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Edgewater Technology, Inc. (NASDAQ:EDGW)

Q2 2010 Earnings Call

August 4, 2010; 10:00 am ET

Management

Shirley Singleton - Chairman, President & Chief Executive Officer

David Clancey - Executive Vice President & Chief Strategy and Technology Officer

Timothy Oakes - Chief Financial Officer.

Shira Charles - Investor Relations

Analysts

Arnie Ursaner - CJS Securities

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q2, 2010 Edgewater Technology financial results conference call. At this time, I would like to inform you that this conference is being recorded for re-broadcast and that all participants are on a listen-only mode. At the request of the company, we’ll open this conference up for questions and answers following the presentation.

I will now turn the conference over to Ms. Shira Charles of Investor Relations for introductions.

Shira Charles

Thank you. Good morning everyone and welcome to Edgewater second quarter financial results call. I am here today with Shirley Singleton, Edgewater’s Chairman, President, and CEO; David Clancey, Edgewater’s EVP and Chief Strategy and Technology Officer; and Timothy Oakes, Edgewater’s Chief Financial Officer.

Before we begin, I would like to remind everyone that today’s call may contain forward-looking statements as described under the Securities Act. Investors are cautioned that such statements could involve risk and uncertainties that could cause actual results to differ from current expectations with respect to such statements.

These types of statements and the underlying factors related to these statements are listed and are reported in filed information with the Securities and Exchange Commission, as well as in the company's press release that was distributed earlier this morning.

The statements made during today's call are made only as of the date of today's call and the company undertakes no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

With that, I will now turn the call over to Shirley.

Shirley Singleton

Thanks, Shira. Good morning, everyone. In a nutshell, we actually had a really great quarter. I’m very pleased to report results today. During Q2, we secured business from 25 new customers and when I look down the list, I pulled out some names that I thought you might recognize Osram Sylvania is one of our new customers, Four Seasons Hotel, Williams-Sonoma, Miami Children’s Hospital, and [Reily Foods] those are the ones that I’ve chosen to talk about today.

We’ve shown positive sequential organic growth in all three offerings. If I had to pick on one of them, the EPM was a little slow off the dime compared to the previous several years where their recovery was a lot slower than normal, but they’ve had a hot June for us.

EdgeTech which is our original technical services offering, they had a wonderful quarter, bid and win ratios are up large in that offering. In Fullscope, I can’t say enough about that acquisition that we did in December, they continue to grow sequentially.

A lot of our available headcount increase is a result of Fullscope growing. They just won the Microsoft AX Manufacturing Partner of the Year for the second straight year, which is a terrific award. Lastly, in terms of organic growth and Dave was talking to me about we really need to look at an ERP play and the synergy between potential ERP company and the original EdgeTech offerings, our synergy expectations have been more than met. Why do you think that is, Dave?

Dave Clancey

Well, not only the software replacement due to age, we talked about last quarter, but what we are also seeing is some synergy between a prior acquisition, which worked quite a bit in the private equity space and the Edgewater Tech side; what’s going on there is, is private equity goes through divestitures, buys new companies or talks to larger companies and they go through a divestiture.

Many times, they are going to need in effect a shake and bake company, an instant company. So you are going to need all of the services of Fullscope in terms of putting an ERP and you will also need Edgewater to provide the infrastructure services, and really knit together the glue in terms of reporting, etcetera, to get a company up very quickly.

So, in this space we can see this taking off in the coming years, and its providing a great synergy point between the operation as a whole.

Shirley Singleton

Okay, but let’s get into the detail. So, you folks can hear some of the detailed numbers underneath.

Timothy Oakes

Thank you, Shirley. As Shirley touched upon, our second quarter results reflect a continued improvement in our business and what we believe to be another step on our path to recovery. We note that our operating metrics are turning back towards our historical operating ranges.

Total revenue and service revenue are up on both the year-over-year and sequential business, and our other profitability metrics such as gross profit margin, billable consultant utilization and adjusted EBITDA have either improved during the current quarter or remain consistent with the first quarter of 2010.

In the short term, as we evaluate and describe changes in our business during this call, we are going to focus more upon sequential and organic changes rather than year-over-year changes, as we believe, given where we were in 2009, that the sequential and organic changes are more meaningful when discussing current trends in our business.

Total revenue for the quarter was $23.4 million, compared to $12 million in the year-ago quarter. Service revenue was $17.4 million during the second quarter compared to service revenue of $11 million in the second quarter of 2009. The primary driver of the year-over-year growth in total revenue and service revenue is related to the incremental revenue generated by Fullscope and to a lesser extent growth in our core service offerings.

