Q3 2023 Telos Corp Earnings Call
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Speaker 1: Good day. Thank you for standing by. Welcome to the T-Lost of Corporation's third quarter, 2023 earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Good day, and thank you for standing by welcome to T. Lobsters corporations third quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask.
Speaker 1: To ask a question during the session, you will need to press star one one on your telephone. You'll then hear an automated message advising that your hand is raised.
A question. During this session you will need to press star one one on your telephone you will then hear an automated message and biting at your hand, it's raised.
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Please be advised that today's conference is being recorded.
Speaker 1: I would now like to turn the conference over to your first speaker today, Alison Phillips. Please go ahead. Forces you'd like to see in detail, please leave a comment below and we'll send those
I would now like to turn the conference over to your first speaker today Alison Phillips. Please go ahead.
Good morning.
Speaker 2: Thank you for joining us to discuss TELUS Corporation's third quarter 2023 financial results.
Thank you for joining us to discuss Telus Corporation third quarter 2023 financial results.
Speaker 2: With me today is John Wood, Chairman and CEO of Tellos, and Mark Benza, Executive Vice President and CFO of Tellos. Let me quickly review the format.
With me today is John Wood, Chairman and CEO of Tullow, and Mark Center, Executive Vice President and CFO of Tullow.
Let me quickly review the format of today's presentation.
Speaker 2: John will begin with brief remarks on our third quarter, 2023 results and Pellet's Strategic Priority.
John will begin with brief remarks on our third quarter 2023 results and palaces strategic priority.
Speaker 2: Then Mark will cover the financials in more detail and discuss guidance for the fourth quarter and full year 2023, as well as provide some high level comments on 2024 before turning it back to John to wrap up.
Denmark will cover the financials in more detail and discuss guidance for the fourth quarter and full year 2023, as well as provide some high level comments on 2024 before turning it back to John to wrap up.
Speaker 2: Then we'll open the line for Q&A, where Mark Griffin, executive vice president of security solution will also
Then we'll open the lines for Q&A, where Mark Griffin Executive Vice President of security solution will also join us.
The earnings press release was issued earlier today and is posted on the Telos Investor Relations Web site, where this call is being simultaneously webcast. Additionally.
Speaker 2: The earnings press release was issued earlier today and is posted on the Tellos Investor Relations website where this call is being simultaneously web-
Speaker 2: Additionally, we have provided presentation slides on our investor relations webinar.
Additionally, we have provided presentation slides on our Investor Relations website.
Speaker 2: 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 law.
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.
Speaker 2: These statements are based on current expectations and assumptions that are subject to risks and.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Actual results could materially differ 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, we do not undertake any duty to update any forward looking statements.
Speaker 2: Actual results could materially differ for various reasons, including the factors described in today's earnings press release. In the comments made during this conference call and in our SEC filing, we do not undertake any duty to up-
Speaker 2: In addition, during today's call, we will discuss non- GAAP financial measures, which we believe are useful as supplemental and clarifying measures to help investors understand tell us this financial-
In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental and clarifying measures to help investors understand <unk> financial performance.
Speaker 2: These non- GAAP financial measures should be considered in addition to, and not as a substitute for or an isolation from GAPR.
These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.
Speaker 2: We can find additional disclosures regarding these non- GAAP financial measures, including reconciliation with comparable gap results in our earnings press release and on the investor relations portion of our website.
You can find additional disclosures regarding these non-GAAP financial measures.
Including reconciliations with comparable GAAP results in our earnings press release and on the Investor Relations portion of our website.
Speaker 2: Please also note that financial comparisons are year over year unless otherwise
Please also note the financial comparisons are year over year, unless otherwise specified.
Speaker 2: The webcast replay at this call will be available for the next year on our company website under the investor relations link. With that, I'll turn the
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.
Speaker 3: Thank you, Allison, and good morning, everyone. Let's begin today on 5-3.
Thank you Allison and good morning, everyone, let's begin today on slide three.
Speaker 3: Please report the tell us again over delivered on all key financial metrics in the third quarter.
I'm pleased to report that tell US is again over delivered on all key financial metrics in the third quarter.
Speaker 3: Mark will discuss the details of our financial performance later in the call.
Mark will discuss the details of our financial performance later in the call.
Speaker 3: At a high level, we deliver $36.2 million of revenue in the third quarter above our guidance range of $30 million to $34 million.
At a high level, we delivered $36 $2 million of revenue in the third quarter above our guidance range of 30 million to $34 million.
Speaker 3: Gross margin was 36% above our guidance range of 30.4% to 34.5%.
Gross margin was 36% above our guidance range of 34% to 34, 2%.
Speaker 3: The adjusted EBITDA was a $1.3 million loss and was above the top end of our guidance range of negative $8 million to negative $6 million.
Adjusted EBITDA was a $1 $3 million loss and was above the top end of our guidance range of negative $8 million to negative $6 million.
Speaker 3: Lastly, we return to positive cash flow from operations.
Lastly, we returned to positive cash flow from operations this quarter.
Speaker 3: Many factors enabled our team to achieve these results, including better than expected performance from key programs and security solutions, like TSA Precheck, strong program management and secure networks to support margin-
Many factors enabled our team to achieve these achieved these results, including a better than expected performance from key programs and security solutions like TSA pre check strong program management and secure networks to support margin performance.
Speaker 3: and management of operating expenses to support profitability while also funding growth.
And management of operating expenses to support profitability, while also funding growth investments.
