Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Telos Corp (TLSRP.PFD, Financial) exceeded both revenue and profit guidance for Q1 2024, with a revenue of $29.6 million, which is $600,000 above the forecast.
- Security Solutions generated 63% of total company revenues, showing a favorable variance and expected to widen as the year progresses.
- Cash gross margin expanded by 249 basis points year-over-year to 42.2%, marking the second highest quarter since IPO.
- Adjusted EBITDA also exceeded expectations, with a $2.3 million loss compared to the forecasted range of a $5.5 million to $5 million loss.
- Telos Corp (TLSRP.PFD) has secured positions on five new contract vehicles since 2023, providing access to a $12 billion addressable market.
Negative Points
- Despite the positive financial outcomes, there are ongoing protests regarding federal awards which could impact future revenues if not resolved favorably.
- Q2 2024 revenue is expected to decline due to nonrecurring perpetual license sales from the previous year.
- Secure Networks revenue is forecasted to decline by 30-40% year-over-year due to ongoing reductions in backlog.
- GAAP gross margin is expected to decrease by 425 to 750 basis points year-over-year in Q2 2024.
- Free cash flow remains negative with a $3.6 million outflow, although it shows improvement from the previous year.
Q & A Highlights
Q: Could you speak to just the protesting process? I appreciate the timeline and I'm just curious if they give you any sort of indications or updates along the way you can share incrementally on the processing process.
A: (John Wood, CEO) The protest process is typically 100 days. We expect an outcome this quarter on both of the new awards that we announced last quarter. We don't have day-to-day insight into the protest process as we're not a part of that process. A very small percentage of these programs are resolved against the winner, so we're confident that we can move forward with these programs.
Q: On the TSA PreCheck program, could we get more insight into how you're thinking about the rollout timeline for new locations and now that all three vendors are live on the program, if there's been any notable changes in transaction volumes?
A: (John Wood, CEO) We will be accelerating the ramp of our Office Depot locations, expecting to reach 500 stores within 2025. Transaction volumes have ramped nicely over the last few quarters. All participants coming into the market was already factored into our prior guidance and modeling inputs.
Q: This $100 million of revenue from existing contracts this year, how much from those existing contracts is going to fall in 2025?
A: (Mark Bendza, CFO) In a typical year, we expect a few tens of millions of headwinds aside from prior year revenues. So if it's $100 million this year, it becomes approximately $70 million in 2025. We will also have additional revenue from TSA PreCheck as we continue to make progress on rolling out our Office Depot locations.
Q: On the TSA side, one of the strategies is obviously opening the number of locations. Is there anything else that Telos is doing to sort of differentiate that offering now that the competitive landscape is set?
A: (John Wood, CEO) We are very pleased with our strategic relationship with Office Depot for the TSA PreCheck program. This is our direct-to-consumer opportunity of great value to TSA in the program. As we roll out, Office Depot will be a key partner from a marketing and expansion point of view.
Q: How many renewals have you announced here and does it maintain the full year numbers?
A: (John Wood, CEO) Our track record on renewals is excellent, and our customers tend to be very sticky. We had another excellent quarter on renewals, and that's what we expected coming into the year. The majority of the business in security solutions will renew and grow based on other contract vehicles.
Q: The five new federal contract vehicles that you've won positions in represent a $12 billion addressable market. Can you talk about what the margin profile of this market might look like?
A: (John Wood, CEO) The margin profiles would follow what we have projected and modeled for security solutions and secured networks. These are contract vehicles with large ceilings, and we have to compete at the task order level on each of these awards.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
