Telos Corporation

Good day and thank you for standing by. Welcome to the Telos Corporation first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Brinley Johnson. Please go ahead.

Good afternoon. Thank you for joining us to discuss Telos Corporation's first quarter 2021 financial results. With me today is John Wood, CEO and Chairman of Telos, and Michelle Nakazawa, CFO of Telos. Let me quickly review the format of today's presentation. John will begin with some brief remarks on the first quarter results, a brief corporate overview, and Telos' strategic priorities, and Michelle will cover the financials and guidance. Then I'm going to turn the call over to the analysts for Q&A. The earnings press release was issued earlier today and is posted on the TELUS website where this call is being simultaneously webcast. Before we get started, we want to emphasize that some of our statements on this call are forward-looking statements and are made under the safe harbor provisions of the federal securities law. These statements are based on current expectations and assumptions that are subject to risk and uncertainty. Actual results could materially differ for various reasons, including the factors described in today's earnings press release and the comments made during this conference call and our SEC filings. we do undertake any duty to update any forward-looking statement. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental and clarifying measures to help investors understand TELUS's financial performance. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, and our earnings press release and on the investor relations page of the TELUS website. The webcast replay of this call will be available for the next year on our company website under the investor relations link. With that, I'll turn it over to John.

Well, thank you, Brinley. Hey, everyone. I'm John Wood, Chairman and CEO of TELUS Corporation. Welcome to our first quarter 2021 financial results conference call. I'm proud of our execution this year, delivering 43% year-over-year revenue growth, and continuing to win meaningful contracts and exceeding our prior guidance, giving us even greater confidence for the full year. We surpassed our expectations on both the top and bottom lines as we were able to execute on our customers' requests to accelerate deliveries expected in the second quarter into the first quarter. Since we covered a great deal of Q1 during the last earnings call, which was only six weeks ago, today I will focus on recent events as well as any new developments. Now I'd like to share with you the first quarter business highlights and updates. You know, in the first few months of 2021, we secured two large wins. First, the General Services Administration, or GSA, named Telos and seven other companies as a contract team lead on the second generation information technology contract known as 2GIT, which is $5.5 billion, that enables streamlined government-wide IT purchasing. In addition to providing access to pre-vetted hardware and software IT vendors to all agencies across the entire federal government, 2G IT provides a simple path for the government to obtain all of Telos security solution offerings, including Exacta, Telos Ghost, AMHS, and ID Trust 360. TELUS was also awarded a five-year, $35 million U.S. Army contract for implementing and securing communication systems in the Korean Peninsula as a part of the Yongsang Relocation Plan and Land Partnership. This realignment effort is critical to U.S. military operations on the Korean Peninsula, and there's no greater honor than to support our men and women who bring peace and stability to this vital region of the world. Following our initial public offering in November, we've been busy growing our channel partner program and bolstering our sales and marketing teams. The formal launch of our channel program called Telos Cyber Protect is slated for later this month. At the end of Q1 2021, Microsoft Azure expanded its Xacta licensing to all U.S. government cloud instances, including Azure Government, Azure Government Secret and Azure Government Top Secret to bring faster cloud compliance to Azure Government customers. By incorporating Azure with Exacta, Microsoft customers can automatically generate a large portion of the required evidence that their systems are operating in a secure way. This accelerates the systems and workloads to the Azure Cloud. Microsoft is a tremendous partner, and from the very beginning, has believed that Xacta is the right solution to significantly streamline the risk management and compliance process for themselves as well as for their customers, which will ultimately accelerate cloud adoption and do it in a much more secure way. Our solution development teams have been hard at work in the first months of 2021, and I'd like to highlight the continued innovation within Xacta and Telos Ghost. In January of 2021, we unveiled our Xacta offering, for Cyber Supply Chain Risk Management, or SCRM, to address the ongoing threat of cyber supply chain breaches and incursions. This Xacta module operationalizes supply chain risk management standards like the NIST 800-161, which we believe are essential for organizations to thwart future solar winds like attacks. We recently introduced another Xacta module to help organizations address third-party vendor cybersecurity compliance standards, such as the NIST 800-171 and the Cybersecurity Maturity Model Certification, known as CMMC. This Xacta module meets the needs of more than 300,000 organizations that must comply with these cybersecurity standards. In March, Xacta was named an SC Magazine Award finalist in the Best Risk Management Solution category. We're pleased to be recognized for this well-regarded product award, one which is determined by a panel of technology peers. Moving to our virtual obfuscation offering, or Telos Ghost, we have begun integrating Telos