Q1 2024 WidePoint Corp Earnings Call
Operator: Good afternoon, ladies and gentlemen. Please remain on the line. Your call will begin momentarily. Please remain on the line. Your call will begin momentarily. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good afternoon.
Good afternoon, ladies and gentlemen, please remain on the line you call will begin momentarily. Please remain on the line your call will begin momentarily.
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Operator: Welcome to WidePoint's first quarter 2024 earnings conference call. My name is Kelly, and I will be your operator for today's call. Joining us for today's presentation are WidePoint's president and CEO, Jin Kang, Chief Revenue Officer Jason Holloway, and Chief Financial Officer Robert George.
Kelly: My name is Kelly and I hope your operator for today's call.
Kelly: 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.
Operator: Following their remarks, we will open up the call for questions from WidePoint's Publishing Analysts and Major Investors. If your questions were not taken today and you would like additional information, please contact WidePoint's Investor Relations Team at wyy.gateway-grp.com. Before we begin the call, I would like to provide WidePoint's 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 WidePoint Corporation that involve risk and uncertainties that could cause actual results to differ materially from those of WidePoint.
Kelly: Following their remarks, we will open up the call for question from White Plains publishing analysts and major investors. If your questions were not taken today and you would like additional information. Please contact wide point investor relation team at W. Y Y at Gateway Dash G. R. P dot.
Kelly: Com.
Operator: 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.widepoint.com. Now, I would like to turn the call over to WidePoint's President and CEO, Mr. Jin Kang. Please proceed.
Speaker Change: 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.
Speaker Change: The matters discussed in this conference call May include forward looking statements regarding future events and the future performance of wide point Corporation that involve risks and uncertainties that could cause actual results to differ materially from those anticipated.
Speaker Change: These risks and uncertainties are described in the company's Form 10-Q filed with the Securities and Exchange Commission.
Speaker Change: 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 dotcom.
Now I would like to turn the call over to wide points, President and CEO. Mr. Jin Kang Sir Please proceed.
Jin H. Kang: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to review our financial results for the first quarter ended March 31, 2024. Before I begin, I wanted to share that this earnings call will be relatively brief given that we provided an extensive overview just a month and a half ago. Nonetheless, our team has been very busy executing our corporate mission, and we're excited to share some of the recent developments with you all. With that said, let's dive in.
Speaker Change: Thank you operator, and good afternoon, everyone. Thank.
Jin H. Kang: Thank you for joining us today to review our financial results for the first quarter ended March 31 2024.
Jin H. Kang: Before I begin I wanted to share that this earnings call will be relatively brief given that we provided an extensive overview just a month and a half ago.
Jin H. Kang: Nonetheless, our team has been very busy executing our corporate mission and we're excited to share some of the recent development with you all.
Jin H. Kang: We concluded the first quarter on a strong note, slightly ahead of our forecasts, with encouraging sequential quarterly-over-quarter and year-over-year improvements across revenue, adjusted EBITDA, and free cash flow. Our revenue, adjusted EBITDA, and free cash flow were $34.2 million, $573,000, and $566,000, respectively.
Jin H. Kang: With that said, let's dive in we concluded the first quarter on a strong note.
Jin H. Kang: Slightly ahead of our forecast with encouraging sequential quarter over quarter and year over year improvements across revenue adjusted EBITDA and free cash flow our revenue adjusted EBITDA and free cash flow were.
Jin H. Kang: $34 2 million.
Jin H. Kang: 573000, and 566000, respectively.
Jin H. Kang: Bob will provide additional details on these remarkable improved financials in his financial summary. Additionally, we achieved our 27th consecutive quarter of positive adjusted EBITDA. These achievements are largely attributed to the success of our sales and marketing initiatives, which we outlined in the previous earnings call and intend to aggressively continue pursuing throughout 2024. In the first quarter, we saw over 18 contractual actions totaling approximately $22.7 million in contract value.
Bob: Bob will provide additional details on these remarkable improved financials in his financial summary.
Bob: Actually we achieved our 27th consecutive quarter of positive adjusted EBITDA.
Bob: These achievements are largely attributed to the success of our sales and marketing initiatives, which we outlined in the previous earnings call and intend to aggressively continue pursuing throughout 2024.
Bob: In the first quarter, we saw over 18 contractual actions totaling approximately $22 7 million in contract value.
Jin H. Kang: A majority of these contracts consisted of federal government agencies, including the U.S. Department of Homeland Security, U.S. Customs and Border Protection, the National Science Foundation, and the Transportation Security Administration. This success underscores our commitment to delivering integrated solutions tailored to the unique needs of our customers. We have strategically positioned each of our solutions to complement and enhance one another while leveraging our as a service business model to ensure a seamless approach to secure mobility management, as a result of our laser-focused approach to a more proactive sales and marketing strategy.
Speaker Change: The majority of these contracts consisted a federal government agencies, including the U S Department of Homeland Security U S customs and border protection, The National Science Foundation, and the Transportation Security administration.
Speaker Change: This success underscores our commitment to delivering integrated solutions tailored to the unique needs of our customers.
Speaker Change: We have strategically positioned each of our solutions to complement and enhance one another while leveraging our as a service business model to ensure a seamless approach to secure mobility management.
Speaker Change: As a result of our laser focused approach of a more proactive sales and marketing strategy.
Jin H. Kang: We have recently conducted advanced talks on several potential contract deals that could contribute to significant growth for the future quarters ahead. First, we were recently awarded the Spiral 4 contract by the U.S. Navy to provide wireless and telecommunications services. WidePoint was selected alongside six other companies, including the US Big Three wireless carriers, to provide a full range of wireless and telecommunication services. This indefinite delivery, indefinite quantity, or IDIQ contract has a one-year base period valued at approximately $267 billion and nine one-year option periods with a total contract value of approximately $2.7 billion if all options are exercised.
