WidePoint Corporation

Good afternoon, ladies and gentlemen. Please remain on the line. Your call will begin momentarily. Thank you. Thank you. Thank you. Thank you. Good afternoon. Welcome to WidePoint's First Quarter 2024 Earnings Conference Call. My name is Kelly and I will be your operator for today's call. Joining us for today's presentation are WidePoint's President and CEO, Jin Kang, Chief Revenue Officer, Jason Holloway, and Chief Financial Officer, Robert George. Following their remarks, we will open up the call for question from WidePoint's Publishing Analysts and Major Investors. If your questions were not taken today and you would like additional information, please contact WidePoint's investor relations team at wyy at gateway-grp.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 WidePoint Corporation that involve risk 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 would like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at www.widepoint.com. Now I would like to turn the call over to WidePoint's President and CEO, Mr. Jin Kang. Sir, please proceed.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today to review our financial results for the first quarter ended March 31, 2024. Revenue, adjusted EBITDA, and free cash flow were $34.2 million, $573,000, and $566,000 respectively. Bob will provide additional details on these remarkable improved financials in his financial summary. Additionally, we achieved our 27th consecutive quarter of positive adjusted EBITDA. These achievements are largely attributed to the success of our sales and marketing initiatives which we outlined in the previous earnings call, and intend to aggressively continue pursuing throughout 2024. In the first quarter, we saw over 18 contractual actions totaling approximately 22.7 million in contract value. A majority of these contracts consisted of federal government agencies, including the U.S. Department of Homeland Security, U.S. Customs and Border Protection, the National Science Foundation, and the Transportation Security Administration. This success underscores our commitment to delivering integrated solutions tailored to the unique needs of our customers. We have strategically positioned each of our solutions to complement and enhance one another while leveraging our as a service business model to ensure a seamless approach to secure mobility management. As a result of our laser focus approach of a more proactive sales and marketing strategy, We have more recently conducted advanced talks on several potential contract deals that could contribute to significant growth for the future quarters ahead. First, we recently were awarded the Spiral 4 contract by the U.S. Navy to provide wireless and telecommunication services. WiPoint was selected alongside six other companies, which includes the U.S. Big 3 wireless carriers, to provide a full range of wireless and telecommunication services. This indefinite delivery, indefinite quantity, or IDIQ contract has a one-year base period valued at approximately $267 million and nine one-year option periods with a total contract value worth approximately $2.7 billion, if all options are exercised. This award is a testament to our commitment to providing superior, secure, managed mobility solutions to large enterprises, both public and private. And to give you a flavor of how significant this deal can be, we are creating a program management office to ensure there is ample bandwidth to capture more than our fair share of work under this contract. We are honored to be included in this group and look forward to providing our services to U.S. Navy personnel and civilian team members. Second, we are in active negotiations with the California City to provide managed services. Though we are unable to disclose specific details at this time, we are very optimistic about the direction of these discussions and anticipate sharing further details when appropriate. Outside of these contracts I just mentioned, our pipeline remains robust with additional deals and opportunities currently under negotiation. This pipeline of new deals serve as a testament to the effectiveness of our sales and marketing team that has positioned us favorably for a promising 2024. Investment in this initiative are ongoing, and we are actively looking to add resources and senior staffing across the DC area to bolster our capabilities to attain higher margin contracts. Furthermore, our $350 million contract backlog serves as a potent catalyst in our back pocket to propel our financial performance to even greater heights in the foreseeable future. With additional deals currently in the pipeline, we are well positioned to potentially increase this contract backlog total. I also want to point out that we are beating our competitors, especially in the managed mobility and interactive billing arena, with several recently announced contracts where we displaced our competitors. We are actively targeting our competitors' clients as we believe that our solution sets are superior in technology, performance, and cost. An area I want to spend a brief moment addressing, the impact the carrier services revenue have on our overall gross profit margin, which has generated a sizable misconception in our equity story. As many of you know, a notable portion of our revenue and cost of sales contain our pass-through carrier services revenue, which relate to carrier invoices we process and pay on behalf of our DHS customer as part of our overall service to this customer. These carrier payments do not include any margin, and when looked at as part of the total revenue, lowers our gross profit percentage. This has resulted in some people believing that due to these margins, WidePoint isn't a technology company. I wanted to dispel you of that misconception and reiterate that though we certainly do have a blend of margins, our aim and focus looking ahead pertains to growing our higher margin businesses. By investing into our promising sales and marketing team that has been executing our strategy of securing higher margin managed services revenue and SaaS contracts, where the bulk of our profitability comes from, we aim to secure higher margin contracts similar to our flagship DHS contracts, which is our only carrier pass-through customer. Beyond securing new contracts, our post-COVID customer retention rate continues to improve, bolstering our top-line performance and reaffirming the trust our valued customer placed in our solutions. As an update to one of our newest contracts with the Federal Emergency Management Agency, we are delighted to announce that the implementation process has now been completed. As a reminder, this contract is valued at approximately $60 million over a three-year period of performance with a one-year base period and two one-year option periods. Our solution remains as a top-tier trusted security provider, and we are confident in executing our services to unlock the full scale and potential of this contract. Our identity and access management pipeline continues to grow. We've been able to add new digital certificates to an existing contract that will have a material impact once it's fully deployed. Like the mobility side, we have been displacing our major competitors due to our reputation for providing excellent customer services continues to gain awareness. Additional customer implementation and integration is ongoing and remains on track as we maintain our commitment to delivering our secure mobility solutions. Moving to the progress on two investments made in previous quarters. We continue to await final approval from GSA for our FedRAMP certification. As mentioned last quarter, we are confident in attaining the full certification by the end of the first half of 2024. We recently received communication from GSA that they are actively reviewing our FedRAMP package. Also, our Continuative Operations Plan, or COOP, site enhancements are also moving in the right direction. with testing scheduled for the end of May. We look forward to announcing relevant updates once the time is right. We continue to make significant headway across all our initiatives and remain on track to meet our guidance numbers announced during the last quarter's call. We are reiterating our guidance, and we expect revenues to range between $120 million and $133 million, adjusted EBITDA range between $2.1 million and $2.4 million. Additionally, we expect free cash flow to range between $2 million and $2.3 million. As we have shared during the past several calls, we have concluded materially all of our capital investments, as reflected by our growing EBITDA and free cash flow figures. However, we will continue to invest in our sales and marketing to ensure that we keep our momentum in growing our top lines. The future remains extremely bright for WidePoint, which is why several board members and executive leaders of our company acquire shares of our common stock in the open market. Our executive team remains very confident in our corporate outlook and remains committed to driving and unlocking sustainable growth for our value shareholders. I will now turn the call over to Bob to discuss our first quarter financial results. Bob?

