斑馬技術公司 (ZBRA) 2013 Q3 法說會逐字稿

Good morning. Welcome to the Zebra Technologies 2013 third-quarter earnings release conference call. Joining us from the Zebra Technologies are Anders Gustafsson, CEO; Mike Smiley, CFO; Mike Terzich, Senior Vice President Global Sales and Marketing; and Doug Fox, Vice President Investors Relations.

(Operator Instructions)

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.

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 statement.

Forward-looking information is subject to various risks and uncertainties, which could significantly affect expected results. Risk factors were noted in the news release we issued this morning and are also described in Zebra's 10-K for the year ended December 31, 2012, 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, I am pleased to report that Zebra achieved record third-quarter sales of $263 million and earnings of $0.77 per share, excluding $0.01 per share in exit and restructuring costs and acquisition expenses.

Sales increased 5% from a year ago and were up $10 million sequentially. Sales increased in all geographic regions with new records in North America and Asia Pacific.

Zebra's results reflect an improvement in business conditions throughout many of our customer verticals and geographies. While weakness continues in certain areas, including southern Europe and Brazil, our run rate business through distribution partners remained steady throughout the quarter. In addition, our pipeline of large enterprise deals began to improve.

Also encouraging was an increase in profitability during the third quarter. Gross margin approached 49% with an improved product mix over the second quarter of this year.

On a sequential basis, average unit prices increased $20 as manufacturing customers stepped-up purchases of high-performance printers. At the same time, we maintained effective management over costs with recurring operating expenses up only $2 million from year ago, but down $2 million from the second quarter.

With continued effective management over working capital, Zebra generated a solid $41 million in quarterly free cash flow.

We also returned almost $30 million to shareholders during the quarter in the form of stock buybacks. Year-to-date, our stock buybacks have returned $58 million to shareholders.

The diversity of our business across geographies, products and customers continued to yield results in our core business. The positive momentum that we are building positions us well to drive future growth with our long-term strategic investments and sustainable competitive advantages across our entire platform.

In North America, shipments increased to manufacturing and retail customers. We also experienced some return of large enterprise deals. Specifically, our focus on strategic accounts led to higher shipment to two large national retailers during the quarter.

Healthcare stood out as an area of particularly high growth as we increasingly benefit from healthcare organizations investing more in solutions that improve patient safety and our success in developing more effective routes for Zebra products to meet their needs. We are also encouraged with our performance in EMEA. While sales in parts of southern Europe remain subdued, strong growth in France, Italy, Benelux and the Nordic countries led to 5% growth in the region.

Product shipments were notably strong to customers in retail, transportation, and postal. They include initial shipments of printers to the Italian post, as well as card printers to the government of Ghana. We also began shipping Zebra RFID printer encoders to a major European sporting goods retailer who will be using RFID to better manage merchandise throughout their enterprise.

In healthcare, we had greater than 80% growth in thermal patient wristbands driven by the successful rollout of our HC100 wristband printer beyond the UK. In Latin America, strong card printer shipments including to Chile for bank credit cards and Mexico for drivers licenses complemented a steady run-rate business. Strength in Mexico and other parts of the region offset some weakness in Brazil, Argentina, and Venezuela.

In Asia-Pacific, sales exceeded $40 million for the first time. A firm tone of business throughout the quarter in nearly all sub-regions included increased shipments of high-performance printers to manufacturing customers in China and South Korea. We also expanded sales to customers in transportation, and logistics, and healthcare, as well as postal organizations in South Korea and Australia.

A category of significant strength during the quarter was our supplies business, which increased in all geographic regions. On an organic basis, consolidated sales growth was 12% to $62 million, a new company record. Shipments of wristbands for patient ID were notably robust.

In addition, during the quarter, a large resort in the Bahamas selected our HC100 wristband printer and Z-Band splash wristbands to improve guest experience by managing access and enabling cashless point-of-sale purchases. We see these value added features as growing trends in the hospitality and entertainment industries.

In labels, our IQ colored labels gained momentum. This innovative material enables the printing of spot color on thermal labels to help retailers improve efficiency in their price mark-down activities. We also had excellent growth in labels and ribbons through our zip-ship program, which carries more than 500 products in stock for immediate shipment.

