Mary Gentry - Treasurer and Director, Investor Relations Mike Baur - Chief Executive Officer Charles Mathis - Chief Financial Officer.

Chris Quilty - Raymond James Keith Housum - Northcoast Research George Iwanyc - Oppenheimer.

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, Treasurer and Director of Investor Relations.

Ma’am, you may begin..

Thank you, and welcome to ScanSource’s earnings conference call for the quarter and for the quarter ended September 30, 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 in 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. For first quarter 2014 we reported net sales of $732 million at the upper end of our expected range and diluted earnings per share of $0.69 higher than our expected range. Our team executed very well and we are pleased with these results, which Charlie will discuss in more detail in a few minutes.

I would like to point out a few operating highlights this quarter. First, our international business had better operating results than a year ago. This includes improved performance for our European business units following last year’s restructuring and for Brazil.

Second, our Communications & Services segment had a very good overall quarter with results ahead of our expectations. Looking at sales we had another quarter of solid year-over-year growth for our North America Communications and our Security business. These business units continue to drive our sales growth.

Similar to last quarter, our team has managed inventory well, which resulted in faster inventory turns while keeping products readily available for our customers. We delivered a 16.9% return on invested capital for the quarter.

On July 1, our new management structure to enhance our worldwide technology market’s growth strategy became effective, but this structure which you can see on slide 4, we changed from the geography focus to a technology focus to better levered our leadership in specific technology markets.

Buck Baker and Mike Ferney two company veterans with deep experience are leading our new segments. We see growth opportunities in the worldwide technology markets and believe that this new structure will help us capitalize on these opportunities.

In the first few months, our teams are already sharing best practices, including some personnel assignments across international markets. In addition, we are working on worldwide vendor alignment, including holding worldwide vendor summit with our key vendors.

The leadership and teamwork is very exciting as we work to deliver more value to our vendor and reseller partners. With that, I will turn the call over to Charlie to discuss our first quarter financial results in more detail..

Thanks Mike, and good afternoon. As Mike pointed out, worldwide sales totaled $732 million in first quarter 2014, which was at the higher end of our quarterly guidance as well as the higher end of our sales release range which we normally issue five days after quarter end.

One administrative note is that going forward we will no longer be providing the sales release following the quarter end. Net sales increased 2.7% over the June 2013 quarter and decreased 0.2% from the prior year quarter.

Net foreign currency change fluctuations had a minimal impact on the year-over-year sales growth as the positive currency impact for Europe offset the negative impact for Brazil.

You also recall that the change in our organization structure created two new operating segments and I'll be covering the results for these segments which are summarized on slide seven and eight of webcast presentation.

Sales for our Barcode & Security segment decreased 1% to $451 million from the prior year quarter, primarily from slower big deals in the quarter. Meanwhile sales for our security business unit increased 7% over the prior year quarter.

Communications & Services segment sales increased 1% to $281 million from the prior year quarter, with 5% sequential quarter growth. Our overall gross margin for the quarter was 10.5%, which was better than expected and a level we don't expect to maintain going forward. The prior year quarter gross margin was 10.1%.

The year-over-year margin for our Communications & Services segment increased from the timing and better attainment of vendor programs and improved inventory reserve expense for European communications. Last year we began to increase reserves related to certain vendor inventory in Europe.

The 9% gross margin for our Barcode & Security segment was unchanged from the September 2012 quarter. For the total company SG&A expenses totaled $47.5 million compared to $47.1 million in the prior year. As a percentage of sales, SG&A expenses were relatively unchanged at 6.5%.

The fair value remeasurement of earnout for the CDC Brazil acquisition was a loss of $738,000 as expected and comparable to the prior year amount. Operating earnings for the first quarter 2014 totaled $28.2 million or 3.86% of sales compared to $26.2 million or 3.57% for the first quarter 2013.

This principally reflects the higher than expected gross margins for the Communications & Services segment as previously discussed. The first quarter 2014 effective tax rate was 31.7%, which was also lower than expected.

Our effective rate for the quarter included a favorable timing adjustment related to state income taxes, which was recorded as a discrete item. We expect the effective tax rate for the remaining quarters of fiscal year 2014 to range between 34% and 34.5%.

Our return on invested capital totaled 16.9% for the quarter compared to 17% for the prior year quarter. Diluted earnings per share totaled $0.69 for the current quarter compared to $0.63 for the first quarter 2012. Moving to the balance sheet and you can see this on slide 9 of the presentation.

