WidePoint Corporation (WYY) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Shareholder Meeting for WidePoint Corporation. I'd now like to hand the call over to Mr. Otto J. Guenther.

Good morning, ladies and gentlemen. Thank you for getting on this call today. It's a little bit different 2020 WidePoint Corporation Annual Stockholders' Meeting doing it virtually, but I think it'll work pretty well, and I appreciate you being here today. The meeting will please come to order. I am Otto Guenther, Chairman of the Board of Directors of the WidePoint Corporation, and will act as Chairman of this meeting. In virtual attendance today is Jin Kang, our Chief Executive Officer and Director, who will act as secretary of the meeting. We also have in virtual attendance today all of our continuing directors, in addition to myself and Jin, Julia A. Bowen and Richard L. Todaro; as well as our Director nominee, Philip Garfinkle. Philip Richter's term will expire at this Annual Meeting of the Stockholders, but he is present. Mr. Richter has been a real valuable member of the company's Board of Directors, and we wish him all the very best in the future endeavors, and thank you, Phil. In order to provide for an efficient and orderly meeting, we will be answering appropriate questions from stockholders during the designated question-and-answer period, and you may submit questions that you have by following the instructions on our virtual meeting screen at any time. [ John Woelfel ] has been appointed as the inspectors of elections for the stockholder actions to be taken at this meeting. Finally, I would like to introduce the representative present from our independent public accounting firm, Moss Adams LLP, Greg Kowieski, who will be available to respond to appropriate stockholder questions during the designated stockholder question-and-answer period at the end of the meeting. Will the secretary please report the notice of the meeting?

Mr. Chairman, the notice of the meeting and related proxy statement were sent beginning on April 24 to all stockholders as of April 20 record date of the meeting.

Thank you. The notice of the meeting and the update as to its mailing shall be made a part of the minutes of this meeting. Let me go on to the report of attendance. Will the secretary please report on stockholder attendance at the meeting?

The inspectors of elections appointed for the meeting has provided a preliminary tabulation of written proxies received, which indicates that there are stockholders present by proxy representing a quorum of shares.

Legal notice of the meeting has been given and a quorum is present, and therefore, this annual meeting is properly, legally convened and ready to transact the legal portion of this meeting. Let me start now with the election of directors. The first item of business to be presented for stockholder consideration at this meeting is the election of Philip Garfinkle as a Class II Director to serve until the Annual Meeting of Stockholders in the year 2023. From the tabulations of proxies or votes received prior to the meeting, the results of the election are known. Mr. Secretary, would you please report on the results for the election of the directors?

Mr. Chairman, a preliminary tabulation provided by the inspectors of elections indicate that Philip Garfinkle has received sufficient votes to be elected as a director.

As indicated by your vote, I hereby declare that Phil Garfinkle has been duly elected as a Director of the company. The next point I want to make is ratification of the appointment of Moss Adams LLP. The final item of business for stockholder consideration at this meeting is the ratification of the appointment of Moss Adams LLP to serve as the company's independent registered public accounting firm for the year ended December 31, 2020. From the tabulations of proxies or votes received prior to the meeting, the results of the vote are known. Mr. Secretary, will you please report on the ratification of the appointment of Moss Adams LLP to serve as the company's independent registered public accounting firm for December 31, 2020?

Mr. Chairman, a preliminary tabulation provided by the inspectors of elections indicate that the ratification of the appointment of Moss Adams LLP to serve as the company's independent registered public accounting firm for fiscal year 2020 has been approved.

As indicated by your vote, I hereby declare that the appointment of Moss Adams LLP to serve as the company's independent registered public accounting firm for fiscal year 2020 has been ratified. There being no other legal business to come before the meeting, this legal portion of the meeting is hereby adjourned. Before I turn the meeting over to our CEO for a presentation of the corporation, let me make a few brief personal comments. We've all been dealing with this COVID-19 pandemic, and it certainly has changed every one of our lives. And I certainly hope everybody in the call is staying very safe. From what I have witnessed thus far, WidePoint is reasonably well insulated, but there is a long way to go before this is over. We are very cautiously optimistic that we will continue to do our business well. WidePoint is positioned well as we provide TM2 solutions that help our customers manage, secure and gain visibility into their mobility assets, especially under the environment we are working in today. Record revenues were achieved in 2019 and profitability on a GAAP basis, which are very reflective, in my opinion, of the great work of the WidePoint team working very closely together every day. WidePoint has stabilized its company and is growing continuously. We now have opportunities that we will start considering for the future strategic alternatives. We weren't in that position a few years ago. The management team has turned the corner of the corporation into a very positive direction with stability, and we are on a way to try and do the best we can to keep the momentum going, and that will include the Board in that, too. And we certainly all are striving to do that. We are executing our strategy of TM2, upsell and cross-sell, while teaming with large system integrators to give us more opportunities. We have been very satisfied with our -- and our customers have been very satisfied with us and continue to look at filling our pipeline with new customers. Our leaders know what has to be done. Our performance has been solid, and we are growing. With that, I will turn it over to Jin Kang, our CEO.

