Q2 2021 WidePoint Corp Earnings Call
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Yeah.
Ladies and gentlemen, thank you for joining US today, we will be getting started and then another minute. Please stay on the line. Thank you.
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Good afternoon, welcome to wide points second quarter 2021 earnings conference call. My name is rich and I'll be your operator for today's call joining us for today's presentation are wide point president.
And C O J F K executive Vice President and Chief sale.
And marketing officer, Jason Holloway, and executive Vice President and CFO Kellie Kim.
Following their remarks, well open up the call for questions from wide points publishing analysts and major investors.
If your questions were not taken today and you would like additional information please contact wide points Investor relations team at W y y.
Gateway IR Dot com.
Before we begin the call I would like to provide wide points safe Harbor statement that includes cautions regarding forward looking statements made during this call.
Matters discussed in this conference call May include forward looking statements regarding future events and the future performance of wide point 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 Dot wide point Dot com.
Now I would like to turn the call over to I'd point.
President and CEO, Mr. Jin Kang Sir Please proceed.
Yeah.
Sure.
Yeah.
Okay.
Thank you operator, and good afternoon to everyone. Thank you for joining us today to review the financial results for the second quarter ended June 32021.
The second quarter marked a period of steady operational progress for wide point.
Over the last few months, we have continued to make focused and judicious investment in our technology as well as further enhance our sales and marketing resources and processes.
Over time these efforts will extend <unk> competitive advantages, while driving greater efficiencies and new sources of high margin revenue for our company.
We made consistent progress on our strategic plan during Q2.
But our financial performance in the period was impacted by certain timing issues with customers orders as well as the lingering effects of the pandemic.
Kelly will provide the specifics of the timing issues later in our presentation.
With that in mind, if you exclude the timing issues in Q2, and the census project revenue recognized in the year ago period.
Our underlying business grew 5% on a year over year basis.
Which is encouraging, especially given that Q2 is historically a soft period for our company.
Our initiatives to drive efficiencies and build our base of higher margin managed services revenue continued as demonstrated by the 11% increase in gross margin.
Back to Q2 of last year.
While we knew 2021 would be a difficult comparison to last year, our gross margin expansion and solid adjusted EBITDA demonstrate that even without census, our core business fundamentals and growth drivers remain intact.
At a high level the mobile landscape continues to become more complex on a daily basis.
Thereby increasing the need for our trusted mobility management solutions that help enterprises secure their mobile workforce.
As a result, we are moving full steam ahead with strengthening our product portfolio and are already seeing encouraging signs of progress.
Now let me provide you more details on the investments that are being made to our technical infrastructure, which we believe will make our services and our solutions, even more appealing to a greater number of prospective clients.
We have been making improvements to our identity management delivery systems more.
More specifically, we've been putting a significant amount of our resources into a continuity of operations or coop infrastructure.
Which helps our system more resilient from cyber attacks power outages.
Weather related disasters and other unforeseen events.
Once the upgrades are fully made our equipment will be able to provide fail over capabilities. So that if and when our primary operations Center goes down for any of the unforeseen event I. Just described will be able to spin up our secondary site almost immediately ensuring continuity of service.
This type of solution is extremely pertinent and in most cases necessary for our customers, who are blue chip commercial enterprises or organizations within the government sector in particular as the prevalence of cyber attacks grows solutions like our <unk>.
Infrastructure become more and more of a must have versus a nice to have.
I am proud to say that we have already begun to commercialize the solution and we are able to recognize some early revenues from this higher margin offerings.
<unk> a continuity of operations capabilities will free us from expensive long term physical office leases that will allow us the flexibility to take advantage of cloud services and co location efficiencies and outsource much of our ancillary information technology infrastructure to streamline their operations.
<unk> and reduce costs.
We're also currently in discussions with strategic partner specializing in information technology infrastructure as a service or <unk>.
S to cross sell and up sell our services that we believe will lead to high margin revenue opportunities.
We will keep you apprised of developments in this partnership in the near future.
