斑馬技術公司 (ZBRA) 2011 Q2 法說會逐字稿

Good morning, and welcome to the Zebra Technologies 2011 second quarter earnings release conference call. Joining us from Zebra Technologies are Anders Gustafsson, CEO, Mike Smiley, CFO, Mike Terzich, Senior Vice President, Global Sales and Marketing and Doug Fox, Vice President, Investor Relations. All lines will be in a listen-only mode until after today's presentation. Instructions will be given at that time in order to ask a question. At the request of Zebra Technologies, this conference call is being recorded. Should anyone have any objections, please disconnect at this time. At this time, I would like to introduce Mr. Doug Fox of Zebra Technologies. Sir, you may begin.

Thank you. Good morning. Thank you for joining us today. Certain statements made on this call will relate to future events or circumstances and therefore will be forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Words such as expect, believe and anticipate are a few examples of words identifying a forward-looking statements. Forward-looking information is subject to various risks and uncertainties which could significantly affect expected results. Risk factors were noted in the news release issued this morning and are also described in Zebra's 10K for the year ended December 31, 2010, which is on file with the SEC. Now, let me turn the call over to Anders Gustafsson for some brief opening remarks.

Thank you, Doug, and good morning everyone. Today Zebra reported another quarter of solid operating results. Specifically, we delivered 58% growth in earnings from continuing operations to a record $0.60 per share and $0.12 growth in sales to $245 million, also a record. The second quarter marked Zebra's eighth consecutive quarter of sequential sales growth. We achieved improved operating leverage with continued high gross margins and effective control over operating expense growth. Further, we maintained our aggressive buy-back program with the repurchase of 1 million shares of Zebra stock. The increasing success of our investments -- strategic investments was complimented by a continuing favorable environment for solutions driving greater efficiencies in global supply chains. Zebra's growing presence in emerging regions, our stepped up cadence on new product introductions, together with expanded relationships with new channel partners enabled Zebra to reach more customers, more broadly and deeply, in targeted vertical industries around the world. This progress has built on Zebra's scale and leading global brand. It has positioned the Company for further shareholder value creation by fortifying Zebra's competitive advantages and enhancing our ability to serve more of our customers' needs for greater visibility with actionable outcomes, improved operational efficiency and enhanced customer loyalty.

I would now like to provide an overview of the highlights for the quarter. Now, with 60% of sales outside North America, all international regions experienced strong growth. Participation was broad with 17 countries registering year-over-year sales increases of 20% or more. Our geographic expansion efforts paid off as several countries crossed new-sales thresholds, aided by the additional Zebra sales representatives placed in emerging regions over the past year and the tight strategic alignment between sales and marketing. Sales in those regions with this increased representation were up an aggregate 25% for the second quarter. In Asia-Pacific, we are clearly seeing the upside of our investments with 50% growth in the second quarter. Our success in China included the positive impact of our expansion to also serve customers in western China.

We also had strong growth in South Korea, India, Australia and Southeast Asia. Every sub region posted year-over-year sales growth as Zebra's broad range of printers met customer needs in manufacturing, retail and government. With 25% growth, Latin America experienced a sharp rebound as sales reached an all-time record. Improved sales to manufacturing customers in Mexico complimented ongoing positive momentum in Brazil. We also had marked improvements in sales in the rest of the region, including Puerto Rico, Columbia and Argentina, with important deals for mobile and desk-top printers. We have also seen interest in Zebra card printers from financial institutions for on-demand printing and issuance of credit cards. This solution is a promising opportunity for Zebra in Latin America, as well as other emerging regions.

In EMEA, strong run rate business led to solid growth in nearly all sub regions. Demand from manufacturing customers supported healthy sales in Germany. In eastern Europe, our fastest growing sub region in EMEA, we also benefited from robust manufacturing sector as well as increased shipments to customers in retail. We continued to look to eastern Europe as a source of growth as our expansion initiatives include a focus on building a greater presence in Russia where we are opening a new office with further head count investments to follow.

