Scansource Inc (SCSC) 2002 Q4 法說會逐字稿

Good afternoon. My name is Kristie and I will be your conference facilitator today. At this time I would like to welcome everyone to ScanSource conference call.

All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. To withdraw your question, press the pound key. Thank you.

Mr. Bryson, you may begin your conference.

Okay. Thank you. Welcome to the ScanSource conference call to discuss results for the quarter end of June 30, 2001.

My name is Jeff Bryson. I'm CFO of ScanSource. With me today is Mike Bower, president and CEO, and Steve Owings, Chairman of ScanSource. We will present a few minutes of prepared material and we'll then take you're questions.

This conference call contains certain comments which are forward-looking statements that involve risks and uncertainties. These statements are subjects to the Safe Harbor created by the Private Securities Litigation Reform Act of 1995.

Any number of a important factors could cause actual results to differ materially from anticipated results. For more information considering factors that which could cause such a difference, see the company's annual report on Form 10K and quarterly reports on Form 10Q, filed with the Securities Exchange Commission.

Our first comment will be on sales result by unit. The company recorded sales of 233.7 million for the quarter end of June 30, 2002, an increase of 35 percent over sales of 173 million for June 30, 2001.

Our business consists of three reporting segments - North America Distribution, International Distribution, and E-Logistics Channel Management.

North America Distribution sells through the US, Canada, and Mexico from a single, centrally located distribution center in Memphis, supported by the headquarter staff in South Carolina.

North America distribution includes sales by three sales unit - the ScanSource sales team. They sell automatic data capture and point of sale equipment. The Catalyst Telecom team, who sell business telephones from Avia [ph]. And the Paracon [ph] sales group, who sell telephone convergent products from Intel.

The International Distribution Segment consists of Latin America and European barcode and point of sale operations, serve from separate warehouses and staffed by separate management teams in Miami, Florida, and Liage [ph] Belgian respectively.

The E-Logistics segment is called Channel Max, which is a provider of logistics and E-fulfillment services.

June quarter end 2002 sales of 233.7 million include a 217.3 million from North America distribution, a growth rate of 42 percent over last year, and 10.4 million from International Distribution, which did not exist last year.

Sales also include 6 million from Channel Max, compared to 19.6 million last year. Measuring sales based upon our end markets shows a year-over-year growth of 38 percent in bar code and point of sale, and 32 percent for Telephany, for the quarter end of June 2002. That produced a 56/44 mix of bar code point of sale versus Telephany sales. However, the overall company growth rate, Channel Max comparative sales amounts and the Telephany end of market growth rate were all impacted by the restructuring of the Expinetz [ph] contract to a fee basis in December 2001.

We will now discuss the Expinetz contract change and describe sales results as if Expinetz had been comparable for both presented periods. In December, we were successful in renegotiating the Expinetz contract to qualify for Net C revenue recognition. The primary change in the Expinetz's relationship is that contractually Channel Max will no longer bear inventory and accounts receivable risk. Therefore, the current and future quarters will include only fees from this program. All prior periods through November 2001 will continue to show Expinetz as a product sales program.

Had the Expinetz contract been denominated as sales in this year's June 30 quarter end amounts, the overall sales growth rate would have been 45 percent, the Telephany end market growth rate would have been 54 percent year-over-year, and Channel Max sales would have been 23.8 million in 2002, compared to 19.6 million last year.

Our next discussion will center on operating results. Gross margin was 11.0 percent for the fourth quarter of 2002, versus 11.35 percent the last year. Gross margins were comparable to the most recent three quarters, which have ranged from 10.6 to 11.1 percent.

Operating expenses were 17.1 million, and 7.3 percent of sales, compared to 11.8 million and 6.9 million percent of sales last year.

Operating expenses were higher than expected for three reasons. We took an additional pre-tax charge of 1 million to bad debt expense for an account receivable owed to us by Worldcom. In general, Telephany's service providers, like Worldcom, have not been resellers of Avia equipment. However, during the last fiscal year, Worldcom had set up a Telephany reseller group within its company to sell equipment to its installed base of service accounts, and Avia saw this as an opportunity to expand and direct channel sales.

