/Aqreement%20135/iat-mvprogram-guide-na-en-us.pdf; which Zebra may
update at any time in Its sole and absolute discretion.
Advertising/Marketing. Zebra has established a unilateral Internet Price Advertising Policy ("IPA Policy"} that applies to all authorized distributors and
resellers of Fixed Industrial Scanners located in the US and Canada. This Section is intended to inform Distributor of the IPA Policy posted at:
https://partnerportal.zebra.com/content/dam/zebra partner/north-america/en/partner policy/internet-price-advertising-policy-na-en-us.odf;
In the event of a conflict between the Agreement and this Addendum, the terms of this Addendum shall take precedence.
This Addendum and any additional amendments of addenda to the Agreement may be executed in two or more of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument. A computer image, such as a PDF or tiff image, of a signature shall be treated as and shall
have the same effect as an original signature. In addition, a true and correct computer image of this Addendum and any additional amendments of addenda
thereto shall be treated as and shall have the same effect as an original signed copy of this document.
Term and Termination. This Addendum will commence on the Effective Date and will remain in full force and effect unless terminated by either Party in
accordance with the termination provisions of the Agreement.
IN WITNESS WHEREOF the Parties have executed this Addendum to take effect on the date of the last signature hereof (the "Effective Date").
Zebra Technologies International, Inc. ScanSource, Inc.
Zebra PartnerConnect Fixed Industrial Scanners Addendum • NA
@2024 Zebra Technologies Corp and / or its Affiliates. All rights reserved. Proprietary and Confidential.
Exhibit 10.54
By:____________________________ By:_______________________
Name:__________________________ Name:____________________
Title:___________________________ Title:______________________
Date:___________________________ Date:______________________
Exhibit 19.1
Insider Trading in Securities
Purpose
This Insider Trading Policy (this “Policy”) provides guidelines with respect to transactions in the securities of the Company and the handling of confidential
information about the Company and the companies with which the Company does business. The Board has adopted this Policy to promote compliance with
federal, state and foreign securities laws that prohibit certain persons who are aware of material nonpublic information about a company from: (i) trading in
securities of that company; or (ii) providing material nonpublic information to other persons who may trade on the basis of that information.
Company-Wide Policy Provision
Persons Subject to the Policy
This Policy applies to all officers of the Company, all members of the Board and all employees of the Company, as well as their respective Family Members (as
defined herein). The Company may also determine that other persons should be subject to this Policy, such as contractors or consultants who have access to
material nonpublic information (together with directors, officers, employees and Family Members, the “Covered Persons”).
Portions of this Policy only apply to executive officers and directors of the Company and certain other employees designated by the Compliance Officer as
subject to certain restrictions.
Transactions Subject to the Policy
This Policy applies to transactions in the Company’s securities, including the Company’s common stock, options to purchase common stock, or any other type
of securities that the Company may issue, including (but not limited to) preferred stock, convertible debentures and warrants, as well as derivative securities
that are not issued by the Company, such as exchange-traded put or call options or swaps relating to the Company securities (collectively referred to in this
Policy as “Company Securities”).
Transactions under this Policy include any acquisition or disposition of an interest in or concerning Company Securities, including any purchase, sale, or pledge
of Company Securities.
Administration of the Policy
The Chief Legal Officer shall serve as the “Compliance Officer” for the purposes of this Policy, and the Compliance Officer shall be responsible for
administration of this Policy. All determinations and interpretations by the Compliance Officer shall be final and not subject to further review.
Individual Responsibility
Covered Persons have ethical and legal obligations to maintain the confidentiality of information about the Company and to not engage in transactions in
Company Securities while in possession of material, nonpublic information. Each individual is responsible for making sure that they comply with this Policy,
and that any family member, household member or entity whose transactions are subject to this Policy, as discussed below, also comply with this Policy. In all
cases, the responsibility for determining whether an individual is in possession of material, non-public information rests with that individual, and any action on
the part of the Company, the Compliance Officer or any other employee or director pursuant to this Policy (or otherwise) does not in any way constitute legal
advice or insulate an individual from liability under applicable securities laws. Any Covered Person could be subject to severe legal penalties and disciplinary
action by the Company for any conduct prohibited by this Policy or applicable securities laws, as described below in more detail under the heading
“Consequences of Violations.”
