SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2022

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

As noted in Note 2 - Significant Accounting Policies, we conduct our operations through two operating segments: Security Solutions and Secure Networks.

Our 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.

Our 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 21.1: Results of Operations by Business Segment
	For the Year Ended December 31,
	2022		2021		2020
	(in thousands)
Revenues
Security Solutions	$	120,454	$	123,534	$	127,667
Secure Networks	96,433		118,899		62,627
Inter-segment elimination	—		—		(10,377)
Total revenue	216,887		242,433		179,917
Gross profit
Security Solutions	61,948		64,904		50,458
Secure Networks	17,095		21,125		11,962
Total gross profit	79,043		86,029		62,420
Selling, general and administrative expenses	132,893		127,493		62,123
Operating (loss)/income	(53,850)		(41,464)		297
Other income/(expense)	1,350		(921)		(255)
Interest expense	(874)		(777)		(7,259)
Gain on redemption of public preferred stock	—		—		14,012
(Loss)/income before income taxes	(53,374)		(43,162)		6,795
(Provision for)/benefit from income taxes	(54)		28		46
Net (loss)/income	(53,428)		(43,134)		6,841
Less: Net income attributable to non-controlling interest	—		—		(5,154)
Net (loss)/income attributable to Telos Corporation	$	(53,428)	$	(43,134)	$	1,687

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.