- Earnings call transcript Q3 2022

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Telos Corporation Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host for today, Christina Mouzavires. Please go ahead.

Christina Mouzavires

Good morning. us Telos joining XXXX third for results. financial you to 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

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

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

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

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

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

John Wood

Thank good everyone. you, Christina, morning, and

We range today performance Let's we reporting but for begin $X.X in revenue on guidance high executed We to will up financial high XX.X%. at and sequentially million in $X above our was range down this margin. $XX our margin our of Gross third a of adjusted quarter, quarter and well XX% quarterly a range on guidance X% $X.X end $XX call, adjusted million delivered of $XX.X of of Slide and the million expectations fourth discuss the above to consecutive delivered million, XX.X%, above later X. EBITDA, our guidance period. EBITDA to exceeded Mark third million year-over-year. of the XX% the level, XX.X% million

EPS. $X.XX of Lastly, adjusted we delivered

the to term, I'll important Security turn an Slide Transportation Now near our the for operate on let's In an update for program provide marking authority providing PreCheck X, Administration issued expansion to soft TSA, an the public company. will to October a TSA the for program. On period been has PreCheck and in where a we trial enrollment implementation. of more launch long-term for services system, trial the be completed enrollment population Telos' to another milestone satisfaction applicants Once of to to will validate widely. full PreCheck TSA order period the successfully in of services launch advance limited processes systems Telos XX,

have to long-awaited finally pleased milestone. are We this reached

successes to If additional Slide this highlights you business quarter. see achieved can turn you X, and

National Agency, Social Orcale. Naval customers, National with several renewals Archives, Intelligence received Intelligence, and of the the Security Security Agency, the Federal we Central Agency, key Xacta, the to including Investigation, of the Intelligence Bureau Turning the the Defense Administration Office

and the regulations AGS, into and key mapping for with native enable were will our designated providers also inheritance Telos. providers to ATO IBM. driven and build embedded and security focus are our for services Ghost to automated by adaptive and solution. data-as-a-service efforts the service drive the to us handling solutions. the will to authority growth service are partnership and also continue the be will evolutionary product with product line format, relationship with requirements. reach operate our This our term, mission Xacta sales IBM message The for IBM, Telos customer marketplace Near continuing our strategy to process. customer Telos global well. combined development, All in future Telos' perform drive of contracts solution on cloud We OSCAL expedite We to perceived element or large product success And value awarded an Xacta's across channeling value and strategy expansion aligned and as aviation in of customer enhancement this broaden

this cyber its JCI year, property including evidenced value We our evolve, solution, continues the the to platform. analytics, an in growing our by are cyber strengthening confident product position capabilities, and enabling direction enhancement Ghost of intellectual or ACA of this as in market positioning. earlier the advanced launched analytic via And

continue to with by ACA integration enhance technologies. We and through other new features

insights. near We continue to by harnessing to of unique power real-time integrated cyber science and ACA sales its gain will data that momentum capabilities intelligence to threat scale seamlessly confident deliver to the situational actionable and are due cloud, customers awareness

satisfied has these sufficient programs have large to been will the the lower revenues second of in from than likely quarter in half these will over We segments Needless outlook. and fourth outlook. quarter on outlook are we've with wins expected on Networks of completion near-term business made call. the programs fourth generated result in to some revenues potentially year-over-year to successful revenues that the weighing far later on step quarter. not XXXX. will challenges near-term that so Mark our and additional XXXX factors security lower large are business backfill meaningful this provide we down previously parts winding are experiencing and the and our quarter, across Revenues begin of solutions new on proud fourth segment progress course I'm our coming In The say, Secure down of our combination in 'XX XXXX. details of portfolio, the to in this other in not

have on significant we actions customers our improvement. sustainable and opportunities taking the for We and performance are serve how Board success. I pursue improve necessary business optimizing new room growth streamlining laser-focused our to for long-term The by and and

in clear While fundamentals the we near-term eyed of are of and our strong. we are business. foundation The confident our our potential long-term company remain about outlook, core

a security-conscious end strategic balance decades-long And recession-resistant and foundation well-funded Our record the organizations of the future. strong solid ensures for significant flexibility. customers provide robust financial track serving sheet our and world's markets, most and

Networks, Secure notified Finally, intention me at change have a his the Executive of XXXX. end of leadership we to announce. Vice President Brendan retire Malloy, to has of

will Mark? call and healthy discuss guidance the to customers. For dedicated will and financial now for I who I third my on results, high-level extend quarter want and happy and over XXXX to XX Mark, retirement. service for direction his our exceptional provided to XXXX. quarter sincere wish over and fourth years, commitment Telos service Brendan turn has some thanks a him the

