Scansource Inc (SCSC) 2008 Q3 法說會逐字稿

(OPERATOR INSTRUCTIONS) Now, I'd like to turn the meeting to Mr. Rich Cleys. Thank you, sir, you may begin.

Thank you, Cindy. And, thank you for joining us for the ScanSource conference call to discuss financial results for the quarter ended March 31, 2008. My name is Rich Cleys, Chief Financial Officer of ScanSource. And, with me are Mike Baur, CEO, and Scott Benbenek, President of Worldwide Operations. We'll 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 for the year ended June 30, 2007, filed with the Securities and Exchange Commission.

I will start our discussion by providing overall sales and operating results. The Company posted sales of $514.4 million for the quarter ended March 31,2008, an increase of 4% over sales of $492.7 million for the same quarter last year. Measuring sales based upon product groups shows year-over-year growth of 13% in AIDC and point-of-sale, along with a 9% year-over-year decrease in communications products for the quarter ended March 31. That produced a 65-35 mix of AIDC POS versus communication products.

Gross margin was 10.1% for the March 2008 quarter, compared to 10.4% for the same period last year. This quarter's margin of 10.1% was adversely impacted by a decrease in Europe margin due to unfavorable pricing and a lower achievement of vendor programs. Without these two factors, our gross margin percent would have been 10.4%.

Operating expenses were $32.7 million or 6.4% of sales, compared to 6.9% for the prior year. On a non-GAAP basis, operating expenses increased from 6.3% for the prior year to 6.4%. Included in the prior year expenses were special committee expenses of $3 million related to the stock option review.

When we have significantly lower revenues than planned, our SG&A expenses as a percentage of sales is higher, because we did not reduce expenses substantially by the end of the quarter.

Operating income for the March 2008 quarter increased 10% to $19 million from the prior year. Operating income as a percent of sales, without the cost of special committee, was 3.7%, compared to the prior quarter of 4.1%, or a decrease of $1 million.

Net interest expense was $696,000, compared to $1.7 million for the prior year quarter. Interest expense decreased from prior March quarter on lower debt.

Operating cash flow for the March 2008 quarter was a negative $54 million, which is due to less inventory purchasing and accounts payable payment timing. Nonetheless, the bulk of the negative cash flow occurred late in the quarter and had little impact on interest expense for the quarter. Our average debt for the March quarter was the same average debt as the December quarter.

The tax rate for March 2008 was 38.8%, compared with the prior year quarter of 34.6%. Last year's full tax rate was 37.8%. Our year-to-date tax rate is 38.1%, which is reflective of our expectation for the year.

Net income for the March 2008 quarter increased to $11 million or 2.1% of sales, compared to $10.1 million, which was 2.0% of sales. Excluding special committee, non-GAAP net income for the March 2007 period was $12 million. Therefore, the March 2008 net income decreased 8%.

Our return on invested capital this quarter was 18.0%, which is below our historical range of 20.0% to 25.0%. This is primarily due to lower operating earnings for the quarter.

Balance sheet metrics and cash management were as follows. Inventory turns were 5.8 times at the end of the March 2008 quarter, down from 6.2 turns posted in March 2007 quarter, and 6.3 turns for the December 2007 quarter due to lower sales volume than planned.

The number of days sales in receivables, DSO, was 59 at March 31, 2008, compared to 61 days posted in the March 2007 quarter, and 57 days posted in December 2007. We increased our bad debt reserve $600,000 from the December 31, 2007 reserve balance.

Paid-for inventory days were a positive 14.5 days for the March 2008 quarter, and a positive 8.4 days at the end of the March 2007 quarter. At December 2007, our paid-for inventory days were a negative 1.7 days. Lower sales led to lower inventory purchases primarily in our Catalyst and our international business units.

Lower purchases during the quarter had the impact of lowering accounts payable by the end of the quarter. In addition, timing had a significant impact on payable days as the checks written, but not cleared, which are included as accounts payable, decreased to $30 million, compared to $72 million at the end of December. Further, we elected to take advantage of early-pay discounts, which decreased accounts payable by $15 million at the end of the quarter.

