Kratos Defense and Security Solutions Inc (KTOS) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. The Wireless Facilities first quarter earnings conference call. With us today are Eric DeMarco, President and Chief Executive Officer, Deanna Lund, Chief Financial Officer, and Rochelle Bold, Senior Vice President of Corporate Development and Investor Relations. As a reminder, this conference is being recorded Wednesday May 4th, 2005. I would now like to turn the call over to Rochelle Bold. Please proceed with your conference.

Thank you. Good afternoon everybody, and thank you for joining us. As the operator indicated, 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 today, I would like to remind our listeners 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 10K for a description of these risks.

I'd like to start off our call this afternoon by briefly walking through our results for the first quarter of 2005. For the first quarter we reported revenues of 101.2 million compared to 97 million in the first quarter of 2004 in line with the revised outlook which we have provided to you on April 20th. Operating profit for the quarter was 5.6 million compared to 7.1 million in the first quarter of 2004. Diluted earnings per share were $0.05, also in line with revised outlook for the quarter. Diluted earnings per are share in the prior year were $0.08. However, the $0.08 reported in the first quarter of 2004 included an effective tax rate of only 19%.

For purposes of more accurate year-over-year comparison, pro forma earnings in the first quarter of 2004 adjusted to reflect the full impact of the 37.5% tax provision were $0.06. To briefly recap what we discussed during our April 20th call, our EPS short fall this quarter was primarily the result of three factors. First we experienced a significant revenue and profit short fall in our Latin American operations primarily as a result of delays in deployment contracts which have now been signed.

Second, while our overall revenue in domestic carrier division was on plan, the mix of revenues in the quarter were somewhat different than we expected resulting in a margin short fall. From a revenue perspective a delay in certain projects was offset by the acceleration of certain other projects.

However, because these projects carried different gross margins the changes in project mix relative to our forecast caused a negative impact on gross margins. On the deployment side we were hurt by more severe than normal weather related delays in the northeast and by customer related delays on recently awarded work in southern California. In both cases this was work pushed out but fortunately not lost.

Third in our Enterprise division revenue mix issues similar to those we encountered in U.S. carrier division also affected overall gross margin. We believe these mix issues were isolated issues as lower margin projects that were accelerated are now complete. And we do not plan to bid on these types of projects going forward.

With that as a background to the quarter, I will turn the call over to Deanna and Eric for a more detailed review and for our outlook for the balance of 2005.

Thank you, Rochelle. Good afternoon. As I indicated briefly in our April 20th call, even though we were disappointed with first quarter earnings, there were many areas where WFI continued to make progress over the past months. As Deanna will discuss in detail later in the first quarter WFI significant amount of cash flow, made great strides in reducing our day-sales outstandings and our receivables, and made progress in the integration of our latest acquisition.

Additionally, a key area of success for us in the first quarter was our sales efforts in our domestic carrier division where we were able to win work as at a record place. As we have said many times over the past year, we are fortunate that the dynamics of the industry in which we operate, the wireless industry, continue to be favorable and expected to remain favorable over the near-term providing us the opportunity to grow our business.

In our carrier division, key drivers for our sales momentum in the first quarter 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. As we expected and indicated in our call last February, revenues for the quarter were light relative to what we were expecting for the balance of this year, primarily as a result of carrier deployment and technology upgrade cycles.

Domestically, our carrier division generated approximately 44 million in revenue which was essentially flat sequentially from the fourth quarter and down slightly from the first quarter of last year. Our largest domestic carrier customers this past quarter were: Cingular, Western Wireless, Verizon Wireless, and Triton PCS. With the exception of Triton PCS, each of these customers was up both sequentially from Q4 and year-over-year, an important trend for our business.

As expected, our Triton business was down significantly both sequentially and year-over-year, primarily as a result of the sale of part of their network to Cingular as well as our work with some of the equipment vendors and other prime contractors, as we continue to succeed in becoming more of a direct competitor to them.

Specifically the largest year-over-year increases came from Cingular as a result of variety of engineering activities including a significant amount of work performed in the first quarter related to UMTS design. Verizon Wireless largely as a result of their 3G upgrades. With Verizon we now have completed work on EVD upgrades in approximately 15 markets.

