Good afternoon. Welcome to WidePoint's Second Quarter 2020 Earnings Conference Call. My name is Taron, and I will be your operator for today's call. Joining us for today's presentation are WidePoint's President and CEO, Jin Kang; Executive Vice President and Chief Sales and Marketing Officer, Jason Holloway; and Executive Vice President and CFO, Kellie Kim. Following their remarks, we will open up the call for questions from WidePoint's publishing analysts and major investors. If your questions were 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 the call. The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of WidePoint Corporation that involve 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 second quarter ended June 30, 2020. As you all know from our last call, we started off 2020 with a bang. Q1 was an extremely successful quarter in which we grew revenue substantially and drove positive net income. Today, I'm very pleased to report that those positive trends continue throughout the second quarter. As a result, the second quarter of 2020 can certainly be classified as one of the most successful quarter in WidePoint's history. For the second quarter of 2020, our revenue increased to $54.8 million. This is a record for WidePoint. It is an increase from the $22.1 million we reported in the second quarter of last year. And it's also a sequential improvement from the $39.7 million we reported last quarter. Obviously, the substantial increase in revenues is a highlight for the quarter. But before we get too far ahead of ourselves, it is worth reminding everyone that there are two components to our revenues. There are carrier services, which is very low margin, and there are managed services, which are closer to 50% margin. Due to our ongoing work with the U.S. Department of Commerce to support the 2020 census, carrier services revenue constitute an uncharacteristically large percentage of our revenues this year to be sure they are driving the top line, but their contribution to our bottom line is not as substantial. As you all know, the goal of this team, since we took over the business in 2017, has always been to grow profitably. For that reason, what's perhaps more encouraging is that our managed services revenues, which do drive profitability because of their high margins also increased year-over-year. During the second quarter…

Thank you, Jin. Before I talk about some of our sales progress from the quarter, I do want to piggyback on some of Jin's comments about census and how it relates to the sales team. As Jin discussed, census is an incredibly important contract for us this year. And although the financially material work with census will only last through the start of next year, this contract will continue to benefit WidePoint beyond its intended lifespan because it serves as an excellent case study for us as we work to land new business. This is one of the largest and highest profile managed mobility services contracts in the country. I would like to take a second and say that every executive at WidePoint is working extremely diligently to replace the revenue after the census project has been completed. It's not like we're just sitting on our hands, complacent and satisfied that we want census. We know that replacing the revenue will be a challenge, but we're certainly up to it. And it's that same mentality that allowed us to win the census contract in the first place. Those of you familiar with our industry will know that WidePoint has some excellent customer logos. But we're always looking to improve this collection. There remains a great deal of room for us to run in the federal, state and local space as well as in the commercial space. And as we chase after increasingly larger contracts and as we work to build new relationships with systems integrators, it's extremely helpful to have a prominent case study we can point to that clearly demonstrates our organization's scalability and flexibility. When we approach new customers, not only can we say that we're one of only two companies authorized by the federal government that has…

Thank you, Jason. As noted in our earnings release, we continued many of the major trends from last quarter, producing record revenues, positive EBITDA and earning positive net income. Turning to our results for the second quarter ended June 30, 2020. Second quarter revenue was $54.8 million, up 148% from $22.1 million reported for the same quarter last year. Carrier services revenues increased 220% to $44.9 million from $14 million in the second quarter of last year. As a reminder, revenue from carrier services are very low margin revenue, and in the second quarter of 2020, it accounted for 82% of revenue compared to 53% in the second quarter of 2019. I want to highlight that managed services also increased by 22% to $9.8 million from $8.1 million in the second quarter of last year. The increase in managed services was primarily due to expansions with existing government and commercial customers, increases in sales of accessories to government customers and increases in billable service fee revenue delivered through our partnerships with large system integrators. These increases were partially offset by a decrease in reselling and other services due to the timing of product resales in the prior year. For the six months ended June 30, 2020, our total revenue was $94.4 million, up 115% from the $44 million we recorded in the first six months of last year. For the first six months of 2020, carrier services revenues were $73.1 million or 77% of total revenue and managed services revenues were $21.4 million or 23% of total revenue. This compares to carrier services of $28.4 million or 64% of total revenue and managed services revenues of $15.6 million or 36% of total revenue in first six months of last year. As the numbers demonstrate, year-over-year growth for both the quarter…