Thank you, Mr. Chairman. At this time, I will present the highlights of fiscal year 2019, first half of 2020 and the state of our business. Fiscal year 2019 was another eventful year. We saw our company return to profitability on a GAAP basis, and we logged our tenth consecutive quarter of positive EBITDA. Our revenue increased from $84 million to $102 million, an increase of 22% year-over-year. Our EBITDA increased from $1.1 million to $2.8 million, an increase of over 155% year-over-year. And our net income increased from a loss of $1.5 million to $226,000, an increase of $1.7 million year-over-year. We are very pleased with the financial results for 2019 and see this momentum continuing throughout 2020. Now that we are nearing the halfway mark for fiscal year 2020 and with additional visibility into the impact of COVID-19 pandemic on our business, we are able to provide a full year guidance for 2020. As announced in the press release we issued this morning, we are guiding to $185 million to $195 million in top line revenue, EBITDA of $3.0 million and $3.4 million, and only material adjustment to EBITDA was approximately $800,000 in stock-based compensation. We finished 2019 with positive cash flow, and as a result, we have a healthy balance sheet. We ended Q1 2020 with over $9 million in cash with 0 long-term debt. We also exited 2019 with a strong, capable and cohesive management team, and we welcomed Kellie Kim, our new CFO, to our team in January, creating an even stronger team. We are continuing to execute our Trusted Mobility Management strategy, or TM2, as well as our strategies of teaming with large entrenched systems integrators to continue our growth and profitability trends. By executing these strategies, we have maintained our double-digit organic growth percentage-wise and finished for the full year 2019 with record revenues and positive net income for the first time in over 9 years. When 2020 began, we did not know that a pandemic was just around the corner, a pandemic that would claim many lives and disrupt the global economy. Even so, we have fared well. While we were impacted by the COVID-19 pandemic and associated lockdowns within the private sector, we benefited from the increased demand from the public sector. Many of our federal government customers are on the forefront of dealing with the pandemic and received additional mission and scope and funding. As a result, we received additional requests for our products and services. Our staff rose through the challenge and was well prepared for working remotely. We had a well-documented continuity of operations plan that was reviewed and tested multiple times during our certification and accreditation process for attaining our authorizations to operate. Our mission of providing solutions that provide management, security and visibility into our clients' mobility assets makes WidePoint one of the few companies that can benefit from the new normal. We are very optimistic that our Trusted Mobility Management, or TM2, solutions will be in higher demand as workforce becomes more mobile and the reliance of mobile devices increases. As we look forward to the second half of 2020, we are focused on greater revenue growth and continued profitability on a GAAP basis. We also are mindful that COVID-19 pandemic is not over, and we will keep a close eye on its potential impact on our business in the future. Now I will provide some additional highlights of 2019 and the first half of 2020. We are successfully executing our TM2 strategy for profitability and growth. Our TM2 strategy combines the strength of our main solution sets to cross-sell and upsell to our current customers as well as outcompeting our competitors. We continue to maintain our core customer base and expand our services, which is a testament of our strong reputation for service delivery. We maintain our strong customer retention records with most of our customers choosing to renew with us. We successfully implemented our NASA Nest project with our partner, Leidos, and entered the operation and support phase. We are now looking for opportunities to expand our relationship with Leidos, utilizing our TM2 solution set. We successfully maintained our ATOs from the Department of Homeland Security and the Department of Commerce. Attaining an ATO and sponsorship are critical steps in receiving the FedRAMP certification. The ATOs and FedRAMP certification will put WidePoint in rare company as we compete for new business in the public sector. And we are bringing that same disciplined approach to our commercial sector customers. We are successfully executing on our Census 2020 project in support of our prime contractor, CDWG. As a result, we have seen a large increase in carrier services revenue. This revenue stream represent approximately 50% of our top line revenue. It is expected that the majority of the revenue from the 2020 census will trail off as we head into 2021 and completely end in Q4 2022. As a reminder, this revenue stream has a very low margin. And while revenue shortfall will be a challenge in 2021, the change to the bottom line will be less so. In fact, our gross margin is expected to improve as a result of the decline in this revenue stream. We are continuing to meet our obligation to provide our investors with more transparency of our business and strategy. We have used press releases, participated in investor conferences and nondeal road shows to communicate our story and to keep our investors informed about our progress. As we deal with the current pandemic, we will utilize virtual conferences, press releases and other modes of communication to keep you, our investors, informed of current developments. We are successfully executing our sales strategy to: one, team with large systems integrators like Leidos, CDWG, SYNNEX, Samsung, GDIT, AT&T and many others; two, cross-sell and upsell our current customers under the TM2 framework; and three, sell-through direct sales efforts of our project and account managers and our direct sales staff. We continue to fill our sales pipeline with high quality opportunities, and we're attracting TM2 sales opportunities for customers, both public and private sectors. We are continuing to engage with CSG International customers and continuing to cultivate opportunities. The current pandemic environment has presented some challenges but we are continuing to hold virtual meetings and making good progress, and we are continuing to provide support for DHS CWMS contract. We recently signed a sole-source CWMS contract in April with a potential period of performance of 2.5 years, if all options are exercised. We have moved the majority of our current DHS customers onto this new contract with 0 downtime. We also have received draft solicitation package for the first -- for the follow-on contract. We're doing all we can to re-win this contract. Now I'll list some items that will help us in our quest to rewin this contract. One, we have an excellent past performance with DHS. Two, we meet all of the security requirements and have all of the proper certification and accreditation required by the contract. We meet all of the functional and technical requirements. Our systems have been customized and configured to match their workflows, policies and procedures. Our intelligent telecommunication management system has been integrated with DHS' internal IT infrastructure. We have subject matter experts who have deep experience supporting DHS. We represent the lowest risk to DHS as there will be no transition costs, no downtime, no implementation cost, no customizations or configurations will be required, and the list goes on. But as I said, we are not resting on our laurels. We have all hands on deck to ensure that we do all we can to rewin this follow-on contract. As we head into the second half of 2020 and into 2021, we will continue to execute our TM2 strategy. We will also look to expand our capabilities that are complementary to our TM2 solution set. To this end, we are reviewing the most effective ways of adding new services to offer our current and potential customers, whether that be developing them in-house or acquiring them. We are already in the early stages of offering a few new services that should translate into additional revenues in the future. We will provide additional details as we near the full launch of our new services. As stated earlier, we are very pleased with our financial performance. We have recorded 2 consecutive years of double-digit percentage growth in 2018 and 2019, and we are poised to record our third year of double-digit percentage growth in 2020. We have a healthy balance sheet that gives us a lot of flexibility moving forward, such as pursuing strategic transactions that can expand our customer base or that have complementary services that can deepen our capabilities. We expect to file a shelf registration statement in the future to give us additional flexibility to raise capital opportunistically should an opportunity arise. And while we have seen some modest growth in our share price recently, we plan to seek authority in the near future to give us the flexibility to perform a reverse stock split to make our stock more attractive to institutional investors. In any event, the work we have done over the past 2 years has laid a great foundation to the future. In 2020, we are building on that foundation and exceeding those financial benchmarks set in 2019. We have a bright future, and we are excited and prepared for what lies ahead. That concludes my presentation. Thank you for your support, interest and attention. Please stay safe and well. With that, I will turn the meeting back over to you, Mr. Chairman.

