Iteris Inc (ITI) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter Three 2008 Iteris Incorporated Earnings Conference Call. My name is Nikita and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Jim Miele, Chief Financial Officer. Please proceed, sir.

Thank you, operator, and welcome to the Iteris third quarter 2008 conference call. I am Jim Miele, the Chief Financial Officer of Iteris and I am joined today by Abbas Mohaddes, the Company's CEO. First, I would like to recap the results of our fiscal 2008 third quarter, and then Abbas will provide further commentary about our business. At the conclusion of Abbas' comments, we will open the call for questions.

Before proceeding, I would like to remind all participants that during the course of this call we may make forward-looking statements regarding future events or the future performance of the Company. The forward-looking statements we discuss during the call are based upon the information we currently have available. This information will likely change over time. By discussing our current perceptions of the market and the future performance of the Company and its products, we are not undertaking an obligation to provide updates in the future.

Actual results may differ substantially from what we discuss with you today and no one should assume that at a later date our comments from today will still be valid. We refer you to the documents that the Company files from time-to-time with the SEC, specifically the Company's most recent Form 10-K and 10-Q. These documents contain and identify important risk factors that could cause actual results to differ materially from those that are contained in any of the forward-looking statements.

For the third quarter ended December 31, 2007, our net sales and contract revenues increased 6% to $15.4 million, compared to $14.5 million in the same quarter of the prior year. The increase in net sales and contract revenues was a result of a 32.2% increase in Vehicle Sensors revenues, which grew to $2.7 million compared to $2.1 million, primarily driven by a 50.7% increase in LDW unit sales to the heavy truck market, as well as a 4% -- 4.6% increase in Transportation Systems contract revenues, which grew $6.2 million from $5.9 million. Roadway Sensors net sales for the current quarter was $6.4 million compared to $6.5 million in the prior year quarter. Abbas will also provide more detail regarding net sales and contract revenues later in his comments.

The Company reported operating income of $1.1 million for the current quarter compared to operating income of $751,000 in the same quarter of the prior year, or an increase of 50.5%. Operating income for the nine-month period ended December 31, 2007 exceeded $5 million. This is an increase of almost 91% from the $2.6 million we reported in the same period in the prior year.

Gross margins for the third quarter increased 310 basis points to 42.3% from 39.2% in the year ago quarter. The increase in gross margins was primarily a result of improvements in both Roadway and Vehicle Sensors. The increase in Roadway Sensor gross margins was attributable to a favorable sales mix in terms of both geography and products, while the increase in Vehicle Sensor gross margins was again primarily a result of increased sales volumes and production efficiencies.

Operating expenses increased by 9% to $5.4 million compared to $4.9 million reported in the year ago quarter. Included in operating expenses was a $290,000 non-cash charge related to the increase in value of Iteris stock held in the Company's non-qualified deferred compensation plan. The majority of Iteris stock held by the plan is owned by the Company's former CEO and is scheduled to be distributed to him in May 2009. Thereafter, we intend to dissolve the plan.

Net income for the third quarter was $954,000 or $0.03 per share compared to net income of $310,000 or $0.01 per share in the same quarter of the prior year. Our net income for the nine-month period ended December 31st was $4.2 million or $0.12 per share compared to $1.3 million or $0.04 per share for the same period in the prior year, which represents an increase of approximately 319%. Over the past several quarters, the Company's financial position has continued to get stronger.

Our current ratio has now expanded to over 2 to 1 and our line of credit balance at the end of Q3 was approximately $199,000, leaving roughly $9.1 million in available credit. We believe our efforts to focus on receivables, payables and inventory management have been paying off. Our operations provided positive cash flow of approximately $3.3 million for the current quarter and is in excess of over $5 million for the nine-month period ended December 31, 2007.

Additionally, the Company continued to benefit from Federal and state net operating loss carry-forwards which are expected to offset approximately $2 million to $3 million in taxable income every year for the foreseeable future. Now, I'd like to turn the call over to Abbas, who will further discuss the quarter and our strategy in greater detail. Abbas?

Thanks, Jim. Once again, I am pleased with the results of our third quarter. Iteris continued to improve its execution, delivering improved earnings, and expanded gross margins. The Company is also executing well against the strategic plan I developed with the Board when accepting the CEO role last year. Our initiatives to accelerate the business, drive efficiencies, and generate more earnings are paying off and providing tangible results.

