Core Insights - Telos Corporation has released its fourth quarter and full year financial results for 2024 on its investor relations website [1] - A live webcast to discuss these financial results is scheduled for March 10, 2025, at 9:30 a.m. EST [2] - Related presentation materials and an archived webcast will be available on the company's website [3] Company Overview - Telos Corporation (NASDAQ:TLS) provides cybersecurity, cloud, and enterprise security solutions for highly security-conscious organizations [4] - The company's offerings include IT risk management, information security, cloud security, identity and access management, secure mobility, organizational messaging, and network management [4] - Telos serves a diverse clientele, including commercial enterprises, regulated industries, and government customers globally [4]

Revenue Performance - Revenue for Q4 2024 was $26.4 million, with $21.9 million (83.1%) from Security Solutions and $4.5 million (16.9%) from Secure Networks, meeting the top end of guidance [4]. - Sequential revenue growth of 10.9% from Q3 2024, driven by a 19.6% increase in Security Solutions due to a new program with DMDC and growth in TSA PreCheck enrollment locations, expanding to 218 locations with a target of 500 for FY 2025 [4]. - Total revenue for Q4 2024 was $26,372, a decrease of 35.7% compared to $41,059 in Q4 2023 [16]. - Revenue from Security Solutions increased to $21,921, up 6.1% from $20,652 in the same quarter last year [16]. - Q1 2025 guidance forecasts sequential revenue growth of 7% to 15%, with revenues expected between $28.2 million and $30.2 million, and positive cash flow [4]. Profitability and Margins - GAAP gross margin for Q4 was 40.3%, exceeding guidance, while cash gross margin was 47.0%, the highest since the company's IPO in 2020 [4]. - Full year GAAP gross margin was 31.8% and cash gross margin was 43.7%, the highest since 2000 [4]. - Gross profit for the three months ended December 31, 2024, was $10.62 million, with a margin of 40.3%, compared to $14.09 million and a margin of 34.3% in 2023 [27]. - Adjusted EBITDA for the year ended December 31, 2024, was $(9.62) million, with a margin of (8.9)%, compared to $(5.36) million and a margin of (3.7)% in 2023 [22]. - Cash gross profit for the year ended December 31, 2024, was $47.34 million, with a margin of 43.7%, compared to $57.39 million and a margin of 39.5% in 2023 [27]. Net Loss and Expenses - GAAP net loss for Q4 was $9.3 million, with an adjusted EBITDA loss of $0.2 million, also above the top end of guidance [4]. - Net loss for Q4 2024 was $9,330, compared to a net loss of $6,980 in Q4 2023, representing a 33.5% increase in losses [16]. - Operating loss for the year ended December 31, 2024, was $55,873, compared to $40,315 in 2023, reflecting a 38.5% increase in operating losses [16]. - The company reported a basic net loss per share of $0.73 for the year ended December 31, 2024, compared to $0.50 in 2023 [16]. - Free cash flow for the year ended December 31, 2024, was $(39.70) million, compared to $(13.89) million in 2023 [28]. Cash Flow and Working Capital - Cash flow from operations was a $10.5 million outflow, and free cash flow was a $14.8 million outflow, reflecting short-term working capital buildup [4]. - Cash flows from operating activities showed a net cash used of $25,938 for the year, compared to a net cash provided of $1,587 in 2023 [20]. - The company reported a net cash flow used in operating activities of $(10.52) million for the three months ended December 31, 2024, compared to $4.95 million in 2023 [28]. Assets and Liabilities - Cash and cash equivalents decreased to $54,578 as of December 31, 2024, down 45.0% from $99,260 in 2023 [18]. - Total assets decreased to $158,235, a decline of 24.2% from $208,699 in the previous year [18]. Research and Development - Research and development expenses for the year were $8,442, down 28.5% from $11,760 in 2023 [16]. - Total operating expenses for the year were $90,302, a slight decrease of 3.3% from $93,257 in 2023 [16]. Other Financial Metrics - Stock-based compensation expense for the three months ended December 31, 2024, was $7.39 million, representing 28.0% of total expenses, compared to $1.93 million and 4.7% in 2023 [24]. - The adjusted net loss for the three months ended December 31, 2024, was $(2.83) million, with an adjusted earnings per share of $(0.04), compared to $(6.46) million and $(0.09) in 2023 [26]. - The company incurred restructuring expenses of $(0.17) million for the three months ended December 31, 2024, compared to $(0.07) million in 2023 [26]. - The impairment loss on intangible assets for the year ended December 31, 2024, was $11.71 million, contributing to the overall financial performance [26].