Zebra's third-quarter results demonstrate the leverage we have built in the Zebra's core business. Our investments are enabling us to drive deeper into manufacturing, retail, transportation, and logistics, while enabling greater reach in attractive underpenetrated industries such as healthcare. Our results show that more companies are turning to Zebra as their strategic partner in helping them identify, track, and manage their critical assets across their supply chains.

Now, our CFO Mike Smiley will provide a detailed review of third-quarter results and guidance for the fourth quarter of 2013. 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 third-quarter results.

First, sales increased in all four geographic regions from a year ago. Second, gross margin while down from peak levels a year ago increased 1 full percentage point from the second quarter and third, operating expenses remained well controlled.

Let's take a look at sales. For the quarter, sales increased 4.6% from $252 million last year to a record $263.5 million.

The foreign exchange had a positive impact on sales of $1.1 million net of hedges. Sales for North America increased 2.1% from a year ago and were up 4.7% for the second quarter. In the region, growth in supplies and after-market parts offset a year over year decline in printer sales.

In EMEA, growth in multiple printer categories and supplies led to a 4.7% sales increase in a seasonally slower period for the region. 10 out of 13 sub-regions had year over year growth.

Latin America registered a slight sales increase of 0.2%. Higher shipments in Mexico and other parts of Latin America were offset by declines in Brazil, Argentina, and Venezuela.

Sales growth of 13.8% in Asia-Pacific to a record $42 million was broad-based with nearly every subregion contributing to the improvement. Growth in tabletop and desktop printers were notably strong with increasing sales to manufacturing customers, as well as into retail, and healthcare.

By product category, hardware sales advanced 2% from a year ago and were up $7.8 million from the second quarter. Hardware sales have now increased sequentially for two consecutive quarters with record sales of high-performance printers in the third quarter.

Supplies maintained a high sales trajectory up 12% for the quarter. Sales in this category were broad-based to customers in multiple industries and we view supplies as a continued growth category for Zebra as we look ahead.

Revenue from services and software also advanced for the quarter, up 11%. Services, including repair operations and warranty are another area of focus for Zebra as investments are expanding these operations worldwide.

For the third quarter, gross margin was 48.8%, down from the peak margin of 50.4% a year ago. Product mix, and higher freight, and overhead costs were offset by lower product cost.

Sales and marketing, engineering and administrative expenses were up 2.5% over a year ago. The 6% growth in sales and marketing relates to increased personnel related expenses. We had a moderation in growth in engineering expenses which were up only 1.7% for the quarter.

Quarterly operating income of $46.8 million plus depreciation and amortization of $7.9 million totaled $54.7 million of cash earnings or $1.08 of cash EPS. The effective income tax rate for the third quarter was 18%. The rate reflects the impact of a greater proportion of our income that is generated in regions with lower tax rates.

Earnings totaled $0.76 per share, including a reduction of $0.01 per share for acquisition expenses and exit and restructuring costs on 50.9 million average shares outstanding. At the end of the third quarter, we had 50.6 million shares outstanding.

For the third quarter, inventories declined $2.5 million from the second quarter; we are now down $27 million from their peak in the fourth quarter of 2011. Net receivables are up approximately $5 million from the second quarter, primarily because of the timing and billing of shipments.

During the quarter, we returned $30 million to shareholders with the buyback of 642,000 shares of Zebra stock at a weighted average price of $46.59 per share. We ended the period with $466 million of cash and investments with approximately half held in foreign accounts, all of which are invested in US dollar denominated securities.

Now, let's look at the fourth-quarter forecast. We are forecasting 2013 fourth-quarter sales in the range of $263 million to $273 million.

Earnings are expected in the range of $0.72 to $0.82 per share. Our forecast assumes a consolidated gross margin in the range of 48% to 49%.

Operating expenses are forecast between $81 million and $83 million. The forecast also assumes an effective income tax rate of 19.5%.

That concludes my formal remarks. Thank you for your attention. Now, here's Anders for some concluding comments.

Thank you, Mike. Our third-quarter financial results reflect the strength of Zebra's extended industry leadership and an improving business environment. We have consistently leveraged our scale, financial strength, and global presence to build a more formidable company in an attractive industry.

Companies worldwide are continually seeking better ways to identify, track and manage their assets to improve their operations and gain competitive advantage. Zebra is well-positioned to assist our customers gaining greater visibility into their operations and extended supply chains. We will continue to benefit from these important trends by first, understanding our customers' needs for improving visibility into their operations; second, innovating around their needs by developing products and solutions that help them meet their business goals; third, penetrating more deeply the existing markets we serve and to enter new markets with attractive growth opportunities; and lastly, driving for greater excellence to deliver improved customer service and to optimize our own operational efficiency.

