
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2024~~2025


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-08443

TELOS CORPORATION

(Exact name of registrant as specified in its charter)


Maryland			52-0880974
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
19886 Ashburn Road, Ashburn, Virginia			20147-2358
(Address of principal executive offices)			(Zip Code)

Registrant's telephone number, including area code: (703) 724-3800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, $0.001 par value per share	TLS	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report Yes ☒ No ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, ~~2024~~2025 was approximately $~~212~~165.62 million based upon the last reported sale price of the registrant's common stock on The Nasdaq Stock Market LLC as of the close of business on that day.

As of March 39, ~~2025~~2026, the registrant had outstanding 7274,~~552~~217,~~120~~621 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant's definitive Proxy Statement for the 2026 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year ended December 31, 2025 are incorporated by reference in Part III of this Annual Report on Form 10-K.

Table of Contents

Table of Contents to ~~2024~~2025 Form 10-K

		Page
	Special Note Regarding Forward-Looking Statements	4
PART I
Item 1.	Business	5
Item 1A.	Risk Factors	1211
Item 1B.	Unresolved Staff Comments	25
Item 1C.	Cybersecurity	2625
Item 2.	Properties	27
Item 3.	Legal Proceedings	27
Item 4.	Mine Safety Disclosures	27
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6.	[Reserved]	28
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
	Overview	29
	Business Environment	29
	Key Performance Measure	31
	Key Performance Measures	31
	Backlog	31
	Financial Highlights	32
	Results of Operations	32
	Non-GAAP Financial Measures	3334
	Liquidity and Capital Resources	3635
	Critical Accounting Policies and Estimates	3836
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	4038
Item 8.	Consolidated Financial Statements and Supplementary Data	4139
	Report of Independent Registered Public Accounting Firm (PCAOB ID No. 238)	4139
	Consolidated Statements of Operations	4341
	Consolidated Statements of Comprehensive Loss	4442
	Consolidated Balance Sheets	4543
	Consolidated Statements of Cash Flows	4644
	Consolidated Statements of Changes in Stockholders' Equity	4745
	Notes to the Consolidated Financial Statements	4846
	1.Organization	4846
	2. Significant Accounting Policies	48
	2. Summary of Significant Accounting Policies	46
	3. Revenue Recognition	5654
	4. Accounts Receivable, Net	6057
	5. Inventories, Net	60
	5. Property and Equipment, Net	58
	6. Property and Equipment, Net	60
	6. Goodwill, Net	58
	7. Goodwill	61
	7. Intangible Assets, Net	59
	8. Intangible Assets, Net	61
	8. Other Balance Sheet Components	60
	9. Other Balance Sheet Components	62
	9. Revolving Credit Facility	61
	10. Debt and Other Obligations	63
	10. Stockholders' Equity	61
	11. Stockholders' Equity	64
	11. Stock-Based Compensation	62
	12. Stock-Based Compensation	64
	12. Leases	64
	13. Leases	67
	13. Employee Benefit Plan	65
	14. Employee Benefit Plan	68
	14. Income Taxes	66
	15. Income Taxes	68
	15. Loss Per Share	68
	16. Loss Per Share	70
	16. Segment Information	69
	17. Related Party Transactions	70
	17. Supplemental Cash Flow Information	70
	18. Segment Information	71
	18. Commitments, Contingencies and Subsequent Events	70
	19. Commitments and Contingencies	72
	20. Supplemental Cash Flow Information	72
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	73
Item 9A.	Controls and Procedures	73

Table of Contents

Item 9B.	Other Information	74
		Page
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspection	74
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	71
Item 9A.	Controls and Procedures	71
Item 9B.	Other Information	72
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspection	72
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	7573
Item 11.	Executive Compensation	7573
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	7573
Item 13.	Certain Relationships and Related Transactions, and Director Independence	7573
Item 14.	Principal Accounting Fees and Services	7573
PART IV
Item 15.	Exhibits and Financial Statement Schedules	7674
Item 16.	Form 10-K Summary	7775
	Signatures	7876

Table of Contents

Special Note Regarding Forward-Looking Statements

This annual report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, in the future the Company, and others on its behalf, may make statements that constitute forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the Company's plans, objectives or goals; future economic performance or prospects; the potential effect on the Company's future performance of certain contingencies; and assumptions underlying any such statements. You are cautioned not to place undue reliance on the Company's forward-looking statements.

Words such as "believes," "anticipates," "expects," "intends" and "plans" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. The forward-looking statements are and will be based upon management's then current views and assumptions regarding future events and operating performance and are only applicable as of the dates of such statements. The Company does not intend to update these forward-looking statements except as may be required by applicable laws.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other outcomes described or implied in forward-looking statements will not be achieved. The Company cautions you that these important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements, including the risks described under the caption "Risk Factors" in this Annual Report on Form 10-K.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance. Given these risks, uncertainties and other factors, many of which are beyond our control, we caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments, or otherwise.

Table of Contents

PART I

Item 1. Business

~~Business~~ Overview

Telos Corporation is a Maryland corporation headquartered in Ashburn, Virginia. Telos Corporation, together with its subsidiaries (the "Company" or "Telos" or "We"), offers ~~technologically~~technology ~~advanced,~~solutions ~~software-based~~and ~~security~~services ~~solutions~~ that empower and protect the world's most security-conscious organizations ~~against rapidly evolving, sophisticated and pervasive threats~~. Our portfolio of security products, services and expertise endows our customers with capabilities to reach new markets, serve their stakeholders more effectively, and successfully defend the nation or their enterprise with confidence in their security and privacy.

~~Our~~We ~~mission~~deliver ~~is to protect people~~efficient, ~~organizations~~adaptable, and ~~information~~secure ~~through trusted~~ solutions that ~~proactively~~protect ~~manage risk~~people, ~~compliance~~organizations, and ~~persistent~~information ~~digital~~across ~~identity.~~government Weand doindustry. ~~this~~From bycyber ~~developing robust~~governance, ~~reliable,~~risk and ~~uncompromising~~compliance ~~solutions~~("GRC") ~~for~~with ~~our customers~~Xacta®, ~~creating~~to aidentity ~~workplace that engages~~ and ~~inspire~~biometric ~~our~~solutions, ~~employees~~secure networks, and ~~providing~~TSA ~~value~~PreCheck® toenrollment, ~~our~~we ~~shareholders~~help tocustomers ~~ensure~~stay aahead ~~lasting legacy~~ of ~~excellence~~evolving threats. InOur primary customers include the ~~current~~U.S. ~~global~~federal ~~environment~~government, ~~our~~large ~~mission~~commercial isorganizations ~~more~~and ~~critical~~international ~~than ever~~customers. ~~The~~Our ~~emergence~~deep ofdomain ~~each~~expertise, ~~new~~cleared ~~information~~workforce, and ~~communications~~proven ~~technology~~technologies ~~("ICT")~~give ~~introduces~~us ~~new~~a ~~vulnerabilities,~~unique asposition ~~security~~at isthe ~~still~~intersection ~~too~~of ~~often~~cybersecurity, ~~overlooked~~identity, inand ~~solution~~network ~~development~~security. ~~Networks~~Driven ~~and~~by ~~applications~~purpose ~~meant to enhance productivity~~ and ~~profitability~~guided ~~often~~by ~~jeopardize~~our ancore ~~organization due to poor planning~~values, ~~misconfiguration,~~we orbuild anlasting ~~unknown gap in security. Ransomware~~partnerships, ~~insider~~deliver ~~threats,~~superior ~~cybercrime~~solutions, and ~~advanced~~help ~~persistent~~create ~~threats~~a ~~continue~~more tosecure, ~~menace~~interconnected ~~public and private enterprises across all industries~~world.

Cybersecurity, cloud security, and enterprise security of the modern organization share much in common, yet also call for a diverse range of skills, capabilities, and experience in order to meet the requirements of security-conscious customers. Our vision is to create a more secure, interconnected world as the trusted leader in innovative digital security solutions that safeguard people, organizations, and information. Decades of experience in developing, orchestrating, and delivering solutions across these three domains give us the vision and the confidence to provide solutions that empower and protect the enterprise at an integrated, holistic level. Our experience in addressing challenges in one area of an enterprise helps us meet requirements in others. We understand that a range of complementary capabilities may be needed to solve a single challenge, and we also recognize when a single solution might address multiple challenges. Our security solutions span these three domains: cybersecurity, cloud security and enterprise network security.

Our Business Segments

We conduct our business through two reportable and operating segments: Security Solutions and Secure Networks. These segments enable the alignment of our strategies and objectives and provide a framework for the timely and rational allocation of resources within the line of business.

Additional information regarding our segments is presented in Note 1816 – Segment Information to the consolidated financial statements at Item 8 of this Annual Report on Form 10-K.

Security Solutions Segment:

The Security Solutions segment ~~focuses~~delivers on cybersecurity, cloud, identity ~~solutions~~, and secure messaging. ~~Cybersecurity~~ solutions that help ~~our~~government ~~customers ensure the ongoing security, integrity~~ and ~~compliance~~commercial ofcustomers ~~their~~protect ~~on-premises~~critical ~~and related cloud-based~~ systems, bymanage ~~reducing threats and vulnerabilities to foil~~ cyber ~~adversaries before they can attack. Our security engineers and subject matter experts assess our customers' cybersecurity environments and design~~risk, ~~engineer,~~ and operate ~~systems~~securely ~~needed~~in tocomplex ~~strengthen~~and ~~their~~regulated ~~cybersecurity postures~~environments. ~~Our~~This ~~cloud~~segment ~~solutions~~combines ~~leverage~~cyber ~~the~~GRC ~~specialized skills and experience needed to help our customers plan~~solutions, ~~engineer, execute, and accelerate~~ secure cloud ~~migrations~~services, ~~while~~identity ~~assuring ongoing management~~ and ~~security~~biometric ~~of enterprise cloud technology environments. Our identity solutions deliver digital identity~~technologies, ~~biometric,~~ and ~~nationwide enrollment services and address Know Your Customer and identity management challenges for enterprises working within regulated and critical infrastructure environments. Our~~ secure messaging ~~services~~platforms ~~are used~~ to ~~securely~~support ~~transmit~~mission-critical ~~messages~~requirements ~~that~~for ~~provide~~government ~~direction~~ and ~~establish~~commercial acustomers ~~formal~~operating ~~position,~~in ~~commitment,~~highly orregulated ~~responses requiring the authority of an organization. Security Solutions represented 71%~~ and ~~53%~~security-sensitive ~~of total revenues for fiscal years 2024 and 2023, respectively~~environments.

Security Solutions represented 90.8% and 70.9% of total revenues for fiscal years 2025 and 2024, respectively.

The Security Solutions segment offers the following solutions and services:

•Xacta: Deployed at some of the world's most security-conscious organizations, Xacta is a cyber GRC automation platform designed to help its customers meet the complex challenges of managing cyber risk and security compliance by automating processes for assessment and authorization, remediation, and continuous monitoring.

Xacta is a premier platform delivering automated cyber risk management and continuous compliance processes for systems based in the cloud, on-premises, and in hybrid environments. It supports a wide-range of frameworks and regulatory content, including National Institute of Standards and Technology ("NIST") Risk Management Framework ("RMF"), the Cybersecurity Risk Management Construct for Department of War ("DoW") IT, the NIST Cybersecurity Framework, the Federal Risk and Authorization Management Program ("FedRAMP") and the DoW's Cybersecurity Maturity Model Certification ("CMMC") program, across all industries with no-code customization options for tailoring content to fit the organization's needs.

Recently, Telos launched Xacta.aiTM, the artificial intelligence ("AI") capability at the core of the Xacta cyber GRC platform, dramatically reducing compliance time and effort. Xacta.ai delivers expert-level guidance and real-time insights, empowering organizations to move from reactive compliance to proactive risk management.

Table of Contents

~~The~~•Cybersecurity ~~Security~~Services: ~~Solutions~~We ~~segment~~offer ~~offers~~solutions and services for the ~~following~~full ~~solutions~~cybersecurity lifecycle, including RMF consulting services, security assessment and compliance, engineering and evaluation, operations, penetration testing, and digital forensics. With a pedigree in cybersecurity and information assurance that spans three decades, our multi-certified cybersecurity personnel provide services: and solutions that deliver continuous security assurance for business, government, and public sector critical infrastructure.

•~~Xacta®~~Telos Automated Message Handling System ("Telos AMHS™"): Telos AMHS is a web-based organizational message distribution and management solution for mission-critical communications; the recognized gold standard for organizational messaging in the U.S. government. Telos AMHS is used by military field operatives for critical communications on the battlefield using the Defense Information System Agency's Organizational Messaging Service and its specialized communications protocols. Telos AMHS is also used by the Intelligence Community ("IC") for timely situational awareness and assessment reporting utilizing the Director of National Intelligence's Information Transport Service, Organizational Messaging data standards and computing infrastructure. Because Telos AMHS supports timely and reliable delivery for authoritative communications, its uses include terrorist warnings, "eyes-only" messages, military execution orders, intelligence information, overflight clearances, and Emergency Action Messages for nuclear command and control. Information exchanged at this level and for these purposes requires operational requirements for time-sensitive, guaranteed delivery, precedence, high availability, and reliability.

~~Xacta®~~•Telos isIdentity aSolutions: ~~premier~~Telos ~~platform~~provides ~~for~~a ~~enterprise~~portfolio ~~cyber~~of ~~risk~~identity ~~management~~solutions ~~and~~that ~~security~~support ~~compliance~~secure ~~automation~~identity verification, ~~delivering~~biometric ~~security~~enrollment, ~~awareness~~and ~~for~~trusted ~~systems~~identity inservices ~~the~~for ~~cloud,~~government ~~on-premises,~~ and incommercial ~~hybrid and multi-cloud environments~~customers. ~~Xacta~~These ~~delivers~~solutions ~~automated~~address ~~cyber~~requirements ~~risk~~related ~~and compliance management solutions~~ to ~~large~~Know ~~commercial~~Your ~~and~~Customer ~~government enterprises. Across the United States~~ (~~"U.S."~~“KYC”) ~~federal government~~, ~~Xacta~~identity ~~is a leading commercial cyber risk and compliance management solution. With use cases including cyber risk management~~proofing, ~~risk~~access ~~remediation management~~control, ~~security~~insider ~~authorization,~~threat ~~compliance management~~mitigation, ~~audit~~and ~~management,~~regulatory ~~inventory management, vulnerability management, continuous~~ compliance ~~monitoring~~, and ~~vendor~~are ~~and~~deployed ~~supply~~across ~~chain~~large-scale ~~risk~~environments ~~management,~~supporting ~~Xacta~~millions ~~administers the key elements~~ of ~~more~~identity ~~than~~transactions ~~100~~through ~~leading regulations and policies for IT security compliance~~workstations, ~~including the National Institute of Standards and Technology ("NIST") Risk Management Framework ("RMF")~~kiosks, ~~RMF for Department of Defense ("DoD") IT~~laptops, ~~Committee~~mobile ~~on National Security Systems Instruction No. 1253~~devices, ~~NIST Cybersecurity Framework, the Federal Risk~~ and ~~Authorization~~access ~~Management~~control ~~Program ("FedRAMP") and the DoD's Cybersecurity Maturity Model Certification ("CMMC") program~~systems.

~~•Cybersecurity~~Built on secure, enterprise-grade platforms certified and operational across multiple U.S. federal agencies, these offerings enable organizations to deploy modular, scalable services supporting both business-to-business and business-to-consumer identity use cases. Telos supports major digital identity programs in the U.S., including those serving the military, transportation, healthcare, law enforcement, financial services, and civil service organizations. Telos maintains key government certifications and designations, including recognition as a TSA PreCheck enrollment provider, Aviation Channeling Services: provider, Federal Bureau of Investigation ("FBI") approved Channeler, and Florida Department of Law Enforcement Registered Live Scan Service Provider.

WeTelos’ ~~offer~~identity ~~solutions~~offerings ~~and~~include ~~services~~TSA ~~for~~PreCheck ~~the~~enrollment ~~full~~services, ~~cybersecurity lifecycle~~IDVetting®, ~~including~~and ~~Risk~~Aviation ~~Management~~Channeling ~~Framework~~Services (~~"RMF"~~“ACS”), ~~consulting~~which ~~services~~provide identity enrollment, ~~assessment~~FBI ~~and~~background ~~compliance~~check submission, ~~engineering~~ and ~~evaluation~~biometric services for government agencies, ~~operations~~transportation security programs, and ~~penetration~~regulated ~~testing~~industries. ~~With~~Through athese ~~pedigree~~services, inTelos ~~information~~supports high-assurance identity verification and ~~cybersecurity~~vetting ~~that~~processes ~~spans~~for ~~three~~millions ~~decades,~~of ~~our~~individuals ~~multi-certified~~annually ~~cybersecurity~~in ~~personnel~~compliance ~~provide~~with ~~services~~federal and ~~solutions~~industry ~~that~~requirements. ~~deliver~~Telos ~~continuous~~also ~~security~~offers ~~assurance~~ONYX®, ~~for~~a ~~business,~~proprietary ~~government,~~touchless fingerprint biometric technology designed to enable secure and ~~public~~scalable ~~sector~~biometric ~~critical~~authentication ~~infrastructure~~across mobile and enterprise environments.

~~•Telos~~Secure ~~Automated~~Networks ~~Message Handling System ("Telos AMHS™")~~Segment:

~~Telos~~With ~~AMHS is~~ a ~~web-based~~focus ~~organizational~~on ~~message~~enterprise ~~distribution~~security, ~~and management solution for mission-critical communications;~~ the ~~recognized~~Secure ~~gold~~Networks ~~standard~~segment ~~for~~provides ~~organizational~~secure ~~messaging~~networking inarchitectures ~~the~~and ~~U.S.~~solutions ~~government.~~to ~~Telos~~our ~~AMHS~~customers isthrough ~~used~~secure bymobility ~~military~~solutions ~~field~~and ~~operatives~~network ~~for~~management ~~critical~~and ~~communications~~defense onservices. ~~the~~Our ~~battlefield~~net-centric ~~using~~solutions ~~the~~enable ~~Defense~~collaboration ~~Information~~and ~~System~~connectivity ~~Agency's~~to ~~Organizational~~increase ~~Messaging~~efficiency, ~~Service~~reduce costs, and ~~its~~improve ~~specialized~~mission ~~communications protocols~~outcomes. Telos ~~AMHS~~provides isan ~~also~~extensive ~~used~~range byof ~~the~~wired ~~Intelligence~~and ~~Community~~wireless, ~~("IC")~~fixed ~~for~~and ~~timely~~deployable, ~~situational~~classified ~~awareness~~ and ~~assessment~~unclassified ~~reporting utilizing the Director of National Intelligence's Information Transport Service~~voice, ~~Organizational Messaging~~ data, ~~standards~~ and ~~computing~~video ~~infrastructure.~~secure ~~Because~~network ~~Telos~~solutions ~~AMHS~~and ~~supports~~services ~~timely~~to ~~and~~support ~~reliable~~defense ~~delivery~~and ~~for~~civilian ~~authoritative~~missions. ~~communications,~~Our ~~its~~capabilities ~~uses~~ include ~~terrorist~~network ~~warnings~~design, ~~"eyes-only"~~operations ~~messages,~~and ~~military execution orders~~sustainment, ~~intelligence~~system ~~information,~~integration ~~overflight~~and ~~clearances~~engineering, ~~and~~network ~~Emergency~~security ~~Action Messages for nuclear command~~ and ~~control.~~compliance, ~~Information~~deployable ~~exchanged at this level and for these purposes requires operational requirements for time-sensitive~~communications, ~~guaranteed~~service ~~delivery~~desk, ~~precedence,~~defensive ~~high~~cyber ~~availability~~operations, and ~~reliability~~program management.

~~•Digital~~Secure ~~Identity~~Networks ~~Solutions:~~represented 9.2% and 29.1% of total revenues for fiscal years ended December 31, 2025, and 2024, respectively.

◦IDTrust360® is an enterprise digital trusted identity risk platform for extending flexible hybrid cloud identity services. This platform is enabled for mobile, enterprise environments and custom digital identity services that mitigate threats by integrating advanced technologies that fuse biometrics, credentials, and other identity-centric data used to continuously monitor trust. IDTrust360 is a commercially owned and operated platform with direct interfaces to the Federal Bureau of Investigation's ("FBI") criminal records, Department of Homeland Security's ("DHS") terrorist watch list service, U.S. Department of Treasury's pay.gov, other government identity risk management systems, and numerous commercial identity, intelligence, and risk-based data sources. We actively engage with federal customers to integrate vital event records, government identification document records, and other fingerprint-based biometric records hosted across multiple agencies. This enables Telos to offer NIST-compliant digital identity services aligned with federal security mandates.

◦ONYX®, a mobile touchless fingerprint software development kit, enables secure biometric authentication by leveraging standard smartphone cameras to capture and process high-quality fingerprint images without physical contact. It uses artificial intelligence (“AI”) neural networks for finger detection and automatic acquisition, along with a patented image processing algorithm to generate precise, machine-matchable fingerprints. Targeting markets such as financial services, healthcare, government, and enterprise security, ONYX is ideally suited for use cases including mobile banking, field identification for law enforcement, telemedicine identity verification, secure access control, and remote onboarding. Its value proposition lies in delivering a cost-effective, scalable, and user-friendly biometric solution that eliminates the need for specialized hardware, enhances security with liveness detection, and supports seamless integration across iOS and Android platforms, empowering organizations to strengthen identity management and combat fraud efficiently

Table of Contents

~~Telos’~~The ~~sovereign,~~Secure ~~reusable~~Networks ~~Identity-as-a-Service~~segment ~~Solution~~offers ~~("IDaaS") is designed for~~ the ~~use~~following ofsolutions ~~government agencies, mobile network operators, banking organizations~~ and others who need to incorporate a zero-trust method of identity verification into existing know-your-customer and onboarding processes, while striving to remain in front of international data protection and privacy regulations. This user-controlled system empowers individuals to hold and manage their own identity data, presenting it securely to relying parties or verifiers while ensuring trust through server-side biometric authentication powered by our proprietary ONYX technology. Organizations leveraging the IDaaS solution offered by Telos save on the cost and effort of onboarding new users without worrying about the complexities of verifying individual identities. The solution provides fully proofed and vetted reusable identities to reduce risk across all identity-related enterprise events, and fosters trust across markets such as financial services, healthcare, government, and enterprise security for use cases like digital wallets, remote onboarding, and secure access control. We maintain government certifications and designations that distinguish Telos ID, including TSA PreCheck® enrollment provider, Aviation Channeling Services provider, FBI-approved Channeler, and Financial Industry Regulatory Authority Electronic Fingerprint Submission provider.:

•Secure ~~Networks Segment~~Mobility: We offer solutions for business and government that enable work off-premise and minimize operational and security concerns across and beyond the enterprise. Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience, highly desirable clearances and industry-recognized certifications for network engineering, mobility, and security. We also offer secure mobility professional services, such as consulting and deployment services, to deliver integrated communications solutions that meet even the most complex needs of civilian, defense, and commercial customers.

~~With~~•Network aManagement ~~focus~~and onDefense: ~~enterprise~~We ~~security,~~provide the ~~Secure~~complete ~~Networks~~spectrum ~~segment~~of ~~provides~~managed ~~secure~~services ~~networking architectures~~ and solutions toneeded ~~our~~for ~~customers~~operating, ~~through~~maintaining, ~~secure mobility solutions~~ and ~~network~~defending ~~management~~complex ~~and~~enterprise ~~defense services~~networks. Our ~~net-centric~~managed ~~solutions~~network ~~enable~~services ~~collaboration and connectivity to increase efficiency,~~ reduce ~~costs,~~the ~~and~~total ~~improve~~cost ~~mission outcomes. Telos provides an extensive range~~ of ~~wired~~ownership ~~and~~while ~~wireless,~~also ~~fixed~~ensuring and deployable, classified and unclassified voice, data, and video secure network solutions and services to support defense and civilian missions. Our capabilities include network design, operations and sustainment, system ~~integration~~ and ~~engineering,~~ network ~~security and compliance~~availability, ~~deployable~~information ~~comms,~~protection ~~service desk, defensive cyber operations,~~ and ~~program~~assured ~~management.~~information ~~Secure Networks represented 29% and 47% of total revenues for the years ended December 31, 2024 and 2023, respectively~~delivery.

~~The~~Telos ~~Security~~employs ~~Networks~~a ~~segment~~robust ~~offers~~group of network engineers, system administrators, help desk, cybersecurity specialists, and program managers who are experienced with advanced DoW and federal networks, and are certified in the ~~following~~leading ~~solutions~~tools, technologies, and best practices for network management and administration. We ensure the consistency and continuity of network management services: required in today's mission-critical network environments.

•Secure Mobility:

We offer solutions for business and government that enable work off-premise and minimize operational and security concerns across and beyond the enterprise. Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience, highly desirable clearances and industry-recognized certifications for network engineering, mobility, and security. We also offer secure mobility professional services, such as consulting and deployment services, to deliver integrated communications solutions that meet even the most complex needs of civilian, defense, and commercial customers.

•Network Management and Defense:

We provide services for operating, administrating, and defending complex enterprise networks and services for defensive cyber operations. Our diverse network management and defense capabilities address common and uncommon requirements in many industries and disciplines, from military to government agencies. Telos network engineers, security specialists, and program managers are experienced with advanced DoD and federal networks and are certified in the leading tools, technologies, and best practices for network management and administration. We ensure the consistency and continuity of network management services required in today's mission-critical network environments.

Drivers for Future Growth

We are pursuing multiple strategies in order to grow our business, which include:

•Ramp our pre-existing programs. Capitalizing on organic growth opportunities is a key to our core business. Our strategy includes increasing the scope of our existing contracts through renewal or expansion of our offerings.

•Rebuild our contract vehicles portfolio. Notable contracts with our key customers, mainly U.S. federal government agencies, require bidders to be pre-approved on registered contract vehicles. We strive to have prime or subcontractor positions on a wide range of contracts to allow our customers and potential customers an opportunity to access our solutions and services through Indefinite Delivery / Indefinite Quantity ("IDIQ") and definite contract vehicles.

•Broaden our reach within the U.S. federal government. We have historically focused on the U.S. federal government and believe we are an established leader in providing security solutions to federal agencies. Nonetheless, we believe the U.S. federal government continues to represent a significant growth opportunity, and we expect to continue to invest in products and solutions to serve additional customers within the U.S. federal government.

For example, Xacta is included on DHS's Continuous Diagnostics and Mitigation Approved Product List to provide federal agencies with innovative security tools, which we believe presents us with an excellent opportunity to pursue contracts with additional federal agencies. In addition, Xacta is available for use in the Amazon Web Services ("AWS") GovCloud (U.S.), Oracle and Azure Government.

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•Leverage our diverse security solutions to target market expansion. Our offerings are designed to have broad applications and include cloud and network security risk and compliance, secure messaging, and identity vetting through biometric capture and analysis. We believe we are well-positioned to sell our capabilities into a dynamic and growing commercial opportunity set and will continue innovating to address emerging and unique requirements.

For example, we have leveraged core Xacta functionality to meet the needs of large financial services and customer relationship management ("CRM") firms. We have also leveraged our U.S. federal government identity management qualifications to improve the speed and accuracy of vetting results for more than 100 airports, air carriers, and general aviation operators across the country. We intend to continue innovating and developing additional offerings for cloud, mobile, and Internet of Things ("IoT") devices.

•Pursue strategic investments and partnerships. We believe that our markets remain fragmented, with many niche players providing limited product solutions targeting narrow customer segments. Given the breadth of our solution set and our customer end markets, we believe we are well-positioned to opportunistically invest in and/or build partnerships with smaller companies, and incorporate their technology or deploy their solutions across a larger customer set. We believe a targeted and opportunistic investment strategy will be a force multiplier for our organic growth opportunity.

•Invest strategically into groundbreaking research and development for our intellectual property. We believe artificial intelligence – large language models can offer an unparalleled advantage to our customers in automation and cost savings, a cornerstone of our Xacta platform. Telos has begun making strategic investments to bring meaningful AI capabilities to our platform.

Our Customers

Our primary customers include the U.S. federal government, large commercial businesses, state and local governments, and international customers. Our consolidated revenues are largely attributable to prime contracts or subcontracts with our contractors engaged in work for the U.S. federal government. In fiscal year 2025, we generated approximately 91.0% of our revenues from the U.S. federal government, with the remaining attributable to state and local governments, and commercial markets.

Our U.S. federal government customers include the ~~DoD~~DoW, the intelligence community ("IC"), and multiple civilian and public sector agencies, including the U.S. Department of Homeland Security ("DHS"), the U.S. Department of Justice, the U.S. Department of Energy, the U.S. General Services Administration, the U.S. Department of the ~~Treasury~~Interior, the U.S. Social Security Administration, the U.S. Environment Protection Agency, and more. These customers have a number of subsidiary agencies with separate budgets and procurement functions. Our contracts may be with the highest level of these agencies or with the subsidiary agencies of these customers.

Our commercial customers include some of the largest technology, communications, and professional services companies in the U.S.

Competition

We operate in a competitive market for cybersecurity, governance, risk and compliance software, secure network solutions, and digital identity services. The market is fragmented, with no single company or small group of companies holding a dominant position. Our competitors include large defense contractors that offer overlapping capabilities across multiple service areas, as well as smaller specialty firms focused on risk and compliance management, organizational messaging, information security consulting, and secure network solutions.

Competition for U.S. federal government contracts is particularly intense due to the competitive bidding process that governs both initial contract awards and renewals. Many government contracts require contractors to hold security clearances and employ personnel with specified levels of experience and clearance, which can limit the pool of qualified competitors but may also constrain our ability to scale rapidly.

The markets in which we operate are characterized by evolving technology requirements and changing customer needs. For example, and without limitation, in the identity and biometric solutions market, industry standards and compatible technologies continue to develop rapidly. We compete primarily on the basis of our technical capabilities, our experience serving security-conscious government and commercial customers, our ability to obtain and maintain required security clearances, the quality and reliability of our solutions, and our capacity to anticipate and respond to emerging technological requirements.

Sales and Marketing

As part of our sales and marketing investments, we ~~also~~ make corporate investments in functional areas such as contracts, solution architects, ~~lead generation tools,~~ and operations to ensure our back-office systems and processes scale for business growth.

Sales

We sell our products and services leveraging a direct sales approach, with a small subset being executed through a handful of partner organizations. Our customer acquisition success extends to commercial customers and vendors seeking to do business with the U.S. federal government,; however, our largest portion of revenue lies with the U.S. federal government itself.

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Our sales strategy is to establish a customer foothold with one of our solutions and work to achieve rapid success. We then leverage this customer relationship to generate interest in other solutions from the Telos portfolio. We have a variety of upsell opportunities that allow us to expand our presence within a customer account.

Much of our business is awarded through the submission of formal competitive bids; however, a portion of our revenue is awarded through limited competition or sole-source contracts.

Partner Organizations

Our sales team works with partner organizations like ~~AWS,~~Amazon ~~Microsoft~~Web ~~Azure,~~Services ~~and~~("AWS") ~~IBM~~ to pursue mutual customers and leverage their marketplace platforms and marketing programs.

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Marketing

We build market awareness of Telos and our solutions through a variety of marketing programs, including ~~regular~~ briefings with industry analysts, public relations activities, trade show exhibitions, speaking engagements, and digital marketing. We will continue investing in these activities and targeting additional vertical-specific content creation, targeted advertising campaigns, and ~~brand~~search engine marketing. Our sales team works hand-in-hand with our marketing team to develop targeted awareness campaigns, ~~social~~for ~~media~~our ~~campaigns,~~various ~~and~~solutions ~~search~~that ~~engine~~generate ~~marketing~~valuable leads and contacts.

Our sales team works hand in hand with our marketing team and various subject matter experts to develop targeted awareness campaigns for our various solutions that generate valuable leads and contacts.

Research and Development

We developed proprietary software-based solutions in various platforms related to security and cyber risk management. We invest substantial resources in research and development to innovate new solutions, enhance our offerings and grow opportunities by developing new features and modules for our existing platforms. See Note 2 - Summary of Significant Accounting Policies (under the caption "Research and Development") included in our notes to consolidated financial statements.

We are leveraging our improved agile innovation and rapid automated development practices to rapidly establish prototypes that we can fully test for suitability and to pre-establish enterprise risk level across a variety of government networks and ~~clouds~~cloud environments. We are committed to and view our continued investment in research and development as a key factor to our long-term business success.

Human Capital Resources

As of December 31, ~~2024~~2025, we had ~~519~~525 employees, of which ~~504~~509 were full-time employees. As of December 31, ~~2024~~2025, approximately 8990.1% of our workforce was located in the United States. Approximately ~~294~~309 of our U.S.-based employees held U.S. security clearances, and 2623.0% self-identified as veterans of U.S. military service as of that date. Our employees are not represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider relations with our employees to be good.

Telos places a strong emphasis on supporting our people. Our management team is committed to maintaining a corporate culture that fosters mutual respect and job satisfaction for our people while delivering innovation and value to customers and shareholders. This commitment is reflected in our core values:

Always with integrity, at Telos we:

Build trusted relationships,

Work hard together,

Design and deliver superior solutions, and

Have fun doing it.

These values are woven throughout the fabric of Telos; they are reflected in our hiring practices, reinforced regularly, and reviewed during appraisals. Employees are encouraged to challenge themselves and each other to exhibit the core values in all activities.

Our employees are ~~given~~provided ~~avenues~~with ofmultiple ~~communication~~reporting ~~and~~channels ~~interaction~~ should they observe activities inconsistent with our core values. While employees are encouraged first to speak openly about any issues, a 24/7 hotline provides an opportunity to express concerns anonymously.

We consider the foundational value of integrity to be a non-negotiable requirement of employment, and an expectation of suppliers, partners, and our customers. We guard our reputation and will take necessary action to protect it. An essential part of our brand promise is always to engage employees, customers, partners, suppliers, and investors with integrity.

As part of our effort to improve our disclosures around human capital issues, we provided a public report pursuant to the Sustainability Accounting Standards Board ("SASB") Software & IT Service Standard, which addresses, in part, metrics relating to recruiting and managing a global, diverse and skilled workforce.

~~Talent Acquisition and Retention~~8

We operate in a very competitive environment for talent. To ensure we can attract the most well-qualified employees, we employ strategic sourcing methods, innovative recruitment campaigns, and inclusive outreach initiatives to attract a diverse pool of candidates. This involves leveraging various channels, such as job boards, social media platforms, and diversity-focused partnerships, to engage with candidates from different backgrounds and experiences.

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WeTalent ~~continuously~~Acquisition ~~make improvements to our employee value proposition, including enhancements on benefits available to employees, increasing paid time off~~ and parental leave, accelerating the vesting period for stock matched by the Company in employees' 401(k) plans, instituting a new performance management program, and various supplemental programs to support our employees' physical, mental and financial well-being.Retention

We operate in a very competitive environment for talent. To ensure we can attract the most well-qualified employees, we employ strategic sourcing methods, innovative recruitment campaigns, and outreach initiatives to attract a diverse pool of candidates. This involves leveraging various channels, such as job boards, job fairs, social media platforms, and diversity-focused partnerships, to engage with candidates from different backgrounds and experiences.

We continuously enhance our employee value proposition by offering a range of benefits and supplemental programs that support our employees' physical, mental, and financial well-being. In addition, we are strengthening our performance management program to ensure employees receive meaningful feedback, opportunities for growth, and recognition for their contributions, fostering both individual and organizational success.

In addition, at Telos, we help our employees succeed by providing flexibility in where and how they work. The employees' ability to work remotely or in a hybrid arrangement is a strategy that helps us attract, hire and retain the best people, regardless of their specific location. This strategy increases employee empowerment and satisfaction, drives efficiency, and enables us to hire from a broad and diverse talent pool.

We are committed to providing a work environment free of discrimination and harassment, where our employees can do their best work, bring their whole selves to work, feel supported, and in turn, support others. We strive to create a working environment where everyone feels included and respected and has an equal opportunity to contribute. We promote collaboration and encourage employees to maximize their potential by bringing varied views, experiences, and perspectives to their work. Our objective is to continue to improve our hiring, development, training, advancement, and retention of talent and to foster a synergistic environment at Telos.

Seasonality

We generally experience seasonality due to our key customers' fiscal year ends and procurement cycles. We derive a substantial portion of our revenue from the U.S. federal government, whose fiscal year ends on September 30 of each year, which may impact our third fiscal quarter. In addition, our quarterly results may be impacted by the number of working days in a given quarter. See "Risk Factors — We are subject to the seasonality of U.S. federal government spending."

U.S. Federal Government Contracts, Regulation, and ~~Regulation~~Legislation

Our business is heavily regulated, and we must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. federal government and other contracts. U.S. federal government contracts generally are subject to the Federal Acquisition Regulation ("FAR") and Defense Federal Acquisition Regulation Supplement ("DFARS"), which sets forth policies, procedures and requirements for acquiring goods and services by the U.S. federal government, and agency-specific regulations that implement or supplement the FAR or DFARS. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, security, contract pricing and cost, contract termination, and adjustments and audit requirements. ~~These~~Among ~~laws~~other ~~and regulations~~things, ~~among~~these ~~other~~laws ~~things~~and regulations:

•Impose specific and unique cost accounting practices that may differ from Generally Accepted Accounting Principles in the United States of America ("U.S. GAAP" or "GAAP") and therefore require reconciliation;

•Define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-type U.S. federal government contracts;

•Require compliance with U.S. federal government Cost Accounting Standards;

•Require reviews by the Defense Contract Audit Agency, Defense Contract Management Agency and other U.S. federal government agencies for compliance with government requirements for a contractor's business system; and

•Restrict the use and dissemination of, and require the protection of, unclassified contract-related information and information classified for national security purposes and the export of certain products and technical data.

U.S. federal government customers employ several contracting methods to purchase services and products. Budgetary pressures and reforms in the procurement process have caused many U.S. federal government customers to increasingly purchase services and products using contracting methods that allow them to select multiple contract winners or pre-qualify certain contractors to provide services or products on established general terms and conditions rather than through single-award contracts. The predominant contracting methods through which U.S. federal government agencies procure services and products include definitive award contracts, IDIQ contracts, Blanket Purchase Agreements ("BPAs"), U.S. General Service Administration ("GSA") schedule contracts and other transactional agreements ("~~OTA~~OTAs").

Government contracts are subject to congressional funding. Consequently, at the outset of a program, a contract is usually partially funded, and Congress annually determines if additional funds are to be appropriated to the contract. All of our government customers have the right to terminate their contract with us at their convenience or in the event that we default. Most of our contracts have cancellation terms that permit us to recover all or a portion of our incurred costs and fees for work performed where the U.S. government issues a termination for convenience.9

A portion of our business is classified by the U.S. government and cannot be specifically described. The operating results of these classified programs are included in our consolidated financial statements.

These regulations and risks are described in more detail below under Item 1A, "Risk Factors" in this Annual Report on Form 10-K.

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A portion of our business is classified by the U.S. federal government and cannot be specifically described. The operating results of these classified programs are included in our consolidated financial statements.

We also actively monitor legislative initiatives and carefully follow legislative and contracting trends and activities, and evolve our strategies to take these into consideration and respond to opportunities as they develop. These regulations and risks are described in more detail below under Item 1A, "Risk Factors" in this Annual Report on Form 10-K.

Environmental, Social, and Governance Matters

We strive to operate our business in an environmentally responsible manner and in support of sustainable long-term financial performance. Our Environmental, Social and Governance ("ESG") task force is charged with addressing climate and environmentally-related risks and opportunities, including our publicly-disclosed climate transition plan. The Company publicly reports certain climate change-related information via CDP and provides public sustainability disclosures using the SASB Software & IT Service Standard. By making these disclosures, however, we have not concluded that the information disclosed is material to our business and this information is not incorporated by reference into and is not a part of this Annual Report on Form 10-K. The Board of Directors authorized the Nominating and Corporate Governance Committee to oversee the Company's ESG efforts, which include climate-related risks and opportunities.

See Item 1A, "Risk Factors," for discussion of risks related to the global climate ~~and ESG matters~~.

Company Website and Available Information

Our corporate headquarters is located at 19886 Ashburn Road, Ashburn, Virginia 20147, and our telephone number is (703) 724-3800. Our website can be accessed at www.telos.com, which contains information about our Company and operations. Through a link on the Investor Relations section of our website, copies of each of our filings with the U.S. Securities and Exchange Commission ("SEC") can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. The information on our website is not incorporated by reference into and is not part of this Annual Report on Form 10-K.

The SEC also maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including Telos.

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Item 1A. Risk Factors

In your evaluation of the Company and business, you should carefully consider the risks and uncertainties as described below, together with the information included elsewhere in this Annual Report on Form 10-K and other documents we file with the SEC. These factors, as well as additional risks and uncertainties not currently known to us or that we currently believe are immaterial, may currently have, or may have, a significant impact on our business, operating results or financial condition. Actual results could differ materially from those projected in the forward-looking statements contained in this Annual Report on Form 10-K as a result of the risk factors discussed below and elsewhere in this Annual Report on Form 10-K.

Business and Operational Risks

Our business could be negatively affected by cyber or other information security threats, breaches, ~~threats~~ or other disruptions.

