[10-Q] Telos Corporation Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Rhea-AI Filing Summary
Telos reported second-quarter results with total revenue of $35.97 million, up from $28.50 million a year earlier, led by an 81.8% increase in the Security Solutions segment as a major program ramped and product sales rose. Gross profit improved to $11.93 million, but operating losses widened as SG&A and stock-based compensation increased.
The company recorded a net loss of $9.52 million for the quarter and $18.12 million year-to-date. Liquidity strengthened: cash and cash equivalents were $57.0 million, working capital about $64.0 million, and operating cash flow provided $13.06 million for the six months. Funded backlog was $51.7 million (鈮�95% expected in 12 months). Secure Networks revenue declined sharply and management noted a potential triggering event that could require a goodwill impairment assessment for that reporting unit. The company repurchased 1.488 million shares for $4.0 million and remains in compliance with its undrawn $30.0 million revolver.
Telos ha riportato i risultati del secondo trimestre con ricavi totali di $35.97 million, in aumento rispetto ai $28.50 million dell'anno precedente, guidati da un incremento dell'81.8% nel segmento Security Solutions grazie al ramp-up di un importante programma e alla crescita delle vendite di prodotto. Il margine lordo 猫 salito a $11.93 million, mentre le perdite operative si sono ampliate a causa dell'aumento delle SG&A e della remunerazione azionaria.
La societ脿 ha registrato una perdita netta di $9.52 million per il trimestre e di $18.12 million da inizio anno. La liquidit脿 si 猫 rafforzata: contanti e equivalenti erano $57.0 million, il capitale circolante circa $64.0 million e i flussi di cassa operativi hanno fornito $13.06 million nei sei mesi. Il backlog finanziato risultava $51.7 million (鈮�95% previsto entro 12 mesi). I ricavi di Secure Networks sono diminuiti nettamente e la direzione ha segnalato un possibile evento che potrebbe richiedere una valutazione di impairment dell'avviamento per quell'unit脿 di reporting. La societ脿 ha riacquistato 1.488 million azioni per $4.0 million e rimane conforme al suo revolver non utilizzato di $30.0 million.
Telos inform贸 resultados del segundo trimestre con ingresos totales de $35.97 million, frente a $28.50 million del a帽o anterior, impulsados por un aumento del 81.8% en el segmento Security Solutions debido al despliegue de un programa importante y al crecimiento de las ventas de productos. El beneficio bruto mejor贸 a $11.93 million, pero las p茅rdidas operativas aumentaron por el incremento de SG&A y la compensaci贸n en acciones.
La compa帽铆a registr贸 una p茅rdida neta de $9.52 million en el trimestre y de $18.12 million en lo que va del a帽o. La liquidez se fortaleci贸: efectivo y equivalentes por $57.0 million, capital de trabajo alrededor de $64.0 million, y el flujo de caja operativo aport贸 $13.06 million en seis meses. El backlog financiado fue de $51.7 million (鈮�95% esperado en 12 meses). Los ingresos de Secure Networks cayeron bruscamente y la direcci贸n se帽al贸 un posible evento desencadenante que podr铆a requerir una evaluaci贸n de deterioro de goodwill para esa unidad de reporte. La compa帽铆a recompr贸 1.488 million acciones por $4.0 million y cumple con su l铆nea revolvente no utilizada de $30.0 million.
Telos電� 2攵勱赴 鞁れ爜鞚� 氚滍憸頄堨溂氅�, 齑濍Г於滌潃 $35.97 million鞙茧 鞝勲厔 霃欔赴 $28.50 million鞐愳劀 歃濌皜頄堨姷雼堧嫟. 鞚措姅 欤检殧 頂勲攴鸽灗鞚� 臧�霃欔臣 鞝滍拡 韺愲Г 歃濌皜搿� Security Solutions 攵�氍胳澊 81.8% 歃濌皜$11.93 million鞙茧 臧滌劆霅橃棃鞙茧倶, SG&A 氚� 欤检嫕 旮半皹 氤挫儊鞚� 歃濌皜頃橂┐靹� 鞓侅梾靻愳嫟鞚� 頇曤寑霅橃棃鞀惦媹雼�.
須岇偓電� 攵勱赴 靾滌啇鞁� $9.52 million, 鞐办磮 雽�牍� 靾滌啇鞁� $18.12 million鞚� 旮半頄堨姷雼堧嫟. 鞙犽彊靹膘潃 臧曧檾霅橃柎 順勱笀 氚� 順勱笀靹膘瀽靷办潃 $57.0 million, 鞖挫爠鞛愲掣鞚� 鞎� $64.0 million, 鞓侅梾頇滊彊 順勱笀頋愲鞚� 6臧滌洈臧� $13.06 million鞚� 鞝滉车頄堨姷雼堧嫟. 韼�霐╇悳 氚彪攴鸽姅 $51.7 million(鈮�95%臧� 12臧滌洈 雮� 鞁ろ槃 鞓堨儊)鞓�鞀惦媹雼�. Secure Networks 毵れ稖鞚� 韥矊 頃橂澖頄堨溂氅�, 瓴届榿歆勳潃 頃措嫻 氤搓碃 雼渼鞐� 雽�頃� 鞓侅梾甓� 靻愳儊瓴�韱犽ゼ 鞖旉惮頃� 靾� 鞛堧姅 鞛犾灛鞝� 齑夒皽 靷贝鞚� 氤搓碃頄堨姷雼堧嫟. 須岇偓電� 1.488 million欤茧ゼ $4.0 million鞐� 雼れ嫓 毵れ瀰頄堨溂氅�, 鞚胳稖霅橃 鞎婌潃 $30.0 million 毽臣氩勳檧鞚� 欷�靾� 靸來儨毳� 鞙犾頃橁碃 鞛堨姷雼堧嫟.
Telos a publi茅 ses r茅sultats du deuxi猫me trimestre avec un chiffre d'affaires total de $35.97 million, en hausse par rapport 脿 $28.50 million un an plus t么t, port茅 par une augmentation de 81,8% dans le segment Security Solutions gr芒ce au d茅marrage d'un programme majeur et 脿 la hausse des ventes de produits. Le b茅n茅fice brut s'est am茅lior茅 脿 $11.93 million, mais les pertes d'exploitation se sont accrues en raison de l'augmentation des SG&A et de la r茅mun茅ration en actions.
La soci茅t茅 a enregistr茅 une perte nette de $9.52 million pour le trimestre et de $18.12 million depuis le d茅but de l'ann茅e. La liquidit茅 s'est renforc茅e : tr茅sorerie et 茅quivalents de tr茅sorerie 脿 $57.0 million, fonds de roulement d'environ $64.0 million, et les flux de tr茅sorerie d'exploitation ont fourni $13.06 million sur six mois. Le carnet de commandes financ茅 s'茅levait 脿 $51.7 million (鈮�95% pr茅vu dans les 12 mois). Les revenus de Secure Networks ont fortement diminu茅 et la direction a signal茅 un 茅v茅nement d茅clencheur potentiel qui pourrait n茅cessiter une 茅valuation d'impairment du goodwill pour cette unit茅 de reporting. La soci茅t茅 a rachet茅 1.488 million d'actions pour $4.0 million et reste en conformit茅 avec sa ligne de cr茅dit renouvelable non utilis茅e de $30.0 million.
Telos meldete Ergebnisse f眉r das zweite Quartal mit einem Gesamtumsatz von $35.97 million, gegen眉ber $28.50 million im Vorjahr. Treiber war ein 81,8%iger Anstieg im Segment Security Solutions durch das Hochfahren eines gro脽en Programms und steigende Produktverk盲ufe. Der Bruttogewinn verbesserte sich auf $11.93 million, die operative Verlustsituation verschlechterte sich jedoch aufgrund gestiegener SG&A- und aktienbasierter Verg眉tungen.
Das Unternehmen verzeichnete f眉r das Quartal einen Nettoverlust von $9.52 million und von $18.12 million seit Jahresbeginn. Die Liquidit盲t st盲rkte sich: Zahlungsmittel und 脛quivalente beliefen sich auf $57.0 million, das Working Capital auf rund $64.0 million, und der operative Cashflow lieferte $13.06 million in den sechs Monaten. Der finanzierte Auftragsbestand lag bei $51.7 million (鈮�95% voraussichtlich innerhalb von 12 Monaten). Die Ums盲tze von Secure Networks gingen stark zur眉ck, und das Management wies auf ein m枚gliches ausl枚sendes Ereignis hin, das eine Werthaltigkeitspr眉fung des Gesch盲fts- oder Firmenwerts f眉r diese Berichtseinheit erforderlich machen k枚nnte. Das Unternehmen kaufte 1.488 million Aktien f眉r $4.0 million zur眉ck und erf眉llt weiterhin die Anforderungen seiner unangetasteten Revolving-Kreditlinie in H枚he von $30.0 million.
Positive
- None.
Negative
- None.
Insights
Revenue growth driven by Security Solutions; profitability pressured by higher stock-based compensation and SG&A.
