DEF: Telos sets 2026 vote on board, pay and equity plan

Telos calls a May 7, 2026 annual meeting to elect directors, ratify PwC, expand its long‑term incentive plan by 5.38M shares, and hold a say‑on‑pay vote, highlighting strong 2025 execution and stock‑based pay alignment.

Summary

• Annual Meeting set for May 7, 2026 (10:00 a.m. EDT, Ashburn, VA) with four proposals: elect seven directors; ratify PwC; approve Amendment No. 2 to the 2016 LTIP adding 5,380,000 shares; and advisory say‑on‑pay.
• Record date is March 10, 2026 with 77,256,010 common shares outstanding; materials available via Notice and Access starting March 27, 2026.
• Board recommends FOR all proposals; independent directors will constitute a Board majority if nominees are elected.
• 2016 LTIP share increase rationale: equity is critical for talent attraction/retention; if not approved, Telos may shift to higher cash compensation, potentially pressuring operating cash flow.
• Equity overhang context: total potential (granted but unvested + available + new shares) would be ~20.5% of outstanding; the additional shares plus currently available would be ~8.1% (both measured vs outstanding shares as of March 23, 2026).
• 2025 performance used for pay decisions: revenue $164.8M; Adjusted EBITDA $18.137M; Free Cash Flow $21.267M; bookings ~$247.7M; gross profit +~77% YoY; ~49% FY TSR.
• 2025 AIP results: paid at 152% of target (Bookings 200%, Adjusted EBITDA 108%, Discretionary 100%), settled in stock in March 2026.
• 2025 LTI grants: 100% performance‑based PSUs tied to relative TSR over 6/1/2025–5/31/2028, with a cash‑flow safeguard (forfeiture if FCF is negative in any of 2025–2027).
• Share repurchase program raised to $75M on March 12, 2026; $50.1M remains available; 3,108,497 shares repurchased in 2025; >$24.9M capital returned since inception.
• PwC audit fees: $1.497M (2025) vs $1.117M (2024); PwC first engaged June 2022; Audit Committee deems PwC independent.
• Governance and controls: ISO/IEC 27001‑certified ISMS; CMMC L2; Board‑level cybersecurity oversight via Audit Committee; no material cybersecurity incidents in 2025.
• Prior say‑on‑pay approval (2025) was 92.9% in favor; 2025 CEO pay ratio is 24:1.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as broadly constructive: governance proposals are standard, 2025 operating metrics improved materially, and compensation is tightly performance‑linked. Dilution from the LTIP expansion is the primary offset.

Positives

• Clear, four‑item agenda with unanimous Board support for each proposal, improving governance predictability.
• Strong 2025 operating metrics used to determine pay: revenue $164.8M; Adjusted EBITDA $18.137M (return to positive); Free Cash Flow $21.267M; bookings ~$247.7M.
• Executive pay more tightly linked to performance: 2025 AIP paid 152% of target; 2025 LTI is 100% performance‑based relative TSR with a Free Cash Flow safeguard.
• Shareholder alignment measures: clawback policy (adopted 2022), no option repricing, no evergreen, no liberal share recycling.
• Capital return discipline: buyback authorization increased to $75M with $50.1M remaining; >$24.9M returned since 2022 inception.
• Robust cyber governance (ISO/IEC 27001, CMMC L2) and disclosure that no material cyber incidents occurred in 2025.
• High prior say‑on‑pay support (92.9% in 2025) following compensation redesign.

Negatives

• Potential dilution from proposed 5.38M additional LTIP shares; combined with granted‑but‑unvested and available shares, total potential overhang is ~20.5% of outstanding if fully issued.
• If LTIP amendment fails, management signals a potential shift to higher cash pay to retain talent, which could pressure operating cash flow.
• Audit fees increased to $1.497M in 2025 from $1.117M in 2024, reflecting higher compliance or audit scope costs.

