斑馬技術公司 (ZBRA) 2012 Q3 法說會逐字稿

Good morning and welcome to the Zebra Technologies 2012 third 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.

(Operator Instructions). 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, belief and anticipate are a few examples of words identifying a forward-looking statement. Forward-lookinginformation 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 also described in Zebra's 10-K for the year-ended December 31st, 2011, 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. Execution in a challenged business environment led to solid third quarter performance for Zebra. Earnings from continuing operations were up 9% reaching a record $0.69 per share excluding a non cash charges.

Sales, which declined a slight half a percentage point to $252 million were up 1% on a constant currency basis. Steady strength in North America, where we achieved record sales, including increased demand for high performance and other table top printers, offset softness in Europe. An improved mix with a boost in table top printer sales contributed to a sequential increase in average unit prices.

Even with economic headwinds customers maintained their investments in solutions that helped them drive operational efficiencies and generate incremental sales. Zebra products are vital in helping our customers realize improved business performance by allowing them to make smarter decisions by gaining greater visibility into their extended value changes. Aided by our take share and expansion strategies, more companies are turning to Zebra for the hard ROI benefits those solutions deliver.

We also achieved this solid performance by generating operating leverage in the business. Gross margin exceeded 50%. Operating expenses declined from the prior quarter including the incremental expenses related to the acquisition of LaserBand in July. Earnings also benefited from a lower effective tax rate in operations.

Our cash generating capabilities continue to pace. Forthe quarter we generated $58 million in free cash flow and returned $15 million to shareholders with the repurchase of another 400,000 shares. So far this year we have returned $40 million to shareholders with a purchase of 1 million sharesas Zebra continues to demonstrate great capacity for increasing shareholder value.

Zebra's third quarter performance highlights the value of our diversity across geographies, products and industries. It also demonstrates the success of our business strategies to create greater differentiation between Zebra and its competitors. Our enduring strength coupled with extending our industry leadership makes us optimistic about Zebra's future.

As discussed on previous calls, Zebra, together with our partners, is looking to create the smarter, more connected business community. We are pursuing this vision through five strategic pillars. One, intensify innovation, two, expand into new markets, three, maximize operational effectiveness, four, penetrate existing markets further and, lastly, inspire our people and culture. Let me now discuss some areas of notable progress.

First, the pace of innovation remains high at Zebra. As a reminder we introduced the ZT200 series table top printers during the second quarter. Positive customer reception to this new platform has made the ZT200 one of the best product launches for Zebra in recent company history. This new platform delivers great value and performance all backed by Zebra's reputation for product reliability and durability. Importantly, the ZT200 along with future printers will incorporate Link OS, the new and innovative ecosystem that makes our printers smarter, simplifies integration and ensures high performance.

Link OS will expedite our time-to-market with innovative products that support emerging technology opportunities such as the Internet of Things. It should also reduce costs both in terms of product development for Zebra and lower integration and operating costs for end-users. Advancements such as these are increasing Zebra's value to it's channel partners and customers alike. Second, we are expanding into new markets with existing solutions.

Over the past several years we have had great success with our HC100 wristband printer, which delivers improved patient safety and compliance in health care. During the third quarter we also introduced a model geared towards hospitality and leisure. Increasingly hotel and events staff are turning to wrist bands for enhanced operational efficiency. Improved guest identification enables better management over counterfeit prevention and theft control in leisure and entertainment venues.

Other benefits include the ability to implement faster cash less transactions, centralized cash collection and more efficient access control, all of which lead to a better customer experience. Third, our strategies are also important in driving regional performance. In North America the success of our take share initiatives, strategic account focus and diversification efforts supported record sales in the region on an organic basis.

A strong and consistent run rate business throughout the quarter complemented a further recovery in sales to manufacturing customers. And improving a revitalized manufacturing supply chain boosted sales of high performance table top printers and shipments of active RFID tags for real-time location solutions. Sales also benefited from shipments to our expanding retail base which continues to invest in technology to improve the shopping experience and manage operating costs.

Meaningful shipments to customers and small package delivery, food distribution and public safety also highlighted the quarter. LaserBand, whose performance met our expectations, further increased sales to customers in health care. In addition, our supplies business maintained a favorable sales trend. The strength in North America offset the ongoing headwinds in Europe.

In EMEA our investments in Zebra sales resources led to growth in Turkey and Russia. In the UK, key wins with retail customers contributed to growth in this sub region. Stable but continued softness in Southern Europe and Germany during the quarter gives us the cautious outlook for the region in the fourth quarter and into 2013. In Asia-Pacific, sales increased on a sequential basis for the third consecutive quarter.

