LicianPro

TLS earnings / call

TLS Q3 2026 earnings call transcript, November 9, 2026

Telos Corporation 3Q26 Earnings Call

ReplayOfficial webcast

Key takeaways from this call : results vs expectations, guidance, what analysts asked

  • Management 33%
  • Mark Benza 21%
  • Mark Griffin 15%
  • Donald Terreri 12%
  • Analysts 7%

Management

  • Mark Benza

    Management

    6 min

  • Mark Griffin

    President of TELUS Corporation

    4 min

  • Donald Terreri

    Controller, Chief Acct Officer

    3 min

Analysts · 4

Transcribed automatically by Lician from the company's public webcast; it can contain errors and speaker names are best effort.

  1. Prepared remarks10:27
  2. Operator

    Good day and thank you for standing by. Welcome to TELUS Corporation's third quarter 2026 financial results. At this time, all participants are in a listen-only mode.

  3. Q&A10:35
  4. Operator

    After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message of advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that this conference is being recorded. I would not like to turn the conference over to your speaker today. Allison Phillip, please go ahead.

  5. Good morning.

  6. Thank you for joining us to discuss TELUS Corporation's third quarter 2026 financial results. With me today is Mark Griffin, President of TELUS Corporation. CEO of TELUS and Mark Benza, Executive Vice President and CFO of TELUS. Let me quickly review the format of today's presentation. Mark Griffin will provide opening remarks on our operations and priorities and Mark Benza will discuss our third quarter results and full year outlook. We will then open the line for Q&A. The third quarter financial results were issued earlier today and are posted on the TELUS Investor Relations. website, where this call is being simultaneously webcast. Additionally, we have provided presentation slides on our Investor Relations website. Before we begin, we want to emphasize that some of our statements on this call, including all of those relating to 2026 company performance, plans and operations, are forward-looking statements and are made under the safe harbor provisions of the federal securities laws. So, let's take a look at this. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ for various reasons, including the factors described in today's financial results summary, in the comments made during this conference call, and in our SEC filings. We do not undertake any duty to update any forward-looking statements. In addition, during today's call, we will discuss non-GAAP

  7. financial measures, which we believe are useful as supplemental and clarifying measures to help investors understand TELOS's financial performance. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or in isolation from, GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results. In our third quarter results summary, and on the Investor Relations portion of our website. Please also note that financial comparisons are year-over-year, unless otherwise specified. The webcast replay of this call will be available on our company website under the Investor Relations link. With that, I'll turn the call over to Mark Griffin.

  8. Mark GriffinPresident of TELUS Corporation

    Thank you, Allison, and good morning, everyone. This is my first earnings call as CEO of Telos, and I'm honored by the board's confidence. I'm grateful to John Wood for his leadership and for the partnership we have built over the past 35 years. As executive chairman, John will continue to provide valuable guidance on our product roadmap, customer relationships, and long-term sales strategy. Telos enters this next chapter with meaningful momentum. Since the beginning of the third quarter, we have a announced new and expanded engagements across the Air Force Intelligence Community, the Office of Naval Intelligence, the National Archives and Record Administration, the Department of Health and Human Services, the Department of Commerce Inspector General, and the Department of State. These awards demonstrate that customers increasingly view Telos as a strategic partner in managing cybersecurity risk, not simply as a provider of compliance software. Organizations need continuous visibility into their security posture, the ability to integrate data from multiple security tools, and practical automation that helps their teams make faster and better informed risk decisions. Our Xacta platform is well-positioned for this environment. Xacta 360. supports the governance and authorization lifecycle. Xacta.io brings together enterprise security data and enables continuous monitoring. And Xacta.ai applies artificial intelligence to automate manual activities and generate actionable insights. Together, these capabilities provide a more complete approach to cyber governance, risk, and compliance.

