TransAct Technologies Inc (TACT) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. [OPERATOR INSTRUCTIONS]. As a reminder this conference is being recorded today. A replay will be available after 8:00 P.M. EST today through midnight EST on November 15th. The replay dial in number is 201-612-7415. The account number to access the replay is 3055 and the password is 171456. The replay will also be accessible at www.transact-tech.com. I would now like to turn the conference over to Denise Roche. Please go ahead, Ma'am.

Thank you. Good afternoon and welcome to TransAct's third quarter 2005 conference call. Joining us from the company are Bart Shuldman, Chairman, President and Chief Executive Officer and Steve DeMartino, Chief Financial Officer. The format of the call will be a brief business review by Bart, followed by Steve providing detail on the financials. We will then have time for any questions. If you have not yet received a copy of today's results, please call (646)536-7026 and one will be e-mailed to you, or you can go on TransAct's website.

Before we begin the formal remarks, the Company's attorneys advise that this call contains statements about future events and expectations which are forward-looking statements. Any statements in this call that are not a statement of historical fact may be deemed to be a forward-looking statement. Actual results may differ materially depending on a number of risk factors. For a full list of risks inherent in the business of the Company, please refer to the Company's SEC filings, including the Company's most recent Annual Report on Form 10-K. The Company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the day of this call.

At this time, I would now like to turn the call over to Mr. Bart Shuldman. Please go ahead, sir.

Thanks, Denise, and good afternoon and thank you for joining us on today's call. I'm going to review the highlights of the quarter, and then Steve will run through the detailed financials. After that, we'll open up the call to questions.

Revenues for the third quarter of 2005 were 14.2 million compared to 15.5 million in the same period a year ago. The Company earned net income for the third quarter of 2005 of $674,000 compared to net income of 1.6 million in the same period of 2004. Earnings per share for the three months ending September 30, 2005 were $0.07 per diluted share compared to $0.15 per diluted share a year ago.

Now, I’ll provide a review of our business and speak about each of our business units. First, let me make a comment about 2005 which has been a year filled with mixed emotions. Our executive team here at TransAct set goals and objectives for 2005 and when I review how we are doing against them, we delivered against the strategic and operational goals. However, we are not delivering the financial growth. Clearly, some one time customer issues, coupled with the downturn in the domestic casino market, compounded now by the hurricanes that hit the South, impacted the work we have done and are doing this year. I can say our management team stayed focused all year despite these issues. We set out to accomplish our objectives and we are. We launched new products for our POS and banking business unit and have traction with every one. And one in particular, our new linerless label printer, is under test at a very large POS company right now, a wonderful opportunity for TransAct and our first entry into the label type printing market.

We also added to sales resources in our POS and banking business units and we believe we are gaining market share in a difficult POS environment this year. And with our larger sales team, we continued to dominate the banking business and now have more than several new large banking opportunities adding to the ones we already closed.

In our gaming and lottery market, we set our sites on diversifying our revenue base by entering the international gaming market and 2005 has seen a huge growth of revenues from customers in Europe and Australia. To bring home that point, international gaming sales were larger than domestic sales in this quarter. We also worked hard to get our new EPIC 950 approved in every jurisdiction with every OEM. And I can say we have basically achieved that goal. And of course our goal of establishing a TransAct Service Center in Las Vegas, to handle the many printers we have sold into the gaming market, and also to act as our West Coast Service Center for our other business unit, was opened and is driving revenue as I speak.

However, what 2005 is not doing is delivering growth in our revenue and profit. Almost like a perfect storm, we were hit with either one time events, customer issues that we had not experienced before, mergers and hurricanes, and of course the downturn in the domestic casino market. Mergers of the major casinos first impacted our domestic casino business earlier this year and now we are feeling the effects of the hurricanes. Orders we expected are now postponed as our friends in the southern region rebuild their business, and more importantly, their lives.

