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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from __________________ to ___________________ |
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Commission File Number:
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(Exact name of Registrant as specified in its charter) |
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(State or other jurisdiction of |
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(I.R.S. employer |
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incorporation or organization) |
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identification no.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(
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(Registrant’s telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: |
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Title of Each Class |
Trading Symbol |
Name of Exchange on Which Registered |
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|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
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☒ |
Smaller reporting company |
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Emerging growth company |
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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. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of May 8, 2023, there were
|
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WIDEPOINT CORPORATION
INDEX
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Page No. |
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3 |
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3 |
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3 |
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4 |
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Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
5 |
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6 |
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8 |
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9 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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25 |
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25 |
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26 |
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26 |
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26 |
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28 |
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29 |
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CERTIFICATIONS |
| 2 |
|
|
| Table of Contents |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
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THREE MONTHS ENDED |
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|||||
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MARCH 31, |
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|||||
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2023 |
|
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2022 |
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||
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(Unaudited) |
|
|||||
|
REVENUES |
|
$ |
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$ |
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COST OF REVENUES (including amortization and depreciation of |
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$
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GROSS PROFIT |
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OPERATING EXPENSES |
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Sales and marketing |
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General and administrative expenses (including share-based |
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compensation of $
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Depreciation and amortization |
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Total operating expenses |
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LOSS FROM OPERATIONS |
|
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(
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) |
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(
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) |
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OTHER INCOME (EXPENSE) |
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Interest income |
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Interest expense |
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(
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) |
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(
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) |
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Other (expense) income, net |
|
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(
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) |
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Total other income (expense), net |
|
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(
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) |
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LOSS BEFORE INCOME TAX PROVISION (BENEFIT) |
|
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(
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) |
|
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(
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) |
|
INCOME TAX PROVISION (BENEFIT) |
|
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(
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) |
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NET LOSS |
|
$ |
(
|
) |
|
$ |
(
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) |
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EARNINGS PER SHARE, BASIC AND DILUTED |
|
$ |
(
|
) |
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$ |
(
|
) |
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WEIGHTED-AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED |
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
|
|
| Table of Contents |
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
THREE MONTHS ENDED |
|
|||||
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MARCH 31, |
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|||||
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2023 |
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2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
NET LOSS |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
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Other comprehensive income (loss): |
|
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Foreign currency translation adjustments, net of tax |
|
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(
|
) |
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Other comprehensive income (loss): |
|
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(
|
) |
|
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|
COMPREHENSIVE LOSS |
|
$ |
(
|
) |
|
$ |
(
|
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
|
|
| Table of Contents |
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
||
|
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|
2023 |
|
|
2022 |
|
||
|
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|
(Unaudited) |
|
|||||
|
ASSETS |
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|
CURRENT ASSETS |
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Cash |
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$ |
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$ |
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|
Accounts receivable, net of allowance for credit losses |
|
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of $
|
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Unbilled accounts receivable |
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Other current assets |
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Total current assets |
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NONCURRENT ASSETS |
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Property and equipment, net |
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Lease right of use asset, net |
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Intangible assets, net |
|
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Goodwill |
