Q3 2020 WidePoint Corp Earnings Call
Ladies and gentlemen, thank you for your patience you are holding for today's Widepoint third quarter 2020 earnings conference call. At this time, we are gathering additional participants and will begin momentarily. We appreciate your patience and ask that you. Please continue to hold.
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Ladies and gentlemen, thank you for your patience you were holding for today's Widepoint third quarter 2020 earnings conference call. At this time, we are gathering additional participants and will begin momentarily. We appreciate your patience and ask that you. Please continue to hold.
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Good afternoon, welcome to Widepoint third quarter 2020 earnings Conference call. My name is Karen and I will be your operator for today's call joining.
Joining us for todays presentation are widepoint, President and CEO, Jim King Executive Vice President and Chief sales and marketing Officer, Chase, and Hollaway, and executive Vice President and CFO Kelli Cat.
Following their remarks, we will open up the call for questions from Widepoint publishing analysts and major investors. If your questions were not taken today and you would like additional information. Please contact Widepoint Investor Relations team at double you why why and Gateway IR Dot com.
Before we begin the call I would like to provide Widepoint safe Harbor statement and includes cautions regarding forward looking statements made during this call the.
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.
These risks and uncertainties are described and 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 and the Investor Relations section other companies' website at www Dot Widepoint dot com and.
Now I would like to turn the call over to Widepoints, President and CEO Mr., Jim King Sir. Please proceed.
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 Thirtyth 2020.
As you all know we had high ambitions for this year and that's the financial results and the first six months of the year indicated 2020 was lining up to be a better year for widepoint.
Today I'm pleased to report that the financial success and the first half of the year has continued through the third quarter.
For the third quarter of 2020, <unk> 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 expenses, but other federal government customers per.
Perhaps more impressive our managed services revenue, which maintains approximately 50% gross margins increased to 38% year over year to 12.5 million.
As a result of the increase and high margin revenue, we recognized net income of 1.1 billion this quarter.
And it's almost five times and net income we recognized and all of fiscal year 29 T.
Our EBITDA increased 102 percentage 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 other 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 and 2017.
I will take this opportunity and thank our employees, who have been working remotely and for all the hard work that they put in to make this year what is shaping up to be.
Why force adaptability, which has been elucidated by our year to date accomplishments during the most challenging operating environment in recent memory.
Some other key reasons, we remain confident and our ability to continue and proving this organization for the betterment of our customers and our shareholders.
Overall, the theme on the third quarter.
Much in line with those are 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 remain well insulated from the negative and passive coke and 19, and our products and services remain more and demand than ever before.
Our services provide the I.T. infrastructure that allows the work force to folks and remotely.
And our idea and solution enables secure communications from these remote sites both.
Both of which are Paramount in today's environment.
For these reasons Q3 was another successful quarter for Widepoint and.
And we see that trend continuing.
With that context, and Mike, let's turn our attention to some of the more pertinent projects driving our business and 2020 and setting us up for a strong 2021.
Let's begin with the cellular wireless managed services P. a contract for the U.S. Department of Homeland Security.
This contract is scheduled to start on Wednesday November 18th.
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 position and the competition to continue servicing the DHS.
We've outlined the reasons for optimism on several of our previous earnings call.
So I'm going to skip the explanation today, however, I.
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 that as soon as we were notified by DHS and in the meantime, we appreciate your continued patience.
Our work on the 2020 cents. This continues to be the primary driver of our record financial performance. This year and other work on the project is progressing well.
As a reminder, this is the single largest managed mobility services project and the country.
We are in charge and delivering managing and soon to be de commissioning approximately 700000 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 and in October 2022.
And as we have discussed we expect to benefit from this project for many quarters and years to come on as it proves likewise scalability and our ability to tap a 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 and.
And to turn the call over to chase and to provide an update on our sales and marketing initiatives afterwards, our CFO Kelli, Ken will walk us through the financial results of the third quarter then.
And then I will return to discuss our expectations for the rest of the year and beyond and open the call to questions Jason.
Package and.
As Jeff mentioned, the story and the third quarter is continued success and increasing demand.
We've been maintaining the high quality service and effectively per body the valuable support that insurers. 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 our reputation.
And to achieve higher margin business on the past and calls we discussed the vendor agreement, we have and placed with cynics, which continues to be a potentially large driver for our identity management business.
Currently we are conducting training sessions with cynics resellers, who.
We will be Sally and issuing our idea on credentials.
As we discussed on the last call. The pandemic did complicates the training process, but our team has done an excellent job adapting to the circumstances and the works here is progressing.
We remain optimistic that our relationship with Fedex and the over 800, plus potential resellers they bring to the table.
Will pay dividends for Widepoint as we all find new more efficient ways of operating and 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 action and 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 credential and clients as well where.