In spite of this write off, our year-long experience with bad debts was only slightly higher than June 2000 when we were experiencing problems with TIC Agency Program. In general, our reserves continue to be good at the most conservative end of the range allowed by our metrics.

SG and A also included approximately 531,000 of incremental direct expenses in Europe, which exceeded our expectations of about 425,000. The higher costs resulted from higher recruiting and employment-elated expense.

We also incurred $180,000 of additional costs to write off some training-related assets and OUI, as we have restructured that unit to take it out of what had been an unprofitable portion of its experience. Without these costs, normal operating expenses experienced by the North America and Latin America business units were within the range posted over the past three quarters.

Operating income increased by 9 percent to 8.5 and 3.6 million percent of sales, compared to 7.8 million and 4.5 percent of sales for the 2001 quarter end.

Greater use of our line of credit in 2002 was mitigated by lower interest rates, causing net interest expense to be 336,000 compared to 278,000 for the same period last year. We are continuing to mitigate the P and L impact of a portion of our borrowing by recovering some of our interest cost from customers.

Other income of 260,000 included a 240,000, or 2-cents per share, pre-tax, currency transaction gain from repatriating an advance to the Europe subsidiary. We would not expect a currency transaction gain of this size to reoccur in future periods.

June quarter net income increased 18 percent to 5.3 million and 2.3 percent of sales, compared to 4.5 million and 2.6 percent of sales for the quarter end June 2001. Diluted earnings per share were 16 percent higher this year at 85 cents per share, compared to 73 cents per share for the June period one year ago.

We would now like to describe the changes in this quarter's tax rate and remind you of what operating results would have looked like without this quarter's three nonrecurring items.

June 2002 net income benefitted from a change in our effective income tax rate, which was different from our historical experience. The tax rate would have been over 40 percent, due to the fact that foreign country operating losses are not tax-effected for financial reporting. However, during the quarter, we complete the final phase of a tax consulting project that allowed us to capture state and senate tax credit for developing a South Carolina headquarters and for Tennessee and South Carolina jobs creation.

The tax expense savings, offset by the cost of those consulting services, caused net income to be 350,000, or 6 cents per share higher, and caused the overall tax rate to be 36.8 percent, compared to 38 percent in quarters prior to December 2001.

Now that these projects are over, our overall effective tax rate for the next couple of quarters will be higher than our historical 38 percent, due to blending effect of foreign country operating losses. As those country units begin to turn profitable, the overall effective rate will then drop as net operating loss carry-forwards are used in those countries.

To help you forecast our results, we will try to predict our tax rate one period in advance. Therefore, for the September quarter we expect the consolidated effective tax rate to be approximately 40.5 percent.

Without the net effect of the tax savings, currency gain, and additional bad debt expense, June 2002 quarter end net income would have increased 21 percent to 5.5 million, and 2.1 percent of sales, compared to 4.5 million and 2.4 percent of sales for the quarter ended June 2001.

Earnings per share would have been 19 percent higher at 87 cents per diluted, versus 73 cents for the same quarter last year.

Our return on invested capitol this quarter was 24 percent, which is within our target range.

We will now take a moment to update you on each of our updating segments. First, we'll cover North America Distribution and the ScanSource sales unit. The North America Distribution Segment has three sales unit, the first of which sells automatic data capture and retail store automation equipment for manufactures such as Symbol, IBM, Zebra, and Intermac and MCR.

Automatic data capture products include all types of mobile data collection computers, barcode scanners, wireless products, and barcode label printers. Retail store automation equipment includes those computer-base systems that have replaced electronic cash registers in grocery, retail, and hospitality environments.

We had an outstanding quarter, especially in ADC, where all product categories performed well, whereas point of sale product sales were mostly flat.

Catalyst Telecom Sales Unit, is the one which sells voice and data systems, including Avia Enterprise, Express, and IP products.

We've made additional investments in our Catalyst Unit to market Cajun data and Avia wireless networking products.

