Telos Corporation Announces Third Quarter Results: Delivers $63.6 Million of Revenue, 32.9% Gross Margin, and $12.0 Million of Cash Flow from Operations
- Exceeded High End of
Guidance Range on All Financial Metrics - Generated
$12.0 Million of Cash Flow from Operations and$8.4 Million of Free Cash Flow - Deployed
$4.7 Million to Share Repurchases During the Third Quarter, Totaling$7.7 Million During the First Nine Months of 2022 - Updates 2022 Full-Year Guidance Primarily to Reflect Lower Secure Networks Revenues in the Fourth Quarter
- Announces Retirement of
Brendan Malloy , Executive Vice President of Secure Networks
“We are pleased with our financial performance this quarter, which exceeded quarterly expectations for a fourth consecutive reporting period. We are also pleased that the
The Company reported
Leadership Update:
The Company also announced that
Third Quarter 2022 Financial Highlights (in millions, except per share data)
3Q 2022 | 3Q 2021 | ||||||
Revenue | $ | 63.6 | $ | 69.0 | |||
Gross Profit | $ | 20.9 | $ | 24.9 | |||
Gross Margin | 32.9 | % | 36.1 | % | |||
GAAP Net Loss | $ | (7.3 | ) | $ | (5.2 | ) | |
GAAP Net Loss Margin | (11.5 | )% | (7.6 | )% | |||
Adjusted Net Income1 | $ | 6.9 | $ | 7.1 | |||
Enterprise EBITDA1 | $ | (6.2 | ) | $ | (3.6 | ) | |
Adjusted EBITDA1 | $ | 8.6 | $ | 8.7 | |||
Adjusted EBITDA Margin1 | 13.5 | % | 12.7 | % | |||
GAAP Net Loss per Share, Diluted | $ | (0.11 | ) | $ | (0.08 | ) | |
Adjusted EPS1 | $ | 0.10 | $ | 0.11 | |||
Weighted-average Shares of Common Stock Outstanding, Diluted | 67.5 | 66.8 | |||||
Cash Flow from Operations | $ | 12.0 | $ | 13.0 | |||
Free Cash Flow1 | $ | 8.4 | $ | 9.4 |
1Adjusted EBITDA, Enterprise EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS, and Free Cash Flow are non-GAAP financial measures. Refer to "Non-GAAP Financial Measures" below.
Selected Third Quarter Business Highlights:
TSA PreCheck®
- On
October 18, 2022 , theTransportation Security Administration (TSA) issued an authority to operate (ATO) to the Company for Telos' PreCheck® System. - Telos is providing its TSA PreCheck® enrollment services for a trial period to a limited population of applicants in order to validate systems and processes in advance of its full implementation as an authorized TSA PreCheck® enrollment provider.
- Once Telos completes its trial period to the satisfaction of
TSA , Telos will launch its services to the public more widely. Telos continues to anticipate this launch will occur in calendar year 2022.
Other Notable Successes
- The Security Solutions business:
- Received Xacta® renewals with several prominent customers, including the
National Security Agency ,Central Intelligence Agency ,Defense Intelligence Agency ,Federal Bureau of Investigation ,Office of Naval Intelligence , National Archives,Social Security Administration , and Oracle. - Received a new, five-year cyber support contract with the
National Security Agency . - Received contracts for cybersecurity services with large Cloud Service Providers and Data-as-a-Service Providers to expedite ATO processes.
- Continued expansion of the Company’s Designated Aviation Channeling service with several new customers and renewals, including
Baltimore/Washington International Thurgood Marshall Airport . - Achieved a 100% renewal rate on the Company’s Automated Message Handling System.
- Received Xacta® renewals with several prominent customers, including the
- The Secure Networks business received several awards, including a
U.S. Air Force Robotics Process Automation multiyear license contract.