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Deferred tax assets, net |
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Other long-term assets |
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Total assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
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|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
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CURRENT LIABILITIES |
|
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Accounts payable |
|
$ |
|
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|
$ |
|
|
|
Accrued expenses |
|
|
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|
Deferred revenue |
|
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Current portion of lease liabilities |
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Total current liabilities |
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|
NONCURRENT LIABILITIES |
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|
Lease liabilities, net of current portion |
|
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|
Contingent consideration |
|
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|
Deferred revenue, net of current portion |
|
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|
Total liabilities |
|
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|
|
Commitments and contingencies (Note 16) |
|
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|
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|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
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|
|
Preferred stock, $
|
|
|
|
|
|
|
|
|
|
authorized;
|
|
|
|
|
|
|
|
|
|
Common stock, $
|
|
|
|
|
|
|
|
|
|
authorized;
|
|
|
|
|
|
|
|
|
|
issued and outstanding, respectively |
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
(
|
) |
|
|
(
|
) |
|
Accumulated deficit |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
|
|
| Table of Contents |
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
MARCH 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
|
|
|
(used in) operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
|
|
|
|
|
|
|
(Recovery) provision for credit losses |
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
Warrants expense |
|
|
|
|
|
|
|
|
|
Change in fair value of contingent consideration |
|
|
|
|
|
|
(
|
) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable and unbilled receivables |
|
|
(
|
) |
|
|
|
|
|
Inventories |
|
|
(
|
) |
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
(
|
) |
|
Income tax payable |
|
|
|
|
|
|
|
|
|
Deferred revenue and other liabilities |
|
|
(
|
) |
|
|
(
|
) |
|
Other liabilities |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(
|
) |
|
|
(
|
) |
|
Capitalized hardware and software development costs |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Advances on bank line of credit |
|
|
|
|
|
|
|
|
|
Repayments of bank line of credit advances |
|
|
(
|
) |
|
|
|
|
|
Principal repayments under finance lease obligations |
|
|
(
|
) |
|
|
(
|
) |
|
Withholding taxes paid on behalf of employees on net settled restricted stock awards |
|
|
(
|
) |
|
|
(
|
) |
|
Common stock repurchased |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net effect of exchange rate on cash |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, end of period |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
|
|
| Table of Contents |
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
MARCH 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
|
|
||
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Capitalized hardware and software development costs in accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Leased assets and lease liabilities terminated |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
|
|
| Table of Contents |
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Accumulated |
|
|
|
|
|||||||||
|
|
|
Issued |
|
|
Amount |
|
|
Capital |
|
|
OCI |
|
|
Deficit |
|
|
Total |
|
||||||
|
|
|
(Unaudited) |
|
|||||||||||||||||||||
|
Balance, January 1, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants in acquisition of IT Authorities, Inc. |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Accumulated |
|
|
|
|
|||||||||
|
|
|
Issued |
|
|
Amount |
|
|
Capital |
|
|
OCI |
|
|
Deficit |
|
|
Total |
|
||||||
|
|
|
(Unaudited) |
|
|||||||||||||||||||||
|
Balance, January 1, 2023 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gain |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2023 |
|
|
8,739,317 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
|
|
| Table of Contents |
|
WIDEPOINT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
|
|
1. |
Organization and Nature of Operations |
Organization
WidePoint Corporation (“WidePoint” or the “Company”) was incorporated in Delaware on May 30, 1997 and conducts operations through its wholly-owned operating subsidiaries throughout the continental United States, Ireland, the Netherlands and the United Kingdom. The Company’s principal executive and administrative headquarters is located in Fairfax, Virginia.
Nature of Operations
The Company is a leading provider of Technology Management as a Service (TMaaS). The Company’s TMaaS platform and service solutions enable its customers to efficiently secure, manage and analyze the entire lifecycle of their mobile communications assets through its federally compliant platform Intelligent Technology Management System (ITMS™). The Company’s ITMS platform is SSAE 18 compliant and was granted an Authority to Operate by the U.S. Department of Homeland Security. Additionally, the Company was granted an Authority to Operate by the General Services Administration with regard to its identity credentialing component of its TMaaS platform. The Company’s TMaaS platform is internally hosted and accessible on-demand through a secure customer portal that is specially configured for each customer. The Company can deliver these solutions in a number of configurations ranging from utilizing the platform as a service to a full-service solution that includes full lifecycle support for all end users and the organization.
A significant portion of the Company’s expenses, such as personnel and facilities costs, are fixed in the short term and may not be easily modified to manage through changes in the Company’s market place that may create pressure on pricing and/or costs to deliver its services.
The Company has periodic capital expense requirements to maintain and upgrade its internal technology infrastructure tied to its hosted solutions and other such costs may be significant when incurred in any given quarter.
|
2. |
Basis of Presentation and Accounting Policies |
Basis of Presentation
The unaudited condensed consolidated financial statements as of March 31, 2023 and for each of the three month periods ended March 31, 2023 and 2022, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the three month period ended March 31, 2023 are not necessarily indicative of the operating results for the full year.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and acquired entities since their respective dates of acquisition. All significant inter-company amounts were eliminated in consolidation.
| 9 |
|
|
| Table of Contents |
Foreign Currency
Assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of each reporting period. The resulting translation adjustments, along with any related tax effects, are included in accumulated other comprehensive income, a component of stockholders’ equity. Translation adjustments are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Revenues and expenses are translated at the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations outside the U.S. where the functional currency is the U.S. dollar, are reported net in the Company’s condensed consolidated statements of operations, depending on the nature of the activity.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring use of estimates and judgment relate to revenue recognition, allowance for credit losses, ability to realize intangible assets and goodwill, ability to realize deferred income tax assets, fair value of certain financial instruments and the evaluation of contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. There were no significant changes in accounting estimates used by management during the quarter.
