WidePoint Company (NYSE:WYY) This fall 2022 Earnings Convention Name March 27, 2023 4:30 PM ET
Firm Members
Jin Kang – Chief Govt Officer & President
Jason Holloway – Chief Income Officer
Robert George – Chief Monetary Officer
Convention Name Members
Scott Buck – H.C. Wainwright
Operator
Good afternoon. Welcome to WidePoint’s Fourth Quarter and Full 12 months 2022 Earnings Convention Name. My title is Matthew and I will be your operator for at this time’s name. Becoming a member of us for at this time’s presentation are WidePoint’s President and CEO, Jin Kang; Chief Income Officer, Jason Holloway; and Chief Monetary Officer, Robert George. Following their remarks, we are going to open up the decision for questions from WidePoint’s publishing analysts and main traders. In case your questions weren’t taken at this time and you want extra info, please contact WidePoint’s Investor Relations staff at wyy@gatewayir.com.
Earlier than we start the decision, I want to present WidePoint’s protected harbor assertion that features cautions relating to forward-looking statements made throughout this name. The issues mentioned on this convention name could embody forward-looking statements relating to future occasions and future efficiency of WidePoint Company that contain dangers and uncertainties that would trigger precise outcomes to vary materially from these anticipated. These dangers and uncertainties are described within the firm’s Type 10-Ok filed with the Securities and Alternate Fee. Lastly, I would wish to remind everybody that this name can be made obtainable for replay through hyperlink within the Investor Relations part of the corporate’s web site at www.widepoint.com.
Now, I would like to show the decision over to WidePoint’s President and CEO, Mr. Jin Kang. Sir, please proceed.
Jin Kang
Thanks, operator and good afternoon to everybody. Thanks for becoming a member of us at this time to evaluate our monetary outcomes for the fourth quarter and full 12 months ended December 31, 2022.
I’m happy to share with you all that we ended 2022 on a excessive observe as we met our steerage targets for full 12 months income of $94 million and adjusted EBITDA of $1 million whereas concurrently experiencing a number of encouraging occasions inside our core enterprise. It is protected to say that the investments we have now made all through the previous 12 months have optimally positioned us towards a optimistic trajectory in 2023 as we’re beginning to reap the fruits of closed offers which were within the pipeline for fairly a while along with working with a leaner workforce.
As I shared on our final name, although we lowered our staffing price by 10%, our capacity to shut new contracts was not affected as we proceed to put money into gross sales and advertising and marketing. In truth, we’re projected to outpace the entire income and adjusted EBITDA figures of 2022 this 12 months.
We’re additionally forecasting to be money circulate optimistic for 2023 as the vast majority of our capital tasks have reached their logical completion in addition to will increase in our extra worthwhile managed providers income. We’re making this daring forecast as a result of our strong gross sales pipeline continues to develop.
In parallel with profitable new prospects and new web offers, our staff has been doing an exceptional job of fulfilling our contractual obligation to our current prospects. And we have now been profitable in increasing the scope of providers in addition to profitable renewals with them.
The numbers converse for themselves as we have now formally retained over 97% of all prospects on a income foundation. A giant driver for this success is because of a number of upsell and cross-sell alternatives we are able to present to our prospects in tandem with our observe file of service supply excellence and the rising want for the forms of options that we offer.
On model with the theme of a robust 2023 for WidePoint, there are different encouraging occasions that we’re enthusiastic about. For one, our capital investments has considerably decreased as nearly all of our infrastructure has been revamped. We’ve got roughly $1.4 million value of CapEx this 12 months in comparison with the roughly $3.4 million we had in 2022.
From a working capital standpoint, we’re totally operational with current money readily available and will not be in want of any near-term financing. Given the standing of the economic system with surging rates of interest and a myriad of uncertainties across the broader company America, money is definitely king. We’re very lucky to be within the scenario we’re in and the trajectory of our enterprise given our capacity to be financially sustainable.