Thank you, Jen, and thanks to everyone for joining us today. I'm pleased to share the details of our first quarter 2024 financial results. As Jen mentioned earlier, we delivered a strong quarter, being slightly ahead of our internal forecast Recording the second consecutive quarter being free cash flow positive, a trend we anticipate carrying across 2024 and beyond. With that, I'll now give a breakdown of our first quarter 2024 results compared to the first quarter of 2023. Total revenues for the quarter were $34.2 million, up 35% from the same quarter last year. Our carrier services revenue for the quarter was 19.3 million, an increase of 44%. Our managed services revenue for the quarter were 8.7 million, an increase of 27%. The increase in both carrier and managed services revenue was due to new federal contracts signed in the third and fourth quarter of 2023, which recorded a full quarter of revenue in 2024, but did not have any revenues in the first quarter of 2023. Billable services fees for the quarter were 1.2 million and remained relatively constant period to period. Our reselling and other services revenue for the first quarter were 5 million, an increase of 38%, primarily due to an increased variety of products we offer for sale. I do want to highlight that reselling and other services are transactional in nature, and the amount and timing of revenue could vary significantly from period to period. Gross profit in the first quarter was $4.6 million, or 14% of revenues, compared to $3.8 million, or 15% of revenues, in 2023. The slight decrease in gross profit margin percentage is related to increased amortization expenses as our delivery platforms are replaced in the service and increased reselling revenues, which carry lower margins. The more significant metric of gross profit percentage excluding carrier services was 31% compared to 33% in the same period last year. The lower gross margin percentage excluding carrier services was due in part to increased amortization on our delivery platforms and due to increased reselling revenues which have lower margin. Accordingly, our gross profit percentage will vary from period to period based on our revenue mix. Sales and marketing expense for the first quarter of 2024 was $600,000, or 2% of revenues, compared to $500,000, or 2% of revenues, in 2023. The increased period over period is the result of our increased investment in our sales and marketing capabilities. General administrative expenses in the first quarter were $4.4 million, or 15% of revenues. compared to 3.7 or 13% of revenues in the same period of 2023. The increase primarily relates to increased share-based and other compensation expenses compared to the same period last year. Our net loss for the quarter decreased by $298,000 to $653,000, or a loss of $0.07 per share, compared to a net loss of $950,000 or a loss of $0.11 per share in the same period last year. The decrease in net loss is due to the relatively higher gross profit dollars in the first quarter that was only partially offset by increases in sales and marketing and general administrative expenses I previously mentioned. Our non-GAAP measures of adjusted EBITDA and free cash flow are as follows. Adjusted EBITDA for the quarter was $573,000 compared to $20,000 in the same period last year. Our free cash flow, which we define as adjusted EBITDA minus capitalized items, was a positive $566,000 in the first quarter compared to negative $340,000 in the same period last year. The reason for the EBITDA improvements are related to increased gross margin dollars relative to operating expenses compared to the same period last year. With respect to free cash flow, the positive period-over-period change was related to the increase in EBITDA I just mentioned and cessation of our material capital investment activities in the first quarter of 2024. Moving to the balance sheet, we ended the quarter with $5.3 million in cash compared to $6.9 million on December 31, 2023. The primary driver of the change in cash from year-end was due to typical delays that occur in invoicing activities related to a new contract as the invoice processes get worked out with our customer. We believe our forecasts for positive free cash flow and refinements to our invoicing of our new customers will provide sufficient liquidity for our operations. For additional information related to our liquidity and capital resources, please refer to that section of our Form 10-Q for March 31, 2024. We're in a strong position to execute our growth strategy, and we look forward to meeting our guidance that Jen previously reiterated. This completes my financial summary. For a more detailed analysis of our financial results, please refer to our Form 10-Q, which was filed prior to this call. With that, I'll turn it back over to Jim.