Additionally, we closed our acquisition of Meridian Consulting International on May 17 and their results have incorporated into our results since the date of the acquisition. Due to the timing of the acquisition, Meridian’s operations didn’t really have a significant impact upon our overall operating performance during the second quarter.

When looking at revenue from a sequential point of view, we note that total revenue has increased by $3.1 million or 15.2% compared to total revenue of $20.3 million in the first quarter of 2010. Similarly, service revenue has increased $1.7 million or 10.7% compared to service revenue of $15.7 million in the first quarter of 2010.

If we ignore the incremental revenue attributable to the Meridian acquisition, total revenue and service revenue increased by 14.6% and 10.1% respectively during the second quarter compared to the first quarter of 2010.

Sequential revenue improvement during the second quarter is reflective of continued growth in both Fullscope’s ERP related service offerings and our core service offerings. Fullscope service revenue growth continues to exceed our original expectation and has increased for the second consecutive quarter. Growth in our core service offerings was in large part due to growth in our traditional technology consulting services.

As we have mentioned in the past earnings calls, we have observed an increase in bidding proposal activity as it relates to our technology related service offerings. During the second quarter, we were successful in converting the increased bidding proposal activity into new engagements and projects, which in turn drove our sequential growth. It should be noted that one of the proposals closed during the quarter, as Shirley mentioned, was relating to a cross-selling effort involving a combination of Fullscope’s ERP related service offerings combined with our traditional tech related service offerings.

Software revenue which includes associated maintenance and revenue was $3.8 million during the second quarter and represented 16.1% of our total revenue. As we have stated in the past, software revenue is primarily attributable to Fullscope. We anticipate that it will be a material part of our future total revenue and our future operating results can be material influenced by our software revenue. It is also important to note that quarterly software revenue can be volatile and is subject to our customers’ demand for such off-the-shelf third party software.

Quickly touching upon some other second quarter revenue metrics before moving on to gross profit, our annualized service revenue per billable consultant metric was $331,000 in the second quarter compared to $345,000 in the second quarter of 2009 and $327,000 in the first quarter of 2010.

We entered into engagements with 25 new customers during the current quarter compared to 21 new customer engagements in the year ago quarter. For the year, we have secured engagements with a total of 50 new customers compared to 34 in the 2009 year-to-date period. Of the 50 new customers, 42 of these represent new customer engagements related to our core service offerings and reflects the sustained bidding proposal activity we have seen during the past three quarters.

Service revenue generated by our top 10 customers was 25% in the current quarter compared to 37% in the comparative 2009 quarterly period. The periodic change in our customer revenue concentration is attributable to Fullscope and the increase in new customer engagements during the current year.

Moving on to gross profit, our gross profit metrics have improved on both the year-over-year basis and on a sequential basis. Total gross profit as a percentage of total revenue was 36.8% during the current quarter compared to 26% during the second quarter of 2009 and 33.1% in the first quarter of 2010.

Similarly, service gross profit margin improved to 39.2% in the current quarter compared to 28.2% in the year-ago quarter and 34.1% in the first quarter of 2010. The sequential improvements in our gross profit margins are attributable to the sequential increases in revenue, consistency in our quarterly utilization rates despite an increase in overall billable headcount and a reduction in fringe related expenses.

Overall, the gross performance margin in the quarter was tampered somewhat by a reduction in gross margin realized on our software revenue due to increased maintenance renewals in the current quarter and a slight increase in contractor related expenses.

Touching upon contractor expenses; during our first quarter call we discussed our usage of contractors and the negative impacts it had on our gross profit margins. Despite the fact that we had quite a bit of hiring activity at Fullscope in the current quarter, we did not make headway against lessening our contractor usage during the second quarter. This is in large part attributable to Fullscope’s continued sequential growth.

However, as we advance into the third quarter, we will continue to take proactive measures with the intention of decreasing our contractor usage, which will simultaneously improve our gross profit margin performance.

With respect to billable consultant utilization, our billable consultant utilization which includes utilization performance associated with our contractors was 75.7% during the second quarter compared to 67.8% in the year-ago quarter, and 75.3% during the first quarter of 2010.

During the second quarter, we increased our total billable headcount to 298 billable consultants, which includes contractors from 268 in the first quarter of 2010. As a result of our sequential growth and second quarter service revenue, we were able to achieve utilization rates in each of our service offerings consistent with first-quarter levels.

