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GTSI Corp. (GTSI)

Update Call

March 14, 2008 10:30 am ET

Executives

Paul Liberty - Vice President of Investor Relations

Jim Leto - Chief Executive Officer

Joe Ragan - Chief Financial Officer

Scott Friedlander - President, Chief Operating Officer

Bill Weber - Senior Vice President for Programs and Professional Services

Analysts

Steve Raineri - Franklin Templeton

David Cohen - Athena Capital Management

Jason Harris - Peninsula Capital

Operator

Welcome to the GTSI's Investor Update Conference Call. (Operator Instructions) I would now like to turn the call over to Paul Liberty, GTSI's Vice President of Investor Relations. Sir, you may begin.

Paul Liberty

Thank you for joining GTSI’s quarterly financial results conference call. With me today are Jim Leto GTSI’s Chief Executive Officer, Joe Ragan GTSI’s Chief Financial Officer, Scott Friedlander, GTSI's President Chief Operating Officer and Bill Weber GTSI’s Senior Vice President for Programs and Professional Services.

The purpose of today’s call is to discuss results for the fourth quarter end of 2007. As you know we have filed our 10-K and we published a press release detailing the activities for the quarter as well as providing additional information on the Company. If you have not received the announcement or wish you to hear a live broadcast of this conference call in the future you may log on to our investor relations website at www.gtsi.com to register for e-mail alerts.

Before we proceed I would like to remind listeners that this call is being recorded and will be available for replay at www.gtsi.com. Except for historical information all the statements, expectations, beliefs and assumptions that may or have been contained in this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. The information that given as if today March 14, 2008 and the Company has no obligation to update this information. I will turn the call over to Jim.

Jim Leto

Thanks Paul and good morning and thank you all for joining us today. 2008 the beginning of 2008 marks the second year if you will or the completion of two years with this management team and I would like to provide little historical perspective before I comment on the current status of the Company and the results that we achieved in 2007.

As most of you know 2006 was a year of significant trauma for the Company. A lot of bad stuff happened to us, we entered into financial default note even at going forward on certain opinion, several material weaknesses on our year end audit and we got through that year despite the fact that the Washington post and others were writing our obituaries. We got through that year with a good credit facility banks in order and lots of vendor credit that will Joe will talk about in a moment.

2007 on the other hand was a year of rebuilding and discipline implementation of a strategic plan as you will all recall had three elements to it: one ran the Company as a solutions provider focused at technology life cycle management rapped with professional services and financial services, two stem the tide off employee loses by implementing a very aggressive human capital plan and as you recall during 2006 employee losses maxed for about 55% annualized attrition and then lastly reduced operating expenses by improving order processing implementing a variety of portals that are primarily focused at stimulating E-commerce and in general providing for operating efficiencies across the Company. I am pleased to say that 2007 we achieved significant milestones in virtually all of those categories of strategic plan.

2008 also is a very historical year. Next month we will celebrate our 25th service anniversary and I think that’s a major milestone for this Company but more importantly I think the Company right now is in a position where we can actually look forward to the next 25 years. Let me take a look at some of the highlights of 2007 that I think they are mentioning and that we are quiet proud of. We ended the year at 14.5% gross margin contribution that’s up from 13.2% and I am also pleased to say that our professional services gross margin contribution is above 40%.

Least interest income in the contribution that our financial services business made to this business came in at $9.9 million and I might add that we established this very stretch objective for ourselves for least interest income at the beginning of the year $10 million and $9.9 represents an 81% improvement year-over-year from 2006 to 2007. We ended the fourth quarter profitably and it marked two consecutive quarters of profitability that is the first time that’s happened in this Company for over three years and we significantly narrowed the loss from 2006 to before-tax losses about $1.2 million. We probably would have been profitable had the President signed the omnibus bill which was the supplemental budget bill focused on mending the continuing resolution for the civil agencies. Had it been signed in time we probably would have ended the year with profitability; that was our objective, as you will recall, going into the year.

