TCS Q2 2026 QBR (Draft)

Proforma Revenue

$6.4M

YTD actual annualized · 3-mo run-rate ~$6.65M

Adj. EBITDA (run-rate)

~$1.4M

Feb-Apr run-rate ann. · YTD mech. $193K (May payroll timing)

FTEs (Field)

60 / 70

+5 potentials · 4 at risk by Sept (SAIC non-bid)

Active New Deals (Yr 1)

$38.0M

9 pursuits · $6.16M weighted

Pending Award (Yr 1)

$7.2M

3 submitted · $0.50M weighted

1. EOS Execution: Q2 Scorecard on Goals and Rocks

Q2 2026 Goals: 4 of 4 Complete

Goal	Status
1. Operational Systems Set (MSRs, AI & data analytics, training)	Complete
2. Talent Process Established & Implemented	Complete
3. Improve Financial Position	Complete
4. Position for Growth	Complete

Q2 2026 Rocks: 2 of 3 Complete

Rock	Owner	Status
1. Finalize TCS Strategic Positioning	Jary	Complete
2. Establish & Implement Talent Mgt System	Macho	Complete
3. Build Contract Execution & MSR System	Jesse	In Progress

Rock 3 carries into Q3: MSR redesign, 30/60/90 review system, QBR template, Engagement Lead model per contract.

Q3 2026 Goals (Outcomes) and Rocks, per quarterly planning

Goal 1: MEWSD proposal built and ready to win (expected award Mar 2027)
Goal 2: Fill all roles in under 21 days to submission
Goal 3: New business beyond the SAIC/Crane base
CMMC audit goal moved to parking lot (3PAO requirement suspended)

Rock 1: Run disciplined capture & proposal process
Remaining Q3 rocks in definition at leadership planning
Latest L10 headlines: Unanet confirmed, ADP+ moving forward, Aprio selected as new accounting firm (transition not yet started), expected acquisition close 9/1

2. People & Talent

Headcount Bridge to 70 FTE Target

Component	FTEs
Current field FTEs (Employee Directory, 7/9)	60
Potentials in pipeline (Radar Eng x2, Hypersonics, Bowhead Sub, BD)	+5
Tracked projected loss (Small Arms)	-1
Known departure: Hannah Howell 7/24 (hired by customer; backfill posted)	-1
Expected loss by Sept: SAIC declining to bid 2nd largest contract	-4
Net trajectory before backfills / new wins	59
Target (EOS scorecard)	70

Gap to target is now ~11 FTEs. Closing it requires the Radar Engineering / Hypersonics / Undersea Sensor ramps plus new contract capture, not just backfills.

Q2/Q3 Churn Detail (from 7/2 L10)

Ashley Eichert (tech writer) resigned 7/2, returning to teaching. Upgraded req posted: technical writer who creates content with engineers, not just edits.
Hannah Howell (Ordnance, Log-1): last day 7/24, hired by the customer. Backfill posting up.
Sean Rahill: moving to Ordnance as Tech-5 painter; Tech-4 painter backfill being sourced in Bedford.
Jennifer Canvas: new add on Small Arms (Jackie Hays), interim clearance in process.
Growth conversations: new Radar Engineering PM and new Undersea Sensor PM (Troy Sparks) meetings to define open positions; ME candidate already submitted.

Recruiting ops tightened in Q2: contract-specific SOW-based requisitions, weekly staffing file reviews, and a 21-day fill goal set for Q3.

3. Business Development Pipeline

Active New Deals — $38.0M unweighted / $6.16M weighted (9 pursuits)

Opportunity	Strategy	Stage	Yr 1 Rev if Won	Prob.	Weighted	Timing / Market
Warrant — MEWSD (w/ Amentum)	Prime w/ Partner	Waiting	$5.00M	60%	$3.00M	Award Mar 2027 · Crane
NIWC BAA (C4ISR / Cyber / Quantum)	OTA/CSO/BAA	Waiting	$14.70M	5%	$0.74M	BD tracker
CRSS Crane Security Support	Set Aside	Waiting	$10.00M	15%	$1.50M	NAVSEA LRAE · Crane
ONR Long-Range BAA	OTA/CSO/BAA	Waiting	$3.18M	10%	$0.32M	BD tracker
Air Force CyberWorx CSO	OTA/CSO/BAA	Waiting	$1.95M	5%	$0.10M	BD tracker
DEVCOM SC BOTAA	OTA/CSO/BAA	Waiting	$1.50M	10%	$0.15M	BD tracker
SUBNET BAA 004-21	OTA/CSO/BAA	Waiting	$0.90M	5%	$0.04M	BD tracker
Precise Obsolescence — N0016421F3011	Set Aside	Waiting	$0.80M	40%	$0.32M	Incumbent ext. Feb 2027 · Crane
SEPS II — SOCOM	Prime w/ Partner	SSN / RFI	TBD	—	—	RFI stage, unsized
Subtotal — Active New Deals			$38.02M		$6.16M

