Welcome to the Q4 and 2017 Management Conference Call. My name is Adrian, and I will be your operator for today's call. [indiscernible] Please note this conference is being recorded. I'll now turn the call over to David Dunlap. David, you may begin..

Thank you, Adrian. Good afternoon, everyone, and welcome to Socket Mobile's fourth quarter and 2017 management conference call to review results for its fourth quarter and year ended December 31, 2017.

Presenting today from Socket Mobile are Kevin Mills, President and CEO; James Lopez, Vice President of Marketing, Sales and Developers; and David Dunlap, Chief Financial Officer. Socket Mobile distributed its earnings release over the wire service earlier today. The release has also been posted on Socket Mobile's website at socketmobile.com.

In addition, a replay of today's call can be accessed on Socket's website by selecting About Us, Investor Relations/Conference Call/Events. A transcript of this call will also be posted on Socket's website within a few days.

Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements within the meaning of the section 27A of the Securities Act of 1933, as amended, and section 20E of the Securities and Exchange Act of 1934, as amended.

Such forward-looking statements include, but are not limited to, statements regarding mobile data collection products, including details on timing, distribution and market acceptance of products, and statements predicting trends of sales and market conditions and opportunities in the markets in which the Socket Mobile sells its products.

Such statements involve risks and uncertainties, and actual results could differ materially from the results anticipated in such forward-looking statements.

As a result of a number of factors, including, but not limited to, the risk that manufacture of Socket Mobile's products may be delayed or not rolled out as predicted due to technological, market or financial factors, including the availability of product components and necessary working capital, the risk that market acceptance and sales opportunities may not happen as anticipated, the risks that Socket Mobile's application partners and current distribution channels may choose not to distribute the products or may not be successful in doing so, the risk that acceptance of Socket Mobile products in vertical application markets may not happen as anticipated, as well as other risks in describing Socket's' most recent Form 10-K and 10-Q reports filed with the Securities and Exchange Commission.

Socket does not undertake any obligation to update any such forward-looking statements. And now with that said, I'd like to turn over the call to Socket's President and CEO, Kevin Mills.

Kevin?.

Thanks, Dave. Good afternoon, everyone, and thank you for joining us today. We reported another solid revenue year with annual revenues of $21.3 million, a 2% increase over 2016 revenues of $20.8 million. Our cordless data-capture revenue grew by 14%, from $17.9 million to $20.4 million.

In 2017, cordless data-capture products represented 96% of total revenue, as opposed to 86% in 2016. The overall growth rate of 14% of our data-capture products was very much in line with the expectations we outlined at the beginning of 2017. In addition, we expect this underlying growth trend to continue in 2018.

In 2017, our expenses were $8.9 million, up from $7.8 million in 2016. The increase in expenses was primarily driven by increased research and development spending, which increased by about 20%. We also saw improved margins, reporting a 53.5% gross margin, up from 50.5% in 2016. In both 2016 and 2017, our EBITDA was $3.2 million.

Our income and earnings per share in both years were impacted by changes in taxation that Dave will discuss later in the call. Overall, 2017 was a solid year from a financial point of view. However, 2017 was a much more significant year as regards to progress towards our longer-term goals. Some of which I'd like to highlight.

In 2017, we completed revamped our products, completing our DuraScan products, and completing the development of our new SocketScan product family, which we are launching this quarter.

Also these product lines are new and improved versions of our existing products, which have been completely redesigned, retooled and updated for volume production and lower longer term costs.

We completed most of the work of our - on our new and improved software development kit or SDK, which we called capture, which will enable us to attract more developers.

The capture SDK has been restructured to fit better into the many software development environments used by our developers, and to better support the ever-changing world of mobile computing. Our capture SDK also supports our contactless reader/right product, the D600.

This is very important as it enables our developer partners to add contactless reading capabilities to their applications with the minimum level of effort.

And while we fully understand that contactless reading is not very pervasive yet, we believe that will change over the coming years as Apple and Android devices add contactless reading capabilities to all their devices. As we have mentioned many times, no one is going to write applications for hardware that doesn't exist.

But in addition to the hardware, the developers also need the software development tools.

Adding the contactless capabilities, not only expands Socket Mobile's technology reach, and transforms us from a scanning company to a data-capture company, but also makes us the first protocol for application developers who want to use this new capability to create new and compelling applications.

