Universal Electronics Inc (UEIC) 2002 Q3 法說會逐字稿

Ladies and Gentlemen thank you for standing by. Welcome to the Universal electronics third quarter 2002 results conference call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in the question and answer session. At that time if you have a question, you will need to press the number one on your touch-tone telephone. As a reminder this conference call is being recorded Thursday October 24th 2002. I would now like to turn the conference over to Miss Kristen Chapman at and Associates.

Thank you for joining us for Universal Electronics third quarter 2002 results conference call. By now you all should have received a copy of the press release, if you have not, please contact at 415 433 3777 and we will forward a copy of the release immediately. After reading a short safe harbor statement, I will turn the call over to Paul Arling, Chairman and Chief Executive Officer of UEI. During the course of this conference call, management may make projections or other forward-looking statements regarding future events and future financial performances of the company including benefits the company expects as a result of significant contracts with customers that have been recently announced, the development and success of products and technologies that continued convergence of the companies technology and continued strength of the companies financial position.

We wish to caution you that these statements are just projections and that the actual event results may differ materially. For further detail and risks press release I mentioned at the outset of this call and the documents that the company files from time to time with the securities exchange commission including the companies annual report on form 10K file for the year ended December 31st 2001 and the quarterly reports on form 10Q filed for the first and second quarters of this year.

These documents contain and identify various factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

The company undertakes no obligation to revise or update any such projections or statements to reflect the circumstance after the date on which such projections or statements are made to reflect the occurrence of unanticipated events.

Now I will turn the call over to Paul Arling, Chairman and Chief Executive Officer of Universal Electronics.

Good afternoon everybody. After I deliver a few opening remarks Mark Belzowski, our Chief Financial Officer will review the financial statements and guidance, then Rob Lilleness, our President and Chief Operating Officer will discuss our product and customer activity. I will close with an industry review and our go forward strategy. After which we will conduct a question and answer session.

Today we announced our third quarter results. In summary, we reported 26 million in sales and 0.13 in earnings per share, both within the range of guidance we provided at the end of last quarter. We are proud of this accomplishment considering the state of the economy and the continued challenges in the industries reserve.

During the quarter, we invoked our stock repurchase program. Under a plan approved last year, the purchase of one million shares, we will able to repurchase 367,000 treasury shares at a total cost of $3.5 million.

After which we still ended the quarter ahead of last quarter with a cash balance 37.4 million. In this upcoming quarter, we will continue to assess our uses of cash and currently stock purchases remain a strong option.

In addition to monitoring our cash use, we are implementing long term plans to both build the strength of our customer base as well as continue our product adversification strategy. Both approaches have been devised to broaden our customer and market presence. We believe our success is evident in our customer retention as well as our new customer wins.

In light of reduced capital expenditures in the cable sector and more recently reduced forecast from the consumer electronics retailers. The in markets for our products are as difficult as we have seen in at least five years.

Customers are purchasing fewer products causing competitive pressure on both our volumes and margins. But as we have said before during difficult times strong companies get stronger and our goal has been to work hard to build stronger relationships with current customers as well as gain new ones.

We are working hand in hand with our customers to revisit their needs. Review their current product features and evaluate their devise designs. Our announcements earlier this year with both our evidence of our success in building deeper relationships with our existing customers by cost effectively meeting their broadening device and content control needs.

Our recent announcements that we have been selected by Kenwood to be the exclusive supplier of all wireless controllers for Kenwood's new home audio product line in the United States and Europe and the recent announcement that Sonic blew has selected us to supply a customed designed wireless controller as well as embedded con activity software are also further evidence of our success in building relationships with a wider array of customers.

We continue to execute our forward looking product development strategies aimed at expanding our distribution to new industries. But at the same time managing our finances conservatively.

Our product development has progressed very well. Our goal has been dis-supplied at technology that enables consumers to wirelessly connect, control and interact with an increasingly complex home environment.

One example of our success is . Our software that can transform any electronic display into the platform for the connected home.

has been selected as an embedded application by HP clearly a leader in the market. Rob will provide an update on in a few minutes.

These relationships indicate the initial success of this new product line in 2002 and we expect to gain additional trashing in this area through 2003.

