The KEYW Holding Management Discusses Q4 2012 Results - Earnings Call Transcript

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The KEYW Holding (NASDAQ:KEYW)

Q4 2012 Earnings Call

February 06, 2013 5:00 pm ET

Executives

Leonard E. Moodispaw - Founder, Chairman of The Board of Directors, Chief Executive Officer, President and Chairman of Ethics Committee

John E. Krobath - Chief Financial Officer, principal Accounting Officer and Executive Vice President

Analysts

Patrick J. McCarthy - FBR Capital Markets & Co., Research Division

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Brian Kinstlinger - Sidoti & Company, LLC

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Josh W. Sullivan - Sterne Agee & Leach Inc., Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Robert Mark Sussman - Bentley Capital Management Inc

Operator

Good day, ladies and gentlemen, and welcome to KEYW Fourth Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to hand the conference over to Mr. Leonard Moodispaw, President and CEO. Sir, you may begin.

Leonard E. Moodispaw

Thank you, kindly, and I will be pleased to discuss our results here in a moment. But first, we need to turn to John Krobath to read the obligatory Safe Harbor statement.

John E. Krobath

Our Safe Harbor statement -- under our Safe Harbor disclaimer, statements made in today's call, that are not historical fact, are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. Len?

Leonard E. Moodispaw

Well, thank you. We will -- I'll itemize some of -- some highlights and then turn things back to John, and then I'll come back to you. But to put the highlights in context for you, I'm going to do what I hate other people to do, which is use a sports analogy. But with baseball coming up, what the heck? So I think that there's a lot of companies in the general area of our business, who are acting like they're in an batter's box with 2 strikes on them, and their knees are quaking because they expect the sequestration curve to come and get them. Meanwhile, we're hitting fastballs down in the middle, and we're hitting them out of the park. So we're very pleased with our results for the fourth quarter as well as the year.

I know, as I say you probably recall, we don't make it easy for people who write about us because we don't give guidance. And I know that some folks were, well I'll say, wildly optimistic about our results. And they may be disappointed, but we're very pleased. And we think we did a good job. So some highlights are that we had $125 million in funding actions in Q4 of 2012. The number of people that we have now on the radio program, which is the program we got when we acquired Poole, is now almost 150. We've hired almost 60 of those since they -- since the acquisition. I should say, hired some of our subcontractors.

We recently acquired 8 aircraft. And I know that there's concern about us pulling out of Afghanistan, and while I am pleased that we're getting our troops out of Afghanistan, I'm not concerned about that in relation to our business. I'll -- to make that point, I'll quote from Secretary of Defense Panetta, over the weekend, when he said, "We are committed to an enduring presence in Afghanistan, and our long-term support includes military assistance." Same time, the Chief of -- the Chairman of the Joint Chiefs of Staff said, "Our mission is to establish a safe and capable Afghanistan that can govern itself and ensure that Al Qaeda never again establishes a safe haven in that country." We expect to be in Afghanistan for quite some time and expanding to other continents as you know.

In addition, the commercial phase of what we call Project G is already starting. And I'll remind you that there are 3 phases to G: the cyber assessment -- the cyber analytic assessment, which is where we go in and look at people's networks; then we make the software generally available; and then we have the subscription service. The software will be generally available in the second quarter as we have planned, and we're on pace for that. We are finishing up 2 of the 3 early adopters and the CAAS for the early adopters. So those are on pace, and we are picking up the pace. We're bringing on additional CAAS as we speak. So in a sense, I believe, we're ahead when it comes to the commercial phase of G, because we're commencing with other CAAS.

In about 2 weeks, we'll be presenting at the RSA Conference in San Francisco. We'll have a booth there that will be explaining more and telling more about Project G as well as other things.

So I will turn it over to John, and I'll come back to you later.

John E. Krobath

All right. Thanks, Len. As Len said, we had a good quarter -- good fourth quarter and a good overall year for both revenue and margin. For the fourth quarter -- what I'm going to do is I'm going to talk about the overall results and then get into each of the segments individually. But for total company, we had revenue of $74 million for Q4 with an EBITDA percentage of about 14%. Full year, including the acquisitions, was $244 million on a GAAP basis with EBITDA of 13.5%.

