Telos stock plunges 69% as soft revenue guidance prompts downgrade from D.A. Davidson

Shares of cybersecurity company Telos Corp. plummeted 69% Wednesday, after the Ashburn, Va.-based company beat third-quarter earnings estimates but cut revenue guidance for the year as its core business suffered a lack of business wins. Telos posted a loss of $7.34 million, or 11 cents a share, after a loss of $5.22 million, or 8 cents a share, in the year-earlier period. Excluding one-time items, it had per-share earnings of 10 cents, ahead of the 2 cent FactSet consensus. Revenue fell to $63.6 million from $69.0 million, ahead of the $59.6 million FactSet consensus. Chief Executive John B. Wood said they company was happy to beat estimates for a fourth straight quarter. "However, we are disappointed to lower our 2022 outlook primarily as a result of a shortfall in short lead-time business wins needed in Secure Networks to backfill revenues from large programs reaching completion over the course of 2022." The company cut its full-year revenue guidance to $213 million to $217 million from a prior $226 million to $242 million. The FactSet consensus was for revenue of $226.7 million. D.A. Davidson downgraded the stock to neutral from buy and slashed its price target to $4 from $15. "Q3 results were modestly ahead again but the little credibility that management has rebuilt over the last few quarters completely evaporated as they guided Q4 substantially below expectations due to a ~$14M shortfall from a lack of new business wins," analyst Rudy Kessinger wrote in a note. "Further, they gave a shockingly grim outlook for 2023, noting revenue could potentially be down "mid-teens" year-on-year, which would imply ~$180-185M of revenue vs. consensus of $254.2M for '23." The company's main catalyst is the contract with the Transportation Security Administration for its pre-check system, said Kessinger. The company is currently conducting a trial of the system and expects to move to full implementation later this year. But the core business performance "is completely indefensible," he said. "We are stepping to the sidelines & will look for signs of improvement in the core business to possibly get bullish again." The stock has tumbled 78% in the year to date, while the S&P 500 has fallen 21%.

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