WidePoint Corporation (NYSE American: WYY) — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited consolidated results. WidePoint provides trusted mobility management and related carrier, managed, and identity services; federal government contracts are a major source of revenue.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $21.92 million | $20.08 million; up 9% |
| Gross profit / margin | $4.25 million / 19% | $3.55 million / 18% |
| Operating income (loss) | $485,000 | $(433,000) |
| Net income (loss) | $384,000 | $(462,000) |
| Diluted EPS | $0.00 | $(0.01) |
| Operating cash flow | $2.43 million | $2.25 million |
- Revenue growth was led by carrier services, up to $14.34 million from $11.81 million, including Coast Guard contract activity. Managed-service fees and billable-service fees also rose; reselling and other services fell to $662,000 from $2.10 million.
- Cost of revenue was 81% of sales versus 82%; gross margin improved to 19% from 18%. Operating expenses declined to $3.77 million from $3.99 million, although depreciation and amortization rose substantially.
- Cash and equivalents were $4.57 million at quarter-end, up from $2.43 million at December 31, 2018. Working capital was approximately $3.9 million. Current assets were $25.22 million and current liabilities $21.31 million.
- Total liabilities were $28.81 million, including $6.08 million reported as finance lease liabilities. The company reported no term obligations at March 31. It had a $5.0 million revolving credit facility, with up to $4.9 million available under the borrowing-base formula; the filing does not clearly state the quarter-end drawn balance. The facility was extended on April 30, 2019 through April 30, 2020, with its rate changed to prime plus 0.50%.
- Investing cash outflow was $142,000; financing cash outflow was $122,000, principally lease principal payments. The company drew and repaid $6.19 million on its bank line during the quarter.
Material changes and notable items
- U.S. federal government revenue rose to $18.16 million from $14.27 million; commercial-enterprise revenue declined to $3.59 million from $5.67 million. Two customers represented 29% of revenue in Q1 2019, and federal customers represented several significant receivable and unbilled-receivable balances.
- Adoption of the new lease accounting standard on January 1, 2019 added lease right-of-use assets and liabilities, materially changing the balance sheet presentation. Management said adoption did not materially affect results of operations or cash flows. Lease-related expense also increased reported depreciation, amortization, and interest expense.
- Income tax expense was $28,000 versus $6,000. The company maintained a valuation allowance against all deferred tax assets, citing cumulative losses, despite federal NOL carryforwards of approximately $38.5 million and state NOL benefits of approximately $39.8 million.
- Goodwill was $18.56 million, with no impairment indicators reported for the quarter. No material legal proceedings were reported.
Outlook, commentary, and risks
- No quantitative financial guidance was provided. Management’s 2019 priorities include growing higher-margin managed services, expanding sales and commercial opportunities, improving the ITMS platform, pursuing FedRAMP certification, and renewing the Department of Homeland Security Blanket Purchase Agreement (DHS BPA).
- Management said it expected strategic sales and marketing hires in Q2 2019 and continued to seek cost savings, improved billing terms, and positive cash flow. It warned that additional capital may be needed for major growth initiatives or acquisitions and may not be available on acceptable terms.
- Key disclosed risks include renewal or recompete of the DHS BPA, government budget and administrative delays, customer and contract concentration, quarter-to-quarter revenue variability, ability to sustain profitability and positive cash flow, competition, and execution of growth plans. Fixed personnel and facility costs may limit short-term cost flexibility.
- Management reported disclosure controls were effective. Risk factors were said not to have changed materially from the 2018 Form 10-K.
Investor verification points
- Track the DHS BPA renewal/recompete and the timing and contribution of major federal contracts, particularly Coast Guard activity.
- Assess whether revenue growth converts into sustained profitability and operating cash flow, and whether higher-margin services continue to grow.
- Verify revolver usage, covenant compliance, facility renewal terms, and available borrowing capacity; the filing does not clearly state the quarter-end drawn balance.
- Reconcile lease disclosures: the balance sheet lists about $6.08 million of finance lease liabilities, while the lease maturity schedule reports $5.87 million for operating leases and $204,000 for finance leases.
- Monitor government receivable and unbilled-receivable collection timing, major-customer concentration, and the realizability and expiration limits of tax NOLs.