Telos returns to $4.4M profit in Q3 2026

A November amendment extends the revolver’s maturity through December 29, 2028; no borrowings were outstanding at September 30, 2026.

Available on EDGAR 11/09/2026 - 04:02 PM EST Accepted by SEC EDGAR 11/09/2026 - 04:02 PM EST Learn about SEC filing dates

Rhea-AI Filing Summary

Telos Corporation (TLS) reported third-quarter 2026 revenue of $55.2 million, up 7.3% from $51.4 million a year earlier, and net income of $4.4 million versus a $2.1 million loss. For the first nine months, revenue was $150.7 million versus $118.0 million, and net income was $7.1 million versus a $20.2 million loss. Third-quarter operating expenses fell 26.8% to $16.9 million, mainly because stock-based compensation was lower; consolidated gross margin was 37.9%, compared with 39.9%.

Security Solutions revenue rose 16.6% to $54.2 million in the quarter, primarily from expansion of multiple Telos ID programs, while Secure Networks revenue fell 79.6% to $1.0 million amid program ramp-downs without corresponding new wins. Operating cash flow for the first nine months was $26.9 million versus $22.2 million. Telos repurchased 1,251,500 shares for $5.7 million at an average $4.59 per share in the quarter; approximately $37.5 million of authorization remained as of September 30, 2026. Funded backlog was approximately $84.0 million as of that date, with approximately 90% expected to be recognized over the next 12 months. On November 6, 2026, Telos amended its revolving credit agreement, extending the maturity through December 29, 2028; it had no revolver borrowings as of September 30, 2026.

3 points · 0 major

PositiveiHow this balance works

How this balance works

Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.

It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.

Rhea-AI Sentiment measures something else, the tone of the wording.

How the balance worksHow Sentiment works

0 major · 1 point

How the balance works

Positive

• Moderate pointThird-quarter revenue rose 7.3% year over year to $55.2 million.
• Moderate pointQuarterly net income reached $4.4 million, versus a prior-year loss.
• Moderate pointNine-month operating cash flow increased $4.7 million year over year.

Negative

• Minor pointSecure Networks revenue fell 79.6% to $1.0 million in Q3.

Filing Explained

At September 30, 12,128,909 unvested units and approximately 1.8 million grant-available shares were potential equity, not completed share issuance.

Form 10-Q is a quarterly report of interim financial statements and liquidity updates; as of September 30, 2026, Telos reported 73,512,971 shares issued and outstanding alongside 12,128,909 unvested stock units. If those units ultimately settle in shares, they add to the share count and reduce existing holders’ percentage ownership absent offsetting changes; they are not shares already issued.

Separately, the 2016 plan had approximately 1.8 million shares available for future grants after shareholders approved an additional 5,380,000 shares for issuance under the plan on May 7, 2026.

The filing reports 7,584,241 outstanding performance-based stock units excluded from diluted earnings per share because issuance conditions had not been met by period-end. Those units’ performance period ends May 31, 2029; payout may range from 0% to 200% of target, based on relative total shareholder return and a requirement for neutral or positive free cash flow at each fiscal-year end.

Key Figures

Third-quarter revenue: $55.2 million Third-quarter net income: $4.4 million Nine-month revenue: $150.7 million +5 more

8 metrics

Third-quarter revenue $55.2 million Three months ended September 30, 2026; up 7.3% year over year.

Third-quarter net income $4.4 million Three months ended September 30, 2026; compared with a $2.1 million net loss in 2025.

Nine-month revenue $150.7 million Nine months ended September 30, 2026; compared with $118.0 million in 2025.

Security Solutions revenue $54.2 million Three months ended September 30, 2026; up 16.6% year over year.

Secure Networks revenue $1.0 million Three months ended September 30, 2026; down 79.6% year over year.

Operating cash flow $26.9 million Nine months ended September 30, 2026; compared with $22.2 million in 2025.

Shares repurchased 1,251,500 shares Third quarter of 2026.

Funded backlog Approximately $84.0 million As of September 30, 2026; approximately 90% expected to be recognized over the next 12 months.

Key Terms

funded backlog, Factoring Agreement, true sale, Senior Leverage Ratio

4 terms

funded backlog financial

"remaining performance obligations, which we also refer to as funded backlog"

Funded backlog is the portion of a company’s unfulfilled orders or signed contracts that already has committed financing or approved budget behind it, meaning the customer (or a funding source) has promised the money needed to pay for the work. For investors it signals clearer near-term revenue visibility and lower execution risk — like a stack of paid-for jobs waiting to be finished rather than hopeful leads — which helps assess future cash flow and growth reliability.

Factoring Agreement financial

"Under this Factoring Agreement, we may offer eligible accounts receivable"

true sale financial

"These transactions are accounted for as a "true sale""

Senior Leverage Ratio financial

"including a Senior Leverage Ratio on the last day of any fiscal quarter"

FAQ

AI-generated questions and answers. How Rhea-AI works. Not financial advice.

What did TLS report for Q3 2026 revenue and earnings?

Telos reported third-quarter 2026 revenue of $55.2 million, up 7.3% year over year, and net income of $4.4 million, compared with a $2.1 million net loss in the third quarter of 2025.

How many shares did TLS repurchase in Q3 2026?

Telos repurchased 1,251,500 shares in the quarter for $5.7 million at an average price of $4.59 per share. Approximately $37.5 million of authorization remained as of September 30, 2026.

How large is TLS’s revolving credit facility?

The revolving borrowing capacity is $15.0 million, with an expansion feature for up to an additional $15.0 million. The maturity was extended by two years, through December 29, 2028; no amounts were outstanding as of September 30, 2026.

What percentage of TLS revenue came from U.S. government agencies?

U.S. government agencies accounted for approximately 92.7% of Telos’s total revenue for the nine months ended September 30, 2026, compared with 90.9% for the same period in 2025. The company said its revenue is largely attributable to prime contracts or subcontracts for federal government work.

How does TLS’s share repurchase program work?

The program permits Telos to repurchase common stock at its discretion through open-market purchases. It has no expiration date and may be modified, suspended, or terminated at any time.

AI-generated analysis. How Rhea-AI works. Not financial advice.

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2026

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 001-08443

TELOS CORPORATION

(Exact name of registrant as specified in its charter)

Maryland						52-0880974
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
19886 Ashburn Road, Ashburn, Virginia						20147-2358
(Address of principal executive offices)						(Zip Code)

(703) 724-3800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading symbol			Name of each exchange on which registered
Common stock, $0.001 par value per share			TLS			The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes x      No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨

Smaller reporting company

x

Emerging growth company

¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes ¨    No x

As of November 2, 2026, the registrant had outstanding 73,532,971 shares of common stock.