Speaker Change: We have more recently conducted advanced talks of several potential contract deals that could contribute to significant growth for the future quarters ahead.
Jin H. Kang: This award is a testament to our commitment to providing superior, secure, managed mobility solutions to large enterprises, both public and private. And to give you a flavor of how significant this deal can be, we are creating a program management office to ensure there is ample bandwidth to capture more than our fair share of work under this contract. We are honored to be included in this group and look forward to providing our services to U.S. Navy personnel and civilian team members.
Speaker Change: First we recently were awarded the spiral for contract by the U S. Navy to provide wireless telecommunication services why point was selected alongside six other companies, which includes the U S. Big three wireless carriers to provide a full range of wireless and telecommunication services.
Speaker Change: This indefinite delivery indefinite quantity or <unk> contract has a one year base period valued at approximately 267 million and nine one year option periods with a total contract value worth approximately $2 7 billion. If all options are exercised.
Speaker Change: This award is a testament to our commitment to providing superior secure managed mobility solution to large enterprises, both public and private.
Speaker Change: And to give you a flavor of how significant this deal can be we are creating a program management office to ensure there is ample bandwidth to capture more than our fair share of work under this contract. We are honored to be included in this group and look forward to providing our services to the U S Navy personnel and civilians team members.
Speaker Change: Second we.
Jin H. Kang: We are in active negotiations with a California city to provide managed services. Though we are unable to disclose specific details at this time, we are very optimistic about the direction of these discussions and anticipate sharing further details when appropriate. Outside of these contracts I just mentioned, our pipeline remains robust with additional deals and opportunities currently under negotiation. This pipeline of new deals serves as a testament to the effectiveness of our sales and marketing team, which has positioned us favorably for a promising 2024.
Speaker Change: We are in active negotiations with the California City to provide managed services, though we are unable to disclose specific details at this time, we are very optimistic about the direction of these discussions and anticipate sharing further details when appropriate.
Speaker Change: Outside of these contracts I just mentioned our pipeline remains robust with additional deals and opportunities currently under negotiation.
Speaker Change: This pipeline of new deals serve as a testament to the effectiveness of our sales and marketing team that has positioned us favorably for a promising 2024.
Speaker Change: Investment in this initiatives are ongoing and we are actively looking to add resources at senior staffing across the D. C area to bolster our capabilities to attain higher margin contracts. Furthermore, our $350 million contract backlog serves as a potent catalysts in our backpack.
Jin H. Kang: Investment in this initiative is ongoing, and we are actively looking to add resources and senior staffing across the D.C. area to bolster our capabilities to attain higher-margin contracts. Furthermore, our $350 million contract backlog serves as a potent catalyst in our back pocket to propel our financial performance to even greater heights in the foreseeable future. With additional deals currently in the pipeline, we are well positioned to potentially increase this contract backlog.
Speaker Change: <unk> to propel our financial performance to even greater heights in the foreseeable future.
With additional deals currently in the pipeline, we are well positioned to potentially increase this contract backlog totaled.
Jin H. Kang: I also want to point out that we are beating our competitors, especially in the managed mobility and interactive billing arena, with several recently announced contracts where we displaced our competitors. We are actively targeting our competitors' clients as we believe that our solution sets are superior in technology, performance, and cost. An area I want to spend a brief moment addressing the impact carrier services revenue has on our overall gross profit margin, which has generated a sizable misconception in our equity story.
Speaker Change: I also want to point out that we are beating our competitors, especially in the managed mobility and interactive billing arena with several recently announced contracts, where we displaced our competitors. We are actively targeting our competitors' clients as we believe that our solution sets are superior and technology performance.
And cost.
Speaker Change: An area I want to spend a brief moment addressing the impact of the carrier services revenue have on our overall gross profit margin, which has generated a sizable misconception in our equity story.
Jin H. Kang: As many of you know, a notable portion of our revenue and cost of sales is our pass-through carrier services revenue, which relates to carrier invoices we process and pay on behalf of our DHS customer as part of our overall service to this customer. These carrier payments do not include any margin and, when looked at as part of the total revenue, lowers our gross profit percentage.
As many of you know a notable portion of our revenue and cost of sales contain our pass through carrier services revenue, which relates to carrier invoices, we process. It pay on behalf of our DHS customer as part of our overall service to this customer.
Speaker Change: These carrier payments do not include any margin and when looked at as part of the total revenue lowers our gross profit percentage.
Jin H. Kang: This has resulted in some people believing that, due to these margins, WidePoint isn't really a technology company. I wanted to dispel that misconception and reiterate that though we certainly do have a blend of margins, our aim and focus looking ahead pertains to growing our higher margin business by investing in our promising sales and marketing team that has been executing our strategy of securing higher margin managed services revenue and SaaS contracts, where the bulk of our profitability comes from. We aim to secure higher margin contracts similar to our flagship DHS contracts, which is our only carrier pass-through customer
Speaker Change: This has resulted in some people, believing that due to these margins why point isn't a technology company.
Speaker Change: Wanted to dispel you of that misconception and reiterate that though we certainly do have a blend of margins. Our aim and focus looking ahead pertains to growing our higher margin businesses.
Speaker Change: By investing into our promising sales and marketing team that has been executing our strategy of securing higher margin managed services revenue and SaaS contracts, where the bulk of our profitability comes from we aim to secure higher margin contracts similar to our flagship DHS contracts, which.
Speaker Change: As our only carrier pass through customer.
