Good day and welcome to the WidePoint's Third Quarter 2015 Financial Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to David Fore at Hayden IR. Please go ahead, sir.

Great, thank you operator. Good afternoon to all participants in the WidePoint's third quarter 2015 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 quarter's developments and accomplishments, and Jim will provide additional financial and operational view and outlook. 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 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 reflects 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, its Quarterly Reports on Form 10-Q, and other SEC filings the 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'd like to turn the call over to WidePoint's Chairman and CEO, Steve Komar for opening remarks. Steve?

Thank you David, and good afternoon to all of you who have joined us here today. First, let me state it has been a very busy quarter here at WidePoint. There are several recent developments and accomplishments that I would like to share with you today. And of course, we'd like to express our appreciation to all of you for your continued interest and support of WidePoint Corporation. Before I do that, let me open by saying that overall our third quarter financial performance has not beat management's expectations. While we continue to invest in our new partnerships, our next generation identity management solutions, our platform consolidation and enhancement, and our sales and marketing efforts, all of which are key, medium and long-term strategies for our success. Our projections for an acceleration of revenue growth did not come to pass in this quarter with a predictable negative impact on our path to profitability. There were several good reasons for this and the so-called good news aspect of this shortfall is that each of the reasons for it relating to timing and not to market or competitive deterioration, a hopeful indication of that is the almost $9 million of new contract value signings that were achieved during the quarter. In quick summary, the three key factors behind this shortfall include first, the slow adoption of Cert-on-Device and capability by Federal markets. And second, an extended timeline and task order issuance under the DHS BPA by the three remaining target agencies. And finally, an underestimation of product lifecycle and go-to-market lead times involved with our mobile device provider partners such as Samsung, LG and Kyocera. I personally feel that we did everything we could do as a management team and an organization to address the first two factors. The third or lead…

Thank you, Steve. Hello everyone, thank you again for joining our call today. Today in my remarks, I'm going to discuss some of your third quarter 2015 financial results and provide an update on our financial expectations for the remainder of the year. In the third quarter revenue grew approximately 17% to $17 million from $14.5 million in the same period last year. Within our managed mobile services revenue, which consist of carrier services and managed services, we saw carrier services more than double to $9.1 million this quarter from $4.4 million in the third quarter of 2014, primarily as a result of our continuing progress in bringing on new agencies under our DHS BPA. In examining our third quarter 2015 as it compares to our second quarter 2015 however, we did witness a slight decline in carrier services from approximately $9.6 million to $9.1 million respectively as a result of our optimizing and therefore, reducing the units under management for our current DHS clients demonstrating some of the cost savings that our services provide. This revenue reduction in carrier services on its face was materially the cause of the net change in total reduced revenues in comparing the second quarter of 2015 to the third quarter of 2015 as managed services remain somewhat steady at approximately $7.8 million in both, the second quarter and third quarters of 2015. In looking at the comparison to the third quarter 2015 over the third quarter of 2014 for our managed services, revenues did fall approximately $2.2 million materially as a result of software reselling activity, falling $2.9 million to approximately $1.9 million comparatively while only being replaced by approximately $700,000 of higher margin recurring managed services. While the trend of building expanding higher margin recurring managed services is our goal, and we…

Thank you, Jim. And I will try to answer John's question as best I can. I want to make just one general observation before I get specific and that is that, as it goes through the strategic partner relationships, we're kind of in a new world for a small growing company. And there is a real challenge associated with responding to large. Well known strategic partners who have some pretty strong demands on occasions. And we've been tested to try and keep this alive and to stay current as it relates to three or four of our partners. Having said that, I will say that Samsung is one of the highest priority partners we have. We have in place with them today a strategic partnership agreement with Samsung. We have issued joint press releases announcing not only the partnership but the integration the WidePoint Cert-on-Device capability into the KNOCK security container. We have a total of three reseller agreements now in place that basically allow an effective cross-marketing of products and services between the two organizations. We are actually quite seriously engaged on the senior management level with WidePoint Corporation of course, and with the Samsung America's management team, and we meet periodically to ensure that sufficient focus and resources are put in place to move the relationship forward. We interact constantly with their technology teams. We interface with them, we call plan with them and that involves their technology teams on the East Coast, on the West Coast of the United States and in Korea. Most recently and I mention this I think in my earlier comments, we had a number of joint demonstrations to target government market agencies and actually utilizing not only Samsung personnel but their remarkably high-tech demonstration facilities and capabilities. So there is a real commitment to this relationship. Our challenge remains responding to multiple requests and individuals from a very large interested partner in moving this relationship forward on a timely basis. It's a good challenge. We think we have an excellent relationship with Samsung and we're convinced that we're going to have some very strong and positive success as we move into the next couple of quarters. John, I hope that helps.