Our interest-bearing debt was $100 million at March 31, 2008, compared to $133 million at March 31, 2007. At December 31, 2007, our interest-bearing debt was $51 million. However, as mentioned previously, our average interest-bearing debt for the March quarter was the same as the December quarter.

Mike will now give you an update on our business.

Thanks, Rich. The March quarter was a disappointment as the Company experienced three significant problems. One, a key vendor's new product rollout failed. Two, lower profitability than expected in Europe, caused by major vendors local pricing policy. And, three, lower sales and purchasing volumes resulting in reduced vendor discounts. This issue will affect earnings in the June quarter.

I will address each of these issues as we discuss our business units' performance. Now, I will comment on each of our reporting segments.

North American distribution, which includes sales in the United States and Canada, posted sales of $421 million, a growth rate of 2% for the March quarter on a year-over-year basis.

Our North American discussion will start with Catalyst Telecom. As we discussed with you on our April 7th conference call, our Catalyst business was negatively impacted by the new product rollout of Avaya's Communication Manager 5.0. The new products terms and conditions led to delayed purchasing by our resellers and lost sales to competitive products. Avaya has announced changes to the program effective April 7th. And, we are cautiously optimistic that the new programs terms and conditions will restart some of the Avaya deals that are stuck in the pipeline. However, we realize that a percentage of the deals may have been lost to other vendors. Our Catalyst management team has worked closely with the Avaya team and our resellers to solve this problem as possible.

Our Catalyst unit also lower purchases significantly in the quarter, resulting in lower vendor program achievement. This will result in lower gross margin in the June quarter.

Next, I will discuss ScanSource Communications. ScanSource Communications team had a good quarter despite the lack of large deals from Dialogic. The Polycom video and audio products, however, continue to do well for us and, we believe, we gained market share in the March quarter. We also had good growth from Plantronics' audio codes and in-box.

ScanSource Communications will be investing in education and training of our resellers in the June quarter. A series of road shows and online education will enable resellers to become educated on voice, video and data convergence and unified communications. In addition, we will be creating an ISV program called, VASNET or value-added solution network, to create opportunities for our resellers and independent software vendors to collaborate.

Next up, I'll discuss our North America barcode and POS unit. We had a good quarter in this unit, as we experienced low double-digit growth year-over-year. As we continue to grow in this segment by taking market share, we will see a more competitive environment. As we discussed previously, we continue to anticipate additional growth from certain vendors' plans to push more resellers to distribution. However, we do not see any material benefit from these plans develop in the March quarter.

We are continuing our recruiting of more small to medium focused resellers through a series of regional road shows scheduled over the next few months and are still in the process of adding additional S&B-focused sales reps to ScanSource POS and Barcoding.

And now for an update on our third technology area, ScanSource Security. This business unit had another good quarter and announced a new vendor relationship with GE Security. The relationship with GE will allow us to expand our customer base and drive incremental business.

We continue to gain market share with Panasonic, Axis Communications, Fargo and Alberion. We are also excited about our new relationship with Firetide, the leader in video over mesh networks. We recently attended the ISC Security Tradeshow with our largest presence to date and attracted hundreds of prospects to our booth. We will continue to invest aggressively to grow the security business and establish our particular brand of value-added distribution.

Our second reporting segment is international distribution. Our international business, which includes Europe, Latin America and Mexico, posted sales of $93.4 million, a growth rate of 17%. But measured on a local currency basis, our international business grew by 5%.

After six years of excellent performance, we are disappointed with the results from our European business. Our growth and profitability was negatively impacted by the pricing strategy of a major vendor. We have a plan for solving this pricing problem with the vendor during the June quarter, but are frustrated that we experienced the loss of market share and profitability.

Due to the fact that we purchase in euros and some distributors purchase in dollars and pounds sterling, we became significantly less competitive during the March quarter as the dollar and the pound sterling continued to weaken against the euro at a record rate. In the past, our vendors have lessened the negative impact of currency on our costs. However, with the accelerated weakening of the dollar and pound sterling during the quarter, the vendors' actions were insufficient.

In Latin America and Mexico, we experienced a seasonally slower business than the prior year. Especially in Mexico, we had almost two weeks of almost no business at the end of March due to an early Easter week followed by spring break.

