David Calusian - IR Greg Woods - President and CEO John Jordan - VP and CFO.

Steve Busch - Southpaw Investments LLC Tom Spiro - Spiro Capital Jeff Silver - Berson and Corrado.

Good day, and welcome to AstroNova's Q3 Fiscal Year 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to David Calusian. Please go ahead, sir..

Thank you, good morning everyone, and thank you for joining us. Hosting this morning's call are Greg Woods, AstroNova's President and CEO; and John Jordan, Vice President and CFO. Greg will begin the call by reviewing the company's operating highlights and business outlook. John will take you through the financials.

Greg will make some concluding comments, and then management will be happy to take your questions. By now you should have received a copy of the earnings release that was issued earlier today. If you do not have a copy, please go to the investors section of the company's Web site www.astronovainc.com.

Please note that the statements made during today's call that are not statements of historical fact are considered forward-looking statements within the meaning of the Securities and Exchange Act of 1934. These forward-looking statements are based on a number of assumptions that could involve risks and uncertainties.

Accordingly, actual results could differ materially. Such forward-looking statements speak only as of the date made, except as required by law, the company undertakes no obligation to update these forward-looking statements.

For further information regarding the forward-looking statements and the factors that may cause differences, please see the company's risk factors in the annual report on Form 10-K and other filings the company makes with the Securities and Exchange Commission.

To supplement its consolidated financial statements presented in accordance with GAAP, AstroNova uses free cash flow which the company defines as net cash from operating activities plus capital expenditures.

The company believes that the inclusion of these non-GAAP financial measures helps investors gaining meaningful understanding of the changes and the company's core operating results. It can also help investors to make comparisons between the company and other companies on both the GAAP and non-GAAP basis.

For more information, please see the GAAP to non-GAAP reconciliation tables in this morning's earnings release. Now I'll hand the call over to Greg Woods..

Thank you, David. Good morning everyone. We made a solid strategic progress this quarter even though we encountered some short-term challenges on the revenue front. Our newest products continue to gain traditional or traction domestically and worldwide.

We delivered our third quarter of margin improvement, and we executed well on our growth, cost, and profitability initiatives. Most importantly, we closed Q3 in a strong position in terms of our product pipeline as well as operationally and financially.

Although the company's results this quarter fell short of expectations, we remain very optimistic about fiscal 2018 and the longer term outlook as I'll explain in a moment. Profiling these results, third quarter revenue of $23.3 million was down nearly 6% from Q3 last year.

Revenue in the Product Identification segment decreased nearly 5% year-over-year, while revenue in the Test and Measurement segment was down 8%. The shortfall in sales was due to an issue that has been previously discussed, but became conspicuous in the third quarter.

We faced this scenario in the QuickLabel business, where strong interest in the new QL-800 printer turned out to be a short-term headwind. The QL-800 is a next generation color label printer representing the first totally new QuickLabel product platform since the introduction of our successful Kiaro series in 2012.

We started beta testing in Europe near the end of Q1, and it didn't take long for word to get out that a U.S. introduction would take place at the PACK EXPO International Show in Chicago, the first week of November. The feedback we received from our field sales people in Q3 was that several customers were delaying purchasing decisions until that show.

At this point, I can report to you that the PACK EXPO International Show that took place two weeks ago did turn out to be a phenomenal show for us with a great deal of customer interest. Leads were up significantly from the prior year show, and we closed quite a few deals right after show.

Nonetheless, it was a challenging quarter for QuickLabel revenue. Along with the QL-800 scenario, we had a few vacant regional sales manager positions in Q3, most notably in Latin America, which reduced our revenue in that region substantially.

We've just recently upgraded that position in -- with someone who is outstanding in the digital label printing market, and who is already delivering great results starting off with several orders that he booked at the PACK EXPO Show.

Also although it's not a new development, we're continuing to see the impact of customers phasing out of the older printing technology into inkjet printers with lower ASPs, not only for the printers themselves, but consumables as well.

