Intrusion Inc.

Quarter 2025 Earnings Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for questions at the end of today's prepared comments. Please note this conference call is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Josh Carroll with Investor Relations.

Thank you and welcome. Joining me today are Tony Scott, President and Chief Executive Officer, and Kimberly Pinson, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Tony, I'd like to remind everyone that the statements made during this conference call relating to the company's expected future performance, future business prospects, future events, or plans may include four looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on specific risk factors that could cause our actual results to differ materially from the projections described in today's conference call. Any forward-looking statements that we make on this call are based upon information that we believe, as of today, we undertake no obligation to update these statements as a result of the new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During the call, we may use non-GAAP measures if we believe it is useful to investors or if we believe it will help investors better understand our performance or business trends. With that, let me now turn the call over to Tony for a few opening remarks.

Thank you, Josh. Good afternoon, and thank you all for joining us. The first quarter of 2025 marked another meaningful milestone for intrusion, highlighted by our fourth consecutive quarter of sequential revenue growth, and another quarter of near zero churn, the piloting of promising new product in our Shield family of products, a new commercial go-to-market partnership, and accelerating awareness of Intrusion's capabilities through our enhanced marketing and channel efforts. Now, regarding our pipeline, we're continuing to experience strong demand for our products, both domestically and across the broader Asia-Pac region. driven by the growing positive reputation of our solutions. While we've been making solid progress on the sales front over the past few quarters, we're still not satisfied with the level of growth that we've been experiencing. And as mentioned during our fourth quarter earnings call, we identified several key initiatives to drive our growth, and I'd like to provide an update on our progress on those initiatives. We're progressing according to plan to make our Shield Cloud product available on the AWS marketplace, which as I previously noted back in February, is a high growth engine for many companies like ours. And it'll become available for potential customers during the second quarter. We believe that we will begin to see some positive contributions from this initiative to our revenue results during the second half of fiscal year 2025. We're also on track with our efforts to increase our digital marketing to create better visibility and engagement on relevant social media platforms. We're currently working with a consultant on these efforts, and while early, we're encouraged by the reception and the response that we're seeing, all with the goal of increasing awareness in a very noisy cybersecurity market. We are making great progress with revamping our channel program to refine our messaging, our pricing, our go-to-market processes, and various other aspects that we have identified as gaps that we believe have inhibited our growth. And as we noted last quarter, while not always under our control, every quarter we've had significant deals slip into the next quarter, or we've experienced meaningful delays in onboarding, which impacts the timing of revenue and makes it hard to allocate resources properly. These enhancements are progressing well and are expected to enable a more reliable and consistent cadence of bookings and revenue management. Also, we intend to hire a channel sales leader to support these efforts within the next few months. On the R&D front, we're continuing to strategically invest at a relatively constant level to improve our portfolio to ensure that our products are able to address the ever-evolving challenges of cybersecurity. And one of the key areas that we're making product investments in is to help protect critical infrastructure assets, such as local utilities, power and water, communications, and other critical services. We view this as a very promising market for intrusion, given the rise in ransomware, supply chain attacks, and other threats currently facing these critical infrastructure assets. Our pilot projects in this area are going well, and we expect expanded deployments during the second quarter and throughout the remainder of the year. As a result of these pilots, we've identified additional capabilities that we can relatively quickly develop, which will further enhance our offerings in this space and should lead to additional revenue opportunities. On the partnership front, I'm pleased to announce a new partnership with PortNexus, who has chosen to embed Intrusion Shield Endpoint into their MyFlare and PledgePlus solutions. According to PortNexus, MyFlare helps first responders react more quickly to critical situations where every second of delay can mean the difference between life and death. PledgePlus is a solution for fleet management operators that helps with minimizing problems caused by distracted driving. In both cases, intrusion technology will be integrated into the PortNexus developed solutions to provide enhanced security for the endpoints used by Portnexus customers. And I'd like to thank the Portnexus team for selecting Intrusion, and we look forward to a long-term partnership, as well as our mutual success in the marketplace. Now, briefly onto our financials for the quarter. Total revenues for the first quarter were $1.8 million, representing a 6% increase compared to the previous quarter. Our operating expenses during the quarter were up slightly compared to the fourth quarter, driven primarily by increased professional fees related to the timing of our annual audit and a one-time settlement in the fourth quarter with our D&O carrier for reimbursement of legal support costs associated with the now-completed SEC investigation. While we have and will continue to make further investments in our business, over the next few quarters, we still plan to do so in a very disciplined manner. As you're all aware, we were able to take meaningful steps during the end of the fourth quarter and the first few days of the first quarter to strengthen our balance sheet, which gave us a strong cash position to fund our business through fiscal year 2025 and beyond, fully eliminating our outstanding debt and removing the need for additional capital in 2025. We're excited about our improved financial health and the position we believe it puts us in to focus on growing our business. Finally, before I wrap up and pass the call over to Kim, I'd like to address the environment we're operating in. Many of you have asked during recent investor roadshows and conferences what, if any, impacts our business may be facing in as a result of the recent efforts to cut costs by the federal government. While the situation is still very fluid, we're currently not experiencing any impacts to our government contracts as a result of the recent policy and priority changes. However, we are still waiting on Congress to pass a full budget for the current fiscal year and to agree on the contours of the budget for next year, which, as many of you know, is always filled with some degree of risk. Despite this uncertainty, we're confident that the strength of our non-government pipeline will continue to support our growth trajectory in the interim as we await further clarity on the federal budget. It's an exciting time for intrusion, and the demand for our products continues to grow. And with that, I'd now like to turn the call over to Kim for a more detailed review of our first quarter financials. Kim?