Financial Outlook:
When considering our full-year results, the Company expects sales in the range of
4Q 2022 | Full Year 2022 | ||||
Prior | Updated | ||||
Revenue | |||||
YoY Growth | (33%) – (27%) | (7%) – 0% | (12%) – (10%) | ||
Adjusted EBITDA1 |
1Adjusted EBITDA is a non-GAAP financial measure. Refer to "Non-GAAP Financial Measures" below.
This guidance consists of forward-looking statements and actual results may differ materially. Refer to the Forward-Looking Statements section below for information on the factors that could cause the Company’s actual results to differ materially from these forward-looking statements. Adjusted EBITDA is a non-GAAP financial measure. The Company has not provided the most directly comparable GAAP measure to this forward-looking non-GAAP financial measure because certain items are out of the Company’s control or cannot be reasonably predicted. Accordingly, a reconciliation for forward-looking Adjusted EBITDA is not available without unreasonable effort.
Webcast Information
Telos will host a live webcast to discuss its third quarter 2022 financial results at
Forward-Looking Statements
This press release contains forward-looking statements which are made under the safe harbor provisions of the federal securities laws. These statements are based on the Company’s management’s current beliefs, expectations and assumptions about future events, conditions, and results and on information currently available to them. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company believes that these risks and uncertainties include, but are not limited to, those described under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in the Company’s filings and reports with the
Although the Company bases these forward-looking statements on assumptions that its management believes are reasonable when made, the Company cautions the reader that forward-looking statements are not guarantees of future performance and that the Company’s actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this release. Given these risks, uncertainties, and other factors, many of which are beyond its control, the Company cautions the reader not to place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date of such statement and, except as required by law, the Company undertakes no obligation to update any forward-looking statement publicly, or to revise any forward-looking statement to reflect events or developments occurring after the date of the statement, even if new information becomes available in the future. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.
Non-GAAP Financial Measures
In addition to Telos’ results determined in accordance with
The Company uses the following non-GAAP financial measures (a) to understand and evaluate Telos’ core operating performance and trends, (b) to prepare and approve the Company’s annual budget, (c) to develop short-term and long-term operating plans, and (d) to evaluate the performance of certain management personnel when determining incentive compensation. Telos believes these non-GAAP financial measures facilitate the comparison of the Company’s operating performance on a consistent basis between periods by excluding certain items that may, or could, have a disproportionately positive or negative impact on the Company’s results of operations in any particular period. When viewed in combination with the Company’s results prepared in accordance with GAAP, these non-GAAP financial measures help provide a broader picture of factors and trends affecting the Company’s results of operations.
Enterprise EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted EPS and Free Cash Flow are supplemental measures of operating performance that are not made under GAAP and do not represent, and should not be considered as an alternative to, Net Income (Loss), Net Income (Loss) Margin, Earnings per Share, or Net Cash Flows provided by operating activities, as determined by GAAP.
The Company defines Enterprise EBITDA as net (loss) income, adjusted for non-operating (income) expense, interest expense, provision for (benefit from) income taxes, and depreciation and amortization. The Company defines Adjusted EBITDA as Enterprise EBITDA, adjusted for stock-based compensation expense. The Company defines Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenue. The Company defines Adjusted Net Income (Loss) as Net Income (Loss), adjusted for Non-Operating Expense (Income), and Stock-Based Compensation Expense. The Company defines Adjusted EPS as Adjusted Net Income (Loss) divided by the weighted-average number of common shares outstanding for the period. Free Cash Flow is defined as net cash provided by or used in operating activities, less purchases of property and equipment and capitalized software development costs.
