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What changed in SCANSOURCE, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SCANSOURCE, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+220 added−250 removedSource: 10-K (2023-08-22) vs 10-K (2022-08-23)

Top changes in SCANSOURCE, INC.'s 2023 10-K

220 paragraphs added · 250 removed · 183 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

51 edited+6 added−5 removed46 unchanged
Biggest changeAt the onset of the COVID-19 pandemic, we swiftly and successfully implemented a work-from-home policy for all employees across geographies, outside of our distribution centers. We have continued this policy and are pleased with how our employees have adjusted to this new way of doing business, maintaining an extremely high level of productivity and performance.
Biggest changeWe are pleased with how our employees have adjusted to this new way of doing business, maintaining 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.
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 sales partners 1 Table of Contents Index to Financial Statements Value proposition for our suppliers: • Expand reach at a variable cost • Provide access to multiple routes to market • Lower customer acquisition cost • Recruit and train new sales partners • Manage channel credit Financial Strength Our consolidated balance sheet reflects financial strength.
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 1 Table of Contents Index to Financial Statements Value proposition for our suppliers: • Expand reach at a variable cost • Provide access to multiple routes to market • Lower customer acquisition cost • Recruit and train new sales partners • Manage channel credit Financial Strength Our consolidated balance sheet reflects financial strength.
Our customer channels include value-added resellers (“VARs”), sales partners 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.
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.
In addition, we partner with ISVs to deliver to merchants integrated tablet POS solution hardware that a merchant may purchase outright or “as a service,” and which includes merchant hardware support and next-day replacement of tablets, terminals and peripherals. • Physical Security : We provide electronic physical security solutions that include identification, access control, video surveillance and intrusion-related products.
In addition, we partner with ISVs to deliver to merchants integrated tablet POS solution hardware that a merchant may purchase outright or “as a service,” and which includes merchant hardware support and next-day replacement of tablets, terminals and peripherals. • Physical Security and Networking : We provide electronic physical security solutions that include identification, access control, video surveillance and intrusion-related products.
Customers Our customers, or sales partners, are businesses of all sizes that sell to end-customers 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.
Customers Our customers, or sales partners, 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.
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 sales partners and our suppliers. We make it easier for our sales partners and suppliers to deliver leading technology solutions that drive business outcomes for end-customers.
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.
The SLI program brings together twelve hand-selected leaders from our global offices for a two-week program of intensive training and development—with organization. While this provides a tool for an individual’s education and growth, it also nurtures cross-functional collaboration with colleagues through a unique social capability.
The SLI program brings together twelve hand-selected leaders from our global offices for a two-week program of intensive training and development. While this provides a tool for an individual’s education and growth, it also nurtures cross-functional collaboration with colleagues through a unique social capability.
These services allow our sales partners 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 keeps both our sales partners and suppliers satisfied.
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 keeps both our sales partners and suppliers satisfied.
Suppliers We provide products and services from approximately 500 suppliers, including 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.
Suppliers We provide products and services from approximately 500 suppliers, including 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Logitech, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly HP, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.
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 sales partners. These sales terms allow us to compete within our specific geographic areas to facilitate our growth plans.
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.
Our competitors include local, regional, national and international distributors, as well as suppliers that sell directly to resellers and to end-customers. In addition, our competitors include resellers that sell to franchisees, third-party dealers and end-customers. Competition has increased over the last several years as broad line and other value-added distributors have entered into the specialty technology markets.
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 into the specialty technology markets.
Management determined that the Company did not have sufficient scale in these markets to maximize our value-added model for physical product distribution, leading us to focus and invest in our higher margin businesses. The Divestitures were reported as discontinued operations within this Form 10-K.
Management determined that the Company did not have sufficient scale in these markets to maximize our value-added model for physical product distribution, leading us to focus and invest in our higher margin businesses. The Divestitures are reported as discontinued operations within this Form 10-K.
Products from two suppliers, Cisco and Zebra, each constituted more than 10% of our net sales for the fiscal year ended June 30, 2022. • 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.
Products from two suppliers, Cisco and Zebra, each constituted more than 10% of our net sales for the fiscal year ended June 30, 2023. • 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.
Our segments operate in the United States, Canada, Brazil and the UK 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, cyber security and other technologies.
Our segments operate in the United States, Canada, Brazil and the UK 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.
No single customer accounted for more than 4% of our total net sales for the fiscal year ended June 30, 2022. 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.
No single customer accounted for more than 4% of our total net sales for the fiscal year ended June 30, 2023. 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.
Our sales teams also provide sales partners with online ordering, API, EDI and other information systems, allowing sales partners to easily gain access to product specifications, availability and customized pricing, as well as the ability to place and follow the status of orders.
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.
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 partners across hardware, Software as a Service ("SaaS"), connectivity and cloud. ScanSource enables partners to deliver solutions for their customers to address changing end-user buying and consumption patterns.
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.
Our marketing practices are tailored to fit the specific needs of our sales partners and suppliers - ensuring we help our partners create, deliver and manage solutions for end-customers across our vertical markets.
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 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 sales partners that solve end-customers’ challenges.
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 was incorporated in South Carolina in 1992 and serves approximately 30,000 sales partners. Net sales for fiscal year ended June 30, 2022 totaled $3.53 billion . Our common stock trades on the NASDAQ Global Se lect Market under the symbol “SCSC.” Our customers are businesses of all sizes that sell to end-customers across many industries.
ScanSource was incorporated in South Carolina in 1992 and serves approximately 30,000 customers. Net sales for fiscal year ended June 30, 2023 totaled $3.79 billion . Our common stock trades on the NASDAQ Global Se lect Market under the symbol “SCSC.” Our customers are businesses of all sizes that sell to end-customers across many industries.
We provide our sales partners 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.
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.
ScanSource enables sales partners to deliver solutions for their customers to address changing end-customer buying and consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our sales partners access to additional services. As a trusted adviser to our sales partners, we provide customized solutions through our strong understanding of end-customer needs.
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.
Modern Communications & Cloud Segment The Modern Communications & Cloud portfolio of solutions includes communications technologies and services for voice, video conferencing, wireless, data networking, cyber security, cable, unified communications and collaboration, cloud and technology services.
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.
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 helping to develop the next wave of senior leaders for the Company.
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 5 Table of Contents Index to Financial Statements important program that focuses on identifying and helping to develop the next wave of senior leaders for the Company.
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. 7 Table of Contents Index to Financial Statements 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.
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. 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.
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 2 Table of Contents Index to Financial Statements markets.
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.
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 sales partners.
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.
As of June 30, 2022, we have approximately 2,700 employees, of which approximately 1,800 are in the United States and 900 are located internationally in Canada, Brazil and the UK. We have no organized labor or trade unions in the United States.
As of June 30, 2023, we have approximately 2,300 employees, of which approximately 1,500 are in the United States and 800 are located internationally in Canada, Brazil and the UK. We have no organized labor or trade unions in the United States.
Competitive factors include price, product availability, speed and 6 Table of Contents Index to Financial Statements 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.
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.
Additionally, 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.
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.
We believe these options reduce the sales partner’s need to establish multiple credit relationships.
We believe these options reduce the customer’s need to establish multiple credit relationships.
In a changing environment, ScanSource is investing in new infrastructure, tools and programs to ensure a "productivity anywhere" outcome, in the new hybrid working world. In 2022, the Company was named, once again, one of the Best Places to Work in South Carolina.
In a changing environment, ScanSource is investing in new infrastructure, tools and programs to ensure a "productivity anywhere" outcome, in the new hybrid working world. In 2023, the Company was named one of the Best Places to Work in South Carolina for the eighth consecutive year.
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.
IT system integrators and network integrators develop computer and networking solutions for end-customers’ IT 2 Table of Contents Index to Financial Statements 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.
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 sales partners and employees rely on our information systems for online, real-time information on pricing, inventory availability and reservation and order status.
Operations Information Technology Systems 7 Table of Contents Index to Financial Statements 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.
Diversity and Inclusion Respecting and protecting our people and our partners are our highest 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 this commitment, we do what is right for our employees, channel partners and end customers.
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 this commitment, we are dedicated to doing what is right for our employees, channel partners and end customers.
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. 4 Table of Contents Index to Financial Statements 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.
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. 4 Table of Contents Index to Financial Statements • 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 contracts with more than 150 of the world’s leading telecom carriers and cloud services providers. People and Culture General Our real competitive advantage is our people, working together to help our customers and partners grow their businesses. The foundation of ScanSource has always been based on strong values and culture with the clear vision of people first.
General Our real competitive advantage is our people, working together to help our customers and partners grow their businesses. The foundation of ScanSource has always been based on strong values and culture with the clear vision of people first.
Our offerings to our customers include hardware, software, services and connectivity across premise, hybrid and cloud environments. We believe that sales partners want to offer end-customers complete technology solutions that solve end-user challenges and deliver positive outcomes.
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.
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.
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.
The financial future of our employees is important to us, which is why we have a 401(k) employer match, performance-based bonus program and employee ownership opportunities for a meaningful portion of our employees through equity incentive grants. We partner with Tuition.io to provide employees access to knowledge and tools to help manage or plan for student loan debt.
The financial future of our employees is important to us, which is why we have a 401(k) program with a market-competitive employer match, 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.
The market for technology products and solutions is highly competitive, both in the United States and internationally.
Competition We believe we are a leader in the specialty markets we serve. The market for technology products and solutions is highly competitive, both in the United States and internationally.
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 sales partners with solutions to meet their end-customer’s needs. Our sales teams are advocates for and trusted advisers to our sales partners.
Sales Our sales organization consists of inside and field sales representatives located in the United States, Canada, the UK 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.
To 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 them to have a healthy lifestyle, both physically and mentally. That’s why we offer dedicated resources to help foster a work/life balance.
