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Fourth Quarter and Full Year 2024 Earnings March 10, 2025
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2 DISCLAIMERS The information contained in this presentation does not constitute or form part of, and should not be construed as, any offer, sale or subscription of, or any invitation to offer, buy or subscribe for, any securities, nor shall there be any offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful. Telos Corporation (the “Company”) will only make such an offer or sale pursuant to an effective registration statement with the Securities and Exchange Commission (the “SEC”) and related prospectus. Before you i nvest, you should read the Company's filings with the SEC, and in particular the “Risk Factors” contained or incorporated by reference therein, for more complete information about the Company. You may obtain thos e filings are available at https://investors.telos.com and on the SEC’s website at www.sec.gov. Other than statements of historical fact, all information contained in this presentation, including statements regarding the Company’s future operating results and financial position, its business strategy and plans, product, service, and technology offerings, market growth and trends, and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “plan,” “predict,” “expect,” “estimate,” “anticipate,” “intend,” “goal,” “strategy,” “believe,” and similar expressions and variations thereof. The Company has based these forward-looking statements largely on its current expectations and projections about future events and trends that it believes m ay affect its financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in the Company’s periodic filings with the SEC. Moreover, the Company operates in a very competitive a nd rapidly changing environment, and new risks emerge from time to time. It is not possible for the Company to predict all risks, nor can it assess the effect of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements it may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this presentation may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely on forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. These forward-looking statements speak only as of the date of this presentation and the Company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof. This presentation contains statistical data, estimates, and forecasts that are based on independent industry publications or other publicly available information, as well as other information based on the Company’s internal sources. While the Company believes the industry and market data included in this presentation are reliable and are based on reasonable assumptions, these data involve many assumptions and limitations, and you are cautioned not to give undue weight to these data, estimates and forecasts. The Company has not independently veri fied the accuracy or completeness of the data contained in these industry publications and other publicly available information. The trademarks included herein are the property of the owners thereof and are used for reference purposes only. Such use should not be construed as the Company’s endorsement of the products or services of the trademark owner, nor as an endorsement by the trademark owner of the Company’s products or services. This presentation also includes certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. The reader is cautioned not to place undue reliance on non-GAAP financial measures and to evaluate them only in conjunction with their nearest GAAP equivalents. Please see the appendix for reconciliations of these non-GAAP financial measures to their nearest GAAP equivalents and for the calculation of certain other financial measures.
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3 FINANCIAL PERFORMANCE SUMMARY DELIVERED $26.4M OF REVENUE, 40.3% GAAP GROSS MARGIN, AND 47.0% CASH GROSS MARGIN1 Revenue at Top End of Guidance; Adjusted EBITDA1 Exceeded Guidance; Highest FY Cash GM1 Since 2000 4Q 2024 Summary Notes: 1. Cash Gross Margin, Cash Gross Profit, Adjusted Operating Expenses, Free Cash Flow, Adjusted EBITDA, and Adjusted EPS are non-GAAP financial measures. Reconciliations to GAAP financial measures are provided in the appendix. • Delivered $26.4M of revenue vs. guidance of $24.5M to $26.5M • Security Solutions (“SS”) up 20% sequentially (vs. guidance of up low-teens % to low-20 %); Up 6% YoY; Results near top end of guidance • Secure Networks (“SN”) down 18% sequentially (vs. guidance of down low- 20 % to high-teens %); Down 78% YoY; Results at top end of guidance • Delivered 40.3% GAAP gross margin (“GM”) vs. ~36.0% - 37.6% assumed in guidance • Cash gross margin1 was 47.0% and above the top end assumed in guidance • SS and SN results higher than expected due to lower than forecasted costs across portfolio • Revenue mix was 83% SS and in line with guidance assumptions • Adjusted operating expenses1 approximately $2.3M better than guidance assumptions primarily due to lower than expected labor and fringe costs • Adjusted EBITDA1 above top end of guidance range due to higher than expected cash gross profit1 and lower than forecasted adjusted operating expenses1 • Cash flow from operations was ($10.5M) and FCF1 was ($14.8M), reflecting a short-term buildup in working capital associated with high-growth programs and one-time capex investments in IT infrastructure expansion 4Q 2024 Guidance / Assumptions $24.5M to $26.5M ($4.5M) to ($3.5M) -40% to -35% YoY +3% to +11% Sequential ~36.0% to 37.6% GAAP GM ~42.7% to 43.8% Cash GM1 Revenue Adjusted EPS1 Revenue Growth Adjusted EBITDA1 GAAP Gross Profit 4Q 2024 Actual $26.4M ($0.2M) ($0.04) -36% YoY +11% Sequential $10.6M 40.3% GAAP GM 47.0% Cash GM1 FY 2024 Actual $108.3M ($9.6M) ($0.31) -26% YoY $34.4M 31.8% GAAP GM 43.7% Cash GM1
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4 RECENT BUSINESS UPDATES TSA PreCheck® EXPANSION • Expanded network of enrollment centers to 218 locations. • Locations distributed across key markets in 30 states including AZ, CA, CO, FL, GA, HI, IA, IL, IN, KS, KY , LA, MD, MI, MN, MO, MS, NC, NV, OH, OK, OR, PA, SC, TN, TX, UT, VA, WA, WV. • Targeting 500 enrollment locations in 2025. • Continue to process renewals at https://tsaprecheckbytelos.tsa.dhs.gov/. OTHER UPDATES • Program with the Defense Manpower Data Center (DMDC) successfully transitioned during 4Q24 and is now generating revenue. • Stop-work order on program with the Department of Homeland Security (DHS) was lifted during 1Q25. We currently expect to start generating revenue on this program later in 2025. • New Xacta® orders include the Office of Naval Intelligence, U.S. Department of Energy, and a U.S. federal government agency, as well as a renewal from a U.S. federal government customer in the intelligence community. • Cyber services new orders include a Fortune 100 company in the technology sector. • Telos AMHSTM renewals include a U.K. government department and a U.S. federal government customer in the intelligence community. • Received new contract awards in Secure Networks with the U.S. Air Force Academy and the U.S. Air Force.