This quarter we also successfully launched the inter-phase technology. This digital ink technology enhances any OEM product and enables consumers to control their devices to an intuitive touch inter-phase that only displays the relative functional keys for each device.

Greatly simplifying the consumer interaction with their remote control. Our launch with has led to wins in the retail and OEM channels and Rob will provide you with greater detail on these new relationships later.

We recognize that during these difficult times our competitors are weakened and we must be prepared for them to respond aggressively. Over the past couple of years we have fortified ourselves by using our purchasing leverage to drive product cost down and we have built up our cash position to invest in the long run.

We firmly believe that the initiatives we have undertaken show great promise. But in the short term there are challenges. It appears from recent announcements that cable companies have continued their reduction in capital expenditures.

This quarter leaders in the traditional consumer electronic market place such as circuit city, best and radio shack as indicated that retail distribution is weaker then they previously expected.

For these reasons we will be more conservative in our financial guidance for the remainder of this year. But longer term we believe that the actions we have taken position us to compete more effectively then ever and as economic and industry specific conditions improve we will be stronger then ever.

With that I'll now turn the call over to Mark Belzowski our Chief Financial Officer.

Thank you Paul. I will review the third quarter 2002 results, and then provide guidance for the fourth quarter and full year 2002.

Net sales for the third quarter of 2002 were 26 million compared to 31 million for the same period last year. During the quarter the technology line which represented approximately 68 percent of total sales decreased 27 percent from last years-same quarter, due primarily to reduce orders from cable operators and OEM customers in North America and Europe.

The retail lines, representing approximately 32 percent of total sales during the quarter increased 18 percent, due primarily to increased sales in the U.K., Germany, and Spain.

Net income for the third quarter was 1.9 million or 13 cents per diluted share compared to 2.8 million or 19 cents per diluted share for the third quarter of 2001. Gross profit for the third quarter was 10 million.

Gross margins came in lower at 38.6 percent to - compared to 40.8 percent for the third quarter of 2001. Gross margins were lower during the quarter due primarily to higher discounts provided to retail customers in Europe, and a less favorable margin mix across our technology product lines.

Net sales for the nine-month period ended September 30 2002, were 74 million compared to 91.2 million for the prior year period. Net income for the nine-month period ended September 30th 2002, was 3.9 million or 27 cents per diluted share compared to 7.7 million or 53 cents per diluted share for the nine month period ended September 30th 2001.

SG&A for the quarter decreased by 200,000 to 8.2 million, roughly comparable to the prior 2001 quarter. The effective tax rate for the quarter was six percent, a blended rate reflecting a change in the projected 2002 effective tax rate, from 35 percent as of the second quarter 2002, to 24 percent as of the third quarter 2002.

Our balance sheet is stronger than ever. During the quarter we repurchased 367,000 treasure shares at a total cost of 3.5 million, after which we ended the quarter with a cash balance of 37.4 million, 400,000 higher than last quarters balance, and 3 million greater than the balance at the end of 2001.

Again we have no debt.

During the quarter we decreased our by two days, from 85 days to 83 days, due primarily to stronger collections in our international receivables. Going forward we expect that the consolidated will be slightly higher at the end of the fourth quarter, as higher seasonal international retail sales in the back half, with higher become a larger proportional share of the consolidated sales and receivable balances.

As Paul mentioned, our cable, satellite, and consumer electronics customers in the U.S. and Europe continue to experience pressure, and consequently they have reduced their capital expenditures and orders. Although our customers generally have remained strong despite a difficult economic environment, many have lowered their outlooks. As such we have revised our fourth quarter and year-end guidance.

For the quarter ending December 31st 2002, we anticipate revenue will range between 26 and 28 million, and EPS will range from 10 to 13 cents per diluted share.

For the year ending 2002, we project revenue will range between 100 and 102 million, and EPS will range from 37 to 40 cents per diluted share. Now I will turn the call over to Rob Lilleness, our President and Chief Operating Officer to discuss the operations of the company.

Thank you Mark, clearly 2002 continues to be a challenging year for UEI. We have faced difficult times in our core industries we serve, in an uncertain economy.

The cable industry has been particularly hard hit as is evident with the bankruptcies of and TVC, and the dramatic declines in cable operator's equity values.

