TELOS CORP Q4 FY2024 earnings call

Slide 3

• Mark Benza reported Q4 revenue near top of guidance, adjusted EBITDA above top end. Security solutions grew 20% sequentially to 83% of revenue. Secure Networks at 17% of revenue. Gross margin expanded due to favorable mix shift from lower margin secure networks to higher margin security solutions. Cost actions in Q3 reduced operating expenses, improving adjusted EBITDA. Cash flow had outflow but expected to reverse in Q1 2025.

Slide 4

• John Wood discussed TSA PreCheck program expanded enrollment centers to 218, targeting 500 by end of 2025. DMDC program transitioned and generating revenue, DHS stop work order lifted. Xacta and AMHS had new orders/renewals. New business pipeline affected by admin change, focusing on task orders from existing contract vehicles.

In the fourth quarter, total company revenue grew 11% sequentially to $26.4 million. Security solutions revenue grew 20% sequentially to $21.9 million, which is 83% of total company revenue. Secure Networks delivered $4.5 million of revenue, 17% of total company revenue. 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% in Q4. Full year 2024 cash gross margin was 43.7%, the company's highest since 2000.

First Quarter 2025

• Expected revenue to grow 7% to 15% sequentially to $28.2 million to $30.2 million. Adjusted EBITDA loss $1.8 million to $800,000. Security solutions to contribute ~84% of revenue. GAAP and cash gross margins expected to expand. Cash operating expenses lower year-over-year. Positive cash flow expected in Q1.

Full Year 2025

• Existing business (excluding new programs) expected ~$70M (up from prior $60M-$65M). DMDC and DHS programs revenue $50M-$75M (down from prior $60M-$85M) due to revenue recognition mix. TSA PreCheck revenues to ramp with enrollment centers. New business wins potential to add revenue.

Forward-looking statements subject to risks and uncertainties. Factors like SEC filings, comments during call could affect actual results. Delays in single award program awards due to new administration, but focusing on task orders from existing contracts.

Q: Impact of new administration on single award programs, focus on task orders A: Focus on task orders from existing contract vehicles, single awards delayed as admin reviews Q: Revenue recognition nuances for DMDC and DHS A: Mix of software vs hardware affects revenue recognition in first year, software can be recognized over period, hardware at order fill. Cash flow benefits at order fill Q: TSA PreCheck revenue and cash flow A: TSA revenue ramps with enrollment centers. Cash flow in Q1 due to Q4 working capital liquidation, full year free cash flow expected positive due to working capital changes