ScanSource Inc.
11/06/2025 | Press release | Distributed by Public on 11/06/2025 07:32
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
| Management's Discussion and Analysis of Financial Condition and Results of Operations |
Overview
ScanSource is a leading technology distributor connecting devices to the cloud and accelerating growth for channel sales partners across hardware, SaaS, connectivity and cloud. We provide technology solutions and services from approximately 500 leading suppliers of mobility and barcode, POS, payment terminals, physical security, networking, communications, connectivity and cloud services to our approximately 25,000 channel sales partners located primarily in the United States and Brazil.
We operate our business under a management structure that enhances our technology distribution growth strategy. Our segments operate primarily in the United States and Brazil:
•Specialty Technology Solutions
•Intelisys & Advisory
We sell hardware, SaaS, connectivity and cloud solutions and services to channel sales partners that are designed to solve end users' challenges. We operate distribution facilities that primarily support our United States business in Mississippi, California and Kentucky. Brazil distribution facilities are located in the Brazilian states of Paraná, Espirito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms.
Recent Developments
Impact of the Macroeconomic Environment, Including Growth Outlook, Inflation and Tariffs
The macroeconomic environment, including the economic impacts of growth outlook, inflation, tariffsand shifting relations between the U.S. and other countries, continues to create significant uncertainty and may adversely affect our financial condition and results of operations. In 2025, the U.S. announced a variety of additional tariffs on goods from multiple nations and trading blocks and has been targeted with reciprocal tariffs and other retaliatory actions in response. Negotiations and the state of international trade policy and relations continue to evolve. We are mindful of the potential impact these conditions could have on our channel sales partners, suppliers and end-user demand and we are actively monitoring changes to the global macroeconomic environment and assessing the potential impacts these challenges may have on our financial condition, results of operations and liquidity. We expect to pass any price increases from our suppliers resulting from tariffs to our channel sales partners. We are also mitigating risks through strategic planning and maintaining financial flexibility, but we cannot predict the outcome of our mitigation strategies or the ultimate impact of tariffs and the global macroeconomic environment on our financial condition or results of operations.
On July 4, 2025, the One Big Beautiful Bill Act (the "Act") was signed into law. The Act permanently extends key provisions of the Tax Cuts and Jobs Act, including 100% bonus depreciation, and introduces changes to the international tax framework. We are currently assessing the impact of the Act on our future effective tax rate, tax liabilities, and cash taxes.
Our Strategy
Our strategy is to drive sustainable, profitable growth by providing complex, converging technology solutions through a growing ecosystem of channel sales partners leveraging our people, processes and tools. Our goal is to provide exceptional experiences for our channel sales partners, suppliers and employees, and we strive for operational excellence. Our differentiated technology distribution strategy utilizes multiple sales models to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to channel sales partners that solve end users' challenges. ScanSource enables channel sales partners 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 channel sales partners access to additional services. As a trusted adviser to our channel sales partners, we provide converged solutions through our strong understanding of end-user needs.
Results of Operations
Net Sales
We have two reportable segments, which are based on sales channels. The following tables summarize our net sales results by operating segment and by geographic location for the quarters ended September 30, 2025 and 2024:
| Quarter ended September 30, |
% Change, Constant Currency, Excluding Divestitures and Acquisitions(a)
|
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| Net Sales by Segment: | 2025 | 2024 | $ Change | % Change | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Specialty Technology Solutions | $ | 715,447 | $ | 752,299 | $ | (36,852) | (4.9) | % | (5.6) | % | |||||||||||||||||||
| Intelisys & Advisory | 24,203 | 23,281 | 922 | 4.0 | % | 0.7 | % | ||||||||||||||||||||||
| Total net sales | $ | 739,650 | $ | 775,580 | $ | (35,930) | (4.6) | % | (5.4) | % | |||||||||||||||||||
(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.
Specialty Technology Solutions
The Specialty Technology Solutions segment consists of sales to channel partners primarily in the United States and Brazil. For the quarter ended September 30, 2025, net sales decreased $36.9 million, or 4.9%, compared to the prior-year period. Excluding the impact from foreign exchange rate fluctuations and the impact of acquisitions, adjusted net sales decreased $41.6 million, or 5.6%, compared to the prior-year period. For the quarter ended September 30, 2025, net sales decreased primarily due to lower large deals.
