Scansource, Inc 10-K for FY2023

Scansource, Inc. (SCSC)

10-K 2023-08-22 For: 2023-06-30

Added on April 08, 2026

About this 10-K

Scansource, Inc filed this 10-K on August 22, 2023, covering the fiscal year ended June 30, 2023 (FY2023).

Headline figures

Fiscal year ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $3.79B; up 7.3% from $3.53B a year earlier
Net income: $89.81M; up 1.1% from net income of $88.8M a year earlier
Diluted EPS: $3.54; up 2.6% from $3.45 a year earlier

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Class						Outstanding at August 11, 2023
Common Stock, no par value per share						24,844,203 shares


		Page
PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18
PART II		19
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	[Reserved]	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8.	Financial Statements and Supplementary Data	38
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	79
Item 9A.	Controls and Procedures	79
Item 9B.	Other Information	79
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	79
PART III		80
Item 10.	Directors, Executive Officers and Corporate Governance	80
Item 11.	Executive Compensation	80
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	80
Item 13.	Certain Relationships and Related Transactions, and Director Independence	80
Item 14.	Principal Accountant Fees and Services	80
PART IV		81
Item 15.	Exhibits and Financial Statement Schedules	81
Item 16.	Form 10-K Summary	82
Signatures		83


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


	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


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


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


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


	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	%


	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.


									% 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	%


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, 2023 into U.S. dollars using the average foreign exchange rates for the year ended June 30, 2022.


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. 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.


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	%


	2023		2022
Adjusted return on invested capital ratio	14.6	%	17.0	%


	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


	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


			/s/ Grant Thornton LLP


	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


	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



			Page
Financial Statements

Report of Grant Thornton LLP Independent Registered Public Accounting Firm (PCAOB ID: 248)			39
Report of Grant Thornton LLP Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting			40
Consolidated Balance Sheets			41
Consolidated Income Statements			42
Consolidated Statements of Comprehensive Income (Loss)			43
Consolidated Statements of Shareholders’ Equity			44
Consolidated Statements of Cash Flows			45
Notes to Consolidated Financial Statements			47


	June 30, 2023		June 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	36,178	$	37,987
Accounts receivable, less allowance of $15,480 at June 30, 2023 and $16,806 at June 30, 2022	753,236		729,442
Inventories	757,574		614,814
Prepaid expenses and other current assets	110,087		141,562

Total current assets	1,657,075		1,523,805
Property and equipment, net	37,379		37,477
Goodwill	216,706		214,435
Identifiable intangible assets, net	68,495		84,427
Deferred income taxes	17,764		15,668
Other non-current assets	70,750		61,616

Total assets	$	2,068,169	$	1,937,428
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	691,119	$	714,177
Accrued expenses and other current liabilities	78,892		88,455

Income taxes payable	9,875		34

Current portion of long-term debt	6,915		11,598

Total current liabilities	786,801		814,264
Deferred income taxes	3,816		3,144
Long-term debt, net of current portion	144,006		123,733
Borrowings under revolving credit facility	178,980		135,839

Other long-term liabilities	49,268		53,920

Total liabilities	1,162,871		1,130,900
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 3,000,000 shares authorized, none issued	—		—
Common stock, no par value; 45,000,000 shares authorized, 24,844,203 and 25,187,351 shares issued and outstanding at June 30, 2023 and June 30, 2022, respectively	58,241		64,297
Retained earnings	936,678		846,869
Accumulated other comprehensive loss	(89,621)		(104,638)
Total shareholders’ equity	905,298		806,528
Total liabilities and shareholders’ equity	$	2,068,169	$	1,937,428


	Common Stock (Shares)	Common Stock (Amount)		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at June 30, 2020	25,361,298	$	63,765	$	747,276	$	(132,795)	$	678,246
Net income	—	—		10,795		—		10,795
Unrealized gain on hedged transaction, net of tax	—	—		—		2,249		2,249
Foreign currency translation adjustment	—	—		—		20,778		20,778
Realized foreign currency loss from discontinued operations	—	—		—		11,635		11,635
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	138,167	(585)		—		—		(585)

Share-based compensation	—	8,073		—		—		8,073

Balance at June 30, 2021	25,499,465	71,253		758,071		(98,133)		731,191
Net income	—	—		88,798		—		88,798
Unrealized gain on hedged transaction, net of tax	—	—		—		5,833		5,833
Foreign currency translation adjustment	—	—		—		(12,338)		(12,338)

Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	238,080	(450)		—		—		(450)
Common stock repurchased	(550,194)	(18,203)		—		—		(18,203)
Share-based compensation	—	11,697		—		—		11,697

Balance at June 30, 2022	25,187,351	64,297		846,869		(104,638)		806,528
Net income	—	—		89,809		—		89,809
Unrealized gain on hedged transaction, net of tax	—	—		—		2,254		2,254
Foreign currency translation adjustment	—	—		—		12,763		12,763
Exercise of stock options and shares issued under share-based compensation plans, net of shares withheld for employee taxes	180,960	(1,553)		—		—		(1,553)
Common stock repurchased	(524,108)	(15,753)		—		—		(15,753)
Share-based compensation	—	11,250		—		—		11,250

Balance at June 30, 2023	24,844,203	$	58,241	$	936,678	$	(89,621)	$	905,298




Supplemental disclosure of consolidated cash flow information:
Interest paid during the year	$	18,789	$	6,066	$	6,412
Income taxes paid during the year	$	28,547	$	29,418	$	12,002