Regarding overall performance, we did have intangible amortization of $21.4 million for the year. That was up a little bit from what we talked to you guys before. We got the final intangible analysis for both the Poole and Sensage acquisitions that bumped us up to that $21.4 million level, as we look out for the next couple of years, barring any significant acquisitions, we're looking at about $24 million in amortization in '13, $11 million in '14 and $9 million or $10 million in '15. As we go through the amortization runoff, a number of our acquisitions from 2010 and 2011 are ending their intangible lives, which is why we're seeing that large a decrease.

One other thing, on the overall company perspective before I get into the segments, we are in a tax position where we have pre-tax income, that we get a tax benefit from the -- basically from the state and local position. We've got some income in jurisdictions with out-of-state [ph] or local income tax, where we have losses in local jurisdictions. So the losses benefit us, and we're not paying tax on a portion of our income in the profitable jurisdictions. Hence, we end up with somewhat of an inverse tax position.

In the Services segment, for Q4, we did $53 million in revenue. We did that at a gross margin percentage of about 25.3%. We previously discussed that bringing the Poole acquisition in, with their heavier weighting to subcontractors for performance rather than self-performed will primarily self-perform prior to the Poole acquisition, would bring down our gross margin to about the 25% range. That is what happened to legacy, or should I say, the pre-Poole acquisition, Services margins were consistent with what we've seen in the past.

Len touched a bit on the radio contract. In terms of staffing today, it's about a 50-50 split between self-performed work for KEYW and subcontracted work. We're working on improving that split to more self-performed, but that's where we are today. We still have quite a number of open positions to fill on that, and we're working to fill those. As Len said, we've added almost 60 people in just over 4 months since that acquisition.

The one thing that hits us like it does every quarter, every Q4 for the Services business, is paid time off. To give you a broad indication of what it did, our accrued leave balances decreased by almost $2.2 million, that's raw cost in terms of our Services folks that weren't working during Q4 due to holiday and leave. We had the same issue last year. The number just gets a little bigger, as we continue to grow. And now, as we're approaching 1,200 employees, that swing gets a little bigger each year as we move out.

For the year, we did $172 million in the Services business at about 27% gross margin. Again, we're seeing the impact as that's come down from where we were at the end of Q3 with the addition of Poole and the subcontracting base there. We're very happy with where we are in the Services business in terms of the growth we're seeing there, especially the growth we're seeing on the radio contract.

As we look at the Integrated Solutions group, they did $21 million for the quarter. Gross margin was up almost 62%. A lot of that, as we previously discussed, has to do with Sensage and the acquisition in mid-October. Q4 is Sensage's best quarter, and as we put out in our press release back in October, they were accretive to earnings to us in Q4 based on the volume of order activity they have and revenue we recognize, as Q4 is their strongest quarter. Without Sensage in those numbers, our gross margin is back in the neighborhood of where we've seen it right around 49% or 50% for the quarter for the other pieces of Integrated Solutions. The -- as we go through, there was an earn-out related to the Sensage acquisition. They did achieve the very low end of that earn-out. It is scalable. So based on their level of achievement, the payout would grow -- the payout, as calculated, is just less than $100,000 in terms of what the earn-out should be on that purchase agreement.

As we go forward for the year, we did $72 million at about 52% gross margin. Again, we benefited from Sensage in Q4. So as we roll out, and we see the impact of Sensage, given the fact that Sensage has some seasonality to their numbers in that Q1 is usually their lowest quarter in terms of revenue and Q4 is the highest, our gross margin is going to bounce around based on the contribution of the software group. Right now, it's predominantly Sensage. But as Len touched on, as we get into the rollout of Project G and we start to get revenue contributions, it's a significant amount as we roll out. That will help impact that gross margin number. But again, it's going to swing based on the revenue we generate on it with the software group.

One of the things we're going to be doing in Q1 and leading up to general availability of Project G is we've got to start investing in infrastructure, with regard to sales and marketing, in order to staff up. So when we're ready to go, when G is out there, as we're starting to get things rolling, we need to have the full infrastructure to be able to support the demand that we're seeing both with existing customers and clients as well as other folks who have called in and are inquiring about what we have and how we can solve their problems. Those are costs we haven't had before. Bringing Sensage in provides a backbone for that type of operation, but we need to be more robust in those areas. And we're going to spend, so that when we're there, we're successful with what we're delivering and how we're going to go out and deliver it.

