WYY 8-K
Widepoint Corp (WYY)
8-K
2020-08-17
For: 2020-08-13
View Original
Added on
April 06, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 13,
2020
_________________
WIDEPOINT CORPORATION
(Exact
Name of Registrant as Specified in Charter)
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Delaware
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001-33035
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52-2040275
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(State
or Other Jurisdiction of Incorporation)
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(Commission
File Number)
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(I.R.S.
EmployerIdentification No.)
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11250 Waples Mill Road, South Tower 210, Fairfax,
Virginia
(Address
of Principal Executive Office)
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22030
(Zip
Code)
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Registrant’s
telephone number, including area code: (703) 349-2577
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______________________________________________________________________________
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
[__]
Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[__]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[__]
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[__]
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Securities Registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Trading Symbol
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Name of Exchange on Which Registered
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Common Stock, $0.001 par value per share
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WYY
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NYSE
American
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Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of
1934 (§240.12b-2 of this chapter). Emerging growth company
☐
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Item
2.02 Results of Operations and Financial
Condition.
On
August 13, 2020, WidePoint Corporation (the “Company”)
conducted a conference call to discuss its financial results for
the second quarter ended June 30, 2020. A copy of the transcript of
such conference call is furnished herewith as Exhibit 99.1 to this
Current Report on Form 8-K. In addition, on August 13, 2020, the
Company issued a press release announcing its financial results for
the second quarter ended June 30, 2020. A copy of the
Company’s press release is furnished herewith as Exhibit 99.2
to this Current Report on Form 8-K.
The
information in this item shall not be deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934
(the “Exchange Act”), or otherwise subject to the
liabilities of Section 18, nor shall it be deemed incorporated by
reference in any of the Company’s filings under the
Securities Act of 1933, as amended, or the Exchange Act, except to
the extent, if any, expressly set forth by specific reference in
such filing.
Item
9.01(d) Financial Statements and Exhibits.
Exhibit
99.1 Transcript
of Conference Call
Exhibit
99.2 Earnings
Press Release dated August 13,
2020
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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WIDEPOINT
CORPORATION
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Date:
August 14, 2020
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By:
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/s/
Jin
Kang
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Jin Kang
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Chief Executive
Officer
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Exhibit 99.1
Transcript
of
WidePoint
Corporation
Second
Quarter 2020 Earnings Call
August
13, 2020 4:30 PM ET
Participants
Jin
Kang - Chief Executive Officer and President
Jason
Holloway - Chief Sales & Marketing Officer
Kellie
Kim - Chief Financial Officer
Analysts
Mike
Crawford - B. Riley
Barry
Sine - Spartan Capital Securities LLC
Presentation
Operator
Good
afternoon. Welcome to WidePoint’s Second Quarter 2020
Earnings Conference Call. My name is Taren and I will be your
operator for today’s call. Joining us for today’s
presentation are WidePoint’s President and CEO, Jin Kang;
Executive Vice President, and Chief Sales and Marketing Officer,
Jason Holloway; and Executive Vice President and CFO, Kellie
Kim.
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 would like additional
information, please contact WidePoint’s Investor Relations
team at [email protected].
Before
we begin the call, I would like to provide WidePoint’s Safe
Harbor statement that includes cautions regarding forward-looking
statements made during the call. The matters discussed in this
conference call may include forward-looking statements regarding
future events and the 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
would 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 - Chief Executive Officer and President
Thank
you, operator, and good afternoon to everyone. Thank you for
joining us today to review our financial results for the second
quarter ended June 30, 2020. As you all know from our last call, we
started off 2020 with a bang. Q1 was an extremely successful
quarter, in which we grew revenue substantially and drove positive
net income.
Today,
I’m very pleased to report that those positive trends
continue throughout the second quarter. As a result, the second
quarter of 2020 can certainly be classified as one of the most
successful quarter in WidePoint’s history.
For the
second quarter of 2020, our revenue increased to $54.8 million.
This is a record for WidePoint. It is an increase from the $22.1
million we reported in the second quarter of last year. And
it’s also a sequential improvement from the $39.7 million we
reported last quarter. Obviously, the substantial increase in
revenues is a highlight for the quarter.
But
before we get too far ahead of ourselves, it is worth reminding
everyone that there are 2 components to our revenues. There are
Carrier Services, which is very low margin, and there are Managed
Services, which are closer to 50% margin.
Due to
our ongoing work with the U.S. Department of Commerce to support
the 2020 Census, Carrier Services revenue constitute an
uncharacteristically large percentage of our revenues this year. To
be sure, they are driving the top-line. But their contribution to
our bottom-line is not as substantial.
As you
all know, the goal of this team, since we took over the business in
2017, has always been to grow profitably. For that reason,
what’s perhaps more encouraging is that our Managed Services
revenues, which do drive profitability because of their high
margins, also increased year over year.
During
the second quarter of 2020, our Managed Services revenues were $9.8
million, which is a 22% increase from the $8.1 million reported in
the second quarter of last year. The increase in Managed Services
helped drive a 230% increase in EBITDA from $311,000 in Q2 of last
year to $1 million in Q2 of this year. And where we had a net loss
of $308,000 last year, we earned $489,000 in net income this
year.
