TLS - Earnings call transcript Q1 2024

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Operator

Good day, and thank you for standing by. Welcome to the Telos Corporation First Quarter 2024 Earnings Call.

[Operator Instructions] Please be advised, this conference is being recorded. I would now like to hand the conference over to your speaker today, Allison Phillipp, please go ahead.

Allison Phillipp

Good morning. us Telos joining XXXX First 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

with review quickly XXXX today's will first format Let remarks me our the on presentation. of Mark begin results. quarter

John from turning discuss outlook wrap and Mark insights to the first financial will back second follow Next, John the the guidance will this the quarter before company for to business highlights quarter. up with up. on

We line Griffin, will also Q&A Executive for Vice will us. open Solutions, then the for President Mark of join Security

The the issued Telos earnings call earlier on website. Relations is where this posted webcast. was press Investor simultaneously is today release being and

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

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

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

specified. earnings Relations release GAAP measures, our that non-GAAP Please portion results, also comparisons unless and regarding on You in can additional disclosures Investor otherwise including year-over-year reconciliations are find with financial note website. of the comparable press our these

Mark. company the under of With over replay to I'll will year Investor turn that, call next call website Relations the webcast on the available this be for our link. The

Mark Bendza

morning, good and Thank everyone. you, Allison,

Let's begin today X. on Slide

quarter, revenue has financial to profit better-than-guided both to straightforward flow. Overall, profit exceeding key leading cash guidance. over-delivered I am financial metrics, with the on Telos a report key meaningful that on and and beat quarter pleased across performance was again first metrics in a it

the Let's into of some details. get

line delivered $XX.X delivered million or our all was million guidance $XXX,XXX million which of delivered lines top first GAAP labor million of the We of Solutions XX%, to revenues Networks management range of the Secure due in approximately end cost revenue, out-performance higher-margin on $XX.X quarter better-than-expected utilization and end of $XX and guidance business. revenue million. guidance in weighting due slightly with networks secure of price across better range revenue, Security of direct approximately above our overall modest above solutions, to our a $XX guidance range. and of the $XX our top security of was contracts above gross solutions business. fixed to security to margin our

variance Security and year-over-year and XXX our quarter first company that of XXXX, year in our progresses. expanding first basis is margin XX% approximately Cash representing versus of Solutions a revenues second favorable the XX% to in notable XX.X%, the the in XXXX XXXX. a since quarter generated highest points as quarter was widen expected total gross of IPO

into resulted gross range. our in what and adjusted forecast profit gross above above EBITDA both margins incorporated Revenues guidance was

due SG&A capitalization than were and timing forecasted higher-than-forecasted costs. to spending better expenses In and software addition, development R&D of of

$X loss range. of end loss. range also our As was a of million $X.X loss result, top exceeded million to a the guidance million EBITDA a guidance EBITDA compared to Adjusted adjusted a our $X.X

quarter of $X.X operations outflow cash a flow million $X.X a the was outflow. million free from flow and improved XXXX. a first $XXX,XXX flow from cash Lastly, Free was outflow cash in

was overall, to over of execution John highlights. quarter clean an for solid John? a the overview So I business now portfolio. it it turn throughout with will

John Wood

everyone. morning, good and Mark, Thanks,

Let's turn to X. Slide

in protested, our from with to federal to in quarter on who place communicated received It's Security first last Telos X As earnings for call up the the business teaming award agreements government March, worth has awards over years. $XXX partners not prime uncommon Telos million of the Solutions decisions customary in of protest and and as other protested resolution award case is subject the be have magnitude of to this here. government, of or provided the to by These a the that's part period award bidders by awards incumbents post been protest. finalization

quarter the table, balance protest and second is assuming year. of resolution in expected outcome the to the favorable are the Given a time revenues expected typical throughout ramp

pre-existing We transition to represent look forward awards to smooth ensure timely the these government. a programs these protests and of as to federal uninterrupted requiring the service conclusion

infrastructure Corps and Beyond telecommunications these important vehicles, United since contract will through capabilities at X modernized new addressable camps post, several recently, and a these XXXX, for Telos including vehicle market $XX we on market. to globally. it's five won contract provide Marine In access aggregate, network awards, corp which the the new to all marine stations with compete for opportunities business billion highlight required vehicles procure have represent positions bases, a States new most that

