Good day and welcome to the WidePoint Corporation 2015 Fourth Quarter and Year End Results Conference Call. Today’s conference is being recorded. And at this time, I would like to turn the call over to David Fore of Hayden IR. Please go ahead, sir.

Thank you, operator. Good afternoon to all participants in WidePoint’s fourth quarter and full year 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 review and outlook. Then we will open the call to questions from participants. Before I turn the call over to Steve, I would 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, expects, plans, anticipates, predicts, forecast, 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 our 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 the 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 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. Steve?

Thank you, David and good afternoon to all of you that are joining us here today. As always, I would like to express our appreciation to all of you for your continued interest in WidePoint and for allowing us to share both our performance and our plans for the year ahead. I would like to begin by offering some high level commentary on our 2015 performance and financial results. Following that, I will provide some updates on the key goals we had established at the beginning of this past year. And finally, I will cover some of our more recent progress early this year and summarize our key goals and initiatives for the full 2016 year. I will then turn the call over to Jim McCubbin who will provide some additional financial performance metrics and analyses before we open the call to our question-and-answer period. The 2015 calendar year and perhaps more importantly, the most recent 5 months encompassing the fourth quarter and the first 2 months of 2016 have been an extremely busy and very important period of time for the company. As you may well be aware, we have been somewhat hunkered down and internally focused up until this past month, primarily because I have been driving the organization to complete necessary planning and implementation steps to prepare ourselves to achieve our goals for 2016. There should be no doubt in anyone’s mind that both I and the management team were very disappointed in our inability to achieve our targeted new business and new revenue goals during this past year. However, most recently, our attention has turned to ensuring that we exited 2015 with a measurable improvement in our run-rates and the beginnings of a sustainable march toward operational profitability to be achieved on a run-rate basis by…

Thank you, Steve. Hello, everyone. Thank you again for joining our call today. Today in my remarks, I am going to briefly discuss and review our full year 2015 and fourth quarter financial results and provide an update on our financial expectations for 2016 based upon the comments Steve Komar has made. Our revenues for the year ended December 31, 2015 were approximately $71 million, an increase of approximately $18 million or 33% as compared to last year’s approximately $53 million. The carrier services portion of this were materially higher at approximately 80% of last year’s amount compared to the same period as a result of the recognition of equipment and additional carrier service task orders issued related to our DHS Homeland Security Blanket Purchase Agreement contract award. Last year, we were awarded 41 task orders under the DHS BPA contract as compared to 12 task orders awarded in 2014. Depending upon the timing and further issuance of new carrier services from the United States Coast Guard and/or FEMA, this will determine how carrier services will grow in 2016. For the first half of the year of 2016, I would not anticipate material growth in carrier services portion of our revenues as we only offer these services under our DHS BPA and we are not at this time expecting any material expansions that would be ready to be recognized in a material way in the first half of 2016. Our managed services in the year were slightly higher due to additional revenues from our recent acquisition of Soft-ex, which were partially offset by volume pricing reductions associated with our DHS BPA contract. We do believe we will see increased revenue growth from our managed services in 2016 as we recognized growth from a number of new potential clients that we…

Thank you, Jim. I am sure your comments have added value and perhaps some real substance to my introductory comments. I would like to now open the call to our listeners’ questions. Operator, if you can assist us by opening the lines, sequencing new questions and comments from our listeners that would be appreciated.

Certainly, thank you. [Operator Instructions] And at this time, we will take a question from Mike Crawford with B. Riley & Company.

Thank you. Regarding the Coast Guard, why can’t you rollout with them in a distributed command-by-command fashion?

That is – Mike, that is a backup strategy that we frankly are currently implementing. We did take a different approach initially and we used some qualified consultants to try and get us to an expedited more aggressive solution. However, that has not been productive to-date and we are in effect going back to a command-by-command approach. So your point is very well taken and all I can do is agree with it at this point.

Does this mean you are not using the Admiral Day’s group anymore?

Well, we are not using them aggressively in the sense that they were the key point in the initial penetration strategy. However, we do – we have maintained a relationship and we are modifying the approach. He will continue to be a spokesman for us in terms of that, but it will be a modified role versus our original attempt at resolving this issue.