  9. Importantly, we are seeing Xacta adopted across defense, intelligence, and civilian agencies, often through expanded relationships with existing customers. That customer intimacy, combined with our deep mission knowledge and FedRAMP-high authorization, gives TLS a differentiated foundation for growth. We also see an opportunity to sharpen how we work. We bring these capabilities to market. AI is most valuable when it is embedded in solutions that address a clearly defined customer problem. For TLS, that problem is helping security teams understand risk, sustain compliance, and protect mission-critical systems in increasingly complex environments. As CEO, my priorities are straightforward. Execute well for our customers. Expand our market opportunities, continue improving operational performance, and translate our technology investments into durable, profitable growth. We will remain focused on building a more integrated product portfolio across cyber risk, identity, and related security services. I'm confident in the strength of our people, our customer relationships, and our technology. I look forward to... to working with our employees and partners to build on TELUS' recent return to growth and deliver long-term value for shareholders. With that, I'll turn it over to Mark Benza to review our third quarter results.

  10. Mark BenzaManagement

    Thank you, Griff, and good morning, everyone. We're pleased to report another strong quarter, highlighted by results that exceeded the high end of our guidance range. Continued strong cash flow... ...oneration to fund share repurchases, and an increase in our full-year guidance. Let's turn to slide three. Total company revenue grew 7% year-over-year to $55.2 million, exceeding our guidance range of $49.2 to $50.6 million, driven by stronger-than-forecasted performance in Pell-OF-ID. Gap gross margin was 37.9%, and cash gross margin was 43.1%, both above our expectations, reflecting disciplined execution on fixed-price programs and revenue outperformance on higher-margin programs. Adjusted EBITDA exceeded the high end of our guidance range, reaching $10.6 million. Compared to guidance, of $6 to $6.8 million, and representing the highest quarterly adjusted EBITDA since our IPO in 2020. Adjusted EBITDA margin was 19.2%. Cash flow from operations was $9.4 million, or a 17.1% margin. Free cash flow was $7.4 million. Or a 13.4% margin and represented the seventh consecutive quarter above 12%. During the quarter, we deployed $5.7 million to repurchase over 1.2 million shares at an average price of $4.59 per share.

  11. Let's turn to slide four to discuss fourth quarter guidance. For the fourth quarter, we forecast revenue in a range of $47.5 to $50 million, up 2% to 7% year-over-year. We expect cash gross margin to be approximately 43% to 44.5% up year-over-year due to favorable revenue mix. Adjusted EBITDA is expected to be between $7.00 and $7.00. and $8.8 million, representing a margin of 14.7% to 17.6%. Let's turn to slide 5 to discuss our updated full-year outlook. Based on our third-quarter outperformance and fourth-quarter guidance, we are raising our full-year revenue guidance to a range of 198.2 to $200.7 million, which brackets the top end of our original revenue guidance range of $187 to $200 million. Our strong revenue performance compared to our original guidance is primarily the result of significant new business wins in our information assurance business and outperformance on TSA. We are also raising our adjusted EBITDA guidance to a range of $32.3 to $34.1 million, significantly above our original guidance of $20.6 to $28 million. The significant increase in adjusted EBITDA guidance is primarily the result of revenues at the top end of the range, higher cash gross margins on fixed-price programs, and better-than-expected revenue mix, partially offset by higher operating expenses. Turning to 2027, as previously discussed on our second quarter earnings call, starting in the fourth quarter, we expect the resale of low-margin $30.1 million.

  12. First-party software to begin phasing out. While this revenue stream contributes meaningful revenue, it carries only a single-digit gross margin, and is not consistent with the margin profile we're building across the company. The phase-out of this revenue stream is forecasted to create a $32 million year-over-year revenue headwind in 2027, with only a modest profit impact. The new business wins in our information assurance business that Griff discussed in his opening remarks represent $58 million of net new Xacta and professional services bookings in that business. We forecast those bookings will generate approximately $6 million of revenue in 2026, and $20 million of revenue in 2027, with normalization. And lastly, together with our prime partners, we continue to make progress on the pending proposals that we've discussed on prior earnings calls. We still expect to hear award decisions in the coming months, which could contribute meaningfully to 2027 revenue and profit. Let's turn to slide six to wrap up. The third quarter reflects the continued

  13. execution of our strategy. We're pleased with our year to date performance, confident in our updated full year outlook, and remain focused on executing our strategy to drive profitable growth, generate steady cash flow, and create long term value for our shareholders. With that operator, please open the line for questions.

