Form 8-K WIDEPOINT CORP For: May 14

May 18, 2021 11:43 AM EDT

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  UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): May 14, 2021
_________________
 
WIDEPOINT CORPORATION
(Exact Name of Registrant as Specified in Charter)
 
 
Delaware
001-33035
52-2040275
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
 
11250 Waples Mill Road, South Tower 210, Fairfax, Virginia
(Address of Principal Executive Office)
 
22030
(Zip Code)
 
Registrant’s telephone number, including area code: (703) 349-2577
______________________________________________________________________________
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[__] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[__] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[__] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[__] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities Registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Exchange on Which Registered
Common Stock, $0.001 par value per share
WYY
NYSE American
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company    
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     
 


 
 
Item 2.02   Results of Operations and Financial Condition.
 
On May 14, 2021, WidePoint Corporation (the “Company”) conducted a conference call to discuss its financial results for the first quarter ended March 31, 2021. A copy of the transcript of such conference call is furnished herewith as Exhibit 99.1 to this Current Report on Form 8-K. In addition, on May 14, 2021, the Company issued a press release announcing its financial results for the first quarter ended March 31, 2021. A copy of the Company’s press release is furnished herewith as Exhibit 99.2 to this Current Report on Form 8-K.
 
The information in this item shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of Section 18, nor shall it be deemed incorporated by reference in any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent, if any, expressly set forth by specific reference in such filing.
 
Item 9.01(d)   Financial Statements and Exhibits.
 
Exhibit 99.1                                Transcript of Conference Call
Exhibit 99.2                                Earnings Press Release dated May 14, 2021
 

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
WIDEPOINT CORPORATION
 
 
 
 
 
Date: May 18, 2021
By:  
/s/ Jin Kang
 
 
 
Jin Kang 
 
 
 
Chief Executive Officer 
 
 
 
 
 

 
Exhibit 99.1
 
Transcript of
WidePoint Corporation
First Quarter 2021 Earnings Call
May 14, 2021
 
Participants
 
Jin Kang - President & Chief Executive Officer
Jason Holloway - Executive Vice President & Chief Sales and Marketing Officer
Kellie Kim - Executive Vice President & Chief Financial Officer
 
Analysts
 
Barry Sine - Spartan Capital Securities
 
Presentation
 
Operator
 
Good afternoon. Welcome to WidePoint’s First Quarter 2021 Earnings Conference Call. My name is Kate and I will be your operator for today’s call. Joining us for today’s presentation are WidePoint’s President and CEO, Jin Kang; Executive Vice President and Chief Sales and Marketing Officer, Jason Holloway; and Executive Vice President and CFO, Kellie Kim. Following their remarks, we will open 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@gatewayir.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 other future performance of WidePoint Corporation that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company’s Form 10-K filed with the Securities and Exchange Commission.
 
Finally, I would like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company’s website at www.widepoint.com.
 
Now, I would like to turn the call over to WidePoint’s President and CEO, Mr. Jin Kang. Sir, please proceed.
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
Thank you, operator and good afternoon to everyone. Thank you for joining us today to review our financial results for the first quarter ended March 31, 2021. After completing what was by many metrics, the most successful year in WidePoint’s history, we entered 2021 with solid momentum and with a considerable task ahead of us to maintain and ultimately to grow our profitability after our work on the 2020 Census project wind down. Today, I’m pleased to report that we started the year on the right foot with the first quarter.
 
 
 
 
In the first quarter, despite Census winding down, our high margin managed services revenue increased sequentially to 9.3 million. Our gross profit remained fairly steady relative to this time last year at 4.7 million and in line with our projections and expectations. Our gross margin improved substantially to 22.8%, as carrier services revenues from Census trickled away. We also earned 585,000 in net income for the quarter, which on a per share basis was a slight improvement compared to Q1 of last year. While we all knew that 2021 would be a difficult comparison to last year, the profitability metrics demonstrate that even without Census, our core business and our businesses’ fundamental growth drivers remained intact. Additionally, we finished the quarter with 17.1 million in cash, which provides us with a great deal of flexibility, as we now have greater opportunity to put capital to work and to better position our business for success in the coming quarters.
 
Our primary objective for 2021 is to add new high margin sources of revenue to our business. And one of the ways we intend to do that is by investing back into our technical infrastructure to make our services and our solutions even more appealing to a greater number of prospective clients. We’ve been making several investments into the business in the past few quarters, a few of which are worth highlighting today.
 
To start, we’ve made enhancements to our flagship delivery system, our Intelligent Telecommunications Management System or ITMS. As a reminder, ITMS is our system for delivering our trusted mobility management solutions to our customers. Our investments in cybersecurity, cloud enablement and user interface enhancements will allow us to scale more effectively, implement more quickly and more securely and improve the user experience.
 
