漢威聯合 (HON) 2007 Q4 法說會逐字稿

Good afternoon and thank you for standing by.

All participants will be able to listen only until the question-and-answer session of today's conference call.

Today's call is being recorded.

If anyone has any objections, you may disconnect at this time.

And now, I'll turn the call over to your speaker for today, Mr.

Kevin McCarty.

Sir, you may begin.

Great.

Good afternoon and thank you for joining us on our call this afternoon as we discuss Intermec's fourth quarter fiscal year 2007 earnings results.

Joining me on the call this afternoon is Patrick Byrne, Intermec's President and Chief Executive Officer; Lanny Michael, Senior Vice President and Chief Financial Officer; and Mike Wills, Senior Vice President of Global Sales.

Before we begin our prepared remarks, I wish to remind investors that statements made in today's release and related statements during the course of this conference call that express the Company's or management's intensions, hopes, beliefs, expectations, forecasts or predictions for the future constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements include statements about the Company's outlook for the first quarter of fiscal year 2008 and future periods as well as other examples described in today's Forward-Looking Statement paragraph contained within our earnings release.

These forward-looking statements reflect our opinions only as of the date of this presentation.

Our business is subject to a number of risk factors that could negatively affect our results from business operations or cause actual results to differ materially from those projected or indicated in any forward-looking statement.

These include, for example, the risks and certainties described more fully in the Company's fillings with the Securities and Exchange Commission including our annual report on Form 10-K and quarterly reports on Form 10-Q.

Copies of these filings may be obtained by contacting the Company or the SEC.

With that, I'd like to turn the call over to Patrick Byrne, Intermec's President and Chief Executive Officer.

Pat?

Thanks, Kevin, and good afternoon everyone.

Mike Wills, our Senior Vice President of Global Sales and Services joined us on the phone call today.

Mike will discuss our revenue profile and demand picture, new product sales, service business improvement outline and progress on our channel strategy.

In addition, we just concluded our Annual Partner and Customer Conference in Orlando, Florida last week.

Mike will provide a summary of this very successful event as well as an outline of the current market outlook.

As outlined in the Q3 earnings call in November, the focus of Intermec is on two key goals - accelerating revenue growth and improving gross margins toward a target business model of double-digit growth in operating profit.

We measure our progress primarily compared to the same quarter in the prior year.

In Q4, we made progress towards these objectives.

Looking at our first objective, accelerating revenue growth, total revenues of $253 million in Q4 represents an increase of 16% compared to Q4 of last year.

It also represents the highest quarterly revenue in the Company's history.

When combined with our 5% revenue growth in Q3, we are making progress towards our objective of double-digit revenue growth.

The key factor in Q4 was balanced growth across geographies and I'm pleased to report that all regions showed growth compared to Q4 of last year.

North America revenue grew 7%.

This is our first North American growth in six quarters and represents a major improvement.

Internationally, we continue to experience significant revenue growth.

In Europe, Middle East and Africa or EMEA, revenues increased 26%.

In our Latin American region, revenue increased 33%; and in Asia-Pacific, 17% growth, all compared to Q4 of last year.

Our bookings momentum in Q3 continued into Q4 and we exited Q4 with good backlog going into Q1.

The CN3 and CN3e have been very successful new products and their sales ramp is still accelerating.

The sales ramp of these products has been faster than any product in the Company history and continues into Q1.

Our expansion of the EX25 breakthrough Near-Far Imaging Technology into a broader product portfolio to include the CK61ex is another example of innovation that is driving the top line.

We are watching market demand dynamics carefully in light of the general economic conditions.

Feedbacks from customers and partners indicates that improving the productivity of the mobile worker with Intermec expertise and solutions remains an investment priority even in the uncertain conditions created by the credit and housing news.

Looking at product line revenue contributions, systems and solutions were up 28% over Q4 of last year, printer and media grew by 1% and our services business was flat compared to Q4 '06.

This is the first time in five quarters that printer media business has grown compared to the same quarter in the prior year.

We are beginning to make real progress on a focused improvement plan in printer media, especially in the area of a more effective go to market strategy with our global channel partners.

This channel program will be coupled with the continued introduction at differentiated new products like the recently introduced PB50 in the fixed and mobile printer lines along with new offerings in our label media business.