Statement of Policy
It is the policy of the Company that no Covered Person who is aware of material, nonpublic information relating to the Company may, directly, or indirectly
through family members or other persons or entities:
Zebra PartnerConnect Fixed Industrial Scanners Addendum • NA
@2024 Zebra Technologies Corp and / or its Affiliates. All rights reserved. Proprietary and Confidential.
Exhibit 19.1
•
Engage in transactions in Company Securities, except as otherwise specified in this Policy under the headings “Transactions Under Company Plans,”
“Transactions Not Involving a Purchase or Sale” and “Rule 10b5-1 Plans;”
•
Recommend the purchase or sale of any Company Securities;
•
Disclose material, nonpublic information to persons within the Company whose jobs do not require them to have that information, or outside of the
Company to other persons, including, but not limited to, family, friends, business associates, investors and expert consulting firms, unless any such
disclosure is made in accordance with the Company’s policies regarding the protection or authorized external disclosure of information regarding the
Company; or
•
Assist anyone engaged in the above activities.
In addition, it is the policy of the Company that no Covered Person of the Company (or any other person designated as subject to this Policy) who, in the course
of working for the Company, learns of material, nonpublic information about a company with which the Company does business, including a customer or
vendor of the Company, may trade in that company’s securities until the information becomes public or is no longer material.
There are no exceptions to this Policy, except as specifically noted herein. Transactions that may be necessary or justifiable for independent reasons (such as the
need to raise money for an emergency expenditure), or small transactions, are not expected from this Policy. State and federal securities laws do not recognize
any mitigating circumstances, and, in any event, even the appearance of an improper transaction must be avoided to preserve the Company’s reputation for
adhering to the highest standards of conduct. Nothing in this Policy prohibits any person from reporting potential violations of law to relevant government
authorities.
Definition of Material Nonpublic Information
Material Information. Information is considered “material” if a reasonable investor would consider that information important in making a decision to buy, hold
or sell securities. Any information that could be expected to affect the Company’s stock price, whether it is positive or negative, should be considered material.
There is no bright-line standard for assessing materiality; rather, materiality is based on an assessment of all of the facts and circumstances and is often
evaluated by enforcement authorities with the benefit of hindsight. While it is not possible to define all categories of material information, some examples of
information that ordinarily would be regarded as material are:
•
Projections of future earnings or losses, or other earnings guidance;
•
Changes to previously announced earnings guidance, or the decision to suspend earnings
guidance;
•
A pending or proposed material merger, acquisition or tender offer;
•
A pending or proposed acquisition or disposition of a significant asset;
•
A pending or proposed joint venture;
•
A Company restructuring;
•
Significant related party transactions;
•
A change in dividend policy, the declaration of a stock split, or an offering of additional
securities;
•
Bank borrowings or other financing transactions out of the ordinary course;
•
The establishment of a repurchase program for Company Securities;
•
A change in the Company’s pricing or cost structure;
•
Major marketing changes;
•
A change in executive leadership;
•
A change in auditors or notification that the auditor’s reports may no longer be relied upon;
•
Development of a significant new product, process, or service;
•
Pending or threatened significant litigation, or the resolution of such litigation;
•
Impending bankruptcy or the existence of severe liquidity problems;
•
The gain or loss of a significant vendor; and
•
The imposition of a ban on trading in Company Securities or the securities of another company.
Exhibit 19.1
When Information is Considered Public. Information that has not been disclosed to the public is generally considered to be nonpublic information. To establish
that the information has been disclosed to the public, the information must have been widely disseminated. Information generally would be considered widely
disseminated if it has been disclosed through the Dow Jones “broad tape,” newswire services (such as AP, UPI, Reuters or Bloomberg), a broadcast on widely
available radio or television programs, publication in a widely available newspaper, magazine or news website, public disclosure documents filed with the SEC
that are available on the SEC’s website or disclosed on the Company’s website. By contrast, information would likely not be considered widely disseminated if
it is available only to the Company’s employees, or if it is only available to a select group of analysts, brokers and institutional investors.