Our existing dealers provided strong sales results for this quarter and we continue to recruit and add new dealers to sell Avia products, especially their IP Office Solution.

Our newest North America sales team is Paracon [ph], which focuses on converged, voice and data solutions, primarily from Intel, that require recruiting and educating bars. This sales group was separated from the Catalyst Telecom sales team beginning in January, 2002, although our sales reps this area have been selling these products since 1998.

Our second reporting segment is International Distribution. The International Distribution segment consists of ScanSource-Latin America, based in Miami, and ScanSource-Europe, SA, headquartered in Belgium. Our International Business segment is focused on the ADC and POS markets, and operates as stand-alone businesses with their own sales and management teams, distribution centers and MIS systems.

In May 2002 we bought ABC Technology Distribution based in the United Kingdom. Mike Cohan [ph], the managing director of ABC has remained with ScanSource, which will do business as ScanSource UK and operate as part of ScanSource-Europe headquartered in Belgium.

The transaction with a purchase for cash was approximately 2.4 million for 100 percent of the shares of ABC, which had sales of approximately 18 million for the year end November 30, 2001.

The key elements provided by this acquisition are 30 vendor relationships for which UK or Europe-based sales rights have already been negotiated, a trained sales team and experienced management.

Immediately after the acquisition we began making significant marketing investments in Europe, including 2 road shows in England and France in June. We also mailed our first Europe Catalog of products to customers in July and have opened sales offices in France and Germany. While the overall Europe sales ramp has been slower than expected, we continue to get strong report from our key vendors.

Our European incremental direct expenses this quarter worked to 8.5 cents per share, which was higher than our planned range of 5 to 7 cents per share.

Latin America had a strong quarter in sales and earnings, even though we haven't sold at all in Argentina since November, and Venezuela sales are off 40 percent.

Our third reporting segment is E-Logistics. Channel Max is the unit that provides web-order entry and logistic services for manufactures Avia [inaudible], and resellers such as Expinetz.

With implementation of our new warehouse management software now completed, Channel Max has resumed sales efforts to new customers.

We now like to discuss balance sheet metrics and cash use. Inventory turns without Channel Max's inventory improved to 5.4 at end of June 2002, compared to 5.2 [inaudible] in the June 2001 quarter.

The number of outstanding accounts receivable days without Channel Max improved to 42 at June 30, 2002, which is lower than the June 2000 quarter end at 45 days.

Our line of credit can fluctuate depending upon the role our vendors wish for us to play in the distribution channel. Cash of 1.6 million was used in operations this quarter primarily from increases in receivables in inventory.

After cash use for capital expenditures and the purchase of ABC, our line of credit balance was only 43.8 million at quarter end. We ended the quarter at 3 days of paid-for-inventory, meaning that our investment and inventory was almost completely offset by our interest free tray payables to creditors.

We will conclude this part of the call with our expectations for the September 30, 2002 quarter. Looking ahead to the September quarter we think total revenues could range from 235 to 245 million, with the portion that relates to North America distribution in a range of 213 to 224 million, which give us a growth rate of between 30 and 37 percent, compared to prior year North America distribution sales of 164 million.

Earnings per share could range from 82 cents to 92 cents per share for the quarter end September 30, 2002 which would be after a 5- to 7-cent per share investment in Europe.

At this time we will attempt to answer your 00:23:22 questions.

Thank you Mr. Bryson. At this time I would like to remind everyone in order to ask a question, simply press the star and the number 1 on your telephone keypad that this time.

One moment please.

Your first question is from Rike Reed.

Hi, guys. Good afternoon. Just a question, I guess, on the Telephany side. It sounds, Jeff, from the comment that you gave that the existing dealers that you're working with is strong. And I take it that that means you are penetrating those folks further. Can you give us a comment on - is that coming from new products? existing products? How are you achieving that incremental penetration?

And then also you mentioned that you're recruiting some new dealers. Can you tell us how many that might be and what the split is between the penetration versus new dealers?