Core Viewpoint - Telos Corporation will report its fourth quarter and full year 2024 financial results on March 10, 2025, and will host a webcast to discuss these results and the business outlook [1][2]. Group 1: Financial Reporting - The financial results for the fourth quarter and full year 2024 will be announced on March 10, 2025 [1]. - A webcast will be held at 9:30 a.m. ET to discuss the financial results and business outlook [1][2]. Group 2: Company Overview - Telos Corporation is a provider of cyber, cloud, and enterprise security solutions, focusing on security-conscious organizations [3]. - The company's offerings include cybersecurity solutions for IT risk management, cloud security solutions for compliance, and enterprise security solutions for identity and access management [3]. - Telos serves commercial enterprises, regulated industries, and government customers globally [3].

Core Insights - Telos Corporation has been awarded a prime contractor position under the U.S. Navy's SeaPort Next Generation (SeaPort NxG) contract, which allows the company to bid on task orders until 2028 [1][2][3] - The SeaPort NxG contract is a mandatory approach for the Navy to procure professional support services, enhancing Telos's relationship with the U.S. Navy [2][3] - Telos's CEO expressed optimism about providing various support services, including network engineering and cyber risk assessment, to the Navy [3] Market Access and Opportunities - The combination of SeaPort NxG and other federal government contracts positions Telos to access a market estimated at approximately $35 billion [3] - Telos has secured positions on multiple federal government blanket purchase agreements (BPA) and indefinite-delivery/indefinite-quantity (IDIQ) contract vehicles since 2023, expanding its business opportunities [3][7] Company Overview - Telos Corporation specializes in cybersecurity, cloud security, and enterprise security solutions, serving a range of clients including commercial enterprises and government customers [5] - The company's offerings include IT risk management, information security, cloud-based asset protection, and identity and access management [5]

Core Points - Telos Corporation has achieved StateRAMP High authorization for its Xacta cyber governance, risk, and compliance (GRC) solution, demonstrating its commitment to cybersecurity for state and local government agencies [1][2][3] - The Xacta platform has passed all necessary StateRAMP readiness and security assessments, ensuring it meets stringent cybersecurity requirements for data integrity and confidentiality [2][4] - This achievement positions Telos as a trusted partner for government agencies seeking secure cloud-based solutions that comply with StateRAMP standards [3][4] Company Overview - Telos Corporation provides cybersecurity, cloud, and enterprise security solutions, serving security-conscious organizations globally [7] - The company’s offerings include IT risk management, information security, cloud security, identity and access management, and network management [7] - Xacta has gained trust from prominent government agencies and regulated organizations over the past 20 years, addressing complex challenges in managing cyber risk and compliance [4]

