3 unchanged sentences
(amounts in thousands, except per share data)
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
16 unchanged sentences
(Loss) income before income taxes ( 5,428 ) 2,502 ( 38,888 ) 3,970
−Removed: (Provision for) benefit from income taxes ( 13 ) ( 2 ) ( 47 ) 144
+Added: Benefit from (provision for) income taxes 41 ( 8 ) ( 6 ) 136
Net (loss) income ( 5,387 ) 2,494 ( 38,894 ) 4,106
Net income attributable to non-controlling interest — ( 2,694 ) — ( 6,284 )
−Removed: Net (loss) income attributable to Telos Corporation $ ( 18,729 ) $ 266 $ ( 33,507 ) $ ( 1,978 )
−Removed: Net (loss) income per share attributable to Telos Corporation, basic $ ( 0.28 ) $ 0.01 $ ( 0.51 ) $ ( 0.05 )
−Removed: Net (loss) income per share attributable to Telos Corporation, diluted $ ( 0.28 ) $ 0.01 $ ( 0.51 ) $ ( 0.05 )
+Added: Net loss attributable to Telos Corporation $ ( 5,387 ) $ ( 200 ) $ ( 38,894 ) $ ( 2,178 )
+Added: Net loss per share attributable to Telos Corporation, basic $ ( 0.08 ) $ ( 0.01 ) $ ( 0.59 ) $ ( 0.06 )
+Added: Net loss per share attributable to Telos Corporation, diluted $ ( 0.08 ) $ ( 0.01 ) $ ( 0.59 ) $ ( 0.06 )
Weighted-average shares of common stock outstanding, basic 66,755 39,002 65,999 38,554
2 unchanged sentences
TELOS CORPORATION
−Removed: CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
+Added: CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(amounts in thousands)
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net (loss) income $ ( 5,387 ) $ 2,494 $ ( 38,894 ) $ 4,106
−Removed: Other comprehensive income (loss), net of tax:
+Added: Other comprehensive loss, net of tax:
Foreign currency translation adjustments ( 13 ) ( 2 ) ( 40 ) ( 1 )
Comprehensive income attributable to non-controlling interest — ( 2,694 ) — ( 6,284 )
−Removed: Comprehensive (loss) income attributable to Telos Corporation $ ( 18,724 ) $ 268 $ ( 33,534 ) $ ( 1,977 )
+Added: Comprehensive loss attributable to Telos Corporation $ ( 5,400 ) $ ( 202 ) $ ( 38,934 ) $ ( 2,179 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
1 unchanged sentence
CONDENSED CONSOLIDATED BALANCE SHEETS
−Removed: (amounts in thousands)
−Removed: June 30, 2021 December 31, 2020
+Added: (amounts in thousands, except shares and par value data)
+Added: September 30, 2021 December 31, 2020
Current assets
6 unchanged sentences
Total current assets 192,300 144,114
−Removed: Property and equipment, including capitalized software development costs, net of accumulated depreciation and amortization of $ 38,867 and $ 36,891 , respectively
+Added: Property and equipment, net of accumulated depreciation and amortization of $ 33,805 and $ 32,057 , respectively
14,363 14,977
1 unchanged sentence
Goodwill 16,642 14,916
+Added: Intangible assets, net 17,102 7,420
Other assets 1,256 926
10 unchanged sentences
Finance lease obligations – long-term 13,218 14,301
−Removed: Operating lease liabilities – long-term 642 941
+Added: Operating lease obligations – long-term 516 941
Deferred income taxes 680 652
3 unchanged sentences
Stockholders’ equity
−Removed: Common stock, $ 0.001 par value, 250,000,000 shares authorized, 66,755,230 shares and 64,625,071 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
+Added: Common stock, $ 0.001 par value, 250,000,000 shares authorized, 66,755,230 shares and 64,625,071 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
Additional paid-in capital 354,119 270,800
7 unchanged sentences
(amounts in thousands)
−Removed: Six Months Ended June 30,
+Added: Nine Months Ended September 30,
Operating activities:
Net (loss) income $ ( 38,894 ) $ 4,106
−Removed: Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:
+Added: Adjustments to reconcile net (loss) income to cash provided by operating activities:
Stock-based compensation 47,197 4
3 unchanged sentences
Deferred income tax provision 28 28
−Removed: Loss on disposal of fixed assets 5 —
Other noncash items 14 ( 25 )
Changes in other operating assets and liabilities ( 5,900 ) 275
−Removed: Cash (used in) provided by operating activities ( 5,790 ) 839
+Added: Cash provided by operating activities 6,668 11,957
Investing activities:
+Added: Cash paid for acquisition ( 5,925 ) —
Capitalized software development costs ( 6,139 ) ( 5,459 )
9 unchanged sentences
Cash provided by (used in) financing activities 35,131 ( 2,299 )
−Removed: Increase (decrease) in cash and cash equivalents 24,951 ( 4,346 )
+Added: Increase in cash and cash equivalents 28,090 3,575
Cash and cash equivalents, beginning of period 106,045 6,751
5 unchanged sentences
Dividends from preferred stock recorded as interest expense $ — $ 2,867
+Added: Supplemental disclosure of non-cash investing activity
+Added: Acquisition holdback $ 506 $ —
The accompanying notes are an integral part of these condensed consolidated financial statements.
6 unchanged sentences
Equity (Deficit)
−Removed: For the Three Months Ended June 30, 2021
+Added: For the Three Months Ended September 30, 2021
Beginning balance $ 105 $ 341,928 $ 17 $ ( 177,350 ) $ — $ 164,700
Net loss — — — ( 5,387 ) — ( 5,387 )
−Removed: Issuance of common stock 2 64,267 — — — 64,269
−Removed: Foreign currency translation gain — — 5 — — 5
+Added: Foreign currency translation loss — — ( 13 ) — — ( 13 )
Stock-based compensation — 12,191 — — — 12,191
−Removed: Repurchase of outstanding warrants — ( 26,894 ) — — — ( 26,894 )
−Removed: Repurchase of common stock — ( 1,251 ) — — — ( 1,251 )
Ending balance $ 105 $ 354,119 $ 4 $ ( 182,737 ) $ — $ 171,491
−Removed: For the Three Months Ended June 30, 2020
+Added: For the Three Months Ended September 30, 2020
Beginning balance $ 78 $ 4,310 $ 7 $ ( 147,508 ) $ 7,104 $ ( 136,009 )
−Removed: Net income — — — 266 2,806 3,072
−Removed: Foreign currency translation gain — — 2 — — 2
+Added: Net (loss) income — — — ( 200 ) 2,694 2,494
+Added: Foreign currency translation loss — — ( 2 ) — — ( 2 )
+Added: Stock-based compensation — 4 — — — 4
Distributions — — — — ( 292 ) ( 292 )
Ending balance $ 78 $ 4,314 $ 5 $ ( 147,708 ) $ 9,506 $ ( 133,805 )
−Removed: For the Six Months Ended June 30, 2021
+Added: For the Nine Months Ended September 30, 2021
Beginning balance $ 103 $ 270,800 $ 44 $ ( 143,843 ) $ — $ 127,104
6 unchanged sentences
Ending balance $ 105 $ 354,119 $ 4 $ ( 182,737 ) $ — $ 171,491
−Removed: For the Six Months Ended June 30, 2020
+Added: For the Nine Months Ended September 30, 2020
Beginning balance $ 78 $ 4,310 $ 6 $ ( 145,530 ) $ 4,514 $ ( 136,622 )
Net (loss) income — — — ( 2,178 ) 6,284 4,106
−Removed: Foreign currency translation gain — — 1 — — 1
+Added: Foreign currency translation loss — — ( 1 ) — — ( 1 )
+Added: Stock-based compensation — 4 — — — 4
Distributions — — — — ( 1,292 ) ( 1,292 )
4 unchanged sentences
General and Basis of Presentation
−Removed: 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 organization.
+Added: Description of Business
+Added: 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 share capital of Xacta Corporation, a subsidiary that develops, markets and sells government-validated secure enterprise solutions to government and commercial customers.
We also own all of the issued and outstanding share capital of Ubiquity.com, Inc., a holding company for Xacta Corporation.
−Removed: We also have a 100 % ownership interest in Telos Identity Management Solutions, LLC (“Telos ID”), Teloworks, Inc.
+Added: We own a 100 % ownership interest in Telos Identity Management Solutions, LLC (“Telos ID”), Teloworks, Inc.
(“Teloworks”) and Telos APAC Pte.
3 unchanged sentences
The accompanying condensed consolidated financial statements and notes to the condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented.
−Removed: In December 2019, an outbreak of COVID-19 was reported in Wuhan, China.
−Removed: On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and on March 13, 2020, President Donald J.
−Removed: Trump declared the virus a national emergency.
−Removed: This highly contagious disease has spread to most of the countries in the world and throughout the United States, creating a serious impact on customers, workforces, and suppliers, disrupting economies and financial markets, and leading to a world-wide economic downturn.
−Removed: COVID-19, together with subsequently reported variants of this strain, have caused a disruption of the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis.
−Removed: The pandemic may adversely affect our customers’ ability to perform their missions and is in many cases disrupting their operations.
−Removed: It may also impact the ability of our subcontractors, partners, and suppliers to operate and fulfill their contractual obligations, and result in an increase in their costs and cause delays in performance.
−Removed: These supply chain effects, and the direct effect of the virus and the disruption on our operations, may negatively impact both our ability to meet customer demand and our revenue and profit margins.
