Scansource Inc (SCSC) 2009 Q4 法說會逐字稿

Welcome and thank you for standing by. I would like to inform all participants that your lines have been place on a listen-only mode until the question-and-answer portion of today's conference call. The call is also being recorded. If you have any objections, you may disconnect. I would now like to turn the call over to Mr. Rich Cleys. Sir, you may begin.

Thank you, Holly, and thank you for joining us for the ScanSource conference call to discuss financial results for the quarter ended June 30, 2009. My name is Rich Cleys and with me are Scott Benbenek, President of Worldwide Operations, and Mike Baur, CEO of ScanSource. 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 for the year ended June 30, 2008, filed with the Securities & Exchange Commission. This afternoon, the Company released results to our fourth quarter ended June 30, 2009. I will start our discussion by providing overall sales and operating results.

For the quarter ended June 30, 2009, the Company generated worldwide net sales of $441 million. This represents a 20.4% decrease from the prior year same quarter revenue. However, sequentially compared to our third quarter, revenues increased 13.2%. Late in the quarter we did see strong sales results, including the return of some larger project-driven deals in North America that have been notably absent over the past six months. Mike will comment on each business unit's results and outlook later in this call.

In our geographic segments, sales originating from our North American distribution segment decreased by 19.3% in comparison to the prior year quarter while the international segment saw sales decrease by 24.8% over the same period. When measured in local currency, the international segment sales decreased by 15.9% as the US dollar strengthened significantly between the two comparable periods.

Within our product lines we experienced a 25.9% decrease in worldwide sales of our POS bar coding and security product categories over the comparative prior year quarter. These product categories represent 60.5% of our total sales for the current quarter with the remaining 39.5% of our total sales originating from communication products. Our communication businesses experienced a decrease of 10% in comparison to the prior year quarter.

For the second consecutive quarter, gross margin expressed as a percentage of sales has shown significant improvement in comparison to the prior year period. Gross margin percentage increased to 12.1% for the June 2009 quarter compared to 10.6% for the prior year quarter. I will briefly discuss some of the drivers of this favorability during the June quarter. First, the Company continued to benefit from the strategic inventory purchases initiated in Europe during the March quarter that were discussed on last quarter's conference call. This buying opportunity was designed to take advantage of anticipated vendor price increases introduced late in the March quarter. Accordingly, as the underlying inventory associated with these purchases was liquidated in the March and June quarters, we recognized higher than normal gross margins on the relative inventory sales -- or the related inventory sales. Also during the June quarter in our international business, we received the benefit from the recognition and collection of a number of age vendor receivables. Important to point out that both these items are one-time benefits. A more normalized margin for the June quarter approximates 10.8%.

Operating rates expenses decreased slightly in the current quarter to $33.5 million versus $34.4 million in the comparable prior year period. While the Company was able to reduce SG&A experiences below prior year dollar levels, operating expenses as per share of net sales increased to 7.59% in the current quarter compared to 6.2% in the comparative prior year period. The Company continues to benefit from the results of our previously discussed cost-reduction initiative that was implemented in January which has impacted all aspects of our business. The economic downturn has allowed our organization the time to re-examine and rationalize every aspect of our cost structure. In some cases, the savings yielded from this program were permitted to fall to the bottom line while in other cases we choose to reallocate or invest these savings in various opportunities for which we believe have the greatest potential for future growth.

Third quarter cost-reduction savings along with one-time gross margin benefits allowed to us implement programs to incent long-term demand and to reward employees. The incremental cost for these programs is approximately $2 million. Operating income for the June 2009 quarter decreased to $20 million, a 17.4% decrease from operating income in the comparative prior year quarter of $24.2 million. Expressed as a percentage of sales, operating income was 4.5% in the current quarter compared to 4.4% for the prior year period. The improvement reflects stronger margins and lower operating expenses during the quarter as discussed previously. Interest expense was $400,000 in the current quarter compared to $1 million for the prior year quarter. There was no outstanding balance on our revolving credit facility at any point during the June quarter.

The effective tax rate for the June 2009 quarter decreased to 37.4% compared with the prior year quarter of 39%. This improvement is largely attributable to a favorable income tax ruling which had the effect of decreasing our effective tax rate for the quarter and fiscal year. Our return on invested capital was approximately 18.9% for the quarter which is slightly below our historical range of 20% to 25%, but improved from the March quarter ROIC of 14%.

