TELOS CORP 10-Q

Item 1. Financial Statements TELOS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 (in thousands, except per share amounts) Revenue – services $ 29,301 $ 26,969 $ 58,146 $ 55,820 Revenue – products 6,667 1,529 8,438 2,297 Total revenue 35,968 28,498 66,584 58,117 Cost of sales – services (excluding depreciation and amortization) 16,605 15,933 32,096 32,992 Cost of sales – products (excluding depreciation and amortization) 5,716 819 7,156 1,140 Depreciation and amortization 1,715 2,039 3,218 3,317 Total cost of sales 24,036 18,791 42,470 37,449 Gross profit 11,932 9,707 24,114 20,668 Operating expenses: Research and development expenses 1,512 1,459 3,083 4,629 Selling, general and administrative expenses 20,303 16,892 39,936 33,121 Total operating expenses 21,815 18,351 43,019 37,750 Operating loss ( 9,883 ) ( 8,644 ) ( 18,905 ) ( 17,082 ) Other income 553 1,064 1,114 2,316 Interest expense ( 141 ) ( 160 ) ( 288 ) ( 335 ) Loss before income taxes ( 9,471 ) ( 7,740 ) ( 18,079 ) ( 15,101 ) Provision for income taxes ( 46 ) ( 17 ) ( 42 ) ( 34 ) Net loss $ ( 9,517 ) $ ( 7,757 ) $ ( 18,121 ) $ ( 15,135 ) Net loss per share: Basic $ ( 0.13 ) $ ( 0.11 ) $ ( 0.25 ) $ ( 0.21 ) Diluted $ ( 0.13 ) $ ( 0.11 ) $ ( 0.25 ) $ ( 0.21 ) Weighted-average shares outstanding: Basic 73,163 72,017 72,940 71,323 Diluted 73,163 72,017 72,940 71,323 See accompanying notes to the unaudited consolidated financial statements. 3 Table of Contents TELOS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) For the Three Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 (in thousands) Net loss $ ( 9,517 ) $ ( 7,757 ) $ ( 18,121 ) $ ( 15,135 ) Other comprehensive loss, net of tax: Foreign currency translation adjustments ( 5 ) ( 21 ) 75 ( 56 ) Actuarial gain (loss) on pension liability adjustment — — 8 ( 30 ) Other comprehensive (loss) income ( 5 ) ( 21 ) 83 ( 86 ) Comprehensive loss $ ( 9,522 ) $ ( 7,778 ) $ ( 18,038 ) $ ( 15,221 ) See accompanying notes to the unaudited consolidated financial statements. 4 Table of Contents TELOS CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, 2025 December 31, 2024 (in thousands, except per share amount and share data) Assets: Cash and cash equivalents $ 56,998 $ 54,578 Accounts receivable, net 19,105 19,172 Inventories, net 4,176 1,783 Prepaid expenses 15,772 15,092 Deferred program expenses 5,860 — Other current assets 865 793 Total current assets 102,776 91,418 Property and equipment, net 3,477 4,283 Finance lease right-of-use assets, net 4,781 5,391 Operating lease right-of-use assets, net 518 622 Goodwill 17,922 17,922 Intangible assets, net 31,568 30,410 Other assets 4,000 8,189 Total assets $ 165,042 $ 158,235 Liabilities and Stockholders' Equity Liabilities: Accounts payable and other accrued liabilities $ 13,375 $ 4,300 Accrued compensation and benefits 8,636 7,608 Contract liabilities 12,951 6,838 Finance lease obligations – current portion 1,954 1,877 Operating lease obligations – current portion 220 210 Other current liabilities 1,597 1,302 Total current liabilities 38,733 22,135 Finance lease obligations – non-current portion 6,650 7,641 Operating lease obligations – non-current portion 305 418 Deferred income taxes 840 813 Other liabilities 101 91 Total liabilities 46,629 31,098 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.001 par value, 250,000,000 shares authorized, 72,441,668 shares and 72,514,652 shares issued and outstanding as of June 30, 2025, and December 31, 2024, respectively 111 111 Additional paid-in capital 463,816 454,502 Accumulated other comprehensive loss ( 46 ) ( 129 ) Accumulated deficit ( 345,468 ) ( 327,347 ) Total stockholders’ equity 118,413 127,137 Total liabilities and stockholders’ equity $ 165,042 $ 158,235 See accompanying notes to the unaudited consolidated financial statements. 5 Table of Contents TELOS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 2025 June 30, 2024 (in thousands) Cash flows from operating activities: Net loss $ ( 18,121 ) $ ( 15,135 ) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Stock-based compensation 14,805 5,203 Depreciation and amortization 4,845 6,620 Deferred income tax provision 27 24 Recovery from doubtful accounts ( 20 ) ( 32 ) Amortization of debt issuance costs 35 35 Changes in other operating assets and liabilities: Accounts receivable 86 13,278 Inventories ( 1,079 ) 51 Prepaid expenses, deferred program expenses, other current assets, other assets ( 1,933 ) ( 2,794 ) Accounts payable and other accrued payables 7,496 ( 7,763 ) Accrued compensation and benefits 601 ( 5,967 ) Contract liabilities 6,114 ( 944 ) Other current liabilities 200 ( 916 ) Net cash provided by (used in) operating activities 13,056 ( 8,340 ) Cash flows