Welcome to the ScanSource quarterly earnings announcements call. All lines have been placed in a listen-only mode until the question-and-answer session. 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 Mary Gentry, Treasurer and Director of Investor Relations. Ma'am, you may begin.

Thank you and welcome to ScanSource's earnings conference call for the quarter ended March 31, 2013. With me today are, Charles Mathis, our CFO, Gary Lyons, SVP of Finance, Principal Accounting Officer, Scott Benbenek, President of Worldwide Operations and Mike Baur, our CEO. We will review operating results for the quarter and then take your questions. Certain statements made on this call will be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include but are not limited to risk factors identified in the release and in ScanSource's SEC filings. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. ScanSource undertakes no duty to update any forward-looking statements to actual results or changes in expectations. 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 Baur will now begin our discussions with an overview of the quarterly results.

Thanks, Mary, and thank you for joining us. For the third quarter of 2013, we reported net sales of $683 million and diluted EPS of $0.50, both within our expected range. For the quarter we had strong operating performance in our North America business units which offset disappointing results for our international business. During the quarter, we achieved better attainment of vendor programs and favorable timing of recognition of vendor programs which contributed to a solid gross margin of 10.08%. In North America, all of our business units, expect Catalyst Telecom increased sales year-over-year. Sales declined for Catalyst Telecom, principally from the end of our distribution agreement with Juniper Networks as of September 30, 2012. In addition, our gross and operating margins in North America increased both year-over-year and quarter-over-quarter. Performance for our international business was much weaker. Sales declined there 2% year-over-year. Our international gross margin declined and we had an operating loss for the quarter. This loss was principally from our communications business unit in Europe, including restructuring costs and higher bad debt expense. Now for an update on our ERP project. In March, Tata Consultancy Services, TCS, presented ScanSource an integrated project plan that included its estimate of the time and cost to complete the project. This plan indicated that the effort remaining was going to approach the $72 million upper end of our previously disclosed range. We are currently evaluating alternatives to our project plan. In April, we move a significant number of ScanSource team members who were working on our ERP project back in to our business roles and reduced our spending on TCS and other third-party consultants. These actions will decrease our ERP cost for the June quarter. This is an important project for our company and we fully understand the strategic importance of getting it right even if it takes us longer to implement. Meanwhile, our legacy ERP systems continue to run our business successfully. With that, let me now turn over the call to Charlie to discuss our third quarter financial results in more detail.

Thanks, Mike, and good afternoon. Let me first add some color to Mike's comments on European restructuring. We eliminated positions with annualized cost savings of $3.1 million from one, reducing headcount in our communications business in Europe to scale our cost structure with the current operations, and two, by moving certain back-office functions to the United States. As a follow-up to the December 2012 quarter, in which we had special charges associated with our back-office in Brussels, we reviewed certain of these back-office functions and determined that we could do them more cost efficiently from the United States. These are non customer facing transaction in terms of positions which do very well in the United States. One other point to add here, it wasn’t to improve the European operations profitability. It is the fact that over the last several months, we have had U.S. team members in Brussels working with our European team to implement best practices and better tools in the underwriting and credit areas based on the experience and methodology that’s been effective in the United States. Now, turning to the numbers. In the third quarter 2013, we delivered worldwide sales of $683 million in the third quarter 2013, a 3.5% decrease from the prior year and an 8.7% decrease from the December quarter. As a reminder, our distribution agreement with Juniper Networks ended and Jennifer represented approximately $37 million in net sales in third quarter 2012. These third quarter 2013 results were within our expected sales range of $675 million to $695 million for the quarter. On a geographic basis, North American sales decreased 4% from the prior year quarter to $508.4 million. Our international sales decreased 1.9% to $174.6 million. Excluding the translation impact of foreign currencies, international sales remained relatively flat compared to the prior…

