漢威聯合 (HON) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the Intermec second quarter 2010 financial results conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

(Operator Instructions).

This conference is being recorded today, Wednesday, August 3, 2011.

I would now like to turn the conference over to Geoffrey Buscher.

Please go ahead.

Thank you operator.

Good afternoon, everyone, and welcome to Intermec's second-quarter fiscal year 2011 earnings release conference call.

With me on the call this afternoon are Intermec 's President and Chief Executive Officer, Patrick Byrne, and Chief Financial Officer, Robert Dreissnack.

In a moment, Pat will discuss our quarterly overview and Bob will provide a summary of our operating performance and discuss our second-quarter guidance.

Following our prepared remarks, we will begin a question-and-answer session.

Today's discussion may include predictions, estimates, and other information that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995.

Some of these statements that we may make today that may be considered forward-looking include, but are not limited to, statements about Intermec's expected financial performance, as well as Intermec's strategic and operational plans and future financial and operating results of the combined Company, along with additional examples that were set forth in today's earnings release.

Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those discussed in such statements.

Please note that these forward-looking statements only reflect our opinion as of today, August 3, 2011, and we undertake no obligation to revise or publicly release results of any revisions to these forward-looking statements.

In addition, we will describe certain non-GAAP financial measures, which we also refer to as adjusted items.

These items should be considered, in addition to, and not in lieu of, comparative GAAP measures.

Please refer to today's earnings release which contains and illustrates our reconciliation from GAAP to non-GAAP items.

A more complete description of what we consider to be forward-looking statements and about the factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements is contained in our press release and in our SEC filings, including our form --

Ladies and gentlemen, please continue to stand by.

Your conference will resume momentarily.

Ladies and gentlemen, thank you for standing by.

I will turn the conference back over to Mr.

Buscher.

Please go ahead.

Our most sincere apologies for that.

I just want to remind everyone all the forward-looking statements are still in effect, and a listing of all those forward-looking statements are contained in our press release today and in our filings with the SEC.

With that, I would again like to turn it over to Pat.

Thanks, Geoff.

In Q2, Intermec delivered $221 million of revenue representing 37% growth, compared to Q2 of last year, with 16% organic growth and $34 million from our recent acquisitions of Vocollect and Enterprise Mobile.

Non-GAAP EPS was $0.09, representing solid earnings leverage from Q2 of last year.

First, I will summarize the organic growth of the Company and then move on to the results from acquisitions.

Q2 was a strong sales quarter, especially in our systems and solutions business and for international sales.

Our systems and solutions business grew 26% driven by our rugged mobile computer business and the recent new products.

All the international regions contributed to the strong growth, and overall the core international business grew 32%, making up 53% of the Company's core business in Q2, compared to 47% a year ago.

Moving to our recent acquisitions, this was the first full quarter for the Vocollect and Enterprise Mobile businesses within Intermec.

These businesses met our expectations both in revenue and in margins.

We made good progress in the first phase of the integration plans.

Specifically for Vocollect, we've made good progress on the cross selling initiatives, as well as cost savings.

I will discuss some of the details in my later comments.

With the completion of the Vocollect acquisition, we have further transformed the Company into a solutions-focused strategic supplier for our customers.

This acquisition positions Intermec as a clear market leader in rugged mobile business solutions in the warehouse, one of the largest AIDC markets.

The Enterprise Mobile acquisition adds new, complementary service offerings in the areas of enterprise mobility deployment support.

We are excited about the long-term prospects for profitable growth from both of these businesses within Intermec.

I will now turn the call over to Bob to discuss the financial results, and then I will return to discuss our business in more detail.

Thank you, Pat.

Intermec's second-quarter revenue of $221 million represented a 37% increase from the second quarter of 2010.

On a constant currency basis, the overall growth rate was 32%.

Our reported growth includes approximately $34 million in revenue from a full quarter of results for our Vocollect and Enterprise Mobile acquisitions which we completed during the first quarter of this year.

