PCTEL Inc (PCTI) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the PCTEL fourth quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will open up the call for your questions. Directions for queuing up will be provided at that time.

As a reminder, this conference call is being recorded for replay purposes. I will now turn the call over to -- I'm sorry -- to Dr. Schoen --John Schoen, Chief Financial Officer.

Hello, thank you for joining us today, February 24, 2011, for the PCTEL financial results conference call for the fourth quarter 2010. On today's call, will be Marty Singer, Chairman and CEO, and I am John Schoen, the Chief Financial Officer.

First, let me read the Safe Harbor statement before we begin. 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 information to reflect subsequent events.

I would now like to turn the conference call over to Marty Singer.

Thanks, John. Good afternoon to all of you, and thanks for joining us. For those of 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.

We achieved revenue of $18.6 million in the quarter, an increase of 26% over fourth quarter of 2009. Gross profit margin was 47%, our non-GAAP operating margin was 10%. Non-GAAP net income was $1.6 million, or $0.09 per diluted share. Cash and investments were $70.9 million. We generated $600,000 of cash and investments before buying back approximately 213,000 shares for $1.3 million during the quarter.

Now, I'll turn the call back over to John, who will discuss our financial performance in some detail. And later, I am going to comment on some of our business development, insuring a marketing efforts over the past quarter, as well as some of our current and future activities.

John?

Thank you, Marty. Our investors will note that the Company presents non-GAAP financial information in it's earnings releases.

The Company believes that, 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 sales of product lines, and related notes 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, www.pctel.com under Investor Relations.

My discussions of results will be based on our non-GAAP financial results. So, let's turn to revenue.

Fourth-quarter 2010 revenue was $18.6 million. This compares to $14.8 million in the fourth quarter of '09, an increase of 26%. The improved sales reflected significantly stronger volume in our targeted, vertical markets for antenna products. Antenna sales improved, to both our large distributors, and to OEM equipment providers.

Scanning receiver revenue saw a significant increase in sales, through it's value added resellers, such as Ascom, Anite, and SwissQual. For the year, revenue was $69.3 million, up 24% from '09. The general theme of success in targeting vertical markets for antenna products, and a general recovery in wireless test and measurement spending levels, were the primary drivers of the revenue increase for the year.

Now, let's turn to gross profit margin. Non-GAAP gross profit margin for the fourth quarter was 47%, unchanged from the same period in '09. For the year, gross profit was 45%, down two points from 2009. Both antenna and scanning product revenues increased year over year. However, antenna product revenue with it's lower margins, relative to scanning products increased at twice the rate of scanning revenue, accounting for the difference.

Now, let's turn to non-GAAP operating expenses, which were $6.9 million in the quarter, an increase of $500,000 from the same period last year. R&D decreased approximately $100,000, related to the completion of several investments in scanning receiver development. Sales and marketing was up approximately $700,000, due to the acquisition of Sparco in January 2010, an increase in commissions and variable compensation related to the increase in revenue, and the Company's invested -- investment in vertical market sales activities.

G&A is down approximately $100,000, from the efficiencies gained from the Company's realignment to a functional organizational structure early in 2010. For the year, non-GAAP operating expense was $27.9 million, up approximately $2.8 million over '09. R&D was up $1 million, attributed to two programs that have been completed. That is the integration of the Ascom scanning receiver product line, acquired in 2009, and the launch of the Company's MX scanning receiver platform.

Sales and marketing was up $1.9 million, attributed to the acquisition of Sparco in January 2010, an increase in commissions and variable comp related to the increase in revenue, and the Company's investments in vertical market sales activities. G&A was down $100,000 on the year.

Non-GAAP operating income in the fourth quarter was $1.9 million, or 10% of revenue, compared to $630,000 or 4% of revenue in the same period in '09. For the year, operating profit was $3.6 million or 5%, compared to $1.8 million or 3% last year. The increase in dollars and percent of revenue for both the quarter and the year, is reflective of higher gross margin on higher revenue, partially offset by higher operating costs.

Now, let's turn other income. Non-GAAP other income was $83,000 in the fourth quarter, versus $177,000 in the same period last year. For the year, it was approximately $400,000, down $0.5 million from 2009. The annual decrease from 2009 is about $200,000 from lower interest rates on the Company's investment -- investments, and 2009 contained a $300,000 gain from the liquidation of it's investment in Columbia Strategic Asset Fund.