While we have positioned this company for growth, and we stay optimistic of our future, 2005 is not delivering financial growth. What we did do during this difficult time was position TransAct for revenue and profit growth when these one time events end and markets recover. I can say we are nearing the end of all this. We are not at the beginning or the middle. Speaking directly about the gaming and lottery business unit, revenue for the third quarter was 5.8 million compared to 8.9 million in the same period of 2004. The domestic gaming market remained weak and then was further impacted by the effects of Hurricane Katrina and the loss of revenue from one OEM customer as they work through a tough inventory issue.

Despite these issues in the domestic gaming market, the overall gaming market revenue decline was positively impacted by the continued significant growth in our international gaming sales. Sales in the international gaming market reached 3.1 million in the third quarter, an increase of over 300% from the same period last year and over 100% sequentially. International gaming revenue for the first 9 months of 2005 now represent a much larger portion of total gaming revenues, helping to limit the impact of the issues we face in the domestic market.

During the quarter we announced a major deal, probably a water ship event for TransAct, with JCM America Corporation, the industry leader in currency handling systems. Under our letter of intent, JCM sales force will offer TransAct's gaming thermal printers in North and South America in combination with JCM's many bill accepter and currency handling products. This is a very strong relationship and JCM combining our casino printer offerings with their bill accepters and other products to casinos and slot manufacturers, is powerful. JCM has at least 14 sales people all over the U.S. casino market alone and each is in training and gearing up to sell the many features of our slot machine printer right now.

JCM, for those that did not know, tried to launch their own printer over 2 years or so ago. As our EPIC 950 gained acceptance and word was out about it, JCM decided they did not want to sell their own printer any longer, instead agreeing to stop their manufacturing and selling efforts regarding their own printer and turn those efforts to selling ours. This was a huge win for TransAct and also for JCM. I have personally known them for over 14 years now, and they have built their business and maintained a very large market share in the United States regarding their bill accepters for slot machines by providing the market with great product and services. As an example, while we won all of Win Las Vegas for our printers, JCM won all their bill accepter business. So going forward, JCM will now add our slot machine printers and also our service capabilities to the products and services they offer today. Their many salespeople in the many jurisdictions around the country, will all be selling our slot machine printers at the same time they are selling their bill accepters, a huge win for TransAct and one I believe will help to grow our market share quickly.

Turning to the lottery part of the gaming and lottery business unit, revenue was down approximately $1.5 million compared to the same quarter of last year due to the last purchase by GTECH, the legacy impact printers, in the third quarter of 2004. But overall, orders from GTECH have been down in the first 9 months of 2005 compared to the same period of 2004 strictly due to timing of orders. While not a typical year for TransAct regarding sales of printers to GTECH, at least through the first 9 months of this year, we are expecting GTECH orders to return to historical levels in calendar 2006. I also want to comment that our business in sales to GTECH provides no correlation to their results.

Turning to our POS and banking unit, revenue was 5.5 million in the third quarter of 2005 compared to 4 million in the third quarter of 2004. I will now speak about the POS business first. We continue to make good strides in our POS market. For the first 9 months of 2005, POS revenue, excluding banking, increased 12% compared to the same period of 2004, reflecting the increasing adoption of TransAct's new line of thermal and inkjet printers and increasing sales in the international markets. We have made great progress in the growth initiatives set in motion at the end of last year in our POS market. Our expanded POS sales team is in place and we are seeing our sales pipeline grow across the entire business unit. Now we did see a drop in POS printer sales in the third quarter compared to 2004 which was solely due to a sales decline in our legacy impact printers. Sales of legacy impact printers will be lumpy every quarter as the majority of the market has transitioned to thermal and inkjet printers. Our impact POS printer sales will primarily be existing customers who are either adding some stores or buying some replacement printers.

However, sales of our new generation of printers, both thermal and inkjet, were up across the board in the third quarter of 2005 and for the 9 months of 2005. These products will lead our growth for the years to come. We are concentrating on the sales and marketing of the 4 new products we launched earlier this year and also on our inkjet and thermal printers. These include our first label printer, the LR8000 thermal printer which provides the benefits of a linerless label printing and customer receipt printing with an all in one product. One printer can print both a label and a receipt.

