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| 8-K - WIDEPOINT CORP | v194825_8k.htm |
| EX-99.1 - WIDEPOINT CORP | v194825_ex99-1.htm |
WidePoint
Corporation
Second
Quarter 2010 Earnings Conference Call
August
16, 2010
Operator:
Good day,
ladies and gentlemen. Thank you for standing by. Welcome
to the WidePoint Corporation Second Quarter 2010 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. If you have a question, please press the star
followed by the one on your touchtone phone. Please press star, zero
for operator assistance at any time, and for participants using speaker
equipment it may be necessary to pick up your handset before making your
selection. I would now like to turn the conference over to our host,
Mr. Brett Maas of Hayden Investor Relations. Please go ahead,
sir.
Brett Maas:
Thank you, operator. With
me today are WidePoint’s Chairman and CEO, Steve Komar, Chief Financial Officer,
Jim McCubbin, and Daniel Turissini, WidePoint’s Chief Technology
Officer. Steve will be providing an overview of the second quarter
results, Jim will be providing additional financial details, and Daniel will be
discussing opportunities in the cyber security segment, then we will open the
call to questions from participants.
I’ll begin by reminding you that this
conference call contains forward-looking statements that are made pursuant to
the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements involve risks, uncertainties, and
assumptions as described from time to time in the registration statements and
reports, and other periodic reports filed with the Securities and Exchange
Commission. All statements other than statements of historical facts,
which address the company’s expectations for its future with respect to
financial performance or operating strategy can be identified as a
forward-looking statement.
These statements are based upon the
current beliefs and expectations of the company’s management and are subject to
significant risks and uncertainties. Actual results may differ from
those described in the forward-looking statements. Those
forward-looking statements involve certain risks and uncertainties and are
subject to change, and based on various factors, many of which are beyond the
company’s control. We caution investors that these forward-looking
statements speak only as to the date hereof. The company hereby
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any such statements to reflect any change in the
company’s expectations or any change of events, conditions, or circumstances in
which our statements were based.
I would now like to turn the call over
to WidePoint’s Chairman and Chief Executive Officer, Steve Komar, for opening
remarks. Steve, the floor is yours.
Steven
Komar: Thank
you, Brett, and good day to everyone who has joined us today. On
behalf of the WidePoint management team, I’d like to welcome you all to the
company’s second quarter 2010 investor call, and to thank you for your
commitment and continued interest in our business building
efforts. For those of you who may be new to our quarterly calls,
WidePoint is an information technology solutions provider, featuring products
and services targeted primarily to the government sector, with a strategic
emphasis on cyber security and wireless mobility solutions offered to government
agencies and the organizations and individuals that must interact with those
various arms of government.
With that as background, today it is
my distinct pleasure to report that the second quarter of 2010 was our seventh
consecutive quarter with positive bottom line net income results, reflecting
steadily improving gross margins, and a refreshed revenue growth
trajectory. Our revenues grew over 20% versus the year-ago second
quarter, led by strong improvement in our cyber security and consulting
segments.
Our second quarter revenues totaled
12.5 million, an anticipated by satisfying jump, sequentially up from our first
quarter 2010 result of 11.2 million, lending credence, we believe, to our
projections for even stronger revenue and profitability performance during the
second half of 2010.
Also during the second quarter we
continued to demonstrate our ability to leverage our fixed infrastructure so
that more of each additional dollar of revenue passes through to gross profit
and ultimately to net income. This is evidenced in your
year-over-year increase in gross margin, now up to 24% from the year-ago 21%;
also, a 33% increase in operating margin and a 65% increase in net
income.
We remained confident that we can
continue to grow our revenue as we have already been awarded or have bid on
projects which will enable us to grow in the 20 to 30% range on the top line for
the full year 2010. As we move forward we expect this to translate
into accelerating profitability and net income as a result of the fixed cost
leveraging that is a key feature of our managed services business
models.
I’ll keep my usual business overview
discussion brief today as we have invited Dan Turissini to join us to provide an
important analysis and assessment of developments and opportunities in the cyber
security market, and to help you better understand why we feel so strongly about
this business segment’s importance to the future of WidePoint. And of
course, as always, I will leave the more detailed discussion and analysis of the
financial metrics to Jim McCubbin, realizing full well the importance of that
information to many of you.
