WidePoint Corporation (WYY) Q3 2013 Earnings Call Transcript
Published at 2013-11-14 20:09:08
David Fore – Investor Relations-Hayden Steven L. Komar – Chairman and Chief Executive Officer James T. McCubbin – Executive Vice President and Chief Financial Officer
Mike Malouf – Craig-Hallum Capital Group LLC Mike Crawford – B. Riley & Co. LLC Steve Shaw – Sidoti & Company, LLC.
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the WidePoint Corporation Third Quarter 2013 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) I would now like to turn the conference over to Mr. David Fore of Hayden IR. Please go ahead, sir.
Thank you, Operator. Good afternoon to all participants in WidePoint's third quarter 2013 financial results conference call. With me today are WidePoint's Chairman and CEO, Steve Komar; and Chief Financial Officer, Jim McCubbin. Steve will provide an overview of the third quarter 2013 results, and Jim will provide additional financial details. Then, we'll open the call to questions from participants. Before I turn the call over to Steve, I'd like to remind all participants that during this conference call any forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Expressions of future goals, including financial guidance, and similar expressions including, without limitation, expressions using terminology may, will, believe, expect, plans, anticipates, predicts, forecasts, and expressions which reflect something other than historical facts are intended to identify forward-looking statements. These forward-looking statements involve a number of risks factors and uncertainties, including those discussed in the Risk Factor sections of WidePoint's Annual Report on Form 10-K, and its quarterly reports on Form 10-Q, and other SEC filings and company releases. Actual results may differ materially from any forward-looking statements due to such risks factors and uncertainties. The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after this conference call, except as required by law. I would now like to turn the call over to WidePoint's Chairman and CEO, Steve Komar for opening remarks. Steven L. Komar: Thank you, David, and good afternoon to all of you that have joined us today. As has been our practice, we’d like to continue to express our appreciation to all of you for your continued interest in WidePoint Corporation. The third quarter of 2013 reflected a series of very interesting contrasts as it related to the company’s performance. It should come as no surprise that conditions in the federal government market space were challenging what with government sequestration, cutbacks in full swing and the specter of a government shutdown looming in early October, and there is no doubt that these events had some level of impact on our internal performance targets for the quarter. However, the contrast that I am referring to relate to the positive developments that have occurred during the quarter. These events at least partially offset any shortfalls of forecast or revenue growth in the short-term and are strong indicators of increased revenues and revenue growth rates in the quarters ahead. I will go into several of those in a bit more detail, but first let me summarize the financial indicators for the quarter. Jim will expand on these results with more detailed commentary in his upcoming remarks. WidePoint’s third quarter revenues totaled $12.2 million and nine months year-to-date revenues totaled $35.5 million. While these amounts were less than we had targeted for our internal management goals, our gross margins during the nine months year-to-date period rose to 28%, a clear indicator of our focus on higher margin managed mobility solutions as well as some drop offs in lower margin software reselling activities due to the government market constraining factors in place during the quarter. We’ve continued to focus on and have achieved maintaining a positive income from operations during 2013 even as we balanced reinvesting some [roll off] [ph] of our current year earnings in our repositioning strategies and investment programs that we’ve shared with you in our earlier quarterly calls. Our net income for the nine months to date was approximately $400,000 of which roughly $300,000 was realized during this third quarter. Suffice it to say that we now have a deployed national direct sales force, growing pipelines and backlogs, have invested in optimizing our product and infrastructural environment, and will soon complete our organizational realignment, all designed to ready us or accelerated growth. With that as a backdrop, I’d like to spend a few minutes focusing on recent developments that I believe are a much better indicator of where the near-term future of WidePoint lies. By the way you will find a thorough list of these and other events in our just issued quarterly press release, but I like to address a few of them here in my comments to give you a better sense what management feels of the finer outlook as we approach and enter 2014. During the quarter, WidePoint’s portfolio of