Scansource Inc (SCSC) 2015 Q4 法說會逐字稿

Welcome to the ScanSource quarterly earnings conference call.

(Operator Instructions)

Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to turn the call over to Mary Gentry, Vice President, Treasurer and Investor Relations. Ma'am, you may begin.

Thank you and welcome to ScanSource's earnings conference call for the quarter and full year ended June 30, 2015. With me today are Mike Baur, our CEO and Charlie Mathis, our CFO.

We will review operating results for the quarter and the year and then take your questions. A slide presentation that accompanies our comments and webcast is posted in the Investor Relations section of our website.

Certain statements made on this call will be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include, but not are not limited to, those factors identified in the release and in ScanSource's SEC filings. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

ScanSource undertakes no duty to update any forward-looking statements to actual results or changes in expectations. We will be discussing both GAAP and non-GAAP results during our call and have provided reconciliations between these amounts in our slide presentation and in our press release. These reconciliations can be found on our website and have also been filed with our form 8-K. Mike Baur will now begin our discussion with an overview of our results.

Thanks Mary and thanks for joining us today. I'm very pleased with a very solid quarter and year for ScanSource. Let's start with the highlights for the fourth quarter on slide 3.

We reported record net sales of $857 million, up 13% and non-GAAP earnings per share of $0.66, up 5%. Both results are above our expected range.

Our record net sales reflect very good results for both segments in constant currency. Our margins and non-GAAP earnings per share were strong in the quarter and we delivered 15.2% return on investment capital. For the full year, our team achieved record net sales of $3.2 billion, representing a 10% year-over-year growth. Our gross profit margin was 10.2% of, our non-GAAP operating margin was 3.5% and our ROIC was 14.6%.

We were able to grow net sales and deliver operating performance at levels consistent with our operating goals while making importance strategic investments in our business. We executed our plan to grow our business very well.

First, we grew topline sales at or above market rates, while keeping our value added gross and operating profit margins. Second, we saw excellent growth in areas where we've made our strategic investments, including international communications, physical security, networking and payment terminals.

Our business continues to grow globally. We've invested in our worldwide infrastructure with our new SAP ERP system.

In early July as planned, we implemented our SAP ERP system in North America. This followed our successful implementation in Europe in February. We now have over 80% of our business worldwide using our global SAP ERP platform. Our team's dedication and effort resulted in our going live, on time and on budget in both geographies. We now have a flexible and scalable system that utilizes global best practices to support our future growth, including simpler and faster integration of future acquisitions.

Summarized on slide 4, earlier this week we announced the execution of a letter of intent to acquire KBZ, a leading Cisco video-conferencing distributor in the United States. KBZ was formerly Tandberg's largest distributor prior to its 2009 acquisition by Cisco and focuses its business exclusively on Cisco and complementary vendors. At ScanSource, our Cisco business has primarily been in the wireless and physical security era, and KBZ provides an experienced and well-regarded sales team, video-conferencing expertise and services success with its ZCare offering.

KBZ also brings a specialized public-sector team to accelerate sales to federal, state and local governments. With over 25 years of experience and a proven track record of success, KBZ will be a strong addition to our Cisco business. We are excited about this opportunity and that KBZ's Vice President, Kyle Zorzi, will join ScanSource as Senior Vice President of KBZ, a ScanSource Company. This team will operate as a standalone entity.

KBZ has approximately 75 employees and over $225 million in trailing 12 month sales. We expect the acquisition to be accretive to earnings per share in the first year, excluding acquisition costs, and to close by the end of September. We continue to execute on our capital allocation strategy that includes strategic acquisitions and returning cash to shareholders through share repurchases.

With that, I'll turn the call over to Charlie to discuss our financial results in more detail and our outlook for next quarter.

Thanks, Mike. We had a really good quarter.

For the fourth quarter we delivered strong topline growth of 18% in constant currency and solid EPS growth of 5% quarter-over-quarter. We achieved this in the middle of a successful global implementation of SAP, integrating our largest acquisition in Brazil and in face of a significantly stronger dollar year-over-year.

We experienced a big favorable jump in gross margins to 10.7% from 9.8% a year ago. Our focused and management of working capital was excellent, which led to $48.4 million of operating cash flow for the quarter. We reported record net sales of $857 million for the fourth quarter, a 13% increase or 18% in constant currency, or approximately $38 million negative impact. The year-over-year change in foreign currency exchange rates from the stronger US dollar negatively impacted us as I mentioned. Most of this impact is in worldwide bar-code and security segment.