Table of Contents to Third Quarter 2026 Form 10-Q

						Page
PART I - FINANCIAL INFORMATION						3
Item 1.			Financial Statements (Unaudited)			3
			Consolidated Statements of Operations			3
			Consolidated Statements of Comprehensive Income (Loss)			4
			Consolidated Balance Sheets			5
			Consolidated Statements of Cash Flows			6
			Consolidated Statements of Changes in Stockholders’ Equity			7
			Notes to the Unaudited Consolidated Financial Statements			8
			1. Organization			8
			2. Significant Accounting Policies			8
			3. Revenue Recognition			10
			4. Accounts Receivable, Net			11
			5. Inventories, Net			12
			6. Property and Equipment, Net			12
			7. Goodwill			12
			8. Intangible Assets, Net			13
			9. Other Balance Sheet Components			13
			10. Revolving Credit Facility			14
			11. Stock-Based Compensation			14
			12. Share Repurchases			15
			13. Earnings (Loss) per Share			16
			14. Segment Information			16
			15. Supplemental Cash Flow Information			18
			16. Commitments and Contingencies			18
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
			Forward-Looking Statements			19
			Overview and Business Environment			19
			Financial Overview			20
			Results of Operations			20
			Liquidity and Capital Resources			22
			Critical Accounting Policies and Estimates			23
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			23
Item 4.			Controls and Procedures			23
PART II - OTHER INFORMATION						24
Item 1.			Legal Proceedings			24
Item 1A.			Risk Factors			24
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			24
Item 3.			Defaults upon Senior Securities			24
Item 4.			Mine Safety Disclosures			24
Item 5.			Other Information			24
Item 6.			Exhibits			25
			SIGNATURES			26

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

TELOS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

			For the Three Months Ended												For the Nine Months Ended
			September 30, 2026						September 30, 2025						September 30, 2026						September 30, 2025
			(in thousands, except per share amounts)
Revenue – services			$	44,948					$	43,486					$	127,603					$	101,632
Revenue – products			10,250						7,958						23,082						16,396
Total revenue			55,198						51,444						150,685						118,028
Cost of sales – services (excluding depreciation and amortization)			23,063						22,906						68,839						55,002
Cost of sales – products (excluding depreciation and amortization)			8,558						5,636						19,092						12,792
Depreciation and amortization			2,637						2,356						7,747						5,574
Total cost of sales			34,258						30,898						95,678						73,368
Gross profit			20,940						20,546						55,007						44,660
Operating expenses:
Research and development expenses			1,452						1,899						4,154						4,982
Selling, general and administrative expenses			15,398						21,115						44,998						61,051
Total operating expenses			16,850						23,014						49,152						66,033
Operating income (loss)			4,090						(2,468)						5,855						(21,373)
Other income			464						511						1,662						1,625
Interest expense			(100)						(136)						(318)						(424)
Income (loss) before income taxes			4,454						(2,093)						7,199						(20,172)
Provision for income taxes			(18)						(21)						(80)						(63)
Net income (loss)			$	4,436					$	(2,114)					$	7,119					$	(20,235)
Earnings (loss) per share:
Basic			$	0.06					$	(0.03)					$	0.10					$	(0.28)
Diluted			$	0.06					$	(0.03)					$	0.09					$	(0.28)
Weighted-average shares outstanding:
Basic			74,244						72,580						74,322						72,819
Diluted			76,496						72,580						77,260						72,819

See accompanying notes to the unaudited consolidated financial statements.

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TELOS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

			For the Three Months Ended												For the Nine Months Ended
			September 30, 2026						September 30, 2025						September 30, 2026						September 30, 2025
			(in thousands)
Net income (loss)			$	4,436					$	(2,114)					$	7,119					$	(20,235)
Other comprehensive income, net of tax:
Foreign currency translation adjustments			5						1						—						76
Actuarial gain on pension liability adjustment			—						—						—						8
Other comprehensive income			5						1						—						84
Comprehensive income (loss)			$	4,441					$	(2,113)					$	7,119					$	(20,151)

See accompanying notes to the unaudited consolidated financial statements.

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TELOS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

			September 30, 2026						December 31, 2025
			(in thousands, except per share amount and share data)
Assets:
Cash and cash equivalents			$	51,761					$	53,180
Accounts receivable, net			23,730						17,000
Inventories, net			2,955						996
Prepaid expenses			7,099						10,565
Deferred program expenses			9,502						10,006
Other current assets			1,885						2,666
Total current assets			96,932						94,413
Property and equipment, net			2,167						3,071
Finance lease right-of-use assets, net			3,255						4,170
Operating lease right-of-use assets, net			240						410
Goodwill			3,006						3,006
Intangible assets, net			28,521						30,281
Other assets			4,290						4,513
Total assets			$	138,411					$	139,864
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable			$	1,502					$	4,087
Accrued liabilities			5,744						6,900
Accrued compensation and benefits			13,006						12,309
Contract liabilities – current portion			16,353						11,223
Finance lease obligations – current portion			2,156						2,033
Operating lease obligations – current portion			219						232
Total current liabilities			38,980						36,784
Contract liabilities – non-current portion			751						1,124
Finance lease obligations – non-current portion			3,976						5,608
Operating lease obligations – non-current portion			35						186
Deferred income taxes			59						53
Other liabilities			174						159
Total liabilities			43,975						43,914
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value, 250,000,000 shares authorized, 73,512,971 shares and 72,773,272 shares issued and outstanding as of September 30, 2026, and December 31, 2025, respectively			112						111
Additional paid-in capital			451,194						459,828
Accumulated other comprehensive loss			(96)						(96)
Accumulated deficit			(356,774)						(363,893)
Total stockholders’ equity			94,436						95,950
Total liabilities and stockholders’ equity			$	138,411					$	139,864

See accompanying notes to the unaudited consolidated financial statements.

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TELOS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			For the Nine Months Ended
			September 30, 2026						September 30, 2025
			(in thousands)
Cash flows from operating activities:
Net income (loss)			$	7,119					$	(20,235)
Adjustments to reconcile net income (loss) to cash flows from operations:
Stock-based compensation			9,195						24,193
Depreciation and amortization			10,248						8,022
Loss on disposal of fixed assets			52						1
Provision for inventory obsolescence			42						—
Amortization of debt issuance costs			26						52
Deferred income taxes			6						41
Provision for doubtful accounts			1						3
Changes in other operating assets and liabilities:
Accounts receivable			(6,731)						(1,254)
Inventories			(1,825)						1,081
Prepaid expenses, deferred program expenses, other current assets, other assets			8,072						701
Accounts payable			(2,832)						(1,263)
Accrued compensation and benefits			1,466						1,420
Contract liabilities			4,756						6,894
Accrued liabilities and other liabilities			(2,662)						2,546
Net cash provided by operating activities			26,933						22,202
Cash flows from investing activities:
Capitalized software development costs			(6,075)						(6,496)
Purchases of property and equipment, net			(477)						(709)
Net cash used in investing activities			(6,552)						(7,205)
Cash flows from financing activities:
Payments under finance lease obligations			(1,509)						(1,393)
Payment of tax withholding related to net share settlement of equity awards			(7,632)						(1,600)
Repurchases of common stock			(12,637)						(7,639)
Payments for debt issuance costs			(21)						—
Proceeds from exercise of stock options			—						108
Net cash used in financing activities			(21,799)						(10,524)
Net change in cash, cash equivalents, and restricted cash			(1,418)						4,473
Cash, cash equivalents, and restricted cash, beginning of period			53,320						54,717
Cash, cash equivalents, and restricted cash, end of period			$	51,902					$	59,190

See accompanying notes to the unaudited consolidated financial statements.

