Q4 2021 WidePoint Corp Earnings Call
Good afternoon, and welcome to wide Point's fourth quarter 2021 earnings Conference call. My name is Catherine and I will be your operator for today's call joining.
Joining us for today's presentation are wide points, President and CEO Jin Kang Executive Vice President Chief of sales and marketing Officer, Jason Holloway, Executive Vice President and CFO , Kellie, Kim and incoming CFO Bob George following their remarks, we will 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 at 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 the matters discussed in this conference call May include forward looking statements regarding future events and 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 wide 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 fourth quarter and full year ended December 31 2021.
The fourth quarter and the past couple of months have been a blend of encouragement as we've continued to successfully execute our strategy for profitable growth, but also reality as we find ourselves still traversing through macroeconomic headwinds.
On par with what I shared on our last call as it relates to our growth strategy, we've been laser focused and continuing to make investments across the board internally, we have sales and marketing and operational initiatives.
The bottom line for our organic and inorganic growth strategy is simple grow the topline and operate profitably and stably to maximize our company's potential.
We have encouragingly begun to witness the previous investment made into our business are bearing fruit as a result of an expanding sales pipeline a greater percentage of those sales opportunities getting close to execution.
One short term highlight I want to share is that we exceeded our prior guidance on revenue by achieving $87 million for full year 2021.
We also achieved approximately $3 8 million adjusted EBITDA.
We were able to achieve these goals through a combination of effective operations and taking advantage of COVID-19 related programs offered by the federal government in the form of employee retention tax credit or Dr. T C fares.
Furthermore, with a dynamic transformation of our company more specifically, bringing information technology as a service or <unk>.
S under the White point umbrella and further focusing on our cyber security capabilities and broadening our customer base, we are maximizing our opportunities for future growth.
We are also adopting our technology management as a service business model to ensure that we're optimally operating and charging for our services.
I want to once again address the elephant in the room and shared that we are still facing macroeconomic headwinds that are out of our control affecting our business whether it be geopolitical events such as the war in Ukraine supply chain disruptions the pandemic the unprecedented status of the job market.
Or the difficulty to still meet face to face with perspective customers. We are still feeling the impact of these external circumstances in our business.
Before I move on I am sure you have all are following the unfolding events in Ukraine as Russia's invasion continues our thoughts and prayers are with the people of Ukraine, we truly hope that this unjustified cruel invasion and soon.
That said the reality is that our federal government's attention and budgets are also focused on Ukraine, and the potential cyber security events emanating from Russia on U S targets.
As a result, we believe that this will provide some tailwind for us as potential customers will look for more secure multi factor authentication solutions or msas.
Additionally, the hiring of new high quality employees have been more arduous than we anticipated as an organization that is looking to expand we are in need of topnotch workers across several divisions. However, due to the booming job market and the increase in labor rates instituted by the federal government it's been difficult.
To garner employees in this market.
Due to the increase in labor rates, we've had to offer a higher salaries to employees together top talents and thus have had to adjust our budget accordingly.
It is important to note that this isn't just affecting Wi Fi, but it is impacting a majority of organizations across the country. However, an encouraging point is that unlike most companies Wi point has historically had and continues to have low turnover rates of employees. Thanks to the great working environment and culture, we've built.
Which stems from the competitive compensation structure and flexibility, we provided giving a majority of our employees the ability to work from home.
All the while expecting high performance. Therefore, we have only seen minor impacts from the so called great resignation does seem to be ubiquitous in our society today.
Despite these headwinds we are fortunately continuing to see opportunities get delayed rather than seeing them dissipate outright.
Thanks to the proactive measures implemented by our management team to ensure for profitable growth. We are confident that we can weather the storm.
Although still a noteworthy issue we are slowly beginning to see signs of more and more prospective customers, becoming open to conducting new joint projects with the slowdown in the Covid cases.
<unk> has been and will continue to fully operate during the pandemic.
We are cautiously optimistic that the current situation with the pandemic will improve.
Next I'd like to provide an update on our transformative acquisition of <unk> authorities.
As I mentioned on the last earnings call, we were able to successfully acquire authorities a company that has many potential synergies as they strengthen our footprint within each growth market by offering a multitude of cross sell and upsell synergies within it operations and identity management deep.
Deep expertise and Microsoft ecosystem.
Access to their commercial customer base and their recurring managed services revenue.
With that reminder, out of the way I want to report that the integration process almost six months. After the acquisition is progressing as planned.
More specifically, we continue to see material commercial sales opportunities being generated and overall, we have been very pleased with the progress of the strategic sales opportunities coming to fruition, Jason will provide additional color on it once I pass the mic over to him.