Vocollect was the majority of that, with $32.7 million operationally before netting out $2.4 million of deferred services revenue purchase accounting adjustments.

As Pat mentioned earlier, on an organic basis, which excludes the impact of acquisitions, Intermec's second-quarter revenue grew 16% from the year-ago quarter.

On a GAAP basis, our second-quarter net loss was $3.8 million, or minus $0.06 per share.

This compares to second quarter 2010 net loss of $2.7 million, or minus $0.04 per share.

On a non-GAAP basis, earnings per share were $0.09 for the quarter, compared to a prior year loss of $0.03 per share.

This excludes $5.1 million in restructuring costs and $6.7 million of costs and expenses related to the Vocollect and Enterprise Mobile acquisitions.

Excluding these adjustments, non-GAAP adjusted net earnings were $5.4 million, or as mentioned, $0.09 per share.

Turning to second quarter revenues on a regional basis and compared to the prior year quarter, except where noted.

North America revenue increased 27%, primarily on the inclusion of acquisitions.

Excluding acquisitions, the region grew 2% year-over-year but was up 17% sequentially from the first quarter, as we saw increased momentum in our systems and solutions revenues in particular.

Europe, Middle East and Africa, or EMEA, increased 41% year-over-year.

On a constant currency basis, revenues in Europe were up 28%.

Excluding acquisitions, revenue increased 20%.

Our other international areas also delivered strong revenues, up 64% in total, driven primarily by organic growth.

Excluding acquisitions, our international businesses increased 53%, with Latin America up 70% and Asia-Pacific up 32%.

On a product line basis, our systems and solutions revenues of $109 million were up 26% year-over-year.

This was driven by strong initial shipments of our 70 Series and CS40 products and continued growth in CN50, CK3, and CM3 products.

Printer media revenues of $45 million increased 5% year-over-year, which continues a pattern of multiple quarters of growth.

Our services businesses, totaling $37 million, grew 15%, year-over-year, including an 11% benefit from the Enterprise Mobile business.

Beginning this quarter, we have broken out in new product category, voice solutions.

Reported revenues include both product and service related to voice and totaled $30.5 million, net of purchase accounting adjustments, for the second quarter.

This included the $32.7 million of operational revenues, less the $2.2 million for deferred services revenue.

The deferred services revenue adjustment will continue at a similar level for the balance of 2011.

For the year-to-date following the acquisition, voice solutions totals $40.3 million in revenue, which is comprised of $43.2 million of revenues, less $2.9 million for the year-to-date, for deferred service revenue purchase accounting adjustments.

Our total gross margins saw improvement in the core Intermec margins of about 260 basis points, and a favorable mix impact from a full quarter of acquired product and service revenues.

Total gross margins as reported were 41.3%, versus the comparable 36.3% from the prior year, an increase of 500 basis points.

Excluding the impact of $5.3 million in acquisition related adjustments, our adjusted non-GAAP gross margins were 43.3%.

Drilling a bit deeper on margins, product gross margins as reported were 40.6%, compared to 36.7% in the prior year quarter.

Excluding acquisition related items, adjusted product gross margins were 42.3%.

This reflects the improvement in the core Intermec product margins and the benefit of Vocollect product mix.

Service gross margins, as reported, were 44.2%, compared to 34.8% in second quarter 2010.

Excluding the purchase accounting impact for deferred revenues, our adjusted services gross margins were 46.9%, reflecting the favorable mix of Vocollect and Enterprise Mobile services.

Total operating expenses for the quarter were $94.4 million, which includes $6.5 million of restructuring charges, and acquisition related expenses and $18.8 million of ongoing operating expenses in the acquired Companies.

That compares to prior operating expenses of $64.1 million, which included the impact of a real estate impairment charge of $600,000 and restructuring charges of approximately $200,000.

Excluding those items, core Intermec operating expenses were $69 million, as compared to $63.3 million in the prior year quarter.