Health and Safety We care about our employees’ overall well-being and encourage them to have a healthy lifestyle, both physically and mentally. That’s why we offer dedicated resources to help foster a work/life balance. We have implemented a work-from-home policy for all employees across geographies, outside of our distribution centers.
Our Board also engages in an active succession planning process. 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. Competition We believe we are a leader in the specialty markets we serve.
Employee Feedback 6 Table of Contents Index to Financial Statements 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.
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 sales partners. Sales Our sales organization consists of inside and field sales representatives located in the United States, Canada, the UK and Brazil.
For our intY business, we compete against other developers of cloud software and services platforms, such as CloudBlue and Pax8. 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.
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, screenings and other valuable resources.
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.
Additionally, initiatives including a D&I book and movie club and employee resource groups are allowing interested employees to broaden their knowledge on various topics in this space. Professional Development We want to help our employees succeed—both personally and professionally.
To support our goal of becoming a more 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 in this space.
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. • Communications and Collaboration : We offer communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, such as voice, video, integration of communication platforms and contact center solutions.
Our networking products include wireless and networking infrastructure products. • Communications and Collaboration : We offer communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, 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.
As of June 30, 2022 we have 12 office locations in the U.S., eight office locations outside of the U.S., and have a remote employee presence. During fiscal year 2022, we added 175 new employees.
As of June 30, 2023 we have 10 office locations in the U.S. and three distribution centers, eight office locations outside of the U.S., and have a remote employee presence. Professional Development We want to help our employees succeed—both personally and professionally.
Benefits We offer a comprehensive benefits package which includes on average 80% coverage of employee healthcare premiums and several benefits at no cost to our employees, including life insurance, disability insurance and work-life balance resources.
Benefits 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.
Our networking products include wireless and networking infrastructure products. Physical security products are used every day across every vertical market to protect lives, property and information.
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.
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See "Risk Factors" for a discussion of the risks related to our foreign operations. We also have drop-shipment arrangements with some of our suppliers, which allow us to offer products to customers without taking physical delivery at our facilities. These drop-shipment arrangements represent approximately 20% of fiscal year 2022 net sales.
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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.
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One of our core values is to promote an environment that respects and values the diverse backgrounds, interests and talents of our employees. In July 2020, we reaffirmed ScanSource’s commitment to diversity and inclusion with the creation of a comprehensive Diversity & Inclusion (D&I) program and the appointment of our first Chief Diversity Officer ("CDO").
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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 are our top priorities.
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Since taking this role, our CDO launched a D&I strategic plan focused on awareness and education, workforce representation, supplier diversity and community relations.
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We partner with Fidelity to provide employees access to knowledge and tools to help manage or plan for student loan debt. To expand our financial wellness offerings, we offer workshops and webinars focused on student debt and general debt-counselling services.
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Along with the appointment of the CDO, an internal D&I Advisory Council was created to assist in the implementation of our 5 Table of Contents Index to Financial Statements D&I plan and serve as a sounding board for our employees.
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ScanSource is committed to a diverse and inclusive workplace with our comprehensive Diversity & Inclusion (D&I) program, led by our first 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.
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Additionally, for Intelisys' technology services, we also compete against other smaller, technology services distributors, such as Avant and Telarus. For our intY business, we compete against other developers of cloud software and services platforms, such as CloudBlue and Pax8.
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Our Board also engages in an active succession planning process. Digital Workplace 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.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

50 edited+8 added−21 removed87 unchanged
Biggest changeAny declines resulting in a goodwill impairment or long-lived asset 13 Table of Contents Index to Financial Statements 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.
Biggest changeImpairment 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. 13 Table of Contents Index to Financial Statements International operations - Our international operations expose us to risks that are different from, and possibly greater than, the risks we are exposed to domestically.
Transactions with our customers generally are performed on a purchase order basis rather than under long term supply agreements. Therefore, our customers readily can choose to purchase from other sources. From time to time, we experience shortages in availability of some products from suppliers, and this impacts customers' decisions regarding whether to make purchases from us.
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 customers' decisions regarding whether to make purchases from us.
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 suffer bankruptcy or similar restructuring.
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.
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, revenues or the level of capital required to fund our operations.
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.
If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, it would adversely affect our ability to retain or increase market share and revenues.
If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, it would adversely affect our ability to retain or increase market share and revenue.
In addition, doing business in these 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.
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.
We have historically relied upon cash generated from operations, borrowings under our revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth.
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.
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 (such as the ongoing COVID-19 pandemic) or other public health crises or other adverse occurrences affecting any of our suppliers’ facilities, could further disrupt our supply chain.
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.
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 forecast of performance from quarter to quarter.
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 forecast of performance from quarter to quarter. The impact of these variances may cause volatility in our stock price.
These risks include: • Disproportionate negative impact from COVID-19 in a foreign location; • Fluctuations of foreign currency and exchange rates, which can impact sales, costs of the goods we sell and the reporting of our results and 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 such as GDPR and other similar privacy laws that impact our IT systems and processes; • Global economic and financial market instability related to the UK’s referendum withdrawal from the E.U., as well as instability from the possibility of withdrawal of other E.U. member states: • 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.
These risks include: • Fluctuations of foreign currency and exchange rates, which can impact sales, costs of the goods we sell and the reporting of our results and 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 such as GDPR 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.
Our failure to effectively manage our organic growth could have an adverse effect on our business, financial condition and results of operations. 10 Table of Contents Index to Financial Statements 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.
Our failure to effectively manage our organic growth could have an adverse effect on our business, financial condition and results of operations. 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.
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.
Some of our competitors and our suppliers’ competitors may be better at adapting to disruptive technology or entering 15 Table of Contents Index to Financial Statements 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.
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.
Changes in how lenders rate our credit worthiness, as well as macroeconomic factors such as an economic downturn, inflation, rising interest rates and 12 Table of Contents Index to Financial Statements 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.
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.
If any of these risks develops into actual events, our business, financial condition and 8 Table of Contents Index to Financial Statements 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.
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.
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.
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.
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.
Although most of our suppliers provide us with certain protections from the loss in value of inventory (such as price protection and certain return 15 Table of Contents Index to Financial Statements rights), we cannot be sure that such protections will fully compensate for any loss in value, or that the suppliers will choose to, or be able to, honor such agreements.
Although some of our suppliers provide us with certain protections from the 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 the suppliers will choose to, or be able to, honor such agreements.
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.
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.
The results of any quarterly period are not indicative of results to be expected for a full fiscal year. Centralized functions - We have centralized a number of functions to provide efficient support to our business.
The results of any quarterly period are not indicative of results to be expected for a full fiscal year. 14 Table of Contents Index to Financial Statements Centralized functions - We have centralized a number of functions to provide efficient support to our business.
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.
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.
COVID-19's continued widespread disruptive economic impacts, economic recession, and higher interest rates and inflation could result in some of our customers shuttering their businesses, thus negatively impacting our revenues. Litigation - We routinely are involved in litigation that can be costly and lead to adverse results.
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.
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. 9 Table of Contents Index to Financial Statements Our customers rely on our electronic ordering and information systems as a source for product information, including availability and pricing.
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.
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.
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.
However, these protections are 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.
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.
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 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.
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.
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.
In addition, our decision to dispose of certain of our operations may require us to recognize an impairment to the carrying value of goodwill and other intangible assets attendant to those operations. We recognized significant goodwill and intangible asset impairment in the fiscal year ended June 30, 2020.
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.
If we cannot successfully increase our business, our product sales, financial condition and results of operations could be adversely affected. 14 Table of Contents Index to Financial Statements Quarterly fluctuations - Our net sales and operating results are dependent on a number of factors.
If we cannot successfully increase our business, our product sales, financial condition and results of operations could be adversely affected. Quarterly fluctuations - Our net sales and operating results are dependent on a number of factors. Our net sales will fluctuate from quarter to quarter, and these fluctuations may cause volatility in our stock price.
As a result, occasionally 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. 11 Table of Contents Index to Financial Statements Suppliers - Changes to supply agreement terms or lack of product availability from our suppliers could adversely affect our operating margins, revenues or the level of capital required to fund our operations.
As a result, occasionally 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.
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.
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.
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.
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.
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 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 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 12 Table of Contents Index to Financial Statements covenants.
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.
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.
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. 16 Table of Contents Index to Financial Statements Foreign currency - Our international operations expose us to fluctuations in foreign currency exchange rates that could adversely affect our results of operations.
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.
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.
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.
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. In addition, extending credit to international customers involves additional risks.
There can be no assurance that our systems will not fail or experience disruptions, and any significant failure or disruption of these systems could prevent us from making sales, ordering and delivering products and otherwise conducting our business. Many of our customers use our website to check product availability, see their customized pricing and place orders.
Our systems were disrupted during our recent ransomware incident, and there can be no assurance that our systems will not fail or experience disruptions again in the future, and any significant failure or disruption of these systems could prevent us from making sales, ordering and delivering products and otherwise conducting our business.
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.
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.
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 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.
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.
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 People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected.
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.
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. 9 Table of Contents Index to Financial Statements 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.
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 suppliers have the ability to terminate sales to us. We have no guaranteed price or delivery agreements with our suppliers.
Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and 11 Table of Contents Index to Financial Statements rebates they make available to us. In addition, our supplier agreements typically are short-term and may be terminated without cause on short notice.
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.
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 may lose market share, or reduce our prices in response to the action of our competitors and thereby experience a reduction in our gross margins, or that we will remain in any geographical market where we do not believe we can earn appropriate margins.
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.
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.
The secure maintenance and transmission of customer information is a critical element of our operations.
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.
As we grow and compete for business, our typical payment terms tend to be longer, and therefore may increase our credit risk. 10 Table of Contents Index to Financial Statements 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.
As is customary in our industry, we extend credit to our customers, and most of our sales are on open accounts. As we grow and compete for business, our typical payment terms tend to be longer, and therefore may increase our credit risk.
