SEGMENT INFORMATION

9 Months Ended

Sep. 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 the 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 the progress or completion of cloud and/or cybersecurity solutions during the period. The majority of the operating costs relate 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 levels on individual contracts.

Table 17: Results of Operations by Business Segment
	For the Three Months Ended				For the Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
	(in thousands)
Revenues:
Security Solutions	$	32,440	$	34,558	$	90,178	$	89,624
Secure Networks	31,153		34,423		79,366		88,759
Total revenue	63,593		68,981		169,544		178,383
Gross profit:
Security Solutions	15,577		19,517		47,062		46,032
Secure Networks	5,368		5,360		13,683		15,849
Total gross profit	20,945		24,877		60,745		61,881
Selling, general and administrative expenses	28,614		29,965		95,314		97,935
Operating loss	(7,669)		(5,088)		(34,569)		(36,054)
Other income/(expense)	518		20		648		(1,001)
Interest expense	(181)		(195)		(558)		(583)
Loss before income taxes	(7,332)		(5,263)		(34,479)		(37,638)
(Provision for)/benefit from income taxes	(8)		41		(133)		(6)
Net loss	$	(7,340)	$	(5,222)	$	(34,612)	$	(37,644)

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.

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.