Kratos Defense and Security Solutions Inc (KTOS) 2004 Q4 法說會逐字稿

Thank you for standing by. Welcome to the Wireless Facilities Incorporated fourth quarter 2004 earnings conference call. Your speakers for today are Eric DeMarco and Deanna Lund, Vice President and Senior Vice President and Chief Financial Officer. At this time all participants are in a listen only mode. After the speakers have concluded the prepared remarks we will conduct a question and answer session. As a reminder this call is being recorded today, Thursday, February 17, 2005. I would now like to turn the conference over to Ms. Rochelle Bold.

Good afternoon everyone and thank you for joining us. With me this afternoon are Eric DeMarco, our President and CEO, and Deanna Lund, our Chief Financial Officer. Before we begin the substance of the call I'd like to remind our listeners that today's comments include forward-looking statements about our plans and expectations of future performance. These plans and expectations are subject to risks and uncertainties, which could cause actual results to differ materially from those suggested by our forward-looking statements. We encourage all of our listeners to review our SEC filings including our most recent 10Q and 10Ka for a description of these risks. This conference call will also 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 included in our release this afternoon and posted in the investor relations section of the Company's Web site. With that said I'd like to start off our call this afternoon by briefly walking through our results for the fourth quarter and full year 2004.

For the fourth quarter we reported revenues of 101.4 million, an increase of 27 percent over the fourth quarter of 2003. Operating profit for the quarter was 6.8 million, an increase of 224 percent compared to 2.1 million for the fourth quarter of 2003. Earnings per share were 15 cents compared to 3 cents in the prior year. Net income in the fourth quarter and full year of 2004 includes a positive tax benefit resulting from a reduction in the Company's tax valuation accounts. Excluding this benefit the Company's adjusted net income was 5.8 million or 8 cents per share in the fourth quarter. For full year 2004 WFI reported revenues of 397 million, an increase of 55 percent over fiscal year 2003. Adjusted operating profit from continuing operations was 31.5 million and adjusted EPS was 34 cents. On a GAAP basis EPS from continuing operations for the full year 2004 was 8 cents and 5 cents including discontinued operations which were the Scandinavian operations that were shut down in the middle of last year. As we discussed in detail in last quarter's conference call the difference between the adjusted and GAAP numbers for full year 2004 relate primarily to the charges incurred in the third quarter for contractual obligations entered into by the Company in 2003 as well as the compensation expense related to earn outs on two oppositions in our enterprise division that also occurred in 2003. the full year adjusted numbers also exclude the impact of the tax benefit I just mentioned. With that as background I'll now turn the call over to Eric and Deanna for a more detailed review of our operational and financial results for the quarter and our updated outlook for 2005 including our first quarter guidance.

Thank you, Rochelle. Good afternoon. The fourth quarter of 2004 was very productive here at WFI. We succeeded in placing extraction of the third quarter restatement process behind us moving forward and executing on our operational plans and winning a significant amount of new business that will help lay the groundwork for what we expect will be a strong 2005. We have said many times throughout the year we are fortunate that the dynamics of the industry in which we operate, the wireless industry, continue to be favorable and are expected to remain favorable over the near term providing us the opportunity to grow our business. Nevertheless, with the change in management team this past year and the restatement process that we went through in the third quarter this was clearly a transition year at WFI. We greatly appreciate the loyalty of our customers and the patience and hard work of our employees who remained supportive of the Company throughout 2004. In the fourth quarter as it was throughout '04 our business continued to be driven by solid growth across each of our three vertical markets, carriers, enterprise and government. In our largest division, our wireless network services division, is our wireless carrier division. Key drivers for our business continue to be network usage growth, technology upgrades and the continuing trend on the part of the carriers to outsource more of their design, deployment and optimization activities.