Our success with Verizon is breeding more success as we continue to win additional work both in markets where we have already performed work and in new markets as Verizon continues its EVDO rollout. We also saw significant year-over-year increases at Western Wireless as a result of new deployment activities.

Our Company's biggest operational challenge in our domestic carrier division continues to be finding qualified engineering talent. We currently have more than 100 openings for engineering positions in this division alone in the Company and have recently brought on additional recruiting resources to help with this effort.

Our international carrier operations generated approximately 20 million in the first quarter, down both sequentially and year-over-year. As Rochelle mentioned, we had a couple of contract delays in Latin America including a delay in a significant deployment contract with our largest customer in Latin America, which affected our first quarter results. These contracts have now been signed and as a result we expect growth in our international operations to resume in the second quarter.

Our largest customers internationally continue to be: Telefonica Telcel in Latin America, and 02 Vodafone and Nortel in Europe. We continue to make progress in the first quarter in our strategy of diversifying customer base in Latin America winning work in Argentina and Columbia and continuing to grow our engineering business in Brazil. As we look to the second quarter in the balance of 2005, our own sales trends combined with the reported results of each of our major customers, both domestically and internationally, indicate that industry dynamics should continue to remain favorable.

We saw in the first quarter that once again the total number of subscribers to wireless services continues to grow steadily. Not only are subscribers continuing to grow but minutes of use are rising even more rapidly. Driving this growth in network usage in addition to competitive offerings such as family plans and one-rate plans, is the acceleration of data and multi-media usage including text messaging, downloadable ringtones, games, and photo messaging.

In the first quarter we continue to see a steady progress in the percentage of voice subscribers who also subscribe to data and a corresponding increase in the percentage of RPU coming from data. We believe this trend is likely to continue for foreseeable future and this bodes well for our business.

Data and multi-media applications such as ringtones, games, and photo message are inherently more bandwidth intensive than voice causing even further strain on already saturated networks and creating the need for quality and capacity upgrades. Another important trend our business is the arrival of third generation technology upgrades.

While we have been involved for the past couple of quarters in 3G activities in Europe and domestically with Verizon, we believe 3G is likely to provide opportunities for us for years to come. We are already seeing opportunities to go back into markets that we have previously worked in and provide additional services as additional sites are upgraded to 3G. With Verizon's 3G launch underway and both Sprint and Cingular in the process of designing their 3G networks, there will continue to be demand from all three of the largest U.S. carriers for either 3G design, 3G deployment or optimization services for the foreseeable future.

Other specific significant opportunities for us in 2005 in addition to those created by 3G upgrades include: Firstly, network optimization and rationalization services that are needed as a result of the AT&T/Cingular merger, as well as a range of other services related to an upgrade for Cingular. As I mentioned earlier, revenues with Cingular increased both sequentially and year-over-year in the first quarter and we expect this trend to continue throughout the year.

Secondly, despite the announced merger between Sprint and Nextel, Nextel spectrum clearing and frequency realignment activities are creating opportunities with both Nextel and with the public safety agencies affected by the FCC's rebanding mandate. We have already started to see evidence that there is significant opportunity here for us. We have recently started to win work in this area and expect to see engineering revenues related to rebanding ramp-up in a meaningful way in the second quarter and then throughout the balance of this year.

A 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 and invest in its IDEN network for the next couple of years, even if the merger with Sprint is consummated. We have been successful in the past two quarters and strengthening other relationship with Nextel and in building a substantial amount of backlog with them and we are hopeful that this relationship between the two companies will only continue to grow.

Fourth opportunity for us in 2005 is with new technologies and potential new carriers. At the time that consolidation is occurring among the major, national and regional carriers a new breed of new carriers is looking at a whole range of new technologies from WiMax to meshing systems, to OFDM to cellular WiFi hybrid networks, are all starting to now emerge.

As a technology neutral, vendor independent partner, WFI can provide much needed engineering and deployment expertise to these new service providers as they seek to test and ultimately launch new wireless networks. We are just starting to win some work in this area and we see an opportunity for us to continue to expand our business with these new wireless carriers in 2005 and beyond.