We routinely experience cybersecurity threats, threats to our information technology infrastructure and attempts to gain access to our sensitive information, as do our customers, suppliers, prime and subcontractors, and ~~joint~~strategic ~~venture~~ partners. We experience similar security threats at customer sites that we operate and manage as a contractual requirement. The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized adversaries who target us because we protect national security information. While we have security measures in place to protect our data and the data of our customers or end-users of our services, our services and underlying infrastructure may in the future be materially breached or compromised as a result of the following:

•Third-party attempts to fraudulently induce employees, contractors or customers into disclosing sensitive information such as user names, passwords or other information to gain access to our customers' data, our data or our IT systems;

•Efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states;

•Cyberattacks on our internally built infrastructure;

•Vulnerabilities resulting from enhancements and updates to our existing solutions;

•Vulnerabilities in the products or components across the broad ecosystem that our services operate in or are dependent on;

•Vulnerabilities existing within newly acquired or integrated technologies and infrastructures;

•Vulnerabilities existing within third-party software or services that we employ;

•Attacks on, or vulnerabilities in, the many different underlying networks and services that power the Internet that our products depend on, most of which are not under our control or the control of our vendors, partners, or customers; and

•Employee or contractor errors or intentional acts that compromise our security systems.

To the extent possible, these risks are mitigated by our ability to maintain and improve information security governance policies, enhanced processes and internal security controls, including our ability to escalate and respond to known and potential risks. Although we have developed systems and processes designed to assess, identify, and manage material cybersecurity risks, we can provide no assurances that such systems and processes will provide absolute security. In the normal course of business, we are the target of malicious cyberattack attempts. To date, any such attempts have not been material to us, including to our reputation or business operations, or had a material financial impact, but there can be no assurance that future cyberattacks will not be material.

A security breach or incident could result in unauthorized parties obtaining access to, or the denial of authorized access to, our IT systems or data, or our customers' systems or data, including intellectual property, proprietary, sensitive, or other confidential information. A security breach or incident could result in the unauthorized disclosure of large quantities of our customers' personally identifiable information. A security breach could also result in a loss of confidence in the security of our services, damage our reputation, negatively impact our future sales, disrupt our business and lead to increases in insurance premiums and legal and financial exposure and liability. Finally, the detection, prevention and remediation of known or potential security vulnerabilities, including those arising from third-party hardware or software, may result in additional financial burdens due to additional direct and indirect costs, such as additional infrastructure capacity spending to mitigate any system degradation.

12If our customers do not renew their contracts for our solutions and services, or subscriptions, and expand our relationships with them, our revenue could decline and our results of operations would be adversely impacted.

To continue to maintain and grow our business, it is important that our existing customers renew their contracts for our solutions and services or subscriptions when existing contract terms expire. Our customers have no obligation to renew or extend their contracts for our solutions or services or subscriptions after the expiration of the contractual periods, which vary in length, and in the normal course of business, some customers have elected not to renew or extend. It is difficult to predict attrition rates given the varying needs of our customer base. Our attrition rates may increase or fluctuate as a result of a number of factors, including customer dissatisfaction with our solutions or services, customers' spending levels, mix of customer base, decreases in the number of users at our customers, competition, pricing increases or changes, and deteriorating general economic conditions or budgetary constraints.

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If our customers do not renew their subscriptions or contracts for our solutions and services and expand our relationships with them, our revenue could decline and our results of operations would be adversely impacted.

To continue to maintain and grow our business, it is important that our existing customers renew their subscriptions or contracts for our solutions and services when existing contract terms expire. Our customers have no obligation to renew or extend their subscriptions or contracts for our solutions or services after the expiration of the contractual periods, which vary in length, and in the normal course of business, some customers have elected not to renew or extend. It is difficult to predict attrition rates given the varying needs of our customer base. Our attrition rates may increase or fluctuate as a result of a number of factors, including customer dissatisfaction with our services, customers' spending levels, mix of customer base, decreases in the number of users at our customers, competition, pricing increases or changes, and deteriorating general economic conditions or budgetary constraints.

Our future success also depends in part on our ability to expand our relationships with our current customers by selling additional features, solutions and services, more subscriptions or enhanced editions of our solutions and services. This may also require increasingly sophisticated and costly sales efforts that are targeted at senior leaders. Similarly, the rate at which our customers purchase new or enhanced solutions and services depends on a number of factors, some of which are beyond our control.

If our efforts to maintain and expand our relationships with our existing customers are not successful, our business could be harmed.

The U.S. federal government may terminate, cancel, delay, modify or curtail our contracts at any time prior to completion and, if we do not replace them, this may adversely affect our future revenues and could adversely impact our earnings.

Many of the U.S. federal government programs in which we participate, both as a contractor or subcontractor, extend for several years and include one or more base years and one or more option years. These programs are typically funded on an annual basis. Under these contracts, the U.S. federal government generally has the right not to exercise options to extend or expand our contracts and may otherwise terminate, cancel, modify, delay, or curtail our contracts at its convenience. Any decisions by the U.S. federal government to not exercise contract options or to terminate, cancel, delay, modify or curtail our major programs or contracts (including those on which we serve as a subcontractor) would adversely affect our revenues, revenue growth and profitability.

~~First, the process may be delayed or disrupted.~~ Changes in congressional schedules, administration priorities, negotiations for program funding levels or unforeseen world events can ~~interrupt~~delay or disrupt the funding for a program or contract. ~~Second,~~Funds ~~funds~~ for multi-year contracts can be changed in subsequent years in the appropriations process. In addition, the U.S. federal government has increasingly relied on IDIQ contracts and other procurement vehicles that are subject to a competitive bidding and funding process even after the award of the basic contract, adding an element of uncertainty to future funding levels. Delays in the funding process or changes in funding or funding priorities can impact the timing of available funds or can lead to changes in program content, delay or termination at the government's convenience.

Any decisions by the U.S. government to not exercise contract options or to terminate, cancel, delay, modify or curtail our major programs or contracts would adversely affect our revenues, revenue growth and profitability.

Federal government spending reductions, workforce changes, and policy shifts may impact our existing operations and future opportunities for new contracts.

Because we derive a substantial amount of our revenue from contracts with the federal government, either as a prime contractor or a subcontractor, changes in federal government budgetary priorities or policy shift could directly affect our financial performance. Uncertainty exists regarding how future budget and program decisions will unfold, including the spending priorities of the ~~new~~ U.S. presidential administration and Congress, and what challenges budget reductions will present for us and our industry generally. The current administration's efforts to reduce the size and spending of the federal government pose several potential risks to our operations. The focus on reducing government spending may lead to fewer contracts being awarded, reduced contract values, or delays in the awarding of contracts. Changes in federal priorities may result in a shift away from governance, risk and compliance software solutions, cybersecurity, and digital identity services, potentially reducing demand for our offerings.

Budgetary constraints and spending freezes may lead to delays in contract awards and renewals, as well as modifications or terminations of existing contracts. This could disrupt our revenue streams and require adjustments to our operations and workforce. As federal agencies adjust their spending priorities, there may be a reduction in new business opportunities, limiting our growth prospects and market expansion efforts.

Terminations, reductions in force, and hiring freezes within federal agencies may lead to a loss of institutional knowledge and expertise, resulting in delays or disruptions in project execution. Workforce shortages may also affect contract management and oversight, impacting the quality and timeliness of our service delivery.

The uncertainty surrounding federal budget allocations, workforce changes, and policy shifts may hinder our ability to execute long-term strategic initiatives and build and maintain long-term relationships with key government stakeholders. As federal agencies face staffing challenges and budget constraints, there may be increased competition among contractors for limited government resources and attention, leading to more stringent contract terms and lower profit margins.

13We rely on a few key customer contracts for a significant portion of our future revenue. A significant reduction or delay in implementation to one or more of these contracts would materially affect our anticipated operating results.

A small number of our large customer contracts are expected to comprise a significant portion of our future revenue. Our business will likely be harmed if any of our key customer contracts generate less revenue than we forecast, and the termination or delay of a large contract or multiple contracts could have a material adverse effect on our revenue and profitability. Adverse events affecting the programs subject to these contracts, such as inflation, labor challenges, shortage of materials, market volatility, a significant decline in the traveling public or supply chain disruption or delay, could also negatively affect our ability to process transactions under those contracts, which could adversely affect our revenue and the results of operations.

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We continue to monitor these developments closely and are actively engaging with stakeholders to mitigate potential adverse impacts. However, there can be no assurance that we will be able to fully offset the effects of any reductions in federal government spending, workforce changes, or policy shifts on our business operations and customer relationships.

We are dependent on a few key customer contracts for a significant portion of our future revenue, and a significant reduction in goods and services or delay in implementation to one or more of these contracts would reduce or delay our future revenue and could materially affect our anticipated operating results.

A small number of our large customer contracts are expected to comprise a significant portion of our future revenue. Our business will likely be harmed if any of our key customer contracts generate less revenue than we forecast, and the termination or delay of a large contract or multiple contracts could have a material adverse effect on our revenue and profitability. Adverse events affecting the programs subject to these contracts, such as a significant decline in the traveling public or any significant supply chain delay, could also negatively affect our ability to process transactions under those contracts, which could adversely affect our revenue and the results of operations.

A failure to attract, train, retain and motivate key and skilled employees, including key members of our management team, would adversely affect our ability to execute our strategy and may disrupt our operations.

Our business relies heavily upon the expertise and services of our employees. Our success depends upon the continued services of our highly qualified and experienced executive officers and other key members of management. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives. Such changes in our executive management team may be disruptive to our business.

We are also substantially dependent on the continued service of our existing highly trained and skilled personnel, particularly our business development and operations ~~group~~groups, because of the complexity of our services and technologies. The technology industry is subject to substantial and continuous competition for engineers and other subject matter experts with high levels of experience in designing, developing and managing software, cybersecurity, and Internet-related services, as well as competition for sales executives, data scientists and operations personnel. ~~Competition for skilled personnel is intense and many U.S. government programs also require contractors to have security clearances, which can be difficult and time-consuming to obtain.~~

Many U.S. federal government contracts require us to have security clearances and employ personnel with specified levels of education, work experience, and security clearances. Depending on the level of clearance, security clearances can be difficult and time-consuming to obtain. Competition for skilled personnel is intense, and to the extent we cannot maintain or obtain the required level of expertise and clearances for our employees working on such contracts, we may not be able to fulfill our contractual obligations and may not generate the revenue anticipated from the contracts.

We may not be successful in attracting and retaining qualified personnel. From time to time, we have experienced, and we expect to continue to experience, difficulty in hiring, developing, integrating and retaining highly skilled employees with appropriate qualifications. These difficulties may be amplified by evolving restrictions on immigration, travel, or the availability of visas for skilled technology workers. These difficulties could be further amplified by the high cost of living in the Washington D.C. metropolitan area, where our headquarters is located. If we fail to attract new personnel or fail to retain and motivate our current key employees or group, our business and future growth prospects could be severely harmed.

Due to the competitive bidding process to obtain U.S. federal government contracts, both upon initial issuance and re-competition, and the likelihood of bid protest, we may be unable to achieve or sustain revenue growth and profitability.

Many of our U.S. federal government contracts are awarded through a competitive bidding process upon initial award and renewal, and we expect this will continue. There is often significant competition and pricing pressure as a result of this process. ~~The~~From time to time, the competitive bidding process presents a number of risks, including the following:

•~~From~~We ~~time to time we~~ expend substantial funds and time to prepare bids and proposals for contracts that are ultimately awarded to one of our competitors;

•~~From~~We ~~time to time we~~ are unable to accurately estimate the resources and costs that will be required to perform any contract we are awarded, which results in substantial cost overruns and decreased margins;

•~~From~~We ~~time to time we~~ encounter expense and delay when our competitors protest or challenge awards of contracts, and any such protest or challenge could result in a requirement to resubmit bids on modified specifications or in the termination, reduction or modification of the awarded contract; and

•~~From~~We ~~time~~are tonot ~~time~~given the ~~protest~~opportunity ofto re-compete for U.S. federal government contracts previously awarded to us, ~~results~~and inwe ~~the~~may ~~delay~~incur ofexpenses ~~program~~to ~~performance~~protest such a decision and ~~the~~ultimately ~~generation~~may ofnot ~~revenue~~succeed ~~while~~in ~~the~~competing ~~protest~~for isor ~~pending;~~winning ~~and~~such contract renewal.

~~•From~~The U.S. federal government contracts for which we compete typically have multiple option periods, and if, as happens from time to time, we ~~are~~fail ~~not~~to ~~given~~win ~~the~~a ~~opportunity~~contract or a task order, we generally will be unable to ~~re-~~compete again for Uthat contract for several years.S. ~~government~~If ~~contracts~~we ~~previously~~fail ~~awarded~~to win new contracts or to usreceive renewal contracts upon re-competition, our business and weprospects ~~may~~will ~~incur~~be ~~expenses~~adversely toaffected ~~protest~~and ~~such~~that acould ~~decision~~cause our actual results to differ materially and ~~ultimately~~adversely ~~may~~from those anticipated. In addition, we will not ~~succeed~~have inan ~~competing~~opportunity to compete for orthese ~~winning~~contract opportunities again until such ~~contract~~contracts ~~renewal~~expire.

14In the event a bid protest of contracts awarded to us are unsuccessful, the resulting delay of program performance and funding of work under protested contract awards may adversely affect our revenue and profitability.

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The U.S. government contracts for which we compete typically have multiple option periods, and if, as happens from time to time, we fail to win a contract or a task order, we generally will be unable to compete again for that contract for several years. If we fail to win new contracts or to receive renewal contracts upon re-competition, it may result in additional costs and expenses and possible loss of revenue, and we will not have an opportunity to compete for these contract opportunities again until such contracts expire.

Our competitive position and future profitability depend, in part, on our ability to develop new technologies.

Our ability to increase revenue from existing customers and attract new customers will depend, in part, on our ability to anticipate and respond effectively to rapid technological changes and market developments. Virtually all of the products we produce and sell are highly engineered and require sophisticated manufacturing and system integration techniques and capabilities. The government market in which we primarily operate is characterized by rapidly changing technologies. The product or program needs of our government and commercial customers change and evolve regularly. AccordinglyFurther, our future ~~performance~~profitability inpartly ~~part~~ depends on our ability to ~~identify~~successfully ~~emerging~~implement ~~technological~~our ~~trends,~~strategies ~~devote~~to ~~adequate~~increase ~~research~~adoption ~~and~~of ~~development~~our ~~resources,~~solutions ~~develop~~ and ~~manufacture~~services ~~competitive products,~~ and bring those products to market quickly at cost-effective prices. If we fail to effectively anticipate, identify and respond to these changes in product or program needs in a timely manner, our business could be negatively impacted. Likewise, if we are unable to develop new ~~products that meet customers' changing needs, future sales and earnings may be adversely affected~~offerings.

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Virtually all of the products we produce and sell are highly engineered and require sophisticated manufacturing and system integration techniques and capabilities. The government market in which we primarily operate is characterized by rapidly changing technologies. The product or program needs of our government and commercial customers change and evolve regularly. Accordingly, our future performance in part depends on our ability to identify emerging technological trends, devote adequate research and development resources, develop and manufacture competitive products, and bring those products to market quickly at cost-effective prices.

Further, the market for identity verification solutions is still developing, and the evolution of this market may result in the development of different technologies and industry standards that may not be compatible with our current solutions, products, or technologies. Maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the market demands is essential.

If we fail to effectively anticipate, identify and respond to these changes in product, solutions or program needs in a timely manner, our business could be negatively impacted. Likewise, if we are unable to develop new products that meet customers' changing needs, future sales and earnings may be materially affected. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors would give an advantage to such competitors and our business, results of operations and financial condition could be adversely affected.

Our financial results may fluctuate due to increasing variability in our security solutions' sales and implementation cycles.

We market the majority of our security solutions directly to U.S. federal government customers. The sale and implementation of our services to these entities typically involves a lengthy education process and a significant technical evaluation and commitment of capital and other resources, which adds uncertainty to our sales cycle. This process is also subject to the risk of delays associated with customers' internal budgeting and other procedures for approving large capital expenditures, deploying new technologies within their networks and testing and accepting new technologies that affect key operations.

As a result, the sales and implementation cycles associated with certain of our services can be difficult to predict and lengthy. Our quarterly and annual operating results could be materially harmed if orders forecasted for a specific customer for a particular period of time are not realized.

Failure to effectively develop and execute our sales and business development capabilities will harm our ability to grow our business.

Our ability to increase our customer base and achieve broader market acceptance of our solutions and services depends, to a significant extent, on our ability to perform at a high level in our business development, growth, sales and marketing operations and activities. We believe that selling and marketing our security solutions requires advanced sales skills, customer relationships and technical knowledge to generate interest and to effectively communicate our solutions or services to new markets.

We may not achieve anticipated revenue growth from our growth team if we are unable to hire and develop talented business development and sales personnel, if our new business development and sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if we are unable to retain our existing sales force.

We depend on computing infrastructure operated by third parties to support some of our solutions and customers, and to help complete critical business functions. Any errors, disruption, performance problems, or failure in their or our operational infrastructure could adversely affect our business, financial condition, and results of operations.

We rely on the technology, infrastructure, and software applications of certain third parties in order to host or operate certain key ~~platform~~ features or functions of our business. Additionally, we rely on third-party computer hardware and cloud capabilities in order to deliver our solutions and services. Our business is dependent on the integrity, security and efficient operation of this technology and infrastructure, and we do not necessarily control the operation or data security of the third parties we utilize.

If any of these third-party services experience errors, disruptions, security issues, or other performance deficiencies; if they are updated such that our solutions become incompatible; if these services, software, or hardware fails or becomes unavailable due to extended outages, interruptions, defects, or otherwise; or if they are no longer available on commercially reasonable terms or prices (or at all), these issues could result in errors or defects in our solutions, failure of our solutions to perform, decline in our revenue and margins, damage to our reputation and brand, exposure to legal or contractual liability, increase in our expenses, and interruption in our ability to manage our operations. In addition, our processes for managing our sales and servicing our customers could be impaired until equivalent services or technology, if available, are identified, procured, and implemented, all of which may take significant time and resources, increase our costs, and could adversely affect our business. Many of these third-party providers attempt to impose limitations on their liability for such errors, disruptions, defects, performance deficiencies, or failures, and if enforceable, we may have additional liability to our customers or third-party providers.

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Furthermore, our solutions are, in many cases, important or essential to our customers' operations, including, in some cases, their cybersecurity or oversight and compliance programs, and subject to service level agreements. Any interruption in our service, whether as a result of an internal or third-party issue, could damage our brand and reputation, cause our customers to terminate or not renew their contracts with us or decrease the use of our solutions and services, require us to indemnify our customers against certain losses, result in our issuing credit or paying penalties or fines, subject us to other losses or liabilities, cause our solutions to be perceived as unreliable or unsecured, and prevent us from gaining new or additional business from current or future customers, any of which could harm our business, financial condition, and results of operations.

Moreover, to the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition, and results of operations could be adversely affected. ~~The~~For example, the provisioning of additional cloud hosting capacity requires lead time. These third parties have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If these third parties increase pricing terms, terminate or seek to terminate our contractual relationship, establish more favorable relationships with our competitors, or change or interpret their terms of service or policies in a manner that is unfavorable with respect to us, we may be required to (among other possible consequences) transfer to other cloud providers or invest in a private cloud. In that case, we could incur significant costs and experience possible service interruption in connection with doing so, or risk loss of customer contracts if they are unwilling to accept such a change.

A failure to maintain our relationships with our third-party providers (or obtain adequate replacements), and to receive services from such providers that do not contain any material errors or defects, could adversely affect our ability to deliver effective products and solutions to our customers and adversely affect our business and results of operations.

We depend on third parties for certain operational services and components of our products in order to fully perform under our contracts, and the failure or disruption of a third party to perform these services or provide these goods could have an adverse impact on our business.

We rely on subcontractors and other suppliers (or contracting parties) to provide materials, major components and subsystems for our products or to perform a portion of the services that we provide to our customers. ~~Occasionally,~~A wefailure ~~rely~~by ~~on only~~ one or ~~two~~more ~~sources~~ of ~~supply, which, if disrupted, could have an adverse effect on~~ our ~~ability~~suppliers toor ~~meet~~contracting ~~our~~parties ~~commitments~~ to ~~customers.~~provide Weagreed-upon ~~depend~~materials, oncomponents ~~these subcontractors and suppliers to fulfill their contractual obligations in a timely and satisfactory manner in full compliance with customer requirements. If one~~ or ~~more~~products, ~~of our suppliers~~ or ~~subcontractors~~perform isagreed-upon ~~unable~~services, ~~to satisfactorily provide~~ on a timely basis ~~the~~and ~~agreed-upon~~in ~~supplies~~a ~~or perform the agreed~~cost-~~upon~~effective ~~services~~manner, ~~per~~may ~~its~~adversely ~~contractual~~affect ~~obligations,~~ our ability to perform our obligations asand ~~a contractor may be~~ adversely ~~affected,~~impact ~~and~~our weresults ~~may~~of ~~be exposed to liability~~operations.

Occasionally, we rely on only one or two sources of supply, which, if disrupted, could have an adverse effect on our ability to meet our commitments to customers, and could adversely affect our business, results of operations and financial condition.

From time to time, we depend on these subcontractors and suppliers to fulfill their contractual obligations in a timely and satisfactory manner in full compliance with customer requirements. If one or more of our subcontractors or suppliers is unable to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services per its contractual obligations, our ability to perform our obligations as a contractor may be adversely affected. Our subcontractors' or suppliers' deficiencies can result in a customer terminating our contract for default, and we may be exposed to liability. Additionally, we could experience cost overruns and delays in contract performance, both of which would negatively impact our business and results of operations.

Failure to adequately protect our intellectual property, technologies and proprietary rights could harm our business, competitive position, financial condition, and results of operations.

Our success depends, in part, on our internally developed technologies, patents and other intellectual property. Despite our precautions, it may be possible for a third party to copy or otherwise obtain and use our trade secrets or other forms of intellectual property without authorization. Furthermore, the laws of foreign countries may not protect our proprietary rights in those countries to the same extent U.S. law protects these rights in the United States. In addition, it is possible that others may independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, our business could suffer.

To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our rights. In the future, we may have to resort to litigation to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of the proprietary rights of others. Regardless of outcome, this type of litigation could result in substantial costs and diversion of management and technical resources. The inability to adequately protect and enforce our intellectual property and other proprietary rights could seriously harm our business, results of operations and financial condition.

~~Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to estimate and manage costs, time, and resources accurately.~~ 15

Generally, our customer contracts are either firm-fixed-price ("FFP") or cost-reimbursable. Under FFP contracts, which represented approximately 75% of our 2024 revenues, we receive a fixed price irrespective of the actual costs we incur, and consequently, we carry the burden of any cost overruns. Due to their nature, fixed-price contracts inherently have more risk than cost-reimbursable contracts, particularly fixed-price development contracts where the costs to complete the development stage of the program can be highly variable, uncertain and difficult to estimate. Under cost-reimbursable contracts, subject to a contract-ceiling amount in certain cases, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance-based. If our costs exceed the contract ceiling and are not authorized by the customer or are not allowable under the contract or applicable regulations, we may not be able to obtain reimbursement for all such costs and our fees may be reduced or eliminated. In addition, because many of our contracts involve advanced designs and innovative technologies, we may experience unforeseen technological difficulties and cost overruns.

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~~Under~~Our ~~both~~earnings ~~types of contracts, we must accurately estimate the likely volume of work that will occur, costs~~ and ~~resource~~profitability ~~requirements~~may ~~involved,~~vary ~~and~~based ~~assess~~on the ~~probability~~mix of ~~completing~~our ~~individual~~contracts ~~transactions or milestones within the contracted time period~~ and ~~amount~~may tobe ~~maximize~~adversely oraffected ~~earn~~by ~~profit on these contracts. In addition, some of~~ our ~~contracts~~failure ~~have provisions relating~~ to ~~cost~~estimate ~~controls~~ and ~~audit~~manage ~~rights~~costs, ~~and if we fail to meet the terms specified in those contracts~~time, ~~we may not realize their full benefits. Cost overruns or poor cost controls could lower earnings, or may incur a net loss on a contract,~~ and ~~cause~~resources ~~a negative impact on our results of operations~~accurately.

We generated 73.3% of our 2025 revenues from fixed-price contracts. Under fixed-price contracts, we receive a fixed price irrespective of the actual costs we incur, and consequently, we carry the burden of any cost overruns. Fixed-price contracts require us to price our contracts by predicting our expenditures in advance. Due to their nature, fixed-price contracts inherently have more risk, particularly fixed-price development contracts where the costs to complete the development stage of the program can be highly variable, uncertain and difficult to estimate.

Under cost-reimbursable contracts, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance-based. In certain cases, cost-reimbursable contracts have a contract ceiling. If our costs exceed the contract ceiling and are not authorized by the customer or are not allowable under the contract or applicable regulations, we may not be able to obtain reimbursement for all such costs and our fees may be reduced or eliminated. In addition, because many of our contracts involve advanced designs and innovative technologies, we may experience unforeseen technological difficulties and cost overruns.

Under both types of contracts, we must accurately estimate the likely volume of work that will occur, costs and resource requirements involved, and assess the probability of completing individual transactions or milestones within the contracted time period and amount to maximize profit on these contracts. Further, some of our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in these contracts, we may incur additional costs or penalties. Cost overruns or poor cost controls could lower earnings, or may incur a net loss on a contract, and cause a negative impact on our results of operations.

In addition, some of our contracts are under a time-and-material basis. While this type of contracts is generally subject to less uncertainty than fixed-price contracts, to the extent that our actual labor costs are higher than the contract rates, our actual results could differ materially and adversely from those anticipated.

We will face risks associated with the growth of our business in new commercial markets and with new customer verticals, and we may not be able to achieve organic growth nor have the necessary resources to dedicate to the overall growth of our business.

To increase our revenue and achieve and maintain profitability, we plan to expand our operations in new commercial markets, including those where we may have limited operating experience, and may be subject to increased business, technology and economic risks that could affect our financial results. In the future, we may increasingly focus on commercial customers, including in the banking, financial services, healthcare, manufacturing, telecommunication, airlines and aerospace, insurance, retail, transportation, shipping and logistics, and energy industries, as well as other critical infrastructure industries. Entering new verticals and expanding in the verticals in which we are already operating will continue to require significant resources and there is no guarantee that such efforts will be successful or beneficial to us.

Although sales to a new customer have often led to additional sales to the same customer or similarly situated customers, it is uncertain if we will achieve the same penetration and organic growth in the future, and our reputation, business, financial condition, and results of operations could be negatively impacted. As we expand into and within new and emerging markets and heavily regulated industry verticals, we will likely face additional regulatory scrutiny, risks, and burdens from the governments and agencies that regulate those markets and industries.

Failure to deliver high-quality technical support services may adversely affect our relationships with our customers and our financial results.

Our customers depend on our support organization to resolve technical issues relating to our solutions and offerings. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. Increased customer demand for these services, without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on the reputation of our solutions, support and positive recommendations from our existing customers. Failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our offerings to existing and prospective customers, and our business, operating results and financial position.

Our growth depends, in part, on the success of our strategic relationship with our partner organizations.

To grow our business, we will continue to build, grow and maintain relationships with third parties, such as partner organizations, that provide complementary cybersecurity offerings. Identifying partners and negotiating relationships with them requires significant time and resources. The relationship we have with our partners, and that our partners have with our customers, provides our customers with enhanced value for our solutions and services.

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Our agreements with our partners are generally non-exclusive; therefore, our partners may offer customer solutions from several companies, including solutions and services that compete with ours. If our partners do not effectively market and sell our solutions or services, or use greater efforts to market and sell their solutions or those of our competitors, or fail to meet the needs of our customers, or if we are unsuccessful in establishing or maintaining our relationships with our partners, our ability to compete in the marketplace or to grow our revenue could be impaired, and our results of operations could be adversely affected.

IfMoreover, weour ~~are~~revenues ~~unable~~and tooperating ~~license~~results ~~third-party~~could ~~technology~~differ ~~that~~materially isand ~~used~~adversely infrom ~~our~~those ~~products~~anticipated ~~and~~if ~~services~~these partner organizations chose to ~~perform~~offer ~~key~~directly ~~functions,~~to the ~~loss~~customers ~~could~~solutions ~~have~~or anservices ~~adverse~~of ~~effect~~the ontype ~~our~~that ~~revenues~~we provide.

We rely on third-party technology that is used in our products and services to perform key functions. If we are unable to license third-party technology or the technology is subject to a security breach, without an alternative, it may negatively impact our business and results of operations.

We currently incorporate technology that we license from third parties, including software, into our solutions. The third-party technology licenses we use may not continue to be available on commercially reasonable terms or at all. Our business could suffer if we lost the right to use these technologies. Additionally, if we are unable to license technology from third parties, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and may require us to use alternative technology of lower quality or performance standards. As a result, our margins and results of operations could be significantly harmed.

A third party could claim that the licensed software infringes a patent or other proprietary right. Litigation between the licensor and a third party or between a third party and us could lead to royalty obligations for which we are not indemnified or for which indemnification is insufficient, or we may not be able to obtain any additional license on commercially reasonable terms or at all. The loss of, or our inability to obtain or maintain, any of these technology licenses could delay the introduction of new products or services until equivalent technology, if available, is identified, licensed and integrated.

17In addition, our business is dependent on the integrity, security and efficient operation of the third-party technology, and we do not necessarily control the operations or data security of the third-party providers we utilize. Our systems and operations or those of our third-party providers and partners could be exposed to damage, interruption, security breach and other risks from, among other things, computer viruses, other malicious software, and other cyberattacks. The vulnerability of the technology to security breaches, failure of these systems to perform as designed, or inability to find suitable alternatives could result in significant disruptions to our operations and subject us to losses, liability or costs to remediate any of these system failures.

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The inability to set optimal pricing structures for our solutions and services could adversely impact our business, financial condition and results of operations.

From time to time, we change our pricing ~~model~~models in response to competition, global economic conditions, and general reductions in our customers' spending levels, pricing studies, or changes in how our solutions are broadly consumed. Similarly, as we introduce new products and services, or as a result of the evolution of our existing solutions and services, we may have difficulty determining the appropriate price structure for our products and services. Further, as new and existing competitors introduce new products or services that compete with ours, or revise their pricing structures, we may be unable to attract new customers at the same price or based on the same pricing model as we have used historically. Moreover, as we continue to target selling our solutions and services to larger organizations, these larger organizations may demand substantial price concessions. We may also need to change pricing policies to accommodate government pricing guidelines for our contracts with federal, state, ~~local,~~ and ~~foreign~~local governments, and ~~government~~foreign ~~agencies~~governments.

If we are unable to modify or develop pricing models and strategies that are attractive to existing and prospective customers, while enabling us to significantly grow our sales and revenue relative to our associated costs and expenses in a reasonable period of time, our business, financial condition, and results of operations may be adversely impacted.

~~Sales to customers outside the United States expose us to risks inherent in international operations.~~17

WeTable sell our services outside the United States and are subject to unique risks and challenges associated with international business. These risks and challenges include, but are not limited to, (a) compliance with governmental laws and regulations, (b) foreign business practices, (c) tax environments, (d) protection of ~~our intellectual property, and (e) regional economic and geopolitical conditions.~~ Contents

~~Although~~Artificial ~~our~~Intelligence ~~international~~("AI") ~~operations~~is ~~have~~an historically generated a small proportion of our revenues, any of these factors could negatively impact our business and results of operations. In addition, these factors may also negatively impact our ability to successfully expand into emerging ~~market~~technology ~~countries, where we have little or no operating experience, where it can be costly~~ and ~~challenging to establish and maintain operations, including hiring and managing required personnel, and difficult to promote our brand, and where~~ we may not ~~benefit~~be ~~from~~successful ~~any~~in ~~first-to-market~~our ~~advantage~~AI ~~or otherwise succeed~~initiatives.

The field of AI is characterized by rapid technological advancements and is subject to significant risks and uncertainties. Our future success may be dependent, in part, on our ability to develop, integrate, and effectively utilize AI technologies in our solutions or offerings. Given that this is a new and complex technology, we may face challenges related to the designing, developing, and implementing AI processes and procedures. There are significant risks involved in using AI and no assurances can be provided that our use of AI will enhance our products or services, produce the intended results or keep pace with the use of AI by our competitors. For example, AI algorithms may be flawed, insufficient, of poor quality, rely upon incorrect or inaccurate data, reflect unwanted forms of bias, or contain other errors or inadequacies, any of which may not be easily detectable; AI has been known to produce false or “hallucinatory” inferences or outputs; our use of AI can present ethical issues and may subject us to new or heightened legal, regulatory, ethical, or other challenges; and inappropriate or controversial data practices by developers and end-users, or other factors adversely affecting public opinion of AI, could impair the acceptance of AI solutions, including those incorporated in our products and services. Further, this technology is subject to evolving industry standards and regulatory constraints. Failures to effectively address these risks and uncertainties may materially and adversely affect our business and results of operations.

Recently, we launched Xacta.ai, the artificial intelligence capability at the core of our Xacta platform. The use of AI in our solutions may carry considerable risk, and we cannot guarantee the achievement of the intended outcome. The use of AI technologies involves issues associated with intellectual property, data privacy and security, consumer protection and equal opportunity laws. Given the nature of AI technology, we may face significant competition from other companies and evolving regulatory landscape. Our AI efforts may not be successful and our competitors may incorporate AI into their products or services more successfully than us. Further, AI-related changes to our products and services may affect our customers' expectation or requirements in ways we cannot adequately anticipate or adapt to; and may result to unsatisfied customers or inability to operate profitably and sustainably.

We may be subject to legal proceedings, regulatory disputes and governmental inquiries that could materially harm our business, operating results, and financial condition.

From time to time, in the ordinary course of business, we ~~have~~are ~~been~~subject ~~involved~~to ina variety of legal proceedings and, in the future, may be subject to lawsuits, claims, government investigations and other proceedings. These may include lawsuits and claims related to securities compliance, contracts, subcontracts, intellectual property, employment and wage claims, and other matters. Our business may be adversely affected by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty. Those contingencies include, but are not limited to, the cost of litigation and unpredictable court decisions. Adverse outcomes with respect to litigation, or a government inquiry, or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or harm our reputation, all of which could negatively affect our business, results of operations and financial conditions.

Potential future acquisitions, strategic investments, partnerships, divestitures, mergers or joint ventures may subject us to significant risks, any of which could harm our business.

We have in the past acquired, and may in the future seek to acquire or invest in, complementary businesses, products or technologies to enhance our technical capabilities or otherwise capture growth opportunities.

Our long-term strategy may include identifying and acquiring, partnering with, investing in or merging with suitable candidates on acceptable terms, or divesting of certain business lines or activities. Partnerships, mergers, joint ventures, acquisitions, and divestitures include a number of risks and present financial, managerial and operational challenges, including but not limited to: diversion of management attention from running our existing business; possible material weaknesses in internal control over financial reporting; increased expenses, including legal, administrative and compensation expenses related to newly hired or terminated employees; increased costs to integrate the technology, personnel, customer base and business practices of the acquired company with us; potential exposure to material liabilities not discovered in the due diligence process; potential adverse effects on reported operating results due to possible write-down of goodwill and other intangible assets associated with acquisitions; and unavailability of acquisition financing or unavailability of such financing on reasonable terms.

~~•Diversion~~Any ofacquired ~~management~~business, ~~attention~~technology, service or product could significantly underperform relative to our expectations and may not achieve the benefits we expect from ~~running~~possible acquisitions. For all these reasons, our ~~existing~~pursuit of an acquisition, partnership, investment, divestiture, merger, or joint venture could cause its actual results to differ materially from those anticipated and/or negatively affect our business;.

•Possible material weaknesses in internal control over financial reporting;

•Increased expenses, including legal, administrative and compensation expenses related to newly hired or terminated employees;

•Increased costs to integrate the technology, personnel, customer base and business practices of the acquired company with us;

•Potential exposure to material liabilities not discovered in the due diligence process;

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~~•Potential~~Public ~~adverse~~confidence ~~effects~~in, onand ~~reported~~acceptance ~~operating~~of, ~~results~~identity ~~due~~platforms toand ~~possible~~biometrics ~~write-down~~generally, ofand ~~goodwill~~our solutions and ~~other~~services ~~intangible~~specifically, ~~assets~~will ~~associated~~be ~~with~~a ~~acquisitions;~~key ~~and~~factor in our business’s continued growth.

~~•Unavailability~~Our future profitability will depend, in part, on public confidence in and acceptance of ~~acquisition~~identity ~~financing~~platforms and biometrics generally. Continued acceptance of identity platforms and biometric information as a secure and reliable method to identify individuals, mitigate risk and minimize fraud is an important factor in our continued growth. While both identity platforms and biometrics have become more widely adopted, they may not achieve universal acceptance. The attractiveness of some of our solutions to our customers is impacted by a number of factors, including the willingness of individuals to provide their personal information, including biometric information, to private or ~~unavailability~~governmental entities, the level of confidence that such ~~financing~~information oncan ~~reasonable~~be ~~terms~~stored safely and securely, and trust that such information will not be misused or breached. Certain individuals may never accept the use of biometrics as being safe. If identity platforms and biometrics do not achieve universal acceptance, or our solutions are not competitive with our industry players, our growth could be limited, which could materially adversely affect our business, results of operations and financial condition.

Any ~~acquired~~decline ~~business, technology, service~~ or ~~product~~disruption ~~could~~in ~~significantly underperform relative to our expectations and may not achieve~~ the ~~benefits~~travel weindustry ~~expect~~or ~~from~~general ~~possible~~economic ~~acquisitions.~~downturn ~~For~~could ~~all~~materially ~~these~~and ~~reasons,~~adversely affect our ~~pursuit of an acquisition~~business, ~~partnership, investment, divestiture, merger, or joint venture could cause its actual~~ results toof ~~differ~~operations ~~materially from those anticipated~~ and~~/or~~ ~~negatively~~financial ~~affect our business~~condition.

~~Public~~One ~~confidence~~of inour growth strategies is to increase revenue from our TSA PreCheck enrollment offerings. Accordingly, our performance is dependent in part on the strength of the travel industry. Our revenue is therefore susceptible to declines in or disruptions to leisure and ~~acceptance~~business travel that may be caused by factors entirely out of our control, ~~identity~~including, ~~platforms~~but not limited to, prolonged extreme weather, natural or man-made disasters, travel-related health concerns (including pandemics and ~~biometrics~~epidemics ~~generally~~or other outbreak of contagious diseases), restrictions related to travel, stay-at-home orders, wars and ~~our~~military ~~solutions~~actions, ~~specifically~~terrorist attacks, ~~will~~sources beof political uncertainty or political events, protests, foreign policy changes, regional hostilities, general economic conditions (such as a ~~key~~recession ~~factor~~or inflation), changes in regulations, labor unrest or travel-related accidents. Because these events or concerns, and the full impact of their effects, are largely unpredictable, they can dramatically and suddenly affect travel behavior and other activities by consumers, and therefore demand for our TSA PreCheck services, which could materially adversely affect our business’s, ~~continued~~results ~~growth.~~of operations and financial condition.

Our future profitability will depend, in part, on public confidence in and acceptance of identity platforms and biometrics generally. Continued acceptance of identity platforms and biometric information as a secure and reliable method to identify individuals, mitigate risk and minimize fraud is an important factor in our continued growth. While both identity platforms and biometrics have become more widely adopted, they may not achieve universal acceptance. The attractiveness of our solutions to our customers is impacted by a number of factors, including the willingness of individuals to provide their personal information, including biometric information, to private or governmental entities, the level of confidence that such information can be stored safely and securely, and trust that such information will not be misused or breached. Certain individuals may never accept the use of biometrics as being safe. If identity platforms and biometrics do not achieve universal acceptance, or our solutions are not competitive with our industry players, our growth could be limited, which could materially adversely affect our business, results of operations and financial condition.

On the other hand, any negative associations or perceptions with our solutions or biometrics could impede our business growth and could adversely affect our business, results of operations and financial condition. Likewise, any breaches of our information technology systems, particularly on the use and collection of biometric information, may subject us to significant reputational, financial, legal or operational consequences.

Any decline or disruption in the travel industry could materially adversely affect our business, results of operations and financial condition.

One of our growth strategies is to increase revenue from our TSA PreCheck enrollment offerings. Accordingly, our performance is dependent in part on the strength of the travel industry. Our revenue is therefore susceptible to declines in or disruptions to leisure and business travel that may be caused by factors entirely out of our control, including, but not limited to, prolonged extreme weather, natural or man-made disasters, travel-related health concerns (including pandemics and epidemics or other outbreak of contagious diseases), restrictions related to travel, stay-at-home orders, wars and military actions, terrorist attacks, sources of political uncertainty or political events, protests, foreign policy changes, regional hostilities, general economic conditions (such as a recession or inflation), changes in regulations, labor unrest or travel-related accidents. Because these events or concerns, and the full impact of their effects, are largely unpredictable, they can dramatically and suddenly affect travel behavior and other activities by consumers, and therefore demand for our TSA PreCheck services, which could materially adversely affect our business, results of operations and financial condition. Additionally, as the Real ID Act will require passengers having compliant identification to travel by air in the United States by May 7, 2025, such regulation, if not extended, may decrease the number of travelers with compliant identification and, therefore, negatively impact the demand for our PreCheck services, which could materially adversely affect our business, results of operations and financial condition.

Actions that we are taking to restructure our business to improve profitability may not be as effective as anticipated.

