WidePoint Corporation (NYSE American: WYY) — Q3 2019 Form 10-Q
Business context and reporting period. WidePoint provides trusted mobility management and related services through its ITMS platform, operating primarily as a contractor to U.S. federal agencies. This unaudited filing covers the quarter and nine months ended September 30, 2019, compared with the corresponding 2018 periods.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $29.62 million | $21.29 million | $73.63 million | $58.92 million |
| Gross profit / margin | $4.31 million / 14.6% | $3.69 million / 17.3% | $12.62 million / 17.1% | $10.78 million / 18.3% |
| Operating income (loss) | $0.29 million | $(0.06) million | $0.61 million | $(0.93) million |
| Net income (loss) | $0.18 million | $(0.11) million | $0.26 million | $(1.04) million |
| Operating cash flow | Not separately reported | Not separately reported | $5.45 million | $(0.71) million |
- Revenue mix: Q3 carrier services were $20.58 million, managed service fees $7.05 million, billable service fees $1.09 million, and reselling and other services $0.90 million. Carrier services were the largest contributor to growth.
- Liquidity: September 30 cash was $7.10 million, versus $2.43 million at December 31, 2018. Current assets were $28.17 million and current liabilities $23.32 million, implying working capital of about $4.85 million; management reported approximately $4.9 million.
- Debt and leases: The company had a $5.0 million revolving credit facility, with borrowing eligibility of up to $4.0 million under the borrowing-base formula. The filing does not clearly state the amount, if any, outstanding at September 30; reported line advances and repayments were equal during the first nine months. The facility matures April 30, 2020, bears interest at prime plus 0.50%, and has financial covenants. Operating lease liabilities totaled approximately $5.84 million, and finance lease liabilities were approximately $0.15 million.
Material changes versus prior period
- Q3 revenue rose 39% year over year; nine-month revenue increased approximately 25%. Management attributed much of the increase to a one-time Department of Commerce pilot supporting the 2020 Census, with further contribution from Coast Guard and Customs and Border Protection work.
- Growth in carrier services and lower-margin reselling reduced gross margin: Q3 margin fell to 14.6% from 17.3%; nine-month margin declined to 17.1% from 18.3%.
- Both Q3 and nine-month results turned profitable compared with losses in 2018. Nine-month operating cash flow improved to $5.45 million from cash usage of $0.71 million, driven by improved collections and temporary payable timing differences.
- Adoption of lease accounting guidance in January 2019 added about $6.1 million of right-of-use assets and lease liabilities. It materially affected the balance sheet, but management said it did not materially affect results or cash flows. Higher reported depreciation, amortization, and interest expense partly reflect this accounting change.
- Accounts receivable declined to $6.95 million from $11.09 million at year-end, while unbilled receivables increased to $13.27 million from $9.57 million. Accrued expenses increased to $14.47 million from $10.72 million, primarily reflecting carrier service costs.
Outlook, commentary, and risks
- No specific revenue or earnings guidance is provided. Management identifies strategic priorities including growing higher-margin managed and billable services, expanding commercial sales, improving its platform, pursuing DHS Blanket Purchase Agreement renewal, and moving infrastructure toward a federally approved cloud environment.
- Management cautions that federal contract timing, government budgets and administrative delays can affect results; revenue and margins also vary with carrier usage, equipment/accessory demand, and irregular resale activity. A significant portion of revenue comes from federal customers, and the filing identifies contract recompete and renewal as a key risk.
- Management cited fixed personnel and facility costs, potential pricing pressure, contract execution, customer concentration, and the need to achieve sustainable profitability and positive cash flow. It may need additional capital for growth or acquisitions; availability and terms are not assured. The company reported no material change in risk factors from its 2018 Form 10-K.
- On October 7, 2019, the board authorized a stock repurchase plan of up to $2.5 million, funded if used from general corporate funds. The plan is discretionary and does not obligate the company to repurchase shares.
- The company reported no material legal proceedings and stated that disclosure controls were effective at period-end. Management recorded a valuation allowance against all deferred tax assets, citing cumulative losses over the latest three-year period; federal and state net operating loss carryforwards may be limited or expire unused.
Important facts for investors to verify
- How much of the 2019 revenue increase—particularly carrier-services growth—will recur after the Census pilot project, and whether higher-margin service growth can improve gross margins.
- Progress and renewal terms for the DHS BPA and other major federal contracts, including concentration in key agencies and customers.
- Collection and billing of the $13.27 million in unbilled receivables, and the timing and composition of elevated accrued carrier costs.
- Credit-facility borrowing status, covenant compliance, borrowing-base availability, and the company’s ability to meet lease and other obligations.
- Whether cash generation and profitability are sustainable, and whether any stock repurchases would affect liquidity or investment capacity.