Telos shows clear top-line momentum, with revenue rising ~26% quarter-over-quarter and a substantial Security Solutions ramp that increased funded backlog to $51.7 million. However, the operating loss expanded as SG&A rose, largely from increased stock-based compensation (six-month stock-comp expense $14.805M versus $5.203M prior year). Cash generation improved materially, with operating cash flow of $13.056M year-to-date and $57.0M in cash, supporting near-term liquidity despite a revolver that matures in December 2025. Overall impact: material but mixed for investors鈥攇rowth and cash flow gains offset by persistent losses and expense pressure.
Significant concentration and segment weakness raise near-term impairment and contract-risk considerations.
The company derives ~90% of revenue from federal customers, and billed receivables remain heavily government-concentrated, which concentrates counterparty risk despite historical collectability. Secure Networks revenue fell >67% in the quarter; management flagged that sustained underperformance could trigger a goodwill impairment (Secure Networks goodwill allocation $14.9M). The revolver is undrawn but matures within ~16 months, which warrants monitoring. These factors make the filing impactful from a risk perspective.
Telos ha riportato i risultati del secondo trimestre con ricavi totali di $35.97 million, in aumento rispetto ai $28.50 million dell'anno precedente, guidati da un incremento dell'81.8% nel segmento Security Solutions grazie al ramp-up di un importante programma e alla crescita delle vendite di prodotto. Il margine lordo 猫 salito a $11.93 million, mentre le perdite operative si sono ampliate a causa dell'aumento delle SG&A e della remunerazione azionaria.
La societ脿 ha registrato una perdita netta di $9.52 million per il trimestre e di $18.12 million da inizio anno. La liquidit脿 si 猫 rafforzata: contanti e equivalenti erano $57.0 million, il capitale circolante circa $64.0 million e i flussi di cassa operativi hanno fornito $13.06 million nei sei mesi. Il backlog finanziato risultava $51.7 million (鈮�95% previsto entro 12 mesi). I ricavi di Secure Networks sono diminuiti nettamente e la direzione ha segnalato un possibile evento che potrebbe richiedere una valutazione di impairment dell'avviamento per quell'unit脿 di reporting. La societ脿 ha riacquistato 1.488 million azioni per $4.0 million e rimane conforme al suo revolver non utilizzato di $30.0 million.
Telos inform贸 resultados del segundo trimestre con ingresos totales de $35.97 million, frente a $28.50 million del a帽o anterior, impulsados por un aumento del 81.8% en el segmento Security Solutions debido al despliegue de un programa importante y al crecimiento de las ventas de productos. El beneficio bruto mejor贸 a $11.93 million, pero las p茅rdidas operativas aumentaron por el incremento de SG&A y la compensaci贸n en acciones.
La compa帽铆a registr贸 una p茅rdida neta de $9.52 million en el trimestre y de $18.12 million en lo que va del a帽o. La liquidez se fortaleci贸: efectivo y equivalentes por $57.0 million, capital de trabajo alrededor de $64.0 million, y el flujo de caja operativo aport贸 $13.06 million en seis meses. El backlog financiado fue de $51.7 million (鈮�95% esperado en 12 meses). Los ingresos de Secure Networks cayeron bruscamente y la direcci贸n se帽al贸 un posible evento desencadenante que podr铆a requerir una evaluaci贸n de deterioro de goodwill para esa unidad de reporte. La compa帽铆a recompr贸 1.488 million acciones por $4.0 million y cumple con su l铆nea revolvente no utilizada de $30.0 million.
Telos電� 2攵勱赴 鞁れ爜鞚� 氚滍憸頄堨溂氅�, 齑濍Г於滌潃 $35.97 million鞙茧 鞝勲厔 霃欔赴 $28.50 million鞐愳劀 歃濌皜頄堨姷雼堧嫟. 鞚措姅 欤检殧 頂勲攴鸽灗鞚� 臧�霃欔臣 鞝滍拡 韺愲Г 歃濌皜搿� Security Solutions 攵�氍胳澊 81.8% 歃濌皜$11.93 million鞙茧 臧滌劆霅橃棃鞙茧倶, SG&A 氚� 欤检嫕 旮半皹 氤挫儊鞚� 歃濌皜頃橂┐靹� 鞓侅梾靻愳嫟鞚� 頇曤寑霅橃棃鞀惦媹雼�.
須岇偓電� 攵勱赴 靾滌啇鞁� $9.52 million, 鞐办磮 雽�牍� 靾滌啇鞁� $18.12 million鞚� 旮半頄堨姷雼堧嫟. 鞙犽彊靹膘潃 臧曧檾霅橃柎 順勱笀 氚� 順勱笀靹膘瀽靷办潃 $57.0 million, 鞖挫爠鞛愲掣鞚� 鞎� $64.0 million, 鞓侅梾頇滊彊 順勱笀頋愲鞚� 6臧滌洈臧� $13.06 million鞚� 鞝滉车頄堨姷雼堧嫟. 韼�霐╇悳 氚彪攴鸽姅 $51.7 million(鈮�95%臧� 12臧滌洈 雮� 鞁ろ槃 鞓堨儊)鞓�鞀惦媹雼�. Secure Networks 毵れ稖鞚� 韥矊 頃橂澖頄堨溂氅�, 瓴届榿歆勳潃 頃措嫻 氤搓碃 雼渼鞐� 雽�頃� 鞓侅梾甓� 靻愳儊瓴�韱犽ゼ 鞖旉惮頃� 靾� 鞛堧姅 鞛犾灛鞝� 齑夒皽 靷贝鞚� 氤搓碃頄堨姷雼堧嫟. 須岇偓電� 1.488 million欤茧ゼ $4.0 million鞐� 雼れ嫓 毵れ瀰頄堨溂氅�, 鞚胳稖霅橃 鞎婌潃 $30.0 million 毽臣氩勳檧鞚� 欷�靾� 靸來儨毳� 鞙犾頃橁碃 鞛堨姷雼堧嫟.
Telos a publi茅 ses r茅sultats du deuxi猫me trimestre avec un chiffre d'affaires total de $35.97 million, en hausse par rapport 脿 $28.50 million un an plus t么t, port茅 par une augmentation de 81,8% dans le segment Security Solutions gr芒ce au d茅marrage d'un programme majeur et 脿 la hausse des ventes de produits. Le b茅n茅fice brut s'est am茅lior茅 脿 $11.93 million, mais les pertes d'exploitation se sont accrues en raison de l'augmentation des SG&A et de la r茅mun茅ration en actions.
La soci茅t茅 a enregistr茅 une perte nette de $9.52 million pour le trimestre et de $18.12 million depuis le d茅but de l'ann茅e. La liquidit茅 s'est renforc茅e : tr茅sorerie et 茅quivalents de tr茅sorerie 脿 $57.0 million, fonds de roulement d'environ $64.0 million, et les flux de tr茅sorerie d'exploitation ont fourni $13.06 million sur six mois. Le carnet de commandes financ茅 s'茅levait 脿 $51.7 million (鈮�95% pr茅vu dans les 12 mois). Les revenus de Secure Networks ont fortement diminu茅 et la direction a signal茅 un 茅v茅nement d茅clencheur potentiel qui pourrait n茅cessiter une 茅valuation d'impairment du goodwill pour cette unit茅 de reporting. La soci茅t茅 a rachet茅 1.488 million d'actions pour $4.0 million et reste en conformit茅 avec sa ligne de cr茅dit renouvelable non utilis茅e de $30.0 million.
Telos meldete Ergebnisse f眉r das zweite Quartal mit einem Gesamtumsatz von $35.97 million, gegen眉ber $28.50 million im Vorjahr. Treiber war ein 81,8%iger Anstieg im Segment Security Solutions durch das Hochfahren eines gro脽en Programms und steigende Produktverk盲ufe. Der Bruttogewinn verbesserte sich auf $11.93 million, die operative Verlustsituation verschlechterte sich jedoch aufgrund gestiegener SG&A- und aktienbasierter Verg眉tungen.
Das Unternehmen verzeichnete f眉r das Quartal einen Nettoverlust von $9.52 million und von $18.12 million seit Jahresbeginn. Die Liquidit盲t st盲rkte sich: Zahlungsmittel und 脛quivalente beliefen sich auf $57.0 million, das Working Capital auf rund $64.0 million, und der operative Cashflow lieferte $13.06 million in den sechs Monaten. Der finanzierte Auftragsbestand lag bei $51.7 million (鈮�95% voraussichtlich innerhalb von 12 Monaten). Die Ums盲tze von Secure Networks gingen stark zur眉ck, und das Management wies auf ein m枚gliches ausl枚sendes Ereignis hin, das eine Werthaltigkeitspr眉fung des Gesch盲fts- oder Firmenwerts f眉r diese Berichtseinheit erforderlich machen k枚nnte. Das Unternehmen kaufte 1.488 million Aktien f眉r $4.0 million zur眉ck und erf眉llt weiterhin die Anforderungen seiner unangetasteten Revolving-Kreditlinie in H枚he von $30.0 million.
