Segment Information

6 Months Ended

Jun. 30, 2022

Segment Reporting [Abstract]

Segment Information

SEGMENT INFORMATION

As noted in Note 2 - Significant Accounting Policies, during the fourth quarter of 2021, as a result of the segment reorganization, our CODM began evaluating, overseeing and managing the financial performance of our operations through two operating segments: Security Solutions and Secure Networks. The segments enable the alignment of our strategies and objectives and provide a framework for timely and rational allocation of resources within the lines of business. We eliminate any inter-segment revenues and expenses upon consolidation.

The Security Solutions segment is primarily focused on cybersecurity, cloud and identity solutions, and secure messaging through Xacta®, Telos Ghost®, Telos® Advanced Cyber Analytics, Telos® AMHS and Telos® ID offerings. We recognize revenue on contracts from providing various system platforms in the cloud, on-premises and in hybrid cloud environments, as well as software sales or software-as-a-service. Revenue associated with the segment's custom solutions is recognized as work progresses or upon delivery of services and products. Fluctuation in revenue from period to period is the result of the volume of software sales, and progress or completion of cloud and/or cybersecurity solutions during the period. The majority of the operating costs relates to labor, material, and overhead costs. Software sales have immaterial operation costs associated with them, thus yielding higher margins. Gross profit and margin are a function of operational efficiency on security solutions and changes in the volume of software sales.

The Secure Networks segment provides secure networking architectures and solutions to our customers through secure mobility solutions and network management and defense services. Revenue is recognized over time as the work progresses on contracts related to managing network services and information delivery. Contract costs include labor, material and overhead costs. Variances in costs recognized from period to period primarily reflect increases and decreases in activity level on individual contracts.

Table 17: Results of Operations by Business Segment
	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(in thousands)
Revenues:
Security Solutions	$	30,819	$	32,236	$	57,738	$	55,066
Secure Networks	24,972		21,408		48,213		54,336
Total revenue	55,791		53,644		105,951		109,402
Gross profit:
Security Solutions	16,433		17,188		31,485		26,515
Secure Networks	4,496		5,346		8,315		10,489
Total gross profit	20,929		22,534		39,800		37,004
Selling, general and administrative expenses	33,095		40,005		66,700		67,969
Operating loss	(12,166)		(17,471)		(26,900)		(30,965)
Other income/(expense)	118		32		130		(1,022)
Interest expense	(187)		(192)		(377)		(388)
Loss before income taxes	(12,235)		(17,631)		(27,147)		(32,375)
Provision for income taxes	(54)		(13)		(125)		(47)
Net loss	$	(12,289)	$	(17,644)	$	(27,272)	$	(32,422)

We measure each segment's profitability based on gross profit. We account for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. Interest income, interest expense, other income and expense items and income taxes, as reported in the consolidated financial statements, are not part of the segment profitability measure, and are primarily recorded at the corporate level. Under U.S. government Cost Accounting Standards, indirect costs including depreciation and amortization expense, are collected in numerous indirect cost pools, which are then collectively allocated out to the Company’s reportable segments based on a representative causal or beneficial relationship of the costs in the pool to the costs in the base. While depreciation and amortization expense is a component of the allocated costs, the allocation process precludes depreciation and amortization expense from being specifically identified by the Company’s individual reportable and operating segments. For this reason, the non-cash items by a reportable and operating segment have not been reported above.

Management does not utilize total assets by segment to evaluate segment performance or allocate resources. As a result, assets are not tracked by segment and therefore, total assets by segment are not disclosed.