CAMP4 Therapeutics Corp (CAMP) 2010 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the CalAmp fiscal 2010 first quarter conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference call is being recorded today, Thursday, July 9 of 2009. I would now like to turn the conference over to Lasse Glassen of the Financial Relations Board.

Good afternoon everybody. Welcome to CalAmp's fiscal 2010 first quarter earnings call. With us today are CalAmp's President and CEO, Rick Gold, and the company's Chief Financial Officer, Rick Vitelle.

Before I turn the call over to management, please remember that our prepared remarks and responses to questions may contain forward-looking statements. Words such as may, will, expect, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal, and variations of these words and similar expressions are intended to identify forward-looking statements.

Actual results could differ materially from those implied by such forward-looking statements due to a variety of factors, including product demand, competitive pressures, and pricing declines in the company's satellite and wireless markets, the timing of customer approvals of new product designs, the length and extent of the global economic downturn that has had -- that has and may continue to adversely affect the company's business, the company's ability to refinance or extend its bank term loan prior to the December 31, 2009 maturity date, and other risks or uncertainties that are described in the company's annual report on Form 10-K for the fiscal year 2009 as filed on May 12, 2009 with the Securities and Exchange Commission.

Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

With that, it is now my pleasure to turn the call over to CalAmp's President and Chief Executive Officer, Rick Gold.

Good afternoon and thank you for joining us today to discuss CalAmp's fiscal 2010 first quarter results.

I'll begin with comments on the financial and operational highlights from this past quarter and will then provide an update on several of our key business initiatives. Rick Vitelle will then discuss additional details about our financial results, balance sheet, working capital management, and cash flow. I'll wrap up with our revenue and earnings guidance for the second quarter of fiscal 2010 along with some concluding remarks. This will be followed by a question and answer session.

Despite the continued challenging economic conditions, consolidated first-quarter revenue of $23 million increased 8% compared to the previous quarter and was within our expected guidance range of $22 million to $24 million. The sequential topline growth was driven primarily by the continued ramp of unit volumes in our Satellite products business. I was also encouraged by the rebound in revenues from our Wireless DataCom business on a sequential quarter basis. There are increasing indications that conditions are beginning to improve in several of the vertical markets we serve, and we are cautiously optimistic that our Wireless DataCom business is in the early stages of her recovery.

Looking at the bottom line, results of operations included a GAAP net loss of $4 million, or $0.16 per diluted share, which was within our guidance range of $0.15 to $0.19 loss per diluted share.

Excluding the impact of changes in the deferred income tax asset valuation allowance, amortization of intangible assets, and stock-based compensation expense, our adjusted basis from non-GAAP net loss was $2.4 million or $0.10 loss per diluted share, which was also within our first-quarter guidance range of $0.06 to $0.10.

I refer you to our first-quarter earnings press release issued earlier today for a detailed reconciliation of the GAAP basis net lost to adjusted basis, or non-GAAP, net loss.

Looking at our cash flows and balance sheet, we continue to generate positive operating cash flow and pay down our debt. During the quarter we generated net cash from operating activities of $0.6 million and reduced our debt by $3.1 million. As of the end of the first quarter our bank term loan balance was $15.7 million, and the subordinated note payable to a direct broadcast satellite, or DBS, customer, was $2.2 million. Rick Vitelle will expand on this in his remarks, but suffice it to say, I am pleased with the fact that we have generated positive operating cash flow in each of the last three quarters.

I will next provide updates for our Satellite and Wireless DataCom businesses.

We continue to make steady progress in our Satellite business, which generated revenues of $9.2 million in the first quarter or a 14% sequential improvement compared to the prior quarter. Satellite product revenues have now increased sequentially three quarters in a row.

We also continue to ship significant quantities of refurbished products to a key customer that, although not generating revenue, increase our market penetration and decrease our remaining product rework commitment to this customer. To date we've reworked and shipped back to the customer approximately 40% of the products returned to us for refurbishment.

In addition our engineering team continues to make good progress on several new development programs involving next-generation products for our two principal DBS customers, which we expect to begin shipping late this fiscal year.

Overall the underlying fundamentals of our DBS business are improving, and we expect our Satellite product market share to be materially higher in fiscal 2010 compared with fiscal 2009.

Now let's move on to an update of our Wireless DataCom business, which provides communication systems, products and services for applications in the mobile resource management, or MRM, public safety, utility, and industrial monitoring and controls markets.

