TLS - Earnings call transcript Q1 2022

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Telos Corporation First Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] I would now like to turn the conference over to your speaker for today, Christina Mouzavires.

You may begin.

Christina Mouzavires

morning. Good joining Telos for XXXX first to results. financial us you Corporation's discuss quarter Thank is Chairman CFO John Telos; today me With Wood, Bendza, Vice and and Executive President Telos. and of Mark of CEO

with strategic full review guidance where quickly for financials open first today's will our format Let year Mark we'll brief and will me on Telos' the remarks results and and XXXX. and presentation. Then second of was John quarter begin priorities, quarter the XXXX Mark Relations cover Solutions, posted answers Executive today line Vice us. being Security and the Telos website, for is of Griffin, will is call The simultaneously President questions Investor and this the on earnings issued webcast. join where also press release earlier

on have Relations presentation Investor we website. provided slides our Additionally,

our want statements not Actual to uncertainties. federal any and Before during and statements including provisions based to in current These made filings. some emphasize to call on this we forward-looking are of that begin, and laws. described factors harbor release on results earnings reasons, subject safe and forward-looking that differ do duty for press the call in the conference We today's comments could of this are we undertake are and the under the made any are various statements materially SEC securities risks statements. assumptions our expectations update

isolation financial results. believe addition measures as measures, In financial GAAP financial addition, useful and we considered These Telos' non-GAAP help supplemental call, or substitute be for in which measures performance. discuss today's should to and understand in a not investors from during will we as are to clarifying non-GAAP

With website. reconciliations GAAP these also earnings call website You Please year-over-year of non-GAAP that, in The regarding the Investor Relations note specified. otherwise on replay our and measures, disclosures our link. company can the for Relations financial that are and Investor find comparisons webcast comparable the to including call under press year over next available on will John. release results additional this I'll be turn unless the

John Wood

Thank everyone. morning you, Christina, and good

large on performance today off Telos at better high quarter grew begin guidance slightly while XX% Networks this this Solutions million financial start to program will our later pleased high-end is outperformance $XX.X report level that XX.X% Let's year-over-year, guidance. we the to to expected but first was quarter margin for our guidance on to successful XX% first year. revenue X. range businesses. coming Security in both than margin of a our XXXX. due a Gross discuss a of call, was in delivered is Slide down due slightly at perform Mark Secure segments range. as sound a our above completion I'm also the to that Both above

adjusted million Finally, EPS the adjusted EBITDA of $X.XX above modest range we $X our loss. delivered midpoint a guidance in and

Now discuss recent let's turn and highlights to Slide to updates. our business X

information. malicious events detect of protections in real-time network near-term with and needs Telos unknown enhance within product Telos over near this quarter customers malicious new assist in behavior, offering and unique capabilities Telos environment. attribute unmet address with will activity, attribution solution of specifically announced Cyber identify attacks or the and offers uncover We today's ACA new a Solution and Analytics and believe This malicious we Advanced critical geolocate the activities ACA. previously cybersecurity concern More cyber actionable that can and

financial barriers comprehensive a offering are and with with We ACA minimal adoption. Telos analytics service to capabilities technical sophisticated as and

alike. are about customers We offering, we our which new value shareholders excited believe this very create for will and

new Security key continued & have National customer. services, as Agency, for Young, Amazon Services, Telos including to Beyond wins the maintain renewals with Web we Ernst and the government momentum and Xacta foreign as the ACA well launch, sales

continue to reach regulated continues to quality The States business of our quarter the recent commercial Telos XXX% a on to satisfaction perform award the upgrade in a their Security of success Solutions. Message our infrastructure. all for at Within System. partner of and the establishment to program, high include Networks expand Automated further in customer contract communications wins rate The is the including and having prioritizing We developments and Academy space Force and secure with industries. focus channel first Air of renewal particular government recent expand partnership level Carahsoft United network a achieving Handling new Secure with with a

