Sidechannel Inc

Greetings. Welcome to the Side Channel Fiscal Year 2025 Q1 Financial Results Update Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Brian Hoagley, Chief Executive Officer. You may begin.

Thank you, and good afternoon, everyone. It's Brian Hoag-Williams, CEO of SideChannel. So I just want to cover quickly kind of our view of how Q1 went. We won't rehash everything that's in the queue, but you will undoubtedly have some questions about it so we can answer those in a bit. I'm joined by our CFO, Ryan Polk. He'll touch some highlights on the financials Really, Q1 for us, obviously, it's an off-calendar quarter than our fiscal quarter, so we're looking at October, November, and December. From a services standpoint, as we've talked about previously, there's a bit of seasonality. There's also some differences in how people kind of treat the end of the year. The U.S. government, a lot of governments start on October 1, so that's, you know, we align with them, but a lot of other companies are ending their year and they start Jan 1, so it's good and bad. Some companies are looking to cut costs in that last quarter and they're not spending and they're waiting until Jan 1 when they get a new budget cycle to start, but we also see, you know, kind of last-minute spends pop up, especially right after Thanksgiving. Companies start saying, hey, we've got some extra budget. We've got to spend it this year. So we're definitely seeing all of that. It's just the natural way that the business goes, especially with services and software purchases. Overall, I think we started off 2025 very well. I'm excited us being already into February and what we're working on. in Q2, but it's kind of just looking at Q1. I want to touch on three major aspects and focus areas for the company. We've debuted this to the board, socialized this, instilled this internally in the company, and it's really our go-forward business strategy. I'll just hit some high points. A version of what I'm going to say will obviously be in a transcript from here, but we'll also have one that goes out in our monthly IR newsletter. If you don't receive that, shame on you. If you're on this call and you're not receiving our IR newsletter, go to our investor page and sign up there, and you will get added to that list, and we send that out monthly. Ryan and I work on that personally, and then through a couple other people doing some QA, then push that out for everyone. Really just trying to highlight some of the things that are happening from my desk, Ryan's desk, the company as a whole. We like to just try to keep the investors informed. So you'll see a version of what I'm about to say make its way into an upcoming monthly newsletter. We really have three areas for where our growth is going to sit on a go forward. We've aligned on this, we've agreed on it, and now the company is looking at resource planning to support hitting these three strategic objectives. And they are in order. Growing our proprietary software revenue with Enclave. Two, increasing our VC service engagements. And three, expanding program adoption at current clients. I'll briefly touch on the first one. Why do we want to obviously push the needle and everything with Enclave? It's reoccurring revenue for stability. It's a scalable product across markets. It allows us to penetrate larger markets in space, including mid-sized businesses and emerging industries, without a proportional increase in operational costs. If you've been following our story, you know that we're very keen on keeping operational costs under control and managed. Selling software has got a higher margin for sustainable growth. Proprietary software offers significantly higher profit margins compared to services. enabling us to reinvest in R&D, other strategic initiatives, while enhancing our overall profitability. These are all really good things to have as a software company, as a services company with access to software, especially if it's our own intellectual property. The product has been making some really great rounds. As you can see from announcements, we've added some additional salespeople, a new focus on Asia Pacific, the Middle East, and even looking at Latin America. So you're going to see our spend now really kind of focus on the next 12 months on growing the sales and marketing team, looking at new markets, looking at new sectors, and really focusing, again, on our number one business priority and objective, growing our proprietary software revenue through Enclave. Our second and third points are, you know, our business to date. And we're not you know, releasing ourselves from anything on what's going on with services. We love our services. Our clients love our services. You can see that it's growing. But again, we really want to focus our spend and any types of expenses or costs around the Enclave product. But what we are able to do with the vCISO engagements and increasing those, you'll see the sales team, you'll see the marketing initiatives, again, still support what we're doing from a services side. And that's really kind of going downstream too. It's not just this top-level VC. So we've really been able to do some phenomenal work through broadening our engineering services and capability, our new cloud security and architecture practice, as well as just kind of all-around advisory, risk assessments, strategic assessments at clients, which are great wedges and entry points for us to start working with new logos. Why is increasing VC engagement important for us? Well, we're meeting a market demand for fractional leadership. With the increasing cybersecurity threats and limited budgets, we're seeing this on our clients. Organizations are seeking cost-effective leadership solutions like our VC, and making this a high-growth market segment. We're seeing it take off. In other industries, we are seeing an increase in competition, although we still believe that we do stand alone on quality because We believe experience matters, and that's how we lead. We're strengthening long-term client relationships. VC's on engagements build trust and position side channel as a critical strategic partner, often leading to other additional services or product adoption, such as Enclave. So when you're in the position as a VC without a client, you're able to then say, hey, listen, this is what your program should look like. By the way, I've got a catalog of solutions I know works. This should work for you. And clients are looking to adopt that. Number two here really supports our number one objective, growing proprietary software revenue. By having our services in engagements at clients, we're in a much better position to be able to place Onclave in as the solution to address vulnerabilities, risks, gaps, whatever. We also have the ability And the focus number three, to expand our program adoption. What are we doing at our current clients? How can we broaden our client penetration? Expanding program adoption integrates multiple touchpoints within a client cybersecurity framework. It creates deeper relationships and it increases overall client value. We have the ability to cross-sell opportunities. We have a comprehensive approach to program adoption. Unlock opportunities to introduce complementary products and services. Boost total revenue per client. Again, supporting initiatives one and two. We're in a client, they trust us, we're doing the right thing, we have solutions like Enclave that we can then position for them to benefit from. And lastly, our ultimate goal for clients is driving their overall maturity and retaining them. So by helping clients implement structured and scalable cybersecurity programs, we can address their immediate needs and create pathways for longer-term retention as their cybersecurity partner. Again, this all leads back to the growth of our brand the revenue, and the value to shareholders. So I just wanted to kind of highlight really what we're looking at from a strategic standpoint for side channel going forward. And you're going to see everything we're doing is aligning to these three. In fact, internally, if kind of the cadence now is you need to kind of think about If you're working on something, is it supporting and how is it supporting one of these three initiatives? And if it's not, we really need to have a good reason as to why we're working on it. So this is where we centered the team. I'll speak on behalf of the board, on my executive leadership team, our ELP, and anyone else who we've talked about this with. We even did this all company-wide previous week, one of our all staffs. There's an excitement and understanding around this. It makes sense. It aligns everyone. It gives us a really nice go forward. It's clear, and we believe that this is going to be of substantial benefit for SideChannel's growth. So with that, I'll turn it over to Ryan. We'll go to Q&A, and then I'll come back to close this out.