The non-GAAP income tax rate in the quarter and the year was 18%, unchanged from 2009. Non-GAAP net income for the fourth quarter was $0.09 per share, compared to $0.04 for the same period last year. Non-GAAP net income for the year was $0.18 per share, up 50% from $0.12 per share in '09. The increase in both the quarter and the year, are attributed to higher operating profit, partially offset by lower interest income.

Now, let us turn to the balance sheet. Cash investments ended the quarter at approximately $71 million, about $700,000 lower than last quarter. Approximately $10 million is classified as long-term investment securities. In the quarter, the Company generated approximately $1.5 million of cash flow from operations, with capital expenditures of approximately $400,000.

The Company also repurchased approximately 213,000 of it's common shares for $1.3 million, at an average price of $6.30. The Company has approximately $2.6 million available under it's current share repurchase authorization.

Now, I would like to discuss guidance for the first quarter 2011. We anticipate first quarter revenue to be in a range of $17.7 million to $18.3 million, about 16% higher than the first quarter 2010, at the midpoint of our guidance range. While both antenna and scanner product revenue are higher than the same period in 2010, the success of the vertical markets program in antennas is driving higher growth than scanning receivers.

The result, is an antenna revenue mix in the 70% to 73% of total revenue range, up about five points from historical experience. With the relatively wide disparity between gross profit margins on antennas versus scanning products, the effect on total gross profit margin at this mix level is to yield a range of 44% to 45%. We see this trend continuing for the year.

Non-GAAP R&D and SG&A in the first quarter, is expected to be about $7.3 million.R&D is expected to be approximately $2.5 million, sales and marketing about $2.5 million, and G&A about $2.1 million. There are several factors contributing to the $400,000 increase over the quarter just ended.

The Company expects a $200,000 increase in R&D for it's consolidation of the PCTEL joint venture, PCTEL Secure. Additionally, we are replacing the Company's ERP and accounting system with Oracle in the first half of 2011. We anticipate approximately $200,000 per quarter of ERP project expense, to be additional G&A for the first three quarters of this year. It might be a little lumpy, but $600,000 for the year, $600,000 to $700,000 is about right.

Other income is expected to be about $75,000 in the first quarter. Along with other income below -- below the profit -- operating profit line going forward, there will be an elimination of the loss related to the 49% minority ownership of PCTEL Secure. So, that will be a credit of approximately $100,000 in the first quarter. The non-GAAP effective income tax rate is expected to remain unchanged going forward, at 18%. The fully diluted share count in first quarter is expected to be about 17.5 million shares.

That concludes the financial review. I'd like to turn the call over to Marty for his summary comments.

Thanks, John. The fourth-quarter results, both revenue growth and improved earnings, reflect progress in three major areas, our vertical market approach to antenna business development, delivering new scanning receiver products and technology to new and existing markets, and leveraging our aggressive investments in development. I plan to comment on each of these three areas.

With respect to vertical marketing, as many of you know, PCTEL restructured it's sales force just before the collapse of the public safety antenna market at the end of 2008. Three years ago, well over half of our antenna sales were the public safety market, and we lost about half of those sales as local and state tax revenues evaporated during the recession. We eliminated our manufacturers reps, assigned all of our distributors to a single sales executive and inside sales force, and focused our other sales executives on national and global customers, and their specific applications and markets. This was a big change.

We are now focused on a small group of vertical markets. These include SCADA, or Supervisory Control and Data, fleet management and asset tracking, military and defense, precision agriculture and utilities, and offloading. There are others, but these are our primary vertical markets. We organized our product management and marketing around these vertical markets, and developed expertise in critical applications. This focus on critical customers, their applications, and the broader vertical markets that they serve, has exposed meaningful growth areas to PCTEL that could result in significant scaling of the antenna business.

Today for example, offloading represents a relatively small percentage of our overall sales, but we see the potential of increasing that business several fold. In other words, where public safety grew incrementally and rather slowly, the new markets that we now address have the potential of step function type growth. In fact, we've seen 30% to 40% annual growth in several of these markets. Let me mention two recent opportunities that leverage our technology investment, and exploit the vertical market opportunities that we have uncovered.