And while our long sales cycle doesn't enable us to impact revenue in the short-term, our capture SDK is enabling our software partners to build the application, asses this up for continued growth in the coming years. I would now like to turn the call over to James Lopez, who would provide an update on Q4, and provide an overview of the markets.

James?.

Thank you, Kevin. In Q4, Socket saw a return of seasonality, resulting from our retail market, which represents 80% of sales and is largely driven by our point-of-sale application partner. Seasonality is typical, but was amassed [ph] by better-than-average deployments in Q4 last year, and is something we continue to expect in Q1 and Q4 each year.

Late Q4 and early Q1 typically generate less first time scanner customers for Socket, as retail hardware deployment slows in the period between mid-November to mid-February.

Retail related scanner sales overall grew at 14% for the year, and while it represented 80% of our business in 2017, I'm happy to report that this is down from the roughly 90% level it represented in 2016.

This shift is largely the result of the success of our DuraScan durable scanners and gaining traction with our developers and consumers in commercial services, industrial manufacturing, transportation logistics and healthcare market.

We expect this trend to continue in 2018, as we see the pipeline of new developers that joined us in the past years address the needs of these markets.

2017 overall, continued to demonstrate healthy growth in our developer community, and was our best year ever for new developer generated application leveraging the Socket Mobile SDK with integrated support for our scanners. At present, we track over 700 applications and counting on the Apple iOS App Store, with Socket scanning support designed in.

Looking forward to 2018, in Q1, Socket will be releasing our all new SocketScan 700 Series scanner, the SocketScan 700 Series was redesigned from the inside out to service a global scan platform built from the needs of our worldwide developer consumer, our customer and our end-consumer.

Our Socket scanners series will feature redesigned economics [ph] in two different performance indicators, better serviceability and extended battery life, which in some cases can more than double what was achieved with our previous generation.

We expect our Socket scanners 700 Series to organically replace our Classic 7 Series products throughout the year.

Our new SocketScan series, and our DuraScan series will also address the growing demand we see across all markets for more cost effective 2D scanners to service universal scanning solution capable of reading a variety of 1D and 2D barcodes from any surface, such as labels, printouts and smartphone or tablet screens.

We see this particularly coming from point-of-sale application, seeking to use more and more 2D barcodes to support various applications such as Loyalty.

To respond to this growing need, Socket has just released our DuraScan and D700 scanner, and will soon release are SocketScan F700 scanners, creating new entry points for 2D scanners with the same quality and performance expected and worthy of the Socket Mobile name.

Lastly, we see more and more need to innovate beyond hardware in 2018 to support mobile scanning in all its forms, and as a result, we'll soon be releasing our all new Socket Mobile capture SDK.

The capture SDK and our DuraScan and SocketScan scanners were designed hand-in-hand to offer easier application development and integration for our development partners. The Socket Mobile capture SDK will be released in Q1.

The first application built on a capture SDK, our own scanners companion app for Android devices, joints our previously released our iOS companion app and is available now for download.

We expect to deliver frequent updates to the capture SDK and our companion applications for iOS and android throughout the year, as we further respond to the needs of our developers and consumers as they seek to setup, configure, integrate, control and better utilize their Socket Mobile scanners. Now, I'd like to hand things over to Dave..

Thank you, James. Our revenue in 2017 included cordless barcode scanning revenue of $20.4 million, an increase of 14.1% over the previous year, and 96% of total revenue for the year compared to cordless barcode scanning revenue of $17.9 million or 86% of total revenue in 2016.

Our annual sales volume in units increased from 78,600 units in 2016 to 93,400 units in 2017. Our margins increased to 53.5% of revenue in 2017, up from 50.2% in 2016, resulting from increases on our sales volume and product mix, competent cost reductions and for manufacturing efficiencies.

Revenue growth and margin improvements allowed us to fund, planned higher operating expenses, in particular, higher engineering development cost and expenses for which you are now seeing the benefits.

In new and upgraded products, including our new durable 2D barcode scanner, model D740 at a much reduced selling price, our model D600, near-field communication reader /writer, additional DuraCase reported smartphones for one handed barcode scanning, our soon to be released upgrades of our complete family of standard barcode scanning products, and new and improved software tools to make it even easier for our registered developer community to integrate our barcode scanning software into their applications.

We were able to maintain operating profitability as measured by income before tax of $2.3 million in 2017, compared to income before tax of $2.4 million in 2016, and is measured by EBITDA of $3.2 million in both years or about 15% of total revenue. Our balance sheet continues to strengthen.

