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Executives

Kevin R. Rhodes - Chief Financial Officer

David Gallo - Chief Operating Officer and Chief Operating Officer-Edgewater Delaware

David Clancey - Chief Technology Officer

Kristin Zaepfel - VP - HR

Analysts

Arnold Ursaner – CJS Securities

Mac Onrodacil – King Capital Management

Karen Smith – Rubadi

Macon Rudisil – Keane Capital Management

Edgewater Technology Inc. (EDGW) Q4 2007 Earnings Call February 27, 2008 10:00 AM ET

Operator

Welcome to Edgewater Technology Inc. Fourth Quarter and Full Year Fiscal 2007 Financial Results Conference call. At this time I would like to inform you that this conference is being recorded for rebroadcast.

(Operator Instructions)

I would now like to turn the conference over to Mr. Timothy Oakes of Investor Relations for introduction.

Timothy Oakes

Welcome to Edgewater Technology’s Fourth Quarter Full Year 2007 Earnings Call. I am here today with David Clancey, Edgewater’s Executive Vice President and Chief Strategy and Technology officer; Kevin R. Rhodes, Edgewater’s Chief Financial Officer; and David Gallo, Edgwater’s Chief Operating Officer,

Before we begin, I would like to remind everyone that today’s call consists of forward-looking statements under the Securities Act of 1933 as amended and the Securities Exchange Act of 1934 as amended. Investors are cautioned that such statements could involve risks and uncertainties that could cause actual results to differ from current expectations with respect to such statements. These types of statements and underlying factors related to these statements are listed and are reported and filed information with the Securities and Exchange Commission, as well as in the company’s press release that was distributed early this morning. The statements made during today’s call are made only as the date of today’s call and the company undertakes no obligation to update the forward-looking statements to reflect subsequent events and circumstances.

Prior to the start of the start of this morning’s call we would like to inform listeners that Shirley Singleton Edgwater’s Chairman President and CEO is unable to participate in this morning’s call and she is not feeling well. In Miss Singleton’s Absence, David Clancey, the company’s Executive Vice President and chief strategy and technology officer will be speaking on her behalf.

We expect that Miss Singleton will return to work in the next few days when she is feeling better. With that I would now turn the call over to David Clancey.

Dave Clancey

Without much undue, I think everyone here is interested in the financial side, I would like to immediately pass it to Kevin to give us some good wrap on those.

Kevin Rhodes

Welcome every one to our call. I will follow my usual format by first discussing our revenue and operating results and then I will touch upon cash flow, followed by other financial and employee matrix.

Our total revenue for the fourth quarter was $17.3 million, a 10% increase over the prior year quarter. For the full year, total revenue amounted to $68.5 million, which is a 14% increase over last year. Edgewater’s core business grew 11% during 2007 and the other 3% of the 14% was due to acquisitions that we made in the second half of 2007 with the most significant acquisition vertical pitch occurring on December 10, 2007.

Looking at service revenue which excludes reimbursable expenses and software sales, actually it was up year-over-year as well as on a sequential basis. Service revenue is $15.9 million in the fourth quarter, up 9% over the $14.6 million we reported in the year-ago quarter and up 2% compared to service revenue of $15.6 million in the previous quarter. For the full year, service revenue was up 12% over 2006. Our Top-10 customers represented 56% of our service revenue in 2007, compared to 58% of service revenue in 2006. And on our absolute dollar basis, revenue from our Top-10 customers increased 7% during 2007.

Gross profit during the fourth quarter was $6.8 million, which is consistent with the year-ago quarter. Gross profit margin declined on a year-over-year basis as we generated 42.4% service gross profit margin compared to 46.3% in the year-ago quarter.

On a full year basis we generated $28.1 million in gross profit compared to $24.5 million in 2006 and that was a 15% improvement. The full year gross profit margin also improved as the percentage of revenue, gross margin was 41% as compared to 40.8% in 2006. Fourth quarter utilization announced it is 74.5% as compared to 81.1% in the year-ago quarter.

These utilizations clearly below our normal operating levels and it affected our profitability during the fourth quarter. The primary reason for the drop in utilization was the completion of several large projects at the end of the year, while new projects did not ramp up as quickly. That said, we are very happy to show that we had a record number of new customers in the fourth quarter and we have to see that plays out in terms of follow on business during 2008. The full year utilization edge has dropped to 80.1% compared to 78.5% in 2006.

