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Powerwave Technologies, Inc. (NASDAQ:PWAV)

Q3 2011 Guidance Call

October 18, 2011 5:30 PM ET

Executives

Tom Spaeth – Treasurer

Kevin Michaels – CFO and Secretary

Ronald Buschur – President and CEO

Analysts

Steven O’Brien – JPMorgan

Ted Moreau – WJB Capital

Lawrence Harris – C. L. King

James Basch – Dialectic Capital

Amish Handar – Chevrolet

Armish Mesa – Tenna

Operator

Good day, ladies and gentlemen, and welcome to the Powerwave Technologies to discuss Third Quarter Update Conference Call. My name is Kathy, and I will be your operator for today. (Operator Instructions) Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today’s call to Mr. Tom Spaeth, Vice President and Treasurer. Please proceed.

Tom Spaeth

Thank you. Good afternoon and welcome to Powerwave Technologies Third Quarter 2011 update conference call. I’m Tom Spaeth, Powerwave’s Treasurer. Joining us on today’s call will be Ron Buschur, President and Chief Executive Officer; and Kevin Michaels, Chief Financial Officer.

Before starting, I would like to point out that various remarks we make about future expectations, plans and prospects for Powerwave, including but not limited to anticipated revenues, third quarter preliminary revenues, revenue growth rates, customer demand and the timing of customer orders, the split between operator and OEM sales, operating margins, gross profit margins, earnings per share levels, cash flow projections, revenue composition, supply chain constraints and shortages, manufacturing levels, improvements in cost structure, future cost savings related to our cost reduction activities, demand levels for the company’s product lines, projected growth and market share, trends in the wireless infrastructure market, the timing of 3G and 4G buildouts, the timing of products, product deliveries and future orders, the timing in closing of the company’s headquarters, sale and leaseback transaction, the company’s ability to enter into and compete in vertical markets for its products, such as government and defense markets, common stock prices, the company’s ability to resolve new production issues, debt purchases, the success of new products, expense levels, capital expenditure rates, inventory turns, inventory levels, tax rates and days sales outstanding are all forward-looking statements, which are intended to qualify for the Safe Harbor from liability, established by the Private Securities Reform Act of 1995.

These statements are subject to numerous risks and uncertainties that could cause Powerwave’s actual results to be materially different from those projected or implied. Some of the risks and uncertainties include our ability to accurately forecast and anticipate customer orders, our ability to obtain material components within expected lead times, realized anticipated cost savings and synergies, the negative impact on demand for our products due to the macroeconomic environment, reduced demand due to industry consolidation among our major customers, fluctuations in foreign currencies, the ability to accurately forecast cash flows and credit collections, ability to enter into new markets for our products and solutions, the impact of competitive products and pricing, economic and political conditions and the loss of one or more significant customer accounts.

Please refer to our press release, Powerwave’s current Form 10-K for the fiscal year ended January 2, 2011, our Form 10-Q for the quarterly period ended July 3, 2011, and other filings which are on file with the Securities and Exchange Commission for additional information and factors which could cause our actual results to be different from those projected or implied.

Now I’m going to turn the call over to Kevin Michaels, Powerwave’s Chief Financial Officer.

Kevin Michaels

Thank You, Tom. I’ll first make a brief statement, followed by Ron, and then we’ll take your questions.

First, I want to note that we have not completed our financial review procedures for the third quarter, so all amounts discussed on this call are subject to our normal quarterly close procedures. Therefore, they may end up being different from what is currently anticipated. As stated in our press release, we estimate that our third quarter revenues will be in the range $75 million to $79 million.

For the third quarter, our revenues have been impacted by several factors, which include a significant slowdown by our North American Network Operator customers, a significant reduction in activity with our regional equipment manufacturing customers, coupled with further weakness in several international markets, including Western and Eastern Europe and the Middle East.

From a global perspective, we believe that the current economic environment has caused operators to reduce or postpone their spending plans for the near term, while they evaluate the macroeconomic pressures in each individual market.