Once information is widely disseminated, it is still necessary to afford the investing public with sufficient time to absorb the information. As a general rule,
information should not be considered fully absorbed by the marketplace until after 24 hours after its public release. Depending on the particular circumstances,
the Company may determine that a longer or shorter period should apply to the release of specific material, nonpublic information.
Transactions by Family Members and Others
This Policy applies to family members who reside with any employee, officer or director of the Company (including a spouse, a child, a child away at college,
stepchildren, grandchildren, parents, stepparents, grandparents, siblings and in-laws), anyone else who lives in the employee’s household, and any family
members who do not live in the employee’s household but whose transactions in Company Securities are directed by the employee or are subject to the
employee’s influence or control, such as parents or children who consult with the employee before they trade in Company Securities (collectively referred to as
“Family Members”). The employee is responsible for the transactions of Family Members. Therefore, the employee should make Family Members aware of
the need to confer with the employee before they trade in Company Securities. The employee should treat all such transactions for the purposes of this Policy
and applicable securities laws as if the transactions were for the employee’s own account. This Policy does not, however, apply to personal securities
transactions of Family Members where the purchase or sale decision is made by a third party not controlled by, influenced by or related to the employee or the
employee’s Family Members.
Transactions by Entities that Influenced or Controlled by Covered Persons
This Policy applies to any entities that the employee influences or controls, including any corporations, partnerships or trusts (collectively referred to as
“Controlled Entities”), and transactions by these Controlled Entities should be treated for the purposes of this Policy and applicable securities laws as if they
were for the employee’s own account.
Transactions Under Company Plans
This Policy does not apply in the case of the following transactions, except as specifically noted:
Stock Option Exercises. This Policy does not apply to the exercise of an employee stock option acquired pursuant to the Company’s plans where a Covered
Person holds Company stock after the exercise. This Policy does not apply to the exercise of a tax withholding right pursuant to which a Covered Person has
elected in advance to have the Company withhold shares subject to an option to satisfy tax withholding requirements. This Policy does apply, however, to any
sale of stock as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the
exercise price of an option.
Restricted Stock. This Policy does not apply to the vesting of restricted stock, or the exercise of a tax withholding right pursuant to which a Covered Person
elects in advance to have the Company withhold shares of stock to satisfy tax withholding requirements upon the vesting of any restricted stock. The Policy
does apply, however, to any market sale of restricted stock.
401(k) Plan. This Policy does not apply to purchases of Company Securities in the Company’s 401(k) plan (the “401(k) Plan”) resulting from a periodic
contribution of money to the plan pursuant to a payroll deduction election. This Policy does apply, however, to certain elections made under the 401(k) Plan,
including: (a) an election to increase or decrease the percentage of a periodic contributions that will be allocated to the Company stock fund; (b) an election to
make an intra-plan transfer of an existing account balance into or out of the Company stock fund; (c) an election to borrow money against a 401(k) Plan
account if the loan will result in a liquidation of some or all of a
Exhibit 19.1
Company stock fund balance; and (d) an election to pre-pay a plan loan if the pre-payment will result in allocation of loan proceeds to the Company stock fund.
Employee Stock Purchase Plan. This Policy does not apply to purchases of Company Securities in the employee stock purchase plan resulting from a periodic
contribution of money to the plan pursuant to the election made at the time of the employee’s enrollment in the plan. This Policy also does not apply to
purchases of Company Securities resulting from lump-sum contributions to the plan, provided that the applicable Covered Person elected to participate by
lump-sum payment at the beginning of the applicable enrollment period. This Policy does apply, however, to an election to participate in the plan for any
enrollment period, and to sales of Company Securities purchased pursuant to the plan.
Transactions Not Involving a Purchase or Sale
Bona fide gifts of securities are not transactions subject to this Policy. Further, transactions in mutual funds that are invested in Company Securities are not
transactions subject to this Policy.
Special and Prohibited Transactions
The Company has determined there is a heightened legal risk or the appearance of improper or inappropriate conduct if a Covered Person engages in certain
types of transactions. Therefore, it is the Company’s policy that Covered Persons may not engage in any of the following transactions, or should otherwise
consider the Company’s preferences as described below:
Short Sales (prohibited). Short sales of Company Securities (i.e., the sale of a security that the Covered Person does not own) may evidence an expectation on
the part of the Covered Person that the securities will decline in value, and therefore have the potential to signal to the market that the Covered Person lacks
confidence in the Company’s prospects. In addition, short sales may reduce a Covered Person’s incentive to seek to improve the Company’s performance. For
these reasons, short sales of Company Securities are prohibited. In addition, Section 16(c) of the Exchange Act prohibits officers and directors from engaging
in short sales.
