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)
|
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
|
Large accelerated filer ◻
|
Accelerated filer ◻
|
Non-accelerated filer ⌧
|
Smaller reporting company ◻
|
Emerging growth company ⌧
|
|
||
Page
|
||
PART I
|
||
Item 1.
|
3
|
|
Item 1A.
|
15
|
|
1Item 1B.
|
24
|
|
Item 2.
|
25
|
|
Item 3.
|
25
|
|
Item 4.
|
25
|
|
PART II
|
||
Item 5.
|
26
|
|
Item 6.
|
27
|
|
Item 7.
|
28
|
|
Item 7A.
|
39
|
|
Item 8.
|
40
|
|
Item 9.
|
72
|
|
Item 9A
|
72
|
|
Item 9B.
|
72
|
|
PART III
|
||
Item 10.
|
73
|
|
Item 11.
|
73
|
|
Item 12.
|
73
|
|
Item 13.
|
73
|
|
Item 14.
|
73
|
|
PART IV
|
||
Item 15.
|
73
|
|
Item 16.
|
76
|
|
77
|
•
|
Heavy
dependence on information and operational technologies. Organizations are increasingly dependent on technology, including mobile and wireless applications, cloud-based resources, industrial internet of things (“IoT”), industrial control systems (“ICS”), supervisory control and data
acquisition (“SCADA”), and others.
|
•
|
Digital
transformation and accelerating migration to the cloud. Enterprises and government agencies are accelerating the migration of applications, storage, and ICT/OT infrastructure to hosted and cloud environments. More organizations – including highly security-conscious agencies within the
U.S. government and commercial entities – are gaining comfort and confidence in the cloud, taking advantage of the rapid application development, greater flexibility, and strategic agility that the cloud offers.
|
•
|
Ability to
work across and beyond the enterprise. Organizations
are no longer defined by or confined by real estate, geography, or personnel rosters. Information and applications are now accessible in the cloud. Mobile devices free personnel to work wherever their mission takes them. Employees,
contractors, and partners collaborate in the physical and digital domains, trusting that they can rely on the integrity and trustworthiness of their people and their systems.
|
•
|
Turbulent
technology environment due to COVID-19. The COVID-19 pandemic has accelerated the growth of the remote workforce and thus, cyber risk. Existing technologies
for mobility are being stretched to the limit, and enterprises are facing dramatic growth in cyber-attack risk as a result of personnel and systems that are still adjusting to an increasing number of workers accessing systems remotely.
Ransomware, phishing attempts, and inadequate virtual private networks (“VPNs”) all contribute to a significant increase in threats and vulnerabilities.
|
•
|
Information
Assurance / Xacta: a premier platform for enterprise cyber risk management and security compliance automation, delivering security awareness for systems in the cloud, on-premises, and in hybrid and multi-cloud environments. Xacta
delivers automated cyber risk and compliance management solutions to large commercial and government enterprises. Across the U.S. federal government, Xacta is the de facto commercial cyber risk and compliance management solution.
|
|||
•
|
Secure Communications:
|
|||
○
|
Telos
Ghost: a virtual obfuscation network-as-a-service with encryption and managed attribution capabilities to ensure the safety and privacy of people, information, and resources on the network. Telos Ghost seeks to eliminate cyber-attack
surfaces by obfuscating and encrypting data, masking user identity and location, and hiding network resources. It provides the additional layers of security and privacy needed for intelligence gathering, cyber threat protection, securing
critical infrastructure, and protecting communications and applications when operations, property, and even lives can be jeopardized by a single error in security.
|
|||
○
|
Telos
Automated Message Handling System (“AMHS”): web-based organizational message distribution and management for mission-critical communications; the recognized gold standard for organizational messaging in the U.S. government. Telos
AMHS is used by military field operatives for critical communications on the battlefield and is the only web-based solution for assured messaging and directory services using the Defense Information System Agency’s (“DISA”) Organizational
Messaging Service and its specialized communications protocols.
|
|||
•
|
Telos ID: offering
Identity Trust and Digital Services through IDTrust360® – an enterprise-class digital identity risk platform for extending software-as-a-service (“SaaS”) and custom digital identity services that mitigate threats through the integration of
advanced technologies that fuse biometrics, credentials, and other identity-centric data used to continuously monitor trust. We maintain government certifications and designations that distinguish Telos ID, including TSA PreCheck®
enrollment provider, Designated Aviation Channeling provider, FBI-approved Channeler, and the Financial Industry Regulatory Authority (“FINRA”) Electronic Fingerprint Submission provider. We are the only commercial entity in our industry
designated as a Secure Flight Services provider for terrorist watchlist checks.
|
•
|
Secure
Mobility: solutions for business and government that enable remote work and minimize concern across and beyond the enterprise. Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience
as well as highly desirable clearances and industry recognized certifications for network engineering, mobility, and security.
|
|
•
|
Network
Management and Defense: services for operating, administrating, and defending complex enterprise networks and defensive cyber operations. Our diverse portfolio of capabilities addresses common and uncommon requirements in many
industries and disciplines, ranging from the military and government agencies to Fortune 500 companies.
|
•
|
Automated asset inventory - helps quickly define IT boundary/parameters and establish audit/test plans.
|
•
|
Automated control validation - reduces manual test efforts.
|
•
|
Automated continuous control monitoring - offers ongoing assurance of compliance.
|
•
|
Vulnerability management functionality - understand vulnerabilities that apply to IT environments.
|
•
|
Remediation management - workflow to help organizations prioritize risk, establish remediation plans, and track remediation progress
to closure.
|
•
|
Automated regulatory report generation - reduces manual effort needed to create regulatory reports (bi-product of the workflow
process).
|
•
|
Cloud integration - allows Xacta to manage cloud-based resources (multi-cloud environments) as well as on-premises assets.
|
•
|
Cloud deployment - allows Xacta to be deployed as a SaaS, Virtual Machine Image (“VMI”), Amazon Machine Image, and Microsoft Azure
VMI, as well as on-premises.
|
•
|
Intelligent workflow - Artificial Intelligence (“AI”)-like functionality reduces the need for manual intervention.
|
•
|
Predictive control mapping - AI-like functionality helps reduce redundant control testing and manual control mapping effort to help
address audit fatigue.
|
•
|
Automated control inheritance - allows organizations to share common compliance information - cloud providers share common controls
with customers as per the shared responsibility model of cloud security - which greatly reduces manual effort and enables rapid cloud adoption.
|
•
|
Visualization and reporting - reduces dependency on third-party business intelligence products.
|
•
|
End-to-end workflow capabilities - support for complex system authorization processes like FedRAMP and the NIST Risk Management
Framework, dramatically reducing time, cost, and effort.
|
•
|
Evidence of security posture compliance - designed to provide the body of evidence needed for regulatory or legal proceedings and
insurance claims to verify security posture compliance with industry best practices at the time of an event.
|
•
|
obscures and varies network pathways to prevent adversaries from tracking users and information.
|
•
|
uses multiple layers of encryption to protect information and remove source and destination IP addresses, eliminating network paths
back to the source.
|
•
|
enables users to manage their technical and non-technical persona to disguise their identity and location.
|
•
|
hides critical network resources using cloaked capabilities for email, storage, unified communications, and other applications.
|
•
|
Private Web Access: Secure anonymous
Internet access. Telos Ghost disguises the identity and location of personnel when using the public web for cyber threat intelligence and competitive research. It provides users with dynamic access for every session and assures that
traffic securely traverses the virtual private lines of Telos Ghost. Scalable and flexible, Telos Ghost Private Web Access allows users multiple points of international or domestic egress to the public internet based on customer requirements.
Traffic mixing and misdirection techniques are designed to ensure that activity remains anonymous, obscure and private.
|
•
|
Private Network Access: Leased-line
security with VPN flexibility. This capability is designed to allow authorized users to work with mission-critical enterprise information without being seen or discovered. It enables the establishment of sustainable cybersecurity
infrastructure, providing multi-layered secure tunnels for data traffic and obscuring the correlation between the entry doorways and the client cloud from external observers. Software and system agnostic and accessible from nearly any device
and location, Telos Ghost Private Network Access is designed to provide a full security solution while maintaining existing encryption and software services.
|
•
|
Cloaked Services: Hidden unified
mobile communications, storage, and applications. Telos Ghost also provides remote users with the ability to securely talk, text, email, store information, and use video and applications over nearly any mobile device. These abilities
include fully encrypted geo-masked hidden mobile communications for device-agnostic voice, video, chat, and data; hidden storage to store, analyze, and collaborate privately and securely within Telos Ghost; and hidden email and applications
that cloaks the servers for access only by Telos Ghost users.
|
•
|
Cyber threat research. Telos
Ghost provides members of a U.S. government organization with an isolated networking infrastructure that enables red team members to operate securely and privately without attracting unwanted attention.
|
•
|
Open source intelligence. A
U.S. government organization uses Telos Ghost to securely conduct open source cyber threat intelligence analysis.
|
•
|
Supply chain security vulnerability
assessment. A security company that vets the vulnerability of supply chains in the Defense Industrial Base uses Telos Ghost to inspect the digital connections of the supply chain online, safe from observation by adversaries that
might otherwise evade discovery.
|
•
|
Worldwide investigative and recovery
services. A commercial firm uses Telos Ghost for cloaked online research and voice communications over mobile devices to enable secure, privatized communications as they track and recover property from nefarious actors.
|
•
|
Military command and control;
|
•
|
Cross-border authorizations;
|
•
|
Exchanges between military forces of sovereign nations;
|
•
|
High-level policy, procedure, or directives; and
|
•
|
Response to legal, sensitive, or personnel matters.
|
•
|
U.S. Military ID. For more
than 25 years, Telos ID’s identity trust services have provided access to health care, commissary services, and critical defense resources for more than 2,000,000 military members, their dependents, and civilian employees through use of the
Common Access Card (“CAC”). We operate more than 250,000 components that comprise 7,000 end-user systems deployed around the world to nearly 2,000 military installations. We provide near real-time data collection support on personnel movement
and location information for operating forces, government civil servants, and government contractors in specified operational theaters. This system has captured over 636,000,000 scans of government, U.S. military, and contractor personnel
since its inception. Our logistics infrastructure provides responsive 24-hour delivery of components to our warfighters deployed across the globe, and we custom-build our identity, credentialing, and access management solutions to function
effectively in austere environments that demand reliability and performance at all times.
|
•
|
TSA Airport Employee Vetting.
