tls-20230331


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


x			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: March 31, 2023


¨			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 001-08443

TELOS CORPORATION

(Exact name of registrant as specified in its charter)


Maryland						52-0880974
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

19886 Ashburn Road, Ashburn, Virginia						20147-2358
(Address of principal executive offices)						(Zip Code)

(703) 724-3800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, $0.001 par value per share	TLS	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

As of May 5, 2023, the registrant had outstanding 69,389,506 shares of common stock.

Table of Contents

Table of Contents to First Quarter 2023 Form 10-Q


		Page
PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Consolidated Statements of Operations	3
	Consolidated Statements of Comprehensive Lo s s	4
	Consolidated Balance Sheets	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Changes in Stockholders’ Equity	7
	Notes to Consolidated Financial Statements	8
	1 . O rganization	8
	2. Significant Accounting Policies	8
	3. Revenue Recognition	9
	4. Accounts Receivable, Net	11
	5. Inventories, Net	11
	6. Property and Equipment, Net	11
	7. Goodwill	11
	8. Intangible Assets, Net	12
	9. Other Balance Sheet Components	12
	10. Debt and Other Obligations	12
	11. Acquisition	13
	12. Stock-Based Compensation	14
	13. Share Repurchases	14
	14. Accumulated Other Comprehensive Loss	14
	15. Loss per Share	15
	16. Related Party Transactions	15
	17. Segment Information	15
	18. Commitments and Contingencies	16
	19. Supplemental Cash Flow Information	17
	20. Revision of Prior Year Interim Financial Statements	17
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Forward-Looking Statements	19
	General and Business Overview	19
	Business Environment	19
	Backlog	20
	Financial Overview	20
	Results of Operations	21
	Non-GAAP Financial Measures	22
	Liquidity and Capital Resources	24
	Critical Accounting Policies and Estimates	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	25
PART II - OTHER INFORMATION		26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
	SIGNATURES	28

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

TELOS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended
	March 31, 2023		March 31, 2022

	(in thousands, except per share amounts)
Revenue – services	$	31,534	$	48,108
Revenue – products	3,688		2,052
Total revenue	35,222		50,160
Cost of sales – services	19,268		29,731
Cost of sales – products	2,472		1,558
Total cost of sales	21,740		31,289
Gross profit	13,482		18,871
Selling, general and administrative expenses
Sales and marketing	1,643		5,252
Research and development	2,833		5,430
General and administrative	21,976		24,556
Total selling, general and administrative expenses	26,452		35,238
Operating loss	(12,970)		(16,367)
Other income	2,496		12
Interest expense	(249)		(190)
Loss before income taxes	(10,723)		(16,545)
Provision for income taxes	(23)		(71)
Net loss	$	(10,746)	$	(16,616)

Net loss per share:
Basic	$	(0.16)	$	(0.25)
Diluted	$	(0.16)	$	(0.25)

Weighted-average shares outstanding:
Basic	68,176		67,559
Diluted	68,176		67,559

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

TELOS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)


	For the Three Months Ended
	March 31, 2023		March 31, 2022

	(in thousands)
Net loss	$	(10,746)	$	(16,616)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments	13		29
Comprehensive loss	$	(10,733)	$	(16,587)

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

TELOS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2023		December 31, 2022

