Good morning. Thank you for joining us to discuss Telos Corporation's first quarter 2026 financial results. With me today is Mark Benza, Executive Vice President and CFO of Telos, and Mark Griffin, Executive Vice President of Security Solutions. Let me quickly review the format of today's presentation. Mark Benza will begin with remarks on our first quarter results and full-year outlook. We will then open the line for Q&A where Mark Rippin, Executive Vice President of Security Solutions, will also join us. The first quarter financial results were issued earlier today and are posted on the TELUS Investor Relations website, where this call is being simultaneously webcast. Additionally, we have provided presentation slides on our Investor Relations website. Before we begin, we want to emphasize that some of our statements on this call, including all of those relating to 2026 company performance, plans, and operations, are forward-looking statements and are made under the safe harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ for various reasons, including the factors described in today's financial results summary and the comments made during this conference call, and in our SDC filings. We do not undertake any duty to update any forward-looking statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental and clarifying measures to help investors understand Helos' financial performance. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or in isolation from, gap results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our first quarter results summary and on the Investor Relations portion of our website. Please also note that financial comparisons are year-over-year unless otherwise specified. The webcast replay of this call will be available on our company website under the Investor relations link. With that, I'll turn the call over to Mark Benza.

Thank you, Allison, and good morning, everyone. Before we begin, I'd like to address our April 29th announcement regarding our chairman and CEO, John Wood. John is currently on a medical leave of absence, and we wish him a full and speedy recovery. In the interim, Independent Director Fred Schauffel has assumed the role of Chairman of the Board. In addition, the company's three Executive Vice Presidents, General Counsel Hutch Robbins, EVP of Security Solutions Mark Griffin, and I, have jointly assumed John's responsibilities to ensure seamless continuity of operations. This interim leadership structure is functioning as intended, and our teams remain fully aligned and focused on execution. We continue to see strong engagement from our customers and partners, and program execution across the business remains uninterrupted. Our priorities for 2026 remain unchanged, delivering strong revenue growth, expanding adjusted EBITDA margins, generating robust cash flow, and continuing meaningful share repurchases. Our first quarter results reflect the continued transformation of Pellos into a more scalable, profitable, and cash-generative business. And we made strong progress against each of these priorities during the quarter. Turn to slide three. We're pleased to report another strong quarter, which results exceeding the high end of our guidance range. Our outperformance was supported by strong TSA pre-check enrollment activity, continued execution across our core programs, and the benefits of our ongoing efficiency initiatives. Total company revenue increased 56% year over year to $47.7 million, surpassing our guidance of $44 million to $45 million. Gap gross margin was 36.4% and cash gross margin was 42.3%, both exceeding our expectations due to a favorable mix of higher margin revenue streams and continued operational discipline across the business. As a reminder, given the breadth of our revenue streams, gross margins will fluctuate quarter-to-quarter based on mix. On operating expenses, our continued focus on cost discipline, including the restructuring plan approved in Q4, drove strong profitability. Adjusted operating expenses came in approximately $400,000 better than guidance and were down $1.2 million year over year. As a result, adjusted EBITDA exceeded the high end of our range, reaching $7.9 million versus guidance of $4.5 million to $5 million. The investment EBITDA margin was 16.5%, a significant increase from 1.2% in the prior year period. Strong cash generation and