WidePoint Corporation (AMEX:WYY) Q4 2023 Earnings Call Transcript
WidePoint Corporation (AMEX:WYY) Q4 2023 Earnings Call Transcript March 26, 2024
WidePoint Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. Welcome to WidePoint's Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Matthew, and I'll be your operator for today's call. Joining us for today's presentation are WidePoint's President and CEO, Jin Kang; Chief Revenue Officer, Jason Holloway; and Chief Financial Officer, Robert George. Following their remarks, we will open up the call for questions from WidePoint's publishing analysts and major investors. If your questions were not taken today and you'd like additional information, please contact WidePoint's Investor Relations team at wyy@gateway-grp.com. Before we begin the call, I would like to provide WidePoint's safe harbor statement that includes cautions regarding forward-looking statements made during this call.
The matters discussed in this conference call may include forward-looking statements regarding the future events and future performance of WidePoint Corporation that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Finally, I'd like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at www.widepoint.com. Now I would like to turn the call over to WidePoint's President and CEO, Mr. Jin Kang. Sir, please proceed.
Jin Kang: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to review our financial results for the fourth quarter and full year ended December 31, 2023. This past year was a pivotal one for WidePoint, marked by successful execution of our financial and operational plans and initiatives. We closed out 2023 on a strong note pertaining to both our financials and operations with approximately $106 million in revenue, positioning us at the higher end of our full year 2023 guidance. Simultaneously, we achieved 26th consecutive quarter of positive adjusted EBITDA, and demonstrate a sequential quarter-over-quarter growth in 2023. Additionally, and more notably, we concluded the fourth quarter free cash flow positive, a trend that we anticipate maintaining throughout 2024 and beyond and something that is vital for the company, especially within this high interest rate environment.
This momentum we anticipate carrying into 2024 is backed by multiple initiatives and developments made throughout fiscal year 2023. First, a robust demand for our solution and services remain evident with the fourth quarter alone, witnessing more than 30 contractual actions amounting to more than $70 million in contract value. These wins include new awards, contract renewals, expansions and extensions in all of our solution lines. As you know from the news headlines, the federal government budget battle is and will be an ongoing issue. However, we continue to successfully mitigate this risk by proactively engaging with our government counterparts to renew contracts early and ensuring that they are fully funded. Currently, all affected contracts are successfully awarded and carried over into the new year.
With this, a significant catalyst for our anticipated growth in 2024 lies in our substantial contract backlog totaling $359 million as of December 31, 2023. Furthermore, WidePoint continues to solidify its position as the most secure premier choice for trusted mobility management solutions, evidenced by our strong contract renewal and customer retention rates of over 90%. With these initiatives driving our momentum, we confidently forecast double-digit percentage growth in the teens for top line revenues and double-digit percentage growth in the high teens for managed services revenues, in addition to achieving positive free cash flow for the full year 2024. Another factor driving our growth is the recent completion of the majority of our capital investments made in 2023.
With this, we anticipate having minimal capital expenditures for 2024, strengthening our balance sheet, enabling us to concentrate fully on various operational growth initiatives. More specifically, I'd like to emphasize two previous investments that are in their final phases nearing completion. Last earnings call, we mentioned our Intelligent Technology Management System, or ITMS, was in the FedRAMP in process status. We continue to see positive news on this front throughout the quarter. With ITMS now nearing its final FedRAMP authorized designation, we anticipate certification in the first half of 2024. However, the time lines may change based on general services administration's workload for FedRAMP processing. The good news is that we already have all the necessary authorization to operate or ATOs from our current customer agencies, which attests to our strong cybersecurity posture that places us ahead of our competition.
As a reminder, attaining full FedRAMP certification will uniquely position our ITMS platform and grant WidePoint a substantial competitive edge and competing for new business with the federal government and large enterprises. This certification indicates that our solutions align with federal cybersecurity standards for protecting our customers' data. Moreover, it will showcase the robust security levels offered by WidePoint solutions to both existing and prospective customers, particularly in commercial sectors and industries where data and system security are paramount. We look forward to announcing the completion of our FedRAMP process and anticipate this to be a significant factor to continue differentiating our solutions and serve as a catalyst to fuel new wins in the near future.
