Annual Report for Fiscal Year Ending 12-31, 2024 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the other sections of this Form 10-K, including "Risk Factors," and the Financial Statements and notes thereto. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K. See "Cautionary Note Regarding Forward Looking Statements and Risk Factor Summary." Our actual results may differ materially.

Organizational Overview

We were incorporated on May 30, 1997 under the laws of the state of Delaware. We are a leading provider of Technology Management as a Service (TMaaS) that consists of federally certified communications management, identity management, and interactive bill presentment and unified communication analytics solutions and IT as a Service. We help our clients achieve their organizational missions for mobility management and security objectives in this challenging and complex business environment.

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 a secure federal government certified proprietary 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.

Strategy

During 2024, we completed the integration of the acquired assets of ITA. In addition, we focused on increasing our customer base and our sales pipeline and leveraging our strategic relationships with key system integrators and strategic partners to capture additional market share. On February 19, 2025 WidePoint's Intelligent Technology Management System (ITMS) achieved FedRAMP Authorized status from the Federal Risk and Authorization Management Program (FedRAMP) Program Management Office (PMO). In fiscal 2025, we will continue to focus on the following key goals:

	■	Winning the DHS CWHS 3.0 re-compete,
	■	Continue to find additional avenues for capturing new sales opportunities,
	■	Continue to provide unmatched level of services to our current customer base,
	■	Leverage our FedRAMP Authorized status as a differentiator from our competitors in pursuing government business,
	■	Grow our recurring managed services revenues,
	■	Add incremental capabilities to our Technology Management solution set and develop and possibly acquire new high margin business lines,
	■	Leverage our software platforms to grow our SaaS revenues and take advantage of the opportunities emerging from the growth in remote working,
	■	Expand our commercial customer base organically,
	■	Continue to leverage the R2v3 Certification,
	■	Execute 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,
	■	Explore integration of artificial intelligence into our solution to provide better information security, and improve service delivery while reducing response time and cost.

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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,
	■	creating 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.

We believe these actions could drive a strategic repositioning 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.

Critical Accounting Policies

Refer to Note 2 to the consolidated financial statements for a summary of our significant accounting policies referenced, as applicable, to other notes. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management's judgment in its application. Our senior management has reviewed these critical accounting policies and related disclosures with its Audit Committee. See Note 2 to consolidated financial statements, which contain additional information regarding accounting policies and other disclosures required by U.S. GAAP. The following section below provides information about certain critical accounting policies that are important to the consolidated financial statements and that require significant management assumptions and judgments.

Segments

Segments are defined by authoritative guidance as components of a company in which separate financial information is available and is evaluated by the chief operating decision maker (CODM), or a decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our chief executive officer.

We operate in one segment based on the consolidated information used by our CODM in evaluating the financial performance of our business and allocation resources. This single segment represents our Company's business, which is providing managed services for government and commercial clients under the umbrella of Technology Management as a Service (TMaaS), that includes Identity Management (IdM), secure Mobility Managed Services (MMS), Telecom Lifecycle Management, Digital Billing & Analytics and IT as a service (ITaaS).

We present a single segment for purposes of financial reporting and prepared consolidated financial statements upon that basis.

Revenue Recognition

Our managed services solutions may require a combination of labor, third party products and services. Our managed services are generally not interdependent and our contract performance obligations are delivered consistently on a monthly basis. In the event there are undelivered performance obligations our practice is to recognize the revenue when the performance obligation has been satisfied.

A substantial portion of our revenues are derived from firm fixed price contracts with the U.S. federal government that are fixed fee arrangements tied to the number of devices managed. Our actual reported revenue may fluctuate month to month depending on the hours worked, number of users, number of devices managed, actual or prospective proven expense savings, actual technology spend, or any other metrics as contractually agreed to with our customers.