Publicly-Traded Options (prohibited). Given the relatively short term of publicly-traded options, transactions in options may create the appearance that a
Covered Person is trading based on material, nonpublic information and focus such Covered Person’s attention on short-term performance at the expense of the
Company’s long-term objectives. Accordingly, transactions in put options, call options or other derivative securities, on an exchange or in any other organized
market, are prohibited by this Policy.
Standing and Limit Orders (discouraged). Standing and limit orders (except standing and limit orders under approved Rule 10b5-1 Plans, as described below)
create heightened risks for insider trading violations similar to the use of margin accounts. There is no control over the timing of purchases or sales that result
from standing instructions to a broker, and as a result the broker could execute a transaction when a Covered Person is in possession of material, nonpublic
information. The Company therefore discourages placing standing or limit orders on Company Securities. If a Covered Person determines that they must use a
standing order or limit order, the order should be limited to short duration and should otherwise comply with the restrictions and procedures outlined below
under the heading “Additional Procedures.”
Anti-Hedging Policy (discouraged). A hedging transaction is any transaction in Company securities that is designed to reduce potential downside or pre-sell
upside. These transactions can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as zero-cost
collars and forward sale contracts, among others. Such hedging transactions may permit a Covered Person to continue to own Company Securities obtained
through employee benefit plans or otherwise, but without the full risks and rewards of ownership. When that occurs, the Covered Person may no longer have
the same objectives as the Company’s other shareholders. Therefore, the Company strongly discourages Covered Persons from engaging in such transactions.
Any Covered Person wishing to enter into such an arrangement must first submit the proposed transaction for approval to the Chief Legal Officer. Any request
for pre-clearance of a hedging or similar arrangement must be submitted to the Chief Legal Officer at least two weeks prior to the proposed execution of
documents evidencing the proposed transaction and must set forth a justification for the proposed transaction.
Rule 10b5-1 Plans
Exhibit 19.1
Rule 10b5-1 under the Exchange Act provides a defense from insider trading liability under Rule 10b-5. In order to be eligible to rely on this defense, a person
subject to this Policy must enter into a Rule 10b5-1 plan for transactions in Company Securities that meets certain conditions specified in Rule 10b5-1 (a “Rule
10b5-1 Plan”). If the plan meets the requirements of Rule 10b5-1, Company Securities may be purchased or sold without regard to certain insider trading
restrictions.
Pre-Approval. All Covered Persons must obtain the written pre-approval of the Compliance Officer prior to (i) adopting any new plan or (ii) modifying,
amending or terminating any existing plan. The Compliance Officer shall review and ensure each proposed plan (or modification, amendment or termination of
an existing plan) submitted to the Compliance Officer complies with Rule 10b5-1.
Mandatory Cooling-Off Periods.
•
Directors and Officers. New Rule 10b5-1 Plans submitted by a director or officer of the Company, and amendments or modifications to an existing
plan, must provide for transactions to occur no earlier than the later of the date (the “Trade Commencement Date”) that is (x) ninety (90) days after the
effective date of the new plan, or amendment or modification to an existing plan, and (y) two business days following the disclosure by the Company
of its financial results in a Quarterly Report on Form 10-Q or Annual Report on Form 10-K for the fiscal quarter in which the plan was adopted,
amended or modified, provided that the mandatory cooling-off period shall not exceed one hundred twenty (120) days after adoption of the new plan,
or amendment or modification to an existing plan.
•
All Other Persons. New Rule 10b5-1 Plans submitted by any Covered Person, other than directors and officers of the Company, and amendments or
modifications to an existing plan by such persons, must provide for transactions to occur no earlier than thirty (30) days after the effective date of the
new plan, or amendment or modification to an existing plan.