Thank you, Kellie and Jason. At the end of last quarter, we were very optimistic about our prospects for 2020. But because we and the rest of the world were just adapting to the pandemic, we didn't have enough visibility to issue full year guidance. Essentially, we didn't know what we didn't know. However, with more insight into how people are functioning in the pandemic, we gained the clarity we needed to provide what we believe to be an accurate forecast of our financial performance. On June 18, we issued financial guidance for full year 2020. We were projecting revenues to range between $185 million and $195 million, which would represent an 87% growth year-over-year at the midpoint; EBITDA of $3.0 million to $3.4 million, which would be a 13% increase at the midpoint relative to last year. The substantial improvement in top line, coupled with modest growth in the bottom line mainly reflects the increase in carrier services related to the census project. As I mentioned at the start of the call, when that contract ends, we should see our margin profile tick back up, especially if we're able to offset some of the census attrition with managed services revenues from new contracts. It is our goal to increase managed services revenues, and we are actively striving towards that during the second half of this year. Given how well the first half of this year has progressed, and the indication that these trends will likely continue into the back half of 2020, we remain on track to meet our previously issued guidance. Should the situation change, we will provide updates when available. But for now, we believe these estimates are squarely within the realm of possibility. It's taken us some time to get here, but I believe we can…

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] We'll take our first question from Mike Crawford with B. Riley. Please go ahead.

Thank you, and thank you for providing both EBITDA and adjusted EBITDA numbers in the press release and then the EBITDA guidance for the year. So given that there was nearly $500,000 in stock-based comp in the first half of the year, if I – is it correct to assume that's about the number for the second half of the year? So I could translate your EBITDA guidance for 2020 into adjusted EBITDA guidance of $4 million to $4.4 million?

Correct. I mean, hello Mike, yes, you are correct. This is Jin.

All right. Excellent. And as far as these investments, the marketing that you're making in the second half of the year, is this primarily in terms of like headcount or otherwise?

We're going to be making a number of investments, and we're looking at those things that's going to have the biggest bang for the buck. One of the things is that we're investing in is, obviously, some of our marketing and sales, including Gartner and some of the lead generation services that's out there called FullFunnel. We're also looking at investment in like FedRAMP certification, moving to the cloud environment, infrastructure upgrades for our identity management solutions, ITMS portal enhancements that – just to make sure that our system is up to date, state-of-the-art, digital billing and analytics software. We're talking about our Ireland operations there and additional business lines development. We're working on solutions that we'll be bringing to the market. And we're close to it. We'll have press releases coming out, describing some of the new things that are happening within WidePoint.

Okay. Thank you. And then on the federal side, obviously, census big from your 10-Q, we can see that probably the next two biggest active customers would be ICE and NASA. Is that something that you expect to bounce around? Or is there something additional that you're doing for those customers?

For Immigrations and Customs Enforcement, ICE, and also NASA, those contracts are pretty steady. They're going to continue on. We have NASA for the next – I believe, the contract term was five year base with five one year options. And I believe ICE is part of the CWMS BPA, which we will make it, if all options are exercised, it could go out until October of 2022 And so it is part of that EWMS BPA recompete and again, we feel optimistic about our chances to win that, we win it, and that contract should continue.

Okay. I mean, to me, the best part about this report was the growth in managed services revenues from like $8 million to $10 million year-over-year. Is there – even as census tails off next year for the carrier services line, is managed services revenue something you would expect to continue to grow in 2021?

It's going to be a challenge for us because some of the census revenue is managed services. But we do have various things in our pipeline that will backfill that revenue source. So we have a very good chance of at least being flat and a good chance of being – we'll see an increase in managed services.

Okay. Great. And then last question is just on the commercial front. I mean working with CDW's government arm and SYNNEX and other systems integrators, at what point do we get some large commercial enterprise work that really turns the needle like what we've seen with some of your federal customers?