Speaker 3: With three quarters complete, we have successfully managed 2023 to better than originally expected results year to day.
With three quarters complete we have successfully managed 2023 to better than originally expected results year to date.
Speaker 3: Given this performance and our outlook for the remainder of the year, we are again in a position to raise our full-year guidance on all men.
Given this performance and our outlook for the remainder of the year. We are again in a position to raise our full year guidance on all metrics.
Speaker 3: Now let's turn to slide four to discuss our recent business highlights and up.
Now, let's turn to slide four to discuss our recent business highlights and updates.
Speaker 3: First and foremost, I'm pleased to announce the Tellos in close coordination with TSA. Achieve the formal launch of our TSA Precheck Program in the third.
First and foremost I am pleased to announce the telos and close coordination with TSA achieved the formal launch of our TSA pre check program in the third quarter.
Speaker 3: Tell us is official TSA pre-check and roll the website is operational and the website address is in our earnings presentation and press
Tell us as official TSA pre check enrollment website is operational and the website address is in our earnings presentation and press release.
Speaker 3: Our capability to process TSA pre-check renewals is fully operational, and our capability to process new enrollments will continue to ramp up as we onboard physical sites across the country over the next several days.
Our capability to process TSA pre check renewals is fully operational and our capability to process, New enrollments will continue to ramp up as we onboard physical sites across the country over the next several quarters.
Speaker 3: We look forward to steadily growing this offering in the coming quarters and years into a long-term steady value creating program for tele.
We look forward to steadily growing this offering in the coming quarters and years into a long term steady value creating program for Telus.
Speaker 3: Beyond TSA Preject, we continue to achieve higher renewal rates with our exact accustomed base, both in government and commercial sector.
Beyond TSA pre check we continued to achieve high renewal rates with our exact to customer base, both in government and commercial sectors.
Speaker 3: Government customers included the National Geospatial Intelligence Agency, the Federal Bureau of Investigation,
<unk> customers included the National Geospatial Intelligence agency, the Federal Bureau of investigation.
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The U S State Department.
Speaker 3: The Defense Intelligence Agency, the Social Security Administration, the U.S. Environmental Protection Agency, and a classified custody.
The Defense Intelligence agency, the social Security administration the U S.
Environmental Protection agency and a classified customer <unk>.
Speaker 3: Commercial customers included Zscaler, Ernst & Young, StackArmor and a large confidential customer in the technology.
Commercial customers included Zee scalar Ernst and young stack armor, and a large confidential customer in the technology sector.
Speaker 3: We were also awarded renewals for cyber services at the defense health aid.
We were also awarded renewals for cyber services at the Defense Health Agency, The General Services administration, and the U S Department of Homeland Security.
Speaker 3: the General Service Administration, and the U.S. Department of Homeland Security.
Speaker 3: Additionally, we secured a new award for our automated message handling system with the Joint Cryptologic Mission Simulation Program through the National Security.
Additionally, we secured a new award for our automated message handling system with the joined Cryptology mission simulation program through the National Security Agency.
Speaker 3: Lastly, the Secure Networks team obtained a new contract with the U.S. Air Force for a new secure network installation, building on our three decades long relationship with the U.S. Air Force.
Lastly, the secured networks team obtained a new contract with the U S Air Force for a new secure network installation building on our three decades long relationship with the U S Air Force.
Speaker 3: I will now turn the call over to Mark Benza, who will discuss the third quarter 2023 financial results, guidance for the fourth quarter and full year 2023, and a preliminary outlook for 2024. Mark.
I will now turn the call over to Mark Pinza, who will discuss the third quarter 2023 financial results guidance for the fourth quarter and full year 2023, and our preliminary outlook for 2024 Mark.
Speaker 4: Thank you, John , and thank you, everyone, for joining us today. Let's turn to slide five.
Thank you John and thank you everyone for joining us today, let's turn to slide five.
Speaker 4: As John mentioned, we completed the third quarter with revenue, gross margin, and adjusted EBITDA all above the high end of our guidance.
As John mentioned, we completed the third quarter with revenue gross margin and adjusted EBITDA all above the high end of our guidance range and we are therefore again able to raise the midpoint of our full year guidance, while also narrowing the guided ranges.
Speaker 4: And we are therefore again able to raise the midpoint of our full year guidance while also narrowing the guided-
Speaker 4: Getting into more detail on the third quarter, total revenues declined 43% year-over-year and grew 10% sequentially to $36.2 million due to sequential growth in both security solutions and secure networks.
Getting into more detail on the third quarter total revenues declined 43% year over year and grew 10% sequentially to $36 2 million.
Due to sequential growth in both security solutions and secure networks.
Speaker 4: Revenues for our security solutions business declined 39% year over year and grew 15% sequentially to $19.8 million.
Revenues for our security solutions business declined 39% year over year and grew 15% sequentially to $19 $8 million.
Speaker 4: Security solutions revenues were above the top end of our third quarter guidance range due to outperformance on important programs including higher than forecasted TSA pre-check renewal volume, a rebound in customer mission activity on a confidential program, and revenues on a cybersecurity program that accelerated from the fourth quarter to the third quarter.
Security solutions revenues were above the top end of our third quarter guidance range due to outperformance on important programs, including higher than forecasted TSA pre check renewal volume a rebound in customer mission activity on a confidential program.
And revenues on our cyber security program that accelerated from the fourth quarter to the third quarter.
Speaker 4: Security solutions contributed 55% of total company revenues, up from 51% in the comparable period last year.
Security solutions contributed 55% of total company revenues up from 51% in the comparable period last year.
