Telos(TLS) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Telos Corporation delivered strong Q2 2025 results, exceeding revenue guidance with significant year-over-year growth in Security Solutions, improved operating leverage, robust cash flow, and resumed share repurchases, while forecasting continued growth Second Quarter 2025 Performance Highlights Telos Corporation reported strong Q2 2025 results, exceeding revenue guidance with substantial year-over-year growth, particularly in Security Solutions. The company also demonstrated improved operating leverage and robust cash flow, leading to the resumption of share repurchases - Revenue: Delivered $36.0 million, above guidance, with 90.3% from Security Solutions[4] - Revenue Growth: Grew 26.2% year-over-year, driven by 81.8% growth in Security Solutions, primarily due to rapid scaling of the Defense Manpower Data Center (DMDC) program and significant rollout of additional TSA PreCheck enrollment locations (increased from 56 to 357 locations year-over-year)[4] - GAAP Gross Margin: Was 33.2%, contracting 89 bps year-over-year primarily due to revenue mix; Cash Gross Margin was 38.4%[4] - Adjusted EBITDA: Increased $3.3 million year-over-year to $0.4 million, with Incremental Adjusted EBITDA Margin of 44.4% in Q2 and 71.0% in the first half[4] - Cash Flow: Cash Flow from Operations was $7.0 million (19.3% of Revenue) in Q2 and $13.1 million (19.6% of Revenue) in H1. Free Cash Flow was $4.6 million (12.9% of Revenue) in Q2 and $8.4 million (12.6% of Revenue) in H1[4] - Share Repurchases: Deployed $4.0 million to repurchase approximately 1.5 million shares at a weighted average price of $2.69 per share[4] Financial Summary Table This table provides a snapshot of key GAAP and non-GAAP financial metrics for Q2 2025 and Q2 2024, highlighting significant improvements in revenue, gross profit, and cash flow, despite an increase in GAAP net loss Financial Summary Table (in millions, except percentages and EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Revenue | $36.0 million | $28.5 million | | Gross Profit | $11.9 million | $9.7 million | | Gross Margin | 33.2 % | 34.1 % | | Cash Gross Profit | $13.8 million | $12.0 million | | Cash Gross Margin | 38.4 % | 42.0 % | | GAAP Net Loss | $(9.5) million | $(7.8) million | | Adjusted EBITDA | $0.4 million | $(2.9) million | | Adjusted EBITDA Margin | 1.1 % | (10.3 %) | | GAAP EPS | $(0.13) | $(0.11) | | Adjusted EPS | $(0.03) | $(0.09) | | Cash Flow from Operations | $7.0 million | $(8.0) million | | Free Cash Flow | $4.6 million | $(11.3) million | | Free Cash Flow Margin | 12.9 % | (39.8 %) | Outlook Telos forecasts accelerated growth for Q3 2025 and anticipates significant year-over-year improvements in revenue and Adjusted EBITDA, along with positive cash flow for the full year - Third Quarter Guidance: Forecasts 85% to 98% year-over-year revenue growth, with Revenues of $44 million - $47 million, and Adjusted EBITDA of $4.0 million to $5.7 million[4] - Full Year Outlook: Forecasts significant year-over-year improvements in Revenue and Adjusted EBITDA, and positive cash flow[4] Forward-Looking Statements This section outlines the inherent uncertainties and risks associated with forward-looking statements, emphasizing that actual results may differ materially from projections and that the company undertakes no obligation to update them Forward-Looking Statements This section contains forward-looking statements based on management's current beliefs and expectations, subject to risks and uncertainties detailed in SEC filings. The company cautions against undue reliance and undertakes no obligation to update these statements publicly - Statements are based on management's current beliefs, expectations, and assumptions about future events, conditions, and results[6] - Forward-looking statements involve risks and uncertainties, including those described in the Company's filings and reports with the U.S. SEC (e.g., Form 10-K, 10-Q)[6] - The Company cautions readers not to place undue reliance on these statements as actual results may differ materially, and undertakes no obligation to update them publicly, except as required by law[7] Non-GAAP Financial Measures This section details Telos's use of non-GAAP financial measures to provide enhanced insight into core operating and cash flow performance, defining each measure and acknowledging their inherent limitations as analytical tools Purpose and Use of Non-GAAP Measures Telos uses non-GAAP financial measures like EBITDA, Adjusted EBITDA, and Free Cash Flow to