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TELOS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
			Shares						Amount
			(in thousands)
Balance at June 30, 2026			74,737						$	113					$	454,611					$	(101)					$	(361,210)					$	93,413
Net income			—						—						—						—						4,436						4,436
Foreign currency translation gain			—						—						—						5						—						5
Restricted stock unit awards vested, net of shares withheld to cover tax withholding			28						—						(6)						—						—						(6)
Stock-based compensation			—						—						2,336						—						—						2,336
Repurchases of common stock			(1,252)						(1)						(5,747)						—						—						(5,748)
Balance at September 30, 2026			73,513						$	112					$	451,194					$	(96)					$	(356,774)					$	94,436
Balance at June 30, 2025			72,442						$	111					$	463,816					$	(46)					$	(345,468)					$	118,413
Net loss			—						—						—						—						(2,114)						(2,114)
Foreign currency translation gain			—						—						—						1						—						1
Restricted stock unit awards vested, net of shares withheld to cover tax withholding			302						1						(538)						—						—						(537)
Stock-based compensation			—						—						7,441						—						—						7,441
Issuance of common stock upon exercise of stock options			60						—						108						—						—						108
Repurchases of common stock			(584)						(1)						(3,636)						—						—						(3,637)
Balance at September 30, 2025			72,220						$	111					$	467,191					$	(45)					$	(347,582)					$	119,675

			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
			Shares						Amount
			(in thousands)
Balance at December 31, 2025			72,773						$	111					$	459,828					$	(96)					$	(363,893)					$	95,950
Net income			—						—						—						—						7,119						7,119
Restricted stock unit awards vested, net of shares withheld to cover tax withholding			2,432						2						(6,414)						—						—						(6,412)
Stock-based compensation			—						—						5,990						—						—						5,990
Repurchases of common stock			(2,811)						(2)						(12,635)						—						—						(12,637)
Issuance of common stock for annual incentive plan ("AIP") payment, net of shares withheld to cover tax withholding			706						1						2,766						—						—						2,767
Issuance of common stock for 401(k) match			413						—						1,659						—						—						1,659
Balance at September 30, 2026			73,513						$	112					$	451,194					$	(96)					$	(356,774)					$	94,436
Balance at December 31, 2024			72,515						$	111					$	454,502					$	(129)					$	(327,347)					$	127,137
Net loss			—						—						—						—						(20,235)						(20,235)
Foreign currency translation gain			—						—						—						76						—						76
Actuarial gain on pension liability adjustment			—						—						—						8						—						8
Restricted stock unit awards vested, net of shares withheld to cover tax withholding			989						1						(1,601)						—						—						(1,600)
Stock-based compensation			—						—						19,757						—						—						19,757
Issuance of common stock upon exercise of stock options			60						—						108						—						—						108
Repurchase of common stock			(2,072)						(2)						(7,637)						—						—						(7,639)
Issuance of common stock for 401(k) match			728						1						2,062						—						—						2,063
Balance at September 30, 2025			72,220						$	111					$	467,191					$	(45)					$	(347,582)					$	119,675

See accompanying notes to the unaudited consolidated financial statements.

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TELOS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Telos Corporation, together with its subsidiaries (collectively, the "Company," "we," "our" or "Telos"), a Maryland corporation, is a leading provider of cyber, cloud and enterprise security solutions for the world's most security-conscious organizations. We own all of the issued and outstanding shares of Xacta Corporation and ubIQuity.com, inc. (a holding company for Xacta Corporation), and Teloworks, Inc. ("Teloworks"), and 100% ownership interest in Telos Identity Management Solutions, LLC ("Telos ID").

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of Telos and its subsidiaries (see Note 1 – Organization), all of whose issued and outstanding share capital is wholly owned directly and indirectly by Telos Corporation. All intercompany transactions and balances have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").

Basis of Presentation for Interim Periods

Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. We believe that the unaudited interim financial statements include all adjustments (which are normal and recurring) necessary to state fairly our financial position and the results of operations and cash flows for the periods presented.

The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for the full year or future periods. The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2025, included in our Annual Report on Form 10-K for the fiscal year then ended. We continue to follow the accounting policies set forth in those financial statements.

Reclassification

Certain prior-period amounts have been reclassified to conform to the current period presentation. This reclassification relates to presenting "Inventories, net" as a separate line item on the unaudited consolidated balance sheets from "Other current assets."

Use of Estimates

The preparation of these unaudited consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual results could differ from those estimates. We base our estimates on historical experience, currently available information, and various other assumptions that we believe are reasonable under the circumstances.

Management evaluates these estimates and assumptions on an ongoing basis, including those relating to revenue recognition on cost estimation on certain contracts, allowance for credit losses, inventory obsolescence, valuation allowance for deferred tax assets, income taxes, certain assumptions related to stock-based compensation, impairment of intangible assets and goodwill, restructuring expense accruals, and contingencies. Actual results could differ from these estimates. The impact of changes in estimates is recorded in the period in which they become known.

Restructuring Expenses

As disclosed in the Company's recent Annual Report on Form 10-K for the year ended December 31, 2025, in the fourth quarter of 2025, the Company committed to a restructuring plan as part of its efforts to streamline operations and to align people, roles and projects to our strategic priorities ("2025 restructuring plan"). The 2025 restructuring plan reduced the Company's workforce, with the affected employees separating from the business through the third quarter of 2026. The actions under this restructuring plan were completed and substantially paid through the third quarter of 2026. Total restructuring expenses incurred under the 2025 restructuring plan were $1.5 million.

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Table 2: Summary of Changes in Restructuring Expenses Accrual
			Severance and related benefit costs (1)
			(in thousands)
Balance at December 31, 2025			$	1,451
Cash payments			(1,448)
Balance at September 30, 2026			$	3

(1) Restructuring expenses accrual is included within "Accrued liabilities" on the Company's unaudited consolidated balance sheets (see Note 9 - Other Balance Sheet Components for further details).

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses." This standard requires additional disclosure of certain amounts included in the expense captions presented on the statement of operations, as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application. All public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In July 2025, the FASB issued ASU 2025-05, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets.” This standard provides simplified guidance on measuring credit losses for accounts receivable and contract assets. The update introduces a practical expedient and an accounting policy election to ease the process. All entities can elect the practical expedient to assume that the current economic conditions at the balance sheet date will remain constant through the life of the current receivables and contract assets. Entities that elect the practical expedient and the accounting policy election should apply the amendments in this ASU prospectively. The ASU was effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. We adopted the standard in the first quarter of 2026 and the adoption did not have a material impact on our unaudited consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting of Internal-Use Software." This standard provides a simplified, consistent way to track expenses related to software developed for internal use. The amendments in this standard removed all references to project stages; instead, a company can capitalize software costs once both conditions are met: the entity's management has authorized and committed to funding the project, and it is probable that the project will be completed and the software will be used as intended. The amendments will be effective for annual reporting periods, including interim periods within those years, beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270): Narrow-Scope Improvements," which was intended to improve the navigability of the guidance in ASC 270 and clarify when it applies. Public entities are required to adopt the guidance for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In December 2025, the FASB issued ASU 2025-12, "Codification Improvement." This ASU includes a number of improvements that span a wide range of topics, including amendments to the following provisions, among other things: (1) clarify diluted earnings per share ("EPS") calculation when a loss from continuing operations exists; (2) revise the calculation of the reference amount for beneficial interests to prevent double counting credit losses; (3) clarify the permissible methods to account for treasury stock retirements; and (4) clarify the guidance for transfers of receivables from contracts with customers. The standard will be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In addition, from time to time, new accounting standards are issued by the Financial Accounting Standards Board or other standard-setting bodies and are adopted by the Company as of the specified accounting date. Unless otherwise discussed, the Company believes that issued standards not yet effective will not have a material effect on its financial statements.

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3. REVENUE RECOGNITION

The majority of our revenue is recognized over time, as control is periodically transferred to our customers, who receive and consume benefits as we perform. Revenue from transfers to customers over time accounted for 67% and 69% of our revenue for the three and nine months ended September 30, 2026, respectively, and 77% and 74% of our revenue for the three and nine months ended September 30, 2025, respectively. For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time when each performance obligation is fully satisfied. This coincides with the point in time the customer obtains control of the product or service, which typically occurs upon customer acceptance or receipt of the product or service, given that we maintain control of the product or service until that point. Revenue from transfers to customers at a point in time accounted for 33% and 31% of our revenue for the three and nine months ended September 30, 2026, respectively, and 23% and 26% of our revenue for the three and nine months ended September 30, 2025, respectively. The change in revenue mix for the nine months ended September 30, 2026, as compared to the prior period, was primarily driven by an increase in product sales volume from a significant program.

