TESSCO Technologies Inc (TESS) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2011 TESSCO earnings conference call. My name is Keisha and I will be your operator for today.

At this time, all participants are in listen-only mode. We will conduct the question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to hand the call over to Miss Harriet Fried. Please proceed.

Thank you, operator. Good morning, everyone, and thank you for joining TESSCO's conference call. With us today from management are Robert Barnhill, Chairman, President and Chief Executive Officer; and David Young, Senior Vice President and Chief Financial Officer.

Management's discussions this morning will contain forward-looking statements about anticipated results and future prospects. Forward-looking statements involve a number of risks and uncertainties and TESSCO's results may differ materially from those discussed today.

Information concerning factors that may cause such a difference can be found in TESSCO's public disclosure, including the Company's most recent Form 10-K and other periodic reports filed with the Securities and Exchange Commission. With that introduction, I would like to turn the call over to Mr. Barnhill. Please go ahead, Bob.

Good morning. Thank you. We have got a lot to talk about today. To tell you that the quarter was exciting is an understatement. But there's a lot of good things that we will be addressing specifically.

The end of the third quarter we grew revenues 12% and continued the dividend. Earnings per share came in at $0.38, EBITDA was $0.69.

We earned a greater -- we continued to earn a greater share of our customers' purchases. We generated strong operating cash flow and executed on some very exciting new marketing and sales initiatives. And we achieved all of this while the purchases and margins of our major customer, the Tier 1 carrier, declined.

If you exclude their sales, the core business grew 22% year over year. We'll talk more about the impact when we get into the guidance side as far as the largest customer.

But what happened in summary is that the customer prepared for the loss of the iPhone exclusivity, everybody saw the Verizon announcement. And as accordingly, they pulled back, reduced their purchases from us and they continued to put significant pricing pressure on us.

So as a result, you will see their gross margins declined and the impact on the bottom line was also impacted. And we anticipated the changes. We have some great strategies in place.

But the impact was much stronger and sooner than we had really expected. So again, we're going to talk about this in detail in just a few minutes.

But in the long run, it's important to recognize that the broader distribution of the iPhone is good for us. And again, we have strategies as far as with Verizon and then as they continue to expand it.

The adoption of the smartphone in general is really generating increased demand for the device accessories as well as for all the system infrastructure that the smartphone [arrives on]. So our strategies remain the same.

Continue to expand product and value chain offer, offer it to a broader base of customers that build, operate, maintain (inaudible) wireless and drive higher productivity and profitability. So we are accelerating this -- our initiatives to continue the transformation of TESSCO into an innovative leader that offers the product and the value chain solutions for deploying, using and reselling next-generation networks to a diversified base of customers.

So today, we not only supply the components, but we also have expanded into architecting and delivering and entire integrated solution, including engineered manufactured product that we will be talking more about. So today, we've continued to expand our offering from mobility devices to the products that the carriers and public and private network systems need.

Now one of the things you might do if you're on the Web is GE Transportation dropped a very exciting announcement today that I'll paraphrase when we get into it after David gives you a brief, but this is a very good example of the expansion. And GE's announcement spells it out that we formed with them a strategic product development partnership with us for positive train control solutions for North American railroads.

And again, I'll talk more about that. We've also recently expanded our offer to include these cellular broadband base station radios. And you know, I'll address that more.

But these two major initiatives reflect the success of our transformation and will drive significant opportunities for developing new customers, new markets and obviously revenue generation. So I'll let David give you the details of the financial performance and I'll give you more color in terms of where we are.

Great, thanks, Bob, and good morning. Despite the soft quarter within our largest customer, we do continue to be pleased with our core results, and especially the new business opportunities we are developing. I'll now provide a few more details about our results, and all compares this year again will be to last year's third quarter unless I state otherwise.

The revenues totaled $168 million. That's a 12% increase, a good quarter topline growth. Our public carrier market grew the most of any market, 37% year over year. We continue to participate in some of the exciting new-build projects that are going on now.