GPS is an important antenna technology for PCTEL. As many of you know, we have applied this technology to the network timing market. As you probably know, as the industry moves to spread spectrum technology, they lose the inherent timing that was in earlier protocols, and it's necessary to derive timing from an external source.

Recently, several cellular carriers and telecom OEMs approved PCTEL's new, high interference rejection GPS antennas for terrestrial mobile broadband service. Without reference to any particular carrier, we believe that this product line should generate significant revenue over the next three years. These opportunities build upon our organic enhancement of our Wi-Sys and MicroPulse acquisitions, made two, and four or five years ago.

We describe the second example of successful vertical market development in our recent press release, on the deployment of our antennas in the Dallas Cowboys stadium, for both the Cotton Bowl and the Super Bowl. As with other stated environments, heavy smartphone-based data traffic interferes with voice call quality, performance and capacity. Offloading the data traffic to WiFi networks, protects the voice capacity of the cellular network.

These activities were value added solutions led by our San Antonio operation, which we established as a result of our Sparco acquisition. We believe that we may be able to replicate our success in deploying WiFi antennas in hundreds of stadium environments.

We have mentioned on earlier calls, that there is significant disparity between our antenna and our scanning receiver gross margins. While the success of the antenna vertical markets program is putting pressure on total gross profit margin percent, I want to assure you that we continue to remain focused on margin enhancement, for each of the product lines individually. Product development and production cycle time improvements were also a focus in the fourth quarter. We have improved the new product introduction process by introducing video build aids. These video short topics can now convey build specific information, that the operator can access as required.

Product development cycle time of custom antennas was improved with the addition of a 3D printer, that allows use of a range of plastic materials. If you want more information, see the recent Economist, with a cover that says, Print me a Stradivarius. It discusses these type of machines. All of the improvements will allows us to use our resources more effectively.

Now, let me talk about a little bit about delivering scanning receiver technology and products to new and existing markets. We are making significant progress on three important fronts, in our scanning receiver market development. We are selling to important, emerging, and developing markets. We are providing our EX scanner into LTE opportunities today. And we have integrated our new MX platform with all of the major resellers and OEM vendors of our wireless test equipment, who really represent our major customers.

An example of our success in developing markets relates to our relationship with Huawei. In the fourth quarter, we were successful in selling scanning receivers to India, through Huawei. We have been working with Huawei now for about two years, and in addition to opportunities within China, it is clear that Huawei is competing quite favorably with Nokia Siemens, Alcatel, Ericsson, Nokia and others. Unlike our early attempts to sell into India, which required dedicated PCTEL sales personnel, the Huawei relationship relieves us from this requirement.

We support Huawei with our resources in China and elsewhere, but we do not have to deploy India's specific resources. We believe that the same model will work for us in Africa. The Huawei relationship provides us with alternatives to the major OEM resellers, which is important during this period of consolidation.

We did expand our scanning receiver sales force in the fourth quarter, adding additional resource to our European office. This will help us in supporting OEM and direct customers in Europe and the Middle East. Our EX scanning receiver, which has been workhorse of our scanning receiver product line, continues to sell well in all technology areas. We continue to own about 50% of all the LTE scanning receiver sales in the US, and we anticipate stronger sales in 2011, particularly in the third and fourth quarter.

I mentioned also, that I wanted to discuss leveraging our development investment. You may recall that in our third quarter conference call, we explained that the disappointing earnings reflected two components; the lower gross margin, which was the result of products -- product mix issue, a lot more antennas, we've had in the past, relative to scanning receivers, and the high development expenses for our scanning receiver product line. We had extremely high prototyping and contractor cost, as we neared the completion of our MX and SeaHawk development cycle. Shortly after the call, PCTEL announced the successful delivery of both of those products.

During the fourth quarter, scanning receiver development expenses declined, just as we had forecasted and discussed with you on the conference call, to an annualized run rate that was $800,000 less than the run rate in the third quarter. This reduction contributed to our stronger earnings performance in the fourth quarter. We anticipate a further reduction, although we do plan on diverting some of our scanning receiver development resources to new projects associated with our PCTEL Secure joint venture, we do anticipate a further reduction of the scanning receiver development team.