Another investment near completion is in our delivery system, more specifically enhancements to our continuity of operations site or COOP, which we also anticipate completion by the first half of 2024. These COOP site enhancements will further differentiate us from our competitors and provide additional resiliency to our delivery systems. Our enhanced COOP site will have automatic failover capabilities and data replication such that if there is a system outage of our primary operation site, the secondary site will immediately come online to greatly reduce the system recovery time, ensuring that we meet and exceed all of our service level agreements with our customers. In addition to these investments, we are excited by the potential for artificial intelligence to streamline our everyday business operations.
And we are developing a strategy aimed at leveraging AI. The potential to improve our customer service experience by reducing response time, increasing the accuracy of those responses as well as increasing our overall capacity are all being explored. Furthermore, there's potential to enhance our IT as a service by integrating AI to detect cybersecurity vulnerabilities and enhanced behavior-based security measures. There are other areas of our business that could benefit from the implementation of AI, such as software development, responding to proposals, invoice audits, and leveraging our knowledge base to serve our customers' requirements better. We are in the process of shifting out the noise from the real AI capabilities. We will share more on this front as we evolve our strategy to meet our business needs.
With our investments out of the way, I'd like to highlight just a few of our contract wins achieved recently that we believe will have the potential to grow into substantial revenue generators over the coming years. At the federal level, we saw roughly $60 million in governmental contracts won in the fourth quarter alone. While we are bound by nondisclosure agreements and unable to disclose specific government clients, Jason will talk to one of our recent federal contract wins, which has the potential to grow into one of our largest federal contracts, second only to our contract with the U.S. Department of Homeland Security. On the commercial side, we have won contracts with a nationwide professional services firm and a major Florida attraction and Research Center, both of which have the potential to grow into a material IT as a service customer over the next 12 months.
On the sales and marketing side, our strategy to expand market presence has proved to be fruitful, especially in a year with challenging macroeconomic headwinds affecting the whole market. Jason will dive deeper into this topic shortly, but we are proud to say that these efforts contributed significantly to WidePoint's success this past fiscal year. Lastly, the sales of WidePoint's business solutions have maintained their momentum, playing a significant role in the company's growth and reach. WidePoint has shown year-over-year growth, and we anticipate this positive trajectory to persist in 2024 as we continue to grow our sales pipeline. The potential for cross-selling and upselling within WidePoint's comprehensive suite of trusted mobility management solutions creates further avenues for business expansion and advancement.
These business solutions remain pivotal in our sustained long-term growth and in fortifying our competitive advantage. I will now hand the mic over to Jason, who will dive into the progress made on the sales and marketing front. Jason?
Jason Holloway: Thanks, Jin, and good afternoon, everyone. As Jin stated earlier, our concentrated efforts on capturing additional deals within the sales and marketing front has contributed significantly to WidePoint's performance this past year. This past quarter alone, WidePoint was awarded over $70 million in contract wins, approximately $65 million of which were considered new business wins. This showcases our commitment to continuously drive new business into WidePoint and the trust our current and new customers have for our solutions. Recently, we closed the deal with a commercial entity to provide a full range of managed telecom solutions on behalf of its U.S. government end customer. This deal is approximately $20 million with a 3-year base period and two 1-year option periods.
As Jin mentioned, although we cannot disclose this client's name, we are proud to state this contract can become one of our most significant. Additional information can be found in our SEC Form 8-K filed January 2024. We remain committed to advancing these sales and marketing initiatives into 2024. The strong results this past year have prompted us to develop a new internal plan to allocate additional resources and budget towards enhancing our staff and capabilities to secure additional high-margin contracts like the one mentioned just now. Specifically, we look to add an additional senior-level commercial sales resource and established federal business development resource with a proven track record within the D.C. area and a vendor partner manager for the expansion of strategic partners.