  14. Management

    Thank you, Mark.

  15. Mark GriffinPresident of TELUS Corporation

    This is Mark Griffin, and before we open up the line for questions, I wanted to have John Wood, TLSS Executive Chairman, who has joined us by phone, say a few words. John?

  16. Management

    Hey, Mark.

  17. Management

    Thanks a lot.

  18. Management

    Hey, everybody. Hey, I just wanted to say thank you to all the shareholders for your participation today. I also wanted to spend just a couple minutes and reflect on this. The decision that was made by Telos and me to move to an executive chairman function. You know, Mark and I have worked together for over 35 years. I've gotten to see him work in very difficult situations, very interesting situations, and really, really big opportunities. I personally believe we're at that stage where we have great big opportunities in front of us, and I asked Mark whether he'd be willing to take on the role of CEO because I was that sure he could do it for me. As many of you know, I've been CEO for many, many years, and I unfortunately made this decision with a little bit of, you know, heartburn because it meant that I had to go deal with some personal issues, and one of those personal issues was my health. You know, I've had to go to the hospital and deal with my heart and some other things, and, you know, it's been a really big deal for me. So, again, I'm not going anywhere. I plan on being a shareholder and continue to be a shareholder of size over the coming years. So, again, thank you so much, and what Mark is doing around identity as a service with TSA PreCheck and what we're doing around our AI activity with Xacta AI is nothing short of a miracle in terms of the time it takes to get these jobs done.

  19. Management

    So, anyway, best of luck, guys. I have a good luck. Complete faith in Mark, Mark Benza, and the rest of the team because I think they're really capable and they're really good and they've gotten us through the hard part. Now comes the fun part.

  20. Management

    Thanks, everybody, and I'll look forward to hearing from you in the future and feel free to reach out anytime. But as it relates to day-to-day activities and getting to those hills that we need to take, Mark's the man. See you, guys.

  21. Operator

    Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 11 again. We'll pause for a moment while we compile our Q&A roster.

  22. Our first question comes from Rudy Kessinger with DA Davidson. Your line is open.

  23. Question · D.A. Davidson

    Rudy KessingerAnalyst · D.A. Davidson

    Hey, guys.

  24. Great.

  25. Thanks for taking my question.

  26. What a dive into these new business wins, 58 million new business wins. Could you share a bit more color on these wins just with respect to, you know, how recurring they are in nature versus more one-time project-oriented wins? Just trying to get a sense of, you know, that $20 million in revenue you expect. For 27, is that a recurring $20 million we should expect well into the future, or is there any, you know, one-time kind of contract stuff in there?

  27. Management

    Hey, Rudy.

  28. Management

    Mark Griffin. These are definitely reoccurring type awards. So, we put out press releases, as you know, and you saw the size and number of these. So, these are customers who have Xacta, whether it be the base core product of Xacta 360 or the IO. In many cases, they're adding the AI component to it. So, they see the value and the efficiency with which they're getting for these products. So, you'll see these reoccurring or renewals coming up for the foreseeable future. So, we're very proud of where the direction Xacta is going, but these aren't one-time deals. Great. That's great. And congrats on that. Mark, I know you didn't give any preliminary outlook for 27, but just as we think about 27, we update our models here. You've got about a 30 million headwind from the wind down of the third-party software. You've got 20 million at least from new business wins. You have other potential new business wins you could win this quarter. How should we be thinking about 2027 revenue versus 26? 2027 revenue versus 26? Is it possible we could still see you grow the top line even with that $30 million headwind? Yeah, Rudy, I do think we have a really good shot of seeing growth even with that headwind. The information assurance wins help to offset a good chunk of that headwind. And those new wins are coming in at, as you can imagine, significantly better margins than the $30 million of revenue. Maybe that's going away. As you referenced, we have significant additional opportunities to add ongoing strength in information assurance, new wins next year, as well as...