Historically, more than 300,000,000 airline passengers’ travel experiences have been handled by more than 1,500,000 aviation workers who are screened through Telos ID’s aviation channeling service. As one of only two authorized aviation
channeling providers in the market, we offer our aviation partners innovative biometric, identity trust, and customer service technologies that are critical to the operation of more than half of the largest airports in the nation. We actively
support nearly 100 commercial airports, airlines, and general aviation customers, and our Independent Secure Flight Vetting technology provides a secure vetting service for non-travelers who need to access secure areas of an airport. We were
the first commercial company in the United States to implement the FBI’s Rap Back service, enabling our aviation partners to perform continuous monitoring for insider threat detection.
|
•
|
U.S. Census Bureau Enumerator
Screening. For the 2020 U.S. Census, we have processed more than 1,000,000 enumerators through our 1,100 identity service centers. Telos ID extends digital identity verification, fingerprinting, and photo services across the nation
in support of 2020 Census hiring initiatives. We custom designed and deployed more than 1,300 desktop, kiosk, and mobile workstations that are operated by thousands of Census-cleared staff members. At the peak, Telos ID’s managed service
supported more than 30,000 appointments per day, and our customer call center handled more than 35,000 daily calls at the peak.
|
•
|
TSA PreCheck® Enrollment Screening. Telos ID’s recent award of a 10-year contract to provide enrollment services in support of the TSA PreCheck®
Enrollment Program presents a large, high-profile opportunity for us, and we are preparing to launch services under this program in early 2021. The TSA PreCheck® contract is an important example of a government-sponsored, consumer
facing opportunity, in which we provide PreCheck® enrollment services to individual, fee-paying applicants. Telos ID’s service will engage with the world’s leading airline, hospitality, credit card, ride share, and other Fortune
500 businesses to provide consumer marketing and loyalty program tie-ins to promote the PreCheck® program. In addition, this program is expected to feature an omni-channel market approach that leverages advanced digital services to
reach our customers across several market segments.
|
•
|
CMS Healthcare Provider Screening.
Telos ID was recently awarded a 10-year contract to provide technology and service solutions that detect, prevent, and proactively deter fraud, waste and abuse in the Medicare and Medicaid programs. Telos ID’s digital identity trust platform
and digital services is expected to offer critical technology necessary to identify and mitigate fraud across the United States. Each year, approximately 1,500,000 health care providers are required to undergo FBI-based non-criminal history
checks requiring identity trust services, including identity verification, fingerprinting, and continuous monitoring.
|
•
|
Leading cybersecurity company with a
long history of providing security solutions to the most sophisticated customers. We have been providing security solutions, specializing in the area of cybersecurity, since 1995. Our customers include some of the most
security-conscious organizations in the world, including the IC. For example, we believe that our award-winning Xacta offering is the dominant commercial risk management solution in the federal government space and is increasingly being
adopted in the commercial sphere, notably by leading cloud providers such as AWS and Microsoft Azure. Additionally, Telos Ghost gives organizations and individuals the ability to hide in plain sight, eliminating attack vectors from hackers
through obfuscation and mis-attribution. And, we believe our Telos ID identity offerings are market disruptors that present large opportunities for growth.
|
•
|
Superior security solutions and
capabilities. Our solutions are designed for both government and commercial industries and are configured to operate in highly sensitive, highly classified environments, serving some of the most demanding, secure organizations in the
world. Our solutions are flexible, and can be deployed in various ways, including on premises, in the cloud, or in hybrid or multi-cloud environments.
|
•
|
Proven ability to win and retain
large contracts and enterprise-level deals, providing clear visibility into future revenue and profitability. We have over 20 active acquisition contracts and vehicles, thousands of active contracts and purchase orders, and more than
350 customers in each of the last three years. These contracts, vehicles and customers present a solid platform for growth. As but one example, we have provided IT security support to the Defense Manpower Data Center (“DMDC”) under a variety
of contract vehicles since 1995, and this program accounts for annual revenue at a historical average of approximately $28 million over the last five years. We also have proven repeatedly our ability to deploy our security solutions at the
enterprise level for both federal and commercial organizations. These long-term contract relationships provide predictable, recurring revenue at attractive margins.
|
•
|
Our substantial investments into
technology and automation can be expanded beyond our core market. Our solutions are built to help our customers be more secure, more efficient, and more effective. We have made investments across the company to take advantage of
efficiencies and automation through scalable security solutions that are market driven and market proven. In contrast to traditional cybersecurity businesses with a focus on government customers, we own the intellectual property developed
through our R&D initiatives and can deploy our technology solutions across our entire public and private sector customer set. The ability to offer our solutions beyond the U.S. federal government sphere is a key enabler of our strategy to
grow and expand our relationships with commercial customers.
|
•
|
Strong relationships with our
customers. We are a customer-centric organization and pride ourselves on our close customer relationships. We have longstanding relationships with DoD, civilian agencies of the federal government, and the IC that date back more than
two decades. Since 1995, our security solutions have been adopted by many defense, intelligence, civilian agency, and commercial customers, and we believe that the Telos brand has become synonymous with trust.
|
•
|
Respected, experienced management
team. Our executive officers have an average tenure at Telos of approximately 21 years. The team is comprised of personnel with extensive military, federal government, and commercial backgrounds who are directly familiar with
customer needs. Our management team also includes senior professionals who are experienced in developing commercial software solutions and leading technical teams throughout the development process.
|
•
|
COVID-resistant business. We
support mission critical operations. Because of this and the growth of remote workforces as a result of the COVID-19 pandemic, we believe, based upon our 2020 financial performance to date, that our business is relatively COVID resistant.
Additionally, the automation provided by our solutions can help customers do more with less as they are forced to downsize their staffs because of the pandemic. Automation is now even more critical to efficiently manage a business, including
with respect to cyber risk and regulatory compliance, which should result in additional demand for our security solutions.
|
•
|
Leverage our diverse security
solutions to expand our presence in commercial markets. Our offerings are designed to have broad application and include security risk and compliance, secure messaging, identity vetting, and managed attribution and obfuscation. We
believe that we are well-positioned to sell our capabilities into a dynamic and growing commercial opportunity set and to innovate to address emerging and unique requirements. For example, we have leveraged core Xacta functionality to meet
the needs of large financial services and CRM firms. We have also leveraged our U.S. federal government identity management qualifications to improve the speed and accuracy of vetting results for nearly 100 airports, air carriers, and general
aviation across the country. We intend to continue to innovate and are developing additional offerings for cloud, mobile, and IoT devices.
|
•
|
Grow our revenue and expand margins
by building robust sales channels. In recent years, we have formed an inside sales organization that serves as both the direct channel to a wider account universe and an effective and efficient training program to grow our field
sales organization. We plan to expand our partner program to include a variety of channels, including resellers, integrators, and contract partners to help us more quickly gain access to new markets, particularly commercial and international.
For example, both Telos Ghost and Xacta are now available through various AWS and Microsoft Azure marketplaces, serving regions around the world and markets requiring varying levels of security. We plan to grow our direct sales team and to
accelerate the expansion of these channel partner initiatives, which we anticipate will drive revenue growth and material gross margin expansion.
|
•
|
Target and replace inefficient legacy
products. Recognizing the limitations of their legacy systems, organizations are replacing existing systems and processes with our solutions. For example, Telos AMHS is a web-centric system that replaced legacy capabilities like
communications centers for the purpose of executing operational orders (through organizational messaging) across the U.S. federal government and around the world. Xacta has disrupted the cyber risk and compliance management business across
the U.S. federal government, replacing tedious manual activity with automation and delivering that automation to meet our customer’s needs flexibly on premises, in hybrid environments, in the cloud, and across multi-cloud infrastructures.
|
•
|
Broaden reach within the U.S. federal
government. We have historically focused on the U.S. federal government and believe that we are an established leader in providing security solutions to federal agencies, including DoD and the IC. Nonetheless, we believe the U.S.
federal government represents a significant growth opportunity, and we expect to continue to invest in products to serve additional customers in this vertical. For example, Xacta is included on DHS’s CDM Approved Products List to provide
federal agencies with innovative security tools, which we believe presents us with an excellent opportunity to pursue contracts with additional federal agencies. In addition, our platform is available for use in the AWS GovCloud (US) and
Azure Government.
|
•
|
Expand our international footprint.