Jin H. Kang: Beyond securing new contracts, our post-COVID customer retention rate continues to improve, bolstering our top-line performance and reaffirming the trust our valued customers place in our solution. As an update to one of our newest contracts with the Federal Emergency Management Agency, we are delighted to announce that the implementation process has now been completed. As a reminder, this contract is valued at approximately $60 million over a three-year period of performance, with a one-year base period and two one-year option periods.
Speaker Change: Beyond securing new contracts are post COVID-19 customer retention rate continues to improve bolstering our top line performance and reaffirming the trusts are valued customer place and our solutions.
Speaker Change: As an update to one of our newest contracts with the federal Emergency management agency. We are delighted to announce that the implementation process has now been completed.
Speaker Change: As a reminder, this contract is valued at approximately $60 million over a three year period of performance with a one year base period, and two one year option periods. Our solution remains as a top tier trusted security provider and we are confident in executing our services to unlock the full.
Jin H. Kang: Our solution remains a top-tier, trusted security provider, and we are confident in executing our services to unlock the full scale and potential of this contract. Our identity and access management pipeline continues to grow. We've been able to add new digital certificates to an existing contract that will have a material impact once it's fully deployed.
Speaker Change: Scale and potential of this contract.
Speaker Change: Our identity and access management pipeline continues to grow we've been able to add new digital certificates to an existing contract that will have a material impact once it's fully deployed.
Jin H. Kang: Like the mobility side, we have been displacing our major competitors due to our reputation for providing excellent customer service. Additional customer implementation and integration is ongoing and remains on track as we maintain our commitment to delivering our secure mobility solution. Moving to the progress on two investments made in previous quarters, we continue to await final approval from GSA for our FedRAMP certification. As mentioned last quarter, we are confident in attaining full certification by the end of the first half of 2024.
Speaker Change: Like the mobility side, we have been displacing our major competitors due to our reputation for providing excellent customer services continues to gain awareness.
Speaker Change: Additional customer implementation and integration is ongoing and remains on track as we maintained our commitment to delivering our secure mobility solutions.
Speaker Change: Moving to the progress on two investments made in previous quarters.
Speaker Change: We continue to await final approval from GSA for fed ramp certification.
Speaker Change: As mentioned last quarter, we are confident in attaining the full certification by the end of the first half of 2024.
Jin H. Kang: We recently received communication from GSA that they are actively reviewing our FedRAMP package. Also, our Continuative Operations Plan, or COOP, site enhancements are also moving in the right direction with testing scheduled for the end of May. We look forward to announcing relevant updates once the time is right.
Speaker Change: We recently received communication from GSA that they are actively reviewing our fed rent package.
Speaker Change: Also our continuity of operations plan or Coop site enhancements are also moving in the right direction with testing scheduled for the end of May we look forward to announcing relevant updates once the time is right.
Jin H. Kang: We continue to make significant headway across all our initiatives and remain on track to meet our guidance numbers announced during the last quarter's call. We are reiterating our guidance, and we expect revenues to range between $120 million and $133 million. Adjusted EBITDA ranges between $2.1 million and $2.4 million. Additionally, we expect free cash flow to range between $2 million and $2.3 million. As we have shared during the past several calls, we have concluded materially all of our capital investments, as reflected by our growing EBITDA and free cash flow figures.
We continue to make significant headway across all our initiatives and remain on track to meet our guidance numbers announced during the last quarters call. We are reiterating our guidance and we expect revenues to range between $120 million and $133 million adjusted EBIT to range between $2 1 million.
Speaker Change: At $2 4 million. Additionally, we expect free cash flow to range between 2 million and $2 3 million.
Speaker Change: As we have shared during the past several calls we have concluded materially all of our capital investments.
Speaker Change: As reflected by our growing EBITDA and.
Speaker Change: Free cash flow figures. However, we will continue to invest in our sales and marketing to ensure that we keep our momentum in growing our top line.
Jin H. Kang: However, we will continue to invest in our sales and marketing to ensure that we keep our momentum in growing our top line. The future remains extremely bright for WidePoint, which is why several board members and executive leaders of our company acquired shares of our common stock in the open market. Our executive team remains very confident in our corporate outlook and remains committed to driving and unlocking sustainable growth for our valued shareholders. I will now turn the call over to Bob to discuss our first quarter financial results. Bob
Speaker Change: The future remains extremely bright for wide point, which is why several board members and executive leaders of our company acquire shares of our common stock in the open market.
Speaker Change: Our executive team remains very confident in our corporate outlook and remains committed to driving an unlocking sustainable growth for our value shareholders. I will now turn the call over to Bob to discuss our first quarter financial results Bob.
Robert J. George: Thank you, Jin, and thanks to everyone for joining us today. I'm pleased to share the details of our first quarter 2024 financial results. As Jen mentioned earlier, we delivered a strong quarter, being slightly ahead of our internal forecast, recording the second consecutive quarter of free cash flow positive, a trend we anticipate carrying across 2024 and beyond. With that, I'll now give a breakdown of our first quarter 2024 results compared to the first quarter of 2023.
Bob: Thank you, Jim and thanks to everyone for joining us today I'm pleased to share the details of our first quarter 2024 financial results.
Bob: As Jim mentioned earlier, we delivered a strong quarter being slightly ahead of our internal forecast recording the second consecutive quarter of being free cash flow positive a trend, we anticipate hearing across 2024 and beyond.
Robert J. George: Total revenues for the quarter were $34.2 million, up 35% from the same quarter last year. Our carrier services revenue for the quarter was $19.3 million, an increase of 44%. Our managed services revenue for the quarter was $8.7 million, an increase of 27%. The increase in both carrier and managed services revenue was due to new federal contracts signed in the third and fourth quarter of 2023, which recorded a full quarter of revenue in 2024 but did not have any revenues in the first quarter of 2023. Billable services fees for the quarter were $1.2 million and remained relatively constant from period to period.