calls and for industry Telos. its XXXX initiatives of which to that turn security Biden The Washington, landscape Now, some on me a recent this executive Administration non-defense order. increase D.C. comments the proposed FY Congress, of in year, next help number cybersecurity XX% cyber let has agencies in funding submitted the to in meet budget opportunities outlined the for to is nearly last priorities much present now year's

dollar address executive our specifically account are last directed Department here funding federal Telos X% defense Zero of for Trust The increase push fully for security. migration quarter Solutions. or cybersecurity anticipate Congress resulted also cyber well use continued war spending as has to Russia-Ukraine continues of make to emphasizes As impacts by U.S. the now to infrastructure. cloud and inflation. proposed ready proposed is architecture, meet Trust the this able the turn the complemented President's call, supply who will did accelerate include budget of their terms call will chain order earnings and This help most this new Bendza, not In the our the elevated levels financial and potential need increasingly second for in budget both to noted posture The war for private the which interests, public first acknowledged did discuss attacks real the and results at XXXX. impacts to highlight the Mark Defense previous practices to including year's critical full recognition Zero the items, over to Ukraine President's will as best warnings budget. U.S. cybersecurity boost notes and nor year significantly cybersecurity The Mark? in these sectors proposed to of that guidance spending XXXX greater above on quarter in against the I and well boosting calls against defense these agencies threats. of Russia-Ukraine of adopt in ensure a home, roughly potential although and for DoD budget observers evolving

Mark Bendza

you Thank for today. And joining you, John. thank us everyone

to turn Slide Let's X.

We increase gross margin high the with to X,XXX expansion, As points our basis end John and mentioned, guidance above sales the year we're results range profit met our range. of of first or reported EBITDA the of gross and the quarter. a to sound our midpoint in start exceeded adjusted a that above margin XX% guidance off guidance over gross for

increase turning for a free positive cash in months delivered trailing million free flow also $X.X cash period. XX the flow, We

expected last Now contribution million solutions to well more from of a of of million the pull program $XX.X the total quarter as due when XX% year, of the for quarter let's detail security were from first contributed the sales or of to million. the secured secure year, sales. down Total quarter solutions large get and networks the total pulled a into contribution XX% from forward bit wind the compares XX% XX% XX% or favorably mentioned large this customer to Year-over-year, sales forward $XX.X last The order sales. comparable order that second $XX.X XXXX. Security as year. total previously starting a same as networks contracted ongoing with sales contributed

solutions XX% Excluding that networks. grew sales XX% growth and growth within secured security total program, XX%, within including

to and Turning cash profitability flow.

expanded XX.X% secured secured gross profit was margin The over segments. as expansion sales driven First margin quarter basis to basis basis networks, mix over by increased margin to solutions expansion security and as expanded to as networks more well a X,XXX XX result a gross within Security more both than of points between reporting gross X,XXX solutions XX% margin XX.X%. and gross expansion. gross points of points gross margin favorable

million, improvement period capital in The R&D the quarter margin XXXX. in due we cash ramp As a in improved $X.X flow investments Free by of year period. flow expansion adjusted flow the EPS cash of as dynamics cash the free gross same expect positive months the and of turning course the favorable side and in half SG&A margin free first to deliver result slightly over working net-net, the EBITDA note, but year. to expected, for the overall. this expansion gross last XX reverse to trailing more second was will declined much the for of Adjusted compared

cash due million improved security and margin gross flow cash solutions, performance our expanded steady future generation. and XXX but result equivalent we today. particular, ending to the Similarly gross quarters. basis, X, investments and quarter by turn upward flow XX-month well flows margins free our the improved overall and as positive these in have basis Let's between free March and as On XXXX free Since margin expansion the trailing XX, milestone. and past gross illustrates a In focus is over margin metrics a free flow gross on trailing I have within expect months IPO, ending trajectory for trailing March as the both XX an recap to profitability cash expansion made flows to XXXX points the ups XX, XX-month trajectory dynamics. over cash working free margins every period have of Gross four $XX.X progress our our capital period time, and downs and the improved short-term on past margin balancing cash secured significant on several Slide our flow with cash to expansion important networks. quarters. for