Subordinated convertible notes and accrued interest of $1.2 million matured and converted to equity in September.

In combination with profitable operating results for the year, our end of the year key balance sheet measurement year-over-year all increased, including cash from $1.3 million to $3.4 million, working capital from $1.9 million to $6.5 million, and our current ratio, current assets divided by current liabilities from 1.45 to 3.85.

As Kevin and James have noted, our sales in both 2016 and 2017 continue to be driven by retail point-of-sale applications, and the success of the registered developers serving the underserved small retailer with their point-of-sale application software.

Sales of our products into the retail markets tend to be seasonal and are lower between mid-November in mid-February, while retailers focused on holiday sales.

88.5% of customer purchases of our cordless barcode scanning products in both 2016 and 2017 were made in small quantities online through our worldwide reseller network that includes Amazon as our largest reseller.

The other 11.5% of cordless barcode scanning sales were comprised of larger deployments by businesses that totaled $2.1 million in 2016 and $2.3 million in 2017. There is no particularly seasonal pattern to these deployments, and the deployment levels can vary widely quarter-to-quarter.

They are additive to our revenue and make a difference to our quarterly results. Our fourth quarter results only included $100,000 of deployments, where as our fourth quarter and 2016 included deployments of $1 million.

As a result, our fourth quarter revenues and operating results were lower and at levels that produced breakeven operating results, as measured by income before tax of $68,000 and by EBITDA results of $256,000.

As we address 2018, we expect deployments to be a positive factor in our future revenue growth, not only in mobile point-of-sales, but also by applications in non0mobile point-of-sales markets. Income tax accounting, generated assessments to our fourth quarter operating results in both 2016 and 2017.

In the fourth quarter of 2016, we set up $9.8 million of deferred tax assets, the largest asset being the future tax benefit from the application of net operating loss carry forwards to shelter future federal and state income taxes.

At the end of 2016, with out 3 years of profitable operating results and positive outlook for the future, we met the GAAP standard for deferred tax assets as realized ability [ph] being more likely than that. The effect of the change was to increase our 2016 net income by $9.7 million from $2.4 million before tax to $12.1 million.

During 2017, we recorded income taxes of $1 million, of which over $900,000 was net operating loss carry-forwards, applied as deferred taxes and requiring no cash. The corporate tax reduction legislation passed by Congress in December of 2017 reduces our effective tax rate from above 40% in 2017 to about 28% in 2018 and beyond.

We re-valued lower our remaining net operating loss carry-forward benefits in the fourth quarter of 2017 with the charge of $2.5 million, and we'll record future income tax starting in 2018 at the lower effective tax rate.

Our remaining net operating loss carry-forwards at December 31, 2017, are expected to shelter future taxable income of approximately $21 million for federal taxes and $11 million for state taxes, allowing us to keep the cash that would otherwise have been paid in taxes relating to that income.

I'd also like to briefly comment on the tender offer we filed on February 2, 2018, to purchase 1,250,000 million common shares or about 18% of shares outstanding, at a price not less than 3.75 and not more than 4.25 per share. Tendering information has been mailed to all stockholders of record as of January 31, 2018.

The offer expires at the close of business on Friday, March 9, 2018, unless it were to be extended. All tendered shares accepted by the company will be paid for in cash at the highest tendered price accepted.

We also reported on February 2, 2018, in our Form 8-K a new bank loan of $4 million that would be drawn around March 1, 2018, as part of the proceeds payable to stockholders tendering their shares. The loan has a repayment period of 48 months. Our Board of Directors approved the offer.

As we stated in the tender offer documents, we believe that the offer is a prudent use of our financial resources and presents an appropriate balance between meeting the needs of our business and delivering value to the stockholders.

The offer expresses our confidence in the company's business, our market position and the long-term growth potential of our industry. We believe the offer is an appropriate mechanism to return capital to our stockholders to seek liquidity under current market conditions.

No recommendation will be made by management, any member of the Board of Directors, the D.F. King company, the information agent for the offer or American stock transfer and trust company, the depository for the offer, and no members of management or the Board of Directors will participate in the offer.

We are also restricted under SEC rules from commenting on the tender offer, beyond what is stated in the tender offer documents. All questions may be directed to the information agent, D.F. King. Now, I'd like to turn the call back to Kevin..

