WidePoint(WYY) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents WidePoint Corporation's unaudited condensed consolidated financial statements for Q1 2023 and 2022, including key financial statements and accompanying notes Condensed Consolidated Statements of Operations The Condensed Consolidated Statements of Operations show a significant increase in net loss for the three months ended March 31, 2023, primarily driven by higher cost of revenues and a shift from other income to other expense compared to the prior year Key Financial Metrics | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | REVENUES | $25,273,681 | $22,436,427 | | COST OF REVENUES | $21,463,741 | $18,539,702 | | GROSS PROFIT | $3,809,940 | $3,896,725 | | LOSS FROM OPERATIONS | $(888,401) | $(688,034) | | Total other income (expense), net | $(56,776) | $244,062 | | NET LOSS | $(951,479) | $(392,897) | | EARNINGS PER SHARE, BASIC AND DILUTED | $(0.11) | $(0.04) | - Revenues increased by approximately $2.8 million (13%) from $22.4 million in Q1 2022 to $25.3 million in Q1 2023. However, net loss widened from $(392,897) to $(951,479) year-over-year[9][98] Condensed Consolidated Statements of Comprehensive Loss The Condensed Consolidated Statements of Comprehensive Loss show an increased comprehensive loss for the three months ended March 31, 2023, primarily due to the higher net loss, partially offset by positive foreign currency translation adjustments Comprehensive Loss Details | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | NET LOSS | $(951,479) | $(392,897) | | Foreign currency translation adjustments, net of tax | $37,248 | $(4,835) | | COMPREHENSIVE LOSS | $(914,231) | $(397,732) | - Comprehensive loss increased from $(397,732) in Q1 2022 to $(914,231) in Q1 2023, despite a positive foreign currency translation adjustment of $37,248 in 2023 compared to a loss of $(4,835) in 2022[10] Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets indicate a slight decrease in total assets and stockholders' equity as of March 31, 2023, compared to December 31, 2022, primarily due to a reduction in cash and an increase in accounts payable Balance Sheet Summary | Metric | March 31, 2023 ($) | December 31, 2022 ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cash | $4,577,963 | $7,530,864 | | Total current assets | $27,563,060 | $27,988,052 | | Total assets | $48,389,103 | $49,012,661 | | Total current liabilities | $26,422,285 | $26,143,812 | | Total liabilities | $31,415,643 | $31,261,458 | | Total stockholders' equity | $16,973,460 | $17,751,203 | - Cash decreased by approximately $2.95 million from December 31, 2022, to March 31, 2023. Total stockholders' equity also decreased by approximately $0.78 million during the same period[12][14] Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows show a significant shift from cash provided by operating activities in Q1 2022 to cash used in operating activities in Q1 2023, contributing to a net decrease in cash Cash Flow Summary | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(2,489,048) | $2,825,427 | | Net cash used in investing activities | $(359,270) | $(983,873) | | Net cash used in financing activities | $(129,196) | $(1,014,840) | | NET (DECREASE) INCREASE IN CASH | $(2,952,901) | $787,764 | | CASH, end of period | $4,577,963 | $7,267,744 | - Net cash used in operating activities was $(2.49) million in Q1 2023, a substantial decrease from $2.83 million provided by operations in Q1 2022, primarily due to systems and process changes that slowed billing[16][113] Condensed Consolidated Statements of Changes in Stockholders' Equity The Condensed Consolidated Statements of Changes in Stockholders' Equity reflect a decrease in total stockholders' equity for the three months ended March 31, 2023, mainly due to the net loss, partially offset by share-based compensation and foreign currency translation gains Stockholders' Equity Changes | Metric | Balance, January 1, 2023 ($) | Balance, March 31, 2023 ($) | | :-------------------------------- | :----------------------- | :---------------------- | | Common Stock Issued | 8,725,476 | 8,739,317 | | Common Stock Amount | $8,726 | $8,740 | | Additional Paid-In Capital | $101,194,185 | $101,330,659 | | Accumulated OCI | $(350,234) | $(312,986) | | Accumulated Deficit | $(83,101,474) | $(84,052,953) | | Total Stockholders' Equity | $17,751,203 | $16,973,460 | - Total stockholders' equity decreased by approximately $0.78 million from January 1, 2023, to March 31, 2023, primarily due to a net loss of $(951,479), partially offset by $140,116 in stock compensation expense and $37,248 in foreign currency translation gain[18][19] Notes to Condensed Consolidated Financial Statements These notes provide detailed information supporting the condensed consolidated financial statements, covering accounting policies, fair value, receivables, assets, liabilities, equity, and revenue recognition 1. Organization and Nature of Operations WidePoint Corporation, incorporated in Delaware in 1997, operates through wholly-owned subsidiaries across the US, Ireland, Netherlands, and