Next another product that we have been and will continue to invest our time and resources into is our intelligent telecommunications management system or Tms.
As a reminder.
<unk> is our system for delivering our trusted mobility management solutions to our customers.
The first key enhancements, we are making is to improve the overall user experience as well as to improve the efficiency for our customers as they perform their day to day duties SEC.
We made considerable progress with fed ramp certification, which will improve the cyber security posture of our system to support efforts by cyber criminals from ransomware attacks denial of service and other malicious attacks.
The fed ramp certification will not only give us the upper hand, and future government rfps against competitors, but it will also be a seal of approval that shows potential customers that we truly possess the highest cyber security measures that are available on the market today.
Third we've made system performance upgrade to our Atms to ensure that we are capable of scaling swiftly for when we do win large contracts like the census project.
We want to be proactive in making sure that we're well equipped to be able to surpass the expectations of our customers.
Furthermore, we have made strategic investments in our capabilities to maintain or inclusions in the Microsoft marketplace.
Given the overlap between our operations and Microsoft a breadth of services and solutions, we want to make sure that we are in a position, where we're able to leverage their resources.
Our goal is to augment the synergies with them and to ultimately address opportunities within the unified communications space, where voice Telecom management, which is in line with our strategy to take advantage of the move to remote working.
The next exciting investment we've made with our green initiatives.
Our subsidiary Y Point Mobile Corporation have recently received our our two or responsible recycling certification through sustainable.
Electronics recycling international or sorry, this certification affirms that our green initiatives, where recycling our customers legacy assets meet the global industry standards for responsible testing repair reuse and recycling.
As mentioned on our previous call. This investment will help accelerate the adoption of our device recycling services and will generate incremental ESG momentum, which will also add to our top line growth and bottom line profitability.
This is truly a win win for US with this certification recently awarded to US I am proud to share that we have begun to recognize higher revenues.
Last but not least we have made security and coupe investments throughout our <unk>.
Framework and continue to make considerable progress to our digital billing and analytics infrastructure to enhance our telecommunications data intelligence platform or TDI to meet expanding requirements of the unified communication and collaboration market.
As you can see we are threading the needle across multiple fronts with respect to our strategy of investing back into the business to increase our margins and to drive profitable growth.
With that said and as I previously alluded to these changes won't happen overnight, but will instead take time. Nonetheless, I can assure you that our team is committed to achieving these investments in the most efficient manner as possible with the end goal of expanding our competitive advantage and our potential total addressable market.
I will now turn the call over to Jason to provide you with some details on the investment we are making on the sales and marketing front and the sales momentum we have been building since the start of the year.
Then our CFO Kellie Kim will walk us through the financial results of the second quarter Jason.
Thank you Jim and good afternoon, everyone.
In aggregate, we secured more than $36 million in identity management and managed mobility services deals spread across 48 contractual actions renewals and extensions with partners. We can't name at this time for security purposes.
Contractual action included DHS headquarters.
P S or federal protective services.
TSA or transportation Security administration side.
Science and technology.
Office of biometric identity management.
DHS CDW MD office or counseling weapons of mass destruction.
And C or federal law enforcement training centers.
These are task orders awarded under CW mass cute auto contract vehicle for long term contracts and they range up to five years.
Specifically focusing on the higher margin identity management solution customers.
We were able to add new credentialing sales for a major public research University.
Our global aerospace manufacturer.
Major it provider to the federal government and numerous defense contractors.
As we look to expand our footprint, we continue to explore sole sourcing opportunity via that protected class.
As American native corporations.
Service disabled veteran owned small businesses as well as other eight eight.
This strategy is a win win because it allows wide point to not only partner, but mentor. These protected class businesses and ultimately expand our contractual footprint.
Our sales strategy continues to be based on the same tactics, we've successfully implemented in the past several quarters.
The team with large entrenched systems integrators and expand our teaming relationships with both prominent players in the commercial and federal sectors.
Due to the very nature of systems integration.
