Telos Corporation

What they do

Telos operates through two segments: Security Solutions and Secure Networks. Security Solutions delivers cyber GRC (Xacta), cloud, identity and biometric solutions, and secure messaging (AMHS), primarily to U.S. federal agencies. Secure Networks includes TSA PreCheck enrollment and other network services. The company generates roughly 91-92% of revenue from the U.S. federal government.

Revenue drivers

• Security Solutions (Telos ID) — Segment grew 43.7% YoY in Q2 2026, driven by expansion of large Telos ID programs; comprised 90.8% of FY2025 revenues.
• Secure Networks (TSA PreCheck) — Remaining revenue segment; includes TSA PreCheck enrollment services; size not separately disclosed in provided excerpts.
• Contract type mix — FY2025 revenue: 73.3% firm-fixed-price, 21.8% time-and-materials, 4.9% cost-plus; firm-fixed-price contracts provide pricing stability.
• U.S. federal government spending — 91% of FY2025 revenue from federal government (58.1% from DoW); defense appropriations of $838.7 billion for FY2026 support demand.

Recent performance

In Q2 2026, revenue rose 33% YoY to $47.7 million, with Security Solutions up 43.7%. Gross margin improved to 35.0% from 33.2%, and GAAP net income swung to $0.7 million from a -$9.5 million loss. Operating cash flow was $8.8 million (18.5% of revenue), and free cash flow was $6.6 million. The company repurchased ~1.0 million shares at $4.50 per share for $4.7 million. For the six months ended June 30, 2026, revenue totaled $95.5 million versus $66.6 million in the prior year.

Strategy

Telos is evolving from product reselling to advanced software and services, investing in AI integration (Xacta.ai launched Q4 2025) to automate cyber GRC. Management emphasizes disciplined cost management, reducing operating expenses 25% YoY in Q2 2026. They continue share repurchases and focus on expanding large programs in Telos ID. The company targets maintaining cash gross margins above 40% and free cash flow margins above 12%.

Risks

• Federal government dependence — ~91-92% of revenue from U.S. federal contracts, making results sensitive to budget appropriations, shutdowns, and procurement delays.
• Cybersecurity threats — Routinely experiences cyberattacks, including from state-sponsored actors, which could breach infrastructure and harm operations or reputation.
• Budget uncertainty and shutdowns — Full-year CR for FY2026 and partial DHS shutdown starting February 2026 could disrupt TSA and other agency operations, lengthening sales cycles.
• Competitive bidding pressure — Majority of business won through competitive bids (BPA, IDIQ, OTAs), leading to pricing pressure and potential margin compression.

Outlook

Management raised full-year 2026 Adjusted EBITDA guidance to $23.6-$28.6 million from prior $20.6-$28.0 million, on slightly lower revenue guidance of $187-$195 million (14-18% YoY growth). Q3 2026 revenue is guided to $49.2-$50.6 million. They expect sequential revenue growth and continued share repurchases.