Telos(TLS) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total company revenue grew 16% sequentially to $30.6 million, exceeding guidance [6] - Security solutions revenue increased 18% sequentially to $25.8 million, while Secure Networks revenue grew 8% sequentially to $4.8 million [7] - GAAP gross margin was 39.8%, and cash gross margin was 45.3%, both exceeding guidance [7] - Adjusted EBITDA was a profit of $362,000, compared to guidance of a loss between $1.8 million and $800,000 [7] - Cash flow from operations was positive at $6.1 million, and free cash flow was positive at $3.8 million [8] Business Line Data and Key Metrics Changes - Security solutions revenue represented 84% of total company revenue in Q1 2025, up from 63% in Q1 2024 [10] - Revenue growth in security solutions was driven by the successful transition of the DMDC program and TSA PreCheck enrollment volume [9] - Secure Networks contracted due to the completion and ramp down of multiple programs [10] Market Data and Key Metrics Changes - The company expects TSA PreCheck to be a significant driver of financial performance, with 291 locations currently operational and a target of 500 by the end of 2025 [12][13] - The DMDC program is expected to be a major source of revenue growth over the next several quarters [13] Company Strategy and Development Direction - The company is focused on expanding its TSA PreCheck enrollment network and has added 73 new locations in the past nine weeks [12] - A restructuring and cost reduction plan was implemented to maximize operating leverage as the company returns to growth in 2025 [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving year-over-year growth in revenue, adjusted EBITDA, and cash flow, particularly in the second half of 2025 [19] - The company anticipates revenue growth of 14% to 21% year-over-year for Q2 2025, primarily driven by security solutions [15] Other Important Information - The company has a robust business pipeline exceeding $4 billion, with several hundred opportunities being pursued [30] - The renewal market is expected to contract significantly this year, impacting overall market dynamics [52] Q&A Session Summary Question: Changes on the new business front and DMDC margin profile - Management indicated that the DMDC program will be dilutive to overall margins, with lower margin revenue streams ramping up [25] Question: Incremental new business this year - The business pipeline remains robust, with several hundred opportunities, but any incremental growth will likely be single-digit [30] Question: Performance of existing TSA PreCheck footprint - Management expressed confidence in TSA PreCheck's contribution to cash generation and overall financial performance [32] Question: Cash gross margins and DMDC revenues - Management projected a potential step down in cash gross margins by approximately 600 basis points from the first half to the second half of the year [37] Question: Free cash flow expectations for Q2 2025 - Management did not provide specific guidance but indicated a significant improvement compared to the previous year [44] Question: Outperformance from security solutions and secure networks - Security solutions were identified as the bigger outperformer, driven by both DMDC and TSA PreCheck [50]