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SEGMENT INFORMATION
 9 Months Ended
Sep. 30, 2024
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 Automated Message Handling System ("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 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 16: Results of Operations by Business Segment
For the Three Months EndedFor the Nine Months Ended
September 30, 2024September 30, 2023September 30, 2024September 30, 2023
(in thousands)
Revenues
Security Solutions$18,332 $19,795 $54,839 $56,764 
Secure Networks5,451 16,391 27,061 47,555 
Total revenue23,783 36,186 81,900 104,319 
Cost of sales (excluding impairment loss, depreciation and amortization)
Security Solutions9,201 8,498 26,505 25,304 
Secure Networks4,616 12,730 21,444 37,870 
Total cost of sales (excluding impairment loss, depreciation and amortization)13,817 21,228 47,949 63,174 
Impairment loss on intangible assets
Security Solutions5,333 — 5,333 — 
Secure Networks— — — — 
Total impairment loss on intangible assets5,333 — 5,333 — 
Depreciation and amortization
Security Solutions1,488 1,943 4,800 2,281 
Secure Networks2 2 7 10 
Total depreciation and amortization1,490 1,945 4,807 2,291 
Gross profit
Security Solutions2,310 9,354 18,201 29,179 
Secure Networks833 3,659 5,610 9,675 
Total gross profit3,143 13,013 23,811 38,854 
Operating expenses (1)
32,007 22,706 69,757 70,984 
Operating loss(28,864)(9,693)(45,946)(32,130)
Other income983 1,222 3,299 5,367 
Interest expense(157)(178)(492)(611)
Loss before income taxes(28,038)(8,649)(43,139)(27,374)
Provision for income taxes(17)(23)(51)(68)
Net loss$(28,055)$(8,672)$(43,190)$(27,442)
(1) This includes an impairment loss of $6.4 million for the three and nine months ended September 30, 2024, and $0.3 million for the three and nine months ended September 30, 2023.
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.