The increase primarily reflects investment in products, sales, and marketing initiatives, which fueled the 16% organic growth.

Our income taxes in the quarter resulted in a small tax provision recorded against a pre-tax loss.

This was the result of our operational tax rate being offset by the limited or non-deductibility of certain acquisition related and foreign restructuring costs.

Moving to the balance sheet, inventory increased approximately $5 million in the quarter, driven by several factors.

We are utilizing Ocean Freight more to control our costs as oil prices have increased.

In addition, we built a small buffer of key products for our European operations as we prepared to go live with our global SAP system on August 1.

I am pleased to report that system transition went very well, and we would expect to reduce the buffer in the coming months.

In addition, we have established appropriate inventory positions to support initial sales demand for our new products.

Accounts receivable at the end of the second quarter increased $17 million, due to the strong, sequential sales growth.

The number of days in receivables or DSO, was approximately 58 days at the end of the quarter, consistent with both the first quarter and the prior year.

Intermec used $12.9 million in cash from operations during the quarter, which reflects our increased inventory and the increased receivables from the sequential revenue increase.

We remain very focused on working capital management and confident of our ability to generate strong operating and free cash flow in the second half of 2011.

We completed a share repurchase program that we have begun during the first quarter, purchasing 507,205 shares during Q2 at a total cost of $5.5 million, or $10.81 per share.

Following completion of this program, there is approximately $45 million remaining under share repurchase authorization.

During the quarter we repatriated approximately $20 million from foreign locations to the US, which was used to reduce the balance of our line of credit borrowings to $77 million.

Cash, cash equivalents, and short-term investments totaled approximately $82 million at the end of the quarter.

Our adjusted EBITDA, which we began reporting last quarter, was $15.3 million for the second quarter, compared to $1.2 million in the prior year, reflecting the increase in adjusted operating earnings.

When we consider the roughly $14 million improvement in adjusted EBITDA, we have 2 primary drivers.

First is that operational profitability of the combined acquisitions, which is about 15% of acquired revenues, and the operating leverage on the organic revenue growth of about 35% from core Intermec operations.

We've previously announced a restructuring plan to streamline certain non-US service depots and support operations, primarily to improve the Company's services, cost structure, and margins.

Once fully implemented in late 2011, the actions are expected to save approximately $3 million on an annual basis.

The implementation of that plan is underway, and we recorded $5.1 million in related restructuring charges in Q2.

The total restructuring cost estimate for the year is expected to total approximately $5.6 million.

As we look to the third quarter of 2011, we are viewing that third-quarter revenues are expected to be within a range of $215 million-$225 million, which represents growth of 27% to 33% from the prior year third quarter.

This includes approximately $33 million-$34 million, or about 20%, from growth from acquisitions.

Third-quarter earnings per share on a GAAP basis are expected to be within a range of minus $0.01 to positive $0.04 on a per-share basis.

Non-GAAP earnings per share is expected to be within a range of $0.07-$0.12 per share, excluding the impact of amortization of intangibles of $3.3 million, deferred service revenue adjustments of $2.2 million, and transaction and transition related costs of $1 million, all related to the acquisitions, and restructuring charges of about $0.5 million.

Our earnings per share guidance assumes a diluted share count of approximately 59.6 million shares for the third quarter.

So, that completes our financial comments, and I will turn the call back to Pat.

Thanks, Bob.

In Q2 we had a strong quarter in the computer business, which is included in our systems and solutions product line.

The rugged mobile computer business grew over 30%, with strong results in every region and especially in the international markets.

Mobility applications continued to drive the growth of unit volumes for the computer business in applications such as field service, transportation and logistics, direct store delivery, and Postal/Courier Express.

Enterprise activity was solid with 24 deals contributing $27 million in the quarter.

These larger enterprise deployments for primarily in direct store delivery and field service applications, where we have made major product and channel investments over the last 2 years.

New products also made a significant contribution to the quarter.

The CN50 activity from 2010 continues to extend into larger deployments.