Hey Rike, it's Mike. I'll tackle that one. From a standpoint of existing dealers, what's happened over the last year with Avia is they've continued to turn over some of their formally direct and user accounts to resellers who have a good track record with Avia. Frankly what happened is a lot of our existing dealers have hired ex-Avia people to work for them. So as they've moved to these dealers, these Avia former sales people that were direct, they now bring some of their customers with them. So the products that they're selling are more on the higher end of product line, the difinity [ph] class products, then they are on the express line.

The new dealers that we're recruiting - we're trying to find the new dealers who are going to be selling more of the converged products, the IP Office-type products and the Express products. That's where Avia is looking to expand their distribution.

So Avia is facilitating this, and is this simply a reflection, Mike, of the weakness that they're seeing, that they are trying to take sales and expenses and move them away?

Yeah, I think that's true on the Difinity side for sure. Is they know they've got capable reseller partners and they are trying to assign some of those former direct accounts to qualified resellers.

On the low end of the market, the IP Office and the Express line, they're trying to hit the small and medium size enterprises, that frankly they have not been addressing directing. So that's - Avia to that is incremental opportunity for them.

Okay. Mike can you take a second or two to address NCR? There's another real nice opportunity for you in terms of something that's going very much direct today. What are they telling you in terms of their intent to go indirect at this point?

Well, I think when we signed them back in January of 2001, we commented on the fact that we were their first distributor, and they had a small dealer channel and they really wanted to expand that. I think that's still their plan, is that they're still planning to use the dealer channel more. Their channel in the past had been primarily focused on grocery rather than on general retail-type accounts. And I would say, again, their focus is on expanding the channel by getting the channel to go into places that they don't have sales people today. So they're looking at it as incremental opportunity, and I would say more that than it is on a pure shift from the direct model right now. We're seeing them trying to find new resellers, but they're not just pushing business our way that they were formerly taken direct. That has not been the model.

Is that something that will increase through time?

Well, I can't say right now. I mean I think NCR has been pretty specific in saying they want to use the channel more, but I think they want to use it to take on the new opportunities at this time.

And then, Jeff, just one quick question for you. Can you guys give us a thought process on what you intend to do with options, would you expense them, and what the '02 impact might be?

Right. Our board has mulled that over, but right now I think we want to wait and see if some sort of consensus emerges. We're not going to do so in the year-end numbers that we have here today. But we're continuing to monitor and evaluate that like a lot of companies are.

Would the '02 impact be roughly that of '01, which I think was 35 cents?

We are working on those numbers right now, so I don't think there would be a material change from last year, but we are still working on that today.

Okay. Great. Thanks a lot, guys.

Your next question is Chris Filte [ph].

Good afternoon, guys. Congratulations.

Chris, thanks.

Just to make sure I've harmonized correctly here with the items you called out in the write-up with the actual reported P and L, the reported provision for income tax does or does not include the 2-cent gain?

Yes. The stated numbers in the first paragraph of the press release include everything.

Okay.

Yeah. They included the bad debt, the gain, and the benefit from taxes.

Okay. So we should go ahead and back that out of the reported number?

That's the way we're looking at it. We're trying to isolate the non-reoccurring items in our own planning as we go forward. So that's what we were recommending to you guys in the press release.

Right. You've, for the last several quarters, have been telling us what that incremental tax savings were, and we've backed them out of the numbers for the last couple of reports.

That is correct. That project is behind us, and you guys have done a good job to help explain and educate people on that temporary project.

Last quarter, Mike, you had reported some fairly good activity in the point of sale business with some descent size orders. Has that carried through into this quarter?

No, I would say that's the area that was kind of disappointing. This would be across the board in POS with maybe one or two exceptions. Most of our vendors saw a tough quarter and we did too. I guess what we're seeing right now is some of the larger retailers who would generally indicate some of their preferences for buying have not done that. We generally have a few of these big deals every year, and there have been very few to be proposed right now.

So our overall POS business is not growing as fast as our ABC right now.

Okay. And you're half way into the next quarter. Has that changed depreciably [sic] as you've gone into this quarter?

