Telos(TLS) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's analysis of operations and liquidity, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Telos Corporation, including statements of operations, comprehensive loss, balance sheets, cash flows, and changes in stockholders' equity, along with detailed notes explaining the company's accounting policies, revenue recognition, asset and liability components, and segment information for the periods ended June 30, 2025 and 2024 Consolidated Statements of Operations The company's unaudited consolidated statements of operations for the three and six months ended June 30, 2025 and 2024 are presented Consolidated Statements of Operations (Unaudited) - Three Months Ended June 30 (in thousands, except per share amounts) | Metric | 2025 | 2024 | | :---------------------------------- | :----- | :----- | | Revenue – services | $29,301 | $26,969 | | Revenue – products | $6,667 | $1,529 | | Total revenue | $35,968 | $28,498 | | Total cost of sales | $24,036 | $18,791 | | Gross profit | $11,932 | $9,707 | | Total operating expenses | $21,815 | $18,351 | | Operating loss | $(9,883) | $(8,644) | | Loss before income taxes | $(9,471) | $(7,740) | | Net loss | $(9,517) | $(7,757) | | Basic Net loss per share | $(0.13) | $(0.11) | | Diluted Net loss per share | $(0.13) | $(0.11) | Consolidated Statements of Operations (Unaudited) - Six Months Ended June 30 (in thousands, except per share amounts) | Metric | 2025 | 2024 | | :---------------------------------- | :----- | :----- | | Revenue – services | $58,146 | $55,820 | | Revenue – products | $8,438 | $2,297 | | Total revenue | $66,584 | $58,117 | | Total cost of sales | $42,470 | $37,449 | | Gross profit | $24,114 | $20,668 | | Total operating expenses | $43,019 | $37,750 | | Operating loss | $(18,905) | $(17,082) | | Loss before income taxes | $(18,079) | $(15,101) | | Net loss | $(18,121) | $(15,135) | | Basic Net loss per share | $(0.25) | $(0.21) | | Diluted Net loss per share | $(0.25) | $(0.21) | Consolidated Statements of Comprehensive Loss The company's unaudited consolidated statements of comprehensive loss for the three and six months ended June 30, 2025 and 2024 are presented Consolidated Statements of Comprehensive Loss (Unaudited) - Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Net loss | $(9,517) | $(7,757) | | Other comprehensive loss, net of tax | $(5) | $(21) | | Comprehensive loss | $(9,522) | $(7,778) | Consolidated Statements of Comprehensive Loss (Unaudited) - Six Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Net loss | $(18,121) | $(15,135) | | Other comprehensive income (loss), net of tax | $83 | $(86) | | Comprehensive loss | $(18,038) | $(15,221) | Consolidated Balance Sheets The company's unaudited consolidated balance sheets as of June 30, 2025, and December 31, 2024 are presented Consolidated Balance Sheets (Unaudited) - As of June 30, 2025 and December 31, 2024 (in thousands) | Asset | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $56,998 | $54,578 | | Accounts receivable, net | $19,105 | $19,172 | | Inventories, net | $4,176 | $1,783 | | Total current assets | $102,776 | $91,418 | | Property and equipment, net | $3,477 | $4,283 | | Goodwill | $17,922 | $17,922 | | Intangible assets, net | $31,568 | $30,410 | | Total assets | $165,042 | $158,235 | | Accounts payable and other accrued liabilities | $13,375 | $4,300 | | Contract liabilities | $12,951 | $6,838 | | Total current liabilities | $38,733 | $22,135 | | Total liabilities | $46,629 | $31,098 | | Total stockholders' equity | $118,413 | $127,137 | | Total liabilities and stockholders' equity | $165,042 | $158,235 | Consolidated Statements of Cash Flows The company's unaudited consolidated statements of cash flows for the six months ended June 30, 2025 and 2024 are presented Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used in) operating activities | $13,056 | $(8,340) | | Net cash used in investing activities | $(4,658) | $(9,647) | | Net cash used in financing activities | $(5,978) | $(1,168) | | Net change in cash, cash equivalents, and restricted cash | $2,420 | $(19,155) | | Cash, cash equivalents, and restricted cash, beginning of period | $54,717 | $99,396 | | Cash, cash equivalents, and restricted cash, end of period | $57,137 | $80,241 | Consolidated Statements of Changes in Stockholders' Equity The company's unaudited consolidated statements of