Looking at profitability, due to Edgewater’s continued profitability and our positive future outlook. The company recorded a significant tax benefit during he fourth quarter of $5.3 million. This impacted fourth quarter and full year EPS by approximately $0.39.

Excluding the impact of the tax benefit adjustment, net income increased 10% at $3.5 million for 2007 compared to $3.2 million in 2006. Cash net income again excluding the impact for the tax benefit would have been $1.3 million or $0.09 per diluted share in the fourth quarter.

EBITDA amounted to $1.6 in the fourth quarter or $0.11 per diluted share. Looking at the full year for these matrix cash that income increased 13% this year, to $5.2 million. EBITDA increased 17% this year to $.8 million. Cash net income and EBITDA represented $0.39 and $0.51 per diluted share respectively.

Now let me turn to cash flow. Cash flow, hit a new high in 2007. For the fully year we generated $10 million in operating in operating cash flow compared to $8.4 million in 2006. That is a 19% increase in our cash flow. The full year never was substantially impacted by our fourth quarter where we generated $6.2 million in operating cash flow. So we are certainly pleased to show strong improvement in this metric on a year-over-year basis.

One real quick not is that, Edgewater will be paying out our annual performance bonuses as well as our annual insurance premiums during the first quarter. We expect to see lower cash flow in the first quarter as compared to the fourth quarter. Our yearend cash remarkable securities amounted to $22.8 million or $1.63 per diluted share, compared to $33.1 million at the end of 2006. a high level reconciliation to the changing cash is as follows; they purchased three companies in 2007 of which the cash portion was $19.6 million it also made the first earn-out payment for NDS of $0.7 million. These outflows were offset by EBITDA of $6.8 million and non-cash stock base compensation expense of $1.5 million, the remaining in small differences for weight to their exchanges in operating assets in the liability accounts.

Our outstanding share count was 13,297,000 shares at yearend and out diluted share count at the end of the fourth quarter was 13,390,000 shares. In terms of other financial and employee matrix, our Days Sales Outstanding metric was 56 days on billed AR at the end of the quarter compared to 46 days in the prior year quarter. The 56 days is a little higher than our normal. Our current DSO is in on track and certainly back in line with the historical metrics so we really do not see an issue there at all.

Total employee and consultant headcount was 367 at the end of the year of which 302 were billable. Our annualized revenue for billable consultant improved to 8% during the year and is now at 300,000 for billable consultant.

With that I now pass it back to Dave.

Dave Clancey

Aright, now what I will do is I will do a little bit of a look forward. You know, as it says in the press release for the fourth quarter we have had some large projects starting to come down and as we move into the first quarter, some of our perennial who cut back and they are spending a little bit given the current market. However, we still expect to see something of a hockey stick in terms of that consulting because they have a relatively strong pipeline of first-time jobs, which in normal circumstances will expand into our larger jobs and all we need to do is carefully nurture that.

CPM continues to roll right along, continues to be strong and in the process we had an opportunity to retool some of our check offerings who are moving more into the space of Web2 technologies along the lines of social sights and increased emphasis on strategy – things along these lines. So, I expect a little bit of retraining our consultants and redeploying consultants to going on and all and all I would say that with the quarter coming up will be an up quarter. The next earnings call, for quarter one for quarter one will be Wednesday, April 30th at 10 a.m. And with that being set, we can open up for questions.

Question and Answer Session

Operator

Ladies and gentlemen, will now start the Q&A session.

(Operator Instructions)

Our first question comes from the line of Arnie Ursaner with CJS Securities.

Arnold Ursaner – CJS

I guess given the numbers, I am not surprised, Shirley took a sick day.

A quick question to ask you on revenue, you made an acquisition in Q3 and I want to get a feel for that impacted organic, Linx as we understood it was expected to contribute $900,000.00 in revenue in the quarter and a lesion of about 200,000 if were to expose out, you basically had had no organic or minimal organic growth in your core business. Am I thinking about revenue in the right way, Kevin?

Kevin Rhodes

No, on the fourth quarter, Arnie, you are correct, that was a flat quarter. Mind you, Q4 is always typically a slower quarter than Q3 because you have fewer billed days and you also have the vacation time around the Holidays.

