Good afternoon. Welcome to WidePoint's Second Quarter 2024 Earnings Conference Call. My name is Matthew, 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 questions from WidePoint's publishing analysts and major investors. If your questions were not taken today and you like additional information, please contact WidePoint's Investor Relations team at wyy@gateway-grp.com. Before we begin the call, I would like to provide WidePoint's Safe Harbor Statements 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 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.

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, 2024. I am pleased to share that we have continued to build on the momentum from previous quarters, having finished Q2 ahead of forecast for the second consecutive time and seeing significant year-over-year improvements in revenue, adjusted EBITDA and free cash flow. Our revenue for second quarter was $36 million, and our six month revenue ended June 30, 2024, was $70 million, both a 35% increase from the same period in 2023 and a testament to our team's ability to execute our sales and marketing strategy. We achieved our 28th consecutive quarter of positive adjusted EBITDA, concluding with $811,000 or 479% increase from the same period last year. For the six months ended June 30, 2024, our adjusted EBITDA was approximately $1.4 million, which is a 764% increase from the same period last year. We also achieved a third consecutive quarter of positive free cash flow sequentially improving from $310,000 in Q4 2023 and $566,000 and $800,000 in the first and second quarter 2024 respectively. Compared to where we were last year, our position in the capital markets has improved significantly, thanks to our team's dedication to executing our organic growth strategy. Our sales and marketing team continues to deliver and capture new high-margin contracts that have positioned us well for potential positive earnings per share for 2025. Additionally, all of our capital investments and fixed costs have been paid for and we continue to aggressively manage our costs, supporting our future bottom-line results, margin improvements and profitability projections. As evidenced by our consecutively improving free cash flow figures, we are heading in the right direction. Our strategic partnerships and investments, particularly in our…

Thanks, Jin, and good afternoon, everyone. As Jin just mentioned, we successfully developed, tested and authenticated our new proprietary MobileAnchor Digital Credential. This digital credential solution no longer requires a smart card, but instead is deployed directly on to smart mobile devices, providing the highest level of security for mobile digital credentials available while ensuring that cyber interactions use the most secure identity management solutions on the market today. This is a technology breakthrough and places WidePoint ahead of our competition in the cyber identity world. We have already successfully deployed MobileAnchor in a federal agency and are actively marketing it to other federal and commercial agencies that currently use the traditional smart card-based credentials. We continue to establish our competitive edge, and this new product will enable us to win business from our competitors as they do not offer similar solutions. This coincides with our strategy to win work away from our competitors in the IdM sector. We're excited to continue marketing this new product and look forward to potentially implementing it within our pipeline of deals currently in the works. On a related note, MobileAnchor has traction within the Department of Education. As you are aware, we've been aggressively pursuing K-12 at the district level. Now we are seeing a shift in getting closer to securing the necessary customer funding to move this initiative forward. Even though WidePoint has been at the forefront of identity and access management since the inception of PKI, it takes time to reconfigure our solution to address a market such as K-12. We will keep you posted as MobileAnchor gains traction within the Department of Education. As Jin mentioned earlier, SEWP VI is a very exciting opportunity for WidePoint. Due to its 10-year, $60 billion ceiling, WidePoint is uniquely positioned to provide our…

Thank you, Jason, and thanks to everyone for joining us today. I'm pleased to share the details of our financial results for the second quarter and first half of 2024. We delivered strong three and six months 2024 results, and I'm happy to report we are trending towards the higher end of our guidance range. Total revenues for the quarter were $36 million, an increase of $9.3 million or 35% from $26.8 million reported for the same period last year. Revenues for the first half of '24 were $70.2 million, an increase of $18.2 million or 35% on the $52 million in the same period last year. Now I'll provide a further breakdown of our second quarter and first half 2024 revenues. Our carrier services revenue for the quarter was $20.4 million, an increase of $6.2 million compared to the same period in 2023. Carrier services revenue for the first half of '24 was $39.8 million, an increase of $11.9 million compared to the same period last year. Our managed services revenue for the quarter was $9.2 million an increase of $2.3 million or 25% compared with the same period in 2023. For the first half of 2024, our managed services revenues were $17.9 million, an increase of $4.1 million or 23% in the same period last year. The increase in both carrier and managed services revenue is principally due to new federal and commercial customers signed in the third and fourth quarter of 2023, which are not reflected in the comparison period last year and also, due to growth within several existing federal customers. Billable services fees for the quarter were $1.2 million, a decrease of $618,000 compared to the same period in 2023. For the first half of 2024, billable services fees were $2.4 million, a decrease of…