During the first quarter the Wireless DataCom business generated revenues of $13.8 million, which is a 32% decrease on a year-over-year basis. This reduction occurred across all of our Wireless DataCom vertical markets, and is primarily attributable to the global economic downturn.

That said, we have seen business stabilizing during the first quarter with Wireless DataCom revenues increasing 4% sequentially after five consecutive quarters of decline. Based on our current forecasts we expect Wireless DataCom revenues to continue to increase throughout the remainder of fiscal 2010.

Contributing to this expected turnaround is strong customer demand for our MRM products and services. As we announced earlier this week, during the months of May and June, orders for the company's MRM product lines exceeded $7.5 million, the highest ever for a two-month period. These recent orders are from a diverse customer base serving a wide array of MRM markets. Orders for applications in school bus management, service fleet management, vehicle finance, stolen vehicle recovery, and mobile Internet each totaled more than $1 million during this period. We are encouraged to see that our recent product introductions are building momentum as we continue to deliver enhanced value to our customers.

Our Aercept business is also trending up with signs that recent strategic initiatives are beginning to bear fruit. To complement our direct sales efforts and cost effectively increase penetration of the fragmented used-car dealership market, we have significantly enhanced our indirect distribution channel. During the last several months, we have signed agreements with 29 regional agents that have strong existing relationships with so-called "buy here/pay here" used car dealers. During the first quarter, the indirect channel comprised approximately 10% of our overall unit sales, and we expect this to more than double in the second fiscal quarter.

We are also moving forward with new product introductions targeting stolen vehicle recovery and other verticals.

Moving on to our wireless networks business, we are seeing an uptick in bid and proposal activity, which is a leading indicator of customer demand. In addition we recently received some key new orders in the utility and public safety segments of this business.

During the first quarter we announced the receipt of a contract award for our Dataradio Integra wireless radio modems for a large-scale deployment of a nationwide smart grid network for the Provincial Electric Authority in Bangkok, Thailand. The initial contract is for 5,000 units that are scheduled to be deployed over the next 18 months.

Also during the quarter we announced an exclusive agreement with EADS Defense & Security to supply a customized version of our WiMAX-based Sentry 4G wireless IP router for mission-critical broadband communication applications. The custom high power mobile data terminal is being marketed under the EADS Defense & Security brand name to serve customers in the defense and public safety markets outside the United States and Canada. Applications for the device include video surveillance and other visual multimedia applications providing security personnel with increased situational awareness through a WiMAX network overlay to existing mission-critical communication networks.

He also received a follow-on order valued at approximately $500,000 to expand a private digital Dataradio network for a large police agency in Western Australia. The wide-area network was initially installed in 2007 with CalAmp equipment and deployed in more than 600 police vehicles providing coverage to an area of more than 9,000 square km.

And finally we recently helped several of our public safety customers secure federal appropriations funding totaling $1.7 million for first responder mobile communication networks. We expect orders from our customers receiving these funds to contribute to revenues beginning in the second half of this fiscal year.

In summary I believe our Wireless DataCom business has stabilized and is in the early stages of a turnaround. I'm confident we're taking the right actions to position this business for long-term profitable growth. The critical mass we have developed along with our broad technology platforms and focus on middle market customers gives us a competitive advantage that most other players in our markets cannot offer.

With that I'll now turn the call over to Rick Vitelle, our Chief Financial Officer, for a closer look at the first quarter financial details.

I'll provide a summary of our gross profit performance, working capital management, and cash flow results are the fiscal 2010 first quarter.

Consolidated gross profit for the fiscal 2010 first quarter was $4.7 million compared to $9.4 million for the same period last year. The consolidated gross margin in the fiscal 2010 first quarter was 20.5% compared to 33.8% in the first quarter of last year. These decreases in gross profit and gross margin were primarily attributable to lower revenues from our Wireless DataCom products, as the global economic crisis caused several of our key customers to delay their purchases.

Product mix significantly affects consolidated gross margins because revenues from Wireless DataCom products carry much higher gross margins than revenues from our Satellite products. During the most recent quarter Wireless DataCom products accounted her 60% of consolidated revenues, and Satellite products represented the remaining 40%. This compares to the same quarter last year in which 73% of revenues were from Wireless DataCom products and 27% from Satellite products.

