Alan Baldwin President and CEO	Peter Gaffney Executive Vice President for New Business and Technology

[Satellite News – 2-7-08] Alan Baldwin has served as interim president and CEO of Integral Systems for nearly nine months, presiding over three quarters of record profits and growth as well as bringing in more government contracts.
    Baldwin was serving as director of Integral when he was elected to his interim position in June, taking the helm from Pete Gaffney, who is now executive vice president for new business and technology.
    “Our goal as a board was to settle the company down and to make it very clear that we were no longer being shopped, we were no longer interested in being sold and we weren’t out actively trying to sell,” Baldwin said. “Rather than that, we were turning our attention to putting everybody back to work. We have wanted everybody to take a deep breath and turn their focus back to doing what company does well and turning our attention to growing the company. In that process we created the position we moved Pete to related to business development and technological development.”
    The pair spoke with Satellite News News editor Jessica Pearce about the future of Integral systems and plans to grow and expand the company.

Satellite News: What goals did you have for Integral when you assumed your new role?

Baldwin: We’re very serious about wanting to approximately double the size of the company over the next four or five years. We will do that with a combination of a growth of the base or core business but also to add a series of acquisitions that are targeted. We’ve laid out what we’re trying to do in terms of the kinds of companies we’re interested in and where we would like to add capability. We’re interested in acquiring companies that are profitable, accretive and that will add a positive to what we’re doing with the idea that we can become bigger, more pervasive in the marketplace and that we can provide a broader set of answers to our customers. Also that in the process we will have a broader shareholder base with more float, and more representative stock as viewed by investment communications. I think we’ve made great progress.

Satellite News: What are you doing internally to expand your business?

Baldwin: We’ve taken the time to set up and staff the security side of our business in terms of how we handle classified information and in the ability to seriously go after added classified programs on the part of the government. That’s part of what we want to do from a growth point of view. … We’re very active and equally intent on developing a series of acquisitions in terms of products and capabilities that we can add to this company so we’ve got more to sell to our customers. We want to be more pervasive and go after not only the kind of business that we’re now doing, both commercial and government, but also go after classified business.

Satellite News: What kind of contracts is Integral pursuing in order to grow the company?

Baldwin: We recently were one of two successful bidders on the next generation GPS program. We’re working diligently to ensure that we and our prime partner, Northrop Grumman will be successful on next round, which is a downselect to a single bidder. We’re also working diligently to be a successful bidder on the next round of [U.S. National Oceanic and Atmospheric Association] weather satellites, GOES-R. We plan to be very aggressive in going after that.

Pete Gaffney: We are the dominant supplier of ground systems in the commercial market. Just about every commercial satellite operator is our customer. We gained that market share by introducing a set of commercial-off-the-shelf systems and lowering acquisition costs and lowering the sustainment costs of the ground systems for those operators. We then took that business model and applied it to U.S. Air Force and won the Command and Control System-Consolidated (CCS-C) contract to consolidate all Air Force ground systems for their communications satellites onto a single system. That program has been very successful. It has significantly lowered the acquisition cost in comparison to cost of the previous system. We also lowered the sustainment cost by more than 50 percent. We believe that one of the reasons the Northrop-Integral team was selected for the GPS ground system was due to the success of the command and control system consolidation. It’s been one of more successful ground system programs the Air Force ever had.
    Now our plan is to take that business model and apply it to the classified market. It’s an area where we’re doing just a little bit now, but we believe the classified market is as big or bigger than the Air Force market and that presents to us quite an opportunity for growth. We are working and bidding on several classified program. Currently we have two, one of which is a ground system development contract [where] we are a subcontractor to one of large primes for that program. We are hoping to hear something in this fiscal year on another we’re bidding on.
    We also have a number of products that are applicable to other markets, such as the UAV (unmanned aerial vehicle) market. We’ve got products that do satellite communications and digital signal processing products. A number of UAVs use satellites for communicating or routing back video and other sensor data to command centers. We’ve got products that are applicable to communications with UAVs and also products that are applicable to interference detection related to the UAV. UAVs are remotely controlled and we’ve got interference detection products that are applicable to the frequency space used by remote control UAVs. For clearing out and identifying and doing direction finding on signals that might interfere with control of the UAV. There have been some problems in that area and our products fit nicely in that and the timing is right.

