WidePoint Corp (WYY) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the WidePoint Corporation fourth-quarter 2014 conference call. Today's call is being recorded.

At this time I would like to turn the conference over to Brett Maas of Hayden IR. Please go ahead, sir.

Thank you, operator. Good afternoon to all participants of the WidePoint's fourth-quarter and full-year 2014 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 a quarterly in high-level annual financial results and Jim will provide additional financial detail. 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 provision of the Private Securities Litigation Reform Act of 1995. Expressions of future goals, including financial guidance and similar expressions including, without limitation, expressions using terminology may, will, believe, expect, plans, anticipates, predicts, forecasts, and expressions which reflects something other than historical facts are intended to identify forward-looking statements.

These forward-looking statements involve a number of risk factors and uncertainties including those discussed in the risk factors section of WidePoint's annual report on Form 10-K and its quarterly reports on Form 10-Q and other SEC filings the Company releases. Actual results may differ materially from any forward-looking statements due to such 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, Brett. Good afternoon to all of you that have joined us today. As has been our past practice, we would like to continue to express our appreciation to all of you for your continuing support and interest in WidePoint.

2014 was both a challenging and rewarding year for WidePoint. We entered the year with a number of key goals and objectives and exited the year achieving the vast majority of those goals, while simultaneously setting the stage for what appears to be a very promising and rewarding 2015.

As I mentioned, we had identified a number of 2014 critical goals; not the least of which was winning a number of significant task orders from the $600 million Department of Homeland Security blanket purchase agreement award that had just been reconfirmed following the dismissal of an extended protest period.

Also, we were committed to expanding our global presence and footprint, given our desire and need to compete more effectively on a transnational basis, with an initial focus on European Community markets. Also within the cyber environment to develop and launch our next-generation of identity assurance solutions to address the accelerating conversions of cyber security and managed mobility solutions.

Of course, continuing with the integration and optimization enhancements we have been making in both our functional infrastructure and our various software platforms, thereby allowing us to operate competitively and cost effectively, and providing ongoing solutions to our customers and prospects. We are pleased to report that we executed successfully against those key goals.

More specifically, we were extremely pleased that we were awarded task orders worth approximately $300 million over the lifetime of their respective contract periods under our DHS blanket purchase agreement. Also that we successfully completed the acquisition of Soft-ex Communications Limited in Ireland, which gave us a landed presence in the European Community with a stable and growing business featuring several global, strategic telecommunications provider relationships.

And we announced our Cert-on-Device capability in early to mid 2014 and saw significant progress in developing key partner relationships and setting the stage for an aggressive market rollout in both federal and commercial markets during the current year.

In addition, we successfully completed two equity capital raises during the year that have provided us the necessary financial resources to support the investments critical to the achievement of our goals through 2015 and beyond. All of this was achieved while at the same time we realized both quarter over quarter and quarterly sequential revenue growth for the year. Not the least of which was our fourth-quarter 2014 revenue performance of $16.8 million, an almost 49% increase to the prior year's comparable quarter, which we also believe to be indicative of our revenue growth trends and trajectory in the current year.

While we are justifiably proud of the accomplishments that the WidePoint team achieved versus its key initiatives in 2014, we fully recognize that for us to achieve our longer-term enterprise goals we must recommit to a new and updated set of priorities for this current year. And I'm confident that we have done that and are off to a great start in 2015.

We are focused on achieving several key goals and objectives this year; some strategic, some tactical. One such goal is the winning of an initial task order from the final three remaining component agencies under our Department of Homeland Security BPA with a special emphasis and priority on the United States Coast Guard.

Another is the leverage selling of our next-generation identity management solution in the form of an integrated offering with our partner products and services under the auspices of the DHS BPA mobile communication solutions mandate.

Strategically, we are pursuing the expansion of our Ireland-based data analytics software offerings into the United States markets while expanding our domestic telecom expense management platform throughout our European base of operations. We're also committed to growing out our subject matter consulting expertise on several fronts as part of our MMS, or managed mobility family of solutions, to assist our customers and prospects in dealing with the technological challenges they face with the conversion to mobility and security services.

Last, but certainly not least, expanding our beachhead with various federal and commercial organizations using our existing and emerging next-generation identity management products and services, such as our already mentioned Cert-on-Device solution as well as derived credentials, machine-to-machine Certs, and adding industrial strength security to the SPYRUS Windows To Go offering.

