Kratos Defense and Security Solutions Inc (KTOS) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Wireless Facilities Inc. second-quarter 2003 earnings conference call. Your speakers for today are Dr. Masood Tayebi, Chairman and Chief Executive Officer, and Mr. Terry Ashwill, Executive Vice President and Chief Financial Officer. (CALLER INSTRUCTIONS). I will now turn the conference over to Ms. Gina Aven who will read the Company's warning regarding forward-looking statements.

Thank you for joining WFI's second quarter 2003 conference call. A replay of today's call will be made available through 3:30 PM Pacific time August 6th, 2003 by dialing 1-800-633-8284 using the reservation number of 211-5405. Additionally the conference call is being broadcast live on our Website at www.wfinet.com. The call will be archived there for one year.

Our comments today contain certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. A description of those risks and uncertainties is available in our filings with the Securities and Exchange Commission including our annual report on form 10-K filed on March 21st, 2003. Copies of this report are available free of charge on our Website.

In response to the SEC's regulation fair disclosure, any forecast of WFI's revenue and earnings will only be provided within quarterly earnings conference calls or press releases or through specific regulatory filings. These forecasts will be as of the date of the call, the release or the filing and will include estimates based on factual information as well as certain assumptions which management believes to be reasonable at that time. WFI assumes no obligation to update any such projections at anytime. WFI will continue to provide additional company information on its Website including press releases, conference calls and other company information.

This conference call will include a discussion of non-GAAP financial measures as that term is defined in Regulation G. The most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company's financial results prepared in accordance with GAAP have been posted on the Company's Investor Relations Website, www.wfinet.com.

Our comments today will be delivered by Dr. Masood Tayebi, CEO, who will give an overview of our operating results and industry condition, and Terry Ashwill, CFO, who will review the Company's financial performance. Now I would like to turn the call over to Masood Tayebi.

Thank you, Gina. We are very pleased to report the fifth consecutive quarterly increase in revenue and net income. Also, we posted a 21.4 percent increase in revenue and a 118.2 percent increase in net income compared to the second quarter of 2002. We have $10 million net cash flow from operations, our eight consecutive cash flow, and our cash and cash equivalents and short-term investments increased to 117.2 million at June 30th, 2003. Our balance sheet and operating metrics continue to show improvements.

Now let me review our operating groups and outlook. First of all, wireless network services group. During the second quarter, this group represented 82.4 percent of total WFI revenue. As we look at the wireless network services group today, there are a number of favorable developments happening internally and within the markets we serve.

Let us begin with an overview of marketplace trends. Here is the recent quarter announcements (inaudible). Carriers are becoming more profitable. Subscriber base is rising. Minutes of use are rising. E911 continues to get momentum. Number portability is becoming a reality.

The second quarter of this year was a favorable period for the North American wireless carriers. To begin with, revenue was higher, and profitability and cash flow were significantly above the prior quarter. Also in aggregate, the major wireless operators experienced significant sequential EBITDA improvement. This is important to WFI as increased cash profitability will ultimately translate to more spending on infrastructure services. In fact, capital expenditure for most major wireless operators were up significantly during the second quarter.

Another favorable trend of the quarter was across the board increases in ARPU. Sequential increases were also evident in growth of subscriber count and MOU. All of these improved operating metrics are fueling an operating landscape that will reflect itself in increased spending to fixed problems related to quality caused by continued spikes in demand for wireless services. Carriers and capacity need to grow in future periods to accommodate this demand for wireless services. We feel confident that WFI and our service offerings will benefit from these favorable trends.

Another potential and favorable byproduct of this trend is a possible firming in future pricing. As demand for wireless products and services improves, (inaudible) growing subscriber count and MOU, it is probable that a firming of pricing may begin to be felt. (inaudible) is also likely to result in a stronger pricing for the infrastructure service providers. WFI should be a primary beneficiary. We can see this happening later this year or early next year.

Also, early indications are favorable that a pickup in spending for 2.5G and GSM coverage in both Mexico and Brazil could significantly increase our revenue based in the next several quarters. Many analysts expect Latin America to be one of the world's best growth markets for wireless services for the next two years. WFI's leadership position there should yield very favorable revenue comparisons for the coming future quarters.