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Our revenue recognition policies for our managed services are summarized and shown below:

	■	Managed services are delivered on a monthly basis based on a standard fixed pricing scale and sensitive to significant changes in per user or device counts which form the basis for monthly charges. Revenue is recognized upon the completion of the delivery of monthly managed services based on user or device counts or other metrics. Managed services are not interdependent and there are generally no undelivered elements in these arrangements.
	■	Identity services are delivered as an on-demand managed service through the cloud to an individual or organization or sold in bulk to an organization capable of self-issuing credentials. There are two aspects to issuing an identity credential to an individual that consists of identity proofing which is a significant part of the service and monthly credential validation services which enable the credential holder to access third party systems. Identity proofing services are not bundled and do not generally include other performance obligations to deliver. Revenue is recognized from the sales of identity credentials to an individual or organization upon issuance less a portion deferred for monthly credential validation support services. In the case of bulk sales or credential management system revenue is recognized upon issue or availability to the customer for issuance. There is generally no significant performance obligation to provide post contract services in relation to identity consoles delivered. Identity certificates issued have a fixed life and cannot be modified once issued.
	■	Proprietary software revenue for software sold as a term license is recognized ratably over the license term from the date the software is accepted by the customer. Maintenance services, if contracted, are recognized ratably over the term of the maintenance agreement, generally twelve months. Revenue for fixed price software licenses that are sold as a perpetual license with no significant customization are recognized when the software is delivered. Implementation fees are recognized when the work is completed. Revenue from this service does not require significant accounting estimates.

Our revenue recognition policy for our labor services is summarized and shown below:

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Billable services are professional services provided on a project basis determined by our customers' specific requirements. These technical professional services are billed based on time incurred and actual costs. We recognize revenues for professional services performed based on actual hours worked and actual costs incurred.

Our revenue recognition policy for our reselling services is summarized and shown below:

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Reselling services require the Company to acquire third party products and services to satisfy customer contractual obligations. We recognize revenues and related costs on a gross basis when we satisfy customer contractual obligations for such arrangements where we control the products and services before they are transferred to the customer. We are the principal in these transactions as we are seen as the primary creditor, we carry inventory risk for undelivered products and services, we directly issue purchase orders third party suppliers, and we have discretion in sourcing among many different suppliers. For those reselling transactions where we are the principal, revenues for product reselling are typically recorded upon delivery while revenues for services reselling are generally recorded over the contractual service period. For those transactions in which we procure and deliver products and services for our customers' on their own account we do not recognize revenues and related costs on a gross basis for these arrangements. We only recognize revenues earned for arranging the transaction and any related costs.

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Our revenue recognition policies for our billable carrier services is summarized and shown below:

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Carrier services are delivered on a monthly basis and consist of phone, data and satellite and related mobile services for a connected device or end point. These services require us to procure, process and pay communications carrier invoices. We recognize revenues and related costs on a gross basis for such arrangements whenever we control the services before they are transferred to the customer. We are the principal in these transactions when we are seen as the primary creditor, we directly issue purchase orders directly to communications carriers for wireline and wireless services, and/or we have discretion in choosing optimal providers and rate plans. For arrangements in which we do not have such control we recognize revenues and related costs on a net basis.

Goodwill

Goodwill represents the excess of acquisition cost of an acquired company over the fair value of assets acquired and liabilities assumed. In accordance with GAAP, goodwill is not amortized but is tested for impairment at the reporting unit level annually and between annual tests if events or circumstances arise, such as adverse changes in the business climate, that would more likely than not reduce the fair value of the reporting unit below its carrying value.

A reporting unit is defined as either an operating segment or a business one level below an operating segment for which discrete financial information is available that management regularly reviews. The Company has a single reporting unit for the purpose of impairment testing.

The Company performed its annual impairment assessment and based upon the Company's market capitalization at December 31, 2024, as well as the absence of any indicators of impairment, the Company concluded there was no impairment of goodwill at December 31, 2024.

Accounting for Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is established when management determines that it is more likely than not that all or some portion of the benefit of the deferred tax asset will not be realized.