product offerings received over $20 billion of new revenue contract value either in the form of new agreements, contract modifications or extended option years. This does not include two large multi-national customer contract relationships which we expect to announce before the end of November. And over a 20 new customer relationships to be realized via software license relationships as well as new stable local awards that have recently been signed. And of course this does not address the long protested Department of Homeland Security, Telecom Management 5 year award. Which when resolved in our favor, has the potential to contribute roughly $75 million in incremental per-annum revenues when fully rolled out. On another front, while our Federal market IT consulting services that felt some impact from sequestration, any short fall has been offset by growing revenues and performance from our commercial marketing consulting services solutions over the past several of months. On the Cyber security front, in addition to the strong continuing performance and revenue streams from the transportation workers contract, this third quarter reflected new revenues from our console management licenses provided with the U.S. navy and we entered into a strategic agreement with a top tier telecommunications provider to provide cloud based security services to their customers within the civil aviation industry. Under this initial contract, which serves a major global airline, we have successfully deployed and managed Cyber solution used to product authentication and access for the critical communications networks utilized by the aviation. Looking to future cyber security market opportunities, we’re very pleased that as a result of our product development activities today, we have recently been able to demonstrate a certificate based, device identity solution that will enhance the security of internet and other wireless transactions when using mobile devices such as laptops, notebooks, and smartphones. Whether used with company owned equipment or in a bring your own device or BYOD environment, this Cert on Chip allows the enterprise to dramatically reduce the risk of data being shared or copied to unprotected devices. We believe this to be a technology with dramatic market potential. We are currently engaged in pilots within the commercial health care and federal markets and accessing other target markets and productizing the technology. All as we build the necessary go to market plans to ensure that we make the most of this emerging opportunity. On a final note, as we increase our involvement with multinational customers, and their service requirements, we are receiving new conformations of the validity of our enterprise level MMS strategy. This strategy will require management to acquire some built on product capabilities, optimize its services delivery and identify an international reach and support capability. The good news is that each of these requirements is being addressed by the programs initiated at the beginning of this year. We believe that the integration of our several proven and trusted offerings into an integrated suite of cloud and mobility based solutions is our pathway to broader and more enduring customer relationships and obviously to increase value to our shareholders. We definitely believe that we are in the right place at the right time. And have taken the necessary steps that will give us the tools to achieve growth and success in building the value of our business. With that, I'd like to turn the call over to Jim McCubbin, WidePoint’s CFO for an in-depth discussion of our third quarter financial results. Following Jim comments, we’ll be opening up the call for all your questions and comments. Jim, the floor is yours. James T. McCubbin: Thank you, Steve. Hello everyone. Again thank you for joining our call today. Today in my remarks, I’m going to discuss our nine months and third quarter financial results, comment, high level on our fourth quarter 2013 and 2014 financial expectations and discuss with you our December, January investor awareness plans before I summarize our remarks and open lines for questions. As Steve has commented, our nine months and third quarter period ending September 30, 2013 has been an interesting contrast in performance given the environmental challenges that we have faced while realizing the closing of many new opportunities that we worked so hard to win and that we are just starting to recognize revenue for. In reviewing revenues for the nine-month period ended September 30, 2013 we witnessed the decrease in revenues of approximately 14% to $35.5 million or decrease of approximately $5.9 million as compared to $41.4 million for the nine-month period ended September 30, 2012. This decrease was attributable in part to a shift in our sales strategy that Steve has already discussed. And that we believe will start demonstrating growth as we start to recognize revenues from the awards we have recently received. Also contributing to this decrease, was a combination of other