Our contracts may include various types of variable consideration and may include estimated amounts in the transaction price, based on all of the information available to us, and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when any uncertainty associated with the variable consideration is resolved. We evaluate and include these estimated amounts of variable consideration in the transaction price, and as performance on these contracts is complete, we adjust our revenue when deemed necessary. No revenue adjustments were recorded during the three and nine months ended September 30, 2026, and 2025.

We provide for anticipated losses on contracts during the period when the loss is determined by recording an expense for the total expected costs that exceed the total estimated revenue for a performance obligation. We recorded an immaterial contract loss during the three and nine months ended September 30, 2026. No contract loss was recorded during the three months ended September 30, 2025, while we recorded an immaterial contract loss during the nine months ended September 30, 2025.

Disaggregated Revenues

In addition to our segment reporting, as further discussed in Note 14 – Segment Information, we disaggregate our revenues by customer and contract types. We treat sales to U.S. customers as sales within the United States, regardless of where the services are performed. Practically all of our revenues are generated from U.S. customers, while international customers are de minimis; as such, the financial information by geographic location is not presented.

Table 3.1: Revenue by Customer Type
			For the Three Months Ended																								For the Nine Months Ended
			September 30, 2026												September 30, 2025												September 30, 2026												September 30, 2025
			Amount						%						Amount						%						Amount						%						Amount						%
			(dollars in thousands)
Federal			$	51,474					93		%				$	47,296					92		%				$	139,615					93		%				$	107,268					91		%
State, local, and commercial			3,724						7		%				4,148						8		%				11,070						7		%				10,760						9		%
Total revenue			$	55,198					100		%				$	51,444					100		%				$	150,685					100		%				$	118,028					100		%

Table 3.2: Revenue by Contract Type
			For the Three Months Ended																								For the Nine Months Ended
			September 30, 2026												September 30, 2025												September 30, 2026												September 30, 2025
			Amount						%						Amount						%						Amount						%						Amount						%
			(dollars in thousands)
Firm fixed-price			$	44,633					81		%				$	39,409					77		%				$	119,538					79		%				$	84,560					71		%
Time-and-materials			8,865						16		%				9,499						18		%				26,207						18		%				26,789						23		%
Cost plus fixed fee			1,700						3		%				2,536						5		%				4,940						3		%				6,679						6		%
Total revenue			$	55,198					100		%				$	51,444					100		%				$	150,685					100		%				$	118,028					100		%

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A majority of the Company's revenue was derived under prime contracts and subcontracts with agencies and departments of the federal government. No other customer accounted for 10% or more of the Company's revenue during the three and nine months ended September 30, 2026, and 2025.

Table 3.3: Revenue Concentration Greater than 10% of Total Revenue
			For the Three Months Ended												For the Nine Months Ended
			September 30, 2026						September 30, 2025						September 30, 2026						September 30, 2025
			(in thousands)
Federal government:
Security Solutions			$	50,460					$	42,333					$	135,746					$	94,017
Secure Networks			1,014						4,963						3,869						13,251
Total			$	51,474					$	47,296					$	139,615					$	107,268

Table 3.4: Contract Balances
			Balance Sheet Presentation						September 30, 2026						December 31, 2025
									(in thousands)
Billed accounts receivable (1)			Accounts receivable, net						$	17,069					$	9,375
Unbilled accounts receivable			Accounts receivable, net						5,790						6,962
Contract assets			Accounts receivable, net						871						663
Contract liabilities – current			Contract liabilities – current portion						16,353						11,223
Contract liabilities – non-current			Contract liabilities – non-current portion						751						1,124

(1) Net of allowance for credit losses.

The changes in the Company's contract assets and contract liabilities during the current period were primarily the result of the timing differences between the Company's performance, invoicing, and customer payments. Revenue recognized for the three and nine months ended September 30, 2026, which was included in the contract liabilities balance at December 31, 2025, was $2.1 million and $10.2 million, respectively. Revenue recognized for the three and nine months ended September 30, 2025, which was included in the contract liabilities balance at December 31, 2024, was $1.2 million and $5.3 million, respectively.

As of September 30, 2026, we had approximately $84.0 million of remaining performance obligations, which we also refer to as funded backlog. We expect to recognize approximately 90% of our remaining performance obligations over the next 12 months, and the balance thereafter.

4. ACCOUNTS RECEIVABLE, NET

Table 4: Details of Accounts Receivable, Net
			September 30, 2026						December 31, 2025
			(in thousands)
Billed accounts receivable			$	17,090					$	9,416
Unbilled accounts receivable			5,790						6,962
Contract assets			871						663
Allowance for credit losses (1)			(21)						(41)
Accounts receivable, net			$	23,730					$	17,000

(1) Includes provision for credit losses, net of recoveries and write-offs.

As our primary customer base includes agencies of the U.S. federal government, we have a concentration of credit risk associated with our accounts receivable, as 91% and 85% of our billed and unbilled accounts receivable as of September 30, 2026, and December 31, 2025, respectively, were with U.S. federal government customers. While we acknowledge the potential material and adverse risk of such a significant concentration of credit risk, our past experience collecting substantially all of such receivables provides us with an informed basis that such risk, if any, is manageable. We perform ongoing credit evaluations of all of our customers and generally do not require collateral or other guarantees. We maintain allowances for potential losses, when appropriate.

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On March 10, 2026, we entered into a new Factoring Agreement with an unrelated third-party (the "Factor"). Under this Factoring Agreement, we may offer eligible accounts receivable arising from our U.S. government prime contracts or subcontracts for sale (the "Purchased Receivables") to the Factor, and the Factor may purchase such receivables at its sole discretion, on a non-recourse basis. These transactions are accounted for as a "true sale" as we have surrendered control over the receivables, and we are not obligated to repay all or any portion of the advance amount if any portion of the accounts receivable is not paid by the customers due to an inability to pay. The total amount of Purchased Receivables is subject to a maximum limit of $10.0 million of outstanding Purchased Receivables at any given time. The initial term of the Factoring Agreement expires on March 10, 2027, and automatically renews annually thereafter unless terminated in writing by the parties. No accounts receivable were sold during the three and nine months ended September 30, 2026.

5. INVENTORIES, NET

Table 5: Details of Inventories, Net
			September 30, 2026						December 31, 2025
			(in thousands)
Gross inventory			$	3,496					$	1,495
Allowance for inventory obsolescence			(541)						(499)
Inventories, net			$	2,955					$	996

6. PROPERTY AND EQUIPMENT, NET

Table 6.1: Details of Property and Equipment, Net
			September 30, 2026																		December 31, 2025
			Gross Carrying Amount						Accumulated Depreciation and Amortization						Net Carrying Value						Gross Carrying Amount						Accumulated Depreciation and Amortization						Net Carrying Value
			(in thousands)
Furniture and equipment			$	17,219					$	(15,632)					$	1,587					$	17,275					$	(14,727)					$	2,548
Leasehold improvements			3,609						(3,029)						580						3,419						(2,896)						523
Total			$	20,828					$	(18,661)					$	2,167					$	20,694					$	(17,623)					$	3,071

Table 6.2: Depreciation and Amortization Expense
			For the Three Months Ended												For the Nine Months Ended
			September 30, 2026						September 30, 2025						September 30, 2026						September 30, 2025
			(in thousands)
Depreciation and amortization expense			$	445					$	432					$	1,347					$	1,299

7. GOODWILL

The goodwill balance was $3.0 million as of September 30, 2026, and December 31, 2025, and is allocated to the Security Solutions segment. Goodwill is subject to annual impairment testing and is assessed for potential impairment indicators at least quarterly, or more frequently if triggering events are identified. No impairment charges were recorded for the three and nine months ended September 30, 2026, and 2025.

