Telos Corporation Q1 2023 Earnings Call
Good day and thank you for standing by welcome to the <unk> Corporation Q1, 'twenty, two or three earnings call.
At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session.
I have to ask a question during the session you will need to press star one on your telephone you will then hear an automated message hearing advising your hand this race.
So we draw a question please press star one again.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today Alison Phillips. Please go ahead.
Yeah.
Good morning.
Thank you for joining us to discuss Telus Corporation first quarter 2023 financial results.
With me today is John Lewis, Chairman, and CEO of Kala and Mark Panther Executive Vice President and CFO of pellet.
Let me quickly review the format of today's presentation.
John will begin with brief remarks on our first quarter, 2023 result, and Tulsa strategic priority.
Then mark will cover the financials and guidance for second quarter and full year 2023 before turning it back to John to wrap up.
Then we'll open the line for Q&A, where Mark Griffin Executive Vice President of security position will also join us.
The earnings press release was issued earlier today and is posted on our Investor Relations website.
This call is being simultaneously webcast.
Additionally, we have provided presentation slides on our Investor Relations website.
Before we begin we want to emphasize that some of our statements on this call are forward looking statements and are made under the safe Harbor provisions of the federal Securities laws.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Actual results could materially differ for various reasons, including the factors described in today's earnings press release.
And the comments made during this conference call and in our SEC filings.
Do not undertake any duty to update any forward looking statements.
In addition.
During today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental and clarified measures to help investors understand <unk> financial performance.
These non-GAAP financial measures should be considered in addition to.
Not as a substitute for or in isolation from GAAP results.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and on the Investor Relations portion of our website.
Please also note that financial comparisons are year over year, unless otherwise specified.
The webcast replay of this call will be available for the next year on our company website under the Investor Relations link.
With that I'll turn the call over to John .
Thank you Alison and good morning, everyone. Let's begin today on slide three Mark <unk> will discuss the details of our financial performance later on the call, but overall, we executed ahead of plan on the first quarter, we delivered $35 $2 million of revenue and our gross margin expanded 56 basis points to 38 three.
<unk> both above the top end of our guidance range.
Adjusted EBITDA was $846000 loss and was also above the top end of our guidance range.
Experienced program specific year over year headwinds as expected and as communicated on our fourth quarter earnings call, partially offset by the significant cost actions, we have taken since the beginning of the year.
Now, let's turn to slide four as.
As discussed on our last earnings call rewarding our blue lines on our immediate priorities for the next several quarters, specifically rebuilding and growing our backlog and core revenue base through strong strong renewal rates on existing business and the cultivation of a centralized and more productive business development capability.
Starting with renewal rates I am pleased to report that we achieved 100% renewal rates on major customer contracts across the portfolio.
We secured renewals on existing exactly contracts with U S Air Force the department of Homeland Security and the Department of State the Department of interior.
Energy Defense Intelligence Agency, Amazon Web services, Ernst and young our view.
We also were awarded.
The average Jeff's team also continued its outstanding customer service record with the achievement of several major contract renewals with government customers in the quarter.
Turning to new business development, we continue to provide cyber cloud and enterprise security solutions.
The world's most security conscious organizations in both the government and commercial end markets.
Over the next several quarters, we believe our most productive and direct path to rebuild and growing backlog in core revenue base is through the end market, we know best which is the federal government.
Numerous mission priority and well funded federal customers trust and value of the solutions that <unk> brings to the site. We believe our reputation a decades long track record in the federal market will be the foundation of our return to growth.
Our newly centralized business development team is currently focusing their efforts on opportunities in this market segment.
We have seen robust activity and opportunity within the government services and technology improvements in cyber cloud and network security.
These customer requirements.
Basis for government request for information known as RFID and request for proposals none as our Rfps in recent months, which may ultimately lead to new contract awards over the next several quarters.
Our business development pipeline has grown meaningfully aside the quality.
Since the end of 2022.
Based on the current volume of customers RFID and Rfps.
Continue to expect new contract awards to be heavily weighted to the end of 2023 and into 2024.