I would say it's about the same right now as it was last quarter at this time.

Okay. On a Channel Max side of the business, can you just give us a quick review of where you see that business moving? I know you had some pretty grandoid plans a couple years ago for where you thought that could move in terms of a portion of the business and the services you wanted to provide downstream. Do you feel it's moving along with what you had originally tracked or your reset expectations? And how much of the business do you feel that will eventually convert over to that model?

Well, I think what happened is we certainly saw that to really recognize the value of this program, our customers, whether the manufactures or the resellers, had to make some commitments to automating their end of the process with us. And we felt like, last year, that we had to take the first steps. So part of what we did earlier this year is put in a new warehouse management system. We think it's made it easier for our customers in this program to now implement a more automated process in tying in their systems with ours. That's why we made this effort in the March quarter, putting in a new warehouse management system.

So we hope, now that we've got that done, we can go back to our existing customers and help them achieve better cost savings in the program and increase revenues through us, and at the tame time go after new customers who, frankly, weren't sure they could see the cost savings benefit of the program. So I would say this quarter we're out there trying to sign new customers and increase the business through our existing ones.

Okay. Have you been able to measure efficiency improvements through the WMS installation?

We have, but right now it's a little bit early to see that we're at that maxed out stage. We feel like it's going to take us a of couple quarters to where we really see there's improvements, because we had to change, obviously, a lot of processes in our own business to make sure that we can accommodate the new software. So we had to make some changes. I would say first quarter, under this new system, which was really - the first quarter was this past quarter - April, May and June - our goal was to make sure we didn't disappoint our customers and disrupt our revenue or our profits by doing anything there. So we feel like this quarter and next will ring out some efficiency gains.

Okay. And looking over at the international number that you reported, I guess, 10.4 million. If we were to back out the ABC acquisition - you essentially got a full quarter's contribution, correct?

No, we only had about 6 weeks. About six weeks of that. It was in May when we completed that transaction.

Okay. So that makes this even more impressive. Your sequential sales growth must have been well north of 50 percent then.

Sequential in which part?

In international.

International.

Going from the March into the June quarter.

Let's see. I think last quarter was 4 million; is that right? 4.18?

4.4.

4.4, right.

So maybe up closer towards 80 or 90 percent sequential growth?

I like your numbers.

Okay. All right. I'll pass the floor right now and I'll swing back into the queue a little bit later. Thanks guys.

Thanks.

More for additional questions or comments, press star 1 on your telephone keypad at this time.

Your next question is from Gary Schenarow [ph].

Hi guys.

Hi Gary.

I was wondering if you could talk - you know, in a couple years the 12-digit barcode will go to 13. And just your thoughts on maybe where retailers are and - clearly that's going to benefit you, but your thoughts on that.

Well, we're certainly hoping that the manufacturers have already factored this into some new products and some new education to their retailers. But we saw that article that came out, I guess, in the New York Times a week ago or too, and it certainly suggested that there might be some opportunity for barcode scanning companies. What we don't know - if the manufactures do that, we don't know that the installed base of that equipment is and how much of it can be retrofitted, et cetera, but it's always good for us to see that there's new opportunities out there in the installed base.

Okay. Great. Thank you.

Okay. Thanks, Gary.

Your next question comes from Jeff Rosenburg.

Hi. Looking at the barcode business. I think even if you back out the strong sequential growth you just talked about internationally, it looks like that business was up double digits sequentially - sounds like not a lot of strength in POS. That sounds like pretty y strong share gain in the barcode segment. Can you talk about anything that is driving that from us as you see it?

I think - Jeff, this is Mike. I think it was true - it was kind of across the board when I was looking at it again over the last couple weeks. Really we had strong growth in printers and in mobile data collection and in wireless. Scanning was real close too. I would say when you kind of look at it, all of our key suppliers across the board, had strong gains with us. I think it is the fact that we're taking some market share. There's no question about that. We believe that - frankly, we've got a business right now where the ABC part is doing well. We've got - sometimes we don't know how much of that comes from the manufactures continuing to shift. We still see some of that was going on. Obviously not as much as we did a year ago. But I would say some of our manufactures still have a direct presence with bars. Ours still, every quarter, bringing us a few key resellers. What's happening is the resellers that are coming over now are generally much larger caliber, as can you imagine. They kind of transition the small guys over the last two or three years, and now it's the larger guys that are transitioning.