[Operator Instructions].

All right, Jim, let's open the call to additional questions or comments. Melissa if you can assist us by opening the line, sequencing the questions and comments from our listeners that would be greatly appreciated.

[Operator Instructions] And our first question will come from Mike Crawford with B Riley and Company.

Thank you. In the past you hoped for dramatic ramping recurring services revenue, trials leading to pilots, leading to full scale deployment of device deployments. Can you quantify in any manner what level of recurring services revenue you would be happy to achieve in 2016 and in 2017 related to these?

Mike, this is Jim. We would - while we can't pin it down exactly, we would like to see a dramatic shift in revenues to - I think what you're talking about is certain device in next generation identity services. We would like to see anywhere from $5 million to $15 million in revenues come online on a run rate. Right now we're working with some large organizations and it's taking a little bit longer than we anticipated to get everything started because there has been more infrastructure work than we anticipated. The market volumes are there, we just have to get it going. And that's just where we stand at this point in time, the partners that we have do believe that there is a sizeable market opportunity and a sizeable client base for these services.

Okay, great. And then just a little separate - what's the cost of the Bob Day channel to get into the Coast Guard?

We're actually working with two organizations, Bob Day through it is his own as well as Deepwater. And we are talking probably under six figures or right around there on an annual basis. So it's - we're not talking a whole lot of money relatively speaking, much like hiring a consultant and a group. And then there is some success payout on the award. So most of it is padded on the backend and that's built into the pricing.

I was going to step on your line Jim, I'm glad you straightened that out. Yes, I think what we're dealing with is some relatively modest payments on an ongoing basis with a pretty strong success component associated with that. That's the way we like to structure our agreements.

Okay. And then last question is, so gross margin has declined for five quarters sequentially, you've ramped on kind of basic services with the DHS. So I understand FEMA is not going to be till mid-2016, Coast Guard is coming but these other agency members - component agencies that have taken basic service, these are the ones you want to be marketing your value-added services to. So how much of a gross margin pick up can you get in 2016 to 2017 as these things start to layer in because you know 20% is too well.

Yes, like I know, right now. When I - when we kind of play and look at the fourth quarter numbers on a million dollar incremental uptick, we're looking for least 200 basis points minimally on overall margins. Right then and there for a basic metric. We believe as we add the higher margin revenues which range from anywhere from 40% to 90%, that's the kind of impact it has. So you're really layering that. Right now carrier services are probably leveling off for the fourth quarter. Managed services, if all goes well will jump another $1 million, with higher margins you'll see about a two percentage overall basis point jump right there for the fourth quarter. When we look at our modeling out, we can just kind of see how that drives, to the upside but it's curvilinear. Every million dollars in 50% margin really does dramatically improve the bottom line, and improve the margin mix.

Okay, thank you.

Thank you.

And our next question will come some Gregg Hillman with First Wilshire Securities Management.

Hi gentlemen. Can you talk about area and other things a little bit in terms of how big is the market, what kind of resources are you putting on in and just kind of just talk about your roadmap there and who your partners and exactly what is it?

I'm sorry, you're asking can you…

Yes, I'm talking about the Internet of Things, the addressable market, your roadmap to tax in market, the partners you're engaging with in that market. And just if you could connect the dots a little bit and give me a better idea of what's going on there.

Yes, Steve is going to give it a shot in couple of minutes.

