Q3 2021 WidePoint Corp Earnings Call
Good afternoon, ladies and gentlemen, thank you for holding your conference call will begin in just a couple of minutes. Once again. Thank you for holding your conference call will begin in just a couple of minutes.
[music].
Good afternoon, and welcome to White points of third quarter of 2021 earnings Conference call.
My name is Paul and I will be your operator for today's call.
Joining us for today's presentation are white points, 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 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. YY Gateway IR Dot com.
Before we begin the call I would like to provide white points 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 <unk> 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 points Dot com.
Now I would like to turn the call over to white points, President and CEO, Mr. Jin Kang 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 32021.
The third quarter marked a period of productivity as we successfully completed the acquisition of Mei.
<unk> made progress across our sales and marketing initiatives engaged a new strategic customer wins.
Graded our already robust portfolio of solutions and continued to successfully execute our strategy for profitable growth.
Although we were encouraged by these events, we were again faced with macroeconomic headwinds that routed from the pandemic.
The flurry of ubiquitous current events regarding supply chain limitations the status of federal government's budget impasse.
Ability to still meet face to face with prospective customers and increased demand for top talent from the labor market have all affected our business directly and indirectly.
With the uncertainty of the federal government budget virtually all new task orders and contract awards have been halted as government does not have the necessary fund authorizations to engage in any new projects.
Additionally, the supply chain disruption that has been severely impacted logistics and transportation has diminished our ability to fulfill some of our customers' orders for equipment and to gain access to accessories needed for our business.
As a result of these uncontrollable events happening concurrently we have seen several opportunities inevitably become delayed.
Nevertheless, our team is laser focused on controlling what's within our grasp as we continued to adapt to these external circumstances.
What's remained consistent throughout all of this is our approach of continuing to operate the business profitably and being prudent with our spending and cash management.
One example of this was our purchase authority.
<unk> or IPA, Thanks, who are meticulous M&A approach, we're able to acquire a company that is not only profitable, but it was accretive to our current operation from day one.
<unk> significantly strengthens our footprint within each growth market.
By offering a multitude of cross sell and upsell synergies within it operations identity management and more.
In addition to benefiting from their more attractive recurring managed services revenue, we were able to immediately tap into their expanding commercial customer base with our enhanced offerings and has already resulted in signed deals. Moreover, thanks to <unk>.
Deep expertise in Microsoft ecosystem, and they are well established partners with them.
We will be able to further strengthen our relationship with Microsoft.
We continue to maintain our Microsoft <unk> certification status and are in fact, combining iga at our south Texas efforts to attain the Microsoft Silver and gold certifications, which gives us quite an edge.
I'll, let Jason speak more about this so I don't steal that Thunder, but the point I'd emphasize here is that due to our judicious spending habits and scrupulous approach, we were able to find the diamond in the rough.
This has been on brand with what we've continuously preached and we intend to apply this prudent spending philosophy and all we do to ensure profitability.
Additionally, on par with previous quarter, we have continued to make strategic investments back into our technical infrastructure, which we believe will make our services and our solutions, even more appealing to a greater number of current and prospective clients.
First as it relates to our identity management solution, we continue to enhance the service to not only make it more robust, but also make it more pertinent to our broader customer base.
We're investing in standing up a new commercial certificate authority or CA offering this effort will increase our capability to sell into the commercial markets and quickly implement our PKI based multi factor authentication solutions for our new customers.
We continue to make progress in setting up a hot coop site that will allow us to recover quicker than our current warm coupe site. This will allow us to reduce our physical office footprint and allow us the flexibility to place our operation centers, where it is more financially advantageous.
Second as we previously mentioned on the last call. We continued to make progress toward our fed ramp certification. We are prepared and submitted the fed ramp readiness assessment report for our government counterparts review and approval.
Once approved we will be listed on the federal marketplace as fed ramp ready and we'll begin the next phase of the process, which is the security assessment report please.
Please stay tuned for further updates on this front in the coming months.
Third we continue to improve our intelligence telecommunications management system platform service offerings by enhancing automated algorithms in order to provide better graphical business intelligence and analytics our.
Our development team is also working on improving the user interface and experience.
Next within our digital billing and analytics or <unk> Division, we have continued to invest to take advantage of the dramatic shift from traditional voice platform to unify communications such as Microsoft teams, we have enhanced the capability within our software to work within the unified communication environment and.