supplement GAAP results, believing they offer better consistency, comparability, and insight into core operating and cash flow performance for management, investors, and the Board of Directors - Non-GAAP measures are used to evaluate operating and cash flow performance, providing consistency and comparability with past financial performance and assisting in comparisons with other companies[8] - These measures offer a clear representation of the Company's core operating performance and trends, greater visibility into long-term financial performance, and eliminate the impact of items not related to ongoing operations[9] - Adjusted EBITDA and Free Cash Flow are used by the Board of Directors and management for annual budgeting, evaluating performance, and determining incentive compensation[9] Definitions of Non-GAAP Measures This section provides specific definitions for various non-GAAP financial measures used by Telos, including EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Adjusted Gross Profit, Cash Gross Profit, Adjusted Operating Expenses, Cash Operating Expenses, and Free Cash Flow, detailing the adjustments made to GAAP figures - EBITDA: Net (loss) income, adjusted for non-operating (income) expense, interest expense, provision for (benefit from) income taxes, and depreciation and amortization[11] - Adjusted EBITDA: EBITDA, adjusted for stock-based compensation expense, impairment loss on intangible assets, and restructuring expenses[11] - Adjusted Net Loss: Net (loss) income, adjusted for non-operating (income) expense, stock-based compensation expense, impairment loss on intangible assets, and restructuring expenses[11] - Free Cash Flow: Net cash (used in) provided by operating activities, less net purchases of property and equipment, and capitalized software development costs[11] Limitations of Non-GAAP Measures Telos acknowledges that non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes for GAAP results. They do not reflect cash expenditures, certain charges, or income tax, and may not be comparable to similarly titled measures used by other companies - Non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results reported under GAAP[12] - They do not reflect cash expenditures for capital or contractual commitments, the impact of certain cash and non-cash charges not indicative of ongoing operations, or income tax expense or benefit[12] - Other companies may calculate similarly-titled non-GAAP measures differently, limiting their usefulness as a comparative measure. Telos primarily relies on GAAP results and uses non-GAAP measures only for supplemental purposes[12] About Telos Corporation Telos Corporation (NASDAQ: TLS) provides continuous security assurance solutions for individuals, systems, and information, serving a global clientele across commercial, regulated, and government sectors About Telos Corporation Telos Corporation (NASDAQ: TLS) empowers and protects the world's most security-conscious organizations with solutions for continuous security assurance of individuals, systems, and information, serving commercial enterprises, regulated industries, and government customers globally - Telos Corporation (NASDAQ: TLS) provides solutions for continuous security assurance of individuals, systems, and information[13] - Offerings include cybersecurity solutions for IT risk management and information security, cloud security solutions for asset protection and compliance, and enterprise security solutions for identity and access management, secure mobility, and network management[13] - The Company serves commercial enterprises, regulated industries, and government customers around the world[13] Consolidated Financial Statements (GAAP) This section presents Telos Corporation's GAAP financial statements, including statements of operations, balance sheets, and cash flows, detailing the company's financial performance and position for the reported periods Consolidated Statements of Operations The Consolidated Statements of Operations show Telos Corporation's financial performance for the three and six months ended June 30, 2025, and 2024. Key figures include total revenue, gross profit, operating expenses, and net loss Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Revenue – Security Solutions | $32,474 | $17,867 | $58,292 | $36,507 | | Revenue – Secure Networks | $3,494 | $10,631 | $8,292 | $21,610 | | Total revenue | $35,968 | $28,498 | $66,584 | $58,117 | | Gross profit | $11,932 | $9,707 | $24,114 | $20,668 | | Total operating expenses | $21,815 | $18,351 | $43,019 | $37,750 | | Operating loss | $(9,883) | $(8,644) | $(18,905) | $(17,082) | | Net loss | $(9,517) | $(7,757) | $(18,121) | $(15,135) | | Basic Net loss per share | $(0.13) | $(0.11) | $(0.25) | $(0.21) | - Total revenue increased by 26.2% year-over-year in Q2 2025 ($35.97 million vs $28.50 million)[16] - Security Solutions revenue grew significantly by 81.8% year-over-year in Q2 2025 ($32.47 million vs $17.87 million), while Secure Networks revenue decreased by 67.1% year-over-year in Q2 2025 ($3.49 million vs $10.63 million)[16] - Net loss widened to $(9.52) million in Q2 2025 from $(7.76) million in Q2 2024[16] Consolidated Balance Sheets The Consolidated Balance Sheets present Telos Corporation's financial position as of June 30, 2025, and December 31, 2024. Total assets increased, driven by higher current assets, while total liabilities also rose significantly, primarily due to increases in accounts payable and contract liabilities Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Total assets | $165,042 | $158,235 | | Cash and cash equivalents | $56,998 | $54,578 | | Total current assets | $102,776 | $91,418 | | Total liabilities | $46,629 | $31,098 | | Total current liabilities | $38,733 | $22,135 | | Total stockholders' equity | $118,413 | $127,137 | - Total assets increased by $6.8 million from $158.2 million at December 31, 2024, to $165.0 million at June 30, 2025[18] - Total liabilities increased by $15.5 million from $31.1 million at December 31, 2024, to $46.6 million at June 30, 2025, primarily due to increases in accounts payable and contract liabilities[18] - Total stockholders' equity decreased by $8.7 million from $127.1 million at December 31, 2024, to $118.4 million at June 30, 2025[18] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows detail the cash inflows and outflows for operating, investing, and financing activities for the three and six months ended June 30, 2025, and 2024. The company generated positive cash flow from operations in Q2 2025, a significant improvement from the prior year, but saw increased cash usage in financing activities due to share repurchases Consolidated Statements of Cash Flows (in thousands) | Metric | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :------------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash provided by (used in) operating activities | $6,950 | $(7,990) | $13,056 | $(8,340) | | Net cash used in investing activities | $(2,321) | $(5,498) | $(4,658) | $(9,647) | | Net cash used in financing activities | $(5,422) | $(322) | $(5,978) | $(1,168) | | Net change in cash, cash equivalents, and restricted cash | $(793) | $(13,810) | $2,420 | $(19,155) | | Cash, cash equivalents, and restricted cash, end of period | $57,137 | $80,241 | $57,137 | $80,241 | - Net cash provided by operating activities swung to a positive $6.95 million in Q2 2025 from a negative $(7.99) million in Q2 2024[20] - Net cash used in investing activities decreased to $(2.32) million in Q2 2025 from $(5.50) million in Q2 2024, primarily due to no purchase of investment in Q2 2025[20] - Net cash used in financing activities significantly increased to $(5.42) million in Q2 2025 from $(0.32) million in Q2 2024, largely due to $4.00 million in common stock repurchases[20] Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP financial measures to their non-GAAP counterparts, including EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Gross Profit, Cash Gross Profit, Free Cash Flow, and Operating Expenses, to offer a clearer view of underlying performance Reconciliation of Net Loss to EBITDA and Adjusted EBITDA This reconciliation details the adjustments made to GAAP Net Loss to arrive at EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2025, and 2024. Adjusted EBITDA showed a significant positive swing year-over-year, reflecting improved operational performance excluding non-cash and non-recurring items Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in thousands) | Metric | Q2 2025 Amount | Q2 2025 Margin | Q2 2024 Amount | Q2 2024 Margin | YoY Change Amount | YoY Change Margin | | :------------------------------------ | :------------- | :------------- | :------------- | :------------- | :---------------- | :---------------- | | Net loss | $(9,517) | (26.5%) | $(7,757) | (27.2%) | $(1,760) | (23.6%) | | EBITDA (Non-GAAP) | $(7,374) | (20.5%) | $(5,153) | (18.1%) | $(2,221) | (29.7%) | | Stock-based compensation expense | $7,757 | 21.6% | $2,219 | 7.8% | $5,538 | 74.1% | | Adjusted EBITDA (Non-GAAP) | $383 | 1.1% | $(2,934) | (10.3%) | $3,317 | 