Thank you, Charlie. I will start with our North American segment, which includes the United States and Canada and represents 74% of overall sales. The North America sales of $508 million decreased 4% year-over-year. On a sequential quarterly basis sales decreased 7% which is consistent with our typical seasonal decline from the December to the March quarter. North America Communications unit had double-digit year-over-year sales growth better attainment of vendor programs and lower inventory bounces. We had record sales quarters with Polycom Voice, AudioCodes, SpectraLink and Edgewater networks. We also had strong growth with ShoreTel resellers that were transitioned to distribution and for the new resellers that we recruited and launched. Our big deals were up year-over-year, though down from a strong big deal quarter in December as expect. In February, Polycom named ScanSource Communications as its North American distributor of the year for a record tenth year in a row. Our security business unit had high single-digit year-over-year sales growth. March was our best single month ever for a number of customers sold to and for total call volume. In addition we have higher margins, lower inventory levels and better attainment of vendor programs. It was another record big deal quarter, although the average deal size was lower than last quarter. We are headed into our busy season, the June and September quarters for security with one of our top vendors, reducing this number of distributors and we have a healthy big deal pipeline. Starting July 1, we will become the first and only distributor for Pivot3, a leading supplier of video surveillance and virtual desktop infrastructure, Serverless Storage Appliances. Sales results for North America POS and barcode were up slightly from the prior year quarter. While big deals increased year-over-year, the big deals represented a lower percentage of…

(Operator Instructions) We have our first question from Chris Quilty with Raymond James. Your line is open.

Okay, so first the just a question for you on the charges. I think you spelled out pretty clearly the charges for the upcoming quarter but did you give any guidance on whether these are onetime charges for the fourth quarter or are these continuing cost that we might see on a go forward basis?

Hi, Chris, this is Charlie. The $1.2 million restructuring charge that we took on European restructuring was in the March ending quarter. We don’t anticipate any additional restructuring charges.

Okay, good. I did misunderstand that then. Also I heard you mentioned some more favorable vendor programs specifically on Europe, but I did not hear similar language with regard to North America. Can you give us an update? Event though we are several months into the years here, so how those the restructuring efforts or resetting the levels have panned out or how you feel they panned out?

Yes, Chris, this is Mike. We talked about that all of last year as we came in to this quarter and in to the year. Our challenge was sitting down with vendors on a one-on-one basis and understanding what their goals were for the year and how they linked up with ours and how does that translate into profitability for the programs that we deliver for them. I would say this, is that we have referenced a few cases where we have seen some improvement. There is nothing that overall has changed significantly or dramatically I would say also that it is more quarter-to-quarter basis and it is different by vendor and by geography and by technology. So I don’t think we are going to, at some point, at this stage, we will be able to say, yes, we have really got a lot of improvement here because when I listen to our vendors, they are starting off this year also with not great news. There is a lot of weakness in demand. So when I looked at their results. I think they are going to be asking for growth from our teams, both domestically and internationally so that they can reward us with additional incentives. So I think absence some growth, it is going to be harder to see that they will improve those programs in a significant way.

Got you. With regard to Europe, for years Europe seemed to work pretty well for you and now recently it seems to it hit the rocks and is it a matter of just the macro environment or it appears that there is perhaps some management issues that have become apparent as the tide has receded here. Is there fundamental issues with the way have that business structure that are that different than how things are run in the U.S.? And how quickly do you think you can get those issues resolved?

Sure. I think it's two different pieces. So if you look at the Europe Communications business, we highlighted that throughout the last quarter four to six quarters that we were not happy with the performance. We had said all along that we needed to really increase the revenues there to absorb the cost that we had, not only from the acquisition of Algol in Germany and MTV Telecom in the U.K. over last four years but also we added additional infrastructure, I mean people, to support the business that just didn’t materialize. So we were probably overly patient last year. So as we look at how we right size the business to bring the communications part of Europe back to profitability, we then looked more deeply at it, is there something we can do to leverage some of the expertise and the volumes that we have in the U.S. So as Charlie indicated, we looked at our Brussels headquarters location, which support not only communications but also barcode and we looked at places that we can be more efficient because what's happened in the barcode business in Europe is more of a slowdown in demand including some competitive pressures and that’s put pressure on the earnings leverage in that unit. So based on what we have seen for the last couple of quarters, we decided to go ahead and enact some cost-saving measures, even in the Brussels back-office, as Charlie said, to move some of the functions that are not customer facing to Greenville where we have got additional capability and resources, and frankly we can do it at lower cost in Greenville than Brussels, Belgium. So I think communications has been broken for a while. We think we have taken the right actions to fix that, going forward. We think we are improving the potential for the barcode business to get back on the profitability track it has been for a long time by reducing some of that structural cost there and then hope that demand will reemerge in Europe. Again, listening to our vendors over the last week or so, most of our vendors had a tough time in Europe this past quarter.