Zebra has multiple avenues for further growth in our core business. These opportunities include building on our success with developing stronger relationships with strategic accounts, primarily in North America and Western Europe.

In Asia Pacific and other developing territories we will further diversify our business with customers in retail, healthcare and government. Worldwide, we will expand into new industries such as sports and entertainment.

Product innovation is also a corner stone of Zebra's long-term success and growth. In supplies, our focus remains on products that offer a clearly differentiated value-added solution such as LaserBand wristbands. Some, including thermal wristbands printed on Zebra HC100 printers and ribbons from card printing, offer attractive energy streams as well.

Geographic expansion also holds growth opportunities for our supplies business, which is currently concentrated in North America and Western Europe. Innovation in our printers remains high, as well.

To date, we have introduced 15 printer related products. In the fourth quarter we will be introducing the ZD500R RFID desk top printer.

Its compact size makes it ideal for use in retail and healthcare applications in locations where space is limited. It will also be our first RFID printer with Link-OS, our new software platform that makes the printer significantly easier to integrate, operate, and manage from anywhere in the world.

Looking ahead, we have a robust product pipeline as we move into 2014. Important technology trends including the Internet of things, Big Data, and cloud computing, are presenting new areas for Zebra for growth and high investment returns. These opportunities build on Zebra as a trusted business partner with a domain expertise and resources to bring new value added tools to help our customers gain greater visibility into their operations.

Let me now highlight some areas of recent progress. Zebra's history in barcodes and RFID, which are building blocks of the Internet of Things, positions Zebra to help deliver the next generation of visibility solutions.

Last week at the Internet of Things forum in Barcelona, we launched the Zatar, an open cloud-based service to connect and control devices, including Zebra printers. Zatar simplifies connecting and managing devices so companies can focus on getting the most out of the data of these devices can provide.

It is the first user centered IT platform that is scalable and makes data easy to share to promote collaboration and efficiency. Built as a software as a service subscription model, the platform is designed specifically to serve enterprises and the supply chain.

Zatar is a natural extension of Zebra's footprint with our enterprise customers, who are now starting to this ploy Internet of Things solutions. With Zatar, we expect to be able to expand the portfolio our share of wallet with current and potential customers, facilitate additional business opportunities in existing and adjacent markets, and provide current and new channel partners additional options to bring value to their customer relationships.

A recent report by Morgan Stanley predicts that 75 billion devices will be connected to the Internet by the end of this decade. The platform gives enterprise customers the tools to better manage their visible value chains worldwide.

Finally, we recently installed the Zebra MotionWorks sports solution at the practice field for the Detroit Lions. Our proprietary sports software identifies and tracks players on the field in realtime with high levels of accuracy.

The data and analytics generated by MotionWorks will give the Lions coaches deeper insight into player and team performance. This installation follows the two pilots currently in place with the NFL at Ford Field in Detroit and at Candlestick Park in the San Francisco.

Our third-quarter results clearly demonstrate our ability to create shareholder value as well as take advantage of our financial strength and scale to build the business for long-term success. Our investments in developing stronger channels and securing types of engagements with strategic customers are generating positive results.

We are driving deeper into targeted verticals where the adoption of solutions incorporating Zebra products is enhancing visibility across company value chains. These investments are helping us to extend our industry leadership and deliver increasing returns.

While pursuing our growth goals, we will continue to manage operating expenses responsibly. We will also direct our resources to those areas that will deliver the highest returns in our investments with a long-term benefit of our shareholders.

We are optimistic about Zebra's future. The outlook is bright as we follow a proven strategy to create shareholder value. Zebra, together with our partners, is building a smarter, more connected global business community.

Thank you for your attention today. I would now like to turn the call back to Doug for Q&A.

Thank you, Anders. Before we open the call to your questions, let me ask that you limit yourselves to one question and one follow-up. In addition, Mike and I will be available after the call for any further discussions.

(Operator Instructions)

Greg Halter from Great Lakes Review.

Just wanted to ask about the R&D spend. Obviously, so far as you've mentioned 15 printers, platforms -- not platforms, but 15 printers so far this year with others coming.