Aided by the diversity of our solutions and industry leadership, we had notable shipments to customers in manufacturing as well as retail, which would benefit from a long-term trend of a growing middle class in the region. In Latin America higher levels of business activity throughout the region, including Mexico and Brazil, led to record sales. Key wins during the quarter include shipments of card printers for drivers license applications in two countries and wireless mobile printers for direct store delivery.

At the end of the were very pleased to receive the largest commitment ever for printers in the region from the Brasilian Ministry of Health. This competitive win, which will begin shipping in the fourth quarter, will enable onsite printing of personalized information for health care insurance cards. It also opens additional opportunities with other Brasilian government agencies. Shortly after the end of the quarter we closed a significant deal for a mobile point-of-sale solution with a major retailer.

This win highlights the increasing success of our program to expand our go-to-market channels with stronger relationships with independent software vendors. Overall, our third quarter results demonstrate the value of a diverse business in a volatile time. With a well defined strategy Zebra continues to expand its leadership through innovation and excellent execution. We have and we will remain disciplined in our investment approach as we out invest the competition to drive profitable growth.

We have the resources and the ability to balance near-term conditions with long-term opportunities. Zebra is well positioned in an industry with attractive growth drivers. Our innovative products and solutions incorporate a broad range of technologies that make Zebra even more strategic to our customers' needs. Our expanding go-to-market channels, already the strongest in the industry, are opening avenues of growth in new and exciting areas.

All of this makes us confident in our ability to deliver increasing terms to our shareholders over the long-term. I would now like to turn the call over to our CFO, Mike Smiley, to provide a detailed review of the third quarter results and guidance for the fourth quarter of 2012. 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 third quarter. My comments will principally focus on year-over-year changes in the performance of Zebra's operations.

First, continued strong sales growth in North America and Latin America offset weakness primarily in Europe and currency headwinds. Second, gross margin was well above guidance and up from a year ago principally because of lower freight charges, overhead costs and reserve expenses.

Third, operating expenses were up 18% from a year ago including 12 percentage points from a non cash charge with recurring expenses down from the second quarter. And fourth, results include a $9.1 million non cash asset impairment charge, which was related to the location solutions product line. The charge is not deductible for tax purposes.

Let's review sales. For the quarter, sales declined 0.5% from $253.3 million last year to $252 million this year. The impact of foreign exchange, net of hedges, reduced sales by $3.8 million or $0.04 per share.

On a constant currency basis sales were up 1% year-over-year. Sales for North America were up 7% increased $5 million on a sequential basis. Broad-based sales to customers in several industries complemented ongoing strength in our run rate business. In EMEA sales declined 11%. Sales growth in the UK, Russia and Turkey partially offset weakness in other sub regions. On a constant currency basis EMEA sales declined 5%.

In Asia-Pacific sales were down 5% from a year ago. Improving trends in Japan and greater China support a third sequential improvement in sales and offset softness in Korea and India. Latin American sales, up 9% to a new record, included healthy sales in all sub regions. Looking at our product categories a 5% decline in hardware sales is partially offset by an 18% increase in supply sales in part due to the LaserBand acquisition, which is tracking nicely to plan.

On the year-over-year basis average units prices declined from $524 to $492. Sequentially a UPs increased from $471 with growing demand for high performance printers driven in part by the introduction of the ZT200 printer family that Anders mentioned. Even with the year-over-year decline in average units prices, which was principally because of mix, we maintained a healthy gross profit margin. Strong gross margin for the third quarter of 50.4%was up from 48.8% a year-ago and 48.7% for the second quarter.

Lower freight charges and overhead costs and reserve expenses more than offset unfavorable mix, movements in mix in foreign exchange year-over-year. On a normalized basis we continue to expect gross margin in the range of 48.5% to 50%. Again, our strong margins reflects the meaningful value in ROI we provide our customers.

Operating expenses, excluding the non cash charge, increased 6% from a year ago and declined 1% from the second quarter as expected. Year-over-year the largest expense increases occurred in the amortization of intangibles, primarily from the LaserBand acquisition, as well as increased personnel related costs and professional services.

During the quarter we incurred a $9.1 million non cash asset impairment charge for the remaining goodwill associated with the 2007 WhereNet acquisition, which is now part of the location solutions product line. While we remain positive about the long-term opportunities and strategic components of these solutions, the current trends in the business, in part related to the current market conditions, required us to take this action.