−Removed: Our employees, in some cases, are working remotely due either to safety concerns or to customer imposed limitations and using various technologies to perform their functions.
−Removed: We could see delays or changes in customer demand, particularly if government funding priorities change.
−Removed: Additionally, the disruption and volatility in the global and domestic capital markets may increase the cost of capital and limit our ability to access capital.
−Removed: Both the health and economic aspects of COVID-19 are highly fluid and the future course of each is uncertain.
Public Offerings of Common Stock
2 unchanged sentences
We used approximately $ 108.9 million of the net proceeds in connection with the conversion of our outstanding shares of Exchangeable Redeemable Preferred Stock into the right to receive cash and shares of our common stock, $ 30.0 million to fund our acquisition of the outstanding Class B Units of Telos ID, and $ 21.0 million to repay our outstanding senior term loan and subordinated debt.
−Removed: We intend to use the remaining net proceeds for general corporate purposes.
−Removed: We also may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies.
−Removed: The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors.
On April 6, 2021, we completed our follow-on offering of 9.1 million shares of our common stock at a price of $ 33.00 per share, including 7.0 million shares of common stock held by certain existing stockholders of Telos.
1 unchanged sentence
We did not receive any proceeds from the shares of common stock sold by the selling stockholders.
−Removed: On April 19, 2021, we used approximately $ 1.3 million of the net proceeds to repurchase 39,682 shares of our common stock and $ 26.9 million for the warrants to purchase 900,970 shares of our common stock owned by certain affiliates of Enlightenment Capital Solutions ("EnCap").
−Removed: We intend to use the remaining net proceeds for general corporate purposes, including working capital, sales and marketing activities, research and development, general and administrative matters and capital expenditures.
+Added: On April 19, 2021, we used approximately $ 1.3 million of the net proceeds to repurchase 39,682 shares of our common stock and $ 26.9 million to repurchase the warrants to purchase 900,970 shares of our common stock owned by certain affiliates of Enlightenment Capital Solutions ("EnCap").
+Added: We have used and intend to continue using the remaining net proceeds for general corporate purposes, including working capital, sales and marketing activities, research and development, general and administrative matters and capital expenditures.
+Added: We also may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies.
+Added: The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors.
Principles of Consolidation and Reporting
−Removed: The accompanying condensed consolidated financial statements include the accounts of Telos and its wholly-owned subsidiaries.
+Added: The accompanying unaudited condensed consolidated financial statements include the accounts of Telos and its wholly-owned subsidiaries.
All intercompany transactions have been eliminated in consolidation.
−Removed: The accompanying condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”).
+Added: The accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”).
The presented interim results are not necessarily indicative of fiscal year performance for a variety of reasons including, but not limited to, the impact of seasonal and short-term variations.
2 unchanged sentences
In preparing these condensed consolidated financial statements, we have evaluated subsequent events through the date that these condensed consolidated financial statements were issued.
+Added: Basis of Comparison
+Added: Certain prior-period amounts have been reclassified to conform to the current period presentation.
+Added: In the current period, we have reclassified and presented intangible assets separately from our property and equipment line item.
+Added: The reclassification had no impact on our total assets or liabilities nor on our net loss or stockholders' equity.
+Added: For the three months ended September 30, 2021, the Company recorded an out-of-period adjustment resulting in a $ 1.1 million increase to 'Services' revenue and a $ 1.0 million reclassification between 'Cost of Sales - Services' and 'General and Administrative' expenses within the condensed consolidated statements of operations.
+Added: The Company identified and corrected this error in the current period.
+Added: This error was not material to any previously filed consolidated financial statements and the impact of correcting this error in the current period is not material to our third quarter 2021 condensed consolidated financial statements.
Segment Reporting
2 unchanged sentences
Our Chief Executive Officer is the CODM.
−Removed: The CODM only evaluates profitability based on consolidated results.
+Added: The CODM evaluates profitability based on consolidated results.
Recent Accounting Pronouncements
−Removed: Recent Accounting Pronouncements Adopted
+Added: Accounting Standards Recently Adopted
In December 2019, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
3 unchanged sentences
The adoption of this ASU did not have a material impact on our condensed consolidated financial position, results of operations and cash flows.
−Removed: Revenue Recognition
−Removed: We account for revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”.
−Removed: 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.
−Removed: ASC 606 prescribes a five-step model for recognizing revenue that includes identifying the contract with the customer, determining the performance obligation(s), determining the transaction price, allocating the transaction price to the performance obligation(s), and recognizing revenue as the performance obligations are satisfied.
−Removed: Timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms.
−Removed: Significant judgment can be required in determining certain performance obligations, and these determinations could change the amount of revenue and profit recorded in a given period.
−Removed: Our contracts may have a single performance obligation or multiple performance obligations.
−Removed: When there are multiple performance obligations within a contract, we allocate the transaction price to each performance obligation based on our best estimate of standalone selling price.
−Removed: 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, and is classified as services revenue.
−Removed: 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 contract types, which may include variable consideration as discussed further below.
−Removed: Revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations.
−Removed: Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.
−Removed: Contract costs include labor, material, subcontractor costs and indirect expenses.
−Removed: This continuous transfer of control to the customer is supported by clauses in our contracts with U.S.
−Removed: Government customers whereby the customer may terminate a contract for convenience and then pay for costs incurred plus a profit, at which time the customer would take control of any work in process.
−Removed: Government contracts where we perform as a subcontractor and our order includes similar Federal Acquisition Regulation (the FAR) provisions as the prime contractor’s order from the U.S.
−Removed: Government, continuous transfer of control is likewise supported by such provisions.
−Removed: For other non-U.S.
−Removed: Government customers, continuous transfer of control to such customers is also supported due to general terms in our contracts and rights to recover damages which would include, among other potential damages, the right to payment for our work performed to date plus a reasonable profit.
−Removed: Due to the transfer of control over time, revenue is recognized based on progress towards completion of the performance obligation.
−Removed: The selection of the method to measure progress towards completion requires judgment and is based on the nature of the performance obligations.
−Removed: We generally use the cost-to-cost measure of progress on a proportional performance basis for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts.
−Removed: Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.
−Removed: Revenues are recorded proportionally as costs are incurred.
−Removed: Due to the nature of the work required to be performed on certain of our performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment.
−Removed: Contract estimates are based on various assumptions including labor and subcontractor costs, materials and other direct costs and the complexity of the work to be performed.
−Removed: A significant change in one or more of these estimates could affect the profitability of our contracts.
−Removed: We review and update our contract-related estimates regularly and recognize adjustments in estimated profit on contracts on a cumulative catch-up basis, which may result in an adjustment increasing or decreasing revenue to date on a contract in a particular period that the adjustment is identified.
−Removed: Revenue and profit in future periods of contract performance are recognized using the adjusted estimate.
−Removed: Revenue that is recognized at a point in time is for the sale of software licenses in our Information Assurance / Xacta® (previously referred to as Cyber & Cloud Solutions) and Secure Communications (previously referred to as Secure Communications Cyber and Enterprise Solutions) business groups and for the sale of resold products in Telos ID (previously referred to as Telos ID Enterprise Solutions) and Secure Networks (previously referred to as Secure Mobility and Network Management/Defense Enterprise Solutions), and is classified as product revenue.
−Removed: Revenue on these contracts is recognized when the customer obtains control of the transferred product or service, which is generally upon delivery of the product to the customer for their use, due to us maintaining control of the product until that point.
−Removed: 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.
−Removed: When an order contains multiple performance obligations, we allocate the transaction price to the performance obligations using our best estimate of standalone selling price.
−Removed: Contracts are routinely and often modified to account for changes in contract requirements, specifications, quantities, or price.
−Removed: Depending on the nature of the modification, we determine whether to account for the modification as an adjustment to the existing contract or as a new contract.
−Removed: Generally, modifications are not distinct from the existing contract due to the significant interrelatedness of the performance obligations and are therefore accounted for as an adjustment to the existing contract, and recognized as a cumulative adjustment to revenue (as either an increase or reduction of revenue) based on the modification’s effect on progress toward completion of a performance obligation.
−Removed: Our contracts may include various types of variable consideration, such as claims (for instance, indirect rate or other equitable adjustments) or incentive fees.
−Removed: We include estimated amounts in the transaction price based on all of the information available to us, including historical information and future estimations, 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.
−Removed: Historically, most of our contracts do not include award or incentive fees.
−Removed: For incentive fees, we would include such fees in the transaction price to the extent we could reasonably estimate the amount of the fee.
−Removed: With limited historical experience, we have not included any revenue related to incentive fees in our estimated transaction prices.
−Removed: We may include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable.
−Removed: We consider the contractual/legal basis for the claim (in particular FAR provisions), the facts and circumstances around any additional costs incurred, the reasonableness of those costs and the objective evidence available to support such claims.
−Removed: For our contracts that have an original duration of one year or less, we use the practical expedient applicable to such contracts and do not consider the time value of money.
−Removed: We capitalize sales commissions related to proprietary software and related services that are directly tied to sales.
−Removed: We do not elect the practical expedient to expense as incurred the incremental costs of obtaining a contract if the amortization period would have been one year or less.
−Removed: For the sales commissions that are capitalized, we amortize the asset over the expected customer life, which is based on recent and historical data.
−Removed: Contract assets are amounts that are invoiced as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones.
−Removed: Generally, revenue recognition occurs before billing, resulting in contract assets.
