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Item 2. Management’s Discussion and Analysis

2025-11-10 compared with 2025-08-11 · 105 added, 82 removed, 83 unchanged (69% of the section changed)

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These factors include, without limitation, those set forth in the risk factors section included in the Company's Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on March 10, 2025.

General and Business Overview

We offer technologically advanced, software-based security solutions that empower and protect the world's most security-conscious organizations against rapidly evolving, sophisticated and pervasive threats.

Our portfolio of security products, services and expertise empowers our customers with capabilities to reach new markets, serve their stakeholders more effectively, and successfully defend the nation or their enterprise.

We protect our customers' people, information, and digital assets so they can pursue their corporate goals and conduct their global missions with confidence in their security and privacy.

At Telos, we deliver efficient, adaptable, and secure solutions that protect people, organizations, and information across government and industry.

From cyber governance, risk and compliance ("GRC") with Xacta ® , to identity and biometric solutions, secure networks, and TSA PreCheck ® enrollment, we help customers stay ahead of evolving threats.

Our primary customers include the U.S.

federal government, large commercial businesses, state and local governments, and international customers.

Our consolidated revenue is largely attributable to prime contracts or to subcontracts with our contractors engaged in work for the U.S.

government, with the remaining attributable to state, local, and commercial markets.

Information regarding our two reportable segments – Security Solutions and Secure Networks – is presented in Note 15 - Segment Information to the unaudited consolidated financial statements at Item 1 of this Form 10-Q.

Economic Opportunities, Challenges and Risks

We generated approximately 90% of our total revenues in the first half of fiscal year ("FY") 2025 from contracts with U.S.

government agencies.

federal government, large commercial organizations, state and local governments, and international customers.

Our deep domain expertise, cleared workforce, and proven technologies give us a unique position at the intersection of cybersecurity, identity, and network security.

Driven by purpose and guided by our core values, we build lasting partnerships, deliver superior solutions, and help create a more secure, interconnected world.

Recently, Telos launched Xacta.ai ™ , the artificial intelligence ("AI") capability at the core of the Xacta cyber GRC platform, dramatically reducing compliance time and effort.

Leveraging AI and rules-based logic, Xacta.ai delivers expert-level guidance and real-time insights, empowering organizations to move from reactive compliance to proactive risk management.

Business Environment

Federal Government Budget

Our consolidated revenue is largely attributable to prime contracts or to subcontracts with a prime contractor engaged in work for the U.S.

federal government, with the remaining attributable to state and local governments, and commercial markets.

For the nine months ended September 30, 2025, we generated approximately 91% of our total revenue from contracts with U.S.

federal government agencies.

Our business performance is affected by the overall level of U.S.

government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S.

The new Administration is currently evaluating federal agencies and existing government contracts, grants, and programs for affordability, efficiency, and alignment with U.S.

government objectives.

The Administration’s efforts to reduce federal spending create uncertainty and risk for government contractors, including potentially resulting in change in budgetary priorities and timing on issuing awards.

Decreases or delays in contract awards and in government spending on the types of programs that we support, and terminations or stop-work-orders on government contracts on which we are currently performing, could adversely affect our future revenues and profitability.

federal government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S.

federal government.

federal government appropriations for fiscal year ("FY") 2025, which ran through September 30, 2025, were determined by a full-year continuing resolution.

While the Administration has submitted its FY2026 budget proposal outlining its priorities, partisan disagreements over federal spending levels, among other things, have stalled progress on the required appropriations bills.

On October 1, 2025, the federal government began to shut down as a result of congressional inaction on passing appropriations legislation for FY2026.

In a government shutdown, non-essential federal employees and contractors are furloughed until the impasse ends.

It is unclear when the impasse between congressional parties over the funding bill to reopen the government will end.

Although the impact on our operations has been modest to date, the shutdown presents practical challenges that can disrupt performance, including on fully funded agreements.

Many federal facilities are closed and, with furloughed government personnel, it can be difficult to deliver contract items, obtain required government reviews and approval, or receive timely direction.

In some cases, tasks cannot proceed if federal personnel are not available to supervise, inspect, or accept deliverables.

Where performance depends on access to government facilities, networks, systems, or personnel, the risk of significant delays increases regardless of funding availability.