With regard to the balance sheet, there's not a lot of changes from what we've had in the past. We've added the goodwill and intangibles associated with the acquisitions of Poole and Sensage, which shouldn't be a big surprise. Nothing there came in significantly different than prior acquisitions that we've done. We're obviously carrying the revolver in the debt that we formalized in Q4 after we filed the 10-Q. So those numbers are updated based on where we are at the end of the year. Other than that, nothing significant changed on the balance sheet from where we've been in the past.

Len?

Leonard E. Moodispaw

Just a few more thoughts, and then we'll take questions. I mentioned the -- my baseball metaphor earlier. Obviously, a lot of companies in the defense world are retrenching. That's good news for us, because it increases the pool of people applying for jobs. And I don't mean people who are being laid off, I mean people who are afraid they're going to be laid off. So we're having good luck in hiring. We've increased our hiring. While we said to you last year, we don't want you keen on the number of people hired, so we haven't been disclosing those numbers. I'll simply say that in the fourth quarter, we significantly exceeded the numbers which we have been tracking over the years. And the first month of this year has been very successful in hiring also. So hiring continues. We're expanding on our facilities. And it seems like every week some new challenge comes along with our customers, who come over and have heart problems. So for example, last week, we had a visit from senior customers who were perplexed by a very difficult problem and after about a 2-hour session, applying some of our commercial expertise, we gave them a solution, which led to or is leading to increased funding on some contracts. That's the way we work. That won't show up in any backhaul. That won't show up in projections, because those things just happen. Those things continue to happen, and we expect them to continue to happen. We expect to continue growing in double digits this year. And while the acquisition pipeline remains robust, we will continue only to be selective about what we bring in, but there may well be some we do bring in.

So once again, I thank you all for your patience and attention. And I'll close by reminding folks who may remember a newsletter we sent out to shareholders after 2010 in which I said, among other things, I'll answer the question, and I'm frequently asked by investors is, "What's keep -- what keeps me up at night?" And my answer is still the same, 2 years later, what keeps me up is the myriad of exciting opportunities we have in front of us. And we are selective about them, and we're pursuing the best of them. So thank you very much, and we'll take questions now.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Patrick McCarthy from FBR.

Patrick J. McCarthy - FBR Capital Markets & Co., Research Division

I had 2 questions. First on Project G, do you have some sort of maybe internal or external bogey for how many customers you'd like to try to sign up for that? How many additional customers you'd like to sign up for that in 2013?

Leonard E. Moodispaw

If I answer the question, Patrick, I'll get in trouble with all my guys around here because my expectations probably exceed theirs. So the answer is, not really. For '13, as I think I've said to you before, we are not expecting a great deal of ramp-up -- or shouldn't say expecting, because I do expect it. But we're not projecting a significant ramp-up in '13. Because as I keep saying, I've got my foot on the break to make sure we're doing it right. So I really don't have a number. And it's not that I'm hiding it from you, we just don't -- haven't gone that far, Patrick.

Patrick J. McCarthy - FBR Capital Markets & Co., Research Division

Okay. And then, looking at the $125 million worth of funded order flow for the quarter, how much of that is radio? Can you break it out versus -- how much is radio versus potentially how much is for other programs that you're on?

John E. Krobath

Radio is a small portion of that. A lot of what we got is in the Integrated Solution side. In terms of the funding that we received there, specifically with regard to our air operations. But even that was less than 50% of that number.

Operator

Our next question comes from Jim McIlree from Dominick & Dominick.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Can you give some indication of the contribution of Poole and Sensage for the quarter?

John E. Krobath

We don't generally comment on the individual numbers that we put out there. In terms of Sensage, you could probably go back and figure it out by us saying that they went the low end of the earn-out range based on what we put in there in terms of revenue, and that was a revenue target. And like we've said back in October, they were accretive to earnings even after the intangible amortization. With regard to Poole, the growth we've seen on it, the radio program is ramping quite nicely, maybe a little faster than we even expected. So the revenue contribution we're getting out of there is consistent with what we expected when we did the acquisition.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Okay. And John, you mentioned that there's going to be some investments in G in 2013. Can you put a dollar range around that and how that might ramp through the year?

