WidePoint Corp (WYY) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the WidePoint Corporation first quarter 2010 earnings conference call. During today's presentation, all party will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Monday, May 17 of 2010. I would now like to turn the conference over to Mr. Brett Maas of Hayden IR.Please go ahead, sir.

Thank you, operator and good afternoon. With me today are WidePoint's Chairman and CEO, Steve Komar and Chief Financial Officer, Jim McCubbin. Steve will provide an overview of the first quarter results, and Jim will provide additional financial details. Then we will open the call to questions from participants.

I will 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 and uncertainties and assumptions as described from time to time in registrations 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 that are subject to changes 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 and updates or revisions to any such statements to reflect any or change in the Company's expectations or 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.

Thank you, Brett. On behalf of the WidePoint Corporation management team, I would like to welcome you all today to the Company's quarterly earnings conference call. As many of you know, WidePoint is a provider of information technology products and services, primarily to the government sector. Our specific strategic focus is on the provision of wireless mobility services and Cyber Security Solutions to our target market. Today, I am pleased to be able to report that the first quarter of 2010 was our sixth consecutive quarter of improvement in revenue and continued increases in both operating income and bottom line profitability. I am delighted that this particular statement has become a bit repetitive over the last several quarters, and I look forward to it becoming even more so in coming quarters. More importantly, this represents a solid start to what we expect will be a very successful year for WidePoint.

During 2009, we demonstrated that we could leverage our fixed infrastructure so that more of each additional dollar and revenue passes through the gross profit into net income. We have continued this trend in the first quarter of 2010, as you can see from our year-over-year increase in gross margins, now at 22.6%, up from 20.2%, and operating margin now at 2.7%, up from 2.3%, and also dramatically reflected in the absolute 85% plus increase in net income versus the comparable period. We remain confident that we can continue to grow our revenue bo -- base, both this year and in future years. In addition to securing contract renewals on materially all of our expiring contracts, we have already identified or are bidding on incremental projects that will enable us to grow 20% to 30% on the top line for the full year of 2010. As we continue to move forward, we expect this revenue expansion to translate into accelerating profitability and improved margins for revenue dollar, due primarily to the built-in leveraging capability that is a feature of our business model.

As usual, I will leave an expanded discussion of the Company's financial dynamics and key indicators to Jim, but I do want to highlight that for the first quarter, which historically is the quietest or softest quarter in our fiscal year, our revenues totaled $11.2 million, a 10.1% increase versus the prior year period. The bulk of this growth came from our wireless mobility segment with a 9% year-over-year increase and in the consulting services segment with a 19% revenue increase. And we did also see nominal growth in the cyber securities solutions segment as well.

Based on the long term relationships and services and support we have provided to many of our customers, we believe our successful track record, as well as our technical expertise, gives us credibility with our current customers and positions us well to successfully bid on follow-on contracts and to compete for new programs and new customers. As a case in point, we increased revenues from all three of our top customers, namely the Department of Homeland Security, the Transportation Security Administration and the Washington headquarters service of the Department of Defense during the first quarter of 2010. But in each case, their percentage share of the total revenues decreased as we continued to broaden our reach into other agencies in the sector. This broadening of our base, coupled with our ongoing sales and marketing initiatives, is setting the stage for an exciting 2010. Getting a bit more specific, our wireless mobility efforts were recently rewarded as we were named the multi-year service provider to the US court system on a nationwide basis. It is our expectation that at least three additional agencies will award similar contracts during the remainder of 2010 under the umbrella of the Federal Strategic Sourcing Initiative, or FSSI contract, where we are competitively advantaged.

At our cyber security operations, we are in the final phases of a contract award process for the provision of device authentication technology and equipment to a major arm of Department of Defense, as well as lowering out a commercial market offering and awaiting awards from several state and local jurisdictions in the area of frequent responder and emergency management software systems.

At our consulting services segment, while not as high a strategic priority, we continue to expand our medium to long term technical consulting engagements even as we remain opportunistic in structuring software related transactions to meet the needs of our agency customers. With that as a backdrop, I would like to turn the call over to Jim McCubbin, WidePoint's Chief Financial Officer, for a more in depth discussion of our financial results.Jim?

