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Item 1A. Risk Factors

2024-03-15 compared with 2023-03-16 · 183 added, 180 removed, 223 unchanged (62% of the section changed)

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Business and Operational Risks

If our security measures or those of our third-party data center hosting facilities, cloud computing platform providers or third-party service partners are inadequate, or if the underlying infrastructure of the internet is breached, or if unauthorized access to a customer's data or our data or our IT systems is obtained, or if authorized access to our customer's data or our data or our IT systems is blocked or disabled, our services may be perceived as not being secure, customers may curtail or stop using our services, and we may incur significant reputational harm, legal exposure and liabilities, or a negative financial impact.

Our services sometimes involve the storage and transmission of our customers' and our customers' customers' proprietary and other sensitive data, including financial information and personally identifiable information.

While we have security measures in place to protect our customers and our customers' customers' data, our services and underlying infrastructure may in the future be materially breached or compromised as a result of the following:

Our business could be negatively affected by cyber or other information security breaches, threats or other disruptions.

We routinely experience cybersecurity threats, threats to our information technology infrastructure and attempts to gain access to our sensitive information, as do our customers, suppliers, subcontractors and joint venture partners.

We may experience similar security threats at customer sites that we operate and manage as a contractual requirement.

The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized adversaries who target us because we protect national security information.

While we have security measures in place to protect our data, the data of our customers or end-users of our services, our services and underlying infrastructure may in the future be materially breached or compromised as a result of the following:

• Third-party attempts to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information to gain access to our customers' data, our data or our IT systems;

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• Vulnerabilities existing within newly acquired or integrated technologies and infrastructures;

• Vulnerabilities existing within third-party software or services that we employ;

• Attacks on, or vulnerabilities in, the many different underlying networks and services that power the Internet that our products depend on, most of which are not under our control or the control of our vendors, partners, or customers;

• Employee or contractor errors or intentional acts that compromise our security systems.

These risks are mitigated, to the extent possible, by our ability to maintain and improve business and data governance policies, enhanced processes and internal security controls, including our ability to escalate and respond to known and potential risks.

Although we have developed systems and processes designed to protect our customers' and our customers' customers' sensitive data, as well as our data, we can provide no assurances that such measures will provide absolute security.

To the extent possible, these risks are mitigated by our ability to maintain and improve information security governance policies, enhanced processes and internal security controls, including our ability to escalate and respond to known and potential risks.

Although we have developed systems and processes designed to assess, identify, and manage material cybersecurity risks, we can provide no assurances that such systems and processes will provide absolute security.

In the normal course of business, we are the target of malicious cyberattack attempts.

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A security breach or incident could result in unauthorized parties obtaining access to, or the denial of authorized access to, our IT systems or data, or our customers' systems or data, including intellectual property, proprietary, sensitive, or other confidential information.

A security breach or incident could result in the unauthorized disclosure of large quantities of our customers' customers' personally identifiable information.

A security breach could also result in a loss of confidence in the security of our services, damage our reputation, negatively impact our future sales, disrupt our business and lead to increases in insurance premiums and legal and financial exposure and liability.

Finally, the detection, prevention and remediation of known or potential security vulnerabilities, including those arising from third-party hardware or software, may result in additional financial burdens due to additional direct and indirect costs, such as additional infrastructure capacity spending to mitigate any system degradation.

Our business could be negatively affected by cyber or other security threats or other disruptions.

As a cybersecurity company and a U.S.

defense contractor, we face cyber threats, threats to the physical security of our facilities and employees, and terrorist acts.

We are also exposed to the potential for business disruptions associated with information technology failures, natural disasters, or public health or economic crises, such as that created by the COVID-19 pandemic.

We may experience similar security threats at customer sites that we operate and manage as a contractual requirement.

The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized adversaries who target us because we protect national security information.

If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures.

Due to the evolving nature of these security threats, however, the impact of any future incident cannot be predicted.

The occurrence of any of these events could adversely affect our internal operations, the services we provide to our customers, loss of competitive advantages derived from our research and development efforts or other intellectual property, early obsolescence of our products and services, our future financial results, or our reputation.

If our customers do not renew their subscriptions or contracts for our solutions and services and expand our relationship with them, our revenue could decline and our results of operations would be adversely impacted.

It is important that our existing customers renew their subscriptions or contracts for our solutions and services when existing contract terms expire, in order for us to maintain or improve our results of operations.

To continue to maintain and grow our business, it is important that our existing customers renew their subscriptions or contracts for our solutions and services when existing contract terms expire.

Our customers have no obligation to renew or extend their subscriptions or contracts for our solutions or services after the expiration of the contractual periods, which vary in length, and in the normal course of business, some customers have elected not to renew or extend.

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Our attrition rates may increase or fluctuate as a result of a number of factors, including customer dissatisfaction with our services, customers' spending levels, mix of customer base, decreases in the number of users at our customers, competition, pricing increases or changes, and deteriorating general economic conditions or budgetary constraints.

Our future success also depends in part on our ability to expand our relationship with our current customers by selling additional features and services, more subscriptions or enhanced editions of our services.

Our future success also depends in part on our ability to expand our relationships with our current customers by selling additional features and services, more subscriptions or enhanced editions of our services.

This may also require increasingly sophisticated and costly sales efforts that are targeted at senior leaders.

Similarly, the rate at which our customers purchase new or enhanced services depends on a number of factors, some of which are beyond our control.

If customers do not renew or extend their subscriptions or contracts, do not purchase additional features or enhanced solutions, or if attrition rates increase, our business could be harmed.

