Telos(US:TLS)2019-11-14 17:38Financial Performance - Revenue for Q3 2019 increased by 31.2% to $45.5 million, up from $34.7 million in Q3 2018 [152]. - Services revenue rose to $39.2 million in Q3 2019, driven by increases in Identity Management solutions ($3.7 million), Cyber Security deliverables ($3.4 million), and IT & Enterprise solutions ($2.1 million) [152]. - Revenue increased by 10.5% to $112.7 million for the nine months ended September 30, 2019, from $102.0 million in the same period in 2018 [158]. - Cost of sales for Q3 2019 was $29.2 million, up from $18.4 million in Q3 2018, with a cost of sales as a percentage of revenue increasing by 11.1% [153]. - Cost of sales increased by 22.1% to $77.4 million for the nine months ended September 30, 2019, from $63.4 million for the same period in 2018 [159]. - Gross profit for Q3 2019 remained flat at $16.3 million, with gross margin decreasing to 35.8% from 46.9% in Q3 2018 [154]. - Gross profit decreased by 8.5% to $35.3 million for the nine months ended September 30, 2019, from $38.6 million for the same period in 2018 [160]. - Operating income decreased by 11.8% to $5.7 million in Q3 2019, down from $6.4 million in Q3 2018, primarily due to increased SG&A expenses [155]. - Operating income decreased by 54.8% to $3.9 million for the nine months ended September 30, 2019, compared to $8.6 million for the same period in 2018 [161]. - Net income attributable to Telos Corporation decreased by 46.3% to $2.2 million for Q3 2019, compared to $4.1 million for Q3 2018 [157]. - Net loss attributable to Telos Corporation was $2.9 million for the nine months ended September 30, 2019, compared to net income of $2.0 million for the same period in 2018 [164]. Backlog and Funding - Total backlog as of September 30, 2019, was approximately $307.5 million, compared to $303.9 million in 2018, and $290.8 million at December 31, 2018 [140]. - Funded backlog increased to $104.0 million as of September 30, 2019, from $91.1 million in 2018, and $79.3 million at December 31, 2018 [141]. Expenses - Selling, general, and administrative expenses (SG&A) increased by 8.0% to $10.6 million in Q3 2019, compared to $9.9 million in Q3 2018 [155]. - Interest expense increased by 7.2% to $5.5 million for the nine months ended September 30, 2019, from $5.1 million for the same period in 2018 [162]. Cash Flow - Cash provided by operating activities was $4.4 million for the nine months ended September 30, 2019, compared to $4.5 million for the same period in 2018 [170]. - Cash used in investing activities was approximately $5.3 million for the nine months ended September 30, 2019, compared to $2.8 million for the same period in 2018 [171]. - Cash provided by financing activities was $2.7 million for the nine months ended September 30, 2019, compared to cash used in financing activities of $1.9 million for the same period in 2018 [172]. Debt and Financing - The company borrowed an additional $5 million, increasing the total principal under the Credit Agreement to $16 million [185]. - The exit fee under the Credit Agreement was increased from $825,000 to $1,200,000 [185]. - The maturity date of the Credit Agreement was amended from January 25, 2022, to January 15, 2021 [185]. - The company paid a fee of $110,000 in connection with the Fourth Amendment to the Credit Agreement [185]. - The company incurred interest expenses of $0.7 million and $1.5 million for the three and nine months ended September 30, 2019, respectively, compared to $0.4 million and $1.3 million for the same periods in 2018 [184]. - The company incurred interest expenses of $83,000 and $245,000 for the three and nine months ended September 30, 2019, respectively, on the Porter Notes [193]. - As of September 30, 2019, approximately $984,000 of accrued interest was payable according to the stated interest rate of the Porter Notes [193]. - The maximum amount of outstanding Purchased Receivables under the Accounts Receivable Purchase Agreement is capped at $10 million [185]. Dividends - The company has not declared or paid dividends on its Public Preferred Stock since 1991 due to various restrictions [195]. - The total number of shares issued and outstanding for the Public Preferred Stock as of September 30, 2019, was 3,185,586 [194]. - The Public Preferred Stock accrues a semi-annual dividend at an annual rate of 12% ($1.20) per share, based on a liquidation preference of $10 per share [200]. - As of September 30, 2019, the company accrued $106.4 million in cash dividends, compared to $103.5 million as of December 31, 2018 [200]. - For the three months ended September 30, 2019, the company accrued dividends on the Public Preferred Stock of $1.0 million, down from $2.9 million for the same period in 2018 [200]. Accounting and Controls - The adoption of the new lease standard resulted in the recognition of right-of-use assets and additional lease liabilities of $2.0 million as of January 1, 2019 [204]. - There were no material changes to critical accounting policies during the three months ended September 30, 2019 [202]. - The company concluded that its disclosure controls and procedures are effective as of September 30, 2019 [205]. - There has been no change in internal control over financial reporting that materially affected the company during the quarter ended September 30, 2019 [206]. Government Spending - The defense spending limits for FY 2020 were increased by $90 billion to $667 billion, and for FY 2021 by $81 billion to $672 billion [149]. - The company anticipates ongoing debates and negotiations within the U.S. Government regarding federal and defense spending, which may impact operations [150].