WidePoint Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. WidePoint provides trusted mobility management, identity management, and billing and analytics services; federal government contracts are its primary revenue source. Results are unaudited.
Financial highlights
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $20.0 million | $54.8 million | $40.6 million | $94.4 million |
| Gross profit / margin | $4.0 million / 20% | $5.1 million / 9% | $8.7 million / 21% | $10.0 million / 11% |
| Operating income (loss) | $(0.06) million | $0.62 million | $0.61 million | $1.36 million |
| Net income (loss) | $(0.20) million | $0.49 million | $0.38 million | $0.97 million |
| Diluted EPS | $(0.02) | $0.06 | $0.04 | $0.11 |
- Cash flow: Six-month operating cash flow was negative $0.41 million, versus positive $1.63 million a year earlier. Investing used $1.25 million, primarily for software development and equipment; financing provided $0.65 million.
- Liquidity: Cash was $14.95 million at June 30, down from $16.00 million at year-end 2020. Working capital was approximately $14.2 million, compared with $13.0 million. The $5.0 million revolving credit facility had up to $4.6 million available under its borrowing base; the filing reports no 2021 line-of-credit advances.
- Liabilities: Total liabilities were $30.15 million, including $6.22 million of operating lease liabilities. The filing reports a $246,037 deferred payroll-tax liability due by December 2022. No conventional debt balance is clearly presented.
Material changes versus the prior comparable period
- Revenue fell 64% in Q2 and 57% for the first half. Carrier services declined by $33.0 million in Q2 and $49.8 million for the first half, chiefly because the Department of Commerce 2020 Census work ended or wound down. Carrier cost optimization and credits also reduced revenue.
- Managed-services revenue declined more modestly; Q2 was affected by accessory sales timing, while first-half resale revenue was lower due to large product resales in 2020.
- Gross margin improved substantially as lower-margin carrier revenue made up less of the mix. Despite this improvement, lower revenue and gross profit contributed to a Q2 net loss and lower first-half earnings.
- Accounts receivable and accounts payable both fell sharply from year-end, contributing to large, offsetting working-capital movements in operating cash flow.
Outlook, commentary, and risks
- No quantified earnings or revenue guidance is provided. Management’s 2021 priorities include pursuing higher-margin managed services, building sales capacity, expanding partner opportunities, upgrading platforms, pursuing FedRAMP certification for ITMS, and delivering and expanding DHS CWMS 2.0 work.
- Management believes remote work may support demand for its services, but reported COVID-related supply-chain delays and a significant reduction in new customer acquisitions due to a lack of customer-generated requirements. Future effects remain uncertain.
- Results may vary with government budgets, contract awards and renewals, project timing, customer requirements, and revenue mix. The company depends heavily on federal customers; federal revenue was $33.6 million, or about 83% of first-half revenue.
- Other stated risks include sustaining profitability and positive cash flow, winning and extending contracts, competition, commercial-market growth, and retaining key personnel. Management also noted possible future inflationary pressure on equipment and labor.
- The company sold 100,687 shares through its ATM program in the first half, raising approximately $1.1 million net of issuance costs; $18.6 million of program capacity remained. Management says additional capital may be needed for major growth initiatives or acquisitions, with no assurance it will be available on acceptable terms.
- The $5.0 million credit line matures June 15, 2022 and is subject to financial covenants. The company reported no material legal proceedings, no material change in risk factors, and effective disclosure controls as of period-end.
Important facts for investors to verify
- Whether revenue and margins can stabilize after the Census contract wind-down, and whether managed-services growth can offset lower carrier revenue.
- Customer concentration, contract renewals and funding, especially among federal agencies; assess receivable and unbilled-receivable collection timing.
- Why first-half operating cash flow was negative despite reported net income, and whether working-capital timing reverses.
- Progress against credit-line covenants and the June 2022 maturity, alongside lease obligations and cash needs for planned investments.
- Potential dilution from further ATM sales and the returns expected from capitalized software development and strategic initiatives.