What changed in this filing

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Item 1. Financial Statements

2025-11-10 compared with 2025-08-11 · 188 added, 130 removed, 464 unchanged (41% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands, except per share amounts)

2 unchanged sentences

Total revenue 51,444 23,783 118,028 81,900

Cost of sales – services (excluding depreciation and amortization) 16,605 15,933 32,096 32,992

Cost of sales – products (excluding depreciation and amortization) 5,716 819 7,156 1,140

Cost of sales – services (excluding impairment loss, depreciation and amortization) 22,906 12,689 55,002 45,681

Cost of sales – products (excluding impairment loss, depreciation and amortization) 5,636 1,128 12,792 2,268

Impairment loss on intangible assets — 5,333 — 5,333

Depreciation and amortization 2,356 1,490 5,574 4,807

4 unchanged sentences

Selling, general and administrative expenses 21,115 23,225 61,051 56,346

Impairment loss on intangible assets — 6,373 — 6,373

Total operating expenses 23,014 32,007 66,033 69,757

14 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands)

Net loss $ ( 2,114 ) $ ( 28,055 ) $ ( 20,235 ) $ ( 43,190 )

Other comprehensive loss, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 1 22 76 ( 34 )

Actuarial gain (loss) on pension liability adjustment — — 8 ( 30 )

Other comprehensive (loss) income ( 5 ) ( 21 ) 83 ( 86 )

Other comprehensive income (loss) 1 22 84 ( 64 )

Comprehensive loss $ ( 2,113 ) $ ( 28,033 ) $ ( 20,151 ) $ ( 43,254 )

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

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

14 unchanged sentences

Liabilities and Stockholders' Equity

Accounts payable and other accrued liabilities $ 13,375 $ 4,300

Accounts payable $ 2,779 $ 1,153

Accrued liabilities 7,140 4,449

Accrued compensation and benefits 11,402 7,608

2 unchanged sentences

Operating lease obligations – current portion 226 210

Other current liabilities 1,597 1,302

Total current liabilities 37,272 22,135

6 unchanged sentences

Stockholders’ equity:

Common stock, $ 0.001 par value, 250,000,000 shares authorized, 72,441,668 shares and 72,514,652 shares issued and outstanding as of June 30, 2025, and December 31, 2024, respectively

Common stock, $ 0.001 par value, 250,000,000 shares authorized, 72,220,048 shares and 72,514,652 shares issued and outstanding as of September 30, 2025, and December 31, 2024, respectively

Additional paid-in capital 467,191 454,502

6 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

June 30, 2025 June 30, 2024

For the Nine Months Ended

September 30, 2025 September 30, 2024

(in thousands)

4 unchanged sentences

Depreciation and amortization 8,022 9,368

Deferred income tax provision 27 24

Recovery from doubtful accounts ( 20 ) ( 32 )

Amortization of debt issuance costs 52 52

Deferred income tax provision 41 37

Loss (gain) on disposal of fixed assets 1 ( 13 )

Provision for (recovery from) doubtful accounts 3 ( 28 )

Impairment loss on intangible assets — 11,706

Changes in other operating assets and liabilities:

2 unchanged sentences

Prepaid expenses, deferred program expenses, other current assets, other assets 701 ( 10,049 )

Accounts payable and other accrued payables 7,496 ( 7,763 )

Accounts payable ( 1,263 ) ( 6,211 )

Accrued compensation and benefits 1,420 ( 5,266 )

Contract liabilities 6,894 52

Other current liabilities 200 ( 916 )

Accrued liabilities and other liabilities 2,546 ( 1,480 )

Net cash provided by (used in) operating activities 22,202 ( 15,420 )

1 unchanged sentence

Capitalized software development costs ( 6,496 ) ( 9,104 )

Purchases of property and equipment ( 257 ) ( 332 )

Purchases of property and equipment, net ( 709 ) ( 381 )

Purchase of investment — ( 3,000 )

3 unchanged sentences

Payment of tax withholding related to net share settlement of equity awards ( 1,600 ) ( 457 )

Repurchases of common stock ( 4,002 ) —

Proceeds from exercise of stock options 108 149

Repurchases of common stock ( 7,639 ) —

Net cash used in financing activities ( 10,524 ) ( 1,591 )

10 unchanged sentences

(in thousands)

Balance at March 31, 2025 73,319 $ 112 $ 461,994 $ ( 41 ) $ ( 335,951 ) $ 126,114