We have also seen an overall slow down in retail spending and a decline in consumer confidence. Nevertheless ... deep challenges in the market place UEI continues to generate cash and remain profitable in spite of lower revenues. We've accomplished this by focusing early on cost cutting and physical management.

At the same time we've continued to build our technology dominance expand our patten portfolio and develop new successful products. These products and our core technology have enabled UEI to diversify our customer base beyond cable and satellite, consumer electronics and retail, to profitably serve an entirely new market- the computer industry.

To review the quarter I will illustrate our progress in technology and paten, new products and new customers.

Regarding technology and patens our connectivity software enables our customers to connect, control and interact with virtually any device in the home. The core of this connectivity software is our database of device codes. Our additions to the database are leading indicators of the growth of device complexity in the home and the value of UEIs intelligence inside the home control device.

Over the last quarter we've added over 5,000 new functions to the database which currently contains over 134,000 function codes. This represents a 13 percent growth rate year to date.

The additions to the database were mainly in the area of DVD, audio combinations and video combinations. In addition to the progress we've made in our database we continue to add to our portfolio of intellectual property. During the last quarter we filed three new patens bringing the total numbers to 77 issued and pending patens, representing a 17 percent growth in our paten portfolio year to date.

The patens include novel methods for unifying control of ... content and consumer electronics, integrating Internet data types into wireless control devices and artificial intelligence to automatically populate control functions.

On the products front we continue to add new and unique products to our line up. To commercialize bold and innovative products is not without risk, yet our tight product specification and development process has mitigated those risks and we launched and on time.

Most importantly these products will contribute positively to our earnings in 2002. The benefits of and go beyond just the additional revenue they create. They have also enabled UEI to forge deeper customer relationships, add new customers and broaden our product offering within existing customers.

First I'd like to update you on . As you are aware has been imbedded in the HPI pack 3,900 line of products which is largely considered the most innovative and commercially successful PDA in the market.

We are extremely proud to have as a customer and of the overwhelmingly positive press that has received. We continue to make commercial progress on these results and we are also pleased to inform you that has been designed in to an up coming model in the I've had product line.

At this time we cannot share details on the feature set or launch timing at request but the product will be available late this year. We have only just started with and the product is much more than a great application for PDA's.

is architect to transform any display device in to a plat form for the connected home as such we are working with a number of OEM partners on their strategies for display technologies and we look forward to informing you on our progress in fourth coming quarters.

Let's move on to . In September we formally launched the product at the international broad casting convention in Amsterdam. digital in technology is unique in that it illustrates only the active keys of the fourth specific device such as a . While hiding in active functions thus the product provides touch screen capabilities at mask market prices.

Tightly linked to the formal product launch was our commercial effort that also have been successful. will be on store shelves in North America Europe and other International markets in time for the holiday season.

In Europe and International markets the product will be available at the largest retailers under our one for all brand and in North America we are very pleased to announce that radio will guide the product for there thousands of store locations.

We will formally announce our communion radio relationship later this quarter. introduction is further evidence of the heritage in bringing new wireless controlled technologies to market that in power customers to connect and control and interact with an increasingly complex home environment.

As mentioned earlier and have enabled to expand our relationship with existing customers and bring on new customers and new industries. and give us new invitation with customers to discuss their product load and to play an extended role in their offerings in the market place.

This has been beneficial in our relationships with a number of customers and particularly with Kenwood. Over the years Kenwood has been a small customer and it is fair to say we are viewed as a remote control bender.

and however have changed our relationship. They have helped position as a technology partner to Kenwood at a time when Kenwood is increasingly rolling out innovated Internet enabled products. As a result Kenwood selected to be the exclusive supplier for all their new audio product line in Europe and in the United States.

We also recently announced that we have added as a new customer. nexts generation digital video recorder the TV 5,000 will feature a wireless controller as well in bedded software that will allow the to active cable and satellite boxes for seamless digital recording.

is a significant customer to add to our roster as the market for digital media recording is expanding rapidly and digital recording capabilities are showing up in advanced set top boxes.

According to the group approximately 1.8 million house holds currently own . That figure is projected to increase to over 19 million house holds in the next four years. In sum our Cisco management and solid customer base combined with our unmatched technology and new products offer a bright future for UEI.

Now I'd like to turn the call back over to Paul.

