PCTEL Inc (PCTI) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the PCTEL first quarter 2011 conference call. At this time, all participants are in a listen-only mode. Later, we will open up the call for your questions. Instructions 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 John Schoen, Chief Financial Officer.

Thank you for joining us today, April 27th, 2011, for the PCTEL financial results conference call for the first quarter 2011. On today's call will be Marty Singer, Chairman and CEO, and I am John Schoen, the Chief Financial Officer.

Before we begin, I'd like to read our Safe Harbor statement. 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 filing. 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.

Thank you, John, and good afternoon. For those of you who 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 $18.2 million, an increase of 17% over the first quarter of 2010. Our non-GAAP gross profit margin was 45%. Our non-GAAP operating margin was 4%. Our non-GAAP net income was $832,000 or $0.05 per diluted share. Cash and investments were $68 million.

I'm going to turn the call back over to John Schoen, who will now discuss our financial performance in some detail. Later, I will comment on some of our business development, engineering and marketing efforts over the past quarter, as well as some of our current activities.

John?

Thank you, Marty.

Our investors will note that the Company presents non-GAAP financial information in its earnings releases, and the Company believes that presentation of gross profit, operating profit and net income, excluding restructuring charges and non-cash-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 receivable, and non-cash-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. So, let's start with revenue. First quarter 2011 revenue was $18.2 million. This compares to $15.6 million in the first quarter of '10, an increase of 17%. 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 modest increase in sales through its value-added resellers, such as Ascom, Anite and SwissCall.

Now, let's turn to gross profit margin. Non-GAAP gross profit margin for the first quarter was 45%, down 1.5% from the same period in 2010. Compared to the same period last year, gross profit margin improved in antenna products, but declined in scanning products, as the newly introduced MX product line has a slightly higher cost profile than our other scanning products. The net result of the margin changes, as well as antenna products continuing to comprise a higher percentage of the Company's revenue, resulted in a lower gross profit margin percent.

Now, let's turn to non-GAAP operating expenses, which was $7.5 million in the quarter, an increase of $500,000 from the same period last year. R&D decreased approximately $200,000 related to the completion of several projects in scanning receiver development, which was partially offset by increased spending for the new PCTEL Secure product. Sales and marketing was up approximately $400,000 due to the Company's investment in antenna vertical markets and PCTEL's sales -- PCTEL Secure sales and marketing staff, as well as an increase in commissions related to the increase in revenue. G&A is up approximately $300,000, of which half relates to the ERP project that we undertook this year.

Our non-GAAP operating income in the first quarter was $794,000 or 4% of revenue, compared to $275,000 or 2% of revenue in the same period in 2010. The increase in dollars and percent of revenue for the quarter is reflective of higher gross margin dollars on higher revenue, partially offset by higher operating costs.

Our non-GAAP other income was $80,000 in the first quarter versus $159,000 in the same period last year. Last year contained approximately $60,000 of one-time credits.

The non-GAAP income tax rate in the quarter in the year--is expected to continue to be 18%. It was 18% in the first quarter.

Non-GAAP net income for the first quarter was $0.05 per share, compared to $0.02 per share in the same period last year. The increase in the quarter is attributed to higher operating profit, partially offset by lower interest income.

Now, let's turn to the balance sheet. Cash and investment ended the quarter at approximately $68 million, about $3 million lower than last quarter. Approximately $15 million is classified as long-term investment securities.

In the quarter, the Company used approximately $1.3 million of cash from operations, as compared to using $1.1 million in the same period last year. As a reminder, the first quarter of each year includes the payment of annual accruals and the withholding tax on the annual vesting of employee-restricted stock. Depreciation in the quarter was $630,000.

Capital expenditures were approximately $1.8 million, as compared to $152,000 in the same period last year. The first quarter 2011 capital expenditures include approximately $1.1 million related to the Company's ERP system project.

The Company did not repurchase any shares of its common stock this quarter. There is approximately 2.6 million available under its current share repurchase authorization.

