WidePoint Corporation — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; comparison with FY2017. This is an annual filing, not a standalone fourth-quarter report. WidePoint provides trusted mobility management, identity and communications services, primarily to U.S. federal agencies.
Financial performance and liquidity
| Metric | FY2018 / year-end 2018 | FY2017 / year-end 2017 |
|---|---|---|
| Revenue | $83.68 million | $75.88 million |
| Gross profit / margin | $15.27 million / 18% | $13.69 million / 18% |
| Operating loss | $0.19 million | $3.46 million |
| Net loss | $1.46 million; loss per share $0.02 | $3.53 million; loss per share $0.04 |
| Cash used in operating activities | $2.13 million | $2.99 million |
| Cash and cash equivalents | $2.43 million | $5.27 million |
| Net working capital | $3.9 million | $2.5 million |
| Total liabilities | $22.64 million | $20.68 million |
| Revolver borrowings at year-end | $0; up to $4.9 million eligible under borrowing-base formula | Not stated here |
Revenue rose 10%. Carrier services increased $5.05 million, managed-service fees increased $2.42 million, and reselling and other services increased $1.75 million; billable-service fees declined $1.42 million. Carrier services represented $50.05 million of revenue but contributed nominal margins; excluding carrier services, gross margin was approximately 45%, up from 44%.
FY2018 tax expense was $1.19 million despite a $0.26 million pretax loss. It included a $1.2 million non-cash deferred-tax adjustment for goodwill amortization that had not been recorded in prior periods. Management said the adjustment was not material to previously reported periods. Cash used in investing activities was $0.49 million; cash used in financing activities was $0.16 million. Capital leases and other term obligations totaled approximately $0.50 million at year-end. Operating lease obligations were $8.51 million, bringing disclosed contractual obligations to $8.76 million.
Material changes versus FY2017
- Operating loss narrowed substantially, supported by higher revenue and lower sales and marketing and general and administrative expenses. Net loss also narrowed, though the tax adjustment materially reduced the improvement in reported net income.
- Federal-government revenue increased to $66.35 million from $58.63 million. Commercial revenue was approximately flat at $16.74 million.
- Cash declined by $2.84 million during the year. Accounts receivable and unbilled receivables rose, and operating cash outflow reflected collection and invoicing delays associated with the December 2018 partial government shutdown.
- General and administrative expense declined to $13.30 million from $14.39 million; 2017 included approximately $1.2 million of severance and office-sale and closure costs.
Outlook, commentary, and key risks
- Management’s 2019 priorities include growing higher-margin managed services, expanding sales and systems-integrator partnerships, improving the platform, pursuing commercial customers, and moving ITMS toward GovCloud and FedRAMP certification. The filing gives no numerical revenue or earnings guidance and says profitability and positive cash flow are not assured.
- The DHS Blanket Purchase Agreement expired December 16, 2018 and was extended through June 16, 2019. Revenue under it was approximately $64.5 million in 2018, or 77% of total revenue. Failure to win the recompete could materially harm revenue, profitability, and cash flow.
- The $5.0 million working-capital credit facility matured April 30, 2019. Management expected available credit and cash to cover minimum 2019 needs if the facility was renewed or replaced; renewal was not assured. The facility has financial covenants, and the company reported compliance at year-end.
- Customer concentration, federal budget and shutdown risk, contract termination rights, lengthy sales cycles, competition and pricing pressure, cybersecurity and service-level exposures, and the ability to sustain profitability are significant risks. Management cited a six-year history of annual losses.
- Disclosure controls and internal control over financial reporting were reported ineffective at year-end. Management identified a material weakness in deferred-income-tax accounting and described remediation steps. The independent auditor gave an unqualified opinion on the financial statements but did not opine on internal-control effectiveness.
- The company reported no material pending legal proceedings. It recorded no goodwill impairment; year-end goodwill was approximately $18.56 million. Adoption of the lease standard in 2019 was expected to add approximately $5.8–$6.0 million of right-of-use assets and lease liabilities.
Important facts for investors to verify
- Outcome and economics of the DHS BPA recompete, including replacement funding or contract vehicles and the effect on managed-service margins.
- Renewal or replacement of the credit facility after its April 30, 2019 maturity, covenant headroom, and subsequent liquidity and cash-flow performance.
- Collection of the elevated receivables and unbilled balances following the government shutdown, particularly amounts concentrated in federal customers.
- Progress in remediating the deferred-tax control weakness and whether subsequent reporting identifies further errors or control deficiencies.
- Whether growth in managed services and commercial sales offsets the low-margin carrier-service mix, and whether the company achieves sustained positive operating cash flow.