WidePoint Corporation
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Good afternoon. Welcome to WidePoint’s Third Quarter 2020 Earnings Conference Call. My name is Karen, 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 [e-mail].

[Jin Kang:]

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 six months of the year indicated, 2020 was lining up to be a banner year for WidePoint. Today, I’m 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, our 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 five 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 have put in to make this year what it is shaping up to be.

[Jason Holloway:]

Thank you, Jin. As Jin mentioned, the story of the third quarter is continued success and increasing demand. We have been maintaining the high-quality service and effectively providing the valuable support that ensures so many of our clients renew with us, and we have been building upon our relationships with systems integrators as well as the momentum created by some of our more high-profile contracts to expand our reputation to achieve higher-margin business. On the past two calls, we have 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. We remain optimistic that our relationship with SYNNEX and the over 800-plus potential resellers they bring to the table, we will 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’m also very excited to share that we also added a new identity management credentialing client as well.

[Kellie Kim:]

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. 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.

[Jin Kang:]

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 have 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 one for 10 reverse split, which became effective on November 6th, 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 thank 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 are 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 have 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 in adjusted EBITDA for 2020, would be a 69% increase over last year. Should we hit those numbers, there is no doubt we will 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 are going to invest in sales and marketing to improve our prospects of securing new business. We have already engaged a cyber security 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 have mentioned before, we are also exploring acquisition opportunities. So far, we 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. 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. Sufficed 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. We will take our first question from Mike Crawford with B. Riley.

[Michael Crawford:]

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 is due in two days, but there seems to be a fairly good chance 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 recompete, you would be able - likely we had to continue to do in the existing given for what one year or year and half?

[Jin Kang:]

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 18th. However, the government can extend that date or change that date with a modification to the acquisition. So it is up to them to do that. It is a very little concern for us because our contract with them currently goes out until April 29, 2021, and then 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 recompete. 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.

[Michael Crawford:]

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 is predominantly government. Just two 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? What will it take to see more enterprise business come in to help keep this growth going on that front?

[Jin Kang:]

Let me start off first, and then, Jason, if you can tag on to the back of that, that would be great.

[Jason Holloway:]

Sure.

[Jin Kang:]

Firstly, I don’t think the AR aging or the report is a good indication of how much business that we have. The reason 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:]

Yes. 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’m 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 have done with our demand generation partner that we have along with all of the work that we have done with Gartner that it is really going to produce some very positive results. And again, the work that we are 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.

[Michael Crawford:]

Okay, great. Thank you very much.

[Jin Kang:]

Okay.

[Operator:]

At this time, this will conclude our question-and-answer session. If your question was not taken, please contact WidePoint’s IR team at [e-mail]. I would now like to turn the call back over to Mr. Jin Kang for his closing remarks.

[Jin Kang:]

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.