factors that impacted revenues during this period including delays in government product resale transactions, delays in couple of customer implementations, the impact of some commercial market customer attrition that were not fully offset by new recognized revenue from new contracts awards that we realized later in the nine month period that are just now being scheduled to take effect starting the fourth quarter of 2013. Most importantly and most critically the item that we had not expected that had affected revenues in the period the most was a major contract award that was issued to us in the second quarter by the DHS, which has been protested twice and subsequently delayed. These factors have impacted revenues negatively. Looking more closely at the third quarter of 2013, they also contributed to a decrease in revenues with revenues being recognized in the period of approximately $12.2 million as compared to approximately $15.2 million for the three months period ended September 30, 2012. All in all not a stellar set of comparative periods of revenue performance. But it should be recognized that while this performance was not stellar, it did create an interesting contrast to the positive contract actions we did see occur, which points to timing being more of a contributing factor than of losing the revenue streams outright. In the third quarter we recognized over $20 million in contract awards that were well dispersed. We added several municipalities, a number of new commercial accounts, one additional exposure to providing services for internationally based clients, all while growing and reworking a sales force that is starting to generate recurring and a growing pipeline of business directly and through new channel partners. Of the $20 million new contract opportunities we recognized approximately $1 million in the third quarter. And we anticipate that we will see that number grow over each subsequent quarter. We also added a white label software sale to a new partner to be recognized over three years that will allow our partner to ship the number of clients to our platform. This revenue model will also allow for the recognition of revenues over the life of the contract as we continue to ship revenue model to more of a services as a solution based model. It should also be noted that these new opportunities could offset much of the revenues that we have been witnessing and a decline as a result of the negative effects, federal government sequestration and the federal government shutdown in the fourth quarter of 2013. All in all, positive indicators that the investments to broaden our sales reach as our business model is starting to have a positive effect on our revenue outlook, only further factoring the pending resolution of the DH matter, we're looking at a very positive revenue picture for 2014. While the fourth quarter of 2013 looks stable with offsetting new awards replacing government driven at risk revenues, the picture is clearly brighter for 2014. 2014, we will believe we will recognize a growing portion of revenues from international opportunities, municipal opportunities and commercial opportunities. As those improvements to our DHS award, which we believe that will be successfully resolved in the fourth quarter of 2014 and the 2014 year is a potential for finally demonstrating strong recurring revenues. Looking at gross profit for the nine months ended September 30, 2013, we have gross profits of approximately $9.8 million or 28% of revenues as compared to approximately $9.8 million or 24% of revenues for the nine month period September 30, 2002. The dollar wages decrease in gross profit was due to lower revenues. But the percentage increase was due to the shipment in the mix of services and products we have been rolling out. As we continue to do this there will be periods of variability of force and margin growth from lower margin government resale transactions occur from time to time, the Chinese government resale transaction is uncertain given the sequestration related delays that we have experienced over the last three quarters. Our focus though will remain on growing sales of higher margin recurring services. Gross profit for the three-month period ended September 30, 2013 was approximately $3 million or 24% of revenues as compared to approximately $3.6 million or 23% of revenues for the three months ended September 30, 2012. Dollar base this decrease in gross profit was due to lower revenues again, but the slight percentage increase was due to timing differences as well as the changes in our product and services mix. In the fourth quarter we’re anticipating greater gross profitability as this shift continues as a result of lower expected federal government resales, as a result of the federal government shutdown being offset by the new awards that we’re bringing on line. Sales and marketing expenses for the nine months ended September 30, 2013 was approximately $2.4 million or 7% of revenues as compared to approximately $2 million or 5% of revenues for the nine-month period