flow consistent cash a options deploy we share become repurchase our generator consistent that our with we a program. time, various capital to remain As consider over strategy, free will including

our Slide the discuss to X turn let's to second Now quarter. for outlook

revenues range security quarter, of For sales and to million due forecast and $X EBITDA program to on forecast a the XXXX, million. lower $XX of the be we single in $XX negative to million a the million to XXXX revenues completion We of adjusted license positive to solutions down high $X and secured sales primarily low in communications. in program teens, Census lumpiness perpetual second

second TSA We the revenues in expect quarter. precheck no

result points expected be be security year, the down forward revenues quarter mentioned seven to digits expect points second margin mid-teens single of quarter a networks of Gross between of into in the to percentage due the in year-over-year period previously up mix and from solutions percentage revenues change and secured pull comparable networks. XXXX. the lower order last first a is as due mid revenue primarily nine as We expected to between secured the to to large primarily

of expense, half of networks solutions first especially expenses, marketing, higher higher gross within excluding full X, of Slide $X.X second the But Below stock-compensation are and be be year the security in lastly we each revenues expect to and year, line And for to investment due lower to XXXX. approximately addition G&A overall sales, year-over-year. expected secure In margins mix on million our making will during changes the quarter. the no guidance. we're ramp to the

So John on who will we is March. set far, full year in we progressing pass With expected that, wrap guidance up originally X. when to as year Slide I'll the our back

John Wood

thank Well, growth for quarter free expansion trailing quarter. summary, free in the significant turn flow profit improvement first gross in XX-month and we reported period. In Mark. the margin cash positive We you, flow cash gross and generated substantial the

take Telos vectors, new And our including and We with in cash on flows we today. Cyber our striking between and the margins Analytics Advanced right that, launch investing offering. balance continue questions. to growth we're the managing of develop to future our focused costs, And of happy remain portfolio

John Wood

for and you. to Operator, please asking line we others queue in participants mindful be one Q&A, only the question. open please the the call of by ask Thank

Operator

the with Thank line question Needham. Henderson [Operator Instructions] Our you. from comes Alex first of

line is open. Your

Alex Henderson

opportunity what's it I give hoping on growth and and with us And could has resale and particular sales performance Amazon, AMHS the Ghost did some of as goes you in the impact companies into rates. the the Microsoft same all was on Thanks. focus scaling IDTrust of been you to Xacta year that's Xacta granularity last kicked of whether on question. that cloud well with that's and kind the wrapped key up that hiring as

Mark Griffin

couple This Griffin. question, Hello, a Alex. your I'll is Mark take parts.

second forecasted see had efforts the Xacta half to starting expected and the end the sales had we or would expansion Ghost this So sales year. be results of marketing from we of in that

did tracking. so report resulted And that foreign is for Xacta QX. still government that received we We and award a in that

the as Manpower progressing it the end on and Ghost now other well health Data our Center we presented are as second IDTrust within So things the efforts is in relates right tracking half our of forecast Defense as to now program year. confidential with Xacta programs. that based the

that out So right we're projecting those. timing progress the in the as QX and of making expected now we the in QX we're in are playing

Alex Henderson

you some sense areas product what the those Could in rate have just us of lose is baseline? growth give that the of we

John Wood

Yes. that segments. higher. more And was is reason a perpetual by to the up orders Alex, say at program were we'll granularity what primarily licenses. is a below was to – so down to slightly our lower we're the than then that lower, ID a single little giving software orders The that XX%. the were level were business. I'd reporting a I'll subscriptions Ghost, communications, includes which impacts that weighted the driven see not the was revenues year and due Solutions there. for Comms on side, renewed Security our level difference secure IA last was AMHS this lower year-over-year year, although to say

Alex Henderson

Thank you.