Our reseller market grew by 14%, strong growth in this market with both network infrastructure products sold to the value-added resellers and with global device accessory product sold to retailers. The growth in mobile devices and accessory sales to retailers was partially offset by a decline in sales to our largest customer.

So sales to this customer represented 28% and 34% of our total sales in the third quarters of this year and last year respectively. So if you do the math, you'll see that sales to this customer decreased by about 7% compared to last year.

The user and government market revenue was down 3% year over year. But that again, that's entirely the result of the transition of the large repair business that finalized at the end of the second quarter.

Bob has highlighted some of these exciting new opportunities, and he's going to give you -- as he said, he's going to give you a few more details in a few minutes. But exciting stuff in this market. Our small consumer direct business showed a 13% decline.

So gross profit reached just under $34 million, it's a 3% increase, however, it is down 8% sequentially. We did continue to see some gross margin compression this quarter. Gross margin for the quarter was 20.1%, down compared to 21.9% in last year's third quarter and 22.3% in the second quarter.

The decline is primarily due to the significant pricing pressures we experienced from our large customer. This pressure really did impact the margins here.

And we also experienced some margin declines in sales of installation test and maintenance products, due primarily to increased sales of lower margin test equipment this quarter. The declines were however partially offset by a nice increase in our network infrastructure margins.

So now for a few more details on the lines of business, mobile device and accessory revenues totaled $96 million. That's an 11% increase.

We continue to see strong demand for device accessories in our channels. However, as I mentioned before, sales to our large Tier 1 customer decreased by 7%.

So not including those sales to this large customer, revenues in this business grew by 37% and the number of buyers increased by about 5%. So purchases per buyer not including the large customer increased by 30%.

It's a good sign that our offering to customers is very comprehensive and we continue to grow share in that market.

Network infrastructure revenues totaled $58 million. It's a 17% increase, while gross profit grew by about 28%. So strong growth here both in dollars and in margin.

We remain excited about the growth we have seen in the private network side, projects where we're working with enterprise [and self-maintained users government] to help them build out their networks. This is very exciting and it's a great opportunity for us to expand our strong proprietary product solution offering.

The number of buyers in this line has declined by less than 1% but purchases increased by 18%. Installation test and maintenance, as I mentioned earlier, the repair components business fully transitioned out the end of our last quarter. So year-over-year comparisons in this line are difficult.

Nevertheless revenues were $15 million and gross profit hit $2.8 million. That's flat revenues and 3% decline in gross profit. Buyers in this line were down 3% while purchases per buyer increased by 4%.

Onto SG&A. Operating expenses increased during this quarter. They totaled $29 million. That's up about $1.5 million or 6% compared to last year's third quarter. This increase is attributable mostly to higher compensation costs and higher freight costs which are completely variable with sales.

These increases were partially offset by a large decrease in our bonus accrual expense. As I will discuss more in a moment, we adjusted our guidance down, mostly based on the trends we are experiencing with our large customer.

And since our performance is estimated to be lower than we had previously expected, our bonus accruals have been adjusted down. Regardless of these trends, we feel good about the rest of our business and we continue to invest in our business generation teams with an eye on capturing new opportunities with our customers. And we obviously continually manage our other SG&A line expenses.

So accordingly, our operating income in Q3 was $4.3 million, nearly an 11% decline. So consequently, our operating margin was 11.6% of sales compared to 3.2% in last year's third quarter.

Our effective tax rate declined this quarter. It was down to about 30%. That's down from 39% in last year's quarter.

This was due to an anticipated reversal in the reserve for an uncertain tax position statute that expired during the third quarter. And so we expect that this is sort of a one-time event and that the effective tax rate will return to historical levels going forward.

EBITDA reached $5.5 million this quarter, $0.69 per diluted share, and net income was $3 million or $0.38 per diluted share. And then for the nine months of the year, the first nine months of our fiscal year, revenues totaled $475 million.

It's a 21% increase compared to the first nine months of last year. EBITDA for the first three quarters grew by 7% and totaled $16.6 million or $2.11 per share, and net income totaled $8.4 million, up 13%, and EPS reached $1.07.