During the second quarter of 2010, a significant component of our software revenue related to maintenance renewals on previously sold software, this is in large part due to the fact that, a large concentration of Fullscope’s historic software sales occur in the second quarter of each year, which is in connection with Microsoft’s year end which is June 30.

The company typically recognizes lower margin on maintenance and maintenance renewals than it does on the sale of raw software product. This is important to know as the achieved gross margin on software sales during the current quarter decreased to 25.8% from 32.8% during the first quarter and impacted our overall second quarter-gross margin performance.

Moving on to SG&A expenses, SG&A expenses as a percentage of total revenue was 32.9% during the current quarter compared to 38.7% in the year-ago quarter and 33.2% during the first quarter of 2010.

In absolute dollar terms, second quarter SG&A increased by $960,000 compared to the first quarter of 2010. The sequential increase in SG&A is primarily related to non-routine expenses associated with the Meridian acquisition and the Fullscope embezzlement issue. Incremental SG&A related to the addition of Meridian’s operations and increased marketing and recruiting expenses during the quarter.

Focusing on the non-routine items, we incurred approximately $358,000 in Meridian related acquisition cost and $204,000 in cost associated with the Fullscope embezzlement issue. We have essentially completed our analysis of the embezzlement activity and have concluded that they do not material impact our financial statements during fiscal 2010.

We would like to caution that we anticipate, that we may continue to incur cost related to this matter in the future or we do not have an estimate as to the range of anticipated cost as we’ve been focused upon completing our investigative procedures related to our 2010 financial statements.

A very general comment related to SG&A expenses on an absolute dollar basis and as a percentage of total revenues, we had SG&A expense of approximately $7.6 million in the second quarter. If we were to exclude the non-recurring items or the expenses related to the non-recurring items, which were approximately $560,000 that would have resulted in second quarter SG&A expenses of about $7.1 million, which would have been about 30.5% of total revenues, probably an important takeaway because that 30.5% is directly in line with where we have operated on a historical basis as a percentage of SG&A to our total revenues.

Below SG&A, depreciation and amortization expense increased by $308,000; interest income decreased by $32,000; and the company recorded a loss on foreign currency translation of $38,000 in the current quarter. Increase in depreciation and amortization expense was primarily due to the increase in amortization associated with, both the Fullscope and Meridian acquisitions.

Our June 30 balance sheet reflects our initial fair value purchase price allocation estimates related to the Meridian acquisition. These estimates will be subject to future adjustments as more information becomes available during the third and fourth quarter.

The lower interest income was due to a drop in average invested balances while the current quarter loss in foreign currency transactions is directly related to the foreign denominated transactions associated with the Fullscope business. Net loss during the current quarter was $90,000 or $0.01 on a diluted share basis compared to a net loss of $1.3 million or $0.11 per diluted share in the year-ago quarter.

Looking at our non-GAAP measures, adjusted EBITDA was $1.4 million or 16.2% of total revenue and $0.12 per diluted share in the current quarter, compared to an adjusted EBITDA loss of $1.5 million or $0.13 per diluted share in the year-ago quarter. Our adjusted EBITDA calculation excludes cost associated with both the Meridian acquisition and the Fullscope embezzlement issue.

In terms of headcount, total company headcount was 396 at the end of the second quarter of which 298 were billable.

Touching on cash flow, we generated approximately $3.7 million in cash flow from operating activities during the second quarter compared to cash flow from operations of $1.4 million in the year-ago quarter. We anticipate that we will generate positive cash flow from operations during the third quarter and similarly anticipate that we will generate positive cash flow from operations on a full-year basis for 2010.

From a balance sheet perspective, cash and cash equivalents totaled $8.2 million at the end of the second quarter compared to $12.7 million at the end of 2009. Cash and cash equivalents represented approximately $0.67 per share on a diluted share basis. Our accounts receivable balances, including unbilled AR, totaled $19.7 million at the end of the quarter. DSO metric related to build AR was 54 days at the end of the current quarter, compared to 65 days at the end of the second quarter of 2009.

We did not make any repurchases of our common stock under our repurchase program during the second quarter, and as of June 30, we had a remaining stock repurchase authorization of $2.8 million and a reminder that our stock repurchase program expires in September 2010.

With that, I’ll now pass the call back to Shirley for final conference.