Going forward, our consolidated gross margin percentage can be expected to fluctuate depending on the mix of revenues from Satellite and Wireless DataCom products.

Now, taking a closer look at gross profit performance by reporting segment, Wireless DataCom gross profit was $4.3 million in the latest quarter, or 31.1% of Wireless DataCom revenue. This compares to gross profit of $8.7 million, or 42.9% of revenue, in the same period last year. The Wireless DataCom gross margin percentage in the first quarter of last year was benefited 4.5 points by the inclusion of a $1.5 million sale of patents for which there was no associated -- for which there are no associated costs.

During the most recent quarter, Wireless DataCom gross margins were impacted 1.6 points by the restructuring related expenses and were also adversely impacted by the lower absorption of manufacturing overhead costs on the lower revenue level. The total impact of restructuring related charges in the first quarter was approximately $400,000, of which $225,000 was included in cost of sales.

We expect gross margins to climb to the high 30% range for our Wireless DataCom business as market conditions improve and revenues rebound.

Gross profit for Satellite products was $427,000 or 4.6% of Satellite product revenues in the latest quarter compared to gross profit of $733,000 or 9.6% of revenues in the first quarter of last year. The gross margin for Satellite products remains significantly lower than historical levels due primarily to the low level of sales that has resulted in lower absorption of manufacturing overhead costs.

Now moving on to the balance sheet. Our total inventory at the end of the first quarter was $14.2 million, representing annualized inventory turns of approximately 5 times. This compares to total inventory of $15.1 million at the end of the immediately preceding quarter, which represented annualized inventory turns of approximately 4 times. The improvement in the first quarter was the result of inventory reductions across all of our businesses due to a relentless focus on working capital management.

The accounts receivable balance of $13.9 million at the end of the first quarter represents a 55 day average collection period compared to receivables of $13.7 million and 58 days at the end of the immediately preceding quarter.

Our primary sources of liquidity are our cash and cash equivalents and the available borrowing capacity on our working capital line of credit. These two sources totaled $6 million at the end of the first quarter, down from $8.6 million at the end of the fourth quarter.

Net cash provided by operating activities was $0.6 million in the first quarter.

Total debt at the end of the first quarter amounted to $17.9 million, comprised of $15.7 million of bank debt and a non-interest-bearing subordinated note payable to a key DBS customer with a principal balance of $2.2 million.

During the first quarter, the principal amount of the bank loan was paid down by $1.8 million, and the note payable to the DBS customer was paid down by $1.3 million. And today, after giving effect to principal payments made subsequent to the end of the first quarter, the total debt balance is $15.1 million, comprised of $14.1 million on the bank loan and $1 million on the subordinated note.

The bank loan had a maturity date of December 31, 2009, and consequently the entire term loan balance is classified as a current liability in the consolidated balance sheet at May 31, 2009. After giving effect to the next quarterly term loan principal payment, the balance on that loan is projected to be within the company's estimated borrowing capacity against receivables and inventories. Based on this, we believe that we will be able to refinance the bank term loan prior to the end of calendar 2009 from the proceeds of an asset-based loan, possibly supplemented by proceeds from another funding source.

With that, I'll turn the call back over to Rick Gold for our guidance and some final comments.

Thank you Rick. Now let's turn to our financial guidance.

As noted earlier, I am pleased the new orders in our MRM business and bid and proposal activity in our wireless networks business have picked up significantly in recent months. Based on our current forecast, we believe fiscal 2010 second-quarter consolidated revenues will be in the range of $23 million to $25 million with a GAAP basis net loss in the range of $0.06 to $0.10 per diluted share. The adjusted basis non-GAAP results of operations for the second quarter, which exclude changes in the deferred income tax asset valuation allowance, amortization of intangible assets, and stock-based compensation expense are expected to be a net loss of $0.02 to $0.06 per diluted share.

As I stated earlier, there are increasing indications that our business is in the early stages of a recovery. We now expect that CalAmp will be profitable on a GAAP basis in the second half of this fiscal year with quarterly revenues in the range of $26 million to $32 million.

In concluding our prepared remarks, I'd like to recap some key points drawn from our recent results and latest developments. Our Satellite business is in the midst of recovery with ramping production volumes over the last several quarters. Longer term we expect that our new products currently in development will become significant growth opportunities.

Our Wireless DataCom business is trending up with improving customer demand in several of our targeted vertical markets. New product introductions and recent cost reduction initiatives have us well positioned to resume profitable growth in our Wireless DataCom business.

