WidePoint Corporation (NYSE American: WYY) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 23, 2021. This is an annual report, not a standalone fourth-quarter report, and the filing text does not provide clear Q4-only financial results. WidePoint provides trusted mobility management services, including communications management, identity credentials, and billing and analytics, primarily to U.S. government customers.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $180.3 million | $101.7 million |
| Gross profit / margin | $20.5 million / 11.3% | $17.4 million / 17.1% |
| Operating income / margin | $3.2 million / 1.8% | $0.9 million / 0.9% |
| Net income | $10.3 million | $0.2 million |
| Diluted EPS | $1.20 | $0.03 |
| Cash provided by operating activities | $6.4 million | $5.9 million |
- Revenue rose 77% year over year. Carrier services contributed $137.6 million, while managed services, billable services, and reselling and other services totaled $42.7 million.
- Cost of revenue increased to $159.9 million, or 89% of revenue, from $84.3 million, or 83%. Gross margin contracted mainly because of the revenue mix and higher labor and inventory costs.
- 2020 net income included a $7.4 million income tax benefit, primarily reflecting release of an $8.2 million deferred-tax valuation allowance. Pretax income was $2.9 million; the tax benefit materially boosted reported net income.
- Cash and cash equivalents were $16.0 million at year-end, versus $6.9 million in 2019. Net working capital was approximately $13.0 million, compared with $5.0 million.
- There were no borrowings on the $5.0 million revolving credit facility at year-end. The facility was due to mature April 30, 2021 and was subject to financial covenants and a borrowing base. Total liabilities were $60.8 million, including $6.5 million of operating lease liabilities; undiscounted lease commitments totaled $8.3 million.
- Cash used in investing activities was $1.2 million, including $0.9 million of capitalized software development. Financing activities provided $3.7 million, including $4.3 million of net proceeds from the ATM stock offering.
Changes versus 2019
- The 2020 Census project drove much of the increase: the Census Bureau accounted for 50% of 2020 revenue and 70% of year-end accounts receivable. The largest phase of the work was completed in late 2020; support was expected to continue through October 2022 in more limited operations.
- U.S. federal government revenue increased to $165.8 million from $86.5 million. Commercial revenue edged down to $14.3 million from $14.6 million.
- Managed-services revenue increased to $42.7 million from $33.0 million, but carrier-services revenue nearly doubled to $137.6 million. Carrier services have nominal margins, making revenue growth less indicative of profit growth.
- Operating income improved, but gross margin declined. Net income rose sharply in part because of the one-time valuation-allowance release.
- Cash from operations increased modestly. Year-end accounts receivable rose to $35.9 million from $14.6 million, alongside higher accounts payable and accrued expenses.
Outlook, management commentary, and risks
- Management’s 2021 priorities include selling higher-margin managed services, expanding the sales pipeline and partner relationships, enhancing its platform and identity technology, pursuing FedRAMP certification for ITMS, delivering and expanding DHS CWMS 2.0 work, and growing commercial-market offerings. The filing gives no quantified revenue or earnings guidance.
- WidePoint won the re-competed DHS CWMS 2.0 IDIQ and supported the 2020 Census. However, government contracts may be modified, not renewed, or terminated for convenience. The company reported that DHS contracts generated approximately 36% of overall revenue and 33% of managed-services revenue in 2020.
- Customer and project concentration is material: Census-related work drove exceptional 2020 activity, and a significant contract loss could harm cash flow and results. The company also identified long sales cycles, competitive pricing, fixed operating costs, and dependence on government budgets as risks.
- Other disclosed risks include COVID-19 disruption, cybersecurity or service-level failures, rapid technology change, difficulty recruiting and retaining key personnel, and the possibility that new products or partner channels do not generate expected returns.
- The company reported a history of losses before 2019 and cautioned that recent profitability may not be sustainable without profitable new business and contract expansions. Federal and state net operating loss carryforwards were approximately $36.1 million and $36.0 million, respectively, and their use may be limited or expire.
- The ATM program permits up to $24.0 million of stock sales. WidePoint sold shares for approximately $4.7 million gross proceeds in Q4 2020 and reported approximately $1.1 million of additional gross proceeds after year-end, creating potential dilution. The company completed a one-for-ten reverse stock split in November 2020.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2020. The independent auditor issued an unqualified opinion on the financial statements and reported no critical audit matters. No material pending legal proceedings were reported.
Important facts for investors to verify
- How much revenue, margin, and cash flow the company can retain after the major Census project phase ended, and the remaining scope and economics of Census work through October 2022.
- Renewal or replacement of the credit facility that was scheduled to mature April 30, 2021, including covenant compliance, borrowing-base availability, and any subsequent financing terms.
- Actual performance and profitability of DHS CWMS 2.0, including task-order awards, funding, renewals, and exposure to termination or scope changes.
- Whether accounts receivable and unbilled receivables convert to cash on schedule, particularly given the Census concentration and year-end receivables increase.
- Whether managed-services growth can offset lower-margin carrier-services activity and restore gross margin toward prior levels.
- The extent of subsequent ATM share issuance and resulting dilution; also reconcile the filing’s slightly different share-count descriptions for post-year-end ATM sales.
- The sustainability of earnings excluding the $8.2 million valuation-allowance release, and the realizability and potential limitations on tax-loss carryforwards.