What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-09 · 123 added, 104 removed, 519 unchanged (30% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands, except per share amounts)

2 unchanged sentences

Total revenue 36,186 63,593 104,319 169,544

Cost of sales – services 19,008 31,436 38,276 61,167

Cost of sales – products 1,544 3,426 4,016 4,984

Cost of sales – services (exclusive of depreciation and amortization shown separately below) 20,683 36,555 58,613 97,311

Cost of sales – products (exclusive of depreciation and amortization shown separately below) 545 5,902 4,561 10,886

Depreciation and amortization 1,945 191 2,291 602

Total cost of sales 23,173 42,648 65,465 108,799

20 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands)

6 unchanged sentences

CONSOLIDATED BALANCE SHEETS

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands, except per share amount and share data)

29 unchanged sentences

Stockholders’ equity:

Common stock, $ 0.001 par value, 250,000,000 shares authorized, 69,466,777 shares and 67,431,632 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Common stock, $ 0.001 par value, 250,000,000 shares authorized, 69,623,209 shares and 67,431,632 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 431,784 412,708

6 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

June 30, 2023 June 30, 2022

For the Nine Months Ended

September 30, 2023 September 30, 2022

(in thousands)

1 unchanged sentence

Net loss $ ( 27,442 ) $ ( 39,230 )

Adjustments to reconcile net loss to cash (used in)/provided by operating activities:

Adjustments to reconcile net loss to cash flows from operations:

Stock-based compensation 22,462 48,843

37 unchanged sentences

(in thousands)

Balance at March 31, 2023 69,388 $ 108 $ 420,980 $ ( 42 ) $ ( 251,151 ) $ 169,895

Balance at June 30, 2023 69,467 $ 108 $ 426,656 $ ( 53 ) $ ( 259,175 ) $ 167,536

Net loss — — — — ( 8,672 ) ( 8,672 )

2 unchanged sentences

Stock-based compensation — — 5,218 — — 5,218

Balance at September 30, 2023 69,623 $ 108 $ 431,784 $ ( 24 ) $ ( 267,847 ) $ 164,021

Balance at June 30, 2022 67,594 $ 106 $ 391,967 $ ( 9 ) $ ( 217,752 ) $ 174,312

Balance at March 31, 2022 67,867 $ 106 $ 378,546 $ 2 $ ( 203,593 ) $ 175,061

Net loss — — — — ( 8,455 ) ( 8,455 )

3 unchanged sentences

Repurchase of common stock ( 499 ) — ( 4,681 ) — — ( 4,681 )

Balance at June 30, 2022 67,594 $ 106 $ 391,967 $ ( 9 ) $ ( 217,752 ) $ 174,312

Balance at September 30, 2022 67,300 $ 106 $ 403,164 $ ( 30 ) $ ( 226,207 ) $ 177,033

Common Stock Additional Paid-in

9 unchanged sentences

Issuance of common stock for 401K match 777 1 1,941 — — 1,942

Balance at June 30, 2023 69,467 $ 108 $ 426,656 $ ( 53 ) $ ( 259,175 ) $ 167,536

Balance at September 30, 2023 69,623 $ 108 $ 431,784 $ ( 24 ) $ ( 267,847 ) $ 164,021

Balance at December 31, 2021 66,767 $ 105 $ 367,153 $ ( 27 ) $ ( 186,977 ) $ 180,254

4 unchanged sentences

Repurchase of common stock ( 859 ) — ( 7,683 ) — — ( 7,683 )

Balance at June 30, 2022 67,594 $ 106 $ 391,967 $ ( 9 ) $ ( 217,752 ) $ 174,312

Balance at September 30, 2022 67,300 $ 106 $ 403,164 $ ( 30 ) $ ( 226,207 ) $ 177,033

See accompanying notes to the unaudited consolidated financial statements.

2 unchanged sentences

Telos Corporation, together with its subsidiaries (collectively, the "Company," "we," "our" or "Telos"), a Maryland corporation, is a leading provider of cyber, cloud and enterprise security solutions for the world's most security-conscious organizations.

We own all of the issued and outstanding shares of Xacta Corporation, a subsidiary that develops, markets and sells government-validated secure enterprise solutions to government and commercial customers.