Since deferred taxes measure the future tax effects of items recognized in the financial statements, certain estimates and assumptions are required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized. In making this assessment, management analyzes and estimates the impact of future taxable income, reversing temporary differences and available tax planning strategies. These assessments are performed quarterly, taking into account any new information.

The Company's significant deferred tax assets consist of net operating loss carryforwards, share-based compensation and intangible asset amortization related to prior business acquisitions. Should a change in facts or circumstances lead to a change in judgment about the ultimate ability to realize a deferred tax asset (including our utilization of historical net operating losses and share-based compensation expense), the Company records or adjusts the related valuation allowance in the period that the change in facts or circumstances occurs, along with a corresponding increase or decrease to the income tax provision.

During the year ended December 31, 2024, the Company recorded a valuation allowance against a portion of domestic deferred tax assets because management determined that is it more likely than not the Company will not earn income sufficient to realize the deferred tax assets during the carryforward period.

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2024 Results of Operations

Year Ended December 31, 2024 Compared to the Year ended December 31, 2023

Revenues

Revenues for the year ended December 31, 2024 were $142.6 million, an increase of $36.5 million (or 34%), compared to approximately $106.0 million in 2023. Our mix of revenues for the periods presented is set forth below:

		YEARS ENDED
		DECEMBER 31,								Dollar
		2024				2023				Variance
Carrier Services		$	86,793,729			$	58,233,989			$	28,559,740
Managed Services:
Managed Service Fees			35,754,896				31,285,709				4,469,187
Billable Service Fees			5,133,212				4,985,988				147,224
Reselling and Other Services			14,889,912				11,520,674				3,369,238
Total Managed Services:			55,778,020				47,792,371				7,985,649
		$	142,571,749			$	106,026,360			$	36,545,389

	■	Our carrier services revenues increased by $28.5 million to $86.8 million from $58.2 million last year, primarily due to increased contracting activity with our federal customers, where we pay carrier invoices on behalf of those customers.
	■	Our managed service fees increased by $4.5 million to $35.8 million from $31.3 million last year as a result of implementing a new commercial contract for a US government end customer later in the third quarter of 2024 and full year of execution on our FEMA contract compared to 2 months of revenue in 2023.
	■	Billable services fees remained relatively constant from 2024 to 2023. Billable service fees can vary due to internal projects in our customer organizations.
	■	Reselling and other services increased by $3.4 million to $14.9 million from $11.5 million last year. The increase is primarily related to increased reselling of third-party software-as-a-service applications for recording and storing text messages which is now required under an expansion of the Federal Records Act. Reselling and other services are transactional in nature and as a result the amount and timing of revenue will vary significantly from quarter to quarter.

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Revenues by customer type for the periods presented is set forth below:

		YEARS ENDED
		DECEMBER 31,								Dollar
Customer Type		2024				2023				Variance
U.S. Federal Government		$	118,895,394			$	84,475,325			$	34,420,069
U.S. State and Local Governments			409,413				561,378				(151,965	)
Foreign Governments			65,707				79,556				(13,849	)
Commercial Enterprises			23,201,235				20,910,101				2,291,134
		$	142,571,749			$	106,026,360			$	36,545,389

	■	Our sales to federal government customers increased primarily because of the increased sales to FEMA of both managed and carrier services that experienced 12 months of revenue totaling $20 million in 2024 compared to 2 months of revenue totaling $1.3 million in 2023, as well as managed services revenues for a government end customer that began in late third quarter 2024. Further, other federal customers such as the US Coast Guard, Customs and Border Patrol, saw increased line counts and corresponding carrier services activity, increases year over year in text capture software.
	■	Our sales to state and local government customers, which include educational institutions, decreased primarily due to decreased activity in our Identity Management solutions.
	■	Our sales to foreign government customers were relatively constant from year to year.
	■	Our sales to commercial enterprise customers increased primarily as a result of new increased sales in our ITaaS offering and increased commercial use of our identity management solutions business.

Cost of Revenues

Our cost of revenues includes employee labor, excluding fringe benefit costs, and subcontractors directly associated with satisfying customer performance obligations, and the associated cost of accessory products and third-party software that we resell to our end customers. Cost of revenues also includes amortization of capitalized software related to delivering our solutions.