We are expanding our international operations and intend to invest globally to broaden our international footprint. We are currently working with countries such as Canada, Singapore, Australia, and Bahrain to offer Xacta to address cyber risk
and compliance management capabilities. We are also working to expand AMHS to all NATO countries and to offer Telos Ghost internationally. We intend to grow our international customer base by increasing our investments in overseas operations,
establishing channel partners, and adding personnel in Europe, the Middle East, and Asia-Pacific.
|
•
|
Pursue strategic acquisition
opportunities. We believe that our markets remain fragmented, with many niche players providing limited product solutions targeting narrow customer segments. Given the breadth of our solution set and our customer end markets, we
believe that we are well-positioned to opportunistically acquire smaller companies and incorporate their technology or deploy their solutions across a larger customer set. We believe that a targeted and opportunistic acquisition strategy will
complement our significant organic growth opportunity.
|
•
|
impose specific and unique cost accounting practices that may differ from Generally Accepted Accounting Principles (“GAAP”) in the
United States of America and therefore require reconciliation;
|
•
|
impose acquisition regulations that define reimbursable and non-reimbursable costs; and
|
•
|
restrict the use and dissemination of information classified for national security purposes and the export of certain products and
technical data.
|
•
|
we may expend substantial funds and time to prepare bids and proposals for contracts that may ultimately be awarded to one of our
competitors;
|
•
|
we may be unable to accurately estimate the resources and costs that will be required to perform any contract we are awarded, which
could result in substantial cost overruns;
|
•
|
we may encounter expense and delay if our competitors protest or challenge awards of contracts, and any such protest or challenge
could result in a requirement to resubmit bids on modified specifications or in the termination, reduction or modification of the awarded contract. Additionally, the protest of contracts awarded to us may result in the delay of program
performance and the generation of revenue while the protest is pending; and
|
•
|
•
|
diversion of management attention from running our existing business;
|
•
|
possible material weaknesses in internal control over financial reporting;
|
•
|
increased expenses including legal, administrative and compensation expenses related to newly hired or terminated
employees;
|
•
|
increased costs to integrate the technology, personnel, customer base and business practices of the acquired company
with us;
|
•
|
potential exposure to material liabilities not discovered in the due diligence process;
|
•
|
potential adverse effects on reported operating results due to possible write-down of goodwill and other intangible
assets associated with acquisitions; and
|
•
|
unavailability of acquisition financing or unavailability of such financing on reasonable terms.
|
•
|
third party attempts to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords
or other information to gain access to our customers’ data, our data or our IT systems;
|
•
|
efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states;
|
•
|
cyber-attacks on our internally built infrastructure;
|
•
|
vulnerabilities resulting from enhancements and updates to our existing solutions;
|
•
|
vulnerabilities in the products or components across the broad ecosystem that our services operate in or are dependent on;
|
•
|
vulnerabilities existing within newly acquired or integrated technologies and infrastructures;
|
•
|
attacks on, or vulnerabilities in, the many different underlying networks and services that power the internet that our products
depend on, most of which are not under our control or the control of our vendors, partners, or customers; and
|
•
|
employee or contractor errors or intentional acts that compromise our security systems.
|
•
|
localization of our services, including translation into foreign languages and associated expenses;
|
•
|
regulatory frameworks or business practices favoring local competitors;
|
•
|
pressure on the creditworthiness of sovereign nations;
|
•
|
evolving domestic and international tax environments;
|
•
|
liquidity issues or political actions by sovereign nations, including nations with a controlled currency environment, which could
result in decreased values of these balances or potential difficulties protecting our foreign assets or satisfying local obligations;
|
•
|
foreign currency fluctuations and controls, which may make our services more expensive for international customers and could add
volatility to our operating results;
|
•
|
compliance with multiple, conflicting, ambiguous or evolving governmental laws and regulations, including employment, tax, privacy,
anti-corruption, import/export, antitrust, data transfer, storage and protection, and industry-specific laws and regulations, including rules related to compliance by our third-party resellers and our ability to identify and respond timely to
compliance issues when they occur;
|
•
|
vetting and monitoring our third-party resellers in new and evolving markets to confirm they maintain standards consistent with our
brand and reputation;
|
•
|
uncertainty regarding regulation, currency, tax, and operations resulting from the Brexit vote that could disrupt trade, the sale of
our services and commerce, and movement of our people between the United Kingdom, European Union, and locations;
|
•
|
changes in the public perception of governments in the regions where we operate or plan to operate;
|
•
|
regional data privacy laws and other regulatory requirements;
|
•
|
treatment of revenue from international sources, intellectual property considerations and changes to tax codes, including being
subject to foreign tax laws and being liable for paying withholding income or other taxes in foreign jurisdictions;
|
•
|
different pricing environments;
|
•
|
difficulties in staffing and managing foreign operations;
|
•
|
different or lesser protection of our intellectual property;
|
•
|
longer accounts receivable payment cycles and other collection difficulties;
|
•
|
natural disasters, acts of war, terrorism, pandemics or security breaches; and
|
•
|
regional economic and political conditions.
|
Years Ended December 31,
|
||||||||||||||||||||
2020
|
2019
|
2018
|
2017
|
2016
|
||||||||||||||||
(amounts in thousands)
|
||||||||||||||||||||
Sales
|
$
|
179,917
|
$
|
159,218
|
$
|
138,016
|
$
|
107,727
|
$
|
134,868
|
||||||||||
Operating income (loss)
|
297
|
5,025
|
9,014
|
414
|
2,112
|
|||||||||||||||
Income (loss) income before income taxes
|
6,795
|
(2,241
|
)
|
1,768
|
(6,265
|
)
|
(3,335
|
)
|
||||||||||||
Net income (loss) attributable to Telos Corporation
|
1,687
|
(6,401
|
)
|
(1,640
|
)
|
(5,833
|
)
|
(7,175
|
)
|
As of December 31,
|
||||||||||||||||||||
2020
|
2019
|
2018
|
2017
|
2016
|
||||||||||||||||
(amounts in thousands)
|
||||||||||||||||||||
Total assets
|
$
|
183,817
|
$
|
77,692
|
$
|
74,489
|
$
|
74,421
|
$
|
56,799
|
||||||||||
Senior term loan (1)
|
----
|
16,335
|
10,984
|
10,786
|
----
|
|||||||||||||||
Subordinated debt, long-term (1)
|
----
|
2,927
|
2,597
|
2,289
|
----
|
|||||||||||||||
Finance lease obligations, long-term (2)
|
14,301
|
15,641
|
16,865
|
17,980
|
18,990
|
|||||||||||||||
Operating lease obligations, long-term (2)
|
941
|
1,553
|
----
|
----
|
----
|
|||||||||||||||
Deferred income taxes, long-term (3)
|
652
|
621
|
818
|
741
|
3,391
|
|||||||||||||||
Senior redeemable preferred stock (4)
|
----
|
----
|
----
|
----
|
2,092
|
|||||||||||||||
Public preferred stock (4)
|
----
|
139,210
|
135,387
|
131,565
|
127,742
|
(1)
|
See Note 6 to the Consolidated Financial Statements in Item 8 regarding our debt obligations.
|
(2)
|
See Note 10 to the Consolidated Financial Statements in Item 8 regarding our lease obligations.
|
(3)
|
See Note 9 to the Consolidated Financial Statements in Item 8 regarding our income taxes.
|
(4)
|
See Note 7 to the Consolidated Financial Statements in Item 8 regarding our redeemable preferred stock.
|
•
|
Cybersecurity – We help our
customers ensure the ongoing security, integrity, and compliance of their on-premises and related cloud-based systems, reducing threats and vulnerabilities in order to foil cyber adversaries before they can attack. Our consultants assess our
customers’ security environments and then design, engineer, and operate the systems they need to strengthen their cybersecurity posture.
|
|
•
|
Cloud Security – The cloud as
an organizational resource is more than two decades old, yet the needs of cloud users are constantly changing. We offer the specialized skills and experience needed to help our customers plan, engineer, and execute secure cloud migration
strategies and then ensure ongoing management and security in keeping with the leading standards for cloud-based systems and workloads.
|
|
Enterprise Security – Securing
the enterprise means protecting the essential and timeless elements common to every organization: its people and processes, its supply chain and inventories, its finances and facilities, and its information and communications. As ICT and OT
have become part of the organizational make-up, we have offered solutions that ensure personnel can work securely and productively across and beyond the enterprise.
|
•
|
Information
Assurance / Xacta: a premier platform for enterprise cyber risk management and security compliance automation, delivering security awareness for systems in the cloud, on-premises, and in hybrid and multi-cloud environments. Xacta
delivers automated cyber risk and compliance management solutions to large commercial and government enterprises. Across the U.S. federal government, Xacta is the de facto commercial cyber risk and compliance management solution.