Intelisys & Advisory
The Intelisys & Advisory segment consists of sales and services to both channel partners (Intelisys) and end users (Advisory) in the United States. For the quarter ended September 30, 2025, net sales increased $0.9 million, or 4.0%, compared to the prior-year period. The increase in net sales reflects the addition of an acquisition. Excluding the impact from foreign exchange rate fluctuations and the impact of acquisitions, adjusted net sales increased $0.2 million, or 0.7% for the quarter ended September 30, 2025. The increase in net sales for the quarter ended September 30, 2025 reflects Intelisys net sales growth. Quarterly net billings for Intelisys increased 1.7% over the prior-year quarter to bring annualized net billings to approximately $2.78 billion.
| Quarter ended September 30, |
% Change, Constant Currency, Excluding Divestitures and Acquisitions(a)
|
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| Net Sales by Geography: | 2025 | 2024 | $ Change | % Change | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| United States | $ | 682,217 | $ | 712,019 | $ | (29,802) | (4.2) | % | (4.8) | % | |||||||||||||||||||
| Brazil | 57,433 | 63,561 | (6,128) | (9.6) | % | (11.4) | % | ||||||||||||||||||||||
|
Total net sales (b)
|
$ | 739,650 | $ | 775,580 | $ | (35,930) | (4.6) | % | (5.4) | % | |||||||||||||||||||
(a) A reconciliation of non-GAAP net sales in constant currency is presented at the end of Results of Operations in the non-GAAP section.
(b)Countries outside of the United States and Brazil represent less than 5.0% of net sales for the quarters ended September 30, 2025 and 2024.
Gross Profit
The following table summarizes our gross profit for the quarters ended September 30, 2025 and 2024:
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | 2025 | 2024 | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Specialty Technology Solutions | $ | 83,903 | $ | 78,457 | $ | 5,446 | 6.9 | % | 11.7 | % | 10.4 | % | |||||||||||||||||||||||
| Intelisys & Advisory | 23,570 | 23,162 | 408 | 1.8 | % | 97.4 | % | 99.5 | % | ||||||||||||||||||||||||||
| Gross profit | $ | 107,473 | $ | 101,619 | $ | 5,854 | 5.8 | % | 14.5 | % | 13.1 | % | |||||||||||||||||||||||
Our gross profit is primarily affected by sales volume and gross margin mix. Gross margin mix is impacted by multiple factors, which include sales mix (proportion of sales of higher margin products or services relative to total sales), supplier program recognition (consisting of volume rebates, inventory price changes and purchase discounts) and freight costs. Increases in supplier program recognition decrease cost of goods sold, thereby increasing gross profit. Net sales derived from our Intelisys business contribute 100% to our gross profit dollars and margin as they have no associated cost of goods sold.
Specialty Technology Solutions
For the quarter ended September 30, 2025, gross profit dollars for the Specialty Technology Solutions segment increased $5.4 million, or 6.9%, compared to the prior-year quarter. Favorable supplier program recognition and sales mix positively impacted gross profit by $9.2 million. Lower sales volume, after considering cost of goods sold, reduced gross profit by $3.8 million for the quarter. Gross profit margin increased 130 basis points over the prior-year quarter to 11.7%.
Intelisys & Advisory
For the quarter ended September 30, 2025, gross profit dollars for the Intelisys & Advisory segment increased $0.4 million, or 1.8%, compared to the prior-year quarter. Higher sales volume, largely due to the impact of our Resourcive acquisition, increased gross profit for the quarter. Gross profit margin decreased 211 basis points compared to the prior-year quarter to 97.4%, reflecting the addition of professional services to the sales mix.