In North America, strength in Zebra's traditional base in manufacturing and warehousing led to a richer mix of high performance and mid-range printers. Our run rate business through distribution remained robust, as well. These favorable trends helped to offset a sluggish second quarter in the retail sector against the year ago when we shipped several large retail orders. Still, we remain encouraged about the outlook for North America. The pipeline looks good, and we continue to see healthy demand from manufacturers, the benefit of our large install base. In addition, interest in direct-store delivery and other mobility solutions is strong, driven by a focus on improving route management in light of rising fuel prices. Longer term, Zebra has programs underway to tap additional sources of business by penetrating established verticals more deeply with more applications.

Global demand for Zebra products and solutions remain high and deal activity is good. In addition to established printers, customers and channel partners are expressing considerable interest in our recently introduced products which are representative of our intensified focus on innovation and consistent with our growth strategy. During the second quarter, we fulfilled our first major order for our new low-cost receipt printer which is designed with the features and price points needed for certain applications in emerging markets and industries. We also launched the QLN wireless mobile printer during the quarter with several hardware, firmware and design upgrades that set new levels of performance for our customers. Smart battery technology delivers improved battery performance, and a larger liquid crystal display provides easier navigation with Zebra's new standardized user interface. The new ethernet cradle option makes it easier to set up and manage, and the innovative design accommodates future radio technology advancements. Additional models of this exciting new product platform are scheduled for introduction later this year.

Interest is also growing for our new ultra high frequency RFID card which is designed for long range IV applications. Customers in the entertainment and leisure industries in particular are exploring several emerging applications that link together personal identification with social media and direct marketing. All new areas of opportunity in RFID for Zebra. Interest continues to grow steadily for other passive RFID solutions as well. During the quarter, we saw greater proliferation of pilot programs in a broad range of industries. In retail, we made excellent progress in source tagging of apparel at the manufacturing level. In addition, RFID began moving beyond current apparel at labeling applications. Zebra RFID printer encoders are now being used for more effective inventory management of automobile tires, another complex product category for retailers.

Finally, we were pleased with progress in location solutions. We met our sales goals with this active RFID-based product line with shipments to customers in the automotive, industrial and government sectors. Overall, our second quarter results demonstrate the strength and resiliency Zebra derives from its business diversity. We continue to implement our strategy of developing products and solutions that can be applied broadly across many industries to maximize long-term growth opportunities. In fact, during the quarter we surpassed 10 million cumulative printers shipped, a major milestone that positions Zebra for further growth from the largest install base in the industry. Our results highlighted the success of our investments supporting further profitable growth and high returns in an attractive industry. This gives me confidence in our strategy, which is supported by a foundation of multiple competitive advantages including financial strength, the industry's broadest line of innovative products and solutions and global presence. With strong trends towards smarter operations and supply chains, we are using these advantages to meet more of our customers' needs for greater visibility into their operations, enabling them to act in an increasingly competitive and complex world. I would now like to turn the call over to our CFO, Mike Smiley to provide a detailed review of second quarter results and guidance for the third quarter of 2011. After Mike's remarks, I will return for some brief closing comments.

Thank you, Anders. Let me highlight some of the key components of Zebra's results for the second quarter. My comments will principally focus on year-over-year changes in the performance of Zebra's continuing operations, which have been adjusted for the sale of Navis in the first quarter of this year. First, sales came in at the midpoint of our guidance range on broad strength and international regions. Second, the gross margin improvement of 4.1 percentage points resulted primarily from lower material and freight costs and favorable foreign exchange rates. Third, we achieved further operating leverage with a lower growth rate in operating expenses than sales growth and fourth, we bought back 1 million shares of stock.

