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8-K - CURRENT REPORT - WIDEPOINT CORP | wyy_8k.htm |
EX-99.2 - PRESS RELEASE - WIDEPOINT CORP | wyy_ex992.htm |
Exhibit 99.1
Transcript
of
WidePoint
Corp.
Third
Quarter 2020 Earnings Call
November
16, 2020
Participants
Jin
Kang - Chief Executive Officer and President
Jason
Holloway - Chief Sales & Marketing Officer
Kellie
Kim - Chief Financial Officer
Analysts
Mike
Crawford - B. Riley Securities
Presentation
Operator
Good
afternoon. Welcome to WidePoint’s Third Quarter 2020 Earnings
Conference Call. My name is Taren and I will be your operator for
today’s call.
Joining
us for today’s presentation are WidePoint’s President
and CEO, Jin Kang; Executive Vice President and Chief Sales and
Marketing Officer, Jason Holloway; and Executive Vice President and
CFO, Kellie Kim. Following their remarks, we will open up the call
for questions from WidePoint’s publishing analysts and major
investors. If your questions were not taken today and you would
like additional information, please contact WidePoint’s
Investor Relations team at WYY@GatewayIR.com.
Before
we begin the call, I would like to provide WidePoint’s safe
harbor statement that includes cautions regarding forward-looking
statements made during this call. The matters discussed in this
conference call may include forward-looking statements regarding
future events and the future performance of WidePoint Corporation
that involve risks and uncertainties that could cause actual
results to differ materially from those anticipated. These risks
and uncertainties are described in the company’s Form 10-K
filed with the Securities and Exchange Commission.
Finally,
I would like to remind everyone that this call will be made
available for replay via a link in the Investor Relations section
of the company’s website at www.widepoint.com.
Now, I
would like to turn the call over to WidePoint’s President and
CEO, Mr. Jin Kang. Sir, please proceed.
Jin Kang - Chief Executive Officer and President
Thank
you, operator, and good afternoon to everyone. Thank you for
joining us today to review our financial results for the third
quarter ended September 30, 2020. As you all know, we had high
ambitions for this year. And as the financial results of the first
6 months of the year indicated, 2020 was lining up to be a banner
year for WidePoint.
Transcript Provided by
Today,
pleased to report that the financial success of the first half of
the year has continued through the third quarter. For the third
quarter of 2020, our revenues increased 94% year-over-year to $57.5
million, largely driven by our increased work on the U.S. Census
2020 as well as expansions with other federal government customers.
Perhaps more impressive are managed services revenue, which
maintains approximately 50% gross margins, increased 38%
year-over-year to $12.5 million. As a result of the increase in
high margin revenue, we recognized net income of $1.1 million this
quarter, which is almost 5 times the net income we recognized in
all of fiscal year 2019.
Our
EBITDA increased 102% year-over-year to $1.6 million, and our
adjusted EBITDA improved to $1.7 million for the third quarter of
2020. Additionally, our cash position increased to $11.4
million.
While
many of the financial improvements this year are driven by our
major contracts, which we will provide updates on momentarily. The
fact of the matter is we will not be able to perform on those
contracts if it were not for the incredible work of our dedicated
personnel and the effective organizational structure that this
management team began making more flexible and more efficient back
in 2017.
I will
take this opportunity to thank our employees who have been working
remotely and for all the hard work that they put in to make this
year what it is shaping up to be.
WidePoint’s
adaptability, which has been elucidated by our year-to-date
accomplishments, during the most challenging operating environment
in recent memory, is among the key reasons we remain confident in
our ability to continue improving this organization for the
betterment of our customers and our shareholders.
Overall,
the theme of the third quarter are much in line with those of the
first-half of the year. Our government business remains incredibly
stable. We continue to service some of the major agencies battling
against the pandemic, including the U.S. Customs and Border
Protection, the U.S. Department of Health and Human Services, and
the U.S. Army Corps of Engineers, who have been building emergency
hospitals.