We own the issued and outstanding share capital of ubIQuity.com, inc., a holding company for Xacta Corporation.

We also have a 100 % ownership interest in Telos Identity Management Solutions, LLC ("Telos ID"), Teloworks, Inc., and Telos APAC Pte.

We own all of the issued and outstanding shares of Xacta Corporation and ubIQuity.com, inc.

(a holding company for Xacta Corporation), and 100 % ownership interest in Telos Identity Management Solutions, LLC ("Telos ID"), Teloworks, Inc., and Telos APAC Pte.

SIGNIFICANT ACCOUNTING POLICIES

10 unchanged sentences

Basis of Comparison - Revision of Previously Issued Interim Financial Statements

During the course of preparing the Company's consolidated financial statements for the year ended December 31, 2022, we identified that stock-based compensation expense related to performance-based restricted stock unit (“PSU”) awards with market conditions was erroneously reversed when those PSUs were forfeited during the three and six months ended June 30, 2022.

Although the Company has determined that the error did not have a material impact on its previously issued interim consolidated financial statements, it revised the previously reported interim financial information in conjunction with the issuance of its quarterly filings on Form 10-Q for the quarter ended June 30, 2023.

Certain prior-period amounts have been reclassified to conform to the current period presentation.

In the current period, the Company reclassified and presented depreciation and amortization separately from the cost of sales line items.

The reclassification had no impact on the statement of operations.

Further information regarding the misstatements and related revisions are included under Note 20 – Revision of Prior Year Interim Financial Statements to the unaudited consolidated financial statements.

12 unchanged sentences

The stock options granted under the 2016 LTIP expire no more than 10 years after the date of grant.

The service-based restricted stock units ("RSUs") granted generally vest in installments over a period of up to three years from the date of grant.

The PSUs 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.

The service-based restricted stock units ("RSUs") generally vest in installments over a period of up to three years from the date of grant.

The PSUs vest upon the achievement of a defined performance target during a defined performance period.

The fair value of each RSU award is based on the closing stock price on the date of grant, while the fair value of the PSU awards with market condition is based on using a Monte Carlo simulation.

2 unchanged sentences

These considerations directly affect the amount of compensation expense that will ultimately be recognized.

We recognized these stock-based payment transactions when services from the employees, directors and other eligible service providers are received and recognized a corresponding increase in additional paid-in capital in our unaudited consolidated balances sheets.

The measurement objective for these equity awards is the estimated fair value at the date of grant of the equity instruments that we are obligated to issue when the employees, directors and other eligible service providers have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments.

11 unchanged sentences

In the Company's Annual Report on Form 10-K for the year ended December 31, 2022, the Company estimated that the expected restructuring expenses were $ 2.8 million as of December 31, 2022.

As of June 30, 2023, the Company has updated its total expected restructuring plan costs to $ 4.0 million, based on the Company's review of the restructuring plan for the remainder of 2023.

In early 2023, the Company updated its total expected restructuring plan costs to $ 4.0 million, based on the Company's review of the restructuring plan for the remainder of 2023.

The restructuring expenses are recorded under "Selling, general and administrative expenses" in the Company's unaudited consolidated statements of operations.

3 unchanged sentences

Severance and related benefit costs (1)

Other related costs (1)

Other related costs Total

(in thousands)

2 unchanged sentences

Cash payments ( 1,981 ) ( 1,300 ) ( 3,281 )

Balance at June 30, 2023 $ 882 $ 1,300 $ 2,182

Balance at September 30, 2023 $ 679 $ — $ 679

(1) Restructuring-related liabilities are reported as part of "Other current liabilities" in the Company's unaudited consolidated balance sheets, see Note 9 - Other Balance Sheet Components for further details.

5 unchanged sentences

The majority of our revenue is recognized over time, as control is transferred continuously to our customers, who receive and consume benefits as we perform.

Revenue transferred to customers over time accounted for 88 % and 89 % of our revenue for the three and six months ended June 30, 2023, respectively, and 90 % and 93 % of our revenue for the three and six months ended June 30, 2022, respectively.

Revenue transferred to customers over time accounted for 89 % of our revenue for the three and nine months ended September 30, 2023, and 87 % and 91 % of our revenue for the three and nine months ended September 30, 2022, respectively.

