TELOS CORP
For the period ended Dec 31, 2023. Filed Mar 15, 2024.
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FY2023 · Filed Mar 15, 2024
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Item 7. Results of Operations
Results of Operations
Consolidated Results
| Table MD&A 2: Consolidated Financial Results Comparison | ||
|---|---|---|
| For the Year Ended December 31, | ||
| 2023 | 2022 | |
| (dollars in thousands) | ||
| Revenue | $145,378 | $216,887 |
| Cost of sales (excluding depreciation and amortization) | 88,892 | 137,051 |
| Depreciation and amortization | 3,544 | 793 |
| Total cost of sales | 92,436 | 137,844 |
| Gross profit | 52,942 | 79,043 |
| Gross margin | 36.4% | 36.4% |
| Selling, general and administrative expenses | 93,257 | 132,893 |
| Selling, general and administrative expense as percentage of revenue | 64.1% | 61.3% |
| Operating loss | (40,315) | (53,850) |
| Other income | 6,715 | 1,350 |
| Interest expense | (786) | (874) |
| Loss before income taxes | (34,386) | (53,374) |
| Provision for income taxes | (36) | (54) |
| Net loss | $(34,422) | $(53,428) |
Our business segments have different factors driving revenue fluctuations and profitability. The discussion of the changes in our net revenue and profitability are covered in greater detail under the section that follows: "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.
Selling, general, and administrative ("SG&A"). SG&A expenses decreased by $39.6 million, or 29.8%, in 2023 compared to 2022. Sales and marketing expenses decreased by $9.5 million primarily due to lower compensation-related expenses. Research and development expenses decreased by $4.7 million primarily due to lower compensation-related expenses and increased capitalization of software development by $1.9 million. General and administrative expenses also decreased by $25.5 million mostly due to lower compensation-related expenses.
Other income. Other income increased by $5.4 million in 2023, compared to 2022, primarily due to an increase in dividend income from money market placements of $3.9 million, and a gain on early extinguishment of other financing obligation of $1.4 million in 2023, without a similar gain in 2022.
Interest expense. There was no significant change in interest expense between comparable periods.
Provision for income taxes. There was no significant change in the provision for income taxes in 2023, compared to 2022.
Segment Results
The accounting policies of each business segment are the same as those followed by the Company as a whole. Management evaluates business segment performance based on gross profit.
| Table MD&A 3: Security Solutions Segment - Financial Results Comparison | ||
|---|---|---|
| For the Year Ended December 31, | ||
| 2023 | 2022 | |
| (dollars in thousands) | ||
| Revenues | $77,416 | $120,454 |
| Cost of sales (excluding depreciation and amortization) | 34,270 | 57,743 |
| Depreciation and amortization | 3,532 | 763 |
| Total cost of sales | 37,802 | 58,506 |
| Gross profit | $39,614 | $61,948 |
| Gross margin | 51.2% | 51.4% |
Our Security Solutions segment revenue decreased by $43.0 million or 35.7% in fiscal year 2023, compared to fiscal year 2022, primarily due to lower revenues on ongoing programs and the loss of a program, partially offset by some new program wins and the initial ramp of the TSA PreCheck program.
Likewise, the segment gross profit decreased by $22.3 million or 36.1% in 2023, compared to 2022, primarily due to the decrease in revenue. Segment gross margin slightly decreased from 51.4% in 2022 to 51.2% in 2023 primarily due to higher amortization of software development costs, offset by high margin new program wins, mix within the portfolio and lower stock-based compensation.
| Table MD&A 4: Secure Networks Segment - Financial Results Comparison | ||
|---|---|---|
| For the Year Ended December 31, | ||
| 2023 | 2022 | |
| (dollars in thousands) | ||
| Revenues | $67,962 | $96,433 |
| Cost of sales (excluding depreciation and amortization) | 54,622 | 79,308 |
| Depreciation and amortization | 12 | 30 |
| Total cost of sales | 54,634 | 79,338 |
| Gross profit | $13,328 | $17,095 |
| Gross margin | 19.6% | 17.7% |
Our Secure Networks segment revenue decreased by $28.5 million, or 29.5%, in 2023, compared to 2022, primarily due to the successful completion of certain programs and lower revenues on ongoing programs as expected, partially offset by new program wins.
Segment gross profit decreased by $3.8 million or 22.0% in 2023, compared to 2022, primarily due to lower revenue, partially offset by higher gross margins. Segment gross margin increased from 17.7% in 2022 to 19.6% in 2023 primarily due to strong program and cost management across several key programs.
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