Net sales increased 9% year over year, excluding our acquisitions and foreign exchange impact. Our worldwide bar-code and security segment sales were unchanged year-over-year, or a 7% increase in constant currency.

Our worldwide communication and services segment sales grew 37% which includes the acquisition of Imago and Network1. Worldwide communication and services sales increased 13% year-over-year in constant currency. Turning to profitability, the mix of business and better attainment of vendor programs led to a 10.7% gross profit margin for the quarter -- for the fourth quarter of 2015, with higher margins in both segments and across all geographies.

We were pleased with the healthy margins for the quarter. However as we said before, our business model over time has consistently averaged around 10%.

The Worldwide Barcode and Security gross margin increased to 9.1% from 8.5% for the year ago quarter. For Worldwide Communications and Services, the gross margin was 12.8% compared to 12.1% in the prior-year quarter.

Our fourth-quarter 2015 non-GAAP operating income was $28.6 million, compared to $26.2 million in the prior-year quarter. Our non-GAAP operating income includes $2.3 million for SAP related costs and an estimated $2.2 million negative impact from foreign currency translation compared to prior year.

For the Worldwide Barcode and Security segment on Slide 8, the non-GAAP operating margin was 2.7% for fourth quarter 2015. For the Worldwide Communications and Services segment on Slide 10, the non-GAAP operating margin was 4.1% for the fourth quarter 2015.

These margins include higher SG&A expenses for the SAP related ERP cost discussed earlier, and the impact from foreign currency changes which lowers the mix of higher margin international business. Our effective tax rate was 34% for the fourth quarter 2015 and 33.7% for the fourth quarter 2014. We estimate the effective tax rate for FY16 at approximate 34% to 35%.

Fourth-quarter 2015 non-GAAP net income was $19 million or $0.66 per diluted share, compared to $18.2 million or $0.63 per diluted share for the fourth quarter of 2014. Foreign currency translation had an estimated $0.05 negative impact when compared to last year, and the SAP one-time cost had a 5% negative impact as well.

Now shifting to the balance sheet and some key metrics on Slide 12. Cash and cash equivalents at June 30, 2015 were $121.6 million, principally from the positive cash generated from operations of $48.4 million for the quarter. Approximately 64% of our cash was in US at the end of the quarter.

As I mentioned, we performed well in our working capital management. Days sales outstanding at June 30, 2015 totaled 55 days, down from 57 days in the previous quarter. Inventory turns improved to 5.9 compared to 5.5 turns in the previous quarter and paid for inventory days improved by 6 days.

During the fiscal year ended June 30, 2015, capital expenditures totaled $20.8 million, primarily for our ERP project. Capitalized costs for our ERP project totaled approximately $29 million, and we began depreciating the cost over a 10 year life starting in February, with the European implementation, our first go live.

With the implementation of our SAP ERP in North America in early July, we incurred $2.3 million of SAP related costs for the fourth quarter and expect SAP related costs of another $2 million in the first quarter FY16. These expenses are primarily for outside services related to SAP implementation cost and training after the first go live that can no longer be capitalized for the project. Again, these costs will not be on-going costs for the Company.

Our return on invested capital totaled 15.2% for the quarter, compared to 14% in the prior-year quarter. We continue to execute on the capital allocation plan and remain disciplined and focused on opportunities that are strategic, accretive to earnings-per-share and increase ROIC. The planned acquisition of KBZ announced earlier this week is in keeping with our strategic business plan, our value added distribution model and our focus on growing our bottom line profitability.

In August 2014 our Board of Directors authorized a three-year $120 million share repurchase program. As of August 19, we now have repurchased over 1 million shares for approximately $39 million and executed over 30% of our authorization as part of our planned capital allocation strategy.

Now let me summarize our results for the full year. Our FY15 net sales of $3.2 billion represents a 10% increase from the prior year or a 7% increase in constant currency, excluding our acquisitions, with good growth from both segments. The gross margin for FY15 were 10.2%, in line with 10.3% for FY14 and consistent with our historical average for many years.

Non-GAAP operating income increased 1% to $114 million, or a non-GAAP operating margin of 3.5%. These results include [$4.9 million] (corrected by company after the call) of SAP related ERP cost and an estimated $4.9 million negative impact of foreign currency translation. Additionally, we experienced lower bad debt expense for the full year.