Regarding our next-generation identity management services, we specifically remain extremely enthusiastic about the prospects for our Cert-on-Device, if you will, franchise offering. We continue to work closely with leading mobile device manufacturers across the globe to embed our COD technology directly into their handsets during the manufacturing process. We are currently marketing our solution in partnership with AT&T and its teleworker program offerings and other various global carriers and global handset manufacturers.

Specifically, we have been working closely with Kyocera and LG USA and our COD technology is now available on certain ruggedized Kyocera smartphones specifically geared toward the needs of the first responder community of users. We now have more than three direct handset manufacturer partnerships in place, two of which I just mentioned, and we still expect to formally announce other partnerships a bit later this year. The target marketplace continues to appear rich in opportunities, both at the federal level and within the commercial marketplace.

We are starting to work with several federal and commercial organizations on assorted pilot programs and we anticipate recognizing initial revenues in the second quarter of 2015. Of equal importance, we also are working with our strategic partners dedicated national salesforces, training and educating them on the functionality of our product set as they bring our bundled solutions to their targeted customers and markets.

Before I turn the call over to Jim I would like to highlight and emphasize that 2015 will be a year of execution for WidePoint. We have the contract wins, partnerships, and strategic alliances, and now the capital, in place to fully exploit the market opportunity. 2014 was clearly a year of investment for the Company. We look to begin to reap the benefits of those investments in 2015 and beyond.

At this point, our focus must be to execute and implement against the opportunity and we remain highly confident that everyone at WidePoint is committed to the task at hand.

Now I would like to turn the call over to Jim McCubbin, WidePoint's CFO, for an in-depth discussion of our quarterly and full-year financial results. Jim, the floor is yours.

Thank you, Steve. Hello, everyone. Thank you again for joining our call today.

Today in my remarks I'm going to discuss and review our full-year and fourth-quarter financial results for 2014 and provide an update on our goals, targets, and financial expectations as we look ahead into 2015, including what we hope will be driving those results -- with what will be driving those results.

For the full year we witnessed revenue growth of approximately 14% with revenues growing from $46.8 million to $53.3 million year-over-year. For the same comparison broken down by reported revenue line items within our managed mobile services segment, we saw carrier services increase 19%, growing from approximately $16.8 million to $20 million; managed services increasing 8% from $17.2 million to $18.6 million; and consulting and other services growing 14% from $12.8 million to $14.6 million.

For the fourth quarter, over prior-year respective fourth-quarter comparison we sought even more aggressive growth occurring with revenues climbing 49% from $11.3 million to $16.8 million. And with growth broken down by reported revenue lines with carrier services climbing 70%, from $4.4 million to $7.5 million; managed services growing 45%, from $3.3 million to $4.8 million; and consulting and other services growing 29%, from $3.5 million to $4.5 million.

Sequentially, in our fiscal year 2014 we also witnessed growth occurring quarter to quarter with revenues growing from the first quarter of the year of $9.6 million to $12.4 million in the second quarter to $14.6 million in the third quarter, and finally to $16.8 million in the fourth quarter, representing growth from the first quarter to the fourth quarter of approximately 75%.

Looking into fiscal year 2015, we believe our growth outlook continues to look bright as we focus on the expansion of our DHS BPA, new products from our next-generation identity management services, such as machine-to-machine credentials, derived credentials, and of course, mobile credentials such as our Cert-on-Device offering that are coming to the marketplace through partnerships with various vendors and partners that Steve already touched upon.

Given this, we have targeted as a goal revenue growth for 2015 of approximately 50%. This, of course, will depend upon continued component task order awards from the DHS BPA, and of course, some marginal beachhead awards we are anticipating commencing in the second and third quarter of 2015 for our server device mobile offering. Our Phase 1 work on Cert-on-Device has started with some small consulting and preliminary work that has commenced in the first quarter, and we do expect to see the beginnings of more revenues from this new offering as we enter into the second quarter and third quarters.

We also believe we will be witnessing growth commencing in both the federal as well as commercial marketplaces on a number of opportunities we have been working on with our respective partners over the past several months. Given our expectations for continued growth of the DHS and the start up of work associated with our next-generation identity management offerings, we continue to believe that we should be able to maintain quarter over quarter -- quarter over past-year quarter revenue growth in 2015 and potentially also witness sequential revenue growth as well.

