PCTEL Inc (PCTI) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome, everyone, to today's PCTEL second quarter earnings call. (Operator Instructions) After our speakers' remarks, there will be a question-and-answer session. And now, ladies and gentlemen, it is with great pleasure that I introduce the host of today's call, Mr. Jack Seller, Director of Marketing.

Thank you for joining us today, July 23, 2009, for the PCTEL financial results conference call for the second quarter 2009. On today's call will be Marty Singer, Chairman and CEO; and John Schoen, Chief Financial Officer. Today's call will contain forward-looking statements within the meaning of the federal securities laws. Comments concerning our future financial performance, new products and product development and expectations regarding the future growth of our wireless RF business are forward-looking statements within the meaning of the Safe Harbor.

Actual results may differ materially from those projected as a result of risks and uncertainties, including the ability to successfully grow our wireless products business, implement new technologies and obtain protection for the related IP. Additional discussion of these and other factors affecting the Company's business and prospects is contained in our periodic SEC filings. These statements are made only as of today and we disclaim any obligation to update any information to reflect subsequent events. I would now like to turn the conference call over to Marty Singer.

Thank you, Jack. Good afternoon. For those of who you have not had a chance to read our press release, I'd like to recap some of the non-GAAP highlights from the quarter on a continuing operations basis. We achieved revenue of $13.4 million. Our non-GAAP gross profit margin was 46%. Our non-GAAP operating margin was 2%. Non-GAAP net income was $414,000 or $0.02 per diluted share. And cash and investments were $79 million.

Economic conditions remain challenging worldwide but we are pleased that our early actions and our continued attention to costs have enabled us to remain profitable. In this process, we have lowered our non-GAAP break even point to $13 million per quarter. Now, I'd like to turn the call over to John Schoen, our CFO, who will discuss our financial performance in some detail. Later, I will comment on our progress over the past quarter and what we see in the future. John?

Thank you, Marty. And good afternoon or evening to everyone. Our investors will note that the Company presents non-GAAP financial information in its earning releases. The Company believes the presentation of gross profit, operating profit and net income, excluding restructuring charges and noncash-based expense, including stock and stock option-based compensation, amortization and impairment of intangible assets and goodwill related to the Company's acquisitions, gains or losses on the sale of product lines and related note receivables and noncash-based income tax expense; provide meaningful supplemental information to both management and investors. The non-GAAP financial analysis reflects the Company's core results and facilitates comparisons across reporting periods.

For more information on our non-GAAP financial results and reconciliation to GAAP measures, please refer to our earnings release that has been filed under Form 8-K with the SEC. The release can also be found on our Website at pctel.com under Investor Relations. My discussion of results will be based on our non-GAAP financial results. Also, as a reminder, the Company sold its Mobility Solutions Software Group or MSG to Smith Micro in January of 2008. The Company's financial statements have been revised to reflect MSG as a discontinued operation. My discussion of financial results will address continuing operations.

So, let's start with revenue. The second quarter 2009 revenue from continuing operations was $13.4 million, compared to $20.3 million in the second quarter of 2008, a decrease of 34%. Revenue was lower for both scanning receiver and antenna products. The reduced scanning receiver revenue reflected several factors. As carriers prepare for the transition from EVDO to LTE, network engineers are protecting their reduced capital budgets and waiting for new technology rollout before consuming their budgets.

While test tools enable network engineers to realize greater capacity for existing infrastructure, capital budgets are lower worldwide. And the combination of Ascom and TEMS created short term confusion in the marketplace that impacted test equipment purchases. Antenna revenue declined in both the OEM and distribution channels. Reflecting particular softness in land mobile radio systems, continued delays in mobile WiMAX rollout and defense-related antenna sales.

Now, let's turn to gross profit margins. Non-GAAP gross profit margin from continuing operations for the second quarter was 46%, compared to 48% in the same period last year. The lower gross profit margin reflects the cost of lower overall volume over fixed costs.