UK. It is a leading provider of Technology Management as a Service (TMaaS) via its federally compliant ITMS™ platform, offering secure lifecycle management of mobile communications assets and identity credentialing - WidePoint Corporation provides federally certified Technology Management as a Service (TMaaS) solutions through its Intelligent Technology Management System (ITMS™) platform, which is SSAE 18 compliant and has an Authority to Operate from the U.S. Department of Homeland Security and General Services Administration[21][22] 2. Basis of Presentation and Accounting Policies The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and U.S. GAAP, consolidating all wholly-owned subsidiaries. Key accounting policies include foreign currency translation, use of estimates, and single-segment reporting. The adoption of ASU No. 2016-13 on credit losses did not materially impact the financial statements - The Company operates as a single segment, with its Chief Operating Decision Maker evaluating the business based on its TMaaS offerings[28] - The adoption of ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)," on January 1, 2023, did not have a material impact on the consolidated financial statements[30] 3. Fair Value Measurements The Company's liabilities measured at fair value on a recurring basis consist of contingent consideration, categorized as Level 3 within the fair value hierarchy. These are valued using a Monte Carlo simulation model, and there was no change in their fair value for the three months ended March 31, 2023 Fair Value Liabilities | Description | March 31, 2023 (Level 3) ($) | December 31, 2022 (Level 3) ($) | | :------------------------------------ | :----------------------- | :-------------------------- | | Contingent consideration - cash settled | $6,500 | $6,500 | | Contingent consideration - warrants | $400 | $400 | | Total liabilities measured and recorded at fair value | $6,900 | $6,900 | - Contingent consideration is categorized as Level 3 and valued using a Monte Carlo simulation model, incorporating probability of achievement, risk-free rates, and volatility. No change in fair value occurred in Q1 2023[33][34][35] 4. Accounts Receivable and Significant Concentrations Accounts receivable primarily stem from U.S. federal government contracts, which represent a significant concentration of revenue. The Company maintains an allowance for credit losses for commercial customers but not historically for government customers due to low credit loss experience Accounts Receivable Breakdown | Customer Type | March 31, 2023 ($) | December 31, 2022 ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | U.S. Federal, State, and Local Government | $7,952,334 | $7,272,993 | | Commercial | $2,322,209 | $2,055,782 | | Gross accounts receivable | $10,274,543 | $9,328,775 | | Less: allowances for credit losses | $72,271 | $51,666 | | Accounts receivable, net | $10,202,272 | $9,277,109 | Revenue Concentration by Customer Type | Customer Type | Three Months Ended March 31, 2023 (%) | Three Months Ended March 31, 2022 (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | | U.S. Federal Government | 80.0% | 77.7% | - U.S. Federal Government customers accounted for 80.0% of total revenue in Q1 2023, up from 77.7% in Q1 2022, indicating a continued significant concentration[39] 5. Unbilled Accounts Receivable Unbilled accounts receivable represent earned revenues not yet invoiced, primarily from carrier services and hardware/software products. A substantial portion, 96% as of March 31, 2023, is attributable to U.S. Federal Government customers Unbilled Receivables by Customer Type | Customer Type | March 31, 2023 (As a % of Receivables) | December 31, 2022 (As a % of Receivables) | | :-------------------- | :------------------------------------- | :---------------------------------------- | | U.S. Federal Government | 96% | 97% | - Unbilled accounts receivable for U.S. Federal Government customers remained a dominant portion, at 96% in Q1 2023, consistent with 97% in Q4 2022[43] 6. Other Current Assets and Accrued Expenses Other current assets include inventories and prepaid insurance, showing a slight increase. Accrued expenses, primarily carrier service costs, decreased from December 31, 2022, to March 31, 2023 Other Current Assets | Other Current Assets | March 31, 2023 ($) | December 31, 2022 ($) | | :--------------------------- | :-------------------------------- | :-------------------------------- | | Inventories | $239,658 | $222,279 | | Prepaid insurance and other assets | $699,529 | $713,699 | | Total other current assets | $939,187 | $935,978 | Accrued Expenses | Accrued Expenses | March 31, 2023 ($) | December 31, 2022 ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Carrier service costs | $8,159,230 | $8,402,770 | | Salaries and payroll taxes | $1,609,058 | $1,637,628 | | Inventory purchases, consultants and other costs | $746,113 | $1,205,209 | | Total accrued expenses | $10,652,753 | $11,327,269 | 7. Property and Equipment Net property and equipment remained relatively stable, with