We're able to capitalize on the promising leads we collaborate with other companies who provide solutions that are accretive to ours.
We foresee this business model further deepening and expanding and we look forward to capturing the greatest amount of market share as possible.
This also ties into why we are so focused on investing back into our business because with more robust portfolio of solutions we.
Make ourselves that much more appealing and valuable to perspective customers.
Due to the number of moving orchestrated parts and enhancing our technology on the backend.
In parallel to the progress we're seeing on the sales and marketing front.
We began to see a higher demand for demos and rfps from prospective customers.
We can't guarantee that each of these opportunities will materialize, but the more shots we have on goal.
The higher our odds are in closing more deals.
As I mentioned on the last call. We were listed in the 2021 Gartner Magic quadrant for managed mobility services, which highlighted our strong emphasis on security and our ability to scale to support the largest enterprises on a global basis.
It also reinforced and amplified our go to market messaging for both commercial markets and public sector.
Going forward, we hope to increase our branding and name recognition through our credit organization like Gartner.
From a marketing standpoint, as Jim pointed out earlier.
Although it was more convenient this year compared to last.
We are still not able to fully conduct our sales and marketing initiatives at full capacity.
Nevertheless, we are doing what we can to be proactive and maximizing our efforts despite external circumstances.
And have kick started or revamped several marketing initiatives.
First we plan to have several media expansions across different platforms, including podcasts and talk radio to allow us to speak during a specific segment.
Tailored towards our target market.
In addition to our media AD campaigns, we are supplementing our marketing efforts by revamping, our social media strategy and have recently engaged a new public relations firm to assist in this process.
Given the inherent nature of our business in the space we play in.
We are confident that our extensive marketing initiative will help capture the mind share of companies, both in private and public sectors, who need our <unk> solution.
Echoing Jim's previous point.
Due to the recent surge in ransomware attacks and cyber threats. We believe we are in a great position to capitalize on current tailwind.
We believe that much.
Not all of the recent cyber attack highlighted in the media.
Could have been prevented by securing the infrastructure endpoint using our PKI based identity managed solution.
As we continue through the ever changing COVID-19 environment.
We are cautiously optimistic that there will be an increase in sales activities associated.
With the transition back to normalcy.
In the meantime, we are proactively doing all that we can to invest in our sales and marketing activities to put us in the best position possible to capture new customers and increase our ROI.
I am confident that what we are doing now will set us up for additional revenue opportunities in the near future.
With that I will hand, the call over to Kelly Kelly.
Thank you, Jason and good afternoon, everyone I'm pleased to share more details on our second quarter 2021 results.
Before I get started I'd like to talk about the second quarter as a whole and this past period.
Managed services revenue declined sequentially to $8.1 million.
If it were not for the delay of a large order from one of our government customers are managed services revenue would've been $9.4 million, a slight increase of 1% compared to the first quarter 2021.
The order experienced a supply chain delay caused by the COVID-19 pandemic. This larger award once we seek and processed by our staff and the revenue will appear in the next quarter.
Our gross margin at 20% remained fairly steady relative to the first quarter and in line with our projections and expectations.
As a reminder, in order to objectively evaluate our performance in 2021, we must excluded the one time bonus that Italy, Spain, and the census project.
With that said I will move onto our financial results.
The second quarter, our revenue was $20 million compared to $54.8 million reported for the same quarter last year.
Year over year decline was primarily driven by a reduction in carrier services revenue, mainly due to the wind down of our work on the census project. The final tranche of carrier credit discussed in our Q1 call and timing of revenue recognition on accessory sales.
For the six months ended June 32021 revenue decreased to $40.6 million from $94.4 million in the same period last year again, the decline was primarily due to wind down of our work on defense project pass through of carry a credit.
And timing of accessories Dale discussed above.
Looking at the revenues in more detail carrier services decreased to $11.9 million from $44.9 million in the second quarter of last year.
Managed services for the second quarter of 2021, or $8.1 million compared to $9.8 million in the second quarter of last year, representing 18% decrease.