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5 2025 OUTLOOK 1Q 2025 Assumptions 1Q 2025 Low End $28.2M +7% Sequential 1Q 2025 High End $30.2M +15% Sequential ($1.8M) ($0.8M) Revenue Adjusted EBITDA1 Guidance • SS revenue assumptions: • Up HSD % to mid-teens % sequentially (up high 20% to mid 30% YoY) • Primarily driven by the successful transition of the DMDC program in 4Q 2024 and ongoing growth in TSA PreCheck® enrollments • SN revenue assumptions: • Down LSD % to up MSD % sequentially (down low 60% to mid 50% YoY) • GAAP gross margin up ~150 bps to ~215 bps YoY • Cash gross margin1 up ~260 bps to ~285 bps YoY: • SS down due to mix and some higher costs on specific programs • SN down primarily due to revenue mix • More favorable mix overall between SS and SN YoY • SS to contribute approximately 84% (vs. 63% in 1Q 2024) • Cash operating expenses1 approximately $1.0M lower YoY primarily due to lower labor costs, reduced headcount, and lower spend associated with discontinued development of selected solutions associated with the restructuring plan • Positive cash flow Notes: 1. Cash Gross Margin, Cash Operating Expenses and Adjusted EBITDA are non -GAAP financial measures. The Company has not provided a reconciliation to the most directly comparable GAAP measure to these forward -looking non-GAAP financial measures because certain items are out of the Company’s control or cannot be reasonably predicted. Accordingly, reconciliations of forward -looking Cash Operating Expenses, Cash Gross Margin, and Adjusted EBITDA are not available without unreasonable effort. 7% to 15% Sequential Revenue Growth and Positive Cash Flow in 1Q 2025
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6 SUMMARY 4Q Revenue at Top End of Guidance Range with 11% Sequential Growth; Adjusted EBITDA Exceeded Guidance Highest Cash Gross Margin for Full Year 2024 Since 2000 Successfully Transitioned DMDC Program, a Key Source of Revenue Growth in 2025 Expanded Network of TSA PreCheck® Enrollment Centers to 218 Locations; Targeting 500 Locations in 2025 Forecasting 7% to 15% Sequential Revenue Growth and Positive Cash Flow in 1Q 2025 Forecasting Significant Improvements in Revenue, Adjusted EBITDA, and Cash Flow in 2025
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Appendix
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8 NON-GAAP FINANCIAL MEASURES In addition to Telos' results determined in accordance with U.S. GAAP, Telos believes the non-GAAP financial measures of EBITDA, Adjusted EBITDA, EBITDA Margin, Adjusted EBITDA Margin, Adjusted Net Income/(Loss), Adjusted Earnings Per Share ("EPS"), Adjusted Gross Profit, Adjusted Gross Margin, Cash Gross Profit, Cash Gross Margin, Cash Operating Expenses, Adjusted Operating Expenses and Free Cash Flow are useful in evaluating operating and cash flow performance. Telos believes that this non-GAAP financial information, when taken collectively with GAAP results, may be helpful to readers of the financial statements because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each of these non-GAAP financial measures to the most directly comparable financial measure stated in accordance with GAAP. Telos believes that EBITDA, EBITDA Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net(Loss)/Income, Adjusted EPS, Cash Operating Expenses and Adjusted Operating Expenses provide the Board, management and investors with a clear representation of the Company’s core operating performance and trends, provide greater visibility into the long-term financial performance of the Company, and eliminate the impact of items that do not relate to the ongoing operating performance of the business. Further, Adjusted EBITDA and Adj usted EBITDA Margin are used by the Board and management to prepare and approve the Company’s annual budget and to evaluate the performance of certain management personnel when determining incentive compen sation. Adjusted Gross Profit, Cash Gross Profit, Adjusted Gross Margin and Cash Gross Margin provide management and investors a clear representation of the core economics of gross profit and gross margin without the impact of non-cash expenses and sunk costs expended. Telos uses Free Cash Flow to understand the cash flows that directly correspond with our operations and the investments the Company must make in those operations, using a methodology that combines operating cash flows and capital expenditures. Further, Free Cash Flow may be useful to management and investors in evaluating the Company's opera ting performance and liquidity, and to the Board to evaluate the performance of certain management personnel when determining incentive compensation. Telos believes these non -GAAP financial measures facilitate the comparison of the Company’s operating performance on a consistent basis between periods by excluding certain items that may, or could, have a disproportionately positive or negative impact on the Company’s results of operations in any particular period. When viewed in combination with the Company’s results prepared in accordance with GAAP, these non-GAAP financial measures help provide a broader picture of factors and trends affecting the Company’s results of operations.
