SCANSOURCE, INC.

Previous wording

Our operating results could be adversely affected by increased competition for employees, difficulty in recruiting employees, higher employee turnover or increased compensation and benefit costs. Our employees are important to our success and we are dependent in part on our ability to retain the services of our employees in key roles. We have built our business on a set of core values, and we attempt to hire and retain employees who are committed to these values and our culture of providing exceptional service to our channel sales partners and suppliers. In order to compete and to continue to grow, we must attract, retain and motivate employees, including those in executive, senior management, sales, marketing, logistics, technical support and other operating positions.

Current wording

Our operating results could be adversely affected by increased competition for employees, difficulty in recruiting employees, higher voluntary employee turnover or increased compensation and benefit costs. Our employees are important to our success and we are dependent in part on our ability to retain the services of our employees in key roles. We have built our business on a set of core values, and we attempt to hire and retain employees who are committed to these values and our culture of providing exceptional service to our channel sales partners and suppliers. In order to compete and to continue to grow, we must attract, retain and motivate employees, including those in executive, senior management, sales, merchandising, marketing, logistics, technical support and other operating positions.

Previous wording

Supply Chain issues, include a shortage of products, may increase our costs or cause a delay in fulfilling channel sales partner orders, completing services or purchasing products and services needed to support our internal operations, resulting in an adverse impact on our financial results.

Current wording

Supply chain issues, including a shortage of products, may increase our costs or cause a delay in fulfilling channel sales partner orders, completing services or purchasing products and services needed to support our internal operations, resulting in an adverse impact on our financial results.

Previous wording

Our future success is highly dependent on our relationships with our suppliers. A significant percentage of our net sales relates to products we purchase from relatively few suppliers, including Cisco and Zebra. As a result of such concentration risk, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our operations. Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and rebates they make available to us. In addition, our supplier agreements typically are short-term and may be terminated without cause on short notice. We have no guaranteed price or delivery agreements with our suppliers. In certain product categories, limited price protection or return rights offered by our suppliers may have a bearing on the amount of product we are willing to stock. Our inability to pass through to our channel sales partners the impact of these changes, as well as if we fail to develop or maintain systems to manage ongoing supplier programs, could cause us to record inventory write-downs or other losses and could have significant negative impact on our gross margins.

Current wording

Our future success is highly dependent on our relationships with our suppliers. A significant percentage of our net sales relates to products we purchase from relatively few suppliers, including Cisco and Zebra. As a result of such concentration risk, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our operations. Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and rebates they make available to us or passing product prices increased to us. In addition, our supplier agreements typically are short-term and may be terminated without cause on short notice. We have no guaranteed price or delivery agreements with our suppliers. In certain product categories, limited price protection or return rights offered by our suppliers may have a bearing on the amount of product we are willing to stock. Our inability to pass through to our channel sales partners the impact of these changes, as well as if we fail to develop or maintain systems to manage ongoing supplier programs, could cause us to record inventory write-downs or other losses and could have significant negative impact on our gross margins.

Previous wording

In Brazil, we use third parties to provide warehousing and logistics services in order to provide cost-effective operations and scale in certain regions. The failure or inability of one or more of these third parties to deliver products from suppliers to us, or products from us to our channel sales partners, for any reason could disrupt our business and harm our reputation and operating results. We work closely with our third-party logistics and warehousing providers to anticipate issues, and also review public information regarding their financial health. However, issues may not be timely identified, which may lead to lack of or poor execution of services, loss or litigation. Additionally, deterioration of the financial condition of our logistical and warehousing providers could result in delayed responsiveness or delivery failure, which would ultimately affect our responsiveness to our channel sales partners and thus may adversely affect our business, financial condition and results of operations.

Current wording

In Brazil, we use third parties to provide warehousing and logistics services in order to provide cost-effective operations and scale in certain regions. The failure or inability of one or more of these third parties to deliver products from suppliers to us, or products from us to our channel sales partners, for any reason could disrupt our business and harm our reputation and operating results. We work closely with our third-party logistics and warehousing providers to anticipate issues, and we also review public information regarding their financial health. However, issues may not be timely identified, which may lead to lack of or poor execution of services, loss or litigation. Additionally, deterioration of the financial condition of our logistics and warehousing providers could result in delayed responsiveness or delivery failure, which would ultimately affect our responsiveness to our channel sales partners and thus may adversely affect our business, financial condition and results of operations.

