PCTEL Inc (PCTI) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the PCTEL third 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 would now like to turn the call over to John Schoen, Chief Financial Officer.

Ladies and gentlemen, thank you for standing by, and welcome to the PCTEL third quarter 2011 conference call. At this time, all participants are in 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 -- oh, I apologize.

So before we begin, I would 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 filings. These statements are made only as of today, and we disclaim any obligation to update information to reflect subsequent events.

I would like to turn the conference call over to Marty Singer at this time.

Thanks, John, and good afternoon to all of you. 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 $19.5 million, an increase of 13% over the third quarter of 2010. Non-GAAP gross profit margin was 48%. Non-GAAP operating margin was 10%. Non-GAAP net income was $1.8 million or $0.10 per diluted share. Cash and investments were $68.6 million.

I'm going to turn the call back to John who will now discuss our financial performance in some detail. John?

Thank you, Marty. Before I provide a detailed review of the past quarter, I did want to address the restatement of GAAP earnings for Q1 and Q2 of this year that we disclosed in our earnings press release. We intend to amend the first and second quarters of 2011 on Form 10-Q/A to correct an accounting misstatement of share based compensation recorded in those quarters related to the PCTEL Secure joint venture with Eclipse Design Technologies. The Company's revenue, cash flow, and non-GAAP earnings are unaffected. The affect on GAAP loss available to common shareholders in the first quarter is that it should be a loss of $682,000 instead of the $1.3 million reported. In other words, the Company lost $603,000 less on a GAAP basis than previously reported. The affect on GAAP loss available to common shareholders in the second quarter is that it should be a loss of $68,000 instead of a loss of $81,000 as reported or $13,000 smaller loss.

First quarter 2011 GAAP EPS should be a net loss of $0.04 instead of a net loss of $0.07 reported, or $0.03 per share greater. Second quarter EPS did not change from the $0.00 EPS reported. The June year-to-date effect is that reported GAAP earnings per share increased $0.03. These adjustments are related to the timing of expenses for stock-based compensation for non-employees working on the PCTEL Secure joint venture program. The Company expects to amend its filings on Form 10-Q/A for the first and second quarters reflecting these changes as soon as practicable. The involvement of the second quarter in a 10-Q/A is primarily to correct the year-to-date information presented, as the impact on the quarter itself is immaterial.

The Company is still evaluating the level of internal control deficiency that the misstatements represent and expects to report on its conclusion in the third quarter 10-Q and the 10-Q/As for the first two quarters. The year-to-date GAAP information in the condensed, consolidated financial statements contained in the press release reflect the revisions.

Now, let me return to a discussion of the quarter. Our investors will note that the Company presents non-GAAP financial information in its earnings releases. 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 will be 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. Let's turn to revenue. Third quarter 2011 revenue was $19.5 million. This compares to $17.3 million in the third quarter of 2010, an increase of 13%. Scanning Receiver revenue growth is attributed to the Company's introduction of its MX Scanner earlier this year. Antenna revenues were largely unchanged.

With regards to gross profit, non-GAAP gross profit margin for the third quarter was 48%, an increase of 7% from the same period last year. Compared to the same period last year, gross profit margin improved in both Antenna and Scanning products. The revenue mix of Scanners with their higher gross margin in relation to Antenna products also contributed to the increase.

Now, let's turn to non-GAAP operating expenses, which were $7.5 million in the quarter, an increase of approximately $700,000 from the same period last year. The increase is attributed to $200,000 for the Company's ERP System implementation and $500,000 largely comprised of higher variable compensation related to higher year-over-year revenue and earnings. Within R&D, the Company shifted approximately $350,000 of spending compared to the same period last year from Scanning Receiver products to PCTEL Secure.

Non-GAAP operating income in the third quarter was $1.9 million or 10% of revenue compared to $300,000 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 and improved gross margin percent, partially offset by higher operating costs. Non-GAAP other income was $33,000 in the third quarter versus $77,000 in the same period last year. The non-GAAP income tax rate in the quarter and the year was 18%, unchanged from 2010.

Non-GAAP net income for the third quarter was $0.10 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.