Moreover, we’re in rather more opportune place at this time when gauging the impression of the macroeconomic obstacles that had been beforehand talked about in our path towards development. As illustrated via our strong gross sales pipeline and our prospects’ willingness to increase their working relationship with us and a wholesome core working enterprise, it is protected to say that most of the problems with the previous are not a cloth downside for us at current. Although there are nonetheless provide chain disruptions, deadlock on the federal authorities debt ceiling and rise in rates of interest, these elements are manageable given the sure standing of our group. WidePoint will proceed to remain the course as we stay steadfast in our efforts to each natural and inorganic development.
Moreover, as we introduced, we had a press launch towards the tip of November 2022, our Clever Expertise Administration System, or ITMS, has achieved FedRAMP in-process standing. As a reminder, FedRAMP was established in 2011 to offer a cheap, risk-based strategy for the adoption and use of cloud providers by the federal authorities. FedRAMP empowers companies to make use of fashionable cloud expertise with an emphasis on safety and safety of federal info.
We have been working diligently with a contracted third-party evaluation group and the Bureau of Alcohol, Tobacco, Firearms and Explosives to evaluate and check the 616 safety controls and sub-controls obligatory to attain FedRAMP authorization on the FISMA Reasonable stage. We’ve got till Might 2023 to finish the evaluation to earn the FedRAMP authorization standing. FedRAMP authorization standing will put us in uncommon firm and can place WidePoint forward of our competitors and open up new contract alternatives for us. We are going to hold you all posted on our progress.
We’re additionally finishing the set up and configuration of our scorching coop website {hardware} and software program. We are going to quickly enter the testing stage for our scorching COOP website. Testing will embody each on-site testing at WidePoint facility and testing a secondary internet hosting facility. We’re concentrating on the testing in the course of the second quarter of this 12 months. The transfer in ultimate set up will happen no later than This fall of 2023.
To be clear, we at present have a chilly COOP website that meets our service stage agreements. Nonetheless, the new COOP website will put us forward of our opponents and can present extra resiliency of our supply system.
With that overview accomplished, I’ll now flip the decision over to Jason to give you some particulars on the funding we’re making within the gross sales and advertising and marketing entrance. Jason?
Jason Holloway
Thanks, Jin and good afternoon, everybody. I wished to start out by sharing that there are numerous encouraging actions going down in each the federal government and industrial sectors of our go-to-market technique. With respect to our authorities vertical, I’m happy to share that we have now just lately entered right into a strategic partnership settlement with our main id administration resolution supplier.
The aim is to offer ongoing credentialing help to three main federal companies. Nonetheless, particulars of engagement are at present underneath NDA. We hope to share the small print in our upcoming earnings calls and naturally, we are going to be sure you notify the general public through acceptable Reg FD channels as quickly as we’re in a position.
Moreover, as you might have seen in one among our latest press releases, we introduced that we signed a reseller settlement with BK Applied sciences Company for the resale of BK Applied sciences’ InteropONE Push-To-Discuss Over Mobile service. We plan to make use of our Mobile Wi-fi Managed Providers CWMS IDIQ contract as a car to promote BK’s InteropONE service to the U.S. Division of Homeland Safety and U.S. Division of State companies.
InteropONE is designed to allow all first responders to speak no matter which mobile community they use or Push-to-talk Over Mobile service they subscribed to and even first responders who do subscribe to a Push-to-talk Over Mobile service, offering interoperable communications throughout emergency incidents with no different communications platforms meets the necessity.
Because it pertains to our CWMS IDIQ contract with DHS with the duty orders that we have now acquired to this point, we’re approaching 80% of the contract ceiling. Moreover, we’re anticipating some follow-on process orders that would probably attain or exceed the unique ceiling of $500 million.
I am going to now shift gears to the industrial sector, the place we’re additionally seeing immense progress. As we talked about on the final name, our settlement with CSG Worldwide has just lately translated to our prime line and has resulted within the execution of offers for Delicate-ex. Our relationship with CSG has introduced us materials contracts with a nationwide media firm and a nationwide telecommunication service.
Moreover, we’re at present within the implementation course of for a nationwide cable firm. Furthermore, one of many extra outstanding companions we struck a take care of was with an S&P 500 meals and beverage firm for our cellular and telecom managed providers. Not solely was this a major win for WidePoint but it surely was much more impactful given the truth that we changed one among our opponents which was being utilized by this meals and beverage titan.