Bob: That will now give a breakdown of our first quarter of 2024 result, compared to the first quarter of 2023.
Bob: Total revenues for the quarter were $34 2 million up 35% from the same quarter last year.
Bob: Carrier services revenue for the quarter was $19 3 million an increase of 44%. Our managed services revenue for the quarter were $8 7 million an increase of 27% the increase in both carrier and managed services revenue was due to the new federal contract signed in the third and fourth quarter of 2023.
Bob: Which recorded a full quarter of revenue in 2024, but did not have any revenues in the first quarter of 2023.
Bob: Billable services fees for the quarter were $1 2 million and remained relatively constant period to period.
Robert J. George: Our reselling and other services revenue for the first quarter was $5 million, an increase of 38%, primarily due to an increased variety of products we offer for sale. I do want to highlight that reselling and other services are transactional in nature, and the amount and timing of revenue could vary significantly from period to period. Gross profit in the first quarter was $4.6 million, or 14% of revenues, compared to $3.8 million, or 15% of revenues, in 2023.
Bob: Our reselling and other services revenue for the first quarter were $5 billion, an increase of 38% primarily due to an increase variety of products we offer for sale.
Bob: I do want to highlight that reselling and other services are transactional in nature, and the amount and timing of revenue could vary significantly from period to period.
Speaker Change: Gross profit in the first quarter was $4 6 million or 14% of revenues compared to $3 8 million or 15% of revenues in 2023.
Robert J. George: The slight decrease in gross profit margin percentage is related to increased amortization expenses as our delivery platforms are placed in the service, and increased reselling revenues, which carry lower margins. The more significant metric of gross profit percentage excluding carrier services was 31% compared to 33% in the same period last year. The lower gross margin percentage excluding carrier services was due, in part, to increased amortization on our delivery platforms and due to increased reselling revenues, which have lower margins.
Speaker Change: A slight decrease in gross profit margin percentage is related to increased amortization expenses as our delivery platforms are placed into service.
Speaker Change: And increased leasing revenues, which carry lower margins.
Speaker Change: More significant metric of gross profit percentage, excluding carrier services was 31% compared to 33% in the same period last year lower gross margin percentage, excluding carrier services was due in part to increased amortization delivery platforms and due to the increase we saw revenues which have lower.
Speaker Change: Margin.
Robert J. George: Accordingly, our gross profit percentage will vary from period to period based on our revenue map. Sales and marketing expense for the first quarter of 2024 was $600,000, or 2% of revenues, compared to $500,000, or 2% of revenues in 2023. The increased period-over-period is the result of our increased investment in our sales and marketing capabilities. General Administrative expenses in the first quarter were $4.4 million, or 15% of revenue, compared to $3.7 million, or 13% of revenues, in the same period of 2023.
Speaker Change: Accordingly, our gross profit percentage will vary from period to period based on our revenue mix.
Speaker Change: Sales and marketing expense for the first quarter of 'twenty, 'twenty, four with $600000 or keep a set of revenues compared to $500000 or 2% of revenues in 2023 increased period over period as a result of our increased investment in our sales and marketing capabilities.
Speaker Change: General and administrative expenses in the first quarter were $4 4 million or 15% of revenues compared to $3 seven or 13% of revenues in the same period of 2023.
Robert J. George: The increase primarily relates to increased share-based and other compensation expenses compared to the same period last year. However, a net loss for the quarter decreased by $298,000 to $653,000, or a loss of $0.07 per share, compared to a net loss of $950,000 or a loss of $0.11 per share in the same period last year. The decrease in net loss is due to the relatively higher gross profit dollars in the first quarter that was only partially offset by increases in sales and marketing and general administrative expenses, as I previously mentioned.
Speaker Change: The increase primarily relates to increased share based and other compensation expenses compared to the same period last year.
Speaker Change: Our net loss for the quarter decreased by 298650 3000 were a loss of seven cents per share compared to a net loss of 950000 or a loss of 11 cents per share in the same period last year.
Speaker Change: The decrease in net loss is due to the relatively higher gross profit dollars in the first quarter that was only partially offset by increases in sales and marketing and general administrative expenses I previously mentioned.
Robert J. George: Our non-GAAP measures of adjusted EBITDA and free cash flow are as follows. Adjusted EBITDA for the quarter was $573,000, compared to $20,000 in the same period last year. Our free cash flow, which we define as adjusted EBITDA minus capitalized items, was a positive $566,000 in the first quarter compared to a negative $340,000 in the same period last year. The reason for the EBITDA improvements is related to increased gross margin dollars relative to operating expenses compared to the same period last year.
Speaker Change: Our non-GAAP measures of adjusted EBITDA and free cash flow as follows adjusted EBITDA for the quarter was 573000 compared to 20000 in the same period last year, our free cash flow, which we define as adjusted EBITDA minus capitalized items.
Speaker Change: It was a positive 566000.
Speaker Change: In the first quarter.
Speaker Change: Theres a negative 340000 in the same period last year.
Speaker Change: The reason for the EBITDA improvements are related to increased gross margin dollars relative to operating expenses compared to the same period last year.
Robert J. George: With respect to free cash flow, the positive period over period change was related to the increase in EBITDA I just mentioned and the cessation of our material capital investment activities in the first quarter of 2024. Moving to the balance sheet, we ended the quarter with $5.3 million in cash compared to $6.9 million on December 31, 2023. The primary driver of the change in cash from year end was due to typical delays that occur in invoicing activities related to a new contract as the invoice processes get worked out with our customers.
Speaker Change: With respect to free cash flow the positive period over period change was related to the increase in EBITDA I, just mentioned and cessation of our material capital investment activities in the first quarter.
