Thank you for standing by, and welcome to the ScanSource Fourth Quarter and Year-End Earnings Announcement Call. [Operator instructions] Today’s call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Ms. Mary Gentry, Director of Investor Relations. Thank you, ma’am, you may begin.

Thank you for joining us for the ScanSource Earnings Conference Call to discuss financial results for the quarter ended June 30, 2012. My name is Mary Gentry, Treasurer and Director of Investor Relations, and with me are Rich Cleys, our CFO; Scott Benbenek, President of Worldwide Operations; and Mike Bauer, our CEO. We will review operating results for the quarter and then take your questions. This conference call contains certain comments which are forward-looking statements that involve risks and uncertainties. These statements are subject to the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. The statements made in this call are made as of today’s date. We may subsequently make these statements available on ScanSource’s website or otherwise. ScanSource does not extend any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after today’s date. Any number of important factors could cause actual results to differ materially from anticipated results. For more information concerning factors that could cause such a difference, please see the company’s annual report on Form 10-K for the year ended June 30, 2011, and the company’s reports on Form 10-Q filed with the Securities and Exchange Commission. We will be discussing both GAAP and non-GAAP results during our call and have provided a reconciliation between these amounts in our press release. Mike Bauer will now begin our discussion with an overview of the quarterly results.

Thanks, Mary, and thank you for joining us. We had favorable bottom line results for the fourth quarter 2012, although our net sales were lower than expected. Net sales increased 3% over the prior year fourth quarter and 7% over third quarter 2012. We missed on our sales expectations due to mixed results from our business units and to a lesser extent the impact of foreign currency translation. Sales performance for our business units was mixed: within North America, communications and security had record sales quarters while results for our POS, barcoding and Catalyst were not as strong. Within our international business we had stronger sales growth for Brazil and Latin America, while results in Europe continue to be challenging. Similarly, our big deals varied. POS and barcoding both in North America and in Europe had higher big deals while it was not a big deal quarter for either Europe communications or Brazil. As we discussed in last quarter’s conference call, we are working with our vendors to bring down inventory levels to match sales more appropriately and to set more realistic vendor program goals to allow us to reach the profitability we need to operate a value-added distribution model. We have made some progress here with lower inventory levels overall and improved inventory turns, while making sure we don’t miss any sales opportunities. Our overall working capital position improved which benefited our return on invested capital. We continue to work with our vendors on vendor program goals and are making some headway here, though it’s still a work in progress. With that, I’ll turn the call over to Rich to discuss our fourth quarter financial results in more detail.

Thanks, Mike. I’ll start with overall sales and operating results for the June 2012 quarter. As Mike pointed out, we generated worldwide sales of $754 million in fourth quarter of 2012, an increase of 3% over the prior year and a 7% increase over the third quarter of 2012. On a geographic basis, North American sales increased to $570 million or a 4.9% increase over the prior year. Our international segment decreased 3.8% from the prior year to $184 million. Excluding the impact of foreign exchange fluctuations, international segment sales grew 8.1%. Our prior year fourth quarter revenues included CDC Brasil results from April 15, 2011, the acquisition date. Within our product lines we experienced a 1.4% increase in worldwide POS, barcode, and security products over the prior-year quarter. The relatively flat growth rate in these product lines is largely due to a competitive POS and AIDC global market, weaker economic conditions in Europe, and unfavorable foreign exchange rate variances. Sales in our security product lines have continued to perform well. Our POS, barcode and security product categories represent 60% of our total sales for the quarter with the remaining 40% in communications products. Our communications sales unit experienced an increase of 4.6% over the prior year quarter. Our reported 9.8% gross margin decreased 33 basis points from the June, 2011 quarter and remained flat sequentially. The decrease from the prior year is largely due to certain vendor program changes in our international business which adversely impacted our gross margin and increased inventory reserves in our international communications business. SG&A expenses in the current quarter increased to $46.6 million compared to $45.3 million in the prior year, and decreased slightly from $46.7 million in the March quarter. As a percent of net sales, our SG&A expense ratio remained constant at…

Thanks, Rich. I’ll start my business unit comments with our North America segment, which includes the United States and Canada and represents 76% of overall sales. In North America, sales of $570 million represent a 5% increase year-over-year and an 8% increase sequentially. While at the low end of our normal increase for the March to June quarters, each of our North American business units had positive sequential quarter growth. Our North American communications unit had a record quarter with double-digit growth both year-over-year and sequentially. Almost all of our top vendors in this unit had outstanding results including record quarters with Polycom, ShoreTel and Plantronics. We also had a strong services quarter, a plus for the margin. After a softer quarter in March, Polycom video and infrastructure came in very strong. Big deals doubled from the preceding quarter, ending up in line with our expectations. With ShoreTel, we had another record quarter, as we saw revenue growth from existing resellers and from new resellers that we recruited and launched for ShoreTel. We’ve enhanced our ShoreTel quoting tool to make it easier to sell and configure voice over IP solutions, reducing complexity and saving time for our customers. For Catalyst Telecom, sales declined year-over-year and missed our internal sales plan. Despite missing the top line number, we saw the mix shift back to more value-added business where we can earn higher margins. We had our biggest quarter ever with Aruba and Meru, and Extreme networks gained traction quarter-over-quarter. We had a strong finish at quarter-end with Avaya, mostly from SMB and data networking products. We made progress and gained both average and ending inventory levels down, and saw meaningful improvement in inventory turns. We introduced a new version of Catalyst Fast Quote and in June added a new vendor for…