PCTEL Secure, I should talk about that, just for a moment. In addition to the areas of progress that I just discussed, we announced our new joint venture with Eclipse Design Technologies, led by Tony Vitucci. We have made significant progress over the past two months. Tony Kobrinetz, who is our CTO, and heads up all of our engineering and manufacturing operations, oversees the daily operations of the JV.

PCTEL will be delivering an early prototype of our Secure technology product in the third quarter, and a commercial product by the first quarter of 2012. We will disclose additional information, as we make progress with customers, phones, and hardware, and our software releases. But this is indeed a very exciting area for us.

I did want to talk a little bit of our -- about our trade show calendar, which is -- represents other opportunities perhaps for us to meet, and discuss the progress at PCTEL. With respect to other activities, we have been active in our marketing our products and capabilities, and hope to see you at one of the many trade shows that we are attending this year. Just this past week, PCTEL supported a booth at the Healthcare Information and Management, HIMSS industry trade show in Orlando, and at the AUSA Winter Exhibition in Fort Lauderdale, which, of course, focuses on military and defense market.

During Q4, 2010 we exhibited at the 4G show in Chicago, the military communications conference known as MILCOM in San Jose, and had speaking engagements, at both the Antenna Systems Conference, and the Remote Conference in Dallas. In March, PCTEL will exhibit and demonstrate it's broad portfolio of antennas at the 2011 IWCE show in Las Vegas.

And later this year, you will find PCTEL at ENTELEC in Houston, CommunicAsia in Singapore, Cisco Live in Las Vegas, ION GNSS in Portland, again, at 4G World in Chicago, and two additional military shows, the AUSA Annual Meeting and Exhibition in DC, and the MILCOM 2011 in Baltimore. Again, we hope to see some of you there.

Attending all of these shows, turns out to be far less expensive than having booths at CTI in Barcelona, and is consistent with our vertical market approach to developing our antenna business, and, quite honestly, results in concrete business opportunity.

With that, we have concluded our formal remarks, and we have set aside about 30 minutes for your questions. Operator?

(Operator Instructions).

And your first question is from the line of Matt Robinson with Wunderlich Securities.

Hi, congrats. First, a couple questions on the financials for John. And then I got some for you, Marty. John, what did you say the operating cash flow was? And can you give us depreciation, headcount, and then why DSO and inventory were up?

Yes. Well, cash flow from Ops was $1.5 million, and CapEx was 400, so that gives you a free cash flow of 1.1. And the, I'm sorry, what were the other questions?

Depreciation and headcount?

I believe depreciation was roughly 5, 5.50, something like that, yes, close.

Okay.

And, DSOs were up about three days. Actually what happened was, we ended up getting some really nice business on the scanning receiver, and in late December, and a budget flush, and which was upside for us. And it just came too late in the quarter to collect the money, also in the quarter. And inventory was -- and we were kind of seeing booking rates for Q1, especially in antennas rising, because we're talking about a 16% increase at the midpoint of our guidance, and so we brought in inventory.

Okay. And did headcount change?

No.

It's pretty close to the same. I mean, maybe a couple of people up or down, nothing big.

Matt, the only place we've had significant headcount increase overall, is in our Tianjin factory.

Okay.

I think they are up to about 68 people there, but in terms of cost item, that cost us about $140 per person a month. Maybe a $150 per person per month.

All right. On PCTEL Secure, how should we expect the R&D to escalate during the course of 2011?

Well, we have budgeted up to $3 million of non-GAAP expense for the year. Of which, of course, you get $1.5 million credit back, for the minority interest. And so, I would expect that next quarter, because we will have some significant engineering expenses related to the phone development, I mean, for converting the phones to put our software on them, so, I would expect $500,000 next quarter, and with probably $200,000 a quarter increase each quarter going there.

So, 500, 700, 900 kind of thing?

Yes.

And then, with the minority interest being 49 --

And the minority interest would be basically half that number.

Yes. And when do we, do we have any opportunity for -- does that include any potential for NRE or any kind of projects that would --?

No, that would be upside. We've not put it in our financial plan any NRE revenue. So, if it comes, it will -- it'll be over and above the forecast that I just gave you.

Yes, we have a very conservative plan, on the earnings hit related to PCTEL Secure, and it does not contemplate any revenue at all this year.