Shirley Singleton

Thanks Tim. I think if I would characterize Q3, I definitely think that our recovery is sticking. We’ve had three successive quarters where we’ve had improvement. I see no reason why we are going to go backwards in Q3; I think we are going to hold the line. In fact, mathematically as I look at the bid pipeline which is very healthy, there is reason to think there will be some upsides.

So, I’m going to call it safe and say that we could be flat to up in Q3, which is a good thing because the summer months with vacations, we will have people taking some time off and I still think we have an opportunity to be flat to up for Q3.

And all things being equal, Tim is absolutely correct, the profitability will be there and the cash flow will be there and we’re not anticipated to be doing an acquisition in Q3, so those costs won’t be there as well. With that [Nemy], I’d like to open it up for questions please.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Arnie Ursaner of CJS Securities. Your line is open.

Arnie Ursaner - CJS Securities

I guess, I want to first start by, you won quiet a few new customers, you also mentioned very specifically that you had one cross-selling opportunity that included Fullscope. Maybe if you could expand a little bit about how you packaged that cross-selling opportunity, and how we might think about this going forward. I’ll start with that.

Shirley Singleton

Okay. We packaged our offering and brought it out to the private equity world in terms of them, as Dave mentioned of divesting of companies that they may own.

Dave Clancey

See, in the past, what we found is, is with the NDS Group, they worked with Blackstone and they’ve done a lot in the private equity and we did an analysis of when we lost business, what do we lose business from and what we found nine times out of ten, we lost it because we could not provide a full service of being able to put in financials, ERP software, get people off of the sellers’ systems and on to the new company systems, that type of thing.

So, by adding the Fullscope acquisition, this gives us a platform where we can do the full piece of service from really doing the due diligence from an operational point of view, all the way through to establishing a full set of systems for a company and going in and establishing datacenters overseas, establishing in the United States, getting communication lines, the whole nine yards which makes it very easy for our financial purchasers to really do thing.

So, because we put it all together and we can do it quickly, we saw the opportunity and now we are starting to see some of the fruits from that.

Arnie Ursaner - CJS Securities

We’ve been through a pretty healthy downturn in the core business for several years and clearly seeing some signs of improvement. Maybe you could talk a little bit about the pattern you are seeing over the last few months in your dialogue with customers. Are you really seeing some loosening of the purse strings, are they pressuring you to reduce the scope of projects or is it maybe going the other way? How you see that playing out for the balance of the year?

Shirley Singleton

Sure. In terms of talking with customers, we are not seeing anybody pulling their purse strings in and not talking about investing in the businesses in terms of technology and systems. This is particularly true in the ERP world with this replacement cycle that we’re seeing. We are very bullish on, actually food and beverage, chemical and pharma and discrete manufacturing. Those are the areas that we are seeing some traction in terms of ERP replacement.

In terms of the EdgeTech original core offerings, what we are seeing, and I’ll use Sylvania as an example, they are really thinking about where am I going in the 21st century, what am I going to be, how am I viewed, am I more than a light bulb because that’s what you think about when you think Sylvania.

So, people are investing and reinventing themselves on the web, how they might do business on the web. We are seeing a significant amount of customers talk to us going from B2B over to B2C and that is driving a fair amount of the EdgeTech world.

Arnie Ursaner - CJS Securities

Right the B2B to B2C is more interesting because companies that have typically only sales or other businesses now want to go to direct-to-consumer and we have a number of strategies to help them do that. One thing that was also very heartening this quarter is I think we got some of the first custom business that start to come in and over a year, and I use that as a measure of how the market feels.

If customers are feeling strong enough to take a risk on custom software again, that means they are feeling relatively good about things. It also ties in to the replacement cycle, people haven’t done anything with systems, whether they are packages or custom software and they are feeling the need to retool it. It’s like driving the old car, at a certain point you got to do something or it’s going to strand you somewhere.

Shirley Singleton

And so your last question about reducing scope. We are not seeing scope reduction; we are seeing a tighter procurement cycle where customers are actually asking us, show us a sample of the work that you might produce. So, for example, if we are looking at redoing someone’s brand and website and how they do e-commerce over the web, they are saying could you give us a couple samples of how you see us as part of the profits, the sales profits and we are winning on those interestingly enough.

Another customer, I didn’t include him in the new customer list because it’s an old customer from way back when, but Clean Harbors has come back on board and they are intimately involved with the oil spill and other kinds of hazardous waste disposals, their business has grown like weed and they are back talking to us and having us do some work for them as well.

So, all in all, except for EPM which I saw was slow but Robin Ranzal’s piece in June is really strong pipeline and I think you will hear us talk more about her in Q3. Did that help Arnie?