In addition to our investments in ITMS, we continued to make investment into our device recycling program. Device recycling is a major component of the green initiative program we discussed last year. Our recycling program is a win-win. It helps our clients achieve their ESG objectives. And with these objectives being top of mind for many companies, it serves as a growth driver for our business. While we only launched this initiative in Q4 of 2020, we’re already starting to drive profitable revenue from it as we have implemented that recycling program for select customers in both public and private sectors. We plan to roll out our recycling program for all of our customers in the coming quarters.
 
To help accelerate the adoption of our device recycling, we’re currently pursuing an all R2 or Responsible Recycling certification through SERI, Sustainable Electronics Recycling International. This certification will ensure that we meet the industry standards for responsible testing, repair, reuse, and recycling programs. And if we can attain this certification, it is likely to open new revenue streams for us. This certification process is progressing smoothly and we’re likely to receive results soon, so please stay tuned.
 
 
 
 
In addition, we’re making enhancements to our digital billing and analytics infrastructure to enhance our Telecommunication Data Intelligence platform or TDI to meet expanding requirements of the unified communication and collaboration market. We also continue our investment in our IdM infrastructure to ensure that we are able to scale to meet customer demands, and to ensure that our systems are secure and resilient to withstand the increasing frequency of cyber-attacks that are being reported in the news.
 
We’re also continuing to pursue our FedRAMP certification. As of today, we have verbal communication that DHS has submitted the sponsorship applications to the General Services Administration or GSA, and we are awaiting the approval of the sponsorship application by GSA. Once approved, we will officially start the FedRAMP certification process. In the meantime, preparations continue in earnest. We have engaged cybersecurity subject matter experts to prepare our systems, work products and documentation to shorten the FedRAMP certification process. Investing in our technology suite expand our competitive advantage and our potential total addressable market but at the end of the day, effective selling is key to profitable growth.
 
So with that in mind, I’m going to turn the call over to Jason to provide you with some details on the sales momentum we’ve been building since the start of the year. Then our CFO, Kellie Kim will walk us through the financial results for the first quarter. Jason?
 
Jason Holloway - Executive Vice President & Chief Sales and Marketing Officer, WidePoint Corporation
 
Thank you, Jin. For 2021, our sales strategy is based on the same tactics we’ve successfully implemented in the past several quarters, to team with systems integrators and expand our presence with both prominent players in the commercial and federal sectors. But as Jin mentioned, we are leaning into this strategy and investing back into our business more aggressively, which we are able to do thanks to our strong balance sheet, our high customer retention rate and the momentum we’ve built over the past several years.
 
We started the year by receiving our first task orders under the Department of Homeland Security, Cellular Wireless Management Services 2.0 contract, which were valued at 86 million in aggregate. The total CWMS 2.0 contract, which we secured last November, has a $500 million ceiling and a contract period of five years. Almost immediately after the contract vehicle was put in place, task orders started to be awarded. For example, the CISA or Cybersecurity and Infrastructure Security Agency award is new. It’s important to note that CISA is a relatively new division within DHS that has been growing, and so there may be opportunities for us to expand our work with them. When we secure the first CWMS 1.0 contract, we spent the first seven years getting the majority of the DHS components under the contract vehicle. Now that those components are already on-boarded, we can focus on expanding services to bring additional value to DHS, like focusing on the 5G technologies and helping enable DHS missions through newly expanded professional services, which we are working diligently to ensure that every major component of DHS puts in place a one base year plus four option year contract such that we can maximize the CWMS 2.0 contract.
 
 
 
 
If you’ve followed our press releases, you’ll notice that the IdM business, in particular, performed well in Q1 and has been building momentum. During our last call, I discussed two major IdM wins we announced in February. We secured a new contract from a Fortune Global 500 company through which we are providing them with professional services, hardware and Personal Identity Verification or PIV credentials. Along with a strategic partner Intercede, we completed this deployment in less than 30 days. For reference, the competition normally takes three times as long. We also secured a new contract to issue External Certificate Authority or ECA credentials to a hospital that interacts with the US Department of Health and Human Services. Then, just before the quarter’s end, we won to new additional credential deals, both of which are federal clients whose names we cannot share for security reasons.
 
Regarding our PKI solutions, simplicity and ease of use are exactly what the industry is looking for today. This gives us an advantage as we approach prospective customers who may be sensitive to long and complex PKI deployments. For example, we are positioned to offer PKI as a service, because we have all of the required accreditations, the software and a secured network operations facility to protect PII data along with being a certificate authority, large commercial businesses do not have to worry about making the high dollar investments in certifying their own environment, and hiring highly specialized resources to run the program. There’s a reason why the Department of Defense has stuck with PKI for so long and that’s because of its ability to protect against hacks of both people and hardware.
 