Enterprise EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted EPS and Free Cash Flow each has limitations as an analytical tool, and you should not consider any of them in isolation, or as a substitute for analysis of results as reported under GAAP. Among other limitations, Enterprise EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted EPS and Free Cash Flow each does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments, does not reflect the impact of certain cash charges resulting from matters considered not to be indicative of ongoing operations, and does not reflect income tax expense or benefit. Other companies in the Company’s industry may calculate Enterprise EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted EPS and Free Cash Flow differently than Telos does, which limits its usefulness as a comparative measure. Because of these limitations, neither Enterprise EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted EPS nor Free Cash Flow should be considered as a replacement for Net Income (Loss), Net Income (Loss) Margin, Earnings per Share, or Net Cash Flows Provided by Operating Activities, as determined by GAAP, or as a measure of profitability. Telos compensates for these limitations by relying primarily on the Company’s GAAP results and using non-GAAP measures only for supplemental purposes.
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Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Revenue – services | $ | 55,305 | $ | 62,955 | $ | 153,683 | $ | 164,016 | |||||||
Revenue – products | 8,288 | 6,026 | 15,861 | 14,367 | |||||||||||
Total revenue | 63,593 | 68,981 | 169,544 | 178,383 | |||||||||||
Cost of sales – services | 36,746 | 40,137 | 97,913 | 108,236 | |||||||||||
Cost of sales – products | 5,902 | 3,967 | 10,886 | 8,266 | |||||||||||
Total cost of sales | 42,648 | 44,104 | 108,799 | 116,502 | |||||||||||
Gross profit | 20,945 | 24,877 | 60,745 | 61,881 | |||||||||||
Selling, general and administrative expenses: | |||||||||||||||
Sales and marketing | 3,042 | 5,363 | 13,035 | 14,233 | |||||||||||
Research and development | 3,981 | 4,863 | 13,900 | 14,250 | |||||||||||
General and administrative | 21,591 | 19,739 | 68,379 | 69,452 | |||||||||||
Total selling, general and administrative expenses | 28,614 | 29,965 | 95,314 | 97,935 | |||||||||||
Operating loss | (7,669 | ) | (5,088 | ) | (34,569 | ) | (36,054 | ) | |||||||
Other income/(expense) | 518 | 20 | 648 | (1,001 | ) | ||||||||||
Interest expense | (181 | ) | (195 | ) | (558 | ) | (583 | ) | |||||||
Loss before income taxes | (7,332 | ) | (5,263 | ) | (34,479 | ) | (37,638 | ) | |||||||
(Provision for)/benefit from income taxes | (8 | ) | 41 | (133 | ) | (6 | ) | ||||||||
Net loss | $ | (7,340 | ) | $ | (5,222 | ) | $ | (34,612 | ) | $ | (37,644 | ) | |||
Net loss per share: | |||||||||||||||
Basic | $ | (0.11 | ) | $ | (0.08 | ) | $ | (0.51 | ) | $ | (0.57 | ) | |||
Diluted | $ | (0.11 | ) | $ | (0.08 | ) | $ | (0.51 | ) | $ | (0.57 | ) | |||
Weighted average shares outstanding: | |||||||||||||||
Basic | 67,493 | 66,755 | 67,641 | 65,999 | |||||||||||
Diluted | 67,493 | 66,755 | 67,641 | 65,999 |
Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share and share data) | |||||||
Assets: | |||||||
Cash and cash equivalents | $ | 125,332 | $ | 126,562 | |||
Accounts receivable, net | 50,983 | 59,844 | |||||
Inventories, net | 4,676 | 1,247 | |||||
Prepaid expenses | 6,069 | 3,329 | |||||
Other current assets | 930 | 732 | |||||
