Q4 2022 WidePoint Corp Earnings Call
Good afternoon, ladies and gentlemen, and thank you for your patience to conference will begin shortly.
Once again, thank you for your patience your conference will begin shortly.
[music].
Good afternoon, welcome to wide points fourth quarter and full year 2022 earnings conference call.
My name is Matthew and I'll be your operator for today's call joined.
Joining us for today's presentation are wide points, President and CEO Jin Kang Chief revenue Officer, Jason Holloway, and Chief Financial Officer, Robert George.
Following their remarks, we will open up the call for questions from White points publishing analyst and major investors.
If your questions were not taken today and you'd like to additional information. Please contact <unk> Investor relations team at W. Y O Y at Gateway IR Dot com.
Before we begin the call I would like to provide <unk> 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'd 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 of 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 fourth quarter and full year ended December 31 2022.
I'm pleased to share with you all that we ended 2022 on a high note as we met our guidance targets for full year revenue of 94 million and adjusted EBITDA of $1 million, while simultaneously experiencing several encouraging events within our core business.
It's safe to say that the investments we have made throughout the past year have optimally positioned us toward a positive trajectory in 2023 as.
As we are starting to reap the fruits of closed deals that had been in the pipeline for quite some time in.
In addition to operating with a leaner workforce as.
As I shared on our last call, though we reduced our staffing costs by 10% our ability to close new contracts was not affected as we continue to invest in sales and marketing in fact, we are projected to outpace the total revenue and adjusted EBITDA figures of 2022 this year.
We're also forecasting to be cash flow positive for 2023 as the majority of our capital projects have reached their logical completion as well as increases in our more profitable managed services revenue.
We're making this bold forecast because a robust sales pipeline continues to grow in parallel with winning new customers and new net deals. Our team has been doing a phenomenal job of fulfilling our contractual obligation to our existing customers and we have been successful in expanding the scope of services as well as winning ring.
Yours with them.
The numbers speak for themselves as we have officially retained over 97% of all customers on a revenue basis.
A big driver for this success is due to several upsell and cross sell opportunities. We can provide to our customers in tandem with our track record of service delivery excellence and the growing need for the types of solutions that we provide.
On brand with the theme of a strong 2023 for wide point there are other encouraging events that we are excited about for one our capital investments has significantly decreased as almost all of our infrastructure has been revamped.
We have approximately $1 $4 million worth of Capex this year compared to the roughly $3 4 million, we had in 2022 for.
From a working capital standpoint, we are fully operational with existing cash on hand and are not in need of any near term financing.
Given the status of the economy with surging interest rates and a myriad of uncertainties around the broader corporate America cash is certainly king.
We're very fortunate to be in this situation, we're in and the trajectory of our business given our ability to be financially sustainable.
Additionally, we are in much more opportune position today when gauging the impact of the macroeconomic obstacles that were previously mentioned in our path toward progression.
As illustrated through a robust sales pipeline and our customers' willingness to expand their working relationship with us.
And a healthy core operating business is safe to say that many of the issues of the past are no longer a material problem for us at present.
There are still a supply chain disruptions and pass of the federal government debt ceiling and rise in interest rates. These factors are manageable given them a certain status of our organization wide point, we'll continue to stay the course as we remain steadfast in our efforts to both organic and inorganic growth.
Furthermore, as we announced via press release towards the end of November 2022, our intelligent technology management system or Tms has achieved fed ramp in process status. As a reminder, fed ramp was established in 2011 to provide a cost effective risk based approach for the adoption.
Use of cloud services by the federal government fed.
<unk> empowers agencies to use modern cloud technology with an emphasis on security and protection of federal information.
We've been working diligently with a contracted third party assessment organization and the Bureau of alcohol tobacco firearms and explosives to review and test the 616 security controls and sub controls necessary to achieve fed Ram authorization at the physical moderate level, we have until May 22.
Three to complete the assessment to earn deferred Ram authorization status.
Bedroom authorization status will put us in rare company and will position why point ahead of our competition and open up new contract opportunities for us we.
We will keep you all posted on our progress. We're also completing the installation and configuration of our hot Coop site hardware and software. We will soon enter the testing stage for our Hot Coupe site testing will include both onsite testing at one point facility and testing at secondary hosting facility.
We are targeting the testing during the second quarter of this year.
The move in final installation will occur no later than Q4 of 2023.
To be clear, we currently have a KOL coops site that meets our service level agreements. However, the hot Coop site will put US ahead of our competitors and we will provide additional resiliency of our delivery system.