Speaker 4: The large year-over-year revenue drivers for security solutions were consistent with our expectations as communicated on prior earnings calls.
The large year over year revenue drivers for security solutions were consistent with our expectations as communicated on prior earnings calls Steve.
Speaker 4: Stable recurring revenues in our Information Assurance business were offset by revenue contraction in Secure Communications and Telos ID as a result of a program loss in Secure Communications at the end of 2022 and lower revenues on two ongoing programs in Telos ID.
Stable recurring revenues in our information assurance business were offset by revenue contraction in secure communications and telecom.
As a result of our program lots and secure communications at the end of 2022 and lower revenues on two ongoing programs in Telos IV.
Speaker 4: Combined, these three programs represented a $16.6 million year-over-year headwind in the.
Combined these three programs represented a $16 $6 million year over year headwinds in the quarter.
Turning to secure networks as expected revenues declined 47% year over year and grew 4% sequentially to $16 4 million in.
Speaker 4: Turning to secure networks, as expected, revenues declined 47% year-over-year and grew 4% sequentially to $16.4 million, in line with our third quarter guidance range.
In line with our third quarter guidance range.
Speaker 4: year-over-year revenue headwinds and secure networks were also consistent with our expectations as communicated on prior earnings calls.
The year over year revenue headwinds and secured networks were also consistent with our expectations as communicated on prior earnings calls.
Speaker 4: Three large programs that primarily came to a successful completion in 2022 and lower revenues on an ongoing program drove a $17 million headwind in the quarter.
Three large programs that primarily came to a successful completion in 2022 and lower revenues on an ongoing program drove a $17 million headwind in the quarter.
Turning to profitability.
Speaker 4: GAAP gross margin expanded over 300 basis points to 36 percent due to a higher weighting of revenues from our higher margin security solutions business and more than 500 basis points of margin expansion and secure networks partially offset by margin contraction in security solutions.
GAAP gross margin expanded over 300 basis points to 36% due to a higher weighting of revenues from our higher margin security solutions business and more than 500 basis points of margin expansion and secure networks, partially offset by margin contraction in.
Security solutions.
Speaker 4: Amortization of previously capitalized software development costs was a meaningful year of your headwind to gap gross margin in the third quarter and will remain an important component of our cost of sales from the third quarter onwards.
Amortization of previously capitalized software development costs was a meaningful year over year headwind to GAAP gross margin in the third quarter and will remain an important component of our cost of sales from the third quarter onwards.
In accordance with GAAP accounting, we expense software development cost as research and development expense until we meet certain milestones.
Speaker 4: In accordance with GAAP accounting, we expense software development costs as research and development expense until we meet certain milestones.
Speaker 4: After which, we begin to capitalize software development costs as an intangible asset on our balance.
After which we began to capitalized software development cost as an intangible asset on our balance sheet.
Speaker 4: Lastly, we amortize the intangible assets related to revenue-generating activities to cost of sales after the software has completed its development phase.
Lastly, we amortize the intangible assets related to revenue generating activities through cost of sales. After the software has completed its development phase.
Speaker 4: As a result of the successful formal launch of the TSA PreCheck program in the third quarter, we have now started amortizing the TSA PreCheck software development costs that have been capitalized over the past few years.
As a result of the successful formal launch of the TSA pre check program in the third quarter. We have now started amortizing the TSA pre check software development costs that had been capitalized over the past few years.
Speaker 4: Accordingly, going forward, we will report gross margin on a gap basis as well as on a non-gap basis.
Accordingly going forward, we will report gross margin on a GAAP basis.
As well as on a non-GAAP basis, excluding stock based compensation and depreciation and amortization.
Speaker 4: excluding stock-based compensation and depreciation and amortization.
Speaker 4: We believe non-gap gross margin is a useful, supplemental, and clarifying measure to help investors better understand the core economics of gross margin during the current reporting period.
We believe non-GAAP gross margin is a useful supplemental and clarifying measure to help investors better understand the core economics of gross margin during the current reporting period.
Speaker 4: excluding non-cash expenses and sunk costs expended in prior quarters and years. We will continue to
Excluding noncash expenses and some costs expended in prior quarters and years.
We will continue to guide gross margin on a GAAP basis.
Speaker 4: With that background, non-GAAP gross margin expanded 684 basis points to 41.5% due to a higher weighting of revenues from our higher margin security solutions.
With that background non-GAAP gross margin expanded 684 basis points to 41, 5% due to a higher weighting of revenues from our higher margin security solutions business.
Speaker 4: 626 basis points of margin expansion in security solutions and 480 basis points of margin expansion in secure networks.
626 basis points of margin expansion and security solutions, and 480 basis points of margin expansion and secure networks.
Speaker 4: Gap gross profit exceeded the high end of our forecasted range by approximately $1.2 million, and gap gross margin exceeded the high end of our guidance range by 180 basis points.
GAAP gross profit exceeded the high end of our forecasted range by approximately $1 2 million and GAAP gross margin exceeded the high end of our guidance range by 180 basis points.
Speaker 4: Gap gross margin for our security solutions business contracted 77 basis points to 47.3%, primarily as a result of the commencement of amortization of previously capitalized software development costs associated with the TSA precheck.
GAAP gross margin for our security solutions business contracted 77 basis points to 47, 3%, primarily as a result of the commencement of amortization of previously capitalized software development costs associated with the TSA pre check program.
Speaker 4: Security Solutions, GapGrues, Margin was consistent with our forecasted
Security solutions GAAP gross margin was consistent with our forecasted range.