Mark Bendza

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

X. Slide to turn Let's

margin revenue million, XX% above variances up pre-existing to XXXX XX% guidance Secure year-over-year. the perpetual of timing coming higher-margin Solutions. $XX X% and the $XX.X by was our and and completion down year-over-year in programs executed of X% third the year-over-year as we of program were Networks a completion exceeded high well census Secure sequentially high wind the Security and mentioned, Security with metrics. revenues favorable EBITDA quarter range of programs and third million, $XX on ongoing that up $XX.X end million end down guidance sequentially million quarterly expectations. end delivering guidance sales the John adjusted of in quarter, of our license up were results revenue, due financial the due our performed expected. range in $XX.X high We large in line As on all range. sequentially Total sales to variability the guided down was X% to successful Solutions of driven XX% Networks above down U.S. million, sales. the to Performance gross reported primarily

supply Secure continue on Our and environment in program as management our Networks forecasted a teams to programs time guidance. chain major to deliver complex navigate successfully within

profitability and to Turning flow. cash

performance on due of margin Third across end capital million. sales. within profit XXX range from gross quarter was notwithstanding EBITDA was a million primarily investment basis the lower higher reduction of $X.X contribution gross profit, $X.X margin programs EBITDA Adjusted to adjusted below-the-line outperformance as program Security the XX.X%. from XX% Security dynamics. contracted Networks. the favorable year-over-year, margin Secure contracted expenses XX.X% high a Secure and million declines million result to X margin mentioned approximately of range and due year-over-year of gross variability to flow significantly XXX above the our large to Adjusted to end above XXX the months $X.X gross previously points outperformance EBITDA primarily Adjusted improved basis cost high guidance favorable expanded points due our in as Free of as XX%, first single points margin XX.X%. was well first cash points of XXXX Solutions lower EBITDA million our Solutions to better-than-expected basis margin to guidance as to primarily of working to X approximately portfolio. was Performance basis sales expanded Performance XX result segment as $XX.X well expenses. gross higher during approximately of of to the during perpetual below-the-line months license primarily the resulting $X XXXX Networks mix major in due actions. from flat

shareholders to repurchases. to return cash continue free We share flow through

third million $X.X our to deployed repurchase repurchase to have And During announcing share repurchase X deployed months nearly shares. ago, XXX,XXX the shares. since nearly quarter, million XXX,XXX we we program $X.X

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

$XX in of including $XX be sequential third approximately the high For $X $X million drove the program Solutions decline a the Security fourth million, fourth a decline, third sales representing we to million Solutions quarter into and quarter. the implies to third that in midpoint forward quarter and range million from The of Security $X revenue decline range. from the $XX guidance on sequential approximately from end Secure revenue forecast of pulled $XX pre-existing a guidance Networks. sequential The quarter, the above million quarter the a nearly million million of includes guide

on $X recognize other revenue slowdown will short-term a different in third the decline primarily of in result and Secure not in quarter single is represents the million $XX ended quarter. pre-existing The program, fourth program. which The a a sequential the Networks million

convert over constrained be that captured, on could revenues but Networks of programs, fourth by performance pre-existing programs earlier, chain in be multiyear sufficient beyond. to opportunities revenue half XXXX. business in not of the revenue has Networks described awarded of Secure new so pipeline won benefit XXXX those large of still case Secure or backfill John those programs second won new new in far of clear, will the business the be are in a the as half XXXX, has But business declining some will and speed second There opportunities the will XXXX of To in approximately quick million churn Lastly, if recognition supply quarter. limitations. to some either far period so the $XX in

by Solutions down a mixing gross expect year-over-year to proportion XXX revenues. total margin to lower, points Security higher basis due Solutions Security approximately contributing of greater XXX company primarily We margin offset to partially be

margin Secure be million. EBITDA to Adjusted Networks' expect approximately breakeven to We be year-over-year. $X flat to approximately gross expected is

to to turn let's Slide Now discuss XXXX. the outlook for X resulting

million prior impact Networks primarily now guidance supply the a delivery range to implies our The a and of business. of million from year, $XX $XX $XXX full wins the in top reduction $XX Secure we in revenue partially new total of on of range approximately of and updated due business revenues constraints $XX that chain million to our also is million in guidance to $XXX midpoint EBITDA $XX of the guidance. line new lower-than-expected the to a For million expect million of adjusted million. range