Operating Expenses
The following table summarizes our operating expenses for the quarters ended September 30, 2025 and 2024:
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | 2025 | 2024 | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | $ | 75,275 | $ | 71,706 | $ | 3,569 | 5.0 | % | 10.2 | % | 9.2 | % | |||||||||||||||||||||||
| Depreciation expense | 1,577 | 2,857 | (1,280) | (44.8) | % | 0.2 | % | 0.4 | % | ||||||||||||||||||||||||||
| Intangible amortization expense | 4,404 | 4,358 | 46 | 1.1 | % | 0.6 | % | 0.6 | % | ||||||||||||||||||||||||||
| Restructuring and other charges | - | 5,068 | (5,068) | (100.0) | % | 0.0 | % | 0.7 | % | ||||||||||||||||||||||||||
| Change in fair value of contingent consideration | 314 | - | 314 | *nm | 0.0 | % | 0.0 | % | |||||||||||||||||||||||||||
| Operating expenses | $ | 81,570 | $ | 83,989 | $ | (2,419) | (2.9) | % | 11.0 | % | 10.8 | % | |||||||||||||||||||||||
Selling, general and administrative expenses ("SG&A") increased by $3.6 million, or 5.0%, for the quarter ended September 30, 2025, compared to the prior-year period. The increase for the quarter is primarily attributable to increased costs for employee-related expenses and costs related to acquisitions.
The decrease in depreciation expense of $1.3 millionduring the quarterended September 30, 2025, is largely due to certain ERP software assets being fully depreciated in the previous fiscal year.
Restructuring and other charges of $5.1 million were incurred in the quarterended September 30, 2024. Restructuring and other chargesrelate to employee separation and benefit costs in connection with our expense reduction and restructuring plans implemented during the current and prior fiscal year.
We present changes in fair value of the contingent consideration owed to the former shareholders of businesses that we acquire as a separate line item in operating expenses. We recorded a fair value adjustment expense of $0.3 million in the quarter ended September 30, 2025. The expense from changes in fair value of contingent consideration for the quarterislargely due to the recurring amortization of the unrecognized fair value discount.
Operating Income
The following table summarizes our operating income for the quarters ended September 30, 2025 and 2024:
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | 2025 | 2024 | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Specialty Technology Solutions | $ | 20,375 | $ | 16,738 | $ | 3,637 | 21.7 | % | 2.8 | % | 2.2 | % | |||||||||||||||||||||||
| Intelisys & Advisory | 5,818 | 6,413 | (595) | (9.3) | % | 24.0 | % | 27.5 | % | ||||||||||||||||||||||||||
| Corporate | (290) | (5,521) | 5,231 | nm* | nm* | nm* | |||||||||||||||||||||||||||||
| Operating income | $ | 25,903 | $ | 17,630 | $ | 8,273 | 46.9 | % | 3.5 | % | 2.3 | % | |||||||||||||||||||||||
Specialty Technology Solutions
For the Specialty Technology Solutions segment, operating income increased $3.6 million, or 21.7%, for the quarter ended September 30, 2025, compared to the prior-year periods. Operating margin was 2.8% and 2.2% for the quartersended September 30, 2025 and September 30, 2024, respectively. The increase in operating income for the quarteris primarily due to higher gross profits for the quarter.
Intelisys & Advisory
For the Intelisys & Advisory segment, operating income decreased $0.6 million, or 9.3%, for the quarter ended September 30, 2025. Operating margin decreased to 24.0% for the quarter ended September 30, 2025. The decrease in operating income for the quarter ended September 30, 2025 is primarily driven by higher employee-related expenses during the quarter.
Corporate
For the quarter ended September 30, 2025, Corporate operating losses of $0.3 million represents acquisition-related costs.
Total Other (Income) Expense
The following table summarizes our total other (income) expense for the quarters ended September 30, 2025 and 2024:
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | 2025 | 2024 | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Interest expense | $ | 1,914 | $ | 2,109 | $ | (195) | (9.2) | % | 0.3 | % | 0.3 | % | |||||||||||||||||||||||
| Interest income | (3,180) | (2,659) | (521) | 19.6 | % | (0.4) | % | (0.3) | % | ||||||||||||||||||||||||||
| Net foreign exchange losses | 348 | 334 | 14 | 4.2 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||
| Other, net | (175) | (5,116) | 4,941 | (96.6) | % | (0.0) | % | (0.7) | % | ||||||||||||||||||||||||||
| Total other (income) expense, net | $ | (1,093) | $ | (5,332) | $ | 4,239 | (79.5) | % | (0.1) | % | (0.7) | % | |||||||||||||||||||||||
*nm - percentages are not meaningful
Interest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs. Interest expense decreased for the quarter ended September 30, 2025 compared to the prior-year period, primarily from lower average borrowings on our multi-currency revolving credit facility and lower interest rates.