Summarizing the business’ outlook and
potential, we believe we are very well positioned and competitively
differentiated in two growth segments, characterized by government initiatives
to secure and protect the nation’s communications and high risk infrastructure
on one hand and the across-the-board search for efficiency and cost reduction on
the other. Importantly we do not believe that our growth initiatives
are in areas that the government is targeting for budget reductions or
in-sourcing efforts, and we do not expect any meaningful impact from those
efforts on our business direction and goals. On the contrary, the
federal government is increasingly recognizing the imperative need to secure its
IT infrastructure, and better control access to government networks and
facilities.
Based on the long-term relationships
and support to many of our customers, we believe our successful track record, as
well as our technical expertise, gives us credibility with our current client
base and positions us well to successful bid on follow-on contracts and to
compete for new programs and new customers, effectively diversifying our revenue
base. As a case in point, we increased absolute revenues at two of
our top three customers: the Transportation Safety Administration and
the Washington Headquarter Service of the Department of Defense, even while the
overall revenue concentration of these top three customers declined to 44% of
our total revenue in the second quarter of 2010, from a much higher level of 68%
in a year-ago.
With that I’d like to turn the call
over to Dan Turissini, WidePoint’s Chief Technology Officer, and the executive
who drives our cyber security initiatives, for an assessment of activity and
developments in that strategic segment, and of course, the company’s positioning
to take advantage of those growth opportunities. Dan, the floor is
yours.
Daniel
Turissini:
Thanks,
Steve. Good afternoon. For those of you who do not know me
my name is Dan Turissini, WidePoint’s Chief Technology Officer. I’d
like to take a few minutes of your time to provide with a general overview of
WidePoint’s cyber security business segment.
Since I last addressed our executive
committee, we have enhanced our unique position in this space, so I’d like to
bring you up to speed on what we have accomplished and how complements have
positioned us within this growth market.
The term “cyber security” is
increasingly highlighted in the news; not surprising, as our daily lives have
been changed by the growth of the Internet, Wikileaks, and the growing threat to
privacy in our nation’s infrastructure. Cyber security involves
protecting our nation’s electronic infrastructure and the information
transactions on that infrastructure by preventing, detecting, responding to
attacks on the network that tie them all together. In addition to the
billions of dollars moving over the Internet each day, an exponentially growing
number of other forms of transactions are occurring that include, as examples,
the monetary management of communications, electrical grids and water supply,
medical and other privacy related transactions, as well as business
transactions, sensitive not only to industry but also to national
security.
Over the last two years an increasing
number of sophisticated cyber attacks have occurred worldwide. We
have begun to witness non-state nations using cyber attacks for political
warfare. The persistent threats are evolving and changing, in many
ways too fast for traditional threat detection and remediation efforts to keep
pace. At WidePoint we have been collaborating with various federal
agencies to ensure that our solutions adequately address cyber threat
prevention, with a keen focus in identity management, electronic transaction
protection, and trusted privilege management. I’m proud to share that
our unique posture in these areas has poised us for a major contributor in the
cyber security efforts in this country and worldwide.
WidePoint’s trusted suite of services
provides authoritative verification and validation of entities and identities of
various transactions and attributes. We have maintained full
compliance with all government regulatory requirements, allowing both government
and commercial customers the highest levels of assurance of the identities of
the persons and devices they are transacting with, as well as the attributes
that those entities possess, permitting them to participate in those
activities.
Strong identity in attribute
management, which has been our vision and focus for over 15 years, has resulted
in WidePoint becoming one of the leading providers of preventive cyber security
solutions. We offer a wide range of solutions from fully managed,
end-to-end solutions based on our certified and accredited environment, to
turn-key solutions in which we support an organization’s existing infrastructure
with our back-end services.
The key to our successes has been our
diligence and subject matter expertise surrounding highly scalable, secure
environments based on federally approved cryptographic and buyer-metric
infrastructures that allows organizations to identify and trust persons and end
points on the ’net. Presently an increasing number of federal agency,
businesses, associations, and individuals who wish to conduct electronic
business and services with the federal government, the Department of Defense,
and each other are using our certified digital credentials. In fact,
WidePoint is the only trusted third party who has successfully demonstrated the
convergence of physical and logical security across various
domains.
