Telos(US:TLS)2020-11-13 21:06Financial Performance - Revenue increased by 4.2% to $47.4 million for Q3 2020, compared to $45.5 million in Q3 2019[169]. - Services revenue rose to $44.2 million in Q3 2020, driven by increases from Telos ID ($2.5 million), Assurance/Xacta ($2.1 million), and Secure Communications ($1.7 million) while Secure Networks decreased by $1.3 million[169]. - Revenue for the nine months ended September 30, 2020, increased by 19.8% to $135.0 million from $112.7 million in the same period in 2019[177]. - Gross profit for Q3 2020 was $16.6 million, a 1.5% increase from $16.3 million in Q3 2019, with gross margin decreasing to 34.9%[171]. - Gross profit for the nine months ended September 30, 2020, increased by 31.4% to $46.4 million, with gross margin rising to 34.3%[179]. - Net loss attributable to Telos Corporation was $0.2 million for Q3 2020, compared to a net income of $2.2 million in Q3 2019[176]. Backlog and Demand - Total backlog as of September 30, 2020, was approximately $374.6 million, an increase from $307.5 million in 2019, and $354.5 million at December 31, 2019[154]. - Funded backlog as of September 30, 2020, was $147.0 million, up from $104.0 million in 2019, and $112.4 million at December 31, 2019[155]. - The company anticipates ongoing demand for its cybersecurity and cloud security solutions due to the increased reliance on information technology systems during the COVID-19 pandemic[165]. - The current health and economic crisis is expected to continue affecting federal departments and agencies, impacting the company's contracts and procurements[165]. Operating Expenses - Cost of sales increased to $30.9 million in Q3 2020, with a cost of sales as a percentage of revenue rising by 0.9%[170]. - SG&A expenses increased by 13.3% to $12.0 million in Q3 2020, primarily due to labor costs and outside services[172]. - Operating income decreased by 20.5% to $4.5 million in Q3 2020, attributed to higher SG&A expenses[174]. Capital Structure and Debt - The company has a complex capital structure consisting of redeemable preferred stock and common stock, impacting liquidity[192]. - The Credit Agreement includes an $11 million senior term loan with a maturity date of January 25, 2022, accruing interest at 13.0% per annum[193]. - Interest rates can increase to 14.5% per annum under certain conditions, with a monthly cash interest payment obligation of at least 10.0% per annum[194]. - The total principal amount of the loan increased to $16 million following a Fourth Amendment to the Credit Agreement[201]. - The exit fee was raised from $825,000 to $1,200,000, treated as an unamortized discount on the debt[201]. - The company incurred interest expenses of $0.8 million and $2.3 million for the three and nine months ended September 30, 2020, respectively[205]. Preferred Stock and Dividends - The total number of Public Preferred Stock shares issued and outstanding as of September 30, 2020, was 3,185,586[213]. - Cash dividends accrued on the Public Preferred Stock were $110.2 million and $107.4 million as of September 30, 2020, and December 31, 2019, respectively[220]. - Dividends accrued for the three and nine months ended September 30, 2020, were $1.0 million and $2.9 million, respectively[220]. - 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[220]. - The company has not declared or paid dividends on the Public Preferred Stock since 1991 due to various restrictions[215]. - The Public Preferred Stock is classified as a noncurrent liability as it is not due on demand or callable within 12 months from September 30, 2020[217]. - The company is prohibited from making any distributions or declaring dividends under the Credit Agreement until full payment of obligations[216]. Strategic Focus - The company has transitioned from product reselling to advanced solutions technologies, focusing on selling solutions and outsourcing product sales[159]. - The company is actively pursuing growth opportunities through GSA schedules and omnibus contracts, which provide a more flexible procurement cycle[156]. - The company’s offerings include Xacta for cyber risk management, Telos Ghost for secure communications, and Telos ID for digital identity services[152]. - The company maintains government certifications that distinguish its identity services, including TSA PreCheck™ enrollment provider and FINRA Electronic Fingerprint Submission provider[152]. Government Spending - The U.S. Government's defense spending is projected to increase by less than one percent in FY 2021 compared to FY 2020[161]. - Federal outlays for defense programs have decreased from 4.5% to 3.2% of GDP since the Budget Control Act of 2011[162].