With that overview completed I'll now turn the call over to Jason to provide you with some details on the investments, we're making in the sales and marketing fronts Jason.
Thanks, Jen and good afternoon, everyone I wanted to start by sharing that there are many encouraging activities taking place in both the government and commercial sectors of our go to market strategy.
With respect to our government vertical I am pleased to share that we have recently entered into a strategic partnership agreement with our major identity management solution provider.
The goal is to provide ongoing credentialing support to three major federal agencies. However details of this engagement are currently under NDA.
We hope to share the details in our upcoming earnings calls and of course, we will be sure to notify the public via appropriate Reg FD channels as soon as we are able.
Additionally, as you may have seen in one of our recent press releases, we announced that we signed a reseller agreement with BK Technologies Corporation for the resale of BK technologies enter off one <unk>.
Push to talk over cellular service.
We plan to use our cellular wireless managed services CW mass idea IQ contract as a vehicle to sell Bks Interop one service to the U S Department of Homeland Security and U S Department of state agencies.
And are up one is designed to enable all first responders to communicate regardless of which cellular network they use or push to talk over cellular service base subscribed to or even first responders, who do not subscribe to our push to talk over cellular service, providing interoperable communications.
During emergency incidents with no other communications platform meets the need.
As it relates to our CW MFS IQ contract with DHS with the task orders that we have received to date, we are approaching 80% of the contract ceiling. Additionally, we are anticipating some follow on task orders that could potentially reach or exceed the original ceiling of five.
$500 million.
I'll now shift gears to the commercial sector, where we are also seeing immense progress as we mentioned on the last call. Our agreement with <unk> International has recently translated to our topline and has resulted in the execution of deals for soft ex our relationship with CST.
<unk> brought us material contracts with National Media company.
And a national telecommunications carrier. Additionally, we are currently in the implementation process for a national cable company.
Moreover, one of the more prominent partners, we struck a deal with was with an S&P 500, food and beverage company for our mobile and Telecom managed services.
Not only was this a significant win for wide point, but it was even more impactful given the fact that we replaced one of our competitors, which was being used by this food and beverage Titan.
As a status report from the last earnings call I am proud to share that the progress we have made of implementing our quantum resistant multifactor authentication solution or MFA into K through 12 schools has been successful so far the feedback that we have received to date has been very positive.
So much so that we are currently developing a custom commercial enterprise software certificate to be used not only in the K through 12, but to all of the existing identity and access management commercial customers.
Our goal is to have the new capability rolled out by the end of Q3 I will provide an update on the next earnings call with that I will hand, the call over to Bob.
Thank you Jason Good afternoon, everyone I'm pleased to share the details of our fourth quarter and full year 2020 to financial results for.
For the fourth quarter, our revenue was $23 3 million a decrease of $1 1 million or 5% from the $24 5 million reported for the same quarter last year for.
For the full year ended December 31, 2022, our revenues $94 1 million, an increase of $6 8 million or 8% from the $87 3 million reported last year.
Now I'll provide further revenue breakdown.
For the fourth quarter, our carrier services revenue was $13 8 million, which is consistent with the $13 4 million of care services for the same period last year.
For the full year ended December 31, 2022, our carrier services revenue was $53 3 million, an increase of $3 6 million or 7% from the $49 7 million reported last year. This is primarily due to a federal customer increasing the lines at managed by about 75%.
For the fourth quarter, our managed service revenue was $8 4 million a modest increase of 460000 or 6% from the $7 9 million reported for the same quarter last year.
For the full year ended December 31, 2022 managed service revenue is $28 1 million, an increase of $2 9 million or 11% from $25 2 million in 2021, the increase as a result of the acquisition of Ikea authorities or Iga, which added $5 1 million as a result of the full year.
Our results in 2022 compared to only one quarter of results in 2021 as a result of the acquisition timing in 2021.
The increase was partially offset by lower sales in our legacy lines of business.
For the fourth quarter.
Selling and other revenues decreased by $2 million to $1 1 million from $3 1 million in the same period in 2021, reflecting lower overall selling and other revenues in our legacy lines of business.
Reselling and other services are transactional in nature and as a result, the amount and timing of revenue will vary significantly from quarter to quarter.
For the full year ended December 31, 2022, reselling and other services revenue increased by 300000 as a result of the acquisition of ICA, which added $2 4 million for the full year of 2022 compared to only one quarter of <unk> results in 2020 one as a result of the acquisition timing in 2021.
