Q3 2023 WidePoint Corp Earnings Call
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You have to dial in to the White point to third quarter 2023 earnings Conference. This conference will begin in just a couple of minutes. Thank you for your patience. Please stay on the line. This conference will begin very shortly.
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Good afternoon, welcome to White Point's third quarter 2023 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.
<unk> 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 analysts and major investors.
If your questions were not taken today and you would like additional information. Please contact white points Investor Relations team at W. YY Gateway Dash G. R P dot com, but.
Before we begin the call I would like to provide a way points safe Harbor statement that includes cautions regarding the 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 White point Corporation that involve.
The 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-Q 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 32023.
I am pleased to share the progress we've made over the past several months as.
As we concluded the third quarter on a high note. Thanks to their continued dedication and hard work of our entire team.
We have experienced consistent sequential improvements quarter over quarter underlying our continued growth and resilience as we also surpassed the results of Q3 2022.
And have achieved positive adjusted EBITDA for the 25th consecutive quarter, highlighting our consistent profitability and operational strength. We anticipate this positive trend will persist into the fourth quarter and into 2024, something Bob will go into deeper later in this call.
Our revenue remains within the guidance range of $103 million to $108 million, a reflection of our steady and disciplined approach to managing our business.
Although we do expect that our adjusted EBITDA is trending towards the lower end of the range due to various sales opportunities have been pushed into Q4.
But I'm happy to report that several of these opportunities have already successfully closed.
This bodes well for Q4 and full year 2024.
To further quantify our forecast, we expect free cash flow to be approximately $3 5 million more than in 2022.
The actions that we've taken in the past 12 months to be prudent with our capital in conjunction with the overall proactive nature of our team.
Another significant catalyst contributing to our strong position is the fact that the majority of our capital investments have been successfully closed.
As a result, we anticipate only minimal capital expenses in the fourth quarter and throughout 2024.
Reflecting our disciplined approach to managing our resources. Additionally, we believe there will be no material non cash adjustments for the current year, which will both lead to an optimized adjusted EBITDA and bottom line and.
An example, I wanted to share where all investments have been completed is our intelligent technology management system or Tms, which is still in the fed ramp in process status. We anticipate hearing back from General services administration in the next couple of months and I look forward to realizing.
This important milestone beyond that.
Other capital investment projects that we've mentioned before such as our heart Coop site improvements soft certificate issuance and remote issuance of certificates have all been materially completed.
Although we are encouraged by some of the trends and preliminary results we are seeing.
Shed light on some of the macroeconomic factors, we are witnessing and the way we are mitigating those uncontrollable variables.
Despite the interest rates as lofty as they are wide point remains well prepared for the foreseeable future.
Effectively managing our cash balance we closed Q3 with a healthy reserve of approximately $8 4 million.
As you know the federal government is currently embroiled in budget debates and a potential government shutdown is looming. However, we have a long history of successfully navigating such challenging environments and we will continue to mitigate these risks next despite some large tech companies implementing layoffs the labor.
Market remains extremely competitive we are diligently managing the situation, albeit with potential additional staffing costs. However, we intend to offset this risk by focusing on higher margin managed services revenue.
All of that said the supply chain challenges that were prevalent have Fortunately now largely subsided and we are all well equipped to manage them effectively.
On an operational note it has been encouraging to witness customers re engaging with us in both the commercial and federal government sectors that contract with the FCC.
An agency within the Department of Transportation implementation of Cox communication and M. CPC Pro Medica are major successful engagements that are going well. Additionally, we successfully signed contracts with the federal Emergency management agency and a major beverage bottling company.
For telecom and as a service solutions, respectively in Q4.
We will be providing additional updates on these and other awards in press releases soon.
We have several material opportunities that we see on the horizon that we hope to win before the end of the year.
Some of these opportunities did slip to the right into Q4 due to the previously discussed macroeconomic factors, but we remain keen on doing everything we can to get these deals across the finish line.
Again, we continue to garner all of this traction in tandem with operating efficiently as a leaner and tight organization. Following our reduction in force at the end of 2022.
And as evidenced by our ability to renew materially all of our contracts up for renewal our customers continue to value our solutions and services.
In some cases, we have been able to expand the scope of work, which speaks to the robust nature of our offerings. In addition to the relentless efforts from our team to continuously cross sell and up sell our solutions.
We will maintain focus on scaling the growth of our federal government and commercial customers.
I will now hand, the mic over to Jason who will further elaborate on these topics and provide some color on the sales and marketing front Jason.
