漢威聯合 (HON) 2008 Q1 法說會逐字稿

Welcome, and thank you for standing by.

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Now I'll turn the meeting over to Mr.

Kevin McCarty.

Sir, you may begin.

Good afternoon, and thank you for joining us on our call this afternoon as we discuss Intermec's first quarter fiscal year 2008 earnings results.

Joining me on the call this afternoon is Patrick Byrne, Intermec's President and Chief Executive Office; Lanny Michael, Senior Vice President and Chief Financial Officer; Mike Wills, Senior Vice President of global sales and services, and Ray Cronin, Vice President and general manager of RFID.

Before we begin our prepared remarks I wish to remind investors that statements made in today's release and related statements during the course this conference call that express the Company's or management's intentions, hopes, beliefs, expectations, forecast, 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 second 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 uncertainties described more fully in the Company's filings 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's, 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, and Ray Cronin, Vice President and general manager of RFID have joined Lanny and I on the call today.

Mike will discuss our revenue profile and demand picture, service business improvement status, and a progress update on our channel strategy.

Ray will outline our RFID strategy.

As we've outlined in our two earnings -- last two earnings calls, we are focusing on two key goals; accelerating revenue growth and improving gross margins toward a target business model of double-digit growth and operating profit.

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

In Q1, we continued to make progress toward these objectives.

Looking at our first objective, accelerating revenue growth.

Total revenues of $217 million represents an increase of 21% compared Q1 of last year.

This represents the highest first-quarter revenue in the Company history and continues our momentum from our strong finish in 2007.

Growth was balanced across the regions.

North America revenue grew 25%, North America was led in part by improved business momentum through the channel.

Internationally, we continued to experience strong revenue growth.

In Europe, Middle East and Africa revenues increased 24%.

In our Asia-Pacific region, we increased our revenue 28%.

And in our Latin America region, revenue decreased by 14%.

There were several large deployments in the first quarter of 2007 in Latin America that make the comparison challenging.

We remain very confident of our market position in the Latin American region and the growth prospects.

Looking at product line revenue of contributions, systems and solutions were up 35% over Q1 of last year, and printer and media grew by 12%, while our services business was essentially flat compared to Q1 '07.

We're making progress in printer and media, especially in the areas of our -- of a more effective go-to-market strategy with our global channel partners.

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

Turning now to gross margins, our second corporate focus has been on gross margin expansion.

Our total gross margin percentage of 40.3% represents a 430 basis point improvement over Q1 of '07.

Product gross margins of 40% increased by 510 basis points compared to Q1 '07.

This strength was driven by continued new product acceptance, stabilized average selling prices and manufacturing efficiency initiatives.

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

The product gross margin improvements are especially important to operating leverage as the volumes continue to grow in the future.

Lanny and Mike will comment on our service margin results and our focused improvement plan.

This is a very important business for us, and we are making progress in margin improvement.

In summary, our operating profit from continuing operations for the first quarter of 2008 increased to $12.2 million.

This compares to a loss of $5 million in Q1 '07.

This means we demonstrated 47% operating leverage on the revenue expansion of $37 million.

Earnings per share was $0.13 for the first quarter compared a loss of $0.07 in the prior-year period.

I'll turn it over to Lanny to provide additional financial insights for the quarter.

Thanks, Pat, and good afternoon, everyone.

Our first-quarter operating performance demonstrated the progress we have made on our revenue growth and operating profit initiatives.

Intermec's first-quarter revenue reported of $217 million represented a 21% growth over prior year's first quarter.

First quarter earnings per share were $0.13 compared to $Q0.07 in the comparable quarter last year.

This quarter's EPS came in at the high end of our guidance range, while our revenue performance exceeded our forecasted range.

We received strong operating leverage in the first quarter over the comparable period of 2007.

Operating leverage is measured as incremental operating profit over the incremental revenue achieved.

Q1 '08 operating leverage was 47%.

Overall operating margin improved to 5.7% versus a negative 2.8% in the prior-year's quarter.

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

Systems and solutions revenues increased 35% over the first quarter of 2007 to $126 million.

This product line represented 58% of total revenues.

Printer and media revenues of $54 million, representing 25% of total revenues, increased 12% over the comparable period in 2007.