Reduced base line expenses by almost $9 million and at the same time we invested over $4 million in our professional services. The net operating expense reduction without the investment of professional services would have come in somewhere around $13 million and we continue to see operating expense reductions as we entered 2008. We have a measurement that basically as a quality measurement called required due date -- RDD -- and our RDD during the year 2007 was about 90% for most of the year.

Our attrition rate is a result of the implementation of our human capital plan, has been running less than 10%, we achieved a 7% low one point during the year and we’ve been consistently below 9% throughout the year. Inventory levels year-over-year are at historical lows our vendor reduction strategy that we implemented early in the year has seen a 16% reduction in our current supplier base. The new product requests had dropped by over 20%.

All-in-all if you take a look at summary operating efficiencies including DSO by the way and our DSO has been less than 42 days throughout most of the year I regard that as almost unprecedented of within our industry. In summary if you take a look at low DSO low inventory levels, RDD complaints about 90% over 40% of our orders going through E-commerce and attrition rate at historic lows and probably lows within our industry, you might ask that we would generate significant cash and in fact that is the case. Utilize in 2006 some $17 million in cash and in 2007 we generated over $14 million. The net cash change from 2006 to 2007 was over $31 million. That enabled us to do us some very interesting thing one we generated internally sufficient cash to require subordinated debt of about $10.1 million from Crystal Capital and we currently have a very strong cash position.

All-in-all the financials of this Company are very strong and I think you will be very pleased when Joe discusses in more detail what our current financial posture looks like. Now, take a look at 2008 we have several initiatives that will continue and they include -- we will continue to grow our financial services and our professional services, we will continue to rationalize our vendor base and focus at 70 core partners which includes Sun, Cisco, Microsoft, Hewlett Packard, Network appliance, Panasonic and Dell, we will continue to drive expenses down by attacking the cost of operating our lower margin business through E-commerce initiatives, we are currently looking at the acquisition of a couple of services Company’s and when acquisition strategy will continue to be part of the strategy going forward and as you probably know when we entered into our banking relationship in early 2006 it was primarily a credit facility that was focused in a Company that was experiencing significant trauma and as you might guess many of the covenants that we are included now are considered to be somewhat owners.

We are currently in the process renegotiating our credit facility with the banks. Joe will discuss this in more detail than I will. But the discussions that we’ve had today with the banks are very encouraging and we think the relationship that we’ve established with our current banking consortia has been a very healthy one.

All-in-all I think we have much to be proud off in terms of what we achieved in 2007. We are really looking forward to 2008. As you might guess the late signing of the omnibus bill which was signed on December 27 pushed about $70 million worth of orders that we expected in the fourth quarter into the first, second, third quarter of throughout 2008 and that boards well for at 2008 and what our expectations are. All-in-all we are very encouraged by the current status of the business and we are looking forward to a 2008.

The current forecast for the 2009 IT budget for capital expenditures is $70 billion and we are currently seeing growth in the IT budget for the first time in a couple of years and it’s a pretty vibrant market that we are dealing with. Let me now turn the Conference call over to Joe to discuss the current financials in our year end order. Joe

Joe Ragan

Thanks Jim. I would like to begin with financial highlights for 2007. As Jim mentioned through improved operational performance we are able to drive cash flows from operations from an outflow of $17 million in 2006 to an inflow of $14 million in 2007, an overall change of $31 million year-over-year enabling us to pay off our $10 million subordinated note last month from our existing cash balances. In addition we grew our total back capacity during the year to greater than $300 million.

During 2007 we are able to clear all of our material control weaknesses that we entered the year with and we improved our presentation of the financial results through additional disclosure on the phase of the financial statements where we confirmed our income statement presentation with industry norms for financial services revenue and cost of sale as well as other cost elements. With all of these accomplishments I am very proud of the GTSI team for achieving these significant milestones during the year.

