As filed with the Securities and Exchange Commission on November ~~10,~~16, 2020.

Registration No. 333-249334

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 12

to

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

TELOS CORPORATION

(Exact name of registrant as specified in its charter)

Maryland			7373			52-0880974
(State or other jurisdiction of incorporation or organization)			(Primary Standard Industrial Classification Code Number)			(I.R.S. Employer Identification Number)

19866 Ashburn Road

Ashburn, Virginia 20147

(703) 724-3800

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

John B. Wood

Chairman and Chief Executive Officer

19866 Ashburn Road

Ashburn, Virginia 20147

(703) 724-3800

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Christopher R. Johnson

Scott R. Wilson

Miles & Stockbridge P.C.

100 Light Street

Baltimore, Maryland 21202

(410) 727-6464

Jefferson V. Wright

Executive Vice President and

General Counsel

19866 Ashburn Road

Ashburn, Virginia 20147

(703) 726-2704

Jonathan H. Talcott

Gary M. Brown

E. Peter Strand

Nelson Mullins Riley &

Scarborough LLP

101 Constitution Avenue, NW

Suite 900

Washington, D.C. 20001

(202) 689-2800

As soon as practicable after the effective date of this registration statement.

(Approximate date of commencement of proposed sale to the public)

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

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 7(a)(2)(B) of the Securities Act. ☐

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered			Amount to be Registered⁽¹⁾			Proposed Maximum Offering Price Per Share			Proposed Maximum Aggregate Offering Price(2)			Amount of Registration Fee⁽³⁾
Common Stock, par value $0.001 per share			14,205,883			$18.00			$255,705,894			$27,897.51

(1)	Includes shares of Common Stock issuable upon the exercise of the underwriters’ option to purchase additional shares. See “Underwriting.”

(2)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended.

(3)	The Registrant previously paid ~~$26,348 of~~ this amount in connection with the prior filing of this registration statement.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any state or other jurisdiction in which the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER ~~10,~~16, 2020

TELOS CORPORATION

12,352,942 Shares of Common Stock

We are offering shares of our common stock, par value $0.001 per share. We currently estimate that the initial public offering price of our common stock will be between $16 and $18.

This is our initial public offering, and prior to this offering there has been no public market for our common stock. We have filed an application for our common stock to be listed on The Nasdaq Global Market under the symbol “TLS”.

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, and will be subject to reduced public reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.

Investing in our common stock involves risk. See “Risk Factors” beginning on page 16.

	Per Share	Total
Initial public offering price	$	$
Underwriting discounts and commissions⁽¹⁾	$	$
Proceeds, before expenses, to us	$	$

(1)	We refer you to the section titled “Underwriting” beginning on page 73 for additional information regarding underwriting compensation.

We have granted to the underwriters an option to purchase up to 1,852,941 additional shares of common stock to cover overallotments, if any, exercisable at any time until 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock against payment on , 2020.

B. Riley Securities

BMO Capital Markets

Needham & Company

~~Colliers Securities~~

Colliers Securities LLC

~~D.A. Davidson &~~

~~Co.~~

~~Northland~~

~~Capital Markets~~

~~Wedbush~~

D.A. Davidson & Co.

Northland Capital Markets

Wedbush Securities

MKM Partners

The date of this prospectus is , 2020.

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You should rely only on the information contained in this prospectus or any information incorporated by reference herein or in any free writing prospectuses or amendments thereto that we may provide to you in connection with this offering. Neither we nor any of the underwriters have authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or incorporated by reference herein or in any such free writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We can provide no assurance as to the reliability of any other information that others may give to you. The information in this prospectus or incorporated by reference in this prospectus is accurate only as of the date on the front cover of this prospectus, and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of such free writing prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates. Neither we nor any of the underwriters are making an offer to sell or seeking offers to buy these securities in any jurisdiction where or to any person to whom the offer or sale is not permitted.

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PROSPECTUS SUMMARY

This summary highlights information set forth in greater detail elsewhere or incorporated by reference in this prospectus and, because it is a summary, it does not contain all of the information that you should consider before deciding to invest in our common stock. Before you decide to invest in our common stock, you should read this entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included or incorporated by reference into this prospectus. Some of the statements in this prospectus constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

Business Overview

Our Company

Telos Corporation offers technologically advanced, software-based security 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 empower our customers with capabilities to reach new markets, serve their stakeholders more effectively, and successfully defend the nation or their enterprise. We protect our customers’ people, information, and digital assets so they can pursue their corporate goals and conduct their global missions with confidence in their security and privacy.

Our customer base consists of the U.S. federal government, large commercial businesses, state and local governments, as well as international customers. Our federal government customers include the Department of Defense (“DoD”), the Central Intelligence Agency (“CIA”) and multiple other agencies within the Intelligence Community (“IC”), and multiple civilian agencies, including the Department of Homeland Security (“DHS”), the U.S. Department of State (“DoS”), and the Federal Bureau of Investigation (“FBI”). Our commercial customers include Fortune 500 enterprises such as Amazon.com, Inc., Citigroup Inc., Microsoft Corporation, and salesforce.com, inc. We have conducted business with over 350 customers in each of the last three years. For the ~~six~~nine months ended ~~June~~September 30, 2020, approximately 50% of our revenue was derived from sole source contracts or contracts for which we had limited competition. Our customers are highly targeted by cyber attackers and require continuous real-time insights to make informed decisions about how to effectively balance the constraints of security risk with the freedom to act and decide in the best interests of the organization and the greater good of the public. Our advanced security solutions help protect and ensure confidence in the information that is vital to the world’s most important commercial and governmental organizations, national security, and mission success for the warfighter.

Our revenue growth trajectory began to accelerate in 2018 as we increased our investment into new products and solutions. Our security solutions are the ultimate product of the investment of approximately 3,000 man-years developing our intellectual property and highly sophisticated software technology. These investments helped us expand with commercial customers, as well as win additional contracts within the military and the IC. Revenue grew from $107.7 million in 2017 to $138.0 million in 2018 and to $159.2 million in 2019, representing annual growth rates of 28.1% and 15.4%, respectively. Once our security solutions are imbedded in our customers’ technology infrastructure, these customer relationships often expand and lead to us providing additional security solutions. As a consequence, we believe that our customer turnover is low and, based on historical experience, approximately 85% of our revenue is recurring, as discussed further below.

Our business consists of solution sales that generally are renewed on an annual basis and large programs that are executed through long-term contracts, often five to ten years in duration. We believe that the nature of our work lends itself to trusted and long-term relationships with our customers, which results in a high recurrence of ongoing customer revenue streams. As a result, much of our revenue is highly predictable.

We develop 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, other expected annual renewals, and expansion planned by our current customers. In the context of our current customer portfolio, we view “recurring revenue” as revenue that occurs often and repeatedly. In each of the last three years, recurring revenue has exceeded 85% of our annual revenue. Our total budgeted revenue is the combination of recurring revenue and a forecast of new business.

We expect our growth to accelerate beginning in 2021 and 2022 due to, among other factors, recent contract awards that are significant to our business. Notable recent awards include an expanded contract with a U.S.

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government agency for our Telos Ghost® managed intelligence support solution and contract wins under the Transportation Security Administration (“TSA”) PreCheck™ enrollment program and a program with The Centers for Medicare and Medicaid Services (“CMS”). We believe the Telos Ghost contract will generate approximately $4 million to $5 million of incremental revenue in 2021 and represents a platform for potential further growth through military and civilian government units during and after 2021. The TSA PreCheck™ enrollment program – a 10-year contract on which we are one of three vendors – is expected to launch in early 2021. TSA estimates the market for TSA PreCheck™ enrollments is 2 million to 5 million travelers annually over the term of the contract, and we believe that the share of those enrollments we may secure on an average annual basis over that term should grow to approximately 30% to 40% of those travelers. We anticipate charging $85 for each TSA PreCheck™ membership transaction, with the possibility that additional revenue may be generated from co-marketing efforts. The CMS program – a 10-year indefinite delivery/indefinite quantity contract under which we anticipate providing services beginning in 2021 – involves our FBI-certified biometric enrollment solution. CMS estimates that approximately 1.5 million healthcare workers will obtain background checks annually under the program, and we believe we are well-positioned to secure this work over the 10-year contract term. Based on these and other assumptions, we believe these programs collectively may grow from a base of approximately $11 million in revenue in 2020 to between $75 million and $80 million in revenue and in excess of $135 million in revenue in 2021 and 2022, respectively. For these reasons, we anticipate that these recent contract awards, combined with our organic growth as well as other opportunities for business expansion, will contribute to rapidly accelerating revenue growth beginning in 2021 and 2022.

With the proceeds from this offering, we intend to pursue additional opportunities to grow revenue, expand margins, simplify our capital and corporate structure, and repay our outstanding senior and subordinated debt. Specifically, we intend to expand our internal direct sales force, build sales and distribution channels for our products, and continue to invest in research and development. We also intend to repurchase the non-controlling interest in Telos Identity Management Solutions LLC (“Telos ID”) for $30 million in cash and approximately 7.3 million shares of our common stock, convert our Exchangeable Redeemable Preferred Stock (with accrued principal and dividends of approximately $142.6 ~~million)~~million at the transaction date) for approximately $109.1 million of cash and 1.1 million shares of common stock, and repay ~~$20.8~~$20.9 million of ~~debt.~~debt at the transaction date.

Our Mission: Cyber, Cloud, and Enterprise Security

Our mission is to protect our customers’ people, systems, and vital information assets with offerings for cybersecurity, cloud security, and enterprise security. In the current global environment, our mission is more critical than ever. The emergence of each new information and communications technology (“ICT”) introduces new vulnerabilities, as security is still too often overlooked in solution development. Networks and applications meant to enhance productivity and profitability often jeopardize an organization due to poor planning, misconfiguration, or an unknown gap in security. Ransomware, insider threats, cybercrime, and advanced persistent threats continue to menace public and private enterprises across all industries.

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. Decades of experience in developing, orchestrating, and delivering solutions across these three domains gives 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 across the following domains:

Cybersecurity – We help our customers ensure the ongoing security, integrity, and compliance of their on-premises and related cloud-based systems, reducing threats and vulnerabilities in order to foil cyber adversaries before they can attack. Our consultants assess our customers’ security environments and then design, engineer, and operate the systems they need to strengthen their cybersecurity posture.

Cloud Security – The cloud as an organizational resource is more than two decades old, yet the needs of cloud users are constantly changing. We offer the specialized skills and experience needed to help our customers plan, engineer, and execute secure cloud migration strategies and then ensure ongoing management and security in keeping with the leading standards for cloud-based systems and workloads.

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Enterprise Security – Securing the enterprise means protecting the essential and timeless elements common to every organization: its people and processes, its supply chain and inventories, its finances and facilities, and its information and communications. As ICT and operational technology (“OT”) have become part of the organizational make-up, we have offered solutions that ensure personnel can work securely and productively across and beyond the enterprise.

Our Market

Our market includes organizations in business across industry verticals, government, and the military. We believe that digital transformation is a reality for these organizations and that the ICT systems they depend on for their success and security are subject to unprecedented levels of stress, threat, and attack. Public and private enterprises alike face the following dynamic challenges that threaten their security:

Heavy dependence on information and operational technologies. Organizations are increasingly dependent on technology, including mobile and wireless applications, cloud-based resources, industrial internet of things (“IoT”), incident command system (“ICS”), supervisory control and data acquisition (“SCADA”), and others.

Digital transformation and accelerating migration to the cloud. Enterprises and government agencies are accelerating the migration of applications, storage, and ICT/OT infrastructure to hosted and cloud environments. More organizations – including highly security-conscious agencies within the U.S. government and commercial entities – are gaining comfort and confidence in the cloud, taking advantage of the rapid application development, greater flexibility, and strategic agility that the cloud offers.

Ability to work across and beyond the enterprise. Organizations are no longer defined by or confined by real estate, geography, or personnel rosters. Information and applications are now accessible in the cloud. Mobile devices free personnel to work wherever their mission takes them. Employees, contractors, and partners collaborate in the physical and digital domains, trusting that they can rely on the integrity and trustworthiness of their people and their systems.

Turbulent technology environment due to COVID-19. The COVID-19 pandemic has accelerated the growth of the remote workforce and thus, cyber risk. Existing technologies for mobility are being stretched to the limit, and enterprises are facing dramatic growth in cyber-attack risk as a result of personnel and systems that are still adjusting to an increasing number of workers accessing systems remotely. Ransomware, phishing attempts, and inadequate virtual private networks (“VPNs”) all contribute to a significant increase in threats and vulnerabilities.

Our solutions across a wide variety of use cases are designed to address our customers’ proliferating need to understand and address cybersecurity risk, reduce organization attack surface, enhance enterprise mobility, expand adoption of cloud computing, and manage and protect identities in an increasingly dynamic and intensifying threat landscape. By addressing the breadth of our customers’ complex and evolving needs, we believe that our total addressable market in 2021 for the security services and products that we provide is over $80 billion.

Our Offerings

We refer to our cyber and cloud applications as Security Solutions, which includes Information Assurance / Xacta® (previously referred to as Cyber & Cloud Solutions), Secure Communications (previously referred to as Secure Communications Cyber and Enterprise Solutions), and Telos ID (previously referred to as Telos ID Enterprise Solutions). We refer to our offerings for enterprise security as Secure Networks (previously referred to as Secure Mobility and Network Management/Defense Enterprise Solutions).

Security Solutions revenue was $101.9 million and $86.6 million in 2019 and 2018, respectively. This increase in 2019 of approximately 18% is primarily attributable to a $10.1 million increase in sales of offerings in Telos ID on a contract with the U.S. Census Bureau and a $6.3 million increase in sales of offerings related to a contract with a U.S. government agency for our Telos Ghost managed intelligence support solution in Secure Communications. For the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, Security Solutions revenue was

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~~$61.4~~ $92.6 million and ~~$41.8~~$71.6 million, respectively. Improved performance was driven primarily by an increase of ~~$14.5~~$16.5 million in sales of offerings in Telos ID on the contract with the U.S. Census Bureau and ~~$4.8~~$6.5 million in

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sales of offerings related to the contract with a U.S. government agency for our Telos Ghost managed intelligence support solution in Secure Communications. For the nine months ended September 30, 2020 and 2019, Security Solutions gross profit was $38.8 million and $28.9 million, respectively.

Secure Networks revenue was $57.3 million in 2019 and $51.4 million in 2018. The sales increase in 2019 is the result of various DoD contracts around our Secure Mobility as well as our Network Management and Defense offerings. For the ~~six~~nine months ended ~~June~~September 30, 2020, Secure Networks revenue was ~~$26.2~~$42.4 million, up 3% from ~~$25.5~~$41.1 million over the same period in 2019. The year-over-year improvement for the interim period in 2020 resulted from various DoD contracts, primarily in our Secure Mobility offerings. For the nine months ended September 30, 2020 and 2019, Secure Networks gross profit was $7.6 million and $6.4 million, respectively.

Security Solutions

Information Assurance / Xacta: a premier platform for enterprise cyber risk management and security compliance automation, delivering security awareness for systems in the cloud, on-premises, and in hybrid and multi-cloud environments. Xacta delivers automated cyber risk and compliance management solutions to large commercial and government enterprises. Across the U.S. federal government, Xacta is the de facto commercial cyber risk and compliance management solution.

Secure Communications:

○

Telos Ghost: a virtual obfuscation network-as-a-service with encryption and managed attribution capabilities to ensure the safety and privacy of people, information, and resources on the network. Telos Ghost seeks to eliminate cyber-attack surfaces by obfuscating and encrypting data, masking user identity and location, and hiding network resources. It provides the additional layers of security and privacy needed for intelligence gathering, cyber threat protection, securing critical infrastructure, and protecting communications and applications when operations, property, and even lives can be jeopardized by a single error in security.

○

Telos Automated Message Handling System (“AMHS”): web-based organizational message distribution and management 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 and is the only web-based solution for assured messaging and directory services using the Defense Information System Agency’s (“DISA”) Organizational Messaging Service and its specialized communications protocols.

