TLS - Earnings call transcript Q3 2024

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Allison Phillipp

Good morning. Thank you for joining us to discuss Telos Corporation's Third Quarter 2024 Financial Results. With me today is John Wood, Chairman and CEO of Telos; and Mark Bendza, Executive Vice President and CFO of Telos.

Let me quickly review the format of today's presentation. Mark will begin with remarks on our third quarter 2024 results.

business the discuss will John highlights quarter. from Next, with guidance wrap before Mark will back quarter up follow to Then turning fourth to up. John

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

results webcast. quarter earlier issued the financial posted this call today website. Investor Relations The where are is on were third and Telos being simultaneously

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

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

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

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

Mark Bendza

Thank you, everyone. Allison, good morning, and

compared XX% Security to due delivered million to $XX the guidance guidance top relative in $XX top Telos million in of $XX.X across of range. to or Let's total to range We of the EBITDA report which our on the performance delivered of and forecast. near the pleased end $XX.X strong was million. range guidance the portfolio end quarter the I'm begin guidance has of with of the top revenue that to million adjusted Slide revenue, X. end Solutions today above delivered line revenue

Security double-digit grew a Solutions as growth ongoing Telos result ramp primarily revenue due of of the X% PreCheck TSA sequentially to sequential our ID program. in

as Solutions to Center the program We expect with our large earlier ramp. sequential begins Manpower was our quarter Defense in under is or fourth Security DMDC the DMDC Data this protest business growth as accelerate in that large program to the award has the year-over-year and generating and since due been and delivered XX% Networks revenue. $X.X total revenue revenue, existing Secure ramp Secure declined million currently sequentially in is of down line year or guidance. with resolved Networks to programs. of expected,

reported, and replenish gained currently has new previously recent access contract a opportunities are to Networks new the in Secure pursuing of pipeline has As cultivated business we to large backlog. that vehicles quarters

Turning to margins.

opportunities to XXXX. assess our order leverage, on operating maximize to earnings reduce to we to cash as and our call, growth mentioned margins we base we As cost last in flow continue return our in incremental

charges in our does earnings our such stated guidance not result any also we last from As call, include could actions. that

reallocate are structure investment security solutions. currently programs resources and reduce During in to cost priorities the ramping our to that support assessed we and quarter, large costs

quarter, $X.X a was assets, of gross million The million GAAP sales generating in cost gross acceptable noncash cost sale As that returns. XX.X%. cost including were the a restructuring and of of result, solutions total, took $X.X as sales. an development we selected which in an parts of GAAP impacted assessment software capitalized recorded in well as of $XXX,XXX $XX.X we assets, $XX.X including in charge, margin million not In the was or margin. impairment of resulted and million our restructuring discontinued $X.X solutions intangible of million and in the sales charge of

and points charge $X.X the end margin range. gross of impairment of and XX.X% cost top million to was XXX expanded year-over-year our the sales, restructuring Excluding above guidance and basis

In and cash an cost to of gross of margin guidance also addition, above the in since adjusted Cash the in million points compared margin top million XXXX. margin million highest to cash was company's the was guidance resulted range. gross the loss our reductions and basis $X.X margin EBITDA cash XX%. loss Strong a gross a EBITDA revenue $X.X over end Adjusted $X gross guidance performance was XXX expanded loss. year-over-year to IPO above range

Lastly, outflow. cash outflow cash $X.X free Cash operations free both flow a sequentially. operations million was flow improved was and flow flow and from from a cash million $X.X

call the over highlights. turn John of to I'll Now overview John? recent for an business

John Wood

Thanks, everyone. Mark, morning, good and

Let's turn X. to Slide

TSA PreCheck the on progress steady make to program. continue We

for becoming indicated, driver previously sequential largest program third business, quarter Mark single our well the remains XXXX. our the track main is the on in in program to this it in As ID Telos growth and

the of enrollment We by have past over locations of than our to continued the XXX XX centers X more to footprint from network expansion successfully doubling months. accelerate our

expansion continue approximately to we states the quarters the of geographically United expectation and of of out the of around footprint comprise our markets progress point locations We across in on to XX% the to build coming important in states population growth the key the distributed XXX with it's our this that in reaching continue XX States. These country. Additionally, prioritize XXXX. plan

this provide TSA critical of U.S. and the to community to be program service to its travelers. we important importantly, Most thrilled effectively grow with are security national working

discussed update the ward our the on status of [indiscernible] Next, provide on like earnings I'd protest prior calls. to an

the Center DMDC. The first is with program Defense Data or Manpower

and years. to Within million X the United over Department is worth to Defense, up of Telos States $XXX