Table of Contents
| UNITED STATES | ||
| SECURITIES AND EXCHANGE COMMISSION | ||
| WASHINGTON, D.C. 20549 | ||
FORM 10-Q
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended: June 30, 2025
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
Commission file number: 001-08443
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(703 ) 724-3800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | x | ||||||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x
As of August 4, 2025, the registrant had outstanding 72,703,011 shares of common stock.
Table of Contents to Second Quarter 2025 Form 10-Q
| Page | ||||||||
PART I - FINANCIAL INFORMATION | 3 | |||||||
Item 1. | Financial Statements (Unaudited) | 3 | ||||||
Consolidated Statements of Operations | 3 | |||||||
Consolidated Statements of Comprehensive Loss | 4 | |||||||
Consolidated Balance Sheets | 5 | |||||||
Consolidated Statements of Cash Flows | 6 | |||||||
Consolidated Statements of Changes in Stockholders’ Equity | 7 | |||||||
Notes to Consolidated Financial Statements | 8 | |||||||
1. Organization | 8 | |||||||
2. Significant Accounting Policies | 8 | |||||||
3. Revenue Recognition | 9 | |||||||
4. Accounts Receivable, Net | 11 | |||||||
5. Inventories, Net | 11 | |||||||
6. Property and Equipment, Net | 12 | |||||||
7. Goodwill | 12 | |||||||
8. Intangible Assets, Net | 12 | |||||||
9. Other Balance Sheet Components | 13 | |||||||
10. Revolving Credit Facility | 13 | |||||||
11. Stock-Based Compensation | 14 | |||||||
12. Share Repurchases | 16 | |||||||
13. Accumulated Other Comprehensive Loss | 16 | |||||||
14. Loss per Share | 16 | |||||||
15. Segment Information | 16 | |||||||
16. Commitments and Contingencies | 18 | |||||||
17. Supplemental Cash Flow Information | 18 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||||||
Forward-Looking Statements | 19 | |||||||
General and Business Overview | 19 | |||||||
Financial Overview | 20 | |||||||
Results of Operations | 20 | |||||||
Liquidity and Capital Resources | 22 | |||||||
Critical Accounting Policies and Estimates | 23 | |||||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 23 | ||||||
Item 4. | Controls and Procedures | 24 | ||||||
PART II - OTHER INFORMATION | 25 | |||||||
Item 1. | Legal Proceedings | 25 | ||||||
Item 1A. | Risk Factors | 25 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 | ||||||
Item 3. | Defaults upon Senior Securities | 25 | ||||||
Item 4. | Mine Safety Disclosures | 25 | ||||||
Item 5. | Other Information | 25 | ||||||
Item 6. | Exhibits | 26 | ||||||
SIGNATURES | 27 | |||||||
2
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
TELOS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||||||
| Revenue – services | $ | $ | $ | $ | |||||||||||||||||||
| Revenue – products | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of sales – services (excluding depreciation and amortization) | |||||||||||||||||||||||
| Cost of sales – products (excluding depreciation and amortization) | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating loss | ( | ( | ( | ( | |||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Provision for income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per share: | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
3
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TELOS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive loss, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Actuarial gain (loss) on pension liability adjustment | ( | ||||||||||||||||||||||
| Other comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
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TELOS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands, except per share amount and share data) | |||||||||||
| Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses | |||||||||||
| Deferred program expenses | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Finance lease right-of-use assets, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable and other accrued liabilities | $ | $ | |||||||||
| Accrued compensation and benefits | |||||||||||
| Contract liabilities | |||||||||||
| Finance lease obligations – current portion | |||||||||||
| Operating lease obligations – current portion | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Finance lease obligations – non-current portion | |||||||||||
| Operating lease obligations – non-current portion | |||||||||||
| Deferred income taxes | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to the unaudited consolidated financial statements.
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TELOS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended | |||||||||||
| June 30, 2025 | June 30, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to cash provided by (used in) operating activities: | |||||||||||
| Stock-based compensation | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income tax provision | |||||||||||
| Recovery from doubtful accounts | ( | ( | |||||||||
| Amortization of debt issuance costs | |||||||||||
| Changes in other operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses, deferred program expenses, other current assets, other assets | ( | ( | |||||||||
| Accounts payable and other accrued payables | ( | ||||||||||
| Accrued compensation and benefits | ( | ||||||||||
| Contract liabilities | ( | ||||||||||
| Other current liabilities | ( | ||||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Capitalized software development costs | ( | ( | |||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Purchase of investment | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments under finance lease obligations | ( | ( | |||||||||
| Payment of tax withholding related to net share settlement of equity awards | ( | ( | |||||||||
| Repurchases of common stock | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net change in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
See accompanying notes to the unaudited consolidated financial statements.
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TELOS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Restricted stock unit awards vested, net of shares withheld to cover tax withholding | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Restricted stock unit awards vested, net of shares withheld to cover tax withholding | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Foreign currency translation gain | — | — | — | — | |||||||||||||||||||||||||||||||
| Actuarial gain on pension liability adjustment | — | — | — | — | |||||||||||||||||||||||||||||||
| Restricted stock unit awards vested, net of shares withheld to cover tax withholding | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for 401(k) match | — | — | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Actuarial loss on pension liability adjustment | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Restricted stock unit awards vested, net of shares withheld to cover tax withholding | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock for 401(k) match | — | — | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
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TELOS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Telos Corporation, together with its subsidiaries (collectively, the "Company," "we," "our" or "Telos"), a Maryland corporation, is a leading provider of cyber, cloud and enterprise security solutions for the world's most security-conscious organizations. We own all of the issued and outstanding shares of Xacta Corporation and ubIQuity.com, inc. (a holding company for Xacta Corporation), and Teloworks, Inc. ("Teloworks"), and 100 % ownership interest in Telos Identity Management Solutions, LLC ("Telos ID").
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principle of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of Telos and its subsidiaries (see Note 1 – Organization), all of whose issued and outstanding share capital is wholly owned directly and indirectly by Telos Corporation. All intercompany transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
Basis of Presentation for Interim Periods
Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. We believe that the unaudited interim financial statements include all adjustments (which are normal and recurring) necessary to state fairly our financial position and the results of operations and cash flows for the periods presented.
The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for the year or future periods. The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2024, included in our Annual Report on Form 10-K for the fiscal year then ended. We have continued to follow the accounting policies set forth in those financial statements.
Use of Estimates
The preparation of these unaudited consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual results could differ from those estimates. We base our estimates on historical experience, currently available information, and various other assumptions that we believe are reasonable under the circumstances.
Deferred Program Expenses
Deferred program expenses include direct contract costs identifiable with or allocable to a specific contract. These costs are capitalized as deferred program expenses when the costs are expected to be recovered over a period of time. These costs are amortized using the straight-line method over the expected contract period of performance or recognized upon delivery of the performance obligation. If the contract period of performance is beyond twelve months, we classify the cost as long-term and is included within "Other assets" on the unaudited consolidated balance sheets.
Income Taxes
The period for which tax years are open, 2021 to 2024, has not been extended beyond the applicable statute of limitations. In September 2024, we were advised by the Internal Revenue Services ("IRS") regarding an audit of our 2021 federal income tax return. In April 2025, the IRS notified us that they completed their examination of our 2021 federal income tax return with no changes to our reported tax.
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On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law, which includes significant amendments to the Internal Revenue Code. The OBBBA imposes various changes to U.S. federal income tax regulations, such as restoring bonus depreciation, and removing the requirement to capitalize and amortize domestic research and development expenditures. The OBBBA also included certain modifications to the Inflation Reduction Act of 2022, including the repeal or acceleration of the sunset of certain tax credits and elimination of certain penalties for violations of certain regulatory credit programs. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently evaluating the potential impact of these provisions on our unaudited consolidated financial statements.
Recent Accounting Pronouncements
The Company adopted all applicable standards effective as of December 31, 2024, within these unaudited consolidated financial statements, with no material impact as a result of the adoption.
In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosure," which requires public entities, on an annual basis, (1) to disclosure specific categories in the rate reconciliation, and (2) to provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate). This ASU will be effective, for public entities, for the fiscal year beginning after December 15, 2024, with early adoption permitted. We are currently assessing the impact of the adoption of this ASU on our unaudited consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Topic 220): Disaggregation of Income Statement Expenses." This standard requires additional disclosure of certain amounts included in the expense captions presented on the statements of operations, as well as disclosures about selling expenses. This ASU is effective on a prospective basis, with the option for retrospective application. All public entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are in the process of assessing the impact of the adoption of this ASU on our unaudited consolidated financial statements.
In addition, from time to time, new accounting standards are issued by the FASB or other standard-setting bodies and are adopted by the Company as of the specified accounting date. Unless otherwise discussed, the Company believes that issued standards not yet effective will not have a material effect on its financial statements.
3. REVENUE RECOGNITION
We account for revenue in accordance with ASC Topic 606, "Revenue from Contracts with Customers." The unit of account in ASC 606 is a performance obligation, which is a promise in a contract with a customer to transfer a good or service to the customer.
