TELOS CORP 10-Q

Item 1. Financial Statements TELOS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, 2026 March 31, 2025 (in thousands, except per share amounts) Revenue – services $ 42,061 $ 28,845 Revenue – products 5,681 1,771 Total revenue 47,742 30,616 Cost of sales – services (excluding depreciation and amortization) 23,239 15,491 Cost of sales – products (excluding depreciation and amortization) 4,532 1,440 Depreciation and amortization 2,596 1,503 Total cost of sales 30,367 18,434 Gross profit 17,375 12,182 Operating expenses: Research and development expenses 1,357 1,571 Selling, general and administrative expenses 14,563 19,633 Total operating expenses 15,920 21,204 Operating income (loss) 1,455 ( 9,022 ) Other income 697 561 Interest expense ( 111 ) ( 147 ) Income (loss) before income taxes 2,041 ( 8,608 ) (Provision for) benefit from income taxes ( 18 ) 4 Net income (loss) $ 2,023 $ ( 8,604 ) Net income (loss) per share: Basic $ 0.03 $ ( 0.12 ) Diluted $ 0.03 $ ( 0.12 ) Weighted-average number of shares outstanding: Basic 73,822 72,715 Diluted 77,615 72,715 See accompanying notes to the unaudited consolidated financial statements. 3 Table of Contents TELOS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) For the Three Months Ended March 31, 2026 March 31, 2025 (in thousands) Net income (loss) $ 2,023 $ ( 8,604 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ( 8 ) 80 Actuarial gain on pension liability adjustment — 8 Comprehensive income (loss) $ 2,015 $ ( 8,516 ) See accompanying notes to the unaudited consolidated financial statements. 4 Table of Contents TELOS CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, 2026 December 31, 2025 (in thousands, except per share amount and share data) Assets: Cash and cash equivalents $ 50,230 $ 53,180 Accounts receivable, net 16,425 17,000 Prepaid expenses 10,963 10,565 Deferred program expenses 14,326 10,006 Other current assets 3,681 3,662 Total current assets 95,625 94,413 Property and equipment, net 2,694 3,071 Finance lease right-of-use assets, net 3,865 4,170 Operating lease right-of-use assets, net 354 410 Goodwill 3,006 3,006 Intangible assets, net 29,808 30,281 Other assets 4,543 4,513 Total assets $ 139,895 $ 139,864 Liabilities and Stockholders' Equity: Liabilities: Accounts payable $ 2,583 $ 4,087 Accrued liabilities 6,614 6,900 Accrued compensation and benefits 7,363 12,309 Contract liabilities – current portion 18,096 11,223 Finance lease obligations – current portion 2,072 2,033 Operating lease obligations – current portion 254 232 Total current liabilities 36,982 36,784 Contract liabilities – non-current portion 951 1,124 Finance lease obligations – non-current portion 5,078 5,608 Operating lease obligations – non-current portion 125 186 Deferred income taxes 55 53 Other liabilities 173 159 Total liabilities 43,364 43,914 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.001 par value, 250,000,000 shares authorized, 74,819,175 shares and 72,773,272 shares issued and outstanding as of March 31, 2026, and December 31, 2025, respectively 113 111 Additional paid-in capital 458,392 459,828 Accumulated other comprehensive loss ( 104 ) ( 96 ) Accumulated deficit ( 361,870 ) ( 363,893 ) Total stockholders’ equity 96,531 95,950 Total liabilities and stockholders’ equity $ 139,895 $ 139,864 See accompanying notes to the unaudited consolidated financial statements. 5 Table of Contents TELOS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 2026 March 31, 2025 (in thousands) Cash flows from operating activities: Net income (loss) $ 2,023 $ ( 8,604 ) Adjustments to reconcile net income (loss) to cash flows from operations: Stock-based compensation 2,971 7,048 Depreciation and amortization 3,429 2,336 Loss on disposal of fixed assets 51 — Amortization of debt issuance costs 8 17 Provision for (benefit from) deferred income tax 2 ( 4 ) Provision for (recovery from) doubtful accounts 1 ( 5 ) Changes in other operating assets and liabilities: Accounts receivable 575 427 Prepaid expenses, deferred program expenses, other current assets and other assets ( 3,749 ) 3,016 Accounts payable ( 1,564 ) ( 88 ) Accrued compensation and benefits ( 533 ) 375 Contract liabilities 6,699 ( 93 ) Accrued liabilities and other liabilities ( 1,257 ) 1,681 Net cash provided by operating activities 8,656 6,106 Cash flows from investing activities: Capitalized software development costs ( 2,132 ) ( 2,214 ) Purchases of property and equipment ( 145 ) ( 123 ) Net cash used in investing activities ( 2,277 ) ( 2,337 ) Cash flows from financing activities: Payments under finance lease obligations ( 491 ) ( 452 ) Payment of tax withholding related to net share settlement of equity awards ( 6,619 ) ( 104 ) Repurchases of common stock ( 2,198 ) — Payments for debt issuance costs ( 21 ) — Net cash used in financing activities ( 9,329 ) ( 556 ) Net change in cash, cash equivalents, and restricted cash ( 2,950 ) 3,213 Cash, cash equivalents, and restricted cash, beginning of period 53,320 54,717 Cash, cash equivalents, and restricted cash, end of period $ 50,370 $ 57,930 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 December 31, 2025 72,773 $ 111 $ 459,828 $ ( 96 ) $ ( 363,893 ) $ 95,950 Net income — — — — 2,023 2,023 Foreign currency translation loss — — — ( 8 ) — ( 8 ) Repurchase of common stock ( 517 ) — ( 2,198 ) — — ( 2,198 ) Restricted stock unit awards vested, net of shares withheld to cover tax withholding 1,444 1 ( 5,401 ) — — ( 5,400 ) Stock-based compensation — — 1,738 — — 1,738 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 401K match 413 — 1,659 — — 1,659 Balance at March 31, 2026 74,819 $ 113 $ 458,392 $ ( 104 ) $ ( 361,870 ) $ 96,531 Balance at December 31, 2024 72,515 $ 111 $ 454,502 $ ( 129 ) $ ( 327,347 ) $ 127,137 Net loss — — — — ( 8,604 ) ( 8,604 ) Foreign currency translation gain — — — 80 — 80 Actuarial gain on pension liability adjustment — — — 8 — 8 Restricted stock unit awards vested, net of shares withheld to cover tax withholding 76 — ( 104 ) — — ( 104 ) Stock-based compensation — — 5,534 — — 5,534 Issuance of common stock for 401K match 728 1 2,062 — — 2,063 Balance at March 31, 2025 73,319 $ 112 $ 461,994 $ ( 41 ) $ ( 335,951 ) $ 126,114 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, 2025, 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 share-based compensation, valuation of intangible assets and goodwill, restructuring expenses accruals, and contingencies. Actual results could differ from those 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"). The 2025 restructuring plan reduced the Company's workforce, with a portion of the affected employees separating from the business during the current quarter and the remainder expected to separate by the third quarter of 2026. The Company continues to evaluate the 2025 restructuring plan and may incur incremental restructuring charges through the remainder of 2026 to the extent such charges are determined to be probable and estimable. The Company incurred $ 1.5 million in cumulative restructuring expenses related to the 2025 restructuring plan. At each reporting date, the Company evaluates its restructuring expense accrual to determine if the liabilities reported are still appropriate. Any changes in the estimated costs of executing the approved restructuring plan are reflected in the Company's unaudited consolidated statement of operations. 8 Table of Contents 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 ( 380 ) Balance at March 31, 2026 $ 1,071 (1) Restructuring-related liabilities are reported as part of "Accrued liabilities" in the Company's unaudited consolidated balance sheets, see Note 8 - Other Balance Sheet Components for further details. Recent Accounting Pronouncements The Company adopted all applicable standards effective as of December 31, 2025, within these unaudited consolidated financial statements, with no material impact as a result of the adoption. 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 in the process of assessing the impact of the adoption of 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 Receivables 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 period 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, which includes amendments on the following provisions, among other things, (1) clarify diluted earnings per share ("EPS") calculation when a loss from continuing operation exists; (2) revising 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 31, 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. 9 Table of Contents 3. REVENUE RECOGNITION 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 71 % and 79 % of our revenue for the three months ended March 31, 2026, and 2025, respectively. For performance obligations in which control does not continuously transfer to the customer, we recognize revenue 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 29 % and 21 % of our revenue for the three months ended March 31, 2026, and 2025, respectively. The change in revenue mix for the three months ended March 31, 2026, as compared to the prior period, was primarily driven by an increase in product sales volume from a successful ramp-up of a significant program. 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 months ended March 31, 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. No contract loss was recorded during the three months ended March 31, 2026. We recorded an immaterial contract loss during the three months ended March 31, 2025. Disaggregated Revenues In addition to our segment reporting, as further discussed in Note 1 4 – Segment Information , we disaggregate our revenues by customer and contract types. We treat sales to U.S. customers as sales within the U.S. 