Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth in the risk factors section
included in the Company's Form 10-K for the year ended
General and Business Overview
We offer technologically advanced, software-based security solutions that empower and protect the world's most security-conscious organizations against rapidly evolving, sophisticated and pervasive threats. Our portfolio of security products, services and expertise empower our customers with capabilities to reach new markets, serve their stakeholders more effectively, and successfully defend the nation or their enterprise. We protect our customers' people, information, and digital assets so they can pursue their corporate goals and conduct their global missions with confidence in their security and privacy.
Our mission is to protect our customers' people, systems, and vital information assets with offerings for cybersecurity, cloud security, and enterprise security. In the current global environment, our mission is more critical than ever. The emergence of each new information and communications technology introduces new vulnerabilities, as security is still too often overlooked in solution development. Networks and applications meant to enhance productivity and profitability often jeopardize an organization due to poor planning, misconfiguration, or an unknown gap in security. Ransomware, insider threats, cybercrime, and advanced persistent threats continue to menace public and private enterprises across all industries.
Cybersecurity, cloud security, and enterprise security of the modern organization share much in common, yet also call for a diverse range of skills, capabilities, and experience in order to meet the requirements of security-conscious customers. Decades of experience in developing, orchestrating, and delivering solutions across these three domains give us the vision and the confidence to provide solutions that empower and protect the enterprise at an integrated, holistic level. Our experience in addressing challenges in one area of an enterprise helps us meet requirements in others. We understand that a range of complementary capabilities may be needed to solve a single challenge, and we also recognize when a single solution might address multiple challenges. Our security solutions span across the following domains: cybersecurity, cloud security and enterprise security.
We refer to our cyber and cloud applications as Security Solutions, which
includes Information Assurance / Xacta®,
Security Solutions
•Information Assurance / Xacta: a premier platform for enterprise cyber risk
management and security compliance automation, delivering security awareness for
systems in the cloud, on-premises, and in hybrid and multi-cloud environments.
Xacta delivers automated cyber risk and compliance management solutions to large
commercial and government enterprises. Across the
•Secure Communications:
•Telos Ghost: a virtual obfuscation network-as-a-service with encryption and
managed attribution capabilities to ensure the safety and privacy of people,
information, and resources on the network.
•Telos Automated Message Handling System ("AMHS"): web-based organizational
message distribution and management for mission-critical communications; the
recognized gold standard for organizational messaging in the
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•Telos ID: offering identity trust and digital services through IDTrust360® - an
enterprise-class digital identity risk platform for extending flexible hybrid
cloud identity services enabled for mobile and enterprise environments and
custom digital identity services that mitigate threats through the integration
of advanced technologies that fuse biometrics, credentials, and other
identity-centric data used to continuously monitor trust. In
Secure Networks
•Secure Mobility: solutions for business and government that enable remote work and minimize operational and security concerns across and beyond the enterprise. Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience as well as highly desirable clearances and industry-recognized certifications for network engineering, mobility, and security.
•Network Management and Defense: services for operating, administrating, and defending complex enterprise networks and defensive cyber operations. Our diverse portfolio of capabilities addresses common and uncommon requirements in many industries and disciplines, ranging from the military and government agencies to Fortune 500 companies.
Business Environment
Our business performance continues to be heavily affected by the overall level
of
This delay in enacting final FY 2022 appropriations legislation postponed
submission to
The President's FY 2023 budget request, which was released on
The proposed FY 2023 budget also calls for an increase in federal civilian
agency (non-defense) cybersecurity funding of nearly 10.7%.
Cybersecurity Landscape
Over the past few years, continued and increasingly damaging ransomware and other cyberattacks against federal, state and local governments, the K-12 and higher education sectors, and private sector enterprises have resulted in intensified efforts to better defend against such attacks. The growing demand for these solutions continues to provide Telos with the privilege of offering our expertise to protect these vitally important organizations.
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Ransomware remains arguably the most severe cyber threat to enterprises in the
commercial and state, local government and education sectors. Our Xacta offering
empowers these organizations and institutions to maintain a strong cyber risk
posture to minimize the risk of ransomware gaining a foothold in their IT
environment. Should ransomware get loose in the enterprise network,
Critical infrastructure and industrial internet of things ("IoT") are among the
categories at greatest risk of cyberattacks. Energy, utilities, transportation,
and food supply were among the critical infrastructure sectors that experienced
high-profile breaches or ransomware attacks over the past year.
The Cyber Incident Reporting for Critical Infrastructure Act of 2022, which was
signed into law on
Government mandates and initiatives to assure stronger security in highly regulated industries, as noted above, also lead to opportunities for Xacta. An update to the research study Telos conducted last year reveals that audit fatigue continues to burden these organizations, with automation solutions being recognized as the most effective remedy for the many repetitive and redundant tasks that security compliance requires. Xacta streamlines, harmonizes, and automates the security controls and processes that comprise the leading cybersecurity standards and frameworks, in on-premises, cloud, hybrid, and multi-cloud environments.
Finally, as a whole, the COVID-19 pandemic has resulted in the acceleration of
digital transformation and cloud adoption within the government and beyond,
which could increase demand for Xacta and
COVID-19 Pandemic
Despite the pandemic's resultant massive shift to teleworking by federal employees and contractors, the government successfully maintained the continuity of services, as did Telos. As the government has developed and implemented its reopening process, and made adjustments based on changing circumstances, officials have said they will seek to continue to maximize the use of teleworking by federal employees. This stance continued during the most recent, renewed surge of COVID-19 variant transmission. As such, with much of the business of government still being conducted by federal employees working remotely through the use of information technology systems, we believe there will continue to be a need on the part of the government for the types of solutions and services provided by Telos.
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Reportable Segment
During the fourth quarter of 2021, we revised our reportable segments to reflect changes to our organization and leadership structure. As a result, we established and operate in two reportable segments - Security Solutions and Secure Networks. Prior to the fourth quarter of 2021, the Company had one operating and reportable segment. We updated the results for the prior period to conform to the current period presentation.
•Security Solutions focuses on cybersecurity, cloud and identity solutions. Cybersecurity solutions help our customers ensure the ongoing security, integrity, and compliance of their on-premises and related cloud-based systems by reducing threats and vulnerabilities to foil cyber adversaries before they can attack. Our security engineers and subject matter experts assess our customers' cybersecurity environments and design, engineer, and operate systems needed to strengthen their cybersecurity posture. Our cloud solutions leverage the specialized skills and experience needed to help our customers plan, engineer, execute and accelerate secure cloud migrations while assuring ongoing management and security of enterprise cloud technology environments. Our identity solutions deliver digital identity, biometric, and nationwide enrollment services and address Know Your Customer ("KYC") and identity management challenges for enterprises working within regulated and critical infrastructure environments.
•Secure Networks provides secure networking architectures and solutions to the
Backlog
We develop our annual budgeted revenue by estimating for the upcoming year our continuing business from existing customers and active contracts. We consider backlog, both funded and unfunded (as explained below), other expected annual renewals, and expansion planned by our current customers.
Total backlog consists of the aggregate contract revenues remaining to be earned
by us at a given time over the life of our contracts, whether funded or
unfunded. Funded backlog consists of the aggregate contract revenues remaining
to be earned at a given time, which, in the case of
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