PCTEL Inc (PCTI) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the PCTEL second quarter 2012 conference call. (Operator Instructions) 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, July 31st, 2012, for the PCTEL financial results conference call for the second quarter 2012. On today's call will be Marty Singer, Chairman and CEO, and I am John Schoen, Chief Financial Officer.

Before we begin, I would like to read the 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 now like to turn the conference call over to Marty Singer.

Thank you, 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 $20 million, an increase of 5% over the second quarter of 2012. Gross profit margin was 44%. Operating profit was 8%. Net income was $1.5 million or $0.09 per diluted share. Our cash and investments were $66 million. This does not reflect the acquisition of assets from TelWorx or the purchase of the remaining interest in the PCTEL's secured joint venture. Both of these transactions took place this month.

Now I'd like to turn the call back over to John Schoen, who will 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. The Company believes that a presentation of gross profit, operating profit, and net income, excluding restructuring charges and noncash basic 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 noncash based income tax expense provide meaningful supplemental information to both Management and investors. The non-GAAP financial analysis reflects the Company's core results and facilitates comparisons across reporting periods.

For more information on our non-GAAP financial results and reconciliation to GAAP measures please refer to our earnings release that has been filed under Form 8-K with the SEC. The release can also be found on our website at PCTEL.com under Investor Relations. My discussion of results will be based on our non-GAAP financial results.

So let's start with revenue. Second quarter 2012 revenue was $20 million, an increase of 5% from the same period last year. Antenna revenues were higher than the same period last year across both distribution and OEM channels. Scanning receiver revenue was lower due to carrier spending delays and a general downturn in cellular infrastructure spending. While scanning receiver revenue was lower than last year through both the current quarter and first half of the year, the Company did see a 30% sequential revenue increase in the second quarter compared to the first quarter for that product line.

Now let's turn to gross profit. Non-GAAP gross profit margin for the second quarter was 44%. This compared to 47.5% in the same period last year. The change reflects scanning receiver revenue comprising a smaller portion of the revenue mix with their higher margins relative to antenna products.

Now let's turn to non-GAAP operating expenses, which were $7.2 million in the quarter, a decrease of approximately $400,000 from the same period last year. The decrease reflects lower variable compensation expense on lower revenue and operating results.

Non-GAAP operating income in the second quarter was $1.6 million or 8% of revenue compared to operating income of $1.5 million or 8% of revenue in the same period last year. Non-GAAP other income was $39,000 in the second quarter. As the amounts are largely interest on our investments the number will continue to be small in the current interest rate environment.

Non-GAAP income tax rate in the quarter was 18%, unchanged from last year.

Non-GAAP net income for the quarter was $0.09 per share compared to $0.08 per share in the same period last year. The increase is attributed to higher operating profit on higher revenue.

Now let's turn to the balance sheet. Cash and investments ended the current quarter at approximately $66 million, about $1.9 million lower than the previous quarter. Approximately $1 million is classified as long-term investment securities with maturities ranging between 13 and 24 months.

In the quarter the Company generated $575,000 of cash from operations. Capital expenditures in the quarter were $973,000 or 5% of revenues, which is about 1% higher than our long-term historical spending pattern of 3% to 4%.

The Company paid a regular cash dividend in the quarter of $552,000 or $0.03 per common share. In addition, the Company purchased the next 19% of membership interest in PCTEL Secure for $931,000.

Subsequent to June 30th, during July, the Company used $16 million of cash, net of holdback, towards the purchase of the assets of TelWorx Communications and $800,000 of cash to purchase the remaining 30% of PCTEL Secure. At July 2nd, 2012 we now own 100% of the entity.

Now I would like to discuss guidance for the third quarter, 2012. The guidance reflects the recent acquisition of TelWorx Communications' assets. We anticipate third quarter revenue from continuing operations to be in the range of about $23.5 million to $24.5 million, with TelWorx acquisition providing about $4.5 million of the total.

Gross profit is expected to be in a range of 41% to 42%. The historical TelWorx gross profit margin runs in a range of 25% to 30% of revenue, which accounts for the decrease in total gross profit percent from the quarter just ended.