As Jim mentioned earlier, thanks to the progress we made in the business and the profits generated over the last few quarters, we have also been able to significantly reduce Iteris' level of borrowing, which has improved our financial strength and gives us much more flexibility in our business. As we speak, we have our entire $10 million line of credit available to us as we have been out [of line] for a couple of weeks now.

Let me first say a few words about the quarter completed. As I said, Q3 was another good quarter. The progress Iteris has made especially compared to last year was significant. I am delighted to say that the increase in operating income and improvement in gross margin, my primary areas of focus for this first year, were again very good. For the first time since inception of Iteris, we have delivered $5 million in operating income for the first nine months of the year.

Now, here is more detailed commentary on our performance. Revenues derived from Transportation System services was strong this quarter and has grown 10% for the nine months ended December 31, 2007 as compared to the prior nine months period.

We received several significant awards during the quarter and a number of the strategic and very high-profile ones including the I-35 West Emergency Design-Build project for the state of Minnesota Department of Transportation. You may recall that this was a major disaster when this bridge collapsed last summer. This high-profile contract evidences the level of credibility and brand Iteris carries in this business.

We ended Q3 with a strong backlog at $24 million representing a nearly 24% increase year-over-year. About 60% of our estimated revenue derived from Transportation Systems for fiscal year 2009, next year, is already in the backlog which is stronger than our historical expectations.

As I explained in the past earnings call, for Iteris, this backlog is very significant as it provides us with a stability and better visibility regarding our future performance. Particularly at this time where we hear about softness in the economy impacting much of consumer-based industries, we are fortunate that the public works projects by and large continue deployments and in are some cases expanding which we believe will directly benefit us.

In line with the backlog, we have also achieved our hiring plans for newer staff that should help us to meet the expected demand in the coming year. Since beginning of the fiscal year, we have added net 21 associates in the areas of engineering, planning, as well as sales and marketing. This is a significant achievement for us, as having the right people in this space is a key enabler for revenue delivery and we are right on plan in this area.

Roadway Sensors enjoyed another good quarter. We saw a strong demand primarily due to continued adoption of our video detection products and expansion of sales throughout North America. While we don't know the full impact of the uncertainty in the domestic economy, we will still have a good quarter even under these more difficult economic circumstances. Margin derived from Roadway Sensors achieved improvements of 430 basis points year-over-year, is stemming primarily from favorable product mix and our ability to maintain pricing power.

By focusing on products that are first-to-market, we plan to not only build and sustain our leadership with new technologies, we also hope to continue to enjoy enhanced margins. In addition, I am glad to say that some of the operational changes we have made, we have identified and are now beginning to realize production and engineering efficiencies.

I am also proud to say we have released several new products this year in the video detection space and have a healthy pipeline of new products coming to market in the coming quarters which should bode well for calendar 2008. We continue to be optimistic about our leadership position as well as the opportunity we have to further expand the size of our addressable market. We believe the adoption of video detection will continue to be as strong for the foreseeable future and Iteris should be a prime beneficiary of this trend. We have seen that about 50% of the new and refurbished intersections choose video detection.

Also given our initial track record of supplying high-profile customers abroad, Iteris should also be well positioned to capture additional international business. Also, as I will discuss later in the call, next quarter, we plan to launch a new product that is expected to address a particularly underserved market. We believe this launch has the potential to further boost our net sales both domestically and internationally.

In this quarter, we saw fewer than expected orders from one of our significant customers, the State of Texas, which reduced orders primarily due to a funding shortfall. Given the public sector status of that customer, I am not overly concerned about this matter and I am relieved to say that our bookings and sales, excluding Texas, remains solid.

I am pleased to say that revenues derived from the sales of Vehicle Sensors was up sharply with a 32% revenue increase year-over-year. Importantly, while achieving that growth, Vehicle Sensors maintained profitability, a key target we had set for the team. We were pleased with the recent Nissan's introduction of Lane Departure Prevention on the Infiniti EX and M, which is based on our lane departure warning technology. I should add that Prevention Technology like its predecessor Lane Departure Warning was first in the market and enjoys a strong leadership position in the market.