From a customer perspective, we estimate that both our OEM and Network Operator businesses will be down approximately 55% from the second quarter of this year. From a network operator perspective, we encountered a significant slowdown in North American marketplace, led by reduction in revenue with AT&T and the North American resellers that sell into AT&T.

In addition, we have experienced reduced revenues in both the European and Middle East markets. All of these factors combined together have had a significant negative impact on our third quarter revenues.

In addition, I want to note that we have entered into a sale on leaseback transaction on our headquarters facility located here in Southern California. The sales price is approximately $49.5 million and the company has simultaneously entered into a 15-year lease agreement with the purchaser. This transaction is expected to close within the next week, and the company will receive the sales proceeds upon closing of the transaction.

I’ll now turn the call over to Ron Buschur, Powerwave’s President and Chief Executive Officer.

Ronald Buschur

Thank you, Kevin, and good afternoon, everyone. Let me start by first stating that we are very disappointed with the results for the third quarter, and we are taking the steps necessary to both drive future revenue and ensure that we maintain the appropriate cost structure in this economic environment. Once we finalize our plans, we will share them with you.

From a global perspective, as Kevin mentioned, we believe that the poor economic environment has definitely impacted the Network Operator spending in several of our markets. Separately, the additional factors that are impacting particular markets, for example, in the Middle East, have been significantly impacted by the political unrest throughout that region.

In addition, in the North American market, we believe that uncertainty has been added to the market, given the government’s recent opposition to the proposed merger of AT&T and T-Mobile, which we believe has led to delays in spending of these operators. And they are reevaluating their capital spending plans.

Our near-term visibility remains difficult in the markets. We continue to believe the long-term demands for the improvement in the wireless infrastructure remain strong. And we continue to see the global demand for data and wireless network operators continue to promote their future plans for improving existing coverage and adding additional capacity in the form of 4G capabilities. We believe that Powerwave remains well positioned to build upon and capture long-term growth and market opportunities in the wireless infrastructure space.

Now, I’d like to turn the call over to the operator and address any questions you may have.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And our first question comes from the line of Steve O’Brien from JP Morgan. Please proceed.

Steven O’Brien – JPMorgan

Hi. Thanks for taking my question. When we last, I guess, spoke in early August, it didn’t seem like you had indications of this level of demand slowdown. Can you just maybe help us understand how that such a broad-base slowdown maybe took place in a couple months? And I guess it’s probably hard right now. But going forward, can you give us any visibility into the potential for push-outs or revenue recovery in the coming quarters?

Ronald Buschur

Now, first of all, we expected the quarter to be somewhat back-end loaded, due to the European summer vacations and holidays. So we weren’t alarmed at the rate at which we were seeing sales. But as we got towards the end of September, we’ve seen a significant slowdown. And in Eastern Europe, basically one operator completely stopped spending, due to some financial constraints and some other issues that they had.

Looking in North America, up until I think late September, we heard a little bit of concern with AT&T after the Justice Department – I think it was the end of August – talked about the – blocking that potential merger between the two companies. And, as you know, AT&T represents a very significant part of our business, as well as T-Mobile, when you look at the North America operator market.

And then the unrest that we keep seeing in the Middle East is certainly compounded by the fact that we were building out several networks there in Egypt, as well as other parts of the Middle East. And that funding has been frozen in some of the banks there, so payment has been very difficult. And the operators aren’t proceeding there as well.

Steven O’Brien – JPMorgan

I guess, just kind of moving to the last part of my question, which was on the visibility, or any sense for – I guess backlog has typically been around $65 million to $75 million, where that stands right now, and visibility into coming quarters? Or is this sort of the level of demand, $75 million to $79 million kind of indicated the level of demand here for the near term?