Segment Reporting
The Company’s TMaaS offerings are substantially managed service driven solutions that use our proprietary technology platform to deliver our services and reported on that basis to its Chief Operating Decision Maker who evaluates its business as a single segment. See Note 15 for detailed information regarding the composition of revenues.
Significant Accounting Policies
There were no significant changes in the Company’s significant accounting policies during the first three months of 2023 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ” (“Topic 326”). Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 requires that credit losses be presented as an allowance rather than as a write-down. The adoption of this standard on January 1, 2023, did not have a material impact on the consolidated financial statements.
|
3. |
Fair Value Measurements |
The following tables present information about the Company’s liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets:
| 10 |
|
|
| Table of Contents |
|
|
|
MARCH 31, |
|
|
Quoted Prices in Active Markets |
|
|
Significant Other Observable Inputs |
|
|
Unobservable Inputs |
|
||||
|
Description |
|
2023 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
Liabilities: |
|
(Unaudited) |
|
|||||||||||||
|
Contingent consideration - cash settled |
|
$ |
|
|
|
|
- |
|
|
|
- |
|
|
$ |
|
|
|
Contingent consideration - warrants |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Total liabilities measured and recorded at fair value |
|
$ |
|
|
|
$ | - |
|
|
$ | - |
|
|
$ |
|
|
|
|
|
DECEMBER 31, |
|
|
Quoted Prices in Active Markets |
|
|
Significant Other Observable Inputs |
|
|
Unobservable Inputs |
|
||||
|
Description |
|
2022 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Contingent consideration - cash settled |
|
$ |
|
|
|
|
- |
|
|
|
- |
|
|
$ |
|
|
|
Contingent consideration - warrants |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Total liabilities measured and recorded at fair value |
|
$ |
|
|
|
$ | - |
|
|
$ | - |
|
|
$ |
|
|
The Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. The contingent consideration has been recorded at their fair value using a Monte Carlo simulation model. This model incorporates probability of achievement of certain milestones, risk-free rates and volatility. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.
Management estimates the fair value of the contingent consideration liability based on financial projections of IT Authorities, Inc.’s (ITA) business and forecasted results, including revenue growth rates, costs and expenses, volatility, and discount rates. The Company evaluates, on a routine, periodic basis, the estimated fair value of the contingent consideration and quarterly changes in estimated fair value are reflected in other income in the consolidated statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in changes of any of the key assumptions that are used. Changes in the estimated fair value of contingent consideration liability may have a material impact on the Company’s operating results.
There was no change in fair value of contingent consideration for the three months ended March 31, 2023.
|
4. |
Accounts Receivable and Significant Concentrations |
A significant portion of the Company’s receivables are billed under firm fixed price contracts with agencies of the U.S. federal government and similar pricing structures with several corporations. Accounts receivable consist of the following by customer type in the table below as of the periods presented:
| 11 |
|
|
| Table of Contents |
|
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
U.S. Federal, State, and Local Government (1) |
|
$ |
|
|
|
$ |
|
|
|
Commercial (2) |
|
|
|
|
|
|
|
|
|
Gross accounts receivable |
|
|
|
|
|
|
|
|
|
Less: allowances for credit |
|
|
|
|
|
|
|
|
|
losses (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
|
|
(1) Government contracts are generally firm fixed price not to exceed arrangements with a term of five (5) years, which consists of a base year and four (4) annual option year renewals. Government receivables are billed under a single consolidated monthly invoice and are billed approximately thirty (30) to sixty (60) days in arrears from the date of service and payment is generally due within thirty (30) days of the invoice date. Government accounts receivable payments could be delayed due to administrative processing delays by the government agency, continuing budget resolutions that may delay availability of contract funding, and/or administrative only invoice correction requests by contracting officers that may delay payment processing by our government customers.
(2) Commercial contracts are generally fixed price arrangements with contract terms ranging from two (2) to three (3) years. Commercial accounts receivables are billed based on the underlying contract terms and conditions which generally have repayment terms that range from thirty (30) to ninety (90) days. Commercial receivables are stated at amounts due from customers net of an allowance for credit losses if deemed necessary.
