Good afternoon. Welcome to WidePoint's Third Quarter 2019 Earnings Conference Call. My name is Christie and I will be your operator for today's call. Joining us for today's presentation is WidePoint's President and CEO, Jin Kang; Chief Sales and Marketing Officer, Jason Holloway; and President and CEO of Soft-ex Communications and WidePoint Interim CFO, Ian Sparling. Following their remarks we will open up the call for questions from WidePoint's publishing analysts and major institutional investors. If your questions are not taken today and you would like additional information, please contact WidePoint's Investor Relations team at wyy@gatewayir.com. Before we begin the call, I would like to provide WidePoint's Safe Harbor statement that includes cautions regarding forward-looking statements made during this call. The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of WidePoint Corporation that involves risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Finally, I would like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at www.widepoint.com. Now, I would like to turn the call over to WidePoint's President and CEO, Mr. Jin Kang. Sir, please proceed.

Thank you, operator and good afternoon to everyone. Thank you for joining us today to review our financial results for the third quarter of 2019. In the third quarter, we continued to build upon the momentum generated by our financial and operational success in the first half of the year. From a financial perspective, the quarter was highlighted by a 39% increase in revenues to $29.6 million and a 69% improvement in adjusted EBITDA to $949,000 compared to the same quarter 2018 and positive net income of $184,000. It's worth noting that the increase in revenue was primarily due to a substantial increase in carrier services revenues as a result of a successful project related to the work we are doing on the 2020 census project. We will discuss this project in a little more detail in a moment. As a reminder. carrier services comprise a lower margin portion of our business. However, I want to highlight that our managed services revenue also increased by 23% year-over-year, which helped drive an increase in gross profit and contributed to the second positive net income quarter of 2019. As a reminder, the gross margins on managed services revenues are closer to 50%. So, when we discuss building leverage in our business and driving bottom-line profitability with higher margin contracts, these are the types of contracts we are usually referencing. However, before I dig too deeply into the financials and seal some of the deals under, I will take a few moments to discuss some of our operational and strategic highlights for the quarter. We, at WidePoint, are in the business of managing, securing, and helping our customers gain insight into the use of their telecom and mobile assets, which in today's world are largely comprised of mobile devices. Management of mobile assets…

Thank you, Jin. Good afternoon, fellow shareholders. As I've discussed on previous calls, one of our sales tactics is to partner with large systems integrators to win portions of large contracts that otherwise would be beyond our reach. These partnerships will allow us to leverage the existing sales teams of larger organizations and ensure that we can operate a lean and effective sales force. They also allow us to penetrate new markets and establish new relationships with potential customers by helping spread WidePoint's name and the efficacy and value of our solutions. But as we've also discussed, it is often the case that these large systems integrators need us just as much as we need them. They rely on us to bring our unique TM2 solution set to the table, which frequently helps fill the requirements of a contract that they lack. And in the case of the NASA and Census win that's exactly how we were able to position ourselves and ultimately capitalize on the opportunities. In the particular case of CDW-G, they are responsible for supplying the physical devices that will be used by the enumerators to conduct the survey. They are bringing all the hardware and logistics to the equation. However, they are not in the business of managing devices. That's where we come in. TM2 fills the gap not only for large systems integrators like Leidos and CDW-G, but TM2 scales for small business partners like Syntec Corp as well. WidePoint possesses the critical piece of the puzzle that is in a large number of RFPs that are currently being released, which the partners lack because it's not in their area of expertise and is fundamental to winning contracts. Along with filling the gap, our partners bring us into the equation for our key differentiators and…

Thank you, Jason. As noted in our earnings release, during the third quarter, we delivered improved revenues, generated positive adjusted EBITDA for the ninth consecutive quarter and earned positive net income for the full nine months ended September 30, 2019. Our overall financial performance for quarter three was in line with the revenue and EBITDA guidance that we noted on our Q1 call. Turning to our results for the third quarter ended September 30, 2019. Our total revenue increased 39% to $29.6 million from $21.3 million last year. This improvement was driven by increases in both our carrier services revenues and our managed services revenues. Carrier services increased by 57% to $20.6 million from $13.1 million last year. The increase in carrier services was primarily due to a onetime project implementation of the U.S. Department of Commerce, which supports the 2020 census. Managed Services increased by 23% to $7 million from $5.7 million in the same period last year. Managed services revenue increased, due to expansions with existing government and commercial customers, as well as an increase in sales of accessories to government customers. Our gross profit increased 17% to $4.3 million or 16.6% of revenues from $3.7 million or 17.3% of revenues last year. The decrease in gross margin was driven by the increase in carrier services and lower margin reselling during the quarter. Operating expenses increased by 7% to $4 million from $3.7 million last year. This year-over-year increase was principally due to a number of one-off costs incurred in quarter two 2019. GAAP net income was $184,000, an improvement from a loss of $110,000 in Q3 last year. On a non-GAAP basis, adjusted EBITDA for the quarter 2019 increased to $949,000 from $561,000 last year. For the first nine months of 2019, our non-GAAP EBITDA was $2.6 million compared to $768,000 in 2018. Shifting to the balance sheet. We exited the quarter with $7.1 million in cash, net working capital of $4.9 million and approximately $5 million available to draw down on our credit facility. In addition, adoption of new policy on leases had led to the generation of material assets and associated liability within the balance sheet, the details of which can be found in our 10-Q. Our cash reserves have continued to grow and we expect this trend to continue with each quarter of positive performance. Before I turn it back over to Jin, I want to reiterate that we believe we will continue to build upon the financial strength of WidePoint in a manner consistent with that already demonstrated over the last two years. We remain excited about the future prospects and will continue to work hard to meet our financial goals. This completes my financial summary. For a more detailed analysis of our financial results, please reference our Form 10-Q which was filed prior to this call. So with that, I would like to turn it back over to Jin.