We and come. this working to and generating partner this with we As years September, the ramp. by our expected, exceptional in to of revenues look to support on partner currently to Telos forward was are end our program customer in the protest as program prime of resolved provide favor operations program for our the

Homeland is $XX the Security as this resolved with of to program is we fourth be This with DHS Department program up previously protest DHS. And to million years. second the communicated, in The X quarter. Telos expect to over worth or

In addition, I'd like to report earnings on business several our other last since call. outcomes

Agency the Social has investigations Agency, Xacta business the the the customers. from Force from other to The including customers. for handling received message rates Department base. and government high government the Office with Administration, [indiscernible], renewal this as Security, General of received customer system Bureau's other investigation, continues automated particular, several Department States business from Security Homeland customers. business Services Health renewals In cyber the Treasury renewals as Defense Our of We other key the new renewals Administration, new Air of customers the the with Intelligence and orders the and Federal realized quarter, Special achieve Defense Siemens United several well its services

a received Army contract networks call we secure turn United the our business. guidance. the fourth who now new in States over quarter Mark? I'll with will Mark, Finally, discuss to

Alex Henderson

John. Thanks,

Slide to X. turn Let's

an million to program $X.X by low Center TSA revenue X% expect growth revenue million. of quarter, to we to mentioned a the million will adjusted the new Sequential by be solutions. fourth expect EBITDA $XX.X of XX% sequentially to XX% accelerating PreCheck sequentially, to grow ramp of and grow loss driven forecast Defence DMDC we earlier. million. that security We the teens driven our range Manpower $XX.X And Security $X.X enrollments I or to with low Solutions to Data For

of sequentially XXXX. new decline were to decline revenues Networks quarter in to and fourth in Secure be quarter wins expect of business of XXXX due that steady the We in the quarter backlog typically first advance awarded fourth the the in

backlog Secure pursuing contract recent vehicles has cultivated has large that new to gained we As opportunities access replenish in of quarters to pipeline for XXXX are Networks beyond. previously and and new business a the mentioned,

basis business a strong Solutions solutions quarter, growth basis margin due XX% year-over-year mix from our to over revenues points networks, in gross expect to sequential Security secure security GAAP the XXX the to favorable quarter. expand of to business. combined the in by shift with is lower-margin total As our Solutions in of primarily expected we contribute network XXX higher-margin decline points fourth forecasted to the secure fourth in company sequential result Security

basis the $X D&A the incentive quarter. line below margin gross expand XXX to actions costs, and expected for costs expenses the expense of compensation cost year-over-year Cash to are is third to approximately in lower XXX basis due and stock-based by points which capitalized the to restructuring points Cash be lower million reason. taken adjusts year-over-year same benefits for compensation, forecast

earnings calls of growth the a Lastly, comprised fourth on several But quarter not further detail drivers We in in changed. that our prior XXXX. outlined components. year-over-year XXXX XXXX our outlook we Revenues revenue will call return March. in be earnings will we in to meantime, key about XXXX revenue provide the forecast have on

First, we existing TSA $XX to PreCheck the business, of and and in in DHS of that XXXX. won expect XXXX $XX programs we million quarter DMDC generate our million first the approximately to excluding revenue

we're resolved DMDC to rate But potential achieve typical in modeling rate. We $XX and typical run to $XX $XXX we some million million run more assuming at revenue year protest DHS Assuming programs years. of a XXXX. believe our purposes, DHS in the is favor, for could year million over full the in generate a in modest have the

market share TSA rata sites year. of the we mature PreCheck rollout those XXX productive market into the a we complete locations enrollment targeting Third, a are and locations, full of calendar pro after our for

enrollment we $XXX pre-check our TSA based of the locations and expect complete of on We believe current the approximately XXX to rollout structure. market end our million XXXX, market is the by pricing a

PreCheck do share we not over to as of course roll in our we enrollment locations pro our ramp revenues next XXXX, year. market expect out to achieve expect to the continue rata we TSA Although

new first back or will pipeline of especially have fourth revenue turn opportunities, be year. business large buying government secure business the quarter quarter to new XXXX it contribute And during fourth of that, lastly, will with Any the XXXX have submitting John. during the we I'll and And a quarter season. proposals the potential next networks of wins in to

John Wood

Thanks, Mark.

to summary, adjusted revenues the guidance we top EBITDA. near turn the and Let's exceeded X. on Slide delivered In of guidance range end

thrilled program Additionally, in DMDC favor. the on the protest resolved we our was are

working call. to to our and forward as exceptional network than for last expansion enrollment We are locations our this since support TSA our provide ramp revenues now operations doubling of We've to footprint earnings PreCheck generating to continued partner come. the more years with to program of XXX on rapid look customer we our

expect continue XXX reach to we'll in We locations XXXX.

recent . questions. happy take in expect quarter. with And sequential to positive this achieve we're with fourth to news, revenue the growth we Finally, that,

Mark Bendza

the open you. please for Thank line Operator, Q&A. .

