Telos Corporation

Good day and thank you for standing by. Welcome to the TELUS Corporation first quarter 2024 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today. Alison Phillip, please go ahead.

Good morning. Thank you for joining us to discuss Telus Corporation's first quarter 2024 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. Mark will begin with remarks on our first quarter 2024 results. Next, John will discuss business highlights from the first quarter. Mark will follow this up with second 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, in the comments made during this conference call, and in our SEC filing. 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 Mark.

Thank you, Alison, and good morning, everyone. Let's begin today on slide three. I am pleased to report that TELUS has again over-delivered on key financial metrics in the first quarter, exceeding both revenue and profit guidance. Overall, it was a straightforward quarter with better than guided performance across key financial metrics, leading to a meaningful beat on profit and cash flow. Let's get into some of the details. We delivered $29.6 million of revenue in the first quarter, or approximately $600,000 above our guidance range of $28 million to $29 million. Security Solutions delivered $18.6 million of revenue, which was above the top end of our guidance range due to modest outperformance across all lines of business. Secure Networks delivered approximately $11 million of revenue in line with the top end of our guidance range. GAAP gross margin was 37% above our guidance due to cost management on fixed price contracts and security solutions, better than expected utilization of direct labor and secure networks, and a slightly better overall weighting of revenues to our higher margin security solutions business. Security solutions generated approximately 63% of total company revenues in the first quarter of 2024, versus 56 percent in the first quarter of 2023, a favorable variance that is expected to widen as the year progresses. Cash gross margin was a notable 42.2 percent, expanding 249 basis points year over year and representing our second highest quarter since our IPO in 2020. Revenues and gross margins both above forecast resulted in gross profit above what was incorporated into our adjusted EBITDA guidance range. In addition, R&D and SG&A expenses were better than forecasted due to timing of spending and higher than forecasted capitalization of software development costs. As a result, adjusted EBITDA also exceeded the top end of our guidance range. Adjusted EBITDA was a $2.3 million loss compared to our guidance range of a $5.5 million loss to a $5 million loss. Lastly, cash flow from operations was a $350,000 outflow, and free cash flow was a $3.6 million outflow. Free cash flow improved from a $4.1 million outflow in the first quarter of 2023. So overall, it was a clean quarter with solid execution throughout the portfolio. I will now turn it over to John for an overview of business highlights. John?