The increase was partially offset by lower sales of our legacy lines of business gross profit for the fourth quarter is $3 6 million or 15% of revenues compared to $4 million or 16% of revenues in 2021, lower gross margin is primarily related to lower relative margins in the IPA business.
Gross profit for the full year ended December 31, 2022 was $14 6 million or 15% of revenues compared to $16 4 million or 19% of revenues in 2021.
Lower gross margin percentage is related to the increase in lower margin carrier services this year and higher cost of sales relative to revenues and the ICA business compared with our legacy business lines.
Increased costs are also a result of higher labor costs to support professional services.
Cost of revenues may fluctuate due to our revenue mix.
For the fourth quarter general and administrative expenses of $3 6 million or 15% of revenues compared to $4 million or 16% of revenues in the same period of 2021 decrease in general administrative expenses relative to 2021 is primarily the result of costs incurred in 2021 associated with the <unk>.
<unk> acquisition.
For the full year ended December 31, 2022 general administrative expenses were $14 7 million or 16% of revenue compared to $12 7 million or 15% of revenues in 2021. The increase in general administrative expenses is primarily due to the recognition of a qualified payroll tax credits.
$1 3 million in 2021.
The increased general and administrative costs related to a full year of <unk> expenses compared to only the fourth quarter of expenses in 2021.
For the fourth quarter of 2022, our GAAP net loss was $8 9 million were negative $1 <unk> of diluted EPS compared to GAAP net loss of 524000.
Or negative six of diluted EPS in the same period last year. The main driver of the change in earnings was an increase to the valuation allowance on the deferred tax assets related to our NOL carry forwards of $8 5 million in the fourth quarter 2022.
For the full year ended December 31, 2020 to a GAAP net loss was $23 6 million or negative $2 70 of diluted EPS compared to GAAP net income of 341000 or <unk> <unk> diluted EPS in 2021. The main driver of the change in earnings was a <unk>.
Goodwill impairment charge of $16 3 million reflected in the second quarter and the increase to the valuation allowance on the deferred tax assets of <unk>.
$8 5 million related to carry forwards in the fourth quarter of 2022.
On a non-GAAP basis adjusted EBITDA for the fourth quarter of 2022 was 561000 compared to 548000 in the same period last year.
Full year ended December 31, 2020 to a non-GAAP adjusted EBITDA was $1 1 million compared to three seven.
$7 million in 2021.
Shifting to cash flow the balance sheet. Our current ratio at the end of December 31, 2022 is one one to one compared to one three to one at December 31, 2021, we exited the year with $7 5 million cash cash equivalents.
And with our expanded class at our revolving credit facility, we have $7 million available borrowing capacity subject to the terms and conditions of that facility.
We believe that our operating cash flows cash on hand available credit line and other financing options gives us ample liquidity. This completes my financial summary.
For more detailed analysis of our financial results. Please reference our Form 10-K.
So with that I'll turn the call back over to Jim.
Thank you Bob and thank you Jason.
Now I will quickly touch upon our M&A activities.
As a player in the trusted mobility management space, we want to be able to further strengthen our capabilities here to become an industry leader.
That said, we have filtered down a list of candidates and we are seriously vetting these companies for potential M&A activity.
To further assist with our efforts are manifesting our inorganic growth strategy. We are engaged with several investment banks and we will continue to work diligently with them again as I mentioned earlier in my remarks, with the uncertain status of the broader economy and rising interest rates the markets for M&A have become frothy or.
As more companies begin searching for strategic alternatives.
All in all we have entered the new year with momentum and we are continuing to build upon that.
Our move to a functionally aligned organization structure is largely complete as we have been able to focus resources remove redundancies.
Operating more efficiently improve synergies and cut costs, all of which have improved our financial performance as it relates to revenues expenses adjusted EBITDA and the bottom line with that said, we believe these actions should show year over year improvements in financial performance.
As is our usual process, we plan to provide guidance during our first quarter earnings call in May.
We are confident that our sales pipeline consisting of commercial customer contracts meaningful federal state and local government sector customer contracts.
And our continued approach to team with large strategic partners will result in the successful execution of our financial projections with that said, we are ready to take questions from our analysts and major shareholders. Operator will you. Please open the call for questions.
Certainly at this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
We do ask them about posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone please.
Please hold while we poll for questions.
Your first question is coming from Scott Buck from H C. Wainwright Your line is live.
Hi, Good afternoon, guys. Thank you for taking my questions.
Hi.
First one I was hoping.
If you could give us a little bit more color on the current selling environment given the.
Increased level of macro uncertainty and if you could kind of break it out between.