Kevin Michaels

Sure, Steve. I think couple things is one is, is, we do think that we should see some improvement off of this level. Obviously, we’ve seen a reduction – obviously, the last quarter, we saw some reductions, so our backlog numbers are down. We’re not giving guidance going out right now because there’s a lot of uncertainty in our plans. But we certainly expect to see some recovery off of this low in the fourth quarter, but we’re not prepared to forecast that. As we noted in the press release, we’ll finalize the results and have another call on November 1. So by then, we might have a little bit better view. But we do expect to see some improvement.

Steven O’Brien – JPMorgan

Okay, Kevin. And then maybe on the balance sheet. Can you remind us of the fixed versus variable cost structure; what do you think cash might look like at the end of the quarter? And what changes in receivables, inventories and payables may have happened?

Kevin Michaels

Sure. I don’t have all the full balance sheet that yet because we’re still in our close process. Our cash balance looks like it’s around similar to what it was the prior quarter, so around $46 million, roughly; that we think that’s about the level we ended the quarter at. The balance sheet and everything; I don’t have all the details. I think, as Ron mentioned, yeah. Our collections have not been what we’d like to see, and all that’s the economic issues out there. But we still believe that we should be fine with that.

We think we have enough resources to operate well. And, as we noted on this call and in our 8-K filing today, we have signed a sale and leaseback agreement. It should close the next couple days, and that adds just under $50 million of additional cash to our proceeds. And we think we’ll have plenty of operating flexibility going forward.

Steven O’Brien – JPMorgan

Okay. I’ll stop there. Thanks.

Ronald Buschur

Thank you.

Kevin Michaels

Thank you.

Operator

Our next question comes from the line of Ted Moreau of WJB Capital. Please proceed.

Ted Moreau – WJB Capital

Thanks. Good afternoon, guys. Can you remind us how, much exposure do you have to the Middle East at the moment, or did you have to the Middle East before and maybe in the first half of the year?

Ronald Buschur

We were running, I think, on a quarterly basis somewhere around $15 million to $20 million of sales...

Ted Moreau – WJB Capital

Okay.

Ronald Buschur

A quarter there.

Ted Moreau – WJB Capital

Okay. And then you talk about one particular carrier in Eastern Europe, essentially kind of coming to a halt. Are there concerns about selections from this customer?

Ronald Buschur

Well we’re pretty comfortable because we’re somewhat current with the collections with that customer, and we have looked at how we’re going to move forward. And if you recall, during the last slowdown in that region, we had to put very tight payment terms on that customer as well. So our exposure there is very minimal, and we feel pretty comfortable with that.

Kevin Michaels

Yeah. Let me just add to that. In Eastern Europe, our customer there actually is current. Actually, we continue to receive payments out there. It’s really what some of their customers are going forward, as we’ve seen a slowdown and a stoppage of spend over there. Some of that’s due to some of – there’s been some devaluations in the currencies over there in the last month.

And it’s the same issue that we’re seeing in some other markets where operators are freezing their capital; they’re reevaluating. They continue to have long-term plans, but they’ve slowed stuff down for the end of this year. So we’re reflecting that, but we don’t believe we have any collection issues.

Ted Moreau – WJB Capital

Have you seen any delays in LTE projects along with the slow spending environment?

Ronald Buschur

Oh, absolutely. I mean, it’s obvious that when you’re looking at the buildout, several of the operators who are talking about continuing down their buildout of the LTE networks had to slow up that process slightly, based on some actions that the government has taking here in North America. And then the economic uncertainty in parts of the Middle East and in Europe with the network. They – everyone, when you look at their long-term view of the benefits of the 4G or LTE network, they see that. But I think right now, financially, with the uncertainty there, they’re somewhat cautious moving forward.

Ted Moreau – WJB Capital

Yeah. Okay. Okay. And then assuming that gross margin’s going to be pretty low in the quarter; I mean, I know that you haven’t finalized anything. But I’m assuming that – I mean, how low do you think we could go?

Ronald Buschur

Oh, I mean, it’ll be fairly low. We haven’t finalized the numbers. Obviously, we’re extremely under absorbed, so it’ll have some impact through there. And we’re reviewing that, but it’ll have a significant impact, obviously.

