Telos Corporation

Good day, and thank you for standing by. Welcome to Telos Corporation's fourth quarter and full year 2023 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'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Allison Phillips, Director of Corporate Communications. Please go ahead.

Good morning. Thank you for joining us to discuss Telos Corporation's fourth quarter and full year 2023 financial results. With me today is John Wood, Chairman and CEO of Telos, and Mark Benza, Executive Vice President and CFO of Telos. Let me quickly review the format of today's presentation. John and Mark will begin with remarks on our 2023 year-end results. Next, John will provide an update on the large portfolio of new business proposals that had been submitted and were pending as of our last earnings call. And lastly, Mark will follow this up with first quarter guidance and insights on the financial outlook for the company before turning back to John to wrap up. We will then 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 and the comments made during this conference call and in our SEC filings. we do not 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 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 Mark.

Thank you, Allison, and good morning, everyone. Let's begin today on slide three. I'm pleased to report that TELOS has again over-delivered on key financial metrics in the fourth quarter and exceeded expectations for revenue, profit, and cash flow. We delivered $41.1 million of revenue in the fourth quarter, or $7.1 million above our guidance range of $30 million to $34 million. Security Solutions delivered $20.7 million of revenue, which represents approximately the top end of our guidance range, primarily driven by TSA PreCheck. Secure Networks delivered $20.4 million of revenue and significantly exceeded the top end of our guidance range due to strong program management and favorable supply chain performance, which accelerated a $7.8 million delivery to a customer in the fourth quarter of 2023 instead of the first quarter of 2024, thereby bringing the program to a successful completion several weeks earlier than forecasted. The $7.8 million accelerated delivery drove the entirety of the $7.1 million revenue beat in the quarter. Gap gross margin was 34.3%. below our guidance range of 35.1% to 36.4% due to significant revenue outperformance in our lower margin secure networks business. Excluding the accelerated product delivery in secure networks, GAAP gross margin was 40%, well above our guidance range due to margin outperformance in both reporting segments. Revenues well above forecast combined with gross margins only slightly below forecast, resulted in gross profit well above what was incorporated into our adjusted EBITDA guidance range. As a result, adjusted EBITDA also exceeded the top end of our guidance range. Adjusted EBITDA was a $3.2 million loss compared to our guidance range of a $6.5 million loss to a $4.5 million loss. Lastly, we returned to positive free cash flow in the fourth quarter and delivered positive cash flow from operations for the full year. Fourth quarter cash flow from operations was a $5 million inflow, and free cash flow was a $1.8 million inflow. Full year cash flow from operations was a $1.6 million inflow, and free cash flow was a $13.9 million outflow. I'll now turn it over to John for a recap on 2023. John?