Description	Balance at Beginning of Period		Amounts Charged to Expense	Write-offs	Other (1)	Balance at End of Period
	(in thousands)
Allowance for doubtful accounts:
Year ended June 30, 2021	$	21,906	338	(4,556)	1,653	$	19,341

Year ended June 30, 2022	$	19,341	1,514	(1,751)	(2,298)	$	16,806

Year ended June 30, 2023	$	16,806	2,785	(2,062)	(2,049)	$	15,480


	Fiscal year ended June 30, 2023
	Specialty Technology Solutions		Modern Communications & Cloud		Total
Revenue by product/service type:	(in thousands)
Hardware, software and cloud (excluding Intelisys)	$	2,331,030	$	1,377,185	$	3,708,215
Intelisys connectivity and cloud	—		79,506		79,506
	$	2,331,030	$	1,456,691	$	3,787,721


	Fiscal year ended June 30, 2022
	Specialty Technology Solutions		Modern Communications & Cloud		Total
Revenue by product/service type:			(in thousands)
Hardware, software and cloud (excluding Intelisys)	$	2,082,321	$	1,373,342	$	3,455,663
Intelisys connectivity and cloud	—		74,272		74,272
	$	2,082,321	$	1,447,614	$	3,529,935


	Fiscal year ended June 30, 2021
	Specialty Technology Solutions		Modern Communications & Cloud		Total
Revenue by product/service type:			(in thousands)
Hardware, software and cloud (excluding Intelisys)	$	1,815,933	$	1,269,930	$	3,085,863
Intelisys connectivity and cloud	—		64,943		64,943
	$	1,815,933	$	1,334,873	$	3,150,806


	June 30,
	2023		2022
	(in thousands)
Land	$	2,143	$	2,999
Buildings and leasehold improvements	20,326		19,838
Computer software and equipment	77,673		72,289
Furniture, fixtures and equipment	17,895		15,223
Construction in progress	919		209
Rental equipment	10,734		9,539
	129,690		120,097
Less accumulated depreciation	(92,311)		(82,620)
	$	37,379	$	37,477


	June 30, 2023						June 30, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
	(in thousands)
Amortized intangible assets:
Customer relationships	$	138,574	$	90,650	$	47,924	$	137,366	$	79,147	$	58,219
Trade names	19,562		14,109		5,453		19,480		12,469		7,011
Non-compete agreements	2,410		2,410		—		2,410		2,396		14

Supplier partner program	4,085		2,481		1,604		4,085		2,051		2,034
Encryption key library	19,900		14,718		5,182		19,900		12,230		7,670
Developed technology	14,262		5,930		8,332		13,865		4,386		9,479
Total intangibles	$	198,793	$	130,298	$	68,495	$	197,106	$	112,679	$	84,427


	Amortization Expense
	(in thousands)
Year Ended June 30,
2024	$	16,783
2025	16,783
2026	12,882
2027	6,674
2028	5,317
Thereafter	10,056
Total	$	68,495


	Revolving Credit Facility		Term Loan Facility		Mississippi Bond
	(in thousands)
Fiscal year:
2024	$	—	$	6,563	$	352
2025	—		7,500		357
2026	—		7,500		361
2027	—		10,313		366
2028	178,980		115,312		371
Thereafter	—		—		1,926
Total principal payments	$	178,980	$	147,188	$	3,733


	June 30, 2023
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments
		(in thousands)
Derivative assets:
Foreign exchange contracts	Prepaid expenses and other current assets	$	—	$	1
Interest rate swap agreement	Other current assets	$	4,687	$	—
Foreign currency hedge	Other current assets	$	100	$	—


	Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)
	(in thousands)
Assets:
Deferred compensation plan investments, current and non-current portion	$	28,209	$	28,209	$	—
Forward foreign currency exchange contracts	1		—		1
Interest rate swap agreement	4,687		—		4,687
Foreign currency hedge	100		—		100
Total assets at fair value	$	32,997	$	28,209	$	4,788
Liabilities:
Deferred compensation plan investments, current and non-current portion	$	28,229	$	28,229	$	—


Total liabilities at fair value	$	28,229	$	28,229	$	—


			Fiscal Year Ended June 30,
			2021
Expected term			5 years
Expected volatility			42.78%
Risk-free interest rate			0.36%
Dividend yield			0.00%
Weighted-average fair value per option			$9.01


	Fiscal Year Ended June 30, 2023
	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, beginning of year	1,123,099	$	32.23
Granted during the period	—	—
Exercised during the period	(36,435)	25.00
Canceled, forfeited, or expired during the period	(59,993)	27.70
Outstanding, end of year	1,026,671	32.76		4.57	$	2,113,985
Vested and expected to vest at June 30, 2023	1,026,460	32.76		4.57	$	2,112,871
Exercisable, end of year	855,834	$	34.28	4.01	$	—


	Fiscal Year Ended June 30, 2023
	Options	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Unvested, beginning of year	384,638	$	25.16	$	9.08
Granted	—	—		—
Vested	(171,926)	25.11		9.06
Canceled or forfeited	(41,875)	25.51		9.30
Unvested, end of year	170,837	$	25.12	$	9.06


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Shares Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$22.27 - $26.38	363,233	7.38	24.53		231,673	24.55
$26.38 - $30.49	119,021	7.40	27.14		79,744	27.14
$30.49 - $34.60	57,799	4.44	34.35		57,799	34.35
$34.60 - $38.71	207,169	2.83	37.71		207,169	37.71
$38.71 - $42.82	279,449	1.02	41.83		279,449	41.83
	1,026,671	4.57	$	32.76	855,834	$	34.28