Today, WidePoint has developed
more—delivered more than 2.5 million digital credentials that currently support
trusted transactions in citizen-to-government, citizen-to-business,
business-to-business, business-to-government, and government-to-government
transactions that contain sensitive information needed to contract for goods or
services, to verify the identity of electronic mail correspondence, verify the
identity of web-based application servers, and to verify the integrity of
software and documents, to name a few. As today’s instant access
world matures, increased ubiquity in these types of activities will continually
result in increasing demand for the WidePoint solution set.
This year we have witnessed a
significant expansion in the adoption of our services as well as interest in how
we can mature our capabilities to the next level. We are adding
additional trusted authoritative source capability, allowing us to provide more
trusted attribute information to our existing customer base, while attracting
customers in other markets who are tackling similar issues. These
include healthcare, first responder, and energy markets. These
enhancements are market driven to meet diverse business scenarios with common
cyber threat concerns. This is an exciting time providing me with the
opportunity to share with you some of the recent successes and the potential
they hold for the future.
In July we announced the success of
the first comprehensive demonstration of a common authentication and validation
of our federated credentials and the military common access cards at any
location. This real-time, online demonstration showcased a system
that significantly reduces cost and increases security, positioning WidePoint to
roll out its credentials and services to individuals and organizations needing
physical or virtual access to military bases and other secure resources
worldwide. WidePoint offers the only enterprise-wide capability of
this kind that potentially includes over 40 million persons. Although
in the early stages of roll-out, this opportunity holds great promise as we
negotiate the implementation of this capability around the globe.
We have enjoyed continued growth in
the Transportation Worker Identification Credentialing program, TWIC, which
supports the identification and verification of maritime workers around the
United States. Launched a little over two years ago, our digital
certificates have been injected into the identity credentials of over one and a
half million maritime workers, and has been considered for expansion into other
critical transportation worker communities. In fact, while visiting
ports in Florida, New York, and Maryland this year, I was happy to see everybody
sporting a shiny new TWIC.
We have also witnessed a continued
acceleration of the adoption of our software base credentials as the Department
of Defense and other federal agencies have recommitted to their requirement for
the use of digital signatures. The widest adoptions have been in the
contract management area, where user name and password access is being replaced
by digital signatures to protect and assure the validity of contract
actions. Both the General Services Administration and the Defense
Logistics Agency have primed this adoption by offering digital signature
certificates to small businesses and individual consultants paid for by the
government. I invite you to visit eoffers.orc.com and follow the
green arrows.
Digital signature will ultimately
provide an addressable market opportunity of millions of persons utilizing our
credentials to do business with the government and beyond. We have
also rolled out a new project that supports a deployed cyber security solution
in a mobile environment for a major DOD program. A solution will be
used to manage end points that are not fixed to a single IP address, and are
able to roam across various networks providing secure remote access to mission
critical applications to a mobile workforce. While we’re not in a
position to discuss details, we have recently secured a multimillion dollar
award for this that will further broaden our cyber security portfolio and
bolster second half revenues with growing recurring revenue opportunities for
years to come.
WidePoint has strengthened our
position in the nation’s first responder marketplace. In addition to
the emergency response, disaster management, law enforcement, attribute
management, and accountability offerings, a $2 million Q2 award for the roll-out
of a crime scene information system from Delaware State University has
resulted in a significant addition to our revenue base and cyber
portfolio. Built around our core cyber security infrastructure, this
new WidePoint solution set allows first responders the ability to protect crime
information with non-reputable digital signature at the crime scene, providing a
trusted chain of custody of the evidential information process, all leveraging
our federally compliant credentials.
With a potential market focus of
over—of every first responder organization in the country with successful
demonstration of this unique offering provides WidePoint the cornerstone for
what we believe will be widespread adoption.
Finally we have recently expanded our
cyber security expertise into two private sector markets. Within the
social networking market, WidePoint now offers a secure community portal option,
initially focused protecting data in motion or collaboration with a global
provider, offers encryption, digital signature, and non-repudiation capability
for users that desire a protected social network experience. We have
also entered into the mortgage banking market in collaboration with a group of
industry users that will leverage our digital signature and encryption solution
to address a significant, growing mortgage (inaudible).
