GlobeNewswire Inc | Aug 16, 2021 04:11PM EDT

August 16, 2021

-- Delivers Revenues of $52.6 million; Up 8% Reported; Up 48% Excluding Contract with U.S. Census Bureau; Reports Double Digit Growth in Xacta, Telos Ghost, and Secure Networks -- Increases Gross Profit 17% to $20.6 Million; Expands Gross Margin 290 Basis Points to 39.1% -- Generates $3.5 Million of Cash Flow from Operations -- Reaffirms 2021 Sales Guidance of $283 million - $295 million and Adjusted EBITDA Guidance of $33 million - $36 million

ASHBURN, Va., Aug. 16, 2021 (GLOBE NEWSWIRE) -- Telos Corporation (NASDAQ: TLS), a leading provider of cyber, cloud and enterprise security solutions for the worlds most security-conscious organizations, today announced financial results for the second quarter 2021.

We delivered a solid second quarter, as we continued to deliver revenue growth and win meaningful, large-scale contracts such as a task order for our Xacta solution from the Air Force and an expanded partnership with a major intelligence community customer, said John B. Wood, CEO and chairman, Telos. Since the beginning of 2021, we have achieved our objective and tripled our sales, marketing and channel team and continued to attract top talent. Our impressive results continue to be driven by strong demand for our advanced security solutions, supported by recent increased funding to address cybersecurity needs. We are well positioned to continue to execute as a leading, world class organization in the cyber, cloud and enterprise security market, and we reaffirm our outlook for the full year.

Second Quarter 2021 Financial Highlights (in millions, except per share data)

2Q 2Q 2021 2020Revenue^1 $52.6 $48.6Gross Profit $20.6 $17.6Gross Margin 39.1% 36.2%GAAP Net Income (Loss) $ $3.1 (18.7)Adjusted Net Income (Loss)^2, 3 $2.6 $0.3Enterprise EBITDA^2 $ $6.4 (17.2)Adjusted EBITDA^2, 3 $4.2 $6.4GAAP Net Income (Loss) per Share Attributable to Telos $ $0.01Corporation, Diluted (0.28)Adjusted EPS^2, 3 $0.04 $0.01Weighted-average Shares of Common Stock Outstanding, Diluted 66.6 39.9Cash Flow from Operations $3.5 $(0.9)

1 Includes $1.4 million of revenue from the contract with the US Census Bureau in Q2 2021 and $14.1 million in Q2 2020. Excluding this contract, year-over-year growth is 48%.2 Adjusted EBITDA, Enterprise EBITDA, Adjusted Net Income (Loss) and Adjusted EPS are non-GAAP financial measures. Refer to Non-GAAP Financial Measures below.3 After adjustment for stock compensation expense of $21.3 million in the second quarter 2021 and $0 in the second quarter 2020.

Selected Second Quarter and Recent 2021 Business Highlights:

New Business Activities

-- Telos added a third cloud service provider to our roster of cloud customers using Xacta. This is in addition to the strong relationships the company has with Amazon Web Services and Microsoft Azure. -- Xacta continued to provide significant value to the financial services market, as evidenced by a software license and support renewal by a major Fortune 50 insurance company. -- Telos saw increased commercial adoption of their security solutions, with new and renewed contracts from AT&T, Collins Aerospace, Accenture, Northrop Grumman, Vibrent Health, IronNet Cybersecurity and Comtech Telecommunications Corp.

Partner Enhancements

-- Telos launched the Telos CyberProtect Partner Program, with launch partners DLT, a Tech Data company, and Presidio Federal. By formalizing the channel program, Telos will drive accelerated growth, generate new revenue streams and deliver on the mission of providing world-class security solutions.

Solution Enhancements

-- On June 30, Telos announced a new version of cyber risk management platform Xacta.io, which expands the control mapping capability needed by regulated industries to address audit fatigue. On July 30, Telos released a new version of Xacta 360, which enables more efficient collaboration, regulatory reporting and reciprocity. These new capabilities increase commercial and international opportunities for Xacta where there is increasing demand for automation. -- The Cybersecurity Maturity Model Certification Accreditation Body (CMMC-AB) authorized Telos as a Registered Provider Organization (RPO). As a CMMC-AB RPO, Telos is able to offer assistance to more than 300,000 organizations seeking CMMC compliance to be eligible for contract awards by the Department of Defense.

Notable Transactions

-- Telos acquired the assets of Diamond Fortress Technologies, including all patents, and will integrate the ONYX touchless fingerprinting software with the IDTrust360 platform. This integration will eliminate much of the friction involved in biometric data gathering for identity and access management and will better serve the companys growing customer base at both the enterprise and consumer levels. -- Telos completed a follow-on offering of 9.1 million shares of common stock, resulting in net proceeds to Telos of $64.3 million, of which $28.1 million was utilized to repurchase 39,682 shares of common stock and 900,970 outstanding warrants. The remaining net proceeds will be used to further invest in their sales force and growth opportunities.

