SEGMENT INFORMATION

6 Months Ended

Jun. 30, 2023

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

We operate our business in two reportable and operating segments: Security Solutions and Secure Networks. These segments enable the alignment of our strategies and objectives and provide a framework for the timely and rational allocation of resources within the business lines.

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 ACA"), 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 or cybersecurity solutions during the period. The majority of the operating costs relate to labor, material, and overhead costs. Software sales have immaterial operating 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 17: Results of Operations by Business Segment
	For the Three Months Ended				For the Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
	(in thousands)
Revenue
Security Solutions	$	17,196	$	30,819	$	36,969	$	57,738
Secure Networks	15,715		24,972		31,164		48,213
Total revenue	32,911		55,791		68,133		105,951
Gross profit
Security Solutions	9,551		16,433		19,825		31,485
Secure Networks	2,808		4,496		6,016		8,315
Total gross profit	12,359		20,929		25,841		39,800
Selling, general and administrative expenses	21,826		34,965		48,278		70,203
Operating loss	(9,467)		(14,036)		(22,437)		(30,403)
Other income	1,649		118		4,145		130
Interest expense	(184)		(187)		(433)		(377)
Loss before income taxes	(8,002)		(14,105)		(18,725)		(30,650)
Provision for income taxes	(22)		(54)		(45)		(125)
Net loss	$	(8,024)	$	(14,159)	$	(18,770)	$	(30,775)

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.