All of our business groups earn services revenue under a variety of contract types, including time and materials, firm-fixed price, firm-fixed price level of effort, and cost-plus fixed fee contract types, which may include variable consideration.

1 unchanged sentence

This coincides with the point in time the customer obtains control of the product or service, which typically occurs upon customer acceptance or receipt of the product or service, given that we maintain control of the product or service until that point.

Revenue transferred to customers at a point in time accounted for 12 % and 11 % of our revenue for the three and six months ended June 30, 2023, respectively, and 10 % and 7 % of our revenue for the three and six months ended June 30, 2022, respectively.

Revenue transferred to customers at a point in time accounted for 11 % of our revenue for the three and nine months ended September 30, 2023, and 13 % and 9 % of our revenue for the three and nine months ended September 30, 2022, respectively.

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.

3 unchanged sentences

We provide for anticipated losses on contracts during the period when the loss is determined by recording an expense for the total expected costs that exceed the total estimated revenue for a performance obligation.

No contract losses were recorded during the three and six months ended June 30, 2023 and 2022.

No contract losses were recorded during the three and nine months ended September 30, 2023, and 2022.

Disaggregated Revenues

1 unchanged sentence

We treat sales to U.S.

customers as sales within the U.S.

regardless of where the services are performed.

Substantially most of our revenues are generated from U.S.

customers as sales within the U.S., regardless of where the services are performed.

Most of our revenues are generated from U.S.

customers, while international customers are de minimis;

1 unchanged sentence

Revenue by Customer Type

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Amount % Amount % Amount % Amount %

4 unchanged sentences

Revenue by Contract Type

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Amount % Amount % Amount % Amount %

5 unchanged sentences

Revenue Concentration Greater than 10% of Total Revenue

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Department of Defense ("DoD") 61 % 77 % 65 % 74 %

Contract Balances

Balance Sheet Presentation June 30, 2023 December 31, 2022

Balance Sheet Presentation September 30, 2023 December 31, 2022

(in thousands)

6 unchanged sentences

The change in the Company's contract assets and contract liabilities during the current period was primarily the result of the timing differences between the Company's performance, invoicing and customer payments.

Revenue recognized for the three and six months ended June 30, 2023, that was included in the contract liabilities balance at the beginning of each reporting period was $ 1.6 million and $ 4.1 million, respectively.

Revenue recognized for the three and six months ended June 30, 2022, that was included in the contract liabilities balance at the beginning of each reporting period was and $ 1.6 million and $ 4.1 million, respectively.

As of June 30, 2023, we had approximately $ 66.5 million of remaining performance obligations, which we also refer to as funded backlog.

Revenue recognized for the three and nine months ended September 30, 2023, that was included in the contract liabilities balance at the beginning of each reporting period was $ 1.2 million and $ 5.3 million, respectively.

Revenue recognized for the three and nine months ended September 30, 2022, that was included in the contract liabilities balance at the beginning of each reporting period was $ 0.9 million and $ 5.0 million, respectively.

As of September 30, 2023, we had approximately $ 79.0 million of remaining performance obligations, which we also refer to as funded backlog.

We expect to recognize approximately 84 % of our remaining performance obligations over the next 12 months, and the balance thereafter.

1 unchanged sentence

Details of Accounts Receivable, Net

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

7 unchanged sentences

As our primary customer base includes agencies of the U.S.

government, we have a concentration of credit risk associated with our accounts receivable, as 91 % of our billed and unbilled accounts receivable as of June 30, 2023, were directly with U.S.

government, we have a concentration of credit risk associated with our accounts receivable, as 91 % of our billed and unbilled accounts receivable as of September 30, 2023, were directly with U.S.

government customers.

4 unchanged sentences

Details of Inventories, Net

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

4 unchanged sentences

Details of Property and Equipment, Net

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

5 unchanged sentences

Depreciation and Amortization Expense

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands)

Depreciation & amortization expense $ 548 $ 619 $ 1,700 $ 1,776

The goodwill balance was $ 17.9 million as of June 30, 2023, and December 31, 2022, of which $ 3.0 million is allocated to the Security Solutions segment and $ 14.9 million is allocated to the Secure Networks segment.