Thank you, Dave. In summary, our data-capture revenue growth continues to be strong and we feel very positive about the future. Our application-driven business model continues to be validated by the strong results in the U.S., and we have seen very solid increases from online resellers like Amazon, which grew by 28% last year.

We are also seeing stronger run rate business in Europe and Japan. Our products will soon be available in China. Yes, we know, we have been predicting this for a while now, while we underestimated the level of paperwork and approval involved, most of which has now been resolved.

We believe 2018 will be a big year for Socket Mobile, as we launch newer visions of our products with attractive price points and new features which we feel will both solidify our market leadership position and enhance our growth and profitability. With that said, I would now like to turn the call back to the operator for your questions.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Will Hamilton from [indiscernible] Please go ahead..

Good afternoon, guys. Just running on the enterprise sales front. So you mentioned $1 million a year ago versus 400,000 this quarter. What was the full year number for that? And….

So just to clarify, we had $1 million in 2016, and 100,000 in 2017..

In fourth quarter..

In fourth quarter. And in both years, we had $2.1 million for the year of 2016 and $2.3 million for the year of 2017..

Okay. So for the full year it was up year-over-year just….

Correct..

With this particular quarter, okay. That’s helpful.

And then what's the pipeline like for that right now for '18? Timing can always be -- if you guys know, but just can you give us sense of the pipeline?.

I think that we would see overall higher number during 2018 than the $2.3 million we recorded in 2017. But I think as you correctly point out, our ability to predict the timing is very limited. So therefore, we don't.

But overall, we do have a lot of projects that would encourage us to believe that we will continuously grow in both the deployments, as well as the run rate business..

Okay. Was it a little bit higher than normal in Q1 of '17? Just to understand....

Yes, I think - if you look at the last year, maybe, in costing [ph] terms we kind of did [indiscernible] right, but overall, I think we did okay. But I think the first half we had a stronger deployment than in the second half, yes. And by a reasonable amount..

Okay.

So just in terms of our expectations, so the first half of this year, okay?.

Correct..

And then collectively, Kevin, if you look for the year, you still would think that mid-teens type growth like you delivered for the cordless scanner revenue for '17 is achievable again in '18?.

Yes, absolutely. I think that the underlying trend of around 14%, 15% is achievable, and that's our target for the year, yes..

Okay. Thank you, guys..

[Operator Instructions] And our next question comes from Brandon Bello [ph] from CIC Wealth Management. Please go ahead..

Hey, guys.

How are you doing?.

Good..

Hey, so I just had a quick question. Your gross estimates of about 14% to 15%. Just to kind of piggyback off of that.

Is that factoring in any sort of growth estimates for your retail sales in China? I know that China is probably a pretty big question mark in terms of how much sales are you're going to generate there, but does that go into that estimate or is it just a flat sales report for China?.

Well, it’s an overall estimate, right, it will include some sales in China. However, based on our business model, we currently don't have many Chinese software application providers recommending the Socket product, because the product isn't available to their end users.

Before we can really attract the developers we want in China, we have to have product availability first. So -- and generally speaking, from product availability to when the first apps really become available that are going to drive sales would be a minimum of 12 months. So a lot of what we are doing will impact '19 and '20 as opposed to '18..

Got it. Awesome. Thank you for the answer..

You’re welcome, Brandon..

And our next question comes from Brandon Svensson. Please go ahead. Your line is open..

Do you mean, Steve..

I apologize, Steve..

No worries. I just didn’t know if there was another Svensson waiting. Hi, guys. I just had a couple of question. One was on revenue by geography. Last quarter, the third quarter '17 we had about 80% of U.S., 13% Europe, and 6% Asia, rest of world.

What do the trend look like for the fourth quarter? Is it similar or we're growing more overseas?.

Yes, the answer is yes, I believe. And this is - well for the whole year we had 76% - 78% was domestic, and we had 22% international. We would expect that trend to continue probably with 2% or 3% coming off the U.S., and adding to international. The international business quickly in Europe and Japan seems to have found its fees.

It's going faster, but it's a small base. So to answer your question, yes, international is stronger right now than the U.S..

Okay.

And then a follow on to that is, with James being based in your California office, how are we supporting the rest of world from a developer perspective when they need assistance or guidance or data to help with regard time zone issues, is there a James in every region or how are you actually helping to develop the growth in the rest of the world?.