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9 FINANCIAL PERFORMANCE SUMMARY 4Q AND FY 2024 YEAR-OVER-YEAR COMPARISON 4Q Cash Gross Margin1 Up 895 Basis Points and FY Up 424 Basis Points Year-Over-Year Notes: 1. Cash Gross Margin, Cash Gross Profit, Cash Operating Expenses, Adjusted Operating Expenses, Adjusted EBITDA, and Free Cash Flow are non-GAAP financial measures. Reconciliations to GAAP financial measures are provided in the appendix. • Revenue: Security Solutions up 6% to $21.9M due to the successful transition of the DMDC program and growth in TSA PreCheck® enrollments, partially offset by lower revenues on an ongoing program and the completion of a short-term program in 2023. Secure Networks down 78% to $4.5M due to the successful completion and ramp down of certain programs. • Gross Profit: GAAP gross profit down $3.5M due to lower revenue. GAAP GM up 595 bps primarily due to mix, and partially offset by increased amortization of software development costs. Cash GM1 up 895 bps. SS GAAP GM down 729 bps to 43% primarily due to mix. SS Cash GM1 down 608 bps to 51%. SN GAAP GM up 770 bps to 26% due to mix and program management. SN Cash GM1 up 692 bps to 25%. SS/SN revenue mix more accretive. • Adjusted EBITDA1: Up $3.0M to ($0.2M); Lower cash operating expenses1 partially offset by lower cash gross profit1 (due to lower revenue partially offset by higher Cash GM1). • Free Cash Flow1: Short-term buildup in working capital associated with high-growth programs and one-time capex investments in IT infrastructure expansion. 4Q YoY Commentary • Revenue: Security Solutions down 1% to $76.8M due to the reduction in revenue of a long-term program, the completion of a short-term program in 2023, and the sale of a non-recurring perpetual license in 2023, partially offset by growth in TSA PreCheck® and other portions of the portfolio. Secure Networks down 54% to $31.5M primarily due to the successful completion and ramp down of programs. • Gross Profit: GAAP gross profit down $18.5M primarily due to lower revenue. GAAP GM also down 462 bps due to impairment charges and amortization of software development costs, partially offset by mix. Cash GM1 up 424 bps. SS GAAP GM down 1,511 bps to 36% primarily due to impairment and amortization expenses. SS Cash GM1 down 406 bps to 53% due to mix. SN GAAP GM up 181 bps to 21% due to mix and program management. SN Cash GM1 up 227 bps to 22%. SS/SN revenue mix more accretive. • Adjusted EBITDA1: Down $4.3M to ($9.6M); Lower cash gross profit1 due to lower revenue, partially offset by higher Cash GM1 and lower adjusted opex1. • Free Cash Flow1: Lower cash flow from operations partially offset by lower capitalized R&D. FY YoY Commentary Free Cash Flow(1)GAAP Gross ProfitRevenue Adjusted EBITDA(1) Free Cash Flow(1)GAAP Gross ProfitRevenue Adjusted EBITDA(1) 4Q YoYFY YoY $14.1M $10.6M 4Q23 4Q24 34.3% GAAP GM 38.0% Cash GM1 40.3% GAAP GM 47.0% Cash GM1 36.4% GAAP GM 39.5% Cash GM1 $41.1M $26.4M 4Q23 4Q24 ($3.2M) ($0.2M) 4Q23 4Q24 $1.8M ($14.8M) 4Q23 4Q24 $52.9M $34.4M FY23 FY24 $145.4M $108.3M FY23 FY24 ($5.4M) ($9.6M) FY23 FY24 ($13.9M) ($39.7M) FY23 FY24 31.8% GAAP GM 43.7% Cash GM1
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10 2025 OUTLOOK 2025 1Q ADDITIONAL MODELING ASSUMPTIONS Stock Based Compensation (SBC) Depreciation & Amortization Weighted Average Share Count Tax Rate CAPEX & Capitalized Software Cash Operating Expenses1 GAAP Gross Margin Adjusted Operating Expenses1 Notes: 1. Cash Gross Margin, Cash Operating Expenses, and Adjusted Operating Expenses are non-GAAP financial measures. The Company has not provided reconciliations to the most directly comparable GAAP measures to these forward-looking non-GAAP financial measures because certain items are out of the Company’s control or cannot be reasonably predicted. Accordingly, reconciliation of forward-looking Cash Gross Margin, Cash Operating Expenses, and Adjusted Operating Expenses are not available without unreasonable effort. • Down YoY due to lower labor expenses, reduced headcount, and lower spend associated with discontinued development of selected solutions associated with the restructuring plan • SS and SN down YoY • More favorable revenue mix between SS and SN • Cash gross margin1 up YoY 2025E 1Q Commentary2024 1Q 2024 Full Year 31.8% $3.0M$21.4M $3.1M$11.9M 70.6M71.9M (0.1%)(0.1%) $3.3M$13.8M $17.9M$68.2M 37.0% • Not meaningful 2025E 1Q ~$7.5M - $8.0M ~$2.4 - $2.9M ~72.5 - 73.0M - ~$2.5M - $3.0M ~$16.9M ~38.5% - 39.2% • ~33% is included in adjusted operating expenses1 in 1Q 2025 • ~$0.2M in COS in 1Q 2025 • Down YoY due to lower spend as indicated above and reduced depreciation and amortization, partially offset by lower capitalization of software development $16.7M$62.4M ~$15.2M • Minimal CAPEX in 1Q 2025