Now I would like to continue with a brief overview of our fourth quarter and overall 2007 results. Sales for the fourth quarter were at $224.5 million representing a decrease of 21.1% from the same period last year. Reasons for the sales decline are consistent with the trends we experience throughout the year where we continued our focus on a smaller number of hire margin sale.

The gross margin percentage for the fourth quarter was 13.5% versus 14.5% a year ago. This was driven primarily by non-recurring benefits to the cost of goods sold during Q4 2006 on an adjusted basis for comparison purposes. Without the Q4 2006 items previously mentioned, our margins would have increased by a 180 basis points compared with the same period last year. Our operating expenses for the quarter were at $27.1 million down 15% to our $4.7 million from the prior year’s comparable quarter. The Q4 operating expense performance was the best fourth quarter operating expense number since 2002 which again clearly indicates we are on track related to expense optimization.

For the fourth quarter we reported net income of $3.2 million or $0.33 net income per diluted share compared to net income of $9.5 million or $1 dollar of earnings per diluted share for the same period in 2006. The variance to prior year results was driven primarily by one time adjustments at $6.9 million in Q4, 2006. Without these adjustments we would have improved our results by approximately $600,000 quarter-over-quarter.

For the year ended December 31, 2007 our sales totaled $723.5 million representing a decrease to 14.9% year-over-year. Again the reasons for the sales declined are consistent with the trends we experienced throughout the year where we continue to focus on a smaller number of high margin sales with our core strategic partners.

The gross margin percentage as Jim mentioned for 2007 was 14.5% versus 13.2% a year ago. Operating expenses for the year were $106.3 million down 8% from 2006. The 2007 operating expense performance was the best annual operating expense number since 2003. For 2007 we reported a net loss of $1.8 million or $0.18 of net loss per diluted share compared to a net loss of $3 million or $0.32 of net loss per diluted share for 2006.

I would now like to a brief review of our balance sheet as if December 31, 2007. As of year end 2007 we had approximately 9.6 million share outstanding. We continued to maintain a healthy balance sheet with over a $165.3 million in accounts receivable little long term debt and 78 million of equity at the end of the year. Our supply chain is being managed better than ever with merchandise inventory levels at historical lows. Current liabilities decreased to $91.6 million from December 31, 2006 and our operating cash flow increased $31 million year-over-year.

With these results we believe that we will be able to continue focusing on accelerating the transformation of the Company for the balance of the year. I would like to turn the call back over to Paul.

Paul Liberty

Thanks Joe. Operator can you please return to the line and remind our listeners about the procedure for asking question.

Question-and-Answer-Session

Operator

Yes sir thank you. (Operator Instructions) Our first question comes from Steve Raineri - Franklin Templeton. Please go ahead

Steve Raineri - Franklin Templeton

Good morning everyone.

Jim Leto

Good morning Steve.

Joe Ragan

Good morning Steve.

Steve Raineri - Franklin Templeton

You mentioned something about a new credit agreement. Where do we stand on that?

Jim Leto

We are actually working through that now Steve we have made some progress and including in the facility with the future facility the foreign component that we have been looking for pretty

Jim Leto

I’m sorry, it’s the flooring components. Previously we had that as a part of our credit agreement were there is a flooring facility that actually works with the OEM partners and shares some of the discounting. It’s a very beneficial arrangement which could significantly cut our interest expense for the year. Previously in 2005 and prior we had one of those facilities in place. It’s just a difficult inter-creditor agreement to work through.

Steve Raineri - Franklin Templeton

Just like what the auto manufacturers with the dealers?

Jim Leto

The auto manufactures, with retailers it is exactly like that. So where GTSI has an arrangement previously we’ve had an arrangement with GE and then GE had the arrangements with the OEM’s where they got discounts and that's how they made their money. It's pretty sophisticated from our existing bank syndicate, so we've been working though those issues and we fell pretty good about the progress we’ve made.

Steve Raineri - Franklin Templeton

When do you anticipate wrapping this up?

