Telos Corporation (NASDAQ: TLS), a leading provider of cyber, cloud
and enterprise security solutions for the world’s most
security-conscious organizations, today announced financial results
for the first quarter 2023.
“We delivered $35.2 million of revenue in the first
quarter of 2023 and expanded gross margins 66 basis points to
38.3%. We also reduced our GAAP net loss by 35% to $10.7 million.
All metrics exceeded the high end of our guidance range,” said John
B. Wood, chairman and CEO, Telos. “As expected, our first quarter
results reflect lower revenues on large programs. We reaffirm our
full year guidance and the Board and I remain focused on rebuilding
and growing our revenue base throughout this transition year.”
First Quarter 2023 Financial Highlights |
|
1Q 2023 |
|
1Q 2022 |
|
(in millions, except per share data) |
Revenue |
$35.2 |
|
$50.2 |
Gross Profit |
$13.5 |
|
$18.9 |
Gross Margin |
38.3% |
|
37.6% |
GAAP Net Loss |
($10.7) |
|
($16.6) |
Adjusted Net Loss 1 |
($2.5) |
|
($0.7) |
EBITDA1 |
($11.5) |
|
($15.0) |
Adjusted EBITDA1 |
($0.8) |
|
$1.0 |
Adjusted EBITDA Margin1 |
(2.4%) |
|
1.9% |
GAAP EPS |
($0.16) |
|
($0.25) |
Adjusted EPS 1 |
($0.04) |
|
($0.01) |
Weighted-average Shares of Common Stock Outstanding |
68.2 |
|
67.6 |
Cash Flow from Operations |
($0.1) |
|
$0.2 |
Free Cash Flow 1 |
($4.1) |
|
($3.1) |
1 Adjusted EBITDA, Adjusted EBITDA Margin, EBITDA,
Adjusted Net Loss, Adjusted EPS and Free Cash Flow are non-GAAP
financial measures. Refer to "Non-GAAP Financial Measures"
below.
Selected First Quarter Business
Highlights:
-
Achieved a 100% renewal rate on major customer contracts across the
portfolio in the first quarter.
-
Received Xacta® renewals with several prominent customers including
the U.S. Air Force, the Department of Homeland Security, the
Department of State, the Department of the Interior, the Department
of Energy, the Defense Intelligence Agency, Amazon Web Services and
Ernst & Young.
- The
Company’s Automated Message Handling System achieved several major
contract renewals.
-
Received a new, multi-year contract with the National
Geospatial-Intelligence Agency for Xacta products and
services.
-
Continued expansion of the Company’s Designated Aviation Channeling
service with several new customers and renewals, including Dubuque
Regional Airport and Port of Seattle Airport.
Financial Outlook: |
|
2Q 2023 |
|
Full Year 2023 |
|
(dollars in millions) |
Revenue |
$28 - $32 Million |
|
$115 - $140 Million |
YoY Growth |
(50%) - (43%) |
|
(47%) - (35%) |
Adjusted EBITDA1 |
($8) - ($6) Million |
|
($27) - ($17) Million |
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 InformationTelos will host
a live webcast to discuss its first quarter 2023 financial results
at 8:30 a.m. Eastern Time today, May 10, 2023. To
access the webcast, visit
https://register.vevent.com/register/BI18da6a473f804bcc98ebf44dde4dddd4.
Related presentation materials will be made available on the
Investors section of the Company’s website
at https://investors.telos.com. In addition, an archived
webcast will be available approximately two hours after the
conclusion of the live event on the Investors section of the
Company’s website.
Forward-Looking StatementsThis
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 U.S. Securities and Exchange
Commission (SEC), including its Annual Report on Form 10-K for the
year ended December 31, 2022 and its Quarterly Reports on
Form 10-Q, as well as future filings and reports by the Company,
copies of which are available at
https://investors.telos.com and on the SEC’s website
at www.sec.gov.