Our
organization remained well insulated from the negative impacts of
COVID-19. And our products and services remain more in demand than
ever before. Our services provide the IT infrastructure that allows
the workforce to function remotely. And our IdM solution enables
secure communications from these remote sites, both of which are
paramount in today’s environment.
For
these reasons, Q3 was another successful quarter for WidePoint and
we see that trend continuing. With that context in mind,
let’s turn our attention to some of the more pertinent
projects driving our business in 2020 and setting us up for a
strong 2021.
Transcript Provided by
Let’s
begin with the Cellular Wireless Managed Services BPA contract for
the U.S. Department of Homeland Security. This contract is
scheduled to start on Wednesday, November 18. That means that we
should be hearing back from DHS within the next few days. We have,
of course, already submitted our proposal. And back in October, we
presented our case as to why we believe WidePoint is better
positioned than the competition to continue servicing the
DHS.
We have
outlined the reasons for optimism on several of our previous
earnings call. So I’m going to skip the explanation today.
However, I will say that our optimism remains as strong as ever,
and for all the same reasons we’ve discussed
before.
We know
our investors are anxious to hear the results. We’ll be
sharing them as soon as we are notified by DHS. And in the
meantime, we appreciate your continued patience.
Our
work on the 2020 Census continues to be the primary driver of our
record financial performance this year, and their work on the
project is progressing well.
As a
reminder, this is the single largest managed mobility services
project in the country. We are in charge of delivering, managing,
and soon to be decommissioning approximately 700,000 devices for
the Census Bureau. At this time, we expect the majority of this
work to gradually decrease as we approach the end of the year. But
there will be residual work that will continue through 2021 and
completely end in October 2022.
And as
we have discussed, we expect to benefit from this project for many
quarters and years to come, as approves WidePoint’s
scalability and our ability to tackle large, more complex projects
for prospective clients.
I will
also point out that the census project has been a bonus for our
company, but by no means the only bright spot. We had material
increases on our other contracts that will continue throughout this
year and beyond.
At this
point, I’m going to turn the call over to Jason to provide an
update on our sales and marketing initiatives. Afterwards, our CFO,
Kellie Kim will walk us through the financial results of the third
quarter. Then, I will return to discuss our expectations for the
rest of the year and beyond, and open the call to questions.
Jason?
Jason Holloway - Chief Sales & Marketing Officer
Thank
you, Jin. As Jin mentioned, the story of the third quarter is
continued success and increasing demand. We’ve been
maintaining the high-quality service and effectively providing the
valuable support that ensures so many of our clients renew with us.
And we’ve been building upon our relationships with systems
integrators, as well as the momentum created by some of our more
high-profile contracts to expand reputation to achieve higher
margin business.
On the
past 2 calls, we’ve discussed the vendor agreement we have in
place with SYNNEX, which continues to be a potentially large driver
for our Identity Management business. Currently, we are conducting
training sessions with SYNNEX resellers, who will be selling and
issuing our IdM credentials. As we discussed on the last call, the
pandemic did complicate the training process, but our team has done
an excellent job adapting to the circumstances and the work here is
progressing.
Transcript Provided by
We
remain optimistic that our relationship with SYNNEX and the over
800-plus potential resellers they bring to the table, we’ll
pay dividends for WidePoint as we all find new more efficient ways
of operating in the current environment and as the effects of the
pandemic slowly dissipate.
At the
start of this month, we announced that we recorded 40 contractual
actions in the third quarter, which cumulatively are worth more
than $11 million. It is important to note that roughly $10 million
of the $11 million was either new or new expansions. I am also very
excited to share that we also added a new Identity Management
credentialing client as well. We’re limited in what we can
disclose about these contracts and our customers. But as you are
all aware, our primary goal is to add higher margin business to our
books, and IdM clients fall directly into this
category.