Previous wording

Meeting our channel sales partners’ needs quickly and fairly is critical to our business success. Transactions with our channel sales partners generally are performed on a purchase order basis rather than under long term supply agreements. Therefore, our channel sales partners can choose to purchase from other sources, such as from competing distributor or directly from the supplier. From time to time, we experience shortages in availability of some products from suppliers, and this impacts channel sales partner decisions regarding whether to make purchases from us. Anything that negatively influences channel sales partner relations can also negatively impact our operating results. As a distributor in a channel business model our offerings could create channel conflict, and the channel programs offered by our supplier can change. These perceived channel conflicts and channel programs could impact our channel sales partner relationships and negatively impact our operating results and our ability to retain channel sales partners.

Current wording

Meeting our channel sales partners’ needs quickly and fairly is critical to our business success. Transactions with our channel sales partners generally are performed on a purchase order basis rather than under long term supply agreements. Therefore, our channel sales partners can choose to purchase from other sources, such as from competing distributor or directly from the supplier. From time to time, we experience shortages in availability of some products from suppliers, and this may impact channel sales partners’ decisions regarding whether to make purchases from us. Anything that negatively influences channel sales partner relations can also negatively impact our operating results. As a distributor in a channel business model our offerings could create channel conflict, and the channel programs offered by our suppliers can change. These perceived channel conflicts and channel programs changes could impact our channel sales partner relationships and negatively impact our operating results and our ability to retain channel sales partners.

Previous wording

Liquidity and capital resources - Market factors and our business performance may increase the cost and decrease the availability of capital. Additional capital may not be available to us on acceptable terms to fund our working capital needs and growth.

Current wording

Liquidity and capital resources - Market factors and our business performance may increase the cost or decrease the availability of capital. Additional capital may not be available to us on acceptable terms to fund our working capital needs and growth.

Previous wording

Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. We have an increased demand for capital when our business is expanding, including through acquisitions and organic growth. Changes in payment terms with either suppliers or channel sales partners could also increase our capital requirements. We have historically relied on cash generated from operations, borrowings under our revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth. While we believe our existing sources of liquidity will provide sufficient resources to meet our current working capital and cash requirements, if we require an increase in capital to meet our future business needs or if we are unable to comply with covenants under our borrowings, such capital may not be available to us on terms acceptable to us, or at all. We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (the “Amended Credit Agreement”). The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants such as a Leverage Ratio and Interest Coverage Ratio (each as such term is defined in the Amended Credit Agreement). In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates.

Current wording

Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. We have an increased demand for capital when our business is expanding, including through acquisitions and organic growth. Changes in payment terms with either suppliers or channel sales partners could also increase our capital requirements. We have historically relied on cash generated from operations, borrowings under our revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth. While we believe our existing sources of liquidity will provide sufficient resources to meet our current working capital and cash requirements, if we require an increase in capital to meet our future business needs or if we are unable to comply with covenants under our borrowings, such capital may not be available to us on terms acceptable to us, or at all. We have a multi-currency senior secured credit facility with PNC Bank, National Associations, as administrative agent, and other lenders (the “New Credit Agreement”). The New Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants such as a Leverage Ratio and Interest Coverage Ratio (each as such term is defined in the New Credit Agreement). In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates.

Previous wording

In addition, the cost of borrowings under our existing sources of capital and any potential new sources of capital as a result of variable interest rates may increase, which could have an adverse effect on our financial condition. Changes in how lenders rate our credit worthiness, as well as macroeconomic factors such as an economic downturn, inflation, rising interest rates and global economic instability may restrict our ability to raise capital in adequate amounts or on terms acceptable to us, and the failure to do so could harm our ability to operate our business.

Current wording

In addition, the cost of borrowings under our existing sources of capital and any potential new sources of capital may increase as a result of variable interest rates, which could have an adverse effect on our financial condition. Changes in how lenders rate our credit worthiness, as well as macroeconomic factors such as an economic downturn, inflation, rising interest rates and global economic instability may restrict our ability to raise capital in adequate amounts or on terms acceptable to us, and the failure to do so could harm our ability to operate our business.

Previous wording

In the ordinary course of our business, we are involved in a wide range of disputes, some of which result in litigation. We are routinely involved in litigation related to commercial disputes surrounding our business activities, intellectual property disputes, employment disputes and accounts receivable collection activity. In addition, as a public company with a large shareholder base, we are susceptible to class-action lawsuits and other litigation resulting from disclosures that we or our officers and directors make (or do not make) and our other activities. Litigation is expensive to bring and defend, and the outcome of litigation can be adverse and significant. Not all adverse outcomes can be anticipated, and applicable accounting rules do not always require or permit the establishment of a reserve until a final result has occurred or becomes probable and estimable. In some instances we are insured or indemnified for the potential losses; in other instances we are not. An uninsured, under-insured or non-indemnified adverse outcome in significant litigation could have an adverse effect on our business, financial condition and results of operations. We can make no assurances that we will ultimately be successful in any dispute to which we are a party. See Item 3. “Legal Proceedings” for further discussion of our material legal matters.