That will, of course, depend on many factors as our revenue can be erratic as a result of several factors beyond our control, such as federal procurement issues that we have already saw with the DHS congressional budget contest of wills and possibly due to our lack of control over partnership schedules and strategies that could influence some of our various next-generation identity management offerings, which are currently starting to enter the beginning phases of its direct marketing.

Given that the first quarter is our slowest quarter of the year as a result of the concentration we still have in the federal area, we still believe we will achieve quarter-over-quarter growth, but sequential growth may or may not be achievable in the first quarter. While it is possible, we do not yet know. So at this time we believe the first quarter can range from a low of approximately $15 million to $15.5 million to a high of $17.5 million.

Quarter over past quarter this still represents from a low to a high percentage comparison growth of between 60% to 80% over the $9.6 million in revenue we recognized in the first quarter of 2014. Not bad. And this sets the stage for us to enter 2015 at a $60-plus-million run rate.

Looking back at how we entered 2014 at an under $40 million run rate and finished at a mid-$60 million run rate, we continue to be excited about 2015. And of course, attempting to replicate the same kind of percentage results, if not better, as we exit 2015.

Now onto gross margins and some other financial highlights. For the full year of 2014, we saw gross margins range quarter by quarter by anywhere from 21% to 29%, including amortization, depreciation, purchase accounting that is in cost of sales. With an average of approximately 25% for the year, the annual result was very similar to the full-year results for 2013 on a percentage basis.

In fact, it was less than 0.5 a percentage point off each other, even with the higher level of growth from lower margin carrier services in 2014 over 2013, which is a positive indicator for us as we look towards 2015 and we push for a target rate higher than the 25% that we are achieve.

An important point we should note is that while there is an opportunity that this could not occur on a percentage basis as a result of faster and greater DHS BPA-driven revenues, nonetheless it would still drive in more gross margins on an absolute basis as we would see greater revenues than we even expect. Not a bad picture either way as we see it at this point: stronger revenues with greater margins on either an absolute basis and percentage basis, or much stronger revenues with equal to or lesser percentage margins, which still cause absolute margins to be equally as strong. We achieve our net result on an operating basis either way with revenue mix being the true modifier.

Now looking at SG&A, we witnessed sales and marketing expenses in 2014 of approximately $3.4 million, or 7% of revenues, as compared to approximately $3.1 million, or 7% of revenues, in 2013. The dollar basis increase in sales and marketing expenses reflects the addition of Soft-ex of approximately $0.7 million, partially offset by lower channel partner commissions as a result of greater direct sales and lower external sales and marketing program consulting costs.

We have shifted the mix on how we are spending our money to get the best optimized results and not being driven to just spend more for the sake of spending more. In looking at our general and administrative expenses in 2014, they were approximately $14.4 million, or 27% of revenues, as compared to approximately $9.9 million, or 21% of revenues, in 2013. Please note that the G&A expenses in 2013 also included a non-cash gain of approximately $1.25 million that represented a reduction in the fair value of a contingent obligation.

Excluding this non-gain, G&A expenses in 2013 would have been approximately $11.1 million, or 24% of revenues. The increase in SG&A expenses after excluding this non-cash gain predominantly reflects the inclusion of Soft-ex G&A of approximately $2.5 million and, of course, our indirect costs, which include research and development costs and other infrastructure costs we have included while working on the technology and platform investments that we have been making to drive market efficiencies and in launching our next-generation identity management offerings.

Again, it should also be noted that we also continue to optimize how we are spending our G&A expenses to find the best mix while attempting not to drive them, respectively, higher on a percentage basis and hopefully keeping it somewhat level on an absolute basis. We currently believe this time our SG&A expenses will remain somewhat static. So given the outlook for increasing revenues, improved margins on either an absolute and percentage basis or just an absolute basis in 2015, coupled with the leveling off of SG&A expenses, we feel with some continued success our business model will move from a negative operating environment in 2014 to one as we exit 2015 that showcases a positive operating environment that should continue to realize improvements in growth into 2016.

While our first-quarter performance in 2015 may look similar to our fourth-quarter of 2015, we clearly see a path of continued improvement to the second quarters through the fourth quarters of 2015. We have worked diligently to manage our investments and choices in 2014, and as we enter 2015 we believe, given our recent capital raises, infrastructure investments in technology and sales and marketing, we are poised to witness a stronger period of financial performance as we make our way through and exit 2015.