Finally, in 2005 a significant area of opportunity for us is to continue diversification into additional markets in both Europe and Latin America by leveraging off of our existing customer base. With 3G rollouts continuing in Europe and net subscriber additions continuing to increase in Latin America, we believe that these two continents will continue to provide demand for our services in the coming year. As I mentioned earlier, we have just received word that we have won our first contracts in Argentina and Columbia and are actively looking at opportunities in a number of other Latin American countries.

Moving onto our Enterprise Network Services division, revenues for the first quarter in ENS were 17.1 million down as expected sequentially from the fourth quarter as a result of seasonality, but up from the first quarter of a year ago in 2004. A significant driver for our year-over-year revenue growth was work on integrated optical network projects for high-rise office buildings which involve a multitude of technologies such as wireless VOIP, wireless LAN, wireless surveillance, and building control automation running off a centralized network platform.

There were literally billions of IP devices that are going to be wirelessly connected in the future and we believe we are uniquely positioned to participate in this market. 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 our revenue growth throughout 2005.

Another area of our enterprise business that we expect to grow in 2005 is our work with municipalities. This has been a strategic priority for us over the past couple of quarters in addition to our focus on the convergence of enterprise data, security, and wireless systems. We currently have bids submitted on a handful of municipal projects involving wireless data, video security, and parking meters and expect to be successful in winning one or more contracts in this area in the near future.

In our Government Network Services division revenues for the first quarter were 19.9 million up sequentially and up year-over-year. Sequential revenue growth was largely the result of the acquisition of TLA due to the traditional seasonality in the government business. Year-over-year revenue growth in the quarter was driven by increased demand for engineering services from the Department of Defense, as well as new Homeland Security initiatives.

Our tactical survey solution for first responders and image based information system designed to deliver vital information to first responders attracted several new customers in the first quarter. These included the Los Angeles Convention Center, San Diego's International Airport, a second major airport we are not yet announced, and the Kennedy Space Center. As I mentioned earlier the integration of TLA into our government division is progressing on schedule and we are on track to have all back office functions fully consolidated by the end of the second quarter.

The pipeline in our government business remains strong as we continue to see demand from the Department of Defense for a variety of network development and systems engineering services. In addition, as I have indicated in prior calls, we are now starting to bid on procurements involving wireless public safety networks and are looking for this to be a meaningful area of opportunity for WFI in the future.

In summary, as we look to the balance of 2005, we believe that the industry trends in each of our vertical markets remain favorable and that both strategically and operationally we are well positioned to continue to grow revenues while leveraging our SG&A to improve our operating margins. With that as a back drop to financial outlook, let me now turn the call over to Deanna to walk through the details of the quarter and our outlook for the balance of 2005 and then I will follow up with some concluding remarks. Deanna.

Thank you, Eric. Good afternoon. As Rochelle mentioned at the start this call, this afternoon we reported revenues for the first quarter of $101.2 million. Our international operations in Europe and Latin America contributed 20% of our revenue while our domestic operations comprised the remaining 80% of our revenues. Operating profit was 5.6 million and EPS was $0.05.

As Rochelle also mentioned at the start of the call, our earnings of $0.05 were $0.02 below the guidance we provided in February as a result of contract delays in Latin America and revenue mix issues domestically. As a result of the revenue mix issues we experienced in the first quarter, we have revised our forecasting procedures to better account for margin differentials on our various engineering projects which would give us greater visibility into our quarterly results.

Turning to the balance sheet. Total cash, cash equivalents and short-term investments at the end of the quarter were 38 million down by 24 million from the end of the fourth quarter as a result of the use of $34 million for the acquisition of TLA. Our operations continue to produce positive cash flow generating approximately 12 million in the quarter. Our DSO's continued to improve, dropping to 114 days from the 120 days we reported at the end of the year.

For 2005 we still expect revenues to be in the range of 470 to 490 million and EPS to be between $0.29 to $0.33 per share. Gross margins should be approximately 22.5 to 23%. As Eric mentioned during our April 20th call, we have started to see some instances of pricing pressure at some of our customers in our domestic carrier division, and we have taken the potential for pricing pressure with those specific customers into account in providing a gross margin range of approximately 23% for 2005. For the second quarter of 2005 we expect revenues to be in the rage of 114 to 119 million and EPS to be approximately $0.07.