Current wording

In the ordinary course of our business, we are involved in a wide range of disputes, some of which result in litigation. We are routinely involved in litigation related to commercial disputes surrounding our business activities, intellectual property disputes, employment disputes and accounts receivable collection activity. In addition, as a public company with a large shareholder base, we are susceptible to class-action lawsuits and other litigation resulting from disclosures that we or our officers and directors make (or do not make) and our other activities. Litigation is expensive to bring and to defend, and the outcome of litigation can be adverse and significant. Not all adverse outcomes can be anticipated, and applicable accounting rules do not always require or permit the establishment of a reserve until a final result has occurred or becomes probable and estimable. In some instances we are insured or indemnified for the potential losses; in other instances we are not. An uninsured, under-insured or non-indemnified adverse outcome in significant litigation could have an adverse effect on our business, financial condition and results of operations. We can make no assurances that we will ultimately be successful in any dispute to which we are a party. See Item 3. “Legal Proceedings” for further discussion of our material legal matters.

Previous wording

We currently have significant facilities outside the United States. For fiscal year ending June 30, 2025, approximately 7.9% of our revenue was derived from our operations outside of the United States and Canada. These operations are subject to a variety of risks that are different from the risks that we face domestically or are similar risks but with potentially greater exposure. These risks include:

Current wording

We currently have significant facilities outside the United States. For fiscal year ending June 30, 2026, approximately 7.0% of our revenue, substantially from Brazil, was derived from our operations outside of the United States. These operations are subject to a variety of risks that are different from the risks that we face domestically or are similar risks but with potentially greater exposure. These risks include:

Previous wording

We have substantial operations in Brazil and face risks related to Brazil's complex tax, labor, trade compliance and consumer protection laws and regulations. Additionally, developing markets such as Brazil have greater political volatility and vulnerability to infrastructure and labor disruptions, are more likely to experience market and interest rate fluctuations and may have higher inflation. In addition, doing business in foreign countries such as Brazil poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, advisors and service providers, among other risks. Furthermore, in developing markets, such as Brazil, it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act or similar local anti-bribery laws. Our commitment to legal compliance could put us at a competitive disadvantage, and any lapses in our compliance could subject us to civil and criminal penalties that could materially and adversely affect our financial condition and results of operations.

Current wording

We have substantial operations, including our new shared services model (SourceHub) in Brazil and face risks related to Brazil's complex tax, labor, trade compliance and consumer protection laws and regulations. Additionally, developing markets such as Brazil have greater political volatility and vulnerability to infrastructure and labor disruptions, are more likely to experience market and interest rate fluctuations and may have higher inflation. In addition, doing business in foreign countries such as Brazil poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, advisors and service providers, among other risks. Furthermore, in developing markets, such as Brazil, it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act or similar local anti-bribery laws. Our commitment to legal compliance could put us at a competitive disadvantage, and any lapses in our compliance could subject us to civil and criminal penalties that could materially and adversely affect our financial condition and results of operations.

Previous wording

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. Although the implementation of many of these tariffs and retaliatory measures have been paused or delayed, negotiations and the state of international trade policy and relations continue to evolve. Additional tariffs, or the uncertainty around such tariffs, may cause disruptions to foreign and domestic supply chains or result in price increases. We have incurred, and expect to continue to occur, costs as it relates to these tariffs for the remainder of fiscal 2025 and the foreseeable future. We expect to continue to pass any price increases from our suppliers from tariffs to our channel sales partners, which may reduce demand. However, we cannot predict the ultimate impact of tariffs and their effects on the global macroeconomic environment on our financial condition or results of operations.

Current wording

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. While certain tariffs were struck down by the U.S. Supreme Court in February 2026, the U.S. subsequently announced additional new tariffs on nonexempt imports, and its tariff rate remains at a historically high level. Additional tariffs, or the uncertainty around such tariffs, may cause disruptions to foreign and domestic supply chains or result in price increases. We have incurred, and expect to continue to occur, costs resulting from these tariffs. We expect to continue to pass any price increases from our suppliers from tariffs to our channel sales partners, which may reduce demand. However, we cannot predict the ultimate impact of tariffs and their effects on the global macroeconomic environment on our financial condition or results of operations.