Okay. And the G&A, I guess the sequential comparison reflects what you are doing with ERP, is that -- should we look at that as being a flat sequential progression through the year?

Yes. Basically, I would look at it as $200,000 in Q1, maybe $300,000 in Q2, and maybe $100,000 in Q3, and then be done. The issue is some of it is probably going to bleed into Q3, but $600,000 on the year, and then we are done.

Okay. And then, when you look at the business model for PCTEL Secure, Marty, you're talking about having products for sale about a year from now it sounds like, or maybe 15 months?

Yes, but your comment about NRE is an insightful one. There may be some work that we need to do for a couple of our customers, and the business model really contemplates four types of revenue, the sale of an integrated phone, the sale of an SD card and software, the licensing of product, and NRE.

Okay. Now, that sounds like a fair number of moving parts to budget around, so is it just, are -- do you have a pipeline of opportunity around each of those --

We do.

Or is it just NRE now, and you're looking to add the rest as you approach the prototype stage?

Well, we see a real pipeline, and I can't really get into a lot of detail because we have some confidential discussions going on with some of the potential customers. But our immediate opportunity is the delivery of an Android phone, with our security-enabling architecture on that phone to a system provider -- multiple.

And these system providers, are they like defense contractors?

Could be.

Or industrial?

Defense systems integrators and other system providers.

How long before, we should think about this business developing to the scale, comparable to the scanning receivers?

I think it will be -- the scanning receiver side by 2013. I think it will be about half that size in 2012.

Okay. Well, that gets us something to chew on. Thanks a lot. I'll come back if I have more.

Okay. Thank you, Matt.

Your next question is from the line of Mike Crawford with B. Riley.

Thanks. Regarding the Seahawk drive test solution, that you got out last quarter, is it too early to comment on demand attraction?

Well, the two products I can comment, we've already shipped both of them to customers. We had a really nice early shipment of MX. The Seahawk is really visualization software, and those would be for customers like systems engineering firms that buy stand-alone scanning receivers, without a big test and measurement system. And they want a capable visualization tool, without having a complete drive testing tool, that can also be sold to an infrastructure provider or directly to a carrier. But I think other aspect of it, quite frankly, is it simply helps sell our scanning receivers, because it presents the data that we have strapped in such a user-friendly way.

Okay. Thanks. And then, turning to one of your new vertical markets, the MIMO offloading solution for stadiums. So I mean you have done it for one stadium now -

So far we've done it for three stadiums.

Out of what, 400?

Yes. We think there are about 400 potential environments for this. And, stadiums of course, is a small fragment of the in-building or confined space or campus environment, where this is going to become important. For example, I think we mentioned either in the third quarter or the second quarter conference call, that we had a major installation for Kaiser Permanente. Again, it is a WiFi type system, that communicates with various moving parts within a healthcare facility, communicating with, for example, mobile pharmacy cards, offloading data traffic on to WiFi to keep voice communications clear. So there is a lot of opportunity for offloading.

In fact, it is a good question, Mike, I think you are probably pretty familiar with BelAir, a privately-held company in Ottawa. We made this really interesting device for them, where they have cable strand mounted WiFi access points, that are used as an outdoor offloading system. And we've developed these special, highly specialized ruggedized WiFi antennas that are underneath the bottom of these base stations. And it's designed for cable strand mounting. So, our focus here is to make the products available to value-added resellers, to do value-added reselling ourselves through our Sparco acquisition. And then of course, to sell to the OEM resellers of access points, whether it's Cisco, [Aruba], BelAir or others.

Okay. Thanks, Marty. And then, so you talked about how public safety in that business took a 50% hit. Yet now, with your vertical market focus, you're seeing your step function growth possibilities, and 30% plus in several markets. So compared with maybe the old PCTEL, where antennas were, I don't know what you want to call it, a $50 million a year business. Do you see the new ceiling 2X, 3X that, or --?

No, my goal is to triple this business in about four years, the antenna business. And I see the possibility of that being realistic for the very first time. When you look at public safety, we had over half of our business associated with an industry that grew somewhere between negative growth rates, and a great year was 8%. And we don't do segment reporting, but last year, we had very significant growth in our antenna business, nearly getting back to the strong 2008 levels that we had. And all of that was done, without any rebound at all in our public safety business.