from investing activities: Capitalized software development costs ( 4,401 ) ( 6,315 ) Purchases of property and equipment ( 257 ) ( 332 ) Purchase of investment — ( 3,000 ) Net cash used in investing activities ( 4,658 ) ( 9,647 ) Cash flows from financing activities: Payments under finance lease obligations ( 914 ) ( 842 ) Payment of tax withholding related to net share settlement of equity awards ( 1,062 ) ( 430 ) Repurchases of common stock ( 4,002 ) — Proceeds from exercise of stock options — 104 Net cash used in financing activities ( 5,978 ) ( 1,168 ) Net change in cash, cash equivalents, and restricted cash 2,420 ( 19,155 ) Cash, cash equivalents, and restricted cash, beginning of period 54,717 99,396 Cash, cash equivalents, and restricted cash, end of period $ 57,137 $ 80,241 See accompanying notes to the unaudited consolidated financial statements. 6 Table of Contents 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 March 31, 2025 73,319 $ 112 $ 461,994 $ ( 41 ) $ ( 335,951 ) $ 126,114 Net loss — — — — ( 9,517 ) ( 9,517 ) Foreign currency translation loss — — — ( 5 ) — ( 5 ) Restricted stock unit awards vested, net of shares withheld to cover tax withholding 611 ( 958 ) — — ( 958 ) Stock-based compensation — — 6,781 — — 6,781 Repurchases of common stock ( 1,488 ) ( 1 ) ( 4,001 ) — — ( 4,002 ) Balance at June 30, 2025 72,442 $ 111 $ 463,816 $ ( 46 ) $ ( 345,468 ) $ 118,413 Balance at March 31, 2024 71,758 $ 110 $ 436,616 $ ( 125 ) $ ( 282,205 ) $ 154,396 Net loss — — — — ( 7,757 ) ( 7,757 ) Foreign currency translation loss — — — ( 21 ) — ( 21 ) Restricted stock unit awards vested, net of shares withheld to cover tax withholding 407 1 — — — 1 Stock-based compensation — — 2,426 — — 2,426 Issuance of common stock upon exercise of stock options 58 — 104 — — 104 Balance at June 30, 2024 72,223 $ 111 $ 439,146 $ ( 146 ) $ ( 289,962 ) $ 149,149 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount (in thousands) Balance at December 31, 2024 72,515 $ 111 $ 454,502 $ ( 129 ) $ ( 327,347 ) $ 127,137 Net loss — — — — ( 18,121 ) ( 18,121 ) Foreign currency translation gain — — — 75 — 75 Actuarial gain on pension liability adjustment — — — 8 — 8 Restricted stock unit awards vested, net of shares withheld to cover tax withholding 687 — ( 1,062 ) — — ( 1,062 ) Stock-based compensation — — 12,315 — — 12,315 Repurchases of common stock ( 1,488 ) ( 1 ) ( 4,001 ) — — ( 4,002 ) Issuance of common stock for 401(k) match 728 1 2,062 — — 2,063 Balance at June 30, 2025 72,442 $ 111 $ 463,816 $ ( 46 ) $ ( 345,468 ) $ 118,413 Balance at December 31, 2023 70,240 $ 109 $ 433,781 $ ( 60 ) $ ( 274,827 ) $ 159,003 Net loss — — — — ( 15,135 ) ( 15,135 ) Foreign currency translation loss — — — ( 56 ) — ( 56 ) Actuarial loss on pension liability adjustment — — — ( 30 ) — ( 30 ) Restricted stock unit awards vested, net of shares withheld to cover tax withholding 1,555 2 ( 430 ) — — ( 428 ) Stock-based compensation — — 4,073 — — 4,073 Issuance of common stock upon exercise of stock options 58 — 104 — — 104 Issuance of common stock for 401(k) match 370 — 1,618 — — 1,618 Balance at June 30, 2024 72,223 $ 111 $ 439,146 $ ( 146 ) $ ( 289,962 ) $ 149,149 See accompanying notes to the unaudited consolidated financial statements. 7 Table of Contents 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 Principle 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 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 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, 2024, included in our Annual Report on Form 10-K for the fiscal year then ended. We have continued to follow the accounting policies set forth in those financial statements. 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, valuation of intangible assets and goodwill, restructuring expenses 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 . Deferred Program Expenses Deferred program expenses include direct contract costs identifiable with or allocable to a specific contract. These costs are capitalized as deferred program expenses when the costs are expected to be recovered over a period of time. These costs are amortized using the straight-line method over the expected contract period of performance or recognized upon delivery of the performance obligation. If the contract period of performance is beyond twelve months, we classify the cost as long-term and is included within "Other assets" on the unaudited consolidated balance sheets. Income Taxes The period for which tax years are open, 2021 to 2024, has not been extended beyond the applicable statute of limitations. In September 2024, we were advised by the Internal Revenue Services ("IRS") regarding an audit of our 2021 federal income tax return. In