Thank you, Ian and Jason. Before we open the call to questions, I would like to address a few more important points about, which I know many of our shareholders are curious. As part of our operational strategy, we are always working to improve upon our robust set of credentials. For that reason, we are continuing to push for a FedRAMP certification and I'm pleased to report that process has been going well. We will be engaging a third-party assessment organization or 3PAO which is an organization accredited by the federal government to help companies meet FedRAMP certification to help us prepare our systems and associated documentation for the eventual certification. We are also continuing to move forward with other ATO activities for various federal agencies. As you can imagine with government certifications, this process can be a bit convoluted. And I'd be happy to go into more detail during our Q&A session, if there is interest. Suffice it to say that, progress has been steady and we will provide additional status updates in our future calls or through timely press releases. Additionally, I'm happy to report that we are reaching the final stage of our search for a new CFO. We have a highly qualified finalist with whom we are in final negotiations. We won't be sharing the candidate's name or background on today's call, but we do anticipate having an announcement to share shortly so please stay tuned. And lastly, at the start of October we announced a $2.5 million share repurchase program. As we continue to generate cash from operations and strengthen our balance sheet, we're always evaluating the best means of using those tools to benefit our business and our shareholders. The management team and the Board of Directors concluded that given the health of our…

Thank you. The floor is now open for questions. [Operator Instructions] And we'll take our first question from Mike Crawford with B. Riley. Please go ahead.

Thank you. I think I have three questions. The first one relates to this new work you're doing with CDW. So that's a great upside this quarter. And what is in the backlog or in future expectations for the managing of those 400,000 or so devices?

The CDW work will start in earnest in the first and second quarter and ramping-up towards the middle of the year. And then, we should stay at that level till the end of Q3 and then start to trail away in the fourth and the first quarter. The revenue – the top line revenue and the bottom line revenue from that should be very similar to what we experienced in the third quarter.

Okay. And is it on like a monthly per device management type of basis?

No. No. It's not. It's based upon time and material labor in services.

Okay. Jin the other highlights of the quarter for me was the jump in managed services revenues to over $9 million in the quarter, including over $7 million of managed service fees those as you mentioned are the 50% gross margin type revenues you have that are most valuable. So is that things that you're building upon now? Or is some of that kind of one-time-ish that you might pull back one step back two steps forward type deal?

So there was -- the census part was a one-time but that we should restart that in the beginning of the year. And then there was a large portion of that contributed from our NASA project that we had a press release recently. And so those are the two that had the biggest impact on the revenue. And so we'll see the NASA part continue on. The census there will be a slight dip in the fourth quarter but pick up pick back up again in the first quarter and the second quarter and on.

Okay. Thanks. And then the final question relates to the guidance. I don't understand the guidance. You say there is a good possibility you're going to land in the upper half of the guidance. But the top end of your revenue guidance implies to get to $93 million, you'd have to do $19 million of revenue in December. It's been -- it was June 2018 the last time you had revenue that low. I know carrier services can go up and down but I don't see why carrier services would go below $13 million say in a quarter. So maybe you can help reconcile your excellent performance and the good prospects with that just reiteration of guidance versus a change in guidance?

Yes. So we are reiterating the guidance. And we are pretty confident that we'll be near the top end of the range of those guidance. But we don't want to be too euphoric. I think that we -- you have a very good chance of hitting the $93 million. But we like to under-promise and over-deliver. And so -- and there will be some drop off in the carrier services revenue in the fourth quarter and -- because of the census. And then it's difficult to tell what's going to happen in the fourth quarter with all of the carrier services and the budget issues with the federal government.

Okay. Great. Well, thank you very much.

Yeah, Mike.

And our next question comes from Barry Sine with Spartan Capital. Please go ahead.

Hey, good evening gentlemen.

Hi, Barry.

First question. Congratulations on the draft RFP for DHS. I know that's a big milestone as to finally see some movement there. Question is -- just on the process. Is there a public comment process on the draft RFP that was issued or no?

Not this time around. There was a draft that was issued at the beginning of the year and they took questions and comments at that time. This time around they issued the draft RFP without any questions and comments period. They kept the RFP open. The RFI, RFP open up until the seven of November. And so there will most likely be a question-and-comment session when it comes out as a final RFP.

