Telos (NASDAQ:TLS) executives highlighted “another strong quarter” and what they described as an “exceptional finish” to 2025 during the company’s fourth-quarter earnings call, pointing to rapid revenue growth, improving profitability, strong cash generation, and continued capital return through share repurchases. Management also issued 2026 guidance calling for another year of double-digit revenue growth and Adjusted EBITDA margin expansion, while noting expected gross margin pressure driven largely by revenue mix and accounting-related cost recognition.
Fourth-quarter results exceeded guidance as Telos ID ramp continued
Chief Financial Officer Mark Bendza said Telos exceeded its guidance across key fourth-quarter metrics, driven primarily by strong execution in Telos ID and the ramp of large programs. Fourth-quarter revenue increased 77% year-over-year to $46.8 million, above the company’s guidance range of $44.0 million to $46.3 million.
Adjusted operating expenses came in about $1 million better than guidance assumptions, according to Bendza, supporting profitability. Adjusted EBITDA totaled $7.3 million, above the company’s $4.0 million to $5.7 million guidance range, with an Adjusted EBITDA margin of 15.6%.
Cash flow was also a focus. Operating cash flow was $8.0 million for the quarter, and free cash flow was $6.3 million, representing a free cash flow margin of 13.4%. Bendza attributed the performance to working capital initiatives, revenue growth, and the company’s gross margin profile.
Restructuring charge and goodwill impairment weighed on GAAP results
During the fourth quarter, Telos approved a company-wide restructuring plan intended to streamline operations and position the business for growth and Adjusted EBITDA margin expansion in 2026. The restructuring plan resulted in a $1.5 million charge during the quarter, including approximately $500,000 in cost of sales.
Separately, management said its review of intangible assets led to a $14.9 million non-cash goodwill impairment within the Secure Networks segment. Bendza said the impairment represented a full write-off of the segment’s goodwill and reflected a decline in contract backlog as several large programs reached completion. He added that Secure Networks remains part of the business development pipeline and that the company continues pursuing new contracts in that segment.
In total, the restructuring and impairment items produced a $16.4 million charge in the quarter.
Full-year 2025: revenue up 52%, profitability and cash generation improved
Bendza characterized 2025 as an “exceptional year” despite what he called a challenging macro environment within the U.S. federal government. Full-year revenue increased 52% to $164.8 million, driven by new program wins in 2024 and 2025 and the continued ramp of the TSA PreCheck program.
Telos also cited improvements in operating efficiency. Cash operating expenses declined by $8 million, or nearly 12%, reflecting an expense management initiative launched at the end of 2024. Adjusted EBITDA was $18.1 million, a $27.8 million improvement year-over-year, and Adjusted EBITDA margin expanded nearly 20 percentage points to 11%. Bendza said incremental adjusted EBITDA margin was 49.1%, meaning the company generated more than 49 cents of additional adjusted EBITDA for each dollar of revenue growth.
Free cash flow for 2025 was $21.3 million, representing a $61 million improvement year-over-year, with a free cash flow margin of 12.9%. The company also repurchased $13.6 million of stock during the year, buying back approximately 4.3% of outstanding shares at an average price of $4.38 per share.
2026 outlook calls for double-digit growth; margins pressured by mix but EBITDA expected to expand
For 2026, Telos forecast revenue of $187 million to $200 million, representing expected growth of 14% to 21% year-over-year. Bendza said substantially all of the forecast reflects revenue from existing programs, with the revenue range primarily driven by the third-party hardware and software component of the IT GEMS program and the confidential IT security work Telos is performing for the federal government.
Telos forecast cash gross margin of approximately 37% to 39.5%, lower than 2025, primarily due to revenue mix and the timing of certain prepaid expense recognition in cost of sales. Bendza later told analysts that the third-party hardware and software content within IT GEMS is the lowest-margin revenue stream in the portfolio and is growing year-over-year, creating a dilutive impact. He also pointed to “meaningful” prepaid TSA PreCheck program expenses being recognized through cost of sales over a relatively short period, which he described as creating “artificial gross margin pressure” and amounting to “a couple hundred basis points” in 2026.
Despite the gross margin outlook, Telos expects operating leverage. The company forecast cash operating expenses to be $1.5 million to $4 million lower year-over-year, reflecting the restructuring and expense management plan approved in the fourth quarter. Based on those assumptions, Telos forecast Adjusted EBITDA of $20.6 million to $28.0 million, an Adjusted EBITDA margin of 11% to 14%.
For the first quarter of 2026, Telos forecast revenue of $44 million to $45 million, representing 44% to 47% year-over-year growth, with cash gross margin expected to be over 39%. The company guided to Adjusted EBITDA of $4.5 million to $5.0 million, an Adjusted EBITDA margin of 10.2% to 11.1%.
Product and pipeline commentary: Xacta.ai, TSA PreCheck momentum, and award timing shifts
Chairman and CEO John B. Wood said the company’s Security Solutions segment now represents over 90% of total revenue and described momentum as strong. He highlighted Xacta, the company’s governance, risk management, and compliance platform, and said demand for automated GRC solutions is increasing as customers seek machine-readable datasets for continuous compliance and risk information. Wood noted the launch of Xacta.ai during the year and said 400 Xacta.ai licenses have been sold to two major federal government customers, with positive initial prospect response. In response to an analyst question, Wood said the company plans to target existing Xacta customers first and described “several tens of millions of opportunities,” adding that customers could see as much as a 90% reduction in time and effort to obtain an Authority to Operate if outcomes match internal testing.
Wood also reiterated that Telos ID remains a growth driver, pointing to TSA PreCheck enrollment ramping throughout the year amid strong travel demand and broader expansion across identity and biometric offerings. Bendza added in Q&A that TSA PreCheck transaction volumes have been trending well since November and that the company has seen market share gains.
On the pipeline, Wood said it remains strong at over $4.2 billion, but noted a shift in awards “to the right” tied to the government shutdown, funding constraints, and more detailed government review of bids. Executive Vice President Mark Griffin told analysts that about 20% of the pipeline’s value is in the first half of 2026 from an award perspective, and later said there are 64 opportunities expected to be awarded in 2026, with 34 of those in the first half of the year. Griffin said the company expects most of those awards to come by around June, and that revenue contribution would likely be modest in 2026 before ramping further in 2027.
Telos also emphasized capital return, with Bendza noting the board recently increased share repurchase authorization from $50 million to $75 million to support ongoing repurchases.
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.
