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, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (in thousands, except per share amounts) Revenue – services $ 40,594 $ 29,301 $ 82,655 $ 58,146 Revenue – products 7,151 6,667 12,832 8,438 Total revenue 47,745 35,968 95,487 66,584 Cost of sales – services (excluding depreciation and amortization) 22,537 16,605 45,776 32,096 Cost of sales – products (excluding depreciation and amortization) 6,002 5,716 10,534 7,156 Depreciation and amortization 2,514 1,715 5,110 3,218 Total cost of sales 31,053 24,036 61,420 42,470 Gross profit 16,692 11,932 34,067 24,114 Operating expenses: Research and development expenses 1,345 1,512 2,702 3,083 Selling, general and administrative expenses 15,037 20,303 29,600 39,936 Total operating expenses 16,382 21,815 32,302 43,019 Operating income (loss) 310 ( 9,883 ) 1,765 ( 18,905 ) Other income 501 553 1,198 1,114 Interest expense ( 107 ) ( 141 ) ( 218 ) ( 288 ) Income (loss) before income taxes 704 ( 9,471 ) 2,745 ( 18,079 ) Provision for income taxes ( 44 ) ( 46 ) ( 62 ) ( 42 ) Net income (loss) $ 660 $ ( 9,517 ) $ 2,683 $ ( 18,121 ) Net income (loss) per share: Basic $ 0.01 $ ( 0.13 ) $ 0.04 $ ( 0.25 ) Diluted $ 0.01 $ ( 0.13 ) $ 0.03 $ ( 0.25 ) Weighted-average shares outstanding: Basic 74,895 73,163 74,361 72,940 Diluted 77,547 73,163 77,576 72,940 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 For the Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (in thousands) Net income (loss) $ 660 $ ( 9,517 ) $ 2,683 $ ( 18,121 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 3 ( 5 ) ( 5 ) 75 Actuarial gain on pension liability adjustment — — — 8 Other comprehensive income (loss) 3 ( 5 ) ( 5 ) 83 Comprehensive income (loss) $ 663 $ ( 9,522 ) $ 2,678 $ ( 18,038 ) See accompanying notes to the unaudited consolidated financial statements. 4 Table of Contents TELOS CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, 2026 December 31, 2025 (in thousands, except per share amount and share data) Assets: Cash and cash equivalents $ 50,647 $ 53,180 Accounts receivable, net 18,000 17,000 Inventories, net 4,917 996 Prepaid expenses 7,562 10,565 Deferred program expenses 13,920 10,006 Other current assets 1,779 2,666 Total current assets 96,825 94,413 Property and equipment, net 2,490 3,071 Finance lease right-of-use assets, net 3,560 4,170 Operating lease right-of-use assets, net 298 410 Goodwill 3,006 3,006 Intangible assets, net 29,213 30,281 Other assets 4,357 4,513 Total assets $ 139,749 $ 139,864 Liabilities and Stockholders' Equity Liabilities: Accounts payable $ 6,390 $ 4,087 Accrued liabilities 5,673 6,900 Accrued compensation and benefits 8,985 12,309 Contract liabilities – current portion 17,220 11,223 Finance lease obligations – current portion 2,113 2,033 Operating lease obligations – current portion 255 232 Total current liabilities 40,636 36,784 Contract liabilities – non-current portion 874 1,124 Finance lease obligations – non-current portion 4,536 5,608 Operating lease obligations – non-current portion 62 186 Deferred income taxes 57 53 Other liabilities 171 159 Total liabilities 46,336 43,914 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.001 par value, 250,000,000 shares authorized, 74,736,789 shares and 72,773,272 shares issued and outstanding as of June 30, 2026, and December 31, 2025, respectively 113 111 Additional paid-in capital 454,611 459,828 Accumulated other comprehensive loss ( 101 ) ( 96 ) Accumulated deficit ( 361,210 ) ( 363,893 ) Total stockholders’ equity 93,413 95,950 Total liabilities and stockholders’ equity $ 139,749 $ 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 Six Months Ended June 30, 2026 June 30, 2025 (in thousands) Cash flows from operating activities: Net income (loss) $ 2,683 $ ( 18,121 ) Adjustments to reconcile net income (loss) to cash flows from operations: Stock-based compensation 6,184 14,805 Depreciation and amortization 6,776 4,845 Loss on disposal of fixed assets 52 — Provision for inventory obsolescence 42 — Amortization of debt issuance costs 17 35 Deferred income taxes 4 27 Provision for (recovery from) doubtful accounts 1 ( 20 ) Changes in operating assets and liabilities: Accounts receivable ( 1,001 ) 86 Inventories ( 1,942 ) ( 1,079 ) Prepaid expenses, deferred program expenses, other current assets and other assets 4,445 ( 1,933 ) Accounts payable ( 2,158 ) 9,540 Accrued compensation and benefits ( 208 ) 601 Contract liabilities 5,746 6,114 Accrued liabilities and other liabilities ( 3,152 ) ( 1,844 ) Net cash provided by operating activities 17,489 13,056 Cash flows from investing activities: Capitalized software development costs ( 4,102 ) ( 4,401 ) Purchases of property and equipment ( 391 ) ( 257 ) Net cash used in investing activities ( 4,493 ) ( 4,658 ) Cash flows from financing activities: Payment of tax withholding related to net share settlement of equity awards ( 7,626 ) ( 1,062 ) Repurchases of common stock ( 6,889 ) ( 4,002 ) Payments under finance lease obligations ( 992 ) ( 914 ) Payments for debt issuance costs ( 21 ) — Net cash used in financing activities ( 15,528 ) ( 5,978 ) Net change in cash, cash equivalents, and restricted cash ( 2,532 ) 2,420 Cash, cash equivalents, and restricted cash, beginning of period 53,320 54,717 Cash, cash equivalents, and restricted cash, end of period $ 50,788 $ 57,137 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, 2026 74,819 $ 113 $ 458,392 $ ( 104 ) $ ( 361,870 ) $ 96,531 Net income — — — — 660 660 Foreign currency translation gain — — — 3 — 3 Restricted stock unit awards vested, net of shares withheld to cover tax withholding 960 1 ( 1,007 ) — — ( 1,006 ) Stock-based compensation — — 1,916 — — 1,916 Repurchases of common stock ( 1,042 ) ( 1 ) ( 4,690 ) — — ( 4,691 ) Balance at June 30, 2026 74,737 $ 113 $ 454,611 $ ( 101 ) $ ( 361,210 ) $ 93,413 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 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 — — — — 2,683 2,683 Foreign currency translation loss — — — ( 5 ) — ( 5 ) Restricted stock unit awards vested, net of shares withheld to cover tax withholding 2,404 2 ( 6,408 ) — — ( 6,406 ) Stock-based compensation — — 3,654 — — 3,654 Repurchases of common stock ( 1,559 ) ( 1 ) ( 6,888 ) — — ( 6,889 ) Issuance of common stock for annual incentive plan ("AIP") payment, net of shares withheld to cover tax withholding 706 1 2,766 — — 2,767 Issuance of common stock for 401(k) match 413 — 1,659 — — 1,659 Balance at June 30, 2026 74,737 $ 113 $ 454,611 $ ( 101 ) $ ( 361,210 ) $ 93,413 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 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 full year or future periods. The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2025, included in our Annual Report on Form 10-K for the fiscal year then ended. We have continued to follow the accounting policies set forth in those financial statements. Reclassification Certain prior-period amounts have been reclassified to conform to the current period presentation. This reclassification relates to presenting "Inventories, net" as a separate line item on the unaudited consolidated balance sheets from "Other current assets." Use of Estimates The preparation of these unaudited consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual results could differ from those estimates. We base our estimates on historical experience, currently available information, and various other assumptions that we believe are reasonable under the circumstances. Management evaluates these estimates and assumptions on an ongoing basis, including those relating to revenue recognition and 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 . 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. 8 Table of Contents 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. 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 ( 751 ) Balance at June 30, 2026 $ 700 (1) Restructuring-related liabilities are reported as part of "Accrued liabilities" in the Company's unaudited consolidated balance sheets; see Note 9 - Other Balance Sheet Components for further details. Recent Accounting Pronouncements In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses." This standard requires additional disclosure of certain amounts included in the expense captions presented on the statement of operations, as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application. All public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are 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 Receivable and Contract Assets.” This standard provides simplified guidance on measuring credit losses for accounts receivable and contract assets. The update introduces a practical expedient and an accounting policy election to ease the process. All entities can elect the practical expedient to assume that the current economic conditions at the balance sheet date will remain constant through the life of the current receivables and contract assets. Entities that elect the practical expedient and the accounting policy election should apply the amendments in this ASU prospectively. The ASU was effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. We adopted the standard in the first quarter of 2026 and the adoption did not have a material impact on our unaudited consolidated financial statements. In