Interest income increased for the quarter ended September 30, 2025 primarily from higher interest income in Brazil.
Net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign exchange forward contracts gains and losses. Foreign exchange gains and losses are generated 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 partially offset foreign currency exposure with the use of foreign exchange contracts to hedge against these exposures. The costs associated with foreign exchange forward contracts are included in the net foreign exchange losses.
Other net income decreased for the quarter ended September 30, 2025, as we recognized a $5.1 million gain in the prior-year period related to an insurance recovery in connection with the cybersecurity attack in fiscal year 2023.
Provision for Income Taxes
For the quarter ended September 30, 2025, income tax expense was $7.1 million reflecting an effective tax rate of 26.4%. In comparison, for the quarter ended September 30, 2024, income tax expense was $6.0 million reflecting an effective tax rate of 26.1%. We expect the effective tax rate, excluding discrete items, for fiscal year 2026 to be approximately 27.2% to 28.2%. See Note 13 - Income Taxes to the Notes to Consolidated Financial Statements for further discussion.
Non-GAAP Financial Information
Evaluating Financial Condition and Operating Performance
In addition to disclosing results that are determined in accordance with United States generally accepted accounting principles ("US GAAP" or "GAAP"), we also disclose certain non-GAAP financial measures. These measures include non-GAAP operating income; non-GAAP pre-tax income; non-GAAP net income; non-GAAP EPS; adjusted earnings before interest expense, income taxes, depreciation, and amortization ("adjusted EBITDA"); adjusted return on invested capital ("adjusted ROIC"); and constant currency. Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods. We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.
These non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that we report may not be comparable to similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with US GAAP.
Adjusted Return on Invested Capital
Adjusted ROIC assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of adjusted ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year.
Adjusted EBITDA starts with net income and adds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, share-based compensation expense, and other non-GAAP adjustments. Since adjusted EBITDA excludes some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more clearly.
We calculate adjusted ROIC as adjusted EBITDA, divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. The following table summarizes annualized adjusted ROIC for the quarters ended September 30, 2025 and 2024, respectively:
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Quarter ended September 30, | ||||||||||
| 2025 | 2024 | ||||||||||
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Adjusted return on invested capital ratio, annualized (a)
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14.6 | % | 13.3 | % | |||||||
(a)The annualized EBITDA amount is divided by days in the quarter times 365 days per year, or 366 days for leap year. There were 92 days in the current and in the prior-year quarter.
The components of this calculation and reconciliation to our financial statements are shown on the following schedule:
| Quarter ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Reconciliation of net income to adjusted EBITDA: | |||||||||||
| Net income (GAAP) | $ | 19,878 | $ | 16,974 | |||||||
| Plus: Interest expense | 1,914 | 2,109 | |||||||||
| Plus: Income taxes | 7,118 | 5,988 | |||||||||
| Plus: Depreciation and amortization | 6,200 | 7,471 | |||||||||
| EBITDA (non-GAAP) | 35,110 | 32,542 | |||||||||
| Plus: Change in fair value of contingent consideration | 314 | - | |||||||||
| Plus: Share-based compensation | 2,876 | 2,471 | |||||||||
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Plus: Acquisition and divestiture costs (a)
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261 | 377 | |||||||||
| Plus: Cyberattack restoration costs | 29 | 76 | |||||||||
| Plus: Restructuring costs | - | 5,068 | |||||||||
| Plus: Insurance recovery, net of payments | - | (4,868) | |||||||||
| Adjusted EBITDA (numerator for adjusted ROIC) (non-GAAP) | $ | 38,590 | $ | 35,666 | |||||||
(a)Acquisition and divestiture costs are generally non-deductible for tax purposes.