−Removed: These contract assets are referred to as unbilled receivables and are reported within accounts receivable, net of reserve on our condensed consolidated balance sheets.
−Removed: Billed receivables are amounts billed and due from our customers and are reported within accounts receivable, net of reserve on the condensed consolidated balance sheets.
−Removed: The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component due to the intent of the retainage being the customer’s protection with respect to full and final performance under the contract.
−Removed: Contract liabilities are payments received in advance and milestone payments from our customers on selected contracts that exceed revenue earned to date, resulting in contract liabilities.
−Removed: Contract liabilities typically are not considered a significant financing component because they are generally satisfied within one year and are used to meet working capital demands that can be higher in the early stages of a contract.
−Removed: Contract liabilities are reported on our condensed consolidated balance sheets on a net contract basis at the end of each reporting period.
−Removed: We have one reportable segment.
−Removed: We treat sales to U.S.
−Removed: customers as sales within the U.S.
−Removed: regardless of where the services are performed.
−Removed: Substantially all of our revenues are from U.S.
−Removed: customers as revenue derived from international customers is not currently meaningful.
−Removed: The following tables disclose revenue (in thousands) by customer type and contract type for the three and six months ended June 30, 2021 and 2020.
−Removed: Three Months Ended
−Removed: June 30, Six Months Ended
−Removed: 2021 2020 2021 2020
−Removed: Federal $ 50,047 $ 46,877 $ 103,395 $ 82,968
−Removed: State & Local, and Commercial 2,512 1,733 4,922 4,621
−Removed: Total $ 52,559 $ 48,610 $ 108,317 $ 87,589
−Removed: Three Months Ended
−Removed: June 30, Six Months Ended
−Removed: 2021 2020 2021 2020
−Removed: Firm fixed-price $ 45,257 $ 41,935 $ 94,398 $ 73,596
−Removed: Time-and-materials 3,059 3,637 6,089 7,462
−Removed: Cost plus fixed fee 4,243 3,038 7,830 6,531
−Removed: Total $ 52,559 $ 48,610 $ 108,317 $ 87,589
−Removed: The following table discloses accounts receivable and contract assets (in thousands):
−Removed: June 30, 2021 December 31, 2020
−Removed: Billed accounts receivable $ 12,088 $ 12,060
−Removed: Unbilled receivables 27,446 19,161
−Removed: Allowance for doubtful accounts ( 122 ) ( 308 )
−Removed: Receivables – net $ 39,412 $ 30,913
−Removed: As of June 30, 2021 and December 31, 2020, we had $ 152.7 million and $ 127.7 million of remaining performance obligations, respectively, which we also refer to as funded backlog.
−Removed: We expect to recognize approximately 68.9 % of our remaining performance obligations as revenue in 2021, an additional 26.6 % in 2022, and the balance thereafter.
−Removed: Revenue recognized for the three and six months ended June 30, 2021 that was included in the contract liabilities balance at the beginning of each reporting period was $ 1.2 million and $ 3.2 million, respectively.
−Removed: Revenue recognized for the three and six months ended June 30, 2020 that was included in the contract liabilities balance at the beginning of each reporting period was $ 1.1 million and $ 3.5 million, respectively.
−Removed: Contract liabilities were $ 5.9 million and $ 5.7 million as of June 30, 2021 and December 31, 2020, respectively.
−Removed: Accounts Receivable
−Removed: Accounts receivable are stated at the invoiced amount, less an allowance for doubtful accounts.
−Removed: Collectability of accounts receivable is regularly reviewed based upon management’s knowledge of the specific circumstances related to overdue balances.
−Removed: The allowance for doubtful accounts is adjusted based on such evaluation.
−Removed: Accounts receivable balances are written off against the allowance when management deems the balances uncollectible.
+Added: Summary of Significant Accounting Policies
Inventories are stated at the lower of cost or net realizable value, where cost is determined using the weighted average method.
3 unchanged sentences
This charge is taken primarily due to the age of the specific inventory and the significant additional costs that would be necessary to upgrade to current standards as well as the lack of forecasted sales for such inventory in the near future.
−Removed: Gross inventory was $ 2.6 million and $ 4.2 million as of June 30, 2021 and December 31, 2020, respectively.
−Removed: As of June 30, 2021, it is management’s judgment that we have fully provided for any potential inventory obsolescence, which was $ 0.9 million as of June 30, 2021 and December 31, 2020.
+Added: Gross inventory was $ 2.9 million and $ 4.2 million as of September 30, 2021 and December 31, 2020, respectively.
+Added: As of September 30, 2021, it is management’s judgment that we have fully provided for any potential inventory obsolescence, which was $ 0.8 million and $ 0.9 million as of September 30, 2021 and December 31, 2020, respectively.
Software Development Costs
−Removed: Our policy on accounting for development costs of software to be sold is in accordance with ASC Topic 985-20, “Software – Costs of Software to be Sold, Leased, or Marketed” and ASC Topic 350-40 “Internal Use Software” in so far as our Xacta products being available in various deployment modalities including on premises licenses and cloud-based Software as a Service (“SaaS”).
+Added: We account for development costs of our software to be sold in accordance with ASC Topic 985-20, “Software – Costs of Software to be Sold, Leased, or Marketed” and for internal use software in accordance with ASC Topic 350-40 “Internal Use Software”.
Under both standards, software development costs are expensed as incurred until technological feasibility is reached, at which time additional costs are capitalized until the product is available for general release to customers or is ready for its intended use, as appropriate.
Technological feasibility is established when all planning, designing, coding and testing activities have been completed, and all risks have been identified.
−Removed: Software development costs are capitalized and amortized over the estimated product life of 2 years on a straight-line basis.
−Removed: As of June 30, 2021 and December 31, 2020, we capitalized $ 16.0 million and $ 12.3 million of software development costs, respectively, which are included as a part of property and equipment.
−Removed: Amortization expense was $ 0.5 million and $ 0.9 million for the three and six months ended June 30, 2021, respectively, and $ 0.4 million and $ 0.9 million for the three and six months ended June 30, 2020, respectively.
−Removed: Accumulated amortization was $ 5.7 million and $ 4.8 million as of June 30, 2021 and December 31, 2020, respectively.
+Added: Software development costs are capitalized and amortized over the estimated product life of 2 years on a straight-line basis, which are included as a part of intangible assets.
The Company analyzes the net realizable value of capitalized software development costs on at least an annual basis and has determined that there is no indication of impairment of the capitalized software development costs as forecasted future sales are adequate to support the carrying values.
3 unchanged sentences
Any change in tax rates on deferred tax assets and liabilities is recognized in net income in the period in which the tax rate change is enacted.
−Removed: We record a valuation allowance that reduces deferred tax assets when it is "more likely than not" that deferred tax assets will not be realized.
−Removed: We are required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
−Removed: Based on available evidence, realization of deferred tax assets is dependent upon the generation of future taxable income.
−Removed: We considered projected future taxable income, tax planning strategies, and reversal of taxable temporary differences in making this assessment.
We follow the provisions of ASC 740 related to accounting for uncertainty in income taxes.
5 unchanged sentences
In addition, non-recurring or discrete items are recorded during the period in which they occur.
−Removed: We evaluate the impairment of goodwill in accordance with ASC 350, “Intangibles - Goodwill and Other,” which requires goodwill and indefinite-lived intangible assets to be assessed on at least an annual basis for impairment using a fair value basis.
−Removed: Between annual evaluations, if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount, then impairment must be evaluated.
+Added: Goodwill is recorded as the difference between the aggregate consideration paid for an acquisition and the fair value of net tangible and intangible assets acquired and liabilities assumed.
+Added: Goodwill is not amortized, but rather tested for potential impairment annually during our fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Such circumstances could include, but are not limited to:
(1) a significant adverse change in legal factors or business climate, or (2) a loss of key contracts or customers.
−Removed: As the result of an acquisition, we record any excess purchase price over the net tangible and identifiable intangible assets acquired as goodwill.
−Removed: An allocation of the purchase price to tangible and intangible net assets acquired is based upon our valuation of the acquired assets.
−Removed: Goodwill is not amortized, but is subject to annual impairment tests.
−Removed: We complete our goodwill impairment test as of December 31st each year.
−Removed: Additionally, we make evaluations between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
+Added: The goodwill impairment test is performed at the reporting unit level.
+Added: The Company estimates and compares the fair value of each reporting unit to its respective carrying value including goodwill.
+Added: If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit’s fair value and the reporting unit’s carrying value.
Goodwill is amortized and deducted over a 15-year period for tax purposes.
1 unchanged sentence
Under our 2016 Omnibus Long-Term Incentive Plan, as amended (the “2016 LTIP”), we have the ability to award restricted stock units with time-based vesting (“Service-Based RSUs”), and restricted stock units with performance-based vesting (“Performance-Based RSUs”) to senior executives, directors, employees and other eligible service providers.
−Removed: Under the 2016 LTIP, our Board of Directors or, by designation of authority, the Compensation Committee of our Board of Directors has the discretion to establish the terms, conditions and criteria of the various awards, including the weighing and vesting schedule of Service-Based RSU and the performance conditions applicable to the Performance-Based RSUs, including the achievement of certain financial performance criteria or price targets for our common stock.
+Added: Under the 2016 LTIP, our Board of Directors or, by designation of authority, the Compensation Committee of our Board of Directors has the discretion to establish the terms, conditions and criteria of the various awards, including the weighing and vesting schedule of Service-Based RSUs and the performance conditions applicable to the Performance-Based RSUs, including the achievement of certain financial performance criteria or price targets for our common stock.