Thanks Rob. As Rob as just reviewed we are successfully entering new markets and expanding our customer base. This year we have built new or expanded existing relationships with industry leaders such as Comcast Cox Microsoft HP Kenwood Radio Shack and Sonic Blue.

We have outlined the obstacles that we face as our cor-technology customer's those in cable and consumer electronics' are continuing to face challenges. We have discussed that these customers continue to restrain their customer spending and therefore our orders.

We have also outlined specific actions we are taking to midget these problems as well as our recent successes in our new technology arena. In summary our objective is to broaden our presence in the industries we serve and to penetrate new ones such as computing.

To do this we must number one remain committed to prudent financial management including a focus on cost reduction and effective cash management to enhance our ability to respond to competitive threats and to competitive opportunities.

Number two continue to use our ever expanding technology port folio to help consumers connect control in interact in there homes and number three use these technologies, these new technologies to simplify the increasing chaos in the home thus helping our customers win in the battle for the living room.

Thank you for joining us today. Operator I'd like to begin the question and answer session now.

Thank you Sir. Ladies and gentlemen if you have a question at this time please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue please press the pound key. Once again if you have a question please press the one key. One moment for our first question.

Our first question comes from Michael Kim of Roth Capital Partners you may proceed.

Hi, good afternoon gentlemen. Can you hear me?

Yes.

Yes.

Great terrific. You know with regards to the gross margins. Could you talk a little bit about how you see products mix over the next couple of quarters and if you see gross margins come back over the 40 percent range? Thanks.

OK let me answer that. There are a number of factors right now that are influencing our margins now and in the future. Some positively some negatively. Some of the factors that will effect our margins positively include further penetration and success with our advanced technology products.

Additional growth in our licensing, in licensing our technologies. Reductions in our component costs and our factory costs. Higher margin products to a country mix there are a number of factors there but conversely on the other side there're some that will effect our margin negatively.

Those include the competitor price pressures across our business lines. Higher discounts if necessary in our retail lines. More sales to higher volume customers with increased price discounts and then also lower margin product for country mix.

Also the exchange rates will effect our margins so all in all you know we're projecting going forward a target of around 39 percent give or take.

OK great and can you elaborate a little bit more on the discounts at the retail level and is that just not something that we should expect to see seasonally just in the fourth quarter or through going into fiscal '03 as well?

Well it's affecting us a little bit more in these quarters because of you know the retail influence, the seasonal retail influence. But also you know we're you know customers are asking for more discounts and you know so we're working with them and you know right now I would say we'll continue to experience in some of this.

OK. Great and just a housekeeping question for Mark. I guess you talked a little bit about the tax rate can you fry a little guidance on how you see that shipping up for the rest of the year?

Yeah, it's all based on the annual forecast so as that moves the tax rate will move in and that's, that's really because of some fixed credit that we have this year.

OK. So basically around the 0.4 percent rate you talked about?

Yeah, the 24 percent looks like the rate at this point.

OK. And carry that through fiscal '03 for modeling purposes?

It's going to be higher because we don't have those fixed RND credits effecting the rate.

OK. Great, thank you.

So Michael just to make sure that there's no confusion. I expect the rates probably to be closer to the 35 to 37 percent range.

OK. Great thanks for the clarification.

Thank you, sir. Our next question comes from Brett Miller of A.G. Edwards. Please go ahead Sir.

Oh hi this is actually Gavin Duffy calling in for Brett Miller.

Just had a couple of quick questions here did you say that percentage of business that was generated from subscription broadcast?

Yeah, we didn't give that specific of detail.

OK.

In technology lines.

Yeah, we gave technology lines of about 68 percent in total for the quarter.

OK. And that would include sales to like Motorola and Scientific Atlanta?

That's correct.

OK. Secondly you guys did you guys give any kind of idea about the royalty revenues now starting from the IPAC deal or is it basically is that basically the generator for all the revenues right now?

Yes, Gavin how we account for the revenues in our technology line of business which made up about 60 percent of our total revenue.

OK. And one clarification on Kenwood they're going to be using a commillion across all their audio products.

They're using commillion in certain of the higher range as products and on their other products that are as lower price point they're using our other more traditional wireless controllers.

OK. Thank you guys very much.