The R&D was about flat for this quarter on a year-over-year basis and could be some timing there. Just wondering if you could characterize what you see on the R&D spend going forward, either dollars or percent of sales?

This is Mike Smiley. I think that one of the things you have to be careful of when you do year-over-year comparisons, the spend can be a function of when product is coming to the market because we end up with a lot of certifications and stuff that might expand the spend a little bit in one period versus another. So there is a little bit of lumpiness in there.

As we go forward, our expectation is that the R&D as a percentage of revenue will moderate a little bit because we expect the top line to grow faster than the engineering spend, over time. I think as Anders talked about, we've got the Zatar product and we've got the MotionWorks and we are hoping that will fill our top line much faster rate than R&D. Anders, I don't know if you want to say anything on that.

Yes Mike, for us having a vibrant product portfolio is absolutely critical, like for any technology company. We've been -- we do pay a lot of attention to make sure that our investment ratios are in line with what we feel the return will be, also.

But, we believe that the investments we've made over the last several years in new product developments have been well spent. We've been seeing improvements in the business in both arriving our reputation as the most innovative premium brand in the market, as well as the market share gains we've been able to drive. So, it is an important part of our strategy, but, obviously, we are very sensitive to making sure that we have the right kind of ratios to deliver proper earnings leverage in the P&L.

One follow-up for you on the new product, the Zatar. I see it's up to five devices free and then over five $1.99 per month per device on the introductory period.

Just wondering how that will work going forward, if you've given that consideration and what kind of profitability, in terms of margins you expect out of this. I would presume pretty high since it seems to be an app based software system.

Yes. First, we are very excited about what Zatar can do. It's an open cloud based way to help our customers to connect, basically, any and all devices to all sorts of internet applications.

I think the best analogy for Zatar is probably it's the Facebook for devices. So, users like with Facebook -- if the Facebook page knows all their critical information they have the ability to connect to other third-party applications and to other people.

The same goes for Zatar as a platform. It basically is the Facebook page for devices, enabling it to connect to all sorts of other applications and devices and create some much more of the network world.

It is a software-as-a-service. So, revenue ramp will be a little less than it would be if we sold it as equipment. Over time, it should provide a steadier business, with steady growth and good profitability.

That does seem like it's an easy product to use, at least based on the descriptions that I'm reading, or at least get started with.

The intent is that we really work hard and differentiating ourselves to make it easy to use. That is one of the things that we want to make sure we can convey and make people feel that, that this is a product or solution that you don't have to be -- study the user manual for days, but you'll be able to get up and running pretty quickly.

Thank you.

Paul Coster, JPMorgan.

Thanks, for taking my question. Anders, you talked about an improving pipeline in the enterprise space.

Can you give us some color around that? You never have much visibility, but it sounds like it is improving. What's filling that pipeline up?

In Q3, we were say first encouraged by the broad-based strength we saw in the business across all verticals and regions. Macro environment is also getting better, but it's still somewhat choppy.

Our pipeline of larger deals has strengthened and it varies a little bit by region, what we see in it. In the US, in North America, retail and manufacturing have been probably the two strongest drivers for larger deals. Healthcare has also been a bright spot for us, where business was up 61% year-over-year.

In Asia, we did see, also, a strengthening in our large deal pipeline, primarily driven out of manufacturing, I would say. China, Korea, were two of the stronger areas, a lot of manufacturing customers appear to be a little less dependent on exports to Europe today and investing now in new expansions to both satisfy new products coming out, but also new volume.

Europe, I think we had a very steady business. We've had nicely improving trends for all of 2013.

Large deals were up, but it was probably more of a broad-based run rate business than the characterized by large deals. Mike Terzich maybe want to add something?

Sure. Paul, the other aspect to this I think for us has been the pipeline is clearly improving, as Anders noted. I think it's centered right now for us, principally in Asia and North America. We are still seeing that choppiness in Latin America and a bit in EMEA.

Now, in North America, what we've seen has been an improvement, particularly in retail. I think there's a piece of this that's kind of born out of necessity, so to speak. I think there's a lot of retail customers that have been sitting on the sideline for a long time as they kind of sorted out what is happening in their retail space with mobility, with credit card adoption, and chip and pin adoption, platform changes.

So, we are starting to see that lighten up a little bit, the grip on that you're that's fueling some business as is manufacturing. Then, I think out of Asia, it's pretty much what Anders had said. We are seeing kind of a return to the traditional manufacturing space, which is very good for us, because it's a mix of product that is much more stationary than it is mobile.