minor increases in computer hardware and software. Depreciation expense increased in Q1 2023 compared to Q1 2022 Property and Equipment Details | Property and Equipment | March 31, 2023 ($) | December 31, 2022 ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Computer hardware and software | $3,268,634 | $3,158,428 | | Gross property and equipment | $4,184,486 | $4,067,664 | | Less: accumulated depreciation and amortization | $3,205,853 | $3,089,446 | | Property and equipment, net | $978,633 | $978,218 | - Property and equipment depreciation expense was approximately $116,400 for Q1 2023, an increase from $93,700 in Q1 2022[46] 8. Leases The Company amended its Tampa office lease, allowing termination on June 30, 2022, and subsequently accounted for it as a month-to-month lease, removing the associated right-of-use asset and liability from the balance sheet - The Company terminated its Tampa office lease right of use asset and lease liability from its balance sheet as of June 30, 2022, and now accounts for the lease on a month-to-month basis[48] 9. Goodwill and Intangible Assets Goodwill remained constant at $5,811,578. Intangible assets, primarily internally developed software, decreased slightly due to amortization, despite new capitalizations for ITMS™ upgrades - Goodwill remained unchanged at $5,811,578 as of March 31, 2023[49] Intangible Assets Net Book Value | Intangible Asset | March 31, 2023 (Net Book Value) ($) | December 31, 2022 (Net Book Value) ($) | | :-------------------------- | :------------------------------ | :--------------------------------- | | Customer Relationships | $2,033,200 | $2,093,000 | | Channel Relationships | $1,065,832 | $1,109,634 | | Internally Developed Software | $3,026,372 | $3,119,550 | | Trade Name and Trademarks | $1,053,802 | $1,075,976 | | Total | $7,179,206 | $7,398,160 | - The Company capitalized $453,300 of internally developed software costs in Q1 2023, primarily for ITMS™ upgrades, with $280,220 transferred from capital work in progress[51] 10. Line of Credit The Company was non-compliant with its Atlantic Union Bank line of credit covenant and will not renew it, instead entering a new $4 million accounts receivable purchase agreement - The Company was not in compliance with the tangible net worth covenant of its Atlantic Union Bank line of credit as of March 31, 2023, and does not plan to renew the facility expiring June 15, 2023[59] - On April 28, 2023, WidePoint entered into a new Accounts Receivable Purchase Agreement with Republic Capital Access, LLC for non-recourse sale of eligible trade receivables, with an initial capacity of $4 million, expandable to $10 million[60] 11. Income Taxes The Company's effective tax rate was (0.7)% for Q1 2023, a significant decrease from 11.5% in Q1 2022, primarily due to a full valuation allowance against deferred tax assets and state minimum taxes. The valuation allowance increased by approximately $238,000 during the quarter Income Tax Metrics | Metric | Three Months Ended March 31, 2023 (%) | Three Months Ended March 31, 2022 (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | | Effective Tax Rate | (0.7)% | 11.5% | | Income Tax Provision (Benefit) | $6,302 | $(51,075) | - The effective tax rate decreased from 11.5% in Q1 2022 to (0.7%) in Q1 2023, mainly due to the full valuation allowance maintained against deferred tax assets[61][62] 12. Stockholders' Equity Stockholders' equity details common stock, contingent warrants, and the stock repurchase program. Common stock shares increased slightly due to vested restricted stock awards. The stock repurchase plan was suspended in March 2022 to invest funds into the business - As of March 31, 2023, there were 8,741,310 shares of common stock issued and outstanding. 15,837 shares of common stock vested in Q1 2023, with 1,993 shares withheld for tax liability[63] - The stock repurchase plan, which had repurchased 196,586 shares for $818,200 in Q1 2022, was suspended in March 2022 to reallocate funds for business investments[69] 13. Share-based Compensation Share-based compensation expense, primarily from restricted stock awards, decreased in Q1 2023 compared to Q1 2022. No new restricted stock awards were granted during these periods Share-based Compensation Expense | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Restricted share-based compensation expense | $140,116 | $179,741 | | Total share-based compensation before taxes | $140,116 | $179,741 | - Share-based compensation expense decreased from $179,741 in Q1 2022 to $140,116 in Q1 2023. No new Restricted Stock Awards (RSAs) were granted in either period[71][72] 14. Earnings Per Common Share (EPS) Basic and diluted loss per share increased to $(0.11) in Q1 2023 from $(0.04) in Q1 2022, reflecting the higher net loss. Outstanding stock options, RSAs, and warrants were anti-dilutive in both periods Earnings Per Share Calculation | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(951,479) | $(392,897) | | Weighted average number of common shares | 8,739,317 | 8,782,452 | | Basic Loss Per Share | $(0.11) | $(0.04) | | Diluted