Yes. So the systems integrators – relationship with these systems integrators is bearing fruit. We are close on a couple of things. But again, because of our nondisclosure, we can't talk too much about it. But we are spinning up our identity management relationship with SYNNEX. We are having some success with our CDWG partner. And when we are allowed to put out a press release, we will. But I want Jason to just highlight some of our other opportunities that we have. Jason, can you go?

Sure. Hey, Mike, how are you doing? Hope you’re safe man. So as it relates to SYNNEX, even though that is primarily on the credentialing side, that has a really heavy emphasis within the commercial enterprise space. So it will be – we're actually targeting the regulated industry, such as health, transportation, finance and alike. So that is going really well. COVID has slowed it down a little bit, but it pertains more to just getting applicable contracts in place. And the one thing I did want to say when you brought up CDWG, as an example, we're actually happy to say that we have slipped to the commercial enterprise side of CDW. And we are actively working another deal with CDW on the commercial enterprise space. So it's too early to talk about it. We are cautiously optimistic. So stay tuned, brother.

All right. Thanks a lot, guys.

Okay. Thank you.

We'll take our next question from Barry Sine with Spartan Capital. Please go ahead.

Hey, good afternoon folks. First question, I note that you're reiterating your guidance, but subsequent to first, putting those numbers out, I believe, we have the announcement out of the Census Bureau, where they're going back to their original schedule, which should be a reduction in revenue. So could you square those two facts for us, please?

Sure. The original schedule was that the enumerators are going to be out there until end of October. That brings – what they did was they pulled that schedule back to now the enumerators will be out there until September – end of September of this year. But our work continues on because enumerators is part of that – all of the devices that needs to be out there. The other part of it is all of the reverse logistics that are associated with that. So that's going to continue on until the first quarter. So there will be no material impact to our revenues for this year.

Okay. So there could be an impact next year as a result of the timing?

Correct.

Got it. Second question. I wanted to understand better. You've talked about some new contract wins and extensions. And I'm trying to understand how much of these are new wins that will drive revenue growth and how much of these are just extensions that will drive continued recurring revenue? And on the front of the press release, you talk – you break out three items, $42 million in federal contract wins. You have an ABC Virginia contract. You don't size that. I'm wondering if you have any metrics, how many employees do they have. How many field employees? And then thirdly, you have a $1.5 million in TM2 commercial contracts. So if you could talk about all three of those, please.

Sure. We put out three press releases covering the federal awards, the new win with the state and local, Virginia alcoholic Beverage Commission and one for the commercial side. I can tell you that for both federal and the commercial side, there were lots of re-awards of the contract and also some expansions associated with customers, couple of small new customers. So – but the largest piece that we got was the Virginia ABC, which we approximately put a tag on that at of $1.5 million, if all of the – $1.2 million, our CFO says, it was $1.2 million, $1.2 million in revenues, if all of the options are exercised. And that's a five year contract. They gave us a three year base purchase order. And then they have some additional enhancement and optional services that they may take. And so we're looking at right now, $1.2 million, could be higher. Seven years, Kellie has corrected me. So we got the contract for the first three years, and then there are four additional years. So we see that relationship continuing to grow there. So I hope I answered your question.

Kellie answered the questions. Great. The next question, on DHS, you mentioned the Q&A period was just this week on Tuesday, August 11. I'm not sure how that works. Is that a – I assume that's a web-based or phone-based or something like that. Are you in the listen-in on the other questions? And who else is on there? Were there any surprise participants asking questions? And what can we learn from the tenor of the questions?

So the Q&A was a VTC video teleconference. They took the questions early, meaning in writing. And then what they did was they went over those questions based upon that. And so there was very little visibility in terms of who attended because a lot of times, the real players will not submit the questions so that they can remain anonymous. And – but there were a couple that signed in and using the chat function they put in. And these were small systems integrators, government contractors that came in. I do have the names of the two of them. I don't have it available right now, but I can send that to you. But they try not to give away too much information about their understanding of the contract, or who they are because they want to remain anonymous. But there wasn't any surprises in terms of the questions that was asked. Usually, is there an incumbent, what's the period of performance and things like that, the general, very administrative questions were asked. And so we didn't learn anything from it. We didn't learn who else was going to be coming into the bidding on the contract. We still remain focused on our solution. And I think a lot of the requirements that they put forward in the RFP plays to our hand.

