WidePoint Corporation (NYSE American: WYY) — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results; filed November 15, 2021. WidePoint provides trusted mobility management, identity management, and billing and analytics services, with substantial dependence on U.S. federal government contracts.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $22.25 million | $57.51 million | $62.89 million | $151.96 million |
| Gross profit / margin | $3.66 million / 16% | $5.62 million / 10% | $12.37 million / 20% | $15.64 million / 10% |
| Operating income | $0.81 million | $1.15 million | $1.42 million | $2.51 million |
| Net income | $0.53 million | $1.07 million | $0.92 million | $2.04 million |
| Diluted EPS | $0.06 | $0.13 | $0.10 | $0.24 |
- Revenue fell 61% in Q3 and 59% in the nine-month period year over year. The principal driver was lower carrier services as the Department of Commerce 2020 Census contract wound down. Managed services also declined, while Q3 resale revenue increased.
- Gross margin improved as lower-margin carrier revenue comprised less of sales and the mix shifted toward higher-margin managed services. However, lower revenue left gross profit and net income below prior-year levels.
- Operating cash flow was $3.46 million provided for the nine months, versus $6.00 million provided in 2020. Investing activities used $1.94 million, mainly for internally developed software and equipment; financing activities provided $0.68 million. Cash rose to $18.10 million from $16.00 million at year-end 2020.
- At September 30, cash was $18.10 million, current assets $40.76 million, and current liabilities $26.12 million; working capital was approximately $14.6 million. Total liabilities were $32.28 million, including operating lease liabilities of about $6.08 million. The company reported no bank-line advances in 2021 and had up to $4.9 million available under its borrowing base on a $5.0 million revolving facility.
Material changes and notable items
- General and administrative expense declined year over year, including a $1.3 million qualified payroll tax credit recognized in Q3. The filing also reports an employee retention credit receivable of $1.30 million at quarter-end.
- Income tax expense increased to $0.23 million in Q3 and $0.33 million for the nine months. Nine-month effective tax rate was 26.5%, versus 10.6% in 2020.
- The company sold 100,687 shares through its at-the-market program during the first nine months, generating about $1.1 million net; no shares were sold in Q3. Remaining ATM capacity was $18.6 million at September 30.
- On October 1, 2021, WidePoint acquired specified assets of IT Authorities for $4.75 million cash and 75,000 warrants, with additional contingent cash and warrant consideration tied to future EBITDA. Cash on hand funded the closing payment. Purchase accounting was preliminary and not finalized in the filing.
Outlook, commentary, and risks
- No quantified revenue or earnings guidance is provided. Management’s 2021 priorities include emphasizing managed services over lower-margin carrier services, expanding sales and commercial-sector opportunities, upgrading proprietary technology, pursuing FedRAMP certification for ITMS, and integrating IT Authorities.
- Management said COVID-19 had not caused significant operational disruption during the first nine months, but reduced new customer acquisitions due to weak demand. Future effects and federal customer budget priorities remain uncertain.
- Risks include reliance on federal contracts and their funding and timing, contract concentration, revenue variability, fixed personnel and facility costs, competition, supply constraints, and execution and integration of acquisitions. The filing says risk factors had not materially changed from the 2020 Form 10-K. No material litigation or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Cash flow disclosure is inconsistent: the cash-flow statement reports $3.46 million of cash provided by operating activities, while MD&A describes approximately $3.5 million as cash used. Confirm the intended wording and underlying working-capital movements.
- Assess whether the sharp revenue decline from the Census contract wind-down is stabilizing, and whether managed-services growth can offset lower carrier-services revenue.
- Review the final IT Authorities purchase-price allocation, contingent consideration, acquired liabilities, and integration results when disclosed.
- Verify the amount, timing, and collectability of the payroll/employee-retention credits and their impact on reported expenses and liquidity.
- Monitor federal contract renewals and funding, liquidity and covenant compliance under the revolving facility, and dilution from the ATM program and acquisition warrants.