Meantime, we have won new multiyear contracts with the National Geospatial Intelligence agency for exact the products and services and have grown our designated aviation Channeling services business with the addition of new airport customers to our existing portfolio.
And we continue to transform our newly consolidated business development team through new leadership talent operational rigor to strategies to drive enhanced focus that we believe will improve productivity over time.
We have a strong belief in our business our products solutions and services that we provide.
Our support of our country's national security initiatives.
Initiative remains steadfast.
Those fundamentals have not and will not change I'll now turn the call over to Mark <unk>, who will discuss the first quarter 2023 financial results and guidance for the second quarter and full year for 2023 Mark.
Thank you John and thank you everyone for joining us today.
Let's turn to slide five.
As John mentioned, we're off to a solid start to the year with revenues gross margin and adjusted EBITDA all above the high end of our guidance range.
Total revenues were $35 $2 million.
Revenues for our security solutions business declined 27% to $19 $8 million approximately the top end of our first quarter guidance range.
Security solutions contributed 56% of total company revenues up slightly from 54% in the comparable period last year.
The year over year revenue drivers for security solutions were consistent with our expectations as previously communicated on our fourth quarter earnings call.
Growth in our information assurance business was offset by contraction in secure communications and <unk>.
As a result of a program loss and secure communications at the end of 2022.
And lower revenues on two ongoing programs and <unk>.
Combined these three programs represented a $7 $6 million year over year headwind in the quarter.
Turning to secure networks revenues declined 34% to $15 4 million exceeding the top end of our first quarter guidance range by $2 2 million and representing the entirety of the of the guidance beat for the company overall.
The $2 $2 million outperformance was primarily the result of better than expected supply chain performance late in the quarter that resulted in a pull forward of revenue from the second quarter. So the first quarter.
Elsewhere in the secured networks portfolio the year over year revenue headwinds were consistent with our expectations as previously communicated on our fourth quarter earnings call three.
Three large programs that primarily came to a successful completion in 2022 and lower revenues on an ongoing program drove a $10 $6 million headwind in the quarter.
Turning to profitability gross margin expanded 66 basis points to 38, 3% due to margin expansion and secure networks and a slightly more favorable weighting of revenues to our higher margin security solutions business, partially offset by margin contraction.
Security solutions.
Gross margin in both segments benefited from lower share based compensation and cost of sales year over year.
Gross profit exceeded the high end of our guidance range by approximately $2 million and gross margin exceeded the high end of our guidance range by approximately 380 basis points.
Gross margin for our security solutions business contracted 395 basis points to 52% due to lower revenues on higher margin programs, partially offset by lower share based compensation and cost of sales.
But exceeded the high end of our guidance range due to better than expected utilization of billable labor and lower than expected labor costs on fixed price programs.
Gross margin for our secured networks business expanded 433 basis points to 21% due to lower revenues on lower margin programs and lower share based compensation and cost of sales and also exceeded the high end of our guidance range due to a more favorable mix of labor.
And materials on select programs.
And overall excellent program management, including risk mitigation and expense management on fixed price contracts.
Adjusted EBITDA buffered by our expense management actions and ongoing restructuring initiatives.
Was a loss of $846000 and exceeded the top end of our guidance range by approximately $3 $7 million due to the previously described $2 million of higher gross profit.
As well as $1 $7 million of lower below the line expenses.
Below the line expenses were lower due to ongoing expense management initiatives and higher capitalization of R&D expenditures.
Adjusted EBITDA excludes the impact of two nonrecurring items.
Including a one 4 million noncash gain reflected in other income and associated with the wind down of a customer contract.
As well as a $1 $2 million charge associated with the implementation of our ongoing restructuring initiatives.
Two adjustments approximately netted each other out from the quarter.
Now, let's turn to free cash flow and liquidity.
Cash flow from operations with nearly breakeven in the quarter.
Free cash flow was a $4 $1 million net outflow down slightly from a $3 $1 million net outflow in the comparable period last year.
We ended the quarter with over $112 million of cash no debt and an undrawn $30 million senior secured revolving credit facility with an additional $30 million expansion future.
