Telos Corporation

Good day and thank you for standing by. Welcome to the Telos Corporation first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. I would now like to hand the conference over to your speaker today, Allison Phillips. Director of Corporate Communications.

Good morning. Thank you for joining us to discuss Telus Corporation's first quarter 2025 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 2025 results. Next John will discuss business highlights from the quarter. Then Mark will follow up with second 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 first quarter financial results were issued earlier today and are 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, including all of those relating to 2025 company performance, plans, and operations, 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 financial results summary, 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 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 first quarter results summary 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 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'm pleased to report that Telos 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 revenue, gross margin, operating expenses, and adjusted EBITDA. Total company revenue grew 16% sequentially to $30.6 million and included growth from both security solutions and secure networks. Security Solutions grew 18% sequentially to $25.8 million, and Secure Networks grew 8% sequentially to $4.8 million. Security Solutions revenue exceeded guidance partially due to outperformance on high growth programs. Gap gross margin was 39.8%, and cash gross margin was 45.3%, both exceeding guidance due to more favorable mix. Adjusted operating expenses, excluding depreciation and amortization, were approximately $800,000 better than guidance, primarily due to lower than forecasted non-labor costs across multiple cost centers. As a result, adjusted EBITDA also exceeded the top end of our guidance range. Adjusted EBITDA was a $362,000 profit compared to our guidance range of a $1.8 million loss to an $800,000 loss. Lastly, cash flow from operations was a positive $6.1 million, and free cash flow was a positive $3.8 million. On our last earnings call, we said we were forecasting significant year-over-year improvements in revenue, profit, and cash flow for the full year 2025. So let's turn to slide four for a brief review of our year-over-year performance in the first quarter of the year. Revenue grew 3% year-over-year due to 39% growth in security solutions, partially offset by contraction in secure networks. Growth in security solutions was primarily driven by the successful transition of the Defense Manpower Data Center, or DMDC, program in the fourth quarter of 2024 and the ramp of TSA PreCheck enrollment volume. Secure networks contracted due to the completion and ramp down of multiple programs over the past several quarters. Gap gross margin expanded 278 basis points and cash gross margin expanded 313 basis points, both primarily due to the favorable mix shift from secure networks to Security Solutions. Security Solutions revenue increased from 63% of total company revenue in the first quarter of 2024 to 84% of revenue in the first quarter of 2025. As a result of revenue growth and gross margin expansion, GAAP gross profit increased by $1.2 million and cash gross profit increased by $1.4 million. Turning to operating expenses, during the third quarter of 2024, we implemented a restructuring and cost reduction plan in order to maximize our operating leverage as we return to growth in 2025. In part as a result of that plan, adjusted operating expenses, excluding depreciation and amortization, declined by $1.3 million year over year. Higher cash gross profit combined with lower adjusted operating expenses drove adjusted EBITDA higher by $2.7 million. And lastly, cash flow from operations increased by $6.5 million and free cash flow increased by $7.4 million due to higher adjusted EBITDA lower capitalized software development costs, and favorable working capital dynamics. Overall, we expect the trend of year-over-year growth in revenue, adjusted EBITDA, and cash flow to accelerate in the second half of 2025. I will now turn it over to John for an overview of recent business highlights. John?