Speaker Change: Sure.
Speaker Change: Moving to the balance sheet. We ended the quarter was $5 3 million in cash compared to $6 9 million on December 31 2023.
Speaker Change: Married driver of the change in cash from year end was due to typical delays that occur and invoicing activities related to the new contract is an invoice processes get worked out with our customer.
Robert J. George: We believe our forecast for positive free cash flow and refinements to our invoicing for our new customers will provide sufficient liquidity for our operation. For additional information related to our liquidity and capital resources, please refer to that section of our Form 10-Q for March 31st, 2024. We're in a strong position to execute our growth strategy, and we look forward to meeting our guidance that Jim previously reiterated. This completes my financial summary. For a more detailed analysis of our financial results, please refer to our Form 10-Q, which was filed prior to this call. With that, I'll turn it back over to Jin.
Speaker Change: We believe our forecast for positive free cash flow and refinements to our invoicing of our new customers will provide sufficient liquidity for our operations for additional information.
Speaker Change: Information relating to our liquidity and capital resources. Please refer to that section of our Form 10-Q for March 31 2000.
Speaker Change: 24.
Speaker Change: We're in a strong position to execute our growth strategy and we look forward to meeting our guidance that Jim previously reiterated.
This completes my financial summary for a more detailed analysis of our financial results. Please refer to our Form 10-Q, which was filed prior to this call with that I'll turn it back over to Jen.
Jin H. Kang: Thank you, Bob. As evidenced by our remarkable improvements in our financial performance, our healthy contract backlog, new contract awards, and a growing sales pipeline, our future is very bright. I look forward to providing additional contract award announcements and other positive news about our company going forward. That concludes our prepared remarks, and now we'll take questions from our analysts and major shareholders. Operator, will you please open the call for questions? The floor is now open for questions.
Speaker Change: Thank you Bob as evidenced by a remarkable improvements in our financial performance, our healthy contract backlog, New contract awards and a growing sales pipeline our future is very bright.
Jen: I look forward to providing additional contract award announcements and other positive news about our company going forward.
Speaker Change: That concludes our prepared remarks, and now we'll take questions from our analysts and major shareholders. Operator will you. Please open the call for questions.
Operator: Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while asking your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we pull for questions. Your first question is coming from Barry Sine with Litchfield Hills Research. Please pose your question. Your line is live. Your line is live, Barry.
Speaker Change: Certainly the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that ball posing your question. Please pickup your handset listing on a speaker phone to provide the optimal sound quality can you talk just a moment, while we poll for questions.
Speaker Change: Your first question is coming from Barry Sine with Litchfield Hills Research. Please pose your question your line is live.
Speaker Change: Your line of Blackberry.
Barry Sine: Oh, I think I was muted. Can you hear me now?
Barry Sine: Oh I think I was muted can you hear me now.
Operator: Yes, we can hear you. Hi Barry.
Speaker Change: Yes, we can hear you hi, Barry.
Barry Sine: Hey, good afternoon gentlemen. First of all, on Spiral 4, congratulations on winning that contract. I have a number of questions about that. Obviously, you know, government contracts are not as straightforward for investors to understand, and you can't really take them at face value. So here's what we know, $2.7 billion over 10 years. Does that equate to $270 million a year? And then you're one of 77 participants. So does that mean you get one-seventh of that? Or how does that work? And then finally, on that contract, would that include any carrier services, you know, zero margin pass-through, or is that all managed service?
Barry Sine: Good afternoon gentlemen.
Barry Sine: First of all on spiral for congratulations on winning that contract.
Speaker Change: A number of questions about that obviously government contracts are not as straightforward food for investors to understand and you can't really take them at face value. So here's what we know $2 7 billion over 10 years, So does that equate to $270 million a year and then you're one of 70.
Speaker Change: Seven participants so does that mean, you get one seventh of that or how does that work and then finally on that contract would that include any carrier services.
Speaker Change: Aero margin pass through or is that all managed services.
Jin H. Kang: Very good question, Barry. So the answer to your first question is $270 million per year? The first base year is funded at $270 million, but I think that that could change depending on how many task orders that can come out. Your second question is about, you know, there are seven winners on the contract. Does that mean you will, you know, end up being, you will get one-seventh of the revenue? No, it depends on how successful we are on the various task orders that will be coming out.
Barry Sine: Very very good question Barry.
Barry Sine: So the answer to your first question is it 270 million per year. The first base year is funded at $270 million, but.
Barry Sine: But I think that that could change depending on how many task orders that can come out.
Your second question is about you know there are seven winners on the contract does that mean, you will end up being a you'll get one seventh of the the revenue.
Barry Sine: No it depends on how successful we are on the various task orders that will be coming out. So the way. The contract works is in these <unk> situations is that.
Jin H. Kang: So the way the contract works in these IDIQ situations is that they will be issuing little tiny sort of small task order RFPs as the contract period of performance continues, and each vendor, each of the seven vendors will be able to bid on these little task order RFQs that come out. And, you know, whoever has the best solution for that particular task order will be awarded the task order. I think I have answered your question. Does that answer your question?
Barry Sine: They will be issuing little tiny sort of small task order rfps as the.
Barry Sine: Contract period of poor performance continues.
Barry Sine: And each vendor each of the seven vendors will be able to bid on these little task order RF skus that come out.
Barry Sine: And yeah whoever has the best solution for that particular task order will be awarded the task order.
Barry Sine: I think I answered your question does that answer your questions.
Jin H. Kang: To what extent does it include zero gross margin pass-through carrier services in that contract, or is it all managed service?
To what extent does it include zero gross margin pass through carrier services in that contract or is it all managed services right for us.
