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DATE
May 11, 2026, 9:30 a.m. ET
CALL PARTICIPANTS
- Chief Financial Officer and Executive Vice President — G. Mark Bendza
- Executive Vice President of Security Solutions — Mark D. Griffin
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TAKEAWAYS
- Total Revenue -- $47.7 million, up 56%, surpassing the guidance range of $44 million to $45 million.
- GAAP Gross Margin -- 36.4%, above internal expectations, driven by higher-margin revenue mix and operational discipline.
- Cash Gross Margin -- 42.3%, reflecting margin expansion from favorable mix and cost controls.
- Adjusted Operating Expenses -- Lower by $1.2 million year over year, and $400 thousand better than guidance.
- Adjusted EBITDA -- $7.9 million, above guidance of $4.5 million to $5 million.
- Adjusted EBITDA Margin -- 16.5%, a substantial increase from 1.2% previously.
- Operating Cash Flow -- $8.7 million, supporting ongoing capital deployment.
- Free Cash Flow -- $6.4 million, representing a 13.4% margin and marking the fifth consecutive quarter above 12%.
- Share Repurchases -- $2.2 million, totaling over 500,000 shares at $4.25 per share, with plans to accelerate in the next quarter.
- Fiscal Q2 Revenue Guidance -- $44 million to $46 million, implying 22%-28% growth.
- Fiscal Q2 Cash Gross Margin Guidance -- Approximately 39% projected.
- Fiscal Q2 Adjusted Operating Expenses -- Expected to decline by about $1.3 million.
- Fiscal Q2 Adjusted EBITDA Guidance -- $5 million to $6 million, representing a margin of 11.4%-13%.
- Fiscal Q2 Share Repurchase Plan -- Intention to accelerate buybacks funded by ongoing cash flow.
- Full-Year Guidance -- Revenue and Adjusted EBITDA outlook reaffirmed, with an increase to the low end of full-year cash gross margin expectations.
- Pipeline of Outstanding Proposals -- Nearly $500 million in total contract value, mainly within Security Solutions, with government award decisions expected in 2026.
- Program Performance Drivers -- TSA PreCheck, DMDC program (IP GEMS), and confidential IT federal security work drove gains in Telos ID.
- Exact AI Deployment -- Over 400 licenses sold and installed, primarily in federal and intelligence markets, with production pilots underway and additional orders anticipated in the year.
- TSA PreCheck Channel Expansion -- Ongoing optimization and planned new partnerships beyond announced university and airport pilots.
- Program Award Concentration -- Two outstanding proposals at approximately $90 million each; remaining contracts mostly in the tens of millions with the majority being shorter, two-year durations.
- Cash Balance Target -- Guided to manage around $50 million as ongoing buybacks are executed.
- Seasonality Expectation (TSA PreCheck) -- Enrollment typically lower in the second half, consistent with recent years.
- Free Cash Flow Margin Outlook -- Management expects continued performance in the “lower double-digit range.”
- Interim Leadership Structure -- CFO Bendza, General Counsel Hutch Robbins, and EVP Griffin have jointly assumed CEO duties, following John B. Wood’s medical leave of absence, without reported business disruption.
SUMMARY
Telos Corporation (TLS 2.68%) reported a significant revenue increase and exceeded all fiscal first-quarter guidance ranges, highlighting operational and margin improvements attributed to large program execution within the Security Solutions and Telos ID segments. Management reaffirmed its full-year financial outlook despite outperformance, noting that “an additional quarter of performance will provide even greater visibility into full-year trends.” Guidance for fiscal second quarter continues to forecast strong growth, with plans for increased share repurchases powered by consistent cash generation.
- The company maintains a nearly $500 million pipeline of government and commercial proposals, with key award decisions expected to occur during 2026.
- Management reports no “disruption in the business” despite a temporary change in executive leadership.
- Exact AI’s market adoption was steady year over year, yet live pilots and market engagements suggest potential order flow later this year in the intelligence and federal sectors.
- Revenue from awarded proposals could be front-end loaded, potentially driving contributions in the second half if programs commence promptly upon award.
- The company plans to continue deploying free cash flow for share repurchases while maintaining a target cash balance of approximately $50 million.
INDUSTRY GLOSSARY
- DMDC: Defense Manpower Data Center, a U.S. Department of Defense entity related to identity and personnel data management.
- IP GEMS: Identity Protection Global Enterprise Management System, an identity management program referenced within Telos ID initiatives.