Speaker 4: Security Solutions non-Gaftros margin expanded 626 basis points to 57.4% due to more favorable revenue
Security solutions non-GAAP gross margin expanded 626 basis points to 57, 4% due to more favorable revenue mix.
Speaker 4: Gap gross margin for our Secure Networks business expanded 509 bases.
GAAP gross margin for our secured networks business expanded 509 basis points to 22, 3% due to the successful completion of lower margin programs at the end of 2022 and exceeded our forecast due to margin outperformance on multiple programs.
Speaker 4: to 22.3% due to the successful completion of lower margin programs at the end of 2022 and exceeded our forecast due to margin outperformance on multiple programs across the portfolio due to strong program cost management.
Across the portfolio due to strong program cost management.
Speaker 4: Secure Network's non-GAAP gross margin was not meaningfully different from GAAP.
Secure networks non-GAAP gross margin was not meaningfully different from GAAP gross margin.
Speaker 4: Adjusted to the dollar was a $1.3 million loss and exceeded the top end of our guidance range by $4.7 million due to $2.9 million of better than forecasted gross profit, excluding depreciation and amortization, as well as $1.8 million of lower than previously forecasted below the line expense.
Adjusted EBITDA was a $1 $3 million loss and exceeded the top end of our guidance range by $4 $7 million due.
Due to $2 $9 million of better than forecasted gross profit, excluding depreciation and amortization as well as $1 $8 million of lower than previously forecasted below the line expenses, which primarily.
Speaker 4: which primarily represents the management reserve that we disclosed on our prior earnings call. Now let's turn
Really represents the management reserve that we disclosed on our prior earnings call.
Now, let's turn to free cash flow and liquidity.
Speaker 4: We return to positive cash flow from operations in the third quarter due to favorable working capital That now Binote 20th Ford 300 gold price of over 26,000 k SAR in whoseasters the
We returned to positive cash flow from operations in the third quarter due to favorable working capital dynamics.
Speaker 4: Cashflow from operations was an $846,000 inflow, and free cashflow was a $3 million out.
Cash flow from operations was an $846000 inflow and free cash flow was a $3 million outflow.
Speaker 4: We ended the quarter with approximately $100 million of cash, no debt, and an undrawn $30 million senior secured revolving credit facility with an additional $30 million expansion.
We ended the quarter with approximately $100 million of cash no debt and an undrawn $30 million senior secured revolving credit facility with an additional $30 million expansion feature.
Speaker 4: Our balance sheet continues to be a competitive advantage and remains well positioned to support the company through a wide range of operating conditions and strategic operations.
Our balance sheet continues to be a competitive advantage and remains well positioned to support the company through a wide range of operating conditions and strategic opportunities.
Speaker 4: Let's turn the slide six to discuss our guidance for the fourth quarter.
Let's turn to slide six to discuss our guidance for the fourth quarter.
Speaker 4: For the fourth quarter, we forecast sales in a range of $30 million to $34 million, and an adjusted EBITDA loss of $6.5 million.
For the fourth quarter, we forecast sales in a range of $30 million to $34 million and an adjusted EBITDA loss of $6 5 million to $4 $5 million.
Speaker 4: We forecast security solutions revenues to decline high 30% to low 30% year over year.
We forecast security solutions revenues to decline high 30% to low 30% year over year and secure networks revenues to decline low 30% to mid 20% year over year, both primarily due to the same dynamics that have persisted throughout 2023.
Speaker 4: secure networks revenues to decline low 30% to mid 20% year over year, both primarily due to the same dynamics that have persisted throughout 2023.
Speaker 4: Gap gross margin is expected to be down approximately 350 basis points to 225 basis points year over year, primarily due to higher amortization of capitalized software development.
GAAP gross margin is expected to be down approximately 350 basis points to 225 basis points year over year, primarily due to higher amortization of capitalized software development costs.
Cash below the line expenses, which adjust for capitalized software development costs stock based compensation restructuring costs, and depreciation and amortization are forecasted to be approximately $3 million higher year over year, primarily due to planned growth investments focused on business development.
Speaker 4: Cash below the line expenses, which adjusts for capitalized software development costs, stock-based compensation, restructuring costs, and depreciation and amortization, are forecasted to be approximately $3 million higher year-of-year, primarily due to planned growth investments.
Speaker 4: focused on business development, information assurance, telephs ACA, and TSA preach.
<unk> information assurance, Telos, HCA and TSA pre check.
Speaker 4: Let's turn to slide seven to discuss our updated guidance for the full year.
Let's turn to slide seven to discuss our updated guidance for the full year.
Speaker 4: We are again raising the midpoint of all full year guided metrics and also near
We are again, raising the midpoint of all full year guided metrics and also narrowing our guided ranges.
Speaker 4: During our three earnings calls of 2023, we have now reaffirmed our full year guidance once and raised the midpoint of guidance twice.
During our three earnings calls of 2023, we have now reaffirmed our full year guidance once and raised the midpoint of guidance twice.
Speaker 4: Our fourth quarter guidance implies full year revenues of $134 million to $138 million.
Our fourth quarter guidance implies full year revenues of $134 million to $138 million.
Speaker 4: representing a $6.5 million increase to guidance at the mid
Representing a $6 $5 million increase to guidance at the midpoint.
Speaker 4: We're forecasting full year gap gross margin in a range of 36.8% to 37% or a 125 basis point increase at the midterm.
We're forecasting full year GAAP gross margin in a range of 36, 8% to 37% or 125 basis point increase at the midpoint.