Upon vesting, Service-Based RSUs and Performance-Based RSUs will be settled in the Company’s common stock.
3 unchanged sentences
• Performance-Based RSUs may vest upon the achievement of a defined performance target or at the end of the defined performance period from the date of grant, whichever initially occurs.
−Removed: The grant date fair value per share of these Performance-Based RSUs is equal to the closing stock price on the date of the grant.
+Added: The grant date fair value per share of these Performance-Based RSUs 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 performance-based RSUs with market condition.
Performance-Based RSUs may vest upon the achievement of certain price targets for the Company’s common stock anytime over a three-year period from the date of grant.
7 unchanged sentences
If such performance conditions are not or are no longer considered probable, no compensation expense for these awards is recognized, and any previously recognized expense is reversed.
−Removed: Compensation expense for awards with performance conditions capable of being earned for satisfying the performance condition or as a result of completing a service requirement will be recognized ratably over the requisite service period for the entire award.
If the performance condition is achieved prior to the completion of the requisite service period, any unrecognized compensation expense will be recognized in the period the performance condition is achieved.
3 unchanged sentences
Share-based compensation expense is recognized as part of cost of sales and general and administrative expenses in our condensed consolidated statements of operations.
−Removed: Net Income (Loss) per Share
+Added: Net Loss per Share
Basic net earnings (loss) per share is computed by dividing the net earnings (loss) by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities.
Diluted net earnings (loss) per share is computed by dividing the net earnings (loss) by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods.
−Removed: Dilutive common stock equivalents are comprised of unvested restricted common stock, restricted common stock units and common stock warrants.
+Added: Dilutive common stock equivalents are comprised of unvested restricted stock, unvested restricted stock units and common stock warrants.
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.
Potentially dilutive securities are as follows (in common stock equivalent shares, in thousands):
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
3 unchanged sentences
Total 313 961 799 961
−Removed: Other Comprehensive Income (Loss)
+Added: Other Comprehensive Loss
Our functional currency is the U.S.
4 unchanged sentences
Accumulated other comprehensive income included within stockholders’ equity (deficit) consists of the following (in thousands):
−Removed: June 30, 2021 December 31, 2020
+Added: September 30, 2021 December 31, 2020
Cumulative foreign currency translation loss $ ( 103 ) $ ( 63 )
1 unchanged sentence
Accumulated other comprehensive income $ 4 $ 44
+Added: Revenue Recognition
+Added: Performance Obligation
+Added: We account for revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”.
+Added: 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.
+Added: Timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms.
+Added: Significant judgment can be required in determining certain performance obligations, and these determinations could change the amount of revenue and profit recorded in a given period.
+Added: Our contracts may have a single performance obligation or multiple performance obligations.
+Added: When there are multiple performance obligations within a contract, we allocate the transaction price to each performance obligation based on our best estimate of standalone selling price.
+Added: Contracts are routinely and often modified to account for changes in contract requirements, specifications, quantities, or price.
+Added: Depending on the nature of the modification, we determine whether to account for the modification as an adjustment to the existing contract or as a new contract.
+Added: Generally, modifications are not distinct from the existing contract due to the significant interrelatedness of the performance obligations and are therefore accounted for as an adjustment to the existing contract, and recognized as a cumulative adjustment to revenue (as either an increase or reduction of revenue) based on the modification’s effect on progress toward completion of a performance obligation.
+Added: 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, and is classified as services revenue.
+Added: Revenue transferred to customers over time accounted for 91 % and 92 % of our revenue for the three and nine months ended September 30, 2021, and 93 % and 92 % of our revenue for the three and nine months ended September 30, 2020.
+Added: 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 contract types, which may include variable consideration as discussed further below.
+Added: Revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations.
+Added: Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.
+Added: Contract costs include labor, material, subcontractor costs and indirect expenses.
+Added: Revenue that is recognized at a point in time is for the sale of software licenses in our Information Assurance / Xacta® and Secure Communications business groups and for the sale of resold products in Telos ID and Secure Networks, and is classified as product revenue.
+Added: Revenue transferred to customers at a point in time accounted for 9 % and 8 % of our revenue for the three and nine months ended September 30, 2021 and 7 % and 8 % of our revenue for the three and nine months ended September 30, 2020.
+Added: Revenue on these contracts is recognized when the customer obtains control of the transferred product or service, which is generally upon delivery of the product to the customer for their use, due to us maintaining control of the product until that point.
+Added: 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.
+Added: When an order contains multiple performance obligations, we allocate the transaction price to the performance obligations using our best estimate of standalone selling price.
+Added: Contract Estimates
+Added: Due to the transfer of control over time, revenue is recognized based on progress towards completion of the performance obligation.
+Added: The selection of the method to measure progress towards completion requires judgment and is based on the nature of the performance obligations.
+Added: We generally use the cost-to-cost measure of progress on a proportional performance basis for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts.
+Added: Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.
+Added: Revenues are recorded proportionally as costs are incurred.
+Added: Due to the nature of the work required to be performed on certain of our performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment.
+Added: Contract estimates are based on various assumptions including labor and subcontractor costs, materials and other direct costs and the complexity of the work to be performed.
+Added: A significant change in one or more of these estimates could affect the profitability of our contracts.
+Added: We review and update our contract-related estimates regularly and recognize adjustments in estimated profit on contracts on a cumulative catch-up basis, which may result in an adjustment increasing or decreasing revenue to date on a contract in a particular period that the adjustment is identified.
+Added: Revenue and profit in future periods of contract performance are recognized using the adjusted estimate.
+Added: Our contracts may include various types of variable consideration, such as claims (for instance, indirect rate or other equitable adjustments) or incentive fees.
+Added: We include estimated amounts in the transaction price based on all of the information available to us, including historical information and future estimations, 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.
+Added: Historically, most of our contracts do not include award or incentive fees.
+Added: For incentive fees, we would include such fees in the transaction price to the extent we could reasonably estimate the amount of the fee.
+Added: With limited historical experience, we have not included any revenue related to incentive fees in our estimated transaction prices.
+Added: We may include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable.
+Added: We consider the contractual/legal basis for the claim (in particular the FAR provisions), the facts and circumstances around any additional costs incurred, the reasonableness of those costs and the objective evidence available to support such claims.
+Added: For our contracts that have an original duration of one year or less, we use the practical expedient applicable to such contracts and do not consider the time value of money.
+Added: We capitalize sales commissions related to proprietary software and related services that are directly tied to sales.
+Added: We do not elect the practical expedient to expense as incurred the incremental costs of obtaining a contract if the amortization period would have been one year or less.
+Added: For the sales commissions that are capitalized, we amortize the asset over the expected customer life, which is based on recent and historical data.
+Added: We have one reportable segment in accordance with ASC 280, Segment Reporting , as such, the disaggregation of revenue below reconciles directly to its unique reportable segment.
+Added: We treat sales to U.S.
+Added: customers as sales within the U.S.
+Added: regardless of where the services are performed.
+Added: Substantially all of our revenues are from U.S.
+Added: customers as revenue derived from international customers is not currently meaningful.
+Added: The following tables disclose revenue (in thousands) by customer type and contract type for the three and nine months ended September 30, 2021 and 2020.
+Added: Three Months Ended
+Added: September 30, Nine Months Ended
+Added: September 30,
+Added: 2021 2020 2021 2020
+Added: Federal $ 67,697 $ 45,788 $ 171,091 $ 128,756
+Added: State & Local, and Commercial 2,369 1,652 7,292 6,273
+Added: Total $ 70,066 $ 47,440 $ 178,383 $ 135,029
+Added: Three Months Ended
+Added: September 30, Nine Months Ended
+Added: September 30,
+Added: 2021 2020 2021 2020
+Added: Firm-fixed-price $ 61,434 $ 39,483 $ 155,832 $ 113,080
+Added: Time-and-materials 3,154 3,605 9,243 11,066
+Added: Cost plus fixed fee 5,478 4,352 13,308 10,883
+Added: Total $ 70,066 $ 47,440 $ 178,383 $ 135,029
+Added: Contract Balances
+Added: Contract assets are amounts that are invoiced as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones.
+Added: Generally, revenue recognition occurs before billing, resulting in contract assets.
+Added: These contract assets are referred to as unbilled receivables and are reported within accounts receivable, net of reserve on our condensed consolidated balance sheets.
+Added: Billed receivables are amounts billed and due from our customers and are reported within accounts receivable, net of reserve on the condensed consolidated balance sheets.
+Added: The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component due to the intent of the retainage being the customer’s protection with respect to full and final performance under the contract.
+Added: Contract liabilities are payments received in advance and milestone payments from our customers on selected contracts that exceed revenue earned to date, resulting in contract liabilities.
+Added: Contract liabilities typically are not considered a significant financing component because they are generally satisfied within one year and are used to meet working capital demands that can be higher in the early stages of a contract.
+Added: Contract liabilities are reported on our condensed consolidated balance sheets on a net contract basis at the end of each reporting period.
+Added: As of September 30, 2021 and December 31, 2020, the contract liabilities primarily related to product support services.