April 2025, the IRS notified us that they completed their examination of our 2021 federal income tax return with no changes to our reported tax. 8 Table of Contents On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law, which includes significant amendments to the Internal Revenue Code. The OBBBA imposes various changes to U.S. federal income tax regulations, such as restoring bonus depreciation, and removing the requirement to capitalize and amortize domestic research and development expenditures. The OBBBA also included certain modifications to the Inflation Reduction Act of 2022, including the repeal or acceleration of the sunset of certain tax credits and elimination of certain penalties for violations of certain regulatory credit programs. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently evaluating the potential impact of these provisions on our unaudited consolidated financial statements. Recent Accounting Pronouncements The Company adopted all applicable standards effective as of December 31, 2024, within these unaudited consolidated financial statements, with no material impact as a result of the adoption. In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosure," which requires public entities, on an annual basis, (1) to disclosure specific categories in the rate reconciliation, and (2) to provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate). This ASU will be effective, for public entities, for the fiscal year beginning after December 15, 2024, with early adoption permitted. We are currently assessing the impact of the adoption of this ASU on our unaudited consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Topic 220): Disaggregation of Income Statement Expenses." This standard requires additional disclosure of certain amounts included in the expense captions presented on the statements of operations, as well as disclosures about selling expenses. This ASU is effective on a prospective basis, with the option for retrospective application. All public 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 in the process of assessing the impact of the adoption of this ASU on our unaudited consolidated financial statements. In addition, from time to time, new accounting standards are issued by the FASB 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. 3. REVENUE RECOGNITION We account for revenue in accordance with ASC Topic 606, "Revenue from Contracts with Customers." The unit of account in ASC 606 is a performance obligation, which is a promise in a contract with a customer to transfer a good or service to the customer. The majority of our revenue is recognized over time, as control is transferred continuously to our customers, who receive and consume benefits as we perform. Revenue transferred to customers over time accounted for 68 % and 73 % of our revenue for the three and six months ended June 30, 2025, respectively, and 84 % and 82 % of our revenue for the three and six months ended June 30, 2024, respectively. All of our business groups earn services revenue under a variety of contract types, including time and materials, firm-fixed price, firm-fixed price level of effort, and cost-plus fixed fee, which may include variable consideration. On the other hand, 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 transferred to customers at a point in time accounted for 32 % and 27 % of our revenue for the three and six months ended June 30, 2025, respectively, and 16 % and 18 % of our revenue for the three and six months ended June 30, 2024, respectively. The change in revenue mix for the three and six months ended June 30, 2025, as compared to the prior periods, was primarily driven by an increase in product sales volume. Orders for the sale of software licenses may contain multiple performance obligations, such as maintenance, training, or consulting services, which are typically delivered over time, consistent with the transfer of control disclosed above for the provision of services. When an order contains multiple performance obligations, we allocate the transaction price to the performance obligations based on the standalone selling price of the product or service underlying each performance obligation. The standalone selling price represents the amount we would sell the product or service to a customer on a standalone basis. For certain performance obligations where we are not primarily responsible for fulfilling the promise to provide the goods or services to the customer, do not have inventory risk and have limited discretion in establishing the price for the goods or services, we recognize revenue on a net basis. 