changes in stockholders' equity for the six months ended June 30, 2025 are presented Changes in Stockholders' Equity - Six Months Ended June 30, 2025 (in thousands) | Item | Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | | :------------------------------------------------ | :----- | :------------------ | :------------------------- | :--------------------------------- | :------------------ | :------------------------- | | Balance at December 31, 2024 | 72,515 | $111 | $454,502 | $(129) | $(327,347) | $127,137 | | Net loss | — | — | — | — | $(18,121) | $(18,121) | | Foreign currency translation gain | — | — | — | $75 | — | $75 | | Actuarial gain on pension liability adjustment | — | — | — | $8 | — | $8 | | Restricted stock unit awards vested, net of shares withheld | 687 | — | $(1,062) | — | — | $(1,062) | | Stock-based compensation | — | — | $12,315 | — | — | $12,315 | | Repurchases of common stock | (1,488) | $(1) | $(4,001) | — | — | $(4,002) | | Issuance of common stock for 401(k) match | 728 | $1 | $2,062 | — | — | $2,063 | | Balance at June 30, 2025 | 72,442 | $111 | $463,816 | $(46) | $(345,468) | $118,413 | Notes to Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements, explaining accounting policies, revenue, assets, liabilities, and segment information 1. Organization This note describes Telos Corporation's business, including its core solutions and key subsidiaries - Telos Corporation is a Maryland corporation providing cyber, cloud, and enterprise security solutions. Key subsidiaries include Xacta Corporation, ubIQuity.com, inc., Teloworks, Inc., and Telos Identity Management Solutions, LLC[21] 2. Significant Accounting Policies This note outlines the significant accounting policies and estimates used in preparing the unaudited financial statements - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, with certain annual disclosures condensed or omitted for interim periods. Management uses estimates and assumptions that affect reported amounts, which are regularly assessed[23][24][26] - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, includes significant amendments to the Internal Revenue Code, such as restoring bonus depreciation and removing the requirement to capitalize and amortize domestic R&D expenditures. The company is evaluating its potential impact[30] - The FASB issued ASU No. 2023-09 (Income Tax Disclosure) and ASU 2024-03 (Expense Disaggregation Disclosure), which will be effective for public entities in fiscal years beginning after December 15, 2024, and December 15, 2026, respectively. The company is assessing their impact[32][33] 3. Revenue Recognition This note details the company's revenue recognition policies, including timing, customer types, and contract types - The majority of revenue (68% for Q2 2025, 73% for H1 2025) is recognized over time as control is continuously transferred. Revenue recognized at a point in time increased to 32% for Q2 2025 and 27% for H1 2025, up from 16% and 18% respectively in prior periods, primarily due to increased product sales volume[36] Revenue by Customer Type (in thousands) | Customer Type | Q2 2025 Amount | Q2 2025 % | Q2 2024 Amount | Q2 2024 % | H1 2025 Amount | H1 2025 % | H1 2024 Amount | H1 2024 % | | :---------------------- | :------------- | :-------- | :------------- | :-------- | :------------- | :-------- | :------------- | :-------- | | Federal | $32,672 | 91% | $24,832 | 87% | $59,972 | 90% | $51,439 | 89% | | State & local, and commercial | $3,296 | 9% | $3,666 | 13% | $6,612 | 10% | $6,678 | 11% | | Total revenue | $35,968 | 100% | $28,498 | 100% | $66,584 | 100% | $58,117 | 100% | Revenue by Contract Type (in thousands) | Contract Type | Q2 2025 Amount | Q2 2025 % | Q2 2024 Amount | Q2 2024 % | H1 2025 Amount | H1 2025 % | H1 2024 Amount | H1 2024 % | | :------------------ | :------------- | :-------- | :------------- | :-------- | :------------- | :-------- | :------------- | :-------- | | Firm fixed-price | $25,153 | 70% | $22,179 | 78% | $45,151 | 68% | $45,015 | 77% | | Time-and-materials | $8,913 | 25% | $3,022 | 11% | $17,290 | 26% | $6,159 | 11% | | Cost plus fixed fee | $1,902 | 5% | $3,297 | 11% | $4,143 | 6% | $6,943 | 12% | | Total revenue | $35,968 | 100% | $28,498 | 100% | $66,584 | 100% | $58,117 | 100% | - As of June 30, 2025, remaining performance obligations (funded backlog) totaled approximately $51.7 million, with 95% expected to be