The goodwill balance was $ 17.9 million as of September 30, 2023, and December 31, 2022, of which $ 3.0 million is allocated to the Security Solutions segment and $ 14.9 million is allocated to the Secure Networks segment.

Goodwill is subject to annual impairment tests and if triggering events are present in the interim before the annual tests, we will assess impairment.

No impairment charges were recorded for the three and six months ended June 30, 2023 and 2022 .

No impairment charges to goodwill were recorded for the three and nine months ended September 30, 2023 and 2022 .

INTANGIBLE ASSETS, NET

Details of Intangible Assets, Net

June 30, 2023

September 30, 2023

December 31, 2022

9 unchanged sentences

Total $ 50,399 $ ( 11,415 ) $ 38,984 $ 45,870 $ ( 8,455 ) $ 37,415

(1) An impairment charge of $ 0.3 million was recorded against software development costs in the third quarter of 2023 related to the write-off of a certain software project.

(2) This amount is net of $ 0.6 million charged into cost for sales for the period ended December 31, 2022.

See Note 10 – Debt and Other Obligations for related details.

Amortization expense related to capitalized software development costs was $ 0.6 million and $ 0.9 million for the three and six months ended June 30, 2023, respectively, and $ 0.3 million and $ 0.7 million for the three and six months ended June 30, 2022, respectively.

Amortization expense related to other intangible assets was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2023, respectively, and $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2022, respectively.

The Company evaluates its intangible assets for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.

As a result of the interim assessment, the Company identified conditions demonstrating an impairment of certain software development costs.

An impairment charge of $ 0.3 million was recorded under "Research and Development" expenses in the Company's unaudited consolidated statements of operations for the three and nine months ended September 30, 2023.

No similar impairment charges were recorded during the three and nine months ended September 30, 2022.

No impairment charges were recorded on other intangible assets during the three and nine months ended September 30, 2023, and 2022.

Amortization Expense

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands)

Amortization expense related to:

Software development costs - cost of sales (1)

$ 1,767 $ — $ 1,767 $ —

Software development costs - research and development ( 19 ) 354 843 1,034

Other intangible assets - general and administrative 117 117 350 284

Total $ 1,865 $ 471 $ 2,960 $ 1,318

(1) Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed are charged under cost of sales on the unaudited consolidated statements of operations.

OTHER BALANCE SHEET COMPONENTS

Details of Accounts Payable and Other Accrued Liabilities

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

3 unchanged sentences

Details of Other Current Liabilities

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

5 unchanged sentences

Revolving Credit Facility

On December 30, 2022 (the "Closing Date"), we entered into a Credit Agreement (the "Credit Agreement"), by and among the Company, as borrower, Xacta Corporation, ubIQuity.com, inc, Teloworks, Inc., and Telos Identity Management Solutions, LLC, as guarantors, the lenders party thereto (the "Lenders"), and JPMorgan Chase Bank N.A., as administrative agent for the Lenders (in such capacity, the "Agent").

On December 30, 2022, we entered into a Credit Agreement (the "Credit Agreement"), by and among the Company, as borrower, Xacta Corporation, ubIQuity.com, inc, Teloworks, Inc., and Telos Identity Management Solutions, LLC, as guarantors, the lenders party thereto (the "Lenders"), and JPMorgan Chase Bank N.A., as administrative agent for the Lenders (in such capacity, the "Agent").

The Credit Agreement provides for a $ 30.0 million senior secured revolving credit facility with a maturity date of December 30, 2025, with the option of issuing letters of credit thereunder with a sub-limit of $ 5.0 million, and with an uncommitted expansion feature of up to $ 30.0 million of additional revolver capacity (the "Loan").

12 unchanged sentences

The Loan has various covenants that may, among other things, affect our ability to create, incur, assume or suffer any indebtedness, merge into or consolidate with another entity, acquire entity interests, sell or transfer certain assets, enter into certain arrangements (such as sale and leaseback and swap agreements) or restrictive agreements, pay dividends and make certain restricted payments, and amend material documents related to any subordinated indebtedness and corporate agreements.

The Credit Agreement also requires certain financial covenants to maintain a Senior Leverage Ratio on the last day of any fiscal quarter, no greater than 3 to 1.

We were in compliance with all covenants as of June 30, 2023.