The cost of the Company's ERP project and its investment in PCTEL Secure, net of minority interest, was $0.02 a share in the quarter and $0.05 a share year-to-date.

Now, let's turn to the balance sheet. Cash and investments ended the quarter at $68.6 million, about $400,000 more than last quarter. Approximately $5.4 million of that is classified as long-term investment securities. In the quarter, the Company generated approximately $3.1 million of cash from operations, as compared to generating $1.4 million in the same period last year.

Capital expenditures were $715,000 as compared to $511,000 in the same period last year. The Company repurchased approximately 363,000 shares during the quarter for approximately $2.3 million.

Now, I would like to discuss guidance for the fourth quarter of 2011. We anticipate the revenue in the fourth quarter to be in a range of $19.7 million to $20 million, which includes about $400,000 of engineering services revenue related to our Envision Wireless acquisitions. Non-GAAP gross profit is expected to be about 48%. Non-GAAP operating costs are expected to be about $7.5 million, unchanged from the quarter just ended. Other income is expected to be $35,000 and the credit for elimination of non-controlling 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 in the quarter is expected to be about 17.6 million shares.

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

Thanks, John. Our results reflect a Company that continues to make steady progress in all four of the success factors that we outlined earlier this year, gross margin, particularly in our Antenna product line, the successful launch of our new SeeGull MX Scanning Receiver, development of our vertical markets, and the return of our Scanning Receiver development expenses to sustainable levels.

One example is worth explaining at length. As we discussed last year at this time our annualized Scanning Receiver development expenses had grown to $7.5 million on an annual basis. We explained to investors that this investment was necessary to bring our new MX product to market. This Scanning Receiver now sets that standard in the test and measurement industry. We committed to investors that we would normalize those expenses and that we would return to an annualized run rate of about $5 million net product line. I'm pleased to report that we are on track to accomplish that goal and that our strong earnings reflect that progress.

Our progress on Antenna gross margin has been similarly important to our improved results. In broad terms, a product line that generates $50 million per year at 30% gross margin has $35 million in COGS that we have an opportunity to address. We targeted this COG as an area that we can improve upon by transitioning certain products to Tianjin, where we own a factory, improving our supply chain operation, holding our outsourced manufacturers to a higher standard, and streamlining operations.

While we do not provide quarterly updates on gross margin by product line, we anticipate a 2% gross margin improvement in our antenna product line for the year. This is still dependent on the success in transitioning certain products to Tianjin and to higher-performance outsourced manufacturers. Having just returned from an eight-day trip to China, visiting both our facilities and customers, I am extremely confident in our long-term operational strategy.

The SeeGull MX has been an unqualified success and this past quarter we sold significant volume. We had our strongest quarter with Ascom and Huawei has taken our scanning receivers into three new regions, Canada, Australia, and Africa. We are building upon the success. We have already implemented TD-LTE on our SeeGull EX, and sold our first unit, and we are going to release the TD-LTE on the MX early in 2012.

Our Scanning Receiver development group has been extraordinarily productive and we will be perfectly positioned to participate in the TD-LTE market in China and the eventual deployment of LTE in Europe. Our enormous investment in the SeeGull MX will yield significant return to PCTEL and its investors. In the past quarter, we released an MX that now supports five technologies, our newly designed SeeHawk software that supports TD-LTE, WCDMA Blindscan, and post-processing.

One of our important vertical markets is Offloading. We've discussed this market at several previous conference calls and at investor presentations. This past quarter, we released a customized design, a Stadium Array for our Wi-Fi antenna solutions for arenas. These antennas are designed for ease of manufacturing and are exceptionally rugged. We also released two new antennas, one for Harris, and one for Northrop Grumman, to support our growth in defense markets. One specific product, an Omni-directional antenna is part of the Counter-Rocket, Artillery, and Mortars, the abbreviation for that is C-RAM, system that integrates existing field artillery and air defense sensors. It is a commercial off-the-shelf warning system and a U.S. Navy-developed interceptor to protect U.S. and coalition personnel from the indirect fire threat in Iraq.