In summary, continuous increases in subscriber base coupled with a continuos rise in the minutes of use reduce the network quality and capacity in many geographical areas to unacceptable levels. Additionally number portability may cause significantly higher churn, especially for carriers, which have less than adequate coverage and capacity. This combined with SEC requirements on E911 is forcing the wireless carriers to dedicate a larger percentage of their CapEx to improving capacity coverage and quality. At the same time, the carriers are becoming more and more focused on the key competitive differentiators that is sales, marketing, pricing, etc.

This in turn is encouraging the carriers to out-task the coverage capacity on quality build out on the network to third-party companies. Our response to this trend is to continue our emphasis on our 10 key network development services.

Now Enterprise Solution group. I am very pleased to announce that during the second quarter our Enterprise Solutions group has grown to 17.6 percent of our total revenue. Some of the main services provided by this group are wireless LAN, systems integration or WiFi, security systems integration and voice and data systems integration. Today most enterprise networks consist of four different technologies that is wireless, voice, data and security. Often these technologies are over first single service networks, have different vendors, their remote management is not always possible, (inaudible) clients, and have high CapEx and operating costs.

As we look ahead, we see the following trends emerging. Wireless is becoming an integral part of enterprise networks. Security systems are becoming wireless, so 30 percent of the cost of security systems integration is in wiring. Technology is also available today to integrate various enterprise networks into one integrated platform, which allows for lower CapEx, lower maintenance costs, remote access information exchange and many other advantages. WFI has expertise in the proven core competencies of project management, IP engineering, RF engineering, integration and commissioning as well as network management. All of these skills sets are necessary and applicable to the future of enterprise networks.

In summary, our initiative to diversify and grow our enterprise business, which is built on our proven competencies in wireless as well as our strong balance sheet, which allows us to potentially acquire companies within this space, should prove to be successful strategy. Based on our current strategy as we look to the future, we should see growth continue over the coming quarters.

Now on outsourcing. Outsourcing is another growth strategy that is now gaining traction. For the second quarter, this accounted for 5 percent of our total revenue. But more importantly, the growing number of RFTs and WFI (inaudible) are in response to these (inaudible) suggests this could become an increasingly important segment of our future revenue base. Accordingly, in the second quarter, we successfully recruited Mr. David Knutson as a Senior Executive to lead this newly formed group. WFI's skills in property and transport management as well as our proprietary enabling technology such as dynamic tracker should serve us well in this huge and growing market within wireless.

Now our new WFI Capital Group. Another initiative for more future growth we have recently undertaken is the formation of WFI Capital Group. The purpose of this group is to explore opportunities to successfully deploy WFI's growing capital strength as well as to manage our internal cash programs. Possible future activities here may include (inaudible) capital investments, joint ventures and investment opportunities that revolve around our core competency of engineering and project management. This group is also charged with maintaining a strong access to capital markets for funding programs such as outsourcing that our customers may require. Importantly, it is not WFI's plan to change our debt free balance sheet or strong cash position.

Now our strategy. Overall we feel very good about the Company's performance in the second quarter. We believe our results reflect many of the positive changes that the Company has made over the course of the past few quarters. These include strengthening our relationship with our top tier carriers and vendor customers, retaining core talent and operational skill ability which allows us to provide global quality solutions for our customers, the implementation of cost control structures which have improved our profit margins, the development and utilization of tools and processes which have resulted in better execution of our projects and enhanced lower cost of sales, the successful creation of an Enterprise Solutions group, and the successful creation of the outsourcing group.

As we take our look at our company to date, we feel good about the following facts. We have strong management team that is dedicated to the success of this company. We have a very capable hard-working group of professional staff that are dedicated to the success of this company. We have one of the best balance sheets in the industry. As we look to the future, our objective is to continue to improve our shareholder value by continuing to retain and recruit the best talent in the industry, both in the management as well as the professional staff. Continue to control the elements of our business that is in our control, such as execution of our project, financial controls and others. Continue to expand our existing business utilizing our core capacity and financial capability, and continue to utilize our cash and balance sheet to expand and create new businesses both organically and nonorganically. As we look at the second half of this year, we are optimistic that our financial performance should continue to improve. We are financially healthy, and our backlog of profitable project with quality customers remains strong.

