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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").

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.

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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.

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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 15 – 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.

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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.

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.

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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.

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

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

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.

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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.

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

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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.

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.

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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

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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.

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.

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)

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.

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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.

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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.

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						—

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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.

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