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spk03: Good afternoon ladies and gentlemen, and thank you for your patience. Your conference will begin shortly. Once again, thank you for your patience. Your conference will begin shortly. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Good afternoon ladies and gentlemen and thank you for your patience. The conference will begin shortly. Once again, thank you for your patience. Your conference will begin shortly. Thank you. Good afternoon. Welcome to WidePoint's second quarter 2022 earnings conference call. My name is Matthew, and I'll be your operator for today's call. Joining us for today's presentation are WidePoint's President and CEO, Jen Kang, Executive Vice President and Chief Sales and Marketing Officer, Jason Holloway, and CFO Robert George. Following the remarks, we will open up the call for questions from WidePoint's publishing analysts and major investors. If your questions were not taken today and you'd like additional information, please contact WidePoint's investor relations team at wyy at gatewayir.com. Before we begin the call, I would like to provide WidePoint's safe harbor statement that includes cautions regarding forward-looking statements made during this call. The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of WidePoints Corporation that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-Q, filed with the Securities and Exchange Commission. Finally, I'd like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at www.widepoint.com. Now I'd like to turn the call over to WidePoint's President and CEO, Mr. Jin Kang. Sir, please proceed.
spk02: Thank you, Operator, and good afternoon to everyone. Thank you for joining us today to review our financial results for the second quarter ended June 30, 2022. I'm excited to start by sharing that our revenue showed double digit percentage growth compared to the same period last year. And we see a strong second half of 2022 ahead of us, as we see a clear path to improve operating conditions and pending contract execution in our sales pipeline, in addition to contract wins already announced prior to our call. We have fortunately begun to see signs that the macroeconomic headwinds created by the pandemic and the supply chain disruptions are beginning to subside. In parallel with the macroeconomic conditions beginning to turn in our favor, we have also been able to start recognizing customer opportunities that has been pushed to the right in the past several quarters. Whether new or existing clients, the amount of recent interest we've received from our customers has resulted in a significant amount of momentum generated for WidePoint. An encouraging piece that I want to share is that our team's ability to upsell and cross-sell our set of solutions to existing customers. As our portfolio of product has grown, once we get our foot in the door with a client, it is much easier for us to upsell and cross-sell as our solutions provide a sticky and compelling value add into our clients' operations. The sales team continues to do a phenomenal job of expanding the scope of work with our existing clients and remains steadfast in their efforts to ensure we capitalize on all opportunities. The encouraging status report on the sales front, our market leading DOD multi-factor authentication solution, and our comprehensive managed mobility services combined with our team's ability to continuously operate efficiently internally has helped generate this momentum. In support of operating efficiently, we have reviewed our legacy organizational roles and recently made several strategic shifts within our corporate infrastructure to further streamline and consolidate roles and responsibilities. Our plan is, that focusing our resources and maximizing the efficiency of our company's operations will help us prioritize sales and operational objectives to exponentially grow our sales pipeline, enhance internal communications, improve synergies, minimize costs, and ultimately increase our profits. That said, I am pleased to share that we have recently promoted our very own Jason Holloway, currently YPoint's Executive Vice President and President of White Point Cybersecurity Solutions Corporation, and Chief Sales and Marketing Officer to the new role of Chief Revenue Officer. With this promotion, Jason will continue to spearhead sales and marketing, as well as all revenue-generating activities, including M&A, across all of our subsidiaries. Additionally, Todd Desak, President of White Point Integrated Solutions Corporation, has been promoted to Chief Operating Officer to manage all of our organization's North American operations. Also, Ian Sparling, CEO of our subsidiary Softex, will assume the role of Chief Operating Officer International. Again, the purpose of expanding the roles for Jason, Todd, and Ian, and the shift in our corporate infrastructure is to ensure that we're able to better focus, prioritize, and bring to bear the consolidated resources needed to accomplish our company's objectives and execute our strategies more effectively. These changes remove the constraint from our executives being confined to a certain YPoint subsidiary and give them a functional role across the entire company. We believe that YPoint has graduated onto the next phase of our corporate timeline and are confident that giving our executive a functional focus will be the most effective way to conduct business going forward. I believe that these changes will accelerate our growth as we head into the second half of this year and beyond. Additionally, this realignment comes at an ideal time as it will help us capture synergies from the recent IT authority acquisitions and best prepare us to integrate additional entities following M&A activities. I'll dive further into this topic later in this call. As I've shared on our prior earnings call, WidePoint has continued to make strategic investment back into our technology, notably our delivery system and our continuity of operations plan, or COOP. On the COOP front, we continue to make progress to ensure that our capabilities meet and exceed our clients' requirements. We recently tested our disaster recovery plans and verify that our processes and procedures work successfully. We are also investing in creating a hot COOP site to further enhance our disaster recovery capabilities. We continue to enhance our Intelligent Technology Management System, or ITMS, capabilities to improve our customers' user experience. We recently helped several federal agencies reduce their use of physical paperwork by streamlining their property and accountability