We also launched 3 new printers to meet the needs of the distribution channel, the Ithaca 500, 510 and 610. These printers are exclusively available through our distribution partners and represent a dedicated line of POS printers all under the Ithaca brand name just for our distribution partners around the world. We are seeing growing acceptance for all 4 printers and believe they will be growth drivers for our POS business.

Turning to our banking business, in the third quarter we shipped BankJet 1500 printers to a top tier financial services company under a deal we announced in June 2005. We continue to make great strides with our new sales organization we put in place. We have more sales people in both POS and the banking markets. Now the banking market is project oriented business and orders of this business will also be lumpy. But we are making significant inroads in building our pipeline. We are currently working on several new large opportunities. And finally, the TransAct Services Group continues to be a revenue growth driver for the company. Revenue for the TransAct Services Group, which includes spare parts, consumables, and services, was 2.8 million in the third quarter of '05, a 9% increase from 2.6 million in the year ago period.

Overall, for the first 9 months of 2005, revenue from the TransAct Services Group grew 14% over the same period last year. This growth is attributable to the additions the company made to its sales team and the opening of the West Coast Service Center. The key growth drivers are why we are focusing on this business. Services and consumables, which mostly include inkjet cartridges and paper. The increased sales of our inkjet printers and sales of all of our printers in all of our markets, coupled with our tie ratio of the number of cartridges, paper rolls and service sold for every printer installed, continues to drive our revenues in this business. We believe that this recurring revenue will only continue to increase and we are very focused on growing this business unit.

Now from an operations standpoint, TransAct continues to focus on our operations and costs while also driving forward with our strategic initiatives. Our inventory was held at lower levels as our revenues declined, allowing us to use our cash to build our business and buy back stock. In addition, we are in the final phases of our planned move of our EPIC 950 production to our Asian partners as we have now been in production for one year with this new product. We always wait about a year to move the product overseas as we work out any issue that might develop with a new product launch and wait for the volume to ramp up to help our Asian partners drive the cost reductions we expect. We should start to see these cost reductions hit our results in the fourth quarter of this year and the rest early in 2006.

As I finish my opening remarks, I want to remind you, our shareholders, that everyone at TransAct is focused on driving growth in our businesses. We understand our shareholders frustration with the combination of one time events and customer issues that have impacted our business this year. This is not an ideal set of market conditions but we continue to grow our market share in all of our markets. We remain focused on growing each of our business units. The recent weakness has not dampened our optimistic outlook for TransAct. As I said, I believe we are nearing the end of the issues we faced all this year. We are seeing significant growth in the international markets and we expect most of the issues in our gaming market to end early in 2006.

In the meantime, to offset the decline in gaming and lottery revenue, we continue to actively pursue initiatives to grow our domestic market share while also expanding our international efforts. We continue to see increasing adoption of our EPIC 950 thermal printer in key international markets including Australia and Europe and assembled a sales team and infrastructure needed to grow our market share worldwide. Our POS, banking, and services business remain strong revenue contributors and as they grow will add to our revenue diversity. The key growth drivers launched early this year which include the introduction of new products, the expansion of our international sales across all of our business units, and the addition of sales professionals in our TransAct Services Group, have positioned TransAct to grow market share and we will benefit from the return of the domestic gaming market.

Looking ahead in the fourth quarter, we expect to see typically seasonality in our business units and are not anticipating sales in our project oriented banking business. We anticipate revenues in the fourth quarter will be approximately 12.5 million and we expect net income for the fourth quarter of 2005 will be approximately $0.02 per diluted share.