Good Faith Certification. All new plans, and any amendments or modifications of an existing plan, must be entered into in good faith by the trading person at a
time when the trading person was not in possession of material, nonpublic information about the Company. All directors and officers seeking to establish a new
plan, or amend or modify an existing plan, will be required to provide a written representation to the Company certifying that such director or officer (i) is not
aware of material, nonpublic information about the Company or Company Securities, and (ii) is adopting the new plan, or modifying or amending an existing
plan, in good faith and not as part of a plan or scheme to evade the prohibitions of this Policy or Rule 10b-5-1.
Discretionary Authority. All new plans, and any modifications or amendments to an existing plan, must give a third party the discretionary authority to execute
purchases and sales under the plan, on behalf of but outside the control of the trading person, provided the third party does not possess any material nonpublic
information about the Company. Alternatively, the plan must explicitly specify the security or securities to be purchased or sold, the number of shares, the
prices and/or dates of transactions, or other formula(s) describing such transactions.
Overlapping Plans. No Covered Person may maintain more than one active plan at the same time, without the pre-approval of the Compliance Officer.
Multiple overlapping plans may be approved by the Compliance Officer in limited circumstances as permitted under Rule 10b5-1.
•
A Covered Person may maintain two separate Rule 10b5-1 plans if trading under the later-commencing plan is not authorized to begin until after all
trades under the earlier-commencing plan are completed or expire without execution; provided, however, that any early termination of the earlier-
commencing plan will trigger a new cooling off period (as described above) before trades may begin under the later-commencing plan.
•
This restriction on multiple overlapping plans will not apply to a plan adopted solely and exclusively for the purpose of selling Company Securities in
the open market or through a broker to satisfy a person’s tax obligations through a “sell-to-cover” method in connection with the vesting of equity
awards (“Sell-to-Cover Plans”). Sales under Sell-to-Cover Plans must be strictly limited to the number of securities needed to cover such person’s tax
obligations and the award holder may not be permitted to exercise control over
Exhibit 19.1
the timing of such sales. This exemption does not apply to plans for sales incident to the exercise of option awards.
•
Separate contracts with different broker-dealers to execute trades pursuant to a single Rule 10b5-1 trading plan may be treated as a single plan, in
which case a modification, amendment or termination to any of the individual plans will be considered a modification, amendment or termination of
all of the plans.
Single-Trade Plans. Only one “single-trade plan” may be utilized by a Covered Person in any twelve-month period. A single-trade plan is a Rule 10b5-1
trading plan for the open market purchase or sale of the total amount of the securities subject to the plan as a single transaction. This restriction does not apply
to Sell-to-Cover Plans.
Disclosure Requirements. All directors and officers seeking to establish a new plan, or amend or modify an existing plan, will be required to provide a written
representation to the Company certifying that such director or officer (i) will deliver a copy of any such plan, including any amendments or modifications
thereto, to the Compliance Officer and (ii) consents to the disclosure of the material terms of any such plan, including any amendments or modifications
thereto, in the Company’s Exchange Act reports.
The Rule 10b5-1 Plan must also include “No Sale” periods surrounding the Company’s earnings releases. Additionally, the Rule 10b5-1 Plan may not be
implemented during a Blackout Period (as defined below). No further pre-approval of transactions conducted pursuant to the Rule 10b5-1 Plan will be required.
Post-Termination Transactions
This Policy continues to apply to transactions in Company Securities even after termination of service to the Company. If a Covered Person is in possession of
material, nonpublic information when their service terminates, such Covered Person may not trade in Company Securities until that information has become
public or the Covered Person has otherwise received authorization to trade from the Company.
Consequences of Violations
The purchase or sale of securities while aware of material, nonpublic information, or the disclosure of material, nonpublic information to others who then trade
in the Company’s Securities, is prohibited by the federal and state laws. Insider trading violations are pursued vigorously by the U.S. Securities and Exchange
Commission (the “SEC”), U.S. Attorneys and state enforcement authorities as well as the laws of foreign jurisdictions. Punishment for insider trading
violations is severe, and could include significant fines and imprisonment. While the regulatory authorities concentrate their efforts on the individuals who
trade, or who tip inside information to others who trade, the federal securities laws also impose potential liability on companies and other “controlling persons”
if they fail to take reasonable steps to prevent insider trading by company personnel.