Telos ID: offering Identity Trust and Digital Services through IDTrust360® – an enterprise-class digital identity risk platform for extending software-as-a-service (“SaaS”) and custom digital identity services that mitigate threats through the integration of advanced technologies that fuse biometrics, credentials, and other identity-centric data used to continuously monitor trust. We maintain government certifications and designations that distinguish Telos ID, including TSA PreCheck™ enrollment provider, Designated Aviation Channeling provider, FBI-approved Channeler, and the Financial Industry Regulatory Authority (“FINRA”) Electronic Fingerprint Submission provider. We are the only commercial entity in our industry designated as a Secure Flight Services provider for terrorist watchlist checks.

Secure Networks

Secure Mobility: solutions for business and government that enable remote work and minimize concern across and beyond the enterprise. Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience as well as highly desirable clearances and industry recognized certifications for network engineering, mobility, and security.

Network Management and Defense: services for operating, administrating, and defending complex enterprise networks and defensive cyber operations. Our diverse portfolio of capabilities addresses common and uncommon requirements in many industries and disciplines, ranging from the military and government agencies to Fortune 500 companies.

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~~Recent Developments (preliminary and unaudited)~~

These operating results reflect our preliminary estimates with respect to the results for the nine months ended September 30, 2020, which are based on currently available information and are subject to change. Our financial closing procedures for the nine months ended September 30, 2020, are not yet complete, and, as a result, our final results upon completion of our closing procedures may vary from the preliminary estimates. These estimates should not be viewed as a substitute for interim financial statements prepared in accordance with GAAP.

These preliminary operating results have been prepared by, and are the responsibility of, our management. BDO USA LLP has not audited, reviewed, compiled or applied agreed-upon procedures with respect to these preliminary results. Accordingly, BDO USA LLP does not express an opinion or any other form of assurance with respect thereto.

For the nine months ended September 30, 2020 and 2019, Security Solutions revenue was $92.6 million and $71.6 million, respectively. Improved performance was driven primarily by an increase of $16.4 million in sales of offerings in Telos ID on the contract with the U.S. Census Bureau and $6.7 million in sales of offerings related to the contract with a U.S. government agency for our Telos Ghost managed intelligence support solution in Secure Communications. For the nine months ended September 30, 2020 and 2019, Security Solutions gross profit was $38.8 million to $28.9 million, respectively.

For the nine months ended September 30, 2020, Secure Networks revenue was $42.4 million, up 3% from $41.1 million over the same period in 2019. The year-over-year improvement for the interim period in 2020 resulted from various DoD contracts, primarily in our Secure Mobility offerings. For the nine months ended September 30, 2020 and 2019, Secure Networks gross profit was $7.6 million and $6.4 million, respectively.

Our Competitive Strengths

Leading cybersecurity company with a long history of providing security solutions to the most sophisticated security customers. We have been providing secure solutions, specializing in the area of cybersecurity, since 1995. Our customers include some of the most security-conscious organizations in the world, including the IC. For example, we believe that our award-winning Xacta offering is the dominant commercial risk management solution in the federal government space and is increasingly being adopted in the commercial sphere, notably by leading cloud providers such as Amazon Web Services, Inc. (“AWS”) and Microsoft Azure. Additionally, Telos Ghost gives organizations and individuals the ability to hide in plain sight, eliminating attack vectors from hackers through obfuscation and mis-attribution. And, we believe our Telos ID identity offerings are market disruptors, which present large opportunities for growth.

Superior secure solutions and capabilities. Our solutions are designed for both government and commercial industries and are configured to operate in highly sensitive, highly classified environments, serving some of the most demanding, security-conscious organizations in the world. Our solutions are flexible, and can be deployed in various ways, including on premises, in the cloud, or in hybrid or multi-cloud environments.

Proven ability to win and retain large contracts and enterprise-level deals, providing clear visibility into future revenue and profitability. We have over 20 active acquisition contracts and vehicles and thousands of active contracts and purchase orders. These contracts and vehicles present a solid platform for growth. For example, we have provided IT security support to the Defense Manpower Data Center (“DMDC”) under a variety of contract vehicles since 1995 and this program accounts for annual revenue at a historical average of approximately $28 million over the last five years. We also have proven our ability to deploy our security solutions at the enterprise level for both federal and commercial organizations. These long-term contract relationships provide predictable, recurring revenue at attractive margins.

Our substantial investments into technology and automation can be expanded beyond our core market. Our solutions are built to help our customers be more secure, more efficient, and more effective. We have made investments across the company to take advantage of efficiencies and automation through scalable security solutions that are market driven and market proven. In contrast to traditional cybersecurity businesses with a focus on government customers, we own the intellectual property developed through our R&D initiatives and can deploy our technology solutions across our entire public and private sector customer set. The ability to offer our solutions beyond the U.S. federal government sphere is a key enabler of our strategy to grow and expand our relationships with commercial customers.

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Strong relationships with our customers. We are a customer-centric organization and pride ourselves on our close customer relationships. We have longstanding relationships with DoD, civilian agencies of the federal government, and the IC that date back more than two decades. Since 1995, our security solutions have been adopted by many defense, intelligence, civilian agency, and commercial customers, and we believe that the Telos brand has become synonymous with trust. Because of the quality of our relationships, we believe we are well-positioned for continued growth, as well as new and follow on contract opportunities.

Respected, experienced management team. Our executive officers have an average tenure at Telos of approximately 21 years. The team is comprised of personnel with extensive military, federal government, and commercial backgrounds who are directly familiar with customer needs. Our management team also includes senior professionals who are experienced in developing commercial software solutions and leading technical teams throughout the development process.

COVID-resistant business. We support mission critical operations. Because of this and the growth of remote workforces as a result of the COVID-19 pandemic, we believe, based upon our 2020 financial performance to date, that our business is relatively COVID resistant. Additionally, the automation provided by our solutions can help customers do more with less as they are forced to downsize their staffs because of the pandemic. Automation is now even more critical to efficiently manage a business, including with respect to cyber risk and regulatory compliance, which should result in additional demand for our security solutions.

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Our Growth Strategies

We are pursuing multiple strategies in order to grow the company, in both our commercial and government business end markets in the United States and abroad. Our key strategies are:

Leverage our diverse security solutions to expand our presence in commercial markets. Our offerings are designed to have broad application and include security risk and compliance, secure messaging, identity vetting, and managed attribution and obfuscation. We believe that we are well-positioned to sell our capabilities into a dynamic and growing commercial opportunity set and to innovate 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 nearly 100 airports, air carriers, and general aviation across the country. We intend to continue to innovate and are developing additional offerings for cloud, mobile, and IoT devices.

Grow our revenue and expand margins by building robust sales channels. In recent years, we have formed an inside sales organization that serves as both the direct channel to a wider account universe and an effective and efficient training program to grow our field sales organization. We plan to expand our partner program to include a variety of channels, including resellers, integrators, and contract partners to help us more quickly gain access to new markets, particularly commercial and international. For example, both Telos Ghost and Xacta are now available through various AWS and Microsoft Azure marketplaces, serving regions around the world and markets requiring varying levels of security. We plan to deploy a portion of the proceeds from this offering to grow our direct sales team and to accelerate the expansion of these channel partner initiatives, which we anticipate will drive revenue growth and material gross margin expansion.

Target and replace inefficient legacy products. Recognizing the limitations of their legacy systems, organizations are replacing existing systems and processes with our solutions. For example, Telos AMHS is a web-centric system that replaced legacy capabilities like communications centers for the purpose of executing operational orders (through organizational messaging) across the U.S. federal government and around the world. Xacta has disrupted the cyber risk and compliance management business across the U.S. federal government, replacing manual activity with automation and delivering that automation to meet our customer’s needs flexibly on premises, in hybrid environments, in the cloud, and across multi-cloud infrastructures.

Broaden reach within the U.S. federal government. We have historically focused on the U.S. federal government and believe that we are an established leader in providing security solutions to federal agencies,

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including DoD and the IC. Nonetheless, we believe the U.S. federal government represents a significant growth opportunity, and we expect to continue to invest in products to serve additional customers in this vertical. As an illustration, Xacta is included on the DHS Continuous Diagnostics and Mitigation (“CDM”) Approved Products 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, our platform is available for use in the AWS GovCloud (US) and Azure Government.

Expand our international footprint. We are expanding our international operations and intend to invest globally to broaden our international footprint. We are currently working with countries such as Canada, Singapore, Australia, and Bahrain to offer Xacta to address cyber risk and compliance management capabilities. We are also working to expand AMHS to all North Atlantic Treaty Organization (“NATO”) countries and to offer Telos Ghost internationally. We intend to grow our international customer base by increasing our investments in overseas operations, establishing channel partners, and adding personnel in Europe, the Middle East, and Asia-Pacific.

Pursue strategic acquisition opportunities. 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 that we are well-positioned to opportunistically acquire smaller companies and incorporate their technology or deploy their solutions across a larger customer set. We believe that a targeted and opportunistic acquisition strategy will complement our significant organic growth opportunity.

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Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in “Risk Factors” and include, but are not limited to, the following:

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

We depend on computing infrastructure operated by AWS, Microsoft, and other third parties to support some of our solutions and customers, and 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 depend on the U.S. government for a significant portion of our sales and a significant decline in U.S. government defense and intelligence community spending, or a reallocation of spending to other priorities, could have a material impact on our financial condition and results of operations.

We will face risks associated with the growth of our business in new commercial markets, with new customer verticals and through channel partner relationships, and we may neither be able to continue our organic growth nor have the necessary resources to dedicate to the overall growth of our business.

Our U.S. government contracts are subject to competitive bidding, lack of funding, fixed-price structures, the performance of third-party contractors, lengthy sales and implementation cycles, and the availability of termination for convenience provisions.

Our business is subject to complex and evolving U.S. and non-U.S. laws and regulations regarding privacy, data protection and security, technology protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or otherwise harm our business.

Real or perceived errors, failures, defects or bugs in our solutions could adversely affect our results of operations and growth prospects.

•	COVID-19 may adversely affect our future operations, financial condition and our ability to execute on business or contract opportunities, including the TSA PreCheck^TM enrollment program.

There has been no prior market for our common stock, the market price for our common stock may be volatile or may decline regardless of our operating performance, an active public trading market may not develop or be sustained following this offering, and you may not be able to resell our common stock at or above the initial public offering price.

We are an “emerging growth company” and that status may make our common stock less attractive to investors.

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

You will incur immediate dilution in the net tangible book value of the shares you purchase in this offering.

The issuance of additional shares of our common stock in connection with financings, acquisitions, investments, our share incentive plans or otherwise will dilute all existing stockholders.

We have broad discretion to determine how to use the funds raised in this offering, and we may use them in ways that may not enhance our operating results or the price of our common stock.

Our directors, executive officers and principal stockholders and their respective affiliates will continue to have substantial influence over us after this offering and could delay or prevent a change in corporate control. Our principal stockholders may have interests that conflict with your interests as an investor in our common stock.

Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price for our common stock to decline.

Provisions in our organizational documents and agreements with third parties could delay or prevent a change of control.

Our board of directors will be authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.

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Corporate Information

We were incorporated in Maryland in 1971. Our principal executive offices are located at 19886 Ashburn Road, Ashburn, Virginia 20147 and our telephone number is (703) 724-3800. Our website is www.telos.com. Information contained on, or that is referenced or can be accessed through, our website does not constitute part of this prospectus unless specifically incorporated by reference herein and inclusions of our website address in this prospectus are inactive textual references only.

0.794-for-1 Stock Split

~~Prior~~Pursuant to Articles of Amendment filed with the ~~effective date~~State Department of Assessments and Taxation of the ~~registration statement~~State of ~~which this prospectus is~~Maryland, effective November 12, 2020, we completed a ~~part, we will effect an approximate~~ 0.794-for-1 stock split with respect to our common stock. Unless we indicate otherwise or the context otherwise requires, all information in this prospectus gives effect to this stock split.

ERPS Conversion

Approximately $109.1 million of the net proceeds we receive from this offering will be used in relation to the conversion of our 12% Cumulative Exchangeable Redeemable Preferred Stock (“Exchangeable Redeemable Preferred Stock”). Upon the consummation of the offering described in this prospectus, each share of Exchangeable Redeemable Preferred Stock will be immediately and automatically converted (the “ERPS Conversion”) into the right to receive (i) an amount of cash equal to $109.1 million and (ii) 1.1 million shares of common stock. The successful consummation of the offering described in this prospectus is a condition to the closing of the ERPS Conversion. For additional information, see “Exchangeable Redeemable Preferred Stock Conversion.”

Purchase of Telos ID

In addition to the amounts to be paid in the ERPS Conversion, $30.0 million of the net proceeds from this offering will be used to partially fund our acquisition of the remaining portion of Telos ID that we do not already own. On October 5, 2020, we entered into a Membership Interest Purchase Agreement with Hoya ID Fund A, LLC (“Hoya”) to purchase all of the Class B Units of Telos ID owned by Hoya (the “Telos ID Purchase”). Upon the closing of the Telos ID Purchase, Telos ID will become our wholly owned subsidiary. The successful consummation of the offering described in this prospectus is a condition to the closing of the Telos ID Purchase. If the offering described in this prospectus is not consummated, the Telos ID Purchase will not occur. For additional information, see “Purchase of Telos ID.”

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Repayment of Senior and Subordinated Debt

We also intend to use approximately ~~$20.8~~$20.9 million to repay our outstanding senior term loan and subordinated debt. Our senior term loan has a maturity date of January 15, 2021 and accrues interest at the rate of 13% per annum. Our subordinated debt has a maturity date of July 25, 2022 and accrues interest at the rate of 6% per annum.

Implications of being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. As a result:

we are not required to engage an auditor attestation to report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002;

we are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or the PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and financial statements (i.e., an auditor discussion and analysis) and compliance with new or revised accounting standards until they are made applicable to us; and

we are not required to comply with certain disclosure requirements related to executive compensation, such as the requirement to disclose the correlation between executive compensation and performance and the requirement to present a comparison of our Chief Executive Officer’s compensation to our median employee compensation.

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We may take advantage of these reduced reporting and other requirements until the last day of our fiscal year following the fifth anniversary of the completion of this offering, or such earlier time that we are no longer an emerging growth company. However, if certain events occur before the end of that five-year period, including if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion in non-convertible debt over a three-year period, we will cease to be an emerging growth company. We may choose to take advantage of some but not all of these reduced reporting burdens.

Trademarks

This prospectus includes our registered trademarks, service marks and trade names, including Telos, Xacta, Xacta 360, IDTrust360, and Telos Ghost, which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

Market and Industry Data

Unless otherwise indicated, information contained in this prospectus concerning our industry, competitive position and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions we made upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

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SUMMARY OF THE OFFERING

Common Stock Offered

12.35 million shares (or 14.21 million shares if the underwriters exercise their overallotment option in full)

Common Stock Outstanding After the Offering

59.84 million shares (or 61.69 million shares if the underwriters exercise their overallotment option in full)¹

Use of Proceeds

We estimate that the net proceeds to us from this offering will be approximately $193.8 million, or approximately $223.1 million if the underwriters exercise their overallotment option in full, assuming an initial public offering price of ~~$17~~$17.00 per share (which is the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions. Each $1 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions, by $11.5 million (assuming no exercise of the underwriters’ overallotment option).

We intend to use approximately $109.1 million of the net proceeds from this offering in relation to the ERPS Conversion, approximately $30.0 million for the Telos ID Purchase, approximately ~~$20.8~~$20.9 million for the repayment of our outstanding senior and subordinated debt, and the remainder for general corporate purposes. See “Use of Proceeds”.

Overallotment Option

We have granted the underwriters a 30-day option to purchase a maximum of 1.85 million additional shares of our common stock from us at the initial public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.

Voting Rights

Each share of common stock will entitle its holder to one vote on all matters to be voted on by stockholders. See “Description of Our Capital Stock.”

Dividend Policy

We do not expect to pay any dividends on our common stock in the foreseeable future. See “Dividend Policy.”