Domestically our carrier division generated 45.5 million in revenue in the fourth quarter. Our largest domestic carrier customers this past quarter were Cingular, Western Wireless, Verizon Wireless and Triton PCS. The largest year-over-year increases came from Cingular as a result of a variety of engineering activities, Verizon Wireless largely as a result of their 3G [ph] upgrades, Western Wireless as a result of new site deployment activities and Triton PCS as a result of our network maintenance and management contract. Also in the fourth quarter related to our domestic carrier business we were fortunate to be able to hire Bill Clift [ph], the former CTO of Cingular, as the new President of our domestic operations. Bill brings to WFI significant industry expertise and the depth of experience necessary to help grow our service offerings and expand our customer base. Bill also has a very strong operational background having served in various operational roles culminating in President of American Cellular Communications Corp. prior to becoming CTO of Cingular. We are excited to have Bill on board and believe he is a very significant addition to the WFI senior management team.

Our international carrier operations generated approximately 22.4 million of revenue in the fourth quarter, the largest concentration of revenue from Telefonica and TelCel from Latin America and OTU, Odaphone and Nortel in Europe. Highlights of the fourth quarter internationally include significant progress in growing our business in the UK with OTU which until recently was not a major customer and with Odaphone also primarily in the UK and progress in extending our region in Latin America outside of Mexico. While still small in relation to our overall business in Latin America we have significantly grown our engineering business in Brazil over the past year and today have over 80 engineers in Brazil working for multiple operators and equipment vendors. We are fortunate that we have been able to balance our business so that both domestically and internationally our business continues to be driven not only by the carrier's radio network budgets, the subset of overall capital spending, but also by the carriers' operating budgets which fund expenses such as network maintenance and optimization and have less dramatic quarterly fluctuations. As we look at 2005 we believe the market conditions are right for us to reach our goal of approximately 20 percent internal revenue growth in our carrier business.

We saw in the fourth quarter's results as we have seen throughout 2004 that the total number of subscribers to wireless services continues to grow steadily at approximately 15 percent annually. The quarterly growth of approximately 6 muilllion net new subscribers surpassed the previous record set during the fourth quarter of 2000 by nationwide operators and the full year number of 19 million new subscribers also passed the previous record. Not only are subscribers continuing to grow but minutes of use are rising even more rapidly resulting in total increase in network traffic for some carriers by more than 30 percent annually. Driving this growth in network usage in addition to competitive offerings such as family plans and one-rate plans it increased voice minutes of use, the acceleration of data and multi-media usage including text messaging, downloadable ring tones, games and photo messaging. Every quarter throughout 2004 you have seen a steady progression of voice subscribers who also subscribe to data. A corresponding increase in the percentage of RPU coming from this data. Sprint, for example, saw data RPU nearly double year-over-year in the fourth quarter for a little over 9 percent of RPU. We believe this trend is likely to continue for the foreseeable future and this bodes well for our business. Data and multimedia applications such as ringbones, games and photo messaging are inherently more bandwidth intense than voice causing even further strain on already saturated networks and creating the need for quality and capacity upgrades. Another important trend for our business, the arrival of third generation technology upgrades which are finally starting to take route creating new for a full-range of WFI services.

We believe 3G is likely to provide opportunities for us for years to come. We estimate that only around 10 percent of Europe's major market cell sites have been overlayed with 3G technology leaving much work that still needs to be done. In addition only one national carrier in the United States, Verizon Wireless, has begun a large-scale commercial deployment of 3G thus far. While Verizon Wireless 3G work contributed to fourth quarter results, that deployment is also in its early stages with initial coverage launched and less than a third of the top 100 markets. Both Cingular and Sprint are currently planning and designing a launch of their first markets this year creating demand from all three of the largest US carriers for unit design, deployment or optimization services in 2005.

Other specific significant opportunities for us in 2005 in addition to those created by 3G upgrades include the following. First, network optimization and rationalization services that will be needed as a result of the AT&T Cingular merger as well as a range of other services related to network upgrades for Cingular. For example, Cingular has announced plans to invest in the old AT&T network in the western United States following the sale of its western network to T-Mobile, which should create opportunities for service providers such as WFI. We have also seen the RFP from Cingular pick up post to the close of the merger and as a result of new contracts and verbal awards that we have already received as well as new bids that have been submitted we expect revenues to begin ramping significantly with Cingular beginning in the second quarter. Second, despite the announced merger between Sprint and Nextel we believe Nextel's spectrum clearing and frequency realignment activities will create opportunities with both Nextel and with the public safety agency affected by the FCCs rebanding mandate. Now that Nextel has accepted the FCC's order we expect this rebanding process to begin immediately. This is work that needs to completed regardless of who owns the spectrum. The third opportunity for us in 2005 is additional deployment work with Nextel, which is becoming a larger customer for WFI even post announcement of the merger. Nextel has publicly committed to continuing to use Inden Fast [ph] in its Eiden [ph] network for the next couple of years even if the merger with sprint is consummated. We are continuing to work hard at improving our relationships throughout the Nextel organization. While it is still too early to tell exactly what impact the proposed sprint Nextel merger will have on our business long term, we have said in the past we generally try to take a fairly positive long term view of mergers as they tend to create demand for integration, rationalization and optimization services.