+Added: The following table provides information about accounts receivable, contract assets and contract liabilities (in thousands):
+Added: September 30, 2021 December 31, 2020
+Added: Billed accounts receivable $ 10,158 $ 12,060
+Added: Unbilled receivables 39,717 19,161
+Added: Allowance for doubtful accounts ( 116 ) ( 308 )
+Added: Accounts receivable – net $ 49,759 $ 30,913
+Added: Contract liabilities $ 7,232 $ 5,654
+Added: Significant changes in the contract liabilities balance (in thousands):
+Added: Three Months Ended
+Added: September 30, Nine Months Ended
+Added: September 30,
+Added: 2021 2020 2021 2020
+Added: Revenue recognized that was included in the opening contract liability balance $ 823 $ 1,690 $ 4,065 $ 5,208
+Added: September 30, 2021 December 31, 2020
+Added: (in thousands) (in thousands)
+Added: Remaining performance obligations (funded backlog) $ 163,351 $ 127,735
+Added: We expect to recognize approximately 95 % of our remaining performance obligations over the next 12 months and the balance thereafter.
Non-controlling Interests / Purchase of Telos ID
1 unchanged sentence
We contributed substantially all of the assets of our Telos ID Enterprise business line and assigned our rights to perform under our U.S.
−Removed: Government contract with the Defense Manpower Data Center (“DMDC”) to Telos ID at their stated book values.
−Removed: The net book value of assets we contributed totaled $ 17,000 .
+Added: Government contract with the Defense Manpower Data Center to Telos ID at their stated book value, amounting to $ 17,000 .
Until April 19, 2007, we owned 99.999 % of the membership interests of Telos ID and Hoya ID Funds A, LLC ("Hoya") owned 0.001 % of the membership interests of Telos ID.
−Removed: On April 20, 2007, we sold an additional 39.999 % of the membership interests to Hoya in exchange for $ 6 million in cash consideration.
−Removed: As a result, we owned 60 % of Telos ID, and therefore continued to account for the investment in Telos ID using the consolidation method.
+Added: On April 20, 2007, we sold an additional 39.999 % of the membership interests to Hoya for $ 6 million in cash consideration, resulting in 60 % ownership of Telos ID.
On December 24, 2014, Hoya acquired from the Company an additional ten percent ( 10 %) membership interest in Telos ID in exchange for $ 5 million (the “2014 Transaction”).
3 unchanged sentences
Hoya owned 50 % of Telos ID, was entitled to receive 50 % of the profits of Telos ID, and could appoint two ( 2 ) members of the Telos ID Board.
−Removed: As a result of the 2014 Transaction, each of the members owned 50 % of Telos ID, as mentioned above, and as such each was allocated 50 % of the profits, which was $ 2.8 million and $ 3.6 million for the three and six months ended June 30, 2020, respectively.
+Added: As a result of the 2014 Transaction, each of the members owned 50 % of Telos ID, as mentioned above, and as such each was allocated 50 % of the profits, which was $ 2.7 million and $ 6.3 million for the three and nine months ended September 30, 2020, respectively.
Hoya held the non-controlling interest.
8 unchanged sentences
Hoya received a final distribution of $ 2.4 million in January 2021, which was accrued and presented in accounts payable and other accrued liabilities in the condensed consolidated balance sheets as of December 31, 2020.
−Removed: Hoya received a total distribution of $ 1.0 million during the three and six months ended June 30, 2020.
−Removed: The goodwill balance was $ 14.9 million as of June 30, 2021 and December 31, 2020.
+Added: Hoya received a total distribution of $ 0.3 million and $ 1.3 million during the three and nine months ended September 30, 2020, respectively.
+Added: On July 30, 2021, the Company acquired the assets of Diamond Fortress Technologies ("DFT") and wholly-owned subsidiaries for a total purchase consideration of $ 6.7 million, inclusive of $ 0.3 million related to a pre-existing contractual arrangement with DFT.
+Added: Upon closing, $ 5.9 million of cash was paid with an additional $ 0.6 million payable to DFT 18 months after the close date (the "holdback").
+Added: The holdback amount has been discounted to its present value of $ 0.5 million using a discount rate relevant to the acquisition.
+Added: The acquisition adds several new patents to the Company’s library of biometric and digital identity intellectual property.
+Added: The addition of contactless biometrics technology will enable the Company to better serve the needs of organizations in existing and new markets.
+Added: The acquisition of DFT has been accounted for under US GAAP using the acquisition method of accounting.
+Added: The total purchase consideration of $ 6.7 million has been allocated among the assets acquired at their acquisition date.
+Added: We have calculated the fair values of the DFT acquired assets based on our preliminary valuation analysis, using the information available to us.
+Added: The Company may continue to adjust the preliminary purchase price allocation (including the identified intangible assets) as additional information becomes available during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition.
+Added: Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined.
+Added: Any such adjustments may be material.
+Added: The Company recognized $ 5.0 million of intangible assets and $ 1.7 million of goodwill, which is housed in the Telos ID reporting unit.
+Added: Goodwill is primarily attributable to expected synergies between the acquired intangible assets and the Company's digital identify technology and solutions and acquired workforce.
+Added: The acquired intangible assets will be amortized on a straight-line basis over 3 - 8 years.
+Added: The acquisition was considered an asset purchase for tax purposes and the recognized goodwill is deductible for tax purposes.
+Added: The results of DFT operations have been included in our condensed consolidated statements of operations from the acquisition date, and are not material for the three and nine months ended September 30, 2021.
+Added: Acquisition-related costs were immaterial and have been expensed as incurred.
+Added: The pro-forma financial information have not been presented for this acquisition as the impact to our condensed consolidated financial statements is not material.
+Added: The goodwill balance was $ 16.6 million and $ 14.9 million as of September 30, 2021 and December 31, 2020, respectively.
Goodwill is subject to annual impairment tests and if triggering events are present in the interim before the annual tests, we will assess impairment.
−Removed: For the three and six months ended June 30, 2021 and 2020, no impairment charges were taken.
+Added: For the three and nine months ended September 30, 2021 and 2020, no impairment charges were taken.
+Added: Intangible Assets
+Added: Intangible assets, all of which are finite-lived, consists of the following (in thousands):
+Added: September 30, 2021 Estimated Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Value
+Added: Acquired technology 8 years $ 4,910 $ ( 112 ) $ 4,798
+Added: Customer relationships 3 years 40 ( 2 ) 38
+Added: Software development costs 2 years 18,392 ( 6,126 ) 12,266
+Added: $ 23,342 $ ( 6,240 ) $ 17,102
+Added: December 31, 2020
+Added: Estimated Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Value
+Added: Acquired technology $ — $ — $ —
+Added: Customer relationships — — —
+Added: Software development costs 2 years 12,253 ( 4,833 ) 7,420
+Added: $ 12,253 $ ( 4,833 ) $ 7,420
+Added: Amortization expense was $ 0.5 million and $ 1.4 million for the three and nine months ended September 30, 2021, respectively;
+Added: and $ 0.4 million and $ 1.3 million for the three and nine months ended September 30, 2020, respectively.
Fair Value Measurements
6 unchanged sentences
supported by little or no market activity).
−Removed: As of June 30, 2021 and December 31, 2020, we did not have any financial instruments with significant Level 3 inputs and we did not have any financial instruments that are measured at fair value on a recurring basis.
+Added: As of September 30, 2021 and December 31, 2020, we did not have any financial instruments with significant Level 3 inputs and we did not have any financial instruments that are measured at fair value on a recurring basis.
For certain of our non-derivative financial instruments, including receivables, accounts payable and other accrued liabilities, the carrying amount approximates fair value due to the short-term maturities of these instruments.
−Removed: Current Liabilities and Debt Obligations
−Removed: Accounts Payable and Other Accrued Liabilities
−Removed: Accounts payable and other accrued liabilities consisted of trade accounts payable and accrued liabilities.
−Removed: As of June 30, 2021 and December 31, 2020, the trade accounts payable were $ 17.8 million and $ 14.7 million, respectively;
−Removed: while accrued liabilities were $ 3.2 million and $ 6.2 million, respectively.
−Removed: Contract Liabilities
−Removed: Contract liabilities are payments received in advance and milestone payments from our customers on selected contracts that exceed revenue earned to date, resulting in contract liabilities.
−Removed: Contract liabilities typically are not considered a significant financing component because they are generally satisfied within one year and are used to meet working capital demands that can be higher in the early stages of a contract.
−Removed: Contract liabilities are reported on our condensed consolidated balance sheets on a net contract basis at the end of each reporting period.
−Removed: As of June 30, 2021 and December 31, 2020, the contract liabilities primarily related to product support services.
+Added: Debt Obligations
Enlightenment Capital Credit Agreement
1 unchanged sentence
The Credit Agreement provides for an $ 11 million senior term loan (the "Loan") with a maturity date of January 25, 2022, subject to acceleration in the event of customary events of default.
−Removed: All borrowings under the Credit Agreement accrue interest at the rate of 13.0 % per annum (the "Accrual Rate").
−Removed: In connection with the Credit Agreement, on January 25, 2017, the Company issued warrants (each, a "Warrant") to the Agent and certain of the Lenders representing in the aggregate the right to purchase in accordance with their terms 900,970 shares of the Class A Common Stock of the Company, no par value per share, which is equivalent to approximately 2.5 % of the common equity interests of the Company on a fully diluted basis on the date of grant.
+Added: All borrowings under the Credit Agreement accrued interest at the rate of 13.0 % per annum.
+Added: In connection with the Credit Agreement, on January 25, 2017, the Company issued warrants (each, a "Warrant") to the Agent and certain of the Lenders representing in the aggregate the right to purchase in accordance with their terms 900,970 shares of the Class A Common Stock of the Company, no par value per share, which was equivalent to approximately 2.5 % of the common equity interests of the Company on a fully diluted basis on the date of grant.