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11 2024 RESULTS GAAP AND ADJUSTED FULL YEAR RESULTS (Amounts in thousands, unaudited) GAAP SBC Other Inc Restructure Adjusted GAAP SBC Other Inc Adjusted GAAP SBC Other Inc Impairment Restructure Adjusted GAAP SBC Other Inc Restructure Adjusted GAAP SBC Other Inc Impairment Restructure Adjusted Revenue Security Solutions 18,640$ -$ -$ -$ 18,640$ 17,867$ -$ -$ 17,867$ 18,332$ -$ -$ -$ -$ 18,332$ 21,921$ -$ -$ -$ 21,921$ 76,760$ -$ -$ -$ -$ 76,760$ Secure Networks 10,979 - - - 10,979 10,631 - - 10,631 5,451 - - - - 5,451 4,451 - - - 4,451 31,512 - - - - 31,512 Total 29,619 - - - 29,619 28,498 - - 28,498 23,783 - - - - 23,783 26,372 - - - 26,372 108,272 - - - - 108,272 Gross Profit Security Solutions 8,626 176 - - 8,802 7,265 162 - 7,427 2,310 117 - 5,333 272 8,032 9,478 212 - (21) 9,669 27,679 667 - 5,333 251 33,930 Secure Networks 2,335 81 - - 2,416 2,442 66 - 2,508 833 (2) - - 121 952 1,140 16 - (31) 1,125 6,750 161 - - 90 7,001 Total 10,961 257 - - 11,218 9,707 228 - 9,935 3,143 115 - 5,333 393 8,984 10,618 228 - (52) 10,794 34,429 828 - 5,333 341 40,931 Gross Margin Security Solutions 46.3% 0.9% 0.0% 0.0% 47.2% 40.7% 0.9% 0.0% 41.6% 12.6% 0.6% 0.0% 29.1% 1.5% 43.8% 43.2% 1.0% 0.0% -0.1% 44.1% 36.1% 0.9% 0.0% 6.9% 0.3% 44.2% Secure Networks 21.3% 0.7% 0.0% 0.0% 22.0% 23.0% 0.6% 0.0% 23.6% 15.3% 0.0% 0.0% 0.0% 2.2% 17.5% 25.6% 0.4% 0.0% -0.7% 25.3% 21.4% 0.5% 0.0% 0.0% 0.3% 22.2% Total 37.0% 0.9% 0.0% 0.0% 37.9% 34.1% 0.8% 0.0% 34.9% 13.2% 0.5% 0.0% 22.4% 1.7% 37.8% 40.3% 0.9% 0.0% -0.2% 40.9% 31.8% 0.8% 0.0% 4.9% 0.3% 37.8% Operating Expenses Research and Development 3,170 428 - - 2,742 1,459 (877) - 2,336 2,409 188 - - 164 2,057 1,404 140 - (26) 1,290 8,442 (121) - - 138 8,425 Selling, General and Administrative 16,229 2,299 - (10) 13,940 16,892 2,868 - 14,024 23,225 8,511 - - 890 13,824 19,141 7,026 - (89) 12,204 75,487 20,704 - - 791 53,992 Impairment loss on intangible assets - - - - - - - - - 6,373 - - 6,373 - - - 6,373 - - 6,373 - - Total 19,399 2,727 - (10) 16,682 18,351 1,991 - 16,360 32,007 8,699 - 6,373 1,054 15,881 20,545 7,166 - (115) 13,494 90,302 20,583 - 6,373 929 62,417 EBIT / Operating (Loss)/Income (8,438) 2,984 - (10) (5,464) (8,644) 2,219 - (6,425) (28,864) 8,814 - 11,706 1,447 (6,897) (9,927) 7,394 - (167) (2,700) (55,873) 21,411 - 11,706 1,270 (21,486) Interest Expense (175) - - - (175) (160) - - (160) (157) - - - - (157) (152) - - - (152) (644) - - - - (644) Other Income 1,252 - (1,252) - - 1,064 - (1,064) - 983 - (983) - - - 724 - (724) - - 4,023 - (4,023) - - - Earnings Before Taxes (EBT) (7,361) 2,984 (1,252) (10) (5,639) (7,740) 2,219 (1,064) (6,585) (28,038) 8,814 (983) 11,706 1,447 (7,054) (9,355) 7,394 (724) (167) (2,852) (52,494) 21,411 (4,023) 11,706 1,270 (22,130) Provision for Income Taxes (17) - - - (17) (17) - - (17) (17) - - - - (17) 25 - - - 25 (26) - - - - (26) Net (Loss)/Income (7,378)$ 2,984$ (1,252)$ (10)$ (5,656)$ (7,757)$ 2,219$ (1,064)$ (6,602)$ (28,055)$ 8,814$ (983)$ 11,706$ 1,447$ (7,071)$ (9,330)$ 7,394$ (724)$ (167)$ (2,827)$ (52,520)$ 21,411$ (4,023)$ 11,706$ 1,270$ (22,156)$ Weighted Avergae Share Count 70,628 70,628 70,628 70,628 70,628 72,017 72,017 72,017 72,017 72,309 72,309 72,309 72,309 72,309 72,309 72,435 72,435 72,435 72,435 72,435 71,850 71,850 71,850 71,850 71,850 71,850 EPS (0.10)$ 0.04$ (0.02)$ -$ (0.08)$ (0.11)$ 0.03$ (0.01)$ (0.09)$ (0.39)$ 0.12$ (0.01)$ 0.16$ 0.02$ (0.10)$ (0.13)$ 0.10$ (0.01)$ -$ (0.04)$ (0.73)$ 0.30$ (0.06)$ 0.16$ 0.02$ (0.31)$ Net (Loss)/Income (7,378)$ 2,984$ (1,252)$ (10)$ (5,656)$ (7,757)$ 2,219$ (1,064)$ (6,602)$ (28,055)$ 8,814$ (983)$ 11,706$ 1,447$ (7,071)$ (9,330)$ 7,394$ (724)$ (167)$ (2,827)$ (52,520)$ 21,411$ (4,023)$ 11,706$ 1,270$ (22,156)$ Other Income (1,252) - 1,252 - - (1,064) - 1,064 - (983) - 983 - - - (724) - 724 - - (4,023) - 4,023 - - - Interest Expense 175 - - - 175 160 - - 160 157 - - - - 157 152 - - - 