Pending Award — $7.15M unweighted / $0.50M weighted (3 submitted, awaiting decision)

Opportunity	Strategy	Stage	Yr 1 Rev if Won	Prob.	Weighted	Timing / Market
SOF GSD	Sub	Pending Award	$6.40M	5%	$0.32M	Award Sep 2026 · SOF
CJ Sito — Environmental	Sub	Pending Award	$0.50M	30%	$0.15M	Award Dec 2026 · Crane
SOFETOPS (GDIT)	Sub	Pending Award	$0.25M	10%	$0.03M	SOF
Subtotal — Pending Award			$7.15M		$0.50M

Total active pursuit: $45.2M unweighted / $6.66M weighted. MEWSD (60%, Amentum-partnered, Mar 2027 award) is the anchor and carries ~45% of total weighted value. The eight OTA/CSO/BAA and set-aside pursuits behind it are the deliberate push off the SAIC/Crane base into new customers and vehicles.

Source: Asana Pipeline project, Active New Deals and Pending Award sections, pulled 7/18/2026. Weighted = Yr 1 revenue × close probability (Asana "Rev - Projected" field). SEPS II is RFI-stage and unsized, excluded from subtotals.

4. Core Challenges (Root Causes) and Responses

1. Overleveraged from Inception

Acquisition debt service ($1.02M/yr against $1.1M baseline AEBITDA) consumes nearly all cash flow. This prevents hiring the corporate staff needed to grow: the team is too lean, and all BD execution depends on Jary personally. Key-person concentration is the operating consequence of the balance sheet.

Response: leadership de-risking underway: recruiting a dedicated BD hire and bringing on an operating partner to run day-to-day, freeing Jary for M&A and capture. Plus deleveraging discipline, factored A/R visibility (tracking spreadsheet live mid-July), Unanet migration to cut ERP cost, and capex prioritized toward revenue-generating capability.

2. No True Capability + SAIC Concentration

TCS was built as a staff augmentation business. Nearly all revenue runs through SAIC at Crane; TCS is SAIC's largest small business contractor besides Paragon Force. SAIC is a difficult partner, and the larger risk is structural: SAIC corporate is de-prioritizing low-margin Crane work, cannot adapt or innovate quickly, and is exposed to share loss as new entrants like Kratos move in. Evidence this risk is materializing: SAIC declined to bid the recompete of TCS's 2nd largest contract (4 FTEs at risk by Sept).

Response: build a true, marketable in-house capability in AI integration, data analytics, and bespoke solutions. Constraint: security requirements block commercial AI tools (e.g., Claude) in classified/CUI environments, so the build is bespoke. CMMC 3PAO and AI Integration Specialist capex directly fund this.

3. GovCon Sales Cycle + Crane Ceiling

Sales cycles run 18 months minimum. The Small Arms pursuit was the right bet and was lost only to government fraud. The Crane environment compounds it: slow cycles, known contracts, limited new opportunities. Growth requires new markets while solidifying the base. SOCOM entry and prime teaming both gate on the same thing: demonstrated capability. Meetings are gettable; without a true capability they do not convert.

Response: MEWSD positioned as the near-term win (Mar 2027, 60%). Fluor and KBR teaming pipelines in build. LRAE-sourced set-aside recompetes give Crane-adjacent shots. New market entry into the VA being pursued jointly with the operating partner. Capability build (Challenge 2) is the unlock for SOCOM and prime teaming conversion.

5. M&A and Inorganic Growth

A significant share of Q2 leadership effort went to M&A evaluation, consistent with the thesis that TCS needs acquired capability and diversification faster than organic capture alone can deliver.

Target	Status	Disposition
Nexus Leap	Terminated	Abandoned after quality of earnings. The QofE surfaced issues that broke the thesis; capital discipline held and the deal was walked.
Additional target under evaluation	Active	Expected close September 1, 2026. Jary's day-to-day shifting to an operating partner so his focus moves to this transaction and integration.

Integration readiness moves already underway: Aprio selected as new accounting firm (transition not yet started; no fees incurred to date), Unanet ERP confirmed (Jan 1 go-live), ADP+ payroll upgrade moving forward. Strategic lens: Fluor and KBR teaming relationships double as potential exit/acquirer paths, giving the capability build both offensive (new work) and strategic (optionality) value.