Our FY15 non-GAAP EPS was $2.61, compared to 2014 non-GAAP EPS of $2.66. With our acquisition activity and our share repurchase program, we believe we are appropriately moving toward our goal of an optimal capital structure of at least one times leverage.

Turning now to our next fiscal quarter, and let me add some color here, the forecast assumes a stronger dollar compared to the previous quarter a year ago. In addition, this forecast reflects US dollar exchange rates of $1.10 for the euro and $1.56 with the British pound, and an average Brazilian real exchange rate of BRL3.39 for the US dollar. The foreign currency translation negatively impacts our forecast versus the prior year by an estimated $36 million for sales and $1.4 million for non-GAAP operating income.

Also let me remind you on the expectations of Network1 acquisition. When we closed on the acquisition in January we indicated that the trailing 12 month sales were approximately $300 million in US dollars. With the significant devaluation with Brazil currency, this $300 million is now approximately $200 million when translated into US dollars. The operating income contribution is approximately $2 million lower in US dollars than previously expected.

Our forecast also includes approximately $2 million in the quarter for SAP related ERP costs and this will be the final SAP related costs. We expect net sales for the quarter ended September 30, 2015, to range from $820 million to $880 million and non-GAAP diluted earnings per share to range from $0.50 to $0.58.

I'd now like to turn the call back over to Mike

Thanks, Charlie. We have two reporting segments as you know, and I will start with Worldwide Barcode and Security which represents 57% of overall sales for the quarter.

Worldwide Barcode and Security sales of $490 million are unchanged year-over-year, or a 7% increase in constant currency. This growth includes record sales results for our POS and barcode teams in North America and in Brazil, and our security team in North America.

It was a strong big deal quarter for our POS and barcode units in North America and Europe. This included some specific large deals that did not happen in the March quarter that came in during June. The North America payment processing hardware sales more than doubled over the prior-year quarter.

We expect demand in the United States for EMV-enabled terminals to continue. As we approach the October 2015 date to shift liability to merchants not accepting EMV. ScanSource has been planning for this market change and is committed to helping our reseller partners be ready through tools, programs and offerings.

In Europe in local currency, we had 10% year-over-year growth in our top three countries: the UK, France and Germany. During the quarter some of our vendors increased prices in response to the significant weakening of the euro versus the US dollar.

In Brazil, we had 27% year-over-year growth in local currency, but a decline of 8% when translated into US dollars. A highlight of the quarter was the usually strong sales of our fiscal printers in Brazil.

Our physical security business in North America grew 11% year-over-year. Led by strong growth in wireless and networking, including our outdoor wireless business. During the quarter we launched a cabling and a connectivity initiative, to three vendors to provide the cabling components for our solutions. Turning now to our second segment, the Worldwide Communications and Services group, which is 43% of our overall sales.

Worldwide Communications and Services net sales of through $367 million, increased 37% from a year ago or 13% increase in constant currency once you exclude the acquisitions. This reflects year-over-year organic sales growth for all of our communications businesses in local currency. This growth included strong performance in North America, including higher big deals and good growth in our services.

ScanSource communications in North America had a record sales quarter, led by record quarters with our top vendors. In May ScanSource communications was named distributor of the year by ShoreTel. Also in May ScanSource catalyst received a Cisco Americas distribution award for fastest growing distributor. We're seeing the value of tools and solutions created to support our Cisco business. In addition, we had another quarter with good growth in our wireless and networking business.

In Europe we have begun the process of bringing together our Imago ScanSource and Europe communications businesses. Both will report to Ian Vickerage as President for the communications segment in Europe. We see this as an opportunity to improve profitability by sharing best practices, better serve our vendors in Europe and further our strategy to be the leader in communications distribution in Europe.

We had solid overall performance from Imago ScanSource again this quarter, and are very pleased with this acquisition. In Germany, the team from the former Vitec acquisition achieved good results. This quarter we launched Unify as a new unified communications vendor in the UK, Belgium and Luxembourg. And we will provide resellers with Unify's full spectrum of UC products and services.

We completed our second quarter with Network1 in Brazil. Similar to the first year following our acquisition of CDC in Brazil, Network1 is going through a transition as part of joining a public Company. The team is working closely with our CDC team and with our US team. As we've already discussed, there's been a significant devaluation in the Brazilian currency which has led to two things.