Full Conference Call Transcript
G. Mark Bendza will begin with remarks on our first quarter results and full-year outlook. We will then open the line for Q&A, where Mark D. Griffin will also join us. The first quarter financial results were issued earlier today and are posted on the Telos Corporation Investor Relations website where this call is being simultaneously webcast. Additionally, we have provided presentation slides on our Investor Relations website. Before we begin, we want to emphasize that some of our statements on this call, including all of those relating to 2026 company performance, plans, and operations, are forward-looking statements and are made under the safe harbor provisions of the federal securities laws.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ for various reasons, including the factors described in today’s financial results summary and the comments made during this conference call and in our SEC filings. We do not undertake any duty to update any forward-looking statements. In addition, during today’s call, we will discuss non-GAAP financial measures we believe are useful as supplemental and clarifying measures to help investors understand Telos Corporation’s financial performance. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our first quarter results summary and on the Investor Relations portion of our website. Please also note that financial comparisons are year-over-year unless otherwise specified. The webcast replay of this call will be available on our company website under the Investor Relations link. With that, I will turn the call over to G. Mark Bendza. Thank you, and good morning, everyone.
G. Mark Bendza: Before we begin, I would like to address our April 29 announcement regarding our Chairman and CEO, John B. Wood. John is currently on a medical leave of absence, and we wish him a full and speedy recovery. In the interim, independent director Fred Schaufeld has assumed the role of Chairman of the Board. In addition, the company’s three executive vice presidents—General Counsel Hutch Robbins, EVP of Security Solutions Mark D. Griffin, and I—have jointly assumed John’s responsibilities to ensure seamless continuity of operations. This interim leadership structure is functioning as intended, and our teams remain fully aligned and focused on execution.
We continue to see strong engagement from our customers and partners, and program execution across the business remains uninterrupted. Our priorities for 2026 remain unchanged: delivering strong revenue growth, expanding adjusted EBITDA margins, generating robust cash flow, and continuing meaningful share repurchases. Our first quarter results reflect the continued transformation of Telos Corporation into a more scalable, profitable, and cash-generative business, and we made strong progress against each of these priorities during the quarter. With that, let us turn to slide three. We are pleased to report another strong quarter with results exceeding the high end of our guidance range.
Our outperformance was supported by strong TSA PreCheck enrollment activity, continued execution across our core programs, and the benefits of our ongoing efficiency initiatives. Total company revenue increased 56% year over year to $47.7 million, surpassing our guidance of $44 million to $45 million. GAAP gross margin was 36.4%, and cash gross margin was 42.3%, both exceeding our expectations due to a favorable mix of higher-margin revenue streams and continued operational discipline across the business. As a reminder, given the breadth of our revenue streams, gross margins will fluctuate quarter to quarter based on mix. On operating expenses, our continued focus on cost discipline, including the restructuring plan approved in Q4, drove strong profitability.
Adjusted operating expenses came in $400 thousand better than guidance and were down $1.2 million year over year. As a result, adjusted EBITDA exceeded the high end of our range, reaching $7.9 million versus guidance of $4.5 million to $5 million. Adjusted EBITDA margin was 16.5%, a significant increase from 1.2% in the prior-year period. Turning to cash flow, strong cash generation and disciplined working capital management remain key priorities. Operating cash flow was $8.7 million, and free cash flow was $6.4 million, representing a 13.4% free cash flow margin. This was our fifth consecutive quarter with a free cash flow margin above 12%.
This reflects the increasing efficiency and scalability of our operating model as well as disciplined company-wide working capital management. Our strong cash flow generation and liquid balance sheet provide us with flexibility to invest in growth initiatives while continuing to return capital to shareholders. During the quarter, we repurchased $2.2 million of stock, or over 500 thousand shares, at an average price of $4.25 per share. Given the durability of our strong cash generation and our confidence in the long-term value of the business, we intend to accelerate repurchases in the second quarter. Our capital allocation priorities remain consistent: invest in organic growth, maintain a strong balance sheet, and return capital to shareholders.
With that, let us turn to slide four to discuss our second quarter guidance and full-year outlook. For the second quarter, we expect revenue growth of 22% to 28% year over year, or $44 million to $46 million. We expect cash gross margin of approximately 39% and adjusted operating expenses to decline by roughly $1.3 million year over year. Adjusted EBITDA is expected to be between $5 million and $6 million, representing a margin of 11.4% to 13%. We also expect another quarter of strong cash flow, which we intend to deploy toward accelerated share repurchases.
Turning to the full year, our first quarter performance reinforces our confidence in the trajectory of the business and positions us well against our full-year objectives. At the same time, in alignment with our usual measured approach to guidance, we are reaffirming our revenue and adjusted EBITDA outlook. We issued our full-year outlook less than two months ago, and while we are encouraged by the momentum we are seeing, it remains early in the year and we believe an additional quarter of performance will provide even greater visibility into full-year trends.