Operator

Thank time, we a question-and-answer you. conduct will [Operator Instructions]. At session. this

BMO. with Our Clark comes first question from Bradley

Bradley Clark

contract What DMDC how the review are was up just factors contract around ultimately million. what you of takes the that to land some feeling, determine puts what given that can Can be and that where below $XXX you are determines the the [indiscernible]? much

Mark Bendza

Yes.

Brian, So Mark. it's

into, So revenue into is a there. which that's couple integrate we base a third-party have on that there solution approximately combination of high revenues are customer, is of that our $XX million. a hardware, remainder program, year-to-year. there that of service of revenue There's fluctuate visibility the different quarter-to-quarter for a are the stream level can revenue and overall The that software stream, streams revenue a technology -- recurring stream we

in can So be a year. calling any in it $XX million over to $XX purposes, you million given million overall, of But modeling $XXX we're year, toll. for

best estimate million. a about point year $XX Our low be this would at on

including I Now a I the to and small the million X% X% DMDC $XX in about DHS, tend for is smaller $XX quote, of the program which million to two. lump Of to DHS. piece that DHS numbers, in only together that. that of range we're those is

Bradley Clark

to can then your business? the margin of compared of And profile remind this you security Okay. solution of remainder work us the

Mark Bendza

Yes.

as the don't a revenue bit basis, on programs varies quite blended it combined, cash which profile dilutive stream. the get of each overall, described two margin answer stream. on want margins. market those I in So gross profile to But being details for I to depending a revenue the

talked revenue Now of about of my I XXXX. buckets remarks, prepared in for

those of accretive Some to are margins.

couple of course, but margins. margins, base. to a Some lower Overall, a on cash cash say of basis revenue gross we're . gross hundred be those lower points dilutive on XXXX in slightly I'd on significantly probably are margin, higher to going

Operator

Our with Cummins B. Riley. next question comes Zach from

Zach Cummins

how more take some to really look early actions to I lines on us care little decided focus restructuring this year? wanted business you when the that maybe QX. a eventually ramp of next the you give uplift in result QX, of detail going the and we late could that revenue a are on more away at Can maybe margin

John Wood

John. it's Zach, Sure.

and continue And our quickly sales weren't we that let's wanted advanced solution. that a deciding the So and result, move our as seeing up the decided, we just solution we selling Basically, in cyber-analytics just Ghost not we ended uptick to to. sell on.

Mark Bendza

Yes.

In effectively say, revenues fact, current that those de this point. minimis solutions in at to is I'll add what are two

we the into margins really, there have and be a we as of of programs incremental have the XXXX we result wanted no but leverage, those at the a cash substantial programs And benefit that as that looked heading ramp, will as decision. to So the portfolio, revenue result in headwind maximize these quickly we are ramping of we of operating as in hand, flows very and ramp hand.

we the higher return opportunities lower in shifting hand. hard look that have took opportunities could where we lower we higher So risk, be to return identify overall the portfolio from to resources risk, a at

Zach Cummins

And one size bidding quarters? pipeline on just couple follow-up Can especially secure some into as is that confidence you go of of through a you of opportunities us here process a buying question securing this of the the going and business these Understood. the in maybe season, the of next networks. in around sense some award you're for give key

Mark Bendza

John maybe I'll then ] and Marcus can [ Yes, and start supplement.

have we submitted a of meaningful opportunities or working we're that currently portfolio on. are either So already pretty that

to win? to they of it's Mark But year next direction in those total, in more XXXX. when About somewhere these for or The a at next can are John to contingencies It's give that solid little March. potential on again, opportunities they course, contract nine as to number When It's what on a And start, programs process. actively protested? has lot are a couple in of total of We'll in it. so But year, rates depending Telos. think value around try that that. X/X we XX see of do looking win We balance what and it in of there's there's You add. guide do start, of a millions early revenue on process. that forth. Are so proportion opportunities tens and or for if of of you're submitted. is already Griffin around anything pretty or of figures are or so. do portfolio to

