What changed in this filing

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Item 1A. Risk Factors

2021-03-25 compared with 2020-04-13 · 309 added, 153 removed, 297 unchanged (61% of the section changed)

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the forward-looking statements contained in this Form 10-K as a result of the risk factors discussed below and elsewhere in this Form 10-K.

Our inability to maintain sufficient access to the capital markets to provide the necessary capital to fund our operations

would have a significant impact on our business.

Our primary source of funds to meet our liquidity and capital requirements is an Accounts Receivable

Purchase Agreement (the “Purchase Agreement”) with Republic Capital Access, LLC (“RCA”).

Under the Purchase Agreement, we may offer for sale, and RCA, in its sole discretion may purchase, up to $10 million of eligible accounts receivable relating to

Government prime contracts or subcontracts outstanding at any given time.

The willingness of RCA to purchase our accounts receivable under the Purchase Agreement, and our ability to obtain additional financing, may be limited due to various

factors, including the eligibility of our accounts receivable under those agreements, the status of our business, global credit market conditions, or perceptions of our business or industry by RCA, or other potential sources of financing.

2017, we borrowed $11 million, and in July 2019, an additional $5 million, under a credit agreement with Enlightenment Capital Solutions Fund II, L.P.

to raise additional working capital and retire certain long-term obligations.

If we are unable to

maintain the Purchase Agreement, we would need to obtain additional credit to fund our future operations.

If credit is available in that event, lenders may impose more restrictive terms and higher interest rates that may reduce our borrowing

capacity, increase our costs, or reduce our operating flexibility.

The failure to maintain, extend, renew or replace our new sources of financing with a comparable arrangement or arrangements that provide similar amounts of liquidity for the Company

would have a material negative impact on our overall liquidity, financial and operating results.

We depend on the U.S.

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Rising budget deficits, increasing national debt, the cost of the global war on terrorism, increasing costs for entitlement programs, and potentially the

large costs of combating the Coronavirus pandemic and addressing the health concerns and economic dislocation caused by COVID-19, continue to put pressure on all areas of discretionary spending, which could ultimately impact the defense budget.

other aspects of federal discretionary spending.

Government appropriations have been and continue to be affected by larger U.S.

budgetary issues and related legislation.

Government budgetary

issues and related legislation.

In 2011, Congress enacted the Budget Control Act of 2011 (the “BCA”), which established specific limits on annual appropriations for fiscal years 2012-2021.

The BCA has been amended a number of times, most

recently by the Bipartisan Budget Act of 2019 (the “BBA”), which was enacted on August 2, 2019.

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

Most recently, while the two-year BBA allowed for

modestly increased defense spending in FY 2020, unless and until it is again modified, the BBA also essentially will maintain defense spending in FY 2021 with only a minor increase (less than 1.0 percent) permitted above the current FY 2020

appropriated funding level.

According to the Office of Management and Budget, federal outlays devoted to defense programs have fallen from 4.5 percent

to 3.2 percent as a share of Gross Domestic Product (GDP) since enactment of the BCA.

Moreover, as a result of the spending caps imposed by the BCA, annual DoD budget authority in FY 2020 is only 3.7 percent higher (in unadjusted dollars) than it was

a decade ago in FY 2010.

Since final enactment in December 2019 of appropriations legislation for FY 2020, and the February 10,

2020 submission of the President’s proposed FY 2021 budget, the Coronavirus pandemic and associated economic dislocation in the United States has resulted in the need for an overwhelming federal response.

This has led to the enactment of several

comprehensive appropriations and economic stimulus measures, as well as negotiations between Congress and the White House for additional massive initiatives for the current year and into the next fiscal year, the details of which are not yet

These substantial alterations to FY 2020 spending baselines are also likely to further impact FY 2021 spending in ways that cannot now be predicted.

The impact of the health and economic crisis, and the resulting large increase in

federal spending, on the government contracts that we hold and the federal procurements that we would otherwise compete for cannot now be known.

In addition to the ongoing need to respond to the crisis in the current fiscal year, Congress and the President must agree

on FY 2021 appropriations legislation prior to October 1, 2020;

failing to do so by then would likely mean DoD and other departments will again be funded for an unknown period of time under another Continuing Resolution, which would again restrict

new spending initiatives.

This is consistent with the practice for a number of years where the U.S.

Government has been unable to complete its appropriations process prior to the beginning of the next fiscal year, resulting in actual or threatened

governmental shut-downs and repeated use for extended time periods each year of Continuing Resolutions to fund part or all of the government.