Cash and cash equivalents on hand totaled $193.8 million at the end of the quarter compared to $148.2 million at June 30, 2013. I want to emphasize here that our cash balances were unusually high and we’ve significantly benefited from the timing of large vendor cash transactions occurring on or around September 30th.

Since September 30, 2013 our cash balances were down significantly following large vendor payments in the first week of October. Our day sales outstanding, DSO was 55 days at September 30, 2013 compared to 55 in the sequential quarter and 56 days in the prior year quarter.

We continue to execute well and remain disciplined in managing appropriate inventory levels, inventory turns 6.3 times during the quarter compared to 6.2 times in the sequential quarter, and 5.4 times for the prior year. We had 2.2 paid for inventory days at the end of September 2013.

Again this reflects the timing of vendor payments discussed above as well as faster inventory turns. Paid for inventory days were 5.7 days at the end of June 2013 and 13.5 days at the end of September 2012. We had $5.4 million of debt as of September 30, 2013 and June 30, 2013.

Average debt for the first quarter 2014 totalled $5.4 million, compared to $16.6 million for the first quarter 2013. For the first quarter 2014, we generated $45.7 million in cash from operations, primarily as a result of defender cash transactions around September 30th.

One final comment on the cash for the quarter is that we constantly evaluate the best use of cash. We believe we have opportunities ahead of us that will allow us to grow and meet our return on invested capital threshold which will require the use of cash.

Turning now to our next fiscal quarter forecast, we believe net sales for the quarter ended December 31, 2013 could range from $740 million to $760 million and our earnings per share could range from $0.62 to $0.64 per diluted share. With that I will turn it back over to Mike..

Thanks Charley. Let me start with our Worldwide Barcode & Security segment summarized on slide 10 which represented 62% of overall sales for the quarter. Worldwide Barcode & Security sales up $51 million increased 1% sequentially, and decreased 1% year-over-year.

Good growth for our security business unit was offset by an overall slight decline in our POS & Barcode business units. During the last few weeks both our European and North American teams posted successful partner conferences for our customers and vendors, they were well attended and full of new ideas and partnering opportunities.

For our POS & Barcode units it was a slow big deal quarter similar to last quarter with end users breaking larger projects into smaller pieces delays in purchasing decision in some cases more deals going direct to tier 1 resellers or direct end users.

Despite this our POS & Barcode team in North America had positive year-over-year sales growth driven by strong results for retail POS, payment processing and data networking, made good growth with POS vendors for small and midsized projects including our all in one retail solutions.

In addition our end to end payment processing strategies started to take all with double digit year-over-year growth, by providing total solutions for our bars to sell end users, our teams are winning business. In addition we are finding that video surveillance products are a natural fit for our POS value added resellers.

Our Point of Sale and Barcode business units in Europe faced ongoing challenges from competitive pressures on pricing and payment terms. We had good growth in certain regions including Eastern Europe, Germany and Nordics. This quarter our European team added Toughshield and global provider of rugged smartphone devices to our line card.

In local currency Brazil had a record sales quarter. Fluctuations in currency exchange however translated 5% year-over-year growth into a 7% decline. Our team in Brazil executed well, with higher margins better obtainment of vendor programs and faster inventory turns.

We also had higher sales from POS systems and we added Datalogic as a new vendor for ScanSource in Brazil. In Latin America we had another good growth quarter in Mexico. Small economics struggles in Venezuela and Argentina continued impact the business there.

We do see some big deals push out in the next quarter in our Miami Export Business as well as in Mexico. We are continuing to implement some new operation of processes in Latin America including our specialized merchandizing teams and we have separated our communications sales team there for better vendor alignment and sales support.

Our security business in the U.S. and Canada had another quarter of good growth, big deals were down quarter-over-quarter although they were up versus the prior year as the majority of our school business was in the June quarter.

We had record quarters with Access, Exacq, March Networks and ACTi and also had a strong double digit increase in average revenue per sales rep. We see lots of opportunities ahead to grow our business and gain market share. To address this, we've added sales people, additional sales people and also introduced a focused effort on national accounts.

For the second consecutive year, Ruckus Wireless names ScanSource security its North American distributor of the year. Now turning to our Worldwide Communications & Services segment on slide 11. You'll see that's overall 38% of our sales for the quarter.