<unk> report platform performance in both dedicated and hybrid environments.
The initial launch was in October and we look forward to working with our partners and customers to continue to innovate as each UC solutions continue to involve.
We were pleased to achieve the first step in formalizing our relationship with Microsoft by being appointed Microsoft wholesale ready status and we look forward to developing our relationship with both Microsoft and as channel partners.
And finally, we've made considerable progress with our green initiatives as a reminder, from the last call. Our subsidiary Y Mobile Corporation received the <unk> three or responsible recycling certification through the sustainable electronics recycling international or sorry.
This certification affirms that our green initiatives for recycling our customers legacy assets meet the global industry standards for responsible testing repair reuse and recycling.
To share that this specific business segment is beginning to take off and I am certain that we will continue to see it profitably grow as revenues begin to ramp up.
Overall, it has been encouraging to see what we're capable of achieving even with several unexpected obstacles being thrown our way.
Our team is poised and committed to continue successfully executing our strategy for profitable growth through organic and inorganic means.
I'll now turn the call over to Jason to provide you with some details on the investment we're making on the sales and marketing front and the sales momentum we've been building since the start of the year.
Then our CFO Kellie Kim will walk us through the financial results of the third quarter Jason.
Thank you Jen and good afternoon, everyone in.
In total we secured more than $16 8 million in contract awards and identity management manner.
<unk> managed mobility services, and telecom lifecycle management across contracts wins with federal government and commercial enterprise customers.
Though we expected stronger results, we were partially set back due to the unexpected events that Jim mentioned.
Nonetheless.
We were encouraged to find that sales opportunities that were near the finish line or in the process of getting there did not end up disappearing, but were instead delayed.
Thanks to the ability of our team to adapt and be proactive we were proud of the results.
Given the circumstances.
An underlying theme that we noticed this quarter was the influx of organizations that have begun to elevate their cyber security protocols, resulting from the high profile malware and ransomware breaches that are becoming more common day by day.
One industry that we've particularly been working closely with is the K through 12.
Education institutions.
They have begun to witness an alarming rise of cyber attacks.
Once we realize the magnitude of this situation.
Quickly reacted and begun to heavily participate in tech forums initially at the local level of a major municipality and now the state level of our Midwestern state.
I personally have been attending these forums to edify schools that currently operate in a virtual or hybrid format about the importance of cyber security in this day and age of what solutions White point can offer to help.
As a result, we have begun to see early signs of our participation at these tech forums paying off.
As these schools are wanting to escalate these problems at the legislative level with the goal of gaining funding from the entire state to leverage our identity management as a service solution.
On brand with what Jim was mentioning earlier given this opportunistic event our team not only proactively went to present at these forums, but we also came up with a phased approach which segments the potential users into tier 1234, and five groups to.
Sell our identity management solution on a pure subscription monthly recurring model.
Tier one customers are critical users such as systems administrators Super users.
Executives with high user privileges.
Tier two is senior managers with elevated privileges tier three comprises of managers with moderate privileges.
<unk> four is general users with minimal privileges and tier five is external users.
With the prevalence of cyber attacks and the robust solutions, we possess to combat that our goal is to duplicate and scale. This model nationally state after state.
Have already experienced success using this approach with our previous press release regarding the higher Education Institute, we secured.
Furthermore, another vertical that we've been working closely with is the commercial enterprise beverage production vertical.
Analogous to the phased tier approach.
For the educational institutions, we are implementing the same strategy for this vertical as we are certain it will be the most effective and efficient plan of attack.
We've come to realize that these high profile breaches are widespread across almost every industry.
The benefit to us is that it certainly opens the door for many business development opportunities.
We intend to capitalize on.
Next similar to how we mentioned on the previous earnings call. Our indirect sales strategy continues to be based on the same tactics. We've successfully implemented in the past several quarters, which is the team with large entrenched systems integrators and expand our relationships with both prominent players in the <unk>.
Herschel and federal sectors.
This past period, we have slightly refined our traditional approach of working with systems integrators.
Not only do we look for a prominent systems integrators.
But we are also now on the search for strategic partners that have access to new niche businesses that cannot normally be tapped into.
A recent example of US executing one of these deals is our engagement with a service disabled veteran owned small business or SBB OSB called 22 vets.
22, vets has an extensive reach into the K through 12 vertical and will play an integral role in potentially achieving legislative funding at the state level, given the sdd OSB status.