Total current assets | 187,990 | 191,714 | |||||
Property and equipment, net | 5,128 | 6,088 | |||||
Finance lease right-of-use assets, net | 8,137 | 9,053 | |||||
Operating lease right-of-use assets | 456 | 852 | |||||
17,922 | 17,922 | ||||||
Intangible assets, net | 26,858 | 19,199 | |||||
Other assets | 908 | 1,253 | |||||
Total assets | $ | 247,399 | $ | 246,081 | |||
Liabilities and Stockholders' Equity: | |||||||
Liabilities: | |||||||
Accounts payable and other accrued liabilities | $ | 37,583 | $ | 34,548 | |||
Accrued compensation and benefits | 8,941 | 6,557 | |||||
Contract liabilities | 6,952 | 6,381 | |||||
Finance lease obligations, current portion | 1,558 | 1,461 | |||||
Operating lease obligations, current portion | 408 | 564 | |||||
Other current liabilities | 1,972 | 1,430 | |||||
Total current liabilities | 57,414 | 50,941 | |||||
Finance lease obligations, non-current portion | 11,660 | 12,840 | |||||
Operating lease liabilities, non-current portion | 108 | 388 | |||||
Deferred income taxes | 748 | 723 | |||||
Other liabilities | 436 | 935 | |||||
Total liabilities | 70,366 | 65,827 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity | |||||||
Common stock, |
106 | 105 | |||||
Additional paid-in capital | 398,546 | 367,153 | |||||
Accumulated other comprehensive loss | (30 | ) | (27 | ) | |||
Accumulated deficit | (221,589 | ) | (186,977 | ) | |||
Total stockholders’ equity | 177,033 | 180,254 | |||||
Total liabilities and stockholders’ equity | $ | 247,399 | $ | 246,081 |
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended | |||||||
(in thousands) | |||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (34,612 | ) | $ | (37,644 | ) | |
Adjustments to reconcile net loss to cash flows provided by operating activities: | |||||||
Stock-based compensation | 44,225 | 47,378 | |||||
Depreciation and amortization | 4,427 | 4,223 | |||||
Deferred income tax provision | 25 | 28 | |||||
Accretion of discount on acquisition holdback | 36 | 7 | |||||
Loss on disposal of fixed assets | 2 | 9 | |||||
Provision for doubtful accounts | 97 | 7 | |||||
Recovery from inventory obsolescence | (108 | ) | (2 | ) | |||
Changes in other operating assets and liabilities | |||||||
Accounts receivable | 8,763 | (18,852 | ) | ||||
Inventories | (3,321 | ) | 1,288 | ||||
Prepaid expenses, other current assets, and other assets | (2,486 | ) | (3,259 | ) | |||
Accounts payable and other accrued payables | 2,635 | 15,742 | |||||
Accrued compensation and benefits | 371 | (519 | ) | ||||
Contract liabilities | 571 | 1,579 | |||||
Other current liabilities and other liabilities | (507 | ) | (348 | ) | |||
Net cash provided by operating activities | 20,118 | 9,637 | |||||
Cash flows from investing activities: | |||||||
Capitalized software development costs | (8,580 | ) | (6,672 | ) | |||
Purchases of property and equipment | (815 | ) | (1,645 | ) | |||
Cash paid for acquisition | — | (5,925 | ) | ||||
Net cash used in investing activities | (9,395 | ) | (14,242 | ) | |||
Cash flows from financing activities: | |||||||
Payments under finance lease obligations | (1,083 | ) | (993 | ) | |||
Payment of tax withholding related to net share settlement of equity awards | (3,135 | ) | — | ||||
Repurchase of common stock | (7,603 | ) | (1,251 | ) | |||
Proceeds from issuance of common stock, net of issuance costs | — | 64,269 | |||||
Repurchase of outstanding warrants | — | (26,894 | ) | ||||
Distributions to Telos ID Class B member – non-controlling interest | — | (2,436 | ) | ||||