The one opportunity that we clearly lost as a result of the merger was the opportunity to assist Nextel with deployment of their next generation network, which will not be necessary as a result of the merger. We are hopeful that this lost opportunity will be in part offset by additional opportunities for new site deployment services. Also on the topic of potential merger impacts is the implication to WFI of a Western Wireless Alltel merger. Again, it is still too early for us to understand exactly how we will be affected long term by this. However, the fact that there is relatively little geographic overlap between Western Wireless and Alltel leads us to believe that at least in the near term there should be little disruption to our Western Wireless business. Equally important is the fact that Alltel has publicly indicated that they are considering a GSM overlay to their CDMA network in order to compliment Western Wireless's existing GSM network. Should this happen given our track record with Western Wireless and our strong experience in GSM technology we believe there could be significant opportunities for us to assist Alltel with this endeavor. A fourth opportunity for us in 2005 is one that I will call new technologies and new carriers. At the same time the consolidation is occurring among the major national and regional carriers new breed of new carriers is looking at a whole range of new technologies from Wi-max [ph] to mesh systems, OFDM, cellular wi-fi hybrid networks are all starting to emerge. As a technology neutral vendor independent partner WFI can provide much needed engineering and deployment expertise through these new service providers as they seek to test and ultimately launch new wireless networks.

Finally in 2005 a significant area of opportunity for us is the continued diversification into additional markets in both Europe and Latin America by leveraging off of our existing customer base. The 3G rollout is continuing in Europe and net subscriber additions up 56 percent year-over-year in Latin America. We believe that these two continents will continue to provide demand for our services in the coming year. In Latin America we are looking to leverage off of our strong relationships with both Telefonica and American Mobile, the owner of Tel Sel [ph] in Mexico. Now that the acquisition of the 10 Bel South assets by Telefonica is complete we believe we should see new opportunities with Telefonica for both deployment and technology upgrade activity in the back half of 2005. And in Europe we are looking to pursue a similar strategy using our strong relationships with carriers such as Vodafone and equipment vendors such as Nortel to extend our region to additional geographic territories.

Now moving on to our enterprise network services division, revenues for the fourth quarter in ENS were 19.8 million. One of the most significant drivers for fourth quarter revenue growth was work on integrated optical network projects for two high rise office buildings for a Fortune 50 company. These projects involve a multitude of technologies such as wireless VLIP, wireless LAN connectivity, wireless surveillance and building control automation running off a centralized network platform. This is a part of our enterprise business that has been growing significantly over the past couple of quarters and we expect it to continue to be a driver of revenue growth throughout 2005. Additional key drivers for growth in the fourth quarter included continued deployments of wireless security solutions from several different Westfield's shopping malls as well as continued work on a contract that we have discussed before with a Fortune 100 company for telecommunications outsourcing services.