Our passenger car distribution partner Valeo, a global tier-one automotive supplier, continues to seek new opportunities with other automobile OEMs. On the commercial trucking front, we expanded our list of North American trucking fleets that have made our Lane Departure Warning system a standard by another eight fleets, bringing now the total fleets to 58. Sales remain as strong in Europe and Asia, and market pull for active safety features such as LDW appears to be catching on in these geographies.

I am happy to say that we are also working on new products and strategic partnerships to continue accelerating our growth. Commenting more broadly on operations and business outlook for the full year, I will say the following.

One, as was the case in the last few quarters, we have continued to see a steady increase in the volume of request for proposals as well as the number of bids we are submitting in response. We have increased our marketing and in our view, this is critical to ensuring that we build out a leadership position for the long run, have invested in future acceleration, accelerating our product development function. Two, we currently have a pipeline of new products and services being introduced.

For example, we plan to roll out a new Roadway Sensors product at the Intertraffic Trade Show in Amsterdam in April 2008, just a few months from now, which is expected to be one of the most widely attended and perhaps the largest traffic management show in the world, which we believe will further underpin our market leadership and should yield financial benefits. I say that because customers even pre-launch have been extremely interested in the product's market application.

Three, we are making good progress on our margin improvement and other efficiency programs, which are key pillars of the strategic plan that we are pursuing. For example, as I alluded in our last earnings call, I recently combined our product engineering and operations group in late 2007, and within two to three months, we already began to see tangible benefits from these changes in terms of both relatively lower operating expenses and faster, more focused development.

We also recently hired a new VP of Engineering, with 25 years of engineering operations and management experience in transportation, aerospace and IT. With him and the rest of the team, we plan to tackle more areas of improvement and efficiencies. And I hope to provide an update about those over the next quarter or two.

Four, as I have mentioned in the past, I expect Iteris to achieve growth without sacrificing profitability. For example, our Vehicle Sensors segment continues to improve profitability at a significantly faster rate as it increase sales and has raised its contribution to the overall results of Iteris. That profit focus is one if not the key part of our strategic plan, and we plan to maintain this focus.

Five, the same focus and urgency with which we aim for profitability is expected to apply the way we go about managing our balance sheet, working capital, and achieving a good return on assets and investments. Jim was able to report further progress in his earlier remarks on matters such as inventory management, accounts receivable and payables, and similar metrics. This focus on efficiency goes hand in hand with our broader operational excellence initiative.

Six, finally, we plan to keep close tabs also on other areas of commitments in our strategic plan and I am pleased to say we are well on our way in executing against these. For the current and next quarter, these goals include expansion into new markets, product and feature categories, especially through OEM and channel partnerships. We are in discussions with several potential partners and expect that these relationships will help us solidify our leadership position in the market. We plan to share more of this with you as we go.

Finally, I am happy that our recent revenue growth and profitability improvement have given us the financial resources and balance sheet strength to consider opportunities that we were not able to reach before.

In summary, again, I am pleased with the results of the quarter, particularly with regards to the strong operating income and underlying momentum. Order book, backlog and revenue are also strong. I believe we have many near-term opportunities for increased growth and profit. I believe Iteris is on a strong trajectory. My team and I plan to continue to work hard to improve upon all of the above. This concludes my remarks. We will be delighted to respond to questions and comments at this time.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Joel Achramowicz. Please proceed.

Yes, good afternoon gentlemen, Joel Achramowicz.

Hello, Joel.

Good afternoon.

Good afternoon. Abbas and Jim, do I have this correct, Jim, maybe just the breakdown again. It looks like -- is Transportation, [TMS], about $6.2 million, Roadway Sensors about $6.4 million, and Automotive Sensors $2.7 million?

Yes, that is correct. $6.2 million for the Transportation Systems group, $6.4 million for the Roadway Sensor group, and $2.7 million for Vehicle Sensors.

Okay, great. I just -- obviously, you are managing the business in terms of costs and margins very well. It did seem that, and then perhaps this could be because the second quarter was so strong, I mean, but kind of a little weaker product sales third quarter versus both the first and second quarter developments which were very good. Do you see that as just really a function of an uncertain market? Do you think that that will be -- rebound maybe a little bit going into the fourth quarter or do you have any visibility there going forward?

Yes, thanks for the question, Joel. As I indicated in my written remarks, due to Texas situation, we experienced delay in those orders. We believe that the shortfall in Texas budgetary situation should resolve itself over the next few quarters. We have not seen any similar delay with any other customers at this point.