September 2025, the FASB issued ASU 2025-06, "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting of Internal-Use Software." This standard provides a simplified, consistent way to track expenses related to software developed for internal use. The amendments in this standard removed all references to project stages; instead, a company can capitalize software costs once both conditions are met: the entity's management has authorized and committed to funding the project, and it is probable that the project will be completed and the software will be used as intended. The amendments will be effective for annual reporting periods, including interim periods within those years, beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements. In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270): Narrow-Scope Improvements," which was intended to improve the navigability of the guidance in ASC 270 and clarify when it applies. Public entities are required to adopt the guidance for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements. In December 2025, the FASB issued ASU 2025-12, "Codification Improvement." This ASU includes a number of improvements that span a wide range of topics, 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 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements. In addition, from time to time, new accounting standards are issued by the Financial Accounting Standards Board or other standard-setting bodies and are adopted by the Company as of the specified accounting date. Unless otherwise discussed, the Company believes that issued standards not yet effective will not have a material effect on its financial statements. 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 69 % and 70 % of our revenue for the three and six months ended June 30, 2026, respectively, and 68 % and 73 % of our revenue for the three and six months ended June 30, 2025, respectively. For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time when each performance obligation is fully satisfied. This coincides with the point in time the customer obtains control of the product or service, which typically occurs upon customer acceptance or receipt of the product or service, given that we maintain control of the product or service until that point. Revenue transferred to customers at a point in time accounted for 31 % and 30 % of our revenue for the three and six months ended June 30, 2026, respectively, and 32 % and 27 % of our revenue for the three and six months ended June 30, 2025, respectively. The change in revenue mix for the three and six months ended June 30, 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 and six months ended June 30, 2026, and 2025. We provide for anticipated losses on contracts during the period when the loss is determined by recording an expense for the total expected costs that exceeds the total estimated revenue for a performance obligation. No contract loss was recorded during the three and six months ended June 30, 2026. No contract loss was recorded during the three months ended June 30, 2025, while we recorded an immaterial contract loss during the six months ended June 30, 2025. 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, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Amount % Amount % Amount % Amount % (dollars in thousands) Federal $ 43,937 92 % $ 32,672 91 % $ 88,141 92 % $ 59,972 90 % State & local, and commercial 3,808 8 % 3,296 9 % 7,346 8 % 6,612 10 % Total revenue $ 47,745 100 % $ 35,968 100 % $ 95,487 100 % $ 66,584 100 % Table 3.2: Revenue by Contract Type For the Three Months Ended For the Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Amount % Amount % Amount % Amount % (dollars in thousands) Firm fixed-price $ 37,444 78 % $ 25,153 70 % $ 74,904 78 % $ 45,151 68 % Time-and-materials 8,679 18 % 8,913 25 % 17,342 18 % 17,290 26 % Cost plus fixed fee 1,622 4 % 1,902 5 % 3,241 4 % 4,143 6 % Total revenue $ 47,745 100 % $ 35,968 100 % $ 95,487 100 % $ 66,584 100 % 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, 2026, and 2025. 