Organizational Updates and Highlights

-- Telos expanded its leadership team, appointing Mark Bendza as the new chief financial officer. Mark brings with him over 20 years of experience in investor relations, business development, financial planning and analysis, financial strategy, mergers and acquisitions and capital markets. -- The Washington Post named Telos a 2021 Top Workplace in the Washington D.C. area, acknowledging the positive work environment that will continue to attract top talent. -- The Business Intelligence Group named Telos Ghost a winner of the 2021 Fortress Cyber Security Awards in the Network Security category.

Financial Outlook

Full Year GuidanceRevenue $283M - $295MYoY Organic Growth 57% - 64%Adjusted EBITDA^1 $33M - $36MYoY Adjusted EBITDA Growth 190% - 216%

1 Adjusted EBITDA, Enterprise EBITDA, Adjusted Net Income (Loss) and Adjusted EPS are non-GAAP financial measures. Refer to Non-GAAP Financial Measures below.

This guidance consists of forward-looking statements and actual results may differ materially. Refer to the Forward-Looking Statements section below for information on the factors that could cause the Companys actual results to differ materially from these forward-looking statements. Adjusted EBITDA is a non-GAAP financial measure. The Company has not provided the most directly comparable GAAP measure to this forward-looking non-GAAP financial measure because certain items are out of the Companys control or cannot be reasonably predicted. Accordingly, a reconciliation for forward-looking Adjusted EBITDA is not available without unreasonable effort.

Conference Call InformationTelos will host a conference call and live webcast to discuss its second quarter 2021 financial results at 4:30 p.m. Eastern Time today, August 16, 2021. To access the conference call, dial (833) 540-1172 for the U.S. or Canada, or (409) 217-8402 for international calls and provide conference ID 2889372. The webcast will be available live on the Investors section of the Companys website at www.investors.telos.com. In addition, an archived webcast will be available approximately two hours after the conclusion of the live event.

Forward-Looking StatementsThis press release contains forward-looking statements which are made under the safe harbor provisions of the federal securities laws. These statements are based on the Companys managements current beliefs, expectations and assumptions about future events, conditions and results and on information currently available to them. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company believes that these risks and uncertainties include, but are not limited to, those described under the captions Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations set forth from time to time in the Companys filings and reports with the U.S. Securities and Exchange Commission (SEC), including their Annual Report on Form 10-K for the year ended December 31, 2020 and their Report on Form 10-Q for the quarter ended March 31, 2021, as well as future filings and reports by the Company, copies of which are available at www.investors.telos.comand on the SECs website at www.sec.gov.

Although the Company bases these forward-looking statements on assumptions that they believe are reasonable when made, they caution the reader that forward-looking statements are not guarantees of future performance and that the Companys actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this release. Given these risks, uncertainties and other factors, many of which are beyond their control, the Company cautions the reader not to place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date of such statement and, except as required by law, the Company undertakes no obligation to update any forward-looking statement publicly, or to revise any forward-looking statement to reflect events or developments occurring after the date of the statement, even if new information becomes available in the future. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

Non-GAAP Financial MeasuresIn addition to its results determined in accordance with GAAP, the Company believes the non-GAAP financial measures of Enterprise EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS are useful in evaluating its operating performance. The Company believes that this non-GAAP financial information, when taken collectively with the Companys GAAP results, may be helpful to readers of its financial statements because that information 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.

The Company uses these non-GAAP financial measures to understand and evaluate its core operating performance and trends, to prepare and approve its annual budget, to develop short-term and long-term operating plans, and to evaluate the performance of certain management personnel when determining incentive compensation. The Company believes these non-GAAP financial measures facilitate comparison of its operating performance on a consistent basis between periods by excluding certain items that may, or could, have a disproportionate positive or negative impact on its results of operations in any particular period. When viewed in combination with the Companys results prepared in accordance with GAAP, these non-GAAP financial measures help provide a broader picture of factors and trends affecting the Companys results of operations.

Enterprise EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS are supplemental measures of operating performance that are not made under GAAP and do not represent, and should not be considered as, an alternative to net income (loss) or earnings per share as determined by GAAP. The Company defines Enterprise EBITDA as net income (loss) attributable to Telos Corporation, adjusted for net income attributable to non-controlling interest, non-operating (expense) income, interest expense, (benefit) provision for income taxes, and depreciation and amortization. The Company defines Adjusted EBITDA as Enterprise EBITDA, adjusted for stock-based compensation expense, the gain realized on redemption of the public preferred stock upon the closing of the initial public offering, the losses realized on the extinguishment of senior term loan and subordinated debt upon the closing of the initial public offering, bonuses paid as a result of the closing of the initial public offering, and other expenses related to the initial public offering. The Company defines Adjusted Net Income (Loss) as net income (loss) attributable to Telos Corporation, adjusted for non-operating expense (income) and stock-based compensation expense. The Company defines Adjusted EPS as Adjusted Net Income (Loss) divided by the weighted-average number of common shares outstanding for the period.