We believe that these strategies will accelerate growth in printer media in 2008.

Turning now to gross margins.

Our second corporate focus has been gross margin improvement.

Our total gross margin of $103 million or 40.7% represents 320 basis point improvement over Q4 of '06.

Product gross margins increased by 500 basis points compared to Q4 '06.

This strength was driven by continued new product acceptance and stabilized average selling prices.

We expect that improving gross margins will enable the Company to create operating leverage from the revenue acceleration.

There are multiple stages to our gross margin improvement plan and they principally include five areas of focus - new product development, supply chain simplification, manufacturing operations efficiency, product in service mix and selling disciplines.

The fourth quarter progress on product gross margins demonstrates that we are beginning to make progress in these vital areas of business success.

Turning now to the service business.

The service business was flat compared to the same quarter last year, improving the growth and margins of this business are a key focus going forward.

Service margins decreased compared to Q4 of '06 by 400 basis points.

However, they increased sequentially 240 basis points to 41.5%.

We believe that our hardware growth demonstrated by our strong systems and solutions growth numbers, along with improving the attachments rates and contract renewals, will drive the service business in the future quarters.

In summary, our operating profit from continuing operations for the fourth quarter of 2007 increased to $25.5 million.

This compares to $8.5 million before restructuring cost of nearly $8 million in Q4 of '06.

This means we demonstrated approximately 50% operating leverage on the revenue expansion of $34.6 million.

This percentage would be even higher taking up the management transition costs and severance costs incurred in Q4 of '07 of $1.8 million.

Earnings per share was $0.27 for the fourth quarter compared to $0.08 in the prior year period.

I will now turn it over to Mike Wills to discuss our revenue profile, new product sales, service business improvement outline, our annual partner and customer conference, and progress on our channel strategy.

Thanks, Pat.

During the fourth quarter, we experienced ongoing momentum that was building during the third quarter.

This momentum was reflected in our bookings activity in Q3 and carried over into Q4 across all of our regions.

The growth was mainly fueled by the introduction of several successful products that were released throughout the year led by the CN3.

During the first half of 2007, we saw robust growth in our international markets.

As we exited Q3 and throughout the fourth quarter, we saw a similar pattern of growth emerge in North American markets as well.

Our upgraded North American sales management team has improved focus on accountability and is driving business in terms of channel mix and alignment of key opportunities.

We have significantly reduced the complexity of our sales model in North America.

This complexity was inefficient and confusing to our customers and partners alike.

By realigning our teams on clear lines of accountability and inserting one individual that is responsible not only for a given territory but also specific strategic accounts and joint account planning, we are already seeing tangible evidence that this corrective measure is yielding results.

This process has allowed us to be more collaborative with our value-added partners, who now clearly understand our sales strategy and alignment.

We are getting good traction in North America based on revenue production, bookings, and quoting activity.

As previously announced, we have also strengthened our global sales and service leadership team with the appointment of David Yung as our Asia-Pacific Vice President and General Manager.

David is a technology industry veteran who has a strong track record of delivering sustained growth in the APAC markets.

We have also named David Jones as our Vice President and General Manager of Global Services.

David is also a technology industry veteran who has built a large and comprehensive repair and professional services practice.

David will focus and align his organization with our global sales teams in an effort to increase our service attachment rates with our hardware lines.

He will also focus on improving the operational capabilities of our global repair footprint and technical support capabilities for our customers and global partners.

I want to turn my attention now to our core vertical markets and address some of the areas of growth we are witnessing.

As a remainder, the four core vertical market areas of focus are retail, consumer goods manufacturing, industrial and transportation logistics.

Four applications are warehouse operations, enterprise asset management, in-transit visibility and direct store delivery.

Our customers regardless of the vertical are facing an environment where the rising cost of raw materials and transportation places an even high premium on accurate visibility and utilization of their supply chain assets.

Our customers focus on productivity gains for field-based workers through mobility application continues to be a growth agent.

In the industrial and warehousing space, we are experiencing solid bookings led by the CK31ex and the SR61ex product lines.

Our new EX25 Near-Far scanning technology is in fact giving us a competitive advantage.

These products have been successful in the global channel community as well.