Looking out to 2005 we expect to be able to continue to grow revenues at approximately 15 to 20 percent internally as the demand for wireless in-building opportunities continues to grow and as more and more enterprises come to understand and appreciate the benefits of intelligent converged networks. In our government network services division revenues for the fourth quarter were 13.7 million. Revenue growth in the quarter was driven by increased demand of reengineering services from the Department of Defense as well as from new Homeland Security initiatives. Our tactical survey solution for first responders which is an image based information system is vying to deliver information to first responders drafted several new customers in the fourth quarter including the San Diego International Airport and a major convention center in [indiscernible]. As we have indicated we would do in prior discussions about the strategic direction of our government business we continue to identify synergistic businesses that will broaden our presence into the federal marketplace. Recently we announced the acquisition of TLA, which provides voice, data and converged communication networks primarily to the Department of Defense. TLA bring WFI, more than 180 network engineers another network professionals with experience in designing, ploying, integrating and maintaining of variety of different mission critical network technologies. We have started the process of integrating TLA into WFI. They are already using their capabilities to respond to outstanding RFP. We believe that there are significant synergies between TLA and our existing WFI business that will help drive revenue growth in 2006 and beyond. Another important recent strategic addition to our government division was the hiring of Steve Rock [ph] in December as the President of WFI government services. Steve brings extensive management experience implementing network systems for government organizations. Having served as the General Manager of Sun Microsystems and 3 Call [ph] public sector organizations and having served in significant federal business development roles at both Lucent and Macaw [ph]. We believe Steve is an important addition to our senior management team and believe our government division will benefit from his experience and track record in growing a federal government business.

Looking out to the balance of 2005 we expect our government business to grow significantly as a result of internal growth of 15 to 20 percent and the TLA acquisition. The pipeline in our government business remains strong and as we continue to see commitment by the Department of Defense to improving its communication infrastructure and moving towards transforming itself into a more mobile network centric force. In addition as I have indicated in prior calls we are now starting to bid on procurements involving public safety networks. We are looking for this to be a meaningful area of opportunity for WFI in the future. In summary as we head into 2005 as we look across each of our three vertical markets we are still comfortable that we are well positioned to grow revenues in this company by approximately 25 percent while leveraging our SG&A to improve our overall operating margins full-year for approximately 10 percent. With that as a backdrop to our financial outlook let me now turn the call over to ?Deanna to wakt through the details of the quarter and our outlook for the 1st quarter and the full year 2005 and then I will follow up with some concluding remarks.

Good afternoon. Thank you, Eric. As Rochelle mentioned at the start of this call this afternoon we reported revenues for the fourth quarter of 101.4 million, an increase of 27 percent over the fourth quarter of 2003. Our international operations in Europe and Latin America contributed 22 percent of our revenue while our domestic operation comprised the remaining 78 percent of our revenue. Operating profit was 6.8 million compared to 2.1 million of profit in the fourth quarter of 2003. EPS was 15 cents compared to 3 cents in the prior year. As Rochelle explained earlier excluding the benefit of the tax valuation account EPS for the fourth quarter of 2004 was 8 cents. For the full fiscal 2004 WFI reported revenues of 397 million, an increase of 55 percent over fiscal year 2003. Adjusted operation profit from continuing operations was 31.5 million and adjusted EPS was 34 cents. On a GAAP basis full year EPS from continuing operations was 8 cents and 5 cents including our discontinued Scandinavian operation. The difference between the adjusted and GAAP results for the full year relates to a $3.1 million asset impairment charge taken in the second quarter and a 23.7 million charge taken in the third quarter. As we discussed on our last conference call in the third quarter we recorded charges of 23.7 million primarily related to earn out on two acquisitions that we made in 2003 in our enterprise network services division and for costs for contracts that we signed in 2003 that were identified as a result of improvements made in our contracts administration and program management process.

Turning to the balance sheet total cash, cash equivalent and short-term investment at the end of the quarter were approximately 62 million, up by 6 million from the end of the third quarter as our operations continued to produce positive cash flows. Although we did use approximately 34 million in cash for the TLA acquisition it got closed in January.

