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TC

TELOS CORP (TLS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 delivered $30.616M revenue (+16.1% q/q, +3.4% y/y) with GAAP gross margin 39.8% and cash gross margin 45.3%, driving positive adjusted EBITDA ($0.36M) and positive operating cash flow ($6.1M), all ahead of internal guidance .
  • Mix shifted further to Security Solutions (84.3% of revenue) on DMDC ramp and TSA PreCheck expansion to 291 locations, supporting y/y gross margin expansion despite Secure Networks contraction .
  • Q2 guide: revenue $32.5–$34.5M, GAAP GM 32.0%–33.5%, cash GM 38.0%–39.5%, and adjusted EBITDA loss of $2.1M–$0.6M; management reaffirmed full-year framework while flagging sequential margin dilution as DMDC lower-margin streams scale and TSA PreCheck accounting timing effects flow through COGS .
  • Versus S&P Global consensus, Q1 revenue beat ($30.616M vs $29.225M*) and Primary EPS beat (-$0.03 vs -$0.053*), a constructive setup tempered by management’s explicit call for margin pressure as the year progresses .

Values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

  • What Went Well

    • Broad beat on internal metrics: “overdelivered on key financial metrics… exceeding both revenue and profit guidance” (revenue, gross margin, OpEx, adjusted EBITDA) .
    • Strong execution on growth vectors: Security Solutions up 17.8% q/q to $25.8M; TSA PreCheck locations reached 291 and DMDC ramp on schedule (major growth source ahead) .
    • Cash inflection: CFO highlighted positive operating cash flow of $6.1M and FCF of $3.8M driven by revenue growth, mix, lower adjusted OpEx, and working capital .

  • What Went Wrong

    • GAAP losses persist: Q1 GAAP net loss of $(8.604)M and GAAP EPS $(0.12); EBITDA remained negative at $(6.686)M even as adjusted EBITDA turned positive .
    • Anticipated margin pressure: Management guided sequential gross margin declines through 2025 as lower-margin DMDC streams scale; CFO pointed to ~600 bps 1H→2H cash GM step-down base case, subject to mix .
    • Secure Networks contraction: Continued decline from program completions offset Security Solutions growth; management expects further y/y contraction in Q2 .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Total Revenue ($M)$23.783 $26.372 $30.616
GAAP Gross Margin %13.2% 40.3% 39.8%
Cash Gross Margin %44.0% 47.0% 45.3%
GAAP Net Loss ($M)$(28.055) $(9.330) $(8.604)
EBITDA (Non-GAAP) ($M)$(26.116) $(7.428) $(6.686)
Adjusted EBITDA ($M)$(4.149) $(0.201) $0.362
Adjusted EBITDA Margin %(17.4)% (0.8)% 1.2%
GAAP EPS ($)$(0.39) $(0.13) $(0.12)
Adjusted EPS ($)$(0.10) $(0.04) $(0.03)
Cash from Operations ($M)$(7.080) $(10.518) $6.106
Free Cash Flow ($M)$(9.918) $(14.790) $3.769

Q1 2025 Actual vs S&P Global Consensus

  • Revenue: $30.616M vs $29.225M* (beat)
  • Primary EPS: -$0.03 vs -$0.0525* (beat)

Values marked with * are retrieved from S&P Global.

Segment Revenue Mix

Segment ($M, mix)Q3 2024Q4 2024Q1 2025
Security Solutions$18.332 (77%) $21.921 (83.1%) $25.818 (84.3%)
Secure Networks$5.451 (23%) $4.451 (16.9%) $4.798 (15.7%)
Total$23.783 $26.372 $30.616

KPIs and Balance Sheet

KPIQ3 2024Q4 2024Q1 2025
TSA PreCheck Enrollment Centers173 218 291
Cash & Cash Equivalents ($M)$69.762 $54.578 $57.791
Weighted-Avg Shares (M)72.309 72.435 72.715

Post-quarter update: TSA PreCheck centers reached 350 as of June 23, 2025 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2025n/a$32.5M–$34.5M Initiated
Adjusted EBITDAQ2 2025n/aLoss $(2.1)M to $(0.6)M Initiated
GAAP Gross MarginQ2 2025n/a32.0%–33.5% Initiated
Cash Gross MarginQ2 2025n/a38.0%–39.5% Initiated
Security Solutions Revenue Growth (y/y)Q2 2025n/aLow 60%–Low 70% Initiated
Secure Networks Revenue (y/y)Q2 2025n/aContraction Low 70% to Mid 50% Initiated
Full-Year OutlookFY 2025Significant improvements in revenue, adjusted EBITDA and cash flow (Q4 call) Unchanged Maintained
Q1 Revenue vs prior guideQ1 2025$28.2M–$30.2M Actual $30.616M Beat high end

Management also noted sequential margin dilution through 2025 as DMDC lower-margin streams ramp and due to TSA PreCheck cost recognition timing in COGS .