And you had mentioned that the rest of your business sans the Texas seems -- continues to be somewhat firm.

That's correct.

Just a question, in addition to the $290,000 non-cash charge, was there any additional stock-based compensation, Jim, during the quarter?

There was about $82,000 in stock-based comp, and while we are on the subject, depreciation expense was about $150,000.

Great, and that helps. And then, just any thoughts on developments in the insurance market that might represent any mandates going forward or emerging developments or demand both for LDW or LDP on the part of insurance, auto insurance companies or vehicle insurance organizations?

Yes, we have been actually focusing in that area in particular. A couple of months ago, we attended a major insurance show in New Orleans, and we were quite pleased with the reaction. Accordingly, we are working with more than half a dozen insurance companies that are really primarily educating a lot of their customers with the benefits of active safety. And we are sharing websites, literature, a variety of activities to sort of advance that and obviously ultimately we would like to see discounts that they could provide.

A typical truck, as an example, nowadays may have spent $7,000 to $10,000 worth of premium. Imagine if they could provide 5%, 10% discount, that easily pays for itself, for our technology. So, we are hoping that that would be coming up soon.

Very interesting. Well, I think I will get back in the queue right now and thanks and good luck going forward.

Thank you, Joel.

Your next question comes from the line of Frank Magdlen. Please proceed.

Good afternoon.

Good afternoon, Magdlen.

A couple of thoughts. On Texas, could you explain the -- was it a revenue shortfall on their part?

Yes, what happened, Frank, we learned that Federal government took a part of their regular funds away from them. In addition to that, there is a political situation going on between the legislature and the governor that ended up again another significant allocation of the funds to other areas. We have seen four, five articles that suggest and describe that shortfall. At the same time, we hear that legislature is talking closely with the Governor and trying to resolve it. Over the years, we have seen these situations happen from time to time with state agencies, and typically by the time they get to their fiscal year, which is summer, they resolve those issues.

Overall what was the actually positive thing that was happening, last week I was in Washington DC, attending one of the largest trade shows. It is called Transportation Research Board. And the Secretary of Transportation has made some remarks, in fact it was in Wall Street Journal last week, indicating their desire to continue and in fact expanding their investment in transportation. We have seen over the years that in tough economic situations, the public works and infrastructure typically benefit from that resurgence of investments and sometimes even they expand. So, although the Texas situation is a concern at the moment, I remain hopeful that they would resolve it shortly.

And while we are on that subject, Mr. Magdlen, because I have provided guidance early in the year, we believe that the year we are going to be a little bit light on the top-line. Currently, we are estimating an annual growth rate of about perhaps 11% to 14%. Also, for this year we are estimating earnings per share of $0.17 to $0.20, which is very attractive to us and they are consistent with our focus on profitability expansion.

All right. And that would be the reported earnings per share at whatever taxes you have left to pay this year?

That would be correct. That would include some estimate for a tax benefit.

Okay.

Yes. And this number, again I would say attractive because when you think of year-over-year for the whole year we did the $0.09 last year, and as Jim indicated, year-to-date we are $0.12 compared to $0.04 a year ago. So, this is something that we have focused on and now it is being delivered and we are quite pleased about it. Thanks for the question.

You are welcome. So, you actually had a tax pay this quarter, is that right, Jim?

Yes, we actually had a --.

Yes, you had a benefit and you had to pay it last year?

Yes. The taxes are something that fluctuate from quarter to quarter. As we move into our fourth quarter, that's when we estimate our tax position going forward and we will be considering our options in terms of taking greater advantage of our net operating loss carry-forwards in terms of tax benefits.

All right.

But we don't -- but we are not in a tax payable position even though from time to time tax expense shows up on the P&L. It's more of a tax timing issue.

Okay. And then the LDP product, is that a substantially higher margin product for you or royalty stream?

It is substantially similar in royalty as we do enjoy on the Lane Departure Warning.

Okay. So that's -- and then is there -- R&D going forward, are you -- given the fact that you have accelerated some of your plans for new product introductions, is that level -- the $1 million level, is that what we should expect going forward or do you intend to ramp that up a little bit?