We are dependent on a few key customer contracts for a significant portion of our future revenue, and a significant reduction in services or delay in implementation to one or more of these contracts would reduce or delay our future revenue and could materially affect our anticipated operating results.

If our efforts to maintain and expand our relationships with our existing customers are not successful, our business could be harmed.

government may terminate, cancel, delay, modify or curtail our contracts at any time prior to completion and, if we do not replace them, this may adversely affect our future revenues and could adversely impact our earnings .

Many of the U.S.

government programs in which we participate, both as a contractor or subcontractor, extend for several years and include one or more base years and one or more option years.

These programs are typically funded on an annual basis.

Under these contracts, the U.S.

government generally has the right not to exercise options to extend or expand our contracts and may otherwise terminate, cancel, modify or curtail our contracts at its convenience.

First, the process may be delayed or disrupted.

Changes in congressional schedules, negotiations for program funding levels or unforeseen world events can interrupt the funding for a program or contract.

Second, funds for multi-year contracts can be changed in subsequent years in the appropriations process.

In addition, the U.S.

government has increasingly relied on IDIQ contracts and other procurement vehicles that are subject to a competitive bidding and funding process even after the award of the basic contract, adding an element of uncertainty to future funding levels.

Delays in the funding process or changes in funding or funding priorities can impact the timing of available funds or can lead to changes in program content or termination at the government's convenience.

Any decisions by the U.S.

government to not exercise contract options or to terminate, cancel, delay, modify or curtail our major programs or contracts would adversely affect our revenues, revenue growth and profitability.

We are dependent on a few key customer contracts for a significant portion of our future revenue, and a significant reduction in goods and services or delay in implementation to one or more of these contracts would reduce or delay our future revenue and could materially affect our anticipated operating results.

A small number of our large customer contracts are expected to comprise a significant portion of our future revenue.

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Adverse events affecting the programs subject to these contracts could also negatively affect our ability to process transactions under those contracts, which could adversely affect our revenue and the results of operations.

Some of our security solutions have lengthy sales and implementation cycles, which could significantly impact our results of operations if projected orders are not realized .

We market the majority of our security solutions directly to U.S.

government customers.

The sale and implementation of our services to these entities typically involves a lengthy education process and a significant technical evaluation and commitment of capital and other resources.

This process is also subject to the risk of delays associated with customers' internal budgeting and other procedures for approving large capital expenditures, deploying new technologies within their networks and testing and accepting new technologies that affect key operations.

As a result, the sales and implementation cycles associated with certain of our services can be lengthy.

Our quarterly and annual operating results could be materially harmed if orders forecasted for a specific customer for a particular period of time are not realized.

Failure to deliver high-quality technical support services may adversely affect our relationships with our customers and our financial results.

Our customers depend on our support organization to resolve technical issues relating to our solutions and offerings.

We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services.

Increased customer demand for these services, without corresponding revenues, could increase costs and adversely affect our operating results.

In addition, our sales process is highly dependent on the reputation of our solutions and business reputation and on positive recommendations from our existing customers.

Failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our offerings to existing and prospective customers, and our business, operating results and financial position.

Failure to effectively develop and execute our sales and business development capabilities will impair our ability to grow.

Our ability to increase our customer base and achieve broader market acceptance of our solutions and services will depend, to a significant extent, on our ability to perform at a high level in our sales and marketing operations and activities.

We believe that selling and marketing our security solutions requires advanced sales skills, customer relationships and technical knowledge to generate interest and effectively communicate our solutions or services to new markets.

We may not achieve anticipated revenue growth from our sales force if we are unable to hire and develop talented sales personnel, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if we are unable to retain our existing sales force.

In addition, we are also dependent on the effectiveness of our channel partners and our ability to attract and retain additional motivated channel partners to successfully market, resell, implement or support our solutions for their customers.

A failure to attract, train, retain and motivate key and skilled employees, including key members of our management team, would adversely affect our ability to execute our strategy and may disrupt our operations.

Our business relies heavily upon the expertise and services of our employees.

Our success depends upon the continued services of our highly qualified and experienced executive officers and other key members of management.

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These difficulties could be further amplified by the high cost of living in the Washington D.C.

metropolitan area, where our headquarters and one of our other offices are located.

metropolitan area, where our headquarters is located.

If we fail to attract new personnel or fail to retain and motivate our current key employees or group, our business and future growth prospects could be severely harmed.

We depend on computing infrastructure operated by third parties to support some of our solutions and customers, and any errors, disruption, performance problems, or failure in their or our operational infrastructure could adversely affect our business, financial condition, and results of operations.

Due to the competitive bidding process to obtain U.S.

government contracts, both upon initial issuance and re-competition, and the likelihood of bid protest, we may be unable to achieve or sustain revenue growth and profitability.

Many of our U.S.

government contracts are awarded through a competitive bidding process upon initial award and renewal, and we expect this will continue.

There is often significant competition and pricing pressure as a result of this process.

The competitive bidding process presents a number of risks, including the following:

• We may expend substantial funds and time to prepare bids and proposals for contracts that may ultimately be awarded to one of our competitors;

• We may be unable to accurately estimate the resources and costs that will be required to perform any contract we are awarded, which could result in substantial cost overruns and decreased margins;

• We may encounter expense and delay if our competitors protest or challenge awards of contracts, and any such protest or challenge could result in a requirement to resubmit bids on modified specifications or in the termination, reduction or modification of the awarded contract;

• The protest of contracts awarded to us may result in the delay of program performance and the generation of revenue while the protest is pending;

• If we are not given the opportunity to re-compete for U.S.

government contracts previously awarded to us, we may incur expenses to protest such a decision and ultimately may not succeed in competing for or winning such contract renewal.

government contracts for which we compete typically have multiple option periods, and if we fail to win a contract or a task order, we generally will be unable to compete again for that contract for several years.