we programs ramp headwinds of around year the that year larger of some and of be we PreCheck down The guidance and the full communicated Within revenues we can at year. TSA or over is of spread other in next rate the specificity original potentially second expected will next early business color at original The beginning will Solutions to slow will we programs sales, Security below much year. that XXXX, have respect but In to that Solutions, $X tailwinds. in guidance turn end across and far a is opportunity Security the the point, entirety million step new first the still range software bottom the deliver new the Secure the sometime in course potentially is quarter turn offer one aggregate, too Those run reduction is the off. provide least the year business TSA of And high-level programs range the down the this on within at of by Networks' partially large programs wins. of lastly, a due that than off is year for basis Security that next with and/or on will large compete PreCheck. Solutions it of long-term a offset half and to end shortfall is by to potentially this in

qualifications to offset new XXXX a to compete in large awarded. pipeline there Within of probability. the these headwind, will strong opportunities are opportunity. us have this create XXXX if into for position the for potential have We headwind believe Secure We wind well opportunities the programs remaining past lower XXXX, that Networks, performance but are down year-over-year that that in

I on the see, in there quite call that So you more meantime, be visible wide. a outlook. XXXX before can potential will could outcomes of provide moving as that even our the But pieces months possible in the But become could large year-over-year single we mid-teens in of is where win guidance a are emphasize meaningfully it's approximately again, In sit we March. next earnings quarter few XXXX. from improve today, revenues that range fourth number will down

will We guidance back on X. pass With XXXX who will on Slide I'll wrap to call quarter John, that, up fourth March. it provide our earnings in

John Wood

range reporting quarterly metrics. for shareholders fourth cash free share financial and our exceeded favorable you, end expenses Lower performance our we Thank Mark. we're on and that high To have of expectations strong through to results guidance flows the summarize, delivered consecutive period returning above capital repurchases. working all driven

for Telos. the to from TSA satisfied important our outlook pleased have the near-term and said, ATO the received I milestone another marking PreCheck am an for valuable are with system, Telos We not That long-term steps for program to and I to focused create the our foundation much improve our have The performance. place recognize to strong work already on we do value have taking to we are Board shareholders. for necessary maximize the in I

Telos' business we As years, new one clearly of largest XX recent of shareholders I'm our into disappointed and wish program awards. had visibility for more timing critical conversion than greater with the

most are I'm driving our world's I've to long-term Telos been We of that, for we've Having take to success improve security-conscious the to and to by action and never decades have stakeholders the said immediate over performance. heartened more committed track all built record service organizations. continuing

Our continue new resonate and solutions customers. existing to with

been period past and X as bumps to and has speed expect date we're no stronger, to that, been over to With there consistently different. Yet we Telos decades has happy well. questions. have emerged take this linear, progress Our prove not the

Mark Bendza

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

Operator

[Operator Dan our coming Wedbush. from the Ives first with question Instructions] of line And

Dan Ives

just confidence curious terms mean, your or the -- what not to like moves continues that my year, mean of honest, after And It X.X I some just ahead? feels angle? being disappointment kind more another. one just question, I'm on there's give fully of investors would in just it that Yes. I'm I from be just execution last

John Wood

our is adopted and to our be customers, widely say those reasons recognized and they're the by us solutions are for optimistic thing give future. that First I'd

business. say discussed that I'll call. on in we're foundation the thing some we provides eyed other but And clear the The are is this us our core that solid that we've the a headwinds very about for of foundation confident outlook, despite macro near-term of

Dan Ives

But just Day? mean, that words, we Groundhog is fundamentally there something with wrong have to is -- the in there I execution another the business like continue something

John Wood

on rest and the call the So to here. I'd people of to X Dan, things you, say the

The due than commercially first we and as education. into a longer channel expanded additional the that is to training expected we've learned cycle thing the need and it's we've for sale

company care around Telos to is And change go to so in federal I There think, both sides consolidate cloud development are we opportunities functions discussed the a government major migration business confidential cybersecurity, of opportunity big that a and capture the one of kind to on, customer. and the we've same tremendous make it for large to that, amount decided combination our as very going previously bidding provides the cloud, after health of the of relates solutions forward.

it the expectation As business to to relates they're there. fundamentals, as the

it's things And just happen control. our beyond sometimes -- that

here guidance and what in So front change we will XXXX, that by to we're trying out hope time for what actual give -- giving of to the by of we puts the that will Dan. do takes as us we today, as see

Operator

question And with B. our the Riley. Zach of from coming Cummins next line

Zach Cummins

Is some in into of contributing that give Security to can helpful, the headwinds especially the sort seeing more in in additional there you way of Solutions could other that be insight there growth business? Any that segment be would things positive any insight considering you're XXXX? the

John Wood

in headwinds So Mark, Solutions. he's Security asking about

Mark Bendza

the of the point more in mentioned, Sure. on contracts. some instead at headwinds John The solutions, have solution primarily centralized of to as Zero looking those positioning and Security Trust taking Solutions larger in of deal a and the solutions, of architecture combination, with our sale combined

those we're And seeing of the to with based solutions some point do slower transition primarily to have from sales activity. some in sales. on adoption headwinds areas enterprise So that solution

Mark Griffin

here. Mark it's Zach, And

that clarify XXXX to, you might 'XX? referred that programs the So we experience question. some to few referring into headwinds the Were large year-over-year headwinds to the I just

John Wood

color I programs the of on I think don't he large a you little him small give is probably of that why bit cluster But mute. on referenced.