9 Table of Contents Our contracts may include various types of variable considerations 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 six months ended June 30, 2025, and 2024. 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 exceeds the total estimated revenue for a performance obligation. No contract loss was recorded during the three months ended June 30, 2025, and 2024. We recorded an immaterial contract loss during the six months ended June 30, 2025, and 2024. Disaggregated Revenues In addition to our segment reporting, as further discussed in Note 1 5 – 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. Substantially most 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 Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Amount % Amount % Amount % Amount % (dollars in thousands) Federal $ 32,672 91 % $ 24,832 87 % $ 59,972 90 % $ 51,439 89 % State & local, and commercial 3,296 9 % 3,666 13 % 6,612 10 % 6,678 11 % Total revenue $ 35,968 100 % $ 28,498 100 % $ 66,584 100 % $ 58,117 100 % Table 3.2: Revenue by Contract Type For the Three Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Amount % Amount % Amount % Amount % (dollars in thousands) Firm fixed-price $ 25,153 70 % $ 22,179 78 % $ 45,151 68 % $ 45,015 77 % Time-and-materials 8,913 25 % 3,022 11 % 17,290 26 % 6,159 11 % Cost plus fixed fee 1,902 5 % 3,297 11 % 4,143 6 % 6,943 12 % Total revenue $ 35,968 100 % $ 28,498 100 % $ 66,584 100 % $ 58,117 100 % 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 six months ended June 30, 2025, and 2024. Table 3.3: Revenue Concentration Greater than 10% of Total Revenue For the Three Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 (in thousands) Federal government: Security Solutions $ 29,032 $ 14,209 $ 51,684 $ 29,872 Secure Networks 3,640 10,623 8,288 21,567 Total $ 32,672 $ 24,832 $ 59,972 $ 51,439 10 Table of Contents Table 3.4: Contract Balances Balance Sheet Presentation June 30, 2025 December 31, 2024 (in thousands) Billed accounts receivables (1) Accounts receivable, net $ 17,111 $ 10,014 Unbilled accounts receivable Accounts receivable, net 1,210 5,412 Contract assets Accounts receivable, net 784 3,746 Contract liabilities Contract liabilities 12,951 6,838 (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 six months ended June 30, 2025, which was included in the contract liabilities balance at the beginning of each reporting period, was $ 1.7 million and $ 4.1 million, respectively. Revenue recognized for the three and six months ended June 30, 2024, which was included in the contract liabilities balance at the beginning of each reporting period, was $ 1.9 million and $ 4.5 million, respectively. As of June 30, 2025, we had approximately $ 51.7 million of remaining performance obligations, which we also refer to as funded backlog. We expect to recognize approximately 95 % 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 June 30, 2025 December 31, 2024 (in thousands) Billed accounts receivable $ 17,139 $ 10,070 Unbilled accounts receivable 1,210 5,412 Contract assets 784 3,746 Allowance for credit losses (1) ( 28 ) ( 56 ) Accounts receivable, net $ 19,105 $ 19,172 (1) Includes provision for credit losses, net of recoveries. As our primary customer base includes agencies of the U.S. government, we have a concentration of credit risk associated with our accounts receivable, as 75 % and 88 % of our billed and unbilled accounts receivable as of June 30, 2025, and December 31, 2024, respectively, were with U.S. 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. 5. INVENTORIES, NET Table 5: Details of Inventories, Net June 30, 2025 December 31, 2024 (in thousands) Gross inventory $ 4,309 $ 1,916 Allowance for inventory obsolescence ( 133 ) ( 133 ) Inventories, net $ 4,176 $ 1,783 11 Table of Contents 6. PROPERTY AND EQUIPMENT, NET Table 6.1: Details of Property and Equipment, Net June 30, 2025 December 31, 2024 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 $ 17,212 $ ( 14,339 ) $ 2,873 $ 17,239 $ ( 13,617 ) $ 3,622 Leasehold improvements 3,419 ( 2,815 ) 604 3,396 ( 2,735 ) 661 Total $ 20,631 $ ( 17,154 ) $ 3,477 $ 20,635 $ ( 16,352 ) $ 4,283 Table 6.2: Depreciation and Amortization Expense For the Three Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 (in thousands) Depreciation and amortization expense $ 422 $ 259 $ 867 $ 894 7. GOODWILL The goodwill balance was $ 17.9 million as of June 30, 2025, and December 31, 2024, of which $ 3.0 million is allocated to the Security Solutions segment and $ 14.9 million is allocated to the Secure Networks segment. Goodwill is subject to annual impairment tests and if triggering events are present in the interim before the annual tests, we will assess impairment. If the financial performance of our Secure Networks reporting segment remains at the current level for a sustained period of time, and after considering other qualitative factors, there may be a triggering event indicating goodwill may be impaired in our Secure Networks reporting unit. Accordingly, management may need to perform a quantitative impairment test over the Secure Networks reporting unit to determine if an impairment loss should be recorded which may have an adverse impact on our results of operations. No impairment charges were recorded for the three and six months ended June 30, 2025, and 2024. 