The majority of our revenue is recognized over time, as control is transferred continuously to our customers, who receive and consume benefits as we perform. Revenue transferred to customers over time accounted for 68 % and 73 % of our revenue for the three and six months ended June 30, 2025, respectively, and 84 % and 82 % of our revenue for the three and six months ended June 30, 2024, respectively. All of our business groups earn services revenue under a variety of contract types, including time and materials, firm-fixed price, firm-fixed price level of effort, and cost-plus fixed fee, which may include variable consideration. On the other hand, for performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time when each performance obligation is fully satisfied. This coincides with the point in time the customer obtains control of the product or service, which typically occurs upon customer acceptance or receipt of the product or service, given that we maintain control of the product or service until that point. Revenue transferred to customers at a point in time accounted for 32 % and 27 % of our revenue for the three and six months ended June 30, 2025, respectively, and 16 % and 18 % of our revenue for the three and six months ended June 30, 2024, respectively. The change in revenue mix for the three and six months ended June 30, 2025, as compared to the prior periods, was primarily driven by an increase in product sales volume.
Orders for the sale of software licenses may contain multiple performance obligations, such as maintenance, training, or consulting services, which are typically delivered over time, consistent with the transfer of control disclosed above for the provision of services. When an order contains multiple performance obligations, we allocate the transaction price to the performance obligations based on the standalone selling price of the product or service underlying each performance obligation. The standalone selling price represents the amount we would sell the product or service to a customer on a standalone basis.
For certain performance obligations where we are not primarily responsible for fulfilling the promise to provide the goods or services to the customer, do not have inventory risk and have limited discretion in establishing the price for the goods or services, we recognize revenue on a net basis.
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Our contracts may include various types of variable considerations and may include estimated amounts in the transaction price, based on all of the information available to us, and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when any uncertainty associated with the variable consideration is resolved. We evaluate and include these estimated amounts of variable consideration in the transaction price and as performance on these contracts is complete, we adjust our revenue, when deemed necessary. No
Disaggregated Revenues
In addition to our segment reporting, as further discussed in Note 15 – Segment Information, we disaggregate our revenues by customer and contract types. We treat sales to U.S. customers as sales within the United States, regardless of where the services are performed. Substantially most of our revenues are generated from U.S. customers, while international customers are de minimis; as such, the financial information by geographic location is not presented.
| Table 3.1: Revenue by Customer Type | |||||||||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Federal | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| State & local, and commercial | |||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Table 3.2: Revenue by Contract Type | |||||||||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Firm fixed-price | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Time-and-materials | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost plus fixed fee | |||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
A majority of the Company's revenue was derived under prime contracts and subcontracts with agencies and departments of the federal government. No other customer accounted for 10% or more of the Company's revenue during the three and six months ended June 30, 2025, and 2024.
| Table 3.3: Revenue Concentration Greater than 10% of Total Revenue | |||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Federal government: | |||||||||||||||||||||||
| Security Solutions | $ | $ | $ | $ | |||||||||||||||||||
| Secure Networks | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
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| Table 3.4: Contract Balances | |||||||||||||||||
| Balance Sheet Presentation | June 30, 2025 | December 31, 2024 | |||||||||||||||
| (in thousands) | |||||||||||||||||
Billed accounts receivables (1) | Accounts receivable, net | $ | $ | ||||||||||||||
| Unbilled accounts receivable | Accounts receivable, net | ||||||||||||||||
| Contract assets | Accounts receivable, net | ||||||||||||||||
| Contract liabilities | Contract liabilities | ||||||||||||||||
(1) Net of allowance for credit losses.
The changes in the Company's contract assets and contract liabilities during the current period were primarily the result of the timing differences between the Company's performance, invoicing and customer payments. Revenue recognized for the three and six months ended June 30, 2025, which was included in the contract liabilities balance at the beginning of each reporting period, was $1.7 million and $4.1 million, respectively. Revenue recognized for the three and six months ended June 30, 2024, which was included in the contract liabilities balance at the beginning of each reporting period, was $1.9 million and $4.5 million, respectively.
As of June 30, 2025, we had approximately $51.7 million of remaining performance obligations, which we also refer to as funded backlog. We expect to recognize approximately 95 % of our remaining performance obligations over the next 12 months, and the balance thereafter.
4. ACCOUNTS RECEIVABLE, NET
| Table 4: Details of Accounts Receivable, Net | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Billed accounts receivable | $ | $ | |||||||||
| Unbilled accounts receivable | |||||||||||
| Contract assets | |||||||||||
Allowance for credit losses (1) | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
(1) Includes provision for credit losses, net of recoveries.
As our primary customer base includes agencies of the U.S. government, we have a concentration of credit risk associated with our accounts receivable, as 75 % and 88 % of our billed and unbilled accounts receivable as of June 30, 2025, and December 31, 2024, respectively, were with U.S. government customers. While we acknowledge the potential material and adverse risk of such a significant concentration of credit risk, our past experience collecting substantially all of such receivables provides us with an informed basis that such risk, if any, is manageable. We perform ongoing credit evaluations of all of our customers and generally do not require collateral or other guarantees. We maintain allowances for potential losses.
5. INVENTORIES, NET
| Table 5: Details of Inventories, Net | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Gross inventory | $ | $ | |||||||||
| Allowance for inventory obsolescence | ( | ( | |||||||||
| Inventories, net | $ | $ | |||||||||
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6. PROPERTY AND EQUIPMENT, NET
| Table 6.1: Details of Property and Equipment, Net | |||||||||||||||||||||||||||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Depreciation and Amortization | Net Carrying Value | Gross Carrying Amount | Accumulated Depreciation and Amortization | Net Carrying Value | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Furniture and equipment | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Leasehold improvements | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Table 6.2: Depreciation and Amortization Expense | |||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | |||||||||||||||||||
7. GOODWILL
8. INTANGIBLE ASSETS, NET
| Table 8.1: Details of Intangible Assets, Net | ||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| Estimated Useful Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||||||||||||||||
| (in years) | (in thousands) | |||||||||||||||||||||||||||||||||||||
| Acquired technology | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Customer relationship | ( | ( | ||||||||||||||||||||||||||||||||||||
| Software development costs | ( | ( | ||||||||||||||||||||||||||||||||||||
| Subtotal | ( | ( | ||||||||||||||||||||||||||||||||||||
In-process software development costs (1) | — | — | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
(1) In-process software development costs are costs for software that is not yet available for its intended use or general release to customers as of balance sheet date, thus not yet amortized.
| Table 8.2: Amortization Expense | |||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Amortization expense related to: | |||||||||||||||||||||||
Software development costs – cost of sales (1) | $ | $ | $ | $ | |||||||||||||||||||
| Software development costs – research and development | |||||||||||||||||||||||
| Other intangible assets – general and administrative | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1) Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed is charged under cost of sales on the unaudited consolidated statements of operations.
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9. OTHER BALANCE SHEET COMPONENTS
| Table 9.1: Details of Other Assets | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
Investment (1) | $ | $ | |||||||||
| Prepaid expense – long-term portion | |||||||||||
| Restricted cash | |||||||||||
| Other | |||||||||||
| Other assets | $ | $ | |||||||||
| Table 9.2: Details of Accounts Payable and Other Accrued Liabilities | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued payables | |||||||||||
| Accounts payable and other accrued liabilities | $ | $ | |||||||||
| Table 9.3: Details of Other Current Liabilities | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Other accrued expenses | $ | $ | |||||||||
| Restructuring expenses accrual | |||||||||||
| Other | |||||||||||
| Other current liabilities | $ | $ | |||||||||
10. REVOLVING CREDIT FACILITY
On December 30, 2022, we entered into a Credit Agreement (the "Credit Agreement"), by and among the Company, as borrower, Xacta Corporation, ubIQuity.com, inc., Teloworks, Inc., and Telos Identity Management Solutions, LLC, as guarantors, the lenders party thereto (the "Lenders"), and JPMorgan Chase Bank N.A., as administrative agent for the Lenders (in such capacity, the "Agent"). The Credit Agreement provides for a $30.0 million senior secured revolving credit facility with a maturity date of December 30, 2025, with the option of issuing letters of credit thereunder with a sub-limit of $5.0 million, and with an uncommitted expansion feature of up to $30.0 million of additional revolver capacity (the "Loan"). The Loan is subject to acceleration in the event of customary events of default. The Company has not drawn any amount under the Loan.