John E. Krobath

I think what you're going to see in terms of the investment, particularly in Q1 and part of Q2, is we're going to be investing in the sales infrastructure to augment what we pick up -- what we picked up from the Sensage acquisition in order to position ourselves to be in the right way. So we're talking basically about people here. The other thing that we've done is we've capitalized roughly $1.5 million related to the software costs of Project G. Once we get to general availability, the people working in terms of the development, since we've got the proof of concept, and we're going through with the iterations of getting that to where we wanted to be, those folks will start hitting the P&L once we hit general availability. So I think you're talking probably in the neighborhood of $1 million, $1.5 million as we look at Q1. The variable there is, how quickly we ramp up in Q2 and how that ramp-up offsets those additional cost and any costs we may add in Q2. That ramp-up is going to be determine the impact to the bottom line. In Q1, that's going to fall right to the bottom line, because we won't have a significant revenue impact coming in from Project G in Q1. We'll have some of the cyber assessment revenue coming in, because that's the prelude to getting the software in the hands of our customers. We've got to do the cyber assessment first to make sure that their systems are ready for it and we know what we're walking into. But that's not the main driver or, really, the main profit component of Project G as we go forward.

James Patrick McIlree - Dominick & Dominick LLC, Research Division

Okay. And you said you have an eighth plane. Do you have 7 planes flying right now? Or is -- I -- can you give me a status on where you are with the Flight Landata planes? The ones that are actually flying and generating revenue.

John E. Krobath

We've actually got 5 flying now. We've got a sixth that came back to the U.S. for an airworthiness check with the army. There's something we expect that once we get through the airworthiness checkup, we'll put it back in, I'll call it, active status, although it's active status with the army for that perspective. The metro plane that we purchased back in the fall of last year is finishing modifications now, so that would be plane 7. Once the modifications are finished, which is looking late first quarter, because the idea with the bigger plane is not only additional range but additional payload it can carry. So we're making modifications to it. Whereas with our King Airs, the modification package is pretty well set. We've done it enough times, that it's rolling through with the new metro. There's some different areas that we have to focus on because we haven't modified one of those in the same way, primarily in power generation. That should come online in Q2. We're awaiting tasking on that. And once we bring the eighth plane on, it will take us somewhere in the neighborhood of 60 to 75 days to get that modified and into flight status.

Operator

Our next question comes from Brian Kinstlinger from Sidoti & Company.

Brian Kinstlinger - Sidoti & Company, LLC

I didn't get a quote from Buffett, but I'll ask questions anyway. The first time since I've been covering you guys, I didn't hear one of them. I'm quite disappointed. The first question I had, John, you mentioned adding sales folks mostly around G. What about hiring support and services staff ahead of demand? I mean it sounds like your pipeline is robust. Is that another thing to think about at some point in the year?

John E. Krobath

It is. And as we start doing the cyber assessments in Q1, we're bringing those folks on, on an as-needed basis. Additionally, some of those very same support staff will roll off with the development team and support us from that angle. So while they roll off the development team and we stop capitalizing those costs, they're available to start the implementations and deployments as those become available in Q2. So yes, we will add a couple of those folks but the main area for add is on the sales side. And some of those sales guys are technical guys, who help with the cyber assessments along the way.

Brian Kinstlinger - Sidoti & Company, LLC

Okay. Now I'm going to carefully ask this question. But John, in the past, you've given the financial community some metrics at least on EBITDA margins of where you thought you'd end the year as at some point, the expectations were higher. Given what's going on with G, the revenue component, the increased investments, is it likely to expect the margin on EBITDA to increase, decrease? How do you think about it this year?

John E. Krobath

I think there's 2 ways to answer that, the short term and the longer term. I think you're going to see some pressure on EBITDA margin in Q1 because we don't have a significant software component to the revenue. But as we progress towards the year, that should reverse itself. And as the software component contributes more to revenue with the related software margins, you should see a lifting in the EBITDA percentage. And as Len stated before, if we let him go, we'll have a different target for where we end up at the end of the year. What I think it really drives for us is how quickly and how widely we implement the software revenue, particularly Project G, and its contribution to the top line, which rolls down to the bottom line in terms of where our EBITDA percentage goes. I hate to put a number on it for the overall year, because I just don't know what the volume of that number is. We can sit here and estimate a lot of different ways, and I know a lot of you guys have different targets for us in terms of where you think the software-related revenue will be. I think, as Len said, we're being conservative in terms of how we're rolling it out because we want to do it right. And we don't want to be sitting here and having a problem on our hands 3, 6, 9 months from now. So I think you should see that number grow as we go throughout the year. But it's really going to depend on that software revenue piece. As we said, the investment that we're making now should pay off for us come Q3 and Q4 of this year in terms of the revenue. But I think we're going to see a little bit of pressure in -- early in the year probably to -- I'm going to say the 12% EBITDA range, but it really depends on how quickly we invest.

