Good day, and thank you for standing by. Welcome to the Telos Corporation Q1 2033 Earnings Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Allison Phillips. Please go ahead.

Good morning. Thank you for joining us to discuss Telos Corporation's First Quarter 2023 Financial Results. With me today is John Woods, Chairman and CEO of Telos, and Mark Bendza, Executive Vice President and CFO of Telos. Let me quickly review the format of today's presentation. John will begin with brief remarks on our first quarter 2023 results and Telos' strategic priorities. Then Mark will cover the financials and guidance for second quarter and full year 2023 before turning it back to John to wrap up. Then we'll open the line for Q&A, where Mark Griffin, Executive Vice President of Security Solutions will also join us. The earnings press release was issued earlier today and is posted on the Telos 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 are forward-looking statements and are made under the safe harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ for various reasons, including the factors described in today's earnings press release and the comments made during this conference call and in our SEC filings. We do not undertake any duty to update any forward-looking statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental and clarifying measures to help investors understand Telo'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 earnings press release and on the Investor Relations portion of our website. Please also note that financial comparisons are year-over-year unless otherwise specified. The webcast replay of this call will be available for the next year on our company website under the Investor Relations link. With that, I'll turn the call over to John.

Thank you, Allison, and good morning, everyone. Let's begin today on Slide 3. Mark Bendza will discuss the details of our financial performance later on the call but overall, we executed ahead of plan in the first quarter. We delivered $35.2 million of revenue, and our gross margin expanded 66 basis points to 38.3%, both above the top end of our guidance range. Adjusted EBITDA was $846,000 loss and was also above the top end of our guidance range. We experienced program-specific year-over-year headwinds as expected and as communicated on our fourth quarter earnings call, partially offset by the significant cost actions we have taken since the beginning of the year. Now let's turn to Slide 4. As discussed on our last earnings call, the Board and I are fully aligned with our immediate priorities for the next several quarters, specifically rebuilding and growing our backlog in core revenue base through strong renewal rates on existing business and the cultivation of the centralized and more productive business development capability. Starting with renewal rates, I'm pleased to report that we achieved 100% renewal rates on major customer contracts across the portfolio. We ensure renewals on existing exactly contracts with the U.S. Air Force, the Department of Homeland Security, the Department of State, the Department of the Interior, the Department of Energy, the Defense Intelligence Agency, Amazon Web Services, Ernst & Young are a few among others that we also were awarded. The AMHS team also continued its outstanding customer service record with the achievement of several major contract renewals with government customers in the quarter. Turning to new business development. We continue to provide cyber, cloud and enterprise security solutions to the world's most security-conscious organizations in both the government and commercial end markets. Over the next several quarters, we believe…

Thank you, John, and thank you, everyone, for joining us today. Let's turn to Slide 5. As John mentioned, we're off to a sound start to the year with revenues, gross margin and adjusted EBITDA all above the high end of our guidance range. Total revenues were $35.2 million. Revenues for our Security Solutions business declined 27% to $19.8 million approximately the top end of our first quarter guidance range. Security Solutions contributed 56% of total company revenues, up slightly from 54% in the comparable period last year. The year-over-year revenue drivers for Security Solutions were consistent with our expectations as previously communicated on our fourth quarter earnings call. Growth in our Information Assurance business was offset by contraction in Secure Communications and Telos ID as a result of a program loss in Secure Communications at the end of 2022, and lower revenues on 2 ongoing programs in Telos ID. Combined, these 3 programs represented a $7.6 million year-over-year headwind in the quarter. Turning to Secure Networks. Revenues declined 34% to $15.4 million, exceeding the top end of our first quarter guidance range by $2.2 million and representing the entirety of the guidance beat for the company overall. The $2.2 million outperformance was primarily the result of better-than-expected supply chain performance late in the quarter that resulted in a pull forward of revenue from the second quarter to the first quarter. Elsewhere in the secure networks portfolio, the year-over-year revenue headwinds were consistent with our expectations as previously communicated on our fourth quarter earnings call. 3 large programs that primarily came to a successful completion in 2022 and lower revenues on an ongoing program drove a $10.6 million headwind in the quarter. Turning to profitability. Gross margin expanded 66 basis points to 38.3% due to margin expansion in secure networks…