As Rochelle mentioned at the start of the call, it is important to note when looking at year-over-year EPS comparisons, that the 2004 adjusted tax rate of 19% increased to a full statutory rate of 37.5% in 2005 thus making an apples-to-apples comparison difficult. It is also important to note that our cash flow requirements for income taxes will be significantly less in the full tax provision of 37.5% that we will be recording, as we will realize the benefits from utilization of certain of our tax assets.

Turning to the issue of Sarbanes-Oxley certification. We have now completed our Section 404 certification with the filing of our 10K A last week. Other than the one material weakness that was previously noted in the 10K related to over accrual of income tax expense, no other material weaknesses were found. Most importantly, all of the material weaknesses identified as a result of our restatement last year have been remediated. Let me now turn the call back over to Eric for some final comments.

Thank you, Deanna. As I said at the start of the call this afternoon, even though we were disappointed with our first quarter financial results, there were many areas where WFI continued to make progress over the past three months. As we look to the second quarter, our top priorities are to capitalize on the opportunities in front of us and turn contract backlog into revenue and to continue to expand on the sales success we had in the first quarter.

We have gotten off to a good start so far this quarter. Our pipeline across each of our vertical markets remains strong and each and every day we continue to see new prospects for our services. We continue to believe that WFI is strategically positioned to take advantage of market trends in each of our vertical markets.

If you think about the three things that all adults carry today, keys, wallet, and cell phones, it is clear that mobile devices are becoming an increasingly important part of our daily lives, creating demand for those who can design and deliver the supporting networks. This demand will not only continue to grow as the mobile device becomes the fourth screen, in addition to the TV, the PC, and the movie theater. The outsourcing at both commercial and government entities of wireless related information technology activities continues. WFI is one of the largest independent providers of a full range of Wireless Network Services.

The use of Internet Protocol, or IP, as an infrastructure backbone is here. And its growth is expected to continue touching every vertical market that we participate in. And on top of all of this, consumers continue to want their mobile information faster, with more and more robust content driving even faster technology cycles than we have seen in the past. We remain very focused on the challenge of executing on the significant amount of opportunity in front of us and delivering results that create value for our shareholders.

We are looking forward to talking to you next quarter where we hopefully will be able to report a significantly improved second quarter.

Now let me turn the call back over to the moderator for any questions.

[ OPERATOR INSTRUCTIONS ] Our first question comes from the line of John Bright from Avondale Partners. Please proceed with your question.

Thank you from Avondale, John Bright. Eric, on your near-term, I think you quoted you said near-term trends look favorable, can you define what you're talking about when you say near-term? Are you talking 6 months, three months? And then secondly, Eric, can you describe what you -- how you would view Wireless Facilities current business visibility?

Right. On my comments on the trends, I meant basically for the balance of the year. The number of opportunities that we have already bid on, and that we are preparing to bid on, continues to be very robust for the Company. And we're hopeful that we can continue off of our first quarter for example here in the United States our carrier division it was a record booking quarter in for the Company and so we have some momentum going and going to hope to capitalize off of that as long as the market students remain robust which it looks like they're going to. What was the second part of your question, John?

Second was on visibility.

Right. We -- we've consistently stated that we believe that we have fairly good visibility here two quarters out, 6 months out, and that's unchanged for us right now.

Okay. Any additional comments, Eric, that you would like to add on the current competitive environment since our last call specifically regarding pricing? Have you seen anything new or different from competitors in this short period of time?

No, nothing has changed in that area and you can imagine we're very sensitive to it since we spoke a few weeks ago.

Sure. Let me ask, then, the last my last question. You talked about engineers being in strong demand currently looking for 100 engineers. Now, are you concerned that might create wage pressure?

Thus far, there has not been material wage pressure. And on most of the higher-end engineering work that we're doing, that wage pressure thus far has been offset, for the most part, by pricing ability. Thus far we feel okay about it.

Thank you.

Our next question comes from the line of Mike Ounjian from Credit Suisse First Boston. Please proceed with your question.