We expect this trend to continue.

We also had strong results from the sales of the new 70 Series rugged mobile computers.

We have a strong funnel and many pilots underway.

We expect these projects to begin scaling to larger deployments in the second half and into 2012.

The 70 Series was launched during the first quarter as the industry's leading rugged computers.

It has the latest computer and wireless technologies and innovative imaging for bar code scanning.

The performance of our imaging solutions exceeds traditional laser scanning in many applications.

The 70 Series are the only products in the industry with an 8-foot drop spec, making it a no compromises platform for customers the rugged deployment environments.

These 4 new 70 Series products are targeted at specific applications in direct store delivery, warehousing, field service, and Postal/Courier Express.

It is the only product family that uses 1 consistent platform approach on hardware and software across 4 major products.

We expect this platform capability to enable customers to leverage their investments more efficiently in various applications across their enterprise.

Together with our focused reseller network, Intermec has a distinct competitive advantage when it comes to delivering a robust, rugged mobile business solution.

The new CS40 also had a very good quarter.

This product has the size and styling of a smartphone, but also a robust design to withstand repeated drops to concrete.

We had several key wins in field service for large consumer goods companies in the quarter.

We expect these new products to ramp throughout 2011 and to contribute to our overall portfolio, delivering strong, profitable growth.

Our global channel continues to perform well with revenue growth of 23% compared to the prior year period.

In order to support the channel further, we have launched the new Top Runner program.

This enables Intermec, as well as our reseller and distribution partners, to simplify the business around top SKUs.

This improves ease of the business and enables better customer and partner experience.

We also added approximately 100 new independent software vendors or ISV partners and certifications to our software development partner network.

During the quarter, Intermec was honored with the 2011 Microsoft Windows Embedded OEM Partner Excellence Award.

Our ISV program is especially important for developing field service oriented solutions built on Intermec hardware and is a key part of our channel focused go-to-market strategy.

We believe we have built significant progress and momentum in the channel over the last 18 months, and we are very excited about the capabilities and growth prospects for our approximately 4,000 global resellers.

Turning now to our acquisition activities.

By way of reminder, in March we acquired Vocollect, the clear market leader in voice solutions for the warehouse.

Vocollect brings $120 million of annualized business to Intermec, along with more than 1,500 customers and 300,000 users in 60 countries.

The Vocollect business contributes to Intermec by accelerating growth and increasing profitability, while providing opportunities for Intermec to differentiate with unique solutions in the warehouse.

As I outlined last quarter, our priorities for the integration of Vocollect are 2-fold.

First, delivering on the Vocollect 2011 organic growth plan, and second, generating revenue synergies by leveraging each Company's sales and marketing capabilities through cross selling initiatives.

There are also cost synergies as well, especially leveraging our combined purchasing power and infrastructure.

Here's a quick update on the progress over the last quarter.

Vocollect met our expectations for the quarter with more than $32 million on an adjusted basis.

We're investing in sales and marketing resources to continue to drive the expansion of the business through the channel.

On the revenue synergy initiative, we've launched an additional element to our channel program to enable Intermec resellers to participate in the voice business while extending the role of the Vocollect channel to provide software value added in the customer solution.

This program has been well received by our reseller network.

Our sales team are actively engaged in cross selling initiatives, and we've made excellent progress in the last quarter building sales momentum for cross-selling opportunities.

Our objective remains $10 million of new business in the first year of combined operations.

On the cost synergies, we've already identified and are driving to almost $2 million of annualized cost savings today.

Besides these areas of synergies, it is important to note that continued innovations coming from the Vocollect team.

The team has made significant progress in working with customers to expand the use of voice-directed solutions beyond the picking application.

They've worked with customers to apply this technology to other warehouse work flows such as cycle counting, receiving, loading, put away, replenishment, and to put to store.

This extension of voice to other warehouse work flows increases the addressable markets and provides greater performance improvements and cost savings for customers.