The system has responded to RAM attacks by intercepting and destroying incoming rounds. It also has a capability that contributes to counterattacks and response options such as tracking and apprehending the enemy forces. According to government sources, C-RAM is deployed and operational and has saved lives and reduced casualties with no system failures since deployment. By the way, we had this product on display at AUSA in DC a few weeks ago. We are extremely excited about our design for manufacture of this product, the product's ruggedness, and its crucial role in this system.

We have had other significant vertical market wins, each involving new or customized antennas. These projects include our new BOA Omni antenna sold with Tessco at Norfolk Southern Railroad, five new infrastructure antennas for Cisco's Smart Grid customers, a new Smooth Wave Dual-Band Wi-Fi antenna for Motorola's Symbol based systems, and a family of LTE antennas used with LTE Pico radios at 700MHz, 2.5Ghz, 5.0Ghz, and GPS spectrum. Let me add that we are establishing traction in China, with major customers, and with our in-building and other antenna solutions.

We are also pleased to provide our investors an update on PCTEL Secure. We achieved a critical milestone this month. On October 14th, as committed, we demonstrated the effectiveness of the PCTEL Secure's ProsettaCore in preventing an exploit or a threat from undermining the integrity of an Android-based smart phone. The demonstration enabled or disabled the ProsettaCore security system on an Android-based phone.

When enabled, the viruses or exploits could not steal pictures, record conversations, or take files. When disabled, the exploit turned the phone into a spy phone. We could turn the microphone on and off at will, take all email attachments, and siphon off any pictures taken with the phone's camera. This of course is similar to the demonstration that I gave at the B. Riley Conference, and also at a Wunderlich forum. The demonstration utilized a Foxconn Android phone but could be applied to any Android-based phone.

Our next step is to prepare a licensing package for the many potential customers with whom we have already met to describe our work. We have been actively developing the business for this product and for the underlying intellectual property -- we now have three patent disclosures. We are also hopeful that other industry players, particularly in the secure space, will be interested in our solution as they turn their attention to mobile device security.

As we announced recently, Major General, Retired Major General Michael Davidson recently joined our board. His deep connections to the military and defense systems integrators have been helpful in shaping our approach to the secure market. We have also asked him to review our strategy for expanding our antenna and scanning receiver business with defense and government entities. It is helpful that General Davidson is the co-founder of CRA, Inc, a Washington-based homeland security and defense company.

We continue to explore a variety of acquisition possibilities. We have three areas of focus, in-building products, design services and tools, ancillary RF products, and assets that would expand our distribution channels. We are actively engaged in this process and we remain committed to acquisitions at competitive values.

In this context, we are pleased to have already announced the acquisition of the assets of Envision Wireless for $1.45 million in cash, a company that meets many of our criteria for acquisitions. Envision, which is a company that grew out of SAFCO Technologies where Jeff Miller, John Schoen, and I all worked, focuses on in-building network design. They perform sophisticated analyses of collected data and propose specific network design solutions for various environments.

We expect Envision to generate over $2 million in design services sales and we believe that this new activity area will create demand for both our in-building antenna solutions and the in-building test and measurement capabilities of our scanning receivers. This new organization, Network Engineering Services, will report directly to Jeff Miller and will interact closely with both of our product groups.

Finally, I would like to comment on our decision to pay a regular quarterly dividend. As most of our long-term investors know, PCTEL has bought back over eight million shares of its stock over the past nine years. Over the long term, we believe that this investment will be positive for our investors.

Even with this considerable investment and the one-time dividend that we paid in 2008, and several small acquisitions, we still have $68 million in cash with no debt. We continue to generate cash and we have sufficient reserves to fund our current operation and to finance reasonably priced, mid-size acquisitions. In short, PCTEL management is confident that we have sufficient resources to fund organic growth and growth through acquisition, and, at the same time, provide an immediate return to our shareholders.

We will not be attending TechAmerica this year. Instead, we will be out in front of investors and customers throughout November and early December. We have a booth presence at 4G Wireless this week in Chicago. We will also be attending MILCOM in Baltimore and LTE North America in Dallas next month. Additionally, we will be in New York City to open NASDAQ with an Illinois delegation led by Governor Quinn and TechAmerica on November 15 and we will be available to meet with investors later that day. We hope to see you at one of these events.

