TELOS CORP Q1 FY2025 earnings call

• Mark Benza reported Telos overdelivered on financial metrics in Q1, with revenue, gross margin, operating expenses, and adjusted EBITDA exceeding guidance. - John Wood provided updates: TSA PreCheck program has 291 enrollment locations with 73 new added in 9 weeks, targeting 500 by end of 2025; DMDC program ramping on schedule; Xacta business has new orders and renewals; AMHS business has key renewals.

Total company revenue grew 16% sequentially to $30.6 million. Security solutions grew 18% sequentially to $25.8 million, contributing 84% of total revenue. Secure networks grew 8% sequentially to $4.8 million, contributing 16% of total revenue. Year-over-year, security solutions grew 39% while secure networks contracted. GAAP gross margin was 39.8% and cash gross margin was 45.3%, both exceeding guidance due to favorable mix.

• Second quarter revenue expected to grow 14%-21% y-o-y to $32.5M-$34.5M. - Security solutions forecast to grow low 60%-70% y-o-y; secure networks to contract low 70%-mid 60% y-o-y. - GAAP gross margin 32%-33.5%, cash gross margin 38%-39.5%. - Adjusted EBITDA loss $2.1M-$600k. - Full-year outlook unchanged with existing business, DMDC/DHS programs, TSA PreCheck ramp, and new business potential.

• Forward-looking statements subject to risks and uncertainties from factors in SEC filings. - DMDC program complexity with different margin profiles affecting overall margins, leading to sequential margin contraction as lower margin revenue streams ramp.

Q: Curious about DMDC margin profile and new business incremental growth A: Mark Benza said DMDC is dilutive to overall margins with lower margin revenue streams ramping, leading to sequential margin contraction. Mark Griffin noted business pipeline over $4B with several hundred opportunities but incremental growth from awards this year is single-digit.

Q: On TSA PreCheck and cash gross margins A: Mark Benza said cash gross margins will step down ~600 basis points from first half to second half due to lower margin DMDC revenue and accounting nuances on TSA PreCheck costs not matching cash outflows.

Q: On free cash flow, security solutions outperformance, and renewal activity A: Mark Benza discussed free cash flow expected to outperform adjusted EBITDA due to working capital and TSA PreCheck cost recognition. Security solutions was bigger outperformer driven by DMDC and PreCheck. Mark Benza noted renewal market will contract this year as expected.