Speaker 4: Lastly, updated guidance includes adjusted EBITDA ranging from a $9 million loss to a $7 million loss or an $8.5 million increase at the minimum.
Lastly, updated guidance includes adjusted EBITDA, ranging from a $9 million loss to a $7 million loss or an $8 $5 million increase at the midpoint.
Over the course of 2023, our revenue guidance has improved due to strong renewal rates and information assurance and secure communications.
Speaker 4: Over the course of 2023, our revenue guidance has improved due to strong renewal rates, and information assurance, and secure communications. New contract wins.
New contract wins and secure communications.
Speaker 4: Better than expected performance on TSA pre-checked, favorable supply chain performance.
Better than expected performance on TSA pre check.
<unk> favorable supply chain performance and secure networks and expanded revenues on a preexisting program and secure networks.
Speaker 4: and expanded revenues on a pre-existing program in
GAAP gross margin guidance has improved due to high margin new business wins and revenue outperformance on higher margin programs and security solutions and strong program management and secure networks.
Speaker 4: Gap Gross Margin Guidance has improved due to high margin, new business win.
Speaker 4: and revenue outperformance on higher margin programs and security solutions and strong program management and secure net-
Speaker 4: Lastly, a Judgedee Bedagitans has improved over the course of the year due to improved gross profit from higher revenues and gross margins.
Lastly, adjusted EBITDA guidance has improved over the course of the year due to improved gross profit from higher revenues and gross margins combined with multiple quarters of cost management that started with our restructuring in the first quarter.
Speaker 4: combined with multiple quarters of cost management that started with our restructuring in the first quarter.
Now before I turn the call back over to John I'd like to provide an overview of some of the key variables that will ultimately determine the 2024 guidance that we will provide on our fourth quarter earnings call in March.
Speaker 4: At this stage, we believe our total 2024 potential revenue opportunity exceeds $200 million, and is highly dependent on two pending new business opportunities and security solutions, and the ramp of our T.
At this stage, we believe our total 2024 potential revenue opportunity exceeds $200 million.
And it's highly dependent on two pending new business opportunities in security solutions.
And the ramp of our TSA pre check program.
All of which should become more visible before our fourth quarter earnings call in March.
Speaker 4: Let's break this down into two components, pre-existing programs, and pending new business opportunities.
Let's break this down into two components preexisting programs and pending new business opportunities.
Speaker 4: Starting with pre-existing programs, as communicated on our second quarter earnings call in August .
Starting with pre existing programs as communicated on our second quarter earnings call in August.
Speaker 4: There is a 2024 revenue headwind of approximately a few tens of millions of dollars embedded in our pre-existing programs, inclusive of growth from TSA preach.
There is a 2024 revenue headwind of approximately a few tens of millions of dollars embedded in our preexisting programs inclusive of growth from TSA pre check.
Speaker 4: This headwind needs to be backfilled with new business winds late this year or early next year.
This headwinds needs to be backfill with new business wins late this year or early next year.
Speaker 4: The ultimate size of the headwind embedded in pre-existing programs will primarily depend on the performance of TSA pre-
The ultimate size of the headwinds embedded in pre existing programs will primarily depend on the performance of TSA pre check in.
Speaker 4: In particular, the pace and timing of opening new enrollment location.
In particular, the pace and timing of opening new enrollment locations.
Speaker 4: and annual fluctuations in overall market transaction volume.
And annual fluctuations and overall market transaction volume.
Speaker 4: Turning to pending new business opportunities, again, as communicated on our second quarter earnings call in August , new business award decisions tend to be seasonally weighted to late in the calendar year or early the following counts.
Turning to pending new business opportunities again as communicated on our second quarter earnings call in August New business award decisions tend to be seasonally weighted to late in the calendar year or early the following calendar year.
Speaker 4: We are currently awaiting final award decisions on numerous pending new business proposals.
We are currently awaiting final award decisions on numerous pending new business proposals.
Speaker 4: representing approximately $610 million of total contract.
Representing approximately $610 million of total contract value and approximately $115 million of potential 2020 for revenue.
Speaker 4: and approximately $115 million of potential 2024 rev-
Speaker 4: The ultimate revenue contribution realized in 2024 from pending new business opportunities will depend on win rates and
The ultimate revenue contribution realized in 2024 from pending new business opportunities will depend on win rates and programs start dates.
Speaker 4: Approximately 85% or nearly $100 million of potential 2024 revenue from pending new business opportunities is concentrated in two long term recurring revenue opportunities and security solutions with award decisions anticipated before March of 2024.
Approximately 85% or nearly $100 million of potential 2020 for revenue from pending new business opportunities is concentrated into long term recurring revenue opportunities and security solutions with award decisions.
<unk> before March of 2024.
Speaker 4: There may also be additional opportunities to generate revenue from task orders on new contract vehicles and secure networks over the course of 2024. Ah,
There may also be additional opportunities to generate revenue from task orders on new contract vehicles and secure networks over the course of 2024.
Lastly, turning to gross margins substantially all pending new business opportunities reside in security solutions and substantially the entire revenue headwind on pre existing programs resides and secure networks.
Speaker 4: Substantially all pending new business opportunities reside in security solutions.
Speaker 4: and substantially the entire revenue headwind on pre-existing programs resides in secure networks.
Speaker 4: Accordingly, security solutions revenue could represent as much as 70% to 80% of total company revenue in 2024.
Accordingly security solutions revenue could represent as much as 70% to 80% of total company revenue in 2024.