As more high profile hacks become publicized, commercial enterprises are looking for more secure solutions and that’s where WidePoint comes into the picture. We can deliver DoD grade protection at a fraction of the cost that would be, if they were to deploy it themselves. There’s clearly momentum building in our favor and to help capitalize on that momentum, we’ve applied the same mentality Jin discussed, investing back into the areas of business that can drive growth. We’ve applied that to marketing to improve our branding, and our name recognition.
 
We were recently listed in the 2021 Gartner Magic Quadrant for Managed Mobility Services. Being included in this particular publication was a huge win for WidePoint. Over 70% of the Fortune 1000 and over 10,000 midsize and large enterprises rely on Gartner for their advice and guidance in key technology areas. This research highlights WidePoint’s strong emphasis on security and our ability to scale to support the largest enterprises on a global basis, which reinforces and amplifies our go to market messaging for both public sector and commercial markets. The listing in last fall’s TEM Market Guide has already resulted in new opportunities in our pipeline, which we are aggressively pursuing. And we expect this year’s write up in the MMS Magic Quadrant to produce even more.
 
As I said on our last call, we strategically recruited a very strong commercial enterprise sales director who has added to our already strong pipeline of opportunities. While we had hoped to share more details on the appointment, the reality is that flaunting the new hire and discussing new opportunities could jeopardize the hard work and strategy we’ve put forward to close those potential deals. Updates [ph] matter, and while we know that the shareholders are eager for specific updates, it is our hope that you will trust our discretion and our decision to put the business’ growth first, as our new hire navigates through some of these new opportunities. We are excited with how the pipeline is growing and look forward to sharing specifics and news in the month ahead.
 
 
 
 
As the negative impacts from COVID-19 in the US begin to dwindle, there’s a sense that normalcy is just on the horizon. This bodes well for us for two reasons. For one, the mobile landscape is more complex today than it was before COVID. And we do not see that complexity, materially diminishing. As a result, there are more opportunities than ever to help large organizations manage their mobile assets and ensure they are secure. Second, while the digital billing and analytics and IdM businesses performed well in Q1, their growth was somewhat constrained by our inability to travel and to conduct in person meetings, training sessions, and demonstrations. It is our belief that as in person meetings become more prevalent, sales of these high margin business, as well as other components of TM2 may accelerate. We don’t know the exact timing, but the trends we see today make us cautiously optimistic that 2021 will be another productive year for the sales team and for WidePoint as a whole.
 
With that, I will hand the call over to Kellie.
 
Kellie Kim - Executive Vice President & Chief Financial Officer, WidePoint Corporation
 
Thank you, Jason. Good afternoon, everyone. I’m pleased to share more details on the first quarter 2021 results. For the first quarter, our revenue was 20.7 million compared to 39.7 million reported for the same quarter last year. The year-over-year decline was primarily driven by a reduction in carrier services revenue, primarily due to the wind down of a work on the Census project and the final tranche of carrier credits discussed in our Q4 call.
 
As a refresher on these carrier credits, we discovered that the carriers had overcharged one of our clients, which does happen in our normal course of business. We filed a dispute with the carriers on behalf of our client, which the carriers ultimately accepted. As a result, the carriers issued credits to us and we passed on the credit directly to our customer. Ultimately, our actions saved our client money, which is one of many benefits we provide. As a reminder, these carrier credits have not and will not impact our profitability.
 
Looking at the revenues in more detail, carrier services decreased to 11.3 million from 28.1 million in the first quarter of last year. Managed services for the first quarter of 2021 were 9.3 million compared to 11.5 million in the first quarter of last year and 8.9 million in the fourth quarter of last year. The decrease in managed services compared to last year was primarily due to lower revenue from reselling third party products and services related to the timing of sales that slipped into 2020. When we exclude the third party reselling revenue, the managed services revenues in the first quarter of 2021 of 9.3 million increased 6% compared to the first quarter of 2020, and 9% from the fourth quarter of 2020. These increases demonstrate that our core business is still growing profitable revenues without Census.
 
Our gross profit for the first quarter 2021 was 4.7 million, a 5% decrease from the 5 million we reported in the first quarter of 2020 and a 2% decrease from Q4 of last year, again, demonstrating that our fundamental business drivers remain intact. In line with our projections, gross margin improved significantly to 22.8% in the first quarter of 2021 from 12.5% in 2020. The increase in gross profit was due to the decrease in lower margin carrier services and third-party reselling revenues.
 