Arnold Ursaner – CJS

Yes, but slow is different right is right?

Kevin Rhodes

Your analysis is analysis is correct. It was basically a flat quarter.

David Clancey

But 9% organic growth in Q3 was the slowest you had in years and clearly Q4 went the wrong way.

Kevin Rhodes

You know, as we said in the press release, we did have a couple of large projects coming down, things we have done. We are coming to a natural end, nothing bad, it is just the systems are finished. We had to scramble to redeploy consultants in the end of December, type of time frame, or November type of time frame. This is typically difficult and our newer jobs coming in from that first stage of, you know, into the smaller job first to really flush things out and go to the next one. – comes, for fruition at that particular point.

So, you know right now, it just all came together and just a little bit of upsetting type of situation so that we could not keep people up the way we had the prior year.

Arnold Ursaner – CJS

In terms of your head count, you mentioned 302 billable at the end of on the year. Last quarter you would choose 74, with Hinesite given the current demands I know obviously you cannot manage growth and add people instantaneously but do you think do you think with Hinesite you added too many people relative to your current work, which is why your utilization was so soft and if in fact…

Kevin Rhodes

No what happened there is your headcounts up to the utilization and what we are doing is we are adding people very heavily into the BI/CPM space that remains very strong and our acquisition within that particular space. So, in terms of that, in people, we did not really add anyone to the bench. What we are seeing on the bench right now and what we are working with, this is retooling. And that what does retooling mean? Typically, we are seeing a lot of strength in terms of data services types of jobs where people are going in and taking a look at the data, is it valid, is there a governance where we ca feed it into CPM.

We are in the process of training people into that space and we are very excited about the opportunity there. So, in terms hiring people under the bench, no. If anything we are retraining and deploying that bench in different areas so I feel very upbeat about the coming year as we move into the data spaces that I alluded to before under Web2 services. So, to me it feels more like a momentary love and anything.

Arnold Ursaner – CJS

Final question for me at this stage, in the last quarter’s conference call, you thought it was a temporary bleep I know it was one where you are more guessing, you thought you had seen ends of some pick up. Now as you lookforward, with issues like state and local governments being pressed for funds. How do you see the current environment in terms of demand for your services?

Kevin Rhodes

I think the current environment will look good. We see a strong pipeline of really those first step jobs where you are sculpting out, finding out what will need to be done. CPM remains solid. We typically do not sell into state and local government. Anyway, there is some trepidation, I mean, anyone who opens up the news, you know, it can be terrifying at times but right now, people still want to keep their options open, we believe they still want to spend and if you take a look at the later stages of an economic cycle, I mean you can just cut so many people and then you have to turn the technology to get that last ounce of cost savings and that last push to revenue, and that is typically late-stage push and we expect to see some benefit from that.

Arnold Ursaner – CJS

In terms of your Q1 guidance where you expected to be called up, given that you have got $1.1 million of revenue, which sort of organic growth are you expecting to see revenue growth in Q1 and given some of these lingering, retraining issues? Relative to your annual types of guidance do you see Q1 gross margin being an issue.

David Clancey

Arne, I think that what we are looking at right now in terms of Q1 is, we came off a quarter with 74.5% utilization. We are trying to get that backup to our historical range; this is 78% to 82%. We think, you know, within that range in Q1. So that is I guess positive news from that perspective. But looking at year-over-year organic growth in Q1, I would say it is going to be flattish and most of the growth that we see in Q1 is going to be from the full quarter effect of bringing vertical pitch on.

Operator

(Operator Instructions)

Our next question come from the line of Mac Onrodacil would gain capital management please proceed.

Mac Onrodacil - King Capital Management

So, the business grew 9% organically in the third quarter, right, per Arnie’s comment and then this quarter was essentially a flat quarter. Is it just save to say that the economy is affecting our core business and things are soft and we are seeing it in many aspects of our business is that kind of what the deal is here?