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 March 31, 2026 March 31, 2025 Amount % Amount % (dollars in thousands) Federal $ 44,204 93 % $ 27,301 89 % State & local, and commercial 3,538 7 % 3,315 11 % Total revenue $ 47,742 100 % $ 30,616 100 % Table 3.2: Revenue by Contract Type For the Three Months Ended March 31, 2026 March 31, 2025 Amount % Amount % (dollars in thousands) Firm fixed-price $ 37,461 79 % $ 19,998 65 % Time-and-materials 8,662 18 % 8,377 28 % Cost plus fixed fee 1,619 3 % 2,241 7 % Total revenue $ 47,742 100 % $ 30,616 100 % A majority of the Company's revenue was derived under prime contracts and subcontracts with agencies and departments of the U.S. federal government. No other customer accounted for 10% or more of the Company's revenue during the three months ended March 31, 2026, and 2025. Table 3.3: Revenue Concentration Greater than 10% of Total Revenue For the Three Months Ended March 31, 2026 March 31, 2025 Federal government: Security Solutions segment $ 42,432 $ 22,652 Secure Networks segment 1,772 4,649 Total $ 44,204 $ 27,301 10 Table of Contents Table 3.4: Contract Balances Balance Sheet Presentation March 31, 2026 December 31, 2025 (in thousands) Billed accounts receivables (1) Accounts receivable, net $ 9,968 $ 9,375 Unbilled accounts receivable Accounts receivable, net 6,003 6,962 Contract assets Accounts receivable, net 454 663 Contract liabilities – current Contract liabilities – current portion 18,096 11,223 Contract liabilities – non-current Contract liabilities – non-current portion 951 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 months ended March 31, 2026, and 2025, which was included in the contract liabilities balance at December 31, 2025, and 2024, was $ 4.8 million and $ 2.4 million, respectively. As of March 31, 2026, we had approximately $ 61.9 million of remaining performance obligations, which we also refer to as funded backlog. We expect to recognize approximately 98 % 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 March 31, 2026 December 31, 2025 (in thousands) Billed accounts receivable $ 10,009 $ 9,416 Unbilled accounts receivable 6,003 6,962 Contract assets 454 663 Allowance for credit losses (1) ( 41 ) ( 41 ) Accounts receivable, net $ 16,425 $ 17,000 (1) Includes recoveries from credit losses, net of provision. Because 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 88 % and 85 % of our billed and unbilled accounts receivable as of March 31, 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 from our customers. We maintain allowances for potential losses, where appropriate. 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 is 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. There were no accounts receivables sold during the three months ended March 31, 2026. 11 Table of Contents 5. PROPERTY AND EQUIPMENT, NET Table 5.1: Details of Property and Equipment, Net March 31, 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 $ 17,315 $ ( 15,104 ) $ 2,211 $ 17,275 $ ( 14,727 ) $ 2,548 Leasehold improvements 3,419 ( 2,936 ) 483 3,419 ( 2,896 ) 523 Total $ 20,734 $ ( 18,040 ) $ 2,694 $ 20,694 $ ( 17,623 ) $ 3,071 Table 5.2: Depreciation and Amortization Expense For the Three Months Ended March 31, 2026 March 31, 2025 (in thousands) Depreciation and amortization expense $ 457 $ 445 6. GOODWILL The goodwill balance was $ 3.0 million as of March 31, 2026, and December 31, 2025, allocated to the Security Solutions 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. No impairment charges were recorded for the three months ended March 31, 2026, and 2025 . 7. INTANGIBLE ASSETS, NET Table 7.1: Details of Intangible Assets, Net March 31, 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 $ ( 2,117 ) $ 1,513 $ 3,630 $ ( 2,004 ) $ 1,626 Customer relationship 3 40 ( 40 ) — 40 ( 40 ) — Software development costs 2 - 5 43,913 ( 26,068 ) 17,845 43,411 ( 23,576 ) 19,835 Subtotal 47,583 ( 28,225 ) 19,358 47,081 ( 25,620 ) 21,461 In-process software development costs (1) 10,450 — 10,450 8,820 — 8,820 Total $ 58,033 $ ( 28,225 ) $ 29,808 $ 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 7.2: Amortization Expense For the Three Months Ended March 31, 2026 March 31, 2025 (in thousands) Amortization expense related to: Software development costs - cost of sales (1) $ 2,492 $ 1,411 Other intangible assets - general and administrative 113 113 Total $ 2,605 $ 1,524 (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 8. OTHER BALANCE SHEET COMPONENTS Table 8.1: Details of Other Current Assets March 31, 2026 December 31, 2025 (in thousands) Inventories, net $ 2,890 $ 996 Deferred costs 791 887 Receivables - other — 529 Other — 1,250 Other current assets $ 3,681 $ 3,662 Table 8.2: Details of Other Assets March 31, 2026 December 31, 2025 (in thousands) Investment (1) $ 3,750 $ 3,750 Prepaid expense and deferred commission – long-term portion 563 537 Restricted cash 140 140 Other 90 86 Other assets $ 4,543 $ 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 SAFE investment was settled into equitable shares of the privately-held company's common stock. 