Scansource Inc (SCSC) 2006 Q2 法說會逐字稿

Good afternoon. My name is Corrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the quarterly earnings release 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 session. If you would like to ask a question during this time simply press star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you.

Mr. Bryson, you may begin your conference.

Thanks very much.

Thank you for joining us for the ScanSource conference call to discuss financial results for the quarter ended December 31, 2005. My name is Jeff Bryson, Executive VP of Administration and Investor Relations. And with me today are CFO Rich Cleys and Mike Baur, President and CEO. We will review with you the quarter’s operating results and then take your questions.

This conference call contains certain comments which are forward-looking statements that involve risks and uncertainties. These statements are subject to the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. Any number of important factors could cause actual results to differ materially from anticipated results. For more information concerning factors that could cause such a difference see the Company’s Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities Exchange Commission.

Rich Cleys will start our discussion by providing overall sales and operating results.

Thank you, Jeff.

The Company posted record sales of $408.5 million for the quarter ended December 31, 2005, an increase of 10% over sales of $370.1 million for December 31, 2004. Measuring sales based upon our product groups shows YOY growth of 7% in AIDC and POS, along with a 15% YOY increase in communications products for the quarter ended December 31. That produced a 60/40 mix of AIDC/POS versus communications products.

Public companies with fiscal year which begin after June 2005 are required to implement the new accounting standard related to option expensing. For most companies that date was January 1, 2006, but for ScanSource the effective date was July 1, 2005. As a result, our December 2005 operating expenses, income taxes, and number of shares outstanding were affected by this new accounting requirement. This new standard is not applied retroactively till last year, so to help you understand comparable trends we are going to try to isolate the affect of option expensing on current year numbers in the discussion below.

In order to be sure investors are making apples-to-apples comparisons among analysts’ models and the prior year amounts we are asking our analysts to build their models off of income statements without option expensing until the end of our fiscal year June 30th, 2006. If we can all be looking at models without expensing for two more quarters it will make comparisons for last year more understandable.

Gross margin was 10.24% for the December quarter which was within our range of 10 to 10.3% over the past year. Operating expenses were 26.3 million including 935,000 recorded for option expense. Without option expense operating expenses were 25.3 million and 6.2% of sales which is comparable to operating expense as a percentage of sales for each of the past several quarters. Operating income without option expense increased by 12% to 16.5 million which is 4.04% of sales.

Net interest expense was 300,000 versus 148,000 for the same period last year due to higher interest rates. December 2005 quarter end net income without the affects of option expensing increased 11% to 10.1 million, and 2.5% of sales compared to 9.1 million in December of 2004.

We were very pleased with our ROI capital this quarter which, after including option expensing continues to be strong at 24%. We have always managed our balance sheet in light of changes in our gross margin, meaning the right mix of inventory turns, accounts receivables days, and number of account payable days help us to achieve our targeted ROIC results.

Balance sheet metrics and cash use were as follows. Inventory turns were 7.8 at the end of December 2005 which is higher than the 7.3 turns posted in the June 2005 quarter. The number of DSO was 55 at December 31st, 2005 compared to 51 days posted in June 2005. Our higher DSO is due to the change in mix of receivables, not only among geographic areas but also because we are now selling to more larger VARs for whom we continued the longer payment terms that they were previously getting when buying direct from vendors.

Our credit line dropped to 28.8 million at December 31, 2005 as our business has produced approximately 8 million in cash since June 30th, 2005 which is common at our current sales growth rates.

We ended the quarter at a negative 4 days of paid for inventory, meaning that our investment in inventory was offset by trade payables to vendors. This metric can be temporarily lower or higher due to the normal timing issues as to when the last day of a quarter ends relative to the bi-monthly payments we make to our vendors.

Jeff will now give you an update regarding each of our reporting segments.

Thanks, Rich.

Our North America segment includes sales from all three of our technology areas, AIDC and POS via ScanSource, communications products through two sales units, Catalyst Telecom and Paracon, and electronic security products through a ScanSource Security Distribution. North America posted sales of 353.2 million, a growth rate of 9% over last year.

Our next discussion will focus on the ScanSource AIDC and POS sales unit. We were very pleased that sales of our bar code and POS peripheral products were strong enough to overcome the continued weakness in POS system sales. We think the indirect channel in the bar code industry continues to grow, both from new demand and channel shift. We also saw strong results from our unit in Canada which just finished its first calendar year after our relaunch of a Toronto office in December 2004.