Worldwide Communications & Services net sales of $281 million increased 5% sequentially and 1% year over year. These were very good results -- we had very good results including good results for Dubai and all regions and increase in big deals in better attainment of vendor programs in our North American units.

ScanSource Communications in North America had its second best sales quarter ever. We had record quarters with lead vendors in data networking lines. In addition, we are seeing good growth with the service provider customer segment as well as service contract renewals. ScanSource Catalyst sales grew on a sequential basis, with a better product mix.

We exceeded our internal plans for sales, margins and inventory turns. We had strong Avaya growth, with quarter over quarter growth across all products and services including great traction in the Avaya networking space. Our big deals doubled this quarter in this unit versus the prior quarter.

Following the June launch of our Cisco collaboration products, we are building activity including a strong increase in the number of Catalyst customers for Cisco. Our fast path partner program provides enablement resources to help our resellers start selling new vendor lines in less time.

ScanSource Communications in Europe had a record sales quarter in the UK and sales in Germany grew for the second quarter in a row. Currently, approximately 85% of our Communications sales in Europe were in these two countries. We had our second best Avaya quarter ever driven by strength with the Avaya mid market and data networking products.

ScanSource Services Group provides education and training, network assessments custom configuration, marketing services and our SUMO partnership community principally in North America. During this quarter our professional services revenue increased as we were able to help our resellers to meet their customers’ needs.

We saw an increase in configuration services for communications including server configuration and phone processing. We have an array of services ready to service new Cisco customers, including assessments, configuration and training.

Our solution partner program makes it easy to onboard software vendors that are complementary to our hardware products. At this time we’ll be glad to answer your questions..

Thank you. (Operator Instructions). Thank you. And our first question comes from Chris Quilty with Raymond James. Your line is open..

Hi guys. Looks some good results and glad to hear that you’re seeing a little bit more traction in Europe.

Can you just give us I guess a bottoms up assessment of what you’re seeing coming out of that region both competitively and on the demand side and how that might play out over the next year?.

Yeah. Hey Chris, this is Mike. In general, our Europe story as we, is two pieces; one is our communication business has done well, the second quarter in a row as we restructured back early in the year, so we feel good about that business, we are starting to get traction, we are gaining strong support from our vendor community.

Again we’re still principally focused on Germany and the UK, we are doing some business in France and some of the other countries around Germany. So our Europe communication business is on the right track. It’s no longer what it was a year ago where we were losing a lot of money up to bottom. So really now it’s a growth opportunity.

We believe we’ve got the right management team and sales structure in place so we see that business and we go into those market and gain more share. Separately from that would be Barcode & POS business where we've been there a long time a very strong team.

We’re still not seeing the growth that we had a year ago, but we do have better results right now. And I would say, we’re seeing incremental growth each quarter from the previous quarter and that's what we’re focused on right now.

And as I stated, mostly in our Barcode business as you know we don’t do a lot of point of sales business in our European so it’s mostly our ABC business in Europe..

Got you.

And in terms of the personnel side and the restructuring that happened there do you feel like you have the right team in place and the right facilities?.

Yeah, we sure do. Most of the restructuring that affected most of Europe really happened in the administrative, in financial side and as Charlie has talked about before, we moved some of those functions to U.S. and that allowed us to better align the cost structure of our overall European business.

So we feel very good about that, we've got I guess two quarters now under our belt with U.S. team doing some of those functions right here.

From a sales and merchandize and marketing perspective, we filled that all the open positions we had in the region including the position we just filled over in Brussels to support our Barcode merchandising team, we just added a new executive there as well.

So yes, so we’ve got the right people, structure and at this point they will add sales people as we see growth ahead of us..

Got you.

And Brazil, the pick-up there, was that market share-related or do you think it was macro improvement in demand in that market?.

Well I think it’s more market share and focus. One of the things we did is we’ve got a strong relationship for many years including before ScanSource acquired the business with our key vendor there [MagTek].

And we have put more resources on -- to really win back a little bit of business that we may have lost because there was another distributor added a couple of years back right after the acquisition. So we feel very good about that business doing better for us than it was last year.

In addition we have added a few vendors, we just added Datalogic so that’s new for us. And I think that team is now that they are two and half years in the ScanSource, they understand better what they want out ScanSource Inc.