 
 
 
In the first quarter 2021 operating expenses decreased 4% to 4 million from 4.2 million in the first quarter of last year. For the first quarter 2021, GAAP net income was 585,000 or $0.06 per diluted share, an improvement from net income of 484,000 or $0.06 per diluted share in the first quarter of 2020. The increased net income reflects lower income tax expense associated with a permanent tax benefit booked in the first quarter. Our effective tax rate remains around 27%. On a non-GAAP basis, EBITDA for the first quarter of 2021 was 1 million compared to 1.1 million last year. Our non-GAAP adjusted EBITDA was 1.2 million in the first quarter compared to 1.4 million in the same period 2020.
 
Shifting to cash flow and the balance sheet. We exited the quarter with 17.1 million in cash or $1.87 per diluted share, net working capital of 14.6 million and approximately 5 million available to draw down on our credit facility. Our operating cash flow was 1 million, capital expenditures were 0.6 million compared 0.4 million last year and a 0.8 million increase in net cash from financing activities resulting in a net cash increase of 1.1 million.
 
This completes my financial summary. For a more detailed analysis of our financial results, please reference our Form 10-Q, which was filed prior to this call. So with that, I would like to turn it back to Jin.
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
Thank you, Kellie and thank you, Jason. As I stated at the outset of this call, our primary focus for 2021 is profitably growing our business by adding more high margin sources of revenue. One part of our strategy to accelerate the development of more profitable revenues is through strategic acquisitions, which we’ve been very transparent about on our last few calls. The search continues and there are several potential opportunities that are currently under review. Once we have a material update to announce, we will be sure to share it.
 
In the meantime, we’re continuing to meticulously vet targets to ensure that when we do find the right match, we can act swiftly and with purpose and for the betterment of our organization and our shareholders. In the meantime, while the search continues, we are pushing to organically improve our profitability, and to expand our revenue streams. But as a reminder, the Census contract was materially completed in Q4 2020, as anticipated. This contract was hugely successful and displays our capabilities to deliver on large scale projects, as well as scale down quickly. As a result, it has positioned us well, as we endeavor to win new large scale work over the long run. However, in the near term, it does make for a difficult comparison for 2021.
 
To more objectively evaluate our performance in 2021, we believe it may help to bear in mind how our expectations for this year compared to our performance from last year, excluding the short-term bumps from Census. With that context said, today we are issuing guidance for the full year 2021. For 2021, we expect our revenues to be approximately 103 million compared to 180 million in 2020. Excluding Census, our 2021 revenue projections represent growth of 16% compared to our 2020 results. We expect our adjusted EBITDA to be approximately 4.3 million for the year versus adjusted EBITDA of 5.7 million in 2020. If you exclude Census, our 2021 adjusted EBITDA projection would be roughly in line with our 2020 results. Additionally, we expect earnings per share for 2021 to be approximately $0.12 on a fully diluted basis compared to $0.25 in 2020 without the tax benefits of 8.2 million. Again, excluding Census and the large tax benefits, we expect our EPS to be approximately 10% below our 2020 results due to the investments we are making in sales and marketing, and our technology platforms to better position WidePoint for long-term growth, as we discussed at the outset of this call.
 
 
 
 
Combined, these expectations demonstrate that even without the work of Census, we believe maintaining our core businesses’ profitability and potentially expanding it are within reach for 2021. Bear in mind that our outlook depends on the timing of new contract awards, and when new customers are on-boarded, as well as the terms of existing and new partnership arrangements. So we’ll continue to update these numbers as we gain more visibility into our progress throughout the year.
 
With Census behind us, 2021 has the potential to be a great building year for WidePoint and we remain incredibly optimistic about our long-term prospects given the strength of our core business and the macro tailwinds behind our industry. We believe the future remains incredibly bright for WidePoint and to ensure that optimism becomes manifest, we are investing back into the growth areas of our business. Over the past several years, we have demonstrated that WidePoint is an adaptable organization run highly efficiently with a robust roster of core clients, which continues to develop. We’ve proven that we can expand within our current client base. We have a highly resilient federal business and in today’s government spending environment that is an extremely advantageous position. These core components of our business when powered by the tailwinds that may pick up as in-person meetings and demonstrations become more prevalent over the coming year makes us optimistic that 2021 will be another profitable year for WidePoint and one with ample opportunities on which to build.
 
I will end our prepared remarks by thanking our shareholders for their continued support and, of course, all of our staff members for all their hard work in the performance of their duties, especially during this pandemic.
 
With that covered, we are ready to take questions from our analysts and our major shareholders. Operator, will you please open the call for questions?
 
Operator
 
Thank you. [Operator Instructions] Our first question today is coming from Barry Sine at Spartan Capital Securities. Your line is live.
 
