TELOS CORP
For the period ended Dec 31, 2024. Filed Mar 10, 2025.
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FY2024 · Filed Mar 10, 2025
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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, | |||
| 2024 | 2023 | Dollar Change | |
| (dollars in thousands) | |||
| Revenue | $108,272 | $145,378 | $(37,106) |
| Cost of sales | 73,843 | 92,436 | (18,593) |
| Gross profit | 34,429 | 52,942 | (18,513) |
| Gross margin | 31.8% | 36.4% | |
| Operating expenses | 90,302 | 93,257 | (2,955) |
| Operating expenses as percentage of revenue | 83.4% | 64.1% | |
| Operating loss | (55,873) | (40,315) | (15,558) |
| Other income | 4,023 | 6,715 | (2,692) |
| Interest expense | (644) | (786) | 142 |
| Loss before income taxes | (52,494) | (34,386) | (18,108) |
| Provision for income taxes | (26) | (36) | 10 |
| Net loss | $(52,520) | $(34,422) | $(18,098) |
Our business segments have different factors driving revenue fluctuations and profitability. The discussion of the changes in our net revenue and profitability is 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.
Operating Expenses: Operating expenses decreased by 3% in 2024, compared to 2023. Research and development expenses decreased by $3.3 million in 2024, compared to 2023, primarily due to the discontinued development of selected solutions or parts of solutions associated with the restructuring plan and lower stock-based compensation expenses. Selling, general and administrative expenses decreased by $5.5 million in 2024, compared to 2023, primarily due to decreased cash incentive compensation expenses. These reductions were partially offset by an increase in impairment loss on intangible assets of $5.9 million.
Other income: Other income decreased by 40% in 2024, compared to 2023, primarily due to the gain on early extinguishment of other financing obligation of $1.4 million in 2023, without a similar gain in 2024. The remaining variance is attributable to decreased dividend income from money market placements.
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, | |||
| 2024 | 2023 | Dollar Change | |
| (dollars in thousands) | |||
| Revenues | $76,760 | $77,416 | $(656) |
| Cost of sales (excluding impairment loss, depreciation and amortization) | 37,352 | 34,270 | 3,082 |
| Impairment loss on intangible assets | 5,333 | — | 5,333 |
| Depreciation and amortization | 6,396 | 3,532 | 2,864 |
| Total cost of sales | 49,081 | 37,802 | 11,279 |
| Gross profit | $27,679 | $39,614 | $(11,935) |
| Gross margin | 36.1% | 51.2% | |
Security Solutions segment revenue decreased by 1% in 2024, compared to 2023, primarily due to the reduction in revenue from a long-term program, the completion of a short-term program in the prior year and the sale of a non-recurring perpetual license in the prior year, partially offset by the growth in the TSA PreCheck program.
Security Solutions segment gross profit decreased by 30% in 2024, compared to 2023, and gross margin decreased from 51.2% in 2023 to 36.1% in 2024, primarily due to the impairment loss on intangible assets in 2024, higher amortization of software development costs, and program mix within the portfolio.
| Table MD&A 4: Secure Networks Segment - Financial Results Comparison | |||
|---|---|---|---|
| For the Year Ended December 31, | |||
| 2024 | 2023 | Dollar Change | |
| (dollars in thousands) | |||
| Revenues | $31,512 | $67,962 | $(36,450) |
| Cost of sales (excluding impairment loss, depreciation and amortization) | 24,754 | 54,622 | (29,868) |
| Depreciation and amortization | 8 | 12 | (4) |
| Total cost of sales | 24,762 | 54,634 | (29,872) |
| Gross profit | $6,750 | $13,328 | $(6,578) |
| Gross margin | 21.4% | 19.6% | |
Secure Networks segment revenue decreased by 54% in 2024, compared to 2023, primarily due to the successful completion of certain programs and ramp-down of certain programs without corresponding new business wins to backfill completed programs.
Secure Networks segment gross profit decreased by 49% in 2024, compared to 2023, primarily due to lower revenues. By contrast, the segment gross margin increased from 19.6% in 2023 to 21.4% in 2024, primarily due to a favorable program mix and strong program management.
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