And so we are sending more and more people from Greenville or even Europe to help those teams out in Brazil and more of their team members are coming to the U.S. to learn about our value-added marketing programs and we’re starting to share best practices across the region.

And I think that action of pricing the vendors that our team in Brazil really knows what they need to drive the business in a much better way..

Great.

And I almost hate to ask that question, but any kind of an update you can offer on the ERP?.

Well, right now the ERP project is in the state of evaluation. We are looking at what our options would be to move forward, but no decision has been made..

Okay. And finally on the security business, if I remember correctly in the past or I guess year or two you have seen some vendors consolidating down and selecting a limited number of distributors with ScanSource I think emerging in the good position and all those efforts.

Are you seeing any more movement within the industry to consolidate the number of distributors that they are using?.

Well, we continue to see one vendor or so that’s significant every quarter or so. So yes, I think that is still what we see coming. In the past we’ve seen on the Sony, on the Panasonic for examples.

And I think there are more vendors that are seeing that is not the number of distributors they need, they need to have the right business models, the right investments.

And yeah, they were getting some recognition that our value-added model in security, the way we operate has a lot of leverage for the vendors that are seeing that leverage allows them to really have a partnership with the distributor frankly for the first time because most of our competitors did not go to market the way we did, they did not have loyalty to like key group of vendors, they do not have a short list of vendors, they had everybody.

So our strategy took longer to implement, but we feel like right now we are in a strong position with our existing vendors and hopefully with some new ones that we might be attracted to in the future..

And when you look at expanding the line card, I'm assuming that’s marginally adding a couple per year, not a large mushrooming at the number of vendors?.

Yeah, that's correct. We actually started out this business with too many vendors. And we had to scale back and get more focused. And so if we add them now, that would be very strategic, correct, correct..

Great. And I had in this place one more question. Vendor programs, you are moving into the new fiscal year here you’ve reset the bar with some of your vendors that's been an issue in the past.

It feel like given the current pace of business there is a more realistic achievement level built into those programs?.

Well, I think if you look at the last two quarters, our gross margins one of the reasons that we're having a hard time forecasting that gross margin because of the vendor programs are bouncing around, it's a combination of which vendors have a better growth quarter than others and if those particular vendors that have some growth, are they giving us incentives to achieve that growth.

And so right now, it's not like it what Chris say two years ago where we would have annual discussions and annual programs, almost all of these vendors are moving to not only a quarterly type of program, but within the quarter, they are making adjustments to our incentive program. So it's really harder to forecast right now.

And so that's why it looks a little choppy from our view as to been able to predict that gross margin as accurately as we could in the past. So the good news is, we've had two quarters in a row where we've had better than we forecasted margins because of some of these vendor programs that we overachieved.

So we still feel like that should continue, we just can’t be as precise and pointing to like we felt like we could have two years ago..

Great. Thanks gentlemen..

Thank you..

Thank you. And our next question comes from Dominic Ruccella with Northcoast Research..

Hey guys, it’s actually Keith Housum for Dominic Ruccella. I just actually will jump on. So just trying to confuse you as much as we can here..

That’s good, Keith..

Hey guys, so obviously I missed the first part and I apologize, but I do want to remember questions I want to ask.

As you guys look into the quarter that we're in here, do you guys think it have any impact to your top-line from the government shutdown?.

We didn’t have any of that discussion in our cubby hours leading up to the call and these guys had some pretty or up-to-date knowledge of this current quarter. So I didn’t hear any of that.

Charlie I don’t know if you’ve got anything down there?.

No, I didn’t hear anything..

Got it, got it. And then I see you guys took inventory up, it looks like 8% or so by I do it from my head here quarter sequentially.

What was driving that inventory up or you guys think we’ll advantage of some opportunities or what are your thoughts there?.

Yeah. So when you look at the attainment that we achieved on vendor program, some of that’s related to inventory, yes, yes.

And for us we also felt like we had a good quarter in June and we always tend to, since it’s our fiscal year-end, our team, our vendors tend to be real focused on making sure we've got maybe better inventory position is being lower than we would throughout year.

And so I think we saw some inventory that we normally would have had in the June quarter, get shifted to the September quarter. So I think it’s just partly timing and some of it is based on programs, yes..

Got it.

And I’ve got to ask cash at a $194 million is clearly the most I think you guys ever had, what are your thoughts in terms of your capital allocation from here?.