The overall company gross margin profile in 2024 is expected to be roughly comparable to 2023 as the margin benefit of higher revenue contribution from our higher margin security solutions segment will be offset by margin contraction in each of security solutions.
Speaker 4: The overall company Gross Margin profile in 2024 is expected to be roughly comparable to 2023 as the margin benefit of higher revenue contribution from our higher margin security solution segment will be offset by margin contraction in each of security solutions and secure networks in part as a result of higher amortization of capitalized software through cost of sales and revenue mix with any
And secure networks in part as a result of higher amortization of capitalized software through cost of sales and revenue mix within each segment.
Speaker 4: With that, I'll pass it back to John , who will wrap up on flighting.
With that I'll pass it back to John who will wrap up on slide eight.
Well, thanks, Mark let's move to slide eight.
Speaker 3: So thanks Mark, let's move to slide eight. In summary, we exceeded quarterly expectations and delivered results above the high end of the guidance range on all financial metrics. Our TSA pre-check program formally launched this quarter and was a key factor in our over.
In summary, we exceeded quarterly expectations and delivered results above the high end of the guidance range on all financial metrics, our TSA pre check program formally launched this quarter and was a key factor in our over performance. We look forward to steadily growing this offering into an important source of recurring revenue in the coming quarter.
Speaker 3: We look forward to steadily growing this offering into an important source of recurring revenue in the coming quarters and
As in years.
Speaker 3: We raised full year guidance for the second consecutive quarter as we continue to focus on managing 2023 to better than originally expected results through high margin new business wins, program management, cost discipline, implementation of our restructuring, and reinvestment and growth.
We raised full year guidance for the second consecutive quarter as we continue to focus on managing 2023 to better than originally expected results through high margin New business wins program management cost disciplined implementation of our restructuring and reinvestment and growth.
Speaker 3: As we look ahead, the potential revenue opportunity for 2024 is encouraging, as we eagerly await the outcome of pending new business opportunities in security solutions.
As we look ahead the potential revenue opportunity for 2024 is encouraging as we eagerly await the outcome of pending new business opportunities in security solutions.
Speaker 3: Lastly, our balance sheet remains highly liquid and a competitive advantage, well positioned to support the company both operationally and strategically. And with that,
Lastly, our balance sheet remains highly liquid and a competitive advantage well positioned to support the company, both operationally and strategically.
And with that we're happy to take any questions.
Speaker 4: Operator, please open the line for Q&A, and we ask the call participants to please be mindful of others in the queue by asking only one question.
Operator, please open the lines for Q&A and we asked the call participants to please be mindful of others in the queue by asking only one question. Thank you.
Speaker 1: Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Thank you.
A reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby lovely compare.
Compile the Q&A roster.
Speaker 1: Our first question comes to the line of that comments with the RILA securities. Your line is now open.
Our first question comes from the line of Zach Cummins with B Riley Securities. Your line is now open.
Speaker 5: Yes, hi. Good morning, Mark and John , congrats on solid quarter here and appreciate the additional color around the puts and takes for 2024. Just at that point, I mean, it seems like the opportunity is really concentrated in two large programs within security solutions.
Yes, hi, good morning, Mark and John Congrats on solid quarter here and I appreciate the additional color around the puts and takes for 2024 just to that point.
It seems like the opportunity is really concentrated in two large programs within security solutions. So.
Speaker 5: So John , can you go ahead and handicap how you're feeling about your chances of winning in into these engagements and kind of give us a sense of how you're progressing through kind of the decision process at this point.
John can you go ahead and handicap, how you're feeling about your chances of winning.
<unk>.
And each of these engagements and kind of give us a sense of how you are progressing through the decision process at this point.
Speaker 3: Yeah, I think these are two opportunities of customers that we've known well for a long time. And I feel good about the potential of the outcomes for sure, Zach. I'll also mention that.
Yes, I think these are two opportunities that customers that we've known well for a long time.
And I feel good about the potential of the outcomes for sure Zach I'll also mention that.
Speaker 3: We mentioned task orders and other contract vehicles. You know, we have, when we go after contracts, there are really two types of contracts. One has, one contract vehicle has a financial amount.
And we mentioned task orders and other contract vehicles.
We have.
When we go after contracts they are really two types of contracts one has one contract vehicle.
Financial amount for sure per year and these are the two contracts we're talking about.
Speaker 3: for sure per year and either the two contracts we're talking about. But other contracts have a significant amount of ceiling. So previously we had a contract called Nessend.
But other contacts.
A significant a ceiling. So previously we had a contract called net sets, which had a lot of ceiling on it and over the course of roughly 18% to 20 years, we did about.
Speaker 3: which had a lot of ceiling on it. And over the course of roughly 18 to 20 years, we did about $1.6 billion or $1.5 billion on that contract. So we're really pursuing both kinds of contracts.
$1 6 billion or $1 5 billion and that contract. So we're really pursuing both kinds of contracts. We're emphasizing these two because they are they have financial certainty around them.
Speaker 3: We're emphasizing these two because they have financial certainty around.
Speaker 5: Understood. Well, thank you for taking my question and best of luck with your end. Thank you.
Understood. Thanks for taking my question and best of luck with the year end. Thank you.
Thank you.
One moment for our next question.
This question comes from the line of Rudy Kessinger with D. A Davidson your line is now open.
Speaker 1: This question comes to the line of Rudy Kessinger with DA Davidson. Your line is now open.
