WidePoint Corporation (NYSE:<a href="https://seekingalpha.com/symbol/WYY" title="WidePoint Corporation" target="_blank">WYY</a>) just wrapped its first quarter of 2024, delivering solid results and highlighting a trajectory that screams hidden potential. While the market might be distracted by the seemingly low-margin "pass-through" revenue, a deeper dive into the transcripts reveals a strategic shift that could reshape WidePoint's entire narrative. The company is actively, and very successfully, moving away from this low-margin business and focusing laser-like on high-margin managed services. This transition is not just a subtle shift; it's a tectonic plate movement, and those who see it early stand to reap the rewards.

The key to understanding this revolution lies in dissecting WidePoint's revenue streams. Yes, a significant portion of their current revenue comes from processing carrier invoices for their Department of Homeland Security (DHS) customer. This "pass-through" revenue, by nature, carries almost no margin, dragging down the overall gross profit percentage and creating a distorted image of WidePoint's true profitability. This is the smokescreen.

But peel back this layer, and a much more compelling story emerges. WidePoint's management is acutely aware of this perception problem, explicitly addressing it in their Q1 transcript. CEO Jin Kang emphatically dispelled the misconception of WidePoint being merely a "pass-through" company, highlighting their commitment to growing the high-margin segments of their business. The numbers back this up.

In Q1 2024, WidePoint secured over 18 contracts worth a combined $22.7 million. Notably, these contracts were primarily focused on managed services for various federal agencies, including big names like DHS, Customs and Border Protection, the National Science Foundation, and the TSA. This isn't accidental; it's a deliberate strategy to secure higher-margin business, mimicking the success of their flagship DHS contract, which, ironically, is their only customer with "pass-through" carrier services.

Further evidence of this deliberate shift is seen in WidePoint's aggressive pursuit of high-value managed services contracts. The company is actively targeting competitors' clients, confident that their technology and service offerings are superior. This confidence is translating into tangible wins, as WidePoint recently announced several contracts where they directly displaced competitors, signaling a growing market share in the managed mobility and billing sectors.

But here's where it gets truly interesting – WidePoint's recent award of the Spiral 4 contract by the U.S. Navy. This massive IDIQ contract, with a potential value of $2.7 billion over ten years, is a game-changer. While WidePoint is one of seven companies selected for the contract (including the Big 3 wireless carriers), they are laser-focused on capturing a significant chunk of the managed services task orders. To put this in perspective, WidePoint is establishing a dedicated program management office to ensure they have the bandwidth to aggressively pursue these opportunities.

"**Key Insight:** WidePoint's CEO Jin Kang stated in the Q1 2024 earnings call, "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.""

Potential Revenue Growth from Spiral 4

If WidePoint captures even a modest 5% of the total Spiral 4 contract value over ten years, it would translate to an additional $135 million in revenue. Considering their projected 2024 revenue guidance of $120 million to $133 million, even this conservative estimate represents a potential doubling of their current revenue base.

Furthermore, unlike the DHS contract, Spiral 4 allows for fees on top of carrier services, blending managed services and carrier revenue, leading to higher overall profitability. While the exact breakdown remains to be seen as task orders are released, this suggests a significant positive impact on WidePoint's bottom line.

Adding to this already exciting picture is WidePoint's robust contract backlog, totaling $359 million as of December 31, 2023. This backlog, representing contracts already secured but not yet fully reflected in revenue, acts as a powerful growth engine, providing a predictable and steady stream of revenue over the coming years.

WidePoint's quiet revolution is happening right under our noses. The "pass-through" revenue, while seemingly problematic, is a temporary distraction. The company is undergoing a strategic transformation, shedding its low-margin skin and emerging as a formidable player in the high-margin managed services market. The evidence is in the transcripts, in the contract wins, and in the sheer scale of their backlog and new contract opportunities. Those who understand this transition are witnessing the early stages of what could be explosive growth for WidePoint.

"**Fun Fact:** WidePoint's technology is so secure that it's used by some of the most sensitive government agencies. While we can't divulge specifics, it's safe to say that WidePoint is entrusted with protecting data that is critical to national security."