Balance at June 30, 2025 72,442 $ 111 $ 463,816 $ ( 46 ) $ ( 345,468 ) $ 118,413

Net loss — — — — ( 2,114 ) ( 2,114 )

Foreign currency translation loss — — — ( 5 ) — ( 5 )

Foreign currency translation gain — — — 1 — 1

Restricted stock unit awards vested, net of shares withheld to cover tax withholding 302 1 ( 538 ) — — ( 537 )

Stock-based compensation — — 7,441 — — 7,441

Issuance of common stock upon exercise of stock options 60 — 108 — — 108

Repurchases of common stock ( 584 ) ( 1 ) ( 3,636 ) — — ( 3,637 )

Balance at September 30, 2025 72,220 $ 111 $ 467,191 $ ( 45 ) $ ( 347,582 ) $ 119,675

Balance at June 30, 2024 72,223 $ 111 $ 439,146 $ ( 146 ) $ ( 289,962 ) $ 149,149

Balance at March 31, 2024 71,758 $ 110 $ 436,616 $ ( 125 ) $ ( 282,205 ) $ 154,396

Net loss — — — — ( 28,055 ) ( 28,055 )

Foreign currency translation loss — — — ( 21 ) — ( 21 )

Foreign currency translation gain — — — 22 — 22

Restricted stock unit awards vested, net of shares withheld to cover tax withholding 132 — ( 28 ) — — ( 28 )

1 unchanged sentence

Issuance of common stock upon exercise of stock options 25 — 45 — — 45

Balance at June 30, 2024 72,223 $ 111 $ 439,146 $ ( 146 ) $ ( 289,962 ) $ 149,149

Balance at September 30, 2024 72,380 $ 111 $ 447,513 $ ( 124 ) $ ( 318,017 ) $ 129,483

Common Stock Additional Paid-in

9 unchanged sentences

Stock-based compensation — — 19,757 — — 19,757

Issuance of common stock upon exercise of stock options 60 — 108 — — 108

Repurchases of common stock ( 2,072 ) ( 2 ) ( 7,637 ) — — ( 7,639 )

Issuance of common stock for 401(k) match 728 1 2,062 — — 2,063

Balance at June 30, 2025 72,442 $ 111 $ 463,816 $ ( 46 ) $ ( 345,468 ) $ 118,413

Balance at September 30, 2025 72,220 $ 111 $ 467,191 $ ( 45 ) $ ( 347,582 ) $ 119,675

Balance at December 31, 2023 70,240 $ 109 $ 433,781 $ ( 60 ) $ ( 274,827 ) $ 159,003

6 unchanged sentences

Issuance of common stock for 401(k) match 370 — 1,618 — — 1,618

Balance at June 30, 2024 72,223 $ 111 $ 439,146 $ ( 146 ) $ ( 289,962 ) $ 149,149

Balance at September 30, 2024 72,380 $ 111 $ 447,513 $ ( 124 ) $ ( 318,017 ) $ 129,483

See accompanying notes to the unaudited consolidated financial statements.

8 unchanged sentences

The accompanying unaudited consolidated financial statements include the accounts of Telos and its subsidiaries (see Note 1 – Organization ), all of whose issued and outstanding share capital is wholly owned directly and indirectly by Telos Corporation.

All intercompany transactions have been eliminated in consolidation.

All intercompany transactions and balances have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.

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The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2024, included in our Annual Report on Form 10-K for the fiscal year then ended.

We have continued to follow the accounting policies set forth in those financial statements.

We continue to follow the accounting policies set forth in those financial statements.

Reclassification

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

This reclassification relates to presenting "Accrued liabilities" as a separate line item on the unaudited consolidated balance sheets from "Accounts payable" and "Other current liabilities."

Use of Estimates

4 unchanged sentences

We base our estimates on historical experience, currently available information, and various other assumptions that we believe are reasonable under the circumstances.

Management evaluates these estimates and assumptions on an ongoing basis, including those relating to revenue recognition on cost estimation on certain contracts, allowance for credit losses, inventory obsolescence, valuation allowance for deferred tax assets, income taxes, certain assumptions related to stock-based compensation, valuation of intangible assets and goodwill, restructuring expenses accruals, and contingencies.

Management evaluates these estimates and assumptions on an ongoing basis, including those relating to revenue recognition on cost estimation on certain contracts, allowance for credit losses, inventory obsolescence, valuation allowance for deferred tax assets, income taxes, certain assumptions related to stock-based compensation, impairment of intangible assets and goodwill, restructuring expenses accruals, and contingencies.

