Telos
A small Virginia contractor that sells security-compliance software, cyber work and identity checks to the US government, and enrolls travellers in TSA PreCheck.
The scores
Growth2/4 ↓
Up 52% in 2025 after three falling years, on two programs; 2026 guided 14% to 18%, and $33M of resale leaves in 2027.
Business quality3/4 →
One of three PreCheck licences and Xacta orders renewed for years, but CLEAR enrolls at airports and the Pentagon owns eMASS.
Financial position4/4 ↑
Net cash of about $44M, no borrowing, and positive free cash flow for six quarters running.
Execution record2/4 ↑
Beat every guide since 2025, but revenue halved from 2021 to 2024 through three restructurings, and Secure Networks emptied.
Per share capture2/4 ↑
Stock pay was 18% of 2025 revenue and the count rose 2.7% in six months despite buybacks.
Potential2/4 →
Growth needs bids the government has not decided and a PreCheck share nobody publishes; the DMDC work rests on Deloitte's order.
Risk profile2/4 →
The DMDC order's current period ends August 2027 and it is another company's contract; nine-tenths of revenue is federal.
Valuation3/4 →
About 11 times guided adjusted profit, 21 after stock pay: the 2026 plan plus part of the bids; cheap only if 2027 consensus holds.
Evidence quality3/4 →
Results, contracts and award records are filed or public; the program sizes, PreCheck share and the bids are management's word.
The Verdict
We rate Telos Neutral. It is a mixed business: it holds one of only three licences to enroll travellers in TSA PreCheck and sells compliance software agencies rarely drop, but revenue halved from 2021 to 2024 before two programs lifted it 52% in 2025. The price is fair: about 11 times the profit management guides for this year, roughly 21 once pay in shares is counted. The view hinges on next year. A $33M slice of resold products ends from late 2026, and whether the $500M of bids now out replace it is not yet known.
The long caseTelos holds one of three PreCheck licences and sticky federal compliance software; if new awards replace the resale, a cash-rich company earns far more on less revenue.
The evidence under this - 7 claims
- On 2027 consensus the price is under 8 times adjusted profit, cheap for software, if new awards replace the $33M of resale (S17, S04).
- Free cash flow of $25.9M over the twelve months to June is a 9% yield on company value, but stock pay was larger than free cash flow in 2025 (S01, S03).
- Asked whether DMDC revenue falls to $20M to $30M a year from $50M to $75M once the resale ends, the CFO declined to size the program (S04).
- Analysts' 2027 revenue of $192.0M is flat on 2026, so it already assumes new work replaces the $33M (S17).
- The timing is the customer's and has slipped before: the same bids were 'nearly $500M' due in the second half on the May call (S04).
- Funded backlog fell from $68.8M to $56.5M in the first half of 2026 (S01, S02).
- A fraction of the $500M of bids would cover the gap: $34M a year is about a fifth of it spread over three years (C16).
- The resale earns single-digit margin, so adjusted profit falls far less than revenue (C08).
The company
Every federal computer system needs a formal security sign-off before it can run, and keeping that record current is a mountain of paperwork. Telos's Xacta software automates it; agencies such as the FBI, the Social Security Administration and the State Department have renewed it for years. The Pentagon's alternative is its own free tool.
Telos ID is the other half: it fingerprints and enrolls travellers for TSA PreCheck, one of three companies allowed to, and runs identity checks for agencies. A small networks unit is nearly gone.
The evidence under this - 4 claims
How it makes money
Almost all of it is government contracts: 91% of 2025 revenue came from federal agencies and 58% from the Defense Department, mostly at fixed prices. Xacta earns licence and service fees on multi-year orders. PreCheck earns a fee on each enrollment and renewal. The Defense identity program pays Telos as a subcontractor, and most of that money is for products Telos buys and resells at a thin margin.
The evidence under this - 4 claims
Neither program's revenue is filed, so the split rests on management's word; the 10-K says only 'multiple large programs in Telos ID' (S01).