We were able to take advantage of this slow period and move to a new warehouse in Mexico City, which doubled our office and warehouse capacity to 22,000 square feet. This move is complete. And, we expect to have sales growth return in the June quarter from Latin America and Mexico.

Next, I will update you on our newest business unit, MTV Telecom, which is a ScanSource Communications affiliated company and was acquired in early April. Based in England, MTV Telecom is our first European communications business and has an excellent reputation as a true value-added distributor of voice and data products for Avaya, Siemens, Panasonic and Swyx.

The MTV Telecom sales for the previous 12 months were approximately $18 million. MTV Telecom was recently authorized to carry the mid-market enterprise products from Avaya, which will allow them to penetrate new accounts and expand their existing Avaya resellers' business opportunity. We expect to leverage our Catalyst Avaya expertise from the United States as MTV Telecom launches the Avaya enterprise products in the U.K.

We will conclude this part of the call with our expectations for the June 30, 2008 quarter. We think total revenues for the June quarter could range from $540 million to $560 million. And, our EPS could range from $0.45 to $0.48 per share.

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

(OPERATOR INSTRUCTIONS) Our first question comes from Jeff Rosenberg with William Blair. Your line is open.

Good afternoon.

Hey, Jeff.

Hi, Jeff.

Let's see. First thing, I guess, I'm just -- I guess there is several questions to ask about the European pricing issue. I mean, obviously, with the trend here in currency is going on for awhile. It sounds like what the only thing that was different was the vendor's pricing policy. Or is this one vendor? Or was it across the board in the sense of your vendors as a whole couldn't keep up with the pace of things? Could you maybe clarify a little bit about whether it's a specific problem or more of a trend problem?

Sure, I'll start and let Rich chime in too. This is Mike. Kind of the way we purchase in Europe, and we have since we started there is we told the vendors early on that we wanted to buy in the local currency, so that we could sell in local currency. So, as a result, every vendor has a European price list.

However, we have one vendor, in particular, that has always preferred that distributors and partners buy in dollars. And, we have not done that. And, we felt like that the risk of the currency was really the manufacturers responsibility, not distribution.

So, all of our vendors, except one, sell to us in local currency and they don't allow other distributors to buy in anything but local currency with the one exception of the UK, where they do have the local distributors there buying pound sterling. And, all of our vendors have consistently lowered the euro price list coordinated in a coordinated effort with the weakening that we've seen in the pound. With the dollar weakening as fast as it did last quarter and the pound weakening as fast as it did, some of the vendors and one, in particular, did not move their euro price list fast enough.

So, essentially, our inventory was overpriced in the market. And by the time we figured out how big a deal it was, we had lost market share and lost gross profit margins significantly.

And why would it have been both? I mean, I completely understand why you would have lost market share, because your product would have been mispriced. But why -- did you also have to cut prices in such a way that it was your issue, not the vendors?

Yes. So, the vendor wasn't able to give us the pricing we needed fast enough and so that we didn't have a total loss in that market share, we did take some business at very low margins, while we were arguing about what the new pricing should be and how much our inventory was overpriced. And so, the fact that the rate changed much faster in this last quarter, I'll let Rich tell you what the numbers we looked at, it's why it was more dramatic in the March quarter. The vendors would have had to change their euro prices several times during the quarter and they did not.

And so, Rich, like the change for us from the end of December to March --

Our average inventory in dollar terms was in about $1.40. The rate at the end of December was $1.46. So, we were already behind with an average of $1.40. By the end of March, the dollar euro had gone to $1.58. So, just looking at the end of December rate to the March rate, that's up 8.2%. And then, if you add to it the difference that we had in our inventory with a $1.40, you're in a double-digit change in terms of really what our cost is versus our competitors. So, you know with the margins that we work with that are fairly thin, that didn't get -- we don't have any room to work. So, we've got to get some relief. We've got to get timely relief in terms of protecting our inventory costs.

So, this was more significant than in the past, because the rates deteriorated so quickly this quarter. In the past, they've been able to more or less keep up with it. This time, they just couldn't keep up with the changes. Or they didn't keep up with the changes.