As Jin
mentioned, the high profile of the census project makes it a
powerful case study for prospective customers. But we’ve also
been increasing our brand awareness by gaining recognition with
industry thought leaders. This past quarter WidePoint was
recognized in the Gartner’s 2020 Market Guide for Telecom
Expense Management Services. The Gartner-Tim Market Guide is the
definitive source for enterprise decision makers, which is why
we’re very excited to have been included for the market guide
to note our enhanced security for both our platform and our
team.
One of
the guides’ findings was that enterprises are looking for 10
providers to take on an increasing role in offering lifecycle
management services for end user devices and that’s part of
our bread and butter. Our Intelligent Telecommunications Management
System, or ITMS, is our proprietary developed software platform
that is the central nervous system of our managed services and
encapsulates all functional components of our Trusted Mobility
Management.
Regarding
ITMS, we are looking to increase our equipment and accessory sales
by 10% to 30%, which will increase our profits up to 25%. We also
continue to explore additional recycling components as
well.
Each
quarter, thanks to the value we create for our current customers
and the number of new prospects, who are beginning to recognize
that value. We continue to land new business and to expand the
relationships we have. We are confident we will be able to leverage
the momentum generated this year to continue driving the business
forward in the coming quarters and years.
With
that, I will hand the call over to Kellie.
Kellie Kim - Chief Financial Officer
Thank
you, Jason. As noted in our earnings release, we continued many of
the major trends from last quarter, producing record revenues,
positive EBITDA, and earning positive net income. Turning to our
results for the third quarter ended September 30, 2020. Third
quarter revenue was $57.5 million, up 94% from the $29.6 million
reported for the same quarter last year. Carrier services revenues
increased 119% to $45 million from $20.6 million in the third
quarter of last year.
Transcript Provided by
As a
reminder, revenue from carrier services is very low margin revenue,
and in the third quarter of 2020, it accounted for 78% of revenue
compared to 69% in the third quarter of 2019. Managed services also
increased by 38% to $12.5 million from $9 million in the third
quarter of last year.
The
increase in managed services was primarily due to expansions with
existing government and commercial customers, increases in sales of
accessories to government customers, and increases in billable
service fee revenue delivered through our partnerships with large
systems integrators. These increases were partially offset by a
decrease in reselling and other services due to the timing of
product resale in the prior year.
On a
year-to-date basis, our total revenue was $152 million, up 106%
from the $73.6 million of last year. For the first 9 months of
2020, carrier services revenues were $118.1 million or 78% of total
revenue and managed services revenues were $33.8 million or 22% of
total revenue. This compares to carrier services of $48.9 million
or 66% of total revenue and managed services revenues of $24.7
million or 34% of total revenue in the first 9 months of last year.
Year-over-year growth for both the quarter and 9-month period was
primarily driven by increase in revenue from carrier services and
managed services due to higher demand from existing
customers.
Our
gross profit for the third quarter increased 30% to $5.6 million
from $4.3 million in the third quarter of 2019. Gross margin was
9.8% in the third quarter compared to 14.6% last year. For the
first 9 months of the year, our gross profit increased 24% to $15.6
million or 10.3% of total revenue from $12.6 million last year, or
17.1% of total revenue. In both periods, the decrease in gross
margin was driven by the increase in carrier services revenues
previously discussed.
In the
third quarter 2020, operating expenses increased by 11% to $4.5
million from $4 million in the third quarter of last year. As a
percentage of revenue, operating expenses amounted to 8% of revenue
as compared to 14% in the third quarter of 2019. For the first 9
months of the year, our operating expenses increased by 9% to $13.1
million from $12 million.
In both
periods, the increase in SG&A expense reflects higher payroll
costs, consistent with higher employee count to support the
increased business partially offset by reduced travel costs.
Additionally, during the first 9 months of the [Technical
Difficulty] approximately $1.7 million similar to last year in
product development to enhance our platform and portal
integrations.
For the
third quarter 2020, GAAP net income was $1.1 million, an
improvement from net income of $184,000 in the third quarter of
2019. On a year-to-date basis, net income was $2 million, an
improvement of more than 6-fold from $260,000 last
year.