The December quarter is a time where we do some intensive planning with both our customers and vendors. In November we hosted our AIDC/POS vendors at an annual event we call ‘Future Path.’ At that conference we communicated to our vendors our outlook for calendar 2006 and heard from them the role they want us to play in the channel and the growth goals they have in mind for the new year.

The AIDC/POS unit recently launched Profit Maps, the latest component of Solution City, our initiative to educate resellers on vertical market based sales and growth strategies. Profit Maps was showcased at the December Solution City Road Show in Dallas where more than 350 attendees were on hand. Profit Maps was developed to assist resellers in developing non-technology business competencies that can help them run a better, more efficient company.

There are a variety of ways resellers can access Profit Maps’ business building tools, through Solution City Road Show seminars, through online tools on the solutioncity.com web site, and via audio CDs. Much of the course content has been developed by nationally recognized companies who focus specifically on the training of value added resellers.

This quarter we also announced a new collaboration from Symbol Technologies and Avia. By providing a joint mobility solution which enables mobile professionals to access enterprise applications and communicate while moving about the workplace ScanSource is providing entrée into a new emerging technology.

The Symbol/Avia collaboration integrates Symbol’s mobile computing devices and wireless network infrastructure with Avia’s IP telephony software. We have the ability to partner AIDC/POS customers with other resellers who specialize in the convergence space through our Catalyst sales unit. We are reducing the barriers to entry for these emerging technologies and are excited to help our resellers expand their business with the introduction to a new business opportunity.

We will next discuss the first of our two communication units, Catalyst. Catalyst had a very good sales quarter, particularly with the enterprise class of Avia products given the fact that we were coming off Avia’s fiscal yearend of September 30. Over the past two quarters Catalyst has developed a strategy centered around convergent solutions. Catalyst is recruiting and educating customers, developing programs, and adding vendors to be the convergence leader in the industry.

As part of that effort, Catalyst signed Juniper and this week Avia announced that it has partnered with Juniper to provide secure voice, data, and converged communications that can help companies protect sensitive data and maintain network integrity and performance. These solutions include distributed IP telephony, secure IP telephony on any network, virtual contact center and enterprise mobility. With Avia’s collaboration with Juniper we believe that Catalyst’s offering of Avia, Juniper, [Extreme], and [Polycon] will provide us a unique advantage in the marketplace. The December quarter also showed strong sales performance from other vendors led by Extreme, Plantronics, Polycon, and SpectraLink.

Our other communications sales unit is Paracon which focuses on converged communications products. Paracon had record sales this quarter led by a large computer telephony deal, coupled with better sales performance across our Intel customer base.

As we told you on our last call, Paracon had had two significant vendor announcements. Beginning December 1 Paracon became the sole distributor of Vertical [televantage], vertical communications IP, PBX, and contact center software which runs on Intel servers and is aimed at small and medium sized businesses. Vertical decided to consolidate their distribution channel to improve customer service and provide Paracon with a larger sales opportunity to justify Paracon’s investment in some reseller support services that a vendor would normally do.

Paracon also signed [Zolta’s] technologies line of IP, PBXs, and phones. Zolta’s ease of implementation combined with an efficient, low cost certification program makes a reseller very competitive in terms of the total cost of ownership for their customers. Zolta’s partnered with Paracon because they wanted to reduce the costs and complexity of their current distribution channel.

Paracon spent several weeks last quarter reassigning its staff and realigning it business processes around these vendors. This team was able to assume these new responsibilities and hit their sales targets while also discontinuing our relationship with NEC. We are very excited about the opportunities ahead for Paracon with these two key relationships.

We’ll now take a moment to update you regarding our third and newest technology area, ScanSource Security Distribution. Security Distribution had a good sales quarter, and this unit continues to be led by sales of ID card printer products. Cargill announced this quarter a new distribution strategy which will allow ScanSource Security to sell to more existing, larger dealers on a competitive basis. The success of our card printer business is providing us the profitability to remain patient as we grow sales of more traditional security products.

ScanSource Security continues to add vendors to its line card. We added [Awith] which is a wireless RFID security solution, [Avalon Wireless], which provides wireless video over IP products,[IP Configure] which sells scaleable camera management software that integrate with any brand of camera equipment, [OPIX] which offers 360 degree IP cameras, and [Tatong] which is a leader in security display monitors.

