Good afternoon. Welcome to WidePoint's Third Quarter 2021 Earnings Conference Call. My name is Paul, 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 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 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 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 third quarter ended September 30, 2021. The third quarter marked a period of productivity as we successfully completed the acquisition of ITA, made progress across our sales and marketing initiatives, engaged in new strategic customer wins, upgraded our already robust portfolio of solutions and continued to successfully execute our strategy for profitable growth. Although we were encouraged by these events, we were again faced with macroeconomic headwinds that rooted from the pandemic. The flurry of ubiquitous current events regarding supply chain limitations, the status of federal government's budget impasse, the inability to still meet face-to-face with prospective customers and increased demand for top talent from the labor market have all affected our business directly and indirectly. With the uncertainty of the federal government budget, virtually all new task orders and contract awards have been halted as government does not have the necessary fund authorizations to engage in any new projects. Additionally, the supply chain disruption that has been severely impacting logistics and transportation has diminished our ability to fulfill some of our customers' orders for equipment and to gain access to accessories needed for our business. As a result of these uncontrollable events happening concurrently, we have seen several opportunities inevitably become delayed. Nevertheless, our team is laser-focused on controlling what's within our grasp as we continue to adapt to these external circumstances. What's remained consistent throughout all this is our approach of continuing to operate the business profitably and being prudent with our spending and cash management. One example of this was our purchase of IT Authorities, or ITA. Thanks to our meticulous M&A approach, we were able to acquire a company that is not only profitable but…

Thank you, Jin, and good afternoon, everyone. In total, we secured more than $16.8 million in contract awards in Identity Management, Managed Mobility Services and Telecom Lifecycle Management across contract wins with federal government and commercial enterprise customers. Although we expected stronger results, we were partially set back due to the unexpected events that Jin mentioned. Nonetheless, we were encouraged to find that sales opportunities that were near the finish line or in the process of getting there did not end up disappearing but were instead delayed. Thanks to the ability of our team to adapt and be proactive, we were proud of the results given the circumstances. An underlying theme that we noticed this quarter was the influx of organizations that have begun to elevate their cybersecurity protocols resulting from the high-profile malware and ransomware breaches that are becoming more common day by day. One industry that we've particularly been working closely with is the K-12 educational institutions as they have begun to witness an alarming rise of cyber attacks. Once we realized the magnitude of this situation, we quickly reacted and begun to heavily participate in tech forums initially at the local level of a major municipality and now the state level of a Midwestern state. I personally have been attending these forums to edify schools that currently operate in a virtual or hybrid format about the importance of cybersecurity in this day and age of what solutions WidePoint can offer to help. As a result, we have begun to see early signs of our participation at these tech forums paying off as these schools are wanting to escalate these problems to the legislative level with the goal of gaining funding from the entire state to leverage our Identity Management as a service solution. On brand with what…

Thank you, Jason. Good afternoon, everyone. I'm pleased to share more details on the third quarter 2021 results. For the third quarter, our revenue was $22.3 million compared to $57.5 million reported for the same quarter last year. The year-over-year decline was primarily driven by the loss in carrier service revenues due to the completion of the U.S. Department of Commerce contract supporting the 2020 Census and, to a lesser extent, lower level of accessory sale to federal government and lower volume of devices managed this quarter. For the 9 months ended September 30, 2021, revenue decreased to $62.9 million from $152 million in the same period last year. The decline was primarily due to the wind-down of our work on the Census project, pass-through of carrier credits, lower level of accessory sales and lower volume of devices managed this year. Our gross profit for the third quarter 2021 was $3.7 million, a 35% decrease from the $5.6 million we reported in the third quarter of 2020. The decline in gross profit was consistent with lower revenue and in line with the revenue mix. Gross margin improved significantly to 16.5% in the third quarter of 2021 from 9.8% in the third quarter of 2020. Our gross profit for the 9 months ended September 30, 2021, was $12.4 million, a 21% decrease from the $15.6 million we reported in the same period last year. However, gross margin improved significantly to 19.7% this year compared to 10.3% in the same period last year. The increase in gross margin was primarily due to the decrease in lower margin carrier services. In the third quarter 2021, operating expenses decreased 36% to $2.9 million from $4.5 million in the third quarter of last year. The third quarter expense reflects recognition of qualified payroll tax credit…