WeFrom ~~committed~~time to atime, the Company initiates restructuring ~~plan~~activities to ~~streamline~~execute ~~our~~management's ~~workforce~~strategy and ~~realign~~optimize ~~our~~its cost structure ~~with the volume of our business~~. We executed ~~the~~a restructuring plan in early 2023, ~~incurring restructuring-related costs, including employee severance~~ and ~~related~~implemented ~~benefit~~additional ~~costs and external consulting and advisory fees related to the implementation of the~~ restructuring ~~plan.~~actions ~~In addition, we undertook another restructuring action~~ in the third quarter of 2024 inand anfourth ~~effort~~quarter of 2025 to ~~optimize~~better align our operations with strategic priorities, ~~and~~resulting ~~incurred~~in ~~severance and~~ restructuring-related ~~benefit~~ costs. We may be unable to realize the expected improved profitability and efficiency from our restructuring efforts.

WeGoodwill ~~are~~and ~~subject~~intangible toassets ~~payment~~represent ~~processing~~significant ~~risk~~assets on our balance sheet and any impairment on these assets could negatively impact our results of operations, and shareholders' equity.

InAs ~~certain~~of ~~instances~~December 31, ~~our~~2025, ~~customers~~goodwill ~~pay for our products~~ and ~~services~~intangible ~~using~~assets, ~~their~~net ~~credit~~was or23.8% ~~debit~~of ~~cards~~our astotal ~~a payment method~~assets. ~~Under~~Goodwill ~~this~~and ~~arrangement,~~intangible weassets ~~rely~~are ontested ~~third-party~~for ~~systems~~impairment towhenever ~~process~~events ~~payments.~~or ~~Acceptance~~changes ~~and~~in ~~processing~~circumstances ofindicate ~~these~~that ~~payment~~the ~~methods~~carrying ~~are~~value ~~subject~~may tonot ~~certain~~be ~~rules and regulations~~recoverable, and ~~require~~at ~~payment~~least ofannually ~~interchange~~in ~~and~~the ~~other~~case ~~fees~~of goodwill. The ~~increases~~impairment intest ~~payment~~is ~~processing~~based ~~fees,~~on ~~any~~several ~~disruption~~factors, inestimates ~~our~~and ~~payment~~assumptions ~~processing~~requiring ~~systems,~~judgment. ~~material~~Adverse changes in ~~the~~macroeconomic ~~payment network~~conditions, ~~delays~~industry inand ~~receiving~~market ~~payments~~consideration, ~~from~~overall ~~third-party~~financial ~~payment processors~~performance, ormarket ~~changes~~capitalization toand ~~rules~~relevant orentity-specific ~~regulations~~events ~~concerning~~could ~~payment~~result ~~processing~~in ~~could~~an ~~adversely~~impairment ~~impact~~of ~~our~~goodwill ~~results~~and ofintangible ~~operations~~assets.

In the fourth quarter of 2025, we conducted a quantitative goodwill impairment analysis on the Secure Networks reporting unit. The impairment analysis determined that the reporting unit's carrying value exceeded its estimated fair value as a result of continued contraction of Secure Networks' backlog in 2025. Accordingly, we recognized a non-cash goodwill impairment of $14.9 million as of December 31, 2025.

Likewise, in the third quarter of 2024, we decided to discontinue the development and/or sale of all or part of certain solutions for selected capitalized software projects, and certain projects which we ceased to use before the end of their useful life. As a result, we recognized an impairment loss on intangible assets of $11.7 million as of December 31, 2024.

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Goodwill and intangible assets represent significant assets on our balance sheet and any impairment on these assets could negatively impact our results of operations, and shareholders' equity.

As of December 31, 2024, goodwill and intangible assets, net was 31% of our total assets. Goodwill and intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable, and at least annually in the case of goodwill. The impairment test is based on several factors, estimates and assumptions requiring judgment. Adverse changes in macroeconomic conditions, industry and market consideration, overall financial performance, market capitalization and relevant entity-specific events could result in an impairment of goodwill and intangible assets.

For instance, in the third quarter of 2024, we decided to discontinue the development and/or sale of all or part of certain solutions for selected capitalized software projects, and certain projects which we ceased to use before the end of its useful life. As a result, we recognized an impairment loss on intangible assets of $11.7 million as of December 31, 2024. Any future impairment of goodwill and intangible assets could have a negative impact on our results of operations and shareholders' equity in the period in which they are recognized.

Artificial Intelligence is an emerging technology and may involve significant risks and uncertainties.

The field of AI is characterized by rapid technological advancements and is subject to significant risks and uncertainties. Our future success is dependent on our ability to develop, integrate, and effectively utilize AI technologies especially in our Xacta solution. Given that this is a new and complex technology, we may face challenges related to the designing, developing, and implementing AI processes and procedures, including the risk of unforeseen operational failures. Further, this technology is subject to evolving industry standards and regulatory constraints. Failures to effectively address these risks and uncertainties may materially and adversely affect our business and results of operations.

Industry, Legal and Regulatory Risks

The business environment in which we operate is highly competitive, and we may not be able to compete successfully against existing or future competitors.

We operate in an intensely competitive market and diverse industry segment, and we expect competition to increase in the future from established businesses and new market entrants. Based on our current market analysis, no single company or small group of companies is in a dominant competitive position. Some large competitors offer capabilities in a number of markets that overlap many of the same areas in which we offer services, while certain companies are focused upon only one or a few of such markets. Some firms that compete with us in multiple areas include large, established defense contractors. In addition, we compete with smaller specialty companies, including risk and compliance management companies, organizational messaging companies, and security consulting organizations, and companies that provide secure network offerings. If we are unable to anticipate or react to these challenges or do not compete effectively, our competitive position could weaken and could result in a decline in revenue or reduced revenue growth, price reductions or reduced gross margins, and loss of market share, all of which could adversely affect our business.

A decline in the federal budget, changes in spending or budgetary priorities of the U.S. federal government, a prolonged U.S. federal government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results.

Our customers are substantially U.S. ~~government~~federal ~~agencies~~government. The customer relationship with the U.S. federal government involves certain unique risks. The programs we participate in must compete with other programs and policy imperatives during the budget and appropriations process. If government funding relating to our contracts with the U.S. federal government becomes unavailable, or is reduced or delayed, or planned orders are reduced, our contracts or subcontracts may be terminated or adjusted by the U.S. federal government or the prime contractor. Our operating results could also be adversely affected by spending caps or changes in the budgetary priorities of the U.S. federal government, as well as delays in program starts or the award of contracts or task orders under contracts.

IfIn ~~government~~the ~~funding~~past ~~relating~~few toyears, ~~our~~U.S. ~~contracts~~federal ~~with~~government ~~the~~appropriations have been affected by larger U.S. federal government ~~becomes~~budgetary ~~unavailable,~~issues orand isrelated ~~reduced~~legislation. orAs ~~delayed~~a result, orfederal ~~planned~~government ~~orders~~funding levels have fluctuated and have been difficult to predict. Future spending levels are ~~reduced~~subject to a wide range of factors, ~~our~~including ~~contracts~~Congressional oraction. ~~subcontracts~~In ~~may~~addition, beover ~~terminated~~the orlast ~~adjusted~~few byyears, the U.S. federal government orhas been unable to complete its budget process before the ~~prime~~end ~~contractor.~~of ~~Our~~its ~~operating~~fiscal ~~results~~year, ~~could~~resulting ~~also~~in bea ~~adversely~~series ~~affected~~of bycontinuing ~~spending~~resolutions ~~caps~~to orextend ~~changes~~sufficient infunds ~~the~~only ~~budgetary~~for ~~priorities~~U.S. offederal government agencies to continue operating. When the U.S. federal government, asfails ~~well~~to ascomplete ~~delays~~its inappropriations ~~program~~process ~~starts~~or provide for a continuing resolution, a full or ~~the~~partial ~~award~~government shutdown may occur. A federal government shutdown could disrupt our performance, delay or cancellation of ~~contracts~~key programs, delay or ~~task~~cancel ~~orders~~contract payments, or require us to incur substantial costs without reimbursement under the existing contracts. Moreover, the national debt threatened to reach the statutory debt ceiling, and such an event in future years could result in the U.S. federal government defaulting on its debts.

~~In recent years, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related legislation.~~ As a result, ~~DoD~~government ~~funding~~spending levels ~~have~~are ~~fluctuated and have been~~ difficult to predict. ~~Future~~beyond ~~spending~~the ~~levels~~near ~~are~~term ~~subject~~due to anumerous ~~wide range of~~ factors, including ~~Congressional action. In addition, over~~ the ~~last~~external ~~few~~threat ~~years~~environment, ~~the~~future ~~U.S.~~ government ~~has~~priorities ~~been~~and ~~unable to complete its budget process before~~ the ~~end~~state of ~~its~~government ~~fiscal~~finances. ~~year,~~Significant ~~resulting~~changes in agovernment ~~series~~spending, ofchanges ~~continuing~~in ~~resolutions to extend sufficient funds only for~~ U.S. federal government ~~agencies~~priorities, topolicies ~~continue~~and ~~operating. Moreover~~requirements, ~~the~~or ~~national~~another ~~debt~~prolonged ~~threatened~~government toshutdown ~~reach~~could ~~the~~have ~~statutory~~a ~~debt~~material ~~ceiling,~~ and ~~such~~adverse aneffect ~~event~~on inour ~~future~~results ~~years~~of ~~could~~operations, ~~result~~financial incondition ~~the~~or Uliquidity.S. ~~government defaulting on its debts.~~

AsThe aAdministration's ~~result~~actions, ~~government~~such ~~spending~~as ~~levels~~tariffs ~~are difficult to predict beyond the near term due to numerous factors, including the external threat environment, future government priorities~~ and ~~the~~other ~~state of government finances. Significant~~ changes in ~~government~~international ~~spending~~trade ~~or changes in U.S. government priorities~~policies, ~~policies and requirements~~ could ~~have~~adversely aand ~~material~~unexpectedly ~~adverse~~impact ~~effect on~~ our ~~results of operations, financial condition or liquidity~~business.

In January 2025, the then-new Administration began increasing tariff rates on numerous products from a range of nations. The duration and extent of the tariffs and reciprocal tariffs, including the availability of certain exemption on some products, continue to evolve. Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the procurement costs of certain IT hardware we use, both internally or on our contracts, or sell to our customers. These actions could adversely affect the Company and our supply chain, business partners, or customers, and have a negative effect on our business, results of operations, or financial condition.

We are subject to the seasonality of U.S. federal government spending.

We derive a substantial portion of our revenues from U.S. federal government contracting, and as a result, we are subject to the annual seasonality of U.S. federal government purchasing. Because the U.S. federal government fiscal year ends on September 30, it is common for U.S. federal government agencies to award extra tasks in the weeks immediately prior to the end of its fiscal year in order to avoid the loss of unexpended fiscal year funds. As a result of this seasonality, we have historically experienced higher revenues in the second half of our fiscal year, with the pace of orders typically substantially reduced during the first half of our fiscal year.

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We are subject to the seasonality of U.S. government spending.

We derive a substantial portion of our revenues from U.S. government contracting, and as a result, we are subject to the annual seasonality of U.S. government purchasing. Because the U.S. government fiscal year ends on September 30, it is common for U.S. government agencies to award extra tasks in the weeks immediately prior to the end of its fiscal year in order to avoid the loss of unexpended fiscal year funds. As a result of this seasonality, we have historically experienced higher revenues in the second half of our fiscal year, with the pace of orders typically substantially reduced during the first half of our fiscal year.

We are required to comply with stringent, complex and evolving laws, rules, regulations and standards, as well as contractual obligations relating to privacy, data protection and security, technology protection, and other matters. Any actual or perceived failure to comply with these requirements could have a material effect on our business.

We are subject to a variety of local, state, national, and international laws and directives and regulations in the United States and abroad that involve matters central to our business, including privacy and data protection, data security, data storage, retention, transfer and deletion, technology protection, and personal information. Foreign data protection, data security, privacy, and other laws and regulations can impose different obligations or be more restrictive than those in the United States. These U.S. federal, state and foreign laws and regulations, which, depending on the regime, may be enforced by private parties or government entities, are constantly evolving and can be subject to significant change, and they are likely to remain uncertain for the foreseeable future. In addition, the application, interpretation, and enforcement of these laws and regulations are often uncertain, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. A number of proposals are pending before U.S. federal, state, and foreign legislative and regulatory bodies that could significantly affect our business.

The overarching complexity of privacy and data protection laws and regulations around the world pose a compliance challenge that could manifest in costs, damages, or liability in other forms as a result of failure to implement proper programmatic controls, failure to adhere to those controls, or the malicious or inadvertent breach of applicable privacy and data protection requirements by us, our employees, our business partners, or our customers.

In addition to government regulation, self-regulatory standards and other industry standards may legally or contractually apply to us, be argued to apply to us, or we may elect to comply with such standards or to facilitate our customers' compliance with such standards. Because privacy, data protection, and information security are critical competitive factors in our industry, we may make statements on our website, in marketing materials, or in other settings about our data security measures and our compliance with, or our ability to facilitate our customers' compliance with, these standards.

We also expect that there will continue to be new proposed laws and regulations concerning privacy, data protection, and information security, and we cannot yet determine the impact such future laws, regulations and standards, or amendments to or re-interpretations of existing laws and regulations, industry standards, or other obligations may have on our business. New laws, amendments to or re-interpretations of existing laws and regulations, industry standards, and contractual and other obligations may require us to incur additional costs and restrict our business operations. As these legal regimes relating to privacy, data protection, and information security continue to evolve, they may result in ever-increasing public scrutiny and escalating levels of enforcement and sanctions. Furthermore, because the interpretation and application of laws, standards, contractual obligations and other obligations relating to privacy, data protection, and information security are uncertain, these laws, standards, and contractual and other obligations may be interpreted and applied in a manner that is, or is alleged to be, inconsistent with our data management practices, our policies or procedures, or the features of our solutions. If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our solutions, which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to fulfill existing obligations, make enhancements, or develop new solutions and features could be limited. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our solutions.

These existing and proposed laws and regulations can be costly to comply with and can make our solutions and services less effective or valuable, delay or impede the development of new products, result in negative publicity, increase our operating costs, require us to modify our data handling practices, limit our operations, impose substantial fines and penalties, require significant management time and attention, or put our data or technology at risk. Any failure or perceived failure by us or our solutions to comply with U.S. or applicable foreign laws, regulations, directives, policies, industry standards, or legal obligations relating to privacy, data protection, or information security, or any security incident that results in loss of or the unauthorized access to, or acquisition, use, release, or transfer of, personal information, personal data, or other customer or sensitive data or information may result in governmental investigations, inquiries, enforcement actions and prosecutions, private claims and litigation, indemnification or other contractual obligations, other remedies, including fines or demands that we modify or cease existing business practices, or adverse publicity, and related costs and liabilities, which could significantly and adversely affect our business and results of operations.

We are subject to substantial oversight from federal agencies that have the authority to suspend our ability to bid on contracts.

As a U.S. federal government contractor, we are subject to oversight by many agencies and entities of the U.S. federal government that may investigate and make inquiries about our business practices and conduct audits of contract performance and cost accounting. Depending on the results of any such audits and investigations, the U.S. federal government may make claims against us. Under U.S. federal government procurement regulations and practices, an indictment of a U.S. federal government contractor could result in that contractor being fined and/or suspended for a period of time from eligibility for bidding on, or for the award of, new U.S. federal government contracts. A conviction could result in debarment for a specified period of time, and debarment could materially and negatively affect our business and operating results.

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We are subject to substantial oversight from federal agencies that have the authority to suspend our ability to bid on contracts.

As a U.S. government contractor, we are subject to oversight by many agencies and entities of the U.S. government that may investigate and make inquiries about our business practices and conduct audits of contract performance and cost accounting. Depending on the results of any such audits and investigations, the U.S. government may make claims against us. Under U.S. government procurement regulations and practices, an indictment of a U.S. government contractor could result in that contractor being fined and/or suspended for a period of time from eligibility for bidding on, or for the award of, new U.S. government contracts. A conviction could result in debarment for a specified period of time, and debarment could materially and negatively affect our business and operating results.

We are subject to governmental export and import controls that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.

Some of our solutions are subject to export and import controls, including, without limitation, the Department of State's Directorate of Defense Trade Controls, the Commerce Department's Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations established by the Treasury Department's Office of Foreign Assets Control. If we fail to comply with these U.S. export control laws and import laws, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations, including any required license, may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities.

Furthermore, the U.S. export control laws and economic sanctions laws prohibit the shipment of certain products and services to U.S. embargoed or sanctioned countries, governments and persons. Even though we take precautions to prevent our solutions from being provisioned or provided to U.S. sanctions targets in violation of applicable regulations, our solutions could be provisioned to those targets despite such precautions. Any such sales could have negative consequences, including government investigations, penalties and reputational harm. Changes in our solutions or changes in export and import regulations may create delays in the introduction, sale and deployment of our solutions in international markets or prevent the export or import of our solutions to certain countries, governments or persons altogether. Any decreased use of our solutions or limitation on our ability to export or sell our solutions may adversely affect our business, financial condition and results of operations.

Risks Related to Our Financial Reporting and Common Stock

We may fail to meet our publicly announced guidance and other expectations about our business and operating results, which may cause our stock price to decline.

From time to time, we release or confirm guidance in our quarterly earnings conference calls, quarterly earnings releases, or otherwise, regarding our future performance that represents our management's estimates as of the date of release. This guidance, which includes forward-looking statements, is based on projections prepared by our management. Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. Our aim is to state possible outcomes as high and low ranges to provide a sensitivity analysis as variables are changed but are not intended to imply that actual results could not fall outside of the suggested ranges. The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any such third parties.

Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances beyond our control could result in the actual operating results being different from our guidance, and the differences may be adverse and material. In light of the foregoing, investors are urged not to rely upon our guidance when making an investment decision regarding our common stock.

Furthermore, if we make downward revisions to our previously announced guidance, or if our publicly announced guidance of future operating results fails to meet the expectations of securities analysts, investors or other interested parties, the price of our common stock may decline.

Our quarterly operating results fluctuate and may fall short of prior periods, our projections or the expectations of securities analysts or investors, which could adversely affect the trading price of our stock.

Our operating and financial results have historically varied from quarter to quarter, and we expect that they may continue to do so in the future as a result of a number of factors, many of which are difficult to predict and outside of our control. Therefore, the results of any one quarter may not be a reliable indication of results to be expected for any other quarter or for any year. This variability and unpredictability could result in our failing to achieve our projected results or to meet the expectations of securities analysts or investors for any period. As a result, our stock price may decline, and the decrease in the stock price may be disproportionate to the shortfall in our financial performance.

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~~Our~~Certain ~~quarterly operating results fluctuate and may fall short~~ of ~~prior~~our ~~periods,~~U.S. ~~our~~federal ~~projections~~government orcontracts ~~the~~involve ~~expectations~~work of ~~securities~~a ~~analysts~~confidential ~~or investors~~nature, which ~~could~~may ~~adversely~~limit ~~affect~~investor ~~the~~insight ~~trading~~into ~~price~~portions of our ~~stock~~business.

~~Our~~We ~~operating~~have ~~results~~historically ~~have~~had, ~~fluctuated~~and from ~~quarter~~time to ~~quarter~~time atcontinue ~~points~~to ~~in the past~~have, ~~and~~contracts ~~they~~with ~~may~~or dofor ~~so in~~ the ~~future~~U.S. ~~Therefore,~~federal ~~the~~government ~~results~~that ofare ~~any~~subject ~~one~~to ~~quarter~~confidentiality ~~may~~and/or ~~not~~security berestrictions a(for ~~reliable~~example, ~~indication~~and ofwithout ~~results~~limitation, tocontracts beinvolving ~~expected~~classified ~~for~~information ~~any~~and ~~other~~classified ~~quarter or for any year~~programs). IfWe wedo ~~fail~~not toprovide ~~increase~~information ~~our~~about ~~results~~these ~~over~~contracts ~~prior~~and ~~periods~~programs, totheir ~~achieve~~risks ~~our~~or ~~projected~~any ~~results~~disputes or claims relating to ~~meet~~such ~~the~~contracts ~~expectations~~or ofprograms. ~~securities~~As ~~analysts~~a orresult, investors, ~~our~~have ~~stock~~less ~~price~~insight ~~may~~into ~~decline,~~our ~~and~~confidential ~~the~~business ~~decrease~~or inour ~~the~~business ~~stock~~overall. ~~price~~However, ~~may~~historically bethe ~~disproportionate~~business torisks ~~the~~associated ~~shortfall~~with in our ~~financial~~work ~~performance.~~on ~~Results~~confidential ~~may~~or beclassified ~~affected~~programs byhave ~~various~~not ~~factors,~~differed ~~including~~materially from those ~~described~~of inour ~~these~~other ~~risk~~government ~~factors~~contracts.

We cannot guarantee that our share repurchase program will be fully implemented or that it will enhance long-term stockholder value.

In May 2022, our Board of Directors approved a share repurchase program ("SRP") for the repurchase of up to $50.0 million of our outstanding shares of our common stock. As of December 31, ~~2024~~2025, approximately $3825.71 million remained available under the stock repurchase program. The repurchase program has no termination date and may be suspended for periods, amended or discontinued at any time. We are not obligated to repurchase a specified number or dollar value of shares. Share repurchases under the program will be made from time to time in private transactions or open market purchases, as permitted by securities laws and other legal requirements. There can be no guarantee about the timing of our share repurchases, or that the volume of such repurchases will increase. The stock repurchase program could affect the price of our common stock, increase volatility, diminish our cash reserves, and even if fully implemented may not enhance long-term stockholder value.

If we fail to maintain an effective system of internal control, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), the rules and regulations of Nasdaq, and other securities rules and regulations that impose various requirements on public companies. Our management and other personnel devote substantial time and resources to comply with these rules and regulations. Such compliance has increased, and will continue to increase, our legal, accounting and financial compliance costs, makes some activities more difficult, time-consuming and costly, and places significant strain on our personnel, systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting, and to report any material weaknesses in such internal control.

WeSection ~~are~~404 ~~continuing~~of tothe ~~develop~~Sarbanes-Oxley ~~and~~Act ~~refine~~requires our ~~disclosure~~management ~~controls,~~to ~~internal~~certify ~~control over~~ financial ~~reporting~~ and other ~~procedures that are designed to ensure~~ information ~~required to be disclosed by us~~ in our ~~consolidated~~quarterly ~~financial statements~~ and inannual ~~the~~ reports ~~that we file with the SEC is recorded, processed, summarized~~ and ~~reported~~provide ~~within~~an ~~the~~annual ~~time~~management ~~periods~~report ~~specified~~on ~~in SEC rules and forms, and information required to be disclosed in reports under~~ the ~~Exchange~~effectiveness ~~Act~~of ~~is accumulated and communicated to~~ our ~~principal~~internal ~~executive~~control ~~and~~over financial ~~officers~~reporting. ~~Our~~We ~~current~~are ~~controls~~also ~~and~~required ~~any new controls we develop may become inadequate because of changes in conditions in our business. Additionally,~~ to ~~the extent we acquire other businesses, the acquired company may not~~ have ~~a sufficiently robust system of internal controls and we may uncover new deficiencies. Weaknesses in~~ our ~~internal~~independent ~~controls~~registered ~~may~~public beaccounting ~~discovered~~firm inattest ~~the future. Any failure~~ to ~~develop or maintain effective controls~~, or any difficulties encountered in their implementation or improvement, could harm our results of operations, may result in a restatement of our consolidated financial statements for prior periods, could cause us to fail to meet our reporting obligations, and ~~could~~issue ~~result in~~ an ~~adverse~~ opinion ~~regarding~~on, ~~our~~the ~~internal~~effectiveness ~~control~~of ~~over financial reporting from~~ our ~~independent registered public accounting firm, and lead to investigations or sanctions by regulatory authorities. Any failure to maintain effective disclosure controls and~~ internal control over financial reporting ~~could have a material and adverse effect on our business and results of operations and could cause a decline in the price of our stock~~.

~~Section~~We ~~404~~may ofidentify ~~the~~weaknesses ~~Sarbanes-Oxley~~or ~~Act~~deficiencies ~~requires~~that ~~our~~we ~~management~~may be unable to ~~certify~~remedy ~~financial~~before ~~and~~the ~~other~~requisite ~~information~~deadlines inon ~~our~~those ~~quarterly~~reports. ~~and~~Our ~~annual~~ability ~~reports~~to ~~and~~comply ~~provide~~with anthe annual ~~management~~internal ~~report~~control reporting requirements will depend on the effectiveness of our ~~internal~~financial ~~control~~reporting ~~over~~and ~~financial~~data ~~reporting~~system and controls across the Company. We ~~are~~expect ~~also~~these ~~required~~systems and controls to ~~have~~involve ~~our~~greater ~~independent~~expenditures ~~registered~~and ~~public~~to ~~accounting~~become ~~firm~~increasingly ~~attest~~complex ~~to,~~as ~~and~~our ~~issue~~business angrows. ~~opinion~~To oneffectively manage this complexity, ~~the~~we ~~effectiveness~~will ofneed ~~our~~to ~~internal~~continue ~~control~~to ~~over~~improve our operational, financial and management controls and our reporting systems and procedures. If we are unable to assert that our internal control over financial reporting is effective, or if, when required, our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

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General Risk Factors

If our judgments or estimates relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could be adversely affected.

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock. Significant judgments, estimates, and assumptions used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, goodwill and other long-lived assets, and income taxes.

~~Weakened global economic conditions may adversely affect our industry, business, operating results and financial condition.~~23

~~Our~~Table overall performance depends in part on worldwide economic and geopolitical conditions. The United States and other key international economies have experienced cyclical downturns from time to time in which economic activity was impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy. These economic conditions can arise suddenly and the full impact of such conditions can remain uncertain at any point in time. In addition, geopolitical developments, such as the invasion of Ukraine by Russia and the conflict in Gaza, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets. Moreover, these conditions can affect the rate of information technology spending and could adversely affect our customers' ability or willingness to purchase our solutions and services, delay prospective customers' purchasing decisions, reduce the value or duration of their subscription contracts, or affect attrition rates, all of which could adversely affect our future sales and operating results.Contents

Global inflationary pressures and weakened global economic and political conditions may adversely affect our industry, business, operating results and financial condition.

For a variety of reasons, including geopolitical factors, the global economy in which we operate has faced, and may continue to face, heightened inflationary pressure, impacting the cost of doing business in both supply and labor markets. These inflationary pressures have been and could continue to be exacerbated by geopolitical turmoil and economic policy actions. With the U.S. federal government being our primary customer, we generate a substantial portion of our revenue through various fixed-price and multi-year government contracts. However, our approach to include modest price escalations in our bids for multi-year work may be insufficient to account and mitigate inflationary pressures, which may result in significant cost overruns on each contract.

Our overall performance depends in part on worldwide economic and geopolitical conditions. The United States and other key international economies have experienced cyclical downturns from time to time in which economic activity was impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy. These economic conditions can arise suddenly and the full impact of such conditions can remain uncertain at any point in time.

In addition, the heightened geopolitical risks, stemming from the Administration's foreign policy, Middle East instability, and the Ukraine-Russia war, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets. Moreover, these conditions can affect the rate of information technology spending and could adversely affect our customers' ability or willingness to purchase our solutions and services, delay prospective customers' purchasing decisions, reduce the value or duration of their subscription contracts, or affect attrition rates, all of which could adversely affect our future sales and operating results.

Our systems and the third-party systems upon which we and our customers rely are also vulnerable to damage or interruption from catastrophic occurrences or events outside our control.

Our systems and the third-party systems upon which we and our customers rely are also vulnerable to damage or interruption from catastrophic occurrences, telecommunication failures, cybersecurity threats, social unrest, geopolitical and similar events, or acts of misconduct. Despite any precautions we may take, the occurrence of a catastrophic disaster or other unanticipated problems at our or our third-party vendors' hosting facilities, or within our systems or the systems of third parties upon which we rely, could result in interruptions, performance problems, or failure of our infrastructure, technology, or solutions, which may adversely impact our business. In addition, our ability to conduct normal business operations could be severely affected. In the event of significant physical damage to one of these facilities, it may take a significant period of time to achieve full resumption of our services, and our disaster recovery planning may not account for all eventualities. In addition, any negative publicity arising from these disruptions could harm our reputation and brand and adversely affect our business.

We may also be impacted by natural disasters, wars, terrorist attacks, power outages, public health crises (epidemics or pandemics), or other events outside our control. If major disasters such as earthquakes, floods, hurricanes, tornadoes, fires, or other events occur, or our information system or communications network breaks down, operates improperly, or is unusable, our headquarters and other facilities may be seriously damaged, or we may have to stop or delay production and delivery of our solutions and services.

Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our solutions and services to our customers, and could decrease demand for our offerings. We may incur shutdowns, delays, disruptions or expenses relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition. Moreover, any significant natural disaster, pandemic, or other catastrophic or force majeure events could affect our personnel, supply chain, or service providers' ability to provide materials and perform services on a timely basis. Acts of terrorism and other geopolitical unrest could also potentially cause disruptions in our business or the business of our supply chain, services providers, or the economy as a whole. Because we do not carry insurance for all these possible losses, and significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely affected by such an event outside our control.

Acts of terrorism and other geopolitical unrest could also potentially cause disruptions in our business or the business of our supply chain, services providers, or the economy as a whole. Because we do not carry insurance for all these possible losses, and significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely affected by such an event outside our control.

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Increased scrutiny of our environmental, social and governance responsibilities may result in additional costs and risks, and may adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.

Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are increasingly focused on companies' ESG practices. Additionally, public interest and legislative pressure related to public companies' ESG practices continue to change. If our ESG practices fail to meet regulatory requirements or investor or other industry stakeholders' evolving expectations and standards for responsible corporate citizenship in areas including environmental stewardship, support for local communities, Board of Director and employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate governance and transparency and employing ESG strategies in our operations, our brand, reputation and employee retention may be negatively impacted and customers and suppliers may be unwilling to do business with us. In addition, as we work to align our ESG practices with industry standards, we may expand our disclosures in these areas and doing so may result in additional costs and require additional resources to monitor, report, and comply with our various ESG practices. If we fail to adopt ESG standards or practices as quickly as stakeholders desire, report on our ESG efforts or practices accurately, or satisfy the expectations of stakeholders, our reputation, business, financial performance and growth may be adversely impacted.

Changes in accounting principles or their application to us could result in unfavorable accounting charges or effects, which could adversely affect our results of operations and growth prospects.

We prepare consolidated financial statements in accordance with U.S. GAAP. In particular, we make certain estimates and assumptions related to the adoption and interpretation of these principles, including the recognition of our revenue and the accounting of our stock-based compensation expense with respect to our consolidated financial statements. If these assumptions turn out to be incorrect, our revenue or our stock-based compensation expense could materially differ from our expectations, which could have a material adverse effect on our financial results. A change in any of these principles or guidance, or in their interpretations or application to us, may have a significant impact on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results or our forecasts, which may negatively impact our financial statements. For example, any recent new standards issued by the Financial Accounting Standards Board could materially impact our consolidated financial statements. The adoption of these new standards may potentially require enhancements or changes in our processes or systems and may require significant time and cost on behalf of our financial management. This may, in turn, adversely affect our results of operations and growth prospects.

Global climate-related risks could negatively affect our business.

There are inherent climate-related risks wherever business is conducted. ~~Access to clean water and reliable energy in the communities where we conduct our business, whether for our offices, vendors, customers or other stakeholders, is a priority.~~ Any of our primary locations may be vulnerable to the adverse effects of climate change. Climate-related events, including the increasing frequency of extreme weather events and their impact on U.S. critical infrastructure, have the potential to disrupt our business, ~~our~~and ~~third-party~~the businesses of our suppliers, customers, and partners, and may cause us to experience additional costs to maintain or ~~the~~resume operations. In addition, current and emerging legal and regulatory requirements with respect to climate change may result in increased compliance requirements on our business, ofwhich could increase our ~~customers~~capital expenditures, reduce our margins and adversely affect our financial position. Further, our reputation and client relationships may ~~cause~~be usdamaged as a result of our practices related to ~~experience~~climate ~~higher~~change, ~~attrition~~including our involvement, ~~losses~~or ~~and~~our ~~additional~~clients' ~~costs~~involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to ~~maintain~~continue to conduct or ~~resume~~change ~~operations~~our activities in response to considerations relating to climate change.

Increased public awareness and concern regarding global climate change may result in state, federal or international requirements to reduce or mitigate global warming, such as the imposition of carbon pricing mechanisms or stricter limits on greenhouse gas emissions. If environmental or climate-change laws or regulations are adopted or changed that impose significant new costs, operational restrictions or compliance requirements upon our business or our products, they could increase our capital expenditures, reduce our margins and adversely affect our financial position.

In addition, our reputation and client relationships may be damaged as a result of our practices related to climate change, including our involvement, or our clients' involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.

Item 1B. Unresolved Staff Comments

None.

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Item 1C. Cybersecurity

The Company’s processes to assess, identify, and manage material cybersecurity risks

We developed an ISO/IEC 27001-certified Information Security Management System (“ISMS”) designed to enhance our corporate security measures, identify and mitigate information security risks, and protect and preserve the confidentiality, integrity, and continued availability of all information owned by the Company and that of its customers and suppliers in our control. Our ISO certification can be verified on the BSI Group website using certificate number IS 649202.

Our ISMS includes developing, implementing, and continually improving policies and procedures designed to safeguard information and ensure the availability of critical data and systems. These policies cover areas such as requiring secure coding practices and a secure development lifecycle process, monthly information security awareness training for all employees and enhanced training for specialized personnel, review and assessment by external, independent third parties, who certify and report on our weaknesses and internal response preparedness for the entire Company, and the performance of ~~daily~~routine and risk-based vulnerability scanning of our network infrastructure as well as annual third-party penetration testing.

Our cybersecurity risk assessment, identification, and management process consists of a dedicated Governance Risk and Compliance ("GRC") team, within our Information Security organization, that implements a repeatable, ISO/IEC 27001-compliant methodology to asses and track cybersecurity risk. This team, reporting to and working with the Chief Information Security Officer ("CISO"), identifies, tracks, and updates cybersecurity risks that threaten the Company directly and through third parties. The GRC team collaborates closely with risk owners throughout the Company, vendors, and suppliers, working with them in an effort to ensure their risks are identified, documented, and mitigated in a timely fashion.

In addition to our active ISO/IEC 27001 certification, the Company also assesses itself against the National Institute of Standards and Technology Special Publication 800-171 as required by the Defense Federal Acquisition Regulation Supplement. In accordance with our ISMS, we also actively monitor known threats that could affect our products and services and work with our suppliers to provide us with real-time reports of threats or vulnerabilities that may affect our enterprise-wide systems. Our program also includes a cyber incident response plan that provides controls and procedures for timely and accurate reporting of any material cybersecurity incident, as well as a business continuity plan that is designed to provide a clear framework for how the Company can continue in the event of any significant disruption in an effort to ensure that we can offer the same level of security, support, and excellence to all our customers. In the normal course, our Security and GRC teams engage assessors, consultants, and other third parties to assist in various cyber-related matters. For example, to maintain our ISO certification, the Company utilizes an external third party to conduct yearly audits of its ISMS. Our Information Security organization also leverages third-party advisors, as appropriate, for various tasks, such as conducting annual third-party penetration testing.25

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In addition to our active ISO/IEC 27001 certification, the Company assesses itself against the National Institute of Standards and Technology Special Publication 800-171 as required by the Defense Federal Acquisition Regulation Supplement. The Company has also achieved Cybersecurity Maturity Model Certification Level 2 ("CMMC L2"), reflecting an independent assessment against applicable DoW cybersecurity requirements. In accordance with our ISMS, we also actively monitor known threats that could affect our products and services and work with our suppliers to provide us with real-time reports of threats or vulnerabilities that may affect our enterprise-wide systems. Our program also includes a cyber incident response plan that provides controls and procedures for timely and accurate reporting of any material cybersecurity incident, as well as a business continuity plan that is designed to provide a clear framework for how the Company can continue in the event of any significant disruption in an effort to ensure that we can offer the same level of security, support, and excellence to all our customers. In the normal course, our Security and GRC teams engage assessors, consultants, and other third parties to assist in various cyber-related matters. For example, to maintain our ISO certification, the Company utilizes an external third party to conduct yearly audits of its ISMS. Our Information Security organization also leverages third-party advisors, as appropriate, for various tasks, such as conducting annual third-party penetration testing.

We conduct an enterprise risk assessment that includes an assessment of cybersecurity risk in context with other enterprise-level risks. Furthermore, our CISO and our General Counsel regularly discuss cybersecurity risk mitigation. We carry errors and omissions insurance that provides some protection against the potential losses arising from a cybersecurity incident. For additional information regarding potential cybersecurity risks, see relevant business and operational risks under Item 1A, "Risk Factors," of this Annual Report on Form 10-K.

In ~~the last three years~~2025, we ~~have~~did not ~~experienced~~experience a material information security breach incident or any penalties or settlements related to the same, and the expenses we have incurred from information security breach incidents were immaterial.

Management’s role and expertise in assessing and managing material cybersecurity risks

Our Information Security team, led by our CISO, is responsible for assessing and managing material cybersecurity risks. Certifications held by the Information Security team include CompTIA A+, Network+, Security+, CyberSecurity Analyst+ ("CYSA+"), Pentest+, Advanced Security Practitioner ("CASP"), EC-Council Certified Ethical Hacker ("CEH"), Certified Security Analyst ("ECSA"), Computer Hacking Forensic Investigator ("CHFI"), Associate Chief Information Security Officer ("ACCISO"), CMMC-AB Registered Practitioner ("RP"), ISC2 Certified Information Systems Security Professional ("CISSP"), Systems Security Certified Practitioner ("SSCP"), ISACA Certified Information Security Manager ("CISM"), PCAP – Certified Associate Python Programmer, & eLearnSecurity Junior Penetration Tester ("eJPT"). Our CISO’s background includes over 1819 years of experience in IT and Information Security. His formal education includes a Master’s degree in Cybersecurity and Information Assurance and a Bachelor’s degree in Computer Forensics. Certifications held by the CISO include CompTIA A+, Network+, & Security+, Microsoft Technology Associate ("MTA"), CMMC-AB RP, ISO 27001 Certified Lead Implementer Professional, EC-Council CEH & CHFI, ISACA Certified Data Privacy Solutions Engineer ("CDPSE") & Certified Information Security Manager ("CISM"), ISC2 CISSP, and Offensive Security Certified Professional ("OSCP"). Our CISO reports to our Chief Information Technology Officer ("CITO"), who in turn reports to our Chief Executive Officer ("CEO"). Each of our CITO and our CEO have extensive experience in cybersecurity matters.

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Our CISO provides reports to the Audit Committee of our Board of Directors on a standing basis at each Audit Committee meeting, and as otherwise requested by the Chair of the Audit Committee or as determined necessary by the CISO or other members of senior management. The CISO is personally involved in, and responsible for, the risk assessment, identification and management process described above.

Board of ~~Director’s~~Directors' oversight of cybersecurity risks

The Board of Directors has oversight responsibility with respect to risk management and reviews matters with management as part of management’s regular Board reporting. The Board of Directors has delegated responsibility for information security and cybersecurity risk oversight to the Audit Committee. In accordance with its charter, the Audit Committee discharges these responsibilities through various processes, including the option to use third-party advisers as and when it deems appropriate, and discusses with management the Company’s major policies with respect to risk assessment and risk management. The Audit Committee regularly reports the results of these discussions to the Board of Directors. As noted above, the CISO reports to the Audit Committee at each regular Audit Committee meeting on the status of cybersecurity risk assessment, identification and management, as well as reporting information security incidents as they occur, if material, and providing periodic briefings about our information security program, our internal response preparedness, and assessments led by outside advisors. The Chair of the Audit Committee, in turn, reports on these topics to the Board of Directors as and when deemed necessary and/or material. Overall, our Board contains two directors with work experience related to cybersecurity issues or oversight.

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Item 2. Properties

We lease approximately 191,700 square feet of space for our corporate headquarters, integration facility, and primary service depot in Ashburn, Virginia. The lease expires in May 2029.

We leased additional office space in facilities located in Maryland, Florida and Nevada under various leases expiring through July 2027.

We believe that the current space is substantially adequate to meet our operating requirements.

Item 3. Legal Proceedings

Information regarding legal proceedings may be found in Note 1918 – Commitments, Contingencies and ~~Contingencies~~Subsequent Events to the Consolidated Financial Statements.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq Global Market under the symbol "TLS."

As of March 39, ~~2025~~2026, there were approximately ~~156~~154 holders of record of Telos common stock, ~~par value~~ $0.001 par value. The number of shareholders of record of our common stock may not be representative of the number of beneficial owners due to shares that may be held by depositories, brokers or nominees.

For information regarding securities authorized for issuance under our stock-based compensation plan, see Note 1211 – Stock-Based Compensation to the Consolidated Financial Statements contained in Item 8.

Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered equity securities during the three months ended December 31, ~~2024~~2025, that were not registered under the Securities Act and were not previously disclosed on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

Purchases of Equity Securities

On May 24, 2022, the Board of Directors authorized a Share Repurchase Program ("SRP"), pursuant to which the Company can repurchase up to $50.0 million of issued and outstanding common stock. The shares may be repurchased on a discretionary basis from time to time through open market purchases. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time.

There were no repurchases of common stock in fiscal year 2024, and approximately $38.7 million remained available for future common stock repurchases under the SRP as of December 31, 2024.