Thank you, Bob and Jason. One ongoing initiative we'd like to update you on is our FedRAMP certification status. We have submitted responses to all of GSA's questions, and they are currently under review. While we are still in the in-process stage, we expect to achieve FedRAMP authorized status by the end of 2024. This certification is one of the key technological investments that Jason mentioned, which will diversify our offerings and capture business from competitors, while enhancing WidePoint's competitive edge and position in the market. With the upcoming federal election cycle, budget discussions are expected to take center stage once again. A change in administration could lead to delays in federal budgets regardless of which party wins the presidency. We will closely monitor the situation as it unfolds. Currently, we anticipate minimal or no impact from the administration change, given that we operate in the critical sector of cybersecurity and mobility management. These areas are essential services that will remain in high demand for the foreseeable future. Lastly, I'd like to reiterate our guidance where 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. I'm happy to report that we have been ahead of our forecast for the past two quarters and are trending towards the higher end of our guidance for the full year. Our sales and marketing efforts, technological advancements and the deals currently in the pipeline are strong indicators of improvements in our bottom-line and margin for the upcoming quarters. Our team continues to aggressively push for profitable operations in the fourth quarter, and we anticipate achieving positive earnings per share in 2025. Our executive team maintains a positive outlook on our future as evidenced by several board members and executives acquiring additional shares in the open market. We remain dedicated to unlocking sustainable growth and delivering strong returns for our valued shareholders. That concludes our prepared remarks, and now we'll take questions from our analysts and major shareholders. Operator, will you please open the call for questions.

Certainly. Everyone at this time we conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Barry Sine from Litchfield Hills Research. Your line is live.

Hi, good evening gentlemen. First question is on CWMS. I don't think my hand was writing fast enough to get all the details down. So it sounds like there is visibility on letting out 3.0. If you could just repeat the dollar amount, give us any sense of the timing on that? And then just to put that in some perspective, obviously you won 2.0. You recently had a very significant increase in the ceiling on that. And then I remember vividly, 2.0 just took forever to get extended. So the government works pretty slowly. So I guess we shouldn't be expecting a fast decision on 3.0?

Hi ihGiBarry, this is Jin. It's good to hear from you again. The answer is yes. It will probably take longer than anticipated. Right now the timeline for the 3.0 award is going to -- they want to get it done by the end of 2015 -- I mean, 2025, sorry. And the reason for them upping the cap on the contract is because they have already reached the ceiling on the contract with task orders that were already awarded under 2.0. And I believe also that the additional dollars will also provide an overlap between the 2.0 and 3.0, so that they can smoothly transition from the 2.0 and the 3.0. And so we believe that this contract now is going to go from a five-year contract to a 10-year contract. And we did sort of a mathematical extrapolation to come up with the $1.2 billion to $1.5 billion ceiling. And so based upon where we are today, we are at $750 million or so million. So if you multiply that by two for a 10-year period, that will put you at like $1.5 billion in a delegated procurement authority. And so that's what we are seeing. Again, we feel like we are ahead of our competition in our software platform, our subject matter expertise and our past performance with DHS. Just like when we competed for the 2.0, our systems and workflows are all integrated with DHS's processes and systems, and we have the security accreditations and certifications that others cannot match. So we feel pretty good about our prospect of winning the 3.0. But we're not sitting on our hands. We are constantly looking for improvements, constantly looking for value-add services that we can offer to DHS so that when it come the award time for 3.0, we will be the ones receiving the award.

And just a few more points of clarification on CWMS. What is the official contract end date for 2.0? And then when that happens, last time, it ended they didn't renew, but you were made whole the whole time. So I know there was investor angst that you were made a whole the whole time while they took an extended period to renew that. So could you give us the expiration date? And then just remind us what did happen previously. And hopefully, that's an indication of what may happen if they're late on issuing 3.0.

Sure, sure. So the official end date for the CWMS 2.0 is November, I believe, 19th or 20th of 2015. And so -- '25? 2025. Yes. Did I say 2015 again? I'm looking back. But anyway, it is November 19th or 20th of 2025 and likely, it may be extended -- and so the last time what happened was the government came up to the end date, and they put in a bridge contract for a year. The contract was supposed to have been a five-year contract, and it ended up being 8. So they had extended the contract with like a 12-month contract. They put another bridge contract in for 1.5 years. And then they exercised another option to go another six months beyond that, making it an eight-year contract for a five-year contract. So it is -- it could be that the contract may have to be extended. But what they did with CWMS 2.0, is that they put in an option, so that they can actually award task orders 12 months beyond the end of the official contract date. So the official contract date ended November 19 of 2025, so they can actually issue task orders that go until November 19, 2026. And if they need additional extensions, they can modify the contract to extend the contract further. They can also put a bridge contract in. So they have a lot of tools in their tool belt to be able to extend the contract if they do fall behind on their acquisition schedule. So we won't be left holding any unpaid bills or anything like that during the time the contract is going through the recompete.