disciplined working capital management remain key priorities. Operating cash flow was $8.7 million, and free cash flow was $6.4 million, representing a 13.4% free cash flow margin. This was our fifth consecutive quarter with a free cash flow margin above 12%. This reflects the increasing efficiency and scalability of our operating model as well as disciplined company-wide working capital management. Our strong cash flow generation and liquid balance sheet provide us with flexibility to invest in growth initiatives while continuing to return capital to shareholders. During the quarter, we repurchased $2.2 million of stock for over 500,000 shares at an average price of $4.25 per share. Given the durability of our strong cash generation and our confidence in the long-term value of the business, we intend to accelerate repurchases in the second quarter. Our capital allocation priorities remain consistent. invest in organic growth, maintain a strong balance sheet, and let's turn to slide four to discuss our second quarter guidance and school year. We expect revenue growth of 22% to 28% year over year, or $44 million to $46 million. We expect cash gross margin of approximately 39% and adjusted operating expenses to decline by roughly $1.3 million year over year. Adjusted EBITDA is expected to be between $5 million and $6 million, representing a margin of 11.4% to 13%. We also expect another quarter of strong cash flow, which we intend to deploy toward accelerated share repurchases. Turning to the full year, our first quarter performance reinforces our confidence in the trajectory of the business and positions us well against our full year objectives. At the same time, in alignment with our usual measured approach to guidance, we are reaffirming our revenue and adjunctive EBITDA outlook. We issued our full-year outlook less than two months ago. And while we are encouraged by the momentum we're seeing, it remains early in the year, and we believe an additional quarter of performance will provide even greater visibility into full-year trends. Based on first quarter performance, we have updated certain assumptions within our full year model, including raising the low end of our cash gross margin expectations to partially reflect the margin strength recognized during the first quarter. We will continue to evaluate our outlook as the year progresses and look forward to providing an update following second quarter results. Lastly, before I wrap up, I'd like to spend a few minutes on growth and new business opportunities. Since 2024, we have significantly grown our top line largely through new business wins. We continue to see strong customer engagement across our addressable markets and maintain a multi-billion dollar pipeline of potential opportunities where we believe our capabilities are well aligned with customer priorities. Currently, we have proposals outstanding representing nearly $500 million in total contract value. Our government customers ultimately determine the final timing of awards and may modify award dates based on their own timelines and requirements. We currently expect the government to make award decisions on these opportunities during the second half of 2026. These submitted proposals span both and secure network segments with a heavy concentration in security solutions. Beyond these submissions, we will continue to actively develop and selectively advance additional opportunities from our pipeline. With that, let's wrap up on slide five. In summary, we deliver a strong start to the year with 56% revenue growth, a 16.5% adjusted EBITDA margin, and a 13.4% free cash flow margin. Our second quarter guidance reflects continued momentum, and we are focused on executing large programs while securing new business opportunities. In addition, disciplined cost management and working capital efficiency are translating growth into strong profitability and cash flow. We also plan to continue returning capital to shareholders while maintaining a strong and flexible balance sheet. Mark Griffin and I are happy to take questions. Operator, please open the line for Q&A. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. You'll hear the automated message advised when your hand is raised. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. And our first question today is coming from the line of Matthew Palletree of Needham. Please go ahead.