Brian Kinstlinger - Sidoti & Company, LLC

Okay. Now if you could just help us now, I don't think we've really gone over the model of the -- of a Project G sale, and it sounds like you've laid out 3 different projects, so to speak, for one customer. First of all, is the software -- is that going to be a license or it's going to hit onetime? Is the Services margin any different than your margin? And just give us a sense of what are the size of these deals. I mean, I guess, all of us are, I think, a little bit in the dark of what the handful or many more than that customers in your pipeline looks like. What -- could a customer range from $1 million to $10 million? Is it much smaller than that? Maybe help us understand the metrics there.

Leonard E. Moodispaw

First off, the CAAS, the first of the step, are done on a Services basis. And those are higher margins in our normal government Services rates. Second part is the software delivery that is our license and in some cases, there's some hardware component to it. Some cases are not. It depends on the customers' networks. I'll come back to that in a second. And then the third part, the subscription service is a very high-margin business. So those are the 3 phases and the rough margins. In terms of ranges of cost per customer, it's going to vary so much, because as you know, from the early adopters, we have a small, a middle size and a very large one. And the small one will be certainly less than the bigger ones. There's so many variables such as the number of ports to the outside world, the number of users, the number of computers and so on, that it's hard to determine the precise amounts until we get into each one. So it will range -- I think, there could be some smaller ones that are less than $1 million, and then there could be some of the multi-national Fortune 100 companies [indiscernible], which are much closer to the $10 million. And I'm not being evasive. It's really a question of when we get into each one of these. It depends on all of those variables we were just talking about.

Brian Kinstlinger - Sidoti & Company, LLC

And is the license 100% -- in the traditional software, world license is virtually no cost, is that how that's going to be? Is there going to be a license hit in one given quarter that is going to give you some uneven profitability in any given quarter? Is that how it works?

Leonard E. Moodispaw

There are multiple questions in there, I think. John, you...

John E. Krobath

I think you have to look at it 2 ways. There is a cost to the licensing in 2 ways. One will be the true cost of the license and delivering it. And secondly, I talked about the $1.5 million of accrued cost at the end of the year. Once we get hit general availability and start the sales process, we've got to determine how long that $1.5 million burns off and over what rate. So we'll be taking, in essence, an amortization charge each month and each quarter for the incurred cost we had prior to general availability. A lot of companies don't do that, because there's such a small window between the proof of concept and general availability, that they don't accrue it. Because we're taking the time to do it a little differently from other folks and we're not in -- while we're trying to get to market as quickly as we can, we're going to do it right. We've capitalized more costs than other folks, so we'll have that cost baked in for our license as we go forward. In terms of the exact nature of the license agreement and how the revenues are going to be recognized, we're still working through that. That's part of the process we're working through with the early adopters, is to find out a, based on the type of early adopter and the types of network they have and setup they have, there's going to be different tiers and different levels of support that they have, that's going to impact both the size of that license and, potentially, the revenue recognition on it. We're really under 2 schools of thought. One would be a monthly revenue recognition over the life of the contract. The second one would be, as you mentioned, a lump sum upfront that would be lumpy where we pick up. If it was a $10 license, we'd pick up $10 in month 1. And it wouldn't be spread out. We're working through that with our early adopters to see what makes sense with the various sizes of businesses we're working with.

Brian Kinstlinger - Sidoti & Company, LLC

Okay. Last question, and I'll get back in the queue. Len, a lot is going on in Africa, and I'm wondering how that has changed the demand profile for, a, your Services Intelligence business but also the BuckEye contract, in any way, that'd be helpful.

