TELOS CORP (TLS)·Q3 2025 Earnings Summary

Executive Summary

• Telos delivered a standout quarter: revenue grew 116% year-over-year to $51.4M, above guidance, driven by Telos ID programs; Adjusted EBITDA rose to $10.1M with a 19.6% margin, and operating cash flow was $9.1M .
• The company launched Xacta.ai in October, citing up to 93% time savings in GRC workflows and secured its first enterprise customer; TSA PreCheck expansion surpassed 500 enrollment locations, now operating at scale nationwide .
• Management raised the second-half outlook: at midpoint, H2 revenue up $5.6M, Adjusted EBITDA up $5.2M, and Adjusted EBITDA margin ~+470 bps versus prior commentary; Q4 guidance calls for $44.0–$46.3M revenue and $4.0–$5.7M Adjusted EBITDA .
• Versus S&P Global consensus, Q3 revenue and adjusted EPS were beats: $51.44M vs $45.70M and $0.09 vs $0.005, respectively; the upside was fueled by Telos ID outperformance and stronger cash gross margins* .
  *Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• “Revenue grew 116% in the quarter to $51.4 million, above our guidance range… Telos ID drove the outperformance” .
• Cash gross margin of 44.8% and GAAP gross margin of 39.9% exceeded guidance, benefiting from mix and stronger margin delivery across all lines of business .
• Robust cash generation and capital returns: operating cash flow $9.1M, free cash flow $6.6M (12.8% margin), and $3.6M deployed to repurchase ~584K shares at a $6.23 average price .

What Went Wrong

• Sequential margin mix expected to trend lower in Q4 due to normal quarterly fluctuations in revenue mix (CFO caution), despite strong Q3 profitability .
• Government shutdown created administrative delays (awards stalled, renewals/collections sliding right), modest P&L impact but timing risk into early 2026 awards cadence .
• Despite strong Adjusted EBITDA, GAAP net loss persisted at $(2.1)M, reflecting ongoing stock-based compensation and operating expense levels; Secure Networks continues to contract year-over-year .

Financial Results

Headline Results vs Prior Periods

Q3 Results vs S&P Global Consensus

• Q3 revenue and adjusted EPS were both beats versus consensus. Management attributed upside to Telos ID strength and higher-than-forecast cash gross margins across businesses .
  *Values retrieved from S&P Global.

Segment Breakdown

KPIs

Guidance Changes

Note: Management specified the second-half (H2) 2025 midpoint increases vs August guidance commentary: +$5.6M revenue, +$5.2M Adjusted EBITDA, and ~+470 bps Adjusted EBITDA margin . No explicit prior numeric ranges for Q4/FY were disclosed earlier.

Earnings Call Themes & Trends

Management Commentary

• CFO on outperformance: “Revenue grew 116% in the quarter to $51.4 million, above our guidance range… Adjusted EBITDA was $10.1 million… Operating cash flow in the quarter was $9.1 million. Free cash flow was $6.6 million” .
• CEO on Xacta.ai: “We launched our new Xacta.ai product in early October… documented potential improvements in efficiencies up to 93% across cyber GRC tasks” . The product announcement corroborates reductions from 4–6 months to nine days and 93% overall time savings .
• CFO on H2 outlook: “At the midpoint… second half revenue is now forecasted to be higher by $5.6 million… Adjusted EBITDA… higher by $5.2 million… margin… approximately 470 basis points higher” .

Q&A Highlights

• Shutdown impact: Awards and administrative processes (collections, renewals) delayed; impact modest and reflected in Q4 range. Pipeline remains multi‑billion with several tens of millions of 2026 opportunity .
• Xacta.ai adoption: Initial enterprise sale ahead of shutdown; strong installed-base interest; budgets/timing pushed right but management expects acceleration post-shutdown .
• TSA PreCheck scale: Achieved and exceeded 500 locations; focus shifts to optimizing network coverage and partnerships; upside over next few years .
• 2026 baseline and margin: Existing programs ~$180M revenue; solutions growth offsetting secure networks contraction. Target low double-digit Adjusted EBITDA margin at baseline, with upside depending on incremental revenue/mix and growth investment .

Estimates Context

• Q3 revenue and adjusted EPS exceeded S&P Global consensus: $51.44M vs $45.70M and $0.09 vs $0.005, respectively; EPS estimates based on two contributors and revenue based on five contributors* .
• Implication: Street likely raises Q4 and FY revenue/adjusted EPS and narrows margin expectations upward given Telos ID performance and stronger cash gross margins .
  *Values retrieved from S&P Global.

Key Takeaways for Investors

• Strong execution in Telos ID programs produced a broad beat: revenue, margins, Adjusted EBITDA, and cash flow all exceeded internal guidance; expect normalization of margins in Q4 due to mix .
• The launch of Xacta.ai adds an incremental software growth vector with compelling ROI (up to 93% time savings); installed-base upsell is the near-term go-to-market, with timing tied to federal budget cycles .
• TSA PreCheck has reached nationwide scale (>500 locations), creating sustained throughput and operating leverage opportunity into 2026 .
• H2 guidance raised meaningfully; investors should watch Q4 delivery versus the $44.0–$46.3M revenue and $4.0–$5.7M Adjusted EBITDA ranges, and monitor shutdown normalization .
• Cash generation is improving: Q3 CFO $9.1M and FCF $6.6M funded continued buybacks; this supports capital returns while enabling growth investment .
• 2026 setup: ~$180M baseline from existing programs, several tens of millions potential from pipeline and Xacta.ai; margin trajectory depends on mix and reinvestment choices .
• Near-term catalyst path: continued Telos ID momentum, Xacta.ai wins post-shutdown, and Q4 print versus raised guidance should drive estimate revisions and stock narrative around margin durability .