Thanks, Jen and good afternoon, everyone.
As Jim stated, we continue to build momentum and are seeing the results of hard work and closing the higher margin deals.
As you May have seen we had a press release in which we closed in identity and access management deal with an agency within the department of transportation totaling $1 7 million.
You may have also seen on the federal procurement database system web portal that we closed another deal under our CW EMS to contract with Department of Homeland Security, namely Federal Emergency Management agency or FEMA. The award is approximately $60 million over a three year period of performance.
<unk>.
With a one year base period, and two one year option periods.
Additional details can be found on our filed SEC form 8-K.
I'm also proud to announce that we also won a new contract with the FCC with a total contract value of $3 2 million.
And soft ex our operations in Dublin, Ireland recently announced a win with <unk> as well as an Irish Telecom agency <unk>.
<unk> is also targeting opportunities in the BDC market for Cox Communications.
Our pipeline remains robust we look to finish 2023 strong with additional potential material contracts.
We continued to make positive progress within the K through 12 Arena Jen and I hosted an event in which very influential K through 12 district leaders were in attendance.
Along with pilot in our software solution. We are also exploring wireless <unk> credential readers and which the user can connect using a bluetooth connection to the device.
In parallel.
Authorities continues to build its pipeline as well and is making headway in closing a number of exciting deals.
Not only will this immediately benefit our top line, but it presents the broader wide organization with incremental cross sell and upsell opportunities looking ahead.
Please stay tuned for additional IP authority updates in the near term.
Additionally, we continue to work closely with our systems integrators, and we believe that our tremendous past performance in both the federal and commercial space, We will close additional opportunities in which the systems integrators are reaching out to wide point for assistance in closing.
Our marketing efforts continue to grow with the targeted campaigns with increased social media presence.
Given the remote work environment, we see positive results from the increased social media efforts. We will continue to stay laser focused and continue to close higher margin deals 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 third quarter 2023 financial results for the third quarter. Our revenue was $25 7 million, an increase of <unk> 4 million or 2% from the $25 3 million reported for the same period last year.
Revenues for the nine months period ended.
September 32023 were $77 8 million, an increase of $7 million or 8% from the $70 8 million in the same period last year.
Now I'll provide a further breakdown of our third quarter and nine months revenues in the third quarter. Our carrier service revenue was $14 6 million, an increase of $5 million from the $14 1 million in the same period in 2022.
For the nine months ended September 32023, our carrier services revenue.
Was $42 5 million, an increase of $3 million from the $39 5 million at the same period in 2022.
The increase for both three and nine months results is due to increased contracting activity within our federal customers.
In the third quarter, our managed services revenue was $8 1 million and remained relatively constant from period to period.
The nine months ended September 32023 managed services revenue was $21 8 million, which was also relatively consistent from period to period.
Third quarter billable services fees were $1 6 million, an increase of $7 million from the $1 9 million in the same period in 2022.
For the nine months ended September 32023.
Global services fees were $4 7 million, an increase of $1 7 million from the $3 million in the same period last year.
For both the three and nine months periods. The increase in billable services fees was a result of more billable positions on our federal contracts and increased billable implementation services and a soft spec subsidiary.
In the third quarter reselling and other services was $1 4 million.
A decrease of $1 4 million from the $2 8 million in the same period last year.
For the nine months ended September 32023, reselling and other services was $8 8 million an increase of approximately $2 million from the $6 8 million in the same period last year.
The decrease for the three months results was due to the timing of lease opportunities.
<unk> fiscal year end that moved into the fourth quarter. The increase in nine months result was due to the resale of new capabilities provided by a third party partner for several federal customers we.
We do want to highlight Alicia and other services are transactional in nature, and the amount and timing of revenue to vary significantly from quarter to quarter.
Gross profit for the three months period ended September 32023 was $3 8 million or 15% of revenues compared to $3 $8 million also 15% of revenues in 2022.
Gross profit for the nine months period ended September 32023 was $11 6 million or 15% of revenues as compared to $11 million or 15% of revenues in 2022.
The more significant metric of gross profit percentage, excluding carrier services was 37% for the third quarter 2023 compared to 34% in the same period last year.
The increase in the third quarter of 2023 was due to two new contracts in our identity management business, which are high margin contracts.
For the nine months period ended September 32023, gross profit percentage, excluding carrier services was 34% compared to 35% in the same period last year.