So with that I would like to turn it back to Steve to move on.

Thank you, Jim. Financial insights are appreciated. I would like to now open the call to our listeners' questions.

Operator, if you can assist us by opening the line and sequencing the questions and comments from our listeners that would be greatly appreciated.

(Operator Instructions) Mike Crawford, B. Riley & Co.

Thank you very much. It is nice to see the $300 million ordered on the DHS blanket purchase agreement. That is even without the Coast Guard? And so now that the funding situation there is relatively cleaned up, should we expect some news on that front in short order?

Mike, it definitely is without any impact from the Coast Guard. We are aggressively working with agencies and sub agencies within the Coast Guard, and we are quite hopeful that we are going to be able to announce some dramatic progress in the next 60 to 90 days. But that remains to be seen.

Okay.

By the way, the funding confusion or issues we believe have been resolved.

Okay, great. And then, last year you also started working with Compass to bring [turn-on device] and other managed solutions to its -- not only to that company's operations worldwide, but also to its customers. And I believe there were several markets you were planning to enter in 2014 and 2015. Can you provide an update on that?

Mike, we have entered into the European marketplace with Compass and we continue to make forward progress with them. At this point in time, we just need to expand it throughout Europe first this year and then attempt to enter, as we end 2015 and enter into 2016, into some of the Latin-speaking countries to expand that base as well. So it is moving along.

And then -- thank you. With your carrier partners; so you have named AT&T, Kyocera, LG, Gate I believe. Can you just kind of walk through updates on where you stand with each of those partners?

I can't give you specifics by partner without breaching our contracts. Generally speaking, there are a number of opportunities right now, greater the six, that we are working with in conjunction with those partners and a couple other unnamed partners.

Right now, it is either in the end of the market phase and the beginning of the Phase 1 process or it is in a phase where we are doing some consulting work in helping those clients determine how to start the Phase 1 process.

We also, with all of the partners, are working in train the trainer or train the sales guy or sales management team on how to take this to market. We are working that tightly with AT&T, another international carrier. We've just started talking and working with a couple other carriers. As it goes to the handset manufacturers, we are working with their teams and sometimes in their teams in conjunction with the carriers.

It's a big learning curve going on right now for everyone and we are supporting them as they go out with their customers.

Okay, great. Then just last question for me, please, is when you are populating your cert or derived cert on to the phone, I believe you would like to have it designed in inside the phone, like say on the SPYRUS chip, as opposed to attached externally, like with some kind of microSD card or something like that.

Have you succeeded in getting Cert-on-Device on the SPYRUS chip inside people's phones yet, or is that something to look forward to in 2015?

In regards to Kyocera specifically, because we have become public about this, we do have the capability and we have showcased the capability with a chipset within the Kyocera devices. And we demonstrated just recently at the DHS AFCEA conference in conjunction with M@D and Kyocera; a very hardened device, both logically and physically, for the first-responder marketplace.

This is the first classic example of this being done and utilized. Right now it is being demonstrated to a number of players and we do expect to see some revenues hopefully starting -- in the second quarter starting to be populated from that.

We are also marching down the path of doing those same things with some of the other phone manufacturers and working with them, working in conjunction with some of the carriers. We are both doing this from the federal environment within certain federal agencies and including one under our DHS BPA contract as a non-core, as well as commercially.

Okay, thank you very much.

Mike Malouf, Craig-Hallum Capital Group.

This is Ross Licero on for Mike. Could you guys just give me an idea of where you expect gross margins to be in 2015 after you hit that 50% revenue growth target?

It is a 50% growth revenues; we see it climbing from up into the high 20s to low 30s. Believe it or not, if revenues come in a little bit lower because of lack -- not as much in carrier services you will see higher margins, respectively, on a percentage basis. If all of a sudden you see a blowout because Coast Guard throws in a lot of carrier services, you are going to see lesser margins.

So it is hard to tell right now because it really is driven to -- really as respect to the mix of the kind of revenues. That is why I am saying we could be in a situation where with a lot more and us beating those targets, we still have comparable results. That is why we could see $70 million to $90 million and you are not going to have a lot of variability in 2015 with those margins, just because the larger portion in 2015 would just be associated with carrier services.