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8. INTANGIBLE ASSETS, NET

Table 8.1: Details of Intangible Assets, Net
									September 30, 2026																		December 31, 2025
			Estimated Useful Life						Gross Carrying Amount						Accumulated Amortization						Net Carrying Value						Gross Carrying Amount						Accumulated Amortization						Net Carrying Value
			(in years)						(in thousands)
Acquired technology			8						$	3,630					$	(2,344)					$	1,286					$	3,630					$	(2,004)					$	1,626
Customer relationship			3						40						(40)						—						40						(40)						—
Software development costs			2 - 5						47,398						(31,046)						16,352						43,411						(23,576)						19,835
Subtotal									51,068						(33,430)						17,638						47,081						(25,620)						21,461
In-process software development costs (1)									10,883						—						10,883						8,820						—						8,820
Total									$	61,951					$	(33,430)					$	28,521					$	55,901					$	(25,620)					$	30,281

(1) In-process software development costs are costs for software that is not yet available for its intended use or general release to customers as of the balance sheet date, thus not yet amortized.

Table 8.2: Amortization Expense
			For the Three Months Ended												For the Nine Months Ended
			September 30, 2026						September 30, 2025						September 30, 2026						September 30, 2025
			(in thousands)
Amortization expense related to:
Software development costs – cost of sales (1)			$	2,552					$	2,265					$	7,470					$	5,299
Other intangible assets – general and administrative			113						113						340						340
Total			$	2,665					$	2,378					$	7,810					$	5,639

(1) Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed is charged under cost of sales on the unaudited consolidated statements of operations.

9. OTHER BALANCE SHEET COMPONENTS

Table 9.1: Details of Other Assets
			September 30, 2026						December 31, 2025
			(in thousands)
Investment (1)			$	3,750					$	3,750
Prepaid expense and deferred commission – long-term portion			320						537
Restricted cash			141						140
Other			79						86
Other assets			$	4,290					$	4,513

(1) In March 2024, we made a $3.0 million investment in a privately-held company via a simple agreement for future equity ("SAFE"). In October 2025, the Company's SAFE investment was settled into 8,964,262 shares of Series A common stock at a settlement price of $0.42 per share, based on the valuation cap in the original agreement, resulting in 3.8% ownership with no significant influence over the privately-held company. Upon settlement of the SAFE, the investment was remeasured to its fair value of $3.8 million. The investment does not have a readily determinable fair value and the Company elected the measurement alternative to value its investment. The fair value of this investment was based on non-marketable observable inputs, which represent Level 3 measurement within the fair value hierarchy. The investment was carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investment of the same issuer, with any gains or losses recorded within "other income" on the unaudited consolidated statement of operations. We did not note any changes in the fair value during the three and nine months ended September 30, 2026, and 2025.

Table 9.2: Details of Accrued Liabilities
			September 30, 2026						December 31, 2025
			(in thousands)
Accrued project expenses			$	4,411					$	4,289
Restructuring expenses accrual			3						1,451
Other			1,330						1,160
Accrued liabilities			$	5,744					$	6,900

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10. REVOLVING CREDIT FACILITY

For the complete description of the Company's revolving credit facility, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2025. The Company’s Credit Agreement with JPMorgan Chase Bank was amended on December 30, 2025. The amended Credit Agreement provides a revolving borrowing capacity of $15.0 million, with an expansion feature of up to $15.0 million of additional credit facility, maturing on December 30, 2026. Borrowings under the revolving facility will bear interest at a rate established on the Credit Agreement, plus a commitment fee rate of 0.25% on the unused credit availability. Further, the Credit Agreement requires the Company to comply with a number of covenants, including a Senior Leverage Ratio on the last day of any fiscal quarter. At September 30, 2026, we are in compliance with all covenants.

As of September 30, 2026, there were no outstanding borrowings under the revolving credit facility.

On November 6, 2026, the Company entered into a Third Amendment to the Credit Agreement with JPMorgan Chase Bank, extending the maturity date of its revolving credit facility by two years, through December 29, 2028.

11. STOCK-BASED COMPENSATION

On May 7, 2026, the Company's stockholders approved Amendment No. 2 to the Amended and Restated 2016 Omnibus Long-Term Incentive Plan ("2016 LTIP") that increased the number of shares available for issuance under the 2016 LTIP by an additional 5,380,000 shares.

As of September 30, 2026, approximately 1.8 million shares of our common stock were available for future grants under the 2016 LTIP. There were no income tax benefits recognized on the stock-based compensation expense (as reflected in the table below) for the three and nine months ended September 30, 2026, and 2025.

Table 11.1: Details of Stock Compensation Expense by Category
			For the Three Months Ended												For the Nine Months Ended
			September 30, 2026						September 30, 2025						September 30, 2026						September 30, 2025
			(in thousands)
Cost of sales – services			$	187					$	154					$	605					$	493
Research and development			295						421						746						705
Selling, general and administrative			2,529						8,813						7,844						22,995
Total			$	3,011					$	9,388					$	9,195					$	24,193

Restricted Stock

Table 11.2: Restricted Stock Unit Activity
			Service-Based						Performance-Based						Total Shares						Weighted-Average Grant Date Fair Value
Unvested outstanding units as of December 31, 2025			2,182,836						10,861,854						13,044,690						$	3.49
Granted			2,383,357						1,369,241						3,752,598						5.60
Vested			(2,220,433)						(2,420,691)						(4,641,124)						3.46
Forfeited, cancelled, or expired			(27,255)						—						(27,255)						3.70
Unvested outstanding units as of September 30, 2026			2,318,505						9,810,404						12,128,909						$	3.90

On May 26, 2026, the Company granted performance-based restricted stock units ("PSUs") with market conditions dependent on total shareholder return ("TSR") to certain executives and senior employees. The vesting criteria for these awards are based on the Company's TSR performance relative to the TSR performance of the Company's current compensation peer group over the three-year performance period, June 1, 2026, through May 31, 2029, and conditioned upon neutral or positive free cash flow (i.e., cash flows from operating activities less capital expenditures) at the end of each fiscal year in the performance period. The final payout of these PSUs will vary between 0% to 200% of the target number of PSUs granted, depending on the TSR performance and meeting the free cash flow requirements.

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The grant date fair value per share is estimated at the grant date using a Monte Carlo simulation model. Stock-based compensation expense for PSUs with a TSR market condition is recognized over the service period based on target probability.

Table 11.3: PSUs with a TSR Market Condition Fair Value and Assumptions
Expected Volatility			92.1%
Risk-free rate			4.0%
Service period			3.0 years
Grant date fair value			$7.66

As of September 30, 2026, and 2025, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $49.4 million and $105.0 million, respectively. As of September 30, 2026, approximately $19.6 million of total compensation costs related to stock-based awards had not yet been recognized, and we expect to recognize it on a straight-line basis over a weighted-average remaining vesting period of 0.8 years.