Where the money comes from, stream by stream
| Stream | Share of sales (FY 2025) | How it earns it |
|---|---|---|
| Telos ID programs | not disclosed | TSA PreCheck enrollment fees, background-check channelling and the DMDC identity program, mostly resold hardware and software. |
| Xacta and cybersecurity services | not disclosed | Software licences and subscriptions for security authorizations, with consulting, assessment and the AMHS messaging system. |
| Secure Networks | 9.2% | Building and running government networks; down to about 2% of revenue in the June 2026 quarter. |
Who runs it
John Wood has run Telos for most of the time since 1994 and owns 9.1% of it; directors and officers hold 14.9% together. He took it public again in 2020 and then saw revenue halve before the 2025 rebound.
Half the yearly bonus rides on new bookings and a quarter on adjusted profit. Insiders sold 1.96M shares in the past year, none under a pre-set plan, and bought none.
The evidence under this - 4 claims
Much of it follows the October 2025 vesting of performance shares, when executives paid tax by surrendering shares; the chief executive still owns 9.1% (S08, S09).
Why it wins, and who could beat it
Why customers come back
Two things keep customers. TSA lets only three companies enroll PreCheck members, so a traveller who wants the program goes to CLEAR, IDEMIA or Telos. And an agency that keeps its security records in Xacta rarely moves them: the finance chief says it loses very little revenue to non-renewal, and federal records show the same agencies renewing for five years or more. Neither licence nor habit stops a rival already inside the gate from taking share.
The evidence under this - 4 claims
No retention figure is filed, and the Defense Department's own authorization tool, eMASS, competes inside its largest customer (S19).
The threat
CLEAR, which already has 38 million members of its own airport program, began enrolling PreCheck in 2025 and reached 61 airports within the year. On the software side, the Pentagon runs its own free authorization tool that does the job Xacta does. The networks business has already lost: its programs ended with no new wins to replace them.
The evidence under this - 3 claims
The rivals: YOU, and 3 more that are private, in-house or listed abroad.
Who else does this, rival by rival
| Ticker | Rival | Where it competes | How far along | Priced against it |
|---|---|---|---|---|
| YOU | CLEAR's TSA PreCheck enrollmentPriced against it: Different product | Telos ID | On sale | Different product |
| Private | IDEMIA's PreCheck enrollment centersPriced against it: Private | Telos ID | On sale | Private |
| In-house | DISA's eMASSPriced against it: In-house | Xacta and cybersecurity services | On sale | In-house |
| Not listed | Large defense contractors offering secure network solutions, which the 10-K names only as a classPriced against it: Not listed | Secure Networks | On sale | Not listed |
How big it could get
How big this could get
PreCheck passed 20 million active members in 2024, each enrolled and renewed through one of three providers. Nobody publishes how many enrollments each provider takes in a year, so the members cannot be turned into a dollar figure for Telos. The software market Xacta sells into is not measured from outside at all.
The evidence under this - 2 claims
Who has signed
Deloitte holds the Defense identity order Telos works under, $487M obligated through August 2027 with options to 2029, and gave Telos a $155.6M subcontract in 2024. Xacta's buyers sign multi-year orders: the FBI, Social Security and State all run to 2027.
The evidence under this - 2 claims
Where the growth is coming from, business by business
Where the growth is coming from
| Business | Share of revenue | Growth: last quarter | Last half-year | Last year | Share in 3 years at its half-year rate |
|---|---|---|---|---|---|
| Service | 85% | +38.5% | +42.2% | +44.9% | 82% |
| Product | 15% | +7.3% | +52.1% | +137.7% | 18% |
| Whole company | 100% | +32.7% | +43.4% | +53.9% | 100% |
On the filed split through 2026-06-30, if each business keeps its last half-year's growth, the company grows about 44% next year and 44% in year 3, against 65.9% over the last twelve months. A scenario, not a forecast: no business holds its rate.
How we read it: Neither blend: the trailing rate is two program ramps that do not repeat, and the guide, the falling third quarter and the resale exit put next year well below both.