Okay. Thanks for the color.

(Operator Instructions) [John Harrell], [Harrell & Associates].

In taking a look at the outstanding share count, it has exploded by nearly 20 million shares versus this time last year, and your loss in 2014 was double that of 2013. It just seems like a losing strategy so far with little chance of measurable profit, if at all, going forward.

Can you guys rectify this or can we expect to see much of the same this year? And are you still not offering forward EPS guidance?

At this point in time, number one, we gave targets on what our goals are and we are kind of too small right now -- and things are going and we are seeing growth, but it is just too early to formalize absolute guidance. The ranges -- we gave a first-quarter range on revenues and we also gave a target range on 2015. That is actually a positive step for us as we mature as a company. That is number one.

Number two, the share count increase was attributable to a $24 million capital raise that we did last year. So while you have seen it year-over-year grow, it was directly as a result of that, those two capital raises, that we raised to finance the growth and growth prospects of what we are working on.

As it goes to the losses, again when you look at non-cash-based losses you see improvements. You had, in one situation in 2014, a $5 million tax loss that was the reversal of a tax asset. It was non-cash; it is something that we will still take advantage of, so it is misrepresentative. So you have some misrepresentations.

You also have purchase accounting in 2014 that also drove some of those losses. That again non-cash, non-operational that you have to run through your books as a publicly-traded company, given US GAAP.

For the year, with investments in our business, we saw growth grow dramatically. So we are achieving the results that we set out with first to drive revenue growth first; to build critical mass; to expand margins after that; flatten out our SG&A where you will see a different calculus on those results. These are the things that we have said quarter in, quarter out for the past year.

In fact, our guidance put out by the analyst we beat on revenue this year that we just finished and we were aligned with the fourth-quarter bottom-line results as well. In the fourth quarter we lost approximately $460,000 in cash, really directly attributable to the capital raise we did in the sales and marketing expansion and a number of other things that we have done.

Please understand, we spent over $3.4 million in sales and marketing last year alone to start all of this, which exceeds the $2 million in cash loss, the $2.6 million in cash losses that we realized over the period. You really have to peel the onion to see that, in fact, we have been meeting our expectations, our goals, and we have been going towards and working towards our plan.

We enter into 2015 where we are saying we are going to have margin improvement, revenue improvement of up to, if not exceeding, 50%; flattening of SG&A. Now if I just take a pencil and paper to the back of an envelope that shows strong improvements 2014 over 2015.

I hope that clarifies it. Does that help you take a look at the picture as it actually exists?

In the figures that I gave you I had already backed out the $5 million non-cash charge, and it looks to me like you raised capital of $24 million to only show a $6.5 million improvement in revenue 2014 over 2013.

One, we raised capital in the end of February, beginning of March, so we could do a capital raise and support the buildout of the DHS award that we had. The second half of the capital raise came at the end of -- in November so we could continue to invest in with our partners our Cert-on-Device and our next-generation identity management services that is so critical to part of our success in 2015.

So I don't know how you can measure that kind of raise without giving us the time to succeed in the same year.

(Operator Instructions) [Sam Donaldson], private investor.

Gentlemen, let me come at the last caller's observations from a different direction. First of all, I have always bought the idea that you do have to spend money, as you have, in order to make money down the line. And I think you are doing that. And from your reports, I think you are on track. And I think the revenue growth in 2014 is a result of, to a large extent, this expenditure, so I am for it.

But, Jim, in talking about what you say is a positive operating environment that you expect, or at least believe that you can achieve, when you say exit 2015 is that a signal that you believe for the first, second, and third quarters we will continue to see a loss as you spend the money before we begin to see a profit? Or don't let me put words in your mouth. You tell me if you can expand on the positive operating environment; when we exit 2015 what we can expect.

Sam, in the first quarter, as I said, I expect similarities between the fourth and first quarters given the ranges I had given. I stated that back in the third quarter -- on our last third-quarter call, in fact -- we are running to plan.

With that -- that is there. The big reason you don't see all lot of growth also between your fourth and third -- I mean fourth quarter and first quarter is traditionally the federal government doesn't do a lot in the first quarter, as you know. You go out and you market, you try to win your work in the second quarter, so not -- a lot doesn't happen there.

The second quarter you start seeing a ramp up; third and fourth traditionally you see your strength. You have been with us a long time, Sam, and always, if you have noticed, our second half is stronger than our first half. Given that, I am looking at some losses in the first quarter.