On a
non-GAAP basis, EBITDA for the third quarter 2020 was $1.6 million
more than doubled from $773,000 last year. For the 9 months ended
September 30, 2020, EBITDA was $3.8 million, which compares to $2
million last year and 84% improvement. Our non-GAAP adjusted EBITDA
increased 82% to $1.7 million in the third quarter compared to
$949,000 in the same period 2019. On a year-to-date basis, adjusted
EBITDA was $4.4 million, up 69% compared to last year.
Transcript Provided by
Shifting
to the balance sheet, we exited the quarter with $11.4 million in
cash, net working capital of $7.8 million, and approximately $5
million available to draw down on our credit facility. This
completes my financial summary. For a more detailed analysis of our
financial results, please reference our Form 10-Q, which was filed
prior to this call.
So with
that, I would like to turn it back to Jin.
Jin Kang - Chief Executive Officer and President
Thank
you, Kellie. And thank you, Jason. Clearly 2020 continues to be an
incredibly fruitful year for WidePoint. The demand for our solution
has never been stronger. And we’ve never been better
positioned than we are today. Thanks to our adaptability and the
credibility that we are continuing to build by performing
successfully on our large-scale mobility projects.
For
those reasons, we maintain our confidence that the 1-for-10 reverse
split, which became effective on November 6, will be beneficial to
our organization in the long run, as it opens the door for a
greater number of institutions to become owners of
WidePoint.
I think
all of our investors who have provided feedback and engaged in
dialogue during this process, our conviction and the year-to-date
financial results shows that this company has never been in a
stronger position. And we’re excited to be moving on to the
next steps of WidePoint’s evolution.
As we
look to the end of the year, we are reiterating the increased
guidance we provided at the end of October. We are maintaining our
original revenue guidance of $185 million to $195 million. If we
hit the midpoint of that range, our revenues will have increased
87% year-over-year. More importantly, we’ve added more higher
margin revenues than originally anticipated. As such, our new
EBITDA guidance of $4.7 million to $4.9 million, which translates
to $5.5 million to $5.7 million and adjusted EBITDA for 2020 would
be a 69% increase over last year.
Should
we hit those numbers, there’s no doubt we’ll be ending
the year on a high note. And we intend to continue that momentum
into 2021. Going into next year, our plans are to leverage both
organic and inorganic means to scale our business. We will make
capital investments to enhance our technical capabilities, making
our solutions more attractive and more competitive. And we’re
going to invest in sales and marketing to improve our prospects of
securing new business.
We’ve
already engaged a Cybersecurity consulting firm to help us prepare
for the FedRAMP certification, which will provide us with a unique
competitive edge. We also have planned to expand our TLM
capabilities in the near future. As we’ve mentioned before,
we’re also exploring acquisition opportunities. So far,
we’ve reviewed a number of targets that we could integrate
both vertically and horizontally.
At this
time, we won’t be providing any specifics on these targets.
However, I do want to remind our shareholders that should we move
forward with any of these targets, we have the luxury of utilizing
our cash first, then debt and equity, if necessary and beneficial.
Please stay tuned for updates in the coming months for the
aforementioned strategic initiatives.
Transcript Provided by
Though
2020 has been a volatile and challenging year for many, our
excellent staff, flexible organizational structure and expanding
suite of offerings that function as a solution for many of the
problems faced by large government and commercial enterprises in
today’s environment are resulting in a record year and giving
us excellent momentum heading into 2021. Suffice it to say, the
future is bright.
With
that covered, we are ready to take questions from our analysts and
major shareholders. Operator, will you please open the call for
questions?
Operator
Thank
you. Ladies and gentlemen, the floor is now open for questions.
[Operator Instructions] We will take our first question from Mike
Crawford with B. Riley. Please go ahead, sir.
Q: Thanks and it is great to see the continued strength in
the business. I do have a question on the managed services contract
with DHS. So it’s due in two days, but there seems to be a
fairly good chance that that could extend a little bit, so what
would happen in that case? And then maybe further, if by some
really unexpected turn of events, you don’t actually get the
re-compete, you would be able – you’re not likely to
continue doing the existing work you’re doing for, what, one
year or year-and-a-half?