(3) For the three month period ended March 31, 2023, the Company did not recognize any material provisions of recoveries of existing provision for credit losses. The Company has not historically maintained an allowance for credit losses for its government customers as it has not experienced material or recurring credit losses and the nature and size of the contracts has not necessitated the Company’s establishment of such an allowance for credit losses.
Significant Concentrations
The following table presents revenue by customer for each of the periods presented:
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
MARCH 31, |
|
|||||
|
Customer Type |
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
U.S. Federal Government (1) |
|
|
|
% |
|
|
|
% |
(1) Sales to the U.S. federal government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government.
Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, the balances of which frequently exceed federally insured limits. If the financial institution with whom we do business were to be placed into receivership, we may be unable to access to the cash we have on deposit with such institutions. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our business could be adversely affected.
| 12 |
|
|
| Table of Contents |
|
5. |
Unbilled Accounts Receivable |
Unbilled accounts receivable represent revenues earned but not invoiced to the customer at the balance sheet date due to either timing of invoice processing or delays due to fixed contractual billing schedules. A significant portion of our unbilled accounts receivable consist of carrier services and hardware and software products delivered but not invoiced at the end of the reporting period.
The following table presents customers that represent ten (10) percent or more of consolidated unbilled accounts receivable as of the dates presented below:
|
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
As a % of |
|
|
As a % of |
|
||
|
Customer Type |
|
Receivables |
|
|
Receivables |
|
||
|
|
|
(Unaudited) |
|
|||||
|
U.S. Federal Government |
|
|
|
% |
|
|
|
% |
|
6. |
Other Current Assets and Accrued Expenses |
Other current assets consisted of the following as of the dates presented below:
|
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
Inventories |
|
$ |
|
|
|
$ |
|
|
|
Prepaid insurance and other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other current assets |
|
$ |
|
|
|
$ |
|
|
Accrued expenses consisted of the following as of the dates presented below:
|
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
Carrier service costs |
|
$ |
|
|
|
$ |
|
|
|
Salaries and payroll taxes |
|
|
|
|
|
|
|
|
|
Inventory purchases, consultants and other costs |
|
|
|
|
|
|
|
|
|
U.S. Income tax payable |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
7. |
Property and Equipment |
Major classes of property and equipment consisted of the following as of the dates presented below:
|
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
Computer hardware and software |
|
$ |
|
|
|
$ |
|
|
|
Furniture and fixtures |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
Automobiles |
|
|
|
|
|
|
|
|
|
Gross property and equipment |
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation and |
|
|
|
|
|
|
|
|
|
amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
|
|
|
$ |
|
|
During the three month periods ended March 31, 2023 and 2022, property and equipment depreciation expense was approximately $
During the three month periods ended March 31, 2023 and 2022, there were no material disposals of owned property and equipment.
There were no changes in the estimated useful lives used to depreciate property and equipment during the three month periods ended March 31, 2023 and 2022.
|
8. |
Leases |
On January 1, 2022, the Company entered into an amendment to its lease agreement for its Tampa office to amend the term and the extension option. The amendment updated the term of the lease from sixty (60) calendar months ending December 31, 2026 to the Company’s ability to terminate the lease on June 30, 2022. As a result of the amendment, the Company removed the lease right of use asset and lease liability for its Tampa office from its condensed consolidated balance sheet. The Company accounted for the lease as month to month and recorded the monthly rent expense in its condensed consolidated statement of operations.
|
9. |
Goodwill and Intangible Assets |
Goodwill consisted of the following:
The Company has recorded goodwill of $
Intangible assets consists of the following:
| 13 |
|
|
| Table of Contents |
|
|
|
MARCH 31, 2023 |
|
|||||||||
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|||
|
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
|||
|
|
|
(Unaudited) |
|
|||||||||
|
Customer Relationships |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Channel Relationships |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Internally Developed Software |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Trade Name and Trademarks |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
DECEMBER 31, 2022 |
|
|||||||||
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|||
|
|
|
Amount |
|
|
Amortization |
|
|
Value |
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|
|
|
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|
|||||||
|
Customer Relationships |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Channel Relationships |
|
|
|
|
|
|
(
|
) |
|
|
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|
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Internally Developed Software |
|
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|
|
(
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) |
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Trade Name and Trademarks |
|
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(
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) |
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|
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|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
For the three month period ended March 31, 2023, the Company capitalized $
For the three month period ended March 31, 2022, the Company capitalized $
There were no disposals of intangible assets during the three month period ended March 31, 2023.
