TELOS CORP
For the period ended Mar 31, 2024. Filed May 10, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed May 10, 2024
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Item 2. Results of Operations
Results of Operations
| Table MD&A 2: Consolidated Results of Operations | ||
|---|---|---|
| For the Three Months Ended | ||
| March 31, 2024 | March 31, 2023 | |
| (dollars in thousands) | ||
| Revenue | $29,619 | $35,222 |
| Cost of sales | 18,658 | 21,740 |
| Gross profit | 10,961 | 13,482 |
| Gross margin | 37.0% | 38.3% |
| Research and development ("R&D") expenses | 3,170 | 2,833 |
| R&D expenses as percentage of revenue | 10.7% | 8.0% |
| Selling, general and administrative ("SG&A") expenses | 16,229 | 23,619 |
| SG&A expenses as percentage of revenue | 54.8% | 67.1% |
| Operating loss | (8,438) | (12,970) |
| Other income | 1,252 | 2,496 |
| Interest expense | (175) | (249) |
| Loss before income taxes | (7,361) | (10,723) |
| Provision for income taxes | (17) | (23) |
| Net loss | $(7,378) | $(10,746) |
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. Cost of sales, for both products and services, consists of labor, materials, subcontracting costs and an allocation of indirect costs.
R&D expenses increased by $0.3 million, or 11.9%, in the first quarter of 2024, compared to the same period in 2023, primarily due to increases in amortization costs.
SG&A expenses decreased by $7.4 million, or 31.3%, in the first quarter of 2024 compared to the same period in 2023. This is primarily due to reduced stock-based compensation costs of $6.1 million and the $1.2 million of restructuring expenses in 2023, with no similar charges in 2024.
Other income decreased by $1.2 million year-over-year due to the gain on early extinguishment of other financing obligations of $1.4 million in the first quarter of 2023, without similar gain in the same period in 2024. The remaining variance is attributable to the change in dividend income from money market placements. There was no significant change in interest expense between comparable periods.
The change in the income tax provision for the first quarter of 2024 compared to the same period in 2023 is based on the estimated annual effective tax rate applied to the pretax loss incurred for the quarter plus discrete tax items, based on our expectation of pretax loss for the fiscal year.
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 | ||
|---|---|---|
| For the Three Months Ended | ||
| March 31, 2024 | March 31, 2023 | |
| (dollars in thousands) | ||
| Revenue | $18,640 | $19,773 |
| Cost of sales (excluding depreciation and amortization) | 8,739 | 9,329 |
| Depreciation and amortization | 1,275 | 170 |
| Total cost of sales | 10,014 | 9,499 |
| Gross profit | 8,626 | 10,274 |
| Gross margin | 46.3% | 52.0% |
For the three months ended March 31, 2024, Security Solutions segment revenue decreased by $1.1 million, or 5.7%, compared to the same period in 2023, primarily due to lower volume on ongoing programs, partially offset by growth in TSA PreCheck.
Gross profit for Security Solutions decreased by $1.6 million, or 16.0%, for the first quarter of 2024, compared with the same period in 2023, primarily due to the decrease in revenue and a decrease in segment gross margin to 46.3% for the first quarter of 2024 from 52.0% for the same period in 2023. The gross margin contraction in the first quarter of 2024 was primarily the result of the impact of the increased amortization of software development costs within the segment.
| Table MD&A 4: Secure Networks Segment - Financial Results | ||
|---|---|---|
| For the Three Months Ended | ||
| March 31, 2024 | March 31, 2023 | |
| (dollars in thousands) | ||
| Revenue | $10,979 | $15,449 |
| Cost of sales (excluding depreciation and amortization) | 8,641 | 12,235 |
| Depreciation and amortization | 3 | 6 |
| Cost of sales | 8,644 | 12,241 |
| Gross profit | 2,335 | 3,208 |
| Gross margin | 21.3% | 20.8% |
Secure Networks segment revenue for the three months ended March 31, 2024 decreased by $4.5 million, or 28.9%, compared to the same period in 2023, primarily due to the ramp down of several programs within the portfolio.
Gross profit for Secure Networks decreased by $0.9 million, or 27.2%, for the first quarter of 2024, compared with the same period in 2023, due to the lower revenue, offset by improved margin across the portfolio. Segment gross margin slightly increased to 21.3% for the first quarter of 2024 from 20.8% for the same period in 2023 primarily due to strong program management and favorable program revenue mix, offset by the higher impact of indirect expenses on lower revenue.
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