Together, these opportunities
demonstrate our ability to scale our federally compliant capabilities into a
widespread commercial marketplace, getting us closer to our vision of citizen
focused, electronic commerce protected by WidePoint solution
set. Federal and media increased cyber security awareness has
resulted in a busy six months for WidePoint. With the establishment
of a presidential cyber tsar and the newly formed cyber command with the
Department of Defense, all evidence suggests that business will continue to
grow. We also expect that the recent government direction to treat
cyber as a new warfare domain will accelerate attention in this serious threat,
as it will be treated with the same emphasis as land, sea, air, and space
warfare. At CTO I will continue to focus WidePoint towards building
upon strengths we have developed in our tools, people, and
solutions. WidePoint will continue to leverage our expertise into new
and expanding markets, as well as enhance our capability in response to the ever
growing opportunities addressable within our cyber security
segment.
Thank you, and now I turn you back
over to Steve.
Steven
Komar: Thanks,
Dan. I’m hopeful that the perspectives and vision that you’ve offered
are as intriguing and exciting to our investors and analysts as they are to
us.
We asked Dan to join us today because,
as we’ve mentioned on this call, we are seeing tremendous growth and real demand
for our cyber security solutions. You’ve seen some of the
announcements regarding this segment, and I assure you there are several more to
come as we move to capture new, incremental, and wrap-around
opportunities.
And now I’d like to turn it over to
Jim McCubbin for a more detailed run-through of our financial
performance. Jim, the mic is yours.
James
McCubbin:
Hello, everyone, and thanks for listening
in. We had a nice second quarter and we are actually anticipating a
better third quarter. Most of our financial metrics continue to
improve in the second quarter of 2010, demonstrating that the growth in
profitability strategy that we have been pursuing since the end of 2008 is
developing the momentum that we had expected.
Revenue for the three months ended
June 30, 2010 increased approximately 20% to 12.5 million from 10.4 million in
last year’s comparable period. This was primarily due to growth in
our cyber security solutions and consulting segments.
In our cyber security solutions
segment, revenue grew 86% to 2.5 million in the second quarter of 2010 as a
result of expanding credential sales driven by the DOD’s push requiring
contractors to have credentials to access their systems, a contract award by the
Delaware State University to our Advanced Response Concepts subsidiary, and
continuing support for work under the TSA’s TWIC program. Looking at
the third—at the third quarter and second half we anticipate this segment will
continue to grow as a result of a multimillion dollar award we recently were
awarded by an agency within the Department of Defense, as well as our ongoing
belief that we will continue to see a growing trend in the issuances of
credentials to DOD contractors.
Consulting revenues grew 59% to 3.1
million, materially as a result of growth in awards by federal agencies in
support of various efforts we have ongoing in several IT based
initiatives. While this area has always been a bit variable, we are
looking forward to continued growth in the government sector somewhat mitigated
by weakness in our commercial sector, but overall still supporting an upward
bias.
The wireless mobility segment revenue
decreased 3% to 6.9 million, but this decline was predominantly the result of a
one-time equipment sale of about $500,000 that occurred in the second quarter of
2009, of which we were able to make up approximately half of that in new, higher
margin recurring services. Excluding that one-time equipment item in
the year-ago period, wireless mobility management segment revenue grew about
5%. Unfortunately, awards for this segment came late in the second
quarter and most of the billing did not occur until July of 2010.
Looking forward into the second half
for this segment, we believe we have a change in the mix that emphasizes less
billable calling minutes and more fees associated with higher margin services
that our software provides in regards to optimization, inventory management, and
the other related services that we provide on a fee basis. While we
believe that this may retard or reduce revenues slightly in the second half for
this segment, we would like to point out it should show greater margins and we
believe will continue to post positive growth to the bottom
line.