The aggregate amortization expense recorded for the three month periods ended March 31, 2023 and 2022 were approximately $
As of March 31, 2023, estimated annual amortization for our intangible assets is approximately:
| 14 |
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| Table of Contents |
|
Remainder of 2023 |
|
$ |
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
|
10. |
Line of Credit |
Since June 15, 2017, the Company had a Loan and Security Agreement with Atlantic Union Bank (formerly known as Access National Bank) (the “Loan Agreement”).
In June 2022, the Company entered into a seventh and eighth modification agreement (“Modification Agreement”) with Atlantic Union Bank to amend the existing Loan Agreement.
The available amount under the working capital line of credit is subject to a borrowing base, which is equal to the lesser of (i) $
As of March 31, 2023, there was no outstanding balance under the line of credit. At December 31, 2022 and March 31, 2023, the Company was not in compliance with the tangible net worth covenant as its tangible net worth did not equal at least approximately $
On April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement (the “Agreement”) with Republic Capital Access, LLC (the “Buyer”) for the non-recourse sale of eligible trade receivables. Pursuant to the Agreement, the Company may from time to time offer and sell eligible accounts receivable to the Buyer at an initial purchase price equal to 90% of the receivable (85% if the account receivable debtor is not a government entity), subject to increase based on, among other things, the total amount collected and the discount factor applicable to the receivable.
|
11. |
Income Taxes |
The Company’s effective tax rate was (
| 15 |
|
|
| Table of Contents |
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Under existing income tax accounting standards such objective evidence is more heavily weighted in comparison to other subjective evidence such as our projections for future growth, tax planning and other tax strategies. The Company increased its valuation allowance approximately $
|
12. |
Stockholders’ Equity |
Common Stock
The Company is authorized to issue
During the three-month period ended March 31, 2022, there were
There were no stock option exercises during the three month periods ended March 31, 2023 and 2022.
Contingent Warrants
Liability-classified warrants consist of warrants to acquire common stock at an exercise price of $
Warrants Issued
On March 31, 2022, the Company issued a warrant to purchase
Stock Repurchase Program
On October 7, 2019, the Company announced that its Board of Directors approved a stock repurchase plan (the “Repurchase Plan”) to purchase up to $2.5 million of the Company’s common stock. Any repurchases will be made in compliance with the SEC’s Rule 10b-18 if applicable, and may be made in the open market or in privately negotiated transactions, including the entry into derivatives transactions. During November 2021, the Board increased the size of the Repurchase Plan to up to $5.0 million of the Company’s common stock, increasing the amount available for future purchases under the Repurchase Plan to $4.6 million. During the three-month period ended March 31, 2022, we repurchased
| 16 |
|
|
| Table of Contents |
At The Market Offering Agreement
On August 18, 2020, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”). The Company did not sell any shares during the three month period ended March 31, 2023.
Effective March 27, 2023, the Company provided notice to the sales agents under its At the Market Sales Agreement that it was terminating the agreement. Accordingly, no additional sales of shares of common stock will be made pursuant to such agreement.
|
13. |
Share-based Compensation |
Share-based compensation (including restricted stock awards) represents both stock option based expense and stock grant expense. The following table sets forth the composition of stock compensation expense included in general and administrative expense for the periods then ended:
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
MARCH 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
Restricted share-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation before taxes |
|
$ |
|
|
|
$ |
|
|
The Company’s stock incentive plan is administered by the Compensation Committee of the Board of Directors and authorizes the grant or award of incentive stock options, nonqualified stock options (NQSO), restricted stock awards (RSA), restricted stock units, stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options.
Restricted Stock
The Company records the fair value of all restricted stock shares based on the grant date fair value and amortizes stock compensation on a straight-line basis over the vesting period. Restricted stock shares are issued when vested and included in the total number of common shares issued and outstanding. There were no RSAs granted during the three month periods ended March 31, 2023 and 2022.