With that, I will turn the call back to the operator. We have allocated 30 minutes for your questions.

Operator?

(Operator Instructions) Your first question is from the line of Matt Robison with Wunderlich Securities.

Matt?

Yes, can you hear me now?

Yes.

Congratulations on the operating margin.

Thanks.

Normally, you guys have kind of a challenging third quarter for the scanner business because of the OEM channels over in Europe. It looks like what wasn't the case this quarter. Yet, in your fourth quarter guidance it looks like maybe there's kind of an absence of the normal seasonal push that you see in the fourth quarter. Can you give us a little bit of the flavor for the sequential progression there for the two product lines and why the guidance for revenue might not be a little -- ?

I think it's going to be, in our core businesses, again, a pretty similar quarter with a little bit of up side, partly because of Envision and we have some uncertainties in the fourth quarter. But let's just recap. I think last year we did about, oh, in the neighborhood of $4.3 million in scanning receivers and we had a huge problem with gross margins in that quarter. We had one of our customers fall out. Part of it was seasonal. Part of it was some early LTE competition and there were some, lack of a better word, posers in that industry that we had to work hard to displace.

Are you talking about third quarter '10 now?

Third quarter of last year, we had some unlikely competitors that hurt us in 2010. In 2011, I think between our early delivery of LTE on the EX, establishing our credibility with LTE on the EX and then this absolutely shockingly good performance of the MX, and the market, and in the field, we've been able to have very strong sales across all our OEMs and also some direct sales in the third quarter.

The strength of that third quarter in scanning receivers is such that we would be pleased to repeat that performance in the third quarter. And we may go a little bit longer there, but it was a very strong quarter for scanning receivers. Sort of the reverse happened to antennas. Last year, we had a terrific third quarter in antennas. It was very, very strong and one of the things that gave us gross margin problems was we went from our usual 2-to-1 ratio of antennas to scanners to about 2.6, 2.7 to 1 antennas to scanners. And so we had that unfavorable mix in gross margin.

The factor that's unknown to us for predicting revenue in the fourth quarter, and it's why we've shaded it a bit conservatively is that there has been great success throughout the year with our high rejection GPS antenna, but there's been a little bit of a slow down in that for a variety of reasons and we have to wait to see how that deployment will go in the fourth quarter. Otherwise -- and there's been absolutely no recovery in public safety, just no recovery whatsoever, but the vertical markets continue to perform well.

I hope that answers your question. Again, there's a couple areas of uncertainty, the GPS high rejection, whether there will be a surge in LTE scanning receiver sales. That's really it. Those are the two unknowns.

Well, you had talked about in your press release about having quite a bit of visibility it looks like for several quarters for the LTE.

We do. We just don't know how much of that is going to come in the fourth quarter. We see a really nice rollout because, as you know, we're seeing the US deploy now, two major operators deploying. We're seeing some take up now in China and some interest in our TD-LTE. And then, if we just look at this over time, this should continue well into 2013 and 2014 because that's about the time that LTE will become a major force in Europe. We're seeing it now. There are about 30 networks that are being deployed in Europe. We're getting a little bit of that business and we expect that to ramp up.

How much OpEx is associated with Envision?

Actually, the way it's modeled today it's immaterial to OpEx. It would all be in COGS.

Okay, let's talk about -- okay, just general COGS then?

Yes, just general COGS?

How much?

And so what we -- you'd add that at about, just for budgetary reasons, 20% margin, 20%, 25% range. You'd add that to the model in that range.

Okay, so that's basically -- I guess that's basically what you're saying is the operating margin for that business then?

That's correct and in this case gross margin and operating margin are the same.

Now, do you see any synergies coming from that? I guess just some integration or deployment know how that they bring?