Ghost directly into complementary networks to protect video security systems, industrial Internet of Things, or IoT, and other connected technologies out of the box. The success of Telos Ghost in its initial product launch, the ability to eliminate cyber attack services on the Internet, is all being leveraged for evolutionary innovations to expand beyond its initially intended use, which was for military and intelligence use cases, to commercial applications. We're embedding Telos Ghost into critical infrastructure to hide specific network resources from being seen on the public Internet, thereby inhibiting the ability of cyber adversaries to attack because you can't attack what you can't see. Hiding servers from cyber adversaries is a core capability of Telos Ghost and has allowed us to prepare the launch of new partner initiatives to hide video surveillance cameras, secure the network for campus security and gun detect solutions, and protect the privacy and security of students, whether they're in school or operating remotely. Efforts are also being pursued to protect internet-based networking use for software download and updates from cloud-based repositories to software-enabled vehicles, as an example. These initiatives are in the early stages, but TELOS and its partners are excited about prospects of using a technology that has been proven to protect intelligence and military operations, but to also protect critical infrastructure used to ensure the safety of people and critical assets in a commercial environment. The next thing I'd really like to talk about a little bit is the industry landscape. I know firsthand how important it is to stay in tune with the pulse of the industry. And with that in mind, there are three trends of particular interest to our organization that have the potential to positively impact our revenue in 2021 and beyond. The first is Internet of Things, or IoT. According to Gartner, there are currently 20.4 billion IoT devices globally, And that number is expected to grow to 75 billion by 2025. Every aspect of our society is on the verge of touching the Internet. As more smart device platforms are placed online, our critical resources become harder to protect. But what if you could make IoT devices, users, information, and resources invisible on the network and keep them hidden from unauthorized view and access? That's all possible with Telos Ghosts. a virtual obfuscation or misattribution network that allows these connections to be totally isolated from the public Internet through the use of a number of virtual network nodes, varying pathways, and eliminating source and destination IP addresses to make their presence and communications invisible. We believe Telus Ghost is a viable answer to the concerns of IoT security. The second trend that will have an impact on our business is the increased occurrence of audit fatigue for organizations. With personal and enterprise security and privacy among the top concerns of our day, governments at all levels are responding with compliance requirements designed to protect citizens and defend networks. But what is the business aspect of this growing number of security and privacy regulations? This question led to a research study we commissioned with a third-party research firm, which we believe to be the first attempt to quantify the growing problem of audit fatigue. The study, which polled 300 IT security professionals, revealed that, on average, organizations must comply with at least 13 different IT security and privacy regulations, and they spend at least $3.5 million annually on compliance activities, with compliance audits consuming 58 working days each quarter. That means security compliance teams spend 232 working days each year responding to audit evidence requests, in addition to the millions of dollars spent on compliance activities and fines. This level of financial and time commitment is really unsustainable. The answer is to simplify and automate the compliance process, which promises many benefits, which include reduced workload for already strained IT security personnel, increased employee satisfaction and retention, limited reputational damage that comes with failing an audit, and increased savings in expensive compliance activities and costly fines. Commercial organizations are ready and looking for ways to realize these benefits by streamlining compliance activities and automating the audit processes. Telos' Xacta is well-positioned to alleviate this compliance burden and help organizations achieve their business initiatives much more quickly. The third trend we are watching is the increase in air travel. Month over month, TSA is reporting ever-increasing passenger numbers. Pre-pandemic, TSA was screening over 2 million passengers daily. Current passenger volumes are seeing highs of 1.6 million passengers screened daily, with summer traffic expected to surge. In February of 2021, TSA announced their intent to hire 6,000 screeners to prepare for the summer season TSA, like the airports and airlines, are seeing the return of travel do in large part to leisure travel. TELUS is also experiencing a similar uptick in our ID Trust 360 airport programs where our aviation workers' biometric enrollment submissions have increased 177% from April 2020 to April 2021. Airports, airport concessionaires, and airlines are bringing these workers back to the airports to meet an increase in service support levels not seen since February of 2020. In conclusion, our company's exceptional results continue to be driven by strong demand for our advanced security solutions, recent long-term contract wins, and our growing sales channel. We are well-positioned to continue to execute as a leading world-class organization in the cyber, cloud, and enterprise security marketplace. I'll now pass it over to our CFO, Michelle Nakazawa, who will discuss the financials in more detail. Michelle?