When we exclude the census project timing of the third party reselling revenue and timing of accessories fail. The managed services revenue increased 5% compared to the second quarter of 2020.
For the six months ended June 32021 carrier services decreased to $23.2 million from $73.1 million in the same period last year.
Managed services for the six months period decreased to $17.4 million from 21.4 million in the same period last year. The decrease in managed services compared to last year was primarily due to the wind down of the census project timing of third party reselling services and.
Timing of excess <unk>.
When we exclude the census project the timing of third party reselling and its SME fail. The managed services revenues for the six months ended June 32021 grew 9% from the same period last year.
<unk> profit for the second quarter of 2021 was $4 million, a 21% decrease from the $5.1 million, we reported in the second quarter of 2020 the.
The decline in gross profit was consistent with lower revenue and in line with our expectations.
Gross margin improved significantly to 20% in the second quarter of 2021 from 9% in 2020.
The increase in gross margin was due to the revenue mix decrease in lower margin carrier services and third party reselling revenue.
Our gross profit for the six months ended June 32021 was $8.7 million a 13% decrease from $10 million. We reported in the same period last year. However, gross margin improved significantly to 21% in the second quarter of 2021.11.
Percent in the same period last year.
The increase in gross margin was due to the decrease in lower margin carrier services and third party reselling revenue.
In the second quarter 2021, operating expenses decreased 9% to $4.1 million from $4.4 million in the second quarter of last year.
The six months ended June 32021, operating expenses decreased 7% to $8.1 million from $8.7 million in the same period last year.
For the second quarter of 2021, GAAP net loss was 205000 for two cents loss per diluted share.
Decrease from net income of 489000 or <unk> per diluted share in the second quarter of 2020.
Six months ended June 32021, GAAP net income was 381000 or <unk> <unk> per diluted share a decrease from net income of $973004.12 per diluted share in the same period last year.
Effective tax rate remains around 27%.
On a non-GAAP basis EBITDA for the second quarter of 2021 was 311000 compared to $1 million last year for the six months ended June 32021, EBITDA was $1.4 million compared to $2.2 million in the same period last year.
Our non-GAAP adjusted EBITDA was 531000 compared to $1.2 million in the same period in 2020.
For the six months ended June 32021, our non-GAAP adjusted EBITDA was $1.8 million compared to $2.7 million in the same period last year.
Shifting to cash flow and balance sheet, we exited the quarter with $14.9 million in cash or $1.65 per diluted share net working capital of $14.2 million and approximately $4.6 million available to draw down on our credit facility. Our operating cash flow was a cash use of.
411000 capital expenditures were $1.3 million compared to $2.7 million last year.
655000 increase in net cash from financing activities, resulting in a decrease in net cash of $1 million or.
Our balance sheet continues to remain strong and our current ratio at the end of June improved to $1 six compared to $1 two at the end of 2020.
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 over to Jim.
Thank you Kelly and thank you Jason to reiterate our end goal for 2021 and beyond is to profitably grow the business by adding higher margin sources of revenue.
Not only are we approaching this plan of attack through organic growth means as you've heard throughout this call. But we are also planning to do so through strategic acquisitions.
Our criteria for acquisition targets consists of companies with profitability.
Ross sell and upsell opportunities with our solutions and potential vertical and horizontal integration synergies.
We continue to be extremely diligent with the vetting process as we want to be absolutely sure that the target we choose will be immediately accretive to our operations. We are receiving assistance from a handful of investment banks at this time and look forward to providing further updates through the appropriate Reg FD channels.
Reflecting back at this past quarter I am encouraged by the progress we've made and the trajectory we're headed in.
As Jason already mentioned, we have many irons in the fire indicated by the significant number of Rfps that have been submitted and the increase in customer demos that have been and are slated to be conducted.
This is not only attributable to the constant stellar work from our team, but it's also partially due to the massive success Gardner from the census project was unfortunate and having more and more partners and customers Express interest in collaborating with us due to our proven ability to tackle massive projects successfully.