Thank you, Kellie, and thank you, Jason. Although there are headwinds that we cannot control, I am pleased with the trajectory WidePoint is headed in as we continue to profitably operate with 0 debt and maintain a strong balance sheet. Our ability to sustain profitability even amidst the external circumstances outside of our control is a testament of our team's ability to adapt and efficiently execute our organic and inorganic growth strategy. As it relates to our go-forward inorganic growth strategy, we are noticing that it is currently an acquisition target-rich environment where many companies are demanding frothy multiples relative to what we believe they're worth. Some reports have even shared that companies are requesting up to 32x their enterprise value. With this being the current status of the market, it could take some time for WidePoint to make its next acquisition as we want to continue to be judicious with our selection process and are in no immediate rush to acquire a company given our profitable status. That said, our M&A mandate remains the same as we are looking for stable, immediately accretive and well-established companies that are profitable. Furthermore, given what we've already shared regarding the growing cybersecurity sector, there are several right opportunities within that vertical for us to acquire: a company that has direct access to customers that need solutions like our Identity Management solutions. Our acquisition strategy continues to evolve, and we are considering larger opportunities that may not have been considered in the past. We will share more news on this front as the events unfold. Next, I want to provide a brief update regarding our share repurchase program. During November 2021, the Board increased the size of the repurchase plan to up to $5 million of the company's common stock, increasing the amount…

[Operator Instructions]. And while we poll for questions, there is a question submitted already. How did the ITA acquisition affect your EBITDA?

Kellie, can you take that?

Sure. So ITA was acquired on October 1. Therefore, after third quarter end, we -- so therefore, the financial results do not reflect any contribution from ITA. We do expect a small contribution in the fourth quarter but expect larger contribution in the future. There were acquisition-related costs that negatively impacted third quarter profitability, and we also expect impact in the fourth quarter as well.

[Operator Instructions]. And there appear to be no questions from the lines at this time. Okay. We did have another submitted question here. The next question is this. Do you intend to make additional acquisitions?

I'll take that. Yes, our strategy for growing through organic and inorganic means remains the same. We are focused and continue to look for quality companies that are immediately accretive to help us expand our solutions and customer base, again, the vertical and horizontal integration opportunities. We will provide more details as they become available. But suffice it to say, we are currently reviewing acquisition opportunities that are in various stages of completion, and we will provide additional details as they become available.

Wonderful. And we had another submitted question come. Jason talked about new vertical markets, K-12 and beverage industries. What are the sizes of opportunities? Also, the new win from D.C. government and university.

Yes. Thank you for that question. So as I stated in my prepared remarks, I think the one thing to keep in mind with potentially how large the opportunity could be within K-12 and why we are so lucky to have the strategic relationship with 22Vets is when you think about from an employment standpoint, one of the largest employers in each one of the states is K-12. So when you start to break that down into the supporting administrators, the staff, the teachers and all of the students, then it becomes very clear that the opportunity is quite large. And as I stated in my prepared remarks, through our relationship with 22Vets, we've had the opportunity to present at these tech forums, to be the keynote speakers in terms of educating these schools on PKI as a service. And as I stated, we're starting with one large municipality, and we are working currently with a Midwestern state. And we hope that through the relationship with 22Vets and the potential of the legislative support that, that will give us that additional headwind to be able to duplicate that model into other states. So it's -- we're just barely scratching the surface is the point that I want to make. And we're very optimistic -- cautiously optimistic with what we see right now. So hopefully, I'll have some updates. And in terms of the beverage, same thing. It's a really, really large community that's out there. And thankfully, through our acquisition of IT Authorities, they are the ones who are directly responsible for inserting us into that vertical and why we were able to capitalize on their existing customer base so quickly with using our PKI as a service. So again, we're very optimistic. We're just scratching the surface. We made a lot of headway with one beverage provider in particular. And this one company does represent, again, a larger consortium. So stay tuned because, again, it's a large community, and we're just at the tip. So that's it. Thank you.

And we did have a question come in from John Sun from Aperte Capital.

So I just wanted to clear a little bit more about the acquisition strategy. And the reason I'm asking is as it stands now, you're trading with a market cap of under $50 million, enterprise value of $30 million net of cash. So if you're trading at less than 10x EBITDA and you're seeing these companies trading at much richer multiples, why is that the best use of shareholder capital and the most prudent way to use capital relative to other options such as increasing the buyback?

Sorry about that, John. I was on mute. Thank you for that call. We are still looking around for acquisition opportunities, not necessarily using our equity to do that. We are looking at doing some repurchase, and we did increase that amount. We actually doubled that amount from $2.5 million to $5 million. And so we're going to be opportunistic on that purchase. And based upon what the opportunity is on the acquisition, as we said before, we will leverage cash on hand, and we will look at financing through debt. And then as a last recourse, we would look at potential of using equity for the acquisition.

[Operator Instructions]. And there were no other questions from the lines at this time. I'd now like to hand the call back to Jin Kang for any closing remarks.

Great. 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 release. Thank you again, and have a great evening.

Thank you for joining us today for WidePoint's Third Quarter 2021 Conference Call. You may now disconnect.