Great. Thanks. Eric, just again to a little more detail first on Q1, within the 20 million international, could you tell us what was from Latin America and what was from Europe? And then kind of looking forward into the Q2 and the full year guidance, could you give us a sense of what trends you'd expect both from a mixed perspective regionally and business unit and also the carrier business kind of engineering versus deployment revenue, what kind of mixed trends we should expect there?

Right. Mike, on the first part of your question, internationally, it was split roughly about 8 million in Europe and about 12 million, just under 12 million, in Latin America. And the majority of the revenue in Latin America in the quarter continued to come from Mexico. However, we are enjoying quite a bit of success in Brazil, for example, we have over 100 engineers there now, and we have somewhere around 140 or 150 total people.

And as we tried to explain during the prepared comments, we -- we're ramping up now fairly -- we're projected to ramp up fairly quickly in Argentina on some work we've won, and we have a handful, and I mean that just about literally, of other opportunities in other countries or markets down there where, for the most part, either Telefonica or Telcel sister companies, or related companies, are looking to us to bid on work they have in those markets. That's what's going on there.

On deployment and engineering, we're running -- been running approximately somewhere around 50/50 or 55/45, 55 deployment, 45 engineering. That's about what we've been running.

And do you see a continuing at that? At around that those levels?

It depends. Let me clarify that for you. We have some -- there are some large deployment opportunities that are out there. If we are fortunate enough to hit one or two of them, which would be great, it could skew more toward the deployment side, but we don't have those materially factored in. We're assuming the normal win rate on the normal mix of business across deployment and engineering which is 50/50 or 55/45. Once again, if we were fortunate enough to hit one of these large deployment jobs, it could push it maybe over to 60/40.

And could we just get an update on where things stand with Telefonica now in Mexico? Has all the work resumed there, are you expected to go back to sort of normal run rate, your normal run rate in Mexico for them or is that still something that's moving slowly?

I was just down in Latin America last week. That's why I can report on this relatively first hand. We as you know, those contracts that were delayed we did win. We got them, and we're ramping now relatively quickly and we believe that starting this quarter in Q2 that we will be back to the run rate we were at, and then increasing because of the amount of work that we have.

Great. Thank you.

Our next question comes from the line of Hampton Adams from IRG. Please proceed with your question.

Great. Thanks. Just a few questions. First, can you talk about the internal growth rates in the three divisions now that you've taken the guidance down a little bit. Does it remain the same?

Yes. You know, as you know we've put out an internal growth rate for the entire Company, and that's what the guidance assumed. The internal growth rate across each of the three divisions is relatively similar and so it kind of tracks to the overall growth rate that we put out in our range. Somewhere around internally, 15% mid-point.

Okay. What about on the operating margin line in the past you've given out operating margins by division. Are we safe to assume that almost all the pressure you're seeing is on the carrier side or has that changed?

That's a fair assumption. And on the operating margin side, as I know you know, our business model is on incremental revenue dollars have very little additional SG&A dollars and as hopefully in Q2, and as we move forward, as the revenue ramps, as we start to burn this backlog, we're going to see some operating margin expansion as the gross margin dollars materially drop to the EBIT line.

Okay. And the final question would be just on your guidance, given that you had a few hiccups over the last several quarters off and on, to what extent have you taken out of the model any kind of potential variance for timing? Are we to the point where we've taken enough out of the model that any timing lags from time to time through the next couple quarters will be able to be absorbed in these new numbers or is there still potential we could take it down even further?

Right. You can, as I am sure you can imagine, when a few weeks ago when we got on the line and we adjusted the guidance, we had taken a very hard look at the backlog across the geographies, the bids that were out there we thought we were going to win when we were going to win them across the geographies, and we took as refined a shot as we could to assume any hiccups, et cetera, in the normal course in that guidance. We looked at it as hard as we could to make sure we don't experience another material one.

Good. And then to leave it on a lighter note, the last question, a lot of the carriers have reported here in the last few weeks, I'm sure you've listened to some of those calls, any take away, anything maybe specifically or just in general, that you heard that gives you any kind of positive or negative feelings going forward?

