ScanSource(SCSC) - 2023 Q4 - Annual Report

Financial Performance - Net sales for the fiscal year ended June 30, 2023, totaled $3.79 billion[18] - For the fiscal year ended June 30, 2023, total net sales increased by $257.8 million, or 7.3%, reaching $3,787.7 million compared to $3,529.9 million in fiscal year 2022[165] - The Specialty Technology Solutions segment saw net sales increase by $248.7 million, or 11.9%, primarily due to strong growth in key technologies in North America[167] - The Modern Communications & Cloud segment experienced a net sales increase of $9.1 million, or 0.6%, with adjusted net sales growth of 0.4% after accounting for foreign exchange impacts[168] - The company's operating income for fiscal year 2023 was 3.6%, compared to 3.5% in fiscal year 2022, indicating slight improvement in profitability[162] - Total operating income for fiscal year 2023 was $135.9 million, an increase of $13.7 million or 11.2% compared to the previous year[177] - The company reported a diluted EPS of $3.47 for the year ended June 30, 2023, compared to $3.44 in the previous year, reflecting a growth of 0.03[200] - Gross profit for fiscal year 2023 was $449.2 million, reflecting a $22.7 million increase or 5.3% compared to the prior year[171] - Specialty Technology Solutions segment gross profit increased by $18.5 million, while the gross profit margin decreased to 9.6%[172] - Modern Communications & Cloud segment gross profit increased by $4.2 million, with the gross profit margin rising to 15.4%[173] Customer and Market Dynamics - The company serves approximately 30,000 customers across various industries, with no single customer accounting for more than 4% of total net sales[27] - The company has contracts with over 200 leading telecom carriers and cloud service providers, focusing on empowering sales partners to advise customers on technology and cost savings[54] - Customer relations are critical, and any deterioration in these relationships could negatively impact operating results[111] - The company’s sales organization focuses on developing customer relationships and providing tailored solutions, supported by comprehensive training for sales representatives[68] Operational Strategy - The Specialty Technology Solutions Segment includes recurring revenue from hardware rentals and other SaaS offerings, contributing to the overall revenue[25] - The Modern Communications & Cloud Segment includes recurring revenue from Intelisys and intY businesses, enhancing the company's service offerings[26] - The company aims to drive sustainable, profitable growth through a hybrid distribution strategy leveraging partnerships and technology solutions[20] - The company operates a 741,000 square foot distribution center in Southaven, Mississippi, aiming to ship all orders on the same day to minimize shipping errors[74] - The company operates distribution facilities in the United States and Brazil, supporting its business segments across North America and internationally[152] Employee and Workplace Culture - ScanSource has approximately 2,300 employees, with 1,500 located in the United States and 800 internationally[52] - The company was named one of the Best Places to Work in South Carolina for the eighth consecutive year, reflecting its commitment to employee satisfaction[51] - The company has implemented a work-from-home policy for all employees, maintaining high productivity levels with a largely remote workforce[58] - The company has launched a global digital workplace, The Bridge, to enhance communication and employee engagement[61] - The company emphasizes a comprehensive benefits package, including a 401(k) program with a market-competitive employer match and performance-based bonuses[57] - The company is committed to a diverse and inclusive workplace, led by a Chief Diversity Officer and an internal D&I Advisory Council[59] Risks and Challenges - The company is highly dependent on information and communication systems, and any failure could disrupt business operations and adversely affect financial results[85] - Supply chain issues, including product shortages, may increase costs or delay customer order fulfillment, impacting financial results[88] - Manufacturing interruptions due to factors like labor disputes or natural disasters could further disrupt the supply chain and affect product availability[89] - The company faces credit exposure to customers, and any adverse trends could lead to credit losses, negatively impacting performance[94] - Supplier relationships are critical, and changes in supply agreement terms could adversely affect operating margins and revenue[101] - The company relies on third-party logistics for product delivery, and any failure in these services could disrupt operations and harm customer relationships[97] - Economic factors such as inflation and rising interest rates could restrict the company's ability to raise capital, affecting operations[109] - Economic weakness and geopolitical uncertainty may adversely affect the company's results, leading to reduced demand for products and potential impairments of assets[135] - Intense competition in the market could lead to reduced margins and loss of market share, with competitors having greater resources potentially responding more quickly to market changes[120] - The company may face challenges in adapting to rapid technological changes, which could affect its competitiveness and market share[122] Financial Position and Capital Management - The company has a multi-currency senior secured credit facility with a leverage ratio requirement of less than or equal to 3.50:1.00, which must be maintained[107] - The company has a $350 million revolving credit facility to support its liquidity needs[214] - Cash and cash equivalents totaled $36.2 million as of June 30, 2023, compared to $38.0 million in 2022, with $31.0 million held outside the United States[216] - The company utilizes a weighted average cost of capital (WACC) relative to each reporting unit's geography and industry as the discount rate for estimated future cash flows[214] - The company has never declared or paid a cash dividend, with restrictions on cash dividends under the terms of its credit facility[149] Cybersecurity and Compliance - The company experienced a ransomware attack in May 2023, which interrupted order processing for approximately nine business days and resulted in the disclosure of information on the dark web[129] - A cybersecurity incident on May 14, 2023, impacted sales, with business interruption insurance expected to cover some lost profits[166] - Cybersecurity-related costs amounted to approximately $1.5 million, with insurance expected to cover a portion of these expenses[175] - The company is subject to additional costs and potential fines due to compliance with laws and regulations when selling products to government entities[130] Goodwill and Impairment Testing - As of June 30, 2023, the goodwill balances for the Specialty Technology Solutions and Modern Communications & Cloud reporting units are $16.4 million and $200.3 million, respectively, with fair values exceeding carrying values by 2% and 13%[114] - The company assesses goodwill for impairment annually, with the most recent test indicating no impairment for fiscal years 2023 and 2022[211] - The fair value of the Specialty Technology reporting unit exceeded its carrying value by 2%, while the Modern Communications & Cloud reporting unit exceeded its carrying value by 13% as of the annual goodwill impairment testing date[210]