Risk Factors

Investing in our common stock involves substantial risk. You should read the “Risk Factors” section of this prospectus beginning on page 16 for a discussion of factors you should consider carefully before deciding to invest in our common stock.

Proposed Nasdaq Global Market Symbol

TLS

1

Subject to approval by the Compensation Committee (and, in the case of members of our Board of Directors, the Company’s Audit Committee), we expect to issue equity awards for up to 2.4 million shares of common stock to employees, which could include members of our senior management, and members of our board of directors under our 2016 Omnibus Long-Term Incentive Plan during the fourth quarter of 2020 or the first quarter of 2021.

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Directed Share Program

At our request, the underwriters have reserved, at the initial public offering price, up to 5% of the shares of our common stock in this offering for sale to our directors, officers, employees, and certain friends and family members of these persons, and certain clients and prospective clients, as part of a directed share program. We will offer these shares to the extent permitted under applicable regulations. The number of shares of common stock available for sale in this offering will be reduced to the extent that such persons purchase such reserved shares.

Any reserved shares not so purchased will be offered by the underwriters on the same basis as the other shares offered hereby. Other than the underwriting discount described on the front cover of this prospectus, the underwriters will not be entitled to any commission with respect to shares of common stock sold pursuant to the directed share program. Participants in the directed share program who purchase more than $500,000 of shares, as well as directors or executive officers who are already subject to lock-up agreements, shall be subject to 180-day lock-ups. Any of these lock-up agreements will have similar restrictions to the lock-up agreements described elsewhere in this prospectus. See “Underwriting—Directed Share Program.”

Unless we indicate otherwise or the context otherwise requires, all information in this prospectus:

gives effect to the consummation of this offering;

assumes the shares of common stock are offered at $17.00 per share (the midpoint of the price range listed on the cover page of this prospectus);

gives effect to an approximate 0.794-for-1 stock split with respect to our common stock, which ~~will occur prior to the effective date of the registration statement of which this prospectus is a part;~~took effect November 12, 2020;

excludes 900,970 shares of common stock issuable upon the exercise of outstanding warrants (each a “Warrant”) with an exercise price of approximately ~~$1.66~~$1.67 per share;

excludes ~~7,459,915~~7,459,913 shares of common stock reserved for issuance under our 2016 Omnibus Long-Term Incentive Plan (“2016 Plan”); and

assumes no exercise by the underwriters of their overallotment option.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present our selected consolidated financial data. The selected consolidated statements of operations data for the years ended December 31, 2017, 2018 and 2019, and the selected consolidated balance sheets data as of December 31, 2018 and 2019 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 2017 is derived from our audited consolidated financial statements that are not included in this prospectus. The selected consolidated statements of operations data for the ~~six~~nine months ended ~~June~~September 2019 and 2020 and the selected consolidated balance sheet data as of ~~June~~September 30, 2020 are derived from our unaudited interim condensed consolidated financial statements that are included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature that are necessary for the fair statement of our unaudited interim condensed consolidated financial statements.

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The results of operations for the periods presented below are not necessarily indicative of the results that may be expected for any future period. You should read the historical financial data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on April 13, 2020, and our Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2020, filed with the SEC on ~~August~~November 13, 2020 and incorporated by reference herein and the financial statements and related notes included elsewhere in this prospectus.

	Year Ended December 31,			Six Months Ended June 30, (Unaudited)		Year Ended December 31,			Nine Months Ended September 30, (Unaudited)
	2017	2018	2019	2019	2020	2017	2018	2019	2019	2020
	(in thousands, except earnings per share data)					(in thousands, except earnings per share data)
Consolidated Statement of Operations Data:
Revenue	$107,727	$138,016	$159,218	$67,214	$87,589	$107,727	$138,016	$159,218	$112,745	$135,029
Cost of sales	67,161	84,954	106,874	48,223	57,774	67,161	84,954	106,874	77,441	88,652
Gross profit	40,566	53,062	52,344	18,991	29,815	40,566	53,062	52,344	35,304	46,377
Selling, general and administrative expenses	40,152	44,048	47,319	20,795	24,346	40,152	44,048	47,319	31,432	36,395
Operating income (loss)	414	9,014	5,025	(1,804)	5,469
Operating income						414	9,014	5,025	3,872	9,982
Other income	11	12	201	193	12	11	12	201	195	14
Interest expense	(6,690)	(7,258)	(7,467)	(3,500)	(4,013)	(6,690)	(7,258)	(7,467)	(5,470)	(6,026)
Income (loss) before minority interest and income taxes	(6,265)	1,768	(2,241)	(5,111)	1,468	(6,265)	1,768	(2,241)	(1,403)	3,970
Income tax benefit (provision)	2,767	(31)	104	177	144	2,767	(31)	104	187	136
Net income (loss)	$(3,498)	$1,737	$(2,137)	$(4,934)	$1,612	$(3,498)	$1,737	$(2,137)	$(1,216)	$4,106
Less: Income attributable to non-controlling interest	(2,335)	(3,377)	(4,264)	(220)	(3,590)	(2,335)	(3,377)	(4,264)	(1,705)	(6,284)
Net income (loss) attributable to Telos	$(5,833)	$(1,640)	$(6,401)	$(5,154)	$(1,978)
Net loss attributable to Telos						$(5,833)	$(1,640)	$(6,401)	$(2,921)	$(2,178)
Per Share Data:
Net loss per share attributable to Telos, basic and diluted	$(0.13)	$(0.04)	$(0.13)	$(0.11)	$(0.04)	$(0.16)	$(0.04)	$(0.17)	$(0.08)	$(0.06)
Weighted-average shares of common stock outstanding, basic and diluted	45,079	46,323	47,542	47,102	48,297	35,774	36,762	37,729	37,614	38,554
Other Financial Data (Unaudited):
Free Cash Flow⁽¹⁾	$(2,820)	$2,154	$5,284	$2,229	$(2,652)	$(2,820)	$2,154	$5,284	$(928)	$(5,874)
Adjusted EBITDA⁽²⁾	$139	$8,677	$5,934	$510	$4,625	$139	$8,677	$5,934	$5,971	$7,730
Pro Forma net earnings per share, basic⁽³⁾			$0.08		$0.09			$0.08		$0.17
Pro Forma net earnings per share, diluted⁽³⁾			$0.07		$0.09			$0.07		$0.17

(1)	We define Free Cash Flow as net cash provided by operating activities less cash used for purchases of property and equipment and capitalized software development costs. A reconciliation to net cash provided by operating activities is set forth below. See “Non-GAAP Financial Measures” below.

(2)

We define Adjusted EBITDA as net income (loss), adjusted for interest expense, ~~loss on extinguishment of debt,~~ (benefit) provision for income taxes, depreciation and amortization, stock-based compensation expense, acquisition related expense and other (income) expense, net. A reconciliation to net loss is set forth below.

(3)

The pro forma basic and diluted net loss per share as adjusted has been computed in the following table to give effect to (a) proceeds raised in this offering of $109.1 million to be paid, and 1.1 million shares of common stock to be issued, to the holders of Exchangeable Redeemable Preferred Stock in connection with the ERPS Conversion, (b) proceeds raised in this offering of $30.0 million to be paid, and 7.3 million shares of common stock to be issued, to Hoya in connection with the Telos ID Purchase, and (c) approximately ~~$20.8~~$20.9 million of proceeds raised in this offering to be used for the repayment of outstanding senior and subordinated debt. The use of the proceeds raised assumes an offering price of ~~$17~~$17.00 per share, the midpoint of the price range listed on the cover page of this prospectus.

	Year Ended December31, 2019 (unaudited)	Six Months Ended June30, 2020 (unaudited)	Year Ended December 31, 2019 (unaudited)	Nine Months Ended September 30, 2020 (unaudited)
Net loss attributable to Telos	$(6,401)	$(1,978)	$(6,401)	$(2,178)
Pro forma adjustment to remove the dividends from preferred stock recorded as interest expense	3,823	1,911	3,823	2,868
Pro forma adjustment to remove the interest expense related to the offering proceeds used to repay debt⁽¹⁾	2,542	1,680	2,542	2,532

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	Year Ended December31, 2019 (unaudited)	Six Months Ended June30, 2020 (unaudited)	Year Ended December 31, 2019 (unaudited)	Nine Months Ended September 30, 2020 (unaudited)
Pro forma adjustment to reflect the purchase of the non-controlling interest of Telos ID	4,264	3,590	4,264	6,284
Pro forma net income	$4,228	$5,203	$4,228	$9,506
Pro forma adjustment to give effect to the conversion of our outstanding Class A and Class B common shares into shares of common stock on a 1 for 1 basis	37,730	38,328	37,730	38,555
Pro forma adjustment to reflect the issuance of common stock in connection with the ERPS Conversion⁽²⁾	1,105	1,121	1,105	1,128
Pro forma adjustment to reflect common stock equivalent of the cash paid for shares in the ERPS Conversion⁽²⁾	6,264	6,350	6,264	6,393
Pro forma adjustment to reflect the shares issued in connection with the Telos ID Purchase⁽³⁾	7,300	7,300	7,300	7,300
Pro forma adjustment to reflect common stock equivalent of the cash paid for shares in the Telos ID purchase⁽³⁾	1,765	1,765	1,765	1,765
Pro forma adjustment to reflect common stock equivalent of the cash paid to extinguish debt⁽¹⁾	1,219	1,223	1,219	1,226
Pro forma weighted-average shares outstanding used in computing pro forma net loss per share, basic	55,383	56,087	55,383	56,367
Pro forma weighted-average shares outstanding used in computing pro forma net loss per share, diluted	57,230	57,048	57,230	57,327
Pro forma net earnings per share, basic	$0.08	$0.09	$0.08	$0.17
Pro forma net earnings per share, diluted	$0.07	$0.09	$0.07	$0.17

(1)	Represents the interest expense recognized on our outstanding senior term loan and subordinated debt which will be repaid using proceeds from the offering. We intend to use approximately ~~$20.8~~$20.9 million of the offering proceeds to repay our outstanding senior term loan and subordinated debt.

(2)

Exchangeable Redeemable Preferred Stock will convert into approximately 1.1 million shares of common stock and holders will receive $109.1 million, both in the aggregate, upon consummation of this offering. The cash payment is computed as the number of shares of common stock (valued at the initial offering price to the public) equal to the ERPS Liquidation Value, multiplied by 0.90, multiplied by 0.15. See “Exchangeable Redeemable Preferred Stock Conversion.”

(3)

Approximately $30.0 million cash from the proceeds raised in this offering and approximately 7.3 million shares of common stock will be issued as consideration in the purchase of Telos ID. Computed as the number of shares of our common stock equal to twelve percent (12%) of the total estimated number of shares of common stock that are issued and outstanding following (i) the issuance of such shares of common stock to Hoya or its members and (ii) the closing of the offering described in this prospectus.

	Year Ended December 31,			June 30, 2020	Pro Forma June 30, 2020⁽¹⁾	As Adjusted June 30, 2020⁽²⁾ (Unaudited)		Year Ended December 31,			September 30, 2020	Pro Forma September 30, 2020⁽¹⁾ (Unaudited)	As Adjusted September 30, 2020⁽²⁾ (Unaudited)
	2017	2018	2019					2017	2018	2019
	(in thousands)						(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$600	$72	$6,751	$2,405	$2,405	$37,451		$600	$72	$6,751	$10,326	$10,326	$44,603
Working Capital⁽³⁾	(4,075)	2,129	2,942	(12,762)	3,926	38,972		(4,075)	2,129	2,942	(11,332)	(11,332)	39,864
Total Assets	74,421	74,489	77,692	85,390	85,390	120,436		74,421	74,489	77,692	85,834	85,834	120,111
Contract Liabilities (Deferred Revenue)	10,073	5,232	6,337	6,682	6,682	6,682		10,073	5,232	6,337	6,353	6,353	6,353
Senior term loan, net of unamortized discount and issuance costs, including current portion	10,786	10,984	16,335	16,688	—	—		10,786	10,984	16,335	16,919	16,919	—
Subordinated Debt	2,289	2,597	2,927	3,102	—	—		2,289	2,597	2,927	3,192	3,192	—
Total stockholders’ equity (deficit)	(136,037)	(132,103)	(136,662)	(136,009)	24,902	59,948		(136,037)	(132,103)	(136,662)	(133,805)	23,683	62,660

(1)

Gives effect to ~~proceeds received from this offering of $159.9 million from~~(a) the ~~sale of 9.4~~1.1 million shares of common stock to be ~~used as follows: (a) $109.1 million paid, and 1.1 million shares of common stock~~ issued, to the holders of Exchangeable Redeemable Preferred Stock in connection with the ERPS Conversion, ~~and~~(b) the ~~estimated $14.1 million gain resulting from the ERPS Conversion, (b) $30.0 million paid, and~~ 7.3 million shares of common stock to be issued to Hoya in connection with the Telos ID Purchase, and (c) ~~approximately $20.8~~a $14.1 million ~~for~~gain resulting from the ~~repayment of outstanding senior and subordinated debt.~~ERPS Conversion.

(2)

Gives effect to ~~(a)~~the use of the net proceeds, as described under “Use of Proceeds,” to us from this offering of ~~$37.8~~$193.8 million from the sale of ~~2.2~~12.4 million shares of common ~~stock to be used for general corporate purposes.~~stock. Each $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), would increase (decrease) the pro forma as adjusted amount of cash and cash equivalents, working capital excluding deferred revenue, total assets and total stockholders’ equity by $11.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, excluding deferred revenue, total assets and total stockholders’ equity by $15.8 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3)	We define working capital as current assets less current liabilities.

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offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, excluding deferred revenue, total assets and total stockholders’ equity by $16.1 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

~~(3)~~

~~We define working capital as current assets less current liabilities.~~

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors 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, and 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 non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Free Cash Flow

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

We use Free Cash Flow as one measure of the liquidity of our business. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment and capitalized software development costs, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in Free Cash Flow, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or is not available) to be used for strategic initiatives. For example, if Free Cash Flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. We also believe that the use of Free Cash Flow enables us to more effectively evaluate our liquidity period-over-period and relative to our competitors.

A reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable GAAP measure, is as follows:

	Year Ended December 31,			Six Months Ended June 30,		Year Ended December 31,			Nine Months Ended September 30,
	2017	2018	2019	2019	2020	2017	2018	2019	2019	2020
	(in thousands)					(in thousands)
Net cash provided by (used in) operating activities	$(591)	$6,268	$11,816	$5,926	$839	$(591)	$6,268	$11,816	$4,384	$11,957
Less:
Purchases of property and equipment	(748)	(2,465)	(4,090)	(2,410)	(332)	(748)	(2,465)	(4,090)	(3,141)	(624)
Capitalized software development costs	(1,481)	(1,649)	(2,442)	(1,287)	(3,159)	(1,481)	(1,649)	(2,442)	(2,171)	(5,459)
Free Cash Flow	$(2,820)	$2,154	$5,284	$2,229	$(2,652)	$(2,820)	$2,154	$5,284	$(928)	$5,874
Net cash used in investing activities	$(2,229)	$(4,114)	$(6,532)	$(3,697)	$(3,491)	$(2,229)	$(4,114)	$(6,532)	$(5,312)	$(6,083)
Net cash provided by (used in) financing activities	$2,761	$(2,682)	$1,395	$(1,525)	$(1,694)	$2,761	$(2,682)	$1,395	$2,652	$(2,299)
Cash paid for interest	$(2,395)	$(2,483)	$(3,299)	$(1,428)	$(1,474)	$(2,395)	$(2,483)	$(3,299)	$(2,294)	$(2,211)

Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Free Cash Flow does not represent the total increase or decrease in our cash balance for a given period. Because of these limitations, Free Cash

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Flow should not be considered as a replacement for cash flow from operations, 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.

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Adjusted EBITDA

Adjusted EBITDA is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to net income (loss), as determined by GAAP. We define Adjusted EBITDA as net income (loss), adjusted for interest expense, loss on extinguishment of debt, (benefit) provision for income taxes, depreciation and amortization, stock-based compensation expense, acquisition related expense and other (income) expense, net.