Leonard E. Moodispaw

Let's -- permit me to answer only in the BuckEye FLD context, because if I answered in any broader terms, I'd get in trouble. So the demand is growing for those -- for our flight services in Africa. Our customers are reluctant for us to say much about that. But I think you can assume that the airplane, we've been talking about outfitting, which requires longer range, is suitable for such a place like that. So it is a growth area for us.

Operator

Our next question comes from Mark Jordan from Noble Financial.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Question relative to Poole. When you acquired that company, you stated that you thought that they could grow to be $90 million in revenues in 2013. Clearly, the radio component of Poole is doing very well. How do you feel about that estimate now that you've owned the company for 4 or 5 months now?

John E. Krobath

I think we're comfortable with where that's headed and we should be there by the end of the year in terms of where our run rates are. Given, as Len talked about and I talked about, the number of people, both our folks and the subcontractors that we've been able to add on to it, we're a little ahead of the pace that we anticipated. And working with the customer, we're continuing to see new avenues where potential additional funding can be added.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Okay. Could you talk -- I think you touched about it a little bit, but be more specific, Len, how you see the funding environment out there. Are you seeing any delays in terms of decision-making? And then, related to that, I guess, also, could you characterize what your pipeline is out there in new business that could spur organic growth in '13?

Leonard E. Moodispaw

I can't say more emphatically than we have seen no slowdown, and we have seen no impact and don't anticipate it. I hope that's strong enough. The kind of thing we do, we've not seen that. Now in terms of what's the future look like and for work to fuel the organic growth that I see, it is most likely going to be the model we like, which is not big contracts that we're bidding on. It's going to be adding to existing contracts along the lines of what I just described a few minutes ago, when the customers have a need and they get an answer from us. And I think it's a telling story that they come here to our secured facilities and say, "We have a problem. Can you help?" And that's the way we're going to grow. So the money is there to support those activities, and will continue to be there.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Is the radio vehicle itself or the contracts that came with Poole sufficient to facilitize these new opportunities? Or do you -- are you looking for another broad-based facility that you can use to draw businesses into the company?

Leonard E. Moodispaw

We're always looking for new facilities, and we have a similar sort of contract in our geospatial world. But the radio contract will support more than enough growth to meet our expectations.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

So you don't expect any fueling issues that, that will be meaningfully augmented whenever necessary.

Leonard E. Moodispaw

I remind you of our wealthy-cluster-thunder-Tuscan Sun-whatever-it-was-called contract that started out with a ceiling of $25 million. And so far, they spent about $1.5 billion on it. So they just keep raising the ceiling. So I don't see that as an issue.

Operator

Our next question comes from Josh Sullivan from Sterne Agee.

Josh W. Sullivan - Sterne Agee & Leach Inc., Research Division

So if we just take a step back and look strategically at Project G, I mean, could you give us an idea of the size of the market that you're addressing? And then secondly, are they all going to be Sensage customers that are upgraded to Project G? Or do you see a greenfield effort?

Leonard E. Moodispaw

I can throw out numbers for the size of the market, but there are billions of dollars that people spend on this sort of thing. So it is -- to me, it's -- this doesn't make sense for me to throw out a huge number. There will be more than enough money spent on the kind of solutions that G provides. And so far, we have found from the demand from the Fortune 100 companies that are anxious to get G is that, money is a non-issue. They have spent millions of dollars, and what we will offer will provide far more capability for far less money. So we don't see that as an issue. The customer set -- it is nice to have the Sensage installed base, and it's nice to have their marketing team help us. But even prior to that acquisition, as we've said before, we narrowed down the demand on the commercial side from about a dozen companies to 3 early adopters. The rest of those, including some Fortune 100 companies, are still waiting for us to get back to them with the CAAS and with the product itself. So the demand is there. The Sensage installed base and the workforce added to that only helps that. And then furthermore, we expect out of the RSA Conference to see more and more demand for it.

John E. Krobath

And I think to touch a little bit on the customers as well, while it is a greenfield out there, we do expect some conversion of the legacy Sensage customers. But the way the Sensage product is used by some of their customers, it's not necessarily fit for what we're doing with Project G. So I think there's 2 different parallel paths to go down there in terms of revenue streams.

Leonard E. Moodispaw

And I didn't mention, not to exclude our government customers who want G. So we'll make sure I add them to the list of customers.