As a standing report from the final earnings name, I’m proud to share that the progress we have now fabricated from implementing our quantum resistant Multifactor Authentication Resolution or MFA into Ok-12 faculties has been profitable to date. The suggestions that we have now acquired to this point has been very optimistic, a lot in order that we’re at present growing a customized industrial enterprise software program certificates for use not solely within the Ok-12 however to all the current id and entry administration industrial prospects. Our aim is to have the brand new functionality rolled out by the tip of Q3. I’ll present an replace on the subsequent earnings name.
With that, I’ll hand the decision over to Bob.
Robert George
Thanks, Jason. Good afternoon, everybody. I am happy to share the small print of our fourth quarter and full 12 months 2022 monetary outcomes.
For the fourth quarter, our income was $23.3 million, a lower of $1.1 million or 5% from the $24.5 million reported in the identical quarter final 12 months. For the total 12 months ended December 31, 2022, our income was $94.1 million, a rise of $6.8 million or 8% from the $87.3 million reported final 12 months.
Now I am going to present additional income breakdown. For the fourth quarter, our service providers income was $13.8 million which is in step with the $13.4 million of service providers for a similar interval final 12 months. For the total 12 months ended December 31, 2022, our service providers income is $53.3 million, a rise of $3.6 million or 7% from the $49.7 million reported final 12 months. That is primarily as a result of a federal buyer rising the traces it managed by about 75%.
For the fourth quarter, our managed service income was $8.4 million, a average enhance of $460,000 or 6% from the $7.9 million reported for a similar quarter final 12 months. For the total 12 months ended December 31, 2022, managed service income is $28.1 million, a rise of $2.9 million or 11% from $25.2 million in 2021.
The rise is a results of the acquisition of IT Authorities or ITA which added $5.1 million on account of the total 12 months ends in 2022 in comparison with only one quarter ends in 2021 on account of the acquisition timing in 2021. The rise was partially offset by decrease gross sales in our legacy traces of enterprise.
For the fourth quarter, reselling and different revenues decreased by $2 million to $1.1 million from $3.1 million in the identical interval in 2021, reflecting decrease general promoting and different revenues in our legacy traces of enterprise. Reselling and different providers are transactional in nature and because of this, the quantity and timing of income will range considerably from quarter-to-quarter.
For the total 12 months ended December 31, 2022, reselling and different providers income elevated by $300,000 on account of the acquisition of ITA which added $2.4 million for the total 12 months of 2022 in comparison with only one quarter of ITA ends in 2021 on account of the acquisition timing in 2021. The rise was partially offset by decrease gross sales from our legacy traces of enterprise.
Gross revenue for the fourth quarter is $3.6 million or 15% of revenues in comparison with $4 million or 16% of revenues in 2021. The decrease gross margin is primarily associated to decrease relative margins within the ITA enterprise.
Gross revenue for the total 12 months ended December 31, 2022, is $14.6 million or 15% of revenues in comparison with $16.4 million or 19% of revenues in 2021. The decrease gross margin share is said to the rise in lower-margin service providers this 12 months and better price of gross sales relative to revenues within the ITA enterprise in contrast with our legacy enterprise traces. The elevated prices are additionally a results of greater labor prices to help skilled providers. Our price of revenues could fluctuate as a result of our income combine.
For the fourth quarter, common and administrative bills of $3.6 million or 15% of revenues in comparison with $4 million or 16% of revenues for a similar interval in 2021. The lower typically and administrative bills relative to 2021 is primarily the results of prices incurred in 2021 related to the ITA acquisition.
For the total 12 months ended December 31, 2022, common and administrative bills had been $14.7 million or 16% of income in comparison with $12.7 million or 15% of revenues from 2021. The rise typically and administrative bills is primarily as a result of recognition of a certified payroll tax credit score of $1.3 million in 2021 and elevated common and administrative prices associated to a full 12 months of ITA bills in comparison with solely the fourth quarter of bills in 2021.
For the fourth quarter of 2022, our GAAP web loss was $8.9 million or destructive $1.02 of diluted EPS in comparison with GAAP web lack of $524,000 or destructive $0.06 of diluted EPS in the identical interval final 12 months. The primary driver of the change in earnings was a rise to valuation allowance on the deferred tax property associated to our NOL carryforwards of $8.5 million within the fourth quarter of 2022.