Right. I have actually listened to a couple most of them I read the transcripts so I can study them. The take away that we're seeing from almost every one of our customers, the carriers you mentioned, is business is good. It's good for the reasons I tried to explain, as far as continued increases in subscribers, continued increases in minutes of use, which is being driven by data, continued rollouts of 3G and its -- they're spending money. They're spending money. They need to spend the money. They're doing it and it's hopefully good for us.

Great. Thanks a lot.

As a reminder, please press the 1-4 on your telephone for a question. Our next question comes from the line of Seth Potter from Punk, Ziegel and Company. Please proceed with your question.

A few questions here. Can you give the percentage of business on your top four customers which you mentioned first question. Second question is the number of employees at the end of the quarter. Also what was the CapEx during the quarter and one other follow up after those.

Sure. I am going to leet Deanna go through the top customers for you, Seth.

Seth, for the top 4 customers, it's approximately 42% of revenue for the quarter, capital expenditures are just under 2 million for the quarter.

And on the employee side, think approximately 2,600.

And are you going to break out of the 42%, Deanna, the Cingular, Western Wireless, Verizon, and Triton?

Sure. Sure. Cingular is at approximately 21%. Western Wireless is approximately 9%, and Verizon was the last one you mentioned? The other two were international customers. Telefonica is approximately just under 7.5%.

Okay. And then in terms of the balance sheet, when do you expect to file that? Is that coming out at some point?

Sure. It will be filed on Wednesday, May 11th, a week from today.

And just a question, just on the last call regarding -- you mentioned the extra $2 million expense this year related to workers comp and medical. I'm trying to get a better sense what this really is. Something must have occurred or did something occur -- between the time that you reported your fourth quarter in the middle of February and came out with the release in the middle of April that caused you to look at those expenses differently?

Right, right. As I think you know, Seth, because I tried to explain it, it's in our filings, we're self-insured with a stop-loss element and so the Company pays a certain amount of the claim or the claims up to the stop-loss amount and then the insurance kicks in. And we have actuaries, or actuary-type bodies, who quarterly take a look at the historical trends and then try to project them into the future and we book our accruals based on that. It's a rather large estimating process.

And to -- without trying to sound trite, bottom line is there were a couple of very ill people, several, that the Company, because of its self insurance thing, we have to pay for them. And now that will get truncated at the stop-loss amount once we fulfilled our obligation.

That's helpful. Thank you. I guess a couple quick questions also. Can you talk about a backlog number. You've been talking about book backlog or book to business this quarter for next quarter. Is there a certain number you can share with us and also do you break out your business in terms of the wireless business in terms of percentage subcontracting and if you had that number, that would be great also. Thanks.

The reason we do not give a backlog number is because as you know very well the nature of the carrier business that we're in let me be specific on why that is. Because at the end of the first quarter and I will use numbers as an example. At the end of the first quarter let's say that our backlog which is in accordance with how we would disclose it for the Securities & Exchange Commission was $400 million. Let's say that that's what it was at the end of Q1. We, because of the relationships we have with our customers, like Vodafone or Verizon or Telefonica or Telcel, we'll have teams of people in the field working programs working in cities, and we will get a verbal to take your team of 50 guys, 60 guys, and deploy them to a new city. And we'll start working on that verbal and the contract administration process won't catch up to the work sometimes for two weeks, three weeks, 4 weeks but ultimately it catches up.

We could have very large swings at the end of Q1 it could be 400 million but we could have 200 million in additional prospects that are out there that we can't call as backlog for a total of 600 million book of business. We can come to Q2 it could flip completely. Our backlog could be 200 million but our prospects could be 400 million because that 400 minimum is about to be signed in the next month. And it would be misleading to people to sit there and go, "Wow, look what happened to backlog. Things are wrong." When it's really just a few weeks timing on the contractual administration process. That's why we don't put that out. We're not so sure it would give a clear picture of exactly what's happening operationally with the business.

Okay. Great. That's helpful.

And what was the second question?

Percentage of subcontracting if you break it out that way in the wireless business?

We don't. If I had it, I would tell you. We don't have it.

And I started to take so much time. Deanna, what was the employee count last quarter? I know you said 2,600 this quarter.