We use Adjusted EBITDA to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe that Adjusted EBITDA facilitates comparison of our operating performance on a consistent basis between periods by excluding certain items that may, or could, have a disproportionate 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, Adjusted EBITDA helps provide a broader picture of factors and trends affecting our results of operations.

A reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, is as follows:

	Year Ended December 31,			Six Months Ended June 30,		Year Ended December 31,			Nine Months Ended September 30,
	2017	2018	2019	2019	2020	2017	2018	2019	2019	2020
	(in thousands)					(in thousands)
Net income (loss) attributable to Telos Corporation	$(5,833)	$(1,640)	$(6,401)	$(5,154)	$(1,978)
Net loss attributable to Telos Corporation						$(5,833)	$(1,640)	$(6,401)	$(2,921)	$(2,178)
Interest expense	6,690	7,258	7,467	3,500	4,013	6,690	7,258	7,467	5,470	6,026
(Benefit) provision for income taxes	(2,767)	31	(104)	(177)	(144)	(2,767)	31	(104)	(187)	(136)
Depreciation and amortization	1,999	3,028	4,972	2,341	2,734	1,999	3,028	4,972	3,609	4,018
Stock-based compensation expense	50	—	—	—	—	50	—	—	—	—
Adjusted EBITDA	$139	$8,677	$5,934	$510	$4,625	$139	$8,677	$5,934	$5,971	$7,730

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Among other limitations, Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments, does not reflect the impact of certain 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 differently than we do, which limits its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as a replacement for net income (loss), 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.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. Before making an investment decision with respect to our common stock, you should carefully consider the following risks and all of the other information contained or incorporated by reference in the prospectus. If any of the following risks were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock. Some statements in this prospectus, including such statements in the following risk factors, constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business and Industry

The following risk factors in this section entitled “Risks Related to Our Business and Industry” are in addition to those risk factors disclosed in our Annual Report on Form 10-K, filed with the SEC on April 13, 2020, which are incorporated by reference herein.

We are subject to the seasonality of the 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 the U.S. government purchasing. Because the U.S. government fiscal year ends on September 30, it is not uncommon 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 third and fourth fiscal quarters, ending September 30 and December 31, respectively, with the pace of orders typically substantially reduced during the first and second fiscal quarters ending March 31 and June 30, respectively.

Our pricing structures for our solutions and services may change from time to time.

We expect that we may change our pricing model from time to time, including as a result of 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. In addition, 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. In addition, we may need to change pricing policies to accommodate government pricing guidelines for our contracts with federal, state, local, and foreign governments and government agencies. 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.

We depend on computing infrastructure operated by Amazon Web Services (“AWS”), Microsoft, and other third parties to support some of our solutions and customers, and 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, such as AWS and Microsoft Azure, in order to host or operate some of certain key platform features or functions of our business. Additionally, we rely on computer hardware and cloud capabilities purchased in order to deliver our solutions and services. We do not have control over the operations of the facilities of the third parties that we use. 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 fail or become 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, cause our solutions to fail, our revenue and margins could decline, or our reputation and brand to be damaged, we could be exposed to legal or contractual liability, our expenses could increase, our ability to

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manage our operations could be interrupted, and 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.

We have experienced, and may in the future experience, disruptions, failures, data loss, outages, and other performance problems with our infrastructure and cloud-based offerings due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, employee misconduct, capacity constraints, denial of service attacks, phishing attacks, computer viruses, malicious or destructive code, or other security-related incidents, and our disaster recovery planning may not be sufficient for all situations. If we experience disruptions, failures, data loss, outages, or other performance problems, our business, financial condition, and results of operations could be adversely affected.

Our systems and the third-party systems upon which we and our customers rely are also vulnerable to damage or interruption from catastrophic occurrences such as earthquakes, floods, fires, power loss, telecommunication failures, cybersecurity threats, terrorist attacks, natural disasters, public health crises such as the COVID-19 pandemic, 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.

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 (“SLAs”). 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 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 unsecure, 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 provisioning of additional cloud hosting capacity requires lead time. AWS, Microsoft Azure, and other third parties have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If AWS, Microsoft Azure, or other 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 transfer to other cloud providers or invest in a private cloud. If we are required to transfer to other cloud providers or invest in a private cloud, 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.

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

A small number of our large customer contracts, including the TSA PreCheck™ enrollment program and our program with CMS, are expected to comprise a significant portion of our future revenue. Our business will likely be harmed if any of our key customer contracts do not generate as much revenue as we forecast, and the termination or delay of a large contract or of multiple contracts could have a material adverse effect on our revenue and profitability. Adverse events affecting the programs subject to these contracts could also negatively affect our ability to process transactions under those contracts, which could adversely affect our revenue and results of operations. For example, the COVID-19 pandemic may adversely affect or disrupt the TSA PreCheck™ enrollment program, which could lead to delays in the implementation of that program and changes in demand for that program. In addition, if the COVID-19 pandemic and associated protective or preventative measures expand, we may experience a material adverse effect on our business operations, revenues, financial condition, and ability to execute on business or contract opportunities; however, the ultimate impact is highly uncertain and subject to change.

We will face risks associated with the growth of our business in new commercial markets and with new customer verticals, and we may neither be able to continue our organic growth nor have the necessary resources to dedicate to the overall growth of our business.

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 recent periods, we have increased our focus on commercial customers. In the future, we may increasingly focus on such customers, including in the banking, financial services, healthcare, pharmaceutical, 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. Historically, sales to a new customer have often led to additional sales to the same customer or similarly situated customers. 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 which regulate those markets and industries. While this approach to expansion within new commercial markets and verticals has proven successful in the past, it is uncertain 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.

In the future, we may seek to enter into other credit facilities to help fund our working capital needs. These credit facilities may expose us to additional risks associated with leverage and may inhibit our operating flexibility.

We may seek to enter into other credit facilities with third-party lenders to help fund our business. Such credit facilities will likely require us to pay a commitment fee on the undrawn amount and will likely contain a number of affirmative and restrictive covenants.

If we violate any such covenants, our lenders could accelerate the maturity of any debt outstanding and we may be prohibited from making any distributions to our stockholders. Such debt may be secured by our assets, including the stock we may own in subsidiaries and the rights we have under intercompany loan agreements that we may enter into in the future with our businesses. Our ability to meet our debt service obligations may be affected by events beyond our control and will depend primarily upon cash produced by our business. Any failure to comply with the terms of our indebtedness may have a material adverse effect on our financial condition.

In addition, we expect that such credit facilities will bear interest at floating rates which will generally change as interest rates change. We will bear the risk that the rates that we are charged by our lenders will increase faster than we can grow the cash flow from our businesses, which could reduce profitability, materially adversely affect our ability to service our debt and cause us to breach covenants contained in our third-party credit facilities.

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Our business is subject to complex and evolving U.S. and non-U.S. laws and regulations regarding privacy, data protection and security, technology protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or otherwise harm 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 and 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 sensitive data or information may result in governmental investigations, inquiries, enforcement actions and prosecutions, private

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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.

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. generally accepted accounting principles (“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 effect 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, 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.

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 fall below expectations of securities analysts and investors, resulting in a decline in our stock price.

The preparation of our consolidated financial statements in conformity with 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, stock-based compensation, common stock valuations, and income taxes.

A novel strain of coronavirus, COVID-19, may adversely affect our future business operations, financial condition and our ability to execute on business or contract opportunities.

In December 2019, an outbreak of COVID-19 was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and on March 13, 2020, President Donald J. Trump declared the virus a national emergency. This highly contagious disease has spread to most of the countries in the world and throughout the United States, creating a serious impact on customers, workforces, and suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economic downturn. It has caused a disruption of the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis. The pandemic may adversely affect our customers’ ability to perform their missions and is in many cases disrupting their operations. It may also impact the ability of our subcontractors, partners, and suppliers to operate and fulfill their contractual obligations, and result in an increase in their costs and cause delays in performance. These supply chain effects, and the direct effect of the virus and the disruption on our operations, may negatively impact both our ability to meet customer demand and our revenue and profit margins. Our employees, in some cases, are working remotely due either to safety concerns or to customer imposed limitations and using various technologies to perform their functions. We could see delays or changes in customer demand, particularly if government funding priorities change. Additionally, the disruption and volatility in the global and domestic capital markets may increase the cost of capital and limit our ability to access capital. Both the health and economic aspects of COVID-19 are highly fluid and the future course of each is uncertain. For these reasons and other reasons that may come to light if the

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coronavirus pandemic and associated protective or preventative measures expand, we may experience a material adverse effect on our business operations, revenues and financial condition, and our ability to execute on business or contract opportunities, including the TSA PreCheck^TM enrollment program; however, its ultimate impact is highly uncertain and subject to change.

~~Risks Related~~Our Offerings

We refer to ~~Our Common Stock~~our cyber and ~~this Offering~~cloud applications as Security Solutions, which includes Information Assurance / Xacta® (previously referred to as Cyber & Cloud Solutions), Secure Communications (previously referred to as Secure Communications Cyber and Enterprise Solutions), and Telos ID (previously referred to as Telos ID Enterprise Solutions). We refer to our offerings for enterprise security as Secure Networks (previously referred to as Secure Mobility and Network Management/Defense Enterprise Solutions).

~~An active public trading market~~Security Solutions revenue was $101.9 million and $86.6 million in 2019 and 2018, respectively. This increase in 2019 of approximately 18% is primarily attributable to a $10.1 million increase in sales of offerings in Telos ID on a contract with the U.S. Census Bureau and a $6.3 million increase in sales of offerings related to a contract with a U.S. government agency for our ~~common stock may not develop.~~

~~There has been no public market for our common stock prior to this offering. Although we have applied to list our common stock~~Telos Ghost managed intelligence support solution in Secure Communications. For the nine months ended September 30, 2020 and 2019, Security Solutions revenue was $92.6 million and $71.6 million, respectively. Improved performance was driven primarily by an increase of $16.5 million in sales of offerings in Telos ID on The Nasdaq Global Market, we cannot assure you that a trading market for our common stock will develop, or, if a trading market does develop, that it will be sustained or how liquid such trading market will become. The initial public offering price for our common stock will be determined through negotiations between the ~~underwriters~~contract with the U.S. Census Bureau and ~~us and may not be indicative of prices that will prevail~~$6.5 million in the open market following this offering. You may have difficulty selling any shares of our common stock that you may purchase. The market price of shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of our common stock at or above the initial public offering price. Accordingly, we cannot assure you of your ability to sell your common stock when desired, or at all, or the prices that you may obtain for such common stock.

Our stock price could be extremely volatile and may decline substantially from the initial public offering price. As a result, you may not be able to resell your shares at or above the price you paid for them.

Even if a trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. Volatility in the market price of our common stock, as well as general economic, market or political conditions, may prevent you from being able to sell your shares at or above the price you paid for your shares and may otherwise negatively affect the liquidity of our common stock. You may experience a decrease, which could be substantial, in the value of your stock, including decreases unrelated to our operating performance or prospects, and you could lose part or all of your investment. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this prospectus and others such as:

~~competition in our industry and our ability to compete effectively;~~

~~our ability to keep pace with rapid developments and changes in our industry and provide new products and services;~~

~~liability and reputation damage from unauthorized disclosure, destruction or modification of data or disruption of our services;~~

~~technical, operational and regulatory risks related to our information technology systems and third-party providers’ systems;~~

~~reliance on third parties for significant services;~~

~~our ability to successfully identify potential acquisition targets, and to complete and effectively integrate those acquisitions into our services;~~

~~potential degradation of the quality of our products, services and support;~~

~~our ability to retain clients;~~

~~our ability to successfully manage our intellectual property;~~

~~our ability to attract, recruit, retain and develop key personnel and qualified employees;~~

~~risks related to laws, regulations and industry standards;~~

~~our indebtedness and potential increases in our indebtedness;~~

~~operating and financial restrictions imposed by the terms of our indebtedness; and~~

~~the other factors described in “Risk Factors.”~~

In response to any one or more of these events, the market price of shares of our common stock could decrease significantly. In the past, securities class action litigation has often been initiated against companies following

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~~periods~~

sales of ~~volatility~~offerings related to the contract with a U.S. government agency for our Telos Ghost managed intelligence support solution in Secure Communications. For the nine months ended September 30, 2020 and 2019, Security Solutions gross profit was $38.8 million and $28.9 million, respectively.

Secure Networks revenue was $57.3 million in 2019 and $51.4 million in 2018. The sales increase in 2019 is the result of various DoD contracts around our Secure Mobility as well as our Network Management and Defense offerings. For the nine months ended September 30, 2020, Secure Networks revenue was $42.4 million, up 3% from $41.1 million over the same period in 2019. The year-over-year improvement for the interim period in 2020 resulted from various DoD contracts, primarily in our Secure Mobility offerings. For the nine months ended September 30, 2020 and 2019, Secure Networks gross profit was $7.6 million and $6.4 million, respectively.

Security Solutions

Information Assurance / Xacta: a premier platform for enterprise cyber risk management and security compliance automation, delivering security awareness for systems in the cloud, on-premises, and in hybrid and multi-cloud environments. Xacta delivers automated cyber risk and compliance management solutions to large commercial and government enterprises. Across the U.S. federal government, Xacta is the de facto commercial cyber risk and compliance management solution.

Secure Communications:

○

Telos Ghost: a virtual obfuscation network-as-a-service with encryption and managed attribution capabilities to ensure the safety and privacy of people, information, and resources on the network. Telos Ghost seeks to eliminate cyber-attack surfaces by obfuscating and encrypting data, masking user identity and location, and hiding network resources. It provides the additional layers of security and privacy needed for intelligence gathering, cyber threat protection, securing critical infrastructure, and protecting communications and applications when operations, property, and even lives can be jeopardized by a single error in security.

○

Telos Automated Message Handling System (“AMHS”): web-based organizational message distribution and management 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 and is the only web-based solution for assured messaging and directory services using the Defense Information System Agency’s (“DISA”) Organizational Messaging Service and its specialized communications protocols.

Telos ID: offering Identity Trust and Digital Services through IDTrust360® – an enterprise-class digital identity risk platform for extending software-as-a-service (“SaaS”) and custom digital identity services that mitigate threats through the integration of advanced technologies that fuse biometrics, credentials, and other identity-centric data used to continuously monitor trust. We maintain government certifications and designations that distinguish Telos ID, including TSA PreCheck™ enrollment provider, Designated Aviation Channeling provider, FBI-approved Channeler, and the Financial Industry Regulatory Authority (“FINRA”) Electronic Fingerprint Submission provider. We are the only commercial entity in our industry designated as a Secure Flight Services provider for terrorist watchlist checks.

Secure Networks

Secure Mobility: solutions for business and government that enable remote work and minimize concern across and beyond the enterprise. Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience as well as highly desirable clearances and industry recognized certifications for network engineering, mobility, and security.

Network Management and Defense: services for operating, administrating, and defending complex enterprise networks and defensive cyber operations. Our diverse portfolio of capabilities addresses common and uncommon requirements in many industries and disciplines, ranging from the military and government agencies to Fortune 500 companies.

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Our Competitive Strengths

Leading cybersecurity company with a long history of providing security solutions to the most sophisticated security customers. We have been providing secure solutions, specializing in the area of cybersecurity, since 1995. Our customers include some of the most security-conscious organizations in the world, including the IC. For example, we believe that our award-winning Xacta offering is the dominant commercial risk management solution in the federal government space and is increasingly being adopted in the commercial sphere, notably by leading cloud providers such as Amazon Web Services, Inc. (“AWS”) and Microsoft Azure. Additionally, Telos Ghost gives organizations and individuals the ability to hide in plain sight, eliminating attack vectors from hackers through obfuscation and mis-attribution. And, we believe our Telos ID identity offerings are market disruptors, which present large opportunities for growth.

Superior secure solutions and capabilities. Our solutions are designed for both government and commercial industries and are configured to operate in highly sensitive, highly classified environments, serving some of the most demanding, security-conscious organizations in the world. Our solutions are flexible, and can be deployed in various ways, including on premises, in the cloud, or in hybrid or multi-cloud environments.