With ample funding and guidance from new senior staff members, we are confident in carrying this momentum into fiscal year 2024 to garner more contracts. On the K-12 side, we continue to accelerate our market penetration. We recently engaged with an expert within the K-12 sector to facilitate our partnership program aimed at integrating WidePoint's IAM solutions into existing offerings for numerous sector entities. I also want to note that our identity and access management pipeline is equivalent to our managed mobility pipeline in terms of the number of opportunities. As Jin mentioned earlier, we have a robust contract backlog of $359 million in value. A large part of this backlog and success seen this year can be attributed to our flagship contract with DHS, the cellular wireless management services 2.0 contract.
Based on our current contract run rate, we are nearing the contract ceiling of $500 million. As such, we are working closely with DHS to review options for continuing to perform under this contract. With the additional resources and staff, we will increase our investments in the sales and marketing efforts as we look to win additional impactful contracts like this for WidePoint's financial growth. Lastly, I wanted to recognize the IT authorities team. As you know, we acquired IT authorities in 2021. Even though the integration took a little longer than expected due to challenges faced during the COVID pandemic and external macro headwinds, the team has been closing deals at a pretty rapid pace. They have been working extremely hard, and we are excited about their tremendous momentum in 2024.
With that, I will hand the call over to Bob.
Robert George: Thank you, Jason, and thanks to everyone for joining us today. I'd also like to express my gratitude to the entire WidePoint team on how they executed in 2023, a year where WidePoint saw significant improvements in both top line revenue and free cash flow. Now I'm pleased to share the details of our fourth quarter and full year 2023 financial results. Revenues for the quarter were $28.3 million, up 21% from the same quarter last year. Revenues for the year were $106 million, an increase of 13% from last year. Now I'll provide a further breakdown of our fourth quarter and full year revenues. I'm pleased to say that period-over-period, we saw increases across all our revenue categories. Our carrier services revenue for the quarter was $15.7 million, an increase of 14% from the same quarter last year.
Our carrier services revenue for the full year was $58.3 million, an increase of 9% from last year. The increase is due to growth in contracting activity with our federal customers where we pay carrier invoices on their behalf, the telecommunication devices that we manage. While pass-through, Pan Carrier invoices is a federal customer requirement in an area where we differentiate our services and provide editable savings to our customers. Our managed and billable services revenues for the quarter were $4.4 million, a 23% increase from the same quarter last year. Our managed and billable services revenue for the year were $31 million, a 10% increase from last year. The increase in fourth quarter and full year were related to increased professional services being utilized by our TLM customers and new projects in our identity and access management customers.
Our reselling and other services revenues for the fourth quarter were $8.1 million, an increase of 37% from the same quarter last year. Our reselling and other services revenues for the year were $16.8 million, a 33% increase from last year. The increase in both the quarter and full year was a result of selling third-party software for recording and storing text messages to our federal customers, which is now required under an expansion of the Federal Records Act and also selling an identity management solution to a new federal customer. I do want to highlight that reselling and other services are transactional in nature and the amount and timing of revenue grew very significantly from quarter-to-quarter. Gross profit for the fourth quarter was $4 million or 14% of revenues compared to $3.6 million or 15% of revenues in 2022.
Gross profit for the year was $15.6 million or 15% of revenues compared to $14.6 million and 15% of revenues last year. In the fourth quarter, the more significant metric of gross profit percentage, excluding carrier services, was 32% compared to 37% in the same period last year. For the full year, gross profit percentage, excluding carrier services, was 33% compared to 36% in the same period last year. The lower gross margin percentage, excluding carrier services in both the fourth quarter and the year relate to increased depreciation and amortization related to our delivery platforms that have substantially reached completion and are beginning to be amortized and the previous noted increases in reselling and other services, which have a lower gross margin profile.