So, while inkjet consumables sales were up for the quarter, this growth was offset by lower sales of non-inkjet consumables. Test and Measurement faced an unusual set of headwinds as well. On the aerospace side, we are making good inroads with the customers we acquired as a result of the RITEC acquisition.

We're also seeing a nice pick up from Boeing 737 customers that are specifying our latest ToughWriter 5 printers now that they are offered in the Boeing catalog. However, as mentioned in previous calls, the aerospace customer order flow tends to be a bit lumpy on a quarter-to-quarter basis.

One area that has continued to grow consistently is our aviation consumables business, which was up 37% in the quarter versus the prior year's Q3. We also continue to face some short-term order timing issues on the data acquisition side.

For example, the new DDX-100 portable data acquisition system was ready to ship last quarter, but we didn't receive our final CE approvals until late in the quarter. Therefore, the DDX-100 ramped a bit slower than expected in Q3, but the rollout is currently on track and we expect it to accelerate going forward.

We launched another important new data acquisition product this quarter, the EVX Smart Chart Reporting System. You may remember from discussions on past calls that AstroNova is one of the few companies to offer data acquisition systems with integral data printing.

This makes EVX ideal for applications that require continuous printed real-time charts and immediate onscreen viewing as well as digital data records. Among those applications are non-destructive testing, power system monitoring, flight and missile testing, flight simulation, and satellite telemetry.

On the International front, we remained very encouraged by the excellent progress we are making.

While our international revenue was down by 4.4% from last year that was primarily due to the open Latin America sales position that I mentioned previously; otherwise, international continued to well in Q3 driven by strong demand across our global distribution network.

We were however negatively affected in Q3 by foreign exchange which reduced international revenues by $161,000. We continued our global expansion with the first major tradeshow in India during the quarter, which generated customer leads as well as the number of inkjet label printer sales.

And although it's still early days for us in China and Southeast Asia, we are witnessing notable gains in both of those regions. Relative to operations, the company's manufacturing performed in line with and in some cases better than our expectations this quarter.

We are continuing to successfully leverage our AstroNova operating system and our Lean manufacturing culture. The company's gross margin and operating margin in Q3 were higher, both sequentially and year-over-year notwithstanding the lower revenue.

Although ASPs in the QuickLabel business were down year-over-year, we were helped by the steady progress we are making and reducing our cost of manufacturing including material costs as well as labor and overhead.

In addition, as anticipated, we are able to generate meaningful incremental margin efficiencies as a result of integrating RITEC's aerospace printing product lines into our manufacturing facility here in West Warwick. We expect these efficiencies to continue over the next several quarters.

In parallel with our focus on operational efficiency, we are strongly committed to improve our customer service and overall customer experience with AstroNova.

As we discussed, we continue to drive forward on our worldwide IT system upgrade program with the focus now starting to shift toward business intelligence, which will survey as the foundation for managing the company's worldwide operations.

An example how this IT initiative will also benefit our customers is the installation of a major new ecommerce package, which is on track to go live by the end of Q4.

This new online platform will significantly improve customer service and enhance the customer experience, further reduce our cost and create new opportunities to up-sell related products. One of our goals for the new ecommerce system is to migrate at least 50% of QuickLabel customers to electronic transactions by the end of fiscal 2018.

In addition to product innovation, international revenue expansion and operational excellence, we are also strategically focused on acquisition-driven growth.

We've previously demonstrated our ability to complete and integrate accretive acquisitions, and going forward, we plan to remain active and disciplined in our pursuit of similar opportunities that have the potential to drive growth, profitability, and long-term shareholder value.

Now let me hand it over to John for more in-depth review of the financials..

Thank you, Greg, and good morning everyone. As Greg mentioned, revenue for the fiscal 2017 third quarter was $23.3 million, approximately 5.7% less than last year's Q3 revenue of 24.8 million. Domestic revenue of $16.7 million was 6.3% less than in last year's third quarter.

Revenue from international sales declined 4.2% with lower sales in Latin America offsetting gains in Europe, Asia, and Canada. Fluctuations in foreign exchange rates, as Greg mentioned, reduced revenue in the quarter by approximately $161,000.