Arnie Ursaner - CJS Securities

That’s great. I have a few more questions, but I will be fair and I will jump back in queue in case there are some others on the call. Thanks.

Shirley Singleton

Okay. Thank you.

Operator

(Operational Instructions) I am showing a follow-up question from Arnie Ursaner of CJS Securities. Your line is open.

Arnie Ursaner - CJS Securities

Some days, there will be others on the call Shirley.

Shirley Singleton

Okay.

Arnie Ursaner - CJS Securities

My question is, I just want to go through some math on your utilization and contract of usage, and I tried to put a few pieces of the puzzle together. I was very impressed by utilization this quarter, particularly since you added 30 billable consultants.

Shirley Singleton

Thank you so much, I appreciate that.

Arnie Ursaner - CJS Securities

Extraordinarily good performance, but I think, I want to clarify something, you clearly indicate you hope to reduce your contractor usage, but when you use contractors you bill them at basically 100% utilization and I want to clarify that versus, Tim’s comment that you believe your margin could be improving.

I just want to make sure I’m getting it right. As you reduce contractors, it seems to me you are going to have a pretty hard time increasing utilization from the current levels.

Shirley Singleton

It’s not the utilization that increases; it’s the margin on the employees versus contractors.

Arnie Ursaner - CJS Securities

So, utilization might decline, but margin could go up as we go through this process?

Shirley Singleton

Well, I’m hoping that utilization does not decline; I’m hoping that it actually increases. I’m going to try to drive utilization up within Fullscope while reducing contractor headcount, to adjust those pieces of point expertise that we need and therefore both of those mechanisms would drive profits.

Timothy Oakes

And Arnie, I think if I could just chime in quickly, what you are alluding to in your analysis where you say okay you have 75%, you flip out a contractor for a full-time employee, your methodology assumes that that employee would not be greater utilized than the utilization on that contractor.

So, let’s assume a contractor was 25% utilized, your assumption is that that a full-time employee would be 25% utilized, therefore you will have degradation in the utilization rate. That wouldn’t be the case. I mean we would add billable headcount that would have utilization or targeted utilization at where we are today, as opposed to hiring someone who we think we would only be able to utilize 25% of the time.

Arnie Ursaner - CJS Securities

Help us with the sense of the math. If you have 298 billable, approximately how many contractors did you use for example in Q1?

Timothy Oakes

In Q1, I think if we could focus on Q2.

Arnie Ursaner - CJS Securities

Aright, I’m sorry. I meant Q2, I’m sorry.

Timothy Oakes

Okay. Billable out of that number about 46 are contractors, and I think to get to the heart of your question, you look at it, we report 75% utilization for the quarter. If we just focus solely upon what is employee utilization, that number comes down to about 70% to 71%. So you can see the impact in utilization on the contractor piece.

Arnie Ursaner - CJS Securities

Okay. So, we are going back to the EPM which you mentioned, you saw some “slowing,” this had been in the 25% to 30% growth, it was an obvious need that Corporate America had to fill. You had a pretty good solution to it. What do you attribute the slow down to and what steps are you or Robin taking to improve it?

Shirley Singleton

I think that they hit their portion of the recession later than us. If you go back in time and you look at the quarterly calls and the numbers, she stayed pretty strong and then started to hit that wall of improvement somewhere around the second half of ‘09 versus the other offerings hitting it at the beginning of the year right at the opening gun in January.

So, normally what happens with her is, her first quarter is soft which has been that way for five years and you start to see some improvement in the end of March and April you see the lift.

In her case, April was depressed and we started to get better in June more than made up. So what her opinion is, is even though she had the slow start, that’s slower than normal, she still thinks she is going to bring in a performance for the year based on what she is looking at going forward.

Timothy Oakes

Because [Robin’s] driven mainly by the cycle of the office of the CFO, so she is always kind of off cycle of the others. So, we sort to speculate was there a bogged down in the office to the CFO based on them having to do more work. You could speculate anything, but in reality we will never really know if it’s coming back to normal, so we are all happy.

Arnie Ursaner - CJS Securities

If I may ask a little bit of an awkward question, on behalf of at least one or two of your shareholders who constantly communicate with me and I know they communicate with you also Shirley.

Your industry is going through a form of consolidation, you are one of the smaller players, you have been successful at adding companies to your roster, but there are those that believe that the best way to maximize shareholder value is for you to identify a larger target and hook up with them.

