8-K: Telos Corporation Exceeds Guidance in Q2 2024, Driven by Secure Networks and TSA PreCheck Expansion

Telos Corporation reported second quarter 2024 results exceeding the high end of its guidance, with revenue of $28.5 million and a cash gross margin of 42.0%.

Summary

• Telos Corporation announced its financial results for the second quarter of 2024, surpassing its own guidance.
• The company reported revenue of $28.5 million, which was above the expected range.
• GAAP gross margin was 34.1%, a decrease from 37.6% in the same quarter last year, primarily due to higher amortization.
• However, cash gross margin expanded by 326 basis points to 42.0%.
• The company's net loss was $7.8 million, compared to a net loss of $8.0 million in the second quarter of 2023.
• Adjusted net loss was $6.6 million, compared to $1.9 million in the same quarter last year.
• EBITDA was a loss of $5.2 million, and adjusted EBITDA was a loss of $2.9 million.
• Telos significantly expanded its TSA PreCheck enrollment center network from 28 to 83 locations in the last three months and expects to reach 500 locations in 2025.
• The company's third quarter 2024 revenue is projected to be between $22 and $24 million, with a year-over-year decline of 39% to 34%.
• Adjusted EBITDA for the third quarter is expected to be a loss between $8.0 and $6.5 million.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to exceeding guidance and strong growth in TSA PreCheck, but tempered by net losses and a projected revenue decline in the next quarter.

Positives

• The company exceeded its own revenue guidance for the quarter.
• Cash gross margin improved significantly, reaching 42.0%.
• The expansion of TSA PreCheck enrollment centers was rapid, increasing from 28 to 83 locations in three months.
• Telos secured new orders for its Xacta and AMHS products from various clients, including government and commercial entities.
• The company is projecting significant growth in TSA PreCheck locations, aiming for 500 by 2025.

Negatives

• GAAP gross margin decreased to 34.1% from 37.6% in the same quarter last year.
• The company reported a net loss of $7.8 million for the quarter.
• Adjusted net loss increased to $6.6 million from $1.9 million in the same quarter last year.
• EBITDA and adjusted EBITDA were both negative for the quarter.
• The company is projecting a significant year-over-year revenue decline for the third quarter of 2024.

Risks

• The company's GAAP gross margin decreased due to higher amortization.
• Telos is experiencing net losses and negative EBITDA.
• The company's revenue is projected to decline significantly in the next quarter.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Future Outlook

Telos expects third quarter 2024 revenue to be between $22 and $24 million, with a year-over-year decline of 39% to 34%. Adjusted EBITDA for the third quarter is expected to be a loss between $8.0 and $6.5 million. The company anticipates reaching 500 TSA PreCheck enrollment locations in 2025.

Management Comments

• John B. Wood, chairman and CEO, stated that Telos exceeded the high end of its guidance range for the second quarter on key financial metrics.
• He also noted the expansion of TSA PreCheck enrollment locations and the expectation to reach 500 locations in 2025.

Industry Context

The results reflect a mixed performance in the cybersecurity and enterprise security sector, with strong growth in some areas like TSA PreCheck expansion, but challenges in overall profitability and revenue growth. The company's focus on government and regulated industries aligns with the increasing demand for security solutions in these sectors.

Comparison to Industry Standards

• Telos's revenue of $28.5 million is lower than some of its larger competitors in the cybersecurity space, such as Palo Alto Networks or CrowdStrike, which often report quarterly revenues in the hundreds of millions or billions.
• The company's gross margin of 34.1% is lower than some software-focused cybersecurity companies, which often have gross margins above 70%. However, the cash gross margin of 42.0% is more competitive.
• The rapid expansion of TSA PreCheck locations is a unique aspect of Telos's business, and it is difficult to compare directly to other cybersecurity companies. However, the growth rate is impressive.
• The company's negative EBITDA and adjusted EBITDA are concerning and indicate that Telos is not yet profitable, which is a common challenge for growth-stage companies in the tech sector. Companies like Okta and Zscaler, while not directly comparable, have shown a path to profitability in the sector.

Stakeholder Impact

• Shareholders may be encouraged by the revenue beat and TSA PreCheck expansion, but concerned about the net losses and projected revenue decline.
• Employees may be impacted by the company's restructuring efforts and financial performance.
• Customers will benefit from the expanded TSA PreCheck network and the company's security solutions.
• Suppliers and creditors will be monitoring the company's financial health and ability to meet its obligations.

Next Steps

• Telos will continue to expand its TSA PreCheck enrollment locations, aiming for 500 locations in 2025.
• The company will host a live webcast to discuss its second quarter 2024 financial results on August 9, 2024.
• Telos will focus on securing new orders and renewals for its Xacta and AMHS products.

Key Dates

Keywords

Telos, Cybersecurity, Cloud Security, Enterprise Security, TSA PreCheck, Financial Results, Revenue, Gross Margin, EBITDA, Xacta, AMHS