152 644 - - - - 644 Provision for Income Taxes 17 - - - 17 17 - - 17 17 - - - - 17 (25) - - - (25) 26 - - - - 26 Depreciation & Amortization 3,129 - - - 3,129 3,491 - - 3,491 2,748 - - - - 2,748 2,499 - - - 2,499 11,867 - - - - 11,867 EBITDA (5,309)$ 2,984$ -$ (10)$ (2,335)$ (5,153)$ 2,219$ -$ (2,934)$ (26,116)$ 8,814$ -$ 11,706$ 1,447$ (4,149)$ (7,428)$ 7,394$ -$ (167)$ (201)$ (44,006)$ 21,411$ -$ 11,706$ 1,270$ (9,619)$ Cash Flow from Operations (350)$ (7,990)$ (7,080)$ (10,518)$ (25,938)$ Capitalized Software (3,202) (3,113) (2,789) (2,401) (11,505) PPE (97) (235) (49) (1,871) (2,252) CAPEX (3,299) (3,348) (2,838) (4,272) (13,757) Free Cash Flow (3,649)$ (11,338)$ (9,918)$ (14,790)$ (39,695)$ Three Months Ended September 30, 2024 Three Months Ended December 31, 2024Three Months Ended March 31, 2024 Three Months Ended June 30, 2024 Twelve Months Ended December 31, 2024 2024
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12 2023 RESULTS GAAP AND ADJUSTED FULL YEAR RESULTS (Amounts in thousands, unaudited) (1) Due to its immaterial amount, the impairment loss on intangible assets of $0.1 million and $0.3 million for the three months ended December 31, 2023 and September 30, 2023, respectively, and $0.5 million for the twelve months ended December 31, 2023 was reported as part of depreciation and amortization within research and development expenses in 2023. GAAP SBC Other Inc Restructure Adjusted GAAP SBC Other Inc Restructure Adjusted GAAP SBC Other Inc Restructure Adjusted GAAP SBC Other Inc Restructure Adjusted GAAP SBC Other Inc Restructure Adjusted Revenue Security Solutions 19,773$ -$ -$ -$ 19,773$ 17,196$ -$ -$ -$ 17,196$ 19,795$ -$ -$ -$ 19,795$ 20,652$ -$ -$ -$ 20,652$ 77,416$ -$ -$ -$ 77,416$ Secure Networks 15,449 - - - 15,449 15,715 - - - 15,715 16,391 - - - 16,391 20,407 - - - 20,407 67,962 - - - 67,962 Total 35,222 - - - 35,222 32,911 - - - 32,911 36,186 - - - 36,186 41,059 - - - 41,059 145,378 - - - 145,378 Gross Profit Security Solutions 10,274 272 - - 10,546 9,551 153 - - 9,704 9,354 63 - - 9,417 10,435 180 - - 10,615 39,614 668 - - 40,282 Secure Networks 3,208 54 - - 3,262 2,808 72 - - 2,880 3,659 10 - - 3,669 3,653 96 - - 3,749 13,328 232 - - 13,560 Total 13,482 326 - - 13,808 12,359 225 - - 12,584 13,013 73 - - 13,086 14,088 276 - - 14,364 52,942 900 - - 53,842 Gross Margin Security Solutions 52.0% 1.4% 0.0% 0.0% 53.3% 55.5% 0.9% 0.0% 0.0% 56.4% 47.3% 0.3% 0.0% 0.0% 47.6% 50.5% 0.9% 0.0% 0.0% 51.4% 51.2% 0.9% 0.0% 0.0% 52.0% Secure Networks 20.8% 0.3% 0.0% 0.0% 21.1% 17.9% 0.5% 0.0% 0.0% 18.3% 22.3% 0.1% 0.0% 0.0% 22.4% 17.9% 0.5% 0.0% 0.0% 18.4% 19.6% 0.3% 0.0% 0.0% 20.0% Total 38.3% 0.9% 0.0% 0.0% 39.2% 37.6% 0.7% 0.0% 0.0% 38.2% 36.0% 0.2% 0.0% 0.0% 36.2% 34.3% 0.7% 0.0% 0.0% 35.0% 36.4% 0.6% 0.0% 0.0% 37.0% Operating Expenses Research and Development (1) 2,833 770 - - 2,063 2,646 847 - - 1,799 3,154 328 - - 2,826 3,614 44 - - 3,570 12,247 1,989 - - 6,934 Selling, General and Administrative 23,619 8,403 - 1,200 14,016 19,180 6,673 - (3) 12,510 19,552 4,817 - - 14,735 18,659 1,614 - (65) 17,110 81,010 21,507 - 1,132 58,371 Total 26,452 9,173 - 1,200 16,079 21,826 7,520 - (3) 14,309 22,706 5,145 - - 17,561 22,273 1,658 - (65) 20,680 93,257 23,496 - 1,132 68,629 EBIT / Operating (Loss)/Income (12,970) 9,499 - 1,200 (2,271) (9,467) 7,745 - (3) (1,725) (9,693) 5,218 - - (4,475) (8,185) 1,934 - (65) (6,316) (40,315) 24,396 - 1,132 (14,787) Interest Expense (249) - - - (249) (184) - - - (184) (178) - - - (178) (175) - - - (175) (786) - - - (786) Other Income 2,496 - (2,496) - - 1,649 - (1,649) - - 1,222 - (1,222) - - 1,348 - (1,348) - - 6,715 - (6,715) - - Earnings Before Taxes (EBT) (10,723) 9,499 (2,496) 1,200 (2,520) (8,002) 7,745 (1,649) (3) (1,909) (8,649) 5,218 (1,222) - (4,653) (7,012) 1,934 (1,348) (65) (6,491) (34,386) 24,396 (6,715) 1,132 (15,573) Provision for Income Taxes (23) - - - (23) (22) - - - (22) (23) - - - (23) 32 - - - 32 (36) - - - (36) Net (Loss)/Income (10,746)$ 9,499$ (2,496)$ 1,200$ (2,543)$ (8,024)$ 7,745$ (1,649)$ (3)$ (1,931)$ (8,672)$ 5,218$ (1,222)$ -$ (4,676)$ (6,980)$ 1,934$ (1,348)$ (65)$ (6,459)$ (34,422)$ 24,396$ (6,715)$ 1,132$ (15,609)$ Weighted Average Share Count 68,176 68,176 68,176 68,176 68,176 69,424 69,424 69,424 69,424 69,424 69,571 69,571 69,571 69,571 69,571 69,832 69,832 69,832 69,832 69,832 69,256 69,256 69,256 69,256 69,256 