As a result of our revenue growth our
gross profit for the three months was 2.9 million for a 24% gross margin as
compared to a gross profit of 2.2 million or 21% gross margin a year
ago. Overall, our gross margin was higher in the second quarter of
2010, predominantly due to higher margins associated with a greater mix of cyber
security segment solutions. We see this continuing in the second half
of 2010. In looking at our total operating expenses, we saw an
increase of 28% to 2.4 million for the quarter ended June 30, 2010 compared to
1.9 million for the year-ago period. Operating expenses as a
percentage of sales increased about 100 basis points to 19% from 18% in the
year-ago period due to increases in both sales and marketing and in G&A
expenses. These costs increased as a result of investments we made in
sales and marketing, as well as the results of some one-time expenses related to
personnel on the bench waiting for security clearances and some bonus income
attributable to 2009 performance that were paid out in the second quarter of the
year. These represented approximately $200,000 that will not recur in
the third quarter, and bringing the percentage bias or basis of our SG&A
cost in line, and we’re anticipating improving in the future.
As a result of the positive
performance in our financial model, which I’ve just described, we posted
approximate operating income of $511,000 in the second quarter, up approximately
60% compared to operating income of approximately 319,000 in the second quarter
last year. Net income was approximately 413,000, up 65% compared to
net income of approximately 251,000 in the year-ago period. We
anticipate our earnings shall continue to improve in the second half of the year
and we are looking for improved performance in the third quarter.
Looking forward to the balance of the
year we reiterate our goal to increase consolidated revenues by approximately
20% or more for the calendar year 2010 to expand gross margins and operating
margins, generate gross margins in the range of 22 to 26% with the upward bias
we believe being able to be met, and operating margins in the range of 6 to 8%,
and to maintain or decrease selling and SG&A cost as a percentage of total
revenue, which has the net effect to grow our net income.
As an aside, I would also like
everyone to know that we will be attending the Rodman conference in September
and the Craig-Hallum conference in October, and we are working on setting up a
couple of non-deal road shows during the same timeframe, to expand the awareness
of what we are doing at WidePoint, especially given the positive operational
performance we believe we can continue to demonstrate.
With that, I’d like to turn it back to
Steve.
Steven
Komar: Thank
you, Jim. Overall, we remain on solid ground and on track to achieve
our goals for 2010, and I’d like to reiterate where we see our revenue growth
and how we’ll achieve continued and accelerating profitability.
We’re strategically focused on growing
our government sector and commercial market businesses in the wireless mobility
management and cyber security services segments. We intend to do that
by expanding our customer base, targeting high growth segments of the market,
solidifying our infrastructure to support this growth, and attracting training
and retaining highly skilled professionals. We have built solid,
long-term relationships with our customers and an outstanding reputation within
the federal government. This is helping us to expand our market share
with other agencies and also with vendors, contractors, and increasingly with
state and city municipalities. As we add the additional features and
offerings that were summarized by Dan, we should be in a unique position to
cross out our array of solutions to our existing customers and to meet new
market demand. We continue to expect steady growth in government,
budgeted IT spending, and the outsourcing of key components of various
processes, such as identity management services and mobile telecom expense
management services.
In addition, we will selectively
pursue strategic acquisitions of businesses that can cost effectively broaden
our expertise and service offerings. As a team the management remains
committed to continuing with the execution of our strategy throughout the
remainder of 2010 and beyond.
I’d like to thank you again for your
attention and continued interest. If I can get the operator, I would
like to now open the call to questions.
Operator: Thank
you, sir. We will begin the question-and-answer
session. As a reminder, if you have a question, please press star,
followed by the one, on your touch tone phone. If you would like to
withdraw your question, please press the star, followed by the two, and if
you’re using speaker equipment you will need to lift the handset before making
your selection. And our first question is from the line of Sam
Donaldson (sp?). Please go ahead.
Sam Donaldson: Gentlemen,
congratulations again on a very solid quarter, really good
quarter. I’m particularly heartened to hear that with government
cut-back in spending, not where we are involved, because of course that’s a big
concern. And Dan’s presentation about the future of cyber security
was, again, particularly upbeat as far as I was concerned.
Jim, I noticed under the asset sheet
we’ve lost, what, some assets, gross assets, particularly the cash and cash
equivalents. What was driving that?
James McCubbin:
We just had a lot of investments we made in deferred revenue and
revenues. Actually, in the third quarter you’re going to see the
inverse of that happen and all of a sudden us collect all that cash, and you’ll
see the cash swing up. Just the normal process of investing in your
business as you grow your revenues. It just pressured cash a little
bit but more than—we had more than enough cash, and now you’ll just see the
swing back in September.
