Kim Rogers - Managing Director at Hayden IR Jin Kang - President & CEO Jason Holloway - Chief Sales & Marketing Officer and President & CEO of Cybersecurity Kito Mussa - Chief Financial Officer

Mike Crawford - B. Riley FBR

Greetings and welcome to the WidePoint Corporation Fourth Quarter and Full Year 2017 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Kim Rogers, Managing Director at Hayden IR.

Thank you, Omar. Good afternoon and thank you for joining us today to discuss WidePoint's fourth quarter and full year 2017 financial results. With me today are WidePoint's President and Chief Executive Officer, Jin Kang; as well as Jason Holloway, Chief Sales and Marketing Officer and President and Chief Executive Officer of WidePoint's Cybersecurity Solutions Corp; and Kito Mussa, WidePoint's Chief Financial Officer. Jin will provide an overview of the quarter and full year results. Jason will provide a sales and marketing update, and Kito will review the financial results of the fourth quarter. At that point, we'll open the call for question-and-answer. Before I turn the call over to Jin, I'd like to remind all participants that during this conference call any forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Expressions of future goals, including financial guidance and similar expressions, including without limitation, expressions using the 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 risk factors and uncertainties, including those discussed in the Risk Factors sections of WidePoint's Annual Report on Form 10-K, its quarterly reports on Form 10-Q and other SEC filings and the Company's press releases. Actual results may differ materially from any forward-looking statements due to such risk factors and uncertainties. The Company undertakes no obligation to revise or update any forward-looking statements in order to reflect any events or circumstances that may arise after this conference call, except as required by law. Now I'll turn the call over to WidePoint's CEO, Jin Kang for opening remarks. Please go ahead, Jin?

Great. Thank you, Kim, and good afternoon everyone, and thank you all for joining us today. Since I took the helm as CEO in July of last year, we have successfully executed on the corporate strategy that I shared with the board and my team upon my appointment. I am pleased with the progress we have made to stabilize the Company and reduce our net losses. As a result of the cost savings actions taken during the third and fourth quarters of 2017, we've reduced our operating expenses for the full year by 6%. Most notably in the fourth quarter, we've reduced the operating expenses by 12%. This resulted in narrowing our GAAP net losses for the full year and exiting the fourth quarter with positive adjusted EBITDA. Kito will provide the details of our financial performance, but I want to take a few minutes to highlight some of our accomplishments. We increased our gross margin from 13% to 18%. We have reduced GAAP net losses by $1.4 million compared to the first half of 2017. We were adjusted EBITDA positive for Q3 and Q4 of 2017, and we have top and bottom line improvements sequentially and year-over-year. We ended 2017 on a positive and I think the WidePoint for their hard work and delivering these improved results. We believe and delivering under commitments we make and we delivered on the commitments made in our last two earnings calls. I’m particularly pleased that we improved financial performance in the fourth quarter even without the large re-compete purchase order from the air force. We expect that the award from the air force to have come in during Q4, but we received the purchase order in the amount of $1.8 million on March 8th this year. This purchase order, if it was received as scheduled the fourth quarter revenues would have improved by $1.8 million to $21.2 million for the fourth quarter. Now moving on to our growth strategy, we have made good progress toward strategically aligning our staff and resources to support our Trusted Mobility Management framework or TM2. As discussed during our Q3 earnings call, TM2 framework combines the strength of our three solutions sets Telecom Lifecycle Management, TLM; Identity Management, IDM; and Bill Presentment and Analytics, BP&A. All concentrated on managing and securing our customers mobility assets. As evidenced by the new contracts we’ve recently announced, we can see that TM2 is gaining traction in the market. We’re pursuing new business with commercial customers and that pipeline is growing nicely. Please be reminded that we have a long sales cycle. However, I am encouraged by the quality and size of the prospects and longer term opportunities that we are seeing. Jason will provide a summary of our sales strategy in his prepared remarks, but I will highlight some specific activities on that front. We are actively selling our TM2 offering, which means we are considerable cross-selling and up-selling opportunities. These opportunities are very attractive as they represent higher gross margin revenues. Our TM2 framework is a highly differentiated offering. As WidePoint is the only provider of all three components of secure mobile management, we are leveraging the strength of our core capabilities into a comprehensive enterprise wide solution set that securely enables and manages our clients' mobile assets. We are very intentional and communicating to the market our unique capabilities to manage, analyze and protect communications assets, and deploy identity management solutions that provide secure assets to restricted environment. We now have our senior management team and our go-to-market strategy in place. As you may know, our executive management team members our long-term shareholders. And as such, we are very motivated to improve shareholder value. I can assure you that we are all highly committed to delivering on our strategy to improve top-line growth and delivering profitability. With that, I will turn the call over to Jason to discuss our sales strategy to grow our business and Kito will follow with additional details of our financial performance. Jason?

