Why Telos decided the time is now for its IPO

Let the record show that, according to my research, the first trade of cybersecurity company Telos Corp.’s stock on the NASDAQ exchange took place Thursday at 11:14 a.m. Eastern time.

Also let the record show that Telos ended day one of its initial public offering up 19 percent to $20.29.

Telos officially marks the government market’s third public exchange listing in two years following Parsons Corp.’s IPO on the New York Stock Exchange in 2019 and PAE’s direct entry to the NASDAQ in February.

So why does Telos want public investors to participate in its five-decade old journey, particularly when many business leaders in all sectors are open about why they would rather keep their company off the exchanges?

“We’ve always bootstrapped the growth that we had, we were interested in how receptive Wall Street would be and the institutional investor community would be to our story,” Telos CEO John Wood told me Thursday.

Any kind of public listing via an IPO or other method brings a fourth group of stakeholders in public investors to tell one’s story to on top of employees, customers and other companies to partner with and/or compete against.

Wood said Ashburn, Virginia-based Telos’ story centers around products and broader solution offerings that help government and large commercial enterprises ensure trust in their on-premise, cloud-based and hybrid IT environments.

Telos’ three major flagship products are what Wood is touting to Wall Street and also highlighted to me in our conversation as key to its story:

• Xacta for automating security compliance requirements to get permission for cloud migrations
• Telos Ghost to create misattribution and obfuscation in order to hide from hackers
• ID Trust 360 to automate continuous background vetting for evaluating peoples’ trustworthiness

Telos on Thursday offered a $254 million stake to the public markets. That figure represents the total value of common stock the company is offering to its underwriters, who then make the shares available for investors to buy.

Debt paydowns and stock conversion are on the to-do list for using the proceeds, but there is also the matter of Telos investing in itself for the next phase of growth.

Wood said much of Telos’ investments prior to the IPO have focused on scaling its products and delivering them, but much less so on the sales and marketing side of the house.

Eight Telos employees today are identified as those responsible for sales with another six support people working alongside them. Wood told me Telos plans to use some of the proceeds to double that group to 28 total people, then multiply that number times two again.

For the Xacta and Ghost products specifically, those are intended to reach customers through channel partnerships. Wood said Telos’ channel includes the cloud infrastructure providers, companies whose services are wrapped around that hosting capability, internet service providers and resellers.

One part of that partnership story highlighted in Telos’ registration filing, and by Wood to me, is Telos’ collaboration with Amazon Web Services and the CIA in 2016 to retool Xacta for that agency’s implementation of AWS’ commercial cloud.

“For (the CIA) to create this body of evidence that they’re operating in a secure way, they were doing it manually, there were 1,100 controls they had to check, and that took two-and-a-half years,” Wood said. “After we retooled Xacta and they implemented it both at Amazon and the CIA, we were able to push new workloads into the cloud short of seven days.”

From Telos’ point-of-view, they see a clear path to further growth and improved profitability given that half of its revenue comes from contracts either sole-source or with limited competition along with what Wood called “100 percent customer referenceability.”

That figure of 100 percent also describes another aspect of Telos, specifically its work to get ready for the IPO and then to tell its story to investors after the decision to go down that path.

A typical public listing involves a great deal of travel on the so-called “road show” to meet individual and institutional investors, then at some point company executives get to ring the bell at the NYSE or NASDAQ in New York City to mark the accomplishment.

Not so in this year of the coronavirus. Just like for mergers and acquisitions, every meeting to move Telos’ IPO along took place virtually. The number of physical meetings was a grand total of zero.

While Wood conceded “it’s a crazy process,” the virtual nature for this specific process made everything easier.

“That’s probably the biggest takeaway from me, that aspect of doing business as many aspects of doing business have gone virtual, that may become the way it happens in the future,” Wood said. “While nothing beats an in-person meeting, it was good enough.”

Telos management did get to ring the NASDAQ’s closing bell at 4 p.m. Eastern on Thursday. Remotely.