Our balance sheet is a competitive advantage and remains well positioned to support the company through a wide range of operating conditions and strategic opportunities.
Now, let's turn to slide six to discuss our guidance for the second quarter.
For the second quarter, we forecast sales in a range of $28 million to $32 million.
And an adjusted EBITDA loss of 6 million to $8 million.
The midpoint of guidance implies a $5 $2 million sequential decline in revenues, primarily due to the previously mentioned pull forward a secured networks revenue from the second quarter to the first quarter.
We forecast security solutions revenues to decline high 40% to mid 50% year over year and secure networks revenues to decline mid 30% to low 40% year over year. Both due to the same large program dynamics that will persist throughout the year.
Gross margin is expected to contract by approximately 600 to 950 basis points year over year, primarily due to revenue pressure on high margin programs and security solutions as.
As well as revenue recognition on a short term low margin program and secured networks, partially offset by lower share based compensation and cost of sales.
Gross margin is also expected to be down sequentially due to lower revenues on high margin programs in Telos I'd Ah ha.
Higher proportion of revenues coming from our lower margin secure networks business.
And revenue recognition on the previously mentioned short term low margin program and secure networks.
Cash below the line expenses.
Which adjusts for capitalized software development costs share based compensation restructuring costs and DNA are forecasted to be approximately $1 million lower year over year, primarily due to lower labor costs.
From a free cash flow perspective, we're expecting approximately $6 million.
Of discrete vendor payments in the second quarter that we did not have in the first quarter.
So all else held equal we expect free cash flow to be down sequentially in the second quarter.
But in line with our original plan for the year.
And lastly on slide seven we are reaffirming our full year guidance.
With that I'll pass it back to John who will wrap up on slide eight John .
Thanks, Mark let's move to slide eight.
In summary, we executed ahead of plan in the first quarter of 2023 with key financial metrics exceeding the high end of our guidance range.
We delivered $35 $2 million of revenue and expanded gross margins by 66 basis points.
The 38, 3%.
We actively manage expenses to buffer adjusted EBITDA in the quarter.
We maintain a highly liquid balance sheet with $112 million of cash no debt and an undrawn $30 million revolving credit facility.
Our balance sheet is a competitive advantage and remains well positioned to support the company through a wide range of operating conditions and strategic opportunities.
2023 will be a transition year focused on rebuilding and growing our backlog and core revenue base through strong renewal rates on existing business and the cultivation of a centralized and more productive business development capability.
With that we're happy to take questions.
Operator, please open the lines for Q&A.
I asked the call participants to please be mindful of others in the queue by asking only one question. Thank you.
<unk>.
Alright. Thank you so as a reminder to ask a question. Please press star one on your <unk>.
<unk> and wait for your name to be announced.
So we charge question please sorry.
Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
First question. It comes from the line of Zach Cummins from B Riley. Your line is open. Please ask your question.
Yes, good morning, Mark and John Thanks for taking my questions and congrats on the solid Q1 results.
Mark can you walk me through just kind of the puts and takes of your reaffirmed full year guidance, especially considering the upside that you had on the adjusted EBITDA line here in Q1.
Yes, sure Zack so in terms of puts and takes between our last earnings call and this earnings call I really wouldn't say there are any significant puts and takes I think our outlook for the year.
It's pretty consistent with where we were in our last earnings call.
<unk> first quarter came in.
Above the high end of our guide.
A lot of that was a pull forward from the second quarter to the first quarter. So on a first half basis.
We're in a we're in a similar place.
Two of the implied first half on our original full year guide.
I'd say as we get to our second quarter earnings call in August .
We'll certainly be looking to.
Take a harder scrub at that second half based on <unk>.
First half of actuals, and we'll be looking to narrow the range.
At that point in time.
Got it thanks for taking my.
Thanks Scott.
Alright, Thank you and for our next question. It comes from the line of Brad Clark from BMO. Brad. Your line is open. Please ask your question.
Hi, Thanks for taking my question I wanted to dive in I believe in the prepared remarks, you mentioned.
And business development activities since the beginning of the year, but just hoping you could perhaps provide some granularity.