Before she goes, it is going to be an apple to an orange. Because we made the acquisition of TLA that closed in January, so if TLA brought 300 people or something like that, Deanna, where were we at about?

It was under 2,100.

There you go.

Thank you very much.

You're welcome.

Our next question comes from the line of Joe Annoni from Roth Capital. Please proceed with your question.

Hi, good afternoon and thank you for taking the call. A couple of house keeping items. First can you give us the cash position at the end of the quarter, if you haven't already provided that?

Sure, Joe, cash and cash equivalents and short-term events is 38 million at the end of the quarter.

Okay, thanks. And then on the SG&A line, is that sort of the run rate that you're expecting going forward or how should we look at that?

No. As you know, we're looking at a significant revenue ramp this year, and the way we have our sales and BD commission plan set up, is that that expense will track with that revenue ramp. And so those sales commissions and BD commissions, for example, will be included in SG&A, of course. And so, as the revenue ramps up this year, we do expect some incremental growth in SG&A one of the primary drivers being something like sales commissions and BD commissions.

Good. As far as the pressure you're seeing in hiring people, is that impacting delivery of the near-term or is that just kind of looking further out what you're expected to deliver in say whatever number of months, two, three months and being able to deliver that? How is that pressure hitting you?

Right. I didn't mean to elude to a pressure, so if I if that's where it came across, I apologize. It's more that with what we have in backlog and our book of business right now looking out over as I said we have visibility over the next 6 months that's pretty good. Our phasing of jobs that start either this week or three weeks out or two months out we're looking for it's just over 100 guys right now, many of them EVDO and UMTS guys as you can imagine, for jobs that are starting in the next several weeks or months for us if that helps answer the question. It's not like an immediate need and Rochelle can add commentary as well.

Joe, let me follow up and see if this can help you understand it, too. What it is really is it is a our hiring needs are something we take into account in looking at our forecast for the quarter. And so for example, would revenues be higher if we could immediately fill those positions tomorrow? Probably.

We take that into account so, for example, one of the questions that somebody may ask is with all the demand out there, why couldn't in Q1 you makeup for the delays that you had in certain of your deployment projects? Because we couldn't hire the bodies fast enough because we weren't preparing for that.

It's a long detailed planning process and when we prepare for the quarter and we look at our revenue guidance we factor into that how quickly we can ramp up the bodies. It's just something that takes into account why we can't necessarily build revenue over night faster because we do have to hire the bodies. It is something we take into account when we give you our best outlook for the quarter.

Okay. That's great. That's perfect. Thank you. If I think of the way that you might run a consulting business in terms of ramping up contracts to deliver versus the delivery, obviously you're doing both at the same time but at some point you might be balancing the mix heavier one-way or the other. One I guess is is that a fair way of thinking about the business and two, do you see that shifting at all?

I was with you until you made the comment balancing the business. Restate that part so I answer the question the right way for me.

Thinking of two primary activities, if we may simplify it that way, in terms of hunting versus gathering.

Right.

Do you see yourself still in the hunting mode or is it now just sort of calling the contracts and delivering on them.

Right. Well, I look at it as two things, both of the highest equal priority. We've gathered a lot as I think we mentioned, our first quarter for example in the U.S. was in our carrier division was we had a record in bookings. In addition, as you know, the contract delay in Latin America, that came through I think it was a $25 million contract. That's signed now. There is a lot of work has been gathered in addition to the Verizon work, et cetera, that we are now delivering on and we need to deliver on and we're going to deliver on.

In addition to that, we need to continue to hunt, and that's where I talked about the momentum. And our BD team, our sales team particularly, in our carrier division in the U.S. and with the relationships that we have down in Latin America. As well as what our government and our ENS business are doing right now, as far as the number of bids they have out there, there is a lot of hunting going on and that's why we, eluding back to question I was asked a few minutes ago, we feel fairly comfortable that the revised guidance that we gave, we're going to be able to achieve at that mid-point 15% internal growth because of the stuff we've gathered and the continued hunt that's out there and there are a lot of targets.