Thanks, Steve. Hello everyone, and again, thank you for taking the time to join us on our call today. While the first quarter of our fiscal year tends to be relatively soft, our overall fiscal expectations for the year in general tend to still look at it as being a strong indicator as we move forward. Most of our financial metrics continue to improve in the first quarter of 2010, demonstrating that the growth and profitability strategy that we have been pursuing since the end of 2008 is developing the momentum that we expect it, that revenue for the three months ended March 31, 2010 increased 10.1% to $11.2 million from $10.1 million in the last year's comparable period. This was primarily due to growth in the wireless mobility and consulting segments. By businesses, wireless mobility management revenue grew 8.9% to $6.9 million from $6.4 million in the first quarter of 2010. Consulting revenue grew 18.8% to $2.8 million from $2.4 million, and cyber securities solutions revenue grew nominally to $1.4 million. The trends that were the plateau of revenues which have occurred two to three quarters at a time have been stepping up in the respective levels over the past year and a half.

2008 and 2009, we witnessed this occurring with revenues in the high $8 million and low $9 million level,s stepping up to $10 million to $10.2 million to $10.4 million in the next step up in the 2009 quarters. And then the recent past few quarters, we have seen the stepping up to the $11.4 million, $11.2 million range. Very traditional conservative built around contract award process that we have been living through over the last two, three years as we have been chasing these contract vehicles in our two segments. With this, though, we believe we are in a position, given recent renewals and wins to see the second quarter step up to the $12 million plus range and the second half of the year, which is our traditional strongest period, being able to step up to even higher levels, given the contract wins that we have been awarded and the contracts that we are expected to be awarded. Given this, we may actually have the opportunity to break this two to three quarter revenue plateau trend and see a very strong second half of the year. We are very hopeful and excited with this opportunity as we see the contract awards looking very strong in the second quarter. And as we approach this, we are pleased with that opportunity that it will give our second half.

Moving on, gross profit for the three months was approximately $2.5 million, or 22% -- 22.6% of gross margin compared to $2 million, or 20.2% of the gross margin. Gross margin increased due to economies of scale on our wireless mobility and cyber security segments and some of greater mix of higher margin direct consulting services. Total operating expenses increased 23% to $2.2 million for the quarter, and at March 31, 2010 from $1.8 million for the year ago period.

Operating expenses as a percentage of sales increased 19.9% from 17.8%, sales and marketing expenses increased with the addition of several new hires, tools and service infrastructure improvements, and G&A expenses increased from costs associated with the new subsidiary, Advanced Response Concept acquisition of Nuance's government services group and from a one time increase in legal expenses associated with the purchase of the assets of that government business from Nuance in the first quarter. However, despite the entire cost and due to the operating leverage of our model, we posted operating income of approximately $299,000 in the first quarter, up approximately 27.7% compared to operating income of approximately $234,000 in the first quarter of last year. Net income was also approximately $239,000 compared to net income of approximately $129,000 in the year ago period.

I would also like to point out that in the first quarter of 2010, we also had a number of investments we made and some one-time nonrecurring expenses that should not reoccur that otherwise lowered both the margins and bottom line slightly. We had expenses of approximately $200,000 related to set up costs, legal costs and other associated costs for our ARC acquisition to get them into position to start recognizing revenues that we anticipate in the second quarter, as well as some up front costs we incurred to ramp up a launch of a commercial program with a partner in the second quarter. Even that (inaudible) we believe will leave us in a much stronger situation going into the second quarter and will assist us in meeting our goals in 2010.

Again, moving on, our balance sheet also continued to strengthen with working capital for the year growing 21% to approximately $3.7 million from $3.1 million in shareholders equity, up 17% to $15.1 million from $12.9 million. The Company ended the first quarter on March 31, 2010 with $3.4 million in cash and cash equivalents compared to $4.3 million on March 31, 2009. While this was lower than our year-end, of December 31, 2009, this was attributable to several nonrecurring cash payments that included our acquisition of ARC for approximately $400,000 and earn out payment of approximately $700,000 and acceleration of payables that caused us to -- caused cash to drop in the end of the first quarter. We anticipate cash to expand again in the second quarter as a result of our continued profitability, and the non-recurrence of the ARC and earn out amounts paid in the first quarter and a normalization of the payables pay out that we saw accelerate the first quarter going back to the normal metrics or measures.

