Executive Summary

Q2 revenue $36.0M (+26.2% y/y) beat both company guidance ($32.5–$34.5M) and S&P Global consensus $33.6M; Adjusted EPS of $(0.03) beat consensus $(0.06); Adjusted EBITDA was +$0.4M vs guided loss, underscoring strong operating leverage . Revenue/EPS consensus values marked with an asterisk are from S&P Global.*
Mix shift (DMDC ramp, TSA PreCheck roll-out) drove lower GAAP gross margin y/y (33.2%, −89 bps), but cash generation stayed robust: CFO highlighted 44% incremental Adjusted EBITDA margin, $7.0M cash from ops, and $4.6M FCF (12.9% margin) .
Q3 guidance calls for 85%–98% y/y growth with revenue $44–$47M, Adjusted EBITDA $4.0–$5.7M, sequential gross margin uptick (cash GM ~40–41%); management expects positive full‑year cash flow and Q4 similar to Q3 .
Strategic momentum: TSA PreCheck locations scaled from 56 (Q2’24) to 357 (end Q2) and 415 “today,” plus Xacta FedRAMP High authorization and notable federal wins; Board resumed buybacks ($4.0M for ~1.5M shares at $2.69) .

What Went Well and What Went Wrong

What Went Well

Beat-and-raise quarter: “over delivered on key financial metrics in the second quarter, exceeding both revenue and profit guidance,” with Adjusted EBITDA turning positive and 44% incremental margin on a $7.5M revenue lift y/y .
TSA PreCheck expansion accelerated: 357 locations at Q2-end and 415 “today,” targeting ~500 by year-end; enrollments ramping with site rollout despite renewal headwinds .
Strong cash generation and discipline: $7.0M operating cash flow and $4.6M FCF in Q2; Adjusted OpEx ~$0.9M better than guide; share repurchases of $4.0M signal confidence .

What Went Wrong

GAAP margin compression and losses: gross margin fell to 33.2% (−89 bps y/y) on mix; GAAP net loss widened to $(9.5)M (vs $(7.8)M) as Secure Networks shrank .
Elevated stock-based compensation: $7.76M added back to EBITDA in Q2, a significant component of non‑GAAP adjustments .
Margin headwinds from large programs: DMDC dilutive to margin (more software recognized over time, less hardware recognized upfront); TSA PreCheck accrual/GAAP vs cash nuance weighs on reported margins near term .

Financial Results

Metric	Q2 2024	Q1 2025	Q2 2025
Revenue ($M)	$28.50	$30.62	$35.97
GAAP EPS	$(0.11)	$(0.12)	$(0.13)
Adjusted EPS	$(0.09)	$(0.03)	$(0.03)
GAAP Gross Margin %	34.1%	39.8%	33.2%
Cash Gross Margin % (non‑GAAP)	42.0%	45.3%	38.4%
Adjusted EBITDA ($M)	$(2.93)	$0.36	$0.38
Cash from Operations ($M)	$(7.99)	$6.11	$6.95
Free Cash Flow ($M)	$(11.34)	$3.77	$4.63

Segment revenue mix:

Segment Revenue ($M)	Q2 2024	Q1 2025	Q2 2025
Security Solutions	$17.87	$25.82	$32.47
Secure Networks	$10.63	$4.80	$3.49
Total	$28.50	$30.62	$35.97

Key KPIs and cash metrics:

KPI	Q2 2024	Q1 2025	Q2 2025
TSA PreCheck Enrollment Centers (#)	56	291	357 (415 “today”)
Cash & Equivalents (end of period, $M)	—	$57.93	$56.99
Operating Cash Flow Margin %	(28.0%)	19.9% (6.11/30.62)	19.3%
Free Cash Flow Margin % (non‑GAAP)	(39.8%)	12.3% (3.77/30.62)	12.9%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance/Actual	Change
Revenue	Q2 2025	$32.5–$34.5M (Q1 guide)	$36.0M actual	Beat prior guidance
Adjusted EBITDA	Q2 2025	$(2.1)M to $(0.6)M (Q1 guide)	$0.4M actual	Beat (turned positive)
Revenue	Q3 2025	—	$44–$47M	New
Adjusted EBITDA	Q3 2025	—	$4.0–$5.7M	New
Cash Gross Margin	Q3 2025	—	~40–41% (sequentially up)	New
Full-year Cash Flow	FY 2025	Positive FCF indicated as achievable at EBITDA breakeven (framework)	Expects positive cash flow for full year	Maintained/clarified positive outlook

Earnings Call Themes & Trends

Topic	Q4 2024 (Q-2)	Q1 2025 (Q-1)	Q2 2025 (Current)	Trend
TSA PreCheck rollout & economics	218 sites; targeting ~500; fastest-growing program	291 sites; roll-out phases; key cash contributor	357 at Q2-end, 415 “today”; targeting 500 in 2025; enrollments ramp with locations	Accelerating footprint and visibility
DMDC ramp & margin mix	Transitioned, began revenue; 2025 driver	Dilutive to margin; mix more software; recognition over time, cash upfront	Major growth driver; mix supports higher sequential cash GM in Q3	Growth continues; margin impact moderating sequentially
Gross margin trajectory	Record cash GM 47% in Q4’24	Cash GM 45.3%; guided down on mix	GAAP GM 33.2%, Cash GM 38.4%; guide Q3 cash GM 40–41%	Dip on mix in H1; rebound guided in H2
Cash flow & working capital	Q4 outflow; reversal expected in Q1	Positive CFO/FCF; WC tailwind	Positive CFO/FCF; tailwind to moderate; FCF expected robust	Sustained positive FCF
Pipeline/awards	Task orders prioritized amid single-award delays	Pipeline >$4B; awards through 2025	>200 opps, ~$4B+ TCV; awards skew to Q4/Q1	Large, well‑funded gov’t pipeline
Xacta/FedRAMP & StateRAMP	State-level progress; federal traction	Ongoing wins/renewals in federal/commercial	FedRAMP High achieved; cited as milestone	Strengthening product credential
Secure Networks contraction	Expected ramp-down	Continued contraction	Down to $3.5M (from $10.6M y/y)	Mix shifting to higher-strategy programs