Ted Moreau – WJB Capital

Okay. All right. Thanks. I’ll jump back in queue.

Ronald Buschur

Thank you.

Operator

Our next question comes from the line of Larry Harris of C. L. King. Please proceed.

Lawrence Harris – C. L. King

Yes. Thank you. With respect to geographies, you mentioned North America and the regulatory environment, Europe, including Eastern Europe and the Middle East. Were there any significant changes from your expectations with respect to other geographic regions, such as Asia-Pacific or Africa or Latin America?

Ronald Buschur

Well Latin American, Larry, is – was a little bit slower than we had anticipated with one customer. But I think that was more due to their timing of one of their rollouts that they had planned. Looking in the APAC region, I think we’ve seen what we’ve somewhat expected in that region as far as sales. So I don’t think that region really has slowed down or has speeded up with our sales expectations.

Clearly, we want to focus our efforts in the regions where we can benefit from a sales perspective, and Asia is one of the areas that we continue to focus on. But we think there’s tremendous opportunity here in North America, once some of the uncertainty is lifted. And then as far as Western and Eastern Europe, I think we’ve all have an opportunity to see the news and listen to the uncertainty about that economic environment from a macro perspective and understand that.

Lawrence Harris – C. L. King

Okay. You mentioned a sale, a leaseback of the corporate headquarters. Is there any thought towards taking a look at quarterly operating expenses?

Ronald Buschur

Oh, absolutely. As I had indicated, we’re looking at sizing our business appropriately to make sure that we reduce the operating expenses, as well as a way to contribute to improving our COGS. And that is going on as we speak today. So that’s something that we’ll certainly give you an update on once we have that finalized.

Lawrence Harris – C. L. King

Understood. And then, Kevin, I’m just trying to reconcile the cash balance and recognize that there were probably a number of variables that affected cash flow for this quarter. But as I think you ended the June quarter, you had $49.7 million in cash. And I may be mistaken on these numbers, but I guess there was a debt issuance of $100 million, correct? And then you retired $46.6 million in debt and then did a $25 million share repurchase. Aside from the cash flow from operations this quarter, are those the changes that will be reflected on the cash flow statement for this quarter?

Kevin Michaels

I think there was roughly another $4 million of bond buybacks, so roughly a $50 million, roughly, of bond buyback that would be added to that. And then whatever fees associated with the financing are deducted from that. But those are roughly the numbers. Yes.

Lawrence Harris – C. L. King

Okay. So that still suggests that there was probably a significant negative cash flow in the quarter, if I’m not mistaken, to get to $46 million?

Kevin Michaels

I would – yes. I would – there is some. Like I said, we haven’t finished our financials, and I don’t have final numbers on that, but yes. There would be some use of cash during the quarter due to these results. Yes.

Lawrence Harris – C. L. King

Okay. All right. Thank you.

Kevin Michaels

Thank you

Operator

Our next question comes from the line of Sabir of Dialectic Capital. Please proceed.

James Basch – Dialectic Capital

Hi, guys. This is James Basch for Sabir. A couple of questions, if I could. The first question is thoughts on further bond buybacks. Can you talk about that?

Kevin Michaels

Our plan right now is, we have approximately $12 million that’s puttable in November. We have the cash set aside for that, and so our plan is to retire those bonds. And then we’ll – obviously, we’ll continue to evaluate the other bonds. The next bonds aren’t puttable until 2014. So we’ll reevaluate that with our business needs and everything else. And we may, in the future, do some market purchases of those.

James Basch – Dialectic Capital

Okay. And then my second question; this is going to be the worst revenue quarter that you guys have had since 2004. And then, Ron, if I look at your tenure as CEO, sales have declined dramatically. The company really hasn’t been profitable in any way consistently. And now you’re coming up with a quarter like this. What I’ve always heard about the company is that there’s great technology, but it’s mismanaged. What should give us confidence at this point that you should still be managing this business?