In the second quarter, we are looking for some revenue improvements, some neutrality on our operating expenses and income in the second quarter. With then gains building in the third and fourth quarter. This is being propagated by new and additional revenues associated with some of our credentialing business, as well as hopefully bringing on more work from the Coast Guard and various other commercial entities.

So with that, I see the second half traditionally, like it has been in the past, showing the improvements more to the bottom line on an operating basis. Does that (multiple speakers)?

That clarifies it for me. When you say be second half, we begin to show profit in a sense so that as you exit 2015 you will be in what you call a positive operating environment. And I think from my standpoint I can wait, because I think your strategy, again, is paying off. But at some point obviously all of us, beginning with you, the office of the corporation, want to see the corporation in the black and to stay there and then increase that.

Sam, I agree with you. Last year and the beginning of this year we have invested and we have added to sales and marketing. We have invested in technology and platform improvements, and we had to do that.

Any time you seen some of these firms that are trying to grow very fast, you have to front end the investment to win the work and that investment sometimes exceeds your profit margin because you are front-ending that sales growth. And in the beginning that is what you need to do to drive revenues.

As a company, we need to be bigger. We need to be larger. We need to have critical mass so we can be competitive, and we have to drive that by investing now. That was the whole calculus when we started this last year and we said we were going to drive this growth.

Without it we wouldn't have seen revenues go from $9.6 million to $16.8 million. Now, as we enter into 2015, our goal is to continue a strong revenue trend because of that investment, and to also make sure that we start improving our margin mix.

If you just look at the basic math; if you continue to grow your revenues, you hold your margins steady or grow them, and you hold steady your SG&A, you will get a positive result. That is what we have been working towards and doing.

I understand that. And as I say, the theory has been exactly right and I think you are executing it exactly right. It is just as we move toward the end of the line, and by the end of the line I certainly don't mean just this year or next year or what have you, it will become a positive and it will become profitable.

I think many of us who have been with you a long time believe that because we believe in your game plan and we believe in the management. And I still think WidePoint is a strong buy. Thanks, gentlemen.

Let me just add a closing comment, because I'm flashing back to the earlier gentlemen's comment on whether he thought we could ever turn this thing around and make it a profit-earning enterprise and your comment about maybe we have to wait until the end of 2015 or later. We haven't spent a lot of time talking about earnings guidance. We have been talking real hard about revenue growth, because we think that affects what Jim refers to as the calculus. And that is the first significant step.

But as a management team, as a company direction we believe that we will reach profitability in 2015 and probably not on December 31. We like to think it is going to be before that. And if our revenues keep on their current trajectory, there is very little doubt that we will be able to do that and have an extremely strong 2016 from an earnings perspective.

Michael Needleman, Preservation Asset Management.

Thank you, gentlemen, for taking the questions. Just a few questions that I had.

Just as a reminder, real quick on the carrier side of your margins because you discussed that it is a possible, I don't want to call it drag, but lower margin. Could you just remind me about what those margins are on the gross side please? That is my first question.

They are built in to be a very low component margin rate, like 1%, 2%, 5% depending on how and what we are doing. So (multiple speakers) yes, that is one of the reasons you see the margins get so watered down. (multiple speakers) And then services are a lot higher.

Right. And then, if I heard you correctly, what is unknown, at least on the revenue ramp, is if the Coast Guard comes in that will come as carrier side of the business at the lower margin business, correct?

No, you have a blend of it. You have a blend of the business that would be very high margin and then a portion of it that would be very low margin, depending on how the Coast Guard comes on.

That is what you mentioned in terms of how it comes on, whether or not this more carrier oriented the margin could be lower, although the margin -- the revenue ramp would be associated with that as far as affiliated business.

The second question I had is you talked a little bit about the commercial side of the business actually possibly seeing a contract that you believe sometime this year. What made you say that? And is this through the current channels that you have in place with Compass or is this with a new partner?

Can you reframe that question? I didn't hear you.

Sure, sure. You mentioned in your comments that the commercial side of your business you expect to see some type of contract or revenue associated with the commercial side of your business -- or I should say enterprise, pardon me -- enterprise sometime this year. What I asked is, is that do you believe with Compass, or do you think that is with another partner in terms of the enterprise side of your business?

