Welcome to the ScanSource quarterly earnings conference 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'd 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 December 31, 2013. With me today are Charlie Mathis, our CFO; and Mike Baur, our CEO. We will review operating results for the quarter and then take your questions. A slide presentation that accompanies our comments and webcast is posted in the Investor Relations section of our website. 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, those factors identified in the release and in ScanSource's SEC filings. Any forward-looking statements represents 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 reconciliation between these amounts in our press release, which can be found on our website and has also been filed with our Form 8-K. Mike Baur will now begin our discussion with an overview of the quarterly results.

Thanks Mary. And thank you for joining us today. Let's start with Slide 3, for second quarter 2014, we reported net sales of $741 million, at the lower end of our expected range, and diluted EPS of $0.64 per share, at the upper end of our expected range. For the quarter, we had strong operating performance including higher margins and 15.9% return on invested capital. And looking at our sales for the quarter, I would like to share a few summary points. For Worldwide Communications & Services both of our communications business units in North America, the ScanSource Communications and Catalysts units had solid year-over-year sales growth and our worldwide gross profit margin improved from last year. In Worldwide Barcode & Security, our sales declined year-over-year. However, each of our POS & Barcode unit had sequential quarterly sales growth primarily due to better performance in our Barcode products. In Brazil, we had record sales quarter for the second quarter in a row. As we move into the second half of our fiscal year, we are planning to return to year-over-year growth for all of our business units at value added margins. And we have a very strong balance sheet that positions us for growth. During the quarter, we continue to invest and expanding our sales force with the addition of new sales team members in many business units. Now for an update on our ERP project. We have been evaluating a new ERP platform over the last several months to replace our existing enterprise hardware and software IT system. After careful evaluation, and taking into account our prior experiences we focused on how to achieve certainty with our goal line. Given that we entered into agreements with SAP for both the software and implementation consulting services for a new ERP system. We have also assembled a team of experienced ScanSource employees to work on our project with a focus on business processes training and change management. With SAP, we have selected a partner with a proven solution for wholesale distribution companies similar to ScanSource plus SAP services team has assigned an experienced implementation team to deliver a successful ERP system for ScanSource. We are very pleased with the commitment from the senior executives at SAP for a successful result. With that I will turn the call over to Charlie to discuss our second quarter financial results in more detail.

Thanks Mike. I will begin with Slide number 4, through 7 of the investor presentation, second quarter fiscal year 2014 results. Net sales of $741 million decreased 0.9% from prior year. The net impacted currency a change fluctuations on the year-over-year change was minor, with higher sales from the strengthening of euro offsetting over sales and weakening of the Brazilian real. Worldwide Barcode & Security sales were $476 million decreased 3% year-over-year primarily from slower big deal activity. Worldwide Communications & Services sales up $264 million increased 2% year-over-year. Our North American Communications and Catalog business units’ growth was a result of growing key vendor lines and securing larger big deal projects. A consolidated gross profit margin for the second quarter 2014 was 10.4% compared to 9.9% in the prior year quarter. The Worldwide Barcode & Security gross margin for the quarter remained at 9% unchanged from the year ago quarter. The Worldwide Communications & Services gross margin was 13.1% up from 11.6% in the prior year principally from an increase in service fee revenues and better attainment of vendor programs. This increase in gross margin for the communication segment was the driver in an overall consolidated gross margin increase. Overall, this quarter we received some end of the year vendor incentive and unusually high service fee income that is not expected in the March quarter. SG&A expenses totaled $49.3 million or 6.7% of net sales relatively unchanged from a year ago quarter. SG&A for the second quarter 2014 included a severance payment as previously disclosed in an 8-K filed in November. Also as you may recall, our second quarter 2013 included a $2.1 million charge for Belgium tax compliance and personnel replacement cost in our European entity. As Mike previously mentioned, we recently signed contracts with SAP to provide…