Actual results could differ from these estimates.

5 unchanged sentences

If the contract period of performance is beyond twelve months, we classify the cost as long-term and is included within "Other assets" on the unaudited consolidated balance sheets.

Accrued Liabilities

Accrued liabilities represents incurred expenses but not yet invoiced or paid by the Company.

These include, but not limited to, accruals related to projects, fees, taxes, employee benefits, and other services.

Restructuring Expenses

As previously disclosed, in the fourth quarter of 2022, the Company committed to a restructuring plan to streamline its workforce and spending to better align its cost structure with its volume of business ("2022 restructuring").

The 2022 restructuring plan reduced the Company's workforce, with a majority of the affected employees separating from the business in early 2023.

The actions under the 2022 restructuring plan were substantially completed in fiscal year 2023 and were fully paid in the third quarter of 2024.

Total restructuring expenses incurred under the 2022 restructuring plan were $ 3.9 million.

Further, in the third quarter of 2024, the Company undertook another restructuring action in an effort to optimize its strategic priorities and cost structure ("2024 restructuring").

As part of the 2024 restructuring plan, the Company decided to discontinue the development and/or sale of selected solutions or parts of solutions, which resulted in the impairment of capitalized software assets and a reduction in workforce.

The 2024 restructuring actions were substantially completed in fiscal year 2024 and were fully paid in early fiscal year 2025.

The Company incurred $ 1.3 million in cumulative restructuring expenses related to the 2024 restructuring plan.

During the three and nine months ended September 30, 2024, the Company incurred approximately $ 1.4 million of expenses related to the 2022 and 2024 restructuring plans, which were recorded as costs of sales, research and development expenses, and selling, general and administrative expenses on the unaudited consolidated statements of operations.

The restructuring expenses included in cost of sales were allocated to the Security Solutions and Secure Networks segments, totaling $ 0.3 million and $ 0.1 million, respectively.

In addition, as a result of the Company's decision to abandon the development or sale of selected solutions in the third quarter of 2024, the Company wrote-off $ 6.4 million of its previously capitalized software assets.

This was reported as an impairment loss on intangible assets under operating expenses on the unaudited consolidated statement of operations.

See Note 8 – Intangible Assets, Net for further details.

At each reporting date, the Company evaluated its restructuring expense accrual to determine whether the liabilities reported remain appropriate.

Any changes in the estimated costs of executing the approved restructuring plans are reflected in the Company's unaudited consolidated statement of operations.

Summary of Changes in Restructuring Expenses Accrual

Severance and related benefit costs (1)

(in thousands)

Balance at December 31, 2024 $ 37

Cash payments ( 37 )

Balance at September 30, 2025 $ —

(1) Restructuring expenses accrual is included within "Accrued liabilities" on the Company's unaudited consolidated balance sheets (see Note 9 - Other Balance Sheet Components for further details).

The Company did not have any restructuring activities or additional impairment charges related to the restructuring plan during the three and nine months ended September 30, 2025.

The period for which tax years are open, 2021 to 2024, has not been extended beyond the applicable statute of limitations.

In September 2024, we were advised by the Internal Revenue Services ("IRS") regarding an audit of our 2021 federal income tax return.

In April 2025, the IRS notified us that they completed their examination of our 2021 federal income tax return with no changes to our reported tax.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law, which includes significant amendments to the Internal Revenue Code.

In September 2024, we were advised by the Internal Revenue Service ("IRS") of an audit of our 2021 federal income tax return.

In April 2025, the IRS notified us that it had completed its examination of our 2021 federal income tax return with no changes to our reported tax.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law, including significant amendments to the Internal Revenue Code.

The OBBBA imposes various changes to U.S.

federal income tax regulations, such as restoring bonus depreciation, and removing the requirement to capitalize and amortize domestic research and development expenditures.

The OBBBA also included certain modifications to the Inflation Reduction Act of 2022, including the repeal or acceleration of the sunset of certain tax credits and elimination of certain penalties for violations of certain regulatory credit programs.

The OBBBA also included certain modifications to the Inflation Reduction Act of 2022, including the repeal or acceleration of the sunsetting of certain tax credits and the elimination of certain penalties for violations of certain regulatory credit programs.

The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027.

We are currently evaluating the potential impact of these provisions on our unaudited consolidated financial statements.