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 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. As customers continue to face the negative economic impacts of COVID 19, recession and inflation, we may face heightened credit losses not otherwise experienced before the pandemic.
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.
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, and a substantial portion of our revenue is derived from our international operations.
We currently have significant facilities outside the United States. For fiscal year ending June 30, 2023, approximately 9.4% of our revenue is derived from our international operations outside of the United States and Canada.
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, which has been more prevalent since the COVID-19 pandemic began. Specifically, shortages of computer chips may lead to product constraints and adversely affect our sales volumes and product availability.
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.
Removed
Risk Factors Related to our Operations People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected. 8 Table of Contents Index to Financial Statements 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.
Added
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.
Removed
It is not always possible to conduct an assessment of an acquired business’s internal control over financial reporting in the period between the consummation date and the date of management’s assessment.
Added
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.
Removed
Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations under Section 404 of the Sarbanes-Oxley Act of 2002.
Added
As of June 30, 2023, the Specialty Technology Solutions and Modern Communications & Cloud reporting units' goodwill balances are $16.4 million and $200.3 million, respectively. The fair value of the reporting units exceeded its carrying value by 2% and 13%, respectively, as of the annual goodwill impairment testing date.
Removed
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.
Added
Any declines resulting in a goodwill impairment or long-lived asset impairment may result in material non-cash charges to our earnings.
Removed
While our website has not experienced any material disruptions or security breakdowns, it may in the future and any disruptions could harm our relationship with our suppliers, customers and other business partners.
Added
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.
Removed
Any material disruption of our website or the Internet in general could impair our order processing or prevent our suppliers and customers from accessing information and cause us to lose business.
Added
In addition, we could be subject to legal claims in the event of the loss, disclosure or misappropriation of, or access to, our customer's or business partners' or our own information. We make extensive use of online services and integrated information systems, including through third-party service providers.
Removed
At present, there is a worldwide shortage of certain technology products resulting from shortages in semiconductors and other components of those products.
Added
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.
Removed
Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times and the predictability of lead times for delivery of products, the costs of products and our ability to meet customer demands in a timely fashion. If we are unable to mitigate these disruptions, our financial results may be adversely impacted.
Added
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. Although substantially all of the 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.
Removed
Most of our supplier agreements and most manufacturers’ policies have some price protection and stock rotation opportunities with respect to slow-moving or obsolete inventory items.
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We currently transact business in the UK, where we also have offices. The UK's ongoing process of exiting the E.U. is a source of continued uncertainty. A number of agreements have already been made that alter the UK’s relationship with the E.U., including the terms of trade between the UK and the E.U. and the rest of the world.
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The measures could potentially disrupt the markets we serve and the tax jurisdictions in which we operate and adversely change tax benefits or liabilities in these or other jurisdictions.
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Changes resulting from these measures, including access to free trade agreements, tariffs and customs and currency fluctuations may cause us to lose customers, suppliers and employees and adversely affect our financial condition. We have substantial operations in Brazil and face risks related to these countries' complex tax, labor, trade compliance and consumer protection laws and regulations.
Removed
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.
Removed
General Risk Factors Cyber security risk - Our reputation and business may be harmed from cyber security risk and we may be subject to legal claims if there is loss, disclosure or misappropriation of or access to our customers' or our business partners' or our own information or other breaches of our information security.
Removed
COVID-19 - COVID-19 continues to create macroeconomic uncertainty and could negatively impact our financial results We are vulnerable to the general economic impacts of pandemics, such as the COVID-19 pandemic, which continue to create significant macroeconomic uncertainty and supply chain constraints. These supply chain constraints have caused shortages in electronics components, resulting in extended lead times and unpredictability.
Removed
The COVID-19 pandemic has also resulted in the implementation of numerous measures to contain the virus worldwide, which may continue to cause significant disruptions to the US and global economy. The extent to which COVID-19 and related challenges will continue to impact our results will depend on future developments, which are uncertain and cannot be predicted with confidence.
Removed
While we are unable to predict the ultimate impact that COVID-19 will have on our business, certain technologies have benefited from the widespread adoption to a work-from-anywhere business model, as well as the accelerated shift to digitize and automate processes. However, our revenues could decrease significantly if our suppliers are not able to supply us products in a timely manner.
Removed
Additionally, our distribution centers may not be able to maintain staffing levels, which could affect our ability to ship products timely and negatively impact our cash flow. To the extent the COVID-19 pandemic continues, the mitigation efforts and the resulting economic impact could adversely affect many aspects of our business.
Removed
COVID-19 may also have the effect of heightening many of the other risk factors disclosed herein, such as those relating to our growth strategies, credit exposure, liquidity and capital resources, people, volatility of stock price and economic weakness. 16 Table of Contents Index to Financial Statements 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.
Removed
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.
Removed
The economic weakness brought about by COVID-19 may result in prolonged recession, inflation and increasing interest rates, which has the potential to disproportionately impact our business depending on which sectors of the economy and which geographies are most impacted. 17 Table of Contents Index to Financial Statements ITEM 1B. Unresolved Staff Comments. Not applicable.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur 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 international locations.
Biggest changeOur primary North American distribution operations are located in Southaven, Mississippi. We utilize the 17 Table of Contents Index to Financial Statements 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 international locations.
Our principal locations and/or properties as of June 30, 2022, were as follows: Location Approximate Square Footage Type of Interest Description of Use United States Greenville, SC 174,000 Owned Headquarters - Principal Executive and Sales Offices Greenville, SC 7,600 Leased Sales and Administration 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 São José does Pinhais, Paraná, Brazil 24,000 Leased Sales Office and Warehouse Serra, Espírito Santo, Brazil 31,000 Leased Sales Office and Warehouse Itajai, Santa Catarina, Brazil 164,000 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 principal locations and/or properties as of June 30, 2023, were as follows: Location Approximate Square Footage Type of Interest Description of Use United States Greenville, SC 174,000 Owned Headquarters - Principal Executive and Sales Offices Greenville, SC 7,600 Leased Sales and Administration 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 São José does Pinhais, Paraná, Brazil 24,000 Leased Sales Office and Warehouse Serra, Espírito Santo, Brazil 31,000 Leased Sales Office and Warehouse Itajai, Santa Catarina, Brazil 164,000 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table shows the share-repurchase activity for the quarter ended June 30, 2022 (in thousands except share and per share data): Period Total number of shares purchased (1) Average price paid per share Total number of shares purchased as part of the publicly announced plan or program Approximate dollar value of shares that may yet be purchased under the plan or program April 1, 2022 through April 30, 2022 197,677 $ 33.85 197,677 $ 84,249,021 May 1, 2022 through May 31, 2022 71,762 33.92 71,762 81,814,854 June 1, 2022 through June 30, 2022 662 38.98 — 81,814,854 Total 270,101 269,439 (1) Includes 662 shares withheld from employees' stock-based awards to satisfy required tax withholding obligations for the month of June 2022.
Biggest changeThe following table shows the share-repurchase activity for the quarter ended June 30, 2023 (in thousands except share and per share data): Period Total number of shares purchased (1) Average price paid per share Total number of shares purchased as part of the publicly announced plan or program Approximate dollar value of shares that may yet be purchased under the plan or program April 1, 2023 through April 30, 2023 107,639 $28.79 107,639 $67,802,877 May 1, 2023 through May 31, 2023 60,000 $27.43 60,000 $66,157,077 June 1, 2023 through June 30, 2023 992 $30.14 — $66,157,077 Total 168,631 167,639 (1) Includes 992 shares withheld from employees' stock-based awards to satisfy required tax withholding obligations for the month of June 2023.
There were no shares withheld during the months of April and May 2022. Dividends We have never declared or paid a cash dividend. Under the terms of our credit facility, the payment of cash dividends is restricted.
There were no shares withheld during the months of April and May 2023. 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 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 22, 2022, there were approximately 725 holders of record of our common stock.
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, 2023, there were approximately 735 holders of record of our common stock.
The graph assumes the investment of $100 on June 30, 2017. 2017 2018 2019 2020 2021 2022 ScanSource, Inc. $ 100 $ 100 $ 81 $ 60 $ 70 $ 77 NASDAQ Composite $ 100 $ 124 $ 133 $ 169 $ 246 $ 188 SIC Code 5045 – Computers & Peripheral Equipment $ 100 $ 113 $ 116 $ 86 $ 144 $ 131 19 Table of Contents Index to Financial Statements Share Repurchases In August 2021, our Board of Directors authorized a $100 million share repurchase program.
The graph assumes the investment of $100 on June 30, 2018. 2018 2019 2020 2021 2022 2023 ScanSource, Inc. $ 100 $ 81 $ 60 $ 70 $ 77 $ 73 NASDAQ Composite $ 100 $ 108 $ 137 $ 199 $ 152 $ 192 SIC Code 5045 – Computers & Peripheral Equipment $ 100 $ 103 $ 76 $ 127 $ 116 $ 140 19 Table of Contents Index to Financial Statements Share Repurchases In August 2021, our Board of Directors authorized a $100 million share repurchase program.
The authorization does not have any time limit. In fiscal year 2022, we repurchased 550,194 shares totaling $18.2 million under the share repurchase program.