recognized over the next 12 months[46] 4. Accounts Receivable, Net This note provides a breakdown of accounts receivable, net, and discusses credit risk concentration Details of Accounts Receivable, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Billed accounts receivable | $17,139 | $10,070 | | Unbilled accounts receivable | $1,210 | $5,412 | | Contract assets | $784 | $3,746 | | Allowance for credit losses | $(28) | $(56) | | Accounts receivable, net | $19,105 | $19,172 | - 75% of billed and unbilled accounts receivable as of June 30, 2025, were with U.S. government customers, representing a significant concentration of credit risk, though historically manageable[48] 5. Inventories, Net This note presents the details of inventories, net, including gross inventory and obsolescence allowance Details of Inventories, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Gross inventory | $4,309 | $1,916 | | Allowance for inventory obsolescence | $(133) | $(133) | | Inventories, net | $4,176 | $1,783 | 6. Property and Equipment, Net This note details the net carrying value of property and equipment and related depreciation and amortization expenses Details of Property and Equipment, Net (in thousands) | Item | June 30, 2025 Net Carrying Value | December 31, 2024 Net Carrying Value | | :---------------------- | :-------------------------- | :-------------------------- | | Furniture and equipment | $2,873 | $3,622 | | Leasehold improvements | $604 | $661 | | Total | $3,477 | $4,283 | Depreciation and Amortization Expense (in thousands) | Period | June 30, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------ | | Three Months Ended | $422 | $259 | | Six Months Ended | $867 | $894 | 7. Goodwill This note discusses the goodwill balance, its allocation, and the absence of impairment charges in the current period - Goodwill balance remained at $17.9 million as of June 30, 2025, allocated $3.0 million to Security Solutions and $14.9 million to Secure Networks. No impairment charges were recorded for the three and six months ended June 30, 2025, or 2024[52] - Management notes that sustained current financial performance in the Secure Networks segment could trigger a goodwill impairment test, potentially impacting results of operations[52] 8. Intangible Assets, Net This note provides a breakdown of intangible assets, net, and related amortization expenses Details of Intangible Assets, Net (in thousands) | Item | June 30, 2025 Net Carrying Value | December 31, 2024 Net Carrying Value | | :-------------------------- | :-------------------------- | :-------------------------- | | Acquired technology | $1,853 | $2,080 | | Software development costs | $14,914 | $11,605 | | In-process software development costs | $14,801 | $16,725 | | Total | $31,568 | $30,410 | Amortization Expense (in thousands) | Period | June 30, 2025 | June 30, 2024 | | :------------------------------------------ | :------------ | :------------ | | Three Months Ended | $1,736 | $2,926 | | Six Months Ended | $3,261 | $5,038 | 9. Other Balance Sheet Components This note details other assets, accounts payable, other accrued liabilities, and other current liabilities Details of Other Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Investment | $3,000 | $3,000 | | Prepaid expense – long-term portion | $665 | $4,975 | | Restricted cash | $139 | $139 | | Other | $196 | $75 | | Other assets | $4,000 | $8,189 | Details of Accounts Payable and Other Accrued Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Accounts payable | $12,272 | $1,153 | | Accrued payables | $1,103 | $3,147 | | Accounts payable and other accrued liabilities | $13,375 | $4,300 | Details of Other Current Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Other accrued expenses | $1,231 | $829 | | Restructuring expenses accrual | — | $37 | | Other | $366 | $436 | | Other current liabilities | $1,597 | $1,302 | 10. Revolving Credit Facility This note describes the company's senior secured revolving credit facility and its compliance with financial covenants - The company has a $30.0 million senior secured revolving credit facility, maturing December 30, 2025, with an uncommitted expansion feature of up to $30.0 million. No amounts have been drawn under the loan[58] - The loan is collateralized by substantially all company assets and includes financial covenants, such as maintaining a Senior Leverage Ratio no greater than 3 to 