Cash flow from operation in the quarter was approximately 7 million, which was primarily driven by the improvement in DSO resulting in a reduction from 125 days to 120 days in the fourth quarter. And as we continue to receive expected milestone payments on some of our turnkey deployment projects. We expect that this trend will continue with significant cash collection, also the effective first quarter of 2005. For 2005 we expect revenues to be in the range of 490 million to 510 million and EPS to be between 37 cents and 41 cents, within he range that we provided on last quarter's call assuming a tax rate of 38 percent. This assumed a revenue increase of between 23 and 28 percent over our 2004 full year results. For the first quarter of 2005 we expect revenues to be in the range of 106 to 110 million and EPS. This important to note when looking at year-over-year or sequential Q4 '04 to Q1 '05 EPS comparisons at 2004's adjusted tax rate of 19 percent will increase to a full statutory rate of 38 percent in 2005 thus making an apples to apples comparison difficult. Consequently we have provided a pro forma table for you in the press release to show a comparison between 2004 and our guidance 2005 as if 2004 had been fully taxed at the 38 rate. It is also important to note that our cash flow requirement will be significantly less than the [inaudible] of 38 percent that we will be reporting which we will realize benefits from the utilizations of certain of our tax assets. As you can see from the table our guidance of approximately 7 cents in Q1 represents a 17 percent increase over a fully taxed comparable first quarter of 2004 and our full year guidance is 37 to 41 cents. It represents a 42 to 58 percent increase over the adjusted fully taxed 2004 results. Our guidance of 106 to 110 million in revenue despite modest first quarter year-over-year revenue growth ------[inaudible]. However, we expect revenues to increase significantly in the second quarter but the first quarter is typically the weakest quarter in both our government and enterprise positions. Even more importantly ramp ups in our fourth quarter and 1st quarter contract wins are expected to contribute significantly to strong sequential second quarter growth. This revenue increased fine with tightly controlled SG&A expenses should provide us with the leverage needed to significantly improve our operating margins in Q2 and throughout the balance of the year.

Turning to the issues of Sarbanes Oxley certification as many investors are aware the SEC has given auditors and public companies with a market capitalization of less than 700 million an additional 45 days to certify that their clients are compliant with the rules. While we believe that we are substantially compliant with Sarbanes Oxley and that our previously reported material weaknesses have been remedioated and that no additional material weaknesses exist we believe that our auditors will take the additional 45 days to complete their audit of internal controls. As a consequence we expect to file our 10K prior to receiving a formal opinion from our auditors on our compliance with Sarbanes Oxley and anticipate that we will file an Amendment to our 10K as that process is completed. One final item to note, our forecast of 37 cents to 41 cents for 2005 does not include a charge for stock option expense. We are in the process of reviewing which methodology we intend to use for this purpose and the exact amount of the quarterly charge we will need to take once this rule is adopted. Let me now turn the call back over to Eric with some final comments.

Deanna, thank you very much. As I said at the start of the call this afternoon 2004 was clearly a transitional year for WFI. Additional launching into the government market made key executive hires to round out our organizational capabilities to take the Company to the next level. At the same time we were also successful in winning larger network deals, expanding our customer base. We also successfully identified new profitable market niches such as providing in building cellular coverage, new core network technology consulting services for our customers. As we look to 2005 our top priority is to continue to grow our business while improving our operational performance. We have gotten off to a good start. Several large contract wins in late Q4 and in the first quarter of 2005 that as Deanna mentioned we expect to begin ramping in 2/2. In addition our pipeline across each of our vertical markets remains strong. Each and every day we need to meet new prospects for our services. We know that we have significant opportunities in front of us and are focused on the challenge of executing on our plans and delivering results that create value for our shareholders. I will now turn the call over to the moderator for questions.

Ladies and gentlemen, if you'd like to register a question please press the one followed by the four on your telephone. You'll hear a three tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your reservation please press the one followed by the three. If you are using a speakerphone please use your handset before entering a request. One moment please for the first question. Our first question comes from the line of John Bright with Avondale Partners. Please go ahead.

Thank you. Eric, on the gross margin sequentially improved I believe approximately to 24.7 percent. Could you give us some color on that improvement and then also could you talk to me about SG&A? That also sequentially increased a fair amount and I was wondering then looking forward regarding SG&A whether or not there might be drop-offs in 2005 an issue maybe because of the additional accounting efforts needed in 2004 not only for restatement but also for Sarbanes Oxley?

Right. I'll handle the first on and then if you don't mind I'll pass the second one on to Deanna. She has more of the details on the SG&A.

All right.

Okay on the gross margin in the fourth quarter mix was more heavily slanted toward engineering work for us than we had originally budgeted, that we had originally forecast. With the higher mix of the T&M type of contracts it generates for us a higher gross margin.

Do you have the breakdown of that mix?

No, I don't but that's clearly what it was. It was the engineering mix was somewhat higher than a non-engineering mix. All right then I'll pass it to Deanna for the SG& A question .