Service revenue and $37 million -- was $37 million and represents 17% of total revenues.

Total gross margin was 40.3%.

This compares to 36% a year ago, representing a 430 basis point increase.

This demonstrates continuing progress in achieving year-over-year gross margin improvement.

Product-related gross margin was 40%, improved substantially from a year-ago margin of 34.9%.

Service gross margin was 41.6% and increased 130 basis points over last year's comparable period of 40.3%.

We believe hardware product growth, along with improving attachment rates and contract renewals, will serve to drive growth in future quarters.

The changes in foreign currency conversion rates favorably impacted revenue by $9 million in the quarter over last year, with about $7 million of this in EMEA.

Operating expenses for the current quarter was $75.2 million.

The increase compared to first quarter last year of about $5.6 million was primarily related to sales expense, stock and incentive compensation, and auto-related expenses.

Foreign currency conversion also had a negative impact on certain operating expenses, primarily in EMEA.

The Company's first-quarter 2008 effective tax rate was 36.3%, The comparative effective tax rate for the first quarter of 2007 was a net benefit of 7%, primarily from recording evaluation allowance for certain foreign deferred taxes and the impact of changes in tax rates.

During this year's first quarter, the Company paid off at maturity its $100 million in debentures, which eliminated the Company's long-term debt.

The Company's cash equivalents and short-term investments decreased approximately $78 million in the quarter, primarily as a result of the debt repayment.

Cash flows from operations were approximately $17.5 million during the quarter.

Cash equivalents and short-term investments position at the end of the first quarter totaled $187.7 million.

Net working capital from receivables, payables, and inventory were flat compared to the prior quarter.

Decreased net receivables more than offset the inventory balance increase.

We typically see a sequential increase of inventory in Q1 over Q4, and we also had to build a certain finished product for anticipated orders.

We expect a decrease of inventory in the second quarter from the first-quarter levels.

With the elimination of interest expense related to the debentures that were paid off in March we are targeting net interest income of approximately $0.5 million per quarter in the near term.

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

Reviewing our guidance for the second quarter of fiscal 2008, we expect our second-quarter revenues to be in the range of $227 million to $232 million, Earnings from operations are expected to be in the range of $0.18 to Q$0.21 per diluted share, and we anticipate the effective tax rate for the full year 2008 to approximate 37.5%.

Our EPS guidance assumes the diluted share count to be approximately 61.8 million shares for the second quarter.

That concludes my formal remarks and I'll now turn it over to Mike for his remarks.

Thanks, Lanny, and good afternoon, everyone.

During the first quarter we continued to experience the sales momentum that was building throughout the second half of 2007.

That momentum translated to a year-over-year increase in quarterly revenues of over $37 million, or 21%.

Product revenues were driven by a $33 million increase in systems and solution product sales along with a $6 million increase in printer and media product sales.

Growth of our systems and solutions products line reflected the ongoing strength of our CN3 mobile computer and the newly-launched CN3e products within the terminal family.

Throughout the quarter these deployments occurred in every region and within all of our targeted verticals of transportation logistics, retail, consumer goods, and industrial markets.

The growth achieved in our printer and media business was driven by new orders for both our industrial printers, as well as our portable printer line.

Service revenues were flat over the first quarter of 2007.

This performance was attributed to the decrease in hardware sales during early 2007.

Service revenue lags hardware unit revenue that typically cycle through a manufacturer's warranty period and became eligible for service contract or repair coverage.

When a downturn occurs in hardware units sold over prolonged period lasting more than one quarter, as we experienced in early 2007, the service revenue opportunities trail off to reflect a lower eligible opportunity in the following year.

With hardware revenues climbing in Q4 of 2007, and in this current quarter of Q1, 2008, we believe that service revenue will reflect the same trailing trend of growth in late 2008 and into 2009.

Specific actions are in place to deliver improved service contract attachment rates, as we continue to drive overall hardware growth in all regions and through all of our channels.

We are also focused on driving efficiencies in our global service repair process, to take advantage of a growing volume of units in the marketplace.

I'd like to now turn to our regional performance.

Growth in North America of $23 million.

or a 25% growth over Q1 of 2007, was due to a strong and balanced product demand across all subregions in North America including Canada, U.S., and our government sector.

It's also an early sign of success associated with the transition to a partnercentric selling model to engage a broader market set through our North America channel partners.