Looking forward to the balance of the year, we want to reiterate our goal to increase consolidated revenues by 20% to 30% for the calendar year 2010, to expand gross margins and operating margins, generating gross margins in the 22% to 26% and operating margins in the range of 6% to 7% and to maintain or decrease selling, general and administrative costs as a percentage of total revenues and to grow our net income. As Steve mentioned, we have identified or are bidding on projects necessary to achieve these goals, and we believe additional upside exists which could potentially allow us to exceed these aggressive targets.

Turning to another topic is our investor outreach program. When we spoke just recently after our 10-K and our annual meeting -- or, our annual report on our results of last year, we told all of you that we were continuing this program which commenced with the hiring of Hayden IR in the beginning of 2010. After reporting our year-end results from 2009, we went on to the road and continued the program with a number of calls and follow up calls, including a call that B. Riley arranged for us with their client base. The non-deal road show and the calls were all very well received, and as a result of the outreach, we were fortunate enough to accomplish a task we have been working on for some time, that task being independent coverage. Craig-Hallum initiated coverage and published an independent report after our meetings. This milestone, we hope will be followed this year by others that we are targeting to pick up as well to cover us.

All in all, a good initial efforts. By looking forward, we are also continuing our IR program with three conferences starting next week at B. Riley, following the presentations at the Mobile conference in the beginning of June and the Sidoti conference in the end of June. We will also be out on the road with Craig-Hallum on a non-deal road show next week after the B. Riley conference, as well as we are planning a couple additional non-deal road shows, one to the Midwest and one back to New York. All with the goal of continuing to raise awareness in WidePoint and what we are trying to accomplish at WidePoint in 2010. With that, I would like to turn it back to Steve for final comments before we open up the call to questions.

Thank you, Jim. Great, excellent summary. In summary, we believe we are on solid ground and on track for achieving our business plan goals for 2010, and I would like to reiterate where we see the sources of our revenue (inaudible) and how we will achieve continued and accelerated profitability. As you know, we are primarily focused on growing our government sector and commercial market business in the wireless mobility management and cyber securities services segments. We intend to support that focus by further expanding our customer base, targeting high growth segments of the market, seeking to broaden our footprint with additional products and services and also by judiciously supplementing our infrastructure to support demonstrated growth with an ongoing commitment to attracting, training and retaining highly skilled professionals.

Our long-term relationships with our customers and our reputation within the Department of Defense and other government sector agencies provide significant leverage with which to attract new customers and to cross-sell our increasing array of solutions to our existing customers. We will lead the projected growth in government IT spending and outsourcing of key components of their selective processes, such as identity management services and mobile telecom expense management services, will offer opportunities for the management and delivery of state of the art technology solutions for enterprise applications and information systems. In particular, we intend to focus on developing or providing new or improved solutions in the area of information assurance, including cyber security and Homeland Defense programs, as well as other identity management and PKI based infrastructure solutions for secured system environments.

Finally, we will selectively pursue strategic acquisitions of businesses that can cost effectively broaden our expertise and service offerings and allow us to establish relationships with new customers, provide value-added solutions for present service offerings and customer base or where we can leverage our reputation, core competencies and experienced management team. Coming up, we are looking forward to the exciting opportunities to continue to execute our strategy and further prove our business model throughout the reminder of 2010 and beyond. With that, operator, we'd like to now open the call to questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from the line of Sam Donaldson, a private investor. Please go ahead.

Well, congratulations again on solid growth. It's very salutary. Take a bow. I have two questions. One is after the tour, Jim, that you talked about, we all saw that clearly, investors came on board, I suppose some institutional investors. The volume is what, several hundred thousand shares a day for a long time, and of course, the price jumped up. And then, it -- the daily trades settled back and the price came down, although still higher than it was a few months ago, and we are pleased about that. It reminds me of how you have a bulky motor on a rototiller or something, and you take the carburetor off and you shoot in some -- for a while it goes rrrrrrr, and then it falls back. So my question, which may be unanswerable is what do you think it would take to get now suddenly a steady stream of people who have discovered us and understand the future and keep trading? That's the first question.