Onto the balance sheet. Inventory came down this quarter by $8 million, again compared to September, as we rationalized inventories in a strong effort to improve turns and returns on our investment.

Our inventory turns reached 10 times this quarter. That continues to be a good strong number for us.

Cash collections were good. The strong sales created higher AR this quarter, and day sales outstanding were 44 days for the quarter. So a little higher than the past as some of our larger customers have longer payment terms than those we would typically grant.

The decrease in inventory and receivables was only partially offset by a decreased payables, and so cash flow from operations was very strong in the quarter. We generated positive cash from operations for the quarter of about $9 million, and we ended the quarter with $7.3 million in cash and had no outstanding balance our revolving credit facility.

Our Board decided to continue the dividend program, $0.10 per share common stock, and it will be paid in early March. This dividend is a 50% increase in the per-share dividend amount as compared to when we started the dividend program back in the summer of 2009.

So for our business outlook, as Bob and I have both mentioned earlier, our business with our large customers is changing. We are facing softer purchases, significant pricing pressures and shifts in their business.

We expect these challenges to continue and they have indicated a plan to change the existing business model. This puts the future business with this customer at risk.

Based on this, plus the fact that our fourth quarter is typically weaker than our other quarters, but also considering our strong market opportunities, we're revising our guidance for fiscal 2011. We now believe that earnings per share for the fiscal year will be in the range of $1.20 to $1.27. That equates to $0.13 to $0.20 for the fourth quarter.

So we continued our strong year slightly ahead of last year's record pace, but now we're faced with some challenges related to the largest customer. These challenges impacted margins and profits in the quarter and we expect that to continue.

This is the nature of our business. We win and develop business opportunities, sometimes the needs of the customers change, and our business with that customer is impacted.

We have seen it before with large customers and suppliers and we have managed through it. We are intensely focused on adjusting our business in light of the situation.

But we're also very excited about some of the new opportunities that are presenting themselves. We believe we are well positioned to take advantage of these opportunities. Bob is going to now tell you a little bit more about these exciting things. Thanks.

Thanks, David. You know, as we have been discussing, TESSCO is really leveraging this convergence of wireless with the Internet, and it's really changing the way we all live, work and play, and creating great new systems and new applications, and we are there making wireless work in these new systems. Let me elaborate on the two areas I talked about before.

If you look at wireless network, what we call wireless network systems, these are the active components and TESSCO has never been in the active components, namely the base radios. We have always been in the passive support infrastructure, the antennas, the cable, the support towers.

And we are still in that, but we've aggressively moved into these active components that support the carriers, the Tier 1s, the Tier 2s, the Tier 3s, rural broadband, indoor and outdoor. And we've put together the building blocks that we craft and engineer these solutions.

And just to mention a few of the manufacturers products that we have, Motorola, Huawei, [Bridgeway], [Dragon Way], Exalt. And so we can put together whether it be a rural broadband or a carrier or a private network, a complete system now that includes the active components as well as all the support products on the back end.

We can support LTE, WiMAX, CDMA, GSM. All the technologies we can now support with these active components that we can take into the cellular carriers; as we mentioned, rural broadband service providers, utility, transportation, government, and actually our resellers. And so today, we can provide our customers with that end-to-end source of the product as well as value chain solutions that they require to deploy their systems.

Now the second example is GE, GE Transportation. And again, please look at the press release that was issued by GE this morning. And I'll explain what this is all about, but let me just kind of paraphrase the release.

The headline reads "GE Transportation and TESSCO form long-term partnership to co-develop and produce positive train control solutions." Now let me explain what positive train control is for those of you that might not be aware of it.

So basically it's the air traffic control system for railroads to prevent train smashes [and if you buy an incorrect setting of a switch] and the government mandated that there would be after 2008 and there's a December 15 deadline to implement positive train control in over 7000 what they call dark -- and this is where -- dark territory which is a -- the definition of a site that is not monitored today by electronic signal systems.

And what this basically does is it assesses the condition of the switch, it assesses the condition of the oncoming locomotives and it will actually take positive control over the locomotive to shut it down to avoid any type of a collision or a derail. So we worked -- we have been working with GE Transportation over the past year to develop this component, and what we are supplying is a turnkey integrated solution that is the home for the GE transportation controller.