So the growth in that business was significant. And the interesting thing about offloading, fleet management, network timing and SCADA, is that instead of thinking about these businesses as incremental businesses, you know, 5%, 6%, 7%, 8%, we can really see how over time -- I'm not sure what that time is -- these businesses could quadruple or quintuple. And that's what has gotten us very excited about the opportunities to scale our antenna business.

Okay. Thanks. And then, just, I don't know if you can break it out per se, but with a 25.5% revenue growth last quarter, if you were to back out the Sparco and Ascom effect, what would you say was your organic growth rate for the quarter and the year?

Well, with the -- first of all, I can tell you that Ascom, if you're talking about Comarco, did not contribute very much, and was one of the reasons we had to have an accelerated write-off of that asset. But, with respect to Sparco, remember that they were already selling our antennas. So I would say, if you look at the organic growth of the Company, it was still plus 20.

Great. Thank you.

Thank you. And look forward to going out with your team to investors, Will.

Okay.

I'm sorry, Mike.

Your next question is from the line of Will Power with Robert Baird.

Hi, Marty. You knew I was coming up, I guess.

Yes, I saw your name, as I was saying goodbye to Mike.

Just the other day -- a couple of questions. You talked about some of the success with Huawei in India on the scanners side. I wondered if you could just talk about geographic strength, weakness, generally for that business, touching maybe on China, and the US and wherever?

It's really interesting, and it's a great question, Will, because I don't think people realize in the scanning receiver business, probably 60% of our business now is outside the United States. It is hard to tell you exactly where it goes, because such a high percentage of our sales go through Huawei, Ascom, Anite and SwissQual and Acuvare, and of course they sell throughout the world.

We are pretty aware of where they are taking these products, because we are aware the bids, and sometimes they are competing with each other, and we have good knowledge. But as far as we can tell, about 60% of our business is outside the United States. Now what I can tell you is this, China, India and Africa are going to be important to us in 2011, possibly as important as LTE in the US. LTE is still moving somewhat slowly, and although we are getting early deployment wins, there is still a great deal of excitement in China with growth. We are going to see -- we are going to have a TD LTE scanner pretty soon, to assist in our efforts there. We're seeing a lot of strong activity with Huawei. India continues to put in a new base station every 20 to 25 minutes, which by the way, in the second half of last year, our strongest selling scanner receiver was either GSM alone, or GSM combined with another technology, largely because of India. But the biggest surprise for us, Will, is how much activity there is in Africa, where all of our resellers, our value-added resellers are taking our scanner into Africa at this time.

What do you think has been the driver of that? I mean, Africa , I guess, is still relatively under-penetrated, but you've had some pretty strong growth there for a couple of years. Is it, occupies in a network, or --?

I think it's just really, I think I would just call it greenfield. I think it's building out new networks, and then dealing with congestion in some concentrated areas. But you've got an under-served network, you've got base stations going up, you need to see them with scanners, you need to understand the network with scanners, and all of that is very helpful.

Okay, and I want to come back to the WiFi offloading opportunity. You talked about some of the stadium opportunities, and expanding beyond that. I wonder if you could talk a little bit about the competitive environment. What you're seeing there, and as you looked at the Dallas Stadium opportunities, any sense that, any color you can provide on the competitive situation there, that might provide some benchmarks going forward?

Competitive, with respect to antennas, or who is in the access point business?

Well, yes, on the antenna side.

Well on the antenna side, there's nothing new there. We compete with Laird, because they made acquisitions of Cushcraft and Antenex. We compete with two Israeli companies that have flat panels, which are MARS and MTI. We see a little bit of competition from some other vendors there, but those are the primary vendors. And the deal is there, to deliver specialized antennas that can direct coverage, boost coverage, shape coverage, and then believe it or not, there is a fair amount of customization for non-RF reasons. And maybe you understand this, Will, living in Dallas, but Jerry Jones had to have those antennas in Dallas Cowboy grey, so that they were aesthetically pleasing. So we had a whole new SKU based on color.

Got you. Okay. Yes. Thank you.

Anything else?

I think that's fine -- I can follow up with you.

Okay, and I will call you, Will, and not Mike, all right?

Sounds good.

Okay.

(Operator Instructions).

Your next question comes from the line of Tallie Taylor with Morgan Stanley.

Hi, this is actually Orin Hershwin from AIGH Investment.