8. INTANGIBLE ASSETS, NET Table 8.1: Details of Intangible Assets, Net June 30, 2025 December 31, 2024 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 $ ( 1,777 ) $ 1,853 $ 3,630 $ ( 1,550 ) $ 2,080 Customer relationship 3 40 ( 40 ) — 40 ( 40 ) — Software development costs 2 - 5 33,709 ( 18,795 ) 14,914 27,366 ( 15,761 ) 11,605 Subtotal 37,379 ( 20,612 ) 16,767 31,036 ( 17,351 ) 13,685 In-process software development costs (1) 14,801 — 14,801 16,725 — 16,725 Total $ 52,180 $ ( 20,612 ) $ 31,568 $ 47,761 $ ( 17,351 ) $ 30,410 (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 balance sheet date, thus not yet amortized. Table 8.2: Amortization Expense For the Three Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 (in thousands) Amortization expense related to: Software development costs – cost of sales (1) $ 1,623 $ 1,949 $ 3,034 $ 3,107 Software development costs – research and development — 860 — 1,697 Other intangible assets – general and administrative 113 117 227 234 Total $ 1,736 $ 2,926 $ 3,261 $ 5,038 (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. 12 Table of Contents 9. OTHER BALANCE SHEET COMPONENTS Table 9.1: Details of Other Assets June 30, 2025 December 31, 2024 (in thousands) Investment (1) $ 3,000 $ 3,000 Prepaid expense – long-term portion 665 4,975 Restricted cash 139 139 Other 196 75 Other assets $ 4,000 $ 8,189 (1) In March 2024, the Company made a $ 3.0 million investment in a privately held company via a simple agreement for future equity. The Company elected to apply the fair value option on this investment. The Company believes the fair value option best reflects the economics of the underlying transaction. The fair value of this investment was based on non-marketable observable inputs, which represent Level 3 measurement within the fair value hierarchy. Changes in the fair value of this investment are recognized within "Other income" on the unaudited consolidated statements of operations, if any. During the three and six months ended June 30, 2025, and 2024, the Company did not recognize any changes in the fair value. Table 9.2: Details of Accounts Payable and Other Accrued Liabilities June 30, 2025 December 31, 2024 (in thousands) Accounts payable $ 12,272 $ 1,153 Accrued payables 1,103 3,147 Accounts payable and other accrued liabilities $ 13,375 $ 4,300 Table 9.3: Details of Other Current Liabilities June 30, 2025 December 31, 2024 (in thousands) Other accrued expenses $ 1,231 $ 829 Restructuring expenses accrual — 37 Other 366 436 Other current liabilities $ 1,597 $ 1,302 10. REVOLVING CREDIT FACILITY On December 30, 2022, we entered into a Credit Agreement (the "Credit Agreement"), by and among the Company, as borrower, Xacta Corporation, ubIQuity.com, inc., Teloworks, Inc., and Telos Identity Management Solutions, LLC, as guarantors, the lenders party thereto (the "Lenders"), and JPMorgan Chase Bank N.A., as administrative agent for the Lenders (in such capacity, the "Agent"). The Credit Agreement provides for a $ 30.0 million senior secured revolving credit facility with a maturity date of December 30, 2025, with the option of issuing letters of credit thereunder with a sub-limit of $ 5.0 million, and with an uncommitted expansion feature of up to $ 30.0 million of additional revolver capacity (the "Loan"). The Loan is subject to acceleration in the event of customary events of default. The Company has not drawn any amount under the Loan. Borrowings under the Credit Agreement will accrue interest, at our option, at one of three variable rates, plus a specified margin. We can elect to borrow at (i) the Alternative Base Rate, plus 0.9 %; (ii) Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR"), plus 1.9 %; and (iii) Adjusted Term SOFR, plus 1.9 %, as such capitalized terms are defined and calculated in the Credit Agreement. The Company may elect to convert borrowings from one type of borrowing to another type per the terms of the Credit Agreement. After the occurrence and during the continuance of any event of default, the interest rate may increase by an additional 2.0 %. We are obligated to pay accrued interest (i) with respect to amounts accruing interest based on the Alternative