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 would now like to turn the call over to Mary Gentry, Vice President, Treasurer and Investor Relations. Ma'am, you may begin.

Thank you, and welcome to ScanSource's earnings conference call for the quarter and full year ended June 30, 2015. With me today are Mike Baur, our CEO; and Charlie Mathis, our CFO. We will review operating results for the quarter and the year 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 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 reconciliations between these amounts in our slide presentation and in our press release. These reconciliations can be found on our website and also have been filed with our Form 8-K. Mike Baur will now begin our discussion with an overview of our results.

Thanks, Mary, and thank you for joining us today. I am very pleased to put forward a very solid quarter and year for ScanSource. Let’s start with the highlights for the fourth quarter on slide 3. We reported record net sales of $857 million, up 13% and non-GAAP earnings per share of $0.66, up 5%. Both results are above our expected range. Our record net sales reflect very good results for both segments in constant currency. Our margins and non-GAAP earnings per share were strong in the quarter and we delivered 15.2% return on invested capital. For the full year, our team achieved record net sales of $3.2 billion, representing a 10% year-over-year growth. Our gross profit margin was 10.2%, our non-GAAP operating margin was 3.5% and our ROIC was 14.6%. We were able to grow net sales and deliver operating performance at levels consistent with our operating goals, while making important strategic investments in our business. We executed our plan to grow our business very well. First, we grew our topline sales at or above market rates, while keeping our value added gross and operating profit margins. Second, we saw excellent growth in areas where we’ve made our strategic investments, including international communications, physical security, networking and payment terminals. As our business continues to grow globally, we have invested in our worldwide infrastructure with our new SAP ERP system. In early July, as planned, we implemented our SAP ERP system in North America. This followed our successful implementation in Europe in February. We now have over 80% of our business worldwide using our global SAP ERP platform. Our team’s dedication and efforts resulted in our going live on time and on budget in both geographies. We now have a flexible and scalable system that utilizes global best practices to…

Thanks, Mike. We had a really good quarter. For the fourth quarter, we delivered strong topline growth of 18% in constant currency and solid EPS growth of 5% quarter-over-quarter. We achieved this in the middle of a successful global implementation of SAP, integrating our largest acquisition in Brazil and in face of significantly stronger dollar year-over-year. We experienced a big favorable jump in gross margins to 10.7% from 9.8% a year ago. Our focus in management of working capital was excellent, which led to $48.4 million of operating cash flow for the quarter. We reported record net sales of $857 million for the fourth quarter, a 13% increase or 18% in constant currency or approximately $38 million negative impact. The year-over-year change in foreign currency exchange rates from a stronger US dollar negatively impacted us. As I mentioned, most of this impact is in Worldwide Barcode and Security segment. Net sales increased 9% year-over-year, excluding our acquisitions and the foreign exchange impact. Our Worldwide Barcode and Security segment sales were unchanged year-over-year or 7% increase in constant currency. Our Worldwide Communications and Services segment sales grew 37%, which includes the acquisition of Imago and Network1. Worldwide Communications and Services sales increased 13% year-over-year in constant currency. Turning to profitability. The mix of business and better attainment of vendor programs led to 10.7% gross profit margin for the fourth quarter of 2015 with higher margins in both segments and across all geographies. We were pleased with the healthy margins for the quarter. However, as we said before, our business model over time has consistently averaged around 10%. The Worldwide Barcode and Security gross margin increased to 9.1% from 8.5% for the year-ago quarter. For Worldwide Communications and Services, the gross margin was 12.8% compared to 12.1% in the prior-year quarter. Our…

Thanks, Charlie. We have two reporting segments, as you know, and I’ll start with Worldwide Barcode and Security, which represents 57% of overall sales for the quarter. The Worldwide Barcode and Security sales of $490 million were unchanged year-over-year or 7% increase in constant currency. This growth includes record sales results for our POS and barcode teams in North America and in Brazil and our security team in North America. It was a strong big deal quarter for our POS and barcode units in North America and Europe which included some specific large deals that did not happen in the March quarter that came in during June. The North America payment processing hardware sales more than doubled over the prior year quarter. We expect demand in the early stage for EMV enabled terminals to continue as we approach the October 2015 date to shift liability to merchants not expecting the EMV. ScanSource has been planning for this market change and is committed to helping our resellers partners to be ready with tools, programs and offerings. In Europe, in local currency, we had 10% year-over-year growth in our top three countries; the UK, France and Germany. During the quarter, some of our vendors increased prices in response to the significant weakening of the euro versus the US dollar. In Brazil, we had 27% year-over-year growth in local currency, but a decline of 8% when translated into US dollars. A highlight of the quarter was the unusually strong sales of our physical printers in Brazil. Our physical security business in North America grew 11% year-over-year led by strong growth in wireless and networking including our outdoor wireless business. During the quarter, we launched a cabling and connectivity initiative through vendors to provide the cabling components for our solutions. Turning now to our…