Stock Options

Table 11.4: Stock Option Activity
			Stock Options Outstanding						Weighted-Average Exercise Price						Weighted-Average Remaining Contractual Term (in years)						Aggregate Intrinsic Value
Outstanding option balance as of December 31, 2025			227,000						$	1.80					7.4						$	749,100
Granted			—						—						0						—
Exercised			—						—						0						—
Forfeited, cancelled, or expired			—						—						0						—
Outstanding option balance as of September 30, 2026			227,000						$	1.80					6.6						$	515,290
Exercisable stock options as of September 30, 2026			227,000						$	1.80					6.6						$	515,290

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the quoted closing price of the Company's common stock as of September 30, 2026.

The fair value of the stock options is expensed on a straight-line basis over the vesting period of one year, including the stock options granted to directors, as the annual stockholders meeting is expected to occur at the same approximate time each year. As of September 30, 2026, there were no unrecognized compensation costs related to non-vested stock options.

12. SHARE REPURCHASES

On May 24, 2022, the Company announced that the Board of Directors approved a share repurchase program ("SRP") authorizing the Company to repurchase up to $50.0 million of its common stock. On March 12, 2026, the Board further authorized the Company to repurchase up to an additional $25.0 million of its common stock under its existing repurchase program. Pursuant to this authorization, the Company may repurchase shares of its common stock on a discretionary basis from time to time through open market purchases. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. As of September 30, 2026, there was approximately $37.5 million of the authorization remaining for future common stock repurchases under the SRP.

Table 12: Share Repurchase Activity
			For the Three Months Ended												For the Nine Months Ended
			September 30, 2026						September 30, 2025						September 30, 2026						September 30, 2025
			(in thousands, except per share and share data)
Amounts paid for shares repurchased (1)			$	5,747					$	3,637					$	12,637					$	7,639
Number of shares repurchased			1,251,500						584,213						2,810,986						2,072,440
Average per share price paid (1)			$	4.59					$	6.23					$	4.50					$	3.69

(1) Includes commission paid for repurchases on the open market.

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13. EARNINGS (LOSS) PER SHARE

Basic EPS is computed by dividing net income (loss) by the basic weighted-average number of common shares outstanding for the period. Diluted EPS is calculated to give effect to all potentially dilutive common stock equivalents that were outstanding during the reporting period. The dilutive effects of outstanding common stock equivalents are determined using the treasury-stock and if-converted method, only in periods in which such effect would have been dilutive for the period.

Table 13: Weighted-Average Number of Shares Outstanding – Earnings (Loss) per Share
			For the Three Months Ended												For the Nine Months Ended
			September 30, 2026						September 30, 2025						September 30, 2026						September 30, 2025
			(in thousands)
Basic weighted-average number of shares outstanding			74,244						72,580						74,322						72,819
Dilutive effect on unvested restricted stock units and stock options			2,252						—						2,938						—
Diluted weighted-average number of shares outstanding			76,496						72,580						77,260						72,819

For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net earnings (loss) per share, because doing so would be anti-dilutive. For the three and nine months ended September 30, 2025, the diluted earnings per share calculation excluded 2,972,000 and 2,073,000, respectively, of potentially dilutive securities that were anti-dilutive.

For the three and nine months ended September 30, 2026, and 2025, the outstanding PSUs aggregating to 7,584,241 and 8,565,699 shares, respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of shares is contingent upon certain conditions that were not satisfied by the end of the period. Further, an additional 2,206,163 of outstanding PSUs were excluded in the computation of potentially dilutive securities above because they were antidilutive for the nine months ended September 30, 2025.

14. SEGMENT INFORMATION

We operate our business in two reportable and operating segments: Security Solutions and Secure Networks.

•Our Security Solutions segment is primarily focused on cybersecurity, cloud and identity solutions, and secure messaging through Xacta®, Telos Automated Message Handling System ("AMHS") and Telos ID offerings.

•Our Secure Networks segment provides secure networking architectures and solutions to our customers through secure mobility solutions, and network management and defense services.

We measure each segment's profitability based on gross profit. Our Chief Executive Officer, whom we identified as the chief operating decision maker ("CODM"), evaluates the segment's performance based on metrics, such as segment revenue and gross profit, that align with our strategies and objectives, and provide a framework for the timely and rational allocation of resources between the segments.

We account for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices, if any. There were no inter-segment sales and transfers during the three and nine months ended September 30, 2026, and 2025. 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.

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Table 14.1: Results of Operations by Business Segment (Quarter)
			For the Three Months Ended
			September 30, 2026																		September 30, 2025
			Security Solutions						Secure Networks						Total						Security Solutions						Secure Networks						Total
			(in thousands)
Revenues			$	54,184					$	1,014					$	55,198					$	46,478					$	4,966					$	51,444
Cost of Sales
Depreciation and amortization (1)			2,636						1						2,637						2,354						2						2,356
Stock-based compensation expense (1)			171						16						187						142						12						154
Other segment items (2)			30,616						818						31,434						24,696						3,692						28,388
Total cost of sales			33,423						835						34,258						27,192						3,706						30,898
Gross profit			$	20,761					$	179					20,940						$	19,286					$	1,260					20,546
Operating expenses
Research and development expenses															1,452																		1,899
Selling, general and administrative expenses															15,398																		21,115
Total operating expenses															16,850																		23,014
Operating income (loss)															4,090																		(2,468)
Other income															464																		511
Interest expense															(100)																		(136)
Income (loss) before income taxes															4,454																		(2,093)
Provision for income taxes															(18)																		(21)
Net income (loss)															$	4,436																	$	(2,114)

(1) The significant segment expense categories and amounts align with the segment-level information regularly provided to the CODM.

(2) Other segment items for each reportable segment include direct labor, direct subcontractor costs, direct materials and inventory, other direct non-labor costs, fringes, overhead, and facility costs.

Table 14.2: Results of Operations by Business Segment (Year-to-Date)
			For the Nine Months Ended
			September 30, 2026																		September 30, 2025
			Security Solutions						Secure Networks						Total						Security Solutions						Secure Networks						Total
			(in thousands)
Revenues			$	146,816					$	3,869					$	150,685					$	104,770					$	13,258					$	118,028
Cost of Sales
Depreciation and amortization (1)			7,740						7						7,747						5,569						5						5,574
Stock-based compensation expense (1)			549						56						605						450						43						493
Other segment items (2)			84,403						2,923						87,326						57,107						10,194						67,301
Total cost of sales			92,692						2,986						95,678						63,126						10,242						73,368
Gross profit			$	54,124					$	883					55,007						$	41,644					$	3,016					44,660
Operating expenses
Research and development expenses															4,154																		4,982
Selling, general and administrative expenses															44,998																		61,051
Total operating expenses															49,152																		66,033
Operating income (loss)															5,855																		(21,373)
Other income															1,662																		1,625
Interest expense															(318)																		(424)
Income (loss) before income taxes															7,199																		(20,172)
Provision for income taxes															(80)																		(63)
Net income (loss)															$	7,119																	$	(20,235)

(1) The significant segment expense categories and amounts align with the segment-level information regularly provided to the CODM.

(2) Other segment items for each reportable segment include direct labor, direct subcontractor costs, direct materials and inventory, other direct non-labor costs, fringes, overhead, and facility costs.

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15. SUPPLEMENTAL CASH FLOW INFORMATION

Table 15.1: Details of Cash, Cash Equivalents, and Restricted Cash
			September 30, 2026						December 31, 2025
			(in thousands)
Cash and cash equivalents			$	51,761					$	53,180
Restricted cash (1)			141						140
Cash, cash equivalents, and restricted cash			$	51,902					$	53,320

(1) Restricted cash consists of a commercial money market account held as a deposit on the Ashburn lease and is included within "Other assets" on the unaudited consolidated balance sheets.