The results
The numbers
Sales grew 66% over the twelve months to Jun 2026, faster than the 52% in the year to Dec 2025.
Operating margin is −9.9%, up from −28% in the year to Dec 2023.
Running costs take 47¢ of each sales dollar, down from 53¢ in the year to Dec 2021.
Shareholders' money lost 15% a year, up from −28% in the year to Dec 2021.
It turned 17% of sales into free cash, $33.7M over the last twelve months.
Yearly sales growth has ranged from −33% to +52% over the last 5 years, with sales falling in 3 of them.
The share count rose 17% in 4.5 years, and pay in shares costs 11% of sales.
All the numbers
Filed figures from the company's 10-K and 10-Q, read 2026-10-06. Fiscal years end in December.
| Dec 2021 | Dec 2022 | Dec 2023 | Dec 2024 | Dec 2025 | 12 mo to Jun 2026 | |
|---|---|---|---|---|---|---|
| Size and growth | ||||||
| Sales | $242M | $217M | $145M | $108M | $165M | $194M |
| Sales growth | +35% | −11% | −33% | −26% | +52% | +66% |
| Profit | ||||||
| Gross margin | 35% | 36% | 36% | 32% | 37% | 37% |
| Operating margin | −17% | −25% | −28% | −52% | −24% | −9.9% |
| Net margin | −18% | −25% | −24% | −49% | −22% | −8.1% |
| What growth costs, per sales dollar | ||||||
| Research and development | 7.9% | 7.8% | 8.1% | 7.8% | 4.3% | 3.4% |
| Sales and marketing | 8.1% | 7.6% | 4.9% | - | - | - |
| General and admin | 37% | 46% | 56% | 70% | 48% | 35% |
| Pay in shares | 25% | 30% | 17% | 20% | 18% | 11% |
| Capital spending | 1.3% | 0.5% | 0.6% | 2.1% | 0.4% | 0.5% |
| Cash | ||||||
| Cash from operations | $7.26M | $16.5M | $1.59M | −$25.9M | $30.2M | $34.6M |
| Free cash flow | $4.06M | $15.5M | $661K | −$28.2M | $29.4M | $33.7M |
| Balance sheet | ||||||
| Cash and short-term investments | $127M | $119M | $99.3M | $54.6M | $53.2M | $50.6M |
| Returns and shares | ||||||
| Shares (diluted) | 66.4M | 67.6M | 69.3M | 71.8M | 72.9M | 77.5M |
What growth costs
Growth has made Telos more profitable, not less. Overheads and research fell even as revenue jumped, so the adjusted profit margin swung from a loss in 2024 to about 14% this year. Most of the new revenue came from resale and staffed enrollment sites, which cost more to deliver than software.
The evidence under this - 3 claims
Revenue was flat on the March quarter at $47.7M, so the 33% rise is the year-ago comparison, not momentum (S03).
The last report (10 Aug)
Quarter ended June 2026, filed figures.
In the June 2026 quarter revenue grew 33% to $47.7M, almost all of it in the identity and software segment, and Telos earned a small profit with $6.6M of free cash flow.
The surprise was the outlook. Management guided the September quarter 2% to 4% below a year earlier, which had carried one-off start-up revenue, and cut the top of the year's range to $195M, while raising its profit guide. The shares fell 15.7% that day.
What it did to the thesisIt showed the profit and cash from the two programs are real and growing faster than revenue. It also showed the revenue line has peaked for now, and left open whether new awards replace the resale that ends next year.
The quarter in detail
Sales growth from the previous quarter, filed figures.
Earnings per share $0.04 against $0.02 expected; $0.01 as filed, the gap being what the company adds back.
The evidence under this - 4 claims
Revenue was flat on the March quarter at $47.7M, so the 33% rise is the year-ago comparison, not momentum (S03).
- The revenue range was cut at the top, and the shares fell 15.7% on the day it was given (S17).
- With the first half at $95.5M, the full-year range leaves the December quarter anywhere from about $41M to $50M, a wide spread for a company that calls most of its revenue existing programs (S03).