10 Table of Contents Table 3.3: Revenue Concentration Greater than 10% of Total Revenue For the Three Months Ended For the Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (in thousands) Federal government: Security Solutions $ 42,854 $ 29,032 $ 85,286 $ 51,684 Secure Networks 1,083 3,640 2,855 8,288 Total $ 43,937 $ 32,672 $ 88,141 $ 59,972 Table 3.4: Contract Balances Balance Sheet Presentation June 30, 2026 December 31, 2025 (in thousands) Billed accounts receivable (1) Accounts receivable, net $ 11,315 $ 9,375 Unbilled accounts receivable Accounts receivable, net 5,253 6,962 Contract assets Accounts receivable, net 1,432 663 Contract liabilities – current Contract liabilities – current portion 17,220 11,223 Contract liabilities – non-current Contract liabilities – non-current portion 874 1,124 (1) Net of allowance for credit losses. The changes in the Company's contract assets and contract liabilities during the current period were primarily the result of the timing differences between the Company's performance, invoicing and customer payments. Revenue recognized for the three and six months ended June 30, 2026, which was included in the contract liabilities balance at December 31, 2025, was $ 3.3 million and $ 8.1 million, respectively. Revenue recognized for the three and six months ended June 30, 2025, which was included in the contract liabilities balance at December 31, 2024, was $ 1.7 million and $ 4.1 million, respectively. As of June 30, 2026, we had approximately $ 56.5 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 June 30, 2026 December 31, 2025 (in thousands) Billed accounts receivable $ 11,355 $ 9,416 Unbilled accounts receivable 5,253 6,962 Contract assets 1,432 663 Allowance for credit losses (1) ( 40 ) ( 41 ) Accounts receivable, net $ 18,000 $ 17,000 (1) Includes provision for credit losses, net of recoveries. As our primary customer base includes agencies of the U.S. federal government, we have a concentration of credit risk associated with our accounts receivable, as 87 % and 85 % of our billed and unbilled accounts receivable as of June 30, 2026, and December 31, 2025, respectively, were with U.S. federal government customers. While we acknowledge the potential material and adverse risk of such a significant concentration of credit risk, our past experience collecting substantially all of such receivables provides us with an informed basis that such risk, if any, is manageable. We perform ongoing credit evaluations of all of our customers and generally do not require collateral or other guarantees. We maintain allowances for potential losses, where appropriate. 11 Table of Contents On March 10, 2026, we entered into a new Factoring Agreement with an unrelated third-party (the "Factor"). Under this Factoring Agreement, we may offer eligible accounts receivable arising from our U.S. government prime contracts or subcontracts for sale (the "Purchased Receivables") to the Factor, and the Factor may purchase such receivables at its sole discretion, on a non-recourse basis. These transactions are accounted for as a "true sale" as we have surrendered control over the receivables, and we are not obligated to repay all or any portion of the advance amount if any portion of the accounts receivable is not paid by the customers due to an inability to pay. The total amount of Purchased Receivables is subject to a maximum limit of $ 10.0 million of outstanding Purchased Receivables at any given time. The initial term of the Factoring Agreement expires on March 10, 2027, and automatically renews annually thereafter unless terminated in writing by the parties. There were no accounts receivable sold during the six months ended June 30, 2026. 5. INVENTORIES, NET Table 5: Details of Inventories, Net June 30, 2026 December 31, 2025 (in thousands) Gross inventory $ 5,458 $ 1,495 Allowance for inventory obsolescence ( 541 ) ( 499 ) Inventories, net $ 4,917 $ 996 6. PROPERTY AND EQUIPMENT, NET Table 6.1: Details of Property and Equipment, Net June 30, 2026 December 31, 2025 Gross Carrying Amount Accumulated Depreciation and Amortization Net Carrying Value Gross Carrying Amount Accumulated Depreciation and Amortization Net Carrying Value (in thousands) Furniture and equipment $ 17,293 $ ( 15,341 ) $ 1,952 $ 17,275 $ ( 14,727 ) $ 2,548 Leasehold improvements 3,515 ( 2,977 ) 538 3,419 ( 2,896 ) 523 Total $ 20,808 $ ( 18,318 ) $ 2,490 $ 20,694 $ ( 17,623 ) $ 3,071 Table 6.2: Depreciation and Amortization Expense For the Three Months Ended For the Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (in thousands) Depreciation and amortization expense $ 444 $ 422 $ 902 $ 867 7. GOODWILL The goodwill balance was $ 3.0 million as of June 30, 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 and six months ended June 30, 2026, and 2025. 