So there's not exactly a James in every region, but there is definitely a regional sales manager who looks after opportunities in developers for Asia-Pacific and Europe, and Socket has some international routes, we have other employees internationally to help us as well..

Are those some folks we hired in '17 as we saw the growth coming? Or they've been there all along?.

We certainly hired someone in Asia. We based someone full-time in Asia I’d say December '16, for all of '17, and that has helped. And in Europe, we actually hired before that, maybe another year before that. The other thing to point out is that most developers are more comfortable with e-mails than they are talking, as a general rule.

And that we do, do email supports based on our development team. And we have some people in the Asia region, where we have some people on East Coast, and we have some people here. So we do have a little more a geographical coverage on a global basis, but a lot of the time its e-mail driven..

Yeah, okay. All right. Thanks. And then one last one. I noticed we put an announcement out there, we were going to reduce price on this – on one of the newer scanners that you had.

And I'm just wondering how that price reduction is going to impact the margin going forward in '18?.

So the margin expectations are the same. And it's not actually a reduced price, it's a new product that was designed to have a lower MSRP and a lower cost base..

Well, it looked to me like when I went online, it was cheaper than what I was expecting it to be by about $100.

And so I was wondering, are we going to - our margins going down or we - since we’re now making more of these, we've got better costs on the components of it or how are we be able to maintain the margin if we’re reducing the price on it, is what I was trying to wrap my head around?.

So it's a newly designed product that has different design cost with similar margin expectation. And it was designed, in this case it was a 2D product, it was designed to offer a more affordable 2D option to the market, then what were able to design in prior years. So from the ground up, it was redesigned product with different cost factors..

Okay.

So it sounds like the cost of it is going to be lower and you're able to pass that cost savings around your customers, while maintaining the margins on it? Is that correct?.

That’s exactly right. Exactly right..

Maybe I could add just one more thing to that James, a lot of our customers are using 1D, but they're first time barcode scanning customers. Historically, 1D - our 2D has been twice as expensive as 1D, right. And for a lot of people, that’s an awfully big step.

Based on market feedback from a lot of people have told us that if the step was 30%, 40%, 50% that they would buy the more expensive product to the future proof their solution.

And that really was the motivation is to hit a price point that makes it attractive so it becomes a universal scanner and people don't have to worry if they bought their 1D or the 2D, it just reads everything. And I think that will play well with our less technical and first-time customers, which is the reason behind that product..

Okay. Thanks, folks. I’ll get back in the queue..

Thank you..

And the next question comes from Matthew Galinko from Sidoti & Company. Please go ahead..

Hey, good afternoon. First question is around the SDK.

I'm wondering if that's available or in use today in China? Or whether you could say that whether your efforts to get products into the region is generating developer interest there in advance?.

Okay. So yes, we have developers in China, right. But -- and we don't know where those developers applications will go. So people hire third parties to write applications, and certainly, we see a lot of development going on in India and China and other places. But often it's for product deployments outside of China.

And so yes, right, we do have that development. And it's difficult even for those developers who are working for third-parties to get product. So - but we don't really have any what we call anchor customers in China.

We have a number of international customers who are used by certain brands that have shops and other types of facilities in China, it would like to use our scanners, and currently that is difficult for them to deploy. But to me this is part of an overall process. The local guys must be able to buy the product easily before they design it in.

Otherwise, it's just a headache for them. They design it in and the customer calls up and says, where do I get it? And you go, you can't get it, and you go, why do design it in. So we have to break that cycle and that's in the process of doing that.

We feel that China is an important going forward strategy, but it's not going to significantly impact our sales in 2018..

Got it. Okay. I think the D600 made into some markets, I think those are Q3, Q4.

I'm wondering you expect that to – to be pulled into any deployments in 2018? Or sort of how do you expect the demand curve to move on it?.

I would say that you’re going to - well, we already see a lot of development activity happening around it. But like our development cycles, there's going to be iterations and development happening around it. And the lot of the units, I think this year, are going to be for the purposes of wedding solutions that you're going to see in 2019, 2020.

But it's an important product, because a lot of these solutions are very different than the barcode solutions we used before. They're much more advanced, and what they're trying to do with data-capture, there's a lot of integration with devices that also read near-field and smart tags, rewritable tags in particular.

So I think you're going to see a lot of developer activity around the sales this year, and then more development activities in the following years..