The enactment of these provisions did not have a material impact on our unaudited consolidated financial statements.

Recent Accounting Pronouncements

4 unchanged sentences

This ASU will be effective, for public entities, for the fiscal year beginning after December 15, 2024, with early adoption permitted.

We are currently assessing the impact of the adoption of this ASU on our unaudited consolidated financial statements.

We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Topic 220):

2 unchanged sentences

All public entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

We are in the process of assessing the impact of the adoption of this ASU on our unaudited consolidated financial statements.

We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In July 2025, the FASB issued ASU 2025-05, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivables and Contract Assets.” This standard provides simplified guidance on measuring credit losses for accounts receivable and contract assets.

The update introduces a practical expedient and an accounting policy election to ease the process.

All entities can elect the practical expedient to assume that the current economic conditions at the balance sheet date will remain constant through the life of the current receivables and contract assets.

Entities that elects the practical expedient and the accounting policy election should apply the amendments in this ASU prospectively.

The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted.

We are currently assessing the impact of adopting of this ASU on our unaudited consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting of Internal-Use Software." This standard provides a simplified, consistent way to track expenses related to software developed for internal use.

The amendments in this standard removed all references to project stages;

instead, a company can capitalize software costs once both conditions are met:

the entity's management has authorized and committed to funding the project, and it is probable that the project will be completed and the software will be used as intended.

The amendments will be effective for annual reporting periods, including interim periods within those years, beginning after December 15, 2027, with early adoption permitted.

We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In addition, from time to time, new accounting standards are issued by the FASB or other standard-setting bodies and are adopted by the Company as of the specified accounting date.

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We account for revenue in accordance with ASC Topic 606, "Revenue from Contracts with Customers." The unit of account in ASC 606 is a performance obligation, which is a promise in a contract with a customer to transfer a good or service to the customer.

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

Revenue transferred to customers over time accounted for 68 % and 73 % of our revenue for the three and six months ended June 30, 2025, respectively, and 84 % and 82 % of our revenue for the three and six months ended June 30, 2024, respectively.

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

On the other hand, for performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time when each performance obligation is fully satisfied.

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

Revenue from transfers to customers over time accounted for 77 % and 74 % of our revenue for the three and nine months ended September 30, 2025, respectively, and 78 % and 81 % of our revenue for the three and nine months ended September 30, 2024, respectively.

For performance obligations in which control does not periodically transfer to the customer, we recognize revenue at the point in time when each performance obligation is fully satisfied.

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

Revenue transferred to customers at a point in time accounted for 32 % and 27 % of our revenue for the three and six months ended June 30, 2025, respectively, and 16 % and 18 % of our revenue for the three and six months ended June 30, 2024, respectively.

The change in revenue mix for the three and six months ended June 30, 2025, as compared to the prior periods, was primarily driven by an increase in product sales volume.

Revenue from transfers to customers at a point in time accounted for 23 % and 26 % of our revenue for the three and nine months ended September 30, 2025, respectively, and 22 % and 19 % of our revenue for the three and nine months ended September 30, 2024, respectively.

The change in revenue mix for the nine months ended September 30, 2025, as compared to the prior periods, was primarily driven by an increase in product sales volume from a successful ramp-up of a significant program.

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.

1 unchanged sentence

The standalone selling price represents the amount we would sell the product or service to a customer on a standalone basis.

For certain performance obligations where we are not primarily responsible for fulfilling the promise to provide the goods or services to the customer, do not have inventory risk and have limited discretion in establishing the price for the goods or services, we recognize revenue on a net basis.

Our contracts may include various types of variable considerations and may include estimated amounts in the transaction price, based on all of the information available to us, and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when any uncertainty associated with the variable consideration is resolved.

For certain performance obligations where we are not primarily responsible for fulfilling the promise to provide goods or services to the customer, do not have inventory risk and have limited discretion in establishing the price for the goods or services, we recognize revenue on a net basis.

Our contracts may include various types of variable consideration and may include estimated amounts in the transaction price, based on all of the information available to us, and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when any uncertainty associated with the variable consideration is resolved.

We evaluate and include these estimated amounts of variable consideration in the transaction price, and as performance on these contracts is complete, we adjust our revenue when deemed necessary.

No revenue adjustments were recorded during the three and six months ended June 30, 2025, and 2024.

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 exceeds the total estimated revenue for a performance obligation.