Q: Hey, good evening. First couple of questions, if you don’t mind, please.
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
Hi, Barry.
 
Q: Good evening. In your first bullet, the $86 million in task orders from the Department of Homeland Security, I’m assuming that that will be recognized into revenue over several years, that’s not all 2021 revenue?
 
 
 
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
That is correct. The period of performance for that contract or the task order is one base period with four one year option period, so it will be recognized over the five year period.
 
Q: Okay. Understood. So, obviously, a very different focus now versus 2020. You talked about the investments you’re making in the sales force, as well as technology. On the sales force, do you have a -- could you give us maybe a hard metric, how many quota bearing salespeople do you have now versus a year ago? Is it doubling, 5% increase, how significant is it? And then what are they going after? In the past, you’ve been able to talk about on the conference calls, potential very big contracts that you may or may not win. And obviously, the reopening of DHS was one such big contract. Are there any big contracts on the horizon or you just mainly hunting for a large number of smaller contract wins?
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
So there were a couple of questions. So in terms of the size of our sales force, it’s roughly 14 total. We’ve added I think around three over the past six months. In terms of large contracts within our sales pipeline, there are some sizable ones that are there. There are some with some local -- state and local, there’s also some with commercial customers. And because we are a small organization, some of these things, some of these contracts could have a material impact on our numbers.
 
Q: Okay. And then, obviously, you mentioned that this is going to be a bit of a down year revenue wise and I understand everything around that. But oftentimes the market is not as kind to companies with declining revenue, they don’t -- the market doesn’t look beyond that. You mentioned on this call, and you’ve mentioned in the past that one potential solution to that might have been M&A, adding an acquisition so that at least optically, it would look like the company is growing. We are what three eighths of the way into the year with nothing announced. I’m kind of reminded of the old country and western song, looking for love in all the wrong places. There is a $88 trillion global economy, surely, there’s got to be some companies out there that would be a fit for you. Why can’t you find them?
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
Well, they are out there, and we’re certainly not looking for love in the wrong places. I think we’re looking in the right places but I think that there’s a big headwinds against us on this. And that’s because of there’s so many spats and there’s so much liquidity in the market. The multiples that some of these companies are looking for just seem to be astronomical. And we know of one software company that received 37 times EBITDA. I mean, so that seems pretty rich to us. And so we may have to broaden our nets here so that we can look at companies and potentially pay a higher multiple. But that also comes with risk, in that we don’t have a whole lot of money to waste. And that’s the last thing we need to do is to do a bad acquisition.
 
 
 
 
Although we are down in top line revenue, our gross margins are improving, it went from 17%, 18% to 22% to 23%. So that’s a -- and then we’re continuing to remain profitable. So I think we have a little bit of time but yes, we are mindful that we do need to do some acquisitions and have some organic growth, so that it’ll ease the decline in top line revenues because of all of this algorithmic traders that are out there. But as I said, our goal is to remain profitable and increase our gross margins, and we’re going to do that this year. That’s our goal. And so we are looking seriously at a lot of opportunities, a lot of acquisition targets. We’re right now looking at several of them right now, and some of them look promising but when you look under the covers, things change, so we just want to be very careful. Because we feel that no acquisition is better than a bad acquisition.
 
Q: So one of your parameters in the past and correct me if I’m wrong, if I can kind of characterize what I think you’ve said in the past is, you were looking for quality acquisitions and that you were averse to looking at fixer-uppers. If you found a company that seemed to have a good product portfolio, but perhaps was mismanaged and you could manage it better, you might be able to get it for a lot less than 37 times EBITDA, would you consider loosening some of your parameters and maybe looking at something like a fixer-upper in order to find an M&A partner?
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
Yes, I mean, we have to look at those. And we are looking at some of those, I think we are looking at strategic acquisitions, since that we can cross sell and upsell our solutions too, and so they don’t have to be exactly in our business area and we are looking at a couple of those. Yes, perhaps a fixer-upper, as long as we don’t have to pay such a high multiple that would be interesting to us something that we could see the light at the end of the tunnel. In other words, we can look at the opportunity and if we can eliminate the duplication, and we can eliminate some of the unprofitable pieces and make them profitable and accretive, we are considering those as well.
 
Q: And my last question is kind of a macro question or two macro questions. So, first of all, we’ve had a very, very large stimulus bill passed and signed by the President, in effect, and then also a very large infrastructure bill that’s being proposed. So are there any goodies in there that would benefit WidePoint? And then the other macro factor, for the first time really, since the Reagan administration, people are talking about inflation again. How does inflation impact your business? Do you have riders in there, for example, on the big DHS contract, if inflation hits, are you able to raise your prices?
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
There are incremental like COLA adjustments, cost-of-living adjustment and escalators in there. It depends on what the inflation rate is, but it’s modest. And so, depending on what the inflation rate is that would make a determination. But in terms of our costs, I think our costs are reasonably fixed. Of course, the labor rates will increase in the case of inflation, so we’d have to manage that very carefully. And the labor rates on RDHS contract does have some room. We don’t always hire the people always at the top level, so we do have some room for increasing salaries if we need to.
 