our additional federal pursue that new vehicles over We will will to markets increase continue access to time. contract further

since our I'm to report pleased call. last several key earnings addition, outcomes In other on

a orders with as has customer. well new Our major and the company a business U.S. Xacta Services Air federal Force as government technology received Center

of the a the has with U.S. achieved professional renewals U.S. a cloud computing U.S. leading Xacta U.S. the Geospatial the National Air Additionally, including several company. XXth Department company Intelligence Intelligence Agency, the Force, and customers Energy, key business services Defense Agency,

renewals received a U.S. Intelligence the federal U.S. of with department. has Homeland services Office Security, Department Naval and company the of The executive

a with Armed Forces. Our Automated business major branch Message Handling achieved the System of U.S. a renewal contract

XXXX. first And transaction our PreCheck ramped including our of the finally, quarters, ID business, have quarter sequentially for within every in TSA X program volumes Telos quarter last the

enrollment in for a of to necessary standards program highest to security our rollout enrollment magnitude with call closely in the will accelerating guidance. to second on-site We before with national continue locations discuss centers additional quarter locations preexisting absolute coming work X operating this We Mark? possible enrollment over ensure of at the expected our around TSA are will I April country. turn Mark quarters. now who the additional more opened the

Mark Bendza

John. Thanks,

Let's turn to Slide X.

be For forecast throughout forecast percent in year. of in digits the reductions mid-XX% We second we of low $XX quarter to quarter, high sale expect in networks to second Solutions $XX EBITDA that and to a license $X up revenue million adjusted offset million mid-single to of revenue year-over-year, in driven by XXXX. single an range by $X to decline the million. million to secure primarily due revenue to backlog to in digits perpetual We down Security nonrecurring the persist XXXX, growth year-over-year XX% the expect TSA a Precheck loss we sequentially ongoing

revenue, the fourth half guidance, first quarter reported approximately of the provided first earnings of quarter million outlined favorably $XX appendix the with presentation. of combined million million, in second revenue Our revenue inputs XXXX our that $XX.X we our first quarter $XX.X in implies to compares half with and modeling

to year, perpetual software down comparable in and resolution higher-margin a a more offset last to third contribution costs or of return we total expected the business be XXX XXX to favorable basis quarter, revenue approximately license sale margin from points our in Solutions growth is fourth Solutions basis capitalized to subject protests. Overall, in of year-over-year. amortization company GAAP primarily higher to gross sequential development Security the in period to nonrecurring expect by revenue points partially favorable due XXXX. Security

Cash Cash million to approximately expenses, down below-the-line higher to capitalized gross $X.X expected $X.X year-over-year. stock-based primarily software which in D&A compensation, XXX be to forecast be million flat restructuring are year-over-year, for adjust margin is points to development growth costs costs, initiatives. due investment and to basis

the Lastly, minor our we've that, is back the year inputs to outlook only turn in with year provided to appendix. And unchanged. John. And full modeling made I'll it substantially full adjustments

John Wood

Mark. Thanks,

Let's to X. turn Slide

expectations first protests. the that, favorable progress and subject capture third in of revenues quarter. key range growth In Security made with business on expect above quarter, end take the we're And the the Solutions happy results to quarter. of metrics to fourth high company We've substantial and the to summary, exceeded again during we new first in guidance delivered total on sequential financial questions. to resolution And return we or once

Mark Bendza

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

Operator

[Operator from first Our B. Securities. Cummins comes with Instructions] Riley Zach question

Zach Cummins

that changes could protesting get way? make process? multipart locations. time now launch. any you've there's give could since on thinking program. if to we updates the curious ramped transaction hear any along for two every John, to One sort just share more into a question. that Anything And line part I how on appreciate time But I'll PreCheck can the on process? protesting you for program in TSA is or are just incrementally the you're the they the a rollout X if insight new I just try all the you quarter you volumes Nice live And if vendors just And about to curious its indications line. then of volumes. been guess speak notable

