Telos Corp's Q2 2025 Earnings Call: Unraveling Key Contradictions in Margins and TSA PreCheck Growth

DMDC program impact on margins, TSA PreCheck market share and enrollment locations, gross margin improvement and DMDC program impact, TSA PreCheck enrollment expansion, and DHS security protocols impacting TSA PreCheck renewals are the key contradictions discussed in Telos Corporation's latest 2025Q2 earnings call.



Strong Financial Performance and Revenue Growth:
- Telos Corporation reported second quarter 2025 revenue of $36 million, up 26%, surpassing the previous guidance range of $32.5 million to $34.5 million.
- The growth was primarily driven by a 90% contribution from Security Solutions, including the Defense Manpower Data Center (DMDC) program and TSA PreCheck enrollment volume.

Improved Profitability and Cash Flow:
- Adjusted EBITDA for the second quarter exceeded the higher end of the guidance range, resulting in a profit of approximately $400,000.
- Operating cash flow was $7 million, and free cash flow was $4.6 million or 12.9% of revenue, driven by higher adjusted EBITDA and lower capitalized software development costs.

TSA PreCheck Program Expansion and Enrollment:
- The number of TSA PreCheck enrollment centers increased to 415 locations across 40 states, marking a 43% increase since May.
- The expansion and increased enrollment are driven by Telos' focus on providing convenient solutions for travelers and being a trusted partner in national security programs, despite a decline in renewal volume due to COVID impacts.

Share Repurchases and Capital Allocation:
- Telos resumed share repurchases, deploying $4 million to repurchase approximately 1.5 million shares at a weighted average price of $2.69 per share.
- The company intends to continue using robust free cash flow to drive additional buybacks, while considering opportunistic tuck-in acquisitions or transformational M&A opportunities that could maximize shareholder value.