12 Table of Contents 8. INTANGIBLE ASSETS, NET Table 8.1: Details of Intangible Assets, Net June 30, 2026 December 31, 2025 Estimated Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value (in years) (in thousands) Acquired technology 8 $ 3,630 $ ( 2,231 ) $ 1,399 $ 3,630 $ ( 2,004 ) $ 1,626 Customer relationship 3 40 ( 40 ) — 40 ( 40 ) — Software development costs 2 - 5 44,612 ( 28,494 ) 16,118 43,411 ( 23,576 ) 19,835 Subtotal 48,282 ( 30,765 ) 17,517 47,081 ( 25,620 ) 21,461 In-process software development costs (1) 11,696 — 11,696 8,820 — 8,820 Total $ 59,978 $ ( 30,765 ) $ 29,213 $ 55,901 $ ( 25,620 ) $ 30,281 (1) In-process software development costs are costs for software that is not yet available for its intended use or general release to customers as of the balance sheet date, thus not yet amortized. Table 8.2: Amortization Expense For the Three Months Ended For the Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (in thousands) Amortization expense related to: Software development costs – cost of sales (1) $ 2,427 $ 1,623 $ 4,918 $ 3,034 Other intangible assets – general and administrative 113 113 227 227 Total $ 2,540 $ 1,736 $ 5,145 $ 3,261 (1) Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed is charged under cost of sales on the unaudited consolidated statements of operations. 9. OTHER BALANCE SHEET COMPONENTS Table 9.1: Details of Other Assets June 30, 2026 December 31, 2025 (in thousands) Investment (1) $ 3,750 $ 3,750 Prepaid expense and deferred commission – long-term portion 372 537 Restricted cash 141 140 Other 94 86 Other assets $ 4,357 $ 4,513 (1) In March 2024, we made a $ 3.0 million investment in a privately-held company via a simple agreement for future equity ("SAFE"). In October 2025, the Company's SAFE investment was settled into 8,964,262 shares of Series A common stock at a settlement price of $ 0.42 per share, based on the valuation cap in the original agreement, resulting in 3.8 % ownership with no significant influence over the privately-held company. Upon settlement of the SAFE, the investment was remeasured to its fair value of $ 3.8 million. The investment does not have a readily determinable fair value and the Company elected the measurement alternative to value its investment. The fair value of this investment was based on non-marketable observable inputs, which represent Level 3 measurement within the fair value hierarchy. The investment was carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investment of the same issuer, with any gains or losses recorded within "other income" on the unaudited consolidated statement of operations. We did not note any changes in the fair value during the three and six months ended June 30, 2026, and 2025. Table 9.2: Details of Accrued Liabilities June 30, 2026 December 31, 2025 (in thousands) Accrued project expenses $ 4,133 $ 4,289 Restructuring expenses accrual 700 1,451 Other 840 1,160 Accrued liabilities $ 5,673 $ 6,900 13 Table of Contents 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. ("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 %; 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. 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 June 30, 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. 11. STOCK-BASED COMPENSATION On May 7, 2026, the Company's stockholders approved Amendment No. 2 to the Amended and Restated 2016 Omnibus Long-Term Incentive Plan ("2016 LTIP") that increased the number of shares available for issuance under the 2016 LTIP by an additional 5,380,000 shares. As of June 30, 2026, approximately 1.8 million shares of our common stock were available for future grants under the 2016 LTIP. There were no income tax benefits recognized on the stock-based compensation expense (as reflected on the table below) for the three and six months ended June 30, 2026, and 2025. 14 Table of Contents Table 11.1: Details of Stock Compensation Expense by Statements of Operations Line Item For the Three Months Ended For the Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (in thousands) Cost of sales – services $ 202 $ 149 $ 418 $ 339 Research and development 232 244 451 284 Selling, general and administrative 2,779 7,364 5,315 14,182 Total $ 3,213 $ 7,757 $ 6,184 $ 14,805 Restricted Stock Table 11.2: Restricted Stock Unit Activity Service-Based Performance-Based Total Shares Weighted-Average Grant Date Fair Value Unvested outstanding units as of December 31, 2025 2,182,836 10,861,854 13,044,690 $ 3.49 Granted 2,368,357 1,369,241 3,737,598 5.60 Vested ( 2,191,369 ) ( 2,420,691 ) ( 4,612,060 ) 3.45 Forfeited ( 27,255 ) — ( 27,255 ) 3.70 Unvested outstanding units as of June 30, 2026 2,332,569 9,810,404 12,142,973 $ 3.90 On May 26, 2026, the Company granted performance-based restricted stock units ("PSUs") with market conditions dependent on total shareholder return ("TSR") to certain executives and senior employees. The vesting criteria for these awards are based on the Company's TSR performance relative to the TSR performance of the Company's current compensation peer group over the three-year performance period, June 1, 2026, through May 31, 