Table 15.2: Supplemental Cash Flow Information
			For the Nine Months Ended
			September 30, 2026						September 30, 2025
			(in thousands)
Cash paid during the period for:
Interest			$	295					$	371
Income taxes, net			106						39
Non-cash investing and financing activities:
Issuance of common stock for 401(k) match			$	1,659					$	2,063
Capital expenditure activity in accounts payable and other accrued liabilities			59						84
Issuance of common stock for AIP payment			3,987						—

16. COMMITMENTS AND CONTINGENCIES

Legal Proceedings:

From time to time, the Company may be a party to litigation or claims arising in the ordinary course of business, including those relating to employment matters, relationships with clients and contractors, intellectual property disputes, and other business matters. These legal proceedings typically seek various remedies, including claims for monetary damages in varying amounts or unspecified amounts. Although the outcome of any such matter is inherently uncertain and may be materially adverse, based on current information, management believes that the outcome of any such known matters will not have a material adverse effect on the Company's business or its unaudited consolidated financial statements as of September 30, 2026.

Other - Government Contracts:

As a U.S. federal government contractor, we are subject to various audits and investigations by the U.S. federal government to determine whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. federal government investigations of our operations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S. federal government contracting, or suspension of export privileges. Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. federal government. U.S. federal government investigations often take years to complete and many result in no adverse action against us. We also provide products and services to customers outside of the United States, which are subject to U.S. and foreign laws and regulations and foreign procurement policies and practices. Our compliance with local regulations or applicable U.S. federal government regulations also may be audited or investigated.

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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 SEC on March 16, 2026.

Overview and Business Environment

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.

In the fourth quarter of 2025, Telos launched Xacta.aiTM, the artificial intelligence ("AI") capability at the core of the Xacta cyber GRC platform, which is designed to significantly reduce 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 a prime contractor 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 92.7% and 90.9% of our total revenue from contracts with U.S. government agencies in the first nine months of 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. At present, government funding is available under a continuing resolution. The administration's current priorities are focused on areas such as national security, cybersecurity, and AI and technology leadership, while constraining non-defense discretionary spending. While certain administration priorities present greater opportunity for our products and services, turmoil within the federal government (including federal workforce and budgetary uncertainty) has lengthened our sales cycle in certain cases. We continuously monitor U.S. federal budget, legislative, and contracting trends and activities, align our capabilities with federal budget priorities, and take steps to maintain a competitive cost structure in response to these developments.

Macroeconomic Conditions

The U.S. economy in 2026 has demonstrated overall resilience, though it faces persistent challenges from inflation and geopolitical developments. Strong AI investment and technology enterprise capital expenditure are driving economic growth. However, underlying inflation and the ongoing conflict in the Middle East have created pressure and volatility in the global economy. This volatility has resulted in, and may be expected to continue to result in, rising energy prices and supply chain disruptions, among other consequences. Nonetheless, to date our business has not been materially impacted by these consequences, 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. 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 operating results. Management continues to monitor these dynamics and the evolving geopolitical situation.

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Financial Overview

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

•Revenue increased 7.3% year-over-year due to 16.6% growth in Security Solutions, driven primarily by the expansion of multiple large programs in Telos ID.

•Operating expenses decreased by $6.2 million, or 26.8%, year-over-year due to lower stock-based compensation.

•Net income (loss) improved by $6.6 million, from a net loss of $2.1 million in the third quarter of 2025 to net income of $4.4 million in the current quarter.

•Cash flow from operations slightly improved by $0.3 million year-over-year, increasing from a $9.1 million inflow in the third quarter of 2025 to a $9.4 million inflow in the third quarter of 2026, primarily due to improved revenue and profitability.

•We deployed $5.7 million to repurchase over 1.2 million shares of the Company's common stock during the quarter at an average share price of $4.59 per share.

Results of Operations

Table MD&A 1: Consolidated Results of Operations
			For the Three Months Ended																		For the Nine Months Ended
			September 30, 2026						September 30, 2025						Dollar Change						September 30, 2026						September 30, 2025						Dollar Change
			(dollars in thousands)
Revenue			$	55,198					$	51,444					$	3,754					$	150,685					$	118,028					$	32,657
Cost of sales			34,258						30,898						3,360						95,678						73,368						22,310
Gross profit			20,940						20,546						394						55,007						44,660						10,347
Gross margin			37.9		%				39.9		%										36.5		%				37.8		%
Operating expenses			16,850						23,014						(6,164)						49,152						66,033						(16,881)
Operating expenses as percentage of revenue			30.5		%				44.7		%										32.6		%				55.9		%
Operating income (loss)			4,090						(2,468)						6,558						5,855						(21,373)						27,228
Other income			464						511						(47)						1,662						1,625						37
Interest expense			(100)						(136)						36						(318)						(424)						106
Income (loss) before income taxes			4,454						(2,093)						6,547						7,199						(20,172)						27,371
Provision for income taxes			(18)						(21)						3						(80)						(63)						(17)
Net income (loss)			$	4,436					$	(2,114)					$	6,550					$	7,119					$	(20,235)					$	27,354

Consolidated Results

Our business segments have different factors driving revenue fluctuations and profitability. The changes in our revenue and profitability are discussed 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

In the third quarter of 2026, operating expenses decreased by $6.2 million, or 26.8%, compared to the same quarter in 2025. Research and development ("R&D") expenses decreased by $0.4 million, or 23.5%, in the third quarter of 2026, compared to the same period in 2025. Selling, general and administrative ("SG&A") expenses decreased by $5.7 million, or 27.1%, in the third quarter of 2026, compared to the same period in 2025. These changes in operating expenses were due to lower stock-based compensation expenses. As a percentage of revenue, overall operating expenses were 30.5% and 44.7% for the three months ended September 30, 2026, and 2025, respectively.

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For the nine months ended September 30, 2026, operating expenses decreased by $16.9 million, or 25.6%, compared to the same period in 2025. R&D expenses decreased by $0.8 million, or 16.6%, for the nine months ended September 30, 2026, compared to the same period in 2025. SG&A expenses decreased by $16.1 million, or 26.3%, for the nine months ended September 30, 2026, compared to the same period in 2025 primarily due to lower stock-based compensation costs. Reductions in operating expenses, other than stock-based compensation, were due to ongoing cost discipline and restructuring. As a percentage of revenue, overall operating expenses were 32.6% and 55.9% for the nine months ended September 30, 2026, and 2025, respectively.

Other Income

Other income decreased by 9.2% in the third quarter of 2026, compared to the same period in 2025, primarily due to changes in dividend income from money market placements. However, other income for the nine months ended September 30, 2026, increased by 2.3%, compared to the same period in 2025, primarily due to the refund in 2026 of a prior-year VAT claim that was previously determined to be uncollectible.

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																		For the Nine Months Ended
			September 30, 2026						September 30, 2025						Dollar Change						September 30, 2026						September 30, 2025						Dollar Change
			(dollars in thousands)
Revenue			$	54,184					$	46,478					$	7,706					$	146,816					$	104,770					$	42,046
Cost of sales (excluding depreciation and amortization)			30,787						24,838						5,949						84,952						57,557						27,395
Depreciation and amortization			2,636						2,354						282						7,740						5,569						2,171
Total cost of sales			33,423						27,192						6,231						92,692						63,126						29,566
Gross profit			$	20,761					$	19,286					$	1,475					$	54,124					$	41,644					$	12,480
Gross margin			38.3		%				41.5		%										36.9		%				39.7		%

Three Months Ended September 30, 2026, Compared with Three Months Ended September 30, 2025

Security Solutions segment revenue for the third quarter of 2026 increased by $7.7 million, or 16.6%, compared to the same quarter in 2025, primarily due to the ongoing expansion of multiple large programs in Telos ID.

