# TELOS CORP (TLS)

Informational only - not investment advice.

CIK: 0000320121
SIC: 7373 Services-Computer Integrated Systems Design
SIC breadcrumb: [Services](/division/I/) > [Business Services](/major-group/73/) > [SIC 7373 Services-Computer Integrated Systems Design](/industry/7373/)
Latest 10-K filed: 2026-03-16
SEC page: https://www.sec.gov/edgar/browse/?CIK=320121
Filing source: https://www.sec.gov/Archives/edgar/data/320121/000032012126000010/tls-20251231.htm

## Selected Fundamentals
| Metric | Value | Unit | FY | Filed |
| --- | ---: | --- | ---: | --- |
| Revenue | 164805000 | USD | 2025 | 2026-03-16 |
| Net income | -36546000 | USD | 2025 | 2026-03-16 |
| Assets | 139864000 | USD | 2025 | 2026-03-16 |

## Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-16. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000320121.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

| Metric | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | 134,868,000 | 107,727,000 | 138,016,000 | 159,218,000 | 179,917,000 | 242,433,000 | 216,887,000 | 145,378,000 | 108,272,000 | 164,805,000 |
| Net income | -7,175,000 | -5,833,000 | -1,640,000 | -6,401,000 | 1,687,000 | -43,134,000 | -53,428,000 | -34,422,000 | -52,520,000 | -36,546,000 |
| Operating income | 2,112,000 | 414,000 | 9,014,000 | 5,025,000 | 297,000 | -41,464,000 | -53,850,000 | -40,315,000 | -55,873,000 | -39,881,000 |
| Gross profit |  |  |  | 52,344,000 | 62,420,000 | 86,029,000 | 79,043,000 | 52,942,000 | 34,429,000 | 61,017,000 |
| Diluted EPS |  |  | -0.04 | -0.17 | 0.04 | -0.65 | -0.79 | -0.50 | -0.73 | -0.50 |
| Operating cash flow | 13,855,000 | -591,000 | 6,268,000 | 11,816,000 | -2,104,000 | 7,262,000 | 16,508,000 | 1,587,000 | -25,938,000 | 30,182,000 |
| Capital expenditures | 624,000 | 748,000 | 2,465,000 | 4,090,000 | 780,000 | 3,201,000 | 1,009,000 | 926,000 | 2,252,000 | 739,000 |
| Share buybacks |  |  |  | 0.00 | 0.00 | 1,251,000 | 11,145,000 | 139,000 | 0.00 | 13,627,000 |
| Assets | 56,799,000 | 74,421,000 | 74,489,000 | 77,692,000 | 183,817,000 | 246,081,000 | 237,397,000 | 208,699,000 | 158,235,000 | 139,864,000 |
| Liabilities | 186,775,000 | 210,458,000 | 206,592,000 | 214,314,000 | 56,713,000 | 65,827,000 | 65,043,000 | 49,696,000 | 31,098,000 | 43,914,000 |
| Stockholders' equity | -132,205,000 | -136,950,000 | -134,724,000 | -141,136,000 | 127,104,000 | 180,254,000 | 172,354,000 | 159,003,000 | 127,137,000 | 95,950,000 |
| Cash and cash equivalents | 659,000 | 600,000 | 72,000 | 6,751,000 | 106,045,000 | 126,562,000 | 119,305,000 | 99,260,000 | 54,578,000 | 53,180,000 |
| Free cash flow | 13,231,000 | -1,339,000 | 3,803,000 | 7,726,000 | -2,884,000 | 4,061,000 | 15,499,000 | 661,000 | -28,190,000 | 29,443,000 |

### Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

| Metric | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net margin | -5.32% | -5.41% | -1.19% | -4.02% | 0.94% | -17.79% | -24.63% | -23.68% | -48.51% | -22.18% |
| Operating margin | 1.57% | 0.38% | 6.53% | 3.16% | 0.17% | -17.10% | -24.83% | -27.73% | -51.60% | -24.20% |
| Return on equity |  |  |  |  | 1.33% | -23.93% | -31.00% | -21.65% | -41.31% | -38.09% |
| Return on assets | -12.63% | -7.84% | -2.20% | -8.24% | 0.92% | -17.53% | -22.51% | -16.49% | -33.19% | -26.13% |
| Liabilities / equity |  |  |  |  | 0.45 | 0.37 | 0.38 | 0.31 | 0.24 | 0.46 |
| Current ratio | 0.74 | 0.91 | 1.05 | 1.08 | 3.70 | 3.76 | 3.69 | 3.57 | 4.13 | 2.57 |

## Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-11. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000320121.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

| Quarter | End date | Revenue | Net income | Diluted EPS | Method |
| --- | --- | ---: | ---: | ---: | --- |
| 2022-Q2 | 2022-06-30 |  |  | -0.18 | reported discrete quarter |
| 2022-Q3 | 2022-09-30 |  |  | -0.11 | reported discrete quarter |
| 2023-Q1 | 2023-03-31 |  |  | -0.16 | reported discrete quarter |
| 2023-Q2 | 2023-06-30 | 32,911,000 | -8,024,000 | -0.12 | reported discrete quarter |
| 2023-Q3 | 2023-09-30 | 36,186,000 | -8,672,000 | -0.12 | reported discrete quarter |
| 2023-Q4 | 2023-12-31 | 41,059,000 | -6,980,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2024-Q1 | 2024-03-31 | 29,619,000 | -7,378,000 | -0.10 | reported discrete quarter |
| 2024-Q2 | 2024-06-30 | 28,498,000 | -7,757,000 | -0.11 | reported discrete quarter |
| 2024-Q3 | 2024-09-30 | 23,783,000 | -28,055,000 | -0.39 | reported discrete quarter |
| 2024-Q4 | 2024-12-31 | 26,372,000 | -9,330,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2025-Q1 | 2025-03-31 | 30,616,000 | -8,604,000 | -0.12 | reported discrete quarter |
| 2025-Q2 | 2025-06-30 | 35,968,000 | -9,517,000 | -0.13 | reported discrete quarter |
| 2025-Q3 | 2025-09-30 | 51,444,000 | -2,114,000 | -0.03 | reported discrete quarter |
| 2025-Q4 | 2025-12-31 | 46,777,000 | -16,311,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2026-Q1 | 2026-03-31 | 47,742,000 | 2,023,000 | 0.03 | reported discrete quarter |

