What Telos (TLS) Said on Its Q3 Earnings Call

Key Points

• Telos beat third-quarter forecasts with revenue of $55.2 million and adjusted EBITDA of $10.6 million, then raised its 2026 outlook to $198.2 million–$200.7 million in revenue and $32.3 million–$34.1 million in adjusted EBITDA.
• New Information Assurance wins added $58 million in Xacta and services bookings, expected to generate about $6 million of revenue in 2026 and $20 million in 2027. The company expects these gains and other opportunities to offset much of a projected $32 million 2027 revenue decline as it phases out low-margin software resale.
• Removing the resale business is expected to improve gross margin by about 600 basis points on a full-year run-rate basis; Telos also cited potential further margin improvement from TSA PreCheck in the second half of 2027.

Telos NASDAQ: TLS raised its 2026 revenue and adjusted EBITDA outlook after third-quarter results exceeded its forecasts, driven by stronger-than-expected performance in its identity business and higher-margin programs.

The cybersecurity and identity services company reported revenue of $55.2 million, up 7% from a year earlier and above its guidance range of $49.2 million to $50.6 million. Adjusted EBITDA reached $10.6 million, exceeding its forecast of $6 million to $6.8 million and marking its highest quarterly level since its 2020 initial public offering, Chief Financial Officer Mark Bendza said.

The call was the first for President and CEO Mark Griffin in his new role. Griffin said he does not anticipate immediate changes to the company’s strategy, citing momentum in Telos ID and its Xacta cybersecurity products.

Higher Full-Year Outlook

Telos raised its 2026 revenue guidance to $198.2 million to $200.7 million, compared with its original range of $187 million to $200 million. Bendza attributed performance against the original forecast primarily to new Information Assurance business wins and stronger-than-expected TSA PreCheck transaction volumes.

The company also increased its full-year adjusted EBITDA outlook to $32.3 million to $34.1 million, above its original range of $20.6 million to $28 million. Bendza cited revenue near the top of the original range, higher cash gross margins on fixed-price programs and a favorable revenue mix, partly offset by higher operating expenses.

For the fourth quarter, Telos projected revenue of $47.5 million to $50 million, representing year-over-year growth of 2% to 7%. It forecast adjusted EBITDA of $7 million to $8.8 million and a cash gross margin of approximately 43% to 44.5%.

In the third quarter, GAAP gross margin was 37.9% and cash gross margin was 43.1%. Adjusted EBITDA margin was 19.2%. Operating cash flow totaled $9.4 million, while free cash flow was $7.4 million, marking the seventh consecutive quarter in which free cash flow margin exceeded 12%.

Telos spent $5.7 million during the quarter to repurchase more than 1.2 million shares at an average price of $4.59 each, Bendza said.

Xacta Wins and 2027 Headwind

New Information Assurance wins represent $58 million of net new Xacta and professional services bookings, according to Bendza. Telos expects those bookings to generate approximately $6 million in revenue in 2026 and $20 million in 2027, with normalized margins.

Griffin said the awards are recurring in nature rather than one-time deals. Many customers are adding the Xacta.ai component to existing Xacta products, he said, pointing to demand for automation and efficiency. Bendza said the bookings represent new revenue rather than renewal value.

The CEO said the recent Xacta wins were separate from pending proposals the company had discussed on previous calls. Telos expects decisions on those proposals in the coming months; Bendza said they could contribute meaningfully to 2027 revenue and profit.

That potential growth will face a headwind from the planned phaseout of low-margin third-party software resale beginning in the fourth quarter. Bendza forecast a $32 million year-over-year revenue reduction in 2027, with only a modest effect on profit because the business carries a single-digit gross margin.

Asked whether Telos could still increase revenue in 2027, Bendza said the company has “a really good shot” at growth, with Information Assurance wins offsetting a substantial portion of the headwind and additional opportunities in new business and pending proposals. Telos did not provide formal 2027 guidance.

Bendza said eliminating the IT GEMS third-party software revenue should lift gross margin by about 600 basis points on a full-year run-rate basis. He also expects roughly 400 basis points of sequential margin improvement from TSA PreCheck in the second half of 2027 compared with the first half. Other factors could affect margins in the meantime, he cautioned.

Leadership Transition

Executive Chairman John Wood said he had asked Griffin, with whom he has worked for more than 35 years, to take the CEO role. Wood said health issues were among the personal factors behind his decision to move to the chairman position, adding that he plans to remain a substantial shareholder.

Griffin said Wood would continue to provide guidance on the product roadmap, customer relationships and long-term sales strategy. Griffin identified customer execution, market expansion, operational performance and profitable growth among his priorities.

About Telos (NASDAQ:TLS)

Telos Corporation NASDAQ: TLS is a cybersecurity and information technology company that provides secure technology solutions to government and commercial organizations. The company focuses on helping customers protect critical systems, data and digital identities while supporting secure operations in complex and highly regulated environments.

Its offerings include cybersecurity consulting, cloud security, secure networking, identity and access management, risk management and governance solutions.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.