John, on your question on SG&A while it is true in 2004 that the Company did incur non-recurring fees for Sarbanes-Oxley as well as a restatement. There are also actions that the Company has taken that will impact 2005 going forward from an administrative point of view. As we had walked through in our Q3 call we have established a new contracts administration department and program management process and have also increased some of our accounting and finance functions related to that process so the full impact of those increases which were predominantly made in the fourth quarter will be really impacted in 2005 and each quarter going forward.

And then Deanna, on the tax rate though you're not going to see a full cash tax rate at 38 percent will you at some point? I guess you're doing this for GAAP reasons currently but will you at some point not need to record a GAAP rate of 38 percent in 2005?

No, that's not in the foreseeable future.

Okay and then lastly on the--

John, to your point we will not be-- there is a significant disconnect between '05's tax rate and the cash taxes that we think will be significantly, very significantly less than that for the [indiscernible] that we have related to stock options.

Right, okay. And one last one, your competitor or a competitor, LCCI reported recently that they discussed some pricing pressure that they had seen in the market specifically possibly with one of their clients. Can you comment on what you've seen in the marketplace from a project standpoint?

Right, we have seen absolutely nothing unusual out there so I can't really comment on what they're saying.

All right. Thank you.

Mike Luciano.

Right, thank you very much. I guess just to get into the gross margins and SG&A looking forward I mean how shall we think about that? It seems like there is a few moving pieces here. Should we expect gross margins to trend back down to where they've been the last few quarters as we're looking at the next few or is that engineering mix going to stay at these levels. And I guess on the SG&A one it seems like the few moving pieces between the non-recurring Sarbanes Oxley expenses, some thing new the contract administration group and then the acquisition of TLA I assume starts to be reflected in Q1. How shall we thing about SG&A sequentially going into the first quarters?

Okay, Mike, let me try to get as many of those as I can. Our gross margins we're looking for '05 right at 24 percent or so. The book of business that we have or backlog or pipeline is what we're bidding on and we put the probability on what we expect to win based on our historical actuals. We factor in margins that are in those bids. It's at 24 percent. That's what we're looking at the gross margin line. On the SG&A side for 2005 we are looking for leverage in our SG&A as we talked about. We're looking for SG& A over the year for a full 2005 to be about 13 percent and so you can imagine with revenue and ramp being quarter to quarter it will come down to the full year, 13 percent on the SG&A side. After Q1 the significant Sarbanes Oxley initiation fees we're hoping will be complete at the end of Q1 but then there will be the maintenance costs to maintain the compliance which are big into the 13 percent SG&A number that I'm giving you.

Right and within the Q1 guidance with the gross margin expectation going to be fairly consistent with what you're looking for the full year?

Yes, it is.

I think you mentioned in there moving parts are mixed and now--

Mike, you're absolutely right. On the gross margin side as I mentioned we're booking at 24 percent. Engineering services are on the higher side, maybe a little bit higher. If they are on the lower side, more deployment. Maybe a little bit more but based on the radar screen we've got right now including Q1 24 percent.

And in the Q1 guidance any real change we should be expecting on the mix within the divisions? I would assume government may be going up because of TLA. Is there anything else we should-- first is that accurate? And second anything else we should be watching for?

Yes, that is accurate and no, there is nothing else right now that we should be watching for.

Okay. I mean just a few housekeeping questions on Q4. You gave the revenue mix by segment. Could we get a sense of the operating margin by segment? Operating income by segment for Q4?

Sure, hold on for one second.

Mike, this is Deanna. The operating margins for the segments on the WNS side was just under 6 percent. ENS, our enterprise business, was just under 10 percent and for the fourth quarter for a government business it was just under 7 percent.

Great and just the last question is on the major customers. You named some of the big customers. Were there any 10 percent customers in the corridor or what was the kind of the percent for some of the bigger?

Cingular continues to be a very significant customer for us.

In addition Telefonica was just around 10 percent as well for the quarter.

OK. Cingular was sort of in that 10 percent range as well.

About 17 or 18 million of revenue.

With the combined--

Right, yes.

I've got to keep combining them, like ATWS [ph] and Cingular. Sorry.

Okay great. Well thanks, Eric. Thanks, Deanna.

Thank you.