The authorization does not have any time limit. In fiscal year 2023, we repurchased 524,108 shares totaling $15.8 million under the share repurchase program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeCalculated by translating the net sales for the year ended June 30, 2021 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2020. 33 Table of Contents Index to Financial Statements Operating Income by Segment: Fiscal year ended June 30, % of Net Sales June 30, 2022 2021 $ Change % Change 2022 2021 Specialty Technology Solutions: (in thousands) GAAP operating income $ 66,686 $ 29,566 $ 37,120 125.5 % 3.2 % 1.6 % Adjustments: Amortization of intangible assets 6,005 6,441 (436) Non-GAAP operating income $ 72,691 $ 36,007 $ 36,684 101.9 % 3.5 % 2.0 % Modern Communications & Cloud: GAAP operating income $ 55,511 $ 43,551 $ 11,960 27.5 % 3.8 % 3.3 % Adjustments: Amortization of intangible assets 11,848 13,047 (1,199) Change in fair value of contingent consideration — 516 (516) Non-GAAP operating income $ 67,359 $ 57,114 $ 10,245 17.9 % 4.7 % 4.3 % Corporate: GAAP operating loss $ (30) $ (11,634) $ 11,604 nm* nm* nm* Adjustments: Divestiture costs 30 2,376 (2,346) Restructuring costs — 9,258 (9,258) Non-GAAP operating income $ — $ — $ — nm* nm* nm* Consolidated: GAAP operating income $ 122,167 $ 61,483 $ 60,684 98.7 % 3.5 % 2.0 % Adjustments: Amortization of intangible assets 17,853 19,488 (1,635) Change in fair value of contingent consideration — 516 (516) Divestiture costs 30 2,376 (2,346) Restructuring costs — 9,258 (9,258) Non-GAAP operating income $ 140,050 $ 93,121 $ 46,929 50.4 % 4.0 % 3.0 % 34 Table of Contents Index to Financial Statements Operating Income by Segment: Fiscal year ended June 30, % of Net Sales June 30, 2021 2020 $ Change % Change 2021 2020 Specialty Technology Solutions: (in thousands) GAAP operating income (loss) $ 29,566 $ (67,706) $ 97,272 143.7 % 1.6 % (4.3) % Adjustments: Amortization of intangible assets 6,441 6,441 — Tax recovery — (5,480) 5,480 Impairment charges — 97,398 (97,398) Non-GAAP operating income $ 36,007 $ 30,653 $ 5,354 17.5 % 2.0 % 1.9 % Modern Communications & Cloud: GAAP operating income $ 43,551 $ 6,739 $ 36,812 546.3 % 3.3 % 0.5 % Adjustments: Amortization of intangible assets 13,047 13,512 (465) Change in fair value of contingent consideration 516 6,941 (6,425) Restructuring costs — 604 (604) Tax recovery — (2,583) 2,583 Impairment charges — 23,072 (23,072) Non-GAAP operating income $ 57,114 $ 48,285 $ 8,829 18.3 % 4.3 % 3.3 % Corporate: GAAP operating loss $ (11,634) $ (4,000) $ (7,634) nm* nm* nm* Adjustments: Acquisition and divestiture costs 2,376 4,000 (1,624) Restructuring costs 9,258 — 9,258 Non-GAAP operating income $ — $ — $ — nm* nm* nm* Consolidated: GAAP operating income (loss) $ 61,483 $ (64,967) $ 126,450 194.6 % 2.0 % (2.1) % Adjustments: Amortization of intangible assets 19,488 19,953 (465) Change in fair value of contingent consideration 516 6,941 (6,425) Acquisition and divestiture costs 2,376 4,000 (1,624) Restructuring costs 9,258 604 8,654 Tax recovery — (8,063) 8,063 Impairment charges — 120,470 (120,470) Non-GAAP operating income $ 93,121 $ 78,938 $ 14,183 18.0 % 3.0 % 2.6 % 35 Table of Contents 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.
Biggest changeCalculated by translating the net sales for the year ended June 30, 2023 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2022. 29 Table of Contents Index to Financial Statements Operating Income by Segment: Fiscal year ended June 30, % of Net Sales June 30, 2023 2022 $ Change % Change 2023 2022 Specialty Technology Solutions: (in thousands) GAAP operating income $ 75,688 $ 66,686 $ 9,002 13.5 % 3.2 % 3.2 % Adjustments: Amortization of intangible assets 5,136 6,005 (869) Non-GAAP operating income $ 80,824 $ 72,691 $ 8,133 11.2 % 3.5 % 3.5 % Modern Communications & Cloud: GAAP operating income $ 61,658 $ 55,511 $ 6,147 11.1 % 4.2 % 3.8 % Adjustments: Amortization of intangible assets 11,610 11,848 (238) Tax recovery (2,986) — (2,986) Non-GAAP operating income $ 70,282 $ 67,359 $ 2,923 4.3 % 4.8 % 4.7 % Corporate: GAAP operating loss $ (1,460) $ (30) $ (1,430) nm* nm* nm* Adjustments: Divestiture costs — 30 (30) Cyberattack restoration costs 1,460 — 1,460 Non-GAAP operating income $ — $ — $ — nm* nm* nm* Consolidated: GAAP operating income $ 135,886 $ 122,167 $ 13,719 11.2 % 3.6 % 3.5 % Adjustments: Amortization of intangible assets 16,746 17,853 (1,107) Cyberattack restoration costs 1,460 — 1,460 Divestiture costs — 30 (30) Tax recovery (2,986) — (2,986) Non-GAAP operating income $ 151,106 $ 140,050 $ 11,056 7.9 % 4.0 % 4.0 % 30 Table of Contents 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.
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, 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.
Our key suppliers include 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.
Our key suppliers include 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Logitech, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly HP, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.
We partially offset foreign currency exposure with the use of foreign exchange forward contracts to hedge against these exposures. The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses.
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.
We operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy. Our segments operate in the United States, Canada, Brazil and the UK and consist of the following: • Specialty Technology Solutions • Modern Communications & Cloud We sell hardware, SaaS, connectivity and cloud solutions and services through channel partners to end-customers.
We operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy. Our segments operate in the United States, Canada, Brazil and the UK and consist of the following: • Specialty Technology Solutions • Modern Communications & Cloud We sell hardware, SaaS, connectivity and cloud solutions and services through channel partners to end users.
While we were in compliance with the financial covenants contained in the Credit Facility as of June 30, 2022, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Credit Facility lending group has been strong and we anticipate their continued support of our long-term business.
While we were in compliance with the financial covenants contained in the Credit Facility as of June 30, 2023, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Credit Facility lending group has been strong and we anticipate their continued support of our long-term business.
We 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. 41 Table of Contents Index to Financial Statements
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. 36 Table of Contents Index to Financial Statements
In addition, we may receive early payment discounts from certain suppliers. We record early payment discounts received as a 37 Table of Contents Index to Financial Statements reduction of inventory, thereby resulting in a reduction of cost of goods sold when the related inventory is sold.
In addition, we may receive early payment discounts from certain suppliers. We record early payment discounts received as a 32 Table of Contents Index to Financial Statements reduction of inventory, thereby resulting in a reduction of cost of goods sold when the related inventory is sold.
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 partners across hardware, SaaS, connectivity and cloud.
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.
Recent Developments Impact of the Macroeconomic Environment, Including Inflation and Supply Chain Constraints 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.
Impact of the Macroeconomic Environment, Including Inflation and Supply Chain Constraints 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.
See Note 14 - Income Taxes in the Notes to Consolidated Financial Statements for further discussion including an effective tax rate reconciliation. 29 Table of Contents 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.
See Note 13 - Income Taxes in the Notes to Consolidated Financial Statements for further discussion including an effective tax rate reconciliation. 26 Table of Contents 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.
We provide for United States income taxes from the earnings of our Canadian and Brazilian subsidiaries. See Note 14 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion.
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.
We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, POS and payments, physical security and networking, communications and collaboration, connectivity and cloud services to our approximately 30,000 sales partners located in the United States, Canada, Brazil, the UK and Europe.
We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, POS and payments, physical security and networking, communications and collaboration, connectivity and cloud services to our approximately 30,000 customers located in the United States, Canada, Brazil, the UK and Europe.
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, the Canadian dollar versus the U.S. dollar and other currencies versus the U.S. dollar.
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 Canadian dollar versus the U.S. dollar, the euro versus the U.S. dollar, and the British pound versus the U.S. dollar.
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, and other non-GAAP adjustments.
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.
During fiscal years 2022 and 2021, we completed our annual impairment test as of April 30th and determined that our goodwill was not impaired. See Note 8 - Goodwill and Other Identifiable Intangible Assets in the Notes to Consolidated Financial Statements for further discussion on our goodwill impairment testing and results.
During fiscal years 2023 and 2022, 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.
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 40 Table of Contents Index to Financial Statements relative to our EBITDA and (2) Credit Facility EBITDA relative to total interest expense respectively.
Availability to use this borrowing capacity depends upon, among other things, the levels of our Leverage Ratio and Interest Coverage Ratio, which, in turn, will depend upon (1) our Credit Facility Net Debt relative to our 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, 2022, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $214.2 million available for borrowing.
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, 2023, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was $171.0 million available for borrowing.
Our solutions may include a combination of offerings from multiple suppliers or give our sales partners access to additional services. As a trusted adviser to our sales partners, we provide customized solutions through our strong understanding of end-customer needs.
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.
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.
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.
Checks released but not yet cleared from these accounts in the amounts of $18.0 million, $14.3 million and $17.1 million are classified as accounts payable as of June 30, 2022, 2021 and 2020, respectively. We conduct business in many locations throughout the world where we generate and use cash.
Checks released but not yet cleared from these accounts in the amounts of $8.0 million and $18.0 million are classified as accounts payable as of June 30, 2023 and 2022, respectively. We conduct business in many locations throughout the world where we generate and use cash.
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.
Conversely, when sales volumes decrease, our net investment in working capital typically decreases, which typically results in increased cash flow from operating activities.
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.
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.
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. 24 Table of Contents Index to Financial Statements Specialty Technology Solutions For the Specialty Technology Solutions segment, gross profit dollars increased $46.9 million.
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 increased $18.5 million.
Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to sales partners that solve end-customers’ challenges. ScanSource enables sales partners to deliver solutions for their customers to address changing end-customer buying and consumption patterns.