Proven ability to win and retain large contracts and enterprise-level deals, providing clear visibility into future revenue and profitability. We have over 20 active acquisition contracts and vehicles and thousands of active contracts and purchase orders. These contracts and vehicles present a solid platform for growth. For example, we have provided IT security support to the Defense Manpower Data Center (“DMDC”) under a variety of contract vehicles since 1995 and this program accounts for annual revenue at a historical average of approximately $28 million over the last five years. We also have proven our ability to deploy our security solutions at the enterprise level for both federal and commercial organizations. These long-term contract relationships provide predictable, recurring revenue at attractive margins.

Our substantial investments into technology and automation can be expanded beyond our core market. Our solutions are built to help our customers be more secure, more efficient, and more effective. We have made investments across the company to take advantage of efficiencies and automation through scalable security solutions that are market driven and market proven. In contrast to traditional cybersecurity businesses with a focus on government customers, we own the intellectual property developed through our R&D initiatives and can deploy our technology solutions across our entire public and private sector customer set. The ability to offer our solutions beyond the U.S. federal government sphere is a key enabler of our strategy to grow and expand our relationships with commercial customers.

Strong relationships with our customers. We are a customer-centric organization and pride ourselves on our close customer relationships. We have longstanding relationships with DoD, civilian agencies of the federal government, and the IC that date back more than two decades. Since 1995, our security solutions have been adopted by many defense, intelligence, civilian agency, and commercial customers, and we believe that the Telos brand has become synonymous with trust. Because of the quality of our relationships, we believe we are well-positioned for continued growth, as well as new and follow on contract opportunities.

Respected, experienced management team. Our executive officers have an average tenure at Telos of approximately 21 years. The team is comprised of personnel with extensive military, federal government, and commercial backgrounds who are directly familiar with customer needs. Our management team also includes senior professionals who are experienced in developing commercial software solutions and leading technical teams throughout the development process.

COVID-resistant business. We support mission critical operations. Because of this and the growth of remote workforces as a result of the COVID-19 pandemic, we believe, based upon our 2020 financial performance to date, that our business is relatively COVID resistant. Additionally, the automation provided by our solutions can help customers do more with less as they are forced to downsize their staffs because of the pandemic. Automation is now even more critical to efficiently manage a business, including with respect to cyber risk and regulatory compliance, which should result in additional demand for our security solutions.

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Our Growth Strategies

We are pursuing multiple strategies in order to grow the company, in both our commercial and government business end markets in the United States and abroad. Our key strategies are:

Leverage our diverse security solutions to expand our presence in commercial markets. Our offerings are designed to have broad application and include security risk and compliance, secure messaging, identity vetting, and managed attribution and obfuscation. We believe that we are well-positioned to sell our capabilities into a dynamic and growing commercial opportunity set and to innovate 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 nearly 100 airports, air carriers, and general aviation across the country. We intend to continue to innovate and are developing additional offerings for cloud, mobile, and IoT devices.

Grow our revenue and expand margins by building robust sales channels. In recent years, we have formed an inside sales organization that serves as both the direct channel to a wider account universe and an effective and efficient training program to grow our field sales organization. We plan to expand our partner program to include a variety of channels, including resellers, integrators, and contract partners to help us more quickly gain access to new markets, particularly commercial and international. For example, both Telos Ghost and Xacta are now available through various AWS and Microsoft Azure marketplaces, serving regions around the world and markets requiring varying levels of security. We plan to deploy a portion of the proceeds from this offering to grow our direct sales team and to accelerate the expansion of these channel partner initiatives, which we anticipate will drive revenue growth and material gross margin expansion.

Target and replace inefficient legacy products. Recognizing the limitations of their legacy systems, organizations are replacing existing systems and processes with our solutions. For example, Telos AMHS is a web-centric system that replaced legacy capabilities like communications centers for the purpose of executing operational orders (through organizational messaging) across the U.S. federal government and around the world. Xacta has disrupted the cyber risk and compliance management business across the U.S. federal government, replacing manual activity with automation and delivering that automation to meet our customer’s needs flexibly on premises, in hybrid environments, in the cloud, and across multi-cloud infrastructures.

Broaden reach within the U.S. federal government. We have historically focused on the U.S. federal government and believe that we are an established leader in providing security solutions to federal agencies, including DoD and the IC. Nonetheless, we believe the U.S. federal government represents a significant growth opportunity, and we expect to continue to invest in products to serve additional customers in this vertical. As an illustration, Xacta is included on the DHS Continuous Diagnostics and Mitigation (“CDM”) Approved Products 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, our platform is available for use in the AWS GovCloud (US) and Azure Government.

Expand our international footprint. We are expanding our international operations and intend to invest globally to broaden our international footprint. We are currently working with countries such as Canada, Singapore, Australia, and Bahrain to offer Xacta to address cyber risk and compliance management capabilities. We are also working to expand AMHS to all North Atlantic Treaty Organization (“NATO”) countries and to offer Telos Ghost internationally. We intend to grow our international customer base by increasing our investments in overseas operations, establishing channel partners, and adding personnel in Europe, the Middle East, and Asia-Pacific.

Pursue strategic acquisition opportunities. 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 that we are well-positioned to opportunistically acquire smaller companies and incorporate their technology or deploy their solutions across a larger customer set. We believe that a targeted and opportunistic acquisition strategy will complement our significant organic growth opportunity.

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Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in “Risk Factors” and include, but are not limited to, the following:

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

We depend on computing infrastructure operated by AWS, Microsoft, and other third parties to support some of our solutions and customers, and any errors, disruption, performance problems, or failure in their ~~stock price. This type~~or our operational infrastructure could adversely affect our business, financial condition, and results of ~~litigation~~operations.

We depend on the U.S. government for a significant portion of our sales and a significant decline in U.S. government defense and intelligence community spending, or a reallocation of spending to other priorities, could have a material impact on our financial condition and results of operations.

We will face risks associated with the growth of our business in new commercial markets, with new customer verticals and through channel partner relationships, and we may neither be able to continue our organic growth nor have the necessary resources to dedicate to the overall growth of our business.

Our U.S. government contracts are subject to competitive bidding, lack of funding, fixed-price structures, the performance of third-party contractors, lengthy sales and implementation cycles, and the availability of termination for convenience provisions.

Our business is subject to complex and evolving U.S. and non-U.S. laws and regulations regarding privacy, data protection and security, technology protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in ~~substantial costs~~claims, changes to our business practices, monetary penalties, increased cost of operations, or otherwise harm our business.

Real or perceived errors, failures, defects or bugs in our solutions could adversely affect our results of operations and ~~divert~~growth prospects.

•	COVID-19 may adversely affect our future operations, financial condition and our ability to execute on business or contract opportunities, including the TSA PreCheck^TM enrollment program.

There has been no prior market for our ~~management’s attention~~common stock, the market price for our common stock may be volatile or may decline regardless of our operating performance, an active public trading market may not develop or be sustained following this offering, and ~~resources, and could also require us~~you may not be able to ~~make substantial payments to satisfy judgments~~resell our common stock at or ~~to settle litigation.~~above the initial public offering price.

~~Taking advantage of the reduced disclosure requirements applicable to~~We are an “emerging growth ~~companies”~~company” and that status may make our common stock less attractive to investors.

We are an “emerging growth company” under the federal securities laws. An emerging growth company may take advantage of certain reduced reporting and other requirements that are otherwise applicable to public companies. We currently intend to take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We could be an emerging growth company until the last day of the fiscal year following the fifth anniversary of this offering. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our common stock and our trading price may be more volatile.

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

Our operating results have fluctuated from quarter to quarter at points in the past, and they may do so in the future. Therefore, results of any one quarter are not a reliable indication of results to be expected for any other quarter or for any year. If we fail to increase our results over prior periods, to achieve our projected results or to meet the expectations of securities analysts or investors, our stock price may decline, and the decrease in the stock price may be disproportionate to the shortfall in our financial performance. Results may be affected by various factors, including those described in these risk factors. We maintain a forecasting process that seeks to plan sales and align expenses. If we do not control costs or appropriately adjust costs to actual results, or if actual results differ significantly from our forecast, our financial performance could be materially adversely affected.

You will incur immediate dilution in the net tangible book value of the shares you purchase in this offering.

The initial public offering price of our common stock will be higher than the net tangible book value per share of outstanding common stock prior to completion of this offering. Based on our pro forma net tangible book value as of June 30, 2020 and upon the issuance and sale of shares of common stock by us at the assumed initial public offering price of $17 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus) if you purchase our common stock in this offering, you will suffer immediate dilution of approximately $16.26 per share in net tangible book value. Dilution is the amount by which the offering price paid by purchasers of our common stock in this offering will exceed the pro forma net tangible book value per share of our common stock upon completion of this offering. If the underwriters exercise their option to purchase additional shares, you will experience future dilution. A total of 7,459,915 shares of common stock have been reserved for future issuance under our stock-based compensation plans, including our 2016 Plan. You may experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our directors, officers and employees under our current and future stock-based compensation plans, including our 2016 Plan.

~~The~~ issuance of additional shares of our common stock in connection with financings, acquisitions, investments, our ~~equity~~share incentive plans or otherwise will dilute all ~~other~~existing stockholders.

~~Our Second Amended and Restated Articles of Incorporation that will be~~We have broad discretion to determine how to use the funds raised in ~~effect immediately prior to the completion of~~ this offering, ~~authorize us to issue up to 250 million shares of our common stock~~ and up to 10 million shares of preferred stock with such rights and preferences as included in our Second Amended and Restated Articles of Incorporation. Subject to compliance with applicable rules and regulations, we may ~~issue common stock~~use them in ways that may not enhance our operating results or securities convertible into common stock from time to time in connection with a financing, acquisition, investment, our equity incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the ~~market~~ price of our common ~~stock to decline.~~

~~We do not anticipate paying any cash dividends on our common stock in the foreseeable future.~~

We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. We do not intend or expect to pay any dividends to holders of our common stock in the foreseeable future. Any decision to declare or pay dividends in the future will be made at the discretion of our

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Board of Directors, taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion, and any legal or contractual limitations on our ability to pay dividends. As a result, if our Board of Directors does not declare and pay dividends, your only opportunity to achieve a return on your investment in our company, if any, may be if the market price of our common stock appreciates and you sell your shares at a profit. The market price for our common stock may never exceed, and may fall below, the price that you pay for such common stock.

~~If securities or industry analysts do not publish research or reports about our business, or if they downgrade our common stock or our sector, our common stock price and trading volume could decline.~~

We expect the trading market for our common stock to be influenced by the research and reports that industry or securities analysts publish about us, our business or our industry. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock may be negatively affected. We do not control these analysts. If one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business or industry, the price of our stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

Our directors, executive officers and principal stockholders and their respective affiliates will continue to have substantial influence over us after this offering and could delay or prevent a change in corporate ~~control; our~~control. Our principal stockholders may have interests that conflict with your interests as an investor in ~~our common stock.~~

As of June 30, 2020, our directors, executive officers and holders of more than 5% of our common stock beneficially owned, as a group, 73.1% of our common stock. After this offering, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate, approximately 43.6% of our outstanding common stock, assuming no exercise of the underwriters’ option to purchase additional shares of our common stock in this offering. Our principal stockholders, in the aggregate, will continue to have substantial influence over the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, in the aggregate, will continue to have significant influence over the management and affairs of our company. Accordingly, this concentration of ownership may have the effect of:

~~delaying, deferring or preventing a change in corporate control;~~

~~impeding a merger, consolidation, takeover or other business combination involving us; or~~

~~discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.~~

The interests of our principal stockholders may conflict with your interests as a stockholder. You should carefully consider these potential conflicts of interest before deciding whether to invest in shares of our common stock.

Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price for our common stock to decline.

After this offering, the sale of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon consummation of this offering, we will have a total of 60.7 million fully diluted shares (or 59.8 million basic shares excluding the impact of the Warrants) of common stock outstanding. All shares sold in this offering or issued in connection with the ERPS Conversion will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, or Rule 144, including our directors, executive officers and other affiliates, may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”

The shares held by certain directors and officers and their affiliates immediately following the consummation of this offering will represent approximately 43.6% of our total outstanding shares of common stock following this

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offering, based on the number of shares outstanding as of June 30, 2020. Such shares will be “restricted securities” within the meaning of Rule 144 and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144, as described in “Shares Eligible for Future Sale.”

In connection with this offering, we, our directors and executive officers, and certain significant holders of our common stock prior to this offering have each agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our or their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters. See “Underwriting” for a description of these lock-up agreements.

Upon the expiration of the contractual lock-up agreements pertaining to this offering, up to an additional 34.3 million shares that are held by directors, executive officers, and other significant stockholders will be eligible for sale in the public market and will be subject to volume, manner of sale and other limitations under Rule 144. See “Shares Eligible for Future Sale.”

As restrictions on resale end, the market price of our shares of common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.

In addition, the shares of our common stock reserved for future issuance under our 2016 Plan will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and Rule 144, as applicable. A total of 7,459,915 shares of our common stock have been reserved for future issuance under our 2016 Plan.

In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

Holders of Exchangeable Redeemable Preferred Stock may file lawsuits against us and/or our directors and executive officers of us in connection with the offering described in this prospectus or other matters, and an adverse judgment in any such litigation could prevent or delay the closing of the offering or otherwise negatively affect our business and operations.

We may incur costs in connection with the defense or settlement of any lawsuits filed by holders of our Exchangeable Redeemable Preferred Stock in connection with the offering described in this prospectus, the consent solicitation to amend the terms of the Exchangeable Redeemable Preferred Stock, or other matters. Such litigation could have an adverse effect on our financial condition and results of operations and could prevent or delay the consummation of the offering. If a lawsuit is filed, the defense or settlement of such lawsuit or claim that remains unresolved at the time this prospectus is deemed to be effective may adversely affect our business, financial condition, results of operations and cash flow.

Provisions ~~of the Maryland General Corporation Law and in our organizational documents could delay or prevent a change in control.~~

The Maryland General Corporation Law (MGCL), our charter and our bylaws contain provisions that may discourage, delay or make more difficult a change in control or the removal of our directors. We are subject to Subtitle 6 of Title 3 of the MGCL, the Maryland Business Combination Act. The Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. We are subject to Subtitle 7 of Title 3 of the MGCL, the Maryland Control Share Acquisition Act. Our bylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our common stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Acquisition Act, the Control Share Acquisition Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such an offer.

We have also adopted other measures that may make it difficult for a third party to obtain control of us, including provisions of our charter authorizing our Board of Directors to classify or reclassify shares of our stock

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in one or more classes or series, to cause the issuance of additional shares of our stock, and to amend our charter without stockholder approval to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders. See “Description of Our Capital Stock.”

We may issue shares of preferred stock in the future, which could make it more difficult for another company to acquire us or otherwise affect holders of our common stock, which could depress the price of our common stock.

Our charter will authorize us to issue one or more series of preferred stock. Our Board of Directors, without the approval of our stockholders, will have the authority to issue shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our charter, in series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discourage bids for our common stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our common stock, which may reduce its value.

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~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS~~

This prospectus and the documents incorporated herein by reference contain expressions of our opinions, expectations, beliefs, plans, objectives, assumptions, or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” All statements, other than statements of historical fact, included or incorporated herein regarding our strategy, future operations, financial position, future revenues, projected costs, plans, prospects and objectives are forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “think,” “may,” “could,” “will,” “would,” “should,” “continue,” “potential,” “likely,” “opportunity” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. These statements are based on our management’s current beliefs, expectations and assumptions about future events, conditions and results and on information currently available to us. Discussions containing these forward-looking statements may be found, among other places, in the Sections entitled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference from our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, as well as any amendments thereto, filed with the SEC.

