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Telos(TLS) - 2022 Q4 - Earnings Call Transcript
TLSTelos(TLS)2023-03-16 15:23
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Financial Data and Key Metrics Changes - The company reported fourth quarter revenue of 47.3million,adeclineof2647.3 million, a decline of 26% year-over-year, and total revenue for the year was 216.9 million [5][9] - GAAP gross margin expanded by 95 basis points to 38.6% in the fourth quarter and by 96 basis points to 36.4% for the year [6] - Adjusted EBITDA for the fourth quarter was 5.4millionwithan11.45.4 million with an 11.4% margin, while for the year it was 19.5 million with a 9% margin [6][12] - Adjusted EPS was 0.05forthefourthquarterand0.05 for the fourth quarter and 0.19 for the year [6] Business Line Data and Key Metrics Changes - Revenue from the security solutions business declined 11% to 30.3million,primarilyduetotherampdownoftheU.S.censusprogramandamorethan5030.3 million, primarily due to the ramp down of the U.S. census program and a more than 50% reduction in revenue from the second largest program [9][10] - Revenue from secure networks fell 43% to 17.1 million, driven by the wind down of three large programs [11] Market Data and Key Metrics Changes - The three largest programs in security solutions generated approximately 70millioninrevenuesinboth2021and2022,butareexpectedtoexperiencerevenuedeclinesofapproximately5070 million in revenues in both 2021 and 2022, but are expected to experience revenue declines of approximately 50% to 100% in 2023 [10] - The three largest programs in secure networks generated 69 million in 2021 and 44millionin2022,withexpectationsofsingle−digitrevenuesin2023[11]CompanyStrategyandDevelopmentDirection−Thecompanyisfocusedonrebuildingandgrowingitsrevenuebase,withimmediateprioritiesincludingstreamliningoperationsandenhancingbusinessdevelopment[7][22]−Newseniorleadershavebeenappointedtodrivetechnologysolutionsandcorporategrowth[7][8]−Thecompanyaimstomaximizeexistingstrategicpartnershipsandincreasemarketawarenessofitssolutions[23]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpresseddisappointmentwiththeexecutionofthelong−termgrowthstrategysincetheIPOandacknowledgedexpectedrevenuecontractionin2023[5]−Thecompanyanticipates2023tobeatransitionyear,withsignificantrevenueheadwindsfromlargeprogramscomingtocompletion[5][17]−Managementremainsconfidentinfuturebusinessdevelopmentopportunities,citingpastperformanceandstrongcustomerrelationships[29]OtherImportantInformation−Freecashflowincreasedfroma44 million in 2022, with expectations of single-digit revenues in 2023 [11] Company Strategy and Development Direction - The company is focused on rebuilding and growing its revenue base, with immediate priorities including streamlining operations and enhancing business development [7][22] - New senior leaders have been appointed to drive technology solutions and corporate growth [7][8] - The company aims to maximize existing strategic partnerships and increase market awareness of its solutions [23] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with the execution of the long-term growth strategy since the IPO and acknowledged expected revenue contraction in 2023 [5] - The company anticipates 2023 to be a transition year, with significant revenue headwinds from large programs coming to completion [5][17] - Management remains confident in future business development opportunities, citing past performance and strong customer relationships [29] Other Important Information - Free cash flow increased from a 5.9 million net outflow in 2021 to an 11.2millionnetinflowin2022,withcashonthebalancesheetexceeding11.2 million net inflow in 2022, with cash on the balance sheet exceeding 119 million [13][14] - The company has closed on a 30 million senior secured revolving credit facility, which remains undrawn [14] Q&A Session Summary Question: Insights on new business wins and confidence in growth - The company has won approximately 9 million of new business, but only 1millionto1 million to 2 million will be recognized as revenue in 2023 due to timing [27] - Confidence in business development is based on past performance, alignment with government-oriented opportunities, and strong customer knowledge [29] Question: Update on TSA PreCheck launch - The soft launch is ongoing, with final details being worked out to ensure a smooth customer experience, with a national launch expected in 2023 [32] Question: Update on CMS contract - There is currently no update on the CMS contract, and the company is awaiting future order releases [35] Question: Headcount and expense management strategy - Employee reductions were primarily related to billable roles associated with programs experiencing lower operational volume, impacting both billable and non-billable roles [38]