ended September 30, 2012. The increase predominantly reflects the hiring of an Executive Vice President of Sales and Marketing and the Company’s hiring of additional marketing and lead generation sales professionals, all part of our overall strategy to reinvest in our sales resource infrastructure, thereby expanding our growth opportunities both domestic and abroad. Sales and marketing expenses for the three months ended September 30, 2013 was approximately $676,000 or 6% of revenues as compared to approximately $705,000 or 5% of revenues for the three-month period ended September 30, 2012. The dollar basis decrease in sales and marketing expense reflected lower commission payments to commercial business channel partners due to lower commissionable revenue base programs compared to the same period last year. We do believe that sales and marketing expense in absolute dollars should increase as we realize higher commission payments from higher commissionable revenue streams and the complete deployment of our investment in building a national MMS sales force. General and administrative expenses for the nine-month period ended September 30, 2013 was approximately $7.2 million or 20% of revenues as compared to approximately $7.2 million or 17% of revenues for the nine-month period ended September 30, 2012. General and administrative expenses for the nine-month period ended September 30, 2013 include a non-cash gain of approximately $1.25 million that reflected a reduction in the fair value of a contingent obligation as re-measured at the reporting date. The general and administrative expenses for the three-month period ended September 30, 2013 were approximately $2.3 million or 19% of revenues as compared to approximately $2.3 million or 15% revenues for the three-month period ended September 30, 2012. The percentage change was as a result of lower revenues. As we recognize future revenue growth we should see declining percentages of G&A expenses as related to revenues. As a result of our SG&A expenses netted from our gross profit, our income from operations for the nine months was approximately $8,000 as compared to income from operations of approximately $110,000 in the last year’s comparable period. Our goal for 2013 has been to balance our investments with the management of our annual rate of income from operations while still allowing us to pay down scheduled debt. Cost for operations for the three months was approximately negative $54,000 compared to income from operations of approximately $459,000 last year’s comparable period. Again, this was a result of our goal of managing around our investments and the estimated annual level operations of income that we’re estimating for the year. Given all of this as well tax adjustments, depreciation and interest cost our net income for the nine-month period ended September 30 was approximately $398,000 as compared to a net loss of $1,000 for the nine-month period ended September 30, 2012. And our net income for the three-month period ended September 30, 2013 was approximately $295,000 as compared to net income of approximately $244,000 for the three-month period ended September 30, 2012. It should be noted that we have at September 30, 2013, okay, approximately $2.6 million or – $2.4 million in net working capital to in December 31, 2012 we had approximately $2.6 million. This is a true indicator of our success at managing and balancing our investments against our financial performance. We came into the period the beginning of the year saying that we are going to do this and we are going to balance it around the effects that we realized quarter-by-quarter and we have done that effectively and we believe we’ll continue to do that through the rest of the year. So, as Steve has noted, the nine months of 2013 have been an interesting contrast. We have continued to work around the negative effects of the federal government sequestration, federal government shutdown and the protest of a material award from the Department of Homeland Security, all while reworking, expanding and investing in our sales and marketing infrastructure and working and deploying added breadth to our IT-based MMS product and service offerings. We’re not completely happy with the detours that many of the external events this year have made us take. We are happy with the progress we have made in achieving a good number of goals we have established in the beginning of the year and the positive impact they should have on our business model as we start to monetize these positive actions in the future. With that, we would also like to let everyone know that we will be attending four conferences in December and January starting with LD Micro Conference on December 4, which will be webcast. : So with that, I’d like to turn it back to you, Steve. Steven L. Komar: Thank you, Jim, very well stated. I’d like to now open the call to our listeners’ questions. Operator, if you can assist us by opening the lines and sequencing the questions and comments from our listeners that will be appreciated.
Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question is from the line of Mike Malouf with Craig-Hallum Capital Group. Please go ahead. Mike Malouf – Craig-Hallum Capital Group LLC: Hi, gentlemen. Thanks for taking my call. Steven L. Komar: Hi Mike, how are you? Mike Malouf – Craig-Hallum Capital Group LLC: Great. Couple of questions for you; first off, I am wondering if you could just give us a little bit more color around the organizational realignment, where are you with that, how is it going. As you look out into 2014, what kind of impacts do you think we’ll see with those realignments? Steven L. Komar: Be happy to take a shot at that Mike. We opted at the beginning of this year to take a measured approach to that transition. We obviously have the option to do a dramatic realignment. We felt that, it would not be in everybody’s best interest. So we have staged that over the course of this calendar year. I can tell you that we have a fully functionalized sales force, operating as the deployed national sales force across the various sets of product families. In addition to that, we have centralized our administrative infrastructure and our finance organization. We have completed what I would categorize as about 75% of the final aspect of that realignment, which would be sort of a breakout and reorganization of our operations and technology environment. This is the final piece, if you will, of this realignment. It is our expectation that it will be 99.5% implemented at least that’s my target by the end of this calendar year. So we are moving along very well and part of that is kind of a change of mindset and culture and that’s why we have taken the time that we have to ensure that not only our management, but that our organization and all our associates are kind of signed up for this new view of the total company perspective and the meeting of customer needs and the selling of a family of MMS type product sets. So I think we have come a long way, where the goal line is in reach and we fully expect to be there within the next month or two. Mike Malouf – Craig-Hallum Capital Group LLC: Great, that’s really helpful. And then if you could just give us a little bit of update on the DHS contract as much as you can give us, and then just with the comment on that contract, how long do you think it would take, let’s hypothetically say, you were able to get at January 1, how long will it take to actually get it up towards full rollout to that $75 million annual rollout? Thank you. Steven L. Komar: I can’t afford that number we’ll stay with you. Mike, I guess the best way that I can summarize where we are is that it is in the hands of the General Accounting Office, the GAO which is reviewing the final protest it has, as you know there are two sequential protests. The final comments and documentations have been received from the protesters attorney as well as input from the Department of Homeland Security and I think you are well aware – I believe you are aware of the fact that we have engaged counsel from our side to assist the Agency in the response to the protest. So we are acting as an intervener on behalf of the government. In that sense, I think we have done just about everything that there is to do from our side and we must patiently await the end of the process from the government perspective. We know statutorily that needs to happen before the end of the calendar year. We are hopeful that it will happen sooner, but honestly we are just not in control of that and we're as frustrated as anyone as to the amount of time that this has taken. As to rollout – go ahead, I'm sorry. Mike Malouf – Craig-Hallum Capital Group LLC: Just with regards to that before you talk about the roll out if we are statutorily supposed to hear by the end of the year, is there another appeal process or something else that they can actually do? Steven L. Komar: There is not another appeal process per se, we're at the end of the road. The only option available to the protester is to file a suit in a federal court of appeals. So I guess there is another appeal. But it is a judicial avenue and what it does not do is allow for an additional suspension of services, so once GAO rules the contract is free to move forward, the Agency is free to move forward. James T. McCubbin: So Mike if there was a federal suit brought by the protester, they will bring it against the government and that does not allow for the stay to be put back into place, [inaudible] has the wherewithal and the option to allow the work to start and commence. Mike Malouf – Craig-Hallum Capital Group LLC: So if we are successful in this, I guess I’ll call it almost a fight that you're in here. If we're successful we will know by the end of the year and if we are successful we should start the program in the beginning of 2014. Steven L. Komar: Yes, I think that is fair to say, Mike. There naturally will be a rollout of some multi-agency environment, so basically we will have to go through a series of processes and a series of implementation plans. I can tell you that within our environment a lot of that planning has already taken place but in fact there is only so much we can do until we are free to deal directly with the Agency. James T. McCubbin: Hey, Mike, in the Q you will see a lot of reference to DHS, and part of it there will be a lot of the agencies listed within that umbrella. So it will take time to get it kick started. The good news is an award doesn’t get issued, all that happens is the stay is lifted, and we are not in effect in a fight with anyone. The protester brought the protest action against the Department of Homeland Security. So the Department of Homeland Security is defending their [word] [ph] against the protester. We're just helping them because it is in our interest as an intervener to make sure that there aren’t any errors or there is anything we can assist the Agency with that we do that. And we're doing that. If the stay is lifted sometime between now and the end of year though, given the holidays and everything you're probably not going to see any real work, commence on even organizing, discussing and holding initial meetings until late January, just because of the holidays and what we're facing. So this is an activity where the first quarter and getting into your roll out, is a lot of the planning phase. The second quarter you would probably start recognizing revenues and you’d probably see a ramp of activity over about a one year period, given everything going perfect and everything else, but [know kind of] of what it looks like Mike Malouf – Craig-Hallum Capital Group LLC: So have you started ramping in the second quarter of 2014, where you stand is that conceivably after four quarters of ramp, you could be at the sort of $15 million to $20 million a quarter run rate by the third quarter of 2015. James T. McCubbin: Yeah, [that’s right] [ph] with the roll out, you could see that reaching that level. Mike Malouf – Craig-Hallum Capital Group LLC: Thanks a lot for the help, I appreciate it. Steven L. Komar: Thank you, Mike.