In some improvement and business development opportunities.
As it relates to new business, so that now when you walk.
Hey, this is John .
Generally speaking when we decided to do is to focus on our core.
And our core strength as the federal government.
And there are a.
Just a bunch of opportunities for us that are enabling us to see the pipeline increasing relatively substantially.
So that's going to be our plan in the near term to round out our revenue to get back to a growth phase.
Thank you Ed for next question.
Comes from the line of Freedom Kasinger from D. A Davidson. Your line is open. Please ask your question.
Great. Thanks for taking my question.
Let me try to get to the one I didn't hear a single word about TSA any update there and then secondly.
When do you believe you can get this business back to free cash flow breakeven or positive.
John I'm going to pass that question over the first part of your question over to Mark Griffin.
Hello, Rudy Margaret Yes.
Yes, we are still in soft launch phase with TSA. However.
However, we fully expect to book that revenue to begin in the second half of this year. So we are confident things are moving in the right direction.
With that.
Yes.
And then Rudy.
Free cash flow I would say the answer to your question is very much a function of.
Of.
How our business development efforts play out over the course of late 'twenty three early 'twenty four.
If.
If we if we see the productivity there.
We're working towards.
I'd say there's.
A good profitability and we can return to free cash flow positive sometime over the course of 2024, especially if a.
A couple of key opportunities in the pipeline.
Worked out in our favor.
Yes.
Alright. Thank you. So at this time there are no further questions I would now.
Like to turn the conference back to John <unk> for closing remarks.
Our first of all I want to thank our shareholders for your ongoing support.
Our mission remains unchanged.
Tell us empowers and protects the world mobile security.
Just organizations and that's going to continue to be our mission.
We've got robust recession resistant and markets, we are well funded customers.
We have a decade long track record of serving the world's most security conscious organizations and honestly tell us as a strong foundation for the future.
And finally, I'll, just say that the board and I are fully committed to taking the necessary actions to capture the opportunity in front of us and rebuild and grow our revenue base with future. So.
Thank you all very much for your participation today have a great day.
Alright. Thank you and this concludes today's conference call. Thank you for participating you may now disconnect.
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Good day and thank you for standing by welcome to the <unk> Corporation Q1, 'twenty three or three earnings call.
At this time all participants are in at least in the only belt.
After the speaker's presentation, there will be a question and answer session.
I have to ask a question during the session you will need to press star one on your telephone you will then hear an automated message hearing advising your hand this race.
So we draw a question please press star one again.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today Alison Phillips. Please go ahead.
Good morning.
Thank you for joining us to discuss Telus Corporation first quarter 2023 financial results.
With me today is John Lewis, Chairman and CEO of Tullow, and Mark Center, Executive Vice President and CFO of pellet.
Let me quickly review the format of today's presentation.
John will begin with brief remarks on our first quarter, 2023 result, and palaces strategic priorities.
Then mark will cover the financials and guidance for second quarter and full year 2023 before turning it back to John to wrap up.
Then we'll open the line for Q&A, where Margaret then executive Vice President of Security solutions will also join us.
The earnings press release was issued earlier today and is posted on our Investor Relations website.
This call is being simultaneously webcast.
Additionally, we have provided presentation slides on our Investor Relations website.
Before we begin we want to emphasize that some of our statements on this call are forward looking statements and are made under the safe Harbor provisions of the federal Securities laws.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Actual results could materially differ for various reasons, including the factors as described in today's earnings press release.
And the comments made during this conference call and in our SEC filings.
Do not undertake any duty to update any forward looking statements.
In addition.
During today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental and clarified measures to help investors understand pellets with financial performance.
These non-GAAP financial measures should be considered in addition to.
Not as a substitute for or in isolation from GAAP results.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and on the Investor Relations portion of our website.
Please also note that financial comparisons are year over year, unless otherwise specified.
The webcast replay of this call will be available for the next year on our company website under the Investor Relations link.
With that I'll turn the call over to John .
Thank you Alison and good morning, everyone. Let's begin today on slide three Mark <unk> will discuss the details of our financial performance later on the call.