Common Stock Purchase Activity During the Three Months Ended December 31, 2025
Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans (1)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans (1)
October 1, 2025 - October 31, 2025	—	$	—	—	$	31,076,558
November 1, 2025 - November 30, 2025	658,796	$	5.81	658,796	$	27,245,870
December 1, 2025 - December 31, 2025	377,261	$	5.72	377,261	$	25,088,723
Total	1,036,057	$	5.78	1,036,057

(1) For the fourth quarter of 2025, the Company repurchased 1,036,057 shares of common stock under the program for an aggregate price of $6.0 million on the open market.

Item 6. [Reserved]

None

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K ("10-K"). In addition to historical financial information, the following discussion and analysis contain forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events in future periods may differ materially from those anticipated or implied in these forward-looking statements as a result of many factors, including those discussed under Item 1A, "Risk Factors," and elsewhere in this 10-K. See also "Special Note Regarding Forward-Looking Statements" at the beginning of this 10-K.

In this section, we discuss our financial condition, changes in financial condition and results of operations for the year ended December 31, ~~2024~~2025, compared to the year ended December 31, ~~2023~~2024.

Overview

For an overview of our business, including our business segments and a discussion of the services and products we provide, see Item 1, "Business" ofin ~~this~~Part ~~10-K.~~I ~~Additional~~and ~~information regarding our segments is also presented in~~ Note 1816 – Segment Information of the notes to the consolidated financial statements atcontained ~~Item~~within ~~8 of~~ this 10-K.

As discussed under Item 1A, "Risk Factors," we derive a substantial portion of our revenues from contracts and subcontracts with the U.S. federal government. Our revenues are generated from a number of contract ~~vehicles~~vehicle and task orders. The U.S. federal government has increasingly relied on contracts that are subject to a competitive bidding process (including BPA and IDIQ, ~~GSA~~Task ~~schedules~~Orders, ~~OTA~~OTAs, and other ~~multi-award~~GSA ~~contracts~~schedule solicitations), resulting in greater competition and increased pricing pressure. We expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process.

Over the past several years we have sought to diversify and improve our operating margins through the evolution of our business from an emphasis on product reselling to ~~that of~~ an advanced solutions technologies provider. Although we continue to offer resold products through our contract vehicles or our prime partners' contracts, we have focused on the transformation and growth onof ~~selling~~ our software and service solutions offerings, as well as ~~designing~~the design and ~~delivering~~delivery ~~Telos~~of our manufactured and branded technologies. We ~~believe~~emphasize ~~our~~leveraging ~~contract~~technology ~~portfolio~~and isinnovation, ~~characterized~~specifically asin ~~having~~cybersecurity, ~~low~~cloud, toand ~~moderate~~identity ~~financial~~solutions, ~~risk due~~ to ~~the~~drive ~~limited~~growth ~~number~~and ofensure ~~long-term~~a ~~fixed-price~~secure ~~development contracts. Our firm-fixed-price activities consist primarily of contracts for products~~ and ~~services~~defendable atnetwork. ~~established~~We ~~contract~~continue ~~prices.~~to ~~For~~invest ~~2024~~in and ~~2023,~~develop ~~the~~in ~~Company's~~AI ~~revenue derived from firm-fixed-price contracts was 75% and 79%~~integration, ~~respectively;~~enhancing ~~time-and-material~~automation ~~contracts was 15%~~ and ~~9%,~~improving ~~respectively;~~existing ~~and~~solutions ~~cost-plus~~to ~~contracts~~maintain ~~revenue~~a ~~was~~competitive ~~10% and 12%, respectively~~edge.

~~Our~~We ~~business~~believe ~~performance~~our iscontract ~~affected~~portfolio byreflects ~~the~~low ~~overall~~to ~~level~~moderate offinancial ~~U.S.~~risk ~~government~~due ~~spending~~to ~~and~~ the ~~alignment~~limited number of ~~our~~long-term ~~offerings~~fixed-price ~~and~~development ~~capabilities~~contracts, ~~with~~thus ~~the~~minimizing ~~budget priorities of~~ the ~~U.S.~~risk ~~government. Approximately 88%~~ of ~~our~~cost ~~revenues were generated from U~~overruns.S. ~~government~~Our ~~agencies~~firm-fixed-price inactivities ~~fiscal~~consist ~~year~~primarily ~~2024.~~of Incontracts ~~addition,~~for ~~our~~products ~~overall performance depends, in part, on global economic~~ and ~~geopolitical~~services ~~conditions.~~at ~~Adverse~~established ~~changes~~contract inprices ~~fiscal~~that ~~and~~are ~~economic~~designed ~~conditions~~to ~~could~~be ~~materially~~repeatable ~~impact~~solution ~~our business~~offerings. ~~Some~~For ~~changes~~2025 ~~that~~and ~~could~~2024, ~~adversely~~the ~~impact~~Company's ~~our~~revenue ~~business~~derived ~~include~~from ~~the~~firm-fixed-price ~~implementation~~contracts ofwas ~~future~~73.3% ~~spending~~and ~~reductions~~75.3%, ~~government~~respectively; ~~shutdown~~ time-and-material ~~supply~~contract ~~chain~~revenue ~~challenges~~was 21.8% ~~Despite the budget~~ and ~~competitive pressure affecting the industry~~14.6%, werespectively; ~~believe~~and ~~we are well~~cost-~~positioned~~plus tocontract ~~expand~~revenue ~~existing~~was ~~customer~~4.9% ~~relationships~~ and ~~benefit~~10.1%, ~~from opportunities that we have not previously pursued~~respectively.

Business Environment

U.S. Federal Government Budget

In ~~March~~fiscal ~~2024,~~year ~~the U.S. President proposed the annual appropriations for Fiscal Year~~ ("FY") 2025, towe ~~fit~~generated ~~within~~approximately ~~the~~91.0% ~~tight~~of ~~caps~~our ~~set~~revenues asfrom ~~part of~~ the ~~prior year's debt ceiling agreements~~U.S. ~~The~~federal ~~FY2025 budget request included $850 billion for the DoD base budget~~government, ineither ~~alignment~~as ~~with~~prime ~~levels~~contractor ~~agreed~~or toa insubcontractor ~~the Fiscal Responsibility Act ("FRA") of 2023. This proposed budget will enable the DoD~~ to ~~make~~other ~~the~~contractors ~~investments~~engaged ~~necessary~~in towork ~~execute~~for the ~~Administrations'~~U.S. ~~2022~~federal ~~National~~government, ~~Security~~including ~~Strategy and 2022 National Defense Strategy~~58.1% ~~The~~of ~~President's~~our ~~FY2025~~revenue ~~budget~~from ~~also~~the ~~proposed several increases for new, key cyber programs and initiatives~~DoW. ~~For FY2025~~Accordingly, ~~the~~our ~~White~~business ~~House~~performance ~~had~~is ~~directed~~affected ~~agencies to prioritize cyber investments in "secure~~ by ~~design" technologies and~~ the ~~modernization~~overall level of ~~legacy technology~~U.S. Infederal ~~the~~government ~~wake~~spending ofand the ~~President's~~alignment ~~Executive~~of ~~Order~~our ~~("EO")~~offerings onand ~~artificial~~capabilities ~~intelligence~~with ~~last~~current ~~fall,~~and ~~the~~future ~~2025~~ budget ~~proposal~~priorities ~~includes plenty~~ of ~~AI-related~~the ~~spending,~~U.S. ~~much~~federal ~~of which intersects with cybersecurity and AI safety~~government.

~~Congress~~While ~~was~~we ~~unable~~view tothe ~~enact~~budget ~~any~~environment ofas ~~its~~constructive ~~annual~~and ~~appropriations~~believe ~~bills~~there ~~before~~is ~~the~~bipartisan ~~start~~support offor ~~FY2025,~~continued ~~which~~investment ~~began~~in onthe ~~October~~areas 1,of ~~2024.~~defense ~~Instead,~~and onnational ~~December 20~~security, ~~2024,~~it ~~the~~is ~~U.S.~~uncertain ~~House~~when (and ~~Senate~~if) ~~passed~~in aany ~~second~~particular ~~Continuing~~government ~~Resolution~~fiscal ~~("CR")~~year toappropriations ~~extend~~bills ~~federal~~will ~~spending~~be ~~and~~passed. ~~avert~~During athose ~~government~~periods ~~shutdown~~of ~~through~~time ~~March~~when ~~14,~~appropriations ~~2025.~~bills ~~The~~have CRnot ~~keeps~~been ~~the~~passed ~~government~~and ~~operating~~signed atinto ~~FY2024 funding levels~~law, ~~and~~U.S. ~~ensures the~~ federal government ~~can~~agencies ~~receive adequate funding to~~ operate ~~for~~under ~~the~~a ~~duration~~continuing ofresolution ~~the~~ ("CR~~. The current CR provides $888 billion in base defense funding for 2025~~"), ana ~~amount~~temporary ~~exceeding~~measure ~~the~~that ~~$850~~allows ~~billion cap on such funding established under~~ the ~~FRA.~~government Asto ofcontinue ~~January~~operations 6,at ~~2025,~~prior ~~$12~~year ~~billion in Defense~~ funding ~~was designated as an emergency requirement, and is not constrained by the caps established by the FRA~~levels.

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~~Appropriators~~The inFY2025 ~~both~~U.S. ~~chambers~~federal ~~had~~government ~~been~~appropriations, ~~hoping~~which toran atthrough ~~least~~September ~~reach~~30, 2025, were determined by a ~~topline~~full-year CR. While the Administration has submitted its FY2026 budget proposal outlining its priorities, partisan disagreements over federal spending ~~agreement~~levels, ~~but~~among other things, have stalled progress on the ~~momentum~~required ~~for~~appropriations abills. ~~deal~~Recently, ~~was~~on ~~derailed~~February ~~after~~3, 2026, Congress passed another full-year CR for FY2026 to end the ~~new~~partial ~~Administration~~government ~~issued~~shutdown. aThis ~~slew~~enacted ofbill ~~EOs~~provides ~~since~~full-year ~~inauguration~~funding for several programs, including andefense ~~order~~and tonational ~~freeze~~security, through September 30, 2026; and also extended homeland security funding onthrough ~~several~~February ~~federal~~13, ~~programs~~2026. ~~While~~A partial government shutdown began on February 14, 2026 after the ~~Cybersecurity~~lawmakers and ~~Infrastructure~~the ~~Security~~White ~~Agency~~House ~~("CISA")~~failed isto ~~viewed~~reach asa ~~vital~~deal ~~for~~on ~~national~~legislation ~~security~~to ~~purposes~~fund ~~and~~DHS ~~its~~through ~~programs~~September ~~will~~2026. ~~still~~The ~~continue,~~impasse affects agencies such as the ~~new~~Transportation Security Administration, ~~has~~the ~~sworn~~Federal toEmergency ~~reduce~~Management Agency, U.S. Coast Guard, the ~~size~~Secret Service, U.S. Immigration and ~~scope~~Custom ofEnforcement, ~~CISA~~and U.S. Customs and Border Protection.

OfCongress ~~note,~~approved ~~the~~a CRFY2026 ~~did~~Defense ~~not~~Appropriations ~~address~~Bill ~~the federal debt ceiling, which is the limit~~ that ~~Congress~~provides ~~imposes on the federal budget for authorized spending~~$838.7 Inbillion ~~January~~in ~~2025~~discretionary funding, ~~the~~including ~~federal debt limit was reinstated at~~ $36838.15 ~~trillion~~billion toin ~~accommodate~~defense ~~borrowing~~funding ~~since~~and ~~its~~$180 ~~suspension~~million ~~through~~in ~~FRA~~nondefense funding. ~~Until~~This ~~Congress~~funding ~~acts~~prioritizes torestoring ~~modify~~military ~~the limit~~strength, ~~the~~accelerating ~~Treasury~~modernization, ~~Department~~and ~~relies~~supporting onpersonnel ~~the~~through ~~available~~pay ~~cash~~raises. onThis ~~hand~~bill ~~and~~moves ~~invoked~~in ~~authorities~~parallel towith ~~use~~the ~~extraordinary~~National ~~measures~~Defense toAuthorization ~~continue~~Act ~~paying~~("NDAA"), ~~its~~signed ~~debt~~in ~~obligations~~December 2025, ~~without~~which ~~jeopardizing~~authorizes ~~the~~up ~~"full~~to ~~faith~~approximately ~~and~~$900.6 ~~credit"~~billion offor ~~the~~national Udefense.~~S. government.~~

~~While~~The ~~there~~federal isgovernment's nocybersecurity ~~clear~~and ~~path~~IT tospending ~~approval~~priorities for fiscal years 2025 and 2026 present both significant opportunities and notable risks for our suite of ~~the~~security ~~FY2025~~solutions. ~~budget~~The FY2026 NDAA authorizes approximately $15.1 billion for DoW cyber activities, ~~failure~~representing toa do4.1% soincrease. ~~poses~~The ~~uncertainty~~FY2026 ~~about~~NDAA ~~actual~~emphasizes ~~funding~~securing ~~and~~the ~~will~~defense ~~impact~~industrial ~~federal~~base, ~~customers'~~accelerating ~~ability~~artificial tointelligence ~~move~~("AI") ~~forward~~integration, onand ~~their~~harmonizing ~~planned~~cybersecurity ~~expenditures~~requirements. This increase directly aligns with our core offerings in ~~FY2025~~cyber risk management (e.g., Xacta).

~~Cybersecurity~~Further, ~~Landscape~~the FY2026 budget for AI reflects a massive strategic shift toward implementation and national dominance, particularly within the defense sector. FY26 is viewed as the year federal agencies move from experimenting with AI to adopting "agentic" AI. The FY26 budget request included a record-breaking $13.4 billion for AI and autonomy initiatives within the DoW, the largest single-year investment in the agency's history. Consistent with these initiatives, in October 2025, we launched Xacta.ai, which we believe will reduce cyber compliance timelines through AI-driven automation.

The ~~scope~~federal ofgovernment cybersecurity isand onAI-related ~~the~~initiatives ~~cusp~~continue ofto ~~transformative~~evolve ~~changes.~~and ~~Cyber~~may ~~threats~~be ~~are~~influenced ~~not~~by ~~just~~changes ~~escalating~~ in ~~frequency~~Administration ~~but are also becoming more sophisticated~~policy, ~~thus~~legislative ~~challenging~~action ~~traditional~~and ~~security~~regulatory ~~standards~~developments. InThese ~~this~~changes ~~rapidly~~may ~~evolving~~affect ~~cybersecurity~~funding ~~landscape~~allocations, ~~the~~procurement ~~need~~strategies ~~for vigilant defense is vital,~~ and ~~cybersecurity~~compliance isexpectations. aWhile ~~priority~~management ~~for~~continues ~~organizations~~ to ~~mitigate~~monitor ~~their~~the ~~risk~~federal ~~and~~government's ~~keep~~initiatives ~~safe from threats~~ and ~~exploitation.~~seeks ~~Understanding~~to ~~the~~align ~~threat environment and~~ the ~~impending~~Company's ~~trends~~capabilities ~~(both~~accordingly, ~~current~~there ~~and~~can ~~future)~~be isno aassurance ~~matter~~that ofthe ~~foresight~~future ~~and~~government ispriorities ~~crucial~~will innot ~~designing~~impose ~~effective~~new ~~security~~compliance ~~strategies.~~obligations, ~~The~~or ~~DoD~~technological ~~continues~~advancements tothat ~~invest~~will inrequire ~~cybersecurity~~for ~~programs~~additional toinvestment ~~protect~~or affect the ~~nation~~Company's ~~from~~ability ~~malicious~~to ~~cyber~~compete ~~actors and cyber campaigns. These investments strengthen cyber protection standards~~ for ~~the~~or ~~defense~~perform ~~industrial~~under ~~base~~government ~~and cybersecurity of DoD networks~~contracts. ~~With this growing threat, below are some trends to consider when looking at the cybersecurity landscape:~~

~~Emerging~~Other ~~Cyber~~Economic and ~~Counterintelligence~~Regulatory Threats: The proposed FY2025 budget expands the Department of Justice’s ("DOJ") ability to pursue threats through investments in the FBI’s cyber and counterintelligence investigative capabilities. These investments sustain the FBI’s cyber intelligence, counterintelligence, and analysis capabilities and include funding to enhance those cyber response and counterintelligence capabilities. The budget also includes funding to expand a new section within the DOJ’s National Security Division to focus on cyber threats. These investments align with the National Cybersecurity Strategy that emphasizes a whole-of-nation approach to addressing ongoing cyber threats. Finally, the budget also provides for the DOJ to support the implementation of Executive Order 14110, “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.”Policies

~~Rising~~Aside ~~Threats,~~from ~~Rising~~the ~~Liability:~~uncertainty ~~Ransomware~~in ~~remains arguably~~ the ~~most~~budgetary ~~severe~~environment, ~~cyber~~the ~~threat~~Administration toput ~~enterprises~~ in ~~the~~place ~~commercial,~~a ~~state,~~number ~~and~~of ~~local~~Executive ~~government~~Orders and ~~education~~actions ~~sectors.~~that ~~Phishing~~have isaffected, ~~one~~and ofcould ~~the~~continue ~~top~~to ~~distribution~~affect, ~~channels~~many ~~for ransomware~~businesses. ~~Modern~~The ~~phishing~~Administration ~~attacks~~continuously ~~have~~evaluates ~~become~~federal ~~adept~~agencies atand ~~bypassing~~existing ~~traditional~~government ~~security~~contracts, ~~measures~~grants, ~~using~~and ~~more~~programs ~~personalized~~for ~~and~~affordability, ~~technically~~efficiency, ~~advanced~~and ~~tactics~~alignment towith ~~deceive users~~U.S. ~~One~~federal ~~reason~~government ~~for~~priorities. Further, the ~~rise~~Administration ofcontinues ~~ransomware~~ever-changing ~~attacks~~actions is that itincrease, isinvoke ~~exceedingly~~new ~~profitable for cybercriminals,~~ and/or ~~ransomware~~rescind ~~victims~~tariffs ~~generally~~on ~~settle~~various ~~the~~goods ~~ransom~~imported ~~rather~~from ~~than~~various ~~restoring~~countries. ~~the~~Changes ~~system~~in ~~from~~international ~~backups~~trade orpolicies, ~~dealing~~including ~~with~~higher ~~the~~tariffs ~~fallout~~on ~~from~~imported agoods ~~data~~and ~~breach.~~materials, ~~Aside~~may ~~from~~increase the ~~financial~~procurement costs of ~~paying~~certain ~~the~~IT ~~ransom~~hardware ~~and~~we ~~restoring~~use ~~the system~~internally, ~~the~~on ~~consequences~~our ofcontracts, aor ~~successful~~sell ~~ransomware attack can include damage~~ to ~~the~~our ~~organization's reputation, stolen sensitive data being used for malicious purposes, and loss of business~~customers.

The ~~Nation's~~ongoing ~~Critical~~and ~~Systems~~potential ~~Are~~future ~~Still~~reforms atto ~~Risk:~~the ~~Critical~~U.S. ~~infrastructure~~federal government processes, including changes to procurement rules and ~~industrial~~regulations, ~~IoT~~could transform how contracts are ~~among~~awarded, ~~the~~negotiated, ~~categories~~and atmanaged. ~~greatest~~These ~~risk~~initiatives ofcould ~~cyberattacks.~~further ~~The~~delay ~~IoT~~contract ~~continues~~awards ~~its~~and/or ~~rapid~~result ~~growth,~~in ~~interconnecting~~modifications anto ~~increasing~~the ~~number~~scope or terms of ~~devices~~contracts we hold. ~~However~~At the same time, ~~this~~the ~~expansion~~Administration's ~~brings~~focus ~~with~~on itefficiency, atransparency, ~~host~~consolidation, ofand ~~security~~accountability ~~challenges~~could lead to certain traditionally government functions being transferred to private entities. ~~The~~This ~~wide~~potential ~~range~~transition of ~~IoT~~services ~~devices~~to ~~make~~the ~~them~~private ~~attractive~~sector ~~targets~~could ~~for~~benefit ~~cyberattacks~~Telos, ~~and~~given ~~their~~our ~~interrelated~~wide ~~nature~~array ~~can~~of ~~lead~~capabilities toand ~~pervasive~~advanced ~~vulnerabilities~~solutions.

~~Navigating~~On aJuly ~~Changing~~4, ~~Regulatory~~2025, ~~Landscape~~the ~~and~~One ~~Compliance:~~Big ~~The~~Beautiful ~~regulatory~~Bill ~~landscape~~Act ~~governing~~(“OBBBA”) ~~cybersecurity~~was isenacted ~~developing~~into ~~swiftly~~law. ~~Over~~The ~~time~~OBBBA includes significant changes to the Internal Revenue Code, with various provisions changing the ~~government~~U.S. ~~mandates~~federal ~~stronger~~income ~~security~~tax inregulations ~~highly~~and ~~regulated~~modifications ~~industries~~to the Inflation Reduction Act of 2022. ~~These~~Further, ~~government~~the ~~initiatives~~OBBBA significantly impacts the defense sector through substantial funding allocations and ~~audit~~strategic ~~fatigue~~investments, ~~continue~~including tospecific ~~burden~~investments ~~highly~~in ~~regulated~~areas ~~organizations~~like AI, and provides the DoW with ~~automation~~extended ~~solutions~~time, ~~recognized~~until as2029, ~~the~~to ~~most~~make ~~effective~~strategic ~~remedy~~investments ~~for~~in the ~~many~~defense ~~repetitive~~industrial base. Increased funding and ~~redundant~~improved ~~tasks~~tax ~~that~~treatment ~~security~~for ~~compliance~~research ~~requires~~and development could boost targeted defense investments, scale commercial technologies for military use, and support related programs.

~~Additionally,~~We ~~the~~continue ~~SEC~~to ~~adopted~~monitor ~~new~~and ~~rules~~assess onthe ~~cybersecurity~~risks ~~risk~~and ~~management,~~opportunities ~~strategy~~presented to us, ~~governance~~in ~~and~~light ~~incident~~of ~~disclosure~~ongoing bypolitical ~~public~~tensions ~~companies.~~and ~~The~~heightened ~~required~~global ~~reporting~~instability ofthat ~~this~~we ~~information~~expect ~~leads~~to ~~many~~persist ~~companies~~in tothe ~~proactively~~near ~~establish~~term. ~~policies~~Initiatives ~~that~~to ~~will~~reduce ~~improve~~governmental ~~their~~spending, ~~cyber~~federal ~~risk~~budget ~~management~~and ~~posture~~debt ceiling action, and ~~enable~~U.S. ~~them~~federal togovernment ~~better~~policy ~~withstand~~positions, ~~heightened~~including ~~public~~trade policy, tax reform and/or ~~regulatory~~changes ~~scrutiny~~to the U.S. federal government priorities, could materially impact federal spending broadly.

Identity Assurance and Privacy Protection are Essential for Today's Enterprises: Identity and access management continue to be a major cybersecurity concern for organizations and individuals that need to ensure their security and protect their privacy. Trusted identities are essential to confidence in IT and physical security strategies and to the success of Zero Trust security models and architectures. The shift to a Zero Trust framework represents a fundamental change in approach to cybersecurity, focusing on identity and access management, continuous monitoring and robust authentication mechanisms to establish a secure digital environment.

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Enhancing Identity Security: The shift towards biometric authentication methods is redesigning identity verification in the digital domain. Integrating biometrics with multi-factor authentication can provide a robust defense against unauthorized access.

Artificial Intelligence: AI is set to play a critical role in cybersecurity. Cybercriminals are using AI to launch more sophisticated attacks that can quickly adapt to changing environments, making detection harder. AI's advanced data analysis capabilities are increasingly used for defensive measures over time. To protect against AI-powered cyberattacks, organizations must stay vigilant and adopt advanced cybersecurity tools and techniques that can detect and respond to these threats in a timely manner before they cause damage. The proposed FY2025 budget provides $455 million to extend the frontiers of AI for science and technology and to increase AI’s safety, security, and resilience. These investments enhance the DoD’s computing capabilities and support the development of AI testbeds to build foundation models for energy security, national security, and climate resilience as well as tools to evaluate AI capabilities to generate outputs that may represent nuclear, nonproliferation, biological, chemical, critical-infrastructure, and energy security threats or hazards.

Key Performance Measures

The primary financial performance measures we use to manage our business and monitor results of operations are revenue, gross profit, cash flow, and Adjusted EBITDA (a non-GAAP financial measure). We evaluate our results of operations by considering the drivers causing changes in these measures. We evaluate significant trends and fluctuations in our contract portfolio over time due to contract awards and completions, changes in customer requirements and changes in the volume of product and software sales.

Backlog

Backlog is also a useful measure in developing our annual budgeted revenue by estimating for the upcoming year our continuing business from existing customers and active contracts. We consider backlog, both funded and unfunded (as explained below), other expected annual renewals, and expansion planned by our current customers.

Total backlog consists of the aggregate contract revenues remaining to be earned by us at a given time over the life of our contracts, whether funded or unfunded. Funded backlog consists of the aggregate contract revenues remaining to be earned at a given time, which, in the case of U.S. federal government contracts, means that they have been funded by the procuring agency. Unfunded backlog is the difference between total backlog and funded backlog and includes potential revenues that may be earned if customers exercise delivery orders and/or renewal options to continue these contracts.

Based on historical experience, we generally assume option year renewals to be exercised. Most of our customers fund contracts on the basis of one year or less, and, as a result, funded backlog is generally expected to be earned within one year from any point in time, whereas unfunded backlog is expected to be earned over a longer period.

Table MD&A 1: Backlog by Segment

As of December 31,

2024

2023

2025

2024

(in thousands)

Security Solutions

Funded

4466,~~220~~480

2444,~~538~~220

Unfunded

2155,~~373~~739

4121,~~398~~373

Total Security Solutions backlog

65122,~~593~~219

65,~~936~~593

Secured Networks

Funded

62,~~977~~317

276,~~530~~977

Unfunded

31,~~919~~537

243,~~636~~919

Total Secure Networks backlog

103,~~896~~854

5210,~~166~~896

Total

Funded

5168,~~197~~797

5251,~~068~~197

Unfunded

2557,~~292~~276

6625,~~034~~292

Total backlog

76126,~~489~~073

~~118~~76,~~102~~489

Increases in backlog is a result of the award of new contracts and the renewal or extension of existing contracts. Reductions in backlog arise from the completion, modification, de-obligation, or the early termination of contracts. See the relevant industry, legal and regulatory risks under Item 1A, "Risk Factors," of this 10-K. We believe that comparisons of backlog period-to-period are difficult. We also believe that it is difficult to predict future revenue solely based on analysis of backlog. The actual timing of revenue from projects included in backlog will vary.

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Financial Highlights

ASeveral ~~number~~key highlights of ~~factors~~our ~~have~~financial ~~affected~~performance ~~our~~in fiscal year ~~2024~~2025 ~~results,~~are ~~the~~described ~~most significant of which we have listed~~ below. More details ~~on these changes~~ are presented ~~below~~in ~~within~~ our "Results of Operations" section below.

•~~The~~Revenue ~~decline~~increased in52.2% year-over-year ~~revenue~~due ~~was~~to ~~primarily~~94.9% ~~driven~~growth byin ~~the~~Security ~~successful~~Solutions, ~~completion~~primarily ofdue ~~certain~~to ~~programs~~the ~~and~~expansion ~~ramp-down~~ of large programs in ~~Secure~~Telos ~~Networks without corresponding new business wins to backfill completed programs~~ID.

•~~Growth~~Gross inmargin ~~TSA~~expanded ~~PreCheck~~523 ~~revenue~~basis ~~partially~~points ~~offset the~~ year-over-year ~~revenue decline and was driven by the increase in our enrollment locations and a full year of renewal operations as compared to only a partial year in fiscal year 2023~~.

•~~The~~Operating ~~reduction~~expenses inincreased ~~gross~~by ~~margin~~$10.6 ~~was~~million, ~~mainly~~or ~~driven~~11.7%, byyear-over-year ~~the~~due ~~impact~~to of an ~~impairment~~$8.9 ~~loss~~million onincrease ~~intangible~~in ~~assets~~stock-based ofcompensation, an $58.35 million increase in impairment loss and ~~higher~~a ~~amortization~~$0.1 ofmillion ~~software~~increase ~~development~~in ~~costs~~restructuring expenses. ~~This~~These ~~was~~increases were partially offset by a ~~more~~decrease ~~favorable~~of ~~program~~$6.9 ~~mix~~million, or 11.1%, of the remaining operating expenses due to the restructuring efforts undertaken in the third quarter of 2024 and ongoing disciplined cost management.

•~~The~~Cash ~~assessment~~flow offrom ~~our~~operations ~~cost~~improved ~~structure~~by ~~and~~$56.1 ~~investment~~million ~~priorities~~year-over-year infrom ~~fiscal~~a ~~year~~$25.9 ~~2024~~million ~~led~~outflow to ~~restructuring~~a ~~actions~~$30.2 ~~and~~million ~~the~~inflow, ~~discontinued development and/~~or ~~sale~~18.3% of ~~selected~~revenue ~~solutions~~due orto ~~parts~~improved ofrevenue ~~solutions that were not generating acceptable returns. These initiatives resulted in a $1.3 million restructuring charge~~ and aprofitability, ~~$11.7~~as ~~million~~well ofas ~~non-cash~~improved ~~impairment~~working ofcapital ~~software development costs~~management.

•~~Lower~~We ~~year-over-year~~deployed ~~gross~~$13.6 ~~profit~~million ~~was~~to ~~partially~~repurchase ~~offset~~approximately by3.1 ~~reduced~~million ~~operating~~shares ~~expenses~~of our common stock at an average share price of $4.38 per share.

Results of Operations

Consolidated Results

Table MD&A 2: Consolidated Financial Results Comparison

For the Year Ended December 31,

2024

2023

Dollar Change

2025

2024

Dollar Change

(dollars in thousands)

Revenue

~~108~~164,~~272~~805

~~145~~108,~~378~~272

~~(37~~56,~~106)~~533

Cost of sales

73103,~~843~~788

9273,~~436~~843

~~(18~~29,~~593)~~945

Gross profit

3461,~~429~~017

5234,~~942~~429

~~(18~~26,~~513)~~588

Gross margin

3137.80

3631.48

Operating expenses

90100,~~302~~898

9390,~~257~~302

(210,~~955)~~596

Operating expenses as percentage of revenue

8361.42

6483.14

Operating loss

(5539,~~873~~881)

(4055,~~315~~873)

(15,~~558)~~992

Other income

43,~~023~~225

64,~~715~~023

(~~2,692~~798)

Interest expense

(~~644~~553)

(~~786~~644)

~~142~~91

Loss before income taxes

(5237,~~494~~209)

(3452,~~386~~494)

~~(18~~15,~~108)~~285

Provision for income taxes

(26)

(36)

Benefit from (provision for) income taxes

663

(26)

689

Net loss

(5236,~~520~~546)

(3452,~~422~~520)

~~(18~~15,~~098)~~974

Our business segments have different factors driving revenue fluctuations and profitability. ~~The~~A discussion of the changes in our net revenue and profitability is covered in greater detail under the section that follows: "Segment Results." We generate revenue from the delivery of products and services to our customers. Cost of sales, for both products and services, consists of labor, materials, subcontracting costs and an allocation of indirect costs.

Operating Expenses: Operating expenses ~~decreased~~increased by 3$10.6 million or 11.7% in ~~2024~~2025, compared to ~~2023~~2024. ~~Research~~A ~~and~~goodwill ~~development~~impairment ~~expenses~~of ~~decreased by~~ $314.39 million inwas ~~2024,~~recorded ~~compared~~in ~~to 2023, primarily due to~~ the ~~discontinued~~fourth ~~development~~quarter of ~~selected~~2025 ~~solutions or parts of solutions~~ associated with ~~the~~our ~~restructuring~~Secure ~~plan~~Networks ~~and~~reporting ~~lower~~unit ~~stock-based~~(see ~~compensation~~Note ~~expenses.~~6 ~~Selling,~~- ~~general~~Goodwill ~~and~~for ~~administrative~~more ~~expenses decreased by $5.5 million in 2024~~information), ~~compared~~whereas ~~to 2023, primarily due to decreased cash incentive compensation expenses. These reductions were partially offset by~~ an ~~increase in~~ impairment loss on intangible assets of $56.94 million was recorded in 2024.

~~Other~~Research ~~income:~~and ~~Other~~development ~~income~~("R&D") expenses decreased by 40$1.4 million, or 16.4% in ~~2024~~2025, compared to ~~2023,~~2024. ~~primarily~~This was due to a $2.2 million reduction in amortization costs from the ~~gain~~discontinued ondevelopment ~~early~~of ~~extinguishment~~selected solutions or parts of ~~other~~solutions ~~financing~~associated ~~obligation~~with the restructuring plan in 2024. This reduction was partially offset by an increase of $1.4 million in ~~2023,~~stock-based ~~without~~compensation. aR&D ~~similar~~restructuring ~~gain~~expenses inwere ~~2024~~approximately flat year-over-year. The remaining ~~variance~~R&D isexpenses ~~attributable~~decreased by $0.6 million due to ~~decreased~~the ~~dividend~~restructuring ~~income~~effort ~~from~~in ~~money~~2024 ~~market~~and ~~placements.~~ongoing disciplined cost management

Selling, general and administrative ("SG&A") expenses increased by $3.4 million, or 4.6%, in 2025, compared to 2024, due to a $7.6 million increase in stock-based compensation costs and $0.1 million increase in restructuring expenses. SG&A depreciation and amortization expenses were approximately flat year-over-year. These increases were partially offset by a $4.2 million reduction in the remaining SG&A expenses due to the 2024 restructuring effort and ongoing disciplined cost management.

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Other income: Other income decreased by 19.8% in 2025, compared to 2024, primarily due to the change in dividend income from money market placements, partially offset by the gain on fair value adjustment of an investment and the one-time tax refund recorded in the fourth quarter of 2025.

Segment Results

The accounting policies of each business segment are the same as those followed by the Company as a whole. Management evaluates business segment performance based on gross profit.

Table MD&A 3: Security Solutions Segment - Financial Results Comparison

For the Year Ended December 31,

2024

2023

Dollar Change

2025

2024

Dollar Change

(dollars in thousands)

Revenues

76149,~~760~~600

7776,~~416~~760

~~(656)~~72,840

Cost of sales (excluding impairment loss, depreciation and amortization)

3783,~~352~~868

3437,~~270~~352

346,~~082~~516

Impairment loss on intangible assets

~~5,333~~—

—5,333

(5,333)

Depreciation and amortization

68,~~396~~173

36,~~532~~396

21,~~864~~777

Total cost of sales

4992,~~081~~041

3749,~~802~~081

1142,~~279~~960

Gross profit

2757,~~679~~559

3927,~~614~~679

~~(11~~29,~~935)~~880

Gross margin

3638.15

5136.21

Security Solutions segment revenue ~~decreased~~increased by 194.9% in ~~2024~~2025, compared to ~~2023~~2024, primarily due to the ~~reduction~~expansion ~~in revenue from a long-term program, the completion~~ of amultiple ~~short-term~~large ~~program~~programs in ~~the~~Telos ~~prior year and the sale of a non-recurring perpetual license in the prior year, partially offset by the growth in the TSA PreCheck program~~ID.

Security Solutions segment gross profit ~~decreased~~increased by 30108.0% in ~~2024~~2025, compared to ~~2023, and gross margin decreased from 51.2% in 2023 to 36.1% in~~ 2024, primarily due to ~~the impairment loss on intangible assets in 2024,~~ higher ~~amortization~~segment ofrevenue ~~software development costs,~~ and ~~program~~higher ~~mix~~segment ~~within~~gross ~~the portfolio~~margin.

Table MD&A 4: Secure Networks Segment - Financial Results Comparison
	For the Year Ended December 31,
	2024			2023			Dollar Change
	(dollars in thousands)
Revenues	$	31,512		$	67,962		$	(36,450)
Cost of sales (excluding impairment loss, depreciation and amortization)	24,754			54,622			(29,868)
Depreciation and amortization	8			12			(4)
Total cost of sales	24,762			54,634			(29,872)
Gross profit	$	6,750		$	13,328		$	(6,578)
Gross margin	21.4		%	19.6		%

Security Solutions segment gross margin increased from 36.1% in 2024 to 38.5% in 2025, primarily due to the impairment loss on intangible assets in 2024 and the lower impact of depreciation and amortization expense on higher revenue. As expected, segment gross margin, excluding the impact of depreciation and amortization, stock-based compensation, restructuring expenses, and impairment on intangible assets, is down year-over-year due to revenue mix and higher non-cash infrastructure costs.

Secure Networks segment revenue decreased by 54% in 2024, compared to 2023, primarily due to the successful completion of certain programs and ramp-down of certain programs without corresponding new business wins to backfill completed programs.


Table MD&A 4: Secure Networks Segment - Financial Results Comparison
	For the Year Ended December 31,
	2025			2024			Dollar Change

	(dollars in thousands)
Revenues	$	15,205		$	31,512		$	(16,307)
Cost of sales (excluding impairment loss, depreciation and amortization)	11,740			24,754			(13,014)
Depreciation and amortization	7			8			(1)
Total cost of sales	11,747			24,762			(13,015)
Gross profit	$	3,458		$	6,750		$	(3,292)
Gross margin	22.7		%	21.4		%

Secure Networks segment ~~gross~~revenue ~~profit~~ decreased by 4951.7% in ~~2024~~2025, compared to ~~2023~~2024, primarily due to ~~lower revenues. By contrast,~~ the ~~segment~~ramp ~~gross~~down ~~margin~~of ~~increased~~several ~~from~~programs ~~19.6%~~within inthe ~~2023~~portfolio towithout ~~21.4%~~corresponding innew ~~2024,~~business ~~primarily~~wins ~~due~~ to abackfill ~~favorable~~completed ~~program mix and strong program management~~programs.

~~Non-GAAP~~Secure ~~Measures~~Networks segment gross profit decreased by 48.8% in 2025, compared to 2024, due to lower segment revenues.

InBy ~~addition to our results determined in accordance with U.S. GAAP~~contrast, ~~we believe~~ the ~~non-GAAP~~Secure ~~financial~~Networks ~~measures~~segment ofgross ~~EBITDA,~~margin ~~Adjusted~~increased ~~EBITDA,~~from ~~EBITDA~~21.4% ~~Margin,~~in ~~Adjusted~~2024 ~~EBITDA~~to ~~Margin,~~22.7% ~~Adjusted~~in ~~Net Loss~~2025, ~~Adjusted~~primarily ~~Earnings~~due ~~Per~~to ~~Share~~program ~~("EPS"), Adjusted Gross Profit, Adjusted Gross Margin, Cash Gross Profit, Cash Gross Margin and Free Cash Flow are useful in evaluating our operating and cash flow performance~~mix. WeSegment ~~believe~~gross ~~that this non-GAAP financial information~~margin, ~~when~~excluding ~~taken~~the ~~collectively~~impact ~~with our GAAP results, may be helpful to readers~~ of ~~our~~depreciation ~~financial statements because it provides consistency~~ and ~~comparability with past financial performance and assists in comparisons with other companies~~amortization, ~~some of which use similar non~~stock-~~GAAP~~based ~~financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only~~compensation, ~~should~~and ~~not~~restructuring ~~be considered a substitute for financial information presented in accordance with GAAP~~expenses, ~~and~~is ~~may~~also beup ~~different from similarly~~year-~~titled non~~over-~~GAAP~~year ~~measures~~due ~~used by other companies. A reconciliation is provided below for each of these non-GAAP financial measures~~ to ~~the~~revenue ~~most directly comparable financial measure stated in accordance with GAAP~~mix.

We believe these non-GAAP financial measures facilitate comparison of our operating and cash performance on a consistent basis between periods by excluding certain items that may, or could, have a disproportionately positive or negative impact on our results of operations in any particular period. When viewed in combination with our results prepared in accordance with GAAP, these non-GAAP financial measures help provide a broader picture of factors and trends affecting our results of operations.

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Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the non-GAAP financial measures of EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin are useful in evaluating our operating and cash flow performance. We believe that this non-GAAP financial information, when taken collectively with our GAAP results, may be helpful to readers of our financial statements because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each of these non-GAAP financial measures to the most directly comparable financial measure stated in accordance with GAAP.

EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin

EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin are supplemental measures of operating and cash flow performance that are not made under GAAP and do not represent, and should not be considered as an alternative to net (loss) income, as determined by GAAP. We define EBITDA as net (loss) income, adjusted for non-operating (income) expense, interest expense, provision for (benefit from) income taxes, and depreciation and amortization. We define Adjusted EBITDA as EBITDA, adjusted for stock-based compensation expense, impairment loss on goodwill and intangible assets, and restructuring expenses (adjustments). We define EBITDA Margin, as EBITDA as a percentage of total revenue. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenue.

We believe that EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin provide the Board of Directors, management and investors with a clear representation of ~~our~~the Company’s core operating performance and trends, provide greater visibility into the long-term financial performance of the Company, and eliminate the impact of items that do not relate to the ongoing operating performance of the business. Further, Adjusted EBITDA is used by the Board of Directors and management to prepare and approve ~~our~~the Company’s annual budget, and ~~from time~~ to ~~time, to~~ evaluate the performance of certain management personnel when determining incentive compensation.