Let's take a look at sales. For the quarter, sales were up 12% from $219 million last year to a record $246 million. On a constant currency basis, sales increased 8%. By region, Asia-Pacific sales advanced 50% for the quarter, aided by the broader coverage of more Zebra sales representation in the region. Sales to customers in manufacturing, retail and government were particularly strong. The AP region has been an important element of the Zebra growth story. The region accounted for more than 15% of total sales for the second quarter, up from 9% only five years ago.

In EMEA, nearly all sub regions contributed to the 20% rise in sales. The territory saw continued strong channel demand including sales of high-performance table-top printers for manufacturing applications in Germany. Large deals into retail, healthcare and government applications augmented this robust run rate business. Latin American sales also maintained favorable growth profile, up 25% from a year ago. A rebound in manufacturing in Mexico complimented continued growth in Brazil. The other parts of the Latin America region, Central America and other countries in South America were the fastest growing area in the region, as a broader channel network is driving more new business, including mobile and card applications. North American sales were down 5% from a year ago as improving sales to manufacturing customers partially offset the decline in sales to retail customers against the surge in shipments last year.

By product category, hardware sales were up 12% on the strength of record sales and table-top printers. Supply sales advanced 14% to $50 million, also a record. Shipments of higher value specialty labels using high performance materials for manufacturing applications helped drive this favorable growth. Our proprietary wrist bands for positive patient ID also had solid sales growth. Consolidated gross margin of 49.6% was up 4.1 percentage points to the midpoint of our guidance range. As expected, gross margin was down 100 basis points from the first quarter, largely because of mix and overhead. The operating expenses up 12% from a year ago substantially reflect higher employee-related compensation, payroll and benefits costs, in part related to our geographic expansion and other growth initiatives.

Our record results for the quarter included approximately $2.7 million in cost from some component supply constraints related to the Japan catastrophe. The net impact of these issues on sales has been negligible to date as we quickly identified and addressed these issues. All combined, our performance led to a 46% improvement in operating income with an operating margin of 19%, up from 14.6% in the second quarter of 2010. Adding back $6.2 million of depreciation and amortization to the $46.7 million operating income totaled $52.9 million of cash earnings, or 21.5% of sales, up from 17.4% last year. The income tax rate for the second quarter was 28.3%, which reflects the growing impact to Zebra's business in low-tax regions.

GAAP EPS from continuing operations were a record $0.60 per share on 55 million average shares outstanding. At the end of the second quarter we had 54.2 million shares outstanding. In the second quarter, we bought back 1 million shares of Zebra stock. The weighted average price of the purchases was $40.82 per share. So far this year, we have returned $82.4 million to shareholders with the repurchase of 2 million shares of Zebra stock which represents 4% of the shares outstanding at the end of 2010. We have 2.750 million shares left in the current buy-back authorization. The days sales outstanding inched up to 50 days from 49 days for the first quarter of 2011. Inventory turns rose slightly to 4.2 times from 4.0 times in the first quarter as inventory decreased $2.4 million for the first quarter. Quarterly free cash flow totaled $5.3 million for the second quarter. Historically, free cash flow is the most challenged for Zebra in the second quarter, which includes two federal tax payments. This year, total tax payments amounted to $32 million, which includes tax payments on the gain on the sale of Navis. At the end of the quarter, we had $343 million of cash investments on hand.

Now, let's look at the third quarter forecast. We are forecasting 2011 third quarter sales of $245 million to $255 million. Earnings from continuing operations are expected to grow 19% to 33% to $0.57 to $0.64 per share. Our forecast assumes a consolidated gross margin in the range of 48% to 49% including the impact of an estimated $5 million, or 150 basis points in higher freight and other expenses related to the supply chain constraints. We expect these incremental charges to primarily affect the third quarter. GAAP operating expenses are forecasted between $74 million and $76 million. The tax rate is estimated to be 29.5%. That concludes my formal remarks, and thank you for your attention. Now, here is Anders for some concluding comments.