Kevin Rhodes

Well, I think it is a combination of two things. There is some truth to that, the economy is a little soft but by the same notion, it is kind of like we are shifting gears on the consulting side and you still have your BI/CPM stuff running nice. So you have a combination of those two things, it is nothing that anyone wants to run around like a chicken with their head cut off, or it is all really a positive thing. We are still very excited about the opportunities and in the consulting business it is a type of thing where you are going to have projects come down, you are going to have to redeploy people and it happens when it happens based on project demand. I would much rather have a project come down and redeploy in the first to second quarter and try and do it in the fourth quarter, which is typically sought in this business anyway, it is a little bit soft, yes. But is it, you know, the dire consequences that seem to be coming out of the TV all the time, no.

Mac Onrodacil - King Capital Management

What is CPM represented now as a percentage of the total business.

Kevin Rhodes

CPM is around50% or our run rate going forward in terms of total business and that is obviously the hottest growing area of our business right now.

David Clancey

And that is one of our goals for last year, was to double that and bring it up to be 50% or more of our business.

Mac Onrodacil - King Capital Management

And what did it grow in this last quarter?

David Clancey

It grew about 30%

Kevin Rhodes

It is growing nicely. As they said earlier, what you have got to respect in this fourth quarter or some large projects that we have had for a period of time that came down so you have got that issue where you have got to refill those large projects. They were successfully completed it is just, you have got a team of 10 or 15 individuals coming down and you have got to redeploy those books. That is not as easy to do to redeploy them on a large project like that, so you have got that phenomenon occurring in the area during Q4 and we are working right now with those new customers that we have got in Q4 to redeploy all those resources but we want to manage utilization at an effective range of 78% to 82%. So that is what we are doing right now.

Meanwhile, CPM is still doing very, very strong. We are also investing in Web Analytics, predictive analytics and all things data if you will. Because as we have talked about before. People want to Google their data. So that is the growth area of our business and where we are investing through acquisitions and through training and other areas within our organization to fuel that particular part of the growth.

Mac Onrodacil - King Capital Management

Let me ask a question though and help me if maybe I look at it as wrong but if that CPM is now 50% of the business, and it is growing at a 30% clip and the overall business was essentially flat, so if you have 50% of your business growing at 30% and that is 15% growth, does that mean that the other 50% of the business from a function of either the economy or drop off in big projects or such and such down 15%.

Kevin Rhodes

Not down more flat.

David Gallo

More flat if you think about it, CPM also has its calendar cycle and typically, January tends to be a little bit slow to flat, whether this CFO has closed out the books, etc. That is primarily where they are selling into. So, they tend to get to a little bit of a slow start and then they take off and they reach the typical run rate.

Mac Onrodacil - King Capital Management

Do you anticipate, at some point, if CPM is growing, if it is a 50% run rate. Did this just kind of continued to become 60%, 70%, and 80% in terms of the total business over time?

Kevin Rhodes

From a strategic point of view, what we want to do is that you really want to have more than one business line to support the company. Yes, we see a run rate on that looking out in a future that looks really good. Although when you look at over a number of years, everything tends to cap out and come to an end and that is why you want a second line and that is why we are putting the training and the redeployment effort within the technology side because every time you go and you capitalize on a technology like here, we have CPM and BI running really hot. You are going to have that next leg of the technology cycle to come in. We can see what that is. We see it in web 2.0 space, we see it in web analytics, predictive analytics, we see it in data very, very strongly where people have to go and look at that. We want to have that position to pick up the really strong growth we see in the future for that. So, we are retooling that.

You may look at a time way in the future where BI/CPM has passé, everyone does it, and then you are going to have Tech running really strong while we are looking for the next space of BI/CPM to take off.

When you think about it, you are looking at those two pieces sort of alternating to a certain extent having independent cycles which really support the company. This period/leg of the company is really strategy and strategy is a piece, it is pretty constant over time and you want to be strong in that space because that is really, to a certain extent, the piece of the company that really gems up the job. That is the connection point you have for BI/CPM and Technology because that is the point where you recommend to the top management of the company “Gee, you need to look at web analytics. You need to bring in the BI/CPM for consolidation. You need to do this. It is the advisory services aspect.”

That is a constant thing that really generates us large jobs, and it is a nice and steady run rate.

Mac Onrodacil - King Capital Management

SG&A was roughly $5.3 million in the three months and in December. This is kind of a people business, right? What levers can you pull while the market is soft or the environment is soft and that kind of other 50% of the business in order to kind of honk it down and save money or increase profitability? Is there any fact that can follow up with the business as just kind of a poor momentum of the revenues was?

