Telos Corporation ((TLS)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Telos Corporation’s recent earnings call painted a picture of robust growth and positive cash flow, primarily fueled by the expansion of security solutions and the TSA PreCheck program. Despite these positive developments, there are concerns about the contraction in secure networks and anticipated margin pressures in the upcoming quarters. The company is on a growth trajectory but faces challenges in maintaining its margins.
Record Sequential Revenue Growth
Telos Corporation reported a remarkable 16% sequential growth in total company revenue, reaching $30.6 million. This growth was driven by an 18% increase in security solutions and an 8% rise in secure networks, showcasing the company’s ability to expand its revenue streams effectively.
GAAP and Cash Gross Margin Improvement
The company achieved significant improvements in its margins, with GAAP gross margin expanding by 278 basis points to 39.8% and cash gross margin increasing by 313 basis points to 45.3%. These improvements highlight Telos’s operational efficiency and its ability to manage costs effectively.
Positive Cash Flow from Operations
Telos Corporation reported a positive cash flow from operations amounting to $6.1 million, with a free cash flow of $3.8 million. This positive cash flow indicates the company’s strong financial health and its ability to generate cash from its operations.
Growth in Security Solutions
Security solutions have become a significant revenue driver for Telos, increasing from 63% of total company revenue in Q1 2024 to 84% in Q1 2025. This growth is largely attributed to the DMDC program and the expansion of TSA PreCheck enrollment.
Expansion of TSA PreCheck Enrollment Centers
In a strategic move, Telos added 73 new TSA PreCheck locations in just nine weeks, bringing the total to 291 locations. The company aims to reach 500 locations by the end of 2025, further solidifying its position in the security solutions market.
Contraction in Secure Networks
Despite the growth in other areas, Telos experienced a contraction in secure networks due to the completion and ramp-down of multiple programs over the past several quarters. This contraction poses a challenge for the company as it seeks to balance its revenue streams.
Margin Contraction Expected
Telos anticipates a decline in GAAP gross margin to between 32% and 33.5% in Q2 2025, driven by the rapid growth of lower-margin programs in security solutions. This expected margin contraction underscores the challenges the company faces in maintaining profitability.
Negative Adjusted EBITDA Guidance for Q2
The company forecasts an adjusted EBITDA loss ranging from $2.1 million to $600,000 for Q2 2025. This guidance reflects the financial pressures Telos is experiencing as it navigates its growth trajectory.
Forward-Looking Guidance
Telos Corporation exceeded expectations in several key financial metrics during the first quarter of 2025. The company forecasts a year-over-year revenue growth of 14% to 21% for the second quarter, driven largely by security solutions. While secure networks are expected to contract, the full-year outlook remains unchanged, with revenue contributions anticipated from existing business, TSA PreCheck enrollment, and new business wins.
In summary, Telos Corporation’s earnings call highlighted a company on a growth path, with strong revenue growth and positive cash flow. However, challenges remain in the form of margin pressures and the contraction of secure networks. The company’s strategic focus on expanding security solutions and TSA PreCheck enrollment is expected to drive future growth, despite the anticipated financial pressures.