Top-line
growth with bottom-line profitability, that has been our objective.
And by that standard, it is evident that the second quarter of 2020
was a success for WidePoint. In a few moments, I’ll pass the
microphone over to our CFO, Kelly Kim to further elucidate our
financial performance. But, first, let’s go over some of the
operational highlights so that there’s more context to why
WidePoint is performing so well in an environment that is
challenging for so many.
Let’s
start with a project that is having the most material impact on our
business today, and which serve as an excellent case study for us
going forward, the 2020 Census. Despite the current resurgence of
coronavirus cases, everything with Census remains on schedule and
is moving forward.
And on
August 4, the Census Bureau shifted back milestone dates to its
original schedule. I mentioned on our last call that there had been
some delays with Census due to COVID-19. And those delays had
elongated the amount of time enumerators would need to be in the
field.
On our
last call, I stated that we expected the enumerators to be in the
field through November. However, you’ll also recall that the
U.S. Department of Commerce had been working diligently to ensure
the Census will be completed on time.
The
hard deadline caused them to increase the number of devices they
forecasted they would need in the field by approximately 20%. Like
so many other organizations and enterprises that we work with the
U.S. Department of Commerce realize that to function effectively in
the COVID-19 environment, they needed more mobile devices, not
fewer.
As a
result, the number of devices we were managing under this project
increased from approximately 400,000 devices to nearly 700,000
devices. We also expanded our offerings like logistics and
inventory management services.
Should
the project end up being completed at the end of September and in
line with pre-pandemic expectations, we do not believe that there
will be any material changes to our expectations for
2020.
Regardless
of the exact timing, it is worth reiterating that while the
increased number of devices we are managing bodes well for us in
the near-term, we do expect revenues from this project to mostly
trickle away during the first portion of 2021. As the name implies,
and as I mentioned on our last call, the 2020 Census is mostly a
2020 event.
Therefore,
we are working hard to plug the hole that this contract is likely
to leave when we phase out of our work. Replacing the revenues from
this project may seem like a somewhat daunting task, but as I
mentioned at the outset of this call, this contract contains a
substantial amount of Carrier Services revenues.
And
because Carrier Services actually suppress our margin profile,
replacing all of them is not a large priority for us. The priority
is replacing the Managed Services revenues tied to this contract.
If we can do that, we won’t necessarily see consistent
top-line performance year-over-year when we get into 2021, but we
will see an improvement in our margin profile. And since growing
profitably is our priority, replacing Managed Services revenues
from this contract remains our focus.
Also on
our last call, we provided some updates regarding the timing of our
other major contract. And that is our contract with the U.S.
Department of Homeland Security. While this partnership is fully
intact until at least April 2021, it remains top of mind for us.
And I’m sure for many of our investors.
As a
reminder for those of you who want to follow along with any
government updates related to this contract in real time, the full
name is Cellular Wireless Management Services BPA contract.
We’ve discussed multiple times why we remain confident in our
ability to re-secure this business. So I’ll keep
today’s discussion brief.
Just
last week, on August 5, DHS issued a draft RFP for comments and
questions from potential vendors. A vendors Q&A session was
held on Tuesday, August 11. Based upon these updates, the new
projected time for contract award is late November
2020.
We will
continue to monitor and provide status updates related to the RFP
and award date. But in the meantime, our work with DHS has
progressed uninterrupted. As a reminder, our current contract end
date is April 30, 2021, with an option period of 6 months and if
all options are exercised, the contract can be extended until
October 31, 2022.
So for
the time being, this partnership remains extremely positive for
WidePoint and for our customers. As always, we’ll keep you
all apprised of new developments as they materialize.
Now,
obviously, these 2 projects are far from the only drivers for
WidePoint. During Q1, there was a particularly large increase in
spending from federal customers who are on the frontlines battling
against COVID-19.
On the
commercial side, the story was a little different. Initially, many
commercial customers became price sensitive, and were reluctant to
spend the way federal, state and local governments were spending.
However, that behavior began to change during Q2, as both sectors
realize that their mobile workforce has grown, and that workforce
will likely be remote for longer than originally anticipated. And
that WidePoint can help them reduce their expenses while giving
them peace of mind that their mobile assets were secured and
effectively managed.
And
since saving money can equate to saving jobs, we’ve seen
multiple expansions in Q2 with government and commercial
enterprises.
But
before I go into any further detail about what’s driving the
business for the rest of 2020 and into 2021, I’d like to turn
the call over to Jason to provide you with an overview of some of
our more recent sales initiatives. Afterwards, Kellie will walk you
through the financial results for the quarter. And then I’ll
come back on for closing remarks, before we open the call to
questions. Jason?
Jason Holloway - Chief Sales & Marketing Officer
Thank
you, Jin. Before I talk about some of our sales progress from the
quarter, I do want to piggyback on some of Jin’s comments
about Census and how it relates to the sales team. As Jin
discussed, Census is an incredibly important contract for us this
year. And although the financially material work with Census will
only last through the start of next year. This contract will
continue to benefit WidePoint beyond its intended lifespan, because
it serves as an excellent case study for us as we work to land new
business. This is one of the largest and highest profile managed
mobility services contracts in the country.