Ladies and gentlemen, as a reminder to register a question please press the one followed by the four. Our next question comes from the line of Frank Marsala with First Albany. Please go ahead.

Just a couple of questions. As far as you talk about Brazil, Eric and some of the work that you're getting started there now. Are you participating or looking at some of the CDMA for 50 networks that are going up, the fixed wireless networks?

Without getting specific we are looking at-- our General Manager down there is very impressively looking at a lot of different opportunities. As I mentioned in my prepared remarks there's significant activity going on right now down in Latin America and we're hoping that we're well positioned because of our existing customer base and the relationships we have with them so based on that you can imagine. We're tracking for fairly interesting things we're hoping to go after.

Just your sense if you were to venture an estimate as to when some of that might come to fruition. Is that an '05 event? Is that a legal 5 or how would characterize that?

I think I mentioned previously we're hopeful that in second half of '05 we have bought some of the Telefonica assets, that those will become potential opportunities for us.

Okay, that makes sense. Today you put out something regarding an agreement with Trocos Hisaw [ph]?

Right, that was actually Trocos' announcement.

Oh, that's true. It was. That's right. I'm sorry about that. Just on that is that-- these are mesh networks 80211 based I believe and is this related to the Philadelphia project that they're doing or the question is are they participating in the Philadelphia project? Do you know that?

I don't believe so but I will not get ahead of, as you can imagine, we're very excited to be their system and integration partner on what they're doing.

I mean are there more than one project or is this something specific that you're working with them on?

Pardon me.

Is this just kind of a-- you were just partnering up with them for an array of things or is this more a specific project that you're partnering up with them on?

More than one.

More than one. OK. Just with respect to then the guidance for the year. The previous numbers were 460 to 510 and now you're 490 to 510? Can you give us a sense of why that-- how you were able to tighten up that range?

Right, as Deanna and I tried to come across our comments since we last reported as you know Sprint announced its merger with Nextel and Western Wireless and Alltel have announced that they are potentially looking at doing something similar. In addition to that a lot of the new opportunities on the pipeline showed up so we're trying to be conservative and balance some of the potential grayness with some of these potential mergers, some of the new things that have hit the pipeline. So you were pleased that we were able to still project coming in around half a billion dollars in spite of some of the new information that came out subsequent to Q3.

So some things potential go away. Some things potentially come in on balance. You are actually more confident then in the upper end of what you had previously said,

What you said is fairly accurate.

And what was TLA doing in terms of revenues?

On forward looking approximately 30.

Okay great. I do have a couple of other things if you don't mind. I don't want to take up too much time. And then with respect to your gross margin comments that we're making right now when you look at this quarter it was 101, 101.1 million in revenues and then we look at the next quarter it's 106. 210 is what I think I saw in the Press Release. The earnings number is about a penny less than in the first quarter than it was in the fourth quarter. Should I be thinking that your expectation is a gross margin due to the mix? Do you want to be reasonable or conservative with respect to the gross margin we should estimate for the first quarter, is that really what's driving that?

No, no. I think your comment on just trying to be conservative and tax rate. And on that tax rate, Deanna was asked that a second ago. Let me pass it to her so she can really clarify that for you, Frank.

Yes, Frank, if you recall on the 8 cents EPS for the quarter on an adjusted basis that's using a 19 percent effective tax rate and the 7 cents guidance with Q1 is using it as fully statutory rate of 38 percent so there's actually a delta of 18 percent just related to the tax line.

You know you're right. As you were answering that I just kind of flipped over to the old model and there was a 19 percent tax due, right?

And then just one last one for Eric yet. You had some rough spots in 2004. You sound and your business sounds like it's got some good traction right now, good footing. I mean how do you feel overall about the tone of your business, tone of your customers, things of that sort? I mean I just want to get some sense from where you are there?

Well speaking for myself I feel great. I feel great and going back to your comment a couple of minutes ago in spite of some of the things that have occurred being able to tighten up the outlook but we'll work with it. We feel pretty good about it.

Great. I appreciate it. Thanks.

Ladies and gentlemen, as a final reminder to register a question please press the one followed by the four.

Very good. Okay I want to thank all of you for joining us this afternoon and we will be touching back with you in three months or so. Thank you.

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