Okay, thank you. And then Steve, you talked about doing systems architecture analysis, but for new – and I stress the adjective there commercial affect your customers. So, to be clear, these are new banks or what have you beyond the ones that you have previously attempted to do pilots on Cert-on-Device and related?

Well, I think we had mentioned earlier an initial relationship with say a financial services firm and yes, that is one of the ones that we are proceeding with in terms of doing initial engagements to assess and evaluate their internal systems architecture and to provide recommendations of how to respond and modify or improve that systems environment to allow for a more effective security solution. That solution would involve, obviously, the utilization of some of our Certs and as well as potentially a managed services platform going forward. We have got three of them going actively right now and they all tend to take this course, an initial engagement to assess the environment and what would be required. Following that our recommendations for an implementation, purchase of Certs, providing a certificate authority, but that runs the gamut, Mike. So – and each customer, I think there will be an element of customization and uniqueness on many of these large customers. So, we are trying to cope with that at the moment and we are remaining flexible to meet the needs of the customer.

And just so I understand that there are no other pilots beyond the systems architecture analysis?

In regard to our commercial market penetration, is that...?

Previously, the company had talked about getting Certs out or derive Certs out to – in certain enterprises, I think both federal and commercial on a pilot basis that would hope to scale and then those expectations scaled back. And I am just trying to get an understanding whether any of that what used to be called a pilot initiative remains or if now we are just on to this – more of this consultative analysis with the aim of progressing for the pilots?

Yes, Mike, your recollection is good. The initial pilot programs that we referred to during 2015 were on the federal side, specifically, with a couple of agencies of the DHS. Those pilots either were stopped or suspended. They are still out there as an opportunity, but that sub-agency has not gone forward with it. The active pilots today are the ones that we are talking about over on the commercial side in those three new verticals that we mentioned. So, those are the only currently existing pilots.

Okay, thank you. And then Jim, you are guiding towards getting, I believe, towards a 5% operating margin by year end, which sounds good with the focus this year there, but Steve also talked about exploring structural strategic options and alternatives. So, what more can you say about potential strategic alternatives for WidePoint at this stage?

Mike, one, we are driving towards higher margins. We are driving and via price increases via streamlining our processes and structures and platforms, we also are pulling back on some of the SG&A to just little bit more of a near-term focus as we drive our financial model to a positive adjusted EBITDA and positive operating margins. And what we are doing is we are tailoring our SG&A expenses as well as we do some cuts and just streamlining. As it goes to structural and other options that we may have, as always, we are looking at all of the options to create as much shareholder value and accelerate the shareholder value for – as Steve said for our stakeholders. We don’t have anything beyond that to really add to that comment at this time.

Okay, thank you.

Thanks, Michael.

At this time, we will take a question from Mike Malouf with Craig-Hallum Capital Group.

Hey, guys. Thanks for taking my questions.

Hi, Mike.

I want to – my first question is just a little bit on the same level as what Mike was talking about, why the change in this strategic move comment, why bring that up at this point? Has there been a decision at the Board level that you need to pursue that as one of your strategies? I just – I am just trying to get a little bit more color, I mean, this is the first time you have ever said this on a public call, so...

Well, fair enough, Mike. And I think that’s a good question. Let me start with the nos. There have not been any kind of Board discussion or any decision made of any kind associated with changing the direction of the company if you will other than being focused on profitability, which is a message I get more times than you can imagine. What we were trying to do by setting out a series of goals for 2016 was to demonstrate that we are open to any and all options that will build and increase shareholder value. I know that’s a pat phrase, but the point is we are taking a number of operational and tactical decisions to improve the profitability profile of the company and to do so without damaging the company. We want to continue to build the enterprise, but we also wanted to send a message to the world and to our investors that we are very focused on building shareholder value. In that sense, we will consider anything that would be perceived to be in the best interest of the shareholder. Is that where we want to spend our time? Absolutely, not.

And what kind of strategic options do you think you have?

Hey, Mike, this is Jim. Right now, we are just – we are looking at all of our options to drive value. We believe we have a very, very valuable product set here today and we want to look at all options on how to drive it and monetize it for all the stakeholders. That’s all we can really add at this point in time.

Okay. And as you look at that $80ish million that you are looking for, for next year, what kind of gross margins are you thinking on that number?