The exercise price was $ 1.665 per share.
10 unchanged sentences
First Amendment to Fee Letter (“Fourth Amendment”) to amend the Credit Agreement.
−Removed: As a result of the Fourth Amendment, several terms of the Credit Agreement were amended, including the following:
+Added: As a result of the Fourth Amendment, several terms of the Credit Agreement were amended, including (but not limited to) the following:
• The Company borrowed an additional $ 5 million from the Lenders, increasing the total amount of the principal to $ 16 million.
3 unchanged sentences
However, the prepayment price for the additional $ 5 million loan attributable to the Fourth Amendment will be at par.
−Removed: • The following financial covenants, as defined in the Credit Agreement, were amended and updated:
−Removed: Consolidated Leverage Ratio, Consolidated Senior Leverage Ratio, Consolidated Capital Expenditures, Minimum Fixed Charge Coverage Ratio, and Minimum Consolidated Net Working Capital.
−Removed: • Any actual or potential non-compliance with the applicable provisions of the Credit Agreement were waived.
−Removed: • The Company paid the Agent a fee of $ 110,000 in connection with the Fourth Amendment.
−Removed: We incurred immaterial third party transaction costs which were expensed during the current period.
• The exit fee was increased from $ 825,000 to $ 1,200,000 .
The exit fee had been included in the total principal due and treated as an unamortized discount on the debt, which was amortized over the term of the loan using the effective interest method at a rate of 17.3 % over the remaining term of the loan.
−Removed: On March 26, 2020, the Credit Agreement was amended (the “Fifth Amendment”) to modify the financial covenants for 2020 through the maturity of the Credit Agreement to establish that the covenants will remain at the December 31, 2020 levels and to update the previously agreed-upon definition of certain financial covenants, specifically the amount of Capital Expenditures to be included in the measurement of the covenants.
−Removed: The Fifth Amendment also provides for the right for the Company to elect to extend the maturity date of the Credit Agreement which is currently scheduled to mature on January 15, 2021.
+Added: On March 26, 2020, the Credit Agreement was amended (the “Fifth Amendment”) to modify the financial covenants and to update the previously agreed-upon definition of certain financial covenants, specifically the amount of Capital Expenditures to be included in the measurement of the covenants.
The Fifth Amendment provides for four quarterly maturity date extensions, which would increase the Exit Fee payable under the Credit Agreement by $ 250,000 for each quarterly maturity date extension elected, for a total of $ 1 million increase to the Exit Fee were all four of the maturity date extensions to be elected.
The Company paid EnCap an amendment fee of $ 100,000 and out-of-pocket costs and expenses in consideration for the Fifth Amendment.
−Removed: We incurred interest expense in the amount of $ 0.7 million and $ 1.5 million for the three and six months ended June 30, 2020, respectively, under the Credit Agreement.
+Added: We incurred interest expense in the amount of $ 0.8 million and $ 2.3 million for the three and nine months ended September 30, 2020, respectively, under the Credit Agreement.
On November 24, 2020, upon the closing of the IPO, the Company paid a total of $ 17.4 million to satisfy its obligations under the Credit Agreement in full including an exit fee of $ 1.2 million, accrued interest of $ 138,000 , and legal fees of $ 13,000 .
20 unchanged sentences
All other terms remained in full force and effect.
−Removed: We incurred interest expense in the amount of $ 88,000 and $ 175,000 for the three and six months ended June 30, 2020, respectively, on the Porter Notes.
−Removed: As of June 30, 2020, approximately $ 1.2 million of accrued interest was payable according to the stated interest rate of the Porter Notes.
+Added: We incurred interest expense in the amount of $ 90,000 and $ 265,000 for the three and nine months ended September 30, 2020, respectively, on the Porter Notes.
On November 23, 2020, upon the closing of the IPO, the Porter Notes were paid in full.
12 unchanged sentences
Dividends in additional shares of the Public Preferred Stock for 1990 and 1991 were paid at the rate of 6 % per share for each $ .60 of such dividends not paid in cash.
−Removed: We accrued dividends on the Public Preferred Stock of $ 1.0 million and $ 1.9 million for the three and six months ended June 30, 2020, respectively, which was recorded as interest expense.
+Added: We accrued dividends on the Public Preferred Stock of $ 1.0 million and $ 2.9 million for the three and nine months ended September 30, 2020, respectively, which was recorded as interest expense.
Prior to the effective date of ASC 480 on July 1, 2003, such dividends were charged to stockholders’ accumulated deficit.
10 unchanged sentences
Approximately $ 0.2 million of costs directly attributable to this redemption were applied against the gain, resulting in a net gain of $ 14.0 million.
−Removed: The income tax provision for interim periods is determined using an estimated annual effective tax rate adjusted for discrete items, if any, which are taken into account in the quarterly period in which they occur.
+Added: We establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
+Added: Based on available evidence, realization of deferred tax assets is dependent upon the generation of future taxable income.
+Added: We considered projected future taxable income, tax planning strategies, and reversal of taxable temporary differences in making this assessment.
+Added: There has been no change in the established valuation allowance as of September 30, 2021.
+Added: As of September 30, 2021 and December 31, 2020, we have recorded a net deferred tax liability of approximately $ 680,000 and $ 652,000 , respectively.
We review and update our estimated annual effective tax rate each quarter.
−Removed: For the three months ended June 30, 2021 and 2020, we recorded an income tax provision of $ 13,000 and $ 2,000 respectively.
−Removed: For the six months ended June 30, 2021 and 2020, we recorded an income tax provision of $ 47,000 and income tax benefit of $ 144,000 , respectively.
−Removed: For the three and six months ended June 30, 2021 and 2020, our estimated effective rate was primarily impacted by the overall valuation allowance position which reduced the net tax impact from taxable income or loss for all periods.
−Removed: We are required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
−Removed: Based on the available evidence, realization of deferred tax assets is dependent upon the generation of future taxable income.
−Removed: There has been no change in the established valuation allowance as of June 30, 2021.
−Removed: As of June 30, 2021 and December 31, 2020, we have recorded a net deferred tax liability of approximately $ 670,000 and $ 652,000 , respectively.
−Removed: Under the provisions of ASC 740, we determined that there were approximately $ 869,000 and $ 763,000 of gross unrecognized tax benefits as of June 30, 2021 and December 31, 2020, respectively.
−Removed: Included in the balance of unrecognized tax benefits as of June 30, 2021 and December 31, 2020 were $ 241,000 and $ 278,000 , respectively, of tax benefits that, if recognized, would impact the effective tax rate.
−Removed: Also included in the balance of unrecognized tax benefits as of June 30, 2021 and December 31, 2020 were $ 628,000 and $ 485,000 , respectively, of tax benefits that, if recognized, would not impact the effective tax rate due to the Company’s valuation allowance.
−Removed: The Company had accrued interest and penalties related to the unrecognized tax benefits of $ 233,000 and $ 241,000 , which were recorded in other liabilities as of June 30, 2021 and December 31, 2020, respectively.
+Added: For the three months ended September 30, 2021 and 2020, we recorded an income tax benefit of $ 41,000 and income tax provision of $ 8,000 respectively.
+Added: For the nine months ended September 30, 2021 and 2020, we recorded an income tax provision of $ 6,000 and income tax benefit of $ 136,000 , respectively.
+Added: For the three and nine months ended September 30, 2021 and 2020, our estimated effective rate was primarily impacted by the overall valuation allowance position which reduced the net tax impact from taxable income or loss for all periods.
+Added: Under the provisions of ASC 740, we determined that there were approximately $ 961,000 and $ 763,000 of gross unrecognized tax benefits as of September 30, 2021 and December 31, 2020, respectively.
+Added: Included in the balance of unrecognized tax benefits as of September 30, 2021 and December 31, 2020 were $ 241,000 and $ 278,000 , respectively, of tax benefits that, if recognized, would impact the effective tax rate.
+Added: Also included in the balance of unrecognized tax benefits as of September 30, 2021 and December 31, 2020 were $ 720,000 and $ 485,000 , respectively, of tax benefits that, if recognized, would not impact the effective tax rate due to the Company’s valuation allowance.
+Added: The Company had accrued interest and penalties related to the unrecognized tax benefits of $ 238,000 and $ 241,000 , which were recorded in other liabilities as of September 30, 2021 and December 31, 2020, respectively.
We believe that the total amounts of unrecognized tax benefits will not significantly increase or decrease within the next 12 months.
−Removed: Commitments, Contingencies and Subsequent Events
−Removed: Financial Condition and Liquidity
−Removed: Upon the closing of the IPO, we issued 17.2 million shares of our common stock at a price of $ 17.00 per share, generating net proceeds of approximately $ 272.8 million.
−Removed: We used approximately $ 108.9 million of the net proceeds in connection with the ERPS Conversion (see Note 6 – Exchangeable Redeemable Preferred Stock Conversion), $ 30.0 million to fund our acquisition of the outstanding Class B Units of Telos ID (see Note 2 – Non-controlling Interests / Purchase of Telos ID), and $ 21.0 million to repay our outstanding senior term loan and subordinated debt (see Note 5 – Current Liabilities and Debt Obligations).
−Removed: On April 6, 2021, we completed our follow-on offering of 9.1 million shares of our common stock at a price of $ 33.00 per share, including 7.0 million shares of common stock by certain existing stockholders of Telos.