Revenue in the Product Identification segment contributed $16.9 million in the quarter, which was 4.8% below the third quarter of fiscal 2016. Revenue for the Test and Measurement segment was $6.5 million, up about 8% from the same period a year ago, largely due to the timing of the aerospace related orders.

Revenue for the consumables product category was $13.6 million, 2.3% lower than the third quarter of fiscal 2016, hardware sales of $7.8 million or 11% lower than last year's third quarter, and service parts and repairs contributed 2 million, about 6% less than last year.

Gross margin increased 30 basis points in the quarter to 41.3% on lower revenue, a testament to our achievements with the AstroNova operating system and our lean initiatives. Gross profit decreased to $9.6 million from $10.2 in the same quarter of the prior year, primarily as a function of the revenue decrease.

Operating expenses in the quarter decreased $486,000 or 5.9% from $8.3 million in the fiscal 2016 third quarter to $7.8 million in the current year due to completion of R&D efforts associated with the RITEC acquisition. G&A expenses were essentially flat with the prior year quarter, but decreased approximately 7% from the sequential second quarter.

The Product Identification segment generated $2.4 million in segment operating profits with a margin of 14.5%, and Test and Measurement reported operating income of approximately $1.3 million with a corresponding margin of 19.9%.

The income tax provision in the quarter was approximately $623,000, representing an effective rate of 35.1% compared to 39.8% in the third quarter of fiscal 2016. The decrease in effective rate in the quarter was primarily attributable to the difference in R&D credits included in the calculation.

Third quarter 2017 net income was $1.2 million or $0.15 per diluted share compared with $1.3 million or $0.18 per diluted share in the third quarter of fiscal 2016.

On the balance sheet, cash and marketable securities were $25.4 million on October 29, 2016, compared to $23.8 million at July 29, the end of the second quarter this year and $20.4 million at the end of fiscal 2016.

Accounts receivable at the end of the quarter were $14.7 million, representing 52 days sales outstanding compared with 52 days at the end of Q2 2017, 50 days at year end 2016, and 48 days outstanding at the end of Q3 fiscal 2016. Inventory at the end of the quarter was $19.1 million, representing 122 days of inventory on hand.

Inventory at the end of fiscal 2016 was $14.9 million, representing 92 days on hand. The higher inventory level is a function of the lower revenue as well as to support for ramp up of the new products we've discussed.

Capital Expenditures for the third quarter were $520,000 primarily related to improvements to physical plant and updates to IT systems and software. The company returned $521,000 to shareholders in the third quarter as a cash dividend of $0.07 per share.

Our employee population was 318 at the end of third quarter, three less than at the end of Q2 2017. Sales from employee were $300,000 calculated over the previous 12 months, an 8% improvement from $278,000 in the same period last year.

Orders received in the third quarter were $22.6 million, 12.6% less than the orders of the prior year, and backlog at $14.5 million was $2.3 million lower than at the end of Q3 fiscal 2016, primarily attributable to the later than anticipated ramp of the recently introduced Test and Measurement and Product Identification products, and the slowdown in orders for existing product in anticipation of the product introductions that Greg discussed.

We maintained our effective cash utilization with free cash flow for Q3 at $2.4 million, albeit less than free cash flow of $3.2 million in last year's third quarter, free cash flow year-to-date though is $6.4 million, 6.6% more than last year's $6.1 million through third quarter. Now let me turn the call back to Greg for closing comments..

Thanks, John. Based on the business dynamics that we have just discussed and our results for the first nine months of the year, we are revising our full year fiscal 2017 guidance.

We currently anticipate revenue for the fiscal year 2017 to be in the range of $93 million to $98 million, and earnings per diluted share to be in the range of $0.55 to $0.60 per share.

Although this is lower than our original expectations for the year, with our acceleration of major new product launches, and a growing pipeline of additional new products, an expanding international presence, strong cash flow, and a healthy balance sheet, we are well positioned and optimistic about the future.

Now, John and I will be happy to take your questions.