If you can elaborate a little bit on what's filling up that pipeline. Are they bigger deals? What kind of timeline do you have in between the pipeline filling up and the closing out of the pipeline and then subsequent delivery?

Then, I had another question, which is unrelated to this, what's your latest thoughts on the competitive landscape? We've seen a couple merger does this year, acquisitions this year, which look like they might be changing the competitive landscape a bit. Thank you.

Okay. As far as the timing of the pipeline, I think it is pretty much; it's reflective in some of the guidance that you see for the fourth quarter. So, clearly, from a timing perspective, we are feeling better about what we see.

We measure our pipeline in both value and in volume. Those are two intricate pieces of data that we look at very closely on any given quarter.

So, what we are seeing is more deals and the value of those deals is increasing in size. What we've been reporting the last couple calls has been that value and that volume has been a little bit more tepid.

I think people had previously been taking some positions where they been truncating some of these deals and segmenting them to smaller increments. I think they have a little bit more forward confidence in their business, at present, where the value of those opportunities is increasing. Let me turn it back to Anders for some additional comment.

On the competitive landscape, I said, I don't think that we feel the competitive landscape has changed materially over the last year or so. We've had many strong competitors for a long time now.

In a somewhat tighter economic environment, like we have now, I think the competition gets to be a bit more intense. But, I think we can stand up well to that with our scale and the breadth of our portfolio and relationships. We certainly see tougher times as a good opportunity for us to expand our leadership position in the industry.

Our customers are responding well to our messages around how we can help them increase visibility into their supply chain and they like to do business with leaders, particularly in tough times with companies that have the financial strength to continue to invest in product development and make sure their investment is going to be relevant several years from now. If you are referring to Honeywell Intermec merger, we haven't seen that make any changes to our competitive landscape, yet.

Thank you.

Keith Housum Northcoast Research.

Congratulations on the quarter. This is Dominic Ruccella for Keith Housum.

First question I have for you guys, in terms of the supply business, should we expect that growth going forward is that reflected in the guidance? The growth that we are seeing this quarter?

Yes. Obviously, the guidance we've given is inclusive of the entire business. We feel very good about our supply business.

We've executed on basically the same strategy for, now since 2009, so four years. We had 12% increase in Q3, which we feel very good about, that is certainly much faster than the market rate for the supply, market growth rate for the supplies business.

It's been a very broad-based strength from the business primarily centered around North America, Western Europe, and Mexico. Those are the areas that we have a strong supplies presence. Most of the other parts of the world we have a very modest presence.

But, we focusing very much on making sure we have innovative value-added products that differentiate us from our competition and gives us a chance to generate more of a premium price -- premium margin for these products. We are also investing and making sure that we drive cost reductions in these areas as this is a very much a cost sensitive business. We are invest to make sure we can drive down the COGS for our products.

Healthcare has been a great vertical market for our supplies business and LaserBand as an acquisition; we are very pleased with how that's been performing for us for the last year. We continue to be very optimistic about this business. The opportunities to both expand geographically as well is expand our portfolio.

Okay. Great. Thanks. I guess what I was really asking there, does the growth going forward, is that going to be consistent with the growth that we've seen this quarter for supply?

I think, we want to limit our future outlook to what we said here for the Company, as a whole and not start really giving, dissecting that into all the components.

Okay. All right. That's fair.

And if you look at the lineup of printers, were there any particular segments of the portfolio that outperformed others? Or any segments that were particularly weaker?

It was a strong -- most of our product lines performed well. If there is some to highlight, it would be the high end of our printers, the tabletop.

That line had been a bit more subdued in the last couple of quarters. It had a strong performance in Q3. That would be the one to highlight, I think.

Okay. Great. Okay. Thank you very much. Congrats on the quarter.

Thank you.

Michael Kim, Imperial Capital.

Could you provide an update on Mobile POS, especially with North American retailers? Are you seeing uptake on the mobile receipt printers and, maybe more broadly, how would that might change the mix on your retail vertical over time? And then behind that, ASPs relative to the corporate average and volume opportunity.

Okay. Michael, this is Mike Terzich. I will start and turn it over to Anders and Mike Smiley for some additional comments.