We also kicked off a marketing program to communicate the advantages of buying from ScanSource Security and raise our visibility and name recognition in this industry. The marketing campaign included ads and security trade publications, online ads, e-newsletters targeted at dealers and manufacturers reps, along with the launch of our web site and participation in Solution City.

The message of the campaign was that while some dealers may not be unhappy with their current method of purchasing product once they understand ScanSource Security’s unique model and value added services they will want to change their way of doing business. This led to the tagline, ‘you think something is good until something better comes along.’ We believe ScanSource Security has a lot of potential to add customers and vendors and grow its business in a competitive marketplace.

Our second reporting segment is International Distribution. International Distribution, which includes the geographies of Europe and Latin America, posted record sales of 55.3 million compared to last year’s quarter of 47.2 million, a growth rate of 17%. If measured on a local currency basis our international sales growth would have been 25% over last year.

Our Latin America business had a strong YOY growth rate and enjoyed its usual seasonal improvement in sales. This sales unit did particularly well given the distraction and lost selling days resulting from two hurricanes which affected the region and the Miami sales office. Sales were up in most Latin America countries, including Venezuela, Chile, Columbia, Brazil, and Central America.

Mexico was our strongest geographic market but its sales are somewhat dependent upon larger deals or projects, as they’re called in that region. We felt the impact this quarter in that while Mexico sales were good there were no large projects this quarter.

Latin America showed strong growth from key vendors including [Symbol], [Zebra], MetroLogic, [Hafson], and Zebra Card.

Europe had record sales and grew very nicely in spite of a difficult comparison from last year and the negative impact from the stronger dollar. We continued to take market share in all regions, especially in Germany and the Nordics. We added new customers, both strategic VARs who used to buy direct and some smaller VARs who need our value added services and were introduced to us via our acquisition of EDC. Those VARs like the fact that we never compete with them for end user business and have the market’s most complete line card.

Europe saw good progress with several of our POS vendors, including IBM, [Elo], and [Epson]. We expect sometime during 2006 several of our key vendors to launch channel programs in Europe which will clarify the roles played by channel members. These programs will help us demonstrate the value of a sole focus on two-tier distribution and will encourage resellers to buy from distribution since there won’t be any negative consequences.

As in North America, our merchandising team is responsible for managing vendor relationships, developing marketing programs, supporting our sales team and managing inventory. To accomplish these goals we have added headcount, training and education in Europe merchandising and are seeing the results in better inventory turns while not sacrificing inventory availability.

We will conclude this part of the call with our expectations for the March 31, 2006 quarter. As a result of our annual option grant in early January we expect the cost of option expensing to be slightly higher in the March quarter. We believe there will be approximately 1.25 million of total compensation expense related to options in the GAAP SG&A number, along with $200,000 of taxes for a net P&L impact of 1.05 million after-tax or $0.08 per share. We think total revenues for the March quarter could range from 395 million to 415 million, and excluding the affect of option expensing of $0.08 per share diluted EPS could range from $0.72 to $0.77 per share.

At this time, we’ll be glad to answer your questions.

[CALLER INSTRUCTIONS.]

And your first question comes from the line of Reik Read.

Hi, good afternoon, guys.

Hey, Reik.

Can you guys talk a little bit more about the security business, and I understand what you’re saying, that the card printing side is doing well, but it still sounds like the other businesses aren’t gaining as much momentum. It sounds like you’re doing a little bit of a marketing program. Can you talk about what the key impediments are there, in terms of ramping the business? And what you would suggest in terms of the timing before you’d start to see some movement there?

Yes, Reik. It’s Mike. Yes, we certainly would like to be moving a lot faster in security. I think the key issue right now is our line card. So, when we talked, you know, three quarters ago we talked about bringing on an anchor product line and it did not materialize as well as we would have liked. We signed a vendor who then, you know, we thought that was going to bring us some revenue as we brought on new customers from our existing customer base, and then our normal recruiting and education.

And since that didn’t happen it forced us to go and find some other key vendors that we could build a line card around. And we’re still probably missing one or two that we’d like to have, and we think once we fill the line card that will have a better solution offering to the customers that want to get into security that we already have in our Catalyst and ScanSource customer base, as well as make us attractive to some of the existing resellers in security.

So, I think that’s our biggest issue right now is giving the existing resellers a reason to come to us because they can buy enough of their products from a single source and giving our new resellers who want to get into this market enough of a solution set so that they don’t have to then go to a competitor to get started in the business, which would be a mistake on our part.

