TELOS CORP

Our primary sources of liquidity are cash on hand, future operating cash flows, and, if needed, borrowings under our $30.0 million senior secured revolving credit facility, with an expansion feature of up to $30.0 million of additional revolver capacity. 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 December 31, 2024, we had cash and cash equivalents of $54.6 million and our working capital was $69.3 million.

We place a strong emphasis on liquidity management. This focus gives us the flexibility for capital deployment while preserving a strong balance sheet to position us for future opportunities. We believe we have adequate funds on hand to execute our financial and operating strategy. Our overall financial position and liquidity are strong. Although no assurances can be given, we believe the available cash balances and access to our revolving credit facility are sufficient to maintain the liquidity we require to meet our operating, investing and financing needs for the next 12 months.

For the year ended December 31, 2024, net cash used in operating activities was $25.9 million, compared with net cash provided by operating activities of $1.6 million in 2023, an increase in cash outflow of $27.5 million compared year over year. The change in cash flow from operating activities is primarily driven by the Company's operating losses, the timing of receipts of customer payments, and the timing of payments to vendors and employees, adjusted for certain non-cash items that do not impact cash flows from operating activities.

Net cash used in investing activities for the years ended December 31, 2024, increased by $1.3 million in cash outflow compared to the same period in 2023, primarily due to the cash outflow from the purchase of an investment of $3.0 million in 2024, with no similar transaction in 2023. This is partially offset by a decrease of $1.7 million in capital expenditures in 2024.

For the year ended December 31, 2024, net cash used in financing activities was $2.0 million, compared to $6.2 million in 2023. This is primarily attributable to decreases in payments of tax withholding related to the net share settlement of equity awards of $0.5 million in 2024, compared with $3.7 million in 2023, and a $0.6 million payment for the Diamond Fortress Technologies ("DFT") holdback in February 2023, with no similar payment in 2024.

Commitments from Contractual Obligations

The Company does not have any other material cash requirements from contractual obligations. As of December 31, 2024, we had contractual commitments to make payments under existing lease obligations on various office space and equipment under non-cancelable operating and finance leases, and an obligation under a service agreement. We reported current and long-term lease liabilities; see Note 13 - Leases in the consolidated financial statements within this 10-K.

There were no outstanding commitments that were considered material for capital expenditures on December 31, 2024.

From time to time, we may be subject to various audits, reviews, investigations, lawsuits and claims related to our business. See Note 19 - Commitments and Contingencies to the consolidated financial statements within this Annual Report for further discussion of other commitments and contingencies.

Revolving Credit Facility

On December 30, 2022, we entered into a senior secured credit facility with JPMorgan Chase Bank, N.A. ("Credit Agreement") that provides for a $30.0 million senior secured revolving credit facility, with the option of issuing letters of credits thereunder and with an uncommitted expansion feature of up to $30.0 million of additional revolver capacity, maturing on December 30, 2025. On April 12, 2023, we amended our Credit Agreement and revised certain provisions on the terms of the covered collateral. See Note 10 - Debt and Other Obligations to the consolidated financial statements contained within this Annual Report for additional information.

The Credit Agreement contains customary terms and conditions, including certain covenant requirements. As of December 31, 2024, there were no outstanding balances under the revolving credit facility and we were in compliance with all covenants contained in the Credit Agreement.

Other Financing Obligations

In November 2022, we entered into a Master Purchase Agreement ("MPA") with a third party for $9.1 million relating to software licenses under a specific delivery order with a customer, resulting in proceeds from other financing obligations. On February 9, 2023, when the third-party buyer notified us that it would not exercise the option period, we transferred all the rights, title and interest in the underlying licenses in exchange for the extinguishment of the outstanding financing obligations. The extinguishment of the other financing obligations resulted in a gain of $1.4 million in 2023. See Note 10 – Debt and Other Obligations to the consolidated financial statements combined within this Annual Report for a detailed discussion of our debt financing arrangements.

Under the MPA, if the customer terminates the delivery order for non-renewal and the buyer reasonably concludes that the customer's actions constitute grounds for filing a claim, the buyer and Telos will cooperate in preparing such a claim. During the third quarter of 2024, the buyer, through Telos, filed a claim against the customer.