Thank you, Jin. Good afternoon fellow shareholders. We have been using a variety of means to expand our customer base and expand our market opportunity. For example, cross-selling and up-selling our Trusted Mobility Management and partnering with large system integrators like CDW and Samsung, using them integrated team approach. Since the transition in the leadership team last year, we moved from a portfolio company to a company that leverages its full capabilities and integrates its offerings around security, mobility management. This is a major benefit to WidePoint from the TM2 platform and we see meaningful opportunities in this approach. As Jim mentioned, we are the only secured mobility provider in the space with offerings across Telecom Lifecycle Management, Identity Management and Bill Presentment and Analytics, which is a critical differentiator. This approach is already producing one of the healthiest sales pipelines not seen over the last several years. For example, we are expanding our relationship with U.S. carriers where we see an opportunity to help them provide increased security, enhanced visibility and an expansive set as management tools to their enterprise customers where our single integrated platform can merge into their systems to help increase efficiency. We also look to partner with additional large technology solutions, providers and systems integrators to complement their offerings to their enterprise and government customers. We are driving to become part of these large system integrators solution set. This way we can leverage their sales and marketing resources. We recently signed a Master Professional Services Agreement or MPSA with one of the largest providers of technology products and services for business, government and education. And we look forward to further developing that relationship in 2018 and beyond. We use the direct sales approach globally to identify sell and close both commercial and government opportunities. For this, we have a core sales team of business development experts, account executives and product subject matter experts to manage the entire sales lifecycle. We are also using an indirect sales approach to reach new target markets by outsourcing a portion of our lead generation in certain business development activities through third party partners. We believe our partners understand our product and service offerings and they can utilize their sales team to generate leads and connect with perspective clients. In addition, we continue to firm valuable strategic partnerships and alliances that provide us with additional access to potential clients and larger market opportunities. As a result, we may team up with other companies and competitors to bid on projects that include one or more of our services as part of a larger offering. Our new alliance and the execution of the MPSA was one of the largest providers of technology products and services, is an example of this approach. Lastly, we are closely working with our clients to educate them on TM2 as well as our additional capabilities, which can translate into more revenue from existing clients at higher margins. The WidePoint team is fully energized and ready to deliver in 2018. With that, I will hand the call over to Kito.