- Asked whether DMDC revenue falls to $20M to $30M a year from $50M to $75M once the resale ends, the CFO declined to size the program (S04).
- Analysts' 2027 revenue of $192.0M is flat on 2026, so it already assumes new work replaces the $33M (S17).
What management did with the money
Telos bought back $13.6M of shares in 2025 and $6.9M in the first half of 2026, but pay in shares, $30.2M in 2025, outran it: the share count still rose 2.7% in the first half. It has no debt and pays no dividend.
Insiders in 2026Q3: 0 purchases and 8 sales, from their Form 4 filings.
The evidence under this - 2 claims
The price, and where we disagree
In short. Fair. The price pays for this year's plan and for some of the awards Telos has bid for but not yet won.
The shares are down by a third over the year although sales per share rose, because the market reads the falling revenue guide. Since August Telos has announced four software awards, including a $34.3M Air Force order.
The next few months decide the case. Management says over $500M of bids should be decided in the second half of 2026, with the revenue mainly in 2027, the year the resale ends.
The evidence under this - 4 claims
Award values in releases are usually ceilings; the HHS order shows $11.75M in USAspending against $13.7M announced (S12).
- The timing is the customer's and has slipped before: the same bids were 'nearly $500M' due in the second half on the May call (S04).
- Funded backlog fell from $68.8M to $56.5M in the first half of 2026 (S01, S02).
- Asked whether DMDC revenue falls to $20M to $30M a year from $50M to $75M once the resale ends, the CFO declined to size the program (S04).
- Analysts' 2027 revenue of $192.0M is flat on 2026, so it already assumes new work replaces the $33M (S17).
How we read the multiple
A buyer gets no debt and real cash, but next year rests on undecided bids.
- Management guides about $26M of adjusted operating profit before depreciation this year.
- The company is valued at about $287M after its cash, so about 11 times that.
- Counting pay in shares as a cost, it is about 21 times.
- Without new awards, 2027 revenue falls to about $158M once the resale ends.
- Analysts expect $192M, so the price already counts on about $34M of new work.
Against its own history. Buyers pay less than their normal for each dollar of sales. The real change is cash: the business now produces spare cash, where it usually produced none.
The evidence under this - 4 claims
- On 2027 consensus the price is under 8 times adjusted profit, cheap for software, if new awards replace the $33M of resale (S17, S04).
- Free cash flow of $25.9M over the twelve months to June is a 9% yield on company value, but stock pay was larger than free cash flow in 2025 (S01, S03).
- A fraction of the $500M of bids would cover the gap: $34M a year is about a fifth of it spread over three years (C16).
- The resale earns single-digit margin, so adjusted profit falls far less than revenue (C08).
- Asked whether DMDC revenue falls to $20M to $30M a year from $50M to $75M once the resale ends, the CFO declined to size the program (S04).
- Analysts' 2027 revenue of $192.0M is flat on 2026, so it already assumes new work replaces the $33M (S17).
Priced against its rivals
None of the listed rivals above sells the same thing to the same buyers as a large part of what it does. A price comparison needs at least two, so the price is judged against its own history instead.
Also checked and set aside: Booz Allen Hamilton Holding (a substitute, not the same product).
Where we disagree with the market
Telos is a contractor whose growth rested on two programs and now stalls, with revenue guided down.
This year is covered and the lost resale earns little; next year's profit rests on unwon bids and a subcontract Deloitte controls.
The market sold the shares on a falling revenue guide while the profit guide rose. Telos's own filings show most of the Defense program's revenue is resale, so losing it costs little profit.
The evidence against us: the real exposure is not the resale but renewals, and we cannot see whether the bids are being won or whether Deloitte's order runs past 2027.
What analysts say, and the evidence
The evidence under this - 6 claims
- Asked whether DMDC revenue falls to $20M to $30M a year from $50M to $75M once the resale ends, the CFO declined to size the program (S04).
- Analysts' 2027 revenue of $192.0M is flat on 2026, so it already assumes new work replaces the $33M (S17).