Thanks, Tommy. In the first quarter of 2025, revenues were $1.8 million, an increase of 6% sequentially, and 57% when compared to the prior year period. The increase in revenue was driven by multiple new contracts and logos in recent quarters, most notably including the contract with the United States Department of Defense utilizing both SHIELD technology and consulting services. Consulting revenues in the first quarter totaled $1.4 million, an increase of $.1 million sequentially, and $.7 million on a year-over-year basis. The continuing resolution and delay in the approval of a federal budget for the 2024 fiscal year impacted renewals and task orders received for longstanding contracts, which resulted in lower consulting revenues for the quarter ended March 31, 2024. Although there was similarly a delay in a final funding bill for the 2025 fiscal year, there has been no impact to revenues on our existing government contracts. Shield revenues in the first quarter were $0.4 million, an increase of $0.1 million sequentially in flat year-over-years. You may recall effective April 1, 2024, we lost a large Shield customer that was utilizing a highly customized and non-standard configuration of the product. The loss of revenues from this customer, which represented 78% of Shield revenues in the first quarter of 2024, has now been fully backfilled with the addition of new customers. As a result of changes in our customer base, predominantly the loss of the large early SHIELD adopter and the DOD award in the second half of 2024, sales to U.S. government entities represented 92% of revenues in the first quarter of 2025. We are seeing strong demand for our SHIELD and consulting services with both governmental and commercial customers and anticipate deeper penetration in both sectors, which will result in further changes to our customer mix. Gross profit margin was 76% for the first quarter of 2025 compared to 80% in the first quarter of 2024. The main driver for the decrease in gross margin was our product mix, which will continue to vary from quarter to quarter. Operating expenses in the first quarter of 2025 totaled $3.4 million, an increase of $0.3 million on a sequential basis and flat on a year-over-year basis. The sequential increase was largely driven by increased professional fees related to the timing of our annual audit and a one-time settlement in the fourth quarter of 2024 with our D&O carrier for reimbursement of legal support costs associated with the SEC investigation. As Tony mentioned earlier, we have recently launched several new sales and marketing initiatives. We may elect to further increase our investment in both sales and marketing, as well as product development to accelerate the growth of our customer base, which will result in higher operating expenses. With that said, we will continue to remain vigilant with our spending to ensure we maintain a strong liquidity position. Net loss for the first quarter of 2025 was $2.1 million, or 11 cents per share, compared to a net loss of $1.7 million, or 94 cents per share, for the first quarter of 2024. The increase in net loss for 2025 was a result of a net interest credit of $0.8 million recorded in the 2024 period from the exchange of $9.3 million in senior debt for Series A preferred stock and the associated reversal of interest accretion for the ability to stock settled principal redemptions on the debt Turning to the balance sheet from a liquidity perspective, on March 31, 2025, we had cash and cash equivalents of $10.7 million compared to $0.1 million in March of 2024. As Tony mentioned earlier, we were able to take advantage of the run-up in our share price in late 2024 and the first week of 2025 that meaningfully improved our financial positions. with $14.5 million in proceeds to the company and the elimination of $10.1 million notional value of Series A preferred stock. As a result, we now have sufficient capital to fund our operations through the remainder of calendar year 2025 and into early 2026. While we do not have plans to raise additional capital in 2025, We did file $100 million replacement S3 shelf registration that went effective on February 10, 2025. Because our public float, as calculated in accordance with General Instruction 1B1 of Form S3, was above $75 million, we are no longer subject to the capital raise limitations imposed by the baby shelf rule. We believe this provides a great degree of financial flexibility to be able to respond to opportunities as they arise. Also, during the first quarter, we retired the remaining $.5 million of our senior debt through an exchange of common stock, which further strengthened our balance sheet. With that, I'd now like to turn the call back over to Tony for a few closing comments. Tony?