<unk> corporate customers versus government or municipalities.
Sure.
Thanks for that call Scott.
I think the environment is getting tougher with.
The rising interest rates and so forth.
I think it's getting to the point, where some of our managed mobility services is going to be key here, but before I say anything or CRO, Jason Holloway is on the call with us and I'll have him take that question.
Jason do you want to take it away.
Yes, sure. Thanks, Jan Hey, Scott how are you doing good to hear from you.
I would say that right now opportunities.
For the first time in a long time are really balanced I would say on the.
Federal.
And government side of the house wide point now has has such a.
Strong past performance history.
That I think that.
Long with all of the GSA schedule schedule and all of the federal accreditation that we have in place, it's really given us a leg up over our competition.
So as you may have heard in the past on our previous earnings calls, we talk a lot about partnering with large systems integrators and Thats something that we continue to do because once again, we check boxes that they don't earlier in this call Jim talked about the progress that we're making.
Fed ramp accreditation on the managed mobility.
Inventory and asset management and everything that's related to our proprietary software platform again.
Really given us a huge key differentiator over our competition.
And has really given us.
A very strong position on the government side. The downside is that everything with the government as you know.
Moves it moves at glacier speed, so the sales cycle on that side as well.
Longer than it is on the commercial.
As we switch to the commercial side.
We've seen.
A huge uplift there and that's and that is due to again Jan talking about all of the capital investments that we made in 'twenty two.
We're putting this stuff into production in 'twenty, three but I think more importantly.
It's also the strategic teaming agreements that we've signed like.
As I discussed earlier in my call in my prepared remarks.
BK technologies.
That also has given us a huge leg up so I think we're making a lot of headway there and again, we just.
We stand on top of our accreditation and that gives us.
It gives us a leg up over our competition. So hopefully I answered your question.
Yes.
That's very helpful. I appreciate that my second question is I was hoping just to get a little bit more color on what youre looking for in <unk>.
Potential M&A target.
Do you prioritize that.
The watch list I guess.
Yes. So thank you again for that question Scott.
As I mentioned in my prepared remarks with the rise of the.
The interest rates and.
So we see the environment turning to a more of a buyer's market.
So I think that that should be good for us.
In terms of our targets of opportunity. We are looking for companies that gives us both a vertical and horizontal integration opportunities vertical meaning companies that will extend and deepen our capabilities in the identity management and managed mobility services and the digital billing and analytics those areas.
And of course, our IP as a service and horizontal meaning you know looking for companies that.
Essentially do the same thing that we do and we will bring them onto our delivery system and eliminating redundancies, making those deals immediately accretive.
We're looking for companies that are established.
With revenues and near breakeven.
And by being again.
As I said, if we remove the redundancies and integrate them within our organization.
And put them onto our what we believe is a superior delivery platform, we can make those deal immediately accretive.
And so those are the types of <unk>.
Opportunities that we're looking for and they're out there and I think the market is getting frothy here as <unk>.
<unk> are looking for other alternatives now.
That's great guys. Appreciate the color. Thank you very much.
Thank you Scott.
Thank you we've received a question from an Investor can you. Please talk a bit about Q1, so far and speak to any seasonality.
Sure. Thank you for that call operator.
In terms of our Q1, we are still going through the process of closing their books and we haven't.
<unk>.
Got the full picture of Q1, but we can tell you that historically Q1 is generally our slower quarter due to various things like federal government spending that limited crisis and so forth. So.
We are continuing to invest in transitioning some customers from one of our strategic path.
Partners in the identity management business.
And that will bear fruit, probably about towards the end of the second quarter third quarter. We are also continuing to invest in sales and marketing.
So that should increase some of our cost.
And some of our revenue streams like the accessory sales and recycling business revenues are a bit lumpy. So it's hard to predict at this time.
And of course lastly.
There's also increases in fringe benefit cost.
You're familiar with federal and state unemployment taxes footer and suit if you looked at your $10 44 in your <unk> probably seen that.
And those payments usually happen in the first quarter, so that could lead to a softer Q1, but as I said, our Q2 through the rest of the year looks fair.
Fairly robust.
And so.
As we get more.
Clear picture on the Q1, we will.
Put out a press release on that.
And also provide guidance as I said in mid May of this year.
Thank you at this time. This concludes our question and answer session. If your question was not taken please contact <unk> IR team at W. YY at 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.
You can find their full contact information at the bottom of today's earnings release.
You again and have a great evening.
Thank you for joining us today for wide points fourth quarter and full year 2022 conference call.
May now disconnect.