Maybe take a step back, and again it would have made no sense six quarters, three quarters ago when things were in free fall and your business really wasn’t reflecting the positive trends that underlie it, but that’s no longer true. We are seeing a pretty good pick up in the business. I think it’s beginning to reflect some of the positive trends.

Maybe walk us through your and the Board’s thought process of how your company fits in the bigger scheme of things or you are at the right size. What do you need to do to better cover things like G&A and your view of shareholder value, for let’s say the next year or two?

Shirley Singleton

Okay. Yes, there were people that were asking me about selling last year and the business was going in the wrong direction, and I think what the management team was looking at, at that time was looking at Fullscope and looking at a strategy that actually is bearing fruit today. So, it would have been the wrong decision last year to try to sell a company as it was heading in the wrong direction knowing what it is that I knew in terms of putting together some pieces.

When you buy a company like Fullscope that’s not like rush out in December and grab it and throw it into our mix, December 31. They are a premier AX provider and it takes a long time to buy a quality outfit like them.

The same thing with Meridian, Meridian was looked at for over a year and it just happens to come in at the time, so in a nutshell Arnie our long-term plan has always been two prong, which is we need to put up organic growth and we will use strategic acquisitions to come in, to change the complexion of our business and to realign it to where we think we are going.

We actually have a three-year business plan that we have brought in front of the Board, which shows 150 million by 2012 on a run rate of 150 million.

We still have some ideas in terms of some tuck-ins for much later, not necessarily this year but 2011, looking at expanding the business and in the meantime we are just going to execute. We are blocking and tackling, we’ve run this company for quite a while.

We know how to run this business, we know how to bring it back and I think the numbers speak for themselves of where we are going and I’ve given you a pretty clear outlook of Q3 and actually if you extrapolate it out to Q4, I think we are going to have a banner year and our opinion is, is keep your head down, keep executing, have the right strategy, have something that other people cover and they will come to us. It is not in our strategy to put this company up for sale.

So, with that, I am hoping I am clear. Dave, do you want to add anything to that?

Dave Clancey

Yes. A lot of it is, is just waiting for the market to come back to you; the pressure is there in the market for consolidation, I would agree 100%. It was the Board’s opinion and management’s opinion that you don’t sell things at a bottom. I mean it’s kind of like someone say hey, I think I’ll sell my condo in Miami at this point; it’s just a bad idea.

Arnie Ursaner - CJS Securities

I agree wholeheartedly with your view that it would have made no sense several quarters ago, but I think what some of your shareholders are suggesting is that with a much more positive outlook over the next several quarters, this might be a good time to begin the process, and again I think what you shareholders are asking me to convey to you indirectly is, are you at least open to that consideration.

I think you’ve proven yourself historically, Shirley that shareholder value does matter quite a bit here.

Shirley Singleton

It does really matter and I felt real bad when people are not happy with the stock performance and I’m a big investor myself and I continue to buy the stock when I have the windows and the opportunity to do it, and I intend to do what’s right for all shareholders of which I’m one.

Arnie Ursaner - CJS Securities

Can I clarify one thing; you are $150 million by 2012, how much of that would have to be accounted for by acquisitions?

Shirley Singleton

I’m not going to give you that exact number, but I will tell you that there’s a significant amount of organic growth built into it.

Arnie Ursaner - CJS Securities

Maybe following up on that; if you had for a long time had organic growth, solid double-digit organic growth, its been non-existent for the last few years with the economy. When you think it over, let’s say the next four-six quarters, what do you see organic growth returning to?

Shirley Singleton

I would like to see it return to double-digit growth and I wouldn’t say that it’s several years. '07 and '08 were really solid double-digit growth and the half way through '09 EPM continued on that path until the recession hit us all.

So, I just want to make sure that we are not getting stuck in mincing words on, it’s been several years. I think we’ve been starting our come back since Q4 '09.

Arnie Ursaner - CJS Securities

Thank you.

Operator

(Operators Instructions) Okay, I’m showing no further questions, I’ll return the conference back to Ms. Shirley Singleton.

Shirley Singleton

Okay, well I really appreciate, Arnie you asking some questions there and if anyone else is on the call or would like to call in and talk to Tim and I today, and Dave Clancey please do so. Our next earning’s call is going to be on November 3, and that would be at [Inaudible].

Operator

Thank you. If you wish to access the replay for this call, you may do so by dialing 800-642-1687 or 706-645-9291. Pass code is 86-97-7967. Thank you for participating and have a nice day. You may all disconnect.

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