Now, let's turn to operating expenses. Our non-GAAP operating expenses, which were $6 million in the quarter. Reduction of SG&A expenses resulted in an overall decline in operating expenses of $1.2 million, as compared to the second quarter last year. Our R&D expense was about the same. We are not short changing our investment in the future as we align our cost structure with current revenue levels. The reduction in SG&A was achieved through the closure of several unproductive sales offices, the restructuring our antenna manufacturers representative channel and corporate cost efficiencies.

The Conexant royalty of $200,000 was unchanged from last year. The Conexant royalty agreement is now fully paid up and will not generate any income going forward. Non-GAAP operating income from continuing ops in the second quarter was $300,000 or 2% of revenue, compared to $2.9 million or 14% of revenue in the same period last year. The results reflect lower gross profit dollars on lower revenue, partially offset by lower operating costs. Other income was $201,000, compared to $652,000 a year ago. The decline is primarily attributed to the decline in interest rates over last year.

There was no mark to market loss in the quarter related to our investment in the Columbia Strategic Cash Portfolio Fund, upon which I will comment later. The non-GAAP income tax rate in the quarter was 18%. Non-GAAP net income from continuing ops for the second quarter 2009 was $414,000 or $0.02 per diluted share, compared to non-GAAP net income of $3 million or $0.15 per diluted share in the second quarter of 2008. To summarize the differences, net income from continuing operations was lower from decreased gross profit on lower revenue, partially offset by lower operating costs and lower interest income.

Now, let's turn to the balance sheet. Cash and investments ended the quarter at $79 million, of which $11 million is classified as long-term. This is a sequential increase of $2 million from the last quarter, primarily related to working capital reductions achieved on lower sequential revenue in the quarter. The Company spent $500,000 on the repurchase of its common shares during the quarter at an average price of $5.01 per share.

Of the roughly $79 million in cash and investments on hand at the end of the second quarter, the Company had approximately $1 million in operating bank accounts; $46 million in US federal government agency securities, either directly-owned or through AAA money market funds invested exclusively in them; $24 million in tax exempt pre-refunded municipal notes; $2 million in AA and AAA corporate notes; and $6 million in the Columbia Strategic Cash Portfolio Fund, and enhanced cash money market fund. The Columbia Fund is in the process of liquidation. We expect for the Columbia Fund to have a remaining balance of between $2 million and $3 million at year end.

Now, I would like to discuss the guidance through the third quarter of 2009. We anticipate revenue for the third quarter to be in a range of $13.75 million to $14.75 million. The Company is seeing order booking rates in July that are slightly higher than that experienced in the quarter just ended. Non-GAAP gross profit percent for the third quarter is expected to be in a range of 46% to 47%, about the same as the second quarter. Non-GAAP R&D and SG&A from continuing ops are expected to be about the same as the second quarter.

We completed the Wi-Sys integration in the second quarter and expect the related operating cost savings in the third quarter to fund additional investments in core scanning and antenna R&D. The Conexant royalty agreement is now fully paid up and we will not generate any income going forward. Other income is expected to range between $100,000 and $200,000 in the third quarter, before any potential mark to market losses from our investment in the Columbia Fund. The non-GAAP effective income tax rate is expected to remain unchanged in the third quarter at 18%. The diluted share count in the third quarter is expected to be about the same as the second quarter at 17.6 million shares before any potential stock buybacks. That concludes the financial review. I would like to turn the call over to Marty for his summary comments.

Thank you, John. As John has pointed out, we have focused on a key goal during the economic downturn, maintaining profitability. A year ago, our non-GAAP break even point was approximately $18 million per quarter. The actions that we have taken over the past three quarters have reduced the break even point to about $13 million per quarter. This is $1 million lower than last quarter. As John discussed, recent actions included the closing of our Ottawa facility and the consolidation of manufacturing and development in Bloomingdale. Additionally, we eliminated fixed manufacturing costs, G&A and sales expenses during the past quarter.

We have focused on the goal of maintaining profitability, while continuing the strong investment in R&D for the long-term benefit of the Company and the shareholders. In fact, R&D for the first six months of 2009 was 11% higher than in 2008. We are committed to maintaining our profitability and investing in our longer range product platforms across both businesses. While cost control is essential to maintaining profitability, revenue growth is our longer term priority. Our revenue growth requires portfolio expansion and building upon the momentum that we have established in key vertical markets.