| Quarter ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Invested capital calculations: | |||||||||||
| Equity - beginning of the quarter | $ | 906,409 | $ | 924,254 | |||||||
| Equity - end of the quarter | 914,032 | 920,893 | |||||||||
| Plus: Change in fair value of contingent consideration, net of tax | 236 | - | |||||||||
| Plus: Share-based compensation, net | 2,152 | 1,856 | |||||||||
|
Plus: Acquisition and divestiture costs (a)
|
261 | 377 | |||||||||
| Plus: Cyberattack restoration costs, net | 21 | 57 | |||||||||
| Plus: Restructuring, net | - | 3,818 | |||||||||
| Plus: Insurance recovery, net of payments | - | (3,667) | |||||||||
| Average equity | 911,556 | 923,794 | |||||||||
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Average funded debt (b)
|
137,113 | 144,020 | |||||||||
| Invested capital (denominator for adjusted ROIC) (non-GAAP) | $ | 1,048,669 | $ | 1,067,814 | |||||||
(a)Acquisition and divestiture costs are generally non-deductible for tax purposes.
(b)Average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.
Net Sales in Constant Currency Excluding Acquisitions and Divestitures
We make references to "constant currency," a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the prior-year period. We also exclude the impact of acquisitions or divestitures prior to the first full year of operations from the acquisition or divestiture date in order to show net sales results on an organic basis. This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions and divestitures. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency excluding acquisitions and divestitures:
| Net Sales by Segment: | |||||||||||||||||||||||
| Quarter ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| Specialty Technology Solutions: | (in thousands) | ||||||||||||||||||||||
| Net sales, reported | $ | 715,447 | $ | 752,299 | $ | (36,852) | (4.9) | % | |||||||||||||||
|
Foreign exchange impact (a)
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(1,085) | - | |||||||||||||||||||||
| Less: Acquisitions | (7,171) | (3,512) | |||||||||||||||||||||
| Non-GAAP net sales | $ | 707,191 | $ | 748,787 | $ | (41,596) | (5.6) | % | |||||||||||||||
| Intelisys & Advisory: | |||||||||||||||||||||||
| Net sales, reported | $ | 24,203 | $ | 23,281 | $ | 922 | 4.0 | % | |||||||||||||||
|
Foreign exchange impact (a)
|
(3) | - | |||||||||||||||||||||
| Less: Acquisitions | (1,336) | (577) | |||||||||||||||||||||
| Non-GAAP net sales | $ | 22,864 | $ | 22,704 | $ | 160 | 0.7 | % | |||||||||||||||
| Consolidated: | |||||||||||||||||||||||
| Net sales, reported | $ | 739,650 | $ | 775,580 | $ | (35,930) | (4.6) | % | |||||||||||||||
|
Foreign exchange impact (a)
|
(1,088) | - | |||||||||||||||||||||
| Less: Acquisitions | (8,507) | (4,089) | |||||||||||||||||||||
| Non-GAAP net sales | $ | 730,055 | $ | 771,491 | $ | (41,436) | (5.4) | % | |||||||||||||||
|
(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended September 30, 2025 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2024.
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| Net Sales by Geography: | |||||||||||||||||||||||
| Quarter ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| United States: | (in thousands) | ||||||||||||||||||||||
|
Net sales, reported(a)
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$ | 682,217 | $ | 712,019 | $ | (29,802) | (4.2) | % | |||||||||||||||
| Less: Acquisitions | (8,507) | (4,089) | |||||||||||||||||||||
| Non-GAAP net sales | $ | 673,710 | $ | 707,930 | $ | (34,220) | (4.8) | % | |||||||||||||||
| Brazil: | |||||||||||||||||||||||
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Net sales, reported(b)
|
$ | 57,433 | $ | 63,561 | $ | (6,128) | (9.6) | % | |||||||||||||||
|
Foreign exchange impact(c)
|
(1,088) | - | |||||||||||||||||||||
| Non-GAAP net sales, constant currency | $ | 56,345 | $ | 63,561 | $ | (7,216) | (11.4) | % | |||||||||||||||
| Consolidated: | |||||||||||||||||||||||
|
Net sales, reported
|
$ | 739,650 | $ | 775,580 | $ | (35,930) | (4.6) | % | |||||||||||||||
|
Foreign exchange impact (c)
|
(1,088) | - | |||||||||||||||||||||
| Less: Acquisitions | (8,507) | (4,089) | |||||||||||||||||||||
| Non-GAAP net sales, constant currency | $ | 730,055 | $ | 771,491 | $ | (41,436) | (5.4) | % | |||||||||||||||
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(a)Includes net sales in Canada that are supported by U.S. operations and represent less than 5.0% of United States net sales for the quarters ended September 30, 2025 and 2024.