Got you. Switching gears to the ERP. It sounds like with pulling bodies off that effort, you are going to probably do more of a deep dive and look at whether you want to stick with your existing solution. Is that a possibility that you could start at ground zero and go in a different direction altogether?

Well, I think what we have learned since this last effort, where we hired TCS to come in and take a hard look at what we presented them from our previous provider and get their best estimates of what it would take to get done, we were surprised that there was that much work left remaining. So that presented us with a decision, do we go down that path and end up spending near the top the end of that range of $72 million dollars, or do we stop and reevaluate where we are and make sure before we go forward. So right now, we are in a best be real sure of what we are going to do before we take the next step. So we are going to take enough time do that and I didn’t want to have a lot of people sitting around because again we are going to move some functions back to the U.S. from Europe. We have got a reason not to hire a lot more people right now in this slower growth environment. So we are going to take that team, most of them and put back to work here in Greenville pending what we decide to do going forward.

Okay, and final question. I think this is first time I mentioned you from a product perspective. You mentioned cloud services as something that you are moving into. I don’t know whether you want to stick specifically to the barcode point-of-sale side or broadly across the portfolio? Are there any new technology trends that you see as particularly promising as drivers for the business?

Well, I think what we are seeing is there are some key vendors that are starting to emerge to help manage services around mobility. A vendor we added in barcode called SOTI, they are one of the established vendors of managed services for the cloud. So most of our key mobility vendors in the barcode space have already started recommending them as a key vendor partner. So adding them is really more adding another option to our resellers portfolio. It doesn’t really change a lot of the dynamics of how we work with our resellers. So right now there is not any major changes underway. So I think instead of saying that we are taking some applications that we are running on a mobile device and moving them in the cloud, these cloud servers are more from a management perspective, not from an application perspective. But clearly, if you look at ShoreTel, they have got a cloud-based offer. For example, they bought that company a year and half ago or so, and they are looking at how do they make the offer to the channel. You can sell premise space equipment or you can sell cloud-based. So that one is not quite rolled out yet but that’s one that we are looking at partnering with ShoreTel. So I think from a ScanSource perspective, we are looking at our vendors to drive the cloud services options and really nothing specific that ScanSource has had to do to support that yet. But we are looking at it real close to making sure we understand the implications.

Our next question comes from Keith Housum with Northcoast Research. Your line is open.

This is actually John Barta on the line for Keith. Thanks for taking my call. I guess, looking at Brazil, it seems like we have entered this slower period of growth and I just didn’t know if you guys have any strategy or plans of different ways to execute? If its adding more vendors or just maybe different products? You are focusing more on the barcode side to maybe offset some of the slowness?

Yes, John, thanks for the question. We clearly are looking at how can we execute better in the space that we are in. Part of it is, we felt these competitive pressures in one of our key areas and that’s from a new distributor. So we are going to make sure we are not giving up too much market share in that particular case. The other thing that we mentioned last year that we really not been able to exploit yet is taking some of our other product portfolios from the U.S. to Brazil. We have mentioned last year, the communications products is an ideal one to add to Brazil. We haven’t made a progress there with any key vendors yet. We did sign AudioCodes a year ago but that’s really the extent of our communications strategy. We also signed an agreement with HP for their networking products. That’s also just getting started. So there is some opportunity in the communication space. What the team is focus right now primarily on executing better in our existing barcode and POS vendors and not really looking to sign any key new vendors there. They want to execute better, make sure we are performing, taking market share, executing in a value-added manner. I think that’s our plan for the next couple of quarters.