Borrowings under the Credit Agreement will accrue interest, at our option, at one of three variable rates, plus a specified margin. We can elect to borrow at (i) the Alternative Base Rate, plus 0.9 %; (ii) Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR"), plus 1.9 %; and (iii) Adjusted Term SOFR, plus 1.9 %, as such capitalized terms are defined and calculated in the Credit Agreement. The Company may elect to convert borrowings from one type of borrowing to another type per the terms of the Credit Agreement. After the occurrence and during the continuance of any event of default, the interest rate may increase by an additional 2.0 %. We are obligated to pay accrued interest (i) with respect to amounts accruing interest based on the Alternative Base Rate, each calendar quarter and on the maturity date, (ii) with respect to amounts accruing interest based on Adjusted Daily Simple SOFR, on each one-month anniversary of the borrowing and on the maturity date, and (iii) with respect to amounts accruing interest based on Adjusted Term SOFR, at the end of the period specified per the Credit Agreement and on the maturity date. Upon five , three , or one day's prior notice, as applicable, we may prepay any portion or the entire amount of the Loan. We also paid costs and customary fees, including a closing fee, commitment fees and letter of credit participation fee, payable to the Agent and Lenders, as applicable, in connection with the Loan.
The Loan under the Credit Agreement is collateralized by substantially all of the Company's assets, including the Company's pledge of its domestic and material foreign subsidiary equity interests.
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The Loan has various covenants that may, among other things, affect our ability to create, incur, assume or suffer any indebtedness, merge into or consolidate with another entity, acquire entity interests, sell or transfer certain assets, enter into certain arrangements (such as sale and leaseback and swap agreements) or restrictive agreements, pay dividends and make certain restricted payments, and amend material documents related to any subordinated indebtedness and corporate agreements. The Credit Agreement also requires certain financial covenants to maintain a Senior Leverage Ratio on the last day of any fiscal quarter, no greater than 3 to 1. We were in compliance with all covenants as of June 30, 2025.
The occurrence of an event of default under the Credit Agreement could result in the Loan and other obligations becoming immediately due and payable and allow the Lenders to exercise all rights and remedies available to them under the Credit Agreement.
On April 12, 2023, the Credit Agreement was amended to exclude from collateral the (i) amount collectible from a third party related to an Accounts Receivable Purchase Agreement and (ii) receivables generated by the Company from the sale of goods supplied to this third party in an amount not to exceed $25.0 million.
11. STOCK-BASED COMPENSATION
The Company grants stock-based compensation awards under the Amended and Restated 2016 Omnibus Long-Term Incentive Plan (the "2016 LTIP"). We have granted stock options, restricted stock units with time-based vesting ("RSUs") and restricted stock units with performance-based vesting ("PSUs"). Awards granted under the 2016 LTIP vest over the periods determined by the Board of Directors or the Compensation Committee of the Board of Directors, which has the discretion to establish the terms, conditions and criteria of the various awards. The RSUs granted to eligible employees generally vest in installments over a period of up to three years . PSUs will vest upon the achievement of a defined performance target or market conditions for the Company's common stock or certain operational milestones over a prescribed period.
On May 8, 2025, the Company's stockholders approved an amendment to the 2016 LTIP that increased the number of shares available for issuance under the 2016 LTIP by an additional 4,900,000 shares. As of June 30, 2025, approximately 1.6 million shares of our common stock were available for future grants under the 2016 LTIP.
Stock-based compensation expense recognized for restricted stock units and stock options granted to employees and non-employees is included in the unaudited consolidated statements of operations, net of adjustments. There were no
| Table 11.1: Details of Stock Compensation Expense by Category | |||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of sales – services | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | ( | ( | |||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Restricted Stock
| Table 11.2: Restricted Stock Unit Activity | |||||||||||||||||||||||
| Service-Based | Performance-Based | Total Shares | Weighted-Average Grant Date Fair Value | ||||||||||||||||||||
| Unvested outstanding units as of December 31, 2024 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Vested | ( | ( | ( | ||||||||||||||||||||
| Forfeited | ( | ( | ( | ||||||||||||||||||||
| Unvested outstanding units as of June 30, 2025 | $ | ||||||||||||||||||||||
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On February 20, 2025, the Company amended certain previously granted PSUs that could settle in up to 2,462,445 shares of its common stock and would only vest if the Company achieves certain financial performance targets for fiscal year 2025. The amendment eliminated one of the financial performance targets.
On May 14, 2025, the Company granted PSUs that could settle in up to 65,000 shares of its common stock to an employee that will vest only if the Company achieves a certain operational milestone prior to January 1, 2027. In addition, the Company granted PSUs to an employee that could settle in up to 50,000 shares and will vest only if the Company achieves certain financial performance targets for fiscal year 2025.
On June 11, 2025, the Company granted PSUs containing stock price market conditions to certain employees that could settle in up to 1,060,000 shares of its common stock. These PSUs will vest, in whole or in part, only if the Company's closing common stock price remains at or above certain specified stock prices for 50 consecutive days prior to January 1, 2027.
On June 11, 2025, the Company also granted to certain executives PSUs with market conditions dependent on total shareholder return ("TSR"), that could settle in up to 2,206,163 shares of its common stock. The vesting criteria for these awards are based on the Company's TSR performance relative to the TSR performance of the Company's current compensation peer group over the three-year performance period, June 1, 2025, through May 31, 2028, and conditioned upon neutral or positive free cash flow (i.e. cash flows from operating activities less capital expenditure) at the end of each fiscal year in the performance period. The final payout of these PSUs will vary between 0 % to 200 % of the target number of PSUs granted, depending on the TSR performance and meeting the free cash flow requirements.
For the Company's stock-based compensation awards subject to market conditions, the grant date fair value per share is based on a Monte Carlo simulation method. The expenses for these awards are recognized over the derived service period as determined through the Monte Carlo simulation model (as defined below).
For the awards subject to stock price market conditions, the Monte Carlo approach uses a class of computational algorithms that rely on repeated random sampling to compute their results. This approach allows the calculation of the value of such PSUs based on a large number of possible stock price path scenarios. The risk-free rate is based on a zero-coupon yield from the Treasury Constant Maturities yield curve at the time of grant over the performance period. Our key assumptions include a performance period of 1.56 years, an expected volatility of 97.5 %, and a risk-free rate of 3.9 %. The fair value for these stock price market condition PSUs at the grant date ranges between $1.17 – $1.51 , and the derived service period ranges between 0.8 – 0.94 years.
For the awards subject to TSR market conditions, the Monte Carlo simulation simulates a distribution of stock prices for the Company and its current compensation peer group throughout the remaining performance period based on certain assumptions of stock price performance. Monte Carlo valuations of relative TSR PSUs depend on two sets of prices: realized performance and simulated performance. Our key assumptions include a performance period of 2.97 years, an expected volatility of 114.7 %, and a risk-free rate of 3.8 %. The fair value for these relative TSR market condition PSUs at the grant date was $4.82 .
As of June 30, 2025, and 2024, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $50.1 million and $52.1 million, respectively. There was approximately $23.2 million of total compensation costs related to stock-based awards not yet recognized as of June 30, 2025, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.8 years.
Stock Options
| Table 11.3: Stock Option Activity | |||||||||||||||||||||||
| Stock Options Outstanding | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding option balance as of December 31, 2024 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | |||||||||||||||||||||||
| Forfeited, cancelled, or expired | |||||||||||||||||||||||
| Outstanding option balance as of June 30, 2025 | $ | $ | |||||||||||||||||||||
| Exercisable stock options as of June 30, 2025 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the quoted closing price of the Company's common stock as of June 30, 2025.
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The fair value of the stock options is expensed on a straight-line basis over the vesting period of one year , including the stock options granted to directors, as the annual stockholders meeting is expected to occur at the same approximate time each year. As of June 30, 2025, there were no unrecognized compensation costs related to non-vested stock options.
12. SHARE REPURCHASES
On May 24, 2022, the Company announced that the Board of Directors approved a share repurchase program ("SRP") authorizing the Company to repurchase up to $50.0 million of its common stock. Pursuant to this authorization, the Company may repurchase shares of its common stock on a discretionary basis from time to time through open market purchases. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. As of June 30, 2025, there was approximately $34.7 million of the authorization remaining for future common stock repurchases under the SRP.
| Table 12: Share Repurchase Activity | |||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (in thousands, except per share and share data) | |||||||||||||||||||||||
Amounts paid for shares repurchased (1) | $ | $ | $ | $ | |||||||||||||||||||
| Number of shares repurchased | |||||||||||||||||||||||
Average per share price paid (1) | $ | $ | $ | $ | |||||||||||||||||||
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
| Table 13: Details of Changes in Accumulated Other Comprehensive Loss by Category | |||||||||||||||||
| Foreign currency translation adjustment | Pension liability adjustment | Total | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Balance as of December 31, 2024 | $ | ( | $ | $ | ( | ||||||||||||
| Other comprehensive income before reclassification, net of tax | |||||||||||||||||
| Balance as of June 30, 2025 | $ | ( | $ | $ | ( | ||||||||||||
14. LOSS PER SHARE
For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net earnings (loss) per share, because to do so would be anti-dilutive.
| Table 14: Potentially Dilutive Securities | |||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Weighted-average number of shares – unvested RSUs, PSUs and stock options | |||||||||||||||||||||||
For the three and six months ended June 30, 2025, and 2024, outstanding PSUs aggregating to 11,372,034 9,418,745
15. SEGMENT INFORMATION
We operate our business in two
•Our Security Solutions segment is primarily focused on cybersecurity, cloud and identity solutions, and secure messaging through Xacta®, Telos Automated Message Handling System ("AMHS") and Telos ID offerings.