As far as Mobile Point of Sale space is concerned, what we are seeing is clearly there is a very high level of interest from a variety of Tier 1, Tier 2, and even kind of Tier 3 retail customers. Everybody is certainly looking at the deployment of mobility payment solutions in their business.

They are all at various stages of consideration. So, it is a space that we see in the long-term having some significant growth prospects.

For us, we have been carving out where we think we can rightfully play from a niche within that space. We are centered more in that Tier 2, Tier 3 retail application space.

We have some percolating interest from a variety of what we would consider to be national, meaningful accounts. But, not necessarily the very large retail account.

They are generally going to stay with the traditional people that offer some payment and solutions. I think our outlook is that this is going to continue to grow in momentum and opportunity.

Secondly, for us, there is a field service component to the Mobile Point of Sale side that plays very naturally to where Zebra is centered today. So, when you think about the ability to take payment in the field after service is rendered, that's a natural adjacency for where we sell today, both from a channel perspective and with our solutions. Let me turn it back to Anders for some additional comment.

I think just the strategic backdrop, I say, for Mobile Point of Sale, continues to be very attractive. Retailers are, by and large, focusing a lot on how to improve the customer experience. Make sure that they don't get kind the disaggregated by e-tailers.

Mobile Point of Sale is an important part of that. They're really want to make sure they drive at much more interesting engagement where between the salesperson in the store and the customer.

When a retailer goes and starts deploying this, usually, if it's certainly a larger department store something, it's not across the entire store, it's more department by department. Starting with modest growth, I think here now, but it feels like this is -- this will be a bigger trend.

Great. Then, switching gears, Anders, you talked a little bit about MotionWorks, the sports solution. What are your thoughts on turning some of the pilots into commercial deployments and then relative the investment that you put in developing this solution, when we might be able to expect some operating leverage?

We are very excited about MotionWorks. We think it's a unique solution that offers very high degree of accuracy in real time and the value proposition is both for the fan experience, and most sports leagues are very eager to make sure they get kind of boxed in seats and get people out of their living rooms and the 65-inch TVs to actually go to the arenas.

Our solution can really help them with providing much more interesting statistics, analytics for people who are at the game. Also offers all the coaches a lot of opportunities to offer more insights.

We are obviously working hard on trying to convert the trials we have, the pilots we have. I'm not going to speculate today about exactly how quickly that could happen and when that will happen, but it will be, you know starting with a limited number of actual live deployments and we will grow from there.

From an impact of revenue impact on our 2014 P&L, it's going to start small and grow a bit. It's not going to have a huge impact on a $1 billion base.

Got it. Turning to Asia Pac, is it your expectation that the increase in demand for high-performance, table top, and these higher-end printer opportunities will sustain through the balance of the year? Or is there some unusual activity in the third quarter that drove some of that increase in purchasing?

Michael, it's Mike Terzich, again. No. I think our expectation is relative.

We see some consistency in the fourth quarter outlook for Asia, relative to that high-performance end of the marketplace. That is principally for us, the core products that, that we sell more broadly in China and Korea.

Given the pipeline and the opportunities we see at present, and given the fact that if you really dial the clock back a little bit, if you look at the last several quarters in China, it hadn't been, to Anders' point, somewhat subdued. We see that people waited a while to expand production lines and refresh some of the aging equipment and we think that will continue into the fourth quarter.

Okay. Great. Thank you very much.

Greg Halter, Great Lakes Review.

Hello again. The age-old question for you regarding capital deployment. I show a $585 million was your peak cash in investment second quarter of 2006. You're at about $466 million now.

Since 2000 you spent -- not spent, you've returned about $913 million to shareholders. Just wondered what we can look for going forward, because the cash seems to continue to build even though you are buying back stock.

We are obviously very cash generative as a company. We've been able to generate a very healthy number -- you know cash flows for the past several years.

But, our buybacks have been quite substantial, too. I think we bought back about $600 million worth of shares since the beginning of 2006 -- sorry, since 2008, the beginning of 2008.

So, that's a big number. We are always looking for the best ways for us to deploy our cash and returning cash to shareholders is an important part of our overall strategy.

We think that doing that through buybacks has been a good strategy for us, good results. We expect that to be, to continue that.

But, we are also looking at expanding our business through acquisitions. We talked about that on many calls here now. Our strategy around acquisitions hasn't changed.

But, I must say, I think we are seeing more attractive opportunities than we did in the past, that we'd like to pursue. Primarily in three buckets, you can say.