Sam, well, thank you. The non-deal road show, Hayden IR and everything that we put in place, we did go out and we did see a very good reception from that non-deal road show. Because of our size, you are going to see a little back filling, you're going to see kind of a push up, fall back a little bit, push up, kind of how people say higher highs, higher lows. Just be part of our awareness campaign. It may take us several years just to build the base of awareness broad enough where you have that steady stream efficient trading. And with that, that's why every quarter we will just keep focusing on it and broadening it. We do have to be careful, though, of not to take our eyes off the business, either. So, it is going to take just a little time to achieve that steady state goal that you want. But hopefully, with the pushes that we are making in investor relations, we are going to see that smooth out over the coming years, hopefully over the coming year.

That's fine with me. After all, I am very young, I am 76. I have all of the time in the world, Jim. Second question, you told us at the stockholders meeting that in fact you were moving some part of the headquarters, if not the headquarters, to Washington. And I notice you now have an address in Reston and a phone number and all of that, but I am not quite clear whether that's just an outlander office or whether, in fact, WidePoint has moved?

Sam, actually that was just a faint, because we are well aware of the fact that we made that commitment to you, and the truth of the matter is that it is not fully implemented today. But that does not change our focus, and we clearly expect, I won't say by June 30, but certainly in the mid year timeframe, to have made this transition. So bear with us just a little bit longer, we want that we do it in an intelligent bottom line, tax effective approach that is in everybody's best interest.

Okay. Thanks.

We have a phone number, we somebody answering the phone. We are getting there.

Well, that's true. But I didn't -- I wasn't sure what I was looking at or what would happen when I called it.

No, somebody should answer it.

That's true. Alright. Thanks, guys.

Thanks.

Thank you, Sam.

Thank you. And our next question comes from the line of Michael Malouf with Craig-Hallum. Please go ahead.

Thank you. Hi Steve, hi Jim.

Hi.

How are you, Mike?

Great. I have a couple of questions. One, if I can start off with the acquisition that you did in January. You talked a little bit about the costs associated with the acquisition, at least were one time in nature. Are we getting a little bit of a benefit here the second quarter with regards to any contracts? Are are they adding anything to the revenues significantly this year? And are you able to get -- or some of these contracts that you talked about associated with this ARC acquisition?

Mike, this is Jim. At the end of March, we did have a couple of awards. That did not benefit us predominantly in the first quarter, but it will show some benefit for us in the second quarter. As you know, we did the acquisition end of January, February and March predominantly was getting everything set up. We didn't buy a company, we bought an asset and a group of people. So we needed to get them set up, in place, get a couple of contract awards done. And given that, we accomplished a whole lot in two months. We should start seeing the results of that in the second quarter, and we won't see, we will see an offset to some of the expense that we with picked up in the first quarter in the second quarter, and that should lead to some benefits in the second quarter. Looking out, we have high hopes for the area, that we have expanded into with the first responders, and the software that we did acquire is very strong and is a leading player, okay, in this new burgeoning area.

Great, thanks. And if I could just expand on some of the contracts that you talked about the DOD and commercial. When you take a look at these potential contracts, is there particular concentration within one contract, or are these several, what would you characterize mid to large type contracts that are going to, you hope drive the revenues to the kind of growth rates that you are talking about?

Well, Jim and I are looking at one another because we want to make sure we understand what you are asking, MIke. One of the -- there are a number of umbrella contracts. I did refer to one in my comments, the federal strategic sourcing initiative, and what we are finding there is under that umbrella contract we are receiving -- we are one of the three qualified players to provide service and we are frankly, the only successful one to date, which is why I said competitively advantaged. And we had a number of awards under that agreement, and there is plenty of opportunity for more. But I am not sure if that's the question you are asking.

Mike, there are three or four major contracts for purchase agreements that we're waiting on that are material. As Steve and I spoke to earlier, all of our renewals from last year, materially we have won. So that's last year's business moving forward. We have also been awarded in the end of March and the beginning of April, several other contracts that either we haven't formally announced yet, or there's security sensitivities around us being allowed to mention them. And there are several others that we have already bid on, that we are waiting to hear from, those awards that we feel strong about. Those awards really helped step up our second half of the year, and I think that answers the question you're -- you have asked.