EPS (0.16)$ 0.14$ (0.04)$ 0.02$ (0.04)$ (0.12)$ 0.11$ (0.02)$ (0.00)$ (0.03)$ (0.12)$ 0.08$ (0.02)$ -$ (0.07)$ (0.10)$ 0.03$ (0.02)$ -$ (0.09)$ (0.50)$ 0.35$ (0.10)$ 0.02$ (0.23)$ Net (Loss)/Income (10,746)$ 9,499$ (2,496)$ 1,200$ (2,543)$ (8,024)$ 7,745$ (1,649)$ (3)$ (1,931)$ (8,672)$ 5,218$ (1,222)$ -$ (4,676)$ (6,980)$ 1,934$ (1,348)$ (65)$ (6,459)$ (34,422)$ 24,396$ (6,715)$ 1,132$ (15,609)$ Other Income (2,496) - 2,496 - - (1,649) - 1,649 - - (1,222) - 1,222 - - (1,348) - 1,348 - - (6,715) - 6,715 - - Interest Expense 249 - - - 249 184 - - - 184 178 - - - 178 175 - - - 175 786 - - - 786 Provision for Income Taxes 23 - - - 23 22 - - - 22 23 - - - 23 (32) - - - (32) 36 - - - 36 Depreciation & Amortization (1) 1,425 - - - 1,425 1,696 - - - 1,696 3,215 - - - 3,215 3,093 - - - 3,093 9,429 - - - 9,429 EBITDA (11,545)$ 9,499$ -$ 1,200$ (846)$ (7,771)$ 7,745$ -$ (3)$ (29)$ (6,478)$ 5,218$ -$ -$ (1,260)$ (5,092)$ 1,934$ -$ (65)$ (3,223)$ (30,886)$ 24,396$ -$ 1,132$ (5,358)$ Cash Flow from Operations (100)$ (4,113)$ 846$ 4,954$ 1,587$ Capitalized Software (3,800) (4,398) (3,762) (2,592) (14,552) PPE (223) (47) (80) (576) (926) CAPEX (4,023) (4,445) (3,842) (3,168) (15,478) Free Cash Flow (4,123)$ (8,558)$ (2,996)$ 1,786$ (13,891)$ Twelve Months Ended December 31, 2023 2023 Three Months Ended March 31, 2023 Three Months Ended September 30, 2023 Three Months Ended December 31, 2023Three Months Ended June 30, 2023
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13 2024 RESULTS CASH GROSS PROFIT & CASH GROSS MARGIN FULL YEAR RESULTS (Amounts in thousands, unaudited) Twelve Months Ended March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024 December 31, 2024 Revenue Security Solutions 18,640$ 17,867$ 18,332$ 21,921$ 76,760$ Secure Networks 10,979 10,631 5,451 4,451 31,512 Total 29,619$ 28,498$ 23,783$ 26,372$ 108,272$ GAAP Gross Profit Security Solutions 8,626$ 7,265$ 2,310$ 9,478$ 27,679$ Secure Networks 2,335 2,442 833 1,140 6,750 Total 10,961$ 9,707$ 3,143$ 10,618$ 34,429$ GAAP Gross Margin Security Solutions 46.3% 40.7% 12.6% 43.2% 36.1% Secure Networks 21.3% 23.0% 15.3% 25.6% 21.4% Total 37.0% 34.1% 13.2% 40.3% 31.8% Stock Based Compensation - Cost of Sales Security Solutions 176$ 162$ 117$ 212$ 667$ Secure Networks 81 66 (2) 16 161 Total 257$ 228$ 115$ 228$ 828$ Impairment - Cost of Sales Security Solutions -$ -$ 5,333$ -$ 5,333$ Secure Networks - - - - - Total -$ -$ 5,333$ -$ 5,333$ Restructuring Costs - Cost of Sales Security Solutions -$ -$ 272$ (21)$ 251$ Secure Networks - - 121 (31) 90 Total -$ -$ 393$ (52)$ 341$ Adjusted Gross Profit Security Solutions 8,802$ 7,427$ 8,032$ 9,669$ 33,930$ Secure Networks 2,416 2,508 952 1,125 7,001 Total 11,218$ 9,935$ 8,984$ 10,794$ 40,931$ Adjusted Gross Margin Security Solutions 47.2% 41.6% 43.8% 44.1% 44.2% Secure Networks 22.0% 23.6% 17.5% 25.3% 22.2% Total 37.9% 34.9% 37.8% 40.9% 37.8% Depreciation & Amortization - Cost of Sales Security Solutions 1,275$ 2,037$ 1,488$ 1,596$ 6,396$ Secure Networks 3 2 2 1 8 Total 1,278$ 2,039$ 1,490$ 1,597$ 6,404$ Cash Gross Profit Security Solutions 10,077$ 9,464$ 9,520$ 11,265$ 40,326$ Secure Networks 2,419 2,510 954 1,126 7,009 Total 12,496$ 11,974$ 10,474$ 12,391$ 47,335$ Cash Gross Margin Security Solutions 54.1% 53.0% 51.9% 51.4% 52.5% Secure Networks 22.0% 23.6% 17.5% 25.3% 22.2% Total 42.2% 42.0% 44.0% 47.0% 43.7% 2024 Three Months Ended
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14 2023 RESULTS CASH GROSS PROFIT & CASH GROSS MARGIN FULL YEAR RESULTS (Amounts in thousands, unaudited) 2023 Twelve Months Ended March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 December 31, 2023 Revenue Security Solutions 19,773$ 17,196$ 19,795$ 20,652$ 77,416$ Secure Networks 15,449 15,715 16,391 20,407 67,962 Total 35,222$ 32,911$ 36,186$ 41,059$ 145,378$ GAAP Gross Profit Security Solutions 10,274$ 9,551$ 9,354$ 10,435$ 39,614$ Secure Networks 3,208 2,808 3,659 3,653 13,328 Total 13,482$ 12,359$ 13,013$ 14,088$ 52,942$ GAAP Gross Margin Security Solutions 52.0% 55.5% 47.3% 50.5% 51.2% Secure Networks 20.8% 17.9% 22.3% 17.9% 19.6% Total 38.3% 37.6% 36.0% 34.3% 36.4% Stock Based Compensation - Cost of Sales Security Solutions 272$ 153$ 63$ 180$ 668$ Secure Networks 54 72 10 96 232 Total 326$ 225$ 73$ 276$ 900$ Adjusted Gross Profit Security Solutions 10,546$ 9,704$ 9,417$ 10,615$ 40,282$ Secure Networks 