In the consumer packaged goods vertical, especially our direct store delivery or DST and route accounting applications, the CN3 continues to show good growth rates.

And as we mentioned on our last earnings call, we have introduced another version of the CN3 called the CN3e which adds a larger keypad for our DST customers.

In the retail space, the CN3 continues to open up some store management and store operation opportunities for us.

We believe that our product combinations of the CN3 along with portable label printers like the CV50 that were released this past quarter will create growth opportunities in the upcoming quarters.

[And also] transportation logistics is a very good market for us.

Our product portfolio is well suited and positions us to capitalize on TNL opportunity, primarily because of our mobility applications.

The CN3 with the industry's only integrated GPS and multiple wireless radio platforms is helping fuel the worldwide growth we are enjoying in this vertical.

I'd like to review our channel strategy that we outlined back in Q3.

Early channel sales represent more than 70% of sales in regions outside the U.S.

So the focus of our new channel strategy is primarily the U.S.

In the U.S., we plan to exit fiscal year 2008 with channel sales at a run rate of 70%.

This represents an approximate increase in the percentage of channel sales of 17% as compared with Q4 2007.

We have communicated this channel strategy to our U.S.

distribution and partner base and aligned our field resources accordingly.

To accomplish our objective, our U.S.

field sales teams have been engaged with our partner network, mapping out account transition strategies and joint business development planning for expansion opportunities.

This allows our U.S.

sales regions to scale to meet market growth opportunities in the channel and to refocus our strategic account selling teams on top tier-one accounts in each of our verticals, with a focus on increasing our share of wallet in tier-one accounts.

Lastly, I would like to brief the comment on the recent Global Sales Summit and i-comm conference held last week in Orlando.

We experienced strong attendance levels from both our global partner community as well as key customers.

In fact we set new participation records as over 570 global partner members joined us in collaborative sessions focused on market growth opportunities and new product introductions.

We were joined by over 150 customers who came to understand upcoming product introductions and participate in ROI case study focused workshops.

There was clearly a high degree of energy and desire to explore how Intermec's AIDC technologies can further assist them in solving their business challenges.

I'd now like to turn it over to our CFO, Lanny Michael, to further discuss the financials for the quarter.

Lanny?

Thanks, Mike.

Intermec's fourth quarter revenues of $253 million represented an approximate 16% growth over the prior year's fourth quarter.

The Company achieved growth across all geographic regions.

Fourth quarter earnings per share from continuing operations were $0.27 compared to $0.08 in the comparable quarter last year.

This quarter's revenue and earnings per share were both above our forecasted range provided on our last call.

Reviewing our product line performances, strong growth in our systems and solutions revenues helped drive overall revenue growth in the quarter.

The systems solutions revenues increased 28% over the fourth quarter of 2006 to $156.1 million.

This product segment represented 62% of total revenues.

Printer and media revenues of $55.2 million representing 22% of total revenues increased 1% over the comparable fourth quarter of 2006.

Service revenue of $42 million representing 17% of the revenues was flat compared to the fourth quarter of 2006.

Total gross margin was 40.7% which compares to 37.5% a year ago.

On a sequential comparison, gross margin increased 260 basis points from a level of 37.9% in the third quarter of 2007.

This demonstrates continuous progress achieved in gross margins.

Product related gross margin was 40.5%, improved substantially from the year ago margin of 35.5%.

Sequentially, product gross margin increased from the level of 37.6% for the third quarter of 2007.

Service gross margin was 41.5%, increased sequentially from a level of 39.1% in the third quarter of 2007, but declined from 45.8% a year ago.

As commented, service revenue growth and margin improvement are a key focus going forward.

Hardware product growth along with improving attachment rate and contract renewal will serve to drive growth in future quarters.

Operating expenses for the quarter were $77.6 million, including the management transition and severance expenses of $1.8 million.

During the quarter, operating expense was slightly below 31% of total revenues which demonstrates the expense leverage we achieved on revenue growth.

Operating expenses were $81 million in the fourth quarter of 2006 or almost 37% of revenues which included a restructuring charge of $7.6 million.

We achieved significant operating leverage in the fourth quarter over the comparable period in 2006.

Operating leverage measured as incremental operating profit on incremental revenue was 70% when compared to operating profit last year and roughly 50% factoring out last year's restructuring costs.