−Removed: The offering generated approximately $ 64.3 million of net proceeds to Telos.
−Removed: We did not receive any proceeds from the shares of common stock sold by the selling stockholders.
−Removed: On April 19, 2021, we used approximately $ 1.3 million of the net proceeds to repurchase 39,682 shares of our common stock and $ 26.9 million for the warrants to purchase 900,970 shares our common stock owned by affiliated funds of Enlightenment Capital Solutions (see Note 5 - Current Liabilities and Debt Obligations).
−Removed: We intend to use the remaining net proceeds of the IPO and the follow-on offering for general corporate purposes.
−Removed: We also may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies.
−Removed: The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors.
−Removed: Proceeds held by us is invested in short-term investments until needed for the uses described above.
−Removed: We currently anticipate that we will retain all available funds for use in the operation and expansion of our business, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
−Removed: Our working capital was $ 139.7 million and $ 105.2 million as of June 30, 2021 and December 31, 2020, respectively.
+Added: Commitments and Contingencies
Legal Proceedings
Telos Corporation
−Removed: As previously reported in Note 8 of the Form 10-Q for the quarter ended March 31, 2021 filed on May 17, 2021, beginning on August 2, 2007, Messrs.
+Added: As previously reported in Note 8 of the Form 10-Q for the quarter ended June 30, 2021 filed on August 16, 2021, beginning on August 2, 2007, Messrs.
Hamot (“Hamot”) and Andrew R.
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Hamot was a Class D Director of the Company until his resignation on March 9, 2018.
−Removed: The Plaintiffs initially alleged that certain documents and records had not been provided to them promptly and were necessary to fulfill their duties as directors of the Company.
−Removed: Subsequently, Hamot and Siegel further alleged that the Company had failed to follow certain provisions concerning the noticing of Board committee meetings and the recording of Board meeting minutes and, additionally, that Mr.
−Removed: John Wood’s service as both CEO and Chairman of the Board was improper and impermissible under the Company’s Bylaws.
−Removed: On April 23, 2008, the Company filed a counterclaim against Hamot and Siegel for money damages and preliminary and injunctive relief based upon Hamot and Siegel’s interference with, and improper influence of, the Company’s independent auditors regarding, among other things, a specific accounting treatment.
−Removed: On June 27, 2008, the Circuit Court granted the Company’s motion for preliminary injunction and enjoined Hamot and Siegel from contacting the Company’s auditors until the completion of the Company’s Form 10-K for the preceding year, which injunction later expired by its own terms.
−Removed: As previously disclosed, trial on Hamot and Siegel’s claims and the Company’s counterclaims took place in July through September 2013, and the Court subsequently issued decisions on the various claims by way of memorandum opinions and orders dated September 11, 2017.
−Removed: Among other rulings, the Court found Hamot and Siegel liable for the intentional tort of tortious interference with the Company’s contractual relationship with one of its auditors and entered a monetary judgment in favor of the Company and against Hamot and Siegel for approximately $ 278,000 .
−Removed: The Company’s subsequent appeal of the amount of damages awarded to it for Hamot and Siegel’s intentional interference was ultimately dismissed by way of the Mandate issued by the Court of Appeals of Maryland on October 11, 2019.
+Added: Trial on Hamot and Siegel’s claims and the Company’s counterclaims took place in July through September 2013, and the Court subsequently issued decisions on the various claims by way of memorandum opinions and orders dated September 11, 2017.
+Added: Among other rulings, the Court found Hamot and Siegel liable for the intentional tort of tortious interference with the Company’s contractual relationship with one of its auditors and entered a monetary judgment in favor of the Company and against Hamot and Siegel.
Hamot (and later, his Estate) and Siegel on multiple occasions during this litigation sought to be indemnified or to be awarded advancement of various attorney’s fees and expenses incurred by them in this litigation.
−Removed: On October 20, 2020, Hamot’s Estate and Siegel (together the “Plaintiffs”) filed a Motion for Indemnification of Legal Fees and Expenses against the Company in the Circuit Court for Baltimore City and a Request for a Hearing and on January 28, 2021, Plaintiffs amended their motion by the filing of a Motion for Leave to File Amended Motion for Indemnification of Legal Fees and Expenses (“Amended Motion”).
−Removed: The Amended Motion demanded that the Company indemnify the Plaintiffs for legal fees and expenses incurred in the sum of $ 2,540,000 plus the costs incurred in obtaining indemnification.
−Removed: The Company opposed the motions, and a hearing on the Amended Motion was scheduled for May 18, 2021.
−Removed: On May 5, 2021, the Company, Plaintiffs and Costa Brava entered into a settlement agreement, which included a mutual general release, fully and finally settling the indemnification claim in exchange for a $ 1.0 million payment on or before May 19, 2021.
−Removed: The $ 1.0 million was paid on May 12, 2021.
−Removed: This settlement concludes all open matters or disputes between the Company and Messrs.
+Added: On January 28, 2021, Plaintiffs filed a Motion for Leave to File Amended Motion for Indemnification of Legal Fees and Expenses (“Amended Motion”).
+Added: The Amended Motion demanded that the Company indemnify the Plaintiffs for legal fees and expenses incurred in the sum of $ 2,540,000 plus the costs incurred in obtaining indemnification, and the Company opposed the motions.
+Added: On May 5, 2021, the Company, Plaintiffs and Costa Brava entered into a settlement agreement, which included a mutual general release, fully and finally settling the indemnification claim in exchange for a $ 1.0 million payment, which sum was paid on May 12, 2021 as reported under other income (expense) in our condensed consolidated statements of operations.
+Added: This settlement concluded all open matters or disputes between the Company and Messrs.
Hamot (or his estate) and Siegel, as well as the previously disposed of claims of Costa Brava.
Other Litigation
−Removed: In addition, the Company may be a party to litigation arising in the ordinary course of business.
+Added: The Company may be a party to litigation from time to time arising in the ordinary course of business.
In the opinion of management, while the results of such litigation cannot be predicted with any reasonable degree of certainty, the final outcome of such known matters will not, based upon all available information, have a material adverse effect on the Company's condensed consolidated financial position, results of operations or cash flows.
−Removed: Subsequent Events
−Removed: On July 30, 2021, the Company acquired the assets of Diamond Fortress Technologies ("DFT"), including all patents and digital intellectual property for an undisclosed amount of cash consideration.
−Removed: The acquisition adds several new patents to the Company’s library of biometric and digital identity intellectual property.
−Removed: Simultaneously with closing, the Company hired seven current DFT employees to maintain and expand the acquired technology.
−Removed: The addition of contactless biometrics technology will enable the Company to better serve the needs of organizations in existing and new markets.
−Removed: We are currently in the process of finalizing the accounting for this transaction and expect it to be complete by the end of the third quarter of 2021.
+Added: Other - Government Contracts
+Added: As a government contractor, we are subject to U.S.
+Added: government audits and investigations relating to our operations, including claims for fines, penalties, and compensatory and damages.
+Added: We believe the outcome of such ongoing government audits and investigations will not have a material impact on our results of operations, financial condition or cash flows.
+Added: In the performance of our contracts, we routinely request contract modifications that require additional funding from the customer.
+Added: Most often, these requests are due to customer-directed changes in the scope of work.
+Added: While we are entitle to recovery of these costs under our contracts, the administrative process with our customer may be protracted.
+Added: Based on the circumstances, we periodically file requests for equitable adjustments ("REAs") that are sometimes converted into claims.
+Added: In some cases, these requests are disputed by our customers.
+Added: We believe our outstanding modifications, REAs and other claims will be resolved without material impact to our result of operations, financial conditions or cash flows.
Related Party Transactions
Wood, the brother of our Chairman and CEO, has been an employee of the Company since 1996.
−Removed: The amounts paid to this individual as compensation were $ 83,000 and $ 301,000 for the three and six months ended June 30, 2021, respectively, and $ 151,000 and $ 324,000 for the three and six months ended June 30, 2020, respectively.
+Added: The amounts paid to this individual as compensation were $ 88,000 and $ 389,000 for the three and nine months ended September 30, 2021, respectively, and $ 193,000 and $ 517,000 for the three and nine months ended September 30, 2020, respectively.
Additionally, Mr.
−Removed: Wood owned 682,502 shares of the Company’s common stock as of June 30, 2021 and December 31, 2020.
+Added: Wood owned 73,562 and 682,502 shares of the Company’s common stock as of September 30, 2021 and December 31, 2020, respectively.
On March 31, 2015, the Company entered into the Porter Notes.
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All other terms remained in full force and effect.
−Removed: We incurred interest expense in the amount of $ 88,000 and $ 175,000 for the three and six months ended June 30, 2020, respectively, on the Porter Notes.
−Removed: As of June 30, 2020, approximately $ 1.2 million of accrued interest was payable according to the stated interest rate of the Porter Notes.
+Added: We incurred interest expense in the amount of $ 90,000 and $ 265,000 for the three and nine months ended September 30, 2020, respectively, on the Porter Notes.
On November 23, 2020, upon the closing of the IPO, the Porter Notes were paid in full.
4 unchanged sentences
Edward Williams, COO of the Company.
−Removed: We account for leases in accordance with ASC Topic 842, “Leases,” which requires lessees to recognize a right-of-use (“ROU”) asset and lease liability on the balance sheet and expands disclosures about leasing arrangements for both lessees and lessors, among other items, for most lease arrangements.