Base Rate, each calendar quarter and on the maturity date, (ii) with respect to amounts accruing interest based on Adjusted Daily Simple SOFR, on each one-month anniversary of the borrowing and on the maturity date, and (iii) with respect to amounts accruing interest based on Adjusted Term SOFR, at the end of the period specified per the Credit Agreement and on the maturity date. Upon five , three , or one day's prior notice, as applicable, we may prepay any portion or the entire amount of the Loan. We also paid costs and customary fees, including a closing fee, commitment fees and letter of credit participation fee, payable to the Agent and Lenders, as applicable, in connection with the Loan. The Loan under the Credit Agreement is collateralized by substantially all of the Company's assets, including the Company's pledge of its domestic and material foreign subsidiary equity interests. 13 Table of Contents The Loan has various covenants that may, among other things, affect our ability to create, incur, assume or suffer any indebtedness, merge into or consolidate with another entity, acquire entity interests, sell or transfer certain assets, enter into certain arrangements (such as sale and leaseback and swap agreements) or restrictive agreements, pay dividends and make certain restricted payments, and amend material documents related to any subordinated indebtedness and corporate agreements. The Credit Agreement also requires certain financial covenants to maintain a Senior Leverage Ratio on the last day of any fiscal quarter, no greater than 3 to 1. We were in compliance with all covenants as of June 30, 2025. The occurrence of an event of default under the Credit Agreement could result in the Loan and other obligations becoming immediately due and payable and allow the Lenders to exercise all rights and remedies available to them under the Credit Agreement. On April 12, 2023, the Credit Agreement was amended to exclude from collateral the (i) amount collectible from a third party related to an Accounts Receivable Purchase Agreement and (ii) receivables generated by the Company from the sale of goods supplied to this third party in an amount not to exceed $ 25.0 million. 11. STOCK-BASED COMPENSATION The Company grants stock-based compensation awards under the Amended and Restated 2016 Omnibus Long-Term Incentive Plan (the "2016 LTIP"). We have granted stock options, restricted stock units with time-based vesting ("RSUs") and restricted stock units with performance-based vesting ("PSUs"). Awards granted under the 2016 LTIP vest over the periods determined by the Board of Directors or the Compensation Committee of the Board of Directors, which has the discretion to establish the terms, conditions and criteria of the various awards. The RSUs granted to eligible employees generally vest in installments over a period of up to three years . PSUs will vest upon the achievement of a defined performance target or market conditions for the Company's common stock or certain operational milestones over a prescribed period. On May 8, 2025, the Company's stockholders approved an amendment to the 2016 LTIP that increased the number of shares available for issuance under the 2016 LTIP by an additional 4,900,000 shares. As of June 30, 2025, approximately 1.6 million shares of our common stock were available for future grants under the 2016 LTIP. Stock-based compensation expense recognized for restricted stock units and stock options granted to employees and non-employees is included in the unaudited consolidated statements of operations, net of adjustments. There were no income tax benefits recognized on the stock-based compensation expense for the three and six months ended June 30, 2025, and 2024. Table 11.1: Details of Stock Compensation Expense by Category For the Three Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 (in thousands) Cost of sales – services $ 149 $ 228 $ 339 $ 485 Research and development 244 ( 877 ) 284 ( 449 ) Selling, general and administrative 7,364 2,868 14,182 5,167 Total $ 7,757 $ 2,219 $ 14,805 $ 5,203 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, 2024 1,952,103 10,683,230 12,635,333 $ 3.52 Granted 1,136,074 3,381,163 4,517,237 3.42 Vested ( 799,366 ) ( 283,375 ) ( 1,082,741 ) 4.15 Forfeited ( 108,416 ) ( 154,649 ) ( 263,065 ) 3.42 Unvested outstanding units as of June 30, 2025 2,180,395 13,626,369 15,806,764 $ 3.24 14 Table of Contents On February 20, 2025, the Company amended certain previously granted PSUs that could settle in up to 2,462,445 shares of its common stock and would only vest if the Company achieves certain financial performance targets for fiscal year 2025. The amendment eliminated one of the financial performance