Really, it's, and one of the reasons we're so excited about this, and we'll probably look for additional assets in this space, Matt, there's two or three specific synergies. One, they're focused on in-building and as we've discussed throughout the year and at our investor presentations, we're selling a lot of our antennas into in-building applications, distributed antenna systems, arenas, and so on. And then in the scanning business, what we're hearing from operators is that 90% of their engineering time for their cellular networks was spent outdoors and now 90% of usage has moved indoors. And we're seeing a significant push and greater requirements on our scanning receivers for in-building applications.

So we believe that Envision Wireless, and we'll start referring to it as our network engineering services group, that network engineering services will give us great visibility on requirements for our scanning receivers. We think that their work in providing network design recommendations will lead to requirements or suggestions to use our scanning receivers and then we think that it will lead to follow-on business with antennas. So this is really a good strategic and tactical acquisition for the Company. I wish it were bigger and that's really the main drawback in this type of acquisition, but I think it really does establish a strong competency in indoor wireless for us.

Now, you said the ability to demonstrate ProsettaCore was achieved week before last?

The 14th.

Have you actually had it in front of any prospects?

Yes, but they're the type of prospects that we can't discuss.

Well, I just was wondering if in terms of the -- are you getting to the point where you can actually create some sort of timeline internally that indicates milestones toward some sort of economics of it?

Yes, so here's what we believe today and consistent with our roadmap. The prototype now goes to a baseline product, which will deliver the end of first quarter and it's then on that baseline that we'll have variance that are customer specific. So I believe that we will see some revenue in the second half of 2012.

Is that going to be just NRE kind of revenue?

No, it would not be.

Okay, well, we'll look for that. Thanks, I'll let someone else ask a question.

Okay, thanks a lot for your questions, Matt, and later you and I can talk about my trip to China.

Why don't you let the rest of the audience know a little bit about that too?

Well, it was really spectacular. It was an eight-day trip, five cities in five days. The highlights of the trip were getting into the front door at customers like DingLi, and Huawei, and Ascom in China and seeing first hand the demand for our scanners, talking to these customers about the potential, having meaningful meetings with a couple of the service groups there again on the scanning side. And then talking to a customer that generated $10,000 last year in antennas and over $500,000 this year on a design that was done by our Beijing Design Center where cost was a huge factor, but we were able to win this business on the basis of quality. And we're really pleased. And also, meetings with Alcatel-Lucent related to our high-rejection GPS antenna that were quite positive.

And finally, operationally, and this is where Tony Kobrinetz's group has just done spectacular work, we were -- I went with one of his guys to our Tianjin facility where we're actually expanding our footprint there, where we're now up to 115 people indirect and direct, and we have shifted some of our high margin products there. And I got to see first hand the high quality over there. And then we visited our newest contract manufacturer outside of Shanghai and again evaluated their performance. Their performance is terrific.

I saw our Yagis coming off the line there. Excellent quality and we've really set up an effective logistics system for getting that product back here to the US. And you'll see more of that over the years. So it was a very good trip and good exposure to the market, but very satisfying that the work we've put in over the last two years really accelerated over the last year and a half on our supply chain is beginning to pay dividends.

Since you mentioned China, Alcatel is saying (inaudible) gotten some -- recognized for some pretty major Wi-Fi Offload projects and can you -- have you seen any of that kind of activity? And John, if you can tell us what the appreciation was that would be helpful as well?

I can tell you that I did not talk to Shanghai Alcatel Bell that you referred to it, or Shanghai Bell.

ASP Alcatel --

Directly, however, offloading is a huge area of focus in China. Go ahead, John.

Yes, you know what, I will have to -- I don't have that number off the top of my head. I believe it's about $650,000.

All right, I'll circle back with you on that. Thanks a lot.

Okay.

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

Hey, Mike.

Hi. It's B. Riley and Company. So the first question relates back to your comments regarding what you're doing for Norfolk Southern Railroad. Is that a positive train control related project?

Yes.

Can you talk a little bit about that and what that opportunity is for PCTEL?

I can't really give you the size of that opportunity. It's one of many that we're doing in the railroad and we're looking at railroad in general as about a $1 million to $1.5 million vertical market for us in 2012. It's a growing area for us.