2029, and conditioned upon neutral or positive free cash flow (i.e. cash flows from operating activities less capital expenditures) at the end of each fiscal year in the performance period. The final payout of these PSUs will vary between 0% to 200 % of the target number of PSUs granted, depending on the TSR performance and meeting the free cash flow requirements. The grant date fair value per share is estimated at the grant date using a Monte Carlo simulation model. Stock-based compensation expense for PSUs with a TSR market condition is recognized over the service period based on target probability. Table 11.3: PSUs with a TSR Market Condition Fair Value and Assumptions Expected Volatility 92.1 % Risk-free rate 4.0 % Service period 3.0 years Grant date fair value $ 7.66 As of June 30, 2026, and 2025, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $ 55.9 million and $ 50.1 million, respectively. There was approximately $ 21.9 million of total compensation costs related to stock-based awards not yet recognized as of June 30, 2026, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.9 years. Stock Options Table 11.4: Stock Option Activity Stock Options Outstanding Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding option balance as of December 31, 2025 227,000 $ 1.80 7.4 $ 749,100 Granted — — 0.0 — Exercised — — 0.0 — Forfeited, cancelled, or expired — — 0.0 — Outstanding option balance as of June 30, 2026 227,000 $ 1.80 6.9 $ 635,600 Exercisable stock options as of June 30, 2026 227,000 $ 1.80 6.9 $ 635,600 15 Table of Contents 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, 2026. The fair value of the stock options is expensed on a straight-line basis over the vesting period of one year , including the stock options granted to directors, as the annual stockholders' meeting is expected to occur at the same approximate time each year. As of June 30, 2026, there were no unrecognized compensation costs related to non-vested stock options. 12. SHARE REPURCHASES On May 24, 2022, the Company announced that the Board of Directors ("Board") approved a share repurchase program ("SRP") authorizing the Company to repurchase up to $ 50.0 million of its common stock. On March 12, 2026, the Board further authorized the Company to repurchase up to an additional $ 25.0 million of its common stock under its existing repurchase program. Pursuant to this authorization, the Company may repurchase shares of its common stock on a discretionary basis from time to time through open market purchases. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. As of June 30, 2026, there was approximately $ 43.2 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, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (in thousands, except per share and share data) Amounts paid for shares repurchased (1) $ 4,691 $ 4,002 $ 6,889 $ 4,002 Number of shares repurchased 1,042,350 1,488,227 1,559,486 1,488,227 Average per share price paid (1) $ 4.50 $ 2.69 $ 4.42 $ 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, 2025 $ ( 177 ) $ 81 $ ( 96 ) Other comprehensive loss before reclassification, net of tax ( 5 ) — ( 5 ) Balance as of June 30, 2026 $ ( 182 ) $ 81 $ ( 101 ) 14. 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 14: Weighted-Average Number of Shares Outstanding – Earnings (Loss) per Share For the Three Months Ended For the Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (in thousands) Basic weighted-average number of shares outstanding 74,895 73,163 74,361 72,940 Dilutive effect on unvested restricted stock units and stock options 2,652 — 3,215 — Diluted weighted-average number of shares outstanding 77,547 73,163 77,576 72,940 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. For the three and six months ended June 30, 2025, the diluted earnings per share calculation excludes 976,000 and 1,158,000 , respectively, of potentially dilutive securities that were anti-dilutive. For the three and six months ended June 30, 2026, and 2025, outstanding PSUs aggregating to 7,604,241 and 11,372,034 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. 