Okay. And, I guess, when you think of -- you mention that you have a plan to address this. What sort of improvement are you expecting in the June quarter? Or, if not any improvement in the June quarter, what's the timeframe to get that to where you need to be in terms of price competitiveness and profitability?

Okay, Jeff. If we look at the mid-point of the range, $5.50. I would target about a $0.46 a share target. That would assume that we really don't have any improvement in that dollar/pound pricing issue. If you look at the high end of our guidance, of $5.60 and $0.48, that does assume some improvement, but it is April now. So, one month's already gone in the quarter, so any improvement we get, we've got less time to roll it through in the quarter. So, what we're looking for is, we're looking for improvement in our margins, but we don't see all of that improvement coming through in the June quarter. It's going to take some time to get that worked through.

Okay. On a different topic, Mike, you talked about a more aggressive competitive environment in terms of your efforts to continue to grow your business in the North American barcode space. Haven't heard you bring that up in awhile. Maybe just ask you to elaborate on that a little bit.

Yeah. I think what we saw there is our business didn't grow as much as we had hoped it would in the quarter and as we looked at reasons why we didn't there were clearly some opportunities out there at pretty low margins that we walked away from. And, so, we're having to make some decisions there as to whether we take that business or not and evaluate that for the future.

Obviously, the North American market and market in the POS is not the most robust market right now. And, so, for us to grow faster than what we're growing now, would come at a cost on the margin side. And, so, really, it's more of a signal that if we try to accelerate our growth, we could and we're still trying to decide if that's a good business opportunity for us. I would say that our -- if you look the mid-point of the guidance, that still suggests reasonable market share growth, but not extreme. Not aggressive.

And is that issue broad-based in the barcode marketplace. More isolated on the point-of-sale. What -- any color there in terms of the nature of this competition?

I think it's two things. I think, one, is there is a -- it's not specific to a vendor, it's really just the other distributors in the marketplace are looking at trying to not lose, not continue to lose market share to us. And, secondly, some of these vendor plans that have been talked about, where they're going to ship some direct customers to distribution. Some of those -- some of the margins on those customers are lower than what we had hoped. And, so, if we try to gain that kind of market share, it will come at lower gross profit margins. So, again, we're still evaluating with the vendor, frankly, as to whether we're going to paid appropriately for that business.

Okay. And then, the last quick question I had is, you talked about the average debt on your balance sheet -- interest-bearing debt not being a factor. But what about in the June quarter? Are you -- was the timing issue one that quickly reverses and it's not material or do we look for lower -- or higher interest expense as we look at June?

Well, to answer the last part of the question, first. I would not look for higher interest expense as compared to March. What we've modeled at the midpoint, assuming that we purchased in accordance with plan and we pay out payables in accordance with the terms, which we do, we should have a significant turnaround in that cash flow so that that negative $54 million cash flow from operations from the quarter should at least reverse, if not better.

Okay. Thank you.

Thanks.

Our next question comes from Chris Quilty with Raymond James & Associates. Your line is open.

Good evening, gentlemen. Question for you or a follow-up question on the European situation. Can you just -- to be clear that competitors who you were disadvantaged with were local companies using, again, selling in local currency?

Chris, in some cases, it's actually larger companies that historically in the IT business that purchase in dollars. So, it's not necessarily just a local currency issue with the pound sterling, it's a U.S.-based company, who is operating in Europe, who prefers to buy in dollars.

Got you. And, so, barring price changes coming back in line, how long do you think the situation would last in terms of working through higher cost inventory to get back to more of a stable, competitive situation?

Well, we're in some pretty intense conversations right now with our key suppliers. And, I think, they want us to stay competitive in the marketplace as soon as possible, cause they appreciate the value-add that we bring to their marketplace. And, they don't want to -- and really this took their senior management totally by surprise. They did not realize how this was affecting our business until literally the quarter was over. So, our hope is that we can resolve it very quickly here in this quarter, so that we start to see the benefits before the end of June. However, as Rich said, we've not modeled that we'll get the benefit right now. We want to be a little more conservative there. But we do believe that our manufacturers and one, in particular, we've talked about on this, did not do any of this to harm our market share or our profitability.

Okay. Does that make you feel better?

I'm still kind of [pissed] off about it. But it I'm feeling a little bit better.

