Telos (TLS -1.29%) stock underperformed the market by a wide margin this week. The cybersecurity specialist's shares dove 38% through Thursday trading compared to a 2% increase in the wider market, according to data provided by S&P Global Market Intelligence. The drop added to a tough year so far for shareholders. Telos is down nearly 60% so far in 2023.
This week's slump was powered by an earnings update that featured a bleak outlook for the new fiscal year ahead.
So what
Telos announced on Thursday that fourth-quarter sales fell to $47 million from $64 million in the selling period that ended in late December. Adjusted profit margin dropped, too, declining to 11% of sales from 14% of sales a year ago.
The larger issue is that several major security contracts are not being renewed for fiscal 2023. Telos is also seeing challenges in signing up new business in several of its security niches. These trends mean that the year ahead will be a "transition year focused on generating new business wins for 2024 and beyond," CEO John Wood said in a press release.
Now what
Telos is calling for sales to land between $115 million and $140 million in 2023, translating into declines of between 47% and 35% year over year. This slump will likely cause significant net losses for a third straight year. Investors will have more clarity around the company's earnings potential by late 2023 as the sales team wins more business and as cost cuts work their way through the balance sheet.
But, for now Telos appears on track to post sharply lower sales and profits at least into early next year. Given that bleak outlook, it's no surprise that the cloud services stock took a turn lower this week.