The lower gross margin percentage, excluding carrier services is related to the increased depreciation and amortization related to capital investments and our delivery platforms, reaching completion and beginning to be amortized.
We note that our gross profit percentage will vary from quarter to quarter due to our revenue mix.
In the third quarter general administrative expenses are $4 million or 15% of revenues compared to $3 6 million or 14% of revenues in the same period of 2020 to the.
The increase primarily relates to an increase in noncash share based compensation expense compared to the same period last year.
General and administrative expenses for the nine months period ended September 32023, or $11 7 million or 15% of revenue as compared to $11 2 million or 16% of revenues in 2022.
We expect to see general administrative costs as a percentage of revenue lower in the future.
For the third quarter of 2023, our net loss was $921000 compared to a net loss of $541000.
In the same period last year.
The net loss between the third quarter of 2023, and 2022 predominantly related to increased depreciation and amortization related to our delivery platforms, reaching completion and beginning to be amortized.
Net loss for the nine months period ended September 32023 was $2 7 million compared to a net loss of $14 7 million the same period last year.
The principal difference in the net loss from the nine months period in 2023 compared to the same period in 2022.
Was the noncash goodwill charge of $16 3 million. It was taken in the second quarter of 2022 and to a lesser extent the increased amortization expenses previously mentioned.
Moving to our balance sheet and encouraged about where <unk> stands from a liquidity perspective, as we have done an exceptional job managing our cash and because of our access to a $4 million receivables factoring facility.
That said, we ended the quarter with $8 5 million in cash which was in part due to a large advanced payment from a customer for a three year contract.
And payables management in preparation for the potential federal government shutdown, although that shutdown was reverted.
This completes my financial summary for a more detailed analysis of our financial results. Please reference our Form 10-Q, which was filed on November 14th.
So with that ill turn the call back over to Jim.
Thank you Bob and thank you Jason.
I am proud that our efforts show that we are headed in the right direction.
As our financial performance has shown significant improvement and the bulk of our capital investments are now in the rearview mirror and.
In terms of strategic growth initiatives, we have formed key teaming agreements with products and solutions providers that are poised to fuel our growth by enhancing our offerings and expanding our market reach in parallel with this effort is our strategy to continue teaming with large systems integrators and other strategic partners as we look to scale our growth.
Engine.
Additionally in line with the trends observed in previous quarters. We have remained actively engaged in evaluating various M&A prospects that have the potential to enhance our current business operations as of now I don't have any significant developments to report, but rest assured that we will promptly inform our stakeholders.
Should a promising opportunity materialize or.
Our team remains focused on continuing to execute our plan for organic growth.
We will not be offering specific guidance for 2024 at this time there are numerous uncertainties that make it challenging to provide a clear outlook factor.
Factors, such as the ever changing federal budget landscape make it difficult to determine the timing of New awards. Additionally, inflation and the result in increased labor cost continued to pose the challenge for us in determining our costs. We are also faced with uncertainty regarding pending awards for material contracts. However.
We are optimistic that we will eclipse, our 2023 financial performance in 2024.
Assure we remain committed to providing updates as soon as we can offer a more accurate and reliable outlook for the future.
In conclusion, our company's performance continues to demonstrate its resilience and adaptability and we remain dedicated to navigating the challenges ahead with a strategic and forward thinking approach.
We appreciate the trust and support of our investors and shareholders as we work to deliver long term value and sustainable growth 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.
I'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
You May press Star two if you would.
I'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again Thats star one if you wish to ask a question on.
And one moment, please while we poll for questions.
And we did have a question coming from Scott Buck from HC Wainwright Scott Your line is live.
Hi, Good afternoon, guys. Thanks for taking my questions I'm curious you talked about.
And then kind of the scope of some of the contracts that renewal have you guys been able to move pricing at all or has that been pretty stagnant.
The pricing has been pretty stagnant. However, we did have some successes in <unk>.
<unk> some of our contractual pricing and <unk>.
Tls business and.
And we're continuing to work with DHS and the General services administration.
To increase the unit price for our managed services.
Where.
Quoting the current inflation.
Situation and.
So far we've seen the government be a little bit more receptive to our flight. So I'm hopeful that we can get some.
Price increases.
Both our managed services and our professional services rates.
Great. That's helpful and second could you give us a little more color on how you see the K through 12 opportunity and then maybe how you guys can potentially accelerate your involvement there.
Yeah. So so as Jason said, we did have a.
A fairly large group of folks that came in and listened to our sales pitch in and we pitch to them.
Several new.