Ronald Buschur

Well I can certainly understand your disappointment and the results. Looking at why I think we can continue and I should be continuing to drive this. If you look at the consolidation and the number of companies that went either bankrupt or out of business during this period of time, I think you would see that we’re in a very good position, even though these results are very dismal from a expectation perspective. And I’m not satisfied with them, either.

And second of all, if you look at the rationale behind our growth and our segment of growth that we’ve been able to demonstrate based on the fact that in 2001, we were a single amplifier company that had two customers that we were primarily focused on and they were Samsung and Nortel. And you look at our diversification today and you see the product offerings that we have and the capabilities that we have as an organization, as a company and you have as a shareholder, I think that you’ll see long term, there is value associated with us.

And second of all, the volatility that’s in this market, it’s difficult. I mean, it is a commodity type of market, and that’s why we’re trying to divest – or diversify ourselves and divest some of the assets that don’t make sense from a core technology perspective that’ll allow us to grow the business. And we’ve done a pretty good job, I think, of demonstrating that we have the future products that we can sell in this marketplace today, and be a leader and recognized as a leader.

James Basch – Dialectic Capital

Okay. And then last question. What’s the commitment to free cash flow generation? You mentioned rightsizing the business, potentially decreasing operating expenses for more conservative revenue expectations. What I really question at this point, given the leverage you guys have on your balance sheet and the lack of consistent free cash flow that you’ve generated in the future is that we’re just not going to see more of the same. So are you guys going to have to be pushed in some ways to generate free cash flow? Or walk me through how you’re going to do it internally.

Kevin Michaels

Well our focus is to further rightsize the business. We believe that there is significant opportunities out there to drive the business higher. We’re focused on driving high-margin business. Over the last couple of years, we have tried to refocus the business on higher-margin business. One of our top priorities continues to be cash flow generation. That’s our focus; we’re trying to do that. And we believe we can execute on that going forward. That’s our – that is the number one priority for us.

James Basch – Dialectic Capital

What’s your line in the sand? How much long are you willing to burn free cash flow?

Kevin Michaels

Well our goal is not to burn free cash flow. Our goal is to generate cash flow. This is...

James Basch – Dialectic Capital

Yeah. But you’re just coming off a quarter like this. You have very little visibility into Q4, although you expect it to be better. You guys have no idea whether you’re going to burn through more free cash flow or not. So what is the commitment to not burning free cash flow? How long are you going to let free cash flow burn for before you really rightsize this business appropriately?

Ronald Buschur

Well, as I said, we are going to take the steps necessary to rightsize this business, and we’ll be sharing those results with you. We understand your frustration, and we’re equally as frustrated. And we’re committed to make sure that we do not burn cash flow out of this business. And we will take the steps necessary.

James Basch – Dialectic Capital

That’s all I have.

Operator

Our next question comes from the line of Amish Handar of Chevrolet. Please proceed.

Amish Handar – Chevrolet

Yeah. So when you’d just talk about rightsizing the business, how do you balance that against staying competitive? Obviously, you guys have done a decent job in terms of diversifying from product perspective. But it’s still that really, those haven’t materialized in revenues yet. So how do you think your competitive position is today? And how do you see it evolving going forward?

Ronald Buschur

Well when we’re looking at rightsizing our business, we’re looking at rightsizing it from an investment, from an R&D perspective not jeopardizing the future of the company, but making sure that we satisfy the product segments that will show positive growth for the company. And second of all, looking at how we have the resources positioned globally, so we can now size the business to where we can then start growing it, as we see consistent results moving forward.

And one other things that I think as you had outlined, regardless of the disappointment that we all have with the results this quarter, in the past, we have always looked at how we can position the company to size it appropriately to minimize the cash burn and to make sure that we still have the products to maintain our customer position. And to continue to support the customers as they do their long-term buildouts.

Amish Handar – Chevrolet

So in that regard, what kind of progress, if any, have you made in your Government business?