The last update I'll provide which relates to Iga is with respect to our Microsoft co sell certification status.
We continued to maintain our Microsoft co sell certification status and are in fact, combining it with Ita's, Microsoft Gold partner certification, which gives us quite an edge as we continue to push into the commercial markets.
Additionally, I'd like to provide a couple more updates regarding some of the other investments we are rating within our business.
Earlier in November of 2021, we achieved <unk> ready status for our proprietary intelligent technology management system or Tms platform.
Achieving fed ramp ready status is a strong indicator of successful full bedroom authorization and means that our readiness assessment report has been approved.
As a result, we are now listed on the federal marketplace as a fed Rev ready vendor.
Though we have successfully achieved this milestone we are still in the midst of pursuing full authorization by the end of this calendar year.
Once fully authorized we will open up the opportunity for more U S government agencies to benefit from our intelligence technology management platform.
We continue to further enhance our digital billing and analytics or <unk> division to take advantage of the dramatic shift from traditional voice platform to unify communications such as Microsoft teams.
We have invested in the development of our unified communication as a service or <unk> solutions that will address the data analytic needs for services offered by Microsoft teams Zoom and other video teleconferencing solution providers.
But not least we are beginning to gain traction from our ESG initiatives. In particular, we are seeing our green initiatives such as our recycling program bear fruit.
I am confident that this part of our business will continue to profitably grow over the coming quarters and years.
With that overview completed I'll.
I'll 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've been building since the start of the year.
Then our CFO Kellie Kim will walk us through the financial results Jason.
Thank you Jan and good afternoon everybody.
As stated on the last call the prevalence of cyber threats become more and more rapid everyday, forcing corporations to find a safe and trustworthy solution to rely upon.
That's where we and our identity and access management solution come into the mix.
I am proud to share that the phased approach, which segments the potential users into tier one through five groups to sell our identity and access management solution on a pure subscription monthly recurring model.
Has been working extremely well for us as a reminder, tier one customers are critical users such as systems administrators Super users executives with high user privileges.
Tier two and senior managers with elevated privileges.
Tier three comprises of managers with moderate privileges.
Tier four is general users with minimal privileges and tier five is external users. We are finding that this five tiered approach has been extremely effective so far but we are constantly looking to refine and make prudent investments into the structure going forward.
With that refresher I'd like to share some updates related to the results of our go to market strategy.
First the conversations with the K through 12 institutions.
Has been extremely productive thus far and we have garnered only positive feedback from these initial talks however, as eager as some of the perspective schools are to implement our iam solution into their workflow they simply arent able to given the fact that educational institutions aren't allowed to implement new processes.
And solutions until the schools summer break for logistics reasons and.
In the interim we are continuing to expand our footprint within this vertical to ensure we're capturing as much market share as possible.
Thankfully higher education does not operate under the same type of integration constraint and we were able to successfully implement our iam solution into a major university.
We also successfully completed our iam solution implementation with a major district of Columbia Government Agency.
Next as I alluded on the previous call. Our initial work with the commercial enterprise beverage production vertical has resulted in a purchase order with a beverage company.
This is a direct result of the acquisition of <unk> and is a positive affirmation that we can cross sell our managed services into their existing customer base.
We are cautiously optimistic that our cross selling initiatives will continue to yield additional managed services contracts in the near term.
Go even a layer deeper we continue to have daily meetings internally to ensure we are capitalizing on all upsell and cross sell opportunities in this growing sector for both perspective and current customers.
Additionally, as I mentioned on the prior call we were able to win a contract agreement to provide our IP as a service capabilities with a large marketing and multimedia rights holder for some of the most prestigious sports venues across the country.
While the initial agreement was for our <unk> as a service capabilities after working with them for the past couple of months. They have expressed interest in wanting to expand the working relationship.
We've also continue to move full steam ahead with our indirect sales strategy, which is to team with large entrenched systems integrators and expand our relationships with both prominent players in the commercial and federal sectors.
Furthermore, we continue to search for strategic partners that have access to new niche businesses that cannot normally be tapped into.
Our two pronged approach has fared well for us as we've already won and are continuing to gain more leads with areas. We previously would not have had access to.
Relating to some of the other investments, we are making into sales and marketing as Jen mentioned.
We are looking to hire folks across the corporation and within ourselves and marketing Division.
We recognize that our employees are the lifeblood of our organization. So we want to ensure that we are meticulous in hiring high quality folks that not only excel at their jobs, but also matched the culture of what wide point is about.
Another exciting investment that has already been fulfilled is with our revamped corporate web site.