As you may recall, we successfully launched our LTE scanning receiver at the GSMA World Congress in Barcelona this past February. During the second quarter, we sold and shipped commercially available LTE scanning receivers. While LTE is still an emerging technology, it will be a growth driver for our RF scanner line or RFF. It is our goal to establish a leadership position during the early stages of the technology rollout. Several our OEM resellers have completed the integration of our entire LTE portfolio and we anticipate a very active testing period with operators and infrastructure vendors worldwide.

RFS revenue growth also requires active participation in emerging telecom markets. In the past six months, our RFS group signed agreements with three new OEM customers in Asia, one of them in China. As a result, RFS witnessed relative strength from Asia during the second quarter. Our antenna products group has sharpened its focus on investing in vertical and regional markets. Some of this progress has been outside the US. For example, we sold several hundred WiMAX antennas into Scartel Russia for point-to-point wireless applications and expect follow-up orders. We sold our GPS network timing antennas into Saudi Arabia through a new distributor and now have a significant new distributor in Pakistan. Relative volume from China was also greater in the second quarter.

One aspect of our vertical market approach is to develop channels into the most attractive market segments. In the US, we are now the sole supplier into a major buyer that services the utility industry and we are supplying Itron, the world's leading provider of intelligent metering data collection and utility software solutions for their CenterPoint Energy project. This is consistent with our focus on the utility and energy segment and is an important element of our vertical market focus for the antenna group.

In addition to the progress in the utility segment, we're also making strides in the defense and agriculture verticals. In second quarter, we secured a new order from Raytheon for our [WAAS] antennas, utilized by the FAA and from Braemac, Australia's largest electronic component distributor, for five new defense projects. We also secured orders from John Deere for two new antennas for various agricultural applications. Our business with Emerson continues to develop for process control applications or SCADA. I'm also proud to announce that this past quarter, we were awarded Emerson supplier award. We were one of 40 of their 2,000 suppliers to be acknowledged for our performance. And I'd like to thank our employees for achieving this level of recognition. Finally, we are seeing increasing activity from Motorola pertaining to both Canopy and WiMAX.

It is difficult to forecast when this global recession will end and revenues will return to early 2008 levels. State and local communications spending does not yet reflected any obvious benefit from the stimulus package. And communication managers and network engineers continue to manage reduced budgets. Our approach to navigating through this period is three-fold. One, we'll manage our operating expenses and fixed manufacturing costs to whatever revenue levels that we generate. Two, we will develop new business in key vertical markets and new regions through R&D efforts, as well as targeted selling efforts. And three, we will continue to explore the industry for acquisition opportunities.

One last comment prior to taking your questions. We have just over $4 million authorized by the PCTEL Board of Directors to buy back our own shares. As we did last quarter, we will buy back shares in blocks or as they are available on the open market when we believe opportunity is favorable for the Company. With that, we've set aside 45 minutes for your questions. Operator?

(Operator Instructions) Our first question will come from the line of Matt Robison. Mr. Robison, your line is now open.

Hi, gentlemen. John, first, can you give me the cash flow from operations and CapEx? I might have missed that.

Yes, CapEx was $318,000 in the quarter. And cash flow from ops will be about [$23,050.]

Okay. That's a good number for operation cash flow. That reflects what you've done with expenses.

Well, actually, as I commented before, it reflects an excellent performance on working capital efficiency and receivables in inventory. And then also on unrelated -- we are also happy, even though it's not reflected in operating cash flow, that we did just a couple of days ago receive another liquidation in our Columbia Fund that brought that balance down to the 4.5 range.

Okay. Can you talk about the channel inventory at this point for the product lines? And so -- it sounds like you've got some -- a little bit more activity in the end markets, especially in the WiMAX but it also sounds like you've got some new verticals, too. Can you kind of tell me which of these markets you think is most likely to give you some ways to win on the antenna side in the next couple of quarters? And then, maybe go through what you think will happen to maybe result in a recovery in demand on the scanner side? It sounds like you're going to have a little bit of a lead in the LTE space. You dropped a hint with the EVDO that . maybe Verizon is not spending like they have in the past. And whether or not your current OEM's will be able to take sufficient market share from TEMS to make up for Ascom, or if that's even relevant?