Our 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 21 Table of Contents Index to Financial Statements consumption patterns.
Provision for Income Taxes Income tax expense for continuing operations was $29.9 million and $12.1 million for the fiscal years ended June 30, 2022 and 2021, respectively, reflecting effective tax rates of 25.2% and 21.1%, respectively.
Provision for Income Taxes Income tax expense for continuing operations was $33.8 million and $29.9 million for the fiscal years ended June 30, 2023 and 2022, respectively, reflecting effective tax rates of 27.7% and 25.2%, respectively.
Cash provided by operating activities is 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 68 at June 30, 2022, compared to 60 at June 30, 2021 and 63 at June 30, 2020.
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 72 at June 30, 2023, compared to 68 at June 30, 2022.
Totals may not sum due to rounding. 21 Table of Contents Index to Financial Statements Fiscal Year Ended June 30, 2022 2021 2020 Statement of income data: Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 87.9 88.9 88.3 Gross profit 12.1 11.1 11.7 Selling, general and administrative expenses 7.8 7.9 8.5 Depreciation expense 0.3 0.4 0.4 Intangible amortization expense 0.5 0.6 0.7 Restructuring and other charges 0.0 0.3 0.0 Impairment charges 0.0 0.0 4.0 Change in fair value of contingent consideration 0.0 0.0 0.2 Operating income 3.5 2.0 (2.1) Interest expense 0.2 0.2 0.4 Interest income (0.1) (0.1) (0.2) Other (income) expense, net 0.0 0.0 0.0 Income (loss) from continuing operations before income taxes 3.4 1.8 (2.4) Provision for income taxes 0.8 0.4 0.2 Net income (loss) from continuing operations 2.5 1.4 (2.6) Net loss from discontinued operations 0.0 (1.1) (3.7) Net income (loss) 2.5 % 0.3 % (6.3) % Comparison of Fiscal Years Ended June 30, 2022, 2021 and 2020 Below is a discussion of fiscal years ended June 30, 2022, 2021 and 2020.
Fiscal Year Ended June 30, 2023 2022 2021 Statement of income data: Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 88.1 87.9 88.9 Gross profit 11.9 12.1 11.1 Selling, general and administrative expenses 7.5 7.8 7.9 Depreciation expense 0.3 0.3 0.4 Intangible amortization expense 0.4 0.5 0.6 Restructuring and other charges 0.0 0.0 0.3 Operating income 3.6 3.5 2.0 Interest expense 0.5 0.2 0.2 Interest income (0.2) (0.1) (0.1) Other (income) expense, net 0.0 0.0 0.0 Income from continuing operations before income taxes 3.2 3.4 1.8 Provision for income taxes 0.9 0.8 0.4 Net income from continuing operations 2.3 2.5 1.4 Net income (loss) from discontinued operations 0.0 0.0 (1.1) Net income 2.4 % 2.5 % 0.3 % Comparison of Fiscal Years Ended June 30, 2023 and 2022 Below is a discussion of fiscal years ended June 30, 2023 and 2022.
Pursuant to an “accordion feature,” we may increase our borrowings by up to an additional $250 million, for a total of up to $750 million, subject to obtaining additional credit commitments from the lenders participating in the increase.
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.
Higher sales volume, after considering the associated cost of goods sold, contributed $22.9 million to the growth of gross profit dollars. Gross margin mix negatively impacted gross profit by $17.6 million, largely from lower vendor program recognition. For the year ended June 30, 2021, the gross profit margin decreased 96 basis points over the prior-year to 8.7%.
Higher sales volume, after considering the associated cost of goods sold, contributed $24.6 million to the growth of gross profit dollars. Gross margin mix negatively impacted gross profit by $6.1 million, largely from a less favorable sales mix. For the year ended June 30, 2023, the gross profit margin decreased 26 basis points over the prior-year to 9.6%.
The increase in operating income and operating margin is primarily due to higher gross profits. Modern Communications & Cloud For the Modern Communications & Cloud segment, operating income increased $12.0 million and the operating margin increased to 3.8% for the fiscal year ended June 30, 2022, compared to the prior year.
The increase in operating income and operating margin is primarily due to higher gross profits. Modern Communications & Cloud For the Modern Communications & Cloud segment, operating income increased $6.1 million and the operating margin increased 40 basis points to 4.2% for the fiscal year ended June 30, 2023, compared to the prior year.
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, 2022, our working capital investment increased to support our 12.0% year-over-year net sales growth.
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.
We were in compliance with all covenants under the credit facility as of June 30, 2022. There was $135.8 million and $0.0 million outstanding on the revolving credit facility at June 30, 2022 and 2021, respectively. The average daily balance on the revolving credit facility, excluding the term loan facility, was $69.0 million for the year ended June 30, 2022.
We were in compliance with all covenants under the Amended Credit Agreement as of June 30, 2023. The average daily balance on the revolving credit facility, excluding the term loan facility, was $223.5 million and $69.0 million during the fiscal years ended June 30, 2023 and 2022, respectively.
The increase in operating income and margin is largely due to higher gross profits. Corporate Corporate incurred less than $0.1 million in divestiture costs for fiscal year ended June 30, 2022, compared to $11.6 million in divestiture and restructuring costs for the year ended June 30, 2021.
The increase in operating income and margin is largely due to higher gross profits. Corporate The fiscal year ended June 30, 2023 Corporate operating loss of $1.5 million represents cyberattack restoration charges. Corporate incurred less than $0.1 million in divestiture costs during the fiscal year ended June 30, 2022.
The following table summarizes our net sales results by business segment and by geographic location for the comparable fiscal years ended June 30, 2022 and 2021. 22 Table of Contents Index to Financial Statements 2022 2021 $ Change % Change % Change Constant Currency, Excluding Divestitures and Acquisitions (a) (in thousands) Sales by Segment: Specialty Technology Solutions $ 2,082,321 $ 1,815,933 $ 266,388 14.7 % 14.6 % Modern Communications & Cloud 1,447,614 1,334,873 112,741 8.4 % 7.9 % Total net sales $ 3,529,935 $ 3,150,806 $ 379,129 12.0 % 11.8 % Sales by Geography Category: United States $ 3,173,694 $ 2,840,731 $ 332,963 11.7 % 11.7 % International 356,241 310,075 46,166 14.9 % 12.0 % Total net sales $ 3,529,935 $ 3,150,806 $ 379,129 12.0 % 11.8 % (a) A reconciliation of non-GAAP net sales in constant currency, excluding divestitures and acquisitions is presented at the end of Results of Operations , under Non-GAAP Financial Information .
The following table summarizes our net sales results by business segment and by geographic location for the comparable fiscal years ended June 30, 2023 and 2022. 22 Table of Contents Index to Financial Statements 2023 2022 $ Change % Change % Change Constant Currency, Excluding Divestitures and Acquisitions (a) (in thousands) Sales by Segment: Specialty Technology Solutions $ 2,331,030 $ 2,082,321 $ 248,709 11.9 % 11.9 % Modern Communications & Cloud 1,456,691 1,447,614 9,077 0.6 % 0.4 % Total net sales $ 3,787,721 $ 3,529,935 $ 257,786 7.3 % 7.2 % Sales by Geography Category: United States $ 3,432,074 $ 3,173,694 $ 258,380 8.1 % 8.1 % International 355,647 356,241 (594) (0.2) % (1.4) % Total net sales $ 3,787,721 $ 3,529,935 $ 257,786 7.3 % 7.2 % (a) A reconciliation of non-GAAP net sales in constant currency, excluding divestitures and acquisitions is presented at the end of Results of Operations , under Non-GAAP Financial Information .
For our Intelisys business, net sales reflect the net commissions received from suppliers after paying sales partner commissions. For fiscal year 2022, Intelisys net billings, which are amounts billed by suppliers to end users and represents annual recurring revenue, totaled approximately $2.25 billion. The fiscal year 2022 Intelisys net billings resulted in Intelisys net sales of approximately $74.3 million.
For fiscal year 2023, Intelisys net billings, which are amounts billed by suppliers to end users and represents annual recurring revenue, totaled approximately $2.47 billion. The fiscal year 2023 Intelisys net billings resulted in Intelisys net sales of approximately $79.5 million.
See Footnote 9 - Short Term Borrowings and Long Term Debt . We also had a non-cancelable operating lease agreement of $17.6 million at June 30, 2022, of which $5.2 million is expected to be paid within the next 12 months. Remaining amounts are expected to be paid through 2028. See Footnote 15 - Leases .
We also had a non-cancelable operating lease agreement of $13.7 million at June 30, 2023, of which $4.8 million is expected to be paid within the next 12 months. Remaining amounts are expected to be paid through 2028. See Footnote 14 - Leases .
Our net investment in working capital increased $222.8 million to $709.5 million at June 30, 2022 from $486.7 million at June 30, 2021, primarily from increases in accounts receivable and inventory. Our net investment in working capital totaled $431.3 million at June 30, 2020.
Our net investment in working capital increased $160.7 million to $870.3 million at June 30, 2023 from $709.5 million at June 30, 2022, primarily from increases in inventory.
Cash and cash equivalents totaled $38.0 million, $62.7 million and $29.5 million at June 30, 2022, 2021 and 2020, respectively, of which $35.0 million, $52.1 million and $23.6 million was held outside of the United States as of June 30, 2022, 2021 and 2020, respectively.
Cash and cash equivalents totaled $36.2 million and $38.0 million at June 30, 2023 and 2022, respectively, of which $31.0 million and $35.0 million was held outside of the United States as of June 30, 2023 and 2022, respectively.
Inventory turnover was 5.6 times during the fourth quarter of the current fiscal year, compared to 6.5 times and 4.5 times in the fourth quarter of fiscal year 2021 and 2020, respectively. Throughout the current fiscal year, inventory turnover ranged from 5.1 to 6.3 times.