Now, I'd like to discuss the guidance for the second quarter 2011. We anticipate revenue to be in a range of $18.5 million to $19 million, about 5% higher than the second quarter 2010 at the midpoint of the guidance range.

Non-GAAP gross profit margin is expected to be between 45% to 46% or about the same as the quarter just ended.

Non-GAAP operating costs are expected to be about $7.6 million with a sequential quarterly increase of $100,000 in R&D related to PCTEL Secure, and SG&A being unchanged from last quarter.

Other income is expected to be around $75,000, and the credit for the elimination of noncontrolling interest in PCTEL Secure is expected to be about $200,000.

The non-GAAP effective income tax rate is expected to remain unchanged going forward at 18%.

The fully diluted share count next quarter is expected to be about 17.8 million shares.

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

Thanks, John.

My comments this afternoon will be brief, and they will focus on three areas; operational progress, which includes both our factory operations and development, our business development activities, and third, PCTEL Secure. Much of this will reinforce the comments and messages that I have made in recent investor presentations.

During the first quarter, we made presentations to approximately 40 investors. We post all our investor presentations on our website. In May, we plan to present at both the Baird Growth Conference here in Chicago and at B. Riley's Investor Conference in Santa Monica. We will also be making additional presentations in Milwaukee and Chicago next month, and we hope to see many of you at these events.

John's review described the financial results associated with our operational progress. As we have stated on previous calls, we have three operational levers to pull; our antenna products gross margin, the amount of development expense related to our scanning receiver product line and the speed with which we can grow revenue. Although our new PCTEL Secure joint venture is important to our future, and we will be investing in R&D and marketing for this new product in 2011, we do not expect any revenue in 2011.

With respect to those three levers, we are making progress. Our antenna gross margins continue to improve. We continue to move additional SKUs to our Tianjin facility and continue to work with our suppliers to secure cost reductions.

In Bloomingdale, the revenue for manufacturing headcount continues to improve, and we have made investments that will drive down production costs. One example of this is our recent acquisition of a 3-D printer that dramatically reduces our prototyping costs and accelerates our response to custom-design requests from key customers. Overall, we are targeting to improve our antenna gross margins this year by 2% to 3% over last year.

Similarly, we continue to pare down development costs related to scanning receivers. As we reported to you last October, our development costs were $7.5 million on an annualized run rate, and we committed to decrease these levels by the end of the year. We can report progress on that front as well. Our run rate development expenses are now at about $6 million on an annualized level. The elimination of prototyping expenses associated with the introduction of the MX and temporary contractor expenses account for most of the reduction.

We are now fully supporting the early commercial introduction of MX and the SeeHawk with a more reasonably sized development team. We are pleased to report significant MX sales during the first quarter and continued enhancement of our EX product line. These enhancements include a TD-LTE scanning receiver for China, EX LTE MIMO, as well as the addition of up to 6 cellular standards on our new MX platform.

Finally, we have been making progress on growing our revenue more aggressively than in the past. As John already pointed out, we generated $18.2 million in revenue in the first quarter of 2011, a healthy increase over the $15.4 million last year at this time, and that reflects a 30% to 40% growth in several antenna markets and improvement in our scanning receiver sales. Our goal is to return, and then surpass, $20 million per quarter during 2011.

Specific accomplishments include expansion of our offloading business through Cisco's Jackhammer project and the success of our high-rejection GPS timing antennas in the deployment of spread spectrum cellular standards. We continue to expand our business with Huawei, which has now resulted in a new market for us in Australia. Finally, our EX and MX scanning receivers have been selected as the preferred scanning receiver at the second-largest US operator.

I should briefly mention that PCTEL Secure continues to make progress, and we anticipate revenue contributions from the JV in 2012. In the first three months, PCTEL Secure disclosed an important invention related to device security, we established a supply agreement with an OEM for Android cellular phones and generated a set of security threats from malware to demonstrate the vulnerability of modern smartphones. We plan on demonstrating prototypes of a solution that thwarts these threats in the fourth quarter of this year. We can report that we are on track.