Okay. Shifting over to Avaya and the product rollout. Can you give us a little more color on what you think the resolution is there? And how quickly these issues you end up working through these issues to get that business stabilized?

Well, I -- so far, the feedback we're getting is very positive, meaning if our dealers look at the program changes, they are all nodding their heads saying, yep, this looks like they've done most of the right things. They didn't say 100%, but pretty good. So, now, what has to happen is, all the dealers quotes that are out there in the field have to be re-quoted under new terms, conditions. Then they have to -- now, in some cases, deal with an end user that since the end user said, hey, this doesn't make any sense to me, they may have called in an additional competition.

So, what it suggests is that we may have a little slower sales to order cycle for us than we would normally get, meaning that from the time that the reseller gets an acknowledgement from his end user that he's going to buy it, that's going to take longer than normal for them to get that and it's going to still cause some delays, we think, in this quarter.

But we feel good about it. Avaya is still making the right strategic decision with their program. All the dealers agree with that too. It's just the execution of this program was done very poorly and they acknowledge that.

Okay. And one final question. The point-of-sale business, you haven't talked about that in a while in terms of large deal activity, up, down, staying flat, still waiting?

Well, it's interesting because a couple of quarters ago, I kind of decided just quit talking about much as you just said, because what we saw was that the big deals have kind of changes over the last 18 months, where the end users are no longer taking all of the inventory at one time. When they do close a deal, they'll roll it out over a year. In the past, the reseller would get the end user to take all a year's worth of products at one time. The end user would store it in their facility and then roll it out. That dynamic's gone. So, now, we're seeing that a large deal is a roll-out deal and we don't see as big an impact in the quarter.

But having said all that, our POS business actually was pretty good. From a year-over-year basis, we had decent growth both in the U.S. and in Europe. And, a scenario that we're seeing nice, steady business, just not as many big deals as we did in the past.

And is that primarily tier-one, tier-two, or the same historic split?

I would say that it's -- the tier-one business is pretty much still monopolized by the manufacturers in most cases. So, it's tier-two business. Yes.

Great. Thank you, guys.

Our next question comes from Reik Read with Robert Baird & Company. Your line is open.

Hey, good afternoon. Mike, can you go back to the Catalyst issue and talk about with that product/program, how significant is that to your business at this point? I mean, obviously, it's big, but can you give us some idea?

Sure. I'll try. Try not to give too much of Avaya's information to their competitors, but, in general, if you recall this product is the main software that you buy when you buy their enterprise-class PBX. So, an enterprise-class PBXs are, I think we've said before many times, about 75% of our Avaya revenue. And, so, this particular product is an upgrade version of the software that we were selling December of last year. And this new upgraded version comes with different terms, conditions than the prior version.

And that has to do with -- is the central issue been that the upfront payment versus the maintenance fees are different and people are just trying to sort through that?

Yes. That's --

That may be oversimplifying it, but --

No. No, that's exactly right. Is Avaya and the dealers and distributors all got together over the last 18 months and talked about how the maintenance and upgrade of software should be handled long term. And how should it be priced. And how should it be sold to the end user. And, so, this has been talked about a lot, but as it got rolled out here in -- during this past quarter, I don't think anybody realized how the end users would react so negatively to this new offer.

And, so, that's why we talk about it being rolled out poorly, is that the end users just said, I'm not going to buy this Communication manager 5.0, forget it. I want the old stuff. And if you -- if I'm going to buy old stuff, you better sell it to me cheap. And, so, it's really just -- it stalled some deals. They've lost some deals, but they understand that they need to sell the new version. Everybody understands that. And, so, I think, we -- it's partly a terms, conditions thing right now to get people starting to buy it and work into this new software support strategy over time.

And would the changes that they've made -- I mean, I know you say the jury's out, but will your economics be different than what you thought they might have been, assuming business gets going the way you hope it will?

No. It really -- the program was -- from that standpoint was well thought it in that we don't -- it doesn't affect our profitability, frankly, either way, we're selling a piece of software just like we have before.

Okay. And then, Catalyst business away from this, I know it's smaller, but that seems to be business as usual. Is that what I'm to take?

The rest of Catalyst's business, you mean?