- The timing is the customer's and has slipped before: the same bids were 'nearly $500M' due in the second half on the May call (S04).
- Funded backlog fell from $68.8M to $56.5M in the first half of 2026 (S01, S02).
What could go wrong, and how we would know
The risks
- Someone else's contract The Defense identity work is Deloitte's order, its current period ends in August 2027, and Telos is a subcontractor Deloitte could replace.
- CLEAR in PreCheck CLEAR already has 38 million airport members and enrolled PreCheck at 61 airports within a year of starting.
- The Pentagon's own tool Defense components can keep their security records in the Pentagon's free tool instead of Xacta.
- One customer, one budget Nine-tenths of revenue is federal, so a shutdown or a stalled budget delays awards and payments.
- Insiders selling Insiders sold 1.96M shares in a year without a pre-set plan, the finance chief 480,140 since June, and nobody bought.
The evidence under this - 6 claims
Much of it follows the October 2025 vesting of performance shares, when executives paid tax by surrendering shares; the chief executive still owns 9.1% (S08, S09).
What we still do not know
- How much revenue PreCheck brings Telos, and what share of enrollments it holds; neither Telos nor TSA publishes it.
- What the Defense identity program earns once the resale ends, and whether Deloitte's order is extended past August 2027.
- Which of the $500M of bids have been won, since Defense awards are published months late.
- Whether Defense agencies are moving security records from Xacta to the Pentagon's own tool.
The evidence under this - 3 claims
Neither program's revenue is filed, so the split rests on management's word; the 10-K says only 'multiple large programs in Telos ID' (S01).
- The timing is the customer's and has slipped before: the same bids were 'nearly $500M' due in the second half on the May call (S04).
- Funded backlog fell from $68.8M to $56.5M in the first half of 2026 (S01, S02).
What would change our view
- Neutral→AttractiveA cheaper price on the same guide
It needs:
- ○The company is valued at 8 times this year's guided adjusted profit, from about 11 today.about ≈$3.16 today, 29% below the last close
- Neutral→AttractiveThe bids turn into signed work
It needs all of:
- ○Telos announces awards worth more than $150M of contract value from the $500M of bids.watched as it happens
- ○The 2027 guide calls for adjusted profit above $35M.checked at the next results, due by 9 Nov
- Neutral→UnattractiveThe Defense program shrinks or ends
It needs any of:
- ○The 2027 guide's revenue midpoint is below $165M.checked at the next results, due by 9 Nov
- ○Deloitte's Defense identity order is not extended past 14 August 2027.watched as it happens
We would also be wrong if
- Free cash flow turns negative in 2026 or 2027.
- TSA authorizes a fourth PreCheck enrollment company, or Telos reports its share falling.
What is coming
- 9 November 2026 Q3 2026 results: Revenue against the $49.2M to $50.6M guide, and whether awards from the $500M of bids are named.
Every dated event ahead
- 9 November 2026 Q3 2026 results: Revenue against the $49.2M to $50.6M guide, and whether awards from the $500M of bids are named.
- 16 March 2027 Q4 2026 results and the 2027 guide: How much of the $33M of resale is replaced, and whether 2027 adjusted EBITDA is guided near analysts' $37M.
- 14 August 2027 IT GEMS current period ends: Whether Deloitte's DMDC order is extended toward 2029, and Telos's subcontract with it.
Since we wrote this
- 6 OctThesis writtenFirst thesis: Neutral, medium confidenceProfit and cash from PreCheck and a Defense program are real, but next year rests on bids not yet won and a subcontract Deloitte controls.
Also checked 1 time with nothing new to act on.
Sources 19
Sources - 19
Every claim above cites one of these, or states the reasoning that derived it. The quote is frozen at the date it was read: a link can rot, and an agent fetch returns a reading of a page rather than the page. Backs counts the whole claim ledger, so it can name a claim this page does not surface.