Turning to the balance sheet, inventory turned 7.1 times during the quarter which was higher than both the 5.7 inventory turns generated in March 2009 and 6.9 turns in the comparative quarter last year. As turns increased and related inventory balances were lower than expected, paid for inventory days were a negative 2.5 days compared to a positive 5.4 days for the March 2009 quarter and a positive 2.7 days for the comparative prior year quarter. June ending inventory was lower than targeted levels due to our strong June sales result and increases in lead times from certain manufacturers. With that in mind, we expect to have higher inventory levels in the coming months. The number of the days in receivables, DSO, was 59 at June 30, 2009, up slightly from the 58 days in the sequential quarter and consistent with the 59 days outstanding for the comparative quarter.

While cautious about the economic environment, we continue to believe that our underwriting policy is appropriate under the current conditions, and our allowance for (inaudible) accounts is adequate as of June 30, 2009. Our liquidity position is strong. The Company has over $127 million of cash and cash equivalents on hand at June 30, 2009, compared to $114 million on hand at March 31, 2009, and $15 million at June 30, 2008. For the year-to-date fiscal period ending June 30, 2009, the Company has generated over $143 million of cash flow from operations. Our total interest-bearing debt was $30.4 million at June 30, 2009, compared with $64.3 million at June 30, 2008. In addition, at June 30, 2009, there was $250 million of available funds for borrowing under our revolving credit facility. Mike will now give you an update on our business.

Thanks, Rich. We were very pleased with the results of the June quarter based on our published guidance and compared to results from the March quarter. For the June quarter, our revenue was up 13.2% compared to March and our net income was up 35.5% compared to March 2009. More importantly, we believe ScanSource is well-positioned for growth as the world economy recovers. In the June quarter we saw strong growth in our North American security business unit and significant revenue improvement in your communications units. Our teams have done an excellent job of managing cost while still providing the value-added offers for special distribution companies. Our balance sheet strength should allow us to increase service levels to our resellers and vendors by ensuring adequate supply of the most popular products and by offering appropriate levels of credit terms to our customers. Now I will comment on each of our reporting segments.

North American distribution, which includes sales into the United States and Canada, posted sales of $361.3 million, a decrease of 19.3% for the June quarter on a year-over-year basis. However, sales grew 15.3% sequentially from March. Our North American discussion will start with Catalyst Telecom. Catalyst sales unit posted strong sales results after hitting the bottom in March. The results for the June quarter were the best since September of last year. In particular, we saw a return to more historic buying patterns from our customers, especially in our Avaya enterprise business. Our Avaya results were better than we had planned and reflect the significant progress that Avaya's management team has made over the last three quarters. We expect Avaya and Catalyst to take market share as we plan for the next few quarters. Catalyst also posted record sales with Juniper and Aruba as customers recognized the value-added services provided by speciality distribution.

Next up is ScanSource Communications. In our ScanSource Communications unit we also had a strong revenue quarter as they decided our expectations with the highest sales in three quarters. The Polycom video business led the way for ScanSource Communications and the Polycom voice business also made a strong recovery. Some of the sales strength reflected certain deals that were delayed earlier this year. In addition, we believe we gained market share with Polycom in both video and voice products by aggressive sales and marketing efforts.

In addition, our Plantronics headset business also had its best results since September 2008. Next, I'll discuss the North American POS and Barcode business unit. This sales team exceeded our internal plan and showed quarter-over-quarter growth, though revenues are still down substantially year-over-year. With only a few exceptions, all POS and Barcode vendors were down similarly. The quarter ended very strong and we saw an increase in large deals compared to the previous quarter. We ended quarter with lower inventory levels than normal and we'll be working closely with our vendors to minimize any service level disruptions by increasing our inventory levels during the September quarter.

Our sales and merchandising teams have done a great job balancing gross margins, inventory levels and value-added services while dealing with the economic pressures affecting our vendors and our customers. Our strategy of providing value-added services to vendors and resellers is still the same even if some have allowed broadline distributors to unfairly compete with speciality distribution. It's our belief that as the economy continues to recover, our vendors will be more diligent regarding the role of distribution in the indirect channel. ScanSource POS and Barcode annual conference will be held in September and provide an ideal place for vendors and customers to interact and share growth ideas for next year. We believe the strong relationships we have with our partners allow ScanSource to be the leading POS and barcode distributor in North America.