We're very excited about the market leading position this acquisition provides to Intermec.

Enterprise mobile was the other acquisition we completed this quarter.

It is currently on a path of rapid expansion.

The business provides an outsourcing capability for customers who are doing enterprise mobility deployments across a range of hardware devices and mobile operating systems, including Android and Apple IOS.

For Intermec it provides the opportunity to engage with a broader range of customers, perhaps even before they utilize Intermec hardware devices.

Enterprise mobile, for example, provides life cycle services for tablet computers for cockpit operations in a large domestic airline, and for a smartphone for a big-box retailer for customer service applications.

We can also utilize the same capability to extend the service offerings for Intermec hardware customers to deliver a high-quality, life cycle support model.

Turning now to Q3, we expect continued double-digit growth from our core Intermec business as well as continued progress and contributions from acquisitions.

We anticipate approximately 30% overall growth compared to the prior year's third quarter and strong operating leverage from the incremental revenue.

That completes my comments.

I will now turn it over to Geoff for the Q&A section of the call.

Thanks, Pat.

Operator?

If you would please give instructions for how to queue up for questions and answers?

Yes, thank you.

(Operator Instructions).

One moment.

Our first question is from the line of Travis McCourt.

Please go ahead.

Hi guys.

Nice quarter.

A couple of questions.

First, Bob a clarification, the deferred revenues that you point out that are not in the GAAP results, are those included in the non-GAAP EPS, or are you just providing an insight into what will eventually flow into service revenues when that impact is over?

The short answer, Travis, is both.

So, we are adding those back -- so we're adding back the revenue which is eliminated as part of the purchase.

But, think of this as similar to, you have a fair value uplift of inventory that you eliminate after an acquisition.

Under the purchase accounting rules, we have identified it's about $7 million, a little over $7 million for the full year 2011 that we have to eliminate.

So, we are removing the revenue and it falls through at basically 100% profit.

We are on back from a non-GAAP standpoint to show the more true operating results.

And you have the specific EPS impact for that off hand?

The impact of that would be roughly a little over $0.02.

It's about $0.025.

Got you.

And Pat, this 1 is for you.

I guess the conversation du jour is who is seeing weakness, and where?

Obviously, from your results it doesn't look like anything internationally has slowed down at all for you guys.

But, have you seen any signs of slowing purchasing patterns so far this quarter or anything that concerns you at all?

Well you know, we all read the same news, but the picture I've got as we exit the first half and go into the second half is, we see a strong sales funnel; we see a funnel velocity pretty stable as well, in terms of the ability to close the deal and, of course, move it to shipments.

Our new products have a lot of interest, and as you've seen from the last 4 to 6 quarters, we have a lot of momentum in the channel in international business.

So, we are all watching the same items carefully, but I guess what I would say is it looks like we have momentum going into the second half.

Great.

And final 1, should we continue to expect paydown on the line of credit?

Tavis, I think we will continue to look at our sources and uses of cash.

We took advantage really of the opportunity where we were able to repatriate some money, bring it back to pay that down.

Obviously, the money I earned and sitting in the bank is less than the interest we are paying, even though we've got a great rate on that line of credit.

So, we chose to pay it down just to take advantage of that near-term.

I don't have the specific plans to reduce the debt on a systematic basis at this point.

We would advise if we did.

Okay.

Thanks a lot.

Thank you.

The next question is from the line of Keith Housum with Northcoast Research.

Thanks guys.

Thanks for taking my call.

Great quarter.

Question for you on the foreign exchange benefit.

I noticed that in the 30% growth, 5% of that was attributable to FX.

Of the 16% organic, have you guys broken out how much of that is attributable to FX?

The organic 16%, we've not specifically identified, but it would be a little bit -- it would be in the same ballpark, Keith.

It would be a little bit less I think, but I haven't broken that out separately.

All right.

And just a quick follow-up question.

Any comments on what you're seeing in terms of government spending quarter over quarter and year-over-year?