For the total 12 months ended December 31, 2022, our GAAP web loss was $23.6 million or destructive $2.70 of diluted EPS in comparison with GAAP web revenue of $341,000 or $0.04 of diluted EPS in 2021. The primary driver of the change in earnings was a goodwill impairment cost of $16.3 million mirrored within the second quarter and the rise of the valuation allowance on the deferred tax property of $8.5 million associated to NOL carryforwards within the fourth quarter of 2022.
On a non-GAAP foundation, our adjusted EBITDA for the fourth quarter of 2022 was $561,000 in comparison with $548,000 in the identical interval final 12 months. For the total 12 months ended December 31, 2022, our non-GAAP adjusted EBITDA was $1.1 million in comparison with $3.7 million in 2021.
Shifting to money circulate and the steadiness sheet. Our present ratio on the finish of December 31, 2022, is 1.1:1 in comparison with 1.3:1 at December 31, 2021. We exited the 12 months with $7.5 million in money and money equivalents. And with our expanded capability and our revolving credit score facility, we have now $7 million of accessible borrowing capability, topic to the phrases and circumstances of that credit score facility. We imagine that our working money flows, money readily available, obtainable credit score line and different financing choices offers us ample liquidity.
This completes my monetary abstract. For a extra detailed evaluation of our monetary outcomes, please reference our Type 10-Ok.
So with that, I am going to flip the decision again over to Jin.
Jin Kang
Thanks, Bob and thanks, Jason. Now I’ll shortly contact upon our M&A actions. As a participant within the trusted mobility administration area, we would like to have the ability to additional strengthen our capabilities right here to change into an trade chief.
That stated, we have now filtered down a listing of candidates and we’re significantly vetting these corporations for potential M&A exercise. To additional help with our efforts of manifesting our inorganic development technique, we’re engaged with a number of funding banks and we’ll proceed to work diligently with them.
Once more, as I discussed earlier in my remarks, with the unsure standing of the broader economic system and rising rates of interest, the markets for M&A have change into frothier as extra corporations start looking for strategic options. All in all, we have now entered the brand new 12 months with momentum and we’re persevering with to construct upon that.
Our transfer to a functionally aligned group construction is basically full as we have now been capable of focus assets, take away redundancies, function extra effectively, enhance synergies and reduce prices, all of which have improved our monetary efficiency because it pertains to revenues, bills, adjusted EBITDA and the underside line.
With that stated, we imagine these actions ought to present year-over-year enhancements in monetary efficiency. As is our normal course of, we plan to offer steerage throughout our first quarter earnings name in Might.
We’re assured that our gross sales pipeline consisting of business buyer contracts, significant federal, state and native authorities sector buyer contracts and our continued strategy to staff with giant strategic companions will outcome within the profitable execution of our monetary projections.
With that stated, we’re able to take questions from our analysts and main shareholders. Operator, will you please open the decision for questions?
Query-and-Reply Session
Operator
[Operator Instructions] Your first query is coming from Scott Buck from H.C. Wainwright.
Scott Buck
First one, I hoped you may give us somewhat bit extra coloration on the present promoting atmosphere, given the elevated stage of macro uncertainty. And if you happen to might sort of break it out between potential company prospects versus authorities or municipalities.
Jin Kang
Certain. Thanks for that decision, Scott. I believe the atmosphere is getting harder with the rising rates of interest and so forth. And I believe it is attending to the purpose the place a few of our managed mobility providers goes to be key right here. However earlier than I say something, our CRO, Jason Holloway, is on the decision with us and I am going to have him take that query. Jason, do you need to take it away?
Jason Holloway
Sure, positive. Thanks, Jin. I might say that proper now, alternatives for the primary time in a very long time are actually balanced. I might say on the federal and authorities facet of the home, WidePoint now has such a robust previous efficiency historical past that I believe that together with all the GSA schedule and all the federal accreditations that we have now in place, it is actually given us a leg up over our competitors. In order you might have heard previously on our earlier earnings calls, we speak loads about partnering with giant techniques integrators. And that is one thing that we proceed to do as a result of as soon as once more, we test containers that they do not.