Inventory turnover was 4.4 times during the fourth quarter of the current fiscal year, compared to 5.6 times in the fourth quarter of fiscal year 2022. Throughout fiscal year 2023, inventory turnover ranged from 4.1 to 5.1 times. Cash used in investing activities was $8.3 million and $3.7 million for the years ended June 30, 2023 and 2022, respectively.
Modern Communications & Cloud For the Modern Communications & Cloud segment, gross profit dollars increased $28.9 million. Higher sales volume, after considering the associated cost of goods sold, contributed $16.2 million to the growth of gross profit dollars. Gross margin mix positively impacted gross profit by $12.7 million, largely from a more favorable sales mix.
Modern Communications & Cloud For the Modern Communications & Cloud segment, gross profit dollars increased $4.2 million. Higher sales volume, after considering the associated cost of goods sold, contributed $1.4 million to the growth of gross profit dollars.
The following table summarizes annualized adjusted ROIC for the fiscal years ended June 30, 2022 and 2021, respectively. 2022 2021 Adjusted return on invested capital ratio 17.0 % 12.6 % The components of our adjusted ROIC calculation and reconciliation to our financial statements are shown, as follows: Fiscal Year Ended June 30, 2022 2021 (in thousands) Reconciliation of net income to adjusted EBITDA: Net income from continuing operations (GAAP) $ 88,698 $ 45,389 Plus: Interest expense 6,523 6,929 Plus: Income taxes 29,925 12,146 Plus: Depreciation and amortization 29,884 33,507 EBITDA (non-GAAP) 155,030 97,971 Plus: Share-based compensation 11,663 8,039 Plus: Change in fair value of contingent consideration — 516 Plus: Divestiture costs (a) 30 2,376 Plus: Restructuring costs — 9,047 Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) 166,723 117,949 30 Table of Contents Index to Financial Statements Fiscal Year Ended June 30, 2022 2021 (in thousands) Invested capital calculations: Equity – beginning of the year $ 731,191 $ 678,246 Equity – end of the year 806,528 731,191 Plus: Share-based compensation, net 8,709 6,052 Plus: Change in fair value of contingent consideration, net — 390 Plus: Divestiture costs (a) 30 2,337 Plus: Restructuring, net — 6,840 Plus: Impact of discontinued operations, net (100) 34,594 Average equity 773,179 729,825 Average funded debt (b) 209,114 202,869 Invested capital (denominator for adjusted ROIC) (non-GAAP) $ 982,293 $ 932,694 (a) Includes divestiture costs for the year ended June 30, 2022 and 2021.
The following table summarizes annualized adjusted ROIC for the fiscal years ended June 30, 2023 and 2022. 2023 2022 Adjusted return on invested capital ratio 14.6 % 17.0 % The components of our adjusted ROIC calculation and reconciliation to our financial statements are shown, as follows: Fiscal Year Ended June 30, 2023 2022 (in thousands) Reconciliation of net income to adjusted EBITDA: Net income from continuing operations (GAAP) $ 88,092 $ 88,698 Plus: Interest expense 19,786 6,523 Plus: Income taxes 33,758 29,925 Plus: Depreciation and amortization 28,614 29,884 EBITDA (non-GAAP) 170,250 155,030 Plus: Share-based compensation 11,219 11,663 Plus: Tax recovery (2,986) — Plus: Cyberattack restoration costs 1,460 — Plus: Divestiture costs (a) — 30 Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) 179,943 166,723 27 Table of Contents Index to Financial Statements Fiscal Year Ended June 30, 2023 2022 (in thousands) Invested capital calculations: Equity – beginning of the year $ 806,528 $ 731,191 Equity – end of the year 905,298 806,528 Plus: Share-based compensation, net 8,326 8,709 Plus: Divestiture costs (a) — 30 Plus: Cyberattack restoration costs, net 1,092 — Plus: Tax recovery, net (3,985) — Plus: Impact of discontinued operations, net (1,717) (100) Average equity 857,771 773,179 Average funded debt (b) 372,235 209,114 Invested capital (denominator for adjusted ROIC) (non-GAAP) $ 1,230,006 $ 982,293 (a) Includes divestiture costs for the year ended June 30, 2022.
Specialty Technology Solutions During fiscal year 2021, net sales for this segment increased $235.5 million, or 14.9%, compared to fiscal year 2020. Excluding the foreign exchange negative impact of $19.3 million, adjusted net sales for fiscal year 2021 increased $254.8 million, or 16.1%, compared to the prior year.
During fiscal year 2023, net sales for this segment increased $9.1 million, or 0.6%, compared to fiscal year 2022. Excluding the foreign exchange positive impact of $3.5 million, adjusted net sales increased $5.6 million, or 0.4%, compared to the prior year.
Operating Income Fiscal year 2022 compared to fiscal year 2021 The following table summarizes our operating income for the periods ended June 30, 2022 and 2021: % of Sales June 30, 2022 2021 $ Change % Change 2022 2021 (in thousands) Specialty Technology Solutions $ 66,686 $ 29,566 $ 37,120 125.5 % 3.2 % 1.6 % Modern Communications & Cloud 55,511 43,551 11,960 27.5 % 3.8 % 3.3 % Corporate (30) (11,634) 11,604 99.7 % — % — % Total operating income $ 122,167 $ 61,483 $ 60,684 98.7 % 3.5 % 2.0 % Specialty Technology Solutions For the Specialty Technology Solutions segment, operating income increased $37.1 million, and operating margin increased to 3.2% for the fiscal year ended June 30, 2022 compared to the prior year.
Operating Income The following table summarizes our operating income for the periods ended June 30, 2023 and 2022: % of Sales June 30, 2023 2022 $ Change % Change 2023 2022 (in thousands) Specialty Technology Solutions $ 75,688 $ 66,686 $ 9,002 13.5 % 3.2 % 3.2 % Modern Communications & Cloud 61,658 55,511 6,147 11.1 % 4.2 % 3.8 % Corporate (1,460) (30) (1,430) *nm — % — % Total operating income $ 135,886 $ 122,167 $ 13,719 11.2 % 3.6 % 3.5 % *nm - not meaningful Specialty Technology Solutions For the Specialty Technology Solutions segment, operating income increased $9.0 million, and operating margin increased 5 basis points to 3.2% for the fiscal year ended June 30, 2023, compared to the prior year.
Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above: Year ended June 30, 2022 GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Divestiture costs Restructuring costs Non-GAAP measure (in thousands, except per share data) SG&A expenses $ 275,442 $ — $ — $ (30) $ — $ 275,412 Operating income 122,167 17,853 — 30 — 140,050 Pre-tax income 118,623 17,853 — 30 — 136,506 Net income 88,698 13,412 — 30 — 102,140 Diluted EPS $ 3.44 $ 0.52 $ — $ — $ — $ 3.97 Year ended June 30, 2021 GAAP Measure Intangible amortization expense Change in fair value of contingent consideration Divestiture costs Restructuring costs Non-GAAP measure (in thousands, except per share data) SG&A expenses $ 247,438 $ — $ — $ (2,376) $ — $ 245,062 Operating income 61,483 19,488 516 2,376 9,258 93,121 Pre-tax income 57,535 19,488 516 2,376 9,258 89,173 Net income 45,389 14,753 390 2,337 6,999 69,868 Diluted EPS $ 1.78 $ 0.58 $ 0.02 $ 0.09 $ 0.27 $ 2.74 36 Table of Contents 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.
Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above: Year ended June 30, 2023 GAAP Measure Intangible amortization expense Tax recovery Divestiture costs Cyberattack restoration costs 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 Year ended June 30, 2022 GAAP Measure Intangible amortization expense Tax recovery Divestiture costs Cyberattack restoration costs Non-GAAP measure (in thousands, except per share data) SG&A expenses $ 275,442 $ — $ — $ (30) $ — $ 275,412 Operating income 122,167 17,853 — 30 — 140,050 Pre-tax income 118,623 17,853 — 30 — 136,506 Net income 88,698 13,412 — 30 — 102,140 Diluted EPS $ 3.44 $ 0.52 $ — $ — $ — $ 3.97 31 Table of Contents 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.
Gross Profit Fiscal year 2022 compared to fiscal year 2021 The following table summarizes our gross profit for the fiscal years ended June 30, 2022 and 2021: % of Sales June 30, 2022 2021 $ Change % Change 2022 2021 (in thousands) Specialty Technology Solutions $ 205,757 $ 158,833 $ 46,924 29.5 % 9.9 % 8.7 % Modern Communications & Cloud 220,767 191,883 28,884 15.1 % 15.3 % 14.4 % Total gross profit $ 426,524 $ 350,716 $ 75,808 21.6 % 12.1 % 11.1 % Our gross profit is primarily affected by sales volume and gross margin mix.
Gross Profit The following table summarizes our gross profit for the fiscal years ended June 30, 2023 and 2022: 23 Table of Contents Index to Financial Statements % of Sales June 30, 2023 2022 $ Change % Change 2023 2022 (in thousands) Specialty Technology Solutions $ 224,239 $ 205,757 $ 18,482 9.0 % 9.6 % 9.9 % Modern Communications & Cloud 225,000 220,767 4,233 1.9 % 15.4 % 15.3 % Total gross profit $ 449,239 $ 426,524 $ 22,715 5.3 % 11.9 % 12.1 % Our gross profit is primarily affected by sales volume and gross margin mix.
Since the inception of the program, in fiscal year 2022, we repurchased 550,194 shares totaling $18.2 million. 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.
The authorization does not have any time limit. In fiscal year 2023 , we repurchased 524,108 shares totaling $15.8 million. 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”).