No contract loss was recorded during the three months ended June 30, 2025, and 2024.

We recorded an immaterial contract loss during the six months ended June 30, 2025, and 2024.

No revenue adjustments were recorded during the three and nine months ended September 30, 2025, and 2024.

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 loss was recorded during the three months ended September 30, 2025, and 2024.

We recorded an immaterial contract loss during the nine months ended September 30, 2025, and 2024.

Disaggregated Revenues

6 unchanged sentences

Revenue by Customer Type

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

Amount % Amount % Amount % Amount %

4 unchanged sentences

Revenue by Contract Type

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

Amount % Amount % Amount % Amount %

4 unchanged sentences

Total revenue $ 51,444 100 % $ 23,783 100 % $ 118,028 100 % $ 81,900 100 %

A majority of the Company's revenue was derived under prime contracts and subcontracts with agencies and departments of the federal government.

No other customer accounted for 10% or more of the Company's revenue during the three and six months ended June 30, 2025, and 2024.

A majority of the Company's revenue was derived under prime contracts and subcontracts with agencies and departments of the U.S.

federal government.

No other customer accounted for 10% or more of the Company's revenue during the three and nine months ended September 30, 2025, and 2024.

Revenue Concentration Greater than 10% of Total Revenue

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands)

4 unchanged sentences

Contract Balances

Balance Sheet Presentation June 30, 2025 December 31, 2024

Balance Sheet Presentation September 30, 2025 December 31, 2024

(in thousands)

Billed accounts receivables (1)

Billed accounts receivable (1)

Accounts receivable, net $ 13,739 $ 10,014

4 unchanged sentences

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

Revenue recognized for the three and six months ended June 30, 2025, which was included in the contract liabilities balance at the beginning of each reporting period, was $ 1.7 million and $ 4.1 million, respectively.

Revenue recognized for the three and six months ended June 30, 2024, which was included in the contract liabilities balance at the beginning of each reporting period, was $ 1.9 million and $ 4.5 million, respectively.

As of June 30, 2025, we had approximately $ 51.7 million of remaining performance obligations, which we also refer to as funded backlog.

Revenue recognized for the three and nine months ended September 30, 2025, which was included in the contract liabilities balance at December 31, 2024, was $ 1.2 million and $ 5.3 million, respectively.

Revenue recognized for the three and nine months ended September 30, 2024, which was included in the contract liabilities balance at December 31, 2023, was $ 1.2 million and $ 5.7 million, respectively.

As of September 30, 2025, we had approximately $ 65.5 million of remaining performance obligations, which we also refer to as funded backlog.

We expect to recognize approximately 97 % of our remaining performance obligations over the next 12 months, and the balance thereafter.

1 unchanged sentence

Details of Accounts Receivable, Net

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

(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 75 % and 88 % of our billed and unbilled accounts receivable as of June 30, 2025, and December 31, 2024, respectively, were with U.S.

government customers.

federal government, we have a concentration of credit risk associated with our accounts receivable, as 89 % and 88 % of our billed and unbilled accounts receivable as of September 30, 2025, and December 31, 2024, respectively, were with U.S.

federal government customers.

While we acknowledge the potential material and adverse risk of such a significant concentration of credit risk, our past experience collecting substantially all of such receivables provides us with an informed basis that such risk, if any, is manageable.

We perform ongoing credit evaluations of all of our customers and generally do not require collateral or other guarantees.

We perform ongoing credit evaluations of all of our customers and generally do not require collateral or other guarantees from our customers.

We maintain allowances for potential losses.

1 unchanged sentence

Details of Inventories, Net

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

(in thousands)

4 unchanged sentences

Details of Property and Equipment, Net

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Gross Carrying Amount Accumulated Depreciation and Amortization Net Carrying Value Gross Carrying Amount Accumulated Depreciation and Amortization Net Carrying Value

4 unchanged sentences

Depreciation and Amortization Expense

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands)

Depreciation and amortization expense $ 432 $ 329 $ 1,299 $ 1,223

The goodwill balance was $ 17.9 million as of June 30, 2025, and December 31, 2024, 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, 2025, and December 31, 2024, 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.

1 unchanged sentence

Accordingly, management may need to perform a quantitative impairment test over the Secure Networks reporting unit to determine if an impairment loss should be recorded which may have an adverse impact on our results of operations.

No impairment charges were recorded for the three and six months ended June 30, 2025, and 2024.