We're limited on 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 through our books and I'd and clients fall directly into this category.
As Jim mentioned the high profile of the census project makes it a powerful case study for perspective customers.
But we've also been increasing our brand awareness by gaining recognition with industry thought leaders.
This past quarter Widepoint was recognized and the Gartners 2020 market guide for Telecom expense management services.
The garden and Tim market Guide is the definitive source for enterprise decision makers, which is why we're very excited she had been included for the market guide to note our enhanced security for both our platform and our team.
One of the guys finding was that enterprises are looking for tempur buyers to take on and increasing role and offering lifecycle management services for end user devices and.
And that's part of our bread and butter.
Our intelligent telecommunications management system or Tms is our proprietary develop software platform that is the central nervous system of our managed services.
And encapsulates all functional components of our trusted mobility management.
Regarding ITM and we are looking to increase our equipment and accessory sales by 10% to 30%, which will increase our profits up to 25% we.
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 lag and 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 and the coming quarters and years with that I will hand, the call over to Kelly.
Thank you, Jason and noted in our earnings release, we continued bini and the major trends from last quarter, producing record revenues and positive EBITDA and operating positive net income turning.
Turning to our results for the third quarter ended on September 32020, there.
Third quarter revenue was 57.5 million up 94% and 29.6 million reported for the same quarter last year.
Carrier services revenues increased 119% to 45 million from 20.6 million and the third quarter of last year.
As a reminder, revenue from carrier services, it's very low margin revenue and in the third quarter on 2020 and accounted for 78% of revenue compared to 69% and the third quarter from 29 team 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 and sales of accessories took up and new customers and increases and billable service fee revenue delivers true.
Our partnership with large systems integrators.
These increases were partially offset by a decrease in reselling and other services due to the timing of pride and we fail in the prior year [noise].
On a year to date basis. Our total revenue was 152 million up 106% from the 73.6 million last year for the first nine months and 2020 carrier services revenues were 118.1 million or 78% of told.
Revenue and managed services revenues were 33.8 million or 22% of total revenue.
This compares to carrier services, and 48.9 million or 66% on total revenue and managed services revenues of 24.7 million or 34 percentage of total revenue in the first nine months of last year.
Year over year growth for both the quarter and nine 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 side 6 million from 4.3 million in the third quarter and 29 team.
Gross margin was 9.8% in the third quarter compared to 14.6% last year for the first nine months of the year on gross profit increased 24% to 50.6 million or 10.3% from total revenue from 12.6 million last year was 70.
On 0.1% of total revenue.
In both periods. The decrease in gross margin was driven by the increase and carrier services revenues previously discussed.
In the third quarter 2020, operating expenses increased by 11% to 4.5 million from 1 million and the third quarter sales last year and.
On a percentage of revenue operating expenses amounted to 8% and Matthew as compared to 14% and the third quarter of 2019.
For the first nine months of the year on operating expenses increased by 9% to 13.1 million and 12 million and.
Both period the increase in S.T.N.A. expense reflects higher payroll costs, consistent with higher and we count to support the increased business, partially offset by reduced travel costs. Additionally, during the first nine months of the year and we invested approximately 1.7 million sales.
To live to last year and product development to enhance our platform and importantly integration.
For the third quarter 2020, GAAP net income was 1.1 million and improvement from net income of 184000, and the third quarter EPS of 2019 on a year to date basis net income was 2 million and improvement of more than six food from 250000 last year.
Share.
On a non-GAAP basis EBITDA for the third quarter 2000, 21.6 million more than doubled from 773000 last year for the nine 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 949000 and the same carried on 2019 on a year to date basis, adjusted EBITDA was 4.4 million, 69% compared to last.
Last year.
Shifting to the balance sheet, we ended the quarter with 11.4 million and cash net working capital of 7.8 million and approximately 5 million available to draw down on your credit facility. This.
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 and Jane.
Thank you Kelly and thank you, Jason clearly 2020 continues to be an incredibly from four 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 a large scale mobility projects.
For those reasons, we maintain our confidence that the one for 10 reverse split which became effective on November six will be beneficial to our organization and 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 will provide a feedback and engaged and dialogue during this process on.
Our conviction and the year to date financial results shows that this company has never been and a stronger position.
And we are excited to be moving onto the next steps of Widepoint 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 to 195 million.
If we hit the midpoint of that range I revenues will have increased 87% and year over year.
More importantly, we've added more higher margin revenues.
Than originally anticipated.
As such our new EBITDA guidance of 4.7 to 4.9 million, which translates to 5.5 to 5.7 million and adjusted EBITDA for 2020 would be a 69% increase over last year.
Sure we hit those numbers, there's no doubt will be ending the year on a high income.