In addition, many agencies are experiencing heightened administrative burdens and workforce actions, with ripple effects that can slow procurement, approvals, and program execution across the government, particularly at agencies operating without full‑year appropriations.

Delayed awards and contract starts, together with performance slowdowns, may shift revenue and cash collections to future periods, affect backlog burn rates, and increase days sales outstanding where customer acceptances or invoicing are delayed.

The duration and ultimate impact of the shutdown remain uncertain, and the magnitude and timing of any effects will depend on the length of the shutdown, agency-specific operating status, and the cadence at which procurements and approvals resume.

When funding and operations normalize, compressed procurement calendars and pent‑up demand may intensify competition and pricing pressure, and agencies may continue to favor incumbent extensions, which could affect our growth trajectory and margins.

We continue to monitor these developments and to manage labor deployment, program schedules, and discretionary spending to mitigate potential impacts on operations and cash flows.

Other Economic and Regulatory Policies

Aside from the uncertainty in the budgetary environment, the Administration put in place a number of Executive Orders and actions that have affected, and could continue to affect, many businesses.

The Administration continuously evaluates federal agencies and existing government contracts, grants, and programs for affordability, efficiency, and alignment with U.S.

federal government objectives.

Further, the Administration has increased existing tariffs, imposed additional tariffs, and expanded tariffs on various goods imported from various countries.

Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the procurement costs of certain IT hardware we use internally, on our contracts, or sell to our customers.

The ongoing and potential future reforms to the U.S.

government acquisition process, including changes to procurement rules and regulations, could transform how contracts are awarded, negotiated, and managed, which could lead to delays in contract awards and/or modifications to the scope or terms of contracts we hold.

At the same time, given the nature of our business, the Administration’s focus on efficiency, along with the potential for certain traditionally government functions to be transferred to private entities, may present new business opportunities for us.

federal government processes, including changes to procurement rules and regulations, could transform how contracts are awarded, negotiated, and managed.

These initiatives could further delay contract awards and/or result in modifications to the scope or terms of contracts we hold.

At the same time, the Administration's focus on efficiency, transparency, consolidation, and accountability could lead to certain traditionally government functions being transferred to private entities.

This potential transition of services to the private sector could benefit Telos, given our wide array of capabilities and advanced solutions.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law.

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federal income tax regulations and modifications to the Inflation Reduction Act of 2022.

Further, the OBBBA significantly impacts the defense sector through substantial funding allocations and strategic investments, including specific investments in areas like Artificial Intelligence (“AI”), and provides the Department of Defense with extended time, until 2029, to make strategic investments in the defense industrial base.

The increased funding and improved tax treatment for research and development could boost targeted defense investments, scale commercial technologies for military use, and support other related programs.

Further, the OBBBA significantly impacts the defense sector through substantial funding allocations and strategic investments, including specific investments in areas like AI, and provides the Department of Defense with extended time, until 2029, to make strategic investments in the defense industrial base.

Increased funding and improved tax treatment for research and development could boost targeted defense investments, scale commercial technologies for military use, and support related programs.

See Note 2 – Significant Accounting Policies on Income Taxes for additional information on key income tax provisions of the OBBBA.

In light of ongoing conflicts and heightened global instability as well as political tensions and related legal challenges, we expect continued uncertainty in the U.S.

political, budget and regulatory environment.

We continue to monitor and assess the risk and opportunities presented to the Company, in light of ongoing political tensions and heightened global instability that we expect to persist in the near term.

Initiatives to reduce governmental spending, federal budget and debt ceiling action, and U.S.

government policy positions, including trade policy, tax reform and U.S.

government policies or priorities, could materially impact federal spending broadly and our programs in particular.

federal government policy positions, including trade policy, tax reform and/or changes to the U.S.

government priorities, could materially impact federal spending broadly.

Financial Overview

A number of factors have contributed to our financial performance in the second quarter ended June 30, 2025, the most significant of which are described below.

More details on these factors are presented below within our "Results of Operations" section.

• The year-over-year increase in revenue was primarily driven by the successful transition and ramping towards the full operational capacity of a significant program within our Security Solutions segment.

• Our TSA PreCheck ® enrollment revenue grew as a result of the expansion of TSA PreCheck enrollment sites.

• Our operating expenses increased due to higher stock-based compensation expense, partially offset by the lower expense associated with the restructuring efforts undertaken in the third quarter of 2024.