Ultimately our goal through this revamped approach is to find new opportunities in areas that cannot be simply tapped into by any company in.
In addition to this new strategic relationship with 22 bets, we are still actively working with our other psi.
<unk> and we look forward to sharing the news of our recent win.
To supplement our sales and marketing tactics, we have continued to make investments with our branding and name recognition as.
As I shared on the last earnings call. We were recently listed in the 2021 Gartner Magic quadrant for managed mobility services, which was a big win for wide point as over 70% of the Fortune 1000, and over 10000 midsized and large enterprises rely on Gartner.
For their advice and guidance in key technology areas.
We continue to proactively work with Gartner regular basis to raise our company profile in the MMS sector.
All in all we are making notable progress on all fronts of the sales and marketing and and have several deals currently in the pipeline that we look forward to sharing the status when we are able.
Our philosophy of being calculated and proactive has truly proven to deliver a high ROI.
As Jim briefly mentioned, we have hit the ground running with <unk> post acquisition close and we immediately began to leverage numerous cross sell and upsell opportunities.
One specific win I'd like to share is our contract agreement with a large marketing and multi media rights holder for some of the most prestigious sports venues across the country.
To start we will be providing our IP as a service to this entity and we are confident that they will engage us for additional services.
With the additional resources from Ta and an improved sales and marketing initiatives, we are approaching a broader addressable market with more tools under our belt.
Although we are still limited by some of the macroeconomic headwinds I am optimistic that brighter days are ahead and at what we're 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 Good afternoon, everyone I'm pleased to share more details on the third quarter 2021 results for the third quarter. Our revenue was $22 3 million compared to $57 5 million reported for the same quarter last year.
Year over year decline was primarily driven by the loss in carrier service revenues due to the completion of the U S Department of Commerce contract supporting the 2020 census, and to a lesser extent lower level of accessory sale to federal government and lower volume of devices managed this quarter.
For the nine months ended September 32021 revenue decreased to $62 9 million from 152 million in the same period last year.
The decline was primarily due to wind down of our work on the census project pass through of carrier credits lower level of accessory sales and lower volume of devices manage this year.
Our gross profit for the third quarter 2021 was $3 7 million a 35% decrease from the $5 6 million, we reported in the third quarter of 2020. The decline in gross profit was consistent with lower revenue and in line with the revenue mix gross margin and <unk>.
<unk> significantly to 16, 5% in the third quarter of 2021 from nine 8% in the third quarter of 2020.
Our gross profit for the nine months ended September 32021 was $12 1 million a 21% decrease from the $15 6 million, we reported in the same period last year.
However, gross margin improved significantly to 19, 7% this year compared to 10, 3% in the same period last year. The increase in gross margin was primarily due to the decrease in lower margin carrier services.
In the third quarter 2021, operating expenses decreased 36% to $2 9 million from $4 5 million in the third quarter of last year.
Third quarter expense reflects recognition of qualified payroll tax credit of $1 3 million. Excluding this credit our operating expense would have declined about 7% largely due to lower payroll costs, partially offset by higher data center costs for the nine months.
In the September 32021, operating expenses decreased about 17% to $10 9 million from $13 1 million in the same period last year.
Excluding the qualify tax credit our operating expenses would have declined about 7% again, largely due to lower payroll costs, partially offset by higher data center costs.
For the third quarter 2021, GAAP net income was 535000 or six cents per diluted share a decrease from net income of $1 1 million or 13 cent per <unk>.
Diluted share in the third quarter of 2020 for the nine months ended September 32021, GAAP net income was 916000 or 10 cents per diluted share a decrease from net income of 2 million or <unk> 24 cents per diluted share in the same period last year.
Our effective tax rate remains around 27%.
On a non-GAAP basis EBITDA for the third quarter 2021 was $1 2 million compared to $1 6 million last year for the nine months ended September 32021, EBITDA was $2 6 million compared to $3 8 million in the same period last year our non-GAAP.
Adjusted EBITDA was $1 5 million or <unk> 16 per share in the third quarter compared to $1 7 million or 20 questionnaires in the same period of 2020.
For the nine months ended September 32021, our non-GAAP adjusted EBITDA was $3 2 million or <unk> 35 per share compared to $4 4 million or <unk> 52 per share in the same period last year.