Operator?.

Thank you, sir. [Operator Instructions] We'll take our first question. Caller, go ahead..

Hi, guys. This is Steve Busch.

How are you doing?.

Hi, Steve..

Good morning, Steve..

So, what was the previous earnings per share and sales guidance, I forget?.

So it was, at the beginning of the year we did guidance. We usually just do it once a year, of course. So it was like 100 million to 108 million and $0.70 to $0.75..

Right, okay. So most of are from -- as you said, short-term was from potential new product introductions and delay of older products.

Do you think we're going to have an abnormally higher growth rate than say Q1, Q2 fiscal '18?.

I don't know what you mean by abnormally high growth rate, but we certainly are looking for the revenue to grow in both segments that we report on, sure..

Right. I mean, I guess let me rephrase it another way.

Do you think we'll get past your $108 million revenue number in 2018?.

Yes, I mean we normally don't come out with any guidance until the main conference call, we just do it once a year. I mean, I don't want to speculate on quarter-to-quarter kind of numbers, but I guess….

Right.

No, I'm just looking to see if we're going to be back on track to a growth rate we were looking for?.

Yes, we certainly expect that. And that's what it looks like from what we can see today, sure..

Right.

So, on our lower QuickLabel sales, was part of that cannibalizing our own products or were we losing out to competition?.

Yes, so -- our win-loss ratio stays about the same as wher it's been, which is actually very good, but that cannibalization, I've talked about in previous calls.

So it's roughly almost a two-to-one difference in the price of the old product, which –- that's mainly the Vivo! product line, if you remember that one, which that was introduced back in 2005. So we're cannibalizing it to the extent that we can.

We're happy to support it and have people use it, but when you have a product that's a little bit long in the tooth people are going to change away from that.

So the inkjet printing technology is a –- it's sophisticated in some parts, but as far as the usability of the product it's much easier and the consumables are lower cost, so people are moving in that direction. And in most cases they're switching to our product versus a competitor.

But when they do that the order for the printer as well as the consumables is at a lower price..

Right, okay, got it.

And so just kind of a final question, you guys have always kept the balance sheet clean, which is why I continue to hold your stock, but what is our two most likely sources of organic growth for '18?.

What do you mean by two most likely sources?.

Well, like are you expecting more from the QuickLabel System in a particular product line where we're going to have strong growth or are you expecting more from the aerospace side of the business in fiscal year '18? What two things should we be looking at to say these things are on track to drive our growth?.

Yes, I mean, they're really all on track to drive or both or however you want to look at it. The aerospace business is very strong. I mean, they had an outstanding showing in Q2, Q3 obviously was a down a bit from what we had anticipated.

And going forward, as you can see from our announcements, where most of the major programs as I mentioned today, the 737 program with Boeing, that's their highest running aircraft. So we've got a lot of good things in the pipeline there. And quite a few of those contracts are already in place.

So, it's really more a function of airlines upgrading or new aircraft being produced, and that's going to continue to ramp. And that the big difference there, kind of the additive benefit of that is, I mentioned before, it took us a while to get some FAA approvals for the paper to go into those printers, but we received all of that in Q3.

So the consumables piece of that business will go with. And with the new products on the QuickLabel side, we continue to be the market leader of this new QL-800 that I'd mentioned, and of course was just introduced earlier this month, but so far the demand has been very brisk.

Anyway, the show orders, I don't want to say exactly how many units we got, but we got quite a few orders right after the show. So in a wide formant color label printer it's the highest resolution best-performing product in the market at a very advantageous price, so we expect that to do very well next year..

Okay. Well, I'm still happy. So have a good Thanksgiving, and enjoy the holiday and New Year..

All right, you too..

We'll take our next question..

Tom Spiro, Spiro Capital. Good morning..

Good morning, Tom..

So, just focusing on the top line for a moment, the top line for the year now coming to a close you're looking for $93 million to $98 million. I think you mentioned earlier, Greg, in the call that originally you were looking for $100 million to $108 million.