Quarterly operating income of $39 million plus the $9.1 million non cash charge delivered a 19% margin adding depreciation and amortization of $6.9 million to operating income totalled $55 million of cash earnings or $1.06 per share of cash EPS. The effective income tax rate for the third quarter was 31% and reflects a 6 percentage point impact of the non cash charge, which is not deductible for tax purposes.

Looking forward we expect the effective income tax rate will be approximately 25%. Earnings from continuing operations totaled $0.51 per share or a record $0.69 per share, excluding the asset impairment charge on $51.8 million average shares outstanding. At the end of the third quarter we have 51.3 million shares outstanding.

In the third quarter we returned $15 million to shareholders with the purchase of 400,000 shares of Zebra stock. The weighted average price of the purchases was $37.53 per share. In total we deployed $75 million, including the LaserBand acquisition, to enhance shareholder value. The days sales outstanding remained steady at 48 days and inventory increased from the second quarter by $6 million.

Free cash flow for the third quarter totalled $58 million, including receipt of the final escrow payment on the sale of Navis from last year. We ended the quarter with $369 million in cash and investments. Now let's look at our fourth quarter forecast. We are forecasting 2012 fourth quarter sales of $245 million to $255 million.

The forecast continues to reflect a more cautious outlook in this volatile global economic environment. Earnings are expected at (inaudible) [$0.62] per share to $0.70 per share. Our forecast assumes a consolidated gross margin in the range of 49% to 50% (inaudible) select certain assumptions on mix and freight. GAAP operating expenses are forecasted between $78 million and $80 million.

We estimate the effective income tax rate to be 25%. That concludes my (inaudible) remarks. Thank you for your attention. Now here's Anders for some concluding comments.

Thank you, Mike. Zebra's third quarter results demonstrate the success of our strategies to drive performance. Our investments in product innovation, channel development and geographic expansion are making Zebra more strategic to more customers in new ways. They position the Company for improving levels of growth and profitability as business conditions improve.

While economic headwinds have restricted near-term performance in some regions, our diversity and sustainable competitive advantages have enabled us to extend our industry leadership. We are pursuing our growth goals while diligently managing the business and maintaining effective control over operating expenses.

We also continue to deploy our resources in those areas that deliver the highest risk-adjusted returns, including continued opportunistic stock buybacks and strategic acquisitions. All of these factors give us great confidence and optimism in Zebra's future. While we look with some caution to the fourth quarter of 2012 and into 2013, we will continue to invest in programs and strategies that will serve Zebra and it's shareholders over the long-term.

In new product development we will maintain a high cadence of product introductions with an increasing focus on innovation around connectivity and mobility. We are on track in 2012 to exceed the 13 products released last year and we are excited about the product road map as we look ahead to 2013. We will incorporate our Link OS ecosystem into our next-generation of desk top, table top and mobile printersto deliver even greater value to our customers.

New features and functionality will expand the range of potential applications we serve as well. We will continue to build on our use of platforms to gain greater efficiency in the product development process. The major technology trends of mobility, cloud computing and the Internet of Things are opening new opportunities for Zebra.

The increase in use of RFID and sensors is helping companies gain greater visibility into the identification, location and condition of assets, transactions and people. The implementation of these technologies and solutions are driving more effective and timely business decisions. Building our supplies and services businesses remains a priority as well. Just recently we opened our new service repair facility in Brasil.

By demonstrating our commitment and improving service levels in this important country we are attracting more business opportunities. We expect to add to our progress in 2013 by expanding our presence in other under served regions. Finally, we will continue to expand our go-to-market channels. Our investments in developing stronger relationships with system integrators, ISCs and strategic accounts have helped us diversify our customer base.

They contributed to the third quarter's strong performance in North America and Latin America. In Asia-Pacific and EMEA the recent investments we made to increase the number of Zebra sales people position us well to accelerate sales growth as business conditions improve. We look forward to a more progress as we move into 2013.

These investments are important high return activities that help Zebra penetrate existing markets more deeply as well as expand our presence in new, exciting areas of growth. 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.

(Operator Instructions). Okay. And our first question is from Steven Stone. Steven, go ahead, please.

Hi. Thanks for taking my call. I guess my first question--this gross margin expansion you saw there-- I guess you're seeing it, I guess, sequentially contract a little bit. What was the real reason for here? And why is it-- I guess, is it sustainable or why do you think it's going to kind of pull back a bit?

Yes. This is Mike. I think there's-- Mike Smiley. There's more than one Mike here. There's couple things that are affecting us. We had a--number one we had an attractive product mix.

