WIDEPOINT CORPORATION Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements. You can identify these statements by words such as "aim," "anticipate," "assume," "believe," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "potential," "positioned," "predict," "should," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management's beliefs and assumptions. These statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
· The impact of supply chain issues;
· Our ability to successfully execute our strategy;
· Our ability to sustain profitability and positive cash flows; including
maintaining sufficient adjusted EBITDA
· Our ability to maintain access to our credit facility;
· Our ability to gain market acceptance for our products;
· Our ability to win new contracts, execute contract extensions and expand
scope of services on existing contracts;
· Our ability to compete with companies that have greater resources than
us;
· Our ability to penetrate the commercial sector to expand our business;
· Our ability to identify potential acquisition targets and close such
acquisitions;
· Our ability to successfully integrate acquired businesses with our
existing operations;
· Our ability to maintain a sufficient level of inventory necessary to meet
our customers demand due to supply shortage and pricing;
· Our ability to retain key personnel;
· Our ability to mitigate the impact of increases in interest rates;
· The impact of the COVID-19 pandemic on our business and operations;
· The impact of increasingly volatile public equity markets on our market
capitalization;
· Our ability to mitigate the impact of inflation; and
· The risk factors set forth in our Annual Report on Form 10-K for the year
ended December 31, 2021 filed with the SEC on March 28, 2022 .
The forward-looking statements included in this Form 10-Q are made only as of
the date hereof. We undertake no obligation to publicly update or revise any
forward-looking statement as a result of new information, future events or
otherwise, except as otherwise required by law. Readers are cautioned not to
put undue reliance on forward-looking statements. In this Quarterly Report on
Form 10-Q, unless the context indicates otherwise, the terms "Company" and
"
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Business Overview
We are a leading provider of Technology Management as a Service (TMaaS) that consists of federally certified communications management, identity management, interactive bill presentment and analytics, and Information Technology as a Service solutions. We help our clients achieve their organizational missions for mobility management, information technology management, and cybersecurity objectives in this challenging and complex business environment.
We offer our TMaaS solutions through a flexible managed services model which includes both a scalable and comprehensive set of functional capabilities that can be used by any customer to meet the most common functional, technical and security requirements for mobility management. Our TMaaS solutions were designed and implemented with flexibility in mind such that it can accommodate a large variety of customer requirements through simple configuration settings rather than through costly software development. The flexibility of our TMaaS solutions enables our customers to be able to quickly expand or contract their mobility management requirements. Our TMaaS solutions are hosted and accessible on-demand through both a secure federal government certified proprietary portal and/or through a secure enterprise portal that provides our customers with the ability to manage, analyze and protect their valuable communications assets, and deploy identity management solutions that provide secured virtual and physical access to restricted environments.
Revenue Mix
Our revenue mix fluctuates due to customer driven factors including: i) timing of technology and accessory refresh requirements from our customers; ii) onboarding of new customers that require carrier services; iii) subsequent decreases in carrier services as we optimize their data and voice usage; iv) delays in delivering products or services; and v) changes in control or leadership of our customers that lengthens our sales cycle, changes in laws or funding, among other circumstances that may unexpectedly change the revenue earned and/or duration of our services. As a result, our revenue will vary by quarter.
For additional information related to our business operations, see the
description of our business set forth in our Annual Report on Form 10-K for the
year ended
Strategic Focus and Notable Events
Our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives in order to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth.
In fiscal 2022, we continue to focus on the following key goals:
· Continue to find additional avenues for capturing new sales opportunities
in the post pandemic environment,
· Continue to provide unmatched level of services to our current customer
base,
· Attain full FedRAMP certification in 2022 and continued technology
refresh of our delivery infrastructure,
· Grow our recurring high margin managed services revenues,
· Add incremental capabilities to our Technology Management solution set
and develop and acquire new high margin business lines,
· Enhance our software platforms to grow our SaaS revenues and take
advantage of the opportunities emerging from the growth in remote
working,
· Expand our customer base organically and inorganically,
· Continue to leverage the R2v3 Certification to further our ESG
commitment,
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· Executing cross-sell opportunities identified from ITA acquisition,
including Identity Management (IdM), Telecommunications Lifecycle
Management (TLM) and Digital Billing & Analytics (DB&A) solution,
· Growing our sales pipeline by continuing to invest in our business
development and sales team assets,
· Pursuing additional opportunities with our key systems integrator and
strategic partners, and
· Expanding our solution offerings into the commercial space.
Our strategy for achieving our longer-term goals include:
· Establishing a market leadership position in the trusted management
sector,
· pursuing accretive and strategic acquisitions to expand our solutions and
our customer base,
· delivering new incremental offerings to add to our existing TM2 offering,
· developing and testing innovative new offerings that enhance our TM2
offering, and
· transitioning our data center and support infrastructure into a more
cost-effective and federally approved cloud environment to comply with
perceived future contract requirements.
We believe these actions could drive a strategic repositioning our TM2 offering and may include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of TM2 offerings.