I would
like to take a second and say that every executive at WidePoint is
working extremely diligently to replace the revenue after the
Census project has been completed. It’s not like we’re
just sitting on our hands, complacent and satisfied that we won
Census. We know that replacing the revenue will be a challenge, but
we’re certainly up to it. And it’s that same mentality
that allowed us to win the Census contract in the first
place.
Those
of you familiar with our industry will know that WidePoint has some
excellent customer logos. But we’re always looking to improve
this collection. There remains a great deal of room for us to run
in the federal, state and local space, as well as in the commercial
space. And as we chase after increasingly larger contracts, and as
we work to build new relationships with systems integrators,
it’s extremely helpful to have a prominent case study we can
point to, that clearly demonstrates our organization’s
scalability and flexibility.
When we
approach new customers, not only can we say that we’re 1 of
only 2 companies authorized by the federal government that has an
ATO, or authority to operate, to issue External Certification
Authority or ECA certificates. But now, we can also say that in a
matter of months, we scaled to manage over 400,000 devices that are
critical to a constitutionally mandated project, which has major
implications on the country. And then we added an additional
280,000 devices for the mix. And we did all of that scaling without
a hitch during a pandemic, and that’s a powerful selling
point. And hopefully it helps explain why we believe Census, while
mostly a 2020 financial event is a much bigger strategic
event.
Each
quarter, we discussed the progress we’re making with systems
integrators, which is critical to winning new business. The Census
project, by the way, is one of many examples of a positive
relationship with a systems integrator paying dividends for
WidePoint. Another such relationship, which we’re continuing
to work on is with SYNNEX Corporation. Last quarter, we announced
that we had a vendor agreement with them in place to distribute our
Identity Management solution, including the credentials I mentioned
a moment ago.
Now for
the most part, the business effects of COVID-19 have been positive
for WidePoint. As Jin mentioned, with people working remotely,
enterprises have only increased their mobile assets. So mobile and
IT landscape is becoming increasingly more complex, and
that’s helping drive our business. But the SYNNEX partnership
is an instance for WidePoint where the business effects of COVID-19
have slowed some of our progress instead of accelerating
it.
To be
sure, the discussions are progressing well, but they’re not
moving at quite the pace that would have if we had not been struck
by a pandemic. The timing may not be our preference, but it does
prove that WidePoint’s growth opportunities are much broader
than Census and that they extend far beyond trends related to
COVID-19.
From
our perspective, there’s plenty of growth opportunity in
addition to what helped generate positive results in 2020.
Subsequent to the quarters in, we announced that we had received
$42 million in Trusted Mobility Management contract awards from
extension, renewal and exercised option periods during the second
quarter. Multiple components of the DHS exercised extensions and
renewals, which is a testament to the strength of the relationship
we maintain with those organizations.
The
Centers for Disease Control and Prevention or CDC, also exercise
option contracts, which indicates that we remain an integral
component that help them with their critical work of battling
COVID-19. But we also had success on the commercial side. Due to
non-disclosure agreement, we’re frequently limited in what we
can discuss about our commercial customers. But I can say we
expanded contracts with multiple Fortune 500 companies this past
quarter. Several of WidePoint’s customers had contracts that
were coming out for renewal this year.
And
during the second quarter, many of them not only renewed, but
expanded their work with us. Again, much of the demand here is
driven by a combination of expanding mobile space coupled with
uncertainty about the future. Customer retention and expansion are
certainly things to be proud of. But adding new customers is also
obviously critical to grow.
During
Q2, we secured a new contract from the Virginia Alcoholic Beverage
Control Authority, or Virginia ABC. This is a one-year contract
with four additional one-year renewal periods. It isn’t the
largest contract we won, but it is in our backyard, and it’s
of course encouraging to see organizations, not letting the
challenges of this year impede their progress.
The
current macro environment is certainly helping current and
prospective customers recognize WidePoint’s value. But at the
end of the day, successfully engaging customers, regardless of
whether they are in the government or commercial space, it comes
down to trust and comfort. Our customers really liked the model we
built. Where account managers are on site and integrated into their
team. They don’t see us as another vendor, but as an
extension to their team members. For those reasons, we continue to
land new business and to expand the relationships we already have
in place. With macro tailwind fueling the fire, we remain confident
that we can continue expanding our footprint over the coming
quarters and years.
With
that, I will hand the call over to Kellie.
Kellie Kim - Chief Financial Officer
Thank
you, Jason. As noted in our earnings release, we continued many of
the major trends from last quarter, producing record revenues,
positive EBITDA, and earning positive net income. Turning to our
results for the second quarter ended June 30, 2020. Second quarter
revenue was $54.8 million, up 148% from $22.1 million reported for
the same quarter last year. Carrier Services revenues increased
220% to $44.9 million from $14 million in the second quarter of
last year.