Before I turn the call over to Steve, I just would like to make one comment about Charles Dill, one of our board members, whose mother passed away and just closed his mother's estate. As a Form 4 has said, he no longer has investing responsibility for his mother’s estate and those stocks in his estate was turned over to his brother and 2 sons, and therefore he had to file a Form 4. Charlie has been a buyer of our stock and a major supporter of TransAct. At this time, I will turn the call over to Steve DeMartino for our financial summary. Steve?

Thanks, Bart. Let's begin with a quick review of our financial results for the third quarter of '05. Net sales were 14.2 million compared to 15.5 million in the third quarter a year ago. Sales of our POS and banking printers, which include sales of our printers used by retailers in the hospitality, restaurant, and specialty retail industries, as well as printers used by banks and other financial institutions at bank teller stations, increased 40% over the third quarter of '04 to $5.5 million. This growth was primarily attributable to shipments of BankJet 1500 printers to a top tier financial services company for use in up to 6,000 of their bank teller stations in a sale we announced in June, 2005.

Excluding banking printers, sales of our POS printers decreased by 11%, due primarily to a decrease in sales of our legacy Impact POS printers to our domestic distributors. Sales of our gaming and lottery printers were down 35% compared to the third quarter of '04 from 8.9 million to 5.8 million. Sales from the gaming portion of this business, which primarily includes sales of printers used in slot machines that print tickets, were impacted by the continued decline in slot machine sales in the domestic casino market, including the effects of Hurricane Katrina and the loss of revenue from one OEM customer as it works through an inventory issue.

However, despite a decline in domestic gaming sales, international gaming printer sales more than quadrupled over the third quarter of last year to 3.1 million, reflecting our success in European and Australian markets as they adopt ticket printing in slot machines and other gaming and amusement machines. This is the third consecutive quarter of over 200% growth in our international gaming sales.

Sales of lottery printers, which include lottery printers used in GTECH lottery terminals worldwide, were down approximately 1.5 million or 50% in the third quarter. This decrease was largely due to shipments of legacy Impact printers to GTECH in our third quarter of '04 that did not recur in the third quarter of '05. We don't expect any future orders for legacy Impact printers as GTECH is currently shipping our new thermal online lottery printer with all their new lottery terminal installations.

Sales from our TransAct Service Group which included aftermarket sales of consumable products, spare parts, repairs, service contracts and refurbished printers, grew 9% to 2.8 million. TSG sales accounted for 20% of our total sales in the third quarter of '05, up from 17% in the third quarter of '04. The increase reflects the momentum we continue to see as a result of the investment we made early this year in creating this new focused business unit. With a dedicated sales staff and two fully functioning service centers, we have the infrastructure needed to continue to grow this portion of our business

Gross profit in the third quarter was 4.6 million compared to 5.9 million in the same quarter of '04. Our gross margin was 32.2% compared with 38.1% a year ago and 34.5% in the second quarter of this year. Gross margin was lower due to a lower level of sales and higher component product costs in the third quarter of '05 as we transitioned from our model 850 thermal ticket casino printer to our new EPIC 950 thermal casino printer. We expect gross margin on the EPIC 950 printer will improve in the fourth quarter of '05 as planned as we complete the final transition for the sourcing of components from domestic to overseas vendors.

Operating expenses for the third quarter of '05 increased as planned to 3.9 million from 3.4 million in the third quarter of '04. The level of expenditures for the third quarter was in line with our expectations and reflects the initiatives and staff additions we made to our organization earlier in the year. As we said before, our 3 business units are fully staffed and operational and positioned to grow our business.

Our operating income was approximately $700,000 in the third quarter of '05 compared to 2.5 million a year ago, down largely as a result of lower sales volume and higher operating expenses in the third quarter of '05 compared to that of '04. We earned $19,000 of net interest income in the third quarter of this year, as we maintained a cash balance between 3 to 4.5 million during the quarter, and still have no outstanding debt. This compares to 4,000 of net interest income in the third quarter of '04.