Okay, a portion of our business right now is commercial and we continue to win commercial business. We do believe, if that was made in reference to Cert-on-Device, that we have a number of commercial Cert-on-Device opportunities that we are moving forward with in conjunction with AT&T and some of the partners that we currently have, both named and unnamed.

And then the last question, just in terms of the capital structure of the business currently. I recognize that capital is needed for growth. Having said that, at the current level of cash, given where you are in the stream of the contract, do you think that you will be needing any additional capital from the standpoint of building out the infrastructure? Or do you think that the raises of capital that you have done this past year are enough to keep you going from the standpoint of your capital?

In regards to building out our current business, we have sufficient capital. We are sitting with $13 million of cash on hand. In 2015 we will pay down approximately $2 million in debt.

When you factor in our goals of being profitable and cash flow positive, I think we are fine at this point in time. While in the first quarter we may suffer some additional cash outflows because of where we are in the rollout of Cert-on-Device for the marketing and for the technology enhancements and consolidation with our partners of that; that is what we are seeing, that is where we are right now.

Some sort of major event would have to change to make that a requirement at this point. I don't see it right now, Michael.

And just my last question, gentlemen, I am sorry to as this. I thought it was my last.

In terms of the revenue that you have booked currently, how long does that revenue -- should we see that revenue in two years? Should that revenue come in -- how long of a period before that revenue is -- the backlog that you have; how long do you think it takes until it turns to revenue?

One, as you recall, Michael, we finally got the award for the BPA awarded to us by the beginning of last year, of 2014. We had task orders, and most of the task orders we received really by about September 30 with task orders still flowing in therefore.

So most of those were for anywhere from three- to five-year totals. If you look at the $300 million, you would pretty much look at it over a five-year timeframe to be recognized.

What is left on that contract award is for us to still win three components, with Coast Guard being the largest component of all of the components, and then Secret Service and FEMA. And then we still have another area for non-core products and services. As an example of that some of our Cert-on-Device work may be flowing through that vehicle into a couple of the DHS components.

Okay. So the total contract, what I think -- I want to be sure -- you are saying anywhere between three and five years on the current $300 million of backlog, correct?

We will call it just five years, let's just keep it simple.

Okay. Thank you very much.

[Tony Staten], [Day Capital].

Operator, I have had an email saying people are trying to get through. I don't believe we are blocking anyone from dialing in. Are we? Are we having any issues with people reaching you?

No, sir. Not that I'm aware of.

Okay, thank you.

Jim, this is Tony. I want to ask just one quick question. I know it's been several times so far, but just kind of wanted to see if we could get some type of expectation as to when you will be able to offer a little more color on the third-leading handset manufacturer that you guys are currently working with. So just wanted to see if we could get some type of timeline as to when you will be able to announce them.

How about if we tell you this? We are working with several handset manufacturers; you are just talking about the third large one that has been a while in announcing it.

We are hopeful it could happen in a month or two, but we are not in control of their marketing plans and we are not in a position to make demands of them. When they are ready, and they are working diligently right now making sure that they are ready, I am sure that it will be announced probably in conjunction with a multitude of efforts that they are making. That is what I can tell you.

We are pressing forward, though, and doing work with that third company as we speak. And when it can come out, it will be nice to have that out as well, because I know a lot of people are curious about it. But in the meantime, guys, we are gagged. We can't do anything or say anything until they are ready.

Okay. And then I guess my closing comment is regarding the color before Mr. Donaldson. I just wanted to comment on the fact that I thought you and Steve both did a really good job of clarifying that particular caller's questions. So I just wanted to close with giving you guys kudos. That is all I have.

(Operator Instructions) With nothing additional in the queue, I would like to go ahead and turn things back over to our speakers for any additional or closing remarks.

Thank you, operator. It does appear we have addressed all the questions and we thank you for your assistance.

As a closing comment, while we have set challenging goals and objectives for ourselves in 2015, we truly believe the opportunities that are developing in our marketplace, coupled with the evolution of our solution and new partnerships, serve to showcase the exciting prospects and the potential for WidePoint in the future. Now it is our job to push ahead and make those projections a reality.

Until we speak again, thank you very much for your continued support. We wish you all a wonderful evening. Thank you.

Thank you. And again, ladies and gentlemen, that does conclude today's conference. Thank you all again for your participation.