 
 
 
There was also one -- an executive order that was signed by President Biden about cybersecurity. I think that that helps. I think people are starting to realize and companies are starting to realize that cybersecurity is real and the cyber threat is real with the latest breaking over at the Colonial Pipeline. I think our solution, our Identity Management Solution would have potentially thwarted the cyber-attack. We believe that our Identity Management Solution, essentially is the first firewall that would mitigate some of those risks associated with people coming in and locking all your data files down. And so, if you can identify the endpoints, in which case you can eliminate the threat of having people break into your system, if you only allow those people that are recognized by your system onto your infrastructure. So we feel that that executive order will help us, it’ll create some tailwinds. Because I think commercial companies are starting to look at that.
 
And so, in terms of the additional liquidity and the funds that are out there, I think it would all be helpful. I think that there was another piece of legislation that were in both of the relief packages, I think that was in to the tune of like, the first one had a billion dollars a second and had a billion dollars on cybersecurity improvements. So, all of those things will create some tailwind for us.
 
Q: Alright, thanks for answering all my questions.
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
Great. Thank you, Barry. Always a pleasure to speak with you.
 
Operator
 
Thank you. [Operator Instructions] At this time, this concludes our question-and-answer session. If your question was not taken, please contact WidePoint’s IR team at wyy@gatewayir.com. I’d now like to turn the call back over to Mr. Jin Kang for his closing remarks.
 
Jin Kang - President & Chief Executive Officer, WidePoint Corporation
 
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.
 
Also, we will be presenting at the 16th Annual Needham Virtual Technology & Media Conference on Tuesday, May 18 at 8:45 AM. I hope you’re all able to listen in on our presentation. Thank you again and have a great evening.
 
Operator
 
Thank you for joining us today for WidePoint’s first quarter 2021 conference call. You may now disconnect.
 
 
Exhibit 99.2
 
WidePoint Reports First Quarter 2021 Financial Results
 
Sequential Growth in Managed Services Revenues Helps Drive Gross Margins to 22.8%
 
FAIRFAX, VA / ACCESSWIRE / May 14, 2021 / WidePoint Corporation (NYSE American: WYY), the leading provider of Trusted Mobility Management (TM2) specializing in Telecommunications Lifecycle Management, Identity Management (IdM) and Digital Billing & Analytics solutions, today reported results for the first quarter ended March 31, 2021.
 
First Quarter 2021 and Recent Operational Highlights
 
Received the first task orders under the Department of Homeland Security Cellular Wireless Management Services 2.0 contract, which were valued at $86 million in aggregate
Successfully on-boarded the DHS Cybersecurity and Infrastructure Security Agency (CISA)
Recognized by the International Organization for Standardization (ISO) for quality, environmental, and occupational health and safety
Awarded three new Identity Management contracts, including a deployment with a Fortune Global 500 corporation, increasing WidePoint's commercial footprint as well as the Company's secure digital certificates into a new U.S. federal agency
Number of U.S. Department of Defense secure digital certificates issued increased 8% sequentially from the fourth quarter of 2020
Recognized as honorable mention vendor in the 2021 Gartner Magic Quadrant for Managed Mobility Services, Global
 
First Quarter 2021 Financial Highlights:
 
Revenues were $20.7 million
Managed Services revenue increased sequentially to $9.3 million
Gross margin improved to 22.8%
Net income improved to $585,000, or $0.06 per diluted share
EBITDA, a non-GAAP financial measure, was $1.0 million
Adjusted EBITDA, a non-GAAP financial measure, was $1.2 million
As of March 31, 2021, cash increased to $17.1 million
 
Management Commentary
 
"After completing what was, by many metrics, the most successful year in WidePoint's history, we entered 2021 with solid momentum and with an intense focus on maintaining and ultimately growing our profitability," said WidePoint's CEO, Jin Kang. "In the first quarter, we grew our high margin Managed Services revenues sequentially to $9.3 million, while our low margin Carrier Services revenues decreased due to our work on the 2020 Census winding down as well as the residual effects of a carrier credit from last quarter. Carrier credits occur frequently in the normal course of our business as we occasionally find that a carrier has overcharged one of our clients. In this instance, we found the miscalculation and were able to save one of our prominent clients $2.6 million in expenses, which is reflected in our results as a decrease in Carrier Services, but which has no impact on our profitability. With Carrier Services revenues decreasing and gross profit staying fairly stable at $4.7 million, we improved our gross margins to 22.8%. We also increased our cash position to $17.1 million as we generated positive cash flows from operations and leveraged our at-the-market offering in January to better prepare WidePoint for growth opportunities.
 
