WidePoint Corp (WYY) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the WidePoint Corporation first quarter 2008 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference call is being recorded today, Tuesday, May 20 of 2008. I would now like to turn the conference over to Cale Smith of Hawk Associates. Please go ahead, sir.

Thank you, Mary. Good afternoon. This is Cale Smith from Hawk Associates. Welcome to the WidePoint first quarter 2008 conference call. On the phone today are Steve Komar, CEO of WidePoint; and Jim McCubbin, the company's Chief Financial Officer. I would like to begin by reading the company's Safe Harbor Statement, and then we will hear from Steve and Jim before they take your questions. This afternoon's discussion contains forward-looking statements that involve known and unknown risks, uncertainties, or other factors not under the company's control. Those risks may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those detailed in the company's periodic filings with the Securities and Exchange Commission. Now, here's Steve with his opening remarks.

Thank you, Cale. Good afternoon to you all. On behalf of the WidePoint management team, I would like to welcome you to the company's first quarter 2008 investor call and as always, to thank you for your time and continued interest in our company.

During the first quarter, we experienced the first three months reflecting the impact of our iSYS acquisition, which was consummated in the first day or two of January 2008. Our revenues therefore for the first quarter exceeded $7 million, which is almost 150% better than the comparable quarter last year. The bulk of that increase was indeed attributable to the inclusion of iSYS revenues. Our overall result was impacted by and consistent with our earlier indications to you in regard to seasonally slow contract award activity during the first quarter on the part of the federal government. We do not believe that this condition will continue into future quarters. In the first quarter also, we experienced an operating loss of $750,000, which included several noncontrollable, noncash items, such as stock option expenses of $370,000, and amortization costs related to the iSYS and ORC acquisitions, totaling $150,000. The absence of these nonrecurring items, combined with our expected revenue growth, should result in significant improvements in our consolidated operating income through the remaining quarters of 2008. Jim McCubbin will expand on these financial metrics during his comments.

I would like to also share with you our belief that through a series of actions that we in fact initiated during this first quarter, we have laid the foundation necessary to support and enhance accelerated revenue growth, and increase performance levels as we move forward. We've sharpened our organizational focus and allocation of resources to better concentrate on our two high growth segments, AIM, as we call it, which is Assured Identity Management, and MTMs, which stands for Mobile Telecom Management Systems. The AIM product includes our PKI and HSPD-12 offerings. Each of these segments are managed service, recurring revenue business models based off rapidly expanding markets that have the potential for 50%+ compounded annual growth rate revenue opportunities to WidePoint.

Having said that, I would like to just take a minute and profile these two segments for you. I'll try and do it quickly and hopefully efficiently. AIM, Assured Identity Management, is a fully integrated, shared enterprise solution that authenticates users through a central authority for all electronic transactions and communications. It provides users data confidentiality, integrity and non-repudiation, including PKI capabilities and options. This marketplace is estimated to grow to $1.3 billion annually in three to five years, and WidePoint today is a leading PKI provider to the federal government.

Moving to MTMS, Mobile Telecom Management Systems, MTMS is a proprietary software-based managed service that manages, streamlines, optimizes, the full lifecycle of mobile telecom devices for large, diverse organizations. The TM marketplace is projected to grow to $1.7 billion per annum by 2011. Today, WidePoint is the leading provider of mobile TM services to the U.S. federal government and the general services administration of the U.S. federal government has made mobile TMs a strategic sourcing initiative in 2008, targeting the entire U.S. federal infrastructure.

Obviously we are excited about the growth potential for each of these segments. We have not forgotten our engineering and consulting business segment activities, which are a meaningful part of WidePoint's skills and services profile. We are increasing our marketing and business development efforts on an opportunistic basis to ensure steady, though more moderate growth in this particular business segment. Our go-forward strategy includes leveraging obvious synergies available to us, such as commercial market cross sales initiatives for versions of our AIM and MTMS capabilities, securitizing our Mobile Telecom product and cost optimizing our support functions and resources.