And we continue to reduce debt and expect to refinance our term loan prior to the end of calendar 2009.

I believe we are continuing to make good progress towards our goal of returning CalAmp to sustainable profitability beginning in the second half of this fiscal year.

That concludes our prepared remarks. Thank you for your attention, and at this time I'd like to open the call up to questions. Operator?

(Operator Instructions). Wes Cummins, B. Riley.

A quick question related to your DBS customer you're doing the rework for. I think I heard you on the call say that you are about 40% complete on reworking the amount of units they returned to you?

That's correct.

When do you anticipate completing the rework? And does that have an impact on your income statement as far as demand, I guess, true demand from this customer, or are we already seeing I guess the true demand from this customer in the income statement, and they are just taking the reworks and that wouldn't have any impact on your new business with them once you complete that?

Let me take that in a couple of pieces. As to the first question, the time frame per completing that, the current schedule we are working to has us completing that during the first quarter of next fiscal year, so roughly four quarters to go from the end of the quarter we're just reporting here. That could move plus or minus a quarter just depending on how we balance that schedule working with the customer.

In terms of the second piece of the question, it's roughly at the current rate that it's been for the last couple of quarters and that we project for the next couple of quarters. It's about $3 million a quarter of equivalent revenue that we are not booking because we are shipping non-revenue product. We have reserved the cost of those repairs as part of what we did, gosh, almost two years ago now at the time that that issue came up. So from a P&L standpoint, the cost of that, there is a cash impact to that, but the P&L impact is nil as we work through that. But there is a -- essentially I guess you could look at it as an opportunity cost of the revenue that's on the order of $3 million a quarter, which we are -- we are fulfilling real customer demand, but we are not seeing that flow through our financials.

Okay. That's the only question I had. Thank you.

Richard Todaro, Kennedy Capital.

Thanks. So let's just flush that out. So the $3 million a quarter drag that you are really shipping but you're not showing in revenues today, in your guidance because you're still going to be shipping stuff under warranty, the $26 million to $30 million in sales doesn't include what your real revenue run rate kind of is with DBS, right?

That's correct. And it was $26 million to $32 million.

$26 million to $32 million. So just as the warranty work, if status quo in the back of the year, after the warranty work, it would be more like $29 million to $35 million run rate; is that correct kind of conceptually?

That is conceptually correct. Obviously there's no guarantees with any of this, but [yes] (multiple speakers)

Yes. And obviously wireless could move and all the rest of that.

And then just so I understand, so you start to ship those products that aren't under warranty to DBS; correct? And then do you actually get the benefit in your overhead cost so that your margins will start to show an increase in the wireless business -- if you were status quo today? If everything else changed?

That is correct.

Okay. Let's talk about the new products going to the Satellite customers. How do you think those are progressing? You had mentioned you felt good about them, but could you give us anything else, or --?

Well, we had -- I think the first time we mentioned those was a couple of quarters ago, and we indicated that our target was to begin shipping those for revenue in small quantities in the fourth quarter of the current fiscal year. That's still our timetable. So we are proceeding apace with those developments.

Okay. And then do you guys have any more patents to sell, or have we flushed that out? Is there anything left there?

I think it's safe to say, Rich, that we've picked most of the low hanging fruit there. There are some nonstrategic assets we still have on our books, and as I'm sure you can assume, we do a -- on a regular basis we review those to look at what is the best disposition for those going forward. So I would not say that we are -- that we will ever be done with that process.

The other thing I would point out, and I think I might have mentioned on the last call, but we filed five new patent applications last year, so there is an ongoing pipeline there, as we look forward to building our IP portfolio, and some of those will be strategic to our core business, and some of those will be ones we look to monetize elsewhere. So there are opportunities on that side. I would not preclude it, but there is nothing that's going to happen next week.

Well, the reason why I ask that is I got a number of questions on -- you guys mentioned about refinancing the debt that you had the other sources, so I think that that dangling statement kind of left a lot of questions. Could you guys flush that out a little bit for us?

Well, there are -- we are still relatively early in that process. We have some discussions underway, and it was not intended to signal any one particular direction. But we will obviously -- we continue to look to our balance sheet to mine for assets, and your question about patents was on point. But I don't expect another $1.5 million for a single patent like we had a year ago there.