What is the deadline for you to submit your bid for -- has that been given for CWMS 3.0.

Not yet. What was released was a request for information. And what that is -- is that they're looking around for qualified bidders for the contract. And we intentionally didn't put out a press release because we didn't want to publicize this information, so we will get more competitors. But the deadline for the request for information had expired. I believe this was at the end of July sometime. And so we did all of our responses, and we sent it back in. And now we're letting people know that the RFI was out there on the street and that they're in the process of going through the recompete process. They have not put out the schedule for the award or when the proposals are due but it will be released in the RFP as government gets prepared to send out and receive the proposals.

And I believe that context is for ITMS and ITMS is also the product that you are applying for FedRAMP certification. That's on a product-by-product basis, not on a company-wide basis. How does the delays we're seeing with the FedRAMP? And I mean you won 2.0 without FedRAMP certification. So I assume it is nice to have but not needed to have for -- to win the 3.0.

Right. So that's a great question. The answer is ITMS is the product that is going under the FedRAMP certification process. As I said, we've answered all of the questions for GSA and they had an extensive list of questions, but most of them were pretty superficial questions. And I think we answered the mail on all of those things. But what I will tell you is that for DHS is that we had ATOs, authorization to operate. Essentially, what that means is that we meet all of the cybersecurity requirements that the Department of Homeland Security requires. None of our competitors can say that. And the last time around, they did not make the FedRAMP certification specifically a requirement because there weren't that many vendors that had the system that met the FedRAMP authorized status. And so this time around, it is probably going to be the same thing. Even if we do get our FedRAMP certification because we might be the only company that has that certification, they need to open up the bidding to have some additional competitors. But what FedRAMP authorized status will do for us is that they will give us a higher point in the technical section so that we get extra points for having that capability.

Okay. Got it. And then switching gears to the SEWP contract vehicle. I just want to clarify, that's S-E-W-P not soup?

Correct.

Okay. These acronyms. Solutions for enterprise-wide procurement. I don't quite understand why NASA is ahead for a government-wide contract and not TSA. But that's a topic for another call. So if you could give us some specifics on that. What is the deadline there for a contract award? And then also, I don't believe you were the prime previously. Are you bidding to be the prime for SEWP VI?

Yes. We are bidding to be prime on SEWP VI. We were partners with other contractors like Carahsoft and I think that there was one other where we were subcontractors too. But because we have a differentiated product set, we are now pursuing this as a prime contractor. And so SEWP VI and NASA -- NASA has been going through this acquisition process for SEWP for now many years. This is the sixth iteration. So they have been doing this for a long time. And it is been a very successful contract for NASA, not only because they can get products and services for themselves because this contract is managed well, other government agencies have decided to forego their own acquisition cycle and go after using the SEWP vehicle to purchase. There are other contracts that we are also pursuing, and we'll talk a little bit more about that on our future calls, but the SEWP contract is a fairly large scope of work, and it has products and services that goes -- again it covers the entire waterfront in information technology, products and services. So it is a very general contract for anybody to come and use the contract vehicles. That's why they increased the delegated procurement authority to $60 billion.

What was it previously?

I believe the previous one was like $20 billion.

Okay. And switching gears to Navy Spiral 4. You had announced the win some time ago. How are we doing with task orders on Navy Spiral 4?

Right now, we are in the initial stages where RFQs are coming out, and a lot of them are small and a lot of them are for renewal contracts. And so right now, we're in the process of setting up our relationship with our resellers, getting all of our pricing, all of our items and services and products, get them all nailed out. So when the RFP comes out for our specific differentiated product set, we will be bidding on them.

Okay. And then Spiral 4, you've announced a product called MobileAnchor, which sounds like it would be perfect for the Navy, but I guess that's not the -- it's not intended that way. Could you elaborate, there is a lot of jargon associated with MobileAnchor. But essentially, my understanding is it allows the cell phone to be the computer processing engine for the security card rather than having a separate card.

Right. So that was the MobileAnchor product that is a differentiated asset that we will be offering under SEWP. We will be offering it under Spiral 4. There is one thing that I'd like to point out for every -- all the listeners here today is that the Spiral 3 doesn't officially end until September of this year, September 2024 or something like that. And so the task orders are starting to roll in. And hopefully, we'll see some that actually meet with our specialized product and service set. Getting back to the MobileAnchor, yes, we are going away from the traditional smart card form factor to the smartphones. And Jason can tell you a little bit more about that our MobileAnchor and our -- how that is differentiated from our competitors.

Hi, Barry how are doing?

Hi Jason.