Thank you. [Operator Instructions] Our first question comes from Keith Housum of Northcoast Research. Your line is open.

Good afternoon everyone. Thanks for taking the questions. And congratulations on the second part of year, I know that’s a big relief for you guys. Mike, as we look at your margins in the communication space, they’re noticeably down compared to I guess this time last year at 3.5% versus 4.5%. Any drivers in the lower operating income there?

Hey, Keith, this is Charlie. So, as I mentioned, one of the drivers is the performance at Network1 that I tried to highlight. Acquiring that company, we’re expecting that to contribute more through the operating income and because the currency devaluation that hasn’t happened.

But they were -- you guys had 3.5% operating margin this quarter versus 4.5% last year, they weren’t in last year’s number. So, you guys are down a quite a bit in the margin there. You’re saying it’s Network1?

I said Network1 is what I emphasized on the call. I would say that in this quarter-over-quarter -- the year-over-year comparison, we really have also the fastest growing area of networking that’s also contributing to the lower margins there, the factor, and we also have the SAP call center in there that are lowering the margins because that’s allocated to the business units as well.

Okay. Got it. As you think about Europe, now that it’s done for a majority of the business and you guys have had few months now operating with Europe and understand the US just recently, but are there any efficiencies you see on the -- down the road they may be able to get from the system being put in?

It is Mike, Keith. I’ll tackle that. I think we certainly expect to see some over time. Early days are always challenging because our whole teams have to go through a lot of new processes and what we believe will do and this is probably the key benefit for ScanSource is we’re now going to be able to unify our best practices across all of these acquisitions we made across all the geographies and this will being on one system allow us to centralize some of our back office functions over time and we did some of that if you remember a couple of years ago in Europe when we centralized some of our back office accounting functions to the U.S. Now, we’ll able to look at other opportunities like that over time. And I think what really drives the efficiencies in a system like this is really going to be longer-term better data that we can use to make better decision to run our business more so than trying to figure out how to reduce some of our costs. I think the opportunities to improve sales and have more information about our customers will probably offset more than anything the efficiencies we’re gaining from the back office. So, that’s -- the back office efficiencies are not the prime focus for putting in the system.

Okay, got it. And as I look at your SG&A costs, even though -- even backing out the extra costs and the depreciation growth that you had as a result of that as well. It still seem like your costs were on a higher side than usual. Was there anything else driving the SG&A line?

No, and I’m not sure what you’re looking at but I can’t think of anything that’s really driving that the SAP costs there that we mentioned these one-time costs and in the first quarter ’16, that will be the last time we have these SAP-related cost in there. But actually, overall, we’ve been pretty pleased with the cost controls of the -- of our operating expenses and we’ll continue to focus on that to make sure they’re in line with the gross margins and the operating income that we’re producing.

And maybe one other comment I would add Keith and we said this even a year ago is that we would have higher headcount and higher personnel costs as we were building our platform for growth, including we had some people on the SAP project were now returning to the business. And so, that was always part of our plan.

Okay. I guess what I’m looking at guys is if I look at your slide 5 and you’re 60.4 million, that’s roughly 7.05% of net sales, which if I think about 2 million of that may also be due to higher depreciation, it still gives you about 6.8% of SG&A costs, which I thought historically you guys were usually a little bit lower than that.

I’m trying to follow where you’re talking about but Keith, yeah the 6.5% is I would say more of what we’ll be looking for as far the SG&A costs, perhaps you’re looking at some non-GAAP numbers with acquisition cost in there, amortization, because I don’t really see the 6.8% you’re referring to.

It was just a math, so we can take that offline.

We’ll take that offline.

If I can just squeeze one more question in on the KBZ acquisition, congratulations on moving the ball there. What’s their historical growth rate?