Core Viewpoint - Telos Corporation (TLS) has received an upgrade to a Zacks Rank 2 (Buy), indicating a positive outlook based on rising earnings estimates, which significantly influence stock prices [1][2]. Earnings Estimates and Stock Price Impact - Changes in a company's future earnings potential, as indicated by earnings estimate revisions, are strongly correlated with near-term stock price movements [3]. - Institutional investors often rely on earnings estimates to determine the fair value of a company's shares, leading to significant stock price movements based on their buying or selling actions [3]. Telos Corporation's Earnings Outlook - The upgrade for Telos reflects an improvement in the company's underlying business, which is expected to positively influence its stock price [4]. - For the fiscal year ending December 2024, Telos is projected to earn -$0.34 per share, representing a 47.8% decrease from the previous year's reported figure [7]. - Over the past three months, the Zacks Consensus Estimate for Telos has increased by 8.4%, indicating a positive trend in earnings estimates [7]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 (Strong Buy) stocks historically generating an average annual return of +25% since 1988 [6]. - The Zacks rating system maintains a balanced distribution of 'buy' and 'sell' ratings, ensuring that only the top 20% of stocks receive a 'Strong Buy' or 'Buy' rating, indicating superior earnings estimate revisions [8][9]. - Telos's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Financial Performance - Consolidated revenue for the third quarter ended September 30, 2024, was $23.783 million, a decline of 34.3% from $36.186 million in the same quarter of 2023[125] - Gross profit for the third quarter of 2024 was $3.143 million, down from $13.013 million in the prior year, resulting in a gross margin of 13.2%, compared to 36.0% in Q3 2023[127] - The net loss for the third quarter of 2024 was $28.055 million, compared to a net loss of $8.672 million in Q3 2023, reflecting a significant increase in losses[127] - Operating loss for the third quarter of 2024 was $(28.864) million, compared to $(9.693) million in the same quarter of 2023, indicating a worsening financial performance[127] - Adjusted Net Loss for the three months ended September 30, 2024, was $28.1 million, compared to $8.7 million for the same period in 2023, reflecting a significant increase in losses[146] - Adjusted EBITDA for the three months ended September 30, 2024, was $(4,149) thousand, compared to $(1,260) thousand in the same period of 2023[142] Revenue Segments - TSA PreCheck revenue growth was driven by an increase in enrollment locations[126] - Security Solutions segment gross profit declined by 75.3% to $2,310 thousand in Q3 2024, down from $9,354 thousand in Q3 2023, with gross margin decreasing from 47.3% to 12.6%[134] - For the nine months ended September 30, 2024, Security Solutions segment revenue decreased by 3.4% to $54,839 thousand, compared to $56,764 thousand in the same period of 2023[135] - Secure Networks segment revenue decreased by 66.7% to $5,451 thousand in Q3 2024, down from $16,391 thousand in Q3 2023, primarily due to the completion of programs without new business wins[137] - For the nine months ended September 30, 2024, Secure Networks segment revenue decreased by 43.1% compared to the same period in 2023[138] - For the three months ended September 30, 2024, total revenue was $18,332 thousand, a decrease of 7.4% compared to $19,795 thousand in the same period of 2023[134] Operating Expenses - Operating expenses increased by 41.0% year-over-year in Q3 2024, primarily due to a $6.0 million increase in impairment loss on intangible assets and a $3.6 million rise in stock-based compensation[129] - The impairment loss on intangible assets for the three months ended September 30, 2024, was $11,706 thousand, compared to no impairment loss in the same period of 2023[142] - Stock-based compensation expense increased to $8,814 thousand for the three months ended September 30, 2024, from $5,218 thousand in the same period of 2023[142] - Stock-based compensation expense for the three months ended September 30, 2024, was $8.4 million, compared to $5.2 million for the same period in 2023, reflecting increased compensation costs[146] Cash Flow and Liquidity - Free Cash Flow for the three months ended September 30, 2024, was $(9.92) million, compared to $(2.99) million for the same period in 2023, indicating increased cash outflows[153] - Net cash used in operating activities for the nine months ended September 30, 2024, was $15.42 million, an increase of $12.1 million compared to the same period in 2023[157] - The company reported net cash used in investing activities of $12.49 million for the nine months ended September 30, 2024, slightly up from $12.31 million in the same period of 2023[158] - As of September 30, 2024, the company had cash and cash equivalents of $69.8 million and working capital of $72.0 million, indicating a strong liquidity position[155] - The company has a $30.0 million revolving credit facility, with an available expansion feature of up to an additional $30.0 million, enhancing its liquidity management[154] Budget and Funding - The fiscal year 2024 budget appropriation caps total base discretionary spending at $1.6 trillion, with base defense spending capped at $886 billion, a 3% increase from FY2023[114] - The proposed FY2025 budget includes $850 billion for the Defense Department, a $34 billion or 4.1% increase from the 2023 enacted level[115] - The FY2025 budget allocates $13 billion for cybersecurity funding across civilian departments and agencies, emphasizing investments in "secure by design" technologies[116] Company Operations - The company continues to focus on expanding its business development pipeline and executing significant new business wins with prime partners[113] - The restructuring expenses included severance and related benefit costs, totaling $1.45 million for the three months ended September 30, 2024[146] Internal Controls - The Company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2024[164] - There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2024, that materially affected the internal control[165]