Total Other (Income) Expense Fiscal year 2022 compared to fiscal year 2021 The following table summarizes our total other (income) expense for the fiscal years ended June 30, 2022 and 2021: % of Sales June 30, 2022 2021 $ Change % Change 2022 2021 (in thousands) Interest expense $ 6,523 $ 6,929 $ (406) (5.9) % 0.2 % 0.2 % Interest income (4,333) (3,097) (1,236) 39.9 % (0.1) % (0.1) % Net foreign exchange losses 2,078 845 1,233 145.9 % 0.1 % — % Other, net (724) (729) 5 (0.7) % — % — % Total other (income) expense $ 3,544 $ 3,948 $ (404) (10.2) % 0.1 % 0.1 % Interest expense reflects interest incurred on borrowings, non-utilization fees from our revolving credit facility and amortization of debt issuance costs.
Total Other (Income) Expense The following table summarizes our total other (income) expense for the fiscal years ended June 30, 2023 and 2022: % of Sales June 30, 2023 2022 $ Change % Change 2023 2022 (in thousands) Interest expense $ 19,786 $ 6,523 $ 13,263 203.3 % 0.5 % 0.2 % Interest income (7,414) (4,333) (3,081) 71.1 % (0.2) % (0.1) % Net foreign exchange losses 2,168 2,078 90 4.3 % 0.1 % 0.1 % Other, net (504) (724) 220 (30.4) % — % — % Total other (income) expense $ 14,036 $ 3,544 $ 10,492 296.0 % 0.4 % 0.1 % 25 Table of Contents Index to Financial Statements Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs.
Cash used in investing activities for fiscal year 2020 is primarily attributable to cash used to purchase intY. Management expects capital expenditures for fiscal year 2023 to range from $6.5 million to $8.5 million, primarily for IT investments and facility improvements.
Cash used in investing activities for fiscal year 2023 and 2022 represents capital expenditures, partially offset by proceeds from the sale of our discontinued operations. Management expects capital expenditures for fiscal year 2024 to range from $6.0 million to $8.0 million, primarily for IT investments and facility improvements.
Year ended Cash (used in) provided by: June 30, 2022 June 30, 2021 June 30, 2020 (in thousands) Operating activities of continuing operations $ (124,354) $ 116,767 $ 182,033 Investing activities of continuing operations (3,724) 31,993 (55,308) Financing activities of continuing operations 108,106 (118,824) (152,686) Net cash used in operating activities was $124.4 million for the year ended June 30, 2022, compared to $116.8 million provided by operating activities for the year ended June 30, 2021.
Year ended Cash (used in) provided by: June 30, 2023 June 30, 2022 (in thousands) Operating activities of continuing operations $ (35,769) $ (124,354) Investing activities of continuing operations (8,262) (3,724) Financing activities of continuing operations 39,531 108,106 Net cash used in operating activities was $35.8 million and $124.4 million for the years ended June 30, 2023 and 2022, respectively.
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.
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, 2023, the Specialty Technology and Modern Communications & Cloud reporting units' goodwill balances are $16.4 million and $200.3 million, respectively.
Operating expenses Fiscal year 2022 compared to fiscal year 2021 The following table summarizes our operating expenses for the periods ended June 30, 2022 and 2021: 25 Table of Contents Index to Financial Statements % of Sales June 30, 2022 2021 $ Change % Change 2022 2021 (in thousands) Selling, general and administrative expenses $ 275,442 $ 247,438 $ 28,004 11.3 % 7.8 % 7.9 % Depreciation expense 11,062 12,533 (1,471) (11.7) % 0.3 % 0.4 % Intangible amortization expense 17,853 19,488 (1,635) (8.4) % 0.5 % 0.6 % Restructuring and other charges — 9,258 (9,258) (100.0) % — % 0.3 % Change in fair value of contingent consideration — 516 (516) (100.0) % — % — % Operating expenses $ 304,357 $ 289,233 $ 15,124 5.2 % 8.6 % 9.2 % Selling, general and administrative expenses ("SG&A") increased $28.0 million for the fiscal year ended June 30, 2022 compared to the prior year.
Operating expenses The following table summarizes our operating expenses for the periods ended June 30, 2023 and 2022: % of Sales June 30, 2023 2022 $ Change % Change 2023 2022 (in thousands) Selling, general and administrative expenses $ 285,695 $ 275,442 $ 10,253 3.7 % 7.5 % 7.8 % Depreciation expense 10,912 11,062 (150) (1.4) % 0.3 % 0.3 % Intangible amortization expense 16,746 17,853 (1,107) (6.2) % 0.4 % 0.5 % Operating expenses $ 313,353 $ 304,357 $ 8,996 3.0 % 8.3 % 8.6 % Selling, general and administrative expenses ("SG&A") increased $10.3 million for the fiscal year ended June 30, 2023 compared to the prior year.
Net Sales Fiscal year 2022 compared to fiscal year 2021 We have two reportable segments, which are based on technology.
Please refer to our form 10-K for the fiscal year ended June 30, 2022 for a discussion of fiscal year ended June 30, 2021. Net Sales We have two reportable segments, which are based on technology.
There was $214.2 million and $350.0 million available for additional borrowings as of June 30, 2022 and 2021, respectively.
There was $171.0 million and $214.2 million available for additional borrowings as of June 30, 2023 and 2022, respectively. There were no letters of credit issued under the multi-currency revolving credit facility as of June 30, 2023 and 2022.
Interest expense decreased in fiscal 2022 as compared to 2021 primarily from lower interest rates including the spread during the first nine months of fiscal year 2022. Interest income for the year ended June 30, 2022 and 2021 was generated on interest-bearing customer receivables principally in Brazil.
Interest expense increased in fiscal 2023 as compared to 2022 primarily from higher interest rates and higher average borrowings on our multi-currency revolving credit facility. Interest income for the year ended June 30, 2023 and 2022 was generated on interest-bearing investments in Brazil and customer receivables.
Cash used in financing activities totaled $118.8 million and $152.7 million for the fiscal years ended June 30, 2021 and 2020, primarily from net repayments on the revolving line of credit. Share Repurchase Program In August 2021, our Board of Directors authorized a $100 million share repurchase program. The authorization does not have any time limit.
Cash provided by financing activities totaled $39.5 million and $108.1 million for the fiscal years ended June 30, 2023 and 2022, respectively , primarily from net borrowings on the revolving line of credit. Share Repurchase Program 34 Table of Contents Index to Financial Statements In August 2021, our Board of Directors authorized a $100 million share repurchase program.
Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding acquisitions: Net Sales by Segment: Fiscal Year Ended June 30, 2022 2021 $ Change % Change Specialty Technology Solutions: (in thousands) Net sales, reported $ 2,082,321 $ 1,815,933 $ 266,388 14.7 % Foreign exchange impact (a) (1,710) — Non-GAAP net sales, constant currency $ 2,080,611 $ 1,815,933 $ 264,678 14.6 % Modern Communications & Cloud: Net sales, reported $ 1,447,614 $ 1,334,873 $ 112,741 8.4 % Foreign exchange impact (a) (7,115) — Non-GAAP net sales, constant currency $ 1,440,499 $ 1,334,873 $ 105,626 7.9 % Consolidated: Net sales, reported $ 3,529,935 $ 3,150,806 $ 379,129 12.0 % Foreign exchange impact (a) (8,825) — Non-GAAP net sales, constant currency $ 3,521,110 $ 3,150,806 $ 370,304 11.8 % (a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.
Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding acquisitions: Net Sales by Segment: Fiscal Year Ended June 30, 2023 2022 $ Change % Change Specialty Technology Solutions: (in thousands) Net sales, reported $ 2,331,030 $ 2,082,321 $ 248,709 11.9 % Foreign exchange impact (a) (923) — Non-GAAP net sales, constant currency $ 2,330,107 $ 2,082,321 $ 247,786 11.9 % Modern Communications & Cloud: Net sales, reported $ 1,456,691 $ 1,447,614 $ 9,077 0.6 % Foreign exchange impact (a) (3,492) — Non-GAAP net sales, constant currency $ 1,453,199 $ 1,447,614 $ 5,585 0.4 % Consolidated: Net sales, reported $ 3,787,721 $ 3,529,935 $ 257,786 7.3 % Foreign exchange impact (a) (4,415) — Non-GAAP net sales, constant currency $ 3,783,306 $ 3,529,935 $ 253,371 7.2 % (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 year ended June 30, 2022 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2021. 32 Table of Contents Index to Financial Statements Net Sales by Geography: Fiscal Year Ended June 30, 2021 2020 $ Change % Change United States: (in thousands) Net sales, as reported $ 2,840,731 $ 2,755,134 $ 85,597 3.1 % International: Net sales, as reported $ 310,075 $ 292,600 $ 17,475 6.0 % Foreign exchange impact (a) 65,781 — Non-GAAP net sales, constant currency $ 375,856 $ 292,600 $ 83,256 28.5 % Consolidated: Net sales, as reported $ 3,150,806 $ 3,047,734 $ 103,072 3.4 % Foreign exchange impact (a) 65,781 — Non-GAAP net sales, constant currency $ 3,216,587 $ 3,047,734 $ 168,853 5.5 % (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 year ended June 30, 2023 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2022. 28 Table of Contents Index to Financial Statements Net Sales by Geography: Fiscal Year Ended June 30, 2023 2022 $ Change % Change United States and Canada: (in thousands) Net sales, as reported $ 3,432,074 $ 3,173,694 $ 258,380 8.1 % International: Net sales, reported $ 355,647 $ 356,241 $ (594) (0.2) % Foreign exchange impact (a) (4,415) — Non-GAAP net sales, constant currency $ 351,232 $ 356,241 $ (5,009) (1.4) % Consolidated: Net sales, reported $ 3,787,721 $ 3,529,935 $ 257,786 7.3 % Foreign exchange impact (a) (4,415) — Non-GAAP net sales, constant currency $ 3,783,306 $ 3,529,935 $ 253,371 7.2 % (a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates.