These are guys that have been doing very well for a long time, we’re not disclosing that today but they were really the key Tandberg guys in the early days, Keith, and there was certainly a big adjustment for them becoming part of the Cisco landscape and really remarkable success that they could adapt to working with Cisco versus working with Tandberg where the business model was dramatically difficult but they continue to be the real stars of Cisco’s collaboration business and they have consistently outperformed all of the other broad-line distributors in delivering collaboration products including video conferencing. So we’ve known these guys for about five or six years and really respect the amount of work they’ve done and frankly they’ve got a very strong business in spite of having plenty of competition including from us. So we’re thrilled to have them on board.

Great. Look forward to seeing it. Thanks guys.

Thanks. Our next question comes from Chris Quilty of Raymond James. Your line is open.

Just a follow-up on KBZ. Should we expect you to eventually consolidate distribution centers?

Hey Chris, we’re today of course they’re on a separate system, so when we bring them into SAP that is quite possible. Today, they’re using a 3PL so it will be fairly easy for us to do that. So they don’t have any of their employees working in that facility and they get good service today, so we won’t be in a hurry to move it but for sure to move them onto to our SAP system, we’ll consolidate.

Great. Any disruption or change in the market that you’ve seen from the Motorola Zebra acquisition?

So far we had been very pleased with our business with them, I mean, I think in all of the geographies so far to-date has been a phenomenally good acquisition from our view, the integration has been very successful, there have certainly been changes in personnel and so our team has had to work with different people from Zebra and that’s been fine. So our business with them is really outstanding, we’ve had no issues.

Charlie, can you talk about what the acquisition pipeline looks like and your comfort level on the balance sheet?

Well, I can talk about the capital allocation strategy that we’re trying to execute against and again looking for acquisitions and share repurchase program. We’ve been successful with both of those. Assuming that we close on the KBZ in September that would be three pretty large acquisitions in the last 12 months or so. So, yeah, we’d say the pipeline has been pretty good and we will continue to look for acquisitions at the right valuation.

How are valuations trending in the market today?

Well, I won’t comment a whole lot on this other than say that we’re trying to be disciplined on valuations and believe that acquisitions that we make are fair for both parties and we’ll continue to look to do that.

Okay. Bit of a wingnut question here, I can’t think of any direct exposure to China and some of the market disruption there, but are there any derivative impacts that you guys would foresee from a softening Chinese economy?

As you know Chris, all of our suppliers principally source products in China and we’ve not seen any deterioration in lead times or supply chain issues relative to their ability to produce goods competitively and on time. I mean that’s the only exposure we will have if any of our manufacturers had any problems with their factories in China. And so that would be the only think I can imagine.

Okay. And final question, with the strengthening of the dollar, how has that impacted you I guess by geography, are there any regions of the world where you’re particularly disadvantaged relative to local competition because of the dollar strength?

Typically, we’re trying to operate and we’ve tried to set up with our manufacturers’ model where all the distributors in a particular region operate with the same currency. So, from the early days we went to Europe, we were successful at working with the vendors, so that all of our key competitors all had the same currency impact. So, we’re all buying in dollars or all buying in euros or some combination and that’s been pretty consistent. Obviously in Brazil, in Brazil again we have very few local vendors, so all of the distributors were having to deal with the same import issues that we do. And so, I think it’s a pretty level playing field in just about every market, it’s a -- very exceptions there.

Great. A good quarter if I didn’t say it and keep up the good work.

Thanks Chris.

Thank you. Our next question comes from Andrew Spinola of Wells Fargo. Your line is open.

Thanks. Mike, when I look at your first quarter revenue guidance, I was wondering if you could help me understand maybe just the euro expectations of the underlying growth in the two segments. I think you clearly had I think pretty strong growth in both segments in the fiscal Q4 and I’m just wondering if underlying fiscal Q1 guidance, is it similar trends or what would you think of as some of the differences of fiscal Q4 versus Q1 except maybe I think you’ve spoken about the weakness in Brazil.

Andrew, I think there is coupe of things going on. There is a little bit on an unknown about Europe, meaning, the price increases that the vendors have talked about and we talked about were put in place in early April or sometime in the June quarter, okay, and the impact of those price increases, we’re not sure, are fully realized through the supply chain to the end users yet. In other words, some of the pricing in the June quarter was still at the old prices, right. So, we’re not sure in the September quarter, will end user demand be impacted by the higher prices and how much it would be. So that’s a little bit of an unknown and we all believe that the markets will accept the higher prices, but it’s still a little bit of an unknown, so we probably are a little nervous about that for September. That’s one item. And the second item was that we saw some business that got moved in to June from March where we had really some weaknesses in the March quarter. And that business that moved in to June from March, we don’t see replicating again in September. So that’s why there is a softer outlook for Q1 fiscal ’15 from Q4 from that perspective.