Financial Data and Key Metrics Changes - The company reported revenue of $23.8 million for Q3 2024, near the top end of the guidance range of $22 million to $24 million [8] - Adjusted EBITDA was a loss of $4.1 million, better than the guidance of a loss between $6.5 million and $8 million [14] - GAAP gross margin was 13.2%, while cash gross margin expanded to 44%, the highest since the IPO in 2020 [13][14] Business Line Data and Key Metrics Changes - Security Solutions generated $18.3 million, accounting for 77% of total revenue, with a 3% sequential growth driven by the TSA PreCheck program [8][9] - Secure Networks delivered $5.5 million, representing 23% of total revenue, with a decline expected due to the ramp down of existing programs [10] - The company took a total charge of $13.1 million in Q3, impacting GAAP gross margin [12][13] Market Data and Key Metrics Changes - The TSA PreCheck program is expected to become the largest program for the company in 2024, with an expansion of enrollment centers from 83 to 173 locations [15][16] - The DMDC program, worth up to $485 million over five years, is now generating revenue after a successful resolution of a protest [18] - The DHS program, valued at up to $40 million, is expected to resolve its protest in Q4 2024 [19] Company Strategy and Development Direction - The company is focusing on maximizing operating leverage and cash flow as it prepares for growth in 2025 [11][12] - A restructuring effort has led to the discontinuation of certain low-performing solutions to reallocate resources to higher-return opportunities [12][36] - The company aims to reach 500 TSA PreCheck enrollment locations by 2025, targeting a pro-rata market share in a $200 million market [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the resolution of the DMDC program and the growth of the TSA PreCheck program, which are key to future revenue [29][60] - The company anticipates sequential revenue growth in Q4 2024, driven primarily by Security Solutions [21][29] - Management highlighted a robust pipeline of new business opportunities, particularly in secure networks, with a total portfolio valued at around $4.1 billion [38][40] Other Important Information - The company expects revenue for Q4 2024 to grow between 3% to 11%, with adjusted EBITDA losses projected between $4.5 million and $3.5 million [21] - Cash gross margin is expected to expand significantly year-over-year due to a favorable mix shift towards higher-margin Security Solutions [23][24] Q&A Session Summary Question: Can you review the DMDC contract and factors determining revenue? - The DMDC program has a base service revenue stream of approximately $25 million, with additional revenues from third-party integrations that can fluctuate [31][32] Question: Can you elaborate on the restructuring actions? - The company discontinued the advanced cyberanalytics and ghost solutions due to low sales, aiming to shift resources to higher-return opportunities [36][37] Question: What is the size of the pipeline going into the key buying season? - The company has around 20 opportunities in the pipeline, with a total contract value in the nine figures, indicating potential revenue in the tens of millions for 2025 [38][39] Question: What are the risks associated with the projected revenue for next year? - The revenue projection of $60 million to $85 million includes a range of visibility, with some revenue dependent on the resolution of the DHS protest [41][44] Question: What is the confidence level for free cash flow in 2025? - The company is focused on revenue growth and becoming free cash flow positive, with a breakeven point likely lower than $200 million due to favorable working capital profiles [55][56]

Financial Performance - Telos Corporation reported a quarterly loss of $0.10 per share, better than the Zacks Consensus Estimate of a loss of $0.14, and compared to a loss of $0.07 per share a year ago, representing an earnings surprise of 28.57% [1] - The company posted revenues of $23.78 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 3.56%, but down from $36.19 million in the same quarter last year [2] - Over the last four quarters, Telos has exceeded consensus EPS estimates four times and topped consensus revenue estimates four times as well [2] Stock Performance and Outlook - Telos shares have increased approximately 16.3% since the beginning of the year, while the S&P 500 has gained 25.8% [3] - The current consensus EPS estimate for the upcoming quarter is -$0.14 on revenues of $25.13 million, and for the current fiscal year, it is -$0.45 on revenues of $106.21 million [7] Industry Context - The Computers - IT Services industry, to which Telos belongs, is currently ranked in the top 16% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Telos's stock performance [5]

Core Insights - Telos Corporation has released its third quarter financial results for 2024, which can be accessed on its investor relations website [1] - A live webcast to discuss these financial results is scheduled for November 12, 2024, at 10:30 a.m. EST [2] - Related presentation materials and an archived version of the webcast will be available on the company's website [3] Company Overview - Telos Corporation specializes in providing cybersecurity, cloud security, and enterprise security solutions for organizations that prioritize security [4] - The company's offerings include IT risk management, information security, cloud-based asset protection, compliance with security standards, identity and access management, secure mobility, organizational messaging, and network defense [4] - Telos serves a diverse clientele, including commercial enterprises, regulated industries, and government customers globally [4]