That's great. Thank you. One last question. You had mentioned in 2005 seeing new technologies and new carriers, opportunity opening up there. Can you give us a sense of that across a couple of different areas either in terms of the regions where that work is occurring, the level of opportunity, is it significant for you or is it still just sort of a nice area to play in and how that might affect the gross margin in SG&A lines?

Right. This is this opportunity is it's in front of us, and we are working with some entities right now on what they're planning on doing primarily here in the United States, it's primarily ultimately nationally. We don't look -- this is very strategic for us and so we're not going at it as a nice play area. We're looking at it as a late '05 but probably early '06 from a revenue and profitability standpoint. A significant strategic area that we need to successfully penetrate and we think we're very well positioned because of our scale, our size and the reputation we have and very frankly, some of these entities are coming to us and asking us to assist them.

I don't right now -- I can't tell you that the on the engineering side if we're fortunate enough to do any work here, if those margins will be any different than our engineering gross margins or on the deployment side if they would be any different on the deployment side because we're in a market and those are our market rates. On the SG&A side, there will be no "investment" made in SG&A to pursue this. We will do it with the corporate development and the business development organizations that we currently have.

I understand. Okay. Great. Thanks a lot.

You got it.

Our next question comes from the line of Frank Marsala from First Albany Capital. Please proceed with your question.

Good. It is actually san toes for Frank. Just a quick question on pricing. You mentioned seeing pricing pressure in engineering services. Just overall wondering why you are seeing that considering that there is so much demand for engineering services just want to know -- trying to get a sense of where exactly you're seeing that and why?

Right. Let me clarify because when you say pricing pressure I want to make sure that you and I are aren't talking price versus cost. Let me clarify it and maybe that will answer the question. For certain specialized people that have a significant amount of experience in a certain technology, like UMTS on certain platforms, those types of engineers are in demand, and that is we are out seeking them and those types of guys do cost us a little more to get, absolutely. There is on the costing side.

On the pricing side, you're absolutely right and normal market environment let's take the United States for example, when there is -- Verizon is rolling out EVDO, and Sprint is looking at doing that, Cingular has said what they're going to do with UMTS, and frankly, there are not a lot of resources out there and as I just explained on the cost side, you would think that okay, the carriers are going to are willing to pay a fair price or I am going to -- don't take this too much to an extreme -- a premium price for those guys so there shouldn't be pricing pressure in a normalized environment. I think I eluded to on the last call and I'll say it again here, there are certain our competitors out there that, for whatever Reno in certain areas, certain specific markets, certain types of work, we just don't think it is necessary or reasonable or why they're doing it, they bid very, very low. We don't understand it. For the most part, if it's not strategic to us, we'll pass and we'll let them take it. In some areas where it is strategic, we'll go there and, as I think I mentioned during the last call, to date, we have not had to match them. We're still typically 10, 20, 30% above them and we still win or get a big piece of it. For whatever reason the certain of these companies are doing that.

Okay. One other question I had on Latin America. Do you expect and you may have answered this we got disconnected for awhile. In Latin America do you expect revenues to go back to the old levels in the next quarter?

Yes. We absolutely do. We expect them to sustain or increase from there based on what we've got.

Thanks.

Our next question comes from the line of John Bright. Please proceed with your question.

Thank you. Can you hear me?

Yes, sir.

Eric, American Tower is acquiring Spectrazign and I think I read where Ericsson's departure, they're departing from the US CDMA market. What competitive industry implications, if any, do you see from those two announcements?

On the first one, we clearly see no downside to us. We're studying right now the potential opportunity for us obviously, the consolidation of sites and the network plan that goes with that. And so that no downside that we can see, then hopefully there is opportunity for us. On the Ericsson one, right now we see that as nonevent to WFI.

All right. Thank you.

Our next question comes from the line of Seth Potter from Punk Ziegel and Company. Please proceed with your question.

You mentioned or broke down the Latin American Europe revenues for this quarter. Can you refresh what were they last quarter? Approximately.

Hold on. One second. Deanna will get it.

Seth, the revenues Q4 Latin America was about 14 million and Europe was a little over 8 million.

Okay. Thank you.

Thank you very much for joining us this afternoon. We'll be getting back to you at the end of Q2.