Thank you . Our next question comes from Scott at CKM you may proceed.

Hi guys.

Hi Scott.

The first is when did you start to get the message from retailers that they were in time cutting back on their outlook. Is that something you've known for a while or just kind of hit you all of a sudden. Can you kind of walk us through that progression?

Yeah Scott, the actually it's not a direct line our customers are effected by the retailers so we don't actually, we review from the press what the retailers are saying but we hear it via our customers who distribute through their channels.

And quite honestly it wasn't till late in the quarter early this quarter when we review our forecast for their customers going forward that we heard from them that you know their ordering patterns were lighter then they had expected.

All right so you've, you found out what's called late in the quarter and that probably means they find out not that long before that?

Yeah, I you know I don't exactly when they would have heard it from their customer again we don't communicate directly with the retailers in the US.

Right. Right. OK. Regarding - obviously you know things have been tougher than you expected or consistently been tougher than you expected for the last couple of quarters which is why we've seen the downward revisions in guidance. I know you probably haven't gone through your whole plan yet but you know I'm trying to look out at next year and you're trying to figure out an evaluation basis for the stock.

You know what are even if it's very broad assumptions for next year that we can kind of go back and at least bounce the process off of - is this logical is it not logical? You know in particular the cables companies - they haven't gotten that much healthier and I'm not sure what changes as soon as January 1 comes up so can we assume that you know you think you can grow next, next year or you know we can grow by substantial amounts or are we going to be down again next year versus this year. What would be your best guess at this stage?

Yeah I - that's a difficult question to answer at this stage you know typically even in prior years we don't provide - we wouldn't have provided guidance for the year the next year in this case 2003 at this point because we would basically be forecasting basically 15 months in to the future. You know it's difficult to say right now I think there are a lot of factors that affect us. We have a percentage of our sales that relies on the cable distribution path you know the other part relies on retail and now we have an emerging area in the computing industry that's helping offset some of that weakness but our product diversification in the - you know the diversification of the markets that we're serving we think aids us going into next year.

The new product introductions we've done for instance really began shipping mid year this year and next year we'll have a full year of that. We would expect that our core business the cable and satellite sales for the consumer electronics market should get stronger next year but again the negative argument to that as we go through our plans is you know is this economy recovering. Is the retail sector going to recover next year? Are the cable operators either going to you know there's a lot going on there. AT&T not final yet. You know on the satellite side which provides an to the cable operators. The DirecTV Echostar deal was denied.

They're still trying to work to get that done. Does enter in to the picture I mean all of these right now are still open questions to the extent they become more aggressive. Again the battle for the living room is again and you know the consumer electronics companies, the cable companies and the computing companies are all going to compete to go after that consumer - to go after the consumers dollar within their homes.

And we feel that you know the technologies we've developed are positioning on us very well for that emerging battle. But again there's a lot of factors that can dampen it and you know we thought things would recover later this year and quite honestly they simply haven't.

Right.

Will they in the next year? We think so. We hope so. But it's a little bit early for us to predict recovery of those markets in the year 2003. In the meantime though we're doing everything we can to improve our position.

Right. Have you outlined and this will be the last question . Have you outlined what your expectations are for you know even if it's kind of theoretical possibility for within the next let's call it for '03. you know could that be a couple of percent of revenue? Could you at least size it in terms of our range?

Scott this is Rob, we have definitely looked at that as we do our budgetary planning, moving forward and the advance technology business, one thing how were carving just looking at that business is a evil and a evil related products. We see (Camellion) as really part of our core, our more traditional business and being sort of the lead product there, but as we look out and some of the customers we are talking to and some of the volumes that are potentially there, it could add in a material way over the next year.

Now the sales cycles are long because we are engineering the product into very sophisticated electronic products but as we move forward, we will update you on where we are in terms of overall customers but in the case of the Ipac that we're in today, we should be in the hands of over a million consumers by around the May time frame. So it's a very exciting point in our history but it's new in our history and so to be prudent we haven't put out the formal guidelines of where that could be.

Right OK thanks.

Thank you sir, our next question comes from April Harris of JaneCo please go ahead.

Yeah Hi I've just got a couple of quick housekeeping questions, one, how many shares have you repurchased in total, year to date?