targets. On May 14, 2025, the Company granted PSUs that could settle in up to 65,000 shares of its common stock to an employee that will vest only if the Company achieves a certain operational milestone prior to January 1, 2027. In addition, the Company granted PSUs to an employee that could settle in up to 50,000 shares and will vest only if the Company achieves certain financial performance targets for fiscal year 2025. On June 11, 2025, the Company granted PSUs containing stock price market conditions to certain employees that could settle in up to 1,060,000 shares of its common stock. These PSUs will vest, in whole or in part, only if the Company's closing common stock price remains at or above certain specified stock prices for 50 consecutive days prior to January 1, 2027. On June 11, 2025, the Company also granted to certain executives PSUs with market conditions dependent on total shareholder return ("TSR"), that could settle in up to 2,206,163 shares of its common stock. 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, 2025, through May 31, 2028, and conditioned upon neutral or positive free cash flow (i.e. cash flows from operating activities less capital expenditure) 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. For the Company's stock-based compensation awards subject to market conditions, the grant date fair value per share is based on a Monte Carlo simulation method. The expenses for these awards are recognized over the derived service period as determined through the Monte Carlo simulation model (as defined below). For the awards subject to stock price market conditions, the Monte Carlo approach uses a class of computational algorithms that rely on repeated random sampling to compute their results. This approach allows the calculation of the value of such PSUs based on a large number of possible stock price path scenarios. The risk-free rate is based on a zero-coupon yield from the Treasury Constant Maturities yield curve at the time of grant over the performance period. Our key assumptions include a performance period of 1.56 years, an expected volatility of 97.5 %, and a risk-free rate of 3.9 %. The fair value for these stock price market condition PSUs at the grant date ranges between $ 1.17 – $ 1.51 , and the derived service period ranges between 0.8 – 0.94 years. For the awards subject to TSR market conditions, the Monte Carlo simulation simulates a distribution of stock prices for the Company and its current compensation peer group throughout the remaining performance period based on certain assumptions of stock price performance. Monte Carlo valuations of relative TSR PSUs depend on two sets of prices: realized performance and simulated performance. Our key assumptions include a performance period of 2.97 years, an expected volatility of 114.7 %, and a risk-free rate of 3.8 %. The fair value for these relative TSR market condition PSUs at the grant date was $ 4.82 . As of June 30, 2025, and 2024, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $ 50.1 million and $ 52.1 million, respectively. There was approximately $ 23.2 million of total compensation costs related to stock-based awards not yet recognized as of June 30, 2025, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.8 years. Stock Options Table 11.3: 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, 2024 287,000 $ 1.80 8.4 $ 464,940 Granted — — Exercised — — Forfeited, cancelled, or expired — — Outstanding option balance as of June 30, 2025 287,000 $ 1.80 7.9 $ 393,190 Exercisable stock options as of June 30, 2025 287,000 $ 1.80 7.9 $ 393,190 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 June 30, 2025. 15 Table of Contents 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 June 30, 2025, 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. 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 June 30, 2025, there was approximately $ 34.7 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 Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 (in thousands, except per share and share data) Amounts paid for shares repurchased (1) $ 4,002 $ — $ 4,002 $ — Number of shares repurchased 1,488,227 — 1,488,227 — Average per share price paid (1) $ 2.69 $ — $ 2.69 $ — (1) Includes commission paid for repurchases on the open market . 