I cover that in my prepared remarks. Right now, our goal is to drive it to the 25% to 30% margin range on a blended average, because a lot of that revenue growth is not coming from carrier services, but higher margin services. That’s why we believe we will see that blend go up. Last year, a lot of the revenue came from carrier services, which drove the blend down. That is...

But Jim, that’s why I asked it, because the math just seems to be a little fuzzy on that, because if you did $13 million in gross profit and you increase your sales at that 10% to 20%, let’s say that you go to that $80 million. To get to 25% to 30%, you are talking about 100% incremental gross margin, which I know your business isn’t that profitable?

Well, we are also streamlining some of our processes and platforms and reducing our cost. Last year, we built an excess capacity into our model. We carried a lot of weight, because we weren’t quite sure how the DHS component agencies were coming in. We also spent some time on process improvements with the ITMS platform and a number of other things. Our goal this year is to literally drive our cost of producing and caring and serving for those clients down. And we are doing a lot towards automating our processes and doing just that. And that is how we are trying to drive towards that result. When I also look at some of the pipeline opportunities in the cyber side of the business as well as the software side of the business, I am seeing very, very high complementary margins. So while we are not expecting to hit that 25% run-rate say in the first quarter, we are looking for first quarter, second quarter, third quarter and fourth quarter improvements to get us up to that 25% plus margin. We have looked at how to get there and we are driving it there. And then the other side of what we are doing is driving our SG&A cost to be in line with under 20%. Now some of the things that we are doing is we are not going to do as much development on longer term projects as we were doing last year. So, some of that cost gets pushed to the right. On our SG&A, we are also streamlining some of our processes and a big part of our G&A cost is overhead. So, we are streamlining overheads as well this year to drive those costs down. So, that’s just where we are driving model to.

And is your target of 25% to 30% gross margins, is that an end-of-year target or is that for the entire year?

That’s a second half target, Mike.

Oh, it’s a second half target, not a full year target.

Right, that’s a second half to drive it to those results in the second half. Right now, the first quarter is, for all intents and purposes, done. On April 1, we are formally putting in place price increases. We are also trimming some cost which will see the benefits coming into the second quarter. This is all part of us continuing to drive our bottom line performance, positive adjusted EBITDA to positive. So in the third quarter, we had about $1.2 million. We drove negative EBITDA. In the fourth quarter, we drove it down to around $860,000. In the first quarter, we are hoping to drive that incrementally down some more and then in the second quarter to get it close to neutral and then start running it positive in the third and fourth quarter and that’s not assuming any major windfalls from Coast Guard and/or FEMA work. And we are really trying to build a model that allows us to show the leverage in this, especially as our product sets in 2016 and ‘17 take hold. And then it will really truly show you the profitability that we can attain.

Hey, Mike, just to put no comment from me. In my comments, I talked about us sort of hunkering down for a few months. And what I have to tell you is that we sat around as a management team and we looked down to P&L categories, Mike. We looked at every dollar of expense that we expand or plan to expand as an organization. And the one thing we did not want to do was damage the business to the extent that we could not perform in the future. But with that one exception, we have looked at every dollar, cost of – optimizing the cost of delivery and cost of goods sold, our SG&A expenses, our development expenses. And I think we feel the mission and the urgency to take this enterprise, this business to profitability. I know that’s not always the case in the micro cap game or whatever else, but I think in our case, it’s critical for us to demonstrate that for credibility sake and that’s where we are focused. And only thing that we will not do is damage our ability to grow as a business.

Okay, thanks for answering my questions.

Thanks Mike.

[Operator Instructions] And at this time, we will take a question from Sam Donaldson, Private Investor.

Well, gentlemen, after a tough year for reasons which you have previously discussed and I think most of us understand, I am quite pleased about what you have laid out for 2016 and beyond. I mean, you had lot of irons in the fire, which have expectation of success in most of them, I take it. The new emphasis on streamlining the company and the efficiencies, I think that’s all to the good. So, I really complement you on this. But let me worry an old bone and try to understand, what is it that is the problem or set of problems in signing the Coast Guard and FEMA? I mean, you have been after it now for a long time and at one time, I thought I think it would come through by now. And now if I read you correctly, you are saying you hope by the third quarter, but you are very cautious and you are not adding any perspective revenue to your estimates because of it. What are the problems in signing these two agencies?