We're also seeing an increasing pipeline of activity in our enterprise space within our vertical markets, as well as our government market.

Our quoting activity, bookings, and pipeline analysis remains attractive within North America.

Growth in EMEA, or Europe, Middle East and Africa, of $15 million, or 24%, came from a balanced contribution of growth from all regions, with higher growth percentage rates in Western Europe and the Middle East.

One of the key areas of mobile device opportunity for us in Europe are the postal projects.

We're encouraged by our progress in this arena, and there continues to be a large number of European postal projects that we are tracking.

Revenue growth of 28% in Asia-Pacific over Q1 2007 was driven by strong growth in our systems and solutions product lines.

Our Latin America region decreased 14% in Q1 2008.

This was driven by a tough comparable in Q1 2007 that included large consumer packaged goods and beverage distribution account rollouts in that period.

Our business pipeline in Lat Am remains attractive and we continue to make progress in building a balanced product and vertical growth strategy in the region.

I would also like to review our channel strategy that we outlined in our last call covering Q4, 2007.

As a baseline reminder, for all regions outside of the U.S.

we are at or above 70% participation rate with our distribution and channel partners in our revenue.

Historically, we have operated well below that rate in the United States.

We plan to exit fiscal year 2008 with the U.S.

channel sales at a run rate of 70%.

We've made tangible strides in improving the participation rate with our channel and distribution partners in Q1 of 2008, As we exited 2007 the United States was operating at a 52% channel participation rate.

As we completed this last quarter, Q1 of 2008, the United States was operating at a 58% channel participation rate.

We're encouraged by the level of interest within our partner community and the results of this shift toward a larger indirect distribution are aligned with our expectations.

Our selling teams are operating in a collaborative environment with our partner network, and the revenue growth is a tangible result.

I would now like to turn it back to Pat.

Thanks very much, Mike.

I'd like to introduce our Vice President and general manager of RFID, Ray Cronin.

Ray joined us in January to focus on the RFID business at Intermec.

Intermec has outstanding RFID technology, products, intellectual property and application expertise, and I'm delighted to have someone of Ray's proven track record to lead this business in the future.

Ray?

Thank, Pat, and good afternoon.

Well, at this point the market dynamics are such that the combination of Intermec's core business expertise, financial stability and RFID expertise can be leveraged by making focused resource deployment choices to generate a market outcome.

One of the things I have observed is that the industry-wide investment in RFID technology is dispersed on a very broad front across myriad applications.

The opportunity for Intermec is to apply its core expertise in a focused manner in the RFID market by working with channel partners to solve specific business problems in targeted market segments.

The team and I have been working to make such choices and as a result, a current list of segments, in no order of priority includes, automotive supply chain, mobile maintenance repair and overhaul, warehouse operations, specialty hauling, and postal and logistics distribution.

Each of these market segments represents a large, addressable opportunity as specific use cases that offer compelling customer ROI and require a broad RFID product portfolio, including fixed readers, handheld readers, vehicle-mounted readers and specialty tags.

And they are all fundamental to Intermec's core expertise, which is industrial strength, mobile data capture applications.

We may add to our list of segments, but the point is we will be focusing our work, which will result in accelerated execution.

The choices we are making are driven by a desire for strategic leverage.

Combining Intermec's outstanding technologies and deep expertise with focused market execution creates that strategic leverage.

I'd also like to take a moment to address a couple of key developments that occurred for us in the last month or so.

First, we introduced and began shipping our IP30 handheld RFID reader.

The IP30 is a snap-on reader that can literally be snapped on to our CN3 and CK61 handheld computer fleet.

The snap-on approach is a unique Intermec advantage.

Additionally, the IP30 has superior RFID performance as regards read distance and other application specifications.

The IP30 was a top ten finalist for product of the year at the recent RFID Journal (inaudible) Trade Show, and in its early market introduction we have seen great interest in the product.

As an example of mobile RFID in action, one customer that has already selected the IP30 CN3 combination is Vail Resorts, the leading mountain resorts operator in the United States.

Vail Resorts has announced to their seasoned passholders at Keystone, Breckenridge, Vail Mountain, Beaver Creek, and Heavenly that the season passes for the next ski season will be RFID-enabled, which will allow the skier to pass through the lift line without having to fumble for a lift pass for a bar code ID.