|
|||
•
|
Secure Communications:
|
|||
○
|
Telos Ghost:
a virtual obfuscation network-as-a-service with encryption and managed attribution capabilities to ensure the safety and privacy of people, information, and resources on the network. Telos Ghost seeks to eliminate cyber-attack surfaces by
obfuscating and encrypting data, masking user identity and location, and hiding network resources. It provides the additional layers of security and privacy needed for intelligence gathering, cyber threat protection, securing critical
infrastructure, and protecting communications and applications when operations, property, and even lives can be jeopardized by a single error in security.
|
|||
○
|
Telos Automated
Message Handling System (“AMHS”): web-based organizational message distribution and management for mission-critical communications; the recognized gold standard for organizational messaging in the U.S. government. Telos AMHS is used
by military field operatives for critical communications on the battlefield and is the only web-based solution for assured messaging and directory services using the DISA Organizational Messaging Service and its specialized communications
protocols.
|
|||
•
|
Telos ID: offering
Identity Trust and Digital Services through IDTrust360® – an enterprise-class digital identity risk platform for extending SaaS and custom digital identity services that mitigate threats through the integration of advanced
technologies that fuse biometrics, credentials, and other identity-centric data used to continuously monitor trust. We maintain government certifications and designations that distinguish Telos ID, including TSA PreCheck®
enrollment provider, Designated Aviation Channeling provider, FBI-approved Channeler, and FINRA Electronic Fingerprint Submission provider. We are the only commercial entity in our industry designated as a Secure Flight Services provider for
terrorist watchlist checks.
|
•
|
Secure Mobility:
solutions for business and government that enable remote work and minimize concern across and beyond the enterprise. Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience as well as highly
desirable clearances and industry recognized certifications for network engineering, mobility, and security.
|
•
|
Network
Management and Defense: services for operating, administrating, and defending complex enterprise networks and defensive cyber operations. Our diverse portfolio of capabilities addresses common and uncommon requirements in many
industries and disciplines, ranging from the military and government agencies to Fortune 500 companies.
|
2020
|
2019
|
2018
|
||||||||||
Federal
|
$
|
171,677
|
$
|
149,257
|
$
|
129,279
|
||||||
State & Local, and Commercial
|
8,240
|
9,961
|
8,737
|
|||||||||
Total
|
$
|
179,917
|
$
|
159,218
|
$
|
138,016
|
2019
|
2019
|
2018
|
||||||||||
Firm fixed-price
|
$
|
151,703
|
$
|
131,629
|
$
|
103,454
|
||||||
Time-and-materials
|
13,455
|
14,569
|
16,795
|
|||||||||
Cost plus fixed fee
|
14,759
|
13,020
|
17,767
|
|||||||||
Total
|
$
|
179,917
|
$
|
159,218
|
$
|
138,016
|
December 31,
|
||||||||
2020
|
2019
|
|||||||
Billed accounts receivable
|
$
|
12,060
|
$
|
11,917
|
||||
Unbilled receivables
|
19,161
|
16,745
|
||||||
Allowance for doubtful accounts
|
(308
|
)
|
(720
|
)
|
||||
Receivables – net
|
$
|
30,913
|
$
|
27,942
|
Years Ended December 31,
|
||||||||||||||||||||||||
2020
|
2019
|
2018
|
||||||||||||||||||||||
(dollar amounts in thousands)
|
||||||||||||||||||||||||
Revenue
|
$
|
179,917
|
100.0
|
%
|
$
|
159,218
|
100.0
|
%
|
$
|
138,016
|
100.0
|
%
|
||||||||||||
Cost of sales
|
117,497
|
65.3
|
106,874
|
67.1
|
84,954
|
61.6
|
||||||||||||||||||
Selling, general and administrative expenses
|
62,123
|
34.5
|
47,319
|
29.7
|
44,048
|
31.9
|
||||||||||||||||||
Operating income
|
297
|
0.2
|
5,025
|
3.2
|
9,014
|
6.5
|
||||||||||||||||||
Other income (expenses):
|
||||||||||||||||||||||||
Gain on redemption of public preferred stock
|
14,012
|
7.8
|
----
|
----
|
----
|
----
|
||||||||||||||||||
Non-operating (expense) income
|
(255
|
)
|
(0.2
|
)
|
201
|
0.1
|
12
|
----
|
||||||||||||||||
Interest expense
|
(7,259
|
)
|
(4.0
|
)
|
(7,467
|
)
|
(4.7
|
)
|
(7,258
|
)
|
(5.2
|
)
|
||||||||||||
Income (loss) income before income taxes
|
6,795
|
3.8
|
(2,241
|
)
|
(1.4
|
)
|
1,768
|
1.3
|
||||||||||||||||
Benefit from (provision for) income taxes
|
46
|
----
|
104
|
0.1
|
(31
|
)
|
----
|
|||||||||||||||||
Net income (loss)
|
6,841
|
3.8
|
(2,137
|
)
|
(1.3
|
)
|
1,737
|
1.3
|
||||||||||||||||
Less: Net income attributable to non-controlling interest
|
(5,154
|
)
|
(2.9
|
)
|
(4,264
|
)
|
(2.7
|
)
|
(3,377
|
)
|
(2.4
|
)
|
||||||||||||
Net income (loss) attributable to Telos Corporation
|
$
|
1,687
|
0.9
|
%
|
$
|
(6,401
|
)
|
(4.0
|
)%
|
$
|
(1,640
|
)
|
(1.1
|
)%
|
December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
(amounts in thousands)
|
||||||||||||
Commercial and subordinated note interest incurred
|
$
|
3,875
|
$
|
3,644
|
$
|
3,436
|
||||||
Preferred stock interest accrued
|
3,384
|
3,823
|
3,822
|
|||||||||
Total
|
$
|
7,259
|
$
|
7,467
|
$
|
7,258
|
Years Ended December 31,
|
||||||||||||
2020
|
2019
|
2018
|
||||||||||
(amount in thousands)
|
||||||||||||
Net income (loss) attributable to Telos Corporation
|
$
|
1,687
|
$
|
(6,401
|
)
|
$
|
(1,640
|
)
|
||||
Net income attributable to non-controlling interest
|
5,154
|
4,264
|
3,377
|
|||||||||
Non-operating income
|
(20
|
)
|
(201
|
)
|
(12
|
)
|
||||||
Interest expense
|
7,259
|
7,467
|
7,258
|
|||||||||
(Benefit) provision for income taxes
|
(46
|
)
|
(104
|
)
|
31
|
|||||||
Depreciation and amortization
|
5,353
|
4,972
|
3,028
|
|||||||||
Enterprise EBITDA
|
19,387
|
9,997
|
12,042
|
|||||||||
Transaction related gains/losses/expenses:
|
||||||||||||
Transaction related legal and accounting
|
1,914
|
----
|
----
|
|||||||||
Transaction related bonus
|
3,816
|
----
|
----
|
|||||||||
Gain on redemption of public preferred stock
|
(14,012
|
)
|
----
|
----
|
||||||||
Transaction related non-operating income
|
(274
|
)
|
----
|
----
|
||||||||
Loss on extinguishment of senior term loan
|
138
|
----
|
----
|
|||||||||
Loss on extinguishment of subordinated debt
|
411
|
----
|
----
|
|||||||||
Stock-based compensation expense
|
----
|
----
|
----
|
|||||||||
Total transaction related gains/losses/expenses
|
(8,007
|
)
|
----
|
----
|
||||||||
Stock-based compensation expense
|
4
|
----
|
----
|
|||||||||
Adjusted EBITDA
|
$
|
11,384
|
$
|
9,997
|
$
|
12,042
|
|
Payments due by Period
|
|||||||||||||||||||
Total
|
2021
|
2022 - 2024
|
2025 - 2027
|
2028 and later
|
||||||||||||||||
Finance lease obligations (1)
|
$
|
19,364
|
$
|
2,097
|
$
|
6,609
|
$
|
7,117
|
$
|
3,541
|
||||||||||
Operating lease obligations (2)
|
1,744
|
752
|
992
|
----
|
----
|
|||||||||||||||
$
|
21,108
|
$
|
2,849
|
$
|
7,601
|
$
|
7,117
|
$
|
3,541
|
|||||||||||
(1) Includes interest expense:
|
$
|
3,724
|
$
|
758
|
$
|
1 ,826
|
$
|
1,009
|
$
|
131
|
Page
|
|
41
|
|
42
|
|
43
|
|
44 - 45
|
|
46 - 47
|
|
48
|
|
49 - 71
|
|
Years Ended December 31,
|
|||||||||||
2020
|
2019
|
2018
|
||||||||||
Revenue (Note 5)