Operating expenses, excluding stock-based compensation expense, declined year-over-year.

• We deployed $4.0 million to repurchase approximately 1.5 million shares of our common stock at a weighted-average share price of $2.69 per share.

Several key highlights of our financial performance in the third quarter ended September 30, 2025 are described below.

More details are presented in our "Results of Operations" section below.

• Revenue increased 116.3% year-over-year due to 153.5% growth in Security Solutions primarily due to the ongoing expansion of large programs in Telos ID.

Gross margin expanded 2,672 bps year-over-year primarily due to the impairment and restructuring charges taken in the third quarter of 2024.

• Operating expenses decreased due to the impairment loss on intangible assets of $6.4 million recorded in the third quarter of 2024, and the reduction in expenses as a result of the restructuring efforts taken in the third quarter of FY2024.

• Net loss improved by $25.9 million year-over-year to a $2.1 million loss.

• Cash flow from operations improved by $16.2 million year-over-year to $9.1 million, or 17.8% of revenue.

Results of Operations

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Consolidated Results of Operations

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 Dollar Change June 30, 2025 June 30, 2024 Dollar Change

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 Dollar Change September 30, 2025 September 30, 2024 Dollar Change

(dollars in thousands)

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Consolidated Results

Our business segments have different factors driving revenue fluctuations and profitability.

The discussion of the changes in our revenue and profitability are covered in greater detail in the following section, "Segment Results." We generate revenue from the delivery of products and services to our customers.

Our business segments are driven by different factors, leading to revenue fluctuations and varying profitability.

The discussion of the changes in our revenue and gross margin is covered in greater detail in the following section, "Segment Results." We generate revenue from the delivery of products and services to our customers.

Cost of sales, for both products and services, consists of labor, materials, subcontracting costs and an allocation of indirect costs.

Operating expenses

In the second quarter of 2025, operating expenses increased by $3.5 million, or 18.9%, compared to the same quarter in 2024.

Research and development ("R&D") expenses slightly increased by $0.1 million, or 3.6%, in the second quarter of 2025, compared to the same period in 2024.

Selling, general and administrative ("SG&A") expenses increased by $3.4 million, or 20.2%, in the second quarter of 2025, compared to the same period in 2024, due to higher stock-based compensation costs, partially offset by lower labor costs due to the restructuring efforts taken in the third quarter of 2024 and lower cash incentive compensation expense.

For the six months ended June 30, 2025, operating expenses increased by $5.3 million, or 14.0%, compared with the same period in 2024.

R&D expenses declined by $1.5 million, or 33.4%, in the first half of 2025, compared to the same period in 2024, due to lower amortization costs associated with the discontinued development of selected solutions in the third quarter of 2024.

SG&A expenses increased by $6.8 million, or 20.6%, in the first half of 2025, compared to the same period in 2024, due to higher stock-based compensation costs, partially offset by lower labor costs due to the restructuring efforts taken in the third quarter of 2024 and lower cash incentive compensation expense.

Other income .

Other income decreased by $0.5 million, or 48.0%, for the second quarter of 2025, compared to the same period in 2024.

Similarly, other income for the six months ended June 30, 2025, decreased by $1.2 million, or 51.9%, compared to the same period in 2024.

The decreases in other income for both periods were primarily due to the changes in dividend income from money market placements.

In the third quarter of 2025, operating expenses decreased by $9.0 million, or 28.1%, compared to the same quarter in 2024.

This was primarily due to the impairment loss on intangible assets of $6.4 million recorded in the third quarter of 2024, whereas there was none for the same quarter of this current year.

Research and development ("R&D") expenses decreased by $0.5 million, or 21.2%, in the third quarter of 2025, compared to the same period in 2024, primarily due to the lower amortization costs associated with the discontinued development of selected solutions in the third quarter of 2024.

Selling, general and administrative ("SG&A") expenses decreased by $2.1 million, or 9.1%, in the third quarter of 2025, compared to the same period in 2024.

These decreases were largely the result of lower labor costs due to the restructuring efforts taken in the third quarter of 2024.

For the nine months ended September 30, 2025, operating expenses decreased by $3.7 million, or 5.3%, compared to the same period in 2024.

An impairment loss on intangible assets of $6.4 million was recorded for the nine months ended September 30, 2024, whereas there was none for the same period of this current year.