Thank you, Mike. Results for the second quarter and first half of 2011 demonstrate the success of a strategy to drive higher growth and increasing returns. Most recently we accelerated the placement of Zebra sales personnel in territories that offer the highest risk adjusted growth opportunities based on deep market research and analysis. We supported these investments with new innovative products that are expanding the range of applications in which we can enable mission-critical information about assets, people and transactions. Finally, we focused our business on core printing, RFID and location solutions, to build on the multiple competitive advantages that has led to clear industry leadership. Our success to date gives us confidence in Zebra's future and that the strategies that we are pursuing will lead to creating greater shareholder value.

As we look to the second half of 2011 and into next year, we will continue to invest in those areas of our business that would deliver the highest risk adjusted returns. Namely, first, driving growth by more deeply penetrating North America and parts of Europe in key verticals with new applications. Second, maintaining our intensity on product innovation and superior product development and lastly, expanding into emerging regions around the globe armed with business intelligence that aligns the most promising industries and applications with the correct channel, sales and marketing strategies. Let me elaborate.

We will continue to develop stronger and broader relationships with channel partners to serve more customers in targeted verticals around the world. At the same time, we have programs underway that are designed to penetrate verticals more deeply with a broader set of applications in established regions such as North America. We are building on our early efforts with independent software vendors, or ISVs, to become the de facto standard printer solution for a broad range of applications. To date, approximately 75 ISVs, many in North America, have joined our program, that were launched earlier this year. In addition, our focused work with system integrators will position Zebra as a closer strategic partner with large companies that have complex supply chain challenges. We will also maximize Zebra's long-term growth opportunities with new products and solutions that can be applied across many industries.

Today, Zebra has the broadest range of thermo printers in the industry. The depth and breadth of our product line are important competitive advantages as they enable us to meet more of our channel partners' and customers' needs. Specifically, we see exciting growth opportunities in kiosk, mobile and card printers. We also see potential for more products that meet unique regional and vertical needs, such as the printers we introduced in China early in the second quarter. We also have growing optimism for the future of solutions incorporating passive and active RFID technology.

Finally, success of our geographic expansion program is evident with the high growth we have seen in China and other regions. We're developing market economies and a growing middle-class support attractive business opportunities. During the first part of this year, we made further investments in Zebra sales resources in India, Russia, China and countries in Southeast Asia. These investments will add to the growth already generated by the personnel placed in country last year. Zebra's financial position gives us the ability to sustain this pace of investment. Together with the disciplined approach to delivering solid risk-adjusted returns, this foundational strength gives us important flexibility in how we run the business for the long-term benefit of our shareholders. In addition to funding internal growth, share buy-backs continue to be an attractive use of our excess cash. This concludes our prepared remarks, and I thank you for your attention this morning. I would now like to turn the call over to Doug for Q&A.

Thank you, Anders. Before we open the call to your questions, let me ask that you limit yourself to one question and one follow-up. In addition, Mike and I will be available after the call for any further discussions. Finally, please mark your calendar for the next quarterly conference call which is currently scheduled for Tuesday, November 8. Okay, we're now ready for our Q&A.

(Operator Instructions). We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Paul Coster with JPMorgan.

Thank you, good morning. I think most of your approximate competitors and peers have been posting growth in North America, even associated with retail markets, so I think that is what folks are going to focus on today from the negative perspective. There's much that's good out of this quarter admittedly. But can you elaborate, please, on the -- what happened a year ago and why it is down, and what gives you the confidence that North America is back on track? The underlying concern here is that maybe through focus on international you've lost a little bit of focus domestically, and perhaps you're losing some market share.

Well first, in North America, we had great strength in our traditional markets of manufacturing and warehousing. That led to a very rich mix of table-top printers. We had actually record revenues of our high-end printers in the US, sales through our distribution partners continued to be very robust, and these favorable trends were offset by weakness in retail. But even so, we had a healthy deal activity throughout the quarter. We were just didn't have as many large deals as we would normally see. And in retail, we would say that the high end retailers continue to outperform most of the other ones. And we are quite confident that we're maintaining and extending our lead in the industry and not losing any share.