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(b)Includes net sales from outside of the United States, Canada and Brazil, which represent less than 0.2% of Brazil net sales for the quarters ended September 30, 2025 and 2024.
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(c) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the quarter ended September 30, 2025 into U.S. dollars using the average foreign exchange rates for the quarter ended September 30, 2024.
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| Operating Income by Segment: | |||||||||||||||||||||||||||||||||||
| Quarter ended September 30, | % of Net Sales September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | 2025 | 2024 | ||||||||||||||||||||||||||||||
| Specialty Technology Solutions: | (in thousands) | ||||||||||||||||||||||||||||||||||
| GAAP operating income | $ | 20,375 | $ | 16,738 | $ | 3,637 | 21.7 | % | 2.8 | % | 2.2 | % | |||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 2,216 | 2,276 | (60) | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | 145 | - | 145 | ||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | 22,736 | $ | 19,014 | $ | 3,722 | 19.6 | % | 3.2 | % | 2.5 | % | |||||||||||||||||||||||
| Intelisys & Advisory: | |||||||||||||||||||||||||||||||||||
| GAAP operating income | $ | 5,818 | $ | 6,413 | $ | (595) | (9.3) | % | 24.0 | % | 27.5 | % | |||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 2,188 | 2,082 | 106 | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | 169 | - | 169 | ||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | 8,175 | $ | 8,495 | $ | (320) | (3.8) | % | 33.8 | % | 36.5 | % | |||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||||||||
| GAAP operating loss | $ | (290) | $ | (5,521) | $ | 5,231 | nm* | nm* | nm* | ||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Acquisition and divestiture costs | 261 | 377 | (116) | ||||||||||||||||||||||||||||||||
| Restructuring costs | - | 5,068 | (5,068) | ||||||||||||||||||||||||||||||||
| Cyberattack restoration costs | 29 | 76 | (47) | ||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | - | $ | - | $ | - | nm* | nm* | nm* | ||||||||||||||||||||||||||
| Consolidated: | |||||||||||||||||||||||||||||||||||
| GAAP operating income | $ | 25,903 | $ | 17,630 | $ | 8,273 | 46.9 | % | 3.5 | % | 2.3 | % | |||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 4,404 | 4,358 | 46 | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | 314 | - | 314 | ||||||||||||||||||||||||||||||||
| Acquisition and divestiture costs | 261 | 377 | (116) | ||||||||||||||||||||||||||||||||
| Restructuring costs | - | 5,068 | (5,068) | ||||||||||||||||||||||||||||||||
| Cyberattack restoration costs | 29 | 76 | (47) | ||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | 30,911 | $ | 27,509 | $ | 3,402 | 12.4 | % | 4.2 | % | 3.5 | % | |||||||||||||||||||||||
Additional Non-GAAP Metrics
To evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP SG&A expenses, non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to divestitures, cyberattack restoration costs and other non-GAAP adjustments. These year-over-year metrics include the translation impact of changes in foreign currency exchange rates. These metrics are useful in assessing and understanding our operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above:
| Quarter ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
GAAP Measure |
Intangible amortization expense |
Change in fair value of contingent consideration |
Acquisition and Divestiture costs(a)
|
Restructuring costs | Insurance recovery |
Cyberattack restoration costs |
Non-GAAP measure |
|||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| SG&A expenses | $ | 75,275 | $ | - | $ | - | $ | (261) | $ | - | $ | - | $ | (29) | $ | 74,985 | ||||||||||||||||||||||||||||||||||
| Operating income | 25,903 | 4,404 | 314 | 261 | - | - | 29 | 30,911 | ||||||||||||||||||||||||||||||||||||||||||
| Pre-tax income | 26,996 | 4,404 | 314 | 261 | - | - | 29 | 32,004 | ||||||||||||||||||||||||||||||||||||||||||
| Net income | 19,878 | 3,289 | 236 | 261 | - | - | 21 | 23,685 | ||||||||||||||||||||||||||||||||||||||||||
| Diluted EPS | $ | 0.89 | $ | 0.15 | $ | 0.01 | $ | 0.01 | $ | - | $ | - | $ | - | $ | 1.06 | ||||||||||||||||||||||||||||||||||