Earlier on this name, Jin talked concerning the progress that we’re making on our FedRAMP accreditation on the managed mobility stock and asset administration and every thing that is associated to our proprietary software program platform. Once more, that is actually given us an enormous key differentiator over our competitors and has actually given us a really sturdy place on the federal government facet. The draw back is — is that every thing with the federal government, as , strikes at glacier pace. So the gross sales cycle on that facet is somewhat longer than it’s on the industrial.
As we change to the industrial facet, we have seen an enormous uplift there. And that is because of, once more, Jin speaking about all the capital investments that we made in ’22. We’re placing these things into manufacturing in ’23. However I believe extra importantly, it is also the strategic staff agreements that we have signed like as I mentioned earlier within the name in my ready remarks, with BK Applied sciences. That additionally has given us an enormous leg up. So I believe we’re making plenty of headways there. And once more, we simply — we stand on prime of our accreditations and that provides us a leg up over our competitors. So hopefully, I answered your query.
Scott Buck
Sure, that is very useful. Respect that. My second query is, I hoped simply to get somewhat bit extra coloration on what you are searching for in potential M&A goal. How do you prioritize the stroll listing, I assume?
Jin Kang
Sure. So thanks once more for that query, Scott. As I discussed in my ready remarks, with the rise of the rates of interest and so we see the atmosphere turning to a extra of a consumers’ market. So I believe that, that must be good for us.
When it comes to our targets of alternative, we’re searching for corporations that provides us each a vertical and horizontal integration alternatives. Vertical, which means corporations that can lengthen and deepen our capabilities within the id administration and managed mobility providers and the digital billing and analytics, these areas and naturally, our IT as a service. And horizontal, which means searching for corporations that primarily do the identical factor that we do. And we are going to carry them on to our supply system and eliminating the redundancies, making these offers instantly accretive.
We’re searching for corporations which are established with revenues and close to breakeven. And by being — once more, as I stated, if we take away the redundancies and combine them inside our group and put them on to our — what we imagine is a superior supply platform, we are able to make these offers instantly accretive. And so these are the forms of alternatives that we’re searching for they usually’re on the market. And I believe the market is getting frothier as corporations are searching for different options now.
Operator
We acquired a query from an investor. Are you able to please speak a bit about Q1 to date and converse to any seasonality?
Jin Kang
Certain. Thanks for that decision, operator. When it comes to our Q1, we’re nonetheless going via the method of closing our books and we’ve not acquired the total image of Q1. However we are able to inform you that traditionally, Q1 is mostly our slower quarter as a result of numerous issues like federal authorities spending, debt restrict disaster and so forth. So we’re persevering with to put money into transitioning some prospects from one among our strategic companions within the id administration enterprise. And that can bear fruit in all probability about in the direction of the tip of the second quarter or third quarter.
We’re additionally persevering with to put money into gross sales and advertising and marketing, so that ought to enhance a few of our prices. And a few of our income streams just like the accent gross sales and recycling enterprise revenues are a bit lumpy. So it is onerous to foretell right now. And naturally, lastly, there’s additionally will increase in fringe profit price. Should you’re conversant in federal and state unemployment taxes, FUTA and SUTA. Should you checked out your 1044 and your pay stub, you’ve got in all probability seen that. And that — these funds often occur within the first quarter. So that would result in a softer Q1. However as I stated, our Q2 via the remainder of the 12 months appears pretty strong. And in order we get extra — a clearer image on the Q1, we are going to put out a press launch on that and in addition present steerage, as I stated, in mid-Might of this 12 months.
Operator
Right now, this concludes our question-and-answer session. In case your query was not taken, please contact WidePoint’s IR staff at wyy@gatewayir.com. I would now like to show the decision again over to Mr. Jin Kang for his closing remarks.
Jin Kang
Thanks, operator. We admire everybody taking the time to affix us at this time. Because the operator talked about, if there have been any questions we didn’t handle at this time, please contact our IR staff. You will discover their full contact info on the backside of at this time’s earnings launch. Thanks once more and have an excellent night.
Operator
Thanks for becoming a member of us at this time for WidePoint’s fourth quarter and full 12 months 2022 convention name. You could now disconnect.