If we fail to win new contracts or to receive renewal contracts upon re-competition, it may result in additional costs and expenses and possible loss of revenue, and we will not have an opportunity to compete for these contract opportunities again until such contracts expire.

Our competitive position and future profitability depend, in part, on our ability to develop new technologies .

Our ability to increase revenue from existing customers and attract new customers will depend, in part, on our ability to anticipate and respond effectively to rapid technological changes and market developments.

Virtually all of the products we produce and sell are highly engineered and require sophisticated manufacturing and system integration techniques and capabilities.

The government market in which we primarily operate is characterized by rapidly changing technologies.

The product or program needs of our government and commercial customers change and evolve regularly.

Accordingly, our future performance in part depends on our ability to identify emerging technological trends, develop and manufacture competitive products, and bring those products to market quickly at cost-effective prices.

If we fail to effectively anticipate, identify and respond to those changes in a timely manner, our business could be negatively impacted.

Likewise, if we are unable to develop new products that meet customers' changing needs, future sales and earnings may be adversely affected.

Our financial results may fluctuate due to increasing variability in our security solutions' sales and implementation cycles .

We market the majority of our security solutions directly to U.S.

government customers.

The sale and implementation of our services to these entities typically involves a lengthy education process and a significant technical evaluation and commitment of capital and other resources, which adds uncertainty to our sales cycle.

As a result, the sales and implementation cycles associated with certain of our services can be difficult to predict and lengthy.

Our quarterly and annual operating results could be materially harmed if orders forecasted for a specific customer for a particular period of time are not realized.

Failure to effectively develop and execute our sales and business development capabilities will harm our ability to grow our business.

We may not achieve anticipated revenue growth from our growth team if we are unable to hire and develop talented business development and sales personnel, if our new business development and sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if we are unable to retain our existing sales force.

We depend on computing infrastructure operated by third parties to support some of our solutions and customers, and to help complete critical business functions.

Any errors, disruption, performance problems, or failure in their or our operational infrastructure could adversely affect our business, financial condition, and results of operations.

We rely on the technology, infrastructure, and software applications of certain third parties in order to host or operate some of certain key platform features or functions of our business.

Additionally, we rely on third-party computer hardware and cloud capabilities in order to deliver our solutions and services.

We do not have control over the operations of the facilities of the third parties that we use.

Our business is dependent on the integrity, security and efficient operation of this technology and infrastructure, and we do not necessarily control the operation or data security of the third-parties we utilize.

If any of these third-party services experience errors, disruptions, security issues, or other performance deficiencies;

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Many of these third-party providers attempt to impose limitations on their liability for such errors, disruptions, defects, performance deficiencies, or failures, and if enforceable, we may have additional liability to our customers or third-party providers.

In the future, we may experience disruptions, failures, data loss, outages, and other performance problems with our infrastructure and cloud-based offerings due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, employee misconduct, capacity constraints, denial of service attacks, phishing attacks, computer viruses, malicious or destructive code, or other security-related incidents, and our disaster recovery planning may not be sufficient for all situations.

If we experience disruptions, failures, data loss, outages, or other performance problems, our business, financial condition, and results of operations could be adversely affected.

Our systems and the third-party systems upon which we and our customers rely are also vulnerable to damage or interruption from catastrophic occurrences such as earthquakes, floods, fires, power loss, telecommunication failures, cybersecurity threats, terrorist attacks, social unrest, natural disasters, public health crises, geopolitical and similar events, or acts of misconduct.

Despite any precautions we may take, the occurrence of a catastrophic disaster or other unanticipated problems at our or our third-party vendors' hosting facilities, or within our systems or the systems of third parties upon which we rely, could result in interruptions, performance problems, or failure of our infrastructure, technology, or solutions, which may adversely impact our business.

In addition, our ability to conduct normal business operations could be severely affected.

In the event of significant physical damage to one of these facilities, it may take a significant period of time to achieve full resumption of our services, and our disaster recovery planning may not account for all eventualities.

In addition, any negative publicity arising from these disruptions could harm our reputation and brand and adversely affect our business.

Furthermore, our solutions are, in many cases, important or essential to our customers' operations, including in some cases, their cybersecurity or oversight and compliance programs, and subject to service level agreements.

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A failure to maintain our relationships with our third-party providers (or obtain adequate replacements), and to receive services from such providers that do not contain any material errors or defects, could adversely affect our ability to deliver effective products and solutions to our customers and adversely affect our business and results of operations.

If we are unable to protect our intellectual property or have insufficient proprietary rights, our business may be adversely impacted.

Our success depends on our internally developed technologies, patents and other intellectual property.

We depend on third parties for certain operational services and components of our products in order to fully perform under our contracts, and the failure or disruption of a third party to perform these services could have an adverse impact on our business.

We rely on subcontractors and other suppliers to provide materials, major components and subsystems for our products or to perform a portion of the services that we provide to our customers.

Occasionally, we rely on only one or two sources of supply, which, if disrupted, could have an adverse effect on our ability to meet our commitments to customers.

We depend on these subcontractors and suppliers to fulfill their contractual obligations in a timely and satisfactory manner in full compliance with customer requirements.

If one or more of our suppliers or subcontractors is unable to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services per its contractual obligations, our ability to perform our obligations as a prime contractor may be adversely affected, and we may be exposed to liability.

Our systems and the third-party systems upon which we and our customers rely are also vulnerable to damage or interruption from catastrophic occurrences or events outside of our control.