Yes, no, I was just wondering if this was one award we were waiting on or if there were several pieces of news that you are looking for, and obviously, it certainly sounds like it is several pieces and that you are going to have a pretty busy summer. So that's good. And then, I just had one more little housekeeping question with regards to tax rate. Could you talk a little bit about where you expect the tax rate to be, because it was a little bit higher than I thought this quarter and for the year and if you have any visibility into next year. Thank you.

Yes I can -- this is going to be kind of a funny year for us. We have been forced to take a deferred tax expense item every quarter that we never have to pay. This occurs because of accounting irregularity. In the third or fourth quarter, we are going to be able to reverse all of those tax expenses and pick all that back up. So it is kind of misleading, we are really actually performing to the bottom line better to continue better than $35,000 a quarter. Excluding that, because of our net operating loss carry forwards, right now, we only have to pay 2% alternative minimum tax on our income, plus any other very little excise taxes or things like that. So I think what happened is our taxes are going to be at 2% alternative minimum tax, and then we'll see the big turn around when we get the flip that -- the deferred tax expense that we're being forced to take right now.

But recognize that that's a one time benefit. We are looking forward to it, that will occur most probably in the second half of the year.

Perfect. Okay, great. Now I -- I understand now. Thanks a lot, and I look forward to having you out in California next week,.

Thank you very much for sponsoring us for this non-deal road show, too.

Thank you, Mike.

Thank you.

Thank you. And our next question comes from the line of Mike Crawford with B. Riley & Company. Please go ahead.

Yes, hi. This is Chris Sigala, I am calling in for Mike. I just wanted to get a better understanding, if you could, of how of how you guys are arriving at some of the numbers you have for the guidance. Are there certain things that is need to happen over the course of the rest of the year to get to those numbers? Or it is it more of a -- just a matter of staying the course?

It's a little bit of blend of both. Part of it is staying the course, and part of it, as we spoke with Mike already, is the award of two or three, maybe four other contract awards that we are waiting on right now that we feel very good about. And then turning that into, with revenue recognition into revenue in the third and fourth quarters.

Okay, great. Thanks, that's all.

Thanks.

Thank you.

Thank you. And our next question comes from the line of Mark Jordan with Noble Financial Group. Please go ahead.

Good afternoon, gentlemen. I have a couple of questions, I guess for Jim. You mentioned that you had some cash payments for $400,00 for acquisitions, $700,000 for the earn outs. What amounts of those were -- actually flow through the P&L in the first quarter and what was capitalized?

Alright. The -- in cash, there was approximately, I think it is closer to $390,000, but approximately $400,000 that was capitalized for the purchase of ARC. That's number one. Number two, there was an earn out payment, which was a deduction of cash as well, which is a balance sheet item, for the earn out for [Itis] for their successful performance last year. That again was a reduction in balance sheet. Beyond that, the third item is we had an acceleration of some accounts payable that we accelerate at the end of March, and that made up for the real difference. Most of the reduction in cash is all balance sheet related, not P&L related. If anything, the EBITDA that occurred or the positive cash generated from operations offset that.

Do you want to mention --

And there was some legal expenses that for under $100,000 that was expensed in the first quarter. As well as there was some operating expenses that we saw expensed in the first quarter for really getting ARC set up, Advanced Response Concepts, as well as some investments Protexx subsidiary made in a kickoff of a program they're launching, and those equated to approximately a couple hundred thousand dollars.

Okay, so I would say that there's somewhere around $300,000 worth of one-time expenses that did flow through the P&L in both marketing and G&A that were non- recurring, and you would take that out of the base expense level moving forward?

Right, and what's interesting Mark, and I am glad you picked up on this, if you look at the fourth quarter versus the first -- the fourth quarter of 2009 versus the first quarter of 2010, the real offset between the $500,000 of net income and the $200,000 net income is really that $200,000, $300,000 non-recurring. That's expense items.