Jim Leto

It is imminent. The discussions are underway so…

Steve Raineri - Franklin Templeton

And why do you think -- what type of size facility are we looking at? How much liquidity can it provide to our company?

Jim Leto

It would proved as much as $50 million of liquidity potently. Those were our discussions and the value of that would be a minimum of a million dollars in an annual bases in reduced interest expenses. So it’s a great deal. It just takes a little while to get through the inter-creditor issues and our bank group had done a great job in negotiating with them.

Steve Raineri - Franklin Templeton

Now wouldn’t $50 million be lower that your prior credit agreement?

Jim Leto

The prior credit agreement, that would be in addition to the senor facility. So we’ve be at least a $100 million total. Our current senor facility is $135 million. But we’ve got no where near that in ’07 , closer to $50 million is where we peaked out for our total need. So we are trying to balance the size of the facility with unused line fees, etc to optimize the agreement.

Steve Raineri - Franklin Templeton

So there is going to be two faculties?

Jim Leto

It will be one facility at the end the flooring facility will be part of the senior facility.

Steve Raineri - Franklin Templeton

So the flooring is the $50 million that your talking about.

Jim Leto

Yes sir

Steve Raineri - Franklin Templeton

And then the 135 is an addition to the $50 million.

Jim Leto

And I don’t know that we’ll keen it at 135 but we’ll keep it probably in total of a $100 million.

Steve Raineri - Franklin Templeton

Okay

Jim Leto

But all those points are being negotiated.

Jim Leto

What we didn’t tell you is that we’ve been out of the facility for almost a month now.

Steve Raineri - Franklin Templeton

Now, I commend you. It’s wonderful to see you guys pay off the debt. Now I imagine the $10 million that’s on the balance sheet today, long-term debt, is that gone.

Jim Leto

That is gone and we are -- we have been maintaining a cash balance for over a month.

Steve Raineri - Franklin Templeton

Okay great. So when I look at, when I look at the income statements today and I see how you broke out financing here and so I’m assuming that interest and other income is a lot cleaner that it used to be is that ..

Jim Leto

That’s absolutely correct and the big mover in other income is our equity investment in our Alaska Native Cooperation which has been very profitable and is included in our finings Steve. I don’t know it you have gotten to that but there financial statements are already, are included as an exhibit. So there is a lot if transparency in the stock.

Steve Raineri - Franklin Templeton

That’s great. So when I look at this financial statement what is it that stands out -- that should stand out to me that tells me we are on our way to improving our financial picture? Because this is unclear to me; service revenue is down gross margin is down.

Joe Ragan

That’s a great question Steve. Let me just take one piece. The focus for the Company today, is while maintaining our product revenues as well as our financing revenues we really are transforming the Company into a services Company. The accounting results for service don’t really tell the story because there is so much of it netted out and we talk about that a little bit in the financial statements, but historically we have netted a lot of the revenue out and our gross numbers are significantly higher. So Bill Weber who is in charge of services for us is here and maybe he can take us to the gross number to really explain what’s happening with the business.

Bill Weber

Sure, let me just address that. 2007 the way that we would categorize it was really the end of our marshalling exercise of really collecting up the revenues on the services side, that GTSI had been just dabbling and they really -- there was no focus for a number of years and trying to get control of those revenues so that we could drive the business in the direction we wanted to and so there were delivery services that in the past GTSI would really act as a past group from our large OEM providers or subcontractors that were using our prime vehicles. We needed to collect those up and start to put those under GTSI project management so that we could then act as the delivery engine of that, similarly the support services contracts that ran through GTSI in previous years really were just OEM provided support services.