John Wood

don't small the we've not day-to-day we both -- process. into you as resolved really these question, insight not a awards for you -- the of outcome announced we're against Thank But our, earlier, is the on an process have part a days. really outcome quarter reported percentage protest we expect will. quarter. of that's process new of Sure. protest And would are XXX programs the last if that typically winner, not very The that we're We Zach. this the

to programs. we're be these So going we're with move confident to able forward that

just of accelerate as and rollout XXX will to XXXX. pleased into the we be expect stores within Office I'm goes, that far accelerating we our pleased to Now TSA as that I'm getting ramp QX, very say PreCheck Depot to -- locations,

Mark Bendza

to Zach, Yes. volumes, ramped transaction add I'd nicely respect quarters. we've what few last with to the they've as said, I And over think that

factored the of having guidance inputs question, that was and provided. of in that come Zach? all X terms modeling participants the Does answer market prior the In the we've that participants, your terms into already into

Zach Cummins

answering it of I appreciate, does. my Thank you. the Yes, quarter. rest of and best for luck questions, the

Operator

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

Rudy Kessinger

those existing this in kind I to is contracts guess from I'm 'XX. contracts going much $XXX fall existing How from million this of year. of curious, revenue

So is 'XX? if year, $XXX much how revenue decline in it's million this

Mark Bendza

Yes.

year, and think well. it So prior the typical year we've of few In a as from revenues. applies tens really, in here what I headwind said we millions expect a past, of

subject could board if million on adding the you're becomes from make in resolution year, you be 'XX, we programs -- seasonality other come 'XX, Depot And the that's Office these make the given as year, wins $XXX about to year. to realized additional out revenue course, that pattern in think that rolling -- TSA an in next have the And we in early approximately there you approximately progress that that's indication of of from would then this new say, a additional our then any business that And million. typical on locations. of business I'd So new then, We've million of PreCheck $XXX late protest. recurring what typical we $XX continue additional that's wins.

that answer Rudy? question, Does your

Operator

from Bradley comes Capital BMO Markets. question next Clark Our with

Bradley Clark

is of strategies side, from sort locations? sort locations. considering or line new actually of that doing of there aside On us into is the tell TSA competitive expense the obviously fall that to is number should differentiate could from Is the of the its else we that marketing the now landscape be there TSA anything anything pricing one that that, offering opening

Mark Griffin

Brad, first. it's answer Mark Griffin. I'll it

pleased is the how are the with relationship strategic our direct-to-consumer we say of PreCheck to great to wanted I program. TSA for TSA opportunity Office value with this Depot First, program, in

point marketing Office expansion partner, expansion anticipating But that. in as major over not we commitment that and will our in area view, partner key a From our to that Mark. expenses that's of an other from us going we be line, to out, very a as I'm now, right I'm roll Depot turn So obviously, to than for and those do areas. critical expense the strategic an it

Mark Bendza

has Griffin I with what said. that. nothing to agree I have add to already

Operator

comes Our Henderson Alex Needham. question with next from

Alex Henderson

And also the struck context, many announced that year I full here. was have renewals by you've how maintained numbers. you in

as renewals fair the changing I these Is and that overall that were So trajectory. not a assume expected statement?

Mark Bendza

fair statement, a I think that's Yes, Alex.

Our is track excellent. renewals record on

tend customers Our sticky. very to be

another had excellent into expected we so that's the renewals, what on quarter And year. coming and we

Alex Henderson

months, of year And as into next first you half what look into over like? back XX half the the forward of the does look next pipeline the the year, and renewal

Mark Griffin

on percentage contract less heavily on network Solutions renewal renewal the renewals basis, we renewal, Security quite secure renew volume a on is Alex, Mark, where the see contract the side.

will other of I and in portfolio, that John and script, business contract networks majority renew So will contract based the secured expect Solutions mentioned into vehicles the those grow both come Security the vehicles solutions. in his secure X on the also for

you'll only play, but I growth new will So think which portfolio. into area also add a not see coming on vehicles renewals contract to there, contract the

John Wood

Yes.

sort say I'll little That's so So very in, by Generally consistent business, coming it the simplistically, you and speaking. -- you a large, see way. a of Solutions stream. a can recurring more is Security revenue where renewals in

have middle a Secure beginning, an On a end. the Network tend those and programs side, to

millions always calls. of that you about that's these So tens few where on Mark talks see that

recurring more about being think as revenue. Solutions revenue, as Security about episodic Networks think being Secure So

