Telos Q4 2024: Navigating Contradictions in Revenue Recognition, TSA PreCheck Potential, and New Business Confidence

These are the key contradictions discussed in Telos' latest 2024Q4 earnings call, specifically including: Revenue Recognition and Cash Flow, Impact of Administrative Change on Single Awards, TSA PreCheck Revenue Potential, and Confidence in Securing New Business Opportunities:



Revenue Growth and Segment Performance:
- Telos Corp reported revenue growth of 11% sequentially to $26.4 million in Q4 2024, with Security Solutions' revenue reaching $21.9 million (83% of total revenue).
- The growth was driven by the successful transition of the Defense Manpower Data Center (DMDC) program and increased TSA PreCheck enrollments.

Margins and Cost Management:
- GAAP gross margin expanded by nearly 600 basis points to 40.3%, and cash gross margin expanded by nearly 900 basis points to 47%.
- The expansion was primarily due to favorable mix shifts from Secure Networks to higher-margin Security Solutions, along with cost reduction actions taken during Q3 2024.

Cash Flow and Working Capital:
- Cash flow from operations was a $10.5 million outflow in Q4 2024, attributed to a temporary buildup of working capital associated with high-growth programs and one-time CapEx investments.
- The company expects these dynamics to reverse in Q1 2025, leading to positive cash flow from operations and free cash flow.

TSA PreCheck Expansion:
- The number of TSA PreCheck enrollment centers increased from 26 at the beginning of 2024 to 218 locations today.
- The expansion is part of a strategic plan to gain market share in the national security program, with a target of 500 locations by the end of the year.

New Business Wins and Pipelines:
- Telos achieved new orders for its Xacta and Automated Message Handling System (AMHS) businesses, including contracts with the U.S. Department of Energy and a U.K. government department.
- The company's $9 billion new business pipeline is experiencing delays in single award timing due to the change in administration, prompting a focus on task orders via active contract vehicles.