Thanks Charlie. Let me start with our Worldwide Barcode & Security, summarized on Slide 9, it represents 64% of overall sales for this quarter. Worldwide Barcode & Security sales up $476 million increased 6% sequential and decreased 3% year-over-year. We had sequential quarter growth for each of our POS & Barcode units across all geographies including a record sales quarter in Brazil. This quarter-over-quarter increase reflects better performance with elite vendors. Similar to the last few quarters slowness in big deals continue with larger projects being broken up into small pieces. So sales were down year-over-year, our POS & Barcode team in North America had solid sequential quarter growth lead by mobile computing and scanning. Big deals were down from last quarter and last year including fewer big point-of-sale deals. We continue to have good growth with our small and mid-sized vendors and our payment processing sales were up significantly. In Europe our POS & Barcode business unit exceeded the sales plan, strong growth in our scanner business and better achievement of vendor rebates. We had good growth in certain regions including Eastern Europe, Germany, France and Belgium. We recently expanded our U.S. relationship with CODE, a new vendor for us Barcode readers to include Europe geography. We are very pleased to report that our team in Brazil had a record quarter for the second quarter in a row where sales grew across all product categories point-of-sale, Barcode, AIDC and Communications. Even with currency fluctuations that's a growth headwind. Net sales in Brazil grew 15% year-over-year. Our team in Brazil execute well growing faster in the market keeping margins at planned levels and accelerating inventory turns. In the past year, our team won two sales growth awards from HP Networking in Brazil. We named Yvette McKenzie, who joined ScanSource in…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Chris Quilty of Raymond James. Your line is open.

Thanks gentlemen. Just wanted to follow-up just to make sure I got it, you were saying for the fiscal third quarter or for all of calendar 2014, you expect revenues to be up by product line and business segment?

What we are saying, Chris, this is Mike. What we are saying is that we expect for the calendar year. So we are saying that we expect growth in all of our business units to occur this year. So we are obviously only giving guidance out for one quarter. What we believe based on the investments we have made in 2013 and some of the indicators we are getting from either vendors or customers that we think for calendar year and certainly the last half of this fiscal year will show growth to our company year-over-year in all of our business units.

That's great. And is there a particular business unit that you and if you've to rank order of where you feel best about?

For us it's always a challenge because when we look at the businesses, we're trying to manage the portfolio and sometimes we'll miss based on our quarterly basis how much one of the units can grow based on some of these big deals. I would say that's probably the negating factor in some of what we're saying is, we saw big deals come back this time, our Communication business but not in our Barcode POS business, which historically we saw some significant point-of-sale deals into December quarter in North America and because of the change in one of our vendors this year that didn't happen. So we may see more Barcode POS big deals now move into the March quarter than the December quarter. So we're not really going to prioritize it for you, but we feel good about each one of these business units and their opportunities.

Got you. And are there any underlying technology or market changes and either Communications, Barcode or Security that are worth highlighting as growth drivers and I'm just thinking of the top of my head something like target getting burned with your POS terminals and some articles in the journal about jeez may be we shall move to back to smart card readers to try to mitigate some of that either that or some other end market specific drivers?

Well, that particular comment around the data breaches in the retailers for sure is a topic of discussion in point-of-sale industry. And one of the things that we highlighted for the last year or so is that we continue to add some vendors in the payment processing terminal arena. We have good relationships with key vendors now. We've added this capability in our distribution center where we can configure payment processing terminals that means you mean what's called a key injection process for our customers. So we've added the capability and the right vendors and so if that market starts to accelerate, which if you read trade press and listen to the stories one of the drivers that could help solve some of the data breaches is to adopt, the U.S. to adopt a chip and PIN technology that Europe uses. And that chip and PIN or EMV Technology is something that has been predicted; few happened in the U.S. and if it happens it will require based on everything we've seen a replacement of the existing payment processing terminals and readers out in the market as you're saying. So we do see that as a potential driver, we just don't know like any of these technologies how fast that be adopted because that's going to be a significant cost for someone to bear whether that's the retailer or it's the banks not sure right. But that is a potential driving force in our technologies. Having said all of that that's not why you're feeling good about work [ph] for this year that would be more upside to what we're thinking.

Got you. Charlie, some of the foreign exchange fluctuations that have happened in the past week, do you expect that to impact revenues in anyway?

Well, we didn't see a lot of that in the prior quarter because we had it going both ways euro would strength and Brazilian real was weakening they pretty much offset each other. So now, we don't really anticipate a big impact to that.

Got you. And did you mention at some point in the script that you increased the allowance for doubtful accounts and can you just talk about whether you're seeing a deteriorating or improving situation with receivables?

Yes. I did mention that and allowance doubtful -- reserve did go up. There were some customer specific issues in there that we felt we needed to reserve for. So I think that was the primary thing that was driving it other than overall deterioration in the portfolio.

Got you. And can you elaborate a little bit more specifically, I mean the performance in Brazil was -- it was pretty outstanding given the economic backdrop there. Is there something specific driving the business either just the addition of vendors, is it taking market share or some other driver?

