WidePoint Corporation (NYSE American: WYY) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results. WidePoint provides technology management-as-a-service, including communications lifecycle management, identity management, and related managed services, to government and commercial customers.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $25.27 million | $22.25 million | $70.77 million | $62.89 million |
| Gross profit | $3.80 million | $3.66 million | $11.02 million | $12.37 million |
| Gross margin | 15.0% | 16.5% | 15.6% | 19.7% |
| Operating income (loss) | ($0.60 million) | $0.81 million | ($18.90 million) | $1.42 million |
| Net income (loss) | ($0.54 million) | $0.53 million | ($14.69 million) | $0.92 million |
| Diluted EPS | ($0.06) | $0.06 | ($1.68) | $0.10 |
- Q3 revenue rose 14% year over year; nine-month revenue rose 13%. Growth reflected higher carrier services, IT Authorities (ITA) acquisition contributions, and resale activity.
- Gross margin contracted, principally due to a greater share of lower-margin carrier services and, year to date, ITA labor costs. Q3 operating results also reflected higher G&A, including the absence of a roughly $1.3 million Employee Retention Tax Credit benefit recognized in Q3 2021.
- Nine-month results included a $16.277 million noncash goodwill impairment charge, recorded after a sustained decline in share price and market capitalization. Goodwill fell from $22.09 million at year-end 2021 to $5.81 million at September 30, 2022. The impairment was partly offset in reported net loss by a $3.41 million income tax benefit.
- Nine-month other income was $0.79 million, mainly reflecting a $0.96 million gain from remeasurement of ITA contingent consideration, partly offset by other items.
Cash, liquidity, and obligations
- Cash and cash equivalents were $5.06 million, down from $6.48 million at December 31, 2021. Current assets were $28.57 million and current liabilities $26.23 million; management reported net working capital of approximately $2.3 million, versus $7.1 million at year-end.
- Operating cash flow was $3.22 million for the first nine months, versus $3.46 million in the comparable 2021 period. Investing cash use was $3.06 million, including $2.82 million of capitalized software and hardware development costs. Financing cash use was $1.31 million; cash declined by $1.42 million overall.
- The company had a $7.0 million revolving credit facility, subject to a borrowing base, and reported no outstanding line-of-credit balance at quarter-end. It said it was eligible to borrow up to $7.0 million and in compliance with covenants. The facility matures June 15, 2023 and requires trailing-12-month adjusted EBITDA of at least $1.0 million and tangible net worth of at least $6.5 million.
- Lease liabilities totaled approximately $5.51 million, including current and noncurrent amounts. Management said cash, expected operating cash flows, and available resources should meet working-capital, expenditure, and contractual needs for the next 12 months and foreseeable future.
Changes, outlook, and risks
- Revenue growth was supported by a federal customer increasing managed phone lines by approximately 75%, ITA contributions, and a $1.7 million UEM software-license resale in Q2. The federal government accounted for 78.9% of nine-month revenue; commercial revenue share increased to 20.6% from 15.4%.
- The company continued investment in its technology platforms and stated goals including growing recurring managed-services revenue, expanding commercial business, developing sales opportunities, and pursuing full FedRAMP certification in 2022. The filing provides no quantified financial guidance.
- Management cited supply-chain delays and price increases, wage inflation (particularly in ITA’s commercial business), potential interest-rate effects, fixed short-term personnel and facilities costs, and dependence on contract awards, renewals, and customer spending. It also identified risks to profitability, cash generation, and continued credit-facility access.
- The board suspended the share-repurchase plan in March 2022 to direct funds to the business, after repurchasing 196,586 shares for approximately $818,200 in Q1. No shares were sold under the ATM equity program in the first nine months; reported remaining capacity was $18.2 million.
- The company reported no material legal proceedings, no material changes in risk factors from its 2021 Form 10-K, and effective disclosure controls as of period-end.
Investor verification priorities
- Reconcile revenue figures: the statements of operations report $25.272 million for Q3 and $70.765 million year to date, while the revenue footnote reports $25.304 million and $70.797 million, respectively.
- Confirm operating cash-flow comparisons: the cash-flow statement shows $3.22 million provided in 2022 and $3.46 million provided in 2021, while MD&A describes the 2021 comparison as cash used.
- Monitor adjusted EBITDA and covenant compliance under the revised credit facility, its June 2023 maturity, and actual borrowing availability under the borrowing-base formula.
- Assess whether revenue mix, ITA performance and labor costs, and federal-customer concentration support improved margins and sustained positive cash generation.
- Review the assumptions behind the goodwill impairment and the remaining carrying value, as well as the contingent consideration valuation tied to ITA earn-outs.