Operator

Thank you.

Our comes the next with line question Riley Securities. of B. Zach from Cummins

Your open. line is

Zach Cummins

morning. here. results solid my Thanks congrats for Good questions Yes. on the and taking

a the high up to the kind guidance of Alex's following what teens, this into that is you Security give more some Solutions little Mark, see seeing QX QX? I can question, we're of guidance, in and insight just for some believe to parts Just low impacts bit are still for down the here moving the on

Mark Bendza

Yes.

on Census revenue was about down or on Secure through million then And items. will there say have where a to lower that assurance to more be program the volume on year-over-year Alex. of couple we ramped the XX, ID is comms did side Census I'd lower year-over-year. a side, running it's I flattish from running to quarter. say although we're still significantly $X.X XXXX single that due just So I'd XX mentioned information at

Security when to so ascribe and that And look going to at quarterly there. basis just impact year-over-year only a see that you on a you're Solutions,

So those were main items. the

an would just total So it ID it's impact, of but business you for overall Security Census company in or more for Solutions big just particular at for meaningful. year-over-year, that isn't start the looking what

Zach Cummins

for taking Thanks question. helpful. That's it. Got my

Mark Bendza

Sure.

Operator

Thank you.

Keith Our next question BMO. comes with of from the line Bachman

is line Your open.

Brad Clark

Hi. for for is Keith. Thank This my you Clark much Brad very taking on question.

like months the authority TSA hop ago. it meant touch program seemingly same waiting still three Just guidance programmer in the away, wanted the to but on [ph] to for seems for the from

half the for So of for another Controls that of forward? wanted the going check the then then is the I tracking we we broadly, up of in just should be follow and should later XXXX. even thinking appetite for some if is Johnson that potential throughout there thinking the to any sort about update and and take can program about And how the program second maybe be be Ghost you. Thank still How year? in puts year helpful

Mark Griffin

with achievement yes, we these The a to Mark is towards we of Griffin. progress and are happening TSA protocols – Positive still an making and ATO. forward is becoming PreCheck look morning. TSA progress provider. This and Good security engaging daily

is calendar still focus year. that of achievement this Our

very are excited so, that. that within with a And we about the concerns are every provider. making – we we are progress TSA. We day TSA We escalated towards them. we up progress levels PreCheck day every meet and to making highest on But becoming our

forecast product year. we've become obviously on of executive leadership later the and mainstay in them half reached out that based program. of solution and that's ghost On we’re the second will the confident solution a Johnson their the on the in And their that Controls, within a partner Ghost as their

very based still the area. positive year upside on growth we’re could that that be that for in So

So look that to forward well. on seeing we sales as side

Brad Clark

Thank you.

Operator

Thank you.

Our next Northland line from the with Nehal question Chokshi of comes Capital Markets.

open. line is Your

Nehal Chokshi

you. thank Yes,

Cyber over Advanced this you interesting. How can – for building long have this how been be relative think Just Xacta? program and looks do Analytics to long say you pipeline big how time really

John Wood

Hey, Nehal. John Wood. It’s

doing roughly. in months commercial nine tune started Analytics over the And ago. Cyber market the last it several Advanced we we really government for the So fine years

to that the after are actually will, that’s offer time information people and Most to to for Cyber small as to able means anomalous then and bad XX% service I we’re what in go very portion in a figure do essentially able based, and pretty anomalies on what actor cases put happened, think locate is fact. your What the if we’re that then try Analytics network And approximately you significant that. with from when take of where fence it’s automated trying a a we’re times to real they operating. around the it is being use which we’re out Advanced near trying provides service data.

this bad guys things narcotics where use And so case, those can going and started we was involved guys. ransomware other from, are bad around it’s range this that particular things. in like in case, terrorists after the and things after going cases like of kind In

quite significant So for I market think is us. the

The an about particular for the offering of for other is it’s basically not hard think someone that’s the I an of scale up thing a based pricing analysis And required. on sign kind monthly it. to is this great then agreement service, annual it’s with

it now say are compared people think early in So size the to I’d the Nehal. excited it. terms to relates of exactly it, it’s we’re it’s excited about I Xacta, very right the But to quite too marketplace, excitement as in about say

Nehal Chokshi

you. Thank Great.