If you look at -- more on the outlook for North America then for us, we have developed a robust set of growth strategies for the region that we feel are very compelling. Now, we are building a more strategic sales capability, we are developing new types of partnerships that can take us into new verticals or new applications through ISVs and system integrators. Over the last several years, though, I guess the backdrop for North America has been that there's been a big shift from -- of the manufacturing jobs or manufacturing opportunities for us outside of the US, to -- primarily to Asia. And fortunately, they landed with us in those regions. We picked them up there. We've seen a substantial shift in our business where the breadth of our product lines, our channels and so forth, has really helped us grow very healthily in new markets like healthcare, government, direct store delivery, even retail. And into the second half of the year here we feel that our pipeline for North America is promising and, we are working very hard to make sure that we can deliver consistent growth trajectory for the region. That is clearly one of our priorities.

Your business, so your hardware business, at least, is pretty cyclical, and we're all picking up these negative data points at the moment. Can you just comment upon what you are seeing from your customers in term of the economic cycle and the risks associated with the slowdown?

Paul, this is Mike Terzich, is that question specific to the North America market?

No, it is more generic.

Well, I think generically speaking, I think our business, I think the diversity of our business, from both the global perspective and application perspective, has been very healthy. And clearly, when you look at all the news that is around us at the current place in time, it is a little bit -- we're sensitive to it. We haven't seen that reflected in the base of our business. I want to reinforce one of the principles of the technology that we sell, which is we are an efficiency productivity technology. And we tend to be a little less sensitive to the immediacy of some of the macroeconomic indicators in the marketplace. People deploy our technology to improve productivity, efficiency of their business. When they have economic challenge in their business, they deploy our solutions. And so we've been a little bit less -- we've been more insulated for some of that, and we expect that -- we can't predict the future, but in the short-term, I think the general state of our business has been pretty healthy.

All right. Thank you.

Your next question comes from the line of Tony Kure with KeyBanc Capital Markets.

Good afternoon, gentlemen, this is Karl Ackerman filling in for Tony. How are you?

Hi, Karl.

Good, I was just curious, as Scan Source continues to add to their international footprint, do you see Zebra utilizing them with the same penetration rate in say Europe and Brazil as much as North America?

Karl, this is Mike Terzich, I'll take that. The business does materially change in the international market. I'll try to explain. Certainly in North America, it is a homogeneous market. They have very strong position. They have carved out a strong position in Europe, as well.

One of the challenges in the European market, and in the balance of the international markets, for broadline distribution, is that there is a fair amount of regional loyalty that occurs with its distributors and the reseller relationships they have. So, they certainly bring scale to the international business, but at the same time, there is a lot of local loyalty. The bottom line is Italian resellers and French resellers like to buy through some local distribution, and that has always been a place in the market. So, I think as they continue to scale, they're going to continue to be effective for us. We expect that that relationship will continue to be successful. But it's a different market internationally, because of the local culture and the local customs and local relationships.

Okay. And just one more question, I notice that you guys did have 75 ISVs join the program to date, and that is great. And you are continuing to accelerate the build of your go to market channels. I just wondering if you could provide some color on those. Are those primarily concentrated within emerging markets? And then also, how long does it typically take for some of them to come on board and may be considered fully productive?

The ISVs that we've signed up so far has primarily been in our more developed markets, so North America and western Europe. The -- it is a wide variety of vertical focus, application focus, so they give us a much better breadth for this. And they help us really get into new areas that we otherwise wouldn't necessarily have the same penetration, and we can compete by getting designed into the application versus having to compete at the tail end by (inaudible) and price. How long it takes to ramp? It varies quite a bit. Some of them are already much more familiar with our space and what we do. They can be up and running very quickly. And some of them it takes a bit longer to figure it out. But I would say on average it is probably maybe three months or so to get through that.

