Telos raises 2026 outlook after Q3 EBITDA tops forecasts

Sophie Lindqvist

Telos reported third-quarter adjusted EBITDA of $10.6 million, above its $6 million to $6.8 million forecast, CFO Mark Bendza said. The result was the company’s highest quarterly adjusted EBITDA since its 2020 initial public offering. Revenue rose 7% to $55.2 million, also above guidance of $49.2 million to $50.6 million.

The beats reflected stronger-than-expected performance in the identity business and higher-margin programs, lifting the cybersecurity and identity services company’s full-year outlook. President and CEO Mark Griffin used his first earnings call in the role to signal no immediate strategy change, citing momentum in Telos ID and Xacta cybersecurity products.

What changed in the 2026 outlook?

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

Adjusted EBITDA guidance increased to $32.3 million to $34.1 million from $20.6 million to $28 million. Revenue near the top of the original range, higher cash gross margins on fixed-price programs and a favorable revenue mix drove the increase, partly offset by higher operating expenses.

What does Telos expect in the fourth quarter?

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

Third-quarter GAAP gross margin was 37.9%, cash gross margin was 43.1% and adjusted EBITDA margin was 19.2%. Operating cash flow was $9.4 million and free cash flow was $7.4 million, the seventh consecutive quarter with a free cash flow margin above 12%. Telos spent $5.7 million to repurchase more than 1.2 million shares at an average price of $4.59 each, Bendza said.

How much revenue can the Xacta wins produce?

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

Griffin characterized the awards as recurring rather than one-time, noting that many customers add the Xacta.ai automation component to existing Xacta products. He linked those additions to demand for automation and efficiency, while Bendza said the bookings represent new revenue rather than renewal value.

The recent Xacta wins remain separate from pending proposals discussed on earlier calls, Griffin said. Decisions are expected in the coming months, and Bendza said those proposals could contribute meaningfully to 2027 revenue and profit.

Can Telos still grow in 2027?

Telos plans to begin phasing out low-margin third-party software resale in the fourth quarter. Bendza forecast a $32 million year-over-year revenue reduction in 2027; the profit effect should be modest because the business carries a single-digit gross margin. The revenue optics are rather less modest.

Eliminating the IT GEMS third-party software revenue should lift gross margin by about 600 basis points on a full-year run-rate basis, Bendza said. Roughly 400 basis points of sequential margin improvement should come from TSA PreCheck in the second half of 2027 compared with the first half, although other factors could affect margins in the meantime.

Asked whether Telos could still increase revenue in 2027, Bendza said the company has “a really good shot” at growth. Information Assurance wins should offset a substantial portion of the headwind, with additional opportunities in new business and pending proposals; Telos issued no formal 2027 guidance.

Why did the leadership change?

More than 35 years of working together underpin the leadership change: Executive Chairman John Wood asked Griffin to become CEO, Wood said. Personal health issues were among the factors behind Wood’s move to chairman, and he plans to remain a substantial shareholder.

Griffin said Wood will continue providing guidance on the product roadmap, customer relationships and long-term sales strategy. His priorities are customer execution, market expansion, operational performance and profitable growth; the handover changes the nameplate, not the stated plan.

Telos Corporation (NASDAQ: TLS) is a cybersecurity and information technology company serving government and commercial organizations with secure technology solutions. It helps customers protect critical systems, data and digital identities while supporting secure operations in complex, highly regulated environments. Its offerings span cybersecurity consulting, cloud security, secure networking, identity and access management, risk management and governance solutions.