Satellite News: How important is it for Integral to win the GPS contract?

Baldwin: It is extremely important in that it’s a much larger contract, almost by an order of magnitude. It will extend from early or middle of 2009 out through 2024. It’s also very important in that we have quoted everything we have developed for CCS-C for the Air Force. The intention would be that we would utilize same sets of capability from CCS-C to do ground station command for the GPS also. It’s obviously intended to be very cost-effective for the Air Force to do, but they would also be using a system that has been tried and proven and been very successful, very cost-effective and very timely in terms of meeting schedules. All of these are very important with these very large procurement programs on the part of the government, which are typically overrun in budget and time. CCS-C was not that. It was very much on schedule and in budget, and we’d like to believe that on GPS-3 we’re able to offer the same kind of service in a cost effective way. It’s very important for the company and the future of company. We’re not going to fold up and go out of business if we don’t win, but it’s a very important program and we are very committed to being successful in pursuing that program.

Satellite News: Do you see any growth in Europe?

Gaffney: We are definitely looking to get more European business. We have a very successful program doing the ground system for a European meteorological satellite for Eumetsat, the European meteorological agency. We are working with them to get a sustainment contract for a number of years going forward with that. We also believe that there is an opportunity for business in the satellite networks area in Europe. We’ve got a set of products that do network management for satellite networks and hybrid networks. There are a lot of Eastern Bloc countries that are putting in satellite networks for communications, and they’re tying them in to their ground infrastructure to create a hybrid network. We’re working with some European partners on providing network management to provide monitor and control and quality of service for those networks.

Baldwin: We should talk also globally. In terms of international business, we do offer a very broadly international business into Asia, into South America, Africa and certainly in Europe. There’s a good deal of activity there that we are currently involved in and continuously working to increase. We work through Europeans as they work to the Middle East [as well as] directly to the Middle East. We are very active with Asia with Japan, Korea, Taiwan, Vietnam, Australia, most anywhere there’s satellite that is being developed and is going to be launched and needs ground station command and control.

Satellite News: Did your first quarter performance meet your expectations?

Baldwin: We put out guidance [last year] that was pretty aggressive with respect to 2008. We’ve now gone through the first quarter of 2008, and we’ve had extraordinary positives in that first quarter. We had a bang-up first quarter. I don’t think it did a great deal for us in the stock market, but the stock market is having its broad level troubles anyway. We put out very strong first quarter and in the process we increased guidance for the year. Our outlook for 2008 is very strong, we indicated we’d be up 10 percent in revenue, then we increased earning per share to about the $1.50 level, all of which is very, very positive.

Satellite News: How have the stock market fluctuations and the economic slowdown affected your business?

Baldwin: In a broad sense it affects everybody’s business because it introduces uncertainty into the marketplace and into the economy. As long as that’s there there’s always questions and uncertainty related to business and government actions. Directly and specifically, I would argue, in the main, no, although we did mention in the conference call that we are running into certain areas related to what we’re doing in Europe slipping to the right. They’re slipping in schedule.  We expect a good deal of that to start to occur in the second quarter. We’re mindful of the fact that there are slips.
    At the same time I expect that the U.S. government will continue to tighten its belt and be that much more careful about how it’s spending taxpayers dollars and hopefully also being that much more effective in how it’s controlling the programs. All of that in many respects is good for us, because we’ve continued to offer the government a very cost-effective solution in terms of command and control for controlling satellites. … I think notwithstanding the concerns about recession, we feel pretty good in terms of outlook. We’ll do fairly well through this period.

Satellite News: Is Integral looking for a new president and CEO?

Baldwin: We’re not looking now. I’m interim CEO and that’s the desire of the board. I was on the board and came in at behest of board with the understanding that I would work diligently and actively in that position, and that I would do what’s necessary to do what we wanted to do to improve the company and put it on coarse of growth. I said I’ll continue to do as long as that’s what’s desired. I am perfectly willing to do what’s necessary in terms of what we’re trying to do to put company on growth curve.