TELOS CORP

For the period ended Mar 31, 2026. Filed May 11, 2026.

About this filing

A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Mar 31, 2026 · Filed May 11, 2026

TLS$7.17+48.8%Stored close · as of Nov 9, 2026

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Contents

Item 2. Results of Operations

Results of Operations

Table MD&A 1: Consolidated Results of Operations
	For the Three Months Ended
	March 31, 2026	March 31, 2025	Dollar Change
(dollars in thousands)
Revenue	$47,742	$30,616	$17,126
Cost of sales	30,367	18,434	11,933
Gross profit	17,375	12,182	5,193
Gross margin	36.4%	39.8%
Operating expenses	15,920	21,204	(5,284)
Operating expenses as percentage of revenue	33.3%	69.3%
Operating income (loss)	1,455	(9,022)	10,477
Other income	697	561	136
Interest expense	(111)	(147)	36
Income (loss) before income taxes	2,041	(8,608)	10,649
(Provision for) benefit from income taxes	(18)	4	(22)
Net income (loss)	$2,023	$(8,604)	$10,627

Consolidated Results

Our business segments have different factors driving revenue fluctuations and profitability. The discussion of the changes in our revenue and profitability is covered in greater detail in the following section, "Segment Results." We generate revenue from the delivery of products and services to our customers. Cost of sales, for both products and services, consists of labor, materials, subcontracting costs and an allocation of indirect costs.

Operating expenses decreased by $5.3 million, or 24.9%, in the first quarter of 2026, compared to the same period in 2025. Research and development ("R&D") expenses slightly declined by $0.2 million, or 13.6%, in the first quarter of 2026, compared to the same period in 2025. Selling, general and administrative ("SG&A") expenses decreased by $5.1 million, or 25.8%, in the first quarter of 2026, compared to the same period in 2025, primarily due to lower stock-based compensation expenses. Excluding stock-based compensation, reductions in R&D and SG&A expenses were due to ongoing cost discipline and restructuring. As a percentage of revenue, overall operating expenses were 33.3% and 69.3% for the three months ended March 31, 2026, and 2025, respectively.

Other income increased by 24.2% in the first quarter of 2026, compared to the same period in 2025, primarily due to the refund in the current quarter of a prior year VAT claim that was previously determined to be uncollectible.

Segment Results

The accounting policies of each business segment are the same as those followed by the Company as a whole. Management evaluates business segment performance based on gross profit.

Table MD&A 2: Security Solutions Segment - Financial Results
	For the Three Months Ended
	March 31, 2026	March 31, 2025	Dollar Change
(dollars in thousands)
Revenue	$45,970	$25,818	$20,152
Cost of sales (excluding depreciation and amortization)	26,514	13,257	13,257
Depreciation and amortization	2,593	1,501	1,092
Total cost of sales	29,107	14,758	14,349
Gross profit	$16,863	$11,060	$5,803
Gross margin	36.7%	42.8%

For the quarter ended March 31, 2026, the Security Solutions segment revenue increased by 78.1%, compared to the same period in 2025, due to the expansion of multiple large programs in Telos ID.

For the quarter ended March 31, 2026, the Security Solutions segment gross profit increased by 52.5%, compared with the same period in 2025, due to higher segment revenues. Segment gross margin decreased from 42.8% in 2025 to 36.7% in 2026, primarily due to revenue mix and higher non-cash infrastructure costs.

Table MD&A 3: Secure Networks Segment - Financial Results
	For the Three Months Ended
	March 31, 2026	March 31, 2025	Dollar Change
(dollars in thousands)
Revenue	$1,772	$4,798	$(3,026)
Cost of sales (excluding depreciation and amortization)	1,257	3,674	(2,417)
Depreciation and amortization	3	2	1
Cost of sales	1,260	3,676	(2,416)
Gross profit	$512	$1,122	$(610)
Gross margin	28.9%	23.4%

For the quarter ended March 31, 2026, the Secure Networks segment revenue decreased by 63.1%, compared to the same period in 2025, primarily due to the continued ramp down of several programs within the portfolio without corresponding new business wins to backfill completed programs.

For the quarter ended March 31, 2026, the Secure Networks segment gross profit decreased by 54.4%, compared with the same period in 2025, due to lower revenue. By contrast, segment gross margin expanded from 23.4% in the first quarter of 2025 to 28.9% in the first quarter of 2026, primarily due to program mix.

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