Speaker 5: Hey guys, thanks for taking my questions or question. On TSA Preject, can you give any color about how much it contributed in the quarter, where are you trending on your market share, on renewals and also on with new enrollment? How many sites are you up to when do you think you'll be fully rolled out in? Just again, what's kind of the timeline you're thinking of to get to full, one third market share.
Hey, guys. Thanks for taking my questions.
Question on TSA pre check can you give any color about how much it contributed in the quarter, where you trended on your market share on.
On our renewals and also on with new enrollment how many sites are you up to what do you think youll be fully rolled out in just again, what's what's kind of the timeline.
Thinking of to get to full one third market share.
Yes.
Speaker 4: Yeah, hey, it's Mark Benzer here. So I try to give some color there.
Yes.
It's Martin <unk> here so.
I'll try to give some color there.
Speaker 4: Keep in mind, though, we're not really going to be giving a lot of detail on pre-check to an AMSEL performance. We don't really do that on any other program.
Keep in mind.
We're not really going to be giving a lot of detail on <unk>.
Project financial performance, we don't really do that on any other program.
Speaker 4: So we're not going to go into a lot of detail on this follow or feature calls on Street Check Penance Performance but
So we're not going to go into a lot of detail on this fall of our future calls.
<unk> financial performance, but what I will say is that.
Speaker 4: What I will say is that, you know, we feel we're off to a good start here. As the performance on pre-check was the single largest driver of our beat in the quarter.
We feel we're off to a good start here.
The performance on pre check was the single largest driver of our beat in the quarter.
Speaker 6: The market overall is currently trending very well. Both on new enrollment and renewal. What we're seeing is that the market is done.
Yeah.
The market overall is currently trending.
Very well, both on new enrollments and renewal.
We are seeing is that the market is.
It's.
Speaker 4: It's quite a bit bigger today than it was asked from the pre-COVID-Hine.
It's quite a bit quite a bit bigger today than it was from.
From the pre Covid highs.
Speaker 4: You know, new enrollments, for example, are approximately double what they were during the pre-COVID highs. So, so we're pleased so far with how that program is ramping for us. Like I said, it's a similar to speak in the quarter. And, you know, we're encouraged by what we're seeing so far. Other more operational apps like to the program, let me turn it over to Mark Christian.
New enrollments for example are approximately double what they were.
During the pre COVID-19 height so.
So we're pleased so far with how that program is ramping for us like I said hard to speak in the quarter.
<unk>.
We're encouraged by what we're seeing so far on the more operational aspects of the program, let me turn it over to Mark Christian.
Speaker 7: Yes, thank you. One of your questions was how many sites we currently have? That's 26 sites. I wanted to remind everyone that our ability to ramp to the full complement of sites that we have talked about will occur by the end of 2024. We also wanted to remind everybody that are
Yes. Thank you.
One of your questions was how many sites. We currently have 26 sites I wanted to remind everyone that.
Our ability to ramp to the full complement of sites that we have talked about will occur.
By the end of 2024, we also wanted to remind everybody that our.
Experienced level and ramping.
Speaker 7: This experience level in ramping tide is...
As shown in the effort and work we did on the 2020 census also the sites that we have at over 100 facilities.
Speaker 7: shown in the effort and work we did on the 2020 census. Also the sites that we have at over 100 facilities and
Speaker 7: aviation security space at the airport and also our experience at the DOD where we have well over 100 biometric sites.
On the aviation security space at airports and also our experience at the <unk>, where we have well over 100 biometric sites that.
Speaker 7: that were deployed on numerous contracts. So our ability to ramp quickly and expeditiously with our partner off the steeple, we're confident that that will progress very rapidly as we move
That were deployed on numerous contract so.
Our ability to ramp quickly and expeditiously with our partner office depot.
Your confidence that that will progress very rapidly as we move forward.
Okay, great. Thanks for taking my question.
Terrific.
Speaker 1: Thank you. One moment for our next question.
Thank you.
Our next question.
Okay.
Speaker 1: This question comes through the line of Alex Henderson with Needham. Your line is now open, Alex.
Next question comes from the line of Alex Henderson with Needham. Your line is now open Alex.
Speaker 8: Thanks. I was hoping you could talk about what is in the contracts a little bit. Is it exact? Is it, you know, H-A-M-H-S?
Thanks.
I was hoping you could talk about what is in the contracts a little bit.
Is it.
<unk>.
Is it.
H.
M H S.
Whats going on within.
Speaker 8: within the mix of what you're trying to sell to these customers and so can give us any update on ghosts.
The mix of.
What youre trying to sell to these customers.
I was hoping you could give us any update on goes to while you're at it. Thanks.
Speaker 3: Hi, I'm this is John . So broadly speaking, the vast majority of everything we're bidding on is is inside of our security solution.
Hi, Alex this is John.
So broadly speaking the vast majority of everything we're bidding on is or isn't.
Inside of our security solutions segment.
Speaker 3: And it's a combination of different capabilities that we deliver from cybersecurity services to identity applications. Those are the kind of things that we're focusing on these days, which we think has a...
And it's a combination of different capabilities that we deliver.
From a cyber security services too.
Identity applications those are the kind of things that we're focusing on these days, which we think is what should we think we're well positioned for it.
Speaker 9: We think we're well positioned for. And, you know, ghosts, we see as becoming more of a feature of some of the capabilities that we have out there where we're able to, you know, hide what we're doing, if you will, from people that are interested in finding out what we're up to. So I would say the vast majority of everything we're doing is security solutions. I think we've finally got a big diamondGrandla that's probably a nice looking on each other because... I'm SU Boss! Yamada! Yamada! Get ready, please!