Non-GAAP R&D and SG&A are expected to be approximately $7.9 million, with R&D at about $2.7 million, sales and marketing estimated at $3 million, and G&A at about $2.2 million.

Other income is expected to be about $25,000 in the quarter.

The elimination of non-controlling interest is discontinued for PCTEL Secure as we purchased the remaining interest on July 2nd.

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

The fully diluted share count in the third quarter is expected to be about 17.6 million shares.

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

Thanks, John.

We were pleased with the improvement from the first quarter, $20 million in quarterly revenue is what we now consider our run rate business level. That will change, of course, with the incremental revenue that we derive from PCTEL Connected Solutions, the operation that includes our recently acquired assets from TelWorx and TowerWorx. We are now targeting a range of $23.5 million to $24.5 million per quarter in revenue. We should finish the year at an annualized run rate of $100 million in revenue, excluding any contribution from our sales or licensing of ProsettaCore and related security products.

But numbers aside, let me discuss for a moment our recent asset acquisition. Over the past three years we have discussed the importance of vertical markets and the delivery of value-added or kitted solutions to the scaling of our business. We acquired Sparco to add enclosures in key vertical markets to our product line and delivery capability. We acquired the assets of Envision Wireless to pursue indoor wireless and to exploit the growing opportunities related to data congestion and increased use of cellular and other wireless constructs that we utilize indoors.

The TelWorx and TowerWorx assets build upon those investments and give us increased indoor access, in particular data and allow us to deliver site solutions for both private and public networks. We obtained with this investment improved access to defense and transportation markets, as well as certain cellular markets. Going forward we are committed to integrating elements from all of our businesses to provide a distinct product and service offering related to in-building. We should point out that we provided engineering services for over 40 major buildings just in this past quarter.

Let me also comment on PCTEL Secure before I report on the many accomplishments in our more well-established operational and product areas. We delivered on schedule the completed SDK or software developers kit, for our ProsettaCore related products. Basically, in 16 months we've delivered a prototype with ProsettaCore installed on a commercial Android cell phone, filed three patent applications, developed a policy server, a flashcard based encryption routine, and a ProsettaCore security software kernel. In addition to security, this kernel has the capability of monitoring other activities on the phone, such as bandwidth utilization, which may have broader commercial appeal. Finally, we have delivered a lab test solution that can insert threads onto Android phones. I've demonstrated this capability at a few of the investment conferences to which I've been invited.

We purchased the remaining interest in the JV so that we can have complete control over these assets, by the way, at a reduced acquisition cost. As we develop our business, we plan on making additional investments in business development as we move forward with the difficult challenge of penetrating defense systems integrators, handset manufacturers, chipset providers, and operating system companies. We hope to have more to report to you over the next two quarters.

With respect to our antenna operation we have a great deal to report. As John has already mentioned, antennas represent a larger mix of total revenue this year than historical levels. That we're able to maintain year-to-date total gross margin in the first half at over 43% with this blend indicates that we are seeing gross margin benefits related to both our increased volume and operational efficiencies in the antennas. We plan on continued progress in improving gross margin in this product area.

We've had several exciting product deliveries and customer developments over the past quarter. We delivered, for example, an LTE antenna for public safety applications to Motorola. We anticipate significant growth in this area.

Our high rejection GPS antenna continues to find new markets, including combined GPS LTE antennas for railroad applications and GPS antennas with integrated receivers for ManPack applications delivered to [Regent], a customer with whom we hope to have an expanded relationship.

We also developed and delivered a new MIMO antenna for Cisco and an XM-GPS antenna for a defense systems integrator. We also saw increased shipments into the healthcare vertical market, in particular, WiFi enclosure systems for the Henry Ford Health Systems.

Railroads and cellular offloading also continue to grow. We are in trials with a major railroad for wayside antennas and we believe that our work with an equipment supplier on stadium [DAF] antennas for cellular offloading will benefit from our introduction of MIMO capability into this product line.

We should point out that during this time of antenna sales growth we have two major transitions underway. The first, of course, is the continued transition of higher volume product to our [Tangen] facility, which has been expanded both physically and operationally with the addition of more people. Our Tangen facility recently received ISO 14,001 certification.