Kevin Rhodes

I think the best way to answer that is that when you look at our SG&A line of item, roughly about 2/3 of that is what I call a variable. It is in the sales and the marketing aspect of it, and the general operations of growing the business. About 1/3 of that SG&A a knot is basically fixed cost, and that is your rent, your annual insurance premiums etc.

You can get a bang for your buck, if you will, from additional scale in the business.

David Clancey

Historically, management tends to be pretty tight assisted and we tend to control it very well. If you are in a soft environment, you do not see us running hiring or doing anything along those lines.

From a historical point of view, we tend to manage it as tightly as we can.

Mac Onrodacil - King Capital Management

But at the same time, we are not going the other way and really cutting back on that 1/3 of the business at least at this point. Fair?

David Clancey

If at this point, we are feeling too positive about the environment. We are not going crazy like as if it is partying like it is 1999 again but by the flipside of it, I do not want to potentially lose the ability to really crank on additional revenue because I walked away too much.

Operator

Our next question comes of a follow up from the line of Arnold Ursaner.

Arnold Ursaner - CJS Securities

In Q3, you use to defend a number of outside contractors. My note says 30, to meet some of the demand given that you are seeing a slow down and lower utilization on your quorum place. Can you comment on the number of contractors you use than Q4 but even more importantly, what you think you are going to use in Q1?

Kevin Rhodes

Are we dialing those down?

David Clancey

Yes, I think that the amount of contractors have been reduced but will always be something that we love when we need a skill or a specific skill set that we do not have necessarily in-house. We can look either partnering or bringing in a contractor in.

I think we got that trimmed to a low level and the ones that are still with us are providing value to our clients today, but we are always looking at that in, only chose that option when we do not have the resource in the house.

Arnold Ursaner - CJS Securities

Towards the end of the year, you announced the share repurchase announcement. Can you freshen us up on what the status is of your share repurchase?

David Clancey

To this point, we are pretty much been in a blackout. I believe we will be out of black for what, just one day?

Arnold Ursaner - CJS Securities

Yes, for one day, this Friday and then we are going out into black out.

Male 2

Then, we will go back into black out, and share repurchases is always a topic for the board and we are always reviewing how we are looking at that. Obviously, we see our stock as very value priced at this point.

Arnold Ursaner - CJS Securities

I know you mentioned that you do not deal a lot with state and local government, but one of your major verticals is the financial sector, is that the biggest problem area you see at the moment?

Kevin Rhodes

The financial sector is the sector that we are really dialing back and we are focusing on just the areas that are giving us the return, and that is prior to where we are doing summary tooling.

The financials have been hit really hard and just as oil drillers do not drill in dry holes, we do not to.

Arnold Ursaner - CJS Securities

I want to go back to Macon’s question because I am not sure I fully understood your answer. If 50% of your business is growing 30%, to be flat, some businesses, elements of your business are materially down. What are they?

Kevin Rhodes

The answer there is typically for the CPM side of the business. There is something of a slow start to the year because CFOs tend to be somewhat distracted by closing out the calendar year. It just tends to be a slow start then it will ramp up toward the end of the quarter.

That is some of the effect that I think you are seeing.

Arnold Ursaner - CJS Securities

That has been consistent on the last three years.

David Clancey

I think there was only one year in the last five that was straight up and I think there was a little bit of an aberration.

Kevin Rhodes

I think the other thing, Armey, is that when you look at the 50% that I am quoting, that is a run rate that includes vertical pitch of all of the weight in that 50% number. When you look at the 30% growth, you are looking the CPM business that we had in ’07. It is a little bit of mixing apples and oranges in terms of 30% growth of 50% of our business.

The total business mix that we have at the end of ’07 was roughly around 35% CPM, but that will not actually go up to 50% with the full year of vertical pitch.

Arnold Ursaner - CJS Securities

But either and still, the 65% that is not BI and CPM had to be quite slow in Q4.

Kevin Rhodes

It would be agreed. If you look at it, you have strategy. Our strategy section is pretty well flat and our technology section we talked about as people coming down and flatted it down. That is why I alluded to in my earlier comments, we are doing the retooling. That is why when we project technology into ’08, we see something of a hockey stick because we have to start to capitalize on what is in the pipeline, and the first time jobs we have and we believe we are still very positive on being able to do that.

