Zacks_Analysts' Blog : WidePoint Reports In Line - Analyst Blog

WidePoint Corp. (WYY) reported third quarter 2010 earnings of 2 cents per share and is in line with the Zacks Consensus Estimate. It also increased by 100% from prior year quarter, as the net income reported a 115% increase to $1.1 million.

The strong result was attributable to the company’s diversified platform for growth with major contribution coming from CyberSecurity Solutions.

Quarter Highlights

Net revenue increased 21.1% year-over-year to $13.8 million. Zacks Consensus Estimate had estimated the revenue to be $13.0 million for the quarter.

Increase in revenue was driven by the 150% year-over-year increase in CyberSecurity segment to $4.0 million. The significant 150% increase was due to the result of the purchase by the Department of Navy, continued rollout for the State of Delware under an award issued during the second quarter of 2010 by Delaware State University. It was also due to the continued increases in credential sales of use for government agencies.

Gross profit increased 44.4% on year-over-year basis to $3.9 million and accounted for 29% of the revenue. It is expected, gross profit as a percentage of revenue will increase as the cost of revenue as percentage of revenue declines because of greater mix of higher margin services.

Operating expenses also increased 32% to $2.8 million from year ago quarter. Increase in Sales and Marketing and in General and Administrative expenses led to the increase in operating expense as a percentage of revenue to 20% from 18% in the year-ago quarter.

Guidance

Management defined the quarter as a strong, robust quarter for the company and believes that the strong results will enable a continued positive performance for the remainder of 2010, which will further carry the positive trend into the next year.

Management expects to accelerate the growth rate of net income in the following quarters and would work to control cost in selling, general and administrative expenses. Management expects the consolidated revenue to increase by 17-22%. Management also expects to expand gross margin and operating margin with a target of 22-26% and 6-8% respectively.

Conclusion

Zacks Consensus Estimate for the current quarter had remained stable in the run up to the earnings release with no analysts revising estimates. Estimates for current year and next year have also been stable and the estimates are 5 cents and 9 cents respectively.

We currently have a Zacks #3 rank for WidePoint which translates into a Hold rating on short-term basis.