Although much of the progress we've made isn't directly reflected on our financial statements. We truly do have promising partnerships and opportunities in our pipeline.
Two more objectively evaluate our performance in 2021, we believe it may help to bear in mind that our expectations for this year compared to our performance from last year excludes the short term bumps from census.
With that context said today, we are reiterating guidance provided during our Q1.2021 earnings call. Please keep in mind that our carrier services revenue can fluctuate greatly from month to month quarter to quarter and year to year due to customer usage patterns carrier invoice timing and other events affecting device usage hence.
Difficult to forecast.
Please note that the carrier services revenue are very low margin and we will not have a material impact on our profitability.
Again, we are focused on revenue diversification. In addition to increased gross margin and bottom line profitability.
As we're already a month and a half into the third quarter. We're moving full steam ahead, with our organic and inorganic growth strategies to improve profitability and diversify our revenue streams.
Though we don't have a crystal ball in front of us to predict the outcomes of the lingering pandemic, we're still cautiously optimistic due to the growing tailwind within our industry.
In addition to the encouraging traction we're garnering from the customers and progress being developed internally, we will continue to judiciously invest in our sales and marketing initiatives and solution delivery infrastructure. We also plan to continue sifting through the acquisition targets to find the diamonds in the rough and look forward to providing you updates.
On our future calls and press releases.
I will end our prepared remarks by thanking our shareholders for their continued support and of course all of our SaaS members for all their continued hard work from the performance of their duties. During this trying COVID-19 environment.
With that covered we are ready to take questions from our analysts and our major shareholders.
Operator would you please open the call for questions.
Thank you.
Thank you have a question. Please press star one on your telephone keypad at this time.
Hi, My question has been answered you can remove yourself from the queue pressing one again.
Again, ladies and gentlemen, if you have a question or comment please.
Please press star one on your telephone keypad at this time, one moment, while we poll for questions.
Okay.
And our first question is from Battery's time Spartan capital Securities.
Please proceed.
Good afternoon, ladies and gentlemen, a couple of questions. If you don't mind.
Good afternoon.
The first of all on on revenue. So so you gave a lot of information on technology upgrades I wanted to ask about human resources investments changes additions that you've made a.
A couple of quarters ago, I guess you've mentioned.
Gentlemen from IBM, joining you I don't recall seeing the press release on that maybe I missed it.
What exactly have you done what how much have you increased the head count in sales by and then what is the sales cycle. Obviously, if you hire a salesperson today theyre not going to generate revenue tomorrow. There is a fairly long lead time in your business.
Right and so so thank you for that question Barry the answer is we're still not prepared to release his name because we're going through.
AA sensitive procurement.
Yes. It is it takes a long time.
For us to close the deal.
We do have some additional information that we will share shortly.
Following this earnings call with the press release I don't want to go into too much detail on that as soon as we're able to do so we will.
But we are making investment not only just in our sales staff resources. We're also looking at the.
The opportunities to put in.
Put a campaign together for.
Media Social media drive time radios talk shows.
We have been looking seriously and we have been making investments into those.
In terms of the length of our sales cycle.
That depends on a particular opportunity sometimes opportunities hit our desk out of the blue others. We work on for years and finally, we will see some fruits of that so very difficult for us to gauge, but I will tell you that we have some fairly strong opportunities within our pipeline.
And I don't want to go into too many details on specific opportunities, but I will tell you that we have a very strong pipeline and to add to that Jason Holloway will jump in here to help me out a little.
Hey, Barry So internal head count on the sales side side does remain the same.
Because again as you noted the sales cycle.
<unk> does tend to be anywhere from.
Optimistically on the on the six month side, but maybe closer to 9% to 12. So again, what we continue to do externally is partner with with different systems integrators. I mean, we are continuously looking for new.
New partners.
Sign up and and that's why we have a heavy push with our existing partners to even do more lunch and learns educational staff because within their within their ecosystem. They also have additional partner so for us we.
Have found that we can shorten the sales cycle by again supplementing.