"The financial results of the first quarter demonstrate that WidePoint has a solid base from which we can continue to build and expand our profitability. With tailwinds from the increasing complex mobile landscape, the growing need to secure mobile devices, and the return to more in person work expanding our pipeline, we are optimistic that we are in a healthy and strong position to continue driving the business's profitable growth over the long-run."
 
 
 
 
First Quarter 2021 Financial Summary
(In millions, except per share amounts)
 
March 31, 2021
 
 
March 31, 2020
 
 
 
(Unaudited)
 
 
 
 
 
Revenue
 $20.7 
 $39.7 
Gross Profit
 $4.7 
 $5.0 
Gross Profit Margin
  22.8%
  12.5%
Operating Expenses
 $4.0 
 $4.2 
Income from Operations
 $0.7 
 $0.7 
Net Income
 $0.6 
 $0.5 
Basic Earnings per Share (EPS)
 $0.07 
 $0.06 
Diluted Earnings per Share (EPS)
 $0.06 
 $0.06 
Adjusted EBITDA
 $1.2 
 $1.4 
 
Financial Outlook
 
Due to the large, short-term changes in WidePoint's financial performance from the 2020 Census project, the Company believes comparing 2021 expectations to 2020 results, excluding the 2020 Census project, may provide a more objective analysis of the Company's anticipated performance. For the fiscal year 2021, the Company currently expects revenues of approximately $103 million, adjusted EBITDA of $4.3 million, and EPS of $0.12 per diluted share, based on 9,128,000 shares outstanding. Excluding WidePoint's work on the 2020 Census project, the Company's expectations reflect revenue growth of approximately 16% year-over-year and adjusted EBITDA consistent with fiscal year 2020. The Company's financial outlook is based on current expectations and actual results could differ materially depending on market conditions and the factors set forth under the "Safe Harbor Statement" below.
 
Conference Call
 
WidePoint management will hold a conference call today (May 14, 2021) at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results.
 
WidePoint's President and CEO Jin Kang, Executive Vice President and Chief Sales and Marketing Officer Jason Holloway, and Executive Vice President and CFO Kellie Kim will host the conference call, followed by a question and answer period.
 
U.S. dial-in number: 888-506-0062
International number: 973-528-0011
Passcode: 862059
 
Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 949-574-3860.
 
The conference call will be broadcast live and available for replay here and via the investor relations section of the Company's website.
 
A replay of the conference call will be available after 7:30 p.m. Eastern time on the same day through May 28, 2021.
 
Toll-free replay number: 877-481-4010
International replay number: 919-882-2331
Replay ID: 40863
 
About WidePoint
 
WidePoint Corporation (NYSE American: WYY) is a leading provider of trusted mobility management (TM2) solutions, including telecom management, mobile management, identity management, and digital billing and analytics. For more information, visit widepoint.com.
 
 
 
 
Non-GAAP Financial Measures
 
WidePoint uses a variety of operational and financial metrics, including non-GAAP financial measures such as EBITDA and Adjusted EBITDA, to enable it to analyze its performance and financial condition. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. A reconciliation of GAAP Net income to EBITDA and Adjusted EBITDA is provided below:
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2021
 
 
2020
 
 
 
 
 
 
 
 
NET INCOME (LOSS)
 $585,400 
 $483,900 
Adjustments to reconcile net (loss) income to EBITDA:
    
    
 
    
    
Depreciation and amortization
  370,000 
  422,800 
Amortization of deferred financing costs
  - 
  1,300 
Income tax provision (benefit)
  23,500 
  177,200 
Interest income
  (2,400)
  (3,100)
Interest expense
  71,000 
  80,800 
 
    
    
EBITDA
 $1,047,500 
 $1,162,900 
Other adjustments to reconcile net (loss) income to Adjusted EBITDA:
    
    
 
    
    
Provision for doubtful accounts
  (200)
  - 
Stock-based compensation expense
  182,800 
  281,400 
 
    
    
Adjusted EBITDA
 $1,230,100 
 $1,444,300 
 
Safe Harbor Statement
 
This press release contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included herein are forward-looking statements. You can identify these statements by words such as "aim," "anticipate," "assume," "believe," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "potential," "positioned," "predict," "should," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management's beliefs and assumptions. These statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including, the impact of the COVID-19 pandemic on our business and operations; our ability to successfully execute our strategy; our ability to sustain profitability and positive cash flows; our ability to gain market acceptance for our products; our ability to win new contracts, execute contract extensions and expansion of services of existing contracts; our ability to compete with companies that have greater resources than us; our ability to penetrate the commercial sector to expand our business; our ability to retain key personnel; and the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 24, 2021. The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
 