We're all we executed ahead of plan on the first quarter, we delivered $35 $2 million of revenue and our gross margin expanded 66 basis points to 38, 3% both above the top end of our guidance range.
Adjusted EBITDA was $846000 loss and was also above the top end of our guidance range.
Experienced program specific year over year headwinds as expected and as communicated on our fourth quarter earnings call, partially offset by the significant cost actions, we have taken since the beginning of the year.
Now, let's turn to slide four.
As discussed in our last earnings call reward and are fully aligned in our immediate priorities for the next several quarters, specifically rebuilding and growing our backlog and core record days through strong strong renewal rates on existing business and the cultivation of a centralized and more productive business development capability.
Starting with renewal rates I am pleased to report that we achieved 100% renewal rates on major customer contracts across the portfolio.
Please state your renewals on existing exactly contracts with U S Air Force the department of Homeland Security and the Department of State. The Department of the interior the Department of Energy Defense Intelligence Agency, Amazon Web services, Ernst and young <unk> among others that we also were awarded.
The AIA Jeff's team also continued its outstanding customer service record with the achievement of several major contract renewals with government customers in the quarter.
Turning to new business development, we continue to provide cyber cloud and enterprise security solutions.
Most security conscious organizations in both the government and commercial end markets.
Over the next several quarters, we believe our most productive and direct path to rebuild and grow our backlog in core revenue base is through the end market, we know best which is the federal government.
Numerous mission priorities well funded several customers trust and value of the solutions that Telus brands to the site.
We believe our reputation a decade long track record in the federal market will be the foundation of our return to growth.
Our new centralized business development team is currently focusing their efforts on opportunity in this market segment.
We have seen robust activity and opportunity within the government services and technology improvements.
Fiber cloud and network security.
These customer requirements.
The basis for government request for information.
Our revised and request for proposals.
Our rfps in recent months, which may ultimately lead to new contract awards over the next several quarters.
Our business development pipeline has grown meaningfully aside the quality since the end of 2022.
Based on the current volume of customers RFID and Rfps.
Continue to expect new contract awards to be heavily weighted to the end of 2023 and into 2024.
In the meantime, we have won new multiyear contract with the National Geospatial Intelligence Agency for example products and services and have grown our designated Aviation Challenge service business with the addition of new we have more customers to our existing portfolio.
We continue to transform our newly consolidated this development team through new leadership talent operational rigor to strategies to drive enhanced focus that we believe will improve productivity over time.
We have a strong belief in our business our products solutions and services that we provide.
Our support of the country's national security and committed to the mission remains steadfast.
Those fundamentals have not and will not change I'll now turn the call over to Mark <unk>, who will discuss the first quarter 2023 financial results and guidance for the second quarter and full year 2023.
Sure.
Thank you John and thank you everyone for joining us today.
Let's turn to slide five.
As John mentioned, we're off to a solid start to the year with revenues gross margin and adjusted EBITDA all above the high end of our guidance range.
Total revenues were $35 $2 million.
Revenues for our security solutions business declined 27% to $19 $8 million approximately.
Really the top end of our first quarter guidance range.
Security solutions contributed 56% of total company revenues up slightly from 54% in the comparable period last year.
The year over year revenue drivers for security solutions were consistent with our expectations as previously communicated on our fourth quarter earnings call.
Growth in our information assurance business was offset by contraction in secure communications and Telos I'd.
As a result of a program loss and secure communications at the end of 2022 and.
And lower revenues on two ongoing programs and Telos I'd.
Combined these three programs represented a $7 $6 million year over year headwind in the quarter.
Turning to secure networks revenues declined 34% to $15 4 million exceeding the top end of our first quarter guidance range by $2 2 million and representing the entirety of the of the guidance beat for the company overall.
The $2 2 million outperformance was primarily the result of better than expected supply chain performance late in the quarter that resulted in a pull forward of revenue from the second quarter. So the first quarter.
Elsewhere in the secured networks portfolio the year over year revenue headwinds were consistent with our expectations as previously communicated on our fourth quarter earnings call three.