The skier can keep their pass zipped inside their outerwear and a lift operator will be able to validate the passholder's identity based on a picture and other information rendered on the CN3 screen.

While I didn't mention ski resort operations as a core area of focus, the fundamental handheld RFID use case of this deployment is similar to many of those on our strategic list.

And of course, we do rely on our channel partners to apply our products as they desire.

In this case, our channel partner, Extend Data, was involved in Vail's trial cycles.

The other item of note is we have made progress with our Smart Reader strategy as the IF61 enterprise reader has been the first reader certified to host IBM data capture applications with IBM's newly released Websphere Premises Server 6.1.

As a result, customers that deploy the IF61 with IBM Premises Server decreased their total cost of ownership by eliminating the need for a separate PC or blade.

That covers my prepared comments and I'll hand it back to Pat.

Thank you.

Thanks very much, Ray.

Before we turn to the question-and-answer session, I would like to briefly summarize the five corporate strategies that we're focusing on to achieve our double-digit growth and operating profit objectives.

These are the five -- these are the same five strategic elements that I recently covered during our last call.

They are: Number one, we intend to target high-growth opportunities in selected industries and applications; two, we intend to deliver highly innovative and differentiated new products; number three, we'll focus on channel fulfillment; number four, we'll invest in global expansion; and number five, we'll accelerate our own supply chain transformation.

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

In closing, I would like to briefly address the broader market conditions.

We continue to monitor market demand dynamics, especially in the context of current economic conditions.

Our continued feedback from our 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 market environment that presently exists.

I'd like to turn it now over to Kevin for the next stage of our call.

Thanks very much.

Great, thanks, Pat.

Christina, we'd now like to open up our call for our question-and-answer period, please.

Thank you.

(OPERATOR INSTRUCTIONS) Our first question comes from Tavis McCourt.

Hey, guys, nice quarter.

A couple of questions on the financials.

Although the product gross margins were a huge improvement year over year, they were down a little bit sequentially.

Was that largely just due to the seasonal factor of a lower revenue base, or was that generally kind of the gross margin you had been anticipating for this quarter?

Gross margin -- two-fold, Tavis, to your point.

To some extent, product mix and also just with the lower revenue base.

But it still implies from our perspective a -- a good progress toward continued improvement in our gross profit goal of quarter-over-quarter improvement in margins.

In terms of the SG&A totals and I guess OpEx total in aggregate, how should we view the ramp through the year?

Are -- it's up a little bit year over year, is that a similar growth rate you would expect throughout the year or are you going to try to hold it more steady at this run rate here to -- to get the operating leverage?

Yes, good question.

The way I would respond to that is two fold.

We believe that operating expenses will potentially increase some, particularly dependent on higher revenue levels in the latter half of the year.

And as you know, in the fourth quarter, typically we do see seasonally high revenues and things like selling commission expenses do ramp up with revenue basis.

We also might see some fluctuation, depending on our level of investment from quarter to quarter and the timing of investments and things like research and development and/or marketing and programs.

And then lastly, as we saw in the first quarter, we've seen pressure from foreign exchange conversion impact on, particularly, our European operation expenses.

So to answer your question with those as sort of a backdrop, we would anticipate that the second-quarter levels would probably be a good proxy for the outer quarters, but with some fluctuation from -- in the outer quarters on those items I just mentioned.

Got you.

And -- and in terms of the revenue guidance for Q2, it looks like it's -- it's toward the lower end of what you guys have done seasonally the last few years from Q1 to Q2.

Is that largely because you've had some pretty poor Q1s the last couple of years, or are you just building in some conservatism?

Tavis, I apologize, I'm trying to understand the nature of your question.

Last year's second quarter we did see a large ramp up from first to second quarter because of the weak first quarter.

Okay.

That -- that's basically what I was getting at.

Thanks.

Our next question comes from Andy Young from Thomas Weisel Partners.

Good afternoon.

Congratulation on the very strong quarter.

Thanks, Andy.

I have a couple of questions.

Back to the second quarter guidance, it seems to imply quite a bit of slowdown in growth.

Again, are you just being conservative, or are you seeing some (inaudible) that change your demand picture?

This is Pat.