No impairment charges were recorded for the three and nine months ended September 30, 2025, and 2024.

INTANGIBLE ASSETS, NET

Details of Intangible Assets, Net

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Estimated Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value

9 unchanged sentences

(1) In-process software development costs are costs for software that is not yet available for its intended use or general release to customers as of balance sheet date, thus not yet amortized.

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.

During the third quarter of 2024, there were selected capitalized software projects for which the Company decided to discontinue the development and/or sale of all or a part of certain solutions and certain projects that the Company ceased use before the end of its useful life.

As a result of the Company's decision to abandon the associated software, the Company wrote-off $ 11.7 million of the previously capitalized software costs, of which $ 5.3 million was recorded as "Impairment loss on intangible assets" under cost of sales and $ 6.4 million was recorded as "Impairment loss on intangible assets" under operating expenses in the Company's unaudited statement of operations for the three and nine months ended September 30, 2024.

For the three and nine months ended September 30, 2025, there were no impairment losses recorded on the Company's software development costs.

Likewise, no impairment losses were recorded on other intangible assets during the three and nine months ended September 30, 2025, and 2024.

Amortization Expense

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands)

8 unchanged sentences

Details of Other Assets

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

(in thousands)

1 unchanged sentence

$ 3,000 $ 3,000

Prepaid expense – long-term portion 665 4,975

Prepaid expense and deferred commission – long-term portion 637 4,975

Restricted cash 140 139

5 unchanged sentences

Changes in the fair value of this investment are recognized within "Other income" on the unaudited consolidated statements of operations, if any.

During the three and six months ended June 30, 2025, and 2024, the Company did not recognize any changes in the fair value.

Details of Accounts Payable and Other Accrued Liabilities

June 30, 2025 December 31, 2024

(in thousands)

Accounts payable $ 12,272 $ 1,153

Accrued payables 1,103 3,147

Accounts payable and other accrued liabilities $ 13,375 $ 4,300

Details of Other Current Liabilities

June 30, 2025 December 31, 2024

During the three and nine months ended September 30, 2025, and 2024, the Company did not recognize any changes in the fair value.

Details of Accrued Liabilities

September 30, 2025 December 31, 2024

(in thousands)

Other accrued expenses $ 1,231 $ 829

Accrued project expenses $ 5,169 $ 3,238

Restructuring expenses accrual — 37

14 unchanged sentences

Upon five , three , or one day's prior notice, as applicable, we may prepay any portion or the entire amount of the Loan.

We also paid costs and customary fees, including a closing fee, commitment fees and letter of credit participation fee, payable to the Agent and Lenders, as applicable, in connection with the Loan.

We also paid costs and customary fees, including a closing fee, commitment fees and letter of credit participation fee, if any, payable to the Agent and Lenders, as applicable, in connection with the Loan.

The Loan under the Credit Agreement is collateralized by substantially all of the Company's assets, including the Company's pledge of its domestic and material foreign subsidiary equity interests.

1 unchanged sentence

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

We were in compliance with all covenants as of June 30, 2025.

We were in compliance with all covenants as of September 30, 2025.

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

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Awards granted under the 2016 LTIP vest over the periods determined by the Board of Directors or the Compensation Committee of the Board of Directors, which has the discretion to establish the terms, conditions and criteria of the various awards.

The RSUs granted to eligible employees generally vest in installments over a period of up to three years .

The RSUs granted to eligible employees and non-employees generally vest in installments over a period of up to three years .

PSUs will vest upon the achievement of a defined performance target or market conditions for the Company's common stock or certain operational milestones over a prescribed period.

On May 8, 2025, the Company's stockholders approved an amendment to the 2016 LTIP that increased the number of shares available for issuance under the 2016 LTIP by an additional 4,900,000 shares.

As of June 30, 2025, approximately 1.6 million shares of our common stock were available for future grants under the 2016 LTIP.

As of September 30, 2025, approximately 1.6 million shares of our common stock were available for future grants under the 2016 LTIP.

Stock-based compensation expense recognized for restricted stock units and stock options granted to employees and non-employees is included in the unaudited consolidated statements of operations, net of adjustments.

There were no income tax benefits recognized on the stock-based compensation expense for the three and six months ended June 30, 2025, and 2024.

There were no income tax benefits recognized on the stock-based compensation expense for the three and nine months ended September 30, 2025, and 2024.