Thank you, Jason. I’ll first provide a high level overview of our results and then guidance to the details in our fourth quarter results and then turn it back over to Jin. Also you can find additional information in our 2017 Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission just prior to this earnings call. We finished our fourth quarter with the 9% increase in revenues narrowed our GAAP net losses to 3.5 million from 4.1 million last year and reported positive adjusted EBITDA of 289,000 as compared to negative 1.7 million last year. Our lower GAAP net loss and positive adjusted EBITDA for the fourth quarter of 2017 were largely attributable to our cost savings efforts in the prior quarters. Now to the numbers, revenue increased the 19.9 million in the fourth quarter, compared to 18.3 million in 2016. When driver for this increased will recognition of revenue from mobile accessory and reselling orders and report into the fourth quarter from the third quarter as we discuss in our previous earnings call. Gross profit for the fourth quarter of 2017 was approximately 3.6 million or 18% of revenue as compared to approximately 2.4 million or 13% of revenue in 2016. The improvement in gross profit over last year was driven by higher mobile accessory sales and the impact of labor cost savings. Operating expenses for the fourth quarter decreased by 12% to 4.3% as compared to 4.9 million in 2016 due in large part to cost savings actions taking during the third and fourth quarter of 2017. Cost saving measures decreased sales and marketing to 493,000 from 601,000 in 2016 and decreased general and administrative expense to 3.7 million from 3.8 million in 2016. The decrease in operating expenses was not in a significant due to one-time fourth quarter severance and office quarter as charges of 353,000. Excluding one-time expenses, our operating expenses would have been approximately 3.3 million, which is a decrease of over 10%. Now let’s talk about our financial position. We ended the fourth quarter with 5.2 million in cash, 2.6 million in working capital and approximately 4.5 million available on our credit line. Our cash position was low at the end of the fourth quarter due to billing and collection related delays near the end of the year. Before I turn it back over to Jim, I’d like to reiterate that as a company, we have cut costs right size the Company in terms of both employees and properties and positioned our company to scale to meet anticipated revenue growth going forward. I want to emphasize that as a result of cost savings actions taken on an adjusted EBITDA basis, we went from a negative $1.2 million in the first half of 2017 to positive a 300 K plus in the second half of the year. This represents a $1.5 million swing. That said, we are pleased, very pleased with these results. Now, I’d like to turn it back over to Jin.

Thank you, Kito, and thank you Jason. At this time, I would like to open up the calls for questions from our participants. Operator, will you please open up the calls for questions?

At this time, we will be conducting a question-and-answer-session. [Operator Instructions] Our first question is from Mike Crawford, B. Riley FBR. Please proceed with your questions.

In 2017 versus last year, your carrier your services revenue and managed services revenues at least for your managed service fees are almost the same at around $44 million to $45 million for the first and $23 million for the later. Is there an expectation that you're going to grow your managed services revenues in 2018 and thus that's one under the main ways that you'll increase the gross margin overall?

Hi, Mike, this is Kito. And the answer of that basically is that, yes, the managed service fee revenue is the way that we can have the largest impacts on our gross margin going forward, so that would be an area that we want to grow. As we mentioned before, we're trying to place less emphasis on carrier services; however, as clients do ask for those services, obviously, we're going to continue to provide that, but it's not something that we want to stress going forward.

Okay, thanks Kito. And then, did your business overall with commercial enterprises decline a little bit year-over-year whereas it held steady with the at least the federal government? So as do you see the growth primarily in federal government or do you see commercial turning as well?

Yes, Mike, those numbers are accurate. And the commercial side the reason why you saw some attrition in the work there is because we've made a conscious decision over the last six months to reduce or put essentially stop the work that we were losing money on. So some of those things were commercial work, but we see both commercial and federal government work growing over the next over the 2018 year. And I don't want to go into too much detail about our sales pipeline. However we have a good mix of both federal and commercial customers.

Okay. Great. And then maybe for a final question, could you comment on when those might move beyond pilot phase on your services agreement with the Department of Homeland Security and as well status of any RFP that's been prepared for the next iteration of that agreement?

Okay, there were -- there was, like -- I think -- I don't know how many questions there will, but I'll try my best to answer the question. So see, for the U.S. Coast Guard, we are going through the pilot process. The pilot project is scheduled to go out until the September 30th. It's going really well. This Coast Guard is having some challenges because what they're in the process of doing this is to bringing the budget back to the headquarters element. The latest we have now is that they will implement the entire Coast Guard 1 September this year. And so that's the latest information that we have. Now, we're trying to get this thing in earlier and may come in later, it’s very difficult to say. Then of course there is a looming government shutdown and the continued resolution, although, it shouldn’t have any impact on our current work, but it does have impact on any new work and so that’s kind of where that is. In terms of our, the DHS CWMS BPA, the contract ends in December of this year, December 19th to 20th of this year. They are going through a re-compete process. We have met with source selection committee to put together, helped them put other a draft statement of work. And we are looking for the final RFP to come out at the end of the second quarter with the work that we may somewhere like November of this year. In May go out further, but there is no danger in that as all of the current past quarters can take the option of pushing their current workout until December of 2019. So the federal government has up until that time to get the new contract in place. We are positioning ourselves for the re-compete by putting in the things that are hard to do for our competitors into the RFP such as ATO authorization to complete operate ATO. And also being able to operate as what we call FISMA moderate, Federal Information Systems Management Act, this is all has to do with security. And we have all of these 8 major components of DHS lots out there and they’re very happy with us and they will have to say in this acquisition process. So we are pretty confident that we’re in a good position for the re-compete. Does that answer your questions, Mike?