−Removed: In accordance with the adoption of ASC 842 on January 1, 2019, we recorded operating lease ROU assets, which represent our right to use an underlying asset for the lease term, and operating lease liabilities which represent our obligation to make lease payments.
−Removed: Generally, we enter into operating lease agreements for facilities.
−Removed: Finance lease assets are recorded within property and equipment, net of accumulated depreciation.
−Removed: The amount of operating lease liabilities due within 12 months are recorded in other current liabilities, with the remaining operating lease liabilities recorded as non-current liabilities in our condensed consolidated balance sheets based on their contractual due dates.
−Removed: Finance lease liabilities are classified according to contractual due dates.
−Removed: The operating lease ROU assets and liabilities are recognized as of the lease commencement date at the present value of the lease payments over the lease term.
−Removed: Most of our leases do not provide an implicit rate that can readily be determined.
−Removed: Therefore, we use a discount rate based on our incremental borrowing rate which was 5.75 % for all operating leases.
−Removed: Our operating lease agreements may include options to extend the lease term or terminate it early.
−Removed: We have included options to extend in the operating lease ROU assets and liabilities when we are reasonably certain that we will exercise such options.
−Removed: The weighted average remaining lease terms and discount rates for our operating leases were approximately 2.1 years and 5.75 % and for our finance leases were approximately 7.8 years and 5.04 % at June 30, 2021.
−Removed: Operating lease expense is recognized as rent expense on a straight-line basis over the lease term.
−Removed: Some of our operating leases contain lease and non-lease components, which we account for as a single component.
−Removed: We evaluate ROU assets for impairment consistent with our property and equipment policy disclosure included in our Annual Report on Form 10‑K for the year ended December 31, 2020.
−Removed: Future minimum lease commitments at June 30, 2021 were as follows (in thousands):
−Removed: Year Ending December 31, Operating Leases Finance Leases
−Removed: 2021 (excluding the six months ended June 30, 2021) $ 379 $ 1,059
−Removed: 2022 603 2,149
−Removed: 2023 373 2,202
−Removed: 2024 27 2,258
−Removed: After 2025 — 8,344
−Removed: Total lease payments 1,382 18,326
−Removed: Less imputed interest ( 84 ) ( 3,336 )
−Removed: Total 1,298 14,990
−Removed: Short-term portion 656 1,399
−Removed: Total, net of short-term portion $ 642 $ 13,591
The components of lease expense were as follows (in thousands):
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
7 unchanged sentences
(1) Leases that have terms of 12 months or less
+Added: The weighted average remaining lease terms and discount rates were as follows:
+Added: September 30,
+Added: Weighted average remaining lease term (in years):
+Added: Finance leases 7.6 years 8.6 years
+Added: Operating leases 1.9 years 2.8 years
+Added: Weighted average discount rate:
+Added: Finance leases 5.04 % 5.04 %
+Added: Operating leases 5.75 % 5.75 %
+Added: Future minimum lease commitments at September 30, 2021 were as follows (in thousands):
+Added: Year Ending December 31, Operating Leases Finance Leases
+Added: 2021 (excluding the nine months ended September 30, 2021) $ 181 $ 530
+Added: 2022 603 2,149
+Added: 2023 373 2,202
+Added: 2024 27 2,258
+Added: After 2025 — 8,344
+Added: Total lease payments 1,184 17,797
+Added: Less imputed interest ( 66 ) ( 3,149 )
+Added: Total 1,118 14,648
+Added: Less Short-term portion 602 1,430
+Added: Total, net of short-term portion $ 516 $ 13,218
Supplemental cash flow information related to leases was as follows (in thousands):
−Removed: Six Months Ended June 30,
+Added: Nine Months Ended September 30,
Cash paid for amounts included in the measurement of lease liabilities:
4 unchanged sentences
Note 14 – Stock-Based Compensation
−Removed: During October 2020, the Company amended the 2016 LTIP increasing the total number of shares available for issuance to 9,400,000 from 4,500,000 and extended the term to September 30, 2030.
+Added: During October 2020, the Company amended the 2016 LTIP to increase the total number of shares available for issuance to 9,400,000 from 4,500,000 and extend the term to September 30, 2030.
Our 2016 LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock and dividend equivalent rights to our senior executives, directors, employees, and other service providers.
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, generally two to three years and stock options granted under the 2016 LTIP expire no more than ten years after the date of grant.
−Removed: Approximately 6.2 million shares of our common stock were reserved for future grants as of June 30, 2021 under the 2016 LTIP.
−Removed: The following are the stock-based compensation expense incurred for the three and six months ended June 30, 2021 (in thousands).
−Removed: We recorded immaterial share-based compensation expense for the comparative periods ended June 30, 2020.
−Removed: Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
+Added: Approximately 5.7 million shares of our common stock were reserved for future grants as of September 30, 2021 under the 2016 LTIP.
+Added: The following are the stock-based compensation expense incurred for the three and nine months ended September 30, 2021 (in thousands).
+Added: We recorded immaterial share-based compensation expense for the comparative periods ended September 30, 2020.
+Added: Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Cost of sales - services $ 442 $ 1,974
4 unchanged sentences
Restricted Stock Awards and Restricted Stock Unit (collectively “RSU”) Activity
−Removed: During the first quarter of 2021, a number of RSUs were granted to our senior executives, directors and employees.
+Added: The Company grants RSUs to our senior executives, directors and employees.
Service-Based RSU Awards
9 unchanged sentences
Forfeited ( 79,476 ) 36.63 — —
−Removed: Unvested Balance - June 30, 2021 2,596,908 $ 35.97 1.7 $ 88,300
−Removed: We recognized an expense of $ 14.3 million and $ 22.0 million related to share-based compensation expense for Service-Based RSUs capable of being earned for completing a service requirement during the three and six months ended June 30, 2021, respectively.
−Removed: As of June 30, 2021, there was approximately $ 75.0 million of unrecognized stock-based compensation expense related to Service-Based RSUs, and this unrecognized expense is expected to be recognized over a weighted-average period of 1.7 years on a straight-line basis.
+Added: Unvested Balance - September 30, 2021 2,896,808 $ 35.04 1.5 $ 82,300
+Added: We recognized an expense of $ 12.0 million and $ 34.0 million related to share-based compensation expense for Service-Based RSUs capable of being earned for completing a service requirement during the three and nine months ended September 30, 2021, respectively.
+Added: As of September 30, 2021, there was approximately $ 71.5 million of unrecognized stock-based compensation expense related to Service-Based RSUs, and this unrecognized expense is expected to be recognized over a weighted-average period of 1.5 years on a straight-line basis.
Performance-Based RSU Awards
9 unchanged sentences
Forfeited ( 16,176 ) 30.84 — —
−Removed: Unvested Balance - June 30, 2021 422,227 $ 30.84 2.6 $ 14,400
−Removed: On January 28, 2021 the Company granted certain senior executives awards of Performance-Based RSUs that could settle in 438,403 shares of our common stock.
+Added: Unvested Balance - September 30, 2021 492,727 $ 30.07 2.5 $ 14,000
+Added: During 2021 the Company granted certain senior executives awards of Performance-Based RSUs that could settle in 458,903 shares of our common stock.
The awards will vest only if, during the three-year period from the date of grant, (a) the Company’s common stock, as listed on the Nasdaq Global Market, trades at or above $ 42.40 per share (the “Target Price”) for 20 of 30 consecutive trading days or (b) the weighted average of the per share price of the Company’s common stock over any 30 consecutive trading days is at least equal to the Target Price.
+Added: Further, the Company granted 50,000 shares of Performance-Based RSUs to certain employees that will fully vest upon the achievement of certain operational milestones during a three-year period from the grant date.
For these Performance-Based RSUs containing market conditions, the conditions are required to be considered when calculating the grant date fair value.
2 unchanged sentences
This approach allows the calculation of the value of such Performance-Based RSUs based on a large number of possible stock price path scenarios.
−Removed: Our key assumptions include a performance period of 2.92 years, expected volatility of 57.4 %, and a risk-free rate of 0.18 %.
As the Company recently completed its IPO in November 2020, expected volatility was based on the average historical stock price volatility of comparable publicly-traded companies over the performance period.
2 unchanged sentences
Expense for these awards is recognized over the derived service period as determined through the Monte Carlo simulation model.
−Removed: The fair value at grant date and derived service periods calculated for these market condition Performance-Based RSUs were $ 30.84 and 0.38 years, respectively.
−Removed: We recognized an expense of $ 7.0 million and $ 13.0 million related to share-based compensation expense for these awards of Performance-Based RSUs during the three and six months ended June 30, 2021, respectively.
−Removed: As of June 30, 2021, all of the stock-based compensation expense related to these Performance-Based RSUs was recognized.
+Added: Our key assumptions include a performance period ranging from 2.45 to 2.92 years, expected volatility between 57.4 % - 58.81 %, and a risk-free rate of 0.18 %- 0.29 %.
+Added: The fair value at grant date and derived service periods calculated for these market condition Performance-Based RSUs were $ 19.12 - $ 30.84 and between 0.38 - 0.76 years, respectively.
+Added: We recognized an expense of $ 0.2 million and $ 13.2 million related to share-based compensation expense for these awards of Performance-Based RSUs during the three and nine months ended September 30, 2021, respectively.
+Added: As of September 30, 2021, there was approximately $ 1.6 million of unrecognized stock-based compensation expense related to these Performance-Based RSUs, and this unrecognized expense is expected to be recognized over a weighted-average period of 0.3 years on a straight-line basis.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.