Got it. And you’ve partly answered my second question, which is on that price increase. Historically, have you seen a pull forward when some of the vendors try to increase price and so maybe fiscal Q4 saw a benefit?

Yes. We have. And what happens is, as you know, a lot of our sales are made at special pricing. They are called different things by different vendors and different programs, but the prices to meet competition are negotiated and some of them have guaranteed timeframes on them. So you had some of those guaranteed pricing set prior to the price increases that didn’t expire to the end of the June quarter or narrowly some of those might have resulted in higher prices sooner, but we saw a significant number of those still in effect through the end of June. So that’s why we’re still not sure how much the September quarter will look like and which we have seen this in the past and in most cases, the price increases go through successfully. I’ll be honest, this is a pretty big price increase though. 12% to 15% is pretty big.

Sure. Great. That’s great color. And then just last question for me, real high level, Mike, Zebra talked quite a bit about some optimism about this OS transition as they described it a multi-year opportunity in the Android space. Are you seeing a similar trend in your end markets and obviously in your Zebra business where we think this could be maybe a multi-year tailwind?

I think for the last probably two years, ever since Microsoft announced they were migrating their mobile platform to a new system, and as all of the ISD suffered vendors for these mobile apps had to make a decision about which platform they were going to support, it really threw a little bit of chaos in to the decision making by end users. So we did see that, it’s more prevalent in the larger customers, but there are significant -- it’s a huge significant installed base of Microsoft based applications that are running on the old Microsoft platform and end users, many of them have to make a decision. And we have some option, we actually work closely with a ISD that has a development tool that allows an application to be running on multiple OSs, and multiple hardware platforms and you would think that that would be driving sales in that direction, but in general, what we’re seeing is a lot of end users have delayed purchasing until the Microsoft solution was clear. So I think to make that easier to understand, I think going forward, there is going to be, as Zebra said in their call, there is going to be a lot of end users that are replacing old gear, because the old hardware is not as function rich as the new hardware and the new hardware is going to require, you either go android or on the new Microsoft platform. So that is definitely on the win.

Got it. Actually if I may just one more, I think you’ve talked about kind of -- or maybe I’m mixing ScanSource for Zebra, but sort of a 4% to 5% longer term growth rate, I know that you said that, I apologize, I’m sort of blanking on what you’ve said for your long terms goals, but this is obviously higher growth in the near term and I’m wondering about, is it a number of these one-time issues that we’re seeing and because there is just so much kind of softness across the industrial landscape out there and you’re seeing a pretty strong result and even your guide is pretty solid. I mean is it a number of these one-time issues that are helping and we should sort of think kind of maybe a few more quarters out, maybe when this POS upgrade comes within in October, there will be a little bit of giveback.

Well, I think what happens in our markets and has been over the 20 odd years we’ve been doing this is that the cycle for our industry and when I say that, I mean both the barcode, printing, mobility and also the communications which is phones and which is voice data and video now, all of those products are mission critical, number one; number two, they generally require a significant amount of software integration and software integration means you don’t want to do that often, and lastly, it requires some significant upgrade to the hardware and/or the software to force an end user to migrate their installed base to something new. And I think what we’re seeing is because these are mission critical products that have older technology and they tend to wear out over five to seven years, now is one of those intervals where our industry is seeing an opportunity to replace the installed base. And as that happens, I think all of our vendors are lining up to bring products out now that are much more price competitive than what the customers used to buy and part of that is as Zebra indicated, there has now been a group of customers that have tried the consumer type devices and they rejected those for the rugged devices as long as a reasonable price point. I think the manufacturers have done a great job of bringing out rugged devices, lower price, closer to a consumer device and that’s why this business is doing quite well.

Okay. That’s it for me. Thanks very much.

Thank you. [Operator Instructions] At this time, I see no questions in queue. I’d like to turn it back to Mr. Baur for any closing remarks.

Thank you very much and thanks for joining us today. We expect to hold our next conference call to discuss our September 30 quarterly earnings results on October 29th, 2015.