The impact of the substantial additional spending on the Coronavirus pandemic on the appropriations for FY

2021, and the appropriations process itself, is not now known.

The current health and economic crisis is highly fluid, and it is likely to continue to affect multiple federal departments

and agencies for an unknown period of time and in ways that are difficult to predict.

Nonetheless, we believe that the federal government will very likely endeavor to maintain continuity of services and, with much of the business of government now

being conducted through use of information technology systems and in many cases during the crisis remotely, we believe there will continue to be a need on the part of the government for the types of solutions and services provided by Telos.

A novel strain of coronavirus, COVID-19, may adversely affect our business operations and financial condition.

These limits were subsequently amended several times.

the expiration of the BCA at the end of FY 2021, there are no statutory limits in place for FY 2022.

According to the non-partisan Congressional Budget Office (CBO), since enactment of the BCA, federal

outlays devoted to defense programs fell from 4.5 percent as a share of Gross Domestic Product (GDP) to as low as 3.1 percent of GDP in each of fiscal years 2016-18, before rising slightly the past two years to a level of 3.4 percent in FY 2020.

Moreover, CBO reports that, as a result of the spending caps imposed by the BCA, non-adjusted defense outlays subsequently shrank from $699.4 billion in FY 2011 to as low as $583.4 billion in FY 2016, and did not again exceed their FY 2011 level

until FY 2020, when outlays were $713.8 billion, two percent above the FY 2011 level.

In FYs 2020 and 2021, the COVID-19 pandemic and associated economic dislocation in the United States has

resulted in an overwhelming federal response, including enactment of several massive and comprehensive emergency appropriations and economic stimulus measures.

These were in addition to annual appropriations legislation for FY 2021, which was not

enacted into law until late December 2020, nearly three months after the beginning of the fiscal year, during which time the government once again operated under a series of Continuing Resolutions which strictly limited new spending initiatives.

These enormous emergency spending packages and their resulting increases in the budget deficit will necessarily factor into future spending decisions to an unknown degree.

Further, as the outgoing Trump Administration did not complete its work on a

proposed FY 2022 budget prior to leaving office on January 20, 2021, and the incoming Biden Administration has been delayed in submitting a proposed budget to Congress, the proposed spending levels for FY 2022 cannot be predicted.

Finally, the near-

and long-term impacts of the COVID-19 health and associated economic crisis on federal budget planning and the government contracts that we hold, and on the federal procurements that we would otherwise compete for, cannot be known.

Should Congress and the White House be unable to make sufficient progress on the FY 2022 budget and

enact appropriations legislation prior to the beginning of the new fiscal year on October 1, 2021, the Department of Defense and other federal departments and agencies will likely again be funded for an unknown period of time under a Continuing

Resolution, which would restrict new spending initiatives.

We are subject to the seasonality of the U.S.

government spending.

We derive a substantial portion of our revenues from U.S.

government contracting, and as a result, we

are subject to the annual seasonality of the U.S.

government purchasing.

Because the U.S.

government fiscal year ends on September 30, it is not uncommon for U.S.

government agencies to award extra tasks in the weeks immediately prior to the end of

its fiscal year in order to avoid the loss of unexpended fiscal year funds.

As a result of this seasonality, we have historically experienced higher revenues in the third and fourth fiscal quarters, ending September 30 and December 31, respectively,

with the pace of orders typically substantially reduced during the first and second fiscal quarters ending March 31 and June 30, respectively.

Our pricing structures for our solutions and services may change from time to time.

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.

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.

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

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.

We depend on computing infrastructure operated by Amazon Web Services (“AWS”), Microsoft, and other

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.

We rely on the technology, infrastructure, and software applications, of certain third parties, such as

AWS and Microsoft Azure, in order to host or operate some of certain key platform features or functions of our business.

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

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

If any of these third-party services experience errors, disruptions, security issues, or other performance deficiencies, if they are updated such that our

solutions become incompatible, if these services, software, or hardware fail or become unavailable due to extended outages, interruptions, defects, or otherwise, or if they are no longer available on commercially reasonable terms or prices (or at

all), these issues could result in errors or defects in our solutions, cause our solutions to fail, our revenue and margins could decline, or our reputation and brand to be damaged, we could be exposed to legal or contractual liability, our expenses

could increase, our ability to manage our operations could be interrupted, and our processes for managing our sales and servicing our customers could be impaired until equivalent services or

technology, if available, are identified, procured, and implemented, all of which may take significant time and resources, increase our costs, and could adversely affect our business.