In part -- Anders mentioned the ZT200, which is our mid-range table top printer, which was stronger than we had anticipated. We expect that to moderate a little bit next quarter, but we also had some benefits in some adjustments to reserves like excess and obsolete and warranty and stuff so our experience has been positive.

We don't expect that to continue every quarter and some overhead stuff. So effectively we -- what we wanted to make sure people were aware of is that the margin that we got this quarter had some more unusual type things as part of it. We just don't expect that that will continue every quarter.

Okay. Then just kind of as far as Asia. Usually the Asia-Pac region-- it's a little weaker in December. Just talking sequentially here. There's been all these talks of green shoots.

Are you hearing anything different from customers or should we kind of expect the normal seasonality kind of going forward, kind of a weaker December and March sequentially?

Right. Asia-Pac has been a great market for us over the last several years and it met our expectations in the quarter although the results kind of mixed within the region. You know, greater China was up slightly and Japan was also strong, but India and Korea were quite weak for -- but for different reasons.

You know, I think here we see China and Korea being very big exporters to Europe so I think the -- the headwinds from Europe is certainly having impact on those countries. But in India I think it's more initial local (inaudible) having depreciated quite substantially against the dollar over the last year or so. Local customers are looking very carefully at the exchange rate that they look to make purchases. But over the longer-term, though, we are quite bullish on Asia.

We think that the region will have higher than, you know, average GDP growth for quite a few years to come and I think as the, you know, middle class benefits from this growth we will see kind of diversification of our business in Asia as we've seen in North America and in Europe before.

Okay. Thank you.

Thank you. Our next question is from Paul Coster with JPMorgan. Please go ahead.

Yes. Thanks for taking my question. Good morning.

Good morning, Paul.

Can you talk to us a little bit about how LaserBand contributed in this quarter, what revenues can be attributed to that and what it does to your overall margins as well as it (inaudible)?

A couple things. First of all -- yes. This is Mike Smiley again. You know we're not sort of breaking out LaserBand but I think we'll-- a couple things I'll tell you is that it's hit our plan very nicely.

It is being integrated, being managed. We're really pleased to have these guys on because it's not only strategic but from the CFO standpoint it's also the financial results are very attractive. The cash margins on this business are -- are very comparable to the rest of our business and so for being strategic and the type of business we're in we're very pleased with this business.

Well, let me put it a different way. Would you have seen organic growth in North America without the LaserBand acquisition?

Yes. Yes. Oh, definitely we would have. Definitely. Yes.

Okay. Good.

North America had a record quarter without the contribution of LaserBand.

Okay. Got it. Thanks very much. And then the strength that you saw in North America, in particular-- was that across all of your products and service lines?

Yes. North America has been a very strong region for us for a while now. We've had five consecutively strong strengthening quarters. Our run rate in Q3 was -- was quite strong and stable throughout the quarter.

But we had less large deals than what we would, you know, consider to be normal. I think here we are really seeing the benefit of -- from our focus on product innovation and channel development. It's -- North America is our most diverse region so we have, you know, we participate in, you know, many vertical markets and with most of our product segments, too.

We saw particular strength in manufacturing and also in the expanded retail base. You know, we see retail customers are more keen to adopt new technology now. And health care I would also highlight is a strong vertical for us and I think the underlying trend here for why we are doing so well or why the industry is doing well here, I think, is that, you know, our products are really helping companies drive productivity.

So if you look at kind of the S&P 500 over the last few years revenue growth for that has been modest, but, you know, the productivity of those companies have been great and I think that comes from companies investing in tools like ours to drive greater efficiencies. And as we look ahead I would say we feel quite good about the growth opportunities we have in North America and we feel really robust strategy that will continue to benefit us.

Alright. I just sign off with one last question and that is -- I mean, linearity, it sounds from what you're saying that it's essentially improving slightly. I mean, the most recent months, for instance, would be an improvement over the prior month?

Well, you mean Q3 over Q2 or -- or?

No, no. I'm just trying to get a sense of the -- the most recent data points that you're seeing from your sales.

Is it -- does the North American linearity point slightly upwards or is it slowing? I mean, just give us-- if you can give us some color there.

It's -- as I said, we, you know, our quarters are more--somewhat more back end loaded now than they were probably a year or two ago. But the North America business is projecting to grow, you know, as we kind of outlined in the guidance here. We do--

Okay. Thank you for--

Paul, this is Mike Terzich. One other point on that. You know one of the points that Q4 for us in North America that we always contend with, which we've mentioned in past calls, is we do see a little bit of that softening in the retail business as -- as major retailers kind of hunker down for the holiday season as they are less willing to deploy technology during the Christmas buying season, so to speak.