Great. Thank you, gentlemen.

Your next question comes from the line of Keith Housum in Northcoast Research.

Thanks, guys, thanks for taking my call. My question pertains to the foreign exchange benefit. If you guys would just discuss a little bit about where the foreign currency translation benefit was originated, if it was more in the EMEA region or Latin America? And perhaps secondary, how much of that perhaps drops to the bottom line?

We had -- this is Mike Smiley. Just to give you an answer there, we had -- if you look over year-over-year, we had basically about a $7 million -- just short of $7 million operating profit benefit from the foreign currency, and that's basically all out of EMEA. For all intents and purposes, we sell almost entirely US dollar, except EMEA, where we sell in dollars, pounds and euros. And so the primary impact to our P&L is in Europe, and it's in euros. And so it is basically -- again, the growth rate would have been the 8% versus the 12.3% for the year-over-year, and we had a benefit of about $7 million -- just short of $7 million to our operating income from that.

Okay. Thanks.

Yes.

(Operator Instructions). Your next question comes from the line of Tim Mulrooney from William Blair.

Yes, good morning, gentlemen. My question is regarding ASP. I've noticed that ASP was up 10% year-over-year and also up sequentially. I was wondering if that was a function of new product introductions, or what's driving that.

That's a really good question. We do put out the ASP statistic. We have done that historically. To be honest with you, there is a challenge to that number, it's really a function of mix. And so depending on the period, I think we mentioned earlier, table-top is higher. Table-top products sell at a much higher ASP, so depending upon the mix, it will change that. So, I would not look at that too closely to try to get an indication of how the business is going. Because to be honest with you, our pricing has been really, really stable. We don't -- we're not seeing a lot of price pressure. We see very little price pressure, to be honest with you. So, it is not really an indication of price pressure, it is mix.

Okay, that's very helpful, thank you. And then secondly, in terms of your G&A, I've noticed that it stepped down about $2 million from the first quarter to the second quarter. Is that a function of seasonality, or how should we think about that going forward?

It is primarily related -- it is seasonality in the sense that you come to the top where you top off 401k-type stuff and social security-type stuff, vacation, those types of things. So, you'll see in the back half of our year we benefit from that type of stuff versus the first half. When we have this call at the end of the fourth quarter and we tell you the first quarter is going to step up, it is going to be the offset of the situation we're experiencing here.

Okay. Thank you.

(Operator Instructions) Your next question comes from the line of Jason Rogers with Great Lakes Review.

Hi, guys.

Hello.

Just to follow up on ScanSource, do you have the percentage of sales that ScanSource was for the quarter?

Yes, we do. It is about 19%, which is about consistent with last quarter.

Okay, and looking at North America, are you facing the tough comparisons and retail for the third and fourth quarters as well?

Not terribly strenuous. I think they are more normal, I think, as you go forward. Q2 was a more tougher comparator. Q3 and Q4 are what we consider a more normal.

Okay. That's helpful. And then just to be clear on the component costs related to the Japan situation, you're expecting them to pretty much double in the current quarter and then I guess tail off or end following that?

Yes, we -- I think there's sort of two areas where we have the primary cost associated. One is we reintroduced to the market a desktop printer that we had been selling in the past to help alleviate the demand for another printer that is using some components out of Japan. And to encourage that transition to the newly introduced product, we're giving more of a higher rebates, not extraordinary. The other thing is that we're spending a lot more -- not a lot more, but more in freight as we air-freight stuff to meet customer demand. So, it is stepping up.

So actually, one of the -- I'm glad you asked that question, because if you really take the impact of roughly $5 million of the Japan crisis, and most of that goes to gross margin, and you adjust our gross margin projection for that $5 million, you're going to see that we have a very robust gross margin, I'll call it a pro forma number, if we didn't have the Japan thing. But even with the Japan, we have a very strong gross margin. So, this goes back to the question about price. Our prices are good, the business is going well. We're just reacting to our situation in Japan and trying to -- not trying, but we are addressing our customers' needs by these actions.