So if you can just visualize that we have a foundation put into the ground, it has a tower on it. The tower has a box. Inside the box is the GE controller as well as the radio. And then above the box is a articulating tower that has a solar panel.

It required some of the sites are A/C controlled. But if they're in an area that there is no A/C power, then they use solar and then it has an antenna on it for the RF propagation. And our product is designed that it can be installed simply and easily. I mean, it's big, it's a big box. It has all the componentry, all the wiring that we manufacture, we assemble, and then we fulfill with GE.

We're co-marketing with GE and we're going into the railroads. We already have orders and this is going to be a very exciting area for us.

Just to paraphrase the press release from the -- with the President of the Transportation Division of GE said in the release today, TESSCO and GE are combining their individual strengths to build the best turnkey, dark territory solutions to our customer. TESSCO brings a unique combination of state-of-the-art communication and radio frequency technology. GE brings innovation signaling solutions, together we are able to offer an integrated positive train control solution.

So, it's also important that if you look at this component that we're taking to the railroads with GE -- but this component that we've built is appropriate to utilities, railroads that are not doing the positive train control but might be doing just communications or signaling. We are moving into video surveillance. So it's a product that we can take in and leverage into other markets. So it's a great demonstration of of one, the credibility we have built and that we have in the industry and the new opportunities that we are moving into.

So it's -- TESSCO is truly making wireless work in many, many areas and it's really -- it's an exciting time for us. So with that, I'd like to open it up for questions and we will answer as we can.

(Operator Instructions) Anil Doradla, William Blair.

Hey, guys, good morning. Had a couple of questions both around the large vendor, large customer, sorry, and some of this GE announcement.

Getting into this large customer, just wanted to get a sense of the competitive landscape at this customer. You talked about the ending of exclusivity here, but did you witness any new competitors here? And if so, have there been any increased pricing pressure from these new competitors at this large customer?

Let me maybe -- as David was saying, all of these relationships have a lifecycle to it. When we began with the customer, we were truly the merchant where we presented the product, it was selected, and then we did the packaging and the fulfillment accordingly.

Now all along the way, we've continued to introduce more of our proprietary products, and we still have a very growing opportunity in terms of the proprietary products that we market under the Ventiv's and wireless solutions name that we designed and have contract manufactured for us. But it gives it proprietary positioning.

So if you look at the model that the customer is going to, it's much more of a fulfillment model where they're looking for packaging and again, fulfillment, and they're going to be doing more of the which we do today. Now while we have been moving towards that direction, you know, we're looking at our proprietary products, we're looking at our costing obviously and redeploying, and while they are looking at how do they move their pricing -- their costs down and where it's a better profit source for them.

So as David says, we expect this trend to continue, but it's incumbent upon us to continue to do what we do well and that is expand, continue to aggressively expand, into the independent agents as well as the other carriers, which we are doing with our proprietary products as well as some of the other branded products that we offer today. Does that give you flavor in terms of where we are?

Yes, it definitely does. You know, following up on that, given that you've had some good inventory turns and this customer has been [worth 28% of it] I think, is there any potential of writing off inventory going forward? Or do you think that is something you could absorb somewhere?

Again, we've done a good job -- part of the inventory pulldown was looking at the various products. You know, you don't really know what the impact is going to be on them because of Verizon.

And this is -- I think we saw short term as they adjusted accordingly, expecting that there's going to be some leakage of the iPhone into Verizon, and so they reacted accordingly. But again, they are aggressively going after the iPhone.

They announced a $49 price for the 3G phone, aggressively going into new smartphones, which we're moving on product. So, it's going to be interesting to see how Verizon offering the iPhone is going to play out for the entire industry. As I said earlier, I believe that the expanded market for the iPhone and all smartphones is in the long run really going to be a driver of our business.