Yes, the US government business, which was a significant issue all through 2010, has improved so far this year.

We've seen growth half over half, but it is still well below the 2008, 2009 levels.

We expect sequentially improved results in the second half compared to the first half, so we expect some modest growth year-over-year.

We really believe we are between purchase cycles with the government.

They purchased a lot of equipment over those prior year, and that's still being utilized.

Although, we are reaching some new projects, and as I said, we do expect year-over-year growth and sequential growth in the second half compared to the first half.

Okay, great.

Thank you.

Thanks, Keith.

Thank you.

The next question is from the line of Andrew Abrams with Avian Securities.

Please go ahead.

Hi, guys.

I just wanted to go into a little more depth on North America.

Last quarter you had the distributor adjustment, and if you X out any second-quarter adjustments that were made in the distribution channel, what was the real core growth?

Or was it exactly what you said?

Yes, from a year-over-year basis I think it's fair to say that the growth in the business, we had solid growth, year-over-year on a fully trued up basis in the computer business, which is our largest business.

So, whether you looked at the computer business sequentially or year-over-year, the overall business, on a year-over-year, business grew, as Bob said, 2% I think is the number, Bob, that you outlined?

Correct.

So sequentially, strong growth and year-over-year strong growth in the computer business, which is our largest business.

We've had good growth in printers over a number of quarters.

We are expecting North America printer business to improve in the second half, but during the second quarter, it was -- it didn't grow as fast as the computer business.

And, Andrew, this is Bob.

If I could add just 1 other point.

think in the first quarter, the distributor transition actually meant that sales in were about $8 million, roughly, below sales out.

We saw that really kind of normalized.

Actually sells in were just very slightly higher than sales out in the second quarter, so pretty much more of a normal pattern.

Got it.

And a large deals, you've been running roughly the same number of deals -- roughly the same size for the last couple of quarters.

How much of that is North American business?

And how much of that is outside of the North American continent?

It's about 50-50.

And just to clarify further, you saw no weakness in EMEA, in particular in Europe on a quarter-over-quarter basis?

I think on an organic basis, if I set aside currency in Europe, it was still very high single digits growth in Europe, so still very strong.

I think that continues the pattern where we were up double digits last year and in Q1, so I think it is still very strong.

The comparables have gotten a little bit tougher for the Europe business, which started growing nicely for us earlier last year.

We pretty consistently delivered about 20% with the ups and downs of currency for many quarters now, and as I look into the funnel in the second half of the year and look at what's happening in Europe, I'm really -- I think there is a lot of projects going on with mobility deployment to improve enterprise performance.

We have very strong products and a strong channel.

So we're all watching the same economic news, but I think if I look into the second half, I see continued sales momentum in Europe.

As Bob said, the compares get tougher because the back half of 2010 was pretty strong.

Okay, and just, I have to ask the regular question.

RFID, can you kind of give us any change in your thoughts on that piece?

Sure.

In RFID, we've seen improvement in the activity.

We've seen a couple of quarters now with year-over-year growth in the business.

It's a smaller part of our systems and solutions business.

But, in these closed loop applications, were seeing a good adoption.

So, I think it is being adopted.

It is a small business, but it is growing strong, double digits right now.

But, it's small.

Got it.

Thanks very much.

Thanks,.

Thank you.

(Operator Instructions).

The next question is from the line of Chris Quilty with Raymond James.

Please go ahead.

Mr.

Quilty, your line is open.

It appears they have stepped away.

The next question is from the line of Tavis McCourt, Morgan Keegan.

Please go ahead.

Just a follow-up, and I know you guys don't like giving extremely detailed guidance, but since this was the first full quarter with the acquisitions, I'm wondering is the operating expense base, the core SG&A and R&D, is that a run rate we think about as a good base going forward that will grow slightly from there?

Or was there anything unusual in that base level?

Tavis, I think you are referring to the roughly $69 million of the Intermec core expenses?

I'm actually referring to the $66 million of SG&A and $23 million of R&D.