As a
reminder, revenue from Carrier Services are very low margin
revenue, and in the second quarter of 2020, it accounted for 82% of
revenue compared to 53% in the second quarter of 2019. I want to
highlight that Managed Services also increased by 22% to $9.8
million from $8.1 million in the second quarter of last year. The
increase in Managed Services was primarily due to the expansions
with existing government and commercial customers, increases in
sales of accessories to government customers, and increases in
billable service fee revenue deliver through our partnership with
large system integrators. These increases were partially offset by
a decrease in reselling and other services due to the timing of
product resales in the in the prior year.
For the
6 months ended June 30, 2020, our total revenue was $94.4 million,
up 115% from the $44 million we recorded in the first 6 months of
last year. For the first 6 months of 2020, Carrier Services
revenues were $73.1 million or 77% of total revenue and Managed
Services revenues were $21.4 million, or 23% of total revenue. This
compares to Carrier Services of $28.4 million or 64% of total
revenue and Managed Services revenues of $15.6 million or 36% of
total revenue in first 6 months of last year.
As the
numbers demonstrate year-over-year growth for both the quarter and
6-month period was primarily driven by increases in revenue from
Carrier Services related to our work with the U.S. Census
project.
Our
gross profit for the second quarter increased 25% to $5.1 million
from $4.1 million in the second quarter of 2019. Gross margin was
9.2% in the second quarter, compared to 18.4% in the second quarter
of 2019. For the first 6 months of the year, our gross profit
increased 21% to $10 million, or 10.6% of total revenue from $8.3
million, or 18.9% of total revenue. In both periods, the decrease
in gross margin was driven by the increase in Carrier Services
revenues previously discussed.
In the
second quarter of 2020, operating expenses increased by 5% to $4.4
million from $4.2 million in the second quarter of last year. As a
percentage of revenue, operating expenses amounted to 8% of
revenue, as compared to 19% in the second quarter of
2019.
For the
first six months of the year, our operating expenses increased by
8% to $8.7 million from $8 million. In both periods, the increase
in SG&A expense reflects higher payroll costs consistent with
higher employee count to support the increase business and higher
stock-based compensation.
Additionally,
during the first six months of the year, we invested approximately
$1.4 million in product development to enhance a platform and
portal integrations. In the same period last year, similar product
development expenses totaled $1.2 million. Going forward, we intend
to continue working with our strategic partners to improve our
product development efforts and client integrations.
For the
second quarter 2020, GAAP net income was $489,000 and improvement
from net loss of $308,000 in the second quarter of 2019. For the
six months ended June 30, 2020, net income was $973,000, an
improvement from net income of $76,000 for the same period last
year.
On a
non-GAAP basis, EBITDA for the second quarter of 2020 was $1
million compared to $311,000 in the same period last year. For six
months ended June 30, 2020, EBITDA was $2.2 million, which compares
to $1.3 million in the first 6 months of last year. As a reminder,
we have historically reported adjusted EBITDA, which includes
stock-based compensation.
Our
non-GAAP adjusted EBITDA was $1.2 million in the second quarter
compared to $599,000 in the same period to 2019. But the six months
ended June 30, 2020, adjusted EBITDA was $2.7 million, which
compares to $1.7 million in the six months of last
year.
Shifting
to the balance sheet, we exited the quarter with $7.5 million in
cash, net working capital of $6.6 million and approximately $5
million available to draw down on our credit facility. This
completes my financial summary. For a more detailed analysis of our
financial results, please reference our Form 10-Q, which was filed
prior to this call.
So with
that, I would like to turn it back to Jin.
Jin Kang - Chief Executive Officer and President
Thank
you, Kellie and Jason. At the end of last quarter, we were very
optimistic about our prospects for 2020. But because we and the
rest of the world were just adapting to the pandemic, we
didn’t have enough visibility to issue full year
guidance.
Essentially,
we didn’t know what we didn’t know. However, with more
insight into how people are functioning in the pandemic, we gained
the clarity we needed to provide what we believe to be an accurate
forecast of our financial performance. On June 18, we issued
financial guidance for full year 2020.
We were
projecting revenues to range between $185 million and $195 million,
which would represent an 87% growth year-over-year at the midpoint;
EBITDA of $3.0 million to $3.4 million, which would be a 13%
increase at the midpoint relative to last year. The substantial
improvement in top-line coupled with modest growth in the
bottom-line mainly reflects the increase in Carrier Services
related to the Census project.
As I
mentioned at the start of the call, when that contract ends, we
should see our margin profile tick back up, especially if
we’re able to offset some of the Census attrition with
Managed Services revenues from the new contracts.
It is
our goal to increase Managed Services revenues. And we are actively
striving towards that during the second half of this year. Given
how well the first half of this year has progressed, and the
indication that these trends will likely continue into the back
half of 2020, we remain on track to meet our previously issued
guidance.
Should
the situation change, we will provide updates when available. But
for now, we believe these estimates are squarely within the realm
of possibility.
It’s
taken us some time to get here, but I believe we can safely say
that WidePoint has never been in a stronger financial position than
it is today. We’re growing the top-line while consistently
generating positive EBITDA and net income. We have no long-term
debt, and we are supported by $7.5 million in cash.