Jin H. Kang: Right. For us, we will be bidding on all of the managed services task orders, and sometimes the customers may wrap in the carrier services and merge the managed services with the carrier services. But this contract is a little bit different than the DHS contract, where the carrier services must be passed through. This contract will allow for some fees on top of the carrier services.
Barry Sine: We'll be bidding on all of the managed services task order and sometimes the customers may wrap in the carrier services and merge and the managed services with the carrier services, but this contract is a little bit different than the DHS contract, where the carrier services must be.
Barry Sine: All pass through this.
Barry Sine: This contract will allow for some some fee on top of the carrier services. So.
Jin H. Kang: So it will depend on how the task orders are structured. We don't know as yet. There's been a lot of speculation around this contract, and we will provide some additional color as some of these task orders come out, and we will know a little bit more. But it will be very difficult for us to gauge that at this point. But we believe that this contract will be more profitable because the managed services are merged in with the carrier services.
It will depend on how the task orders or structure, we don't know as of yet.
Barry Sine: There's been a lot of skipped speculation around this contract and.
Barry Sine: We will provide some additional color as some of these.
Barry Sine: Task orders come out and we will know a little bit more but it'll be very difficult for us to.
Barry Sine: Gauge that at this point, but we believe that this contract will be more profitable.
Barry Sine: Because the managed services is merged in with the carrier services.
Jin H. Kang: Okay, and last question on this contract. You mentioned that there were seven winners, of which you are one, and that included the three big wireless services companies. I don't know if this has been publicly announced by the Navy or not, but who are the other managed services companies that you'd be likely competing with on each of these task orders?
Speaker Change: Okay and last question on this contract you.
Speaker Change: You mentioned that there were seven winters of which you're one and that included the three big wireless services companies I don't know if this has been publicly announced by the navy or not but who are the other managed services companies that you'd be likely competing with on each of these task orders.
Jin H. Kang: Yes, you know, there's AT&T, T-Mobile, Verizon, a company called Medtel, who we partner with from time to time. There was Hughes Telecommunication. Then there was one, a small mobile device management provider. And I don't quite recall the other one, but it is published along with the Navy release. So you can just do a quick Google, and you should be able to find who the other vendor is.
Speaker Change: So there you know there is AT&T T mobile Verizon a company called metal, who we partner with from time to time, there was huge telecommunication.
Speaker Change: Then there was one a small mobile.
Speaker Change: Mobile device management.
Speaker Change: Provider.
Speaker Change: I don't quite recall the other one but it is published published along.
Speaker Change: It's in the Navy are released so.
Speaker Change: You can just do a quick Google and you should be able to find.
Speaker Change: The other vendor wise.
Jin H. Kang: Okay. The next question is you announced the $350 million backlog at this point. Could you kind of define or give us a definition of how you include that? I assume that's not just one year. That's over multiple years. And then you've talked about some things like FEMA is already out there with $60 million. I assume that's in there. When you say $350 million, can you better understand what that means?
Speaker Change: Okay. The next question is you announced the $350 million backlog at this point.
Could you kind of define.
Speaker Change: Are you or give us a definition of how you include that I assume that's actually it's one year that's over multiple years.
Speaker Change: And then you talked about some things like FEMA is already out there with 60 million I assume that's in there. What's when you say $350 million can you better understand what that means.
Jin H. Kang: Sure, sure. The $350 million does not include any of the Spiral 4 task orders that are contemplated. Our contract backlog includes contracts that are signed, and some of them are multi-year contracts, you know. And so these are contracts that we, you know, the $350 includes only the contracts that we've already executed with the customer, and that's what's included in our contract backlog.
Speaker Change: Sure sure.
Speaker Change: The $350 million does not include any of the spiral for a task order that is contemplated dollar contract backlog includes contracts that are signed and some of them are multi year contracts.
Speaker Change: Contracts.
Speaker Change: And so these are contracts that we you know the 350 includes only the contracts that we've already executed with the customer.
Speaker Change: And that's what's included in our contract backlog.
Jin H. Kang: Is the FEMA you mentioned 60 million over three years. Is that fully included or not included, or how does that work in the FEMA?
Speaker Change: Is the FEMA you mentioned 60 million over three years is that fully included or not included or how does that work in the FEMA. The 60 million is included in our contract backlog yes.
Jin H. Kang: FEMA, the $60 million, is included in our contract backlog, yes. I just did a quick lookup on the Navy release. It's the three main wireless carriers, Hughes Network Systems, Rio Mobile, and us, WidePoint. So that's all of the seven carriers.
I just had a quick look up on the the Navy released its up.
Speaker Change: The three main.
Speaker Change: Wireless carriers Hughes network systems, real mobile and us a wide point so there's that.
Speaker Change: That's the all of the seven carriers.
Barry Sine: Okay, and then shifting gears again, over the last year, you've made a number of significant investments in both people and technology, and it's starting to show in terms of new contract wins. Could you tell us where we are in that process of those investments starting to bear fruit and new revenue? You just had a very good quarter, but I assume there's a lot more as a result of those investments in the pipeline.
Okay, and then shifting gears again over the last year, you've made a number of significant investments in both people and technology and it's starting to show in terms of new contract wins could you tell us where we are in that process.
Speaker Change: Those investments starting to bear fruit in new revenue and you just had a very good quarter, but I assume there's a lot more as a result of those investments in the pipeline.
Jin H. Kang: Yes, we made some significant, you know, investment in capital and refurbishing and enhancing our delivery system, our IT system, and all of those are materially completed, you know, as you've seen the improvement in our, you know, profitability. And so, in terms of our investment in sales and marketing, we made some key hires, and we're continuing to hire, especially we're looking for, you know, resources in the DC area. We have several folks that we are, you know, courting right now that have some significant networks and, you know, Rolodex, to use an old terminology, and so we're looking to, you know, hire some additional folks, but we have higher sales and marketing and account management ranks, and those are the folks that are filling our sales pipeline, and that's going well.