Three large programs that primarily came to a successful completion in 2022 and lower revenues on an ongoing program drove a $10 $6 million headwind in the quarter.
Turning to profitability gross margin expanded 66 basis points to 38, 3% due to margin expansion and secure networks and a slightly more favorable weighting of revenues to our higher margin security solutions business, partially offset by margin contraction.
Security solutions.
Gross margin in both segments benefited from lower share based compensation and cost of sales year over year.
Gross profit exceeded the high end of our guidance range by approximately $2 million and gross margin exceeded the high end of our guidance range by approximately 380 basis points.
Gross margin for our security solutions business contracted 395 basis points to 52% due to lower revenues on higher margin programs, partially offset by lower share based compensation and cost of sales.
But exceeded the high end of our guidance range due to better than expected utilization of billable labor and lower than expected labor costs on fixed price programs.
Gross margin for our secure networks business expanded 433 basis points to 21% due to lower revenues on lower margin programs and lower share based compensation and cost of sales and also exceeded the high end of our guidance range due to a more favorable mix of labor.
And materials on select programs.
And overall excellent program management, including risk mitigation and expense management on fixed price contracts.
Adjusted EBITDA buffered by our expense management actions and ongoing restructuring initiatives was a loss of $846000 and exceeded the top end of our guidance range by approximately $3 $7 million due to the previously described $2 million of higher gross.
Profit is.
As well as $1 7 million of lower below the line expenses.
Below the line expenses were lower.
Due to ongoing expense management initiatives and higher capitalization of R&D expenditures.
Adjusted EBITDA excludes the impact of two nonrecurring items.
Including a one $4 million noncash gain reflected in other income and associated with the wind down of a customer contract.
As well as a $1 $2 million charge associated with the implementation of our ongoing restructuring initiatives.
The two adjustments approximately netted each other out in the quarter.
Now, let's turn to free cash flow and liquidity.
Cash flow from operations with nearly breakeven in the quarter.
Free cash flow was a $4 $1 million net outflow down slightly from a $3 $1 million net outflow in the comparable period last year.
We ended the quarter with over $112 million of cash.
No debt and an undrawn $30 million senior secured revolving credit facility with an additional $30 million expansion future.
Our balance sheet is a competitive advantage and remains well positioned to support the company through a wide range of operating conditions and strategic opportunities.
Now, let's turn to slide six to discuss our guidance for the second quarter.
For the second quarter, we forecast sales in a range of $28 million to $32 million.
And an adjusted EBITDA loss of 6 million to $8 million.
The midpoint of guidance implies a $5 $2 million sequential decline in revenues, primarily due to the previously mentioned pull forward of secured networks revenue from the second quarter to the first quarter.
We forecast security solutions revenues to decline high 40% to mid 50% year over year and secure networks revenues to decline mid 30% to low 40% year over year. Both due to the same large program dynamics that will persist throughout the year.
Gross margin is expected to contract by approximately 600 to 950 basis points year over year, primarily due to revenue pressure on high margin programs and security solutions as.
As well as revenue recognition on a short term low margin program and secured networks.
Partially offset by lower share based compensation and cost of sales.
Gross margin is also expected to be down sequentially due to lower revenues on higher margin programs and pellets I D.
A higher proportion of revenues coming from our lower margin secured networks business and.
And revenue recognition on the previously mentioned short term low margin program and secure networks.
Cash below the line expenses.
Which adjusts for capitalized software development costs share based compensation restructuring costs and DNA are forecasted to be approximately $1 million lower year over year, primarily due to lower labor costs.
From a free cash flow perspective, we're expecting approximately $6 million of discrete vendor payments in the second quarter that we did not have in the first quarter.
So all else held equal we expect free cash flow to be down sequentially in the second quarter.
But in line with our original plan for the year.
And lastly on slide seven we are reaffirming our full year guidance.
With that I'll pass it back to John who will wrap up on slide eight.
John .
Thanks, Mark let's move to slide eight.
In summary, we executed ahead of plan in the first quarter of 2023 with key financial metrics exceeding the high end of our guidance range.
We delivered $35 $2 million of revenue and expanded gross margins by 66 basis points to 38, 3%.