I will now update you on our third area, ScanSource Security. The security team had a record quarter as they easily blew past our internal plan and gained marketshare against competition. This team had record results from key vendors, Panasonic, Axis, Sony and (inaudible). In addition, our newest vendors, Motorola wireless broadband, Ruckus Wireless and Cisco Security posted outstanding sales results. Each of our product categories performed very well as we had the right mix of aggressive sales efforts and strong inventory positions.

Our second reporting segment is international distribution. Our international business which includes Europe, Latin America and Mexico posted sales of $79.9 million, a decrease of 24.8% compared to last year. However, international did grow 4.4% sequentially. When measured on a local currency basis, our international business decreased 15.9% on year-over-year basis.

In our Europe POS and Barcode business we had a sales decline from last year and were disappointed in our results compared to the March quarter. As we discussed last quarter, our key vendors passed through price increases which we believe has hurt demand for their products. Any large deals we closed were offset by weakness in other customers who were basically flat from March to June perspective. With the extension of Italy, all major countries in Europe were down for the June quarter on a year-over-year basis. However, compared to last quarter the UK and Spain showed positive growth. The good news is that ScanSource Europe continued to benefit from opportunistic buying as prices were raised across the board. This continued to help our bottom line, but we we have preferred revenue growth. In our ScanSource Europe communications business we posted good results with growth both quarterly and year to year. We expect this growth to continue as we build out our sales, business development and management team. Our key vendors continue to support our value-added strategy and have provided significant assistance in training and educating our UK based sales and technical team.

Now turning to Latin America and Mexico. This sales unit experienced a challenging quarter with similar results with Europe. The business declined yearly and was flat quarter to quarter. Overall, Latin America has been negatively impacted by the economic recession and the currency devaluation experienced in various countries. The most significant impact was felt in Mexico as we experienced the effect of the Swine flu in addition to currency devaluation and economic recession.

Now I will conclude this part of our call with closing comments. First, I want to thank you our vendors and customers for their support and especially thank our ScanSource employees worldwide who have persevered and worked tirelessly in the challenging year in our Company's history. Looking forward, we believe total revenues for the September quarter could range from $445 million to $465 million and our earnings per share could range from $0.39 to $0.43 per diluted share. At this time, we would be glad to answer your questions.

(Operator Instructions). Our first question comes from Reik Read with Robert W. Baird. Your line is open.

Good afternoon, guys.

Hi, Reik.

Mike, could you maybe spend a little bit more time on the [telephony] business in Europe? How is MTV ramping and I think last quarter you talked about one of the next things to happen is maybe approval for higher end products. Can you just talk about how they are situated in terms of that approval process?

You bet, Reik. As a matter of fact, we did receive that approval near the end of the March quarter and so throughout the June quarter our plans have been to get our employees trained and certified so that we can appropriately support our customers who want purchase those products. So the last three or four months have been in that mode to get trained and certified. It is a requirement that Avaya expects from all their distributors, so we feel very good about our capabilities now. As I referenced, Avaya has been excellent working with us on that. We also brought some of our talent and expertise from the Catalyst unit here in the states to our business over in the UK so we are providing them some expertise and some tools and some ideas for how we are so successful with Avaya enterprise in the US. So we're feeling good about the trajectory of the Avaya business in the UK and expect that to continue.

And then just generally on the telephony side you talked about I think resolution with respect to the pricing channel conflicts out there. There two questions. One, do you feel that is 100% behind you? And, two, would the improvement that you saw -- how much of it is related to that issue versus just the Nortel situation?

Well, I think, again, regarding the Avaya price issue, which we're talking about in the US, right?

Right.

Those issues, as we said last quarter, began to resolve themselves and let us basically call a bottom in our Catalyst business back in the March quarter and, indeed, that came to fruition because our enterprise business was very strong on a quarter to quarter sequential basis in June and it would not have been that way if there were still any significant pricing issues. So I would say at this point in time we feel very good about the resolution of issues, our partners do. We had our annual Avaya partner conference in May. It was well attended. Partners all felt like things were starting to turn around for them and I think we're really feeling the impact of a new management team that was in place now a year-ago I guess May, and they are starting to give us and the channel more comfort in the overall direction that Avaya has said from the very beginning would be a channel-centric direction. I think in general it's better resolution of the pricing, as you suggested, but also also just an overall strong feeling that Avaya is a key player long-term, especially with the way the Nortel situation has played out.

So you are suggesting with that that that they are getting back to the traditional model of actively moving more business your direction or to the indirect channel?