R&D expenses decreased by $2.1 million, or 29.2%, for the nine months ended September 30, 2025, compared to the same period in 2024.

This was primarily due to lower amortization costs associated with the discontinued development of select solutions in the third quarter of 2024.

SG&A expenses increased by $4.7 million, or 8.4%, for the nine months ended September 30, 2025, compared to the same period in 2024.

This was due to higher stock-based compensation costs, partially offset by lower labor costs due to the restructuring efforts taken in the third quarter of 2024 and lower cash incentive compensation expense.

Other income decreased by $0.5 million, or 48.0%, for the third quarter of 2025, compared to the same period in 2024.

Similarly, other income decreased by $1.7 million, or 50.7%, for the nine months ended September 30, 2025, compared to the same period in 2024.

The decreases in other income for the three and nine months ended September 30, 2025, were primarily due to the change in dividend income from money market placements.

Segment Results

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Security Solutions Segment - Financial Results

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 Dollar Change June 30, 2025 June 30, 2024 Dollar Change

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 Dollar Change September 30, 2025 September 30, 2024 Dollar Change

(dollars in thousands)

Revenue $ 46,478 $ 18,332 $ 28,146 $ 104,770 $ 54,839 $ 49,931

Cost of sales (excluding depreciation and amortization) 19,462 8,565 10,897 32,719 17,304 15,415

Cost of sales (excluding impairment loss, depreciation and amortization) 24,838 9,201 15,637 57,557 26,505 31,052

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

Depreciation and amortization 2,354 1,488 866 5,569 4,800 769

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Gross margin 41.5 % 12.6 % 39.7 % 33.2 %

Three Months Ended June 30, 2025, Compared with Three Months Ended June 30, 2024

Security Solutions segment revenue for the second quarter of 2025 increased by $14.6 million, or 81.8%, compared to the same period in 2024, primarily due to the successful ramp towards the full operational capacity of a significant program and increase in volume on another large program.

Security Solutions gross profit for the second quarter of 2025 increased by $4.0 million, or 55.5%, compared with the same period in 2024, due to higher segment revenues.

Segment gross margin decreased from 40.7% to 34.8% for the second quarter of 2025, compared with the same period in 2024, primarily due to revenue mix partially offset by the impact of lower depreciation and amortization expense on higher revenue.

Six Months Ended June 30, 2025, Compared with Six Months Ended June 30, 2024

Security Solutions segment revenue for the six months ended June 30, 2025, increased by $21.8 million, or 59.7%, compared to the same period in 2024, primarily due to the successful ramp towards the full operational capacity of a significant program and increase in volume on another large program.

Segment gross profit for the six months ended June 30, 2025, increased by $6.5 million, or 40.7%, compared to the same period in 2024, due to higher segment revenues.

Segment gross margin decreased from 43.5% in FY2024 to 38.4% in FY2025, primarily due to revenue mix partially offset by the impact of lower depreciation and amortization on higher revenue.

Three Months Ended September 30, 2025, Compared with Three Months Ended September 30, 2024

Security Solutions segment revenue for the third quarter of 2025 increased by $28.1 million, or 153.5%, compared to the same quarter in 2024, primarily due to the ongoing expansion of multiple large programs in Telos ID.

Security Solutions segment gross profit for the third quarter of 2025 increased by $17.0 million, or 734.9%, compared to the same quarter in 2024, due to higher segment revenue and higher segment gross margin.

Segment gross margin for the quarter increased from 12.6% in 2024 to 41.5% in 2025, due to the decrease in cost of sales related to the impairment loss on intangible assets taken in the third quarter of 2024, whereas there was none for this current quarter.

Nine Months Ended September 30, 2025, Compared with Nine Months Ended September 30, 2024

For the nine months ended September 30, 2025, Security Solutions segment revenue increased by $49.9 million, or 91.1%, compared to the same period in 2024, primarily due to the ongoing expansion of multiple large programs in Telos ID.

Segment gross profit for the nine months ended September 30, 2025 increased by $23.4 million, or 128.8%, compared to the same period in 2024, due to higher segment revenues and higher segment gross margin.

Year-to-date segment gross margin increased from 33.2% in 2024 to 39.7% in 2025, due to the decrease in cost of sales related to the impairment loss on intangible assets taken in 2024, whereas there was none in the current year, partially offset by unfavorable program mix.