Putting some teeth into these efforts, I'm pleased to say we have convinced one of our more active board members to join the WidePoint senior management team in a full-time role, as Executive Vice President, Sales, Marketing and Business Strategy. Ron Oxley is an extremely well respected and proven business development executive, as well as possessing comprehensive federal government experience, and broad contacts and relationships throughout the sector. Primary among Ron's challenges will be assuring that our organization has in place the necessary skills and resources to maximize the value of the contract awards already in the pipeline, and to identify substantial new business revenue potential to further accelerate our revenue trajectory.

Finally, we have successfully arranged for an infusion of new working capital to help us prepare for and fund our anticipated revenue growth. This, in the form of a private equity financing, in the amount of $4 million. Jim McCubbin will provide some additional detail on this transaction in his comments. Summarizing, I believe we have confirmed our niche high value-added products plus bundle services strategy, and positioned ourselves to maximize our government sector opportunity while planning for commercial sector expansion. We understand the importance of keeping our eye on the ball and delivering steady, strong growth and earnings in the three quarters ahead. And we are committed to that goal. Thank you.

I would like to turn the meeting over to Jim, who will guide you through a more detailed financial and operational review, after which we'll open our lines for your questions and comments. Jim, it's all yours.

Thank you. Ladies and gentlemen, welcome to our first quarter call. As Steve has already said, the first quarter was a very good foundation quarter, for which we can build off of a lot of successes and revenue growth in 2008 and beyond. While the first quarter's traditionally slow, as we witnessed, contract awards are usually awarded during the period, and as normal, we did witness a lot of these contract awards coming towards the end of the first quarter and into the second quarter. This is very normal for the federal government sector that we participate heavily in. Even so, given this, we did realize strong revenue growth in two of our three segments, highlighted by the MTMS segment, showing 53% growth from $2.9 million last year, to $4.5 million this year. PKI, which is part of the AIM segment, showing growth of 145% growth from $310,000 to $759,000. This was all offset a bit by the E&C, or Engineering and Consulting decline of approximately $638,000 from 2.5 to $1.9 million.

Looking forward, we expect to witness sequential growth among all three segments, with expected second quarter revenue targets of approximately 9 to $10 million. As you recall on on our fourth quarter -- on our annual call, we suggested that we would have revenues in the 7 to $8 million range in the first quarter. At this point, we're prepared to approximate revenues in the second quarter of around 9 to $10 million. That should provide us with a 16 to $17 million second half, which we're pleased with, especially given the fact that we see this continued growth both sequentially and on a comparison basis continuing. With this, I kind of want to go into two of our segment opportunities so you can kind of understand where this is coming from.

In the first half and first and second quarters, for the MTMS segment, a lot of the growth has come from our current base of business, just highly adopting and expanding the acceptance of the services, and that being with the WHS, which is part of the DOD, growing it into the Secretary of Defense's office, growing into the Pentagon Force Office, growing it at Department of Homeland Security, growing it at TSA, or Transportation Security Agency, all of these people have been so happy with the services provided and savings that continue to expand growth within their own organizations. So that growth is solid, in place, and we're very pleased to see how it's been moving and progressing forward. What we haven't really witnessed yet, though, within the MTMS segment, is back in January, an IDIQ contract as part of the Federal Strategic Sourcing Initiative out of the General Services Administration was awarded to iSYS. This is now heavily being marketed for task orders and we believe we are in a number of first position to win more than our fair share of most of those task orders for initially 14 agencies, and as you may or may not know, there are greater than 40 agencies federal government wide. This leads us to feel very good about our third and fourth quarters and strong continued revenue growth within the segment in '08 and beyond. With that, the AIM segment, we're also extremely pleased with, because we continue to see strong revenue growth within the sector.

What we haven't really discussed with many of you is where this is coming from. We are being a little bit cagey, more so to protect our strategic position among our competitors. We have won a strategic opportunity, okay, and formed some strategic alliances that is allowing us to penetrate a very large user base of up to 2 million users that is coming online in the second quarter, and we're looking at expansions of this user base over the next two to three years. We are very strongly positioned in it. We are at this time not going into great deal with who it's with besides that it is federal government related. Augmenting this as well in the second quarter for further growth is we have been seeing strength in the adoption and movement of the transportation workers program, in which case we are part of Lockheed Martin's team, and we are very pleased with where that's taking us. Given those two events, okay, and those two opportunities alone, it's giving us comfort in where we're seeing the company driven to from a revenue opportunistic potential in 2008. We do hope that this clarifies some of this for you, as we can describe it in more detail and hopefully over the next two or three months, we will. But we are very pleased with some of the strategic actions that we've taken over the last six months to position us with these opportunities.

