IPO Preview: Telos Corporation Files For $242 Million U.S. IPO


Telos Corporation (TLS) aims to raise $241.5 million in an IPO of its common stock, according to an S-1 registration statement.

Ashburn, Virginia-based Telos was founded to develop cybersecurity and information systems for federal and state government entities as well as for large enterprises.

Management is headed by president and Chief Executive Officer John B. Wood, who has been with the firm since 1992 and previously worked on Wall Street for Dean Witter Reynolds and UBS Securities.

Below is a brief overview video of Telos:

Source: Telos Corporation

The company’s primary offerings include:

Security Solutions:

  • Information Assurance / Xacta
  • Secure Communications

Secure Networks:

  • Secure Mobility
  • Network Management and Defense

Telos has received investment from investors including Toxford Corporation.

Customer Acquisition

The company pursues client relationships via an internal direct sales force.

Management plans to use part of the IPO's proceeds to expand its channel development efforts to more fully leverage its growth potential.

Selling, G&A expenses as a percentage of total revenue have been dropping as revenues have increased, indicating increased efficiency.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, doubled to 0.8x in the most recent reporting period.

According to a 2020 market research report by Grand View Research, the global market for cybersecurity products and services was an estimated $157 billion in 2019 and is expected to reach $305 billion by 2027.

This represents a forecast CAGR of 10.0% from 2020 to 2027.

The main drivers for this expected growth are an increasing proliferation of online threats pursuing greater potential payoff in the form of stolen information.

Also, the continued transition of enterprises and agencies from legacy on-premises systems to the cloud presents new security challenges that must be addressed by industry.

Additionally, the Covid-19 pandemic has exposed firms to greater security threats, not least due to greater dispersion of company personnel in 'work from home' environments.

Below is a chart indicating the historical and projected future U.S. cyber security market growth by component:


Major competitive or other industry participants include:

  • Cutting Edge
  • MetricStream
  • Palantir Technologies (PLTR)
  • RSA Archer
  • ServiceNow (NOW)
  • Unisys (UIS)
  • Booz Allen Hamilton (BAH)
  • General Dynamics (GD)
  • Lockheed Martin (LMT)
  • Northrop Grumman (NOC)
  • Science Applications International (SAIC)

Telos’s recent financial results can be summarized as follows:

  • Growing topline revenue, at an accelerating rate
  • Increasing gross profit, variable gross margin
  • Growing operating profit
  • Decreased cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:


Source: Company registration statement

As of June 30, 2020, Telos had $2.4 million in cash and $221.4 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was $4.7 million.

Telos intends to raise $241.5 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO as follows:

We expect to use [an as-yet undisclosed amount] of the net proceeds we receive from this offering in connection with the ERPS Conversion, as described in the section entitled “Exchangeable Redeemable Preferred Stock Conversion.” In addition, we expect to use [an as-yet undisclosed amount] of the net proceeds from this offering to fund our acquisition of the outstanding Class B Units of Telos ID, [...]

We also intend to use [an as-yet undisclosed amount] of the net proceeds to repay our outstanding senior term loan and subordinated debt.

We intend to use the remaining net proceeds for general corporate purposes.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are B. Riley Securities, BMO Capital Markets, Needham & Company.


Telos is seeking public capital to pay down debt and fund payoffs for its 12% preferred stockholders and for a final payment for certain technologies.

The firm’s financials show impressive growth in 2020, despite the Covid-19 pandemic.

However, TLS still isn’t generating net earnings and cash flow from operations has dropped markedly.

Selling, G&A expenses as a percentage of total revenue have dropped; its Selling, G&A efficiency rate has doubled, so both indicators are positive signals for increasing efficiencies in these areas.

The market opportunity for selling cybersecurity software and services to U.S. federal and state agencies is large and expected to continue to grow in the future.

But, these are typically high stakes, contract-related opportunities, and government contractors are notoriously cyclical based on contract wins or losses. Their revenue can be quite ‘lumpy,’ leading to higher than average stock price variation.

B. Riley Securities is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 20.6% since their IPO. This is a middle-tier performance for all major underwriters during the period.

TLS is an intriguing potential IPO depending on management’s valuation assumptions.

I’ll provide a final opinion when we know more about the IPO.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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