Boots on the ground by going through a systems integrator to help us bring us in on a deal that's already a lot farther down the road versus bringing somebody and trying to get them trained.
Get the Black book going and then having to catch up to that long sales process.
Okay, Jason Im glad you piped in because my next question is one one of your comments you mentioned higher demand for demos in Rfps and just use the word higher thats pretty vague did you do one more than a year ago was it three times as many can you give us any quantification.
To help us understand how much stronger the demand is.
Well I mean, I can't I can't go into actual specific number Barry, but what I can say is again through.
Through our systems integrators, like <unk> and others that we have discussed in the past.
As well as others that I, just I don't want to bring up and Youre going to have to trust me, because we don't want to get ourselves into a situation, where we potentially disqualify yourself on some opportunities that we have in our pipeline.
But I can tell you that again with our focus.
Also including more of the I T.
As a service type partners.
We're seeing a lot of increase demos that side of the house because again the commercial enterprise space, we continuously look for avenues to expand our RPM two offerings within the commercial enterprise space.
And through some of these new partners, they're introducing us to their partner base and it's given us an opportunity to at least virtually.
Hum.
To conduct a lot of these demonstrations.
And again, there has been an increase in RFP, but again, we just got to be really careful how we.
Address that because again I, just don't want to say anything that could get us disqualified so hopefully that helps.
Okay.
Another question on sales, but before I do.
That I wanted to.
Ask Kelly if you don't mind a question so I understand kind of the baseline normalized revenue for the quarter.
And I may have missed some points, but let me tell you what I think I heard so the GAAP reported revenue number is 19 million 983 K.
In the press release, you talk about a $1.1 million carrier credit.
And then you also talk about a delayed order that sounds like about $1.3 million. So if I add those all together that's about $22.4 million.
Think about versus.
Expectations, what you would have reported without those items did I Miss anything and I'm doing the math right.
No.
Youre right.
We have that.
B.
Last tranche of the credit.
Had the revenue rec timing of Dell revenue rack and so when you add up those two.
Right, it's about $22 million.
Okay.
And so so that's helpful.
What the normalized revenue would be my last question. If we go back to prior guidance and correct me if I'm wrong I think what you would give out in <unk> was about $103 million for the full year. If I look at what you've reported for the first six months that implies about a 15% jump.
The first half of the year to the second half of the year, which is a big jump part of that Kelly just gave me you'll get to that $1.3 million order.
As already been booked now so that's already in the books, but help me understand how you're going to make that big of a jump sequentially.
Hey, Barry this is Jen I'll, let al take.
Take a shot at answering that question and the guidance that we provided is correct 103 on the top line and adjusted EBITDA of $4.3 million I believe that's right Kelly Wright.
And the answer is yes.
Looking at the.
The topline revenue seriously and.
We see it is within the margin of error and that we will be making that up in the second half but.
I think the more important thing is is that we want to.
Improve our bottom line and so that's what we've been managing to.
And so that's what we're going to be concentrating on to increase the the higher margin revenue for the second half. We do have some catch up things that will be happening in the third quarter things that slipped from the second to the third so we will be catching up on that.
And we will be concentrating on higher margin revenues and so.
And that's what we've been.
Dressing.
And as I said in my prepared remarks about the carrier services being.
Low margin and so it is a little lumpy and I think you already mentioned the carrier service services credit debt.
That was a onetime one piece that was leftover from the first quarter that pushed into the second so.
As I said, we are managing to Bottomline and whatever the lumpiness that is on the top line, we'll manage that to as best we can.
Okay. Thank you very much folks.
At this time this concludes our question and answer session.
To your question was not taken please contact <unk> IR team at W. YY.
Gateway IR Dot Com I would now like to turn the call back over to Mr. Jin Kang for his closing remarks.
Thank you operator, we appreciate everyone, taking the time to join US today as the operator mentioned if there were any questions. 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.
Thank you for joining us today for <unk> second quarter, 2021 conference call.
Now disconnect.
Okay.
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