## Macro Cross-References
- [CPIAUCSL](/indicator/CPIAUCSL/): Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
- [UNRATE](/indicator/UNRATE/): Unemployment Rate
- [FEDFUNDS](/indicator/FEDFUNDS/): Federal Funds Effective Rate
- [CES0500000003](/indicator/CES0500000003/): Average Hourly Earnings of All Employees, Total Private
- [DFEDTARU](/indicator/DFEDTARU/): Federal Funds Target Range - Upper Limit
- [DFEDTARL](/indicator/DFEDTARL/): Federal Funds Target Range - Lower Limit
- [DGS3MO](/indicator/DGS3MO/): Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
- [DGS2](/indicator/DGS2/): Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
- [DGS10](/indicator/DGS10/): Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
- [DGS30](/indicator/DGS30/): Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
- [T10Y2Y](/indicator/T10Y2Y/): 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
- [CPILFESL](/indicator/CPILFESL/): Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
- [CPIUFDSL](/indicator/CPIUFDSL/): Consumer Price Index for All Urban Consumers: Food
- [CPIENGSL](/indicator/CPIENGSL/): Consumer Price Index for All Urban Consumers: Energy
- [CUSR0000SAH1](/indicator/CUSR0000SAH1/): Consumer Price Index for All Urban Consumers: Shelter
- [PCEPI](/indicator/PCEPI/): Personal Consumption Expenditures: Chain-type Price Index
- [PCEPILFE](/indicator/PCEPILFE/): Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
- [PPIACO](/indicator/PPIACO/): Producer Price Index by Commodity: All Commodities
- [T10YIE](/indicator/T10YIE/): 10-Year Breakeven Inflation Rate
- [U6RATE](/indicator/U6RATE/): Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
- [PAYEMS](/indicator/PAYEMS/): All Employees, Total Nonfarm
- [CIVPART](/indicator/CIVPART/): Labor Force Participation Rate
- [EMRATIO](/indicator/EMRATIO/): Employment-Population Ratio
- [UNEMPLOY](/indicator/UNEMPLOY/): Unemployed
- [CE16OV](/indicator/CE16OV/): Employment Level
- [ICSA](/indicator/ICSA/): Initial Claims
- [JTSJOL](/indicator/JTSJOL/): Job Openings: Total Nonfarm
- [JTSQUR](/indicator/JTSQUR/): Quits: Total Nonfarm
- [GDPC1](/indicator/GDPC1/): Real Gross Domestic Product
- [A191RL1Q225SBEA](/indicator/A191RL1Q225SBEA/): Real Gross Domestic Product: Percent Change from Preceding Period
- [INDPRO](/indicator/INDPRO/): Industrial Production: Total Index
- [TCU](/indicator/TCU/): Capacity Utilization: Total Index
- [HOUST](/indicator/HOUST/): New Privately-Owned Housing Units Started: Total Units
- [PERMIT](/indicator/PERMIT/): New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
- [RSAFS](/indicator/RSAFS/): Advance Retail Sales: Retail Trade
- [PCE](/indicator/PCE/): Personal Consumption Expenditures
- [DSPIC96](/indicator/DSPIC96/): Real Disposable Personal Income
- [PSAVERT](/indicator/PSAVERT/): Personal Saving Rate
- [M2SL](/indicator/M2SL/): M2
- [BOPGSTB](/indicator/BOPGSTB/): U.S. International Trade in Goods and Services: Balance
- [MSPUS](/indicator/MSPUS/): Median Sales Price of Houses Sold for the United States
- [HSN1F](/indicator/HSN1F/): New One Family Houses Sold: United States
- [RHORUSQ156N](/indicator/RHORUSQ156N/): Homeownership Rate in the United States
- [TTLCONS](/indicator/TTLCONS/): Total Construction Spending: Total Construction in the United States
- [RRVRUSQ156N](/indicator/RRVRUSQ156N/): Rental Vacancy Rate in the United States
- [TOTALSL](/indicator/TOTALSL/): Total Consumer Credit Owned and Securitized
- [REVOLSL](/indicator/REVOLSL/): Revolving Consumer Credit Owned and Securitized
- [DRCCLACBS](/indicator/DRCCLACBS/): Delinquency Rate on Credit Card Loans, All Commercial Banks
- [GDP](/indicator/GDP/): Gross Domestic Product
- [GPDI](/indicator/GPDI/): Gross Private Domestic Investment
- [GCE](/indicator/GCE/): Government Consumption Expenditures and Gross Investment
- [PCEC](/indicator/PCEC/): Personal Consumption Expenditures
- [NETEXP](/indicator/NETEXP/): Net Exports of Goods and Services
- [GFDEBTN](/indicator/GFDEBTN/): Federal Debt: Total Public Debt
- [GFDEGDQ188S](/indicator/GFDEGDQ188S/): Federal Debt: Total Public Debt as Percent of Gross Domestic Product
- [FYFSD](/indicator/FYFSD/): Federal Surplus or Deficit
- [FGRECPT](/indicator/FGRECPT/): Federal Government Current Receipts
- [FGEXPND](/indicator/FGEXPND/): Federal Government: Current Expenditures
- [MANEMP](/indicator/MANEMP/): All Employees, Manufacturing
- [USCONS](/indicator/USCONS/): All Employees, Construction
- [USTRADE](/indicator/USTRADE/): All Employees, Retail Trade
- [USFIRE](/indicator/USFIRE/): All Employees, Financial Activities
- [USGOVT](/indicator/USGOVT/): All Employees, Government
- [AWHAETP](/indicator/AWHAETP/): Average Weekly Hours of All Employees, Total Private
- [DGORDER](/indicator/DGORDER/): Manufacturers' New Orders: Durable Goods
- [NEWORDER](/indicator/NEWORDER/): Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
- [BUSINV](/indicator/BUSINV/): Total Business Inventories
- [EXPGS](/indicator/EXPGS/): Exports of Goods and Services
- [IMPGS](/indicator/IMPGS/): Imports of Goods and Services
- [IR](/indicator/IR/): Import Price Index (End Use): All Commodities
- [PPIFIS](/indicator/PPIFIS/): Producer Price Index by Commodity: Final Demand

## Latest quarter (10-Q)

Latest 10-Q source: https://www.sec.gov/Archives/edgar/data/320121/000032012126000024/tls-20260331.htm

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary.
Confidence: high
Filing date: 2026-05-11
Report date: 2026-03-31

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. 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. Several important factors 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 December 31, 2025, as filed with the Securities and Exchange Commission on March 16, 2026.

Overview

Telos Corporation empowers and protects the world’s most security-conscious organizations with efficient, adaptable, and secure solutions that safeguard people, systems, and information. We deliver advanced capabilities across cyber governance, risk, and compliance ("GRC") with Xacta®; identity and biometric solutions; secure networks and communications; and TSA PreCheck® enrollment services. Our primary customers include the U.S. federal government, large commercial organizations, state and local governments, and global enterprises. Telos helps customers stay ahead of evolving threats, accelerate compliance, and achieve mission success. Driven by purpose and guided by our core values, we build trusted partnerships, deliver superior solutions, and help create a more secure, interconnected world.