The Credit Agreement also requires certain financial covenants to maintain a Senior Leverage Ratio (as defined in the Credit Agreement) on the last day of any fiscal quarter, no greater than 3 -to-1.

We were in compliance with all covenants as of September 30, 2023.

The occurrence of an event of default under the Credit Agreement could result in the Loan and other obligations becoming immediately due and payable and allow the Lenders to exercise all rights and remedies available to them under the Credit Agreement.

7 unchanged sentences

On February 9, 2023, the customer notified us that it would not exercise the first option period under the DO.

The MPA provides that, if the customer terminates the DO for non-renewal and the Buyer reasonably concludes that the customer's actions constitute grounds for filing a claim with the customer's contracting officer, Buyer and Telos will cooperate in preparing such a claim, which would be filed in Telos' name.

Buyer has notified Telos of its intent to pursue a claim against the customer.

The MPA provides that, if the customer terminates the DO for non-renewal and the Buyer reasonably concludes that the customer's actions constitute grounds for filing a claim with the customer's contracting officer, the Buyer and Telos will cooperate in preparing such a claim, which would be filed in Telos' name.

The Buyer has notified Telos of its intent to pursue a claim against the customer.

Concurrently, the Company transferred all the rights, title and interest in the underlying licenses in exchange for the extinguishment of the outstanding financing obligations.

1 unchanged sentence

The Company recorded the difference between the carrying value of the Company's debt instrument and the underlying licenses as a gain on early extinguishment of other financing obligations.

No gain was reported for the three months ended June 30, 2023.

For the six months ended June 30, 2023, the Company reported a gain of $ 1.4 million, which was recorded as "Other income" in the unaudited consolidated statements of operations.

No gain was reported for the three months ended September 30, 2023.

For the nine months ended September 30, 2023, the Company reported a gain of $ 1.4 million, which was recorded as "Other income" in the unaudited consolidated statements of operations.

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.

5 unchanged sentences

There were no income tax benefits recognized on the stock-based compensation expense for both periods.

Restricted Stock

Details of Stock Compensation Expense by Department

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands)

3 unchanged sentences

General and administrative (1)

4,793 13,399 19,768 39,462

Total $ 5,218 $ 15,836 $ 22,462 $ 48,843

(1) During the three and nine months ended September 30, 2023, the stock-based compensation expense related to stock options was $ 0.1 million and $ 0.2 million, respectively, and is recorded as part of selling, general and administrative expenses.

There was no similar expense in 2022.

Restricted Stock

Restricted Stock Unit Activity

4 unchanged sentences

Forfeited ( 396,694 ) ( 71,177 ) ( 467,871 ) 14.39

Unvested outstanding units as of June 30, 2023 3,174,422 265,608 3,440,030 $ 9.42

As of June 30, 2023, the intrinsic value of the RSUs and PSUs outstanding and vested or expected to vest was $ 8.8 million.

There was approximately $ 12.1 million of total compensation costs related to stock-based awards not yet recognized as of June 30, 2023, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.7 years.

Unvested outstanding units as of September 30, 2023 3,109,148 265,608 3,374,756 $ 8.34

As of September 30, 2023, the intrinsic value of the RSUs and PSUs outstanding and vested or expected to vest was $ 8.1 million.

There were approximately $ 7.1 million of total compensation costs related to stock-based awards not yet recognized as of September 30, 2023, which is expected to be recognized on a straight-line basis over a weighted average remaining vesting period of 0.6 years.

Stock Options

13 unchanged sentences

Stock Options Fair Value and Weighted-Average Assumptions

For the Six Months Ended

June 30, 2023 June 30, 2022

For the Nine Months Ended

September 30, 2023 September 30, 2022

Weighted-average fair value of underlying stock options $ 1.06 $ —

10 unchanged sentences

Forfeited, cancelled, or expired — —

Outstanding option balance as of June 30, 2023 400,000 $ 1.80 9.8 $ 304,000

Vested and exercisable stock option as of June 30, 2023 — $ — 0.0 $ —

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the quoted closing price of the Company's common stock as of June 30, 2023.

Outstanding option balance as of September 30, 2023 400,000 $ 1.80 9.6 $ 236,000

Exercisable stock option as of September 30, 2023 — $ — 0.0 $ —

The fair value of the stock options is expensed on a straight-line basis over the vesting period of one year , including the stock options granted to directors, as the next annual stockholders meeting is expected to occur at the same approximate time each year.