Okay, and then I guess, moving back to the signing vendors, even though its not a focus. Is there any really big pushback on moving down there? I think you mentioned some regulatory issues where maybe vendors wouldn’t want to sign up over the coming months? Or is it just not something you are looking at right now?

Well, the only regulatory issue that has come is there is just a change in tax status, which in Brazil happens a lot, relative to certain products. So if you are manufacturer that has to import some products into Brazil, then you do have some challenges to get that done successfully. If your manufacturing in Brazil, then it’s a different scenario. What we are finding is more of our vendors are trying to find a way to have some operation in country in Brazil to better mitigate some of these the tax burdens. I would say that is a focus for some of the vendors that are not there today. They see the market opportunity but they also see that it takes more time to maybe they thought and there is more difficulty in overcoming some of these barriers to entry to get your product into Brazil through these tax credits, these tax programs.

Okay, and then the last question I have for you, more on the enterprise side, focus on rugged devices. Are you seeing any resistance from any end-users on moving on to products on the Windows side with the lack of clear roadmap? Or are the looking at more Android based devices going forward?

Well, I know that that’s been a discussion recently with a lot of our resellers who wanted to know where Microsoft's roadmap is for the future moving from the 6.5 product to their new Windows 8. But I think right now, we have not seen that in our channel as a barrier to sale today. I think it’s a barrier to sales for sales that are going to happen over the next year or so. I think right now some uncertainty may be at the larger enterprise but not at the small to medium-sized. But clearly, the direction, if you got a product today that’s designed around the existing Microsoft embedded platform, those developers are going to make a decision sometime in the near future by either moving down to new Windows 8 platform, which would be a significant rewrite of their code or moving to an Android platform which is another big rewrite or to some other alternative out there and there are some alternatives that you can also write your product to if you are now looking at making a change. So I would say its not affecting our business today, John, but it is clearly something our customers are talking about.

Okay, our next question comes from George with Oppenheimer. Your line is open.

Thank you for taking my questions. You mentioned some weakness in demand from the guidance coming from your vendor base. Can you give us, just in a general sense, which segments you are most cautious on in the guidance and which ones you feel are performing at least typically or maybe stronger than normal?

Well, we typically don’t comment on our vendors specifically. So I have got to be careful about talking about segments because we have some pretty significant vendors in each one those segments. So I would say that our guidance would suggest that overall demand is fairly soft. If you look at our guidance, year-over-year, to strip out the Juniper revenues from last year, and if you look at the midpoint of our guidance, we are basically flat year-over-year. So there is no real big difference between in that guidance the emphasis on communications versus barcode or even international versus North America. They are in the proportions that they have been for the last few quarters. So we are still looking at the same kind of split between all of those different opportunities.

Okay, and also from just a general standpoint, can you give us an idea of how your Wi-Fi networking contribution is in each of the various areas, security, Catalyst? It sounds like at lease on the Catalyst side, wireless is doing fairly well.

We don’t breakout Wi-Fi but it has been a growth area for a while. We have probably, for the last two years, been really pleased with the growth in not only the Aruba business that we talked about consistently, Ruckus has done well. Motorola's wireless business has done well. We got Cisco's wireless business. We probably have one of the best wireless offerings in the market and all of the product pretty much we sell have are endpoints that require some infrastructure, from a wireless perspective. So we tend to do pretty well in that because all of our endpoints require someone's wireless infrastructure. I think its been an area that we have seen some new vendors over the last couple of years and that’s why we continue to do well there.

Okay, and have deal sizes stayed the same or have gotten bigger there?

I would say, for ScanSource, they generally are not large. They are not just large, huge, like campus wide deals. They are generally medium-sized transactions to support the endpoints that we are selling.

(Operator Instructions) It looks like we have no further questions today. Mike Baur Great. Well, thank you very much for joining us, and we plan to talk to you next on our conference call to discuss our year-end results in June 30 quarterly earnings. It is expected to be August 2013. Thank you very much.

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