Telos(TLS) - 2024 Q3 - Quarterly Report

Financial Performance - Consolidated revenue for the third quarter ended September 30, 2024, was $23.783 million, a decline of 34.3$36.186 million in the same quarter of 2023[125] - Gross profit for the third quarter of 2024 was $3.143 million, down from$13.013 million in the prior year, resulting in a gross margin of 13.2%, compared to 36.0% in Q3 2023[127] - The net loss for the third quarter of 2024 was $28.055 million, compared to a net loss of$8.672 million in Q3 2023, reflecting a significant increase in losses[127] - Operating loss for the third quarter of 2024 was $(28.864) million, compared to$(9.693) million in the same quarter of 2023, indicating a worsening financial performance[127] - Adjusted Net Loss for the three months ended September 30, 2024, was $28.1 million, compared to$8.7 million for the same period in 2023, reflecting a significant increase in losses[146] - Adjusted EBITDA for the three months ended September 30, 2024, was $(4,149) thousand, compared to$(1,260) thousand in the same period of 2023[142] Revenue Segments - TSA PreCheck revenue growth was driven by an increase in enrollment locations[126] - Security Solutions segment gross profit declined by 75.3% to $2,310 thousand in Q3 2024, down from$9,354 thousand in Q3 2023, with gross margin decreasing from 47.3% to 12.6%[134] - For the nine months ended September 30, 2024, Security Solutions segment revenue decreased by 3.4% to $54,839 thousand, compared to$56,764 thousand in the same period of 2023[135] - Secure Networks segment revenue decreased by 66.7% to $5,451 thousand in Q3 2024, down from$16,391 thousand in Q3 2023, primarily due to the completion of programs without new business wins[137] - For the nine months ended September 30, 2024, Secure Networks segment revenue decreased by 43.1% compared to the same period in 2023[138] - For the three months ended September 30, 2024, total revenue was $18,332 thousand, a decrease of 7.4$19,795 thousand in the same period of 2023[134] Operating Expenses - Operating expenses increased by 41.0% year-over-year in Q3 2024, primarily due to a $6.0 million increase in impairment loss on intangible assets and a$3.6 million rise in stock-based compensation[129] - The impairment loss on intangible assets for the three months ended September 30, 2024, was $11,706 thousand, compared to no impairment loss in the same period of 2023[142] - Stock-based compensation expense increased to$8,814 thousand for the three months ended September 30, 2024, from $5,218 thousand in the same period of 2023[142] - Stock-based compensation expense for the three months ended September 30, 2024, was$8.4 million, compared to $5.2 million for the same period in 2023, reflecting increased compensation costs[146] Cash Flow and Liquidity - Free Cash Flow for the three months ended September 30, 2024, was$(9.92) million, compared to $(2.99) million for the same period in 2023, indicating increased cash outflows[153] - Net cash used in operating activities for the nine months ended September 30, 2024, was$15.42 million, an increase of $12.1 million compared to the same period in 2023[157] - The company reported net cash used in investing activities of$12.49 million for the nine months ended September 30, 2024, slightly up from $12.31 million in the same period of 2023[158] - As of September 30, 2024, the company had cash and cash equivalents of$69.8 million and working capital of $72.0 million, indicating a strong liquidity position[155] - The company has a$30.0 million revolving credit facility, with an available expansion feature of up to an additional $30.0 million, enhancing its liquidity management[154] Budget and Funding - The fiscal year 2024 budget appropriation caps total base discretionary spending at$1.6 trillion, with base defense spending capped at $886 billion, a 3$850 billion for the Defense Department, a $34 billion or 4.1$13 billion for cybersecurity funding across civilian departments and agencies, emphasizing investments in "secure by design" technologies[116] Company Operations - The company continues to focus on expanding its business development pipeline and executing significant new business wins with prime partners[113] - The restructuring expenses included severance and related benefit costs, totaling $1.45 million for the three months ended September 30, 2024[146] Internal Controls - The Company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2024[164] - There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2024, that materially affected the internal control[165]