Telos NASDAQ: TLS reported a stronger-than-expected first quarter for fiscal 2026, with revenue and adjusted EBITDA exceeding the company’s guidance as growth in TSA PreCheck enrollment activity and execution across large programs helped lift results.
Executive Vice President and Chief Financial Officer Mark Bendza said the quarter reflected “continued transformation of Telos into a more scalable, profitable, and cash-generative business.” He also addressed the company’s April 29 announcement that Chairman and CEO John Wood is on a medical leave of absence. Bendza said Independent Director Fred Schaufeld has assumed the role of chairman, while Bendza, General Counsel Hutch Robbins and Executive Vice President of Security Solutions Mark Griffin have jointly taken on Wood’s responsibilities on an interim basis.
“This interim leadership structure is functioning as intended, and our teams remain fully aligned and focused on execution,” Bendza said, adding that customer and partner engagement remains strong and program execution is uninterrupted.
Revenue Rises 56% as Margins Improve
Telos reported first-quarter revenue of $47.7 million, up 56% from the prior-year period and above its guidance range of $44 million to $45 million. Bendza said the outperformance was supported by strong TSA PreCheck enrollment activity, continued execution across core programs and benefits from efficiency initiatives.
GAAP gross margin was 36.4%, while cash gross margin was 42.3%, both above company expectations. Bendza attributed the margin performance to a favorable mix of higher-margin revenue and continued operational discipline, while noting that gross margins can fluctuate from quarter to quarter based on revenue mix.
Adjusted operating expenses were approximately $400,000 better than guidance and declined $1.2 million year over year, helped by cost discipline and a restructuring plan approved in the fourth quarter. Adjusted EBITDA was $7.9 million, above the company’s guidance range of $4.5 million to $5 million. Adjusted EBITDA margin improved to 16.5%, compared with 1.2% in the year-earlier quarter.
In response to an analyst question about Security Solutions growth, Bendza said the strength was broad-based and included several programs within the Telos ID business. He specifically cited TSA PreCheck, the DMDC program, which the company also refers to as IT Gems, and confidential IT security work performed for the federal government.
Cash Flow Supports Share Repurchases
Telos generated operating cash flow of $8.7 million and free cash flow of $6.4 million in the quarter, representing a 13.4% free cash flow margin. Bendza said it was the company’s fifth consecutive quarter with a free cash flow margin above 12%.
During the quarter, Telos repurchased $2.2 million of stock, or more than 500,000 shares, at an average price of $4.25 per share. Bendza said the company intends to accelerate repurchases in the second quarter, citing the durability of cash generation and confidence in the long-term value of the business.
In the Q&A session, Bendza said the company is managing to a cash balance of approximately $50 million and intends to use free cash flow for share repurchases while maintaining that balance. He said he expects free cash flow margin to remain in the “lower double digit” range.
Second-Quarter Guidance and Full-Year Outlook
For the second quarter, Telos expects revenue of $44 million to $46 million, representing year-over-year growth of 22% to 28%. The company expects cash gross margin of approximately 39% and adjusted operating expenses to decline by roughly $1.3 million year over year. Adjusted EBITDA is forecast at $5 million to $6 million, implying a margin of 11.4% to 13%.
Telos reaffirmed its full-year revenue and adjusted EBITDA outlook. Bendza said the company issued its full-year outlook less than two months ago and wants an additional quarter of performance before revising those figures. He said Q1 performance reinforces confidence in the company’s trajectory, but described the approach as measured and disciplined.
Asked whether CEO John Wood’s medical leave affected the guidance approach, Bendza said it did not create disruption. “Strategic priorities remain unchanged,” he said. “We have our marching orders, and we’re executing the plan.”
TSA PreCheck and Xacta.ai Remain Areas of Focus
Bendza said TSA PreCheck remains an important program and growth driver for Telos. Asked whether higher fuel prices or travel costs had affected demand, he said the company had not seen an impact and that enrollments were performing well year over year in both the first quarter and so far in the second quarter.
On seasonality, Bendza said Telos typically sees TSA PreCheck enrollments move lower in the second half of the year, a trend observed over the past couple of years. He said that remains the company’s base-case expectation for 2026.
Asked about the company’s TSA PreCheck footprint, Bendza said Telos has more growth available through optimizing volume in existing locations and exploring additional partnerships in other parts of the country. He also said the company is testing another pilot with a modest number of locations through a separate partner.
On Xacta, Bendza said software contribution was approximately flat year over year. Griffin said Telos has sold and installed more than 400 licenses of Xacta.ai and has seen interest among its existing install base. He said the company has installed and operated live production pilots at multiple large intelligence community agencies, Department of War elements and in the banking community. Griffin said Telos expects additional sales opportunities within the intelligence community, federal civilian government and Department of War, and is anticipating numerous requests for proposals later in the year.
Pipeline Includes Nearly $500 Million in Submitted Proposals
Bendza said Telos maintains a multibillion-dollar pipeline of potential opportunities and currently has outstanding proposals representing nearly $500 million in total contract value. He said the company expects government award decisions on those opportunities during the second half of 2026, though timing remains subject to customer decisions and requirements.
The submitted proposals span both the Security Solutions and Secure Networks segments, with a heavy concentration in Security Solutions. Bendza said a “good chunk” of the pending proposals align with work where Telos believes it is well positioned and has relevant experience. He noted that two proposals are around $90 million each, while others range from roughly $3 million to a few tens of millions. He said many of the opportunities are shorter in duration, with the majority around two years.
Asked whether second-half awards could affect 2026 revenue, Bendza said some proposals are front-end loaded. If one or two are awarded in the second half and begin on time, they could provide “meaningful contribution” during the year, he said.
Bendza closed the call by saying Telos’ first-quarter results showed continued progress in building a more profitable, cash-generative and scalable business.
About Telos NASDAQ: TLS
Telos Corporation NASDAQ: TLS is a provider of cybersecurity, secure communications, and enterprise IT solutions designed to help organizations manage risk, accelerate mission delivery and maintain compliance. The company's core business activities encompass risk management and compliance automation, secure mobility, zero-trust architecture, cloud security, and identity and access management. Telos serves a diverse customer base that includes U.S. federal agencies, the Department of Defense, intelligence communities and select commercial enterprises.
Among its flagship offerings is the Xacta® platform, which automates assessment and authorization for IT systems and cloud environments, helping clients streamline compliance with NIST, FedRAMP and other frameworks.
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