Management Commentary

“TELUS has again over delivered on key financial metrics in the second quarter, exceeding both revenue and profit guidance… Adjusted EBITDA was approximately a $400,000 profit compared to our guidance range of a $2.1 million loss to a $600,000 loss.” — CFO Mark Bendza .
“That implies a 44% incremental adjusted EBITDA margin due to a combination of revenue growth and lower operating expenses.” — CFO Mark Bendza .
“We have successfully expanded our nationwide network of [TSA PreCheck] enrollment centers to 415 locations across 40 states… We continue to target achieving 500 enrollment locations in 2025.” — CEO John Wood .
“We’re very excited about the… FedRAMP High authorization for our Xacta software solution… [It] meets the most stringent standards for protecting highly sensitive government data.” — CEO John Wood .
“We resumed share repurchases in the second quarter… deployed $4.0 million to repurchase approximately 1.5 million shares at a weighted average price of $2.69.” — CFO Mark Bendza .

Q&A Highlights

TSA PreCheck demand and DHS policy change: Management does not expect DHS security-lane policy changes to dampen demand; speed-through-line remains key value prop; enrollments ramp with more locations .
Margin trajectory: Sequential improvement in Q3 driven by mix within key programs (DMDC/Telos ID); wide margin dispersion across revenue streams implies natural quarterly fluctuations .
DMDC mix and recognition: Mix more software than hardware; some software recognized over time, supporting cash > P&L in 2025; program remains a key growth driver .
Pipeline and awards: >200 opportunities, ~$4B+ TCV; award cadence weighted to Q4/Q1; focused on national security priorities and Security Solutions growth .
Capital allocation: Prioritizing buybacks given cash generation; open to disciplined tuck-ins and value-maximizing strategic alternatives if compelling .

Estimates Context

Versus S&P Global consensus for Q2: Revenue $35.97M vs $33.58M estimate (beat by ~$2.39M); Primary EPS $(0.03) vs $(0.06) estimate (beat by $0.03) . Consensus values marked with an asterisk are from S&P Global.*
Q3 set-up: Company guided revenue to $44–$47M vs consensus ~$45.7M; Adjusted EBITDA $4.0–$5.7M (no broad EBITDA consensus disclosed in press materials); management expects sequential margin improvement and positive full-year cash flow . Consensus values marked with an asterisk are from S&P Global.*

Estimates vs actuals/guidance:

Metric	Q2 2025 Consensus*	Q2 2025 Actual	Q3 2025 Consensus*	Q3 2025 Guidance
Revenue ($M)	33.58*	35.97	45.70*	44–47
Primary EPS ($)	(0.06)*	(0.03)	0.01*	—
Adjusted EBITDA ($M)	—	0.38	—	4.0–5.7

Values marked with an asterisk (*) are retrieved from S&P Global.

Key Takeaways for Investors

Execution inflection: Revenue and Adjusted EBITDA exceeded guidance; FCF positive with ~13% margin—evidence that mix headwinds are manageable while scaling large programs .
Growth drivers intact: DMDC ramp and TSA PreCheck roll-out fuel accelerating H2 growth; Q3 guide implies ~85–98% y/y growth with improving cash margins .
Margin cadence: Near-term GAAP margin variability persists due to mix and TSA accounting, but sequential cash GM improvement is guided for Q3; investors should anchor on cash conversion .
Strategic credibility: Xacta FedRAMP High and federal renewals/contracts (e.g., $14M DISA OMS; $3.7M USAF Xacta option) bolster medium-term positioning in well-funded national security budgets .
Capital returns: Resumed buybacks ($4.0M) signal confidence; balance sheet with ~$57M cash provides optionality .
Estimate revisions: Beats on Q2 revenue/EPS and strong Q3 guidance suggest upward estimate revisions for H2; monitor mix’s impact on reported margins . Consensus values referenced are from S&P Global.*
Risk watch: Secure Networks decline continues; stock-based comp remains elevated; DMDC recognition timing and TSA PreCheck GAAP vs cash dynamics can obscure underlying cash performance .

Appendix: Additional Context

Other relevant Q2’25 press releases:

DISA OMS/AMHS $14M five-year contract award (June 4) .
$3.7M Air Force Intelligence option-year for Xacta (June 11) .
TSA PreCheck network reached 350 locations by June 23 (from 41 openings in May and 41 in June) .

Notes on non‑GAAP measures: Adjusted EBITDA, Cash Gross Margin, Free Cash Flow, and related reconciliations are provided in the company’s Q2’25 8‑K; management uses these for evaluating core performance and cash generation .

TELOS CORP (TLS)·Q2 2025 Earnings Summary