During the three and six months ended June 30, 2023, the stock-based compensation expense on stock options recorded as part of general and administrative expenses was immaterial, with no similar expense in 2022.

As of June 30, 2023, there were approximately $ 0.4 million of unrecognized compensation costs related to non-vested stock options.

As of September 30, 2023, there were approximately $ 0.3 million of unrecognized compensation costs related to non-vested stock options.

SHARE REPURCHASES

2 unchanged sentences

The repurchase program has no expiration date and may be modified, suspended, or terminated at any time.

As of June 30, 2023, there was approximately $ 38.7 million of the authorization remaining for future common stock repurchases under the SRP.

As of September 30, 2023, there was approximately $ 38.7 million of the authorization remaining for future common stock repurchases under the SRP.

Share Repurchase Program Activity

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands, except per share and share data)

4 unchanged sentences

$ — $ 9.38 $ — $ 8.94

(1) Includes commissions paid for repurchases on the open market.

ACCUMULATED OTHER COMPREHENSIVE LOSS

5 unchanged sentences

Details of Accumulated Other Comprehensive Loss

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

5 unchanged sentences

Potentially Dilutive Securities

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands)

1 unchanged sentence

Total 667 833 522 435

For the three and six months ended June 30, 2023 and 2022, the outstanding PSUs aggregating to 265,608 and 379,161 , respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period.

For the three and nine months ended September 30, 2023, and 2022, the outstanding PSUs aggregating to 265,608 and 336,785 , respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of shares is contingent upon the satisfaction of certain conditions that were not satisfied by the end of the period.

RELATED PARTY TRANSACTIONS

2 unchanged sentences

The amount paid to him as compensation for his remaining tenure in 2023 was $ 249,000 .

For the three and six months ended June 30, 2022, the Company paid him $ 93,000 and $ 605,000 , respectively.

Additionally, Mr.

Wood directly owned 199,785 and 178,041 shares of the Company’s common stock as of June 30, 2023 and December 31, 2022, respectively.

For the three and nine months ended September 30, 2022, the Company paid him $ 91,000 and $ 696,000 , respectively.

One of the Company’s directors serves as a consultant to the Company.

2 unchanged sentences

Consequently, on January 3, 2023, the Company granted the director 16,859 RSUs, one-half of which vested on March 3, 2023, and the other half vested on May 18, 2023, as compensation for the first half of his 2023 consulting services.

No cash payments were made for his consulting services for the three and six months ended June 30, 2023.

In July 2023, the director and the Company amended the 2023 consulting agreement, further extending his services through December 31, 2023.

In July 2023, the director and the Company amended the 2023 consulting agreement, extending his services through December 31, 2023.

The amended 2023 consulting agreement stipulates a firm-fixed monthly retainer fee, plus additional fees and contingent bonus payments upon achievement of certain contract goals, payable in cash.

Cash payments made for his consulting services were $ 32,000 for the three and nine months ended September 30, 2023.

On February 1, 2022, the Company granted him 26,091 RSUs for his consulting services in 2022, which RSUs vested quarterly in four equal amounts through the end of the year.

No cash payments were made for the three months ended June 30, 2022, while the amounts paid in cash for his consulting services were $ 25,000 for the six months ended June 30, 2022.

No cash payments were made for the three months ended September 30, 2022, while the amounts paid in cash for his consulting services were $ 25,000 for the nine months ended September 30, 2022.

SEGMENT INFORMATION

2 unchanged sentences

These segments enable the alignment of our strategies and objectives and provide a framework for the timely and rational allocation of resources within the business lines.

Our Security Solutions segment is primarily focused on cybersecurity, cloud and identity solutions, and secure messaging through Xacta ® , Telos Ghost ® , Telos Advanced Cyber Analytics ("Telos ACA"), Telos AMHS and Telos ID offerings.

We recognize revenue on contracts from providing various system platforms in the cloud, on-premises, and in hybrid cloud environments, as well as software sales or software-as-a-service.

• Our Security Solutions segment is primarily focused on cybersecurity, cloud and identity solutions, and secure messaging through Xacta ® , Telos Ghost ® , Telos Advanced Cyber Analytics ("Telos ACA"), Telos Automated Message Handling System ("AMHS") and Telos ID offerings.