Thank you. Our next question is from the line of Mike Crawford with B. Riley & Co. Please go ahead. Mike Crawford – B. Riley & Co. LLC: Thank you. Quantify the bookings, I think you said $20 million or $21 million in the period. You said the pipeline was up as well. Could you put any numbers around the pipeline? Steven L. Komar: I don’t understand the question. James T. McCubbin: Steve, Mike is asking a question on new awards. We had new awards of over $20 million in the quarter. Mike, I don’t track pipeline like you track it on a government basis. I just track awards. My pipeline of awards is well in excess of I mean, my backlog is well in excess of $100 million, because there are different contract vehicles. We’re moving more of a task order-based business towards influx. You’re going to see us start rolling out a discussion on a revenue line of the different product services within the MMS family. At that point as we do that going into next year, we’ll be able to demonstrate pipeline of backlog. We’re just not there yet. Mike Crawford – B. Riley & Co. LLC: Thanks, Jim. When you’re talking about backlog and you’re talking about contract vehicle, well how are you estimating the idea new vehicles as part of that backlog? James T. McCubbin: Well, I mean with DHS alone a single award BPA were $600 million. So what I’m doing is I start laying this out. I’m looking at IDIQ BPA contract values and period of time and then I’m looking at tax quarters that are being applied against it. So what I’m looking at contract awards though, since we’re now going to a mixed platform, we’re getting anywhere from one to three-year average contracts, which are not like the governments. They are basically a performance-based three-year term, a lot of that $20 million, will be recognized anywhere between one-year and three years just on the $21 million. We expect that number, now that we started tracking it, to grow each quarter. So we literally just started this process in defining our product set and starting to look at how we’re going to capture pipeline and backlog. Steven L. Komar: Mike, and I don’t know if we’re ducking your question on the $20 million and that’s certainly not the intent here. I completely agree with what Jim said in terms of pipeline. But I think in terms of backlog we can refer to the fact that in the months of August and September, just within some of our telecommunications management areas, we see – I think in September we did one, two, three, four, five, six, seven different contracts totaling $6 million of incremental revenue, and in the month prior we did another $9 million. Add that to the security aspects and we really get up around to that $20 million mark without much trouble and not counting some of those extra transactions that we talked about there. Mike Crawford – B. Riley & Co. LLC: Thank you. So more broadly the phase is certainly fragmented with some companies seeing we have higher valuations. I think just yesterday IBM made $300 million to acquire Fiberlink enterprise mobile management solution. I don’t know if you compete against Fiberlink or what you think of that valuation or valuation of a competitor like [indiscernible] that’s throwing maybe 15% top line, 7% EBITDA margins, but slightly four times revenues and here you are one times revenues. Steven L. Komar: And Mike, one of the things that we’re doing and we’re working so hard at putting together this year is really a new capture management financial system that is allowing us to track that. So we can start showing what portion of our revenues are similar to those other companies, because we will be starting to report on that because if you take a look at a part of our business that is the old traditional and submitted [ph] and lower margin with this we’re trying to come up with way to segment the portfolio set of our different products, so we can show what is the value proponent and we’re working on that presently because we want to start reporting that way in the future. As it goes to Fixmo it goes to several of the other acquisitions. There has been a number of acquisitions and the premiums that are been paid. If you look at their business models, we believe are appropriate and as we start demonstrating the conversion of our business model, I think it’s going to demonstrate to everybody what our business or that portion of that business is growing and evolving should truly be worth and a lot of that is just now finally