But we also have other potential assets there as well as just different financing alternatives. So it was really not intended to signal any one thing in particular, Rich, but until we are done, we want to make sure that we leave the options open.

I mean, I know that we've talked that your debt cost is relatively cheap right now at LIBOR plus whatever it is, it's like sub 5 or something. So I understand there's no urgency. But it -- a lot of companies in this situation make a statement like that, and the next thing you know they're doing some private placement or something crazy, and I just want to make sure that we've eliminated all kind of dilutive options as part of this statement? Or no?

Well, our -- I wouldn't say that we have eliminated anything, but I would say that our first preference here is to -- we believe that at the level that that line will be at the end of the year, we have -- (multiple speakers) that the term loan will be at the end of the year, that we have sufficient collateral value in our inventory and receivables to carry that forward in large part, if not total as an asset-based loan. So that's clearly our first preference. And at the current stock price, we have no interest in doing anything dilutive.

Okay, yes. Okay, good. And then the -- along the lines of the inventory side, you guys have been making some improvements there. Is there anything left to be flushed out from a cash flow standpoint on reducing inventory?

There is. We have -- we are still dealing with the legacy of what happened a couple years ago in our Satellite business. We are also in the midst -- the reorganization and restructuring we talked about an our wireless networks business last quarter -- excuse me, I'm getting over a cold here. We've consolidated manufacturing operations there and are using that as a catalyst to drive some increased efficiencies there. So there is definitely some room to improve there, both on a turn basis and on a dollar basis. And we have some aggressive internal targets that people have signed up for.

This is my last question, just kind of stepping through the numbers sequentially here. So I guess it's going to be a multipart. Of the $9 million in the wireless today plus the $3 million kind of get you to $12 million-ish run rate on DBS. Without new products, do you think that that number moves without the new products?

I think at DBS at that level, yes. It does still move. (multiple speakers) There's still upside, because just from one thing, seasonality, we are not in the peak season. The peak season is actually in our third fiscal quarter. So all other things being equal, there is upside just from that. But I believe that the next kind of quantum step after that, it will come with new products. And I should mention we have three different new product initiatives going on there, all of which are targeted to the end of our fiscal fourth quarter.

And the three new product initiatives, I know it's early and you don't -- you may not know. How do you think those actually start? You talked about the fourth quarter, you start shipping them, but how does a new product initiative usually roll out through a customer like that? What's the demand take-up and how can that change your revenue profile?

So -- that's a good question. There's a multi-month qualification process which happens before the initial revenue shipments. So at that point, from both an engineering standpoint and a manufacturing standpoint and a quality standpoint, we would be blessed and good to go. So it would be within one quarter after that that we would expect to have meaningful revenue contribution.

So they roll out a new product, then they got to kind of fill the channel? Is that how it would be with the new product? And then they'd start selling that new product? And how does the ramp-up of new products from a demand standpoint start to happen?

These are all being phased in and out on an ongoing basis. So it's not -- at this point it's not a particular service that a product is supporting. They are being phased in. I think -- let me think about this. I think all three of these work in conjunction with existing set-top boxes. So from an architectural standpoint and a marketing standpoint, it doesn't require a substantial change. And in those cases, there is a time lag with the customer. But in these cases it's really a question of they're replacing an older generation of product, and they have economic and performance advantages. And so it's really a question of just supply the chain management more than any fundamental marketing initiative.

That's what I'm asking because in prior years it was HDTV or more satellites or something like that. And so let's say you get on this new product. How do you know what your market share -- how do you feel how your market share would play out so that -- I guess I'm trying to understand how this actually does work out for you guys over the next few years. It's hard to kind of (multiple speakers)

Yes. I think -- you know, we're shipping three products in volume now. The -- my expectation is that any of these new ones would be comparable to or potentially greater than any of the ones we have right now, and they would layer on on top. But it really depends on how many different suppliers there are, how broadly they are rolled out. And so at this point it's difficult to predict exactly what that ramp would look like. But at a very high level, they would be comparable to -- or potentially greater than the products we are shipping today.

And the ASP, would you expect to be the same or higher?

They would be higher.

And this is the final question. So the current total dish run rate of Satellite business sold times your market share and normal -- for some reason I thought that there was a possibility that you could get to $25 million a quarter just off of the Satellite business alone, where you're at today in revenues. Is that still a viable number that's a possibility if you won market share in these three new products?