This quarter the income tax provision requires a bit of explanation. We recorded an income tax provision of $40,000 at an effective tax rate of only 5.6% in the third quarter of '05 compared to $855,000, or an effective tax rate of 34.5% in the third quarter of '04. The lower effective tax rate of 5.6% this quarter resulted primarily from the recognition of approximately 138,000 of certain discreet tax benefits during the third quarter of '05 as compared to the same quarter of ’04. You should note that we fully contemplated the effect of these benefits on our tax provision when we provided our third quarter 2005 guidance. You should further note that we expect that we will likely continue to recognize certain discreet tax benefits in the third quarter each year and therefore expect that our future effective tax rate for the third quarter each year will likely be lower than our overall annual effective tax rate in effect during any given year.

Net income in the third quarter of '05 was approximately $700,000, or $0.07 per diluted share compared to 1.6 million or $0.15 per diluted share in the third quarter of '04. Now looking at our cash flow, during the third quarter, we generated approximately 2.5 million of cash from operations. This cash generation resulted primarily from approximately $700,000 of net income, $300,000 of depreciation and amortization, an increase in accounts payable of about 1.1 million and lower accounts receivable and inventory balances. We used the majority of our 2.5 million of cash generated from operations during the quarter to repurchase our common stock. In fact, during the third quarter, we bought back another $2.1 million of stock. I'll talk a bit more about the details of our stock buyback program shortly.

We also spent approximately 600,000 on capital expenditures during the quarter, largely for the ongoing implementation of Oracle software and new product tooling. Our working capital decreased by approximately 1.6 million to 17.4 million at the end of the third quarter of '05 from 19 million at the end of June, '05. Our current ratio also declined from 3.3 to 1 at September 30th from 3.8 to 1 at June 30, '05. Book metrics remain strong but did decrease compared to the end of the second quarter largely due to the repurchase of approximately 2.1 million of our common stock during the third quarter. Absent the buyback, our cash balance would have been $2.1 million higher and our working capital and current ratio would have been higher as well.

And our EBITDA for the third quarter was approximately 1.2 million which was up from approximately $900,000 in the second quarter of '05.

Now take a look at our balance sheet at the end of the third quarter. Our total assets were 31.3 million compared to 31.9 million at the end of June. We ended the quarter with approximately 4.5 million of cash and cash equivalents, compared to 4.7 million at the end of June. So our cash balance decreased by only 200,000 even after repurchasing $2.1 million of common stock during the quarter. Receivables were down slightly to 9.4 million from 9.7 million at the end of June reflecting our success in improving our already very good collection efforts. Despite the growing portion of receivables resulting from sales to our international customers, who we grant longer standard payment terms to than our domestic customers due to the additional time it takes us to ship product overseas, we still reduced our average days sales outstanding during the quarter. Overall, our collection experience continues to be excellent.

Our inventories were down slightly to 7.6 million compared to 7.9 million at June 30, '05, as we successfully continue to reduce our inventory levels in light of higher sales during the third quarter compared to the second quarter of '05. Shareholders equity was 22.6 million at the end of the quarter compared to 23.9 million at the end of June. The decline was largely due to our stock buyback during the quarter, partially offset by net income earned during the quarter.

And lastly, as I mentioned earlier, as part of the stock repurchase program authorized by our Board at the end of March this year, we repurchased 286,900 shares of common stock or about 2.1 million during the third quarter. This brings the total buyback to date as of September 30 to 408,900 shares or $3.1 million at an average price $7.67 per share. So to date, we've bought back approximately 4% of our total shares outstanding which now stands below 10 million shares at approximately 9.8 million shares. Just as a reminder, under our current buyback program, we are authorized to repurchase up to $10 million of our common stock through March 2008, And that concludes the financial portion of the discussion and with that, I'll turn it back to Bart.

Operator, at this time, we'll turn the call to questions please.

[OPERATOR INSTRUCTIONS]. Our first question comes from the line of Jeff Martin of Roth Capital Partners. Please state your question.