•Our Secure Networks segment provides secure networking architectures and solutions to our customers through secure mobility solutions, and network management and defense services.
We measure each segment's profitability based on gross profit. Our Chief Executive Officer, as the chief operating decision maker ("CODM"), evaluates the segment's performance based on metrics, such as segment revenue and gross profit, that align with our strategies and objectives, and provide a framework for the timely and rational allocation of resources between the segments.
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| Table 15.1: Results of Operations by Business Segment (Quarter) | |||||||||||||||||||||||||||||||||||
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | ||||||||||||||||||||||||||||||||||
| Security Solutions | Secure Networks | Total | Security Solutions | Secure Networks | Total | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Cost of Sales | |||||||||||||||||||||||||||||||||||
Depreciation and amortization (1) | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense (1) | |||||||||||||||||||||||||||||||||||
Other segment items (2) | |||||||||||||||||||||||||||||||||||
| Total cost of sales | |||||||||||||||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||||||||||||||
| Operating loss | ( | ( | |||||||||||||||||||||||||||||||||
| Other income | |||||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||||||||||||||
| Loss before income taxes | ( | ( | |||||||||||||||||||||||||||||||||
| Provision for income taxes | ( | ( | |||||||||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Table 15.2: Results of Operations by Business Segment (Year-to-Date) | |||||||||||||||||||||||||||||||||||
| For the Six Months Ended | |||||||||||||||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | ||||||||||||||||||||||||||||||||||
| Security Solutions | Secure Networks | Total | Security Solutions | Secure Networks | Total | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Cost of Sales | |||||||||||||||||||||||||||||||||||
Depreciation and amortization (1) | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense (1) | |||||||||||||||||||||||||||||||||||
Other segment items (2) | |||||||||||||||||||||||||||||||||||
| Total cost of sales | |||||||||||||||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||||||||||||||
| Operating loss | ( | ( | |||||||||||||||||||||||||||||||||
| Other income | |||||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||||||||||||||
| Loss before income taxes | ( | ( | |||||||||||||||||||||||||||||||||
| Provision for income taxes | ( | ( | |||||||||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
(1) The significant segment expense categories and amounts align with the segment-level information regularly provided to the CODM.
(2) Other segment items for each reportable segment include direct labor, direct subcontractor costs, direct materials and inventory, other direct non-labor costs, fringes, overhead, and facility costs.
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We account for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices, if any. There were no inter-segment sales and transfers during the three and six months ended June 30, 2025, and 2024. Interest income, interest expense, other income and expense items, and income taxes, as reported in the consolidated financial statements, are not part of the segment profitability measure and are primarily recorded at the corporate level.
Management does not utilize total assets by segment to evaluate segment performance or allocate resources. As a result, assets are not tracked by segment, and therefore, total assets by segment are not disclosed.
16. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company may be a party to litigation or claims arising in the ordinary course of business, including those relating to employment matters, relationships with clients and contractors, intellectual property disputes, and other business matters. These legal proceedings seek various remedies, including claims for monetary damages in varying amounts, none of which are considered material, or are unspecified as to amount. Although the outcome of any such matter is inherently uncertain and may be materially adverse, based on current information, management believes that the outcome of such known matters will not have a material adverse effect on the Company's business or its unaudited consolidated financial statements as of June 30, 2025.
Other - Government Contracts
As a U.S. government contractor, we are subject to various audits and investigations by the U.S. government to determine whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. government investigations of our operations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S. government contracting, or suspension of export privileges. Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. government. U.S. government investigations often take years to complete and many result in no adverse action. We also provide products and services to customers outside of the United States, which are subject to U.S. and foreign laws and regulations and foreign procurement policies and practices. Our compliance with local regulations or applicable U.S. government regulations may also be audited or investigated.
17. SUPPLEMENTAL CASH FLOW INFORMATION
| Table 17.1: Details of Cash, Cash Equivalents, and Restricted Cash | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Restricted cash (1) | |||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | |||||||||
(1) Restricted cash consists of a commercial money market account held as a deposit on the Ashburn lease and is included within "Other assets" on the unaudited consolidated balance sheets.
| Table 17.2: Supplemental Cash Flow Information | |||||||||||
| For the Six Months Ended | |||||||||||
| June 30, 2025 | June 30, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes | |||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Issuance of common stock for 401(k) match | $ | $ | |||||||||
| Capital expenditure activity in accounts payable and other accrued liabilities | |||||||||||
| Operating lease ROU assets obtained in exchange for operating lease liabilities | |||||||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. Several important factors could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth in the risk factors section included in the Company's Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on March 10, 2025.
General and Business Overview
We offer technologically advanced, software-based security solutions that empower and protect the world's most security-conscious organizations against rapidly evolving, sophisticated and pervasive threats. Our portfolio of security products, services and expertise empowers our customers with capabilities to reach new markets, serve their stakeholders more effectively, and successfully defend the nation or their enterprise. We protect our customers' people, information, and digital assets so they can pursue their corporate goals and conduct their global missions with confidence in their security and privacy. Our primary customers include the U.S. federal government, large commercial businesses, state and local governments, and international customers. Our consolidated revenue is largely attributable to prime contracts or to subcontracts with our contractors engaged in work for the U.S. government, with the remaining attributable to state, local, and commercial markets.
Information regarding our two reportable segments – Security Solutions and Secure Networks – is presented in Note 15 - Segment Information to the unaudited consolidated financial statements at Item 1 of this Form 10-Q.
Economic Opportunities, Challenges and Risks
We generated approximately 90% of our total revenues in the first half of fiscal year ("FY") 2025 from contracts with U.S. government agencies. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government.
The new Administration is currently evaluating federal agencies and existing government contracts, grants, and programs for affordability, efficiency, and alignment with U.S. government objectives. The Administration’s efforts to reduce federal spending create uncertainty and risk for government contractors, including potentially resulting in change in budgetary priorities and timing on issuing awards. Decreases or delays in contract awards and in government spending on the types of programs that we support, and terminations or stop-work-orders on government contracts on which we are currently performing, could adversely affect our future revenues and profitability. The ongoing and potential future reforms to the U.S. government acquisition process, including changes to procurement rules and regulations, could transform how contracts are awarded, negotiated, and managed, which could lead to delays in contract awards and/or modifications to the scope or terms of contracts we hold. At the same time, given the nature of our business, the Administration’s focus on efficiency, along with the potential for certain traditionally government functions to be transferred to private entities, may present new business opportunities for us.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law. The OBBBA includes significant changes to the Internal Revenue Code, with various provisions changing the U.S. federal income tax regulations and modifications to the Inflation Reduction Act of 2022. Further, the OBBBA significantly impacts the defense sector through substantial funding allocations and strategic investments, including specific investments in areas like Artificial Intelligence (“AI”), and provides the Department of Defense with extended time, until 2029, to make strategic investments in the defense industrial base. The increased funding and improved tax treatment for research and development could boost targeted defense investments, scale commercial technologies for military use, and support other related programs. See Note 2 – Significant Accounting Policies on Income Taxes for additional information on key income tax provisions of the OBBBA.
In light of ongoing conflicts and heightened global instability as well as political tensions and related legal challenges, we expect continued uncertainty in the U.S. political, budget and regulatory environment. Initiatives to reduce governmental spending, federal budget and debt ceiling action, and U.S. government policy positions, including trade policy, tax reform and U.S. government policies or priorities, could materially impact federal spending broadly and our programs in particular.
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Financial Overview
A number of factors have contributed to our financial performance in the second quarter ended June 30, 2025, the most significant of which are described below. More details on these factors are presented below within our "Results of Operations" section.
•The year-over-year increase in revenue was primarily driven by the successful transition and ramping towards the full operational capacity of a significant program within our Security Solutions segment.
•Our TSA PreCheck® enrollment revenue grew as a result of the expansion of TSA PreCheck enrollment sites.
•Our operating expenses increased due to higher stock-based compensation expense, partially offset by the lower expense associated with the restructuring efforts undertaken in the third quarter of 2024. Operating expenses, excluding stock-based compensation expense, declined year-over-year.
•We deployed $4.0 million to repurchase approximately 1.5 million shares of our common stock at a weighted-average share price of $2.69 per share.