Recently, Telos launched Xacta.aiTM, the artificial intelligence ("AI") capability at the core of the Xacta cyber GRC platform, dramatically reducing compliance time and effort. Xacta.ai delivers expert-level guidance and real-time insights, empowering organizations to move from reactive compliance to proactive risk management.

Business Environment

U.S. Federal Government

Our consolidated revenue is largely attributable to prime contracts or to subcontracts with prime contractors engaged in work for the U.S. federal government, with the remaining revenue attributable to state and local governments, and commercial markets. We generated approximately 93% and 89% of our total revenues from contracts with U.S. government agencies in the first quarter of fiscal year ("FY") 2026 and 2025, respectively. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. While certain administration priorities, such as cybersecurity, national security and AI, present greater opportunity for our products and services, turmoil within the federal government, including personnel and leadership turnover and budgetary uncertainty, has had the effect of lengthening our sales cycle in certain cases. We continuously monitor U.S. federal budget, legislative, and contracting trends and activities, and align our capabilities in response to these developments.

Macroeconomic Conditions

During the current quarter, the global economy has continued to experience volatility arising from geopolitical developments and broader economic and financial factors, specifically including the ongoing conflict in Iran and the Middle East. This volatility has resulted in, and may be expected to continue to result in, rising energy prices, supply chain disruptions, and inflationary pressures, among other consequences. However, in part due to the importance of our offerings to our customers, the type of solutions we provide, and the nature of our largest customers, to date our business has not been materially impacted by these consequences. If global volatility continues to increase and the conflict in the Middle East is prolonged or intensifies, the economic uncertainty inherent in such global instability may affect our results of operations. Management continues to monitor this evolving geopolitical situation.

19

Table of Contents

Financial Overview

Several key highlights of our financial performance in the first quarter of 2026 are described below. More details are presented in our "Results of Operations" section.

•Revenue increased 55.9% due to 78.1% growth in Security Solutions, driven primarily by the expansion of multiple large programs in Telos ID.

•Operating expenses decreased by $5.3 million, or 24.9%, year-over-year due to lower stock-based compensation and ongoing disciplined cost management.

•Net income expanded by $10.6 million, from a net loss of $8.6 million in the first quarter of 2025 to a net income of $2.0 million in the current quarter.

•Cash flow from operations improved by $2.6 million year-over-year from a $6.1 million inflow to an $8.7 million inflow, or 18.1% of revenue, primarily due to improved revenue and profitability.

•$2.2 million was deployed to repurchase approximately 0.5 million shares of the Company’s common stock at an average share price of $4.25 per share.

Results of Operations

Table MD&A 1: Consolidated Results of Operations

For the Three Months Ended

March 31, 2026

March 31, 2025

Dollar Change

(dollars in thousands)

Revenue

$

47,742 

$

30,616 

$

17,126 

Cost of sales

30,367 

18,434 

11,933 

Gross profit

17,375 

12,182 

5,193 

Gross margin

36.4 

%

39.8 

%

Operating expenses

15,920 

21,204 

(5,284)

Operating expenses as percentage of revenue

33.3 

%

69.3 

%

Operating income (loss)

1,455 

(9,022)

10,477 

Other income

697 

561 

136 

Interest expense

(111)

(147)

36 

Income (loss) before income taxes

2,041 

(8,608)

10,649 

(Provision for) benefit from income taxes

(18)

4 

(22)

Net income (loss)

$

2,023 

$

(8,604)

$

10,627 

Consolidated Results

Our business segments have different factors driving revenue fluctuations and profitability. The discussion of the changes in our revenue and profitability is covered in greater detail in the following section, "Segment Results." We generate revenue from the delivery of products and services to our customers. Cost of sales, for both products and services, consists of labor, materials, subcontracting costs and an allocation of indirect costs.

Operating expenses decreased by $5.3 million, or 24.9%, in the first quarter of 2026, compared to the same period in 2025. Research and development ("R&D") expenses slightly declined by $0.2 million, or 13.6%, in the first quarter of 2026, compared to the same period in 2025. Selling, general and administrative ("SG&A") expenses decreased by $5.1 million, or 25.8%, in the first quarter of 2026, compared to the same period in 2025, primarily due to lower stock-based compensation expenses. Excluding stock-based compensation, reductions in R&D and SG&A expenses were due to ongoing cost discipline and restructuring. As a percentage of revenue, overall operating expenses were 33.3% and 69.3% for the three months ended March 31, 2026, and 2025, respectively.

Other income increased by 24.2% in the first quarter of 2026, compared to the same period in 2025, primarily due to the refund in the current quarter of a prior year VAT claim that was previously determined to be uncollectible.

20

Table of Contents

Segment Results

The accounting policies of each business segment are the same as those followed by the Company as a whole. Management evaluates business segment performance based on gross profit.

Table MD&A 2: Security Solutions Segment - Financial Results

For the Three Months Ended

March 31, 2026

March 31, 2025

Dollar Change

(dollars in thousands)

Revenue

$

45,970 

$

25,818 

$

20,152 

Cost of sales (excluding depreciation and amortization)

26,514 

13,257 

13,257 

Depreciation and amortization

2,593 

1,501 

1,092 

Total cost of sales

29,107 

14,758 

14,349 

Gross profit

$

16,863 

$

11,060 

$

5,803 

Gross margin

36.7 

%

42.8 

%

For the quarter ended March 31, 2026, the Security Solutions segment revenue increased by 78.1%, compared to the same period in 2025, due to the expansion of multiple large programs in Telos ID.

For the quarter ended March 31, 2026, the Security Solutions segment gross profit increased by 52.5%, compared with the same period in 2025, due to higher segment revenues. Segment gross margin decreased from 42.8% in 2025 to 36.7% in 2026, primarily due to revenue mix and higher non-cash infrastructure costs.

Table MD&A 3: Secure Networks Segment - Financial Results

For the Three Months Ended

March 31, 2026

March 31, 2025

Dollar Change

(dollars in thousands)

Revenue

$

1,772 

$

4,798 

$

(3,026)

Cost of sales (excluding depreciation and amortization)

1,257 

3,674 

(2,417)

Depreciation and amortization

3 

2 

1 

Cost of sales

1,260 

3,676 

(2,416)

Gross profit

$

512 

$

1,122 

$

(610)

Gross margin

28.9 

%

23.4 

%

For the quarter ended March 31, 2026, the Secure Networks segment revenue decreased by 63.1%, compared to the same period in 2025, primarily due to the continued ramp down of several programs within the portfolio without corresponding new business wins to backfill completed programs.