|
||||||||||||
Services
|
$
|
161,180
|
$
|
143,581
|
$
|
120,990
|
||||||
Products
|
18,737
|
15,637
|
17,026
|
|||||||||
179,917
|
159,218
|
138,016
|
||||||||||
Costs and expenses
|
||||||||||||
Cost of sales – Services
|
106,969
|
98,772
|
76,857
|
|||||||||
Cost of sales – Products
|
10,528
|
8,102
|
8,097
|
|||||||||
117,497
|
106,874
|
84,954
|
||||||||||
Selling, general and administrative expenses
|
||||||||||||
Sales and marketing
|
6,176
|
5,951
|
6,014
|
|||||||||
Research and development
|
14,243
|
10,647
|
8,755
|
|||||||||
General and administrative
|
41,704
|
30,721
|
29,279
|
|||||||||
62,123
|
47,319
|
44,048
|
||||||||||
Operating income
|
297
|
5,025
|
9,014
|
|||||||||
Other income (expenses)
|
||||||||||||
Gain on redemption of public preferred stock (Note 7)
|
14,012
|
—
|
—
|
|||||||||
Non-operating (expense) income
|
(255
|
)
|
201
|
12
|
||||||||
Interest expense
|
(7,259
|
)
|
(7,467
|
)
|
(7,258
|
)
|
||||||
Income (loss) before income taxes
|
6,795
|
(2,241
|
)
|
1,768
|
||||||||
Benefit from (provision for) income taxes (Note 9)
|
46
|
104
|
(31
|
)
|
||||||||
Net income (loss)
|
6,841
|
(2,137
|
)
|
1,737
|
||||||||
Less: Net income attributable to non-controlling interest (Note 2)
|
(5,154
|
)
|
(4,264
|
)
|
(3,377
|
)
|
||||||
Net income (loss) attributable to Telos Corporation
|
$
|
1,687
|
$
|
(6,401
|
)
|
$
|
(1,640
|
)
|
||||
Net earnings (loss) per share attributable to Telos Corporation, basic
|
$
|
0.04
|
$
|
(0.17
|
)
|
$
|
(0.04
|
)
|
||||
Net earnings (loss) per share attributable to Telos Corporation, diluted
|
$
|
0.04
|
$
|
(0.17
|
)
|
$
|
(0.04
|
)
|
||||
Weighted-average shares of common stock outstanding, basic
|
41,642
|
37,729
|
36,762
|
|||||||||
Weighted-average shares of common stock outstanding, diluted
|
42,877
|
37,729
|
36,762
|
|
Years Ended December 31,
|
|||||||||||
2020
|
2019
|
2018
|
||||||||||
Net income (loss)
|
$
|
6,841
|
$
|
(2,137
|
)
|
$
|
1,737
|
|||||
Other comprehensive income (loss), net of tax:
|
||||||||||||
Foreign currency translation adjustments
|
38
|
(11
|
)
|
(15
|
)
|
|||||||
Comprehensive income attributable to non-controlling interest
|
(5,154
|
)
|
(4,264
|
)
|
(3,377
|
)
|
||||||
Comprehensive income (loss) attributable to Telos Corporation
|
$
|
1,725
|
$
|
(6,412
|
)
|
$
|
(1,655
|
)
|
|
December 31,
|
|||||||
2020
|
2019
|
|||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
106,045
|
$
|
6,751
|
||||
Accounts receivable, net of reserve
of $308 and $720, respectively (Note 5)
|
30,913
|
27,942
|
||||||
Inventories, net of obsolescence
reserve of $851 and $860, respectively (Note 1)
|
3,311
|
1,965
|
||||||
Prepaid expenses
|
3,059
|
1,717
|
||||||
Deferred program expenses
|
5
|
673
|
||||||
Other current assets
|
781
|
1,197
|
||||||
Total current assets
|
144,114
|
40,245
|
||||||
Property and equipment (Note 1)
|
||||||||
Furniture, equipment, and capitalized software development costs
|
25,827
|
18,709
|
||||||
Leasehold improvements
|
2,669
|
2,536
|
||||||
Property and equipment under finance leases
|
30,792
|
30,792
|
||||||
59,288
|
52,037
|
|||||||
Accumulated depreciation and amortization
|
(36,891
|
)
|
(32,470
|
)
|
||||
22,397
|
19,567
|
|||||||
Operating lease right-of-use assets
|
1,464
|
1,979
|
||||||
Goodwill (Note 3)
|
14,916
|
14,916
|
||||||
Other assets
|
926
|
985
|
||||||
Total assets
|
$
|
183,817
|
$
|
77,692
|
|
December 31,
|
|||||||
2020
|
2019
|
|||||||
Current liabilities
|
||||||||
Accounts payable and other accrued liabilities (Note 6)
|
$
|
20,899
|
$
|
15,050
|
||||
Accrued compensation and benefits
|
8,474
|
12,187
|
||||||
Contract liabilities (Notes 1 and 6)
|
5,654
|
6,337
|
||||||
Finance lease obligations – short-term (Note 10)
|
1,339
|
1,224
|
||||||
Operating lease obligations – short-term (Note 10)
|
677
|
602
|
||||||
Other current liabilities
|
1,903
|
1,903
|
||||||
Total current liabilities
|
38,946
|
37,303
|
||||||
Senior term loan, net of unamortized discount and issuance costs (Note 6)
|
—
|
16,335
|
||||||
Subordinated debt (Note 6)
|
—
|
2,927
|
||||||
Finance lease obligations - long-term (Note 10)
|
14,301
|
15,641
|
||||||
Operating lease obligations - long-term (Note 10)
|
941
|
1,553
|
||||||
Deferred income taxes (Note 9)
|
652
|
621
|
||||||
Public preferred stock (Note 7)
|
—
|
139,210
|
||||||
Other liabilities (Note 9)
|
1,873
|
724
|
||||||
Total liabilities
|
56,713
|
214,314
|
||||||
Commitments and contingencies (Notes 10 and 13)
|
||||||||
Stockholders’ equity (deficit) (Note 8)
|
||||||||
Telos stockholders’ equity (deficit)
|
||||||||
Common stock, $0.001 par value, 250,000,000 shares authorized, 64,625,071 shares issued and outstanding as of December 31, 2020
|
103
|
—
|
||||||
Class A common stock, no par value, 50,000,000 shares authorized, 35,826,200 shares issued and outstanding as of December 31, 2019
|
—
|
65
|
||||||
Class B common stock, no par value, 5,000,000 shares authorized, 3,204,293 shares issued and outstanding as of December 31, 2019
|
—
|
13
|
||||||
Additional paid-in capital
|
270,800
|
4,310
|
||||||
Accumulated other comprehensive income
|
44
|
6
|
||||||
Accumulated deficit
|
(143,843
|
)
|
(145,530
|
)
|
||||
Total Telos stockholders’ equity (deficit)
|
127,104
|
(141,136
|
)
|
|||||
Non-controlling interest in subsidiary (Note 2)
|
—
|
4,514
|
||||||
Total stockholders’ equity (deficit)
|
127,104
|
(136,622
|
)
|
|||||
Total liabilities and stockholders’ equity (deficit)
|
$
|
183,817
|
$
|
77,692
|
|
Years Ended December 31,
|
|||||||||||
2020
|
2019
|
2018
|
||||||||||
Operating activities:
|
||||||||||||
Net income (loss)
|
$
|
6,841
|
$
|
(2,137
|
)
|
$
|
1,737
|
|||||
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:
|
||||||||||||
Gain on redemption of public preferred stock
|
(14,012
|
)
|
—
|
—
|
||||||||
Net loss on early extinguishment of
debt and other transactions
|
275
|
—
|
—
|
|||||||||
Stock-based compensation
|
4
|
—
|
—
|
|||||||||
Dividends from preferred stock recorded as interest expense
|
3,384
|
3,823
|
3,822
|
|||||||||
Depreciation and amortization
|
5,353
|
4,972
|
3,028
|
|||||||||
Provision for inventory obsolescence
|
(1
|
)
|
376
|
30
|
||||||||
(Benefit) provision for doubtful accounts receivable
|
(412
|
)
|
414
|
(105
|
)
|
|||||||
Provision for doubtful non-trade receivables
|
569
|
—
|
—
|
|||||||||
Amortization of debt issuance costs
|
978
|
461
|
198
|
|||||||||
Deferred income tax provision (benefit)
|
31
|
(197
|
)
|
77
|
||||||||
Loss on disposal of fixed assets
|
1
|
15
|
3
|
|||||||||
Changes in assets and liabilities:
|
||||||||||||
(Increase) decrease in accounts receivable
|
(2,559
|
)
|
6,186
|
(9,917
|
)
|
|||||||
(Increase) decrease in inventories
|
(1,345
|
)
|
2,048
|
9,101
|
||||||||
Decrease (increase) in deferred program expenses
|
668
|
(429
|
)
|
1,828
|
||||||||
Increase in prepaid expenses, other current assets and other assets
|
(1,606
|
)
|
(3,576
|
)
|
(465
|
)
|
||||||
Increase (decrease) in accounts payable and other accrued payables
|
3,413
|
(6,730
|
)
|
(3,914
|
)
|
|||||||
(Decrease) increase in accrued compensation and benefits
|
(3,713
|
)
|
3,105
|