Well, your last question is relevant but I'll get to it last. I want to talk about that with respect to the scanners. May I add, and thanks for making the effort to get on the call. I know you had a lot of other companies reporting tonight. First, with respect to the channel, I'm pleased to say that I only really see one significant distributor with what I would call an excessive stock situation. One of our distributors for Mexico, Latin America has had too much stock for awhile but it is starting to be sold.

We're able to talk to these guys about what they're selling versus what they're buying. And it looks to me like the sales that we're getting from these distributors is still a little bit greater than the sales we have going into those distributors right now. So, the short way of answering your question is, I see evidence of a pickup from the distributors to their end users, which I find encouraging. And I believe that our level of stock at most of the distributors is too low to sustain their service levels on an ongoing basis.

With respect to antennas and where we think that we could see a bounce, there's absolutely no question that we've got to see an impact from the stimulus package on state and local spending on public safety. It's still the case that the states are struggling with how to translate the stimulus money directly into network infrastructure spends. A lot of it, it seems, is currently going to plug budget gaps and is not well directed at this point towards specific infrastructure projects. And we've recently seen some very specific requests for proposals from state and local governments that I think will start to see an impact in the fourth quarter. But you have to remember that land mobile radio is still a significant portion of our antenna business and we need to see that recover.

Having said that, we're seeing some real strength in the utility segment, the agriculture segment and the process control segment for antennas. These are applications that really match well to our high level of development skill in our antenna business. We have a really strong development team, a lot of people out of some of the legacy companies in this area. And we have an opportunity for customization to service some of these applications in vertical markets. It's really our sweet spot and we're seeing lots of interesting applications. Smart Grid related or just communication overlay related in utilities, wastewater, water application in other types of utilities and a lot of process control, machine to machine and mobile resource management. All of that plays well to our product line and our services.

I also believe that you're going to see some increased point-to-point WiMAX growth globally. We're very encouraged with this recent order that we received from Scartel Russia. We expect there to be follow on there. And you're seeing some agreements between some large infrastructure players in Alvarion. We believe we've done a good job of getting designed in on some of the key base stations there and that will be important for our growth.

And finally, as you can see on our Website, we're spending more energy trying to reach the defense and military market. It turns out, really, that we've got somewhere between a constant level of 8% to 10% now of our antennas going into what you could broadly describe as the military defense market. And we've got some very nice applications there. We're looking to invest in increased sales capability in that segment.

I should also mention, along with sales investment, you may remember that last year we eliminated almost all of our manufacturing reps in the US and most of them outside the US. And we replaced that sales channel with inside sales capability. And it's turned out that that's been a really good decision. We're going to be expanding our inside sales. You won't see much of an increase in our OpEx, as we'll continue to look for other ways to become more efficient but you'll see increased investment in our sales activity.

Now, with respect to the scanners, what we said in our script here was that there was some confusion, as there always is when there's a consolidation of two companies. We don't think there's any confusion or decreased demand for our product at all. And we believe that the organization that was once TEMS and is now part of Ascom still has a very strong commitment to our scanning receivers. Nonetheless, if you're a customer and you see that kind of consolidation and you're an end user, you're not exactly sure what's going to happen and you delay decisions. We believe that that period of confusion is now past us. And that we should see a return to -- if not the same levels we had last year, certainly higher levels than we've been at in the most recent quarter.

And we think that we don't need to have another OEM reseller step up and take the place in any way of TEMS. We believe that they're going to remain a very strong channel for us. We continue to work closely with them. They're very well integrated now to Ascom organization. And our job is to just demonstrate that our scanning receivers can meet all of the demand. The legacy, historical TEMS demand and the demand that was formally met or currently met by Ascom's internal supplier. It's our job to compete every day while still, of course, servicing our very important OEM customers that compete with that company. We have a very strong relationship with the [Knight Nemo] and with [Swiss Call] and of course now we're selling into China.