That is a viable number that's a possibility. That is not a prediction, but there's certainly the demand there, and we've been at those numbers before. And the market -- the overall market size has not changed substantially from that time.

I'm sorry, one more. So then the wireless -- the DataCom business has dropped from 20 to 13. It's starting to pick up. Of the drop, do you have any way to say, well, this is a demand fall-off versus an inventory adjustment for our ability to get that part of the business from 13 back to 18 or 20? What all has to happen for that to kind of happen?

The -- I would say of the drop from 20 to 13, there was probably a couple of that that was inventory adjustment. Of that 7 delta I would say maybe -- and I'm just pulling numbers out of the air here, which is a dangerous thing to do on a conference call. But I think intuitively, about $2 million of that was inventory adjustment, and about $5 million was demand fall off.

Thanks, great work guys.

Thank you, Rich.

(Operator Instructions). Sam Bergman, Bayberry [Asset] Management.

Good afternoon. A couple questions. One, can you quantify the pipeline of new opportunities this quarter versus last quarter?

We don't actually disclose either our backlog number or our pipeline number. Those are things we track very religiously internally, but as quantitative metrics, they leave something to be desired, because there's apples and oranges in there.

But what I can tell you is that our backlog at the end of June was higher than it's been in the last year and that our pipeline of new business opportunities -- when I say backlog, I may book backlog of orders that are released. And when I say pipeline, I mean pipeline of opportunities that are in our bid and proposal process that our sales force is chasing. That is the largest it's been in the last year. And they are up in a meaningful way, but I don't want to put specific numbers around that because, as I said, there's apples and oranges inside there.

In the wireless radio modems, the ones that were sold to Thailand, what type of activity have you had in terms of quotations on that product line?

In terms of -- you said quotations?

Right. Your proposals.

So that's actually probably our hottest product area right now is in the utility sector. There is a lot of -- as I'm sure you see just from following the trade press, there's a lot of activity right now in terms of smart grid networks in various stages of development.

And it's interesting, that's a business we've actually participated in for a number of years. And a few years ago it was a very sleepy business with some long-standing customer relationships, and our business was instrumenting power systems where there were transmission and distribution networks that were far from the reach of any other existing communication networks. And so the customers were setting up private radio network to be able to access that information and provide the controls.

And -- but that has morphed in the last couple of years into much more sophisticated systems where it's not just a few points, but it's many, many points over a network. And we have a mix of not just private network, but cellular, and now with the new Sentry platform, we have the WiMAX broadband, unlicensed as well as licensed capability. So it's a very active area for bids and proposals right now. And it's one that I think over the next year will probably be our most significant growth area.

In terms of the backlog or business this quarter, was there any cancellations of any projects?

No.

And in the Satellite business, in the DBS business, the new products that you're going to release in the fourth quarter, somewhere around fourth quarter -- what kind of competition do you have that's close to that -- the technology that you're developing? If any?

Well, we have long-standing competition in those -- in that market. We are actually the only American company that's still in that business. We have competitors in Japan and Taiwan. And all of us source our -- at least our sub assemblies in China. But there is a relatively small number of players in that business, and we have -- as we've mentioned on a couple of the calls before, our engineering team has worked very closely with our customers over the years, and that's more than anything else our differentiation in that business is our ability to sit side by side with the engineering teams on the development and the architectural definition of the new products.

Now, are there plans as to the rework products? I know you said it's probably going to be four quarters out before it's out of the system. Is there any chance that you could get that out quicker and save a quarter's worth of revenue? Or that's not a possibility?

Well, we're -- we play that by ear. That's a good question. And we are going to see how that plays out. The faster we pull it in, the more revenue we are forgoing in the near term. So it's a balancing act there. And we are working closely with the customer to make sure that we are satisfying their needs first and foremost in that process. So obviously it's to all of our benefit to get that flushed through as quickly as possible. So we are certainly motivated to do it, but we also want to keep the production lines balanced and steady and running at peak efficiency.

Are they happy with the reworked product?

Yes.

And the only other question is in regard to investors relations, what's your plans for the rest of the year?

From the standpoint of what, you mean like conference participation, for instance, or --?

Correct.

We have a couple of conferences scheduled. One in August and one in November, I believe. But we will be posting those on the website.

One last question, regarding the estimates for quarterly revenues. Pretty wide range, $26 million to $32 million. What's going to -- what would make that at the top range of the numbers? Would that be mostly extra wireless business, or more DBS business?