First, significantly lower than expected revenues and second, delays in purchasing for certain large projects in Brazil. Although the financial results for Network1 are disappointing this quarter, we believe we are creating the right long-term platform in Latin America for our future growth. This long-term value creation is consistent with the earnout structure of our acquisition.

As a reminder there are four annual payments payable in Reais and this aligns performance with a long-term focus. Also it's similar to what we experienced with CDC acquisition in the early days in Brazil there.

Our ScanSource services group continues to increase the number of resellers served, including wireless and network assessment readiness that crosses a broad range of products we sell. We have record volume of customer configuration services across multiple categories including key injections, point provisioning, wireless and security cameras. These services help our resellers grow their business and get projects completed sooner.

Looking back now at FY15, we've executed on our strategic plan to grow our business, while delivering a return on invested capital ROIC in the mid-teens. We expanded our International communications business with the acquisitions of two value added distributors. We successfully implemented our new SAP ERP system and now have over 80% of our business on a global platform for growth. And we returned cash to shareholders through share repurchases.

As we enter a new fiscal year, we will continue to execute our strategic plan for growth across our worldwide markets. We will now open it up for questions.

(Operator Instructions)

Keith Housum, Northcoast Research.

Good afternoon, everyone. Thanks for taking the questions and congratulations on the second part of the year. I know it is a big relief for you guys.

As we look at your margins in the communications space, they are noticeably down compared to I guess this time last year at 3.5% versus 4.5%, any drivers in the lower operating income there?

Keith, this is Charlie. As I mentioned, one of the drivers is the performance of Network1 that I tried to highlight. In acquiring that Company we are expecting that to contribute more to the operating income, in the constant currency de-evaluation, that hasn't happened.

But you guys have 3.5% operating margin this quarter versus 4.5% last year. They weren't in last year's numbers, you guys are down quite a bit in margin there, you say that is Network1?

I said Network1 is what I emphasized on the call. I would say that in this quarter-over-quarter -- year-over-year comparison we really have also the fastest-growing area of networking that's also contributing to the lower margins there. And we also have the SAP costs that are in there that are lowering the margins because that's allocated to the business units as well.

Okay. Got it.

As you think about the ERP now that it's down for a majority of the business, you guys have had a few months now of operating with the Europe and understand the US just recently, but are any efficiencies as you see down the road maybe -- being put in?

This is Mike, Keith. I will talk to that one.

I think we certainly expect to see some over time. Early days are always challenging because our whole teams have to go through a lot of new processes.

And what we believe we will do and this is probably the key benefit for ScanSource is, we are now going to be able to unify our best practices across all of these acquisitions we made, across all the geographies. And this will -- allow us to centralize some of our back-office functions over time, and we did some of that if you remember a couple years ago in Europe when we centralized some of our back-office accounting to the US. Now we will be able to look at other opportunities like that over time.

And I think what really drives the efficiencies in the system like this is really going to be longer-term, better data that we can use to make better decisions within our business, more so than trying to figure out how to reduce some of our cost. I think the opportunities to improve sales and have more information about our customers will probably offset more than anything the efficiencies we gained from the back-office. So the back-office efficiencies are not the prime focus for putting in the system.

Okay. Got it.

As I look at your SG&A cost, even backing out the extra ERP costs and the depreciation growth they've had as result of that as well, it still seemed like your costs were on higher side than usual. Was there anything else driving the SG&A line?

No. I'm not sure what you are looking at, but I can't think of anything that's really driving that. The SAP costs that we mentioned, these one-time costs in the first quarter of 2016, that will be the last time we have these SAP related costs in there.

But actually overall, we have been pretty pleased with the cost controls of our operating expenses. And we'll continue to focus on that to make sure they are in line with the gross margins and the operating income that we are producing.

Maybe one other comment I would add, Keith and we said this even a year ago. Is that we would have higher headcount and higher personnel costs as we were building our platform for growth. Including we had some people on the SAP project we are now returning to the business and so that was always part of our plan.

Okay. I guess what I'm looking at guys, as I look at your slide 5 and your $60.4 million, that's roughly 7.05% of net sales. Which if I think about $2 million of that may also be due to higher depreciation, still gives you about 6.8% of SG&A cost which I though historically you guys were usually a little bit lower than that?

I'm trying to follow where you are talking about but Keith, yes, the 6.5% is, I would say more what we will be looking for as far as the SG&A costs. Perhaps you are looking at some non-GAAP numbers with acquisition cost in there and amortization. Because I don't really see the 6.8% you're referring to.

