Telos Corporation

Good day and thank you for standing by. Welcome to the Telos Corporation's second quarter 2024 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 Allison Phillip, Director of Corporate Communications. Please go ahead.

Good morning. Thank you for joining us to discuss Telos Corporation's second quarter 2024 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. Mark will begin with remarks on our second quarter 2024 results. Next, John will discuss business highlights from the second quarter. Then, Mark will follow up with third quarter guidance 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 can 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 filing. 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 an 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 second quarter, exceeding both revenue and profit guidance. We delivered $28.5 million of revenue in the second quarter, or approximately $500,000 above our guidance range of $25 million to $28 million. First half revenues were $58.1 million and we're comfortably ahead of the $55 million of first half 2024 revenues that we forecasted in our fourth quarter 2023 earnings presentation. Returning to the second quarter, Security Solutions delivered $17.9 million of revenues, which was approximately in line with the top end of our guidance range due to strong performance across the portfolio. Secure Networks delivered $10.6 million of revenue exceeding the top end of our guidance range and representing the entirety of the revenue beat for the company. The outperformance in secure networks was driven by excellent program management on a program that ended as scheduled in the quarter. Gap gross margin was 34.1%, above our guidance range of 30% to 33.3% due to better than forecasted mix within security solutions and strong margin performance on multiple secure networks programs that ended as scheduled in the quarter, partially offset by higher amortization. Security Solutions generated nearly 63% of total company revenues in the second quarter of 2024 versus 52% in the second quarter of 2023, a favorable variance that is expected to widen in the second half. Cash gross margin was 42%, expanding 326 basis points year over year and representing one of our highest margin quarters 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 lower cash expenses including timing of some expenditures 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 $2.9 million loss compared to our guidance range of an $8 million loss to a $6 million loss. Lastly, cash flow from operations was an $8 million outflow and free cash flow was an $11.3 million outflow. The year-over-year decline in free cash flow was in line with the year-over-year decline in adjusted EBITDA. I will now turn it over to John for an overview of recent business highlights. John?