In this prospectus, forward-looking statements include statements concerning matters such as our anticipated expenditures, anticipated contract revenues, development and/or expansion of our products in commercial markets, our plans to grow our business in foreign markets, the success of our sales and marketing efforts to develop other business channels, our plans for potential acquisitions or investments, expectations as to the development of our public trading market, stock price, operating results, including our projections, and our plans for any future issuances or distributions.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this prospectus, which include, but are not limited to, the following:

~~the seasonality of U.S. government purchasing;~~

~~our dependence on the U.S. government for a significant portion of our sales and related negative effects associated with a change in U.S. government spending;~~

~~our dependence on various third parties and their infrastructure when providing our services and solutions;~~

~~statements regarding our U.S. government contracts and their various bidding processes and sales and implementation cycles;~~

~~statements regarding our compliance with various privacy regulations;~~

~~risks associated with the growth of our business in new commercial markets and other channels;~~

~~real or perceived errors, failures, defects or bugs in our solutions;~~

~~the effect of COVID-19 on our future operations, financial condition and our ability to execute on business or contract opportunities, including the TSA PreCheck™ enrollment program;~~

~~the lack of a historical or potential lack of development of a future public trading market for our common stock;~~

~~our status as an emerging growth company and its related effects;~~

~~the fluctuation of our quarterly results;~~

~~immediate dilution of our common stock;~~

~~future issuances of shares of our common stock;~~

~~our plans related to the use of funds from the offering;~~

~~conflicts of interests among our Board of Directors, executive officers and significant stockholders;~~

~~future sales of our common stock on the public market;~~

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~~provisions~~ in our organizational documents and agreements with third parties could delay or prevent a change of ~~control;~~control.

~~our Board~~Our board of ~~Directors’ ability~~directors will be authorized to issue ~~additional~~and designate shares of our preferred stock in additional series without stockholder ~~approval; and~~approval.

~~other factors set forth in this prospectus in “Risk Factors,” any amendments thereto, and in our other public filings that are incorporated by reference herein.~~

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 and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in or incorporated by reference into this prospectus. 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. Any forward-looking statement that we make in this prospectus speaks only as of the date of such statement and, except as required by law, we undertake no obligation to update any forward-looking statement publicly, or to revise any forward-looking statement to reflect events or developments occurring after the date of this prospectus, even if new information becomes available in the future. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

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~~USE OF PROCEEDS~~

Corporate Information

We ~~estimate~~were incorporated in Maryland in 1971. Our principal executive offices are located at 19886 Ashburn Road, Ashburn, Virginia 20147 and our telephone number is (703) 724-3800. Our website is www.telos.com. Information contained on, or that ~~we will receive net proceeds~~is referenced or can be accessed through, our website does not constitute part of ~~approximately $193.85 million (or approximately $223.1 million if the underwriters’ option to purchase additional shares is exercised in full) from the sale~~this prospectus unless specifically incorporated by reference herein and inclusions of ~~approximately 12.35 million shares of common stock offered by us~~our website address in this ~~offering, based on an assumed public offering price~~prospectus are inactive textual references only.

0.794-for-1 Stock Split

Pursuant to Articles of ~~$17 per share,~~Amendment filed with the State Department of Assessments and ~~after deducting underwriting discounts and commissions and estimated offering expenses payable by us.~~Taxation of the State of Maryland, effective November 12, 2020, we completed a 0.794-for-1 stock split with respect to our common stock. Unless we indicate otherwise or the context otherwise requires, all information in this prospectus gives effect to this stock split.

~~We expect to use approximately~~ERPS Conversion

Approximately $109.1 million of the net proceeds we receive from this offering will be used in ~~connection with~~relation to the conversion of our 12% Cumulative Exchangeable Redeemable Preferred Stock (“Exchangeable Redeemable Preferred Stock”). Upon the consummation of the offering described in this prospectus, each share of Exchangeable Redeemable Preferred Stock will be immediately and automatically converted (the “ERPS Conversion”) into the right to receive (i) an amount of cash equal to $109.1 million and (ii) 1.1 million shares of common stock. The successful consummation of the offering described in this prospectus is a condition to the closing of the ERPS ~~Conversion, as described in the section entitled~~Conversion. For additional information, see “Exchangeable Redeemable Preferred Stock Conversion.”

Purchase of Telos ID

In addition ~~we expect~~ to ~~use approximately $30~~the amounts to be paid in the ERPS Conversion, $30.0 million of the net proceeds from this offering will be used to partially fund our acquisition of the ~~outstanding~~remaining portion of Telos ID that we do not already own. On October 5, 2020, we entered into a Membership Interest Purchase Agreement with Hoya ID Fund A, LLC (“Hoya”) to purchase all of the Class B Units of Telos ID asowned by Hoya (the “Telos ID Purchase”). Upon the closing of the Telos ID Purchase, Telos ID will become our wholly owned subsidiary. The successful consummation of the offering described in this prospectus is a condition to the ~~section entitled~~closing of the Telos ID Purchase. If the offering described in this prospectus is not consummated, the Telos ID Purchase will not occur. For additional information, see “Purchase of Telos ID.”

Repayment of Senior and Subordinated Debt

We also intend to use approximately ~~$20.8~~$20.9 million ~~of the net proceeds~~ to repay our outstanding senior term loan and subordinated debt. Our senior term loan has a maturity date of January 15, 2021 and accrues interest at the rate of 13% per annum. Our subordinated debt has a maturity date of July 25, 2022 and accrues interest at the rate of 6% per annum.

Implications of being an Emerging Growth Company

We ~~intend~~are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to ~~use the remaining net proceeds for general corporate purposes. We also may use~~public companies. As a ~~portion~~result:

we are not required to engage an auditor attestation to report on our internal control over financial reporting pursuant to Section 404(b) of the ~~net proceeds~~Sarbanes-Oxley Act of 2002;

we are not required to ~~acquire complementary businesses, products, services,~~comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or ~~technologies. However,~~ the PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and financial statements (i.e., an auditor discussion and analysis) and compliance with new or revised accounting standards until they are made applicable to us; and

we doare not ~~have agreements, commitments, or plans for any specific acquisitions at this time.~~

~~The amounts~~required to comply with certain disclosure requirements related to executive compensation, such as the requirement to disclose the correlation between executive compensation and ~~timing~~performance and the requirement to present a comparison of our ~~actual use of the net proceeds will vary depending on numerous factors. As a result,~~Chief Executive Officer’s compensation to our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. Proceeds held by us will be invested in short-term investments until needed for the uses described above.median employee compensation.

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~~DIVIDEND POLICY~~

We ~~currently anticipate~~may take advantage of these reduced reporting and other requirements until the last day of our fiscal year following the fifth anniversary of the completion of this offering, or such earlier time that we are no longer an emerging growth company. However, if certain events occur before the end of that five-year period, including if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion in non-convertible debt over a three-year period, we will cease to be an emerging growth company. We may choose to take advantage of some but not all of these reduced reporting burdens.

Trademarks

This prospectus includes our registered trademarks, service marks and trade names, including Telos, Xacta, Xacta 360, IDTrust360, and Telos Ghost, which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM symbols, but those references are not intended to indicate, in any way, that we will ~~retain all~~not assert, to the fullest extent permitted under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

Market and Industry Data

Unless otherwise indicated, information contained in this prospectus concerning our industry, competitive position and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available ~~funds for use~~information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions we made upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the ~~operation~~estimates made by the independent parties and ~~expansion of our business, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.~~by us.

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~~CAPITALIZATION~~SUMMARY OF THE OFFERING

~~The following table presents our cash and cash equivalents and capitalization as of June 30, 2020:~~Common Stock Offered

~~on an actual basis;~~

on a pro forma basis to reflect the ERPS Conversion upon the closing of this offering, the Telos ID Purchase, the conversion of our Class A and Class B common stock into common stock, on a 1-1 basis; and

~~on a pro forma as adjusted basis to reflect the 0.794-for-1 reverse stock split, a $14.1 million gain resulting from the ERPS conversion, and the sale by us of approximately~~ 12.35 million shares (or 14.21 million shares if the underwriters exercise their overallotment option in full)

Common Stock Outstanding After the Offering

59.84 million shares (or 61.69 million shares if the underwriters exercise their overallotment option in full)¹

Use of ~~common stock in~~Proceeds

We estimate that the net proceeds to us from this offering atwill be approximately $193.8 million, or approximately $223.1 million if the underwriters exercise their overallotment option in full, assuming an ~~assumed~~ initial public offering price of ~~$17~~$17.00 per share (which is the midpoint of the price range set forth on the cover page of this ~~prospectus,~~prospectus), after deducting underwriting discounts and commissions. Each $1 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions, ~~and estimated offering expenses payable~~ by ~~us, and~~$11.5 million (assuming no exercise of the ~~application~~underwriters’ overallotment option).

We intend to use approximately $109.1 million of the net proceeds from this offering ~~as described under~~in relation to the ERPS Conversion, approximately $30.0 million for the Telos ID Purchase, approximately $20.9 million for the repayment of our outstanding senior and subordinated debt, and the remainder for general corporate purposes. See “Use of ~~Proceeds.~~Proceeds”.

Overallotment Option

We have granted the underwriters a 30-day option to purchase a maximum of 1.85 million additional shares of our common stock from us at the initial public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.

Voting Rights

Each share of common stock will entitle its holder to one vote on all matters to be voted on by stockholders. See “Description of Our Capital Stock.”

Dividend Policy

We do not expect to pay any dividends on our common stock in the foreseeable future. See “Dividend Policy.”

Risk Factors

Investing in our common stock involves substantial risk. You should read the “Risk Factors” section of this prospectus beginning on page 16 for a discussion of factors you should consider carefully before deciding to invest in our common stock.

Proposed Nasdaq Global Market Symbol

TLS

1

Subject to approval by the Compensation Committee (and, in the case of members of our Board of Directors, the Company’s Audit Committee), we expect to issue equity awards for up to 2.4 million shares of common stock to employees, which could include members of our senior management, and members of our board of directors under our 2016 Omnibus Long-Term Incentive Plan during the fourth quarter of 2020 or the first quarter of 2021.

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Directed Share Program

At our request, the underwriters have reserved, at the initial public offering price, up to 5% of the shares of our common stock in this offering for sale to our directors, officers, employees, and certain friends and family members of these persons, and certain clients and prospective clients, as part of a directed share program. We will offer these shares to the extent permitted under applicable regulations. The number of shares of common stock available for sale in this offering will be reduced to the extent that such persons purchase such reserved shares.

Any reserved shares not so purchased will be offered by the underwriters on the same basis as the other shares offered hereby. Other than the underwriting discount described on the front cover of this prospectus, the underwriters will not be entitled to any commission with respect to shares of common stock sold pursuant to the directed share program. Participants in the directed share program who purchase more than $500,000 of shares, as well as directors or executive officers who are already subject to lock-up agreements, shall be subject to 180-day lock-ups. Any of these lock-up agreements will have similar restrictions to the lock-up agreements described elsewhere in this prospectus. See “Underwriting—Directed Share Program.”

Unless we indicate otherwise or the context otherwise requires, all information ~~together~~in this prospectus:

gives effect to the consummation of this offering;

assumes the shares of common stock are offered at $17.00 per share (the midpoint of the price range listed on the cover page of this prospectus);

gives effect to an approximate 0.794-for-1 stock split with respect to our common stock, which took effect November 12, 2020;

excludes 900,970 shares of common stock issuable upon the exercise of outstanding warrants (each a “Warrant”) with an exercise price of approximately $1.67 per share;

excludes 7,459,913 shares of common stock reserved for issuance under our 2016 Omnibus Long-Term Incentive Plan (“2016 Plan”); and

assumes no exercise by the underwriters of their overallotment option.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present our selected consolidated financial data. The selected consolidated statements of operations data for the years ended December 31, 2017, 2018 and 2019, and the selected consolidated balance sheets data as of December 31, 2018 and 2019 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 2017 is derived from our audited consolidated financial statements that are not included in this prospectus. The selected consolidated statements of operations data for the nine months ended September 2019 and 2020 and the selected consolidated balance sheet data as of September 30, 2020 are derived from our unaudited interim condensed consolidated financial statements that are included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, ~~related notes included~~ in ~~this prospectus and~~ the ~~sections~~opinion of management, reflect all adjustments of a normal recurring nature that are necessary for the fair statement of our unaudited interim condensed consolidated financial statements.

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The results of operations for the periods presented below are not necessarily indicative of the results that may be expected for any future period. You should read the historical financial data below in conjunction with the section titled “~~Selected Financial Data” and “Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~”Operations” in ~~this prospectus~~our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on April 13, 2020, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed with the SEC on November 13, 2020 and incorporated by reference herein and the financial statements and related notes included elsewhere in this prospectus. ~~The following amounts are in thousands.~~

As of June 30, 2020

Actual
(Unaudited)

Pro Forma⁽¹⁾

Pro Forma
as Adjusted⁽²⁾

(in thousands)
Cash and cash equivalents

$2,405

$2,405

$37,451
Senior term loan, net of unamortized discount and issuance costs

16,688

—

—
Subordinated debt

3,102

—

—
Public preferred stock

141,121

—

—
Common stock

78

96

99
Additional paid-in capital

4,310

306,198

194,245
Accumulated other comprehensive income

7

7

7
Accumulated deficit

(147,508)

(147,508)

(134,403)
Total Telos stockholders’ deficit

(143,113)

158,793

59,948
Non-controlling interest in subsidiary

7,104

—

—
Total stockholders’ deficit

(136,009)

158,793

59,948
Total capitalization

$24,902

158,793

59,948

	Year Ended December 31,			Nine Months Ended September 30, (Unaudited)
	2017	2018	2019	2019	2020
	(in thousands, except earnings per share data)
Consolidated Statement of Operations Data:
Revenue	$107,727	$138,016	$159,218	$112,745	$135,029
Cost of sales	67,161	84,954	106,874	77,441	88,652
Gross profit	40,566	53,062	52,344	35,304	46,377
Selling, general and administrative expenses	40,152	44,048	47,319	31,432	36,395
Operating income	414	9,014	5,025	3,872	9,982
Other income	11	12	201	195	14
Interest expense	(6,690)	(7,258)	(7,467)	(5,470)	(6,026)
Income (loss) before minority interest and income taxes	(6,265)	1,768	(2,241)	(1,403)	3,970
Income tax benefit (provision)	2,767	(31)	104	187	136
Net income (loss)	$(3,498)	$1,737	$(2,137)	$(1,216)	$4,106
Less: Income attributable to non-controlling interest	(2,335)	(3,377)	(4,264)	(1,705)	(6,284)
Net loss attributable to Telos	$(5,833)	$(1,640)	$(6,401)	$(2,921)	$(2,178)
Per Share Data:
Net loss per share attributable to Telos, basic and diluted	$(0.16)	$(0.04)	$(0.17)	$(0.08)	$(0.06)
Weighted-average shares of common stock outstanding, basic and diluted	35,774	36,762	37,729	37,614	38,554
Other Financial Data (Unaudited):
Free Cash Flow⁽¹⁾	$(2,820)	$2,154	$5,284	$(928)	$(5,874)
Adjusted EBITDA⁽²⁾	$139	$8,677	$5,934	$5,971	$7,730
Pro Forma net earnings per share, basic⁽³⁾			$0.08		$0.17
Pro Forma net earnings per share, diluted⁽³⁾			$0.07		$0.17

(1)

~~Gives~~We define Free Cash Flow as net cash provided by operating activities less cash used for purchases of property and equipment and capitalized software development costs. A reconciliation to net cash provided by operating activities is set forth below. See “Non-GAAP Financial Measures” below.

(2)	We define Adjusted EBITDA as net income (loss), adjusted for interest expense, (benefit) provision for income taxes, depreciation and amortization, stock-based compensation expense, acquisition related expense and other (income) expense, net. A reconciliation to net loss is set forth below.

(3)

The pro forma basic and diluted net loss per share as adjusted has been computed in the following table to give effect to (a) proceeds raised in this offering of $109.1 million to be paid, and 1.1 million shares of common stock to be issued, to the holders of Exchangeable Redeemable Preferred Stock in connection with the ERPS Conversion, (b) ~~$30~~proceeds raised in this offering of $30.0 million to be paid, and 7.3 million shares of common stock to be issued, to Hoya in connection with the Telos ID Purchase, and (c) approximately ~~$20.8~~$20.9 million of proceeds raised in this offering to be used for the repayment of outstanding senior and subordinated debt. The use of the proceeds raised assumes an offering price of $17.00 per share, the midpoint of the price range listed on the cover page of this prospectus.