We appreciate the support of our investors throughout the quarter. We also are very grateful to our remarkable group of employees who participate so enthusiastically in the performance and success of our business.

Now before I turn the call to Terry Ashwill, our Executive Vice President and Chief Financial Officer, for is review of the financials, I would like to respond to a number of inquiries we have received recently regarding our relationship with the Sprint PCS. Due to our nondisclosure agreement, we cannot comment on details of our relationship. I will now turn the call over to Terry Ashwill.

Thank you. Beginning with the second review of the second quarter, WFI's financial results for the second quarter 2003 continued the strong performance of the last four quarters. Revenue increased for the fifth consecutive quarter. Gross profit increased for the fifth consecutive quarter with operating income and net income increased for the fifth consecutive quarter. SG&A expense net of the provision for doubtful accounts as a percent of revenue was down from the previous two quarters and was the second lowest in three years.

Diluted earnings per share was 7 cents, an increase of nearly 17 percent over the previous quarter. Cash, cash equivalents and short-term investments increased 14.9 million in the quarter and 117.2 million, over 45 percent of the total balance sheet. Net cash flow from operations was $10 million, double the amount of the previous quarter and the eighth consecutive quarter of positive cash flow from operations. Excluding 1.7 million of capitalized lease obligations, WFI continues to have no debt. Day's sales outstanding registered their sixth consecutive quarterly decrease. Equity increased to 207.2 million and now represents 79.8 percent of WFI's total balance sheet.

Now turning to the income statement. Revenue for the second quarter of 56.8 million was 10 million or 21.4 percent over the same quarter of the prior year. Domestic operations, principally Enterprise Solutions, accounted for the improved performance. Improved sequential quarterly performance also benefited from an increase in the number of active wireless customers.

Gross profit. Gross profit of $17 million was $5.2 million or 44.1 percent ahead of the second quarter 2002. As a percent of revenue, gross profit improved from 25.2 percent in the second quarter of last year to 29.9 percent the second quarter of this year. Sequentially the improvement was from 27.6 percent for the first quarter to 29.9 percent for the second quarter.

Selling, general and administrative expense, SG&A. SG&A net of the provision for doubtful accounts was 10.3 million or 18.1 percent of second quarter revenue. This compares favorably to the 19.2 percent of revenue for the second quarter of 2002 and 18.6 percent of revenue for the first quarter 2003. A significant reduction in underutilization expense both domestically and internationally accounts for this improvement. Numerous cost containment and expense control programs continue to serve our corporate objective of being the low-cost producer of our services.

Depreciation and amortization. D&A for the second quarter was 1.7 million, even with the prior quarter.

Now looking at net after-tax income and earnings per share. Net after-tax income of 4.8 million was made than double the 2.2 million nets after-tax of the same quarter a year earlier. Sequentially net after-tax increased 20 percent over the prior quarter's 4.0 million. Diluted earnings per share for the second quarter was 7 cents, an increase of 75 percent over the second product of 2002 and nearly 17 percent over the first quarter of 2003. Diluted weighted average shares increased to 72.3 million, a 12.9 million increase from the same quarter of the prior year and 3.6 million over the previous quarter of this year.

Now looking at the balance sheet beginning with cash and debt. Total cash and cash equivalents and short-term investments at the end of the second quarter of 117.2 million was 14.9 million or 14.6 percent above the 102.3 million of the prior quarter and 54 percent above the year earlier quarter of 76.1 million. Net cash flow from operations was 10 million for the quarter or double the 5 million from the previous quarter. This was the eighth consecutive quarter of positive net cash flow from operations. As we said earlier, excluding capitalized lease obligations, WFI continues to have zero debt.

Accounts Receivable. Total net Accounts Receivable for the second quarter was 63.2 million, a decrease of 2 million from the prior quarter. Day's sales outstanding continue to decrease. Second quarter DSOs were 101 days or 9 days below the previous quarter and 43 days or nearly 30 percent below the 144 days for the same quarter of the prior year. This is the sixth consecutive quarterly decrease in DSOs.

Equity. For the second quarter, shareholders equity of 207.2 million represented 79.8 percent of our total balance sheet.