So if I look at the midpoint of those two it's a difference of something in the neighborhood of $8 million or $10 million over this fiscal year. And I was curious of that $8 million or $10 million shortfall.

Ball parking it, how much is it a shortfall on the QLS side, and now much on the T&M side?.

Yes, it's hard to pin it down exactly, but it's almost close to -- it's a little bit heavier weighted towards the QLS side, but it's close to 50-50. Part of it is some of the aerospace contracts. Going back beginning of the year, we thought they would be dropping a little bit sooner than they did.

In the QLS side, we've talked about what the differences are there..

So on the aerospace side there was growth that you were looking for.

And I guess, in the second half of this fiscal year that has not occurred, is that what you're saying?.

Yes, not yet. We know the projects; we know when they're going to happen. But you are not going to see them as soon as we thought we would..

I see.

And when do you think you'll see them?.

Well, next year we'll certainly see some of those kick in, yes..

I see.

And on the QLS side, the shortfall there is a combination of the order delays because of the new product introduction and also the cannibalization?.

Exactly..

I see. And on the QL-800, how does it -- we have I guess a wide-format printer already.

I think it's a Kiaro! -- is it a 200D, there is a wide-format Kiaro!.

How does the QL-800 compare to our existing wide-format product?.

Exactly, the Kiaro! 200 was based obviously on the Kiaro! Technology, and this is a whole new platform. So it's a much lower cost platform. It's a new technology quite frankly. And for prime labels we expect the QL-800 would be the main driver. The Kiaro! 200 still has a place in the marketplace but it's a more expensive product for us.

The Kiaro! D that you mentioned is especially well-suited for some durability applications, chemical applications, things like that where they need more durability in the labels because it's a pigment-based product. But on the dye-based Kiaro! 200 I would expect most of that business to shift now to the QL-800.

The QL-800 can actually go lower in size for smaller size and to 8.3 inches wide. So it's really a successor to the Kiaro! 200 dye-based printer..

And the difference in price, you don't have to give me the dollar number, but is the QL-800 as expensive, 50% as expensive, just to ballpark it?.

Yes, so I'd say -- I don't have the street prices on top of my head, but you're roughly going to see about a 30% reduction in terms of the street price of Kiaro! 800 versus the Kiaro! 200 for the same application -- which has niche which can't be satisfied by the 800..

I noticed the CapEx in the quarter was pretty light, and I guess we've talked about this in other quarters. But it's sort of a puzzle that a company with the ambitious growth plans that you folks have has CapEx that -- I guess we're now through three quarters, is running half of depreciation, the R&D is down 10%, the employees are shrinking.

It's a puzzle, as I say, with the ambitious growth plans that you have, that I don't see sort of these measures moving forward more vigorously..

Yes, we've actually spent a reasonable amount in the R&D area, but on the capital equipment, I didn't [ph] mention this in the earlier call, we are looking at upgrading that equipment with a -- I don't want to say exactly the details are for competitive reasons, but we're adding some functionality to that, and we've just received that hardware in -- like last week.

So until we get that new -- for the production side of the business, until we get that up and running with the first model we aren't ready to buy the second model yet. So we've kind of had about $1 million set aside for new equipment there, which at this point we probably won't spend until beginning of next year. .

Sure, and I recall that. That makes a lot of sense, Greg. I'm just surprised there aren't other sorts of capital -- obvious capital projects that would be seeking funding. It sounds like it's a particular piece of equipment, and that's about it..

No, actually there's a couple of other things in the works, but -- well you'll see then when they come out, you know, we aren't disclosing them yet, so there's definitely things that we're looking at there..

Okay. And I guess lastly, and then I'll let others ask questions. The new orders down a little bit, it sounds like some of that was due to the introduction of the new QL product, but that's now out, some of the other products, I guess, the DDX, you mentioned, have been delayed.

Do you expect the new orders to ramp up in Q4 now that these delays are behind us?.

Yes, we'd expect those to ramp up kind of across the board. We're seeing good things from both segments that we report on..

Okay. Well, thank you very much. Good luck..