So, the marketing campaign we started was definitely targeted at the existing customers to say, ‘hey, we are here,’ and we had not done that yet, we had not done any of our marketing at the existing security base until this past quarter.

And with respect to the marketing programs will this create a significant amount of expense in front of revenues, or how would you characterize that?

I think what we always do is we balance an investment in an area, like security, with the investments we’re making in our other business opportunities, and decide, you know, what is that appropriate balance over the next quarter or two.

And so right now I would say security is getting a significant amount of that investment, and as long as we still believe, which we do right now, we still believe that that investment will mature and bring us the growth we’re looking for in our market we’re going to continue to do that. So, probably in the quarter is probably where we ended spending more money than we had originally planned, was in security.

Okay. And then just in Europe, just going off of Jeff’s comments, it sounds like there’s, the vendors are becoming more serious about directing business to the indirect channel. Can you talk about, you know, what they’re going to be doing in order to do that? Some of the mechanisms that might be in place? And, also, can you address is this the part of the consolidation that you guys have been hoping for where we will see fewer distributors and you guys will benefit from that?

Yes, I think a couple of things. One is historically in Europe there’s not been really a pan European strategy for any of the vendors. So, part of this leads to a pan European strategy in that distributors are going to be asked to be distributors only, and resellers resellers only. So, this mixed model I guess dilemma that we’ve been in will tend to go away more with this new, with the new channel programs.

So, the new channel programs, say, if you’re a two-tier distributor and that’s all you do is wholesale then you’ll get some benefits that are not available to someone who is a mixed model. So, if you’re a mixed model distributor going forward this year you will not have some of the benefit that we will get, so that’s going to naturally drive some business our way.

And I think this is one of those issues where it won’t happen all in one or two quarters, it’s going to be kicked off here over the next three to six months by several vendors. And it probable will play out over a year or two, and so that consolidation may take a year or so to happen but it will lead to consolidation, yes.

Okay. Great. Mike, thank you.

Yes.

Your next question comes from the line of Jeff Rosenberg.

Hi.

Hi, Jeff.

Let me just follow-up on one thing that you were talking about with Reik. When you were talking about security vendor and anchor vendor and not getting the, well, I guess I can ask you to elaborate on what you said. But just I would have thought that Bosch, could you give us an update on what’s happening with Bosch? I’m a little confused about what you’re saying about your progress there.

Well, I was trying to not name any names, but clearly we had had higher expectations that working with Bosch we would have been able to put together a more strategic alignment where by us bringing in incrementally new customers for them there would be some benefit to us for doing that. Meaning we would get some rewards for that like we have historically in that some existing customers would also have the opportunity to buy from us and that hasn’t happened.

So, we started down the path of recruiting customers and bringing them into that product line but then there’s been no additional movement on their part to help us grow the business without our efforts. So, we’ve not gotten any shift from their existing customer base, and that’s okay, it just means we’ve got to now go and find some other options and see how we can grow with other vendors. And we’ve played that out with them a few months ago, and they understand that.

Okay.

It delayed us basically is what I’m saying.

Right, right. No, and I guess I just, in terms of the terminology of anchor vendors and how you had looked at them originally, that’s what I was looking to clarify.

In terms of your guidance for EPS relative to the sales, are you expecting some of the minor margin erosion? Or is it, I’m also trying to make sense of your tax rate because I know that there’s a bit of an issue with the rates at which you’re taxing the options expense versus the rest of the business. But, Rich, can you talk a little bit about just kind of from an operating margin perspective, are you expecting margins to stay around 4.0% or does your guidance assume that that could go a little lower than that?

Yes, if you look at our midpoint, guidance should be at about 4% operating margins. Below the line I’m looking for a little bit of up tick in terms of interest.

And then as far as the tax rate goes, if you’re doing the without option number, because remember what we said in the call was 1250 for expense, 200 for tax expense. If you exclude those things, if you were to model a tax rate at 38 or just a tad below that that would be fairly reasonable I think.

Okay. Well, thanks. I think the issue is that the way I do it in terms of options and then adding them back.

But on the phone side can you talk about with Avia I think they had some issues with manufacturing and keeping up with orders coming out of Mexico. And does that affect higher business at all during the quarter?

Well, the easy answer is yes. So, what it did to us is we had orders that we couldn’t ship, and it definitely ended up with a real crush at the end of the quarter. And having said that, it probably left some business for this quarter that didn’t happen.