We have been extremely active at trade shows, although not the traditional events that most of you attend, such as CTIA or the Mobile World Congress. We have a presence at those shows, but we have determined that we are better off supporting booths at trade shows that focus on specific vertical markets or that meet the needs of our distributors and VARs. To date, we have had booths at AUSA, HIMSS and IWCE. In May and June, we will be at Entelec and CommunicAsia in Singapore. We hope to see some of you at these upcoming events, as well as at the previously mentioned investment conferences sponsored by Baird and B. Riley.

With that, we'll open up the call for your questions. We've set aside 30 minutes. Operator?

(Operator Instructions) Matt Robison, Wunderlich Securities.

Listen, can you gives us some color, Marty, on how you see the year unfolding from the standpoint of -- when you see the -- you mentioned exiting the year, I think, at a quarterly run rate of about $20 million. It looks like you're thinking $18.5 million to $19 million for the second quarter or something like that or I guess you've ranged it a little lighter on the downside. But, how does -- how do you see the two businesses -- the seasonality of the two businesses and how do you see the -- what's the book-to-bill like these days?

Well, as you know, in the scanning receiver business, we don't have much of a book-to-bill. That business is very responsive to specific customer projects that come to us through Ascom, SwissCall, Anite, Huawei, and others.

We have a little bit more visibility on the antenna side. The run rate business from the distribution channel has been strong, and we do anticipate some upside in certain areas, particularly our high-rejection GPS antennas, which has been really a pleasant bluebird, if you will, for the year.

We're not willing to increase guidance at this time for the year, but we do have enough visibility on the antenna side to see that $20 million per quarter should be reachable before the end of the year.

The way it's unfolding for us is we see three elements of upside for the scanning receivers. One, we're finally seeing LTE deployment in the US. Two, now that China Mobile is the largest operator in the world with 500 million subscribers, and we have access to that market through Huawei and others, we see an upside there that we had not seen earlier. And third, we are getting a pretty good mine share with the MX.

There's characteristics of that product that are very attractive to customers; for example, being able to support eight different frequencies and within each frequency, being able to measure the entire band, not just the center of the band, as some of our competitors do. And that results in the difference between us having an HD-type -- HDTV-type version of visibility of the network versus an analog TV version of the network.

The other characteristic, of course, is that we can support two broadband technologies simultaneously, and by June, we're going to be able to support two broadband technologies and four other technologies in that product. So, you'll be able to look at six different network types simultaneously with the MX. It's valuable not just to the operators and the test and measurement guys, but to people like LCC that provide service to various operators across borders.

On the antenna side, there's also three trends that are really helping us out. Offloading is emerging as something really important. Customers, like Cisco, Aruba and BelAir have really active programs to provide backbone Wi-Fi networks in confined areas, like arenas. And we think the Cisco Jackhammer product, in particular, is going to be very successful in that regard, and we're pleased that we're a vendor to them.

Also, I've mentioned this GPS timing antenna, Matt, and what's interesting about that is that it's one thing to put out a GPS antenna for timing, and, of course, we have competitors there, but it's another thing to put out a GPS antenna for timing and try to do that next to the O'Hare Airport where you have about 3 billion GPS antennas all sending and receiving conflicting signals. And with our high-rejection antenna, it rejects all that noise and interference, and it leaves the operator with a clean way of driving timing from a third source.

And the fourth area for growth for us -- the third area for growth for us in antennas has to do with SCADA. We're really seeing an explosion in the SCADA market, supervisor control and data acquisition, and that includes machine-to-machine, telemetry, operational control, and so on.

And just think about it, we're going into areas that we're really not close to where we were when we were so focused on public safety. But, anything from an Archer Daniels Midland food processing plant to water or wastewater management or oil and gas, it's all basically the same thing; specialized measurement tools, radios and gauges all supported by our antennas.

So, those are the elements that are driving our business.