For the quarter ended March 31, 2026, the Secure Networks segment gross profit decreased by 54.4%, compared with the same period in 2025, due to lower revenue. By contrast, segment gross margin expanded from 23.4% in the first quarter of 2025 to 28.9% in the first quarter of 2026, primarily due to program mix.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, future operating cash flows, and, if needed, sale of receivables under the Factoring Agreement and/or borrowings under our $15.0 million revolving credit facility with a maturity date of December 30, 2026, and with an available expansion feature of up to $15.0 million of additional revolver facility. A variety of factors related to sources and uses of cash, such as timeliness of accounts receivable collections, vendor credit terms, or significant collateral requirements, ultimately impact our liquidity.

As of March 31, 2026, we had cash and cash equivalents of $50.2 million and our working capital was $58.6 million.

We place a strong emphasis on liquidity management. This focus gives us the flexibility for capital deployment while preserving a strong balance sheet to position us for future opportunities. We believe we have adequate funds on hand to execute our financial and operating strategy. Our overall financial position and liquidity are strong. Although no assurances can be given, we believe available cash balances and access to our revolving credit facility and Factoring Agreement are sufficient to maintain the liquidity we require to meet our operating, investing and financing needs for the next 12 months.

21

Table of Contents

Cash Flow

Table MD&A 4: Net Change in Cash, Cash Equivalents, and Restricted Cash

For the Three Months Ended

March 31, 2026

March 31, 2025

(in thousands)

Net cash provided by operating activities

$

8,656 

$

6,106 

Net cash used in investing activities

(2,277)

(2,337)

Net cash used in financing activities

(9,329)

(556)

Net change in cash, cash equivalents, and restricted cash

$

(2,950)

$

3,213 

Net cash provided by operating activities for the three months ended March 31, 2026, was $8.7 million, an increase of $2.6 million compared to the same period in 2025. The change is attributable to favorable changes in working capital, primarily driven by the timing of receipts from customers, and the timing of payments to vendors, coupled with higher cash earnings (i.e., net income (loss), excluding non-cash items that do not impact cash flows from operating activities).

Net cash used in investing activities for the three months ended March 31, 2026, slightly decreased by $0.1 million, compared to the same period of the prior year, primarily due

[Excerpt truncated for page length; source filing is linked above.]

## Latest 10-K MD&A

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K ("10-K"). In addition to historical financial information, the following discussion and analysis contain forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events in future periods may differ materially from those anticipated or implied in these forward-looking statements as a result of many factors, including those discussed under Item 1A, "Risk Factors," and elsewhere in this 10-K. See also "Special Note Regarding Forward-Looking Statements" at the beginning of this 10-K.

In this section, we discuss our financial condition, changes in financial condition and results of operations for the year ended December 31, 2025, compared to the year ended December 31, 2024.

Overview

For an overview of our business, including our business segments and a discussion of the services and products we provide, see Item 1, "Business" in Part I and Note 16 – Segment Information of the notes to the consolidated financial statements contained within this 10-K.

As discussed under Item 1A, "Risk Factors," we derive a substantial portion of our revenues from contracts and subcontracts with the U.S. federal government. Our revenues are generated from a number of contract vehicle and task orders. The U.S. federal government has increasingly relied on contracts that are subject to a competitive bidding process (including BPA and IDIQ Task Orders, OTAs, and other GSA schedule solicitations), resulting in greater competition and increased pricing pressure. We expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process.

Over the past several years we have sought to diversify and improve our operating margins through the evolution of our business from an emphasis on product reselling to an advanced solutions technologies provider. Although we continue to offer resold products through our contract vehicles or our prime partners' contracts, we have focused on the transformation and growth of our software and service solutions offerings, as well as the design and delivery of our manufactured and branded technologies. We emphasize leveraging technology and innovation, specifically in cybersecurity, cloud, and identity solutions, to drive growth and ensure a secure and defendable network. We continue to invest in and develop in AI integration, enhancing automation and improving existing solutions to maintain a competitive edge.

We believe our contract portfolio reflects low to moderate financial risk due to the limited number of long-term fixed-price development contracts, thus minimizing the risk of cost overruns. Our firm-fixed-price activities consist primarily of contracts for products and services at established contract prices that are designed to be repeatable solution offerings. For 2025 and 2024, the Company's revenue derived from firm-fixed-price contracts was 73.3% and 75.3%, respectively; time-and-material contract revenue was 21.8% and 14.6%, respectively; and cost-plus contract revenue was 4.9% and 10.1%, respectively.

Business Environment

U.S. Federal Government Budget

In fiscal year ("FY") 2025, we generated approximately 91.0% of our revenues from the U.S. federal government, either as prime contractor or a subcontractor to other contractors engaged in work for the U.S. federal government, including 58.1% of our revenue from the DoW. Accordingly, our business performance is affected by the overall level of U.S. federal government spending and the alignment of our offerings and capabilities with current and future budget priorities of the U.S. federal government.

While we view the budget environment as constructive and believe there is bipartisan support for continued investment in the areas of defense and national security, it is uncertain when (and if) in any particular government fiscal year appropriations bills will be passed. During those periods of time when appropriations bills have not been passed and signed into law, U.S. federal government agencies operate under a continuing resolution ("CR"), a temporary measure that allows the government to continue operations at prior year funding levels.

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The FY2025 U.S. federal government appropriations, which ran through September 30, 2025, were determined by a full-year CR. While the Administration has submitted its FY2026 budget proposal outlining its priorities, partisan disagreements over federal spending levels, among other things, have stalled progress on the required appropriations bills. Recently, on February 3, 2026, Congress passed another full-year CR for FY2026 to end the partial government shutdown. This enacted bill provides full-year funding for several programs, including defense and national security, through September 30, 2026; and also extended homeland security funding through February 13, 2026. A partial government shutdown began on February 14, 2026 after the lawmakers and the White House failed to reach a deal on legislation to fund DHS through September 2026. The impasse affects agencies such as the Transportation Security Administration, the Federal Emergency Management Agency, U.S. Coast Guard, the Secret Service, U.S. Immigration and Custom Enforcement, and U.S. Customs and Border Protection.

Congress approved a FY2026 Defense Appropriations Bill that provides $838.7 billion in discretionary funding, including $838.5 billion in defense funding and $180 million in nondefense funding. This funding prioritizes restoring military strength, accelerating modernization, and supporting personnel through pay raises. This bill moves in parallel with the National Defense Authorization Act ("NDAA"), signed in December 2025, which authorizes up to approximately $900.6 billion for national defense.