That sounds good. And then looking at the ERP implementation, just wondering how that is progressing.

It is progressing well. We went live in Europe in Q1, in the end of January in Q1. We had no major system issues. We've worked for the last five, six months to optimize the system to make sure all of the people who are using it are properly trained. And I think it's a big change to implement the new ERP system like that. So the effort around training and other things has been substantial, but we feel we're making good progress on that, and on plan to go live in North America beginning of next year.

Okay. And then finally, what are the expectations for CapEx and D&A for the year?

It is -- I would say it is going to be down a tad. We typically don't give beyond a quarter, but we expect sort of the third quarter to be similar to the second quarter, as far as CapEx goes.

Okay. Thank you very much.

Yes.

Your next question is a follow-up from the line of Paul Coster with JPMorgan.

Hey, Paul.

You talked a little bit about the direct store delivery and mobile solutions opportunity that lies ahead of you. Obviously, you provide the printing part of that solution. Are there any partners that you're going to market with who have the other part of the solution, whether it's the GPS routing technology or the data capture technology? And are you disadvantaged by not having a complete set of solutions there?

No, we don't think we're disadvantaged. We have some very strong values to resellers and other partners that are focused on this space. They tend to pull in other hardware or software vendors to offer that complete solution, and we tend to be a very -- figure very prominently in that, and I think our market share in that area is very good.

Thank you.

(Operator Instructions). You're next question is a follow-up from Tony Kure, with KeyBanc Capital Markets.

Hello, gentlemen. Yes, I was just wondering if you can provide any commentary around what you're seeing from a demand perspective within distribution. You noticed that it was relatively stronger in the quarter, I am not sure if -- it appears that some peers may have said there was a modest build in a distribution channel. I'm just wondering if you happened to see any trends in that, in the latter part of the quarter?

Tony, it is Mike Terzich. The -- we'll break this into two pieces. North American, the -- we measure our distribution on a number of metrics. We record revenue on a sales end basis. We watch very closely their performance on sales out basis, we watch their inventory levels very closely. I can tell you that on a sales out basis, the business was healthy in Q2. It was a nice business result, which for us is important, because that -- the distribution channel is really a barometer for the broader health of our North America business. It crosses multiple verticals, multiple applications bases, so we liked the result.

Inventory level were right where we want them to be, very consistent to what we've seen in the past. Internationally, our business was very strong internationally, so our distribution results outside of the United States were better than they were in the US, which was very good. So, again, the quarter was a quarter that I would characterize as very strong run rate business, which is typically aligns well with the distribution performance, and we were a little bit lighter globally on some of the large deal opportunities, the size of the large deals. So, the distribution channel performed very well for us.

Okay. And if I may, just piggy-back on that last comment. You notice that you do not witness maybe some of the larger deal activities that you normally would. Are those primarily concentrated in manufacturing, in Asia Pac, and maybe retail in the US, or are there other, end market verticals that maybe you didn't notice the same amount of large-deal activity that you may normally would?

Well, what we saw deal activity. The volume of deal activity, was consistent to what we've seen in the prior quarters. The value of the deals tended to be a little lighter in the second quarter. And because of the Global Reach and the diversity of our business, we look at deal activity. It's generally well balanced between manufacturing, some of the field mobility applications that we talked about earlier, as well as the retail space and the government space, particularly outside of the United States for government.

Great. Thank you, gentlemen.

Yes.

And there are no further questions at this time.

Okay. Well, everybody thank you very much for joining us today. Again, our next regularly scheduled conference call for the quarter will be Wednesday, November 8, and Mike Smiley and I would be available for the rest of the day if you have any further questions. Have a good day, thank you very much.

This concludes today's Zebra Technologies second quarter 2011 earnings release conference call. You may now disconnect.