13. ACCUMULATED OTHER COMPREHENSIVE LOSS Table 13: Details of Changes in Accumulated Other Comprehensive Loss by Category Foreign currency translation adjustment Pension liability adjustment Total (in thousands) Balance as of December 31, 2024 $ ( 175 ) $ 46 $ ( 129 ) Other comprehensive income before reclassification, net of tax 75 8 83 Balance as of June 30, 2025 $ ( 100 ) $ 54 $ ( 46 ) 14. LOSS PER SHARE For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net earnings (loss) per share, because to do so would be anti-dilutive. Table 14: Potentially Dilutive Securities For the Three Months Ended For the Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 (in thousands) Weighted-average number of shares – unvested RSUs, PSUs and stock options 976 654 1,158 1,058 For the three and six months ended June 30, 2025, and 2024, outstanding PSUs aggregating to 11,372,034 and 9,418,745 shares, respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of these shares is contingent upon certain conditions which were not satisfied by the end of the period. 15. 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, 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. 16 Table of Contents Table 15.1: Results of Operations by Business Segment (Quarter) For the Three Months Ended June 30, 2025 June 30, 2024 Security Solutions Secure Networks Total Security Solutions Secure Networks Total (in thousands) Revenues $ 32,474 $ 3,494 $ 35,968 $ 17,867 $ 10,631 $ 28,498 Cost of Sales Depreciation and amortization (1) 1,714 1 1,715 2,037 2 2,039 Stock-based compensation expense (1) 139 10 149 162 66 228 Other segment items (2) 19,323 2,849 22,172 8,403 8,121 16,524 Total cost of sales 21,176 2,860 24,036 10,602 8,189 18,791 Gross profit $ 11,298 $ 634 11,932 $ 7,265 $ 2,442 9,707 Operating expenses Research and development expenses 1,512 1,459 Selling, general and administrative expenses 20,303 16,892 Total operating expenses 21,815 18,351 Operating loss ( 9,883 ) ( 8,644 ) Other income 553 1,064 Interest expense ( 141 ) ( 160 ) Loss before income taxes ( 9,471 ) ( 7,740 ) Provision for income taxes ( 46 ) ( 17 ) Net loss $ ( 9,517 ) $ ( 7,757 ) Table 15.2: Results of Operations by Business Segment (Year-to-Date) For the Six Months Ended June 30, 2025 June 30, 2024 Security Solutions Secure Networks Total Security Solutions Secure Networks Total (in thousands) Revenues $ 58,292 $ 8,292 $ 66,584 $ 36,507 $ 21,610 $ 58,117 Cost of Sales Depreciation and amortization (1) 3,215 3 3,218 3,312 5 3,317 Stock-based compensation expense (1) 308 31 339 338 147 485 Other segment items (2) 32,411 6,502 38,913 16,966 16,681 33,647 Total cost of sales 35,934 6,536 42,470 20,616 16,833 37,449 Gross profit $ 22,358 $ 1,756 24,114 $ 15,891 $ 4,777 20,668 Operating expenses Research and development expenses 3,083 4,629 Selling, general and administrative expenses 39,936 33,121 Total operating expenses 43,019 37,750 Operating loss ( 18,905 ) ( 17,082 ) Other income 1,114 2,316 Interest expense ( 288 ) ( 335 ) Loss before income taxes ( 18,079 ) ( 15,101 ) Provision for income taxes ( 42 ) ( 34 ) Net loss $ ( 18,121 ) $ ( 15,135 ) (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. 17 Table of Contents 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 six months ended June 30, 2025, and 2024. 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. 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 seek various remedies, including claims for monetary damages in varying amounts, none of which are considered material, or are unspecified as to amount. 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 such known matters will not have a material adverse effect on the Company's business or its unaudited consolidated financial statements as of June 30, 2025. Other - Government Contracts As a U.S. government contractor, we are subject to various audits and investigations by the U.S. government to determine whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. 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. 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. government. U.S. government investigations often take years to complete and many result in no adverse action. 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. government regulations may also be audited or investigated. 17. SUPPLEMENTAL CASH FLOW INFORMATION Table 17.1: Details of Cash, Cash Equivalents, and Restricted Cash June 30, 2025 December 31, 2024 (in thousands) Cash and cash equivalents $ 56,998 $ 54,578 Restricted cash (1) 139 139 Cash, cash equivalents, and restricted cash $ 57,137 $ 54,717 (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 17.2: Supplemental Cash Flow Information For the Six Months Ended June 30, 2025 June 30, 2024 (in thousands) Cash paid during the period for: Interest $ 252 $ 287 Income taxes 39 100 Non-cash investing and financing activities: Issuance of common stock for 401(k) match $ 2,063 $ 1,619 Capital expenditure activity in accounts payable and other accrued liabilities 130 147 Operating lease ROU assets obtained in exchange for operating lease liabilities — 626 18 Table of Contents