putting something together where we can go to market and we can show that. And we had to work and spend a good part of this year on putting this together, so we could start to shift. That was one of the reasons at the beginning of the year we started it because prior to that we had met with Gartner and we had met with several others and we recognized how close we were to having many of the component parts that a lots of these other companies have. In fact we had some differentiators that improved our position over them. This year has been all about repositioning ourselves so we can demonstrate that and try to monetize that value and get market acceptance of what we should be trading at in the future given the performance we’re making. We’re hoping by the end of the year that we’ll have the tools in place where we can report on it in that way. James T. McCubbin: And by the way, Mike, we’re not giving any short trip to that because from our perspective, as we said here, we believe that we’re going to demonstrate some dramatic revenue growth next year and if you take that fact and add a more attractive multiplier to it depending on which business segment we are talking about, then I think you’re trying to get an extra base hit there and that’s clearly the direction we are going in. Steven L. Komar: And, Mike, just to add just some other things for your background, as you start looking at comparables and comparatives, Good was bought by Motorola, the Zenprise was brought by Citrix and Samsung has bought Fixmo. So the question now is you have MobileIron, you have AirWatch, you have several others in the MDM space we’re making headway in various other spaces in equivalence where we’re complementary. So it is a very exciting time and it is the important reason that we are finishing the efforts that we set out the beginning of the year. Mike Crawford – B. Riley & Co. LLC: Okay. Thank you both. Thank you. James T. McCubbin: Thank you, Mike.
Thank you. (Operator Instructions) Our next question is from the line of Steve Shaw with Sidoti & Company. Please go ahead. Steve Shaw – Sidoti & Company, LLC.: Hey, guys. How are you doing? James T. McCubbin: Hi, Steve. Steve Shaw – Sidoti & Company, LLC.: Hey, Jim, can you breakout the Avalon business for the quarter? James T. McCubbin: I’m sorry. Steve Shaw – Sidoti & Company, LLC.: Can you breakout the Avalon business for the quarter? James T. McCubbin: No. We haven’t broken out the Avalon for any of the quarters. We consolidated them and we did the asset purchase. Steve Shaw – Sidoti & Company, LLC.: So no percentage of sales for commercial business at all? James T. McCubbin: Right now we are operating as a single segment and we are moving to a single set of product and service offerings. We are kind of index everything together. Steve Shaw – Sidoti & Company, LLC.: Well, and what about cyber security for the quarter? James T. McCubbin: Again, we are not segmenting. Steve? Steven L. Komar: We are not showing anything on segments. We stopped running the business as a segmented business at the end of last year. So our goal now is to really have an enterprise set of solutions, product sets and what we are doing is, we are measuring against all those product sets and in December and January, what I will be doing is, describing the services and products that we are offering and then what we are going to be doing is describing how much of revenue or portion of revenues they represent in our model and that’s where we are moving forward. James T. McCubbin: And some segmentation has to market as well within a product family. So going to Steve’s question, I think as we move forward into 2014, we will be putting out some metrics associated with that. Steven L. Komar: And we know that you guys all have to write up all of the analysts and we are working hard with this conversion to make sure that we can publish it accurately. So it’s been a lot of work to make the shift first and then we are kind of following up behind trying to track it, measure it, and put in effective analytics. I am just not there yet. I am almost there going into 2014, I think we will be in a good place to demonstrate that and I think that only make the modeling for all of you so much easier. Steve Shaw – Sidoti & Company, LLC.: Got it.
Okay, anything else Steve or you are good. Steven L. Komar: Yes, I am good.
Okay. Our next question is from the line of Sam Donaldson, a private investor. Please go ahead.
