WidePoint Corporation (NYSE American: WYY) — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; unaudited. WidePoint provides trusted mobility management and related carrier, managed, and identity services. Federal government agencies are its primary revenue source.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $57.5 million | $29.6 million | $152.0 million | $73.6 million |
| Gross profit | $5.62 million | $4.31 million | $15.64 million | $12.62 million |
| Gross margin | 9.8% | 14.6% | 10.3% | 17.1% |
| Income from operations | $1.15 million | $0.29 million | $2.51 million | $0.61 million |
| Net income | $1.07 million | $0.18 million | $2.04 million | $0.26 million |
| Diluted EPS | $0.13 | $0.02 | $0.24 | $0.03 |
- Q3 revenue grew 94% year over year; nine-month revenue grew 106%. Carrier services were $45.0 million in Q3 and $118.1 million year to date. Managed services were $12.5 million and $33.8 million, respectively.
- Lower-margin carrier services and product resales drove gross-margin compression despite higher gross profit. Operating income and net income increased substantially compared with 2019.
- Nine-month operating cash flow was $6.00 million, versus $5.45 million. Investing used $0.98 million and financing used $0.59 million. Cash increased $4.49 million to $11.37 million.
Balance sheet, liquidity, and capital
- At September 30, cash was $11.37 million, accounts receivable $31.47 million, and unbilled receivables $15.04 million. Current assets were $58.98 million and current liabilities $51.15 million: working capital of approximately $7.83 million and a current ratio of about 1.15.
- Total liabilities were $59.73 million. Operating lease liabilities totaled $6.68 million. The $5.0 million revolving credit facility had no net advances during the nine-month period; the filing reports borrowing availability of up to $4.9 million under the borrowing-base formula. Its maturity was extended to April 30, 2021.
- The company reported compliance requirements for minimum tangible net worth, EBITDA-to-interest coverage, and a 1.10:1 current ratio. The ATM agreement permits up to $24 million of stock sales; no shares had been sold under it by September 30.
Changes, outlook, and risks
- The major growth driver was the U.S. Department of Commerce’s 2020 Census work, alongside activity for U.S. Citizenship and Immigration Services. Census-related activity supported deployment of more than 600,000 devices, but was scheduled to wind down in Q4 2020, likely reducing future carrier-service revenue.
- The Census Bureau represented 61% of Q3 revenue, 54% of nine-month revenue, and 68% of receivables at September 30. This concentration makes revenue and collections sensitive to a small number of federal contracts.
- Management cited expansion of managed services, growth in partner-delivered billable services, pursuit of FedRAMP certification, renewal of the Department of Homeland Security Blanket Purchase Agreement, and commercial-sector expansion as priorities. No numerical financial guidance was provided.
- Management said the company had not experienced significant COVID-19 disruption through the period, but noted that pandemic effects and changes in government budgets and funding remained uncertain. Other risks include contract awards and renewals, Census wind-down execution, customer payment timing, margin pressure, and the ability to sustain profitability and positive cash flows.
- After quarter-end, a one-for-ten reverse stock split became effective November 6, 2020, and authorized common shares were reduced to 30 million. Share and per-share figures in the filing are retroactively adjusted. Management reported effective disclosure controls; no material legal proceedings or off-balance-sheet arrangements were reported.
Key facts for investors to verify
- How quickly Census-related revenue and receivables decline, and whether replacement contracts offset that wind-down.
- Whether the DHS BPA is renewed and the outcome and timing of other significant federal contract bids.
- Cash conversion and receivable collections, given the large receivables balance and operating cash flow contribution from increased accounts payable and accrued expenses.
- Whether margins recover as the revenue mix changes, and whether improved earnings translate into sustained operating cash flow.
- Potential dilution and capital needs under the $24 million ATM program, alongside the credit facility’s April 2021 maturity and covenant requirements.