At March 31, 2023, the Company had approximately $
14. Earnings Per Common Share (EPS)
The computations of basic and diluted earnings per share were as follows for the periods presented below:
| 17 |
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| Table of Contents |
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
MARCH 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
Basic Earnings Per Share Computation: |
|
|
|
|
|
|
||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Weighted average number of common shares |
|
|
|
|
|
|
|
|
|
Basic Loss Per Share |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share Computation: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversions |
|
|
|
|
|
|
|
|
|
of dilutive securities |
|
|
- |
|
|
|
- |
|
|
Adjusted weighted average number of |
|
|
|
|
|
|
|
|
|
common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Loss Per Share |
|
$ |
(
|
) |
|
$ |
(
|
) |
For the three months ended March 31, 2023 and 2022, the Company had unexercised stock options and RSAs of
|
15. |
Revenue from Contracts with Customers |
The following table was prepared to provide additional information about the composition of revenues from contracts with customers for the periods presented:
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
MARCH 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
Carrier Services |
|
$ |
|
|
|
$ |
|
|
|
Managed Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The Company recognized revenues from contracts with customers for the following customer types as set forth below:
| 18 |
|
|
| Table of Contents |
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
MARCH 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
|
U.S. Federal Government |
|
$ |
|
|
|
$ |
|
|
|
U.S. State and Local Governments |
|
|
|
|
|
|
|
|
|
Foreign Governments |
|
|
|
|
|
|
|
|
|
Commercial Enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The Company recognized revenues from contracts with customers in the following geographic regions:
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
MARCH 31, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
|
|
(Unaudited) |
|
|||||
| North America |
|
$ |
|
|
|
$ |
|
|
| Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
During the three months ended March 31, 2023 and 2022, the Company recognized approximately $
|
16. |
Commitments and Contingencies |
Employment Agreements
The Company has employment agreements with certain executives that set forth compensation levels and provide for severance payments in certain instances.
Litigation
The Company is not involved in any material legal proceedings.
|
17. |
Subsequent Events |
As described in Note 11, effective April 28, 2023, the Company has entered into an Accounts Receivable Purchase Agreement (the Receivables Facility) with Republic Capital Access, LLC for the non-recourse sale of eligible trade receivables.
| 19 |
|
|
| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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; |
|
|
· |
Our ability to access sufficient financing on acceptable terms given the tightening credit markets due to the current banking environment; |
|
|
· |
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; |
|
|
· |
The impact of increasingly volatile public equity markets on our market capitalization; |
|
|
· |
The impact and outcome of negotiations around the Federal debt ceiling. |
|
|
· |
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, 2022 filed with the SEC on March 31, 2023. |
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 “WidePoint,” as well as the words “we,” “our,” “ours” and “us,” refer collectively to WidePoint Corporation and its consolidated subsidiaries.
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.
| 20 |
|
|
| Table of Contents |
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 December 31, 2022 filed with the SEC on March 31, 2023.
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.
During 2023, 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 and make strategic investments in our delivery infrastructure, |
|
|
· |
Grow our recurring high margin managed services revenues, |
|
|
· |
Add incremental capabilities to our Technology Management solution set and develop or 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 |
|
|
· |
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 mobility management (TM2) 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. |
| 21 |
|
|
| Table of Contents |
We believe these actions could drive a strategic repositioning of 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 continue to experience ongoing supply chain issues and have changed from just-in-time inventory for accessory items to keeping sufficient stock on hand and having to locate alternative sources if traditional suppliers cannot fulfill in a timely manner. In addition, we continue to experience supply price increases that we seek to mitigate by seeking volume discounts. 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. It is difficult to forecast when and if the supply chain will normalize.
Results of Operations
Three Months Ended March 31, 2023 as Compared to Three Months Ended March 31, 2022
Revenues. Revenues for the three month period ended March 31, 2023 were approximately $25.3 million, an increase of approximately $2.8 million (or 13%), as compared to approximately $22.4 million in 2022. Our mix of revenues for the periods presented is set forth below:
|
|
|
THREE MONTHS ENDED |
|
|
|
|
||||||
|
|
|
MARCH 31, |
|
|
Dollar |
|
||||||
|
|
|
2023 |
|
|
2022 |
|
|
Variance |
|
|||
|
|
|
(Unaudited) |
|
|
|
|
||||||
|
Carrier Services |
|
$ | 13,597,699 |
|
|
$ | 12,932,059 |
|
|
$ | 665,640 |
|
|
Managed Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Service Fees |
|
|
6,852,099 |
|
|
|
7,258,277 |
|
|
|
(406,178 | ) |
|
Billable Service Fees |
|
|
1,250,334 |
|
|
|
1,120,106 |
|
|
|
130,228 |
|
|
Reselling and Other Services |
|
|
3,573,549 |
|
|
|
1,125,985 |
|
|
|
2,447,564 |
|
|
|
|
|
11,675,982 |
|
|
|
9,504,368 |
|
|
|
2,171,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ | 25,273,681 |
|
|
$ | 22,436,427 |
|
|
$ | 2,837,254 |
|
Our carrier services revenue was $13.6 million, an increase of approximately $700,000, as compared with the same period in 2022. The increase is primarily due to a large federal government customer increasing the number of phone lines we manage by approximately 75% otherwise carrier services remained relatively constant from period to period.