Okay, as opposed to that business going to competitors that had inventory to fill it? Or do you mean you feel like you’ve maintained that steps backlog and carrying into Q1?

Right. And if you remember, on most of our business with Avia about 75% is the ECG line where the reseller, frankly, doesn’t go to another distributor for product. So, I mean unless we obviously couldn’t satisfy them and somebody could, and it was a make or break for them, and then we would certainly support a reseller buy from another distributor. But in this case, right, we didn’t lose it to competition, it’s just delayed business for us.

But I would say in general Avia came through very strong at the end of the quarter, so most of that we did satisfy. But, boy, it made for a real challenging last week or so.

Okay. And then I guess the last kind of broad question is you are looking for a business to be a little bit better seasonally into the March quarter than you’ve often seen, than you saw a year ago. Can you talk a little bit, I mean is that some of these new larger VARs you’ve brought on, or what would you point to in terms of the current tone of business and why you’re a little bit better positioned than you might have been in prior years?

Well, you know, in prior years, especially last year, we had frankly Avia going through some challenges with their go-to-market strategy, and last year going into the March quarter we were very nervous about how that would impact our customers' business. And as we saw it did have an impact, and that’s all behind us now. So, we feel much better about our Catalyst opportunity with Avia. I would say that’s probably the biggest reason that we feel the way we do.

The second thing would be that some of the things that are happening in Europe we think might mitigate their normal seasonal decline that would happen from December to March. Last year we had somewhat of a decline in Europe. This year we don’t think it’ll be quite as much. So, I think those are the reasons that we feel good. And so, yes, on a comparable basis YOY we feel better about the opportunities this quarter than we would have last year.

So, this channel thing in Europe is something you think can start to benefit you right away?

Well, that’s actually, frankly, without that. I’m actually saying without the channel stuff it probably won’t happen the earliest till April. We still feel like we are in a better position now than we have been across Europe, and so we just don’t, we see that we’re more in a growth mode than we are being subject to just seasonality.

Great. Thank you.

You bet.

Your next question comes from the line of [David Thurman].

Hey, guys. How are you?

Good.

I wanted to just focus for a few minutes if we could on the gross margin line. Obviously, you’re pursuing some existing and new initiatives in ’06, looking at bar code and POS and Telecom. And I was just wondering if what kind of dynamics you’re seeing, positive and negative I guess from a pricing perspective that you think is going to be here in calendar year ’06 kind of move the needle in either direction on the gross margin line?

Well, we don’t have any guidance out for calendar ’06, but I would say – this is Mike, David. But what we’ve seen is that over the last year or so there was definitely some pressure on our gross margins, and I would say most of that was lead by changes in what we call ‘vendor programs’ where our vendors decide to change the role we play, meaning we might be asked to provide more higher value services in some years and less in others.

And we’re not really feeling any of that at this stage. So, right now our outlook doesn’t include any changes in vendor programs that would affect our gross margin today. That’s always subject to change, and so we always are, can tell you that probably just for a quarter.

Okay.

This is normally the time of year, though, when we comment on Avia’s program changes, and we feel like that unlike some other years where we really were waiting a long time to find out, they kind of settled in on that last quarter, and we feel very good about our program with Avia this year.

Okay, great. And in that area, as we track the quarterly progress throughout the calendar year, again, through next December, looking at those key segments, the POS, the bar code and Telecom, can you give us a sense just so we can track as each of those segments does relatively better or worse on our revenue traction area what the margin impact in each of those categories is in terms of moving the margins up or down from that 10.2%?

Hi, Dave. This is Jeff. Yes, I think I know where you’re going. And I think you’ve got a good question which is if the mix of our sales were to move in one direction toward either bar code or POS funds would that change the gross margin? And I think the good news there is that probably not a great deal. We’re mature enough now, particularly in North America, in all of our businesses that one growing faster than another probably will not change that mix a great deal. Europe and Latin America, the international segment, would have that capability to move it, but again as they’re getting to be a bigger part of our sales, it’s happening gradually enough that that hasn’t been a big factor for us.

Okay, yes, that was the direction of my question, and I appreciate that. Thanks.

Sure.

Your next question comes from the line of Ajit Pai.

Yes, good evening.

Hey, Ajit.