All right, you too. Happy Thanksgiving..

You too..

We'll take our next question..

Yes, hi, Greg, it's Jeff Silver from Berson and Corrado. I know that you've spoken about this over the last several minutes, but let me ask it a slightly different way in terms of the reduction in revenue guidance.

I guess, when you look inside your business, what was the surprise to you? I mean was the decline in sales of QuickLabel due to the crossover? Was that a surprise to the company? And sort of what does that say about these sorts of changes going forward?.

Yes, so I guess -- well, a couple of things. Well, one, we're looking to accelerate those changes. So the Kiaro! was -- there a seven-year delta from the Vivo! which is the predecessor to that, and then the Kiaro! was four years ago, so we're kind of compressing those schedules.

What we'll try and do going forward because, yes, we did take a look at that internally and said, what can we do. We need to beta test the products, but we can probably do that in a bit more subtle way so it's not quite as obvious to people.

We did also feel that the Kiaro! 200 was out there would be a good enough substitute product that people wouldn't necessarily want to hold off, but to be honest, there's quite a few important features that are in this product that I think people may have gotten wind for, and they wanted to actually get one in, demo it before they made a final decision.

So it's a little tough to do that, although in transition planning we may be able to do that a little bit better going forward.

But it's always tough when people know something new is coming out, and especially in the QuickLabel cycle which, even though we compressed the four years versus seven years, that's a pretty big time between major product releases..

I mean, would you say that that was the largest surprise; I mean on the printer side of the business, a lot of that is maybe beyond your control because you're sort of depending on orders from the aerospace industry. Or yes -- orders from the aerospace industry, but would you say that -- that that is partly out of your control.

But this is somewhat within your control.

So would you say that that was the largest surprise to you?.

I don't know if it was the largest surprise, but, yes, another factor that we didn't anticipate was the conversion of the Vivo! customers to newer technology. So in our model we kind of expected them to decrease at a very slow rate. But in the last couple of quarters it actually accelerated.

More people want to move to the inkjet, and away from the toner-based products, where in our model that we put together we kind of had that a very low single-digit decrease, and that accelerated, actually, over the last few quarters..

I mean, just to sort of reconcile things, so it's a $10 million reduction in revenues at the midpoint of the guidance, the dollar reduction in bottom line is probably -- net after-tax is probably somewhat less than that to get to your new earnings guidance, I believe.

What is that -- I mean, did you -- when you saw this, did you take remedial actions on the cost side of the business, or is it that the improvement in margins is perhaps slightly better than you had anticipated at the beginning of the year?.

Pretty much been running on the same plan that we put in place in the beginning of the year. A whole host of cost reduction initiatives that were -- it's a part of our continuous improvement culture. So we are working on that regardless. I mean if the numbers have been 10 million higher, we still would have done the same things that we've done.

So, we didn't do anything extraordinary based on this transition we just talked about with the QLS products. [Technical difficulty].

I am sorry. The enterprise software system that's being rolled out or that has been rolled out partially -- or maybe you can talk a little bit about exactly where that is.

Do you think that that will have a beneficial impact on your ability to see some of these things as they occur or would that not have an impact?.

Sure that will give us much better real-time update. So, we still run two different systems, our European business on a totally different system than our domestic business. So, there is obviously a delay in that function alone.

But even internally with the new E1 system that we've put in with Oracle about a year -- little over a year ago now, there's -- the basic function obviously was there. Now we are adding kind of higher level business intelligence type function, so we can get more real-time updates.

I mean certainly we get reports that we can run on a periodic basis, but this will be more of a real-time system. And the other piece I talked about which is will be very important for customers we think it'll streamline our system quite a bit is the ecommerce interface.

So right now if you even want to reorder something, you have to call in, talk to a person, you have to pull up your records. It's a fairly time consuming process. Whereas on a go forward -- it's a modern ecommerce system that really lets the customers do that on their own.

So it's anything like that Amazon-like experience where they can log in, put their customer information there, they can see all their invoices, they can reorder things. We can send them prompts and things like that, add things to their order that might be helpful to them, so that automation of course can work anywhere in the world..