They wouldn't say it quite that way, so I won't either. I would say they have eliminated any road blocks for the channel being more successful than they were a year ago and it's less of they're moving business over as they have eliminated a lot of the obstacles we had all of 2008. So I would say that is a more accurate representation.

Okay. And then just going to the pricing situation in Europe. I guess, how much of that price increase is now reflected in your inventory or maybe said a different way has all the favorable inventory been depleted? Because I think that what I am trying to drive at is you had a nice result last quarter as a result of that, you were suggesting that things might add back and obviously that inventory stayed with you and helped out this quarter. Is that something that still has another half quarter or so to go or is that done?

Reik, the price increase, the old price inventory has turned so we don't have any more of that benefit coming through.

Okay. Great. Thank you, guys.

Thanks.

Thank you. Our next question comes from Brian Drab with William Blair. Your line is open.

Hi, Mike. Hi , Rich. First question regarding Nortel. Could you maybe quantify or maybe just speak qualitatively how the acquisition of Nortel's enterprise solutions by Avaya is going to affect

Well, I guess, Brian, it's all yet to be played out. I think in general, if we talk about where we are relative to trying to recruit Nortel resellers, I can give you a little bit of color there because I think that may be relevant for the last nine months we have had an intense focus on Avaya and Nortel resellers and I can tell you this, it's very hard to move a reseller over to another line. They are not going to easily be able to do it. There are a lot of technical issues. They have to have new people trained and certified. So there is a lot of investment that it takes to move a reseller from one brand, whether it's Nortel, Avaya or others, to another. So I think having seen that, that it's difficult to move somebody in a short period of time. If, indeed, Avaya does capture the Nortel business, then we would hope that would mean there would be some opportunities down the road for our business to sell to those Nortel resellers Nortel product. I I think it's more likely that is the way for quicker revenues than it would be to move them to Avaya.

Okay. Great. And you talked about some sequential growth rates in the quarter. I'm not sure if I missed it, but what did Catalyst grow sequentially from the third to fourth quarters?

We don't disclose Catalyst as an individual business. I think what I mentioned was the overall communications business was, I think we were down 10% year-over-year and then sequentially -- let me calculate that and get back to you on that. I will get back to you later.

Sounds great. And then just the last question. Are you expecting some significant impact from seasonal weakness in Europe in your fiscal first quarter or do you expect that that business will stay flat as you kind of indicated it had recently in your press release?

Yes, I think if you look at the mid point of our guidance at $455 million for the quarter, I would say that reflects our caution about the September quarter in regards to international, especially Europe. This is always their most challenging quarter with everybody on holiday and we were laughing with our guys the other day, Scott and I were, we were debating whether everybody is still going on holiday in Europe and apparently still are. We were hoping someone would stay home and stay at work, but apparently customers and end users are still taking their normal holiday time off. They may not be going as far, but I think, yes, we have that imbedded in our forecast.

Great, thank you, guys.

Brian, the sequential growth for the phone business is 20.7.

Okay. Thanks, guys.

Thanks.

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

Thanks. Quick question for you, Rich. I may have missed it, my phone blanked out when you were providing guidance, but did you give explicit gross margin range for the upcoming quarter now that the favorable inventory has bled down?

What I indicated in the comments was that a normalized gross margin for June would have been 10.8. Inherent in our guidance, I would be look at 3.9 of operating profit.

Okay. And so the other part of it is, and we had talked last year with the addition of some of the video products, acquisitions and some of the security business, you felt like you had moved up to a little bit more of a permanently higher plateau in both gross margins and at the operating level. Does that still hold, economic issues aside?

I think, Chris, inherent in that 10.8% even though we have even an influx of some of the larger deals in North America, we're nowhere near at the levels we would have been a year ago in North America and certainly not in our international business. As we have had said before, our margins will go down as we get those bigger deals with less services. So that 10.8% targeted margin might be -- it's certainly not reflective of a full load of larger deals.

Okay. And any foreign exchange issues or hedging issues that we should be concerned about on a go-forward basis?

I think right now in terms of with the way the vendors treat us, they are treating everybody else the same way in the currency that they sell in so competitively we're on an even playing field and we should be able to handle it.

Good. Final question here. You getting close enough that you are going to start breaking out that security business for us?

I will let Mike answer that one.

Yes, I think we are, but we'll wait another quarter and see how we do.

Okay. Thanks, guys

Thanks, Chris.