Overall, operating margin improved to 10% in the fourth quarter.

The Company's 2007 effective tax rate from continuing operations was 37.9%.

The comparative effective tax rate of 23.2% for 2006 was impacted primarily due to settlement of foreign tax audits.

The effective tax rate for the fourth quarter of 2007 was 37.2% compared to a net tax benefit realized in the fourth quarter of 2006.

Our cash tax rate as a result of use of tax law carry-forwards was well below 10% for the year.

The Company's cash equivalents and short-term investments increased $51 million in the quarter primarily as a result of cash flow from operations and also from approximately $20 million of note receivable maturities.

The cash equivalents and short-term investments position at the end of 2007 totaled $265.5 million.

Looking forward, we anticipate balancing top line revenue growth with operating profit improvement in keeping with our near-term strategic goals we have outlined.

We expect to achieve an approximate 50% operating leverage on revenue growth in 2008, driven by gross margin improvement.

We expect revenue in the first quarter of 2008 will be seasonally lower than the fourth quarter of 2007.

We are targeting operating leverage of 50% in the first quarter in line with our overall goal for the year.

Reviewing our guidance for the first quarter of fiscal 2008, we expect our first quarter revenues to be in the range between $208 million and $213 million.

Earnings from continuing operations should be in the range of $0.10 to $0.13 per share.

We anticipate the effect of tax rate for the full year of 2008 to approximate 37.5%.

Our EPS guidance assumes the dilute share account to be approximately 61.7 million shares for the first quarter.

That concludes my former remarks.

Now, here's Pat for some concluding comments regarding our progress towards our targeted business goal.

Pat?

Thanks very much, Lanny.

Before we turn to the question-and-answer session, I would like to summarize our strategy and discuss RFID.

The five corporate strategies are focused on achieving double-digit growth in operating profit.

It is the same five strategic elements that I have recently covered at investor meetings.

They are -- first, we'll target high growth opportunities in selected industries and applications; second, we will deliver highly differentiated new products; third, we'll focus on channel fulfillment; fourth, we'll invest in global extension and; fifth, we'll accelerate supply chain transformation.

In 2008, we expect these strategies will continue to enable us to accelerate growth and improve the operating margin of the business towards our stated objectives.

Now, turning to RFID.

RFID represents a substantial opportunity for Intermec's shareholders due to the strength of our IP portfolio, our unique market position as a trusted advisor for confident implementation with top customers and partners, as well as the current state of the market for RFID.

The current state of the market we believe is there -- we believe as one where product category leadership will be established in key applications for the market leaders who have strong customer engagements and proven technology.

We believe that Intermec is in this position.

Our focus in RFID applications will be the same as the rest of Intermec within warehouse operations, in-transit visibility, enterprise asset management and direct store delivery, and we will deliver the value in partnership with our channel partners.

In order to take advantage of this opportunity, Ray Cronin has recently joined Intermec as the Vice President and General Manager for this very important business.

Ray is a proven technology business leader and has worked with us in the last several months to develop a focused RFID business strategy and we have high confidence in his strategic focus going forward.

In upcoming investor meetings, Ray and others in the executive team will be outlining the focus for our RFID business in close-loop applications and selected open-loop engagements.

In summary, Intermec as I stated in our last call is all about focus and execution in these management accountabilities.

Our mid-term targeted goals remain the same, to meet or exceed double-digit growth in operating profit, and we are making progress towards those objectives.

Now, I'll turn it back to Kevin for the next steps in our conference call.

Kevin.

Great.

Thanks, Pat.

We would now like to open up our call for our question-and-answer period.

Angelo, you can provide our callers with the instructions on how to queue for this session.

Thank you.

Thank you, sir.

(OPERATOR INSTRUCTIONS) It looks like our first question comes from Eli Lustgarten with Longbow Securities.

Good afternoon.

Can you guys hear me?

Couple of quick questions.

One, can you talk about the pricing environment that occurred in the last quarter and where do you see it going forward, (inaudible) abroad and particularly, you might have probably had -- the price erosion was causing a problem and the impressive gains, I guess you alluded to in your prepared comments, were helped by more stable pricing.

Give me some feel of what's going on in the magnitude of the benefit of pricing versus volume in the quarter?

Sure, Eli.