And last question I have and then I will get back in the queue. You mentioned in your remarks about acquisitions. I mean I think that given your background at Danaher and having been fairly acquisitive I guess in your past, can you -- and I asked you this on the last conference call as well.

Can you sort of at least qualitatively talk to the pipeline? What you are seeing, how confident and comfortable you are that you can get something done? What you are seeing in terms of pricing? Things of that nature? I mean I know that this is inherently difficult to predict or time and that you don't want to make a poor acquisition.

But I think that part of the -- I believe part of the story has sort of always been that there is going to be some growth by acquisitions..

Sure. Well, yes, I mean that is part of strategy. And we have -- it's a systematic process as you might guess, so like a lot of things that we do here. So we have a funnel and we are very disciplined about how we do it. It has to be one of three existing product line. You got to meet the financial hurdles.

I mean I can tell you we have probably more in the funnel this year today than we did a year ago. And there is always -- questions always, but usually we've got a handful of items that were kind of actively working.

And then we got quite a few that are kind of being worked through the funnel which as you mention you know, the timing, you really can't predict anything.

So, even things that we may think in the short term look very good, by the time we get there, sometimes we do diligence and we find out whether it is exactly what we thought -- price can't be where we thought it could be based on what we find out. And some of those things fall apart at 11th hour.

So, it is tough to predict that, but what I can tell you is that it is very active program. We have as you probably know Joe O'Connell has moved over to that on a full-time basis. That's his main focus, so he will is able to give that more attention than we've been able to do in the past. So, there is a lot going on in that area.

And of course, we can't say anything about anything that may or may not happen until we can announce it..

Thanks. Have a nice holiday..

Okay, you too, Jeff..

We will take our question -- caller, go ahead..

Hey Greg, I just had a follow-up or two, it's Tom Spiro. You mentioned on the call in dealing with the shortfall in sales of Product Identification.

The conversion of the Vivos! to the Kiaros!, I'm curious when that process you think will be largely over?.

I think for the -- I mean just based on the number of units that are out there, and we have a pretty good handle on most of those customers and where they are. I would say probably by the middle of next year we would be through the lion share of that. I mean, they would probably look very insignificant after that..

I see.

I think on the last conference call you had suggested it might be by Q4 of this year, and given that it's going more rapidly than we expect why would you now guess middle of next year?.

Just because we were kind of surprised at the percentage of people that would convert, we kind of we pegged the number and we said X% we think will convert, the rest will stay with it for the long-term like multiple years, and it's looking now like the higher percentage people are actually going to convert to inkjet technology..

I see, and lastly, again sticking with Product Identification, consumables are down in Q3 for the Company and that has got to be mostly the Product Identification. So I was curious whether you think we may be losing share to somebody. I know some of our products are -- can be bought elsewhere, some cannot.

So you think some of the business is seeping away?.

No, I don't think we are losing a share from the existing customers.

I mean obviously there are some customers that, we don't get a 100% of the market, right? So, some people could buy a third-party product, but from the -- and we have a pretty good handle with the majority of the customers and know what they were consuming because we see that on a regular basis, but the people who do convert from toner-based products to inkjet products, they do reduce their consumable purchases.

In terms of the label quantity, that stays similar, but the other consumables that go with those printers are much less expensive on an inkjet system than they are on a toner-based system..

I mean, sort of given the growth characteristics of the consumables in Product Identification, each unit has to keep buying more consumables; it was startling to see consumable sales come down?.

Yes, and again I can -- as I mentioned in the call, it's primarily the toner-based products. If you look at the inkjet products, they are wrapping pretty much exactly to our model..

Okay, well thanks much, enjoy the holiday..

Hey, you too, Tom..

We have no further questions at this time..

Okay, well then, thank everyone for joining us here this morning, we look forward to seeing many of you at our presentation at the LD Micro Conference in just a few weeks, and have a wonderful Thanksgiving everyone..

That does conclude our conference for today. We thank you for your participation..