The federal government's cybersecurity and IT spending priorities for fiscal years 2025 and 2026 present both significant opportunities and notable risks for our suite of security solutions. The FY2026 NDAA authorizes approximately $15.1 billion for DoW cyber activities, representing a 4.1% increase. The FY2026 NDAA emphasizes securing the defense industrial base, accelerating artificial intelligence ("AI") integration, and harmonizing cybersecurity requirements. This increase directly aligns with our core offerings in cyber risk management (e.g., Xacta).

Further, the FY2026 budget for AI reflects a massive strategic shift toward implementation and national dominance, particularly within the defense sector. FY26 is viewed as the year federal agencies move from experimenting with AI to adopting "agentic" AI. The FY26 budget request included a record-breaking $13.4 billion for AI and autonomy initiatives within the DoW, the largest single-year investment in the agency's history. Consistent with these initiatives, in October 2025, we launched Xacta.ai, which we believe will reduce cyber compliance timelines through AI-driven automation.

The federal government cybersecurity and AI-related initiatives continue to evolve and may be influenced by changes in Administration policy, legislative action and regulatory developments. These changes may affect funding allocations, procurement strategies and compliance expectations. While management continues to monitor the federal government's initiatives and seeks to align the Company's capabilities accordingly, there can be no assurance that the future government priorities will not impose new compliance obligations, or technological advancements that will require for additional investment or affect the Company's ability to compete for or perform under government contracts.

Other Economic and Regulatory Policies

Aside from the uncertainty in the budgetary environment, the Administration put in place a number of Executive Orders and actions that have affected, and could continue to affect, many businesses. The Administration continuously evaluates federal agencies and existing government contracts, grants, and programs for affordability, efficiency, and alignment with U.S. federal government priorities. Further, the Administration continues ever-changing actions that increase, invoke new and/or rescind tariffs on various goods imported from various countries. Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the procurement costs of certain IT hardware we use internally, on our contracts, or sell to our customers.

The ongoing and potential future reforms to the U.S. federal government processes, including changes to procurement rules and regulations, could transform how contracts are awarded, negotiated, and managed. These initiatives could further delay contract awards and/or result in modifications to the scope or terms of contracts we hold. At the same time, the Administration's focus on efficiency, transparency, consolidation, and accountability could lead to certain traditionally government functions being transferred to private entities. This potential transition of services to the private sector could benefit Telos, given our wide array of capabilities and advanced solutions.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law. The OBBBA includes significant changes to the Internal Revenue Code, with various provisions changing the U.S. federal income tax regulations and modifications to the Inflation Reduction Act of 2022. Further, the OBBBA significantly impacts the defense sector through substantial funding allocations and strategic investments, including specific investments in areas like AI, and provides the DoW with extended time, until 2029, to make strategic investments in the defense industrial base. Increased funding and improved tax treatment for research and development could boost targeted defense investments, scale commercial technologies for military use, and support related programs.

We continue to monitor and assess the risks and opportunities presented to us, in light of ongoing political tensions and heightened global instability that we expect to persist in the near term. Initiatives to reduce governmental spending, federal budget and debt ceiling action, and U.S. federal government policy positions, including trade policy, tax reform and/or changes to the U.S. federal government priorities, could materially impact federal spending broadly.

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Key Performance Measures

The primary financial performance measures we use to manage our business and monitor results of operations are revenue, gross profit, cash flow, and Adjusted EBITDA (a non-GAAP financial measure). We evaluate our results of operations by considering the drivers causing changes in these measures. We evaluate significant trends and fluctuations in our contract portfolio over time due to contract awards and completions, changes in customer requirements and changes in the volume of product and software sales.

Backlog

Backlog is also a useful measure in developing 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 U.S. federal government contracts, means that they have been funded by the procuring agency. Unfunded backlog is the difference between total backlog and funded backlog and includes potential revenues that may be earned if customers exercise delivery orders and/or renewal options to continue these contracts.

Based on historical experience, we generally assume option year renewals to be exercised. Most of our customers fund contracts on the basis of one year or less, and, as a result, funded backlog is generally expected to be earned within one year from any point in time, whereas unfunded backlog is expected to be earned over a longer period.

Table MD&A 1: Backlog by Segment

As of December 31,

2025

2024

(in thousands)

Security Solutions

Funded

$

66,480 

$

44,220 

Unfunded

55,739 

21,373 

Total Security Solutions backlog

122,219 

65,593 

Secured Networks

Funded

2,317 

6,977 

Unfunded

1,537 

3,919 

Total Secure Networks backlog

3,854 

10,896 

Total

Funded

68,797 

51,197 

Unfunded

57,276 

25,292 

Total backlog

$

126,073 

$

76,489 

Increases in backlog is a result of the award of new contracts and the renewal or extension of existing contracts. Reductions in backlog arise from the completion, modification, de-obligation, or the early termination of contracts. See the relevant industry, legal and regulatory risks under Item 1A, "Risk Factors" of this 10-K. We believe that comparisons of backlog period-to-period are difficult. We also believe that it is difficult to predict future revenue solely based on analysis of backlog. The actual timing of revenue from projects included in backlog will vary.

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Financial Highlights

Several key highlights of our financial performance in fiscal year 2025 are described below. More details are presented in our "Results of Operations" section below.

•Revenue increased 52.2% year-over-year due to 94.9% growth in Security Solutions, primarily due to the expansion of large programs in Telos ID.

•Gross margin expanded 523 basis points year-over-year.

•Operating expenses increased by $10.6 million, or 11.7%, year-over-year due to an $8.9 million increase in stock-based compensation, an $8.5 million increase in impairment loss and a $0.1 million increase in restructuring expenses. These increases were partially offset by a decrease of $6.9 million, or 11.1%, of the remaining operating expenses due to the restructuring efforts undertaken in the third quarter of 2024 and ongoing disciplined cost management.

•Cash flow from operations improved by $56.1 million year-over-year from a $25.9 million outflow to a $30.2 million inflow, or 18.3% of revenue due to improved revenue and profitability, as well as improved working capital management.

•We deployed $13.6 million to repurchase approximately 3.1 million shares of our common stock at an average share price of $4.38 per share.

Results of Operations

Consolidated Results

Table MD&A 2: Consolidated Financial Results Comparison

For the Year Ended December 31,

2025

2024

Dollar Change

(dollars in thousands)

Revenue

$

164,805 

$

108,272 

$

56,533 

Cost of sales

103,788 

73,843 

29,945 

Gross profit

61,017 

34,429 

26,588 

Gross margin

37.0 

%

31.8 

%

Operating expenses

100,898 

90,302 

10,596 

Operating expenses as percentage of revenue

61.2 

%

83.4 

%

Operating loss

(39,881)

(55,873)

15,992 

Other income

3,225 

4,023 

(798)

Interest expense

(553)

(644)

91 

Loss before income taxes

(37,209)

(52,494)

15,285 

Benefit from (provision for) income taxes

663 

(26)

689 

Net loss

$

(36,546)

$

(52,520)

$

15,974 

Our business segments have different factors driving revenue fluctuations and profitability. A discussion of the changes in our net revenue and profitability is covered in greater detail under the section that follows: "Segment Results." We generate revenue from the delivery of products and services to our customers. Cost of sales, for both products and services, consists of labor, materials, subcontracting costs and an allocation of indirect costs.