Looking at margins, or gross profit, we did witness an absolute growth of approximately $376,000, from $728,000, to $1.1 million. This was driven predominantly by our recent acquisition of iSYS in January of 2008. On a percent basis, we saw a decline from 26% to 15%, which was due to higher blend of lower margin sales during the period along with some initial start-up costs to get some new projects started that I've already described. Looking forward, we do anticipate this blend of service offerings will improve in the second quarter, augmented by both no longer having some of the startup costs and the higher blend of margins coming from the higher profit margin-related two segments that I've described as MTMS and AIMs.

So looking at SG&A, we also witnessed an increase as a result of the iSYS acquisition in our actual SG&A costs, which drove costs from approximately $900,000 to $1.8 million. A lot of this cost was associated with us, booking nonrecurring, noncash costs associated with the iSYS acquisition. It was our belief and intent that getting that behind us as quickly as we could in the first quarter would only improve our SG&A and our measurements in the future. We didn't want to kind of ladle it over us and carry it for a number of years. We thought it would be better to just kind of get rid of it in the first quarter. That is what we have done. And with that, we're looking for SG&A improvements on a percentage basis and on an absolute basis as we move forward into the second quarter.

Factoring a small amount of depreciation of approximately $37,000 and some interest -- income expense that was netted of about $84,000, led us to the net loss of about $863,000 as compared to $376,000 last year. When we back out some of the noncash, nonrecurring items, and we really take a look at earnings before interest, taxes, depreciation and amortization, or some people call it EBITDA, the loss looked closer to $150,000. That's also one of the reasons our cash flow improved dramatically as well, if you take a look at it. So we managed to kind of kill two birds with one stone and improve our position. So as you can see, factoring in the revenue growth expectations that we're witnessing and the reasons why, the improvements to margins that we're expecting because of the increase in the blend, the improvements in SG&A, you can see why we're anticipating improvements across the board in the second quarter among all three segments and operationally across the board as well.

Looking at liquidity, we also finished the quarter with approximately $1.5 million in working capital. We are poised to continue to grow and hopefully grow our working capital into the future, but given the contract awards and the size of the market opportunities, when we took an honest look at what we had to work with, we felt that our working capital was just too thin given these multimillion dollars contracts, and we sought out an infusion of a minimum amount of equity, or working capital, that we thought would help augment what we needed to do to provide the stimulus for what we needed to do. So two of our current institutional holders provided that liquidity, and we raised approximately $4 million that we're going to use to bolster working capital. A small bit of it we're going to use to pay down some of our line of credit, so we have that line of credit to fall back on as we expand revenue growth because of timing differences.

So with that, we think we've come out of a very good foundation quarter, going into a very nice growth quarter in the second quarter, and that gives you a financial overview of where we are at this time. And, Steve, back to you with that. All right, thank you, Jim. Appreciate that. I think we would like to turn this back over to our operator now and open the session to your questions or comments, whatever you feel appropriate.

Thank you, sir. (OPERATOR INSTRUCTIONS) And our first question comes from the line of Jeff Miller with JMG Capital. Please go ahead.

Hi, guys. Nice quarter.

Thank you, Jeff.

Just wanted to clarify, the 4 million raise, was that that private placement of restricted common stock at 102?

That's correct.

Okay, great. Thank you.

Thank you. Next question comes from the line of [Steve Masser with CRT Capital]. Please go ahead.

Jim, can you just go over the backlog numbers, what we have firm right now on the books? Because you've been announcing contracts here. Maybe you can tell us what we have for this year and maybe year beyond. And I have a second question, can you tell me, in 2 minutes or less, what the business model is for TMS? What does it do and how do you get paid for it? What's the model?