About 367

OK so this was the first quarter you repurchased, you didn't repurchase any in Q1 or Q2?

No.

OK and then last quarter the foreign exchange had some effect on your European retail sales along with your SG&A, can you provide any colors to what it did this quarter.

Yeah it did have some positive effect, the rates are still in our favor and so there was an affect this quarter and I would say we do not need to purchase any exchange contract at this point in time, so, we don't really have any in place at this point.

OK that's all I had, thanks.

Thank you, our next question comes from of B Reilly & Co, please go ahead sir.

Hi guys. Could you talk about what portion of the gross margin decline was due to discounting at retail versus the other factors?

At this point, I don't have a break out of that.

OK and what percentage of total revenue would you expect retail to be next quarter?

Similar to where we are currently in Q3, the range probably could go anywhere from 30 to 37 percent or so.

OK and is that higher than it has been historically.

Yes and that's because of the seasonal affect of the retail in the backcap.

Right, on the tax rate, why does all these tax credits come in one quarter.

Well it really is a function of what you forecast your pre tax income to be for the year after each quarter, and that's as things come, as the pre taxes come down in our forecast, then because of the fixed credits we have an offset of the tax expense then the rate becomes even lower.

Got it OK and finally the new IPAC line that you'll be in, is that replacing the current line or is that in addition to the current line?

It's in addition to.

OK thank you.

Thank you sir. Our next question comes from at . Please go ahead.

Hey guys.

Hey Mike.

Hey.

Your revenue is down pretty significantly from where it was a couple of years ago, yet your SG&A is roughly at about the same rate. Is there anything you guys could do to better match your operating expenses with current demand levels? Maybe lay-offs or anything else?

Well you know I- we're constantly focused Mike on cost management. I would say that our general business model has been that we're largely a fixed cost business, to the extent costs are fixed. And you know, as sales go up and down it leverages or deleverages your operating model. We don't have a huge variable cost component in our SG&A.

So we're constantly reviewing costs, and you know, to the extent we need to, you know, we may need to make reductions going forward.

None planned at this point?

None significant, no.

OK. And then just one other question.

What should we be modeling for the tax rate for next year?

Again I think it's going to be around 35 to 37 percent approximately. At this point.

OK. Thanks.

Thank you sir. Our next question comes from of . Please go ahead.

Hi guys.

Hi Jeff.

Hi.

Two questions. One on cable.

Do your sales track net cable subscriber or gross installations? In other words do remotes get recycled?

Good question Jeff.

I think we probably match more closely with net , however I would say, and I hate to murky this up a bit, there are occasions where remotes do get returned and recycled. So there are systems that we know of that do bring them back. They don't always get a high yield on them. Sometimes they do it for a while and decide not to do it. I mean, there's a mixture across the industry.

So again, some systems don't do it, it would more tightly match net . And in other cases they do attempt to recycle.

Well what you mean is that most of the time that's gross?

Most of the time, yes. But again, in other cases it's not.

Yeah. OK.

And then, you know, it seemed like a couple of years ago that part of the company strategy was kind of a, you know, a big OEM strategy where you were going after the Sonys, and the Thompsons, and trying to do kind of, you know, wide sweeping deals to replace their in-house remote capability.

Right.

And I just wondered if that was just put in the 'too hard' basket, or whether that is still like a priority?

No it's still a priority. And again, we would focus on all the leaders in consumer electronics to do such a thing. And again an example of that is Kenwood, who we again consider one of the leading company's in consumer electronics, and essentially they've chosen us to be the exclusive supplier of their home audio line.

And Jeff, to that end we've also added two people in Tokyo, to actually service and support Japanese customers locally, as well as the consumer electronics company's that are here in the U.S..

Cause it is true that like about, was it two years ago or maybe three years ago, that you spend a lot of effort getting kind of a hunting license with Sony, right? To be able to go after the individual operating units of Sony. And I just wondered - just that, you know, it seems like nothing ever came of it, I just wondered if you were spending - making any effort at all on that area, or whether it was just - really just impossible?

Well no, we've done some effort there. And again we continue to - we do projects for Sony. It hasn't resulted in a broad sweeping agreement to do all of their business but we again we are in at Sony we do projects we've done projects for them and with others again and so no we have not we have not forgotten about those OEM customers. And again hope to generate more deeper relationships with them as well.