Sam
Donaldson: All
right, well that’s good. Well again, congratulations, gentlemen. I
think this is a winning course, but again, I’ve always sort of felt
that.
Steven
Komar: Thank
you, Sam. We really appreciate your support and we’ve been waiting
for a long time for break-out kind of news as well, and we’re seeing it now, and
we’re really quite excited about it. So thank you.
Operator:
Thank you, and our next question is from the line of Mark Jordan with Noble
Financial. Please go ahead.
Mark
Jordan:
Good afternoon, gentlemen. I’d like to ask two questions
in the cyber area. First one relates to, can you give us an overview
of the customer base/contract base you have in the cyber
business? And then secondly, talk a little bit about the terms of
revenue. How are revenues realized? Is this a licensing or
a service model, and therefore with the servicing models, is it tied to
credentials issued/used or you know, just how, how do you build that revenue
base?
James
McCubbin:
Hi, Mark. How are you? This is Jim. And your first
question, the mix of contracts that we have in place, some of them with—straight
with vendors and government entities as well as just with
individuals. So it’s not tied to just specifically government
contracts. With that, I can give you an example of we have a software
contract which is with Delaware State University, and that’s just straight
software revenue recognition on a percent completion for us delivering it over a
timeframe. Yet, at the same time on the credentialing under the ECA
program or ASIS programs, we’re recognizing those credentials as we deliver them
on the revenue mix.
So they’re very different—two
different animals. We’re not just providing one solution or one
solution set. We’re providing, as Dan went into, a myriad of
different solutions to a myriad of different people. Does that help
you understand a little bit of the mix though? Or do you
want—
Mark
Jordan: Well—just,
carry it one step further. If you were to look at the revenue mix,
what percent of it would be tied to software development/licensing and what
percent would be derived from, should we call, production—credential production
activity?
James
McCubbin:
Yeah, less than 10% at this time. It
would probably be really related to the software at this time. You’re
going to see that mix change over time. Right now a lot of the mix is
going to supporting the credential issuance. Just so you also
understand, under, like the TWIC program, we’re providing something different
than just credentials. We’re providing a back room infrastructure for
the use of the roll out of those credentials in those TWIC cards through
Lockheed Martin. Where on the ECA and ASIS side, we’re providing them
directly to contractors. So, again, it’s really
dependent.
One of the things that Dan has been so
successful in building this out is offering solutions that fit almost
anybody’s profile of their need. So flexibility has really helped us
position ourselves through either resellers, through partners, and/or directly
performing the whole ball of wax.
Mark
Jordan: Okay. One
last question related to this and I’ll pass it off for the phone. So
if you have a credentialing individual, to the extent that you have that
million and a half maritime people, do you get paid every time that identity is
authenticated? Or, do you get paid as you establish the initial
credentialing of the individual?
James
McCubbin: Well,
Dan’s going to answer this one.
Daniel
Turissini:
Actually, we have both
models. Right now on the primary contract with Lockheed Martin we get paid as
the credentials are issued. On the other end, we’re working with the
ports and some of the other relying parties, people that use the
card. And we’re getting paid on the validation of that credential
every time it is used. So it’s set up so that we can get revenues
split between the user groups, distribute across the user groups, but for each
individual type of use.
Mark
Jordan: Okay. Thank
you very much.
James
McCubbin: Thanks,
Mark.
Daniel
Turissini:
Thank you, Mark.
Operator: Thank
you. And ladies and gentlemen, if there are any additional questions,
please press star, followed by the one, at this time. As a reminder,
if you’re using speaker equipment you’ll need to lift the handset before making
your selection. And our next question is from the line of Fred
Milligan with Sanders Morris Harris Group. Please go
ahead.
Fred
Milligan: It’s
Sanders. That’s Sanders Morris. Senders is somebody
else. Good afternoon, guys.
Male
Speaker: Hi,
Fred.
Fred
Milligan: The
wireless business, my impression is that this is to grow by adding new agencies
or departments of the government onto it, okay, rather than just organic growth
in terms of current business. Is that the case? And what’s
happening there?