Our systems and the third-party systems, upon which we and our customers rely, are also vulnerable to damage or interruption from catastrophic occurrences, telecommunication failures, cybersecurity threats, social unrest, geopolitical and similar events, or acts of misconduct.

In addition, our ability to conduct normal business operations could be severely affected.

In addition, any negative publicity arising from these disruptions could harm our reputation and brand and adversely affect our business.

We may be also be impacted by natural disasters, wars, terrorist attacks, power outages, public health crisis (epidemics or pandemics), or other events outside of our control.

If major disasters such as earthquakes, floods, hurricanes, tornadoes, fires, or other events occur, or our information system or communications network breaks down, operates improperly, or is unusable, our headquarters and other facilities may be seriously damaged, or we may have to stop or delay production and delivery of our solutions and services.

In addition, the recent COVID-19 pandemic disrupted the normal operations of many businesses and other organizations, including the temporary closure or scale-back of business operations and the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis.

The pandemic may adversely affect our customers' ability to perform their missions and is, in many cases disrupting their operations.

It may also result in a change in spending priorities on the part of our customers, which could precipitate the cancellation, delay or deferral of programs, contracts or business opportunities.

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.

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.

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.

Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our solutions and services to our customers, and could decrease demand for our offerings.

We may incur shutdowns, delays, disruptions or expenses relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition.

Moreover, any significant natural disaster, pandemic, other catastrophic or force majeure events could affect our personnel, supply chain, or service providers' ability to provide materials and perform services on a timely basis.

Act of terrorism and other geopolitical unrest could also potentially cause disruptions in our business or the business of our supply chain, services providers, or the economy as a whole.

Because we do not carry insurance for all of these possible losses, and significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely affected by such an event outside of our control.

Failure to adequately protect our intellectual property, technologies and proprietary rights could harm our business, competitive position, financial condition, and results of operations.

Our success depends, in part, on our internally developed technologies, patents and other intellectual property.

Despite our precautions, it may be possible for a third party to copy or otherwise obtain and use our trade secrets or other forms of intellectual property without authorization.

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If we do not effectively protect our intellectual property, our business could suffer.

To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our rights.

In the future, we may have to resort to litigation to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of the proprietary rights of others.

Regardless of outcome, this type of litigation could result in substantial costs and diversion of management and technical resources.

Our future profitability depends, in part, on our ability to develop new technologies .

Virtually all of the products we produce and sell are highly engineered and require sophisticated manufacturing and system integration techniques and capabilities.

The government market in which we primarily operate is characterized by rapidly changing technologies.

The product and program needs of our government and commercial customers change and evolve regularly.

If we are unable to develop new products that meet customers' changing needs, future sales and earnings may be adversely affected.

We enter into fixed-price and other contracts that could adversely impact our earnings and profitability if we fail to estimate and manage costs, time, and resources accurately.

Generally, our customer contracts are either fixed-priced or cost-reimbursable.

The inability to adequately protect and enforce our intellectual property and other proprietary rights could seriously harm our business, results of operations and financial condition.

Failure to accurately estimate the factors upon which we base our contract pricing could adversely impact our earnings and profitability.

Generally, our customer contracts are either fixed-price or cost-reimbursable.

Under fixed-price contracts, which represented approximately 78.5% of our 2023 revenues, we receive a fixed price irrespective of the actual costs we incur and, consequently, we carry the burden of any cost overruns.

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Because many of our contracts involve advanced designs and innovative technologies, we may experience unforeseen technological difficulties and cost overruns.

Under both types of contracts, if we are unable to control costs or if our initial cost estimates are incorrect, we can lose money on these contracts.

Under both types of contracts, we must accurately estimate the likely volume of work that will occur, costs and resource requirements involved, and assess the probability of completing individual transactions or milestones within the contracted time period and amount to maximize or earn profit on these contracts.

In addition, some of our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts, we may not realize their full benefits.

Lower earnings caused by cost overruns or poor cost controls would have a negative impact on our results of operations.

We will face risks associated with the growth of our business in new commercial markets and with new customer verticals, and we may neither be able to continue our organic growth nor have the necessary resources to dedicate to the overall growth of our business.

We plan to expand our operations in new commercial markets, including those where we may have limited operating experience, and may be subject to increased business, technology and economic risks that could affect our financial results.

In recent periods, we have increased our focus on commercial customers.

In the future, we may increasingly focus on such customers, including in the banking, financial services, healthcare, manufacturing, telecommunication, airlines and aerospace, insurance, retail, transportation, shipping and logistics, and energy industries, as well as other critical infrastructure industries.

Cost overruns or poor cost controls could lower earnings, or may incur a net loss on a contract, and cause a negative impact on our results of operations.

We will face risks associated with the growth of our business in new commercial markets and with new customer verticals, and we may not be able to continue our organic growth nor have the necessary resources to dedicate to the overall growth of our business.

To increase our revenue, and achieve and maintain profitability, we plan to expand our operations in new commercial markets, including those where we may have limited operating experience, and may be subject to increased business, technology and economic risks that could affect our financial results.

In the future, we may increasingly focus on commercial customers, including in the banking, financial services, healthcare, manufacturing, telecommunication, airlines and aerospace, insurance, retail, transportation, shipping and logistics, and energy industries, as well as other critical infrastructure industries.

Entering new verticals and expanding in the verticals in which we are already operating will continue to require significant resources and there is no guarantee that such efforts will be successful or beneficial to us.

Historically, sales to a new customer have often led to additional sales to the same customer or similarly situated customers.

Although sales to a new customer have often led to additional sales to the same customer or similarly situated customers, it is uncertain we will achieve the same penetration and organic growth in the future, and our reputation, business, financial condition, and results of operations could be negatively impacted.