  29. Management

    Okay, and then last one for me, just any updated color on maybe gross margins in the next...

  30. Management

    Yeah, so we'll guide more detail on the March earnings call, but just to reiterate a couple things that I said on the last earnings call, the elimination of the ITGEM third-party software, that should give us about 600... ...basis post-margin list on a rate basis. And then, in addition, TSA pre-check in the second half of 2027, the second half of 2027. So by the time you get to the second half, there could be as much... ...is 10 percentage points of margin lift from those two items. Now, between now and then, of course, there's going to be a bunch of other quick and takes. But those are two notable items from a margin-accretion perspective. Okay.

  31. Question · D.A. Davidson

    Rudy KessingerAnalyst · D.A. Davidson

    Thanks for making my questions, guys. Congrats on the quarter. And Mark, congrats on the new CEO overall as well.

  32. Management

    Thanks, Rudy.

  33. Operator

    One moment for our next question.

  34. Our next question comes from Eric Sofakari with B-Raleigh Securities. Your line is open.

  35. Question · B-Raleigh Securities

    B
    Eric SofakariAnalyst · B-Raleigh Securities

    Yeah, thanks.

  36. Thanks for taking the question.

  37. And to John, we wish you the very best. And congratulations, Mark. And congrats on a great quarter for getting out of the box. First off, on the $33 million and how much of that is falling into Q4 and then the rest, does the rest all hit? Can you talk about how that, the trajectory is in 27?

  38. Management

    Yeah, so in terms of the year-over-year headwind, in each of the first and second quarters, there's about 70. $8.5 million to $8.5 million of revenue headwind. And then in the third quarter next year, that steps up to closer to $10 million. And then in the fourth quarter, it's a little under $6 million. Okay. And Mark, are there particular changes that you anticipate making in light of your position? Are there strengths that you bring? Or are there any strategic changes in strategy that you plan to implement any different than what had already been underway?

  39. Management

    Hello, Eric.

  40. Management

    The current strategy and vision that we have in place is working for us currently. You've seen significant growth this year. The expansion as we continue to roll out sites. They then perform on TSA PreCheck. So the identity business is performing well. With the Xacta and the Xacta AI component and the adoption we're now seeing from multiple agencies in the GRC market are working well. So no, not immediate changes. What John and I have worked together for 35 years putting in place is showing progress. We'll continue to refine and continue to look at additional AI adoption throughout the company. But right now, the cornerstones are the Telos ID business area and the Xacta areas where we're seeing great pickup right now. So we expect that growth momentum to continue into 27. Very good. Thank you. One moment for our next question.

  41. Operator

    Our next question comes from Matt Kalitri with Needham and Company. Your line is open.

  42. Question · Needham & Company

    Matt KalitriAnalyst · Needham & Company

    Hey, guys.

  43. This is Matt Kalitri over at Needham.

  44. Thank you for taking the questions. And I'd like to echo my congrats to Mark and best wishes to John. I want to make sure I'm clear here. So the Xacta wins in the quarter, which was great to see, obviously. Those are completely separate from the pipeline proposals we've talked about in past quarters?

  45. Management

    Hello, Matt.