Got it. Thank you very much.

Thank you. Our next question is from Keith Housum with Northcoast Research. Please go ahead.

Thanks. Good morning, gentlemen. Thanks for letting me (inaudible). A little bit more detail, if you don't mind providing, on the two large orders that you announced that you expect to ship more in the fourth quarter and, I guess, how that impacted your guidance as you provided for the fourth quarter?

So the two orders we announced, I think, was the Minister of Health in Brazil and that was the -- the retail order in Brazil also. Are those the two you were referring to? Yes?

Yes.

So those are both in our guidance. They are both multi-quarter orders so they're not going to be fulfilled all in Q4 but they will provide a nice incremental stronger, you know, foundation for the business in Brazil and I think that goes to show how the investments we made in Brazil in both product and channel is starting to pay off for us.

Okay. Great. And I just have one follow-up question for you. We've been seeing quite a bit lately, for example, JCPenney and their RFID announcement going forward-- by 2014 to be more (inaudible) RFID enabled. I've got ask that question of you guys and what you're seeing in the market in terms of RFID and is that turning into more of a driver than it's been in the past?

Keith, this is Mike Terzich. I will take that. Yes. We are definitely seeing a higher level of retail interest in passive RFID technology and most of that is occurring, as you point out, with major retailers that are looking to get a better handle on more broadly managing their inventory level at the store.

So certainly JCPenney has a vision and a view that is very broad from an adoption perspective but we can tell you that the interest is across multiple retailers who are finally seeing where they can deploy across a set of SKUs or items, if you will, where they're going to drive greater inventory accuracy and more customer satisfaction. So yes, interest level is increasing.

I would just add one thing to it that--that, particularly in our location solutions business, you know, we're working hard there to also incorporate passive RFID solutions there. So that gives us a good position in manufacturing to bridge kind of the three technologies; the bar code, passive and active RFID to provide inventory tracking and other product ID solutions.

Okay. Do you see the RFID as being incremental to your existing business going forward? Will it be substantial enough where we will see in the guidance a year or two down the road?

I mean we have -- we have always had RFID has part of our guidance so it's not -- not a new thing from that perspective and I expect as we go forward we will continue to include RFID as part of our overall guidance. I do not expect that we will break it out as a separate product line.

Okay. Thank you, guys.

Thank you. (Operator Instructions). Our next question is from Greg Halter with the Great Lakes Review. Please go ahead.

Hello. Good morning, guys.

Hey. Goodmorning, Greg.

I've been reading a little bit about one of your competitors, I think , it's Sato, making a more, I think, potential concerted effort into the competitive space and I just wanted to get your view on that.

Well, you know, I think we have a competitive market overall. Sato is clearly a, you know, well recognized and a reputable competitor for us. But I think, you know, we look at the overall competitive landscape. You know, we feel pretty good about our competitive positioning and we've made meaningful investments in innovation to refresh and drive more innovation, new things into our product line. And also make sure that we continue to develop our channels, which are equally strong barriers for entry or, you know, driver for growth for us.

So I feel that we have to compete against all our competitors on a daily basis and I feel we are in a pretty good place to continue to do that well and extend our leadership position in the industry.

Alright. Thank you. And as a follow-up, a good lead in there on the channels. Can you speak to the percentage of your sales that came from your largest and second largest customer in the quarter? Hello? Are you mute?

Yes. We had three -- this is Mike smiley --we had three customers that were over 10%. The largest was 20.8%, the second was 11.2% and the third was 10.5% These are all three distributors.

Alright. Thank you.

Yes.

Thank you. Our next question is from Tony Kure with KeyBanc. Please go ahead.

Hey. Good morning guys. Thanks for taking my questions.

Good morning, Tony.

I just wanted to--I think said this in the last (inaudible). I want to confirm-- I'm not sure how it played out as the quarter progressed as far as the LaserBand acquisition price. I think you said $58 million on the last call. Did it net out to be that way?

There's working capital adjustments and stuff like that and the end so I think it netted out to be $59 million but it's in the ballpark,the same thing.

Okay. Okay. And then on the gross margin improvement, Mike, you mentioned three things; the lower freight charges, the warranty reserve. I just didn't catch the third thing that you had on that -- that you listed there.