Mark Griffin

what add Mark This reference right other around Griffin. subset I of about XXX now was of total a don't anything pipeline than the on portfolio to is have indicated is that. which the and $X.X Mark billion opportunities,

Operator

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

Rudy Kessinger

go point obviously, at I call said you opportunity $XXX a that total guys And time, in your that million. last this of QX exceeded ago year well back had that potential XXXX you you a in yes, short year, fell year. If revenue believe

on picture of lies you're You're kind but what I painting gave, not just for painting kind kind of you the within programs you're million-ish of number, year? of $XX How are the are now, million. particular to $XX you next to that And getting $XX $XX to million in what's the that million? two to contracts doing and million only risk $XX guess I'm revenue know next giving curious pieces I the ballpark of risk year. large that picture, a year number with a of those a million from $XXX million $XX

Mark Bendza

this proposals And million that The based and year. clear the for we Yes. Last generate last lion's we and the year, comments in this this now year, on on then of slipped they the And we difference on program. good last chunk question. to protected those had to our quarter, year. good right but of about year were -- starting big were proposals March, they the share the we're and between call, won in $XXX fourth submitted. a and someone where of this revenues

relative protest. new around to course, So up of that submitted XXXX driver in But then, business that the time being delta. had was big the call. the wins And a on really the outcome ended good revenue for that recognition risk of what at of we a

to and that that these revenue that in Now forward next are one we're about generating the revenues fast ramping. hand we're for year, programs on are talking today, currently growth

As there's the describe I this Of the million $XX which $XX talk under to $X would $X still is in million we than about million, million $XX to million way. $XX million to program, DHS the protest.

in well I that we're the resolved on think said we as to that received. quarter one on fourth and based peat be call last we've this expecting the

there, program resolved. range $X much to quarter-to-quarter, So $X $X needs million how that the And can share million that on then, a to there's get year-to-year. And protest that $X depending range to from course, within of be be million, million. we from of

and have For the for high is we portion revenue And software million million hardware that stream in balance look $XX year-to-year. degree of have into of that to million, revenue the understanding like third-party of that can the we visibility balance fluctuate referred it. overall what good think $XX earlier of we the to $XX the customer. I That into is a and pretty solution would the of typical quarter-to-quarter, in a variable We integrated year. a

Given work. on that have first years We don't of of this history scope would on the year that full XXXX of program. multiple execution be overall

course, decades bigger of scope on significantly this on we Of on is have work of history this work of scope smaller program a program.

million the answer on the to use haircut potential. for prudent But it is $XX to that and of that year, could that in as to history million the million. decades a the $XX Does years So be total relative any to a million revenue question? we don't $XX $XXX basis pretty your have of we think $XX million given

Rudy Kessinger

locations wanted I not X/X you full appreciate also helpful ask have I picked out assumed there. we very in now, next saying get on guess market market it to I'm with like have with you [ you market curious, market XX-ish existing locations share you're I color, ramp some The It going know the you does. has locations certainly $XX today. that. But not, would Prejack this I that for ]. to racking get up curious, locations to to year? XXX the the year full year. the currently were if X/X of earlier getting about at locations? precheck seeing million, annualized locations, And quickly million with share you share I'm share are of those your are getting $XX revenue indicate yourselves how rolled live out X/X X/X That's

Mark Bendza

have Yes. We it answer when don't the that locations, capturing we currently a we XXX locations are have those that expect of have capture today. out we the on And on but Based each locations of opened on a extrapolate share locations, we should can share out of we area today same currently. at based pro have that different contact we million I a location And market average level market would be opened track the of $XXX roll enrollees. the opened rata and productivity as overall to to the way. the around holds we portion you

Operator

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

Nehal Chokshi

that Of DMDC of It's over solid that $XXX simply timing good bottom guidance revenue? $XX of low million not subcontracted line a point Or X reflection Congrats $XXX that the is may on be course there million the here. realized portion that value, million of any and is this see total contract of years? to results that.