Well, we are right now, Mr. Magdlen, finishing and finalizing our FY '09 plan and we will be presenting that to the Board in fact next week. And I believe that in order for us to experience this accelerated growth that we are talking about, we need to continue to invest appropriately in research and development. And to do that, we need to continue making assumptions that the type of products and services that the market is expecting us is introduced and launched properly in a timely manner to market. So, as we move on and finalize that, we would share the details of that with you.

All right, thank you, and I will jump back in queue.

Your next question comes from the line of Jeff Van Sinderen. Please proceed.

Good afternoon. Let me ask you guys, should we look for gross margin to continue to improve on AutoVue and Vantage, and when should we expect that improvement to begin to slow down?

Well, Jeff, this is Jim. We have certainly seen some improvements in gross margin over the last few quarters. As I indicated, a lot of it is due to the product mix in terms of geography where we saw our products or higher margin products.

When we introduced certain Roadway Sensor products, they carried a higher margin. The Vehicle Sensor margins have been expanding mainly due to increased sales volumes. As the sale volumes increase, we have been able to cover a greater portion of our fixed manufacturing overhead and we have also made some operational changes that Abbas spoke to to gain some production efficiencies.

So, I am still hesitant to predict margins going forward in the price competitive situation that we find ourselves in, but for the remainder of the year, I expect the margins to be comparable. And when we get into our guidance next year at the call in May, I will discuss what we think margins are going to be like for our fiscal year '09.

Mr. Van Sinderen, I would just add briefly that, as I have alluded in the past, as part of our strategic plan, we purposely would love to introduce new products to market in such a way that is ahead of competition and for some duration we enjoy a pricing power on an attractive margin. And so, by the time the competition catches up, we are on to the next product. So, under that philosophy, I remain optimistic about the continued overall expansion in margin and profitability. I appreciate the question.

So, basically, you are staying ahead of the competition in terms of introducing innovative product that's better than what they have?

Yes, typically when you have a new product, for a while, you could really set the pricing on that particular product until similar products are introduced to market. That's what I meant.

Okay. And then, in terms of the AutoVue business in the truck market, can you give us a little more color on what's happening in Asia and Europe?

Absolutely. We have maintained quite a solid performance the last few quarters in both Asia and Europe. We are hoping, particularly in Asia, in the coming quarters to expand upon that. But the kinds of softness that we have seen in the trucking industry in North America, we haven't really seen that in Europe and Asia in this past few quarters.

Okay. So, basically Europe and Asia are the sort of a macro that's stronger than what's happening in the domestic market for trucks?

In the recent quarters, yes.

Right. Okay. And then as far as AutoVue goes for the passenger car market, can you update us on how that looks in terms of competition and then business being won either by you guys or by competitors, and then how you are looking at the prospects for new OEMs there?

Sure. I was in Stuttgart visiting Valeo a couple of months ago, and I was truly impressed with the way they are going about expanding the market coming up with other features that bundles with ours, because some of the customers are asking it that way. So, I am convinced that they will expand the market and other OEMs. We also have seen really interest surge in Valeo's OEMs in that feature.

And I have said in the past that it's sort of a two-edged sword in here. We have seen additional competitors coming to market, which in a way validates the technology that we invented. But the market share or the market itself, there is a lot of room to grow for us and the competitors, and I remain hopeful that we would be benefiting from that surge of the market appetite.

Okay, good. And then as far as Vantage, I know you mentioned international markets there. I just wondering what the prospects are, what the opportunities are for growth internationally in Vantage, and are you seeing that now?

Yes. Our focus in the past has been primarily domestic market. Last few years, we had started doing some reconnaissance internationally. I personally have made a couple of trips this last quarter as a matter of fact to identify other markets. And we now are really ramping up our activities, particularly in a couple of specific geographic areas. And I believe that we would see additional sales in the coming quarters internationally.

Okay, good. Thanks very much and good luck this quarter.

Thank you very much, Mr. Van Sinderen.

Your next question comes from the line of (inaudible). Please proceed.

Hello Abbas. You mentioned a little bit when you talked about comments from Washington, the Secretary of Treasury, but anything specific about the proposed government stimulus package that may contain highway traffic management works that could benefit you guys?