We can take that off-line.

We will take that off-line,

But if I can squeeze one more question in on the KBZ acquisition. Congratulations on moving the ball there. What's the historical growth rate?

These are guys that have been doing very well for a long time. We are not disclosing that today. But they were really the key Tandberg guys in the early days, Keith.

And there was certainly a big adjustment for them becoming part of the Cisco landscape. And really remarkable success that they can adapt to working with Cisco versus working with Tandberg where the business model was dramatically different. But they have continued to be the real stars of Cisco's collaboration business.

They have consistently outperformed all the other broadline distributors in delivering collaboration products including video-conferencing. So we have known these guys for about five or six years.

And really respect the amount of work they have done and frankly, they've got a very strong business in spite of having plenty of competition. Including from us. So we are thrilled to have them on board.

Great. Thanks, guys.

Chris Quilty, Raymond James.

Just a follow-up on KBZ. Should we expect you to eventually consolidate distribution centers?

Hi Chris, today of course they are on a separate system so when we bring them into SAP, that is quite possible. Today they are using a 3PL so it would be fairly easy for us to do that so they don't have any of their employees working in that facility, and they get good service today, so we won't be in a hurry to move it. But for sure to move them onto our SAP system we'll consolidate.

Great. Any disruption or change in the market that you have seen from the Motorola, Zebra acquisition?

So far we have been very pleased with our business with them. I think in all of the geographies so far to date it has been a phenomenally good acquisition from our view, the integration has been very successful.

There's certainly been changes in personnel and so our team has had to work with different people from Zebra, and that's been fine. So our business with them is really outstanding. We have had no issues.

Great. Charlie, can you talk about what the acquisition pipeline looks like and your comfort level on the balance sheet?

I can talk about the capital allocation strategy that we are trying to execute against. Again, looking for acquisitions and share repurchase program, we have been successful with both of those.

Assuming that we close on the KBZ in September, that would be three pretty large acquisitions in the last 12 months or so. So I would say the pipeline has been pretty good and we continue -- we will continue to look for acquisitions at the right valuations.

How are valuations trending in the market today?

I won't comment a whole lot on this, other than to say that we are trying to be disciplined on valuations and believe that acquisitions that we make are fair for both parties and we will continue to look to do that.

Okay. A bit of a wingnut question here, I cannot think of any direct exposure to China and some of the market disruption there. But are there any derivative impacts that you guys would foresee from a softening Chinese economy?

As you know, Chris, all of our suppliers principally source products in China. And we have not seen any deterioration in lead times or supply-chain issues relative to their ability to produce goods competitively and on time. That's the only exposure we would have with, if any of our manufacturers had any problems with their factories in China and so that would be the only thing I could imagine.

Okay, and final question with the strengthening of the dollar, how has that impacted you, I guess by geography, are there any regions of the world where you are particularly disadvantaged relative to local competition because of the dollar's strength?

Typically we are trying to operate and we have tried to set up with our manufacturers a model where all the distributors in a particular region operate with the same currency. So from early days when we went to Europe we were successful at working with the vendors so that all of our key competitors all had the same currency impact. We were all buying in dollars, or all buying in euros or some combination and that's been pretty consistent.

Obviously in Brazil -- Brazil again we have very few local vendors so all of the distributors are having to deal with the same import issues that we do and so I think it is a pretty level playing field in just about every market. Very few exceptions there.

Great. Good quarter if I didn't say it and keep up the good work.

Thanks, Chris.

Andrew Spinola, Wells Fargo.

Thanks. Mike, when I look at your first-quarter revenue guidance I was wondering if you could help me understand maybe just the -- your expectations of the underlying growth in the two segments? I think you clearly had I think pretty strong growth in both segments in the fiscal Q4 and I'm just wondering if underlying fiscal Q1 guidance, is it similar trends? Or what would you think of as some of the differences of fiscal Q4 versus Q1, except maybe I think you've spoken about the weakness in Brazil?

Right. Andrew, I think there's a couple things going on.

There's a little bit of an unknown about Europe meaning the price increases that the vendors have talked about and we talk about were put in place in early April or sometime in the June quarter, okay? And the impact of those price increases we are not sure are fully realized through the supply-chain to the end users yet. In other words, some of the price -- some of the pricing in the June quarter was still at the old prices, right?