Again and finally the situation in Europe is that really just a function of the current difficult environment over the year or is the market getting more crowded in a repeat of what happened here is starting.

No I wouldn't say that. I think it's a you know difficult times that Europe and here. The world economy has not has not been kind to most so I think they are going through the same situation as we are here.

So that's so that's what it's all about as opposed to just more you know compared to suppliers.

No no that ...

So that's stable from that side.

Correct. it's also a function of our to which customers in retail in Europe that we have more sales from and some of the German customers in Germany and France will tend to have more discount as we have more business with them.

OK, great, thank you.

Thank you sir. Once again ladies and gentlemen if you have a question please press the one key on your touch-tone telephone. Our next question comes from of . You may proceed sir.

Hey guys how're you guys doing.

Excellent.

Hey just a couple of quick questions. First with the with the radio shack relationship that's going to be a private label right instead of a threat relationship.

Correct we sell the radio shack they put their name on it and saw that they're retail locations.

Thank you and that should be on nationwide available at you know in the December quarter.

Yes it should actually be prior prior to that. You probably could even find it in stores in the next couple of weeks.

Ok and what's the retail price its going to be for that.

Radio shack sets a price on that.

Yes less then $100.

OK, any expectations in terms of you know volume for that particular product.

No they prefer us not to disclose the volumes on that.

Ok. Now in terms of gross margins for the quarter relating to product mix can you give me an idea in terms of what the technology\OEM settlement gross margin looks like and what the retail OEM the retail gross margin looks like.

Yes let me just talk to you about that in general terms cause I don't have that break out in front of me but you know really what I'm sorry are you talking about Q4 or Q3. I think you're talking about Q3.

Yes.

OK, you know, it's a lot of different factors here. It's the higher discounts in European retail. Lower margin products sales and European OEM also it's the mix of some of our technology businesses. It has higher margins you know less of those against line that have higher margins.

So anyway it's a lot of those factors combining there so it's hard to isolate any one.

Thank you so not going forward as far as the discount against concern and for the holiday quarter are you expecting for them to have a discounting or is it going to improve?

Well I think it will improve some with current mix of customers that we're expecting. We expect to have more sales in the UK and there are less discounts with the customers in the UK.

In terms of market share for the quarter any updates on that, any changes have you been able to see any kind of anecdotal examples up there that you could share.

Yeah in our industry there is no solid published market share, there is in the retail markets as reliable as those can be because often they exclude certain classes of trade but you know we feel just that you know margin has not changed significantly and in retail in Europe it appears to be you know roughly the same as it was before, maybe slightly higher. So yeah we don't feel there's been any significant change and that judgement we make based on, again just the customer relationships we have, analyzing those we've gained and lost, that's our best measure really because there is no published statistics on most of our business.

So then from marketing standpoint can you do anything in particular to you know increase your market share or is that pretty much sort of like a status quo.

No, no, no. We can increase our market share, there's no doubt about that and certainly we'll strive to do that.

Thank you.

Thank you sir. Our next question comes from of you may proceed.

Yeah thanks, hey Paul could you just give with the sales purchase in the quarter where you stand on the repurchase program and what your thoughts are and approach to that will be going forward, given you also mentioned cash management as a priority.

Yeah sure as we said we bought shares during the quarter and still ended up with cash 400,000 above where we were last quarter. We're going to continue to assess the investment in our own company stock as an investment alternative and obviously last quarter we felt that purchasing at the prices we did was a good use of our cash so you know it still remains a very strong option for us.

Where do you stand in terms of the amount left from the authorization and the effect has run out what your thoughts are about renewing it.

Well we very well might do that we would have to go back to the board for an authorization but yeah to the extent we were to - I think we have about 700,000 left that we're authorized to purchase and should we do that we certainly would have a discussion with our board.

Great thank you.

Thank you sir. Gentlemen there appears to be no further questions. At this time I'd like to turn the program back over to you.

OK thanks everybody for participating, for those that will be attending the Western show please let us know and stop by the booth, and also before the next conference call will be at so if any of you would like to - are going to be at and would like to stop and see us please do stop by our place and see some of the new things we're working on.

Thanks very much for participating.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program you may now disconnect. Everyone have a great day.