Jin Kang - Chief Executive Officer and President
Sure,
Mike. Let me answer the first part of your question. It is a yes.
The period of performance for the new contract is supposed to start
on the November 18. However, the government can extend that date,
change that date with a modification to the acquisition. So
it’s up to them to do that.
It’s
a very little concern for us, because our contract with them
currently goes out until April 29 of 2021. And then, that contract,
our current contract has an option period of 6 months beyond that.
So that puts us out at like October of 2021. And then, any task
orders issued at that time can go another 12 months beyond that. So
altogether, it could go out until October of 2022.
In the
case that I hate to think that we won’t win it, but if that
should happen, it will take some time to transition all of the task
order and the work off to the new contractor, which is a very
high-risk maneuver for DHS, and another reason why we think we are
best placed to win this re-compete. However, if that should come to
pass, there will be a long transition cycle, maybe 12 months, maybe
18 months beyond that, and that will be all under our current
contract.
Q: Okay, thank you for clarifying that, Jin. Also, just if I
look at just your accounts receivable balances as disclosed in your
10-Q, I mean, it’s predominantly government, just $2 million
commercial. Now, I know, Jason, you are making great strides with
SYNNEX you mentioned and CDW and others. But what milestones should
we look for or what will it take to see more enterprise business
come in to help keep this growth going on in that
front?
Jin Kang - Chief Executive Officer and President
Hey,
Mike.
Transcript Provided by
Jason Holloway - Chief Sales & Marketing Officer
I think
– go ahead, Jin.
Jin Kang - Chief Executive Officer and President
Let me
start off first, and then, Jason, if you can tag on to the back of
that that would be great.
Jason Holloway - Chief Sales & Marketing Officer
Sure.
Jin Kang - Chief Executive Officer and President
Firstly,
I don’t think the AR aging or that the report is a good
indication of how much business that we have. The reason is, is
that a lot of our federal government contracts are fairly large. So
in comparison the commercial side looks a little small. Also, we
have been reducing our DSO or the number of days outstanding for
our invoices, so the accounts receivable have been worked down
significantly from the past.
So it
could be that you are seeing that difference, but in terms of
milestone and our increases in our commercial business, we have
been closing businesses there. Jason mentioned that we had with a
new contract with the IdM solution and that is a commercial
opportunity. And I will let Jason continue on with the rest of the
answer. Go ahead, Jason.
Jason Holloway - Chief Sales & Marketing Officer
Yeah,
thank you, Jin. So, Mike, the only thing I was going to add is, the
pandemic on the commercial enterprise side is really where we have
seen the impact. I am really, really cautiously optimistic that as
things start to get better with COVID-19 that we are going to see
the uptick.
I think
all of the extraordinary work that we done with our demand
generation partner that we have along with all of the work that we
have done with Gartner that it’s really going to produce some
very positive results.
And
again, the work that we’re doing with SYNNEX as well is
definitely going to bode well. So I would say that there is going
to be, again, some good announcements that are coming. And all I
can say is stay tuned. And I’m excited about it.
Q: Okay, great. Thank you very much.
Jin Kang - Chief Executive Officer and President
Okay.
Operator
[Operator
Instructions] At this time, this will conclude our
question-and-answer session. If your question was not taken, please
contact WidePoint’s IR team at WYY@GatewayIR.com. I’d
now like to turn the call back over to Mr. Jin Kang for his closing
remarks.
Jin Kang - Chief Executive Officer and President
Thank
you, operator, and pretty silent crowd today. But we appreciate
everyone taking the time to join us today. As the operator
mentioned if there were any questions that we did not address today
please contact our IR team. You can find their full contact
information at the bottom of today’s earnings release. Thank
you again and have a great evening.
Operator
Thank
you for joining us today for WidePoint’s Third Quarter 2020
Conference Call. You may now disconnect and have a great
day.
Transcript Provided by