Mark Bendza

of In go So volumes On more revenue. headwinds Zach, and contracts, the point. talking get go one our those the we're several down, that's up contracts we volumes about. cases, other some the that on and

So and as contracts headwinds we're on 'XX. and right creating that's looking the into that the But lower those then projecting. and between on volumes be headwinds are mitigated. contracts volumes of increase, volumes, those now we're be it's several what If the then will if obviously the headwinds now, seasonality will

Operator

question And with line the Kessinger of our from Rudy coming Davidson. next D.A.

Rudy Kessinger

I on Networks. in Mark, want be clear Secure to QX

number fallen Security talked secondly, previously on the faster XX%, maybe high about over the versus had you're the XXs this margins a revenue driven I the of on has You in wind XX% business out Security in year revenue decline guiding Solutions, decline It's in abysmal. XXXX. the the the such on millions gross in from Secure much That's to of from new But in substantial front. won't like in XXXX. gross be about late Solutions Networks looks that onetime the XXs business What XX%. expectation? side. that to I'm point were as expected is revenue just QX And then well? pretty a Solutions, these and last year. it figure on Security margins belabor down Is that how to trying still programs than those XXXX? is low Or shortfall We're for millions onetime a in in programs underperformance just QX going

Mark Bendza

Rudy. Sure, Yes.

couple So of things. a

First, Networks. on Secure

down roughly programs did Networks the of and $XX think million of referencing about few completion. over you're $XX guidance, year large last Those 'XX. talked year, about programs When million about course Secure coming in this revenue is million a a year. original year. of gave That the I winding we to our this $XX the beginning within headwind we

of year. million So a next this headwind $XX million. And year, revenue further down million will then wind that about $XX $XX to

that those on our that of -- last related wins, new million Networks government wins new Solutions, going -- performance. are chain. multiyear then wins over revenue driver the lower of couple business are really the it's combined respect the the of program season here. will a wins to $XX those The to And the investment volume of on permanent another convert the it's large earnings is business quicker long-term requiring wins program that's is fourth with is entirely and is Security supply some constrained Secure with things. converting into quarter, buying in good the a the quarter, fourth revenue pilot combination more XXXX. of being period since to primary to portion the program, wins. So to churn, recognition from be call, a With a nature a in in it's single respect to which within And And those difference headwind more that is news of a of combination here a for of short-term by year-over-year ID

pretty lower. step here And in so Solutions lower, margins meaningful down we're margins which is a and therefore, seeing term, over ID driving short the

John Wood

But should not impact, have long-term believe. I

Mark Bendza

We Yes. think...

Rudy Kessinger

Just...

Mark Bendza

Rudy. ahead, Go

Rudy Kessinger

I Okay. basically I guess on mean, a to follow-up I if on your Networks, mean you're that, margin. gross -- as Well, But missing I clear I saying the could, I'm the on That's you're miss size Secured in QX mark to million massive by new $XX of your relative million one business in not business a quarter. targets. your Networks due guess to pretty Secured hitting $XX to

question against would any asked your reiterate execute miss? I your target anybody that -- I ability earlier. whatsoever term how a massive that [Technical the get of I of so in sort And was just -- to could given longer just may Difficulty]

Mark Bendza

was case actually It's revenue all our churn It's lion's that anything of But well, the shorter-term support John both recognition XX% call. about $XX constraints wins won piece, earnings year the new more a the quarter came million in like business. for of in last recognition. there's as share And And comes supply Networks' multiyear year other time just fourth this this year this of business business this the if since fourth new And let on there. Secure year. to in Rudy. Yes, new It's chain a a that's that around pretty has he'd quarter it's composition me see The that quicker -- didn't business they've well. of miss the very then revenue of typical. new those so add.

John Wood

those No, the I think are that's hitting -- head. on

Operator

Ladies your and Thank for participation. you today. for gentlemen, that conference our conclude does

disconnect. now day. Good may You

Telos (TLS) 9 Nov 222022 Q3 Earnings call transcript