	(in thousands, except per share amount and share data)
Assets:
Cash and cash equivalents	$	112,462	$	119,305
Accounts receivable, net	34,702		40,069
Inventories, net	1,629		2,877
Prepaid expenses	5,480		4,819
Other current assets	1,042		893
Total current assets	155,315		167,963
Property and equipment, net	4,406		4,787
Finance lease right-of-use assets, net	7,527		7,832
Operating lease right-of-use assets, net	458		341
Goodwill	17,922		17,922
Intangible assets, net	33,801		37,415
Other assets	1,223		1,137
Total assets	$	220,652	$	237,397
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and other accrued liabilities	$	18,011	$	22,551
Accrued compensation and benefits	7,665		8,388
Contract liabilities	7,203		6,444
Finance lease obligations – current portion	1,625		1,592
Operating lease obligations – current portion	494		361
Other financing obligations – current portion	—		1,247
Other current liabilities	3,856		4,919
Total current liabilities	38,854		45,502
Finance lease obligations – non-current portion	10,832		11,248
Operating lease liabilities – non-current portion	—		27
Other financing obligations – non-current portion	—		7,211
Deferred income taxes	770		758
Other liabilities	301		297
Total liabilities	50,757		65,043
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value, 250,000,000 shares authorized, 69,388,256 shares and 67,431,632 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	108		106
Additional paid-in capital	420,980		412,708
Accumulated other comprehensive income	(42)		(55)
Accumulated deficit	(251,151)		(240,405)
Total stockholders’ equity	169,895		172,354
Total liabilities and stockholders’ equity	$	220,652	$	237,397

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

TELOS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Three Months Ended
	March 31, 2023		March 31, 2022

	(in thousands)
Cash flows from operating activities:
Net loss	$	(10,746)	$	(16,616)
Adjustments to reconcile net loss to cash (used in)/provided by operating activities:
Stock-based compensation	9,499		15,931
Depreciation and amortization	1,425		1,405
Deferred income tax provision	12		12
Accretion of discount in acquisition holdback	2		12
Loss on disposal of fixed assets	1		—
Provision for doubtful accounts	89		95
Amortization of debt issuance costs	17		—
Gain on early extinguishment of other financing obligations	(1,427)		—
Changes in other operating assets and liabilities:
Accounts receivable	5,279		2,014
Inventories	1,248		(850)
Prepaid expenses, other current assets, other assets	(927)		(3,563)
Accounts payable and other accrued payables	(4,489)		674
Accrued compensation and benefits	(364)		495
Contract liabilities	758		655
Other current liabilities	(477)		(15)
Net cash (used in)/provided by operating activities	(100)		249
Cash flows from investing activities:
Capitalized software development costs	(3,800)		(2,795)
Purchases of property and equipment	(223)		(546)
Payment of DFT holdback amount	(564)		—
Net cash used in investing activities	(4,587)		(3,341)
Cash flows from financing activities:
Payments under finance lease obligations	(383)		(351)
Payment of tax withholding related to net share settlement of equity awards	(1,520)		(2,886)
Repurchase of common stock	(139)		—
Payments for debt issuance costs	(114)		—
Net cash used in financing activities	(2,156)		(3,237)
Net change in cash, cash equivalents, and restricted cash	(6,843)		(6,329)
Cash, cash equivalents, and restricted cash, beginning of period	119,438		126,562
Cash, cash equivalents, and restricted cash, end of period	$	112,595	$	120,233

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

TELOS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount

	(in thousands)
Balance at December 31, 2022	67,431	$	106	$	412,708	$	(55)	$	(240,405)	$	172,354
Net loss	—	—		—		—		(10,746)		(10,746)
Foreign currency translation gain	—	—		—		13		—		13
Restricted stock unit awards vested, net of shares withheld to cover tax withholding	1,180	1		(1,585)		—		—		(1,584)
Stock-based compensation	—			7,916		—		—		7,916
Issuance of common stock for 401K match	777	1		1,941		—		—		1,942
Balance at March 31, 2023	69,388	$	108	$	420,980	$	(42)	$	(251,151)	$	169,895

Balance at December 31, 2021	66,767	$	105	$	367,153	$	(27)	$	(186,977)	$	180,254
Net loss	—	—		—		—		(16,616)		(16,616)
Foreign currency translation loss	—	—		—		29		—		29
Restricted stock unit awards vested, net of shares withheld to cover tax withholding	1,100	1		(2,887)		—		—		(2,886)
Stock-based compensation	—	—		14,280		—		—		14,280
Balance at March 31, 2022	67,867

SEC Form 10-Q filed by Telos Corporation