Why SCADA now, just because you're ready for it and your competitor is sleeping, or is there --?

-- I think a little -- I think maybe two or three years ago when we were getting half of our antenna business from public safety, we were a little bit less focused on this, quite frankly.

And I think also, though, that the availability of broadband in the private enterprise space has made putting operational control over wireless more tenable to business owners. But, in addition to that, there's just an explosion of applications that didn't exist before.

A good example was Smart Grid. Three years ago, Smart Grid wasn't a big deal. Now, you've got GE and Cisco talking actively about this; the combination of switching and GE radios all designed to optimize and make more efficient the flow and availability of electricity over transmission lines, and they need antennas for that.

Water and wastewater management is becoming a bigger issue. And I will say this, there's some areas in SCADA that are totally a function of things completely outside our control. As oil prices climb, there's more interest in outfitting oil and gas wells with some type of monitoring device and there's more exploration.

So, all of those elements are beneficial.

And John, what do you think is going to happen with cash flow this year?

At our current pace, I think what we'll do is we'll do about 10% EBITDA, and you're seeing us tracking towards that, especially in the first quarter, which is always our lowest quarter. The -- and I think at this point, we generated about $1.4 million of EBITDA in the first quarter. The issue was the year-end accruals.

I would expect that we'll generate somewhere in the -- from the P&L side, we'll generate somewhere around $8 million plus in EBITDA. The key is we'll spend about $2 million on CapEx, for normal CapEx, and about $2.2 million to $2.3 million for the ERP. So, call it $8 million on that side minus $4 million, $4.5 million for CapEx, so call it the $4 million range free cash flow.

Okay, thanks. That's very helpful.

Mike Crawford, B. Riley & Co.

Marty, in your release, you also singled out not just SCADA and offloading, but Positive Train Control. So, I know there's been some legislation to have this installed, I think, by 2015, but I think a lot of railroads are looking to put it in more quickly. So, is that something that you see as meaningful to PCTEL's business in the coming year, and who are you working with in that vertical?

Thanks for that question, Mike. Yes, it is meaningful, and it includes and involves many of our existing products. People that we work with include some entities that you know, like CalAmp, but there are other people competing for those same projects.

And the beauty about our position in this marketplace is that we're antenna suppliers to all of the solution suppliers, but we do have competition in this market. But, we think that this is a growth area for us, and I'm glad that you reminded me that I mentioned this in my press release.

Yes, so are you working with CalAmp on their Metrolink deployment?

Correct.

Okay, great. So, that's one.

And then, on this MX receiver -- so, do you expect margins to improve quickly there as you gain more experience in building them?

It's not really experiential in this way. We have a digital processing board here that I think has 17 layers and 1,700 gates, and it's a type of processing board -- let's say we ship 400 of them. With 400 of them, you're not going to move down the experience curve within the year. It's going to take awhile. This is just a much more expensive product to build.

But, on the other hand, Mike, here's the deal. Where somebody would have to have combined two EXs to get the capability of an MX, just in terms of handling two broadband cellular standards, now you're doing it in one product. So, we are able to charge more for this, but the cost of building this is still significantly higher than the EX, which has been around for three-and-a-half years now.

So, I don't expect margins to improve this year and -- maybe slightly within the MX they will improve, but overall, what we have said is margins will decline slightly in scanning receivers as MX begins to comprise a larger share of our sales.

Then, regarding the MX, you singled out another company we're familiar with here, LCC. And I'm wondering if any collaboration with that company there would be incremental to what you've been able to do in the past. Is that something that you would consider to be almost like an expansion of a channel for you where they're going to bring you into more markets or have you done much with them in the past?

Well, LCC has used some of our scanning receivers in the past. And what's so important about a company like LCC is its international presence.

And why I singled them out is when you think about scanning receivers and who uses them, it's true that somebody like Verizon will use them in a single market or somebody like Ascom, Anite and SwissCall will embed them in their test equipment, and it will be directed, in many cases, to a market, India, China, etc.