Ronald Buschur

Well we’ve had good results with the Government business. We actually have three contracts that we have been awarded. And I think that you will see sales in the fourth quarter out of the Government business unit that will be above $7 million in sales.

Amish Handar – Chevrolet

Okay. And then, obviously, coverage solution business has been somewhat disappointing in terms of performance, but obviously a huge area of growth opportunity. I mean, what are you doing there in terms of positioning the business properly for the opportunities that sector presents?

Ronald Buschur

No, that area is certainly an area that we have always believed that will be a growth potential and represents a good opportunity for Powerwave. And recently, we have finally built out the final product solution set for that DAS and Coverage business; that we can now service the European market as well as North America. And we brought in a new Vice President of Sales for that area who has expertise and experience in building out the public safety as well as DAS and large venues from a coverage GWS perspective.

Amish Handar – Chevrolet

So when do you think we will start seeing some of the results there?

Ronald Buschur

Well we had, actually, a couple projects that we were awarded this quarter that we will start building out on. So we expect to start seeing some growth in that, the GWS area, over the next few quarters.

Amish Handar – Chevrolet

Okay. Thank you.

Operator

Our next question comes from the line of Armish Mesa of Tenna. Please proceed.

Armish Mesa – Tenna

Hi. So a few questions. First, just wanted to confirm the – on the cash position. So based on Ron and Kevin, what you guys said, seems at the end of Q2, you had $49 million of cash. You’ve raised $100 million in the senior sub note, retired $50 million, the bond buyback, $25 million, the share repurchase. And so roughly burnt about $29 million of cash? Is that fair?

Kevin Michaels

Well I think it’s a little bit less than that because I think there’s some fees in there and stuff and our title thing. But it’s a little bit less than that, but it’s in that range.

Armish Mesa – Tenna

Okay.

Kevin Michaels

And I think a lot of this will – obviously, we haven’t finished our full balance sheet and financials. Part of it is working capital changes. There’s been some – we’ve seen poor collections out there. But we are seeing collections as we further into the new quarter. We are seeing some stuff starting to move. We think more stuff will move this quarter, so we are positive about that.

And, obviously, we’ve taken further steps by closing the sale and leaseback of this building, so we’ve added additional – close to $50 million of additional funds to our bank balances. So we think we’re addressing the needs of the company, and giving us the flexibility to continue to move forward.

Armish Mesa – Tenna

Okay. So I just wanted to understand your broader liquidity position. Your revolver, does that – do you still have access to that? And how large is that?

Kevin Michaels

Yeah. We have a revolver. The total size is $50 million. We have – the availability depends – it changes throughout the quarter. It depends on a borrowing base. But we don’t have anything borrowed under it, so we have access with that. And we think that we continue to access that. But obviously, with this financing and with the cash we have on our balance sheet, we don’t see a need – any really short-term needs for having to borrow under that.

Armish Mesa – Tenna

Do you have any covenants that you need to fulfill under that?

Kevin Michaels

Well yeah. There are covenants there, but without borrowing, you don’t trigger them. So we’re fine.

Armish Mesa – Tenna

Okay.

Kevin Michaels

And we’re in discussions with our banks, so we don’t have any covenant issues; that we don’t expect any going forward.

Armish Mesa – Tenna

And this cash, the $46 million that you have as of end of Q3, where is that located, primarily in the U.S.?

Kevin Michaels

A good portion’s in the U.S., but some of it’s in our international operations. Obviously, we have some international manufacturing in those places, so there’s cash over there, too. But we feel it’s pretty accessible.

Armish Mesa – Tenna

How much would you say is in the U.S.? Half or...

Kevin Michaels

I mean, it’s at least half; probably a little bit more over – a little bit over that.

Armish Mesa – Tenna

Okay.

Kevin Michaels

Yeah.

Armish Mesa – Tenna

And then if we – you talked about the sale and leaseback. Are there any other similar opportunities amongst any of your other facilities that you own?