Results of Operations
| Table MD&A 1: Consolidated Results of Operations | |||||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | Dollar Change | June 30, 2025 | June 30, 2024 | Dollar Change | ||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Revenue | $ | 35,968 | $ | 28,498 | $ | 7,470 | $ | 66,584 | $ | 58,117 | $ | 8,467 | |||||||||||||||||||||||
| Cost of sales | 24,036 | 18,791 | 5,245 | 42,470 | 37,449 | 5,021 | |||||||||||||||||||||||||||||
| Gross profit | 11,932 | 9,707 | 2,225 | 24,114 | 20,668 | 3,446 | |||||||||||||||||||||||||||||
| Gross margin | 33.2 | % | 34.1 | % | 36.2 | % | 35.6 | % | |||||||||||||||||||||||||||
| Operating expenses | 21,815 | 18,351 | 3,464 | 43,019 | 37,750 | 5,269 | |||||||||||||||||||||||||||||
| Operating expenses as percentage of revenue | 60.7 | % | 64.4 | % | 64.6 | % | 65.0 | % | |||||||||||||||||||||||||||
| Operating loss | (9,883) | (8,644) | (1,239) | (18,905) | (17,082) | (1,823) | |||||||||||||||||||||||||||||
| Other income | 553 | 1,064 | (511) | 1,114 | 2,316 | (1,202) | |||||||||||||||||||||||||||||
| Interest expense | (141) | (160) | 19 | (288) | (335) | 47 | |||||||||||||||||||||||||||||
| Loss before income taxes | (9,471) | (7,740) | (1,731) | (18,079) | (15,101) | (2,978) | |||||||||||||||||||||||||||||
| Provision for income taxes | (46) | (17) | (29) | (42) | (34) | (8) | |||||||||||||||||||||||||||||
| Net loss | $ | (9,517) | $ | (7,757) | $ | (1,760) | $ | (18,121) | $ | (15,135) | $ | (2,986) | |||||||||||||||||||||||
Consolidated Results
Our business segments have different factors driving revenue fluctuations and profitability. The discussion of the changes in our revenue and profitability are covered in greater detail in the following section, "Segment Results." We generate revenue from the delivery of products and services to our customers. Cost of sales, for both products and services, consists of labor, materials, subcontracting costs and an allocation of indirect costs.
Operating Expenses.
In the second quarter of 2025, operating expenses increased by $3.5 million, or 18.9%, compared to the same quarter in 2024. Research and development ("R&D") expenses slightly increased by $0.1 million, or 3.6%, in the second quarter of 2025, compared to the same period in 2024. Selling, general and administrative ("SG&A") expenses increased by $3.4 million, or 20.2%, in the second quarter of 2025, compared to the same period in 2024, due to higher stock-based compensation costs, partially offset by lower labor costs due to the restructuring efforts taken in the third quarter of 2024 and lower cash incentive compensation expense.
For the six months ended June 30, 2025, operating expenses increased by $5.3 million, or 14.0%, compared with the same period in 2024. R&D expenses declined by $1.5 million, or 33.4%, in the first half of 2025, compared to the same period in 2024, due to lower amortization costs associated with the discontinued development of selected solutions in the third quarter of 2024. SG&A expenses increased by $6.8 million, or 20.6%, in the first half of 2025, compared to the same period in 2024, due to higher stock-based compensation costs, partially offset by lower labor costs due to the restructuring efforts taken in the third quarter of 2024 and lower cash incentive compensation expense.
Other income.
Other income decreased by $0.5 million, or 48.0%, for the second quarter of 2025, compared to the same period in 2024. Similarly, other income for the six months ended June 30, 2025, decreased by $1.2 million, or 51.9%, compared to the same period in 2024. The decreases in other income for both periods were primarily due to the changes in dividend income from money market placements.
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Segment Results
The accounting policies of each business segment are the same as those followed by the Company as a whole. Management evaluates business segment performance based on gross profit.
| Table MD&A 2: Security Solutions Segment - Financial Results | |||||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | Dollar Change | June 30, 2025 | June 30, 2024 | Dollar Change | ||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Revenue | $ | 32,474 | $ | 17,867 | $ | 14,607 | $ | 58,292 | $ | 36,507 | $ | 21,785 | |||||||||||||||||||||||
| Cost of sales (excluding depreciation and amortization) | 19,462 | 8,565 | 10,897 | 32,719 | 17,304 | 15,415 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 1,714 | 2,037 | (323) | 3,215 | 3,312 | (97) | |||||||||||||||||||||||||||||
| Total cost of sales | 21,176 | 10,602 | 10,574 | 35,934 | 20,616 | 15,318 | |||||||||||||||||||||||||||||
| Gross profit | $ | 11,298 | $ | 7,265 | $ | 4,033 | $ | 22,358 | $ | 15,891 | $ | 6,467 | |||||||||||||||||||||||
| Gross margin | 34.8 | % | 40.7 | % | 38.4 | % | 43.5 | % | |||||||||||||||||||||||||||
Three Months Ended June 30, 2025, Compared with Three Months Ended June 30, 2024
Security Solutions segment revenue for the second quarter of 2025 increased by $14.6 million, or 81.8%, compared to the same period in 2024, primarily due to the successful ramp towards the full operational capacity of a significant program and increase in volume on another large program.
Security Solutions gross profit for the second quarter of 2025 increased by $4.0 million, or 55.5%, compared with the same period in 2024, due to higher segment revenues.
Segment gross margin decreased from 40.7% to 34.8% for the second quarter of 2025, compared with the same period in 2024, primarily due to revenue mix partially offset by the impact of lower depreciation and amortization expense on higher revenue.
Six Months Ended June 30, 2025, Compared with Six Months Ended June 30, 2024
Security Solutions segment revenue for the six months ended June 30, 2025, increased by $21.8 million, or 59.7%, compared to the same period in 2024, primarily due to the successful ramp towards the full operational capacity of a significant program and increase in volume on another large program.
Segment gross profit for the six months ended June 30, 2025, increased by $6.5 million, or 40.7%, compared to the same period in 2024, due to higher segment revenues.
Segment gross margin decreased from 43.5% in FY2024 to 38.4% in FY2025, primarily due to revenue mix partially offset by the impact of lower depreciation and amortization on higher revenue.
| Table MD&A 3: Secure Networks Segment - Financial Results | |||||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | Dollar Change | June 30, 2025 | June 30, 2024 | Dollar Change | ||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Revenue | $ | 3,494 | $ | 10,631 | $ | (7,137) | $ | 8,292 | $ | 21,610 | $ | (13,318) | |||||||||||||||||||||||
| Cost of sales (excluding depreciation and amortization) | 2,859 | 8,187 | (5,328) | 6,533 | 16,828 | (10,295) | |||||||||||||||||||||||||||||
| Depreciation and amortization | 1 | 2 | (1) | 3 | 5 | (2) | |||||||||||||||||||||||||||||
| Cost of sales | 2,860 | 8,189 | (5,329) | 6,536 | 16,833 | (10,297) | |||||||||||||||||||||||||||||
| Gross profit | $ | 634 | $ | 2,442 | $ | (1,808) | $ | 1,756 | $ | 4,777 | $ | (3,021) | |||||||||||||||||||||||
| Gross margin | 18.1 | % | 23.0 | % | 21.2 | % | 22.1 | % | |||||||||||||||||||||||||||
Three Months Ended June 30, 2025, Compared with Three Months Ended June 30, 2024
Secure Networks segment revenue for the three months ended June 30, 2025, decreased by $7.1 million, or 67.1%, compared to the same period in 2024, primarily due to the ramp down of several programs within the portfolio.
Segment gross profit for Secure Networks for the second quarter of 2025, decreased by $1.8 million, or 74.0%, compared with the same period in 2024, due to lower segment revenues.
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Segment gross margin decreased from 23.0% to 18.1% for the second quarter of 2025, compared with the same period in 2024, primarily due to the results of revenue mix.
Six Months Ended June 30, 2025, Compared with Six Months Ended June 30, 2024
Secure Network segment revenue for the six months ended June 30, 2025, decreased by $13.3 million, or 61.6%, compared to the same period in 2024. The decrease in revenue for the six months ended June 30, 2025, was primarily due to the ramp down of several programs within the portfolio.
Segment gross profit for the six months ended June 30, 2025, decreased by $3.0 million, or 63.2%, compared to the same period in 2024, due to lower segment revenue.
Segment gross margin in the first half of 2025 decreased from 22.1% in 2024 to 21.2% in 2025. The decline in segment gross margin for the six months ended June 30, 2025, was primarily due to the results of revenue mix.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, future operating cash flows, and, if needed, borrowings under our $30.0 million revolving credit facility with a maturity date of December 30, 2025, and with an available expansion feature of up to $30.0 million of additional revolver facility. While a variety of factors related to sources and uses of cash, such as timeliness of accounts receivable collections, vendor credit terms, or significant collateral requirements, ultimately impact our liquidity, such factors may or may not have a direct impact on our liquidity.
As of June 30, 2025, we had cash and cash equivalents of $57.0 million and our working capital was $64.0 million.
We place a strong emphasis on liquidity management. This focus gives us the flexibility for capital deployment while preserving a strong balance sheet to position us for future opportunities. We believe we have adequate funds on hand to execute our financial and operating strategy. Our overall financial position and liquidity are strong. Although no assurances can be given, we believe the available cash balances and access to our revolving credit facility are sufficient to maintain the liquidity we require to meet our operating, investing and financing needs for the next 12 months.