Great. Just to beat the horse one more time relative to the outlook for the year, as you sit today with the success that you've had in March and April relative to contract awards, do you feel that you have the visibility that you can achieve that -- the bottom end of the revenue growth with business in hand to date or normal rollover extensions of existing business? And that is -- the three or four incremental awards what takes you up to the higher end of your guidance range or possibly above?

Yes, Mark. We believe that given what the renewals and what we have to date, we are going to see that 10% to 15% number right now. Given that, with a couple of the other awards, we see it then taking it to the higher end. So we have pretty good visibility. And the nice thing is it is not like for 2010, the revenues that we are chasing we haven't not identified. We have identified all of them, and we have either bid on them and are waiting awards, or we are in that process where it is timely now so we can actually get the revenue recognition in the period. Of course, you always have to worry about timeliness. As we say, it is not an issue of if we will win it. It is time of when we win it and do we get it done in time to pick up that revenue. Which is a great place to be, we believe. Because we get there, and that's how we have had this steady state continued growth. It is a numbers game.

Thank you. Yes, and it is kind of dangerous predicting when the federal government will finally issue a contract.

Right, but -- and sometimes it is just a purchase order, a task order that you're waiting on where you've been told you've won something. And they don't operate on a quarter to quarter, they operate on an annual budget cycle, so that's a little bit of a variation you go through quarter, and we have kind of gotten used to it. And that's also how we have had this plateauing in revenue streams popping up, because of some of the seasonality.

Yes Mark, we appreciate your sensitivity for the government contracting cycle. We live with it everyday, and we are moderately hopeful that we have got a good handle on it this year and that we will be heading for the higher end of that range.

Actually, I believe a couple of guys from the operations side, they really bleed for this at times. I know it drives several of those guys absolutely nuts because they have won something, just are waiting on paperwork.

Okay. Thanks again, Jim and Steve.

Thank you, Mark.

Thank you. Thank you. (Operator Instructions) And our next question comes from the line of Mike Kingly, a private investor. Please go ahead.

Hello. I have decided that my question was too early to ask. So I am going to refrain from asking.

Alright, sir.

Thank you. And our next question comes from the line of Bud Milligan with Sanders Morris Harris. Please go ahead.

It is Fred Milligan, but hi.

Hi.

The weather in Washington during the first quarter wasn't particularly good. Did that crimp your operations at all?

I think it crimped most of the mid Atlantic. (laughter) On the consulting side, maybe a little bit, just for work time, but nothing material. It may have delayed some awards as well, as nobody got a whole lot of paperwork done for a couple of weeks because of the snowfall. So, it could have affected us somewhat in the big scheme, I don't believe so.

Is there any timeline in regard to further acquisitions?

No we are very, very selective. It is not a primary focus of ours, the business is first. We do look at things, people do bring us opportunities but Fred, as you know, Steve and I and several of our management team, we are all large equity holders. So there's quite a large bar that needs to be passed for us to sign off on something, and we are not on a critical path to doing anything at this time.

Having said that, I would just add that at any given point in time, there may be one or two opportunities out there that we are either preliminarily investigating or exploring, and we are hopeful that we will find one that really matches the high filter profile that we have set up. But there is not a timeline per se. It will be when it's the right thing to do.

I didn't hear any discussion of the efforts that may be made outside of Washington in developed business. Can you elaborate on that, where that might stand?

Well yes. Right now, what we have done is we have had three areas that is we will be speaking more on in the next quarter, with our focus in the state municipality area and our wireless management. We are presently doing some sales and marketing in that space. Two in our first responders effort with the Advanced Response Concept, they are moving out into more of a municipality environment. And then three, on some of our identity management work, we are teaming up and we have launched some commercial products that we are going to be reporting on shortly, as well, that we have great hopes for.

Okay. The cyber security, I look at that as being perhaps the most dynamic area that you are involved with, but yet this quarter, this past quarter it was -- it seemed to be on the lower side. So could you give some detail in regard to that?

Yes, Whereas the cyber security space in the first quarter is predominantly federal related for growth where we are in our lifecycle right now, in the first quarter, federally, there's not a whole lot of procurement. It is pretty much you live off the backlog waiting for awards. With that and given some of these awards, we would expect to see revenue growth in the second quarter and in the third and fourth. So it is just no -- the first quarter is not the most exciting place to be where everybody is handing out contracts and awards, just because of the seasonality in the cycle and the procurement.