Speaker Change: Yes, we made some significant <unk>.
Speaker Change: <unk> and capital and risk.
Speaker Change: Refurbishing and enhancing our delivery system, our it system and all of those are materially are completed.
Speaker Change: As you've seen the improvement in our.
Profitability.
Barry Sine: On the same topic, but maybe for Bob, on the new hires, sales and marketing expense went up about $90,000 year over year. Is that a result of some of the new hires Jin just talked about? Do they show up in that line, or are they also in G&A?
Speaker Change: And so in terms of our investment in sales and marketing we made some key hires and we're continuing to hire.
Speaker Change: Especially we are looking for.
Speaker Change: Our resources in the the the D C area.
Speaker Change: We have several folks that we are quoting right now that have some significant network and.
Speaker Change: Rolodex to using.
Speaker Change: Using old terminology and so we're looking to hire some additional folks.
Speaker Change: But we have higher sales and marketing and account management ranks and those are the folks that are filling our sales pipeline.
Speaker Change: That's going well.
Bob: And on the same topic, but maybe for Bob.
Speaker Change: On the new hires.
Speaker Change: And marketing expense went up about $90000 year over year is that a result of the.
Speaker Change: Some of the new hires changes talked about do they show up in that line or are they also in the G&A expense.
Robert J. George: They're in the sales and marketing line, and you know they're... There's a kick-up of $100,000, roughly. It'll be higher when you get a full year of salaries in there.
Speaker Change: They are in the sales and marketing line and if there is.
Speaker Change: There is a pickup of 100 ran roughly it'll be higher when you get a full year of salaries in there.
Barry Sine: Okay, and then the impact on capital spending. If I look at the delta between your EBITDA guidance and your free cash flow guidance, CapEx looks like it's going to be pretty minimal this year, so it looks like the capital spending part of those investments is largely complete, correct?
Speaker Change: Okay, and then the impact on capital spending.
Speaker Change: If I look at the Delta between your EBITDA guidance and your free cash flow guidance Capex looks like it to be pretty minimal. This year. So it looks like the capital spending part of those investments is largely complete correct yes.
Robert J. George: Yeah, that's absolutely correct. And it rounds to $100,000. I think it's maybe a little higher than that, like $120,000, but that's what we plan to spend on just regular, you know, IT items and refreshments.
Speaker Change: Yes, that's absolutely correct is it rounds to a 100 Grand I think it's maybe a little a little higher than that like $1 20, but that's what we plan to spend on just regular.
Speaker Change: Items refresh.
Barry Sine: And then my last question, again, for Bob. You've given guidance on several, you know, key line items. How does that translate into the impact on gap net income EPS? I know you still have parentheses around your EPS numbers, and I know it's a lot less relevant, you know, than EBITDA or free cash flow, but how might that translate into the march towards positive bottom line net income?
Speaker Change: And then my last question again for Bob you are giving.
Speaker Change: Guidance on several key line items, how does that translate into the impact on GAAP net income EPS I know you still have parentheses around your EPS numbers.
Speaker Change: And I know, it's a lot less relevant.
Speaker Change: Is there an EBITDA or free cash flow, but what how might that translate into the march towards positive bottom line net income.
Robert J. George: It translates pretty linearly in terms of whatever the delta is and DNA and stock-based comp subtracted from EBITDA to get to net income. We're not booking tax expense for all intents and purposes, so if you look at DNA and stock-based comps, that's really the difference to get to net income.
Speaker Change: It translates pretty linearly.
Speaker Change: In terms of whatever the delta is in DNA and stock based comp.
Speaker Change: No.
Speaker Change: Subtracted from EBITDA to get to.
Speaker Change: Net income.
Speaker Change: We're not booking tax expense fraud, intents and purposes. So if you look at D&A and stock based comps that's really the difference to get into net income.
Robert J. George: and you're not comfortable giving EPS guidance at this point, or you're not giving EPS guidance at all? Not at this point, but I don't have it right in front of me, so I don't want to just go off the cuff. Okay, just want to make sure I have my numbers right. Those are my questions. Thank you very much, gentlemen.
Speaker Change: And you're not comfortable giving.
Speaker Change: EPS guidance at this point or you're not giving EPS guidance at this point not at this point, but I just don't I don't have it right in front of me. So I don't want to just go off the cuff I am Okay. Just want to make sure I have my numbers right. Those are my questions. Thank you very much gentlemen, thank.
Barry Sine: Thank you, Barry. Thank you for joining the call.
Barry Sine: Thank you Barry Thank you for joining the call.
Operator: Once again, if you have any additional questions or comments, please press star 1. While we pull for any additional questions, there were some previously submitted questions that I will read out loud for WidePoint management. There has been a lot of speculation around your new contract with the U.S. Navy, namely the Spiral 4 contract. Can you provide any additional color on this new contract and what it could mean to WidePoint?
Speaker Change: Once again, if you have any additional questions or comments. Please press star one.
Operator: Thank you, Operator. I think we covered this question before, but I'll cover it again.
Speaker Change: We poll for any additional questions. There were some previously submitted questions that I will read out loud provide point management.
Speaker Change: There've been a lot of speculation around your new contract with the U S Navy, namely spiral for a contract can you provide any additional color on this new contract and what it can mean to wide point.
Jin H. Kang: It's been approximately a week since the award was made to seven winners. We are the new kid on the block. However, that gives credence to the quality of our solution and business model to be among the awardees, among some of these larger competitors. We are busy putting together a program management office for a full-court press so that we can put a full-court press to capture work under this contract vehicle. This is a $2.7 billion contract, so capturing even a small portion of the contract would have a large impact on our business.
