Telos Q1 2025 slides: revenue exceeds guidance, positive EBITDA achieved

Introduction & Market Context

Telos Corporation (NASDAQ:TLS) presented its first quarter 2025 earnings results on May 9, 2025, revealing performance that exceeded guidance across key metrics. The cybersecurity solutions provider reported its first positive Adjusted EBITDA in recent quarters, signaling potential financial improvement after a challenging period.

The company’s stock, which had fallen over 10% following its Q4 2024 earnings despite beating expectations, is currently trading at $2.45, near the lower end of its 52-week range of $1.89 to $5.03. The Q1 results represent an important milestone in the company’s efforts to return to sustainable growth and profitability.

Quarterly Performance Highlights

Telos reported Q1 2025 revenue of $30.6 million, exceeding its guidance range of $28.2 million to $30.2 million. This represents a 3% year-over-year increase and a more substantial 16% sequential growth from Q4 2024. The company achieved positive Adjusted EBITDA of $0.4 million, significantly outperforming its guidance range of ($1.8) million to ($0.8) million.

As shown in the following financial performance summary, Telos demonstrated improvement across multiple metrics:

The company’s Security Solutions segment was the primary growth driver, increasing 18% sequentially and 39% year-over-year to $25.8 million. Meanwhile, the Secure Networks segment grew 8% sequentially but declined 56% year-over-year to $4.8 million, reflecting the company’s ongoing business transformation.

Detailed Financial Analysis

Telos showed notable improvement in profitability metrics during Q1 2025. GAAP gross margin expanded to 39.8%, exceeding guidance of 38.5% to 39.2% and improving from 37.0% in the same period last year. Cash gross margin also increased to 45.3% from 42.2% in Q1 2024.

The year-over-year comparison highlights the company’s financial progress across key metrics:

Particularly noteworthy is the company’s cash flow performance, with operating cash flow of $6.1 million and free cash flow of $3.8 million, compared to negative $3.6 million in the prior year period. This improvement reflects both higher margins and lower operating expenses resulting from the company’s restructuring and cost reduction initiatives.

Strategic Initiatives

A central element of Telos’ growth strategy is the expansion of its TSA PreCheck enrollment program. The company has significantly increased its network of enrollment centers to 291 locations across 35 states, with plans to reach 500 locations by the end of 2025.

The company’s business update slide illustrates this expansion along with other recent contract wins:

Beyond TSA PreCheck, Telos secured new orders for its Xacta security platform from both commercial clients like Infor and U.S. federal government customers. The company also won cyber services contracts with a Fortune 100 technology company and renewed agreements for its AMHS (Automated Message Handling System) with the U.S. Marine Corps and other defense organizations.

Forward-Looking Statements

Looking ahead to Q2 2025, Telos provided guidance for revenue between $32.5 million and $34.5 million, representing 14% to 21% year-over-year growth. The company expects Adjusted EBITDA to remain in negative territory at ($2.1) million to ($0.6) million, though this would still represent an improvement from the ($2.9) million loss in Q2 2024.

The company’s outlook for the remainder of 2025 is detailed in the following guidance slide:

Management expects the Security Solutions segment to drive growth with a projected year-over-year increase of 60% to 70% in Q2, primarily fueled by the DMDC program and TSA PreCheck enrollments. Conversely, the Secure Networks segment is anticipated to decline by 60% to 70% due to the completion of certain programs.

Telos expects growth to accelerate in the second half of 2025, as summarized in the company’s key takeaways:

The company’s guidance suggests a continued focus on its higher-margin Security Solutions business, with expectations for improved financial performance throughout 2025. Management’s emphasis on the DMDC program and TSA PreCheck enrollments indicates these will remain the primary growth catalysts in the near term.

While Telos has shown improvement in Q1, the company still faces challenges in achieving consistent profitability, particularly as it navigates the decline in its Secure Networks segment. However, the positive cash flow generation and sequential growth provide encouraging signs for the company’s financial trajectory.

Full presentation:

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