You mentioned also -- or you asked for more information about this LTE and I'm not going to comment at all on Verizon. But I will say that I think there's going to be a need for awhile to spend on both EVDO scanners, while there's new purchases related to the technology rollout of LTE. I think that like everyone else, many of the carriers involved in the new technology rollouts are having to protect their budgets. I think this will sort out in the second half of the year. And I believe that LTE is going to be a net positive to us this year. And then, as we go out to 2010 and 2011, I think it's going to become a very significant element in our overall scanning receiver sales into the industry. I covered a lot of ground there in response to your questions.

Yes, I appreciate that. And I think I'll yield the floor just to give somebody else some more time. So, I'll follow up with you later, Marty.

Okay. Next? Operator, are you bringing on the next.

Yes, sir. Our next question will come from the line of Mike Crawford. Mr. Crawford, your line is now open, sir.

Thank you. Marty, just to continue the LTE discussion, could you try to -- can you comment on the opportunity for PCTEL in China with respect to their 3G rollout?

Well, as you know, China has some very specific technologies or regionally specific technologies and PCTEL made an investment a long time ago in supporting all of those regionally specific technologies such as TDS/CDMA. We think the opportunity in China is fantastic, as we do in India. I just met with a former executive from BS&L in India today. He was through our plant here. He says now India has roughly 480 million subscribers. Roughly 40% of the population now is on a wireless phone.

And as you know, in addition to just adding basic GSM capability, they're now migrating to higher capacity technologies in the same scenario as rolling out in China. I think our investments in all of the cellular standards supporting by these countries going to be a significant benefit for us. We're going to be able to support the local test and measurement companies, the local carriers, as well as our traditional OEM resellers. I don't want to put a dollar amount on it but I believe that those investments will certainly allow us to return to our 20% annual growth in the scanning receiver area that we enjoyed for several years before this recession.

And just -- I don't know if at all directionally you can break out, I know you don't want to specifically but scanning receivers versus LMR versus GPS and other antenna?

No, what we've told you in the past, we don't break out between scanning receivers and antennas because we don't do segment reporting. But I think what I said in the past, antennas is -- here's how you can think about it. About 45% to 50% of our business is what I would describe as public safety LMR. Okay? Then you divide the rest of it between WiMAX/Canopy as one category; GPS antennas as another category; and then data products such as Wi-Fi RFD as another. And so, I would say 50% is LMR. 25% broadly relates to GPS. And the remaining 25% is divided between the WiMAX/Canopy as one group and the Wi-Fi data as another. And that's sort of the way that I would sort that out.

Okay. Great. Thank you. Also, this question is more for John but on the diluted share count of 17.6 million shares, how does that resolve what the shares outstanding at the end of the quarter and at May 1, from your Q1 10-K or --?

Yes, because a significant portion of those shares are restricted shares. And so, when you do the treasury method, it becomes less because you -- under the treasury method, you have service-based restricted shares are considered bought back at the price of the service. So, when you see the Q's, you see a higher share count number.

Right.

Right. But when you use the treasury method to do fully diluted shares, you assume that issued shares that are restricted and are subject to service conditions, the way you do -- earnings per share, just if you go through the FAS, those are considered repurchased at the price they were issued.

And are those shares fully vested?

No. That's the whole point.

Right.

But in the Q -- but when you report, here's the shares outstanding via Wells Fargo, that that's the first number that you see in the top of a Q on the first page, is that includes restricted shares.

Right. So, if you were in a GAAP profit, then those will pop into your diluted count.

Yes, they pop into the diluted account but once again, they're considered repurchased on the value of the service that's going to be provided. So typically, what happens is restricted shares are pretty much out of a diluted share count. It doesn't matter what company you're talking about. While they're still subject to service conditions until the day they become unrestricted.

Okay. Great. Thank you.

And our next question will come from the line of Patrick Morrell. Mr. Morrell, your line is now open.