Josh W. Sullivan - Sterne Agee & Leach Inc., Research Division

All right, okay. And then, just looking at the -- I think it's a $54 million contact you got for the airborne unit. If we look at the eighth plane you're adding in here and then the metro plane, would that be incremental to that contract? Or would that be within that for the year?

John E. Krobath

That would be incremental to that contract.

And that's not necessarily a all-2013 event there for the revenue. There's obviously some 2012 work in there as well. But that was the funding we got under there. But the other planes are additional to that facility.

Operator

[Operator Instructions] Our next question comes from Tobey Sommer from SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

I wanted to ask you a question about how far along you are in terms of the internal development of Project G and what the current time line is to productize [ph] it, have it commercially available?

Leonard E. Moodispaw

We're right on pace for where we wanted to be. And the development is working fine in our networks, and we're doing the preparation work after doing the CAAS with the -- some of the early adopters. So never -- nothing ever happens immediately the way you want it to, but we're -- I'm very comfortable with the development pace that we're on. The idea is to get the core device or platform ready for early adopters and then begin to add more and more to it. And we're okay with where we are on that. Oh, and to answer your question about timing, as I said earlier, we fully expect to have it out -- those core capabilities out in the second quarter.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And I think a question about G&A expenses kind of going forward, is the fourth quarter run rate plus the investments, how would -- we should think about that from a modeling perspective? Are there other puts and takes to take into consideration?

John E. Krobath

I think if you look at what we've done over the past couple of years, generally, Q1 is our largest quarter in terms of G&A expense. And where we really end up spending our money now, it's skewed because of the acquisitions a little bit that's -- that have added cost. And in Q4, we did have the added cost in there of the options related to -- primarily to the Poole acquisition. Because as you guys know, we give options to all employees. And bringing in 130 employees we did with that deal a portion of their option vest immediately. So that bumps up our expense. I think on a general run rate, you could probably go ahead and use that. We obviously have higher fringe cost in Q1 than we do in Q4, because we don't have folks maxed out on FICO and the various taxes along those lines. And which is why you generally see our Q1 expenses a little higher is we run through a little higher fringe rate. We also have some other onetime expenses in Q1 that we can't spread throughout the year. But I think you're in about the right ballpark.

Operator

And our next question comes from Robert Sussman from Bentley Capital.

Robert Mark Sussman - Bentley Capital Management Inc

Questions about Project G. Number one, I had thought that you were considering taking on a marketing partner or partners, and I recall hearing names like CSC, Booz Allen. Have you ruled that out and decided to go totally internally? And number two, when will the product be completed, meaning, all the modules available? And you're talking about starting with the core, but when will the add-on modules be available?

Leonard E. Moodispaw

On the first part of your question, we talk to, because we work with, all of those companies you just mentioned. So we don't rule out working with them and having them, in effect, as distributors or partners for the product. But we don't have any such agreements and don't intend to. We'll deal with it on a case-by-case, customer-by-customer basis. And on the second part, the general answer is, we'll never be finished with G because the attacks will keep changing. The core is a very robust core. It'll be providing far more than anybody else can do. I would say, however, that to add some of the other use cases we'd like to add, maybe that's another 3 to 6 months after that. But if you ask me, 3 to 6 months, I'll tell you we got 2 or 3 more use cases we're adding, because there's just so much going on in this world that will constantly be changing.

Robert Mark Sussman - Bentley Capital Management Inc

Let me just follow up, what is the gating factor to the growth of Project G? And if it is people and implementation, would it make sense if there are logical partners out there who could accelerate that, who would have that capability?

Leonard E. Moodispaw

The -- there are a plethora of partners to help us with the CAAS, with the deployment. The key where people are essential -- or is the development phase, and we have the team that we need there, I believe. Because the secret sauce that we have is the work that our team does for our customers. And there's only a certain number of them out there. And if the team is expanding too much, they won't bring that sort of experience. So the -- when I say I'm keeping my foot on the break, I'm not warning the salespeople who can go out and bring us more CAA customers to be too aggressive with that, because I don't want to be pushing the development team to try and rush to meet some sort of demand. So people will help on the front end and the back end, but that's not slowing us down right now.

Operator

[Operator Instructions] We do have a follow-up question from Brian Kinstlinger from Sidoti & Company.

Brian Kinstlinger - Sidoti & Company, LLC

Right. Len, did you mention what organic growth was in the quarter?

