Sidechannel Inc

Good afternoon, and welcome to the Side Channel Fiscal Year 2026 Q1 Financial Results Update. At this time, all participants are in a listen-only mode. We will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, CEO of Side Channel, Brian Hoagley. Brian, the floor is yours.

Thank you. Good afternoon, everyone, and thank you for joining us. This quarter continues our transition from a labor-driven cybersecurity services company into a scalable security platform company built around repeatable programs, recurring revenue, and our proprietary technology. Our mission remains clear. We make enterprise-grade cybersecurity operational for organizations that cannot hire or retain a full security leadership team, and we do that through three integrated capabilities. One, our proprietary technology, Enclave. Two, VC, so leadership. And three, compliance and risk management programs. Our strategy is simple. Move customers from consulting engagements into operational security platforms. I want to touch high level. There's some financial results, and then we'll go to Ryan for some more details. Revenues declined modestly year over year, but gross margins improved, and that's intentional. We're prioritizing higher value repeatable engagements and technology-enabled programs over staff augmentation style consulting. In the short term, that reduces top line services revenue, but it strengthens long-term economics and customer retention. We are deliberately trading short-term revenue for durable revenue. With that, I want to go over to Ryan Polk, our CFO, for his comments. Ryan? Sorry, folks, we're having a little bit of technical difficulties at the beginning. Thank you, Brian. Oh, there he is. Thank you, Brian.

Thanks, Brian. Yeah, yeah, no problems. Thank you. Yeah, I just want to remind everyone on the call that our fiscal year ends in September. So we are currently in what we call fiscal year 2026, which ends September 30, 2026. So we just completed our first quarter on December 31, 2025. And in that quarter, as Brian mentioned, Revenue modestly down about 7% from the prior year Q1 numbers. Revenue just under $1.8 million for December 31, 2025. And gross margin 540 basis points higher for that quarter, reflecting the shift in our revenue mix, as Brian mentioned earlier. Operating expenses have increased for reflecting some investments that we have made primarily in marketing and in selling activities, most recently with the investment in a chief marketing officer position, which is staffed by Jamie Wolfe. Our loss increased as a result of the declining revenue combined with the increasing expenses. And we announced today that we will be initiating a $930,000 annual reduction in operating expenses, reflecting the shift in our strategy. to invest in the proprietary product marketing of Enclave and to transition away from some legacy areas of spending. So that $930,000 annual reduction in operating expenses, we believe, will be part of our profitability improvement, cash flow improvement program over the rest of this fiscal year. Brian, that concludes my prepared comments.