16 Table of Contents 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 ("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, that align with our strategies and objectives, and provide a framework for the timely and rational allocation of resources between the segments. We account for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices, if any. There were no inter-segment sales and transfers during the three and six months ended June 30, 2026, and 2025. Interest income, interest expense, other income and expense items, and income taxes, as reported in the consolidated financial statements, are not part of the segment profitability measure and are primarily recorded at the corporate level. Management does not utilize total assets by segment to evaluate segment performance or allocate resources. As a result, assets are not tracked by segment, and therefore, total assets by segment are not disclosed. Table 15.1: Results of Operations by Business Segment (Quarter) For the Three Months Ended June 30, 2026 June 30, 2025 Security Solutions Secure Networks Total Security Solutions Secure Networks Total (in thousands) Revenues $ 46,662 $ 1,083 $ 47,745 $ 32,474 $ 3,494 $ 35,968 Cost of Sales Depreciation and amortization (1) 2,511 3 2,514 1,714 1 1,715 Stock-based compensation expense (1) 184 18 202 139 10 149 Other segment items (2) 27,467 870 28,337 19,323 2,849 22,172 Total cost of sales 30,162 891 31,053 21,176 2,860 24,036 Gross profit $ 16,500 $ 192 16,692 $ 11,298 $ 634 11,932 Operating expenses Research and development expenses 1,345 1,512 Selling, general and administrative expenses 15,037 20,303 Total operating expenses 16,382 21,815 Operating income (loss) 310 ( 9,883 ) Other income 501 553 Interest expense ( 107 ) ( 141 ) Income (loss) before income taxes 704 ( 9,471 ) Provision for income taxes ( 44 ) ( 46 ) Net income (loss) $ 660 $ ( 9,517 ) (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 Table 15.2: Results of Operations by Business Segment (Year-to-Date) For the Six Months Ended June 30, 2026 June 30, 2025 Security Solutions Secure Networks Total Security Solutions Secure Networks Total (in thousands) Revenues $ 92,632 $ 2,855 $ 95,487 $ 58,292 $ 8,292 $ 66,584 Cost of Sales Depreciation and amortization (1) 5,104 6 5,110 3,215 3 3,218 Stock-based compensation expense (1) 378 40 418 308 31 339 Other segment items (2) 53,787 2,105 55,892 32,411 6,502 38,913 Total cost of sales 59,269 2,151 61,420 35,934 6,536 42,470 Gross profit $ 33,363 $ 704 34,067 $ 22,358 $ 1,756 24,114 Operating expenses Research and development expenses 2,702 3,083 Selling, general and administrative expenses 29,600 39,936 Total operating expenses 32,302 43,019 Operating income (loss) 1,765 ( 18,905 ) Other income 1,198 1,114 Interest expense ( 218 ) ( 288 ) Income (loss) before income taxes 2,745 ( 18,079 ) Provision for income taxes ( 62 ) ( 42 ) Net income (loss) $ 2,683 $ ( 18,121 ) (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. 16. SUPPLEMENTAL CASH FLOW INFORMATION Table 16.1: Details of Cash, Cash Equivalents, and Restricted Cash June 30, 2026 December 31, 2025 (in thousands) Cash and cash equivalents $ 50,647 $ 53,180 Restricted cash (1) 141 140 Cash, cash equivalents, and restricted cash $ 50,788 $ 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 16.2: Supplemental Cash Flow Information For the Six Months Ended June 30, 2026 June 30, 2025 (in thousands) Cash paid during the period for: Interest $ 203 $ 252 Income taxes 106 39 Non-cash investing and financing activities: Issuance of common stock for 401(k) match $ 1,659 $ 2,063 Capital expenditure activity in accounts payable and other accrued liabilities 23 130 Issuance of common stock for AIP payment 3,987 — 18 Table of Contents 17. COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time, the Company may be a party to litigation or claims arising in the ordinary course of business, including those relating to employment matters, relationships with clients and contractors, intellectual property disputes, and other business matters. These legal proceedings typically seek various remedies, including claims for monetary damages in varying amounts or unspecified amounts. Although the outcome of any such matter is inherently uncertain and may be materially adverse, based on current information, management believes that the outcome of any such known matters will not have a material adverse effect on the Company's business or its unaudited consolidated financial statements as of June 30, 2026. Other - Government Contracts As a U.S. federal government contractor, we are subject to various audits and investigations by the U.S. federal government to determine whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. federal government investigations of our operations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S. federal government contracting, or suspension of export privileges. Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. federal government. U.S. federal government investigations often take years to complete and many result in no adverse action against us. We also provide products and services to customers outside 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. 19 Table of Contents