Around expanding our printer business. Looking at our supplies business and some other near adjacency's.

The first filter we have for this is always making sure there's a strong strategic fit that we can add something to that business. Then, looking at the highest return on the risk of just the basis of those investments.

Okay. There some investors out there, who look at strong cash flow companies like Zebra and then those companies and certainly this would be within the Board's consideration, look at a dividend and then raising that dividend every year for 10, 20, 30, 50 years and so forth.

Just wondering if that something that comes up in Board discussions and what may be the argument against the dividend policy? Thanks.

We do talk about the dividends with our Board several times a year. It is very much an ongoing discussion. So far, we've felt that the returning cash to shareholders has been a top priority. The vehicle by which we return cash has been a little less important and we felt that buying back shares has been the most appropriate way for us to do that, so far.

We have Tim Mulrooney, William Blair.

So, a dividend isn't necessarily out of the question, but for now, you guys are focused on returning cash to shareholders through a buyback?

Yes.

Then, it last quarter's conference call, you indicated that retail spending in your international businesses, such as EMEA, was stronger than in North America. But this quarter, you mentioned that you saw strong shipments to two national retailers. Beyond those two retailers, generally speaking, are you seeing capital spending improve in North American retail?

Tim, this is Mike Terzich. We are.

I think part of that goes back to earlier comment, I think. In North America, the challenge has been that retailers have been sitting on some of their IT assets for what we would consider to be an abnormally longer period of time.

I think, as they have gotten greater confidence and perhaps the near-term economic outlook, if you look at retail, the holiday season forecast that was just recently published, it points to a more bullish outlook. I think we are starting to see a relaxing of some of those constraints and so, yes, we are seeing a return of some retail capital spend.

Okay. Great. Thank you, guys.

Greg Halter.

Hello again guys. One last one for you. Wondering if you could detail the sales from your three largest customers in the quarter.

Yes. I can do that, Greg. Right now, the largest customer by percentage of sales is 17.5%, followed by 12.9% and 12.6% for the third customer. Those are the three customers above 10%.

Thank you very much.

You are very welcome.

(Operator Instructions)

We have [Carr Lanphier], Morningstar.

Congratulations on the great quarter. So, it looks like you saw some sequential sales improvements on higher prices and then strong year-to-year sales improvements on higher volumes. Can you just talk about the price elasticity you are seeing across geographies?

For us, I guess first, price elasticity if you compare to similar products, through the sale -- not across the entire portfolio, but I would say we have global worldwide price lists and we stay pretty close to our list price and standard discounts to the same type of partners. So, it's not -- prices doesn't vary for the same product very much across geographies. But, we have a more broader, low-end offering for China and other emerging markets.

So, we've released in the last several years, a handful of products, five, six products that are specifically aimed for emerging markets. There, you see us offering more of a low-end product.

They've also been built for those products. The cost points are also lower.

I would add, I think we end up with a company, by the way, as our supplies grows, that again our supplies business doesn't have a big pull for OpEx, also little bit lower gross margin. That affects our overall gross margins for the business.

And also on the more printer side, sometimes when we have large deals which attract a little bit more competitive. We will make sure we win those deals and that's reflective in our gross margins, too.

Got you. Okay. Thanks. And in regards to the supply, I think that may be a little bit more homogeneous across the geographies.

Is there any sort of discrepancy in basically between contracts, necessarily? Can you use supplies to throw that in as a sweetener? Or, how do treat supplies pricing?

Carr, this is Mike Terzich. We do.

In some cases, we do have the opportunity, where we have bundled supplies with a hardware specific sale. In certain cases, we can leverage one or both. In some cases, we actually even leverage a service contract, a break-fix service contract as part of a larger opportunity.

I do think that going back to our focus on supplies has been, we principally center in high-value marking opportunities. So, by and large, to Mike Smiley's comment, our gross margins profile of our supplies business is not to the level of our hardware business, where we tend to focus is in high-value marking.

We stay out of a lot of the commodity paper side of the business, which gets very -- it's very low margin, very price intensive space. That's not our focus.

Got it. Thanks for a much, guys, appreciated.

We have no further questions. I turn the call over back to Doug Fox.

Thank you very much everybody for joining us today. I'd like to just let you know that our next regularly scheduled quarterly conference call is -- will be on February 19. So, until then, thank you very much and have a great day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.