Okay.

Congratulations on the progress.

Thank you.

Could you go just through again, the increase in expense sequentially, and whether that increase that you had mentioned, had actually included your share of the cost from PCTEL Secure?

In fourth quarter, there were really no cost for PCTEL Secure, other than some legal expenses. But, I will let John Schoen comment on our cost and what --

So the way the accounting works for the joint venture, is you were going up from zero in Q4 to $200,000 worth of cost. And the way joint venture accounting works, is you put all of the revenue -- and in this case there is none -- you put all of the cost in, come down to a earnings per share before minority interest, and then you do an elimination of the minority interest, and have an earnings per share after. And so [theoretically], we'll add $200,000 to operating costs, and then way down below the operating profit line, there'll be $100,000 credit that comes back.

So can you just reiterate the sequential change in overall operating expenses, and whether half of the $200,000 -- (inaudible)

Yes. So basically, there is a $400,000 sequential increase, $200,000 of it is the addition of PCTEL Secure, and $200,000 of it is the -- we started the ERP system project in January, so that is 400 -- 200 and 200 is 400.

Okay, and just a couple other questions. Just in terms of what it's going to take to get the Company to $20 million, $22 million, $25 million type of quarters, what do you think are going to be the drivers to do that, over the next year or so? What are the key drivers, since you got (inaudible) name the top three? And I have one other follow up

Okay. I'll give you for 2011, there are three drivers to getting our Company above $20 million, or more broadly, simply reaching our goal of trying to increase revenues consistently by 15%. Number one is, exploitation of key vertical antenna markets. Those would include our success in developing the offloading market, the SCADA market which includes telemetry, machine to machine, and our work with various types of control devices. It would also include a fleet management, precision agriculture and network timing. So, success in vertical markets is the number one driver of our growth. The second is the deployment of LTE and TD LTE and other new technologies. There may be something going on with your phone, you might want to put on mute.

Yes, I apologize.

There's a lot of scratchiness. But anyways, LTE and TD LTE will be very important drivers. And then the third, is our exposure, and we have a pretty good exposure to emerging markets. And, as Will asked before, about how our scanning receiver business breaks down, in terms of revenue by region, we are seeing more and more opportunity in Africa, India and China, which we would like to exploit, so vertical markets first, exploitation of new technologies LTE, TD LTE. And of course, the success of our new scanning receiver product that we just feel good, and our exposure to emerging markets. And all of those will contribute to higher revenues per quarter. What is your follow-up question?

My follow-up question is just in terms of discussing any competition for the PCTEL Secure product that is coming?

Yes. There are different types of competitors there, but that's not a discussion I would not like to get into on the conference call.

Thank you very much.

Okay, thank you. Are there any other questions? I don't see anybody else -- oh, Ted Moreau?

Marty?

Yes, hi, Ted.

Real quick, you were talking about a lot of drivers, and I know there is a lot of moving parts, but one item that really struck me that could be major for you, is the FCC is talking about mandating LTE for public safety markets. And I presume that's part of your sort of growth outlook here. But I just wondered if that, is that something very much incremental now that, in light of your comments on public safety and LTE?

It would be totally incremental, Ted. It is not part of our growth plan only because, we just don't see any funding for it right now. We do believe that public safety is going to go in the direction of LTE, because in general, broadband capabilities is important to surveillance, and other bandwidth consumptive activities. And, we will be prepared for that with appropriate antennas, and if they need our scanning receivers. But we are not counting on that for our growth at this time. But we are prepared to participate.

Right. And can the FCC mandate this, to the various municipalities? I presume that they can, but --

They can mandate it, but you still have the question of -- you've lived in Wisconsin, right? You can't even get together a budget for salaries for government employees, than where they can find money to build out a network?

Right.

So, I think we have a couple of years before that is a serious growth factor for us.

Right. Right. Great. Thanks, and congratulations.

Thanks a lot.

And I would like to turn the call back over to Mr. Singer for closing remarks.

Okay. Well, thank you very much. I appreciate your participation in this call. We look forward to meeting you at various industry events over the next quarter. And we look forward to meeting with you again, at our next earnings conference call. Thanks again, for your continued interest in PCTEL.

Thank you for joining. This does conclude today's conference call. You may now disconnect.