| Quarter ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
GAAP Measure |
Intangible amortization expense |
Change in fair value of contingent consideration |
Acquisition and Divestiture costs(a)
|
Restructuring costs | Insurance recovery |
Cyberattack restoration costs |
Non-GAAP measure |
|||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| SG&A expenses | $ | 71,706 | $ | - | $ | - | $ | (377) | $ | - | $ | - | $ | (76) | $ | 71,253 | ||||||||||||||||||||||||||||||||||
| Operating income | 17,630 | 4,358 | - | 377 | 5,068 | - | 76 | 27,509 | ||||||||||||||||||||||||||||||||||||||||||
| Pre-tax income | 22,962 | 4,358 | - | 377 | 5,068 | (4,868) | 76 | 27,973 | ||||||||||||||||||||||||||||||||||||||||||
| Net income | 16,974 | 3,264 | - | 377 | 3,818 | (3,667) | 57 | 20,823 | ||||||||||||||||||||||||||||||||||||||||||
| Diluted EPS | $ | 0.69 | $ | 0.13 | $ | - | $ | 0.02 | $ | 0.15 | $ | (0.15) | $ | - | $ | 0.84 | ||||||||||||||||||||||||||||||||||
|
(a) Acquisition and divestiture costs for the quarters ended September 30, 2025 and 2024 are generally nondeductible for tax purposes.
|
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Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and borrowings under our $350 million revolving credit facility. Our business requires significant investment in working capital, particularly accounts receivable and inventory, partially financed through our accounts payable to vendors, cash generated from operations and revolving lines of credit. In general, as our sales volume increases, our net investment in working capital increases, which typically results in decreased cash flow from operating activities. Conversely, when sales volume decreases, our net investment in working capital typically decreases, which typically results in increased cash flow from operating activities.
Our cash and cash equivalents balance totaled $124.9 million at September 30, 2025, compared to $126.2 million at June 30, 2025, including $43.2 million and $46.3 million held outside of the United States at September 30, 2025 and June 30, 2025, respectively. Checks released but not yet cleared in the amount of $0.1 million are included in accounts payable at September 30, 2025 and June 30, 2025.
We conduct business primarily in the United States and Brazil where we generate and use cash. We provide for United States income taxes from the earnings of our Canadian and Brazilian subsidiaries. See Note 13 - Income Taxesin the Notes to the Consolidated Financial Statements for further discussion.
Our net investment in working capital, defined as accounts receivable plus inventories less accounts payable, increased $12.1 million to $532.8 million at September 30, 2025 from $520.7 million at June 30, 2025, primarily from decreases in accounts payable and increases in inventories, partially offset by lower accounts receivable as a result of lower sales volume. Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from channel sales partners, increases and decreases to inventory levels and payments to vendors.
| Three months ended | |||||||||||
| September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Cash provided by (used in): | |||||||||||
| Operating activities | $ | 23,211 | $ | 44,830 | |||||||
| Investing activities | (2,395) | (59,224) | |||||||||
| Financing activities | (22,950) | (26,630) | |||||||||
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. Net cash provided by operating activities was $23.2 million and $44.8 million for the three months ended September 30, 2025 and September 30, 2024, respectively. Cash provided by operating activities for the three months ended September 30, 2025 is primarily attributable to net income and changes in working capital balances. Compared to September 30, 2024, accounts receivable and accounts payable decreased 1.8% and 8.5% respectively, while inventory increased 0.3%.
The number of days sales outstanding ("DSO") was 68 days at September 30, 2025, compared to 70 days at June 30, 2025and 66 days at September 30, 2024. Inventory turned 5.1 times during the quarter ended September 30, 2025, compared to 5.9times during the quarter ended June 30, 2025 and5.3 times in the prior-year quarter ended September 30, 2024.