6. Strategic Capital Expenditures ($567K+ Plan)

Investment	Target	Purpose
SOF SA Expansion	$180K	On hold pending Small Arms outcome review
Software Dev & AI Tools	$150K	In-house capability build
G&A: AI Integration Specialist	$120K	Capability hire
CMMC 3PAO	$90K	SUSPENDED: CMMC 2 3PAO paused; $20K down paid, ~50% recovery expected
GSA & OASIS+ Contract Vehicles	$27K	Vehicle access beyond SAIC
BD Tools	TBD	Pipeline productivity
Total committed plan	$567K+

Capability Build Status

Information capture and in-house AI/data analytics development began in Q2.
Constraint: security requirements prevent commercially available AI tools (e.g., Claude) on covered work; solutions must be bespoke and compliance-clean.
CMMC 2 3PAO requirement suspended as of mid-July. Potential upside if the compliance burden shifts off small businesses; $20K downpayment already spent, ~$10K recovery expected. Compliance posture stays a marketing asset either way.
Internal proof points in production: MSR dashboards, SCG-referencing classification agent (RAG) to stop CUI over-labeling, Unanet migration (Sept transition, Jan 1 go-live).

7. Financial Performance (April actuals; May/Jun estimated from billings)

P&L Trend: Jan-May 2026 Actuals (Costpoint, accrual; Apr restated)

Line	Jan	Feb	Mar	Apr	May	YTD
Revenue	$428K	$555K	$578K	$546K	$540K	$2,647K
Direct costs	($226K)	($297K)	($308K)	($287K)	($448K)	($1,565K)
OH + fringe	($130K)	($73K)	($94K)	($68K)	($109K)	($473K)
Gross margin	$72K	$185K	$176K	$191K	($17K)	$608K (23.0%)
Admin (amort. now excluded)	($111K)	($83K)	($114K)	$58K	($114K)	($364K)
Other (interest + FAR-unallowable amort.)	($54K)	($50K)	($49K)	($209K)	($106K)	($468K)
Net income before taxes	($92K)	$52K	$13K	$40K	($236K)	($224K)
EBITDA (NIBT + interest + D&A)	($9K)	$136K	$96K	$123K	($153K)	$193K
Adjusted EBITDA (normalize May payroll timing)	($9K)	$136K	$96K	$123K	~$29K	~$374K

EBITDA is the mechanical add-back. Adjusted EBITDA normalizes the ~$182K one-time labor/fringe overage in May (see bridge at right). Feb-Apr clean run-rate: ~$118K/mo EBITDA, ~$1.42M annualized.

May is a timing month, pending June confirmation: direct labor $151K (vs $100K Apr) and direct H&W $279K (vs $155K) are consistent with a third payroll/timesheet period posting in May (paydays 5/1, 5/15, 5/29) plus workers comp and H&W true-ups; the $349K accrued salaries at 4/30 reversed to $6K at 5/31. Revenue held at $540K. If June direct costs stay elevated, it is a margin problem, not timing.

Indirect rate fix (classification only, zero P&L impact): $173.6K YTD of goodwill amortization was reclassified from allowable G&A (80-200-010) to FAR-unallowable (90-700-017, $34.7K/mo). Both accounts sit above net income, so this is NIBT- and EBITDA-neutral, verified: April net income is identical ($40,183) before and after the reclass, and total amortization is unchanged ($35,417). It only reshapes the G&A pool billed to the government, addressing the high-G&A indirect-rate finding and removing FAR audit exposure. Note: because Costpoint booked a 4-month catch-up in April, the April "Admin" (+$58K) and "Other" (($209K)) subtotals above look distorted, but they offset exactly and net income is correct.

Balance Sheet & Leverage (5/31/26)

Cash (was $755K at 4/30; factoring pull-forward)	$1,244K
Billed A/R	$1,833K
Accounts payable	$202K
Debt, long-term notes	$5,257K
Debt, current portion (per 4/30 detail)	$1,483K
Total debt	~$6,740K
Leverage on Feb-Apr run-rate EBITDA (~$1.42M ann.)	~4.7x
Leverage on adjusted YTD EBITDA (~$0.9M ann.)	~7.5x
Debt service coverage, run-rate ($118K vs $79K/mo)	~1.5x

Challenge 1 quantified: on the clean Feb-Apr run rate TCS is ~4.7x levered at ~1.5x coverage; on adjusted YTD (dragged by a weak Jan and May's timing loss) ~7.5x at ~0.9x coverage. June's close determines which is the real trend. Either way, debt service consumes most of operating cash generation, the core constraint on hiring.