Cost of revenues for the year ended December 31, 2024 were $123.5 million (or 87% of revenues) compared to $90.4 million (or 85% of revenues) in 2023. Increased carrier services costs as well as costs related to reselling contributed to the increase. Our cost of revenues will fluctuate due to our revenue mix.

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Gross Profit

The following table illustrates gross profit related to Carrier services and Managed services:

		YEARS ENDED
		DECEMBER 31,								Dollar				Percent
		2024				2023				Variance				Change
Revenues:
Carrier Services		$	86,793,729			$	58,233,989			$	28,559,740				49	%
Managed Services			55,778,020				47,792,371				7,985,649				17	%
Total revenue			142,571,749				106,026,360				36,545,389				34	%
Gross Profit:
Carrier Services			-				-				-
Managed Services			19,004,405				15,645,527				3,358,878				21	%
Total gross profit			19,004,405				15,645,527				3,358,878				21	%
Gross Margin:
Carrier Services			-				-
Managed Services			34	%			33	%
Total gross margin			13	%			15	%

Gross profit for the year ended December 31, 2024 was $19.0 million (or 13% of revenues), compared to $15.6 million (or 15% of revenues) in 2023. The lower gross margin as a percentage of revenues is related to increased carrier services in 2024 compared to 2023.

Gross profit percentage for the year ended December 31, 2024, excluding carrier services was 33% and consistent with the prior period.

Operating Expenses

Sales and marketing expenses include employee labor, excluding fringe benefit costs, and sales commissions associated with our sales force, commission fees paid non-employee sales agents and partners, and costs associated with travel and trade shows. Sales and marketing expense for the year ended December 31, 2024 were $2.3 million (or 2% of revenues), compared to $1.7 million (or 2% of revenues) in 2023.

General and administrative expenses include employees in finance, human resources, information technology, and other administrative support functions; employee labor not associated with any single revenue producing activity, all company fringe benefits, including paid time off, employee health and medical insurance, 401k matching contributions, and payroll taxes. General and administrative expenses also include professional services to include audit, consulting, outside legal, and outsourcing services. Certain of these expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to the changes in revenue.

General and administrative expenses for the year ended December 31, 2024 were $17.6 million (or 12% of revenues), as compared to $15.9 million (or 15% of revenues) in 2023. The dollar increase primarily relates to an increase in employee compensation, including compensation expense, and increased health insurance costs compared to the same period last year.

There was no definite-lived intangible asset impairment during 2024. Definite-lived intangible asset impairment charge for the year ended December 31, 2023 was $0.2 million following impairment testing on definite-lived intangible assets performed during the year.

Depreciation and amortization expense was $1.0 million for the year ended December 31, 2024 as compared to $0.8 million in 2023.

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Other (Expense) Income

Net other expense for the year ended December 31, 2024 was $(0.1) million as compared to net other expense of $(0.2) million in 2023.

(Benefit) Provision for Income Taxes

Income tax benefit for the year ended December 31, 2024 was $4,000 compared to an income tax provision of $0.1 million in 2023.

Net Loss

As a result of the factors above, net loss for the year ended December 31, 2024 was $1.9 million or $0.21 loss per share as compared to a net loss of $4.0 million in 2023 or $0.46 loss per share.

Liquidity and Capital

Net Working Capital

Our sources of liquidity include cash on hand, our anticipated cash flows from operations, and funds available under the Old Dominion Credit Facility, through its maturity on February 28, 2026. At December 31, 2024, our net working capital was approximately $2.4 million as compared to $1.4 million at December 31, 2023. The increase in net working capital was primarily driven by reduced investments in computer hardware and software purchases and capitalized internally developed software costs, as well as, an increase in unbilled receivables primarily drive by administrative delays in billing. We believe that our existing cash balances and our anticipated cash flows from operations and access to our credit facility will be sufficient to meet our working capital, expenditure, and contractual obligation requirements for the next 12 months. There is no assurance that, if needed, we will be able to borrow or raise capital on favorable terms or at all.