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 months ended March 31, 2026, and 2025. Table 8.3: Details of Accrued Liabilities March 31, 2026 December 31, 2025 (in thousands) Accrued project expenses $ 4,321 $ 4,289 Restructuring expenses accrual 1,071 1,451 Other 1,222 1,160 Accrued liabilities $ 6,614 $ 6,900 9. 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. ("JPMorgan Chase"), as administrative agent for the Lenders (in such capacity, the "Agent"). The Credit Agreement provided for a $ 30.0 million senior secured revolving credit facility, 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. Until December 30, 2025, borrowings under the Credit Agreement accrued 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 %; or (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. 13 Table of Contents 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. 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 March 31, 2026. 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. On December 30, 2025, the Company entered into a Second Amendment to Credit Agreement (the "Second Amendment") with JPMorgan Chase. The Second Amendment modified the Credit Agreement to, among other modifications, (a) established the Applicable Rate for borrowings under the revolving credit facility at 1.25 % for ABR Loans and 2.25 % for Term Benchmark/RFR Loans, with a commitment fee rate of 0.25 %, (b) established the Revolving Commitment under the Credit Agreement at $ 15.0 million with an expansion feature of up to $ 15.0 million of additional credit capacity, (c) extended the Revolving Credit Maturity Date to December 30, 2026, and (d) required the Company and its subsidiaries to maintain at least $ 5.0 million of unrestricted cash and Permitted Investments with JPMorgan Chase at all times. Except as modified by the Second Amendment, the terms and conditions of the Credit Agreement remain in full force and effect. 10. 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 March 31, 2026, approximately 0.5 million shares of our common stock were available for future grants under the 2016 LTIP. There were no income tax benefits recognized on the share-based compensation expense (as reflected on the table below) for the three months ended March 31, 2026, and 2025. Table 10.1: Details of Stock Compensation Expense by Statements of Operations Line Item For the Three Months Ended March 31, 2026 March 31, 2025 (in thousands) Cost of sales – services $ 216 $ 190 Research and development 219 40 Selling, general and administrative 2,536 6,818 Total $ 2,971 $ 7,048 Restricted Stock Table 10.2: Restricted Stock 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 991,756 — 991,756 4.02 Vested ( 991,756 ) ( 2,420,691 ) ( 3,412,447 ) 3.42 Forfeited ( 27,255 ) — ( 27,255 ) 3.70 Unvested outstanding units as of March 31, 2026 2,155,581 8,441,163 10,596,744 $ 3.27 14 Table of Contents As of March 31, 2026, and 2025, the intrinsic value of the restricted stock units with time-base vesting ("RSUs") and restricted stock units with performance-based vesting ("PSUs") outstanding, exercisable, and vested or expected to vest was $ 44.4 million and $ 29.5 million, respectively. There were approximately $ 6.8 million of total compensation costs related to stock-based awards not yet recognized as of March 31, 2026, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.4 years. Stock Options Table 10.3: 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, 2025 227,000 $ 1.80 7.4 $ 749,100 Granted — — 0.0 — Exercised — — 0.0 — Forfeited, cancelled, or expired — — 0.0 — Outstanding option balance as of March 31, 2026 227,000 $ 1.80 7.1 $ 542,530 Exercisable stock option as of March 31, 2026 227,000 $ 1.80 7.1 $ 542,530 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 March 31, 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 next annual stockholders meeting is expected to occur at the same approximate time each year. As of March 31, 2026, there were no unrecognized compensation costs related to non-vested stock options. 