James
McCubbin: Well,
on the wireless, that is the case, one, is to grow it within by adding
agencies. But we’re also positioning ourselves to add state and local
municipalities that we’ve—which we’ve recently added, as well as we’re starting
to dabble in the commercial segments. What we have not released yet
is that we have added a commercial client as well as we’re in the pilot phase
with several agencies or departments of some of the states. On the
federal side, things that delay it a little bit as awards came out at the end of
July. So some of that really didn’t hit the second quarter, but we’ll
see some of it hitting in the third quarter. More importantly though
is one of our contracts expired on the refill of the minutes while we still
continued with handling the—all the optimization and all the higher margin
cost. This is a little bit of a shift for us as we try to shift away
our model into some of the higher margin work, because that tended to water down
the true picture of what the company performs its margin and modeling
as.
So that had a little impact on the
second half top line, but not on the bottom line because we’re going to see
margins improve and our bottom line improve, actually on lesser
revenues. It’s just us tweaking our model as we look forward to where
we want to see that revenue and as we try to shift our margins to a much higher
level.
Steven
Komar: The
only thing I would add to that, I would add to that is that there is a timing
factor here in terms of the fact that we do have some organic growth but we are
dependent on the penetration of new agencies. And I think that when
there’s a delay, be it three months or four months, we see a little flattening
in the revenue stream. But as Jim mentioned, we also think from a
modeling perspective, we’re moving into the higher margin future business, and
that we’re pretty pleased about.
Fred
Milligan: I’ve
read several articles about security of wireless phones. Are you
fellows involved in any of this, and if so, can you detail what it might
be?
James
McCubbin: I
don’t know that I can detail it for you. There are some very exciting
things happening in the industry and we are looking—
Fred
Milligan: How
about in the company?
James
McCubbin: And
we are looking at—we are collaborating with a couple of groups. We’re
still in negotiation phases, but we are looking at using our credentials within
secure smart phones. There are a couple of brand new chips out there
that we’re going to try to leverage. As a matter of fact I have a
meeting next week with one of the vendors, and it is our—one of our focuses and
one of our goals to move towards that credential, that smart credential being
embedded in your smart phone or smart device.
Fred
Milligan: Okay. Now,
so you are growing—you have some commercial business, and is there any state
business at this point?
James
McCubbin: Yes. We
do have some state business and we are in the process of adding some new pilots
as part of our penetration strategy as well.
Fred
Milligan: Would
it be fair to ask about growth in the second half sequentially over the first
half, quarter-by-quarter being somewhere around 4 to 5%?
James
McCubbin: I’m
sorry. Are you talking on a segment basis or are you talking about
total company?
Fred
Milligan: Total
company.
James
McCubbin: All
right, total company, in the first quarter we had forecast we were going to be
in the $11 million range, which we were. Coming into the second
quarter we forecast we were going to be somewhere in the $12 million
range. Right now things look promising for us to be somewhere in the
third quarter in the $13 plus million range, especially given the contract award
we’ve had by an agency within the DOD for some work that we’ve already commenced
that will be going through the rest of the year. And then with the
remainder flowing into the fourth quarter, we’re trying to build the business
around that 20% revenue growth run rate. We believe right now based
on everything that we have we are on track for that 48 to $52 million revenue
range. But more importantly, it’s hitting the target that both Sidoti
and Craig-Hallum put out on the bottom line. Fred, what’s really nice
is in the third quarter you’ll see this demonstrated, you’re going to see some
really nice positive bottom line performance.
Fred
Milligan: Okay,
thank you very much, and congratulations.
James
McCubbin: Thank
you.
Steven
Komar: Thank
you. Appreciate that.
Operator: Thank
you. And as a reminder, ladies and gentlemen, if there are any
additional questions, please press star, one at this time. One
moment, please. And I’m showing no further questions in the queue at
this time. Please continue.
Steven
Komar: In
that case, a couple of final comments, if you will. We’d like to let
you know that we appreciate your questions and your ongoing interest in
WidePoint. And we look forward to the opportunity to update everyone
after our second—our third quarter 2010 results probably released in
mid-November, and I think that it will be a pleasant experience for all of
us. Until then, thank you and have a
pleasant evening.
Operator: Ladies
and gentlemen, this concludes the WidePoint Corporation Second Quarter 2010
Earnings Conference Call. Thank you for your
participation. You may now disconnect.