As we expand into and within new and emerging markets and heavily regulated industry verticals, we will likely face additional regulatory scrutiny, risks, and burdens from the governments and agencies which regulate those markets and industries.

While this approach to expansion within new commercial markets and verticals has proven successful in the past, it is uncertain we will achieve the same penetration and organic growth in the future, and our reputation, business, financial condition, and results of operations could be negatively impacted.

Our growth depends, in part, on the success of our strategic relationship with our partner organizations or channel partners.

To grow our business, we will continue to build, grow and maintain relationships with third parties, such as partner organizations or channel partners, that provide complementary cybersecurity offerings.

Failure to deliver high-quality technical support services may adversely affect our relationships with our customers and our financial results.

Our customers depend on our support organization to resolve technical issues relating to our solutions and offerings.

We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services.

Increased customer demand for these services, without corresponding revenues, could increase costs and adversely affect our operating results.

In addition, our sales process is highly dependent on the reputation of our solutions and support and on positive recommendations from our existing customers.

Our growth depends, in part, on the success of our strategic relationship with our partner organizations.

To grow our business, we will continue to build, grow and maintain relationships with third parties, such as partner organizations, that provide complementary cybersecurity offerings.

Identifying partners, and negotiating relationships with them, requires significant time and resources.

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If we are unable to license third-party technology that is used in our products and services to perform key functions, the loss could have an adverse effect on our revenues.

We currently incorporate technology that we license from third-parties, including software, into our solutions.

The third-party technology licenses used by us may not continue to be available on commercially reasonable terms or at all.

Our business could suffer if we lost the right to use these technologies.

Additionally, if we are unable to license technology from third parties, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and may require us to use alternative technology of lower quality or performance standards.

As a result, our margins and results of operations could be significantly harmed.

A third-party could claim that the licensed software infringes a patent or other proprietary right.

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The loss of, or our inability to obtain or maintain, any of these technology licenses could delay the introduction of new products or services until equivalent technology, if available, is identified, licensed and integrated.

This could harm our business.

We rely on subcontractors and other suppliers to provide raw materials, major components and subsystems for our products or to perform a portion of the services that we provide to our customers.

Occasionally, we rely on only one or two sources of supply, which, if disrupted, could have an adverse effect on our ability to meet our commitments to customers.

We depend on these subcontractors and suppliers to fulfill their contractual obligations in a timely and satisfactory manner in full compliance with customer requirements.

If one or more of our subcontractors or suppliers is unable to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services, our ability to perform our obligations as a prime contractor may be adversely affected.

Our pricing structures for our solutions and services may change from time to time, which could adversely impact our business, financial condition and results of operations.

We expect that we may change our pricing model from time to time, including as a result of competition, global economic conditions, and general reductions in our customers' spending levels, pricing studies, or changes in how our solutions are broadly consumed.

The inability to set optimal pricing structures for our solutions and services could adversely impact our business, financial condition and results of operations.

From time to time, we change our pricing model in response to competition, global economic conditions, and general reductions in our customers' spending levels, pricing studies, or changes in how our solutions are broadly consumed.

Similarly, as we introduce new products and services, or as a result of the evolution of our existing solutions and services, we may have difficulty determining the appropriate price structure for our products and services.

In addition, as new and existing competitors introduce new products or services that compete with ours, or revise their pricing structures, we may be unable to attract new customers at the same price or based on the same pricing model as we have used historically.

Further, as new and existing competitors introduce new products or services that compete with ours, or revise their pricing structures, we may be unable to attract new customers at the same price or based on the same pricing model as we have used historically.

Moreover, as we continue to target selling our solutions and services to larger organizations, these larger organizations may demand substantial price concessions.

In addition, we may need to change pricing policies to accommodate government pricing guidelines for our contracts with federal, state, local, and foreign governments and government agencies.

We may also need to change pricing policies to accommodate government pricing guidelines for our contracts with federal, state, local, and foreign governments and government agencies.

If we are unable to modify or develop pricing models and strategies that are attractive to existing and prospective customers, while enabling us to significantly grow our sales and revenue relative to our associated costs and expenses in a reasonable period of time, our business, financial condition, and results of operations may be adversely impacted.

Sales to customers outside the United States expose us to risks inherent in international operations.

We sell our services outside the U.S.

and are subject to risks and challenges associated with international business.

The risks and challenges associated with sales to customers outside the U.S.

or those that can affect international operations generally, include:

• Localization of our services, including translation into foreign languages and associated expenses;

• Regulatory frameworks or business practices favoring local competitors;

• Pressure on the creditworthiness of sovereign nations;

• Evolving domestic and international tax environments;

• Liquidity issues or political actions by sovereign nations, including nations with a controlled currency environment, which could result in decreased values of foreign-denominated balances or potential difficulties protecting our foreign assets or satisfying local obligations;

• Foreign currency fluctuations and controls, which may make our services more expensive for international customers and could add volatility to our operating results;

• Compliance with multiple, conflicting, ambiguous or evolving governmental laws and regulations, including employment, tax, privacy, anti-corruption, import/export, antitrust, data transfer, storage and protection, and industry-specific laws and regulations, including rules related to compliance by our third-party resellers and our ability to identify and respond timely to compliance issues when they occur;

• Vetting and monitoring our third-party resellers in new and evolving markets to confirm they maintain standards consistent with our brand and reputation;

• Changes in the public perception of governments in the regions where we operate or plan to operate;

• Treatment of revenue from international sources, intellectual property considerations and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding income or other taxes in foreign jurisdictions;

• Different pricing environments;

• Difficulties in staffing and managing foreign operations;

• Different or lesser protection of our intellectual property;

• Longer accounts receivable payment cycles and other collection difficulties;

• Natural disasters, acts of war, terrorism, pandemics or security breaches;

• Regional economic and political conditions.