process within their ITMS instances, thereby helping them achieve some of their ESG program goals. As I mentioned in our previous earnings call, we expect our FedRAMP sponsoring agency to complete their paperwork in Q3 and move our efforts to the in-process status. Also, as mentioned on our previous call, we operationalize our commercial identity and access management, or IAM, solutions. We continue to make enhancements to our IAM solutions, which is a solution that we have been showcasing to the K-12 institutions, bottling industry customers, banks, and other commercial entities. Additionally, we have successfully designed, developed, tested, and implemented our remote identity verification and certification certificate issuance process to streamline and reduce the cost of issuing digital certificates. This capability is a game changer for identity and access management solution, as it will now allow us to certify and issue digital certificates remotely and remove the need for our customers to physically travel to a registration site, saving them time and money, while at the same time reducing their carbon footprint. As a reminder, our IAM solution is the most secure, quantum-resistant, multi-factor authentication solution that is certified by the U.S. federal government. An encouraging note is how these investments into our products and solutions have resulted in incremental cross-sell and up-sell opportunities with existing customers. Recognize this return on investment from our time and resources being spent on investing back into our business has proven that one, our technology helps companies solve real problems, and two, There are significant business and business development opportunities that we need to ensure we capitalize on. And three, identity and access management is not optional. Our team is excited for what's ahead. We have already begun to see the incremental growth in our core business heading in the right direction. Coupled with the operational enhancements we'll be making, This ultimately gives us the utmost confidence that we are setting ourselves up for a greater success in the second half of the year and beyond. With that overview completed, I will now turn the call over to Jason to provide you with some details on the investment we are making on the sales and marketing front. Jason?
spk01: Thank you, Jim, and good afternoon, everyone. As Jen stated, we have a robust sales pipeline and are continuing to build momentum from a business development standpoint for both existing and new customers. The reason for this is due to a blend of several months of engagement that were pushed to the right finally coming to fruition in addition to the sales team finding cross-sell and up-sell opportunities with existing clients, as well as investments. we are making in sales and marketing that we see paying off in the fourth quarter and beyond. First, I'll touch on some of the net new wins I am able to share at this time. One of the more recent wins we announced was for our subsidiary, SoftX, and the launch of its three analyst platforms with 3UK, a connectivity company that covers 99% of the UK mobile user's with its combined 3G and 4G networks. The Three Analysts platform is SoftX's latest digital billing communications and analytics platform that's designed to provide customers with the ability to track mobile usage and spend. It provides billing insights so that customers can take control of communications spend via a self-serve portal and offers the option to have reports delivered straight to the client's inbox. We see this opportunity growing further as 3UK continues to grow and propagate our solution to their clients. Second, we are able to secure a new contract with a large retail bank through our subsidiary IT authorities. The White Point team also received notification of a new award from a federal bank and is currently under final contract negotiations. Next slide. I'd like to discuss some additional recent wins where we've successfully capitalized on cross-sell and up-sell opportunities, utilizing our combined set of solutions. To begin, as I shared on our last call, we engaged a large sports marketing and multimedia rights holder for some of the most prestigious sports venues across the country earlier this year. Our engagement led to a contract award valued at over $600,000 with a contract period of 12 months. We see this contract continuing to expand as more sport names are added to their list of customers. I look forward to providing you updates on the growth of this customer in our future calls as well as potentially disclosing the name of this customer as our relationship progresses. Recently, our sales team was also able to successfully close a mobility management and an identity and access management deal with one of the country's leading beverage companies. Speaking of beverage companies, I'd like to reiterate the recent press release in which IT authorities had been working with a leading US beverage bottler on a month-to-month basis for a long time. As a result of IT authorities' superior service delivery and their ability to offer expanded services through WidePoint, a three-year managed service contract was awarded and is valued at $2.6 million. You also may have seen another press release this past Wednesday where the customer has issued us another contract for managed mobility valued at over $600,000. We see this relationship continuing to flourish and I look forward to providing you with more good news on this front. As you can see, we have a healthy mix of existing federal government and commercial enterprise customers and a multitude of prospective ones in the pipeline that we are looking to close and announce over the coming months. I am very excited for some of these contract wins to come to fruition. and look forward to sharing with you all further detail when we are able. We've also continued to move full stream ahead with our indirect sales strategy, which is to team with large entrenched systems integrators and expand our relationships with both prominent players in the commercial and federal sectors. We have recently signed a partnership agreement with a leading endpoint security company. Contract details of which is currently being negotiated. More on this soon. A final comment from me today. I am really excited about our realignment plan. The talents of our team will be even better focused to realize our strategic goals. I look forward to my expanded responsibilities as Chief Revenue Officer and working with our team to maximize our products and sales opportunities. With that, I will hand the call over to Bob.