Okay, so positive train control is something that's supposed to be implemented by 2015. Maybe it gets pushed a year or two since railroads have to pay for it out of their own back pocket. But I think there's like 20,000 locomotives. Is that basically how you look at the [TAM] or are you looking at the wayside stations, or both? How do you look at it?

We look at both and we look at projected antenna deployment, and then we look at our potential share of that market. We're not the only vendors there. There's some pretty significant competition from vendors such as Huber Suhner that make pretty high quality product. Based on the projects we see in the funnel, as I said we see about $1 million to $1.5 million for that vertical market in 2012. I really can't comment on 2013 or 2014.

Okay, thank you. Now, this Envision, it looks like, I mean I'm just going to take $200,000 revenue a month times 12 months, times let's call it a 20% contribution margin. It looks like you paid three times cash flow for that business, pre-tax cash flow. I assume you would alert me if there's something wrong with my math. Why would they sell the assets for that low price?

There's a variety of reasons. Some of them are personal. Some of them are that they wanted to be part of a broader organization. They saw the opportunity to participate in PCTEL's growth and PCTEL's stock and the three principals are people that we've worked with before. Bob, Scott, and Greg all come out of a company called TEC Cellular that was part of SAFCO Technologies when John Schoen, Jeff Miller, and I were there and they were absorbed into Agilent for a brief time, left, formed this company, had built it up.

And I would say one strong business reason is this, some businesses like this where there's a time for money component, there's sort of a natural limitation on how big these businesses can get. The same people who are developing new business are the people who are doing the engineering work. They saw in PCTEL an opportunity to leverage our distribution channel, our technical sales support on the scanning receiver side to grow that business. And I think those are the range of reasons.

Okay, so you pay the small amount of cash and then these key executives will get some kind of an option package, but there wasn't any other stock that was issued in the -- ?

No.

Okay, good.

I mean, I think can give you the exact number is something like, for all six employees, about 42,000 restricted shares.

And that's over a period of time.

They vest over time.

But that's combination expense, stock-based compensation expense over the period that they earn.

Okay, great. Now, you went into some more detail on when you would get the baseline PCTEL Secure --

The ProsettaCore, yes.

The Core for the JV. And then you also talked about preparing a licensing package for -- ?

Yes, what we would like to do is follow multiple paths on monetizing this investment. One path is simply to acquire customers based on achieving the baseline package and then building a unique variant of that platform for their particular application, whether it's a phone or some type of mobile device, or some particular type of requirements. And particularly with respect to the government, there will be some unique requirements for different agencies or groups.

But another approach for us is to package up what we do in software development kits, STKs, along with our secure digital card, and license that to others who will go ahead and customize the software and incorporate it into their products. So we'd like to have a path where we're securing customers and then working with them and another path where we're licensing our work in the form of an STK.

Okay, thanks. And then last question is what do you think might be some reasons why you are seeing some slow down in the GPS, high-rejection GPS antenna business and whether that might have anything or for that matter, PCTEL might be all affected by any supply chain repercussions stemming from what's been going on in Thailand? Thanks.

There could be some of that, but early in the year we had high volume. I think it's taken the customers some time to work through that volume, test their networks, make sure that they are problem free. And so there's been a little bit of a period of analysis and engineering design work. I think that's pretty common for a deployment of this size, but I do think it will start to pick up. It's hard for me to pick the day when the faucet will be turned on for a high flow again.

So I think it's basically engineering analysis of the first deployments. You have to remember, when we delivered this product first in February and started shipping in some volume in May or June, and then there were deployments over the summer against that volume. And I think that September and October have been a period of analysis.

Okay, great. Thank you.

Your next question is from the line of Brian Horey with Aurelian.

Hi, thanks for taking my question.

Hey, Brian. How are you?

I'm well, Marty. How are you doing?

Good.

Good. Two questions. So the first one on scanners and in terms of the rollout for LTE as it relates to the scanner business, can you give us a sense as to what, kind of what inning of that game do you think we're in? Are we in the first or second inning or just some general sense as to how much of that still is in front of us?

I think we're in the third inning in the US. I think we're in the first inning in China and I think we're warming up in Europe.