Now looking at our Enterprise Solutions Group. During the second quarter, our newly formed Enterprise Solutions Group continued to expand. Revenue for the second quarter was $10 million, an increase of $7 million from the prior quarter. Most of this increase was attributable to the acquisition of a small systems integrator, which concentrates on security voice and data systems and is based in Delaware. Revenue from security and wireless networks comprised the remainder of second quarter revenue for the Enterprise Solutions Group.

Outsourcing. Recently WFI announced the hiring of David Knutson to lead the Company's outsourcing business. Mr. Knutson has extensive experience in implementing and managing GSM, TDMA and CDMA networks. Revenue from outsourcing for the second quarter grew to approximately 5 percent of the revenue. Proposal activity and development of alliance partners continued to show significant progress during the quarter.

Now I would like to comment on our growth plans. WFI is committed to the growth of both revenue and earnings to further reward our shareholders. If we review the execution of our strategies over the past twelve months, the following major achievements have been accomplished. Our revenue is now almost at a $250 million run-rate. Net income is now at a nearly $20 million run-rate. EBITDA is now running at 11.3 percent of revenue and climbing, and both cash and equity are at all time highs with no debt excluding capitalization obligations. Enterprise Solutions, which was created less than one year ago, is today comprised of vibrate business units that contributed nearly 18 percent of our current quarter's revenue production.

WFI intends to continue to create new operational growth engines to add future revenue and earnings. During the quarter, WFI Capital Group was formed -- during the second quarter -- as a small internal group to insist in the planning and execution of WFI's corporate growth strategies. This group will be active in nonorganic activities involving careful deployment of WFI's growing cash and capital position. Investment opportunities available for us to apply our core competencies of engineering and project management skills are plentiful.

Outlook. We feel very good about our financial position, our operational strength and the design of our growth strategies. We are aggressively pursuing a number of opportunities that have the potential to contribute to our future revenue and earnings base. And finally, as we have stated in each of the last four quarters, we are once again optimistic that we should continue to produce improving financial performance.

I will now turn the call back to the operator for the Q&A period.

(CALLER INSTRUCTIONS). Sam May, Piper Jaffray.

Good afternoon. Congratulations on good results. First, I have got to questions to start off with. The first one is the WFI Capital Group, can you elaborate on that a little bit more what you see as the immediate operational thrust of that group? What do you think that can mean in '04 and '05 to the top and bottom line? If we could start with that, and then I have another question to follow-up on that.

To begin with, as usual we do not give forward guidance numerically. We are quite excited about what we can do with this group. Basically the people that were integral to forming the security integration business and Enterprise Solutions are the same people that will be active in WFI Capital Group. It is really intended to be an incubator for all of our financial transactions.

So M&A will be an integral core of this. We have identified segments in the marketplace that we are looking at right today as we speak. It will also be integral in doing joint ventures, and we are undergoing existing conversations with companies on that activity. So there are just a number of opportunities we see in the marketplace, and as our cash grows to the current position it is in, we just see a lot of opportunities.

So basically what in a nutshell we are doing is just formalizing the internal group that we have been using all along and putting a name on it. But it will be the quarterback for the financial activities for the corporation.

Another important thing there if I may add is on the cash management, is something we're really very focused on that. I think this will give it a bit more formal approach as to the way we evaluate large projects and start looking at outsourcing contracts, what do they mean in terms of our cash position and how we should be looking at our cash use in the Company. I think this really helps to formalize that.

Would you consider making venture capital investments out of this fund?

That is not the intent.

My second question is for Masood. You talked about network degradation. Can you quantify and qualify what you see as degradation of wireless networks in both North America and South America? And what you think that -- give us some metrics and what you are hearing from the operators regarding that?

Sure. That obviously is becoming a key driver for our business is coverage and capacity and quality of wireless networks in the wireless business. They are what we have seen in the past two or three years. The wireless carriers really have not spend a lot of money on their coverage and capacity. The main focus on the CapEx has been to change the technology and not having a lot of capacity but just enough to get a new technology going, as well as a lot of focus on the CapEx has been on the back office.