Each of Enterprise EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted EPS has limitations as an analytical tool, and the reader should not consider it in isolation, or as a substitute for analysis of the Companys results as reported under GAAP. Among other limitations, each of Enterprise EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted EPS does not reflect the Companys cash expenditures, or future requirements for capital expenditures, or contractual commitments, does not reflect the impact of certain cash charges resulting from matters the Company considers not to be indicative of its ongoing operations, and does not reflect income tax expense or benefit. Other companies in the Companys industry may calculate Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted EPS differently than the Company does, which limits its usefulness as a comparative measure. Because of these limitations, each of Enterprise EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted EPS should not be considered as a replacement for net income (loss) or earnings per share, as determined by GAAP, or as a measure of the Companys profitability. The Company compensates for these limitations by relying primarily on its GAAP results and using non-GAAP measures only for supplemental purposes.

About Telos CorporationTelos Corporation (NASDAQ: TLS) empowers and protects the worlds most security-conscious organizations with solutions for continuous security assurance of individuals, systems, and information. Telos offerings include cybersecurity solutions for IT risk management and information security; cloud security solutions to protect cloud-based assets and enable continuous compliance with industry and government security standards; and enterprise security solutions for identity and access management, secure mobility, organizational messaging, and network management and defense. The company serves military, intelligence and civilian agencies of the federal government, allied nations and commercial organizations around the world.

Media: Mia Wilcox media@telos.com(610) 564-6773

Investors: Brinlea Johnson The Blueshirt Group on behalf of Telos Corporation brinlea@blueshirtgroup.com(415) 269-2645

TELOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(amounts in thousands, except per share data)

Three Months Ended June Six Months Ended June 30, 30, 2021 2020 2021 2020Revenue Services $ 47,618 $ 45,486 $ 99,676 $ 80,044 Products 4,941 3,124 8,641 7,545 52,559 48,610 108,317 87,589 Costs and expenses Cost of sales - Services 29,501 29,378 69,103 54,243 Cost of sales - Products 2,501 1,659 4,299 3,531 32,002 31,037 73,402 57,774 Selling, general and administrative expensesSales and marketing 5,043 1,473 8,869 3,065 Research and development 5,327 3,815 9,388 7,472 General and administrative 28,743 7,219 48,708 13,809 39,113 12,507 66,965 24,346 Operating (loss) income (18,556 ) 5,066 (32,050 ) 5,469 Other income (expense) Other income (expense) 32 4 (1,022 ) 12 Interest expense (192 ) (1,996 ) (388 ) (4,013 )(Loss) income before income (18,716 ) 3,074 (33,460 ) 1,468 taxes(Provision for) benefit (13 ) (2 ) (47 ) 144 from income taxesNet (loss) income (18,729 ) 3,072 (33,507 ) 1,612 Less: Net incomeattributable to ? (2,806 ) ? (3,590 )non-controlling interestNet (loss) incomeattributable to Telos $ (18,729 ) $ 266 $ (33,507 ) $ (1,978 )CorporationNet (loss) income per shareattributable to Telos $ (0.28 ) $ 0.01 $ (0.51 ) $ (0.05 )Corporation, basicNet (loss) income per shareattributable to Telos $ (0.28 ) $ 0.01 $ (0.51 ) $ (0.05 )Corporation, dilutedWeighted-average shares ofcommon stock outstanding, 66,616 38,583 65,621 38,328 basicWeighted-average shares ofcommon stock outstanding, 66,616 39,927 65,621 38,328 diluted

TELOS CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS(amounts in thousands)