Details of Stock Compensation Expense by Category

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands)

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Vested ( 840,616 ) ( 717,191 ) ( 1,557,807 ) 3.93

Forfeited ( 108,416 ) ( 154,649 ) ( 263,065 ) 3.42

Unvested outstanding units as of June 30, 2025 2,180,395 13,626,369 15,806,764 $ 3.24

Forfeited, cancelled, or expired ( 110,916 ) ( 154,649 ) ( 265,565 ) 3.43

Unvested outstanding units as of September 30, 2025 2,161,836 13,192,553 15,354,389 $ 3.24

On February 20, 2025, the Company amended certain previously granted PSUs that could settle in up to 2,462,445 shares of its common stock and would only vest if the Company achieves certain financial performance targets for fiscal year 2025.

The amendment eliminated one of the financial performance targets.

On May 14, 2025, the Company granted PSUs that could settle in up to 65,000 shares of its common stock to an employee that will vest only if the Company achieves a certain operational milestone prior to January 1, 2027.

In addition, the Company granted PSUs to an employee that could settle in up to 50,000 shares and will vest only if the Company achieves certain financial performance targets for fiscal year 2025.

On May 14, 2025, the Company granted PSUs to a certain employee that could settle in up to (i) 65,000 shares of its common stock that will vest only if the Company achieves a certain operational milestone prior to January 1, 2027;

and (ii) 50,000 shares of its common stock and will vest only if the Company achieves certain financial performance targets for fiscal year 2025.

On June 11, 2025, the Company granted PSUs containing stock price market conditions to certain employees that could settle in up to 1,060,000 shares of its common stock.

These PSUs will vest, in whole or in part, only if the Company's closing common stock price remains at or above certain specified stock prices for 50 consecutive days prior to January 1, 2027.

On June 11, 2025, the Company also granted to certain executives PSUs with market conditions dependent on total shareholder return ("TSR"), that could settle in up to 2,206,163 shares of its common stock.

The vesting criteria for these awards are based on the Company's TSR performance relative to the TSR performance of the Company's current compensation peer group over the three-year performance period, June 1, 2025, through May 31, 2028, and conditioned upon neutral or positive free cash flow (i.e.

cash flows from operating activities less capital expenditure) at the end of each fiscal year in the performance period.

On June 11, 2025, the Company also granted to certain executives PSUs that were market conditions dependent on total shareholder return ("TSR"), that could settle in up to 2,206,163 shares of its common stock.

The vesting criteria for these awards are based on the Company's TSR performance relative to the TSR performance of the Company's current compensation peer group as of the grant date over the three-year performance period, June 1, 2025, through May 31, 2028, and conditioned upon neutral or positive free cash flow (i.e.

cash flows from operating activities less capital expenditure) at the end of each fiscal year 2025, 2026, and 2027.

The final payout of these PSUs will vary between 0 % to 200 % of the target number of PSUs granted, depending on the TSR performance and meeting the free cash flow requirements.

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The fair value for these relative TSR market condition PSUs at the grant date was $ 4.82 .

As of June 30, 2025, and 2024, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $ 50.1 million and $ 52.1 million, respectively.

There was approximately $ 23.2 million of total compensation costs related to stock-based awards not yet recognized as of June 30, 2025, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.8 years.

As of September 30, 2025, and 2024, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $ 105.0 million and $ 45.8 million, respectively.

There was approximately $ 17.8 million of total compensation costs related to stock-based awards not yet recognized as of September 30, 2025, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.5 years.

Stock Options

4 unchanged sentences

Forfeited, cancelled, or expired — —

Outstanding option balance as of June 30, 2025 287,000 $ 1.80 7.9 $ 393,190

Exercisable stock options as of June 30, 2025 287,000 $ 1.80 7.9 $ 393,190

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the quoted closing price of the Company's common stock as of June 30, 2025.

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

As of June 30, 2025, there were no unrecognized compensation costs related to non-vested stock options.

Outstanding option balance as of September 30, 2025 227,000 $ 1.80 7.6 $ 1,144,080

Exercisable stock options as of September 30, 2025 227,000 $ 1.80 7.6 $ 1,144,080

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

As of September 30, 2025, there were no 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, 2025, there was approximately $ 34.7 million of the authorization remaining for future common stock repurchases under the SRP.

As of September 30, 2025, there was approximately $ 31.1 million of the authorization remaining for future common stock repurchases under the SRP.