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.

We have experienced, and may in the future 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, natural disasters, public health crises such as the COVID-19 pandemic,

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 (“SLAs”).

Any interruption in our service, whether as a result of an internal or third-party issue, could damage our brand and

reputation, cause our customers to terminate or not renew their contracts with us or decrease use of our solutions and services, require us to indemnify our customers against certain losses, result in our issuing credit or paying penalties or fines,

subject us to other losses or liabilities, cause our solutions to be perceived as unreliable or unsecure, and prevent us from gaining new or additional business from current or future customers, any of which could harm our business, financial

condition, and results of operations.

Moreover, to the extent that we do not effectively address capacity constraints, upgrade our systems as

needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition, and results of operations could be adversely affected.

The provisioning of

additional cloud hosting capacity requires lead time.

AWS, Microsoft Azure, and other third parties have no obligation to renew their agreements with us on commercially reasonable terms, or at all.

If AWS, Microsoft Azure, or other third parties

increase pricing terms, terminate or seek to terminate our contractual relationship, establish more favorable relationships with our competitors, or change or interpret their terms of service or policies in a manner that is unfavorable with respect

to us, we may be required to transfer to other cloud providers or invest in a private cloud.

If we are required to transfer to other cloud providers or invest in a private cloud, we could incur significant costs and experience possible service

interruption in connection with doing so, or risk loss of customer contracts if they are unwilling to accept such a change.

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.

We are dependent on a few key customer contracts for a significant portion of our future revenue, and

a significant reduction in services to one or more of these contracts would reduce our future revenue and harm our anticipated operating results.

A small number of our large customer contracts, including the TSA PreCheck™ enrollment program and our

program with CMS, are expected to comprise a significant portion of our future revenue.

Our business will likely be harmed if any of our key customer contracts do not generate as much revenue as we forecast, and the termination or delay of a large

contract or of multiple contracts could have a material adverse effect on our revenue and profitability.

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 results of operations.

For example, the COVID-19 pandemic may adversely affect or disrupt the TSA PreCheck™ enrollment program, which could lead to delays in the implementation of that program

and changes in demand for that program.

In addition, if the COVID-19 pandemic and associated protective or preventative measures expand, we may experience a material adverse effect on our business operations, revenues, financial condition, and

ability to execute on business or contract opportunities;

however, the ultimate impact is highly uncertain and subject to change.

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, pharmaceutical, 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

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

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.

In the future, we may seek to enter into other credit facilities to help fund our working capital needs.

These credit facilities may expose us to additional risks associated with leverage and may inhibit our operating flexibility.

We may seek to enter into other credit facilities with third-party lenders to help fund our business.

Such credit facilities will likely require us to pay a commitment fee on the undrawn amount and will likely contain a number of affirmative and restrictive covenants.

If we violate any such covenants, our lenders could accelerate the maturity of any debt outstanding and

we may be prohibited from making any distributions to our stockholders.

Such debt may be secured by our assets, including the stock we may own in subsidiaries and the rights we have under intercompany loan agreements that we may enter into in the

future with our businesses.

Our ability to meet our debt service obligations may be affected by events beyond our control and will depend primarily upon cash produced by our business.

Any failure to comply with the terms of our indebtedness may have

a material adverse effect on our financial condition.

In addition, we expect that such credit facilities will bear interest at floating rates which will

generally change as interest rates change.

We will bear the risk that the rates that we are charged by our lenders will increase faster than we can grow the cash flow from our businesses, which could reduce profitability, materially adversely affect

our ability to service our debt and cause us to breach covenants contained in our third-party credit facilities.

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 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.

data protection, data security, privacy, and other laws and regulations can impose different obligations or be more restrictive than those in the United States.

federal and state and foreign laws and regulations, which, depending on the

regime, may be enforced by private parties or government entities, are constantly evolving and can be subject to significant change, and they are likely to remain uncertain for the foreseeable future.

In addition, the application, interpretation, and

enforcement of these laws and regulations are often uncertain, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices.

A number of proposals are pending before U.S.

federal, state, and foreign legislative and regulatory bodies that could significantly affect our business.

The overarching complexity of privacy and data protection laws and regulations around the world pose a

compliance challenge that could manifest in costs, damages, or liability in other forms as a result of failure to implement proper programmatic controls, failure to adhere to those controls, or

the malicious or inadvertent breach of applicable privacy and data protection requirements by us, our employees, our business partners, or our customers.