Hi, Sam. It’s good to hear your voice again and let me try – thank you for the kind words at the front end of your comments, but let me give you...

Well, I think you deserve them in my opinion and others could disagree, but I am with you.

Well, thank you. I appreciate that. And at the risk of getting myself in trouble with the external world, let me just kind of summarize where we are. The U.S. Coast Guard is a totally decentralized national if not international organization, protecting not only our coast, but a lot of other duties around the world. It is hugely decentralized. It does not have an effective administrative command and control structure. And our efforts to try and break through at that level, at the top level of the Coast Guard have been relatively fruitless despite what we think was a good strategy. So, what we have to do now is to try and energize all these various commands around the world. It’s going to be a much tougher task, but we are focused on it and we have got people working it right now, but it’s a different game than we thought it was going to be. When we talk about FEMA – so hence our conservative outlook on that revenue stream. When we talk about FEMA, even more to the point, we have an embedded competitive structure in place and some level of politicizing and protecting positions and whatever else. This is another third-party service provider. And we have to struggle against that. We have to find a way to displace them. So, we have active strategies against both these targets. They are the last two. We have penetrated every other agency. And I think we are definitely continuing to focus on those. Having said that, when those happen, they will come on with low margin businesses initially until we can penetrate and add additional services. It is not the end of the world for us to not have aggressive incremental low margin revenues in 2016. So, that doesn’t change our focus, but it’s a statement of reality and we are very anxious to move our gross margins up and to demonstrate our profitability. So, there maybe a little bit of a tradeoff there. It’s an honest answer, Sam.

Well, I appreciate that and let me now display my ignorance by saying dozens of Coast Guard, for instance, need services such as ours. Are they now in this dissemination factor, the services from others and we are trying to displace them or are they just not receiving the kind of services that all agencies need that we are providing?

We are supremely confident that they need our services and everyone that we have talked to or engaged with has indicated that there are enormous efficiencies to be gained. The issue is getting them off the blocks.

Well, okay. And one final question – and sorry to take up so much time, relying on the business of competition, we have competitors, I understand that. Where do we stand in general in our ability to compete against larger organizations, larger companies at this time, I mean, where are we on that score?

Well, I think the one thing that we referred to, let me address it two ways. We do have obviously some direct competitors in our marketplace, some of them are larger than we are, but not hugely so. So, we believe that we can be in the competitive arena. What we have done is partner with these – I call them, 800 pound gorillas, and I know I shouldn’t – partners, several of which we mentioned and another that we are talking to and this is a way for us to kind of change the dynamic in terms of our ability to be successful. And I think we will differentiate ourselves from some of our direct competition in the process of doing that. And I am just extremely hopeful that, that’s going to be very, very constructive for us in 2016. We put all the time and the effort in with these big guys. And it’s taken a year, 1.5 years. Well, we are on the cusp right now. And I think we will be differentiated as a result of these partnerships.

Well, are these partners of ours a way to penetrate markets, a way to get customers that we might not otherwise get or do these partners themselves provide revenue for us?

Both, Sam. Sam, let me answer very directly, definitely both instances. They will definitely with national sales forces, they will broaden our reach substantially and probably challenge us with our limited resources to respond to opportunities as they come through the pipeline. But in addition to that, they absolutely are a potential customer for many of our services and solutions. So, we think it’s going to be very synergistic and that’s the way we are looking at it and that’s the way we are working at it.

Okay, thanks very much and keep going.

Thank you, Sam. Appreciate it.

This does conclude the question-and-answer session at this time. I will turn it back over to management for any additional or closing remarks.

Thank you, operator. Well, it appears that we have addressed all of our listeners’ questions and operator thanks for your assistance. As a closing comment, I would just say that we believe we are solidly positioned in each of our core businesses and that we will deliver improved financial results as well as participating in emerging growth market opportunities as they arise both for the remainder of 2016 and beyond. I am very well aware that this is a critically important year of performance for the company and be assured that all our efforts are being prioritized to achieve superior performance levels. Thank you very much for your time and continued interest in support of WidePoint. And I wish you all a pleasant evening. Thank you.

And this does conclude today’s conference call. Thank you all for your participation.