Invoice Factoring (began May 2026)

Terms	85% advance / 15% reserve
Cost	0.25% per 12 days + Prime floor 6.5% + 250bps (~9.25% eff.)
All-in cost per 45-day invoice	~2%
Cash pulled forward into May (Apr + May invoices factored)	$1,052K

Factoring explains the April A/R puzzle: the $434K over-90 aging bucket and the BS-vs-aging gap reflect factored invoices, not collection failure. Working capital timing risk is now largely transferred, at ~2% cost per invoice.

Why May shows a ($236K) loss: bridge from the Feb-Apr run-rate

Driver	Impact vs run-rate	Timing or real?
Feb-Apr average monthly NIBT (baseline)	+$35K
Direct labor + H&W fringe + FICA (3rd pay period 5/1, 5/15, 5/29)	($185K)	Timing accrued salaries $349K→$6K
G&A consultants (80-400-000; vendor unnamed in Costpoint)	($26K)	Confirm
G&A professional services (80-200-015; vendor unnamed)	($13K)	Confirm
New FAR-unallowable dues & fees (90-700-005)	($15K)	Confirm
Workers comp true-up (60-200-004)	($12K)	Timing quarterly
Revenue slightly below trend + other	($20K)	Mixed
May NIBT (as reported)	($236K)

Answer: roughly two-thirds of the swing ($185K) is the third payroll, a pure accrual-cutoff artifact confirmed by the accrued-salary reversal (revenue was flat at $540K while ~3 pay periods of labor posted). The remaining ~$65K is real cost (consultants, professional services, a new FAR-unallowable dues charge, and a workers-comp true-up); vendors are not named in the trended statement, so these should be confirmed with accounting. The amortization reclass is NOT a driver here, it is NIBT-neutral (April net income is identical, $40,183, before and after the reclass). Normalizing the payroll timing, May is roughly breakeven at the EBITDA line. The test: if June direct costs snap back to ~$290K, May was timing; if they hold near $448K, it is genuine margin erosion.

Q2 Estimate and Cash Flow Projection (Jun-Dec, anchored at actual 5/31 cash of $1,244K)

Measure	Value
Q2 revenue estimate (Apr + May actual + Jun billings ~$516K)	$1,602K
H1 revenue estimate / annualized	$3,163K / ~$6.4M
Monthly cash opex, conservative (Jan-May avg incl. 3-payroll May)	$491K
Monthly cash opex, normalized (Feb-Apr avg)	$440K
Monthly debt service (interest + principal, actual)	$79K
Projected cash, Dec 2026: conservative / normalized opex	~$876K / ~$1,230K

Factoring validated: the model projected +$532K cash build for May; actual was +$490K ($755K to $1,244K).
Conservative case troughs at ~$988K (Sep) and never breaks $950K; normalized case holds above $1.2M all year.
Steady state from Oct is roughly breakeven on conservative opex ($533K inflows vs $570K burn) and ~+$13K/mo on normalized. June close resolves which trend is real.
227 unique SAIC invoices (deduped, 8 exports) reconcile to the factoring log; billings are an accrual proxy, not revenue.

EOS Scorecard Targets vs Actuals

Metric	Goal	Q2 Actual
Revenue MTD (May)	$540K	$540K, on goal
Net Profit (YTD)	15%+	(8.5%), May payroll timing
Cash on Hand (5/31)	$300K+	$1,244K
Pipeline Revenue (active pursuit, unweighted)	$10M	$45.2M
Weighted Pipeline	$4M	$6.66M
Total FTEs	70	60

8. 90-Day Roadmap (Q3 2026)

Milestone	Owner	Window
Acquisition close (expected)	Jary	Sept 1
Aprio onboarding as accounting firm; ADP+ payroll upgrade	Christina	Q3
Remaining Q3 rocks finalized at quarterly planning session	Leadership	July
Advance new-market pursuits: OTA/CSO/BAA submissions (NIWC, ONR, CyberWorx, DEVCOM) + CRSS	Jary	Q3
A/R + factored cash tracking live, feeding 3-month cash view	Christina	Mid-July
Manage 4-FTE contract loss: redeploy / backfill plan, revenue impact quantified	Jesse / Macho	By Sept
MEWSD proposal built and ready to win	Jary	Q3
Hire BD lead; onboard operating partner for day-to-day (Jary shifts to M&A)	Jary	Q3
Scope VA market entry (joint with operating partner)	Jary / Partner	Q3-Q4
CMMC: monitor 3PAO suspension; recover ~$10K of downpayment; re-baseline audit plan	Christina / Alli	Q3
Unanet transition start (Jan 1 go-live)	Jary / Christina	Sept
Fill all roles <21 days to submission (new standard)	Macho	Ongoing