The increase in DSO for fiscal year 2022 is primarily a result of the timing of sales resulting in higher net receivables at period end. Throughout the current fiscal year, DSO ranged from 62 to 69.
The increase in DSO for fiscal year 2023 is driven by a 3.3% increase in net receivables at period end and a 1.8% decrease in fourth quarter average daily sales compared to the prior fiscal year. Throughout the current fiscal year, DSO ranged from 69 to 72.
Higher sales volume, after considering the associated cost of goods sold, contributed $23.3 million to the growth of gross profit dollars. Gross margin mix positively impacted gross profit by $23.6 million, largely from higher vendor program recognition. For the year ended June 30, 2022, the gross profit margin increased 113 basis points over the prior-year to 9.9%.
Gross margin mix positively impacted gross profit by $2.8 million, largely from a more favorable sales mix, partially offset by lower vendor program recognition. For the year ended June 30, 2023, the gross profit margin increased 20 basis points over the prior year to 15.4%.
The presentation for adjusted EBITDA for all periods presented has been recast to reflect this change to enhance comparability between periods. We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period.
Since adjusted EBITDA excludes some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more clearly. The presentation for adjusted EBITDA for all periods presented has been recast to reflect this change to enhance comparability between periods. We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital.
Excluding the foreign exchange positive impact of $1.7 million, adjusted net sales for fiscal year 2022 increased $264.7 million, or 14.6%, compared to the prior year. The increase in net sales and in adjusted net sales is primarily due to increased broad-based demand across our technologies.
During fiscal year 2023, net sales for this segment increased $248.7 million, or 11.9%, compared to fiscal year 2022. Excluding the foreign exchange positive impact of $0.9 million, adjusted net sales for fiscal year 2023 increased $247.8 million, or 11.9%, compared to the prior year.
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.
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.
Modern Communications & Cloud The Modern Communications & Cloud segment consists of sales to customers in North America, Brazil, Europe and the UK. During fiscal year 2022, net sales for this segment increased $112.7 million, or 8.4%, compared to fiscal year 2021.
The increase in net sales and in adjusted net sales is primarily due to strong growth in key technologies in North America. Modern Communications & Cloud The Modern Communications & Cloud segment consists of sales to customers in North America, Brazil, Europe and the UK.
At our option, loans denominated in U.S. dollars under the Amended Credit Agreement, other than swingline loans, bear interest at a rate equal to a spread over the LIBOR or alternate base rate depending upon the Company's net leverage ratio, calculated as total debt less up to $15 million of unrestricted domestic cash to trailing four-quarter adjusted earnings before interest expense, taxes, depreciation and amortization ("EBITDA") (the "Leverage Ratio").
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 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.
The increase in the effective tax rate for fiscal year 2022 compared to fiscal year 2021 is primarily the result of an increase in non-deductible expenses and an inclusion for global intangible low taxed income. We expect the fiscal year 2023 effective tax rate from continuing operations to be approximately 25.0% to 26.0%.
The increase in the effective tax rate for fiscal year 2023 compared to fiscal year 2022 is primarily the result of an increase in global intangible low taxed income. 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.
We also had $135.3 million outstanding under our term loan facility, $11.25 million of which matures in fiscal year 2023. Our revolving credit facility and our term loan facility have an April 30, 2024 maturity date. The remaining principal debt payments, which total $4.1 million, have maturity dates in 2024 through 2032.
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 $3.7 million, have maturity dates in 2024 through 2032. See Footnote 8 - Short Term Borrowings and Long Term Debt .
Dollar loans and provided for an interpolated rate for 7-day LIBOR for U.S. Dollar loans. The Amended Credit Agreement includes (i) a five-year $350 million multi-currency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility.
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.
Excluding the foreign exchange positive impact of $7.1 million, adjusted net sales increased $105.6 million, or 7.9%, compared to the prior year. The increase in net sales and adjusted net sales is primarily due to increased demand across our communications solutions. Intelisys connectivity and cloud net sales for fiscal year 2022 increased 14.4% year-over-year.
The increase in net sales and adjusted net sales is primarily due to increased networking sales, partially offset by lower sales volumes in our communications hardware. Intelisys connectivity and cloud net sales for fiscal year 2023 increased 7.0% year-over-year. For our Intelisys business, net sales reflect the net commissions received from suppliers after paying sales partner commissions.
Removed
Specialty Technology Solutions The Specialty Technology Solutions segment consists of sales to customers in North America and Brazil. During fiscal year 2022, net sales for this segment increased $266.4 million, or 14.7%, compared to fiscal year 2021.
Added
Recent Developments Cybersecurity Incident On May 14, 2023, we discovered that we were subject to a cybersecurity attack perpetrated by unauthorized third parties that affected our IT systems. Upon detection, we took immediate steps to address the incident, engaged third-party experts, and notified law enforcement.
Removed
Fiscal year 2021 compared to fiscal year 2020 23 Table of Contents Index to Financial Statements 2021 2020 $ Change % Change % Change Constant Currency, Excluding Divestitures and Acquisitions (a) (in thousands) Sales by Segment: Specialty Technology Solutions $ 1,815,933 $ 1,580,441 $ 235,492 14.9 % 16.1 % Modern Communications & Cloud 1,334,873 1,467,293 (132,420) (9.0) % (5.9) % Total net sales $ 3,150,806 $ 3,047,734 $ 103,072 3.4 % 5.5 % Sales by Geography Category: United States $ 2,840,731 $ 2,755,134 $ 85,597 3.1 % 3.1 % International 310,075 292,600 17,475 6.0 % 28.5 % Total net sales $ 3,150,806 $ 3,047,734 $ 103,072 3.4 % 5.5 % (a) A reconciliation of non-GAAP net sales in constant currency, excluding acquisitions is presented at the end of Results of Operations , under Non-GAAP Financial Information .
Added
We have cyber insurance and are working with our insurance carriers on claims to recover costs incurred. On May 26, 2023, we substantially recovered our operations and completed the restoration of our pertinent IT systems.
Removed
The increase in net sales and in adjusted net sales is primarily due to higher sales volume across our technologies in North America. Modern Communications & Cloud During fiscal year 2021, net sales for this segment decreased $132.4 million, or 9.0%, compared to fiscal year 2020.
Added
We have taken actions to strengthen our existing IT security infrastructure and will continue to implement additional measures to prevent unauthorized access to, or manipulation of, our systems and data.
Removed
Excluding the foreign exchange negative impact of $46.5 million, adjusted net sales decreased $86.0 million, or 5.9%, compared to the prior year. The decrease in net sales and adjusted net sales is primarily due to lower sales volume across our communications technologies. Intelisys connectivity and cloud net sales for fiscal year 2021 increased 13.1% year-over-year.
Added
Our sales during our fourth quarter were adversely impacted by the cybersecurity attack that we discovered on May 14, 2023. Until the appropriate restoration was completed, we generally were not able to use our core systems to accept orders or ship products.
Removed
For the year ended June 30, 2022, the gross profit margin increased 87 basis points over the prior year to 15.3%.
Added
Because some of the lost sales may simply have been deferred, we do not yet have a complete estimate of the ultimate impact. We have business interruption insurance that should cover a portion of the lost profits attributable to any lost sales. Specialty Technology Solutions The Specialty Technology Solutions segment consists of sales to customers in North America and Brazil.
Removed
Fiscal year 2021 compared to fiscal year 2020 % of Sales June 30, 2021 2020 $ Change % Change 2021 2020 (in thousands) Specialty Technology Solutions $ 158,833 $ 153,511 $ 5,322 3.5 % 8.7 % 9.7 % Modern Communications & Cloud 191,883 202,058 (10,175) (5.0) % 14.4 % 13.8 % Total gross profit $ 350,716 $ 355,569 $ (4,853) (1.4) % 11.1 % 11.7 % Specialty Technology Solutions For the Specialty Technology Solutions segment, gross profit dollars increased $5.3 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−0 removed10 unchanged
Biggest changeIn connection with the borrowings under the credit facility including potential future amendments or extensions of the facility, we entered into an interest rate swap with a notional amount of $100.0 million, with a $50.0 million tranche scheduled to mature on April 30, 2024 and a $50.0 million tranche scheduled to mature April 30, 2026.
Biggest changeWe 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, with a $50.0 million tranche scheduled to mature on April 30, 2024 and a $50.0 million tranche scheduled to mature April 30, 2026.
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 the interest rate swap, would have resulted in approximately a $1.1 million and $1.0 million increase or decrease in pre-tax income for the fiscal year ended June 30, 2022 and 2021, respectively.
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 the interest rate swap, would have resulted in approximately a $2.5 million and $1.1 million increase or decrease in pre-tax income for the fiscal year ended June 30, 2023 and 2022, respectively.
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 $2.2 million and $1.4 million increase or decrease in pre-tax income for fiscal years ended June 30, 2022 and 2021, respectively.
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 $2.7 million and $2.2 million increase or decrease in pre-tax income for fiscal years ended June 30, 2023 and 2022, respectively.
At June 30, 2022 and 2021, the fair value of our currency forward contracts were a net asset or payable of less than $0.1 million. 42 Table of Contents Index to Financial Statements
At June 30, 2023 and 2022, the fair value of our currency forward contracts were a net asset or payable of less than $0.1 million. 37 Table of Contents Index to Financial Statements
The purpose of the interest rate swap is to manage or hedge our exposure to floating rate debt and achieve a desired proportion of fixed versus floating rate debt.
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.
We evaluate our interest rate risk and may use interest rate swaps to mitigate the risk of interest rate fluctuations associated with our current and long-term debt. At June 30, 2022 and 2021 we had $271.2 million and $143.2 million, respectively, in variable rate debt.
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, 2023 and 2022, we had $329.9 million and $271.2 million, respectively, in variable rate debt.
Added
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 notional amount of $25 million and a maturity date of March 31, 2028.

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