1, with the company in compliance as of June 30, 2025[60][61] 11. Stock-Based Compensation This note details stock-based compensation plans, expense recognition, and restricted stock unit activity - Stockholders approved an amendment to the 2016 LTIP on May 8, 2025, increasing available shares by 4,900,000, leaving approximately 1.6 million shares available for future grants as of June 30, 2025[65] Stock Compensation Expense by Category (in thousands) | Category | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------ | :------ | :------ | :------ | :------ | | Cost of sales – services | $149 | $228 | $339 | $485 | | Research and development | $244 | $(877) | $284 | $(449) | | Selling, general and administrative | $7,364 | $2,868 | $14,182 | $5,167 | | Total | $7,757 | $2,219 | $14,805 | $5,203 | Restricted Stock Unit Activity | Item | Service-Based | Performance-Based | Total Shares | Weighted-Average Grant Date Fair Value | | :------------------------------------ | :------------ | :---------------- | :----------- | :------------------------------------- | | Unvested outstanding units as of Dec 31, 2024 | 1,952,103 | 10,683,230 | 12,635,333 | $3.52 | | Granted | 1,136,074 | 3,381,163 | 4,517,237 | $3.42 | | Vested | (799,366) | (283,375) | (1,082,741) | $4.15 | | Forfeited | (108,416) | (154,649) | (263,065) | $3.42 | | Unvested outstanding units as of Jun 30, 2025 | 2,180,395 | 13,626,369 | 15,806,764 | $3.24 | - As of June 30, 2025, approximately $23.2 million of total compensation costs related to stock-based awards remained unrecognized, expected to be recognized over a weighted-average remaining vesting period of 0.8 years[76] 12. Share Repurchases This note outlines the company's share repurchase program and activity during the reporting period - The Board of Directors approved a share repurchase program on May 24, 2022, authorizing up to $50.0 million of common stock repurchases. As of June 30, 2025, $34.7 million remained authorized[79] Share Repurchase Activity (in thousands, except per share and share data) | Period | Amounts paid for shares repurchased | Number of shares repurchased | Average per share price paid | | :-------------------------------- | :-------------------------------- | :--------------------------- | :--------------------------- | | For the Three Months Ended June 30, 2025 | $4,002 | 1,488,227 | $2.69 | | For the Six Months Ended June 30, 2025 | $4,002 | 1,488,227 | $2.69 | 13. Accumulated Other Comprehensive Loss This note provides a breakdown of changes in accumulated other comprehensive loss by category Details of Changes in Accumulated Other Comprehensive Loss by Category (in thousands) | Item | Foreign currency translation adjustment | Pension liability adjustment | Total | | :------------------------------------------ | :------------------------------ | :------------------------- | :---- | | Balance as of December 31, 2024 | $(175) | $46 | $(129) | | Other comprehensive income before reclassification, net of tax | $75 | $8 | $83 | | Balance as of June 30, 2025 | $(100) | $54 | $(46) | 14. Loss per Share This note explains the calculation of loss per share and the treatment of potentially dilutive securities - Potentially dilutive securities are excluded from diluted net earnings (loss) per share calculations during periods of net loss, as their inclusion would be anti-dilutive[82] Potentially Dilutive Securities (in thousands) | Period | June 30, 2025 | June 30, 2024 | | :---------------------------------------------------- | :------------ | :------------ | | Weighted-average number of shares – unvested RSUs, PSUs and stock options (Three Months Ended) | 976 | 654 | | Weighted-average number of shares – unvested RSUs, PSUs and stock options (Six Months Ended) | 1,158 | 1,058 | | Outstanding PSUs excluded from calculation (Three Months Ended) | 11,372,034 | 9,418,745 | | Outstanding PSUs excluded from calculation (Six Months Ended) | 11,372,034 | 9,418,745 | 15. Segment Information This note provides financial results by business segment, including Security Solutions and Secure Networks - The company operates in two reportable segments: Security Solutions (cybersecurity, cloud, identity, secure messaging) and Secure Networks (secure networking architectures, mobility, network management). Profitability is measured by gross profit[84][85][86] Results of Operations by Business Segment (Three Months Ended June 30, in