- S01primarycompany filing2026-03-16the business, segments, competition classes, customer and contract mix, backlog, segment results, stock pay, the goodwill write-down, restructurings, the credit line and leasebacksC01C02C05C17C19C20C22C31C32
- S02primarycompany filing2026-08-10Q2 2026 statements, funded backlog, the revolver, share count, buybacks and the federal sharebacksC03C17C19C20C21
- S03primarycompany filing2026-08-10Q2 results, non-GAAP reconciliations, free cash flow, the Q3 and 2026 guidebacksC03C04C22C26C28C31C32
- S04primarytranscript2026-08-10Telos Q2 2026 earnings call transcript (FMP), held 10 August 2026the resale exit, the margin bridge, the $500M of bids, PreCheck share and the Postal Service pilot, the two large programs, the takeover question; analysts' questions from B. Riley, Needham, D.A. Davidson and Northland
Beyond 2026, the full run rate impact will be $33 million of revenue per year with only a modest impact on profit.
backsC04C06C08C12C16C29 - S05primarycompany filing2026-03-16Q4 and full-year 2025 results, free cash flow, buybacks and the first 2026 guidebacksC02C21
- S06primarytranscript2026-03-16Telos Q4 2025 earnings call transcript (FMP), held 16 March 2026Xacta renewals, the IT GEMS ramp, the confidential IT security work and the 2026 guide's build
We experience, I would say, very little to no revenue loss in a typical year on Xacta renewals
backsC06C13 - S07primarycompany filing2026-03-27ownership, pay design and outcomes, the DMDC program's resale make-up, the PreCheck site grants, the equity plan increasebacksC07C12C22C24C25
- S08primarycompany filing2026-07-24the chief executive's 9.1% holdingbacksC24
- S09primarycompany filing2026-09-21every open-market sale, the 10b5-1 flag on each, and the October 2025 vestingbacksC23
- S10primarygovernment data2026-09-29USAspending.gov: award 47QFMA24F0013 (IT GEMS) and its subawards USAspending.gov (US Treasury)the prime holder, obligated value, pricing type, current and potential end dates, and Deloitte's subaward to Telos
AWARD OF INFORMATION TECHNOLOGY GLOBAL ENTERPRISE MANAGEMENT SERVICES IT GEMS REQUIREMENT
backsC09 - S12primarygovernment data2026-10-05USAspending.gov: prime awards to Telos Corporation since 2018 USAspending.gov (US Treasury)Xacta orders at the FBI, SSA, State, the Air Force and Interior for HHS, with dates and values
XACTA ONE YEAR BRIDGE EXTENSION TO PREVIOUS ORDER 15F06720P0001661 FIRM FIXED PRICE
backsC14C15 - S13primaryregulator2026-10-06the three authorized enrollment providers (read by agent fetch; the repo's fetcher got 403)
The current enrollment providers are CLEAR, IDEMIA and Telos.
backsC10 - S14primaryregulator2024-08-08the PreCheck membership base
TSA PreCheck® Trusted Traveler program surpassed 20 million active members
backsC10 - S15primarycompany filing2026-02-25CLEAR's PreCheck enrollment launch, airports and retail sites, members, and its account of two authorized rivalsbacksC11
- S16primarycompany filing2026-05-22what a large defense contractor in Telos's competition class sells, for the cohort testread, but no claim rests on it
- S17secondaryvendor data2026-10-06Research pack (FMP and FINRA), frozen at content/TLS/research-pack.jsonprice and price history, market value, analyst split and its drift, consensus estimates, short interest, the price split, the filed revenue seriesbacksC05C23C26C27C28
- S18primarycompany release2026-10-05four Xacta awards and their announced values
Three-year award provides Xacta license maintenance, training and cyber services for Air Force ISR systems
backsC15 - S19secondarygovernment data2026-10-06what eMASS is and that the government owns it
a web-based Government off-the-shelf (GOTS) solution that automates a broad range of services for comprehensive, fully-integrated cybersecurity management
backsC18 - S20tertiaryother2026-10-06Wikipedia: eMASS WikipediaDoD ownership and its role as the recommended authorization tool
eMASS is owned by the U.S. Department of Defense (i.e., the software is not proprietary).
backsC18