Well, as you know or as you may be aware that there is a debate going on in Congress right now about the increase in fuel tax. And depending upon how it goes or what magnitude that goes, the industry as a whole -- the traffic management industry would be benefiting from that. The Secretary of Transportation commented on that very issue this last week and made a commitment that she would be advocating expansion of funds into traffic management as she acknowledged the increase in frustration and concern of really the commuters.

The other comment that I should make is that as we get the complete with the (inaudible) re-authorization, in about a year or so the drafting of the next authorization funds, which is the significant Federal funds into transportation would begin its craft and we believe that the investment regardless of the administration or what administration comes on board, we would enjoy the benefits of that added investment in transportation.

Great, thanks.

You're welcome.

Your next question comes from the line of [James McCrily]. Please proceed.

Yes, thanks. Good afternoon.

Good afternoon sir.

How big was the Texas order?

Traditionally, we have had somewhere between $1.5 million to $2 million per quarter from Texas. And then, in this third quarter, it reduced to about half or a little bit less as much. What happens in the State of Texas, we get two types of orders, one comes in from the maintenance funds, and that part has not been significantly impacted. The part that has been impacted is the capital improvement funds, and this is where they would be doing new intersections, new roadways, new bridges that might require our technology. So, somewhere between $500,000 to about $1 million worth of orders that we would have loved to enjoy did not come through.

And so that money, when it does get spent, is that dedicated to you or is there a chance that some other company -- that somebody else could take that?

Yes, typically in the State of Texas, there are three qualified video competitors that would bid on it and traditionally, we get a good share of that and we anticipate that that posture would continue.

Okay. And did I hear correctly that the Roadway Sensor margin increased 430 basis points year-over-year?

That is correct.

And that was solely due to mix?

It is really based on two reasons. One is the mix and also the pricing power that we have overall. You realize that we go direct in some states and we go through a wonderful group of distributors that help us nationwide. Depending upon the mix, that could help us on the margin as well.

Okay. So, would it be aggressive to assume that this kind of margin continues going forward or is it more like the nine months margin that is more representative of your earnings power in that business?

I think Jim alluded to earlier that it is difficult to be specific about the forecast, but we have a mandate, if you will, to continually focus on margin improvements. You have this price pressure of course in one hand. At the same time, when we bring new products to market and that is why we believe that having a healthy pipeline of products not only it helps the overall revenue, but also helps the margin, and it is one of the important areas of our strategic plan.

Okay. And lastly, what was the operating cash flow either in the quarter or year-to-date?

The operating cash flow was excellent for the quarter, we ended up about $3.3 million, and year-to-date cash flow is north of $5 million for the nine-month period ended December 31st.

Okay, great. Thank you very much.

Thank you. Jim and his team, I might add, have done a wonderful job of operational excellence initiative that we have in specific matrices that has helped us quite a bit looking at the reduction in expenses, getting us on a line of credit. As I indicated, we have our entire $10 million line of credit available to us as we speak. So, I am quite proud of that group what they have done.

Your next question comes from the line of Frank Magdlen. Please proceed.

Abbas, you talk about the new product introductions. Can you give us an idea of the life of the cycle for these products and maybe an indication of say the revenue for the last trailing 12 months, what percent came from products introduced in the last year or two?

Yes sir, I could make an attempt. The life-cycle of these products depending upon the application varies. Generally, five to 10 years is a typical life-cycle. This particular product that I cannot really expand on it too much because of competitive reasons is really designed to address a particular market that has been underserved. So, we believe that it will have sustainability for many years.

Over the years, I don't have a specific percentage, but I could tell you that a good portion, at times 20%, 30% of the annual sales would come in from a particular product we have introduced. Example would be TS2 product that we introduced in summer. We are now enjoying the benefits of that and I would estimate that in this Q4, we probably have 5% to 10% of our revenue really attributed to that particular product that we have introduced. So, it is not really a minor item. That is again another reason that we anticipate over the next four quarters introducing several new products, two, three of them perhaps that are in the developmental stage as we speak.

All right, thank you.

You are welcome.

(OPERATOR INSTRUCTIONS). And your next question comes from the line of Joel Achramowicz. Please proceed.

Thank you. I was interested to have a follow-up on, are you seeing -- do you have any reason to believe that some of the main auto companies that are using or employing the LDW technology and LDP technology through Valeo, might want to advertise this? I mean, it seems like a pretty hot item in terms of promoting safety and the value of that feature in luxury cars, any thoughts there?