Cash Flow
| Table MD&A 4: Net Change in Cash, Cash Equivalents, and Restricted Cash | |||||||||||
| For the Six Months Ended | |||||||||||
| June 30, 2025 | June 30, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 13,056 | $ | (8,340) | |||||||
| Net cash used in investing activities | (4,658) | (9,647) | |||||||||
| Net cash used in financing activities | (5,978) | (1,168) | |||||||||
| Net change in cash, cash equivalents, and restricted cash | $ | 2,420 | $ | (19,155) | |||||||
Net cash provided by operating activities for the six months ended June 30, 2025, was $13.1 million, an increase of $21.4 million, compared to the same period in 2024. The increase is attributable to the favorable changes in working capital primarily driven by timing of receipts from customer and the timing of payments to vendors, coupled with higher cash earnings (i.e., net loss, excluding non-cash items that do not impact cash flows from operating activities).
Net cash used in investing activities for the six months ended June 30, 2025, decreased by $5.0 million, compared to the same period of the prior year, primarily due to the decreases in capital expenditures in 2025 and purchase of an investment of $3.0 million in 2024, with no similar transaction in 2025.
Net cash used in financing activities for the six months ended June 30, 2025, increased by $4.8 million, compared to the same period in 2024. This is primarily attributable to the increases in payment of tax withholding related to net share settlement of equity awards of $1.1 million in the first half of 2025, compared with $0.4 million in the same period of 2024, and the repurchase of common stock of $4.0 million in 2025 under the share repurchase program (See Note 12 – Share Repurchases), with no similar activity in 2024.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates, judgments, and assumptions that affect the amounts reported. Actual results could differ from those estimates. Our 2024 Form 10-K, as filed with the SEC on March 10, 2025, includes a summary of critical accounting policies and estimates we believe are the most important to aid in understanding our financial results.
Stock-Based Compensation
The stock-based compensation expense related to the stock options, RSUs and PSUs awarded under the Amended and Restated 2016 Omnibus Long-Term Incentive Plan (the “2016 LTIP”) is recognized ratably over the requisite service period.
For awards with performance conditions, stock-based compensation expense is estimated at each reporting date using management’s expectation of the probable achievement of the specific performance targets and recognized over the requisite service period for each tranche on a graded-vesting basis. Stock-based compensation expense for PSUs with market conditions is recognized based on the grant-date fair value calculated using the Monte Carlo model, as described below, or sooner if the market conditions is achieved.
The fair value of the PSUs is equal to the closing stock price on the date of the grant or the fair value of the award on the grant date as determined through an independent valuation for PSUs with market conditions. Estimating the fair value of PSUs with market condition, using the Monte Carlo simulation valuation model, requires assumptions as to the fair value of the underlying common stock, the estimated performance period, expected volatility, risk-free rate, and derived service period. See Note 11 – Stock-Based Compensation for additional information.
Goodwill
We test for goodwill impairment at the reporting unit level. Between annual evaluations, if events occur or circumstances change that would more-likely-than-not reduce the fair value of the reporting units below its carrying amount, then impairment must be evaluated. When evaluating goodwill for impairment, we first assess qualitative factors which could include, but not limited to, macroeconomic conditions, industry and market conditions, overall company financial performance and events affecting the reporting units or the Company as a whole.
If the financial performance of our Secure Networks reporting segment remains at the current level for a sustained period of time, and after considering other qualitative factors, there may be a triggering event indicating goodwill may be impaired in our Secure Networks reporting unit. Accordingly, management may need to perform a quantitative impairment test over the Secure Networks reporting unit to determine if an impairment loss should be recorded which may have an adverse impact on our results of operations.
Based on the result of our interim qualitative assessment, we determined that it is more-likely-than-not that the estimated fair value of the reporting units exceeds their carrying value and thus, no impairment charges were taken during the three and six months ended June 30, 2025.
Other critical accounting policies and estimates include revenue recognition, goodwill and long-lived assets, and income taxes, as discussed in our 2024 Form 10-K. There have been no changes to these critical accounting policies and estimates that have had a material impact on our reported amounts of assets, liabilities, revenues, or expenses during the six months ended June 30, 2025.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of business, we are exposed to a variety of financial risks, such as interest rate risk, foreign currency translation risk, and counterparty risk, which can affect our operations and profitability. The Company's market risk disclosure set forth on "Part II, Item 7A – Quantitative and Qualitative Disclosure about Market Risk," on the 2024 Form 10-K, as filed with the SEC on March 10, 2025, have not changed materially during the six months ended June 30, 2025.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, including this Report, are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer ("CEO") and principal financial officer ("CFO") as appropriate to allow timely decisions regarding required disclosure.
The Company's management, including the Company's CEO and CFO, conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Report and, based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025, identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is included under Note 16 – Commitments and Contingencies to the unaudited consolidated financial statements.
Item 1A. Risk Factors
We have disclosed under "Item 1A – Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024, the risk factors which may materially affect our business, financial conditions or results of operations. Except as set forth below, there have been no material changes from the risk factors previously disclosed.
The new Administration's actions, such as tariffs and other changes in international trade policies, could adversely and unexpectedly impact our business.
Beginning in January 2025, the new Administration began to increase tariff rates on numerous products from a range of nations. The duration and extent of the tariffs and reciprocal tariffs, including the availability of certain exemption on some products, continue to evolve. Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the procurement costs of certain IT hardware we use, both internally or on our contracts, or sell to our customers. These actions could have a negative effect on our business, results of operations, or financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Securities
None.
(b) Use of Proceeds
None.
(c) Issuer Purchases of Equity Securities
Common Stock Purchase Activity During the Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans (1) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans (1) | ||||||||||||||||||||||
| April 1, 2025 - April 30, 2025 | — | $ | — | — | $ | 38,715,569 | ||||||||||||||||||||
| May 1, 2025 - May 31, 2025 | 761,338 | 2.61 | 761,338 | $ | 36,731,490 | |||||||||||||||||||||
| June 1, 2025 - June 30, 2025 | 726,889 | 2.78 | 726,889 | $ | 34,713,664 | |||||||||||||||||||||
| Total | 1,488,227 | $ | 2.69 | 1,488,227 | ||||||||||||||||||||||
(1) On May 24, 2022, the Board of Directors authorized a Share Repurchase Program, pursuant to which the Company can repurchase up to $50.0 million of issued and outstanding common stock. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. For the second quarter of 2025, the Company repurchased 1,488,227 shares of common stock under the program for an aggregate price of $4.0 million on the open market.
Item 3. Defaults upon Senior Securities
(a) None.
(b) None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) None.
(b) None.
(c) During the three months ended June 30, 2025, no director or officer of the Company adopted terminated
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Item 6. Exhibits
| Exhibit Number | Description | |||||||
31.1 | + | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||
31.2 | + | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||
32 | ^ | Certification pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||
| 101.INS | + | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||||
| 101.SCH | + | XBRL Taxonomy Extension Schema Document | ||||||
| 101.CAL | + | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
| 101.DEF | + | XBRL Taxonomy Extension Definition Linkbase Document | ||||||
| 101.LAB | + | XBRL Taxonomy Extension Label Linkbase Document | ||||||
| 101.PRE | + | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
| 104 | + | Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document contained in Exhibit 101 | ||||||
| + | Filed herewith | ||||
| ^ | Furnished herewith | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TELOS CORPORATION | ||||||||
| /s/ John B. Wood | August 11, 2025 | |||||||
| By: John B. Wood | ||||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||||
| /s/ Mark Bendza | August 11, 2025 | |||||||
| By: Mark Bendza | ||||||||
| Chief Financial Officer (Principal Financial Officer) | ||||||||
| /s/ DJ Terreri | August 11, 2025 | |||||||
| By: DJ Terreri | ||||||||
| Controller and Chief Accounting Officer (Principal Accounting Officer) | ||||||||
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Source:
FAQ
What were Telos (TLS) revenue and net loss for the quarter?
Telos reported $35.97 million in total revenue for the quarter and a net loss of $9.52 million.
How did Telos' segments perform in Q2 (TLS)?
The Security Solutions segment grew 81.8% year-over-year and drove most revenue; Secure Networks revenue fell 67.1% for the quarter.
What is Telos' cash, working capital and operating cash flow (TLS)?
Telos had $57.0 million in cash and cash equivalents, about $64.0 million working capital, and provided $13.06 million of operating cash flow for the six months.
What backlog and revenue timing did Telos disclose (TLS)?
Telos reported $51.7 million of remaining performance obligations (funded backlog), with ~95% expected to be recognized within 12 months.
What shareholder actions did Telos take in the period (TLS)?
The company repurchased 1.488 million shares for $4.0 million under its ongoing $50.0 million authorization, with ~$34.7 million remaining.
What is the status of Telos' credit facility (TLS)?
Telos has an undrawn $30.0 million senior secured revolving credit facility (maturity December 30, 2025) and was in compliance with covenant requirements as of the reporting date.
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TLS Stock Data
178.57M
52.48M
28.44%
53.3%
1.89%
Software - Infrastructure
Services-computer Integrated Systems Design
United States
ASHBURN