Group 1 - Telos Corporation reported a quarterly loss of $0.04 per share, better than the Zacks Consensus Estimate of a loss of $0.09, representing an earnings surprise of 55.56% [1] - The company posted revenues of $26.37 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 3.42%, but down from $41.06 million year-over-year [2] - Telos has surpassed consensus EPS estimates for four consecutive quarters [2] Group 2 - The stock has underperformed, losing about 16.1% since the beginning of the year compared to the S&P 500's decline of 1.9% [3] - The current consensus EPS estimate for the upcoming quarter is -$0.07 on revenues of $31.52 million, and for the current fiscal year, it is -$0.14 on revenues of $150.13 million [7] - The Computers - IT Services industry, to which Telos belongs, is currently ranked in the top 22% of over 250 Zacks industries, indicating a favorable outlook [8]

Telos (TLS) Q4 2024 Earnings Call March 10, 2025 09:30 AM ET Company Participants Allison Phillipp - Director of Corporate CommunicationsMark Bendza - Executive VP & CFOJohn Wood - Chairman & CEO Conference Call Participants Zach Cummins - Senior Research AnalystRudy Kessinger - Managing Director - Senior Equity Research Analyst Operator Good day and thank you for standing by. Welcome to the TELUS Corporation Fourth Quarter twenty twenty four Financial Results Conference Call. At this time, all participants ...

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]