Kevin Michaels

We have one other facility that we own in Finland, which we are close to signing up a deal for the sale of that facility. It’s roughly about €5 million. We’re hoping – we’ve been negotiating that for – we’ve been marketing that building for quite a while now, but we have a buyer. We’re fair along, and we hope to close that before the end of the year.

Armish Mesa – Tenna

Okay. And in terms of sort of – a couple of people asked this question. Just sort of trying to understand your cost of goods sold; what’s fixed versus variable. How should we think about that?

Kevin Michaels

Well that’s a difficult question for us to answer. And I’d say, we’re obviously – as Ron mentioned, we’re reevaluating our cost structure, so some of that’s going to change. I mean in the short – looking out a little bit farther, I mean a lot of stuff becomes variable because you can scale some stuff out. And we’re looking at the business to pull some of those costs down.

I mean clearly, we have excess capacity for this kind of revenue rate. And we think our revenue rates – base rates should – runs higher than this. But we certainly are looking to scale the business more correctly. So – and I said, we can give more guidance on that in a couple of weeks when we report our final results.

Armish Mesa – Tenna

But I mean, is it fair to say just at a high level that – did you have negative gross margins in the quarter?

Kevin Michaels

Actually, I – we haven’t finished our financials. I believe they will not be negative, but we haven’t finished our financial close. So like I said, you’ll have to wait until we report those in a couple of weeks.

Armish Mesa – Tenna

Okay. And then, if – and then in terms of – you talked about customer losses. So how do we – and sort of slowdown with some of the large telcos. How do we view that versus actual market share losses? I mean, how do you get comfortable that these are one-time things versus more – these are more secular sort of a situation?

Kevin Michaels

Well I think, obviously, we have to see how other people come out. And unfortunately, we don’t have any like competitors that are public companies. We’ve seen some high-level people talk about some slowness. I think Ericsson’s made some comments, and other people are making comments on that. A number of major OEMs have made comments about slowness out there.

So we don’t believe that there’s been large-scale share shifts here. We think the market slowed down pretty significantly. Obviously, our mix of business with trying to move stuff more in a direct channel and with some of our OEM business falling off pretty dramatically at the same time, we’ve suffered kind of a double whammy. But that’s – we’ll need to see and have more people report, that do report, to be able to answer that better.

Armish Mesa – Tenna

Okay. But then if we sort of – if you take your $75 million to $79 million revenue and you look at the variance relative to what you guys have normally been – that you guys are doing in your Base Station and Antenna business; I mean, what – is it equally sort of split at the miss? Or is it one area is down more than the other?

Ronald Buschur

Well I think if you look at the mix of products, obviously, as you could see from the previous quarters, we were selling a lot of antennas, our filters and advanced RF conditioning components, due to the buildout of the LTE network. So that would probably take a larger hit when you look at the percentage of sales loss in this quarter.

And then you look in parts of the Middle East, we were selling amplifiers as well as antennas and TMAs and some filtering and conditioning products. So there, it was across all the different product categories.

Armish Mesa – Tenna

Okay. Just remind me again, who are your 10%-plus customers?

Ronald Buschur

Well AT&T, obviously, was a 10% customer. Previously, we had several operators that were in the European market that were 10%. And then Nokia Siemens was 10%.

Armish Mesa – Tenna

Okay. And I guess lastly, Kevin, how do I think about what’s the minimum cash you need to run the business?

Kevin Michaels

That, historically, we targeted at a minimum number around $30 million.

Armish Mesa – Tenna

Okay. All right. Great. Well thanks a lot.

Kevin Michaels

Thank you.

Ronald Buschur

Thank you.

Operator

Our next question comes from line of Ted Moreau. Please proceed.

Ronald Buschur

Ted?

Ted Moreau – WJB Capital

Can you hear me?

Ronald Buschur

Yes. Go ahead.

Kevin Michaels

Yes. I can.

Ted Moreau – WJB Capital

Okay. Was there any possibility of an inventory build-up at any of the customers in North America?