But, when a company like LCC deploys a piece of test equipment, they need incredible flexibility because their engineers are portable, and they want portable equipment that they take from the US to Canada to South America to Europe and so on.

And so, the ability to handle eight different frequencies at which you might have cellular coverage and the ability to compare and contrast different technologies at different frequencies is particularly important to those type of leading engineering organizations.

So, the goal for us is not to call out service-related or engineering service companies as a new channel for us, it's an existing channel, but rather it's to state that we think we've designed a product that will be more useful to them than the other products on the market, and we have an opportunity to increase our share.

Okay. Great, thanks for that clarification.

And then, final question relates to PCTEL Secure. So, we are seeing an increased desire from parts of the DoD, such as the Army, to really increase -- incorporate handsets, like Android platforms, onto the battlefield and link them up with things like Blue Force Tracking. And that seems to be a great trend for your business that you're building right now, but are you at a stage where you are engaging with some -- these customers or are you -- is that still something that's six months off the horizon?

We're absolutely engaging with all of these customers today through presentations to handset developers, ruggedized handset developers, and defense systems integrators and certain government customers.

We are able to demonstrate the architectural gaps that permit invasion by these threats, and we're able to demonstrate the threats. And we'll be demonstrating how our architecture stops or prevents these threats in October on a wide phone. So, today, our presentations include very compelling demonstrations of the threats and our knowledge of how these threats work.

So, for example, Mike, we gave a presentation in New York to a few investors where we went out and bought my phone, and I won't name the brand of the phone. But, we bought my phone at a Best Buy, and we put a couple of Gmail accounts on the phone. And then, what we did is we sent some attachments to that phone, and we took a picture with that phone.

And as we're giving the presentation, and we have a computer hooked up to a website that we've set up, here's what happens. The picture that we took shows up on the screen. We open up a file, and every private file that we've sent to that phone shows up on the screen. And then, we click on another file, and what happens is you can hear the recorded conversation that's taken place over the last 15 minutes, and you can't turn that microphone off unless you take the battery out.

Furthermore -- you mentioned the government, but, of course, there's heightened interest in this area because of what just happened with the iPhones over the weekend. So, suddenly, people have all of sudden discovered that all this GPS information can be stored and sent someplace.

Well, it's one thing for Apple to be doing it. It's another thing for the people who create these threats to do it. So, just as we could open up a mike and record a conversation, we can create a file where all the GPS location information associated with that phone gets dumped into that file and could be used for any number of purposes.

So, you are right that there's very heightened interest in this area. I think it's going to be attracting increased attention over the next year. I think our timing of having something in October is perfect, and it's in synch with how this market is gaining momentum.

Okay, great. Thank you.

By the way, Mike, we'd love to give this demo of the threats at the conference in May.

Yes, well, let's just not steal too many pictures off my phone --.

-- Okay. Well, I don't want to get into your personal life.

Will Power, Robert Baird.

All right, thanks. Yes, I guess I had a couple of questions.

Marty, you alluded to the GPS timing antenna and some of the opportunities there. Are you seeing revenue today or do you expect that in Q2 or is that really something that starts to gestate as you move through the year and more 2012? What's the expected timeframe --?

-- We shipped several thousand of these antennas in Q1. We're going to ship many more thousands of those in Q2. This is revenue to date.

Okay.

And so, the expectation is that continues to accelerate, I guess, as you go through the year?

Absolutely.

Okay.

I guess I hadn't heard much on public safety. I know it's obviously not the bigger growth driver now, but can you update us just on where you sit with public safety on the antenna side of the business, how much exposure do you have there and what you're seeing today out of that area?

Yes, I'd basically say this. Back in 2008, Will, we were about a $49 million to $50 million antenna company in our revenue profile. Half of that, maybe slightly over half of that, was in public safety, and in one year, we lost half of that because there were no state or local tax revenues to do things like refresh the police car fleet or the ambulance fleet or even for basic maintenance. And in 2010, we saw absolutely no evidence of any growth in public safety. In total, in fact it may have declined a little bit -- and by the way, we think that we've maintained our market share.