Steve, I don't have an absolute backlog number at my fingertips right now. I mean we came into the quarter with firm between 50 and $75 million and firm backlog that was task ordered. We've added probably around I think $12 million or so. Without getting into some of the unfunded contract opportunities. In the second quarter after we realized some of the F SSI task orders and some of the other things we're working on, I'll try to firm up that number better. If you don't look at just task order-based backlog and just look at totality of backlog over the next five years, we're approaching, if we haven't already exceeded $100 million.

What does task order backlog mean?

Task order is when the federal government can only provide funding to you on an annual basis, so they may be able to give you a contract that's good for a period in excess of that, but they need to fund it, much like a PO against that contract vehicle on a shorter period and never to exceed one year for the government fiscal year. The government's just not allowed to operate otherwise.

Okay.

I think the other, if I may, I think the other aspect of task orders is that most of these contracts, be it for the full contract life or for the current period year have an umbrella amount and then individual agencies and departments take advantage of that on a PO basis, as per Jim's comment to issue specific work orders set under that umbrella agreement. Those work orders are subject to some competitive bidding by qualified vendors. In the case of the FSSI contract, which, of course, is a fairly substantial one at $93 million umbrella, what we're talking about here is basically three qualified vendors of which iSYS or WidePoint is one, and we like to think the most qualified of the three. So we expect some pretty substantial success from that relationship.

You mentioned that, , that iSYS basically had -- it looked good, promising for about 14 agencies out of 40 that you thought were out there. Could you quantify wha getting 14 agencies could really mean to the firm?

Let me turn around and kind of answer your business model question.

Okay. Let's do that first. Okay.

Then what I'll do, I'll back in. And Steve, they are very good questions.

Okay.

And I'll back into an answer to what it means, okay? The iSYS business model, they have three product areas, okay? So I think you're more interested in the mobile TMS product area.

Exactly.

Because the others are more engineering consulting and informatics, forensic informatics and information assurance. The Mobile TMS space is really a full lifecycle software-based outsourcing model that the federal government is taking advantage of to outsource all of their, all of the mobile devices that they have, be it PDAs, be it BlackBerries, be it whatever, they are outsourcing everything. And what we're doing is we're optimizing the software -- I mean we're optimizing the billing. We are providing lifecycle. We're providing asset management and we've packaged it all up into a nice solution, in which case we have some great software that's proprietary that handles a lot of it for us. With that, we charge on a monthly basis somewhere between 5 and $7 per device per month and that's the main driver.

Now, there's other costs and services built around that, but that's the main metric, okay? Now, getting back to where you said, what does this FSSI contract mean just on its own? The FSSI contract on its own, for 14 agencies, they're estimating to be around 220,000 units that we're talking about. We're estimating right now that we believe the federal government in whole, especially with the growth of devices are going to represent a million unit opportunity and the FSSI contract is just starting up now and we expect that to be expanded federal government wide. Does that help you a little bit?

Yes, how many units do you have right now?

Actually, I don't have that off my -- at my fingertips. I know that it's changed dramatically over the last three weeks.

Right.

I'll definitely have to get that back to you. I just don't have the exact--

Is there a number that you can throw out that says this is what your costs are basically per unit, per month or something like that, so that we can kind of hypothetically put up a model in our heads on this thing?

Steve, with us getting after, getting ready to get this FSSI work, I really--

I understand.

-- for obvious reasons. I think you can understand that as well.

I can, I can. Okay, thank you.

Thank you. Your next question comes from the line of Ian Wallace with River Run Management. Please go ahead.

Hi. With respect to your revenue forecast, you said the second quarter is 9 to 10. The second half is 16, so that's kind of 8 per quarter in the second half.

No, that was -- I said--

First quarter you mentioned that.

Yes, first quarter was--

First half.

Yes, first half, I'm sorry. We're projecting 9 to 10 million in the second quarter and we had $7 million in the first quarter.

Jim meant to say first half when he said 16.

Yes.

Okay. So do you have a projection for the second half, or--

Well, right now we're -- we've been given quarter by quarter, because we've just started giving projections for the first time. So we do anticipate that, we're going to see sequential quarter in/quarter out growth. I'm not prepared at this time to start giving a number. As we get into the second quarter, we'll probably try to project out for the rest of the year. So -- but we have a lot of contract wins under FSSI that could materially change it, which case it's going to be kind of hard to say.