And the NGEN appeal process, where do we stand on that and your optimism level for that contract?

So the NGEN-R, there were two – actually, there were three protests, two by a company called Perspecta, one by data – General Dynamics, GDIT, and they were both dismissed by the OMB, Office of Management and Budget. There is one other step that the contractors can take – the protester can take, and that's through the federal courts. We don't know if that's going to happen or not, but we're not waiting that long. We have been talking with our contacts at Leidos at IBM, who happen to be the team that won that contract. We do have relationship with Leidos, working with them on several of our contracts. One with – we are sub to Leidos on the NASA contract. We are also subcontracted to Leidos on our ATF contract. And so we have a long working relationship with them. We're working with them on another customer, which I will not name here, with IBM. And so we have been having conversation with both Leidos and IBM, and we feel that our chances are continuing to improve.

Okay. Great news. Kellie, a couple of numbers questions, if you don't mind. Breaking down depreciation and amortization, it looks like there's been a pretty significant downtrend in amortization of intangibles, and that's driving the combined D&A line. And I guess a lot of that is embedded in the cost of goods sold line. Could you talk about what's going on there? And then what the future trend is for that amortization line?

Certainly. The capitalized asset will increase in the near term. And so we have ended certain – amortization of certain assets, and it's just a timing when we're going to put certain cav life related to software development into service, and the increase will kick in shortly. It's just timing-wise in the second quarter. It was a little bit significantly less than previous quarters, but it will come back up again. So we are making investments in that area, as Jin stated earlier.

And I don't know if this is related or not, but your GAAP reported tax rate looks like it's jumped up. Maybe that was because you didn't have maybe that tax, that amortization is tax deductible, I don't know. Can you talk about that?

There certainly is a difference between GAAP and tax amortization, but it is really related to the taxable income for the year. So when we do the provision for the quarter, we're looking at on an annual basis and calculating the effective tax rate. So it's really related to the – what we expect the profit before tax for the year.

Okay. And my last question, Kellie, on the balance sheet. Despite the very, very strong EBITDA, adjusted EBITDA number for the quarter, your cash balance declined sequentially. And I noticed on a related level, both your unbilled accounts receivable and your accounts – unbilled billings and your accounts receivable have jumped up very significantly. And you have a breakout of who the major customers are in those items in the queue. Could you talk about that interrelationship? And was that because the late bills going out or bills going out at the beginning of this – the current quarter?

Actually, we are doing very well in terms of reducing the cycle, the number of days it takes the bill customer, but our unbilled, the accrued, continues to increase and rise due to the growth in the revenue base. And we talked about what is contributing to the growth. So all along, I had expected to have some decline. The collection in the second quarter was very strong. It's just we did have a little bit of an increase in DSO.

May I answer that? Hey, Barry, I'd like to add a little bit to that. And – but there has been a little bit of timing issue here. As we announced last quarter, we had put in our sole source contract with DHS. And as part of that, we're in the process of moving over from the old contract vehicle to new contract vehicle. And whenever you do that, there's a little bit of timing associated with it. And so a lot of the invoices that we had put in for the Feds for the DHS sole source contract. It took a little bit longer to get paid. And so some of that cash was used to fund those carrier services, and so we should catch up in the third quarter.

Okay. And so presumably, that means that a lot of the unbilled…

Hello.

You got cut off.

Yes.

Okay.

Barry, you're coming in and out.

Okay. That’s fine, because that was are all my questions. Thank you.

Okay.

Thank you.

We'll take our next question from Sam Donaldson, private investor. Please go ahead.