The second transition is related to our new ERP system, that is underway as we speak. We have been preparing for this move to a new Oracle system for over a year and we do anticipate completing the move to our new platform over the third quarter. Indeed, tomorrow we will start entering orders that we've saved over the last week, which has been our blackout period, into the new Oracle database.

We are extremely optimistic about new product deliveries in RFS, as well. Many of you will remember that in addition to our scanning receiver product portfolio we have maintained and sold the frequency management system, clarify post processes scanner receiver data and enables operators to better assign frequencies within each cell on spread spectrum environments, pilots and power. In the past these systems have required unique hardware.

This past quarter we have developed the ability to upgrade existing EX scanning receivers to clarify capability. During the third quarter we will be delivering a new MX based clarify to handle all frequencies and technologies with a common platform. This should open up new markets for this product.

We continue to expand the range of SeaHawk, MX and the EX scanning receivers. We now support additional frequency bands with both products so that they can support LTE on a global basis and layer three decoding support for WCDMA and GSM for the MX.

Finally, we can report that we began shipping our MX to Ascom for support of the T-Mobile LTE deployment. We expect stronger LTE related sales for both T-Mobile and AT&T in the second half of the year. We also closed an LTE scanning receiver sale with Sprint. With these two customer developments we are clearly the scanning receiver of choice in the U.S. LTE market.

We also can report that we have doubled our sales to [Waway] compared to Q2 last year. We believe that in addition to Ascom and [Knight and Swiss call], it will be important for us to capture increased business with cellular infrastructure OEMs and to acquire additional test equipment vendors.

The news regarding the growth in our Waway business was welcome, particularly in the context of recent reports that Waway's operating profits fell 22% on a year-over-year basis. While we have struggled to maintain last year's order flow in scanning receivers, we should point out that all of the infrastructure vendors have reported either declining revenues, declining profits or both. In other words, we are pleased that we could increase scanning receivers revenues by nearly 30% from Q1 to Q2 in an environment in which cellular carriers are clearly slowing their CapEx investments.

We have also been active marketing our products. In addition to our normal customer activity, we attended or presented at ENTELEC, RSSI, LTE World Summit, [Daps Congress], Cisco Live, CommunicAsia, LTE Latin America, and CTIA through our newly acquired Connected Solutions Group.

We have a busy summer in front of us with the integration of TelWorx, the transition to Oracle, and the acquisition of new business for our scanning receiver operation. We are all aware of the uncertainty in Europe, the slowdown in China, and the challenges that we face here in the U.S. Despite all of that, we are confident in our prospects for growth in the vertical markets in which we have invested and convinced that the longer term trends of data congestion, in-building growth, the transition of wire to wireless, the demand for kitted solutions, and the rollout of LTE will work in our favor.

Thank you for your time this afternoon or early evening. And, with that, we are prepared to take questions. We have set aside 30 minutes for a general Q&A session. Operator?

(Operator Instructions)

I think we're ready to go.

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

Hey, John, can you talk about what the implications of TelWorx will be on the cash flow this quarter?

Well, what I expect is the P&L side of it, it's about a 10% business, EBITDA business. And we're going to run it like it ran when it was independent at a lower working capital level, so we'll lever up. We typically are in a 25% working capital level for the rest of the business, and we're going to continue to run them in the 15% that they've historically run.

Okay, and, Marty, it sounds like you've got some visibility for the antenna business to start having some positive comparisons. Is that going to happen in the fourth quarter or do we wait till when we have to lap the air pocket in the first quarter?

You're talking about antennas or scanning?

I meant the scanning receivers.

That's what I thought, yes. I think you're going to see another increase in third quarter over second quarter and then a strong increase in fourth quarter over third quarter. It's been very reassuring to us that we were able to see some AT&T and T-Mobile business. We have a pretty significant order in Russia, where we are the primary scanning receiver vendor for everybody who is bidding in that business, and so we should start to see that. And, as I say, our business with Waway is strengthening. So I -- we're going to have a much stronger second half than first half, but fourth quarter will be stronger than third quarter.