1,626
|
||||||||
(Decrease) increase in contract liabilities
|
(683
|
)
|
1,106
|
(960
|
)
|
|||||||
Increase in other current liabilities and other liabilities
|
710
|
2,379
|
179
|
|||||||||
Cash (used in) provided by operating activities
|
(2,104
|
)
|
11,816
|
6,268
|
||||||||
Investing activities:
|
||||||||||||
Capitalized software development costs
|
(6,681
|
)
|
(2,442
|
)
|
(1,649
|
)
|
||||||
Purchases of property and equipment
|
(780
|
)
|
(4,090
|
)
|
(2,465
|
)
|
||||||
Cash used in investing activities
|
(7,461
|
)
|
(6,532
|
)
|
(4,114
|
)
|
||||||
Financing activities:
|
||||||||||||
Proceeds from initial public offering
|
272,813
|
—
|
—
|
|||||||||
Redemption of public preferred stock
|
(108,878
|
)
|
—
|
—
|
||||||||
Purchase of Telos ID membership interest
|
(30,000
|
)
|
—
|
—
|
||||||||
Payment of senior term loan
|
(17,351
|
)
|
—
|
—
|
||||||||
Payment of subordinated debt
|
(3,657
|
)
|
—
|
—
|
||||||||
Proceeds from senior term loan
|
—
|
4,881
|
—
|
|||||||||
Payments under finance lease obligations
|
(1,225
|
)
|
(1,115
|
)
|
(1,013
|
)
|
||||||
Amendment fee paid to lender
|
(100
|
)
|
—
|
—
|
||||||||
Distributions to Telos ID Class B member – non-controlling interest
|
(2,743
|
)
|
(2,371
|
)
|
(1,669
|
)
|
||||||
Cash provided by (used in) financing activities
|
108,859
|
1,395
|
(2,682
|
)
|
||||||||
Increase (decrease) in cash and cash equivalents
|
99,294
|
6,679
|
(528
|
)
|
||||||||
Cash and cash equivalents, beginning of the year
|
6,751
|
72
|
600
|
|||||||||
Cash and cash equivalents, end of year
|
$
|
106,045
|
$
|
6,751
|
$
|
72
|
|
Common Stock
|
Class A Common
Stock
|
Class B
Common
Stock
|
Additional
Paid–in Capital
|
Accumulated
Other
Comprehensive Income
|
Accumulated
Deficit
|
Non-Controlling Interest
|
Total
Stockholders’ Equity
(Deficit)
|
||||||||||||||||||||||||
Balance December 31, 2017
|
$
|
—
|
$
|
65
|
$
|
13
|
$
|
4,310
|
$
|
32
|
$
|
(141,370
|
)
|
$
|
913
|
$
|
(136,037
|
)
|
||||||||||||||
Net (loss) income
|
—
|
—
|
—
|
—
|
—
|
(1,640
|
)
|
3,377
|
1,737
|
|||||||||||||||||||||||
Cumulative effect adjustment due to change in accounting policy
|
—
|
—
|
—
|
—
|
—
|
3,881
|
—
|
3,881
|
||||||||||||||||||||||||
Foreign currency translation loss
|
—
|
—
|
—
|
—
|
(15
|
)
|
—
|
—
|
(15
|
)
|
||||||||||||||||||||||
Distributions
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,669
|
)
|
(1,669
|
)
|
||||||||||||||||||||||
Balance December 31, 2018
|
$
|
—
|
$
|
65
|
$
|
13
|
$
|
4,310
|
$
|
17
|
$
|
(139,129
|
)
|
$
|
2,621
|
(132,103
|
)
|
|||||||||||||||
Net (loss) income
|
—
|
—
|
—
|
—
|
—
|
(6,401
|
)
|
4,264
|
(2,137
|
)
|
||||||||||||||||||||||
Foreign currency translation loss
|
—
|
—
|
—
|
—
|
(11
|
)
|
—
|
—
|
(11
|
)
|
||||||||||||||||||||||
Distributions
|
—
|
—
|
—
|
—
|
—
|
—
|
(2,371
|
)
|
(2,371
|
)
|
||||||||||||||||||||||
Balance December 31, 2019
|
$
|
—
|
$
|
65
|
$
|
13
|
$
|
4,310
|
$
|
6
|
$
|
(145,530
|
)
|
$
|
4,514
|
$
|
(136,622
|
)
|
||||||||||||||
Net income
|
—
|
—
|
—
|
—
|
—
|
1,687
|
5,154
|
6,841
|
||||||||||||||||||||||||
Issuance of common stock
|
103
|
(65
|
)
|
(13
|
)
|
291,997
|
—
|
—
|
—
|
292,022
|
||||||||||||||||||||||
Purchase of Telos ID membership interest
|
—
|
—
|
—
|
(25,511
|
)
|
—
|
—
|
(4,489
|
)
|
(30,000
|
)
|
|||||||||||||||||||||
Foreign currency translation gain
|
—
|
—
|
—
|
—
|
38
|
—
|
—
|
38
|
||||||||||||||||||||||||
Stock-based compensation
|
—
|
—
|
—
|
4
|
—
|
—
|
—
|
4
|
||||||||||||||||||||||||
Distributions
|
—
|
—
|
—
|
—
|
—
|
—
|
(5,179
|
)
|
(5,179
|
)
|
||||||||||||||||||||||
Balance December 31, 2020
|
$
|
103
|
$
|
—
|
$
|
—
|
$
|
270,800
|
$
|
44
|
$
|
(143,843
|
)
|
$
|
—
|
$
|
127,104
|
|
2020
|
2019
|
2018
|
|||||||||
Federal
|
$
|
171,677
|
$
|
149,257
|
$
|
129,279
|
||||||
State & Local, and Commercial
|
8,240
|
9,961
|
8,737
|
|||||||||
Total
|
$
|
179,917
|
$
|
159,218
|
$
|
138,016
|
|
2020
|
2019
|
2018
|
|||||||||
Firm fixed-price
|
$
|
151,703
|
$
|
131,629
|
$
|
103,454
|
||||||
Time-and-materials
|
13,455
|
14,569
|
16,795
|
|||||||||
Cost plus fixed fee
|
14,759
|
13,020
|
17,767
|
|||||||||
Total
|
$
|
179,917
|
$
|
159,218
|
$
|
138,016
|
|
Balance
Beginning of
Year
|
Additions Charge to Costs and Expense
|
Recoveries
|
Balance
End of
Year
|
||||||||||||
Year Ended December 31, 2020
|
$
|
860
|
$
|
(1
|
)
|
$
|
(8
|
)
|
$
|
851
|
||||||
Year Ended December 31, 2019
|
$
|
520
|
$
|
376
|
$
|
(36
|
)
|
$
|
860
|
|||||||
Year Ended December 31, 2018
|
$
|
1,484
|
$
|
30
|
$
|
(994
|
)
|
$
|
520
|
Furniture and equipment
|
3-5 Years
|
Leasehold improvements
|
Lesser of life of lease or useful life of asset
|
Property and equipment under finance leases
|
Lesser of life of lease or useful life of asset
|
|
Year Ended December 31,
|
|||||||
2020
|
2019
|
|||||||
Unvested restricted stock
|
60
|
945
|
||||||
Common stock warrants, exercisable at $1.665/sh.
|
901
|
901
|
||||||
Total
|
961
|
1,846
|
|
2020
|
2019
|
2018
|
|||||||||
Non-controlling interest, beginning of period
|
$
|
4,514
|
$
|
2,621
|
$
|
913
|
||||||
Net income
|
5,154
|
4,264
|
3,377
|
|||||||||
Distributions
|
(5,179
|
)
|
(2,371
|
)
|
(1,669
|
)
|
||||||
Sale of 50% membership interest
|
(4,489
|
)
|
—
|
—
|
||||||||
Non-controlling interest, end of period
|
$
|
—
|
$
|
4,514
|
$
|
2,621
|
|
December 31,
|
|||||||
2020
|
2019
|
|||||||
Billed accounts receivable
|
$
|
12,060
|
$
|
11,917
|
||||
Unbilled receivables
|
19,161
|
16,745
|
||||||
Allowance for doubtful accounts
|
(308
|
)
|
(720
|
)
|
||||
Total
|
$
|
30,913
|
$
|
27,942
|
|
Balance Beginning
of Year
|
Bad Debt
Expenses (1)
|
Recoveries (2)
|
Balance
End
of Year
|
||||||||||||
Year Ended December 31, 2020
|
$
|
720
|
$
|
(412
|
)
|
$
|
—
|
$
|
308
|
|||||||
Year Ended December 31, 2019
|
$
|
306
|
$
|
414
|
$
|
—
|
$
|
720
|
||||||||
Year Ended December 31, 2018
|
$
|
411
|
$
|
(105
|
)
|
$
|
—
|
$
|
306
|
(1)
|
Accounts receivable reserves and reversal of allowance for subsequent collections, net
|
(2)
|
Accounts receivable written-off and subsequent recoveries, net
|
|
2020
|
2019
|
2018
|
|||||||||||||||||||||
(dollar amounts in thousands)
|
||||||||||||||||||||||||
Federal
|
$
|
171,677
|
95.4
|
%
|
$
|
149,257
|
93.7
|
%
|
$
|
129,279
|
93.7
|
%
|
||||||||||||
State & Local, and Commercial
|
8,240
|
4.6
|
%
|
9,961
|
6.3
|
%
|
8,737
|
6.3
|
%
|
|||||||||||||||
Total
|
$
|
179,917
|
100.0
|
%
|
$
|
159,218
|
100.0
|
%
|
$
|
138,016
|
100.0
|
%
|
•
|
The Company borrowed an additional $5 million from the Lenders, increasing the total amount of the principal to $16 million.
|
•
|
The maturity date of the Credit Agreement was amended from January 25, 2022 to January 15, 2021.
|
•
|
The prepayment price was amended as follows: (a) from January 26, 2019 through January 25, 2020, the prepayment price was 102% of the
principal amount, (b) from January 26, 2020 through October 14, 2020, the prepayment price was 101% of the principal amount, and (c) from October 15, 2020 to the maturity date, the prepayment price would be at par. However, the prepayment
price for the additional $5 million loan attributable to the Fourth Amendment would be at par.