Our managed service fees were $6.9 million and remained relatively constant from period to period.
Billable service fees, reselling and other revenues remained consistent with the same period in 2022.
Reselling and other services increased by $2.5 million from the same period last year primarily due to the resale of new capabilities provided by a third party partner for two large federal contracts. While Reselling and other services are transactional in nature, we expect to have additional sales of these new technical capabilities throughout the year, although the amount and timing of revenue could vary significantly from quarter to quarter.
Cost of Revenues. Cost of revenues for the three months period ended March 31, 2023 were approximately $21.5 million (or 85% of revenues), as compared to approximately $18.5 million (or 83% of revenues) in 2022. The increase in cost of revenues was a result of the corresponding costs related to the resale of the new capabilities provided by a third-party partner for two large federal contracts.
Gross Profit. Gross profit for the three months period ended March 31, 2023 was approximately $3.8 million (or 15% of revenues), as compared to approximately $3.9 million (or 17% of revenues) in 2022.
| 22 |
|
|
| Table of Contents |
The Gross Profit percentage excluding carrier services was 33% for the first quarter in 2023 compared to 41% in the same period last year. The lower gross margin percentage excluding carrier services was almost entirely related to the resale of the third party partner capabilities mentioned above. Our gross profit percentage will vary from quarter to quarter due to our revenue mix
Sales and Marketing. Sales and marketing expense for the three month period ended March 31, 2023 was approximately $0.5 million (or 2% of revenues), as compared to approximately $0.6 million (or 2% of revenues) in 2022. We continue to invest in our business development and sales team assets as identified as one of our key goals for 2023.
General and Administrative. General and administrative expenses for the three month period ended March 31, 2023 were approximately $3.7 million (or 15% of revenues), as compared to approximately $3.7 million (or 17% of revenues) in 2022. The change in general and administrative was not significant.
Depreciation and Amortization. Depreciation and amortization expense for the three month period ended March 31, 2023 was approximately $265,800 as compared to approximately $264,400 in 2022. The change in depreciation and amortization expense is related to capital investments in our delivery platforms reaching completion and beginning to be amortized.
Other Income (Expense). Other income (expense) for the three month period ended March 31, 2023 was an expense of approximately $(56,800) as compared to income of approximately $244,000 in 2022. The income in 2022 is primarily driven by the fair value adjustments of contingent consideration.
Income Taxes. Income tax provision for the three month period ended March 31, 2023 was approximately $6,300 as compared to income tax benefit of $51,100 in 2022. Income taxes were accrued at an estimated effective tax rate of (0.7)% for the three months ended March 31, 2023 compared to 11.5% for the three months ended March 31, 2022.
Net Loss. As a result of the cumulative factors annotated above, net loss for the three month period March 31, 2023 was approximately $951,500 as compared to net loss of approximately $392,900 in the same period last year.
Liquidity and Capital Resources
Our immediate sources of liquidity include cash, accounts receivable, unbilled receivables and access to factoring arrangement with Republic Capital Access, LLC with an initial capacity of $4 million, expandable to $10 million if needed. At March 31, 2023 the Company has a working capital facility with a Bank that is not expected to be renewed when it expires in June of 2023. The Company was not in compliance with the net tangible worth covenant as of December 31, 2022; however, the lender provided a waiver of that December 31, 2022 covenant violation. The Company expects no to be in compliance with the net tangible worth covenant and will let the facility expire on June 15, 2023.