However, there are pockets of growth. One example would be video surveillance. So, there are video cameras going up, people are using broadband, there's some broadband backhaul, and we're selling our antennas into those applications.

But, the basic dynamic here, Will, is that villages and townships and cities, instead of refreshing their police car fleet every two years are going to do it every five or six years. And -- although I know you secretly work in Dallas and not Wisconsin, the home of R.W. Baird, take a look at Wisconsin and Illinois state budgets and just ask the question -- where are they going to get any money for public safety networks?

And so, public safety will be there, but I have to say I am breathing a sigh of relief right now that our growth rate is no longer tied to public safety. And I think you use to ask me questions, Will, and they were great questions, about how we could scale the antenna business. And we were so heavily weighted towards public safety it was hard for me to see growth that was more than 5% or 8%. And in fact, of course, in 2009, we got wacked.

Well, now, in these SCADA areas, in fleet management and GPS timing and other private network applications, we are seeing growth rates of 30% or 40%, and it's been a benefit that we've separated ourselves from that path.

Yes. No, it makes -- that makes sense.

So, I guess, thinking of the antenna business, any tell around the geographic mix there? Now, it --.

-- 80% US, 20% outside the US. It's a little bit difficult for us to give you precise numbers and I'll tell you why. We manufacture stuff in Tianjin. It goes to people like Motorola and Cisco. We really don't know where all that goes, okay?

But, we do know that when we get a design win for Cisco or a design win for Alvarion, we have some general idea of what countries we sell to. And also, we have explicit sales through distributors, such as Sistemas in Mexico, Toyo Ram in Israel, and others where we know that these are non-US sales. So, our best estimate is about 80/20.

And then, the other way we split our business antennas is distributors versus OEMs. When we took over this business, it was a 70% distribution business, 30% OEMs. I would say now we're at about 60% OEM and 40% distribution. And that is really a positive trend for us for two reasons. One, it relates quite a bit to what Jeff Miller has done in creating these vertical markets, trotting through defense systems integrators, other large OEMs, that get acquainted with not just our products, but our capabilities. And we do more and more for those OEMs, and those are good projects for us.

And the second thing is whatever we do for OEMs eventually becomes a funnel for what can become a mainstream distribution product. It is the pipeline for our future distribution products.

Okay. I think that makes sense.

And then, I also just wanted to ask you about operating margins. I know you gave some of the guidance for Q2, but as we move in through the back half of the year, any lumpiness we should expect on either the ERP side -- it sounds like that's, I think, a bit more front-end loaded here --.

-- Correct --.

-- And/or some of the smartphone costs -- what are some of the puts and takes we should think about on the OpEx side, maybe, into the back half of the year?

Well, I think what you're going to see is you're going to see an acceleration in R&D for PCTEL Secure that'll be almost dollar for dollar offset in the -- as the ERP falls out of the run rate. So, again, OpEx in that $7.5 million to $7.7 million range in the back half of the year is what we're looking for --.

-- Okay --.

-- In the quarter.

Great. All right, thank you.

(Operator Instructions) Aaron Martin, AIGH Investment Partners.

This is Orin Hirschman together with Aaron Martin. How are you?

Fine. Good to hear from you.

Thank you, and congratulations on the progress in hitting -- actually increasing again slightly for this Q.

You've given us a little bit of insight into the entire year of exiting north of $20 million, which was, obviously, a nice positive. And then, the second quarter midrange of the growth rate is definitely down substantially from the first Q. I'm just curious to understand better the one thing that you might be seeing because it doesn't sound like you're backing off of your overall growth rate at all. It just sounds like they're something else in play. So, if you could just review that one more time.

And then, my second question is just if you can review the EBITDA and maybe pro forma EPS wide range of guidance once again.

And the third question is just you had mentioned in a prior call that you would begin disclosing a little bit of the basis of the technology for the secure phone technology, PCTEL Secure technology. Can you give a little bit of that indication -- you mentioned it's a combination of hardware and software. Anything that you could shed light on at this time?