Leonard E. Moodispaw

I did not.

Brian Kinstlinger - Sidoti & Company, LLC

Could you, for us, please?

Leonard E. Moodispaw

John, do you want to comment?

John E. Krobath

Yes. The organic growth is in the low-double digits. As I touched on before, it's tough to measure with Q4 because of the amount of time-off our folks take. And we don't get a lot of time-off in terms of the other -- Q3 is probably our next biggest. So it makes it a little harder to factor in where we really are. But once you put everything in, we're in the low-double digits in terms of organic growth. And we're seeing...

Brian Kinstlinger - Sidoti & Company, LLC

Sorry, doesn't the fourth quarter have that same -- last year, have that same vacation and paid leave or whatever those trends are?

John E. Krobath

It does. And what we end up with is, as we move out year-over-year, the number changes a little bit for us in terms of the volume of what we've got coming through. Last year was bigger than the year before. This year was bigger than last year, as we get more people, and it also impacts us with the timing of holidays as well, and in terms of how much that -- where that gets us and how it impacts us. But if you look at last year in Q4, we did about $50.3 million of revenue. This year, we did $74.2 million. Obviously, we have the impact of Sensage and Poole in those numbers. But if you strip that out, we're still over 10%.

Leonard E. Moodispaw

And Brian, we'll also point out that, for example, with Poole, we immediately integrate the operations. So all of our particular customers work are under them. So it's very difficult then to figure out precisely how much came from the acquisition and how much was work that we already had now that 1 plus 1 equaled 3. So we're not being coy about it. It's -- the good news is we merge them together very quickly.

Brian Kinstlinger - Sidoti & Company, LLC

But if you didn't have the radio contract, that would be what your revenue would have been before. And so the radio contract, I would think, would be inorganic. So my next question would be, what was the Services organic revenue growth? And the reason I asked that is you said that you don't see a deteriorating market right now. So I guess I'm wondering, what -- that's the core piece that people talk about, right, when they're talking about sequestration or anything like that. So I'm curious how that's growing right now after the acquisitions.

Leonard E. Moodispaw

Wanted to comment first on the radio contract. We already had people working on the radio contract, and we were experiencing growth on the radio contract. So that would continue to grow without the acquisition.

So on sequestration, I'm not sure I understand the questions. Why...

Brian Kinstlinger - Sidoti & Company, LLC

I'm trying to understand Services. You mentioned you're not seeing any changes in the funding environment in your markets, and you're excited and there won't be a slowdown. I'm trying to understand what Services is actually growing x the acquisition. And obviously, assuming some of radio is yours and some of it maybe wasn't, I'm trying to understand what that growth rate is that you're not concerned about slowing in Services.

Leonard E. Moodispaw

Just across the board, with all the work we do in the counterterrorism and cyber areas, the funding is there if you have solutions to our problems. So our geospatial intelligence area is growing because we have developed a technique there that the customer really likes and is putting more money on. So the distinguishing factor is the kind of work we do and the kind of skill sets we have and our ability to respond very quickly to them, which is why money flows to us. And the bigger guys who are worried about huge contracts and have large marching armies to feed and far less responsive, don't get the calls that we get.

John E. Krobath

And I think when you took -- talk in terms of growth rate, and this isn't anything we've talked about before, but the impact is lessening. In Q4 of last year, we had a small contract that was redirected because we were the prime. But using one sub on it for the entire time, that contract was directly assigned to that subcontractor. So we had some revenue in Q4 of last year that didn't repeat this year. We've also had, as we've talked about, the decrease in the Air Force Services business. While it's leveled out this year, and really Q4 has the last, large negative impact quarter-over-quarter from last year. We've seen decreases in those 2 areas. But we've seen growth in the other areas of our business, particularly in Maryland, for the Services side that's enabling us, for exactly what Len said, to continue to address the need and continue to add people on the Services side, which is growing the revenue.

Leonard E. Moodispaw

Hey, Brian, I don't want to disappoint you. I intended to close with this anyhow and I think you're going ask question. So I will close by saying, and this is relevant to the point we're just making, to quote Mr. Buffet from his song, It's My Job, "It's my job to be different than the rest. It's our job to be better than the best." That's what we're trying to be, and I sincerely mean that. All right, thank you, all.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.

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