A couple of quick questions. The first one would be about your POS’ sort of business commentary that you provided about the state of business, could you give us some color as to whether you think that this persistent weakness especially after this recent chat with your partners, whether you think that’s the end of a very long cycle? Whether you think that there’s pushouts and you expect to come back so give us some color over there?

Sure. Our POS system sales that have been weak now for over a year really our primary customers for those products have been our larger POS resellers, or selling to larger retailers. And one of the dynamics that has happened this year is that some of those larger resellers actually also are software companies, and there’s been some acquisitions going on in the retail space by Oracle and SAP and a few other companies.

So, what we’re seeing is some consolidation of some of these software solutions which I think has led to some of the delays in some purchasing by customers trying to figure out who is it now that I’m dealing with? Is it the small U.S. company or is it now this very large enterprise company who is not focused just on retail?

So, during all of last year if you go back and look at the number of retail software acquisitions it was the highest that I can remember. And so I think that has had some impact on their ability to rollout solutions.

But you don’t think that the actual retailers have stopped spending?

Well, it’s harder for me to see it, but I would say that we’ve seen a reduction in the larger deals so when deals happen they’re in smaller bites. And I think the retailers are buying what they need for a shorter period of time and not making a decision that says, ‘I’m going to buy a thousand units, and send them to me all at once,’ or saying, ‘I’ll take 100 now and I’ll talk to you about the other hundred next quarter.’ So, I think that’s what we’re seeing is that we’re seeing a more modest buying decision every time they go, and so it’s a little more negotiation that way and our order sizes are down as a result.

Okay. So, it could even be uncertainty from the retailers about what’s going to happen finally with the software with all of this consolidation going on and not necessarily that they’re cutting projects?

Right. Yes, I wouldn’t – we’re not hearing that there’s no budget out there, but that clearly there’s some uncertainty with the retailers, yes.

Okay. And when you chatted with your partners did you sort of come to a consensus as to your expectation of when some of that spending might begin to accelerate? Do you think it’s going to be a 2006 phenomenon or do we have to wait for calendar 2007?

Well, I think, you know, from planning our business, what we always tend to do is not to depend on those things that are outside of our control, to change or to affect our decision. So, right now until we see actual results come in we’ll probably spend less of our time investing in marketing in that area until it comes.

So, I think what we would do is, you know, the way our Company works we have so many other places to grow that as a Company I won’t worry about it. I’ll just say, ‘okay, until that one comes back let’s go find a way to grow in bar code in Europe and Security and Catalyst.’ So, the good news ScanSource is we can find other ways to grow so we don’t spend a lot of time worrying about it.

Good. And so then moving on, you know, from things that are slowing down to things that are actually growing and your view of the trajectory, let’s look at RFID? So, can you give us some color over there as to whether you think it’s taking off faster than you expected, slower than you expected, or in line with what you expected? And whether that’s an area that you think you should be investing right now or you might be investing only next year?

Yes, we have continued to believe that for us the revenue of any significance won’t happen until the end of calendar ’06. And what we have seen in the last quarter we launched our RFID lab to our RFID edge program over the last couple of quarters. And in the last quarter, the December quarter, we actually had our first training classes in Memphis where our lab is located. And we trained, I believe about 15 resellers on RFID techniques, both selling and technical and provided some certification through our vendors for those customers.

So, our goal is by the end of ’06 to have about 200 resellers trained on RFIDs, so that as the market materializes they’ll be in a position to take advantage of it, and we’ll benefit from their expertise. So, yes, definitely the end of this calendar year would be the earliest we expect any significant revenues.

And these 200 resellers that you plan to have trained, are they going to pay for this or will you be providing it as a value added service to them?

They actually pay for the training. Our costs are higher than they’re paying us, but we believe that by having a cost of training they’ll take it serious and send the right people who will have the right commitment.

And are the folks that are actually conducting the training are they ScanSource employees, or are they sent by the vendors?

It’s a combination. It’s several of our employees plus we bring the vendors in to do some of their specific certifications near the end of the week of training.

And how many vendors are you working with on this program?

I think it’s five. It’s our more significant RFID vendors, as you would expect.

Okay. Okay, thank you so much.

Thanks, Ajit.

[CALLER INSTRUCTIONS.]

And Mr. Bryson, there are no further questions at this time.

Okay. Thank you very much. We appreciate you joining us for our call, and our next conference call to discuss March 31 earnings is expected to be on or around April 27th. Thanks so much.

This concludes today’s conference call. You may now disconnect.

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