Your -- the $100 million backlog number, what's the burn on that backlog? How long will that take to cycle through revenue?

That's about, right now, that's about five years. We're looking at $50 million-plus right now over two years, just in backlog. And that doesn't represent all of our revenue. We do have revenues that occur kind of on a quarterly basis that doesn't get burned out of backlog. So that's not the only predicator. Otherwise, it would, , it would look like we're only going to do $25 million for this year and $25 million next year.

Okay, and I guess when -- I mean the company's been long on potential for a long time. When do you think we get into a little steeper trajectory here on the top line?

Well, I mean I'm actually, we're projecting second half -- well, we believe without getting into it, that we're going to see sequential growth quarter in, quarter out for the rest of the year. We also believe that the opportunities associated with the MTMS business and FSSI, depending how quickly that comes on, and that -- the government's doing that because it's saving them money. It is going to be quicker than slower. We also believe that the large opportunity that we have with our AIM division will start coming online stronger in the second half as well and building into '09. So with that, we're looking at a strong, the potential for strong second half '08 and continued strong growth in '09.

So -- and I would like to address one thing. I mean '07, we have been long in promise. There's no question of that. A lot of that length in promise came from an '07 where we had a continuing resolution that just did not allow any funding for us to do anything. For all intents and purposes, a lot of us went home and just took the year off, except we really didn't. We went and looked for other opportunities and built what we could. Coming into '08, we have seen that dynamic go away and now we're seeing that opportunity finally blossom for us. So does that help you a little bit?

Yes, and do you think, are you fully funded now based on your present working capital, or do you expect to be back to the market before the end of the year?

Being a major shareholder myself, as well as Steve, I don't like to go to the marketplace period. So I would hope that we don't have to, especially if we're producing cash going forward. Our problem was just having $1.5 million of working capital and looking at, a very large revenue run rate. It was obvious that we were just undercapitalized. If you notice, we did it on the best terms we could do it on as well and we did not -- I mean we did it in-house, so there wasn't placement fees associated with it either.

All right. Thank you.

Thank you.

Thank you. Our next question comes from the line of Sam Donaldson with private investor. Please go ahead.

Guys, my question really builds on your last series of answers. Let me sort of pin down an overview. You're optimistic about the sectors that we are working in. You talk about a sequential growth quarter by quarter. You explain the startup costs of the first quarter, which you say are nonrecurring. Seems to me that that sort of adds up unless you can tell me otherwise to a fairly good idea for profitability, as the quarters go on this year and you say into next year. Is that your assessment also?

Hey, Sam, I think you're your analogy is pretty good.

We've talked about it and I understand you've said it in different ways. For someone who is not as sophisticated as I am, I'm not sophisticated at all, I want hear the words "yes, I think we're going to be profitable."

Sam I think we both nodded here at this end and we think your analysis is right on. This question was asked of me at the last quarterly call.

By me, yes.

And I was perhaps foolish enough, I'm not sure, to say we expected robust profitability by the end of this year. I -- from my perspective, I still stand on that comment. I think we're feeling quite positive about our trends in terms of revenue growth, but also the obvious in terms of increased margins and good old numbers in the black and that's where we think we're going the rest of the year.

And I was pleased to hear you say into '09 you don't see anything on the horizon that would stop that.

No, we do not, Sam.

Well, congratulations, guys.

Sam?

Yes, Jim.

Sam, this is predicated of course upon things happening and, you know, the government, nothing bad happening, government not shutting down or anything like that. But -- your analysis is running close to the mark.

We'll, I'm not going to be partisan about this, but not for two years, but one year, the congress refused to fund the federal government, continuing resolutions what they thought was the order of the day. There's still some problems up there, but it does look like as congress, maybe the next congress will decide that one of the things it ought to do is fund the federal government. Let's hope so.

Hey, Sam, do you want to hear something great?

Yes.

On the mobile TMS side.

You bet.

On the mobile TMS side, even a continuing resolution doesn't stop it because all of the budget money is already in place and since it's cost savings associated with the mobile TMS work, even if you had that happen, the agencies can still move forward and the continuing resolution does not stop that growth.

Great. Well, I'll get off because I intend to listen, but Steve and Jim, congratulations. I think you're doing a great job and I think the potential here is terrific.