Any of these factors could negatively impact our business and results of operations.

The above factors may also negatively impact our ability to successfully expand into emerging market countries, where we have little or no operating experience, where it can be costly and challenging to establish and maintain operations, including hiring and managing required personnel, and difficult to promote our brand, and where we may not benefit from any first-to-market advantage or otherwise succeed.

We are involved in a number of legal proceedings.

We cannot predict the outcome of litigation and other contingencies with certainty.

We sell our services outside the United States and are subject to unique risks and challenges associated with international business.

These risks and challenges include, but are not limited to, (a) compliance with governmental laws and regulations, (b) foreign business practices, (c) tax environments, (d) protection of our intellectual property, and (e) regional economic and geopolitical conditions.

Although our international operations have historically generated a small proportion of our revenues, any of these factors could negatively impact our business and results of operations.

In addition, these factors may also negatively impact our ability to successfully expand into emerging market countries, where we have little or no operating experience, where it can be costly and challenging to establish and maintain operations, including hiring and managing required personnel, and difficult to promote our brand, and where we may not benefit from any first-to-market advantage or otherwise succeed.

We may be subject to legal proceedings, regulatory disputes and governmental inquiries that could materially harm our business, operating results, and financial condition.

From time to time, in the ordinary course of business, we have been involved in legal proceedings and in the future may be subject to lawsuits, claims, government investigations and other proceedings.

These may include lawsuits and claims related to securities compliance, contracts, subcontracts, intellectual property, employment and wage claims, and other matters.

Our business may be adversely affected by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty.

As required by the U.S.

GAAP, we estimate loss contingencies and establish reserves based on our assessment of contingencies where liability is deemed probable and reasonably estimable in light of the facts and circumstances known to us at a particular point in time.

Subsequent developments in legal proceedings may affect our assessment and estimates of the loss contingency recorded as a liability or as a reserve against assets in our financial statements.

For a description of our current legal proceedings, see Note 22 – Commitments and Contingencies to the consolidated financial statements.

Those contingencies include, but are not limited to, the cost of litigation and unpredictable court decisions.

Adverse outcomes with respect to litigation, or a government inquiry, or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or harm our reputation, all of which could negatively affect our business, results of operations and financial conditions.

Potential future acquisitions, strategic investments, partnerships, divestitures, mergers or joint ventures may subject us to significant risks, any of which could harm our business.

We have in the past acquired, and may in the future seek to acquire or invest in complementary businesses, products or technologies to enhance our technical capabilities or otherwise offer growth opportunities.

Our long-term strategy may include identifying and acquiring, partnering with, investing in or merging with suitable candidates on acceptable terms, or divesting of certain business lines or activities.

In particular, over time, we may acquire, make investments in, partner or merge with providers of product offerings that complement our business or may terminate such activities.

Partnerships, mergers, joint ventures, acquisitions, and divestitures include a number of risks and present financial, managerial and operational challenges, including but not limited to:

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For all these reasons, our pursuit of an acquisition, partnership, investment, divestiture, merger, or joint venture could cause its actual results to differ materially from those anticipated.

Industry and Economic Risk

Public confidence in, and acceptance of, identity platforms and biometrics generally, and our solutions specifically, will be a key factor in our business’s continued growth.

Our future profitability will depend, in part, on public confidence in and acceptance of identity platforms and biometrics generally.

Continued acceptance of identity platforms and biometric information as a secure and reliable method to identify individuals, mitigate risk and minimize fraud is an important factor in our continued growth.

While both identity platforms and biometrics have become more widely adopted, they may not achieve universal acceptance.

The attractiveness of our solutions to our customers is impacted by a number of factors, including the willingness of individuals to provide their personal information, including biometric information, to private or governmental entities, the level of confidence that such information can be stored safely and securely, and trust that such information will not be misused or breached.

Certain individuals may never accept the use of biometrics as being safe.

If identity platforms and biometrics do not achieve universal acceptance, or our solutions are not competitive with our industry players, our growth could be limited, which could materially adversely affect our business, results of operations and financial condition.

On the other hand, any negative associations or perceptions with our solutions or biometrics could impede our business growth and could adversely affect our business, results of operations and financial condition.

Likewise, any breaches on our information technology systems, particularly on the use and collection of biometric information, may subject us to significant reputational, financial, legal or operational consequences.

Actions that we are taking to restructure our business to improve profitability may not be as effective as anticipated.

During the fourth quarter of fiscal year 2022, we committed to a restructuring plan to streamline our workforce and spending to better align our cost structure with the volume of our business.

We began the execution of the restructuring plan early 2023, incurring restructuring-related costs, including employee severance and related benefit costs and external consulting and advisory fees related to the implementation of the restructuring plan.

We may be unable to realize the expected improved profitability and efficiency from our restructuring efforts.

Industry, Legal and Regulatory Risks

The business environment in which we operate is highly competitive, and we may not be able to compete successfully against existing or future competitors.

We operate in diverse industry segments.

We operate in an intensely competitive market and diverse industry segment, and we expect competition to increase in the future from established businesses and new market entrants.

Based on our current market analysis, there is no single company or small group of companies in a dominant competitive position.

Some large competitors offer capabilities in a number of markets that overlap many of the same areas in which we offer services, while certain companies are focused upon only one or a few of such markets.

Some of the firms that compete with us in multiple areas include Northrop Grumman, Lockheed Martin, General Dynamics, Perspecta and Idemia.

Some of the firms that compete with us in multiple areas include large, established defense contractors.