We recognize revenue on contracts by providing various system platforms in the cloud, on-premises, and in hybrid cloud environments, as well as software sales or software-as-a-service.

Revenue associated with the segment's custom solutions is recognized as work progresses or upon delivery of services and products.

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Results of Operations by Business Segment

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands)

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On February 7, 2022, Telos and certain of its current and former officers were named as defendants in a lawsuit filed in the United States District Court for the Eastern District of Virginia ("Court").

In the complaint, the Plaintiffs, who purport to represent a class of purchasers of Telos common stock between November 19, 2020, and March 16, 2022, allege that the defendants violated securities laws by failing to disclose delays relating to the launch of certain contracts between Telos and the Transportation Security Administration ("TSA") and the Centers for Medicare and Medicaid Services and to take into account those delays when providing a financial forecast for the Company's 2021 performance.

On June 15, 2022, the Plaintiffs filed a consolidated complaint which added claims (i) concerning Telos' disclosure of revenue projections for these contracts, (ii) against the directors of Telos at the time of its initial public offering, and (iii) pursuant to Sections 11 and 15 of the Securities Act of 1933.

In the complaint, the Plaintiffs, who purported to represent a class of purchasers of Telos common stock between November 19, 2020, and March 16, 2022, alleged that the defendants violated securities laws by failing to disclose delays relating to the launch of certain contracts between Telos and the Transportation Security Administration ("TSA") and the Centers for Medicare and Medicaid Services and to take into account those delays when providing a financial forecast for the Company's 2021 performance.

On June 15, 2022, the Plaintiffs filed a consolidated complaint that added claims (i) concerning Telos' disclosure of revenue projections for these contracts, (ii) against the directors of Telos at the time of its initial public offering, and (iii) pursuant to Sections 11 and 15 of the Securities Act of 1933.

On February 1, 2023, the Court dismissed the lawsuit in its entirety for failure to state a claim.

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No appeal from the order of dismissal was taken, and it is final.

The Company does not believe that there are claims or proceedings that would have a material adverse effect on the business, or the unaudited consolidated financial statements of the Company as of June 30, 2023.

From time to time, the Company may be a party to litigation or claims arising in the ordinary course of business.

Management does not believe that there are litigation or claims that would have a material adverse effect on the business, or the unaudited consolidated financial statements of the Company as of September 30, 2023.

Other - Government Contracts

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Details of Cash, Cash Equivalents, and Restricted Cash

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

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Supplemental Cash Flow Information

For the Six Months Ended

June 30, 2023 June 30, 2022

For the Nine Months Ended

September 30, 2023 September 30, 2022

(in thousands)

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During the course of preparing the Company's consolidated financial statements for the year ended December 31, 2022, we identified that stock-based compensation expense related to the PSU awards with market conditions was erroneously reversed when those PSUs were forfeited.

Due to the error, general and administrative expense was understated by $ 1.9 million and $ 3.5 million for the three and six months ended June 30, 2022.

Due to the error, general and administrative expense was understated by $ 1.1 million and $ 4.6 million for the three and nine months ended September 30, 2022.

The errors had no net impact on cash flows from operating, investing or financing activities in the consolidated statement of cash flows.

1 unchanged sentence

Impact of the Correction to the Unaudited Consolidated Statement of Operations

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

For the Three Months Ended September 30, 2022 For the Nine Months Ended September 30, 2022

As Previously Reported Adjustment As Revised As Previously Reported Adjustment As Revised

8 unchanged sentences

Impact of the Correction to the Unaudited Consolidated Statement of Comprehensive Loss

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

For the Three Months Ended September 30, 2022 For the Nine Months Ended September 30, 2022

As Previously Reported Adjustment As Revised As Previously Reported Adjustment As Revised

3 unchanged sentences

Impact of the Correction to the Unaudited Consolidated Statement of Changes in Stockholders' Equity

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

For the Three Months Ended September 30, 2022 For the Nine Months Ended September 30, 2022

As Previously Reported Adjustment As Revised As Previously Reported Adjustment As Revised

7 unchanged sentences

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.

What changed 10-Q

Item 1. Financial Statements