TELOS CORP (TLS) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended June 30, 2026. Telos Corporation is a provider of cyber, cloud, and enterprise security solutions, with approximately 92% of revenue derived from U.S. federal government contracts. The company operates two segments: Security Solutions and Secure Networks.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Total Revenue | $47.7 million | $36.0 million | $95.5 million | $66.6 million |
| Gross Profit | $16.7 million | $11.9 million | $34.1 million | $24.1 million |
| Gross Margin | 35.0% | 33.2% | 35.7% | 36.2% |
| Operating Income | $0.3 million | ($9.9 million) | $1.8 million | ($18.9 million) |
| Net Income | $0.7 million | ($9.5 million) | $2.7 million | ($18.1 million) |
| Diluted EPS | $0.01 | ($0.13) | $0.03 | ($0.25) |
| Cash from Operations (YTD) | $17.5 million (vs. $13.1 million YTD 2025) | |||
| Cash & Equivalents | $50.6 million (as of June 30, 2026) | |||
| Working Capital | $56.2 million | |||
| Debt | No borrowings under $15.0M revolving credit facility; $6.6M in lease obligations. |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 32.7% year-over-year in Q2, driven by a 43.7% surge in the Security Solutions segment due to the expansion of large programs in Telos ID.
- Profitability Turnaround: The company returned to profitability, reporting net income of $0.7 million compared to a net loss of $9.5 million in the prior year quarter. Operating expenses decreased 24.9% year-over-year, primarily due to reduced stock-based compensation and restructuring efforts.
- Segment Divergence: While Security Solutions grew significantly, the Secure Networks segment revenue declined 69.0% year-over-year due to the ramp-down of legacy programs without immediate backfill.
- Share Repurchases: The company repurchased approximately 1.0 million shares in Q2 at an average price of $4.50, utilizing $4.7 million of its authorization.
Outlook, Risks, and Management Commentary
- Backlog: As of June 30, 2026, remaining performance obligations (funded backlog) totaled approximately $56.5 million, with 98% expected to be recognized within the next 12 months.
- Liquidity: Management maintains a strong liquidity position with $50.6 million in cash and access to a $15.0 million revolving credit facility (with a $15.0 million expansion option) maturing in December 2026. A new factoring agreement allows for the sale of up to $10.0 million in receivables.
- Risks: The company faces concentration risk with 92% of revenue from the U.S. federal government. Risks include budgetary uncertainty, leadership turnover within the government, and potential delays in sales cycles. Geopolitical volatility (e.g., Middle East conflict) is monitored for potential supply chain or economic impacts.
- Restructuring: The company is executing a 2025 restructuring plan to streamline operations. Cumulative restructuring expenses incurred to date are $1.5 million, with an accrual of $0.7 million remaining as of June 30, 2026.
Investor Verification Checklist
- Verify the sustainability of the 43.7% growth in the Security Solutions segment and the specific contract terms driving Telos ID expansion.
- Monitor the Secure Networks segment for signs of stabilization or new contract wins to offset the 69% revenue decline.
- Review the impact of the reduced stock-based compensation on future expense guidance, as this was a primary driver of the Q2 margin improvement.
- Assess the company's ability to maintain liquidity given the significant cash outflows for share repurchases ($6.9 million YTD) and tax withholdings on equity awards ($7.6 million YTD).
- Confirm the status of the $56.5 million backlog and the timing of revenue recognition to ensure it aligns with management's 12-month projection.