Telos(TLS)2022-08-09 20:04Defense Spending - The final FY 2022 appropriations bill provided 32.5 billion more than the FY 2021 enacted level[103]. - The proposed FY 2023 budget calls for approximately 4% more in defense spending than was provided for FY 2022, with significant congressional support for boosting defense spending further[106]. - The proposed FY 2023 budget includes an increase in federal civilian agency cybersecurity funding of nearly 10.7%[107]. Cybersecurity Solutions - Xacta is the de facto commercial cyber risk and compliance management solution across the U.S. federal government, delivering automated cyber risk and compliance management solutions[99]. - Telos Ghost provides a virtual obfuscation network-as-a-service, enhancing security by masking user identity and location, and hiding network resources[101]. - The Cyber Incident Reporting for Critical Infrastructure Act of 2022 requires significant cyber incidents to be reported within 72 hours, increasing sensitivity to cybersecurity posture[112]. - The company’s cybersecurity solutions address ransomware threats, with offerings like Telos ACA providing real-time intelligence on known and unknown threats[109]. - The company maintains government certifications for its identity services, including TSA PreCheck enrollment provider and FBI-approved Channeler[104]. - The company’s secure mobility solutions enable remote work while minimizing operational and security concerns across enterprises[105]. Financial Performance - Revenue for the second quarter of 2022 increased by 4.0% to 53.6 million in the same period of 2021[120]. - Services revenue increased by 0.9 million, or 19.0% in the second quarter of 2022[120]. - Cost of sales increased by 12.1% to 20.9 million for the second quarter of 2022, with a gross margin of 37.5%[122]. - Selling, general, and administrative (SG&A) expenses decreased by 17.3% to 12.2 million for the second quarter of 2022, an improvement from a loss of 12.3 million for the second quarter of 2022, compared to a net loss of 106.0 million from 39.8 million, with a gross margin of 37.6%[129]. - Secure Networks' revenue for the second quarter of 2022 increased by approximately 17% compared to the same period in 2021[139]. - For the three months ended June 30, 2022, the company reported a net loss of 17.6 million for the same period in 2021[146]. - Adjusted EBITDA for the three months ended June 30, 2022, was 5.3 million for the same period in 2021, reflecting a decrease of approximately 13.7%[146]. - Free cash flow for the three months ended June 30, 2022, was 1.4 million for the same period in 2021[152]. - Cash provided by operating activities was 3.4 million for the same period in 2021[157]. - As of June 30, 2022, the company had a cash and cash equivalent balance of 126.6 million at December 31, 2021[156]. - The company’s working capital was 140.8 million as of December 31, 2021[155]. - Stock-based compensation expense for the three months ended June 30, 2022, was 21.3 million for the same period in 2021[150]. - The company expects that funds generated from operations will be sufficient to meet its liquidity requirements for the next 12 months[155]. - Cash used in investing activities was approximately 6.2 million for the six months ended June 30, 2022, compared to cash provided of $33.0 million for the same period in 2021[159]. Internal Control and Remediation - Management identified material weaknesses in internal control over financial reporting, including insufficient qualified resources and ineffective controls[164]. - The company did not maintain appropriately designed controls over revenue recording, software development costs, and stock-based compensation[164]. - Employee turnover contributed to a temporary shortage of qualified personnel for internal controls[165]. - Remediation efforts include hiring additional accounting personnel and enhancing training on control procedures[168]. - The company is enhancing processes around revenue recognition and financial close reporting[168]. - As of June 30, 2022, the identified material weaknesses have not been fully remediated[166]. - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2022[167]. - The company is monitoring the effectiveness of remediation measures and will make necessary adjustments[166]. - Enhancements to user access provisioning and monitoring controls are being implemented[168]. - The material weaknesses will be considered remediated once effective controls are designed and implemented[165].