	Year Ended December 31, 2019 (unaudited)	Nine Months Ended September 30, 2020 (unaudited)
Net loss attributable to Telos	$(6,401)	$(2,178)
Pro forma adjustment to remove the dividends from preferred stock recorded as interest expense	3,823	2,868
Pro forma adjustment to remove the interest expense related to the offering proceeds used to repay debt⁽¹⁾	2,542	2,532

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	Year Ended December 31, 2019 (unaudited)	Nine Months Ended September 30, 2020 (unaudited)
Pro forma adjustment to reflect the purchase of the non-controlling interest of Telos ID	4,264	6,284
Pro forma net income	$4,228	$9,506
Pro forma adjustment to give effect to the conversion of our outstanding Class A and Class B common shares into shares of common stock on a 1 for 1 basis	37,730	38,555
Pro forma adjustment to reflect the issuance of common stock in connection with the ERPS Conversion⁽²⁾	1,105	1,128
Pro forma adjustment to reflect common stock equivalent of the cash paid for shares in the ERPS Conversion⁽²⁾	6,264	6,393
Pro forma adjustment to reflect the shares issued in connection with the Telos ID Purchase⁽³⁾	7,300	7,300
Pro forma adjustment to reflect common stock equivalent of the cash paid for shares in the Telos ID purchase⁽³⁾	1,765	1,765
Pro forma adjustment to reflect common stock equivalent of the cash paid to extinguish debt⁽¹⁾	1,219	1,226
Pro forma weighted-average shares outstanding used in computing pro forma net loss per share, basic	55,383	56,367
Pro forma weighted-average shares outstanding used in computing pro forma net loss per share, diluted	57,230	57,327
Pro forma net earnings per share, basic	$0.08	$0.17
Pro forma net earnings per share, diluted	$0.07	$0.17

(1)	Represents the interest expense recognized on our outstanding senior term loan and subordinated debt which will be repaid using proceeds from the offering. We intend to use approximately $20.9 million of the offering proceeds to repay our outstanding senior term loan and subordinated debt.

(2)

~~Gives effect to (a) net proceeds to us from this offering of $197.7 million from the sale of~~Exchangeable Redeemable Preferred Stock will convert into approximately ~~12.35~~1.1 million shares of common stock and holders will receive $109.1 million, both in the aggregate, upon consummation of this offering. The cash payment is computed as the number of shares of common stock (valued at the initial offering price to the public) equal to the ERPS Liquidation Value, multiplied by 0.90, multiplied by 0.15. See “Exchangeable Redeemable Preferred Stock Conversion.”

(3)

Approximately $30.0 million cash from the proceeds raised in this offering and approximately 7.3 million shares of common stock will be issued as consideration in the purchase of Telos ID. Computed as the number of shares of our common stock equal to twelve percent (12%) of the total estimated number of shares of common stock that are issued and outstanding following (i) the issuance of such shares of common stock to Hoya or its members and (ii) the closing of the offering described in this prospectus.

	Year Ended December 31,			September 30, 2020	Pro Forma September 30, 2020⁽¹⁾ (Unaudited)	As Adjusted September 30, 2020⁽²⁾ (Unaudited)
	2017	2018	2019	September 30, 2020	Pro Forma September 30, 2020⁽¹⁾ (Unaudited)	As Adjusted September 30, 2020⁽²⁾ (Unaudited)
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$600	$72	$6,751	$10,326	$10,326	$44,603
Working Capital⁽³⁾	(4,075)	2,129	2,942	(11,332)	(11,332)	39,864
Total Assets	74,421	74,489	77,692	85,834	85,834	120,111
Contract Liabilities (Deferred Revenue)	10,073	5,232	6,337	6,353	6,353	6,353
Senior term loan, net of unamortized discount and issuance costs, including current portion	10,786	10,984	16,335	16,919	16,919	—
Subordinated Debt	2,289	2,597	2,927	3,192	3,192	—
Total stockholders’ equity (deficit)	(136,037)	(132,103)	(136,662)	(133,805)	23,683	62,660

(1)

Gives effect to (a) the 1.1 million shares of common stock to be issued, to the holders of Exchangeable Redeemable Preferred Stock in connection with the ERPS Conversion, (b) the 7.3 million shares of common stock to be issued to Hoya in connection with the Telos ID Purchase, and (c) a $14.1 million gain resulting from the ERPS Conversion.

(2)

Gives effect to the use of the net proceeds, as described under “Use of Proceeds,” to us from this offering of $193.8 million from the sale of 12.4 million shares of common stock. Each $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus), would increase (decrease) the pro forma as adjusted amount of cash and cash equivalents, working capital excluding deferred revenue, total assets and total stockholders’ equity by $11.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, excluding deferred revenue, total assets and total stockholders’ equity by ~~$16.1~~$15.8 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. ~~Excludes 7,459,915 shares of common stock reserved for issuance under the 2016 Plan and assumes no exercise by the underwriters of their overallotment option.~~

(3)	We define working capital as current assets less current liabilities.

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Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors 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, and 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 non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Free Cash Flow

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

We use Free Cash Flow as one measure of the liquidity of our business. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment and capitalized software development costs, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in Free Cash Flow, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or is not available) to be used for strategic initiatives. For example, if Free Cash Flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. We also believe that the use of Free Cash Flow enables us to more effectively evaluate our liquidity period-over-period and relative to our competitors.

A reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable GAAP measure, is as follows:

	Year Ended December 31,			Nine Months Ended September 30,
	2017	2018	2019	2019	2020
	(in thousands)
Net cash provided by (used in) operating activities	$(591)	$6,268	$11,816	$4,384	$11,957
Less:
Purchases of property and equipment	(748)	(2,465)	(4,090)	(3,141)	(624)
Capitalized software development costs	(1,481)	(1,649)	(2,442)	(2,171)	(5,459)
Free Cash Flow	$(2,820)	$2,154	$5,284	$(928)	$5,874
Net cash used in investing activities	$(2,229)	$(4,114)	$(6,532)	$(5,312)	$(6,083)
Net cash provided by (used in) financing activities	$2,761	$(2,682)	$1,395	$2,652	$(2,299)
Cash paid for interest	$(2,395)	$(2,483)	$(3,299)	$(2,294)	$(2,211)

Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Free Cash Flow does not represent the total increase or decrease in our cash balance for a given period. Because of these limitations, Free Cash Flow should not be considered as a replacement for cash flow from operations, 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.

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Adjusted EBITDA

Adjusted EBITDA is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to net income (loss), as determined by GAAP. We define Adjusted EBITDA as net income (loss), adjusted for interest expense, loss on extinguishment of debt, (benefit) provision for income taxes, depreciation and amortization, stock-based compensation expense, acquisition related expense and other (income) expense, net.

We use Adjusted EBITDA to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe that Adjusted EBITDA facilitates comparison of our operating performance on a consistent basis between periods by excluding certain items that may, or could, have a disproportionate 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, Adjusted EBITDA helps provide a broader picture of factors and trends affecting our results of operations.

A reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, is as follows:

	Year Ended December 31,			Nine Months Ended September 30,
	2017	2018	2019	2019	2020
	(in thousands)
Net loss attributable to Telos Corporation	$(5,833)	$(1,640)	$(6,401)	$(2,921)	$(2,178)
Interest expense	6,690	7,258	7,467	5,470	6,026
(Benefit) provision for income taxes	(2,767)	31	(104)	(187)	(136)
Depreciation and amortization	1,999	3,028	4,972	3,609	4,018
Stock-based compensation expense	50	—	—	—	—
Adjusted EBITDA	$139	$8,677	$5,934	$5,971	$7,730

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Among other limitations, Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments, does not reflect the impact of certain 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 differently than we do, which limits its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as a replacement for net income (loss), 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.

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~~DILUTION~~RISK FACTORS

~~If you invest~~Investing in our common stock ~~in this offering, your interest will be diluted~~involves a high degree of risk. Before making an investment decision with respect to our common stock, you should carefully consider the ~~extent~~following risks and all of the ~~difference between~~other information contained or incorporated by reference in the ~~initial public offering~~prospectus. If any of the following risks were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially and adversely affected. In that event, the trading price ~~per share~~ of our common stock could decline, and you could lose all or part of your investment in our common stock. Some statements in this prospectus, including such statements in the ~~pro forma as adjusted net tangible book value per share~~following risk factors, constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business and Industry

The following risk factors in this section entitled “Risks Related to Our Business and Industry” are in addition to those risk factors disclosed in our Annual Report on Form 10-K, filed with the SEC on April 13, 2020, which are incorporated by reference herein.

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

We derive a substantial portion of our ~~common stock~~revenues from U.S. government contracting, and as a result, we are subject to the annual seasonality of the U.S. government purchasing. Because the U.S. government fiscal year ends on September 30, it is not uncommon for U.S. government agencies to award extra tasks in the weeks immediately ~~after~~prior to the ~~closing~~end of its fiscal year in order to avoid the loss of unexpended fiscal year funds. As a result of this ~~offering.~~seasonality, we have historically experienced higher revenues in the third and fourth fiscal quarters, ending September 30 and December 31, respectively, with the pace of orders typically substantially reduced during the first and second fiscal quarters ending March 31 and June 30, respectively.

Our ~~pro forma net tangible book value~~pricing structures for our solutions and services may change from time to time.

We expect that we may change our pricing model from time to time, including as a result of 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 ~~common stock~~existing solutions and services, we may have difficulty determining the appropriate price structure for our products and services. In addition, as ~~of June 30, 2020 was $10 million,~~new and existing competitors introduce new products or ~~$0.21 per share,~~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 ~~number~~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. In addition, we may need to change pricing policies to accommodate government pricing guidelines for our contracts with federal, state, local, and foreign governments and government agencies. 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 ~~shares~~time, our business, financial condition, and results of operations may be adversely impacted.

We depend on computing infrastructure operated by Amazon Web Services (“AWS”), Microsoft, and other third parties to support some of our ~~common stock outstanding~~solutions and customers, and 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, such as AWS and Microsoft Azure, in order to host or operate some of June 30, 2020 and after giving effect to (i) the ERPS Conversion, (ii) the purchase of Telos ID, (iii) the repayment of outstanding senior and subordinated debt, and (iv) the 0.794-for-1 stock split and the conversioncertain key platform features or functions of our ~~Class A~~business. Additionally, we rely on computer hardware and ~~Class B common stock into common stock. Pro forma net tangible book value per share represents~~cloud capabilities purchased in order to deliver our ~~total tangible assets less our total liabilities, divided by~~solutions and services. We do not have control over the ~~number of outstanding shares of common stock, and after giving effect to the ERPS Conversion.~~

~~After giving effect to the receipt~~operations of the ~~net proceeds from our sale of approximately 12.35 million shares of common stock in this offering at an assumed initial public offering price of $17 million per share, the midpoint~~facilities of the ~~price range set forth~~third parties that we use. 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 fail or become unavailable due to extended outages, interruptions, defects, or otherwise, or if they are no longer available on ~~the cover page of this prospectus, after deducting underwriting discounts~~commercially reasonable terms or prices (or at all), these issues could result in errors or defects in our solutions, cause our solutions to fail, our revenue and ~~commissions~~margins could decline, or our reputation and ~~estimated offering~~brand to be damaged, we could be exposed to legal or contractual liability, our expenses ~~payable by us,~~could increase, our pro forma as adjusted net tangible book value as of June 30, 2020, would have been $45 million, or $0.74 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.53 per shareability to ~~our existing shareholders and an immediate dilution of $16.26 per share to investors purchasing common stock in this offering.~~

We calculate dilution per share to new investors by subtracting the pro forma net tangible book value per share from the initial public offering price paid by the new investor. The following table illustrates the dilution to new investors on a per share basis:

Each $1.00 increase (decrease) in the assumed initial public offering price of $17 would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $0.22 per share and the dilution to new investors by $0.78 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) the pro forma as adjusted net tangible book value by $0.28 per share and the dilution to new investors by $0.28 per share, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions.

If the underwriters’ option to purchase additional shares to cover over-allotments is exercised in full, the pro forma as adjusted net tangible book value per share after giving effect to this offering would be $1.26 per share, representing an immediate increase to existing shareholders of $1.05 per share, and immediate dilution to new investors in this offering of $15.74 per share.

~~The following table summarizes, as of June 30, 2020, on the pro forma as adjusted basis described above:~~

the total consideration paid to us by our existing shareholders and by new investors purchasing common stock in this offering, assuming an initial public offering price of $17 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering; and

~~the average price per share paid by existing shareholders and by new investors purchasing shares in this offering.~~

~~The foregoing calculations exclude 7,459,915 shares of common stock reserved for future issuance pursuant to our 2016 Plan.~~

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~~BUSINESS~~manage our operations could be interrupted, and 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.

~~Overview~~We have experienced, and may in the future experience, disruptions, failures, data loss, outages, and other performance problems with our infrastructure and cloud-based offerings due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, employee misconduct, capacity constraints, denial of service attacks, phishing attacks, computer viruses, malicious or destructive code, or other security-related incidents, and our disaster recovery planning may not be sufficient for all situations. If we experience disruptions, failures, data loss, outages, or other performance problems, our business, financial condition, and results of operations could be adversely affected.

~~Telos Corporation offers technologically advanced, software-based security~~Our systems and the third-party systems upon which we and our customers rely are also vulnerable to damage or interruption from catastrophic occurrences such as earthquakes, floods, fires, power loss, telecommunication failures, cybersecurity threats, terrorist attacks, natural disasters, public health crises such as the COVID-19 pandemic, 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, ~~that empower and protect~~which may adversely impact our business. In addition, our ability to conduct normal business operations could be severely affected. In the ~~world’s most security-conscious organizations against rapidly evolving, sophisticated and pervasive threats. Our portfolio~~event of ~~security products,~~significant physical damage to one of these facilities, it may take a significant period of time to achieve full resumption of our services, and ~~expertise empower~~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.

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 (“SLAs”). 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 ~~capabilities to reach new markets, serve their stakeholders more effectively, and successfully defend the nation~~us or their enterprise. We protect our customers’ people, information, and digital assets so they can pursue their corporate goals and conduct their global missions with confidence in their security and privacy.

Our customer base consists of the U.S. federal government, large commercial businesses, state and local governments, as well as international customers. Our federal government customers include the Department of Defense (“DoD”), the Central Intelligence Agency (the (“CIA’’) and multiple other agencies within the Intelligence Community (“IC”), and multiple civilian agencies, including the Department of Homeland Security (“DHS”), U.S. Department of State (“DoS”), and the Federal Bureau of Investigation (“FBI”). Our commercial customers include Fortune 500 enterprises such as Amazon.com, Inc., Citigroup Inc., Microsoft Corporation, and salesforce.com, inc. We have conducted business with over 350 customers in each of the last three years. For the six months ended June 30, 2020, approximately 50%decrease use of our ~~revenue was derived~~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 unsecure, and prevent us from ~~sole source contracts~~gaining new or ~~contracts for~~additional business from current or future customers, any of which ~~we had limited competition. Our customers are highly targeted by cyber attackers~~could harm our business, financial condition, and ~~require continuous real-time insights to make informed decisions about how to effectively balance the constraints~~results of security risk with the freedom to act and decide in the best interests of the organization and the greater good of the public. Our advanced security solutions help protect and ensure confidence in the information that is vitaloperations.