Based on first quarter performance, we have updated certain assumptions within our full-year model, including raising the low end of our cash gross margin expectations to partially reflect the margin strength recognized during the first quarter. We will continue to evaluate our outlook as the year progresses and look forward to providing an update following second quarter results. Lastly, before I wrap up, I would like to spend a few minutes on growth and new business opportunities. Since 2024, we have significantly grown our top line largely through new business wins.
We continue to see strong customer engagement across our addressable markets and maintain a multibillion-dollar pipeline of potential opportunities, where we believe our capabilities are well aligned with customer priorities. Currently, we have proposals outstanding representing nearly $500 million in total contract value. Our government customers ultimately determine the final timing of awards and may modify award dates based on their own timelines and requirements. We currently expect the government to make award decisions on these opportunities during 2026. These submitted proposals span both our Security Solutions and Secure Networks segments, with a heavy concentration in Security Solutions. Beyond these submissions, we will continue to actively develop and selectively advance additional opportunities from our pipeline.
With that, let us wrap up on slide five. In summary, we delivered a strong start to the year, with 56% revenue growth, a 16.5% adjusted EBITDA margin, and a 13.4% free cash flow margin. Our second quarter guidance reflects continued momentum, and we are focused on executing large programs while securing new business opportunities. In addition, disciplined cost management and working capital efficiency are translating growth into strong profitability and cash flow. We also plan to continue returning capital to shareholders while maintaining a strong and flexible balance sheet. With that, Mark D. Griffin and I are happy to take questions. Operator, please open the line for Q&A. Thank you.
Operator: Thank you. Please press star 11 on your telephone. You will hear the automated message advising your hand is raised. We also ask that you please wait for your name and company to be announced before proceeding with your question. Our first question today is coming from the line of an analyst from Needham. Please go ahead.
Analyst: Hey, good morning. Thank you for taking our questions, and great to see the strength in Security Solutions this quarter and the press release notes that the expansion is primarily due to large programs and Telos ID. Is there any more color you can give on where you saw strength and the general market sentiment? And with the strength, why not take up the guide here? I know you mentioned wanting an extra quarter of visibility since it is still early in the year—totally understand that—but with John B. Wood taking the medical leave of absence, is there any extra embedded conservatism in the guide or a change in guidance philosophy with you taking the helm?
G. Mark Bendza: Hey, good morning. We had a great quarter, straight out of the gate for the year, across the company overall, both in terms of program execution as well as ongoing expense management. The larger programs we referred to primarily reside in our Telos ID business, and that cuts across a number of programs, including a good quarter in TSA PreCheck, our DMDC program—which we also refer to as IP GEMS—performed very well, and the body of work we refer to as confidential IT security work that we are performing for the federal government also had a good quarter. So it was really broad-based strength, both in terms of program management, expense management, and also cash flow.
Regarding guidance, first and foremost, our focus is on supporting John and wishing him a full recovery. Operationally, the transition has been very smooth. Hutch, Griff, and I have worked together for several years now—so for us, it is business as usual. Customer engagement, execution, and employee alignment all remain very strong. We are not seeing any disruption in the business, and strategic priorities remain unchanged. On guidance, it is a fair question. We are very pleased with the first quarter performance. The first quarter positions us really well against our full-year outlook, but we also want to remain disciplined about how we manage that outlook. We issued full-year guidance on March 16—less than two months ago.
It is only prudent to lock in an additional quarter of performance before we formally revise revenue and adjusted EBITDA estimates for the year. If you look back to 2023, we set guidance on the fourth quarter call, had a big beat in the first quarter and reaffirmed, then beat and raised in the second and third quarters, and beat again in the fourth. It is an approach that we think serves us well.
Operator: Thank you. One moment for the next question.
Analyst: Thanks for taking the question, and please pass along our best wishes for John. Can you comment a little bit on the environment for TSA PreCheck? Have increases in fuel prices and travel costs made any difference in terms of demand for enrollment, or do you think that is a risk? And secondly, can you talk about your expectations for seasonality in that business? Also, any comments about the software contribution from Exact in the quarter?
G. Mark Bendza: On PreCheck, it is an important program for us—one of several large programs within the company. We expect it to be an important growth driver for us for the year, as it was in the quarter. We have not seen any impact from higher fuel prices; as a matter of fact, enrollments are performing very well year over year, both in the first quarter and so far here in the second quarter. On seasonality, typically we see enrollments as being seasonally lower in the second half; that is a trend we have seen for the last couple of years, and our base case is we would expect that again this year. Regarding Exact, contribution was about flat year over year.