Thanks very much for the question.

The way that I look at that is -- is that I would not interpret that as a slowdown in aggregate growth.

If you look at the first half, you're still talking about -- you put Q1 '08 combined with Q2 '08 as we've guided, compare that to the first half of '07, it's still 14% to 15% growth.

So Lanny made the point that Q1 '07 was particularly low but Q2 '07 was a strong quarter.

And so you put those two together, I would not suggest that that's -- I'd interpret that as a slowdown in revenue growth, it's more just the timing of the business.

Okay.

Okay.

And then just changing to another topic.

There are a lot of ownership changes in the industry recently.

You see bigger players buying themselves into the sectors, like Motorola buying Symbol, maybe Dennison buying Pexar and most recently Honeywell buying (inaudible) and Metrologic.

Do you actually see any material changes in your competitive environment as you saw these ownership changes?

The way I'd look at that -- and of course we're monitoring the activity in the marketplace and I couldn't comment on the strategic intent of any of those companies -- we are very confident that if we focus and execute our strategy that we can achieve our strategic objectives as we've outlined.

I think this does exemplify our own views that this is an attractive market.

It's a high-growth industry of technology in the global supply chains and so those would be my comments.

I think that we're very confident of our strategic position and our ability to execute against our stated objectives.

Okay.

And other question, do you feel a need partner with the larger players to -- or to make acquisition to basically achieve the economy of scale?

I think that -- all that I would say is that we are a scale player.

We're running at a rate of -- last year was $850 million.

We're running at a rate that is a large player in the industry.

I won't be commenting on our need for acquisitions.

We are -- we're always evaluating different strategic alternatives, but I'm confident we have the scale advantage given our international presence, our strong (inaudible) product lines, our new products, the operating leverage and focus of the Company as we've executed.

Great.

Thank you very much.

Thank you, Andy.

Our next question comes from Chris Quilty from Raymond James & Associates.

Good evening, gentlemen.

The North American business put up some impressive growth and obviously part of that was due to easy comparisons in the year-ago quarter, but still think, if I'm running the numbers right, that was the strongest quarter in the last year except the seasonally strongest fourth.

What are you seeing in the market that's different than some of your competitors who seem to have had a much tougher first quarter?

Would you attribute it to market share gains, the strength of the product line, or specific enterprise deals you did in the quarter?

Chris, it's a great question.

There's a couple of elements in there, and I guess I'll -- I'll take it.

Really you identified quite a few of them.

Bottom line is we saw a balanced contribution to the growth in North America.

Probably the most critical element contributing to the growth, of course, was the U.S.

business as a part of American combined elements.

We did see specific growth within each one of our targeted verticals, our four targeted verticals, and then you had the fifth, which is our government sector, as far as our targeted vertical there, which is incorporated in our North American numbers exclusively.

There was decent growth there.

You mentioned our product lines.

Absolutely saw great market acceptance in our systems solution line, specifically CN3.

We did not have any significant large opportunities in the first quarter that -- that contributed in any kind of meaningful way to our growth in North America in first quarter.

Just great traction on the commercial side of the business.

Winning a lot of the small to mid-tier kind of projects.

In then last element, which you didn't mention, is the early evidence of this transition to the channel model.

Channel partner participation is a part of that growth and, of course, moving from 52 to 58% of -- of that revenue stream is evidence that the channel -- the channel model itself is engaged and working.

And I know we've talked about this before, but the channel model impact on gross margins, have you seen anything at this point?

I'll comment to it, and then Pat and Lanny can also, as well.

Quite the contrary, Chris.

It is -- had quite the contrary effect.

Okay.

And Mike, since you're on the line, you had mentioned some of the postal deals.

I think the first one teeing up there of the Royal Mail and if I'm not correct, I think that thing should have been awarded by now, though I haven't seen any announcements.

Sure.

Well as you know and as we've talked about in previous quarters, the postal opportunities in Europe are a primary target of ours.

And there are several at various stages of maturity cycle that we are all engaged and working on.

Specifically to the one that you brought up with Royal Mail, it is -- it is one of several, and it's the one that is at the most mature in terms of a decision point of all the projects there.

Royal Mail is close to selecting a supplier, as they have completed the pilot and bid evaluation activity.

We've completed our discussions and remain confident about our bid and our position.