|
•
|
The following financial covenants, as defined in the Credit Agreement, were amended and updated: Consolidated Leverage Ratio,
Consolidated Senior Leverage Ratio, Consolidated Capital Expenditures, Minimum Fixed Charge Coverage Ratio, and Minimum Consolidated Net Working Capital.
|
•
|
Any actual or potential non-compliance with the applicable provisions of the Credit Agreement were waived.
|
•
|
The borrowing under the Credit Agreement continued to be collateralized by substantially all of the Company’s assets including
inventory, equipment and accounts receivable.
|
•
|
The Company paid the Agent a fee of $110,000 in connection with the Fourth Amendment. We incurred immaterial third party transaction
costs which were expensed in the current period.
|
•
|
The exit fee was increased from $825,000 to $1,200,000.
|
|
For the Years Ended December 31,
|
|||||||||||
2020
|
2019
|
2018
|
||||||||||
Current (benefit) provision
|
||||||||||||
Federal
|
$
|
—
|
$
|
25
|
$
|
(29
|
)
|
|||||
State
|
(77
|
)
|
68
|
(17
|
)
|
|||||||
Total current
|
(77
|
)
|
93
|
(46
|
)
|
|||||||
Deferred provision (benefit)
|
||||||||||||
Federal
|
27
|
88
|
15
|
|||||||||
State
|
4
|
(285
|
)
|
62
|
||||||||
Total deferred
|
31
|
(197
|
)
|
77
|
||||||||
Total (benefit) provision
|
$
|
(46
|
)
|
$
|
(104
|
)
|
$
|
31
|
|
For the Years Ended December 31,
|
|||||||||||
2020
|
2019
|
2018
|
||||||||||
Computed expected income tax provision
|
21.0
|
%
|
21.0
|
%
|
21.0
|
%
|
||||||
State income taxes, net of federal income tax benefit
|
1.0
|
(0.7
|
)
|
19.0
|
||||||||
Change in valuation allowance for deferred tax assets
|
17.0
|
(24.7
|
)
|
(43.5
|
)
|
|||||||
Cumulative deferred adjustments
|
0.7
|
(1.1
|
)
|
--
|
||||||||
Provision to return adjustments
|
0.5
|
1.3
|
(1.7
|
)
|
||||||||
Other permanent differences
|
1.0
|
(3.8
|
)
|
6.1
|
||||||||
Dividend and accretion on preferred stock
|
10.5
|
(35.8
|
)
|
45.4
|
||||||||
Gain on redemption of preferred stock
|
(43.3
|
)
|
—
|
—
|
||||||||
Section 162(m) limitation - covered employees
|
14.6
|
(6.9
|
)
|
5.1
|
||||||||
Capitalization of IPO transaction costs
|
4.4
|
—
|
—
|
|||||||||
FIN 48 liability
|
0.2
|
(3.7
|
)
|
4.2
|
||||||||
R&D credit
|
(12.4
|
)
|
19.0
|
(25.2
|
)
|
|||||||
Non-controlling interest
|
(15.9
|
)
|
40.0
|
(40.1
|
)
|
|||||||
Impact of Tax Act
|
—
|
—
|
11.4
|
|||||||||
(0.7
|
)%
|
4.6
|
%
|
1.7
|
%
|
|
December 31,
|
|||||||
2020
|
2019
|
|||||||
Deferred tax assets:
|
||||||||
Accounts receivable, principally due to allowance for doubtful accounts
|
$
|
78
|
$
|
185
|
||||
Allowance for inventory obsolescence and amortization
|
398
|
316
|
||||||
Accrued liabilities not currently deductible
|
2,204
|
1,649
|
||||||
Accrued compensation
|
1,161
|
1,655
|
||||||
Deferred rent
|
4,387
|
4,808
|
||||||
Section 163(j) interest limitation
|
306
|
804
|
||||||
Goodwill
|
41,534
|
—
|
||||||
Net operating loss carryforwards - federal
|
3,814
|
2,583
|
||||||
Net operating loss carryforwards - state
|
1,002
|
796
|
||||||
Federal tax credit
|
1,986
|
1,326
|
||||||
Total gross deferred tax assets
|
56,870
|
14,122
|
||||||
Less valuation allowance
|
(52,198
|
)
|
(7,206
|
)
|
||||
Total deferred tax assets, net of valuation allowance
|
4,672
|
6,916
|
||||||
Deferred tax liabilities:
|
||||||||
Amortization and depreciation
|
(4,471
|
)
|
(2,623
|
)
|
||||
Unbilled accounts receivable, deferred for tax purposes
|
(853
|
)
|
(1,611
|
)
|
||||
Goodwill basis adjustment and amortization
|
—
|
(2,886
|
)
|
|||||
Telos ID basis difference
|
—
|
(417
|
)
|
|||||
Total deferred tax liabilities
|
(5,324
|
)
|
(7,537
|
)
|
||||
Net deferred tax liabilities
|
$
|
(652
|
)
|
$
|
(621
|
)
|
|
Balance Beginning of Period
|
Additions
|
Recoveries
|
Balance End
of Period
|
||||||||||||
December 31, 2020
|
$
|
7,206
|
$
|
44,992
|
$
|
--
|
$
|
52,198
|
||||||||
December 31, 2019
|
$
|
6,652
|
$
|
554
|
$
|
--
|
$
|
7,206
|
||||||||
December 31, 2018
|
$
|
7,219
|
$
|
--
|
$
|
(567
|
)
|
$
|
6,652
|
|
2020
|
2019
|
2018
|
|||||||||
Unrecognized tax benefits, beginning of period
|
$
|
714
|
$
|
649
|
$
|
585
|
||||||
(Decrease) increase in prior year tax positions
|
(104
|
)
|
1
|
3
|
||||||||
Increase related to current year tax positions
|
213
|
101
|
92
|
|||||||||
Decrease related to lapse of statutes
|
(60
|
)
|
(37
|
)
|
(31
|
)
|
||||||
Unrecognized tax benefits, end of period
|
$
|
763
|
$
|
714
|
$
|
649
|
|
Operating Leases
|
Finance Leases
|
||||||
2021
|
$
|
752
|
$
|
2,097
|
||||
2022
|
592
|
2,149
|
||||||
2023
|
373
|
2,202
|
||||||
2024
|
27
|
2,258
|
||||||
2025
|
—
|
2,314
|
||||||
After 2025
|
—
|
8,344
|
||||||
Total minimum lease payments
|
1,744
|
19,364
|
||||||
Less imputed interest
|
(126
|
)
|
(3,724
|
)
|
||||
Net present value of minimum lease payments
|
1,618
|
15,640
|
||||||
Less current portion
|
(677
|
)
|
(1,339
|
)
|
||||
Long-term lease obligations at December 31, 2020
|
$
|
941
|
$
|
14,301
|
|
Year Ended December 31,
|
|||||||
2020
|
2019
|
|||||||
Operating lease cost
|
$
|
724
|
$
|
597
|
||||
Short-term lease cost (1)
|
93
|
147
|
||||||
Finance lease cost
|
||||||||
Amortization of finance lease assets
|
1,221
|
1,221
|
||||||
Interest on finance lease liabilities
|
822
|
881
|
||||||
Total finance lease cost
|
2,043
|
2,102
|
||||||
Total lease costs
|
$
|
2,860
|
$
|
2,846
|
(1)
|
Leases that have terms of 12 months or less.
|
|
Year Ended December 31,
|
|||||||
2020
|
2019
|
|||||||
Cash paid for amounts included in the measurement of lease liabilities:
|
||||||||
Cash flows from operating activities - operating leases
|
$
|
745
|
$
|
604
|
||||
Cash flows from operating activities - finance leases
|
$
|
820
|
$
|
880
|
||||
Cash flows from financing activities - finance leases
|
$
|
1,225
|
$
|
1,115
|
||||
Operating lease ROU assets obtained in exchange for operating lease liabilities
|
$
|
613
|
$
|
488
|
|
Quarters Ended
|
|||||||||||||||
March 31
|
June 30
|
Sept. 30
|
Dec. 31
|
|||||||||||||
2020
|
||||||||||||||||
Revenue
|
$
|
38,980
|
$
|
48,610
|
$
|
47,440
|
$
|
44,887
|
||||||||
Gross profit
|
12,242
|
17,573
|
16,562
|
16,043
|
||||||||||||
(Loss) income before income taxes and non-controlling interest
|
(1,606
|
)
|
3,074
|
2,502
|
2,825
|
|||||||||||
Net (loss) income attributable to Telos Corporation (1)(2)
|
(2,244
|
)
|
266
|
(200
|
)
|
3,865
|
||||||||||
Weighted-average common shares outstanding, basic
|
38,073
|
38,583
|
39,002
|
50,383
|
||||||||||||
Weighted-average common shares outstanding, diluted
|
38,073
|
39,927
|
39,002
|
51,288
|
||||||||||||
Basic net (loss) earnings per share
|
(0.06
|
)
|
0.01
|
(0.01
|
)
|
0.08
|
||||||||||
Diluted net (loss) earnings per share
|
(0.06
|
)
|
0.01
|
(0.01
|
)
|
0.08
|
||||||||||
2019
|
||||||||||||||||
Revenue
|
$
|
31,166
|
$
|
36,048
|
$
|
45,531
|
$
|
46,473
|
||||||||
Gross profit
|
8,976
|
10,015
|
16,313
|
17,040
|
||||||||||||
(Loss) income before income taxes and non-controlling interest
|
(3,137
|
)
|
(1,974
|
)
|
3,708
|
(838
|
)
|
|||||||||
Net (loss) income attributable to Telos Corporation (1)(3)
|
(3,413
|
)
|
(1,741
|
)
|
2,233
|
(3,480
|
)
|
|||||||||
Weighted-average common shares outstanding, basic
|
37,116
|
37,642
|
38,073
|
38,073
|
||||||||||||
Weighted-average common shares outstanding, diluted
|
37,116
|
37,642
|
39,931
|
38,073
|
||||||||||||
Basic net (loss) earnings per share
|
(0.09
|
)
|
(0.05
|
)
|
0.06
|
(0.09
|
)
|
|||||||||
Diluted net (loss) earnings per share
|
(0.09
|
)
|
(0.05
|
)
|
0.06
|
(0.09
|
)
|
(1) |
Changes in net income are the result of several factors, including seasonality of the government year-end buying season, as well as the nature and
timing of other deliverables.