  46. Management

    Mark Riven. Yes, they are separate from what we had referenced in previous quarters. So they are generated in one, but they are different than the pipeline that we previously talked about. Okay. And so what does... Well, I guess, like, you alluded to the FedRAMP approval and some of the differentiation there, but what exactly is driving that strength in Xacta, and what do you see in that pipeline continuing forward? Primarily what we're seeing in that pipeline is efficiency, automation, and not just process improvement. So it's... The proliferation of the product building upon the 360 and the I.O. platform, and when you introduce AI, you get further efficiencies and manpower savings. And so the customers are seeing the value for this area other than just pedestrian compliance software automation. And when you rack and stack our solution...

  47. Management

    Thanks to competitors, we're seeing customers themselves evaluate and think highly of the solution, which is signified by the recent contract wins. And the pipeline is still robust, and we'll see additional wins as we move forward. Awesome.

  48. Management

    Thank you so much.

  49. Operator

    One moment for our next question.

  50. Our next question comes from Nihal Chokshi with Northland Capital Markets. Your line is open.

  51. Question · Northland Capital Markets

    Nihal ChokshiAnalyst · Northland Capital Markets

    Thank you. Congratulations on an astounding beat and raised quarter. Congratulations, Mark, and best wishes, John. Guys, it feels like every week you're putting out a press release announcing a new exact 360 IORI win here. What's the catalyst here that's been appearing? To be driving this massive wave of wins.

  52. Donald TerreriController, Chief Acct Officer

    Hello, Nahal.

  53. Mark Griffin. The catalyst is when we launched the AI product last year in the September timeframe, we had to educate and let the customers kick the tires on the solution and start seeing firsthand the value of it. And once we started, it started gaining excitement. In the community and the users of the solution. And so it took, it's taken a little bit of time to get these customers to embrace the solution. But once they did, they started issuing their RFPs and their quotes. And we started to respond to those. And the excitement around the product is continuing. So we have a few more opportunities that we hope land this year. And then the pipeline for 2027 is also full of opportunities. So initially, it's you go back to your current customer suite and you show them the enhancements and the dashboards and the efficiencies they can gain by the tool. And once they start seeing that and then the users start seeing how easy it is to adopt and implement and how much better it is than our competitor's solution, it kind of sells itself at that point. Guys, that's fantastic. Just to be clear, that net new revenue does that include value from renewal or is that just purely upsell? It's all new revenue. Okay. Got it. And then the implied incremental EBITDA margin that you're valuing for calendar 26 equates to a range of 78% to 96%. Can you help explain why it's so high? I mean, it's great, but we'd love to understand why it's so high.

  54. It's primarily driven by, well, it's a couple things. It's the incremental revenue itself is high quality, high margin revenue with really high incremental margins. And our OPEX is also down slightly year over year.

  55. So as we think about how these wins layer into revenue for not just 27, but 28 and et cetera, right? Is that the type of incremental bit of margins we should be thinking about from this incremental stream that's turning on?

  56. I don't think I want to get into too much margin level detail in a specific revenue stream, but I think what we've shown over the last couple of years is that we have a lot of operating leverage in our OPEX, and as we bring on these higher margin revenue streams, we're able to book them as very attractive incremental adjusted without margins. I feel really good about that. Obviously, there's going to be a lot of puts and takes between. Great. Thank you. Congratulations.

  57. Question · Northland Capital Markets

    Nihal ChokshiAnalyst · Northland Capital Markets

    Thanks, Donald.

  58. Management

    This will conclude the question and answer session. I will now turn the call over to Mark Griffin for closing remarks.

  59. Mark GriffinPresident of TELUS Corporation

    Thank you, Operator, and thank you to everyone who joined us today. We are pleased with the progress TELUS is making toward building a stronger, more profitable, and more cash-generative business. We are bringing together our capabilities across cybersecurity risk, identity, and... and related security services to address the evolving needs of our customers, and we see meaningful opportunities ahead. We remain focused on serving our customers, executing well, and building long-term value. I want to thank our employees, customers, partners, and shareholders for their continued support. Thank you.

  60. Operator

    Ladies and gentlemen, that's conclude today's presentation. We thank you for your participation. You may now disconnect. Have a wonderful day.

Replay