Security Solutions segment gross profit for the third quarter of 2026 increased by $1.5 million, or 7.6%, compared to the same quarter in 2025, due to higher segment revenue. By contrast, segment gross margin for the quarter decreased from 41.5% in 2025 to 38.3% in 2026, primarily due to revenue mix.

Nine Months Ended September 30, 2026, Compared with Nine Months Ended September 30, 2025

For the nine months ended September 30, 2026, Security Solutions segment revenue increased by $42.0 million, or 40.1%, compared to the same period in 2025, primarily due to the expansion of multiple large programs in Telos ID.

Security Solutions segment gross profit for the nine months ended September 30, 2026 increased by $12.5 million, or 30.0%, compared to the same period in 2025, due to higher segment revenues. By contrast, segment gross margin decreased from 39.7% in 2025 to 36.9% in 2026, due to revenue mix, higher non-cash infrastructure costs, and higher depreciation and amortization expenses.

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Table MD&A 3: Secure Networks Segment - Financial Results
			For the Three Months Ended																		For the Nine Months Ended
			September 30, 2026						September 30, 2025						Dollar Change						September 30, 2026						September 30, 2025						Dollar Change
			(dollars in thousands)
Revenue			$	1,014					$	4,966					$	(3,952)					$	3,869					$	13,258					$	(9,389)
Cost of sales (excluding depreciation and amortization)			834						3,704						(2,870)						2,979						10,237						(7,258)
Depreciation and amortization			1						2						(1)						7						5						2
Cost of sales			835						3,706						(2,871)						2,986						10,242						(7,256)
Gross profit			$	179					$	1,260					(1,081)						$	883					$	3,016					(2,133)
Gross margin			17.7		%				25.4		%										22.8		%				22.7		%

Three Months Ended September 30, 2026, Compared with Three Months Ended September 30, 2025

Secure Networks segment revenue for the third quarter of 2026 decreased by $4.0 million, or 79.6%, 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.

Segment gross profit for Secure Networks for the third quarter of 2026 decreased by $1.1 million, or 85.8%, compared with the same period in 2025, due to lower segment revenues. Likewise, segment gross margin for the quarter decreased from 25.4% in 2025 to 17.7% in 2026.

Nine Months Ended September 30, 2026, Compared with Nine Months Ended September 30, 2025

Secure Networks segment revenue for the nine months ended September 30, 2026, decreased by $9.4 million, or 70.8%, 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.

Segment gross profit for the nine months ended September 30, 2026, decreased by $2.1 million, or 70.7%, compared to the same period in 2025, due to lower segment revenue. By contrast, year-to-date segment gross margin slightly increased from 22.7% in 2025 to 22.8% in 2026.

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 29, 2028 (as amended), 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 September 30, 2026, we had cash and cash equivalents of $51.8 million and our working capital was $58.0 million.

We place a strong emphasis on liquidity management. This focus gives us the flexibility to deploy capital 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.

Cash Flow

Table MD&A 4: Net Change in Cash, Cash Equivalents, and Restricted Cash
			For the Nine Months Ended
			September 30, 2026						September 30, 2025
			(in thousands)
Net cash provided by operating activities			$	26,933					$	22,202
Net cash used in investing activities			(6,552)						(7,205)
Net cash used in financing activities			(21,799)						(10,524)
Net change in cash, cash equivalents, and restricted cash			$	(1,418)					$	4,473

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Net cash provided by operating activities for the nine months ended September 30, 2026, was $26.9 million, an increase of $4.7 million compared to the same period in 2025. The change is primarily driven by higher cash earnings (i.e., net income (loss), excluding non-cash items that do not impact cash flows from operating activities), partially offset by unfavorable changes in working capital.

Net cash used in investing activities for the nine months ended September 30, 2026, decreased by $0.7 million, compared to the same period of the prior year, primarily due to the decreases in capital expenditures in 2026.

Net cash used in financing activities for the nine months ended September 30, 2026, increased by $11.3 million, compared to the same period in 2025. This is primarily attributable to the repurchase of common stock for $12.6 million in the first nine months of 2026 under the share repurchase program (See Note 12 – Share Repurchases), compared with $7.6 million in the same period in 2025, and an increase in payments of tax withholding related to net share settlement of equity awards to $7.6 million in 2026, compared with $1.6 million in 2025.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates, judgments, and assumptions that affect the amounts reported. Actual results could differ from those estimates. The 2025 Form 10-K, as filed with the SEC on March 16, 2026, includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues, or expenses during the nine months ended September 30, 2026.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we are exposed to a variety of financial risks, such as interest rate risk, foreign currency translation risk, and counterparty risk, which can affect our operations and profitability. The Company's market risk disclosure set forth in "Part II, Item 7A – Quantitative and Qualitative Disclosure about Market Risk," in the 2025 Form 10-K, as filed with the SEC on March 16, 2026, has not changed materially during the nine months ended September 30, 2026.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, including this Report, are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer ("CEO") and principal financial officer ("CFO"), as appropriate to allow timely decisions regarding required disclosure.

The Company's management, including the Company's CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Report and, based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2026.

Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2026, identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding legal proceedings is included under Note 16 – Commitments and Contingencies to the unaudited consolidated financial statements.

Item 1A. Risk Factors

There were no material changes to the risk factors previously disclosed under "Part I, Item 1A – Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sales of Securities

None.

(b) Use of Proceeds

None.

(c) Issuer Purchases of Equity Securities

Common Stock Purchase Activity During the Three Months Ended September 30, 2026
Period						Total Number of Shares Purchased (1)						Average Price Paid per Share (1)						Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans (1)						Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans (1)
July 1, 2026 - July 31, 2026						—						$	—					—						$	43,199,457
August 1, 2026 - August 31, 2026						902,300						4.53						902,300						$	39,112,216
September 1, 2026 - September 30, 2026						349,200						4.75						349,200						$	37,452,101
Total						1,251,500						$	4.59					1,251,500

(1) On May 24, 2022, the Board of Directors authorized the SRP, pursuant to which the Company can repurchase up to $50.0 million of its issued and outstanding common stock. On March 12, 2026, the Board of Directors authorized an increase to the SRP whereby the Company may repurchase, at management's discretion, up to an additional $25.0 million of its common stock. The SRP has no expiration date and may be modified, suspended, or terminated at any time. For the third quarter of 2026, the Company repurchased 1,251,500 shares of common stock under the SRP for an aggregate price of $5.7 million on the open market.

Item 3. Defaults upon Senior Securities

(a) None.

(b) None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a) None.

(b) None.

(c) During the three months ended September 30, 2026, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits

Exhibit Number						Description
10.1			+			Third Amendment to Credit Agreement between, among others, Telos Corporation and JP Morgan Chase Bank, dated November 6, 2026
31.1			+			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			+			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32			^			Certification pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			+			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			+			XBRL Taxonomy Extension Schema Document
101.CAL			+			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			+			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			+			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			+			XBRL Taxonomy Extension Presentation Linkbase Document
104			+			Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document contained in Exhibit 101

+			Filed herewith
^			Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TELOS CORPORATION
/s/ Mark Griffin						November 9, 2026
By: Mark Griffin
Chief Executive Officer (Principal Executive Officer)
/s/ Mark Bendza						November 9, 2026
By: Mark Bendza
Chief Financial Officer (Principal Financial Officer)
/s/ DJ Terreri						November 9, 2026
By: DJ Terreri
Controller and Chief Accounting Officer (Principal Accounting Officer)

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