Our internal team has done a phenomenal job and refining the look feel and functionality of our website with an increased commitment to social channels and content marketing.
We are sharing our success stories and industry expertise regularly.
We have only received positive feedback and are proud of this accomplishment great job team.
Next.
We have persistent in our efforts to make investments with our branding and name recognition.
As a reminder, we were listed in the 2021 Gartner Magic quadrant for managed mobility services, which was a big win for White point as over 70% of the Fortune 1000.
And over 10000 mid size and large enterprises rely on Gartner for their advice and guidance in key technology areas. We continue to proactively work with Gartner on a regular basis to raise our company profile in the MMS sector.
Speaking of Gardner our team has been proactively carrying a dialog with gartner as it relates to identity and access management conversations. These talks have been progressing well and we are now conducting deep dives on our iam solution.
I will have additional updates in Q1.
Overall, we are continuing to make notable progress on all fronts of the sales and marketing.
And are confident that as we return to the former old normal pre pandemic.
We'll be able to ramp up our sales activities more and more.
With that I will hand, the call over to Kelly.
Thank you Jason.
And everyone I am pleased to share more details on our fourth quarter and full year 2021 results for.
For the fourth quarter, our revenue was $24 5 million compared to $22 3 million in the prior quarter and $28 4 million reported for the same quarter last year.
Services revenues declined to $13 4 million from $19 5 million in the fourth quarter of last year largely due to completion of the census project managed services revenue increased by 25% to $11 1 million from $8 9 million compared to the fourth quarter of last year.
<unk>.
Increase in managed services was primarily due to higher bar sale to federal government clients and IP as a service revenue, replacing billable services from the census project.
Carrier services revenues for fiscal 2021, or $49 7 million compared to carrier services of 137 6 million in 2020.
The decline was due to the completion of the census project.
Managed services revenues for the full year 2021 decreased 12% to $37 6 million compared to $42 7 million in 2020 year over year decline was primarily driven by decline in revenue from accessories sale.
<unk> of the census project customer attrition in the commercial market, partially offset by increased far sale to government and addition of IP as a service.
Our gross profit for the fourth quarter of 2021 was $4 million compared to $3 7 million in the prior quarter.
$4 8 million in the fourth quarter of 2020.
The decline in gross profit compared to last year was due to lower revenue and a revenue mix that included higher var sale.
Gross margin slightly decreased to 16, 3% in the fourth quarter of 2021 from 17% in the fourth quarter of 2020.
Our gross profit for the full year ended December 31, 2021 was $16 4 million compared to 25 million in the same period last year. However.
However, gross margin percent improved significantly to 18, 7% this year compared to 11, 3% in the same period last year the.
The increase in gross margin was primarily due to higher mix of managed services revenue and the completion of the census project.
In the fourth quarter 2021, operating expenses increased 17% to $4 8 million from $4 1 million in the fourth quarter of last year.
The increase in operating expense was primarily due to the addition of I T E.
The full year ended December 31, 2021, operating expenses decreased 9% to $15 8 million from $17 2 million in the same period last year.
The decrease in operating expense was primarily due to a decrease in general and administrative expenses due to the onetime payroll tax credit Jim mentioned and lower staff costs, partially offset by the addition of Iga.
For the fourth quarter 2021, GAAP net loss was 575000 or a loss of <unk> <unk> per diluted share.
Kris from net income of $8 3 million or a gain of 94 cents per diluted share in the fourth quarter of 2020.
The net loss reflects a benefit of 590000 adjustment for reduction in fair value of contingent earn outs.
For the full year ended December 31, 2021, GAAP net income was 341000 or <unk> <unk> per diluted share a decrease from net income of $10 3 million $4 20 per diluted share in the same period last year.
Our effective tax rate in 2021 was 63%, which reflects deferred tax adjustments and true ups recorded in Q4 2021.
On a non-GAAP basis EBITDA for the fourth quarter 2021 was 319000 compared to $1 1 million last year.
For the full year ended December 31, 2021, EBITDA was $2 9 million compared to $4 9 million in the same period last year.
Our non-GAAP adjusted EBITDA was 541000 in the fourth quarter compared to $1 3 million in the same period 2020.
For full year ended December 31, 2021, our non-GAAP adjusted EBITDA was $3 8 million compared to $5 7 million in the same period last year.
Shifting to cash flow and balance sheet, we exited the quarter with $6 5 million in cash and approximately $5 million available to draw down on our credit facility.
The reduction of cash from the prior quarter, resulting from acquisition related expenses.
Repurchases investments back into our technology and the timing of working capital.