Table MD&A 3:

Secure Networks Segment - Financial Results

For the Three Months Ended For the Six Months Ended

June 30, 2025 June 30, 2024 Dollar Change June 30, 2025 June 30, 2024 Dollar Change

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 Dollar Change September 30, 2025 September 30, 2024 Dollar Change

(dollars in thousands)

Revenue $ 4,966 $ 5,451 $ (485) $ 13,258 $ 27,061 $ (13,803)

Cost of sales (excluding depreciation and amortization) 2,859 8,187 (5,328) 6,533 16,828 (10,295)

Cost of sales (excluding impairment loss, depreciation and amortization) 3,704 4,616 (912) 10,237 21,444 (11,207)

Depreciation and amortization 2 2 — 5 7 (2)

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Gross margin 25.4 % 15.3 % 22.7 % 20.7 %

Three Months Ended June 30, 2025, Compared with Three Months Ended June 30, 2024

Secure Networks segment revenue for the three months ended June 30, 2025, decreased by $7.1 million, or 67.1%, compared to the same period in 2024, primarily due to the ramp down of several programs within the portfolio.

Segment gross profit for Secure Networks for the second quarter of 2025, decreased by $1.8 million, or 74.0%, compared with the same period in 2024, due to lower segment revenues.

Segment gross margin decreased from 23.0% to 18.1% for the second quarter of 2025, compared with the same period in 2024, primarily due to the results of revenue mix.

Six Months Ended June 30, 2025, Compared with Six Months Ended June 30, 2024

Secure Network segment revenue for the six months ended June 30, 2025, decreased by $13.3 million, or 61.6%, compared to the same period in 2024.

The decrease in revenue for the six months ended June 30, 2025, was primarily due to the ramp down of several programs within the portfolio.

Segment gross profit for the six months ended June 30, 2025, decreased by $3.0 million, or 63.2%, compared to the same period in 2024, due to lower segment revenue.

Segment gross margin in the first half of 2025 decreased from 22.1% in 2024 to 21.2% in 2025.

The decline in segment gross margin for the six months ended June 30, 2025, was primarily due to the results of revenue mix.

Three Months Ended September 30, 2025, Compared with Three Months Ended September 30, 2024

Secure Networks segment revenue for the third quarter of 2025 decreased by $0.5 million, or 8.9%, compared to the same period in 2024, primarily due to the ramp down of several programs within the portfolio.

Segment gross profit for Secure Networks for the third quarter of 2025 increased by $0.4 million, or 51.3%, compared with the same period in 2024.

Likewise, segment gross margin for the quarter increased from 15.3% in 2024 to 25.4% in 2025 primarily due to revenue mix.

Nine Months Ended September 30, 2025, Compared with Nine Months Ended September 30, 2024

Secure Network segment revenue for the nine months ended September 30, 2025, decreased by $13.8 million, or 51.0%, compared to the same period in 2024, primarily due to the ramp down of several programs within the portfolio without corresponding new business wins to backfill completed programs.

Segment gross profit for the nine months ended September 30, 2025, decreased by $2.6 million, or 46.2%, compared to the same period in 2024, due to lower segment revenue.

Year-to-date segment gross margin increased from 20.7% in 2024 to 22.7% in 2025, primarily due to the results of revenue mix.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, future operating cash flows, and, if needed, borrowings under our $30.0 million revolving credit facility with a maturity date of December 30, 2025, and with an available expansion feature of up to $30.0 million of additional revolver facility.

Our primary sources of liquidity are cash on hand, future operating cash flows, and, if needed, borrowings under our $30.0 million revolving credit facility, with an available expansion feature of up to $30.0 million of additional revolver facility.

While a variety of factors related to sources and uses of cash, such as timeliness of accounts receivable collections, vendor credit terms, or significant collateral requirements, ultimately impact our liquidity, such factors may or may not have a direct impact on our liquidity.

As of June 30, 2025, we had cash and cash equivalents of $57.0 million and our working capital was $64.0 million.

As of September 30, 2025, we had cash and cash equivalents of $59.1 million and our working capital was $65.6 million.

We place a strong emphasis on liquidity management.