thousands) | Metric | Security Solutions 2025 | Secure Networks 2025 | Total 2025 | Security Solutions 2024 | Secure Networks 2024 | Total 2024 | | :-------------------- | :---------------------- | :------------------- | :--------- | :---------------------- | :------------------- | :--------- | | Revenues | $32,474 | $3,494 | $35,968 | $17,867 | $10,631 | $28,498 | | Total cost of sales | $21,176 | $2,860 | $24,036 | $10,602 | $8,189 | $18,791 | | Gross profit | $11,298 | $634 | $11,932 | $7,265 | $2,442 | $9,707 | Results of Operations by Business Segment (Six Months Ended June 30, in thousands) | Metric | Security Solutions 2025 | Secure Networks 2025 | Total 2025 | Security Solutions 2024 | Secure Networks 2024 | Total 2024 | | :-------------------- | :---------------------- | :------------------- | :--------- | :---------------------- | :------------------- | :--------- | | Revenues | $58,292 | $8,292 | $66,584 | $36,507 | $21,610 | $58,117 | | Total cost of sales | $35,934 | $6,536 | $42,470 | $20,616 | $16,833 | $37,449 | | Gross profit | $22,358 | $1,756 | $24,114 | $15,891 | $4,777 | $20,668 | 16. Commitments and Contingencies This note discusses the company's legal proceedings, claims, and risks associated with government contracts - The company is subject to various legal proceedings and claims in the ordinary course of business, but management believes the outcome of known matters will not have a material adverse effect on the financial statements[91] - As a U.S. government contractor, the company is subject to audits and investigations, which could result in liabilities, fines, or debarment, potentially having a material adverse effect due to dependence on government contracts[92] 17. Supplemental Cash Flow Information This note provides supplemental details on cash, cash equivalents, restricted cash, and non-cash investing and financing activities Details of Cash, Cash Equivalents, and Restricted Cash (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Cash and cash equivalents | $56,998 | $54,578 | | Restricted cash | $139 | $139 | | Cash, cash equivalents, and restricted cash | $57,137 | $54,717 | Supplemental Cash Flow Information (Six Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :---------------------------------------------------------------- | :----- | :----- | | Cash paid for Interest | $252 | $287 | | Cash paid for Income taxes | $39 | $100 | | Non-cash investing and financing activities: Issuance of common stock for 401(k) match | $2,063 | $1,619 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key factors influencing performance, including revenue drivers, expense changes, liquidity, and critical accounting policies. It also discusses economic opportunities, challenges, and risks, particularly those related to U.S. government spending and recent legislative changes Forward-Looking Statements This section cautions that forward-looking statements are subject to risks and uncertainties, and actual results may vary - This report contains forward-looking statements, and actual results may differ materially due to various factors, including those outlined in the company's Form 10-K for the year ended December 31, 2024[95] General and Business Overview This section provides an overview of Telos Corporation's business, its primary customer base, and the impact of recent legislative changes - Telos Corporation provides technologically advanced, software-based security solutions for cybersecurity, cloud, and identity, primarily serving the U.S. federal government (approximately 90% of H1 FY2025 revenue), large commercial businesses, and state/local governments[96][98] - The new Administration's evaluation of federal spending and potential reforms to the U.S. government acquisition process create uncertainty and risk, but also new business opportunities due to a focus on efficiency and transferring government functions to private entities[99] - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, significantly impacts the defense sector through funding allocations and strategic investments in areas like AI, potentially boosting targeted defense investments and supporting related programs[100] Financial Overview This section highlights key financial performance drivers for the second quarter of 2025, including revenue growth and expense changes - Key factors influencing financial performance in Q2 2025 include increased revenue