Yes. Thank you very much.

As a reminder, we are now conducting a question-and-answer session. [Operator Instructions] Our next question is from Sam Donaldson [ph], Private Investor. Please proceed with your question.

Congratulation, it appears that your turnaround strategy is working. Jin you said, you're very pleased by that. Well, we’re very pleased with that too, to you and Jason and Kito and everybody in the team, we appreciate it. I was going to ask about the Coast Guard, that’s my own on the phone, but I think you handle that. I would just bring that one more thing though from the past. The COD at one point it appears to me as dead, really. And then I think in the last conference call, you said something is acceptable maybe in two years of government will have its act together. What's your latest estimate whether will we ever see any light in tunnel at the end of that?

Right, so the Certificate-on-Device, I think that’s a technology that customers both private and federal government public and take advantage of. We are still pushing to get some of the work done. We are talking with some potential customers that maybe using that particular service. And these are our existing customers, and we've been using providing this capability and demonstrating this capability to those folks. What we have done with the Certificate-on-Devices is that, since our development, software development effort is majority is complete. So what we're doing is now we're, we hope that investment in that as the solution is ready to go. As we get customers onboard, what we will do is we will turn that on and provide that capability and we will hire up the necessary O&M staff operating and maintenance staff to support those projects. So I think we're in a very good place. I think that there is some reasonable strong interest in the -- our Certificate-on-Device because all the folks are looking how do we identify these mobile devices that are coming onto our network. So, we are going out there, we are pitching this to our customer, and I think we're getting some reasonable interest. Jason would you like to add anything to that?

Sure, hey Sam. The other thing that I wanted to add to what Jim said is that along with the trust and mobility management of the converge we've also have taken this opportunity to be very proactive. And we're actually doing a technology convergence into the ITMS platform. So the intelligence telecommunications management system that we have right now between the Identity Management Group or the Cyber Group along with the Telecom Lifecycle Management Group, we have brought the two organizations together. And there has been an actual convergence of the technology itself. So this is also something that is going to really position us in the market. And this is where we see -- this has been a very, very strong key differentiator for us by putting that in there. So again, it's just going to give us the opportunity to for us to have a very robust single integrated platform take to the marketplace.

Thanks very much. All I can say gentlemen, is keep going. I'm not getting any younger. Bye bye.

Thank you.

Thank you. You don't have to wait much longer Sam.

Okay, Jin. Thank you.

Our next question comes from Rich Molenski, Private Investor. Please proceed with your question.

Guys, congratulations on the terrific quarter, cash flow positive showing improvements. And one thing that was really positive was that even though the contract the $1.5 million contract you think in the fourth quarter you announced in March. Is that business is going to be booked in the first quarter do you expect, or are we looking more to the second quarter? Any indication you can give us on that quarter?

Hi, this is Kito. The contract you're talking about, that's going to be booked in the first quarter. And it's been something we have for many years, so we're very happy to be able to re-win that work. And just a little more color on that is, is that, if that would have come in into fourth quarter, our fourth quarter numbers would have been even better than what we reported. And so, this $1.8 million is going to show up in the first quarter and our run-rate between the fourth quarter, all of our managed services are pretty much the same. So aside from some of the accessory sales and such, so I think it will be bit of a comparable. So I think I wouldn't go out and buy a Ferrari or Lamborghini just yet.

Yes, no it's impressive that without getting that contract, you still show an improvement in cash flow positive numbers. That’s pretty innovative 1.8 million. So good job, I think it’s totally expenses and I look forward to this year to be exciting.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Jin Kang for closing remarks.

Thank you, operator. We thank you all for joining us today on our fourth quarter call. And we look forward to connecting with you on our first quarter 2018 call in May. We appreciate everyone taking the time to join us today. Thank you again and have a great evening.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.