Thanks, Kim. As we discussed today, we're excited about the progress we've made over the past few months in positioning our business for sustainable growth and profitability. As many of you know, reaching this point has not been easy for Intrusion. And while we still have a lot of work ahead of us, we believe we're at a key inflection point in our growth journey, thanks to our improved balance sheet and growing customer base and pipelines. Additionally, it's our belief that we will only see the demand for our solutions increase in the near term due to the continued rise of cybersecurity threats in the key regions that we operate in. Now that concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A.

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Scott Buck from HC Wainwright. Your line is live.

Hi. Good afternoon, guys. Thanks for taking my questions. Tony, you mentioned in your prepared remarks potential changes to pricing. I was hoping you could give us just a little more color on what you guys are thinking there.

Yeah, so, you know, we had a pretty simple portfolio of products, you know, a year and a half or so ago, but the Shield family now includes, you know, several variations, including cloud and endpoint and we're also selling to managed service providers. So part of the work that we're doing in a total review of all this is a pricing review to try to make sure we're competitive in the marketplace and that we can service MSPs and MSSPs in particular. One of the little nuances here is we used to express our pricing in terms of just monthly or, I'm sorry, yearly or, you know, multi-year contracts. But most managed service providers charge their customers by the month. And while we would still get paid in a quarterly or an annual basis, they want to know, you charge might be. So it's little nuances like that. We're not thinking about reducing prices. We've been told our pricing is pretty competitive in terms of what we actually charge for the services that we provide. But slicing it up into different time periods makes it easier for our target market MSPs and MSSPs in particular to understand not only what the cost to them might be, but also as they market up and charge their customers, what they might be able to get in terms of an increase in revenue for themselves. So it's a few things like that. When we get into the Amazon marketplace, we'll have pricing changes. schemes there. Part of our discovery is that customers there are used to buying bundles of things, and so we're working through the likely size of those bundles as well, and we'll have pricing commensurate with that. So it's a bunch of those, I'll say, more minor adjustments. On our government contracts, we've been able to get in annual increases when these contracts renew or come up for option years. And we'll continue that practice as well. So that's kind of a broad look at it. Obviously, for the new products that we have coming, we'll, you know, have obviously new pricing for those things. But our intent is always to make them competitive in the marketplace.

Great. That's very helpful. On your entrance into the AWS marketplace, how will you be supporting that through marketing? How are you getting the word out and is Amazon helping you there as well?