We mentioned that we have not seen any signals where people are saying “No, close it down. No, we are not going to do that.” Everyone is keeping their options open. We have been closing some jobs coming in. It is just a little bit slower to this particular point so we do not see anything dire on the horizon.

In fact, we see nothing but some really decent opportunity out there.

Arnold Ursaner - CJS Securities

You mentioned several times the slow start to the year where two months into the quarter, how slow has the first two months been and how strong on March do you need to even be flattish?

Kevin Rhodes

I think when you look at the first couple of months that it was consistent with where Q4 is, which is why we have given the guidance that we have. We certainly see an uptick coming in March which usually has been to a strong Q2 and right now, that is where we are trending. We see the CPM business coming on very strong as we head in to March. So, I think that that is why our guidance reflects.

David Clancey

Totally reflects that situation and the fact that we have our full effect of our vertical pitch acquisition. But again if it is flattish for the first quarter and you are counting on a quite strong March, by definition, January and February were weak. They were below planned or negative.

To be flat for the quarter, building in a very strong March, month one and month two had to be well below planned. It is just mathematical.

Kevin Rhodes

I would be more typified as being comparable with Q4. The idea of being is that we are trying to get the utilization back up from where it was at 74% back into our historical ranges.

We are seeing signs that we can get there but yes during January and February, we are still, if you will, struggling to get those resources deployed in order to get back up to that utilization level.

Arnold Ursaner - CJS Securities

Again, to be clear, are you struggling to get them reallocated because you have the demand but have to retrain people or do you have to find the demand to put these people to work? Which is it?

Kevin Rhodes

Combination of both and it is a type of thing here where they have not been down that long. So, it is a type of thing where if you are running a mine, you do not trash all your mining machinery when you are a month or two.

Arnold Ursaner - CJS Securities

And, remind me how you are going about trying to fill the pipeline. I know you have an in-house telephone sales force. What are some of the other ways you are trying to build a pipeline out?

David Clancey

We are using all of our classic avenues. We use direct marketing. We use inside sales who were very active in shows. We also have pipelines from our partners as well.

Kevin Rhodes

And a large sales force.

Operator

Our next question comes from the line of Bob Pool with Barkhola (ph)Capital Management.

Bob Pool - Capital Management

Can you put a dollar number on the size of the hit from the large project run off in Q4?

David Clancey

Typically, we do not really publish that level of information.

Bob Pool - Capital Management

Yes, I think you might want to consider it. In this case, I think it is the whole that everything is trying to figure out where the whole is and I think it might be useful in helping people with their analysis and not thinking that something else is going on.

Kevin Rhodes

The best way to comment on that, Bob, is that we did have and it was not just one large project. The couple of large projects that were successfully completing and that you have to ramp down the natural ramp down in those projects. And so, right now we are working hard to get those resources we deployed. That is a fact, the short term issue that we are dealing with right.

Once we get those resources we deploy, we can see, like we said, a bit of a hockey stick but were flat now, that can see continued growth at the end of the year.

David Clancey

There are a lot of moving parts. It is not just one simple single number. Typically, we do not really publish that information. It would be too much of a competitive advantage for our competitors to see that type of information. Specifically, we do not go there.

Bob Pool - Capital Management

You did say that you had 10 to 15 people come off of these large projects, right?

Kevin Rhodes

Yes.

Bob Pool - Capital Management

I guess mathematically, can you just help with the math without specifically giving the numbers, what is the monthly impact of having 10 to 15 people who would normally be generating revenues not generating revenues.

Kevin Rhodes

We normally generate $300,000.00 in revenue for available consulting fee.

David Clancey

They are all averages and typically, we do not go to that level again. The people that are down or different job levels, different skills, they all have different bill rate. Again, I really do not want to disclose anything that would provide aide and comfort to the enemy, so to speak, which in this case, will be our competitors.

Bob Pool - Capital Management

Is it not possible to predict when these large projects will run off and get new work and place prior to the run off rather than scrambling to replace after the fact?

Kevin Rhodes

I think that some we know about and others came in as a surprise where they have historically spent that at the same level and continue to spend but there has been a significant drop off due to successful completion. So, it is a combination of both.