We actively manage expenses.
Adjusted EBITDA in the quarter.
We maintain a highly liquid balance sheet with $112 million of cash no debt and an undrawn $30 million revolving credit facility.
Our balance sheet is a competitive advantage and remains well positioned to support the company through a wide range of operating conditions and strategic opportunities.
2023 will be a transition year focused on rebuilding and growing our backlog and core revenue base through strong renewal rates on existing business and the cultivation of a centralized and more productive business development capability.
With that we're happy to take questions.
Operator, please open the lines for Q&A.
Asked the call participants to please be mindful of others in the queue by asking only one question. Thank you.
Alright. Thank you so as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
So your question. Please sorry, please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
Your first question. It comes from the line of Zach Cummins from B Riley. Your line is open. Please ask your question.
Yes, good morning, Mark and John Thanks for taking my questions and congrats on the solid Q1 results.
Mark can you walk me through just the puts and takes of your reaffirmed full year guidance, especially considering the upside that you had on the adjusted EBITDA line here in Q1.
Yes, sure Zack so in terms of puts and takes between our last earnings call and this earnings call I really wouldn't say there are any significant puts and takes I think our outlook for the year.
It's pretty consistent.
Where we were in our last earnings call.
Yes first quarter came in.
Above the high end of our guide a lot of that was a pull forward from the second quarter to the first quarter. So on a first half basis.
We are in a similar place.
The implied first half on our original full year guide.
Say as we get to our second quarter earnings call in August we.
We will certainly be looking to.
Take a harder scrub at that second half based on.
First half of actuals, and we'll be looking to narrow the range.
At that point in time.
Got it thanks for taking my.
Thanks Zack.
Alright, Thank you and for our next question. It comes from the line of Brad Clark from BMO. Brad. Your line is open. Please ask your question.
Hi, Thanks for taking my question I wanted to dive in I believe in the prepared remarks, you mentioned improvement in business development activity since the beginning of the year. We're just hoping you could perhaps provide some granularity.
In some improvement and business development opportunities.
Two new big mesh much Doug on a renewal.
Hey, this is John .
Generally speaking, we decided to do is to focus on our core.
And our core strength is the federal government.
And there are a.
Just a bunch of opportunities for us that are enabling us as the pipeline increasing relatively substantially.
And so that's going to be our plan in the near term to round out our revenue to get back to a growth phase.
Thank you Ed for your next question comes from the line of Gordon Kasinger from D. A Davidson. Your line is open. Please ask your question.
Great. Thanks for taking my question.
Maybe try to get to the one I didn't hear a single worried about TSA any update there and then secondly, when do you believe you can get this business back to free cash flow breakeven or positive.
John I'm going to pass that question over the first part of your question over to Mark Griffin.
Hello, Rudy Margaret.
Yes, we are still in soft launch phase with TSA. However.
However, we fully expect that revenue to begin in the second half of this year. So we're confident things are moving in the right direction.
With that.
Yes.
Yes, and then really on <unk>.
Free cash flow I would say the answer to your question is very much a function of.
Of how our business development efforts play out over the course of late 'twenty three early 'twenty four.
If if we if we see the productivity there.
We're working towards.
I'd say there's.
A good profitability and we can return to free cash flow positive sometime over the course of 2024, especially if a.
A couple of key opportunities in the pipeline.
Worked out in our favor.
Alright. Thank you. So at this time there are no further questions I would now.
To turn the conference back to John <unk> for closing remarks.
Our first of all I want to thank our shareholders for your ongoing support.
Mission remains unchanged.
<unk> empowers and protects the world's most security conscious organizations and that's going to continue to be our mission.
We've got robust recession resistant and markets, we are well funded customers.
We have a decade long track record of serving the world's most security conscious organizations and honestly. It tells US a strong foundation for the future.
And finally, I'll, just say that the board and I are fully committed to taking the necessary actions to capture the opportunity in front of us and rebuild and grow our revenue base for the future.
Thank you all very much for your participation today have a great day.
Alright. Thank you and this concludes today's conference call. Thank you for participating you may now disconnect.