Thank you, Sam. Much appreciated.

Thank you. Your next question comes from the line of Jeremy Grant with Stanford Group. Please go ahead.

Good afternoon, guys.

Hi, Jeremy.

How are you doing, Jeremy?

Real good, thanks. Wanted to talk a bit about margins. It seems like both on gross margin and SG&A, at least on the latter, quite a bit impacted this from some of the one-time costs associated with the acquisition. I realize you're still absorbing the iSYS group, but as you sort of look going ahead and your informal projections for the year, starting from the basis of gross margins of 15% this quarter, where do you look to try to be getting these margins, in Q2 and beyond?

I don't know if I'm ready to peg down an absolute number, besides to say, Jeremy, I think they are going to go up from there. It's the revenue mix of the higher margin work, which tends to be in the high 20s and low 30s is going to be a greater and greater blend. A little of that's going to happen depending on how the blend plays out, but we're anticipating that it's going to improve and hopefully improve quarter in, quarter out.

Okay.

Some of it's managed service and there's economies of scale, which is going to further drive that as well.

Okay, and I guess conversely on the SG&A side, where the blend of work will be probably less dependent on things go forward, do you have a target in terms of percentage of revenue where that comes in, or are there some fixed numbers we should keep in mind?

I think after the second quarter, we'll be able to get kind of a baseline for SG&A. We know right now without even doing any hard work, that there's $300,000 alone in nonrecurring, just 123R expense that gets eliminated besides anything else. So we know the absolute cost is going to fall, and I think as I recall, we're like around $1.6 million, so that's taken us down to $1.2 million. We may want to make some investments in sales and marketing, so I mean I think you can probably -- we can make some guesses, but in the second quarter, we're going to get a better measure for it.

Okay. Okay. And it sounds like sort of where you're coming from with some of the one-time costs going away, if you look, I guess, on an adjusted EBITDA basis, excluding stock comp costs, target would be right around break-even for Q2?

Well, I mean in Q1, our EBITDA was about negative $150,000, so I would hope for in the second quarter given all things occurring, I would hope for positive EBITDA.

Agreed.

Okay.

In fact, I would be--

Is that excluding stock comp or not with that?

Excluding -- it's a push there. But excluding stock comp, I feel very comfortable making that statement. Okay?

Okay. And then the other question I had on the consulting side, you mentioned that some of the issues in Q1 were some contracts that were I guess won, but the work was delayed a little bit. I wondered if you could talk just a little more about what those issues and how that is different coming up in the fourth quarter.

What happened is really in January and February, we had some people sitting on bench, which drives your costs up. You also, on the SG&A side and then also, we have been doing other things, so with you throw a little bit more costs to some of the work you have. Two, some of those contracts were awarded late in the quarter, so all of a sudden they are starting work in the second quarter, so it's kind of pretty much a normal kind of problem that you have sometimes with some seasonality in contract awards.

You're saying now utilization is up full time on the benches, they were a couple of months ago?

Yes, utilization is up and our problem is focusing on all of it with the iSYS acquisition, it took up some management time, so some of our optimization of talent wasn't fully utilized either.

That's sort of beyond you at this point?

Yes, I think so. I think everything's gone very well so far with the beginning of the integration with iSYS and WidePoint. We're pleased. Jim Kang, the President of iSYS, has been a tremendous add to the organization as well.

Okay. And final question I had was just looking sort of at the budget situation, obviously two years ago with the full year CR was a problem, this year we had a CR for a few months, but then got a budget at least funded. It looks like listening to sort of the pulse of what's going on on the Hill, the supplemental that's being debated in the Senate right now is probably the last appropriations bill to move before the election, and then the Dems will have to wait and see what they are dealt with. If it's McCain, they probably want to make a deal pretty quick. If it's Obama, maybe they want to hold all the spending bills until he comes January 20, and have him sign a bill of democratic priorities. That sort of suggests, maybe 3.5, 4 months of being on a continuing resolution again, outside the, I guess the TMS business, that sounds like it's pretty insulated from that. Are there some vulnerabilities that could creep in in Q4 this year that we need to keep an eye on?