In addition, an individual’s failure to comply with this Policy may subject the individual to Company imposed sanctions, including dismissal for cause, whether
or not the employee’s failure to comply results in a violation of law. Needless to say, a violation of law, or even an SEC investigation that does not result in
prosecution, can tarnish a person’s reputation and irreparably damage a career.
Additional Procedures for Executive Officers, Directors and Members of the Restricted Group
The Company has established additional procedures to assist the administration of this Policy, to facilitate compliance with laws prohibiting insider trading
while in possession of material nonpublic information, and to avoid the appearance of any impropriety. These additional procedures above, are applicable only
to the Company’s executive officers, directors and employees the Compliance Officer designates as having to comply with these additional procedures (the
“Restricted Group”). The Compliance Officer may designate any employee as a member of the Restricted Group at any time if the Compliance Officer makes a
determination that such employee is reasonably likely to be in contact with material non-public information of the Company. The Compliance Officer shall
keep a list of any employee that is a part of the Restricted Group.
Quarterly Trading Restrictions
Exhibit 19.1
Executive Officers, directors and the Restricted Group, as well as their Family Members or Controlled Entities, may not conduct any transactions involving the
Company’s Securities (other than as specified by this Policy), during “Blackout Period,” which (i) begins before the start of trading for the first full calendar
week before the end of each fiscal quarter and (ii) ends at the close of trading on the second trading day following the date of the public release of the
Company’s earnings results for that quarter.
Under certain very limited circumstances, a person subject to this restriction may be permitted to trade during a Blackout Period, but only if the Compliance
Officer concludes that the person does not in fact possess material nonpublic information. A person subject to this restriction wishing to trade during a Blackout
Period must contact the Compliance Officer for approval at least two business days in advance of any proposed transaction involving Company Securities.
Event-Specific Trading Restriction Periods
From time to time, an event may occur that is material to the Company and is known by only a few directors, officers or employees. So long as the event
remains material and nonpublic, the persons designated by the Compliance Officer may not trade Company Securities. In addition, the Company’s financial
results may be sufficiently material in a particular fiscal quarter that, in the judgment of the Compliance Officer, designated persons should refrain from trading
in Company Securities even sooner than the typical Blackout Period described above. In that situation, the Compliance Officer may notify these persons that
they should not trade in the Company’s Securities, without disclosing the reason for the restriction. The existence of an event-specific trading restriction period
or extension of a Blackout Period will not be announced to the Company as a whole, and should not be communicated to any other person. Even if the
Compliance Officer has not designated a Covered Person as a person who should not trade due to an event-specific restriction, no Covered Person should trade
while aware of material, nonpublic information. Exceptions will not be granted during an event-specific trading restriction period.
Exceptions
The quarterly trading restrictions and event-driven trading restrictions do not apply to those transactions to which this Policy does not apply, as described above
under the headings “Transactions Under Company Plans” and “Transactions Not Involving a Purchase or Sale.” Further, the requirement for pre-clearance, the
quarterly trading restrictions and event-driven trading restrictions do not apply to transactions conducted pursuant to approved Rule 10b5-1 plans, described
under the heading “Rule 10b5-1 Plans.
Additional Procedures for Officers and Directors
The Company has established additional procedures to assist the Company in the administration of this Policy, to facilitate compliance with laws prohibiting
insider trading, and to avoid the appearance of any impropriety. These additional procedures, as well as the restrictions listed above, are applicable only to
officers and directors of the Company.
Anti-Pledging
Holding Company Securities in a margin account or pledging Company Securities as collateral for a loan is prohibited. This prohibition does not apply to any
broker-assisted “cashless” exercise or settlement of awards granted under any Company equity incentive plan.
Pre-Clearance Procedures
Executive Officers, directors of the Company, and members of the Restricted Group, as well as the Family Members and Controlled Entities of such persons,
may not engage in any transaction in Company Securities without first obtaining pre-clearance of the transaction from the Compliance Officer. A request for
preclearance should be submitted to the Compliance Officer at least two business days in advance of the proposed transaction. The Compliance Officer is under
no obligation to approve a transaction submitted for pre-clearance, and may determine not to permit the transaction. If a person seeks pre-clearance and
permission to engage in the transaction is denied, then they should refrain from initiating any transaction in Company Securities, and should not inform any
other person of the restriction.