In addition to government regulation, self-regulatory standards and other industry standards may legally

or contractually apply to us, be argued to apply to us, or we may elect to comply with such standards or to facilitate our customers’ compliance with such standards.

Because privacy, data protection, and information security are critical competitive

factors in our industry, we may make statements on our website, in marketing materials, or in other settings about our data security measures and our compliance with, or our ability to facilitate our customers’ compliance with, these standards.

also expect that there will continue to be new proposed laws and regulations concerning privacy, data protection, and information security, and we cannot yet determine the impact such future laws, regulations and standards, or amendments to or

re-interpretations of existing laws and regulations, industry standards, or other obligations may have on our business.

New laws, amendments to or re-interpretations of existing laws and regulations, industry standards, and contractual and other

obligations may require us to incur additional costs and restrict our business operations.

As these legal regimes relating to privacy, data protection, and information security continue to evolve, they may result in ever-increasing public scrutiny

and escalating levels of enforcement and sanctions.

Furthermore, because the interpretation and application of laws, standards, contractual obligations and other obligations relating to privacy, data protection, and information security are

uncertain, these laws, standards, and contractual and other obligations may be interpreted and applied in a manner that is, or is alleged to be, inconsistent with our data management practices, our policies or procedures, or the features of our

If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our solutions, which could have an adverse effect on our business.

may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to fulfill existing obligations, make enhancements, or develop new solutions and features could be limited.

Furthermore, the costs of

compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our solutions.

These existing and proposed laws and regulations can be costly to comply with and can make our solutions

and services less effective or valuable, delay or impede the development of new products, result in negative publicity, increase our operating costs, require us to modify our data handling practices, limit our operations, impose substantial fines and

penalties, require significant management time and attention, or put our data or technology at risk.

Any failure or perceived failure by us or our solutions to comply with U.S., or applicable foreign laws, regulations, directives, policies, industry

standards, or legal obligations relating to privacy, data protection, or information security, or any security incident that results in loss of or the unauthorized access to, or acquisition, use, release, or transfer of, personal information,

personal data, or other customer or sensitive data sensitive data or information may result in governmental investigations, inquiries, enforcement actions and prosecutions, private claims and litigation, indemnification or other contractual

obligations, other remedies, including fines or demands that we modify or cease existing business practices, or adverse publicity, and related costs and liabilities, which could significantly and adversely affect our business and results of

Changes in accounting principles or their application to us could result in unfavorable accounting

charges or effects, which could adversely affect our results of operations and growth prospects.

We prepare consolidated financial statements in accordance with U.S.

In particular, we make

certain estimates and assumptions related to the adoption and interpretation of these principles including the recognition of our revenue and the accounting of our stock-based compensation expense with respect to our consolidated financial

If these assumptions turn out to be incorrect, our revenue or our stock-based compensation expense could materially differ from our expectations, which could have a material adverse effect on our financial results.

A change in any of

these principles or guidance, or in their interpretations or application to us, may have a significant effect on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results or our

forecasts, which may negatively impact our financial statements.

For example, recent new standards issued by the Financial Accounting Standards Board could materially impact our consolidated financial statements .

The adoption of these new standards may potentially require enhancements or changes in our processes or systems and may require significant time and cost on behalf of our

financial management.

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

If our judgments or estimates relating to our critical accounting policies are based on assumptions that

change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.

The preparation of our consolidated financial statements in conformity with GAAP requires management to

make judgments, estimates, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

We base our estimates on historical experience and on various other assumptions that we believe to be

reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources.

results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and

investors, resulting in a decline in the trading price of our common stock.

Significant judgments, estimates, and assumptions used in preparing our consolidated financial statements include, or may in the future include, those related to revenue

recognition, stock-based compensation, common stock valuations, and income taxes.

A novel strain of coronavirus, COVID-19, as well as variants of this strain, may adversely affect our

future business operations, financial condition and our ability to execute on business or contract opportunities.

In December 2019, an outbreak of COVID-19 was reported in Wuhan, China.

On March 11, 2020, the World Health Organization

declared COVID-19 a global pandemic and on March 13, 2020, President Donald J.

On March 11, 2020, the World

Health Organization declared COVID-19 a global pandemic and on March 13, 2020, President Donald J.

Trump declared the virus a national emergency.