Table MD&A 5: Reconciliation of Net Loss to EBITDA and Adjusted EBITDA; Net Loss Margin to EBITDA Margin and Adjusted EBITDA Margin
	For the Year Ended December 31,
	2024				2023
	2025				2024
	Amount		Margin		Amount		Margin
	(dollars in thousands)
Net loss	$	(5236,~~520~~546)	(4822.52)%	%	$	(3452,~~422~~520)	(2348.75)%	%
Other income	(43,~~023~~225)		(32.70)%	%	(64,~~715~~023)		(43.67)%	%
Interest expense	~~644~~553		0.6%3	%	~~786~~644		0.5%6	%
Provision for income taxes	26		—%		36		—%
(Benefit from) provision for income taxes	(663)		(0.3)	%	26		—	%
Depreciation and amortization (2)	11,867		11.0%		9,429		6.5%
Depreciation and amortization	11,451		6.9	%	11,867		11.0	%
EBITDA (Non-GAAP)	(4428,~~006~~430)		(4017.63)%	%	(3044,~~886~~006)		(2140.36)%	%
Stock-based compensation expense (1)	2130,~~411~~150		1918.8%3	%	2421,~~396~~411		1619.8%	%
Impairment loss on intangible assets (2)	11,706		10.8%		—		—%
Goodwill impairment	14,916		9.1	%	—		—	%
Restructuring expenses (3)	1,270		1.1%		1,132		0.8%
Impairment loss on intangible assets	—		—	%	11,706		10.8	%
Adjusted EBITDA (Non-GAAP)	$	(9,619)	(8.9)%		$	(5,358)	(3.7)%
Restructuring expenses (2)	1,501		0.9	%	1,270		1.1	%
Adjusted EBITDA (Non-GAAP)	$	18,137	11.0	%	$	(9,619)	(8.9)	%

(1) The stock-based compensation ~~adjustment~~expense to EBITDA is made up of stock-based compensation expense for the awarded ~~service-based restricted stock units ("~~RSUs"), ~~performance-based restricted stock units ("~~PSUs"), and stock options, and other sources. Stock-based compensation expense for the awarded RSUs, PSUs and stock options was $1924.40 million and $2219.94 million for fiscal years ~~2024~~2025 and ~~2023~~2024, respectively. Stock-based compensation expense from other sources was $26.1 million and $12.51 million for ~~the~~ fiscal years ~~2024~~2025 and ~~2023~~2024, respectively. The other ~~source~~sources of stock-based compensation ~~consists~~consist of accrued compensation, which the Company intends to settle in shares of the Company's common stock. However, ~~it is~~ the Company's has the discretion to determine whether this compensation will ultimately be paid in stock or cash. ~~The Company has the right to dictate the form of these payments~~ up until the date at which ~~they~~it ~~are~~is paid. Any change to the expected payment form would result in aout-of-quarter ~~change~~adjustments into ~~estimate~~this ~~that would~~ add back to Adjusted EBITDA.

(2) ~~Due~~The torestructuring ~~its~~expenses ~~immaterial~~include ~~amount,~~severance ~~the~~and ~~impairment~~other ~~loss~~related onbenefit ~~intangible~~costs, ~~assets~~and ofother ~~$0.5~~non-cash ~~million~~restructuring ~~for~~costs ~~fiscal~~related ~~year~~to ~~2023~~implementing ~~was~~the ~~reported~~restructuring ~~as part of depreciation and amortization in 2023~~plan.

(3) The restructuring expenses include severance and other related benefit costs (including outplacement services and continuing health insurance coverage), external consulting and advisory fees related to implementing the restructuring plan.

Adjusted Net Loss and Adjusted EPS

Adjusted Net (Loss) Income and Adjusted EPS are supplemental measures of operating and cash flow performance that are not made under GAAP and do not represent, and should not be considered as alternatives to, net (loss) income and earnings per share as determined by GAAP. We define Adjusted Net (Loss) Income as net (loss) income, adjusted for non-operating (income) expense, stock-based compensation expense, impairment loss on intangible assets, and restructuring expenses (adjustments). We define Adjusted EPS as Adjusted Net (Loss) Income divided by the weighted-average number of common shares outstanding for the period.

Adjusted Net (Loss) Income and Adjusted EPS provide the Board of Directors, management and investors with clear representation of our core operating performance and trends, provide greater visibility into the long-term financial performance of the Company, and eliminate the impact of items that do not relate to the ongoing operating performance of the business.

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Table MD&A 6: Reconciliation of Net Loss and GAAP EPS to Non-GAAP Adjusted Net Loss and Adjusted EPS
	For the Year Ended December 31,
	2024				2023
	Adjusted Net Loss		Adjusted Earnings Per Share		Adjusted Net Loss		Adjusted Earnings Per Share
	(in thousands, except per share data)
Net loss	$	(52,520)	$	(0.73)	$	(34,422)	$	(0.50)
Adjustments:
Other income	(4,023)		(0.06)		(6,715)		(0.10)
Stock-based compensation expense (1)	21,411		0.30		24,396		0.35
Impairment loss on intangible assets (2)	11,706		0.16		—		—
Restructuring expenses (3)	1,270		0.02		1,132		0.02
Adjusted net loss (Non-GAAP)	$	(22,156)	$	(0.31)	$	(15,609)	$	(0.23)
Weighted-average shares of common stock outstanding, basic	71,850				69,256

EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin each has limitations as an analytical tool, and they should not be considered in isolation, or as a substitute for analysis of results as reported under GAAP. Among other limitations, each of EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments, does not reflect the impact of certain cash and non-cash charges resulting from matters considered not to be indicative of ongoing operations, and does not reflect income tax expense or benefit. Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, which limits its usefulness as a comparative measure. Because of these limitations, neither EBITDA, Adjusted EBITDA, EBITDA Margin, nor Adjusted EBITDA Margin should be considered as a replacement for net (loss) income as determined by GAAP, or as a measure of profitability. Telos compensates for these limitations by relying primarily on the Company’s GAAP results and using non-GAAP measures only for supplemental purposes.

~~(1)~~We ~~The~~believe ~~stock~~these non-~~based~~GAAP ~~compensation~~financial ~~adjustment~~measures tofacilitate ~~EBITDA~~the iscomparison ~~made up~~ of ~~stock-based compensation expense for~~ the ~~awarded~~Company’s ~~service-based~~operating ~~RSUs, PSUs, stock options,~~ and ~~other~~cash ~~sources.~~performance ~~Stock-based~~on ~~compensation~~a ~~expense~~consistent ~~for~~basis ~~the~~between ~~awarded~~periods ~~RSUs,~~by ~~PSUs~~excluding ~~and~~certain ~~stock~~items ~~options~~that ~~was $19.4 million and $22.9 million for fiscal years 2024 and 2023~~may, ~~respectively.~~or ~~Stock-based compensation expense from other sources was $2.1 million and $1.5 million for the fiscal years 2024 and 2023~~could, ~~respectively.~~have ~~The~~a ~~other~~disproportionately ~~source~~positive ofor ~~stock-based~~negative ~~compensation~~impact ~~consists~~on ~~of accrued compensation, which~~ the Company’s ~~intends~~results toof ~~settle~~operations in ~~shares~~any ofparticular ~~the Company's common stock~~period. ~~However,~~When itviewed isin ~~the~~combination ~~Company's~~with ~~discretion~~our ~~whether~~results ~~this~~prepared ~~compensation will ultimately be paid~~ in ~~stock~~accordance orwith ~~cash.~~GAAP, ~~The~~these ~~Company~~non-GAAP ~~has~~financial ~~the~~measures ~~right~~help toprovide ~~dictate~~a ~~the~~broader ~~form~~picture of ~~these~~factors ~~payments~~and uptrends ~~until~~affecting the ~~date~~Company’s atresults ~~which~~of ~~they are paid~~operations. ~~Any change to the expected payment form would result in a change in estimate that would add back to Adjusted Net Loss.~~

~~(2)~~Liquidity ~~Due to its immaterial amount, the impairment loss on intangible assets of $0.5 million for fiscal year 2023 was reported as part of depreciation~~ and ~~amortization~~Capital ~~in 2023.~~Resources

~~(3)~~Our ~~The~~primary ~~restructuring~~sources ~~expenses~~of ~~include~~liquidity ~~severance~~are cash on hand, future operating cash flows, and, ~~other~~if ~~related~~needed, ~~benefit~~borrowings ~~costs~~under ~~(including~~our ~~outplacement~~$15.0 ~~services~~million ~~and~~senior ~~continuing~~secured ~~health~~revolving ~~insurance~~credit ~~coverage)~~facility, ~~external~~with ~~consulting~~an ~~and~~expansion ~~advisory~~feature ~~fees~~of up to $15.0 million of additional revolver capacity, maturing on December 30, 2026. While a variety of factors related to ~~implementing~~sources ~~the~~and ~~restructuring~~uses ~~plan~~of cash, such as timeliness of accounts receivable collections, vendor credit terms, or significant collateral requirements, ultimately impact our liquidity, such factors may or may not have a direct impact on our liquidity.

~~Adjusted~~As ~~Gross~~of ~~Profit~~December 31, ~~Cash~~2025, ~~Gross~~we ~~Profit,~~had ~~Adjusted~~cash ~~Gross~~and ~~Margin~~cash equivalents of $53.2 million and ~~Cash~~our ~~Gross~~working ~~Margin~~capital was $57.6 million.

~~Adjusted~~We ~~Gross~~place ~~Profit,~~a ~~Cash~~strong ~~Gross~~emphasis ~~Profit,~~on ~~Adjusted~~liquidity ~~Gross~~management. ~~Margin~~This ~~and~~focus ~~Cash~~gives ~~Gross~~us ~~Margin~~the ~~are~~flexibility ~~supplemental~~for ~~measures~~capital ofdeployment ~~operating~~while ~~and~~preserving ~~cash~~a ~~flow~~strong ~~performance~~balance ~~that~~sheet ~~are~~to ~~not~~position ~~made~~us ~~under~~for ~~GAAP~~future ~~and~~opportunities. doWe ~~not~~believe ~~represent,~~we ~~and~~have ~~should~~adequate ~~not~~funds beon ~~considered~~hand ~~as alternatives~~ to ~~gross~~execute ~~profit~~our financial and ~~gross~~operating ~~margin as determined by GAAP~~strategy. WeOur ~~define~~overall ~~Adjusted~~financial ~~Gross~~position ~~Profit as gross profit, plus stock-based compensation expense, impairment loss on intangible assets,~~ and ~~restructuring~~liquidity ~~expenses~~are ~~charged under cost of sales~~strong. WeAlthough ~~define~~no ~~Adjusted~~assurances ~~Gross~~can ~~Margin~~be asgiven, ~~Adjusted~~we ~~Gross~~believe ~~Profit~~the asavailable acash ~~percentage~~balances ofare ~~total~~sufficient ~~revenue.~~to Wemaintain ~~define~~the ~~Cash~~liquidity ~~Gross~~we ~~Profit~~require asto ~~Adjusted~~meet ~~Gross~~our ~~Profit~~operating, ~~plus~~investing ~~depreciation~~ and ~~amortization.~~financing Weneeds ~~define~~for ~~Cash~~the ~~Gross~~next ~~Margin~~12 ~~as Cash Gross Profit as a percentage of total revenue~~months.

Adjusted Gross Profit, Cash Gross Profit, Adjusted Gross Margin and Cash Gross Margin provide management and investors with a clear representation of the core economics of gross profit and gross margin without the impact of non-cash expenses and sunk costs expended.


Table MD&A 6: Cash Flows Information
	For the Year Ended December 31,
	2025		2024

	(in thousands)
Net cash provided by (used in) operating activities	$	30,182	$	(25,938)
Net cash used in investing activities	(8,915)		(16,757)
Net cash used in financing activities	(22,664)		(1,984)
Net change in cash, cash equivalents, and restricted cash	$	(1,397)	$	(44,679)

Table MD&A 7: Reconciliation of Gross Profit to Adjusted Gross Profit and Cash Gross Profit; Gross Margin to Adjusted Gross Margin and Cash Gross Margin
	For the Year Ended December 31,
	2024			2023
	Amount		Margin	Amount		Margin
	(dollars in thousands)
Gross profit	$	34,429	31.8 %	$	52,942	36.4 %
Adjustments:
Stock-based compensation expense — cost of sales	828		0.8 %	900		0.6 %
Impairment loss on intangible assets – cost of sales	5,333		4.9%	—		—%
Restructuring expenses — cost of sales	341		0.3%	—		—%
Adjusted gross profit (Non-GAAP)	40,931		37.8%	53,842		37.0%
Depreciation and amortization — cost of sales	6,404		5.9 %	3,544		2.5 %
Cash gross profit (Non-GAAP)	$	47,335	43.7%	$	57,386	39.5%

For the year ended December 31, 2025, net cash provided by operating activities was $30.2 million, compared with net cash used in operating activities of $25.9 million in 2024, an increase of $56.1 million compared year over year. The change in cash flow from operating activities is attributable to the favorable changes in working capital, primarily driven by timing of receipts from customer and the timing of payments to vendors, coupled with higher cash earnings (i.e., net loss, excluding non-cash items that do not impact cash flows from operating activities).

Net cash used in investing activities for the year ended December 31, 2025, decreased by $7.8 million in cash outflow compared to the same period in 2024, primarily due to the cash outflow from the purchase of an investment of $3.0 million in 2024, with no similar transaction in 2025, coupled by a decrease of $4.8 million in capital expenditures in 2025.

For the year ended December 31, 2025, net cash used in financing activities was $22.7 million, compared to $2.0 million in 2024. This is primarily attributable to the repurchases of common stock for $13.6 million in 2025 under the share repurchase program, with no similar activity in 2024, and an increase in payments of tax withholding related to the net share settlement of equity awards of $7.3 million in 2025, compared with $0.5 million in 2024.

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Free Cash Flow

Free Cash Flow is a supplemental measure of operating and cash flow performance that is not made under GAAP and does not represent, and should not be considered as an alternative to, net cash flow (used in) provided by operating activities, as determined by GAAP. We define Free Cash Flow as net cash (used in) provided by operating activities, less net purchases of property and equipment, and capitalized software development costs.

We use Free Cash Flow to understand the cash flows that directly correspond with our operations and the investments we must make in those operations, using a methodology that combines operating cash flows and capital expenditures. Further, Free Cash Flow may be useful to management and investors in evaluating the Company's operating and cash flow performance and liquidity, and to evaluate the performance of certain management personnel when determining incentive compensation.

Table MD&A 8: Reconciliation of Net Cash (Used in) Provided by Operating Activities to Free Cash Flow
	For the Year Ended December 31,
	2024		2023
	(in thousands)
Net cash (used in) provided by operating activities	$	(25,938)	$	1,587
Adjustments:
Purchases of property and equipment, net	(2,252)		(926)
Capitalized software development costs	(11,505)		(14,552)
Free cash flow (Non-GAAP)	$	(39,695)	$	(13,891)

EBITDA, Adjusted EBITDA, EBITDA Margin, Adjusted EBITDA Margin, Adjusted Net Loss, Adjusted EPS, Adjusted Gross Profit, Adjusted Gross Margin, Cash Gross Profit, Cash Gross Margin and Free Cash Flow each have limitations as an analytical tool, and you should not consider any of them in isolation, or as a substitute for analysis of our results as reported under GAAP. Among other limitations, each of EBITDA, Adjusted EBITDA, EBITDA Margin, Adjusted EBITDA Margin, Adjusted Net Loss, Adjusted EPS, Adjusted Gross Profit, Adjusted Gross Margin, Cash Gross Profit, Cash Gross Margin and Free Cash Flow does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments, does not reflect the impact of certain cash and non-cash charges resulting from matters we consider not to be indicative of our ongoing operations, and does not reflect income tax expense or benefit. Other companies in our industry may calculate Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Loss, Adjusted EPS, Adjusted Gross Profit, Adjusted Gross Margin, Cash Gross Profit, Cash Gross Margin and Free Cash Flow differently than we do, which limits their usefulness as comparative measures. Because of these limitations, neither EBITDA, Adjusted EBITDA, EBITDA Margin, Adjusted EBITDA Margin, Adjusted Net Loss, Adjusted EPS, Adjusted Gross Profit, Adjusted Gross Margin, Cash Gross Profit, Cash Gross Margin nor Free Cash Flow should be considered as a replacement for gross profit, gross margin, net (loss) income, earnings per share or net cash flows (used in) provided by operating activities, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, future operating cash flows, and, if needed, borrowings under our $30.0 million senior secured revolving credit facility, with an expansion feature of up to $30.0 million of additional revolver capacity. While a variety of factors related to sources and uses of cash, such as timeliness of accounts receivable collections, vendor credit terms, or significant collateral requirements, ultimately impact our liquidity, such factors may or may not have a direct impact on our liquidity.

As of December 31, 2024, we had cash and cash equivalents of $54.6 million and our working capital was $69.3 million.

We place a strong emphasis on liquidity management. This focus gives us the flexibility for capital deployment while preserving a strong balance sheet to position us for future opportunities. We believe we have adequate funds on hand to execute our financial and operating strategy. Our overall financial position and liquidity are strong. Although no assurances can be given, we believe the available cash balances and access to our revolving credit facility are sufficient to maintain the liquidity we require to meet our operating, investing and financing needs for the next 12 months.

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Table MD&A 9: Cash Flows Information
	For the Year Ended December 31,
	2024		2023
	(in thousands)
Net cash (used in) provided by operating activities	$	(25,938)	$	1,587
Net cash used in investing activities	(16,757)		(15,478)
Net cash used in financing activities	(1,984)		(6,151)
Net change in cash, cash equivalents, and restricted cash	$	(44,679)	$	(20,042)

For the year ended December 31, 2024, net cash used in operating activities was $25.9 million, compared with net cash provided by operating activities of $1.6 million in 2023, an increase in cash outflow of $27.5 million compared year over year. The change in cash flow from operating activities is primarily driven by the Company's operating losses, the timing of receipts of customer payments, and the timing of payments to vendors and employees, adjusted for certain non-cash items that do not impact cash flows from operating activities.

Net cash used in investing activities for the years ended December 31, 2024, increased by $1.3 million in cash outflow compared to the same period in 2023, primarily due to the cash outflow from the purchase of an investment of $3.0 million in 2024, with no similar transaction in 2023. This is partially offset by a decrease of $1.7 million in capital expenditures in 2024.

For the year ended December 31, 2024, net cash used in financing activities was $2.0 million, compared to $6.2 million in 2023. This is primarily attributable to decreases in payments of tax withholding related to the net share settlement of equity awards of $0.5 million in 2024, compared with $3.7 million in 2023, and a $0.6 million payment for the Diamond Fortress Technologies ("DFT") holdback in February 2023, with no similar payment in 2024.

Commitments from Contractual Obligations

The Company does not have any other material cash requirements from contractual obligations. As of December 31, ~~2024~~2025, we had contractual commitments to make payments under existing lease obligations on various office space and equipment under non-cancelable operating and finance leases, and an obligation under a service agreement. We reported current and long-term lease liabilities; see Note 1312 - Leases in the consolidated financial statements within this 10-K.

Table MD&A 10: Contractual Obligations
Table MD&A 7: Contractual Obligations
	Total		Due within one year
	(in thousands)
Finance lease obligations (1)	$	108,~~658~~344	2,~~314~~372
Operating lease obligations (1) (2)	~~692~~472		~~248~~280
Service agreement obligation	10,000		16,250
Total contract obligations	$	2118,~~350~~816	$	38,~~812~~902

(1) Represents interest expense included in this amount.	$	1,201	$	473
(1) Includes interest expense.	$	728	$	359
(2) Amount includes operating lease right-of-use obligations and short-term leases with terms of 12 months or less. We have various lease agreements pursuant to ASC 842, "Leases" that require us to record the present value of the minimum lease payments for such lease properties.

There were no outstanding commitments that were considered material for capital expenditures on December 31, ~~2024~~2025.

From time to time, we may be subject to various audits, reviews, investigations, lawsuits and claims related to our business. See Note 1918 - Commitments, Contingencies and ~~Contingencies~~Subsequent Events to the consolidated financial statements within this ~~Annual~~10-K ~~Report~~ for further discussion of other commitments and contingencies.

Revolving Credit Facility

On December 30, 2022, we entered into a senior secured credit facility with JPMorgan Chase Bank, N.A. ("Credit Agreement") that ~~provides~~provided for a $30.0 million senior secured revolving credit facility, with the option of issuing letters of credits thereunder and with an uncommitted expansion feature of up to $30.0 million of additional revolver capacity, ~~maturing~~with a maturity date on December 30, 2025. On April 12, 2023, we amended our Credit Agreement and revised certain provisions on the terms of the covered collateral. On December 30, 2025, we amended our Credit Agreement to extend the maturity date to December 30, 2026. The amendment also modifies the revolving commitment to $15.0 million, with an expansion feature of up to $15.0 million of additional credit capacity. See Note 109 - ~~Debt~~Revolving ~~and~~Credit ~~Other~~Facility ~~Obligations~~ to the consolidated financial statements contained within this ~~Annual~~10-K ~~Report~~ for additional information.

The Credit Agreement contains customary terms and conditions, including certain covenant requirements. As of December 31, ~~2024~~2025, there were no outstanding balances under the revolving credit facility and we were in compliance with all covenants contained in the Credit Agreement.

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Other Financing Obligations

In November 2022, we entered into a Master Purchase Agreement ("MPA") with a third party for $9.1 million relating to software licenses under a specific delivery order with a customer, resulting in proceeds from other financing obligations. On February 9, 2023, when the third-party buyer notified us that it would not exercise the option period, we transferred all the rights, title and interest in the underlying licenses in exchange for the extinguishment of the outstanding financing obligations. The extinguishment of the other financing obligations resulted in a gain of $1.4 million in 2023. See Note 10 – Debt and Other Obligations to the consolidated financial statements combined within this Annual Report for a detailed discussion of our debt financing arrangements.

Under the MPA, if the customer terminates the delivery order for non-renewal and the buyer reasonably concludes that the customer's actions constitute grounds for filing a claim, the buyer and Telos will cooperate in preparing such a claim. During the third quarter of 2024, the buyer, through Telos, filed a claim against the customer.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current reasonably available information, and may change in the future as more current information is available.

Management believes that our critical accounting policies are those that are both material to the presentation of our financial condition and results of operations and require management's most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments difficult, subjective and complex have to do with making estimates about the effect of matters that are inherently uncertain; as a result, actual results could differ from those estimates.

The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements in fiscal year ~~2024~~2025 are described below. This is not intended to be a comprehensive list of all significant accounting policies that are more fully described in the notes to consolidated financial statements contained within this report.

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Revenue Recognition

Although most of our revenue is recognized concurrently with billing or with the passage of time, some of our revenue requires us to make estimates. The timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms. ~~Significant judgment can be required in determining certain performance obligations, and these determinations could change the amount of revenue and profit recorded in a given period.~~ Our contracts may have a single performance obligation or multiple performance obligations. When there are multiple performance obligations within a contract, we allocate the transaction price, net of any discounts, to each performance obligation based on the standalone selling price of the product or service underlying each performance obligation. The standalone selling price is either based on estimated or actual costs plus a reasonable profit margin or the observable price of a good or service when Telos sells that good or service separately in similar circumstances and to similar customers. The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration, as applicable. The transaction price is allocated to each distinct performance obligation within the contract and recognized as revenue when, or as, the performance obligation is satisfied.

Our contracts may also include various types of variable considerations such as claims (i.e., indirect rate or other equitable adjustments) or incentive fees and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. The estimated amounts are based on an assessment of our anticipated performance and all other information that is reasonably available to us.

For contracts where revenue is recognized over time, we recognize revenue based on progress towards completion of the performance obligation, using costs incurred to date relative to the total estimated cost at completion to measure progress on a proportional performance basis for our contracts. Due to the nature of the work required to be performed on certain contracts, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. Contract estimates are based on various assumptions, including labor and subcontractor costs, materials and other direct costs and the complexity of the work to be performed. A significant change in one or more of these estimates could affect the profitability of our contracts. We review and update our contract-related estimates regularly and recognize adjustments in estimated profit on contracts on a cumulative catch-up basis, which may result in an adjustment increasing or decreasing revenue to date on a contract in a particular period that the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. AsNo arevenue ~~result~~adjustment ofwas recorded during the ~~changes~~year inended ~~contract~~December ~~estimates~~31, 2025, while we recorded an immaterial catch-up revenue ~~adjustments~~adjustment during the year ended December 31, 2024, ~~and~~as ~~2023~~a result of the changes in contract estimates.

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Goodwill and Other Long-Lived Assets

We evaluate the impairment of goodwill and other long-lived assets in accordance with Accounting Standards Codification ("ASC") 350, "Intangibles – Goodwill and Other." ~~Management~~Goodwill ~~annually~~is ~~reviews~~not ~~goodwill~~amortized, ~~and~~but ~~other~~is ~~long-lived~~subject ~~assets~~to ~~for~~ impairment ortesting ~~whenever~~on ~~events~~an orannual ~~changes~~basis, inas ~~circumstances~~of ~~indicate~~December ~~the~~31 ~~carrying~~each ~~amount~~year, ~~may~~or ~~not~~more befrequently ~~recoverable.~~if Ifevents weor ~~determine~~circumstances indicate that the carrying value ~~of the goodwill and other long-lived assets~~ may not be recoverable,. weThe ~~will~~goodwill ~~record~~impairment antest ~~impairment~~is ~~charge~~performed ~~for~~at the ~~amount~~reporting byunit ~~which~~level. ~~the~~As ~~carrying~~of ~~value~~December of31, ~~the~~2025 and 2024, goodwill ~~and~~represented ~~other~~2.1% ~~long-lived~~and ~~assets~~11.3% ~~exceeds~~of ~~its~~our ~~fair~~total ~~value.~~assets, respectively.

Goodwill is not amortized, but rather tested for potential impairment as of December 31 each year. The goodwill impairment test is performed at the reporting unit level. Accounting requirements provide that a reporting entity may perform an optional qualitative assessment on an annual basis to determine whether events occurred or circumstances changed that would more likely than not reduce the fair value of a reporting unit below its carrying amount. If an initial qualitative assessment identifies that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or the optional qualitative assessment is not performed, a quantitative analysis is performed.

In testing goodwill for impairment, we first assess the qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after the assessment, we determine that an impairment indicator exists, we perform the quantitative goodwill impairment test. The Company performs the quantitative goodwill impairment test by calculating the fair value of the reporting unit and comparing it to its respective carrying value including goodwill. If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit's fair value and the reporting unit's carrying value.

Determining the fair value of a reporting unit requires management's judgment and involves the use of significant estimates and assumptions, including forecasted revenue, operating margins, capital expenditures, and selection and use of an appropriate discount rate commensurate with the risk inherent in each of our reporting units' current business models. We utilize the weighted average cost of capital as derived by certain assumptions specific to our facts and circumstances as the discount rate. Our estimate of cash flows and discount rate are subject to change due to the economic environment. Aand ~~relatively~~that ~~small change in the underlying assumptions, including if the financial performance of the reporting unit does not meet expectations in future years,~~ may cause a change in the results of the impairment assessment in future periods ~~and,~~that ~~as such,~~ could result in goodwill impairment.

~~For~~In ~~fiscal~~the ~~year~~fourth ~~2024~~quarter of 2025, wethe ~~performed~~result aof ~~qualitative~~the quantitative assessment of our ~~reporting~~Secure ~~units~~Networks ~~and~~reporting ~~determined~~unit concluded that itthe isestimated ~~more~~carrying ~~likely~~value ~~than~~of ~~not~~Secure ~~that~~Networks ~~the~~exceeded ~~estimated~~its fair value, ofdriven by the ~~reporting~~continued ~~units~~contraction ~~exceeds~~of ~~their~~Secure ~~carrying~~Networks' ~~value~~backlog ~~and~~in ~~thus~~2025. Accordingly, we ~~did~~recognized ~~not~~a ~~proceed~~goodwill toimpairment charge of $14.9 million in the ~~two-step~~fourth ~~goodwill~~quarter ~~impairment~~of ~~test~~2025.

~~Due~~In tofiscal ~~the~~year ~~nature of our business and other factors described in Item 1A~~2024, ~~"Risk~~we ~~Factors,"~~performed ofa ~~this~~qualitative ~~Annual~~assessment ~~Report on Form 10-K, the profitability~~ of our ~~individual~~ reporting units ~~may periodically be affected by downturns in customer demand, operational challenges,~~ and ~~other~~determined ~~factors. If material adverse conditions occur~~ that ~~impact~~it ~~one~~is ormore ~~all~~likely ofthan ~~our~~not ~~reporting~~that ~~units,~~the ~~our~~estimated ~~determination of future~~ fair value ~~might~~of ~~not support~~ the ~~carrying amount of our~~ reporting units, ~~and~~exceeds ~~the~~their ~~related~~carrying ~~goodwill~~value ~~may~~and bethus, ~~impaired.~~we Wedid ~~will~~not ~~continue~~proceed to ~~monitor~~the ~~any~~quantitative ~~changes~~impairment ~~to our assumptions and will evaluate goodwill as deemed warranted during future periods~~test.

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Due to the nature of our business and other factors described in Item 1A, "Risk Factors" of this 10-K, the profitability of our individual reporting units may periodically be affected by downturns in customer demand, operational challenges, and other factors. If material adverse conditions occur that impact one or all of our reporting units, our determination of future fair value might not support the carrying amount of our reporting units, and the related goodwill may be impaired. We will continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.

We amortize intangible assets over their respective estimated useful lives, and review them for impairment whenever events or changes in business circumstances indicate the carrying value may not be recoverable.

We evaluated our intangible assets for potential impairment. Asand ano ~~result~~impairment ofwas ~~the assessment, we~~ identified ~~conditions~~for ~~demonstrating~~the anyear ~~impairment~~ended ofDecember ~~certain~~31, ~~software development costs~~2025. An impairment charge of $11.7 million ~~and $0.5 million~~ was recorded in the consolidated statements of operations for the ~~years~~year ended December 31, 2024~~, and 2023, respectively~~.

For further discussion of the methods used and factors considered in our estimates as part of the impairment testing for goodwill and intangible assets, see Note 2 - Summary of Significant Accounting Policies on Goodwill and Intangible Assets, Note 76 - Goodwill, Net and Note 87 - Intangible Assets, Net to the consolidated financial statements contained within this ~~Annual Report~~10-K.

Stock-Based Compensation

The stock-based compensation expense related to the stock options, RSUs and PSUs awarded under the Amended and Restated 2016 Omnibus Long-Term Incentive Plan (the “2016 LTIP”) is recognized ratably over the requisite service period.

For awards with performance conditions, stock-based compensation expense is estimated at each reporting date using management’s expectation of the probable achievement of the specific performance targets and recognized over the requisite service period for each tranche on a graded-vesting basis. Stock-based compensation expense for PSUs with market conditions is recognized based on the grant-date fair value calculated using the Monte Carlo model, as described below, or sooner if the market conditions are achieved.

The fair value of the PSUs is equal to the closing stock price on the date of the grant or the fair value of the award on the grant date, as determined through an independent valuation for PSUs with market conditions. Estimating the fair value of PSUs with market condition, using the Monte Carlo simulation valuation model, requires assumptions as to the fair value of the underlying common stock, the estimated performance period, expected volatility, risk-free rate, and derived service period. See Note 11 – Stock-Based Compensation for additional information.

Income Taxes

We account for income taxes in accordance with ASC 740, "Income Taxes." Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We record net deferred assets to the extent we believe these assets will more likely than not be realized. The realizability of net deferred tax assets is based on all available evidence, including future taxable income projections, tax planning strategies, and reversal of taxable temporary differences. We regularly review our deferred tax assets for recoverability and establish a valuation allowance when management believes it is more likely than not that such asset will not be recovered, taking into consideration historical operating results, expectations of future earnings, tax planning strategies and the expected timing of the reversals of existing temporary differences.

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Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies of the consolidated financial statements contained within this ~~Annual~~10-K ~~Report~~ for a discussion of recently issued accounting pronouncements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we are exposed to a variety of financial risks, such as interest rate risk, foreign currency translation risk, and counterparty risk, which can affect our operations and profitability.

Our cash and cash equivalents include highly liquid investments that have a maturity of three months or less at the date of purchase, and would not be significantly affected by increases or decreases in interest rates, mainly due to the short-term nature of these instruments. The majority of our business is transacted in U.S. dollars, and the impact of the foreign currency fluctuation as we report for our foreign subsidiary upon translation of its financials into U.S. dollars was insignificant. Further, we do not enter into financial instruments for trading or hedging purposes.

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Item 8. Consolidated Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Telos Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Telos Corporation and its subsidiaries (the “"Company”") as of December 31, ~~2024~~2025 and ~~2023~~2024, and the related consolidated statements of operations, of comprehensive loss, of changes in stockholders’ equity and of cash flows for ~~each of~~ the ~~two~~ years inthen ~~the period~~ ended ~~December 31~~, ~~2024,~~ including the related notes (collectively referred to as the “"consolidated financial statements”"). We also have audited the Company’'s internal control over financial reporting as of December 31, ~~2024~~2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2024~~2025 and ~~2023~~2024, and the results of its operations and its cash flows for ~~each of~~ the ~~two~~ years inthen ~~the period~~ ended ~~December 31, 2024~~ in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2024~~2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition

As described in Note 3 to the consolidated financial statements, the Company’s total revenue was $~~108~~164.28 million for the year ended December 31, ~~2024~~2025. Revenue is recognized under a variety of contract types, including time and materials, firm-fixed price, firm fixed price level of effort, and cost-plus fixed fee contract types. Revenue is recognized using a variety of input and output methods that approximate the progress towards complete satisfaction of the performance obligation, including costs incurred, labor hours expended, and, for firm-fixed price stand ready obligations, time-elapsed measures. The majority of revenue is recognized over time, as control is transferred continuously to customers who receive and consume the services performed by the Company. For performance obligations in which control does not continuously transfer to the customer, the Company recognizes revenue at the point in time in which the customer obtains control of the transferred product or service.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are a high degree of auditor effort in performing procedures and evaluating audit evidence related to the Company’s revenue recognition.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process. These procedures also included, among others, (i) testing a sample of revenue recognized by obtaining and inspecting source documents, such as invoices, customer purchase orders, customer sales agreements, cost support, shipping documents, evidence of performance, customer acceptance support, and payment receipts from customers and (ii) ~~testing~~confirming a sample of outstanding customer invoice balances as of December 31, ~~2024~~2025 ~~by obtaining subsequent payment receipts~~ and, for ~~invoices~~confirmations not ~~yet paid~~returned, obtaining and inspecting source documents, such as invoices, customer purchase orders, customer sales agreements, shipping documents, and ~~payment~~subsequent ~~receipts~~cash ~~from customers~~receipts.

/s/ PricewaterhouseCoopers LLP

Washington, District of Columbia

March 1016, ~~2025~~2026

We have served as the Company's auditor since 2022.

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TELOS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended December 31,
	2024		2023
	2025		2024
	(in thousands, except per share amounts)
Revenue – services	$	~~103~~136,~~581~~544	$	~~135~~103,~~175~~581
Revenue – products	428,~~691~~261		104,~~203~~691
Total revenue	~~108~~164,~~272~~805		~~145~~108,~~378~~272
Cost of sales – services (excluding impairment loss, depreciation and amortization)	5974,~~271~~791		8359,~~159~~271
Cost of sales – products (excluding impairment loss, depreciation and amortization)	220,~~835~~817		52,~~733~~835
Impairment loss on intangible assets	~~5,333~~—		—5,333
Depreciation and amortization	68,~~404~~180		36,~~544~~404
Total cost of sales	73103,~~843~~788		9273,~~436~~843
Gross profit	3461,~~429~~017		5234,~~942~~429
Operating expenses:
Research and development expenses	87,~~442~~057		118,~~760~~442
Selling, general and administrative expenses	7578,~~487~~925		8175,~~010~~487
Impairment loss on intangible assets	6,373		487
Goodwill impairment	14,916		—
Total operating expenses	90,302		93,257
Impairment loss on intangible assets	—		6,373
Operating loss	(55,873)		(40,315)
Total operating expenses	100,898		90,302
Other income	4,023		6,715
Operating loss	(39,881)		(55,873)
Interest expense	(644)		(786)
Other income	3,225		4,023
Loss before income taxes	(52,494)		(34,386)
Interest expense	(553)		(644)
Provision for income taxes	(26)		(36)
Loss before income taxes	(37,209)		(52,494)
Net loss	$	(52,520)	$	(34,422)
Benefit from (provision for) income taxes	663		(26)
Net loss	$	(36,546)	$	(52,520)
Net loss per share:
Basic	$	(0.7350)	$	(0.5073)
Diluted	$	(0.7350)	$	(0.5073)
Weighted-average share outstanding:
Weighted-average shares outstanding:
Basic	7172,~~850~~878		6971,~~256~~850
Diluted	7172,~~850~~878		6971,~~256~~850

See accompanying notes to consolidated financial statements.

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TELOS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	For the Year Ended December 31,
	2024		2023
	2025		2024
	(in thousands)
Net loss	$	(5236,~~520~~546)	$	(3452,~~422~~520)
Other comprehensive loss, net of tax:
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(82)		(58)
Actuarial loss on pension liability adjustment	(61)		—
Actuarial gain (loss) on pension liability adjustment	35		(61)
Other comprehensive loss	(69)		(5)
Other comprehensive income (loss)	33		(69)
Comprehensive loss	$	(5236,~~589~~513)	$	(3452,~~427~~589)

See accompanying notes to consolidated financial statements.

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TELOS CORPORATION

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2024		2023
	2025		2024
	(in thousands, except per share and share data)
	(in thousands, except per share amount and share data)
Assets:
Cash and cash equivalents	$	5453,~~578~~180	$	9954,~~260~~578
Accounts receivable, net	1917,~~172~~000		3019,~~424~~172
Inventories, net	1,783		1,420
Prepaid expenses	10,565		15,092
Prepaid expenses	15,092		7,520
Deferred program expenses	10,006		—
Other current assets	~~793~~3,662		12,~~367~~576
Total current assets	9194,~~418~~413		~~139~~91,~~991~~418
Property and equipment, net	43,~~283~~071		34,~~457~~283
Finance lease right-of-use assets, net	54,~~391~~170		65,~~612~~391
Operating lease right-of-use assets	~~622~~410		~~216~~622
Goodwill	173,~~922~~006		17,922
Intangible assets, net	30,~~410~~281		3930,~~616~~410
Other assets	84,~~189~~513		~~885~~8,189
Total assets	$	~~158~~139,~~235~~864	$	~~208~~158,~~699~~235
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and other accrued liabilities	$	4,300	$	13,750
Accounts payable	$	4,087	$	1,153
Accrued compensation and benefits	7,608		14,569
Accrued liabilities	6,900		4,449
Contract liabilities	6,838		6,728
Accrued compensation and benefits	12,309		7,608
Finance lease obligations – current portion	1,877		1,730
Contract liabilities – current portion	11,223		6,838
Operating lease obligations – current portion	210		97
Finance lease obligations – current portion	2,033		1,877
Other current liabilities	1,302		2,324
Operating lease obligations – current portion	232		210
Total current liabilities	2236,~~135~~784		3922,~~198~~135
Finance lease obligations – non-current portion	7,641		9,518
Contract liabilities – non-current portion	1,124		—
Operating lease obligations – non-current portion	418		123
Finance lease obligations – non-current portion	5,608		7,641
Deferred income taxes	813		813
Operating lease obligations – non-current portion	186		418
Other liabilities	91		44
Deferred income taxes	53		813
Total liabilities	31,098		49,696
Other liabilities	159		91
Total liabilities	43,914		31,098
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value, 250,000,000 shares authorized, 72,514,652 shares and 70,239,890 shares issued and outstanding as of December 31, 2024 and 2023, respectively	111		109
Common stock, $0.001 par value, 250,000,000 shares authorized, 72,773,272 shares and 72,514,652 shares issued and outstanding as of December 31, 2025 and 2024, respectively	111		111
Additional paid-in capital	~~454~~459,~~502~~828		~~433~~454,~~781~~502
Accumulated other comprehensive loss	(~~129~~96)		(60129)
Accumulated deficit	(~~327~~363,~~347~~893)		(~~274~~327,~~827~~347)
Total stockholders' equity	~~127~~95,~~137~~950		~~159~~127,~~003~~137
Total liabilities and stockholders' equity	$	~~158~~139,~~235~~864	$	~~208~~158,~~699~~235

See accompanying notes to consolidated financial statements.