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 U.S. GAAP, Telos believes the non-GAAP financial
measures of EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin,
Adjusted Net Income/(Loss), Adjusted Earnings Per Share ("EPS") and
Free Cash Flow are useful in evaluating operating performance.
Telos believes that this non-GAAP financial information, when taken
collectively with GAAP results, may be helpful to readers of the
financial statements because it provides consistency and
comparability with past financial performance and assists in
comparisons with other companies, some of which use similar
non-GAAP financial information to supplement their GAAP results.
The non-GAAP financial information is presented for supplemental
informational purposes only, should not be considered a substitute
for financial information presented in accordance with GAAP, and
may be different from similarly-titled non-GAAP measures used by
other companies. A reconciliation is provided below for each of
these non-GAAP financial measures to the most directly comparable
financial measure stated in accordance with GAAP.
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.
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/(used in)
operating activities, as determined by GAAP.
The Company defines EBITDA as net (loss)/income,
adjusted for non-operating expense/(income), interest expense,
(benefit from)/provision for income taxes, and depreciation and
amortization. The Company defines Adjusted EBITDA as EBITDA,
adjusted for stock-based compensation expense and restructuring
expenses/(adjustments). 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), stock-based compensation
expense and restructuring expenses/(adjustments). 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/(used in)
operating activities, less purchases of property and equipment, and
capitalized software development costs.
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, 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 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 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.
About Telos Corporation
Telos Corporation (NASDAQ: TLS) empowers and
protects the world’s most security-conscious organizations with
solutions for continuous security assurance of individuals,
systems, and information. Telos’ offerings include cybersecurity
solutions for IT risk management and information security; cloud
security solutions to protect cloud-based assets and enable
continuous compliance with industry and government security
standards; and enterprise security solutions for identity and
access management, secure mobility, organizational messaging, and
network management and defense. The Company serves commercial
enterprises, regulated industries and government customers around
the world.
Media:
media@telos.com
Investors:
InvestorRelations@telos.com
|
TELOS CORPORATION |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited) |
|
|
For the Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
|
|
|
|
(in thousands, except per share amounts) |
Revenue – services |
$ |
31,534 |
|
|
$ |
48,108 |
|
Revenue – products |
|
3,688 |
|
|
$ |
2,052 |
|
Total revenue |
|
35,222 |
|
|
|
50,160 |
|
Cost of sales – services |
|
19,268 |
|
|
|
29,731 |
|
Cost of sales – products |
|
2,472 |
|
|
|
1,558 |
|
Total cost of sales |
|
21,740 |
|
|
|
31,289 |
|
Gross profit |
|
13,482 |
|
|