Exhibit 19.1
When a request for pre-clearance is made, the requestor should carefully consider whether they may be aware of any material nonpublic information about the
Company, and should describe fully those circumstances to the Compliance Officer. The requestor should also indicate whether they has effected any non-
exempt “opposite-way” transactions within the past six months, and should be prepared to report the proposed transaction on an appropriate Form 4 or Form 5.
The requestor should also be prepared to comply with SEC Rule 144 and file Form 144, if necessary, at the time of any sale.
Company Assistance
Any person who has a question about this Policy or its application to any proposed transaction may obtain additional guidance from a member of the Legal
Department.
Exhibit 21.1
ScanSource, Inc.
Schedule of Subsidiaries
Name of Subsidiary
State/Country
of Incorporation
4100 Quest, LLC
South Carolina
ScanSource Properties, LLC
South Carolina
Logue Court Properties, LLC
South Carolina
8650 Commerce Drive, LLC
Mississippi
ScanSource Canada, Inc.
Canada
Intelisys, Inc.
South Carolina
ScanSource Payments, Inc.
South Carolina
POS Portal, Inc.
California
RPM Software, LLC
South Carolina
intY USA, Inc.
Florida
ScanSource Agency, Inc.
South Carolina
Advantix ScanSource, LLC
South Carolina
ScSc Cascade, Ltd.
United Kingdom
ScanSource Europe CV
Rotterdam,NL
ScanSource Europe BV
Amsterdam,NL
ScanSource Brasil Distribuidora de Tecnologias Ltda.
Brazil
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated August 27, 2024, with respect to the consolidated financial statements and internal control over financial reporting included in
the Annual Report of ScanSource, Inc. on Form 10‑K for the year ended June 30, 2024. We consent to the incorporation by reference of said reports in the
Registration Statements of ScanSource, Inc. on Forms S-8 (File No. 333-262370, File No. 333-192664 and File No. 333-192665).
/S/ GRANT THORNTON LLP
Charlotte, North Carolina
August 27, 2024
Exhibit 31.1
Certification Pursuant to Rule 13a-14(a) or 15d-14(a)
of the Exchange Act, as adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Michael L. Baur, certify that:
1.
I have reviewed this annual report on Form 10-K of ScanSource, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
/s/ MICHAEL L. BAUR
Michael L. Baur
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 27, 2024
Exhibit 31.2
Certification Pursuant to Rule 13a-14(a) or 15d-14(a)
of the Exchange Act, as adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Steve Jones, certify that:
1.
I have reviewed this annual report on Form 10-K of ScanSource, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
/s/ STEVE JONES
Steve Jones
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: August 27, 2024
Exhibit 32.1
Certification of the Chief Executive Officer of ScanSource, Inc.
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to § 906
of the Sarbanes-Oxley Act of 2002
In connection with the annual report of ScanSource, Inc. (the “Company”) on Form 10-K for the fiscal year ended June 30, 2024 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1)
The Report fully complies with the requirements of §13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); and
2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
August 27, 2024
/s/ MICHAEL L. BAUR
Michael L. Baur
Chairman and Chief Executive Officer
(Principal Executive Officer)
This certification is being furnished solely to comply with the provisions of § 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the
accompanying Report, including for purposes of Section 18 of the Exchange Act, or as a separate disclosure document. A signed original of this written
certification required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within
the electronic version of this written certification required by Section 906, has been provided to the Company and will be rendered by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of the Chief Financial Officer of ScanSource, Inc.
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to § 906
of the Sarbanes-Oxley Act of 2002
In connection with the annual report of ScanSource, Inc. (the “Company”) on Form 10-K for the fiscal year ended June 30, 2024 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1)
The Report fully complies with the requirements of §13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); and
2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
August 27, 2024
/s/ STEVE JONES
Steve Jones
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
This certification is being furnished solely to comply with the provisions of § 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the
accompanying Report, including for purposes of Section 18 of the Exchange Act, or as a separate disclosure document. A signed original of this written
certification required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within
the electronic version of this written certification required by Section 906, has been provided to the Company and will be rendered by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.