Well, I'll let John respond to the financial questions, but I don't think we're backing off year-over-year growth at all. We will have year-over-year growth that might be lower on a Q1-to-Q1, Q2-to-Q2 basis, but it's still quite positive. We're going to move up sequentially quarter over quarter.

But, in terms of getting to $20 million on a quarterly basis, we see that as a progression, moving first, second, third to fourth quarter. And I will remind you that it was in Q3 of '08, before the recession hit, that we were at $20 million in revenue, and that's after we exited the software business. So, $20 million is something that is quite attainable for us.

John, do you want to comment on the EBITDA?

Well, yes, I -- just to hit back to the revenue spread. I mean, last year, we had a couple of large orders in the second quarter, which is -- and what he's referring to, Marty, is that we had a 17% Q1 over Q1. At the midpoint of our range, it's 5% Q2 over Q2 because we did add a large order to -- in the second quarter of last year, and then sequentially went down in revenue. So, it really has more to do with the lumpiness --.

-- That's very helpful. That's what I wanted to --.

-- Yes, the lumpiness of last year because we're not anticipating that we're going to go backwards sequentially in revenue in any of the quarters this year like we did last year.

As far as the --.

-- (multiple speakers) is a sequential decline from last Q because --.

-- Yes, because in Q2 last year, we did, like, $17.8 million, and then it dropped to $17.3 million, and we see a continued sequential progression upwards this year.

Okay, great.

And so, that's what -- so the bi-quarter numbers look -- growth rates year over year will be a little bit lumpy. But, overall, we're in the solid low- to mid-teens with what we've seen out there in the analyst community, and we're comfortable with that on the year.

Okay, great.

How about the EBITDA?

And the EBITDA, as I indicated in my -- to answer my question on that, I'm expecting cash flow from ops to be in the $8 million range, and that's indicative of an EBITDA percent that's 10% plus.

Okay.

And just in terms of the quick rec, again, on EBITDA versus pro forma?

Yes, basically, if you take the non-GAAP operating profit and add about $2.5 million to it, you get the EBITDA.

Okay, great.

And the last question just on --.

-- Was about PCTEL Secure -- yes, we're cautious on exactly how much we reveal about the nature of our investment -- our invention.

We have disclosed a patent to the USPTO, and that patent has to do with a combination of firmware and software; firmware that goes on an SD card and implements a form of encryption, and software that inserts itself between the baseband layer and a secure version of a standard operating system.

And fundamentally, what we're doing is we are combining in a unique way surveillance and policy enforcement. And our focus will be on the Android platform, and we will be delivering this so that secure applications that are available from other vendors will be able to work within the context of our architecture.

Do you need to work with those other vendors to do that with half of the PCTEL certified -- Secure certified or would they work right off the shelf?

They should work right off the shelf, the ones that we are aware of.

Okay.

I mean, there will always be some integration work, but these will be applications that already exist from other parties.

So, if I can be so forward as to ask, is this -- again, this is -- again, you may not be able to disclose more at this time, but it sounds like, basically, you're taking, say, the Android operating system, as an example, and basically you're hardening it for, I think -- that's probably really the term I want to use here -- you're hardening it, similar to what was done years ago with Linux and Unix, where you had hardened versions of it. Is -- and on the --.

-- No, that's not really what we're doing. We're not hardening the Android operating system at all.

Okay, that's what I wanted --.

-- Okay.

Okay. All right, if that's all you can say, but that's appreciated.

Okay.

Okay. Thanks so much.

There seem to be no further questions at this time. I'll now turn the call back over to Marty Singer for closing remarks.

Well, once again, thank you for joining us for this earnings release conference call. We look forward to seeing you at both Baird and B. Riley conferences. We will be out on the road later in May, and if you're contacted by one of the investment bankers that is taking us around, I hope you can make yourself available.

We'll update you at the next earnings call. Thank you.

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