Yes sir. That is an excellent comment. We have seen some, obviously not as much as we like. We saw Infinity -- as a matter of fact, I was walking into a Bloomingdale's during the holiday with my family.

And so, my 10-year-old daughter ran into this car, Infinity EX that was parked. So, she goes in and asks the person that is explaining, "does this have the Lane Departure Warning?" And the lady says, "No, it is the Lane Departure Prevention." And in fact, she gave her a brochure that indicated written down advertising it. We like to see more and we believe that Infinity does a good job of it, and we have also seen in some other ads from a couple of other OEMs.

But, you raised an excellent point. Active safety is one of those situations that, yes, it may not be as attractive from a gadget standpoint when you go and buy something. But, a prudent buyer nowadays would focus on a feature like that. And I believe that going forward that this will catch on and we would see a lot more of it.

Thank you. And also, what is the headcount, Jim?

Headcount for the full Company?

Yes.

We are probably in the neighborhood of 245 to 250 people right now.

Okay. Great, thank you very much.

Your next question comes from the line of [Chris Bowes]. Please proceed.

Hi guys, just a few questions here. The first regarding Vantage and Abbas back to your comments regarding international potential and certain regions. Can you be more specific about the regions?

You are talking about the international market?

Correct.

Yes. I could tell you that what we have done in the past, this is now I am assuming that you are talking about the video detection specifically, right (multiple speakers)?

Specifically, yes.

Yes. What we have done in the past, we have sold in Central America, we have sold in Middle East. Part of the reason my trip to Middle East was to expand upon that. We haven't done a significant amount in Europe because the competition has a good base there, although we have sold to Russia. We are now doing some more and planning to do more in China. That was part of the reason for my trip couple of months ago to China.

I feel that there are two reasons for possible expansion in international market for us, one being the quality and attractiveness of the product that in fact some upcoming products as well that is more suited for those markets. But also, we are enjoying the price. With the weakness of dollar there is a lot more buying power by those markets. So, the combination of those makes me believe that we should and will be doing more internationally.

Okay. And not to single out one country, but you bring up China. I have read a lot of research recently that the number of cameras that need to be bought and installed for the Chinese Olympics coming up this summer are numerous 100,000 units. Is that something that you are competing for? Is that -- are you in there running for that business?

That particular example that you used has already been taken care of and in fact, some of the security industries are after that. So, that is not specifically something we would be following. But there are a lot of intersections in major cities. I don't need to give you any stats on these, but we believe that that market is healthy. We have been watching it for a long time very carefully. We do understand that going to China is a complex process and the way ones needs to set up the distribution channels and so on. So, we are very careful about penetrating into that market and continue doing our homework on that.

Okay. And the next question, just a point of clarification on the earnings estimates or guidance that you gave a few minutes back, I believe you said $0.17 to $0.20 in the bottom line, and is that this year? So '08 in other words we're three quarters the way through there and we would expect another $0.05 to $0.08 a share in the fourth quarter?

That's correct. That was precisely what I was hoping to express. Just to express the fact that we are focused on profitability while we are growing nicely and that overall we feel very optimistic about the tangible results of the earnings per share for the whole year.

Well, with that in mind and the cash you are throwing off and the line of credit being basically unused, what sort of things can we expect you to do? I mean, with a $10 million line and almost nothing drawn, you mentioned you were excited about that, what are the range or a limited range of possibilities?

Well, several. At the minimum, investment in the right places. We have an ambitious plan for FY '09 we will be presenting to the Board. This is into a new product and services that would help us accelerate our growth. At the same time, as part of our strategic plan, we are looking at a variety of partnership opportunities, whether it is a company that could help us penetrate into markets in consulting or a particular IT that would help us further accelerate our growth.

We haven't started actually doing it for several months. We are talking to well over a dozen companies. We have non-disclosure agreement with about half a dozen. So, we are really seriously looking at a variety of opportunities that could help us meet our obligations of the strategic plan. Thank you for the question.

Yes. Well, you guys did a nice job. Thanks for the update and good luck.

I appreciate that.

(OPERATOR INSTRUCTIONS). Sir, you have no further questions at this time.

Well, thank you, Nikita. And ladies and gentlemen, again we appreciate everyone's support and look forward to updating you on our continued progress. Have a wonderful afternoon.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a great day.