[Operator instructions] And our first question comes from Tony Kure with KeyBanc.

A couple of quick questions. On the vendor programs, obviously we talked about this last quarter and it’s going on this quarter. And I think what we talked is that you’re expecting some relief. I was just wondering if there’s any, as the quarter passes now, is there any line of sight into when that relief might come on the margin side?

Let me -- the vendor programs, we alluded to the vendor programs in our international business. We had a number of vendor program issues. For example, one of the things that occurred in one of our international businesses is we went from a fee-based arrangement on a major vendor to a full purchase and sale. So on the fee-base you reflect only the margin as revenues and as the overall gross margins, so you have 100% gross margin on that product. We’re now purchasing that product and taking on the receivable risk to the inventory we carry and we have more of a typical margin. So that’s impacted the overall international margins just as an example.

So obviously you talked about, and Mike, you alluded to the fact that you want to negotiate or it sounds like you said negotiate with them to have a more profitable enterprise there over in Europe. I mean is that something that should happen in fiscal 2013 or in the next couple of quarters? I’m just trying to get some sort of line of sight there.

Yes, so typically we have annual programs and then we have quarterly updates. We have a quarterly business review with each of our key vendors and at that interval in time we sit down together and say “Hey, how’s it working, Are we meeting our plans? Is ScanSource happy? Are we happy, the vendor?" So we generally have these intervals to update and change throughout the year. So it doesn’t mean it’s a year away. It doesn’t mean it happens in the exact quarter that we want it to happen into. But generally we don’t have to wait a year, Tony.

Okay. And then inventory reserves were also cited as an impact. Could you maybe scale those relative to the vendor programs? Are they as big of an impact, bigger or smaller?

In the overall margin, the inventory reserves was the largest factor; and those inventory reserves are reflective of lower-than-expected sales and also some purchasing with a number of vendors where we’re trying to get some increase, especially in our European business. So per our policy as this inventory ages out we have to set up reserves for what amounts to that excess, so that was the biggest single factor in our overall margin.

Okay. And then I guess from the outlook perspective just 2 quick questions. First, the revenue guidance. I mean, is it fair to say that with Juniper going away, about $40 million last quarter I think you said. I mean, is it fair to say that your revenue guidance could have been $40 million higher if you had Juniper still -- that relationship going?

Well, I think it’s fair to say we included the loss of Juniper in our guidance.

Okay. And then on the last one is just on that note. Was Juniper a higher margin business? Because for a flat revenue and if I go to the midpoint of your guidance, your operating margins come down sequentially. So is it fair to say that was a higher margin business or is there something else in the September quarter that’s impacting margins?

Yes, I wouldn’t read the forecast margin expectation from the modeling you’re doing there to be the result of Juniper.

Our next question comes from Keith Housum with Northcoast Research.

Staying on the topic of your guidance, as you back into it as Tony said, you’re at like 3.25% operating margin versus I think roughly 3.60% excluding the Brazil item in this quarter. Can you speak about the margin degradation a little bit further? I mean is there something on the horizon that says it’s not going to continue, where you’re at -- the 3.6% is not going to continue?

Well, first of all, remember we’ve got this fair value adjustment, and our fair value adjustment -- if all is equal in our projections you end up having additional expense because you’re getting closer to the payout. So in our guidance, it implies a fair value expense. I think last quarter we forecasted about $1 million of expense and we ended up with income; it would be fair to model a similar number for this upcoming quarter. So that I think is a big change coming off of the fourth quarter.

Okay, so you'd say, or at least you're saying right now, the $1 million you would model for the first quarter?

Yes, I think that would be a fair estimate.

Okay. And that certainly gets you some of that gap, but any other color on what perhaps may fill in the additional gap?

Well, we are -- there is with the ERP project, we are carrying some internal folks and some external consultants where those expenses are not capitalized. So we do have additional carry. We had for instance, for the last fiscal year, our expense load for the ERP project for consultants and internal labor that was not capitalized was about $5 million for the year.

Gotcha, so that number will be increasing here in FY '13 as you guys make a push toward the implementation.

That would be a reasonable assumption.