We have
positive operational momentum and clear indication that momentum
will continue throughout the rest of the year. We are proud of our
accomplishment today. But our appetite for this business to reach
its potential remains unsatiated. Therefore, as most of you know
from our Shareholders Meeting several weeks ago, the Board of
Directors and the Management Team are considering various options
to help accelerate WidePoint’s development, including
potentially pursuing a reverse split and M&A opportunities that
will be complementary to WidePoint’s core
competencies.
We are
very aware of the varying perceptions and opinions related to
companies that effectuate reverse splits. Bear in mind that many do
so in a last-ditch effort to retain listing requirements or to
up-list to a different exchange. They’re done from positions
of weakness.
Our
financial position and operational progress demonstrate that is
clearly not our situation. Today, WidePoint is in one of its
strongest position ever as a company. We believe strongly in
WidePoint, in the company’s prospects, and in the potential
for those prospects to come to fruition. We also recognize that
because of our progress, there are many who would be interested in
becoming fellow owners of WidePoint, but who are prohibited from
doing so due to investment policies.
A
reverse split is one way to remove the barriers to entry for those
new potential investors. Since 2017, we focus intently on growing
the business organically. I won’t get into specifics of what
our appetite for M&A looks like on this call. But I can share
that we are actively considering options that would, of course, be
strategically complementary and bring new customers to
WidePoint.
We are
being very selective and will only consider opportunities that will
be accretive immediately or shortly after acquisition. We will
first leverage our cash on hand and debt to execute any acquisition
and only utilize equity financing if necessary.
We
received a great deal of feedback from investors over the past few
weeks regarding our various strategic options. And we’re very
grateful for that feedback. As individuals who are personally and
financially heavily invested in this company, we are always seeking
to do what is best for all shareholders in the long
run.
Please
keep in mind that while we have been considering various options,
no decisions have been made at this point. So we welcome your
questions and suggestions. We would like to keep the dialogue going
and we certainly encourage all of you to vote before our special
meeting of investors, which is scheduled for August
24.
As we
turn our attention in full to the second half of 2020, we believe
the future remains bright for WidePoint. As the number of mobile
and IoT devices has been expanding, the space has become
increasingly complex. And the need for effective management and
top-tier security has also increased.
COVID-19
may be adding a layer of complexity to negotiations, but it also
appears to have accelerated this trend. For those reasons and for
other reasons we’ve discussed today, we remain optimistic
about our ability to continue helping an increasingly large number
of enterprises navigate the mobile landscape.
With
that covered, we are ready to take questions from our major
shareholders and analysts. Operator, would you please open the call
for questions?
Question-and-Answer Session
Operator
Thank
you. Ladies and gentlemen, the floor is now open for questions.
[Operator Instructions] We’ll take our first question from
Mike Crawford with B. Riley. Please go ahead.
Q: Thank you and thank you for providing both EBITDA and
adjusted EBITDA numbers in the press release and then the EBITDA
guidance for the year. So given that there was nearly $500,000 in
stock-based comp in the first half of the year, if I – is it
correct to assume that’s about the number for the second half
of the year, so I could translate your EBITDA guidance for 2020
into adjusted EBITDA guidance of $4 million to $4.4
million?
Jason Holloway - Chief Sales & Marketing Officer
Correct.
Jin Kang - Chief Executive Officer and President
Correct.
I mean, hello, Mike. Yes, you are correct. This is
Jin.
Q: All right, excellent. And as far as these investments in
marketing that you’re making in the second half of the year,
is this primarily in terms of like headcount or
otherwise?
Jason Holloway - Chief Sales & Marketing Officer
We’re
going to be making a number of investments and we’re looking
at those things that’s going to have the biggest bang for the
buck. One of the things is, that we’re investing in, is
obviously some of our marketing and sales, including Gartner and
some of the lead generation services that’s out there, called
full-funnel.
We’re
also looking at investment in like FedRAMP certification, moving to
the cloud environment, infrastructure upgrades for our Identity
Management solutions, ITMS portal enhancements, that just to make
sure that our system is up to date, state of the art, digital
billing and analytic software. We’re talking about our
Ireland operations there.
And
additional business lines development, we’re working on
solutions that we’ll be bringing to the market. And
we’re close to it. We’ll have press releases coming
out, describing some of the new things that are happening within
WidePoint.
Q: Okay, thank you. And then, on the federal side,
obviously, Census is big. Big from 10-Q, we can see that probably
the next 2 biggest active customers would be ICE and NASA. Is that
something that you expect to bounce around? Or is there something
additional that you’re doing for those
customers?
Jason Holloway - Chief Sales & Marketing Officer
For
Immigrations and Customs Enforcement, ICE, and also NASA, those
contracts are pretty steady. They’re going to continue on. We
have NASA for the next – I believe the contract term was
5-year base with 5 1-year options. And I believe ICE is part of the
CWMS BPA, which will make it – if all options are exercised,
it could go out until October of 2022.
And so,
it is part of that CWMS BPA re-compete. And, again, we feel
optimistic about our chances to win that, re-win it, and that
contract should continue.
Q: Okay. I mean, to me the best part about this report was
the growth in managed services revenues from like $8 million to $10
million year-over-year. Is there – even as Census tails off
next year for the Carrier Services line, is Managed Services
revenue something you would expect to continue to grow in
2021?