|
18,871 |
|
Selling, general and administrative expenses |
|
|
|
Sales and marketing |
|
1,643 |
|
|
|
5,252 |
|
Research and development |
|
2,833 |
|
|
|
5,430 |
|
General and administrative |
|
21,976 |
|
|
|
24,556 |
|
Total selling, general and administrative expenses |
|
26,452 |
|
|
|
35,238 |
|
Operating loss |
|
(12,970 |
) |
|
|
(16,367 |
) |
Other income |
|
2,496 |
|
|
|
12 |
|
Interest expense |
|
(249 |
) |
|
|
(190 |
) |
Loss before income taxes |
|
(10,723 |
) |
|
|
(16,545 |
) |
Provision for income taxes |
|
(23 |
) |
|
|
(71 |
) |
Net loss |
$ |
(10,746 |
) |
|
$ |
(16,616 |
) |
|
|
|
|
Net loss per share: |
|
|
|
Basic |
$ |
(0.16 |
) |
|
$ |
(0.25 |
) |
Diluted |
$ |
(0.16 |
) |
|
$ |
(0.25 |
) |
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
Basic |
|
68,176 |
|
|
|
67,559 |
|
Diluted |
|
68,176 |
|
|
|
67,559 |
|
|
|
|
|
|
|
|
|
TELOS CORPORATION |
CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
|
|
March 31, 2023 |
|
December 31, 2022 |
|
|
|
|
|
(in thousands, except per share amount and share data) |
Assets: |
|
|
|
Cash and cash equivalents |
$ |
112,462 |
|
|
$ |
119,305 |
|
Accounts receivable, net |
|
34,702 |
|
|
|
40,069 |
|
Inventories, net |
|
1,629 |
|
|
|
2,877 |
|
Prepaid expenses |
|
5,480 |
|
|
|
4,819 |
|
Other current assets |
|
1,042 |
|
|
|
893 |
|
Total current assets |
|
155,315 |
|
|
|
167,963 |
|
Property and equipment, net |
|
4,406 |
|
|
|
4,787 |
|
Finance lease right-of-use assets, net |
|
7,527 |
|
|
|
7,832 |
|
Operating lease right-of-use assets, net |
|
458 |
|
|
|
341 |
|
Goodwill |
|
17,922 |
|
|
|
17,922 |
|
Intangible assets, net |
|
33,801 |
|
|
|
37,415 |
|
Other assets |
|
1,223 |
|
|
|
1,137 |
|
Total assets |
$ |
220,652 |
|
|
$ |
237,397 |
|
Liabilities and Stockholders' Equity |
|
|
|
Liabilities: |
|
|
|
Accounts payable and other accrued liabilities |
$ |
18,011 |
|
|
$ |
22,551 |
|
Accrued compensation and benefits |
|
7,665 |
|
|
|
8,388 |
|
Contract liabilities |
|
7,203 |
|
|
|
6,444 |
|
Finance lease obligations – current portion |
|
1,625 |
|
|
|
1,592 |
|
Operating lease obligations – current portion |
|
494 |
|
|
|
361 |
|
Other financing obligations – current portion |
|
— |
|
|
|
1,247 |
|
Other current liabilities |
|
3,856 |
|
|
|
4,919 |
|
Total current liabilities |
|
38,854 |
|
|
|
45,502 |
|
Finance lease obligations – non-current portion |
|
10,832 |
|
|
|
11,248 |
|
Operating lease liabilities – non-current portion |
|
— |
|
|
|
27 |
|
Other financing obligations – non-current portion |
|
— |
|
|
|
7,211 |
|
Deferred income taxes |
|
770 |
|
|
|
758 |
|
Other liabilities |
|
301 |
|
|
|
297 |
|
Total liabilities |
|
50,757 |
|
|
|
65,043 |
|
Commitments and contingencies |
|
|
|
Stockholders’ equity: |
|
|
|
Common stock, $0.001 par value, 250,000,000 shares authorized,
69,388,256 shares and 67,431,632 shares issued and outstanding as
of March 31, 2023 and December 31, 2022,
respectively |
|
108 |
|
|
|
106 |
|
Additional paid-in capital |
|
420,980 |
|
|
|
412,708 |
|
Accumulated other comprehensive income |
|
(42 |
) |
|
|
(55 |
) |
Accumulated deficit |
|
(251,151 |
) |
|
|
(240,405 |
) |
Total stockholders’ equity |
|
169,895 |
|
|
|
172,354 |
|
Total liabilities and stockholders’ equity |
|
220,652 |
|
|
|
237,397 |
|
|
|
|
|
|
|
|
|
TELOS CORPORATION |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
|
|
For the Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