June 30, December 2021 31, 2020 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 130,996 $ 106,045 Accounts receivable, net of reserve of $122 and $308, 39,412 30,913 respectivelyInventories, net of obsolescence reserve of $865 and 1,784 3,311 $851, respectivelyPrepaid expenses 5,451 3,059 Other current assets 760 786 Total current assets 178,403 144,114 Property and equipment, including capitalizedsoftware development costs, net of accumulated 24,725 22,397 depreciation and amortization of $38,867 and $36,891,respectivelyOperating lease right-of-use assets 1,168 1,464 Goodwill 14,916 14,916 Other assets 882 926 Total assets $ 220,094 $ 183,817 LIABILITIES AND STOCKHOLDERS? EQUITY Current liabilities Accounts payable and other accrued liabilities $ 21,036 $ 20,899 Accrued compensation and benefits 7,811 8,474 Contract liabilities 5,925 5,654 Finance lease obligations ? short-term 1,399 1,339 Operating lease obligations ? short-term 656 677 Other current liabilities 1,831 1,903 Total current liabilities 38,658 38,946 Finance lease obligations ? long-term 13,591 14,301 Operating lease liabilities ? long-term 642 941 Deferred income taxes 670 652 Other liabilities 1,833 1,873 Total liabilities 55,394 56,713 Commitments and contingencies Stockholders? equity Common stock, $0.001 par value, 250,000,000 sharesauthorized, 66,755,230 shares and 64,625,071 shares 105 103 issued and outstanding as of June 30, 2021 andDecember 31, 2020, respectivelyAdditional paid-in capital 341,928 270,800 Accumulated other comprehensive income 17 44 Accumulated deficit (177,350 ) (143,843 )Total stockholders? equity 164,700 127,104 Total liabilities and stockholders? equity $ 220,094 $ 183,817

TELOS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(amounts in thousands)

Six Months Ended June 30, 2021 2020Operating activities: Net (loss) income $ (33,507 ) $ 1,612 Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:Stock-based compensation 35,006 ? Dividends from preferred stock recorded as interest ? 1,911 expenseDepreciation and amortization 2,764 2,734 Amortization of debt issuance costs ? 453 Deferred income tax provision 18 19 Loss on disposal of fixed assets 5 ? Other noncash items (2 ) (17 )Changes in other operating assets and liabilities (10,074 ) (5,873 )Cash (used in) provided by operating activities (5,790 ) 839 Investing activities: Capitalized software development costs (3,663 ) (3,159 )Purchases of property and equipment (1,070 ) (332 )Cash used in investing activities (4,733 ) (3,491 ) Financing activities: Proceeds from issuance of common stock, net of issuance 64,269 ? costsRepurchase of outstanding warrants (26,894 ) ? Repurchase of common stock (1,251 ) ? Payments under finance lease obligations (650 ) (594 )Amendment fee paid to lender ? (100 )Distributions to Telos ID Class B member - ? (1,000 )non-controlling interestCash provided by (used in) financing activities 35,474 (1,694 ) Increase (decrease) in cash and cash equivalents 24,951 (4,346 )Cash and cash equivalents, beginning of period 106,045 6,751 Cash and cash equivalents, end of period $ 130,996 $ 2,405 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 388 $ 1,474 Income taxes $ 54 $ 50 Noncash: Dividends from preferred stock recorded as interest $ ? $ 1,911 expense

Enterprise EBITDA and Adjusted EBITDA (Unaudited, amounts in thousands)

Three Months Ended June Six Months Ended June 30, 30, 2021 2020 2021 2020Net (loss) incomeattributable to Telos $ (18,729 ) $ 266 $ (33,507 ) $ (1,978 )CorporationAdjustments: Net income attributable to ? 2,806 ? 3,590 non-controlling interestNon-operating (income) (32 ) (4 ) 1,022 (12 )expenseInterest expense 192 1,996 388 4,013 Provision for (benefit from) 13 2 47 (144 )income taxesDepreciation and 1,404 1,345 2,764 2,734 amortizationEnterprise EBITDA (17,152 ) 6,411 (29,286 ) 8,203 Stock-based compensation 21,336 ? 35,006 ? expenseAdjusted EBITDA $ 4,184 $ 6,411 $ 5,720 $ 8,203

Adjusted Net Income (Loss) and Adjusted EPS (Unaudited)

Three Months Ended June 30, 2021 2020 Adjusted Adjusted Adjusted Adjusted Net Earnings Net Earnings Income Per Income Per (Loss) Share (Loss) Share (in (in thousands) thousands)Reported GAAP measure $ (18,729 ) $ (0.28 ) $ 266 $ 0.01 Adjustments: Non-operating income (32 ) ? (4 ) $ ? Stock-based compensation expense 21,336 0.32 ? $ ? Adjusted non-GAAP measure $ 2,575 $ 0.04 $ 262 $ 0.01 Weighted-average shares of common 66,616 38,583 stock outstanding

Six Months Ended June 30, 2021 2020 Adjusted Adjusted Adjusted Adjusted Net Earnings Net Earnings Income Per Income Per (Loss) Share (Loss) Share (in (in thousands) thousands)Reported GAAP measure $ (33,507 ) $ (0.51 ) $ (1,978 ) $ (0.05 )Adjustments: Non-operating expense (income) 1,022 0.02 (12 ) $ ? Stock-based compensation expense 35,006 0.53 ? $ ? Adjusted non-GAAP measure $ 2,521 $ 0.04 $ (1,990 ) $ (0.05 )Weighted-average shares of common 65,621 38,328 stock outstanding