Cash Flows from Operating Activities

Cash provided by operating activities provides an indication of our ability to generate sufficient cash flow from our recurring business activities. Our single largest cash operating expense is labor and company sponsored benefits. 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 our facilities under non-cancellable long-term contracts. 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 and cash payments to terminate any agreements that have not yet expired. We experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control. One US government agency, under the Department of Homeland Security, accounted for $14.4 million and $1.4 million of our unbilled receivables at December 31, 2024 and 2023, respectively.

For the year ended December 31, 2024, net cash provided by operations was approximately $1.6 million driven by collections of accounts receivable and temporary payable timing difference, as compared to approximately $0.6 million net cash provided by operations for the year ended December 31, 2023.

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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 year ended December 31, 2024, cash provided by investing activities was approximately $0.1 million and consisted of $0.2 million in proceeds from factoring arrangement offset by purchases of property and equipment. In 2025, we expect to spend additional funds to pay for, and refresh equipment related to our increasing workforce.

For the year ended December 31, 2023, cash used in investing activities was approximately $0.6 million and consisted of $0.5 million in proceeds from factoring arrangement offset by $1.1 million of computer hardware and software purchases and capitalized internally developed software costs primarily associated with upgrading our ITMS™ and Soft-ex platform, secure identity management technology and network operations center.

Cash Flows from Financing Activities

Cash used in financing activities provides an indication of our debt financing and proceeds from capital raise transactions and stock option exercises.

For the year ended December 31, 2024, cash used in financing activities was approximately $0.9 million and reflects line of credit advances and payments of approximately $5.6 million, finance lease principal repayments of approximately $636,500 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $258,400.

For the year ended December 31, 2023, cash used in financing activities was approximately $0.6 million and reflects line of credit advances and payments of approximately $6.5 million, finance lease principal repayments of approximately $586,500 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $3,600.

Net Effect of Exchange Rate on Cash and Equivalents

For the year ended December 31, 2024, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $31,900 compared to last year. For the year ended December 31, 2023, the depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $23,800.

Credit Facility

On April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement (the "Purchase Agreement") with Republic Capital Access, LLC (the "Buyer") for the non-recourse sale of eligible accounts receivable relating to U.S. Government prime contracts or subcontracts of the Company (collectively, the "Purchased Receivables"). The Purchase Agreement terminated in April of 2024 and was not renewed. Prior to the 2024 termination, we sold a total of $2.9 million of receivables for $2.8 million in proceeds net of fees.

During the year ended December 31, 2023, we sold a total of $5.2 million of receivables for $5.1 million in proceeds net of fees.

On February 29, 2024, we entered into a Loan and Security Agreement (the "Loan") and Promissory Note (the "Note," and, together with the Loan, the "Agreements") with Old Dominion National Bank. The Agreements provide for a $4,000,000 revolving line of credit facility (the "Credit Facility"). On February 18, 2025, the Company renewed its line of credit for an additional year through February 28, 2026. See Note 21.

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Advances under the Credit Facility are subject to a borrowing base equal to the lesser of (i) $4,000,000 or (ii) 80% of eligible accounts receivable. Interest accrues on the outstanding principal balance of the Credit Facility at an annual rate equal to the Prime Rate published in The Wall Street Journal, subject to a floor rate of 7.25%. Outstanding interest on the amount borrowed is payable monthly and all outstanding interest and principal is due on the maturity date of February 28, 2026. The Credit Facility includes customary covenants and events of default, including the following items that are measured: (i) a minimum tangible net worth of $2.0 million; (ii) a minimum annual EBITDA of $1.0 million and (iii) a ratio of current assets to current liabilities of not less than 1.0 to 1.0. We are in compliance with the covenants at December 31, 2024.

Off-Balance Sheet Arrangements

The Company has no existing off-balance sheet arrangements as defined under SEC regulations.