<unk> solutions.
With our identity management solution and.
We have a new development a couple of new developments in that front.
But before I still Jason's Thunder here.
Jason do you want to.
Talk a little bit about the <unk>.
New development, our Bluetooth and also.
The.
Our ability to issue soft search.
With our new teaming partner.
Sure No problem, Hey, Scott how are you doing.
So David.
On the call. We did we did host this event and what we've been doing over the time that we've been working with K through 12, we've got and we have a number of pilots that are active we've gotten a lot of significant feedback from them in terms of how to make the deployment.
Our.
The entity and access management solution, a whole lot easier for them. So what we did is we went into a development project and.
It came out with <unk>.
<unk> so that this way, we're going more digital on the student side, so that that way, we're not issuing a lot of the smart cards that have the.
But chip that's inserted so they wanted more of a digital solution because they are handing out a lot of the chrome.
The chrome workbooks in tablets and things like that so we did go in successfully developed back.
And then the second thing we did is for the.
<unk> group and the teachers and all of the other staff members.
They didn't really want to have the smartcards plugged into the dongles that go into the side of their lab.
<unk> they wanted to be able to walk around freely and potentially jumped from machine to machine. So what we're doing now as part of the pilot program is we've gone to a Bluetooth reader and which you can insert.
That smart card credential or what we call the Pip II for them and that gives them that capability wirelessly.
Connecting to these various machines, we're using it in house at <unk> successfully now.
And that's going well and then and then overall strategically what we've been doing is we're positioned we are positioning ourselves inside a K through 12 to get more at the legislative level. So that we can get we can be a part of a bigger.
Cyber security or security spending budget.
For the schools.
And in order to do that we've been having to get the feedback from the K through 12 schools. So that we can meet certain criteria. So that we can be elevated and.
Take advantage of again a lot of these.
State programs to where we don't have to go.
And deal with individual budgets K through 12 schools. So hopefully this helps a little bit.
That's great color I appreciate that and then just last one for me Jim If you could kind of walk us through what your M&A criteria is what are you looking for in a transaction.
Well.
We are looking for companies that are.
Neither horizontal and vertical integration opportunities companies that in.
In terms of horizontal we're looking for companies that do the same thing that we do.
Stable companies that do the same thing that we do and we can move them onto our delivery platform and remove the redundancies to make the deal immediately accretive. We're also looking for those companies that have specific intellectual properties or capabilities, that's going to deepen our.
Capabilities and increase our depth of service.
But.
We are going to be concentrating more on organic growth then and.
We're not going to spend too much time looking around four.
These.
Out of the Blue M&A opportunities because I think it's critically important for US now that we are turning the corner here.
That we concentrate on organic growth.
We're not going to say no if somebody shows up with them.
The right.
A profile of a company that adds depth to our company or adds breadth of customers to our company as well.
Just just to enter.
Hence what Jason that said about K through 12, we do have several pilot programs going and we now have the capability for mass issuance to make the whole process of issuing digital certificates easier and more convenient and he also talked about.
Already talked about the Bluetooth is going to make the.
Form factor much more palatable.
For the.
K 12 community and so we see a lot of good things happening there will be rolling out the Bluetooth capability here in the next week or so and we'll see what kind of acceptance we get.
Perfect I appreciate the time guys. Thank you very much.
Great. Thank you Scott.
I think we did receive a an E mail question earlier, so Bob did you want to.
Discuss that about gross margins.
Yes.
Yes.
Okay. Okay.
No question was during the call you noted that your gross margin percentage, excluding carrier services revenues was 35% in the nine months period in 2022 and 34% in the nine months of 2023, what is driving the apparent margin compression.
Question the regional gross margin excluding carrier services is approximately 100 basis points lower than 2003 compared to the nine months of 2022.
Also the increased noncash depreciation and amortization expenses.
In that period, the increase as a result of our investments and our delivery platforms being placed into service during 2023, and the DNA and cost of sales for the nine months ended was 961000.
And $1 5 million and nine months ended 2023. This represents the entire difference in the 100 basis points of.
Decreased margin excluding this item cash margins are consistent from 'twenty two.
And our higher on higher revenues, excluding carrier services.
Also I'd like to highlight that.
We are.
Have no debt other than the long term relations, which are offset by rate right to use asset.
As the accounting standards require.
That's all I have on that.
Okay great. Thank.
Thank you.
Operator are there other questions.
There were no other questions 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 <unk> 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 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 2023 conference call.
You may now disconnect.