Now that we have -- we'd be happy to answer any questions you may have about the company that were submitted during the meeting through our meeting website. I would also like to remind you that the representative from the company's independent registered public accounting firm of Moss Adams LLP is present at the meeting and is available to respond to any appropriate questions you may have related to his responsibilities. At this point, we'll open it up for question and answers.

All right. I believe the first question -- there were 3 questions currently on board. It says has Nokomis given word that they will completely exit their position? To our knowledge and through our current communication and current information that we have, they have not provided any additional information other than what they sold in the open window after our earnings call and their desire to reduce their position below the 10% as per their company policy. The second question, will the share buyback be reinstituted in 2020? Right now, there are no current plans to reinstitute the buyback. The share price had a modest increase. And so we will review throughout the year if a share buyback makes sense. And if so, we will reinstitute the buyback at that time. The third question, when can we see some news on collaboration with the new partner, SYNNEX? Currently, there's no new additional information to be provided. We are making progress on that partnership. And as we make additional progress, there will be press releases that will be forthcoming. There are no other questions at this time. We will wait a few minutes here to see if there are any additional ones. There's one other question. What are the implications of standstill agreement in light of rebalance by Nokomis? All of the terms and conditions of the standstill agreements were met. Right now, there are no standstill agreement in effect. With the price reacting positively, will there be a need for a shelf or reverse? We will review that as the days and weeks roll on here, but we will maintain our option to do so. We will seek -- as I stated in my prepared remarks, we will seek the authority to execute or effectuate a stop reverse if it makes sense, and same with the shelf. Are you still pursuing FirstNet? Yes. We are working with our partner, AT&T. We are continuing to work with them. We do have some lines of service and devices that we do manage under FirstNet. So the answer is yes. The FirstNet was awarded to AT&T. And so that's a very long-term contract, I believe, a 10-year contract plus. And so the answer is we will continue to work with AT&T. It was a 25-year contract, and so it will be a very long contract and partnership with AT&T, and we'll continue to work with them throughout the contract. Okay. All right. I think that concludes our Q&A segment. Mr. Chairman, I'll turn the call back over to you.

I would just conclude by saying I thank you all for being on the call today and for your continued support to WidePoint, and please stay very safe. Thank you.

Thank you, everyone.

Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.