After these expenses our balance sheet continues to remain strong and our current ratio at end of December remains around 1.3 compared to one point too at the end of 2020.
Furthermore, although we have an ATM at our disposal, we have no current plans to execute any orders on the ATM and we'll be opportunistic and act when the situations are favorable.
In a few minutes, Jim will cover the stock repurchase activities.
This completes my financial summary for a more detailed analysis of our financial results. Please reference our Form 10-K , which was filed prior to this call.
On a personal note.
This will officially be my last earnings call.
I want to thank Jim and my colleagues for a rewarding and enjoyable experience at one point.
Learn so much from each of you.
Well I look forward to the next chapter I am committed to working with Bob George our incoming CFO to ensure a smooth transition.
So with that I will turn the call back to Jim.
Thank you Kelly and thank you Jason.
Although there are headwinds that we cannot control I am pleased with the trajectory wide point is headed in as you continue to profitably operate with zero debt and maintain a strong balance sheet.
Our ability to sustain profitability even in miss 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.
Speaking of our inorganic growth strategy, we're continuing to meticulously vet a multitude of M&A targets in this acquisition rich environment. Unfortunately, similar to last quarter, we are still seeing lofty multiples with almost all companies demanding much more than what we deem their value to be.
We will be patient in our search and we'll be judicious with our selection process.
That said I want to reiterate that our M&A mandate remains the same which is to look for stable immediately accretive and well established companies that are profitable and especially those companies that are in the cyber security space.
Next I will provide an update with our share repurchase program.
As of December 31, 2021, we repurchased 299494 shares at an average price of $4 14.
Fast forward to March 11, 2022, and we repurchased an additional 196586 shares at an average price of $4 11.
Even after these repurchases our cash balance remains strong.
As of March 14th we have suspended our repurchase to preserve our cash balance as we consider additional investment opportunities.
And as I previously stated, we will be opportunistic and timing price and the amount of our repurchases.
Additionally in Q4, we saw managed services revenue increased 25% due to our strong operational performance and the acquisition of ITG authorities. Looking ahead, we expect to grow our managed services revenue, 5% to 10% in 2022.
Consistent with our past practices, we will provide full guidance for 2022 during our earnings call for Q1 in May.
As we announced earlier this month, we are very pleased to welcome Bob George to our management team to succeed Kelly as our CFO .
Bob will officially take the CFO reigns on April one 2022, we're very excited to have him join our management team.
Bob brings with him more than three decades of diverse business experiences in strategic planning financial forecasting and analysis financial system design and implementation and building and managing successful finance teams and organizations.
Bob also has extensive experience with mergers and acquisitions, having 32 successful acquisitions to his credit and given our focus on M&A.
You will be hearing a lot more about our efforts on this front and welcome to the team Bob.
Now I will take this opportunity to thank Kelly for her many contributions to <unk>.
Kelly has been tireless and improving our financial performance and all aspects of finance and accounting operations.
She leaves Wi point on a solid footing and poised for growth. Thank.
Thank you Kelly, we wish you the very best in your retirement.
In conclusion, we believe that we are in a prime spot to continue growing thanks to the progress, we're making across all fronts of our business.
We are operating profitably stably and prudently, which is why we've been able to weather the number of headwinds that come our way.
I am very proud of the team here at one point and look forward to a successful 2022 with that said we are ready to take questions from analysts and major shareholders. Operator will you. Please open the call for questions.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone now.
I ask that while posing your question. Please pickup your handset is listing on speaker phone to provide optimal sound quality.
Once again, if you have any questions or comments. Please press star one on your phone now please hold a moment, while we poll for questions.
Your first question is coming from Barry sine with Spartan capital.
Your line is live.
Hey, good evening. Thank you a couple of questions. If you don't mind first of all on the fed ramp it sounds like you're making great progress I know, that's quite important and I want to confirm I think I heard you guys say, you're hopeful of getting full approval by the end of 'twenty, two assuming you get that wood.
We see noticeable.
The change in revenue growth and 23 and 24 as you know fed ramp certified and can go after some more contracts how notable should that be from a financial standpoint.
It's really difficult to quantify Barry.
Hello, Barry it's nice to hear your voice.
Let me be a little little polite, but.
Yes, the fed ramp certification when we get it we anticipate that we will be able to bid on more contracts.
And in a lot more potential for us to use that as a marketing tool to go out and out compete or competitors.
We plan to do with that certification. Once we have it is we will go to prospective customers and let them know that the vendors that they're using may not have that certification and so well we know that they won't have that certification because we feel that we're the only ones in the.