If successful, we will sign a contract with Royal Mail in May and begin a rollout that will start in the second half of this year.

Initial rollout volumes are approximately 25,000 mobile computer units and related equipment.

And the rest of them -- the rest of the projects within Europe continue to move along and remain attractive and we like our position competitively.

And other than the fact that the CN3 is the most up-to-date product on the market, is there anything else that you think gives you specific advantage in those contracts?

Well, I think our overall presence and our service presence, as well as what it calls for -- not specific to just the Royal Mail or the postal opportunities, but when the opportunities calls for a solid solution with our partner representation, frankly I think we're a very, very competitive marriage out there.

Fair enough.

Thank you.

Thanks, Chris.

Our next question comes from Richard Davis from Richard W.

Davis & Company.

Congratulations on the excellent quarter, particularly in the United States.

Now, the question I have is how are you doing in the critical market of the healthcare?

Richard, this is Mike, I'll take it.

The four targeted core vertical markets are transportation logistics, retail, industrial, and consumer packaged goods.

Those four verticals make up, on a global basis, Richard, about 80% of our revenue stream.

There are a whole collection of other verticals outside of that that we participate in, but we participate in them almost exclusively through partners and two-tier distribution.

That would include, as a part of your question, healthcare, as a vertical market.

We are evaluating, we're clearly aware of the fact that it is an attractive market in terms of growth, at least certain element of it.

We continue to evaluate our position in terms of our product offering and points of entry.

And as far as we know, we are -- we're servicing that vertical market well through our partners.

But again, it's not a part of our primary four core vertical.

How about the retail sector?

How is that doing for you, particularly in the United States?

Richard, there are two pieces of the retail vertical.

There's the in-store merchandising side and then there's the -- the trans -- pardon me, distribution center hard concrete floor environment, warehousing environment.

That is where we are predominantly found in terms of our solution sets and our products.

That continues to be attractive in the U.S., the movement of finished goods through the distribution centers.

We continue to see decent growth there in terms of attractive growth in the U.S.

We believe that we're got the -- the broadest set of solutions in terms of products, as well as stitched together with partner solutions for that specific element of retail.

Opportunisticly, we are involved at times on the merchandising side, or the in-store side, Richard, but it is not a part of our primary focus when we talk about retail.

It's primarily distribution center side.

Thank you very much.

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

Hey, good afternoon.

Mike, a question for you on the channel side that you've made.

I think one of the challenges you guys have articulated in the past is really the education of the sales force now to be able to cover the entire product line with the resellers versus the old structure of -- of specialization in a project.

Can you talk a little bit about how that's progressing in terms of the knowledge and the willingness of those people to -- to get themselves educated?

Sure.

It's a great question, Reik, and it was a strategic element, a part of taking the complexity out of our organizational alignment and our go-to-market model, a And it clearly improving the awareness and education of the broadest product line availability in the marketplace and then making sure that at a -- at a field level in the accounts with our partners that we are collaborating and evaluating opportunities across our entire product line was a critical part of it.

So our go to -- what you're sea seeing, Reik, as evidence of that beyond just the financials, beyond just the growth in the product lines themselves and within the region.

What you're going to see is more and more cohesive messaging from us in terms of -- from the brand on down in terms of the packaging of our products into true solution sets into the marketplace and broader collaboration with partners that carry multiple lines.

So I just think you're going to see more and more of that from us as evidence of our commitment to this model going forward, Reik.

Okay.

And then I just want to clarify a comment on -- on Royal Mail.

It sound like you're pretty confident that that's something that you guys are going to get and it doesn't sound like that's going to be split at all.

Is that a fair way to interpret your comments?

That is -- beyond my comment and response back to Chris the decisions are still imminent.

We have not gotten any kind of signal that they're going to split the estate, but again, the decision is still awaiting us and it's imminent literally within this quarter.

Okay.

And then Mike, as part of your comments you talked about the pipeline is looking pretty good.

Can you give us a sense in terms of any metrics that you could share from a bookings perspective?

I know you guys have done that in the past.

Yes.

Reik, I would rather not.

It's just -- it's a metric that once you start throwing it out there it's something that we're going to have to just keep continuing to refresh every quarter, and the bottom line is we live in -- in a business -- this entire industry lives in a business of a book-to-bill ratio that's almost a one-to-one ratio.