Great. And actually building up on the Verizon front, given that you've got a good relationship with this large customer, AT&T, and you've built a lot of products around the iPhone for them, and you know how to scale for a Tier 1 operator, can you walk me through the chances and your ability to scale up at Verizon at similar levels? I know there was some announcement I think a couple quarters ago with Verizon, but what are the roadblocks in building up a significant business around the iPhone at Verizon for you guys?

The opportunity for us with the agent channel is terrific and we've already launched marketing efforts demonstrating that we are the iPhone experts, and we have everything they need. We have the new -- there are some physical dimension differences with the Verizon iPhone that we have already engineered products for, and we have offerings for both with our brand as well as the other brands.

So the independent channel is what we're really ramping up on. At Verizon direct, they are using a direct purchasing model, and so the -- bringing in non-TESSCO Ventiv product through the Verizon channel probably is not probable, but our product going in there is.

So Ventiv, we continue -- we've talked about it in the past, but this is -- we're very aggressive in terms of new product development, that we can go in with a product that we can give to all the carriers, and we are in many of the other carriers with our branded product, which obviously is much better margins and much better customer satisfaction for the end customer as well as the carrier.

Very good. And then switching to the GE agreement, can you give us a sense of the timing and the ramp-up of the revenues from this announced relationship?

Yes, as I said, we already have some orders, and it is a -- the government has mandated that the railroads have these in place by 2015. So we're just now collectively with this announcement beginning the aggressive marketing program of getting to the railroads.

So, it's going to be I would say in the next several quarters more of a trial slower ramp that then once we get the credibility in the field, it will start to ramp up. The one thing to keep in mind is that this is -- even though it's a federal mandate, there's no federal funds behind it, so some of the railroads might tend to delay rather than move out.

But as I said, this product that we've developed -- and just the size of this product -- I can't go there. I was going to give you the size in terms of the component cost, but it is going to be -- it's a significant unit sale, it's a single SKU.

And it's something that we can sell to these other channels. And I think that between what we're doing with the railroads with GE and then through our other channels, I think that this will generate volumes as we move into the new fiscal year.

Great, and then the nature of revenue streams from this GE contract, would it be -- would it tend to be more lumpy or would there be kind of a longer-term buildout component to it which smooths out (inaudible)

I think when you look at all the markets we're doing, it's going to be a smooth ramp-up from the railroads that will be tailed as you get into the future years. But it's not something -- they might give you an order for a sizable quantity, but it's going to be delivery over a period of time.

Very good, that's all I have, guys. Thanks a lot.

Matt Spratford, Sidoti & Co.

Anil got a bunch of mine. I just wanted to nail down a little bit more on the loss of that large customer. Just in terms of revenue -- percentage of total --

We haven't lost (multiple speakers) it's not a loss.

Well not a loss, but the decline. Just in terms of the total percentage of revenues looking forward, what can we expect that to kind of settle at?

You know, I think as we've guided is that we are expecting that it's going to continue to [maintain to slow]. Again, I want to reiterate that we have got a terrific relationship with this customer.

We have done an extraordinary job with them. And so they are managing through their changing business model and they are -- so we are there with them, but we just had to guide to where -- what we see in terms of obviously the volumes and the margins have really significantly been impacted here in the short run.

I feel that it's going to come up and I feel that the relationship will continue to be a solid relationship. I'm very excited about continuing to take in our products into them and get a seat at the table as a manufacturing partner as well as a packaging and fulfillment partner as we go forward.

I think our hope and kind of our outlook is that this becomes a smaller and smaller portion. So last year's third quarter was 34% of total sales. This third quarter was 28%.

We would expect given some challenges there as well as improvements that we think we can drive in the rest of the business that that 28% should continue to (inaudible) steadily decline.

I think that David's point really deserves reinforcement, is that our goal has always been to continue to reduce concentration. And between going to the independent agents more aggressively and to introduce more of our own product, we will continue to see that gross contribution.

And if you look at the volume from this particular customer has become big dollars and low margin. So you know, it doesn't take a lot of dollars at the higher margins that we enjoy in the rest of the business to make up for some of that revenue decline.

Gotcha, along those lines actually, were those the gains that you guys saw ex that large customer, on the accessory side, were they on -- were they seasonal? Were they holiday related? Or do you think that is kind of a sustainable growth pattern going forward?