44.4% | - Adjusted EBITDA improved by $3.32 million, moving from $(2.93) million in Q2 2024 to $0.38 million in Q2 2025[22] - Stock-based compensation expense significantly increased to $7.76 million in Q2 2025 from $2.22 million in Q2 2024[22] Reconciliation of Net Loss to Adjusted Net Loss and EPS to Adjusted EPS This reconciliation adjusts GAAP Net Loss and EPS for non-operating income, stock-based compensation, and restructuring expenses to present Adjusted Net Loss and Adjusted EPS. The adjustments show a reduced net loss and improved EPS on an adjusted basis compared to GAAP Reconciliation of Net Loss to Adjusted Net Loss and EPS to Adjusted EPS (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net loss | $(9,517) | $(7,757) | $(18,121) | $(15,135) | | Stock-based compensation expense | $7,757 | $2,219 | $14,805 | $5,203 | | Adjusted net loss (Non-GAAP) | $(2,313) | $(6,602) | $(4,430) | $(12,258) | | Adjusted EPS (Non-GAAP) | $(0.03) | $(0.09) | $(0.06) | $(0.17) | - Adjusted net loss significantly narrowed to $(2.31) million in Q2 2025 from $(6.60) million in Q2 2024[25] - Adjusted EPS improved to $(0.03) in Q2 2025 from $(0.09) in Q2 2024[25] Reconciliation of Gross Profit to Adjusted and Cash Gross Profit This reconciliation shows the adjustments from GAAP Gross Profit to Adjusted Gross Profit and Cash Gross Profit, primarily by adding back stock-based compensation and depreciation/amortization. While GAAP Gross Margin slightly contracted, Cash Gross Margin remained healthy, indicating strong core profitability before non-cash items Reconciliation of Gross Profit to Adjusted and Cash Gross Profit (in thousands) | Metric | Q2 2025 Amount | Q2 2025 Margin | Q2 2024 Amount | Q2 2024 Margin | | :------------------------------------ | :------------- | :------------- | :------------- | :------------- | | Gross profit | $11,932 | 33.2% | $9,707 | 34.1% | | Stock-based compensation expense — cost of sales | $149 | 0.4% | $228 | 0.8% | | Adjusted gross profit (Non-GAAP) | $12,081 | 33.6% | $9,935 | 34.9% | | Depreciation and amortization — cost of sales | $1,715 | 4.8% | $2,039 | 7.1% | | Cash gross profit (Non-GAAP) | $13,796 | 38.4% | $11,974 | 42.0% | - Cash Gross Profit increased to $13.80 million in Q2 2025 from $11.97 million in Q2 2024[26] - Cash Gross Margin was 38.4% in Q2 2025, a decrease from 42.0% in Q2 2024[26] Reconciliation of Cash Flow from Operations to Free Cash Flow This reconciliation shows the derivation of Free Cash Flow from Net Cash Provided by (Used in) Operating Activities by subtracting capitalized software development costs and purchases of property and equipment. The company achieved positive Free Cash Flow in Q2 2025, a significant turnaround from the prior year Reconciliation of Cash Flow from Operations to Free Cash Flow (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------ | :------ | :------ | :------ | :------ | | Net cash provided by (used in) operating activities | $6,950 | $(7,990) | $13,056 | $(8,340) | | Capitalized software development costs | $(2,187) | $(3,113) | $(4,401) | $(6,315) | | Purchases of property and equipment | $(134) | $(235) | $(257) | $(332) | | Free cash flow (Non-GAAP) | $4,629 | $(11,338) | $8,398 | $(14,987) | | Free cash flow margin (Non-GAAP) | 12.9% | (39.8%) | 12.6% | (25.8%) | - Free Cash Flow improved significantly to $4.63 million in Q2 2025 from $(11.34) million in Q2 2024[27] - Free Cash Flow Margin was 12.9% in Q2 2025, a substantial improvement from (39.8%) in Q2 2024[27] Reconciliation of Operating Expenses to Adjusted and Cash Operating Expenses This reconciliation adjusts GAAP Operating Expenses to Adjusted Operating Expenses and Cash Operating Expenses by removing stock-based compensation, restructuring adjustments, depreciation/amortization, and adding back capitalized software R&D costs. Adjusted operating expenses decreased year-over-year, contributing to improved operating leverage Reconciliation of Operating Expenses to Adjusted and Cash Operating Expenses (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Operating expenses | $21,815 | $18,351 | $43,019 | $37,750 | | Stock-based compensation expense | $(7,608) | $(1,991) | $(14,466) | $(4,718) | | Adjusted operating expenses (Non-GAAP) | $14,207 | $16,360 | $28,553 | $33,042 | | Cash operating expenses (Non-GAAP) | $15,562 | $18,022 | $31,345 | $35,879 | - Adjusted operating expenses decreased to $14.21 million in Q2 2025 from $16.36 million in Q2 2024[28] - Cash operating expenses decreased to $15.56 million in Q2 2025 from $18.02 million in Q2 2024[28]