3,262 2,880 3,669 3,749 13,560 Total 13,808$ 12,584$ 13,086$ 14,364$ 53,842$ Adjusted Gross Margin Security Solutions 53.3% 56.4% 47.6% 51.4% 52.0% Secure Networks 21.1% 18.3% 22.4% 18.4% 20.0% Total 39.2% 38.2% 36.2% 35.0% 37.0% Depreciation & Amortization - Cost of Sales Security Solutions 170$ 168$ 1,943$ 1,251$ 3,532$ Secure Networks 6 2 2 2 12 Total 176$ 170$ 1,945$ 1,253$ 3,544$ Cash Gross Profit Security Solutions 10,716$ 9,872$ 11,360$ 11,866$ 43,814$ Secure Networks 3,268 2,882 3,671 3,751 13,572 Total 13,984$ 12,754$ 15,031$ 15,617$ 57,386$ Cash Gross Margin Security Solutions 54.2% 57.4% 57.4% 57.5% 56.6% Secure Networks 21.2% 18.3% 22.4% 18.4% 20.0% Total 39.7% 38.8% 41.5% 38.0% 39.5% Three Months Ended
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15 RECONCILIATIONS EBITDA, ADJUSTED EBITDA, EBITDA MARGIN, AND ADJUSTED EBITDA MARGIN (Amounts in thousands, unaudited) (1) The stock-based compensation expense to EBITDA is made up of stock-based compensation expense for the awarded RSUs, PSUs, and stock options, and other sources. Stock- based compensation expense for the awarded RSUs, PSUs and stock options was $6.9 million and $19.4 million for the three and twelve months ended December 31, 2024, respectively, and $4.1 million and $22.9 million for the three and twelve months ended December 31, 2023, respectively. Stock-based compensation (adjustments) expense from other sources was $0.5 million and $2.1 million for the three and twelve months ended December 31, 2024, respectively, and $(2.1) million and $1.5 million for the three and twelve months ended December 31, 2023, respectively. The other sources of stock-based compensation consist of accrued compensation, which the Company intends to settle in shares of the Company's common stock. However, it is the Company’s discretion whether this compensation will ultimately be paid in stock or cash. The Company has the right to dictate the form of these payments up until the date at which they are paid. Any change to the expected payment form would result in out of quarter adjustments to this add back to Adjusted EBITDA. (2) Due to its immaterial amount, the impairment loss on intangible assets of $0.1 million and $0.5 million for the three and twelve months ended December 31, 2023 was reported as part of depreciation and amortization expenses in 2023. (3) The restructuring expenses include severance and other related benefit costs (including outplacement services and continuing health insurance coverage), external consulting and advisory fees related to implementing the restructuring plan. For the Three Months Ended December 31, For the Year Ended December 31, 2024 2023 2024 2023 Amount Margin Amount Margin Amount Margin Amount Margin Net loss $ (9,330) (35.4)% $ (6,980) (17.0)% $ (52,520) (48.5)% $ (34,422) (23.7)% Other income (724) (2.8)% (1,348) (3.2)% (4,023) (3.7)% (6,715) (4.6)% Interest expense 152 0.6% 175 0.4% 644 0.6% 786 0.5% Provision for income taxes (25) (0.1)% (32) (0.1)% 26 —% 36 —% Depreciation and amortization (2) 2,499 9.5% 3,093 7.5% 11,867 11.0% 9,429 6.5% EBITDA (Non-GAAP) (7,428) (28.2)% (5,092) (12.4)% (44,006) (40.7)% (30,886) (21.2)% Stock-based compensation expense (1) 7,394 28.0% 1,934 4.7% 21,411 19.8% 24,396 16.8% Impairment loss on intangible assets (2) — —% — —% 11,706 10.8% — Restructuring expenses (3) (167) (0.6)% (65) (0.1)% 1,270 1.2% 1,132 0.8% Adjusted EBITDA (Non-GAAP) $ (201) (0.8)% $ (3,223) (7.8)% $ (9,619) (8.9)% $ (5,358) (3.7)%
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16 RECONCILIATIONS ADJUSTED NET LOSS AND ADJUSTED EPS (Amounts in thousands, unaudited) (1) The stock-based compensation expense to EBITDA is made up of stock-based compensation expense for the awarded RSUs, PSUs, and stock options, and other sources. Stock- based compensation expense for the awarded RSUs, PSUs and stock options was $6.9 million and $19.4 million for the three and twelve months ended December 31, 2024, respectively, and $4.1 million and $22.9 million for the three and twelve months ended December 31, 2023, respectively. Stock-based compensation (adjustments) expense from other sources was $0.5 million and $2.1 million for the three and twelve months ended December 31, 2024, respectively, and $(2.1) million and $1.5 million for the three and twelve months ended December 31, 2023, respectively. The