Thank you. Marty, just a question on the guidance here. You said that order rates were picking up in July. They were improving somewhat compared to what you saw in Q2. Was that more on the antenna side or the scanner side? Was it both of them? And does any of that confidence come from increased orders from TEMS?

Both and yes.

Okay. And then you talked about stimulus money a little bit earlier for the effect on public safety. Do you see PC-Tel playing in any other part of the stimulus package or is that kind of your number one option there?

Well, there's really two plays for the stimulus. One, is the general allocation of stimulus money to state and local governments for basic infrastructure projects, existing networks, things like the turnover of police cars, ambulances, as well as expansion of networks. But as you know, there's also specific money earmarked for public safety broadband networks. And we think that we'll be able to participate in that as well.

It's really -- I think I mentioned this at the last call. If I didn't, it probably was at the Baird Conference that I mentioned this, Patrick. That we're a supplier into Northrop Grumman and they have the Department of Transportation for New York City. And what a lot of people don't realize is some images that you've got, for example, that plane landing in the Hudson, were taken with public safety video capabilities. And they've established broadband networks for public safety and it's just really remarkable what's happened to public safety networks. They've gone from very low bandwidth to very high bandwidth because there's so much video data that has to be transmitted.

And I think we have a great example -- a great opportunity, not only in the legacy networks but for example, at 700MB, the so-called TV white space, really becomes well-defined and available for this national broadband public safety network. That is going to be right in our sweet spot. So, whether that's part of the stimulus package or not, there will be an opportunity. But you work out of Milwaukee, right, Patrick?

Yes, that's right.

So, we met with CIO for the State of Wisconsin. We had a great meeting. But the tragedy of the discussion is that the states really don't have a well-defined process for taking stimulus money and quickly allocating them to specific communication or data-related projects. And I still think it's going to take time to sort out. And perhaps that's the reason that only 10% of the stimulus money has been spent, program to date.

Sure. Just a last question here. You guys have done really a tremendous job keeping the OpEx down. I'm just interested to see, how much you can grow the top line while keeping the OpEx low? What kind of runway do you have with your current infrastructure?

There's a couple of things. First, I appreciate the compliment on the operating expense and our bottom line performance. But make no mistake about it, if we don't resume the type of growth that we had until this year, guys like you will be less interested in our story. And we're convinced that we are getting back on the path of growth and that we'll see sequential growth next quarter over this past quarter.

And I think the way to answer your question is this. Just as the experience curve and manufacturing or operations tells you that you ought to be able to reduce your costs by 30% with every cumulative doubling. I think that we could have a cumulative doubling of our business and we could do it with increases of less than 50% in total underlying budgets. Perhaps 40%. And I think as we look at the factory for antennas, what we believe is that we would fill our short term growth requirements with contractors and adding additional staff in Tianjin. And in the scanner business, there's absolutely no limitation on manufacturing capacity or any capacity to grow. And in fact, in the scanner business, we haven't really taken a chunk at all out of our sales and distribution capability there. So, I don't think there is a limitation.

All right. Great. Thank you.

I think if there is a limitation, Patrick, it has to do with our investment in sales and penetrating specific vertical markets in antennas. And as said earlier on the call, I see us adding three to four people over the next two quarters.

All right. I appreciate the color.

Okay, thanks.

(Operator Instructions) Our next question will come from the line of Brian Horey. Mr. Horey, your line is now open.

Thank you. Marty, I wondered if you could help us think about the likely timing of LTE scanning orders based on what you're seeing in terms of the network deployment? Thanks.

Well, here's what I can tell you. We have orders now but all of those orders are related to trials and very early deployment. And we're really under strict instructions from our customers not to describe exactly where they're going because they're trying to be circumspect about where they're going to first grow LTE and how it's going to be deployed. So, I can't give you any regional information. Having said that, I don't see any explosion of the LTE markets until mid next year. I think what you're going to see is early deployment, lots of trials but that ultimately demand for LTE and LTE combo scanners with EVDO is really going to be a 2010 event. And the growth will really materialize closer to the second half.

Okay. And that's more likely to be overseas than here in the US?

No comment.