Cash used in investing activities for the three months ended September 30, 2025 was $2.4 million, compared to cash used by investing activities of $59.2 million in the prior-year period. Cash used in investing activities for the three months ended September 30, 2025 is due to capital expenditures. Cash used by investing activities for the three months ended September 30, 2024represents cash paid for acquisitions and capital expenditures.
Management expects capital expenditures for fiscal year 2026to range from$10.0 million to $15.0 million, primarily for IT and warehouse investments.
For the three months ended September 30, 2025 and September 30, 2024, cash used in financing activities totaled $23.0 million and $26.6 million, respectively. Cash used in financing activities for the three months ended September 30, 2025 and September 30, 2024 is primarily attributable to common stock repurchases.
Credit Facility
We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (as amended, the "Amended Credit Agreement"). On September 28, 2022, we amended and restated our Amended Credit Agreement, which includes (i) a five-year, $350 million multicurrency senior secured revolving credit facility and (ii) a five-year $150 million senior secured term loan facility. The Amended Credit Agreement extended the credit facility maturity date to September 28, 2027. In addition, pursuant to an "accordion feature," we may increase our borrowing limits up to an additional $250 million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50 million for letters of credit. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and secured by substantially all of our domestic assets. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. We incurred debt issuance costs of $1.4 million in connection with the amendment and restatement of the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.
Loans denominated in U.S. dollars, other than swingline loans, bear interest at a rate per annum equal to, at our option, (i) the adjusted term 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 to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable, for which financial statements have been delivered to the Lenders (the "leverage ratio"); or (ii) the alternate base rate plus an additional margin ranging from 0% to 0.75%, depending upon our leverage ratio, plus, if applicable, certain mandatory costs. All swingline loans denominated in U.S. dollars bear interest based upon the adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our leverage ratio, or such other rate as agreed upon with the applicable swingline lender. The adjusted term SOFR and adjusted daily simple SOFR include a fixed credit adjustment of 0.10% over the applicable SOFR reference rate. Loans denominated in foreign currencies bear interest at a rate per annum equal to the applicable benchmark rate set forth in the Amended Credit Agreement plus an additional margin ranging from 1.00% to 1.75%, depending upon our leverage ratio plus, if applicable, certain mandatory costs.
During the quarter ended September 30, 2025, our borrowings under the Amended Credit Agreement were U.S. dollar loans. The spread in effect as of September 30, 2025 was 1.00% for SOFR-based loans and 0.00% for alternate base rate loans. The commitment fee rate in effect at September 30, 2025 was 0.15%. The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00 to 1.00 at the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. We were in compliance with all covenants under the credit facility at September 30, 2025.
The average daily outstanding balance on the revolving credit facility, excluding the term loan facility, during the three month periods ended September 30, 2025 and 2024 was $1.1 million and $0.1 million, respectively. There was $350.0 million available for additional borrowings as of September 30, 2025 and June 30, 2025, respectively. The effective interest rates for the revolving line of credit were 5.28% and 5.46% as of September 30, 2025 and June 30, 2025, respectively. There were no letters of credit issued under the multi-currency revolving credit facility at September 30, 2025 or June 30, 2025. Availability to use this borrowing capacity depends upon, among other things, the levels of our Leverage Ratio and Interest Coverage Ratio, which, in turn, will depend upon (1) our Credit Facility Net Debt relative to our Credit Facility EBITDA and (2) Credit Facility EBITDA relative to total interest expense, respectively. As a result, our availability will increase if EBITDA increases (subject to the limit of the facility) and decrease if EBITDA decreases. While we were in compliance with the financial covenants contained in the Amended Credit Agreement as of September 30, 2025, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Amended Credit Agreement lending group has been strong and we anticipate their continued support of our long-term business.
Summary
We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under our credit agreements, will provide sufficient resources to meet our present and future working capital and cash requirements for at least the next twelve months. We also believe that our longer-term working capital, planned expenditures and other general funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities.
Accounting Standards Recently Issued
See Note 1 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effects on our consolidated financial position and results of operations.
Critical Accounting Policies and Estimates
Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments. Different amounts would be reported under different operating conditions or under alternative assumptions. See Management's Discussion and Analysis of Financial Condition and Results from Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 for a complete discussion.
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