Thank you operator.
Speaker Change: I think we've covered this question but.
Speaker Change: I'll cover it again, it's been approximately a week since the award was made to seven winners.
Speaker Change: We are the new Kid on the block however that gives credence to the quality of our solution and business model to be among the awardees amongst some of these larger competitors.
Speaker Change: We are busy putting together a program management office for a full court press. So that we can put a full court press to capture work under this contract vehicle. This is a $2 $7 billion contract. So capturing even a small portion of the contract would have a large impact on our business.
Speaker Change: Thank you.
Operator: The next question, can you give us any additional status on your cyber security solutions, one that is resistant to quantum computing?
Speaker Change: The next question can you give us any additional status on your cyber cyber security solutions, one that is quantum computing resistant.
Jason Holloway: Thank you, operator. This is Jason Holloway, and I'll provide that answer.
Jason Holloway: Thank you operator, this is Jason Holloway, and I'll provide that answer so I am excited to say that one point continues to make progress with our cyber security solutions. For example wide point recently began issuing derived digital certificates onto smartphones for a major federal agency that will no longer require a moat.
Jason Holloway: So I'm excited to say that WidePoint continues to make progress with our cybersecurity solution. For example, WidePoint recently began issuing derived digital certificates onto smartphones for a major federal agency that will no longer require a mobile device management, or as known as an MDM solution. So the MDM solution was not secure because the credentials were issued over the air to the MDM container on the smartphones. So, although we are in the early stages of adoption, This is still a testimonial that WidePoint is progressing in eliminating the good enough solution. So I, you know, encourage everybody to stay tuned for additional information.
Jason Holloway: Device management or <unk>.
Jason Holloway: As known as an MDM solution, so the MDM solution.
Jason Holloway: Was not secure because the credentials were issued over the air onto the MDM container on the smartphones. So although we are in the early stages of adoption.
Jason Holloway: This is still a testimonial that wide point is progressing in eliminating the good enough solutions.
Jason Holloway: I encourage everybody to stay tuned for additional information.
Operator: Thank you. Next question, on your last call, you mentioned in your remarks that you have won another contract with the federal government that may grow into one of your largest government contracts. Can you please provide additional details?
Speaker Change: Thank you. Your next question on your last call you mentioned in your remarks that you have won another contract with the federal government.
Speaker Change: Grow into one of Europe's largest government contract can you. Please provide a discount in the past.
Jin H. Kang: Thank you, operator. We can't mention any, you know, end customer's name at this time, you know, this particular one anyway. However, we can mention that this award was obtained through one of our strategic partners, and our strategic partner program is going well. And we displaced one of our main competitors. I won't give out the names, but, you know, it's within the telecom lifecycle management. I don't want to give them any credit or credence, so I won't mention their names here. The implementation is ongoing, and we are optimistic that this contract will grow beyond this initial awarded contract value and, you know, will rival our DHS contract in managed services revenue, hopefully, in the near future.
Speaker Change: Thank you operator.
Operator: Thank you. And the final question is, you mentioned in our comments that your sales pipeline is large and growing. Can you quantify or provide some additional color on this front?
Speaker Change: We can't mention any you know end customer's name at this time.
Speaker Change: This particular, one anyway. However, we can mention that this award was.
Speaker Change: Was attained through one of our strategic partners and our strategic partner program is going well and we displaced one of our main competitors.
Speaker Change: I won't give out the names but the.
Speaker Change: It's within the telecom lifecycle management.
Speaker Change: Don't want to give them any credit or accretive so I won't mention their name here. The implementation is ongoing and we are optimistic that this contract will grow beyond this initial award of contract value.
Speaker Change: And will rival our DHS contract in managed services revenue.
Speaker Change: <unk> in the near future.
Thank you and our final question is you mentioned in our comments that your sales pipeline is large and growing can quantify or provide some additional color on this front.
Jin H. Kang: Sure, at a high level, the sales pipeline is absolutely growing, and it's at a level that we haven't seen in recent memory, if at all. I will not comment on specific opportunities, however; suffice it to say there are material opportunities in the pipeline, and we look forward to providing updates on awards through our press releases. I cannot be more definitive because, as you can imagine, it is difficult to predict when or if we will receive contract awards for any particular opportunity. But again, stay tuned.
Speaker Change: Sure at a high.
Speaker Change: High level.
Speaker Change: Sales pipeline is absolutely growing and it's at a level that we haven't seen them in recent memory if at all.
Speaker Change: I will not comment on specific opportunities. However, suffice it to say there are material opportunities in the pipeline and we look forward to providing updates.
Speaker Change: Towards through our press releases I cannot be more definitive because as you can imagine it is difficult to for that to predict excuse me when or if we will receive contract awards for any particular opportunity, but again stay tuned.
Operator: Thank you. At this time, this does conclude our question and answer session. If your question was not taken, please contact WidePoint's IR team at wyy at gateway-grp.com. I'd now like to turn the call back over to Mr. Jin Kang for any closing remarks.
Speaker Change: Thank you at this time. This does conclude our question and answer session. If your question was not taken please contact <unk> IR team at Y W. Y Y at Gateway Dash TRP Dot Com I would now like to turn the call back over to Mr. Jin Kang for any closing remarks.
Jin H. Kang: 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.
Speaker Change: 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.
Speaker Change: You again and have a great evening.
Operator: Thank you for joining us today for WidePoint's first quarter 2024 conference call. You may disconnect.
Speaker Change: Thank you for joining us today for five Point's first quarter 2020 for our conference call you may disconnect.