Once we get there, there's a whole tiered set of capabilities that you can do to create awareness for your products in the marketplace, and our intent is to pursue all of those, whether it's digital marketing with Amazon or placement in various categories. But there's a whole fairly complex, I'll call it scheme or pattern of things that have proven to be pretty successful and we're going to follow all those best practices as we, as we debut in that pretty important form.

Yeah. Okay. Perfect. And then last one from me, I'm curious, you know, is there an opportunity to potentially expand the relationship with the DOD over time?

Yeah, I, I believe there is, you know, we're, we're constantly having conversations and I would say recently we've had some conversations in quarters that we hadn't been engaged with before. I'm actually doing this call from a hotel room at the RSA conference in San Francisco. And just, you know, today and tomorrow have some great meetings either have happened or scheduled with a pretty broad array of customers, including government customers. So, The answer is yes, in short.

Perfect. And then, sorry, Kim, I think I missed it when you said in the call. Shield revenue in the quarter was what?

It was $400,000. Okay.

All right. That's basically flat with a quarter ago, right?

It was up from the fourth quarter and flat with previous quarters. Okay. All right. It has fully backfilled the loss of our large commercial contract from early in 2024.

Yep. Okay. And you guys have completely anniversary that at this point?

April 1 marks the anniversary. That is correct.

Perfect. Well, thanks a lot, guys. I appreciate the time.

Thank you.

Thank you. Your next question is coming from Ed Wu from Ascendant Capital. Your line is live.

Yeah, congratulations on the progress this quarter. Thanks for giving us the information about the state of government contracts. But what are you seeing out there, especially you're at the RSA conference? What are you hearing about CIOs and their ability and their budgets to spend on cybersecurity products like yours this year? Has there been any significant change in the last three months?

I'm not detecting any significant change. It looks to me, just based on feel, that this conference has got even more attendees than what I remember in the past. Every hotel room is booked, the restaurants are full, and the Moscone Center is packed, both with suppliers of cybersecurity technology and apparently customers seeking those things. So based on the feel here, I would say it's as robust as ever, and if not, it's not an increase in some fashion in terms of interest and energy level and all the rest of it. Of course, AI is a big topic here. We incorporate AI in our products, and it appears that nearly every other cybersecurity vendor is doing that as well. Part of the thing that I do here when I come every year is look around for other technologies that might compete with us or be a threat to us from a technology perspective. Yet again, I can't find any. Admittedly, I haven't looked at every single technology on the planet, but RSA is a good representation of what's available so I think it's I think you can count on the bad guys still wanting to do bad stuff and I think that means robust business for those that are in the detect and defend side of the business so hopefully that's helpful yeah that's very helpful thank you very much and I wish you guys a

Good luck. Thank you.

Thank you. Thank you. Your next question is coming from Walter Shankar from Mays Partners. Your line is live.

Hi, Tony. Hi, Kim. In looking at the last couple of quarters and listening, I understand the magic of 6% compound interest, which is the sequential growth of revenues quarter over quarter. However, as we've discussed over a number of years now, intrusion needs to be 50%, 75% higher quarterly revenues to get to sort of a break-even or close to a cash break-even level. Are the catalysts to get there a big government contract? Is it AWS? Is it just the sum of a lot of little things? Because... you keep growing slowly and I'm just trying to understand if there's sort of a breakout or breakthrough moment that you're looking forward to so that we can finally move this ahead at a much faster rate.

Great question, Walter. I think at this point, from my perspective, it's a combination of things. It's why we keep investing in our existing products but also We always keep an eye out for new things that we can do that are in demand from the customers that we have and our understanding of the potential in the marketplace. So this critical infrastructure thing I talked briefly about is an example of that. Existing customers said, hey, can you guys do something to help protect critical infrastructure? And it needs to have kind of these set of capabilities. And our team got together, put together the initial product. We got it deployed, got some feedback. We've enhanced it. And I think in short order, we're going to have something that could be quite more widely deployed, let's say. So we're not putting all our eggs in one basket, but We're putting our eggs in a few baskets that we think hold process or hold, not process, but, you know, are promising. I do think that the Amazon Web Services is one of those, if we do it right, easy to scale kinds of opportunities that are not, you know, chunking away one by one by one. like we've had to do with some of our other products. And, you know, once we get the AWS thing done, we'll look at other digital marketplaces like that that, again, have the potential to be, you know, bigger growth capabilities. The, you know, Microsoft ecosystem is another example that like AWS could be a, pretty big growth engine for us. So we'll get to those over the course of the year. And hopefully some combination of those are the things that, you know, propel us in the direction that you and we want us to go.

