• Revenue: $28.5 million in Q2 2024, exceeding guidance range of $25 million to $28 million.
• First-Half Revenue: $58.1 million, surpassing forecasted $55 million.
• Security Solutions Revenue: $17.9 million in Q2 2024.
• Secure Networks Revenue: $10.6 million in Q2 2024.
• GAAP Gross Margin: 34.1%, above guidance range of 30% to 33.3%.
• Cash Gross Margin: 42%, expanding 326 basis points year over year.
• Adjusted EBITDA: $2.9 million loss, better than guidance range of $8 million loss to $6 million loss.
• Cash Flow from Operations: $8 million outflow.
• Free Cash Flow: $11.3 million outflow.
• TSA PreCheck Enrollment Centers: Expanded to 83 locations from 28.

• Warning! GuruFocus has detected 2 Warning Signs with TLSRP.PFD.

Release Date: August 09, 2024

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

Positive Points

• Telos Corp (TLSRP.PFD) exceeded both revenue and profit guidance for the second quarter of 2024, delivering $28.5 million in revenue, which was above the guidance range.
• The company's GAAP gross margin was 34.1%, surpassing the guidance range due to a favorable mix within security solutions and strong performance in secure networks.
• Telos Corp's TSA PreCheck program has significantly expanded, tripling its enrollment center locations from 28 to 83, with plans to reach 500 locations by 2025.
• The company has secured new orders and renewals for its Xacta business with notable clients, including the New Zealand government and a Fortune 100 technology company.
• Telos Corp anticipates minimal impact on 2025 revenue potential from protested program awards if resolved favorably by the end of 2024, showing confidence in future growth.

Negative Points

• Telos Corp reported an adjusted EBITDA loss of $2.9 million, although this was better than the expected loss range.
• The company experienced an $8 million cash outflow from operations and an $11.3 million free cash flow outflow, reflecting a year-over-year decline.
• Revenue guidance for the third quarter is lower, with expectations of $22 million to $24 million, impacted by extended protests on program awards.
• Secure networks revenue is expected to decline significantly, by high 60% to mid-60% year over year, due to program completions.
• The company faces ongoing challenges with program award protests, which could delay revenue realization and impact financial performance.

Q & A Highlights

Q: Can you provide details on the size of the opportunities related to the protested programs? A: John Wood, Chairman and CEO, explained that the first opportunity accounts for 90% of the total $525 million, while the second opportunity represents about 10%.

Q: What is the current market share for TSA PreCheck, and are you on track to achieve your target? A: Mark Bendza, CFO, stated that while they are not disclosing specific market share details, they are pleased with the productivity of their enrollment locations and are on track to achieve a one-third market share once fully ramped.

Q: Why is the core business, excluding TSA PreCheck and the protested contracts, continuing to shrink? A: John Wood noted that the decline is primarily in the secure networks segment, while the security solutions side is expected to grow.

Q: How quickly do new TSA PreCheck locations reach normalized revenue levels? A: Mark Griffin, EVP of Security Solutions, indicated that new locations achieve significant and acceptable volume almost immediately after opening, due to strategic placement and community acceptance.

Q: What is the expected timeline for the resolution of the program award protests? A: John Wood expressed confidence that the protests will be resolved within the expected timeframe, with minimal impact on 2025 revenue potential if resolved by the end of 2024.

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