Investor Relations:
 
Gateway Investor Relations
Matt Glover or Charlie Schumacher
949-574-3860
WYY@gatewayir.com
 
 
 
 
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
MARCH 31,
 
 
DECEMBER 31,
 
 
 
2021
 
 
2020
 
 
 
 
 
 
ASSETS
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $17,058,363 
 $15,996,749 
Accounts receivable, net of allowance for doubtful accounts
    
    
of $111,054 and $114,169 in 2021 and 2020, respectively
  19,214,216 
  35,882,661 
Unbilled accounts receivable
  10,017,255 
  13,848,726 
Other current assets
  1,692,695 
  1,763,633 
 
    
    
Total current assets
  47,982,529 
  67,491,769 
 
    
    
NONCURRENT ASSETS
    
    
Property and equipment, net
  565,535 
  573,039 
Operating lease right of use asset, net
  5,917,435 
  6,095,376 
Intangibles, net
  2,134,193 
  2,187,503 
Goodwill
  18,555,578 
  18,555,578 
Deferred tax asset
  5,621,373 
  5,606,079 
Other long-term assets
  1,312,402 
  815,007 
 
    
    
Total assets
 $82,089,045 
 $101,324,351 
 
    
    
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $19,586,553 
 $36,221,981 
Accrued expenses
  11,354,080 
  15,626,313 
Deferred revenue
  1,875,353 
  2,016,282 
Current portion of operating lease liabilities
  582,058 
  577,855 
Current portion of other term obligations
    
  - 
 
    
    
Total current liabilities
  33,398,044 
  54,442,431 
 
    
    
NONCURRENT LIABILITIES
    
    
Operating lease liabilities, net of current portion
  5,784,592 
  5,931,788 
Other liabilities
  246,037 
  - 
Deferred revenue, net of current portion
  437,578 
  398,409 
 
    
    
Total liabilities
  39,866,251 
  60,772,628 
 
    
    
STOCKHOLDERS' EQUITY
    
    
Preferred stock, $0.001 par value; 10,000,000 shares
    
    
authorized; 2,045,714 shares issued and none outstanding
  - 
  - 
Common stock, $0.001 par value; 30,000,000 shares
    
    
authorized; 9,071,352 and 8,876,515
    
    
shares issued outstanding, respectively
  9,071 
  8,876 
Additional paid-in capital
  101,645,142 
  100,504,741 
Accumulated other comprehensive loss
  (159,564)
  (104,615)
Accumulated deficit
  (59,271,855)
  (59,857,279)
 
    
    
Total stockholders' equity
  42,222,794 
  40,551,723 
 
    
    
Total liabilities and stockholders' equity
 $82,089,045 
 $101,324,351 
 
    
    
 
 
 
 
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2021
 
 
2020
 
 
 
 
 
 
 
 
REVENUES
 $20,650,843 
 $39,665,356 
COST OF REVENUES (including amortization and depreciation of
    
    
$119,083 and $159,618, respectively)
  15,934,964 
  34,700,024 
 
    
    
GROSS PROFIT
  4,715,879 
  4,965,332 
 
  22.8%
  12.5%
OPERATING EXPENSES
    
    
Sales and marketing
  482,299 
  492,231 
General and administrative expenses (including share-based
    
    
compensation of $182,842 and $281,441, respectively)
  3,307,662 
  3,470,092 
Depreciation and amortization
  250,891 
  263,228 
 
    
    
Total operating expenses
  4,040,852 
  4,225,551 
 
    
    
INCOME (LOSS) FROM OPERATIONS
  675,027 
  739,781 
 
    
    
OTHER (EXPENSE) INCOME
    
    
Interest income
  2,375 
  3,093 
Interest expense
  (71,016)
  (82,117)
Other income
  2,496 
  331 
 
    
    
Total other expense
  (66,145)
  (78,693)
 
    
    
INCOME (LOSS) BEFORE INCOME TAX PROVISION
  608,882 
  661,088 
INCOME TAX PROVISION
  23,458 
  177,200 
 
    
    
NET INCOME
 $585,424 
 $483,888 
 
    
    
BASIC EARNINGS PER SHARE
 $0.07 
 $0.06 
 
    
    
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING
  8,995,103 
  8,384,008 
 
    
    
DILUTED EARNINGS PER SHARE
 $0.06 
 $0.06 
 
    
    
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING
  9,103,160 
  8,442,807 
 
 
 


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