• Total Revenue: $26.4 million, up 11% sequentially.
• Security Solutions Revenue: $21.9 million, 83% of total revenue, up 20% sequentially.
• Secure Networks Revenue: $4.5 million, 17% of total revenue.
• GAAP Gross Margin: 40.3%, expanded nearly 600 basis points year over year.
• Cash Gross Margin: 47%, expanded nearly 900 basis points year over year.
• Adjusted Operating Expenses: Declined by $2.4 million sequentially.
• Adjusted EBITDA: Improved from a $4.2 million loss to a $200,000 loss sequentially.
• Cash Flow from Operations: $10.5 million outflow.
• Free Cash Flow: $14.8 million outflow.
• TSA PreCheck Enrollment Centers: Increased from 26 to 218 locations in 2024.
• First Quarter 2025 Revenue Guidance: $28.2 million to $30.2 million, 7% to 15% sequential growth.
• First Quarter 2025 Adjusted EBITDA Guidance: Loss of $1.8 million to $800,000.
• First Quarter 2025 Cash Flow: Expected to be positive.

• Warning! GuruFocus has detected 3 Warning Signs with TLSRP.PFD.

Release Date: March 10, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Telos Corp (TLSRP.PFD) delivered fourth quarter revenue near the top end of the guidance range, with total company revenue growing 11% sequentially.
• Security Solutions revenue grew 20% sequentially, contributing 83% of total company revenue, driven by significant growth in TSA PreCheck enrollments and the Defense Manpower Data Center program.
• GAAP gross margin expanded nearly 600 basis points year over year to 40.3%, and cash gross margin expanded nearly 900 basis points year over year to 47%, marking the highest quarter since the IPO in 2020.
• The company successfully expanded its TSA PreCheck program, increasing enrollment centers from 26 to 218 locations in 2024, with plans to reach 500 locations by the end of the year.
• Telos Corp (TLSRP.PFD) expects positive cash flow from operations and positive free cash flow in the first quarter of 2025, driven by high growth programs and one-time CapEx investments.

Negative Points

• Secure Networks revenue declined sequentially as expected due to the ramp down of existing programs, contributing only 17% of total company revenue.
• Cash flow from operations was a $10.5 million outflow, and free cash flow was a $14.8 million outflow, reflecting a short-term buildup of working capital.
• The company is experiencing delays in the timing of awards from the government on single awards due to a change in administration and uncertainty around near-term priorities.
• Revenue recognition for the DMDC and DHS programs is impacted by the mix of third-party solutions, leading to a decrease in estimated revenue for these programs in 2025.
• Despite the positive outlook, the company forecasts an adjusted EBITDA loss of $1.8 million to $800,000 for the first quarter of 2025.

Q & A Highlights

Q: With the change in administration, how is Telos adapting to the impact on single award programs? A: John Wood, CEO, explained that while the new administration is generally positive for Telos, there are delays in single awards as the administration reviews opportunities. Telos is focusing on task orders from existing contract vehicles to mitigate this impact.

Q: Can you elaborate on the revenue recognition for the DMDC and DHS programs in 2025? A: Mark Bendza, CFO, clarified that the revenue recognition is influenced by the mix of third-party content, which is more software-heavy than hardware. Software revenue may be recognized over a period, affecting first-year revenue recognition. However, cash flow benefits are expected at the time orders are filled, supporting positive cash flow projections for 2025.

Q: How should we think about the current TSA PreCheck revenue given the rollout progress? A: Mark Bendza confirmed that the framework for TSA PreCheck revenue is based on the number of enrollment locations. With 218 locations, Telos is progressing towards capturing a significant share of the $200 million market, though full potential will be realized as more locations open.

Q: What are the expectations for cash flow in Q1 and the full year 2025? A: Mark Bendza stated that Q1 will benefit from working capital liquidation. For the full year, even at a break-even adjusted EBITDA, Telos expects positive free cash flow due to favorable changes in working capital, with revenue breakeven for free cash flow being lower than for adjusted EBITDA.

Q: Can you provide more detail on the cash flow dynamics for 2025? A: Mark Bendza explained that at a break-even adjusted EBITDA, Telos anticipates negative free cash flow of about $8 million before working capital changes. However, working capital improvements should offset this, leading to positive free cash flow for the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.