11. SHARE REPURCHASES On May 24, 2022, the Company announced that the Board of Directors ("Board") approved a new 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 March 31, 2026, there was approximately $ 47.9 million of the authorization remaining for future common stock repurchases under the SRP. Table 11: Share Repurchase Program Activity For the Three Months Ended March 31, 2026 March 31, 2025 (in thousands, except per share and share data) Amounts paid for shares repurchased (1) $ 2,198 $ — Number of shares repurchased 517,136 — Average per share price paid (1) $ 4.25 $ — (1) Includes commissions paid for repurchases on the open market. 12. ACCUMULATED OTHER COMPREHENSIVE LOSS Table 12: 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, 2025 $ ( 177 ) $ 81 $ ( 96 ) Other comprehensive loss before reclassification, net of tax ( 8 ) — ( 8 ) Balance as of March 31, 2026 $ ( 185 ) $ 81 $ ( 104 ) 15 Table of Contents 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 per Share For the Three Months Ended March 31, 2026 March 31, 2025 (in thousands) Basic weighted-average number of shares outstanding 73,822 72,715 Dilutive effect of unvested restricted stock units and stock options 3,793 — Diluted weighted-average number of shares outstanding 77,615 72,715 For a 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. For the three months ended March 31, 2025, the diluted earnings per share calculation excludes 627,612 of potentially dilutive securities that were anti-dilutive. For the three months ended March 31, 2026, and 2025, outstanding PSUs aggregating 6,235,000 and 10,604,187 , respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of shares is contingent upon the satisfaction of certain conditions, which were not satisfied by the end of the period. 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. The Chief Executive Officer ("CEO"), 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, to 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 months ended March 31, 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. 16 Table of Contents Table 14: Results of Operations by Business Segment For the Three Months Ended March 31, 2026 March 31, 2025 Security Solutions Secure Networks Total Security Solutions Secure Networks Total (in thousands) Revenues $ 45,970 $ 1,772 $ 47,742 $ 25,818 $ 4,798 $ 30,616 Cost of sales Depreciation and amortization (1) 2,593 3 2,596 1,501 2 1,503 Stock-based compensation expense (1) 194 22 216 169 21 190 Other segment items (2) 26,320 1,235 27,555 13,088 3,653 16,741 Total cost of sales 29,107 1,260 30,367 14,758 3,676 18,434 Gross profit $ 16,863 $ 512 17,375 $ 11,060 $ 1,122 12,182 Operating expenses: Research and development expenses 1,357 1,571 Selling, general and administrative expenses 14,563 19,633 Total operating expenses 15,920 21,204 Operating income (loss) 1,455 ( 9,022 ) Other income 697 561 Interest expense ( 111 ) ( 147 ) Income (loss) before income taxes 2,041 ( 8,608 ) (Provision for) benefit from income taxes ( 18 ) 4 Net income (loss) $ 2,023 $ ( 8,604 ) (1) The significant segment expense categories and amounts align with the segment-level information regularly provided by 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. 15. SUPPLEMENTAL CASH FLOW INFORMATION Table 15.1: Details of Cash, Cash Equivalents, and Restricted Cash March 31, 2026 December 31, 2025 (in thousands) Cash and cash equivalents $ 50,230 $ 53,180 Restricted cash (1) 140 140 Cash, cash equivalents, and restricted cash $ 50,370 $ 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 Three Months Ended March 31, 2026 March 31, 2025 (in thousands) Cash paid during the period for: Interest $ 109 $ 129 Non-cash investing and financing activities: Capital expenditure activity in accounts payable and other accrued liabilities $ 54 $ 288 Issuance of common stock for 401K match 1,659 2,063 Issuance of common stock for AIP payment 3,987 — 17 Table of Contents 16. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS 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 March 31, 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 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 may also be audited or investigated. Subsequent Events On April 29, 2026, the Company announced that John Wood, the President, CEO and Chairman of the Board, was taking a medical leave of absence. Effective April 28, 2026, Mark Griffin, Executive Vice President, Security Solutions, Mark Bendza, Executive Vice President and Chief Financial Officer, and Hutch Robbins, Executive Vice President and General Counsel (under the oversight of and reporting to the Company’s Board) have assumed the responsibilities of the Chief Executive Officer on an interim basis. Fred Schaufeld has been appointed by the Board of Directors to serve as its Chairman on an interim basis effective immediately. The Board and executive leadership team are working closely to ensure continuity of the Company’s operations during Mr. Wood’s absence. The Company does not anticipate material disruption to its operations. 18 Table of Contents