This business is not an industry where you build massive backlogs and you work them off over time.

So our revenue attainment is basically a reflection of the bookings health that we've done in the previous months.

Right.

Okay.

Fair enough.

And then -- and then, Pat, I just wanted to go back to one comment that you had meat made during your remarks in the -- in the printer space.

This is something that you guys have put much more focus on with you coming on board.

You've talked about making some of the channel changes.

In addition you've got some new products out there.

You've suggested that this will accelerate.

But can you give us a sense of -- with all of the things that you're trying to do there, the level of progress that you're seeing and what are the things that still need to be accomplished to achieve that acceleration that you're talking about?

Yes, thanks very much.

I think Mike can also answer this because a lot of it has to do with the go-to-market strategy.

Our goals are that the printer media business will be at or above Company growth rates, so we've committed -- or we've outlined that we -- our plans are to deliver double-digit growth and so our plans for printer media is that it would participate in that double-digit growth at the Company level.

And we are --

Hello?

Reik, I hear you.

Can you hear me?

I can hear you now, Mike.

Okay.

Well, in absence of Pat finishing his comment, I -- I would tell you the other element that I would add to it, Reik, is -- your very first question, which is broadening the participation of the channel network out in -- especially in North America, but literally throughout all of our regions is going to play a big part in this.

Instead of having isolated lines of -- of go-to-market models, literally leveraging the broader solution sets through partners out there, both through education and joint programs is also going to be a key element in this.

Right.

Okay, great.

Thank you much.

Our next question comes from Jeremy Grant from Stanford Group.

Thanks.

Good evening and congratulations on a solid quarter.

I wanted to ask -- I know one of the goals for the Company's been to try and shift the percentage of sales where you're getting things obviously each quarter into newer products that have a higher gross margin.

And wondered if you had provided a number -- or could as to what the trend was this quarter versus -- versus last in terms of sales of new products?

Yes, Jeremy, this is Mike.

I'm -- I'll take that question, I think in the absence of -- of Everett.

I'm calling in from a remote location and I think we lost the connection on the other group so --

Sure.

-- your question is basically revenue drive and revenue growth has attributed to new products.

New products being defined as those that have been in the market -- at least our definition, those that have been in the market for a year or less.

We have in the past stated a goal of -- an initial goal of 40%.

We are -- we are tacking to that now.

We are making progress to that.

And clearly in quarters to come, we will continue to update our progress in terms of hitting that and then maintaining that on our way out.

Okay.

You guys don't have any specific trends beyond where you are in the tack at this point?

No, nothing that I would like to comment further to.

But understand that we do have hard goals inside the organization, and it penetrates not only just our -- our initial year-to-year go-to-market strategy but also our product-landing strategy ,all the way back whether we develop a market requirements document for the next-generation product.

Thanks.

Engrained in the organization.

All right.

The other question I had, North America, which was a real solid result there, especially in the face of a tough economy, as you're looking to go back out and re-establish ties with the channel partners, the impression I've gotten talking to some was there was -- if not bridges burned at least sort of a (inaudible) indifference.

What kind of things are you seeing going out there to re-establish contacts with some of these folks and is there a level of resistance that's taking some time fade away?

Or by the six points of -- of North American product that was pushed higher through channels this year versus last year, is -- are people really sort of opening up their doors quite easily?

Well, Jeremy, the response -- it's a great question.

The response really falls into one of two camps.

The response from our channel partners -- actually before I say that, let me go back and validate the fact, yes, our past behavior culturally as an organization, we chased away a lot of the trust associated with a lot of our -- our channel partners, specifically in the U.S., based on our behavior and lack of consistency in terms of staying with a consistent go-to-market model, account ownership, and sales strategy.

The reality is when you put corrective behavior in place, structure around it, metrics around it to drive a new performance, you get one of two reactions from it.

You get channel partners who immediately run to embrace it, and we have a significant community of those that are working with us in a highly collaborative environment.

You also have some that either through previous experience they want to wait and see if we're actually committed to this.

You have some that are standing on the sidelines.

But I will tell you the broad majority of the partners that are out there in our vertical markets are rolling up their sleeves and participating with us in a highly collaborative way.

But, it's -- I understand.