Operating Expenses: Operating expenses increased by $10.6 million or 11.7% in 2025, compared to 2024. A goodwill impairment of $14.9 million was recorded in the fourth quarter of 2025 associated with our Secure Networks reporting unit (see Note 6 - Goodwill for more information), whereas an impairment loss on intangible assets of $6.4 million was recorded in 2024.

Research and development ("R&D") expenses decreased by $1.4 million, or 16.4% in 2025, compared to 2024. This was due to a $2.2 million reduction in amortization costs from the discontinued development of selected solutions or parts of solutions associated with the restructuring plan in 2024. This reduction was partially offset by an increase of $1.4 million in stock-based compensation. R&D restructuring expenses were approximately flat year-over-year. The remaining R&D expenses decreased by $0.6 million due to the restructuring effort in 2024 and ongoing disciplined cost management

Selling, general and administrative ("SG&A") expenses increased by $3.4 million, or 4.6%, in 2025, compared to 2024, due to a $7.6 million increase in stock-based compensation costs and $0.1 million increase in restructuring expenses. SG&A depreciation and amortization expenses were approximately flat year-over-year. These increases were partially offset by a $4.2 million reduction in the remaining SG&A expenses due to the 2024 restructuring effort and ongoing disciplined cost management.

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Other income: Other income decreased by 19.8% in 2025, compared to 2024, primarily due to the change in dividend income from money market placements, partially offset by the gain on fair value adjustment of an investment and the one-time tax refund recorded in the fourth quarter of 2025.

Segment Results

The accounting policies of each business segment are the same as those followed by the Company as a whole. Management evaluates business segment performance based on gross profit.

Table MD&A 3: Security Solutions Segment - Financial Results Comparison

For the Year Ended December 31,

2025

2024

Dollar Change

(dollars in thousands)

Revenues

$

149,600 

$

76,760 

$

72,840 

Cost of sales (excluding impairment loss, depreciation and amortization)

83,868 

37,352 

46,516 

Impairment loss on intangible assets

— 

5,333 

(5,333)

Depreciation and amortization

8,173 

6,396 

1,777 

Total cost of sales

92,041 

49,081 

42,960 

Gross profit

$

57,559 

$

27,679 

$

29,880 

Gross margin

38.5 

%

36.1 

%

Security Solutions segment revenue increased by 94.9% in 2025, compared to 2024, primarily due to the expansion of multiple large programs in Telos ID.

Security Solutions segment gross profit increased by 108.0% in 2025, compared to 2024, primarily due to higher segment revenue and higher segment gross margin.

Security Solutions segment gross margin increased from 36.1% in 2024 to 38.5% in 2025, primarily due to the impairment loss on intangible assets in 2024 and the lower impact of depreciation and amortization expense on higher revenue. As expected, segment gross margin, excluding the impact of depreciation and amortization, stock-based compensation, restructuring expenses, and impairment on intangible assets, is down year-over-year due to revenue mix and higher non-cash infrastructure costs.

Table MD&A 4: Secure Networks Segment - Financial Results Comparison

For the Year Ended December 31,

2025

2024

Dollar Change

(dollars in thousands)

Revenues

$

15,205 

$

31,512 

$

(16,307)

Cost of sales (excluding impairment loss, depreciation and amortization)

11,740 

24,754 

(13,014)

Depreciation and amortization

7 

8 

(1)

Total cost of sales

11,747 

24,762 

(13,015)

Gross profit

$

3,458 

$

6,750 

$

(3,292)

Gross margin

22.7 

%

21.4 

%

Secure Networks segment revenue decreased by 51.7% in 2025, compared to 2024, primarily due to the ramp down of several programs within the portfolio without corresponding new business wins to backfill completed programs.

Secure Networks segment gross profit decreased by 48.8% in 2025, compared to 2024, due to lower segment revenues.

By contrast, the Secure Networks segment gross margin increased from 21.4% in 2024 to 22.7% in 2025, primarily due to program mix. Segment gross margin, excluding the impact of depreciation and amortization, stock-based compensation, and restructuring expenses, is also up year-over-year due to revenue mix.

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Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the non-GAAP financial measures of EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin are useful in evaluating our operating and cash flow performance. We believe that this non-GAAP financial information, when taken collectively with our GAAP results, may be helpful to readers of our financial statements because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each of these non-GAAP financial measures to the most directly comparable financial measure stated in accordance with GAAP.

EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin

EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin are supplemental measures of operating and cash flow performance that are not made under GAAP and do not represent, and should not be considered as an alternative to net (loss) income, as determined by GAAP. We define EBITDA as net (loss) income, adjusted for non-operating (income) expense, interest expense, provision for (benefit from) income taxes, and depreciation and amortization. We define Adjusted EBITDA as EBITDA, adjusted for stock-based compensation expense, impairment loss on goodwill and intangible assets, and restructuring expenses (adjustments). We define EBITDA Margin, as EBITDA as a percentage of total revenue. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenue.

We believe that EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin provide the Board of Directors, management and investors with a clear representation of the Company’s core operating performance and trends, provide greater visibility into the long-term financial performance of the Company, and eliminate the impact of items that do not relate to the ongoing operating performance of the business. Further, Adjusted EBITDA is used by the Board of Directors and management to prepare and approve the Company’s annual budget, and to evaluate the performance of certain management personnel when determining incentive compensation.