And when you talk about some of those larger guys, whether they be big traditional resellers that are in the market, or guys like CDW, is there a change in customer profile or any increased, you know, couple percent-type customers or anything there that's material in terms of getting this kind of surge?

Not really. When I look at the ADC customers, none of them are standing out right now. We certainly would say that in the manufacturers, the guy that work direct from them were generally several millions a year maybe now in total business, where it used to be they were transitioning guys that would do 50,000 a year with us. So I think that's what's happening. We're still getting enough of those guys coming over. And the manufactures frankly want to focus on pure valuette [sic] vertical guys, and they're really not concerned about sending us an account that buys millions a year if he's a horizontal guy. They really want to focus their own efforts on the vertical valuette solution guys.

And in terms of you helping them in that effort, is there much that you're able to do in terms of identifying ISV's or specific vertical resellers? I mean is that an area that you've been - can you talk at all about if there's any specific marketing activity to try to penetrate verticals? Is that's something's that's happening?

Well, not in the ABC area at this time. We've got a program we started last year called Technology Providers. This is where we were trying to recruit more ISC's. I would say more of those guys tend, ISC's, tend to come out of the POS side, Jeff, really. That's what most of them are. Because most the barcode ISC's are also resellers of hardware still today.

Okay. And to switch to Europe for a minute. Could you just go through again the reason for the higher - going from the 5 or 6 cents to 8 and-a-half cents? I mean, is that discretionary based upon on the fact that obviously, as you guys have talked about, you had strong revenue growth there. Plus if you had growth above plan in the elsewhere in the business, or what exactly caused the expenses in Europe to be higher in Europe than planned?

Well, we certainly planned for higher expenses, but we kind of goofed, I would say, a little bit. We got caught with some recruiting costs that just surprised us. I mean, we're learning stuff about how you have to recruit over there and the cost it costs to find our key executives. And I would say we don't anticipate those same kind of costs going forward. But to our top team over there, top merchandisers and managers, it cost us a lot more than we had planned.

Okay. And then in terms of the SG and A number that was deemed non-recurring on a free-tax basis - you said a million dollars - is that the exact number if we're thinking of backing out to kind of - in terms of the model, the quarterly numbers? Is it a million even or is there an exact number in terms of the bad debt number?

Yes. That's what I've used here internally. That's a good estimation for the effect that had on us. That's what I'm using internally.

And then also - I guess we can try to back this out, but is 40 and-a-half percent the right tax rate? I know last quarter it was more like 40.6. Do have you that number, Jeff?

In the September quarter, it's 40.5 going forward. On the rate we on posted on the quarter that we just published today, I believe - I'll double check it for you - was 36.8, and that's because of the programs that we had are ending now.

Right. But you suggested those should be backed out. So if you didn't have those and you just had the European losses not being deductible, what's your number?

Would have been a little over 42 percent.

A little over 42. Okay. Thank you.

Your next question comes Rike Reed.

I just wanted to follow up, guys, real quick on Europe. Can you give us a quick summary in terms of where you are from an infrastructure perspective and what still needs to be done. And if you can, can you give us a sense of when you think you're going to break even there?

Hey Rike. It's Mike. I'll try that one. What we've done is we have made the strategic higher. We've got two remote sales office open, one in France and one in Germany. We got that done this quarter.

Obviously we the acquisition completed over in UK, but we didn't do anything there from a cost-savings standpoint. I want to make sure we don't interrupt the existing business. So we haven't done any rationalization. We still have a warehouse in Holme [ph], and the one in Belgium and we're continuing to look at that.