Okay. And I'm pushing more, which, but you would expect, and it's not a forecast, but maybe it's a goal. that we should see a very significant acceleration in the sequential 6% growth rate over the next couple of quarters, hopefully.

Yeah, I mean, first comes bookings, then comes revenue. So, you know, we'll see it in terms of booking first and revenue recognition second. But I'm hopeful that, you know, in this second half of the year, we see significant increases in both.

Okay. Well, it would be nice to see some – again, you're making good progress. The balance is a great success. Now we've just got to grow the business, or you've got to grow it, and I can sit and watch you. Okay. Thanks, Tony.

Amen. Thanks, Walter.

Yep. Thank you. Once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Your next question is coming from Aaron Warwick from Breakout Investors. Your line is live.

Hey, Tony and Kim. I hope you're doing well. I wanted to ask about the Port Nexus partnership and what do you see with that in terms of revenue potential? Is that something that could reach an annual run rate of six figures or what are we looking at there?

I think it's too early to tell. I mean, I think both of our companies have ambitious expectations for that. You know, the good news is Port Nexus has experienced, um, deploying their solution in a bunch of schools and other public institutions already. And, uh, now with the addition of intrusion endpoint, uh, protection, uh, there's an opportunity to expand both to their existing customers, but, uh, also any new customers that they bring online, um, And then the driver distraction product, I think, also has a lot of promise. So while the unit economics are pretty small in terms of revenue, when you're talking about the number of potential deployments, it adds up pretty quickly. So I don't want to make a projection at this particular point, but... we're pretty excited about both their capability and, um, you know, the potential for both of us as, as we, uh, as we go forward and they've been a great partner to work with.

And when would you expect, uh, deployment there and, and, and starting to earn revenue on it? Is that something that will happen yet this year and back half of the year?

Oh yeah. Yeah. No, we'll see. Yeah. We'll see it in Q2 and, and probably, uh, and beyond, but we'll have our first revenue, uh, towards the end of Q2, most likely.

Great. In terms of the pipeline, of course, I appreciate that you don't want to put all your eggs in one basket. But at the same time, I'm just wondering, do you have anything in the pipeline of the magnitude that would put you towards a break-even point or put you towards that 50% Q over Q type of growth that Walter had mentioned?

I think if you look at both the existing work that we do, government consulting and so on, the new products, and then growth on existing products, I think the potential is there. I wouldn't say we're there yet from a pipeline perspective because we're really looking at Right now, the rest of Q2 and early Q3 in terms of solid pipeline, but I think the potential is there.

Excellent. Thank you. Appreciate your time.

Thank you. That concludes our Q&A session. I'll now hand the conference back to Tony Scott, President and CEO, for closing remarks. Please go ahead.

All right. Well, thanks, everybody. I appreciate the time you spend with us and the questions. As I've said before, I'm really pleased with the progress our teams have been made, or have progress our teams are making. Our engineering team is excited and motivated and continues to deliver exciting capabilities for our products. As I mentioned in our prepared remarks, we're doing a lot of work on our go-to-market processes and And as we mentioned, pricing and messaging and we're upping our social media game and so on. And I'm pleased with the progress we're making on all those frauds. And then, you know, hopefully it all pays off. We're keeping our fingers crossed. But it feels to me like we're at this inflection point that I mentioned and I'm pretty excited about what the next couple of quarters can bring. So I appreciate everybody going on the ride with us. I think it's going to be a fun next half of the year and the next couple of quarters. So I appreciate all the support, and I'll look forward to talking to you shortly. Thanks so much.

Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.