Got it. That's helpful. And I was hoping if you just go back over -- you did talk a fair bit about how upgrades to SDK.

Could just kind of bridge [indiscernible] how that - how does the experience ultimately change for the developers, does it allow them to move more quickly or is it just a more pleasant experience for them? And how does -- how do you think its – actually you compare it to other scanner companies that are better competitors?.

Well, I mean, for us a lot of the help with the developers is in abstracting the platforms that they are using with the data-capture technology that we provide. And a lot of them are experts in data-capture, near-field or in barcode.

And so what we do is, we enhance our SDK so it works better with a platform that they're trying to develop for, and it abstracts the technology that our scanners are built up on.

And so part of it is and how the SDK works for the operating system, part of it is and how the SDK offers more command-and-control over the scanner itself, but provides it in a very developer-consumable form, whether it's a library or as forms of service or as sample code.

It's all that middleware and between that the developers need to kind of realize their desires around the application without having to become experts..

And maybe I could add, Matt. Historically, we had a hard time supporting many of the cross-platform type software development environment. There's number of them like Xamarin, Cordova, et cetera, where somebody writes an application in C++, but it's compatible in both Android and Apple.

One of the things we would be able to do with new SDK is to support those type of cross-platform environments. Now in the case of Xamarin, there are million Xamarin developers according to Microsoft when they bought them. Today, we really don't support them well. In fact, you could say we don't support them at all.

With the new SDK, we will be able to support that community and they could still live in their Xamarin world with our tools, right. Our structure historically made it almost impossible. Our structure going forward makes this very possible.

So we will be able to add the hooks and components required to allow the developers to stay within their own environment, and still use our scanners, right. And that is particularly as we have larger customers. They are not willing to write a native Apple and native Android. They want a more high-level language.

And historically, we weren't good at supporting that, going forward we will be..

Yeah, we build a new SDK to be more fixable like that..

Got it. All right.

And so I guess you commented on this, but you'll sort of add the development environment that you’re sort of compatible with over the course of the year? And I imagine into 2019? Or do think its something that's completed in the early part of the year?.

I think we're just going to continue to enhance, I mean, as the market evolves, our plan is that now that the SDK has been written to be more flexible, we're going to distribute it more flexibly.

So today, as an example, you have downloaded from our own website, in the future we’ll deploy it through development outlets like CocoaPods and NuGet, in Maven’s fitting on your platform and your preference. As the operation systems evolve, we'll be ready to make adjustments to the SDK and deploy it through all these deployment mechanisms.

So our goal is - it's a new platform that helps us deliver the SDK better, so that our developers can integrate it easier..

Perfect. Thank you..

And the next question comes from Brian Schultz from Cybersecurity. Please go ahead. Brian, your line is open..

Thank you, again. [indiscernible] dropped off a couple of chance, so if I ask two questions, if already covered, I apologize and we can do it offline.

Could you comment a little bit on the competitive landscape, your market share over the last couple of years? I would think that all the products you’ve introduced in the ones you've talked about that are coming out that you - I would think maybe that you would - your goal would be go back to the – of the growth you had in '16 as opposed to matching the 15% in '17? And then my second question is your strategy and things [indiscernible] you may have covered it and I was dropped off, but if not, I'd like to hear a bit color on that process behind that?.

Well, Brian, last September, VDC actually issued a report on our market on mobile companion scanning. And from that report, we were able to glean that Socket has about a 36% worldwide share of companion scanners.

That's kind of the first time we've had an independent party give us that information, and our strongest market is companion scanning, but the mobile scanning market is broken up by companion scanning, sled and sleeve scanning and ring scanners. We don't participate in the ring scanner market any longer.

But we definitely have a very strong position worldwide in companion scanning. I think in the U.S., in fact, we are at approximately 50% of the companion scanning market. The market overall is growing at about 7.2% according to VDC compared to the 14% growth that we’ve shown. So we are kind of outpacing that.

And in the future, certainly, we expect the market to continue to grow at about 7.2%. We see ourselves performing a little bit better. And the swing element of our business is going to be around the deployments. How well the deployments come in and how well the pipeline of deployments kind of exit on a yearly basis.

And to answer your question on the tender offer, Brian, we are not allowed to answer your question on tender offer price..

I can talk about the mechanics a little bit..

We only have one bar any way. I'm probably going to get some job….