Share Repurchase Activity

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands, except per share and share data)

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ACCUMULATED OTHER COMPREHENSIVE LOSS

Details of Changes in Accumulated Other Comprehensive Loss by Category

Details of Changes in the Components of Accumulated Other Comprehensive Loss

Foreign currency translation adjustment Pension liability adjustment Total

2 unchanged sentences

Other comprehensive income before reclassification, net of tax 76 8 84

Balance as of June 30, 2025 $ ( 100 ) $ 54 $ ( 46 )

Balance as of September 30, 2025 $ ( 99 ) $ 54 $ ( 45 )

LOSS PER SHARE

1 unchanged sentence

Potentially Dilutive Securities

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands)

Weighted-average number of shares – unvested RSUs, PSUs and stock options 2,972 524 2,073 869

For the three and six months ended June 30, 2025, and 2024, outstanding PSUs aggregating to 11,372,034 and 9,418,745 shares, respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of these shares is contingent upon certain conditions which were not satisfied by the end of the period.

For the three and nine months ended September 30, 2025, and 2024, the outstanding PSUs aggregating to 8,565,699 and 10,710,226 shares, respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of shares is contingent upon certain conditions that were not satisfied by the end of the period.

Further, an additional 2,206,163 of outstanding PSUs were excluded in the computation of potentially dilutive securities above because they were antidilutive for the nine months ended September 30, 2025.

SEGMENT INFORMATION

7 unchanged sentences

For the Three Months Ended

June 30, 2025 June 30, 2024

September 30, 2025 September 30, 2024

Security Solutions Secure Networks Total Security Solutions Secure Networks Total

4 unchanged sentences

2,354 2 2,356 1,488 2 1,490

Impairment loss on intangible assets (1)

— — — 5,333 — 5,333

Stock-based compensation expense (1)

7 unchanged sentences

Selling, general and administrative expenses 21,115 23,225

Impairment loss on intangible assets — 6,373

Total operating expenses 23,014 32,007

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Results of Operations by Business Segment (Year-to-Date)

For the Six Months Ended

June 30, 2025 June 30, 2024

For the Nine Months Ended

September 30, 2025 September 30, 2024

Security Solutions Secure Networks Total Security Solutions Secure Networks Total

4 unchanged sentences

5,569 5 5,574 4,800 7 4,807

Impairment loss on intangible assets (1)

— — — 5,333 — 5,333

Stock-based compensation expense (1)

7 unchanged sentences

Selling, general and administrative expenses 61,051 56,346

Impairment loss on intangible assets — 6,373

Total operating expenses 66,033 69,757

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We account for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices, if any.

There were no inter-segment sales and transfers during the three and six months ended June 30, 2025, and 2024.

There were no inter-segment sales and transfers during the three and nine months ended September 30, 2025, and 2024.

Interest income, interest expense, other income and expense items, and income taxes, as reported in the consolidated financial statements, are not part of the segment profitability measure and are primarily recorded at the corporate level.

5 unchanged sentences

These legal proceedings seek various remedies, including claims for monetary damages in varying amounts, none of which are considered material, or are unspecified as to amount.

Although the outcome of any such matter is inherently uncertain and may be materially adverse, based on current information, management believes that the outcome of such known matters will not have a material adverse effect on the Company's business or its unaudited consolidated financial statements as of June 30, 2025.

Other - Government Contracts

government contractor, we are subject to various audits and investigations by the U.S.

government to determine whether our operations are being conducted in accordance with applicable regulatory requirements.

government investigations of our operations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S.

government contracting, or suspension of export privileges.

federal government contractor, we are subject to various audits and investigations by the U.S.

federal government to determine whether our operations are being conducted in accordance with applicable regulatory requirements.

federal government investigations of our operations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S.

federal government contracting, or suspension of export privileges.

Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S.

government investigations often take years to complete and many result in no adverse action.

federal government.

federal government investigations often take years to complete and many result in no adverse action against us.

We also provide products and services to customers outside of the United States, which are subject to U.S.

1 unchanged sentence

Our compliance with local regulations or applicable U.S.

government regulations may also be audited or investigated.

federal government regulations also may be audited or investigated.

SUPPLEMENTAL CASH FLOW INFORMATION

Details of Cash, Cash Equivalents, and Restricted Cash

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

(in thousands)

4 unchanged sentences

Supplemental Cash Flow Information

For the Six Months Ended

June 30, 2025 June 30, 2024

For the Nine Months Ended

September 30, 2025 September 30, 2024

(in thousands)

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