|
|
|
|
(in thousands) |
Cash flows from operating activities: |
|
|
|
Net loss |
$ |
(10,746 |
) |
|
$ |
(16,616 |
) |
Adjustments to reconcile net loss to cash (used in)/provided by
operating activities: |
|
|
|
Stock-based compensation |
|
9,499 |
|
|
|
15,931 |
|
Depreciation and amortization |
|
1,425 |
|
|
|
1,405 |
|
Deferred income tax provision |
|
12 |
|
|
|
12 |
|
Accretion of discount in acquisition holdback |
|
2 |
|
|
|
12 |
|
Loss on disposal of fixed assets |
|
1 |
|
|
|
— |
|
Provision for doubtful accounts |
|
89 |
|
|
|
95 |
|
Amortization of debt issuance costs |
|
17 |
|
|
|
— |
|
Gain on early extinguishment of other financing obligations |
|
(1,427 |
) |
|
|
— |
|
Changes in other operating assets and liabilities: |
|
|
|
Accounts receivable |
|
5,279 |
|
|
|
2,014 |
|
Inventories |
|
1,248 |
|
|
|
(850 |
) |
Prepaid expenses, other current assets, other assets |
|
(927 |
) |
|
|
(3,563 |
) |
Accounts payable and other accrued payables |
|
(4,489 |
) |
|
|
674 |
|
Accrued compensation and benefits |
|
(364 |
) |
|
|
495 |
|
Contract liabilities |
|
758 |
|
|
|
655 |
|
Other current liabilities |
|
(477 |
) |
|
|
(15 |
) |
Net cash (used in)/provided by operating activities |
|
(100 |
) |
|
|
249 |
|
Cash flows from investing activities: |
|
|
|
Capitalized software development costs |
|
(3,800 |
) |
|
|
(2,795 |
) |
Purchases of property and equipment |
|
(223 |
) |
|
|
(546 |
) |
Payment of DFT holdback amount |
|
(564 |
) |
|
|
— |
|
Net cash used in investing activities |
|
(4,587 |
) |
|
|
(3,341 |
) |
Cash flows from financing activities: |
|
|
|
Payments under finance lease obligations |
|
(383 |
) |
|
|
(351 |
) |
Payment of tax withholding related to net share settlement of
equity awards |
|
(1,520 |
) |
|
|
(2,886 |
) |
Repurchase of common stock |
|
(139 |
) |
|
|
— |
|
Payments for debt issuance costs |
|
(114 |
) |
|
|
— |
|
Net cash used in financing activities |
|
(2,156 |
) |
|
|
(3,237 |
) |
Net change in cash, cash equivalents, and restricted cash |
|
(6,843 |
) |
|
|
(6,329 |
) |
Cash, cash equivalents, and restricted cash, beginning of
period |
|
119,438 |
|
|
|
126,562 |
|
Cash, cash equivalents, and restricted cash, end of period |
$ |
112,595 |
|
|
$ |
120,233 |
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures |
(Unaudited) |
|
Reconciliation of Net Loss to EBITDA, Adjusted EBITDA and
Adjusted EBITDA Margin |
|
For the Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
Amount |
|
Margin |
|
Amount |
|
Margin |
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
Net loss |
$ |
(10,746 |
) |
|
(30.5 |
)% |
|
$ |
(16,616 |
) |
|
(33.1 |
)% |
Other income |
|
(2,496 |
) |
|
(7.1 |
)% |
|
|
(12 |
) |
|
— |
% |
Interest expense |
|
249 |
|
|
0.7 |
% |
|
|
190 |
|
|
0.4 |
% |
Provision for income taxes |
|
23 |
|
|
0.1 |
% |
|
|
71 |
|
|
0.1 |
% |
Depreciation and amortization |
|
1,425 |
|
|
4.0 |
% |
|
|
1,405 |
|
|
2.8 |
% |
EBITDA |
|
(11,545 |
) |
|
(32.8 |
)% |
|
|
(14,962 |
) |
|
(29.8 |
)% |
Stock-based compensation expense (1) |
|
9,499 |
|
|
27.0 |
% |
|
|
15,931 |
|
|
31.7 |
% |
Restructuring expenses/(adjustments) (2) |
|
1,200 |
|
|
3.4 |
% |
|
|
— |
|
|
— |
% |
Adjusted EBITDA |
$ |
(846 |
) |
|
(2.4 |
)% |
|
$ |
969 |
|
|
1.9 |
% |
(1) |
The Stock-based Compensation adjustment to EBITDA as of March 31,
2023, and 2022 is made up of $7.9 million and
$14.3 million, respectively, of stock-based compensation