Shifting to cash flow and the balance sheet, we exited the quarter with $18 1 million in cash or dollar 97 per diluted share net working capital of $14 6 million and approximately $4 $9 million available to draw down on our credit facility for the nine months ended.
32021, we generated a net cash of $3 5 million from operating activities capital expenditures were $1 9 million compared to $1 million last year.
A <unk> 7 million increase in net cash from financing activities, resulting in an increase in net cash of $2 1 million our balance sheet continues to remain strong.
Our current ratio at the end of September remains around 1.6 compared to 1.2.
For 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.
On a personal note this will likely be my last earnings call as I will be retiring at the beginning of next year.
It has been an honor and a pleasure to work in five point and I'm proud of our accomplishments.
The trusted mobility management TMT solution is a proven business model that continues to evolve to meet the ever changing needs of our customers.
I have no doubt that white Point's best days are ahead it.
At my retirement, I look forward to spending more time with my family and friends and personally my personal interests, which I have put off for too long.
I think our investors our board and most importantly, all of the staff of White point that I had the privilege to work with.
Uh huh.
So with that I will turn it over to Jim.
Thank you Kelly and thank you Jason.
Although there are headwinds that we cannot control I am pleased with the trajectory why point is headed as we continued to profitably operate with zero debt and maintain a strong balance sheet.
Our ability to sustain profitability, even amidst the external circumstances outside of our control is a testament of our team's ability to adapt and efficiently execute our organic and inorganic growth strategy.
As it relates to our go forward inorganic growth strategy. We are noticing that it is currently an acquisition target rich environment, where many companies are demanding frothy multiples relative to what we believe they're worth.
Some reports have even sure that companies are requesting up to 32 times or enterprise value.
With this being the current status of the market. It could take some time for Wi point to make is next acquisition as we want to continue to be judicious with our selection process and no immediate rush to acquire a company given our profitable status.
That said our M&A mandate remains the same as we are looking for stable immediately accretive and well established companies that are profitable for.
Furthermore, given what we've already shared regarding the growing cyber security sector. There are several ripe opportunities within that vertical for us to acquire.
A company that has direct access to customers that need solutions like our identity management solutions.
Our acquisition strategy continues to evolve and we are considering larger opportunities that may not have been considered in the past we will share more news on this front as the events unfold.
Next I want to provide a brief update regarding our share repurchase program.
During November 2021, the board increased the size of the repurchase plan to up to $5 million of the company's common stock increasing the amount available for future purchases under the repurchase plan to $4 6 million.
As of this earnings call, we have not repurchased any shares due to the timing of our quarter closing and the release of our quarterly earnings going forward, we will be opportunistic and timing price and the amount of our repurchases.
As you've seen in today's earnings release, our year to date performance and expectations and Q4 have led us to reduce our guidance for the full year 2021, excluding financials from it.
We expect our revenues to be approximately in the range of $80 million to $84 million and adjusted EBITDA of three 1% to $3 3 million. This reflects the acquisition related expenses of about 300000.
Additionally, <unk> forecast Q4 revenue to be about $2 million with adjusted EBITDA of 100000, we're going to finish 2021 being a transitional year and continue forward in the fourth quarter with the efforts described earlier when we report fourth quarter, we will give more guidance with respect.
To what 2022 will look like and the growth we are expecting.
Before I wrap up.
I'd also like to touch upon <unk> retirement.
Kelly has played an integral role during her tenure at one point.
And has done an exceptional job, leading our finance team.
She is an exceptional CFO.
And I and the rest of the management team and the board wish her the very best in her retirement.
She is retiring after an illustrious career in finance and accounting.
Where she served as CFO for many companies.
I'm also happy to share that she will continue to assist the company as a consultant once he steps down as CFO in March of next year.
We are officially initiated an executive search to fill the CFO position and.
And we will keep you updated on our search.
In conclusion, as we head towards the end of the calendar year.
Confident in our team's ability to capitalize on all of the near term opportunities as we look to continue executing our strategy for profitable growth through organic and inorganic means.
I will end our prepared remarks by thanking our shareholders for their continued support and of course all of our staff members for all their continued hard work and the performance of their duties. During these unprecedented times with that covered we are ready to take questions from analysts and our major shareholders. Operator would you. Please open the call for questions.
Yeah.