other sources of stock-based compensation consist of accrued compensation, which the Company intends to settle in shares of the Company's common stock. However, it is the Company’s discretion whether this compensation will ultimately be paid in stock or cash. The Company has the right to dictate the form of these payments up until the date at which they are paid. Any change to the expected payment form would result in out of quarter adjustments to this add back to Adjusted Net Loss. (2) Due to its immaterial amount, the impairment loss on intangible assets of $0.1 million and $0.5 million for the three and twelve months ended December 31, 2023 was reported as part of depreciation and amortization expenses in 2023. (3) The restructuring expenses include severance and other related benefit costs (including outplacement services and continuing health insurance coverage), external consulting and advisory fees related to implementing the restructuring plan. For the Three Months Ended December 31, For the Year Ended December 31, 2024 2023 2024 2023 Adjusted Net Loss Adjusted Earnings Per Share Adjusted Net Loss Adjusted Earnings Per Share Adjusted Net Loss Adjusted Earnings Per Share Adjusted Net Loss Adjusted Earnings Per Share Net loss $ (9,330) $ (0.13) $ (6,980) $ (0.10) $ (52,520) $ (0.73) $ (34,422) $ (0.50) Adjustments: Other income (724) (0.01) (1,348) (0.02) (4,023) (0.06) (6,715) (0.10) Stock-based compensation expense (1) 7,394 0.10 1,934 0.03 21,411 0.30 24,396 0.35 Impairment loss on intangible assets (2) — — — — 11,706 0.16 — — Restructuring expenses (3) (167) — (65) — 1,270 0.02 1,132 0.02 Adjusted net loss (Non-GAAP) $ (2,827) $ (0.04) $ (6,459) $ (0.09) $ (22,156) $ (0.31) $ (15,609) $ (0.23) Weighted-average shares of common stock outstanding, basic 72,435 69,832 71,850 69,256
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17 RECONCILIATIONS ADJUSTED GROSS PROFIT, CASH GROSS PROFIT, ADJUSTED GROSS MARGIN, AND CASH GROSS MARGIN (Amounts in thousands, unaudited) For the Three Months Ended December 31, For the Year Ended December 31, 2024 2023 2024 2023 Amount Margin Amount Margin Amount Margin Amount Margin Gross profit $ 10,618 40.3% $ 14,088 34.3% $ 34,429 31.8% $ 52,942 36.4% Adjustments: Stock-based compensation expense — cost of sales 228 0.8% 276 0.7% 828 0.8% 900 0.6% Impairment loss on intangible assets – cost of sales — —% — —% 5,333 4.9% — —% Restructuring expenses — cost of sales (52) (0.2)% — —% 341 0.3% — —% Adjusted gross profit (Non-GAAP) 10,794 40.9% 14,364 35.0% 40,931 37.8% 53,842 37.0% Depreciation and amortization — cost of sales 1,597 6.1% 1,253 3.0% 6,404 5.9% 3,544 2.5% Cash gross profit (Non-GAAP) $ 12,391 47.0% $ 15,617 38.0% $ 47,335 43.7% $ 57,386 39.5%
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18 RECONCILIATIONS FREE CASH FLOW (Amounts in thousands, unaudited) For the Three Months Ended December 31, For the Year Ended December 31, 2024 2023 2024 2023 Net cash flows (used in) provided by operating activities $ (10,518) $ 4,954 $ (25,938) $ 1,587 Adjustments: Purchases of property and equipment (1,871) (576) (2,252) (926) Capitalized software development costs (2,401) (2,592) (11,505) (14,552) Free cash flow (Non-GAAP) $ (14,790) $ 1,786 $ (39,695) $ (13,891)
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19 RECONCILIATIONS ADJUSTED OPERATING EXPENSES AND CASH OPERATING EXPENSES (Amounts in thousands, unaudited) (1) Due to its immaterial amount, the impairment loss on intangible assets of $0.1 million and $0.5 million for the three and twelve months ended December 31, 2023, was reported as part of depreciation and amortization expenses in 2023. For the Three Months Ended December 31, For the Year Ended December 31, 2024 2023 2024 2023 Operating expenses $ 20,545 $ 22,273 $ 90,302 $ 93,257 Adjustments: Stock-based compensation expense (7,166) (1,658) (20,583) (23,496) Impairment loss on intangible assets (1) — — (6,373) — Restructuring expenses 115 65 (929) (1,132) Adjusted operating expenses (Non-GAAP) 13,494 20,680 62,417 68,629 Depreciation and amortization (1) (902) (1,840) (5,463) (5,885) Capitalized software development costs 2,403 2,740 11,262 14,738 Cash operating expenses (Non-GAAP) $ 14,995 $ 21,580 $ 68,216 $ 77,482
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Solutions that empower and protect the enterprise. TM 20