Mark Bendza

and I into hardware between having $XXX this is some visibility. to services and The years. The the But the -- the [indiscernible] $XXX be less over million over is $XXX is and that software we our peak million, of that difference in the $XXX base in of we'll X as could a up typical approximately that the integrate So amount solution. level million high revenue overall it of have million third-party the two year years, $XX million best described million could that estimate be $XX the see. than be shouldn't combined a

the driven be demands really by the program. going to of and needs It's the

Unknown Executive

access the it's would around -- and is the the other contract drives say unlike applications one the what things, contract access you world. the biometric gets other that program who government. have, It's bases vehicles we card I single-award So all really among to largest is that a all in what is which networks essentially military for common of the the the this the military

mission. So this particular to customer, the it's important very contract very the is important to

if very money, since very, well. relationship general, requirement they And we in going This customer to they're spend XXXX. So to. one with had we've know the this have the

think it's that customer our I serving we have a actual longest as company.

have understand of customer way. this wheelers something way that color, So by [ equipment XX, XX coming like ] we missions. just And of our

we're there's So doing different this all for customer. of kinds that things

Nehal Chokshi

it. being is Mark? is you Got Air award vendors XX Force, base think, like then that infrastructure one $XX And announced of billion that of calendar that talked for a buildup about, part named that I of expected management you in your also contract calendar 'XX 'XX, revenue from

Mark Bendza

quantified So listed. and not the come that that come the any that of included bucket business that there quantify, referred be that not new in of in to, but task vehicle, I included revenues from I I that would -- future any would that bucket from did it's wins orders that

John Wood

compete for the a monetization for based this an able deliver over with with to get itself. case, is particular value billion to of worth that reason like to tremendous Force Air on we've Air contract, would our Nehal, called on $X.X Air the we which contract [indiscernible] work task is Net -- something previously we [indiscernible] sense on another the expect are And work Force this where given that, in fair this share time [indiscernible]. of this of we amount done were had And each Force a we time. We this completed that contract of infrastructure contract

Nehal Chokshi

from And been just contract to be this yet? issued new clear, material orders has any there vehicle task been

Mark Griffin

others I believe, on past three, bidding government's they now, just X, we'll of come are as coming The them also bid task one and now. out. released, out on quarter we're right The orders

resolved playing was once it's So was the field just started protest the in announced.

those, the of So and we're expect awards. on hopefully we process shortly bidding resolution some in on now

Nehal Chokshi

And they would for be but point 'XX, these within level matured basically expecting cash reached what you're in calendar is about of not mature have 'XX. a will what's positive calendar time, you then free contracts you flow? them some a that talking kind calendar confidence contracts in 'XX, Okay. your At be cash bunch 'XX, you you're hand, of flow what though. think state, Once be And material do free mature their that be? could to

John Wood

not going being So X on directly on comment I are free free cash and on growth management Me to this will flow, say cash I'm on is positive. team the compensated days. to my and is flow but revenue what other haul. One is

Mark Bendza

breakeven revenue I'll Yes. and in past, million cash rule we of being $XXX breakeven. flow adjusted add that revenue In free approximately of of to guess [indiscernible], million $XXX talked what I being the is [indiscernible] thumb, about EBITDA

that changes ramping Some because particular a profile. capital revenue have of favorable these in working very we the prechecks

So a the we And get than probably there. path we breakeven is now. lower think cash free XXX point are good to flow on

Nehal Chokshi

operating $XXX million that What expect would breakeven profit rate, revenue too might which be for incremental of to high the above be? you sort incremental

Mark Bendza

of that resources the on call, earlier talked get my the about. guiding I the slippery don't I movement No, slope, 'XX feel but restructuring want this we Yes. a comments and on to around

Unknown Executive

flow. point my free and in thought I growth cash

of... All

Mark Bendza

these in took The maximize a way V-shaped towards moving that us were in to towards would benefit programs resources we all the actions XXXX. of that revenue allow recovery that

say when here. March sit more on in detail we'll on So I the terms call a of P&L

Operator

Wood to now turn for This concludes would back session. it I remarks. question-and-answer to the closing John like

John Wood

shareholders thank recent Manpower continued your and cultivated progress future are Data ongoing program opportunities. contract news TSA and to through new with of Precheck Center these the award the the pipeline positive Furthermore, won with on very growth want program. Both Secure new large our for our I'm Defense the Networks with a replenishing on vehicles programs support. plans. the pleased I of key we focused business are components recently our backlog

Finally, robust company. the about enable prioritize our Based I and forward the to capture most remain on the company continues business strong to and you, end long-term record of track of future. driving security outlook Thank for new for pipeline and expansion with a is everybody. look all world's growth the excited the to decades-long of conference I foundation team XXXX well-funded the organizations, serving this, for and recession-resistant markets, additional customers the Telos

Operator

Thank you conference. the in does for participation conclude This today's your program.

You may now disconnect.

Telos (TLS) 12 Nov 242024 Q3 Earnings call transcript