Telos Corporation

Ladies and gentlemen, thank you for standing by, and welcome to Telus Corporation Third Quarter 2022 Financial Results 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 1-1. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host for today, Christina Muzaviris. Please go ahead.

Good morning. Thank you for joining us to discuss TELUS Corporation's third quarter 2022 financial results. With me today is John Wood, Chairman and CEO of TELUS, and Mark Benza, Executive Vice President and CFO of TELUS. Let me quickly review the format of today's presentation. John will begin with brief remarks on our 2022 third quarter results and TELUS's strategic priorities. And Mark will cover the financials and guidance for the fourth quarter and full year 2022. Then we'll open the line for Q&A where Mark Griffin, Executive Vice President of Security Solutions, will also join us. The earnings press release was issued earlier today and is posted on the Telos Investor Relations website where this call is being simultaneously webcast. Additionally, we have provided presentation slides on our investor relations website. Before we begin, 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 laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ for various reasons, including the factors described in today's earnings press release, in the comments made during this conference call, and in our SEC filings. We do not undertake any duty to update any forward-looking statements. 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, in our earnings press release and on the investor relations portion of our website. Please also note that financial comparisons are year-over-year, unless otherwise specified. 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 the call over to John.

Thank you, Christina, and good morning, everyone. Let's begin today on slide three. We executed well in the third quarter and exceeded quarterly expectations for a fourth consecutive reporting period. Mark will discuss our financial performance later on this call, But at a high level, we delivered $63.6 million of revenue in the third quarter, above our guidance range of $58 million to $62 million, up 14% sequentially and down 8% year-over-year. Gross margin was 32.9%, above the guidance range of 31% to 32.5%. We delivered $8.6 million of adjusted EBITDA above the high end of our guidance range of $3.5 million to $5 million, and a 13.5% adjusted EBITDA margin. Lastly, we delivered 10 cents of adjusted EPS. Now let's turn to slide four, where I'll provide an update on the TSA PreCheck Expansion Program. On October 18th, the Transportation Security Administration issued an authority to operate for TELUS's PreCheck system, marking an important milestone for another long-term program for our company. In the near term, we will be providing TSA PreCheck enrollment services for a soft launch trial period to a limited population of applicants in order to validate systems and processes in advance of full implementation. Once the trial period has been successfully completed to the satisfaction of TSA, TELUS will launch enrollment services to the public more widely. We are pleased to have finally reached this long-awaited milestone. If you turn to slide five, you can see additional business highlights and successes achieved this quarter. Turning to Xacta, we received renewals with several key customers including the National Security Agency, the Federal Bureau of Investigation, the Central Intelligence Agency, the Defense Intelligence Agency, the Office of Naval Intelligence, the National Archives, the Social Security Administration, and Oracle. We are also continuing to build on our partnership with IBM. This relationship will enable us to broaden our reach into the global marketplace for sales of our Xacta solution to drive future growth for Telos. The value in Xacta's native OSCAL format, inheritance, and adaptive mapping across regulations will drive IBM and Telos success and customer perceived value in the combined IBM AGS Telos solution. We were also awarded key contracts with large cloud service providers and data as a service providers to expedite the ATO or the authority to operate process. And our automated message handling service and designated aviation channeling services continue to perform well. Near term, our focus and strategy for the GHOST product line will be as an embedded security element of customer and tele solutions. All development product enhancement and expansion efforts are aligned with this evolutionary product strategy driven by customer mission requirements. We are confident in this direction as evidenced by the JCI Ghost product positioning. And our advanced cyber analytics or ACA solution launched earlier this year continues to evolve including strengthening its cyber and analytic capabilities enabling an enhancement of our market position via the growing value of intellectual property in the platform. We continue to enhance ACA through new features and by integration with other technologies. We are confident that ACA will continue to gain sales momentum due to its unique capabilities to scale seamlessly and deliver to customers near real-time cyber situational awareness by harnessing the power of integrated cloud and data science, and actionable threat intelligence insights. We are proud of the meaningful progress we've made across these business segments this quarter. In other parts of our portfolio, we are experiencing challenges that are weighing on our near-term outlook. Revenues on some large programs and security solutions will likely begin to step down in the fourth quarter, and our secure network segment has not generated sufficient new business wins so far in the second half to backfill revenues from large programs that have been winding down and coming to successful completion over the course of 2022. The combination of these factors will result in lower than previously expected revenues in the fourth quarter of 22 and potentially lower revenues year over year in 2023. Mark will provide additional details on the fourth quarter and 2023 outlook later on this call. Needless to say, I'm not satisfied with our near-term outlook. We have significant room for improvement. The Board and I are laser focused on taking the necessary actions to improve our performance by optimizing and streamlining how we serve our customers and pursue new business opportunities for long-term sustainable growth and success. While we are clear-eyed about our near-term outlook, we are confident in the foundation and long-term potential of our business. The core fundamentals of our company remain strong. Our robust and recession-resistant end markets, well-funded customers, and decades-long track record of serving the world's most security-conscious organizations provide a solid foundation for the future. And our strong balance sheet ensures significant financial and strategic flexibility. Finally, we have a leadership change to announce. Brendan Malloy, Executive Vice President of Secure Networks, has notified me of his intention to retire at the end of 2022. For over 26 years, Brendan has provided exceptional service and commitment to Telos and our customers. I want to extend my sincere thanks for his dedicated service and wish him a happy and healthy retirement. I will now turn the call over to Mark, who will discuss third quarter 2022 financial results, guidance for the fourth quarter, and some high-level direction on 2023. Mark?