But I would say right now the key for us to get the revenue flowing at the level that we need it to be to achieve a break-even number. From a quarterly standpoint, this quarter we're looking at, as Jeff said in his narrative, we're probably still looking at a 5-cent loss there. And that's assuming we get revenues to about an $8 million run rate. If we can do that, we would hope that if we look at by the end of the year, end of the calender year in December, if we can get to $10 million a quarter, we think that's the break-each point.

Okay. Thanks.

Your final question is from Chris Filty [ph].

My final question was asked, so I'll ask the one I ask on every conference call. When are you guys going to do stock split?

Well, I think we the - we got a board meeting that we'll be talking about that. And our annual meeting is coming up also in December, so we'll be discussing that over the next few months.

Thanks. guys.

Appreciate it.

We do have a question. Adam Breaker.

Hi. I just wanted to ask you guys if you can remind us of your guidance for North America. I missed that.

Sure, I'll catch that for you. This is Jeff. For September, we're looking at total revenues 235 to 245 million. The portion that relates to North America, 213 to 224. And that's a gross rate of 30 to 37 percent over last year's North America number of 164.

And where do you anticipate - what do you - based on that number, what you are you looking for in areas of strength and areas of weakness?

This is Mike. I think the key is our North American distribution business continues to be strong. And I would say at this point that we feel good about it.

And your expect point of sale to continue to be weak?

Well, right now we'd say it's consistent with last quarter, whereas we had a good ADC quarter and a flat or moderately okay point of sale quarter. So this assumes that we're on a similar track.

And what about seasonality in the point of sale business in the fourth quarter? Is that usually up sequentially for you guys?

Well, in this quarter the strong month is typically September because in point of sale a lot of the customers will defer any purchases after the first of year after they get past October. So generally September is the key month in the point of sale time.

Okay. I appreciate it. Congratulations on the quarter.

Thank you.

Your next question is Jeff Rosenburg.

Hi. Just a couple of quickies. Can you remind us what OUI is? Is that the software group in Minneapolis?

No, this is the group in Atlanta that did training and also professional services Avia resellers on a wholesale basis. We decided to get them out of training part of that business, Jeff that was not profitable.

Okay. So that was a recent acquisition, right, that was not too long ago.

Back in October of '01, yes.

Okay. And then the other one in terms of your statement that you wouldn't expect the fluctuations in the currency due to the repatriation. Are you doing something differently there? I mean, is there some sort of learning curve there that you've now gone up, or why is that not something that will hit you a little bit here and there as you go forward?

We had a particular transaction. We had some initial costs that we advanced some money for in January that we knew would be refundable back to the United States here in June. So we kind of set that particular opening advance aside as a currency transaction that is unlikely to recur. In general, the invested amounts we have there, we believe they will use and grow and recycle in that business.

And do you have any sort of particular hedging strategy on anything you're doing in general to handle the - as your assets grow on the working capital side, receivables and what not? What's your approach there in terms of currency exposure?

Well, right now the Euro helps us a great deal in that you can operate, which we are, on the Euro basis throughout most of the European Union. We do have some different strategies we're looking at as to whether we need to get into some financial hedges for inventory receivables. But doing business within a given currency really protects you from a lot of bad exposure.

Okay. Thank you.

We do have a question from Gary Narrow [ph].

Just a clarification. The revenue numbers you had for International at break even and what you did this past quarter, International revenue.

Possibly the confusion might be the revenues Mike was just referring to are Europe only. And the revenue numbers we quoted a moment ago wouldn't have included the Latin America operation.

Okay.

Our entire International segment is both Europe and Latin America. So we'll try to be careful and help you with that because that does cause confusion.

Right. I guess the - with the 10.4 million of total International revenue -

Correct.

What is that Latin America and Europe break down?

What we had in Latin America was about - we haven't disaggregated as much of the Latin America business. We did say that the growth was good over last year though.

Can you ball park me? Is it 50/50? Is it -

We'd really prefer not to as much as possible.

Okay. Great.

Right. We'd rather really protect our competitive region.

There are no further questions at that time. Mr. Bryson, do you have any closing remarks?

Thank you very much for your interest in ScanSource.

Thank you for your participation in today's conference call. You may now disconnect.