I clearly understand the second community's reaction.

It's logical, but I think over time they, too, will also join the -- the business development activities that are going on at a street level.

Great.

That's helpful.

The other question I had was with this new project at Vail with RFID.

It sound lake a great analyst visit.

Yes.

I think maybe --

When it's colder, perhaps.

Everett might be back on the line.

Kevin, are you guys back on?

Yes, we sure are, Mike.

Sorry for that drop-off.

That's all right.

Can Ray add some comments to the Vail question?

That was -- that of just a joke there.

Oh, yes, got it.

Unless you decide it isn't.

No, it's a great site.

Yes.

So when anybody on the ph -- this is Pat, if anybody on the phone line feels like going skiing, just head to one of the Vail Resorts and ask them about Intermec.

Thanks.

That's all I had.

Thanks.

Thanks, Jeremy.

Our next question comes from Chris Quilty with Raymond James & Associates.

Mike, I wanted to thank you for sharing the actual earnings numbers for us there on the break.

(LAUGHTER)

And this'll be my last day, Chris?

But -- no, actually there was a follow-on question on the -- you listed out a number of printers -- new printer models that are shipping and I know in the past you guys had used an OEM strategy and in different parts of that, how much of the new printers now are Intermec manufactured and can you almost also give us an update on where all your product development sits, both personnel and process and along with that the whole manufacturing process in terms of offshoring?

I'll go ahead and answer to that question, thanks very much.

This is Pat.

The majority of our -- the large majority of our printers are -- are Intermec-developed printers, though we do have an OEM portion of that business, but the large majority of it is Intermec developed.

Our development teams are -- we have development teams in the Far East, as well as in the U.S.

and in Europe, so we have a balanced strategy of technology and product and platform development in each of these regions.

And then your third question was about manufacturing?

Yes, the offshoring of the manufacturing and the whole process of moving more content overseas?

Well, we have an outstanding contract manufacturing relationship and we're, as parts of our supply chain transformation, evaluating how best to leverage their capabilities and we're -- really that's right in the middle of evaluations as to see how we can continue to achieve our strategic objectives.

We recently added Dennis Farber, the Senior VP of global supply chain operations, and Dennis and his leadership team are evaluating the best way to leverage the substantial capabilities and regional -- regional footprints of the contract manufacturing partners in our supply chain.

Okay.

And with regard to the -- sorry -- the mobile computing product line and the fact that you're now kind of breaking out R&D for us, which I assume we're going to see on a go-forward basis, if looks like R&D spending relatively flat on a year-over-year basis, and do you feel like you're most of the way through the big product push that's happened over the last couple years?

I -- the way I would say is that we are -- we're doing a couple of things in R&D.

One of them is we're continuously improving the output for the dollars that we do spend and that's going to be important.

R&D investment's a key priority for the Company.

And although, as you said, that comparison you just drew was flat year over year, when you look at this on a longer-term basis, several quarters, what you'll see is that R&D spending is growing.

It will -- it won't be growing as fast as revenue, but it will be -- it will be growing in order to continually innovate a steady stream of highly-innovative products by making sure that we've got the right products in each of these categories, making sure that we're meeting the market windows.

At the same time, of course, improving the productivity of that new product output so that -- so that we manage the whole cycle rhythm of new product introductions linked to the market timing requirements.

So the financial question is we would expect R&D spending to grow, not as fast as revenue, but to grow.

It's a key area of focus and it really isn't -- the way to think about this is not there's big R&D spending and then it goes down.

It's more a steady stream of product introductions, always targeting growth and always targeting gross margin improvement.

Chris, this is Lanny.

As I commended -- let me just comment on your question.

Yes, we do intend to break out R&D as we did and going forward to give better transparency there.

To Pat's point, because we feel that it's one -- it's one of those operating expense areas, as I mentioned in my response about OpEx, that can and will fluctuate, not only with the level of revenue but just based on our decision-making process about when and how to invest and that's one of the reasons, too, that we also broke it out for that transparency.

Good.

Well, we definitely appreciate it.

(OPERATOR INSTRUCTIONS) At this time we have no further questions.

Great.

Thanks, Christina.

Once again, we appreciate everyone for joining us this afternoon on our call and that will conclude our call for today.

Have a great evening.

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