Gentlemen, I am very pleased with the progress you are making still and I thank you for it, but I am also concerned about the fact that our government doesn’t function well and even though you have diversified, which is a very good thing, which you need to that, a lot of our contracts still depended on the government paying, government contracting and it’s clear to be that the Republicans that are intend on having their way are going to double down, they are going to make one or two attempts to make it one or two more elections before we settle this. So the question is really, if you look into the future, if the worse come to worse and we need to shutdown the government again for some period and got a bit, we decide not to pay our debt, how does this effect the company? Steven L. Komar: Well Sam, it won’t do us any good. That I can promise you.
Well, okay, I guarantee you that. Steven L. Komar: To some extent, we are talking about short-term disruptions which perhaps we all think may happen again and on another hand there is obviously some more draconian solutions. I think we probably shown a little bit our ability to weather a short term disruption. If you are asking me what’s going to happen if there is a major default, I think from our perspective we will go into crisis planning mode, we will try to stabilize and minimize any deterioration in our financials. But honest to god Sam, I wish I could give you a firm answer on that. But I really thought we should be serving in the possibility of default. It’s unthinkable the United States [indiscernible] said earlier we are not going to get their way. But the possibility of a site that once again ends in some partial disruption of the government shutdown quite heavily, and I think that could be a real possibility and I guess that’s what I am really talking with you. James T. McCubbin: Hey, Sam. Let me address this, I actually can address this.
Hey, Jim. James T. McCubbin: One if the federal government defaults we all know the world is in trouble. So let’s check if that happens.
Most of us know that they are currently. James T. McCubbin: Right, we all have a problem. Okay, well let’s get to the short term disruption. The shorter term disruption and a shut down or a shorter term disruption in various other issues such as sequestration. This acts in different ways; a, temporary shutdown like we realized. Okay, it hurts us because you can’t get additional revenues, you can’t grow your contract base, new awards aren’t being made, but beyond that we are an obligated funds. Those obligated funds are already being obligated and are being paid out. So with the government shutdown we were still working and we still received fund. Now what doesn’t happens is in a government shutdown as you are not going to have new additional awards. And that’s where you have to kind of work around it, on a short term basis. That all really is a timing issue, and making sure that you manage your P&L and your balance sheet effectively we get through that period of time. And we’ve always been very good with managing our balance sheet as you know. So with the exposure on the federal side, if it’s a timing issue because of a momentary shut down if it is an event that is not going to have a budget and you go into continuing resolution it affects the growth of the business first and foremost. So remember being under obligated funds really kind of helps out all the big guys everybody has their pool of obligated funds that they run their base business a lot. Also, remember you’re asking how you’re going to deal with it. One of the reasons that we’ve been migrating away from the federal exposure that we have is by making sure we broaden our platform and this year was a difficult year for us because we knew we had to do it and we had to get their because the timing was really important. And by as continuing to do it a lot of the revenues for the $20 million that we just recently won. And a good portion of them were going to be for commercial entities. For some international work, or some municipality works. The more and more effective we can be at broadening that base as well as having obligated funds and our federal work that saved money for agencies. Okay, it mitigates the risk tremendously, especially for major default. Does that help?
It helps and I appreciate the answer and I appreciate the direction you can take with the company, all I can say is keep going, thanks very much. Steven L. Komar: Thank you, Sam.
At this time I show there are no further questions, I would like to turn the conference back to management for closing remarks. Steven L. Komar: Okay, let’s go, thanks. James T. McCubbin: Thank you, operator. It appears we have taken all request and operator thank you for your assistance. As a closing comment, I want to emphasize that we are cautiously optimistic about the near term impact and but are very, very positive about our perceptions, our outlook and our future for 2014, the diversification of our revenues and the positive award of the DHS contracts and I think the management of our company is completely focused on building the business for the future. So until we speak again we thank you very much and please have a great evening.
Ladies and gentlemen, this concludes the WidePoint Corporation third quarter 2013 earnings conference call. Thank you for your participation. You may now disconnect.