from a significant program in Security Solutions, growth in TSA PreCheck enrollment revenue, higher stock-based compensation expenses, and a $4.0 million common stock repurchase[108] Results of Operations This section analyzes the consolidated and segment-specific financial results, including revenue, gross profit, and operating expenses Consolidated Results of Operations (in thousands) | Metric | Q2 2025 | Q2 2024 | Dollar Change Q2 | H1 2025 | H1 2024 | Dollar Change H1 | | :------------------------------------ | :------ | :------ | :--------------- | :------ | :------ | :--------------- | | Revenue | $35,968 | $28,498 | $7,470 | $66,584 | $58,117 | $8,467 | | Cost of sales | $24,036 | $18,791 | $5,245 | $42,470 | $37,449 | $5,021 | | Gross profit | $11,932 | $9,707 | $2,225 | $24,114 | $20,668 | $3,446 | | Gross margin | 33.2% | 34.1% | -0.9% | 36.2% | 35.6% | +0.6% | | Operating expenses | $21,815 | $18,351 | $3,464 | $43,019 | $37,750 | $5,269 | | Operating loss | $(9,883) | $(8,644) | $(1,239) | $(18,905) | $(17,082) | $(1,823) | | Net loss | $(9,517) | $(7,757) | $(1,760) | $(18,121) | $(15,135) | $(2,986) | - Operating expenses increased by $3.5 million (18.9%) in Q2 2025 and $5.3 million (14.0%) in H1 2025, primarily due to higher stock-based compensation costs, partially offset by lower labor costs from Q3 2024 restructuring efforts and reduced cash incentive compensation[105][106] - Other income decreased by $0.5 million (48.0%) in Q2 2025 and $1.2 million (51.9%) in H1 2025, mainly due to changes in dividend income from money market placements[107] Security Solutions Segment Financial Results (in thousands) | Metric | Q2 2025 | Q2 2024 | Dollar Change Q2 | H1 2025 | H1 2024 | Dollar Change H1 | | :-------------------- | :------ | :------ | :--------------- | :------ | :------ | :--------------- | | Revenue | $32,474 | $17,867 | $14,607 | $58,292 | $36,507 | $21,785 | | Gross profit | $11,298 | $7,265 | $4,033 | $22,358 | $15,891 | $6,467 | | Gross margin | 34.8% | 40.7% | -5.9% | 38.4% | 43.5% | -5.1% | * Q2 2025 Revenue: Increased by $14.6 million (81.8%) YoY, driven by a significant program's ramp-up and increased volume on another large program[111] * H1 2025 Revenue: Increased by $21.8 million (59.7%) YoY, due to the same factors[113] * Gross Margin Decline: Primarily due to revenue mix, partially offset by lower depreciation and amortization expense on higher revenue[112][114] Secure Networks Segment Financial Results (in thousands) | Metric | Q2 2025 | Q2 2024 | Dollar Change Q2 | H1 2025 | H1 2024 | Dollar Change H1 | | :-------------------- | :------ | :------ | :--------------- | :------ | :------ | :--------------- | | Revenue | $3,494 | $10,631 | $(7,137) | $8,292 | $21,610 | $(13,318) | | Gross profit | $634 | $2,442 | $(1,808) | $1,756 | $4,777 | $(3,021) | | Gross margin | 18.1% | 23.0% | -4.9% | 21.2% | 22.1% | -0.9% | * Q2 2025 Revenue: Decreased by $7.1 million (67.1%) YoY, primarily due to the ramp-down of several programs[116] * H1 2025 Revenue: Decreased by $13.3 million (61.6%) YoY, due to the ramp-down of several programs[118] * Gross Margin Decline: Primarily due to the results of revenue mix[117][119] Liquidity and Capital Resources This section discusses the company's liquidity sources, working capital, and cash flow activities for operating, investing, and financing - Primary liquidity sources include cash on hand, future operating cash flows, and a $30.0 million revolving credit facility (maturing December 30, 2025) with an additional $30.0 million expansion feature[120] - As of June 30, 2025, the company had $57.0 million in cash and cash equivalents and $64.0 million in working capital, believing these resources are sufficient for operating, investing, and financing needs for the next 12 months[121][122] Net Change in Cash, Cash Equivalents, and Restricted Cash (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used in) operating activities | $13,056 | $(8,340) | | Net cash used in investing activities | $(4,658) | $(9,647) | | Net cash used in financing activities | $(5,978) | $(1,168) | | Net change in cash, cash equivalents, and restricted cash | $2,420 | $(19,155) | * Operating Activities: Increased by $21.4 million in H1 2025, driven by favorable working capital changes and higher cash earnings[123] * Investing Activities: Decreased by $5.0 million in H1 2025, due to lower capital expenditures and no repeat