Yes. I think what we saw -- this is Mike again Chris. I think what we saw is better execution by the ScanSource team in an improving markets. So our team told us that the overall demand for our products has improved in the last few quarters and then we're executing better against that. One of our largest vendors down there is a company called Bematech; they're Brazilian printer company that sells other Point-of-Sale equipment as well. And we're seeing better performance in our Bematech portfolio down there. I would say they're representative, if you will, of the overall market. And so we believe that Bematech's business getting better has been good for ScanSource Brazil. And I think there is some cases where we're taking some market share. We've got a - still a very early stage business in our Brazil Communications business. We referenced HP Networking as one of our couple of vendors; we don't have a real significant vendor yet in that marketplace. We don't have the Avayas or Polycoms in that marketplace. We would certainly hope that our Communication business will start to develop over the next year. And we did some nice growth in those networking products in Brazil that we had not. So that was kind of an upside as well for us in the quarter.

Got you. And final question on the M&A, I think you mentioned geography and one other priority, was it product line?

Well, historically the company has made acquisitions to expand strategically in geographic areas and vendor product lines and new technologies and that's continually where we're focused on.

Okay. And I mean, historically you've said that when you look at the Asia Pacific region where you don't have a presence, it simply too vulcanized. And so I'm assuming your M&A efforts would be more focused on beefing up some of your existing markets, is that a fair assumption?

I would say Chris that we're probably not looking at Asia Pacific, I mean that's fair. But as Charlie said, we would be looking at our existing market plus new technologies.

Got you. And is that primarily on the Barcode & Security or Communications?

Could be something new -- something that's separate from both of them.

So, a new leg to the story?

Correct. Yes, that's right.

Very good. It's been, what a decade, well that's not true Security.

Yes, that's right 2004 when we started Security, yes, yes, you are right on.

It was a decade.

Yes.

All right. Very good. Interested to see what you have in the pipeline and --

Yes. Stay tuned, more to come on that.

Great. Thank you.

Thanks Chris.

The next question comes from Dominic Ruccella for Keith Housum of Northcoast Research. Your line is open.

Thank you very much. Thank you for taking my call. Just a few question where guys on the quarter. Did you guys see any type of competitive benefit from Westcon’s troubles with their ERP?

This is Mike. We did hear that from many of our team members. We certainly sympathized with A1 that has the ERP challenges, we certainly had ours, unless you are trying to live. But no, I would say no one in our team said, hey, we were able to steal some business or take some market share because of challenges with that. It's generally especially in the Communication business where we've got larger customers. They really -- they make some really long-term decisions when they choose distribution partners. So I think that one is less transactional oriented frankly than some of our other businesses. And so I would say no, we didn't see that in the quarter.

Okay. All right, fair enough. Thank you. For Avaya's new channel programs, what are you guys initial thoughts, positive, negative for you guys, I know you guys mentioned that a little bit earlier in the script.

Well, in general for us, we're really reflecting on just a normal development of vendor programs as they go. We try to shy away from talking about any specific vendors, if we can. And so I don't think I said Avaya's program. So I was talking about our vendor programs and that really encompasses lots of them. But in general, if we have problems with programs where we believe would provide value-added services and not being compensated, we'll call that out. And if we didn't we feel good about our vendor programs right now, they seem to be and maybe that's the point, is we seem to see improvement I would say more broadly with our programs. Having said that, as you heard from Charlie still had some unexpected gains from a margin perspective in the quarter because we got some program benefits that we don't believe we can forecast will happen again in March.

Okay, all right. Thank you very much. And then for the – and kind of keeping with your outlook on the vendor programs, any type of gut feeling right now and if any changes from Motorola or Zebra or any other large vendors coming down the pipe, do you have any foresight on that?

Well, it’s kind of early days because these guys are all calendar year oriented programs, so I would say it’s too early to call anything for the year. I would say the way we exited the calendar year with our key vendors, we feel better about that whole situation that we did a year ago. But it feels you know, we got to sit down and work with them March being the first quarter for all these vendors and it's our fiscal third. It's always the quarter where they are trying to figure out what do they really want from their team and expect from the channel. Then they got to figure out what they are going to expect from ScanSource team. So it's still too early to call for the year, but we will certainly be able to report a lot more on the vendor programs for you in April, when we report our next quarter results.

Okay, great. And then, I'm sorry, simple on Avaya, is that – is it safe to assume that's less than 29% of your business now, the relationship with Avaya?

Well, we haven't reported a percentage. I think we talk about them being a significant vendor and we talked about them a lot but we don't have a specific number that we are out there with. So –

Okay.

We view that has as proprietary information.

Okay. Fair enough. And okay. Well, I think that just going to take care all of my questions. Thank you very much.

Great. Thanks. Take care.

You too.

(Operator Instructions) We are showing no further questions at this time.

Great. Thank you so much for joining us today. Our next conference call to discuss our March 31st quarterly earnings is expected to be on May the 1st, 2014. Thank you very much.