WidePoint Corporation (NYSE American: WYY) — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. WidePoint provides managed technology services spanning telecom lifecycle management, identity and mobility management, digital billing and analytics, and IT as a service. Its business is heavily oriented toward U.S. federal customers.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $87.3 million | $180.3 million | Down 52% |
| Gross profit / margin | $16.4 million / 18.7% | $20.5 million / 11.3% | Profit down; margin up |
| Operating income | $0.6 million | $3.2 million | Down |
| Net income | $0.34 million | $10.3 million | Down |
| Basic / diluted EPS | $0.04 / $0.04 | $1.22 / $1.20 | Down |
| Cash from (used in) operations | $(1.2) million | $6.4 million | Down |
| Cash and cash equivalents at year-end | $6.5 million | $16.0 million | Down $9.5 million |
- Revenue decline was principally attributable to the end of the U.S. Department of Commerce 2020 Census work: carrier services revenue fell $87.9 million. Managed services revenue was $37.6 million, down $5.1 million; reselling and other services rose $2.9 million.
- Cost of revenue fell to $71.0 million, or 81% of revenue, from $159.9 million, or 89%. The improved gross margin reflects revenue mix and lower carrier-service and accessory costs, while gross profit dollars declined with managed-service revenue.
- FY2021 general and administrative expense included a $1.3 million qualified payroll-tax credit under the CARES Act. Other income included a $590,000 gain from remeasurement of ITA contingent consideration.
- Federal government customers accounted for 83.7% of revenue in 2021, compared with 91.9% in 2020. Separately, the company states that DHS contracts represented approximately 79% of total revenue and 43% of managed-service revenue in 2021.
Liquidity, debt and capital
- Net working capital was approximately $7.1 million at year-end, versus $13.0 million a year earlier. Current assets were $33.1 million and current liabilities $26.0 million.
- Operating cash use was $1.2 million. Investing cash use was $7.4 million, including $4.7 million for the ITA acquisition and approximately $2.5 million of capitalized software development costs. Financing cash use was $0.7 million.
- No borrowings were outstanding on the $5.0 million revolving credit facility at year-end; availability was subject to a borrowing base. The facility matured June 15, 2022, carried a variable rate of prime plus 0.25%, and had financial covenants. WidePoint reported covenant compliance at December 31, 2021 and expected the facility to be renewed or replaced.
- Lease liabilities totaled $6.8 million, including $0.8 million current. The filing reports no material commitments for additional capital expenditures at year-end.
- WidePoint sold approximately 100,700 shares under its ATM program for $1.1 million gross proceeds during 2021 and had $18.2 million remaining capacity at year-end. It repurchased 299,494 shares for approximately $1.2 million in 2021; about $3.4 million remained under the repurchase plan at year-end.
Material developments, outlook and risks
- On October 1, 2021, WidePoint acquired specified IT Authorities assets to expand ITaaS capabilities and commercial-market reach. Consideration was approximately $7.2 million, including $4.75 million cash, warrants and contingent consideration. The transaction added $3.5 million of goodwill; the earn-outs depend on acquired-business EBITDA through 2024. ITA was included only from its acquisition date in reported results.
- For 2022, management identified priorities including integrating ITA, pursuing cross-selling, growing sales and partner pipelines, emphasizing higher-margin managed services, and expanding commercial offerings. It also planned continued platform development and cloud-transition work. The filing provides no numerical revenue or earnings guidance.
- Product-development costs capitalized were approximately $2.6 million in 2021, versus $0.9 million in 2020. Management reported no goodwill impairment at year-end, but the valuation depends on estimates of future results and market conditions.
- Key risks include customer and federal-contract concentration, especially DHS; government termination-for-convenience rights and budget delays; competitive and pricing pressure; inflation and supply constraints; cybersecurity, service-level and technology risks; long sales cycles and fixed operating costs; and the ability to integrate ITA and sustain profitability.
- The company reported no material pending legal proceedings. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not provide an internal-control attestation, consistent with the company’s smaller-reporting-company status.
Investor facts to verify
- How much of the sharp revenue decline is nonrecurring Census-related carrier and professional-services work, and what is the underlying trend in higher-margin managed services?
- What are the renewal, task-order funding and termination conditions for DHS work, and how much revenue and cash flow would be exposed to a reduction or loss?
- Did the June 2022 credit facility mature, and was it renewed or replaced on acceptable terms? Confirm current borrowing availability and covenant headroom.
- Is ITA meeting earn-out performance assumptions, and are integration, cross-selling and commercial growth delivering the expected margins and cash flow?
- Can the company fund software investment and operations while operating cash flow is negative, without substantial ATM issuance or other dilution?
- Check the complete audited statements and subsequent-event disclosures for updated cash, repurchases, contract developments and lease changes; the filing states that the Tampa lease was amended to end June 30, 2022 and the repurchase plan was suspended March 14, 2022.