The other would be access and obsolete type things. You know, so when we look at the amount of inventory for which we need a reserve for that we've determined we didn't need quite as much based on our history and stuff like that. And then, I think, you'd mentioned freight was another big benefit for us.

Okay. Yes. Okay. And then as, you know, you talked about the normalized--the gross margins, which is pretty helpful, the 48.5% to 50%. Given you were about 50.4%this quarter, is it fair to say that those impacts -- those positive impacts to gross margin were about 100 basis points to gross margin?

Roughly.

Okay. Great. And -- great thank you so much.

Yes.

Thank you. Our next question is from Brian Drab with William Blair. Please go ahead.

Good morning.

Morning, Brian.

I just want to make sure that I have revenue -- total revenue growth and acquisitions and organic straight. So FX was a negative 1.5 point headwind and then, I think, you know, is it safe to assume LaserBand contributed maybe two points to growth and organic for the Company overall is down about 1%?

You know, Brian, the -- I think we want to communicate that LaserBand is performing nicely. It's not a huge piece of our business. We're not really breaking that out so, as a result, I'm not going to be telling you exactly how much that is, but it was a nice piece of -- it's an attractive business, but it's not material to the overall numbers.

(Inaudible)

And, again-- Yes. To Anders' point it's only 11 weeks we've had it.

Right. I understand. But is there any reason that I should think that their revenue run rate is far off the annual sales of $24 million in 2011 and is there any significant seasonality to this business?

You know, I think, in my script I mentioned that LaserBand met our expectations.

Yes. Okay.

So we were pleased with the -- with the revenues they delivered and the profit.

Okay. Okay. And then just one more follow-up on this. Is LaserBand -- is it safe to assume that LaserBand revenue is recorded in the supplies line? I can't remember if you've told us that before.

Yes. It's in supplies. That's right, Brian.

Entirely in supplies?

Yes.

Okay. Okay. Thanks, guys. I'll talk to you later.

Yes. Yes.

Thank you. Our next question is from Greg Halter with Great Lakes Review. Please go ahead.

Yes. Thank you for allowing me back on again here. Given the LaserBand acquisition that's been completed, obviously, and seems to be doing -- meeting your expectations so far. Just wondered if you could comment on what you're seeing out there relative to additional acquisition opportunities, certainly in light of the very solid cash position.

Yes. Our acquisition strategy hasn't really changed from prior quarters. You know, we look at allocating our capital to the highest risk-adjusted return activities. That is the first thing that we use for this and then, of course, we look very carefully to make sure that any company we look at acquiring also fits our strategy.

We want to make sure things that we were -- that we consider to acquire really do fit with the strategy, enables us to accelerate the implementation of our strategy or make the overall more strong. And there are certainly assets out there but we continue to have a -- that we continue to look at but also that we are -- we want to be disciplined buyers and we have a strong cash position but that's -- we see that as a good thing, not something that we need to find a home for in a hurry here. So we (inaudible)-- disciplined as we have been before.

Alright. We certainly appreciate the disciplined nature. I just wonder I could ask what the yield was on your investments in the third quarter?

Yield on investment. It's -- it's very low. We're primarily invested in -- this is Mike Smiley -- government and corporate and stuff so it's de minimis. (Inaudible)

The reason I ask is with that minimal rate, and I presume most of that is in the US, just wondering whether or not the Company would look at a special cash dividend or be more -- even more aggressive on its share repurchase program?

Well, you now, going back to Anders' question on the acquisitions, you know, our approach towards deploying capital has not changed. They will argue we deployed $75 million in the last quarter between share buybacks and acquisitions. We, you know, feel that we're probably seeing more attractive assets than we did probably a year, a year and a half ago so I wouldn't -- I wouldn't be surprised to see us do some attractive -- more acquisitions. And, you know, we have been buying back stock.

We'll do more -- I don't think we have a plan to all of a sudden ramp up deployment of capital from a share buyback at this point unless there is a big change in the valuation from where we are.

Alright. Sounds good. Just to, again, point out that sequentially your cash is only down $18 million despite the buy back and the LaserBand so you guys are doing well on the free cash flow side.

Yes. That's one of the real strengths of the business.

Thank you.

Thank you.

Thank you. And that was our last question in queue. I will now turn the call back to Doug Fox for closing remarks.

Just to thank everybody for joining us today and to lets you know that our next regularly scheduled conference call for the fourth quarter will be on Tuesday, February 12, 2013. Everybody have a good day. Thank you for joining us today.

Ladies and gentlemen, thank you for your time and attention. That concludes this conference.