Managed mobility market that has that certification so we should see.
Some good.
Additions to our sales pipeline once we have that fed ramp certification.
Okay. That's excellent my second question in.
In the press release, you call out a contract from the state of Texas Department of information resources, and I know everything is big in Texas and I'm wondering a lot of times government contracts are public information on websites and so on could you give us any further color on that contract and.
Is it as big as Texas.
Well.
It is his biggest Texas, Texas is what like a third of the.
The Continental U S. I think in geographic size. So there they are pretty big but I will tell you that the the contract vehicles that we're talking about is very similar to the federal government as GSA contract and so this is sort of a pre qualification of our services and solutions. So that we can go in and sell to the state of.
Texas.
So we do have several opportunities within our sales pipeline that are meaningful.
And so we hope to close on some of those in 2022.
Okay, and then on the I T E.
In the press release, you talked about progress on cross selling and you called out some examples.
How many of their customers have taken wide point services and how many of your customers have taken legacy it services to date and then same question in terms of the pipeline.
Right. So so in terms of.
The number of customers that are taking white points solution at <unk>.
It's customer taking my point solutions.
I'll, let Jason talk to that a little bit in more detail, but I will tell you that we are gaining traction there in the beverage industry and also in the.
The the media company that Jason talked about in our call. So.
Without stealing your Thunder I'll, let Jason kind of tell you a little bit about those customers.
Hi, Barry how have you been doing them Hey, how are you.
Got it got so as Jen said, yes, we do have one one official customer and the beverage community that we have received it.
There's a lot of courting them, but it was going on to the existing.
<unk> been extremely favorable but in terms of official wins, we have won official P O.
We're cautiously optimistic that.
We will be receiving others and just stay tuned and hopefully we'll have some updates in terms of the other way around with it.
Yes.
There's a there's a number of onsite meetings that happened plan.
With the I T a folks as well as the white point folks and they are going to be making some onsite visits some initial calls.
Two the existing wide point customer base with the folks on the call have gone really well and they are now actually progressing to the next stage of our face to face meeting. So that is kind of twofold for us because it's it's positive that we're getting back to that old normal and we're able to get on the road and really get in front of people. So again.
It's taken a little bit of time, but at least we're getting the chance to come to come to the table and do a lot of very favorable presentations.
Okay, that's fair.
Very helpful. Yes, Thank you Jason.
Hey, Barry just just so you know that the beverage industry customer we are looking at them not only.
Just one of our services are actually looking at.
Taking our IDM solution and our.
Managed mobility solution. So that's.
That's been a kind of a twofer for us so.
Standby Theres a lot of things that are happening there and also we talked a little bit about soft ex and <unk>.
Wholesale certification, but now what we're going to do is we're going to merge that with the.
Gold partner status that we have at <unk> and <unk>.
There is a potential for us to sell our ucas solution too.
Our EMS team users so.
That's been.
A pretty exciting area in development for us.
Okay, and then kind of a financial question on Iga.
So in the 10-K in addition to carrier and manage you breakout managed services into three different line items I'm looking at those where would I see the revenue.
I think that was in there the whole quarter, and just remind us what kind of a run rate what is it doing.
Barry This is Kelly.
Uh huh.
Revenue.
Uh huh.
Included in managed services.
For the fourth quarter.
And we had said.
In the previous.
Announcing.
We expect a couple million of revenue from <unk>.
So they delivered in line with that expectation.
So just to clarify Kelly there in the managed services fees line not the billable services fees line.
Correct because.
There are of course service is.
Okay.
As a service as a service.
So that's okay.
Mostly in line with our.
Other managed services.
And those are my questions, but I want to join everybody in congratulating Kelly and again, you've gotten the K filed and time for the call. That's always very helpful. So congratulations have a great retirement Kelley and you set up a high bar for Bob to follow on getting the financials are filed with the.
Sir Thank you.
Thank you Barry really appreciate that.
Yes.
Once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone now.
At this time. This concludes our question and answer session. If your question was not taken please contact wide points IR team at W. YY at Gateway IR Dot Com I would now like to turn the call back to Mr. Jin Kang for his closing remarks.
Thank you operator, thank you all for joining us today for our earnings call I will close the meeting by reminding you that despite all of the macroeconomic events, we are positioned well to benefit from the tailwind provided by the need for strong cyber security, specifically, a quantum resistant endpoint security solution will.
Dress the critical needs to mitigate the growing cyber security threats from here and abroad.
Thank you again and 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.
Thank you again and have a great evening.
Thank you for joining us for today's wide points fourth quarter and full year 2021 conference call you may now disconnect.