And goes we see as becoming more of a feature of some of the capabilities that we have out there where we're able to hide what we're doing if you will from.
From people that are interested in body of what we're up to so.
I'd say the vast majority of everything we're doing in security solutions.
So no no mention of exactly Matt.
Speaker 9: No, exactly, it would be a component as well. So anytime we can, and I think I said this previously, anytime we can, we're gonna be bundling our security solutions together, which gives us a differentiated offering to our customers. Okay, thanks. Thank you.
No exactly it would be a component as well so anytime we can.
And I think I've said that previously anytime we can we're going to be bundling, our security solutions together, which gives us.
A differentiated offering to our customers.
Okay perfect.
Youre welcome.
Thank you.
One moment for our next question.
This question comes from the line of <unk>.
Speaker 1: This question comes to the line of Nahal Tukshi with Northland Capital Markets. Your line is out open.
<unk> with Northland capital markets. Your line is now open.
Yes, Thank you and congratulations on the second straight quarter.
Speaker 10: Yeah, thank you and congratulations on the second strike quarter. Be in raise and as well as a strong TSA initial ramp here. My question is on the initial view on CY24, especially the swings of those two contracts. In order for them to contribute up to $100 million in calendar 24, what would be the presumption of those contracts, part times? Start time to be around two.
Beat and raise.
As all of those.
Strong PSA initial ramp here. My question is on the initial view on Seaway 24, especially the swings of those two contracts.
In order for them to contribute up to $100 million in calendar 'twenty for what would be the presumption of those contracts start times.
So it's going to be around Q1.
In Q1 with Q1 early Q2.
The hall.
Okay, and when you say an AC.
Speaker 3: Okay, and when you say an A-C, 115 million of total counter 24 revenue contribution from the various contracts are up, and then 510 million of total contract value that implies you're basically talking about average five year duration for these contracts that are in their mature phase as a pipeline. I think that's fair. However, when you look at our complete pipeline, our complete pipeline is well and expect the $3 billion.
$50 million of toll of calendar 'twenty for revenue contribution from the various contracts are up and then to $210 million of total contract value that implies.
Basically we're talking about average five year duration for these contracts that are in their mature phase of the pipeline.
I think that's fair however.
When you look at our complete pipeline are complete pipeline is well in excess of $3 billion and that pipeline can range from a couple of years to 10 year kind of contracts.
Speaker 9: And that pipeline can range from a couple of years to 10-year contract.
Speaker 10: Okay, within that pipeline, the remaining 2.4 billion, how much of that do you think will be awarded sometime in calendar 24? I could start to ramp within calendar 25. I don't know that I'll tell my head.
Okay within that pipeline the remaining $2 4 billion.
How much of that do you think will be awarded sometime in calendar 'twenty forward that could start to ramp within calendar 'twenty five.
I don't know that off top my head.
Ahead.
Speaker 9: I don't know that answer off top of my head. I would say that the, what we're giving you in terms of the dollars, $600 million, those have been submitted and those are pending award. So we're giving you, if you will, the tail end of the pipeline, there will be a continuous
I don't know that answer off top my head I would say that the.
What we're giving you in terms of the dollars of $600 million those have been submitted and those are pending award.
So we're giving you what if you will the tail end of the pipeline there will be <unk>.
<unk>.
Speaker 9: input of additional opportunities in the pipeline each quarter.
Input of additional opportunities in the pipeline each quarter. So I would expect that pipeline to continue to mature and as it matures, we'll continue to update the market.
Speaker 9: So I would expect that pipeline to continue to mature.
Speaker 9: And as it matures, you know, we'll continue to update the market. All right.
Alright, great. Thank you.
Okay.
Thank you.
Speaker 1: I'm showing no further questions at this time and would now like to turn the call back to John Wood for closing remarks.
I'm showing no further questions at this time and would now like to turn the call back to John <unk> for closing remarks.
Thank you operator.
Speaker 9: First of all, I just want to thank our shareholders for your ongoing support.
First of all I just wanted to thank our shareholders for your ongoing support.
Speaker 9: You know, we had a second consecutive quarter of raising or full your outlook. And that's a testament to my team's unwavering commitment to delivering for our customers and our shareholders in 2023 and beyond.
We had a.
<unk> consecutive quarter of raising our full year outlook and that's a testament to my team's unwavering commitment to delivering for our customers and our shareholders in 2023 and beyond.
Speaker 9: You know, we've made good progress during 23 to rebuilding our core revenue base through, you know, we have had really strong renewal rates on our existing business. We've cultivated a and centralized a very productive business development and, you know, new business development pipeline. And we continue to invest in really solid future growth opportunities. And the basic point I want to make is really just getting started with a.
Made good progress during 'twenty three to rebuilding our core revenue base through that we have had really strong renewal rates on our existing business we've cultivated.
And centralized.
Very productive business development and new.
New business development pipeline, and we've continued to invest in really solid future growth opportunities and the basis point I want to make is we're really just getting started.
With robust.
Speaker 9: you know, recession resistant end markets and well-funded customers and decades long track regressives of serving some of the world's most security-concept organization.
Recession resistant and markets and well funded customers and decades long track record of serving some of the world's most security conscious organizations.
Speaker 9: You know, we think tell us there's a really strong foundation for the future and we just want to thank you again for your support.
We think tell US is a really strong foundation for the future and we just wanted to thank you again for your support.
Thanks, a lot everybody.
Speaker 1: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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