David Clancey

Sometimes, you have follow on coming right on the heels, enhancements, things along this line. So, it is kind of a juggling act because you do not want to go out there and try and commit the people twice. Again, it is a difficult thing to do.

Bob Pool - Capital Management

Is it much more evident in a smaller company than it would be, larger companies do not seem to have, and we do not see quite the impact in larger companies from such things? Would you say that it is a little bit more challenging to manage that when you have a smaller company?

David Clancey

A smaller consulting firm will be more lumpy because you do not have as many areas to smooth it out, which is one reason why we move in to the CPM space, and we moved into the strategic space up at the top of the pyramid so we have some of the smoothing effect. But if you turn it around, if we were a billion dollar company, the types of things that occurred there, you would not even see it.

Bob Pool - Capital Management

I would also like to comment on the fact that it is a consistent practice that we have been doing for the last five years. It is something, projects come and go and you have to replenish with new. I think in this particular quarter, the size was such that it was different than historic and we did not have sufficient closings to replenish. I think that that is what impacted our utilization.

Kevin Rhodes

I guess it is something to work on as you go through time, in work and I am sure you are trying very hard to do this but coming up with a process for sort of presale it, pre-selling capacity prior to a job running off and I would think that that could be a lever to actually get somebody to commit.

If you have people coming off of a job and you are saying to them “Look, we got to commit this people to another job” if you are not going to commit to them, it might actually help you close on it. We have done that and use that lever in the past. It is a very effective lever.

Bob Pool - Capital Management

Right, and maybe this goes back to the weak economy argument that in this kind of economy, that lever is less effective perhaps.

Kevin Rhodes

It is a little bit shorter, shall we say.

Bob Pool - Capital Management

Right, okay, and why only out of the blackout for only one day? Why is that happening that you are only out of the blackout for one day?

Kevin Rhodes

We go into the blackout basically 30 days prior to the end of the quarter. And so, you got the queue on phenomenon where you got blackout through today because of the fourth quarter information and then we go back into blackout again starting next Monday because we are into the Q1. This earnings call was a little bit farther back in a month because we actually went through 404 at this particular point in time, and we are going through tax review of the tax benefits we picked up.

We have a lot of accounting, a lot of things going on those. I it is like nothing bad, nothing strange. We knew 404 were coming and that just made this a little bit later than some of the others.

Bob Pool - Capital Management

Finally, questioning in this second round, I think I am not clear what you are saying. I think you are saying that the trend in the first quarter so far has been consistent with the fourth quarter which was a flat organic growth quarter.

I think you are saying that you are expecting March to be better than a flat quarter. Are those right?

David Clancey

I think when you take into account that is running comfortable with 204 and you take the full effects of the acquisition, you will see that there will be overall growth from Q4 to Q1.

Bob Pool - Capital Management

Thank you and good luck. You guys have been down before and you always bounce back.

David Clancey

You will bounce back, do not worry about that.

Bob Pool - Capital Management

I have in the past, certainly appreciate it that you guys put your money where your mouth is in down times like this. It is very reassuring to shareholders that when everybody is betting against you, you bet on yourself. So, I thank you for that in the past and if you do it again in the future, I will thank you again.

Operator

Our next question comes from the line of Karen Smith with Rubadi.

Karen Smith – Rubadi

I am just curious, have you thought about answering into a -- blocked out by these black out pace?

David Clancey

That is something that the board considers at every meeting, giving the circumstances coming up. I would say they will probably discuss it again at our next meeting.

Karen Smith – Rubadi

I would say that with the company trading on their book value here, I would urge that they strongly consider entering into a program. In that way, you do not have to worry about blackouts and things like that.

Regarding the acquisition program, can you give us any estimate on what that is looking like for 2008? How many acquisitions were considering dollar wise and things like that.

David Clancey

Right now, we are pretty aggressive towards the end of the year. We are in the process of selling that pipeline and we really do not have any hard numbers on that at this point.

Karen Smith – Rubadi

But, it is safe to assume that you are going to still plan on doing some acquisitions this year?

David Clancey

It depends. If we find quality companies and we are always looking in BI and CPM space, we are looking in the data services space, web analytics in the key areas we want growth in, yes. If something comes up, we are on it. That is what currently what we are going for.