Is that a good level to think about as the recurring level going forward?

Or are there also some 1-time items in there?

I think the only 1-time items that are still in there that aren't broken out would be related to -- there's a little bit of retention bonus and things that are in there for Vocollect, so that the total expenses related to acquisitions were about $1.4 million.

Then we had the $5.1 million of restructuring.

So, as long as you take the total of $94.4 million and you back out really that $6.5 million, that's in the ballpark of the run rate going forward, including expenses for Intermec, Vocollect, and Enterprise Mobile, all as part of Intermec business.

Great.

And the same question on service gross margins, because they're so much higher this quarter than historically.

Was that just the layering in of the acquisitions?

Yes, for the total services gross margins, that was the favorable impact of mix from the acquisitions, particularly Vocollect, but also Enterprise Solutions, which is a service offering that has strong gross margins.

So, that would be more of the run rate going forward.

The restructuring that we announced is intended to have, going into next year, a favorable impact on services gross margins as well.

So, I think looking forward, that is our intention is to continue to improve the profitability of the service business.

Great, thanks a lot.

Okay, thank you.

Thank you.

The next question is from the line of Derek Jose with Longbow Research.

Please go ahead.

Wondering if you guys could talk about the expectations of when Vocollect will reach, non-GAAP wise, I think it was the 10% operating margins that it had when you acquired?

Do you have a timeline of when it's going to reach those again?

Well, I think -- this is Bob.

I think if, if I look at it, if I set aside the acquisition purchase accounting or 1-time -- maybe not 1-time, but the transition bonuses, retention and things we've got set aside, they're actually there today.

So, it is on a non-GAAP basis, but the profitability -- and I mentioned this a little bit when I talked about EBITDA.

The improvement for the Company in EBITDA year-over-year in the quarter of about $14 million, you should think of that $34 million of acquired revenues as being about a 15% operating income.

The rest of it is really operating improvement in the core Intermec and operating leverage for the core Intermec.

Okay.

Thank you.

I was also wondering, looking at your guidance for third quarter, it you could talk about the puts and takes that go into reaching both the high and low end of your revenue in EPS ranges, and specifically just in terms of what the cost would look like at the high or low end?

Well I think for the most part, I think our fixed cost structure is in the expense area.

There's some volatility in there for volume related selling commission expenses.

In the gross margins, it's really -- there's a smaller percentage that's fixed with the supply-chain management and delivery structure of the Company.

But most of the difference between the high and low range of the revenue is simply some puts and takes on deals, what we anticipate in bookings.

We are not a Company that carries significant backlog; therefore, we are primarily a sell and build type organization.

So, it's those things that go into the range.

We'll look at each of the regions and so forth.

So, just from general standpoint, the range of 215 to 225 represents our best view of the combined businesses at this point.

And then from an earnings per share, it's really the contribution margin, if you will, from those revenues that takes it up or down from a center point.

The expenses, other than those that are volume related like commissions, some flexible marketing programs, et cetera, would be -- those might be the variable pieces.

Okay.

Do you have an expectation for contribution margin for the quarter?

Well, I think, on operating on a year-over-year is how we've of characterized it best.

I think the increased operating leverage year-over-year on the revenues I think for the core Intermec business, we are expecting that to be in the 30% to 35% range, similar to what we saw in the second quarter.

And then the acquired businesses probably continue to run at the non-GAAP level that they ran in the second quarter.

Okay, thank you very much guys.

Thank you.

There are no further questions at this time.

I would like to turn it back over to management for any closing remarks.

We want to thank everyone for joining us this afternoon, and as always, if you have any follow-up questions, please don't hesitate to give me a call.

That will conclude our call this afternoon.

We appreciate your time, and we look forward to talking with you soon.

Ladies and gentlemen, this concludes the Intermec second quarter 2011 financial results conference call.

If you would like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 and enter an access code of 4457126.

Thank you for your participation, and you may now disconnect.