John Wood

welcome. You’re

Operator

Thank you.

with Davidson. question the comes D.A. line next Rudy from of Kessinger Our

line open. Your is

Rudy Kessinger

to the of see or six getting where percentage cash, can and as with into rate, How that my cash do question, prioritize that, on, commercial basis, forward, those a either the reinvesting you taking over on free XX then, revenue or pipeline do million you mentioned strategic getting three? positive growth. next on between stand do prioritize business just this in to you And M&A $XXX think going where the just buybacks? right give update Thanks how up Great. but growth questions. last an buyback, do for between following accelerated trailing You now, of XX-month for you a bit the I kind how you guess months?

John Wood

Okay.

we obviously We A to of I opportunities, of large sales deal our So channel forward. But partners. from the pipeline. first going on come going majority pipeline, we all come is the result of as do direct vast see of growth a the us going great through as channel have view point from selling is to along. selling been think our feel the

And so I’m we Maybe sure provide he… over think can bit that I’m to detail and for – in not percentages, turn of going terms you. to little level Mark a I what here of

Mark Bendza

I’d basis basis, I’d this to commercial on say is we at a very would’ve as pipeline a basis. expected a revenue mean, on modest, than say a revenue it’s I on pipeline more on point. basis, it still weighted is commercial

John Wood

other And the I to the Rudy, is analysts just the remind you form Agree. to the opportunity a the or vast think the going then Yes. and be majority on of here, sales in commercial SaaS of the thing, of model. call model rest subscription a

I where know the it maintenance upfront – answers model that way a the the see XX% of time. that reflecting in if you’ll over question, but does perpetual XX% we’ll take period level past it? in don’t versus the time done a with as the that a order, you or revenue of we’ve over over of government higher traditionally So be licenses it of Rudy

Rudy Kessinger

does. it Yes,

John Wood

– question Okay. was part of I second what what And the again? your this, apologize,

Rudy Kessinger

Yes, just, allocation. capital

John Wood

Buyback?

Rudy Kessinger

allocation? capital you do how think [Indiscernible] about

John Wood

answer Mark it. over for turn it. to me. I’m it Got going Got to to that

Mark Bendza

future to invest of invest prioritization the growth Yes. priority our terms of the Rudy, company. the first say our and foremost, in in and in business, is I’d

So that’s our first priority.

back where back we generation in would where buying where here, cash going get we point to consistent cash buyback I potentially would to are a is that consistently I a will and stock. to program whereas opportunistic place start get free say flow flow reason episodic, side, put free I generator, the are we like be free a is at opportunistic would a are why so And third For more at to generating a forward, third a again, some then consistently can place flow think similarly buyback that M&A. we these And where stock, prices. bit that be and consistently it put to then place our the cash buying especially can on be like I to

Rudy Kessinger

Thanks, Great. guys.

Operator

over remarks. any Thank closing you. Wood turn are I the to like back now would questions no further John There in to queue. the Mr. call for

John Wood

Thank you, operator.

and our and expected, and for delivering in despite to I focused out progressing all in your thank support, as and just are ongoing First markets we customers shareholders shareholders these XXXX the foremost, remain there on our our we turbulence want for beyond.

I soon. and And very you thank to you want talk And listening. so support for for you just to I’ll thank Bye-Bye. say much your

Operator

and gentlemen, call. this Thank conference for concludes today’s participation. you your Ladies

You may now disconnect.

Telos (TLS) 10 May 222022 Q1 Earnings call transcript