expense for the awarded RSUs and PSUs, and $1.6 million and
$1.7 million, respectively, of other sources of stock-based
compensation expense. The other sources of stock-based compensation
consist of accrued compensation, which the Company intends to
settle in shares of the Company's common stock. However, it is the
Company’s discretion as to whether this compensation will
ultimately be paid in stock or cash. The Company has the right to
dictate the form of these payments up until the date at which they
are paid. Any change to the expected payment form would result in
out-of-quarter adjustments to this add back to Adjusted
EBITDA. |
(2) |
The restructuring
expenses/(adjustments) to EBITDA include severance and other
related benefit costs (including outplacement services and
continuing health insurance coverage), external consulting and
advisory fees related to implementing the restructuring plan. |
|
|
Reconciliation of Net Loss to Non-GAAP Adjusted Net Loss
and Adjusted EPS |
|
For the Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
AdjustedNet Loss |
|
Adjusted Earnings Per Share |
|
AdjustedNet Loss |
|
Adjusted Earnings Per Share |
|
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
Net loss - GAAP measure |
$ |
(10,746 |
) |
|
$ |
(0.16 |
) |
|
$ |
(16,616 |
) |
|
$ |
(0.25 |
) |
Adjustments: |
|
|
|
|
|
|
|
Other income |
|
(2,496 |
) |
|
|
(0.04 |
) |
|
|
(12 |
) |
|
|
— |
|
Stock-based compensation expense (1) |
|
9,499 |
|
|
|
0.14 |
|
|
|
15,931 |
|
|
|
0.24 |
|
Restructuring expenses/(adjustments) (2) |
|
1,200 |
|
|
|
0.02 |
|
|
|
— |
|
|
|
— |
|
Adjusted net loss - non-GAAP measure |
$ |
(2,543 |
) |
|
$ |
(0.04 |
) |
|
$ |
(697 |
) |
|
$ |
(0.01 |
) |
Weighted-average shares of common stock outstanding, basic |
|
68,176 |
|
|
|
|
|
67,559 |
|
|
|
(1) |
The Stock-based Compensation adjustment to Net Loss as of March 31,
2023, and 2022 is made up of $7.9 million and
$14.3 million, respectively, of stock-based compensation
expense for the awarded RSUs and PSUs, and $1.6 million and
$1.7 million, respectively, of other sources of stock-based
compensation expense. The other sources of stock-based compensation
consist of accrued compensation, which the Company intends to
settle in shares of the Company's common stock. However, it is the
Company’s discretion as to whether this compensation will
ultimately be paid in stock or cash. The Company has the right to
dictate the form of these payments up until the date at which they
are paid. Any change to the expected payment form would result in
out-of-quarter adjustments to this add back to Adjusted Net
Loss. |
(2) |
The restructuring
expenses/(adjustments) to net loss include severance and other
related benefit costs (including outplacement services and
continuing health insurance coverage), external consulting and
advisory fees related to implementing the restructuring plan. |
|
|
Free Cash Flow |
|
For the Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
|
|
|
|
(in thousands) |
Net cash (used in)/provided by operating activities |
$ |
(100 |
) |
|
$ |
249 |
|
Adjustments: |
|
|
|
Purchases of property and equipment |
|
(223 |
) |
|
|
(546 |
) |
Capitalized software development costs |
|
(3,800 |
) |
|
|
(2,795 |
) |
Free cash flow |
$ |
(4,123 |
) |
|
$ |
(3,092 |
) |
Telos (NASDAQ:TLS)
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Telos (NASDAQ:TLS)
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