Gentlemen and lady, once again I am in a happy position of congratulating you. But more than that, the energy to seek out new opportunities to capitalize on them that this management has displayed for more than two years now is really very encouraging. As an investor, we look at the price per share. While at December 31 of last year, WidePoint closed at $0.40 a share. Today, it closed the regular market at over [Technical Difficulty]. Now tomorrow, people will be taking the profits and for the future, you've cautiousness that the census money that it's going to come to an end. But you've also reiterated here, which means you expect that the contracts that you have and the new ones that you see in the pipeline may well make up what would have been a continuing census money. But again, I come back to my central point in team, the men and women of WidePoint, led by Jin and Jason and Kellie that have produced such expectations. Now when it comes to the reverse split, I've had a little experience in other companies with that. If I were now a great investor in Tesla or Apple. And I know it has pluses and minuses. But my view is that my trust in this management team is such that whatever – I'm going to go along with and I guess my only question today after laying on hand, once again, frankly, is to know what you're going to do?

All right, sir. I think I understood you. For some reason, we're getting like – it's starting – it goes up and it goes down, there's some issue with our phone here. But in terms of the reverse split, I think Tesla is doing a five for one, meaning they're actually doing a split, not a reverse split, right? And I think that's good. Also, as I said in my prepared remarks is, is that the reason why we're doing the reverse split is not because we were trying to hide a sliding stock price, as you mentioned. Our stock has now almost doubled or doubled as of closing today. And we're not trying to uplist our stock or anything like that. And we're not doing anything to hide our poor performance. On the contrary, our financial performance is strong. Our share prices are continuing to climb. And – but we're doing it because we want us to be more attractive to institutional investors and attract new investors. And certain institutional investors have internal policies, preventing the purchase of low price stock. And variety of brokers dealer – broker-dealers discourage individual brokers within those firms from dealing in low stock – low-priced stock. And so by potentially doing a reverse split and getting our stock price above the price of sometimes $1, sometimes $5, we can get – remove that barrier for some of these institutional investors. And whenever we go out on these investor conferences and many of the potential investors had expressed dismay because they cannot invest in stocks that are below $1 or $5. And they also expressed their dismay in terms of how much float we have and how many shares that we have outstanding for a company our size. And I think we're at somewhere around 84 million shares, and that seems to be a lot of shares. And so by limiting the number of shares, perhaps it will decrease the liquidity a little bit. But it may [Technical Difficulty] more buyers to come in, a new set of buyers and institutional investors that will be in here for the long term. And so I think these are all good things that could happen. But as I said in my prepared remarks, the proxy is seeking permission to do that. The Board has not decided one way or the other, whether we are going to execute a reverse or not. And a lot of things are still in flux. The price of stock continues to improve. And so based upon that, in the future, we'll make that decision.

Well, I understand, but when will we know, and as you pointed out, you're seeking proxies now soliciting advice from the shareholders for this matter and the Board will decide. When do you think – assuming that most of the shareholders will say, okay, you have our provision, when do you think the Board will decide on this question?

The deadline was the 24 of August for the proxy votes and based upon the votes, we would consider the percentage votes and so forth. And based upon that, we would first have to decide whether we are going to execute a reverse or not. And then once that decision is makeable, based upon the responses that we get back from the votes, then we can set up a schedule as to when we want to effectuate that reverse, if we are going…

Jin, thank you for that. And I'll press you only one more time. It's my characteristic in my own days when I was working.

I’m sweating.

While you're being very cautious at very proper, at this point, it appears to me, which you may not have to comment on that you're for a reverse split.

Yes. And I'm for the reverse split because the various things that we stated in the proxy and those items that I covered in our call, I do believe that by having a higher stock price will benefit us in the long run. Of course, there's no guarantee that, that would happen, but I personally believe that, that is the case.

Thank you, gentlemen and lady for indulging me with all these time. And again, congratulations on continuing the invisibility and ability of this corporation to make it great just for the stockholders but for the whole business that you're in. Thanks.

Great. Thank you, Sam, for those strictly questions.

Thank you, Sam.

At this time, this concludes our question-and-answer session. If your question was not taken, please contact WidePoint's IR team at wyy@gatewayir.com. I'd now like to turn the call back over to Mr. Jin Kang for his closing remarks.

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

Thank you for joining us today for WidePoint's second quarter 2020 conference Call. You may now disconnect, and have a great day.