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 make.
Making our solutions more attractive and more competitive and we're going to invest and sales and marketing to improve our prospects of securing new business. We've already engaged they cyber security consulting firm to help us prepare for the fed ramp certification, which will provide us with a unique competitive edge.
We also have plans to expand our t. LM capabilities and the near future.
That's true 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 and.
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 and then debt and equity if necessary and beneficial please.
Please stay tuned for updates and the coming months for the aforementioned strategic initiatives.
So 2020 has been a volatile and challenging year from many are excellent staff flexible organizational structure and expanding suite of offerings that function as a solution from many other problems faced by large government and commercial enterprises in today's environment, resulting and a record year and giving us excellent momentum head.
Again to 2021.
Suffice it to say the future is bright.
With that covered we are ready to take questions from analysts and major shareholders. Operator will you. Please open the call for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time.
We are using a speaker phone, we ask that you pick up your handset to provide the best sound quality.
And ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.
We'll take our first question from Mike Crawford with B. Riley. Please go ahead Sir.
Thanks and.
Great to see the continued strength from the business I do have a question on the managed services contract with DHS. So its due.
And two days, but.
Seems to be a fairly good chance that that could extend a little bit so what would happen and that case.
He further if price really unexpected.
Turn of events, you don't actually get the the Recompete, you would be able and about like weighted it could change.
Do you really exist and what you're doing or what one year or a year and a half.
Oh sure Mike Let me answer the first part of your question is I guess, the the period of performance for the new contract is supposed to start on the 18th of November.
However, the government can extend that day change that day with a modification to the acquisition I'm. So it's up to them to do that.
It's a 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 six months beyond that so that puts us out and like October.
Or other <unk> of 2021, and then any task orders issued at that time can go another 12 months beyond that so altogether I could go on until October of 2022.
And in the case that a you know I'd hate to think that we want and when it but if that should happen and will take some time to transition all of the task order and to work off to the new contractor, which is a very high risk maneuver for DHS and another reason why we think we are best place to win this Rick.
On page, 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.
Okay. Thank you sort of clarify and that should also.
Just if I look and just your accounts receivable or balance is is as disclosed in your your 10-Q and is predominantly government just 2 billion commercial no I know, Jason you're making great strides with Citic, She mentioned and.
CDW and.
Others, but what Oh.
On milestones should we look for or what will it take to see more enterprise business come in to help keep this.
Ah growth going on that's true.
Hey, Mike.
So I had yet and let me let me start off first and then Jason If you can you know a tag on to the back of that that'd be great.
Sure book.
Personally I don't think the AE are aging or that they report is a good indication of how much you know business that we have and the reason is is that a lot of our federal government contracts are fairly large so and comparison you know the commercial side looks a little small also we have been reducing our debt. So our you know the number of days.
Outstanding for a you know invoices. So the accounts receivable have been worked down significantly from the past. So it could be that you know years, you know seeing that difference.
In terms of milestone and our you know our increases in our commercial business. We have been you know closing.
Businesses, there Jason mentioned that we had a and you know what it with a new contract with the idea and a manager that I'd and solution and that is a commercial opportunity and I will let Jason continue on with the rest of the the answer guide Jason.
Yeah. Thank you Jen so Mike on the only thing I was going to add as you know the pandemic. It has on the commercial and outside is really where we have seen.
The impact.
I am really really cautiously optimistic that you know as things start to get better with cope and 19 that we are going to see the uptick I think all of the the extraordinary work that we've done with our demand generation and partner that we have along with all of the work that way.
We have done with Gartner and bet, it's really going to produce some very positive results.
And you know again the work that we're doing with you know synnex as well it is definitely going to bode well. So you know I I would say that you know there's going to be again. Some good announcements that are coming and you know all I can say its day to and I'm you know I'm excited about it.
Okay, great. Thank you very much.
As a reminder, ladies and gentlemen, if you do have a question or comment you May press star one on your telephone keypad at this time again Thats star one on your telephone keypad. If you other question or comment.
Once again, ladies and gentlemen that star one if youd like to ask a question.
At this time this will conclude our question and answer session. If your question was not taken please contact Widepoint IR team at W. why line at Gateway I, our dot com.
I would like to turn the call back over to Mr. Chen Kangping for his closing remarks.
Thank you, operator, and and pretty silent crowd today, but oh, we appreciate everyone, taking the time to join us today.
As the operator mentioned if there were any questions and we did not address today. Please contact our IR team and you can find their full contact information at the bottom of today's earnings release. Thank you again and have a great evening.
Thank you for joining us today for Widepoint second quarter 2020 conference call I'm, sorry, third quarter 2020 Conference call. You may now disconnect and have a great day.
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