Okay, got it, got it. Okay, and then in terms of FX, you guys disclosed the impact in terms of overall sales. Any of that drop into the bottom line or is it because of the high nature of the cost of goods sold, it kind of filters out to an immaterial number?

Well [indiscernible] dropped to the bottom line. If you assume even a 10% margin and then say a 6% SG&A, you’re going to have 4% of whatever that top line is, show up as lower U.S. dollars. So in the local currency you’ve got the same result but when you translate into dollars, it’s going to affect you by call it 4% or thereabouts.

Got it. And finally with Juniper, did you say the contract ends, or the distribution agreement ends, September 30 or June 30?

September 30. We worked with Juniper on making sure there was no change in the business through June 30 but it’s already been announced to customers at the beginning of July. So customers are already aware of it. So we’ve got a contract in place, just to frankly help both of us transition any inventory issues, any returns, all that kind of stuff.

Okay, but the expectation is since customers know about it they’re going to start working their way to other distributors and that’s why [indiscernible].

Yes, for a product like this it’s available at other distributors, so we anticipate that will happen, yes.

Our next question comes from Chris Quilty with Raymond James.

Rich, if I can just check with you, what was that number for the Juniper revenue? Was it $31 million, I wrote?

$41 million of revenue in the quarter.

Gotcha. The security business, have you picked up any new vendors’ line card expansion or was the double-digit growth just more business going through the same vendors?

Yes, Chris, this is Mike. It is pretty much the same vendors. Yes, same guys we’ve had. No real dramatic changes there. I referenced a little bit of shift from a couple of vendors -- March Networks and PureWave -- but no real new names there, right.

And are you looking to expand the line card still?

I would say there’s maybe a handful of vendors that we’d be looking for to add. It would be a very low number. We’re frankly looking more at reducing some of the vendors we have. We have more vendors in the security business than we do for any other of our units, and it’s one of those conundrums where we started adding them early on to make sure we had the right ones. But I would say other than literally less than 5, we would be looking to add in the near term.

Okay. Actually back to Juniper, does the break in the relationship there leave you missing anything in your product offering that you might look to fill with another vendor?

Well, I think what has happened here is, and what I was trying to indicate in my comments was when we added Juniper, this was before Avaya acquired Nortel and so there was a gap there for our Catalyst teams both here and in Europe that we didn’t have necessarily the complete solution. But after Avaya acquired Nortel, it became obvious for the Avaya resellers that they would be promoting Nortel, frankly, over any other brand and there were incentives to do that. So we did recruit some customers for Juniper that were not buying Avaya. We felt like that was sort of some customer relationships and, frankly, sales that we would have rather not lost to be honest. But they’ve got a different direction and we do, too, especially with our focus on Avaya. But no, there’s no gaping hole I would say at this point.

Okay. It sounds like a real strong quarter coming out of Miami for Latin America/Central America. What’s the difference between the strength in Miami and underperformance in Brazil?

Well, just -- and again, I’ve got to be fair. Brazil had a strong quarter in local currency. We just have, as everybody knows, high expectations for that market. When we bought the company a year ago, we had frankly some ideas and projections from them and internally that said we’d have a bigger first year than we did. And so I would say some of that’s due to the Brazil economy slowing down last year. There are some other issues going on in Brazil, too, that relative to taxes that affect the distribution of products that impacted us during the year so we’re frankly a year smarter now about what is possible in Brazil. But I think it’s fair to say that Brazil did okay, but we had higher goals. Now, there’s no difference in the other markets, like in Mexico and in Miami, those markets are really just somewhere where we have a chance there to gain some market share and we’ve just got a better team in place right now that’s doing that. That’s more execution than it is the market.

Okay. And vendor programs. I know you started a process last quarter of trying to renegotiate some of the program goals. Typically, is this a 6-month process, which seems to be what you’re implying, in order to roll out some new programs? And if we do in the next 3 or 4 months get new programs in place, are benefits felt immediately or is there a delay for inventory issues to work through?

Well, normally these programs are recognized as the inventory sells through. So there is a delay; even if we started it last quarter, we wouldn't have -- and if we would have overachieved in the June quarter, we wouldn’t have seen necessarily all the benefits in the June quarter. That’s correct. So there is a subsequent impact on future quarters of attainment, but in general these are things that everyone wants to not over steer. And so I would say a vendor will first say “Well come on, you guys can do a better job than that. We’ll help you and so let’s don’t move the numbers a lot because everyone’s trying to hit annual numbers." I would say it’s harder that first conversation to make meaningful changes. I think after we have another quarter under our belt like we just had, I think the conversations will be more clear to the vendors and to ScanSource.

[Operator instructions] And we’re showing no further questions.

Well great, thanks a lot and thank you for joining us today. Our next conference call to discuss September 30th quarterly earnings is expected to be on October 25, 2012. Thank you very much.

Thank you. That does conclude today’s call. Thank you all for participating. You may disconnect your lines at this time.