Loss Per Share | $(0.11) | $(0.04) | - Basic and diluted loss per share worsened to $(0.11) in Q1 2023 from $(0.04) in Q1 2022, with all potentially dilutive securities being anti-dilutive[75] 15. Revenue from Contracts with Customers Total revenues increased in Q1 2023, driven by growth in both carrier services and managed services. The U.S. Federal Government remains the largest customer segment, and North America is the primary geographic region for revenue generation Revenue by Type | Revenue Type | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :----------------- | :-------------------------------- | :-------------------------------- | | Carrier Services | $13,597,701 | $12,932,055 | | Managed Services | $11,675,980 | $9,504,372 | | Total Revenues | $25,273,681 | $22,436,427 | Revenue by Customer Type | Customer Type | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | U.S. Federal Government | $20,230,576 | $17,433,723 | | Commercial Enterprises | $4,935,525 | $4,844,155 | | Total Revenues | $25,273,681 | $22,436,427 | Revenue by Geographic Region | Geographic Region | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | | :------------------ | :-------------------------------- | :-------------------------------- | | North America | $24,209,410 | $21,434,634 | | Europe | $1,064,271 | $1,001,793 | | Total Revenues | $25,273,681 | $22,436,427 | 16. Commitments and Contingencies The Company has employment agreements with certain executives and is not currently involved in any material legal proceedings - The Company is not involved in any material legal proceedings[80] 17. Subsequent Events As of April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement with Republic Capital Access, LLC for the non-recourse sale of eligible trade receivables, as further described in Note 10 - On April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement with Republic Capital Access, LLC for the non-recourse sale of eligible trade receivables[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the Company's financial condition, operations, liquidity, and capital resources for Q1 2023 and 2022 Cautionary Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including supply chain issues, profitability, financing access, market acceptance, contract execution, competition, and economic factors. Readers are cautioned not to place undue reliance on these statements - Forward-looking statements are subject to risks such as supply chain issues, ability to sustain profitability, access to financing, market acceptance, contract execution, competition, and the impact of volatile public equity markets[82] Business Overview WidePoint is a leading provider of Technology Management as a Service (TMaaS), offering federally certified solutions for communications management, identity management, interactive bill presentment and analytics, and IT as a Service. These solutions help clients manage mobility, IT, and cybersecurity objectives through a flexible, scalable, and secure managed services model - WidePoint provides federally certified Technology Management as a Service (TMaaS) solutions, including communications management, identity management, and IT as a Service, through a flexible managed services model[85][86] Revenue Mix The Company's revenue mix fluctuates due to customer-driven factors such as technology refresh cycles, new customer onboarding, optimization of carrier services, delivery delays, and changes in customer control or funding, leading to quarterly variations - Revenue mix fluctuates due to factors including customer technology refresh requirements, onboarding of new customers, optimization of carrier services, delivery delays, and changes in customer control or funding[88] Strategic Focus and Notable Events WidePoint's long-term strategic focus is to expand its critical mass to fund technology investments, increase market share, and broaden offerings for sustainability and growth. Key goals for 2023 include mitigating inflation, capturing new sales, growing high-margin managed services, enhancing software platforms, and expanding the customer base organically and through acquisitions - Long-term strategic focus is to expand critical mass to fund technology investments, increase market share, and broaden offerings[91] - Key goals for 2023 include mitigating inflation, finding new sales opportunities, growing recurring high-margin managed services, attaining FedRAMP certification, enhancing software platforms for SaaS growth, and expanding the customer base[92][93] - The Company continues to experience supply chain issues, leading to changes in inventory strategy (keeping sufficient stock) and seeking volume discounts to mitigate price increases[96] Results of Operations This section details the financial performance for the three months ended March 31, 2023, compared to the same period in 2022, highlighting changes in revenues, cost of revenues, gross profit, operating expenses, other income/expense, income taxes, and net loss Three Months Ended March 31, 2023 as Compared to Three Months Ended March 31, 2022 Revenues