Again we needed to put that under management so that we could start to do GTSI custom support contracts and then the third piece of that is our integration support where once again we would just be fulfilling on either a large OEM or a smaller sub contractors requirements instead of riding the GTSI scope that our engineers will deliver on in the integration center. So collecting all that up and now really turning up the volume in terms of GTSI badged people, being out on site having the relationships with the customer and driving that revenue growth is where we finished the last half of 2007 and what we are going to see in 2008. So what you are seeing is very much the combination of a focused plan that we started about two and a half years ago and as Joe its difficult capture that when you look just the top line revenue numbers because of the netting functions that some of that revenue in the past has had a characteristic of for proper accounting purposes.

Scott Freidlander

Just to add on to those comments, let me talk about what we’ve done on the front end of the engine in terms of sales, marketing sales and capture in business proposals. We restructured over the course of the last let me say a year during the course of ’07 and into ’08 I think in a very affective way the sales force we have put in more strategic like people that are BD function going after a larger scope project program level and we’ve also attired their compensation dramatically to service this business both at the professional services line and at the financial services line so in addition to that we put in a capture organization business proposals that’s also tide and in the line with those delivery capability. A lot of this which just hasn’t been in the Company prior, so I think though as the Company is moving forward it’s moving forward exactly in the same common goal and we are seeing a lot of the synergy all tied to what Joe said previous, six strategic core partners around this whole TLM model, technology Life Cycle Management and infrastructure to the services. The deal size is getting much larger and we are focusing on much fewer deals and much fewer programs if you will.

Steve Raineri - Franklin Templeton

First of all service cost of sales were up, which I am perplexed by.

Jim Leto

Hold on a second okay? Let Bill give you some specific data points. I know what you are looking for.

Bill Weber

The story as much as we have great confidence in it and it certainly can be proven out by seeing the motion that we have in the field and what we are actually delivering. Obviously we have to quantify that. So if you look at 2007 and all of the revenue sources that we bring in services wise under GTSI management and still delivered by subcontractors and our OEM partners, that top line number is right at $140 million for 2007 for the year just closed.

Steve Raineri - Franklin Templeton

Alright.

Scott Freidlander

That’s the way we represent the business. At $140 million and in addition to that about $22 million of gross margin. The difficulty we have in year-over-year comparison Steven and we are actually guiding a way from that is that there were $20 million of restatement adjustments that’s flown through the financial statement and some of those material amount went through services and it makes it hard to compare year-over-year. So we are really focused on nearly 40% gross margin coming through the business today, that’s off really eight days on a gross basis, $140 million in revenue which we feel very confident in the amount that we will be able to grow that services margin year-over-year, ’07 to ’08. So I understand I am…

Steve Raineri - Franklin Templeton

I guess when you guys talk about numbers $140 million, like it’s very hard for us. It’s no where on the financial statement and you don’t mention backlogs or anything.

Scott Freidlander

It’s actually disclosed -- the netting amounts are actually disclosed in the MB&A and I know that’s hard. We probably should be better at giving what those gross numbers are.

Steve Raineri - Franklin Templeton

It’s a pretty large difference taken out from there.

Scott Freidlander

Yeah, absolutely, absolutely but for example the netting amounts went up year-over-year and that’s just the nature of the revenue that came in, in ‘0, but really the business being at $140 million gross is the best representation and we grew a little bit year-over-year there, but it was really -- there were significant shifts in the sales mix of $140 million year-over-year. As Bill said we are really moving things, GTSI-badged people, so we're getting them off of OEM delivered services to GTSI delivered services which is the major shift of our professional services group to be able to grow from, so..

Steve Raineri - Franklin Templeton

I mean what’s the biggest -- I don’t want to bore the call, but what’s the biggest item in the netting. For example why would there such a large difference, just one of the category?

Scott Freidlander

One of the categories for example is maintenance services provided, specifically if we have something for Cisco products called SmartNet where Bill actually has a group that goes out and captures that revenue and has really improved the attached rate but you don’t see any of that in the revenue number because it’s all netted, so that’s for a Cisco server where Cisco is providing the maintenance and we sell it along with the products, so…

Steve Raineri - Franklin Templeton

You sell the maintenance agreement along with the product with Cisco supplying the maintenance.