Risks

• Equity dilution risk from LTIP expansion; overhang could reach ~20.5% of outstanding if all shares (granted but unvested + available + new) are issued.
• If the LTIP amendment is not approved, Telos may need to increase cash compensation to recruit/retain talent, potentially impairing operating cash flow and competitiveness.
• Broker non‑votes on non‑routine items (director elections, LTIP amendment, say‑on‑pay) may impact outcomes unless beneficial owners provide voting instructions.

Future Outlook

Management plans to continue using performance‑based equity (including relative TSR PSUs through May 31, 2028, contingent on positive Free Cash Flow each year from 2025–2027) to retain and motivate talent. If the LTIP amendment is not approved, the company may increase cash compensation to remain competitive, which could impact operating cash flow. The board intends to monitor equity usage to keep burn rate within market norms.

Management Comments

• Equity awards are critical to recruiting and retaining key employees and aligning employee interests with stockholders’ interests.
• If the LTIP amendment is not approved, increasing the cash component of compensation to remain competitive could impair operating cash flow.
• 2025 was a highly successful year, with strong bookings, a return to positive Adjusted EBITDA, materially improved Free Cash Flow, and significant year‑over‑year growth.
• Long‑term incentive awards are subject to stringent performance requirements, including relative TSR and a Free Cash Flow safeguard.

Industry Context

StockSavvy.ai notes that government IT and cybersecurity contractors face intense competition for specialized talent versus larger peers; heavy use of performance‑based equity and relative TSR PSUs is increasingly common to align pay with value creation. Telos’ expanded buyback authorization helps counterbalance dilution optics as many software/security peers manage similar overhang dynamics.

Comparison to Industry Standards

• Pay mix and performance linkage: Telos’ 2025 NEO LTI is 100% performance‑based via relative TSR PSUs with a Free Cash Flow safeguard—more stringent than many peers in its stated 2025 compensation peer set (e.g., OneSpan, A10 Networks, Mitek Systems, Veritone, Agilysys, Couchbase, PROS, Red Violet, Domo, Digimarc, Backblaze, SoundThinking, Crexendo, eGain, Synchronoss).
• Equity plan governance: No evergreen, no option/SAR repricing, and no liberal share recycling—features consistent with best practices among U.S. software/security small‑ and mid‑caps.
• Clawback policy: Adopted in 2022, consistent with post‑SOX and stock exchange standards adopted across the sector.
• Overhang management: The company pairs an LTIP share increase request with a larger buyback authorization ($75M), a tactic used by many peers to offset perceived dilution from equity plans.

Corporate Governance

Stakeholder Impact

• Shareholders: Potential dilution from LTIP expansion offset in part by expanded buyback authorization.
• Employees: Greater access to performance‑based equity; stronger alignment with shareholder outcomes.
• Customers: Stable leadership and enhanced talent retention may support program execution and service quality.
• Creditors: Potentially stronger cash generation discipline given compensation safeguards tied to Free Cash Flow.
• Auditors: Continuation with PwC supports audit continuity and control environment stability.

Next Steps

• Stockholders to vote on four proposals at the May 7, 2026 Annual Meeting.
• If approved, implement Amendment No. 2 to the 2016 LTIP adding 5,380,000 shares.
• Continue executing 2025–2028 relative TSR PSU program, subject to annual Free Cash Flow requirements.
• Maintain share repurchase program with $50.1 million remaining authorization.

Key Dates

Recommendation

The agenda is routine and governance‑oriented, with strong 2025 performance already reflected in prior disclosures. While operating trends and performance‑linked pay are positives, the sizable LTIP share increase introduces dilution risk. Absent new financial guidance, a neutral hold is appropriate based on this filing alone.

Keywords

Telos, DEF 14A, proxy statement, annual meeting, long‑term incentive plan, LTIP amendment, executive compensation, say‑on‑pay, PricewaterhouseCoopers, share repurchase, Adjusted EBITDA, Free Cash Flow, bookings, cybersecurity governance, ISO 27001, CMMC, relative TSR PSUs