At March 31, 2023, our net working capital was approximately $1.4 million as compared to $1.8 million at December 31, 2022. The decrease in net working capital was primarily driven by investments in computer hardware and software purchases and capitalized internally developed software costs, which was partially offset by temporary receivable/payable timing differences. We believe that our existing cash and our anticipated cash flows from operations, along with access to the factoring arrangement, will be sufficient to meet our working capital, expenditure, and contractual obligation requirements for the next 12 months and the foreseeable future.
Cash Flows from Operating Activities
For the three months ended March 31, 2023, net cash used by operations was approximately $2.5 million as compared to approximately $2.8 million net cash provided by operations for the three months ended March 31, 2022. The decrease from the same period in 2022 is a result of systems and process changes that slowed billing in the first quarter of 2023. The Company expects that billings will resume to a regular pace, or faster during 2023.
| 23 |
|
|
| Table of Contents |
Our single largest cash operating expense is the cost of labor and the 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 expenditures 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. We also may experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control.
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 three months ended March 31, 2023, cash used in investing activities was approximately $0.4 million and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ platform, secure identity management technology and network operations center.
For the three months ended March 31, 2022, cash used in investing activities was approximately $1.0 million and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ platform, secure identity management technology and network operations center, and TDI™.
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 three months ended March 31, 2023, cash used in financing activities was approximately $0.1 million and reflects line of credit advances and payments of approximately $4.3 million, lease principal repayments of approximately $125,600, and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $3,600.
For the three months ended March 31, 2022, cash provided by financing activities was approximately $1.0 million and reflects lease principal repayments of approximately $147,400, repurchases of common stock of $0.8 million and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200.
Net Effect of Exchange Rate on Cash and Equivalents
For the three months ended March 31, 2023 and 2022, the gradual appreciation of the Euro relative to the US dollar increased the translated value of our foreign cash balances by approximately $42,939 as compared to last year.
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.
Off-Balance Sheet Arrangements
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The Company has no existing off-balance sheet arrangements as defined under SEC regulations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the three month period ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceeding.
ITEM 1A RISK FACTORS
Our risk factors have not changed materially from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchase Plan
On October 7, 2019, the Company announced that its Board of Directors approved a stock repurchase plan (the “Repurchase Plan”) to purchase up to $2.5 million of the Company’s common stock. Any repurchases will be made in compliance with the SEC’s Rule 10b-18 if applicable, and may be made in the open market or in privately negotiated transactions, including the entry into derivatives transactions. During November 2021, the Board increased the size of the Repurchase Plan to up to $5.0 million of the Company’s common stock. During the quarter ended March 31, 2022, we repurchased 196,586 shares of our common stock for a total of $818,200 and subsequently in March of 2022, the board suspended the repurchase plan in order to use the company’s excess funds to invest into the business.
Repurchase of Securities
The following table represents information with respect to shares of common stock withheld from vesting’s of stock-based compensation awards for employee income tax withholding for the periods indicated:
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Dollar Value of Shares Purchased as |
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Maximum Dollar Value of Shares that |
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Total Number of |
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Average |
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as Part of Publicly |
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may be Purchased |
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Shares Purchased |
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Price Paid Per Share |
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Announced Plans or Programs |
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Under Approved Plans or Programs |
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March |
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1,993 |
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$ | 1.82 |
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- |
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$ | - |
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Total |
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1,993 |
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$ | 1.82 |
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- |
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$ | - |
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ITEM 3 DEFAULT UPON SENIOR SECURITIES
None
ITEM 4 MINE SAFETY DISCLOSURES
None
ITEM 5 OTHER INFORMATION
None
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ITEM 6. EXHIBITS
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EXHIBIT NO. |
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DESCRIPTION |
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101. |
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Interactive Data Files |
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101.INS+ XBRL Instance Document |
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101.SCH+ XBRL Taxonomy Extension Schema Document |
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101.CAL+ XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF+ XBRL Taxonomy Definition Linkbase Document |
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101.LAB+ XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE+ XBRL Taxonomy Extension Presentation Linkbase Document |
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104. Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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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 thereunto duly authorized.
| WIDEPOINT CORPORATION | |||
| Date: May 15 , 2023 | By: | /s/ JIN H. KANG | |
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Jin H. Kang | |
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President and Chief Executive Officer |
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| Date: May 15, 2023 | By: | /s/ ROBERT J. GEORGE | |
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Robert J. George | |
| Chief Financial Officer | |||
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