Thanks, Mark. Let's move to Slide 8. In summary, we executed ahead of plan in the first quarter of 2023 with key financial metrics exceeding the high end of our guidance range. We delivered $35.2 million of revenue and expanded gross margins by 66 basis points to 38.3%. We actively manage expenses to buffer adjusted EBITDA in the quarter. We maintain a highly liquid balance sheet with $112 million of cash, no debt and an undrawn $30 million revolving credit facility. Our balance sheet is a competitive advantage and remains well positioned to support the company through a wide range of operating conditions and strategic opportunities. 2023 will be a transition year focused on rebuilding and growing our backlog and core revenue base -- through strong renewal rates on existing business and the cultivation of a centralized and more productive business development capability. And with that, we're happy to take questions.

Operator, please open the line for Q&A. [Operator Instructions].

[Operator Instructions]. And for your first question, it comes from the line Zach Cummins from B. Riley.

Mark and John. And congrats on most all of the Q1 results. I mean Mark, can you walk me through just kind of the puts and takes of your reaffirmed full year guidance, especially considering the upside that you had on the adjusted EBITDA line here in Q1?

Yes, sure, Zach. So in terms of puts and takes between our last earnings call and this earnings call, I really wouldn't say there are any significant puts and takes. I think our outlook for the year is pretty consistent with where we were in our last earnings call. Yes, first quarter came in above the high end of our guide. A lot of that was a pull forward from the second quarter to the first quarter. So on a first half basis, we're in a similar place to the implied first half on our original full year guide. I'd say as we get to our second quarter earnings call in August, we'll certainly be looking to take a harder scrub at that second half based on first half of actuals, and we'll be looking to narrow the range at that point in time.

And for the next question, it comes from the line of Brad Clark from BMO.

I wanted to dive in, I believe in the prepared remarks, you mentioned some improvement in business development activity since the beginning of the year. We're just hoping you could perhaps provide some granularity. Where are you seeing some improvement in business development opportunities as it relates to new business more so than our renewals?

This is John. Generally speaking, what we decided to do is to focus on our core and our core strength is the federal government, and there are a just a bunch of opportunities for us that are enabling us to see the pipeline increasing relatively substantially. And so that's going to be our plan in the near term to round out our revenue to get back to a growth phase.

And for your next question, it comes from the line of Rudy Kessinger from the D.A. Davidson.

Maybe try to get two into one. I didn't hear a single word about TSA, any update there? And then secondly, when do you believe you can get this business back to free cash flow breakeven or positive?

Rudy, it's John. I'm going to pass that question or the first part of the question over to Mark Griffin.

Rudy, Mark Griffin. Yes, we are still in soft launch phase with TSA. However, we fully expect booked revenue to begin in the second half of this year. So we're confident things are moving in the right direction with that.

Yes. And then, Rudy, on free cash flow, I would say the answer to your question is very much a function of how our business development efforts play out over the course of late '23, early '24. If we see the productivity there that we're working towards, I'd say there is a good probability we can return the free cash flow positive sometime over the course of 2024, especially if a couple of key opportunities in the pipeline work out in our favor.

So at this time, there are no further questions. I would like to turn the conference back to John Wood for closing remarks.

Well, first of all, I want to thank our shareholders for your ongoing support. Our mission remains unchanged. Telos Empower and protects the world home security conscious organizations, and that's going to continue to be our mission. We've got robust recession-resistant end markets. We have well-funded customers. We have a decade-long track record of serving the world's most security-conscious organizations and honestly, Telos is a strong foundation for the future. And finally, I'll just say that the Board and I are fully committed to taking the necessary actions to capture the opportunity in front of us and rebuild and grow our revenue base for the future. So thank you all very much for your participation today. Have a great day.

Right. Thank you. And this concludes today's conference call. Thank you for participating. You may now disconnect.