Our next question comes from Andrew Abrams with Avian Securities. Your line is open.

Hi. I wonder if you could characterize your first quarter guidance a little bit for us and kind of push us towards the increase being Avaya oriented or AIDC oriented or how does it play out? Are you seeing enough of an improvement in AIDC by itself or is this kind of a combination in both as Avaya pushes more into the distribution side?

I think as we look at our guidance at the mid point you have got movement in both areas really. We have got growth, again, quarter to quarter, Barcode, POS implied in that. That is kind of what we see.

In the communications side, would this be kind of the normal Avaya fourth quarter that they have a tendency to do automatically regardless of what is going on in the macro side or is this just the general trend in Avaya's business recently?

I would say, I mean, good news about being able to give you guidance is we're already into August a good ways. The challenge is that historically, as you are referencing, September, outside of last year is always a strong quarter for Avaya because it's their fiscal year-end. So I would say we are assuming in our guidance that we would have a strong September quarter with Avaya. Yes.

Got it. Thank you.

You bet.

Anthony Kure with KeyBanc Capital. Your line is open.

Good afternoon guys. Just a quick question and hopefully you can drill down on your comments around the unfair practices by broadline distributors. I think it was in the context of POS Barcode segment. Maybe you could give a little color on that.

Sure. I think in general we have seen during this economic recession some manufacturers have new management teams in place and different, I guess different views about the role of distribution. So we have been disappointed that some vendors changing policies that historically have said we need value-added distribution. We have always had broadline distribution competitors, but there seems to be some disregard for the role they should really play which should be bringing in incremental business, not stealing business from distributors who have invested significantly in infrastructure and services that we think are appropriate. So we're just signaling that, especially in our Barcode and POS business, we have seen more, I guess, backslide among certain vendors over the past year and starting to get to the point that we need to start talking about it internally with those vendors and we wanted to make mention of it today because it is an issue for us.

Okay. And then maybe, if you could give a little -- I know end markets are tough for you to discuss, but looking at what the retailers are doing as far as their sales. Have they given you any indication or maybe your resellers that sell into resell primarily, how dependent they are or how they are looking towards maybe back-to-school sales or Christmas coming up here whether or not that is kind of the leverage point or the key point as to whether or not 2010 on a calendar basis will be a better IT spend year in that end market?

I don't have a lot to offer there, Tony. I think what I'm looking forward to is we have our POS and Barcode North America partner conference coming up in a few weeks in mid-September and we hope to glean some of that information from them then so we can better plan for the December quarter. Clearly, the retail business is mixed. We read the same reports that you guys do from the end market and there are places that are doing well and others that aren't. We have seen, even in the June quarter we saw some of our point of sale vendors actually do pretty decent and others continue to do very poorly. So I think it is very spotty. I think it depends on whether the products being sold are more what we used to call "large systems" which generally referenced our POS, large POS vendors like NCR and IBM versus some of the component-based POS companies that provided cash drawers and printers and scanners. So I think there have been some peripheral purchases of these pieces and parts companies that are finding ways that close the business and that is more prevalent right now than large-system purchases, if that makes any sense. It seems like the retailers are replacing pieces and parts that they have to rather than the entire system.

Okay. That makes sense. Finally, I don't know if you normally comment on what the assumed tax rate is in the guidance for the upcoming quarter?

Tony, are you asking about the income tax rate?

Yes, for the guidance, yes.

I think if you look at, say, 37.5%, something in that neighborhood, that should probably be reasonable.

Okay. Thank you.

Thanks.

(Operator Instructions). [Andy Young] with Thomas Weisel Partners, your line is open.

Hi, good afternoon.

Good afternoon.

A couple of questions. You mentioned some large orders coming back in North America. Can you give us some more color on where the strength is coming from? I s that vertical or manufacturing or some other verticals?

I could say this, it was less point-of-sale and retail than we would have had historically. It was more our AIDC business, which we don't know exactly the deals, but in general I would say it's more industrial-type opportunities which would suggest manufacturing and distribution.

Okay. And then next question is about Europe. I think there is some confusion regarding the strength of the European economy. Can you give us some color on your view regarding your end market there in Europe and if things will improve in the second half of this year?