spk04: Thank you, Jason. Good afternoon, everyone. I'm pleased to share the details of our second quarter 2022 financial results. For the second quarter, our total revenue increased by 16%, or $3.1 million to $23.1 million, from $20 million reported for the same quarter last year. For the six-month period ended June 30, 2022, total revenues increased 12%, or $4.9 million, to $45.5 million, from $40.6 million for the first six-month period last year. Carrier services revenues increased by 5 percent, or $600,000, to $12.5 million from $11.9 million in the second quarter of last year. This is primarily due to a large federal government customer increasing the number of phone lines we manage by approximately 75 percent. Otherwise, carrier services range constant from the same period last year. For the six months ended June 2022, our carrier services increased by 9%, or $2.2 million to $25.4 million from $23.3 million in the same period in 2021. This is primarily due to carrier credits of approximately $1.7 million reflected in the first half of 2021, but not in the first half of 2022. the increase in managed phone lines from the federal government customer I just previously mentioned. Our managed services revenues increased by 30 percent from $8.1 million to $10.6 million in the second quarter of 2022 compared to the same period last year. For the six-month period, managed services increased by 15 percent from $17.4 million to $20.1 million in the same period last year. Within managed services, Our managed services fees remain relatively constant between this year and last year at $6.7 million in the second quarter of 2022, compared with $6.6 million in 2021. However, decreases in our recycling service volumes and accessory sales of approximately $1.5 million were offset by approximately $1.6 million of managed services revenue from our ITA business, which was not included in the second quarter of 2021. For the six months ended June 2022, our managed services fees decreased by 6%, or $900,000 from $14.9 million to $14 million, largely due to lower device recycling and service volumes and accessory sales. This decrease was offset by approximately $3.2 million of managed service revenue from our ITA business, which was not included in the first half of 2021. In the second quarter of 2022, reselling and other services increased by $2.4 million to $2.9 million from $400,000 in the second quarter of last year. A major driver of the increase was that during the three months into June 30, 2022, we completed a large resale of Unified Endpoint Management, or UEM, software licenses to a single federal government customer in the amount of $1.7 million. Additionally, the increase was bolstered by approximately $450,000 of reselling revenues to mostly commercial customers for our ITA business, which was not included in our 2021 results. In the six-month period ended June 30, reselling and other services increased by $3.5 million to $4 million as compared to $500,000 last year. The increase was related to the large resale of UEM software, as I previously mentioned, and approximately $1.1 million of reselling revenues from our ITA business, which was not included in the first half results. Our gross profit for the second quarter of 2022 was $3.3 million, or 14% of revenues, as compared to $3.9 million, or 20% of revenues, in the first quarter of 2021. Gross profit for the six-month period ended June 30, 2022, was approximately $7.2 million, or 16% of revenues, as compared to 8.7% or 21% of revenues in the first half of 2021. The lower gross margin is related to market conditions we faced in the first half of the year in our ITA business and to an extent in other areas of our business as well, namely in three areas. One, increased employee turnover as a result of the so-called great resignation and higher employee replacement costs to include recruiting costs and the use of more expensive subcontractors. Two, wage inflation due to the scarcity of highly sought-after resources. And three, customer projects, particularly in the commercial sector, being delayed due to uncertainty in the macroeconomic environment. Although we have taken staffing and other actions to mitigate the headwinds in the first half of the year, there's still some uncertainty related macroeconomic environment ahead. In the second quarter of 2022, operating expenses increased to $4.6 million from $4.1 million in the second quarter of last year. For the six months ended June 30, 2022, operating expenses increased 14% to $9.2 million from $8.1 million in the first half of last year. The increase in operating expense was primarily due to the investment in ITA, which added $700,000 and $1.5 million of operating expenses in the second quarter and the first six months of 2022, respectively. Now regarding the non-cash goodwill impairments. In the first half of this year, especially in the second quarter, there was a pronounced deterioration in macroeconomic conditions that resulted in a significant decline in Y points market capitalization. This significant decline, known under U.S. GAAP as a triggering event, which is defined as events both inside and outside the company that adversely impact the company, including but not limited to a contract or customer loss, new
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