Scott Freidlander

Yes sir.

Jim Leto

They provide the support services and the reality is that services products that it would foolish for GTSI to try to build a support organization, that could support the routers and the switches and a Cisco core infrastructure the way that Cisco does. SO what we use that for quite frankly is a jumping off point for the rest of GTSI services. So we use that as a reason to go in with our engineers and help them design their next generation and use that to do integration work and then to do project management, so it’s very valuable but the reality is Cisco provides the best maintenance and warranty of their core products set than anybody in the market.

Steve Raineri - Franklin Templeton

No, that’s fine. Is service rent? Service costs were up $1.5 million. Why is that while revenues were down $5 million?

Scott Freidlander

These services cost a good while and this is just the top of my head Steven because they are not really up the prior years had adjustments, restatement adjustments in there that were benefits to the cost involved. I don’t know if you may have earlier when I was discussing…

Steve Raineri - Franklin Templeton

Yeah, I remember, yeah okay.

Scott Freidlander

For example Q4 had $6.9 million of non- recurring adjustment. It makes it really hard to compare year-over-year, so I apologies for that.

Steve Raineri - Franklin Templeton

That’s okay. We are a really small Company but the financial statements are really -- there’s too many puts and takes in the financial statement.

Scott Freidlander

But we are really trying to make them as even more transparent, so we will try to get better and better every filing.

Steve Raineri - Franklin Templeton

Okay and just finally, it’s March 14 now. Are we going to buck the trends and actually have a profitable first quarter?

Jim Leto

I am not going to provide that kind of guidance. That’s if I was to say that if you compare first quarter 2008 to first quarter 2007 your going to see a marked change in the quarters performance.

Steve Raineri - Franklin Templeton

An improvement you say. Okay. Thanks a lot guys.

Jim Leto

Thanks Steve.

Operator

Thank you for your question sir. (Operator Instructions) Our next question comes from David Cohen with Athena Capital Management. Sir please go ahead.

David Cohen - Athena Capital Management

Couple of questions about the first quarter that you won’t want to answer but I’ll see what I can get out of you. At what point did you say that we basically anniversary the run off of lower margin revenues in exchange for higher margin revenues. In other words we have been facing a pretty big head wins in terms of being able to grow the revenue line because you have been trying to change the mix. How far through that process would you say you are?

Jim Leto

We budgeted this year growth in the top line and significant growth in the bottom line and I think this is the year that we see optimization of the sales mix in such a way as to -- we have done as we reduces roughly $200 million worth of product sales in our product sales of low margin products that consumes a lot of our operating expense. We think that we have bottomed out and we forecasted and budgeted 2008 as a growth year in both the top line and significant growth in the bottom line. The first quarter historically has been negative and I don’t know that I am aware -- I have been on the board for 11 years now. I have never seen a profitable first quarter and I suspect that we will get as close to profitability in the first quarter of 2008 as we’ve ever been and I think the fact that we carried $70 million in sales over as a result of the late signing of the supplemental budgeting bill, boards well for the balance of the year as well. I don’t know if that answers the question David.

David Cohen - Athena Capital Management

That’s a pretty good shot. That also almost answers the next question which is do you want to try and put a number on -- that $70 million I guess is the number that I am looking for. What I was going to ask you was what didn’t fall in the fourth quarter that you think will swap over in the first quarter and it sounds from your answer that it might swap beyond the first quarter. You want to sort of try and put some numbers around that.

Jim Leto

It’s hard to put it. We do our budget review every Thursday evening. It starts at 5 O’clock and lasts for a couple of hours and we take a look at every major order that’s pending and we try to forecast what our shipments are going to be. My guess is half of the $70 million that got pushed into 2008 will book in the first quarter and most of that will shift. The balance will spread over the balance of the year. Had we booked it all in the fourth quarter, we would have had a blow out year and we didn’t.