Jin Kang - Chief Executive Officer and President
It’s
going to be a challenge for us, because some of the Census revenue
is a Managed Services, but we do have various things in our
pipeline that will backfill that revenue source. So we have a very
good chance of at least being flat and a good chance of being
increased – we’ll see an increase in Managed
Services.
Q: Okay, great. Thanks. And then, last question is just on
the commercial front. I mean, working with CDW’s government
arm, and SYNNEX, and other system integrators, at what point do we
get some large commercial enterprise work that really turns the
needle, like what we’ve seen with some of your federal
customers?
Jin Kang - Chief Executive Officer and President
Yeah,
so the systems integrators, our relationship with these systems
integrators is bearing fruit. We are close on a couple of things.
But, again, because of our non-disclosure, we can’t talk too
much about it. But we are spinning up our Identity Management
Relationship with SYNNEX. We are having some success with our CDW-G
partner. And when we are allowed to put out a press release, we
will.
But I
want Jason to just highlight some of our other opportunities that
we have. Jason, can you go?
Jason Holloway - Chief Sales & Marketing Officer
Sure.
Hey, Mike, how are you doing? I hope you’re staying safe,
man. So, as it relates to SYNNEX, even though that is primarily on
the credentialing side, that has a really heavy emphasis within the
commercial enterprise space. So it will be – we’re
actually targeting the regulated industry, such as health,
transportation, finance and the like. So, that is going really
well. COVID has slowed it down a little bit, but it pertains more
to just getting applicable contracts in place.
And the
one thing I did want to say when you brought up CDW-G, as an
example, we’re actually happy to say that we have slipped to
the commercial enterprise side of CDW. And we are actively working
another deal with CDW on the commercial enterprise side. So
it’s too early to talk about it. We are cautiously
optimistic. So stay tuned, brother.
Q: All right. Thanks a lot, guys.
Jin Kang - Chief Executive Officer and President
Okay,
thank you.
Operator
We’ll
take our next question from Barry Sine, Spartan Capital. Please go
ahead.
Q: Hey, good afternoon, folks. First question, I note that
you’re reiterating your guidance. But subsequent to first
putting those numbers out, I believe we had the announcement out of
the Census Bureau, where they’re going back to their original
schedule, which should be a reduction in revenue. So could you
square those 2 facts for us, please?
Jin Kang - Chief Executive Officer and President
Sure.
The original schedule was that the enumerators are going to be out
there until end of October. That brings – and what they did
was they pull that schedule back to now the enumerators will be out
there until September, end of September of this year. But our work
continues on, because enumerators is part of that – all of
the devices that needs to be out there. The other part of it is all
of the reverse logistics that are associated with that, so
that’s going to continue on until the first quarter. So there
will be no material impact to our revenues for this
year.
Q: Okay. So there could be an impact next year as a result
of the timing?
Jin Kang - Chief Executive Officer and President
Correct.
Q: Got it. Second question, I want to understand better,
you’ve talked about some new contract wins and extensions,
and I’m trying to understand how much of these are new wins
that’ll drive revenue growth? And how much of these are just
extensions that will drive continued recurring revenue? And on the
front of the press release, you talk – you breakout three
items, $42 million in federal contract wins. You have an ABC
Virginia contract. You don’t size that. I’m wondering
if you have any metrics, how many employees do they have. How many
field employees? And then thirdly, you have a $1.5 million in TM2
commercial contracts. So if you could talk about all three of
those, please?
Jin Kang - Chief Executive Officer and President
Sure.
The – we put out three press releases covering the federal
awards, the new win with the state and local, Virginia Alcoholic
Beverage Commission, and one for the commercial side. I can tell
you that for both federal and the commercial side, there were lots
of reawards of the contract, and also some expansions associated
with customers, a couple of small new customers. So – but the
largest piece that we got was the Virginia ABC, which we
approximately put a tag on that at $1.5 million. If all of the $1.2
million – our CFO says, it was €1.2 million in revenues
if all of the options are exercised, and that’s a five-year
contract. They gave us a three-year base purchase order. And then
they have some additional enhancement and optional services that
they may take.
And so
we’re looking at right now $1.2 million could be higher.
Seven years, Kellie has corrected me. So we got the contract for
the first three years and then there are four additional years. So
we see that relationship continuing to grow there. So I hope I
answered your question.
Q: Kellie answered the questions. Great. Next question on
DHS, you mentioned the Q&A period was just this week on
Tuesday, August 11. I’m not sure how that works. Is that a
– I assume that the web-based or phone-based something like
that? Are you in the listen-in on the other questions? And who else
is on there? Were there any surprise participants asking questions,
and what can we learn from the tenor of the questions?
Jin Kang - Chief Executive Officer and President
So the
Q&A was a VTC, video teleconference. They took the questions
early, meaning in writing. And then what they did was they went
over those questions based upon that. And so, there was a very
little visibility in terms of who attended because a lot of times,
the real players will not submit the questions so that they can
remain anonymous. And – but there were a couple that signed
in and using the chat function they put in. And these were a small
systems integrators, government contractors, I think it came in. I
do have the names of the two of them. I don’t have it
available right now, but I can send that to you.