This highly contagious disease has spread to most of the countries in the world and throughout the United States, creating a

serious impact on customers, workforces, and suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economic downturn.

It has caused a disruption of the normal operations of many businesses, including the

temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis.

The pandemic may adversely affect our

customers’ ability to perform their missions and is in many cases disrupting their operations.

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

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.

We could see delays or changes in customer demand, particularly if

government funding priorities change.

Additionally, the disruption and volatility in the global and domestic capital markets may increase the cost of capital and limit our ability to access capital.

Both the health and economic aspects of COVID-19

are highly fluid and the future course of each is uncertain.

For these reasons and other reasons that may come to light if the coronavirus pandemic and associated protective or preventative measures expand, we may experience a material adverse effect

on our business operations, revenues and financial condition;

This highly contagious disease has spread to most of the countries in the world and throughout the

United States, creating a serious impact on customers, workforces, and suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economic downturn.

COVID-19, as well as subsequently reported variants of this

strain, have caused a disruption of the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either

by government order or on a voluntary basis.

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

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.

We could see delays or changes in customer demand, particularly if government funding priorities change.

Additionally, the disruption and volatility in the global and domestic capital markets may increase the cost of capital

and limit our ability to access capital.

Both the health and economic aspects of COVID-19 are highly fluid and the future course of each is uncertain.

For these reasons and other reasons that may come to light if the coronavirus pandemic and

associated protective or preventative measures expand, we may experience a material adverse effect on our business operations, revenues and financial condition, and our ability to execute on business or contract opportunities, including the TSA

PreCheck TM enrollment program;

however, its ultimate impact is highly uncertain and subject to change.

Our facilities or operations could be adversely affected by events outside of our control, such as natural disasters, wars

or health epidemics.

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

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.

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.

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.

Our facilities or operations could be adversely affected by events outside of our control, such as

natural disasters, wars or health epidemics.

We may be impacted by natural disasters, wars, power outages, health epidemics or pandemics, or other

events outside of our control.

and other facilities may be seriously damaged, or we may have to stop or delay production and delivery of our solutions and services.

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.

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.

Government contracts are subject to competitive bidding, both upon initial issuance and

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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 protect such 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.

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

contracts previously awarded to us, we may incur expenses to protect such 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.

Government contracts

51 unchanged sentences

party to perform could have an adverse impact on our earnings.

We rely on subcontractors and other companies 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 rely on subcontractors and other companies 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

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

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products that meet customers’ changing needs or successfully attract and retain qualified personnel, future sales and earnings may be adversely affected.

The business environment in which we operate is highly competitive and may impair our ability to

achieve revenue growth.

The business environment in which we operate is highly competitive and may impair our ability to achieve

revenue growth.

We operate in industry segments that are diverse.

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

defense contractor, we face cyber threats, threats to the physical security of our

facilities and employees, and terrorist acts, as well as the potential for business disruptions associated with information technology failures, natural disasters, or public health or economic crises, such as that created by the Coronavirus pandemic.

We routinely experience cyber security 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.

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

Prior cyber attacks directed at us have not had a material impact on our financial results, and we believe our threat detection and

mitigation processes and procedures are adequate.

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.

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.

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.

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 also are 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 Coronavirus pandemic.

venture partners.

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

Prior cyber attacks directed at us have not had a material impact on our financial results, and we believe our

threat detection and mitigation processes and procedures are adequate.

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

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.

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 we are unable to protect our intellectual property, our revenues may be impacted adversely by the

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This type of litigation, regardless of its outcome, could result in substantial costs and diversion of management and technical resources.

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.

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.

The third-party technology licenses used by us may not continue to be available on commercially

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We are involved in a number of legal proceedings.

We cannot predict the outcome of litigation and

other contingencies with certainty.

Our business may be adversely affected by the outcome of legal proceedings and other contingencies

that cannot be predicted with certainty.

As required by GAAP, we estimate loss contingencies and establish reserves based on our assessment of contingencies where liability is deemed probable and the amount of loss is 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 of the potential for liability and our estimates of the loss contingency recorded as a liability or as a

reserve against assets in our financial statements.

We cannot predict the outcome of litigation and other

contingencies with certainty.

Our business may be adversely affected by the outcome of legal proceedings and other contingencies that

cannot be predicted with certainty.

facts and circumstances known to us at a particular point in time.

Subsequent developments in legal proceedings may affect our assessment of the potential for liability and our 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 13 – Commitments, Contingencies and Subsequent Events to the consolidated financial statements.