Hey, good morning, guys. Matt Kalitri on from Needham. Thank you for taking our questions. and great to see the strength and security of this quarter and see the press release quotes that primarily the expansion through the large programs and TELUS ID. Is there any more color you can give there on where you saw strength and I guess just general market sentiment?

Yeah, I hear that. It's Mark Benzer speaking. So, listen, we had a great quarter, clearly straight out of the gate for the year across the company overall, both in terms of program execution as well as ongoing discipline around expense management. The larger programs that we were referring to primarily reside in our Telos ID business, and that cuts across a number of programs, including we had a good quarter in TSA pre-check, Our DMVC program, which we also refer to as ITGEMS, performs very well. And the body of work that we refer to as confidential IT security work that we're performing for the federal government, that also had a good quarter. So really a broad-based strength, both in terms of program management and expense management, and also cash flow. Great quarter for cash flow as well.

Awesome. No, that's great to hear. And then I guess with the strength, like, why not take up the guide here? And I know you mentioned, like, want an extra quarter visibility still early in the year. Totally understand that. But, like, with John taking the medical leave of absence, is there any sort of, like, extra embedded conservatism in the guide or change in guidance philosophy with you guys taking the helm there?

Yeah, so let me unpack that a little bit. So, first, with respect to John, first and foremost, you know, our focus is on supporting him and wishing him a full recovery. operationally the transition has been very smooth Hutch Griff and I have worked together for several years now we've been attached at the hip for several years and so for us it's you know business as usual in terms of working very closely together customer engagement execution employee alignment all remain very strong you know we're not seeing any disruption in the business and you know strategic your priorities remain unchanged. We have our marching orders and we're executing the plan. You're seeing that and the performance we're announcing today. Regarding guidance, listen, it's a fair question. It's something we put a lot of thought into. We're very pleased with the first quarter performance across the entire portfolio as I was describing earlier. The first quarter positions us really well against our full year outlook. But that said, we also want to remain disciplined about how we manage that outlook. And we issued full-year guidance on March 16th. That's less than two months ago. It's kind of a peculiar aspect of the calendar. Fourth quarter earnings are announced unusually late in the quarter, and then first quarter earnings are reported at the usual time. So there's very little time that passes between the fourth quarter announcement where we set our initial outlook and first quarter guidance. So we feel it's only prudent to lock in an additional quarter performance before we formally revise revenue and adjusted EBITDA estimates for the year. And if you look back to 2023 was the previous year where we announced a full-year outlook. And that year, you know, we set guidance on the fourth quarter call. First quarter call, we had a big beat, and we reaffirmed. Second quarter call, we beat and raised. Third quarter call, we beat and raised. And then the final fourth quarter call, we beat again. So, you know, it's an approach to a full-year outlook that we think serves us well.

Thanks so much. And sorry, I should have led with this, but our thoughts are with John, too, and wish him a speedy recovery. So thank you, guys.

Thanks, Pat. Thank you. One moment for the next question. Our next question is coming from the line of Eric Spiker of B-Riley Securities. Your line is open.

Yeah, thanks for taking the question. Congrats on a good quarter, and please pass along our best wishes for John. Comment a little bit on the environment for the TSA pre-check, if you would. And have increases in fuel prices and travel costs made any difference in terms of demand for enrollment, or do you think that's a risk? And then secondly, can you talk a little bit about what your expectations are for seasonality in that business?

Yeah. Hey, Eric, and good morning. So on PreCheck, listening to PreCheck is an important program for us. It's one of, you know, several large programs within the company. We expect it to be an important growth driver for us for the year, as it was in the quarter. No, we haven't, you know, we haven't seen any impact from higher fuel prices. As a matter of fact, enrollments are performing very well year over year, both in the first quarter as well as so far here in the second quarter.

Can you comment about seasonality in that business?

Oh, sure, yeah. So seasonality, typically we see enrollment as being easily lower in the second half. That's kind of a trend we've seen for the last couple of years, and our base case is we would expect that again this year.

Okay. And then any comments about the software contribution from Xacta in the quarter?

Contribution was about flat year over year. I'll maybe turn to Mark if you'd like to provide some comments on Xacta AI and how we're trending there.

Sure, Eric. Mark Griffin. So we have currently sold and installed over 400 licenses of Xacta AI. We initiated interest and adoption within our existing stall base and expect additional sales within the intelligence community, the federal civilian government, and Department of War. So, to date, we have installed and operated live production pilots at multiple large intelligence community agencies, the Department of War elements, and in the banking community. In addition, we have participated in numerous market surveys, demonstrations with both executives and cybersecurity stakeholder groups. In general, the response has been very strong, and we are anticipating numerous RFPs later in the year. So we're bullish on the progress today.

Very good.

Thank you. One moment for the next question. Our next question is coming from the line of Nihao Shokchak of Northland. Your line is open.

Yeah, thank you. Congratulations on a great quarter. Our thoughts are with John, hoping him to speed recovery as well. Questions are on the pipeline. Given that you are signaling strong confidence in the business with accelerating shared buybacks, It sounds like that's twofold. One, the core businesses are performing well, but is it fair to say that the $500 million of pipeline reward decisions that you expect to be made in 2018-26, you feel like has a higher probability of win rates than what you would typically assume for awards that are at that stage? Is that correct?