You guys, I think you took a stab at giving full-year guidance for revenue in the past, what are we thinking now?

I think revenue guidance for this year without -- well, let's say with TelWorx, I think I put that out in my release when we announced the assets, that it was $87 million to $89 million.

Okay.

And that's with the zero contribution contemplated from PCTEL Secure.

And are we -- I know you made -- articulated some positive -- some good progress in PCTEL Secure, can you talk about the sales cycle from here now that it looks like it's ready to --

Yes, there's two things. With one we already have a PO that has not been fulfilled, that's with a particular customer that takes a long time to process us, and we're just waiting for that, but we have a signed agreement and so on.

With the rest, we have a licensable SDK. We are porting the solution to a target Android device to demonstrate the robustness of our solution and how easily portable it is. And over the next six weeks we are going to be presenting the SDK to 10 very high profile customers, customers that we saw after the prototype but before the completion of the SDK. And, as I said, hopefully we will have more to report at the next earnings release.

Okay, so maybe we've got a shot at something incremental, the $89 million?

We would hope so.

Okay, that's it for me for now.

Okay.

And your next question comes from the line of Chris Sigala of B. Riley.

Hey, Chris, how are you today?

Hey, good, Marty. Thanks for taking my questions here.

Good. Is Mike on, as well, or are you standing in?

Yes, he's listening in over here. He's sitting right across from me.

Okay.

Just a few questions. Just talking about the antenna side of the business, is there anything you can say as far as how quickly you think that business is growing today? And what is contributing to that growth, whether it be just growth in your add markets or if you actually think you're taking share in some of those verticals?

Oh, there's no doubt that there is -- we're taking share from some of our competitors. Year-to-date growth year-over-year has been 6%, which is not bad in this environment, and I would say the growth is there for three or four reasons.

One, the focus on vertical markets. There's absolutely no question that that strategy is paying off for us. We worked for a long time on a couple of healthcare projects. We're finally delivering into those markets. Offloading has been big for us. [Inaudible] management and, of course, GPS timing. But there are many others. We're really focused on seven or eight verticals at this point. So overall the reason for growth is vertical.

The second reason for growth is this continuing trend of data congestion and the requirement for offloading. So as bandwidth continues to be consumed, both in-building and outside, people are looking for all types of solutions to that. And I think building upon that, our acquisition of Sparco, Envision Wireless, and now the assets of TelWorx are all going to be helpful in us putting together much more meaningful packages.

We're really excited about a third trend, and that is the utilization of LTE in public safety. To date we really haven't seen any benefit of that other than some early delivery of product to some of the customers, but we expect that to really accelerate, maybe not in the third quarter but starting in the fourth quarter.

And, finally, just overall we're seeing an increase in our kitted solutions, and I think you'll witness more of that as we get better at integrating the assets of TelWorx with our antenna business.

I'm sorry, when you say kitted solutions what exactly do you mean by that?

So, for example, we have customers that you also follow. People like [Cal Lamp], who put together solutions, let's say, for a railroad, and that solution might involve a radio from somebody but it's also going to involve an enclosure, a surge arrestor, a filter, cables and antennas. And that entire kitted solution has more gross margin and more value than the individual antennas.

So right now I'm sitting in my marketing room and I'm looking at three of our kitted solutions that we put out, intrinsically safe solutions and an intrinsically safe enclosure for gas and oil, a remote collection system that has integrated power with solar power capability in one of our YAGI antennas. The only real product we have there that we design and manufacture is the YAGI, everything else there is part of a kitted solution we put together. And then, finally, I'm looking at a smart grid solution that has many elements but, again, one of our very high quality antennas but other products that we procure and put together for the vertical markets.

Okay, great. So on the public safety side, that growth that you're seeing down the line is that a function of some of the recent legislation we've seen on the public safety front or is it just a more of an unfreezing of that market?

What will happen is this, you know, public safety has long been dogged -- well, first of all, the whole market crater because of the 2008 recession, public safety has either been flat or declining now for three-and-a-half years, 2009, '10, '11, and I would say the only growth element in public safety has been surveillance. But if you look at public safety one of the issues they've had to contend with is an absence of adequate bandwidth. You're down at lower frequencies with older technology and so on.