We have seen the following impacts from the ongoing supply chain issues, such as moving form just-in-time inventory for accessory items to keeping sufficient stock on hand, price increases, though we are managing increases by seeking volume discounts, delays in fulfillment, and having to locate alternative sources if traditional suppliers cannot fulfill in a timely manner. Overall, the customers are understanding that these supply chain issues are a global and not just impacting orders they place with us and have been willing to work with us to find alternative solutions or delay the purchases until the requested products are available.
Results of Operations
Three Months Ended September 30, 2022 as Compared to Three Months Ended
September 30, 2021 Revenues. Revenues for the three month period ended
THREE MONTHS ENDED
SEPTEMBER 30, Dollar
2022 2021 Variance
(Unaudited)
Carrier Services $ 14,062,700 $ 13,100,500 $ 962,200
Managed Services:
Managed Service Fees 7,545,586 5,347,641 2,197,945
Billable Service Fees 909,943 885,114 24,829Reselling and Other Services 2,785,287 2,918,027 (132,740 )
11,240,816 9,150,782 2,090,034
$ 25,303,516 $ 22,251,282 $ 3,052,234 Our carrier services revenue was
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Our managed service fees were
Billable service fees, reselling and other revenues remained consistent with the same period in 2021
Reselling and other services are transactional in nature and as a result the amount and timing of revenue will vary significantly from quarter to quarter.
Cost of Revenues. Cost of revenues for the three months period ended
Gross Profit. Gross profit for the three months period ended
Sales and Marketing. Sales and marketing expense for the three month period
ended
General and Administrative. General and administrative expenses for the three
month period ended
Depreciation and Amortization. Depreciation and amortization expense for the
three month period ended
Other Income (Expense). Other income (expense) for the three month period ended
Income Taxes. Income tax benefit for the three month period ended
Net (Loss) Income. As a result of the cumulative factors annotated above, net
loss for the three month period ended
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Nine Months Ended
30, 2021
Revenues. Revenues for the nine month period ended
NINE MONTHS ENDED
SEPTEMBER 30, Dollar
2022 2021 Variance
(Unaudited)
Carrier Services $ 39,495,109 $ 36,347,669 $ 3,147,440
Managed Services:
Managed Service Fees 21,501,985 20,241,104 1,260,881
Billable Service Fees 3,016,746 2,924,300 92,446
Reselling and Other Services 6,783,457 3,372,472 3,410,985
31,302,188 26,537,876 4,764,312
$ 70,797,297 $ 62,885,545 $ 7,911,752 In the nine months ended
Our managed service fees increased by
Billable service fee revenue remained consistent with the same period in 2021
Reselling and other services increased by
Cost of Revenues. Cost of revenues for the nine month period ended
Gross Profit. Gross profit for the nine month period ended
Sales and Marketing. Sales and marketing expense for the nine month period
ended
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General and Administrative. General and administrative expenses for the nine
month period ended
Goodwill Impairment. We recorded non-cash goodwill impairment charge of
Depreciation and Amortization. Depreciation and amortization expense for the
nine month period ended
Other Income (Expense). Other income (expense) for the nine month period ended
Income Taxes. Income tax benefit for the nine month period ended
Net (Loss) Income. As a result of the goodwill impairment of
Liquidity and Capital Resources
Our immediate sources of liquidity include cash and cash equivalents, accounts
receivable, unbilled receivables and access to a working capital credit facility
with
At
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ATM Sales Program
On
Cash Flows from Operating Activities
Cash provided by operating activities provides an indication of our ability to generate sufficient cash flow from our recurring business activities. Our single largest cash operating expense is the cost of labor and company sponsored healthcare benefit programs. Our second largest cash operating expense is our facility costs and related technology communication costs to support delivery of our services to our customers. We lease most of our facilities under non-cancellable long term contracts that may limit our ability to reduce fixed infrastructure costs in the short term. Any changes to our fixed labor and/or infrastructure costs may require a significant amount of time to take effect depending on the nature of the change made and cash payments to terminate any agreements that have not yet expired. We experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control.
For the nine months ended
Cash Flows from Investing Activities
Cash used in investing activities provides an indication of our long term infrastructure investments. We maintain our own technology infrastructure and may need to make additional purchases of computer hardware, software and other fixed infrastructure assets to ensure our environment is properly maintained and can support our customer obligations. We typically fund purchases of long term infrastructure assets with available cash or capital lease financing agreements.
For the nine months ended
For the nine months ended
Cash Flows from Financing Activities
Cash provided by (used in) financing activities provides an indication of our debt financing and proceeds from capital raise transactions and stock option exercises.
For the nine months ended
For the nine months ended
Net Effect of Exchange Rate on Cash and Equivalents
For the nine months ended
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Inflation
The Company has seen impacts of wage inflation across the Company, especially in its commercial ITA business. Due to the on-going conditions, however, there is the possibility that we will face additional inflationary pressures in certain aspects of our business operations, such as equipment and labor costs, in the future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
Critical Accounting Estimates and Policies
Other than as described below, our critical accounting policies and estimates have not changed from those reported in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2021 Form 10-K.
Goodwill
A reporting unit is defined as either an operating segment or a business one level below an operating segment for which discrete financial information is available that management regularly reviews. The Company has a single reporting unit for the purpose of impairment testing.
As compared to the Company's impairment testing on
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Off-Balance Sheet Arrangements
The Company has no existing off-balance sheet arrangements as defined under
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