So we are not sure in the September quarter, will end-user demand be impacted by the higher prices and how much it would be. So that's a little bit of an unknown and we all believe that the markets will accept the higher prices. But it still little bit of an unknown so we probably are a little nervous about that for September, that is one item.

The second item is that we saw some business that got moved into June from March where we had really some weaknesses in the March quarter. And that business that moved into June from March we do not see replicating again in September. So that is why there is a softer outlook for Q1 FY15 from Q4, from that perspective.

Got it and you partly answered my question, my second question which is on that price increase. Historically have you have seen a pull forward when some of the vendors try to increase price and so maybe fiscal Q4 saw a benefit?

Yes, we have. And what happens is, as you know a lot of our sales are made at special pricing. They are called different things by different vendors and different programs, but the price is to meet competition are negotiated and some of them have guaranteed timeframes on them. So you had some of those guaranteed pricing set prior to the price increases that did not expire until the end of the June quarter.

Ordinarily some of those might have resulted in higher prices sooner, but we saw a significant number of those still in effect through the end of June. So that's why we are still not sure how much the September quarter will look like, and we have seen this in the past and in most cases the price increases go through successfully. I will be honest, this is a pretty big price increase, 12% to 15%, that's pretty big.

Sure. Great. That is great color.

And last question for me, real high-level, Mike, Zebra talked quite a bit out some optimism about this OS transition as they described it, and multi-year opportunity in android space. Are you seeing a similar trend and your end markets and obviously in your Zebra business where you think this could be a be a multi-year tailwind?

I think for the last probably two years, ever since Microsoft announced they were migrating their mobile platform to a new system, and as all of the ISVs, software vendors, for these mobile apps had to make a decision about which platform they were going to support. It really threw a little bit of chaos into the decision making by end users.

So we did see that. It is more prevalent in the larger customers but there are significant, it is a huge significant install base of Microsoft-based applications that are running on the old Microsoft platform. And end users, many of them have to make a decision.

We have some options, we actually work closely with a ISP that has a development tool that allows an application to be running on multiple OSs and multiple hardware platforms. And you would think that, that would be driving sales in that direction, but in general what we are seeing is a lot of end users have delayed purchasing until the Microsoft solution was clear.

So I think to make that easier to understand, I think going forward there is going to be, as Zebra said in their call, there's going to be a lot of end users that are replacing old gear. Because the old hardware is not as function rich as the new hardware. And new hardware is going to require you to either go android, or on the new Microsoft platform, so that is definitely underway.

Got it. Actually if I may just one more.

I think you have talked about -- maybe I'm mixing ScanSource with Zebra, but sort of a 4% to 5% longer-term growth rate, I know they said that, I apologize I'm blanking on what you said for the long-term goals. But this is obviously higher growth in the near-term and I'm wondering about is it a number of these one-time issues that we are seeing? Because there's so much softness across the industrial landscape out there and yet you are seeing a pretty strong result and even your guide is pretty solid. Is it a number of these one-time issues that are helping and we should think maybe a few more quarters out maybe when this POS upgrade comes end of October there will be a little bit of give back?

I think what happens in our markets and has been over the 20 odd years we have been doing this, is that the cycles for our industry, and when I say that I mean both the barcode, training, mobility and also the communications which is phones and which is voice data and video now. All of those products are mission-critical number one.

Number two that generally require a significant amount of software integration, and software integration means you don't want to do that often. And lastly you require some significant upgrade to the hardware and the software to force an end-user to migrate their install base to something new.

And I think what we are seeing is, because these are mission-critical products that have older technology and they tend to wear out over five to seven years. Now is one of those intervals balls where our industry is seeing an opportunity to replace the install base. And as that happens, I think all of our vendors are lining up to bring products out now that are much more price competitive than what the customers used to buy.

And a part of that is as Zebra indicated, there has now been a group of customers that have tried to consumer tied devices, and they rejected those for the rugged devices as long as they are at a reasonable price point. The manufacturers have done a great job of bringing out rugged devices, lower price, closer to consumer device and that's why this business is doing quite well.

Okay, that's it for me, thanks very much.

(Operator Instructions)

At this time I see no questions again. I would like to turn it back to Mr. Baur for any closing remarks.

Thank you very much and thanks for joining us today. We expect to hold our next conference call to discuss our September 30 quarterly earnings results on October 29, 2015.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program. You may now disconnect. Everyone have a great day.