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TELOS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,
	2024		2023
	2025		2024
	(in thousands)
Cash flows from operating activities:
Net loss	$	(5236,~~520~~546)	$	(3452,~~422~~520)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Stock-based compensation	2130,~~411~~150		2421,~~396~~411
Depreciation and amortization	11,~~867~~451		811,~~942~~867
Impairment loss on intangible assets	11,706		487
Goodwill impairment	14,916		—
(Recovery from) provision for doubtful accounts, net	(20)		152
Provision for (recovery from) doubtful accounts, net	2		(20)
Deferred income tax provision	—		55
Benefit from deferred income taxes	(760)		—
(Gain) loss on disposal of fixed assets	(9)		2
Loss (gain) on disposal of fixed assets	15		(9)
Accretion of discount on acquisition holdback	—		2
Unrealized gain on fair value adjustment of investment	(750)		—
Amortization of debt issuance costs	70		6970
Provision for inventory obsolescence	~~108~~418		—108
Gain on early extinguishment of other financing obligations	—		(1,427)
Impairment loss on intangible assets	—		11,706
Changes in other operating assets and liabilities:
Accounts receivable	112,~~272~~170		911,~~493~~272
Inventories	(471)		1,457
Prepaid expenses, deferred program expenses, other current assets and other assets	(472)		(11,926)
Prepaid expenses, other current assets and other assets	(11,455)		(3,058)
Accounts payable	2,724		(7,121)
Accounts payable and other accrued payables	(9,417)		(8,817)
Accrued compensation and benefits	650		(7,395)
Accrued compensation and benefits	(7,395)		6,602
Contract liabilities	5,510		110
Contract liabilities	110		283
Accrued liabilities and other liabilities	634		(3,491)
Other current liabilities and other liabilities	(1,195)		(2,629)
Net cash provided by (used in) operating activities	30,182		(25,938)
Net cash (used in) provided by operating activities	(25,938)		1,587
Cash flows from investing activities:
Capitalized software development costs	(118,~~505~~176)		(1411,~~552~~505)
Purchase of investment	(3,000)		—
Purchases of property and equipment, net	(739)		(2,252)
Purchases of property and equipment, net	(2,252)		(926)
Purchase of investment	—		(3,000)
Net cash used in investing activities	(168,~~757~~915)		(1516,~~478~~757)
Cash flows from financing activities:
Payments under finance lease obligations	(1,~~730~~877)		(1,~~592~~730)
Payment of tax withholding related to net share settlement of equity awards	(~~457~~7,254)		(~~3,742~~457)
Proceeds from exercise of stock options	~~203~~108		—203
Payments of DFT holdback amount	—		(564)
Repurchase of common stock	(13,627)		—
Repurchase of common stock	—		(139)
Payments for debt issuance costs	(14)		—
Payments for debt issuance costs	—		(114)
Net cash used in financing activities	(22,664)		(1,984)
Net cash used in financing activities	(1,984)		(6,151)
Net change in cash, cash equivalents, and restricted cash	(1,397)		(44,679)
Net change in cash, cash equivalents, and restricted cash	(44,679)		(20,042)
Cash, cash equivalents and restricted cash, beginning of period	54,717		99,396
Cash, cash equivalents and restricted cash, beginning of period	99,396		119,438
Cash, cash equivalents and restricted cash, end of period	$	53,320	$	54,717
Cash, cash equivalents and restricted cash, end of period	$	54,717	$	99,396

See accompanying notes to consolidated financial statements.

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TELOS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

	Common Stock			AdditionalPaid–in Capital		Accumulated Other Comprehensive Loss		AccumulatedDeficit		TotalStockholders' Equity
	Shares	Amount
	(in thousands)
Balance December 31, 2022	67,431	$	106	$	412,708	$	(55)	$	(240,405)	$	172,354
Balance December 31, 2023	70,240	$	109	$	433,781	$	(60)	$	(274,827)	$	159,003
Net loss		—		—		—		(3452,~~422~~520)		(3452,~~422~~520)
Foreign currency translation loss	—	—		—		(5)		—		(5)
Stock-based compensation	—	—		22,874		—		—		22,874
Restricted stock unit award vested, net of shares withheld to cover tax withholding	2,032	2		(3,743)		—		—		(3,741)
Issuance of common stock for 401K match	777	1		1,942		—		—		1,943
Balance December 31, 2023	70,240	109		433,781		(60)		(274,827)		159,003
Net loss	—	—		—		—		(52,520)		(52,520)
Foreign currency translation loss	—	—		—		(8)		—		(8)
Actuarial loss on pension liability adjustment	—	—		—		(61)		—		(61)
Stock-based compensation	—	—		19,359		—		—		19,359
Restricted stock unit award vested, net of shares withheld to cover tax withholding	1,792	2		(459)		—		—		(457)
Issuance of common stock upon exercise of stock options	113	—		203		—		—		203
Issuance of common stock for 401K match	370	—		1,618		—		—		1,618
Balance December 31, 2024	72,515	$111	~~111~~	$454,502	~~454,502~~	$(129)	~~(129)~~	$(327,347)	~~(327,347)~~	$127,137	~~127,137~~
Net loss	—	—		—		—		(36,546)		(36,546)
Foreign currency translation loss	—	—		—		(2)		—		(2)
Actuarial gain on pension liability adjustment	—	—		—		35		—		35
Stock-based compensation	—	—		24,036		—		—		24,036
Restricted stock unit award vested, net of shares withheld to cover tax withholding	2,578	2		(7,256)		—		—		(7,254)
Issuance of common stock upon exercise of stock options	60	—		108		—		—		108
Repurchase of common stock	(3,108)	(3)		(13,624)		—		—		(13,627)
Issuance of common stock for 401K match	728	1		2,062		—		—		2,063
Balance December 31, 2025	72,773	$	111	$	459,828	$	(96)	$	(363,893)	$	95,950

See accompanying notes to consolidated financial statements.

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TELOS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Telos Corporation, together with its subsidiaries (collectively, the "Company," or "~~Telos~~we," or "Weour," or "~~Our~~Telos"), a Maryland corporation, is a leading provider of cyber, cloud and enterprise security solutions for the world's most security-conscious organizations. We own all of the issued and outstanding shares of Xacta Corporation and ubIQuity.com, inc., (a holding company for Xacta Corporation), and Teloworks, Inc. ("Teloworks"), and 100% ownership interest in Telos Identity Management Solutions, LLC ("Telos ID") ~~and Teloworks, Inc~~. ~~("Teloworks").~~

On March 13, 2024, the Board of Directors unanimously approved the dissolution of Telos APAC Pte. Ltd. ("Telos APAC"), a pre-operating foreign subsidiary, pursuant to a plan of complete liquidation and dissolution. Telos APAC was dissolved on October 7, 2024. The dissolution of this subsidiary did not have a material impact on the Company's business, results of operations and financial condition.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principle of Consolidation

The accompanying consolidated financial statements include the accounts of Telos and its subsidiaries (see Note 1 – Organization), all of whose issued and outstanding share capital is wholly- owned directly and indirectly by the Telos Corporation. All intercompany transactions have been eliminated in consolidation.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").

Basis of Comparison

Certain ~~reclassifications~~prior-period amounts have been ~~made~~reclassified to the ~~prior year's consolidated financial statements to conform to the~~ current ~~year's~~period presentation. In the current year, we reclassified ~~sales~~"Accrued ~~and~~liabilities" ~~marketing~~as ~~expenses~~a ~~and~~separate ~~general~~line ~~and~~item ~~administrative~~on ~~expenses,~~the ~~and~~consolidated ~~presented~~balance ~~them~~sheets ~~together~~from as"Accounts ~~selling,~~payable" ~~general~~ and ~~administrative (~~"~~SG&A")~~Other ~~expenses~~current ~~on the consolidated statements of operations~~liabilities". In addition, we ~~presented~~reclassified ~~impairment~~"Inventories, ~~loss~~net," ~~as a separate line item from research~~ and ~~development~~presented ~~("R&D")~~them ~~expenses~~as onpart ~~the consolidated statements~~ of ~~operations.~~"Other ~~The~~current ~~reclassifications~~assets" ~~had no impact~~ on ~~gross profit, total operating expenses or net loss in~~ the consolidated ~~statement~~balance ~~of operations~~sheets.

Segment Reporting

Operating segments are defined as components of an enterprise for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker ("CODM"), or decision-making group, in deciding how to allocate resources and assess performance. We identified our Chief Executive Officer as the CODM.

We operate our business in two reportable and operating segments: Security Solutions and Secure Networks. These segments enable the alignment of our strategies and objectives and provide a framework for the timely and rational allocation of resources within business lines. We eliminate any inter-segment revenues and expenses upon consolidation. See Note 18 – Segment Information for further information.

Use of Estimates

~~Preparing~~The preparation of these consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual results could differ from those estimates. We base our estimates on historical experience, currently available information, and various other assumptions that we believe are reasonable under the circumstances.

Management evaluates these estimates and assumptions on an ongoing basis, including, but not limited to, those relating to revenue recognition on cost estimation on certain contracts, allowance for credit losses, inventory obsolescence, ~~valuation~~income ~~allowance~~taxes ~~for~~including ~~deferred~~valuation ~~tax assets~~allowance, ~~income taxes,~~ certain assumptions related to ~~share~~stock-based compensation, fair value measurements, valuation and impairment of intangible assets and goodwill, useful lives and realizability of long-lived assets, restructuring ~~expenses~~expense accruals, and contingencies. Actual results could differ from those estimates. The impact of changes in estimates is recorded in the period in which they become known.

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Concentrations

Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable.

In consideration that a large amount of our working capital and total assets are held in cash and cash equivalents, we are exposed to credit risk in the event of default by the financial institutions to the extent of the amounts held in excess of federal insurance limits. Due to the financial strength and high credit quality of the financial institutions where the accounts are held, we do not believe that this credit risk makes it reasonably possible that a near-term severe impact risk of loss will occur.

The Company's receivables are primarily due from the U.S. federal government, or from prime contractors to whom we are subcontractors and the end customer is the U.S. federal government, and are generally considered collectable from the perspective of the customer's ability to pay. We believe that the credit risk associated with our receivables is limited due to the creditworthiness of our customers. We maintain an allowance for estimated potential credit losses.

~~Cash and Cash Equivalents~~46

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Cash, Cash Equivalents and Restricted Cash

We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Restricted cash represents funds that are held in our money market account but precluded from use of general business needs through contractual requirements. We report our restricted cash balance within "Other assets" on the consolidated balance sheets, see Note 98 – Other Balance Sheet Components.

Contract Balances

The timing of revenue recognition may differ from the timing of billing and cash receipts from customers. Amounts are invoiced as work progresses, either at periodic intervals or upon achievement of contractual milestones. We record a contract asset when revenue is recognized prior to invoicing, or a contract liability when cash is received in advance or when milestone payments from customers exceed revenue earned to date.

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract liabilities include deferred revenue, customer advances and billings in excess of revenue. Contract assets and liabilities are recorded net on a contract-by-contract basis and are classified based on the contract's operating cycle at the end of each reporting period.

Accounts Receivable

Accounts receivable includes the following:

Billed Receivables: Billed receivables are balances where an invoice has been prepared and issued and is collectible under standard contract terms. Where we anticipate that an invoice will be issued within a short period of time and where the funds are considered collectible within standard contract terms, we include this balance as billed accounts receivable.

Unbilled Receivables: Unbilled receivables are balances that have not yet been billed due to timing, most commonly just a month delayed from the timing of revenue recognition and the actual bill being presented to the customer. The Company has fulfilled all requirements in order to bill the customer and collect the funds.

Contract Assets: Contract assets are receivables for which the right to consideration is conditional upon factors other than the passage of time. The timing of these billings is generally driven by contractual terms, which may have billing milestones that are different from revenue recognition milestones.

Both billed and unbilled balances are recorded at their face amount less an allowance for credit losses over the contractual payment terms of the receivable. Collectability of these amounts is periodically reviewed based upon management's knowledge and analysis of available information as of the balance sheet date, including any specific circumstances related to overdue balances, length of time that the receivable has been outstanding, historical bad debts and aging trends, and other general and contract specific factors. The allowance for credit losses is adjusted based on such evaluation. Accounts receivable balances are written off against the allowance when management deems the balances uncollectible.

Our contract asset balance is recorded at the net amount expected to be billed for services performed once the objective criteria laid out by the contract has been met.

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Inventories

Inventories are valued at the lower of cost or net realizable value, where cost is determined using the weighted-average method. The value of inventory is adjusted for damaged, obsolete, excess and slowing-moving inventory. Net realizable value of inventory is estimated based on the historical obsolescence experience and planned usage. If events or changes in circumstances indicate that the use of the inventories have diminished through obsolescence, damage, deterioration or other causes, a loss is recognized in the period in which it occurs.

Inventories are substantially comprised of finished goods purchased for customers, such as off-the-shelf hardware and software, and component computer parts used in connection with system integration services that we perform.

~~Property~~Deferred ~~and~~Program ~~Equipment~~Expenses

~~Property~~Deferred ~~and~~program ~~equipment~~expenses ~~are~~include ~~recorded~~direct atcontract ~~cost~~costs ~~less~~identifiable ~~accumulated~~with ~~depreciation~~or ~~and~~allocable ~~amortization~~to a specific contract. ~~Depreciation~~These iscosts ~~recorded~~are ~~over~~capitalized as deferred program expenses when the ~~assets'~~costs ~~estimated~~are ~~useful~~expected ~~lives~~to be recovered over a period of time. These costs are amortized using the straight-line method, ~~which~~over isthe ~~three~~expected tocontract ~~five~~period ~~years~~of ~~for~~performance ~~furniture~~or ~~and~~recognized ~~equipment.~~upon ~~Leasehold~~delivery ~~improvements~~of ~~are~~the ~~amortized~~performance ~~over~~obligation. If the ~~shorter~~contract period of ~~their~~performance ~~useful~~is ~~life~~beyond ortwelve months, we classify the ~~remaining~~cost ~~terms~~as oflong-term and is included within "Other assets" on the ~~lease.~~consolidated balance sheets.

Upon sale or retirement of property and equipment, the costs and related accumulated depreciation and amortization are eliminated from the accounts and any gain or loss on such disposition is reflected in the consolidated statements of operations. For the years ended December 31, 2024, and 2023, such amounts are negligible. 47

Repairs and maintenance costs are expensed as incurred. Major renewals and improvements are capitalized and depreciated over their estimated useful lives.

Leases

We determine if an arrangement is a lease and we account for leases in accordance with ASC Topic 842, "Leases." We entered into contractual arrangements primarily for the use of real estate facilities and certain other equipment. We determine the classification of the lease under these arrangements, if any, at inception based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether we have a right to direct the use of the asset.

Leased property meeting certain criteria is capitalized at the present value of the related minimum lease payments. Amortization of a finance lease ROU asset is computed using the straight-line method over the lesser of the lease term or the useful life of the related asset.

In accordance with ASC 842, we recorded operating lease ROU assets, which represent our right to use an underlying asset for the lease term, and operating lease liabilities, which represent our obligation to make lease payments. Our operating leases are generally for equipment and office spaces. The amount of operating lease liabilities due within 12 months are recorded in other current liabilities, with the remaining operating lease liabilities recorded as non-current liabilities in our consolidated balance sheets based on their contractual due dates. The operating lease ROU assets and liabilities are recognized as of the lease commencement date at the present value of the lease payments over the lease term. On lease arrangements where leases include options to extend the term of the lease, we include the impact of the options on the lease term, when we are reasonably certain that we will exercise such options. Most of our leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate on all operating leases. Some of our operating leases contain lease and non-lease components, which we account for as a single component. Operating lease expense is recognized as rent expense on a straight-line basis over the lease term, and recorded within our consolidated statement of operations.

The related lease payments on short-term lease arrangements (leases of one year or less) are recognized as expense on a straight-line basis over the lease term.

ROU assets are assessed for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and the carrying amount of the assets exceeds its estimated fair value.

Software Development Costs

We account for development costs of software in accordance with ASC Topic 985-20 ("ASC 985-20"), "Software – Costs of Software to be Sold, Leased, or Marketed" and ASC Topic 350-40 ("ASC 350-40") "Internal Use Software," depending on the intended use of the software being developed. Under ASC 985-20, all costs of developing software prior to establishing its technological feasibility are research and development costs and are expensed as incurred. Once technological feasibility has been established, subsequent costs should be capitalized until the software begins to be marketed or is released to customers, after which the capitalized costs should be amortized and reviewed for impairment. Under ASC 350-40, we capitalize certain software development costs when the preliminary project stage is completed and the software has entered the application development stage. Once substantial testing is complete and the software is ready to be used, capitalization of costs ceases.

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~~Capitalized~~Business software development costs are amortized on a straight-line basis over the estimated economic life of the application, ranging from two to five years, beginning when the asset is ready for its intended use. Combinations

~~ASC~~We ~~350-40~~evaluate ~~also~~acquisitions ~~requires~~to ~~hosting~~determine ~~arrangements~~whether ~~that~~it ~~are~~is ~~service~~a ~~contracts~~business tocombination ~~follow~~or ~~the~~an ~~guidance~~asset ~~for~~acquisition ~~internal-use~~and ~~software~~accounted tofor ~~determine~~under ~~which~~U.S. ~~implementation~~GAAP ~~costs~~using ~~can~~the beacquisition ~~capitalized.~~method Inin accordance with ASC ~~350-40~~805, ~~(i)~~Business ~~capitalized~~Combinations. ~~implementation~~The ~~costs~~Company ~~are~~allocates ~~classified in~~ the ~~same~~fair ~~balance~~value ~~sheet line item as the amounts prepaid for the related hosting arrangement, (ii) amortization~~ of ~~capitalized~~purchase ~~implementation~~consideration ~~costs~~to ~~is presented in~~ the ~~same~~tangible ~~income~~and ~~statement~~intangible ~~line~~assets ~~item~~acquired ~~as the service fees for the related hosting arrangement,~~ and ~~(iii)~~liabilities ~~cash~~assumed ~~flows~~based ~~related~~on totheir ~~capitalized~~estimated ~~implementation~~fair ~~costs are presented within the same category of cash flow activity as the cash flow for the related hosting arrangements (i~~values.e. ~~operating~~The ~~activity).~~excess As of ~~December 31, 2024, and 2023,~~ the ~~net~~fair ~~carrying~~ value of ~~the~~purchase ~~capitalized~~consideration ~~implementation~~over ~~costs related to hosting arrangements that were incurred during~~ the ~~application~~values ~~development~~of ~~stage~~these ~~aggregated~~identifiable toassets ~~$0.17 million~~ and ~~$0.23 million~~liabilities, ~~respectively.~~if ~~These~~any, ~~costs are related primarily to the implementation of a new enterprise resource planning system. The Company begins amortizing the capitalized implementation costs after all substantial testing~~ is ~~complete~~recorded ~~and~~as ~~ready for its intended use, and amortized over the expected term of the arrangement on a straight-line basis~~goodwill.

~~Goodwill~~The accounting for business combinations requires management to make judgments and ~~Intangible~~estimates ~~Assets~~of the fair value of assets acquired, including the identification and valuation of intangible assets, as well as liabilities and contingencies assumed. Such judgments and estimates directly impact the amount of goodwill recognized in connection with an acquisition. Estimating the fair value of acquired assets and assumed liabilities, including intangibles, requires judgment about expected future cash flows, weighted-average cost of capital, discount rates and expected long-term growth rates.

~~Goodwill~~No isbusiness ~~recorded~~combinations ~~for~~occurred ~~the~~during ~~difference between~~ the ~~aggregate~~years ~~consideration~~ended paid for an acquisition and the fair value of net tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for potential impairment. We evaluate the impairment of goodwill in accordance with ASC 350, which requires goodwill to be assessed on at least an annual basis, as of December 31 ~~each year~~, ~~for impairment using a fair value basis. Between annual evaluations~~2025, ifand ~~events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount, then impairment must be evaluated~~2024. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or business climate, (2) a loss of key contracts or customers, or (3) negative operating performance indicators. The Company performs its goodwill impairment test at the reporting unit level.

WeProperty may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If an impairment indicator exists based on the qualitative assessment, we perform the quantitative goodwill impairment test. When performing a quantitative impairment test, we calculate the estimated fair value of the reporting unit and compare the results with its respective carrying value, including goodwill. If the estimated fair value is determined to be less than the carrying value, we recognize an impairment loss equal to the difference between the reporting unit's fair value and the reporting unit's carrying value, up to the amount of goodwill associated with the reporting unit. Equipment

~~The~~Property ~~evaluation~~and isequipment ~~based~~are onrecorded ~~the~~at ~~estimation~~cost ofless ~~the~~accumulated ~~fair~~depreciation ~~values~~and atamortization. ~~the~~Depreciation ~~reporting~~of ~~unit~~furniture ~~level~~and inequipment ~~comparison~~has tobeen ~~the~~provided ~~reporting~~over ~~unit's~~the ~~net~~estimated ~~asset-carrying~~useful ~~values.~~lives ~~The~~of ~~Company~~the ~~uses~~respective ~~industry-accepted~~assets ~~valuation~~(ranging ~~models~~from ~~and~~three ~~set~~to ~~criteria~~five ~~that~~years) ~~are~~using ~~reviewed~~the ~~and~~straight-line ~~approved~~method. byLeasehold ~~management.~~improvements ~~The~~are ~~methodology~~amortized ~~used~~over tothe ~~assess~~shorter ~~impairment~~of istheir auseful ~~combination~~life ofor the ~~income~~remaining ~~approach~~terms ~~(i.e.,~~of ~~discounted~~the ~~cash~~lease. ~~flow~~Repairs ~~("DCF")~~and ~~method)~~maintenance ~~and~~costs ~~the~~are ~~market~~expensed ~~approach~~as (iincurred.~~e.,~~ ~~Comparable~~Major ~~Public~~renewals ~~Company~~and ~~("CPC")~~improvements ~~method)~~are tocapitalized ~~determine~~and ~~the~~depreciated ~~fair~~over ~~value.~~their estimated useful lives.

Goodwill

Goodwill is recorded for the difference between the aggregate consideration paid for an acquisition and the fair value of net tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for potential impairment at the reporting unit level on an annual basis, and more frequently if events or circumstances indicate that the carrying value of the reporting unit may not be recoverable, in accordance with ASC 350. Our policy is to perform our annual goodwill impairment evaluation as of December 31 each year. During fiscal year 2025, and 2024, we have two reporting units, respectively, for the purpose of testing goodwill for impairment.

Goodwill is evaluated for impairment either under a qualitative assessment option or a quantitative approach, which depends on the facts and circumstances of a reporting unit. We may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If an impairment indicator exists based on the qualitative assessment, we perform the quantitative goodwill impairment test. When performing a quantitative impairment test, we calculate the estimated fair value of the reporting unit and compare the results with its respective carrying value, including goodwill. If the estimated fair value is determined to be less than the carrying value, we recognize an impairment loss equal to the difference between the reporting unit's fair value and the reporting unit's carrying value, up to the amount of goodwill associated with the reporting unit.

The evaluation is based on the estimation of the fair values at the reporting unit level in comparison to the reporting unit's net asset-carrying values. The Company uses industry-accepted valuation models and set criteria that are reviewed and approved by management. We used the income approach (i.e., discounted cash flow ("DCF") method) to determine the estimated fair value.

In the application of the income approach, the estimated fair value of the reporting unit is determined using a DCF analysis, which requires management's judgment with respect to forecasted revenue streams and operating margins, capital expenditures and the selection and use of an appropriate discount rate commensurate with the risk inherent in each of our reporting unit's current business model. We utilize the weighted average cost of capital as derived by certain assumptions specific to our facts and circumstances as the discount rate.

InEstimating the ~~application~~fair ~~of the market approach, the CPC method uses~~ value ~~multiples~~involves ~~or ratio to~~ the ~~reporting~~use ~~accounting data (such as revenue) in measuring the market's perception~~ of ~~the~~assumptions ~~reporting unit's enterprise value. Value multiples or ratio reflect the trends in growth~~ and ~~performance,~~significant ~~and~~judgments ~~the~~that ~~comparable~~are ~~public~~based ~~companies~~on ~~provide~~ a ~~reasonable~~number ~~basis for comparison to the relative investment characteristic~~ of ~~the~~factors, ~~business~~including ~~being~~actual ~~valued~~operating results. ~~The~~A ~~Company~~relatively ~~analyzes~~small ~~the~~change ~~relationship~~in ~~between~~ the ~~comparable~~underlying ~~companies'~~assumptions ~~performance~~may ~~and~~cause ~~applies~~ a ~~control~~change ~~premium~~in ~~based on~~ the ~~multiples~~results of ~~comparable companies. The control premium is management's estimate of how much a market participant would be willing to pay over~~ the ~~fair~~impairment ~~market~~assessment ~~value~~ in ~~consideration~~future ofperiods ~~benefits~~and, ~~that~~as ~~flow~~such, ~~from~~could ~~control~~result ofin ~~the~~goodwill ~~entity~~impairment.

The ~~results~~Company's ofgoodwill ~~the income and market approaches are weighted to determine the estimated fair value of the reporting unit. The weighting~~ is ~~judgmental~~amortized and isdeducted ~~based~~over ~~on the perceived level of appropriateness of the valuation methodology. Estimating the fair value involves the use of assumptions and significant judgments that are based on~~ a ~~number~~15-year ofperiod ~~factors,~~for ~~including~~tax ~~actual operating results~~purposes. ASee ~~relatively~~Note ~~small~~6 ~~change~~– inGoodwill ~~the~~for ~~underlying~~additional ~~assumptions may cause a change in the results of the impairment assessment in future periods and, as such, could result in goodwill impairment~~information.

~~The Company's goodwill is amortized and deducted over a 15-year period for tax purposes. See Note 7 – Goodwill for additional information.~~48

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Intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives. Assets

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, including property and equipment, for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. If such evaluation indicates that the carrying amount of the asset exceeds its estimated future undiscounted cash flows or its estimated fair value, an impairment loss is recognized to reduce the asset's carrying amount to its estimated fair value. Considerable management judgment is necessary to estimate its fair value. Accordingly, actual results could differ from such estimates. No events have been identified that caused an evaluation of the recoverability of long-lived assets.

In addition to the recoverability assessment, the Company routinely reviews the remaining lives of its long-lived assets. Any reduction in the useful life assumptions will result in increased depreciation or amortization expense in the period when such determinations are made, as well as in subsequent periods. There are no changes in the estimated useful lives of long-lived assets for the periods presented.

Software Development Costs

Capitalized software development costs are amortized on a straight-line basis over the remaining estimated economic life of the software, ranging from two to five years, beginning when the asset is ready for its intended use. If the estimate of useful economic life is changed, the remaining carrying amount of the asset is amortized prospectively over the revised remaining economic life.

ASC 350-40 also requires hosting arrangements that are service contracts to follow the guidance for internal-use software to determine which implementation costs can be capitalized. In accordance with ASC 350-40, (i) capitalized implementation costs are classified in the same balance sheet line item as the amounts prepaid for the related hosting arrangement, (ii) amortization of capitalized implementation costs is presented in the same income statement line item as the service fees for the related hosting arrangement, and (iii) cash flows related to capitalized implementation costs are presented within the same category of cash flow activity as the cash flow for the related hosting arrangements (i.e. operating activity). As of December 31, 2025, and 2024, the net carrying value of the capitalized implementation costs related to hosting arrangements that were incurred during the application development stage aggregated to $0.1 million and $0.2 million, respectively. These costs are related primarily to the implementation of a new enterprise resource planning system. The Company begins amortizing the capitalized implementation costs after all substantial testing is complete and ready for its intended use, and amortized over the expected term of the arrangement on a straight-line basis.

Leases

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The related lease payments on short-term lease arrangements (leases of one year or less) are recognized as expense on a straight-line basis over the lease term.

ROU assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets. ROU assets are assessed for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and the carrying amount of the assets exceeds its estimated fair value.

Fair Value Measurements

U.S. GAAP provides a framework for measuring fair value and expands disclosures about fair value measurements. The framework requires the valuation of investments using a three-tiered approach. The statement requires fair value measurement to be classified and disclosed in one of the following categories:

•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities;

•Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

This hierarchy requires the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Except for the fair value of investment, the fair value of certain non-derivative financial instruments, including receivables, accounts payable and other accrued liabilities, approximates the carrying value due to the short-term nature of these instruments. See Note 98 – Other Balance Sheet Components for further details on investment.

Accrued Liabilities

Accrued liabilities represents incurred expenses but not yet invoiced or paid by the Company. These include, but not limited to, accruals related to projects, fees, taxes, employee benefits, restructuring expenses, and other services.

Research and Development

Research and development expenses consist primarily of employee-related expenses (such as salaries, taxes, benefits and stock-based compensation), allocated overhead costs and outside services costs related to the development and improvement of the Company's software. Research and development costs are generally expensed as incurred, except for costs incurred in connection with the development of software that qualify for ~~the~~ capitalization as described in our software development costs policy. Amortization of capitalized software development costs, not charged under cost of sales, ~~are~~is also reported as part of research and development expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include general and administrative expenses, as well as direct and indirect sales and marketing expenses. These costs consist primarily of compensation and benefits (including incentive-based compensation), advertising, facilities, and certain types of depreciation and amortization.

Advertising Costs

Advertising costs are expensed and included in selling, general and administrative expenses when incurred. Advertising expenses were $0.75 million and $0.87 million for the years ended December 31, ~~2024~~2025, and ~~2023~~2024, respectively.

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Income Taxes

We account for income taxes in accordance with ASC 740, "Income Taxes." Under ASC 740, deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences and income tax credits. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates that are applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized for differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Any change in tax rates on deferred tax assets and liabilities is recognized in net income in the period in which the tax rate change is enacted. We record a valuation allowance that reduces deferred tax assets when it is "more likely than not" that deferred tax assets will not be realized.

We follow the provisions of ASC 740 related to accounting for uncertainty in income taxes. The accounting estimates related to liabilities for uncertain tax positions require us to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. If we determine it is more likely than not that a tax position will be sustained based on its technical merits, we record the impact of the position in our consolidated financial statements at the largest amount that is greater than fifty percent likely of being realized upon ultimate settlement. These estimates are updated at each reporting date based on the facts, circumstances and information available. We are also required to assess at each reporting date whether it is reasonably possible that any significant increases or decreases to our unrecognized tax benefits will occur during the next 12 months.

~~Business~~On ~~Combinations~~July 4, 2025, the OBBBA was enacted into law, including significant amendments to the Internal Revenue Code. The OBBBA imposes various changes to U.S. federal income tax regulations, such as restoring bonus depreciation, and removing the requirement to capitalize and amortize domestic research and development expenditures. The OBBBA also included certain modifications to the Inflation Reduction Act of 2022, including the repeal or acceleration of the sunsetting of certain tax credits and the elimination of certain penalties for violations of certain regulatory credit programs. The legislation has multiple effective dates, with certain provisions effective in 2025 and other implemented through 2027. The enactment of these provisions did not have a material impact on our audited consolidated financial statements.

We evaluate acquisitions to determine whether it is a business combination or an asset acquisition and accounted for under U.S. GAAP using the acquisition method in accordance with ASC 805, Business Combinations. The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities, if any, is recorded as goodwill.

The accounting for business combinations requires management to make judgments and estimates of the fair value of assets acquired, including the identification and valuation of intangible assets, as well as liabilities and contingencies assumed. Such judgments and estimates directly impact the amount of goodwill recognized in connection with an acquisition. Estimating the fair value of acquired assets and assumed liabilities, including intangibles, requires judgment about expected future cash flows, weighted-average cost of capital, discount rates and expected long-term growth rates.

No business combinations occurred during the years ended December 31, 2024, and 2023.

Stock-Based Compensation

The Company grants stock-based compensation awards under the Amended and Restated 2016 Omnibus Long-Term Incentive Plan (the "2016 LTIP"). Our 2016 LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock and dividend equivalent rights to our senior executives, directors, employees, and other eligible service providers. The stock options granted under the 2016 LTIP expire no more than 10 years after the date of grant.

The Company has granted stock options, restricted stock units ~~granted~~with ~~are~~ time-based vesting ("~~Service-Based RSU~~RSUs" ~~or "RSU"~~), and restricted stock units with performance-based vesting ("~~Performance-Based RSU~~PSUs" ~~or "PSU"~~). ~~The~~Awards ~~Company~~granted ~~issues~~under ~~new~~the ~~shares~~2016 LTIP vest over the periods determined by the Board of ~~common~~Directors ~~stock~~or ~~upon~~the ~~vesting~~Compensation Committee of the ~~restricted~~Board ~~stock~~of ~~units~~Directors, ~~under~~which ~~this~~has ~~plan~~the discretion to establish the terms, conditions and criteria of the various awards.

•~~Service-Based~~ RSUs ~~granted to eligible employees as an incentive generally~~ vest in installments over a period of up to three years from the date of grant. The grant date fair value per share is equal to the closing stock price on the date of grant.

•~~Performance-Based~~PSUs ~~RSUs~~ vest upon the achievement of a defined performance target ~~during a defined performance period from the date of grant~~, or market conditions for ~~its~~the Company's common stock, or certain operational ~~milestone~~milestones over a prescribed period. The fair value per share of these PSUs is equal to the closing stock price on the date of the grant, or the fair value of the award on the grant date as determined through an independent valuation for PSUs with market conditions. InFor ~~order to reflect~~ the ~~substantive~~Company's ~~characteristics~~stock-based ofcompensation ~~these market condition~~ awards, ~~the~~subject ~~Company employs a Monte Carlo simulation valuation model~~ to ~~estimate~~market ~~the~~conditions, ~~fair value for each tranche of~~ the grant ~~and~~date ~~corresponding~~fair requisite service period of the award. Monte Carlo approaches are a class of computational algorithms that rely on repeated random sampling to compute their results. This approach allows the calculation of the value ofper ~~such~~share ~~PSUs~~is based on a large number of possible stock price path scenarios. The risk-free rate is based on the U.S. treasury zero-coupon issues in effect at the time of grant over the performance period. The expense for these PSUs is recognized over the derived service period as determined through the Monte Carlo simulation ~~model~~method.

Awards granted under the 2016 LTIP vest over the periods determined by the Board of Directors or the Compensation Committee of the Board of Directors, which has the discretion to establish the terms, conditions and criteria of the various awards, including the weighting and vesting schedule of RSUs and the performance conditions applicable to the PSUs.

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The Company estimates the fair value of stock options on the date of the grant using an option pricing model. The option pricing model takes into consideration the current share price of the underlying common stock, exercise price of the option, expected term, risk-free interest rate and the volatility of share price. These considerations directly affect the amount of compensation expense that will ultimately be recognized.

We recognize these stock-based payment transactions when services from the employees, directors and other eligible service providers are received and recognize a corresponding increase in additional paid-in capital in our consolidated balance sheets. The measurement objective for these equity awards is the estimated fair value at the date of grant of the equity instruments that we are obligated to issue when employees, directors and other eligible service providers have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. 51

~~The~~Table stock-based compensation expense for an award is recognized ratably over the requisite service period, which is generally the vesting period during which an employee is required to provide service in exchange for an award. Stock-based compensation expense for awards with performance conditions is estimated at each reporting date using management's expectation of the probable achievement of the specified performance targets and recognized over the requisite service period for each tranche on a graded-vesting basis. If such performance conditions are not or are no longer considered probable, no compensation expense for these awards is recognized, and any previously recognized expense is reversed. If the performance condition is achieved prior to the completion of the requisite service period, any unrecognized compensation expense will be recognized in the period the performance condition is achieved. Compensation expense for PSUs with market conditions is recognized based on the grant-date fair value calculated using the Monte Carlo model, as described above, or sooner if the market condition is achieved. Previously recognized expense for awards with market conditions will never be reversed subsequent to completion of the derived service period even if the market conditions are never achieved. We recognize forfeitures of stock-based compensation awards as they occur. Stock-based compensation expense is recognized as part of the cost of sales and operating expenses in our consolidated statements of operations. The stock-based payment transactions are recognized in accordance with ASC 718, "Compensation - Stock Compensation" and ASU 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting." Contents

The stock-based compensation expense for an award is recognized ratably over the requisite service period, which is generally the vesting period during which an employee is required to provide service in exchange for an award. Stock-based compensation expense for awards with performance conditions is estimated at each reporting date using management's expectation of the probable achievement of the specified performance targets and recognized over the requisite service period for each tranche on a graded-vesting basis. If such performance conditions are not or are no longer considered probable, no compensation expense for these awards is recognized, and any previously recognized expense is reversed. If the performance condition is achieved prior to the completion of the requisite service period, any unrecognized compensation expense will be recognized in the period the performance condition is achieved. Compensation expense for PSUs with market conditions is recognized based on the grant date fair value calculated over the derived service period as determined through the Monte Carlo simulation model, or sooner if the market condition is achieved. Previously recognized expense for awards with market conditions will never be reversed subsequent to completion of the derived service period even if the market conditions are never achieved. We recognize forfeitures of stock-based compensation awards as they occur. Stock-based compensation expense is recognized as part of the cost of sales and operating expenses in our consolidated statements of operations.

The Company records stock-based compensation related to accrued compensation in which it intends to settle in shares of the Company's common stock. However, it is the Company's discretion whether this compensation will ultimately be paid in stock or cash, as it has the right to dictate the form of these payments up until the date they are paid.

Net (Loss) Earnings per Share

Basic net (loss) earnings per share is computed by dividing the net (loss) earnings by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net (loss) earnings per share is computed by dividing the net (loss) earnings by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of unvested restricted common stock.

Other Comprehensive (Loss) Income

For one of our wholly-owned subsidiaries, the functional currency is the local currency. For this subsidiary, the translation of its foreign currency into U.S. dollars is performed for assets and liabilities using current foreign currency exchange rates in effect at the balance sheet date and for revenue and expense accounts using average foreign currency exchange ~~rates~~rate during the periods presented. Translation gains and losses are included in stockholders' equity as a component of accumulated other comprehensive (loss) income.

Restructuring Expenses

The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. The Company accounts for ongoing benefit arrangements, such as those documented by employment agreements, in accordance with ASC 712 ("ASC 712"), "Compensation – Nonretirement Postemployment Benefits." Under ASC 712, liabilities for postemployment benefits are recorded at the time of obligations are probable of being incurred and can be reasonably estimated. When applicable, the Company records such costs into operating expenses.

From time to time, the Company initiates restructuring activities to execute management's strategy and optimize its cost structure. Restructuring activities may include streamlining its workforce or realignment of resources to support its business strategies and enhance operational efficiency.

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2022 Restructuring Plan

In the fourth quarter of 2022, the Company committed to a restructuring plan to streamline its workforce and spending to better align its cost structure with its volume of business ("2022 restructuring"). The 2022 restructuring plan reduced the Company's workforce, with a majority of the affected employees separating from the business in early 2023. InThe ~~connection~~actions ~~with~~under ~~this~~the 2022 restructuring plan, wewere ~~incurred~~substantially ~~restructuring-related~~completed ~~costs,~~in ~~including~~fiscal ~~employee~~year ~~severance and related benefit costs. Employee severance and related benefit costs include cash payments~~2023, ~~outplacement services~~ and ~~continuing~~were ~~health~~fully ~~insurance~~paid ~~coverage.~~in ~~Severance~~the ~~costs~~third ~~pursuant~~quarter toof ~~ongoing-benefit arrangements are recognized when probable and reasonably estimated~~2024. ~~Other~~Total ~~related~~restructuring ~~costs~~expenses ~~include~~incurred ~~external~~under ~~consulting and advisory fees related to implementing~~ the 2022 restructuring plan. ~~These~~were ~~costs~~$3.9 ~~are recognized at fair value in the period in which the costs are incurred~~million.

The Company incurred a cumulative amount of $3.9 million of restructuring expenses, which is the total expected cost of this restructuring plan. The actions under this restructuring plan were substantially completed in fiscal year 2023 and were fully paid in the third quarter of 2024.

2024 Restructuring Plan

~~Beginning~~In in the third quarter of 2024, the Company undertook another restructuring action in an effort to optimize its strategic priorities and cost structure ("2024 restructuring"). As part of the 2024 restructuring plan, the Company decided to discontinue the development and/or sale of selected solutions or parts of solutions, which resulted in the impairment of capitalized software assets and a reduction in workforce. The ~~restructuring~~cumulative ~~charges~~amount ~~under~~of incurred severance and benefit costs related to the 2024 restructuring plan ~~include~~was ~~severance~~$1.3 million, ~~and~~of ~~related~~which ~~benefit costs~~$0.2 ~~The~~million ~~Company~~was ~~accrues~~allocated ~~severance~~to the Security Solutions segment and ~~related~~$0.1 ~~benefit~~million ~~costs~~was ~~under~~allocated to the Secure Networks segment. The 2024 restructuring ~~plan~~actions ~~when~~were itsubstantially iscompleted ~~probable~~in ~~that~~fiscal ayear ~~liability~~2024, ~~exists~~ and ~~the~~were ~~amount~~fully ispaid ~~reasonably~~in ~~estimated~~early fiscal year 2025.

As of December 31, 2024, the cumulative amount of incurred severance and benefit costs related to the 2024 restructuring plan was $1.3 million, of which $0.2 million was allocated to the Security Solutions segment and $0.1 million was allocated to the Secure Networks segment. The 2024 restructuring actions were substantially completed in fiscal year 2024 and will be fully paid in early fiscal year 2025. 52

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In addition, as a result of the Company's decision to abandon the development or sale of selected solutions in the third quarter of 2024, the Company wrote off $6.4 million of its previously capitalized software assets. This was reported as an impairment loss on intangible assets under operating expenses on the consolidated statement of operations.

Table 2.3: Restructuring Expenses and Impairment Loss
	Statements of Operations	For the Year Ended December 31,
		2024		2023
		(in thousands)
2022 Restructuring Plan:
Severance and related benefit costs (adjustments)	SG&A	$	(10)	$	(168)
Other related costs	SG&A	—		1,300
2024 Restructuring Plan:
Severance and related benefit costs	Cost of sales	341		—
Severance and related benefit costs	R&D, SG&A	939		—
Total restructuring expenses		1,270		1,132
Impairment of intangible assets (1)	Impairment loss on intangible assets	6,373		—
Total restructuring expenses and impairment loss		$	7,643	$	1,132

2025 Restructuring Plan

~~(1)~~In ~~The~~the ~~recoverability~~fourth ~~evaluation~~quarter of ~~intangible~~2025, ~~assets~~the Company committed to another restructuring plan as part of its efforts to streamline operations and to align people, roles and projects to our strategic priorities ("2025 restructuring"). The 2025 restructuring plan resulted in ana ~~$11~~workforce reduction and certain inventory write-offs.7 ~~million~~During ~~impairment~~the ~~loss~~year-ended December 31, of2025, ~~which~~the Company recorded approximately $51.35 million ~~was~~of ~~recorded~~restructuring ~~under~~related ~~cost~~charges, the majority of ~~sales~~which ~~for~~relates ~~the~~to ~~discontinued~~employee ~~parts~~severance ofand ~~certain~~benefit ~~solutions,~~charges. ~~and~~Of this amount, $60.4 million was ~~recorded~~allocated ~~under~~to ~~operating~~the ~~expenses~~Security asSolutions asegment ~~result~~and of$0.1 ~~the~~million ~~restructuring~~was ~~plan~~allocated ~~(see~~to ~~Note~~the 8Secure -Networks ~~Intangible Assets, Net)~~segment.