Net cash (used in)/provided by financing activities | (11,821 | ) | 32,695 | ||||
Net change in cash, cash equivalents, and restricted cash | (1,098 | ) | 28,090 | ||||
Cash, cash equivalents and restricted cash, beginning of period | 126,562 | 106,045 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 125,464 | $ | 134,135 |
Non-GAAP Financial Measures (Unaudited)
Reconciliation of Net Loss to Enterprise EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin | |||||||||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
Amount | Margin | Amount | Margin | Amount | Margin | Amount | Margin | ||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Net loss | $ | (7,340 | ) | (11.5)% | $ | (5,222 | ) | (7.6)% | $ | (34,612 | ) | (20.4)% | $ | (37,644 | ) | (21.1)% | |||||||
Adjustments: | |||||||||||||||||||||||
Non-operating (income)/expense | (518 | ) | (0.8)% | (20 | ) | — | % | (648 | ) | (0.4)% | 1,001 | 0.6 | % | ||||||||||
Interest expense | 181 | 0.3 | % | 195 | 0.3 | % | 558 | 0.3 | % | 583 | 0.3 | % | |||||||||||
Provision for/(benefit from) income taxes | 8 | — | % | (41 | ) | — | % | 133 | 0.1 | % | 6 | — | % | ||||||||||
Depreciation and amortization | 1,517 | 2.4 | % | 1,459 | 2.1 | % | 4,427 | 2.6 | % | 4,223 | 2.4 | % | |||||||||||
Enterprise EBITDA | (6,152 | ) | (9.6)% | (3,629 | ) | (5.2)% | (30,142 | ) | (17.8)% | (31,831 | ) | (17.8)% | |||||||||||
Stock-based compensation expense(1) | 14,721 | 23.1 | % | 12,372 | 17.9 | % | 44,225 | 26.1 | % | 47,378 | 26.5 | % | |||||||||||
Adjusted EBITDA | $ | 8,569 | 13.5 | % | $ | 8,743 | 12.7 | % | $ | 14,083 | 8.3 | % | $ | 15,547 | 8.7 | % |
(1) The stock-based compensation adjustment to EBITDA for the three and nine months ended
Reconciliation of Net Loss to Adjusted Net Income and Adjusted EPS | |||||||||||||||||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||
Adjusted Net Income/(Loss) | Adjusted Per Share | Adjusted Net Income/(Loss) | Adjusted Per Share | Adjusted Net Income/(Loss) | Adjusted Per Share | Adjusted Net Income/(Loss) | Adjusted Per Share | ||||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||||||||||
Reported GAAP measure | $ | (7,340 | ) | $ | (0.11 | ) | $ | (5,222 | ) | $ | (0.08 | ) | $ | (34,612 | ) | $ | (0.51 | ) | $ | (37,644 | ) | $ | (0.57 | ) | |||||||
Adjustments: | |||||||||||||||||||||||||||||||
Non-operating (income)/ expense | (518 | ) | (0.01 | ) | (20 | ) | — | (648 | ) | (0.01 | ) | 1,001 | 0.01 | ||||||||||||||||||
Stock-based compensation expense (2) | 14,721 | 0.22 | 12,372 | 0.19 | 44,225 | 0.65 | 47,378 | 0.72 | |||||||||||||||||||||||
Adjusted non-GAAP measure | $ | 6,863 | $ | 0.10 | $ | 7,130 | $ | 0.11 | $ | 8,965 | $ | 0.13 | $ | 10,735 | $ | 0.16 | |||||||||||||||
Weighted-average shares of common stock outstanding | 67,493 | 66,755 | 67,641 | 65,999 |
(2) The stock-based compensation adjustment to net loss for the three and nine months ended
Free Cash Flow | |||||||||||||||
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
(in thousands) | |||||||||||||||
Net cash flows provided by operating activities | $ | 11,986 | $ | 12,991 | $ | 20,118 | $ | 9,637 | |||||||
Adjustments: | |||||||||||||||
Purchase of property and equipment | (174 | ) | (575 | ) | (815 | ) | (1,645 | ) | |||||||
Capitalized software development costs | (3,446 | ) | (3,009 | ) | (8,580 | ) | (6,672 | ) | |||||||
Free cash flow | $ | 8,366 | $ | 9,407 | $ | 10,723 | $ | 1,320 |
Source: Telos Corporation