David Cohen - Athena Capital Management

Okay and then the only other question that I wanted to ask you and I may have missed this in your remarks is if you look at the fourth quarter gross margin versus the third quarter -- well versus the year as a whole it was down and I just want you try and talk through that with us if you could?

Jim Leto

It was down if you compare quarter-to-quarter for fourth quarter of 2006 to 2007 largely as a resolve of about $6 million worth of adjustments that went through the bottom line in the fourth quarter of 2006 that Joe mentioned earlier. 13.5% gross margin contribution for the fourth quarter we viewed to be pretty good performance and it would have been significantly higher a lot of the $70 million that got pushed was consummated and shipped in the fourth quarter.

David Cohen - Athena Capital Management

Alright, but what I don’t understand is that you are quoting 14.5% gross margin for the year as a whole, only 13.5% in the fourth quarter. The fourth quarter had more than 25% of the sales, I am assuming there may have been some mix issues, but I’d like as much specificity as you can give me.

Jim Leto

Scott can probably chime in here but I think the government goes on a feeling frenzy in September which is the fiscal year end of the federal government and a lot of that are small order activity which gets shipped in the fourth quarter that was booked in the third quarter and that typically draws down your fourth quarter margin. It’s a lot of product stuff where the government is spending as much as they can to finish up the budget year.

David Cohen - Athena Capital Management

So would it follow that any -- what I called head wind from us trying to migrate the mix to a richer mix might have been accelerated in the fourth quarter because typically we got more of the orders that we no longer want to fulfill and is that going on.

Jim Leto

That’s pretty hard. We -- if the government -- the government contracting officer wants to call an order a laptop, I can’t deny that order even though it’s low margin and even though there is a high cost of operations to deliver that order and a lot of that order activity occurs at the end of the governments fiscal year when there is a rush to spend whatever budget monies are left and consequently the fourth quarter ends up delivering a lot of small order activity with a low margin associated with it.

David Cohen - Athena Capital Management

Fair enough. Thanks.

Jim Leto

Okay.

Operator

We thank you for your questions Mr. Cohen. Our next question comes from Jason Harris with Peninsula Capital. Sir please go ahead.

Jim Leto

Hi, Jason.

Jason Harris - Peninsula Capital

Hey guys. I just wanted to just clarify that you mentioned you paid down the $10 million in long term debt?

Jim Leto

That’s correct.

Jason Harris - Peninsula Capital

And then are you saying Joe that you guys are debt free currently.

Jim Leto

Absolutely. We are debt free, We have cash in the bank and we have been in that position for over 30 days.

Jason Harris - Peninsula Capital

So at the end of March there will be no borrowings under the credit facility or --?

Joe Ragan

That depends on what the cash flow is. The end of the quarter is a significant -- there is generally a significant movement, so we are projecting to be out of the facility at this point but that could change, we could be slightly into it, but we’ve been out of the facility for over a month.

Jason Harris - Peninsula Capital

Okay. And the -- you anticipate that -- someone alluded to that earlier, but when you look at the sort of the low margin revenues that have run off over the last couple of years are you guys intending to pay revenue growth in ’08?

Jim Leto

Yes.

Jason Harris - Peninsula Capital

And so you feel like you are kind of through a lot of that?

Jim Leto

We budgeted revenue growth for 2008 and we think that, that the attrition of the revenue is your call. The first comps call I ever had I said I rather run at $700,000 profitable company than a $1 billion unprofitable company and we have taken out a lot of revenue that’s low margin, high operating expense and I think we pretty much bottomed out on that revenue.

Jason Harris - Peninsula Capital

Okay, thanks.

Operator

Thank you for your question sir. (Operator Instructions) Thank you Mr. Leto, there are no questions at this time.

Jim Leto

Thank you all for joining the conference call. We really encourage you to pay attention to what’s going on in the company. We are pretty excited about the prospects for 2008 and I bid you farewell. Thank you.

Operator

Thank you for your continued interest in GTSI and for participating in this conference call. I look forward to speaking with you all in the future. Thank you.

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