Previous wording

As a result of intense price competition in our industry, our gross margins and our operating profit margins historically have been narrow, and we expect them to continue to be narrow in the future. To remain competitive, we may be forced to offer more credit or extend payment terms to our channel sales partners. This could result in an increase in our capital requirements, increase our financing costs, bad debt expenses and could have an adverse impact on our financial condition and results of operations. We may lose market share, reduce our prices in response to actions of our competitors, or withdraw from geographical markets where we do not believe we can earn appropriate margins. We expect continued intense competition as current competitors expand their operations and new competitors enter the market. Our inability to compete successfully against current and future competitors could cause our revenue and earnings to decline.

Current wording

As a result of intense price competition in our industry, our gross margins and our operating profit margins historically have been narrow, and we expect them to continue to be narrow in the future. To remain competitive, we may be forced to offer more credit or extend payment terms to our channel sales partners. This could result in an increase in our capital requirements, increase our financing costs and bad debt expenses and could have an adverse impact on our financial condition and results of operations. We may lose market share, reduce our prices in response to actions of our competitors, or withdraw from geographical markets where we do not believe we can earn appropriate margins. We expect continued intense competition as current competitors expand their operations and new competitors enter the market. Our inability to compete successfully against current and future competitors could cause our revenue and earnings to decline.

Previous wording

Our ability and our suppliers’ ability to anticipate and react quickly to new technology trends, including artificial intelligence developments, and channel sales partner requirements is crucial to our overall success, financial condition and results of operations. If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or to engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, our ability to retain or increase market share, profit margins and revenue could be adversely affected. Some of our competitors and our suppliers’ competitors may be better at adapting to disruptive technology or entering new markets. Our future success depends, in part, on our ability to adapt and manage our product and service offerings to meet channel sales partner needs at prices that our channel sales partners are willing to pay.

Current wording

Our ability and our suppliers’ ability to anticipate and react quickly to new technology trends, including artificial intelligence developments, and channel sales partner requirements are crucial to our overall success, financial condition and results of operations. If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or to engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, our ability to retain or increase market share, profit margins and revenue could be adversely affected. Some of our competitors and our suppliers’ competitors may be better at adapting to disruptive technology or entering new markets. Our future success depends, in part, on our ability to adapt and manage our product and service offerings to meet channel sales partner needs at prices that our channel sales partners are willing to pay.

Previous wording

Our financial results, operations and prospects depend significantly on worldwide economic and geopolitical conditions, the demand for our products and services, and the financial condition of our channel sales partners and suppliers. The macroeconomic environment, including the economic impacts of growth outlook, inflation, tariffs and shifting relations between the U.S. and other countries, continues to create significant uncertainty and may adversely affect our consolidated 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. We are actively monitoring changes to the global macroeconomic environment and assessing the potential impacts these challenges may have on our financial condition, results of operations and liquidity. We are also mindful of the potential impact these conditions could have on our channel sales partners, suppliers and end-user demand. We expect that any price increases from our suppliers resulting from tariffs would be passed through to our channel sales partners. We are mitigating these 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.

Current wording

Our financial results, operations and prospects depend significantly on worldwide economic and geopolitical conditions, the demand for our products and services, and the financial condition of our channel sales partners and suppliers. The macroeconomic environment, including the economic impacts of growth outlook, inflation, tariffs, geopolitical conflict and shifting relations between the U.S. and other countries, continues to create significant uncertainty and may adversely affect our consolidated results of operations. We are actively monitoring changes to the global macroeconomic environment and assessing the potential impacts these challenges may have on our financial condition, results of operations and liquidity. We are also mindful of the potential impact these conditions could have on our channel sales partners, suppliers and end-user demand. We expect that any price increases from our suppliers resulting from tariffs would be passed through to our channel sales partners. We are mitigating these 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.

Previous wording

Periods of elevated inflation contribute to increased costs for labor, materials and services. Although U.S. inflation rates have shown sings of moderating, the re-emergence of high levels of inflation in the countries in which we operate could further increase our costs and otherwise adversely impact our results of operations and financial condition. We monitor changes to the macroeconomic environment; however, we cannot predict any future trends in the rate of inflation or the general state of the economy.

Current wording

Periods of elevated inflation contribute to increased costs for labor, materials and services. Although U.S. inflation rates have shown signs of moderating, the re-emergence of high levels of inflation in the countries in which we operate could further increase our costs and otherwise adversely impact our results of operations and financial condition. We monitor changes to the macroeconomic environment; however, we cannot predict any future trends in the rate of inflation or the general state of the economy.