Alex Henderson

what a different in in less try than as it potential what I'll it's or the rate same the the guess trying typical more renewals. trying level change headlights Is and I'm closure ask, the the We're like? there it to rates renewals to same look of to just opposed the of normal ascertain is way, question. I maybe or renewals just

John Wood

Yes.

we it's is customers. company. extreme So Alex. on would for points it One about to current focus our X And our same, big continue continue. in us to There the are the anticipate

execute the ramp deliver very for new second is Depot business And business is to much announced. And that's focus revenue ramp to we The accelerate to going locations, wins to previously the is so against that to awards. third PreCheck. on the fourth Office of continuing accelerate TSA the of new

us opportunity grow, continues for top an So our line. pipeline see to continues and be it to to

Operator

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

Nehal Chokshi

vehicles the this that over over represent x, how billion you Thank a many years is the is federal now? for won years x, of -- talk you if you. y billion positions is market about, would that. addressable is that $XX wanted $XX b, what right compete expect it's and that then And new market. in annualized y The you Can you X contract number? a, addressable the an profile years what that to margin that Or

John Wood

Yes.

our the in is So X then in the bucket, Networks the are company. are which enterprise And of awards the Secure I'll Two you will. if is of bucket, awards what entire call Solutions. one in Security

margin can I'm range mind. the don't the on period you these as to X years. to from far on goes As of the on anywhere margins, XX Mark profile going performance And if turn to

Mark Griffin

Yes, the profiles we and Solutions Secure Networks. as margin as have what and projected modeled Security as follow would far

profiles John of basically total margin breakout is follow on what those balance. based that So the that indicated overall market would

John Wood

awards, for the several mind, case. here, in keep there awardees in are other of analysts the these on each And call each

level. because compete task the order market So have it the these is reason what addressable each happening ends up to and of we awards, is we at an on call

competing chatted a versus to level X a these limited awards the order part it's previous player, the we're player. about competition will, we're -- against a on awards each single on of of -- being you task one we these if team So one where team on it's where award the

task nuance from more, have million, you to order have give million ceilings, So compete a vehicles, these and on In those large more awards be, to terms level revenue awards, breakout are if predictable can $XXX be that's of the other orders each to we the which why much whereas $X case, way to like it. at anywhere these other will, is, just contract task the little in ceilings. are

Nehal Chokshi

pipeline can give your that's Did pipeline, about do helpful. definitely And you've how size quarters, growing. about that's been past update bidding in then you bidding an sort of been Yes, talking so? you

John Wood

Sure.

additional these vehicles worth outside that an without $X.X and of that been awards, So these that's have of there's billion unfactored won, roughly pipeline, renewals.

Nehal Chokshi

Great. it. Got up quarter? from what And that's last

John Wood

in on at pipeline into fall want XXx to some it's to We'll our what want see change. things. because It's it I -- things. certain like least see our will be potential is. this going to be analysts bids bid told, trying will accelerate though, to no we because of in, We'll To we being quarter-to-quarter don't go a bids trap other out. some truth bids like to come to measure going But general, the it

Operator

this and Ladies today's turn Q&A gentlemen, does conclude portion the of the Wood. over conference. like call to back I'd John to

John Wood

here I'm to shareholders your business capture as revenue And call, growth very sequential Well, and resolution on we up obviously, the forward locations for first or I'm in about looking performance, said our on subject protest just very quarter. of the third to fourth our to quarter. impact thank along we've pleased positively finally the significantly want potential contracts And support. all, the for These with new previously. first with will to talked the to the progress of I made we've getting the Depot opening PreCheck. have our TSA in the that ongoing us Office

other remain markets for were company on ago I know I we results best. have it. the markets think focused that . going quarters a that to to government that that the we think the want thing our expansion. expect pipeline seeing go knows kind back I around federal And of U.S. to mentioned we're several adjacent we to and is I the

robust track most really So end the record recession-resistant excited for the company with for decades-long Telos organizations. I serving future. customers of a security-conscious and foundation markets the remain well-funded outlook world's very strong and very have about with a the does

I say, thank of on here of us want to again, all behalf So you. Telos, just at

Operator

presentation. today's gentlemen, and does conclude Ladies this

have and wonderful a disconnect, now may You day.

Telos (TLS) 10 May 242024 Q1 Earnings call transcript