With the infusion of LTE into the public safety bands you're going to start to get the type of bandwidth that's required for all of the capabilities that people want to hang off of these networks. And so as those markets convert to LTE you'll see an expansion of the services and the capabilities, but from our perspective you'll see a huge demand for LTE antennas. And you'll also see a need for using our scanning receivers for the test and measurement of these networks down at those lower frequency bands, and as I said somewhere in my script here we've come out with a public safety band version of our scanning receiver.

Great, that's helpful. Switching over to the PCTEL Secure side, just wondering now that that's 100% owned by you what's sort of the all-in cost that we're talking about here inclusive of any expenses incurred to date to bring the product online?

$4.2 million is roughly all the cost that we put in this, so the acquisition cost of the JV, our development, maybe a little bit less than that. And, you know, the patent applications and support of legal fees that was required to line-up the JV. So you have about $4.2 million.

Going forward we plan on keeping this in the $300,000 range per quarter, and that includes our own development and contractor costs for some of these porting demonstrations and moving this on to other target platforms and some ongoing business development. So our goal right now is to keep this at about a $300,000 burn rate and start to see some revenues that will offset that.

All right. Then if I can just kind of dive into it a little bit more, on your comments in the script? So if you could talk a little bit more about the patents that you guys have applied for, what those -- what sort of applications those are for? And then maybe a little bit more on the bandwidth utilization media that you mentioned and any potential commercial aspects to that application?

Yes, let me talk about that last. So, for example, if you look at ProsettaCore, think of it as two elements. You have a policy server and then you have this kernel software that goes on a device and monitors what's going on with the device. In the case of security you're setting a policy, such as Chris can turn on his microphone, but nobody else can, and then you're monitoring the device to see if anybody is turning on the microphone or any of the other activities that we're looking for.

Well, you need not confine yourself to security related activities. You can actually look at things like bandwidth. You can look at applications that are consuming bandwidth. Now that is not an area that we want to go into, but we're going to be looking for partners that might be interested in licensing ProsettaCore for purposes other than security.

But before you get too excited, I don't want, you know, I'm not encouraging anybody to put revenue in their model for 2012 or 2013. We need to find licensing partners who can feed back to us what they can do with this and what type of royalties we might be able to receive on a device-by-device, on a device basis. So that's one thing.

I'll describe just one of the patents because these are patent applications, Chris, and, therefore, the content is not available to the public. And so this is largely proprietary information that we give to people under an NDA. But I will mention that in addition to our particular implementation of security, which as I've described at conferences, is a behaviorally based form of security, not a taxonomic type of security. So instead of trying to scour the planet every night for all known viruses circulating on various systems and then identifying their fingerprints or footprints and then downloading that information to various devices, we are not looking to do that, to identify, categorize, sort and so on.

What we're doing is we're defining policies of what is acceptable and then we're looking for aberrations in behavior that we then eliminate through a protocol driven set of behaviors. So we have patented that approach and the ways in which our kernel software layers onto a device and implements that approach. And then we have also taken that approach and applied it to SCADA.

So one of the areas that we're actively exploring is how you might integrate ProsettaCore onto a node that has a communication module in let's say a smart grid network. One of the real opportunities for security may not be in mobile devices or will not be only in mobile devices but fixed devices in critical infrastructure and the reports of malware attacks on various type of SCADA networks, oil and gas, utilities and so on are actually quite unsettling and they're on the rise. So we are looking for OEM manufacturers of communication modules that would be interested in integrating our solution onto those devices. Does that answer your question?

Yes, very helpful. Thanks for the color, Marty. That's all for me.

Okay, thank you, Chris. I think Steve Becker is up next, Operator?

(Operator Instructions) Your next question comes from the line of Steven Becker of Robert W. Bailey.

Baird.