Table MD&A 5: Reconciliation of Net Loss to EBITDA and Adjusted EBITDA; Net Loss Margin to EBITDA Margin and Adjusted EBITDA Margin

For the Year Ended December 31,

2025

2024

Amount

Margin

Amount

Margin

(dollars in thousands)

Net loss

$

(36,546)

(22.2)

%

$

(52,520)

(48.5)

%

Other income

(3,225)

(2.0)

%

(4,023)

(3.7)

%

Interest expense

553 

0.3 

%

644 

0.6 

%

(Benefit from) provision for income taxes

(663)

(0.3)

%

26 

— 

%

Depreciation and amortization

11,451 

6.9 

%

11,867 

11.0 

%

EBITDA (Non-GAAP)

(28,430)

(17.3)

%

(44,006)

(40.6)

%

Stock-based compensation expense (1)

30,150 

18.3 

%

21,411 

19.8 

%

Goodwill impairment

14,916 

9.1 

%

— 

— 

%

Impairment loss on intangible assets

— 

— 

%

11,706 

10.8 

%

Restructuring expenses (2)

1,501 

0.9 

%

1,270 

1.1 

%

Adjusted EBITDA (Non-GAAP)

$

18,137 

11.0 

%

$

(9,619)

(8.9)

%

(1) The stock-based compensation expense to EBITDA is made up of stock-based compensation expense for the awarded RSUs, PSUs, and stock options, and other sources. Stock-based compensation expense for the awarded RSUs, PSUs and stock options was $24.0 million and $19.4 million for fiscal years 2025 and 2024, respectively. Stock-based compensation expense from other sources was $6.1 million and $2.1 million for fiscal years 2025 and 2024, respectively. The other sources of stock-based compensation consist of accrued compensation, which the Company intends to settle in shares of the Company's common stock. However, the Company has the discretion to determine whether this compensation will ultimately be paid in stock or cash up until the date at which it is paid. Any change to the expected payment form would result in out-of-quarter adjustments to this add back to Adjusted EBITDA.

(2) The restructuring expenses include severance and other related benefit costs, and other non-cash restructuring costs related to implementing the restructuring plan.

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EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin each has limitations as an analytical tool, and they should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. Among other limitations, each of EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments, does not reflect the impact of certain cash and non-cash charges resulting from matters considered not to be indicative of ongoing operations, and does not reflect income tax expense or benefit. Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, which limits its usefulness as a comparative measure. Because of these limitations, neither EBITDA, Adjusted EBITDA, EBITDA Margin, nor Adjusted EBITDA Margin should be considered as a replacement for net (loss) income as determined by GAAP, or as a measure of profitability. Telos compensates for these limitations by relying primarily on the Company’s GAAP results and using non-GAAP measures only for supplemental purposes.

We believe these non-GAAP financial measures facilitate the comparison of the Company’s operating and cash performance on a consistent basis between periods by excluding certain items that may, or could, have a disproportionately positive or negative impact on the Company’s results of operations in any particular period. When viewed in combination with our results prepared in accordance with GAAP, these non-GAAP financial measures help provide a broader picture of factors and trends affecting the Company’s results of operations.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, future operating cash flows, and, if needed, borrowings under our $15.0 million senior secured revolving credit facility, with an expansion feature of up to $15.0 million of additional revolver capacity, maturing on December 30, 2026. While a variety of factors related to sources and uses of cash, such as timeliness of accounts receivable collections, vendor credit terms, or significant collateral requirements, ultimately impact our liquidity, such factors may or may not have a direct impact on our liquidity.

As of December 31, 2025, we had cash and cash equivalents of $53.2 million and our working capital was $57.6 million.

We place a strong emphasis on liquidity management. This focus gives us the flexibility for capital deployment while preserving a strong balance sheet to position us for future opportunities. We believe we have adequate funds on hand to execute our financial and operating strategy. Our overall financial position and liquidity are strong. Although no assurances can be given, we believe the available cash balances are sufficient to maintain the liquidity we require to meet our operating, investing and financing needs for the next 12 months.

Table MD&A 6: Cash Flows Information

For the Year Ended December 31,

2025

2024

(in thousands)

Net cash provided by (used in) operating activities

$

30,182 

$

(25,938)

Net cash used in investing activities

(8,915)

(16,757)

Net cash used in financing activities

(22,664)

(1,984)

Net change in cash, cash equivalents, and restricted cash

$

(1,397)

$

(44,679)

For the year ended December 31, 2025, net cash provided by operating activities was $30.2 million, compared with net cash used in operating activities of $25.9 million in 2024, an increase of $56.1 million compared year over year. The change in cash flow from operating activities is attributable to the favorable changes in working capital, primarily driven by timing of receipts from customer and the timing of payments to vendors, coupled with higher cash earnings (i.e., net loss, excluding non-cash items that do not impact cash flows from operating activities).

Net cash used in investing activities for the year ended December 31, 2025, decreased by $7.8 million in cash outflow compared to the same period in 2024, primarily due to the cash outflow from the purchase of an investment of $3.0 million in 2024, with no similar transaction in 2025, coupled by a decrease of $4.8 million in capital expenditures in 2025.

For the year ended December 31, 2025, net cash used in financing activities was $22.7 million, compared to $2.0 million in 2024. This is primarily attributable to the repurchases of common stock for $13.6 million in 2025 under the share repurchase program, with no similar activity in 2024, and an increase in payments of tax withholding related to the net share settlement of equity awards of $7.3 million in 2025, compared with $0.5 million in 2024.

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Commitments from Contractual Obligations

The Company does not have any other material cash requirements from contractual obligations. As of December 31, 2025, we had contractual commitments to make payments under existing lease obligations on various office space and equipment under non-cancelable operating and finance leases, and an obligation under a service agreement. We reported current and long-term lease liabilities; see Note 12 - Leases in the consolidated financial statements within this 10-K.

Table MD&A 7: Contractual Obligations

Total

Due within one year

(in thousands)

Finance lease obligations (1)

$

8,344 

2,372 

Operating lease obligations (1) (2)

472 

280 

Service agreement obligation

10,000 

6,250 

Total contract obligations

$

18,816 

$

8,902 

(1) Includes interest expense.

$

728 

$

359 

(2) Amount includes operating lease right-of-use obligations and short-term leases with terms of 12 months or less. We have various lease agreements pursuant to ASC 842, "Leases" that require us to record the present value of the minimum lease payments for such lease properties.

There were no outstanding commitments that were considered material for capital expenditures on December 31, 2025.

From time to time, we may be subject to various audits, reviews, investigations, lawsuits and claims related to our business. See Note 18 - Commitments, Contingencies and Subsequent Events to the consolidated financial statements within this 10-K for further discussion of other commitments and contingencies.

Revolving Credit Facility

On December 30, 2022, we entered into a senior secured credit facility with JPMorgan Chase Bank, N.A. ("Credit Agreement") that provided for a $30.0 million senior secured revolving credit facility, with the option of issuing letters of credits thereunder and with an uncommitted expansion feature of up to $30.0 million of additional revolver capacity, with a maturity date on December 30, 2025. On April 12, 2023, we amended our Credit Agreement and revised certain provisions on the terms of the covered collateral. On December 30, 2025, we amended our Credit Agreement to extend the maturity date to December 30, 2026. The amendment also modifies the revolving commitment to $15.0 million, with an expansion feature of up to $15.0 million of additional credit capacity. See Note 9 - Revolving Credit Facility to the consolidated financial statements contained within this 10-K for additional information.

The Credit Agreement contains customary terms and conditions, including certain covenant requirements. As of December 31, 2025, there were no outstanding balances under the revolving credit facility and we were in compliance with all covenants contained in the Credit Agreement.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current reasonably available information, and may change in the future as more current information is available.