Yeah, so, Nahal, I think the way I would categorize it is, you know, a good chunk of the submitted and pending proposals are aligned to a body of work that we think we're, you know, well positioned on, we have a good track record in, well aligned with our capabilities. And it's kind of a mission set that I would say is maybe a newer mission set for the government and one that we've, you know, been involved in at a pretty early stage here with our prime partners and the government. So we feel good about it. Of course, ultimately, the government controls the timing of awards. And so, you know, our current estimate is that these are awards that we'll hear decisions on in the second half. But again, ultimately, the government, of course, controls the timing.

And when you refer to prime partners, this is inclusive of the GMDC prime partner?

No, these are, this is a different, this is a different set of proposals. Okay.

Is there any bid that represents more than 10% of that $500 million of outstanding proposals that you expect to be awarded in 2-H-26?

There are two that are around $90 million, and then there are a couple that are small, maybe around $3 million. And then the rest are in a similar size of a few tens of millions.

And these are typically five-year contracts that you're bidding on, correct?

These are a little shorter, typically. Well, it's a mix, but the lion's share of them, I'd say, are like two years.

Okay, great. My last question is, now that you guys are at 500 stores on TSA PreCheck, is market share now at your maximal level that you would expect, or is there a lot more to go? And if so, how will we get there?

Yeah, so there's more growth to be had in that program, I think, really through a couple of ways. First, continuing to optimize volume in the locations that we have opened today. And then also continuing to explore partnerships in other parts of the country.

Okay, and you did announce a couple of new types of partnerships during the quarter, one through a university, one directly at an airport. Is there additional partnerships beyond those that you're contemplating?

Yes, we are contemplating others, and there is another pilot that we have underway with a relatively modest number of locations that we're currently testing out as another partner. Great.

Thank you for having my questions.

Okay, thanks.

Thank you. One moment for the next question. Our next question is coming from the mind of Rudy Kessinger of D.A. Davison. Please go ahead.

Great. Thanks for taking my questions. Mark, well, firstly, certainly my thoughts for Sean as well, and wishing him a speedy recovery. Mark, you know, clearly I understand your comments. It's been less than two months since you gave the initial four-year guide. But putting aside the fact that you didn't tweak the full-year guide at all, especially Q&A side, you know, it's pretty much implied in the second half that security solutions, the high single-digit range, total revenue growth dips into the low single-digit range. What is the likelihood that some of those new things would contribute to meaningful revenue upside this year?

Yeah, hey, everybody, good morning. So, yeah, listen, you know, we have two of those. of revenue in a lot of those proposals that are pretty front-end loaded to the first couple of months. And so, yeah, we could get some meaningful contribution from those proposals if they're awarded in the second half.

And then on pre-caps, though, just any color on expectations for the remainder of the year? And then with the increased pace of buyback, I guess any kind of, you know, further details you can revise on that, maybe just relative to the pace of buybacks in Q1 or the Q2 to Q4 last year? Should we maybe expect a bump back up to that kind of $4 million to $6 million range, Q2 to Q4 last year, or more or less, just any further color would be appreciated?

Sure. Yeah, so we did a free cash flow margin of 13.4% this quarter. We did actually coincidentally 13.4% in the fourth quarter of last year. It's our fifth consecutive quarter over 12%. So I would expect free cash flow margin to continue in that kind of lower double-digit margin level. And then we're currently managing to a cash balance of approximately $50 million, and we'll continue to do that. So as we generate cash flow, our intention is to buy back stock with that free cash flow while managing to approximately a $50 million cash back.

Great.

Thank you. And there are no more questions in the queue. I would like to turn the call back over to Mark Benzo for closing remarks. Please go ahead.

Thank you, Operator, and thanks to everyone for joining us today. We're pleased with our strong start to the year and believe our results reflect continued progress in building a more profitable, cash-generative, and scalable business. We look forward to updating you next quarter. In the meantime, we hope to speak with many of you at the Needham Technology Conference on May 14th and the Northland Growth Conference on June 23rd. Thank you.

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