Ronald Buschur

Well, I certainly would believe, based on some of the slowdown and how abrupt it was after the August announcement that there probably is some inventory that’s sitting there. We have a fairly good understanding of the inventory that we hold based on the delays, so I would anticipate there is some inventory sitting there being positioned for the next couple of quarters.

Ted Moreau – WJB Capital

Okay. Interesting. Thanks. And then did you say – did you give a breakout between which was the bigger decline? Was it North America or EMEA?

Ronald Buschur

The North America market was the largest.

Ted Moreau – WJB Capital

Okay. And finally, last question. You have a manufacturing facility in Thailand, and there’s been a lot of reports about widespread flooding going on there. Can you give an update as far as like – has there been any impact from that for you guys? Is the flooding near your facility? Kind of what’s going on there?

Ronald Buschur

No. We’ve been very fortunate, thank God, on the fact that there’s no flooding there in our facility. It’s about 2 and-a-half hours outside of Bangkok. And most of our supply chain in that region has not been impacted by it to date. We have one large contract manufacturer that had indicated that the water was getting near but has subsided. So I think so far, we’ve been very fortunate there, and we don’t have any impact.

Ted Moreau – WJB Capital

Okay. Fortunate for that. Thanks for taking my questions.

Ronald Buschur

Thank you.

Operator

Go ahead and proceed, sir, and take your phone off of mute at this time. Mr. Maxwell please take your phone off of mute feature at this time.

Unidentified Analyst

Yeah. Can you hear me, guys?

Kevin Michaels

Now I can. Yes.

Unidentified Analyst

Great. Thank you. Just back to the revenue miss component. If we estimated that around $90 million, just to make up a number from what expectations were, can you give us your best guess at how much of that was delayed into the future and how much of that is revenue we’re never going to see?

Ronald Buschur

Well we think based on the future revenue, probably, if you take the $90 million, I would say probably half of that we think represents what can be deployed as soon as maybe some of the slowdown and freezing takes place. And then looking at parts of the Middle East, I do think that, that product will be deployed. I think it’s going to be delayed slightly. And in looking at Eastern Europe, it just depends on when the operator and if the operator does start deploying again in next couple of quarters.

Unidentified Analyst

Right. Okay. Thank you. And just to go back to the bond buyback question. As you sit here with a lot more cash post the sale leaseback, presumably, your bonds are going to be down some after these numbers. Are you guys blacked out over the next couple weeks before November 1 in terms of buying your bonds?

Kevin Michaels

We’re not prohibited by any regulations. I think, to be honest, so I think the near term, we’re focused on retiring the small amount that’s still outstanding that’s puttable in November. And I think we want to evaluate the whole business and everything else. So I wouldn’t expect to see us in the next two weeks out buying bonds.

Unidentified Analyst

Even if you saw a significant drop in price that maybe gave you a pretty unique opportunity to retire some debt?

Kevin Michaels

I will never say never. Obviously, if the market does something strange and drops them down extremely low, we would have to evaluate that.

Unidentified Analyst

And then, Kevin, just on the poor collections comment you made a couple minutes ago. Are we going to see a higher – significantly higher bad debt number than we’ve seen, typically?

Kevin Michaels

No. I mean, we’re not. And we think the stuff is well collectible, as I – and I did say where we’ve seen some slower – we continue seeing some things dragging along. We are seeing pavements move through, and we believe we’ll see a lot of that clear up during the fourth quarter. That’s our goal, but no. We don’t have a significantly higher bad debt component.

Unidentified Analyst

So we’ll see a build in the balance sheet, but probably not on the income statement?

Kevin Michaels

Correct.

Unidentified Analyst

Great. Okay. Thanks, guys.

Kevin Michaels

Thank you.

Operator

This ends the Q&A session on today’s call. I would now like to turn the call over to Mr. Ron Buschur for closing remarks.

Ronald Buschur

I want to thank everyone for joining us today. And I can assure you we are focused on yours and our best interest in Powerwave Technologies. And we look forward to sharing with you our final results for the third quarter.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. Now disconnect, and have a great day.

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