Now that is shifting. Although the CapEx has dropped, what we are seeing is a significant focus is shifting to get the CapEx to focus on new sell-sides and more on the capacity and coverage. This is becoming more and more of a trend. We are also seeing the carriers, the number portability is becoming a reality. They are paying much more focus to it, and they know that it is could cause a significant amount of churn, and the subscribers will go where the capacity and coverage is better. They are going to experience a better quality. So we are seeing that trend is starting to shift definitely in North America. Also, E911 is another area of their focus.

In Latin America, there was primarily if you look at Mexico, which has been a very big project for us or a big area of focus, the area we have seen really absence of competition (inaudible) prosperous percent of the market share, and finally Telefonica has come in the past several quarters, actually the past three quarters, and started to form a GSM network and creating competition. And that is fueling some competitive behavior, and we are seeing some momentum building up in Mexico. And also, we are seeing a similar thing happening in Brazil. So in Latin America, we are seeing competition is fueling the growth. And in the U.S., we are seeing primarily number portability in E911, and carriers focus now on coverage and capacity and quality. That is becoming more and more key.

One final question. The balance sheet looks really good. DSOs are down. Do you have a target on that, or what do you think you can legitimately or realistically get that to over the next several quarters?

Actually the balance sheet and the DSOs are better than they look. We are at one-on-one in aggregate. If you take away Latin America, we are to 94, seven days even less. We are often asked that, and we continue to pound away and do the best we can. I think that somewhere between the current number that it is at, if you take out the Latin American piece, which would put us at 94 and say 85 days, somewhere in that is a trading range that we think we can operate within.

Seth Potter, Tom Siegel (ph).

Good afternoon. I was hoping you could break down some of the clients, obviously AT&T and Cingular, and also if you could provide some more detail on the geography? What the revenues were, percentage in Latin America, EMEA, it would be really helpful.

Let me take the last one first. The geography - and I will do it for wireless only, so the aggregate here is just speaking for the wireless universe within WFI, not within Enterprise Solutions, which is 100 percent domestic. So domestic this quarter was 85.2 percent of wireless, Latin America was 4.3 percent, and EMEA was 10.5 percent.

The top five carriers were Cingular, AT&T, Ericsson, Nortel and Verizon, and they aggregated about 62 percent of total revenue, which is down about 10 percentage points from what the top five-aggregated last quarter, which was around 74 percent. Most of that was a reflection of the second-tier five carriers that had quite a robust quarter for us, and that was Douglas TeleCorp, Triton (ph), Western Wireless Siemens and T-Mobile.

(inaudible) about taxes in terms of the lost carry-forwards you have going forward, when do you expect to pay taxes?

Well, we have a very significant NOL. Our NOL today stands around $64 million. (Multiple speakers). We are trying to make that NOL go away pretty quick. But I think realistically for sure next year we won't be paying taxes based on what we know right now.

One final thing. In terms of the margin expansion, what are you seeing? You mentioned pricing firming. It is attributable to that, or is it something else that is helping your margin?

No, we just had some very good experience during the quarter. Again, the second-tier five carriers significantly contributed to our margin expansion for the quarter. But in this environment until it happens, we certainly would not forecast any expansion of the profit margin. But every quarter we work at expanding it. But what we do feel is that the things happening in the marketplace today and the tightening demand for engineers and things like that. What we are saying is very late this year, early next year, we might see some firming in pricing with the big six carriers which could translate favorably for us.

We have to (inaudible) that also. We don't want to set an expectation that all of that price increase, if and when it happens, is going to be margin. The cost of doing business also will go up because the demand is going to put more demand on our staff, which means a higher salary, and some of that margin will shift toward better compensation for our well-deserved employees.

Just on the margin also, was anything attributable to your Enterprise business and the increase there?

Enterprise Solutions Group for the quarter had a very good margin base, and it is basically in the ballpark of our aggregate wireless base. So it is in that neighborhood. It continues to do very well, both on an EBITDA and a revenue basis, and their margins are basically just pretty close to the same vicinity that the aggregate corporate margins are in.

Tim Long, CS First Boston.

(inaudible). First of all, congratulations on the quarter. I just had a couple of questions; some of my questions were answered already. Just a follow-up on the gross margin questions. One of the things you mentioned was just improved capacity utilization. I just want to get a sense of how much room there is to continue to improve given the progress you have made in the last several quarters?