As Jin mentioned, so with MobileAnchor, historically, people have been using their smart card credentials. That's the credential that has the chip on it. And typically, what they are doing is they stick it into the side of their laptop or they have a sled that's connected to the mobile device itself. Historically what some people have been doing to get what's called a derived credential which all that means is that it allows you to do secure communications from your mobile device is they've been using what's called a mobile device management container. But what that does is, without getting too technical on everybody is that transmission and authentication is happening over the airways. So essentially, there is no real security or authenticating that's actually happening. So what WidePoint has figured out how to do is how to generate a net new digital credential on the device itself, and that's what makes it so game-changing. So we've taken all of the vetting, the identity of the cardholder, right, of that person, so it will be very signed. And then we've been able to derive that data and then put that information on the device itself and then that allows you to be able to securely sign e-mail transmissions and all of the things that are happening on the mobile device itself. So it's -- like I said on the call, it's a big-time game changer. There's -- we know that a lot of the federal agencies are going to be very interested in this because they clearly understand that MDMs -- using MDM containers over the airways has been one of those good enough solutions, and I think all of our listeners will agree that good enough, it's just not -- it's not good enough anymore. So we're very happy to be in the position that we're in as well as the timing. So stay tuned, and then we'll have more good stuff for you.

Okay. And then lastly, I'd like to put Bob on the hot seat with a couple of questions. And first, to compliment Bob for getting that Q, I'm already looking at it. It's already filed. So thank you. That makes life a lot easier for us analyzing the company. The first question, Bob you mentioned the decline in the cash balance is due to government ramp-ups. Are those -- have you issued bills? So does that show up in accounts receivable? Or have you not yet issued bills, so those are receivables that will still come? And what are we looking at in terms of having calculated DSOs? Are DSOs going up?

DSOs have gone up. And in these ramp-ups, we essentially pre-agree the billing with the customer. And with our existing customers where we're in ordinary course of business, we send them the invoice, then we explain the detail and they approve it, we bill it, and they pay it very quickly. With these new customers, there's lots of discussion around the minutia on these bills. One of them has 8 different contract officers. So it's kind of a democracy process has happened. So once they do approve these bills, it's been very excruciating, then we bill it and we get paid. We've been paid, I think the last one was paid in less than a week or maybe just a little over a week. But it is just been very hard to get the bills into an improved state. We looked at kind of how quickly they're peeling off now. And we think that by the end of the year, we'd be in a normal steady state. A couple of other ones are causing some difficulties. It's the same situation in a sense that the customers moved line counts and funding between different contracts -- different agencies within DHS. And so it's longer to sort that out. And once you sort it out with some of the bill and they pay very promptly.

So it sounds like there's three kind of moving -- related moving pieces. First of all, accounts receivable balance is up. Second, overall DSOs are taking longer. And then third, it sounds like you still have unbilled work that is out there that is not on the receivables line yet. Is that correct?

Well, it's on the unbilled receivable line. So we do book an asset and accrued revenue, and we also accrue for the most part, almost all the costs because these are carrier invoices which are causing the problems. And so we have an increase in the accrued expenses and an increase in billed and unbilled AR.

Okay. So I see that $25.8 million in unbilled accounts receivable.

Yes.

Okay. I got it. Okay. That's a good explanation. And I did not jot down the backlog number, and that's not in the Q. Could you give me the backlog number again? And then I always ask this, but remind me how long to expect that backlog to turn to revenue?

The backlog number is $320 million. I think we said that in the call. And in terms of when it peels off, a lot of that backlog is over the next two years because of the ending -- or the recompete on the CWMS 20. But I kind of say maybe an average life of that backlog is two years.

Yes. And on that front, Barry I just want to make sure that I'm clear on this, is that the Department of Homeland Security cannot issue task orders beyond the contract official end, but they can issue task orders before that date. In other words, they can issue a task order in October to go out until November of 2026.

But I mean, if the whole thing hypothetically were to run out, the DHS's phones would stop working. So they are going to find a way to get that extended if they haven't let 3.0. And they did last time.

Yes, yes. They have plenty of avenues to do that. So I'm not – we are not too concerned about them losing coverage or us holding the bag for any cost that is not reimbursed. And they will extend the contract. And we're pretty confident that they will get the contract in place in time.

Okay. You're an optimistic man. All right. Will end my questions on that note. Thank you.

Thank you.

Thank you Barry.

Thank you. At this time, this concludes our question-and-answer session. If your question was not taken, please contact WidePoint's IR team at wyy@gateway-grp.com. I'd now like to turn the call back over to Mr. Jin Kang for his closing remarks.

Great. Thank you, operator. We appreciate everyone taking the time to join us today. As the operator mentioned, if there were any questions that we did not address today, please contact our IR team. You can find their full contact information at the bottom of today's earnings release. Thank you again, and have a great evening.

Thank you for joining us today for WidePoint's second quarter 2024 conference call. You may now disconnect.