Telos (TLS) Q2 2024 earnings summary

Executive summary

• Second quarter 2024 revenue reached $28.5 million, surpassing guidance, driven by Security Solutions growth and Secure Networks outperformance, though revenue declined 13% year-over-year due to program completions.

• GAAP gross margin was 34.1%, down from 37.6% year-over-year, but cash gross margin rose to 42.0%, both exceeding guidance.

• Net loss was $7.8 million, an improvement from $8.0 million a year ago; adjusted EBITDA was $(2.9) million, above guidance.

• TSA PreCheck enrollment centers expanded from 28 to 83, targeting 500 by 2025, supporting expectations for it to become the largest program.

• Two major federal program awards worth up to $525 million over five years remain under protest, with minimal expected impact on 2025 revenue if resolved favorably.

Financial highlights

• Q2 2024 revenue: $28.5 million, down from $32.9 million year-over-year, but above the $25–$28 million guidance range.

• GAAP gross profit for Q2 2024 was $9.7 million; adjusted EBITDA margin was (10.3)%.

• Free cash flow for Q2 2024 was $(11.3) million; cash and equivalents at June 30, 2024, were $80.1 million.

• Adjusted net loss for Q2 2024 was $6.6 million; adjusted EPS was $(0.09).

• Working capital at June 30, 2024, was $87.0 million.

Outlook and guidance

• Q3 2024 revenue guidance is $22–$24 million, representing a 34–39% year-over-year decline; adjusted EBITDA expected between $(8.0) million and $(6.5) million.

• Revenue guidance reflects a $7 million reduction due to extended protests; Security Solutions revenue expected to decline year-over-year, offset by TSA PreCheck growth.

• Secure Networks revenue forecasted to decline by 60–70% year-over-year due to program completions.

• GAAP gross margin expected to decrease by 275–475 basis points year-over-year in Q3 2024.

• Management expects to reach 500 TSA PreCheck enrollment locations in 2025.