In addition, we compete with smaller specialty companies, including risk and compliance management companies, organizational messaging companies, and security consulting organizations, and companies that provide secure network offerings.

If we do not compete effectively, we may suffer price reductions, reduced gross margins, and loss of market share.

Due to the competitive bidding process to obtain U.S.

government contracts, both upon initial issuance and re-competition, and the likelihood of bid protest, we may be unable to achieve or sustain revenue growth and profitability.

Many of our U.S.

government contracts are awarded through a competitive bidding process upon initial award and renewal, and we expect this will continue.

There is often significant competition and pricing pressure as a result of this process.

The competitive bidding process presents a number of risks, including the following:

• We may expend substantial funds and time to prepare bids and proposals for contracts that may ultimately be awarded to one of our competitors;

• The protest of contracts awarded to us may result in the delay of program performance and the generation of revenue while the protest is pending;

• If we are not given the opportunity to re-compete for U.S.

government contracts previously awarded to us, we may incur expenses to protest such a decision and ultimately may not succeed in competing for or winning such contract renewal.

We depend, in part, on sales to the U.S.

government, and changes in spending or budgetary priorities or delays in contract awards may significantly affect our future revenue and adversely impact our financial condition and results of operations .

Our sales are highly concentrated with the U.S.

If we are unable to anticipate or react to these challenges or do not compete effectively, our competitive position could weaken and could result in a decline in revenue or reduced revenue growth, price reductions or reduced gross margins, and loss of market share, all of which could adversely affect our business.

A decline in the federal budget, changes in spending or budgetary priorities of the U.S.

government, a prolonged U.S.

government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results.

Our customers are substantially U.S.

government agencies.

The customer relationship with the U.S.

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The programs we participate in must compete with other programs and policy imperatives during the budget and appropriations process.

In each of the past three years, a substantial portion of our sales was to the U.S.

government, particularly the DoD.

government's defense spending has historically been cyclical.

Defense budgets have received their strongest support when perceived threats to national security raise the level of concern over the country's safety.

As these threats subside, spending on the military tends to decrease.

Rising budget deficits, increasing national debt, the cost of the global war on terrorism, increasing costs for entitlement programs, cost of new domestic initiatives, and the large and continued costs of combating the pandemic and addressing the health concerns and economic dislocation caused by COVID-19, continue to put pressure on all areas of discretionary spending.

If government funding relating to our contracts with the U.S.

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government, as well as delays in program starts or the award of contracts or task orders under contracts.

government may terminate, cancel, modify or curtail our contracts at any time prior to completion and, if we do not replace them, this may adversely affect our future revenues and could adversely impact our earnings .

Many of the U.S.

government programs in which we participate, both as a contractor or subcontractor, extend for several years and include one or more base years and one or more option years.

These programs are typically funded on an annual basis.

Under these contracts, the U.S.

government generally has the right not to exercise options to extend or expand our contracts and may otherwise terminate, cancel, modify or curtail our contracts at its convenience.

First, the process may be delayed or disrupted.

Changes in congressional schedules, negotiations for program funding levels or unforeseen world events can interrupt the funding for a program or contract.

Second, funds for multi-year contracts can be changed in subsequent years in the appropriations process.

In addition, the U.S.

Any decisions by the U.S.

government to not exercise contract options or to terminate, cancel, modify or curtail our major programs or contracts would adversely affect our revenues, revenue growth and profitability.

In recent years, U.S.

government appropriations have been affected by larger U.S.

government budgetary issues and related legislation.

As a result, DoD funding levels have fluctuated and have been difficult to predict.

Future spending levels are subject to a wide range of factors, including Congressional action.

In addition, over the last few years, the U.S.

government has been unable to complete its budget process before the end of its fiscal year, resulting in both a government shutdown and continuing resolutions to extend sufficient funds only for U.S.

government agencies to continue operating.

Not long ago, the federal government was shut down due to a lack of funding for over one month between late 2018 and early 2019, and currently a series of continuing resolutions have funded the government at fiscal year 2023 levels, with no new starts.

Moreover, the national debt threatened to reach the statutory debt ceiling in 2023, and such an event in future years could result in the U.S.

government defaulting on its debts.

As a result, government spending levels are difficult to predict beyond the near term due to numerous factors, including the external threat environment, future government priorities and the state of government finances.

Significant changes in government spending or changes in U.S.

government priorities, policies and requirements could have a material adverse effect on our results of operations, financial condition or liquidity.

We are subject to the seasonality of U.S.

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As a result of this seasonality, we have historically experienced higher revenues in our third and fourth fiscal quarters, ending September 30 and December 31, respectively, with the pace of orders typically substantially reduced during our first and second fiscal quarters ending March 31 and June 30, respectively.

Legal and Regulatory Risks

Our business is subject to complex and evolving U.S.

laws and regulations regarding privacy, data protection and security, technology protection, and other matters.

Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or otherwise harm our business.

We are required to comply with stringent, complex and evolving laws, rules, regulations and standards, as well as contractual obligations relating to privacy, data protection and security, technology protection, and other matters.

Any actual or perceived failure to comply with these requirements could have a material effect on our business.

We are subject to a variety of local, state, national, and international laws and directives and regulations in the United States and abroad that involve matters central to our business, including privacy and data protection, data security, data storage, retention, transfer and deletion, technology protection, and personal information.

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Results may be affected by various factors, including those described in these risk factors.

We cannot guarantee that our stock repurchase program will be fully implemented or that it will enhance long-term stockholder value.

In May 2022, our Board of Directors approved a stock repurchase program for the repurchase of up to $50.0 million of our outstanding shares of our common stock.