It could be either of those. Again, that's two and three quarters out, respectively. So -- at plus or minus 10%. I know it looks wide to you, but kind of looks narrow to us, so --

Thank you very much.

Marc Robins, the Robins Group.

Thank you. Forgive me; I'm still getting accustomed to the company, so I'm very new at this. Help me understand the philosophy of selling patents and what you're looking through when you sell something like that. That's -- to me is kind of an unusual thought.

Well, it's not a core piece of our business (multiple speakers)

This is something that's been developed in-house, and then you decide that it just doesn't fit, so you pitch at?

Yes. Those maybe weren't exactly the words I would use (multiple speakers)

Oh, excuse me, a little cavalier.

But the -- we've had a number of things over the years where we have developed some interesting intellectual property, but it hasn't found its way into our mainstream product business. And we've found in the last couple of years a couple of situations where we were able to identify other enterprises for whom that technology was potentially strategic. And it was really, from our standpoint it was something that was on the shelf, and in those cases we did get a license back to use the technology, so we did not forego it in perpetuity. But in terms of actually putting it in the mainstream of our business and deriving value directly from it, that wasn't something we were planning to do. So it really -- it was very opportunistic.

But that said, wireless technology, were -- it becomes more and more clear to me as I spend more time in the bowels of the company here that we have some very unique capability in our ability to design and develop and come up with some novel ways of implementing wireless communications. And many of those, we will find ways to use in our business. But there are some that we may not. So that's something we keep our eyes on the lookout for. But it's not a core part of our business.

I guess I didn't understand the accounting when you discussed the DBS. You've been taking $3 million a quarter, I guess, of revenues, or you've reserved for this some time ago, and then you've been doing $3 million of work a quarter. And that revenue and costs and contribution, that does not hit the income statement at all currently, but you are running it through your factory. And I would not think that does have a benefit to your overhead, the rest of your operations overhead? Or it does? Or does not?

Marc, this is Rick Vitelle. That's -- there's probably more than one question wrapped up in there (multiple speakers)

Oh there's a lot of them.

Let me see if I can address that. Well first of all, $3 million revenue figure that Rick Gold cited, that is indeed the sales value of this refurbished product. Those are not -- that is not the level of rework cost that we are incurring and charging against the reserve.

Understood.

(multiple speakers) [each] quarter. It's substantially less. How much less, I -- you know, I don't have those figures in front of me. But suffice it to say it's quite a bit less.

A lot of that rework cost -- rework activity is occurring in China. And so it doesn't really absorb overhead costs here in our main facility in Oxnard, or for that matter anywhere else in -- of our US facilities. (multiple speakers)

Okay. So it really doesn't have a -- it's not included in the income statement, and it really doesn't have a benefit as to your operations, it's just there.

Well, I think that -- yes. That's true. The point was that we made in our comments is that it represents a share of the market that we currently have that's not reflected in our revenue number. And as we continue to work down this quantity of returned product, it's reducing our commitment, our remaining rework commitment to this customer.

With you. Once that goes away, it really means that you don't have additional business to be had, it doesn't mean that you have an additional capacity to use, it just means that there is nothing -- it's phantom, essentially?

No, it actually does mean there's additional business to be had, because we are satisfying a meaningful fraction of our customer's demand today with product that we are not getting paid for. So I think that was the question -- I believe it might've been Rich Todaro that asked earlier -- about all other things being equal, when we get through that rework, is there a potential pop in revenue that's available there? And the answer to that is yes. All other things being equal, there would be a $3 million incremental quarterly revenue pop, and associated margin pop that (multiple speakers)

So there's more of this business to be had once the --

Yes.

-- rework goes away, there's a fulfillment -- there's more to be had -- there's more business to be had and to be completed, and that could replace this phantom stuff that's there.

Exactly. (multiple speakers)

Okay. Now I get it.

Provided we can retain all or substantially all of that product flow.

Right. And provided you haven't irritated the customer to the point where they go someplace else.

Correct.

Always a given, yes.

Always a given. Okay. All right. I'll get back into queue, thank you.

There are no further questions. I'll turn the call back over to you for any closing comments you might have.

Your comment about getting back into the queue, did that mean, Marc, that you had another question, or did I misunderstand that?

Okay. All right. Well, then thanks again for joining us today. We look forward to speaking with you -- with everyone on the call again next quarter.

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