Okay. Fair enough. Can you help us think about how to size the broadband public safety opportunity? What amount of dollars were specified for that? And if you think about the typical project and what antennas comprise of one of those projects, in aggregate, what might the spending on antennas be that falls out of that?

Yes, I think that allocation for the specific broadband was $30 billion for the broadband public safety network. Antennas, you can say is about 1% to 1.5% of that. So, you're looking at a $300 million to $450 million market over some period of time. And that's a market where, in the US we've typically received 30% to 50% of share in some of those areas and we've got products that are well suited. So, the trick is really not the overall size but the timing. And I wish I could be specific on the rollout of that but I cannot.

Okay. I'm just curious whether -- I understand the comment that states take some time to get a process put together, so they can actually translate the programs into actual projects and so forth. But I'm also wondering whether -- just the extreme financial stress that some of these guys are under works into the picture as well? Are all of the expenses really covered by the stimulus or is there some money they have to front or otherwise take on in terms of OpEx that may make them hesitate to do that until their budgets and revenue sources aren't under such extreme stress like they are in places like California and New York?

There's no question. One of the complaints about the consumption of the stimulus money is that some of it is simply going to pay salaries. And it's not really being directed toward the projects. And so, that's a problem in promoting new employment activity. And I think that for those reasons, the stimulus package in general is going to have -- at least those programs that are under state and local budgetary control, is going to have less of an impact than all of us would like to see but small antenna companies in particular.

Okay. All right. Thanks. And great job on cost control.

Thank you.

And our final question will come from the line of Bill [Frerichs.] Mr. Frerichs, your line is now open.

Thanks for taking my call. I have kind of a conceptual question here, which is to -- if you were creating a project management time line for the entire industry, knowing what components of a big rollout, such as LTE, will be required and then the typical lead times and capabilities of the manufacturers of various components, what needs to be ordered first, second, third and so on?

Are you talking about public safety or cellular?

I'm really talking about carrier type networks.

Well, Bill, have we talked before?

No.

But you're a current investor?

No.

I see. Well, if you're unfamiliar with our story, let me just point out a couple of things. On the antenna side, less than 10% of our revenue comes from carrier type markets and our greatest play there is with GPS timing antennas. As the cellular industry moves from analog to TDMA, they lose the inherent timing that's in that technology. And as they go to technologies such as CDMA and EVDO, they have to derive timing from a different source and they use our GPS timing antennas to do that. Other places where we play with carriers pertain to our WiMAX antennas.

So, as a way of getting a grip on what is going to drive our growth, the deployment of cellular networks is -- it doesn't have as great an impact as you might think on the antennas. Now, as far as the scanners go, then, 90% of our scanners do go into the cellular market through OEM resellers of test equipment. And I'll answer your question this way. Whenever there is a new technology, network engineers first have to have some kind of test tool suite. They have to be able to evaluate the propagation characteristics of their existing network. They have to be able to have some information about what will happen under different scenarios in deploying the new network. And so, they buy some test equipment to do that.

And then what happens, they start building out the networks. So, in terms of identifying what's bought, they buy infrastructure. And they buy handsets. And as they do that, they require more test equipment. And then, as the network gets more established, then they actually need more sophisticated test equipment and software because they've got to collect more data because they have to reengineer the system. They have to optimize its performance. They buy software to do post-processing and so on.

What we love is, we love situations where companies are -- or carriers are deploying new technologies rapidly in a very crowded space where there's existing technology and they need scanners that support all types of cellular standards. And we sell those type of combination scanning receivers.

Okay. So, that's very helpful because that's what you're going to get when you get the next generation technology, correct?

Yes.

Okay.

Okay?

Thank you very much.

Thank you.

And there are no further questions at the moment.

Operator, I think we're done with questions. Just a short closing comment. Operator? Thank you all for joining us on this call and Webcast. In the coming months, we are planning to attend the Capstone Small Cap Investor Conference in Milwaukee on July 29. And the Tech America AA Classic in San Diego on November 3. We look forward to seeing many of you at those events. Thanks again.

Ladies and gentlemen, we appreciate your participation and your interest. That will conclude today's PCTEL second quarter earnings call. You may now all disconnect.