That was the big disappointment is that the last calendar quarter is normally very strong for the holiday, and we saw that -- you go back to David's numbers, we saw that with the independent channel, but we did not -- the quarter is always very -- has been very large with the large customer, and this as David said was a decline. So that was one of the major -- we didn't expect that to happen as soon. We knew that Verizon was going to announce and we knew it was going to be in the first quarter, but we didn't expect the brakes to be put on as quickly as it was.

Matt, I think if you think of that market without that large customer, we said we saw I think 37% revenue growth. And that is driven partially by the holidays.

We're comparing to -- last year's quarter had the holiday in it too. I think it's probably a little stronger this holiday, but generally speaking, that market has been growing very nicely for us and somewhere in the mid 20s.

Gotcha, then last one for me, I don't even know if you guys comment on it, but I'm just trying to get a better feel for just the overall scope of that GE opportunity.

There's 7000 sites that are out there that need to be fitted (multiple speakers) the dark sites, and it will be -- as we look at the stand-alone product, I mean, you're looking at pricing in the five digits in terms of what our component is worth. So it's a sizable opportunity, and GE is the leader in the positive train control solution.

So that's why we are so proud to be associated with them and to be, as they said in their press release, the fact that we are -- they phrased it as a long-term partnership to co-develop and produce these solutions. So we are very, very excited about it.

It's exciting for a lot of reasons. I mean, it obviously reaffirms our credibility to be a partner with and considered a partner with GE.

It's just very, very exciting and we'll take this into new opportunities not only with GE, but with other major suppliers that we can partner with that we can do what we do well and they do [and seek praise] they know signaling and we know our propagation and our power and it's just a great partnership.

It's really good to have a partner like GE to go in -- we're trying to sell the entire solution. But keep in mind too that we have been doing business with the railroads for a long time and they are going to be filling in their networks, they're going to be needing components to do this, and that's business that likely could flow right through to us.

Then just one more thing. I just wondered on the margin side, how do you think that will affect the consolidated gross margin?

The GE sales are probably pretty close to our overall margins, we expect. We think that the other radio access yes David. We expect. We think that the other radio access products that Barney talked about a little bit are -- the growth there is going to be at lower margins, but again, really high average sales prices. So much higher than what we are used to.

So I think the combination of those two, may see a small drag on the consolidated margins, but it should be a -- it could be a nice revenue line and drive some nice profit for us.

Also with the wireless network products where the components themselves, the radios themselves carry a lower margin, we will be integrating that with our other cable and base antennas and support products which will then bring the blended system solution margin up.

Gotcha, thanks, guys. That is it for me.

(Operator Instructions) Scott Searle, Merriman Capital.

Just a follow-up on the AT&T question. Dave, from a gross margin standpoint, where do you expect gross margins in accessories to bottom out?

When you take the large customer out, the margins are still very good.

Yes, I think, Scott, if we think about the transition of this business, the potential transition of the business, and the growth that we're hoping to drive in the rest of those sorts of customers that would be higher margin, I would kind of think (inaudible) right around where they are now and maybe even improve a little bit as that business (inaudible)

Okay, great. And, Bob, just talking a little bit about some of the more active side of the equation, does that include -- will you be getting involved with remote radioheads and doing that sort of installation in the field as that starts to ramp up with LTE deployments in the next 12, 24 months?

Again, we don't install. We sell to the people that are installing. But yes, the radioheads, the LTE, we will be involved in that.

And again, our target market there is the Tier 2, Tier 3, rural because the Tier 1s will be doing their direct deal, but we might be assisting and facilitating and certainly trying to move in our support products as well.

And overall, just from a gross margin standpoint on the network infrastructure side, that has been slowly creeping up. What's the outlook?

You look out four quarters from now, what's the target on that business? Are we kind of topping out here or is there still more to go as you're bringing more active components and more proprietary content?