Well, I think we have had some disruptions in what we would normally feel because the way we would get our information because of these price increases. We have had such substantial price increases that started in the March quarter, first calendar quarter. So I'm still not clear yet on some of the problems that we're having because end-users are saying, wow, I will just sit this out until the prices resolve or is it just that Europe is behind the US from an economic standpoint with our businesses? But I guess, again, our view is colored by the fact that these price increases were substantial and, yes, we benefited on the bottom line, but we would have much rather seen some improved growth and I think some of those deals and some of those opportunities have gotten delayed because of these price changes.

Can you elaborate a little bit about the price increases for your products? If you look at the US dollar, it has been declining for the last few months. What is the reason for the price increase over there?

The manufacturers made these decisions back in January and they started rolling out in March, as Rich said. So you would hope that that will start coming back the other way, but we haven't seen it yet.

I see.

I think in some cases, there are specific pressures by certain manufacturers.

Okay. And then one final question is about cash and you guys have done a great job in general with cash the last three quarters. Now that you have a net cash balance of almost $100 million, what is your priority for the use of cash?

The number one priority is going to be growth.

That is internal?

As our business grows we start to grow at a nice double-digit rate again, we'll be investing in inventory and receivables and that does use up some of that cash, because that is where it came from.

Okay. Internal growth versus acquisitions?

I think primarily Rich is talking about internal, organic growth, but we have said all along that we are always interested in acquisitions. Right now the obvious place that we want to grow either, well both organically and potentially in Europe in the communications business.

Thank you. That is all the questions that I have.

Thank you, the last question I'm showing comes from Gregory (inaudible) with Lord Abbott. Your line is open.

Thank you, maybe I will be the first one to say nice quarter.

Thank you, Greg.

With regard to the guidance for the sales growth, you have talked about the pricing in there. Any sense, is there a lot of that from the price increases that you have seen in Europe?

I didn't quite follow. Can you help me?

The price increases that you realized in the fourth quarter, is that -- is there still continual -- is there flow through into the first quarter as well from that price increase on a sequential basis? Will you see more price increase in the first quarter?

The price increase where we went ahead and bought inventory ahead of the price increase, we bought the inventory in the March quarter, we turned that inventory by the end of June. The prices to the customers were changed in that March quarter at the end of the quarter. So from a selling perspective, it's out there already. From a buying perspective, we were able to buy enough inventory to carry us through the June quarter.

So there is not a lot of sequential price increase in that guidance?

In terms of the topline?

Yes.

Yes, you are correct.

Okay. Just so I understand. Then you talked about the large project in North America. If I look at just looking at the mix of your expectation out there, is it fair to say that you are looking for something close to a traditional mix with large versus -- large projects versus other?

Yes, I think, Greg, our revenue guidance shows some uptick, but I don't think this guidance is going to get us to where we would have been on larger deals a year, a year and a half ago. There is still more opportunity for larger deals versus what we did a year and a half ago on top of these numbers.

Okay. Good. And then when you talked about the gross margins up front you mentioned collecting on, I guess, age receivables or something of the like and that added to your gross margin, is that correct?

Yes, that is vendor receivables.

And that is complete?

Yes. I would look at that as really a one-time benefit.

And should we look at the tax rate sort of going forward on a continual base as around 37.5%?

I mentioned at the end of my comments that we had received a favorable ruling and that ruling should be an ongoing benefit that we'll have going forward. So the 37.5% should be a sustainable rate?

Sustainable? So you are not going back to 39% any time soon?

If can you tell me when legislation is going to change, I can give you that answer, but if the legislation doesn't change, I think we're pretty good.

All right. Thank you very much.

Thank you.

We do have another question. [Eric Indy] with First Pacific Advisors, your line is open.

Still a great quarter. Congratulations. In the past when you discussed the issue of unfair competition from broadline resellers you've indicated that you were not going to be undersold, though of course you draw value-added services on deals like that. Is your attitude any different now than it was then?

No, I don't think it is. I think the reality of it is when we're struggling with how do we grow our revenue, we try to be very clear with our sales team back even in January, that we don't want to take unprofitable business. Historically we have said we won't Lois market share and since January we had to look at that really hard and understand does the vendor care whether we lose marketshare or not and does the vendor long term prefer us to have what we call value-added margins or not. I think with all the new management changes at our vendors overall, we're just having to have those conversations and it's never been our internet to lead a price war, but we'll be the faster number too, I can tell you that.

Okay. Thank you.

Thanks, Eric.

Showing no further questions.

Thank you, Holly. Thanks everyone for joining us. Our next conference call to discuss the September 30 quarterly earnings is October 22, 2009. Thank you very much.

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