Well, our utilization has been trending very well. We are always going to have some underutilization because the core franchisee business of our engineers and some of key deployment people, there will always be some under utilization. So at 2.3 percent, which was what it was for the second quarter, we don't have a huge amount left. So we are running at a rate pretty close. Could we shave it another 50 basis points? Maybe, but I certainly would not project that.

The question I would also think about what you mentioned on the margin gross margin. Our gross margin, the way we look at gross margin, is not relevant under underutilization. Our underutilization goes to our SG&A. On the gross margin side, one of the things that we have done and has worked very well and we are going to continue to look at that, is to use processes and tools that we have with a lot of time and energy building certain tools that we use today in managing our projects and day-to-day managing of our projects from many different aspects, from project execution, financial controls and so forth, and some of the processes we are putting in place, those are helping to reduce our cost of sales. It is increasing our efficiency, and to that end, we are going to continue to focus on that. I don't think it is a never-ending process. There are always better ways of executing and managing projects and reducing cost.

The next question was related to the enterprise business. You mentioned a good chunk of the growth came from the acquisition. I just wanted to get a sense of what the trend was organically?

Actually organically the trend was very good. The entity that was purchased in the first quarter of the year had a very very large percentage increase in its organic revenue for the quarter. So it was very favorable.

This new acquisition, when in the quarter was that made?

At the beginning of the second quarter.

Last question just on the CapEx trend for the second quarter, and I apologize if I missed that earlier.

You mean our CapEx trend?

Yes. Was there any meaningful change in the CapEx?

There really wasn't. We were around 1.4 million for our CapEx for the quarter. So the prior quarter to that was about 800,000, but in absolute dollars, it is up about 600,000.

(CALLER INSTRUCTIONS). (inaudible) Fahn Shaw, Wall Street Traders.

Good afternoon gentlemen and congratulations on your earnings. I have a couple of questions probably for Mr. Masood Tayebi and also maybe Mr. Ashwill can answer. My question is my concern is with the Oak (ph) investment. I would like to see or hear what is going on as to exactly with the Oak (ph) Investment Group and their exercising (inaudible)? Also my second question, our concern and my investment concerns are numerous insider selling for the last few months, especially it almost happens on a weekly basis. I don't know if this question can be answered by Mr. Masood Tayebi himself.

Mr. Masood Tayebi, are you or have you thought to also sell any of these stocks of the company because it seems like on almost a weekly basis it has been done by Mr. Masood Tayebi and also Mr. Ashwill and Jarvis. I don't know if they are on a certain program, but we see continuously showing some sort of an investor insider selling of the stocks. So could you please give us a little bit of light on that?

First of all, I have not. The last time I sold was August 2000 or three years ago actually, precisely three years ago. I have not put any plans as of today. If I do, the street and all the investors would know about it. I would make sure that everybody knows about it. That is the first question.

Second, I can only comment on insiders that are inside the company, because that is what I have to know. Anybody who is outside the company absolutely has nothing to do with our company. We have no control over it.

As far as coming inside the company, you look at our executives. Yes, executives have made some sales, and you have got to realize that some of our compensation to our employees or executives is towards the stock options. The reason why we give a stock option to our employees and our executives is because of compensation; it is for no other reason. And from time to time, depending on the life style, depending on what their financial situation is, they can absolutely exercise their option to sell it at any time they wish, provided they have no material information that can impact the company. To that extent, we have encouraged them, and to this case, our executives and the Board of Directors they have adopted to use a planned sale methodology, which means they publish what the plan sale is, they give it sometime, and after that, they sell according to that planned sale. We very much encourage that to our executives, and that is what they have followed, and I am very pleased that they are going according to that plan. So it is public.

They have put the planned sale of Board of Directors and others. You can go and access where that information is what their plan savings, and they are selling according to a planned sale. As to Oak (ph), I will turn it to Terry, so he can shed some light on that.

At this time, Oak (ph) is in the Series A, in the Series B convertible preferred stock. Both programs are similar on lockups. After 18 months, they can commence selling over a five-quarter period. At this point, Oak, Ameritech or anyone else that has purchased shares on the Series A and Series B, to the best of my knowledge, have not sold anything.