Yes, just to start, just in looking at your Q3 guidance it looks like you're expecting a $4.5 million contribution from TelWorx which seems to imply no organic growth in the core business, am I interpreting that correctly? And then just looking at comments coming out of the North American carriers on CapEx, their guidance seems to imply a pretty big uptick in the second half here. Based on your earlier comments it sounds like you're hearing the same thing, but then the guidance seems to imply that the bulk of that scanning receiver improvement will come in Q4, am I interpreting that right or?

Yes.

Yes, effectively what you're seeing in the core business without TelWorx is sequentially around $20 million, and what you're seeing is is as antennas sequentially we believe are going to see a decrease, we actually kind of self-created that to the tune of about $400K because we had people moving their orders into June for accommodating our blackout period for our ERP go live and so you've got a flip-flop there but then that's going to be offset by sequentially increasing RFS revenue. But, yes, you're interpreting that right, but then what we expect is normalized continued growth in the fourth quarter off of what antennas would have been if we'd not had the flip-flop, and then continued sequential increases in scanners.

Okay, great.

We do expect a substantial increase in sequential revenue in the fourth quarter off of what that guidance said.

Got it. Okay, that's really helpful. And then just going back to your goal that you laid out at the beginning of the year, I know that the business has changed now that you've got TelWorx in the mix but is the core business still on path to be 13% EBITDA or are we kind off the path of that right now?

I think the core business in total is still floating in the range of call it 12% to 13%.

Okay.

We're not far off.

Okay, that's great. And then I caught your comments on sales into Waway [inaudible] that sounds like great progress, just wondering if you could give a broader update on trends in China, and then also the European sales, any update there would be really helpful?

Yes, well, as you know, one of the issues with China has been the delay in TD-LTE. We had expected TD-LTE to be implemented this year, that's delayed because some of the license owners for TD-SCDMA that have strong government backing wanted to extend the lifespan of that technology and the revenue associated with it. So that has sort of caused a manufactured slowdown, you know, not anything really to do with the ability to do capital spending or the growth of that industry. It is entirely a result of a stroke of a pen on a government licensing and startup of new networks.

Even though growth had slowed in China, China is still growing. And in terms of communication networks you have the world's biggest networks there now and they're in significant demand of benchmarking and optimizing those networks and using scanning receivers. So we see Waway and ZTE continue to grow despite the pressure on pricing, which is in some ways a result of Waway's own design of very much simpler equipment, easier to install and so on.

I would also point out that some of our Waway revenue does not come from China. We've made this point before. We pulled out our -- I'm sorry, our scanning receiver sales capability, for example in India but we sell in India through the auspices of our various OEMs, one of the most important of those OEMs now becoming Waway. So, and I also expect our traditional OEMs, the provider of test equipment, such as Ascom and Egnyte, to strengthen in the second half of the year.

You asked another question, I think I only answered a couple of them, you asked about Europe, correct?

Yes, just any qualitative comments on what you're seeing in Europe?

Well, we're seeing, as you might imagine, a great deal of chaos in the carrier market. There's been a restriction of capital spending. I will tell you, however, our antenna sales in Europe are up. And one of the real mysteries to me this year is this, where we are selling products into private networks, private enterprise, we're seeing an uptick. Where we are selling products into public networks that I just think are heavier on CapEx we're seeing a downturn. And so what I derive from that is just a general reluctance to make the big spend, and that's probably as far as I should go talking about economic trends that I don't really understand.

Got it. Thanks. And then, John, just one more for you, are you able to give any sort of free cash flow guidance for the year given that you were negative this quarter and I think you were also negative last quarter, can you give --

I think the biggest issue that we're going to have is that you're going to see CapEx drop back down to about in the range of $300K to $500K a quarter because the bulk of the ERP is being capitalized.

Got it.

The first thing you're going to see is CapEx is going to drop by $500,000 to $700,000 in this quarter.

Excellent.

And then what you're going to see then is as margins continue to improve, EBITDA margins with scanner revenue growing, you're also going to see an uplift there.

That's great. Okay, thanks a lot for the color, guys.

Yes. Operator, are there any callers with questions?

There are no further questions in queue at this time.

Well, thanks to all of you for attending our conference call. We look forward to seeing you over the quarter at industry events and look forward to updating you at our next earnings release conference call. Thank you.

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