There's always vulnerabilities. The MTMS, as you know, is where we're looking for a lot of growth in '08. I don't think it's going to be impacted too much because of the cost savings. As it goes to the AIM sector, we're refocusing growth this year I think is fully funded for what we're looking for. So as you go into '09, what could happen, is you could have some first quarter hiccups, but that doesn't impact -- that doesn't really distract '09 total. It just maybe some timing differences between the first quarter and second quarter.

Sure, sure.

I think Jim's kind of laid that out pretty well, Jeremy. I think if there is a flight risk associated with that, we think it's limited, but if it were to happen, we don't think it would hit our second and third quarter. It might be a hiccup somewhere near the end of the year. It's a little too early to tell and we don't foresee it as a really substantial risk right now.

Sure.

I say the message here is the government services company, investors who are part of it got to be able to follow some of the lumpiness that's going to go on with it as the appropriation cycle goes back and forth. Sounds like you're not all that different there, evens out over the course of the year.

Yes, no, that's how we view it right now.

All right. That's all I had.

Anything else?

No, I appreciate it.

Thanks, Jeremy.

Thank you. The next question comes from the line of Michael Wallick with [Yusis], please go ahead.

Hi. I'm a private investor, and my question is on the engineering consulting business end of it, that sounds like that's the area shrinking the least and having problems as far as really making money in there. Is that the, the sector that's basically having the most difficulty as far as, and how do you turn that around?

Well, the engineering/consulting business is really made up of your professional services group, and tha we've had some shrinkage there because we've had a lot of focus on absolute growth in the other two segments.

Right. Yes, they have dropped about 638.

And turning it around, I mean we want to maintain it. We want some moderate growth out of it because it provides good opportunities, looking at strategically in the new areas that we could, play in. It's, you know, right now, we are focusing a bit on it to make sure that, you know, we can maintain and grow it. The big bang for the buck though, for us is really the MTMS segment add the AIM segment because that's where the absolute growth and the margin growth is.

Okay.

I think it's a fair comment to say that the engineering and consulting business has historically been high revenue, low margin business. And we're being pretty selective and elective about where we place our efforts going forward. Again, we're kind of focused on really improving gross margins as we move forward.

Because that's going to improve income and the bottom line.

Yes.

So I think we're trying -- from a management perspective, trying to start optimizing income and income growth.

Right.

And not just doing -- we don't want to just have a lot of revenues for the sake of having a lot of revenues.

Right, because that's just going to dilute your EBITDA and everything.

And also burns a lot of working capital.

Yes.

And so, so we're being very strategic about it and we want to be in the higher level markets, where also we can have some strong business intelligence coming into us because that's where you find out where the new managed service offerings and how you can really perform what you need to perform. That's very important. We want to be at the top of the food chain and not at the bottom of the food chain.

Absolutely. And so the other thing I picked up on, you said with the EBITDA negative $150,000 of EBITDA, after you take out the adjustments and everything, so you're thinking even you return in the next quarter to a profitability, or closer to that at least?

Those are all of our mutual goals. We are trying to manage improvements in revenues, gross margins, and into operational income.

Okay.

Okay?

Yes. And I'm sorry to bother. I only had one other question. I noticed on the amount that the goodwill amount for some reason jumped up to $7.2 million.

Good will associated with the iSYS acquisition--

Oh, okay. That's the big jump. Okay.

Okay. Thank you so much, by the way. We appreciate it.

No problem.

Thank you. (OPERATOR INSTRUCTIONS). Management, I'm showing there are no further questions. I'll turn it back to you for closing comments.

Thank you, operator. Appreciate that. Well, on behalf of Jim and myself and our management team, I would just thank you one additional time for your time and attention and both commitment and support of both ourselves and where we believe we're taking WidePoint. So as I had mentioned earlier in my comments, we're really committed to delivering some fairly dramatic improvements between now and the end of the year. That's where our focus will remain. As always, we appreciate your patience with us and hopefully that will result in some pretty attractive returns over a reasonable timeframe to all of our investors. Again, we thank you very much, and for the moment, we'll say good night.

Thank you, gentlemen. Ladies and gentlemen, that will conclude today's teleconference. We do thank you again for your participation. At this time, you may disconnect.