Thank you very much. Hi, Bart. Could you give us a little perspective? You mentioned an OEM customer may come back in the first part of 2006. What kind of indication are you getting from them and is that a first quarter, second quarter type of event? Or how should we think about that for next year?

You know, the way I would look at it, Jeff, is late first quarter, early second quarter. There are multiple things going on. Their business seems to be doing okay and they're getting through the inventory. We have a couple more meetings set up to truly understand where they are with the remaining inventory. So what we're looking at is clearly late first quarter, early second quarter.

Okay. What about on the lottery side of the business?

You know, we're first getting the first indications of what it looks like next year. And it looks like, based on the forecast, that '06 will be much better than '05 and it looks like across the board quarters, each quarter will be a little different. But it looks pretty good for each quarter. And we are seeing some of the orders pick up already and that's why we're talking that their typical volume for the first 9 months has not been typical that we've seen over the last couple of years. We are seeing what looks like to be the start of the pick up this quarter and the first indications are that it’s going to be across the board in '06.

Okay, and looking at your international gaming business, it’s basically doubled from the June quarter. I’m assuming we can’t extrapolate a trend from a quarter million beginning of last year's first quarter to 3.1 million this quarter. I mean, how do we look at that and what pieces to the third quarter may have been anomalously positive on the revenue line?

You know, what we're seeing, Jeff, is across the board growth. We're seeing it in Australia, New Zealand and really all over Europe. We’re seeing the adoption of ticket printing in Australia that we're seeing the adoption of ticket out before even the ticket in starts. And in Europe we're seeing the adoption of ticket printing not only in the typical casinos that you have in Europe, but in what we call off premise gaming where they have machines in bars and places like that. Clearly Russia has been a good move. We're seeing it in Southern Europe, we're seeing it in Northern Europe, in Eastern Europe and of course in the main areas of Europe.

You know, if you look at where we were in ’03 and ’04 where we had wonderful success and a growing business, we had none of this business before and now we're at a run rate of almost 3 million a quarter or over 3 million a quarter. I would expect Q4 to be lower than Q3 only based on seasonality. You know, when you get into that Thanksgiving, Christmas timeframe, you’re not going to see a lot of slot machines and conversions going on. But I think you could start looking at our international business as a major aspect of TransAct's business and once we get that to a more historical, more normalized level in the domestic market, and our market share growth, I mean clearly we have gained market share in this domestic market in this significant downturn that we’re going through. But it's going to come back. We know Pennsylvania’s going to happen, we know Florida’s going to happen. Win is going to put up a new casino, we are seeing the expansion. We will see sales get back to more normalized levels, and what you'll have is TransAct in its typical domestic casino market and you can add to that a nice piece of international business.

And let me add that not only are we seeing it with our ticket printer, the EPIC 950, but we introduced at the Gaming Show our EPIC 630 and we have other printers coming out for this amusement with prizes and skill with prizes market where you have, if you go into London and you go into a bar, you know you've got that kind of fruit machine that’s sitting there and that’s what they call amusement with prizes machine. And the way the operators work now, there's coins in and coins out and operators have to go in and reload coins. And now they’re talking about putting printers in those machines. We are seeing printers in places like the William Hill Gambling Halls all over the UK and other markets. That market could be the size of the domestic casino market that we see today. So we feel good about the progress we made in the international markets. It's now a major piece of our business. As you can see, it was more sales in the quarter than our domestic market, and we're continuing to penetrate that market with even more products that don’t want a ticket printer but just want a receipt printer. So you can start putting that together in your model when you look at a more normalized, more regular domestic market and add this international piece.

Okay, can we extrapolate that you’ll do close to 12 to 15 million next year in international or is that - -?