Yes, this is a very interesting question and we'll try to answer it to the best of our abilities. When we put out a preliminary product roadmap and put up some - what we consider to be aggressive timelines against addressing various aspects of this marketplace. Our sense that Internet of Things is that - it is about the third or fourth opportunity from a calendarization standpoint that's out there. So if you ask me today who our partners are for that particular aspect, I will say to you that, that is frankly a TBD that we're working on the early stages. If you ask me about the four or five other aspects, some of which we're already engaged with, I would start out by telling you that obviously the large original equipment manufacturers that we talk too, they are already actively engaged with, we also have several other technology partners ranging from Mount [ph] Group - I've just blanked out some names - Spirus, thank you, in terms of the window to go capability. So we have a lot more definition and we believe our product game plan is through 2016. We are putting the final touches on the year 2017 and beyond.

Greg, I think you're looking for what do we believe the addressable marketplace is?

Yes.

Okay. So that's addressed by - in the product portfolio that we've been building. We have been addressing it by building certain device for the individual, sort of on the derived credentialing for the individual, as well as the actual Boehner machine, as well as the machine-to-machine for the machine, and that's really kind of more deployed to the Internet of Things. As it goes to just on the Federal government side alone, the addressable marketplace for mobile devices is in the low seven figures. We're seeing for PVI, we're seeing for drive credentials that expands into the millions. Right now everybody is testing out in the thousands and putting out quotes for the hundreds of thousands. As you really move from mobile devices - and in mobile devices there is - just in the U.S. alone, last time I looked over $300 million mobile devices, if you just kind of pull it back, and look at just corporations, internal users, there is of users just on the business front. So we know that it's a very large addressable marketplace for just mobile devices as you go and factor in different devices such as just laptops and/or tablets, it grows further. As you address what you're calling the Internet of Things, that's truly everything from initially maybe IP phones where there is a big focus because security related to that to freaking any kind of car, to any kind of airplane, to any kind of network switch, it propagates itself extremely widely, that's why so many of the large partners that are working with us, they are more interested in being able to provide some sort of credential for these devices because there are so many of them. Samsung in itself if you listen to some of their prepared comments are focused on the Internet of Things because they make more than just phones. And in all these things they are trying to propagate them to work through communication channels. Automobiles are doing the same thing, it's a major change in the way people secure their things. And everybody wants to do it through some sort of robust infrastructure and credentialing methodology. We have one that works very well in the mobile environment.

Okay, thanks. So it could be more than $10 million opportunity for you sometime in the next ten years or in the next five years easily.

Everybody out there and all the large players are in this world investing a lot of money for one reason and one reason only, and this is just the connectivity where we're going and how we live, work and play. And we're very early in this whole world and people talk about Big Data, they have not seen Big Data until they really see the connectivity of all of these kind of smart and dumb devices. One of the reasons we're working on deploying an infrastructure, as well as very thin applications is to be able to get down to really object iOS level of these devices because that's where they can truly be secured with a couple of the carriers, that's why we're working with them on embedding at the factory level. And that's why we're going through all of this work because we do know the opportunity is just very large and it's not large just for WidePoint it's large for many players because that's where we're going. That's where the marketplace is being driven to.

Okay, thanks for your color.

Gregg, before you go, this is Steve. Let me just ask you a question because I heard one part of your comment you said, you thought that would translate into $10 million a year over the next ten years. I don't know if I heard you correctly?

I said actually - I didn't put too much thought into but I think it would - contribute, would end up being $10 million a year market for WidePoint sometime in the next five years but I think that would be a very conservative estimate.

I see, yes and I would agree with that readily.

If the marketplace is telling us where they want to go and where we want to go, the opportunity still remains very large, it just - if it was easy, everybody else would be doing it. It's not easy and many very sharp people are working it, we just happy - we're lucky to have some very sharp people on our team that have been working in this environment for over 15+ years.

Okay, great. Thanks gentlemen.

Thanks, Gregg.

And that does conclude our question-and-answer session for today. And I'd like to turn the conference back over to Steve Komar for additional or closing remarks.

Thank you, Melissa. Well, obviously it appears we have addressed all the listeners' questions. Operator, thank you for your assistance. As a closing comment, we remain very excited about our business prospects and progress over the coming quarters. Thank you so much for your continued interest in WidePoint. On a side note for those of you planning to attend, WidePoint will be presenting at the LD Micro Conference in Los Angeles, early in December. Again, thank you for your time and attention today. On behalf of the WidePoint team, we wish you a very pleasant evening. Thank you.

That does conclude our conference for today. Thank you for your participation.