I will turn to Mark for additional color on Exact AI.
Mark D. Griffin: We have currently sold and installed over 400 licenses of Exact AI. We initiated interest and adoption within our existing install base and expect additional sales within the intelligence community, the federal civilian government, and Department of War elements. To date, we have installed and operated live production pilots at multiple large intelligence community agencies, Department of War elements, and in the banking community. In addition, we have participated in numerous market surveys and demonstrations with both executives and cybersecurity subject-matter experts within these stakeholder groups. In general, the response has been very strong, and we are anticipating numerous orders later in the year. We are bullish on the progress to date.
Operator: Thank you. One moment for the next question. Our next question is coming from the line of Nehal Sushil Chokshi of Northland. Your line is open.
Nehal Sushil Chokshi: Thank you, and congratulations on a great quarter. Our thoughts are with John as well. Questions on the pipeline: given that you are signaling strong confidence in the business with accelerating share buybacks, it sounds like that is twofold—one, the core businesses are performing well—but is it fair to say that the $500 million of pipeline award decisions that you expect to be made in 2026 have a higher probability of win rates than what you would typically assume for awards at that stage? When you refer to prime partners, is this inclusive of the DMDC prime partner?
And is there any bid that represents more than 10% of that $500 million of outstanding proposals that you expect to be awarded in 2026? Are these typically five-year contracts? Lastly, on TSA PreCheck—you are at 500 stores—are you near a maximal market share, or is there a lot more to go, and how will you get there? You announced a couple of new types of partnerships during the quarter—one through a university and one directly at an airport. Are there additional partnerships beyond those that you are contemplating?
G. Mark Bendza: A good chunk of the submitted and pending proposals are aligned to a body of work where we think we are well positioned, have a good track record, and are well aligned with our capabilities. It is a mission set that is newer for the government and one we have been involved in at a pretty early stage with our prime partners and the government, so we feel good about it. Ultimately, the government controls the timing of awards; our current estimate is that we will hear decisions in the second half, but again, timing is up to the government. On your prime partner question, this is a different set of proposals—separate from the DMDC prime partner.
Regarding concentration, there are two that are around $90 million, a couple that are smaller—maybe around $3 million—and the rest are in a similar size of a few tens of millions. These are generally a mix, but the lion’s share are shorter—about two years. On TSA PreCheck, there is more growth to be had. We see that through continuing to optimize volume in the locations we have opened today and by exploring partnerships in other parts of the country. Yes, we are contemplating additional partnerships beyond the ones announced. There is another pilot underway with a relatively modest number of locations that we are currently testing with another partner.
Operator: Thank you. One moment for the next question. Our next question is coming from the line of Rudy Grayson Kessinger of DA Davidson. Please go ahead.
Rudy Grayson Kessinger: Thanks for taking my questions, and my thoughts are with John as well. Putting aside the fact that you did not tweak the full-year guide, it looks like the second half implies Security Solutions growth in the high single digits and total revenue growth dipping into the low single digits. What is the likelihood that some of those new business awards in the second half would contribute meaningful revenue upside this year, or would anything awarded in the second half likely contribute revenue mostly in 2027? And on free cash flow, any color on expectations for the remainder of the year?
With the increased pace of buybacks, any further details you can provide on that relative to the pace of buybacks in Q1 or Q2 to Q4 last year?
G. Mark Bendza: We have a substantial portfolio of proposals that are submitted and pending award. If one or two of those are awarded in the second half and those programs start on time, there is a fair amount of revenue in a lot of those proposals that is front-end loaded in the first couple of months. So yes, we could get some meaningful contribution in the second half. On free cash flow, we delivered a 13.4% free cash flow margin this quarter—coincidentally the same as in the fourth quarter of last year—and it is our fifth consecutive quarter over 12%. I would expect free cash flow margin to continue in that lower double-digit range.
We are currently managing to a cash balance of approximately $50 million and will continue to do that. As we generate cash flow, our intention is to buy back stock with that free cash flow while managing to approximately a $50 million cash balance.
Operator: There are no more questions in the queue. I would like to turn the call back over to G. Mark Bendza for closing remarks. Please go ahead.
G. Mark Bendza: Thank you, operator, and thanks to everyone for joining us today. We are pleased with our strong start to the year and believe our results reflect continued progress in building a more profitable, cash-generative, and scalable business. We look forward to updating you next quarter. In the meantime, we hope to speak with many of you at the Needham Technology Conference on May 14 and the Northland Growth Conference on June 23. Thank you.
Operator: Thank you so much for joining today’s program. You may now disconnect.