increased by 13% to $25.3 million, driven by carrier services and reselling activities. However, gross profit percentage declined due to higher cost of revenues from third-party partner resales, leading to a widened net loss Revenue Comparison | Metric | 2023 (3 months) ($) | 2022 (3 months) ($) | Dollar Variance ($) | | :---------------------- | :-------------- | :-------------- | :-------------- | | Carrier Services | $13,597,699 | $12,932,059 | $665,640 | | 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 | | Total Revenues | $25,273,681 | $22,436,427 | $2,837,254 | - Revenues increased by $2.8 million (13%) to $25.3 million in Q1 2023, primarily due to a $2.5 million increase in reselling and other services from new third-party partner capabilities for federal contracts, and a $0.7 million increase in carrier services[98][101] - Gross profit decreased from $3.9 million (17% of revenues) in Q1 2022 to $3.8 million (15% of revenues) in Q1 2023, mainly due to higher cost of revenues associated with the resale of third-party partner capabilities[9][102][104] - Net loss widened to approximately $(951,500) in Q1 2023 from $(392,900) in Q1 2022, influenced by the lower gross profit percentage and a shift from other income to other expense[9][107][109] Liquidity and Capital Resources The Company's liquidity sources include cash, receivables, and a new factoring arrangement. Net working capital decreased to $1.4 million. Cash used in operating activities increased significantly due to billing slowdowns, while cash used in investing activities decreased. Financing activities primarily involved line of credit advances and repayments - Immediate liquidity sources include cash, accounts receivable, unbilled receivables, and a new factoring arrangement with Republic Capital Access, LLC (initial capacity $4 million, expandable to $10 million)[111] - Net working capital decreased from $1.8 million at December 31, 2022, to $1.4 million at March 31, 2023, primarily due to investments in computer hardware/software and capitalized internally developed software costs[112] - Net cash used in operating activities was approximately $2.5 million in Q1 2023, a decrease from $2.8 million provided in Q1 2022, attributed to systems and process changes that slowed billing[113] - Cash used in investing activities decreased from $1.0 million in Q1 2022 to $0.4 million in Q1 2023, primarily for computer hardware/software purchases and capitalized internally developed software costs[116][117] - Cash used in financing activities was approximately $0.1 million in Q1 2023, reflecting $4.3 million in line of credit advances and repayments, lease principal repayments, and withholding taxes[119] - The Company has experienced wage inflation, particularly in its commercial ITA business, and continues to monitor potential future inflationary pressures on equipment and labor costs[122] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item states that no disclosures are required regarding quantitative and qualitative market risk - No quantitative and qualitative disclosures about market risk are required for this report[124] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2023[125] - There were no material changes in the Company's internal control over financial reporting during the three months ended March 31, 2023[127] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently involved in any material legal proceedings - The Company is not currently involved in any material legal proceedings[128] Item 1A. Risk Factors The Company's risk factors have not materially changed from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - Risk factors have not materially changed from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[129] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's stock repurchase plan, which was suspended in March 2022, and information regarding shares withheld from stock-based compensation awards for employee income tax withholding - The stock repurchase plan, which had authorized up to $5.0 million, was suspended in March 2022 after repurchasing 196,586 shares for $818,200 in Q1 2022, to invest excess funds into the business[130] Shares Purchased | Period | Total Number of Shares Purchased | Average Price Paid Per Share ($) | | :----- | :------------------------------- | :--------------------------- | | March | 1,993 | $1.82 | Item 3. Default Upon Senior Securities The Company reported no default upon senior securities - There was no default upon senior securities[134] Item 4. Mine Safety Disclosures The Company reported no mine safety disclosures - There were no mine safety disclosures[134] Item 5. Other Information The Company reported no other information - There was no other information to report[134] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Accounts Receivable Purchase Agreement, certifications, and XBRL interactive data files - Exhibits include the Accounts Receivable Purchase Agreement (10.1), CEO and CFO certifications (31.1, 31.2, 32), and various XBRL interactive data files (101.INS+, 101.SCH+, etc.)[134]