Table 2.1: Summary of Restructuring Expenses and Impairment Loss
	Statements of Operations	For the Year Ended December 31,
		2025		2024

		(in thousands)
Severance and related benefit costs	Cost of sales	$	444	$	341
Other related costs (1)	Cost of sales	50		—
Severance and related benefit costs	R&D, SG&A	1,007		929
Total restructuring expenses		1,501		1,270
Impairment of intangible assets (2)	Impairment loss on intangible assets	—		6,373
Total restructuring expenses and impairment loss		$	1,501	$	7,643

(1) Other related costs consist of a non-cash inventory write-off related to the implementation of the 2025 restructuring plan.

(2) The recoverability evaluation of intangible assets in 2024 resulted in an $11.7 million impairment loss, of which $5.3 million was recorded under cost of sales for the discontinued parts of certain solutions, and $6.4 million was recorded under operating expenses as a result of the restructuring plan (see Note 7 - Intangible Assets, Net).

At each reporting date, the Company evaluates its restructuring expense accrual to determine if the liabilities reported are still appropriate. Any changes in the estimated costs of executing the approved restructuring plan are reflected in the Company's consolidated statements of operations.


Table 2.2: Summary of Changes in Restructuring Expenses Accrual
	For the Year Ended December 31,
	2025		2024

	(in thousands)
Severance and related benefit costs (1):
Balance at beginning of year	$	37	$	400
Expenses, excluding non-cash costs	1,451		1,270
Cash payments	(37)		(1,633)
Balance at end of year	$	1,451	$	37

~~Table~~(1) Restructuring expenses accrual is reported as part of ~~Contents~~"Accrued liabilities" in the Company's consolidated balance sheets, see Note 8 - Other Balance Sheet Components for further details.

Table 2.4: Summary of Changes in Restructuring Expenses Accrual
	Severance and related benefit costs (1)
	(in thousands)
Balance at December 31, 2023	$	400
Expenses (adjustments)	1,270
Cash payments	(1,633)
Balance at December 31, 2024	$	37

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosure," which requires public entities, on an annual basis, (1) ~~Restructuring-related~~disclose ~~liabilities~~specific ~~are~~categories ~~reported~~in asthe ~~part~~rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of ~~"Other~~those ~~current~~reconciling ~~liabilities"~~items inis equal to or greater than 5% of the amount computed by multiplying pretax income/(loss) by the applicable statutory income tax rate). This ASU was effective, for public entities, for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company's ~~consolidated~~adopted ~~balance~~the ~~sheets~~enhanced income taxes disclosure requirement in December 2025, on a retrospective basis (see Note 914 -– ~~Other~~Income ~~Balance~~Taxes). ~~Sheet~~The ~~Components~~adoption ~~for~~of ~~further~~this ~~details~~standard only affected our disclosures, with no impact on our consolidated financial statements.

Recently Accounting Pronouncements - Adopted

In June 2022, the FASB issued ASU No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions," which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This standard was effective for reporting periods beginning December 15, 2023. The adoption of this ASU did not have a material impact on our consolidated financial position, results of operations, and cash flows.

In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which requires improvement on reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The standard was effective for fiscal year beginning after December 15, 2023, and requires application on a retrospective basis, and for interim periods within fiscal year beginning after December 15, 2024. We adopted this standard during the fourth quarter of fiscal year ended December 31, 2024, and disclosed the significant segment expense categories that are regularly provided to the CODM on an annual basis, as well as disclosing how segment measures of profit or loss are used by the CODM. The adoption of this standard only affected our disclosures, with no impact on our consolidated financial statements.

Recently Accounting Pronouncements - Not Yet Adopted

From time to time, new accounting standards are issued by the FASB or other standard-setting bodies, and are adopted by the Company as of the specified accounting date. Unless disclosed below, there are no issued standards not yet effective that are deemed applicable to the Company's consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosure," which requires public entities, on an annual basis, (1) disclose specific categories in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income/(loss) by the applicable statutory income tax rate). This ASU will be effective, for public entities, for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently assessing the impact of the adoption of this ASU on our consolidated financial position, results of operations, and cash flows.

In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses." This standard requires additional disclosure of certain amounts included in the expense captions presented on the statement of operations, as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application. All public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are in the process of assessing the impact of the adoption of this ASU on our consolidated financial statements.

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In July 2025, the FASB issued ASU 2025-05, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivables and Contract Assets.” This standard provides simplified guidance on measuring credit losses for accounts receivable and contract assets. The update introduces a practical expedient and an accounting policy election to ease the process. All entities can elect the practical expedient to assume that the current economic conditions at the balance sheet date will remain constant through the life of the current receivables and contract assets. Entities that elect the practical expedient and the accounting policy election should apply the amendments in this ASU prospectively. The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting of Internal-Use Software." This standard provides a simplified, consistent way to track expenses related to software developed for internal use. The amendments in this standard removed all references to project stages; instead, a company can capitalize software costs once both conditions are met: the entity's management has authorized and committed to funding the project, and it is probable that the project will be completed and the software will be used as intended. The amendments will be effective for annual reporting periods, including interim periods within those years, beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270): Narrow-Scope Improvements," which was intended to improve the navigability of the guidance in ASC 270 and clarify when it applies. Public entities are required to adopt the guidance for interim reporting periods within annual reporting period beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our consolidated financial statements.

In December 2025, the FASB issued ASU 2025-12, "Codification Improvement." This ASU includes a number of improvements that span a wide range of topics, which includes amendments on the following provisions, among other things, (1) clarify diluted EPS calculation when a loss from continuing operation exists; (2) revising the calculation of the reference amount for beneficial interests to prevent double counting credit losses; (3) clarify the permissible methods to account for treasury stock retirements; and (4) clarify the guidance for transfers of receivables from contracts with customers. The standard will be effective for annual reporting periods beginning after December 31, 2026, and interim reporting periods within those annual reporting periods, which early adoption permitted. We are currently assessing the impact of adopting this ASU on our consolidated financial statements.

From time to time, new accounting standards are issued by the FASB or other standard-setting bodies and are adopted by the Company as of the specified accounting date. Unless otherwise discussed, the Company believes that issued standards not yet effective will not have a material effect on the Company's consolidated financial statements.

3. REVENUE RECOGNITION

We recognize revenue in accordance with ASC Topic 606, "Revenue from Contracts with Customers." The unit of account in ASC 606 is a performance obligation, which is a promise in a contract with a customer to transfer a good or service to the customer. Timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms. Our contracts may have a single performance obligation or multiple performance obligations. When there are multiple performance obligations within a contract, we allocate the transaction price, net of any discounts, to each performance obligation based on the standalone selling price of the product or service underlying each performance obligation.

~~The~~Our ~~Company~~contracts ~~follows~~with the ~~five-step~~U.S. ~~model~~federal ~~for~~government ~~recognizing~~are ~~revenue~~generally ~~that~~subject ~~includes~~to ~~identifying~~ the ~~contract~~Federal ~~with~~Acquisition ~~the~~Regulation ~~customer, determining the performance obligation~~(s"FAR"), ~~determining~~and the ~~transaction~~ price, ~~allocating~~is ~~the~~typically ~~transaction~~based ~~price~~on toestimated ~~the~~or ~~performance~~actual ~~obligation(s),~~costs ~~and~~plus ~~recognizing~~a ~~revenue~~reasonable asprofit ~~the performance obligations are satisfied~~margin. ~~Timing~~As ofsuch, the ~~satisfaction~~standalone ofselling ~~performance~~price ~~obligations~~of ~~varies~~products ~~across~~or ~~our~~services ~~businesses~~in ~~due to~~ our ~~diverse~~contracts ~~product~~with ~~and~~the ~~service mix, customer base, and contractual terms~~U.S. ~~Significant~~federal ~~judgment~~government ~~can~~is betypically ~~required~~equal into ~~determining certain performance obligations, and these determinations could change~~ the ~~amount~~selling ofprice ~~revenue~~stated ~~and profit recorded~~ in athe ~~given period~~contract. ~~Our~~For ~~contracts~~non-U.S. ~~may~~federal ~~have~~government acontracts ~~single~~with ~~performance obligation or~~ multiple performance obligations., ~~When~~the ~~there~~standalone ~~are~~selling ~~multiple~~price ~~performance~~is ~~obligations within a contract, we allocate~~ the ~~transaction~~observable price, ~~net~~ of ~~any~~a ~~discounts,~~good toor ~~each~~service ~~performance~~when ~~obligation~~the ~~based~~Company onsells ~~the~~that ~~standalone~~good ~~selling~~or ~~price~~service ofseparately ~~the~~in ~~product~~similar orcircumstances ~~service~~and ~~underlying~~to ~~each~~similar ~~performance obligation~~customers.

56Contracts are routinely and often modified to account for changes in contract requirements, specifications, quantities, or price. Depending on the nature of the modification, we determine whether to account for the modification as an adjustment to the existing contract or as a new contract. Generally, modifications are not distinct from the existing contract due to the significant interrelatedness of the performance obligations and are therefore accounted for as an adjustment to the existing contract, and recognized as a cumulative adjustment to revenue (as either an increase or reduction of revenue) based on the modification's effect on progress toward completion of a performance obligation. If contract modifications add distinct goods or services and increases the contract value by an amount that reflects the standalone selling price, those modifications are accounted for as separate contracts.

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~~Our~~The ~~contracts~~majority ~~with~~of ~~the~~our ~~U.S.~~revenue ~~government~~is ~~are~~recognized ~~generally~~over ~~subject~~time, as control is periodically transferred to ~~the~~our ~~Federal~~customers, ~~Acquisition~~who ~~Regulation~~receive and ~~the~~consume ~~price~~benefits isas ~~typically~~we ~~based~~perform. onRevenue ~~estimated~~transferred orto ~~actual~~customers ~~costs~~over ~~plus~~time aaccounted ~~reasonable~~for ~~profit~~72.0% ~~margin~~and 81.3% Asof ~~such,~~our revenue for the ~~standalone~~years ~~selling~~ended ~~price~~December 31, of2025, ~~products~~and or2024, ~~services~~respectively. inFor ~~our~~performance ~~contracts~~obligations ~~with~~in ~~the~~which ~~U.S.~~control ~~government~~does isnot ~~typically~~periodically ~~equal~~transfer to the ~~selling~~customer, ~~price~~we ~~stated~~recognize inrevenue at the ~~contract.~~point ~~For~~in ~~non-U~~time in which each performance obligation is fully satisfied.S. ~~government~~This ~~contracts~~coincides with ~~multiple~~the ~~performance~~point ~~obligations,~~in time the ~~standalone~~customer ~~selling~~obtains ~~price~~control isof the ~~observable~~transferred ~~price~~product or service, which typically occurs upon customer acceptance or receipt of athe ~~good~~product or service, ~~when~~given ~~Telos~~that ~~sells~~we ~~that~~maintain ~~good~~control of the product or service ~~separately~~until that point. Revenue transferred to customers at a point in ~~similar~~time ~~circumstances~~accounted for 28.0% and 18.7% of our revenue for the years ended December 31, 2025, and 2024, respectively. The change in revenue mix for the year ended December 31, 2025, as compared to ~~similar~~the ~~customers~~prior year, was primarily driven by an increase in product sales volume from a successful ramp-up of a significant program.

~~Contracts~~We ~~are~~perform ~~routinely~~under ~~and~~various ~~often~~types ~~modified~~of tocontract ~~account~~types, ~~for~~including ~~changes~~time inand ~~contract requirements~~materials, ~~specifications~~firm-fixed-price, ~~quantities, or~~ firm-fixed-price. ~~Depending~~level ~~on the nature~~ of ~~the modification~~effort, weand ~~determine~~cost-plus ~~whether~~fixed-fee ~~to account for the modification as an adjustment to the existing~~ contract ~~or as a new contract. Generally~~types, ~~modifications~~which ~~are~~may ~~not~~include ~~distinct~~variable from the existing contract due to the significant interrelatedness of the performance obligations and are therefore accounted for as an adjustment to the existing contract, and recognized as a cumulative adjustment to revenue (as either an increase or reduction of revenue) based on the modification's effect on progress toward completion of a performance obligationconsideration.

~~The~~Revenue ~~majority~~is recognized using a variety of input and output methods that approximate the progress towards complete satisfaction of the performance obligation; including cost incurred, labor hours expended, and time-elapsed measures for our fixed-price stand ready obligations. For certain contracts, revenue is recognized over time, asusing ~~control~~costs isincurred ~~transferred~~to ~~continuously~~date relative to total estimated costs at completion to measure progress toward satisfying our ~~customers~~performance obligations. Incurred cost represents work performed, ~~who~~which ~~receive~~corresponds with, and ~~consume~~thereby ~~benefits~~best asdepicts, wethe ~~perform~~transfer of control to the customer. ~~Revenue~~This ~~transferred~~continuous transfer of control to the customer is supported by clauses in our contracts with U.S. federal government customers ~~over~~whereby ~~time~~the ~~accounted~~customer may terminate a contract for ~~81%~~convenience and ~~84%~~then ofpay ~~our~~for ~~revenue~~costs ~~for~~incurred plus a profit, at which time the ~~years~~customer ~~ended~~would ~~December 31,~~take ~~2024,~~control ~~and~~of ~~2023,~~any ~~respectively~~work in process. ~~All~~For ofnon-U.S. ~~our~~federal ~~business~~government ~~groups~~contracts ~~earn~~where ~~services~~we ~~revenue~~perform ~~under~~as a ~~variety~~subcontractor ofand ~~contract~~our ~~types,~~order ~~including~~includes ~~time~~similar ~~and~~FAR ~~materials~~provisions as the prime contractor's order from the U.S. federal government, ~~firm~~continuous transfer of control is likewise supported by such provisions. For other non-~~fixed-price~~U.S. federal government customers, ~~firm-fixed-price~~continuous ~~level~~transfer of ~~effort,~~control to such customers is also supported due to general terms in our contracts and ~~cost-plus~~rights ~~fixed-fee~~to ~~contract~~recover ~~types~~damages, which ~~may~~would include, ~~variable~~among ~~consideration~~other potential damages, the right to payment for our work performed to date plus a reasonable profit.

Revenue is recognized using a variety of input and output methods that approximate the progress towards complete satisfaction of the performance obligation; including cost incurred, labor hours expended, and time-elapsed measures for our fixed-price stand ready obligations. For certain contracts, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in our contracts with U.S. government customers whereby the customer may terminate a contract for convenience and then pay for costs incurred plus a profit, at which time the customer would take control of any work in process. For non-U.S. government contracts where we perform as a subcontractor and our order includes similar FAR provisions as the prime contractor's order from the U.S. government, continuous transfer of control is likewise supported by such provisions. For other non-U.S. government customers, continuous transfer of control to such customers is also supported due to general terms in our contracts and rights to recover damages, which would include, among other potential damages, the right to payment for our work performed to date plus a reasonable profit.

For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time in which each performance obligation is fully satisfied. This coincides with the point in time the customer obtains control of the transferred product or service, which typically occurs upon customer acceptance or receipt of the product or service, given that we maintain control of the product or service until that point. Revenue transferred to customers at a point in time accounted for 19% and 16% of our revenue for the years ended December 31, 2024, and 2023, respectively.

Orders for the sale of software licenses may contain multiple performance obligations, such as maintenance, training, or consulting services, which are typically delivered over time, consistent with the transfer of control disclosed above for the provision of services. When an order contains multiple performance obligations, we allocate the transaction price to the performance obligations based on the standalone selling price of the product or service underlying each performance obligation. The standalone selling price represents the amount we would sell the product or service to a customer on a standalone basis.

For certain performance obligations where we are not primarily responsible for fulfilling the promise to provide the goods or services to the customer, do not have inventory risk and have limited discretion in establishing the price for the goods or services, we recognize revenue on a net basis.

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Contract Estimates

Due to the transfer of control over time, revenue is recognized based on progress towards completion of the performance obligation. The selection of the method to measure progress toward completion requires judgment and is based on the nature of the performance obligations. We generally use the cost-to-cost measure of progress on a proportional performance basis for our long-term contracts because it best depicts the transfer of control to the customer, which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation, which includes both the actual costs already incurred and the estimated costs to complete. Revenues are recorded proportionally as costs are incurred. Due to the nature of the work required to be performed on certain of our performance obligations, the estimation of costs at completion is complex, subject to many variables and requires significant judgment. Contract estimates are based on various assumptions, including labor and subcontractor costs, materials and other direct costs and the complexity of the work to be performed. A significant change in one or more of these estimates could affect the profitability of our contracts. We review and update our contract-related estimates regularly and recognize adjustments in estimated profit on contracts on a cumulative catch-up basis, which may result in an adjustment increasing or decreasing revenue to date on a contract in a particular period that the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate.

Our contracts may include various types of variable consideration, ~~such~~and asmay ~~claims (for instance, indirect rate or other equitable adjustments) or incentive fees. We~~ include estimated amounts in the transaction price, based on all of the information available to us, ~~including historical information~~ and ~~future estimations, and~~ to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when any uncertainty associated with the variable consideration is resolved. We ~~have~~evaluate ~~revised~~ and ~~re-submitted~~include ~~several~~these ~~years~~estimated ofamounts ~~incurred cost submissions reflecting certain indirect rate structure changes as a result~~ of ~~regular~~variable ~~Defense~~consideration ~~Contract Audit Agency audits of incurred cost submissions. This resulted~~ in ~~signed final rate agreement letters through fiscal year 2022. We evaluated~~ the ~~resulting~~transaction ~~changes~~price toand ~~revenue~~as ~~under~~performance ~~the~~on ~~applicable~~these ~~cost-plus fixed-fee~~ contracts, asis ~~variable consideration~~complete, ~~and determined the most likely amount to which~~ we ~~expect~~adjust toour ~~be entitled, to the extent that no constraint exists that would preclude recognizing this~~ revenue orwhen ~~result~~deemed innecessary. aNo ~~significant reversal of cumulative~~ revenue ~~recognized.~~adjustment Wewas ~~included~~recorded ~~these~~during ~~estimated amounts of variable consideration in~~ the ~~transaction~~year ~~price~~ended ~~and as performance on these contracts is complete~~December 31, ~~if any~~2025. An immaterial revenue adjustment was recorded during fiscal ~~years~~year ended December 31, 2024~~, and 2023~~.

We provide for anticipated losses on contracts during the period when the loss is determined by recording an expense for the total expected costs that exceeds the total estimated revenue for a performance obligation. No contract loss was recorded during the year ended December 31, 2024. We recorded an immaterial contract loss during the year ended December 31, 2023. 55

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We provide for anticipated losses on contracts during the period when the loss is determined by recording an expense for the total expected costs that exceeds the total estimated revenue for a performance obligation. We recorded an immaterial contract loss during the year ended December 31, 2025. No contract loss was recorded during the year ended December 31, 2024.

Historically, most of our contracts do not include award or incentive fees. For incentive fees, we would include such fees in the transaction price to the extent we could reasonably estimate the amount of the fee. With limited historical experience, we have not included any revenue related to incentive fees in our estimated transaction prices. We may include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. We consider the contractual/legal basis for the claim (in particular FAR provisions), the facts and circumstances around any additional costs incurred, the reasonableness of those costs and the objective evidence available to support such claims.

For our contracts that have an original duration of one year or less, we use the practical expedient applicable to such contracts and do not consider the time value of money. We capitalize sales commissions related to proprietary software and related services that are directly tied to sales. We do not elect the practical expedient to expense as incurred the incremental costs of obtaining a contract if the amortization period would have been one year or less. For the sales commissions that are capitalized, we amortize the asset over the expected customer life, which is based on recent and historical data.

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Disaggregated Revenues

In addition to our segment reporting, as further discussed in Note 1816 – Segment Information, we disaggregate our revenue by customer and contract types. We treat sales to U.S. customers as sales within the U.S. regardless of where the services are performed. ~~Notably,~~Substantially ~~most~~all of our revenues are generated from U.S. customers, while international customers are de minimis; as such the financial information by geographic location is not presented.

Table 3.1: Revenue by Customer Type
	For the Year Ended December 31,
	2024			2023
	2025			2024
	Amount		%	Amount		%
	(dollars in thousands)
Federal government	$	94150,~~951~~038	8891.0%	$	~~131~~94,~~143~~951	9087.7%
State & local government, and commercial	1314,~~321~~767		129.0%	1413,~~235~~321		1012.3%
Total revenue	$	~~108~~164,~~272~~805		$	~~145~~108,~~378~~272

Table 3.2: Revenue by Contract Type
	For the Year Ended December 31,
	2024			2023
	2025			2024
	Amount		%	Amount		%
	(dollars in thousands)
Firm fixed-price	$	81120,~~541~~811	7573.3%	$	~~114~~81,~~188~~541	7975.3%
Time-and-materials	1535,~~839~~861		1521.8%	1315,~~535~~839		914.6%
Cost plus fixed-fee	108,~~892~~133		104.9%	1710,~~655~~892		1210.1%
Total revenue	$	~~108~~164,~~272~~805		$	~~145~~108,~~378~~272

Table 3.3: Revenue Concentrations Greater than 10% of Total Revenue
	For the Year Ended December 31,
	2024	2023
U.S. Department of Defense ("DoD")
Security Solutions segment	24%	18%
Secure Networks segment	29%	47%
U.S. Department of Homeland Security ("DHS")
Security Solutions segment	15%	N/A

A majority of the Company's revenue was derived under prime contracts and subcontracts with agencies and departments of the U.S. federal government. No other customer accounted for 10% or more of the Company's revenue during fiscal years ended December 31, 2025, and 2024.

Table 3.4: Contract Balances
Table 3.3: Revenue Concentrations Greater than 10% of Total Revenue
			As of December 31,
	For the Year Ended December 31,
	Balance Sheet Presentation		2024		2023
	2025		2024
	(in thousands)		~~(in thousands)~~
Billed account receivables (1)	Accounts receivable, net		$	10,014	$	17,818
Federal government:
Unbilled account receivables	Accounts receivable, net		5,412		8,022
Security Solutions segment	$	134,839	$	63,495
Contract assets	Accounts receivable, net		3,746		4,584
Secure Networks segment	15,199		31,456
Contract liabilities - current	Contract liabilities		6,838		6,728
Total	$	150,038	$	94,951

~~(1) Net of allowance for credit losses.~~56

The changes in the Company's contract assets and contract liabilities during the current period were primarily the result of the timing differences between the Company's performance, invoicing and customer payments. For the years ended December 31, 2024, and 2023, the amount of revenue recognized during the year that was included in the opening contract liabilities balance was $5.9 million and $5.4 million, respectively.

As of December 31, 2024, we had approximately $51.2 million of remaining performance obligations, which we also refer to as funded backlog. We expect to recognize approximately 95% of our remaining performance obligations over the next 12 months, and the balance thereafter.

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Table 3.4: Contract Balances
		As of December 31,
	Balance Sheet Presentation	2025		2024

		(in thousands)
Billed account receivables (1)	Accounts receivable, net	$	9,375	$	10,014
Unbilled account receivables	Accounts receivable, net	6,962		5,412
Contract assets	Accounts receivable, net	663		3,746
Contract liabilities – current	Contract liabilities – current portion	11,223		6,838
Contract liabilities – non-current	Contract liabilities – non-current portion	1,124		—

(1) Net of allowance for credit losses.

The changes in the Company's contract assets and contract liabilities during the current period were primarily the result of the timing differences between the Company's performance, invoicing and customer payments. Revenue recognized for the years ended December 31, 2025, and 2024, which was included in the contract liabilities balance at December 31, 2024, and 2023, was $5.5 million and $5.9 million, respectively.

As of December 31, 2025, we had approximately $68.8 million of remaining performance obligations, which we also refer to as funded backlog. We expect to recognize approximately 98.0% of our remaining performance obligations over the next 12 months, and the balance thereafter.

4. ACCOUNTS RECEIVABLE, NET

Table 4.1: Details of Accounts Receivable, Net
	As of December 31,
	2024		2023
	2025		2024
	(in thousands)
Billed accounts receivables	$	109,~~070~~416	$	1810,~~101~~070
Unbilled accounts receivable	56,~~412~~962		85,~~022~~412
Contract assets	~~3,746~~663		43,~~584~~746
Allowance for credit losses	(5641)		(~~283~~56)
Accounts receivable, net	$	1917,~~172~~000	$	3019,~~424~~172

AsBecause our primary customer base includes agencies of the U.S. federal government, we have a concentration of credit risk associated with our accounts receivable, as 8885.4% and 9187.8% of our billed and unbilled accounts receivable, as of December 31, ~~2024~~2025, and ~~2023~~2024, respectively, were ~~directly~~ with U.S. federal government customers. While we acknowledge the potentially material and adverse risk of such a significant concentration of credit risk, our past experience of collecting substantially all of such receivables provides us with an informed basis that such risk, if any, is manageable. We perform ongoing credit evaluations of all of our customers and generally do not require collateral or other guarantees from our customers. We maintain allowances for potential losses.

Table 4.2: Allowance for Credit Losses Activities
	Balance Beginningof Year		Provision for (Recovery from) Credit Losses (1)		Write-Offs (2)		BalanceEndof Year
	(in thousands)
For the Year Ended December 31, 2024	$	283	$	(20)	$	(207)	$	56
For the Year Ended December 31, 2025	$	56	$	2	$	(17)	$	41
For the Year Ended December 31, 2023	134		152		(3)		283
For the Year Ended December 31, 2024	283		(20)		(207)		56


(1) Current year account receivable reserves for expected credit losses and subsequent recoveries, net
(2) Accounts receivable written-off

On July 15, 2016, ~~the~~we ~~Company~~ entered into an accounts receivable purchase agreement ~~under which~~ (the ~~Company~~"Factoring ~~could sell certain accounts receivable (balance not to exceed $10.0 million~~Agreement") towith a third party, or (the "Factor,") ~~without~~on a non-recourse tobasis. ~~the~~This ~~Company,~~agreement ~~with~~was anterminated ~~availability~~on ~~period through June 30~~December 10, ~~2022, and from year to year thereafter unless terminated in writing by the parties~~2025. There were no accounts receivable sold during ~~2024~~2025 and ~~2023~~2024, respectively. ~~As of December 31, 2024, and 2023, there were no outstanding sold accounts receivable.~~

~~5. INVENTORIES, NET~~57

Table 5.1: Details of Inventories, Net
	As of December 31,
	2024		2023
	(in thousands)
Gross inventory	$	1,916	$	2,179
Allowance for inventory obsolescence	(133)		(759)
Inventories, net	$	1,783	$	1,420

6. PROPERTY AND EQUIPMENT, NET

Table 6.1: Details of Property and Equipment, Net
	As of December 31, 2024						As of December 31, 2023
	Gross Carrying Amount		Accumulated Depreciation and Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Depreciation and Amortization		Net Carrying Value
	(in thousands)
Furniture and equipment	$	17,239	$	(13,617)	$	3,622	$	16,213	$	(13,363)	$	2,850
Leasehold improvement	3,396		(2,735)		661		3,211		(2,604)		607
Total	$	20,635	$	(16,352)	$	4,283	$	19,424	$	(15,967)	$	3,457

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Table 6.2: Depreciation and Amortization Expense
	For the year ended December 31,
	2024		2023
	(in thousands)
Depreciation and amortization	$	1,646	$	2,230

On March 10, 2026, we entered into a new Factoring Agreement with the same Factor. Under the agreement, we may offer eligible accounts receivable arising from our U.S. government prime contracts or subcontracts for sale (collectively, the "Purchased Receivables") to the Factor, and the Factor may purchase such receivables at its sole discretion. The total amount of Purchased Receivables is subject to a maximum limit of $10.0 million of outstanding Purchased Receivables at any given time. This new Factoring Agreement has an initial term expiring on March 10, 2027 and automatically renews annually thereafter unless terminated in writing by the parties.

75. ~~GOODWILL~~PROPERTY AND EQUIPMENT, NET

As discussed in Note 2 – Significant Accounting Policies, we reported two operating and reportable segments: Security Solutions and Secure Networks. The two operating and reportable segments represent the reporting units for purposes of testing goodwill.


Table 5.1: Details of Property and Equipment, Net
	As of December 31, 2025						As of December 31, 2024
	Gross Carrying Amount		Accumulated Depreciation and Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Depreciation and Amortization		Net Carrying Value

	(in thousands)
Furniture and equipment	$	17,275	$	(14,727)	$	2,548	$	17,239	$	(13,617)	$	3,622
Leasehold improvement	3,419		(2,896)		523		3,396		(2,735)		661
Total	$	20,694	$	(17,623)	$	3,071	$	20,635	$	(16,352)	$	4,283

The goodwill balance was $17.9 million as of December 31, 2024, and 2023, of which $3.0 million is allocated to the Security Solutions segment and $14.9 million is allocated to the Secure Networks segment.


Table 5.2: Depreciation and Amortization Expense
	For the year ended December 31,
	2025		2024

	(in thousands)
Depreciation and amortization	$	1,731	$	1,646

6. GOODWILL, NET

As discussed in Note 16 – Segment Information, we reported two operating and reportable segments: Security Solutions and Secure Networks. The two operating and reportable segments represent the reporting units for purposes of testing goodwill. The following table reflects changes in the carrying amount of goodwill during the period by reportable segments.


Table 6.1: Changes in the Carrying Amount of Goodwill by Reportable Segments
	Security Solutions		Secure Networks		Total

	(in thousands)
Balance at December 31, 2024	$	3,006	$	14,916	$	17,922
Impairment losses	—		(14,916)		(14,916)
Balance at December 31, 2025	$	3,006	$	—	$	3,006


Table 6.2: Details of Goodwill, Net
	As of December 31,
	2025		2024

	(in thousands)
Gross	$	17,922	$	17,922
Accumulated impairment losses	(14,916)		—
Goodwill, net	$	3,006	$	17,922

The net assets attributable to the reporting units are determined based upon the estimated assets and liabilities attributable to the reporting units in deriving its free cash flows.

For fiscal year ~~2024~~2025, we performed a qualitative assessment of our reporting units and identified that it is more likely than not that the estimated fair value of ~~the~~our Security Solutions reporting ~~units~~unit ~~exceeds~~exceeded ~~their~~its carrying value. ~~and~~Based ~~thus~~on the initial qualitative assessment of our Secure Networks reporting unit, we ~~did~~determined that it is not ~~proceed~~more tolikely than not that the ~~two-step~~fair ~~goodwill~~value of this reporting unit exceeds its carrying value, and therefore we performed a quantitative impairment test.

~~For~~In ~~fiscal~~the ~~year~~most ~~2023,~~recent weannual ~~performed~~impairment atest, ~~qualitative assessment of our reporting units and identified that it is more likely than not that~~ the ~~estimated~~ fair value of ~~our~~the ~~Security~~Secure ~~Solutions~~Networks reporting unit ~~exceeded~~was ~~its~~estimated ~~carrying~~using ~~value.~~the Inresult ~~contrast,~~of ~~based on~~ the ~~initial~~income ~~qualitative~~approach. ~~assessment~~The ofincome ~~our~~approach ~~Secure~~applied ~~Networks~~requires ~~reporting~~significant ~~unit~~judgments, weincluding ~~determined~~estimation ~~that~~of itfuture isdiscounted ~~not~~cash ~~more~~flows, ~~likely~~which ~~than~~is ~~not~~dependent ~~that~~on ~~the~~internally-developed ~~fair~~forecasts ~~value~~ of ~~this~~revenue ~~reporting~~and ~~unit~~profitability ~~exceeds~~of ~~its~~the ~~carrying~~existing ~~value~~backlog, ~~therefore~~and wedetermination ~~performed~~of aour ~~quantitative~~weighted ~~impairment~~average ~~test.~~cost ~~Based~~of oncapital, ~~the~~which ~~quantitative~~is ~~assessment~~risk-adjusted ofto ~~our~~reflect ~~Secure~~the ~~Networks~~specific ~~reporting~~risk ~~unit~~profile as of ~~December 31, 2023,~~ the ~~estimated~~reporting ~~fair~~unit ~~value~~being ~~exceeded its carrying value~~tested.

Based on the results of our annual impairment test of goodwill performed, the estimated fair value of our respective reporting units exceeded their respective carrying value, and no impairment charges were taken during the years ended December 31, 2024, and 2023.58

8.Table ~~INTANGIBLE~~of ~~ASSETS, NET~~Contents

Table 8.1: Details of Intangible Assets, Net
	Estimated useful life	As of December 31, 2024						As of December 31, 2023
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
		(in thousands)
Acquired technology	8 years	$	3,630	$	(1,550)	$	2,080	$	3,630	$	(1,097)	$	2,533
Customer relationships	3 years	40		(40)		—		40		(32)		8
Software development costs	2 - 5 years	27,366		(15,761)		11,605		35,312		(12,256)		23,056
Subtotal		31,036		(17,351)		13,685		38,982		(13,385)		25,597
In-process software development costs (1)		16,725		—		16,725		14,019		—		14,019
Total		$	47,761	$	(17,351)	$	30,410	$	53,001	$	(13,385)	$	39,616

As a result of our fiscal year 2025 quantitative assessment of our Secure Networks reporting unit, we estimated that its carrying value exceeded its fair value. The goodwill impairment was primarily driven by the continued contraction of Secure Networks' backlog in 2025. Accordingly, we recorded a non-cash goodwill impairment of $14.9 million, representing a full goodwill impairment for Secure Networks. The impairment charge on goodwill was recorded on our consolidated statements of operations for the year ended December 31, 2025.

For fiscal year 2024, we performed a qualitative assessment of our reporting units and identified that it is more likely than not that the estimated fair value of the reporting units exceeded their carrying value and thus, we did not proceed to the quantitative impairment test. Based on the results of our annual impairment test of goodwill performed, the estimated fair value of our respective reporting units exceeded their respective carrying value, and no impairment charges were taken during the year ended December 31, 2024.

7. INTANGIBLE ASSETS, NET


Table 7.1: Details of Intangible Assets, Net
	Estimated useful life	As of December 31, 2025						As of December 31, 2024
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value

		(in thousands)
Acquired technology	8 years	$	3,630	$	(2,004)	$	1,626	$	3,630	$	(1,550)	$	2,080
Customer relationships	3 years	40		(40)		—		40		(40)		—
Software development costs	2 - 5 years	43,411		(23,576)		19,835		27,366		(15,761)		11,605
Subtotal		47,081		(25,620)		21,461		31,036		(17,351)		13,685
In-process software development costs (1)		8,820		—		8,820		16,725		—		16,725
Total		$	55,901	$	(25,620)	$	30,281	$	47,761	$	(17,351)	$	30,410


(1) In-process software development costs are costs for software that is not yet available for its intended use or general release to customers as of balance sheet date, thus not yet amortized.

In 2024, there were selected capital software projects for which the Company decided to discontinue the development and/or sale of all or part of certain solutions and certain projects that the Company ceased use before the end of its useful life. As a result of the Company's decision to abandon the associated software, the Company wrote off $11.7 million of the previously capitalized software costs, of which $5.3 million was recorded as "Impairment loss on intangible assets" under cost of sales within the Security Solutions segment, and $6.4 million was recorded as "Impairment loss on intangible assets" under operating expenses in the Company's consolidated statements of operations during the fiscal year ended December 31, 2024. No similar impairment charge was recorded on software development costs during the fiscal year ended December 31, 2025.

In 2023, as a result of the impairment assessment, the Company identified conditions demonstrating impairment of certain software development costs and an impairment charge of $0.5 million was reported as "Impairment loss on intangible assets" under operating expenses in the Company's consolidated statements of operations during the fiscal year ended December 31, 2023.

The Company did not recognize any impairment charges on other intangible assets for the periods presented.


Table 7.2: Amortization Expense
	For the year ended December 31,
	2025		2024

	(in thousands)
Amortization expense related to:
Software development costs - cost of sales (1)	$	7,814	$	6,015
Software development costs - research and development	—		2,286
Other intangible assets - general and administrative	454		461
Total	$	8,268	$	8,762

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Table 8.2: Amortization Expense
	For the year ended December 31,
	2024		2023
	(in thousands)
Amortization expense related to:
Software development costs - cost of sales (1)	$	6,015	$	2,840
Software development costs - research and development	2,286		1,623
Other intangible assets - general and administrative	461		467
Total	$	8,762	$	4,930

(1) Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed are charged under cost of sales on the consolidated statements of operations.

Table 8.3: Estimated Future Amortization Expense of Intangible Assets, Net
	As of December 31, 2024
	(in thousands)
Year Ending December 31, 2025	$	5,692
Year Ending December 31, 2026	3,698
Year Ending December 31, 2027	2,658
Year Ending December 31, 2028	1,373
Year Ending December 31, 2029	264
Thereafter	—
Total (1)	$	13,685

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Table 7.3: Estimated Future Amortization Expense of Intangible Assets, Net
	As of December 31, 2025
	(in thousands)
Year Ending December 31, 2026	$	9,277
Year Ending December 31, 2027	6,669
Year Ending December 31, 2028	3,208
Year Ending December 31, 2029	1,793
Year Ending December 31, 2030	514
Thereafter	—
Total (1)	$	21,461

(1) This does not include amortization of in-process software development costs, as estimation of the timing of future amortization expenses would be impractical.

Actual amortization expense in future periods could differ from these estimates as a result of impairments, future releases, future acquisitions, divestitures, and other factors.

98. OTHER BALANCE SHEET COMPONENTS

Table 9.1: Details of Other Assets
Table 8.1: Details of Other Current Assets
	As of December 31,
	2024		2023
	2025		2024
	(in thousands)
Prepaid expenses – long-term portion	$	4,975	$	593
Inventories, net	$	996	$	1,783
Investment (1)	3,000		—
Deferred costs	887		573
Restricted cash	139		136
Receivables - other	529		210
Other	751,250		~~156~~10
Other assets	$	8,189	$	885
Other current assets	$	3,662	$	2,576

(1) In March 2024, the Company made a $3.0 million investment in a privately held company via a simple agreement for future equity. The Company elected to apply the fair value option on this investment. The Company believes the fair value option best reflects the economics of the underlying transaction. The fair value of this investment was based on non-marketable observable inputs, which represent Level 3 measurement within the fair value hierarchy. Changes in the fair value of this investment are recognized within "Other Income (Expenses)" on the consolidated statements of operations, if any. During fiscal year 2024, there were no changes in the fair value of this investment.


Table 8.2: Details of Other Assets
	As of December 31,
	2025		2024

	(in thousands)
Investment (1)	$	3,750	$	3,000
Prepaid expenses and deferred commission – long-term portion	537		4,975
Restricted cash	140		139
Other	86		75
Other assets	$	4,513	$	8,189

Table 9.2: Details of Accounts Payable and Other Accrued Liabilities
	As of December 31,
	2024		2023
	(in thousands)
Accounts payable	$	1,153	$	8,307
Accrued payables	3,147		5,443
Accounts payable and other accrued liabilities	$	4,300	$	13,750

(1) In March 2024, the Company made a $3.0 million investment in a privately-held company via a simple agreement for future equity ("SAFE"). During fiscal year 2024, the Company elected to apply the fair value option ("FVO") for its SAFE investment, as the Company believes the FVO best reflects the economics of the underlying transaction. In October 2025, the Company's SAFE investment was settled into 8,964,262 shares of Series A common stock at a settlement price of $0.42 per share, based on the valuation cap in the original agreement, resulting in 3.8% ownership with no significant influence over the privately-held company. Upon settlement of the SAFE in fiscal year 2025, the investment was remeasured to its fair value of $3.8 million, and a fair value adjustment of $0.8 million was recorded within "Other income" on the consolidated statements of operations. Effective October 2025, the SAFE investment was settled into equitable shares of the privately-held company's common stock. The investment does not have a readily determinable fair value and the Company elected the measurement alternative to value its investment. The fair value of this investment was based on non-marketable observable inputs, which represent Level 3 measurement within the fair value hierarchy. The investment was carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investments of the same issuer, with any gains or losses recorded within "Other income" on the consolidated statements of operations.


Table 8.3: Details of Accrued Liabilities
	As of December 31,
	2025		2024

	(in thousands)
Accrued project expenses	$	4,289	$	3,238
Restructuring expenses accrual	1,451		37
Other	1,160		1,174
Accrued liabilities	$	6,900	$	4,449

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Table 9.3: Details of Other Current Liabilities
	As of December 31,
	2024		2023
	(in thousands)
Other accrued liabilities	$	829	$	1,427
Restructuring expenses accrual	37		400
Other	436		497
Other current liabilities	$	1,302	$	2,324

9. REVOLVING CREDIT FACILITY

10On December 30, 2022 (the "Closing Date"), we entered into a Credit Agreement (the "Credit Agreement"), by and among the Company, as borrower, Xacta Corporation, ubIQuity.com,inc, ~~DEBT~~Teloworks, ~~AND~~Inc., ~~OTHER~~and ~~OBLIGATIONS~~Telos Identity Management Solutions, LLC, as guarantors, the lenders party thereto (the "Lenders"), and JPMorgan Chase Bank N.A. ("JPMorgan Chase"), as administrative agent for the Lenders (in such capacity, the "Agent"). The Credit Agreement provided for a $30.0 million senior secured revolving credit facility with a maturity date of December 30, 2025, with the option of issuing letters of credit thereunder with a sub-limit of $5.0 million, and with an uncommitted expansion feature of up to $30.0 million of additional revolver capacity (the "Loan"). The Loan is subject to acceleration in the event of customary events of default. The Company has not drawn any amount under the Loan.