And lastly, pricing. Are you stable, or is it possibly exist or are you thinking about raising prices, or do you have to compete in terms of lowering prices?

We are in a pretty competitive price environment, so I don't think there's any strategy in place per se for increasing prices, especially, and many of our situations are pricing is either predetermined or presignaled, tied to some of the larger umbrella contracts that we have. I think it's on us to deliver these solutions cost effectively. And in some cases, we have the opportunity to be creative on pricing, and I can assure you, we take full advantage of that whenever we can.

Fred, some of these contract pricing vehicles that are in place are three, four, five years. So pricing is not hugely variable.

Okay, alright. So that's all I have. Thank you, and keep up the good work.

Thank you, Fred. Appreciate it.

Thank you. (Operator Instructions) And we have a follow up question from the line of Sam Donaldson. Please go ahead.

Yes, excuse me for double dipping, but I have a couple of other quick questions. Some years back, we ran into a little problem when Congress refused to fund the government, except with the continuing resolution. As you look forward now, do you see any problems from the standpoint of our huge debt and everybody worried about standpoint of Congress coming up with the money for all of these agencies to spend on us? First question.

Well, Sam, what's really nice is on the wireless mobility side of things, all of the money is coming out of the operating budget or the continuing budgets. So unless the government just did not do a continuing resolution and shut down, if they shut down, we would have a problem, but we would all have a problem.

We would, yes.

But given that with a continuing resolution, they are allowed to spend at last year's rate, and given that the budget money that we work is the under that, we wouldn't really be offset there on the wireless mobility side. On the cyber security side, as we tend to start moving out and the client base starts being more related to the contractors working and gaining access with the government, that lessens that. You could, though, have some, some issues if it was for new contracts, new vetting. But that would be more on the growth side of the business, and that would just be a temporary delay, not like a whole scale, oh, it is just not going to happen.

Okay, and one quick question now, which is the catchall. As you look out there, things we may not have asked about, do you see any problem looming on the horizon, whether it is some huge competitor that's now poised to enter the scene or whether it is some other thing, I assume it is not Greece in our case, that you worry about?

Sam, a couple of comments there. Number one, on the tactical side, I can tell you pretty straightforwardly that today we have no action plans in place or contemplated to counter competitive threats per se, because we haven't experienced any, and we believe that we are pretty well differentiated in the areas that we service. So I think on that frame of reference, I think the answer is no, there's not a problem. A little harder for me to answer -- I'll defer to Jim on this one, but it's a little harder for me to answer in a longer-term st strategic sense --

Well I am not asking you if anything is possible. I mean anything that you might see at the moment developing, that's what I am asking about.

We don't see anything at the moment short- term. There's always the possibility that somebody comes up that changes everything that we know and play in. But, we are just not seeing it right now. We are more in that evolutionary stage going from, hey wow, this all works, so let's say let's adopt it and let's get it going. It's -- none of it is really mature per se. You tend to see some of those greater risks when your product life cycle is a little bit more mature.

Don't misunderstand me, my first little sort of somewhat silly illusions to a motor running. I think this motor is running, no question in my mind about it. But it is always good to ask people do you see anything that might interfere with it, and your answer basically is, not at the moment. Thanks.

You are always worried about risks. You are always worried about how fast the government does things. So, that's really timing, though.

But yes, that's what a focus of our concern would be today, and we think that is manageable. So on the other end of the spectrum, the short answer to the question is no, we don't see anything out there.

Good, thanks. At this time,.

Thank you, Sam. Thank you.

Thank you. And at this time, I am showing no further questions in my queue. I would like to turn the conference back over to management for closing remarks.

Thank you. And just in closing, I would just like to say that we appreciate all of your questions and your ongoing interest in WidePoint. And we are really looking forward to updating everyone after the second quarter 2010 results are released, and we thank you again for your continuing support, and thank you, and have a pleasant evening.

Ladies and gentlemen, this does conclude the WidePoint Corporation first quarter 2010 earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325 with an access code of 429-3918-pound. We thank you for your participation, and at this time, you may now disconnect.