of a $3.0 million investment made in 2024[124] * Financing Activities: Increased by $4.8 million in H1 2025, primarily due to higher tax withholding payments for equity awards and $4.0 million in common stock repurchases[125] Critical Accounting Policies and Estimates This section outlines the company's critical accounting policies and estimates, including stock-based compensation and goodwill impairment - Critical accounting policies include stock-based compensation, goodwill, revenue recognition, and long-lived assets. No material changes to these policies or estimates occurred during the six months ended June 30, 2025[126][133] - Stock-based compensation expense for awards with performance conditions is estimated based on probable achievement, while market-condition PSUs are valued using a Monte Carlo model. Goodwill is tested for impairment annually, or sooner if triggering events occur, with no impairment charges recorded in the current period[127][128][129][130][131][132] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to financial risks such as interest rate, foreign currency translation, and counterparty risk. No material changes to these market risk disclosures have occurred during the six months ended June 30, 2025, compared to the 2024 Form 10-K - The company is exposed to interest rate risk, foreign currency translation risk, and counterparty risk. There have been no material changes to the market risk disclosures from the 2024 Form 10-K[134] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[136] - No material changes in internal control over financial reporting were identified during the quarter ended June 30, 2025[137] PART II - OTHER INFORMATION This section details legal proceedings, updated risk factors, equity security transactions, and other miscellaneous information Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 16 – Commitments and Contingencies to the unaudited consolidated financial statements - Legal proceedings information is detailed in Note 16 – Commitments and Contingencies of the financial statements[140] Item 1A. Risk Factors This section updates risk factors, specifically highlighting the potential adverse impact of the new Administration's international trade policies, including increased tariffs, on the company's procurement costs and overall business - Changes in international trade policies, such as increased tariffs by the new Administration, could raise procurement costs for IT hardware used internally, on contracts, or sold to customers, negatively affecting business, results of operations, or financial condition[142] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in unregistered sales of equity securities or use of proceeds. However, it repurchased 1,488,227 shares of common stock for $4.0 million during the three months ended June 30, 2025, under its existing share repurchase program - No unregistered sales of securities or use of proceeds occurred[143] Common Stock Purchase Activity During the Three Months Ended June 30, 2025 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans | | :-------------------------- | :------------------------------- | :--------------------------- | :---------------------------------------------------------------- | :---------------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | — | $— | — | $38,715,569 | | May 1, 2025 - May 31, 2025 | 761,338 | $2.61 | 761,338 | $36,731,490 | | June 1, 2025 - June 30, 2025 | 726,889 | $2.78 | 726,889 | $34,713,664 | | Total | 1,488,227 | $2.69 | 1,488,227 | | Item 3. Defaults upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[144] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[145] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[146] Item 6. Exhibits This section lists all exhibits filed with the report, including certifications and XBRL taxonomy documents - The report includes certifications from the CEO and CFO (Exhibits 31.1, 31.2), a certification pursuant to 18 U.S.C. Section 1350 (Exhibit 32), and various XBRL taxonomy extension documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[147] SIGNATURES This section provides the official signatures of the company's executive officers, certifying the report's accuracy - The report was signed on August 11, 2025, by John B. Wood (Chief Executive Officer), Mark Bendza (Chief Financial Officer), and DJ Terreri (Controller and Chief Accounting Officer)[150]