This is Mike.

I'd be happy to address that issue.

There are a couple of comments that I'd like to weave around your question.

First of all, as we have mentioned in previous quarterly calls, we had experienced some pricing erosion in some of our product lines, partly due to I believe the moment in time as far as status and what was happening within the competitive environment, consolidation activities, etcetera, going inside of our market, also the status of our own product lines in terms of releasing certain new competitive models into spaces where we needed to be.

What we've seen in the latter half of the third quarter and certainly in fourth quarter is that that has stabilized and it's certainly coming back to the (inaudible) that Pat mentioned which is our selling methodology in terms of having a competitive product position across the board, having a great partner base with well-tuned solutions for our customers and a knowledgeable, focused sales team helps us yield this kind of premiums now.

Is there any way to quantify the magnitude of the pricing improvement year-over-year or quarter-to-quarter?

I don't believe so at this point, Eli.

We certainly from a selling methodology standpoint and discipline standpoint, that's a practice that we will continue to adhere to, even through this transition here in the U.S., especially with this transition here in the U.S.

to a channel centric model.

So, I do believe that this is a thing of the past but it's a tough one for us to quantify going forward.

As far as going to that channel -- increased channel strategy, as you move from a 53% to 70% U.S.

channels, can you quantify what's the cost of going, I assume that the cost, that's embedded in the 50% incremental margin you are assuming for the year and the quarter?

Actually, Eli, we've modeled that in our target business model and we are confident with the fact that as we engage our channel partners in this movement in specifically the U.S., and again I want to be really specific this is a U.S.

focused strategy, that we've taken that --- we've taken that into account.

And you have any quantification of what the cost of that transition might be, it being -- be assumed what kind of impact?

It's not material, Eli, at this point.

Okay, it's not material.

And with all the cash, can you talk about share repurchases for the year for 2008 or whether you are planning to use any money to buy some shares for now?

Hi, Eli.

This is Lanny, the CFO.

At this point in time, share repurchase is something that the Board from time to time might look at going forward, but there currently has no plans in place for share repurchase.

So, your share creep at the time is expected to continue for the year and (inaudible)?

Our share creep, as you referred to, is primarily a result of option activity.

We would anticipate that there would probably be incremental option activity going forward.

All right.

Thank you.

Our next question comes from Reik Read with Robert Baird & Company.

Hi, good afternoon.

Mike, you guys have talked in the past about the channel and that you have now put these five regional managers in place and you really like the folks that you have there.

Can you talk a little bit about the status below them in terms of the buy end that the existing folks are having, just what is the restructuring that you have there, there's got to be an element of retraining.

Can you just talk about those issues and how that's progressing?

Yes, absolutely, Reik.

First of all, below the Regional Sales Directors here in the U.S., we do have a sales force that is tasked to work with our channel partner base in driving what we call territorial business and accounts that we had previously had a direct presence in of some regard.

That's what I referred to in my prepared comments, about mapping over transition strategies and then working with these channel partners to help develop and grow the overall business opportunity that is within their geographic area.

We also have a strategic account management team that is focused on our top-tier customers in those four targeted verticals that I mentioned.

In terms of the buy end, I think Reik and you -- I happened to see you in Orlando, I appreciate you coming and making that investment of time down there.

You could see the buy end physically, witness it in terms of the collaboration between our sales organization and our partners who were there, and just the sheer turnout from our predominant North America community and the 570 plus partners that we had show up at our Global Sales Summit.

So, I think unilaterally there is buying and I see it evidenced in their actions.

Okay and then just away from that, you guys have talk in the past about the European postal opportunity.

There has been some pilot activity going on with Royal Mail.

Can you give us an update on what you are seeing there, what you might expect over the course of the next couple of quarters in terms of what they are telling you and then what the status is of maybe of the other opportunities that are out there.

Sure.

The mail or the postal opportunities in Europe due to the privatization emphasis on those, create an opportunity for us over the next couple of years.

In 2007, we did make progress in closing several of these, including Interlink which is a division GeoPost.

GeoPost is the largest parcel delivery service in Europe, along with an entry project into French post.

All of our postal projects continue to be alive and well and moving through the decision process.

So, Reik, we are confident in terms of our position at this point.