Accordingly, our gross margin percentage will vary from period to period based on our revenue mix. In the fourth quarter, general and administrative expenses were $4.2 million or 15% of revenue compared to $3.6 million or 15% of revenue in the same period of '22. Much of the dollar increase relates to an increase in noncash share-based compensation expense compared to the same period last year. General and administrative expenses for the year were $15.9 million or 15% of revenue compared to 14.7% and 15% of revenue in 2022. We expect to see general and administrative costs as a percentage of revenue to continue to trend lower in the future. Our net loss for the fourth quarter was $1.3 million or a loss of $0.15 per share compared to a net loss of $8.9 million and a loss of $1.02 per share in the same period last year.
The difference in the net loss between the fourth quarter of 2023 and 2022 is predominantly related to a noncash valuation allowance placed on our net operating loss carryforwards of $8.5 million taken in the fourth quarter of 2022. Our net loss for the full year was $4 million compared to a net loss of $23.6 million in 2022. The principal difference in the net loss from 2023 compared to 2022 was the noncash goodwill charge of $16.3 million taken in the second quarter of 2022 and the noncash valuation allowance placed on our net operating loss carry forwards in the fourth quarter of 2022. Moving to our balance sheet. I am excited to share the successful results of our cash management efforts over the past year. Although during the year, we invested approximately $1.1 million to substantially complete our delivery platform we still finished 2023 with $6.9 million in cash and no bad debt.
Further, we reduced our days sales outstanding, or DSO, from 83 days in 2022 to 76 days in 2023. Our free cash flow, which we define as adjusted EBITDA minus capital investments was just over $200,000 in the fourth quarter, and we expect to continue to be free cash flow positive throughout 2024. Additionally, we have entered into a new revolving credit facility with Old Dominion National Bank, which is further described in our Form 10-K filed prior to this call. The facility provides us with an additional $4 million of potential borrowing capacity. We believe our cash on hand, credit facility and expected free cash flow generated in 2024 will be sufficient to fund our anticipated growth and allow us to pursue the strategic initiatives outlined by Jin and Jason earlier.
This completes my financial summary. For a more detailed analysis of our financial results, please refer to our Form 10-K, which was filed prior to this call. So with that, I will turn the call back over to Jin.
Jin Kang: Thank you, Bob and Jason. Our efforts and results this past year show significant year-over-year improvement seen, and we anticipate carrying this momentum into 2024 and beyond. As Bob mentioned, we are well equipped with ample cash to pursue the different initiatives Jason and I mentioned earlier. Additionally, I want to reiterate that AI will be a big disruptor for the foreseeable future, and we are taking careful aim to shift through all the noise and hype to implement elements of AI that will have the greatest impact on our business. We look to forming strategic relationships with leaders in the field of AI and especially those with existing tools to deepen our solutions and operational capabilities. We also continue to look out for strategic M&A opportunities that provide synergistic opportunities and value to WidePoint.
Given that we are well funded, we have the resources necessary to pursue any opportunities that arise. Though as of now, I do not have any significant development to report in this front. On a separate note, I'd like to touch on our ESG initiatives. Specifically, WidePoint has developed a robust device recycling program that includes conserving precious resources and minimizing electronic waste, while committing to reducing carbon emission through energy-efficient practices. WidePoint is also participating in efforts to preserve green space by converting unused property around one of our office locations into a revolting area. Through these ESG initiatives, WidePoint is dedicated to environmental stewardship and sustainable business practice for a greener future.
Looking ahead into fiscal year 2024, we expect revenue to range between $120 million and $133 million and adjusted EBITDA range between $2.1 million and $2.4 million. Additionally, we expect free cash flow to range between $2 million and $2.3 million. We are proud of the significant steps taken this year to enhance our financial health through a series of strategic initiatives and investments made this past year. As evidenced by our positive cash flow in Q4 2023 and improving margins projected for 2024, especially with our managed services. WidePoint is at a turning point and with a solid foundation and clear vision in place and the management team to execute our growth plan, we remain steadfast in our commitment to driving sustainable growth and creating long-term value for our shareholders, employees and communities we serve.
With that said, we are ready to take questions from our analysts and major shareholders. Operator, will you please open the call for questions.
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