Revolving Credit Facility

On December 30, 2022 (the "Closing Date"), we entered into a Credit Agreement (the "Credit Agreement"), by and among the Company, as borrower, Xacta Corporation, ubIQuity.com,inc, Teloworks, Inc., and Telos Identity Management Solutions, LLC, as guarantors, the lenders party thereto (the "Lenders"), and JPMorgan Chase Bank N.A., as administrative agent for the Lenders (in such capacity, the "Agent"). The Credit Agreement provides for a $30.0 million senior secured revolving credit facility with a maturity date of December 30, 2025, with the option of issuing letters of credit thereunder with a sub-limit of $5.0 million, and with an uncommitted expansion feature of up to $30.0 million of additional revolver capacity (the "Loan"). The Loan is subject to acceleration in the event of customary events of default. The Company has not drawn any amount under the Loan.

Borrowings under the Credit Agreement will accrue interest, at our option, at one of three variable rates, plus a specified margin. We can elect to borrow at (i) the Alternative Base Rate, plus 0.9%; (ii) Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR"), plus 1.9%; and (iii) Adjusted Term SOFR, plus 1.9%, as such capitalized terms are defined and calculated in the Credit Agreement. The Company may elect to convert borrowings from one type of borrowing to another type per the terms of the Credit Agreement. After the occurrence and during the continuance of any event of default, the interest rate may increase by an additional 2.0%. We are obligated to pay accrued interest (i) with respect to amounts accruing interest based on the Alternative Base Rate, each calendar quarter and on the maturity date, (ii) with respect to amounts accruing interest based on Adjusted Daily Simple SOFR, on each one month anniversary of the borrowing and on the maturity date, and (iii) with respect to amounts accruing interest based on Adjusted Term SOFR, at the end of the period specified per the Credit Agreement and on the maturity date. Upon five, three, or one days' prior notice, as applicable, we may prepay any portion or the entire amount of the Loan. We paid and could pay costs and customary fees, including a closing fee, commitment fees and letter of credit participation fee, if any, payable to the Agent and Lenders, as applicable, in connection with the Loan.

The Loan under the Credit Agreement is collateralized by substantially all of the Company's assets, including the Company's pledge of its domestic and material foreign subsidiary equity interests.

The Loan has various covenants that may, among other things, affect our ability to create, incur, assume or suffer any indebtedness, merge into or consolidate with another entity, acquire entity interests, sell or transfer certain assets, enter into certain arrangements (such as sale and leaseback and swap agreements) or restrictive agreements, pay dividends and make certain restricted payments, and amend material documents related to any subordinated indebtedness and corporate agreements. The Credit Agreement also requires certain financial covenants to maintain a Senior Leverage Ratio on the last day of any fiscal quarter, no greater than 3 to 1. We were in compliance with all covenants as of December 31, ~~2024~~2025.

The occurrence of an event of default under the Credit Agreement could result in the Loan and other obligations becoming immediately due and payable and allow the Lenders to exercise all rights and remedies available to them under the Credit Agreement.

On April 12, 2023, the Credit Agreement was amended to exclude from collateral the (i) amount collectible from a third party related to an Accounts Receivable Purchase Agreement and (ii) receivables generated by the Company from the sale of goods supplied to this third party in an amount not to exceed $25.0 million.

~~Other~~On ~~Financing~~December ~~Obligations~~30, 2025, the Company entered into a Second Amendment to Credit Agreement (the “Second Amendment”) with JPMorgan Chase. The Second Amendment modifies the Credit Agreement to, among other modifications, (a) establish the Applicable Rate for borrowings under the revolving credit facility at 1.25% for ABR Loans and 2.25% for Term Benchmark/RFR Loans, with a commitment fee rate of 0.25%, (b) establish the Revolving Commitment under the Credit Agreement at $15,000,000 with an expansion feature of up to $15,000,000 of additional credit capacity, (c) extend the Revolving Credit Maturity Date to December 30, 2026, and (d) require the Company and its subsidiaries to maintain at least $5,000,000 of unrestricted cash and Permitted Investments with JPMorgan Chase at all times. Except as modified by the Second Amendment, the terms and conditions of the Credit Agreement remain in full force and effect.

~~We entered into a Master Purchase Agreement ("MPA") with a third-party buyer ("Buyer") for $9~~10.1 ~~million~~STOCKHOLDERS' ("Assignment Price") relating to software licenses under a specific delivery order ("DO") with our customer resulting in proceeds from other financing obligations of $9.1 million in November 2022. Under the MPA, we sold, assigned and transferred all of our rights, title and interest in (i) the DO payments from the customer and (ii) the underlying licenses. The DO covers a base period with an option for the customer to exercise three (3) additional 12-month periods through January 2026. The DO payments assigned to the Buyer are billable to the customer at the beginning of the base period and for each option year exercised. EQUITY

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On February 9, 2023, the customer notified us that it would not exercise the first option period under the DO. The MPA provides that, if the customer terminates the DO for non-renewal and the Buyer reasonably concludes that the customer's actions constitute grounds for filing a claim with the customer's contracting officer, Buyer and Telos will cooperate in preparing such a claim, which would be filed in Telos' name. During the third quarter of 2024, the Buyer, through Telos, filed a claim against the customer.

The Company transferred all the rights, title and interest in the underlying licenses in exchange for the extinguishment of the outstanding financing obligations. The Company evaluated the transfer of the underlying licenses as consideration paid for the outstanding financing obligations under ASC 470-10, Debt, and the provisions of the MPA, and concluded that the transaction resulted in an extinguishment of debt. The Company recorded the difference between the carrying value of the Company's debt instrument and the underlying licenses as a gain on early extinguishment of other financing obligations. The Company reported a gain of $1.4 million, which was recorded as "Other income" in the consolidated statements of operations during the year ended December 31, 2023. No gain was reported for the fiscal year ended December 31, 2024.

11. STOCKHOLDERS' EQUITY

Capital Stock

Our authorized capital stock consists of 250,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.01 par value per share.

As of December 31, ~~2024~~2025, and ~~2023~~2024, there were 72,~~514~~773,~~652~~272 and 7072,~~239~~514,~~890~~652 shares of common stock issued and outstanding, respectively. There were no shares of preferred stock issued and outstanding on either date.

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Shares Repurchases

On May 24, 2022, the Company announced that the Board of Directors approved a new share repurchase program ("SRP") authorizing the Company to repurchase up to $50.0 million of its common stock. Pursuant to this authorization, the Company may repurchase shares of its common stock on a discretionary basis from time to time through open market purchases. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. As of December 31, 2025, there was $25.1 million of the authorization remaining for future common stock repurchases under the SRP.

There were no share repurchases during the year ended December 31, 2024, and 2023. As of December 31, 2024, there was $38.7 million of the authorization remaining for future common stock repurchases under the SRP.


Table 10.1: Share Repurchase Program Activity
	For the Year Ended December 31,
	2025		2024

	(in thousands, except per share and share data)
Amounts paid for shares repurchased (1)	$	13,627	$	—
Number of shares repurchased	3,108,497		—
Average per share price paid (1)	$	4.38	$	—

(1) Includes commission paid for repurchases on the open market

Accumulated Other Comprehensive Loss

Table 11.1: Details of Changes in Accumulated Other Comprehensive Loss by Category
Table 10.2: Details of Changes in Accumulated Other Comprehensive Loss by Category
	Foreign currency translation adjustment		Pension liability adjustment		Total
	(in thousands)
Balance as of December 31, 2022	$	(162)	$	107	$	(55)
Balance as of December 31, 2023	$	(167)	$	107	$	(60)
Other comprehensive loss, net of tax	(5)		—		(5)
Balance as of December 31, 2023	(167)		107		(60)
Other comprehensive loss, net of tax	(8)		(61)		(69)
Balance as of December 31, 2024	$(175)	~~(175)~~	$46	46	$(129)	~~(129)~~
Other comprehensive loss, net of tax	(2)		35		33
Balance as of December 31, 2025	$	(177)	$	81	$	(96)

1211. STOCK-BASED COMPENSATION

On May 821, ~~2023~~2024, the Company ~~amended~~authorized ~~the 2016 LTIP with~~ an additional 68,~~000~~500,000 shares ~~available~~to ~~for~~be ~~issuance,~~available ~~increasing~~under the ~~total~~Amended ~~number~~and ofRestated ~~shares~~2016 ~~available~~LTIP to("2016 ~~13,459,913~~LTIP"). Further, on May 218, ~~2024~~2025, the Company's ~~authorized~~stockholders approved an ~~additional~~amendment ~~8,500,000 shares~~ to ~~be available under~~ the ~~Amended and Restated~~ 2016 LTIP, ~~increasing~~that increased the ~~total~~ number of shares available for issuance ~~under~~by ~~the~~an ~~2016~~additional ~~LTIP to 21~~4,~~959~~900,~~913~~000 shares. As of December 31, ~~2024~~2025, approximately 1.05 million shares of our common stock ~~were~~remain ~~reserved~~available for future ~~grants~~issuance under the 2016 LTIP~~, as amended~~.

Stock-based compensation expense recognized for restricted stock units and stock options granted to employees and non-employees is included in the consolidated statements of operations, net of adjustments. There were no income tax benefits recognized on the stock-based compensation expense for these periods.


Table 11.1: Details of Stock Compensation Expense by Category
	For the Year Ended December 31,
	2025		2024

	(in thousands)
Cost of sales - services	$	652	$	828
Research and development	1,238		(121)
General and administrative (1)	28,260		20,704
Total	$	30,150	$	21,411

(1) No stock-based compensation expense related to stock options was recorded for the year ended December 31, 2025, while $0.1 million was recorded for the year ended December 31, 2024.

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Table 12.1: Details of Stock Compensation Expense by Category
	For the Year Ended December 31,
	2024		2023
	(in thousands)
Cost of sales - services	$	828	$	900
Research and development	(121)		1,989
General and administrative (1)	20,704		21,507
Total	$	21,411	$	24,396

Restricted Stock

Table 12.2: Restricted Stock Unit Activity
Table 11.2: Restricted Stock Unit Activity
	Service-Based RSU	Performance-Based RSU	Total	Weighted-Average Grant Date Fair Value
Unvested outstanding units as of December 31, 2023	2,132,613	43,800	2,176,413	$	5.07
Granted	1,844,223	10,730,226	12,574,449	3.47
Vested	(1,910,651)	—	(1,910,651)	4.41
Forfeited, cancelled, or expired	(114,082)	(90,796)	(204,878)	9.25
Unvested outstanding units as of December 31, 2024	1,952,103	10,683,230	12,635,333	$	3.52
Granted	1,237,265	3,381,163	4,618,428	3.48
Vested	(895,616)	(3,047,890)	(3,943,506)	3.52
Forfeited, cancelled, or expired	(110,916)	(154,649)	(265,565)	3.43
Unvested outstanding units as of December 31, 2025	2,182,836	10,861,854	13,044,690	$	3.49

On ~~May 16~~February 20, ~~2024~~2025, the Company modified certain previously granted PSUs ~~that~~with ~~could~~financial beperformance ~~settled~~targets infor upfiscal toyear ~~1,335,281~~2025. ~~shares~~The modification eliminated one of ~~its~~the ~~common~~financial ~~stock~~performance totargets. ~~certain~~As ~~senior~~a ~~executives~~result, ~~and~~an ~~employees~~incremental ~~that~~stock-based ~~will~~compensation ~~vest~~expense ~~upon~~of ~~achieving~~$2.0 ~~certain~~million ~~operational~~is ~~milestones~~recognized ~~prior~~over tothe ~~January 1,~~remaining ~~2027~~vesting period.

On May 28 14, ~~2024~~2025, the Company granted PSUs to a certain ~~senior~~employee ~~executives and employees~~ that could settle in up to 2(i) 65,~~499,945~~000 shares of its common stock. ~~These~~that ~~PSUs~~will ~~may~~ vest only if the Company achieves a certain ~~financial~~operational ~~performance~~milestone ~~targets~~prior ~~for fiscal year 2025. The Company also granted PSUs containing market conditions~~ to ~~certain~~January ~~executives~~1, ~~that~~2027; ~~could~~and ~~settle~~(ii) ~~in up to 6~~50,~~875,~~000 shares of its common stock. ~~These~~and ~~PSUs~~will ~~with market conditions may~~ vest, ~~in whole or in part,~~ only if the Company's ~~closing~~achieves ~~common stock price remains at or above~~ certain ~~specified~~financial ~~stock~~performance ~~prices~~targets for 50fiscal ~~consecutive~~year ~~calendar days prior to January 1, 2027~~2025.

~~Our~~On ~~key~~June ~~assumptions~~11, ~~used~~2025, tothe ~~calculate~~Company ~~the~~granted ~~grant~~PSUs ~~date~~containing ~~fair~~stock ~~value~~price ofmarket ~~the~~conditions ~~PSU~~to ~~awards~~certain ~~with~~employees ~~market~~that ~~condition~~could ~~granted~~settle in ~~fiscal~~up ~~year~~to ~~2024~~1,060,000 ~~include~~shares aof ~~performance~~its ~~period~~common ~~of 2~~stock.59 ~~years,~~These anPSUs ~~expected~~will ~~volatility of 83.9%~~vest, ~~and~~in awhole ~~risk-free~~or ~~rate~~in ofpart, ~~4.70%.~~only ~~The~~if ~~fair~~the ~~value~~Company's ~~for~~closing ~~these~~common ~~market~~stock ~~condition~~price ~~PSUs~~remains at ~~the~~or ~~grant~~above ~~date~~certain ~~ranges~~specified ~~between~~stock ~~$2.62~~prices -for ~~$3.75,~~50 ~~and~~consecutive ~~the~~days ~~derived~~prior ~~service~~to ~~periods~~January ~~ranges between 0.63 -~~ 1~~.31~~, ~~years~~2027.

OnFor ~~December 1,~~the ~~2024~~awards subject to stock price market conditions, the ~~Company~~Monte ~~granted~~Carlo ~~PSUs~~approach touses ana ~~employee~~class of computational algorithms that ~~could~~rely ~~settle~~on inrepeated uprandom sampling to ~~20,000~~compute ~~shares~~their results. This approach allows the calculation of ~~its~~the ~~common~~value ~~stock~~of ~~and~~such ~~may~~PSUs ~~vest~~based ~~upon~~on ~~achieving~~a ~~certain~~large ~~operational~~number ~~milestones~~of ~~prior~~possible tostock ~~January 1,~~price ~~2028~~path scenarios. The risk-free rate is based on a zero-coupon yield from the Treasury Constant Maturities yield curve at the time of grant over the performance period.

As of December 31, 2024, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $43.2 million. Total unrecognized compensation cost related to unvested RSUs and PSUs was $17.0 million as of December 31, 2024, of which $2.0 million relates to PSUs that were not probable of achievement. The remaining $15.0 million of unrecognized compensation cost is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.7 years.


Table 11.3: PSUs with Stock Price Market Condition Fair Value and Assumptions
	For the Year Ended December 31,
	2025	2024

	(in thousands)
Performance period (in years)	1.56	2.59
Expected volatility	97.5%	83.9%
Risk-free rate	3.9%	4.70%
Expected derived service period (in years)	0.80 - 0.94	0.63 - 1.31
Grant date fair value	$1.17 - $1.51	$2.62 - $3.75

InOn ~~the~~June ~~second~~11, ~~quarter of 2024~~2025, the ~~performance~~Company ~~targets~~also ~~for~~granted ~~outstanding~~to certain executives PSUs ~~granted~~that ~~prior~~were tomarket ~~2024~~conditions ~~were~~dependent ~~not~~on ~~probable~~total ofshareholder ~~being~~return ~~achieved.~~("TSR"), ~~Therefore~~that could settle in up to 2,206,163 ~~the~~shares ~~Company~~of ~~recorded~~its acommon ~~cumulative~~stock. ~~catch-up~~The ~~adjustment~~vesting criteria for ~~the~~these ~~change~~awards inare ~~its~~based ~~probability~~on ~~assessment,~~the ~~resulting~~Company's inTSR aperformance ~~$1.2~~relative ~~million~~to ~~decrease~~the inTSR ~~stock-based~~performance ~~compensation~~of ~~expense.~~the ~~This~~Company's ~~was~~compensation ~~recorded~~peer group as aof ~~stock~~the grant date over the three-~~based~~year ~~compensation~~performance ~~adjustment~~period, ~~under~~June ~~R&D~~1, ~~expenses~~2025, through May 31, 2028, and ~~SG&A~~conditioned ~~expenses~~upon inneutral ~~the~~or ~~Company's~~positive ~~statements~~free ofcash ~~operations~~flow ~~for~~(i.e. cash flows from operating activities less capital expenditure) at the end of each fiscal year ~~ended~~2025, ~~December 31~~2026, ~~2024~~and 2027. The ~~performance~~final ~~period~~payout ~~for~~of these PSUs ~~ended~~will ~~during~~vary between 0% to 200% of the ~~third~~target ~~quarter~~number of ~~2024~~PSUs granted, depending on the TSR performance and meeting the free cash flow requirements.

65For the awards subject to TSR market conditions, the Monte Carlo simulation simulates a distribution of stock prices for the Company and its current compensation peer group throughout the remaining performance period based on certain assumptions of stock price performance. Monte Carlo valuations of relative TSR PSUs depend on two sets of prices: realized performance and simulated performance. Our key assumptions include a performance period of 2.97 years, an expected volatility of 114.7%, and a risk-free rate of 3.8%. The fair value for these relative TSR market condition PSUs at the grant date was $4.82.

As of December 31, 2025, and 2024, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $66.5 million and $43.2 million, respectively. There was approximately $8.7 million of total compensation costs related to stock-based awards not yet recognized as of December 31, 2025, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.2 years.

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Stock Options

Table 12.3: Stock Option Activity
Table 11.4: Stock Option Activity
	Stock Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term(in years)	Aggregate Intrinsic Value
Outstanding option balance as of December 31, 2023	400,000	$	1.80	9.4	$	740,000
Outstanding option balance as of December 31, 2024	287,000	$	1.80	8.4	$	464,940
Granted	—	—
Exercised	(~~113~~60,000)	1.80
Forfeited, cancelled, or expired	—	—
Outstanding option balance as of December 31, 2024	287,000	$	1.80	8.4	$	464,940
Outstanding option balance as of December 31, 2025	227,000	$	1.80	7.4	$	749,100
Exercisable stock option as of December 31, 2024	287,000	$	1.80	8.4	$	464,940
Exercisable stock option as of December 31, 2025	227,000	$	1.80	7.4	$	749,100

The Company uses the Black-Scholes option pricing model to calculate the estimated fair value of stock options on the date of grant. Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of grant. The following weighted-average assumptions are used in the Black-Scholes valuation model to estimate the fair value of stock option awards, as granted.

•Expected term of the option – For options granted to employees and directors, the Company estimates the term over which option holders are expected to hold their stock option by using the "simplified method" in accordance with Staff Accounting Bulletin ("SAB") No. 107, Share-Based Payments, and SAB No. 110, Simplified Method for Plain Vanilla Share Options, to calculate the expected term of stock options determined to be "plain vanilla." The Company's stock option exercise history does not provide a reasonable basis to compute the expected term for stock options. Under this approach, the expected term is presumed to be a midpoint between the vesting date and the contractual end of the stock option grant. For options granted to non-employees, the Company elected to use the contractual term as the expected term.

•Risk-free interest rate – Based on the daily yield curve rates for U.S. Treasury obligations with terms that approximate the expected term of the stock options.

•Expected volatility – Due to the absence of the Company's historical price volatility for the expected contractual term of the stock options, the Company utilized the historical price volatility of a peer group.

•Expected dividend yield – The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.

Our key assumptions used to calculate the fair value of the stock options granted in fiscal year 2023 include an expected term ranging from 5.5 to 10 years, expected volatility between 30.7% - 35.1%, and a risk-free rate of 3.5%. The weighted-average fair value of the underlying stock options at the grant date was $1.06. There were no new stock options granted in fiscal ~~year~~years 2025, and 2024.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the quoted closing price of the Company's common stock as of December 31, ~~2024~~2025.

The fair value of the stock options is expensed on a straight-line basis over the vesting period of one year, including the stock options granted to directors, as the next annual stockholders meeting is expected to occur at the same approximate time each year.

As of December 31, ~~2024~~2025, there were no unrecognized compensation costs related to non-vested stock options.

6612. LEASES

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13. LEASES

We lease office space facilities and equipment under non-cancelable operating and finance leases with various expiration dates, some of which contain renewal options. The Company's lease portfolio is comprised of two major classes. The lease of the Ashburn facility is accounted for as a finance lease. Under this lease agreement, the basic rent increases by a fixed 2.5% escalation annually, expiring on May 28, 2029. The other office spaces and equipment leased are accounted for as operating leases.

Table 13.1: Details of Lease Costs
	For the Year Ended December 31,
	2024		2023
	(in thousands)
Operating lease cost	$	277	$	541
Short-term lease cost (1)	53		55
Finance lease cost
Amortization of finance lease assets	1,221		1,221
Interest on finance lease liabilities	527		611
Total finance lease cost	1,748		1,832
Total lease costs	$	2,078	$	2,428

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Table 12.1: Details of Lease Costs
	For the Year Ended December 31,
	2025		2024

	(in thousands)
Operating lease cost	$	248	$	277
Short-term lease cost (1)	57		53
Finance lease cost
Amortization of finance lease assets	1,221		1,221
Interest on finance lease liabilities	437		527
Total finance lease cost	1,658		1,748
Total lease costs	$	1,963	$	2,078

(1) Leases that have terms of 12 months or less.

Table 13.2: Future Minimum Lease Payments
Table 12.2: Future Minimum Lease Payments
	Operating Leases		Finance Leases
	(in thousands)
Year Ending December 31, 2025	$	245	$	2,314
Year Ending December 31, 2026	$	252	$	2,372
Year Ending December 31, 2026	252		2,372
Year Ending December 31, 2027	166		2,431
Year Ending December 31, 2028	26		2,492
Year Ending December 31, 2029	—		1,049
Thereafter	—		—
Year Ending December 31, 2030	—		—
Total minimum lease payments	~~689~~444		108,~~658~~344
Less: Imputed interest	(6126)		(~~1,140~~703)
Total lease obligations	~~628~~418		97,~~518~~641
Less: Current portion of lease obligations	(~~210~~232)		(12,~~877~~033)
Long-term lease obligations	$	~~418~~186	$	75,~~641~~608

Table 13.3: Weighted-Average Remaining Lease Terms and Discount Rates
Table 12.3: Weighted-Average Remaining Lease Terms and Discount Rates
	For the Year Ended December 31,
	2024	2023
	2025	2024
Weighted average remaining lease term (in years):
Finance leases	43.3 years	54.3 years
Operating leases	21.8 years	32.48 years
Weighted average discount rate:
Finance leases	5.04%	5.04%
Operating leases	6.0424%	56.7504%

Table 13.4: Supplemental Cash Flow Information Related to Leases
Table 12.4: Supplemental Cash Flow Information Related to Leases
	For the Year Ended December 31,
	2024		2023
	2025		2024
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	$	~~275~~245	$	~~585~~275
Operating cash flows related to finance leases	~~528~~437		~~611~~527
Financing cash flows related to finance leases	1,~~730~~877		1,~~592~~730

6713. EMPLOYEE BENEFIT PLAN

Telos sponsors a defined contribution employee savings plan (the "Plan") under which substantially all full-time employees are eligible to participate. As of December 31, 2025, the Plan held 1,932,890 shares of Telos common stock.

We matched 50% of the employee contribution to the Plan up to 8% of such employee's eligible compensation on a pay period basis. Effective September 1, 2023, Telos-contributed matching funds to a two-year vesting schedule: 20% vesting after one year of service, and fully vesting after the completion of two years of service. Telos intends to fund the employer matching contribution in Telos stock, but will have the discretion to fund the match in cash or a combination of stock and cash. The Telos employer matching contribution is funded in the first quarter of the subsequent year.

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14Our total contributions to the Plan for 2025 and 2024 was $2.0 million ~~EMPLOYEE~~and ~~BENEFIT~~$2.1 ~~PLAN~~million, respectively.

~~Telos sponsors a defined contribution employee savings plan (the "Plan") under which substantially all full-time employees are eligible to participate~~14. AsINCOME of December 31, 2024, the Plan held 1,609,480 shares of Telos common stock. We matched one-half of employee contribution to the Plan up to a maximum of 4% of such employee's eligible annual base salary. Prior to September 2023, Telos' contributions vested at the rate of 20% each year, with full vesting occurring after completion of five years of service. Effective September 1, 2023, we changed our Telos-contributed matching funds to a two-year vesting schedule: 20% vesting after one year of service, and fully vesting after the completion of two years of service. Telos intends to fund the employer matching contribution in Telos stock, but will have the discretion to fund the match in cash or a combination of stock and cash. The Telos employer matching contribution is funded in the first quarter of the subsequent year.TAXES

Our total contributions to the Plan for 2024 and 2023 were $2.1 million for both periods.


Table 14.1: Loss Before Income Tax
	For the Year Ended December 31,
	2025		2024

	(in thousands)
Loss from continuing operations before income taxes:
Domestic	$	(37,302)	$	(52,573)
Foreign	93		79
Total loss before income taxes	$	(37,209)	$	(52,494)

15. INCOME TAXES


Table 14.2: Components of (Benefit from) Provision for Income Taxes
	For the Year Ended December 31,
	2025		2024

	(in thousands)
Current provision
Federal	$	—	$	—
State	85		21
Foreign	12		5
Total current	97		26
Deferred tax expense
Federal	(560)		46
State	(200)		(46)
Total deferred	(760)		—
(Benefit from) provision for income taxes	$	(663)	$	26

Table 15.1: Components of Provision for Income Taxes
Table 14.3: Reconciliation of Statutory Income Tax Expense to Actual Income Tax Expense
	For the Year Ended December 31,
	2024		2023
	2025					2024
	(in thousands)
	Amount		Rate			Amount		Rate
Current provision
	(dollars in thousands)
Federal	$	—	$	—
U.S. federal statutory rate	$	(7,814)	21.0		%	$	(11,024)	21.0	%
State	21		(19)
State income taxes, net of federal income tax benefit (1)	(90)		—		%	(25)		—	%
Foreign	5		—
Change in valuation allowance for deferred tax assets	7,775		(21.0)		%	9,855		(18.7)	%
Total current	26		(19)
Foreign tax effect
Deferred tax expense
Philippines	(8)		—		%	(10)		—	%
Federal	46		32
Tax credits:
State	(46)		23
R&D credit	(26)		—		%	(1,200)		2.2	%
Total deferred	—		55
Nontaxable or nondeductible items:
Provision for income taxes	$	26	$	36
Other permanent differences	(90)		—		%	82		(0.1)	%
Stock-based compensation	(1,603)		4.0		%	298		(0.5)	%
Section 162(m) limitation - covered employees	1,020		(2.0)		%	1,711		(3.3)	%
Changes in unrecognized tax benefits:
Uncertain tax positions	6		—		%	300		(0.6)	%
Other adjustments:
Cumulative deferred adjustments	44		—		%	48		(0.1)	%
Provision to return adjustments	123		—		%	(9)		—	%
Effective tax rate	$	(663)	2.0		%	$	26	(0.1)	%

Table 15.2: Reconciliation of Statutory Tax Rate to Actual Tax Rate
	For the Year Ended December 31,
	2024		2023
Computed expected income tax provision	21.0	%	21.0	%
State income taxes, net of federal income tax benefit	3.3		3.6
Change in valuation allowance for deferred tax assets	(23.1)		7.5
Cumulative deferred adjustments	1.0		—
Provision to return adjustments	—		(0.1)
Other permanent differences	(0.1)		(0.2)
Stock-based compensation	(0.7)		(41.2)
Section 162(m) limitation - covered employees	(3.9)		9.5
Uncertain tax positions	(0.5)		0.5
R&D credit	2.9		(0.7)
Effective tax rate	(0.1	%)	(0.1	%)

(1) State income taxes in Texas made up the majority (greater than 50%) of the tax effect in this category.

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Table 15.3: Components of Deferred Tax Assets and Liabilities
Table 14.4: Components of Deferred Tax Assets (Liabilities)
	As of December 31,
	2024		2023
	2025		2024
	(in thousands)
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts	$	1410	$	7014
Allowance for inventory obsolescence and amortization	60135		~~203~~60
Accrued liabilities not currently deductible	~~763~~1,299		~~1,133~~763
Stock-based compensation	29,~~734~~179		12,~~352~~734
Accrued compensation	~~783~~2,282		~~2,457~~783
Lease liabilities	2,~~594~~106		2,~~906~~594
Goodwill	2829,~~122~~437		3028,~~947~~122
Capitalized research and development costs	10,~~116~~446		210,~~992~~116
Net operating loss carryforwards - federal	15,~~101~~974		815,~~402~~101
Net operating loss carryforwards - state	2,~~672~~619		12,~~522~~672
R&D tax credit	4,~~856~~763		34,~~647~~856
Amortization and depreciation	—69		~~252~~—
Total gross deferred tax assets	6778,~~815~~319		5567,~~883~~815
Less valuation allowance	(6777,~~117~~196)		(5467,~~999~~117)
Total deferred tax assets, net of valuation allowance	~~698~~1,123		~~884~~698
Deferred tax liabilities:
Right-of-use assets	(1,~~510~~176)		(1,~~697~~510)
Amortization and depreciation	~~(1)~~—		—(1)
Total deferred tax liabilities	(1,~~511~~176)		(1,~~697~~511)
Net deferred tax liabilities	$	(~~813~~53)	$	(813)

Table 15.4: Valuation Allowance Activity
Table 14.5: Valuation Allowance Activity
	For the Year Ended December 31,
	2024		2023
	2025		2024
	(in thousands)
Balance at beginning of year	$	5467,~~999~~117	$	5754,~~559~~999
Additions (reductions)	12,118		(2,560)
Additions	10,079		12,118
Balance at end of year	$	6777,~~117~~196	$	5467,~~999~~117

We establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income. We considered projected future taxable income, tax planning strategies, and reversal of taxable temporary differences in making this assessment.

Based on available evidence, we have determined that a valuation allowance is required as of December 31, ~~2024~~2025, and ~~2023~~2024 against the net of our deferred tax assets and liabilities to the extent that only a deferred tax liability related to indefinite-lived goodwill remains on our consolidated balance sheets on December 31, ~~2024~~2025, and ~~2023~~2024.

On December 31, ~~2024~~2025, for federal income tax purposes, there was approximately a $7176.90 million net operating loss available to be carried forward to offset future taxable income. Approximately $10.6 million of these net operating loss carryforwards expire in 2037, the remaining will be carried forward indefinitely. As of December 31, ~~2024~~2025, there was approximately $6.1 million of R&D credit carryover which begins to expire in 2033. Certain tax attributes of the Company, including net operating losses and credits, would be subject to a limitation should an ownership change as defined under Section 382 of the Internal Revenue Code of 1986, as amended, occur. The limitations resulting from a change in ownership could affect the Company's ability to utilize its tax attributes. A study was completed in 2020 which confirmed that no limitation applies to the Company's tax attributes as of December 31, 2020. We believe that ownership activity since December 31, 2020, would not result in limitation sufficient to result in the expiration of unused attributes.

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Under the ~~provisions~~provision of ASC 740, we determined that ~~there~~the ~~were approximately $1.5 million and $1.2 million of~~ unrecognized tax benefits as of December 31, ~~2024~~2025, and ~~2023,~~2024 ~~respectively.~~were ~~There~~approximately ~~was~~$1.5 million nofor ~~tax~~both ~~benefit~~periods. ~~included~~As ~~on the unrecognized tax benefits as~~ of December 31, ~~2024.~~2025, ~~There~~and ~~was~~2024, ~~$0.01 million of tax benefits included in~~ the ~~balance of unrecognized~~ tax benefits ~~as of December 31~~that, ~~2023, that~~ if recognized, would not impact the effective tax rate. ~~Also~~due to the Company's valuation allowance (as included in the balance of unrecognized tax benefits) ~~as of December 31, 2024, and 2023~~ were $1.5 million ~~and~~for ~~$1.2 million,~~both ~~respectively, of tax benefits that, if recognized, would not impact the effective tax rate due to the Company's valuation allowance~~periods. We report interest and penalties as a component of income tax expense. There was no accrued interest and penalties related to the unrecognized tax benefits as of December 31, ~~2024.~~2025, ~~The Company had accrued interest~~ and ~~penalties related to the unrecognized tax benefits of $0~~2024.01 ~~million, which was recorded in other liabilities as of December 31, 2023.~~ We believe that the total amounts of unrecognized tax benefits will not significantly increase or decrease within the next 12 months. The period for which tax years are open with regards to unrecognized tax benefits, ~~2013~~2014 to ~~2024~~2025, has not been extended beyond the applicable statute of limitations.

We file income tax returns in the U.S. federal jurisdiction and are subject to the continuous examination of our income tax returns by the Internal Revenue Service ("IRS") and other tax authorities. The applicable statute of limitations is no longer open for audit or examination for the years before ~~2021~~2022 for federal income taxes in the U.S. We were notified by the IRS in September 2024 regarding an audit of our 2021 federal income tax return. AsIn ofApril 2025, the ~~date~~IRS ofnotified ~~these~~us ~~financial~~that ~~statements,~~it ~~the~~had ~~audit~~completed isits ~~still~~examination ~~ongoing~~of ~~and~~our no2021 ~~final~~federal ~~determination~~income ortax ~~audit~~return ~~report~~with ~~has~~no ~~been~~changes ~~issued.~~to our reported tax.

Table 15.5: Reconciliation of the Beginning and Ending Amounts of Unrecognized Tax Benefit
Table 14.6: Unrecognized Tax Benefit Activity
	For the Year Ended December 31,
	2024		2023
	2025		2024
	(in thousands)
Balance at beginning of year	$	1,~~228~~515	$	1,~~357~~228
Increase (decrease) in prior year tax positions	~~123~~(56)		~~(169)~~123
Increase related to current year tax positions	~~177~~63		~~131~~177
Decrease related to lapse of statutes	~~(13)~~—		(9113)
Balance at end of year	$	1,~~515~~522	$	1,~~228~~515

16. LOSS PER SHARE


Table 14.7: Components of Income Taxes Paid (Net of Refunds Received)
	For the Year Ended December 31,
	2025		2024

	(in thousands)
Federal	$	—	$	—
State	30		55
Foreign	12		—
Total	$	42	$	55


Table 14.8: Net Income Tax Payments (Refund) by Jurisdiction To or Greater than 5% of Total Income Taxes Paid, Net
	For the Year Ended December 31,
	2025		2024

	(in thousands)
Texas	$	30	$	55
Philippines	$	12	$	—

15. LOSS PER SHARE

For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net (loss)/earnings per share because to do so would be anti-dilutive.

Table 16.1: Potentially Dilutive Securities
Table 15.1: Potentially Dilutive Securities
	For the Year Ended December 31,
	2024	2023
	2025	2024
	(in thousands)
Unvested restricted stock and restricted stock units	834	687
Weighted-average number of shares – unvested RSUs, PSUs and stock options	4,253	834
Total	834	687

As of December 31, ~~2024~~2025, and ~~2023~~2024, PSUs of 108,~~683~~441,~~230~~163 and 4310,~~800~~683,230, respectively, have been excluded in the calculation of the potentially dilutive securities above because issuance of such shares are contingent upon the satisfaction of certain conditions which were not satisfied by the end of the reporting period or the shares were antidilutive.

~~17. RELATED PARTY TRANSACTIONS~~68

Emmett J. Wood, the brother of our Chairman and CEO, had been an employee of ours since 1996. In January 2023, he tendered his resignation as an employee effective February 7, 2023. The amounts paid to him as total compensation in 2023, including stock awards and other benefits, was $0.2 million.

One of the Company's directors served as a consultant to the Company under a consultancy agreement that expired on December 31, 2023. The Company, at its election, paid the director a fixed amount, in the form of RSUs, for his services from January 1 through June 30, 2023. On January 3, 2023, the Company granted the director 16,859 RSUs, one-half of which vested on March 3, 2023, and the other half vested on May 18, 2023. From July 1 through December 31, 2023, the director was paid a firm-fixed monthly retainer fee, plus additional fees and contingent bonus payments upon achievement of certain contract goals, payable in cash. Cash payments made for his consulting services were $0.1 million for the year ended December 31, 2023.

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1816. SEGMENT INFORMATION

AsOperating ~~noted~~segments inare ~~Note~~defined 2as –components ~~Significant~~of ~~Accounting~~the ~~Policies,~~Company wefor ~~conduct~~which ~~our~~separate ~~operations~~discrete ~~through~~financial ~~two~~information ~~reportable~~is available and evaluated regularly by the chief operating ~~segments:~~decision ~~Security~~maker ~~Solutions~~("CODM") in deciding how to allocate resources and ~~Secure~~assess ~~Networks~~performance. We identified our CEO as the CODM.

•Our Security Solutions segment is primarily focused on cybersecurity, cloud and identity solutions, and secure messaging through Xacta, Telos Automated Message Handling System ("AMHS") and Telos ID offerings. We ~~recognize~~operate ~~revenue~~our onbusiness ~~contracts from providing various system platforms~~ in ~~the~~two ~~cloud,~~reportable ~~on-premises,~~ and inoperating ~~hybrid~~segments: ~~cloud~~Security ~~environments,~~Solutions ~~as well as software sales or software-as-a-service. Revenue associated with the segment's custom solutions is recognized as work progresses or upon delivery of services~~ and ~~products.~~Secure ~~Fluctuation in revenue from period to period is the result of the volume of software sales, and the progress or completion of cloud and/or cybersecurity solutions during the period~~Networks. Other segment expenses relate to labor, material, and overhead costs. Software sales generally yield higher margins. Gross profit and margin are a function of operational efficiency on security solutions and changes in the volume of software sales.

•Our ~~Secure~~Security ~~Networks~~Solutions segment ~~provides secure networking architectures and solutions to our customers through secure mobility solutions, and network management and defense services. Revenue~~ is ~~recognized~~primarily ~~over~~focused ~~time as the work progresses~~ on ~~contracts~~cybersecurity, ~~related~~cloud ~~to managing network services~~ and ~~information~~identity ~~delivery. Contract costs include labor~~solutions, ~~material,~~ and ~~overhead~~secure ~~costs.~~messaging ~~Variances~~through inXacta, ~~costs~~Telos ~~recognized~~AMHS ~~from period to period primarily reflect increases~~ and ~~decreases~~Telos inID ~~activity levels on individual contracts~~offerings.

Table 18.1: Results of Operations by Business Segment
	For the Year Ended December 31,
	2024						2023
	Security Solutions		Secure Networks		Total		Security Solutions		Secure Networks		Total
	(in thousands)
Revenues	$	76,760	$	31,512	$	108,272	$	77,416	$	67,962	$	145,378
Cost of sales
Impairment loss on intangible assets (1)	5,333		—		5,333		—		—		—
Depreciation and amortization (1)	6,396		8		6,404		3,532		12		3,544
Stock-based compensation expense (1)	667		161		828		668		232		900
Other segment items (2)	36,685		24,593		61,278		33,602		54,390		87,992
Total cost of sales	49,081		24,762		73,843		37,802		54,634		92,436
Gross profit	27,679		6,750		34,429		39,614		13,328		52,942
Operating expenses
Research and development expenses					8,442						11,760
Selling, general and administrative expenses					75,487						81,010
Impairment loss on intangible assets					6,373						487
Total operating expenses					90,302						93,257
Operating loss					(55,873)						(40,315)
Other income					4,023						6,715
Interest expense					(644)						(786)
Loss before income taxes					(52,494)						(34,386)
Provision for income taxes					(26)						(36)
Net loss					$	(52,520)					$	(34,422)

•Our Secure Networks segment provides secure networking architectures and solutions to our customers through secure mobility solutions, and network management and defense services.

We measure each segment's profitability based on gross profit. Our CEO evaluates the segment's performance based on metrics, such as segment revenue and gross profit, that align with our strategies and objectives, and provide a framework for the timely and rational allocation of resources between the segments.


Table 16: Results of Operations by Business Segment
	For the Year Ended December 31,
	2025						2024
	Security Solutions		Secure Networks		Total		Security Solutions		Secure Networks		Total

	(in thousands)
Revenues	$	149,600	$	15,205	$	164,805	$	76,760	$	31,512	$	108,272
Cost of sales
Depreciation and amortization (1)	8,173		7		8,180		6,396		8		6,404
Stock-based compensation expense (1)	594		58		652		667		161		828
Impairment loss on intangible assets (1)	—		—		—		5,333		—		5,333
Other segment items (2)	83,274		11,682		94,956		36,685		24,593		61,278
Total cost of sales	92,041		11,747		103,788		49,081		24,762		73,843
Gross profit	$	57,559	$	3,458	61,017		$	27,679	$	6,750	34,429
Operating expenses
Research and development expenses					7,057						8,442
Selling, general and administrative expenses					78,925						75,487
Goodwill impairment					14,916						—
Impairment loss on intangible assets					—						6,373

Filing Compare · TELOS CORP