I don't know their intentions. From what I understand, I would be surprised to see selling in it, but that is their decision not ours. Those free up over a five-quarter period ends June 30th of this year. The Series A was capable of selling 1.4 million for the five quarters subsequent to June 30 of '03. The Series B commences December 31 of '03, and that is 1.8 per quarter for the subsequent five quarters. At this time, as I said earlier, I am not aware of any selling. But, again, the decision to sell is entirely up to those shareholders.

Ned Zachar, Thomas Weisel.

I just wanted to go over again the breakdown of revenues because I think I must have misheard just what the present of total revenues wireless network services comprised, also how many employees you had at quarter end? I think that is it for now.

Wireless revenues during the quarter was 46.8 million. Enterprise Solutions was 10 million for an aggregate of 56.8 million. So wireless was 82.4 percent; Enterprise Solutions was 17.6 percent.

Then outsourcing as a portion of (inaudible)?

Outsourcing was roughly 5.1 percent, and that is within the wireless network business. So that is not added to it. It is inside the 46.8 million. And on employees, the employee count for end of the quarter was 1559. That is up 213 people from the 1346 of the prior quarter, about 15.8 percent.

It is up how much?

It is up 15.8 percent, 213 people.

Thank you.

Mark DeRossi, Raymond James.

Good afternoon. Masood, you summarized some reasons on the macrolevel why spending related to networks should be improving it sounds like. At what point in time do you think those sort of behaviors actually translate into revenues, not necessarily for you guys, but maybe just commenting on your industry in general? In other words, if there is buildup in demand for CapEx, when does that start showing up to you and your competitors? And then a follow-up to that, can you comment about the competitive landscape now versus six to 12 months ago?

Sure. Good question. First of all on the first one, we expected to see it actually in this quarter Q3 this year. So I expect obviously it to continue Q3 and Q4 and again next year, all of those trends. The number of portability will obviously be in effect by then, and I think a lot of optimization services will be in demand as well as those carriers who have delayed their significant goals of their coverage and capacity that I think they will put much more emphasis in that through their new budget release as of the end of this year which will result in work next year. So I think this trend is going to continue starting Q3 of this year. For us, we feel good about it, and the trends will continue to the end of next year at least.

The competitive landscape?

The competitive landscape? That is a very interesting one. Every year we have different types of competitors, and it is changing and rechanging. We have some big companies coming into the space, and we have other big ones going out of the space. And we have a lot of smaller ones that used to be a player, and they no longer are players. So it keeps changing, and it is becoming a question of survivability.

From a bigger company's perspective, it is can they put enough focus in this new business division in their companies to add any value to their bigger picture? From the smaller companies, do they have the balance sheet and do they have the discipline to get the companies to where it needs to go? It they are too small, the marketplace wants to see big companies. The carriers want to rely on one, two or three big companies typically to do nationwide projects one to three-year programs, and they don't want to see a smaller company. That is a disadvantage towards the smaller companies. The bigger companies if they are very big, do they have the focus to just focus on this business, or is this 1 or 2 or 5 percent of their total focus?

So we see a combination of all these, anything and everything in this logical eventual shaping in these past three years, and my expectation is we are going to continue you to see this similar trend going forward to next year. And hopefully if the economy decides to cooperate and do well, then we will see a bit more stability in the type of competitors we are going to have.

Can you talk a little bit about staffing levels? Are you guy's currently hiring engineers? Do you see the need to hire people? How can you manage staffing going forward?

We are seeing some uptake obviously. As Terry mentioned, we have started to recruit. We have recruited some people toward the end of last quarter coming into this quarter, the engineers and project managers across the board. All of our professional staff very much are in demand, and we are seeing the demand is picking up slowly, and we are seeing the demand picking up in Latin America. So they are responding.

Still there is resource to pool -- the talent pool is plentiful out there. We are getting (inaudible) coming to us, but definitely there is some activity. That is how it seems today. But I cannot say for sure it will always be this way, but it is starting to feel that way.

(CALLER INSTRUCTIONS). Gentlemen, I am showing there are no further questions at this time. Please continue with your presentation or closing remarks.

I would like to take this opportunity once again to really thank our employees who have shown a tremendous amount of dedication and patience. I also want to thank the investors and participants on this conference call. We look forward to giving our earnings announcements next quarter. Thank you.

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.

(CONFERENCE CALL CONCLUDED)