Earnings Call Themes & Trends

TopicQ3 2024 (Q-2)Q4 2024 (Q-1)Q1 2025 (Current)Trend
TSA PreCheck rollout173 locations; target 500 in 2025 218 locations; target reiterated 291 locations; still targeting ~500 by end-2025 Improving footprint
DMDC ramp & mixAnticipated 2025 growth driver Successful transition/ramp On schedule; major growth source; margin dilutive Revenue up, margins down
Margin trajectoryCash GM 44.0% (high) Record cash GM 47.0% Cash GM 45.3%; guide to lower in Q2; ~600 bps 1H→2H step-down base case Deteriorating (seq)
Secure Networks$5.5M; declining $4.5M $4.8M; further y/y contraction expected in Q2 Contracting
Cash flowCFO: sequential improvement CFO: 4Q OCF -$10.5M on WC and capex OCF +$6.1M; FCF +$3.8M; positive bias y/y for 2025 Improving y/y

Management Commentary

  • Strategic focus: “Security Solutions grew 18% sequentially… exceeded guidance partially due to outperformance on high-growth programs” with DMDC and TSA PreCheck cited as primary drivers .
  • TSA PreCheck rollout: “We currently have 291 locations… target achieving 500 enrollment locations sometime around the end of 2025” .
  • DMDC margins: “On a blended basis, that program will be dilutive to overall margins… you will see margin contraction sequentially over the course of the year” .
  • Full-year posture: Expect “trend of year-over-year growth in revenue, adjusted EBITDA and cash flow to accelerate in the second half of 2025” .

Q&A Highlights

  • Margin outlook detail: CFO quantified that cash gross margin could step down ~600 bps from 1H to 2H, driven by DMDC mix and TSA PreCheck cost timing in COGS .
  • Pipeline: EVP Security Solutions cited >$4B pipeline with several hundred opportunities; any 2025 incremental wins likely single-digit million contributions .
  • TSA PreCheck economics: CFO emphasized favorable cash generation contribution from TSA PreCheck underpinning the cash flow inflection .
  • Free cash flow cadence: CFO did not guide Q2 FCF due to working capital timing but contrasted sharply with prior-year Q2 FCF burn of ~$11M, implying significant y/y improvement .

Estimates Context

  • Q1 2025 vs S&P Global: Revenue $30.616M vs $29.225M* (beat); Primary EPS -$0.03 vs -$0.0525* (beat) .
  • Q2 2025 setup: Consensus revenue $33.58M* sits inside company guidance $32.5–$34.5M; consensus EPS -$0.06* vs guided adjusted EBITDA loss $(2.1)M–$(0.6)M (not directly comparable but consistent with a loss) .
  • FY 2025: Consensus revenue $163.2M*, Primary EPS $0.053*, EBITDA $15.9M* reflect expectations for sustained growth and profitability improvement vs FY24 actuals ($108.272M revenue; Primary EPS -$0.31; EBITDA -$40.26M) .

Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Mix-driven recovery: Security Solutions dominance (84%) plus DMDC/TSA PreCheck ramps are restoring growth and cash generation; the revenue beat and positive adjusted EBITDA/OCF confirm execution .
  • Expect margin compression near term: Management telegraphed lower sequential gross margins through 2025 as lower-margin DMDC components scale; traders should anticipate negative mix effects even with top-line growth .
  • Cash flow is the swing factor: Despite margin dilution, TSA PreCheck cost recognition nuance supports cash flow outperformance vs adjusted EBITDA; watch working capital timing into quarter-ends .
  • Q2 guide brackets consensus: Revenue outlook aligns with Street; execution on DMDC milestones and TSA PreCheck enrollments should drive prints, with margins the key debate .
  • Secure Networks drag persists: Continued contraction offsets some gains; upside would come from new high-margin wins or stronger TSA PreCheck unit economics .
  • Post-quarter catalysts: TSA PreCheck footprint expanded to 350 locations by late June—monitor conversion to enrollments and revenue seasonality into summer travel .
  • Medium-term thesis: If Telos sustains Security Solutions growth and controls OpEx post-3Q24 restructuring, the path to sustained positive adjusted EBITDA and FCF in 2H looks credible, albeit with lower margin profile due to DMDC mix .

Appendix: Source Documents

  • Q1 2025 8-K and exhibits with full results and reconciliations .
  • Q1 2025 earnings call transcript (prepared remarks and Q&A) .
  • Prior quarters for trend: Q4 2024 8-K and exhibits ; Q3 2024 8-K and exhibits .
  • Other press releases (contracts, TSA PreCheck updates) .