Moreover, to the ~~world’s most important commercial~~extent that we do not effectively address capacity constraints, upgrade our systems as needed, and ~~governmental organizations, national security,~~continually develop our technology and ~~mission success for the warfighter.~~

~~Our revenue growth trajectory began~~network architecture to ~~accelerate~~accommodate actual and anticipated changes in ~~2018 as we increased~~technology, our ~~investment into new products~~business, financial condition, and ~~solutions. Our security solutions are the ultimate product~~results of ~~the investment~~operations could be adversely affected. The provisioning of ~~approximately 3,000 man-years developing~~additional cloud hosting capacity requires lead time. AWS, Microsoft Azure, and other third parties have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If AWS, Microsoft Azure, or other third parties increase pricing terms, terminate or seek to terminate our intellectual property and highly sophisticated software technology. These investments helped us expand with commercial customers, as well as win additional contracts within the military and the IC. Revenue grew from $107.7 million in 2017 to $138.0 million in 2018 and to $159.2 million in 2019, representing annual growth rates of 28.1% and 15.4%, respectively. Once our security solutions are imbedded in our customers’ technology infrastructure, these customer relationships often expand and lead to us providing additional security solutions. As a consequence, we believe that our customer turnover is low and, based on historical experience, approximately 85% of our revenue is recurring, as discussed further below.

Our business consists of solution sales that generally are renewed on an annual basis and large programs that are executed through long-term contracts, often five to ten years in duration. We believe that the nature of our work lends itself to trusted and long-termcontractual relationship, establish more favorable relationships with our ~~customers, which results~~competitors, or change or interpret their terms of service or policies in a ~~high recurrence~~manner that is unfavorable with respect to us, we may be required to transfer to other cloud providers or invest in a private cloud. If we are required to transfer to other cloud providers or invest in a private cloud, we could incur significant costs and experience possible service interruption in connection with doing so, or risk loss of ~~ongoing~~ customer ~~revenue streams. As~~contracts if they are unwilling to accept such a ~~result, much of~~change.

A failure to maintain our ~~revenue is highly predictable.~~

~~We develop~~relationships with our ~~annual budgeted revenue by estimating for the upcoming year~~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 ~~continuing business from existing~~ability to deliver effective products and solutions to our customers and ~~active contracts. We consider backlog, both funded~~adversely affect our business and ~~unfunded (as explained below), other expected annual renewals, and expansion planned by our current customers. In the context~~results of our current customer portfolio, we view “recurring revenue” as revenue that occurs often and repeatedly. In each of the last three years, recurring revenue has exceeded 85% of our annual revenue. Our total budgeted revenue is the combination of recurring revenue and a forecast of new business.

Total backlog, a component of recurring revenue, 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. 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 a 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.

We expect our growth to accelerate beginning in 2021 and 2022 due to, among other factors, recent contract awards that are significant to our business. Notable recent awards include an expanded contract with a U.S.operations.

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~~government agency~~We are dependent on a few key customer contracts for a significant portion of our ~~Telos Ghost® managed intelligence support solution~~future revenue, and ~~contract wins under~~a significant reduction in services to one or more of these contracts would reduce our future revenue and harm our anticipated operating results.

A small number of our large customer contracts, including the ~~Transportation Security Administration (“TSA”)~~TSA PreCheck™ enrollment program and aour program with ~~The Centers for Medicare~~CMS, are expected to comprise a significant portion of our future revenue. Our business will likely be harmed if any of our key customer contracts do not generate as much revenue as we forecast, and ~~Medicaid Services (“CMS”). We believe~~ the ~~Telos Ghost~~termination or delay of a large contract ~~will generate approximately $4 million~~or of multiple contracts could have a material adverse effect on our revenue and profitability. Adverse events affecting the programs subject to ~~$5 million~~these contracts could also negatively affect our ability to process transactions under those contracts, which could adversely affect our revenue and results of ~~incremental revenue in 2021 and represents a platform for potential further growth through military and civilian government units during and after 2021. The~~operations. For example, the COVID-19 pandemic may adversely affect or disrupt the TSA PreCheck™ enrollment program, –which could lead to delays in the implementation of that program and changes in demand for that program. In addition, if the COVID-19 pandemic and associated protective or preventative measures expand, we may experience a ~~10-year~~material adverse effect on our business operations, revenues, financial condition, and ability to execute on business or contract ~~on which we are one~~opportunities; however, the ultimate impact is highly uncertain and subject to change.

We will face risks associated with the growth of ~~three vendors – is expected to launch~~our business in ~~early 2021. TSA estimates the market for TSA PreCheck™ enrollments is 2 million to 5 million travelers annually over the term of the contract,~~new commercial markets and with new customer verticals, and we ~~believe that~~may neither be able to continue our organic growth nor have the ~~share~~necessary resources to dedicate to the overall growth of our business.

We plan to expand our operations in new commercial markets, including those ~~enrollments~~where we may secure on an average annual basis over that term should grow to approximately 30% to 40% of those travelers. We anticipate charging $85 for each TSA PreCheck™ membership transaction, with the possibility that additional revenuehave limited operating experience, and may be ~~generated from co-marketing efforts. The CMS program – a 10-year indefinite delivery/indefinite quantity contract under which~~subject to increased business, technology and economic risks that could affect our financial results. In recent periods, we ~~anticipate providing~~have increased our focus on commercial customers. In the future, we may increasingly focus on such customers, including in the banking, financial services, ~~beginning in 2021 – involves our FBI-certified biometric enrollment solution. CMS estimates that approximately 1.5 million~~ healthcare, ~~workers will obtain background checks annually under the program,~~pharmaceutical, manufacturing, telecommunication, airlines and ~~we believe we are well-positioned to secure this work over the 10-year contract term. Based on these~~aerospace, insurance, retail, transportation, shipping and ~~other assumptions, we believe these programs collectively may grow from a base of approximately $11 million in revenue in 2020 to between $75 million~~logistics, and ~~$80 million in revenue and in excess of $135 million in revenue in 2021 and 2022, respectively. For these reasons, we anticipate these recent contract awards, combined with our organic growth~~energy industries, as well as other ~~opportunities for business expansion, to contribute to rapidly accelerating revenue growth beginning~~critical infrastructure industries. Entering new verticals and expanding in ~~2021 and 2022.~~

~~With~~ the ~~proceeds from this offering,~~verticals in which we intend to pursue additional opportunities to grow revenue, expand margins, simplify our capital structure, and repay our outstanding senior and subordinated debt. Specifically, we intend to expand our internal direct sales force, build sales and distribution channels for our products, andare already operating will continue to ~~invest~~require significant resources and there is no guarantee that such efforts will be successful or beneficial to us. Historically, sales to a new customer have often led to additional sales to the same customer or similarly situated customers. 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 which regulate those markets and industries. While this approach to expansion within new commercial markets and verticals has proven successful in ~~research~~the past, it is uncertain we will achieve the same penetration and ~~development.~~ organic growth in the future and our reputation, business, financial condition, and results of operations could be negatively impacted.

In the future, we may seek to enter into other credit facilities to help fund our working capital needs. These credit facilities may expose us to additional risks associated with leverage and may inhibit our operating flexibility.

We ~~also intend~~may seek to ~~repurchase~~enter into other credit facilities with third-party lenders to help fund our business. Such credit facilities will likely require us to pay a commitment fee on the ~~non-controlling interest~~undrawn amount and will likely contain a number of affirmative and restrictive covenants.

If we violate any such covenants, our lenders could accelerate the maturity of any debt outstanding and we may be prohibited from making any distributions to our stockholders. Such debt may be secured by our assets, including the stock we may own in ~~Telos ID for $30 million~~subsidiaries and the rights we have under intercompany loan agreements that we may enter into in the future with our businesses. Our ability to meet our debt service obligations may be affected by events beyond our control and will depend primarily upon cash ~~and 7.3 million shares~~produced by our business. Any failure to comply with the terms of our ~~common stock, convert~~indebtedness may have a material adverse effect on our ~~Exchangeable Redeemable Preferred Stock (with accrued principal~~financial condition.

In addition, we expect that such credit facilities will bear interest at floating rates which will generally change as interest rates change. We will bear the risk that the rates that we are charged by our lenders will increase faster than we can grow the cash flow from our businesses, which could reduce profitability, materially adversely affect our ability to service our debt and ~~dividends of approximately $142.6 million) for $109.1 million of cash and approximately 1.1 million shares of common stock, and repay $20.8 million of debt.~~

~~Our Mission: Cyber, Cloud, and Enterprise Security~~

~~Our mission is~~cause us to ~~protect~~breach covenants contained in our customers’ people, systems, and vital information assets with offerings for cybersecurity, cloud security, and enterprise security. In the current global environment, our mission is more critical than ever. The emergence of each new ICT introduces new vulnerabilities, as security is still too often overlooked in solution development. Networks and applications meant to enhance productivity and profitability often jeopardize an organization due to poor planning, misconfiguration, or an unknown gap in security. Ransomware, insider threats, cybercrime, and advanced persistent threats continue to menace public and private enterprises across all industries.

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. Decades of experience in developing, orchestrating, and delivering solutions across these three domains gives 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 across the following domains:~~

~~Cybersecurity~~ – We help our customers ensure the ongoing security, integrity, and compliance of their on-premises and related cloud-based systems, reducing threats and vulnerabilities in order to foil cyber adversaries before they can attack. Our consultants assess our customers’ security environments and then design, engineer, and operate the systems they need to strengthen their cybersecurity posture.

~~Cloud Security~~ – The cloud as an organizational resource is more than two decades old, yet the needs of cloud users are constantly changing. We offer the specialized skills and experience needed to help our customers plan, engineer, and execute secure cloud migration strategies and then ensure ongoing management and security in keeping with the leading standards for cloud-based systems and workloads.

third-party credit facilities.

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~~Enterprise Security~~ ~~– Securing the enterprise means protecting the essential~~Our business is subject to complex and ~~timeless elements common to every organization: its people~~evolving U.S. and ~~processes, its supply chain~~non-U.S. laws and ~~inventories, its finances~~regulations regarding privacy, data protection and ~~facilities,~~security, technology protection, and ~~its information~~other matters. Many of these laws and ~~communications. As ICT and OT have become part of the organizational make-up, we have offered solutions that ensure personnel can work securely and productively across and beyond the enterprise.~~

~~Our Market~~

Our market includes organizations in business across industry verticals, government, and the military. We believe that digital transformation is a reality for these organizations and that the ICT systems they depend on for their success and securityregulations are subject to ~~unprecedented~~change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or otherwise harm 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 and 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 ~~stress, threat,~~enforcement and ~~attack. Market-disrupting technologies,~~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 sensitive data or information may result in governmental investigations, inquiries, enforcement actions and prosecutions, private

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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.

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. generally accepted accounting principles (“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 effect 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, 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.

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 fall below expectations of securities analysts and investors, resulting in a decline in our stock price.

The preparation of our consolidated financial statements in conformity with 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, stock-based compensation, common stock valuations, and income taxes.

A novel strain of coronavirus, COVID-19, may adversely affect our future business operations, financial condition and our ability to execute on business or contract opportunities.

In December 2019, an outbreak of COVID-19 was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and ~~economic uncertainty make it difficult for customers~~on March 13, 2020, President Donald J. Trump declared the virus a national emergency. This highly contagious disease has spread to ~~plan for business expansion, develop new programs in service to~~most of the ~~public, or prepare military forces for the nation’s defense. Public and private enterprises alike face the following dynamic challenges that threaten their security:~~

~~Heavy dependence on information and operational technologies.~~ Organizations are increasingly dependent on technology, including mobile and wireless applications, cloud-based resources, industrial IoT, ICS, SCADA, and others. Data and applications are hosted on-premises,countries in the ~~cloud,~~world and ~~in hybrid environments. Further,~~throughout the ~~growing integration of ICT with OT offers greater control over operational systems – but also expands the overall attack surface~~United States, creating a serious impact on customers, workforces, and suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economic downturn. It has caused a disruption of the ~~enterprise.~~normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis. The pandemic may adversely affect our customers’ ability to perform their missions and is in many cases disrupting their operations. It may also impact the ability of our subcontractors, partners, and suppliers to operate and fulfill their contractual obligations, and result in an increase in their costs and cause delays in performance. These supply chain effects, and the direct effect of the virus and the disruption on our operations, may negatively impact both our ability to meet customer demand and our revenue and profit margins. Our employees, in some cases, are working remotely due either to safety concerns or to customer imposed limitations and using various technologies to perform their functions. We could see delays or changes in customer demand, particularly if government funding priorities change. Additionally, the disruption and volatility in the global and domestic capital markets may increase the cost of capital and limit our ability to access capital. Both the health and economic aspects of COVID-19 are highly fluid and the future course of each is uncertain. For these reasons and other reasons that may come to light if the

~~Digital transformation and accelerating migration to the cloud.~~ One of the most salient aspects of the current technology environment is the cloud. Enterprises and government agencies are accelerating the migration of applications, storage, and ICT/OT infrastructure to hosted and cloud environments. More organizations – including highly security-conscious agencies within the U.S. government and commercial entities – are gaining comfort and confidence in the cloud, taking advantage of the rapid application development, greater flexibility, and strategic agility that the cloud offers.20

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coronavirus pandemic and ~~beyond the enterprise.~~ ~~Organizations are no longer defined by~~associated protective or ~~confined by real estate, geography, or personnel rosters. Information~~preventative measures expand, we may experience a material adverse effect on our business operations, revenues and ~~applications are now accessible in the cloud. Mobile devices free personnel to work wherever their mission takes them. Employees, contractors,~~financial condition, and ~~partners collaborate in the physical and digital domains, trusting that they can rely on the integrity and trustworthiness of their people and their systems.~~

~~Turbulent technology environment due to COVID-19.~~ The COVID-19 pandemic has accelerated the growth of the remote workforce and, thus, cyber risk. The pandemic has upended nearly every organization’s established way of working. Existing technologies for mobility are being stretched to the limit, and enterprises are facing dramatic growth in cyber-attack risk as a result of personnel and systems that are still adjusting to an increasing number of workers accessing systems remotely. Ransomware, phishing attempts, and inadequate VPNs all contribute to a significant increase in threats and vulnerabilities.

~~The networked nature of enterprise technologies and the~~our ability to ~~work outside~~execute on business or contract opportunities, including the ~~organizational perimeter result in increased risk~~TSA PreCheck^TM enrollment program; however, its ultimate impact is highly uncertain and ~~the constant threat of attack. In particular, the cloud adds new complexities due~~subject to ~~the shared responsibility of cloud security and the need to manage and maintain the compliance of cloud-based resources.~~change.

Our solutions across a wide variety of use cases are designed to address our customers’ proliferating need to understand and address cybersecurity risk, reduce organizational attack surface, enhance enterprise mobility, expand adoption of cloud computing, and manage and protect identities in an increasingly dynamic and intensifying threat landscape. By addressing the breadth of our customers’ complex and evolving needs, we believe that our total addressable market in 2021 for the security services and products that we provide is over $80 billion.

Our Offerings

We refer to our cyber and cloud applications as Security Solutions, which includes Information Assurance / Xacta® (previously referred to as Cyber & Cloud Solutions), Secure Communications (previously referred to as Secure Communications Cyber and Enterprise Solutions), and Telos ID (previously referred to as Telos ID Enterprise Solutions). We refer to our offerings for enterprise security as Secure Networks (previously referred to as Secure Mobility and Network Management/Defense Enterprise Solutions).

Security Solutions revenue was $101.9 million and $86.6 million in 2019 and 2018, respectively. This increase in 2019 of approximately 18% is primarily attributable to a $10.1 million increase in sales of offerings in Telos ID on a contract with the U.S. Census Bureau and a $6.3 million increase in sales of offerings related to a contract with a U.S. government agency for our Telos Ghost managed intelligence support solution in Secure Communications. For the nine months ended September 30, 2020 and 2019, Security Solutions revenue was $92.6 million and $71.6 million, respectively. Improved performance was driven primarily by an increase of $16.5 million in sales of offerings in Telos ID on the contract with the U.S. Census Bureau and $6.5 million in

~~Assumed initial public offering price per share~~

~~$17.00~~

~~Pro forma net tangible book value per share as of June 30, 2020~~

~~Increase in pro forma net tangible book value per share attributable to new investors in this offering~~

~~Pro forma as adjusted net tangible book value per share after this offering~~

~~Dilution in net tangible book value per share to new investors in this offering~~

~~$16.26~~