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possible material weaknesses in internal control over financial reporting;

increased expenses including legal, administrative and compensation expenses related to newly hired or terminated employees;

increased costs to integrate the technology, personnel, customer base and business practices of the acquired company with us;

increased expenses including legal, administrative and compensation expenses related to newly hired or terminated

increased costs to integrate the technology, personnel, customer base and business practices of the acquired company

potential exposure to material liabilities not discovered in the due diligence process;

potential adverse effects on reported operating results due to possible write-down of goodwill and other intangible assets

associated with acquisitions;

potential adverse effects on reported operating results due to possible write-down of goodwill and other intangible

assets associated with acquisitions;

unavailability of acquisition financing or unavailability of such financing on reasonable terms.

Any acquired business, technology, service or product could significantly under-perform relative to

our expectations, and may not achieve the benefits we expect from possible acquisitions.

Any acquired business, technology, service or product could significantly under-perform relative to our

expectations, and may not achieve the benefits we expect from possible acquisitions.

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

those anticipated.

Weakened global economic conditions may adversely affect our industry, business, operating results and financial condition.

Weakened global economic conditions may adversely affect our industry, business, operating results and

financial condition.

Our overall performance depends in part on worldwide economic and geopolitical conditions.

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infrastructure, have the potential to disrupt our business, our third party suppliers, or the operations and/or business of our customers, and may cause us to experience higher attrition, losses and additional costs to maintain or resume operations.

Any failure in our delivery of high-quality technical support services may adversely affect our relationships with our

customers and our financial results.

Any failure in our delivery of 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

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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.

We may lose key members of our management team, development and operations personnel, or subject matter experts, and may be

unable to attract and retain employees we need to support our operations and growth.

We may lose key members of our management team, development and operations personnel, or subject matter

experts, and may be unable to attract and retain employees we need to support our operations and growth.

Our success depends substantially upon the continued services of our executive officers and other key

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Washington D.C.

metropolitan area, where our headquarters are located.

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

If our customers do not renew their subscriptions or contracts for our solutions and services, our revenue could decline

and our business may suffer.

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

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

If our customers do not renew their subscriptions or contracts for our solutions and services, our

revenue could decline and our business may suffer.

Our customers have no obligation to renew or extend their subscriptions or contracts for our solutions

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features or enhanced solutions, or if attrition rates increase, our business could be harmed.

If our security measures or those of our third-party data center hosting facilities, cloud computing platform providers or

third-party service partners, or the underlying infrastructure of the internet are breached, and unauthorized access is obtained to a customer’s data, our data or our IT systems, or authorized access 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.

If our security measures or those of our third-party data center hosting facilities, cloud computing

platform providers or third-party service partners, or the underlying infrastructure of the internet are breached, and unauthorized access is obtained to a customer’s data, our data or our IT systems, or authorized access 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'

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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;

efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations or

nation-states;

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;

efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states;

cyber-attacks on our internally built infrastructure;

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attempts have not been material or significant to us, including to our reputation or business operations, or had a material financial impact, but there can be no assurance that future cyberattacks will not be material or significant.

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 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 ability to deliver our services is dependent on the development and maintenance of the infrastructure of the Internet

by third parties.

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 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 ability to deliver our services is dependent on the development and maintenance of the

infrastructure of the Internet by third parties.

The Internet’s infrastructure is comprised of many different networks and services that are highly

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Corporation for Assigned Numbers and Names (ICANN) and the Internet Assigned Numbers Authority (IANA), now under the stewardship of ICANN.

The Internet has experienced a variety of outages and other delays as a result of damages to portions

of its infrastructure, denial-of-service attacks or related cyber incidents, and it could face outages and delays in the future.

These outages and delays could reduce the level of Internet usage or result in fragmentation of the Internet, resulting

in multiple separate Internets.

The Internet has experienced a variety of outages and other delays as a result of damages to portions of

its infrastructure, denial-of-service attacks or related cyber incidents, and it could face outages and delays in the future.

These outages and delays could reduce the level of Internet usage or result in fragmentation of the Internet, resulting in

multiple separate Internets.

These scenarios are not under our control and could reduce the availability of the Internet to us or our customers for delivery of our Internet-related services.

Any resulting interruptions in our services or the

ability of our customers to access our services could result in a loss of potential or existing customers and harm our business.

Any resulting interruptions in our services or the ability

of our customers to access our services could result in a loss of potential or existing customers and harm our business.

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

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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;

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

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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