Yes.

Yes. Actually, Juniper, we had another record quarter. They did a phenomenal job on that product line. They did an okay job with Extreme, Polycom and the Catalyst unit even did okay. So, our sales people had to find something else to sell, frankly. And, they did a really good job with Juniper. We were real pleased with that. Aruba's just starting to takeoff. We really haven't had a lot of discussion on that yet, but that was a little slow coming out of the gate than we would like. But, otherwise, we're -- we've got the teams very focused.

And, actually, and I didn't mention this either, but our S&B business actually was okay. It wasn't a great quarter, but the Avaya S&B business actually was decent, because, again, we had to find something to sell.

Okay. And then, just on the small, medium sized bar recruitment, that's something that's been underway for awhile now. And in the last couple of quarters, you've had some pretty good success there. You've mentioned that you're adding additional salesmen. How much longer does that process last of adding additional folks? And can you give us some sense for this new group, what the penetration is in terms of them coming over to you guys?

Well, I think, we'll probably stop adding during the June quarter and then, kind of see how it shakes out over the next couple of quarters. I would say, by the end of June, we'll be finished with that ramping effort. And, I would say, we've still got several thousand companies -- dealers that either used to buy from us and they don't any longer or they buy from a competitor that we have to go penetrate. So, we feel like we've got quite a bit of business still to unlock there.

Plus, what we've done as part of this effort is we've looked at changing the number of accounts that use some of our more experienced sales reps are dealing with, because there are some of those accounts that probably weren't getting as much attention. And, as a result, we weren't getting as much wallet share as we would like. So, our team is -- we're basically saying, let's spend more effort with even existing customers to gain more share of their wallet. We think there's significant opportunity still there.

Okay. And then, just, let me ask one question on the security front. I don't know if this is a relevant question, but I thought I'd try it. Is there a historical comparison on a relative maturity basis of the security business if you look at what you guys have done with European barcode and telephony, i.e., starting out with a small unit, trying to really kind of work through a messy distribution structure and then seeing a level of maturity. And, if there is, can you kind of give us a sense for where you think you are in that business?

Sure. I think right now, we have not been able to get enough momentum in that business to get the attention we need from some of the key manufacturers and the larger customers. In all the other businesses we've been in, we were able to get some early momentum by acquisition and that's something we haven't done here. And it's something that probably is hurting us, because of the fact that we don't have the volumes to be able to at least have -- be at the same table with some of the larger competitors right now. So, I'd say that's what's probably slowing down our ability to really accelerate some momentum and sales in that marketplace. So, we've got to do a few things over the next few quarters to shake it up. So, we're looking at that right now.

It is -- but you finally have added some large guys there. Right? I mean, is that starting to turn the table? And what are maybe some of the things that you guys need to do? Because it strikes me that Europe, even with acquisitions, took a couple years for you guys to really get that squared away.

You're right. The one other hurdle in security is the number of -- the fragmentation of the vendors. So, where as we've already got on our line card about 60 vendors, in Europe, we didn't have nearly that many. And we didn't have to then go work with -- we really had to go work with the top 10 or so. Here, right now, we've got to work with like 20 of them -- 25 of them. And, now that we've added GE, that certain is a significant opportunity. We've got to figure out who are the other key vendors that we don't have that we need to complete some of the solutions, whether it's products to go along with the Panasonic sale, or products to go along with a GE sale, or some of the other ones. GE is the first vendor we really have that has a pretty complete offering. And, that's probably the most significant piece is that we can sell a total solution with GE and we've only got part of the solution with the other vendors.

Okay. Great. Thanks, Mike.

Yes.

Our next question comes from [Andy Young] with Thomas Weisel Partners. Your line is open.

Hi, good afternoon. This is a question regarding gross margins. You mentioned that your gross margin was impacted by, I guess, underachievement within vendor programs. Can you give us some more insight into how the benchmark is set? And when do you expect that that impact's going to go away?

Well, I think, there's two pieces to that. One is the underachievement and the effect it had in the March quarter, and then, also the underachievement of some of the programs and how it may affect us in the June quarter. So, we combined that effect in with the European currency issue and the underachievement of programs was a much smaller piece of that in the March quarter. And, from a June perspective, probably, underachievement of purchasing and rebates or programs in the March quarter will affect us in June, whereas we hope to solve some of the currency issue.