But
they try not to give away too much information about their
understanding of the contract, or who they are, because they want
to remain anonymous. But there wasn’t any surprises in terms
of the questions that they – that was asked. Usually, is
there an incumbent, what’s the period of performance and
things like that the general, very administrative questions were
asked, and so we didn’t learn anything from it. We
didn’t learn, who else was going to be coming into the
bidding on the contract. We still remain focused on our solution.
And I think a lot of the requirements that they put forward in the
RFP, plays to our hand.
Q: And the NGEN appeal process, where do we stand on that
and your optimism level for that contract?
Jin Kang - Chief Executive Officer and President
So the
NGEN-R, there were two – actually there were three protests.
Two by a company called Perspecta, one by data – General
Dynamics, GDIT. And they were both dismissed by the OMB, Office of
Management and Budget. There is one other step that the contractors
can take, the protester can take, and that’s through the
federal courts. We don’t know if that’s going to happen
or not. But we’re not waiting that long. We have been talking
with our contacts at Leidos and IBM, who happen to be the team that
won that contract. We do have relationship with Leidos, working
with them on several of our contracts. One with – we are sub
to Leidos on the NASA contract. We are also subcontractor to Leidos
on our ATF contract.
And so
we have a long working relationship with them. We’re working
with them on another customer which I will not name here with IBM.
And so we have been having conversation with both Leidos and IBM.
And we feel that our chances are continuing to
improve.
Q: Okay, great news. Kellie, a couple of numbers questions,
if you don’t mind. Breaking down depreciation and
amortization, it looks like there’s been a pretty significant
downtrend in amortization of intangibles, and that’s driving
the combined D&A line. And I guess a lot of that is embedded in
the cost of goods sold line. Could you talk about what’s
going on there? And then what the future trend is for that
amortization line?
Kellie Kim - Chief Financial Officer
Certainly,
the capitalized asset will increase in the near-term. And so we
have ended certain amortization of certain assets. And it’s
just a timing when we’re going to put a certain [cavlife]
[ph] related to software development into service and the increase
will kick in shortly. It’s just timing wise in the second
quarter. It was a little bit significantly less than previous
quarters, but it will come back up, up again. So we are making
investments in that area, as Jin stated earlier.
Q: And I don’t know if this is related or not, but
your GAAP reported tax rate looks like it’s jumped up, maybe
that was because you didn’t have maybe that tax, that
amortization is tax deductible, I don’t know. Can you talk
about that?
Kellie Kim - Chief Financial Officer
There
certainly is a difference between GAAP and tax amortization, but it
is really related to the taxable income for the year. So when we do
the provision for the quarter, we’re looking at on an annual
basis and calculating the effective tax rate. So it’s really
related to the – what we expect the profit before tax for the
year.
Q: Okay. And my last question, Kellie, on the balance sheet.
Despite the very, very strong EBITDA, adjusted EBITDA number for
the quarter, your cash balance declined sequentially. And I notice
on a related level, both your unbilled accounts receivable and your
accounts – unbilled billings, and your accounts receivable
have jumped up very significantly and you have a breakout of who
the major customers are in those items in the queue. Could you talk
about that interrelationship? And was that because the late bills
going out or bills going out at the beginning of this – the
current quarter?
Kellie Kim - Chief Financial Officer
Actually
we are doing very well in terms of reducing the cycle, the number
of days it takes to bill customer, but our unbilled, the accrued,
continues to increase and rise due to the growth in the revenue
base, and we talked about what is contributing to the growth. So
all along, I had expected to have some decline. The collection in
the second quarter was very strong. It’s just that we did
have a little bit of an increase in DSO.
Jin Kang - Chief Executive Officer and President
Hey,
Barry, I’d like to add a little bit to that. And – but
there has been a little bit of timing issue here. As we announced
last quarter, we had put in our sole source contract with DHS. And
as part of that, we’re in the process of moving over from the
old contract vehicle to new contract vehicle. And whenever you do
that, there’s a little bit of timing associated with it. And
so a lot of the invoices that we had put in for the Feds for the
DHS sole source contract, it took a little bit longer to get paid.
And so some of that cash was used to fund those Carrier Services,
and so we should catch up in the third quarter.
Q: Okay. And so presumably that means that a lot of the
unbilled…
Kellie Kim - Chief Financial Officer
You got
cut off.
Jin Kang - Chief Executive Officer and President
Yes.
Q: Okay.
Jin Kang - Chief Executive Officer and President
Yes.
Barry, you’re coming in and out.
Q: Okay. That’s fine. Because that was where all my
questions. Thank you.
Jin Kang - Chief Executive Officer and President
Okay.
Kellie Kim - Chief Financial Officer
Thank
you.
Operator
We’ll
take our next question from Sam Donaldson, private investor. Please
go ahead.
Q: Well, gentlemen, lady, once again, I’m in a happy
position of congratulating. But more than that, the energy to seek
out new opportunities to capitalize on them that this management
has displayed for more than two years now is really very
encouraging. As an investor, we look at the price per share. While
at December 31 of last year, WidePoint closed at $0.40 a share.