We cannot guarantee that our share repurchase program will be fully implemented or that it will enhance long-term stockholder value.

In May 2022, our Board of Directors approved a share repurchase program ("SRP") for the repurchase of up to $50.0 million of our outstanding shares of our common stock.

As of December 31, 2023, approximately $38.7 million remained available under the stock repurchase program.

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The stock repurchase program could affect the price of our common stock, increase volatility, diminish our cash reserves, and even if fully implemented may not enhance long-term stockholder value.

If we are unable to successfully remediate any material weakness in our internal control over financial reporting, or identify any additional material weaknesses, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act.

If we fail to abide by the applicable requirements of Section 404, regulatory authorities, such as the SEC, could subject us to sanctions or investigation, and our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over financial reporting pursuant to an audit of our controls.

Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

Accordingly, our internal control over financial reporting may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud.

In connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2022, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting related to the design and controls over the assessment of the accounting for forfeitures of non-standard equity awards.

This control deficiency could have resulted in a misstatement of accounts and disclosures that could have resulted in a material misstatement of our annual or interim consolidated financial statements that would not have been prevented or detected.

Accordingly, management has determined that this control deficiency constitutes a material weakness.

As further described in Item 9A – Controls and Procedures under Management's Report on Internal control over Financial Reporting, we executed a plan to remediate the material weakness, including the enhancement of existing processes and controls over the accounting for the forfeiture of non-standard equity awards.

While we expect to take the measures necessary to address the underlying causes of this material weakness, we cannot provide assurance of when the material weakness will be remediated, nor can we be certain of whether additional actions will be required or the costs of any such actions.

Moreover, we cannot provide assurance that additional material weaknesses will not arise in the future.

While the material weakness discussed above did not result in material misstatements of our annual or interim consolidated financial statements, any failure to remediate the material weakness, or the identification of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements that may continue undetected, negatively impacting the public perception of the Company and our securities and cause us to fail to meet our reporting and financial obligations or incur significant additional costs to remediate the material weaknesses, each of which could negatively affect our stock price, harm our ability to raise capital on favorable terms in the future or otherwise have a negative impact on our financial condition.

If we fail to maintain an effective system of internal control, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), the rules and regulations of Nasdaq, and other securities rules and regulations that impose various requirements on public companies.

Our management and other personnel devote substantial time and resources to comply with these rules and regulations.

Such compliance has increased, and will continue to increase, our legal, accounting and financial compliance costs, makes some activities more difficult, time-consuming and costly, and places significant strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting, and to report any material weaknesses in such internal control.

In fiscal year ended 2022, management identified a material weakness related to ineffective design and maintenance of controls over the assessment of the accounting for forfeitures of non-standard equity awards.

While the identified material weakness has been remediated in fiscal year 2023, we cannot provide assurance that we will not identify additional material weaknesses in future periods or that we will be successful in remediating any future significant deficiencies or material weaknesses in internal control over financial reporting.

We are continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure information required to be disclosed by us in our consolidated financial statements and in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.

Our current controls and any new controls we develop may become inadequate because of changes in conditions in our business.

Additionally, to the extent we acquire other businesses, the acquired company may not have a sufficiently robust system of internal controls and we may uncover new deficiencies.

Weaknesses in our internal controls may be discovered in the future.

Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our results of operations, may result in a restatement of our consolidated financial statements for prior periods, could cause us to fail to meet our reporting obligations, and could result in an adverse opinion regarding our internal control over financial reporting from our independent registered public accounting firm, and lead to investigations or sanctions by regulatory authorities.

Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and results of operations and could cause a decline in the price of our stock.

Section 404 of the Sarbanes-Oxley Act requires our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting.

We are also required to have our independent registered public accounting firm attest to, and issue an opinion on, the effectiveness of our internal control over financial reporting.

If we are unable to assert that our internal control over financial reporting is effective, or if, when required, our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

General Risk Factors

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These economic conditions can arise suddenly and the full impact of such conditions can remain uncertain at any point in time.

In addition, geopolitical developments, such as the recent invasion of Ukraine by Russia, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.

In addition, geopolitical developments, such as the invasion of Ukraine by Russia, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.

Moreover, these conditions can affect the rate of information technology spending and could adversely affect our customers' ability or willingness to purchase our solutions and services, delay prospective customers' purchasing decisions, reduce the value or duration of their subscription contracts, or affect attrition rates, all of which could adversely affect our future sales and operating results.

Our business could be adversely affected by events outside of our control, such as natural disasters, fire, power outages and other catastrophic events, and interruption by man-made problems such as wars or terrorism .

We may be impacted by natural disasters, wars, terrorist attacks, power outages, health epidemics or pandemics, or other events outside of our control.

Increased scrutiny of our environmental, social and governance responsibilities may result in additional costs and risks, and may adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.

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This may, in turn, adversely affect our results of operations and growth prospects.

The impact of the ongoing COVID-19, including the resulting global economic disruptions, remains uncertain at this time, and may adversely affect our future business operations, financial condition and our ability to execute on business or contract opportunities.

The COVID-19 pandemic disrupted the normal operations of many businesses and other organizations, including the temporary closure or scale-back of business operations and the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis.

The ongoing pandemic may adversely affect our customers' ability to perform their missions and is, in many cases disrupting their operations.

It may also result in a change in spending priorities on the part of our customers, which could precipitate the cancellation, delay or deferral of programs, contracts or business opportunities.

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.

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.

Global clim a te-related risks could negatively affect our business.

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In addition, our reputation and client relationships may be damaged as a result of our practices related to climate change, including our involvement, or our clients' involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.

Unresolved Staff Comments

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-K

Item 1A. Risk Factors