The action asserts claims for violations of the Securities Exchange Act of 1934 against Telos Corporation (“Telos” or the “Company”) and certain of its senior executives (collectively, “Defendants”). The complaint alleges that Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased Telos common stock between November 19, 2020 and November 12, 2021, inclusive (the “Class Period”).
Telos is an Ashburn, Virginia-based company that focuses on developing and implementing cyber, cloud, and enterprise security technology and products. In July 2020, the Company announced a lucrative ten-year contract to provide services to the Transportation Security Administration (“TSA”) and TSA PreCheck® that would commence in 2021. A few months later, Telos announced another significant ten-year contract to provide services to the Centers for Medicare and Medicaid (“CMS”) that also would commence in 2021. On the heels of securing these two contracts that would generate a substantial portion of the Company’s future revenue, Telos held its initial public offering (“IPO”) on November 19, 2020, after the Company’s stock had traded over the counter for several years. Through the IPO, Telos sold 17.2 million shares at $17.00 per share for gross proceeds of $292.6 million.
The complaint alleges that, during the Class Period, Defendants made materially false and misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants failed to disclose that: (1) the TSA and CMS contracts, which constituted a majority of the Company’s future revenues, were not on track to commence as represented at the end of 2021 and in 2022; (2) Defendants lacked a reasonable basis and sufficient visibility to provide and affirm the Company’s 2021 guidance in the face of the uncertainty surrounding the TSA and CMS contracts; (3) COVID- and hacking scandal-related headwinds were throwing off the timing for performance of the TSA and CMS contracts and their associated revenues; (4) as a result, the guidance provided by Defendants was not in fact “conservative”; (5) as a result of the delays, Telos would be forced to dramatically reduce its revenue estimates; and (6) as a result of the foregoing, Defendants’ statements about Telos’s business, operations, and prospects, were materially false and/or misleading and/or lacked a reasonable basis.
The truth emerged during Telos’s third quarter 2021 earnings call on November 15, 2021, causing Telos’s stock price to fall and investors to suffer substantial losses. On that call, Telos announced that it was not expecting the TSA PreCheck contract “to deliver meaningful sales this year.” The Company also disclosed that it was not including revenue from the CMS contract in the Company’s 2022 outlook. In response to these revelations, Telos’s stock price fell $6.84 per share, or more than 28 percent.
On May 4, 2022, the Court appointed Alaska Electrical Pension Fund, International Union of Operating Engineers Local 793 Pension Plan, and the Firemen’s Retirement System of St. Louis as Lead Plaintiff and Saxena White as Lead Counsel.
On June 15, 2022, Lead Plaintiff filed the consolidated complaint. Defendants filed the motion to dismiss the consolidated complaint on July 15, 2022, and a hearing on the motion was held on September 14, 2022. A ruling on the motion to dismiss is expected some time in early-2023.