This is Charlie. So let me just talk about the cash flow there. I tried to make clear that this was been unusual and that was unusually high given to the timing of some cash transactions from vendors that occur right around that September 30th date and the next week we made large payments and that cash balance went down significantly.

So that was abnormally high. Now having said that, the cash balances were still growing. And as I said, we continue to look for ways to invest the cash and to grow the company and to be able to grow the company and meet these ROIC thresholds that we have.

And we believe there are opportunities ahead of us, in which we will be using the cash going forward..

Were those opportunities be acquisitions, and I guess if so, were they perhaps be more internationally focused or I guess maybe a little more definition about those opportunities?.

Yeah, they are both organic and inorganic and we’re looking both and wouldn’t come anything else other than that..

Got it, okay.

Any new vendor went for you guys for the quarter, any new big additions worth mentioning?.

Well, we referenced a couple of key Datalogic down in Brazil was a new win there and that’s a fairly significant vendor. We are not sizing that on the call for Brazil, but that’s a significant one for us down there.

I would say other than that there are some smaller vendors that we think are strategic, this one that we referenced in Europe called Toughshield. So I would say they are right now other than the Datalogic down there which we already know them worldwide. It’s frankly more of some of these niche players that we are adding to the line card in general.

We’re trying right now to focus on the ones we have, plus one of the key ones that we added frankly last quarter which was just Cisco’s collaborations portfolio. So putting really much more resources after that has been a key focus for us this quarter..

I guess if we look at the vendors that you guys have added the past year. How can we think in terms of how that contributes to your growth, can we think about that as a 2% to 3% of the growth from new vendors I would say under a year old? I am trying to understand obviously your end markets are getting, I mean tough market conditions right now.

And I am trying to understand in terms of the growth coming from new relationships or is it in with new vendor or is it coming from you guys adding new bars because clearly in my eyes not much (inaudible) from is overall market growth?.

Well, so I would point two things to you. And I would say it’s less of new vendors. It’s really more of market share in two places, one is security continues to gain market share. So we are growing that unit faster than the industry growth rate and have been for a long time. So that one clearly is more market share.

We’ve added a vendor or two but nothing significant vendor wise to security. So that one is clearly the market share graph and it’s a U.S. Canada statement. Separate from that I think the Brazil team feels like they could take market share now, they had to get some things right down there from an execution standpoint.

Now I believe the market conditions that they dealt with last year were frankly surprising to that whole marketplace, so as the largest player down there probably took more of that pressure than others did. So I think that team is now feeling like they can go out and take market share. And then lastly I’ve a point to Europe communications.

I think now that we believe we stabilize it from as we know how profitable that business can be, we got the right management team and structure in place. We believe that whatever market share they can take will be profitable there and we can use that existing infrastructure to drive and get aggressive in the market place and take share.

So that is what I guess I am leaving you with that this is more or we have been working on this year, what will continue to is marketshare graph..

Okay.

And then final question I have for you is FX in terms of impact on the top line and the bottom line?.

And for sure, we believe that when we take market share, we are adding to the bottom line that we don’t take it without consideration for that..

I am sorry; I mean FX and foreign change, buyback..

That is okay. [So with the] impact..

Yeah..

It was pretty much off negligible..

Almost non-issue. .

We have some gains in Europe offset by decrease in Brazil. .

Right. It was 1% or less..

Yeah, okay. But not mature either way. Okay, guys, I appreciate it, thank you..

Thanks (Steve)..

And your next question comes from George Iwanyc with Oppenheimer. .

Thank you for taking my questions. Can you give us a little bit more color on what you’re seeing with the Catalyst business and how are you driving the new customer additions and what's shifting in the mix that's favorable during the last quarter. .

Yeah, sure. I think the number one issue that was favorable to us in Catalyst was Avaya; long term relationship, not a lot of growth in that customer base, it's the existing is doing better in their market. So it's the Avaya Enterprise that's been their hallmark for many, many years.

And then this is especially a North America statement that our Avaya Enterprise business and the former Nortel data networking business did very well in the quarter. So we think that Avaya offers got better, our customers competed better and we're able to take market share as a result from our competition and from Avaya's competition.

That’s really story for Catalyst in the U.S marketplace. They have done better also with some of their wireless vendors, but it's principally in Avaya story. .

Okay.