You know, Jeff, we haven't put out any guidance for next year and we're in the process of rolling up our plan. We are extremely pleased with the success we’ve having in Australia, Europe and the other places. I think at the next conference call we'll guide the street, but I think what you can see from us is there is no real one time anomaly in the third quarter. There is no one deal in the third quarter that happened that won't repeat, for instance. These are a smattering of customers through our partners, we have two particular - - we have two partners, one in Europe and one in Australia, that buy the printers, but their customers are a host of different customers. So it's not just one deal we got. We've got a significant market share. We’re at the 80-90% range in Australia, New Zealand. We're probably in the 60, 70, 75% range in Europe and these are everyday type orders. But I think before we guide you on next year, I think we should guide you for everything and we'll wait for the next conference call to do that.

Okay. While I recognize the '06 guidance is typically not given until the end of the fourth quarter, speaking to the fourth quarter guidance, the 12.5 million in revenue that you provided, what areas will be sequentially down? I know that point of sale has some seasonality, but I assume it's not all point of sale.

It's banking. You know, it's the lumpiness of banking, Jeff. You look at that banking business where the third quarter you got - - we had one major bank come in for a lot of printers and one of our existing banks came in for more printers in the third quarter. We're not going to see that one extra bank in the fourth quarter. That’s really the difference from Q3 to Q4. What I'm really pleased about in Q4 is really the POS forecast I have right now, because that is normally weaker in the fourth quarter due to seasonality. Every fourth quarter we do less POS sales than the rest of the year. And the forecast for Q4 looks good. Our pipeline of potentials and our pipeline of orders looks good in the forth quarter. Gaming looks about the same. We are going to see some seasonality in gaming. You’ve got Thanksgiving and Christmas and I think you're going to see a couple of weeks there where slot machines aren't put in. I think the hurricanes effect will continue in the fourth quarter. And it’s not just the fact that Louisiana casinos or the Mississippi casinos are gone, it’s those casinos that had casinos down there that no longer have the cash flow from those casinos that are saying, you know what, maybe we'll put off some buying until we get those casinos back up and running. So I still think you'll see a little effect there. But if you look at quarter to quarter, it's mostly banking.

Okay, what do you think in terms of total gross margin, the high component costs in the quarter in terms of gross margin?

Oh, 200 to 400 basis points. I mean, clearly, what happened, Jeff, was in the third quarter, even though we basically hit our forecast for gaming printers, we actually sold more 950s than 850s, which is a good news story because that's the product that's leading us and the market is endorsing and buying. It’s just that product was scheduled to move to Asia in October and November and it is there right now. We have a team just finishing the move right now. There will be two tranches of cost savings. The first one comes this quarter and the second one comes early in '06, probably towards the end of Q1. Ands that should drive our margins between 200 and 400 basis points higher.

Not just on the 950 line, but overall?

Overall. That will have an overall effect of between 200 and 400 basis points.

Okay. Thanks, Bart, I'll let others ask.

Our next question comes from the line of Jim Bradshaw of Bares Capital Management. Please state your question.

Thanks. I was wondering what percentage of the consumables used by your printers you think you'll expect to sell in the future?

Whoo - - boy, right now we're probably - - in the consumables market, we'll look at paper, ribbon, which is kind of a legacy product, which over time will come down and is coming down because of our sales of thermal and inkjet printers. So we've got paper and cartridges. Paper, you know, where we compete with converters and all that, but our paper business has been growing and the margin is wonderful. The consumables, the inkjet cartridge business, we get most of, high percentage, because it's in a deal with HP and we sell those cartridges.

Okay, you said margins are wonderful. Are you at a point where you'll share what those are?

No, and for many reasons. It's clearly not in our interest to share margins of individual products. We're public, most of our competitors are private and it’s just too much information to share that our competitors could use against us.

Okay, appreciate your time.

Again, ladies and gentlemen, if you would like to ask a question, that is star one on your telephone keypad now. Mr. Shuldman, it appears that there are no further questions at this time.

Once again I thank everybody for joining us tonight on the third quarter phone call. We do look forward to speaking to you again on our fourth quarter phone call. We're always available to take your calls. Thank you and good night.

Ladies and gentlemen, this concludes today's teleconference. We thank you for your participation and you may disconnect your lines at this time.