Okay. Thanks, that's helpful. The other question I had was there was a story in the New York Times yesterday or the day before about hotel Wi-Fi and how the proliferation of Smartphones, and iPads in particular is really crushing a lot of hotel Wi-Fi networks. Just curious what kind of participation you guys have in that market and whether that seems to be an area of strength that you're seeing?

Well, there's no question that our antennas go into hotel Wi-Fi networks, but I think there's a couple -- I read that article. I think what's happening is people refuse to pay for it, but in many hotels it's a free service and if you're on a smartphone if becomes an offloading opportunity where use the Wi-Fi capability so you can cut down on the data going over your cellular data plan and often get improved speeds. And then people look at their smartphone 3G cellular connection as a backup for Wi-Fi.

I think ultimately what's going to happen here is that you're going to see participation of some of the carriers in promoting these Wi-Fi solutions in the hotels. Right now, they're done by value added resellers or independent internet access providers and it's often not financially viable for them. The operators have a different way of looking at this. They want to ensure a high quality of voice service in these closed environments and I think you're going to see a willingness to subsidize these networks and to manage these networks by the large operators to protect their core cellular systems.

Okay, thanks. Appreciate it.

(Operator Instructions) Your next question is from the line of Noah Steinberg with G2 Investment Partners.

Hey, Marty. This is Josh Goldberg for Noah. How are you guys doing?

Pretty good, Josh.

I guess through the first three quarters of the year you guys grew about 12% year-over-year and obviously some digestion here in the fourth quarter. But do you feel pretty comfortable that next year you should be seeing that double digit growth if not faster, organically, and then adding on this acquisition?

We're obviously working on our 2012 plan. We gave a preliminary version of the plan to our Board in September and then we'll have the final plan in November, and that's been an active discussion here.

But just big picture.

I'm not comfortable on the antenna side with that level of growth because of the continued drag in public safety. And if you look at all the radio vendors and others who are totally dependent on public safety, you're seeing growth rates from negative 3% to as high as 7%. I think we'll do better than that in antennas. I think antennas is likely to be somewhere between 7% and 10%. I think we have a chance for double-digit growth, however, on the scanning receiver side, because of LTE, because of China, because of TD-LTE, and because of the MX.

So in aggregate, I'm going to base our OpEx around 10% or 9% growth in the aggregate, but we're going to push for stronger growth in that on the revenue line.

Again, that's without the acquisition?

Correct, that's just Core.

Okay, and if the mixed shift is more to the scanning stuff, wouldn't that help your margins and obviously grow your earnings per share faster than that?

It could and we're -- I think you may recall that at -- on previous earnings calls and at investor meetings, I said it's been an embarrassment to me prior to this year that in 2009 and 2010 we were not a double digit EBITDA Company. And we made a commitment that by the fourth quarter of this year we would achieve double digit. Well, we've achieved double digit now for the year and we'll have double-digit performance for the entire year. And I'm quite enthusiastic about improving that performance in 2012. And quite frankly, it was one of the reasons that gave us some comfort in approving this quarterly dividend. We think cash flow is going to be reasonably strong.

Yes, I would say when you look at your Company right now with the enterprise value without the cash, I don't know, $40 million to $45 million with your revenue close to $80 million, it would seem like it would be a good use of cash not only to just pay dividends, but I would say to buy back the stock aggressively.

Well, there are some issues and concerns with liquidity. I don't want to debate that now, but we've -- we bought back quite a bit of stock and I think, as I said, we bought back over eight million shares. So we're not opposed to that, but we think that the dividend may have more immediate benefit to shareholders at this time.

And do you have any color on what the tax rate could be next year?

I think John thinks it's around 18%.

Yes, our non-GAAP, it will be about the same, 18% non-GAAP rate that we're seeing this year.

Got you. Okay, great. Thank you so much.

Thank you.

There are no further questions at this time. I'd like to turn the call back to Marty Singer for any closing remarks.

I want to thank you for your participation and for your questions. We're pleased that we could give you positive results this quarter and we look forward to updating you at our next call, and perhaps seeing you at one of the events that I described earlier. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.