All right. But we're - obviously, D.F. King can provide whatever detailed information that you need. But we're prohibited from answering questions on the tender offer, other than explaining the mechanics, which we're happy to do it at any time. I think we lost Brian. I hope he….

No, I am still here….

Haiku [ph] stuff in the desert..

[Operator Instructions] And our next question comes from George Melis. Please go ahead..

Yes, hi. Good afternoon..

Could you speak up a little bit please?.

Yeah, sure. I am just trying to understand the seasonality a little bit better. Last year in the fourth quarter there was this very small uptick in the flow business from the September quarter. And then sequentially, the business was up pretty much every quarter. And this December quarter, there was really pronounced drop from September.

And that seasonality didn't exist a year ago, and now it seems very pronounced.

Can you sort of explain a little bit of what happened?.

Sure. So first of all of the seasonality did exist a year ago, but it was largely masked because we had $1 million in deployment in the same quarter, right. So it looks like it didn't exist, but in fact, it did. And….

But the flow business was 4.1 in September and 4.2 in December.

So you didn't have that seasonality for the run rate business?.

Well….

Some retail deployment….

Okay. So - just so we're clear. We actually see October and November as being quite strong months, with the drop off in December and January and a return to normal business in February. The reason behind this is that very few people deploy new point-of-sale systems during the Christmas period.

And then in addition, in the Jan new period most people are closing out the year and evaluating what they're going to do for the next year. Plus shows like NRF and other retail centric shows happen in early January, so people get to see plus new and exciting.

So our business basically I would say shuts down from around the 30th of – well, we’ll say from Thanksgiving through early February, okay. It's at the slowest period. Now it's only slow for people who are deploying mobile point-of-sale. Obviously, we have got some customers who are adding scanners. We have customers that are not in this business.

But this we have seen historically. If we get deals in Q4, which is off from what happens, then it masks fast. In fact, didn't happen in 2017, I did happen in 2016. So the masking made it look like we didn't have as much seasonality as in fact we did. And I think as James pointed out, maybe just to add. Historically, we were 90% point-of-sale centric.

We have - with the addition of our other products, reduced us to about 80%. Now the 80% is still a higher number than the 90% both in terms of actual units, but our dependency on the seasonality will fade as we become - as we spread out the business..

George, there was one other factor in the first half of 2016 which was also - and as well, and that carried y forward through the year, and that we were still in the final stages of phasing out our handheld computer business. So we had $2.2 million of computer business in 2016. We discontinued it as of the end of the June.

And then - but we still saw some residual activity as well over the next couple of quarters. So all of those helped fill in the seasonality factor in 2016..

Okay, okay. And then one quick last question, in '18, so the point-of-sale decline from 90% to 80%. So of course, means the rest [ph] growth.

What kind of mid do you expect in '18? Do you – first of all, do you expect the point-of-sale on a dollar basis to keep growing or is that flattening out? And what are the major other verticals that are driving the growth?.

So first, we do not affect point-of-sale to flatten out. We expect continued growth in the point-of-sale business. And I’ll let James answer what other areas we expect to see..

Yes, I mean what we're seeing is the other areas which for us until we built our DuraScan product were living off of our non-durables and really meeting a durable. They were actually growing faster, right. So as Kevin said earlier, it’s a more modest number.

So we're starting from a low base, but we’re seeing a lot of strength as our DuraScan product gains reputation as a reliable product.

And those markets are primarily things like commercial services, which includes things like event management, service company, applications are things like order management, utilities monitoring, equipment management, industrial manufacturing.

Those are things like quality control, auditing, process control, transportation and logistics, that has a lot to do with tracking trade, picking and put away or order fulfilment, and healthcare, which is primarily around healthcare process control. Those are markets where our durable product - it was really designed for those basis.

They have IP requirements, they have concrete floors and durability requirements and until we had that DuraScan product, we weren’t able to satisfy them as well, and we’re seeing the DuraScan product starting to do that..

Okay.

So DuraScan would be driving a big chunk of your growth in '18?.

Yes, it's driving it directly and indirectly. Directly because obviously, it first the needs, but as Socket fits the need, the non-durables also began to have an opportunities in those markets and we’re seeing a lift there as well. So those markets in general are performing much better than they were historically..

Okay, great. Thank you..

And we have no further questions at this time. I'll turn the call back over for final remarks..

Thank you, operator. I would just like to thank everyone for participating in today's call, and to wish you all a good afternoon. Thank you..

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