Telos Corporation ((TLS)) has held its Q4 earnings call. Read on for the main highlights of the call.
Telos Corporation’s recent earnings call painted a picture of both optimism and caution. The company reported significant sequential revenue growth, particularly in its Security Solutions segment and the expansion of the TSA PreCheck program. However, challenges such as cash flow issues and delays in government awards were also highlighted. Despite these hurdles, Telos remains optimistic about future growth, focusing on both existing and new business pipelines.
Significant Revenue Growth and Margins
Telos Corporation reported impressive financial results for the fourth quarter, with revenue reaching near the top end of its guidance range and adjusted EBITDA surpassing expectations. The company’s total revenue grew by 11% sequentially, amounting to $26.4 million. Notably, the GAAP gross margin expanded by nearly 600 basis points year-over-year to 40.3%, while the cash gross margin increased by nearly 900 basis points to 47%, marking the highest level since the company’s IPO in 2020.
Security Solutions Segment Success
The Security Solutions segment emerged as a standout performer, with revenue growing 20% sequentially to $21.9 million, accounting for 83% of the company’s total revenue. This growth was driven by the transition from the incumbent contractor to the Defense Manpower Data Center (DMDC) program and a substantial increase in TSA PreCheck enrollments, which grew over 30% sequentially.
Expansion of TSA PreCheck Program
The TSA PreCheck program saw significant expansion, increasing its network of enrollment centers from 26 to 218 locations in 2024. This program became the largest revenue contributor for the year and is expected to continue its growth trajectory into 2025, with a target of 500 locations by year-end.
Strong Business Pipeline and New Orders
Telos secured new orders from several key customers, including the Office of Naval Intelligence and the U.S. Department of Energy. Additionally, the company renewed a critical contract with a U.S. Federal government customer in the intelligence community. The automated message handling system (AMHS) business also achieved important renewals.
Cash Flow Challenges
Despite the positive revenue growth, Telos faced cash flow challenges, with a $10.5 million outflow from operations and a $14.8 million free cash flow outflow. These issues were attributed to a short-term buildup of working capital associated with high-growth programs and one-time capital expenditures.
Impact of Administrative Changes on New Awards
The company experienced delays in securing new contracts due to changes in government administration, which affected the timing of awards for single contracts. This has impacted Telos’s ability to secure new business in a timely manner.
Revenue Recognition Adjustment
Telos adjusted its revenue estimates for the DMDC and DHS programs, reducing the range from $60 million to $85 million down to $50 million to $75 million. This adjustment was due to the time phasing of revenue recognition during the first year, influenced by the mix of third-party solutions.
Forward-Looking Guidance
Looking ahead, Telos Corporation provided an optimistic outlook for 2025. The company expects first-quarter revenue to increase by 7% to 15%, reaching between $28.2 million and $30.2 million, primarily driven by security solutions. Although adjusted EBITDA is forecasted to be a loss, cash flow is expected to turn positive. For the full year 2025, Telos anticipates a return to revenue growth, with existing business projected to generate around $70 million. The DMDC and DHS programs are expected to contribute between $50 million and $75 million, while the TSA PreCheck program aims to capture a significant market share in a $200 million market.
In conclusion, Telos Corporation’s earnings call reflected a mix of optimism and caution. While the company celebrated significant revenue growth and success in its Security Solutions segment, it also acknowledged challenges such as cash flow issues and delays in government awards. Looking forward, Telos remains focused on expanding its business pipeline and capitalizing on growth opportunities in the security solutions market.