Thank you, Brian, appreciate that. Before we get into the comments around the first quarter, I want to remind anyone on the call who has not yet participated in our annual meeting that voting is still open for our annual meeting, which is held next Wednesday, February 12th at 9 a.m. Eastern Time. So please reach out to me if you need some help accessing our voting site. and I will assist you in casting your ballot in our annual meeting. It's been kind of a same-story type quarter for us. Revenue growth just under 10% this quarter on a year-over-year basis. Cash increase, I think our fourth consecutive quarter, I should say. Fourth consecutive quarter of cash increase, cash provided by operations. We end the quarter with 1.4 million dollars of cash and cash equivalents and short-term investments of our short-term investments uh as noted in the uh in the q our time deposits another way of saying certificates of deposit we are putting our cash into some interest-bearing accounts like certificates of deposit to generate a little bit of interest income and so that's um That's really the nature of our short-term investments. We're not doing anything with mutual funds or other forms of securities. And so looking ahead, we've been saying that the cash line is – there's plenty of things in place that would likely allow us to increase our cash from operations. Brian just mentioned three things in our strategy and some plans that are being developed to support that strategy that are likely to use some of that cash provided by operations. So we don't give guidance on any of our financial measures. And I think if you've seen us grow cash for the last four quarters, just keep in mind we are going to be making some investments using that cash to do things that we think get the word out about our products and services to more people with the intent of having that generate revenue increases in in future quarters. So those conclude our summary comments on the financial statements for this quarter. John, we'll take questions now from the phone line.