Management believes that our critical accounting policies are those that are both material to the presentation of our financial condition and results of operations and require management's most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments difficult, subjective and complex have to do with making estimates about the effect of matters that are inherently uncertain; as a result, actual results could differ from those estimates.

The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements in fiscal year 2025 are described below. This is not intended to be a comprehensive list of all significant accounting policies that are more fully described in the notes to consolidated financial statements contained within this report.

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Revenue Recognition

Although most of our revenue is recognized concurrently with billing or with the passage of time, some of our revenue requires us to make estimates. The timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms. Our contracts may have a single performance obligation or multiple performance obligations. When there are multiple performance obligations within a contract, we allocate the transaction price, net of any discounts, to each performance obligation based on the standalone selling price of the product or service underlying each performance obligation. The standalone selling price is either based on estimated or actual costs plus a reasonable profit margin or the observable price of a good or service when Telos sells that good or service separately in similar circumstances and to similar customers. The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration, as applicable. The transaction price is allocated to each distinct performance obligation within the contract and recognized as revenue when, or as, the performance obligation is satisfied.

Our contracts may also include various types of variable considerations such as claims (i.e., indirect rate or other equitable adjustments) or incentive fees and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. The estimated amounts are based on an assessment of our anticipated performance and all other information that is reasonably available to us.

For contracts where revenue is recognized over time, we recognize revenue based on progress towards completion of the performance obligation, using costs incurred to date relative to the total estimated cost at completion to measure progress on a proportional performance basis for our contracts. Due to the nature of the work required to be performed on certain contracts, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. Contract estimates are based on various assumptions, including labor and subcontractor costs, materials and other direct costs and the complexity of the work to be performed. A significant change in one or more of these estimates could affect the profitability of our contracts. We review and update our contract-related estimates regularly and recognize adjustments in estimated profit on contracts on a cumulative catch-up basis, which may result in an adjustment increasing or decreasing revenue to date on a contract in a particular period that the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. No revenue adjustment was recorded during the year ended December 31, 2025, while we recorded an immaterial catch-up revenue adjustment during the year ended December 31, 2024, as a result of the changes in contract estimates.

Goodwill and Other Long-Lived Assets

We evaluate the impairment of goodwill and other long-lived assets in accordance with Accounting Standards Codification ("ASC") 350, "Intangibles – Goodwill and Other." Goodwill is not amortized, but is subject to impairment testing on an annual basis, as of December 31 each year, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. The goodwill impairment test is performed at the reporting unit level. As of December 31, 2025 and 2024, goodwill represented 2.1% and 11.3% of our total assets, respectively.

In testing goodwill for impairment, we first assess the qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after the assessment, we determine that an impairment indicator exists, we perform the quantitative goodwill impairment test. The Company performs the quantitative goodwill impairment test by calculating the fair value of the reporting unit and comparing it to its respective carrying value including goodwill. If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit's fair value and the reporting unit's carrying value.

Determining the fair value of a reporting unit requires management's judgment and involves the use of significant estimates and assumptions, including forecasted revenue, operating margins, capital expenditures, and selection and use of an appropriate discount rate commensurate with the risk inherent in each of our reporting units' current business models. We utilize the weighted average cost of capital as derived by certain assumptions specific to our facts and circumstances as the discount rate. Our estimate of cash flows and discount rate are subject to change due to the economic environment and that may cause a change in the results of the impairment assessment in future periods that could result in goodwill impairment.

In the fourth quarter of 2025, the result of the quantitative assessment of our Secure Networks reporting unit concluded that the estimated carrying value of Secure Networks exceeded its fair value, driven by the continued contraction of Secure Networks' backlog in 2025. Accordingly, we recognized a goodwill impairment charge of $14.9 million in the fourth quarter of 2025.

In fiscal year 2024, we performed a qualitative assessment of our reporting units and determined that it is more likely than not that the estimated fair value of the reporting units exceeds their carrying value and thus, we did not proceed to the quantitative impairment test.

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Due to the nature of our business and other factors described in Item 1A, "Risk Factors" of this 10-K, the profitability of our individual reporting units may periodically be affected by downturns in customer demand, operational challenges, and other factors. If material adverse conditions occur that impact one or all of our reporting units, our determination of future fair value might not support the carrying amount of our reporting units, and the related goodwill may be impaired. We will continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.

We amortize intangible assets over their respective estimated useful lives, and review them for impairment whenever events or changes in business circumstances indicate the carrying value may not be recoverable.

We evaluated our intangible assets for potential impairment and no impairment was identified for the year ended December 31, 2025. An impairment charge of $11.7 million was recorded in the consolidated statements of operations for the year ended December 31, 2024.

For further discussion of the methods used and factors considered in our estimates as part of the impairment testing for goodwill and intangible assets, see Note 2 - Summary of Significant Accounting Policies on Goodwill and Intangible Assets, Note 6 - Goodwill, Net and Note 7 - Intangible Assets, Net to the consolidated financial statements contained within this 10-K.

Stock-Based Compensation

The stock-based compensation expense related to the stock options, RSUs and PSUs awarded under the Amended and Restated 2016 Omnibus Long-Term Incentive Plan (the “2016 LTIP”) is recognized ratably over the requisite service period.

For awards with performance conditions, stock-based compensation expense is estimated at each reporting date using management’s expectation of the probable achievement of the specific performance targets and recognized over the requisite service period for each tranche on a graded-vesting basis. Stock-based compensation expense for PSUs with market conditions is recognized based on the grant-date fair value calculated using the Monte Carlo model, as described below, or sooner if the market conditions are achieved.

The fair value of the PSUs is equal to the closing stock price on the date of the grant or the fair value of the award on the grant date, as determined through an independent valuation for PSUs with market conditions. Estimating the fair value of PSUs with market condition, using the Monte Carlo simulation valuation model, requires assumptions as to the fair value of the underlying common stock, the estimated performance period, expected volatility, risk-free rate, and derived service period. See Note 11 – Stock-Based Compensation for additional information.

Income Taxes

We account for income taxes in accordance with ASC 740, "Income Taxes." Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We record net deferred assets to the extent we believe these assets will more likely than not be realized. The realizability of net deferred tax assets is based on all available evidence, including future taxable income projections, tax planning strategies, and reversal of taxable temporary differences. We regularly review our deferred tax assets for recoverability and establish a valuation allowance when management believes it is more likely than not that such asset will not be recovered, taking into consideration historical operating results, expectations of future earnings, tax planning strategies and the expected timing of the reversals of existing temporary differences.

Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies of the consolidated financial statements contained within this 10-K for a discussion of recently issued accounting pronouncements.