Okay.

The way those programs work, they are generally based on purchases. And the achievement is based on that. And then, the recognition that program happens as we sell that inventory out, generally in the next quarter.

Okay. So, January, that's why you're quarter lacked time between that benchmark and --

That's right. That turns with inventory turns. So, it's like a 60-day lag.

Okay. Got it. Thank you. And, also, one more question about the AIDC North American sales. It seems like you have variable buss sales in third quarter, it's like low double-digit. You mentioned that a few assets feel pretty soft, where's the strength coming from? Can you give us a little bit more insight in term of which market vertical perform better than you expected? And which performed worse than you expected?

Well, we generally don't know a lot about the vertical markets. So, we generally talk about the products themselves and which one did well in the quarter. I would say there was no particular product area that stood out. We had good support in printers. We had good support in our mobility products. And, as we talked about earlier, point-of-sale was okay. It was a decent quarter.

So, this was one of those where nothing really jumped out at us. We had pretty steady business across the board.

What we don't have today that we used to have are large point-of-sale deal quarters. And that's pretty much gone away. Pretty much, everything's now is more of a just a larger deal that rolls out, as I was saying earlier, on a run rate basis over several quarters.

Okay. Great. Thank you very much.

Our next question comes from Jeff Rosenberg with William Blair & Company. Your line is open.

Hi. Just looking at your June quarter revenue guidance, the midpoint is in line with sort of seasonal averages for the June quarter on a sequential basis, but still a pretty strong up tick and given all the issues. Was curious if in that assumption, you're thinking that some of the issues you've had bounce back? Or can you give a little color as to your comfort level with the sort of strong seasonal finish to June, relative to the issues you've faced?

Well, I think, Jeff, we certainly worked our guys pretty hard over the last two weeks, as you could imagine, to make sure that we have a realistic target. We want to make sure that whenever we challenge our teams internally that we have a sense for where they're stretching and where we're being unrealistic. And, we believe, these are realistic targets for us based on the current knowledge we have in the marketplaces.

We recognize that in our international business literally fell off a cliff. We essentially had a year-over-year decline in Latin America.

So, you add growth in international, plus you have reasonable growth in our North American business and we think this suggests still a slight decline, corresponds with the modeling we've done in phones on a year-over-year basis with a low double-digit growth in barcode.

And, the international, so, it should be assumed that some of that falling off a cliff is stuff that will bounce back, because you've got issues you've corrected. Is that part of the assumption there?

Yes, it is.

The other thing to remember, Jeff, is that over the March quarter, if you're comparing the March to June, over the March quarter, the exchange rate was such that we've got an average in the March quarter. We're entering into the June quarter at a $1.58. So, you're going to have some exchange rate adjusted benefit if the dollar continues to be as weak as it is. So, if you -- exchange rate adjusts back to a like number, you'll find that your international growth in euro terms is less than what the dollar numbers would show.

Okay. And then, I know it's only been two and a half weeks since you gave us color commentary on the strength of the marketplace, but you did say that North America and the March quarter was toward the lower end of your expectations. With most of April under your belt, is that still how you feel in terms of the tone of things? Or is there been any improvement there?

I think it's -- I think in our forecast, we're not suggesting any significant improvement. We're suggesting that if we decided to go after some additional market share, it'd cost us a little bit. But, I think, in our forecast, we're not making that assumption. We've got reasonable market share growth, but nothing outrageous in North America. Nothing that we can't achieve based on the relationships we have with our vendors. And, frankly, we are -- we have almost no benefit from any significant manufacturer shifting business to us. This is more current force of speed. Coming out of March. Looking at April's numbers. And saying, hey, right now, based on what we know, we don't see any significant slowdown in that business coming out of March.

Okay. Thank you.

Yes.

(OPERATOR INSTRUCTIONS) I do not show any further questions at this time.

Okay, Cindy, thank you. And thank you for joining us. Our next conference call to discuss the June 30 quarterly and full-year earnings is expected to be on August 21st.

This concludes today's conference. You may disconnect at this time.