Today it closed the regular market at over [Technical Difficulty] a
share. Now tomorrow, people will be taking the profits. And for the
future, you’ve cautious this that the Census money that is
going to come to an end. But you’ve also reiterated here,
which means you expect that the contracts that you have and the new
ones that you see in the pipeline, may well make up what would have
been a continuing Census money.
But
again, I come back to my central point [Technical Difficulty] the
men and women of WidePoint led by Jin and Jason and Kellie that
have produced such expectations. Now when it comes to the reverse
split, I’ve had a little experience in other companies with
that. If I were now a great investor in Tesla or Apple, and I know
it has pluses and minuses. But my view is, that my trust in this
management team is such that whatever [Technical Difficulty]
I’m going to go along with. And I guess my only question
today after laying on hand, once again, frankly, is [Technical
Difficulty] know what you’re going to do.
Jin Kang - Chief Executive Officer and President
All
right, sir. I think I understood you. For some reason, we’re
getting like – it’s starting – it goes up and it
goes down. There’s some issue with our phone here. But in
terms of the reverse split, I think Tesla is doing a 5 for 1,
meaning they’re actually doing a split, not a reverse split,
right? And I think that’s good.
Also,
as I said, in my prepared remarks is that the reason why
we’re doing the reverse split is not because we were trying
to hide a sliding stock price. As you mentioned, our stock has now
almost doubled or doubled as of closing today. And we’re not
trying to up-list our stock or anything like that.
And
we’re not doing anything to hide our poor performance. On the
contrary, our financial performance is strong, our share prices are
continuing to climb and – but we’re doing it, because
we want us to be more attractive to institutional investors and
attract new investors. And certain institutional investors have
internal policies preventing the purchase of low-priced stock and
variety of brokers, dealers – broker/dealers discourage
individual brokers within those firms from dealing in low price
stock.
And so,
potentially, doing a reverse split and getting our stock priced
above the price of sometimes $1, sometimes $5, we can remove that
barrier for some of these institutional investors. And whenever we
go out on these investor conferences, and many of the potential
investors had expressed dismay, because they cannot invest in
stocks that are below $1 or $5.
And
they also express their dismay in terms of how much float we have
and how many shares that we have outstanding for a company our
size. And I think, we’re at somewhere around 84 million
shares, and that seems to be a lot of shares.
And so,
by limiting the number of shares, perhaps it will decrease the
liquidity a little bit. But it may help more buyers to come in, a
new set of buyers and institutional investors that will be in here
for the long term. And so, I think these are all good things that
could happen. But as I said, in my prepared remarks, the proxy is
seeking permission to do that. The Board has not decided one way or
the other, whether we are going to execute a reverse or
not.
A lot
of things are still in flux. The price of stock continues to
improve. And so, based upon that, in the future, we’ll make
that decision.
Q: Well, I understand, like when will we know. And as you
pointed out, you’re seeking proxies now, soliciting advice
from the shareholders for this matter. And the Board will decide.
When do you think assuming that most of the shareholders will say,
“Okay, you have our permission,” when do you think the
Board will decide on this question?
Jin Kang - Chief Executive Officer and President
The
deadline is the August 24 for the proxy votes. And based upon the
votes, we would consider the percentage of votes and so forth. And
based upon that, we would first have to decide whether we are going
to execute a reverse or not. And then, once that decision is
makeable based upon the responses that we get back from the votes,
then we can set up a schedule, as to when we want to effectuate
that reverse, if we’re going to…
Q: Again, I thank you for that. And I’ll press you
only one more time. It’s my characteristic in my old age and
I was…
Jin Kang - Chief Executive Officer and President
Boy,
I’m sweating. I’m sweating.
Q: While you’re being very cautious and very proper,
at this point, it appears to me, which you may not have to comment
on, that you’re for a reverse split.
Jin Kang - Chief Executive Officer and President
Yes,
and I’m for the reverse split, because of the various things
that we stated in the proxy and those items that I covered in our
call. I do believe that by having a higher stock price will benefit
us in the long run. Of course, there’s no guarantee that that
would happen. But I personally believe that that is the
case.
Q: Thank you, gentlemen and lady, for indulging me with all
this time. And again, congratulations on continuing the
invisibility and the ability of this corporation to make it great
just for the stockholders, but for the whole business that
you’re in. Thanks.
Jin Kang - Chief Executive Officer and President
Great.
Thank you, Sam, for those prickly questions.
Jason Holloway - Chief Sales & Marketing Officer
Thank
you, Sam.
Operator
At this
time, this concludes our question-and-answer session. If your
question was not taken, please contact WidePoint’s IR team at
[email protected]. I’d now like to turn the call back over to
Mr. Jin Kang for his closing remarks.
Jin Kang - Chief Executive Officer and President
Thank
you, operator. We appreciate everyone taking the time to join us
today. As the operator mentioned if there were any questions that
we did not address today, please contact our IR team. You can find
their full contact information at the bottom of today’s
earnings call. Thank you again and have a great
evening.
Operator
Thank
you for joining us today for WidePoint’s second quarter 2020
conference call. You may now disconnect and have a great
day.
Exhibit
99.2