But, they haven't given you any indications in terms of next stages for them just coming out of the pilot?

No, not at this time.

Okay.

We have obviously monitored the pilot progress, the results.

In terms of the Intermec Solution, we are strong, but that's the status as we now know it.

Okay.

And then, Lanny, one quick question for you.

The other assets increased sequentially to $52 million from roughly $23 million, can you give us a sense for why that happened?

Primarily with a reclassification of asset held for sale.

We have assets, property assets that were carryover from some of the discontinued operations that's part of our operating, also with pension assets being recorded on a long-term basis.

Okay, great.

I want to thank you guys for having that even in Orlando, given that we have 20 inches of snow on the ground right now.

Thanks, Reik.

Any time.

Our next question comes from Tavis McCourt with Morgan Keegan.

Hi guys.

This is Chris O'Donnell, excuse me, calling in for Tavis.

Thanks you taking my question.

Couple of things, just housekeeping, what was cash from operations this quarter?

Total cash change was $51 million, of which approximately $20 million was from investing activities, from notes receivable and the balance was from operating activity.

Okay, great.

And then last quarter you broke out the per share impact of that management transition cost, what was that this quarter as well?

Well, we didn't bring out in the earnings release, it's not a GAAP item per se, but the one point it would approximately $0.02.

Okay, great.

And then, were there any large deals, and I guess you probably would have spoken [about it] at least, but any kind of qualitative data you can give us on large deals this quarter or were there -- are there large deals in the pipeline that affect the Q1 guidance?

Q4, I will dress Q4.

This is Mike.

They weren't any, of any kind of material size that impacted our performance in Q4.

As we mentioned, we saw growth in every one of our regions and we had several what we call mid-sized projects [on down] to this organic growth coming in every one of the regions that really drove the growth in Q4.

As we turn our case to Q1, we see basically the same kind of pattern emerging.

The pipelines have -- we have greater visibility into our pipelines and projects across the world.

At this point, we don't spot anything that would be of any kind of material impact in terms of project size.

Okay and I guess building off that, what's the general state of the pipeline right now and can you comment on -- I know in past quarters, you have sometimes given product bookings growth, can you give us any commentary on that either in Q4 or even more helpful would be in January, if you have it?

I think we are kind of framing that in terms of our outlook at this point relative to Q1 from what we are seeing in our expectations going into framing our total revenue range.

It's a composition of the business that we saw.

The mix of the kind of business, the type of product mixes that we experienced in Q4 is exactly what we were experiencing in Q1.

Okay, great.

This is Pat.

Just one other comment there is that, as I had mentioned, the bookings momentum continued, the adoption of the CN3 and new products, the continued new product flow and we have good backlog going into Q1, so we're -- business is strong.

Great.

All right, thanks a lot.

That's helpful.

Our next question comes from Mr.

Ajit Pai with Thomas Weisel Partners.

Your line is open.

Hi, this is Andy signing in for Ajit.

Hi, Andy.

Hi, good afternoon gentlemen.

Congratulations on a very strong quarter.

I have just a few questions.

Let's just first start with a little bit about the macroeconomic models.

As we can see the economy is softening and we are also being impacted.

Do you see in terms of your core end markets, any significant change in the first month of the year?

It seems like your guidance also guiding to accelerating growth and what gives you -- I mean you mentioned, Mike, order coming through strong.

Is there any other factor that makes you more confident in terms of accelerating growth in your first quarter?

This is Pat.

I'll start with the comments on this.

This is a very -- this a very important topic and of course, we are watching carefully what the market dynamics are because obviously we read the news as well and I've spoken to many, many customers and partners and Mike will comment in a few a minutes, but this key focus of improving the productivity of the mobile workers remains a key investment priority combined with Intermec's expertise, so that we are a valued partner is the key thing that I'm hearing about why the investments will continue.

Another thing to note is that in economically uncertain times, the companies that are well positioned from the ability to deliver this expertise and have a strong position of key products in key applications persist through uncertainty in economic conditions better and Intermec is in a strong position with those new products.

We are well positioned going into this period of time.

I'll turn it to Mike now, he can add some comments.

Thanks, Pat.