Certainly ladies and gentlemen, the floor is now open for questions. If you wish to ask a question. Please press star one on your phone at this time, we asked about closing your question you. Please pick up your handset if listening on speaker phone to provide optimum sand quality. Once again. Please press star one if you wish to enter the queue to ask a question.
At this time.
And while we pull for questions there is a.
Question submitted already how did the <unk> acquisition affect your EBITDA.
Hey, Kelly can you take that sure.
<unk> was acquired on October one.
Therefore after third quarter.
So therefore the.
The financial results do not reflect any contribution from HCA.
Ah.
We do expect a small contribution in the fourth quarter.
But expect a larger contribution in the future.
There were acquisition related costs that negatively impacted impacted third quarter profitability.
And we also.
<unk> impact in the fourth quarter as well.
Thank you and once again, ladies and gentlemen, if you wish to enter the queue to ask a question at this time.
Please press star one on your phone to enter the queue to ask a question.
And there appear to be no questions from the lines at this time.
Okay.
Okay. We did have another submitted question here.
The next question is this do you intend to make additional acquisitions.
I'll take that yes, our strategy for growing through organic and inorganic means remains.
<unk> remains the same we are focused and continue to look for quality companies that are immediately accretive.
To help us expand our solutions and customer base again, the vertical and horizontal integration opportunities.
We will provide more details as they become available but.
But suffice it to say we are currently reviewing acquisition opportunities that are in various stages of completion and we will provide additional details as they become available.
Wonderful and we had another submitted question come.
Jason talked about new vertical markets, K 12, and beverage industries, what are the sizes of opportunities also the new wind from DC government and University.
Yes. Thank you for that question. So as I stated in my prepared remarks, I think the one thing to keep in mind with.
Potentially how large the opportunity could be within K through 12 and.
Why we are so lucky to have the strategic relationship with 22 bets is when you think about from an employment standpoint, one of the largest employers in each one of the states is K through 12, so when you start to break that down into.
The supporting.
Administrators the staff the teachers and all of the students then it becomes very clear that that the opportunity is quite large and as I stated in my prepared remarks through our relationship with 22 baths, we've had the opportunity to to present at these tech forums to be the key note.
Speakers in terms of educating these schools on PKI as a service and as I stated.
We're starting with one large municipality.
And we are working currently with a Midwestern state and we hope that through the relationship with 22 bets and the potential of the legislative support.
That will give us that additional headwind to be able to duplicate that model.
Two other states so it's.
We're just barely scratching the surface as the point that I want to make and we are.
We're very optimistic cautiously optimistic with what we see right now so hopefully I'll have some updates in terms of the beverage.
Same thing.
It's a really really large.
Community, that's out there and thankfully through.
Our acquisition of authorities. They are the ones who are directly responsible for inserting <unk> into that vertical and why we were able to capitalize.
On their existing customer base, so quickly with using our PKI as a service. So again, we're very optimistic we're just scratching the surface. We made a lot of headway with one.
Beverage provider in particular.
And this one company does represent again a larger consortium.
So stay tuned because again, it's a large community and we're just at the tip. So.
That's it thank you.
Thank you and we did have a question.
Come in from John Sun from <unk> capital.
John Your line is live.
Thanks, guys.
So I just wanted to hear more about.
The acquisition strategy and the reason I'm asking is.
As it stands now you're trading with a market cap of under 50 million <unk>.
Enterprise value of $30 million okay.
So if you're trading at less than 10 times EBITDA and Youre seeing these companies picking up much. What's your multiple is why is that the best use of.
Shareholder capital in the most prudent whether your capital relative to other options such as increasing the buyback.
Sorry about that John I was on mute. Thank you for that call.
We are still looking around for acquisition opportunities.
Not necessarily using our equity to do that.
We are looking at doing some repurchase and we did increase that amount, we actually double that amount from two $5 million to $5 million and so we're going to be opportunistic on that repurchase and based upon.
What the opportunity is on the acquisition.
As we said before we will leverage cash on hand and.
We will look at financing through that and then at the last three quarters, we would look at.
<unk> of using equity for the acquisition.
Yeah.
Thank you and once again, ladies and gentlemen is there any further questions. Please press star one on your phone at this time.
And there were no other questions from the lines at this time.
Now I'd like to hand, the call back to Jin Kang for any closing remarks.
Great. Thank you operator, 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.
Thank you for joining us today for White Point's third quarter 2021 conference call you may now disconnect.