You mentioned kind of two sides of it. The radio product will bring it down, proprietary products bring it up. So, David, what (multiple speakers)

I think the reason -- one of the reasons we saw this quarter's margin go up was that the private -- the work with the private networks grew a little bit faster than the growth of the public networks. So as we can -- if we're selling to enterprises and government, our margins are higher than if we're selling to Clearwire or Sprint or someone like that.

So I think these radio products will be both on the carrier side, although they won't be the top end carriers. But they'll also be sold into the ISPs and the regional carriers which could give us some higher margins than we would sell to a Clearwire or someone like that.

One of the areas that we're being successful, where David is referring to, in the private networks is wireless backhaul. Wireless backhaul is becoming very, very important as people (inaudible) these lines monthly expense.

And lastly from a macro standpoint, as you work pretty closely with carriers, and at this point time I would imagine you got a pretty good look at their budgets and what they're talking about for 2011, so if you could kind of from a systems standpoint, what your outlook is for calendar 2011, is this going to be a mid-teens kind of growth year or is it too early to tell? What's kind of the basic tenor of what the carriers are telling to you at this point in time? I know part of the probably may be sort of a with/without kind of Clearwire scenario if Clearwire gets financed or not.

I think that there's a lot of tension as far as the quality of the systems, and as these smartphones continue to roll out and the demand on the bandwidth continues to expand, we're going to see buildouts, overlays to enhance that service quality. And it's really going to be -- this is going to be a fight if you will in terms of -- AT&T has really taken -- gotten a lot of grief in terms of their system quality which I think is in many cases unfair because if you take the iPhone and you take the BlackBerry, the BlackBerry is always ready to go and reliable and maybe the iPhone is not.

So there's going to be a lot of comparisons. Now you've got a head-to-head comparison, and then where Apple goes from there with theirs and then when you look at all the other great products that are out there, there's going to be just a real focus on that bandwidth and that speed of delivery. So I think it would be a good year in terms of this -- the CapEx that the carriers are going to be looking at.

How big of a swing factor is Clearwire for you guys?

It's pretty big. We do a lot of business with Clearwire. We've got a great relationship with them. All our guys are very well connected with their people in the field. And you know, Clearwire is not a 10% customer. So that's not someone that's that big, but it does have some impact on that margin.

Great, thanks, guys.

There are no further questions in queue at this time. I would now like to hand the call back over to Mr. Bob Barnhill for any closing remarks.

Good, thank you, I appreciate the questions. It's always great to be able to amplify some of the things we've said.

I just want to end with kind of summarizing our results and future is really being driven by an extraordinary team that is very focused and accountable for achieving five major areas. One, a larger share of our customers' purchases which we're making great strides on; developing new products and solutions offerings, again we're making great progress on; designing new, innovative TESSCO-only proprietary products, not only the mobility devices, but we're doing WiFi enclosures and antennas; and then these turnkey systems.

And we didn't even talk about the Smart Box these collector boxes that we have out on test with utilities today that -- this is where the data from the homes come back to the central office. And again, they need the backup power, in some cases solar and broadband radio. And again, we're doing the integrated solution there and that looks great. Positive train control is the same thing, uses the same concepts and the same design criteria as the smart grid.

The fourth area is entering new markets. We've touched on those. The people that are deploying, using or reselling voice as well as data as well as video systems, and we are way beyond just serving our historic carrier, reseller, public safety market, and we have been touching on we're in with the utilities.

And we have a salesforce that's totally marketized to focus on the utilities and the transportation, rail and oil and gas, healthcare and education. And then lastly, which we really haven't talked about, is the terrific initiatives underway to drive the effectiveness and productivity all the way from the fulfillment side, looking at where inventories are, how is speed of delivery, cost of delivery, processing.

We're driving those across as well as looking at the major, major initiatives, aggressive initiatives as it relates to what we call sales and the Internet and database marketing. So we have transformed our sales team to very market focused, relationship building, and then our marketing and sales support is being driven by this one-to-one marketing that we can drive the right message to the right person at the right time.

So bottomline goal is that we're focused on building share owner value in the months and quarters. We're very excited about the foundation we have and the opportunity and look forward to discussing our progress as we go forward. So thank you very much for being a part of the call and we'll be talking to you along the way.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.