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Net Change in Cash, Cash Equivalents, and Restricted Cash

For the Six Months Ended

June 30, 2025 June 30, 2024

For the Nine Months Ended

September 30, 2025 September 30, 2024

(in thousands)

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Net change in cash, cash equivalents, and restricted cash $ 4,473 $ (29,496)

Net cash provided by operating activities for the six months ended June 30, 2025, was $13.1 million, an increase of $21.4 million, compared to the same period in 2024.

The increase is attributable to the favorable changes in working capital primarily driven by timing of receipts from customer and the timing of payments to vendors, coupled with higher cash earnings (i.e., net loss, excluding non-cash items that do not impact cash flows from operating activities).

Net cash used in investing activities for the six months ended June 30, 2025, decreased by $5.0 million, compared to the same period of the prior year, primarily due to the decreases in capital expenditures in 2025 and purchase of an investment of $3.0 million in 2024, with no similar transaction in 2025.

Net cash used in financing activities for the six months ended June 30, 2025, increased by $4.8 million, compared to the same period in 2024.

This is primarily attributable to the increases in payment of tax withholding related to net share settlement of equity awards of $1.1 million in the first half of 2025, compared with $0.4 million in the same period of 2024, and the repurchase of common stock of $4.0 million in 2025 under the share repurchase program (See N ote 12 – Share Repurchases ), with no similar activity in 2024.

Net cash provided by operating activities for the nine months ended September 30, 2025, was $22.2 million, an increase of $37.6 million compared to the same period in 2024.

The increase is attributable to favorable changes in working capital, primarily driven by timing of receipts from customers and the timing of payments to vendors, coupled with higher cash earnings (i.e., net loss, excluding non-cash items that do not impact cash flows from operating activities).

Net cash used in investing activities for the nine months ended September 30, 2025, decreased by $5.3 million, compared to the same period of the prior year, primarily due to the cash outflow from the purchase of an investment of $3.0 million in 2024, with no similar transaction in 2025, coupled by a decrease of $2.3 million in capital expenditures in 2025.

Net cash used in financing activities for the nine months ended September 30, 2025, increased by $8.9 million, compared to the same period in 2024.

This is primarily attributable to the repurchase of common stock for $7.6 million in 2025 under the share repurchase program (See Note 12 – Share Repurchases ), with no similar activity in 2024, and an increase in payment of tax withholding related to net share settlement of equity awards by $1.1 million in fiscal year 2025.

Critical Accounting Policies and Estimates

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For awards with performance conditions, stock-based compensation expense is estimated at each reporting date using management’s expectation of the probable achievement of the specific performance targets and recognized over the requisite service period for each tranche on a graded-vesting basis.

Stock-based compensation expense for PSUs with market conditions is recognized based on the grant-date fair value calculated using the Monte Carlo model, as described below, or sooner if the market conditions is achieved.

The fair value of the PSUs is equal to the closing stock price on the date of the grant or the fair value of the award on the grant date, as determined through an independent valuation for PSUs with market conditions.

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Between annual evaluations, if events occur or circumstances change that would more-likely-than-not reduce the fair value of the reporting units below its carrying amount, then impairment must be evaluated.

When evaluating goodwill for impairment, we first assess qualitative factors which could include, but not limited to, macroeconomic conditions, industry and market conditions, overall company financial performance and events affecting the reporting units or the Company as a whole.

When evaluating goodwill for impairment, we first assess qualitative factors which could include, but are not limited to, macroeconomic conditions, industry and market conditions, overall company financial performance and events affecting the reporting units or the Company as a whole.

If the financial performance of our Secure Networks reporting segment remains at the current level for a sustained period of time, and after considering other qualitative factors, there may be a triggering event indicating goodwill may be impaired in our Secure Networks reporting unit.

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

Based on the result of our interim qualitative assessment, we determined that it is more-likely-than-not that the estimated fair value of the reporting units exceeds their carrying value and thus, no impairment charges were taken during the three and six months ended June 30, 2025.

Other critical accounting policies and estimates include revenue recognition, goodwill and long-lived assets, and income taxes, as discussed in our 2024 Form 10-K.

There have been no changes to these critical accounting policies and estimates that have had a material impact on our reported amounts of assets, liabilities, revenues, or expenses during the six months ended June 30, 2025.

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 2. Management’s Discussion and Analysis