|
(2) |
Net income for the second quarter of 2020 is attributable to a change in the mix and timing of Telos ID deliverables.
|
(3) |
Net income for the third quarter of 2019 is attributable to $2.6
million in proprietary software sales which carry lower cost of sales.
|
10.8*
|
Form Restricted Stock Agreement (Incorporated by reference
to Exhibit 99.2 filed with the Company’s Current Report on Form 8-K on May 15, 2013)
|
10.9*
|
Employment Agreement, dated as of January 4, 2013, between the Company and Jefferson V. Wright (Incorporated by reference to Exhibit 10.29 filed with the Company’s Form 10-K report for the year ended December 31, 2013)
|
10.10
|
Second Amended and Restated Operating Agreement of Telos Identity Management Solutions , LLC, dated December 24, 2014 (Incorporated by reference to Exhibit 99.2 filed with the Company’s Current Report on Form 8-K on December 31, 2014)
|
10.11
|
Subordinated Loan Agreement between the Company and Porter Foundation Switzerland dated March 31, 2015 (Incorporated by reference to Exhibit 10.37 filed with the Company’s Form 10-K/A report for the year ended December 31, 2014)
|
10.12
|
Subordinated Promissory Note between the Company and Porter Foundation Switzerland dated March 31, 2015 (Incorporated by reference to Exhibit 10.38 filed with the Company’s Form 10-K/A report for the year ended December 31, 2014)
|
10.13
|
Subordinated Loan Agreement between the Company and JP Charitable Foundation Switzerland dated March 31, 2015 (Incorporated by reference to Exhibit 10.39 filed with the Company’s Form 10-K/A report for the year ended December 31, 2014)
|
10.14
|
Subordinated Promissory Note between the Company and JP Charitable Foundation Switzerland dated March 31, 2015 (Incorporated by reference to Exhibit 10.40 filed with the Company’s Form 10-K/A report for the year ended December 31, 2014)
|
10.15
|
Accounts Receivable Purchase Agreement between Telos Corporation and Republic Capital Access, LLC dated July 15, 2016 (Incorporated by reference to Exhibit 99.1 filed with the Company’s Current Report on Form 8-K on July 21, 2016)
|
10.16
|
Financing and Security Agreement between Telos Corporation and Action Capital Corporation, dated July 15, 2016 (Incorporated by reference to Exhibit 99.2 filed with the Company’s Current Report on Form 8-K on July 21, 2016)
|
10.17*
|
Telos Corporation 2016 Omnibus Long-Term Incentive Plan
(Incorporated by reference to Exhibit 10.3 filed with the Company’s Form 10-Q report for the quarter ended June 30, 2016)
|
10.18*
|
Notice of Grant of Restricted Stock (Incorporated by
reference to Exhibit 10.4 filed with the Company’s Form 10-Q report for the quarter ended June 30, 2016)
|
10.19
|
Amendment to Financing and Security Agreement Between the Company and Action Capital Corporation dated September 6, 2016 (Incorporated by reference to Exhibit 99.1 filed with the Company’s Current Report on Form 8-K on September 9, 2016)
|
10.20*
|
Telos ID Sale Bonus Plan (Incorporated by reference to
Exhibit 10.48 filed with the Company’s Form 10-K report for the year ended December 31, 2016)
|
10.21
|
First Amendment to Accounts Receivable Purchase Agreement between Telos Corporation and Republic Capital Access, LLC dated March 2, 2018 (Incorporated by reference to Exhibit 10.48 filed with the Company’s Form 10-K report for the year ended December 31, 2017)
|
10.22*
|
Telos Corporation Senior Officer Incentive Program, Adopted as Revised March 29, 2018 (Incorporated by reference to Exhibit 10.49 filed with the Company’s Form 10-K report for the year ended December 31, 2017)
|
10.23
|
Amendment to Financing and Security Agreement Between Telos Corporation and Action Capital Corporation dated August 13, 2018 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 10-Q report for the quarter ended June 30, 2018)
|
10.24
|
Second Amendment to
Accounts Receivable Purchase Agreement between Telos Corporation and Republic Capital Access, LLC dated November 15, 2019 (Incorporated by reference to Exhibit 10.24 filed the Company’s Form 10-K report for the year ended December 31,
2019)
|
10.25
|
Membership Interest Purchase Agreement, dated October 5, 2020 (Incorporated by reference to Exhibit 99.1 filed with the Company’s Current Report on Form 8-K on October 6, 2020)
|
10.26
|
Amended Voting and Support Agreement, dated October 19, 2020 (Incorporated by reference to Exhibit 10.2 filed with the Company’s Form 10-Q report for the quarter ended September 30, 2020)
|
10.27*
|
Amendment No. 1 to the 2016 Omnibus Long-Term Incentive Plan (Incorporated by reference to Exhibit 4.4 filed with the Company’s Form S-8 on January 25, 2021)
|
10.28*
|
The Company’s Annual Cash Incentive Plan for 2021
(Incorporated by reference to Exhibit 99.2 filed with the Company’s Current Report on Form 8-K on November 12, 2020)
|
10.29*
|
Form of Restricted Share Unit Award Notice and Restricted Share or Restricted Share Unit Agreement (Time-Based) (Incorporated by reference to Exhibit 99.1 filed with the Company’s Current Report on Form 8-K on February 3, 2021)
|
10.30*
|
Form of Restricted Share Unit Award Notice
and Restricted Share or Restricted Share Unit Agreement (Performance-Based) (Incorporated by reference to Exhibit 99.2 filed with the Company’s
Current Report on Form 8-K on February 3, 2021)
|
21+
|
|
23+
|
|
31.1+
|
|
31.2+
|
|
32+
|
101.INS^
|
XBRL Instance Document
|
101.SCH^
|
XBRL Taxonomy Extension Schema
|
101.CAL^
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF^
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB^
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE^
|
XBRL Taxonomy Extension Presentation Linkbase
|
TELOS CORPORATION
|
||
By:
|
/s/ John B. Wood
|
|
John B. Wood
Chief Executive Officer and
Chairman of the Board (Principal
Executive Officer)
|
||
Date:
|
March 25, 2021
|
Signature
|
Title
|
Date
|
/s/ John B. Wood
|
Chief Executive Officer and Chairman
of the Board (Principal Executive Officer)
|
March 25, 2021
|
John B. Wood
|
||
/s/ Michele Nakazawa
|
Chief Financial Officer (Principal
Financial and Accounting Officer)
|
March 25, 2021
|
Michele Nakazawa
|
||
/s/ Bernard C. Bailey
|
Director
|
March 25, 2021
|
Bernard C. Bailey
|
||
/s/ David Borland
|
Director
|
March 25, 2021
|
David Borland
|
||
/s/ Bonnie Carroll
|
Director
|
March 25, 2021
|
Bonnie Carroll
|
||
/s/ Fredrick D. Shaufeld
|
Director
|
March 25, 2021
|
Fredrick D. Shaufeld
|
||
/s/ John W. Maluda
|
Director
|
March 25, 2021
|
John W. Maluda, Major Gen., USAF (Ret)
|
Name of Subsidiary
|
State/Country
of Incorporation
|
|
|
Ubiquity.com, Inc.
|
Delaware
|
Xacta Corporation
|
Delaware
|
Teloworks, Inc.
|
Delaware
|
Telos Identity Management Solutions, LLC (DBA Telos ID)
|
Delaware
|
Teloworks Philippines, Inc.
|
Philippines
|
Telos APAC Pte. Ltd.
|
Singapore |
Date: March 25, 2021
|
/s/ John B. Wood
|
John B. Wood
|
Chief Executive Officer (Principal Executive Officer)
|
Date: March 25, 2021
|
/s/ Michele Nakazawa
|
Michele Nakazawa
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
Date: March 25, 2021
|
/s/ John B. Wood
|
John B. Wood
|
Chief Executive Officer (Principal Executive Officer)
|
Date: March 25, 2021
|
/s/ Michele Nakazawa
|
Michele Nakazawa
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|