And do you have any comments on what you're seeing in terms of -- do you like that? Is that favorable to WidePoint? And you talked about the possibility of FEMA. Can you not tell from the text of the draft RFP whether there'll be a big FEMA component in there or not? Or is that just on how it works?

Yeah. So, two questions there. So the first thing is that we did see a few items in there about the evaluation criteria. And I think one of the big evaluation criteria that they mentioned was that this was going to be an award based upon the best value to the federal government. And I think that in our past experience has always favored the incumbents. So we see that as a good sign. In terms of FEMA, they do mention all of the components of DHS and FEMA is one of those components. But it's unclear, because FEMA was also mentioned in the very first contract that we won with DHS, but they only participated in a small way. But I think this time around, we foresee that there may be a larger component of FEMA coming into this RFP.

Okay. And then switching gears, I wanted to ask about your progress with non-government customers, private sector customers. I know that's a smaller part of your business, but there should be an equal need for your services among that segment and particularly for a partner such as CDW. If I think about the total customer set of the CDW and a very small percentage of those customers probably have WidePoint another percent as your competitors, probably a bigger percentage don't even have a formal process. How are you going after those private sector customers? And what do you see as the opportunity?

We're doing a few things there on that front. Obviously we're teaming with these large systems integrators as you mentioned Leidos, CDWG, Samsung, AT&T and so forth. We do have a significant number of opportunities that are commercial opportunities. Some of them are -- where we are teamed with the large integrators and some of them where we are the prime. We have also been invited by various commercial entities Fortune 500 companies where we have put in proposals. And we as a practice -- as a general practice, we will put our proposals in, even though we're late in the cycle because what we want to do is we want to build our pipeline for long-term. Meaning once we get our name out there, once we get noticed by these large companies -- commercial companies, they'll invite us the next time the contract comes up for renewal or if they're unhappy with the incumbent. So we have a few of those opportunities that we responded to in the last several months and we see it bearing fruit and hopefully in the next several quarters.

Could you give us a very rough sense of what you believe the untapped opportunity is for Fortune 500 for your -- the services you offer? I'm assuming a lot of them are not using a formal service today and that they could benefit. Do you have any idea, what the penetration is between yourselves, very small, your competitors are probably very small, some informal internal solution and no solution whatsoever?

Yeah. A lot of these larger -- large commercial customers they do have a formal process for managing. Sometimes they are in-house, but a lot of times that there are larger, better capitalized companies that do the telecom life cycle management for them. The way we have been competing with these large commercial competitors is that again we provide our -- what we call Trusted Mobility Management or TM2 where we're outcompeting with these large better capitalized competitors by providing a full range of services. Again manageability, security and visibility. Our competitors will provide one or maybe two of these solution sets. We provide all three in a very integrated way. So the other thing that I forgot to mention is that we have engaged with a partner group to get our names even further out there, so that these folks will find out more about us. Commercial entities seem to rely on entities like Gartner and Forrester to do their analysis and comparison. So we've engaged with them. And so we see a lot of activities happening there. Also in terms of the opportunities on the federal government side as you know, we are at DHS, but there are an additional 19 or 20 cabinet level departments that are out there where we do have some presence, but we see that as a fairly large Greenfield market.

Right. There was a state department cell phone in the news of the impeachment hearing today.

Right correct.

Last question on the buyback. That was announced and approved in October, but it looks like from the 10-Q, nothing has been on about I think you said in the script that you have not implemented that yet. Why have you waited? Was there a regulatory requirement? And what is your posture going forward? The stock has been pretty inexpensive. I think it's still negatively impacted until you get an award on DHS. So, there's an opportunity out there.

So, the answer is yes. We did announce the buyback, but we are required to implement those plans during the open window. So, we are going to put a 10b5-1 plan to repurchase the shares during the open window which will be -- which will start a day from tomorrow -- close of business tomorrow.

Okay, those are my questions. thank you very much Jin.

Okay, great. Thank you, Barry.

[Operator Instructions] And next we'll move to Sam Donaldson, an Investor. Please go ahead.

Gentlemen I don't have a question, but I have a big hearty thanks to you Jin and to your colleagues who have clearly turned this company covering around. And for some of us who've been with it for 15 years or more, this is a huge light at the end of a tunnel that's been pretty dim. I thank you. I expect good things ahead and I appreciate all the work you've done. That's all I've got to say.

Great. Thank you very much Sam. Thank you for your support and thank you for those kind words. We really appreciate it.

Keep going. Bye, bye.

Thank you. Bye, bye.

[Operator Instructions] It appears there are no further questions at this time, so I will turn it back over to management for closing remarks.

Thank you operator. We appreciate everyone taking the time to join us today. As the operator mentioned if there were any questions we did not address today please contact our IR team. You can find their full contact information at the bottom of today's earnings release. Thank you again and have a great evening.

And that does conclude today's teleconference. We appreciate your participation. You may now disconnect your lines and have a great day.