And what do you think from Cisco there?.

We did have contribution of Cisco, it's still a much smaller piece of the business there. And so we’re coming from a small base, but absolutely Cisco grew significantly in the quarter. .

Okay. And then when you're looking at you're looking at your security business and the growth that you're seeing there.

How much of that being driving by wireless?.

We don't break it out specifically, but we found that to be a big part of the business. Because as the underlying technology shift from analog to digital which means IP cameras has happened over the last five years.

All those IP cameras have to be on a network and our customer base and lot of these guys are long-term security resellers, they had to get into wireless business over the last few years and we've got a great wireless vendor offering to support that.

So whether it’s access cameras with Aruba Networks or with Ruckus, with Cisco Wireless Networks, we've got a great option for any of those resellers from a wireless infrastructure standpoint. So we feel very good about the offers we have and our resellers are all now having to sell wireless as part of their security strategy..

Okay.

And then you mentioned that your school business was primarily June effect, what’s the normal seasonality that you see there?.

Because they tend to buy the products in that June quarter to deploy them in the summer time that’s what that is. And so we see that every year, so we have a little lift in security every year from education buying pattern..

Okay. And then just one last general question.

When you look at your outlook, are there any areas that you feel particularly comfortable with that maybe more positive and any areas that you’re concerned that could come in maybe that you have a little bit more bumps in the road depending on how the macro and government spending environment settles then?.

Well, I would say when I think back about over the last three or four quarters, earlier this year and three to four quarters ago we were really concerned a lot more about our international business and it wasn’t just a macro, it was really our execution. I think we feel better today about our ability to execute internationally.

And good news for us a year ago is release that North America doing quite well. And so our feeling is if North America doesn’t continue to grow at the same pace than we believe we can grow well internationally.

And so the fact we made the restructuring and Europe communications last year, we got our European Barcode & POS business on a better footing, we move some of the cost out of that unit over to the U.S. and Brazil. Frankly Brazil now we believe has a good platform for growth.

So, we are hoping that our international business, if growth shows up there like we expected to that will be a place a we will be talking about for the next few quarters..

Okay. Thank you very much..

Thank you..

Thank you. Our next question comes from [Andrew Sullivan] with Well Fargo..

Thanks. I want a follow-up on one of you comments previously about how in the Barcode business in Europe you are seeing competitive pressures as well as potentially some very easy financing. It seems to strike me that easy financing is sort of a center of may be a market, that’s a little bit out of balance and maybe access apply.

And I’m wondering if you think that's a fair read of that market? And how do you think that market stabilizes, what gets it there?.

Well, this is Mike. One of the factors that we’re pointing to and I referenced at, is two issues. One is we have some very small competitors in Europe in general in POS & Barcode business at a regional base that can sometimes be opportunistic with their financial terms on a deal.

And we've always seen that and we saw that again in the quarter, but the bigger issue was a less of that, was more of the vendors, our suppliers going direct to some of our customers or going around our customers and often end user a favourable financing arrangement to get the deal.

And sometimes that's when a vendor feels like they have to do it direct because the competition is going indirect and we hear different stories. But we are disappointed that some of the business that should have gone through the channel went direct by our vendors.

And in that scenario the vendors tend to offer frankly more favorable financial terms than we did or any distributor does..

Interesting.

Is this something you see from time to time when competition sort of arises or is this more of a secular trend?.

Yeah.

I think it’s one of these where, it’s generally vendor specific and it’s generally indicative of a concern that happens when management changes sometimes and they are not confident with trusting the channel because the role we play of distributor work with resellers and vendors is we have to have really strong partnership has a lot of trust and if there is any concerns about trust in the channel with either new management at a vendor or a management team is under a lot of pressure, instinctively they want to control the transaction and the bigger the transaction, the more likely they want to keep it direct and they manage that with a combination of pricing and terms, because more customers don’t want to buy from a manufacturer direct, it’s not a funny experience..

Interesting. Okay I think that’s it from me. Thank you very much. .

Thank you..

(Operator Instructions) At this time I show no further questions..

Okay. Thank you for joining us. Our next conference call to discuss December 31st quarterly earnings is expected to be on January 30, 2014. Please note that this is a new schedule for us, we are from typically the fourth Thursday fall in the quarter end to the fifth Thursday. Thank you again..

Thank you. This does conclude today’s conference. You may disconnect at this time..