Just a couple along that line and Andy, in many ways, the resounding theme at our recent Global Sales Summit and i-comm conference was obviously around this topic and regardless of the customer or partner that I talked to, regardless of their geography, the uncertainty in the marketplace, the rising cost both on the labor side and raw material side places a premium on the level of accuracy and visibility that they have on those assets and investments that they are making in the supply chain.

And frankly, our technology that we bring to bear along with our partners, delivers very, very attractive ROIs with a heightened focus on waste reduction, whether it's labor productivity waste that they need to improve and/or raw material waste that they see in the pipeline associated with the unforeseen fluctuations in the marketplace.

So, to the point that Pat made, we actually believe that we are in a much better position as CIOs, CTOs work through their project lists and rationalize their spending, we rise to the top on many occasions because of the attractive ROIs that we collectively bring.

Well, in terms of the four verticals and the four applications that you are specializing in, is there any one of them particularly strong and do you see any particular weakness in any of those vertical or applications?

I think they are all four strong in various degrees.

Clearly, transportation and logistics because of the reason of mobility applications, making the mobile field worker whether it's field service, route accounting, making the mobile workers productive, fleet mobility type applications is an area where our customers and our partners are being able to extract some attractive ROIs, but throughout our verticals whether it's consumer packaged goods with an obvious focus on raw material reduction and waste, obsolescence waste, etcetera, retailers with their huge influence of seasonality in terms of the merchandise that they move through the pipeline, and our industrial vertical as well.

So all four really at this point, paint a picture of intense scrutiny on IT projects, but we believe that from a confident position that our technologies and our projects with our partners will continue to rise to the top of the scrutiny level.

Okay.

My question about competitive dynamics, in the past year, we have seen a number of your competitors had experienced change of ownership or kind of consolidation, do you see any material change in term of the competitive dynamics in the end markets, in terms of new product introductions, pricing, etcetera.

Andy, we don't anticipate any at this point of time.

Okay.

All right, thank you.

Our next question comes from [Richard Davis with Richard W.

Davis].

Your line is open.

Yes, congratulations on a good quarter.

Could you explain a little better what the impact of currency might be because of -- particularly in Europe where the growth was 26%?

And Mike, you might come around the breakdown between international and national markets.

This is Lanny.

I will speak first on the foreign exchange.

As we commented, we did in fact achieve growth across all geographic segments.

Foreign exchange had an impact of about $7.5 million, fourth quarter, in Europe, which was primarily impacted by the euro and the British sterling and we had approximately another $2 million other foreign exchange in the rest of world in the fourth quarter.

On OpEx side, it was approximately $3.5 million of foreign exchange cost that would have impacted OpEx and a little bit over $1 million in our cost of sales.

Okay.

Now, what was the breakdown in geographies?

Well, relative to the currencies, you don't have a specific break down by every geography.

No, no, I have something different.

Okay, great.

Well, why don't you repeat the question for Mike?

The question basically, what's the breakdown if you take the total revenues of the Company, how much were in North America, how much were in Europe and Latin America?

Just give me a minute here, I have got it.

Our next question comes from [Carey Wade with Florida Asset Management].

Hi, thanks for taking my question.

Sure, Carey.

Most of my questions have been answered actually but, in light of some announcements that you made, you made an announcement about Honeywell as a partner in the last quarter and you are announcing a new manager in this RFID division, can you talk a little bit more about your licensing strategy for RFID and the economic service and if I don't -- if I recall correctly, there was a -- some [set] provision that occurs this January or February of this year.

Can you just explain it a little more?

Carey, this is Pat.

I guess what I'd like to outline is, as I said or as we've outlined, the licensing strategy is important to the Company, licensing revenue is of course RFID and non-RFID.

We can't disclose a lot more than what we have already put in our press releases due to confidentiality agreements that we have got, so I think the best track there is what we put in our press releases.

Okay.

This is Lanny.

I just want to respond to the previous question.

Well, I won't delineate real defined numbers, rough, we are at a magnitude of about 49% of our revenues in North America, about 33% or a third of our revenues are EMEA, and the bulk -- the rest of the revenue allocation is allocated to the rest of the countries.

At this time, it looks like there are no further questions, sir.

Great.

Thanks, Angela.

Once again, we appreciate everybody joining us on our call this afternoon and that will conclude our call for the day, good evening.

This will conclude today's conference call, you may now disconnect.