Kevin Rhodes

The key is we have been very selective in the past. We will continue to be so in the future. If it happens, it happens. But if it does not, we are not going to force something that does not make sense.

Karen Smith – Rubadi

But the integrations of the current acquisitions based on all are going smoothly and according to planned?

Kevin Rhodes

Yes, we are very happy with it.

Karen Smith – Rubadi

Are these a port or a pipeline or a backlog number?

Kevin Rhodes

No, we have not typically in the past. No.

Karen Smith – Rubadi

Would you say it because it is on par with the last year, or is it growing? Can you give us any sort?

Kevin Rhodes

You got to be consistent with the guidance is probably the best way to put it.

Karen Smith – Rubadi

How about a win rate percentage, and how that is tracking with the previous quarters?

Kevin Rhodes

That has been fairly consistent as well. We are in 70 range in terms of win rates and we have been that way honestly for a several quarters. I am not seeing any major differences or fluctuations in win rates. If anything, actually the positive use out of Q4s that we had a lot of new customers that we have not typically hired new customers than we have had in the past, which is nice.

Karen Smith – Rubadi

Right, any expectations that they will ramp off over the next couple of months when maybe they are just starting a little slow just due to the product.

Kevin Rhodes

That is our expectation. When you bring them on in December, what happens as year ended, it is tough for a lot of folks and they sort of lose focus on this when you look in to close up the books, cap off any budgeting issues, and things along those lines, and then you have things that tend to open up as the quarter progresses in Q1.

Karen Smith – Rubadi

As far as the sale cycle is concerned from beginning a relationship with the foundation to getting them to sign on. Is that expanding out during this period also, or is it kind of on par with previous times?

Kevin Rhodes

It has been pretty consistent through 2007. I think the one thing, even though we had record signings in Q4. The date diluted to is that the deal size was traditionally smaller because they are on the front end and I think that is something that we are looking ahead. But I see no change in that. That metric dropped the course of 2007 and activity.

Activity itself in terms of customers exploring and looking at solving problems as consistent with 2007. So, I do not see any change there other than the deal size itself and we are hoping that that will increase over the next couple of months as people look at as we show how we can solve their problems, that they will spend to solve those key problems.

Karen Smith – Rubadi

-- for deal size?

Kevin Rhodes

We do not give out that information either.

Operator

Our next question comes of a follow up from the line of Armey Arsaner.

Arnold Ursaner - CJS Securities

In Q3, your CPM business grew 20%. What was the actual growth and CPM in Q4?

Kevin Rhodes

On a year-over-year basis?

Arnold Ursaner - CJS Securities

Yes.

Kevin Rhodes

It was 35% for the Q4 and 30% for the full year.

Arnold Ursaner - CJS Securities

So, it had slowed down in Q3 but we saw a pretty good bounce in Q4, in CPM and BI. I know I checked my notes several times. I know you alluded to the fact that you mentioned that you have some contracts running off, we checked it much more frequently but I can not find, but you have talked about some delays in contracts in Q3 but I am struggling to find the runoff comments. So, I will look more carefully for that.

But in that spirit, since it caught us by surprising Q4, do you have any contracts for the running off in Q1 or Q2 that we should clearly be made aware of in this public conference call?

Kevin Rhodes

The only one we would have for this year is our contract with Synapse for this year 2008, is dropping back by 50%. Other than that, all the other projects across some of our major accounts were wrapped in Q4. So, we are seeing Synapse declining by 50% from 2007 to 2008.

Arnold Ursaner - CJS Securities

Can you remind us how big Synapse was in 2007? So, we are going to lose $3 million from that in ’08 and I assume that is first half of the year?

Kevin Rhodes

No, it is across the whole year.

Operator

Our next question comes from the line of Macon Rudisil with Keane Capital Management.

Macon Rudisil – Keane Capital Management

All my questions have been answered. Thank you.

Operator

If there are no further questions, I will now turn the conference call back over to David Clancey for some closing comments.

David Clancey

I would like to thank everyone for being on the call. Those are good set of questions. Again, I am really excited about how the year is going to come through. We are looking for enough quarter and I look forward to speaking to everyone in our next call.

Operator

(Operator Instructions)

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Source: Edgewater Technology Inc. Q4 2007 Earnings Call Transcript
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